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Fundamental View
AS OF 16 Feb 2023Hana FG (Hana) had struggled for several years to make a success of its acquisition of the former Korea Exchange Bank, but from 2015, results improved dramatically as revenues grew and cost efficiencies improved.
It has produced particularly strong results since 2020, and is the most improved of the financial groups. Non-bank subsidiaries have done well and accounted for ~26% of group net income in 2021, but dropped to 12% for FY22 due to fee challenges and better bank income.
Capital is becoming its key strength with a narrowing gap with the highest peer KBFG. It also has the highest CET 1 ratio target amongst the four FGs. Asset quality is well under control with low credit costs, ROE is in the double digits and the cost-income ratio is in the low 40%’s.
Business Description
AS OF 16 Feb 2023- Hana is the third-largest financial group in South Korea. From small origins as a finance company in the 1970s, after the 1997 Asian crisis Hana grew through M&A by acquiring three other banks, including the much older Seoul Bank which had a banking and trust management business.
- Hana bought Korea Exchange Bank (KEB) from Lone Star in 2012 after overcoming many hurdles, but was unable to merge it with Hana Bank until 2015 due to staff union opposition.
- Hana's overseas business is smaller than peers and is complemented by KEB's extensive international operations. KEB was started in 1967 as a government-owned bank specialising in foreign exchange. It has a leading share in FX transactions and trade finance among Korean banks.
- Hana has shown good growth in its credit card and securities non-bank businesses, but is less diversified than larger peers KB and Shinhan, which have also acquired insurance companies. Its latest acquisition (in 2019) was a 15% stake in Vietnam's state-owned Bank for Investment & Development (BIDV).
Risk & Catalysts
AS OF 16 Feb 2023Hana FG’s asset quality is sound. FY22 credit costs almost doubled to 31 bp (but 14 bp consists of pre-emptive provisions); we would expect them to be no more than 40-50 bp in FY23.
The group is looking for inorganic growth in its non-bank businesses as it has fallen behind vs. Shinhan FG and KBFG in this area, but it has so far shied away from a large acquisition.
Hana had some recent risk management mis-steps: it took provisions in 4Q19 for a JV investment with China Minsheng Investment and for potentially mis-selling high-risk investment funds to retail investors, and in 2Q20 for a private equity exposure, with limited further details.
Key Metrics
AS OF 16 Feb 2023| KRW bn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.10% | 1.07% | 1.07% | 0.99% | 0.97% |
| ROA | 0.67% | 0.74% | 0.61% | 0.60% | 0.61% |
| ROE | 10.3% | 10.9% | 9.0% | 8.8% | 8.9% |
| Provisions/Loans | 0.31% | 0.16% | 0.30% | 0.27% | 0.18% |
| NPL Ratio | 0.34% | 0.32% | 0.40% | 0.48% | 0.59% |
| CET1 Ratio | 13.2% | 13.8% | 12.0% | 12.0% | 12.9% |
| Equity/Assets | 6.4% | 6.8% | 6.7% | 6.7% | 6.9% |
| Net Interest Margin | 1.83% | 1.66% | 1.60% | 1.75% | 1.84% |
CreditSights View
AS OF 02 May 2023Hana FG has grown through acquisitions but only in 2015 was it able to merge its two main bank units to form KEB-Hana Bank. Hana’s management has a good record but for some years struggled to extract value from its acquisitions in a challenging operating environment. Its recent performance has improved significantly, and its fundamentals are looking stronger. It reported the strongest profit growth for 1Q23 among the four FGs. Asset quality indicators are trending downward at the group level but Hana Bank’s asset quality remains stable. Reserve cover was weaker than peers but is sufficient. The group CET1 ratio dipped to 12.8%, below its 13-13.5% target (the highest amongst the FGs), while the bank CET1 ratio jumped to 16.1%, the highest amongst the banks.
Recommendation Reviewed: May 02, 2023
Recommendation Changed: April 24, 2017
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