SHANGHAI: Chinese banking shares listed in Hong Kong tumbled on Wednesday (Jul 5) after Goldman Sachs downgraded top lenders including Agricultural Bank of China (AgBank) in a report that raised questions over the sector's financial health.
The Hang Seng Mainland Banks Index dropped more than 3 per cent, on track for its worst day in eight months.
Goldman said in a report on Wednesday that it had downgraded Agbank from "Neutral" to "Sell". Meanwhile, Industrial and Commercial Bank of China (ICBC) and Industrial Bank were both downgraded from "Buy" to "Sell".
Investors are concerned about Chinese banks' exposure to local government debt, earnings risks due to margin losses on such debt, and diverging fortunes among individual banks, the Wall Street bank said.
Agbank shares fell roughly 3 per cent in Hong Kong, on track for their biggest one-day loss in nearly two months. ICBC's Hong Kong-traded shares lost roughly 2 per cent.
The banks' China-listed shares saw smaller losses, with an index tracking the sector down 0.5 per cent, in line with the broader market.
In its report, Goldman said it expects Chinese banks' dividend yields would come in at 4 to 6 per cent this year, two percentage points lower than before the adjustment.
In addition, the bank said that "dividend payout targets could come under increasing pressure, on weaker earnings growth" and high capital adequacy requirements.
The bank also revised down pre-provision operating profit estimates for large Chinese banks by 5 to 6 per cent this year and next.