A Shift to Aggressive Shareholder Return Policy
KB Financial Group has decided to cancel its treasury shares, an unprecedented move among Korean financial holding companies. Industry experts view it as a sign that the banking industry is embracing an aggressive shareholder return policy.
KB Financial Group will cancel 2,303,617 shares (0.55 percent of the total number of issued shares) out of the 28.48 million shares it owns. They are worth about 100 billion won based on the acquisition price of 42,100 won.
The treasury stock cancellation is expected to boost shareholder value as the number of issued shares will go down. “The cancellation will boost the BPS and the EPS by 3.0 percent and 0.55 percent, respectively,” said Choi Jung-wook, a researcher at Hana Financial Investment.
The cancellation is meaningful as it demonstrates the group’s commitment to shareholder return. In particular, it is expected to benefit bank stocks as a whole which have been slumping.
Following last year, Korean financial holding companies are expected to achieve record-high net profits this year again – 3.57 trillion won for Shinhan Financial Group, 3.34 trillion won for KB Financial Group and 2,41 trillion won for Hana Financial Group and 1.81 trillion won for Woori Financial Group. In addition, their profit stability is on the rise with bad account cost at an all-time low despite concern over a further decline in net interest margins (NIMs) next year.
However, current valuations of financial holding companies are lower than those in the financial crisis. Their stock prices are unlikely to rise despite the high quality of their profit. The share price-to-book ratio (PBR) of bank stocks stands at 0.44, which means their market cap is less than their asset value.