Financial groups cry foul over regulator's interference in dividend payments

The headquarters of the Financial Supervisory Service (FSS) located on Yeouido, Seoul. / Korea Times file

Regulatory control feared to damage shareholder value

By Anna J. Park

The nation's financial groups are facing a dilemma over their slated dividend payments early next year, as the Financial Supervisory Service (FSS) recommended for local financial giants to reduce dividend payments by 15 percent to 20 percent for the sake of strengthening the financial groups' crisis management in the face of the prolonged COVID-19 pandemic.

While financial groups agree that they should be prepared for coping with the risk factors of the market situation by securing as much capital as possible, it's also hard to let down retail and foreign investors' expectations of handsome dividend rates.

Retail investors of the local financial groups expressed anger over the authorities' recent move to curtail the groups' annual dividend payouts, as some of them even filed an online petition on the Cheong Wa Dae website early this week.

“I object to the FSS' move to cut down financial groups' year-end dividend payouts. Korea has a capitalistic market economy, and the government cannot force private companies to cut down dividend payouts,” the petition stated.

“The FSS asserted the need for a temporary dividend payout reduction due to the COVID-19 aftermath. However, financial groups recorded sound management performances this year, and no one has the right to harm shareholder value.”

Regarding such criticisms, the financial watchdog said the government's recommendation is legally non-binding, and it's up to each financial group to make their own decision.

“The financial authority has merely made a recommendation for financial companies to secure their capital in preparation for the ongoing uncertain market conditions,” an official from the FSS explained to The Korea Times.

“The recommendation does not have any binding force, and in the end, it will be up to each financial group to make a final decision about its dividend payouts, as each group has the choice as to how to use its dividends.”

Financial groups are also aware of the stance of the financial authority, saying that the decision will be made at shareholders meetings early next year.

“The financial authority's recommendation doesn't necessarily mean that the financial groups have been forbidden from paying dividends. What the FSS meant is to fully prepare for an uncertain market situation by wisely determining the level of dividend payouts,” a source from one of the financial groups told The Korea Times in a telephone conversation.

“In any case, the decision about the dividend payouts will be made at the shareholders meeting in spring, when the fourth-quarter performances are all announced. It will be decided in consideration of the fourth-quarter results as well as the market conditions for the first quarter of next year. It's still too early to talk about the dividends.”

However, some market insiders expressed discontent over the FSS' recommendation itself, as it could lead retail and foreign investors to further shun the stocks of the local financial groups.

While the benchmark KOSPI index rose by around 25 percent this year, stock prices of the nation's four major financial groups ― Shinhan, Woori, Hana and KB ― dropped 20.99 percent, 13.36 percent, 3.79 percent and 2.62 percent, respectively.

The market insiders say the financial groups' increase in their dividend payouts is essential to boost stock prices, as their annual performances could also solidly buttress the increase of the dividend ratio. The accumulated net profits during the first three quarters reached about 9 trillion won ($8.25 billion), up by 15.1 percent from the same period last year.