Earnings Transcript for 105560.KS - Q1 Fiscal Year 2024

Peter Kwon: Greetings. I am Peter Kwon, the Head of IR at KB Financial Group. We will now begin the 2024 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 SVP, Jae Kwan Kim; and other members from our group management. We will first hear the 2024 Q1 major financial highlights from our CFO and SVP, Jae Kwan Kim, and then engage in a Q&A session. I would like to invite our SVP to deliver 2024 Q1 earnings results.

Jae Kwan Kim: Good afternoon. My name is Jae Kwan Kim, CFO of KB Financial Group. I would like to extend my sincere appreciation to all of you for joining us in our Q1 2024 earnings presentation. Before presenting our first quarter results, I would like to share with you, once again, KB Financial Group shareholder return policy and capital management policy, including the change in the dividend policy starting from this quarter. As you are well aware, KB Financial Group has been implementing an industry-leading shareholder return policy for over a decade based on solid profitability and strong capital base. We were the first company in the industry to buy back and retire its own shares, introduced a quarterly dividend policy and to announce a mid- to long-term capital policy. And in this way, we have continuously enhanced and developed our shareholder return policy and building on these efforts, while maintaining the existing mid- to long-term capital policy to enhance the visibility and predictability of cash dividend. Today, our Board of Directors passed a resolution on a new shareholder return policy, which is evenly paid quarterly dividends based on total dividend policy. To explain our new shareholder return policy in more detail, first, we plan to introduce starting from this year, an evenly paid quarterly dividend to enhance the predictability of our cash dividends. Second, we plan to calculate cash dividends per share based on total dividends. This year, our Board of Director plans to approve a cash dividend per share for each quarter based on total dividends at a level of around KRW300 billion per quarter and around KRW1.2 trillion per year. At the same time, we will continue to actively buy back and retire shares so that the effect of share buybacks and share cancellation can translate into a higher dividend per share. As shown in the graph at the bottom right of the chart, if the company pays out KRW300 billion in cash dividends every quarter, while also buying back and retiring shares, this will automatically lead to increased EPS. Third, we expect to maintain or increase our annual cash dividend at a level of at least KRW1.2 trillion. At this point, we are at the low end of our valuation in absolute terms. So we intend to maintain the total cash dividend at the current level and intend to gradually increase the shareholder return rate through share buybacks and share cancellation. However, in the future, if our valuation approaches fair value per share or our earnings improve meaningfully, then we may increase the aggregate amount of our annual cash dividend. As you can see from KB’s shareholder return history, leveraging our strong capital base, we have consistently strived to pursue an industry-leading shareholder return policy. In order to respond in an agile manner to future economic uncertainties such as the heightened risks to global security in recent months and the sharp exchange rate fluctuations, while continuing to implement KB’s industry-leading shareholder return policy, above all else, we believe it is crucial for KB to have its own differentiated capital competitiveness. Therefore, despite the ELS impact, increased profitability across the group and tight management of risk-weighted assets will enable us to maintain a CET1 ratio of at least 13.5% at year-end to enhance the visibility of future shareholder returns. Finally, we will strengthen the market communication on our shareholder return policy, focusing on the per share metrics, including EPS, DPS, we will actively and consistently disclose the status of our shareholder return and related indicators from the perspective of per share value through our quarterly earnings presentations. To this end, we have prepared a slide on the following page that provides an overview of our shareholder return and related metrics. Please refer to it at your leisure. Our Board of Directors and management firmly believe that shareholder and enterprise value enhancement efforts must continue unwaveringly over the medium to long-term based on market trust. Through the consistent pursuit of the shareholder return policy announced today, we will do our best to achieve substantial and sustainable shareholder and corporate value enhancement. Next, I would like to share with you KB Financial Group's Q1 2024 business results. I'll start by highlighting the group's key business results and key financial indicators before going into greater detail. For your information, please note that KB Life Insurance's quarterly results for 2023 has been restated retrospectively as KB Life has applied in Q4 of 2023, the FSS insurance liability valuation model guidelines. KB Financial Group’s net income based on net income attributable to controlling interest for the first quarter of 2024 was KRW1,049.1 billion, down 30.5% Y-o-Y. The weaker first quarter results were due to a significant widening of non-operating losses as the approximately KRW862 billion was recognized as provisions for customer compensation costs related to Hong Kong H index-linked ELS issues. However, the group’s gross operating income increased by 0.9% compared to the previous year when gains on valuation has significantly increased due to market rate cuts in Q1 of 2023 and profitability of the group’s major non-banking subsidiaries, including securities, non-life insurance and card improved, enabling continuing solid earnings fundamentals. Provision for credit losses amounted to KRW428.4 billion, down 35.9% Y-o-Y and down 68.9% Q-o-Q, owing to the base effect of last year’s large additional provisioning that had been set aside preemptively. The group’s credit cost ratio remained stable and within expected ranges at 38 bps in Q1. And the bank’s credit cost ratio also remained low at 11 bps as well. In addition, the group’s CIR for Q1 of 2024 was at 36.9%, down from the previous quarter, continuing the downward stabilizing trend. As had been previously announced, the Board of Directors today approved the evenly paid quarterly dividend based on total dividend policy and resolved the cash dividend of KRW784 per share for the first quarter. Now, I would like to share with you a more detailed breakdown of our performance by business segment. 2024 Q1 group net interest income posted KRW3,151.5 billion and went up 11.6% Y-o-Y. With strong earnings growth of the bank on the back of loan average balance increase and NIM improvement, this was also a result of non-bank interest income contribution increase. However, compared to the previous quarter, there was a slight decrease of 1.0% due to factors such as decrease of business days. Q1 group net fee and commissions income posted KRW990.1 billion, and increased 8.3% Y-o-Y and 9.2% Q-o-Q, respectively. The increase in net fee and commissions income was mainly attributable to increase in securities fee income on the back of improvement of brokerage fee income and IB business despite the challenging business environment, including suspension of ELS sales as well as card fee income growth, thanks to increase in card members and card fees. This was due to non-banking subsidiary fee income growth. Next, I will cover other operating profit. Q1 other operating profit posted KRW270.4 billion. And due to the effect from changes in the market interest rate and the increase in $1 FX rate leading to weak securities, derivative product and FX performance, it decreased KRW366.2 billion Y-o-Y. On the other hand, it increased by KRW762.8 billion Q-o-Q. With the reflection of the base effect from bank’s social contribution program expenses in Q4, insurance operating profit increased with the write-back of KB Insurance IBNR reserves and improvement in loss ratio. Next, I will walk you through G&A expenses. Q1 G&A expenses posted KRW1,628.2 billion, and increased KRW61.9 billion Y-o-Y, a 4.0% increase and is being well controlled. Last but not least, group provision for credit losses. Q1 provision for credit losses posted KRW428.4 billion. And due to the base effect from preemptive additional provisioning set aside in 2023, it went down KRW239.8 billion Y-o-Y and KRW949.8 billion Q-o-Q. In order to prepare for internal and external uncertainties continuing from last year, we have been implementing a conservative provisioning policy to this year as well. However, since we have already secured sufficient loss absorption capabilities through accumulating large-scale provisioning last year, we expect there to be limited possibility for the group's credit cost to rapidly increase this year. Next, I will cover major financial highlights. Let's cover the group's profitability. 2024 Q1 group ROE posted 8.15%. The recurring level of ROE, excluding one-off items, including ELS customer compensation expenses posted 12.18% and under a diversified business portfolio, stable profitability is being maintained. Next, I will cover bank loans in won growth. 2024 March-end bank loans in won posted KRW344 trillion and grew 0.6% YTD. Household loans posted KRW167 trillion and centering on home mortgage loans, it grew 0.4% YTD, around KRW0.7 trillion increase in corporate loans posted KRW177 trillion and SOHO loans and large corporate loans grew evenly and grew 0.7% YTD, a KRW1.4 trillion increase. We are taking into consideration the economic circumstances and household debt situation and are focusing on qualitative growth, focusing on profitability and asset quality. This year, we will take into consideration a balance between improving capital efficiency and securing an appropriate level of profit basis and plan to flexibly manage the speed of loan growth. Next is net interest margin. 2024 Q1 group and bank NIM each posted 2.11% and 1.87%, respectively, and grew 3 bps and 4 bps Q-o-Q, respectively. Bank NIM in terms of funding with the increase in low-cost deposits in Q1 and with the drop in the expense ratio, with the high interest rate time and savings deposits reaching maturity grew 4 bps Q-o-Q. In the case of the group NIM, even with the increase of card funding costs on the back of efforts to improve card financial asset profitability and bank NIM increase, grew 3 bps Q-o-Q. Let's go to the next page. Next is group CIR. 2024 Q1 group CIR stands at 36.9% level. And thanks to core profit growth and group-wide cost control efforts, it is showing a steady stabilization of downward trend. I will skip group CCR since I previously covered this and now go over the group capital ratio. 2024 Q1 estimated group BIS ratio is expected to post 16.54% and CET1 ratio is expected to post 13.40%. With the recognition of ELS customer compensation costs, it went down slightly Q-o-Q. Although the CET1 ratio slightly declined in this quarter, we plan to exert efforts to improve group-wide capital efficiency to recover the year-end CET1 ratio to at least 13.5% or higher. Please refer to the next pages for details related to the earnings that I have just covered. With this, I will conclude KBFG's 2024 Q1 business results presentation. Thank you for listening.

Q -: