CGS released a research report stating that supervisory committee reforms have increased board seats for listed banks, attracting insurance capital allocation through equity method accounting. The introduction of other funds, such as AMCs, also supports banks in expanding business cooperation and capital replenishment opportunities. State-owned directors remain concentrated, strengthening state capital management and highlighting banks' role in serving national strategies. The banking sector's dividend attributes persist, with long-term investors like insurers continuing to increase holdings, accelerating pricing efficiency and valuation restructuring. CGS maintains a positive outlook on the banking sector's allocation value. Key points are as follows:
**Event:** Recently, a new batch of listed banks received regulatory approval to abolish their supervisory committees. CGS highlights the following impacts of the reform:
1. **Policy Implementation Nears One Year, Over Half of Listed Banks Have Officially Removed Supervisory Committees:** On December 27, 2024, the Financial Regulatory Authority proposed that financial institutions could establish audit committees within their boards to assume supervisory committee duties, eliminating the need for separate committees. By April 2025, five major state-owned banks announced plans to abolish supervisory committees, gaining approval by September. As of December 19, 22 A-share listed banks have received regulatory approval, 16 have passed shareholder meetings, and 3 are pending approval.
2. **Reform Expands Board Seats, Potentially Unlocking Capital Allocation:** Currently, listed banks average 14 board members (15-16 for state-owned/joint-stock banks, ~13 for regional banks), with 23.5% being internal directors. Post-reform, boards are expected to add ~1 seat. State-owned banks may expand to 13-19 seats, joint-stock banks remain stable, and regional banks could reach up to 21 seats. Assuming one new seat per bank, this could attract ~¥456.2B in A-share bank allocations.
3. **Implications of Board Seat Expansion:** - **Insurance Capital Inflows:** Under new accounting standards, insurers may increase holdings via equity method accounting (requiring >5% stake + board representation). If each bank adds one insurer-nominated director, ~¥697.7B could flow into A-share banks. Currently, 11 banks have 16 insurer-backed directors, with new entrants like Dajia Life and Xinhua Life joining boards of Industrial Bank, Bank of Hangzhou, and Sunong Bank. - **Strategic Investor Opportunities:** Facilitates partnerships/capital replenishment, e.g., Cinda Investment’s convertible bond conversion at SPD Bank followed by board representation. - **Enhanced State Capital Oversight:** Supports banks in national strategic roles. In 2025, 52.25% of new directors (111 total) had state-backed backgrounds.
**Risks:** Economic underperformance, asset quality deterioration, NIM pressure from rate cuts, and demand weakness due to tariff impacts.
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