Plan for major banks to cut share dividends

PUBLISHED : Friday, 03 February, 2012, 12:00am
UPDATED : Friday, 03 February, 2012, 12:00am


Three of the mainland's Big Four banks look poised to slash their shareholder dividends this year to conserve capital, according to people in the financial industry.

The sources said Central Huijin Investment, which is the banks' controlling shareholder, was in talks with the lenders on a proposal to cut their dividend payout ratio this year by 5 percentage points to 35 per cent.

The news sent bank stocks higher on the Hong Kong and Shanghai stock exchanges, as investors bet the move would cut the need for the banks to raise capital through potentially dilutive share issues.

The share price of Industrial and Commercial Bank of China (ICBC) jumped 3.54 per cent to HK$5.55 in Hong Kong trading. Bank of China rose 2.42 per cent to HK$3.39 and China Construction Bank (CCB) went up 2.26 per cent to HK$6.34. The three lenders' shares also climbed more than 2 per cent in A-share trading in Shanghai. Shanghai-listed shares of Agricultural Bank of China (ABC) climbed 1.87 per cent. The overall markets in both Hong Kong and Shanghai rose about 2 per cent yesterday.

Huijin had earlier cut the ratio for three of the Big Four banks - ICBC, Bank of China and CCB - by five percentage points each in 2010 and 2011, to the present level of 40 per cent. ABC, the last of the Big Four to restructure and go public, already had a lower ratio than the other three.

Talks about a potential further dividend cut were first reported by Guangzhou-based 21st Century Business Herald yesterday. According to the paper, Huijin has agreed in principle to cut the ratio at three of the banks to 35 per cent this year. If successful, the cut would leave the three banks with an estimated 26.3 billion yuan (HK$32.37 billion) in profit to replenish their capital.

The talks with Huijin come amid a worsening stock market environment on the mainland, which makes it more difficult for banks to tap the markets for cash, especially after their fund-raising rush last year.

The benchmark Shanghai index was one of the world's worst performers in 2011 and investors are losing faith in financial and banking stocks, which are all heavyweights in the domestic capital market.

One person close to the state banks told the South China Morning Post that there had been discussion for a while between the banks and Huijin about such a dividend cut proposal but no final decision had been made. The banks will be required to release the information to the public and seek support from other shareholders.

However, given Huijin's controlling shareholder status in the Big Four banks, it would not be difficult for them to win final approval at shareholders' meetings to move the plan forward, the person said.

Huijin could not be reached for comment yesterday.

'It would not be surprising if Huijin chooses to bring the dividend payout ratio down again,' said Jin Lin, an analyst at Orient Securities in Shanghai. 'The mainland banks have been facing mounting pressure to meet the tighter capital requirements from regulators and the increasing demand for loans.'

In the short term, Huijin's move was good news because it eased investor worries about a new round of fund-raising for banks to meet tougher regulatory requirements for increased capital, a portfolio manager said. But he also said it was questionable whether small shareholders' interests could be protected, because Huijin had the decisive voice.

Mainland banks have been rushing to raise money from the capital markets in recent years. The banking watchdog has urged lenders to widen their financial channels, and to reduce reliance on equity financing.