South Korea's financial regulator has urged local bank chiefs to stem excessive dividend payments and set aside enough money to brace for worsening shockwaves stemming from the ongoing global uncertainty, sources said Tuesday.
The move comes on the heels of projections that local banks are expected to pay hefty dividends on the back of their record profits. Market watchers forecast that lenders will reap nearly 20 trillion won (US$17 billion) on the back of increased profit income.
According to the industry sources, Financial Supervisory Service (FSS) Gov. Kwon Hyouk-se on Monday met with the heads of major lenders, including Woori and Kookmin, to request them to refrain from doling out excessive dividends and beef up their internal funds.
The FSS head urged banks to enhance their capacity to cope with losses amid chances of a further deterioration in the finance industry's health and uncertain global economic outlooks, one participant said.
This is the second time Kwon voiced concern for hefty dividends. In an August meeting with banking group heads, Kwon had said financial holding companies' big dividends are problematic.
The country's financial top regulator Kim Seok-dong had also stressed the need for banks to improve their ability to deal with worsening financial situations.
The country's seven largest banks paid out 10.5 trillion won in dividends over the last five years, or 32.5 percent of their net profits, according to FSS data.
Meanwhile, the FSS head said banks should take a more conservative approach when assessing the risks of loans made to property-related project financing, the sources said.