'Like Samsung Electronics,' Shinhan Financial Group to Pioneer 'Quarterly Dividends' in Financial Sector (Comprehensive)

Plan for Active Shareholder Return Policy to Support Steep Stock Price Decline
Amendment to Articles of Incorporation Scheduled for March Shareholders' Meeting Next Year

[Asia Economy Reporter Kangwook Cho] Shinhan Financial Group is set to become the first in the financial sector to implement quarterly dividends. Like Samsung Electronics, a financial stock that distributes dividends to shareholders four times a year may emerge as early as next year.

According to the financial sector on the 20th, Shinhan Financial plans to amend its articles of incorporation at the regular shareholders' meeting in March next year to allow quarterly dividends. Currently, Shinhan Financial's Article 59, Paragraph 2 of the articles of incorporation only permits interim dividends. The plan is to change this to allow up to four dividends per year on a quarterly basis, actively pursuing shareholder returns. However, the timing of implementation has not been decided. Given the prolonged COVID-19 pandemic, the company intends to monitor the situation before deciding on the timing. Shinhan Financial recently communicated this plan to the Financial Supervisory Service (FSS), which is understood to have accepted it as a mid- to long-term direction after the end of the COVID-19 crisis.

Stock Price Halved Due to COVID-19... Over 30% Decline Since Early This Year

The reason Shinhan Financial, which has consistently paid year-end dividends, is moving beyond interim dividends to quarterly dividends is due to the notable decline in its stock price this year. The large-scale provision for losses caused by the Lime Fund incident and others significantly impacted the expected performance. In the first half of this year, Shinhan Financial's loan loss provisions amounted to 821 billion KRW, 1.5 times higher than the same period last year. The recent capital increase of about 1.2 trillion KRW targeting overseas private equity funds also weighed on the stock price. Existing shareholders criticized the dilution of equity value.

At the end of last year, Shinhan Financial's stock price hovered in the mid-40,000 KRW range but dropped to the low 20,000 KRW range in March this year, halving its value. Although there was a brief recovery in June, the price has remained below 30,000 KRW and has shown sluggish performance.

Especially with the spread of COVID-19, most financial holding companies, including Shinhan Financial, experienced downward stock trends, but Shinhan Financial's decline was particularly steep. Since the beginning of the year, Shinhan Financial's stock price has fallen by more than 34%. This decline is larger compared to KB Financial Group, Hana Financial Group, and Woori Financial Group, which recorded declines of 10-20%. Additionally, Shinhan Financial's relative stock performance over the past three years is the lowest among the four major financial holding companies.

'Recovery of Undervalued Value' Was a Key Topic at the Board Workshop

For this reason, one of the key topics discussed at the Shinhan Financial board workshop held earlier this month was the 'recovery of the undervalued value of Shinhan Financial Group.' It is known that discussions included flexible capital policies such as defending and improving recurring earnings power. The emergence of the quarterly dividend proposal is interpreted as a sign that Chairman Cho Yong-byeong and other top executives are taking the current stock price situation seriously.

If the agenda is approved and the COVID-19 crisis ends next year, quarterly dividends may be implemented sooner than expected. Until now, Shinhan Financial has consistently paid year-end dividends, with last year's dividend per share at 1,850 KRW. Currently, only four stocks on the Korea Exchange have consistently paid quarterly dividends over the past three years: Samsung Electronics, POSCO, Ssangyong Cement Industrial, and Hanon Systems.

However, paying quarterly dividends does not mean an increase in the total annual dividend. It mainly means distributing the dividend, which was previously paid as a lump sum at year-end, in installments.

Nonetheless, it is significant in terms of improving cash flow through periodic dividends. From a shareholder's perspective, assuming reinvestment of dividends, the effect of compound interest can also be enjoyed. Until now, domestic financial holding companies, except for Hana Financial Group, have only paid year-end dividends. Shinhan, Hana, and Woori Financial Groups have provisions for interim dividends in their articles of incorporation, but only Hana Financial has implemented them.

A Shinhan Financial official said, "As part of an active shareholder return policy, we have established a plan to use all possible means to boost the stock price," adding, "Quarterly dividends are one of those means, and rather than implementing them immediately, we are preparing them as a tool to be used after the end of COVID-19."

This content was produced with the assistance of AI translation services.