Financial groups' share prices stifled by president's 'mutual growth' drive

Dealers work in the trading floor of Hana Bank in Jung-gu, Seoul, Wednesday. Yonhap

Shares of top local financial groups and their bank subsidiaries are unlikely to rebound for the time being, hobbled largely by the “mutual growth” drive of President Yoon Suk Yeol, both the ruling and opposition parties, as well as financial authorities, market watchers said Wednesday.

The politically transcending demand is best encapsulated by the main opposition-proposed bill whereby up to 40 percent of a bank’s net interest income exceeding 120 percent of the past five years' average would be sourced for a fund. The combined “contribution” of about 2 trillion won ($1.5 billion) will be used to promote mutual growth with socially vulnerable groups including low-income earners, the disabled and the elderly.

Financial entities’ record-high growth in interest income over the past few pandemic years will not translate into handsome dividends or corresponding rises in valuation this year, observers say. This is because the vote-seeking move will only intensify in the lead-up to the April general election next year, despite the central bank’s years of rate hike cycle nearing an end.

According to the Korea Exchange (KRX), the KRX Bank Index as of Nov. 16 has dipped 1.46 percent over the past month. The main bourse KOSPI in the same period inched up 1.2 percent.

Last month’s poor performance is highlighted further by the bank index registering an increase of about 5 percent on average in the past six months. The KOSPI index in the same period inched down 0.63 percent.

Hana Securities said foreign investors sold off 117 billion won in bank stocks last week, whereas their net purchase of KOSPI shares came to 859 billion won in the same period.

Hana Securities researcher Choi Jung-wook said regulatory uncertainties continue to prove negative for banks and financial group shares.

“The share will lack momentum for the time being, a trend to continue due to weakened investor sentiment.”

SK Securities researcher Seol Yong-jin said a further dip in share values is not likely.

“The banks’ stable performance will create a buffer against further downward trajectory. The much-undervalued shares do not require an underweight position," he said.

Financial Supervisory Service (FSS) data showed the local banks’ net interest income averaged 42.5 trillion won between 2018 and 2022. The figure for the first six months of this year came to 28.5 trillion won.

The country’s top five banks’ net interest income stood at 36.2 trillion won last year, up 36 percent from two years ago. Their employee salary averaged over 110 million won last year, up 11.8 percent from two years ago.