The banking sector in China has experienced a remarkable surge in 2024, capturing significant attention in financial circlesAs reported by 21st Century Business Herald, shares of banks listed on the A-share market soared, resulting in an unprecedented increase exceeding 37% for the entire year, placing banks at the forefront of all industry sectorsOut of 42 A-share bank stocks, a staggering 41 reported gains, with only Lanzhou Bank experiencing a slight downturn of 1.27%. Shanghai Bank stood out with a remarkable rise of more than 68%, cementing its position as a leader among its peers.

A critical factor behind this phenomenal growth appears to be the interest from insurance capital pursuing stable dividendsAccording to Yu Jinxin, an analyst at Minsheng Securities, insurance funds have developed a keen appreciation for the equity attributes of bank stocksBy the end of the third quarter of 2024, among the top 20 stocks heavily invested in by insurance capital, 11 were from banking institutions, with most boasting dividend yields exceeding 5%. This growing trend indicates a strong belief in the banking sector's ability to provide reliable income.

Throughout this year, several prominent insurance companies have significantly increased their stakes in various bank stocks

For instance, since the beginning of 2024, Ping An Life, along with its stakeholders (including Ping An Group and Ping An Asset Management), has been actively increasing its holdings in several banks, particularly in the H-shares of Industrial and Commercial Bank of China (ICBC) and China Construction Bank.

On December 18, 2024, Ping An Asset Management acquired an impressive 67.255 million shares of China Construction Bank's H-shares, amounting to an expenditure of approximately HKD 424 millionFurthermore, an announcement from Ping An Life on December 31 revealed that its entrusted Ping An Asset Management invested significantly in ICBC's H-shares, acquiring enough stock to reach 15% of ICBC's total equity on December 20. This tactical move triggered a mandatory disclosure under Hong Kong market regulations, with funds sourced from Ping An Life's insurance liabilitiesAs of that date, Ping An Life held ICBC H-shares worth a staggering RMB 58.321 billion, making up 1.26% of its total assets.

In addition to ICBC, Ping An also augmented its positions in H-shares of China Construction Bank and Postal Savings Bank

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On December 18, they acquired an additional 67.7 million shares of China Construction Bank H-shares, raising their stake to 5%. On December 27, an additional 15 million shares of Postal Savings Bank H-shares were acquired, pushing their holding ratio to 5% as well.

Moreover, other prominent players in the insurance industry are following suitGreat Wall Life Insurance, for instance, announced in January 2024 its intention to take a significant stake in Wuxi Bank, and by the end of the third quarter, it had increased its holding to 6.97%. Additionally, Xintai Life Insurance also bolstered its investment in Beijing Bank, acquiring 356 million shares and elevating its ownership to 4.70%, thus becoming the fourth largest shareholder in the bank.

DrLong Ge, the deputy director of the Innovation and Risk Management Research Center at the University of International Business and Economics, discussed the prevailing market sentiment with 21st Century Business Herald

He noted that a shortage of quality assets in the current market has driven insurance funds towards bank stocks, motivated by several factors such as a steady dividend payout capability, needs for efficient asset allocation, favorable policy environments, relative advantages of bank stocks, and an overall improvement in market sentiment.

Wang Jian, the assistant director of the economic research department at Guosen Securities, elaborated on four fundamental reasons behind the continuous preference for the six major banks by insurance capital:

1. Stability in net profit growth among the six major banks has been observed consistently, save for the anomalies caused by the pandemic during 2020-2021, with their net profit growth hovering around 5% in recent years.
2. These banks also enjoy a leading position in terms of dividend payouts, maintaining a steady high payment rate over the years

   

   Since 2017, their dividend distributions have consistently remained around 30%.

3. Asset quality is another strength, with lower impairment risks stemming from a portfolio composed primarily of low-risk personal mortgages and large state-owned enterprises (SOEs). This results in significantly lower non-performing loan ratios when compared with smaller banks.
4. Insurance companies perceive that by significantly investing in these large banks, they could forge closer ties and foster strategic partnerships, particularly leveraging the banks' expansive networks to distribute insurance products more effectively.

Jinxin further emphasized that historical trends indicate a steady enhancement in the banks' dividend payout ratios, which exhibit low volatilityHe remarked that when considering potential investments through the Hong Kong Stock Connect scheme at a 20% withholding tax rate, some Hong Kong-listed banks present relatively attractive yields, coupled with robust dividend stability.

Additionally, a senior auditor from a major insurance institution shed light on the nuanced motivations behind these investment strategies