Korea Banks:2Q17trends,Beating consensus again and again

KBFG (Buy): 26% beat given the biggest NIM expansion and write-backsKBFG reported 2Q17earnings of KRW990bn, beating consensus by 26% given thebiggest NIM expansion (up another 6bps q-o-q), sharply lower credit cost (8bps) andstronger-than-expected non-bank earnings contribution (especially KB Insurance). Inaddition, recurring SG&A cost declined by 4.6% y-o-y on the back of continued costcontrol measures and large-scale employee restructuring. With a diversified businessportfolio and improved efficiency, KBFG’s recurring quarterly earnings continue tolevel up, from KRW533bn in 2016and now up to KRW860bn as of 2Q17.

    Shinhan (Hold): 29% beat due to lower credit cost and Visa disposal gainsShinhan FG reported 2Q17earnings of KRW892bn, beating consensus by 29% dueto credit cost improvement (down 29bps y-o-y to 26bps) and large disposal gain(KRW116bn). With regards to core earnings trend, the size of group NIM expansionwas smaller at 1bps q-o-q because Shinhan Card pre-emptively secured sizablefunding (i.e., issuing bonds/ ABS), in anticipation of higher market rates in 2H17.

    Woori (Hold): 10% beat due to cost control and stronger non-interest incomeWoori Bank reported 2Q17earnings of KRW461bn, beating consensus by 10%.While the bank NIM expansion was smaller at 1bps q-o-q vs. peers (3-6bps),stringent cost control and stronger-than-expected non-interest income helped. On thecost side, Woori Bank is looking to structurally improve its cost via a large-scalevoluntary retirement program, similar to KBFG and Hana FG in 2016. The group willlikely recognize related expenses in 2H17given sizable special gains in 2017.