Who is More Worth Entrusting in the Low Interest Era to See the Bottom Card of Dividend Distribution for Small and Medium sized Banks
2024-05-23
Against the backdrop of declining risk appetite, high dividend strategies are favored by the market. When it comes to "Hao Qi Dividend Tian Tuan", it definitely cannot bypass listed banks. Every year during the financial reporting season, it is common to hear news of listed banks offering large dividends worth billions of yuan. "I was interested in bank stocks a few years ago, with relatively stable stock prices and high dividends, which is stronger than many wealth management products." Beijing resident Xiao Peng said. In the past five years, the cash dividend ratio of the six major state-owned banks has remained stable at 30% or above, and the dividend yield of several listed banks has exceeded 6%. In response to the requirements of the new Article 9 of the People's Republic of China, several listed banks have recently revealed their intention to distribute mid-term dividends. However, in the context of continuous narrowing of net interest margin and pressure on capital replenishment capacity, how to balance the seesaw between shareholder returns and their own development is an important issue facing banks. Industry insiders say that banks often lack core tier one capital, and issuing bonds to replenish non core tier one capital is often used to supplement tier two capital and tier one capital. In the long run, relying mainly on internal growth and supplemented by external sources can address both the symptoms and the root cause of the problem of bank capital replenishment. In 2023, the planned dividend amount of the six state-owned banks alone exceeded 410 billion yuan. In the past five years, the dividend ratio of the six state-owned banks has remained stable at 30%. The dividend situation of other types of banks presents a differentiated situation. Among joint-stock banks, Industrial Bank and China Merchants Bank have continuously increased their dividend payout ratios in recent years. In 2023, China Merchants Bank's cash dividend ratio was 35%, ranking first among listed banks. In the past five years, the cash dividend ratio of China Merchants Bank has not been less than 33%. Huaxia Bank, Zhejiang Commercial Bank, and others have lowered their cash dividend ratio in 2023. Luo Feng, Vice President of Zhejiang Commercial Bank, said, "The 37% dividend ratio in 2022 was increased due to the previous year's failure to distribute dividends in order to avoid affecting the rights issue process. For a long period of time in the future, Zhejiang Commercial Bank is confident that it will maintain an annual dividend ratio of over 30%." In terms of urban rural commercial banks, the differentiation situation has further emerged. In the past three years, the dividend ratio of Bank of Beijing, Bank of Nanjing, Bank of Jiangsu, Bank of Chongqing and other banks has remained above 30%, while Xiamen Bank, Bank of Chengdu, and Chongqing Rural Commercial Bank have steadily increased their dividend ratio. However, Bank of Qingdao, Bank of Xi'an, Bank of Changshu, and Bank of Sunong have shown a significant decline. It is worth noting that in the past three years, the dividend payout ratio of Ningbo Bank, the "top students" in urban commercial banks, has been below 20%. The dividend ratio in 2023 was 16%, a slight increase from 14.8% in 2022. Zhengzhou Bank is the only listed bank that has not distributed dividends for four consecutive years. The dividend differentiation of small and medium-sized banks is closely related to their ability to replenish endogenous capital, which forms a seesaw with capital replenishment. "On the one hand, it is the differentiation of profitability itself, and on the other hand, it is limited by capital adequacy ratio. Some banks use more profits to supplement capital and improve long-term sustainable net profitability," said Lou Feipeng, a researcher at Postal Savings Bank of China. Regarding the failure to distribute dividends in 2023, Zhengzhou Bank responded that the main reason is that the bank's profitability has been affected to a certain extent; Following regulatory guidance to retain undistributed profits will be beneficial for further enhancing risk resilience; The capital regulatory policies of commercial banks are becoming increasingly stringent, and the retained undistributed profits will be used as a supplement to the bank's core tier one capital. "The profit distribution plan for 2023 is to distribute a cash dividend of 6 yuan (including tax) for every 10 shares of common stock, mainly considering that the company's business is still maintaining a rapid growth rate. The current distribution plan is conducive to the company's internal capital growth while ensuring investors' liquidity needs." Recently, Yu Gang, Secretary of the Board of Directors of Ningbo Bank, stated. The high dividend payout of banks is a seesaw, with one end providing returns to investors, which is beneficial for market value growth, and the other end affecting endogenous capital growth. Especially in the context of continuous narrowing of interest rate spreads, if the balance is not good, it may have a negative impact on long-term development. Therefore, for listed banks, higher dividends are not necessarily better. Wang Yifeng, a banking analyst at Everbright Securities, stated that the focus is on balancing the four variables, namely RWA (Risk Weighted Assets) ROE (Return on Equity), capital adequacy ratio, and corresponding dividend ratio. "At present, state-owned large banks and some joint-stock banks have a stable dividend ratio of over 30%, and their ROE can remain stable at over 10%.", The RWA is controlled at 7% -8%, and the overall balance is calculated. The capital adequacy ratio can meet regulatory requirements. However, some joint-stock banks and urban rural commercial banks have a contradiction between dividends and capital replenishment The level of ROE determines the endogenous capital replenishment ability of banks; The speed of RWA growth determines the consumption of bank capital, and conversely, the adequacy of bank capital determines the growth rate of RWA. A person from a commercial bank in a certain city stated that the regulatory attitude towards bank capital, profits, and credit allocation is that bank profits are too high to squeeze entities, and profits are too low to supplement capital. A portion of the profits of commercial banks are used to pay income tax, another portion is used for common stock dividend distribution, and the remaining portion is used to supplement core Tier 1 capital. If there is pressure on bank capital, then the ability to provide credit will be constrained. The vice president of a certain joint-stock bank said, "Large banks no longer attach great importance to scale growth, and everyone is seeking high-quality development, so the RWA growth rate is generally controlled at 6% -8%. Therefore, for us, capital replenishment pressure is not bad. However, for some small and medium-sized banks, they are still concerned about scale and market share, so the pressure is heavier. Some small and medium-sized banks with poor operating performance hate to have to pay dividends." Some small and medium-sized banks face a dilemma of expanding their asset size and need to rely on sufficient capital as a foundation. While improving the quality and efficiency of financial services for the real economy, banks also need to strengthen risk buffers. In 2023, the net interest margin of banks will continue to narrow, and the growth rate of net profit will decline. The decline in net profit growth will to some extent constrain the sustainability of capital replenishment through retained earnings. Against the backdrop of current economic recovery and increased efforts to serve the real economy, the sustained growth of bank credit has intensified capital consumption by banks. Commercial banks need to expand their capital to support the increase in credit lending. Under the downward pressure of the economy, the non-performing loan ratio of some banks has risen, causing a decrease in capital adequacy ratio, an increase in write off scale and risk provision, weakening the supplementary role of internal channels, and exacerbating the insufficient capital of banks. According to data from the State Administration for Financial Regulation, as of the end of 2023, the capital adequacy ratio, Tier 1 capital adequacy ratio, and core Tier 1 capital adequacy ratio of commercial banks were 15.06%, 12.12%, and 10.54%, respectively, a decrease of 0.11, 0.18, and 0.2 percentage points compared to the end of 2022. In the 2023 annual reports disclosed by listed banks, it can also be seen that the core Tier 1 capital adequacy ratio of multiple banks has declined year-on-year. Currently, some banks are relatively short of capital. The Capital Management Measures for Commercial Banks, which came into effect on January 1st this year, have put forward higher requirements for bank capital supplementation: the minimum requirement for capital adequacy ratios at all levels of commercial banks is a core tier one capital adequacy ratio of 5%, a tier one capital adequacy ratio of 6%, and a capital adequacy ratio of 8%. In addition, commercial banks should set aside reserve capital on the basis of minimum capital requirements. The reserve capital requirement is 2.5% of risk weighted assets, to be met by core Tier 1 capital. That is to say, all banks need to add 2.5 percentage points to their minimum capital requirements, and their capital adequacy ratios must reach 7.5% (core tier 1), 8.5% (tier 1), and 10.5% or above. Currently, some banks are facing a relative shortage of capital. According to the first quarter report of listed banks, as of the end of the first quarter, the core Tier 1 capital adequacy ratios of Qingdao Bank, Shanghai Pudong Development Bank, Zhejiang Commercial Bank, Zhengzhou Bank, Lanzhou Bank, Hangzhou Bank, and Chengdu Bank were below 9%; The first tier capital adequacy ratio of Lanzhou Bank, Zhejiang Commercial Bank, Hangzhou Bank, and Chengdu Bank is below 10%; The capital adequacy ratios of Zhengzhou Bank, Sunong Bank, and Lanzhou Bank are below 12%. Debt issuance has become an important path for many banks to seek capital replenishment. There are two ways for commercial banks to supplement their capital: one is through internal channels of profit conversion, and the other is through external channels, including IPO, rights issue, targeted issuance, convertible bonds, preferred shares, perpetual bonds, government special bonds, etc. Small and medium-sized banks face more challenges in capital replenishment, among which issuing perpetual bonds is a relatively easy way to achieve, and government special bonds can also form a certain supplement. "What is currently most scarce is core tier one capital, and bank bond issuance often supplements tier two capital and non core tier one capital. Therefore, we are seeking overseas private equity, hoping to supplement core tier one capital," said the vice president of a certain joint-stock bank. Peng Shujun, the first level senior manager of Hunan Associated Press, stated that the ideal model for capital replenishment in commercial banks should be mainly based on internal sources and supplemented by external sources. In the short term, it is difficult for banks to supplement endogenous capital, but in the long run, it is more realistic, operable, and sustainable; While moderately addressing the symptoms of exogenous supplementation, it is necessary to continuously consolidate the foundation for high-quality development of the financial industry and promote the improvement of the ability to address the root cause of endogenous supplementation. At the same time, the key for commercial banks to achieve endogenous capital replenishment is to maintain stable profit growth, which is also an internal skill that banks must attach importance to and practice well. Specifically, asset allocation management can be strengthened, including managing asset size, structure, duration, and leverage ratios in the context of economic cycles, market supply and demand. On the one hand, asset allocation management will directly affect the level of returns, and on the other hand, it will be related to changes in asset quality. Only by maintaining a reasonable level of net interest margin can we maintain reasonable income and profits. Strengthening accounting and financial management, achieving profit growth and reasonable distribution are important means. Pay close attention to the issue of provision for impairment losses. On the one hand, sufficient provisions should be made according to the balance and weight of non-performing assets, without leaving any gaps; On the other hand, by improving asset quality, it can effectively reduce excessive provision amounts and squeeze profit margins. Reasonably arrange stock and cash dividends. For institutions with poor performance in annual quality and efficiency indicators, cash dividends may not be issued in accordance with the law and regulations to improve capital adequacy and enhance endogenous development momentum. Recently, more than ten banks have disclosed their intention to distribute mid-term dividends in response to the requirements of the new National Ninth Article. Industry insiders believe that increasing the frequency of dividends for listed banks can help stabilize stock prices. However, the frequency of dividends is not the most important, what is important is to steadily increase the dividend ratio based on business performance. In the view of industry insiders, increasing the dividend ratio should be based on good business performance, balancing the concerns of shareholders, employees, investors, depositors and other stakeholders, and fully considering and properly handling the relationship between short-term dividends and long-term development. In 2024, facing pressures such as narrowing net interest margin and declining profits, listed banks should first open up sources and cut costs, striving to maintain stable profit growth. At the same time, capital should be appropriately supplemented through profit retention and other means to enhance risk offsetting ability. Zeng Gang, director of the Shanghai National Financial Development Laboratory, believes that for most listed banks, it is necessary to moderately increase dividends and maintain a certain proportion of dividends. "The operational capabilities of listed banks are relatively good, and moderate dividends will not have a significant impact on their operations and capital replenishment. In the long run, dividends will help listed banks maintain a good social image, promote market value improvement, and have a positive effect on subsequent financing." (Xinhua)
Edit：Lubaikang Responsible editor：Chenze
Source：cs.com.cn
Special statement: if the pictures and texts reproduced or quoted on this site infringe your legitimate rights and interests, please contact this site, and this site will correct and delete them in time. For copyright issues and website cooperation, please contact through outlook new era email：lwxsd@liaowanghn.com
Economy
Recommended Reading Change it 
Home
