Shareholders Angry Over Dividend Cut Recommendations and Forced Profit Sharing... Financial Holding Companies Begin Legal Review

Review of Potential Legal Violations Including Embezzlement Accusations and Lawsuit Preparedness

Financial Supervisory Service (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] The government's recommendation to cut dividends and the ruling party's pressure to participate in the profit-sharing system have sparked strong opposition from financial holding companies and shareholders. Some financial holding companies have begun reviewing whether management actions such as reducing shareholder profits and instead contributing to funds for the unspecified public could be illegal in preparation for potential lawsuits.

According to the financial sector on the 31st, recently, the investor response and management departments of financial holding companies have been flooded with inquiries from individual and foreign investors regarding dividends and the profit-sharing system.

A financial holding company official said, "Calls asking whether we will participate in the citizen financial fund, etc., in the form of donations as part of the government's recommendation of a dividend payout ratio within 20% and profit-sharing do not stop," adding, "Especially, there are many requests to convey the opposition stance of foreign shareholders to the authorities on their behalf."

On the 28th, the Financial Services Commission recommended banks to pay dividends within 20% of net profits. Given concerns about the soundness of the financial system due to potential loan delinquencies following the COVID-19 crisis, the intention is for financial holding companies and banks to reduce shareholder dividends and secure sufficient resources.

This is the first time the dividend recommendation has been issued officially rather than verbally. Although it is a recommendation, financial companies, who ultimately have no choice but to accept it, empathize with the reality caused by COVID-19 but are concerned about shareholder dissatisfaction and defections, leaving them unable to decide their stance.

A bank official said, "Foreign ownership in major financial holding companies exceeds 50%," adding, "We need to pay an appropriate level of dividends to enhance shareholder value, so this is a frustrating situation."

Another official lamented, "It goes against financial common sense to reduce dividends even though banks' performance and soundness are excellent," but added, "There is no financial holding company or bank that can openly ignore the financial authorities' recommendation."

Bank stocks have long been considered representative high-dividend stocks. The four major bank holding companies?Shinhan, KB, Hana, and Woori?showed dividend payout ratios of 25-27% last year. Woori had the highest at 27%, KB and Hana were at 26%, and Shinhan was at 25%.

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