Korean bank stocks rose while the broader market fell sharply, with the KRX Bank Index gaining 2.33% over the recent month even as the KOSPI dropped 20.19%. The Bank of Korea raised its benchmark interest rate from 2.50% to 2.75% on the 16th, the first increase in 3 years and 6 months, positioning banks as primary beneficiaries. Investor funds have shifted from semiconductor stocks toward dividend and value stocks, with foreign investors rebalancing portfolios to favor bank stocks' relatively high dividend appeal amid concentrated semiconductor holdings earlier this year.
Bank of Korea Raises Benchmark Rate to 2.75%
The Bank of Korea's Monetary Policy Committee raised the benchmark interest rate by 0.25 percentage points from 2.50% to 2.75% on the 16th, in line with market expectations. The KRX Bank Index was the only sector index among KRX industry indices to post gains during the recent one-month period. The rate increase is expected to widen the loan-deposit rate spread as lending rates typically adjust faster than deposit rates when benchmark and market rates rise, potentially improving banks' core revenue source of net interest income and net interest margin (NIM).
Nine Financial Holdings Post Combined Q2 Net Profit Forecast of 7.1858 Trillion Won
Kyobo Securities forecasts that nine financial holdings and banks will post combined net profit of 7.1858 trillion won for Q2 this year, up 5.7% from the previous quarter and 4.3% from the same period last year. KB Financial is expected to lead with 1.8728 trillion won in net profit, followed by Shinhan Financial Group (1.6756 trillion won), Hana Financial Group (1.2271 trillion won), and Woori Financial Group (930.4 billion won). Year-on-year net profit growth rates are projected at 8.2% for Shinhan, 7.7% for KB Financial, and 4.6% for Hana Financial Group. The improvement is attributed to NIM recovery from rising market rates and increased fee income and valuation gains from stock market gains.
Analysts Expect Defensive Appeal to Continue
Kim Ji-young, a researcher at Kyobo Securities, stated that "interest in bank stocks will continue amid unstable economic recovery due to global economic policies and renewed geopolitical risks in the second half," adding that "solid performance is expected based on won-denominated loan expansion and non-interest income growth, and financial holdings' active shareholder return policies are also attractive investment points." However, the rate hike may not immediately translate to performance improvement if deposit rates rise quickly to catch up with lending rates or if delinquency rates and loan loss provisions expand due to economic slowdown. Despite these factors, the securities industry views the defensive appeal of bank stocks as likely to persist, supported by benefits from rate increases, solid earnings, dividends, and aggressive shareholder return policies including treasury stock buybacks and cancellations.
FAQ
How much did the KRX Bank Index rise compared to the KOSPI over the recent month?
The KRX Bank Index rose 2.33% over the recent month, while the KOSPI fell 20.19% during the same period. The bank index was the only sector index among KRX industry indices to post gains.
What is the Q2 net profit forecast for KB Financial and other major financial holdings?
Kyobo Securities forecasts KB Financial will post 1.8728 trillion won in Q2 net profit, Shinhan Financial Group 1.6756 trillion won, Hana Financial Group 1.2271 trillion won, and Woori Financial Group 930.4 billion won. The combined net profit for nine financial holdings and banks is estimated at 7.1858 trillion won, up 5.7% from the previous quarter and 4.3% year-on-year.
