[Click eStock] "Commercial Bank's Hong Kong ELS Loss Likely Reflected in Q1"

Hana Securities on the 1st estimated that losses from Hong Kong equity-linked securities (ELS) related to commercial banks would be reflected in the first-quarter earnings, and diagnosed that some banks might fall short of the consensus (average estimate).

Researcher Choi Jung-wook stated, "It has been reported in the media that banks have resolved to voluntarily compensate for Hong Kong ELS, and some banks have even completed the first voluntary compensation payment," adding, "Therefore, the likelihood of losses related to voluntary compensation being reflected in the first-quarter earnings has increased significantly."

He said, "While ordinary performance such as loan growth, net interest margin (NIM), and loan loss expenses are expected to be favorable in the first quarter, KB Financial Group, Shinhan Financial Group, and Hana Financial Group, whose voluntary compensation amounts are expected to reach several hundred billion won, are likely to underperform the consensus."

Hana Securities estimated the voluntary compensation amounts for KB Financial Group, Shinhan Financial Group, and Hana Financial Group at 800 billion won, 350 billion won, and 250 billion won respectively, totaling 1.4 trillion won.

Researcher Choi added, "The estimated net profit for all banks in the first quarter is expected to be about 5.2 trillion won, a 16.2% decrease compared to the same period last year," and "Woori Financial Group, Industrial Bank of Korea, and BNK Financial Group, which have minimal or almost no losses related to Hong Kong ELS, are expected to exceed the consensus in their first-quarter earnings."

He also analyzed, "Bank stocks have shown a short-term overheating trend, rising more than 30% since the beginning of the year, and the rebound momentum of low price-to-book ratio (PBR) stocks that had received value-up momentum has generally weakened recently. Additionally, since earnings may fall short of the consensus due to Hong Kong ELS compensation, a certain degree of correction is inevitable."

He continued, "However, there seems to be no need to worry about a pattern of sharp rises followed by declines as in the past," adding, "Although the impact of block deals in banks somewhat dampens supply and demand conditions, foreign investors' buying of bank stocks remains strong, and from a valuation perspective, the price attractiveness is still very high."