South Korean bank stocks are outperforming the broader market as the Bank of Korea's second consecutive rate increase, hawkish U.S. Federal Reserve signals and a stronger won improve the sector's outlook. From Aug. 24 to 31, KB Financial Group rose 6.25%, Hana Financial Group gained 5.91%, Woori Financial Group climbed 5.79% and Shinhan Financial Group advanced 5.42%. The KRX Bank Index increased 5.42%, nearly triple the KOSPI's 1.84% gain, as capital rotated from correcting semiconductor shares into relatively undervalued banks. Institutional investors bought ₩331 billion of bank stocks last week despite net selling ₩345 billion of KOSPI shares. Higher rates can widen net interest margins, while won appreciation can reduce translated foreign-currency liabilities and support shareholder returns, but analysts caution that elevated borrowing costs could weaken asset quality, consumption and small-business cash flow. Brokerages continue to favor companies improving return on equity through stronger return on assets rather than increased leverage, particularly in power equipment, defense, IT hardware, cosmetics, and pharmaceuticals and biotech.