NCI's ambition to invest 4.3 billion in HZBANK

Recently, HZBANK announced that its fourth largest shareholder, Commonwealth Bank of Australia, has completely divested its equity in the company, transferring all 330 million shares to NCI.

Although the shareholding ratio corresponding to the 330 million shares has been diluted from 5.22% at the end of the first quarter to 4.63% due to the conversion of convertible bonds.

However, combined with the 0.46% equity held by NCI, the total shareholding ratio has reached 5.09%, surpassing the threshold for a stake increase and making NCI the fourth largest shareholder of HZBANK.

Based on a rough calculation of the stock price, both parties have gained considerable income from the transaction.

With the trading price difference plus dividend income, the Commonwealth Bank of Australia has achieved an investment return rate of over 5 times since its entry 20 years ago; the entry price of NCI at 13.1 yuan per share is also significantly lower than HZBANK's closing price of 16.56 yuan per share on June 16.

However, NCI is not focused on short-term changes.

According to regulations, the 4.63% equity from this transaction will be held for no less than 5 years after the transfer date (June 6).

NCI has also stated that its investment is based on optimism about HZBANK's long-term development, aiming to optimize its investment structure by increasing dividend assets.

In the current context of intensified asset scarcity and regulatory encouragement for insurance funds to enter the market, it is not uncommon for insurance companies to favor bank stocks. Since the beginning of this year, Ping An Life has made six stake increases in bank stocks, increasing its holdings in Agricultural Bank of China, Postal Savings Bank, and China Merchants Bank.

In fact, NCI's investment of 4.3 billion yuan in HZBANK may not only be aimed at enhancing dividend assets but is more likely to leverage HZBANK's extensive reach in the Jiangsu, Zhejiang, and Shanghai regions to further penetrate the Yangtze River Delta market.

As of the end of 2024, HZBANK has 211 branches in Zhejiang Province, achieving nearly full coverage in the province, which is also the area where NCI experienced the highest premium growth rate;

The service network that HZBANK has established in the Yangtze River Delta, Pearl River Delta, and Bohai Economic Rim clearly aligns with NCI's current investment strategies in the Beijing-Tianjin-Hebei, Guangdong-Hong Kong-Macao, and Yangtze River Delta regions.

Now, NCI's shareholding in HZBANK has exceeded 5%;

If it sends directors to HZBANK in the future and further expands its influence, the two may hope to form synergies in more areas.

Farewell to a Twenty-Year Shareholder

The Commonwealth Bank of Australia, which is parting ways with HZBANK, has been a long-standing shareholder for twenty years.

After China joined the WTO in 2001, the financial market gradually opened up, and two years later, regulators relaxed the shareholding ratio for individual foreign shareholders in banks to 20%, promoting foreign investment in city commercial banks.

Foreign investors entering China initially focused on the potential of city commercial banks in economically developed regions;

At that time, city commercial banks in Beijing, Nanjing, Xi'an, Tianjin, and other places adopted a strategy of "exchanging equity for technology" to attract foreign shareholders, enhancing governance and business capabilities.

The Commonwealth Bank of Australia, which was keen to penetrate emerging markets, seized this opportunity:

After acquiring an 11% stake in Qilu Bank in 2004, it reached an agreement with HZBANK the following year to exchange 625 million yuan for a 19.91% stake, becoming an important strategic investor Subsequently, the Commonwealth Bank of Australia participated in a share transfer and two capital increases of HZBANK, with its shareholding ratio once reaching as high as 20%.

After HZBANK went public on the A-share market in 2016, the Commonwealth Bank of Australia secured its position as the largest shareholder with an 18% stake.

The subsequent achievements validated the Commonwealth Bank of Australia's initial decision.

Over the past 20 years, HZBANK's asset scale has grown from less than 50 billion yuan to 2.11 trillion yuan by the end of 2024, becoming the sixth city commercial bank in China to surpass the 2 trillion yuan mark.

After enduring an industry winter characterized by weak credit and pressure on wealth management businesses, HZBANK's net profit attributable to shareholders grew by 18.07% in 2024, second only to Qingdao Bank among city commercial banks;

During the same period, the non-performing loan ratio and provision coverage ratio were 0.76% and 541.45%, respectively, indicating stable asset quality.

However, as profits grew against the trend, the long-time shareholder that had accompanied it for twenty years began to show signs of retreat.

This may be related to the Commonwealth Bank of Australia's strategic contraction in international business.

The Commonwealth Bank of Australia had previously stated that the divestment was part of a strategic adjustment to focus on its core banking operations in Australia and New Zealand.

As early as 2023, CEO Matt Comyn planned to allocate 60% of the new capital over the next three years to the domestic market;

In the first quarter of 2025, Matt Comyn emphasized that many Australians are still dealing with cost-of-living pressures and committed to "supporting remote communities and employment while keeping branches open."

The Commonwealth Bank of Australia expects that after the completion of the HZBANK transaction, the common equity tier 1 capital adequacy ratio, according to the standards of the Australian Prudential Regulation Authority, could increase by 17 basis points.

Beyond focusing on the domestic market, the rising compliance costs in mainland China may have intensified the Commonwealth Bank of Australia's intention to retreat.

Since the introduction of the "Interim Measures for the Administration of Equity of Commercial Banks" in 2018, major shareholders have had to bear stricter controls on related party transactions and capital replenishment responsibilities.

Now, foreign investors such as HSBC, Citibank, and Banco Santander have successively sold their stakes in joint venture banks.

A rough estimate suggests that the Commonwealth Bank of Australia has already achieved considerable returns on its investment in HZBANK, making the choice to realize profits reasonable.

In 2022, the Commonwealth Bank of Australia transferred 594 million shares to two local state-owned enterprises at a price of 13.94 yuan per share; later, in this transaction, it transferred the remaining 330 million shares to NCI at a price of 13.1 yuan per share.

The three equity transactions mentioned above involved amounts exceeding 12.5 billion yuan.

Calculating the transaction price differences and accumulated dividends, the total return on the Commonwealth Bank of Australia's 20-year investment in HZBANK has exceeded five times.

Opportunities for Insurance Capital Entry

As foreign shareholders quietly exit, domestic insurance companies are actively taking over.

NCI expressed optimism about the long-term development of the banking industry and HZBANK;

NCI believes that investing in the bank has three major benefits: first, it can enhance the long-term equity investment base; second, it can promote synergy in bancassurance business; third, it can improve the ability to serve the real economy.

Against the backdrop of asset scarcity and regulatory encouragement for insurance capital to enter the market, the preference of insurance capital for long-term dividend assets has become a prevailing trend; The change in the classification of financial assets under the new accounting standards has further facilitated this shift.

Under the new standards, financial assets are classified into three categories: AC (financial assets measured at amortized cost), FVTPL (financial assets measured at fair value with changes recognized in profit or loss), and FVOCI (financial assets measured at fair value with changes recognized in other comprehensive income);

Changes in the market value of OCI accounts are not included in profit or loss for the current period, but there are requirements for long-term holdings of the financial assets included.

Long-term dividend assets, represented by bank stocks, can be included in OCI, which aligns with NCI's mention of "enhancing the long-term equity investment base."

Since switching to the new accounting standards in 2023, NCI's OCI account assets have continued to grow.

In 2024, the scale of its OCI account equity investments increased nearly fivefold year-on-year, reaching 30.64 billion yuan;

NCI has previously revealed that the changes in the account are due to an increase in stock allocation, and the company is strategically shifting towards high-dividend OCI-type holding equity assets.

By the end of the first quarter of 2025, its OCI account equity investments had increased by another 10% compared to the end of the previous year, reaching 33.843 billion yuan.

However, in a horizontal comparison, NCI's stock position in the OCI account is still significantly lower than that of listed peers such as Ping An and Taikang, which may explain why NCI is still continuously buying bank stocks.

Within the broader framework of increasing dividend assets, NCI also has many considerations in selecting specific targets.

On one hand, there is a higher dividend yield.

Xinfeng noted that as of the close on June 16, Hangzhou Bank's dividend yield over the past 12 months was 4.46% (not excluding the impact of secondary dividends), ranking it in the middle among A-share listed banks;

However, based on the transaction price of 13.1 yuan per share in this agreement, the dividend yield of NCI's holdings in Hangzhou Bank has reached about 5.8%, which is already at a higher level among listed banks.

On the other hand, there is better synergy in bancassurance business.

In 2024, there was a significant divergence in growth between NCI's individual insurance and bancassurance channels.

The bancassurance channel showed good potential, with premium growth of 8.1%, which is 7.8 percentage points higher than the individual insurance channel; during the same period, the scale of new business value grew fivefold, with the contribution rate soaring from 13% to 40%.

Regionally, the Yangtze River Delta has also contributed to NCI's rare incremental growth.

In 2024, NCI adjusted the heads of more than half of its branches, focusing on the Yangtze River Delta, Guangdong-Hong Kong-Macao, and Chengdu-Chongqing economic circles;

In the same year, its Zhejiang branch achieved the first place among national branches with a premium growth rate of 7.9%, which is 5.1 percentage points higher than the average level.

Combining the potential exhibited by both channels and regions, NCI's investment of 4.3 billion yuan in Hangzhou Bank may aim to leverage the latter's comprehensive service network in the Yangtze River Delta to further open up the market.

Xinfeng noted that by the end of 2024, Hangzhou Bank had a total of 290 branches, including 128 branches in the Hangzhou area and 83 branches in other areas of Zhejiang Province;

Outside of Zhejiang, Hangzhou Bank has established a presence in developed economic circles such as the Yangtze River Delta, Pearl River Delta, and Bohai Rim, which aligns with NCI's strategy to strengthen its presence in the Beijing-Tianjin-Hebei, Yangtze River Delta, and Guangdong-Hong Kong-Macao regions In the future, NCI and HZBANK may also have interactions at multiple levels.

For example, in terms of basic business cooperation, HZBANK may further increase the agency sales of NCI products, helping NCI expand its low-interest rate risk preference customer base while increasing its middle-income revenue;

At the strategic level, as an important shareholder, NCI may also have more say in the board of directors of HZBANK, promoting both parties to form more synergy in regions such as the Yangtze River Delta