Shinhan Securities: “Bank stocks are outperforming, which is unwelcome… Market stability is the key.”

(Seoul = Yonhap News) Reporter Go Eun-ji = Shinhan Investment & Securities analyzed on the 19th, "Although bank stocks (stock prices) 'outperformed' (market returns upward) last week, their defensive appeal is temporary, so if the market decline continues, it will be difficult for bank stock prices to escape the weakening investor sentiment."

Researcher Choi Jeong-wook said in the report, “Last week (12th to 16th), bank stocks fell 2.9%, which was significantly smaller than the KOSPI decline rate of 14.5%,” and added, “While semiconductor-related stocks plummeted, dragging down the index significantly, bank stocks’ appeal as defensive stocks was highlighted.”

For example, Industrial Bank of Korea [024110] (0.86%) and Kakao Bank [323410] (4.52%) performed well as their stock prices rose, while Samsung Card [029780] (3.76%) also performed strongly.

In the case of Shinhan Financial Group [055550] (-6.13%), which had the largest decline among banking stocks, weakness was noticeable after the announcement of the acquisition of Lotte Non-Life Insurance.

Previously, Shinhan Financial Group's board of directors decided to acquire a 77.04% stake in Lotte Insurance for 693.3 billion won. Afterwards, the company plans to acquire the remaining shares through necessary procedures, including approval from financial authorities, and pursue a merger with Shinhan EZ Non-life Insurance.

Researcher Choi said, “The market is concerned that additional capital injection will be more than the company expects, and is doubtful whether profitability will be restored,” and added, “Korea Credit Rating changed the credit rating outlook for Lotte Non-Life Insurance’s subordinated bond from ‘negative’ to ‘upward review.’”

Other major issues in the banking sector included the Financial Supervisory Service's recent approval to exclude private equity fund-related losses from Shinhan, Hana, and Woori Bank from operational risk calculations.

In particular, he predicted, “We expect that each bank will have the capacity to issue additional corporate loans of around 2 trillion won due to the derivative-linked fund (DLF) and Lime incidents that have occurred since 2019,” and added, “This will be reflected starting from the third quarter of this year.”

We judged that whether banking stocks could continue to perform well in the future depended on the stability of the market.

Researcher Choi said, “If the market decline continues, it is not a matter of bank stocks’ net asset value per share (BPS) or earnings per share (EPS), but the multiple (valuation multiple) will inevitably fall together,” adding, “In the end, the direction of bank stocks’ stock prices also depends on the stabilization of market conditions.”

In addition, he said, "In addition to the decline in net interest margin (NIM) in the third quarter, short-term momentum (driving force) is not great in that performance is maintained due to a one-off." He added, "There is a high possibility that short-term events will play a role, such as whether or not additional fines for Hong Kong equity-linked securities (ELS) announced at the end of this month will be reduced and fines imposed by the Fair Trade Commission on suspicion of collusion by professional dealers (PDs) in treasury bonds will be imposed."