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WHOLESALE BANKING | Staff Reporter, China
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Big Four to cut shareholder dividends

These banks may reduce their dividend payout ratios by five percentage points to 35%.

China’s four largest state-owned banks might soon begin slashing shareholder dividends to improve profitability and bolster weakening balance sheets.

The official China Securities Journal said the move was being forced on the Big Four by China’s weaker economy that some official sources now say might grow by only 7.4% in the third quarter from 7.6% in the second.

The move to cut dividends is also being fueled by news that Central Huijin Investment, a state-owned asset management company that is the controlling shareholder in the Big Four, has already allowed these banks to reduce their dividend payout ratios by five percentage points to 35%, the Journal said.

Central Huijin Investment effectively regulates the dividend ratios at China's major banks but does not control commercial banks, however. Commercial banks have to seek permission from their major shareholders (local governments in most cases) prior to reducing dividend payments.

Analysts 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.

A recent report by Standard & Poor's said Chinese banks face far weaker balance sheets from a rising tide of bad non-performing loans and smaller net interest 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.

The Big Four banks consist of Industrial & Commercial Bank of China Ltd.; China Construction Bank Ltd.; Bank of China Ltd. and Agricultural Bank of China Ltd.

 

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