NongHyup Financial, Will It Take Interim Dividends to Support Farmers?

All Dividends Used to Support Farmers
Possibility of Interim Dividends After June

[Asia Economy Reporter Kiho Sung] As major financial holding companies announce their dividend payout ratios ahead of their shareholder meetings, attention is focused on whether NongHyup Financial Group, the last remaining company, will comply with the financial authorities' recommendation to limit dividends to 20%. NongHyup Financial hopes that its unique characteristics will be taken into account since its dividends are used for support projects benefiting farmers, but the financial authorities' stance remains unchanged. Accordingly, there is growing speculation that NongHyup Financial may consider interim dividends in light of its operations supporting farming households.

According to the financial sector on the 24th, NongHyup Financial will hold a board meeting on the 26th to decide the dividend payout ratio. This will then be finalized at the shareholder meeting scheduled for the 31st.

Previously, the financial authorities recommended a 20% dividend payout ratio to enhance loss absorption capacity of financial companies amid the prolonged COVID-19 crisis. KB Financial Group (26% last year), Woori Financial Group (27% last year), and Hana Financial Group (25.78% last year) all announced dividend payout ratios aligned with the 20% guideline.

As financial holding companies have successively followed the authorities' recommendation, NongHyup Financial is facing a difficult decision. NongHyup Financial's dividends are transferred 100% to the NongHyup Central Association. These dividends are then distributed to members through local NongHyup cooperatives. Since the funds are used for projects that provide tangible support to farmers, such as fertilizer and pesticide costs and warehouse support, reducing the dividend payout ratio inevitably leads to a decrease in support funds for farmers. NongHyup Financial has continuously explained its unique situation to the financial authorities and requested exceptions, but these requests have reportedly not been accepted.

Last year, NongHyup Financial paid dividends of 500 billion KRW, which is 28.1% of its net profit, to the NongHyup Central Association. Considering that NongHyup Financial's net profit for the previous year was 1.7359 trillion KRW, reducing the dividend payout ratio to 20% is expected to shrink the dividend amount to 350 billion KRW.

Some expect NongHyup Financial to issue interim dividends after June, when the financial authorities' guidelines expire. In fact, NongHyup Financial's articles of incorporation provide a basis for interim dividends. According to Article 54 of NongHyup Financial's articles of incorporation, "Once per fiscal year, the board of directors may resolve to set a specific date to pay interim dividends to shareholders pursuant to Article 462-3 of the Commercial Act." However, it is a concern that since the financial holding company was established in 2012, it has never conducted interim dividends.

A financial sector official said, "NongHyup Financial's dividends are used 100% for farmers without any outflow abroad," adding, "Because reducing dividends clearly harms farmers, they will likely accept the authorities' recommendation as much as possible for now and increase dividends after the guideline expires in June."

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