Major financial holding companies are speeding up share buybacks and cancellations and expanding dividends, ushering in an era of a 50% shareholder return ratio. A 50% shareholder return ratio means half of annual net profit is returned to shareholders. Financial holding companies that set new record highs again this year are focusing more on value-up (enhancing corporate value) to shed the "interest business" label.
According to the financial sector on the 30th, Hana Financial Group's shareholder return ratio this year is expected to come in at 44%. Shinhan Investment Corp. said in a recent report, "Hana Financial's shareholder returns this year are around 1.8 trillion won," adding, "If it earns net profit of 4.1 trillion won this year, the shareholder return ratio will be 44%, a sharp improvement from last year's 38%." On the 28th, Hana Financial announced a plan to buy back and cancel 150 billion won worth of its own shares. Treasury shares disposed of through September amounted to 650 billion won. It also increased its third-quarter cash dividends (920 won per share) from the previous quarter (913 won). Hana Financial said, "We expect to achieve the '50% shareholder return ratio by 2027' target ahead of schedule." Shinhan Financial Group, which presented the same target, is also seen likely to achieve the 50% shareholder return ratio early. Shinhan Financial's estimated shareholder return ratio for this year is 45.8%.
KB Financial Group is expected to be the first among domestic financial holding companies to exceed a 50% shareholder return ratio this year. After coming in at 39.8% last year, projections say the ratio will jump more than 10 percentage points to 54% this year. Among the four major financial groups, Woori Financial Group has the lowest shareholder return ratio. Due to the expense burden from acquiring an insurer, Woori Financial's CET1 (common equity tier 1 ratio) has yet to reach the target (13%) set by the financial authorities, limiting its capacity for shareholder returns. Financial holding companies mainly use capital in excess of the target CET1 for shareholder returns. Woori Financial's CET1 at the end of the third quarter this year was 12.92%.
The shareholder return ratio is the sum of dividends and share buybacks divided by net profit. It shows how much of the money earned annually is shared as shareholder profit; the higher the ratio, the more shareholder-friendly the corporations. When a company buys back and cancels its own shares, the number of shares falls and the stock value rises. For shareholders, this can be expected to have an effect similar to dividends.
The shareholder return ratios of major financial holding companies have risen steeply over the past five years. In 2020, the average shareholder return ratio of the four major financial groups was in the 20% range. Shinhan Financial was highest at 27.9%, followed by Hana Financial (20.4%), KB Financial (20%), and Woori Financial (19.9%). A financial holding company official said, "Starting in 2021, when they began posting record high results on the back of rising interest rates, financial holding companies began in earnest to increase shareholder returns." The combined net profit of Korea's 10 financial holding companies first topped 20 trillion won in 2021 and has set a record high every year since.
Stock gains are also expected for financial holding companies, which are considered typical undervalued stocks. The price-to-book ratio (PBR) of the four major financial groups is in the 0.5–0.7 range. A PBR below 1 means the stock is so undervalued that it is not recognized even for its book value. The growing number of financial holding companies considering introducing tax-exempt dividends (reduced dividends) is also seen as positive for share prices. Shinhan Financial said the previous day it would positively consider tax-exempt dividends. Among major financial holding companies, only Woori Financial has introduced tax-exempt dividends. With tax-exempt dividends, individual shareholders can receive the full dividend without the 15.4% withholding tax, resulting in an 18.2% increase in dividend revenue.