Korea’s banking sector is likely to see a continued upturn following a solid performance in the past week that outperformed the broader KOSPI, a brokerage said in a report.

Kyobo Securities said the banking shares on the main bourse rose 6.4 percent in the past week, while the KOSPI rose 4.2 percent, largely because of a brightened outlook for Europe’s economic recovery and optimism about investors’ demand for the stocks.

The rally came after shares in local lenders had weakened a bit following their fourth-quarter earnings announcement started in mid-February, coupled with profit-taking in connection with the sporadic rises of share prices over the ups and downs of the eurozone fiscal debt crisis.

“Economic data on the U.S. and Europe is improving and the expectations about a successful bailout package for Greece remain positive,” Kyobo said. “The National Pension Service is also expected to buy up more shares in local banks as the regulatory limit on share ownership ceiling of 10 percent might be lifted.”

Kyobo said there is extra room for an upside in terms of share prices for domestic banks as the earnings season for the January-March period draws near.

Eight lenders are forecast to see their net income reach 3.68 trillion won for the most recent quarter, up 121 percent from the previous quarter. The figure would overshoot the average for the bank’s quarterly net profit in 2011 by as much as 15.6 percent.

The brokerage said banks’ asset growth during the first quarter would be limited, but the bottom line is likely to remain solid thanks to lower marketing and depreciation costs.

By Yang Sung-jin (insight@heraldcorp.com)