KB Financial Group Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 24, 2025

Key Takeaways

  • Positive Sentiment: 1H net profit of KRW 3.4357 trillion with Q2 profit KRW 1.7384 trillion, ROE at 13.03% and CET1 ratio at 13.74%, reflecting resilient earnings and strong capital position.
  • Positive Sentiment: KBFG commits KRW 3.1 trillion to shareholder returns in 2025, including KRW 1.15 trillion in H2 via dividends and buybacks and plans for additional interim payouts.
  • Positive Sentiment: Noninterest income rose 10.9% YoY to KRW 2.7233 trillion, driven by higher securities and derivatives performance, with nonbank businesses now contributing 39% of net profit.
  • Positive Sentiment: Asset quality improved with Q2 NPL ratio down to 0.72% and coverage ratio at 138.5%, and management expects credit cost to decline from 55 bps toward mid-40 bps in H2.
  • Neutral Sentiment: Bank loan growth guidance remains at 4–5% for 2025, with household loans projected at ~3% and corporate loans at 6–7%, focusing on high-quality assets.
AI Generated. May Contain Errors.
Earnings Conference Call
KB Financial Group Q2 2025
00:00 / 00:00

Transcript Sections

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Moderator

REPRESENTATIVE:] Greetings. I am Peter Kwon, Head of the KBFG IR Division. We will now begin the twenty twenty five First Half Business Results Presentation. Thank you very much for participating in today's earnings release. We have here with us executives from the group, including CFO, Da Sang Lo and other executives from the group.

Moderator

First, our group CFO will cover twenty twenty five first half major performance highlights. After that, we will have a Q and A session. Like in the previous quarter, please note that after our real time Q and A session, we have set aside additional time for management team to answer questions that were previously submitted by our shareholders. I will now invite our group CFO to walk us through the first half business results of 2025.

Moderator

Good afternoon. I am Lars Hong Rook, CFO of KB Financial Group. Thank you all for joining the first half twenty twenty five earnings release presentation. Today, I will walk through key results of the first half and update you on the shareholder value and return, then move on to the details of our earnings. First, page one.

Moderator

Q2 net profit reported KRW 1,738,400,000,000.0 with first half cumulative profit reporting KRW 3,435,700,000,000.0 and ROE of 13.03%. Increase in RWA for the first half on a cumulative basis was managed at around 2.4, while CET1 ratio as of June came in at 13.74%. All in all, we maintained the balance between resilient earnings power and stable capital management. And under KB's shareholders' return framework, we will be using what is above CET1 ratio of 13.5, which is KRW $850,000,000,000 in total as funds for shareholder return in the second half. When accounting for KRW 300,000,000,000 of proactive buybacks done in the second quarter, second round of shareholder return upcoming in the second half will amount to around KRW 1,150,000,000,000.00.

Moderator

Out of the total annual cash dividend of KRW 1,340,000,000,000.00 for 2025, today's BOD resolution decided on KRW $335,000,000,000 of equally portioned dividend for second quarter and EPS of KRW $920,000,000,000,000. Also, we decided to first buy back and cancel KRW $660,000,000,000 of treasury shares within the scope of distributable profit. Out of KRW $850,000,000,000, the KRW 190,000,000,000, which is excess capital, would be used as fund for shareholder return at book closing of 2025 accounts following the BUD resolution. And this amount will be classified and attributed to shareholder return for 2025. It's inevitable that portions of the second round of shareholder return for 2025 will be first paid in Q2, while the rest will be returned by early next year, which is due to the progressive expansion of shareholder return at KBFG versus the past practices as we exceeded the profit available for dividend payout.

Moderator

I want to reiterate that KB's firm commitment to shareholder return and its promise stays unchanged. In particular, total shareholder return for 2025 is KRW 3,100,000,000,000.0, which is a significant increase year over year. And although TSR may slightly fluctuate depending on the size of annual net income, we expect record high TSR for the year. Also, we plan to have interim dividend payout from the subsidiaries in the second half to secure ample amount of distributable income for the upcoming year. Next is Page two.

Moderator

We shared our shareholder return plan for both first half and 2025 with the market for the benefit of transparency and are faithfully implementing the plan. In the second half, we plan to focus on three key directions in terms of capital discipline. First, promise to the market. We know the gravity of this commitment and will hence implement the announced shareholder return framework with consistency. Based on our execution capabilities, we will further solidify trust from the market.

Moderator

Second, we will manage risk weighted assets with greater precision. RWA growth will be controlled at an appropriate level. But rather than just managing the rate of RWA growth, we will change the fundamentals to one that guarantees our bottom line. Third, under such capital discipline, to ensure the shareholder return expansion is not one off event, we will continue to balance between ROE and capital ratio as done so in the first half of the year. Now moving on to KBFG's business performance.

Moderator

Group's net profit for Q2 was KRW 1,738,400,000,000,000.0. And on a first half basis, it was up 23.8% year over year, reporting KRW 3,435,700,000,000.0. Such result was driven by higher noninterest income and the recovery from nonoperating profit, which drove the group's net profit. Noninterest income was up 10.9% year over year. And due to the absence of ELS provisioning seen last year and gains from disposition of assets under consolidated funds, non operating income increased by KRW 104,700,000,000,000.0 year over year.

Moderator

Also, Nonbank accounted for 39% of the group's first half net profit. Diversified business portfolio of the group is expected to play a critical role in securing earnings stability in times of interest rate decline and boom in the stock market trading. With that said, I will now move on to the breakdown of the earnings results.

Moderator

Twenty twenty five first half group net interest income posted KRW 6,368,700,000,000,000.0. And despite the net interest margin contraction following the rate cut through stable loan growth, we achieved results similar to the same period last year. However, it decreased 4.8% Q o Q because around KRW159.1 billion of the expenses from the liquidation of consolidated fund in Q2 was temporarily reflected on interest expenses. And excluding this on a recurring level, we are maintaining the level of the previous quarter. Next, I will cover bank loans in one growth.

Moderator

As of end June twenty twenty five, bank loans in won posted KRW372 trillion and grew 2.4% YTD and 1.4% Q o Q. Household loans posted KRW 181,000,000,000,000 and mortgage loans and unsecured loans grew evenly and grew 0.9% Q o Q. Corporate loans posted KRW 191,000,000,000,000 and centering on large corporates and prime SMEs grew 1.9% Q o Q. We plan to operate our loan policy from a comprehensive profitability perspective in the second half as well and stably secure our interest income base. Next is net interest margin that you can see on the bottom right side.

Moderator

Q2 bank NIM posted 1.73% despite efforts to cut funding costs, including increasing core deposits And with the loan yield contraction following the market rate cut, it went down three bp Q o Q. Meanwhile, group NIN posted 1.96%, and the impact to the bank NIM decline was further compounded by the decline in credit card receivables yield and went down five bp's Q o Q. In the second half as well, since we expect the interest rate decline trend to continue through core deposit growth and profitability based loan portfolio management, we plan to minimize the contraction of NIM as much as possible. Next, I will cover noninterest income. First half group noninterest income posted KRW 2,723,300,000,000,000.0 and improved 10.9% Y o Y.

Moderator

Due to the decline in exchange rates and the rise in stock market index, performance related to securities and derivatives significantly improved, leading to an increase of KRW 211,700,000,000.0 of other operating income compared to the same period last year. On the other hand, first half group net fee income posted KRW 1,966,000,000,000.000, a 2.9% increase Y o Y. And with the increase in bank's assurance sales commissions and securities brokerage fees, combined with higher fee income from the disposal of assets under management, achieved results, which was a 56,300,000,000.0 increase compared to the same period last year. In particular, Q2 group net fee income posted KRW 1,032,000,000,000.000, a 10.5% increase Q o Q and surpassed for the first time on a quarterly basis KRW 1,000,000,000,000. I believe these results were a fruit of our consistent efforts to expand fee income that does not accompany RWA growth and our growth in noninterest income by our subsidiaries.

Moderator

Going forward, based on diversified group portfolio, we will gradually achieve qualitative improvement of our profit structure. Next, I will walk you through our G and A expenses. First half G and A expenses posted KRW 3,355,300,000,000.0, a 4.1% growth Y o Y. First half group CIR is being maintained at a stable level of 36.9%. Going forward, we will actively expand investments to secure future growth drivers, including exploring new businesses and enhancing productivity through AI and also strive to rationalize costs, focusing primarily on rationalizing recurring expenses and continue our group's CIR downward stabilization trend.

Moderator

Next is Page eight, group's provision for credit losses. Q2 provisions for credit losses posted KRW 655,100,000,000.0, and group credit cost posted KRW 55 bp and maintained a similar level to the previous quarter. In the previous quarter, in the Card division, which the market was concerned about as a result of implementing focused measures to improve asset quality, including sale of loans and reinforcement of short term delinquency recovery teams, the scale of provisioning was significantly reduced compared to the previous quarter. However, while maintaining a conservative provisioning stance, Bank and Securities additionally provisioned around KRW 100,000,000,000 for real estate sites and guaranteed completion real estate trust projects, leading to Q2 credit loss provisioning level and CCR is being maintained at a similar level to the previous quarter. And the NPL coverage ratio slightly improved Q o Q.

Moderator

Meanwhile, in the second half of the year, along with key rate cuts driven by the government's economic stimulus efforts such as supplementary budget and support for vulnerable borrowers through the establishment of a bad bank, we expect that the asset quality management conditions will improve favorably, and we believe that the credit cost has passed its cyclical peak and is entering into a downward phase. In the second half, we will do our best to achieve meaningful improvements in asset quality by actively promoting the rebalancing of nonperforming assets and reducing high risk asset limits. Let's go to the next page. Q2 group NPL ratio posted 0.72% and improved 0.04 percentage points Q o Q. Group's NPL coverage ratio improved 5.4 percentage points Q o Q and recorded 138.5% and has sufficient loss absorption capacity to prepare for potential nonperforming assets.

Moderator

Lastly, I will cover group's capital ratio. As I explained previously, group's VAS ratio at the June 2025 on a preliminary basis posted 16.36%, and the CET1 ratio recorded 13.74% and secured the industry's highest level of capital adequacy. As of end June twenty twenty five, group's risk weighted assets posted KRW354 trillion and grew 2.4% YTD. And considering our annual RWA growth target, is being maintained at and managed at appropriate and controlled pace of growth. The following pages contain details on the performance we have just presented, so please refer to it if needed.

Moderator

This concludes KB Financial Group's twenty twenty five first half business performance report. Thank you for your attention.

Moderator

Thank you. We will now begin the Q and A. For those of you joining us via the Internet, please refer to the contact info on the very last page of the presentation screen. We will take the first question, Kim Joo from Samsung Securities. Please go ahead.

Moderator

I would like to ask two questions. Even with the earnings presentation, I still have a question as to the size of your second half shareholder return. In terms of the timing of the share buyback, you will be doing that in the early next year. So for the second half, is it correct for us to say that the size of the shareholder return for the second half is $850,000,000,000 yen So also for next year, what are your plans to make sure that you have ample amount of distributable profit for dividend? And second is a question related to your provisioning.

Moderator

I was expecting a lower figure in terms of the provision. So I'm a little bit confused. As you've mentioned, all the asset quality related metrics have improved, but still we've seen certain increases in the provisioning levels. I would like to understand as to why that is. I understand the credit cost guidance is 45 basis points for the year.

Moderator

So in the first half, we are now seeing CCR at 55 basis points. So that means that in the second half of the year, what would you guide us? Because you usually provision more in the end of the year even if we consider that on an annual basis. Would like to understand as to the annual guidance, is it staying the same as per your previous communication? So just give us one moment as we prepare to answer your questions.

Moderator

Thank you, Mr. Jo Kim, for your question. Regarding the question on the size of the shareholder return, as mentioned during the presentation, in the second half of the year, yen $850,000,000,000, that is the size. However, the excess capital above the distributable profit, yen $660,000,000,000, therefore, is decided to be paid to be enforced. With the BOD resolution, the remaining, which is JPY 190,000,000,000, will be used as funds for shareholder return.

Moderator

So as mentioned during the presentation, so including the JPY 190,000,000,000, 2025, that JPY 190,000,000,000 is going be attributed to 2025 shareholder return, which is in excess of the distributable profit. In the second half, for us to ensure we have ample amount of distributable profit, We are open to many different options. First being receiving the interim dividend payout from our subsidiaries. We think that, that is a way for us to ensure that we have these resources. And also, there's also impaired dividend payout as well.

Moderator

So we are open to various different options, so you do not need to be concerned. So JPY $850,000,000,000 as per our presentation, that is the size of the second half shareholder return. With the CCR for the second half of the year, as you have mentioned, the second quarter CCR basically reported the similar level as we've seen in the Q1. So basically, in line with the natural increase in the provision and also to counter decline in the property, what we did was we had a preemptive provisioning of around KRW 100,000,000,000. Out of certain potentially certain loans and exposures, we what we did was, in terms of the overlay approach, we made certain additional provisioning so that we could ensure certain level of loss absorption capability in light of the potential sellout rate of the apartments and the progress as well as rental rate.

Moderator

Also, we went through very active writing offs and sell off and also rebalancing of the NPLs. And so we really strengthened our collection organization. So we have implemented multiple number of plans, and we are seeing the impact of these changes from the second quarter. So in terms of NPL and asset quality related metrics, we are seeing improvement. And also on top of that, in the second half, there will be certain level of reversals as we sell off the NPLs.

Moderator

And the size of the provisioning for the second half, we think that it's going to stabilize as we enter into the second half. However, we are exposed to potential tariff related pressures from the outside under the new Trump administration. There are still certain external factors that may weigh down on our metrics. However, based upon our asset quality approach and also with our soft lending policies against the vulnerable borrowers, if we are able to manage those two aspects, unless there's any unexpected surprises, we believe that we will be able to control CCR at mid-forty basis point level. I also just would like to add on the shareholder return framework at KBFG.

Moderator

You would already know this quite well. Basically, the excess capital above certain baseline will be fully used to return back to our shareholders. So there is certain carryover to next year. So maybe some of you may be concerned that the shareholder return amount for next year will be lower. However, if you look at the RWA, the resilience and also as we are able to maintain our capital ratio, basically, the carryovers from this year is not going to negatively downsize the amount of shareholder return that the shareholders can expect for next year.

Moderator

So in light of the earnings resilience and our capital management and our capital ratios, because of this carryover, because of the excess capital above the distributable income, it will not have a negative impact on next year's shareholder return. Just wanted to reiterate that. We will take the next question from MA Securities. We have Jung Joon seok on the line, sir. From MA Securities, Jung Joon seok. I have two questions. First question is regarding your rate performance and 0.8 PBR.

Moderator

I think you have achieved nearly that number. And although it may not be imminent for the contribution of dividends and share buyback, I think you can consider that. And if you can have some changes in your policy, can you tell us about the timing and what will change going forward, if you can share with us anything at this juncture? My second question is about your loan growth. In last month, the government came up with measures to control household loans.

Moderator

And in the second half, it seems that the speed of household loan growth will be decelerated compared to the first half. And regarding the loan growth guidance that you have presented in the early part of the year, will this change? And if household loans suffer, are you going to come up with any countermeasures? REPRESENTATIVE:] Thank you very much for the insightful questions. Regarding our shareholder return policy regarding PBR enhancement and the mix change that may happen, according to our framework, I have been emphasizing that with lower PBR, share buyback cancellation amount will be increased.

Moderator

And when PBR goes up, share buyback and cancellation contribution will go down and cash dividends will go up. I think we have mentioned this in our corporate value enhancement plan. And regarding your question, as you have just asked, well, our people are improving faster than we had expected, and a lot of the discount factors have been resolved. And it seems that if we can reach the consensus, then regarding the cash dividend payout ratio, it can go up, and it is being improved very quickly. And we are seriously considering a change in this mix at this juncture.

Moderator

And regarding our loan asset growth, our Bank CFO will take that question. Thank you for the question, and I will answer that question regarding loan growth for 2025. For profitability and asset quality, focusing on those two, we considered high quality asset growth and having a very efficient capital usage. And the bank's loan growth, we believe that it will be 4% to 5% within our business plan. And as you have mentioned, the financial authorities are have a financial plan for controlling household loans.

Moderator

And we are going to have different loans that are profitable and other mortgage loans that will be of focus. And for the collective loans, I think we will be more considerate, and we were going to have optimization of our household loan portfolio. Looking at the economic growth pace and considering the reinforcement of the government's policies, we believe that the household loans will grow at about 3%. And for corporate loans, we are going to focus and prioritize highly high quality loans, and we're going to have 6% to 7% annual growth. And for large corps, according to the business environment changes, we're going to do our best to secure high quality corporate loans going forward.

Moderator

And for SME loans, we're going to strengthen the customer base, and we're going to have more accelerated transactions. And for SOHUS, we're going to have growth through portfolio diversification in different areas.

Moderator

We will take next question from Hanoi Investment Securities, Kim Do You've mentioned distributable profit. And so I was able to look at the disclosed information from the subsidiaries receiving the dividend within before the end of the year. Is that possible? And under the assumption that there is no change in the rules, would the dividend payout from the subsidiaries be possible from February? Because out of your total capital, you would have to deduct certain things.

Moderator

And the reserve, if you look at the P and C insurance, it seems like there is no ample room there. So that's why I'm asking this question. And my second question is on PBR. If PBR is improving, you've talked about increasing the amount of cash dividend payout. So at that point in time, do you have a certain valuation level that you're considering as a baseline?

Moderator

I ask this question because other banking holding companies, if you look at their value of disclosures, they say PBR 0.1 to one zero point eight to 1x the range that they would be willing to adjust the ratio. So could you also share with us a certain band in terms of the PBR multiple? So just give us one moment before we answer that question. REPRESENTATIVE:] Yes. Thank you very much for that good question.

Moderator

So I talked about the potential interim dividend payout from the subsidiaries and using that as funds for profit for dividend. If you look at our life insurance and P and C, the interim dividend that we get paid from that, that is not something that we are considering because there is a capital discipline and capital ratio related regulation that's changing in the insurance industry. So we are thinking more of that impact coming from next year, not necessarily this year. So setting the insurance aside, we also have securities and brokerage subsidiaries. So we're thinking of getting that interim dividend around these types of subsidiaries.

Moderator

Now for the PBR range and the band, not other holding companies but us as well, 0.8x to 1x the multiple within that range, we are open to potentially adjusting the mix between the two. This range itself is quite broad, but what's important is 0.9, 0.8. It's not the number itself that's important. It's about actually relieving all the discount factor and the start of the rerating cycle. If we think, in our view, that, that timing has come, we will be able to come back to you and give you a more concrete answer.

Moderator

The band that other holding companies are talking about, I can also tell you that, yes, we are also moving within that range of PBR. Thank you.

Moderator

UNIDENTIFIED From HSBC, Jaeong Won. Congratulations on your great performance, and thank you very much for shareholder return. I have two questions. The first question is about overseas business. Group up in Indonesia.

Moderator

Well, I know that you have you are turning into a profit, and I think And regarding Q2 performance, I would like to know more for Vugopin. And in the second half of the year, can you tell us about how you think the earnings will play out? And I know to JB Holdings, you have sold capital. And regarding those profits, how when will it be attributable to your P and L? And I know that you have the excess of the distributable profit that makes you need to defer it to the next year.

Moderator

And I think some decisions are made at GSM. So regarding the KRW 190,000,000,000 of additional share buyback and cancellation, will it be after March? Because I'm not very knowledgeable of about this. So can you tell us about the timing, if that will be when or not? Thank you very much for your questions, and we will soon answer your question. REPRESENTATIVE:] Thank you very much for your great questions And for the reduced dividends, well, it needs the resolution from the GSM. And regarding interim dividends, this can be done before that. However, with the interim dividends and after that we close 2025, the books, then there will be the distributable profits that are calculated that can be done for the next year, fiscal year. So at that time, we can tell you that we can have additional REPRESENTATIVE:] shareholder return.

Moderator

Thank you very much for your question. I am Kangnam chae in charge of Global Business at KBTongmin Bank. And I have a question about KBI or VUGO PIN. And in Q2, we turned up profit. And in the first half, we expect about KRW 20,000,000,000 of profit.

Moderator

And in the second half, we believe that this trend will continue. However, for G and A, in the second half, we will have a bit more. So it might be a little bit lower than the first half. But we believe a 20,000,000,000 level of net income or profit will continue. And regarding KBI subsidiary, JB Capital acquired Capital, in the case of Indonesia, for the buyer, well, there is fit and proper test that needs to be passed by the authorities.

Moderator

And it will take about one year for this test to be completed. Accordingly, regarding the proceeds of the sale, we believe that it will be booked probably in the first half of next year.

Moderator

You. We do not have any additional questions that's in the queue, but we will wait one more minute. If there are no additional questions, let me now respond to some of the questions that were submitted by our shareholders. But before we go into that, let us just wait one moment. Yes.

Moderator

From Korea Investment Securities, Do san. Please go ahead. I am Baek Do san from KIS. I know you've talked about this, but I just have one more follow-up question on shareholder return. Because JPY 190,000,000,000, you will be buying back and canceling next year.

Moderator

And I think this is about five basis points in terms of capital. So next year, basically, you will use the sources that's above 13.5% in excess of that. But so for next year, it's going to be 13.05% or 13.06. So would that be the fund for distribution? Or is it still going to be 13%?

Moderator

So I just want would like to get some color with regards to the excess capital and the CET1 ratio. Yes. I think your question actually has the answer in it because it actually is the same thing. Basically, capital that's in excess of 13% of CET1 will be fully returned back to the shareholders. But the five basis point, because we did not pay that out yet, so based upon the CET1 ratio of the year end, it will still be reflected in the CET1 ratio as of the end of the year.

Moderator

So for that amount, that is going to be attributed to 2025 shareholder return amount, as I've mentioned during my opening presentation. REPRESENTATIVE:]

Moderator

Thank you for your questions. I don't think we have additional queues yet, so we will hold and wait for questions. I don't think that we have additional question. And I think that we can cover some questions that were asked by our shareholders. I think we can share the screen.

Moderator

And regarding the separation of taxation of dividend income, if this takes place, do we have any plans to increase our cash dividends? And second question, according to the level of PBR, do we can we or are we going to adjust our dividend shareholder buyback and cancellation ratio? The CFO will answer the questions. I think I've already answered the second question. And regarding if the separate taxation of dividend income takes place, of course, we need to absolutely consider whether we're going to expand our cash dividends. And we do not have concrete calculation basis for dividend payout ratio or detailed provisions of the enforcement decree, so we cannot really set forth clear standards. However, I have mentioned that based on PBR, cash and share buyback and cancellation, we are going to do our best to have efficient mix. So regarding the size of our profits, our cash dividend payout ratio and dividend yield, we're going to consider all of this. And regarding the separation of taxation of dividend income, we believe that it will be a great opportunity to expand our shareholder return.

Moderator

And because we are representative of stock for the dividend payout, I think if we have the implementation of separate taxation of dividend income, we're going to do our best to have this work in favor of our shareholders. I think that now we can conclude today's earnings release. Thank you very much for your attention.

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