China is moving to improve its model for managing investment in village and township banks, with the aim of enhancing these banks’ ability to operate sustainably, protect against risks and support agro-related businesses and small companies.

The China Banking Regulatory Commission launched a pilot program on Jan 12, allowing qualified commercial banks to set up village banks, or to choose an existing one and serve as its investment manager.

Before the regulator launched this pilot program, the main founder of a village bank used to either designate an internal department, set up a specialized department, or entrust a branch to lead the management of the bank.

It was not easy to manage village banks under such models, as cross-department coordination difficulties led to high management costs. The deficiencies of these models also caused the banks to lag behind in terms of information technologies, and middle and back-office services, said Ma Xiaoguang, deputy director of the CBRC’s rural financial institutions supervision department.

“Now, the regulator has given the green light for qualified commercial banks to become investment managers of village banks, hoping that the commercial lenders will centralize the equity management, operational support, IT support, and middle and back-office services for the village banks they have invested in. The centralization will in turn increase village banks’ capacity for sustainable operation, as well as the ability to protect against risks,” Ma said at a news conference on Jan 12.

Under the new investment management approach, a commercial bank is expected to build a standardized service system to help the village bank it has invested in to reduce operational costs, she added.