Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Finance ministry in dilemma over Industrial Bank of Korea dividends
Finance Minister Hong Nam-ki speaks during a ministerial meeting at the government complex in Seoul, on Dec. 23. Yonhap
By Lee Min-hyung
By Lee Min-hyung
The Ministry of Economy and Finance could be affected by a regulator's call for banks to reduce their dividends which will result in shareholders seeing less of a payout this year from the Industrial Bank of Korea (IBK).
The finance ministry is the largest shareholder of the state-run lender. But with the Financial Supervisory Service (FSS) reaffirming its strong determination to cut local banks payment of dividends amid the ongoing COVID-19 pandemic, chances are growing that the ministry will get less in dividends from the IBK.
The ministry made 166.2 billion won in dividends in 2019 from the IBK ― and had expected a similar amount this year.
But the IBK reported dismal earnings this year with a net profit of 976.4 billion won for the first three quarters of 2020, down 20 percent from the same period last year.
This will place more burden on the ministry, as it will have to revise its budget to make up for the loss in dividends.
FSS Governor Yoon Suk-heun said last week during a press conference that the service was still in talks with banks over the range of their dividends readjustment.
“Talks are still underway, but the dividend payout ratio will be cut down to a range of 15 percent to 25 percent,” he said. The ratio refers to a portion of dividends paid out from a firm's net profit.
As the regulator is still fine-tuning the dividend payout ratio with local financial holding firms and the state-run lender, details have not yet been confirmed, but the ministry appears to have no choice but to revise its budget accordingly.
Given that the ratio for the IBK was 32.5 percent in 2019, the finance ministry may receive less than half of last year's dividends in the worst-cast scenario.
The IBK is also incapable of setting the ratio at the upper limit of 25 percent at a time when its earnings as well as stock price are on a steep decline. As of Friday, shares in IBK closed at 9,450 won, down by about 20 percent from a year ago when its stock price was traded in the 12,000-won range.
Market experts also remained pessimistic over the lender's near-term rebound.
“The IBK has to expand its loans to small- and medium-sized enterprises amid the economic downturn, and this may end up raising the lender's credit risk in the long term,” said Koo Kyung-hoe, an analyst from SK Securities.
As of the end of October 2020, government debt topped 812.9 trillion won, up by 12.6 trillion won from the previous month. The steep growth of the national debt this year was attributable to the ministry's execution of a series of supplementary budgets to cope with the coronavirus outbreak.
With the COVID-19 pandemic showing no sign of easing, the ministry is still in dire need of more money to help rev up the sagging economy.