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.
Watchdog's move to strengthen bank reserves feared to hurt dividend payouts
Financial Services Commission (FSC) headquarters in central Seoul / Yonhap
By Anna J. Park
By Anna J. Park
Financial authorities plan to act on their new right to request banks to strengthen cash reserves, but market watchers are concerned that the move might hurt year-end dividend payouts by listed lenders.
According to the Financial Services Commission's (FSC) latest taskforce meeting, aimed at better responding to financial risks, the top financial regulator plans to adopt a new control measure against local banks, which will allow the FSC to ask banks to prepare “special” cash provisioning measures, in addition to their usual cash reserves.
Under financial authorities' tentative ideas on the adoption of such measures, the regulators are expected to hold the right to demand banks to strengthen reserves, after reviewing each bank's annual reports on cash reserves. When financial authorities deem banks' reserves are not at a sufficient level compared to the lenders' expected losses, regulators could invoke the right to urge banks to increase reserves, on top of their usual cash reserves.
The move represents the FSC's efforts to prevent financial risks in the market from spreading into threats to local banks. However, stock analysts warn that applying such measures could hamper listed banks from boosting dividend payouts.
“Although the measure's introduction is not yet definitively decided, it is expected that the FSC's new right could lead local banks to accumulate massive amounts of cash reserves,” Hana Securities said in a recent report.
The report also pointed out that if the level of bank reserves increases to that of major U.S. banks, the total amount held by local commercial banks could exceed one trillion won ($718 million).
While some argue that banks' dividend per share (DPS) value won't be hurt by financial regulators' expanded right to ask for the special cash reserves, market analysts forecast that the FSC's choice to enact the measure would lower bank stocks' DPS.