Value context and insight. lkm@koreatimes.co.kr
Bank shares dip over 10% following BOK rate cut
By Lee Kyung-min
By Lee Kyung-min
Shares of KB, Shinhan, Woori, Hana and other banks have been heading south since July 17 when the central bank lowered its key interest rate to 1.5 percent from 1.75 percent, which will slash their net interest margins, data showed Sunday.
The stocks are unlikely to pick up any time soon as the Bank of Korea is widely expected to cut the rate one more time this year amid growing downside risks at home and abroad.
According to the Korea Exchange, the nation's leading financial groups saw their share price drop by as much as 16 percent following the central bank's rate cut.
Shinhan Financial, largest financial holding company by assets saw its shares drop to 40,350 won Aug. 23, down 10.73 percent from 45,200 won, July 17.
The second-largest holding firm KB Financial's shares lost 13.14 percent from 44,900 won to 39,000 won.
Woori Financial suffered the greatest loss of 16.3 percent with its share price falling to 11,550 won from 13,800 won.
Hana Financial's shares dropped to 32,100 won from 36,250 won, suffering an 11.45 percent loss.
Mid-tier financial groups ― DGB, BNK, JB ― as well as the state-run Industrial Bank of Korea (IBK), saw their share price drop between 4.21 percent and 12.15 percent in the same period.
The drop came after foreign investors sold off over 605 billion won worth of shares, with Hana's 209 billion won accounting for the largest portion, followed by Shinhan's 181 billion won, KB's 112 billion won and IBK's 44.9 billion won.
The one-month foreign sell-off caused the eight shares to lose a combined 9 trillion won in market capitalization.
Fears about the financial services firms' profit plunge, while not entirely groundless, are somewhat overblown, according to Yun Chang-hyun, an economist at the University of Seoul.
“Bank and financial groups' shares slide when the central bank cuts its key rate, because the interest income, the spread or difference between rates paid to installment account holders and borrowing rates charged to loan takers, will become narrower,” he said.
“The plunge in the stock prices has more to do with investor fear about future prospects following the BOK rate cut, rather than their actual performance,” he added.
Financial shares ― alongside the central bank's decision on the key rate ― serve as a “barometer” or “diagnosis” of how foreign investors and the authorities view the economic situation, he added.
“The BOK's rate cut essentially means that the central bank acknowledges the country's economy is in a bad condition and therefore should be buoyed by an expansionary monetary policy. In that sense, foreign investors dumping financial shares is an inevitable sign that they have negative feelings about the economy.”