SHANGHAI, July 5 Reuters Chinese banking shares listed in Hong Kong tumbled on Wednesday after Goldman Sachs downgraded top lenders including Agricultural Bank of China AgBank in a report that raised questions over the sector39;s financial health.

The Hang Seng Mainland Banks Index dropped more than 3, 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 banks39; 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 in Hong Kong, on track for their biggest oneday loss in nearly two months. ICBC39;s Hong Kongtraded shares lost roughly 2.

The banks39; Chinalisted shares saw smaller losses, with an index tracking the sector down 0.5, in line with the broader market.

In its report, Goldman said it expects Chinese banks39; dividend yields would come in at 46 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 preprovision operating profit estimates for large Chinese banks by 56 this year and next.

Reporting…