China Galaxy Securities: Supervisory Board Reform Promotes Increased Board of Directors and Continued Optimism about Bank Sector Allocation Value

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that supervisory reforms have increased the number of board seats of listed banks, that equity law accounts attract insurance capital allocation, and that the introduction of other funds such as AMC has also helped banks expand business cooperation and capital replenishment opportunities. Directors with state-owned backgrounds are more concentrated, strengthening the management of state-owned capital and highlighting the bank's strategic position in serving the country. The bank's dividend attributes continue at this stage, and long-term capital holdings represented by insurance capital continue to increase, speeding up the improvement of pricing efficiency and valuation restructuring. The bank continues to be optimistic about the allocation value of the banking sector.

The main views of China Galaxy Securities are as follows:

Incident: Recently, a new batch of listed banks revoked their supervisory boards and obtained regulatory approval. The bank believes that it mainly focuses on the impact of the Supervisory Board reform on banks from the following aspects:

One year after the implementation of the policy, more than half of the listed banks have officially abolished supervisory boards: On December 27, 2024, the General Financial Supervisory Authority proposed that financial institutions can establish an audit committee composed of directors in the board of directors in accordance with the provisions of the company's articles of association to exercise the powers of the board of supervisors as stipulated in the company law and supervisory system. There are no supervisory boards or supervisors. Former external supervisors can be transferred to independent directors in accordance with the procedures. At the end of April 2025, five major state-owned banks took the lead in announcing their intention to cancel the supervisory board, which was approved by the regulatory authorities at the end of September. As of December 19, 22 A-share listed banks have obtained regulatory approval to cancel their supervisory boards, 16 shareholders' meetings have reviewed and approved it, and 3 shareholders' meetings plan to review them.

The reform of the Supervisory Board has promoted an increase in the number of directors, which is expected to further open up space for capital allocation: currently, the average number of board members of listed banks is 14, the average number of board members in state-owned banks and stock banks is about 15-16, and regional banks have an average of about 13 members; among them, the average proportion of directors with a bank background is 23.5%. Judging from the latest articles of association of listed banks that have received regulatory approval, the board of directors has increased by an average of about 1 seat. The number of board seats of state-owned banks was raised to 13-19, the majority of stock banks remained the same, and the maximum number of regional bank seats rose to 21. Referring to the company's articles of association, shareholders holding more than 3% of the shares in listed banks can nominate directors. Assuming that the supervisory board reform releases 1 director seat for each listed bank, it is estimated that it can attract 456.2 billion yuan to allocate capital to the A-share banking sector.

Looking at the impact of the increase in board seats from multiple perspectives: (1) It is expected to attract increased allocation of insurance capital, share bank profit growth through equity law accounts, and further enhance investment returns. Under the influence of the new accounting standards, in addition to being included in OCI accounts to obtain dividend income, insurance allocates bank stocks using the equity method as another main direction. Generally speaking, an insurance company's shareholding ratio of more than 5% of the bank's shares can be recorded according to the equity law. Assuming that each listed bank adds 1 new director seat and is nominated by new insurance shareholders, it is estimated that it can attract 697.7 billion yuan of insurance capital to the A-share banking sector. Currently, 11 A-share listed banks have a total of 16 directors with insurance backgrounds. Since this year, Daehan Life, Xinhua Life Insurance, and Hongkang Life have added new directors to Industrial Bank, Bank of Hangzhou, and Sunong Bank respectively, with shareholding ratios of 3.38%, 5%, and 4.95% respectively, all of which are among the top ten new shareholders this year. (2) Support listed banks in introducing strategic investors to carry out business cooperation or capital replenishment. For example, at the end of June, Cinda Investment held SPD Bank's bonds and shares to help replenish the bank's capital. Since then, directors have been assigned in August. (3) Strengthen the management of state-owned capital to help banks play a better role in serving the national strategy and supporting the real economy. Since 2025, in addition to the chairman, vice chairman and executives, there have been 111 new directors of listed banks, accounting for 52.25% of whom have a Chinese background.

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