FSS seeks to curb banks’ dividend payouts

Financial authorities plan to put a brake on major banks’ dividends to their shareholders as a way to secure soundness.

Despite a series of cautions from the Financial Supervisory Service, the first-tier banking sector has continued to pay out high dividends to their “largest shareholders, foreign investors, overseas headquarters and chief executives” over the past few years, the national financial regulator said.

They included KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Financial Group, Citibank Korea and Standard Chartered Bank Korea.

FSS Gov. Choi Soo-hyun is reportedly poised to call on major financial groups to scrap their plans to provide high dividend payouts. The top regulator is scheduled to meet with the groups’ chairmen this Thursday.

Former Shinhan Financial chairman Ra Eung-chan pocketed some 140 million won ($120,000) in dividend income in 2012.

Former Woori Financial chairman Lee Pal-seung took about 18 million won per year during his three-year term and incumbent Hana Financial chairman Kim Jung-tai earned 21 million won in dividend income last year, the FSS said.

Two major foreign banks operating in Korea appear to have scrapped their plans to offer more generous dividend payouts to major shareholders in the face of alleged opposition from the nation’s regulatory officials.

They are Standard Chartered Bank Korea and Citibank Korea, both of which locally operate in consumer finance.

Huge dividends to main shareholders ― more specifically to their parent groups in the U.S. and U.K. ― are spurring concerns about massive capital outflow and the local units’ financial soundness, said a senior FSS official.

He said the foreign investment community had given out huge dividend payouts, while it had been relatively negligent in social contribution activities.

Amid repeated instruction from the FSS to slash the dividends, SC Bank Korea reportedly decided to set the total dividend payout for its 2012 earnings at about 200 billion won.

Though the local unit of the U.K.-based lender had sought to raise the sum of the payout, the FSS recommended that the bank spend an appropriate amount to prevent hurting its fiscal standing.

The 200 billion won figure is similar to SC Bank Korea’s dividend payments in 2010 and 2011.

Over the past few years, SC Bank Korea has remitted a large portion of the dividends to its headquarters in London.

Citibank Korea has cut its interim dividends for its 2012 earnings to 80 billion won, from 130 billion won in 2011. The local unit of the U.S.-based Citigroup had to slash the payments as its net profit fell by 460 billion won between 2011 and 2012.

Last year, Citibank Korea complied with regulatory officials’ calls to halve its record interim dividend payment.

By Kim Yon-se (kys@heraldcorp.com)