Speedy thesis #3 will introduce three South Korean banks. Why? Korea was one of the worst performing stock markets in 2022 and that got me interested to see if there are investment opportunities present and available. In fact, there are three Korean banks traded in the NYSE.
Korean economy
Once part of the Asian tigers, South Korean economy is one of the success stories of countries rising out of poverty to flourish and becoming important economic and industrial powerhouses of the world.
Although South Korea is still classified as an emerging market, its GDP per capita is very close to its neighbouring Japan. By this measure South Korea hardly is an emerging market. The reason for the status is probably more related to Korean politics, property rights and bond market as covered over here.
South Korean won (the currency) is approximately at the same level against the U.S. dollar as it was 2003-2004. In between then and today, the currency has fluctuated but there’s no clear downward trend as there is with many other emerging market currencies.
Banking in Korea
Statista provides a good overview of the banking sector in South Korea, here you go:
South Korea’s banking sector consists of 20 domestic banks and 35 foreign bank branches. KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank are among the largest commercial banks, not only in terms of total assets but also in terms of deposits and loans granted. In 2016, two digital banks, Kakao Bank and K Bank, were established and have since received national and international recognition. The third internet-only bank, Toss Bank, entered the race in 2021.
Korean bank stocks
Normally trade between P/B 0.3x-0.6x. (See the graph below)
The P/E ratios have been in decline since 2017 and seem to have bottomed out.
Last couple of years show fundamentally strong development when browsing through annual reports of the three banks introduced below.
In the NYSE there’s three Korean banks listed. They are introduced next. In the Korean exchange you can find the shares of banks such as Kakaobank and Hana Financial. The latter looks attractively priced on the surface.
KB Financial Group ($KB) 🇰🇷
The largest bank in Korea.
The company was founded in 2008.
A network of 914 branches and 5,234 ATMs.
36.3 million retail customers.
Annual report 2021.
Shinhan Financial Group ($SHG) 🇰🇷
The second largest bank in Korea.
The company was founded in 1982.
A network of 784 branches and 5,234 ATMs.
Annual report 2021.
Woori Financial Group ($WF) 🇰🇷
The fourth largest bank in Korea.
The company was founded in 1899.
A network of 768 branches and 4,296 ATMs.
12% of the banking system's total loans and 14% of deposits.
Woori has normally traded at lower multiples than its two peers.
The bank is under investigation of suspicious wire transfers in 2022, but this doesn’t seem to be anything too serious.
Woori annual reports.
Dylan Waller’s analysis on Woori on Seeking Alpha.
Full comparison of the three banks.
Investment thesis
The investment thesis stands on three graphs.
According to the graph below Woori performs somewhat similarly to other two banks in terms of ROE and ROA, but it’s valued significantly lower in terms of P/B. ROA figures are around 0.7% for all three banks. Quite low.
The share price of Woori has been lagging the two others. 5 year graph:
This data probably is not accurate, but I expect Woori to pay a higher dividend.
Risks? Definitely ranging from global recession to something surprising locally that is impossible for a foreign investor to evaluate. Position size accordingly.
Personally I have a small entry position in Woori.
Korea is not necessarily the best/the least worst banking opportunity out there…
Colombia is another country in which the stock market has been performing poorly. One of the main reason is the political fears or risks after the election of Gustavo Petro to presidency. Colombian banks, namely Bancolombia (CIB) and Grupo Aval (AVAL) seem to achieve much higher ROEs. Here’s a good write-up on Grupo Aval by
.I also wrote a post about Itau Corpbanca, a Chilean bank, on Seeking Alpha. An interesting dividend, deep value, return to the mean play from a lenghty stage 1.
Please note that I’m not a banking expert, specialist nor an analyst, so my take on banks is rather simplistic and high level.
My twitter handles
English: @paidwait
Finnish: @anttisleinonen