Bank's 20% Dividend Cap... Will NH Nonghyup's Farmer Support Fund Be Reduced? (Comprehensive)

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

[Asia Economy Reporter Sung Kiho] Financial authorities have limited dividends to 20% of net profits for financial holding companies and banks, unexpectedly causing farmers to bear the brunt. Due to the unique organizational structure of NH NongHyup Financial, unlike other financial companies, most dividends go to members 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, NongHyup Financial confirmed a dividend of 500 billion KRW to NongHyup Central Association through the 2019 regular shareholders' meeting held in March last year. The 500 billion KRW paid to the Central Association accounted for 28% of the holding company's 2019 net profit of 1.7796 trillion KRW, marking the largest dividend since the separation of credit and economic businesses. However, as the Financial Services Commission recommended limiting the dividend payout ratio to 20%, lowering it by 5 to 7 percentage points from the previous year for financial holding companies and banks, NongHyup Financial has begun internal reviews related to dividends this year.

The period during which the profits or losses of NongHyup Financial affiliates are reflected in the Central Association's earnings is on average two years. This is because the holding company receives dividends from affiliates, which are then reflected in the holding company's financial statements before being distributed to the Central Association.

Last year, NongHyup Financial handed over 56% (500 billion KRW) of the 694.3 billion KRW in 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) effect of NongHyup Bank in 2016, no dividends were paid to the Central Association. However, major subsidiaries of NongHyup Financial, such as NongHyup Life Insurance and NongHyup Property & Casualty Insurance, have not paid dividends since 2016 to prepare for the International Financial Reporting Standard (IFRS 17).

Net Profit Expected to Increase Significantly This Year... Concerns Over Reduced Support for Farmers' Funds

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, pesticide costs, and storage, are funded by dividends. An industry insider explained, "NongHyup Financial is unique compared to commercial banks. Dividends do not flow overseas and mostly return to farmers." If NongHyup Financial reduces dividends, the Central Association's capacity to support farmers will also shrink.

According to the financial authorities' recommendation of a 20% dividend payout ratio, last year's dividend size would decrease from 500 billion KRW to 350 billion KRW. NongHyup Financial's net profit 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 grow accordingly.

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