Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
ANALYSIS Banks to give out higher shareholder dividends
By Anna J. Park
Financial authorities loosening control over banks' dividend policies
By Anna J. Park
After the U.S. Fed signaled it would loosen its control over banks' dividend payouts if they pass “stress tests,” gauging how they will fare in worst case scenarios, five out of six major U.S. institutions are set to pay an additional $2 billion in the next quarter, along with a sizable buyback of their own shares later on in the year to return more money to investors.
The U.S. lenders plan to distribute dividends about 40 percent higher than previous levels.
Specifically, Morgan Stanley and Wells Fargo plan to double their quarterly dividends. Morgan Stanley said it will give out 70 cents per share, while buying back up to $12 billion of its shares next year. Wells Fargo also plans to double its dividends from 10 cents to 20 cents, while repurchasing some $18 billion worth of its shares from the third quarter.
JPMorgan is set to raise its dividend from 90 cents to $1, while buying back around $30 billion of its shares; while Bank of America is raising its dividend from 18 cents to 21 cents; and Goldman Sachs, from $1.25 to $2.
Such moves in the global banking industry are already being mimicked here, as a growing number of banks here lean toward returning more cash to investors.
Korean banks consider giving out half-year dividends
Market watchers anticipate that more major Korean financial groups will not only raise their dividends, but also give them out half-yearly. The Financial Services Commission (FSC) recently lifted its control over their dividend policies, after they all passed a stress test, proving they can weather the financial impact of the global pandemic.
The FSC announced in late June that it was lifting its “recommended” 20 percent dividend cap ― in January, alongside the Financial Supervisory Service (FSS), it said that financial groups should limit their payout ratios to that level, citing the need to maintain fiscal soundness amid the continuing shock and financial uncertainties caused by the COVID-19 pandemic. The ratios were calculated by dividing the paid dividend total by net income.
Following the announcement, domestic financial giants ― KB, Shinhan, Hana and Woori banks ― are looking into whether to payout half-yearly dividends. Hana Financial Group, which is the only one among the five groups that has given out half-yearly dividends regularly, is likely to do so this year as well, while the other firms are likely to make their first such payment this year, although specific timelines remain uncertain.
“The financial group is positively examining the quarterly dividend. However, specific amounts and the timing are still undecided. According to the company's articles of association, the board of directors needs to hold a meeting to decide on the matter by mid-August,” an official from Shinhan Financial Group told The Korea Times.
"Nothing has been decided on yet because all decisions regarding dividends will be voted on and confirmed by the board of directors. The next directors' meeting is to be held at the end of July, when the financial group announces its first-half performance results. The financial group will decide on giving out half-yearly dividends, considering all factors in a comprehensive manner such as the COVID-19 situation,” said an official at KB Financial Group.
During the past three years, the payout ratios of KB, Shinhan, Hana and Woori have ranged from 22.53 percent to 23.57 percent in 2017; 24.8 percent to 25.54 percent in 2018; and 25.78 percent to 25.97 percent in 2019. Market watchers expect this year's annual dividend level to be similar to or surpass that of 2019.
Securities firms are also forecasting the interim dividend amounts. Hana Financial Investment expects KB Financial to pay out 800 won to 900 won per share; Shinhan Financial, 400 won to 500 won; Hana Financial Group, 700 won to 800 won; and Woori Financial 100 won to 200 won. eBest Investment Securities expected KB Financial's half-year dividend to be 824 won; Shinhan, 587 won; Hana at 801 won, and Woori at 219 won.
“Investors are expected to see a 1.6 percent rate of return from the major financial groups' average interim dividend payouts,” Jeon Bae-seung, an analyst at eBest Investment & Securities, said.
Given such capital returns, market analysts advise investors to put more bank shares into their portfolios.
“Bank shares are a representative beneficiary of increasing interest rates. Interest rates and the banking sector index have been moving in the same direction, because banks' profits increase as interest rates rise,” Kim Ji-young, an analyst at Kyobo Securities, pointed out, adding that expectations of an economic recovery will positively impact the prices of banking shares.
“In 2020, major lenders logged an average 9 percent growth rate. The growth rate will be around 4 percent to 5 percent on average in 2021, based on consistent demand for bank loans,” the analyst said.