Financial Holding Companies Soothe Shareholders with Interim Dividends (Comprehensive)

Woori Financial Group Secures Capacity for 4 Trillion KRW Interim Dividend at General Meeting
Dividend Increase Calms Angry Shareholders
Financial Authorities Also State "No Interference Unless in Special Cases"

[Asia Economy Reporter Song Seung-seop] Following Shinhan Financial Group's establishment of quarterly dividend regulations, Woori Financial Group has also secured a dividend capacity of 4 trillion won through its shareholders' meeting. It is interpreted that financial holding companies, which had been restricted from year-end dividends due to financial authorities' recommendations, are implementing shareholder appeasement policies through interim dividends.

On the 26th, Woori Financial Group held its regular shareholders' meeting at its headquarters in Jung-gu, Seoul, and announced that it approved the financial statements and consolidated financial statements, partial amendments to the articles of incorporation, the appointment of directors, and approval of remuneration limits.

The resolutions passed that day also included the 'Reduction of Capital Reserve' item. The main point is to convert 4 trillion won of capital reserves into retained earnings within the permissible range. Currently, the total amount of capital reserves and earned reserves accumulated in Woori Financial Group exceeds 1.5 times the capital stock. In this case, the Commercial Act stipulates that capital reserves and earned reserves can be reduced within the excess range by resolution of the shareholders' meeting.

The increase in retained earnings is seen inside and outside the industry as a preliminary step to increase the capacity for interim dividends. Capital reserves are reserves accumulated from special sources other than operating profit at each fiscal year-end and can only be used to cover deficits. On the other hand, retained earnings refer to money accumulated within the company as a result of business and financial activities, so they can be used for dividends.

Earlier, Shinhan Financial proposed and passed an amendment to the articles of incorporation at its shareholders' meeting held the previous day to establish grounds for quarterly dividends. Article 59-2, which stated 'interim dividends can be paid to shareholders as of 0:00 on July 1,' was changed to 'quarterly dividends can be paid to shareholders registered in the final shareholder registry as of the end of March, June, and September.' This allows dividends up to four times a year, making it possible to pay quarterly dividends as early as September.

Among the four major financial holding companies, Hana Financial Group, which has consistently paid interim dividends, and KB Financial Group, which has established interim dividend regulations, are reportedly considering ways to enhance shareholder value.

Lee Hu-seung, Chief Financial Officer (CFO) of Hana Financial, emphasized at last year's earnings presentation, "Management considers enhancing shareholder value as the top priority," and added, "We will do our best in return policies to meet shareholder expectations." KB Financial Group Chairman Yoon Jong-kyu also emphasized at the 13th shareholders' meeting held at KB Financial's headquarters in Yeouido, Seoul, "Recently, shareholders have high expectations for financial holding companies' dividends, and we recognize the growing need for stable dividend supply," adding, "We will actively consider it."

Interim Dividend Moves... Aimed at Appeasing 'Angry Shareholders' Over 20% Dividend Payout Ratio

Jo Yong-byeong, Chairman of Shinhan Financial Group, attending the 20th Annual General Meeting of Shareholders of Shinhan Financial Group held the previous day
[Photo by Shinhan Financial Group]

The interim dividend moves by financial holding companies are a response to the contraction of dividend payout ratios imposed by financial authorities earlier this year. The Financial Services Commission recommended keeping the dividend payout ratio within 20% through the 'Capital Management Recommendations for Banks and Bank Holding Companies in Response to COVID-19,' emphasizing the need for proactive capital expansion efforts to cope with economic uncertainties.

At that time, the financial authorities mentioned that despite improved financial companies' performance, most advanced countries worldwide were implementing dividend restriction policies. According to a Basel Committee survey, as of the end of October, 27 out of 30 major countries were enforcing dividend restriction policies due to COVID-19.

Accordingly, Shinhan Financial Group, which passed the regulatory ratio stress test, set its dividend payout ratio at 22%, while other holding companies set theirs around 20%. Compared to the usual 25-27% dividend payout, this represents a reduction of up to about 7 percentage points.

Financial holding companies seem to expect a stock price increase effect by initiating interim dividends. This is because the dividend restriction measures caused a sharp stock price decline contrary to performance. A financial holding company official said, "The achievements and support of financial company CEOs are strongly linked to stock prices," adding, "It is true that shareholders were very angry when financial authorities imposed dividend restrictions and holding companies complied, so interim dividends are inevitably important."

The financial authorities also stated that from the second half of this year, which was the period for dividend restrictions, they will not interfere with dividends unless there are exceptional circumstances. A financial authority official explained, "Financial holding companies can autonomously pay interim dividends while maintaining capital adequacy levels," adding, "Unless the COVID-19 situation worsens rapidly or a recession occurs, the authorities will not take special measures."

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