20170119-三星证券-4Q_preview-Signs_of_stronger_earnings_in_2017_31页_932kb

Sector Update Summary - Banking (Overweight)

Core Content

This document provides a 4Q 2016 preview and 2017 outlook for the Korean banking sector, highlighting the performance of interest income, net profit, and the impact of various factors such as rate changes, restructuring costs, and forex losses.

Main Points

• Interest Income Growth: All banks saw an increase in interest income in 4Q 2016, driven by robust loan growth in October and November and stabilization of NIM due to widening lending spreads and rising Cofix rates.

• Net Profit Performance: Net profit results for banks were mixed in 4Q 2016. The overall net profit of covered banks missed consensus by 4.9%, primarily due to restructuring-related costs. However, the 2017 net profit forecast was raised by 2.2% as SG&A costs are expected to decline for banks that underwent significant restructuring.

• Target Price Revisions: Analysts revised target prices for several banks, reflecting updated earnings forecasts and changes in valuation horizons. The upside for each bank is also noted.

• NIM Trends: NIMs (Net Interest Margins) were under upward pressure due to rising Cofix rates and increased lending spreads, especially for large commercial banks and DGB Financial Group.

• Loan Growth and Seasonality: Loan growth slowed in December due to seasonality, but y-y growth remained strong. The document highlights that loan growth varies by bank based on their loan portfolio and CET-1 ratio requirements.

• Credit Costs: Credit costs increased in 4Q due to seasonality, but y-y credit costs stabilized as the industry environment improved. Some banks had to increase provisioning for certain loans, such as those related to D'Live and DICC.

• Personnel Restructuring Costs: Banks recognized significant one-time costs from early retirement programs. These costs are expected to reduce SG&A expenses and improve future earnings, especially for KBFG and HFG.

• Forex Losses at HFG: HFG faced forex-valuation losses due to the depreciation of the won against the US dollar and other currencies. The estimated forex loss for the bank was KRW162.3 billion.

Key Information

4Q 2016 Net Profit Estimates

Target Price Revisions

Net Profit Forecast Revisions

One-off Costs and Gains

• Early Retirement Payouts: KBFG and HFG recognized significant early retirement payouts due to aggressive staff reduction strategies.
• Forex-valuation Losses: HFG experienced forex losses due to the depreciation of the won against the US dollar and other currencies.
• Negative Goodwill: KBFG recognized negative goodwill from its acquisitions of Hyundai Securities and KB Insurance.

Summary of Key Factors Affecting Performance

• Interest Income: Improved due to robust loan growth and NIM stabilization.
• Net Profit: Mixed in 4Q 2016, but improved forecast for 2017 due to lower SG&A costs.
• CET-1 Ratio: Banks may need to adjust their loan portfolios to meet CET-1 requirements, affecting loan growth strategies.
• Credit Costs: Seasonality caused a spike in credit costs, but the overall environment was favorable.
• Personnel Restructuring: Expected to reduce costs and improve future earnings.
• Forex Exposure: HFG's forex losses are a key concern due to its significant foreign-currency stakes.