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Fundamental View
AS OF 22 Aug 2024Hana Financial Group (Hana FG) struggled for several years to make its acquisition of the former Korea Exchange Bank a success, but results improved dramatically in 2015 as revenues grew and cost efficiencies improved.
It has produced particularly strong results since 2020, but its profit growth momentum has slowed down in 1H24. Credit costs will go up marginally in 2H, loan growth will slow down, and more focus will be put on RWA management and capital enhancement.
The group is looking for inorganic growth in its non-bank businesses as it has fallen behind Shinhan FG and KBFG in this area, but has so far shied away from a large acquisition.
Business Description
AS OF 22 Aug 2024- Hana FG 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 by acquiring three other banks, including the much older Seoul Bank, which had a banking and trust management business.
- Hana FG bought Korea Exchange Bank (KEB) from Lone Star in 2012 after overcoming many hurdles, but due to staff union opposition, it could not merge with Hana Bank until 2015.
- Hana FG's overseas business is smaller than its peers, and is complemented by KEB's extensive international operations. KEB was started in 1967 as a government-owned bank specializing in foreign exchange. It had a leading share in FX transactions and trade finance among Korean banks.
- Hana FG has shown good growth in its credit card and securities non-bank businesses, but is less diversified than its 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). Last year, Hana FG decided not to proceed with the acquisition of KDB Life Insurance after two months of due diligence.
Risk & Catalysts
AS OF 22 Aug 2024Unlike other FGs, Hana FG reported a decline in credit costs in 2Q24 due to large reversals, but additional provisions are expected in 2H24, in relation to real estate trusts and the new PF viability assessment guideline.
Both the group’s NIM and the bank’s NIM are lower than the respective peers, and both saw larger-than-peers declines this quarter. Returns lagged its peers in 1H24.
Hana FG’s CET 1 ratio is lower than KBFG’s and Shinhan FG’s and is slightly below its 13% target; management plans to improve it in the following two quarters through portfolio rebalancing and RWA management. Hana Bank’s CET 1 ratio is the highest among the major 4 banks.
Key Metric
AS OF 22 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.07% | 1.07% | 1.10% | 1.11% | 1.14% |
| ROA | 0.61% | 0.74% | 0.66% | 0.59% | 0.69% |
| ROE | 9.0% | 10.9% | 10.1% | 9.0% | 10.4% |
| Provisions/Loans | 0.30% | 0.16% | 0.34% | 0.45% | 0.27% |
| NPL Ratio | 0.40% | 0.32% | 0.34% | 0.50% | 0.56% |
| CET1 Ratio | 12.0% | 13.8% | 13.2% | 13.2% | 12.8% |
| Equity/Assets | 6.7% | 6.8% | 6.4% | 6.6% | 6.5% |
| Net Interest Margin | 1.60% | 1.66% | 1.83% | 1.82% | 1.73% |
CreditSight View Comment
AS OF 29 Oct 2024We have a Market perform recommendation on Hana FG and the bank. Hana FG grew 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. Its performance for the past few years has generally been strong. Credit costs are much lower than peers but reserve cover is also relatively lower. More focus has been put on RWA management and capital enhancement since 2H24. The group aims to maintain a CET1 ratio of 13-13.5%. Hana Bank’s CET 1 ratio is the highest among the four major banks.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: April 24, 2017
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