Study On Corporate Governance Structure Of Village Banks

Since the first village bank was established in Yilong County,Sichuan Province in 2007,village banks have flourished in various regions.While the economy continues to grow,village banks are also ushering in new opportunities.By the end of 2021,1,643 village banks had been established in China,with an asset size of RMB 1.94 trillion,making important contributions to improving the reform of the rural financial system and effectively solving the financial constraints on agriculture,rural areas and farmers.But in recent years,the corporate governance problems of some village banks are gradually emerging.in April 2022,four village banks in Henan Province experienced "difficulty in withdrawing money",which once led to depositors’ concerns about the liquidity of village banks.After the local CBIRC and public security investigation,it was found that the beneficial owner,New Fortune Group,used equity infiltration,equity holding and equity pledging to continuously "empty" the assets of the village banks,ultimately causing the "difficulty in withdrawing money" incident.The internal governance of village banks in this incident,such as "emptying by major shareholders" and "insider control",coupled with the "regulatory failure" of external regulators,show that there are defects in the corporate governance structure of some village and town banks.Therefore,this paper attempts to analyse the current problems of corporate governance of village banks and make corresponding recommendations based on the perspective of corporate governance through a case study of the Henan village bank incident.Based on the principal-agent theory,information asymmetry theory,stakeholder theory and tunneling theory,this paper provides an in-depth analysis of the village bank incident from a multi-faceted perspective of corporate governance.Firstly,we look at the internal governance structure.Firstly,the main sponsor bank system of village banks failed,and the main sponsor bank,Xuchang Agricultural and Commercial Bank,had loopholes in its own management and failed to perform its supervisory and management duties as a main sponsor bank,which eventually led to several village banks becoming tools for the major shareholders behind them to absorb money.Secondly,the shareholding structure of several village banks,including Yuzhou New Minsheng,was relatively fragmented,and most of the top ten shareholders were associated with the New Fortune Group,which was also found in the shareholding structure of the main sponsor bank,Xuchang Agricultural and Commercial Bank.After becoming the majority shareholder,it used its absolute control to "hollow out" several village banks.Thirdly,the boards of directors and supervisors of the village banks failed to function.Some of the members of the boards of directors and supervisors of the village banks in the case also worked as executives in companies owned by the New Fortune Group,thus creating a dual identity that made the members of the boards of directors and supervisors prone to "cover up" when weighing their interests.The external governance mechanism is then analysed.Firstly,the policy and system for village banks is not yet perfect,for example,the conditions for the establishment of village banks are easier to meet for unscrupulous businessmen,as is the case with the New Fortune Group in this case.Secondly,the development of the regional economy has a certain impact on the operation of village banks,with the non-performing loan rate in Henan Province rising in recent years,and the external financial market operating environment needs to be improved.Thirdly,some government regulators were willing to be preyed upon by unscrupulous businessmen and turned a blind eye to the risks of several village banks in this case,eventually becoming the "umbrella" for unscrupulous elements.In summary,this paper presents a comprehensive analysis of the Henan village bank incident in terms of internal and external mechanisms of corporate governance,on the basis of which,corresponding recommendations on corporate governance of village banks are put forward: at the level of regulators,firstly,continue to improve the relevant laws and regulations of village banks and strictly regulate the corporate governance of village banks.Second,strengthen the regulation of information disclosure of village banks.The existence of information asymmetry is likely to breed illegal and criminal acts,and a transparent information environment is conducive to the development of village banks.A fair and impartial regulatory system is a prerequisite for the sustainable and sound operation of village banks,so it is particularly important to eliminate corrupt practices in the regulatory system.At the level of village banks,firstly,the responsibility of the main sponsor should be consolidated,and the responsibility of the main sponsor bank for the risk disposal of village banks should be consolidated,so as to enhance the enthusiasm of the main sponsor bank to perform its duties and responsibilities.Secondly,the reform of the shareholding structure of village banks should be deepened and an early warning mechanism for shareholding should be established to prevent unscrupulous businessmen from infiltrating the shareholding of village banks.Thirdly,the quality and effectiveness of the performance of the Board of Directors and Supervisors should be improved by establishing a sound performance assessment index system and imposing certain constraints on the performance of their duties.