The ongoing conflict over profit distribution at HUISHANG BANK (03698.HK) has intensified once again, with a major shareholder formally proposing a significant increase in the cash dividend payout ratio ahead of the upcoming annual general meeting.

Huishang Bank's second-largest shareholder, the "Zhongjing" group, has submitted an extraordinary proposal requesting the bank raise its dividend payout ratio for the 2025 fiscal year from the board's suggested 22% to 30%. This marks the fifth public clash between the two sides over profit distribution in nearly a decade. The competing plans would result in a difference of approximately 1.26 billion yuan in total cash distributions.

Decade-Long Dividend Dispute Resurfaces

The proposal from the Zhongjing group, submitted just before the annual general meeting scheduled for June 30, 2026, directly challenges the board's recommended dividend plan for 2025. The board's proposal calls for a cash dividend of 2.5 yuan per 10 shares, totaling about 3.472 billion yuan, representing a payout ratio of 22% of the year's net profit attributable to the parent company. The shareholder group, however, advocates for a higher payout of 3.41 yuan per 10 shares, amounting to roughly 4.734 billion yuan, which would equate to 30% of net profit.

The Zhongjing group argues that Huishang Bank's dividend ratio has been relatively low compared to other listed banks and that a stable increase in cash returns would boost investor confidence and aid the bank's long-stalled A-share listing process. Their analysis suggests that a 30% payout ratio would only slightly reduce the capital adequacy ratio, with all regulatory metrics remaining within compliant ranges.

Conversely, the board's stance emphasizes the importance of retaining profits for internal capital replenishment, viewing it as crucial for strengthening the capital base and enhancing risk resilience amid the bank's continued business expansion.

This disagreement is not an isolated incident. In February 2026, a proposal from the Zhongjing group for an interim dividend for 2025 was voted down at an extraordinary general meeting after failing to secure majority support. The persistent tug-of-war over dividends highlights the broader challenge for city commercial banks in balancing shareholder returns with capital accumulation, while also revealing underlying tensions in the bank's ownership structure and governance mechanisms.

Compliance Issues and Asset Quality Concerns

Huishang Bank has faced multiple regulatory penalties since the start of 2026, with violations primarily concentrated in credit process controls and bill business reviews. Notably, its branches located outside its home province have been identified as higher-risk areas.

In a significant batch of penalties issued on March 13, the Nanjing branch and three of its sub-branches were fined a total of 2.6 million yuan by the Jiangsu regulatory bureau. The violations included imprudent management of auto loan installment services through credit cards, service charges not matching the quality of service provided, and inadequate verification of the authenticity of trade backgrounds for bill transactions. Several responsible individuals were also penalized, with one frontline employee receiving a long-term ban from the industry.

Subsequent penalties were issued to branches in Bozhou, Fengtai, and Lieshan between April and May for issues related to improper loan issuance and inadequate due diligence in the loan approval process, resulting in warnings, fines, and industry bans for the personnel involved.

From an asset quality perspective, the bank's non-performing loan ratio stood at 0.98% at the end of 2025, slightly down by 0.01 percentage points from the previous year and remaining below 1% for two consecutive years. However, the balance of non-performing loans increased by 1.177 billion yuan to 11.053 billion yuan, a rise attributed to loan portfolio expansion alongside the gradual recognition of existing risks.

Of greater concern are changes in leading indicators. The total balance of overdue loans reached 14.911 billion yuan by the end of 2025, marking a 17.8% year-on-year increase, which significantly outpaced the 12.8% growth in total loans. Both short-term and long-term overdue amounts rose, with loans overdue for more than 12 months amounting to 3.145 billion yuan—a category with a high probability of migrating to non-performing status.

The retail lending sector is a primary area of rising risk. The personal loan NPL ratio climbed from 1.51% at the end of 2024 to 1.89% by the end of 2025. The growth rate of the personal NPL balance far exceeded the growth rate of the personal loan portfolio, with overdue pressures emerging in both personal business loans and consumer loans. Meanwhile, the provision coverage ratio declined from 286.47% to 278.79%, still well above the regulatory minimum but indicating a marginal thinning of the risk buffer.

Governance Gaps and Listing Hurdles

Despite ongoing business expansion, several long-standing issues in Huishang Bank's corporate governance remain unresolved. A key management position has been vacant since former Chairman Yan Chen resigned due to a work transfer in July 2025. The chairman's role remains unfilled, with its duties temporarily being performed by the bank's president.

In the context of stringent banking regulation, the prolonged absence of a chairman—the primary person responsible for risk governance—could impact the continuity of strategic decision-making and the effectiveness of the risk control system. This vacancy is also viewed by the market as a factor contributing to instability within the bank's governance structure.

Furthermore, Huishang Bank's progress toward an A-share listing remains stalled. The bank formally initiated its A-share listing tutoring process in 2019 and has since issued multiple progress reports, yet it has failed to advance beyond the tutoring stage.

The tutoring institution has repeatedly cited the equity dispute between the Zhongjing group and the "Shanshan" group as a potential factor affecting shareholder stability and a significant obstacle to the listing process. Additionally, historical issues such as standardizing employee shareholdings and perfecting the governance structure have yet to be fully resolved.

From an industry perspective, as a regional bank rooted in Anhui province with influence in the Yangtze River Delta region, Huishang Bank possesses distinct channel and resource advantages in its home market, and its fundamentals for scale growth remain solid.

However, the intertwined challenges of dividend governance disputes, compliance and risk control shortcomings, key position vacancies, and a delayed listing process collectively form a complex set of constraints on the bank's long-term value enhancement. Finding the equilibrium between business expansion and prudent operation, and reaching a consensus between shareholder demands and long-term development, will be the core issues the bank must confront in its next phase.