"Dividend Restraint" Pressure from FSC... Financial Sector Embarrassed by Angry Investor Complaints (Comprehensive)

FSS: "Loss Absorption Capacity Must Be Expanded to Resolve Economic Uncertainty"
'Government-Controlled Finance' Controversy... 'Opposition to Dividend Reduction' Post on Cheongwadae National Petition
Financial Sector's Loan Loss Provisions Exceed 3 Trillion Won, "Shareholder Value Must Be Enhanced"

[Asia Economy Reporter Kangwook Cho] As the year-end dividend season approaches, financial holding companies are facing deep concerns. While dividends are necessary to boost stock prices that have hit bottom and enhance shareholder value, they cannot ignore the financial authorities' pressure to restrain dividends. Recently, the situation has become even more difficult as investors angered by demands to reduce dividends have voiced their complaints on the Blue House's public petition board.

Financial Supervisory Service Recommends Reducing Year-End Dividends... Considering Institutionalizing Dividend Restrictions Amid 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 reducing 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 reports even suggest that the FSS recommended cutting the dividend payout ratio of financial holding companies to around 15-20%. The FSS plans to finalize the agreement by early next year. Additionally, the FSS is considering institutionalizing dividend restrictions for financial companies during emergencies like COVID-19 to ensure they maintain sufficient loss-absorbing capacity.

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 Public Petition = Given this situation, the market has seen a surge in controversy over 'government-controlled finance,' culminating in a petition titled "Oppose the Reduction of Year-End Dividends for Financial Stocks" posted on the Blue House public petition board on the 8th. The petition, which has garnered over 2,700 signatures, states, "The FSS argues for temporary dividend reductions due to the impact of COVID-19, but all financial institutions have 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 bottomed out, 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, following the announcement of the FSS's dividend regulations, 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 stem the 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 = One financial sector official explained, "While we somewhat agree with the financial authorities' stance on dividends, it is difficult to simply refrain from dividends. Above all, given that a significant portion of provisions has been set aside for COVID-19 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 first three quarters of 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 among the four major financial holding companies.

Comprehensive Pressure on Financial Sector Expands: Dividend Cuts, 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 drastically. However, pressure on the financial sector is spreading comprehensively, including raising loan thresholds and urging restraint on branch closures and consolidations, not just dividend cuts."

Financial Services Commission Chairman: "FSS Conducting Stress Tests... Dividends Should Align with Results"

Regarding this, Financial Services Commission Chairman Eun Sung-soo stated, "Dividends are closely related to the capital market, so we respect the intentions of individual financial companies," but added, "We share concerns about the potential surge in deferred bad debts after the maturity extension measures end due to the COVID-19 situation."

He said, "Stress tests are currently underway at the FSS and bank holding company levels," and added, "Considering the test results, each company should appropriately adjust dividends accordingly."

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