FSS Urges "Dividend Restraint"... Financial Firms with Strong Performance Struggle with Shareholder Dissatisfaction

FSS Recommends Reducing Dividend Payouts
"Need to Enhance Loss Absorption Capacity to Resolve Economic Uncertainty"
Controversy Over 'Government-Controlled Finance' in the Market
Opposition to Dividend Reduction Posted on Cheong Wa Dae National Petition Board
Financial Sector Provisions Exceed 3 Trillion Won, "Shareholder Value Must Be Improved"

[Asia Economy Reporter Kangwook Cho] As the year-end dividend season approaches, financial holding companies are facing deep concerns. They need to pay dividends to boost stock prices that have hit bottom and enhance shareholder value, but they cannot ignore the watchful eyes of financial authorities pressuring them to restrain dividends. Recently, the situation has become even more difficult as investors angered by demands to reduce dividends have posted complaints on the Blue House's national petition board.

Financial Supervisory Service Recommends Reducing Year-End Dividends... Considering Institutionalizing Dividend Restrictions During COVID-19

According to financial authorities and the financial sector on the 14th, the Financial Supervisory Service (FSS) recently held discussions with financial holding companies regarding plans to reduce year-end dividends. With the prolonged COVID-19 pandemic increasing economic uncertainty, the authorities' position is that banks and financial holding companies should reduce dividends to strengthen their loss-absorbing capacity before the dividend season in March next year. Some even say that the FSS recommended cutting the dividend payout ratio of financial holding companies to around 15-20% this year. The FSS plans to finalize the agreement by early next year. Additionally, the FSS is also considering institutionalizing dividend restrictions to ensure financial companies maintain loss-absorbing capacity during emergencies like COVID-19.

This is not the first time the FSS has requested dividend restraint. Since the beginning of the year, FSS Governor Yoon Seok-heon has consistently recommended dividend restraint in the financial sector and expressed regret when Hana Financial Group proceeded with its interim dividend as planned in July.

◆ Intensifying 'Government-Controlled Finance' Controversy... 'Opposition to Dividend Reduction' on National Petition = Given this situation, the market has even seen controversy over 'government-controlled finance,' and on the 8th, a petition titled "Oppose the Reduction of Year-End Dividends for Financial Stocks" was posted on the Blue House's national petition board. The petition, which has received over 2,700 endorsements, states, "The FSS argues for temporary dividend reductions due to the impact of COVID-19, but all financial institutions recorded solid business performance this year," and criticizes, "The government forcing private companies to reduce dividends violates the free market economy system and damages shareholder value."

Dividend Reduction Demands Fuel Stock Price Declines... All Four Major Financial Holding Companies Show Negative Stock Performance This Year

Financial holding companies are struggling. While dividend increases are necessary to boost stock prices that have hit bottom, the FSS's repeated demands to reduce dividends have led institutional investors to sell off financial holding company stocks en masse, further driving down stock prices. According to Hana Financial Investment, after the FSS's dividend regulations became known, domestic institutions net sold 92 billion KRW worth of bank stocks last week. Foreigners and individuals bought 50 billion KRW and 27 billion KRW worth of bank stocks respectively, attempting to halt the stock price decline, but it was insufficient. As of the previous trading day on the 11th, the stock prices of the four major financial holding companies?Shinhan Financial Group (-20.85%), Woori Financial Group (-9.25%), Hana Financial Group (-2.3%), and KB Financial Group (-1.88%)?all recorded negative returns year-to-date.

◆ Four Major Financial Holding Companies' Cumulative Q3 Net Profit Up 15%... Provisions Exceed 3 Trillion KRW = A financial sector official explained, "We somewhat agree with the financial authorities' stance on dividends, but it is difficult to simply refrain from paying dividends. Above all, since provisions for COVID-19 have been substantially accumulated and performance remains solid, the rationale for enhancing shareholder value cannot be ignored."

The cumulative net profit of the four major financial holding companies for the third quarter this year reached 9 trillion KRW, a 15.1% increase compared to the same period last year. Shinhan and KB each posted net profits exceeding 1 trillion KRW in the third quarter alone, achieving record-high results. The total provisions accumulated during this period amounted to 3.0894 trillion KRW, 1.2052 trillion KRW more than last year. This supports the analysis that there is no significant problem with increasing dividends for the four major financial holding companies.

Comprehensive Financial Sector Pressure Expands: Dividend Reduction, Branch Maintenance, Loan Regulations

Another financial sector official lamented, "Considering this year's banks' strong performance and healthy capital ratios, public opposition to dividend restrictions is considerable, so the dividend payout ratio is unlikely to drop sharply. However, pressure on the financial sector is expanding comprehensively, including raising loan thresholds and urging restraint in branch consolidation, not just dividend restrictions."

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