Farmers Hit by Bank's 20% Dividend Cap... NH Nonghyup's Farmer Support Fund at Risk of Reduction

Most of NongHyup Financial's Dividends Used to Support Farmers
About 28% Dividend Last Year... Expected to Decrease This Year

NongHyup Financial Group Headquarters

[Asia Economy Reporter Kiho Sung] Financial authorities have limited dividends to 20% of net income for financial holding companies and banks, unexpectedly causing farmers to bear the brunt. Due to the unique organizational structure of NH Nonghyup Financial Group, unlike other financial companies, most of the dividends go to members of the cooperative, who are mainly farmers. Some voices express concerns that support for farms struggling due to COVID-19 might be reduced.

According to the financial sector on the 29th, the Financial Services Commission recommended limiting the dividend payout ratio to 20%, lowering it by 5 to 7 percentage points from last year for financial holding companies and banks, prompting Nonghyup Financial Group to begin internal reviews regarding dividends.

In March last year, Nonghyup Financial Group confirmed a dividend of 500 billion KRW to the Nonghyup Central Association at the regular shareholders' meeting. The 500 billion KRW paid to the Central Association accounted for 28% of the holding company's net income of 1.7796 trillion KRW in 2019. This was the largest dividend since the separation of credit and economic businesses (Shingyeong Separation). The period during which the profits or losses of Nonghyup Financial Group's affiliates are reflected in the Central Association's earnings is on average two years, due to the structure where dividends received by the holding company from affiliates are reflected in the holding company's financial statements before being distributed to the Central Association.

Last year, Nonghyup Financial Group transferred 56% (500 billion KRW) of the 694.3 billion KRW dividend income received from subsidiaries in 2018 to the Central Association. In 2019, it received 209.7 billion KRW from subsidiaries and paid about 60 billion KRW to the Central Association. In 2018, due to the big bath (large-scale loss processing) by Nonghyup Bank in 2016, no dividends were paid to the Central Association. However, major subsidiaries of Nonghyup Financial Group, such as Nonghyup Life Insurance and Nonghyup Property & Casualty Insurance, have not paid dividends since 2016 to prepare for the International Financial Reporting Standards (IFRS 17).

Last year's dividend at 28%, net income increased significantly but dividends must be reduced
Nonghyup cooperative members receiving dividends from Nonghyup Financial Group worry "Is support for farmers' funds decreasing?"

The problem is that these dividends to the Central Association are used as support funds for farmers. The Central Association sends dividends to local Nonghyup cooperatives, which then distribute dividends to members, most of whom are farmers. Additionally, projects that provide practical help to farms, such as support for fertilizer and pesticide costs and warehouses, are funded by dividends. An industry insider explained, "Unlike commercial banks, Nonghyup Financial Group has a special aspect. Dividends do not flow overseas, and most of them return to farmers." If Nonghyup Financial Group reduces dividends, the Central Association's capacity to support will also shrink.

According to the financial authorities' recommendation of 20%, last year's dividend amount would decrease from 500 billion KRW to 350 billion KRW. Nonghyup Financial Group's net income up to the third quarter of last year increased by 4.8% year-on-year to 1.4608 trillion KRW, and the dividend size was expected to increase accordingly.

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