China’s top banks plan to give $42 billion in dividends

The dividends are being slashed around the world, but China’s top 3 banks plan to go ahead and give out $42 billion in dividends as the Chinese government backs the decision. The Industrial & Commercial Bank of China Ltd. and its three other biggest peers are returning more than 30% of their 2019 earnings to shareholders, implying an average dividend yield of more than 6%, according to the BloombergQuint report. Only half of what these banks are offering was given out by their US competitors.

Banks’ decision to pay out dividends under current circumstances is being questioned.

Currently, banks are facing trillions of yuan of potential credit losses from the impact of the coronavirus pandemic. There’s a debate going on whether China’s banks should maintain payouts to keep investors, especially their government owners, happy at the cost of their own deteriorating capital strength. Nicholas Zhu, an analyst at Moody’s Investor Service in Beijing, said that maintaining a high dividend payout is part of Chinese banks’ social responsibilities, especially now when the fiscal budget is tight. She added that the pandemic will disintegrate their capital slowly and gradually. Therefore any reduction in dividend payout will come as a step-by-step process rather than a treatment shock.

 

Several countries scrapped dividends to meet demands from regulators.

Banks in the UK and Denmark dismissed dividends to meet demands from regulators, while payouts were hit in Switzerland and Australia as financial watchdogs there encouraged lenders to preserve capital. And in the United States, eight giant banks, including JPMorgan Chase & Co., are for sticking to dividend payouts. But the banks have canceled share buybacks to support clients and the nation during the coronavirus pandemic. 

However, if there are any dividend adjustments to be made, it will come at the direction of Beijing, where there’s often a tug-of-war among regulators and departments with different priorities. The Finance Ministry and China’s sovereign wealth fund control more than two-thirds of shares of the so-called big-four banks and are keen on maintaining payouts.