Banks feared to continue sluggish stock performance amid recession fears

Major financial firms here will continue facing a tough time in recovering their stock value even in the second half of this year, as they are under growing pressure to bolster security against bad debts amid escalating recession fears, market analysts said. The outlook is in contrast to the rosy earnings outlook of major banking groups.

According to data from market tracker FnGuide, the combined net profit of Korea’s four major financial holding firms — KB, Shinhan, Hana and Woori — will reach 4.59 trillion won in the second quarter, up 11.24 percent from the previous year.

The forecast came amid rising interest rates. Banks’ cash-cow loan-to-deposit margin is widely expected to rise during the period, as the Bank of Korea and the U.S. Fed have taken a series of aggressive rate hikes to tame inflation.

But their stock performance is unlikely to move in tandem with their earnings growth in the latter half of this year, as rate hikes come at the cost of recession risks, according to market experts. This imbalance will leave banking groups exposed to a bigger risk on bad loans.

“Banks are widely expected to produce bigger interest profits after the Fed’s consecutive rate hikes, but they are also faced with a growing burden to increase security against bad debts due to soaring prices and concerns of a recession,” Jun Baeseung, an analyst at eBest Investment &Securities, said.

Shares of KB Financial Group, the nation’s largest financial holding firm in terms of market capitalization, reached this year’s high of more than 66,000 won in February, but fell to around 50,000 won as of Wednesday.

Shinhan Financial Group’s shares also set this year’s high of 43,450 won in May, but have since undergone a steep decline. Shinhan’s shares were traded at 35,700 won on Wednesday afternoon, according to data from the Korea Exchange. Shares of Hana Financial Group once reached around 53,000 won in February, but have so far failed to make any outstanding rebound, with their value hovering around 39,000 won. Woori Financial’s shares soared to 16,530 won in April, but were traded at 12,000 won on Wednesday.