Banks to raise dividend payout ratios this year

The nation’s top-ranking financial companies are signaling an increase in their dividend payout ratios, reflecting their optimistic business prospects for this year.

Their move has been influenced by the economic policies of Finance Minister Choi Kyung-hwan, who has pushed companies to release their capital into the market and revitalize the economy.

The market champion Shinhan Financial Group will be the first to take action.

“Korea tends to pay out a relatively low dividend compared to other Asian countries,” said group chairman Han Dong-woo in last week’s press conference.

“Taking the government’s dividend expansion policies into account, it would be appropriate to increase payments this year.”

Shinhan’s dividend policy is expected to influence competitors in the market as it is already an unrivaled leader, in terms of both business performance and dividend amount.

Last year, Shinhan Financial paid out 650 won per stock and 370.2 billion won ($342.9 million) in total to its shareholders. This payout ratio of 16.2 percent was the highest among the nation’s top banking groups.

Hana Financial Group and KB Financial Group respectively came up with 12.4 percent and 15.1 percent, according to the Financial Supervisory Service.

All three banking groups have been increasing their dividend payout ratios over the past few years. Shinhan’s figure has risen from 11.5 percent in 2012 to 14.3 percent in 2013 and 16.2 percent last year.

In the past, companies were largely deterred from increasing their dividends as financial supervisory authorities remained skeptical that more money should be paid out to foreign investors.

But Finance Minister Choi, after taking office in July last year, demanded that companies pay out more in dividends instead of hoarding cash reserves.

The top three banking groups all expect an improvement in their business performance this year, which is another basis for increasing the reward for their shareholders.

According to market research institute FnGuide, the three groups’ combined net profit is expected to jump by 15.7 percent this year from 2014.

Despite such optimism, concerns persist over the possible monopolization of foreign investors, as all three groups have a high ratio of foreign-owned shareholdings.

By Bae Hyun-jung (tellme@heraldcorp.com)