Dividend payout comparisons inadequate: expert
Simply comparing dividend payout ratios between Korean financial groups and foreign banks operating in Korea is a common mistake in approach, an expert said Monday.
“Many people make the mistake of comparing the payout ratios between local and foreign entities, but that is not the right way to understand dividend policies,” Kwon Heung-jin, a researcher at the Korea Institute of Finance, said.
His comment follows reports on Standard Chartered Korea and Citibank Korea having decided to send a combined 370 billion won ($277 million) in dividends back to their head offices based on last year’s performance.
SC held a board meeting Friday and decided to send 50 billion won in dividends back to its head office.
The figure, in addition to the 200 billion won paid last November, raises the total to 250 billion won.
Considering the bank’s net income last year reached 350.6 billion won, its dividend payout ratio was 71.31 percent. This net income was down 10.1 percent from the previous year.
Citibank Korea held a board meeting on Feb. 15 and decided to pay a dividend totaling 138.8 billion won.
Its dividend payout ratio was 50 percent, unchanged from the previous year.
The report prompted criticism that the foreign banks are causing outflow of “national wealth” as the dividend payout ratios are much higher than local financial groups’ dividend ratios that remain below 30 percent.
The country’s major financial groups, meanwhile, are facing pressure that they should pay more dividends to shareholders. Those pressuring the banks cite the high dividend payout ratios of more lenient global players.
Kwon pointed out that the financial groups determine total dividends paid to shareholders after the holding firms collect the opinions of CEOs of subsidiaries. However, dividends paid by foreign banks in Korea are tied closely to their head offices’ capital relocation strategies, according to the researcher.
“The two entities have obvious reasons to vary in their dividend policies. The ratios must be interpreted under a broader context,” he said.
Similarly, the question of how much dividends should be paid out or whether there is an adequate amount at all is a bit off, in his view, since dividend policies are set by the financial entities, with shareholders always demanding more.
“It’s all an internal decision. Some taking issue with what they consider underwhelming payout ratios offered by financial groups compared to foreign banks is just too uninformed way of looking at it,” Kwon added.
SC Korea and Citibank Korea said their dividend policies are in line with global standards of capital soundness.