Funding Squeeze Trigger 'Real Estate PF'... Hana Financial Group Target Price Also Lowered

[Image source=Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Due to the cooling of the real estate project financing (PF) market following incidents such as the Legoland situation in Gangwon Province, target stock prices have been lowered for financial holding companies with relatively high exposure.

On the 25th, Kiwoom Securities lowered the target price of Hana Financial Group from 60,000 won to 58,000 won, citing the significant exposure to real estate PF, which is expected to negatively impact earnings and stock prices.

Hana Financial Group's controlling shareholder net profit for the third quarter of this year is forecasted at 803.4 billion won, a 13.5% increase compared to the same period last year but a 2.6% decrease from the previous quarter. Seoyoungsoo, a researcher at Kiwoom Securities, explained, "Core bank profits continue to increase due to the rise in net interest margin (NIM) caused by the base interest rate hike, but losses related to foreign exchange are expected to persist following the previous quarter due to the depreciation of the Korean won." He added, "Securities are also expected to post poor results in the third quarter due to losses reflected from real estate PF."

Hana Financial Group is also expected to experience earnings fluctuations due to real estate PF in the fourth quarter. This is because it is estimated to have the highest exposure to real estate PF among non-bank subsidiaries of major financial holding companies. As of the end of June this year, Hana Securities had the largest balance of debt guarantees among bank-affiliated securities firms at 4.9 trillion won, and the capital subsidiary ranked among the top in the industry with a loan scale of 7.2 trillion won.

However, Researcher Seo expects active restructuring of real estate PF defaults to proceed, judging that the impact on earnings will be short-term. He said, "Such negative factors have been somewhat reflected in the stock price," adding, "Moreover, unlike other companies, Hana Financial Group is likely to actively pursue early PF restructuring, so I recommend increasing holdings when financial stability risks decrease to some extent."

Due to the interest rate hikes, the corporate bond market has frozen, and the Legoland ABCP (asset-backed commercial paper) default incident has dried up cash flow even in the short-term bond market. This has raised concerns that risks may spread to the real estate-related financial market.

Shinyoung Securities explained in a report released the previous day, "The situation has developed into a pattern where the real estate PF market and securities firms' soundness issues are spreading to liquidity problems across the financial sector," adding, "The credit market has deteriorated to a level that cannot be resolved without policy intervention, and both companies and financial institutions are in an abnormal situation where they are making every effort to secure short-term funds."

On the 23rd, the government and the Bank of Korea announced measures to stabilize the funding market, including a liquidity supply program exceeding 50 trillion won. This includes a 20 trillion won bond market stabilization fund, a 16 trillion won purchase program for non-investment grade corporate bonds and commercial papers (CP), 3 trillion won support for securities firms facing liquidity shortages, and 10 trillion won in guarantees from the Housing & Urban Guarantee Corporation (HUG) and Korea Housing Finance Corporation for business operators. Additionally, all local governments have agreed to fulfill payment guarantee obligations for asset-backed commercial papers guaranteed by local governments.

Furthermore, the Financial Services Commission and the Financial Supervisory Service plan to assess the status of real estate PF loans by industry sector by the end of this month to resolve liquidity crunch issues in the funding market. They will also separately review the issues of insufficient liquidity supply to high-quality projects and credit risks of non-prime projects related to real estate PF.

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