South Korea Banks The sweet spot widens amid favorable macro; Ug IBK and BNK to Buy from Sell

Equity Research 22 September 2026 | 8:52PM KST

The sweet spot widens amid favorable macro; U/g IBK and BNK to Buy from Sell

Still more to go, reiterating our positive view on KR banks Sinyoung Park | We stay constructive on KR banks and reiterate our Buy thesis (In a sweet spot amid Goldman Sachs (Asia) L.L.C., Seoul Branch increased market volatility). Despite concerns that valuations are less attractive now (0.8X P/B vs. 0.3X pre-Value Up in late 2023), KR banks shares have steadily risen (31% YTD) and we continue to see upside potential, with favorable macro data supporting KR banks’ ROE expansion.

Macro data turning more favorable, overriding near-term delinquency concerns Recent data confirms what we’ve been flagging: exports tracking to exceed USD1tn in 2026E, a building current account surplus, improving consumer/business sentiment, and property prices still rising despite tightening. Delinquency may be trending up at the margin, but against a strengthening economic backdrop. Moreover, the chip-driven earnings boom is increasingly reflected in corporate tax receipts, creating fiscal headroom for targeted domestic support, SME/SOHO relief, and regional spending.

Watch the ROE inflection, not the next payout print Near-term TSR expectations may have risen on the back of the sharp KRW appreciation, but we think the expansion trajectory beyond the 50% level will be more gradual and linear. We still see this as a positive: a stronger KRW mechanically supports CET1 ratios, giving banks a bigger buffer from which to grow dividends and buybacks over time. More importantly, we think the focus should be the inflection point for ROE expansion — rising ROE expands dividend-paying capacity, and near-term payout restraint that funds a stronger ROE trajectory is value-creative, not value-destructive.

Upgrading IBK and BNK to Buy from Sell, staying Neutral rated on iMFG We raise 2026E-28E earnings for IBK, BNK and iMFG by 5%/5%/1% and lift TPs by an avg of +37% on reduced discount, as the names are more geared to improving asset quality, the SME-directed fiscal impulse and rate sensitivity. While IBK, BNK and iMFG shares have underperformed the big banks (-35% YTD or -95% since 2024) through the TSR expansion cycle, valuations now sit at historical trough levels versus large caps (Exhibit 17) — and screen as more attractive against an improving asset quality outlook and added visibility on capital management.

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Goldman Sachs South Korea Banks

Macro data turning more favourable, overriding near-term delinquency concerns Asset quality concerns should eventually abate as macroeconomic gains feed through with a standard lag. There is also a second-order transmission leg that could provide further upside: rising tax revenues are providing the government with fiscal headroom for targeted domestic support, while anticipated year-end technology bonuses should inject fresh momentum into broader private consumption. Hence, we believe the macro override thesis remains intact, get more support into 4Q26E/1Q27E.

Exhibit 1: Sector delinquency by segment Exhibit 2: Three straight upward revisions by BoK this year (%) 2026E GDP growth forecast by BoK 2.0 4.0%

3.3% 1.6 3.0% 2.6% 1.2 2.0% 2.0% 1.8% 0.8

% Nov-25 Feb-26 May-26 Aug-26 Total Corporate HH

Source: FSS Source: Bank of Korea

Exhibit 3: BoK raised policy rate back-to-back to 3.00% Exhibit 4: Inflationary pressure rising, with Aug26 CPI coming in above 3%

4% 2.6% Percent point Percent point 7 7 3.50% Contributions to headline CPI yoy change 3.25% 6 Energy 6 3% 2.2% Other food 5 Fruit 5 Core 2.50% 2% 1.71% 1.8% 4 4 1.62% 3 3

1 1 0% 1.0% 0 0 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13…