SK Securities: "Concerns Over KB Financial's Mortgage Loan Risk Are Excessive"

[Asia Economy Reporter Park So-yeon] SK Securities has lowered the target price of KB Financial Group to 65,000 KRW while maintaining a buy rating.

According to FN Guide on the 28th, SK Securities stated in a recent report on KB Financial Group that "the banking sector is showing weakness as concerns over asset quality deterioration due to economic slowdown outweigh the benefits of NIM (net interest margin) expansion caused by the sharp rise in interest rates."

SK Securities lowered the target price for the banking sector from 80,000 KRW to 65,000 KRW by raising the risk-free rate across the board. However, due to the stock price decline, the undervaluation has increased, so the buy rating was maintained. It is expected to have a positive effect as the focus on blue-chip stocks tends to strengthen when financial markets are unstable.

SK Securities analyzed, "Based on past experience, KB Financial Group’s portfolio focused on household loans is likely to be advantageous for asset quality," and added, "Concerns about a sharp drop in real estate prices and mortgage loan risks raised by some are considered excessive."

KB Financial Group is a representative stock in the banking sector but has not been an exception to the downward trend in stock prices since May. As global central banks’ tightening leads to economic slowdown, there is a possibility of increased loan loss provisions, resulting in poor performance across banks worldwide. From an investor’s perspective, concerns over asset quality deterioration due to economic slowdown outweigh the benefits of NIM expansion.

However, SK Securities analyst Koo Kyung-hoe forecasted, "The adjustment in the real estate market will be gradual, so mortgage loan risks will not be significant." Including KB Financial Group, domestic banks have seen an increase in the proportion of household and small office/home office (SOHO) loans over the past decade, and within corporate loans, the share of real estate-related loans has also risen. This has increased the impact of real estate market conditions on banks’ credit risk. Analyst Koo said, "We expect the real estate market to enter an adjustment phase in the future, but the adjustment will be gradual. Therefore, mortgage loan risks are not expected to be significant, and based on past experience, KB Financial Group’s portfolio focused on household loans is likely to be advantageous."

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