Sluggish Bank Stocks Set to Serve as a Breakwater in the Second Half [Click e-Stock]

High Shareholder Return Rates, Continued Record Earnings Expected
Potential Buffer Against Uncertainty in the Second Half
Profit Growth from Securities Subsidiaries, Dividend Defense from Banks

In the first half of this year, bank stocks did not retreat, but their rate of increase significantly lagged behind the KOSPI. However, the total shareholder return rate for bank stocks remains very high, and their earnings are solid. Some analysts suggest that, amid a growingly uncertain investment environment, bank stocks could serve as a breakwater to help investors weather volatility.

On June 11, BNK Securities argued that investors should operate a barbell investment strategy (allocating to both safe assets and high-risk, high-return assets) in the second half of the year, using bank stocks as a base. The firm named KB Financial Group as its top pick, citing the growth momentum of its securities subsidiary and the expectation that it will have the highest shareholder return rate within the sector.

From the beginning of this year through June 9, bank stocks recorded a gain of 18.1%. In comparison, the KOSPI soared by 92.1% during the same period, highlighting the relatively lackluster performance of bank stocks. This underperformance occurred even as shareholder return rates increased and record earnings were posted, because market liquidity was heavily concentrated in artificial intelligence (AI) beneficiaries.

Nonetheless, bank stocks remain robust. The total shareholder return rate is expected to rise from 46.5% this year to 49.4% by 2028. The total amount returned to shareholders during this period is forecast to reach 3.86 trillion won, equivalent to 21.1% of the market capitalization. In particular, this year, the introduction of separate taxation on dividend income, and the implementation of tax-free dividends from 2027, will create an even more favorable environment for long-term investors.

In terms of earnings, a 5 basis point (1bp = 0.01%) increase in net interest margin (NIM) and a 5.0% growth in won-denominated loans are expected this year. Based on these projections, annual interest income is forecast to rise by 5.4%. Despite a decrease in bond-related profits due to rising market interest rates, non-interest income is also projected to increase by more than 3.3%, driven by higher fee income and stock-related gains from securities subsidiaries.

Kim In, a researcher at BNK Securities, stated, "Even as shareholder returns increase and record earnings continue, the average price-to-book ratio (PBR) for bank stocks stands at 0.7 times, which is low compared to the KOSPI PBR of 2.1 times." He added, "Relative to the return on equity (ROE) of 9.5%, this undervaluation has become more pronounced."

He emphasized that this undervaluation will serve as a solid breakwater in the face of heightened uncertainty in the second half of the year. Kim explained, "Macroeconomic indicators such as economic growth, inflation, exchange rates, and oil prices remain uncertain, while expectations for stock price increases are high due to continued policy support from the government, the ongoing benefits of increased AI investment, and greater participation from individual investors." He continued, "We recommend allocating bank stocks, which continue to benefit from rising interest rates, record earnings, and high shareholder return rates, as safe assets, while allocating securities stocks, which gain from rising markets, as risky assets." He also noted that combining high-growth leading sectors with bank stocks, or mixing value and dividend stocks with securities stocks, constitutes a sound investment strategy during periods of elevated uncertainty.

This content was produced with the assistance of AI translation services.