In-Depth Analysis of the Impact of Financial Regulatory Policies on the Valuation and Competitive Landscape of the Banking and Insurance Sectors

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The policies of

and proposed at the 2026 Regulatory Work Conference of the State Administration of Financial Regulation will have on the banking and insurance sectors:

Core Conclusion	Specific Performance
Large Institutions to Enjoy Valuation Premiums	Market share of leading banks and insurers continues to rise; CR5 is expected to exceed 50% by 2030
Small and Medium-Sized Institutions Face Exit Pressure	Banks without wealth management subsidiaries will accelerate their withdrawal; the advantages of the “Top Seven Established Insurance Companies” are consolidated
Foundation for Valuation Recovery is Consolidated	The “trading below net asset value” situation of banks eases; the insurance sector has huge room for PEV recovery
Continuous Capital Inflows	Long-term capital such as insurance funds and social security funds increases allocation of high-dividend assets

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Indicator	Value	Industry Percentile	Evaluation
Price-to-Book Ratio (PB)	0.54x	34.4% (since 2018)	Historical low, valuation depression
Dividend Yield	4.93%	-	Significantly higher than the market average
Year-to-Date Increase	6.86%	Lagged CSI 300 by over 10 percentage points	Structural differentiation
Percentage of Stocks Trading Below Net Asset Value	100%	-	All 42 bank stocks trade below net asset value

Indicator	Value	Industry Percentile	Evaluation
Price-to-Embedded Value (PEV)	0.68x-0.91x (2026E)	Historical low	Huge room for recovery
Year-to-Date Increase	28.44%	-	Significantly outperformed the banking sector
Valuation Percentile	49.9%	-	Near the median
2026 “New Year Kick-Off Performance”	Over 10% increase	-	New China Life, Pacific Insurance, Ping An hit new highs

: The 2025 increase of the insurance sector is that of the banking sector, reflecting differences in fundamentals and differentiation in capital allocation logic [1][2][3].

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• Cracks down on “involution-style” malicious competition, reduces price wars
• Downward pressure on net interest margins is expected to ease marginally
• Net interest margin stabilized at 1.42% in Q3 2025 [4]

Driver	Specific Details
Accelerated Risk Resolution	Exit of small and medium-sized institutions reduces concerns about systemic risks
Optimized Capital Allocation	Long-term capital such as insurance funds and social security funds continues to increase allocation of bank stocks
Enhanced Policy Support	Resolution of local government debt risks boosts market confidence

• Banking sector CR5: reached 43.9% in 2025, expected to exceed 50% by 2030
• State-owned big banks further consolidate their market positions with comprehensive strength

Challenge Factor	Impact Analysis
Sustained Pressure on Interest Margins	Net interest margins remain under pressure in the interest rate downward cycle
Slower Scale Growth	“Reducing Quantity and Improving Quality” means slower expansion speed
Transformation Pressure	Shift from scale-driven to value-driven development

:

Allocation Type	Target Recommendations	Allocation Logic
Core Bottom Position	State-Owned Big Banks (ICBC, ABC, BOC, CCB, BOCOM, PSBC)	Stable dividend income, extremely high certainty
Flexible Allocation	Leading High-Quality Regional Banks	Excellent fundamentals, high performance and stock price flexibility
Entry Timing	Phased Deployment	Take advantage of periodic pullbacks to deploy positions

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Improvement Factor	Specific Details
Transformation to Participating Insurance	1.75% guaranteed interest rate + floating returns, optimizing liability costs
“Savings Migration”	Migration of household savings to insurance products drives new business growth
Eased Interest Margin Loss	Decline in stock costs, positive interest margin spread for new policies

:

• In the 3 days after New Year’s Day 2026, new business scale through bancassurance channels exceeded RMB 71.1 billion
• Ping An Life’s scale reached RMB 8.7 billion in 3 days after New Year’s Day, with a year-on-year increase of 178%
• China Life’s cumulative scale reached RMB 7.11 billion, with a year-on-year increase of 79% [5]

Driver	Impact Analysis
Rebound in Equity Market	Shanghai Composite Index recorded 17 consecutive up days, boosting investment returns
High-Dividend Asset Allocation	Insurance funds increase allocation of high-dividend assets, improving investment yields
Stable Interest Rates	Medium- and long-term interest rates remain in a reasonable range, easing reinvestment pressure

• Adjusts business risk factors for insurance companies, reduces capital constraints
• Encourages insurance funds to make long-term investments in A-shares, expanding investment space
• Issuance of the Measures for Asset-Liability Management of Insurance Companies (Draft for Comments) [5]

Challenge Factor	Impact Analysis
Interest Margin Loss Risk	Asset-liability mismatch risk in the interest rate downward cycle
Market Competition	Need to achieve differentiated development amid standardized competition
Pace of Valuation Recovery	Short-term excessive gains may face profit-taking pressure

Framework:

Liability Side Improvement    Asset Side Favorability      Valuation Recovery
    │                          │                           │
    ▼                          ▼                           ▼
┌─────────────────┐       ┌─────────────────┐       ┌─────────────────┐
│ Robust New Business Growth │       │ Equity Market Rebound │       │ PEV Recovery │
│ Optimized Business Structure │   +   │ High-Dividend Asset Allocation │   =   │ Value Reassessment │
│ Reduced Liability Costs │       │ Stable Interest Rates │       │ Sustained Market Rally │
└─────────────────┘       └─────────────────┘       └─────────────────┘

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:

Year	Banking Sector CR5	Driver
2021	22.17%	Concentration of wealth management market
2023	30.2%	Exit of risk events
2025	43.9%	Policy-driven integration
2030E	50%+	Consolidation of leading advantages

:

┌─────────────────────────────────────────────────────────────────────────────┐
│  Large Banks: Universal financial groups, leading in comprehensive financial services and international business │
│  Joint-Stock Banks: Focus on niche segments, building strengths in wealth management and tech-enabled finance │
│  Local Banks: Stick to regional markets, strengthen binding with inclusive finance and local economies │
│  Private Banks: Empowered by fintech, focus on digital inclusive finance │
└─────────────────────────────────────────────────────────────────────────────┘

:

• As of Q3 2025, the number of banks with outstanding wealth management products has shrunk to 181, a sharp decrease of 76 from the end of the previous year
• Clear out existing wealth management products of small and medium-sized banks by the end of 2026; institutions without wealth management subsidiaries will gradually exit [6]

:

• Market share of the “Top Seven Established Insurance Companies” continues to rise
• Leading insurers are more resilient with advantages in asset-liability matching
• Brand effect and service capabilities become core competitive strengths

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According to the 2026 Insurance Investment Officer Survey [7]:

Survey Question	Core Conclusion
Investment Outlook	Over 70% of investment officers are “relatively optimistic” or “optimistic”
A-Shares Opportunities	89.47% believe “opportunities outweigh risks”
Most Preferred Asset to Increase Allocation	“Stocks, equity funds” ranked first (29.63%)
Equity Allocation	70% of investment officers expect to increase equity allocation ratio
High-Dividend Assets	Nearly 70% remain bullish on their investment value

:

1. Accounting Standards Driver
   : IFRS 17/9 drives insurance funds to increase allocation of high-dividend assets
2. Yield Pressure
   : Seek stable returns in a low-interest rate environment
3. Policy Support
   : Regulators guide long-term capital into the market
4. Valuation Advantages
   : Dividend yield of bank stocks is significantly higher than that of bonds

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:

Strategy Type	Target Recommendations	Expected Return
Conservative Allocation	State-Owned Big Banks (ICBC, ABC, BOC, CCB)	Stable dividends + valuation recovery
Flexible Allocation	Leading High-Quality Regional Banks	Performance and stock price flexibility
Long-Term Holding	High-Dividend Bank Stock Portfolio	Compounded returns

:

Allocation Logic	Key Focus Areas	Investment Timing
Liability-Asset Resonance	Liability-side new business growth, asset-side investment returns	Deploy on dips
Valuation Recovery	PEV recovery space, embedded value growth	Continuous attention
Leading Effect	Increased market share of leading insurers	Long-term holding

Risk Type	Specific Details	Impact Level
Interest Rate Risk	Sustained interest rate decline brings pressure on interest margins/interest margin loss	★★★★★
Market Risk	Volatility in the equity market affects investment returns	★★★★☆
Credit Risk	Volatility during the exit process of small and medium-sized institutions	★★★☆☆
Policy Risk	Changes in regulatory policies affect industry expectations	★★★☆☆

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Sector	Expected Performance	Core Driver
Banking Sector	Continued value reassessment	Stabilized interest margins, risk resolution, dividend value
Insurance Sector	Continued valuation recovery	Liability-asset resonance, improved performance, policy support

:

• Industry Concentration
  : CR5 continues to rise, leading institutions consolidate their advantages
• Differentiated Competition
  : Tiered competitive landscape forms, characteristic development becomes mainstream
• Business Ecologization
  : Transformation from product providers to ecosystem organizers
• Rationalized Valuations
  : Shift from valuation discount to alignment with international standards

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[1] 2026 Regulatory Work Conference of the State Administration of Financial Regulation

[2] Securities Times - 2026 Regulatory Work Conference of the State Administration of Financial Regulation Arranges 5 Key Tasks

[3] Time Weekly - Insurance Sector Stages a Comeback, Up Over 28% Year-to-Date

[4] Xinhua News Agency - 2025 Banking Sector Reshapes Its “Guidelines”

[5] 21st Century Business Herald - Insurance Stocks Continue “New Year Kick-Off Rally”

[6] Eastmoney - In-Depth Observation of Bank Wealth Management in 2025

[7] Securities China - 2026 Insurance Investment Officer Survey