CHINA’S biggest lenders heeded calls from regulators to boost dividends and support markets even as earnings are under pressure from falling interest rates.
The world’s largest lender by assets, Industrial & Commercial Bank of China (ICBC), on Aug 30 announced its first ever interim dividend as first-half profit fell 1.9 per cent to 170.5 billion yuan (S$31.4 billion).
Rivals Agricultural Bank of China (Agbank) and China Construction Bank (CCB) also said they would make interim payouts. Agbank’s profit rose 2 per cent, while CCB’s net income slid 1.8 per cent, according to filings on Aug 30.
China’s banks have been put under pressure by regulators to boost investor returns amid flagging markets. At the same time, they are being called on to support the struggling economy with cheap loans which has driven margins to record low levels.
The announcements mark the first concerted move by state banks to make interim distributions. Earlier this week, smaller peers Bank of Communications and Bank of China both announced payouts. All dividends are subject to approval by their shareholders.
The payouts come even as profitability is under pressure from China’s efforts to cut interest rates and reduce borrowing costs for homeowners. The sector’s margins dropped to a record low of 1.54 per cent as of June, well below the breakeven level of 1.8 per cent.
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ICBC said it will pay 1.434 yuan per 10 shares in interim dividends. Agbank said it would make an interim payout of 1.164 yuan for every 10 shares, while CCB will deliver a 0.197 yuan dividend.
Margins
ICBC’s net interest margin narrowed to 1.43 per cent at end-June from 1.72 per cent a year earlier. Agbank saw its margin contract to 1.45 per cent, while CCB’s margin shrank to 1.54 per cent. Bad loan ratios at all three lenders improved as of June from the end of 2023.
“ICBC’s earnings prospects may be muted on retreating revenue at least through 4Q, while stable loan quality may trim credit costs, as indicated by 1H results,” Francis Chan, a senior analyst at Bloomberg Intelligence, said in a note. “Lower asset yields, especially if mortgage refinancing is allowed, may continue to crimp margin, after 2Q’s sequential decline.”
Gains in China bank shares have reversed this week as their first-half earnings filtered out. They had hit multi-year highs as investors bet on higher dividends with other shares suffering and government bond yields slumping to near record lows.
Combined profits at China’s commercial lenders rose 0.4 per cent in the first half, the slowest pace since 2020, according to official data, constraining room for banks to boost dividend payouts.
Higher dividend distribution could erode capital buffers at the systemically important banks which are already rushing to issue debt to plug a US$224 billion so-called loss absorbency shortfall before end of the year to meet regulatory requirements. BLOOMBERG
