Shinhan Financial Group is expected to boost its efforts to expand non-banking financial services with new funds raised from private equity investors.

The South Korean financial services conglomerate is set to secure 605 billion won ($510 million) and 553.2 billion won ($466.6 million) respectively from Affinity Equity Partners and Baring Private Equity Asia (BPEA) in a private placement of 39.13 million common shares in total, according to a regulatory filing on September 7.

The fundraising comes one and a half years after the company raised 700 billion won from IMM Private Equity in early 2019. During this period, its market capitalization has reduced from about 18.8 billion won to 14.1 billion won. Its price-to-book (P/B) ratio, which is often used to measure valuation of financial institutions, has also dropped to 0.36 times, suggesting that the company is undervalued.

Shinhan Financial is not alone in trading at a low valuation: P/B ratios of the other three of the big four financial services firms in the country – KB Financial Group, Hana Financial Group and Woori Financial Group – are all less than 1 time. According to data from the Korea Institute of Finance, the average P/B ratio of the four was around 0.46 times at the end of 2018, compared with 1.41 times on average for the financial services sector in 34 OECD countries.

P/B ratios for the South Korean financial services firms have been consistently low because of their low profitability, low payout ratios and strict regulations limiting growth potential, industry watchers said. The ratios have been further reduced this year as mounting provisions for bad loans related to the Covid-19 pandemic have weighed on their stock values.

The P/B ratio for Shinhan Financial is particularly low compared to rivals because its operations are largely focused on banking services, which are negatively affected by low interest rates. Non-banking businesses, such as insurance and investment, contributed to only 38% of the company’s revenue in the first half of this year, compared to 61.1% for KB Financial.

Shinhan Financial will likely use most of the proceeds raised from Affinity and BPEA to ramp up its efforts to expand non-banking financial services through more acquisitions, industry watchers said.The deal came about two months after KB Financial raised 240 billion won from U.S. private equity firm The Carlyle Group in June.

“(Affinity and BPEA) appear to have concluded that Shinhan Financial stocks have a large upside potential,” said an industry insider, adding that the South Korean financial services stocks, which are considered undervalued, are expected to draw attention from more private equity investors. (Reporting by Ar-rum Rho)