Moody's Investors Service said in a report on Monday that Shanghai Stock Exchange's encouragement for listed companies to pay higher dividend is "credit negative" for Chinese banks and insurers.

The move will "hinder their ability to retain profits to support their strong loan and premium growth. It is also credit negative for non-financial companies because it will erode their liquidity cushions", the credit rating agency said.

On Jan 7, the Shanghai Stock Exchange published its "Guidance on Cash Dividend Payout for Listed Companies."

The document says that if a listed company chooses to pay less than 30 percent of its earnings in cash to shareholders, it must justify to regulators the low cash dividend payout ratio and explain the proposed use and expected benefits of the retained profits.

The guidance also says that companies with cash dividend payout ratios above 50 percent will be granted expedited processing of secondary offering and M&A applications.

"The negative effects of this guidance would be most pronounced for insurers because the capitalization of listed Chinese insurers has been under pressure owing to their high premium growth and relatively weak earnings," according to the report.

The guidance will also undermine listed banks' ability to retain earnings to boost their capital adequacy, thereby limiting their organic growth, Moody's said.

There are 17 listed commercial banks in China, 14 of which are listed on the Shanghai Stock Exchange.