Fill in the gaps in agency products, with multiple small and medium-sized banks breaking the ice in agency business

Ask AI · How Does the Narrowing of the Net Interest Margin Break the Ice for Small and Mid-Sized Banks’ Distribution Business?

In this newspaper (chinatimes.net.cn), reporter Lu Mengxue, Beijing

The narrowing of net interest margins is forcing small and mid-sized banks to look for new ways forward.

For a long time, due to constraints such as resource investment, talent reserves, and regulatory rating factors, there have been clear gaps in small and mid-sized banks’ distribution business landscape. But over the past few months, reporters have noticed that several small and mid-sized banks have achieved a “breakthrough” in their distribution business: agenting precious metals, insurance, wealth management products, trust products, and more have been rolled out in succession, and small and mid-sized banks are accelerating their transition from traditional deposit-and-loan institutions into comprehensive wealth management platforms.

Relevant analysts point out that compared with national banks, small and mid-sized banks have geographic and relationship-based advantages, and in-person recommendations are often more convincing than online ads. However, it should be seen that the essence of how small and mid-sized banks develop distribution business is not competing with national banks for high-end customers, but instead cultivating the local market, meeting customers’ diversified investment and wealth management needs, and building an image of “professional and trustworthy” wealth management services.

Multiple Points of Launch for Distribution Business at Small and Mid-Sized Banks

Entering 2026, the rollout pace of distribution business at small and mid-sized banks has noticeably accelerated.

Recently, Guizhou Fenggang Rural Commercial Bank announced that it has officially started its agency insurance business. The bank said that on the day the business started, it handled its first deal—“Riding Bike Insurance,” a non-motor vehicle liability insurance policy—achieving a shift from “zero to one,” expanding the bank’s new “middle” financial service offerings, and further improving service levels for “agriculture, rural areas, and farmers.”

At the same time, Jiangyin Rural Commercial Bank has also successfully launched its first agency trust product. The product is issued by Huaxin Trust, focusing on asset allocation needs of high-net-worth customers, and aims to provide long-term wealth appreciation solutions. In its response to questions from institutional investors, Jiangyin Bank clearly stated that its 2026 strategic layout will use intermediary-business income as the core engine for growth, focus efforts on wealth management business, enrich its product matrix, and strengthen online-offline coordination.

Stepping the timeline back to earlier, many small and mid-sized banks’ “breakthrough” journeys in distribution business had already been quietly underway.

In January this year, Huaining Rural Commercial Bank’s agency auto insurance business was formally launched; in December 2025, Guangrao Rural Commercial Bank completed the first rollout of its agency insurance business; in August, Nanxiong Rural Commercial Bank held a special meeting to announce that it would formally carry out its branded gold agency business.

Liao Heikai, an analyst at Jinle Function, told reporters from The Huaxia Times that for small and mid-sized banks, in a context where they are squeezed in the payments space by industry giants and where the threshold for custody business is relatively high, agency financial products are currently the most promising and operational growth point. By doing so, banks can directly convert their channels and customer resources into fee-generating services. Against the backdrop of narrowing interest spreads between deposits and loans, at the current stage, agency distribution business is one of the most important levers for small and mid-sized banks to achieve business transformation.

In addition, regulatory control and standardization over small and mid-sized banks’ self-operated wealth management business is also one of the influencing factors. Liao Heikai said that currently, the approval process for bank wealth management subsidiary licenses has been stalled for a long time, and the threshold is high. Agency distribution has become the only compliant and sustainable way for these banks to continue participating in the wealth management market and retain customers.

“Meanwhile, with the introduction of the ‘Administrative Measures for the Agency Distribution of Commercial Banks’ business,’ small and mid-sized banks now have a clear ‘operations manual’ and solid policy foundation for carrying out distribution business in a standardized, orderly manner. This marks a new stage in the standardized development of distribution business,” Liao Heikai believes. System and regulatory standardization increases small and mid-sized banks’ willingness to develop distribution business. Leveraging their advantages in local channels, small and mid-sized banks have become important partners for licensed financial institutions to take product distribution deeper into the market.

The latest publication by the Yindan Center, the “Annual Report on China’s Banking Wealth Management Market (2025),” provides macro-level confirmation of this trend. Data shows that in December 2025, across the entire market, 593 institutions conducted cross-institution agency distribution of wealth management products issued by wealth management companies, an increase of 31 institutions compared with the beginning of 2025. Among these 31 newly added institutions, the vast majority came from rural financial institutions and city commercial banks.

But reporters have noticed that the development of distribution business among small and mid-sized banks is uneven. Looking only at rural financial institutions, for some banks that have just achieved a “zero to one” breakthrough in distribution business, there are already other banks that have established specialized wealth management departments, bringing wealth management business into professional development.

Among listed banks, Shanghai Rural Commercial Bank established its wealth management and private banking department as early as 2023; Chongqing Rural Commercial Bank has also set up a wealth management department. Among unlisted banks, Cixi Rural Commercial Bank in Zhejiang established its wealth management department at the end of 2022; Nanhai Rural Commercial Bank in Guangdong formally unveiled and established its wealth management department along with a branch wealth center in February of this year.

More banks have also expressed increased attention to wealth management business. Qingnong Rural Commercial Bank, in an interview during a research visit, said it will focus on building a wealth management system in 2026, promote the implementation of the organizational structure for wealth management, set up a wealth management team, and form a high-end client operation system with coordinated efforts across three levels—head office, branches, and sub-branches. Zhangjiakou Rural Commercial Bank also clearly stated in an internal meeting that based on already operating its agency insurance and precious metals businesses, it will further implement the arrangements and deployments from the provincial credit union to carry out the agency wealth management business, accelerating the formation of an agency product system of “deposit substitution + wealth appreciation.”

Narrowing of the Net Interest Margin Forces a Search for New Ways Forward

A report from CITIC Financial Holdings shows that as of the end of June 2025, China’s total investable assets held by residents had exceeded 300 trillion yuan. In the same period, the domestic total scale of asset management was about 170 trillion yuan. The roughly 130 trillion yuan of “dormant” assets implies enormous growth potential for future wealth management demand.

At present, bank wealth management business is mostly based on distribution—covering wealth management products, insurance, funds, and so on—and the fee income brought by distribution has become a main source of income for wealth management business.

With bank net interest margins continuing to narrow and retail transformation entering deep waters, large banks, leveraging their branch network advantages, technological strength, and brand effects, have already built moats in the distribution business arena. For regional small and mid-sized banks constrained by limited resource investment, talent reserves, and regulatory ratings, how to accurately position themselves and build differentiated competitiveness is the key to determining the success or failure of their wealth management transformation.

Dong Shimiao, chief researcher at China Universal Leasing and Finance (CMB?), analyzed for reporters from The Huaxia Times that compared with national banks, small and mid-sized banks (especially rural financial institutions) often have institution outlets that go deeper into counties and villages, and maintain long-term trust relationships with customers based on geography and relationships. This “acquaintance finance” ecosystem means customers are more dependent on banks, providing a natural trust foundation for transforming distribution business. For customer groups with conservative risk preferences, employees’ “face-to-face recommendations” are often more persuasive than online ads. Compared with national banks, small and mid-sized banks have a relatively flatter organizational structure, allowing them to respond faster when introducing distribution products, formulating marketing strategies, and rolling out incentive policies. This flexibility enables them to quickly set up cooperation with suitable asset management institutions (such as wealth management, funds, and insurance) and launch more targeted and personalized product combinations tailored to local market needs.

But it should also be noted that Dong Shimiao emphasized that the core of distribution business lies in product selection and allocation. Most small and mid-sized banks lack professional investment research and analysis teams, making it difficult to conduct professional, in-depth evaluation and selection of distribution products. This could lead to serious homogenization of the distribution product “shelf,” with many offerings concentrated in low-risk wealth management and insurance products, making it hard to effectively meet customers’ diversified needs. If high-risk products are introduced blindly, it may trigger “explosion” events that damage customers’ trust and the banks’ reputation. Therefore, to develop distribution business, banks need a team of wealth management managers and product managers who understand products, the market, and customers. However, small and mid-sized banks generally face problems such as a shortage of core talent, insufficient professional training, and misaligned incentive mechanisms. Many institutions’ branch outlets still rely on “task-based selling,” which may involve hidden risks such as misleading sales and mismatched risk exposure, making it hard to establish a truly effective wealth management service system.

Reporters have noticed that this round of expansion in distribution business by small and mid-sized banks shows the characteristics of “group operations.” Represented by multiple banks such as Zhangjiakou Rural Commercial Bank, behind the advancement of their business are unified deployments and resource support from the provincial credit union. The provincial credit union coordinates overall efforts in system construction, product access, risk control, and other areas, providing important support for grassroots rural commercial banks to carry out distribution business. To a certain extent, this “provincial credit union sets the stage and rural commercial banks perform” model helps alleviate small and mid-sized banks’ weaknesses in areas such as technology investment and talent reserves.

At the same time, some small and mid-sized banks are exploring differentiated paths in wealth management business. Some banks combine distribution business with the rural revitalization strategy, launching exclusive insurance products for “three rural” customers. Some banks leverage their local industrial chain advantages and design comprehensive financial service solutions for core enterprises and their upstream and downstream clients. Still others attempt to deeply integrate distribution business with livelihood service scenarios such as social security cards and pension account services.

“Overall, the essence of small and mid-sized banks developing distribution business is not to compete with national banks for high-end customers, but to cultivate the local market deeply and meet customers’ diversified investment and wealth management needs. In the future, the winners may not necessarily be the ones with the largest scale, but rather those banks that can build an image of ‘professional and trustworthy’ wealth management services in the local market,” said Dong Shimiao.

Responsible Editor: Feng Yingzi Editor-in-Chief: Zhang Zhiwei