Bank Stocks Plunge Over 30%... Short-Term Rebound 'Doubtful'

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[Asia Economy Reporter Kum Boryeong] As bank stocks have fallen more than 30% since the beginning of the year, an analysis suggests that it will take a considerable amount of time to recover.

According to the Korea Exchange on the 9th, the banking industry index dropped 35.46% from 241.49 on January 2 to 155.86 the previous day. During the same period, Hana Financial Group's stock price fell 34.08% from 35,950 KRW to 23,700 KRW, KB Financial Group dropped 31.04% from 46,550 KRW to 32,100 KRW, and Woori Financial Group declined 33.86% from 11,400 KRW.

Despite evaluations that bank stock prices are sufficiently low, it is pointed out that a rebound in bank stocks is unlikely to occur in the short term. The primary reason cited is uncertainty regarding capital policies. Lee Byung-geon, a researcher at DB Financial Investment, said, "American banks, which used to distribute almost all of their annual available capital increases to shareholders through dividends and share buybacks, have canceled share repurchases, and European banks are also following suit." He added, "Domestic banks decided on dividends for the 2019 fiscal year last month, and Shinhan Financial Group even announced share buybacks and cancellations that were announced at the end of last year, but uncertainty about future dividends and share buybacks is expected to increase." He further noted, "It is necessary to pay attention to the recent recommendation by the Financial Supervisory Service chief to refrain from dividends and share buybacks, mentioning that this applies starting from interim dividends."

Concerns about asset soundness are also significant. From the 1st of this month until the end of September, the maturity of existing loans to companies affected by the novel coronavirus infection (COVID-19) will be extended, and interest payments will be deferred. Banks cannot predict in advance how much bad debt will occur during this process, nor do they have ways to handle bad debts proactively.

Kyobo Securities forecasted that the net income of financial holding companies such as KB Financial Group, Hana Financial Group, Shinhan Financial Group, and Woori Financial Group for the first quarter of this year will be approximately 2.5546 trillion KRW, a decrease of 11.3% compared to the same period last year. Kim Ji-young, a researcher at Kyobo Securities, said, "An increase in bad debt costs, recent volatility in the bond market due to COVID-19, and a decline in stock market prices are expected to reduce profits related to securities."

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