Asia-Pacific banks' dividends to plateau after record payout in 2023 – S&P

Asia-Pacific banks will likely reduce dividend payouts following a record year in 2023, as they adopt a cautious approach to cash distribution due to global economic uncertainties, according to S&P Global Market Intelligence.

The combined dividends of 115 banks in Asia-Pacific are projected to reach a new peak of $141 billion by Dec. 31, 2023, representing a 6% increase from 2022, primarily driven by higher contributions from Singaporean and Australian banks.

Without adjusting for the depreciation of domestic currencies against the US dollar, the year-over-year growth in constant currency is estimated to be 12%. But this growth will likely decline to 3% in 2024 and 6% in 2025, estimates by Market Intelligence's Dividend Forecasting show.

"Key banks in the Asia-Pacific region are well-positioned to stay committed to mid- and long-term shareholder returns with cash buffers, though the pace of annual payout growth will slow down," said Stella Lim, a senior research analyst for dividend forecasting at Market Intelligence. "We believe Asia-Pacific banks will remain attractive for long-term investors," Lim said on a report titled "Asia-Pacific bank dividends: In search of new drivers," published by Market Intelligence on Sept. 8.

Asia-Pacific banks experienced a surge in dividend payouts during 2022 and 2023, benefiting from higher interest rates and periods of economic expansion following the COVID-19-induced slowdown. The International Monetary Fund anticipates that the region would witness greater economic growth compared to other regions, with projected growth of 4.6% in Asia-Pacific in 2023, up from 3.8% in 2022. This growth is expected to contribute about 70% to global growth. For 2024, the IMF predicts a moderation in the region's growth to 4.4%.

The banking sector in Asia-Pacific exemplified the characteristics of attractive dividend stocks, given its large market capitalization, relatively stable share prices and progressive payout, according to analysts cited in the report, which highlights the sector's ability to navigate a highly volatile dividend landscape within the region.

Defying the trend

India and Malaysia are expected to be the sole markets defying the trend by maintaining double-digit growth in dividend payouts in 2024. Dividend growth is projected to be 14% for Indian banks and 11% for Malaysian banks, according to the report.

The analysts attributed the growth in India to an optimistic economy, improved asset quality and robust loan demand following a strong recovery from COVID-19 restrictions. "A reduction in interest rates will help banks achieve higher margins, as they will lower the interest rates on deposits with immediate effect, with a lag on rates levied on loans," the analysts said.

For the fiscal year ending March 31, 2024, Indian banks are forecast to increase their share of aggregate payouts across all sectors in the country to 13%. This represents an increase from 12% in the year ended March 2023, and 9% in the year ended March 2022.

But despite the double-digit growth expected from Indian banks, their contribution to the overall payout in the Asia-Pacific region remains relatively small, accounting for only about 3%, the report said.

Mainland China

While mainland Chinese banks are expected to experience moderate dividend growth — an 8% increase in 2023, followed by a 3% rise in 2024 — it is estimated to rebound to 8% in 2025.

Despite growing uncertainties and an unfavorable outlook, including deflation, delayed recovery in real estate loan quality and the possibility of further cuts in the already historically low base rate, bank dividends in mainland China will likely demonstrate significant resilience, according to the report.

This resilience is driven primarily by the four largest banks in mainland China, which historically account for 54% of the aggregate bank dividends in the country. These four lenders will maintain their dividend payouts in the coming years, experiencing a moderate slowdown in 2024 and returning to accelerated growth in 2025. This stands in stark contrast to the rest of the banks, which are projected to contract by 2%, the report said.