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Banks’ dividend cap to be lifted from July

Financial Services Commission (Yonhap)
Financial Services Commission (Yonhap)


South Korea’s top financial regulator said Friday it will lift the current 20 percent dividend cap imposed on local lenders and financial holding firms on July 1, raising the possibility of interim dividends in the second quarter. 

The decision came as most of Korea’s major banks and financial holding companies were found to have maintained financial soundness amid the prolonged COVID-19 pandemic. They passed the authority’s latest stress test, conducted between May and June to gauge their ability to absorb risks under different economic scenarios, the Financial Services Commission said in a statement. 

“The real economy is on the road to recovery considering global economic agencies have raised forecasts for South Korea as well as the world economy. Domestic banks and banking groups are also showing solid growth while expanding their financial support for the virus-battered domestic economy.” 

According to the Organization for Economic Cooperation and Development, Asia’s fourth-largest economy is forecast to grow 3.8 percent this year on the back of strong export growth and an expansionary macroeconomic policy.

Earlier in January, the FSC advised banks and financial holding companies here, including internet-only and foreign banks, to keep their dividend payouts below 20 percent of net income during the first half of this year as economic uncertainties continued.

The dividend payout ratio is the total dividends paid to shareholders as a proportion of the net income generated by a company. The dividend amount normally reflects both interim dividends and share buybacks. 

While most banks and financial holding companies embraced the advice, Shinhan Financial kept its dividend payout ratio at 22.7 percent, exceeding the 20 percent ceiling, but down 3.3 percentage points on-year. 

The possibility remains high that the nation’s four major banking companies -- Shinhan Financial, KB Financial, Woori Financial and Hana Financial -- will embark on interim dividend payouts after the envisioned measure takes effect next month, in a gesture to placate shareholders.

Shinhan Financial earlier hinted at quarterly dividends by changing related articles of association during its general shareholders meeting in March. 

“(Shinhan Financial) will launch various shareholder return measures, ranging from quarterly dividend offering to share repurchase,” Shinhan Chairman Cho Yong-byoung said. 

The chiefs of KB Financial and Woori Financial also took positive stance toward interim dividends, both stressing the need to supply dividends quarterly to meet shareholders’ expectations at their general shareholders meetings. 

Meanwhile, Hana Financial Group -- the only one of the five major banking groups here that has paid interim dividends to shareholders on a regular basis -- announced in June that it would continue with the measure to improve shareholder value, while the exact payout ratio has not yet been determined, officials said. 

By Choi Jae-hee (cjh@heraldcorp.com)

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