Foreign Banks Labeled 'Capital Outflow' Face Dividend Brake Following Financial Authorities' Recommendations

[Asia Economy Reporter Kim Hyo-jin] Foreign banks, which have long been embroiled in high dividend controversies, have significantly reduced their dividend amounts following the financial authorities' recommendation to refrain from dividends. Despite the label of 'national wealth outflow,' they had been paying high dividends, but as other financial holding companies uniformly adjusted their dividend payout ratios to the authorities' recommended standards, it is interpreted that they followed suit in consideration of public opinion.

According to the financial sector on the 16th, SC First Bank held a board meeting the day before and decided the 2020 dividend payout ratio (the ratio of total dividends to net income) to be within 20%. The total dividend amount is 49 billion KRW. This figure is slightly less than 20% of the provisional net profit. The exact net profit and dividend payout ratio will be disclosed through the business report announced at the end of this month.

Foreign banks have generally caused controversy by significantly increasing their dividend payout ratios compared to domestic commercial banks. In particular, SC First Bank continued high dividends despite pressure from financial authorities. SC First Bank's dividend payout ratio increased from 45.68% in 2017 to 50.59% in 2018, and was 208.31% in 2019. In 2019, the dividend amount was especially high because it included 500 billion KRW paid as an interim dividend from issuing 600 billion KRW of 10-year maturity won subordinated bonds as part of the SC Group acquisition conditions.

SC First Bank's significant reduction in the 2020 dividend payout ratio is interpreted as a full acceptance of the financial authorities' recommendation to refrain from dividends. The Financial Services Commission recommended reducing dividends to around 20% by June this year, judging that due to the increased financial uncertainty caused by COVID-19, financial holding companies and banks need to proactively expand their loss absorption capacity by reducing dividends compared to previous years.

Citibank Korea Also Sets Dividend Payout Ratio at 20%

Another foreign bank, Citibank Korea, also decided on a dividend payout ratio of 20%. Citibank Korea held a board meeting on the 2nd and decided to pay a cash dividend of 46.46844 billion KRW. In the case of Citibank Korea, virtually all dividends go to the U.S. headquarters. By lowering the dividend payout ratio this year, the dividend amount sent to the headquarters decreased by 18.77856 billion KRW compared to last year. Citibank Korea's dividend payout ratio in 2019 was 22.2%, with a dividend amount of 65.247 billion KRW.

Earlier, KB Financial Group and Hana Financial Group also reduced their 2020 dividend payout ratios to 20% despite recording record-high net profits. This was a reduction of about 16-20% compared to the previous year. Woori Financial Group also capped its dividend payout ratio at 20%. Shinhan Financial Group, which was the only one to pass the 'L-shaped' stress test assuming a long-term economic recession conducted by financial authorities, set its dividend payout ratio at 22.7%.

Meanwhile, among major domestic financial holding companies, only NH Nonghyup Financial Group has not yet finalized its dividend payout ratio. Nonghyup Financial is scheduled to decide the dividend payout ratio at a board meeting on the 26th.

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