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Stocks

China's big 4 banks still attractive despite weak results

HONG KONG -- Even though they logged small profit gains for 2015 and face the threat of growing sour loans, the four major Chinese commercial banks still appeal to investors who are now focusing on state-backed investments in the banks and their large dividends.

     Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Bank of China (BOC) had announced full-year net profit gains of less than 1% by Thursday. Nonperforming loans increased in both value and as a share of total lending over the final three months of the year. But the banks' stocks did not suffer too much Friday in Hong Kong and Shanghai, with some even gaining.

     Full-year results fell within or outperformed most market projections. The banks could maintain steady performance, even if they are flying a little low, said Rosa Lee of Grand Finance Group.

     Market players are more interested in the moves of an investment company controlled by China's foreign exchange regulator. Wutongshu Investment Platform was first named as a major shareholder in Bank of Communications in the latter's annual report. It was then found to have bought yuan-denominated A-shares in three of the quartet. Wutongshu had stakes of 0.4% in ICBC, 0.3% in ABC, and 0.36% in BOC at the end of 2015.

     The four tend to attract government-backed funds, such as from the state-owned Central Huijin Investment. If their stocks climb on the mainland bourse based on government-backed investments, their Hong Kong-listed shares could rise as well, according to Alex Chow of China Yinsheng Asset Management.

     The Chinese banks also pay out hefty dividends. All four cut payments for 2015 on declining performance but kept their payout ratios at 30% or higher. Many investors still see them as an attractive option, given their dividends and the assumption that state-backed banking giants will never collapse.

     But the Chinese economy is still slowing. There is little room for more lending, and continued interest rate cuts will squeeze margins at the banks, meaning that there is structurally little chance of a recovery in the near future, Chow said. Further struggles could impact their dividends. Investors must decide how long they can hold on to these shares.

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