South Korea's stock exchange operator will adopt incentives within this year to encourage companies to increase their dividend payout ratio, its chief said, one of the main demands of the incoming top economic policymaker.
Finance Minister Choi Kyung-hwan, who took office last week, berated the country's conglomerates for stocking up on cash and thereby disrupting money flow into households that need to spend more to prop up domestic consumption.
"South Korea's dividend payout ratio and dividend yield ratio are considerably low compared with foreign countries," Choi Kyoung-soo, CEO and chairman of the Korea Exchange (KRX), told reporters Friday. "We will be coming up with a number of different incentives to induce the companies to pay out more dividends and also develop new dividend indices that are marketable."
The latest KRX data show South Korea's dividend payout ratio at 22.4 percent, far below the average of 47.7 percent in other countries. The dividend yield ratio is 1.1 percent, compared with 2.7 percent overseas. The dividend yield ratio falls lower as companies retain more cash.
Economic policymakers have been struggling to spur domestic spending that was crimped after the deadly passenger ferry sinking in April. Retail sales in June showed drops from a year earlier, with business confidence index showing that most manufacturers are even less upbeat about the third quarter than the previous quarter.
The Bank of Korea last week revised down its economic growth forecast to 3.8 percent from 4 percent, citing fallouts from the ferry disaster.
"Calls for changing the country's dividend practices have been endless," the KRX chief said. "With the stock index caught in a boxed range, we have to allow investors to make profit through dividends at least."
"We will develop new indices, such as those covering high-dividend stocks or preferred shares, to widen the base for dividend-related investment," he said.
KRX head Choi said he will also push for more listings to enliven the country's stock market.
"We expect more than 10 corporate listings on the main bourse (KOSPI) within this year," he said, in addition to 60 to 70 in the tech-heavy secondary market KOSDAQ. (Yonhap)