Bank stocks rally as stronger won boosts capital ratios
Shares of South Korea's largest financial service providers — Hana, Woori, KB, and Shinhan — surged Tuesday, driven by expectations of stronger shareholder returns supported by improved capital adequacy.
Hana Financial Group shares rose as high as 70,700 won ($57.57) during intraday trading, marking the highest price since its transition to a holding company in December 2005. The stock later trimmed some gains and closed at 70,100 won.
Woori Financial Group also saw its shares hit a record high of 18,310 won during trading, the highest since becoming a holding company in January 2019, before closing daytime trading at 18,290 won.
Other major financial service providers posted strong gains in stock prices as well.
On Monday, KB Financial Group shares climbed to 102,000 won, approaching its all-time high of 103,900 won recorded on Oct. 25.
With this rally, the firm's market capitalization reached 40.13 trillion won, making it the fifth-largest company on the local stock market, outrunning market giants such as Hyundai Motors and Hanwha Aerospace. It was the first time in nearly 15 years for KB to take the No. 5 spot since March 2010.
However, as of Tuesday afternoon, KB shares edged down slightly and wrapped up trading at 101,900 won, dropping the company to sixth place in market cap, overtaken by Hanwha Aerospace, which stood at 41.95 trillion won.
Shinhan Financial Group shares also posted a strong gain, closing at 56,500 won — a steep climb from 42,500 won on April 9. The stock's previous high stands at 64,600 won logged on Aug. 30.
The recent rally in bank stocks is largely attributed to the strengthening of the Korean won. The currency appreciated into the 1,360 won per dollar range this week, recovering more than 100 won from its April low of nearly 1,490 won. On Tuesday, the value of the won was quoted at 1,369.5 per dollar when the daytime trading closed.
A stronger won boosts the Common Equity Tier 1 (CET1) ratio, a key indicator of banks' capital adequacy, thereby allowing financial firms greater flexibility in enhancing shareholder returns.
The improved capital position comes alongside solid earnings. The four major financial groups recorded a combined net profit of 4.92 trillion won in the first quarter of 2024, the highest Q1 performance on record, surpassing the 4.91 trillion won posted in Q1 2023.
According to market tracker FnGuide, the firms are projected to post a combined net profit of 17.64 trillion won this year, up 6.8 percent year-on-year.
"Considering the banks' profitability, even with increased treasury share buybacks, the CET1 ratio is still expected to improve," said Choi Jeong-wook, an analyst at Hana Securities. "Share prices of global banks tend to track the scale of their treasury share repurchases."
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