By Xiang Hui, Research Institute of Enterprises, DRC

Research Report, No.336, 2021 (Total 6401) 2021-11-12

Abstract: In recent years, risk events loomed up frequently in small and medium-sized banks in China, exerting relatively great negative impact on the market. Through an analysis on four serious risk events respectively in Baoshang Bank, Heng Feng Bank, Bank of Jin Zhou and Chengdu Rural Commercial Bank, it could be found that the risk source lies in the medium-to-long term corporate governance. This issue is mainly a result of manipulation by major shareholders and control of insiders. To be specific, the failure in corporate governance of these banks is mainly due to the fact that the risk-returns and incentives mechanism are asymmetric, the equity management is not in place, there is a lack of check and balance between the stockholders’ meeting, the board of directors, the supervisory board and the top management, as well as the missing of state-owned shareholders. It is necessary to further optimize the equity structure of small and medium-sized banks, refine the across-the-board supervision on stockholders; advance the function building of the board of directors and the supervisory board; improve the local financial management of state assets to  ensure the fulfillment of the rights and responsibilities of state shareholders; consolidate the organic supervisory over both business of these banks and corporate governance; enhance the quality of information disclosure towards the public, supervisory departments and banks, so as to create a favorable internal and external governance environment.

Keywords: risks facing small and medium-sized banks, corporate governance, policy options