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| Shinhan Financial Group's headquarters in Seoul / Courtesy of Shinhan Financial Group |
Delta variant hinders shareholders from enjoying Q3 dividends
By Park Jae-hyuk
Shinhan Financial Group admitted that it may not be able to pay cash dividends for the third quarter of this year, citing the need to brace for the spread of Delta variant infections in the fourth wave of the COVID-19 pandemic in Korea.
The banking group indicated the adjustment after earlier reports said financial authorities have put the brakes on its ambitious plan to pay quarterly dividends.
The group, however, remained cautious about its decision being interpreted as a consequence of pressure from the financial regulators. The banking group emphasized that it has continued to communicate with the authorities regarding its dividend policy, ever since it started considering paying quarterly dividends.
"Our board of directors will make a decision in August on whether to pay second-quarter dividends, but we will consider the COVID-19 situation when making a decision on our third-quarter dividends," a Shinhan representative said Wednesday. "If the economic situations of households and businesses get worse, it is natural for us to avoid paying dividends to our shareholders."
On Tuesday, Shinhan announced that it was considering paying quarterly dividends, in contrast to KB, Hana and Woori financial groups, all of which decided last week to pay half-yearly dividends. It had been unprecedented for the nation's financial holding companies to pay quarterly dividends.
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| Shinhan Financial Group Chairman Cho Yong-byoung, left, and Financial Services Commission Chairman Eun Sung-soo enter a conference room at Hyundai EV Station in Seoul to sign a memorandum of understanding regarding investments in futuristic vehicles in this February file photo. Yonhap |
According to industry sources, the financial regulators have demanded that Shinhan take into account the worsening coronavirus situation when making a decision on its updated dividend policy, given that a higher dividend payout ratio may cause problems to its financial soundness.
Although the Financial Services Commission (FSC) has ostensibly allowed financial firms here to make autonomous decisions on their dividend policies, its request has been widely regarded as a practical ban on the group's plan to pay quarterly dividends.
"We suggested that banks and their holding companies take into account the fact that uncertainties about the COVID-19 pandemic have yet to be resolved completely," an FSC official said.
The country's financial regulators have in particular asked Shinhan to keep its previous promise amid the spread of COVID-19, when making its decision on whether to pay interim dividends to Affinity Equity Partners and Baring Private Equity Asia, both of which are foreign private equity firms that became the Korean financial group's major shareholders last year, by collectively investing 1.2 trillion won ($1 billion).
Analysts expect Shinhan to be unable to pay a third-quarter interim dividend this year.
"Shinhan has continued to show its strong will to pay quarterly dividends, but the growing number of infections caused by the recent spread of the Delta variant has made it difficult for the company to do so," Hana Financial Investment analyst Choi Chung-uk said. "Investors will need to be satisfied with a half-yearly dividend this year."
Meritz Securities analyst Eun Kyung-wan shared this view, saying that investors will need to wait until the actual payment of quarterly dividends, considering unfavorable external factors, such as the recent coronavirus spread and the possibility of additional loan maturity extensions for small businesses facing difficulties due to the pandemic.
