China’s biggest banks may follow HSBC in trimming dividend payout amid biggest earnings setback since 2008 crisis

A 10 per cent decline in earnings may result in zero dividend for bank investors, according to Jefferies

Some Chinese banks may have no room to raise fresh capital from the stock market if their price-to-book value ratios dip below one

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Industrial and Commercial Bank of China sets up a booth at the China International Fair for Trade in Services in September in Beijing. Photo: Reuters

Published: 2:32pm, 24 Sep 2020Updated: 2:32pm, 24 Sep 2020

Chinese banks may have to trim or even skip dividend payout this year, in the footsteps of some western banks, because of the biggest earnings setback since the global financial crisis in 2008.

Report cards from some of the nation’s biggest lenders this quarter have pointed to the worst slump in more than a decade. Lenders have been asked to perform national service by sacrificing their profitability to support the country’s economic recovery.

Shrinking profit is likely to prompt lenders to shore up their capital adequacy buffer amid a wave of bad loans as businesses cratered from the impact of Covid-19 pandemic. China’s economy shrank 6.8 per cent in the first quarter, before rebounding 3.2 per cent last quarter.

“Banks’ capital adequacy ratios would drop drastically if they continue to maintain their usual dividend payout ratio,” said Chen Shujin, a banking analyst at Jefferies. A 10 per cent drop in net profit is likely to cause banks to withhold dividend this year, Chen added, while a 5 per cent setback could prompt them to reduce the payout ratio by 10 percentage points.

Senior Chinese bank officials this month said their 2020 full-year profit will continue to weaken after recording about 9-10 per cent decline in the first half. Their core tier-1 capital ratios have also dropped as they dialled up provisioning for bad loans.

Scaling back dividends would be a blow to investors who have been accustomed to seeing a 20-30 per cent payout over the years. This was highlighted in April, when HSBC scrapped its final interim dividend, saying it was not planning any further payments.