Shinhan, KB in dilemma over dividend payments

By Kim Bo-eun

Shinhan Financial Group Chairman Cho Yong-byoung, left, and KB Financial Group Chairman Yoon Jong-kyoo / Korea Times file

Major financial groups are weighing up whether to boost shareholder value after making record profits in this year's third quarter.

But the authorities have warned the groups against the move amid uncertainties due to COVID-19.

Shinhan and KB Financial Groups reported over 1 trillion won in quarterly earnings ― a first for both. Shinhan posted 1.14 trillion won in net profit, up 16.6 percent on the same quarter last year, while KB recorded 1.17 trillion won (up 24.1 percent).

Shinhan and KB groups' accumulated net profit was 2.88 trillion won and 2.96 trillion won, respectively, up 3.5 percent and 1.9 percent from the same period of 2019.

Given the boost in earnings and the groups' inclination to increase shareholder value, they have been preparing to expand dividend payments.

With the exception of Hana Financial Group, the other three major groups only pay dividends to shareholders annually, at the end of the year. Hana makes its interim payments in July.

Shinhan is revising its internal guidelines to allow quarterly payments. The revisions would need to be backed by the board and approved at the general shareholders' meeting next March.

“The group stated after issuing new shares to global private equity firms in September and also after releasing quarterly earnings last month that we would unfold policies to enhance shareholder value," a Shinhan group official said.

"The process is under way to revise internal guidelines to enable more frequent dividend payments, but given this needs to be approved at the shareholders' meeting, it would be difficult for this to be achieved within the year."

KB's guidelines state that it is able to pay quarterly dividends, which will enable the group to change its policy without undergoing revisions, as long as it is approved by the board.

Expanding dividend payments would also lift the price of banking stocks, which have failed to rise to pre-COVID levels following the stock market crash in March. This is despite a rise in recent weeks as the groups prepare to make dividend payments at the end of the year.

Shinhan Financial's stock price, which was 42,600 won on Jan. 2, plunged to 12,850 won on March 20. It closed at 33,500 won, Wednesday.

The Financial Supervisory Service, however, has warned the groups against increasing dividend payments, given they need to manage their financial health amid the COVID-19 pandemic.

The groups acknowledge that they may have to wait for the pandemic to end before taking action.

“We are not immediately seeking to expand dividend payments,” a financial group official said. “This is the direction we are headed, but we would need to take into consideration the COVID-19 situation.”