Financial Holding Companies' Dividends Expected Again This Year... Dividend Yield Forecasted at 6-8%

[Asia Economy Reporter Song Hwajeong] Banks are expected to achieve record-high earnings again this year, raising expectations for dividends. However, the expanding economic uncertainties cannot rule out the possibility of negatively impacting future dividends.

According to NH Investment & Securities on the 16th, the dividend yield of the four major financial holding companies is projected to reach 7.5% this year. KB Financial Group and Shinhan Financial Group are each expected to have yields in the 6% range, while Woori Financial Group and Hana Financial Group are expected to be in the 8% range.

Jung Junseop, a researcher at NH Investment & Securities, analyzed, "The financial industry has traditionally been a high-dividend sector and is expected to attract attention as the year-end approaches this year as well. In particular, banks are the sector with the highest dividend expectations within the financial industry. While interest income has clearly increased due to the sharp rise in net interest margin (NIM) in the first half of the year, stock prices have weakened, causing the expected dividend yield to rise significantly." He added that although the increase in NIM in the second half is not expected to be as steep as in the first half, further improvement is anticipated, and the increase in interest income is expected to produce solid recurring earnings.

As banks are expected to record record-high earnings again this year, this is likely to support dividend expectations. According to financial information provider FnGuide, the annual net profit of the four major financial holding companies is expected to exceed 16 trillion won this year. Looking at the consensus forecasts for each company, Shinhan is expected to surpass 5 trillion won with 5.0219 trillion won, due to gains from the sale of the Shinhan Financial Investment building, representing a 24.94% increase compared to the previous year. KB Financial is expected to increase by 10.86% to 4.8884 trillion won, Woori Financial Group by 18.86% to 3.076 trillion won, and Hana Financial Group by 2.68% to 3.6205 trillion won.

Not only earnings but also soundness is in good condition. Researcher Jung said, "Currently, the soundness of the banking sector is good, and the already accumulated allowances and reserves are considerable, so the dividend scale of financial holding companies is unlikely to change significantly from the current outlook." He also predicted, "The additional allowance accumulation in the second half is not expected to exceed the first half's level significantly." The four major financial holding companies accumulated additional allowances of 100 billion to 200 billion won in the second quarter alone, reflecting future economic outlooks.

A variable is the special loan loss reserve that financial authorities are preparing. The accumulation of special loan loss reserves could reduce distributable profits. The Financial Services Commission decided at the 4th meeting of the Financial Risk Response Task Force (TF) to introduce a requirement for special loan loss reserve accumulation in preparation for increased financial market volatility. This means that if the level of loan loss reserves falls short of supervisory standards, authorities can require additional reserves, expected to be implemented in the fourth quarter. Lee Hongjae, a researcher at Hyundai Motor Securities, said, "Loan loss reserves do not affect profit and loss but are a deduction item from distributable profits. However, since the current dividend scale is below distributable profits, it will not immediately lead to a reduction in dividends per share (DPS) compared to the previous year."

The possibility of economic downturn is also a burden. If the economic situation or real estate prices deteriorate more than expected, a sharp rise in delinquency rates and profit deterioration due to large-scale allowance accumulation could occur. Researcher Jung said, "If the economic situation worsens, calls for expanded bank support for financially vulnerable groups may increase, and financial authorities may recommend dividend cuts as a preemptive crisis response."

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