Bank stocks to rise on stronger local currency

Seen above is an electric board set up at a Hana Bank dealing room in Seoul, which shows a sharp decline in the won-dollar exchange rate on Sept. 18. The figure has since been on a steep decline to the 1,150-won range as of Monday. Yonhap

By Lee Min-hyung

Bank stocks will be on track for a rebound, as the steep fall in the won-dollar exchange rate is likely to enable major lenders to report earnings in the third quarter, market analysts said Tuesday.

The drop of the exchange rate is generally considered a positive factor for banks to report better earnings, as the strengthening local currency will allow them to achieve gains on currency exchanges.

The exchange rate closed at 1,158 won per U.S. dollar on Monday, down 2.3 won from the previous trading day. The figure hit this year's high of 1,280 won as of March 19 amid widening uncertainties from the COVID-19 pandemic. But it has since taken a downward trajectory, which fueled concerns that the rate may soon plunge below this year's low of 1,156 won in the near future.

Of note is the pace of its fall in recent days, as the figure dropped by 20 won in less than a week. Even if this sparked fears that investors' confidence will shrink amid the growing currency market uncertainty, expectations are that some stocks ― particularly banks ― will be able to pick up more steam for a rebound on the mood, according to experts.

“We recommend investors pay more attention to bank stocks, as the won-dollar exchange rate is showing a friendly mood from their perspective,” Hana Financial Investment analyst Choi Chung-uk said.

“Banks' third-quarter earnings performance will surpass market expectation by a huge margin in the case that the exchange rate keeps declining to the end of September,” he said.

Major bank stocks have remained in the doldrums for the past few months, as a series of virus-induced negative market circumstances held back their growth. The first and second waves of coronavirus infections here have forced banks to set up more allowances for bad debts.

The stock price of Shinhan Financial Group reached 34,000 won on Aug. 12, but plunged to 27,500 won as of Tuesday. KB Financial Group, another top-tier financial holding firm here, also failed to report any stock price rebound in recent months, hitting 41,500 won on Aug. 13.

The slump was attributable to financial authorities' growing pressure on them to comply with new regulations against the virus-related market confusion. They were de facto forced to reduce the amount of loans to individuals, as regulators raised woes over the surging non-collateral loans of households.

But with the second wave of the virus shock showing signs of subsiding, chances appear to be slim for the government and authorities to shift more burden to banks by introducing such tough regulatory hurdles.

“When the number of infections starts to show a decreasing trend, bank stocks will become much more attractive,” the analyst said.

But another market expert pointed out that the exchange rate fall will not bode well for the overall stock market sentiment.

“The benchmark KOPSI will react sensitively to the exchange rate change,” Daishin Securities analyst Lee Kyoung-min said. “The stock market is likely to show a negative reaction in the short run against the volatility in the exchange rate.”