Regional Financial Holding Companies Initiate Shareholder Returns Despite Poor Performance

Regional financial holding companies have attracted attention for actively engaging in shareholder returns despite posting sluggish performance last year. Thanks to proactive measures such as setting aside loan loss provisions to prepare for potential defaults, improvements in performance and corporate value enhancement are expected this year.

According to the industry on the 14th, the three major regional financial holding companies (BNK, DGB, JB Financial Group) recorded a total net income attributable to controlling interests of 1.6041 trillion won last year. This is a decrease of 172.7 billion won compared to 1.7768 trillion won in 2022. Among the three, BNK Financial Group experienced the largest decline, dropping about 18.6% from 774.2 billion won the previous year to 630.3 billion won. DGB and JB Financial recorded 387.8 billion won and 586 billion won respectively, down 3.4% and 2.5% from 401.6 billion won and 601 billion won in 2022. All three companies significantly spent on non-recurring expenses aimed at easing interest burdens for self-employed and small business borrowers as part of the government’s ‘win-win finance’ initiative. BNK Financial spent 83.2 billion won on win-win finance costs, while JB and DGB Financial spent 48.4 billion won and 30.5 billion won respectively.

The three companies explained that large-scale loan loss provision reserves set aside to prepare for uncertain economic conditions also impacted their performance. The provision expenses rose about 73% compared to 2022, reaching a total of 2.0018 trillion won. DGB Financial Group’s provision expenses increased from 349.2 billion won in 2022 to 606.8 billion won last year, about a 74% increase. BNK rose from 551.1 billion won to 952.6 billion won, about 73%, and JB increased from 258.9 billion won to 442.4 billion won, about 71%. The regional banks owned by each holding company particularly accumulated large provisions. BNK Financial Group’s subsidiaries, Busan Bank and Gyeongnam Bank, spent 400 billion won and 219.4 billion won respectively on provisions, up 129.5% and 32.4% from 174.3 billion won and 165.7 billion won the previous year. DGB Financial Group’s DGB Daegu Bank’s provision expenses rose from 202.7 billion won in 2022 to 348.2 billion won last year, an increase of 145.5 billion won (about 71.8%). JB Financial Group’s Gwangju Bank and Jeonbuk Bank recorded 196.5 billion won and 130.8 billion won respectively, up about 135% and 29.2% from 83.7 billion won and 101.2 billion won the previous year.

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Despite somewhat sluggish performance compared to the previous year, the three major regional financial holding companies made efforts to return value to shareholders. All three increased their shareholder return ratios compared to the previous year. JB Financial Group was the only one among the three to raise its shareholder return ratio from 27% in 2022 to the 30% range (33%) last year. The dividend per share also increased by 20 won from 835 won in 2022 to 855 won last year. Of the 30 billion won worth of treasury shares purchased last year, 20 billion won were canceled. BNK and DGB Financial’s shareholder return ratios also rose to 28% and 28.8%, up from 27% and 27.4% the previous year. Dividends per share were 510 won and 550 won, slightly down from 625 won and 650 won the previous year. However, both companies raised their shareholder return ratios compared to the previous year through treasury stock purchases and cancellations. BNK Financial decided to buy back and cancel treasury shares worth 13 billion won, about 2% of net income. DGB Financial also conducted its first treasury stock purchase of 20 billion won last year.

This year, they announced plans to actively increase shareholder dividends. BNK and DGB Financial plan to contribute to shareholder returns by improving their Common Equity Tier 1 (CET1) capital ratios. Kwon Jae-jung, Chief Financial Officer (CFO) of BNK Financial Group, said, "Not only CET1 but also Return on Equity (ROE) and Return on Assets (ROA) will improve faster than the management plan," adding, "In the future, shareholder returns should focus more on dividends per share and require continuous expansion." DGB Financial also stated it will execute a larger treasury stock purchase than the 20 billion won bought last year. Regarding dividend methods, they are considering interim dividends beyond year-end dividends. At the earnings announcement conference call last year, DGB Financial Group said, "(Interim dividends) are possible under the articles of incorporation," and "The exact scale and amount have not been finalized, but if the board resolves, it will be disclosed immediately."

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JB Financial plans to further expand from interim dividends to quarterly dividends. Kim Ki-hong, Chairman of JB Financial Group, said, "The net income target for this year is 655 billion won, and we have decided to start quarterly dividends." He added that the total dividend amount is expected to be around 60 billion won, and the treasury stock purchase amount is likely to be decided below 30 billion won.

Ji-young Kim, a researcher at Kyobo Securities, said, "The three major regional financial holding companies proactively set aside loan loss provisions, so the base effect is likely to appear this year," adding, "Active shareholder return policies are also expected to enhance corporate value."

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