Financial Holding Companies Breaking Free from Shackles... Contemplating 'Interim and Quarterly Dividends'

Record-Breaking Performance Raises Dividend Expectations
Concerns Over 'Money Festival' Criticism Amid Recession

[Asia Economy Reporter Kiho Sung] As the financial authorities' dividend payout ratio regulation on financial holding companies is set to end at the end of this month, attention is focused on whether the previously announced 'large-scale interim and quarterly dividends' will be implemented. The industry expects financial holding companies, which recorded record-breaking earnings, to initiate additional dividends. However, there is also a forecast that decisions may be made within the dividend restrictions suggested by the financial authorities to manage soundness.

According to the financial industry on the 1st, the financial authorities are coordinating opinions ahead of the scheduled end of the dividend payout ratio restriction recommendation on the 30th of this month. The industry assumes that, although the stress test conducted earlier this year considered a more severe economic crisis scenario than the International Monetary Fund (IMF) foreign exchange crisis, the current situation has changed, making it unlikely that the existing dividend restriction measures will be extended as is.

Once the dividend restriction recommendation ends at the end of this month, financial holding companies are expected to actively pursue shareholder return policies. Major financial holding companies have already proposed and passed agendas such as dividend expansion at shareholder meetings held in March.

Shinhan Financial Group changed its articles of incorporation through the shareholder meeting to allow not only interim dividends but also quarterly dividends. Woori Financial Group also passed an agenda at the shareholder meeting to transfer capital reserves to retained earnings, increasing distributable profits by about 4 trillion won. Hana Financial Group has been conducting interim dividends for some time. Except for Hana Financial Group, other financial holding companies are also in a position to pay interim dividends according to their articles of incorporation.

The reason financial companies are rushing to pay dividends is that they posted record-breaking first-quarter earnings, and with a green light for profitability improvement this year, the opinion that interim and quarterly dividends should be implemented to prevent shareholder attrition is gaining strength. In fact, the net income of the five major financial holding companies in the first quarter was 4.5724 trillion won, a 43.9% increase compared to the same period last year (3.1758 trillion won). This earnings trend is expected to continue into the second quarter.

However, it is not easy for financial holding companies to simply increase dividend sizes. While deposit interest rates remain stagnant amid the overall economic difficulties caused by COVID-19, loan interest rates are showing signs of rising, which could lead to criticism of a 'money feast.'

Additionally, the label of 'COVID boom industry' raises concerns about becoming a target of the political sphere. As financial holding companies recorded record profits even during the COVID-19 pandemic last year, politicians have been competing to demand the establishment of a 'People’s Finance Fund,' a financial profit-sharing system. Accordingly, financial companies have agreed to contribute 200 billion won proportionate to household loan balances to the Korea Inclusive Finance Agency.

A financial holding company official said, "It is true that the possibility of quarterly and interim dividends has increased," but added, "Being labeled as a COVID profit industry could lead to public criticism, political demands for contributions, and new regulations, which is inevitably burdensome."

There is also criticism that setting the dividend payout ratio too high could undermine dividend stability and negatively affect investors. Professor Jiyong Seo of the Department of Business Administration at Sangmyung University said, "Even if financial holding companies implement interim and quarterly dividends, most are likely to maintain the 20% level recommended by the financial authorities," adding, "Since stability is important in dividend policy, even if the financial authorities' recommendation ends, it is highly likely that a similar level will be maintained."

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