Aging Korean Demographics And Digital Disruption Will Challenge Profitability

Key Takeaways

• Intensifying digital competition and demographic challenges threaten revenue growth, profitability, and customer base stability amid a shifting financial landscape in Korea.
  
• Heavy reliance on domestic lending and rising regulatory costs strain asset quality, efficiency, and returns, as legacy infrastructure limits adaptability to digital trends.
  
• Resilient revenue diversification, disciplined cost control, prudent risk management, shareholder-friendly policies, and a strong capital position support long-term profitability and financial stability.

Catalysts

Through its subsidiaries, provides financial services in South Korea.

• Accelerating digital disruption in Asian financial services is likely to intensify competition from both domestic and global fintechs, which could erode Hana Financial Group's fee income, compress net interest margins, and undermine long-term profitability as new entrants innovate more rapidly.
  
• Demographic headwinds in Korea, particularly a rapidly aging population and shrinking birth rate, will continue to limit long-term loan demand and shrink the customer base, leading to structurally lower revenue growth and greater earnings volatility for Hana Financial Group.
  
• Persistent overreliance on the domestic lending market exposes the group's balance sheet to Korean credit cycle risks; rising delinquency and non-performing loan rates (already at 0.59% and rising faster than internal targets) signal that asset quality issues could pressure net income and increase loan loss provisions in the coming years.
  
• Increasing global regulatory demands and the implementation of higher capital requirements will drive up compliance and risk management costs, restricting Hana's ability to deploy capital efficiently and weigh on return on equity for the foreseeable future.
  
• Structural decline in branch-based banking, combined with legacy infrastructure costs, will challenge operating leverage as digital adoption accelerates and customers shift to alternative, non-traditional banking platforms, ultimately leading to higher operating expenses and margin pressure over the long run.

Hana Financial Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hana Financial Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hana Financial Group's revenue will decrease by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 33.5% today to 38.0% in 3 years time.
• The bearish analysts expect earnings to reach ₩4128.4 billion (and earnings per share of ₩14621.21) by about August 2028, up from ₩3820.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.7x on those 2028 earnings, down from 5.9x today. This future PE is lower than the current PE for the KR Banks industry at 6.5x.
• Analysts expect the number of shares outstanding to decline by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

Hana Financial Group Future Earnings Per Share Growth

Risks

• Hana Financial Group reported an 11.2% year-on-year increase in net income for the first half of 2025, driven by strong growth in noninterest income streams such as fee income and valuation gains, indicating enhanced resilience and diversification of revenue sources that could support future earnings growth.
  
• The group has demonstrated effective cost management, as shown by a stable cost-income ratio of 38.5% and disciplined SG&A expense control, which may help protect net margins and profitability even in challenging market conditions.
  
• Loans to corporations and households continue to grow within planned parameters, supported by risk management and collateralization, while the company's approach to provisioning and asset quality-backed by a high collateral ratio-helps mitigate credit risks, thus supporting stable long-term earnings and asset quality.
  
• Hana Financial Group is executing on shareholder-friendly policies, including increasing dividends and ongoing share buybacks and cancellations, which may enhance shareholder returns and capital efficiency, potentially supporting the share price.
  
• The company's flexible funding strategy, successful growth in low-cost core deposits, and ongoing improvements in capital ratios-including a CET1 ratio of 13.39%-strengthen its financial stability and capacity for growth, contributing to the sustainability of revenue and net margins over the long term.

Valuation

• The assumed bearish price target for Hana Financial Group is ₩71332.33, which represents two standard deviations below the consensus price target of ₩105717.39. This valuation is based on what can be assumed as the expectations of Hana Financial Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩133000.0, and the most bearish reporting a price target of just ₩65500.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₩10871.5 billion, earnings will come to ₩4128.4 billion, and it would be trading on a PE ratio of 5.7x, assuming you use a discount rate of 8.3%.
• Given the current share price of ₩82700.0, the bearish analyst price target of ₩71332.33 is 15.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.