Bank of China (Hong Kong) flags cut to dividend payout ratio

Move by Bank of China unit from this year is aimed at meeting higher capital requirements and follows 6.3pc rise to record profit for 2013

PUBLISHED : Thursday, 27 March, 2014, 12:58am
UPDATED : Thursday, 27 March, 2014, 12:58am

Bank of China (Hong Kong), the subsidiary of Bank of China in the city, plans to cut its dividend payout ratio to shareholders despite seeing its net profit rise 6.3 per cent last year to a record HK$22.2 billion on increases in core interest income and income from fees.

It said yesterday its payout ratio would be 40 per cent to 60 per cent from this year, down from 60 per cent to 70 per cent previously, because of increased capital requirements from the Hong Kong Monetary Authority and the Basel 3 international standard, which will be fully implemented in 2019.

"The wider range of dividend payout ratio allows us the flexibility to determine the payout according to the operating performance each year," chief executive He Guangbei said.

"We don't rule out the possibility of further fundraising activities, but at this point we don't have other plans."

The bank's capital ratio fell to 15.8 per cent last year from 16.8 per cent at the end of 2012.

It declared a final dividend of 46.5 HK cents per share, with the payout ratio falling to 48 per cent from 62.5 per cent the previous year.

BOCHK announced the cut in its dividend payout ratio on the same day that Dah Sing Banking proposed raising HK$1.2 billion from a rights issue.

Some analysts expect the HKMA might require a higher capital standard of Hong Kong banks than the international standard, leading banks to think of ways to strength their capital ratios.

Besides cutting dividends and capital raising, banks could also scale down business growth to slow down the use of capital.

"BOCHK may be the last bank to cut its dividend payout to preserve capital," said Alexander Lee, an analyst at DBS Vickers.

"I don't expect more banks to follow. And BOCHK has a relatively higher payout than the others in the past."

The sole yuan clearing bank in the city, BOCHK said yuan business continued to generate strong business growth. Net interest margin, a gauge of lending profitably, improved to 1.68 per cent from 1.6 per cent in 2012.

Outstanding loans grew 10.3 per cent while total deposits gained 8 per cent. Gao Yingxin, a deputy chief executive, said he expected loans would grow more quickly this year on strong demand for cross-border financing from mainland firms.