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RETAIL BANKING | Staff Reporter, Singapore
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Asian banks urged to cut dividends by 50%: Barclays

Dividend cuts will be needed to fund regualtory capital increases.

Here's more from Barclays Research:

Given the healthy Tier 1 ratios today, we find that regulatory capital is at risk only in the event of meaningful earnings downside or material increase in RWA growth. Indonesia, China and India have the strongest capital generation.

However, both starting Tier 1 and forecast RWA growth are lower for China while (NIM-related) earnings risks are higher, suggesting a greater risk of capital raising (or dividend cuts). In a downturn scenario, in which earnings are 25% lower than forecast and RWA growth 1.3 times faster (as a result of fiscal stimulus, for example), we believe there would be a high risk of capital raising in China with a greater risk at the smaller banks.

Considering risks, capital generation and current capital ratios, the Indonesian and Singapore banks appear best positioned. In a downturn, we argue the best initial form of capital raising would be for banks to cut dividend payouts by at least 50%.

Top picks: Following the results in Singapore and a reassessment of risks and valuations in China, we remove OCBC and add ICBC to our top pick list, which also includes HSBC Holdings, UOB Group, Mega FHC, Hana Financial, State Bank of India; and Bank Rakyat. All these stocks are rated OW (refer to page 2 for details).

The week ahead: A couple of economies will make rate decisions in the coming week, including Australia, Japan, the UK, Indonesia and Korea. Elsewhere, Indonesia, Hong Kong and Singapore are reporting their GDP. Big bank results are due in Singapore, India and Australia.

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