Transaction tax

South Korean elections should benefit banks

The outcome of South Korea’s presidential election should be positive for the country’s banks, analysts said.

Opposition party candidate Yoon Suk-yeol won a close race by less than 250,000 votes on Thursday, winning approximately 48.6% of the vote surfing on public anger at the practices of the administration in place. Some of these policies have led to a sharp rise in housing prices in Seoul.

In a research note, Daiwa said the election result will eliminate regulatory uncertainty as the new government moves to deregulate the real estate and banking sectors.

Easing of loan-to-value restrictions

The investment bank cited Yoon’s pledge to lower the loan-to-value ratio to 80% for first-time home buyers from the current 40% for properties valued below KRW 900 million, or about 729 000 dollars. For non-first time buyers, the loan-to-value ratio is likely to be 70%, Daiwa estimated.

Daiwa said he also expects the new government to reduce the debt-to-service ratio from its current level of 40% for debt over KRW 200 million.

The Japanese investment bank also pointed to Yoon’s caution against using government debt to create jobs, and said it would likely prevent a supply-led spike in Treasury rates.

Household loan growth

As for individual bank stocks, Daiwa named KB Financial as its top pick, with upside potential for Hana Financial Group and Woori Financial Group.

CGS-CIMB, in a research note on Thursday, agreed that the new administration’s policies on household lending would be relaxed, particularly on loan-to-value limits.

“Based on promises from the new administration, we believe household loan growth could exceed current government forecasts” for the second half of this year, CGS-CIMB said. For 2022, the brokerage has projected the overall household loan balance to increase 4.6% from 2021, in line with current guidance from the financial authority.

Positives of Retail Investing

Additionally, CGS-CIMB said promises from the new administration will support retail investors, such as promises to abolish capital gains tax, including for cryptocurrencies, and maintain levels. reasonable tax on stock market transactions.

“We believe fee income should remain resilient as retail investors are expected to be more active in the stock market and cryptocurrency market going forward,” CGS-CIMB said.

CGS-CIMB said KakaoBank had 100% exposure to household loans and launched mortgage products in the first quarter of this year. Also, among traditional banks, Woori Financial Group would likely be the biggest beneficiary due to its greater exposure to the banking sector, the brokerage said.

A few caveats

In the brokerage coverage universe, KBFG and Shinhan Financial Group hold the largest market share in the equity brokerage segment, while Hana Financial Group also operates a brokerage business, the note said.

To be sure, some of Yoon’s other campaign promises, such as lowering the minimum wage, removing limits on working hours, and scrapping the Ministry of Gender Equality, may have negative economic impacts.