Korean offshore banking units to send high dividends to parent company

Banking units in South Korea wholly owned by foreign financial giants are expected to send about 35-40 percent of their net profit to their respective parent companies outside Korea through dividends. 

The banking entities have said the dividend payouts stemmed from a surge in net revenue and adequate capital buffer in 2017.

In a board of directors’ meeting on March 14, Standard Chartered Bank Korea increased its dividend propensity to about 40 percent of net income in 2017, from 35.6 percent for 2016 net profit.

Standard Chartered NEA Ltd., holding 100 percent of the Korean unit, will be given dividends worth 125 billion won ($116.8 million) in cash in April, after shareholders approve the plan Thursday.

According to preliminary data from the Korean unit of the London-based banking giant, its 2017 net revenue came to 260 billion won, up 15 percent from the previous year. Also, its BIS capital adequacy ratio came to 16.09 percent.

Standard Chartered Bank Korea said in a statement that this is a “normal business decision made on the grounds of robust financial soundness, while abiding by guidelines both at home and abroad.”

In a shareholders meeting Friday, Citibank Korea will also decide on 93.9 billion won of dividends in cash, 35 percent of annual net profit in 2017, to Citibank Overseas Investment Corp., which owns 99.98 percent of the bank.

The Korean arm of the New York-based banking juggernaut saw its net profit in 2017 jump by 19 percent to 268.2 billion won, according to preliminary data. Citibank Korea’s BIS capital adequacy ratio reached 19.03 percent.

Citibank Korea said the decision was made “following a beyond-the-expectation performance last year,” as well as its “high level of financial health despite the high dividend the previous year.”

Earlier in February, Citibank Korea’s labor union criticized the bank for revoking an earlier pledge by its CEO Park Jin-hei in June 2017 to defer dividend payment to the holding company in 2018.

The volume of dividends, as well as the dividend payout ratio at 35 percent, decreased on-year, from 114.5 billion won and 49.7 percent in 2017, respectively.

The banks’ decisions cannot be seen as a breach of regulations, according to financial authorities, considering their capital adequacy ratio is “way beyond” the minimum requirement for total capital adequacy ratio at 11.75 percent by the Financial Supervisory Service.

“Unless the dividend payout significantly breaches capital buffer and undermines financial stability, the FSS won’t pre-emptively and directly put a cap on a bank’s dividend decisions,” said an FSS official in charge of monitoring banks in Korea.

By Son Ji-hyoung 
(consnow@heraldcorp.com)