Financial groups pressured to cut dividend payouts

From left are NongHyup Financial Group Chairman Son Byung-hwan, KB Financial Group Chairman Yoon Jong-kyoo, Shinhan Financial Group Chairman Cho Yong-byoung, Woori Financial Group Chairman Son Tae-seung and Hana Financial Group Chairman Kim Jung-tai.

By Lee Kyung-min

A number of Korea's leading financial groups have reduced dividend payouts for 2020 amid suspicions that they are “caving in” to growing pressure from the financial authorities that are increasingly influenced by public sentiment.

Many Koreans feel that the all-time high net incomes of domestic financial groups did not result from superior growth strategies, but from an unexpected boom in loans some of which fueled a stock-investment craze amid the spread of the COVID-19 pandemic.

The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) recommended Jan. 28 that financial holding firms should cap their dividend payout ratios at 20 percent, citing the need to maintain fiscal soundness. Dividend payout ratios are calculated by dividing the paid dividend total by net income.

The recommendations of the financial authorities to avoid hefty dividend payouts contradict the goal of “profit-sharing” a ruling party-backed idea defined by industries that profited amid the pandemic – notably both commercial and state-own banks – coughing up money for the adversely affected industries.

Some experts say the financial authorities are simultaneously pushing two contradictory policies, a strong indication of an “ill-conceived, arbitrary” decision wildly swayed by public sentiment ahead of the April mayoral by-elections.

Of Korea's top five financial groups, KB and Hana complied with the recommendation, while Shinhan, Woori and NongHyup are highly likely to follow suit pending their respective board meetings in March.

KB Financial Group said Feb. 5 that it decided to lower its dividend payout ratio to 20 percent for 2020, down 6 percentage points from 26 percent in 2019. This announcement means KB shareholders will receive 1,770 won per share, down from 2,210 won.

Hana Financial Group's board of directors also decided to lower its dividend payout ratio to 20 percent for 2020 from 25.78 percent in 2019.

Both banking groups apologized for the unexpected cuts during a recent conference call announcing their fourth quarter earnings, adding the decision reflected collective, group-wide concerns about a possible rapid deterioration in their financial condition.

Financial regulators setting guidelines that many firms feel they “cannot refuse” significantly hampers corporate autonomy, even more so since the ruling bloc and the government are reportedly seeking to have profitable businesses "contribute" to a large fund under their “profit-sharing” drive, according to Seoul National University economist Lee In-ho.

“An increase in corporate profits should in principle be returned to shareholders in the form of dividends, unless there is an ongoing management crisis,” he said.

The authorities in his view are using the same rationale of the pandemic to limit dividend payouts by banks and have them cough up their earnings, a reason why he says the health crisis is being “abused” to suit their political interests.

Under the profit-sharing drive, banks are likely to put up at least 110 billion won ($97.9 million) to fill the government target of 500 billion won, to be drawn to offer financial help for low-income earners. The remaining 390 billion won will be put up by the government, including money from lottery sales, and by savings banks and mutual finance companies.

KB Financial overtook Shinhan Financial to become Korea's No. 1 financial group in 2020, after generating 3.45 trillion won in annual net profit. Shinhan fell to second place, due to a 472.5 billion won loss from its involvement in soured investments, including Lime funds.