Bank of China Ltd. led Chinese banking shares higher in Hong Kong after their state-backed shareholder allowed the nation’s biggest lenders to cut dividend payouts, shoring up capital while avoiding share sales.
Bank of China, the nation’s fourth-largest lender by market value, rose as much as 1.8 percent to HK$3.45, the highest in six months. Industrial & Commercial Bank of China Ltd., the world’s biggest by market value, gained 0.5 percent at the 12 p.m. break, while China Construction Bank Corp., the second- largest, rose 0.6 percent. The Hang Seng Index increased 0.5 percent.
Dividend payouts will be cut by about 5 percentage points to 35 percent of 2011 profit at ICBC, Construction Bank and Bank of China, state-owned Central Huijin Investment Ltd. said in a statement on Feb. 3.
The move allows the lenders to avoid “large-scale” capital raising this year, Li Shanshan and Wan Li, analysts at BoCom International, said in a report. The reduction will increase retained earnings by a combined 25.5 billion yuan ($4 billion) in 2011 and boost capital adequacy ratios by a range of 9 basis points to 13 basis points, the analysts said.
China’s five biggest banks have raised about $120 billion from equity and bond sales over the past three years, according to data compiled by Bloomberg, while paying out as much as half of their profits rather than retaining earnings as capital.
Unprecedented Lending
Chinese banks extended an unprecedented $2.7 trillion of loans in 2009 and 2010 to revive the economy. The average capital adequacy ratio stood at 12.3 percent as of Sept. 30, according to the banking regulator.
ICBC, Construction Bank and Bank of China paid out about 40 percent of their 2010 profits as dividends, compared with 44 percent in 2009 and about 50 percent in 2008, according to data compiled by Bloomberg.
The payout ratio for Agricultural Bank of China Ltd. will remain at 35 percent, Huijin said Feb. 3. “The announcement is most positive for Bank of China, given its above-average capital constraints,” Cristobal Garcia, a Hong Kong-based analyst at Sanford C. Bernstein & Co. wrote in an e-mailed note today.
Huijin, set up to hold the government’s stakes in lenders, owns 35 percent of ICBC and 68 percent of Bank of China, according to statements from the two banks on Jan. 5. Huijin owns 40 percent of Agricultural Bank and 57 percent of Construction Bank, according to their third-quarter earnings reports.
The China Banking Regulatory Commission said in August that it would require the country’s largest or so-called systemically important lenders to have a minimum capital adequacy ratio of 11.5 percent by the end of 2013. Smaller banks would be required to have at least 10.5 percent under “normal conditions” by the end of 2016, the CBRC had said.