An Unexpected Finding
South Korea’s publicly traded banks and bank holding companies rank 29th among the 34 OECD countries in terms of the price-to-book ratio (PBR), a researcher of the Korea Institute of Finance (KIF) has found.
Seo Byeong-ho, a senior KIF researcher said in a report released on Oct. 27 that average PBR of 845 banks and bank groups listed in 34 OECD countries was 1.41, while that of their Korean counterparts stayed at 0.46, or about a third of the global average, placing Korea 29th among the 34 countries surveyed.
The average PBR of foreign banks that were of the similar size to Korean banks and ranked between 59th and 95th was 1.22, still higher than that of Korean banks.
Seo says his findings were quite unexpected, given that domestic banks, unlike their American and European counterparts, did not go through management crisis during the Great Financial Crisis, and have a relatively sound asset quality. He attributed the low PBRs of domestic banks to “gloomy prospect for profit, lower levels of dividend payout, and limited growth potential.”
He noted that the largest shareholders of six out of the nine banks and bank groups were the National Pension Service and other government agencies, saying that these organizations need to care about the PBRs of the banks.”
He suggested that Korean banks need to pay out more dividends and globalize their profit sources to improve their PBRs. He also advised the government to ease the regulations on the NPS’ acquisition of bank shares. Current acts on banks and financial holding companies exclude the government and the Korea Deposit Insurance Corp. (KDIC) from the rules that limit the amount of stocks owned by the same individual.
The KIF researcher suggested the NPS be excluded from the stock ownership regulations as well, which would help boost domestic banks’ PBRs and block foreign investors from acquiring larger stakes in domestic banks.