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Korean Bank Earnings: Shinhan, Hana, and Woori Show Good Resilience to Sector Headwinds

Securities In This Article
Woori Financial Group Inc
Shinhan Financial Group Co Ltd
Hana Financial Group Inc

We maintain our fair value estimates of KRW 54,000 for Shinhan Financial 055550, KRW 65,000 for Hana Financial 086790, and KRW 18,000 for Woori Financial 316140 after the Korean banks’ second-quarter earnings announcements. Our fair values are equivalent to 0.57 times June 2023 book value for Shinhan, 0.55 times book value for Hana, and 0.49 times book value for Woori, around 50% higher than current share prices for all three. Our fair value for KB Financial, which reported earnings earlier this week and is the largest Korean banking group, is equivalent to 0.60 times its book value and offers similar upside.

Like KB’s results, the results from these three banks mostly showed a high degree of resilience to the headwinds facing the Korean banking sector, including scant growth in loans to households and elevated credit costs associated with the correction in Korean property prices since last year, along with credit costs related to risks outside Korea, such as China’s economic slowdown and commercial office property in developed markets. Annualized returns on equity for the quarter were 9.9% at Shinhan, 10.0% at Hana, and 9.2% at Woori, not quite as strong as KB’s 11.3% but still at least meeting the banks’ cost of equity, in our view. Like at KB, good expense control offset the impact of higher credit costs, which mostly reflected preemptive provisions rather than a significant increase in actual delinquencies compared with pre-COVID levels. Movement in net interest margins, or NIMs, varied from bank to bank, with Shinhan seeing a 6-basis-point rise from the previous quarter like KB, while Hana and Woori fell in contrast. We expect NIMs to be slightly down in the second half except for Hana, which we see rebounding slightly.

In general, we think this is a good time to pick up bargains in Korean banks, as the country’s property price correction may be bottoming, price/earnings ratios are less than 4 times, and total shareholder return yields (dividends plus buybacks) are above 8%.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Michael Makdad

Senior Equity Analyst
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Michael Makdad is a senior equity analyst for Ibbotson Associates Japan, Inc., a wholly owned subsidiary of Morningstar, Inc. He covers financial and real estate firms. Makdad is a Team Leader for the Japan team.

Before joining Morningstar in 2018, Makdad worked in equity and credit research in Tokyo and Hong Kong since 2005 for Lehman Brothers, Nomura, Moody’s, and Haitong Securities. He worked as a sector analyst and in roles where he supervised the research product content and presentation for other analysts across the Asia region.

Makdad holds bachelor’s and master’s degrees in business administration from Washington University in St. Louis. He also holds the Chartered Financial Analyst® designation.

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