Bank of China

Dividend cuts lift pressure on mainland banks

PUBLISHED : Wednesday, 08 February, 2012, 12:00am
UPDATED : Wednesday, 08 February, 2012, 12:00am

Leading mainland banks were unlikely to resort to issuing new shares or debts to raise money this year, international rating agency Moody's predicted yesterday.

Christine Kuo, senior credit officer for financial institutions at Moody's, said the recent cut in dividend payments would save them from raising capital on a 'massive' scale.

The cut was initiated by state-controlled Central Huijin Investment, a major shareholder of major banks in China.

It announced that Bank of China, China Construction Bank and Industrial and Commercial Bank of China would cut dividends by 5 points to 35 per cent of 2011 profits, while maintaining the ratio at 35 per cent for Agricultural Bank of China.

'We see it as a more efficient way to address their capital needs,' Kuo said. 'The more money they retain, the less they will have to go out to the market.'

Beijing is allowing major lenders to increase new loans 5 per cent in the first quarter to help cash-strapped private businesses at home.

The market has interpreted this as a sign of reversing its credit tightening policy.

Michael Buchanan, chief economist for the Asia Ex-Japan region at Goldman Sachs, estimated that loan growth on the mainland was less than 1.1 trillion yuan last month.

He said there was still room for the mainland to further increase loan growth this year, although the total credit to gross domestic product ratio had climbed steadily from 151 per cent in 2008 to 194 per cent last year.

Buchanan also expected Beijing to cut the amount banks must keep in reserve - the reserve requirement ratio - twice, by 50 basis points each time, but said an interest rate cut was unlikely.

But Andrew Colquhoun, head of Asia-Pacific sovereign debt at Fitch, said China already had 'too much investment'. Total banking system credit was more than US$10 trillion, more than the total of Brazil, Korea, India, Russia, Taiwan, Thailand, Turkey, South Africa and Malaysia combined, Fitch estimated.

Colquhoun also predicted mainland economic growth would 'disappoint' the market given the slowdown in the property and construction sectors and would fall below the consensus range of 8 per cent as a result of cooling measures.


The mainland's reserve requirement ratio is this much.

Australia, New Zealand, Canada and Sweden do not have one