Korea Value-up Program and Financial Stocks: The Butterfly Effect of Structural Shareholder Returns

The Beginning of Structural Change Beyond a Simple Theme

In the second half of 2026, the full-scale implementation of the 'Corporate Value-up Program' remains one of the primary catalysts in the Korean stock market. Initiated by financial authorities, this policy is moving beyond initial expectations to become a tangible system for enhancing shareholder value. The financial sector, in particular, has emerged as the core industry adopting these changes most rapidly and extensively.

The Combination of Low PBR and Abundant Capital

Financial stocks have traditionally been classified as the most undervalued sector in the KOSPI, consistently trading below a price-to-book ratio (PBR) of 1. However, the stable profit-generation capacity and sound capital adequacy (e.g., BIS ratios) accumulated over recent years have created robust fundamentals to execute proactive shareholder returns. As the quality of assets has improved, the physical capacity to return excess capital to shareholders has been firmly established.

Separate Taxation on Dividends and Policy Support

The government's tax incentives are accelerating the value-up trajectory of financial stocks. The benefits of separate taxation on dividend income, provided to companies faithfully executing corporate value enhancement plans and their investors, are inducing an influx of capital from long-term value investors. This leads to an increased portfolio weighting by pension funds and institutional investors seeking stable dividend yields rather than one-off price pumps.

Evolving Shareholder Return Systems of Major Financial Groups

While past shareholder returns often felt like one-time 'bonuses' decided near the year-end settlement, the policies of major financial groups in 2026 have evolved into highly predictable 'systems'.

Implementation of ROE-Linked Automatic Returns

The most notable change is the introduction of a mechanical shareholder return formula linked to the Return on Equity (ROE) and asset growth rate. For profits achieving or exceeding the target ROE, the structure automatically initiates share buybacks or special dividends, eliminating arbitrary management decisions. The market is reducing uncertainty risks regarding earnings through this rule-based approach.

Regularization of Share Buybacks and Cancellations

The scale of share buybacks and cancellations, which directly enhance earnings per share (EPS), has also expanded significantly. Moving beyond mere repurchases, strict cancellation policies have been adopted, and roadmaps to incrementally raise the total shareholder return ratio (dividend payout ratio + share cancellation ratio) to the 50% level are being executed. Some leading holding companies have adopted a tax-free dividend method by converting capital reserves into retained earnings, thereby increasing the actual net yield for shareholders.

Investment Strategy: Selective Approach and Verifying Fundamentals

While positive momentum has formed across the financial sector, blind investment should be avoided.

Focusing on Sustainable Capital Efficiency

Policy expectations are already partially priced in. Future divergence in returns will stem from the specific details and actual execution rates of the 'corporate value enhancement plans' announced by each financial institution. A selective investment approach is required, comprehensively assessing the defensive capacity of net interest margins (NIM) against changes in the global interest rate environment, earnings contributions from non-banking sectors, and the efficiency of capital reallocation to achieve target ROE.