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Banking groups slash dividends despite record-high 2020 profits

Investors frustrated over lower-than-expected dividend payouts, which came as a result of the banking groups’ failure to pass government stress tests

(Photos provided by respective firms)
(Photos provided by respective firms)
Banking groups have posted record-high net profits for fiscal year 2020, but their dividend payouts have been reduced by roughly 6 percentage points upon advice from the country’s regulator, industry data released as of Sunday showed.

Four out of five major banking groups here have so far posted or are expected to release record-high annual net-profits last year, buoyed by an increase in loans and the heated stock market.

As of Sunday, KB Financial Group, Shinhan Financial Group and Hana Financial Groups’ annual net profits for 2020 gained 5.7 percent, 0.3 percent and 10.3 percent on-year to 3.45 trillion won ($3 billion), 3.42 trillion and 2.63 trillion won, respectively. The profits were calculated based on the stakes the holding firms have in their respective units.

NH NongHyup Financial Group, which has yet to post its 2020 performance, is projected to be on-par with the big three groups, as its accumulated net profit in the January-September last year had already gained 4.8 percent on-year to stand at 1.46 trillion won. Woori Financial Group, meanwhile, saw its net profit in the same period decline by some 30 percent to 1.87 trillion won.

Despite the robust earnings, banking groups have either decided or have hinted at a decision to cut their dividend payouts by a maximum of 20 percent. This is due the financial authorities’ advise to banking groups and lenders last month to keep their dividend payouts below 20 percent of net income.

The recommendation by the policymaker Financial Services Commission – which will remain in effect until June – was carried out on the hope that the financial institutions would “take a conservative approach to their capital management” in case the COVID-19 pandemic prolongs.

Following the recommendation, KB – which outranked Shinhan as No.1 banking group with the largest annual net income – reduced its dividend payout from the previous 26 percent to 20 percent on-year, on Thursday. Its payout per share dropped by 20 percent to 1,770 won from the previous 2,210 won in 2019.

Hana also adopted the 20 percent rule on Friday, slashing the payout by 6 percentage points and its payout per share by 16 percent to 1,350 won.

Shinhan and Woori, have pushed their board meeting concerning the payout decision to next month, but onlookers expect them to heed the financial authorities’ recommendation as well.

In a recent conference call, Shinhan’s Chief Financial Officer Roh Yong-hoon said while they plan to mull the decision until March, “it would be difficult to challenge the financial authorities’ guidelines, as the recommendation is a result of a stress test.”

The latest guidance comes as a result of a comprehensive government stress test designed to gauge financial institutions’ ability to absorb risks under different economic scenarios. Several banking groups fell short of the authority’s capital adequacy requirements measuring their ability to recover after a deep recession.

By Jung Min-kyung (mkjung@heraldcorp.com)
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