Banks’ cost of funds index (Cofix) rate on new funds in October was up
10bps fromSeptember and 15bps from August. The Cofix rate should rise
again in Novembergiven that yields on 1-year KTBs have leapt 32bps from
September levels.

    While all three of Korea’s biggest financial groups should enjoy NIM
growth, ourtop pick is KBFG. We also like HFG for its sector-high
earnings sensitivity tointerest rate hikes.

    The recent jump in market interest rates should renew growth in
banks’ NIMs from4Q. Comparable growth in interest rates in 2H16 led NIM
at KB Financial Group andHana Financial Group to rise 13bps and 14bps,
respectively, over 1Q-3Q17.