[Click eStock] Bank Earnings Outlook Upgraded... Recommend Increasing Weight and Continued Holding

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment recommended increasing weight and continued holding of bank stocks on the 21st. This reflects the expectation of additional NIM (Net Interest Margin) increase and the upward revision of bank earnings forecasts.

The market's focus is whether the decline in bank stocks after the ex-dividend date will exceed the dividend yield. If the stock price drop after the ex-dividend date is larger, there is no reason to hold the stocks until the dividend record date to receive dividends (in 2018-2019, the stock price decline over five trading days after the ex-dividend date exceeded the dividend yield). However, this year, the rebound in bank stocks due to dividend expectations has been very minimal so far, so it is judged that the decline in stock prices after the ex-dividend date is unlikely to exceed the dividend yield.

Choi Jung-wook, a researcher at Hana Financial Investment, explained, "There is an expectation that 2022 could be the first year when several shareholder-friendly policies such as expanded bank dividend payout ratios and share buybacks and cancellations are fully implemented. Additionally, if concerns about the economy ease depending on the fatality rate assessment of the Omicron variant, the interest rate momentum may be highlighted again," adding, "We recommend continued holding of bank stocks even after the dividend record date."

The Bank of Korea's Monetary Policy Committee raised the base interest rate twice by 25bp in August and November. Our previous earnings forecast only reflected the two rate hikes in 2021, but the possibility of additional hikes in 2022 has increased and become more realistic, so we are revising the bank NIM assumptions and earnings estimates (we expect one additional hike in January-February 2022 and another in the second half of 2022). Therefore, the average annual NIM increase for banks in 2022 is expected to rise from about 5bp to 8-9bp.

With the change in NIM assumptions, bank net interest income is expected to increase by about 1.9% in 2022, and net profit in 2022 is forecasted to rise by 4.0% compared to previous estimates. The revised total net profit for banks in 2022 is about KRW 20 trillion, representing an approximately 10% increase compared to 2021. We have updated the book value per share (BPS) used for the target price-to-book ratio (PBR) as of the end of 2022 and raised target prices for Woori Financial Group, Industrial Bank of Korea, and regional banks. Woori Financial Group's multiple reflects dividend attractiveness and efficiency improvement expectations following full privatization, and we raised multiples for Industrial Bank of Korea, DGB Financial Group, BNK Financial Group, and JB Financial Group, judging that their target prices were too conservatively applied relative to their recently improving profitability.

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