Why foreign investors sell KB, Shinhan, Woori shares

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Shares of Korea's major financial groups have slumped more than 10 percent over the past month, unsettled by concerns over a delay in the Corporate Value-up drive amid extended political turmoil surrounding President Yoon Suk Yeol’s botched martial law and the ensuing impeachment proceedings, market watchers said Wednesday.

Further clouding the upward momentum is reduced shareholder returns, influenced primarily by the recent weakening of the Korean currency against the U.S. dollar. But many expect the price to regain ground, underpinned by record earnings on the back of soaring interest income.

According to the Korea Exchange (KRX), foreign investors net sold 470.3 billion won ($322 million) of KB Financial Group shares. They also offloaded shares of Shinhan Financial Group (208.5 billion won), Woori Financial Group (19 billion won) and JB Financial Group (10.6 billion won).

KB Financial Group shares have dropped by more than 12 percent, followed by BNK Financial, JB Financial and Shinhan Financial Group. The three slid between a range of 8 and 10 percent.

But despite foreign selloffs, DGB Financial Group and Hana Financial Group shares registered slight increases of less than 1 percent. Woori Financial Group was the only one who posted a 4.3 percent increase in shares.

The bourse operator said the KRX Bank Index dipped 3.4 percent over the past month as of Tuesday, undershooting the 3.06 percent gains in the KOSPI.

A short-term price correction is inevitable, given the martial law fiasco-oriented depreciation of the Korean currency and the resulting downtick in common equity tier 1 (CET1) ratios.

“The CET1 ratio is tied closely to shareholder returns,” Jang Jae-chul, a former chief economist at KB Securities, said.

The ratio is measured by a firm's highest-quality capital relative to risk-weighted assets. It is a gauge of a firm’s liquidity profile and indicates its ability to survive a challenging monetary event.

“Weaker Korean currency leads to an increase in risk-weighted assets, ending up shrinking the ratio. A lower CET1 figure means shareholders will receive smaller dividends," Jang said.

But a recent Hana Securities report said the trend will be reversed once Korean currency gains ground against the dollar, on top of financial groups' expected strong earnings in the first quarter.

According to FnGuide, a financial data service provider, the combined net profit of the four major financial groups — KB, Shinhan, Hana and Woori — is expected to reach 17.63 trillion won this year, up more than 7 percent from the previous year.

Their combined net profit reached 16.4 trillion won in 2024, up more than 10.3 percent from the previous year. The net profits growth of the four also came between a range of 3 percent and 23 percent from 2023.

KB Financial shares closed at 76,600 won on Wednesday, down 1.67 percent from the previous session. Woori shares were down 1.54 percent and Hana's down 2.69 percent.