[MarketING] Bank Stocks Brighten Up Amid Eased Banking Risks

KOSPI Ends Higher After 3 Days
KOSDAQ Rises for 3 Consecutive Days, Reaching Highest Level This Year

[Image source=Yonhap News]

The KOSPI rose for the first time in three days, reclaiming the 2430 level. The KOSDAQ continued its upward trend for the third consecutive day, reaching the 830 level. This strength was driven by easing overseas banking risks, with bank stocks, which had been weak due to investor anxiety, posting significant gains for the first time in a while.

KOSPI Recovers to 2430 Level... KOSDAQ Climbs to 830 Level

On the 28th, the KOSPI closed at 2434.94, up 25.72 points (1.07%) from the previous day. The KOSDAQ ended the session at 833.51, rising 5.82 points (0.70%). The KOSPI recorded an upward trend for the first time in three days, recovering to the 2430 range for the first time in two weeks. The KOSDAQ continued its three-day winning streak, hitting a new high for the year.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "Both the KOSPI and KOSDAQ rose reflecting relief over the easing of financial risks in the U.S.," adding, "The KOSPI's rise was led by institutional investors, while individual investors drove the KOSDAQ's gains through net buying."

Bank stocks showed strength for the first time in a while amid easing banking risks. KB Financial rose 2.57%, Shinhan Financial Group 3.16%, Hana Financial Group 1.62%, Woori Financial Group 1.82%, JB Financial Group 3.66%, BNK Financial Group 1.94%, and DGB Financial Group 2.06%. KB Financial's rise came after four days, and Woori Financial Group's after five days.

Although banking risks originating from the U.S. and Europe did not directly impact domestic banks, investor sentiment had been dampened, causing bank stocks to weaken. Han Ji-young, a researcher at Kiwoom Securities, said, "Considering that most U.S. bank stocks showed strong gains the previous day, domestic bank stocks, which had been negatively affected by investor sentiment despite not suffering direct damage from this crisis, are showing notable rebound momentum."

The spotlight on overseas banking risks led to foreign investors selling bank stocks. Last week, foreign investors net bought 280 billion KRW in the KOSPI market but net sold about 200 billion KRW in bank stocks. However, on this day, as concerns eased, buying from institutions and foreign investors flowed in. Institutions net bought 14 billion KRW of KB Financial, 9.4 billion KRW of Shinhan Financial Group, and 8.7 billion KRW of Hana Financial Group. Foreign investors purchased 3.7 billion KRW of Woori Financial Group.

Overseas Banking Risks Have Limited Impact on Domestic Bank Stocks

Analyses suggest that banking risks from the U.S. and Europe have limited impact on domestic banks.

Kim In, a researcher at BNK Investment & Securities, explained, "Domestic banks are subject to liquidity regulations such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), so the associated risks are not significant. Considering sales and securities proportions, interest rate rise risks are also limited," adding, "On the contrary, due to a high loan ratio, loan interest rates rise first when interest rates increase, significantly improving net interest margin (NIM), leading to record-high earnings." He further noted, "Credit Default Swap (CDS) premiums remain low weekly, and although the new capital securities issuance market may tighten, causing issuance restrictions and increased interest expenses, the proportion of new capital securities relative to domestic banks' equity is below 10%, which is not high."

While the possibility of overseas financial instability spreading to domestic banks is low, subdued investor sentiment and regulations mean the environment is not favorable, so stock price gains are expected to be limited. Choi Jung-wook, a researcher at Hana Securities, said, "Due to regulations and global banking concerns, the average price-to-book ratio (PBR) of bank stocks has fallen to 0.33, making them quite attractive in terms of price, but ongoing domestic and international uncertainties mean there is no clear momentum, which is unfortunate."