Banks and Insurance, Beneficiaries of Interest Rate Hikes?..."Financial Instability Raises Stock Price Concerns"

Stock Market Environment Influences More Than Impression Decisions

[Asia Economy Reporter Lee Myunghwan] Is the interest rate hike a benefit or a setback for bank and insurance stocks? Securities firms pointed out that a rapid interest rate hike in a short period increases financial instability, making it not entirely positive.

On the 20th, Asia Economy examined the fluctuation rates of the KOSPI bank and insurance indices before and after the two interest rate hikes implemented by the Bank of Korea this year. The indices showed a pattern of rising briefly and then falling repeatedly. In the case of the bank index, around May 26, when the most recent rate hike was decided, it rose about 1% per day. It increased by 1.31% on the 25th, the day before the decision, due to expectations of a rate hike, then rose 1.00% on the day of the hike and 1.30% the following day. However, it faltered, dropping over 1% within three trading days after the hike. The insurance index rose 0.93% on the 25th, the day before the base rate hike, and 2.53% on the 27th, but fell 0.47% on the day of the hike, showing fluctuations.

Since the Bank of Korea’s rate hike decisions and the hike amounts were predictable depending on market conditions, it is interpreted that these indices were more influenced by the stock market environment than by the rate hike decisions themselves. As the stock market faced a downturn due to inflation concerns caused by high prices, bank and insurance-related indices also retreated day after day. On the 13th, known as "Black Monday," when major global stock markets crashed, the bank index plunged 6.30% in a single day. The insurance index also fell 1.30% on the same day. Comparing the rate hike decision dates of May 26 and June 17, the bank and insurance indices dropped 9.57% and 2.99%, respectively.

Securities firms pointed out that a sharp interest rate hike is not entirely positive for bank stocks. Kiwoom Securities researcher Seo Youngsoo analyzed, "A rapid short-term base rate hike can accelerate the movement of funds, increasing financial instability, and accelerate the principal and interest repayment burden on debtors, which can act as a factor worsening soundness. Although a rapid base rate hike has a short-term positive effect on banks’ net interest margins, it is difficult to view it positively for bank earnings and stock prices."

The insurance industry should also benefit from the rate hike, but the RBC (Risk-Based Capital) system’s structural characteristic, where only asset valuation losses are reflected when rates rise, has increased risks. Accordingly, the Financial Services Commission decided to apply from the end of this month a plan to recognize part of the LAT (Liability Adequacy Test) surplus as available capital under the RBC system. KB Securities researcher Kang Seunggeon said, "This measure is judged to have partially eased the burden of supplementary capital procurement for insurers," but added, "Since the Financial Services Commission mentioned ‘strengthening basic response capabilities such as capital structure enhancement,’ the importance of core capital is likely to be emphasized in the future."

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