Central Huijin lowers dividend payouts from State banks

The decision of the country's top investment company to reduce dividend payouts from China's three big State-owned commercial banks is positive for their capital base and will raise their capital adequacy ratio, rating agency Moody's Investors Service said Monday.

Central Huijin Investment, the biggest shareholder of China's largest banks, announced on February 3 that it will cut dividend payout ratios by 5 percentage points to 35 percent of 2011 profits for Industrial and Commercial Bank of China, China Construction Bank, and Bank of China, the third straight year for Huijin to cut the ratio for the three banks, which was around 50 percent in 2008.

The proposed dividend cut can help the banks retain higher earnings so as to support their growth and prepare for more stringent capital rules in the coming years, Moody's analyst Katie Chen wrote in their Weekly Credit Outlook e-mailed to the Global Times yesterday.

"We estimate that the cut would allow the three banks to retain approximately 22 billion yuan ($3.5 billion) of capital in total, and improve their capital ratio by 8 to 12 basis points," Chen said.

Huijin's decision to cut dividend will help ease the capital pressure of the banks, but it is not practical to rely only on such means, said Luo Yuding, deputy dean of the School of Finance at Shanghai University of Finance and Economics, adding that banks will continue to face financing pressure this year.

The view is shared by Xu Cheng, a consultant at Beijing-based Adfaith Management Consulting, who believes that the dividend cut can hardly alleviate the financing pressure of the banking sector in 2012, including the three banks.

"The reduction will add 30 billion yuan of earnings to the capital base of the three banks, too small compared with around 300 billion yuan in funds raised by China's five largest banks in 2011. Chinese banks have financing demand of more than 180 billion yuan this year," he said.