Ministry of Economy and Finance Fat with High Dividends from Industrial Bank... Dividend Income Exceeding 200 Billion Won

Commercial Bank Shareholders Bear Losses...
IBK's Dividend Payout Ratio Highest in Industry
Major Shareholder Ministry of Economy and Finance Secures Substantial Dividend Income

[Asia Economy Reporter Park Sun-mi] As a policy bank that has avoided dividend restriction regulations imposed by financial authorities continues to maintain high dividends, the Ministry of Strategy and Finance, the largest shareholder, is able to secure more dividend income than last year. This contrasts with the situation where financial holding companies, which posted record profits last year, have limited their dividend payout ratios to around 20% following the financial authorities' recommendations, leading to shareholder dissatisfaction.

Industrial Bank of Korea (IBK) recently decided on a cash dividend of 471 KRW per common and preferred share for its 2020 operations. The total dividend amount is 372.9 billion KRW. The dividend payout ratio, which represents the proportion of net income distributed as dividends to shareholders, stands at 29.5% on a separate basis and 24.1% on a consolidated basis.

In the case of IBK, the Ministry of Strategy and Finance holds a 59.2% stake, including both common and preferred shares. This means that the Ministry can secure about 220.7 billion KRW in dividend income, which is more than half of the total dividend amount of 372.9 billion KRW. 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 for the Ministry. This year, with no differential dividends, the government's dividend income will effectively increase compared to last year.

IBK's dividend payout ratio has hovered around 30% for several years. Although the 2020 payout ratio dropped slightly below 30% to 29.5%, it has been considered a 'high dividend stock' due to its consistent payout ratio around 30% since 2014. Even on a consolidated basis (24.1%), the payout ratio is relatively high compared to other banks. Financial authorities, concerned about the deterioration of capital soundness due to COVID-19, recommended temporary dividend restraint to banks to strengthen loss absorption capacity. As a result, financial holding companies listed on the stock market have reduced dividends despite achieving record profits.

Policy Banks Exempt from Dividend Restriction Recommendations
While Commercial Bank Shareholders Bear Losses...
No Differential Dividends for Government Shareholders

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 finalized their payout ratios at 20%, creating a trend of matching the 20% payout ratio across the banking sector.

Woori Financial Group also decided on a 20% dividend payout ratio on the 5th, following the financial authorities' recommendation. The dividend per common and preferred share is 360 KRW, with a total dividend amount of 260 billion KRW. However, Shinhan Financial Group is an exception, having passed the Financial Supervisory Service's 'L-shaped (long-term economic recession assumption)' stress test and set its payout ratio at 22.7%.

The reason IBK can still maintain high dividends is that, unlike commercial banks, as a policy bank, financial authorities believe that high dividends do not pose significant issues in terms of capital soundness. Some argue that government agencies cannot significantly reduce bank dividends because they need to secure dividend income. Especially since IBK's performance has declined due to the COVID-19 situation, lowering the payout ratio significantly would sharply reduce the dividend income that the Ministry of Strategy and Finance can include in its budget. In fact, the Ministry holds the key to deciding IBK's dividend amount.

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