Bank stocks in South Korea that soared sharply in January are heading back south this month amid enhanced regulations and foreigners’ selling spree.

According to Korea Exchange on Thursday, KB Financial Group Inc. and Shinhan Financial Group Co. ranked No. 4 and No. 5 in the list of net selling by foreign investors with 197.9 billion won ($153 million) and 172.1 billion won, respectively.

Offshore investors offloaded 474.5 billion won worth of shares in Korea’s top four financial groups in March, including 56.2 billion won in Hana Financial Group Inc. and 48.3 billion won in Woori Financial Group Inc.

The massive selling by foreigners that account for more than 60 percent of the bank stocks pulled down the prices.

Shares of Woori Financial plunged 7.87 percent in March and Hana Financial 8.48 percent. The shares fell 3.2 percent and 0.24 percent, respectively, from the end of last year, which is in contrast to the 8.41 percent gain in the benchmark Kospi stocks.

In January, bank stocks rose sharply on the back of bigger shareholder returns and strong earnings. The stocks, however, started to lose ground amid enhanced scrutiny from the financial authority in February.

The weakening profitability due to a fall in bank loans is also worrisome.

According to the Financial Services Commission, household loans extended by financial institutions reached 5.4 trillion won in February, down 1.3 percent from the same period a year ago.

The delinquency ratio of local banks’ won-denominated loans also stood at 0.31 percent at the end of January, up 0.06 percentage point from a month ago. The outstanding balance of overdue bonds also rose 43 percent on year to 6.6 trillion won in January.

According to the Financial Supervisory Service, the non-performing loan (NPL) ratio, or the ratio of loans that are overdue for more than three months to total loans granted, of Korean banks was estimated at 0.40 percent as of the end of December. Overall loans fell by 0.3 percent while NPL ratio increased by 4.5 percent, the first rise since March 2020.

Korean brokerage houses, in the meantime, expect the recent U.S. and European bank crises will have a limited impact on the Korean banking industry.

Unlike the financial crisis of 2008, which triggered a global liquidity crunch, the recent bank collapses were considered independent failures of individual financial institutions.

“Prompt actions by the financial authorities in the U.S. and Europe lowered the risk of the collapses triggering a worldwide financial crisis,” said Lee Kyung-rok at Shinyoung Securities Co. “Korean banks added more reserves to prepare for a downward adjustment in the economic outlook and will likely see rising earnings this year with increased profits from high interest income,” said Kim In, a researcher at BNK Securities Co.

By Kim Je-gwan and Han Yubin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]