Commercial Bank Shareholders Bear Losses... National Policy Banks Pay 30% High Dividends

IBK Industrial Bank to Pay 471 KRW Cash Dividend per Share
Major Shareholder Ministry of Economy and Finance Secures Solid Dividend Income

[Asia Economy Reporter Park Sun-mi] As policy banks have avoided dividend restriction regulations imposed by financial authorities, they have maintained high dividends, resulting in a healthy payout to their shareholder, the government. This contrasts sharply with financial holding companies, which posted record profits last year but limited their dividend payout ratios to around 20% following the financial authorities' recommendations, causing shareholder dissatisfaction.

According to the Financial Supervisory Service's electronic disclosure system on the 4th, Industrial Bank of Korea (IBK) announced yesterday that it will pay a cash dividend of 471 KRW per common and preferred share. The total dividend amount is 372.9 billion KRW. Last year, IBK's net income, excluding subsidiaries on a separate basis, decreased by 9.3% to 1.2632 trillion KRW, and on a consolidated basis, it fell by 4.1% to 1.5479 trillion KRW. Considering this, the dividend payout ratio, which represents the proportion of net income paid out as dividends to shareholders, stands at 29.5% on a separate basis and 24.1% on a consolidated basis.

IBK's dividend payout ratio has hovered around 30% for several years. In 2012, the payout ratio was 23.0%, but it surpassed the 30% threshold in 2016 at 30.8%, then remained above 30% for four consecutive years: 30.9% in 2017, 30.1% in 2018, and 32.5% in 2019. Although the payout ratio dropped to 29.5% in 2020, it has generally stayed around 30% since 2014, earning IBK a reputation as a "high-dividend stock."

Even when considering the consolidated payout ratio (24.1%), IBK's level is relatively high compared to other banks. Due to concerns over deteriorating capital soundness caused by COVID-19, financial authorities recommended temporary restraint on dividends to strengthen banks' loss absorption capacity. As a result, financial holding companies listed on the stock market have reduced dividends despite achieving record profits.

KB Financial Group and Hana Financial Group set their dividend payout ratios exactly at 20%, in line with the financial authorities' recommendation to restrain dividends, and even foreign banks like Citibank Korea fixed their payout ratio at 20%, creating a trend of matching a 20% payout ratio across the banking sector. However, Shinhan Financial Group was an exception, passing the Financial Supervisory Service's "L-shaped (long-term economic recession assumption)" stress test and setting its payout ratio at 22.7%.

Policy Banks Excluded from Dividend Restriction Recommendations
No Differential Dividends for Government Shareholders
Ministry of Economy and Finance Secures Substantial Dividend Income

The reason IBK can still maintain high dividends is that, unlike commercial banks, as a policy bank, it is not subject to dividend restrictions due to financial authorities' view that high dividends do not pose significant issues regarding capital soundness. Earlier, Financial Services Commission Chairman Eun Sung-soo explained the exclusion of policy banks from dividend restriction recommendations for banks and bank holding companies by stating, "Because capital increases are not difficult, there is no problem securing capital soundness in response to the COVID-19 situation."

Some argue that government agencies cannot significantly reduce bank dividends because they need to secure dividend income. Especially since IBK's performance declined due to the COVID-19 situation, lowering the dividend payout ratio substantially would sharply reduce the dividend income that the Ministry of Economy and Finance can incorporate into its budget. In fact, the Ministry of Economy and Finance holds the key to deciding IBK's dividends. An IBK official said, "IBK's position on dividends is limited," adding, "IBK employees do not participate in the dividend consultation body where the Ministry of Economy and Finance holds decision-making authority."

In IBK's case, the Ministry of Economy and Finance holds a 59.2% stake, including both common and preferred shares. This means the ministry can secure more than half of the total dividend amount of 372.9 billion KRW, approximately 220.7 billion KRW, as dividend income. Last year, IBK decided on differential dividends of 670 KRW for general shareholders and 472 KRW for the government, resulting in dividend income of 166.2 billion KRW secured by the Ministry of Economy and Finance from IBK. This year, with no differential dividends, the dividend income the government receives will effectively increase compared to last year.

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