‘Poor Business Conditions’ Savings Banks, Will They Find Answers Through Stock Investments?

OK Savings Bank Expands Stakes in DGB and JB Financial
"For Simple Investment in Dividend and Undervalued Stocks"
Estimated Dividend Income of 17.3 Billion KRW This Year

Last year, as the savings bank industry is expected to record massive losses, 'stock investment' is drawing attention as a method to diversify revenue. Analysts suggest that profitability can be improved through dividends and other means.

According to the financial industry on the 19th, OK Savings Bank is increasing its investments in regional financial holding companies such as DGB Financial and JB Financial. DGB Financial announced yesterday that as of the end of last month, its largest shareholder changed from the National Pension Service to OK Savings Bank. OK Savings Bank was the second-largest shareholder holding 7.53% of DGB Financial shares as of the end of September last year but increased its stake to 8.49% by the end of last month, becoming the largest shareholder. The National Pension Service, the previous largest shareholder, reduced its stake in DGB Financial from 8% to 7.99% during the same period.

Between the 4th and 7th of this month, OK Savings Bank announced that it purchased 366,860 shares of JB Financial stock (approximately 4.8 billion KRW) on the market. OK Savings Bank's stake in JB Financial also rose by 0.29 percentage points from 10.21% to 10.5%. Although OK Savings Bank sold a large number of JB Financial shares, about 960,000 shares, in the third quarter of last year, it repurchased them in the fourth quarter and has now increased its holdings further.

OK Savings Bank's moves are interpreted as an effort to profit by acquiring undervalued stakes in regional financial holding companies. This allows them to gain not only capital gains and valuation profits but also dividend income. After securing more than 5% stakes in the two financial holding companies in 2021 and actively investing, they increased their investment scale as these companies pursued high dividend policies. An OK Savings Bank official stated, "We acquired shares in regional financial holding companies purely for investment purposes."

Despite somewhat weaker performance compared to last year, regional financial holding companies have pursued shareholder returns. Among the three regional financial companies, JB Financial was the only one to increase its shareholder return ratio from 27% in 2022 to the 30% range (33%) last year. The dividend per share also rose by 20 KRW from 835 KRW in 2022 to 855 KRW last year. Of the 30 billion KRW worth of treasury shares purchased last year, 20 billion KRW were canceled. DGB Financial's shareholder return ratio increased to 28.8% last year from 27.4% the previous year. Although the dividend per share slightly decreased from 650 KRW to 550 KRW, shareholder returns were boosted through treasury stock purchases and cancellations. DGB Financial conducted its first-ever treasury stock purchase of 20 billion KRW last year.

In fact, dividend income earned by OK Savings Bank is expanding. It is known that OK Savings Bank received 13.6 billion KRW in dividends for the fiscal year 2021, the first year it acquired stakes in the two financial holding companies. This accounted for 5.59% of its net income (243.4 billion KRW) during the same period. Dividend income expected to be received from these financial holding companies this year is estimated at 7.8 billion KRW from DGB Financial and 9.4 billion KRW from JB Financial, totaling 17.3 billion KRW.

OK Savings Bank recorded the highest net profit of 53.5 billion KRW in the savings bank industry in the first half of last year. In contrast, the total loss in the savings bank industry during the same period was 100 billion KRW. Although net profits have decreased, dividend income is expected to remain at a similar level, making dividends a likely 'prime' source of revenue.