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NongHyup in quandary over dividend policy

NongHyup Financial Group Chairman Son Byung-hwan speaks during its management strategy meeting at its headquarters in Seoul, Feb. 3. Yonhap
NongHyup Financial Group Chairman Son Byung-hwan speaks during its management strategy meeting at its headquarters in Seoul, Feb. 3. Yonhap

By Lee Min-hyung

NongHyup (NH) Financial Group is trying to decide on whether to reduce its dividend offerings, as financial watchdogs ratchet up pressure on the firm to maintain financial soundness by scaling down its profit returns amid the pandemic uncertainty.

In 2020, the group paid dividends worth 500 billion won ($450.7 million) to its sole shareholder ― the National Agricultural Cooperative Federation (NACF). NH's dividend payout ratio last year reached 28 percent.

But it remains unclear whether the company will be able to keep a similar level of dividend offerings this year, as other commercial banking groups are cutting their rates down to around 20 percent amid authorities' growing pressure. The Financial Supervisory Service (FSS) recommends major financial holding firms here provide no more than 20 percent of their net incomes to shareholders for dividends.

KB Financial Group and Hana Financial Group decided recently to abide by the FSS guideline. NH along with Shinhan and Woori are set to make their decisions sometime early next month.

Expectations are NH will follow the footsteps of KB and Hana and reduce the ratio in the end, as the watchdog cannot offer any preferential treatment for NH simply due to its contribution to the NACF.

Unlike other banking groups, NH offers all the dividends to the NACF, the mother company of NH Financial. The NACF then shares the dividends with NH's union groups which consist of farmers and those involved in the agricultural federation nationwide.

NH's dividends are, therefore, used as a pillar to support the growth of the nation's rural industries. But the scale of the support for them is expected to be reduced this year if NH chooses to accept the so-called 20 percent dividend rule from the watchdog.

NH is still struggling in an internal review over whether to accept the call, as it cannot satisfy both the authorities and farmers' groups. NH is worried that its possible decision to cut dividend offerings may end up driving agricultural groups into a corner when they are still suffering from the effects of the virus shock.

NH was ranked as the fourth-largest financial holding firm by net profit as of the end of 2020. It moved up one notch from the previous year's fifth place by chalking up 1.73 trillion won in net profit on expanded non-banking earnings.

As the group's business structure is no different from its rivals, industry watchers expect the group to accept the authority's call in the end.

"NH will likely abide by the guideline at a time when its competitors are doing so against their free will," a source said. "Most financial holding firms do not want to accept the guideline, but will reduce their dividend offerings amid escalating pressure from watchdogs."

The source added, "Returning a proper amount of dividends to shareholders is crucial for major banking groups to defend against a possible stock price fall. But they decided to cut the ratio. NH will be no exception at this critical juncture."


NongHyup Financial Group Chairman Son Byung-hwan speaks during its management strategy meeting at its headquarters in Seoul, Feb. 3. Yonhap
NongHyup Financial Group Chairman Son Byung-hwan speaks during its management strategy meeting at its headquarters in Seoul, Feb. 3. Yonhap

By Lee Min-hyung

NongHyup (NH) Financial Group is trying to decide on whether to reduce its dividend offerings, as financial watchdogs ratchet up pressure on the firm to maintain financial soundness by scaling down its profit returns amid the pandemic uncertainty.

In 2020, the group paid dividends worth 500 billion won ($450.7 million) to its sole shareholder ― the National Agricultural Cooperative Federation (NACF). NH's dividend payout ratio last year reached 28 percent.

But it remains unclear whether the company will be able to keep a similar level of dividend offerings this year, as other commercial banking groups are cutting their rates down to around 20 percent amid authorities' growing pressure. The Financial Supervisory Service (FSS) recommends major financial holding firms here provide no more than 20 percent of their net incomes to shareholders for dividends.

KB Financial Group and Hana Financial Group decided recently to abide by the FSS guideline. NH along with Shinhan and Woori are set to make their decisions sometime early next month.

Expectations are NH will follow the footsteps of KB and Hana and reduce the ratio in the end, as the watchdog cannot offer any preferential treatment for NH simply due to its contribution to the NACF.

Unlike other banking groups, NH offers all the dividends to the NACF, the mother company of NH Financial. The NACF then shares the dividends with NH's union groups which consist of farmers and those involved in the agricultural federation nationwide.

NH's dividends are, therefore, used as a pillar to support the growth of the nation's rural industries. But the scale of the support for them is expected to be reduced this year if NH chooses to accept the so-called 20 percent dividend rule from the watchdog.

NH is still struggling in an internal review over whether to accept the call, as it cannot satisfy both the authorities and farmers' groups. NH is worried that its possible decision to cut dividend offerings may end up driving agricultural groups into a corner when they are still suffering from the effects of the virus shock.

NH was ranked as the fourth-largest financial holding firm by net profit as of the end of 2020. It moved up one notch from the previous year's fifth place by chalking up 1.73 trillion won in net profit on expanded non-banking earnings.

As the group's business structure is no different from its rivals, industry watchers expect the group to accept the authority's call in the end.

"NH will likely abide by the guideline at a time when its competitors are doing so against their free will," a source said. "Most financial holding firms do not want to accept the guideline, but will reduce their dividend offerings amid escalating pressure from watchdogs."

The source added, "Returning a proper amount of dividends to shareholders is crucial for major banking groups to defend against a possible stock price fall. But they decided to cut the ratio. NH will be no exception at this critical juncture."


Lee Min-hyung mhlee@koreatimes.co.kr


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