Financial Holding Companies Move to Expand Tax-Exempt Dividends by Reducing Capital Reserves

Major financial holding companies are initiating procedures to reduce capital reserves in order to increase tax-exempt dividends. This move is aimed at strengthening shareholder return policies by creating a structure in which dividends paid via capital reduction become exempt from dividend income tax.

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According to the financial industry on March 8, major financial holding companies have placed agenda items on the upcoming shareholders’ meetings at the end of this month to transfer capital reserves to retained earnings. This procedure is necessary to implement reduced capital dividends. Reduced capital dividends refer to the payment of dividends using capital reserves as the funding source, which are exempt from dividend income tax. For shareholders, this structure allows them to receive dividends in a more tax-advantageous manner.

Hana Financial Group will hold its shareholders’ meeting on March 23, where it plans to reduce capital reserves by 7.4 trillion won and transfer them to retained earnings. The converted funds will be used as dividend resources following the settlement of accounts. Park Jongmu, Chief Financial Officer (CFO) of Hana Financial Group, stated during the earnings conference call in February, “We have increased final dividends in order to meet the requirements for separate taxation of dividend income,” adding, “We are actively considering preparing for reduced capital dividends and plan to include this as an agenda item at the shareholders’ meeting at the end of February.”

Woori Financial Group has also decided to transfer 6.3 trillion won in capital reserves to retained earnings at its shareholders’ meeting. Shinhan Financial Group plans to reduce 9.9 trillion won in capital reserves and transfer them to retained earnings. KB Financial Group is also pursuing the conversion of up to 13.7 trillion won in capital reserves. These funds can be used as dividend resources over the coming years.

Financial holding companies have recently been significantly strengthening their shareholder return policies. A large-scale transfer of capital reserves to retained earnings enables stable securing of distributable profits, thereby increasing the predictability of dividend policies. In addition, by simultaneously repurchasing and retiring treasury shares, they are expanding strategies to enhance shareholder value.

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