Goldman Sachs: China's large banks strengthen capital through a second round of injection, favoring China Construction Bank Corporation (00939) and Bank Of China (03988)

Goldman Sachs released a research report stating that the Industrial and Commercial Bank of China (01398) announced a private placement of 100 billion RMB in A shares on September 6, with the Ministry of Finance contributing 70 billion RMB and China Tobacco providing 30 billion RMB. The report noted that since 2025, along with this announcement from ICBC, the Ministry of Finance has injected capital into five large domestic banks (ICBC, CCB, BOC, TBC, and PSBC), with the average CET1 ratio increasing by 89 basis points in the year of the injection. The five major banks will increase their dividend payout ratio by 1 percentage point to 31% in the first half of 2026. The report believes that the new round of capital injection further strengthens the capital adequacy levels of domestic banks, providing greater flexibility for future loan growth and shareholder returns. The report estimates that, based on the static scenario of the average A-share price over 20 trading days as of September 4, ICBC's earnings per share (EPS) in 2026 will be diluted by approximately 3.5%, and its book value per share will be diluted by about 1.6%. Relative to the bank's forecast of a compound annual growth rate (CAGR) of 5% for EPS and 7% for book value per share from 2026 to 2028, the dilution impact could be roughly recovered in the following two years through earnings and book value growth. An increase in the dividend payout ratio from 30% to 31% indicates an approximate growth of 3% in dividends per share. The bank assumes that after the capital injection, ICBC can maintain a 31% payout ratio, with the overall impact on minority shareholders expected to be manageable. The final pricing reference date has yet to be determined, and management also indicated that if A-share prices fluctuate in the short term, they may consider a premium pricing strategy to protect existing shareholders. The report states that, amid still weak credit demand, the capital injection mainly reinforces balance sheet resilience, enhances loss absorption capacity, and provides options for future expansion, rather than significantly accelerating loan growth; the four large banks that completed capital injections in 2025 did not see a marked acceleration in loan growth afterward. The capital injection is led by the Ministry of Finance and financed through special government bonds, while large banks increase dividends, with a dividend yield of about 4% to 5%. Even considering the impact of the placement pricing, it remains around 3% to 4%, which is higher than the approximately 1.68% yield on 10-year government bonds, indicating positive long-term implications. Goldman Sachs believes that this round of capital injection marks the final stage of capital replenishment for large banks, further strengthening its constructive view on the industry; compared to smaller banks, large banks are expected to continue delivering better operational performance. Among large domestic banks, Goldman Sachs prefers China Construction Bank Corporation (00939) and Bank Of China (03988), rating them as "Buy," with target H-share prices of HKD 10.10 and HKD 5.96, respectively; for regional banks, it prefers Bank of Ningbo (002142.SZ). Goldman Sachs gives Industrial and Commercial Bank of China a "Neutral" rating, with a target H-share price of HKD 6.92; it rates Postal Savings Bank Of China (01658) as "Buy," with a target H-share price of HKD 5.76; and it gives BANKCOMM (03328) a "Sell" rating, with a target H-share price of HKD 6.39.