Increasing Government Share, Decreasing Farmers' Share?… Controversy Over NH Financial Dividend Restrictions

IBK's Ministry of Economy and Finance Dividend Share 220 Billion Won
NongHyup Financial, 20% Means 150 Billion Won Reduction

[Asia Economy Reporter Kiho Sung] A controversy over fairness is growing as a policy bank, which has avoided dividend restriction regulations imposed by financial authorities, continues to maintain high dividends. Earlier, the Financial Services Commission limited the dividend payout ratio of financial holding companies to 20% in preparation for the prolonged COVID-19 pandemic, but policy financial institutions were exempted from this rule. This contrasts with the situation where financial holding companies, which posted record profits last year, limited their dividend payout ratio to around 20% following the financial authorities' recommendations, leading to shareholder dissatisfaction. Additionally, NH Nonghyup Financial Group, which distributes dividends to farmers, is not exempt from the rule, raising concerns that farmers' dividends may decrease by about 150 billion KRW.

According to the financial sector on the 7th, Industrial Bank of Korea (IBK) recently decided to pay a cash dividend of 471 KRW per common and preferred share. The total dividend amount is 372.9 billion KRW. Last year, IBK's net profit, excluding subsidiaries on a separate basis, decreased by 9.3% to 1.2632 trillion KRW, and on a consolidated basis, it fell by 4.1% to 1.5479 trillion KRW. Considering this, the Ministry of Economy and Finance, the largest shareholder holding 59.2% of IBK's shares, is expected to receive dividends amounting to 220.8 billion KRW. In the previous year, IBK decided on differential dividends of 670 KRW for general shareholders and 472 KRW for the government, with the Ministry securing 166.2 billion KRW in dividends from IBK.

Even based on the consolidated dividend payout ratio (24.1%), this level is high compared to other banks. KB Financial Group, Hana Financial Group, and Woori Financial Group set their dividend payout ratios at 20%, in line with the financial authorities' recommendation to refrain from dividends, and even the foreign bank Korea Citibank confirmed a 20% payout ratio, creating a trend among banks to align with a 20% dividend payout ratio. However, Shinhan Financial Group was an exception, passing the Financial Supervisory Service's 'L-shaped (long-term economic recession assumption)' stress test and setting its dividend payout ratio at 22.7%.

Most Dividends Go to Farmers... Concerns Over Reduced Support

The financial authorities excluded IBK, Korea Development Bank, and Export-Import Bank from the recommendation to limit dividends to 20% of net profit, citing government compensation in case of losses. However, within the financial sector, there are calls for NH Nonghyup Financial Group, wholly owned by the National Agricultural Cooperative Federation, to also be exempted based on similar reasoning.

This is because, due to the unique organizational structure of Nonghyup Financial Group compared to other financial companies, most dividends are distributed to cooperative members, who are primarily farmers. The National Agricultural Cooperative Federation distributes dividends received from Nonghyup Financial Group to local agricultural cooperatives, which then pay dividends to cooperative members, mostly farmers. Additionally, dividends fund projects that provide practical support to farms, such as fertilizer and pesticide costs and warehouse support.

NH Nonghyup Financial Group recorded a net profit of 1.7359 trillion KRW last year, down 43.7 billion KRW from 1.7796 trillion KRW the previous year. With a 20% dividend payout ratio, dividends are estimated at about 347.2 billion KRW. Considering that the previous year had a 28.1% payout ratio and total dividends of 500 billion KRW, this represents a reduction of over 150 billion KRW. The dividend restriction thus eliminates about 150 billion KRW in income opportunities for farmers.

An industry insider explained, "Nonghyup Financial Group is unique compared to commercial banks. There is no outflow of dividends overseas, and most dividends return to farmers." If Nonghyup Financial Group reduces dividends, the support capacity of the National Agricultural Cooperative Federation will also diminish.