Foreign Financial Companies Pay Huge Dividends Despite Poor Performance

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There have continuously been rumors that foreign financial companies would leave South Korea. As foreign banks have increased dividend payouts despite low profitability, many suspect that they are preparing to leave the South Korean market.

A case in point is SC Cheil Bank which is wholly owned by U.K.-based Standard Chartered Group, according to investment banking (IB) industry sources on July 7. The bank had a return on equity (ROE) of 6.68 percent in the first quarter of this year. The figure fell short of the average rate of domestic banks at 8.4 percent. SC Cheil Bank’s net profit stood at 74.30 billion won (US$63.42 million) in the first quarter, down 18 percent from a year earlier. Despite the poor performance, the bank decided to pay out 500 billion won (US$426.80 million) worth of interim dividend early this year. Naturally, rumors that the bank was preparing to leave South Korea started to spread around.

SC Cheil Bank strongly denied the rumor as groundless. Senior officials at the banking supervision and commercial bank supervision divisions at the Financial Supervisory Service (FSS) also said, “SC Group has not reported any possible group-level business portfolio adjustment or SC Cheil Bank’s restructuring to the financial regulator.”

However, banks are not required to report restructuring plans to the FSS before carrying them out. In this regard, the FSS is also keeping a close eye on the rumors about foreign banks withdrawing from the domestic market. For instance, the FSS extended management evaluation on Citibank Korea in May. This was because the bank closed down and merged branches in South Korea and decided not to hire new employees, making a move to reduce investment. Citibank Korea sold its landmark headquarters tower in Jung-gu, Seoul, for 200 billion won (US$170.72 million) in May.

Citibank Korea saw its net profit fall 12.90 billion won (US$11.01 million), or 17.7 percent, on year to 60.10 billion won (US$51.30 million) in the first quarter. However, the bank paid out 934.10 billion won (US$797.35 million) worth of dividends which were three times higher than its net profit of last year.

Australia’s multinational investment bank Macquarie Bank Ltd. also shut down its Seoul branch last month after operating it for 10 years.

In addition, banks are not the only oneleaving the South Korean financial market or pursuing a merger and acquisition (M&A). With the introduction of IFRS 17, a new set of global accounting standards set to be introduced in 2022, Europe-based insurance companies have already left the South Korean life insurance market. ING Group sold ING Life Insurance Korea, the nation’s fifth largest life insurer, to MBK Partners, a Korean private equity firm, in December 2013, while Allianz Group sold Allianz Life Insurance Korea to China’s Anbang Group Holdings Co. in April 2016.

Source:www.businesskorea.co.kr/news/articleView.html?idxno=33637

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