KB and Hana Both Maintain Dividend Payout Ratio at 20%... Financial Holding Companies' Dividend Cuts Trigger 'Domino' Effect Amid Strong Earnings Growth

KB Financial, Hana Financial Set Dividend Payout Ratio Exactly at 20% as Regulated
Shinhan Financial and Woori Financial Postpone Dividend Policy to Early March Board Meeting

[Asia Economy Reporter Park Sun-mi] As major domestic financial holding companies announced record-high earnings driven by increased loans and a stock investment boom, the dividend payout ratio is trending downward to below 20% in accordance with the financial authorities' recommendations. The unprecedented pressure from financial regulators to cut dividends has left financially strong holding companies deeply concerned about appeasing angry shareholders.

According to the financial sector on the 7th, KB Financial, the first among the top five domestic financial holding companies to announce its results, reported a net profit of 3.4552 trillion won last year, a 4.3% increase, but actually reduced its dividends. The dividend was set at 1,770 won per share, a 20% decrease from 2,210 won in 2019. The total dividend amount was 689.7 billion won, with a dividend payout ratio (dividends/net income) of 20%. The payout ratio also dropped 6 percentage points from 26% in 2019 to 20% in 2020.

Hana Financial, which announced a net profit of 2.6372 trillion won last year, a 10.3% increase from the previous year, also reduced dividends despite achieving its highest performance since the holding company was established in 2005. Hana Financial resolved a 2020 dividend payout ratio of 20% and a dividend per share of 1,350 won (including interim dividends, 1,850 won). Due to the reduced payout ratio, the dividend per share decreased by 16% compared to the previous year.

The decision by KB Financial and Hana Financial to set the dividend payout ratio at 20% precisely aligns with the guidelines presented by the Financial Services Commission. Earlier, the FSC recommended that domestic banks lower their dividend payout ratios to within 20% until June this year as part of COVID-19 response measures. This was intended to strengthen banks' capital management to enhance loss absorption capacity in preparation for the prolonged pandemic. Until now, only verbal recommendations had been made regarding dividends, making this the first official announcement.

With KB Financial and Hana Financial accepting the financial authorities' recommendations despite record earnings, other financial holding companies such as Shinhan and Woori, which have yet to announce their dividend policies, are highly likely to decide on similar dividend levels. Given the 'special recommendation' from the financial authorities, there is a prevailing atmosphere that they must comply. Shinhan Financial and Woori Financial have postponed their dividend policies to board meetings scheduled for early March.

However, NH Nonghyup Financial's situation is different. Nonghyup Financial, which had a dividend payout ratio of 28.1% in 2019, mainly distributes dividends to cooperative members, who are primarily farmers, due to its organizational structure. Reducing the payout ratio to within 20% would mean a reduction in support for farming households struggling due to COVID-19. A senior official at Nonghyup Financial stated, "Since dividends are linked to farmers' interests, we plan to persuade the authorities by presenting this special situation ahead of the earnings announcement on the 16th."

The Challenge of Appeasing Angry Shareholders
Possibility of Litigation

The intervention of financial authorities in dividend policies, which contradicts capital market logic, has left financial holding companies with the challenge of appeasing angry shareholders who have not received performance rewards despite record profits. This could potentially lead to shareholder defections, hindering stock price growth. Like KB Financial, which is considering interim dividends and share buybacks, other financial holding companies are likely to intensify shareholder return policies in the second half of the year if they cannot do so in the first half.

Regarding the financial authorities' dividend restriction recommendation, some experts argue that it is an excessive intervention that undermines the value enhancement of companies (financial holding companies) and shareholders. Professor Sung Tae-yoon of Yonsei University's Department of Economics pointed out, "It is highly inappropriate for dividends, an important criterion for evaluating corporate value, to be determined based on standards unilaterally set by authorities rather than shareholders' interests," adding, "It is not right for authorities to decide the dividend payout ratio itself."

There is also a high possibility of future litigation. If shareholders believe that financial companies have been harmed by the government or political circles, some may file criminal charges against management for breach of fiduciary duty or initiate shareholder derivative lawsuits under commercial law. Some financial companies are internally reviewing related laws due to concerns about shareholder backlash.

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