Shareholder return ratios at major financial groups to exceed 50% this year

The annual shareholder return ratios of South Korea’s four major financial holding companies ? KB, Shinhan, Hana and Woori ? are expected to exceed 50 percent this year, putting them on par with major banks in Japan and Europe.

According to a survey of the four groups Maeil Business on Sunday, KB Financial Group Inc.’s shareholder return ratio is projected to reach 55 percent this year, surpassing last year’s 52.4 percent to set a new record.

Shinhan Financial Group Co.’s ratio is projected to rise from 50.2 percent to 52 percent over the same period, while Hana Financial Group Inc.’s is expected to increase from 47 percent to 50 percent.

Woori Financial Group Inc., which has lagged its peers in expanding shareholder returns due to the financial burden of acquiring an insurance company, is also expected to raise its ratio to 45 percent.

The sharp rise in shareholder return ratios reflects a shift in financial regulators’ policy stance and the groups’ more aggressive efforts to enhance shareholder value.

Around 2021, amid the Covid-19 pandemic, the financial groups joined efforts to strengthen environmental, social, and governance (ESG) management and address the undervaluation of Korean stocks.

They have since actively participated in the current government’s corporate value-up program.

By focusing on higher dividends and share buybacks and cancellations, the groups have steadily increased shareholder returns. The average ratio among the four major financial groups stood at just 25 percent in 2021 but climbed to 46 percent last year.

The groups have also committed substantial sums to share buybacks and cancellations.

KB Financial Group spent 1.9 trillion won ($1.39 billion) on share buybacks and cancellations this year alone, while Shinhan Financial Group spent 1.6 trillion won and Hana Financial Group 949 billion won.

The major financial groups have also continued to pay more than 1 trillion won in annual cash dividends. They have set targets of maintaining their common equity tier 1 (CET1) capital ratios at 13 percent or higher while increasing annual dividends by around 10 percent.

Their strategy is to steadily expand shareholder returns while keeping capital adequacy above a certain level.

The shareholder return ratios of Korean financial groups have now approached those of major banks in Japan and Europe.

At the end of last year, the ratios at Japan’s three largest banking groups ? Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. ? stood at 40 percent, 60 percent and 48 percent, respectively.

In Europe, France’s BNP Paribas Group and Soci?t? G?n?rale S.A. recorded ratios of 60 percent and 50 percent, respectively, while Spain’s Santander Group posted a ratio of around 50 percent.

This puts Korean financial groups on competitive footing with major global banks in terms of shareholder payouts.

However, a gap remains with the world’s leading banks, particularly in the United States.

JPMorgan Chase & Co.’s shareholder return ratio reached 84 percent last year, while Bank of America’s stood at 97 percent.

Some banks, including Citigroup Inc. and Wells Fargo & Co., even returned more than their annual net income to shareholders by drawing on retained earnings.

There are also concerns that expanding shareholder returns could weaken the capital adequacy of financial holding companies.

Critics point out that as shareholder return ratios rise, the financial holding companies must ensure they maintain sufficient loss-absorbing capacity to withstand an economic downturn or an increase in bad loans.