By Kim Jae-won
Reporters focused on excessive dividends during the renaming ceremony of Standard Chartered Bank in Korea (SCBK) last week.
CEO Richard Hill came back with his own interpretation.
He argued that the blame should be placed on the wrong way of calculating the dividend ratio based on net income.
Hill said the dividend ratio should be calculated based on a bank’s capital, a barometer of its fiscal soundness, not income. He said that SCBK’s dividend ratio to capital fell below 5 percent last year, far below the 60 percent based on net income.
The British CEO argued that SCBK’s dividend rate is less than 2 percent compared to its parent group Standard Chartered’s 5 trillion won ($4.4 billion) of investment in the lender. He said that investors of the bank deserve dividends in return for their investment.
Hill claimed that the bank paid 550 billion won in dividends to its holding company Standard Chartered Korea for the last two years, and said only 100 billion won has been sent to investors in London while the rest has been reinvested in Korea.
The CEO took the example of SCBK’s BIS capital ratio, which marked 14 percent last year, far higher than the financial watchdog’s guideline of 8 percent and the lender’s internal standard of 11 percent. He also said Standard Chartered Savings Bank saw its BIS capital ratio reach 20 percent in 2011 against that of its rivals which suffered from poor capital conditions.
The financial authorities said that the income-based dividend ratio is what analysts use in the market, but the Financial Supervisory Service (FSS) no longer forces banks to lower their dividend ratio. Rather, the FSS said, it looks at the broader picture of a bank’s financial soundness.
“We examine various aspects of a bank’s financial soundness, looking at its holding company as a whole,” said FSS official Lee Seong-won.
SCBK said that Hill’s comments mean a bank should think of its financial soundness first before paying dividends.
“Hill explained dividend payments should be made based on a lender’s BIS ratio,” said Jeong Han-young, a spokesman for the bank.