Banks’ loan-loss reserves at risk of being raised

Korea’s financial regulator is moving to draw up measures to put a lid on local banks’ excessive dividend payouts that have caused a public outcry, officials said yesterday.

“Measures are on the drawing board to require banks to cut the amount of profits available for dividends,” said an official at the Financial Supervisory Service. “Initial steps may involve raising their loan-loss reserves.”

Under current rules, banks are required to set aside provisions as well as loan-loss reserves to cushion potential losses from sour loans.

“We plan to fix the rules on loan-loss reserves within this year and also recommend banks to adopt new rules on provisions,” the official said on condition of anonymity

If the financial regulator hikes the minimum requirements on bad debt expenses, banks would be left with less net income to dole out to shareholders.

The regulator’s plan comes after the outbreak of the Occupy Wall Street movement triggered anger over the local finance industry’s fat paychecks and dividend payments.

Forecasts that local banks are expected to reap a record 20 trillion won ($18 billion) net income this year on the back of widening interest margins further fueled the public rage.

Last year, local lenders paid as much as nearly 70 percent of their net income to shareholders. No. 5 lender Korea Exchange Bank topped the list with 68.51 percent, followed by KB Financial Group with 46.61 percent and Shinhan Financial Group with 24.62 percent.

Yonhap