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December 13, 2018

Shares of top Korean financial groups tepid despite record earnings

PUBLISHED : August 09, 2018 - 15:30

UPDATED : August 11, 2018 - 08:49

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[THE INVESTOR] Although Korea’s top four financial groups -- KB Financial, Shinhan Financial, Hana Financial and Woori Bank -- recorded impressive second-quarter earnings, their share prices haven’t kept pace.

“Making a lot of money would be a positive sign for regular companies, but it’s a different story in the financial industry as a whole,” Han Jung-tae, an analyst at Hana Financial Investment said. “Posting big earnings can give an impression that banks charged that much more interest.”

The average lending rate on credit loans extended by the country’s top five commercial lenders -- KB Kookmin, Shinhan, Woori, KEB Hana and NH NongHyup -- rose to 4.23 percent from 4.10 percent over the past six months.

Conscious of the rise, the government has asked savings banks to abstain from charging borrowers exorbitant interest rates. Analysts suggest that commercial banks are also under a similar pressure. Last month, the Financial Services Commission said it is mulling measures to cut credit card processing fees that will weigh on future profits of local financial institutions. 




KB Financial, which retained its position as the most profitable financial group in the country in the second quarter, logged a net income of 1.32 trillion won (US$1.18 billion). Since the announcement of its earnings, its share price hovered around 50,000 won, which compares with the 67,700 won recorded in January.

Other financial groups also have a similar story. Hana Financial Group’s operating profit was up 31.5 percent to 220 billion won and Woori Bank recorded 323 billion won, a 21.79 percent increase from a year ago. However, share prices of Hana and Woori were down 2.56 percent and 4.57 percent, respectively, this month.

Shinhan Financial, which was the most profitable company for nine consecutive years until its top spot was taken by KB last year, also saw a 1.51 percent decline in its share price even after it announced a 15.45 percent growth in operating profit on July 24.

The tepid share prices, analyst said, is due to net selling by institutional investors and the uncertain outlook.

Institutional investors net sold about 53.1 billion won worth shares in the four financial groups from Aug. 1 to Aug. 7. While they are selling, foreign investors, who are already large shareholders of the financial groups, were reluctant to pick up the stocks. About 70 percent of KB Financial, Shinhan Financial and Hana Financial are already owned by overseas investors.

“Banks are greatly affected by macroeconomic indicators,” said Choi Chung-uk, a securities analyst at Daishin Securities. ”Even if earnings are good right now, investors are worried about stock prices and think they are likely to decline if the overall economic indicators are not good.”

“The self-employment market is deteriorating due to sluggish domestic demand,” said Seo Young-soo, an analyst at Kiwoom Securities. “Although it is unlikely that loans to these entrepreneurs will directly cause massive insolvency for major financial institutions, it is possible that loans from the secondary FIs could become insolvent due to ripple effects,” he noted.

By Park Ga-young (gypark@heraldcorp.com)

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