Reserve "Safety Cushions" with Confidence in Dividend Distribution: Private Placements of the Four Major State-owned Banks

Shanghai Securities News, www.cnstock.com          Ma Min

On March 30, Bank of China Limited, China Construction Bank Corporation, Bank of Communications Co., Ltd., and Postal Savings Bank of China Co., Ltd. released their private placement plans. It is expected that a total of more than 500 billion yuan will be obtained to enrich the core capital.

Reservation of More "Safety Cushions"

The 2024 annual reports of the six major banks have all been released. In that year, their combined operating revenue was 3.52 trillion yuan and the net profit attributable to the parent company was 1.4 trillion yuan, both achieving positive growth. However, in the process of serving the real economy, the net interest margin of the banking industry narrowed, and the growth rate of net profit faced the risk of decline. The decline in profitability means that the ability to replenish endogenous capital has decreased. The private placements of A-shares can help major state-owned banks cope with profit fluctuations and enhance their risk resistance. Bank of China Limited plans to issue A-shares to the Ministry of Finance to raise no more than 165 billion yuan. China Construction Bank Corporation plans to issue A-shares to the Ministry of Finance to raise no more than 105 billion yuan. Bank of Communications Co., Ltd. plans to issue A-shares to the Ministry of Finance, China Tobacco, and Shuangwei Investment to raise no more than 120 billion yuan. Postal Savings Bank of China Co., Ltd. plans to issue A-shares to the Ministry of Finance, China Mobile Limited, and China State Shipbuilding Corporation Limited to raise 130 billion yuan. All of the aforementioned funds will be used to replenish core tier-1 capital.

Greater Confidence in Dividend Distribution

State-owned banks have always been major dividend payers. The six major banks planned to distribute year-end dividends of over 215.8 billion yuan in 2024. Together with interim dividends, the annual total amount would exceed 420 billion yuan. As of the end of 2024, the core tier-1 capital adequacy ratios of the six major banks had all increased compared with those at the end of 2023 and were higher than regulatory requirements. However, for long-term development, capital still should be replenished. This round of capital replenishment has consolidated the confidence of state-owned banks in continuous dividend distribution.

Improvement of Profit Expectations

Improving the core tier-1 capital adequacy ratio can alleviate market concerns about bank asset quality, lower systemic risk expectations, and open up valuation repair channels. Analysts have pointed out that replenishing core tier-1 capital can allow banks to expand the scale of risk-weighted assets, leverage more credit loan issuance, improve the revenue structure, hedge against the pressure of declining profits, and enhance market expectations for banks' future profits. In addition, the private placements demonstrate the central government's confidence in major state-owned banks, sends a policy signal of financial system stability, alleviates investors' concerns about the potential risks of banks, and enhances market risk preference.

The above information is provided for reference purposes only and does not constitute investment advice.