Financial Services Commission: "Most Overseas Authorities Implement '20% Dividend'... EU and UK Are Stricter"

Financial Services Commission Issues Reference Materials and Clarifies "Temporary Measures to Overcome COVID-19"
EU Recommends 15% Dividend of Net Profit, UK Recommends 25%

[Asia Economy Reporter Wondara] The Financial Services Commission (FSC) explained that the '20% dividend' recommendation to financial holding companies is "a temporary measure to overcome the COVID-19 crisis, implemented by most overseas financial authorities." Among investors in financial holding companies, there has been ongoing backlash claiming that the FSC's recommendation to reduce the dividend payout ratio is unfair despite expanded earnings.

On the 8th, the FSC emphasized in a press release, "The FSC has passed a capital management recommendation to ensure that domestic bank holding companies and banks maintain and enhance sufficient loss-absorbing capacity to overcome the COVID-19 crisis," adding, "Most countries worldwide are recommending strict capital management such as dividend restrictions during the COVID-19 situation."

According to the FSC, 27 out of the world's top 30 countries are implementing capital preservation measures such as dividend restrictions due to COVID-19. The remaining three countries operate a pre-approval system for dividends. The European Union (EU) recommends dividends at 15% of net income, and the United Kingdom recommends 25%. The FSC explained, "Considering that the usual dividend payout ratio of major EU banks is around 40%, this is a stricter level than South Korea’s (which has averaged around 24% over the past five years)."

▲Reference material from the Financial Services Commission. Cases of dividend restrictions implemented by foreign financial authorities

The FSC also reiterated that this recommendation followed a proper procedure. The FSC emphasized, "If a bank’s dividend payment is likely to significantly impair soundness, administrative guidance can be issued through the FSC’s resolution under Article 7 of the Financial Regulatory Operations Regulations." It added, "The Financial Supervisory Service (FSS), together with the Bank of Korea, adopted the IMF’s stress test methodology as a basis," and "Overseas financial authorities set more conservative recession scenarios compared to Korea’s stress test scenarios."

However, the FSC clearly stated that this recommendation is temporary. The FSC said, "Recent profits occurred under the special circumstances of COVID-19, so conservative capital management is necessary," and "This is a temporary measure to overcome the COVID-19 crisis."

Meanwhile, despite 'surprise earnings,' as financial holding companies lowered their dividend payout ratios to around 20% following the FSC’s recommendation, the IR (Investor Relations) departments of the 20 major financial holding companies have been receiving inquiries from individual and foreign investors about the dividend payout reduction. Some financial holding companies are reportedly conducting internal legal reviews in preparation for potential lawsuits from investors related to dividend cuts or participation in profit-sharing schemes. Following KB Financial Group and Hana Financial Group lowering their dividend payout ratios to 20%, Shinhan Financial Group and Woori Financial Group are also expected to decide on a dividend payout ratio around 20% at their board meetings in early March.

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