The U.S. banking sector continues to face significant challenges following the downfall of some of the major regional banks. With the crisis still looming large, investors could venture into foreign markets and invest in quality foreign bank stocks KB Financial Group Inc. (KB), Woori Financial Group Inc. (WF), and Banco Macro S.A. (BMA) this month.
Before delving into the fundamentals of these stocks, let’s discuss what’s happening in the U.S. banking industry and why it could be wise to buy foreign bank stocks instead.
Earlier this year, the world was left reeling as three major U.S. regional banks, Silicon Valley Bank, Signature Bank, and First Republic Bank, collapsed. The U.S. banking industry has been under tremendous pressure due to the Fed’s multiple interest rate hikes over the past year. These banks collectively held assets worth over $532 billion, surpassing the $526 billion the 25 failed banks held in 2008.
As a result, the outflow of deposits from the banking system intensified, causing a decline in deposits for the fourth consecutive quarter. The Federal Deposit Insurance Corporation (FDIC) reported a 2.5% reduction in total deposits, amounting to $18.70 trillion in the first quarter of 2023, marking the “largest reduction” since data collection began in 1984.
The impact of banking sector turmoil on the economy is expected to persist. Economists at EY-Parthenon said, “Looking ahead, increased bank funding costs and deposit volatility will keep pressure on small and midsized banking institutions, leading to tighter credit conditions and lingering effects on private sector activity.”
Moreover, the World Bank predicted that the banking sector stress could impact financial conditions until 2024. A potential downside scenario includes a severe credit crunch and broader market stress in advanced economies, resulting in a 1.3% growth in 2024.
Considering the pessimistic outlook for the U.S. banking sector, it could be wise to venture beyond geographical boundaries and invest in fundamentally sound foreign bank stocks KB, WF, and BMA in June.
Let’s discuss the fundamentals of these stocks in detail.
KB Financial Group Inc. (KB)
Headquartered in Seoul, South Korea, KB offers banking and financial services. It operates through seven segments: Retail Banking; Corporate Banking; Other Banking; Credit Card; Securities; Life Insurance; and Non-Life Insurance. The company’s offerings include loans, deposits, and related financial products.
On November 7, 2022, KB and Wavebridge, a leading institutional digital asset company competent in traditional and crypto finance, forged a strategic partnership by signing a Memorandum of Understanding (MoU) to establish a robust digital asset ecosystem.
The collaboration would enable KB to actively respond to regulatory changes in the digital asset market and enhance its global competitiveness.
Also, the companies would collaborate to improve their worldwide business area through NEOS, Wavebridge’s U.S.-based asset manager. They are also expected to leverage NEOS to promote the foreign listing of KB’s ETFs and to co-develop global digital asset solutions.
KB’s trailing-12-month net income margin of 32.89% is 27.3% higher than the 25.84% industry average. Its trailing-12-month CAPEX/Sales of 2.11% is 9.8% higher than the 1.92% industry average. Also, the stock’s trailing-12-month cash from operations of $5.06 billion is significantly higher than the $149.08 million industry average.
KB’s net interest income for the first quarter (ended March 31, 2023) increased 5.1% year-over-year to KRW 2.79 trillion ($2.16 billion). Its gross operating income grew 23.3% from the year-ago value to KRW 4.36 trillion ($3.39 billion). In addition, its profit for the period rose 1.9% year-over-year to KRW 1.50 trillion ($1.16 billion).
As of March 31, 2023, the company’s total assets stood at KRW 691.40 trillion ($536.83 billion), compared to KRW 670.10 trillion ($520.30 billion) as of March 31, 2022.
The consensus revenue estimate of $12.38 billion for the fiscal year ending December 2023 reflects an 8.7% year-over-year improvement. Likewise, the consensus EPS estimate of $9.24 for the ongoing year indicates an 11.8% rise year-over-year. Shares of KB have gained 3.2% over the past month to close the last trading session at $37.85.
KB’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
KB has an A grade for Stability and a B for Value and Momentum. It is ranked #5 in the 89-stock Foreign Banks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see KB’s ratings for Growth, Quality, and Sentiment here.
Woori Financial Group Inc. (WF)
WF, based in Seoul, South Korea, operates as a commercial bank. It provides a broad range of financial services to individuals, businesses, and institutions in Korea. The company segments include Banking; Credit Card; Capital; Investment Banking; and Others.
The stock’s trailing-12-month net income margin of 31.21% is 20.8% higher than the 25.84% industry average, while its trailing-12-month ROCE of 11.22% compares to the 11.15% industry average. Also, WF’s trailing-12-month cash from operations of $3.96 billion is considerably higher than the industry average of $149.08 million.
WF’s net operating revenue for the first quarter (ended March 31, 2023) increased 7.6% year-over-year to KRW 2.55 trillion ($2 billion). Its operating income rose 2% from the year-ago value to KRW 1.25 trillion ($970 million). Also, the company’s net income rose 8.3% year-over-year to KRW 944 billion ($732.97 million).
Furthermore, as of March 31, 2023, the company’s total assets stood at KRW 477.90 trillion ($371.06 billion), compared to KRW 465.70 trillion ($361.59 billion) as of March 31, 2022.
Analysts expect WF’s revenue for the fiscal year (ending December 2024) to increase 2.7% year-over-year to $8 billion. The consensus EPS estimate of $9.61 for the same period reflects a 3.7% growth year-over-year. Moreover, the company surpassed the consensus revenue estimates in three of four trailing quarters, which is impressive.
The stock has gained 5.6% over the past month to close the last trading session at $28.10.
WF’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
WF has an A grade for Value and a B for Stability and Momentum. It is ranked #6 out of 89 stocks within the Foreign Banks industry.
Click here to access additional WF ratings (Quality, Growth, and Sentiment).
Banco Macro S.A. (BMA)
BMA, based in Buenos Aires, Argentina, provides a range of retail banking products and services. It offers loans, residential mortgages, and overdrafts to retail customers. Additionally, the company offers corporate banking products and services, such as deposits, lending, check cashing advances, factoring, guaranteed loans, and more.
BMA’s trailing-12-month ROTA of 1.57% is 40.2% higher than the 1.12% industry average. Furthermore, its trailing-12-month CAPEX/Sales of 5.41% is 182.3% higher than the 1.92% industry average. In addition, the stock’s trailing-12-month cash from operations of $2.93 billion compares to the industry average of $149.08 million.
BMA’s net interest income for the first quarter (ended March 31, 2023) increased 14% year-over-year to ARS 97.66 billion ($397.41 million), while its net fee income grew 5.6% year-over-year to ARS 22.03 billion ($89.65 million). Its operating income rose 39.3% from the year-ago value to ARS 103.95 billion ($423.01 million).
In addition, as of March 31, 2023, the company’s total assets stood at ARS 638.56 billion ($2.60 billion), compared to ARS 397.10 billion ($1.62 billion) as of March 31, 2022.
Analysts expect BMA’s EPS to increase 190.4% year-over-year to $1.51 for the fiscal second quarter ending June 2023. Similarly, the company’s EPS for the next fiscal quarter ending September 2023 is expected to grow 81.8% year-over-year to $1.71. Shares of BMA have gained 82.4% over the past year to close the last trading session at $22.01.
BMA’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
BMA has an A grade for Value and a B for Growth, Momentum, and Quality. It is ranked #3 within the same industry.
Click here to access additional BMA ratings for Stability and Sentiment.
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KB shares were trading at $38.45 per share on Tuesday afternoon, up $0.60 (+1.59%). Year-to-date, KB has gained 0.27%, versus a 14.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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