Bank Stocks Surge Amid Record Earnings and Interest Rate Hike Expectations

Bank stocks, which had been overlooked during a booming stock market, are experiencing a rebound. With growing expectations for interest rate hikes in the second half of the year, improvements in net interest margin (NIM) and proactive shareholder return policies are attracting investor interest.

According to the Korea Exchange on June 17, the KRX Bank Index closed at 1,634.91, up 145.21 points (9.75%) from the end of last month (1,489.7 on May 29). During the same period, the KOSPI index rose by 8.03%, indicating that the bank index outperformed.

Shinhan Financial Group saw its stock price rise by 11.21% during this period, while Hana Financial Group increased by 10.23%, KB Financial Group by 9.75%, and Woori Financial Group by 7.65% compared to the closing prices at the end of May. KB Financial even reached a new 52-week high of 182,700 won on June 16.

Bank stocks had been relatively neglected during this year's stock market rally, which was largely driven by semiconductor stocks. Despite reporting record earnings in the first quarter, concerns over financial stability and policy uncertainties limited stock price increases. The concentration of investment in major semiconductor companies like Samsung Electronics and SK Hynix also played a role.

However, the sentiment surrounding bank stocks is changing as the possibility of interest rate hikes increases. Generally, rising interest rates can widen the interest margin, potentially improving bank profitability. LS Securities recently reported that if the base rate increases by 0.25 percentage points, major banks could see an average increase of about 100 billion won in interest income during the first year. According to FnGuide, the projected net profit for the four major domestic financial groups this year is estimated at 19.4879 trillion won as of today.

The active shareholder return policies in the banking sector are also contributing to rising stock prices. Major financial groups are aligning with the government's value-up policy by continuously increasing dividends and share buybacks. A survey by BNK Investment & Securities predicts that the total shareholder return rate for the banking sector will rise from 46.5% this year to 49.4% by 2028, with total shareholder returns expected to reach approximately 38.6 trillion won, accounting for 21.1% of market capitalization.

Industry experts believe that the relative attractiveness of bank stocks is likely to increase in the near term. This is due to the perception that bank stocks can provide stable dividend yields in a volatile market. Additionally, the easing of penalties related to Hong Kong's H-index-linked securities (ELS) has also contributed to improved investor sentiment.

Kim Jae-woo, a researcher at Samsung Securities, noted, "In May, loans from banks increased for both businesses and households, indicating a rise in demand for loans. The funding for these loans has been primarily supported by low-cost deposits from companies, suggesting that both loan growth and NIM recovery are likely to show positive trends."

However, not all variables have been resolved. Recently, household debt has surged again, prompting financial authorities to strengthen management of household debt and reintroduce lending regulations. These regulations could limit banks' ability to aggressively increase household loans, even as interest rates rise. Additionally, concerns about rising non-performing loans and increased provisions due to economic slowdown remain potential burdens.