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 in doldrums as tighter regulations offset rate hike effect
By Lee Min-hyung
By Lee Min-hyung
Bank stocks have taken a battering in recent months, as tighter regulatory hurdles have aggravated investor sentiment despite rapid interest rate hikes, analysts said.
Financial stocks are considered key beneficiaries of monetary tightening, as their cash-cow interest profit rises in line with key rate hikes.
But shares of Korea's top four financial holding firms remained bearish from the beginning of June despite aggressive rate rises from the U.S. Federal Reserve and the Bank of Korea.
According to data from the Korea Exchange (KRX), shares of KB Financial Group hit this year's high of 66,400 won per share in late February, but have since shown a downward trajectory. The stock price of KB closed at 48,150 won per share, Tuesday, up 0.1 percent from the previous trading day.
Other top-tier financial firms such as Shinhan, Hana and Woori displayed similar patterns in their stock prices. Shinhan shares soared to 43,450 won in early June, but have since been on a steep decline. The firm's stock closed at 34,650 won per share, down 0.29 percent from a day earlier.
Starting from June, Hana and Woori shares also appear to have lost momentum for additional rallies. The stock price of Hana Financial Group ended with a loss of 0.26 percent at 37,950 won per share. Woori closed at 11,550 won, down 0.43 percent.
The poorer-than-expected performance is attributable to the government's toughening regulations targeting commercial banks, according to analysts.
Financial Services Commission Vice Chairman Kim So-young, right, speaks during a meeting with financial experts from the private sector at the Government Complex Seoul, Aug. 18. Kim urged financial firms recently to pile up more allowance for bad debts. Yonhap
After President Yoon Suk-yeol took office in May, the government stepped up pressure on banks to reduce their interest rates, as part of Yoon's campaign pledge to stop banks from generating excessive interest profits.
Last month, the government introduced a policy making banks disclose their loan-to-deposit interest rate gap. This was aimed at boosting competition to cut interest rates among commercial banks, as few lenders want to receive the disgraceful title of a “greedy” bank.
“The policy comes as a substantial burden on banks,” Hana Securities analyst Choi Chung-uk said.
The analyst also shared a pessimistic view on banks' medium-term growth outlook.
“Our earlier forecast was that banks' net interest margin would turn downward sometime in the latter half of next year, under the scenario that the ongoing key rate hike movement comes to an end by the end of 2022,” he said. But the timeline could be brought forward to the first half of next year due to the policy, according to the analyst.
Other data from the exchange operator also showed that the overall bank stocks are showing little sign of rebound. The KRX Bank Index closed at 596.94 points on Monday, a drop of more than 20 points from 621.71 as of the end of August.
The Financial Services Commission also urged financial institutions recently to pile up more allowances for bad debts amid growing financial market uncertainty here and abroad.
“This does little good to boosting investors' sentiment, as they will interpret the move as a sign pressing banks to reduce their dividend offerings,” DS Investment & Securities analyst Na Min-wook said.