Yuanta Securities Korea said on the 19th that Industrial Bank of Korea (IBK) is less attractive as an investment because, with its current capital ratio and payout ratio, it is hard to qualify for separate taxation on dividends. It maintained a neutral (HOLD) rating and a target price of 22,000 won. The previous trading day's closing price of Industrial Bank of Korea (IBK) was 20,500 won.
Woo Do-hyeong, a researcher at Yuanta Securities Korea, said, "Industrial Bank of Korea (IBK) is keeping its common equity Tier 1 (CET-1) ratio within 12% while maintaining a shareholder-return policy of a 35% payout ratio on a separate basis," and noted, "Assuming the 2025 dividend per share (DPS) is 1,065 won, the same as 2024, the payout ratio is likely to remain around 35% unless earnings increase from the prior year."
The CET-1 ratio is an indicator of a bank's core capital capacity to absorb losses, and the lower this ratio is, the more limited the room to expand dividends.
The issue is dividend competitiveness considering tax benefits. To qualify for separate taxation on dividend income, the payout ratio on a consolidation basis must exceed 40%, but Industrial Bank of Korea (IBK)'s payout ratio on a consolidation basis is currently around 31%. The CET-1 ratio is also managed at 12% or less, making it difficult to sharply raise the payout ratio in the short term, the analysis said.
Woo said, "Industrial Bank of Korea (IBK)'s dividend yield is 5.1%, which is not necessarily higher than the average of commercial banks (about 3%) or regional banks (about 4%)," and added, "If competing banks come to qualify for separate taxation on dividend income, the post-tax dividend appeal gap will narrow further." Woo added, "A structural change in the dividend method or shareholder-return policy is needed."
On the earnings side, clear momentum is also expected to be limited. Woo estimated Industrial Bank of Korea (IBK)'s fourth-quarter net income attributable to controlling shareholders at 470.9 billion won, 4.2% below the market consensus of 491.3 billion won. Fourth-quarter interest income is expected to fall 1.6% from the prior quarter, and net interest margin (NIM) to decline by 1 bp. Loan growth is also projected to come in at 0.4%.
Noninterest income is expected to decrease from the prior quarter as non-monetary foreign exchange losses of about 35 billion won are incurred due to a rise in the exchange rate. The structure is such that a 10-won rise in the exchange rate worsens profit and loss by about 9.8 billion won. In addition, 38 billion won in bad bank-related expense is expected to be reflected in non-operating income.