In this year’s financial holdings’ 2020 results announcement, the biggest interest was dividends. This is because the financial supervisory authority has requested that the dividend payout ratio be kept within 20%, taking into account the prolonged period of the novel coronavirus (Corona 19).
KB Financial Group has lowered its dividend payout ratio to 20% as recommended by the financial supervisory authority, and Shinhan Financial Group is planning to determine the dividend payout ratio at the board meeting held in March. In particular, KB Financial Group showed confidence by emphasizing that the financial supervisory authority passed the L-shaped recession stress test, which allows the financial supervisory authority to autonomously determine the payout ratio. They showed opposite appearances.
On the 5th, during the conference call between KB Financial Group and Shinhan Financial Group, which competed in good faith for the’No. 1’position among the five major financial holding companies in Korea, questions about the dividend payout ratio were incessant. KB Financial Group announced that it would temporarily reduce the dividend per share to 1,770 won in 2020 when its earnings were announced on the 4th, one day earlier, and that it would reduce its dividend payout ratio to 20%. KB Financial Group’s dividend per share in 2019 was 2,210 won, and considering that the dividend payout ratio is 26%, the guidelines of the financial supervisory authority have been faithfully implemented.
However, Lee Hwan-ju, Chief Financial Officer (CFO) of KB Financial Group, said, “As the government’s capital management recommendation is until June, if the economy continues to recover continuously and uncertainty eases from the second half of the year, we will quickly improve the shareholder return policy with active capital policies.” In the capital adequacy stress test of KB Financial Group under the long-term recession scenario, the capital ratio showed an appropriate level.”
The L-shaped scenario is a scenario that calculates the capital adequacy of a bank assuming that the domestic economic growth rate is -5.8% this year, 0% next year, and 0.9% next year. In the stress test of this scenario, the financial supervisory authorities drew a clue that a dividend payout ratio of 20% or more is possible if the supervisory authority’s recommended capital ratio is satisfied.
However, Shinhan Financial Group did not open the results of the stress test under the L-shaped scenario, and delayed the disclosure of dividend payout ratio and dividend payout ratio, which are the concerns of major investors. Shinhan Financial Group replied, “I am thinking about having time to see what I had planned because there is a setback,” and “I will decide at the board of directors in March.” “The dividend payout ratio within 20% limited by the financial supervisory authority can be understood as a guideline, and if a financial institution has sufficient capital adequacy, it is possible to go beyond it after receiving the resolution of the board of directors.” If you go away, communication with the supervisory authority seems difficult,” he added.
Here, Shinhan Financial said, “Apart from the results of the stress test, if you prove and persuade that capital adequacy is not impaired, it is another matter (raising the dividend payout ratio)” and “to respect the recommendations of the supervisory authority and to find a reasonable reason. “I do” he added.
Capital adequacy management with dividend payout ratio within 20% will end in June. For this reason, KB Financial Group and Shinhan Financial Group have the same plan to pursue additional policies based on the situation in the second half.
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KB Financial said, “We can review various measures to improve shareholder value, such as purchase of treasury stocks and interim dividends, and implement them in a timely manner, and as the dividend payout ratio is a temporary measure, we will be able to aggressively continue the dividend policy in the future.”
Shinhan Finance said, “We will do quarterly dividends without a hitch, but the timing of implementation remains to be seen.” The company plans to revise the articles of incorporation on quarterly dividends in March and proceed with quarterly dividends later. Meanwhile, Shinhan Financial’s dividend payout ratio in 2019 is 25%.