Major banks will increase their dividend payout ratios this year, in line with the government’s shareholder-friendly policy.

This is good news for conventional stockholders and those seeking profitable investments, but industry observers cautiously argue that the generous payout could harm their financial soundness over the long term.

The nation’s largest banking group, Shinhan Financial, announced earlier this month that it would execute a cash dividend of 950 won (86 cents) per share, a total of 450 billion won, increasing its payout ratio to 21.6 percent from 16.2 percent the previous year.

Meanwhile, KB Financial Group decided to pay out 300 billion won to its shareholders, pulling up its payout ratio from 15.1 percent to 21.5 percent.

The management of the state-run Industrial Bank of Korea is considering increasing the ratio to almost 30 percent, according to a number of investors.

Woori Bank, which did not pay dividends over the past two years due to deficits, is expected to pay as much as 500 billion won in dividends this year.

The catalyst for this dividend expansion trend is “Choinomics,” the series of economic policies established by Finance Minister Choi Kyung-hwan.

The revised tax law, which was approved by the National Assembly late last year, imposes a special tax on large companies with excessive cash reserves, pressing them to pay out more in dividends.

“An increase in dividends certainly has a positive effect on the general investor sentiment,” said Choi Jung-wook, an analyst at Daishin Securities.

“Investors will be inclined toward companies that have a history of paying high dividends, as they expect to benefit from a similar uptrend in the future.”

But the generous cash payments are not all good news, according to some observers.

Cautious observers argue that although the banking industry seems to have taken an upturn, net profits are still very low and such high dividends might not be sustainable.

The total net profit of local banks was 6.2 trillion won last year, up 2.3 trillion won from the previous year but still much lower than the 11.8 trillion won in 2011, according to the FSS.

Some also expressed concerns that the high dividends could result in much of the nation’s capital being moved overseas.

According to the stock operator Korea Exchange, foreign investors owned close to 70 percent of shares in Korean financial groups this month, reflecting investors’ expectations of higher payouts.

“Excessive dividend payouts, especially in the financial and telecommunications sectors, may hinder the public interest,” said Ahn Jin-gul, senior officer at the progressive civic group People’s Solidarity for Participatory Democracy.

By Bae Hyun-jung (tellme@heraldcorp.com)