Analyst Note| Michael Makdad |
We lower our 2023 earnings forecasts for Korean banking groups Shinhan Financial, KB Financial, and Hana Financial by 6% and our 2024 earnings forecasts by 8%. We now forecast their returns on equity will average around 9% over the next five years, compared with our previous expectation of around 10%. The main reason for the change is that we see industrywide credit costs of around 40 basis points of loans compared with our previous assumption of 35 basis points. This is due to rising delinquencies in credit cards (affecting Shinhan and KB somewhat more than Hana due to their larger card businesses) and credit costs arising from the banks’ exposures to real estate projects given the decline in property prices that started in the second half of last year and accelerated in the first quarter of 2023.