BANK OF GUIZHOU (6199.HK) has taken another step in reforming its rural banking subsidiaries, marking a new phase in its strategy.

On August 4, a series of announcements from the National Financial Regulatory Administration revealed that the dissolution of Panzhou Wanhe Rural Bank has been approved. Correspondingly, three new branches of BANK OF GUIZHOU have been authorized to open: Panzhou Yizi Branch, Panzhou Shengjing Branch, and Panzhou Panbei Branch. With the regulatory approval in place, BANK OF GUIZHOU has officially completed the reform of Panzhou Wanhe Rural Bank (hereafter "Panzhou Wanhe"). This rural bank has been dissolved, and its outlets have been converted into three branches of BANK OF GUIZHOU, adding a new chapter to the reform and risk mitigation of small and medium-sized banks.

Meanwhile, BANK OF GUIZHOU's assumption of deposits from Panzhou Wanhe is proceeding vigorously. According to the BANK OF GUIZHOU website, effective August 4, all deposits of Panzhou Wanhe have been taken over by BANK OF GUIZHOU, which will fulfill payment obligations and safeguard depositors' legal rights. Additionally, corporate clients of the former Panzhou Wanhe must visit the corresponding BANK OF GUIZHOU branches (Panzhou Shengjing, Panzhou Panbei, Panzhou Yizi) based on their original account locations.

It is crucial to note that this is not a traditional "rural bank to branch" reform. BANK OF GUIZHOU did not acquire Panzhou Wanhe's equity or consolidate it into its financial statements. Instead, it adopted a trust model to achieve deposit assumption and risk isolation. In June, BANK OF GUIZHOU clearly stated that Panzhou Wanhe would entrust all its cash and asset income rights to establish a trust. The bank would then accept the claims formed from assuming Panzhou Wanhe's deposits and receive trust beneficiary rights in accordance with this plan, serving as consideration for the deposit assumption (the "trust model"). This outcome represents a shift in BANK OF GUIZHOU's reform approach for Panzhou Wanhe—from the traditional model of "acquiring equity, absorbing mergers, and consolidating" to an innovative model of "not acquiring equity, swapping claims with trusts, and not consolidating."

Notably, in the agenda for BANK OF GUIZHOU's extraordinary general meeting at the end of 2025, the original proposal was "to review and approve the acquisition of Panzhou Wanhe Rural Bank and the establishment of branches" (i.e., the traditional rural bank-to-branch plan). This change likely reflects the complexity of the Panzhou Wanhe case. Equity factors likely played a significant role. From Panzhou Wanhe's ownership structure, BANK OF GUIZHOU holds only a 20% stake, with the remaining 80% held by 12 corporate shareholders and 9 individual investors. Negotiating with these other shareholders under the original "rural bank to branch" plan would have been a major undertaking. Furthermore, from an operational perspective, the pressure of consolidation was clear. Adopting the asset-light trust model seemed a better choice. According to the latest available financial data for Panzhou Wanhe (updated only to 2024), it was barely profitable. Total operating revenue was 104 million yuan, with a net profit of just 2.2004 million yuan, yielding a net profit margin of only 2%, far below BANK OF GUIZHOU's performance (around 30%). In terms of asset quality, Panzhou Wanhe's non-performing loan ratio was 2.41%, while BANK OF GUIZHOU's has consistently remained below 2%.

Following a "one bank, one policy" approach, BANK OF GUIZHOU has adopted a dual-track model. The success of a previous case provided a crucial reference for the Panzhou Wanhe plan. In using trust tools to reform the sector, the reform of Longli Guofeng Rural Bank (hereafter "Longli Guofeng"), led by BANK OF GUIZHOU, is considered a pioneering industry example. Under this plan, BANK OF GUIZHOU assumed all deposits and interest of 1.913 billion yuan from Longli Guofeng. Longli Guofeng then entrusted its asset income rights to establish a trust plan. BANK OF GUIZHOU received corresponding trust beneficiary rights as consideration for the assumed deposits. In January, Longli Guofeng was approved for dissolution, with its deposits taken over by BANK OF GUIZHOU and its customers directed to BANK OF GUIZHOU branches. As of the end of 2024, BANK OF GUIZHOU held stakes in over a dozen rural banks across areas like Guiyang, Zunyi, Liupanshui, Anshun, Qiannan, and Qiandongnan. Subsequently, guided by the regulatory directive to "steadily and orderly promote the reform and restructuring of rural banks," the bank has gradually advanced its integration of these rural banks, adhering to the "one bank, one policy" principle.

Currently, BANK OF GUIZHOU has implemented two practical reform plans. Besides the trust-based model (used for Longli Guofeng and Panzhou Wanhe), the traditional rural bank-to-branch plan is also underway. The absorption and merger of Tongren Fengyuan Rural Bank (hereafter "Tongren Fengyuan") into a branch is a typical example of the latter. At the end of 2024, BANK OF GUIZHOU announced it would acquire an 80% stake from the nine state-owned shareholders of Tongren Fengyuan. Given the latter's financial condition (high debt-to-asset ratio, near 5% NPL ratio), the transaction was completed at zero consideration. This acquisition is now complete, with BANK OF GUIZHOU taking over all of Tongren Fengyuan's assets, liabilities, and business, and establishing four branches (Tongren Fengyuan Branch, Tongren Jinlin Branch, Tongren Lanbowan Branch, and Tongren Taoyuan Branch).

It is worth noting that among the three rural banks slated for "rural bank to branch" reform at the end of 2025's extraordinary general meeting, besides the Panzhou Wanhe plan which has changed, for Kaili Dongnan Rural Bank and Baiyun Dexin Rural Bank, BANK OF GUIZHOU is still maintaining the method of absorption and merger into branches, with no new changes seen. Overall, through both the traditional rural bank-to-branch model and the trust tool intervention, BANK OF GUIZHOU has completed the reform of three rural banks: Tongren Fengyuan, Longli Guofeng, and Panzhou Wanhe. The reforms for Kaili Dongnan and Baiyun Dexin are still in progress. This series of actions has not only resolved the risk burden of rural banks for BANK OF GUIZHOU itself but also provides a highly valuable "Guizhou Solution" for rural banks exiting the market.