Despite Dividend Restraint Recommendations... Savings Banks' Dividend Feast

Savings Banks with Dividend Payout Ratios Exceeding 20% Appear Again This Year
Contrary to Financial Authorities and Commercial Banks' Dividend Restraint Policies

[Asia Economy Reporter Song Seung-seop] Savings banks are facing controversy as they consecutively decide on high dividends. This is in stark contrast to financial holding companies, which posted record profits and have been reducing their dividend payout ratios (cash dividends relative to net income) following financial authorities' recommendations to refrain from dividends across the financial sector amid the COVID-19 situation.

According to the financial sector on the 17th, JT Chin-Ae Savings Bank recently held a board meeting and resolved to pay a year-end dividend of 698 KRW per common share. The total dividend amount is 10.0932 billion KRW, and it plans to pay after the shareholders' meeting on the 24th, with payment scheduled for the 25th. Compared to the net income of 40.9 billion KRW, the dividend payout ratio reaches 24.67%.

JT Chin-Ae Savings Bank conducted its first interim dividend since entering the domestic market last May, paying 18.2118 billion KRW (1,270 KRW per common share). At that time, it was stated that the purpose was to facilitate ongoing business in Indonesia, but this dividend is being made as a shareholder return after the major shareholder changed to Japan's 'Nexus Bank.' Considering that Japanese financial companies have restrained dividends to avoid emotional backlash and controversies over national wealth outflow, this is regarded as unusual.

Koryo Savings Bank also recently announced it would pay dividends of 5,000 KRW per common share, totaling 11.15357 billion KRW. Koryo Savings Bank recorded total assets of 1.0727 trillion KRW and net income of 30.6 billion KRW, resulting in a dividend payout ratio of 36.4%. Regardless of net income, Koryo Savings Bank has maintained a dividend payout close to 40%, distributing about 11 billion KRW annually. Although net income steadily declined from 36.2 billion KRW in 2016 to 26.4 billion KRW over three years, it slightly improved last year, allowing for a similar scale of dividends.

Pureun Savings Bank is known for having a high dividend payout ratio and dividend yield (dividend amount relative to stock price on the dividend record date) among savings banks that pay dividends. This year's total dividend is 6.52734 billion KRW (550 KRW per common share), with a dividend yield of 6.14%. Considering that commercial banks' dividend yields typically hover around 5%, this is a high level. Net income was 21.9 billion KRW, with a dividend payout ratio of 29.81% and a cash dividend rate of 55% relative to the par value.

Large savings banks also joined the high dividend trend. Among the five major savings banks (SBI, OK, Pepper, Korea Investment, and Welcome), Korea Investment Savings Bank paid dividends of 616 KRW per common share and 33,030 KRW per preferred share, totaling 12.0398 billion KRW. Based on the 2019 net income of 58.5 billion KRW, the dividend payout ratio is about 20.5%.

There is strong negative public opinion regarding the high dividend payout trend in the savings bank industry. Many savings banks are foreign-owned or owner-operated, so high dividends often raise concerns about capital outflow or owners filling their coffers, leading most to exercise restraint. This is especially at odds with the actions of financial authorities and commercial banks. The Financial Services Commission decided earlier this year to recommend that financial holding companies maintain dividend payout ratios within 20% by the end of June as a capital management guideline. Last month, Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission, directly stated, "Although no dividend recommendations were issued to the secondary financial sector, we expect decisions to be made at a reasonable level."

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