KB Financial Group Q1 2023 Earnings Call Transcript

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April 27, 2023

There are 2 speakers on the call.

Operator

Greetings. I am Peter Kwon, the Head of IR at KBFG. We will now begin the 2023 Q1 Business Results Presentation. I would like to express my deepest gratitude to everyone for participating today. We have here with us our group CFO and SEVP, Scott Y.

Operator

H. Seo as well as other members from our group management. We will first hear the 2023 Q1 major financial highlights from CFO and SCVP, Scott YH saw and then engage in a Q and A session. I would like to invite our CFO and our CVP to deliver 2023 Q1 earnings results.

Speaker 1

Good afternoon. I'm Scott YH Sol, CFO of KB Financial Thank you for joining the company's Q1 2023 earnings presentation. Before going into the details of Q1 'twenty I will first run through key performance metrics for Q1. As you are aware, starting Q1 of 'twenty Three results, our accounts are based on IFRS 19 standards IFRS 17 standards, and we have retroactively restated '22 earnings of the group and its insurance subsidiary. 1st, KBFG's Q1 net Profit was KRW1497.6 billion, which is up 2.5% year over year.

Speaker 1

Driven by balanced growth from bank and non bank business, we were able to report earnings, which was 6.5% higher than market consensus. Group's Q1 ROE was 12.4 percent and annualized EPS earning per share was approximately KRW 15,224, increasing by 2% year over year, sustaining an uptrend. PPOP pre provisioning Operating profit in Q1 was KRW2793.8 billion, growing 36% year over year. SVB bankruptcy in the U. S.

Speaker 1

And Credit Suisse merger led to greater financial market uncertainties, despite which we were able to drive solid quarterly results, driven by strong customer trust underpinned by KBFG's robust capital base and large improvements Contributions from sales and trading or market business, which was previously under pressure due to greater financial market volatility in 2022, as well as greater profit contribution from our insurance subsidiaries. As a result, non bank Business share against group's net profit increased to around 41%, while group's earnings profile also improved with contributions from interest income increasing significantly to 64%. Cost to income ratio, which is a measure of cost efficiency, decreased to 35.9%, driven by solid profit growth trend and cost efficiency efforts that cut across the entire group. Now during this quarter, there was a significant increase in the group's PCL. This is largely due to conservative provisioning initiated at the group level for relatively weaker positions at card, capital and Savings Bank Business in light of concerns over economic recession.

Speaker 1

In addition, 48% of group PCL was reserved as part of the bank's general provisioning, irrespective of delinquencies in loan assets or NPL formation. As a result, NPI coverage ratio for the group and the bank end of March were 196% and 2 64%, respectively, maintaining highest loss absorption capacity in the industry against potential losses. I am aware of grave market concern over the operational headwind faced by the financial industry. Looking at group's CET1 ratio for the Q1 of 2023, it reported 13.67%, which shows Despite higher shareholder return, there was 40 basis point improvement versus end of 'twenty 2. This is a clear demonstration of the fact that KBFG is a Under a challenging market, KBFG outperformed Market expectations in Q1 underpinned by solid fundamentals and diversified business portfolio.

Speaker 1

We will continue to endeavor to meet expectations of customers and market players going forward. Lastly, KBFG's BOD today decided on quarterly dividend payout of KRW510 per share. As you know, We've put in place quarterly dividend scheme since last year and due to treasury share buyback and cancellation, which took place early this year, DPS inched up slightly year over year. We will continue to think of ways to further enhance shareholder value of KBFG and implement such measures in a consistent manner. With that said, I will now walk through our business performance in more detail.

Speaker 1

Group's Q1 'twenty three NII net interest income was KRW 2,785,600,000,000, up 5% year over year, which was due to rise in average balance of interest bearing assets and sustained improvement in NIM year over year. However, on a Q on Q basis, NII fell 7%. Whilst NIM relatively fared okay, overall loan growth had been lackluster. The bank's NII decline was the first in 16 quarters. Next is net fee and commissions income.

Speaker 1

Group's Q1 net fee commission income was KRW 918.4 billion, up 22% Q over Q. This was driven by good performance from the bank's IB business, winning and arranging for mega deals as well as increase in brokerage volume and efficient top by management of the credit card business. On a year over year basis, however, net fee commission income dipped marginally, which is due to the high base effect from mega IPOs Q1 last year, which drove IB income substantially and due to softer fee income from the bank's trust business. Next is other operating profit, which includes profit from prop trading and insurance business. Q1 other operating profit was KRW656 KRW100000,000 reporting sizable improvement both Q on Q and year over year.

Speaker 1

It was thanks to our timely response to market rate declines and stock market rebound and through a nimble rebalancing of portfolio, we were able to improve prop trading gains across all to GREs and expanded insurance underwriting income by a large margin. Sales and trading business underwent massive reorganization across the group in terms of organizational structure, performance evaluation and hiring of talent from outside. As such, we expect to generate steady earnings in 'twenty three compared to the previous years. For the non life business, insurance underwriting profit was up KRW 243 1,000,000,000 Q on Q. Despite one offs such as massive fire incident in Q1, lower accident rates and improvement in claims from long term lines continued, which drove KB Insurance's Q1 net profit of KRW263 1,000,000,000 on a separate basis, reporting 29% year over year increase.

Speaker 1

The company has worked hard over the years to reduce its Dependence on interest income and gradually grow noninterest income business and such efforts behind diversifying profit sources paid off as noninterest income share, which used to be around 20%, increased to 36% as of March 23. Next on G and A. Q1 group G and A was 1,560,600,000,000,000, up 5.7 percent year over year. JPY 3,000,000,000 up 5.7 percent year over year. Excluding expenditures related to KB Life Integration and CapEx for digitalization, G and A was kept well below the past 12 months inflation.

Speaker 1

In light of concerns of the economic recession this year, Rigorous cost management has to be part of the company's priority. As such, we will focus on corporate wide cost management, revisiting cost items from the 0 base so as to ensure cost efficiency. Last is our group's PCL. Q1 PCL reported KRW668.2 billion, a sizable increase year over year. As mentioned before, this is due to conservative provisioning stance taken across the entire group in light of recently elevated potential for credit risk.

Speaker 1

Next page is on key financial metrics. Bank's loan in 1 graph shows As of March 23, total loans in won was KRW327 1,000,000,000,000,000, down 0.6% year to date And as such, overall loan growth has been quite lackluster. Household Loan reported KRW163 1,000,000,000,000 on the back of concerns over economic slowdown, which drove decline in loan demand, including unsecured loan and chonsei loan with decline being 2.2% year to date, posting a negative growth rate. On the other hand, corporate loan was KRW164 1,000,000,000,000, up 1% year to date, increasing around KRW1.6 trillion on the back of loan growth for large corporates. As both internal and external environment conservative risk management, we plan to focus on managing soundness and profitability and drive quality growth centering on quality asset.

Operator

Next, net interest margin, NIM. 2023 Q1 group and bank NIM Each recorded 2.04% and 1.79%, respectively, and increased y o y. Looking at the details, q1 Bank NIM, despite the continued outflow of core deposits as a result of asset repricing and flexible funding portfolio management efforts, deposit beta became stabilized and rose 2 bpqoq. In the case of group NIM with bank NIM improvement and improvement of card asset yield. Centering on installment finance, asset yield improved for card and thus Rose 5BP QoQ.

Operator

Let's go to the next page. This is the status of our group's asset quality. Q1 group NPL posted 0.43% and slightly deteriorated YOY and QoQ. Q1 Quarterly Group NPL net increase was at KRW 360,000,000,000 level, and the increase in NPL from Card Capital Savings Bank accounted for 66% of the total group NPL increase in Q1. In addition, bridge loans took up 31% of this net increase.

Operator

Continuous asset price adjustments and the realization of economic downturn are analyzed at the biggest cause of NPL increase. The group NPL ratio is still lower than the 2019 level, and we expect that it will be controllable to a level that does not greatly See the current level through strict pre- and post NPL management. From this page, I would like to elaborate on ESG leadership toward a sustainable society among KB Financial Group's 2023 management strategy directions. KB Financial Group, centering on our ESG committee, has been establishing systematic ESG strategies and goals and have been implementing diverse implementation tasks step by step. As major ESU strategic goals, 1st, KB netzerosar in order to achieve carbon neutrality of our internal emissions by year 2,040 and finance emissions by year 2,050.

Operator

2nd, KB Green Wave 2030 to expand ESG Finance to KRW50 1,000,000,000,000 by year 2,030 3rd, KB Diversity 2027 to foster female talent in the group and to secure diversity among our members.

Speaker 1

Of

Operator

this, ESG Finance is at a KRW 28.1 trillion level at the end of 20 It is expected that the original goal will be achieved earlier. In addition, the goal of fostering female leaders by removing the glass ceiling and glass walls And to expand gender equality based on providing fair opportunities has slightly improved compared to a year ago. As the pool of excellent female talent is gradually And we also expect the increasing speed to naturally accelerate. Our differentiated ESG management efforts is being assessed and recognized as of the highest level at home and abroad. In particular, in the MSCI ESU ratings announced Last month, we were the 1st and only domestic financial institution to be rated AAA, and we demonstrated ESG ratings results at a global top tier level.

Operator

Next, in order to create a sustainable future in society, which is our ultimate goal we want to achieve through ESG Management, We are pursuing harmonious growth with society and diverse efforts for prosperity mutual prosperity. As of the end 2022, The balance of social financing reached about KRW 12,000,000,000,000, and we are implementing practical efforts such as carrying out KRW 223,000,000,000 of social contribution projects during last year. Not resting on our laurels this year as well, we plan to continue promoting mutual growth efforts, centering on 3 key focus areas, which are mutual prosperity, community and future generations. Through efforts such as strengthening the competitiveness of SME small businesses and practicing inclusive by supporting the establishment of elementary school after school care programs, step by step growth of teenagers and socioeconomic independence of young people preparing for self reliance. Going forward, TB Financial Group will swiftly act to implement financial service delivering change to create a better world.

Operator

Based on a higher level of ESG management leadership, we promise to fulfill our responsibility and will be fitting our status as a leading financial institution.

Speaker 1

Let's go

Operator

to the next page. Finally, on this page, I would like to elaborate on KB Financial Group's digital competitiveness. Along with non face to face financial transactions accelerated by COVID-nineteen pandemic as competition is With intranet banks such as Kakao Bank and TOS Bank, digitalization is being emphasized as an important competitive edge in the financial industry. KB Financial Group, which has been 1 step ahead in responding to these changes, has been strengthening its major platform centering on customer needs and pain points And going forward from an omnidirectional perspective that encompasses platform content and marketing, we will pursue digital transformation so that we will solidify our top their position in the digital financial market. As a part of these efforts, we are pursuing the super app strategy centering on KB Star Banking and are concentrating our capabilities on group's core platforms such as KB Pay and Mabu.

Operator

Focusing on the 4 major non Financial areas, real estate, automobile, health care and telecommunications, we aim to expand the nonfinancial areas and are continuing our efforts to become a customer oriented number 1 financial platform, which offers the best customer experiences. As a result, as of the end of March 2023, digital platform NAU grew rapidly by 42% compared to the end of 2021, exceeded 22,950,000 people. KB Star Banking, the group's flagship app, was the 1st commercial bank to achieve 11,000,000 MAU. Live Mobile was the 1st in the financial sector to operate a service combined with telecom and achieved 400,000 subscriber retention, and we also recently obtained final approval for MVNO phone service from the Financial Commission. In addition, KB Kumin Certificate acquired 3 government certifications for the first time in the industry and grew 34% compared to 2021 and exceeded 12,840,000 users and is growing as a representative private Authentication Service in the Financial Sector.

Operator

Apart from this, in order for strategic and preemptive investment in promising start ups, We established the CEVC fund, enabling partnerships with promising platform related ventures, start ups and new technology companies, which can strategically cooperate with subsidiaries and made around KRW418,700,000,000 of strategic investments. Through the KB Starters program, we discovered around 202 excellent startups by March 2023 and established around 2 74 partnerships with KB subsidiaries and have been supporting overseas expansion through KB Global Fintech Lab. Likewise, we are also operating innovative financial service programs at the highest level in the financial sector. Going forward, along with our group's flagship app, KB Star Banking will also activate KB Pay and others and through continuous expansion of service areas and content enhancement, and work hard to become a part of daily lives of our customers. From the next page, there is detailed data regarding the business performance I have covered so far, so please refer to it if needed.

Operator

With this, I will conclude my report on 2023 Q1 business performance report of KBFG. Thank you for your attention.

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Earnings Conference Call
KB Financial Group Q1 2023
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