Rising bad debts have prompted Chinese banks to cut dividend payouts and speed up preference share sales to boost capital ratios.
In 2014, most banks suffered from the slowest net income growth since 2009. The biggest eight Chinese lenders listed in Hong Kong reported an average growth of 6.3 percent, primarily weighed down by higher loan provision charges.
Bad debts at the largest eight banks jumped an average 40.4 percent in 2014, up from a 28.6 percent increase in 2013.
The average bad loan ratio climbed to 1.23 percent, from 0.98 percent. The rising bad debt balance spurred loan provisions and put pressure on bank capital.
Chinese state banks ICBC (01398.HK), China Construction Bank (00939.HK), Bank of China (03988.HK), Agricultural Bank of China (01288.HK) and Bank of Communications (03328.HK) have all trimmed dividend payout ratios from 35 percent to 33 percent. Many joint stock banks have also lowered payouts. Citic Bank (00998.HK) even cut out its final dividend completely.
If the credit downturn continues this year, China banks may further reduce dividend payouts to preserve capital.
Many of these lenders may speed up the process of preference share sales to garner more funding.
The world’s biggest bank, ICBC, is going to sell 45 billion yuan (US$7.25 billion) of these shares to domestic investors. China Construction Bank has pending sales of up to 80 billion yuan of preference shares for the rest of 2015. AgBank just completed the sale of 40 billion yuan of preference shares in March.
The views expressed in this article are those of Francis Chan, a senior banking analyst at Bloomberg Intelligence.
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