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FSC likely to lift banks’ dividend cap in June

South Korea’s financial regulator is projected to lift its dividend cap placed on local banking groups next month, with the economy apparently on a fast track to recovery, industry watchers said Sunday.

The Financial Services Commission in January “recommended” local bankers to limit dividends to 20 percent of their net profits for the first half of the year, with most banks heeding the advice. Shinhan Bank was the only lender that didn’t adopt the 20 percent cap, reportedly due to passing the government’s stress test carried out earlier.

The FSC’s move -- despite its aim to help banks conserve capital amid the COVID-19 pandemic -- prompted anger from the lenders’ shareholders. The holding groups of five major commercial banks here have been posting robust or even record-high net profits for 2020 and the first quarter of this year with increased brokerage commissions from a monthslong bullish stock market. This had fed investor expectations for their dividend payouts, which has been let down by the financial authorities’ recommendation.

The timeframe for the recommended cap is set to end June 30 and while the financial authorities are reviewing the possibility of an extension, industry watchers believe it will end there.

“The banks’ performance for this year thus far has improved compared with last year, increasing their common equity tier and Hana Financial Group’s early adoption of Basel III standards and Woori Financial Group’s approval from authorities on using the internal ratings-based approach are likely to work as catalysts,” said Choi Jeong-wook, a researcher at Hana Financial Investment.

The FSC has been reportedly preparing for another stress test for financial institutions, but onlookers say that they are likely to take into account the situations surrounding the rebounding economy into their calculations.

“With the global economy displaying signs of earlier-than-expected recovery, their reason to recommend strict asset management after carrying out a stress test has become weak,” Choi added.

The banks, meanwhile, are likely to carry out their pledges made at their shareholders meetings held across March and April to “review various ways to increase their dividend payouts.” Interim or quarterly dividends are currently being reviewed as the most plausible options to quell investor anger.

For the first quarter of this year, KB Financial Group clinched the leading banker title in terms of net profit. The figure gained 74.1 percent on-year to 1.2 trillion won ($1.1 billion) in the first three months -- a record-high quarterly net profit since it became the holding entity of KB-branded financial and banking firms in September 2009. Shinhan Financial Group came second as it posted a record quarterly net profit of 1.19 trillion won, up 27.8 percent on-year, while Hana Financial Group secured the third spot, posting a first-quarter net profit of 834.4 billion won, gaining 27 percent on-year.

The Bank of Korea on Thursday upgraded its 2021 growth outlook for the South Korean economy to 4 percent from its earlier estimate of 3 percent, citing accelerated recovery in exports, which account for more half of the nation’s economy.

By Jung Min-kyung (