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.
What's behind falling banking stocks?
A notice of a lender's deposit rate is displayed in front of its sales office in Seoul, Sunday. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Banking stocks are extending a losing streak on escalating fears of a recession and the heightened risk exposure of their asset soundness amid soaring interest rates, analysts said.
The stock performance runs counter to the once-prevalent optimism on banks earlier this year when they were widely expected to continue a robust rally on hopes of earnings growth driven by interest rate hikes.
According to data from the Korea Exchange, shares of KB Financial Group hit this year's new high of 66,400 won in late February but tumbled down to 46,950 won as of Monday. Other major financial firms such as Shinhan, Hana and Woori are also displaying similar patterns in their stock prices, all of which declined steeply from the beginning of June. Shinhan shares topped this year's high of 43,450 won in May but fell to 37,250 won during the same period. Hana hit a high of 52,900 won in February but closed at 38,350 won on Monday. Woori's share price reached 16,350 won in late May but has since gone on a downward trajectory, closing at 11,650 won on Monday.
Market analysts expected banking stocks to report lukewarm performances in the latter half of this year.
“The rising interest rate does not necessarily come as a boon to banking stocks at a time when recession fears are escalating and the rate hike puts pressure on banks' asset soundness,” said Choi Chung-uk, an analyst at Hana Securities. Banks' profit growth momentum will lose steam gradually in the second half of this year due to the aforementioned factors, according to the analyst.
NH Investment & Securities analyst Jeong Jun-seop concurred, citing deepening recessionary fears and an escalation of banks' loan-related risk exposure, which resulted in the ongoing banking stock fall.
“Big rate hikes by central banks here and abroad have sparked fears of insolvency,” the analyst said. “The weakening banking stock performance is also attributable to growing fears of an economic slump.”
In May, the Bank of Korea revised down Korea's 2022 GDP growth forecast to 2.7 percent from an earlier outlook of 3 percent.
EBest Investment & Securities analyst Jun Bae-seung said the “stagflationary” environment, referring to a situation of rising prices and slowing economic growth, that is facing the Korean economy is fatal to financial stocks.
“The global economy is under stronger adjustment pressure amid multiple shocks such as the prolonged war between Russia and Ukraine, inflation that pushed up raw material prices and global monetary tightening," he said. “Stagflation is a bad influence on financial stocks.”
Banking shares are also on the decline amid growing pressure from financial authorities that are urging banks to cut their interest rates for customers.
The Financial Supervisory Service's new Governor Lee Bok-hyun has recently been calling on the chiefs of financial firms here to slow down the pace of their interest hikes during this period of monetary tightening.
“Voices of criticism are growing on the widening gap in the loan-to-deposit rate, which sparks concerns that banks are seeking to reap way too much profits,” Lee said. “We urge banks to slow down the interest hikes, particularly for the sake of the socially vulnerable.”