Most Korean financial stocks closed lower, yet brokerages maintained their buy ratings. While financial stocks were expected to benefit from rising market interest rates, foreign selling pressure combined with stock market volatility weighed on the sector. Still, analysts argue that with net interest margin (NIM) expansion anticipated from a medium- to long-term perspective during a rate-hike cycle, coupled with clear shareholder return policies, financial stocks stand out as defensive plays against volatility.
According to the Korea Exchange on the 21st, BNK Financial Group (138930.KS) closed at 16,700 won on the 20th, down 3.24% from the previous trading day. Other financial holding companies also closed lower across the board, including JB Financial Group (175330.KS) (-2.73%), iM Financial Group (-1.58%), Woori Financial Group (316140.KS) (-0.66%), and KB Financial Group (105560.KS) (-0.72%). The results were no different for Jeju Bank (006220.KS) (-2.84%), K Bank (279570.KQ) (-2.74%), Industrial Bank of Korea (024110.KS) (-1.46%), KakaoBank (323410.KS) (-1.13%), and Pureun Savings Bank (007330.KQ) (-0.52%).
Typically, when market interest rates rise, financial firms see their interest income increase and are classified as beneficiaries, but the outcome diverged from expectations. In fact, the U.S. 30-year Treasury yield broke through the 5% level, holding at its highest range since 2007. With oil prices surging amid the prolonged war between the U.S. and Iran fueling inflation concerns, and the possibility of tightening by major central banks coming into focus, interest rates jumped accordingly, analysts said.
Brokerages, however, set target prices for financial stocks above current levels while maintaining buy ratings. Jung Joon-sup, an analyst at NH Investment & Securities, released a report on the 20th setting a new target price of 23,000 won for BNK Financial Group. "The recent rise in interest rates will lead to NIM expansion and interest income growth for financial holding companies," Jung said. "While there is a possibility of increased delinquencies due to inflation, the increase in credit costs can be sufficiently offset by the rise in interest income."
Jung also presented new target prices of 35,000 won and 24,000 won for JB Financial Group and iM Financial Group, respectively. Kyobo Securities also issued buy ratings on Woori Financial Group and KB Financial Group this month, maintaining target prices of 40,000 won and 190,000 won, respectively. Target prices for K Bank (9,000 won), Industrial Bank of Korea (28,000 won), and KakaoBank (31,500 won) were also maintained above current levels.
