Value-up Program and Financial Stocks: Measuring the Resolution of the Korea Discount
Following the implementation of the Corporate Value-up Program, domestic financial stocks are resolving chronic undervaluation by adopting aggressive shareholder return policies, driving a strong market rally.
Value-up Program and Financial Stocks: Measuring the Resolution of the Korea Discount
As the government's Corporate Value-up Program gains momentum, the capital efficiency of the domestic stock market is undergoing a fundamental revaluation. Among various sectors, financial stocks are exhibiting the most distinct upward trajectory. As of May 2026, major financial holding companies have broken away from chronic undervaluation, achieving simultaneous improvements in Return on Equity (ROE) and Price-to-Book Ratio (PBR) through aggressive shareholder return policies. This is the result of policy incentives aimed at improving the constitution of the capital market aligning with corporate efforts to optimize capital allocation.
The Era of 50% Total Shareholder Return (TSR)
Recently, major financial institutions, including the top four domestic financial holding groups, have revised their mid-to-long-term Total Shareholder Return (TSR) targets upward to the 50% level. Compared to the historical range of late 20% to early 30%, this represents a remarkable shift. The mechanism of shareholder returns is also evolving beyond simple cash dividends, significantly increasing the proportion of share buybacks and cancellations. They have effectively adopted a capital deployment strategy that directly enhances Earnings Per Share (EPS) and per-share value by reducing the number of outstanding shares.
- Securing Dividend Stability and Predictability: By regularizing quarterly dividends and clarifying dividend record dates, numerous financial institutions have significantly enhanced the predictability of cash flows for investors.
- Structural Expansion of Share Cancellations: To genuinely improve equity value, companies are establishing a principle of immediately canceling repurchased shares from the open market, which catalyzes the inflow of long-term investment capital.
- Capital Ratio-linked Returns: By establishing a clear, quantified baseline to return excess capital above a 13% Common Equity Tier 1 (CET1) ratio to shareholders, they are balancing the maintenance of capital soundness with the enhancement of shareholder value.
The Financial Significance of Breaking 1x PBR and Market Revaluation
Financial stocks, which were historically representative undervalued assets trading at PBR levels of 0.3x to 0.4x for an extended period, have drawn a steep upward curve following the announcement of the Corporate Value-up Program guidelines. The primary reason for the massive influx of market capital into financial stocks is the securement of trust in asset quality, coupled with the fact that Total Shareholder Return (TSR) has firmly established itself as a definitive investment metric in the market. Investors now look beyond the book value of net assets, prioritizing how transparently and actively the company returns its generated Free Cash Flow (FCF) to its shareholders.
Some leading major financial holding companies have achieved significant financial milestones, with stock prices surpassing or approaching a PBR of 1x, where the stock price exceeds the net asset value per share. This is interpreted as the strongest indicator suggesting that the so-called 'Korea Discount,' which has been inherent in Korean financial stocks, is being resolved practically and structurally.
Future Challenges: Advancing Capital Efficiency and Identifying Sustainable Growth Engines
Following the achievement of the primary financial goal of a 1x PBR, the expectations of institutional and foreign investors are becoming more rigorous. Beyond merely expanding cash-based shareholder returns, there is a demand for fundamental enhancement of corporate value and sustainable profit generation capabilities. For financial stocks to maintain their current strength and continuously drive a structural re-rating, the following fundamental improvements must be supported.
- Diversification of Profit Structures: The current profit structure heavily reliant on interest income, which is highly sensitive to base rate fluctuations, must be restructured. The proportion of non-interest income—such as Wealth Management (WM), Global Investment Banking (IB), and trading divisions—must be structurally increased to reduce profit volatility.
- Optimization of Operating Costs: The optimization of sales channels through enterprise-wide Digital Transformation (DX) and the adoption of Artificial Intelligence (AI) technologies, along with the ability to control Selling, General, and Administrative (SG&A) expenses, will become the core competitive edge determining long-term ROE.
- Advancement of Corporate Governance: It is essential to establish governance that fully aligns the interests of management and shareholders by strengthening the practical independence of the board of directors and rigorously linking the management's Key Performance Indicators (KPIs) to stock return yields and TSR.
The recent strength observed in financial stocks is not a temporary policy-driven thematic trend, but a structural inflection point where the fundamentals and investment paradigm of the Korean capital market are shifting. As individual companies demonstrate transparent and concrete implementation performance through data in accordance with the principles set forth by the Value-up Program, market capital will concentrate even more strongly on a select few high-quality companies with superior capital efficiency.