South Korea Banks: Prefer Big Banks with Higher Market Beta

Goldman Sachs maintains a preference for large Korean banks like KB and Shinhan due to their strong brokerage-driven ROE, while downgrading IBK to Sell on capital constraints and asset quality risks.

Key Takeaways

• 1.Large commercial banks (KB and Shinhan) are outperforming due to high ROE brokerage operations which reached approximately 20% in 1Q26.
• 2.A widening profitability gap is expected between big banks and regional/specialized banks due to brokerage market share and capital constraints at smaller players.
• 3.Industrial Bank of Korea (IBK) has been downgraded to Sell because its specialized SME focus results in higher risk weights and slower capital build compared to commercial peers.

Table of Contents

• 1Q26 review: Brokerage operations drove up major banks' ROE
• ROE gap to widen based on brokerage contribution and capital flexibility
• Brokerage strength likely to be sustained amid the retail money move
• Prefer large commercial banks like KB & Shinhan with sizable brokerage operations
• Downgrade IBK to Sell (from Neutral) given weaker brokerage operations and capital constraints
• Upside risks
• What would make us more positive on the stock
• Relatively more prone to asset quality concerns given cyclical exposure
• Valuation & risks
• Investment Thesis - Industrial Bank of Korea
• Price Target Risks and Methodology - Industrial Bank of Korea
• Disclosure Appendix

Document Preview

Page 1 of 5

Subscribe for full accessStart Free Trial