Attractive stock prices, high dividend payout ratios and more lenient regulatory shareholding limits are believed to be reasons why the National Pension Service (NPS) is continuing to load up stakes in South Korea’s smaller regional-based banks.
The state pension fund has bought 412,062 shares of DGB Financial Group, according to a regulatory filing on Tuesday (July 7), and the Daegu-based financial holding company also announced last month that NPS had bought 6,674,981 of its shares. With the purchases, NPS’s stake in DGB FG has risen from 6.02% to 10.28%.
NPS also secured a 13.6% stake in Busan-based regional bank BNK Financial Group at the end of April, and last month boosted its shareholding in JB financial, a holding company of Jeonbuk Bank which mostly serves customers in the Jeolla Province area, from 6% to 9.22%.
Market analysts believe there are a number of reasons why NPS is aggressively buying shares in regional banks, starting with the fact that stock prices have fallen so low in recent years that the pension fund may be buying on dips — acquiring assets after a fall in price so it can benefit from a future upturn.
BNK’s closing price on Wednesday (July 8) was 5,150 won, 32.8% lower than its closing price at the end of last year. DGB closed at 5,150 won on Wednesday, down 27.7% from its end-2019 price, and JB fell 13.4% to 4,755 won in the same period.
Another factor driving the NPS toward local banks is regulatory limits that prohibit the fund from increasing its stake in nationwide banks, but are more favorable with regional banks. The NPS is allowed to hold up to 10% of shares in commercial banks that serve customers throughout the country, while the ceiling is 15% for regional banks.
As of early February the fund held a 9.76% stake in Shinhan Financial Group, 9.97% in KB Financial Group and 9.94% in Hana Financial Group, the respective holding companies of leading commercial banks Shinhan Bank, KB Kookmin Bank and Hana Bank.
Media outlet Inews24, citing a source in the banking industry, commented, “(NPS) seems to be buying shares of regional banks in order to invest in the bank sector rather than judging that regional banks have a bright outlook.”
Meanwhile, the high dividend payout ratio of regional banks, especially DGB FG, is an attractive investment factor, The Herald Business reported. It said the payout ratio for DGB FG had risen to 21.2% in the last year. (Reporting by Kyoungho Lee)