China Merchants Bank boosts reserves 3.7b yuan

Mainland lender cuts dividend payout ratio to meet new regulatory demands

China Merchants Bank, the mainland's sixth-largest commercial bank by assets, plans to set aside at least an additional 3.7 billion yuan of general reserves by next year to meet a new regulatory requirement, well ahead of the deadline.

Owing to the ambitious timetable for the plan, the Hong Kong listing candidate has set its proposed dividend payout ratio at 25 to 35 per cent in each of the three years to fiscal 2008, lower than the 35 to 45 per cent of China Construction Bank Corp and Bank of China, according to a preliminary stock sale prospectus distributed to investors yesterday.

The Shenzhen-based lender aims to raise up to HK$20.69 billion in an H-share initial public offering.

Without explaining why, the bank said it was setting aside the money to comply with a Ministry of Finance rule mandating that banks have general reserves amounting to 1 per cent of their risk-bearing assets 31/2 years before the deadline. Based on its risk-bearing assets at the end of last year, the lender will need 6.7 billion yuan of general reserves, of which three billion yuan has been allotted.

However, the amount might need to be larger. As one of the second-tier national banks growing aggressively to catch up with bigger state-controlled giants, Merchants Bank quadrupled its assets between 2000 and last year, according to a research report by China International Capital Corp, a joint book-runner with JP Morgan and UBS for the share sale. The speed of expansion suggests the actual contribution to the general reserve by next year could swell beyond 3.7 billion yuan.