Central Huijin Investment Co, an investment arm of China's sovereign wealth fund, is likely to ask State-run lenders to pare dividend payouts, or reinvest the dividend proceeds accrued to it in any likely new share sales undertaken by the banks next year, a source with knowledge of the matter said.
This is the investment unit's latest effort to help augment the capital position of major Chinese lenders, which are reportedly facing a capital shortage due to the massive lending spree seen so far this year.
"As the largest shareholder of the nation's three biggest listed banks, Huijin may propose to lower the proportion of dividends to be allocated to shareholders at the board meeting of these banks next year," the source told China Daily yesterday on condition of anonymity due to the sensitive nature of the matter.
Conventionally, the nation's three major State-run lenders - the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC) - distribute some 40 percent of the profits they earn to shareholders. Central Huijin takes a dominant position on the board of these banks on behalf of the Chinese government.
Another option Central Huijin may take recourse to would be use the dividends it receives to buy new shares issued by the banks next year, according to the source.
"However, it is still premature to get down to the details, as a final decision is likely only in April next year after the banks release their annual results," the source said.
The capital positions of major State-controlled banks have been under close market watch, as there are widespread concerns that the credit flood this year may have strained Chinese lenders.
Bank of China, for example, saw its capital adequacy ratio drop to 11.6 percent by the end of September from 13.4 percent at the beginning of the year.
Wang Han, a Hong Kong-based analyst at Guotai Jun'an Securities, said in a research note that if the three banks could be exempt from paying dividends to Central Huijin this year, then the retained surplus could help them boost capital adequacy ratios by some 50 basis points.
"This is definitely good news for the banks. Although the move is not officially confirmed, the potential capital infusion from Central Huijin is in line with the government's tone of maintaining a moderately loose monetary policy and will be conducive to credit expansion next year," Wang said.
It was reported on Nov 25 that major Chinese banks were likely to raise several billions of yuan to replenish their capital through share and bond sales. The news hurt investor sentiment, and the Shanghai Composite Index plunged 3.43 percent on that day.
BOC and CCB press officers contacted by China Daily said they were not aware of any such moves by Central Huijin. An ICBC spokesman cited by Bloomberg said the development was a possibility.
The A shares of ICBC, CCB and BOC gained 1.33 percent, 0.84 percent and 0.72 percent yesterday on the news.
Chinese banks, under pressure from regulators to shore up their finances, were mulling plans to replenish capital through share sales or bond issuance, sources said. However, ICBC, CCB and BOC all last week said that there were no specific fund-raising plans that could be shared at the moment.
The China Banking Regulatory Commission, the country's top banking regulator, has repeatedly warned Chinese banks against the risk of rapid lending, and urged them to lift the bad loan provision ratio to beyond 150 percent by the end of the year.
