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| Currency traders work at a foreign exchange dealing room of Hana Bank, downtown Seoul, Wednesday. Yonhap |
By Lee Yeon-woo
While U.S. financial stocks are soaring in the first half of the earnings season, domestic Korean bank stocks are struggling to keep pace.
The Korea Exchange (KRX) Bank Index, which includes nine major financial and banking shares here, is showing sluggish performance since its peak in January. After falling for three consecutive trading days, the index bounced back 0.42 percent, Thursday.
Looking at individual stocks, only KB Financial managed a rise of 2.6 percent compared to the beginning of the month, while the rest of the bank holding companies, including Shinhan, Hana and Woori, all saw declines.
In contrast, major bank stocks in the United States, such as JPMorgan Chase, Bank of America and Morgan Stanley, have emerged as driving forces behind the bullish market of the U.S., demonstrating strong upward momentum from the previous month.
This unexpected struggle does not stem from poor performances by Korean banks. On the contrary, their performance in the second quarter of this year is expected to reach record highs again, following their strong showing in the first quarter.
According to market tracker FnGuide, the operating profits of the four major financial groups in Q2 are projected to be 5.9 trillion won ($4.64 billion), a 5.19 percent increase compared to the same period last year.
Earlier this year, bank stocks displayed an unexpected upward trend thanks to strong performance and anticipations of increased shareholder returns. However, following the abrupt collapse of Silicon Valley Bank, their popularity waned, and they have been struggling to regain momentum since then.
Market analysts have indicated that the increasing delinquency rates and concerns about deteriorating financial health, recently exacerbated by project finance (PF) risks, are creating burdens that are hampering investor sentiment.
In addition, the financial authorities' initiative urging banks to return profits to society is seen as another factor stifling the upward momentum in the banking industry.
"Bank stocks rose until the beginning of the year on the expectation of increased shareholder returns at the end of 2022. However, they have been showing signs of weakness due to concerns about a faster-than-expected decline in interest income, rising delinquency rates and shrinking margins due to increased competition," said Kang Seung-gun, an analyst at KB Securities.
"While it is believed that the downside of the stock price is protected given the high dividend yield, there is an absence of factors that could drive the stock price higher," Kang added.
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