20170616-三星证券-Housing_rules_to_have_little_impact_in_current_climate_34页_1mb

Sector Update Summary: Banking (OVERWEIGHT)

Core Content

This document provides an analysis of the potential impact of tightening real-estate finance regulations on the banking sector in South Korea. It highlights that while regulatory measures are likely to be introduced, their effect on banks' fundamentals may be limited due to changes in the market environment compared to the mid-2000s. The report also outlines the expected performance of major banking groups, emphasizing the importance of NIM improvements, household loan recovery, and one-off factors in driving earnings momentum.

Main Points

• Regulatory Tightening: Authorities are expected to implement real-estate finance regulations in phases and selectively, focusing on specific regions and price bands rather than blanket measures.
• DTI and DSR Rules: The current DTI rule is likely to be replaced with a new DTI rule, and eventually with a DSR rule. The DSR rule is seen as a stricter measure that could significantly affect loan availability and household debt sustainability.
• Impact of Regulations: Tighter regulations in the mid-2000s had little effect on banks' fundamentals, as the decline in earnings was attributed to a "flight to yield" rather than regulatory changes.
• Loan Growth Expectations: Banks are expected to achieve their full-year loan growth target of 4-5%, driven by sustained demand from real buyers and the continued growth of collective loans.
• Earnings Momentum: Banks are anticipated to report strong 2Q earnings due to NIM improvements, recovery in household loans, and one-off gains.
• Focus on Large Banks: Large financial groups with strong capital positions are highlighted as top picks, particularly KB Financial Group, due to their resilience and potential for growth.

Key Information

Regulatory Timeline and Measures

• Recent Calls for Tightening: Due to concerns over housing market polarization, authorities are expected to introduce regulations gradually and selectively.
• DTI Rule Changes: The current DTI rule (60% in SMA) will likely be replaced with a new DTI rule that factors in income growth and future cash flows.
• DSR Rule Introduction: The DSR rule is a new regulatory tool that will be introduced after thorough discussions. It measures a borrower's ability to repay principal and interest, which is more stringent than the DTI rule.

Market Environment Changes

• Tenant Composition Shifts: The shift from jeonse (lease-option) to monthly rent tenants is expected to stabilize loan demand.
• Floating Capital Surge: The global financial crisis led to a surge in floating capital, which may have contributed to the current housing market dynamics.
• Lending Rate Regulations: The report suggests that direct lending-rate regulations are unlikely, which reduces the potential negative impact on banks.

Historical Context

• Roh Moo-hyun Era: Regulatory tightening in the mid-2000s did not significantly affect banks' fundamentals. The decline in earnings was due to a flight to yield, not regulatory changes.
• Impact on Real Estate Market: Regulatory measures had an immediate effect on the real estate market, but the market eventually rebounded, leading to further tightening.

Bank Performance and Earnings

• Share Price Divergences: During the Roh Moo-hyun era, share price differences among banks were due to company-specific issues rather than macroeconomic factors.
• 2Q Earnings Outlook: Banks are expected to report strong earnings in 2Q, supported by NIM improvements, recovery in household loans, and one-off gains.

Conclusion

The banking sector is expected to remain resilient despite potential regulatory tightening in real-estate finance. The focus should be on banks with strong capital positions and those that can adapt to changing market conditions. The introduction of new DTI and DSR rules is anticipated but will be gradual and selective to minimize negative impacts on the economy and household finances. Investors should watch for 2Q earnings momentum and strategic changes in M&A activity as key drivers of performance.