South Korea’s Financial Institutions Surge in Profits, Boost Dividends
Record-Breaking Profits
South Korea’s leading financial groups are witnessing unprecedented profit growth, with major institutions like KB Financial Group reporting record earnings for the year. This remarkable financial performance is not only bolstering their balance sheets but also enhancing shareholder returns at an extraordinary pace.
On April 27, KB Financial Group announced a cumulative net profit of 5.12 trillion won (approximately $3.6 billion) for the first three quarters of the fiscal year, marking a 16.6% increase from 4.39 trillion won in the same period last year. This achievement makes KB the first of the country’s four significant financial entities to cross the 5 trillion won mark in cumulative profits for that timeframe.
KB Kookmin Bank, its flagship subsidiary, contributed greatly to this success with a net profit of 3.36 trillion won, solidifying its status as the leading lender in South Korea. According to a representative from KB, the robust performance has been driven by strong fee income growth and solid results across key affiliates.
Growing Dividends and Share Buybacks
In light of its excellent financial standing, KB Financial’s board has approved a quarterly cash dividend of 930 won per share, a 135 won increase from the previous year. This decision is expected to total 335.7 billion won in dividends. Furthermore, KB plans to initiate a share buyback, aiming to cancel 1.67 trillion won worth of its own shares this year, including 850 billion won in the second half.
Other major players in the financial sector, such as Hana, Shinhan, and Woori financial groups, are also enhancing their shareholder return initiatives through similar actions.
Increasing Shareholder Return Ratios
Analysts predict that the shareholder return ratio for financial holding groups will exceed 50% this year. This ratio signifies the proportion of annual net income that is distributed to shareholders—a higher ratio indicates a greater commitment to shareholder welfare.
KB’s buyback plan suggests that its total shareholder return ratio will surpass 54%. Hana Financial Group, initially targeting a 50% shareholder return ratio by 2027, is now poised to exceed 44% in 2023, significantly up from 37.8% last year.
Shinhan is projected to reach around 45.8%, while Woori is expected to achieve a 38% return ratio, according to a recent report by Shinhan Investment & Securities.
Strong Capital Buffers and Valuation Gaps
The enhanced returns stem from robust capital buffers established during the COVID-19 pandemic. By the end of the third quarter, all four major banks reported common equity tier-one ratios near or above the 13% benchmark set by the Financial Services Commission, indicating stable capital adequacy and the ability to sustain dividends.
Additionally, the current low price-to-book ratios (PBRs) are encouraging these financial groups to increase returns. As of October, all four groups had PBRs below 1—with KB at 0.72, indicating their stocks are trading below book values.
Addressing the ‘Korea Discount’
An official from a financial regulatory body noted that both domestic and international shareholders are pressuring companies to address the persistent ‘Korea Discount’ through share cancellations and other shareholder-friendly strategies. The renewed focus on returning profits to shareholders aligns with the current government’s market policies under President Lee Jae-Myung, who seeks to elevate the South Korean stock market, symbolically aiming for a “Kospi 5000” era.
The administration has stressed the importance of fostering investor-friendly policies and implementing transparent corporate governance.
Future Outlook
“As we aim to transcend the image of solely relying on interest income, we’re committed to building trust with our investors while aligning with strategic policy priorities,” stated a financial group representative. “We’re striking a balance between immediate returns and long-term sustainability.”
With record profits, increased dividends, and strategic share buybacks, South Korean financial institutions are proactively addressing shareholder concerns while gearing up for sustained growth in the years to come.
By KIM SEON-MI
Translation and Editorial Assistance: Editorial Team
Email: [email protected]
