Chinese mainland investors are snapping up the shares of mainland-based banks listed in Hong Kong for their high dividends and low valuations, putting aside concerns for now over rising bad debts as the economy slows.

The rush into mainland banks has coincided with a pickup in flows via a cross-border stock link, but analysts and traders said banks are outperforming as mainland investors shift away from volatile growth stocks to dividend plays.

Investors buying Hong Kong-listed shares, or H shares, of the major commercial banks have narrowed the valuation gap between stocks that trade on both bourses to a 21-month low, as measured by an index that tracks dual-listed stocks.

Industrial and Commercial Bank of China's shares have risen more than 4 percent relative to the Hang Seng Index, and Agricultural Bank of China more than 8 percent, since end-July.

"In Hong Kong, there are many stocks with relatively higher yields, lower valuations and relatively sound balance sheets," said Lu Wenjie, a strategist at UBS AG.

"They're attractive to Chinese mainland investors in terms of allocations due to yuan depreciation pressures and low bond yields at home," Lu said.

Foreign investors have long steered clear of the mainland's biggest banks because of concerns over the broader economy, which means that H shares have been trading at steep discounts to their mainland counterparts. The Hong Kong-listed banks are thus good value, especially for their dividends of nearly 6 percent.

The Big Four - ICBC, China Construction Bank, Bank of China and AgBank - have an average price to book of 0.84 compared with 1.2 times for the broader Hong Kong market, according to Thomson Reuters data.

The banks offer an average dividend yield of 5.6 percent compared with 2.1 percent for Shanghai-listed stocks and around 3.4 percent for 5-year China AAA corporate debt.

According to JPMorgan Chase & Co, only 18 stocks listed in Shanghai and Shenzhen offer a dividend of more than 5 percent.

And while banks' bad debts have risen, investors said there are signs Beijing is stepping in to help with recapitalization.

"Investors had been too negative on bad debt problem and felt that poor loan quality could lead to systemic failure, however, recent economic data showed that there is progress in the underlying economy due to the government's effort on supply-side reforms and industry restructuring," said Pauline Dan, head of China equities at Pictet Asset Management.

Over the past two months, stock investment flows from the mainland to Hong Kong accelerated sharply, partly on optimism over the upcoming launch of the Shenzhen-Hong Kong stock connect program.