South Korea's four major financial holding groups are estimated to have posted record results last year, drawing attention to their scope to expand shareholder returns. Expectations are rising for bigger dividends and changes in shareholder return strategies as a policy variable is added with the introduction of separate taxation on dividend income.

According to the financial sector on Monday, financial information provider FnGuide estimated the combined annual net profit of the four groups — KB, Shinhan, Hana and Woori — at 18.33 trillion won. It is the first time their annual net profit has exceeded 18 trillion won, up 12 percent from a year earlier.

By group, KB Financial Group is expected to post the highest profit at 5.81 trillion won, maintaining its position as the leading financial group.

Shinhan Financial Group is also seen entering the “5 trillion won club” alongside KB Financial with 5.14 trillion won. Hana Financial Group is tallied at 4.04 trillion won and Woori Financial Group at 3.30 trillion won, with all four judged to have sustained broadly even growth.

With results at a record level, shareholder returns are also seen likely to increase.

According to the LS Securities research centre, the four groups’ average shareholder return ratio is forecast to reach 50.5 percent in 2025, hitting the “50 percent level” about 2 years earlier than their originally presented target timing.

Major financial holding groups are pursuing equal quarterly dividends and share buybacks and cancellations under a principle of using excess capital for shareholder returns.

Dividends are already rising. Dividends paid by the four groups in the first three quarters of last year totalled 3.03 trillion won, up 14.9 percent from the same period a year earlier. The market sees annual year-end dividends also likely to expand given the improvement in results, and some forecasts say shareholder returns on an annual basis will reach a record level.

An analysis is also emerging that the dividend income separate taxation system to be introduced this year could spur financial holding groups to expand dividends.

Dividend income separate taxation is a system that taxes dividend income from high-dividend companies that meet certain requirements separately rather than aggregating it with other income. It applies to companies with a dividend payout ratio of 40 percent or more, or those with a payout ratio of 25 percent or more and dividends up at least 10 percent from the previous year.

The LS Securities research centre projected that if the requirements for dividend income separate taxation apply, the pace of dividend increases by bank holding companies will accelerate. Assuming all 8 bank holding companies meet the requirements, it expected fourth-quarter 2025 dividends per share to rise sharply and average annual dividends per share in 2025 to increase 18 percent. It also forecast that in 2026, most bank holding companies will keep dividends per share growth at around 10 percent.

A gradual change is also expected in the way shareholder returns are delivered. With the introduction of separate taxation as a trigger, the banking sector is likely to adjust the share of buybacks and cancellations to some extent and raise the weight of dividends in fine-tuning return strategies.

LS Securities analysed that the banking sector’s average dividend payout ratio will rise from the current level of around 28 percent to 40 percent over the mid to long term. It said this would resemble Japan’s banking sector, where dividends carry a high weight, and noted that Japanese megabanks are valued at around 1.2 times price-to-book ratio based on a total shareholder return ratio of 60 percent, raising talk of a possible re-rating of domestic bank holding companies.

Among individual financial holding groups, KB Financial is seen maintaining a relatively high level of shareholder returns. LS Securities forecast KB Financial’s total shareholder return ratio at 54 percent in 2025. In the fourth quarter, net profit may fall short of consensus due to ELS penalties and contributions to a bad bank, but it forecast that dividends per share in the fourth quarter will rise about 26 percent from the third quarter as it sets the dividend payout ratio at 25 percent to meet the requirements for dividend income separate taxation.

The financial sector expects the trend of expanding shareholder returns to continue in 2026 along with stable performance. A financial industry official said, “As the earnings base has strengthened, market confidence is also rising in the sustainability of shareholder return policies.”