Chinese commercial banks to reduce dividend payments - report
SHANGHAI, Sept 21 |
SHANGHAI, Sept 21 (Reuters) - Listed Chinese commercial banks may begin paying reduced dividends to shareholders to improve profitability and strengthen their balance sheets, the official China Securities Journal reported.
The report, citing unnamed official sources, did not say by how much dividend ratios would be reduced as the Chinese banking sector continues to struggle against slowing economic growth.
Central Huijin Investment, a state-owned asset management company that is the controlling shareholder in China's "Big Four" state-owned banks, effectively regulates the dividend ratios at China's major banks. It has already allowed those banks to reduce their dividend payout ratios by five percentage points to 35 percent, the report said.
The commercial banks are not controlled by Huijin, and would have to seek permission from their major shareholders - in most cases local governments - prior to reducing dividend payments.
Analysts quoted in the report said the move would reduce the need for Chinese commercial banks to tap capital markets, and would be welcomed by investors because it would improve the companies' credit status.
Economists are increasingly concerned that slowing economic growth in China, in particular slowing exports, will increase the risk of loan defaults by companies and local government financial vehicles (LGFVs).
A recent report by Standard & Poor's said Chinese banks face a hit on their balance sheets from rising delinquencies and tightening net interst margins.
"Damage to the top banks' balance sheets is about to surface because of a slowdown in China's economy since late 2011 and precarious global economic conditions," said Standard & Poor's credit analyst Ryan Tsang.
It has also become more difficult for banks to issue equity to raise capital, given low demand for new shares.
For example, Shanghai-listed China Everbright Bank announced in late August that it would delay its Hong Kong listing "until further notice" because of weak market conditions.
China Everbright had initially planned to raise up to $6 billion in August 2011, but later cut the size by half and eventually pulled the deal.
(Reporting by Pete Sweeney; Editing by Eric Meijer)
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