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Sub-sector: Banks
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Fundamental View
AS OF 30 Oct 2024UBS agreed to acquire Credit Suisse in March 2023 after the latter collapsed following a severe liquidity crisis.
CS was a large and complex organisation, so the integration, and the inevitable associated losses and costs, will dominate UBS’s strategic outlook and financial performance for several years.
However, UBS was able to negotiate substantial downside protection which should shield it from losses at CS.
Away from CS, UBS has reshaped its business model, with a greater emphasis on wealth management and less focus on investment banking, particularly fixed income.
Its earnings remain somewhat dependent on capital market conditions, but its capital, asset quality and profitability ratios have been among the best for European banks.
Business Description
AS OF 30 Oct 2024- Headquartered in Zurich, Switzerland, UBS has private, corporate and institutional clients worldwide and retail clients in Switzerland. It is one of the world's largest wealth managers.
- It completed the acquisition of CS on 12 June 2023. It has merged CS’s domestic Swiss bank (Credit Suisse Schweiz AG) with its own domestic bank (UBS Switzerland AG) in 2024, keeping the CS brand “for the time being”.
- CS’s holding company (Credit Suisse Group AG) has been merged into UBS Group AG, so that the group has a single holding company, and the operating subsidiaries, including UBS AG and Credit Suisse AG, were merged on 31 May 2024.
- UBS operates through its Corporate Center and four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, and the Investment Bank, plus a new Non-core and Legacy division following the acquisition of CS.
- The Investment Bank has been restructured in recent years to scale back fixed income trading and focus on equities trading and origination & advisory business.
Risk & Catalysts
AS OF 30 Oct 2024The acquisition of CS will be a long and complex process, and the necessary restructuring is likely to result in heavy losses and costs, although UBS has substantial protection, not least in the large negative goodwill.
Litigation costs have been a feature of UBS’s results in recent years, although it has agreed settlements in various cases recently.
A French court imposed fines and civil damages of €4.5 bn ($5.1 bn) in February 2019, which UBS appealed. The Court of Appeal retried the case de novo in March 2021 and reduced the fine to €3.75 mn plus civil damages of €800 mn and confiscation of €1 bn. UBS has appealed again and has set aside reserves of €1.1 bn ($1.2 bn) so far.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 6.7% | 40.3% | 13.0% | 12.4% | 11.6% |
| Total Revenues Margin | 3.1% | 2.9% | 3.1% | 3.2% | 3.2% |
| Cost/Income | 83.4% | 95.0% | 72.1% | 73.6% | 73.0% |
| CET1 Ratio (Transitional) | 14.3% | 14.3% | 14.2% | 15.0% | 13.8% |
| CET1 Ratio (Fully-Loaded) | 14.3% | 14.4% | 14.2% | 15.0% | 13.8% |
| Leverage Ratio (Fully-Loaded) | 5.7% | 5.4% | 5.7% | 5.7% | 5.4% |
| Liquidity Coverage Ratio | 199% | 216% | 164% | 155% | 152% |
| Impaired Loans (Gross)/Total Loans | 0.6% | 0.4% | 0.4% | 0.4% | 0.6% |
CreditSight View Comment
AS OF 08 Nov 2024We have Market perform recommendations on UBS AG (operating bank) and UBS Group (holding company) having revised the HoldCo recommendation from Underperform on 14 August 2024. Its rescue and takeover of Credit Suisse in March 2023 was a seminal event that has had major consequences for UBS’s strategy and financial performance, as well as carrying substantial execution risk. However, the integration is on track, and UBS’s performance has been steadily improving. Capital, asset quality and liquidity all look strong, although Swiss regulatory capital requirements will continue to increase in coming years.
Recommendation Reviewed: November 08, 2024
Recommendation Changed: August 14, 2024
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Search topics about wealth insights and investments.China CITIC Financial Asset Management (Huarong)
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Oct 2024A large impairment loss in FY20 brought HRINTH to the brink of insolvency, but a state-led rescue plan provided HRINTH with liquidity support and brought its capital back above minimum requirements. CITIC has replaced the MoF as HRINTH’s largest shareholder. HRINTH remains as one of the Big 5 state-owned AMCs in China and will continue to perform national services.
On the guidance of the authorities, HRINTH has divested almost all of its non-core subsidiaries.
We expect HRINTH’s operational performance to remain weak until China’s economy is back on the upswing, residents regain confidence in the property market, and improved capital markets lead to better valuations on their securities books.
Business Description
AS OF 02 Oct 2024- China CITIC Financial Asset Management (formerly Huarong) is one of the five major state-owned asset management companies in China. It was first set up in 1999 to take over the bad debts of ICBC.
- The AMCs were originally due to be wound up after dealing with these "policy loans" that had come onto the books of the banks under government direction before their commercialisation, but the AMCs found a new role as commercial bad debt managers.
- HRINTH was commercialised in 2012 and completed its IPO on the HK stock exchange in 2015. Since then, HRINTH expanded its financial services to banking, financial leasing, securities & futures, trust, as well as consumer finance. However, after heavy losses in FY20, HRINTH divested much of its non-core business as directed by the authorities.
- Following the CITIC-led rescue plan of HRINTH and the planned equity transfer from the Ministry of Finance (MOF) to CITIC, CITIC has become HRINTH's largest shareholder (26.46%). Other significant shareholders include MOF (24.76%), Zhongbaorongxin (18.08%), Cinda AMC (4.89%), China Life Insurance (4.50%), National Social Security Fund (3.08%), Warburg Pincus (2.57%), and ICBC Financial AM (2.44%). HRINTH was renamed to share the "CITIC" brand in Nov-23.
Risk & Catalysts
AS OF 02 Oct 2024CITIC’s support is strong (name change, investment in CEB and CITIC Ltd, subsidiary disposal, new management team, etc.) and more meaningful to the company compared to direct ownership by the government.
Derisking continues with lower property exposure, non-core businesses have largely been disposed of and the company is able to focus on its main DDA business per the guidance of the authorities.
While HRINTH was able to deliver profit growth on the back of CITIC support and its associate interest holdings in CEB and Citic Ltd, core performance remains weak, and there could be continued volatility in the name.
AMCs may find it harder to dispose DDAs at good valuations amid a deceleration economic cycle. Longer holding periods and lower fair values of acquired DDAs could dampen return yields and increase the NPL ratio of restructuring-type DDAs.
Key Metric
AS OF 02 Oct 2024| CNY mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| ROA | (6.40%) | 0.10% | (2.20%) | 0.02% | 1.00% |
| ROE | (147.6%) | 1.0% | (49.8%) | 3.6% | 21.2% |
| Total Capital Ratio | 4.2% | 13.0% | 15.1% | 15.1% | 16.1% |
| Leverage Ratio | 1,330.0x | 14.2x | 16.1x | 11.5x | 10.1x |
| Equity/Assets | 1.1% | 3.8% | 5.2% | 5.0% | 5.0% |
CreditSight View Comment
AS OF 02 Sep 2024CITIC AMC continued to post profits in 1H24, on the back large fair value gains from volatile other financial assets as well as on DDAs, reduced impairment losses and shared profits from its investments in CEB and CITIC Ltd. CITIC’s support is strong and more meaningful to the company compared to direct ownership by the government, derisking continues with substantially lower property exposures, non-core businesses have almost all been cleared, and the company is able to focus on main DDA business per the authorities’ guidance. However, we expect to continue to see high earnings volatility and poor disclosure is turning poorer still. We maintain our Market perform recommendation.
Recommendation Reviewed: September 02, 2024
Recommendation Changed: August 31, 2021
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Fundamental View
AS OF 06 Sep 2024IBK benefits from a legally binding solvency guarantee from the Korean government and is viewed as a Korean quasi-sovereign issuer. The bank is listed, but remains majority state-owned. Previous governments had proposed privatizing it, but subsequent governments scrapped these plans. The government intends to keep its stake above 50%, and wants IBK to focus on lending to SMEs and provide earlier stage investment capital.
IBK manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks.
Business Description
AS OF 04 Sep 2024- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 23% market share in SME lending.
- It was listed in the early 1990s, but was re-nationalised following heavy losses in the Asian economic crisis of the late 1990s. It was re-listed in 2003, and is majority owned by the government which holds 59.5%; the National Pension Scheme holds 5.6%, and other policy banks have small stakes (7.2% by Korea Development Bank and 1.8% by the Export-Import Bank of Korea).
- Under Article 43 of the IBK Act, if the bank incurs losses they should be set against its reserves and "if the reserves are not sufficient the Government shall assume the remaining loss". Although this is a solvency guarantee and not an explicit guarantee for the timely payment of debts, we believe the Korean government will ensure IBK is in a position to make such timely payments.
Risk & Catalysts
AS OF 06 Sep 2024The bank’s ratings (Aa2/AA-/AA-) are closely tied to the Korean sovereign’s ratings (Aa2/AA/AA-) due to its quasi-sovereign status.
Its ratings and its default risk should therefore not be impacted by any deterioration in its financials, provided the government continues to inject new capital when needed, which it is expected to.
Its policy mandate requires it to use at least 70% of its funding for SMEs. Risks are mitigated by its granular SME exposures which are more than 80% secured, including guarantee from state-owned credit guarantee agencies. Korean governments have also always been quick to provide support including capital injections to IBK when needed, with the most recent injection of KRW 1.3 tn during the COVID.
Key Metric
AS OF 04 Sep 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.33% | 1.30% | 1.49% | 1.59% | 2.78% |
| ROAA | 0.5% | 0.6% | 0.6% | 0.6% | 0.6% |
| ROAE | 6.4% | 9.2% | 9.5% | 8.8% | 8.7% |
| Provisions/Average Loans | 0.60% | 0.34% | 0.50% | 0.67% | 1.03% |
| Nonperforming Loans/Total Loans | 1.08% | 0.85% | 0.85% | 1.05% | 1.30% |
| CET1 Ratio | 11.1% | 11.3% | 11.1% | 11.3% | 11.6% |
| Total Equity/Total Assets | 6.95% | 6.92% | 6.79% | 7.10% | 7.06% |
| NIM | 1.55% | 1.51% | 1.78% | 1.79% | 1.73% |
CreditSight View Comment
AS OF 23 Sep 2024IBK is not wholly government owned – 59.5% direct government ownership, 7.2% KDB and 1.8% KEXIM – but is a policy bank benefiting from a Korean government solvency guarantee. For a policy bank it also has a fairly good track record and manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks. As the leading lender to Korea’s medium and small businesses, IBK plays a key role in the country’s economy, enhanced by the longstanding objective of numerous administrations to achieve a more diversified economy less reliant on the “chaebol”. Successive Korean governments have always been quick to provide support including capital injections to the policy banks when needed.
Recommendation Reviewed: September 23, 2024
Recommendation Changed: March 17, 2017
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Fundamental View
AS OF 22 Aug 2024UOB’s Aa1/ AA-/ AA- ratings are based on its strong stand-alone credit profile and the high likelihood of support from the government of Singapore, where it is one of the three major local banks.
The bank is more focused on Singapore and Southeast Asia than on Greater China; its traditional strengths are the SME and retail sectors, although its large corporate book is now over 50% of loans.
UOB has been conservatively managed with a sound risk profile, a strong focus on liquidity and a long track record of relatively good performance, although its operational performance has lagged DBS and OCBC in recent quarters.
Business Description
AS OF 22 Aug 2024- UOB was established in 1935 as a Chinese family-owned bank catering to the Hokkien (Fujian) community, Singapore's largest Chinese ethnic sub-group. The Wee family owns about 18% of the shares. A further 5.18% is held by the Lien family which previously controlled Overseas Union Bank, which UOB merged within 2001. The Wee family has significant real estate and hospitality interests in Singapore and regionally.
- UOB's main markets are Singapore and Malaysia where its presence dates back to before Singapore's independence. It expanded through acquisitions in Thailand (Bank Radanasin and Bank of Asia) and Indonesia (Bank Buana), and more recently bought over Citi's consumer franchise in Malaysia, Thailand, Indonesia and Vietnam.
- Franchise strengths are in SME and consumer lending. Building & construction accounts for 27% of loans, followed by housing at 24%, financial institutions at 13% and general commerce at 11% at 2Q24.
- Loans by geography comprise Singapore at 48% of loans, Greater China at 16%, Malaysia at 10%, Thailand at 7%, and Indonesia at 3% at 2Q24.
Risk & Catalysts
AS OF 22 Aug 2024UOB has a greater focus on Southeast Asia than its Singapore bank peers, which leaves it open to more AQ risk in a downturn / high interest rate environment. However, both collateral and UOB’s ~SGD 2.5 bn in general provisions will be more than sufficient.
Management retained their full year 2024 outlook; amongst them were positive net income growth and 25-30 bp credit costs, both of which are more conservative than its two peers.
Similar to DBS and OCBC, loan growth has been anemic, but 2Q24 saw a modest pick up in loan growth.
2Q24 NIM rose by 3 bp QoQ, but the 2H24 NIM is expected to be flat or lower.
Key Metric
AS OF 22 Aug 2024| SGD mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| PPP ROA | 1.19% | 1.23% | 1.31% | 1.52% | 1.50% |
| ROA | 0.69% | 0.92% | 0.99% | 1.19% | 1.19% |
| ROE | 7.4% | 10.2% | 11.9% | 14.2% | 13.7% |
| Equity to Assets | 9.5% | 9.3% | 8.6% | 8.8% | 9.2% |
| CET1 Ratio | 14.7% | 13.5% | 13.3% | 13.4% | 13.4% |
| NPL Ratio | 1.61% | 1.62% | 1.58% | 1.52% | 1.49% |
| Provisions / Loans | 0.57% | 0.20% | 0.20% | 0.25% | 0.24% |
| Liquidity Coverage Ratio | 135% | 133% | 147% | 157% | 155% |
| Net Stable Funding Ratio | 125% | 116% | 116% | 120% | 118% |
CreditSight View Comment
AS OF 11 Nov 2024UOB is conservatively run with a large family ownership and a sound balance sheet. 55% of its loan book is to large corporates and its SME book has reduced as more of its clients grow from the medium to the large corporate segments. Outside Singapore, its main operations in ASEAN are in Thailand, Malaysia and Indonesia which collectively make up ~20% of its loan book. It acquired Citi’s consumer operations in Thailand, Malaysia, Indonesia and Vietnam, which has been good for the franchise. Operating performance was behind peers in 1H24 but there was some catch up in 3Q24. The bank has benefitted more from the final Basel III rules implementation than its peers, with a fully-loaded CET 1 ratio flat to DBS and only 40 bp lower than OCBC as of 3Q24, a much narrower difference than earlier.
Recommendation Reviewed: November 11, 2024
Recommendation Changed: July 04, 2017
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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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Fundamental View
AS OF 22 Aug 2024Shinhan FG was the best-managed of the large Korean financial groups over many years. During the Asian Financial Crisis, it took advantage of the opportunity to acquire competitors and other businesses, increasing its scale and expanding its business lines.
Its performance has been more variable in the past few years. After a bumpy 2020, it had a better FY21 and FY22, thanks to rising interest rates. However, operating performance turned weak again in FY23. 1H24 showed some recovery.
Credit costs have increased mainly due to real estate project financing, but are within our expectations. Capital is comfortable.
Business Description
AS OF 22 Aug 2024- Shinhan Financial Group (Shinhan FG) is one of Korea's most diversified financial groups and the holding company of the second largest Korean bank - Shinhan Bank. It also has credit cards, securities, asset management and insurance subsidiaries.
- Shinhan Bank was set up in 1982 with seed capital from Korean residents in Japan. It was more professionally managed than the heavily politicised older banks and came through the 1997 Asian Financial Crisis in relatively good shape, taking the opportunity to acquire the larger and much longer-established Chohung Bank in 2003.
- In 2007, it made another timely acquisition, buying LG Card from its creditors after it failed during the 2003 Korean consumer lending crisis. Shinhan Card is the largest card issuer in Korea.
- Shinhan is also looking for overseas opportunities where growth is strong and Korean businesses have a presence, with a focus on Vietnam (where Shinhan Card also bought a consumer finance business in 2019) and Indonesia.
Risk & Catalysts
AS OF 22 Aug 2024As one of Korea’s “Big Four” financial groups, we believe Shinhan FG would likely receive governmental support if needed.
Asset quality pressure has been rising from domestic real estate project financing and overseas real estate investments, with credit costs rising from very low levels. Management expects credit costs to slightly improve in 2H24, but additional provisions may still be needed due to regulators’ guidance for financial institutions to take a more conservative stance on provisioning.
NIMs fell in 2Q24 with inevitably further downward pressure in 2H, given the potential policy rate cuts and LCR regulation adjustments.
Key Metric
AS OF 22 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.09% | 1.11% | 1.10% | 3.89% | 1.38% |
| ROA | 0.60% | 0.66% | 0.72% | 0.66% | 0.79% |
| ROE | 8.4% | 9.2% | 10.0% | 8.6% | 10.7% |
| Provisions/Average Loans | 0.43% | 0.28% | 0.34% | 0.78% | 0.47% |
| NPL Ratio | 0.49% | 0.39% | 0.41% | 0.56% | 0.68% |
| CET1 Ratio | 12.90% | 13.10% | 12.79% | 13.17% | 13.05% |
| Equity/Assets | 7.3% | 7.3% | 7.6% | 7.8% | 7.5% |
| Net Interest Margin | 1.80% | 1.81% | 1.96% | 5.91% | 1.97% |
CreditSight View Comment
AS OF 29 Oct 2024We have a Market perform recommendation on Shinhan FG and the bank. Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with a leading credit card arm. It had over many years the best operating track record, but now we see its operating performance as in line with its peers. FY23 was challenging, as topline revenue growth was more than offset by increasing operating expenses and provisions. 9M24 performance has been better, but non-interest income growth was tepid weighed down by Shinhan Securities. The group’s CET 1 ratio at 3Q24 was just above its target 13%, which management views as an appropriate level.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: September 22, 2020
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Search topics about wealth insights and investments.Woori Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Country: Korea
- Bond: WOORIB 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.108% (Indicative as of March 2)
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Fundamental View
AS OF 22 Aug 2024- Woori FG’s performance record had been less consistent than some of its more commercially focused peers but improved in FY21-22. However, its FY23 performance lagged behind its peers, affected by not only the kitchen sinking provisioning exercise but also uniquely amongst the FGs, taking a hit on its other non-interest income. 1H24 results were decent, partially thanks to not having the ELS compensation issue which hit the other three FGs.
- Asset quality used to be a strength with the lowest NPL ratios and credit costs among the four FGs but has deteriorated since 2Q23, and we no longer see a gap with the other FGs.
- Capital standing is a relative weakness with the CET 1 ratio at 12.0% compared to 12.8-13.6% at peers in 2Q24.
Business Description
AS OF 22 Aug 2024- Woori's predecessor banks were rescued by the Korea Deposit Insurance Corporation (KDIC) following the 1997 Asian Financial Crisis.
- Woori Bank is one of Korea's 'Big Four' commercial banks. It previously owned two regional banks, Kwangju and Kyongnam, but these were spun off in 2014. Woori also sold its stake in Woori Investment Securities and its savings bank and life insurance arms to NH Financial Group.
- Woori set up a HoldCo (Woori FG) in January 2019 to expand into more diversified business lines, particularly investment banking. It used to have a HoldCo, but it was dissolved in 2014 when it was merged with Woori Bank.
- Its main subsidiaries are 100%-owned Woori Card, Woori Financial Capital (auto leasing), Woori Investment Bank and 72.3%-owned Woori Asset Trust. Recently the group acquired Korea Foss Securities, with a plan to merge it with Woori Investment to create a new securities entity. The group is in discussions to acquire an insurance company.
Risk & Catalysts
AS OF 22 Aug 2024- Woori FG was for many years majority-owned by the Korean government via the Deposit Insurance Corporation (KDIC), but KDIC has steadily been selling down its shareholding, and Woori purchased and cancelled the remaining shares in 2024. That said, Woori FG remains a large, systemically important bank with strong potential government backing if needed.
- Woori FG is less diversified than its peers, with most of its earnings coming from the bank and small contributions from the card and leasing businesses. The group has accelerated its M&A pace, acquiring Korea Foss Securities this year and doing due diligence on an insurance target.
- Its CET 1 ratio is ~1% behind the other three FGs. Due to new regulatory guidance on stress buffers, Woori FG has adjusted its CET1 ratio target from 12% to 13%. Given the group’s business expansion plans, the group’s CET 1 ratio is expected to remain behind the peers at least until 2025.
Key Metric
AS OF 22 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 0.75% | 0.99% | 1.15% | 1.10% | 1.26% |
| ROA | 0.40% | 0.66% | 0.70% | 0.54% | 0.71% |
| ROE | 5.9% | 10.6% | 11.5% | 8.3% | 10.8% |
| Provisions/Loans | 0.28% | 0.17% | 0.26% | 0.53% | 0.42% |
| NPL Ratio | 0.42% | 0.30% | 0.31% | 0.35% | 0.56% |
| Woori Bank CET1 Ratio | 13.1% | 13.0% | 12.7% | 13.2% | 13.2% |
| Equity/Assets | 6.70% | 6.45% | 6.58% | 6.71% | 6.91% |
| Net Interest Margin Bank + Card | 1.57% | 1.62% | 1.84% | 1.82% | 1.74% |
CreditSight View Comment
AS OF 29 Oct 2024We have an M/P recommendation on Woori FG and the bank. Woori FG was for some years the weakest of Korea’s Big 4 Financial Groups with a less consistent track record of managing risk and returns. Operating performance had shown an improvement for the past few years but disappointed in FY23. 9M24 results have showed some improvement, mainly supported by non-interest income. The group has been seeking opportunities to expand its non-bank businesses. Its new securities entity launched in August and the group is finalizing a deal to acquire Tongyang and ABL. The capital impact of the two transactions is small. Both the group and the bank CET1 ratios are behind peers. KDIC’s stake in the group has been completely sold.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: April 24, 2017
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Search topics about wealth insights and investments.The Export-Import Bank of Korea
- Sector: Financial Services
- Sub Sector: Banks
- Region: Korea
- Bond: EIBKOR 5.125 33
- Indicative Yield-to-Maturity (YTM): 4.55%
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Fundamental View
AS OF 14 Aug 2024- KEXIM is a pure policy bank that is directly and indirectly wholly owned by the government of the Republic of Korea, which is obliged under Article 37 of the Export-Import Bank of Korea Act to fund any losses that cannot be covered by the bank’s reserves.
- While this is a solvency guarantee and does not explicitly guarantee the timely repayment of debt, we view it as inconceivable that the Korean authorities would fail to provide KEXIM with support in a timely manner, should this be needed, given its crucial policy role and close government links.
Business Description
AS OF 14 Aug 2024- KEXIM was set up in 1976 to support Korean companies in their overseas business through export credit guarantee programs, as well as providing finance for imports and for overseas investment. It provides funding for both short term trade and long term investment, and manages two government-entrusted funds: the Economic Development Cooperation Fund (EDCF), a Korean official development assistance program, and the Inter-Korean Cooperation Fund (IKCF), an economic cooperation program to promote exchanges with North Korea. It is also a conduit through which the government doled out COVID-19 assistance to affected companies.
- Till 2030, KEXIM aims to preferentially focus on seven sectors (hydrogen energy, wind and solar power, rechargeable battery and energy storage systems (ESS), future mobility, 5G and next-generation semiconductors, pharmaceutical and healthcare, and digital technology and cultural content) which are considered new growth drivers of the Korean economy. It has historically focused on the shipbuilding and engineering & construction industries.
- KEXIM is 100% owned by the Korean government: 73% directly and the remainder through stakes held by the Bank of Korea (8%) and Korea Development Bank (19%). In contrast to peer policy banks IBK and KDB, KEXIM has remained more consistently a policy bank but its role has been adjusted to ensure it complements rather than competes with the Korean commercial banks.
Risk & Catalysts
AS OF 14 Aug 2024- Previous Korean governments have made moves to privatise the other policy banks, but KEXIM has retained its policy bank role and government ownership, which are not likely to change.
- Korea’s shipbuilders have long been the largest users of KEXIM’s services. Losses on exposure to the sector, in particular Daewoo Shipbuilding (DSME), pushed KEXIM into the red in 2016 but the government injected capital and its condition has recovered.
- Together with KDB, KEXIM has played a key role in helping corporate Korea survive the COVID-19 induced crisis.
- KEXIM’s ratings are the same as the Korea’s sovereign ratings, which are now all in the AA range.
Key Metric
AS OF 14 Aug 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Pre-Impairment Operating Profit / Average Assets | 1.3% | 1.2% | 1.1% | 1.1% | 1.1% |
| ROAA | 0.5% | 0.1% | 0.5% | 0.4% | 0.6% |
| ROAE | 3.2% | 0.7% | 3.2% | 2.7% | 4.7% |
| Provisions/Average Loans | 0.5% | 1.2% | 0.5% | 0.8% | 0.3% |
| Nonperforming Loans/Total Loans | 2.4% | 1.8% | 1.9% | 1.2% | 0.7% |
| CET1 Ratio | 12.9% | 13.4% | 13.3% | 11.8% | 13.0% |
| Total Equity/Total Assets | 14.9% | 14.8% | 15.1% | 12.6% | 14.3% |
| Net Interest Margin (NIR/Ave Assets) | 1.0% | 0.9% | 0.9% | 0.9% | 0.7% |
CreditSight View Comment
AS OF 09 Oct 2024KEXIM is a wholly government owned policy bank benefiting from a Korean government solvency guarantee. It plays a key role in financing large-ticket exports in particular ships and large-scale overseas engineering projects. Its credit exposures include some industry and borrower concentrations especially to Korea’s shipbuilders and its financial performance has at times suffered. But the Korean government has always acted in a timely manner to endure its solvency, and with this strong backing we view it as a sound credit. We view its secondary levels as in line with where we would expect it to trade, and so continue with our Market perform recommendation.
Recommendation Reviewed: October 09, 2024
Recommendation Changed: September 22, 2020
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Fundamental View
AS OF 07 Mar 2024Mizuho (A1/A-/A-) undertook large restructuring charges in FY18 to improve its weak returns. Its performance improved in FY20 and FY21, though a series of Japan IT system failures was a distraction. FY22 was a mixed year due to challenging revenue growth, but 3Q23 has been better.
Mizuho’s CET1 ratio buffer has improved but is somewhat low at 1.6%, but is acceptable given comfortable asset quality metrics.
As one of the three megabanks, Mizuho’s credit standing benefits from a strong expectation of government support, if needed.
Business Description
AS OF 07 Mar 2024- Mizuho is just about the third largest by asset size among Japan's three megabanks. It was formed in 2000 through the merger of the former "City" banks, Fuji and Dai-Ichi Kangyo, and the Industrial Bank of Japan, a provider of long-term industrial credit financed by bond issues.
- Its main units are Mizuho Bank and Mizuho Trust & Banking (focusing on asset management and related services). The group's other main business is Mizuho Securities, a leading player in debt capital markets in Japan and the US.
- It expanded in North America in 2015 by acquiring assets and staff from RBS and has successfully captured more markets and commercial banking business in conjunction with its securities arm. It also acquired Greenhill, a boutique M&A firm, in 2023.
- Mizuho is less diversified than its peers by product segment and has historically been more corporate focused.
Risk & Catalysts
AS OF 07 Mar 2024Asset quality has been benign and not much affected by COVID-19 up to and throughout FY21; credit costs in FY22 decreased to a low 8 bp of loans and down to a further 1 bp in 9M23.
The CET1 ratio (fully Basel III compliant and ex-security gains) is 1.6% above the 8% regulatory minimum, which is fairly low level but acceptable for now given benign asset quality.
FY22 was a mixed year for Mizuho as the bottomline was propped up by reduced credit costs, while revenue growth continued to be anemic as was the case over the previous few years. 9M23 has been helped by a large trading beat.
Mizuho has correctly started to make investments in building its capabilities (Greenhill/Rakuten), which it had shied away from for a 7-8yr period due to low capital levels and a focus on reducing expenses.
Key Metric
AS OF 07 Mar 2024| ¥ bn | FY19 | FY20 | FY21 | FY22 | 9M23 |
|---|---|---|---|---|---|
| Net Interest Revenue/Ave Assets | 0.36% | 0.42% | 0.44% | 0.41% | 0.35% |
| Operating Income/Average Assets | 1.02% | 1.03% | 1.01% | 0.96% | 1.05% |
| Operating Expense/Operating Income | 67% | 64% | 62% | 63% | 59% |
| Pre-Impairment Operating Profit / Average Assets | 0.33% | 0.37% | 0.38% | 0.34% | 0.43% |
| Loan impairment (charge) or reversal/ave. loans | (0.21%) | (0.25%) | (0.28%) | (0.10%) | (0.02%) |
| ROAA | 0.22% | 0.22% | 0.24% | 0.23% | 0.34% |
| ROAE | 5.2% | 5.3% | 5.8% | 6.1% | 9.0% |
| CET1 Ratio excl. unrealised securities gains in AOCI | 11.0% | 10.5% | 11.5% | 11.3% | n/m |
CreditSight View Comment
AS OF 15 Nov 2024Mizuho historically trailed its peers on profitability and capital (which in turn prevented investments in new opportunities), as the merger that formed it included IBJ, a large wholesale bank with thin margins. FY20-21 saw good improvements in net interest income and mostly lower credit costs vs. peers. Credit costs related to Russia in 4Q21 + Japan corps in 1Q22 affected results but were better subsequently. Previous issues with its Japan IT system have not resurfaced recently. CET1 capital has a decent 2.5% buffer. Mizuho was the improved megabank over FY20-21 and again more recently. FY22 net income declined, but FY23 and 1H24 has seen a jump due to better trading revenues and low credit costs. It has finally restarted investments in new product/M&A. Govt. support is assured.
Recommendation Reviewed: November 15, 2024
Recommendation Changed: December 05, 2022
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Search topics about wealth insights and investments.Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 07 Mar 2024MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It has also been the most acquisitive until recently.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020. The bank has committed to at least JPY 1 tn in annual net income going forward, which we see as achievable.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 07 Mar 2024- The 2 main banks of MUFG are MUFG Bank (earlier the Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB joint ventures with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and has acquired control of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link, an Australian pension fund administrator, auto loan companies in Indonesia, Albacore Capital, an alternates fund manager, and StanChart's Indonesian retail operations.
Risk & Catalysts
AS OF 07 Mar 2024The group’s cost-income ratio was previously in the high 60’s, but improved efficiency, the sale of MUFG Union Bank (MUB) in the US, and better revenues has led to this ratio falling to the high 50’s.
MUFG is exposed to Japanese equities through large unrealised gains, but has steadily been decreasing its shareholdings every year. It reduced the MTM impact of rising yields on its $ bond portfolio, as well as the potential impact on its JGB portfolio given the modifications to yield curve controls.
MUFG had a good FY22 with impressive margin improvement, lower credit costs and the completion of the MUB sale. It has set a net income target of JPY 1.3 tn for FY23, by improving net operating profits in customer segments and expense control; it has met it in 9M23 aided by certain one-offs.
Key Metric
AS OF 07 Mar 2024| ¥ bn | FY19 | FY20 | FY21 | FY22 | 9M23 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.60% | 0.56% | 0.57% | 0.79% | 0.63% |
| Operating Income/Average Assets | 1.27% | 1.16% | 1.11% | 1.22% | 1.27% |
| Operating Expense/Operating Income | 70% | 68% | 69% | 65% | 58% |
| Pre-Impairment Operating Profit / Average Assets | 0.38% | 0.37% | 0.34% | 0.43% | 0.50% |
| Impairment charge/Average Loans | (0.21%) | (0.48%) | (0.30%) | (0.61%) | (0.31%) |
| ROAA | 0.17% | 0.23% | 0.32% | 0.30% | 0.45% |
| ROAE | 3.3% | 4.7% | 6.7% | 6.5% | 9.6% |
| CET1 Ratio excluding unrealised securities gains in AOCI | 9.8% | 9.7% | 9.5% | 9.8% | n/m |
CreditSight View Comment
AS OF 15 Nov 2024MUFG is the largest of the megabanks with more diversified business lines. Digitalisation and operational efficiency improvements are underway and efficiency has improved over the past 3 years, particularly with the sale of Union Bank in the US. Acquisitions have become more targeted. Capital levels are adequate (and have received a bump up from the Basel 3 implementation timeline), $ liquidity is the best amongst the megabanks, and government support is assured. Lending discipline has lifted international margins, which are now well higher than the other two. Divisional performance was reasonable in FY23, strong in 1H24. Its ~20% shareholding in Morgan Stanley has been a boon. The recent jump in Americas NPLs raises questions. It trades flat to JPM, which we see as appropriate.
Recommendation Reviewed: November 15, 2024
Recommendation Changed: January 02, 2024
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