|From left are Standard Chartered Bank Korea CEO Park Jong-bok and Citibank Korea CEO Yoo Myung-soon. Yonhap|
By Lee Min-hyung
Foreign banks here are expected to abide by the Financial Services Commission's (FSC) guideline to cut their dividends after Citibank Korea decided to lower its 2020 payout ratio to 20 percent.
The decision made headlines as overseas lenders have been relatively less conscious compared to domestic financial firms of pressure from Korea's regulators. But Citibank Korea accepted the request from the FSC this time as the lender suffered worsening profitability here. Citibank Korea reported 161 billion won ($143.5 million) in net profit during the first nine months of last year, down 38 percent from the same period of 2019.
This has raised the chances of other overseas banks ― such as Standard Chartered (SC) Bank Korea ― following in Citibank Korea's footsteps. SC Bank Korea also failed to impress in its 2020 earnings. The lender chalked up 182.9 billion won in net profit during the same period, down 28.1 percent, hit hard by the economic impact caused by the COVID-19 pandemic.
"We are going to make a decision over the specifics of our dividend payout ratio sometime around mid-March," a spokesperson at the lender said. "We have not confirmed a detailed ratio as of now, but will soon make an announcement."
Last year, the FSC issued a guideline for banks and financial holding firms operating businesses in Korea calling on them to reduce their dividend payout ratio to below 20 percent for 2020. Many Korean lenders cried foul over the pressure from the oversight agency, as most of them reported decent earnings growth last year despite the pandemic.
Following the announcement, KB Financial Group and Hana Financial Group decided to cut their dividend payout ratio to 20 percent. The prevailing view was that other financial firms would follow the lead of KB and Hana.
On Wednesday, Shinhan Financial Group, however, decided its dividend payout ratio would be 22.7 percent, slightly above the guideline. The financial holding company reported 3.41 trillion won in net profit last year, up 0.3 percent from 2019.
This is the first time that a domestic banking group has broken with the regulator's 20 percent dividend payout ratio guideline. Shinhan is said to have been able to do so after passing a financial "stress test" from the regulator. Earlier, the FSC granted exceptions to the guideline on lenders who pass a so-called L-shaped stress test. It was aimed at maintaining lenders' financial soundness under the scenario that the economy may suffer from a longer-than-expected recession.
NH Financial Group and Woori Financial Group are set to make decisions during planned shareholders meetings this month. But they are likely to cut the ratio to 20 percent or lower and do not appear to be considering a bold decision like Shinhan given their dismal earnings performances.
Woori reported a 2020 net profit of 1.3 trillion won, down 30 percent from a year earlier. As Woori along with NH are two of the nation's top-five financial holding firms which saw earnings declines last year, chances remain slim for the group to pay more than 20 percent. NH also failed to report growth in its 2020 earnings.
"It appears unlikely that the two lenders will be able to report a dividend payout ratio of over 20 percent at a time when their earnings have declined," a banking industry source said. "The authorities are set to maintain a conservative stance by restricting their loan business and dividend policies by the end of this year because of the continued effects of the COVID-19 pandemic on the financial market."