[The Editors' Verdict] The Value-Up Commitment of Financial Holding Companies Without Controlling Shareholders

High Exchange Rates and Impeachment: Domestic and Global Risks
Emergency CET1 Management at Each Financial Holding Company
Strengthening Determination for 'Value-Up Season 2'

"The will of the financial holding company chairpersons is crucial. Although the impact on the Common Equity Tier 1 (CET1) ratio will be significant, if the board of directors and management are firmly committed to value-up, there should be no major issues in the overall trend."

When the author expressed concerns about whether financial holding companies would follow through on their value-up commitments during a meeting with a financial investment industry expert who had been the most vocal advocate of the government's recent 'Corporate Value-Up Program,' the expert responded this way. Since the imposition of martial law, the won-dollar exchange rate has soared, triggering an emergency in CET1 management, raising fears that shareholder return policies announced by each holding company might be stalled. Proper capital soundness management is essential to actively implement value-up, so the author wonders if these concerns are unfounded.

Last year, financial holding companies were the most proactive and preemptive participants in value-up. It is no exaggeration to say they led 'Value-Up Season 1.' According to an evaluation by this publication and the Korea Corporate Governance Forum of 18 listed companies that announced 'Corporate Value Enhancement Plans,' the highest scorer was Meritz Financial Group. Additionally, KB Financial Group, Shinhan Financial Group, and Woori Financial Group were recognized as exemplary for presenting concrete and rational mid- to long-term goals, as well as board-led value-up and treasury stock cancellation plans.

Although there are significant concerns that the impeachment crisis has sapped the momentum for value-up, financial authorities have stated they will push forward with value-up unwaveringly this year. Whether financial holding companies fulfill their value-up commitments will likely determine the smooth landing of 'Value-Up Season 2.' However, from the start of the new year, concerns persist that high exchange rates, impeachment, and CET1 management emergencies amid domestic and international uncertainties will hamper value-up efforts.

Each holding company planned to allocate capital exceeding a CET1 ratio of 13% to dividends, treasury stock purchases, and cancellations, but there is a strong view that falling CET1 ratios will prevent them from keeping these promises. If CET1 declines and asset soundness deteriorates, the fundamental strength weakens, inevitably losing momentum to push value-up forward. The CET1 ratio, one of the bank capital adequacy indicators, is calculated by dividing common equity capital by risk-weighted assets (RWA). RWA is calculated by categorizing assets by type and reflecting risk, and since it is based on the Korean won, a rising exchange rate increases foreign currency loan assets and the RWA proportion, thereby lowering the CET1 ratio. Due to the nearly 150 won increase in the exchange rate in the fourth quarter of last year, KB Financial Group's ratio is expected to drop from 13.9% to 13.5%. Shinhan Financial Group (13.1%→13%), Hana Financial Group (13.2%→13%), and Woori Financial Group (12%→11.8%) are also inevitably facing declines.

Moreover, current market uncertainties are ongoing. Global tightening policies affect the capital adequacy and profitability of holding companies. If unexpected external shocks such as financial crises or an expansion of non-performing loans occur, managing the CET1 ratio becomes even more difficult. Continued economic growth slowdown will increase loan loss provisions, reducing shareholder return capacity.

Although the environment is not favorable for pushing value-up, financial advancement can only be achieved by strengthening fundamentals (asset soundness) while moving closer to value-up success. If financial holding companies pursue value-up innovation, they can ultimately enhance competitiveness through increased attractiveness in global markets and capital attraction, thereby improving corporate value.

It is truly fortunate that the heads of financial holding companies are showing genuine commitment to realizing the true essence of value-up by rationally allocating capital to corporate value growth, dividends, and treasury stock. Furthermore, since there are no controlling shareholders, if the board and management are firmly committed to value-up, they can simultaneously manage shareholder return policies and capital soundness. The author sincerely hopes these concerns prove to be unfounded.

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