ICBC pays 6.1%, while CCB and BoC pay 6%. If it had AgBank, it would get 6.4%.
Contrast this with the dividend yield it gets from
— DBS: 4.4% (UOB’s yield is 2.9% and OCBC’s is 3.2%)
— Bank Danamon: 2.4%
— StanChart: 3.5% (BTW, earlier this month the bank said that it was no longer targeting double digit revenue growth this year. Year-on-year revenue growth in the first six months was less than 5% for the first time in 10 yrs.)
But Chinese bank yields are so gd largely because Chinese banks are not popular with ang mohs: one-tenth share price falls this yr helped produce these yields. https://atans1.wordpress.com/2013/07/02/time-to-worry-about-temaseks-strategy-on-chinese-banks/
And there are gd reasons to be fearful. One is concern that there could be more bad debts building up in the system as the economy slows/
Another: ChinaScope Financial, a research firm, has analysed how increased competition and declining net interest margins will affect banks operating in China. The boffins conclude that the smallest local outfits, known as city commercial banks, and the middling private-sector banks will be hit hardest, but that returns on equity at the big five state banks will also be squeezed (see chart). They think the industry will need $50 billion-100 billion in extra capital over the next two years to keep its capital ratios stable.
The bigger worry for China’s state banks is the signal sent by the PBOC’s move. The central bank has affirmed its commitment to reform. If those reforms include the liberalisation of deposit rates, then something far more serious than a minor profit squeeze will befall China’s banks. Guaranteed profitability would end; banks would have to compete for customers; and risk management would suddenly matter. In short, Chinese bankers would have to start working for a living.
And two of China’s four “bad’ banks (they bot portfolios of dud loans from Chinese banks, the last time the Chinese cleaned up their banks in the late 1990s and early noughtie), are planning to raise capital via IPOs. They have impressive returns. But maybe China is preparing for the day it has to recapitalise the banks again. In such a case, the UK and US experience is that the other shareholders get diluted, and can lose serious money. Think UBS and RBS.
Even if there is no recapitalisation, there are likely to be rights issues, something that ang moh fund mgrs don’t like.
But to be fair, this big chart shows a possible reason why Temask is optimistic. Despite loan growth, bad loans are falling. But the economy was growing rapidly. And sceptics point out that the numbers may be flakey. In the 1990s, the real bad loan position was 20%, not the lowish figures reported at the time. Investors forget this ’cause banks were 100% govt owned.
Related (sort of) link: http://wikileaks.org/cable/2009/06/09SINGAPORE588.html
Graphics from FT.