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Business Tianjin Magazine - Business English Magazine in ChinaFOCUS: Chinese banks to follow HSBC in axing dividend amid slumpWritten by Helen Tuesday, 17 November 2020 16:23 Chinese banks to follow HSBC in axing dividend amid slump
It was revealed by some of the nation’s most dominant lenders that this quarter has recorded the worst slump in more than a decade. Reports state that the country has asked its lenders to sacrifice their profitability to perform a national service and to support the country’s economic recovery. It is highly likely that shrinking profit would cause the lenders to hold up their capital adequacy barrier in the middle of a surge of bad loans as businesses collapse from the impacts of the COVID-19 pandemic. China’s economy shrank 6.8% in the first quarter, before rebounding 3.2% last quarter.
Chinese bank officials fear that their 2020 full-year profit will continue to grow weaker after recording about 9% to 10% drop in the first half. Their core tier-1 capital ratios have also declined as they called up provisioning for bad loans. Investors who have been accustomed to seeing a 20% to 30% payout over the years would feel blown out by scaling back dividends. This matter grabbed public attention when HSBC scrapped its final interim dividend, declaring that it was not planning any further payments. HSBC reported that their first-half profit has halved and predicts loan losses could swell to $13 billion this year. The bank’s stock has fallen more steeply than most big rivals this year, with Citigroup Inc. and JPMorgan Chase & Co. reporting declines of 44% and 29%, respectively.
Support measures imposed on banks with relation to the COVID pandemic will mean that city commercial banks will face a double headwind in capital replenishment, and worsening asset quality. Such state order might cause smaller city and rural commercial banks to feel a bigger impact, due to their limited source of earnings. Banks will be able to strengthen their tier-1 capital by 300 billion yuan to 500 billion yuan by 2024, just by slashing their dividend payout ratio from 30% to a range of 20–25% over a period of five years.
Banks have very limited avenues in refilling their core tier-1 capital, whereby the regulatory minimum requirement is at 7.5%. A part of a bank’s capital that supports them guard against unexpected expenses, core tier-1 can only be satisfied either by earnings, or common equity. State-controlled Chinese banks are not allowed to price new share placements below their per-share book value, as per the regulations. As banks fell out of favor with investors, some like Industrial and Commercial Bank of China, China Construction Bank have seen that ratio languish below one. 自2008年全球金融危机以来,中国目前正首次面临最大的盈利障碍(EARNINGS HITCH)。据推测,国内的银行可能会跟随西方银行的脚步,在2020年减少,甚至完全不支付股息。一些美国最大的几个放贷方透露,本季度有着十多年来最严重的暴跌。报告指出,政府已要求放贷方牺牲其利润来为国民提供服务,并推进该国的经济复苏。第一季度,中国经济萎缩了6.8%,但上一季度反弹了3.2%。专家预测,如果银行继续保持其通常的股息派发比率,它们可能将不得不面临资本充足率的急剧下降。银行管理人员担心,他们的2020年全年利润在上半年下降约9%至10%,之后将持续走弱。汇丰银行(HSBC)宣布不计划进一步派息,此事引起了公众的关注。本文为您介绍详细内容。
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