The four major financial holding companies, including KB, Shinhan, Hana, and Woori, are drawing attention from financial authorities as they reduce their provisions and receive large dividends from their affiliates for substantial shareholder returns. The authorities maintain that financial holding companies should conservatively manage their capital adequacy in preparation for an economic downturn. In the United States, a plan is being pursued to raise the common equity tier 1 (CET1) capital ratio of large banks to 16%, which is 3 percentage points higher than the standards for domestic financial holding companies.
According to the financial sector on the 24th, the total transfer amount of provisions for the four major financial holding companies last year was 6.9589 trillion won. This is a decrease of 22.6% compared to the previous year (8.9931 trillion won). Provisions refer to funds set aside in advance for accounting losses to prepare for the occurrence of bad debts.
By holding company, KB Financial Group's provisions amounted to 2.0443 trillion won, a 35% decrease from the same period last year (3.1464 trillion won). Hana Financial Group also set aside provisions totaling 1.3015 trillion won, a reduction of 25.6% from the previous year. Provisions for Shinhan Financial Group and Woori Financial Group also decreased by 11.4% and 9.7%, respectively, compared to the previous year. The financial authorities are guiding the financial sector to conservatively set aside provisions in preparation for an economic downturn. However, the four major financial holding companies have actually reduced their provision allocations.
The financial holding companies received large dividends from their affiliates last year. Shinhan Bank confirmed a per-share dividend of 1,045 won as part of its settlement of accounts for the previous year. The total amount distributed to the holding company reached 1.663 trillion won. The dividend for the 2023 settlement was 1.1964 trillion won. Although Shinhan Bank's net profit increased by 20.1%, its dividends rose by 38.4%. This marks the first time that Shinhan Bank's per-share dividend surpassed 1,000 won.
The dividend amount from non-bank affiliates, including Shinhan Life, Shinhan Card, Shinhan Investment Corp., Shinhan Capital, and Shinhan Savings Bank, totaled 966.4 billion won, an increase of 63.2% compared to the previous year. In the case of Shinhan Life, it distributed 5.283 billion won (99%) of its net profit of 5.337 billion won as dividends.
KB Financial received a total of 830 billion won in dividends from KB Insurance and KB Life Insurance. Both insurance companies did not pay dividends during the 2023 settlement. The largest affiliate, KB Kookmin Bank, also distributed dividends amounting to 1.6256 trillion won.
The background behind their reduction in provisions and receipt of large dividends from affiliates is a policy aimed at strengthening shareholder returns. The four major financial holding companies are buying back and retiring their shares and increasing dividends to achieve their value-up objectives. Last year, the shareholder return rates increased by 0.9 to 5 percentage points compared to the previous year: KB Financial 39.8%, Shinhan Financial 39.6%, Hana Financial 38%, and Woori Financial 34.7%. This expands their capacity for shareholder returns by reducing provisions and increasing dividends.
Financial authorities view this method of 'aggressive value-up' as problematic. As the economic downturn continues, concerns are growing over increasing loan defaults among small and medium-sized enterprises and self-employed individuals, and fears of liquidity crises in some large corporations, prompting financial holding companies to strengthen capital adequacy management.
While financial authorities recommend that financial holding companies maintain a CET1 ratio of over 12%, they essentially seek to keep it above 13%. Accordingly, financial holding companies are using capital exceeding 13% of CET1 for shareholder returns. However, financial authorities maintain that if financial holding companies manage their CET1 according to the 13% threshold, they will struggle to respond to unexpected crises.
In fact, as the strong dollar trend continued last year in the fourth quarter, the CET1 ratios of financial holding companies declined. As of the end of last year, the average CET1 ratio for the four major financial holding companies, including KB, Shinhan, Hana, and Woori, was 12.94%. KB Financial had the highest ratio at 13.51%, but it fell by 0.34 percentage points from the previous quarter. Woori Financial managed to just meet the authority's recommendation with a ratio of 12.08%. Shinhan Financial fell from 13.17% to 13.03%, while Hana Financial dropped from 13.17% to 13.13%. Financial holding companies attempted to defend their CET1 by reducing risk assets such as corporate loans in the fourth quarter but ultimately could not prevent the decline in figures.
Financial authorities believe that domestic financial holding companies' capital adequacy is still inadequate compared to advanced countries. In the United States, a regulatory proposal was established last year to raise the CET1 ratio to 16% for large banks with assets exceeding $100 billion (approximately 140 trillion won).
A financial authority official noted, "While value-up is important, the current approach of barely managing CET1 at 13% appears problematic," and emphasized the need to balance capital adequacy and value-up. The official added, "There are no plans to add capital regulations, but it is necessary to examine whether this method of shareholder return is appropriate."