iM Financial Group and JB Financial Group are experiencing side effects, as the largest shareholders' stocks are being released into the market due to their share buyback and cancellation to strengthen shareholder returns. This is due to the equity limit regulations for major shareholders of bank holding companies, and industry experts point out that this is a factor that hinders the government's value-up policies.
According to the National Assembly and the financial sector on the 9th, the People Power Party proposed four bills, including the bill on the exemption of equity ratios for the separation of banking and industry, titled 'Partial Amendments to the Act on the Structural Improvement of the Financial Industry.' The main point is to provide a maximum two-year grace period for selling stocks if the equity ratio of major shareholders exceeds the permitted limit for banking and industry separation due to share cancellations.
This is a legal amendment stemming from the recent issues surrounding the separation regulation for the major shareholders of local financial holding companies due to their stock cancellations. Samyang Corporation, the largest shareholder of JB Financial, sold 125,000 shares earlier this month, reducing its equity from 14.83% to 14.77%. This is the first time Samyang has divested its shares in JB Financial since participating as a shareholder at the founding of Jeonbuk Bank.
JB Financial is conducting share buybacks and cancellations while operating its value-up program. Selling treasury stocks increases the equity ratio of existing shareholders, raising concerns that Samyang Corporation could exceed the 15% cap on the separation of banking and industry for local financial holding companies. Ultimately, they began selling shares before exceeding the 15% limit. Samyang Corporation reportedly inquired with financial authorities about flexibly applying the separation regulation, considering the purpose of the value-up program, but this is expected to not materialize.
Align Partners, the second-largest shareholder of JB Financial, holds 14.26% equity. If treasury stock cancellations continue, Align Partners will also need to divest some of its shares. JB Financial plans to expand its share buyback and cancellation scale to over 40% in the long term.
Due to the cancellation of treasury stocks, the equity of OK Savings Bank, which is the largest shareholder of iM Financial, is expected to be released into the market. Last year, when iM Bank (formerly Daegu Bank) transitioned to a commercial bank, the equity ratio limit for the largest shareholder was lowered to 10%. As of the end of the first quarter of this year, OK Savings Bank's equity ratio is 9.7%.
iM Financial aims to cancel a total of 150 billion won in treasury stocks by 2027 and plans to cancel 40 billion won worth of treasury stocks in August. Before exceeding the 10% equity ratio, OK Savings Bank must sell some of its shares.
Such major shareholder overhang issues are counterproductive to the value-up program. The purpose of treasury stock cancellations is to boost stock prices and expand shareholder returns; however, if the largest shareholders' equities are released into the market, it is expected to negatively impact stock prices. Industry opinions suggest that both the ruling and opposition parties should swiftly handle the regulatory relaxation bills in agreement.
A representative from a financial holding company noted, "The overhang issue was already raised at the start of the value-up program, but as they accelerated share buybacks and cancellations, the issue arose more quickly than expected," adding, "When a company buys and cancels its treasury stocks, if the largest shareholder sells the stock, the value-up effect diminishes."