[Click eStock] "BNK Financial, Expected Record Q2 Performance... Dividend Yield 6%"

Hana Financial Investment Report

BNK Financial Group

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 11,000 KRW for BNK Financial on the 24th, forecasting the highest quarterly performance.

The expected net profit for the second quarter is projected to increase by 21.5% year-on-year to 210 billion KRW. The combined loan growth rate of Busan Bank and Kyongnam Bank for the second quarter reaches 2.5%, and the combined NIM (Net Interest Margin) of the two banks is expected to rise by an additional 4 basis points (1bp=0.01%), leading to a sharp 12.2% increase in net interest income compared to the same period last year. Additionally, PF fee income, which exceeded 70 billion KRW in the first quarter, is expected to continue in the second quarter, sustaining the trend of core profit improvement. With the elimination of the increase in provisions due to large-scale non-performing loans at Kyongnam Bank in the first quarter and the additional COVID-19 provisions, the group's loan loss expenses for the second quarter are expected to fall below 90 billion KRW.

Jungwook Choi, a researcher at Hana Financial Investment, analyzed, "In the second quarter, with the approval of the internal rating system change, the capital ratio is expected to rise by more than 220 basis points, which will resolve the vulnerabilities of increased loan loss expenses and capital ratio decline that were somewhat disappointing despite strong performance in the first quarter."

Above all, the high loan growth rate and NIM improvement of Busan Bank are expected to exceed market expectations. The loan growth rate for the second quarter was about 4%, with nearly 9% growth during the upward phase, and it is predicted to exceed 4% for three consecutive quarters. Housing mortgage loans are rapidly increasing due to the regional real estate boom, and corporate loan growth is also recovering quickly with the improvement of the local economy.

Researcher Choi stated, "With the overall industry’s rise in household loan interest rates, the banks’ repricing policy on corporate loan interest rates, and a rapid increase in low-cost deposits, NIM has been on an upward trend since the third quarter of last year," adding, "Busan Bank’s NIM is expected to improve by about 6 basis points in the second quarter following a 4 basis point increase in the first quarter."

Although BNK Financial’s loan loss expenses are expected to continue decreasing, even if the COVID-19 financial support grace period ends in September, the deterioration in asset quality is not expected to be significant. This is because BNK Financial additionally set aside 146.5 billion KRW and 10.4 billion KRW in COVID-19 provisions in the first quarters of last year and this year, respectively, and the principal repayment deferral amount for small and medium-sized enterprises and small business owners under COVID-19 financial support is about 540 billion KRW, with interest repayment deferral amounting to only 28 billion KRW. Researcher Choi explained, "Considering the ripple effect on shipbuilding equipment companies due to the surge in orders for large shipbuilders, the downward stabilization trend in loan loss expenses will continue," and added, "The estimated annual net profit for this year is 653 billion KRW, with an expected dividend yield of 6.1%."