Financial Holding Companies' Consecutive Treasury Stock 'Cancellation'... Need for ROE Improvement Through Core Business

Hana Financial Followed by Woori and BNK's Treasury Stock Buyback and Cancellation Plans
Dividend Payout Ratio Also 'UP' Following Treasury Stock Cancellation
Major Financial Holding Companies Expected to Have Total Shareholder Return Rate of 33-35%
Need to Enhance Corporate Value Through Profitability Improvement via Operations

In line with the financial authorities' strong determination to raise undervalued corporate values, domestic financial holding companies are successively promoting share buybacks and cancellations. Additionally, some are shortening dividend cycles and increasing dividend payout ratios as part of proactive shareholder return policies.

However, to fundamentally escape the 'low price-to-book ratio (PBR)' presented by the financial authorities, it is necessary to improve return on equity (ROE) through business operations, so there are also criticisms that technical measures such as canceling treasury shares and changing dividend policies have limitations.

According to the financial sector on the 7th, domestic financial holding companies are releasing various shareholder return policies to enhance corporate value in line with last year's annual financial statements announcement. Following Hana Financial Group's plan to buy back and cancel treasury shares worth 300 billion KRW, Woori Financial Group is promoting a plan to buy back and cancel treasury shares, and BNK Financial Group also announced a cancellation plan worth 13 billion KRW.

Woori Financial, which announced its performance last year, is pursuing a plan to purchase and then cancel all 1.2% (about 9.35 million shares) of shares held by the Korea Deposit Insurance Corporation despite a 20% sharp decline in net income compared to the previous year. The current market value is about 136 billion KRW. Woori Financial stated, "There are no confirmed details regarding the timing and amount of share purchases yet," but added, "After the share purchase is completed, we plan to hold a board meeting resolution for strategic cancellation."

BNK Financial Group, whose net income decreased by more than 18% in one year, decided to buy back and cancel treasury shares worth 13 billion KRW, about 2% of last year's net income. Kwon Jae-jung, head of BNK Financial's finance division, explained, "We will make active shareholder return policies such as expanding dividend payout ratios and buying back and canceling treasury shares the group's top management priority."

Shinhan Financial Group and KB Financial Group, which are about to announce their results, are also expected to successively promote plans for treasury share buybacks and cancellations. Shinhan Financial repurchased and canceled treasury shares worth 500 billion KRW last year and plans to expand this scale further this year. KB Financial, which acquired treasury shares worth 572 billion KRW and canceled 272 billion KRW worth last year, is also likely to continue focusing on treasury share buybacks and cancellations.

Improvement in Dividend Indicators such as Total Shareholder Return Rate... Dividend Amount Confirmed First, Shareholders Confirmed Later

These financial holding companies are also actively improving dividend indicators. Following the 'dividend procedure improvement plan' introduced last year, some companies set the dividend record date after confirming the dividend amount. In the case of Woori Financial, the annual dividend was set at 1,000 KRW (640 KRW for the year-end dividend), recording a dividend yield of 7.1% and a payout ratio of 29.7%. As a result, the total shareholder return rate, including last year's treasury share cancellations, rose to 33.7%. The year-end dividend record date was set for the 29th.

Hana Financial, which pays quarterly dividends, raised its total shareholder return rate to about 33%. This is an increase of nearly 13 percentage points in three years from 20% in 2020. Including the year-end cash dividend of 1,600 KRW, the total dividend increased by 50 KRW from the previous year to 3,400 KRW, with a payout ratio of 28.4% and a dividend yield of 7.8%. Park Jong-moo, Vice President (CFO) of Hana Financial Group's finance division, explained, "To resolve undervaluation and increase shareholder value, we plan to gradually increase dividends per share while securing visibility and stability of dividends."

KB Financial and Shinhan Financial are also expected to announce higher dividend policies. KB Financial, which recorded a total shareholder return rate of 33% in 2022, is expected to raise it to about 35%. Shinhan Financial, which had a total shareholder return rate of 30%, is also likely to increase the ratio to 33-35%.

Limitations of Technical Stimulus... Continuous ROE Improvement through Core Business Also Needed

Although financial holding companies continue various shareholder return policies such as canceling treasury shares and changing dividend policies, there is a view that technical measures alone have limitations. To overcome the low PBR situation, fundamental improvement in profitability indicators such as ROE through core business is necessary.

As of the first half of last year, the ROE of major financial holding companies was around 10-12%. KB Financial had the highest at 12.2%, followed by Hana Financial at 10.87%, Shinhan Financial at 10.7%, and Woori Financial at 10.4%. However, as the year progressed, Hana Financial's ROE fell to 9.03% after announcing its results, and it is highly likely that the ROEs of other financial holding companies also declined. Even considering the government's pressure on provisions and the decrease in net income due to win-win financial support measures, these figures are concerning. Woori Financial's acquisition of a securities company to increase non-interest income outside of banking is also a struggle to improve profitability indicators such as ROE.

A financial sector official emphasized, "To escape from low PBR, in addition to decisions to increase dividends and cancel treasury shares, profitability improvement through core business from the perspective of the financial industry must be pursued simultaneously to sustainably raise corporate value."

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