ICBC, Bank of China cut div­i­dend as growth stalls

The Pak Banker - - COMPANIES/BOSS -

In­dus­trial & Com­mer­cial Bank of China Ltd. and Bank of China Ltd., two of the na­tion's largest state-con­trolled lenders, cut their div­i­dend pay­out ra­tios for 2015 as profit growth stalled amid ris­ing bad loans.

Net in­come at ICBC rose 0.5 per­cent to 277.1 bil­lion yuan ($42.8 bil­lion) last year while Bank of China re­ported a 0.7 per­cent profit gain, the Bei­jing-based lenders re­ported to the Hong Kong ex­change on Wed­nes­day. The per­cent­age of profit they paid out as div­i­dends fell to about 30 per­cent from 33 per­cent in 2014 as the two lenders sought to pre­serve cap­i­tal.

Slow­ing eco­nomic growth and record lev­els of cor­po­rate debt have driven Chi­nese banks' bad loans to a decade high, putting at risk more than a decade of an­nual profit gains and hurt­ing their abil­ity to re­turn money to share­hold­ers. The gov­ern­ment is con­sid­er­ing var­i­ous mea­sures to bol­ster lenders' bal­ance sheets, in­clud­ing cutting the min­i­mum amount of pro­vi­sions banks have to set aside to cover their bad loans.

"There's a high chance that the reg­u­la­tor will cut the bad-loan cov­er­age re­quire­ment, which is too high com­pared with global peers," said Richard Cao, a Shen­zhen-based an­a­lyst at Guo­tai Ju­nan Se­cu­ri­ties Co. "With­out that hap­pen­ing this year, the big banks will have trou­ble main­tain­ing their cur­rent div­i­dend pay­out level."

ICBC and Bank of China's bad-loan cov­er­age ra­tios by the end of last year had fallen to just above the cur­rent reg­u­la­tory min­i­mum of 150 per­cent even as they boosted pro­vi­sions by at least 23 per­cent. ICBC's ra­tio dropped to 156 per­cent from 207 per­cent in 2014, while Bank of China's slid to 153 per­cent from 188 per­cent.

Among other steps China is con­sid­er­ing to help clean up lenders' bal­ance sheets, au­thor­i­ties are draft­ing rules to make it eas­ier for banks to con­vert bad loans into eq­uity stakes in debtor com­pa­nies, peo­ple familiar with the mat­ter said ear­lier this month. Reg­u­la­tors will also al­low do­mes­tic banks to is­sue up to 50 bil­lion yuan of bad loan-backed se­cu­ri­ties to re­move soured credit from their books, other peo­ple have said.

Against the back­drop of the slow­ing econ­omy, tur­moil in the stock mar­ket and gov­ern­ment mea­sures to curb over­ca­pac­ity in man­u­fac­tur­ing, bad debt in China's bank­ing in­dus­try jumped 51 per­cent last year to 1.27 tril­lion yuan, data from the bank reg­u­la­tor show.

ICBC had 179.5 bil­lion yuan of non­per­form­ing loans as of De­cem­ber, an in­crease of 44 per­cent from a year ear­lier. Adding so-called spe­cial-men­tion loans, which have yet to be de­clared non­per­form­ing though fu­ture re­pay­ments are at risk, the lender's trou­bled lend­ing rose to 700 bil­lion yuan, or 4 per­cent of its to­tal ad­vances. Bank of China's non­per­form­ing loans rose 30 per­cent. Wors­en­ing as­set qual­ity is weigh­ing on prof­its just as cen­tral bank in­ter­e­strate cuts to com­bat de­fla­tion put pres­sure on lend­ing mar­gins and the gov­ern­ment dereg­u­lates finance to in­ten­sify com­pe­ti­tion.

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