Goldman Sachs favors Korean bank stocks for defensive opportunities amid rate hikes and wealth effects

Overview

This report covers major Korean bank stocks. Its core view is that stronger Korean macro momentum, driven by AI-related capital expenditure, R&D, and wealth effects, could extend the rate-hike cycle through 2027, benefiting Korean banks through asset-sensitive balance sheets, favorable deposit funding conditions, and growth in capital markets businesses. Despite rising market volatility, Goldman Sachs believes this is driven more by position adjustments than by economic weakness, giving financial stocks defensive and valuation-rotation appeal.

Core views

First, the terminal policy rate forecast for the Bank of Korea is raised to 3.25%, creating greater room for NIM expansion. Second, ample liquidity and inflows into corporate accounts ease deposit-cost pressure, while KB and Shinhan have greater funding advantages due to their higher shares of low-cost deposits. Third, wealth effects from rising equity markets, a growing retail investor base, and migration of funds into capital markets will support brokerage ROE and fee income. Fourth, consensus expectations have not fully reflected NIM upside and wealth effects, particularly as recurring ROE at KB, Shinhan, Hana, and Woori reached 14%/12%/11%/11%, respectively, in 1Q26. Fifth, following the strong performance of technology stocks, financial stocks have lagged, creating potential for rotation toward value and defensive sectors.

Analysis framework

The report combines the macro rate path, bank balance-sheet repricing, deposit structure, wealth effects, brokerage-business growth, ROE, and P/B valuation frameworks to assess the earnings sensitivity and target prices of Korea's four major banks. Earnings revisions primarily focus on NIM expansion, net interest income, brokerage fee income, and non-bank profit contribution; valuation uses GGM to derive target P/B multiples and provides company-level target prices and risks.

Methodology notes

• Valuation methodsGGM

  Target P/B multiple

  The 12-month target prices for KB, Shinhan, Hana, and Woori are all based on target P/B multiples derived from the GGM formula [(ROE-g)/(COE-g)].

• Earnings sensitivityNIM sensitivity

  +3bp NIM expansion sensitivity

  The report uses scenario analysis of NIM expansion to assess the sensitivity of bank-group net income and ROE to improved spreads.

• Investment frameworkGS Factor Profile

  Growth, Financial Returns, Multiple, and Integrated dimensions

  The Goldman Sachs factor framework compares individual stocks' characteristics relative to the market and peers across growth, financial returns, valuation multiples, and integrated scores.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KB Financial Group (105560.KS)

  Core beneficiary, rated Buy

  Strengths

  High share of low-cost deposits and favorable funding position; 1Q26 recurring ROE reached 14%; target price of W214,000 implies 40.9% upside.

  Weaknesses

  The cleanup of overseas entities may require additional provisions or capital injections.

  Comparison

  The report prefers KB and Hana, with KB standing out for its low-cost deposit base and ROE performance.

  Risks

  Provisions or capital injections for overseas entities, and increased risks of public-service obligations or government intervention due to changes in the political environment.

• Shinhan Financial Group (055550.KS)

  Beneficiary, rated Buy

  Strengths

  High share of low-cost deposits; strong brokerage-business ROE; target price of W123,000 implies 30.2% upside.

  Weaknesses

  Potential selling pressure following the release of financial investors' lock-up holdings.

  Comparison

  Similar to KB, it has a favorable funding position, but its upside is lower than that of KB and Hana.

  Risks

  Selling pressure from financial investors, banking-sector regulatory headwinds, and government intervention.

• Hana Financial Group (086790.KS)

  Core beneficiary, rated Buy

  Strengths

  Relatively large upward earnings-estimate revision; target price of W159,000 implies 39.5% upside.

  Weaknesses

  Higher exposure to overseas subsidiaries makes it more sensitive to a sharp depreciation of the KRW; changes in credit costs have a greater impact on ROE.

  Comparison

  The report prefers KB and Hana, with Hana offering upside close to that of KB.

  Risks

  Sharp KRW depreciation, sudden deterioration in asset quality, regulatory headwinds, and government intervention.

• Woori Financial Group (316140.KS)

  Covered stock, rated Neutral

  Strengths

  Target price of W37,000 implies 27.4% upside; successful inorganic growth strategies or a stronger-than-expected economic recovery could provide upside risk.

  Weaknesses

  Lower relative rating, weaker earnings-upgrade magnitude than peers, and a slight 0.7% downward revision to the 2026E net profit estimate.

  Comparison

  Compared with KB, Shinhan, and Hana, Goldman Sachs maintains a Neutral rating on Woori.

  Risks

  Strategic or financial-investor selling pressure, potential execution risks from non-bank acquisitions, and dilutive acquisitions weighing on earnings and valuation.

• Korean banking sector

  Sector allocation opportunity

  Strengths

  Benefits from rate hikes, NIM expansion, capital-markets fees, non-bank profit contribution, and rotation into value stocks.

  Weaknesses

  The wealth effect may be weaker in Korea than in other countries because household asset allocations favor real estate, equity investment is concentrated among affluent and older households, and the local stock market is highly volatile.

  Comparison

  Financial stocks have previously lagged technology stocks, and the report believes the volatile environment creates a natural rationale for rotation back into financial stocks.

  Risks

  Regulatory intervention, rising deposit costs, deterioration in asset quality, KRW depreciation, and declining market trading volumes.

Key data

• Terminal policy rate forecast3.25%Goldman Sachs economists raise the forecast from 3.0% to 3.25% and expect three additional 25bp rate hikes.
• NIM expansion assumptions2026E +8bp; 2027E +5bpThe previous assumptions were 2026E +5bp and flat in 2027E.
• Net interest income growth2026E +9%; 2027E +7%Benefiting from higher rates and asset-sensitive balance sheets.
• Earnings estimate revisionsFY26E/FY27E/FY28E raised by an average of 3%/7%/7%Combined net profit estimates for the four major banks are W20,709bn for 2026E, W23,576bn for 2027E, and W24,973bn for 2028E.
• Target price revisionsRaised by an average of 7%The report maintains Buy ratings on KB, Shinhan, and Hana, and a Neutral rating on Woori.
• Above-consensus estimates2026E/2027E/2028E above BBG consensus by 6%/13%/14%Goldman Sachs believes consensus expectations have not fully reflected earnings momentum.
• 1Q26 recurring ROEKB 14%; Shinhan 12%; Hana 11%; Woori 11%The report uses this data to illustrate that the market's average ROE expectation below 10% is conservative.
• ETF sales growth+118% vs. FY25ETF sales by major banks could exceed W100tr by year-end based on the current pace.
• Potential boost to private consumptionApproximately W7tn, or 0.6% of annual private consumptionEstimated wealth effect from the rise in the stock market.
• Retail investor population14.4mn in 2025, 5.6mn in 2018The retail investor population has expanded significantly compared with the pre-pandemic period.

Impact & implications

The report implies that Korean bank stocks may offer both earnings-upgrade and valuation-recovery opportunities. Higher rates support net interest income through NIM expansion; active capital markets and improved brokerage ROE increase non-bank profit contribution; and wealth effects and income buffers help reduce asset-quality concerns. As market volatility rises, financial stocks become more attractive because the economic backdrop remains strong, valuations lag, and funds may rotate from growth stocks toward value and defensive sectors.

Risks

• The Bank of Korea's policy path falls short of expectations, resulting in NIM expansion below forecasts.
• Deposit competition or a decline in CASA raises funding costs and weakens spread income.
• Declining market trading volumes or a weakening KOSPI weighs on brokerage fees and non-bank profit contribution.
• Uneven transmission of wealth effects causes private consumption and asset-quality improvement to fall short of expectations.
• Banking-sector regulatory headwinds, government intervention, or changes in the political environment affect earnings and returns on capital.
• A sharp KRW depreciation could pressure banks with high overseas exposure.
• Rising credit costs, deteriorating asset quality, or additional provisioning requirements depress ROE.
• Shareholder selling, M&A execution risks, or dilutive acquisitions could constrain valuations.

What to watch

• Subsequent Bank of Korea rate hikes, the terminal policy rate, and changes in the yield curve.
• Each bank's NIM, low-cost deposit share, CASA changes, and corporate-account fund inflows.
• KOSPI trading value, retail fund flows, ETF sales, and brokerage ROE.
• Quarterly recurring ROE and non-bank profit contribution at KB, Shinhan, Hana, and Woori.
• Whether Korean exports, wage spillovers, consumer confidence, and the Business Sentiment Index continue to improve.
• Whether consensus earnings revisions follow Goldman Sachs's upward assumptions.
• Bank asset quality, delinquency rates, provisions, and credit-cost trends.
• Regulatory policies, mortgage restrictions, corporate-governance reforms, and signals of government intervention.