KB, Shinhan in doldrums despite foreigners' buying spree

By Lee Min-hyung

Shares of KB and Shinhan financial groups remain in the doldrums despite foreign investor's recent binge buying, as the outlook for a near-term earnings rebound from the COVID-19 shock is getting dimmer.

Starting from August, foreigners went on a mass buying spree of the nation's major financial stocks worth over 200 billion won ($168.7 million). But the rosy upward momentum of the benchmark KOSPI was insufficient for the stocks to bounce back.

For 18 trading days from Aug. 3, foreign investors' combined net buying of Korean financial stocks reached 203.7 billion won. KB topped the list, with foreigners buying 149.86 billion won of its shares during the same period. Shinhan came in second with 15.67 billion won. Net foreign purchases of Woori Financial Group also reached 2.76 billion won.

Despite foreigners' buying momentum, most of the financial stocks failed to extend the rally in August. The stock price of KB was traded at around over 36,000 won early this month. But this has not improved much over the past month despite the main bourse being on a stable upward trajectory.

The stock price of Shinhan, another top-tier financial holding firm, also failed to bounce back during the same period. Shinhan's stock price remained in the doldrums at around the 30,000-won range for a month.

Market experts attributed the sluggish growth of financial stocks to their weak growth outlook due to the economic fallout from the pandemic shock this year.

“The financial authorities decided to extend banks' loan benefits to affected borrowers, at a time when concern is growing over financial soundness of lenders here,” eBest Investment & Securities analyst Jun Bae-seung said.

Under the decision, banks were forced to extend the period to retrieve principle and interest for loans offered to the self-employed and small- and medium-sized enterprises for another six months until the end of March 2021. The government took the measure amid reviving fears over the virus-induced economic panic here.

As of Aug. 14, commercial banks had to delay the period to retrieve principal for loans worth 51.3 trillion won. They could not retrieve interest for loans worth 39.1 billion won until the end of March due to the government's decision.

But the analyst raised concerns over whether the borrowers will be capable of paying back the interest even after the extended period.

“The second wave of coronavirus infections may push banks to set up more allowances for bad debts,” the analyst said. “When the ongoing economic slowdown deepens down the road, this will pose a negative impact on bank stocks due to concerns over their financial soundness and net interest margin.”

Shares of Woori Financial Group have also been on the gradual decline for the past three months, dipping below 9,000 won.

The lingering uncertainty surrounding the COVID-19 outbreak has also posed a downward pressure on bank stocks, which pushed the Bank of Korea (BOK) to slash the key interest rate to a record low of 0.5 percent.