Goldman Sachs is bullish on the defensive value of Korean financial stocks amid market volatility, favoring KB and Hana

Overview

This is a Goldman Sachs equity research report on major Korean financial groups. Its core judgment is that although market volatility has increased, the volatility mainly reflects position adjustments rather than economic weakening; Korea's exports, AI-related capex, and stock-market wealth effect are still strengthening, leaving room for upward revisions to bank NIM and brokerage earnings. The report covers KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group, and favors KB and Hana.

Core views

The report's core views include: first, the Bank of Korea's tightening cycle may extend to 2027, with the terminal policy rate raised to 3.25%, providing a positive boost to NIM for asset-sensitive banks; second, ample liquidity and inflows into corporate accounts help ease deposit-cost pressure; third, the wealth effect from a rising stock market, retail flows into capital markets, ETF sales growth, and policy support for brokerage licenses will continue to support fee income; fourth, consensus expectations do not yet fully reflect NIM expansion and the wealth effect, especially as the four major banks' recurring ROE in 1Q26 has already reached 11%-14% while consensus average ROE remains below 10%; fifth, financial stocks have lagged tech stocks and may see valuation re-rating amid risk aversion and style rotation.

Analysis framework

The report combines the macro interest-rate path, AI-driven capex and R&D cycle, KRW stabilization policy, housing-market financial stability requirements, bank asset-liability repricing mechanisms, the deposit funding environment, household wealth effects, brokerage business revenue, and valuation methods to derive changes in bank NIM, net interest income, ROE, earnings forecasts, and target prices. For valuation, target prices are based on target P/B multiples derived from the GGM.

Methodology notes

• Valuation methodsGGM

  Use target P/B multiples to derive 12-month target prices

  The report uses the GGM formula [(ROE-g)/(COE-g)] for each bank to derive target P/B multiples, and then determines 12-month target prices accordingly. The target P/B multiples for KB, Shinhan, Hana, and Woori are 1.22x, 1.01x, 0.89x, and 0.74x, respectively.

• Earnings ForecastNIM sensitivity analysis

  Map the rate-hike path, IEA/IBL repricing, and deposit funding conditions into NIM and net interest income forecasts

  The report argues that interest-earning assets typically reprice more quickly within six months after a rate hike, while interest-bearing liabilities reprice with more lag, and the scale of interest-earning assets is usually 10%-15% larger than that of interest-bearing liabilities; therefore, a rate-hike cycle has a positive impact on Korean banks' NIM.

• Factor AnalysisGS Factor Profile

  Use Growth, Financial Returns, Multiple, and Integrated to assess stock characteristics

  Goldman Sachs' factor profile compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and integrated percentiles; for financial stocks, financial returns mainly use ROE, while valuation multiples mainly use P/E, P/B, and P/D.

• Events and M&AM&A Rank

  Use a 1-to-3 rating to assess the probability of a company becoming an acquisition target

  Goldman Sachs' M&A framework combines qualitative and quantitative factors, where 1 represents a higher acquisition probability, 2 a medium probability, and 3 a low probability; when the rating is 1 or 2, M&A factors may be incorporated into the target price.

Asset mapping & comparison

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

• KB Financial Group

  Buy rating, one of the Korean financial stocks preferred in the report

  Strengths

  1Q26 recurring ROE is 14%, above peers; target price W214,000, target P/B 1.22x; benefits from NIM expansion, an asset-sensitive balance sheet, and momentum in capital-markets businesses.

  Weaknesses

  Additional provisions or capital injections may be needed during the multi-year cleanup of overseas entities.

  Comparison

  Along with Hana, it is a key preferred defensive and rotation play in the report; relative to consensus expectations for the four major banks, its earnings momentum may be underestimated.

  Risks

  Risk of provisions or capital injections for overseas entities; changes in the political environment could lead to higher public-service obligations or greater government intervention.

• Hana Financial Group

  Buy rating, one of the Korean financial stocks preferred in the report

  Strengths

  Target price W159,000, target P/B 0.89x; 1Q26 recurring ROE of 11%; benefits from NIM expansion, the wealth effect, and rotation into financial stocks.

  Weaknesses

  Because it has relatively more overseas subsidiaries than peers, it is more sensitive to sharp KRW depreciation; ROE is more sensitive to changes in credit costs.

  Comparison

  Listed with KB as a more preferred name in the report; offers rotation potential as financial stocks have lagged tech stocks.

  Risks

  Sharp KRW depreciation, sudden asset-quality deterioration, banking-sector regulatory headwinds, and government intervention.

• Shinhan Financial Group

  Buy rating

  Strengths

  Target price W123,000, target P/B 1.01x; 1Q26 recurring ROE of 12%; strong brokerage business, with Shinhan/KB Sec reaching about 20% ROE in 1Q26.

  Weaknesses

  The share price has already risen significantly relative to the acquisition price, and there is pressure from potential selling by financial investors after the lock-up expires.

  Comparison

  Buy is maintained, but the report gives greater preference to KB and Hana in its ranking.

  Risks

  Potential selling or supply pressure from financial investors; banking-sector regulatory headwinds and government intervention.

• Woori Financial Group

  Neutral rating

  Strengths

  Target price W37,000, target P/B 0.74x; if the non-organic growth strategy succeeds or the economic recovery is stronger than expected, there could be upside risk to earnings and the share price.

  Weaknesses

  Compared with KB, Shinhan, and Hana, the report maintains Neutral and does not list it as a top pick.

  Comparison

  Rated below KB, Shinhan, and Hana among the four major banks; the report prefers KB and Hana.

  Risks

  Selling pressure from strategic or financial investors; execution risk in potential non-bank M&A; dilutive acquisitions could weigh on earnings and valuation.

• Korean financial stocks/banking sector

  Positive sector allocation view

  Strengths

  Benefits from an extended rate-hike cycle, asset-sensitive balance sheets, ample liquidity, the stock-market wealth effect, retail flows into capital markets, and defensive rotation.

  Weaknesses

  Domestic transmission remains uneven, and Korea's stock-market wealth effect has historically been weaker than in other countries due to household assets being tilted toward real estate, stock investors being concentrated among wealthier and older households, and higher local market volatility.

  Comparison

  The report argues that financial stocks have lagged tech stocks and that, against a backdrop of still-strong growth, record exports, and asset inflation, a natural rotation of funds back into financials is reasonable.

  Risks

  If market volatility turns into economic weakness, deposit-cost pressure rises, credit costs deteriorate, or regulatory intervention intensifies, the sector re-rating thesis could be undermined.

Key data

• Bank of Korea terminal policy rate forecast3.25%Goldman Sachs economists raised the forecast from 3.0% to 3.25% and expect three more 25bp rate hikes.
• Korean banks NIM expansion assumption2026E +8bp; 2027E +5bpThe previous assumption was 2026E +5bp and 2027E flat.
• Net interest income growth forecast2026E +9% YoY; 2027E +7% YoYBenefiting from NIM expansion and asset-sensitive balance sheets.
• Earnings forecast revisionFY26E/FY27E/FY28E +3%/+7%/+7%The report also raises target prices by 7% on average.
• Versus BBG consensus6%/13%/14% higher for 2026E-2028E, respectivelyAfter the earnings revision, Goldman Sachs' forecasts are significantly above Bloomberg consensus.
• 1Q26 recurring ROEKB 14%; Shinhan 12%; Hana 11%; Woori 11%The report notes that consensus average ROE for the four major banks remains below 10%, not yet fully reflecting earnings momentum.
• Korea export forecastAbove USD1tr in 2026ERecord exports are viewed as a factor supporting the macro outlook and financial-sector earnings.
• Estimated stock-market wealth effect on consumptionAbout W7tn, about 0.6% of annual private consumptionGoldman Sachs economists estimate that the recent stock-market rise driven by the chip upcycle could boost private consumption.
• Number of Korean retail investors14.4mn in 2025; 5.6mn in 2018The sharp increase in the retail investor population reinforces the stock-market wealth effect and the foundation of brokerage business.
• Major bank ETF salesUp 118% versus FY25, likely to exceed W100tr by year-endReflects retail capital shifting into capital markets and growth in capital-markets-related fee income.
• Business sentiment index98.9, up 4 points month over monthShows that overall industrial sentiment beyond semiconductor-cycle beneficiaries is also improving.
• 12-month target pricesKB W214,000; Shinhan W123,000; Hana W159,000; Woori W37,000Target prices are based on GGM-derived target P/B multiples.

Impact & implications

If the report's thesis plays out, Korean bank stocks could benefit simultaneously from NIM expansion, net interest income growth, stronger brokerage fee income, and easing pressure on credit costs. If market volatility mainly reflects position adjustments rather than economic weakening, financial stocks can serve as defensive and style-rotation plays, with KB and Hana being Goldman Sachs' preferred choices. For investors, the key debate is whether consensus expectations underestimate the contribution of rate hikes, the wealth effect, and brokerage earnings to profits.

Risks

• Regulatory headwinds and government intervention in Korea's banking sector could depress valuations or limit shareholder returns.
• If deposit competition intensifies, CASA outflows occur, or funding costs rise faster than expected, NIM expansion could fall short of the report's assumptions.
• If the stock-market wealth effect is weaker than expected, improvements in consumption, brokerage fees, and asset quality may disappoint.
• Hana faces risks from sharp KRW depreciation, overseas subsidiary exposure, and sensitivity to credit costs.
• KB may face risks of additional provisions or capital injections related to the cleanup of overseas entities.
• Shinhan and Woori face shareholder selling or supply pressure after lock-up expirations.
• Woori's potential non-bank acquisitions carry execution risk; if transactions are dilutive, they could weigh on earnings and valuation.
• If market volatility is driven by economic deterioration rather than position adjustments, the defensive and rotation logic for financial stocks will weaken.

What to watch

• Whether the Bank of Korea delivers the next three 25bp hikes and whether the terminal policy rate reaches 3.25%.
• Whether 2026E/2027E NIM achieves +8bp/+5bp expansion, and whether bank deposit costs and CASA trends remain stable.
• Whether net interest income reaches the projected YoY growth path of +9% in 2026E and +7% in 2027E.
• Whether Korea's exports exceed USD1tr in 2026E, and whether the AI capex and R&D cycle continue to spill over.
• KOSPI performance, retail trading activity, ETF sales, and progress on new brokerage business licenses such as IMA/commercial paper.
• Whether household delinquency rates, credit costs, and asset-quality indicators validate the wealth effect and income buffer.
• Whether market consensus continues to revise upward and converges toward Goldman Sachs' earnings forecasts, which are above BBG consensus.
• Whether the style rotation of financial stocks relative to tech stocks continues, especially the relative performance of KB and Hana.
• Changes in Korean government mortgage regulation, corporate governance policy, KRW exchange rates, and banking-sector regulatory stance.