There Are Sectors That Protect 'My Money' Even When the Stock Market Swings Wildly [Weekend Money]

There is an analysis that financial stocks will serve as defensive stocks amid external uncertainties such as the Middle East war.

Woori Bank has raised the interest rates on its 5-year fixed home mortgage loans by 0.11% on both the upper and lower limits, while Shinhan Bank plans to increase its home mortgage loan rates by 0.05% starting from the 15th. The photo shows a Woori Bank branch in Seoul. Photo by Jinhyung Kang aymsdream@

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On April 18, DB Financial Investment maintained its overweight stance on the banking sector.

The company maintained its "Buy" investment rating on KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Financial Group, Industrial Bank of Korea, and KakaoBank. The target prices also remained unchanged at 200,000 won for KB Financial Group, 126,000 won for Shinhan Financial Group, 158,000 won for Hana Financial Group, 48,000 won for Woori Financial Group, 32,000 won for Industrial Bank of Korea, and 33,000 won for KakaoBank.

The combined controlling net profit of these banks in the first quarter of this year is expected to reach 6 trillion won, up 2.9% year-on-year. In particular, non-interest income is projected to increase by 49.2% quarter-on-quarter, driven by improvements in fee income. The uncertainty surrounding equity-linked securities (ELS) is also likely to be resolved in the first quarter through additional provisioning for reserves.

The increase in effective dividend yield resulting from separate taxation this year and tax-exempt dividends next year is also a positive factor. The total shareholder return (TSR) is at the 6.0-6.4% level. There is a clear trend of transferring retained earnings to capital reserves for the purpose of tax-exempt dividends. KB Financial Group has 7.5 trillion won, Shinhan Financial Group 9.9 trillion won, and Hana Financial Group 7.4 trillion won in resources available to provide tax-exempt dividends for the next 3 to 5 years. Based on this, it is expected that financial holding companies will start paying tax-exempt dividends from this year's year-end dividend distribution.

Although the capital adequacy ratio is expected to decline, the recent partial easing of external uncertainties is having a positive effect on capital ratio management. Increases in foreign currency risk-weighted assets (RWA) due to the rising won-dollar exchange rate, decreases in other comprehensive income (OCI) due to higher interest rates, and the introduction of Basel III transitional provisions could reduce the common equity tier 1 (CET1) capital ratio by about 0.14 to 0.22 percentage points. However, as some uncertainties are easing, such as the reversal of the exchange rate trend, the decline in the capital ratio can be mitigated.

Nam Inwook, a researcher at DB Financial Investment, said, "Within the sector, we recommend Shinhan Financial Group, which is expected to announce an updated corporate value enhancement plan this month and is improving its return on equity (ROE) centered on its non-banking subsidiaries, and Hana Financial Group, where a gap play with competitors is possible due to its recent relative underperformance in share price."

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