Financial Holding Companies Trapped in Low-Interest Quagmire... Stock Prices Decline Consecutively

Shinhan Financial Group Faces Stock Impact from Private Equity Fund Loss Provisions
Woori and Hana Financial Also Struggle... Profitability Declines Due to Prolonged Low Interest Rates from COVID-19
Support Costs for Korean New Deal Policy Add to Burden

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[Asia Economy Reporter Minwoo Lee] The stock prices of financial holding companies have not been able to escape the slump. Analysts say this is because a fundamental decline in profitability was inevitable due to the prolonged low interest rate environment.

As of 9:54 a.m. on the 24th, Shinhan Financial Group's stock price recorded 27,400 won, down 0.7% from the previous day. It showed a neglected trend even last month when the KOSPI index rebounded. Since recording 33,800 won on the 13th of last month, it has steadily declined without any significant rise. Compared to the 52-week high of 46,150 won recorded on December 16 last year, it has fallen by about 40%. It is analyzed that various private equity fund accidents, centered on the Lime Fund incident, negatively affected the stock price. Due to provisions for these incidents, net profit decreased, and since costs for handling these accidents may increase in the future, it is expected to burden earnings.

Woori Financial Group and Hana Financial Group also showed sluggish performance. At the same time, Hana Financial Group recorded 27,700 won, and Woori Financial Group recorded 8,160 won, down 0.2% and 1.09% respectively compared to the previous session. Compared to December 26 last year, the day before the year-end dividend, Woori Financial Group fell 33.3%, and Hana Financial Group fell 28.9%. Even KB Financial, which is considered to be holding up relatively well, fell 24.3% during the same period. Yoon Jong-kyu, chairman of KB Financial Group, who recently succeeded in a de facto third term, lamented on the 17th, "The stock price is at a dreadful level," adding, "This reflects concerns about whether traditional financial companies can maintain competitiveness in an untact (contactless) world."

It is analyzed that the contraction of the real economy caused by the novel coronavirus disease (COVID-19) has led to the poor stock performance of financial holding companies. As the low interest rate environment prolongs, the profitability of financial holding companies is declining, but loan volumes are increasing, putting capital ratios at risk of deterioration. This year, financial authorities have urged maintaining capital soundness as conservatively as possible, making it difficult to boost stock prices through share buybacks or dividend payments.

It is also difficult to improve earnings. According to the Financial Supervisory Service, the net income of the top 10 financial holding companies in the first half of this year was 7.63 trillion won, down 11% compared to the same period last year. Although total assets increased by 7.4% due to increased loans, net income decreased due to the need to set aside loan loss provisions. The "Korean New Deal" policy is also a burden. Shinhan Financial is supporting 26 trillion won, and KB, Woori, and Hana Financial each are supporting 10 trillion won, increasing cost burdens.

Choi Jung-wook, a researcher at Hana Financial Investment, said, "Bank stocks, in particular, had very minimal stock price increases compared to other financial stocks," adding, "If the won-dollar exchange rate shows a favorable trend and the number of domestic COVID-19 cases decreases, improving the domestic and international environment that has dampened investment sentiment, an increase can be expected."

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