Four major financial holding companies, KB Financial Group (105560), Shinhan Financial Group (055550), Hana Financial Group (086790), and Woori Financial Group (316140), laughed out loud in the stock market at the beginning of the year. This is interpreted as the expectation that shareholder returns will expand. However, analysis follows that it remains to be seen what position the financial authorities will take.
According to the Korea Exchange on the 7th, KB Financial closed at 56,700 won on the 6th, soaring 16.9% compared to the end of last year (29th). During the same period, Shinhan Financial Group and Hana Financial Group also rose sharply by 15.3% and 16.1%, respectively. Woori Financial Holdings also rose 7.8%. The KRX banking index also jumped 11.16% during the same period, showing the highest rate of increase among the indices.
Banking stocks were blown away at the beginning of the year by expectations of an increase in bank dividends. First, Shinhan Financial Group held a management forum on the 2nd and announced that it would use capital capacity equivalent to a capital ratio exceeding 12% for shareholder return. The reason for the low valuation, with a stock price-to-book ratio ( PBR ) of 0.4x, was found in the insufficient shareholder return policy.
According to Daishin Securities, at the end of the third quarter of 2022, Shinhan Financial Group’s common stock capital ratio 토토 ( CET1 ) ratio was 12.7%. By simple calculation, if the capital capacity equivalent to 0.7% is used for dividends, the total dividends amount to 2.6 trillion won. This is close to 50% when converted to the shareholder return rate (‘total dividends + treasury stock purchases’ / net profit). Shinhan Financial Group’s total in-kind dividend last year was 1.5 trillion won , equivalent to 0.39% of CET1 .
Park Hye-jin, a researcher at Daishin Securities, said, “It is meaningful that we can confirm the direction the company is aiming for.”
However, it is pointed out that it is premature to make such a decision immediately. This is because it is not easy to predict the economic situation this year right away and the final stage of Basel 3, an international capital regulation, is applied. When the final stage of Basel 3 is applied, risk weights are subdivided and prudential regulations are strict, which can reduce dividend capacity. The CET1
regulation rate that domestic commercial banks must meet is 10.5%. For this reason, the 12% ratio mentioned by Shinhan Financial Group is to secure a margin of about 150bp in times of crisis, and this level of margin also requires communication with financial authorities. In fact, Financial Supervisory Service Governor Bok-Hyeon Lee also met with reporters at the end of last year and said, “Decision-making on shareholder return policies, whether it is dividends or treasury stock purchases, is the responsibility of the management under the control of the board of directors.” According to the results of various stress tests, dividends should be made within the range that financial institutions can tolerate when experiencing major difficulties.” Jeon Bae-seung, an analyst at eBest Investment & Securities, said, “The financial authorities have stated that they will respect the autonomy of bank dividends, but it remains to be seen what level of autonomy they will grant in the current phase when credit loss burdens are expected to rise amid an economic downturn. There is,” I saw. According to the eBest Investment & Securities simulation, assuming that net income will continue to be maintained in 2022, a dividend payout ratio of 30%, and a growth rate of risk-weighted assets (asset considering the risk level by asset type, such as loans) of 4.5%, Shinhan Financial Group and KB
If all of Hana Financial Group’s common stock capital ratio exceeding 12% is used as a source of shareholder return, the annual average additional shareholder return of the three companies is estimated to be approximately 1.7 trillion won. When this is added to the 30% dividend payout ratio, the total shareholder return ratio rises to 65%, similar to that of overseas banks.
Earlier this year, the activist fund Align Partners Asset Management (Align) launched a campaign to introduce a shareholder return policy targeting domestic financial holding companies. Align is a total of 7 financial holding companies, including KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Financial Group, JB Financial Group, BNK Financial Group, and DGB Financial Group. They demanded that the policy be introduced and officially announced through fair disclosure.
Align said, “Domestic banks have an average return on equity ( ROE ) of about 10% and a price-to-earnings ratio ( PER ) of about 3 times, which is an undervalued situation. 1 trillion won × 10 % × 3 ) is an inefficient method of capital allocation because the value is attributed to shareholders.”
He emphasized, “If the same amount is returned to shareholders, the entire 1 trillion won will belong to shareholders.