Bank Stocks Surge Amid Record Earnings and Interest Rate Hike Expectations

Bank stocks, previously 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 margins (NIM) and proactive shareholder return policies are attracting investor interest.

As of June 17, the KRX Bank Index closed at 1,634.91, up 145.21 points (9.75%) from the end of May (1,489.7). During the same period, the KOSPI index rose by 8.03%, indicating that the KRX Bank Index outperformed.

Shinhan Financial Group saw its stock price increase by 11.21%, while Hana Financial Group rose by 10.23%, KB Financial Group by 9.75%, and Woori Financial Group by 7.65% compared to 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 has been driven by semiconductor stocks. Despite recording their highest-ever 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 atmosphere for bank stocks is changing with the increasing likelihood of interest rate hikes. Typically, rising interest rates expand the interest margin, enhancing 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 for this year is estimated at 19.4879 trillion won.

The active shareholder return policies in the banking sector are also contributing to rising stock prices. Major financial groups are increasing dividends and share buybacks in line with the government's value-up policy. 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 perception stems from the ability of bank stocks to provide stable dividend yields in a volatile market. Additionally, the easing of penalties related to Hong Kong's H-index-linked securities has also 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. Funding for these loans has primarily been sourced from low-cost deposits, 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 tighten regulations on household debt management. These regulations could constrain banks' profitability expansion, as they may not be able to aggressively increase household loans despite rising interest rates. Concerns over increasing non-performing loans and the need for higher provisions due to economic slowdown also remain potential burdens.