Choi Jeong-wook

Korean bank stocks are set to rise due to interest rate hike momentum improving net interest margins, a reduction in Hong Kong ELS provisions from 1.4 trillion won to 600 billion won, strong second-quarter earnings, sector rotation from semiconductors, and significant year-to-date underperformance versus the KOSPI.

KB Financial Group (105560.KS) and Shinhan Financial Group (055550.KS) are top picks because they will report 2Q earnings well above consensus (KB near 2 trillion won net profit, Shinhan around 1.7 trillion won), benefit most from ELS provision reversals, enjoy strong fee income from securities subsidiaries, and see expanding net interest margins with rising rates.

KB Financial Group (105560.KS) and Shinhan Financial Group (055550.KS) are top picks because they will report 2Q earnings well above consensus (KB near 2 trillion won net profit, Shinhan around 1.7 trillion won), benefit most from ELS provision reversals, enjoy strong fee income from securities subsidiaries, and see expanding net interest margins with rising rates.

IM Financial Group (139130.KS) and BNK Financial Group (138930.KS), trading at PBR below 0.5x versus leading banks at 0.8-0.9x, are short-term catch-up plays that will be pulled higher as the leading bank stocks surge, due to high sector correlation and laggard catch-up dynamics.