Will Shinhan narrow stock price gap with KB through quarterly dividends?

From left are KB Financial Group Chairman Yoon Jong-kyoo and Shinhan Financial Group Chairman Cho Yong-byoung. Courtesy of each firm

By Lee Min-hyung

Shinhan Financial Group is set to pay its first-ever quarterly dividends and institutional investors at home and abroad are focusing on whether the shareholder-friendly measure will enable the lender's share price to bounce back from the doldrums.

The group's share price bottomed out at around 30,000 won ($26.45) in early February, but has recovered to more than 35,000 won as of Tuesday. But the stock still lags far behind arch-rival KB Financial Group whose share price grew more than 20 percent to around 51,000 won during the same period on a buying spree by foreign institutional investors.

But Shinhan hopes to narrow the gap with KB by kicking off the aggressive shareholder return policy. Last year, Shinhan announced the plan to offer dividends on a quarterly basis for the first time among the nation's major banking groups.

A number of legal hurdles remain before Shinhan officially starts the dividend payouts. But the lender is expected to do so as early as the third quarter of 2021 unless the coronavirus situation worsens and financial overseers put the brakes on the plan.

“Starting from the latter half of the year, Shinhan will be able to pay out dividends each quarter, and this will help attract more domestic and foreign institutional investors,” a spokesman said.

Typically, institutional investors prefer stocks guaranteeing frequent dividend payments to ones that offer year-end dividends.

A recovery of its stock price is crucial for Shinhan at a time when it needs to regain the spot as the nation's leading financial holding company.

In 2020, KB surpassed Shinhan for the first time in three years to become the nation's largest financial holding firm in terms of yearly net profit.

The outlook for KB remains rosy this year, as the lender is free from regulatory hurdles unlike other financial firms here. KB Kookmin Bank is the only major lender here that has not been mired in a huge scandal involving soured investments managed by some funds.

On top of that, KB recently made headlines by drawing more investments from BlackRock, the world's largest asset management company. Last week, the U.S. firm announced that it had increased its stake in KB Financial Group to 6.02 percent from 5.01 percent. BlackRock said in a corporate disclosure that it had purchased 314.8 billion won in KB shares over the past seven years.

But investors here and abroad are also paying keen attention to Shinhan's enhanced shareholder return policy this year. Shinhan is the only financial holding firm here whose dividend payout ratio topped 20 percent after it passed a financial regulator's stress test. The Financial Supervisory Service advised financial firms to refrain from setting the ratio over 20 percent, urging them to brace for a possible continuation of the economic slump.

With Shinhan passing the test, however, the lender set last year's dividend payout ratio at 22.7 percent, while its rivals ― including KB ― set the ratio at 20 percent.

Market analysts also expected Shinhan to keep enhancing its stock valuation throughout this year.

“Shinhan's core strength in overseas markets will likely improve this year after the global panic surrounding the coronavirus pandemic subsides,” IBK Investment & Securities economist Kim Eun-gap said. “Shinhan's overseas earnings account for 10 percent of the group's annual net profit. In 2020, the firm's overseas net profit declined by 14 percent, but this will be on track for gradual growth if the coronavirus shock eases.”

The securities firm maintained Shinhan Financial's target stock price at 46,000 won on hopes of the group's overall recovery in the key banking and non-banking sectors.