Mainland bank stocks plummeted by 3%! Goldman Sachs significantly downgraded its rating, stating that "dividend risk is increasing".

On Wednesday, July 5th, the Hang Seng Mainland Banks Index in Hong Kong fell more than 3%, marking the largest single-day decline in eight months.

Among them, CM BANK dropped more than 4% at one point, China Merchants Bank dropped more than 3%, ABC dropped nearly 3%, Bohai Bank and Minsheng Bank dropped more than 2%, ICBC and CCB dropped more than 1%.

The reason for the sharp decline in domestic bank stocks is mainly due to a research report from Goldman Sachs:

Although the bank upgraded Postal Savings Bank from "sell" to "buy", it downgraded ABC from "neutral" to "sell", and also downgraded ICBC and INDUSTRIAL BANK (A-share) from "buy" to "sell", only maintaining a "buy" rating for CCB and a "neutral" rating for CM BANK.

According to Goldman Sachs, mainland banks are unable to maintain a good balance between profit, provisions, capital, and dividends while their profits are being squeezed.

Specifically, Goldman Sachs first assessed the potential loss of profit margin for banks caused by the extension of local government debt due to interest rate reductions, and studied the profit risk for banks caused by the loss of local government debt guarantee funds.

Secondly, the bank also evaluated the normalization level of provisions for banks, which may include further losses in the bank's loan portfolio, in order to assess whether the release of provisions is still a viable option to drive profits.

Finally, Goldman Sachs sees an increasing risk in dividend payouts for mainland bank stocks:

1. The adjusted Hong Kong dividend yield for banks covered by the bank is expected to reach approximately 6% in 2023, which is about 2 percentage points lower than before the adjustment;

2. The dividend payment target may face increasing pressure as profit growth weakens and the need to maintain a higher CET1 (Common Equity Tier 1 capital ratio) target.