Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Bank stocks to extend losing streak in 2020
Victims from some banks' mis-selling of derivative-linked fund (DLF) options hold a protest, urging financial regulators to remove leaders of Woori Bank and KEB Hana Bank from their posts, in front of the headquarters of the Financial Supervisory Service on Yeouido in Seoul, on Jan. 16. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Major bank stocks here are unlikely to bounce back in 2020, as unfavorable regulatory policies will continue holding back their interest income growth, according to experts, Monday.
Revenue from loan interest has been a major cash cow for most banks here, but the government is planning to introduce more regulations to prevent investors in particular from getting additional mortgages
Analysts say there is little potential for a rebound at a time when it remains tough for banks to find new revenue sources in the non-interest sector. What is worse is that they continue to be involved in sales fiascos that produce scandals. This has damped investors' appetite for leading financial firms here, such as Shinhan, Hana and Woori.
“Bank stocks are in a slump amid predictions that their 2020 earnings will be on par with 2019 at best,” IBK Investment & Securities analyst Lee Eun-gab said.
The weakening stock price is in part due to the outlook that their loan businesses will continue to be hit by existing and upcoming government regulations on mortgages, according to the economist.
The stock price of Shinhan Financial Group, the nation's biggest financial holding firm, closed at 41,200 won ($35.27) Jan. 23, a drop of about 10 percent from Dec. 16 when the price reached as high as 46,150 won.
Other top-tier banks also reported a steep decline in their stock valuation in the first month of the year.
Woori Financial Group was hit hardest by the falls in stock valuation. Its stock price was traded as high as 12,450 won Nov. 15, but nosedived to 10,350 won Jan. 10, a decline of around 17 percent.
“Bank stocks have recently underperformed more than those of other industries,” the IBK's Lee said. Banks' shareholder return policy is one factor raising expectations for a rebound, but this is just an intermittent event and not a sign to drive stable growth, he added.
The brokerage maintained a “neutral” view on whether to invest in bank stocks amid the weak outlook.
Another economist at Hana Financial Investment pointed out that banks failed to make a meaningful rebound in January due to lingering uncertainties surrounding their leadership.
“Banks have recently failed to find opportunities for a rebound amid widening uncertainties on the fate of some of CEOs in the wake of the scandalous sales fiasco regarding the troubled hedge fund Lime Asset Management,” Choi Chung-uk said.
Aside from the “Lime fiasco,” Woori and Hana were involved in the recent mis-selling of derivative-linked fund (DLF) options to hundreds of customers late last year.
The Financial Supervisory Service (FSS) plans to decide on the level of sanctions against the leaders of the two financial holding firms, Jan. 30.
On Jan. 22, Shinhan Financial Group Chairman Cho Yong-byoung received a suspended jail term after being found guilty of exerting personal influence in the recruitment of some employees.
However, Choi said the banks' stock process have already bottomed out despite their involvement in such scandals.
“The stock prices of the banks have already declined too much, and chances are that the prices will be readjusted before or after early February when their fourth-quarter earnings reports are released,” he said.