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| Financial Services Commission Chairman Eun Sung-soo, right, greets heads of the nation’s five largest financial holding firms at headquarters of the Korea Federation of Banks in Seoul, Feb. 16. Yonhap |
The nation’s four major banking groups are on alert over the fourth wave of the COVID-19 pandemic, as it heightens uncertainties in the local financial market that could possibly slow down the momentum of an economic recovery here.
The annual earnings outlooks for KB, Shinhan, Hana and Woori remained optimistic up until recently, as the economy was widely expected to bounce back from the coronavirus-induced contraction last year. A recovery in a series of key indices ― such as exports and consumer sentiment ― also added to the rosy outlook for banks, as they see opportunities to generate more profits from possible interest rate hikes that come in line with any economic recovery.
But with the nation’s daily new coronavirus cases topping 1,000 for a week, the financial holding firms are paying close attention to the possibility of falling victim to a prolonged fourth wave of infections.
According to data from market tracker FnGuide, all four banking groups are projected to have reported record earnings in the first half of 2021, as they were not required to set aside allowances for bad debts during the period after doing so throughout last year. On top of that, the banking groups are expected to have generated solid earnings from non-bank operations, such as insurance and securities.
KB Financial Group, the nation’s top financial holding firm by market capitalization, is estimated to have reported a record net profit of 2.46 trillion won ($2.15 billion) in the first half of the year, up 42.4 percent from the previous year, according to FnGuide. It also expected Shinhan to follow on the list with 2.31 trillion won in net profit during the same period.
Hana and Woori will also likely have achieved double-digit growth in net profit in the first half of the year, according to data from the market tracker. Starting next week, the major banking groups will start releasing their earnings reports.
But market analysts urged investors to take a cautious approach before investing in major bank stocks despite their optimistic earnings outlooks.
“It is desirable for investors to approach bank stocks conservatively for the time being as fears over the spread of the delta variant will not come to an end in the short run,” Hana Financial Investment analyst Choi Chung-uk said.
The analysis came amid signs of a rebound in the valuations of major bank stocks here. Stock prices of the four banking groups declined for the past few weeks, but started bouncing back at the beginning of this week. KB shares peaked at around 59,000 won early last month, but have since been on a downward spiral and recently hit a three-month low by dropping below 51,000 won. But it recently recovered past the 51,000-won mark on hopes of possible key rate hikes.
“Bank stock prices have moved in line with interest rates, so banks’ earnings may have a limited impact on revving up their valuations, but some banks may be able to enhance their valuations in the case that foreign investors engage in a buying spree of their stocks following the earnings releases.”