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