Bloomberg:

Risk prevention and stringent regulation are important tasks for the NFRA in promoting the high-quality development of the financial industry. What progress has been made in the reform and risk mitigation efforts for small and medium-sized financial institutions? Will the consolidation of regional banks be accelerated in the future? Thank you.

Xiao Yuanqi:

This issue is very important, and many people are concerned about it. I will answer your question. Small and medium-sized banks and insurance institutions are a crucial part of China's financial system. As of the end of June, there were 3,830 small and medium-sized banks nationwide — including city commercial banks, rural commercial banks, rural credit cooperatives and village banks — with aggregate assets reaching 115 trillion yuan, accounting for 28% of the total of the banking industry. Their loan balance is 62 trillion yuan, with nearly 80% directed toward small and micro enterprises and the sectors of agriculture, rural areas and rural people. There are 163 small and medium-sized insurance companies, with aggregate assets of 9.7 trillion yuan, accounting for 30% of the total of the insurance industry. Overall, small and medium-sized financial institutions are operating steadily nationwide, and both their operating and regulatory indicators remain within healthy and reasonable ranges. For example, small and medium-sized banks have a capital adequacy ratio of 13% and a provision coverage ratio of 155%. The solvency of insurance companies, whether in terms of comprehensive solvency or core solvency, remains above regulatory thresholds. This is the basic situation.

Regarding the reform and risk mitigation you mentioned, and whether the consolidation of regional banks will be accelerated, our overall considerations and strong regulatory approach for the reform of small and medium-sized financial institutions include the following aspects:

In terms of reform, we adhere to the principle of seeking practical and steady progress, avoiding a one-size-fits-all approach. China is very large, and small and medium-sized financial institutions are distributed across various regions, from large cities to medium and small cities, counties, towns and villages. Each institution serves a different area, and each has its own unique circumstances. Therefore, we maintain the principle of adopting tailored policies for each province, each bank and each company.

In terms of regulation, our first priority is to strengthen corporate governance. We must reinforce the Party's leadership and convert the institutional advantages of Party leadership into governance effectiveness for these institutions. It is essential to establish and improve systems and procedures for major decision-making to ensure standardized operations. Additionally, we must enhance information disclosure and leverage market discipline and external supervision. This is the first point: strengthening corporate governance. The second point is enhancing the supervision of conduct, focusing on the behavior of major shareholders and strictly preventing large shareholders from manipulating or overriding small and medium-sized financial institutions. Regardless of whether they are large or small shareholders, we support financial institutions in making decisions according to corporate governance procedures and policies. The stable operation of small and medium-sized financial institutions is the most responsible approach toward shareholders, as it ensures that the value of shareholders and stakeholders is realized. We must also strengthen supervision of the behavior of directors, senior management and key personnel, primarily to ensure they diligently perform their duties, to assess their competence and to evaluate their performance outcomes. The third point is that small and medium-sized financial institutions should accurately identify their market positioning. The general principle is to pursue differentiated and specialized development. Differentiation is about avoiding complete homogeneity, while specialization refers to leveraging strengths to form core competitiveness. The fourth point is focusing on core responsibilities and businesses without blindly pursuing size and scale. Small and medium-sized financial institutions should pursue progress while ensuring stability, and avoiding overextending their capabilities and resources by chasing overly rapid growth, excessive scale or overly complex businesses. They should prioritize serving small and micro enterprises, supporting agriculture, rural areas and rural people, advancing rural revitalization, and serving communities and local areas. These are their strengths. By fully leveraging these advantages, small and medium-sized financial institutions have very broad prospects.

Of course, we also need to optimize the regional financial layout. This primarily involves optimizing the financial layout based on factors such as the scale of regional economic development, the total amount of finance, development trends and changes in financial demand. Regarding your question about whether the financial institutions in these regions will accelerate restructuring and layout, the optimization of regional financial layout is an ongoing process, and there is no issue of speed. The main consideration is to optimize the layout based on the total size of the local economy and finance, development trends and financial demand. The fundamental goal is to ensure that financial supply and services can meet the multi-level and diverse financial needs of market entities and financial consumers. Thank you.