Aim for Mid-Term Dividends... Bank Stocks Gain Attention UP

[Asia Economy Reporter Minji Lee] Investors are increasingly buying bank stocks amid expectations for interim dividends.

According to the Korea Exchange on the 28th, the KRX Bank Index rose 2.20% over the past week, from 784.14 to 801.3. During the same period, the KOSPI increased by only 1%. Among the constituent stocks, Hana Financial Group showed the highest increase with a 6.4% rise over the week, followed by BNK Financial Group (6%), Woori Financial Group (4.8%), Shinhan Financial Group (4.5%), KB Financial Group (4%), DGB Financial Group (4%), Industrial Bank of Korea (2.9%), and JB Financial Group (2%), all showing upward trends.

The notable rise in bank stocks is due to heightened expectations for interim dividends. Earlier this year, financial authorities limited the dividend payout ratio (dividends divided by net income) to within 20%, citing economic uncertainties caused by the prolonged COVID-19 pandemic. However, with the dividend restriction advisory ending at the end of this month, investment funds targeting interim dividends have flowed in.

Strong earnings support the expectations for interim dividends. According to financial information provider FnGuide, the combined estimated operating profit for the second quarter of the four major financial groups (KB, Shinhan, Hana, and Woori) in the first half of the year is 4.9364 trillion KRW, expected to increase by about 24% compared to last year's results (3.9826 trillion KRW). The total annual operating profit is also estimated to rise by 18% to 18.3243 trillion KRW from 15.4625 trillion KRW a year ago.

In the securities industry, the dividend payout ratio is expected to be formed around 26%, similar to the pre-COVID-19 (2019) level. Ebest Investment & Securities projected that assuming a 26% payout ratio, KB Financial would pay an interim dividend of 824 KRW, Hana Financial Group 801 KRW, Shinhan Financial Group 587 KRW, and Woori Financial Group 219 KRW. Hana Financial Investment also estimated that if 20-30% of the total annual dividend is paid as an interim dividend, KB Financial would pay 800-900 KRW, Hana Financial Group 700-800 KRW, Shinhan Financial Group 400-500 KRW, and Woori Financial Group 100-200 KRW.

Kim Eun-gap, a researcher at IBK Investment & Securities, said, "While the size of the dividend is important, whether bank stocks pay dividends will form expectations for continuous and stable shareholder-friendly policies in the future."