High Possibility of Dividend Restrictions in Banking Sector Ending by Late June

[Asia Economy Reporter Kwangho Lee] As the dividend restriction measures in the banking sector are set to end at the end of June, there is widespread speculation that the possibility of an extension is low.

On the 30th, according to financial authorities and the banking sector, the Financial Services Commission plans to decide soon whether to extend the measures, taking into account the changed economic conditions such as the global economy and economic growth forecasts.

In a regular meeting last January, the FSC passed the "Capital Management Recommendation for Banks and Bank Holding Companies in Response to COVID-19," which limits the dividend payout ratio (dividends divided by net income) of banks to within 20%. The effectiveness of this recommendation expires on the 30th of next month.

At that time, the Financial Supervisory Service conducted a stress test (financial soundness evaluation) assuming a crisis scenario more severe than the 1997 foreign exchange crisis (economic growth rate -5.1%) to assess whether banks could withstand shocks under various scenarios.

With about a month left before the expiration of the measures, the FSC and FSS are gathering opinions on the necessity of extending the measures, but considering the current economic conditions, which have changed since early this year, the prevailing view is that an extension is unlikely.

This is because the Bank of Korea has raised its forecast for South Korea's economic growth rate to 4.0% this year, reducing economic uncertainty significantly, along with growing expectations for expanded vaccine distribution.

Although the FSS recently started stress testing the banking sector, it is known that the measures do not reflect the special COVID-19 situation as they did earlier this year.

Once the dividend restriction measures end next month, financial holding companies are expected to pursue more active shareholder return policies.

At the regular shareholders' meetings last March, financial holding companies accepted the financial authorities' request to lower the dividend payout ratio to around 20%, while emphasizing their intention to enhance shareholder value through interim and quarterly dividends as soon as possible.

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