(Bloomberg) -- Bank of Communications Co., one of China’s largest state-owned lenders, announced its first interim dividend in more than a decade despite a decline in profits.
The Shanghai-based bank, part owned by HSBC Holdings Plc, declared a payout of 13.5 billion yuan ($1.9 billion), or 0.182 yuan a share, according to a filing Wednesday, marking its first semi-annual distribution since 2010. Net income for the six months ended June 30 fell 1.6% to 45.3 billion yuan.
Bocom’s move came after the securities regulator last year encouraged listed firms to raise their cash payouts to boost investor returns as stocks slumped. That has prompted companies including the biggest state lenders to consider interim dividends even as they battle sharp contractions in margins and rising bad loans amid a sluggish domestic economy.
The bank aims to maintain stable margins for the year and strive for an improvement, “but it’s a tough task,” said Zhou Wanfu, a Bocom executive vice president. The effects of lower mortgage and loan prime rates will kick in later this year, he said.
The results kick-started the earnings season for China’s mega banks, with Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd. reporting later in the week.
All of the big five state lenders said earlier this month they plan to hold board meetings to consider an interim dividend. Bank shares have surged to multi-year highs this year on payout bets and state support as yields on the country’s sovereign bonds have tumbled near record lows.
Bocom shares hit the highest since July 2015 earlier this month in Shanghai. The shares slid 1.1% in Shanghai on Wednesday.
The cash dividend is still subject to approval and expected to be distributed in January.
Still, their room for more distribution will be capped as combined profits at China’s commercial lenders edged up only 0.4% in the first half, the slowest pace since 2020, according to the banking regulator.
The sector’s net interest margin tumbled to a record low of 1.54% as of end-June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.
Margins are set to slide further amid more central bank easing, according to Bloomberg Intelligence, while loan growth could also slow to a high-single digit from double digits.
Bocom’s net interest margin narrowed to 1.29% at the of June from 1.31% a year earlier. Its non-performing loan ratio fell to 1.32% from 1.33% in December, though the total bad loan balance rose. The ratio for the property sector eased to 4.97% from 4.99%.
Higher dividend distribution could also erode capital buffers at the systemically important banks which are already rushing to issue debt to plug a $224 billion so-called loss absorbency shortfall before end of the year to meet regulatory requirements.
ICBC and BOC had each sold 40 billion yuan of total loss absorbing capacity bonds in May, while CCB sold 50 billion yuan of the debt in August.
Bocom, in which HSBC owns about 19%, has only paid interim dividends three times before during 2008-2010.
He Zhaobin, the bank’s secretary, said the firm’s dividend payout ratio has been above 30% for 12 consecutive years, a level where it will be maintained. Lowering the dividend ratio to ease capital pressure has never been an option, he said at an earnings briefing on Wednesday.
The capital adequacy ratio improved to 16.34% as of June, up from 15.27% at the end of 2023.
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