Securities analysts said the impact on the banking sector would be limited from five JoongAng Group affiliates applying to the court for rehabilitation. They suggested an "active buy" on bank stocks.
On the 12th, after JTBC failed to repay 20.6 billion won in securitization borrowings, five companies—JoongAng Holdings, JTBC, Contentree JoongAng, Megabox JoongAng, and JoongAng P&I—applied to the court for rehabilitation. JoongAng Ilbo decided to pursue a workout.
According to Daishin Securities, as of the 13th, excluding the five companies that applied for rehabilitation, the total size of borrowings and liabilities at JoongAng Group's major affiliates is 2.74 trillion won. It consists of 1.23 trillion won in loan receivables and 1.5 trillion won in market funding such as corporate bonds.
By sector, bank exposure is the largest at 800.7 billion won, followed by securities at 125.1 billion won, capital at 79.7 billion won, and savings banks at 34 billion won.
Daishin Securities estimated related total provisions across sectors at 175 billion won. It said the outstanding loan balance at the four nationwide banks it covers is 450 billion won, and securities is 48 billion won. In particular, exposure at the main bank, Hana Bank, was the largest at 307 billion won.
Researcher Park Hye-jin at Daishin Securities said, "Collateral-backed loans are estimated at more than 90%, and there were no arrears until a default occurred, so they were likely classified as normal credits," and added, "With this incident, the credit rating was downgraded to D, which indicates inability to pay principal and interest, and since arrears are likely to occur, additional provision charges will arise as the loans are conservatively classified as substandard or below."
However, because most loans are collateral-backed, additional provisions are expected at around 30 billion won for Hana Bank, 10 billion won for Woori Bank, and about 5 billion won each for KB Kookmin Bank and Shinhan Bank.
It also noted that JoongAng Group is pushing to sell an office building worth 550 billion won, and given that most of the banks Daishin Securities covers hold office-building collateral loans, provisions could be reversed through loan recoveries from the sale.
Park said, "Financial authorities are reviewing whether there was misselling related to retail corporate bond sales, but since recordings and investor confirmation pledges have been mandatory after the strengthening of the Financial Consumer Protection Act, the impact will not be significant."
It assessed the impact on the banking industry as limited. With financial holding companies' provisioning standards significantly strengthened and most loans being collateral-backed, the effect on bank profitability is seen as quite limited.
Park said, "Recently, bank stocks have been overlooked despite index gains, but they are likely to set record earnings again in the second quarter, and with rising shareholder returns and valuations depressed below a price-to-book ratio (PBR) of 1, investment appeal is high," adding, "Ahead of second-quarter earnings releases, inflows could be ample, so we recommend actively buying bank stocks."
As top picks, it suggested Hana Financial Group and Shinhan Financial Group, whose recent PBRs fell to 0.8.