COVID-19 and Lime Scandal Push Bank Stocks to 'Thousand-Won Range'... 4 Major Financial Groups' 11 Trillion Won Profit Overshadowed

Market Cap of Top 4 Major Shareholders Drops by 11 Trillion Won This Year... 20% Decrease
Woori Financial Group and Industrial Bank of Korea Stock Prices Fall Below 10,000 Won

On the 21st, as the possibility of community spread of the novel coronavirus (COVID-19) increased, the KOSPI index opened lower at 2,165.65, down 29.85 points (1.36%) from the previous trading day. The won-dollar exchange rate started the session at 1,205.7 won, up 7.0 won. Dealers are working in the dealing room of Hana Bank in Euljiro, Seoul on this day. Photo by Moon Honam munonam@

[Asia Economy Reporter Kwon Haeyoung] Last year, the net profits of the four major financial holding companies exceeded 10 trillion won, but bank stocks, which were directly hit by the novel coronavirus disease (COVID-19), overseas interest rate-linked derivative-linked funds (DLF), and the Lime Asset Management incident, are hitting bottom. Woori Financial Group and Industrial Bank of Korea saw their stock prices fall below 10,000 won, with some bank stocks even entering the 'thousand-won range.'

According to the financial sector on the 25th, the market capitalization of Shinhan, KB, Hana, and Woori Financial Groups has evaporated by 11.2517 trillion won since the beginning of this year (based on the closing price on the 24th).

This is about 20% of the total market capitalization at the end of last year (60.1838 trillion won), significantly exceeding the KOSPI decline rate (5.3%) during the same period. By holding company, Shinhan Financial lost about 4.5107 trillion won, KB Financial 3.5759 trillion won, Hana Financial 1.5762 trillion won, and Woori Financial about 1.5889 trillion won in market capitalization.

The largest stock price drop was Shinhan Financial Group, down 21.5% since the beginning of the year, followed by Woori Financial Group at 18.9%, KB Financial at 18%, and Hana Financial Group at 14.2%.

Compared to the 'record-breaking' performance of the four major financial holding companies last year despite the low-interest-rate environment and loan regulations, this is a disappointing stock performance. Shinhan, KB, Hana, and Woori Financial Groups recorded a combined net profit of 11.0278 trillion won on a consolidated basis, a 4.8% increase from 10.52 trillion won a year earlier.

The reason financial stocks are struggling like this is due to the decline in net interest margin (NIM) caused by falling interest rates, reputational damage and contraction of non-interest income businesses due to the DLF and Lime incidents that caused massive losses to investors, and the 'black swan' COVID-19, which together have greatly dampened investor sentiment. In particular, compensation payments and provisions related to the DLF and Lime incidents are expected to erode the net profits of financial holding companies. The securities industry expects that major financial holding companies may have to compensate up to 5% of their pre-tax profits due to the Lime incident.

Among them, Woori Financial Group and Industrial Bank of Korea have fallen to stock prices in the thousand-won range. Woori Financial Group fell below 10,000 won on the 20th, and Industrial Bank of Korea on the 21st, recording stock prices of 9,400 won and 9,480 won respectively as of the 24th.

However, there is an analysis that financial holding companies are currently excessively undervalued compared to their corporate value. The price-to-book ratios (PBR) of major bank stocks are around 0.3 to 0.4 times. A PBR below 1 means the stock price is below liquidation value.

Choi Jungwook, a researcher at Hana Financial Investment, said, "Assuming a sharp decline in trust fees and fund sales commissions due to business contraction caused by the DLF and Lime incidents, and reflecting the decrease in interest income from an additional 25bp cut in the base rate, the post-tax profit decline in the banking sector is about 720 billion won," adding, "The recent stock price weakness is again due to excessive pessimism, and at the current stock price level, it is necessary to gradually change the perspective on bank stocks."

This content was produced with the assistance of AI translation services.