Chinese banks have huge NPL. In the past, the government (at different levels) would step in to assist ailing companies. Most of the loans belong to State owned enterprises (because most banks don't lend to non-SOEs) so their loans, even NPL, aren't seen by Chinese investors are very risky, even despite the fact that defaults on borrowings have gone up a lot the past 2 years (because the government didn't bail out a few companies).
Investors buying in for the dividend you're basically betting on the status quo or better going forward. Like NPL collections will improve, companies will increase in quality (so cash flow to service loans will improve), exchange rates will improve between RMB:USD, etc. and I'm pretty skeptical... especially as the PRC economy slows, many of the highly levered companies are going to be hit hard so the banks should be disproportionately hurt by a slowing PRC economy.
I don't think the Chinese bank capital position is strong. I think it's just OK. The PRC government recently actually eased capital requirements - something they wouldn't have done imo if the balance sheets were very robust.
Originally Posted by traineeinvestor:
I've only looked at the big 4 PRC banks. On paper their capital position looks strong but there is no shortage of commentators claiming that exposure to under performing and defaulting loans is either understated or massively understated. I've got no idea whether this is correct or not but these claims have been made for many years with no indication that they are eventuating.
As far as dividends are concerned, CCB (the only one I hold) there has been no growth in dividends for the last 5 years. Also there's a 10% withholding tax for HK residents so the net yield is around 5%.
I basically keep a few companies like this for the income with the possibility of some modest growth over the longer term and there has been a very glacial increase in the share price.
HSBC (also held for the income) has also been a steady payer offering a nice yield over the time I've held it but also providing only very limited share price appreciation. If you go back longer, the dividend has been less consistent and the share prices has fallen a long way from pre-GFC levels.
Side note: HSBC pays quarterly while CCB pays annually.