ZHENGZHOU BANK clarifies the rationality of "no dividends for four years"

On the evening of June 24th, Zhengzhou Bank (002936.SZ) announced that it had received a "Shareholder Inquiry Letter" from the China Securities Small and Medium Investor Service Center, addressing the issue of "no dividends for four consecutive years," and responded to small and medium shareholders.

Small and medium investors pointed out in the inquiry letter that since 2019, Zhengzhou Bank has been profitable for four consecutive years but has not distributed cash dividends.

From 2020 to 2023, Zhengzhou Bank achieved net profits attributable to shareholders of the listed company of RMB 3.168 billion, RMB 3.226 billion, RMB 2.422 billion, and RMB 1.850 billion respectively.

However, in a special statement released in March, Zhengzhou Bank still insists on "no cash dividends, no bonus shares, and no capital reserve conversion into shares."

In response, Zhengzhou Bank stated that there is rationality in not distributing cash dividends, mainly considering three factors:

First, the profitability continues to be under pressure.

Zhengzhou Bank stated: "The bank actively responds to national policies, serves the real economy by narrowing interest rate spreads, slowing credit growth, and other factors affecting revenue growth; the bank increases provisions and accelerates the disposal of non-performing assets, leading to a rising trend in operating expenses."

Zhengzhou Bank stated that the negative impact of changes in the scale of foreign currency assets and exchange rate fluctuations in 2023 further reduced profitability year-on-year.

Second, to comply with regulatory guidance and enhance risk resilience.

Zhengzhou Bank stated that the foundation for economic recovery still needs to be strengthened. As of the end of 2023, the bank's provision coverage ratio was 174.87%, an increase of 9.14 percentage points from the previous year.

"The bank's compliance with regulatory guidance to retain undistributed profits will help further enhance the bank's risk resilience and provide guarantees for maintaining operational stability," Zhengzhou Bank said.

Third, the requirements of commercial bank capital regulation policies are becoming increasingly stringent.

Zhengzhou Bank stated that the bank has increased its support for the real economy, leading to increased capital consumption and a downward trend in capital adequacy ratio. Additionally, after the implementation of the "Commercial Bank Capital Management Measures," the measurement of credit risk assets has become more prudent, especially in terms of risk exposure measurement for real estate business, project loans, and asset management products, further increasing capital consumption.

As of the end of the first quarter, Zhengzhou Bank's revenue reached RMB 3.4 billion, a year-on-year increase of 2.47%; net profit attributable to shareholders was RMB 967 million, a year-on-year decrease of 18.57%.

The core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio, and capital adequacy ratio were 8.54%, 10.58%, and 11.85% respectively, a decrease of 0.36 percentage points, 0.55 percentage points, and 0.53 percentage points from the end of the previous year.

"For small and medium-sized banks, external capital supplementation capabilities are relatively limited, and internal capital supplementation is an important way to ensure capital adequacy," Zhengzhou Bank stated. "The undistributed profits retained by the bank will be used to supplement core Tier 1 capital, which will help alleviate the pressure of capital supplementation and maintain the long-term interests of investors."

However, the above "no dividend" situation may be broken in the future The "Stock Issuance and Listing Review Rules" and 9 other supporting business rules issued at the end of April have been clarified. Companies meeting the following three conditions will be subject to ST implementation:

1. The company had positive net profit in the most recent fiscal year and positive undistributed profits at the end of the year in the parent company's financial statements.

2. The total cash dividends in the most recent three fiscal years are less than 30% of the average annual net profit in the most recent three fiscal years.

3. The total cash dividends in the most recent three fiscal years are less than 50 million RMB.

This rule will officially take effect in 2025, with the "most recent three fiscal years" referring to the years 2022-2024.

This also means that if Zhengzhou Bank continues to refrain from cash dividends, the company may be subject to ST implementation.

Possibly related to the new regulations mentioned above, Zhengzhou Bank has included the "Proposal on the Profit Distribution Plan of Zhengzhou Bank Co., Ltd. for the Year 2023" in the agenda of the 2023 Annual Shareholders' Meeting held on June 27