South Korean bank stocks decline amid shrinking margins

South Korean bank stocks have faced downward pressure despite rising market interest rates. The KRX Bank Index fell 4.63% in early October, with nine out of ten constituent stocks declining. Major financial groups, including Woori, Shinhan, Hana, and KB, all saw significant losses.

Analysts attribute this weakness to a decline in Net Interest Margin (NIM). While rising rates typically boost interest income, increased competition for deposits has driven up funding costs, offsetting potential gains. Some institutions, such as Woori and JB Financial, are expected to see more pronounced NIM contractions.

Additional headwinds include recent hacking incidents and data breaches within the financial sector, which have dampened investor sentiment. However, market experts suggest that further downside may be limited as the price-to-book ratio (PBR) for the banking sector has fallen below 0.7. There is anticipation that profitability may rebound in the fourth quarter as the effects of previous interest rate hikes are fully reflected in lending rates and asset repricing occurs.