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Report hints dividend cuts could go beyond Big Four banks

Report suggests other lenders might be allowed to trim payout ratios to meet capital rules

Kwong Man Ki

Investors should brace for lower dividend income from many mainland banks, as they conserve cash to shore up capital.

In February, state-owned investment arm, Central Huijin Investment, said the mainland's Big Four banks, in which it holds controlling stakes, would cut the banks' respective dividend payout ratios by five percentage points to 35 per cent of 2011 profits.

Bank of China, the nation's fourth-biggest bank, said in March that it would probably go farther and cut its dividend payout for this year to as low as 30 per cent, saying it would try to strike a balance between meeting regulatory requirements on capital and rewarding its shareholders.

But yesterday an article in state-owned , citing unnamed official sources, indicated that other listed commercial banks on the mainland might be allowed to cut their dividend payout ratios.

Some analysts said the move could ease the pressure on commercial banks to raise fresh capital to meet the higher official requirements.

The mainland equivalent of Basel III capital requirements will take effect in January.

They require systemically important banks to meet a capital adequacy ratio of 11.5 per cent and 10.5 per cent for other banks.

Linus Yip Sheung-chi, a strategist with First Shanghai Securities, said investors would be positive about the dividend payout ratio cuts.

"Even if commercial banks cut the dividend payout ratio by five percentage points, the cash dividend that an individual investor could receive would not be reduced by a lot," Yip said.

"But the move will help improve banks' capital conditions and support the share prices."

In addition, the China Banking Regulatory Commission has set up a task force to look at innovative financing tools for commercial banks to boost their capital strength, reported yesterday, citing a source from a listed mainland bank.

This article appeared in the South China Morning Post print edition as: Hint of dividend cuts from more mainland banks