After four consecutive years of no dividends, Bank of Zhengzhou recently made a positive response.
On June 25, Bank of Zhengzhou issued an announcement on the reply to the Shareholder Inquiry Letter of the China Securities Small and Medium-sized Investor Service Center (hereinafter referred to as the "Investment Service Center"). In the announcement, Bank of Zhengzhou gave three reasons for not paying dividends in 2023, and said that "in order to ensure the bank's steady operation and long-term sustainable development, it is reasonable for the bank not to pay cash dividends in 2023".
No dividends have been paid for four consecutive years
Since the release of the "New Nine Measures" in April, among the 42 A-share listed banks in 2023, only Bank of Zhengzhou has not paid dividends annually, which has attracted investors' attention.
It is understood that Bank of Zhengzhou has not paid dividends in the past four years since its annual dividend in 2019. According to the new regulations of the exchange, if Bank of Zhengzhou does not implement the dividend plan in 2024, it will be included in the "implementation of other risk warnings (ST)".
Recently, the Investment Service Center also officially issued a "Shareholder Inquiry Letter" to Bank of Zhengzhou, requiring it to publicly explain the reasonableness of not paying cash dividends and explain what measures it intends to take to enhance the level of investor returns.
According to the announcement of Bank of Zhengzhou, the company's net profit attributable to shareholders of listed companies from 2020 to 2023 will be 3,167,567,000 yuan, 3,226,192,000 yuan, 2,422,304,000 yuan, and 1,850,117,000 yuan respectively. However, since the cash dividend in 2019, the bank has been profitable for four consecutive years but has not paid cash dividends. As of the end of the 2023 reporting period, the undistributed profit at the end of the interim statement of the company's parent company was 14.917 billion yuan.
In the "Shareholder Inquiry Letter", the Investment Service Center stated: "Please explain in detail the reasonableness of not paying cash dividends and explain what measures you intend to take to enhance the level of investor returns by comparing the announced reasons for not paying cash dividends and the provisions on cash dividends in the articles of association of the company." ”
Bank of Zhengzhou gave three reasons
On June 25, Bank of Zhengzhou issued an announcement saying that it attached great importance to receiving the letter and organized relevant departments to reply to the questions mentioned in the shareholders' inquiry letter, and that the bank would not pay cash dividends in 2023, mainly considering the following three factors:
First, profitability continues to be under pressure. On the one hand, in the face of a complex and severe economic environment, in recent years, the bank has actively responded to national policies, fulfilled the social responsibility of local financial institutions, and served the real economy for the benefit of the economy, and the return on interest-bearing assets continued to decline. On the other hand, the bank increased provisions and accelerated the disposal of non-performing assets, resulting in an upward trend in operating expenses. In 2023, the bank's profitability further declined year-on-year due to the negative impact of changes in the scale of foreign currency assets and exchange rate fluctuations on operating income.
The second is to comply with regulatory guidance and enhance risk resistance. At present, the foundation of economic recovery still needs to be consolidated, and the bank earnestly implements the decision-making arrangements of governments at all levels, intensifies the disposal of risk assets, and strives to reduce the impact of risk assets on profits. As of the end of 2023, the bank's provision coverage ratio was 174.87%, an increase of 9.14 percentage points from the end of the previous year. Complying with regulatory guidance to retain undistributed profits will help the bank further enhance its risk resilience and provide a guarantee for maintaining operational stability.
Third, the requirements of the capital supervision policy of commercial banks are becoming increasingly stringent. In recent years, the bank has actively responded to regulatory requirements and increased support for the real economy, with capital consumption increasing and capital adequacy ratio showing a downward trend. As of the end of 2023, the bank's core Tier 1 capital adequacy ratio was 8.90%, down 0.39 percentage points from the end of the previous year. At the same time, from January 1, 2024, the Measures for the Management of Capital of Commercial Banks came into effect, and in terms of the measurement method of credit risk assets, the risk exposure measurement of real estate business, project loans and asset management products has been more prudent, further increasing capital consumption.
Bank of Zhengzhou emphasized that for small and medium-sized banks, the ability to replenish capital through external channels is relatively limited, and endogenous capital replenishment is an important way to ensure capital adequacy, especially the core Tier 1 capital adequacy level. Therefore, the bank's retained undistributed profits will be used to replenish core Tier 1 capital, which is conducive to alleviating the pressure on capital replenishment and improving capital adequacy to support business development and safeguard the long-term interests of investors.
"To sum up, considering the current situation of continuous pressure on profitability, retaining undistributed profits is conducive to strengthening risk resilience and responding to changes in the regulatory environment, and in order to ensure the steady operation and long-term sustainable development of Bank of Zhengzhou, it is reasonable for the bank not to pay cash dividends in 2023." Bank of Zhengzhou said.
Three measures will be taken
Enhance investor returns
In addition, in the face of the inquiry of the investment service center, Bank of Zhengzhou stated in the announcement that the bank will take high-quality development as the breakthrough point, strive to improve its operation and management capabilities, improve the risk prevention and control mechanism, obtain a balanced development of scale, profitability and risk, and create greater returns for investors.
First, we will resolutely implement major provincial and municipal decisions and deployments, continue to fulfill the social responsibility of local financial institutions, and serve the real economy. Return to the origin, focus on the main business, take the path of differentiated operation, and enhance market competitiveness and sustainable development ability.
The second is to optimize the asset-liability structure and continue to increase revenue and reduce expenditure. Strengthen the control of investment structure, investment progress, and investment interest rate, and improve the level of asset returns. Through measures such as optimizing the allocation of debt maturity and regional differentiated pricing, we will refine the control of the debt structure, reasonably reduce the cost of interest payment, and ensure the stability of operating indicators.
Third, we will continue to improve our risk management and control capabilities, adhere to a prudent and stable risk culture and risk appetite, strengthen policy research, and continuously improve the risk management framework that is compatible with market positioning and business level. By strengthening the efforts to clear interest and strengthening the management of write-off business, the asset quality will be consolidated, and the overall profit will be contributed and supported. Adhere to the risk of "reducing the old and controlling the new" at the same time, and continue to enhance the ability to offset risks.
A brokerage analyst said that judging from the annual report data of Bank of Zhengzhou, the bank's core tier 1 capital adequacy ratio and capital adequacy have declined, and the pressure on capital replenishment is indeed greater. However, there are still other ways for listed banks to replenish their capital, and objectively speaking, banks still need to give back to investors through various means such as dividends to stabilize market confidence.
It is understood that Bank of Zhengzhou will hold the 2023 annual general meeting of shareholders on June 27, at which 11 proposals including the "Proposal on the 2023 Profit Distribution Plan of Bank of Zhengzhou Co., Ltd." will be reviewed for all shareholders.
Source: Financial Times Client Reporter: Yu Jiaxin Editor: Yang Jingyi Email: [email protected]