KB Financial Group Inc. (NYSE:KB) Q1 2025 Earnings Call Transcript

KB Financial Group Inc. (NYSE:KB) Q1 2025 Earnings Call Transcript April 24, 2025

KB Financial Group Inc. misses on earnings expectations. Reported EPS is $3.02 EPS, expectations were $3.04.

Peter Kwon: Greetings. I am Peter Kwon, Head of the KBFG IR Division. We will now begin the 2025 Q1 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, Sang-Rok Na. First, our Group CFO will cover 2025 Q1 major performance highlights. After that, we will have a Q&A session. Please note that like in the previous quarter, after our real-time Q&A session, we have set aside additional time for the management team to answer shareholders’ questions. I will now invite our Group CFO to walk us through 2025 Q1 business results.

Sang-Rok Na: Greetings. I am KBFG CFO, Sang-Rok Na. Thank you for participating in our 2025 Q1 business results presentation. I will first touch upon Q1 key performance and major management indicators and give you more details for each category. In addition by applying the financial supervisory services response to our inquiry regarding insurance contract accounting treatment, we retrospectively restated financial results from 2024 Q1 to Q3. Please take this into consideration. Let’s go to Page 1. In October of last year, we announced our clear roadmap regarding shareholder return. And this year, we are convinced that this will be a year when we will clearly demonstrate our group shareholder return policy. Even though concerns over global economic downturn are spreading, once again, KBFG focused on stable capital ratio management and continued robust profit-generating capacity.

Most of all, March end CET1 ratio posted 13.67%, a 14 bp increase Q-o-Q, and we expect to maintain the industry’s highest level of capital ratio. And we can say that this was a result of stable management of risk-weighted asset growth as well as efficient capital allocation. In addition, Q1 net profit posted KRW1.6973 trillion, and group ROE recorded 13.04% and is showing solid performance in all aspects of profitability and capital efficiency. Going forward, based on our capital management policy, focusing on CET1 ratio and strong earnings capacity, we’ll keep the promise that we made with the market. Next is Page 2. On this page, I will once again explain about our shareholder value enhancement policy that the market is recently mostly interested in.

As you are well aware, KBFG in October of last year, focusing on sustainability and predictability announced our shareholder return policy linked to CET1 ratio. Shareholder return policy linked to CET1 ratio is designed to return more to the shareholders, the higher the CET1 ratio is without any upper limitation to the total shareholder return ratio. Related to this, I reiterate once again that our basic principle is to implement shareholder returns first in the first half of the year and then again in the second half of the year. In case of this year, capital in excess of last year and 13% CET1 ratio has already been reflected in shareholder returns through methods such as annual cash dividends and Q1 share buyback and cancellation. In addition, the amount, which corresponds to the capital in excess of the first half and base 13.5% CET1 ratio, will be utilized as the shareholder return resources in the second half of the year.

Likewise, KBFG has transparently established shareholder return principles and standards and based on strong capital strength is aiming for the industry’s highest level shareholder return ratio. However, due to the domestic and international, political and economic uncertainties, which have been continuing from late last year, the market volatility has expanded more than ever. We believe that in this unprecedented environment, this is the time when fostering market stability and flexible operation of our value of program is needed. As a part of this, we preemptively utilized KRW400 billion in the first half of the year and decided to enhance shareholder return predictability. Related to this, to give a more detailed explanation, today, our BOD made resolutions for KRW912 cash dividend per share and KRW300 billion of share buyback and cancellation.

KRW912 per share quarterly cash dividend is a sizable KRW108 increase compared to the previous quarter. This was a result of our efforts to improve the somewhat low dividend payout ratio relative to our earnings, increasing our total annual dividend amount to KRW335 billion level each quarter and around KRW1.34 trillion level on an annual basis. This is a KRW100 billion increase compared to the KRW1.24 trillion that we planned and announced in February. In addition to the KRW300 billion share buyback and cancellation, which was resolved today and considering the shareholder return plan regarding the amount in excess of the 13.5% CET1 ratio plan for the second half of the year, we believe that through ongoing continued share buyback throughout the year, we will more flexibly respond to the market volatilities.

With this decision, we expect that the second half shareholder return predictability and annual total shareholder return ratio will proactively expand compared to the past. Going forward, we will uphold the previously announced shareholder return policy as a principle. And based on this, we will flexibly adapt to the internal and external market changes in order to enhance our shareholder value. Next, I will elaborate on KBFG financial performance. KBFG 2025 Q1 net profit posted KRW1.6973 trillion. With the fading away of the underlying effect stemming from last year’s Q1 provisioning for ELS liabilities, the bank earnings fundamentals recovered in non-banking subsidiaries’ earnings expanded. In addition with the demonstration of mutually complementary performance between the bank and the non-bank subsidiaries, the contribution from non-bank in the group’s earnings increased to 42% and proved once again KB’s unique well-balanced portfolio.

In the case of our major non-banking subsidiaries, securities and insurance, WM and trading results improved and delivered a solid performance. Real Estate Trust, Capital, and Savings Bank that had preemptively provisioned due to concerns in the past over asset quality deterioration have alleviated burden from provisioning. Meanwhile, the group’s top-line was further strengthened, thanks to balanced growth across interest and non-interest income, enhancing its overall profitability. As a result, total operating profit reached a record high of approximately KRW4.6 trillion demonstrating a solid earning power. Now I will provide a more detailed breakdown of our business performance by segment. First, the gross net interest income amounted to KRW3.2622 trillion.

Due to the impact of falling market rates, bank interest income, mostly from loans decreased; however, the inflow of core deposits from market liquidity funds increased. And as a result, net interest income remained at a level similar to the previous quarter. Next, on the banks of Korean won loans. As of the end of March 2025, the bank’s total Korean won-denominated loans amounted to KRW357 trillion, up slightly YTD. Household loans stood at KRW179 trillion, growing by 1.3% YTD, mainly driven by group loans. Corporate loans amounted to KRW188 trillion, with loans to high-quality SMEs and self-employed growing approximately KRW1 trillion YTD, driving the overall increase in corporate loans. We plan to continue to maintain a growth strategy that is focused on comprehensive profitability while managing risk-weighted assets in consideration of the economic situation and the household debt levels.

Next, on the net interest margin in the bottom right section. In the first quarter, the group and the bank’s NIM stood at 2.01% and 1.76%, respectively, showing an increase of 3 bps and 4 bps, respectively, Q-o-Q. For the bank’s NIM, while the decline in loan yields continued due to asset repricing from falling interest rates, the NIM increased by 4 bps Q-o-Q, thanks to efforts in cost reduction based on ALM management, such as increase in core deposits and repricing of high interest time deposits. Next, moving on to non-interest income. In the first quarter, the group’s non-interest income amounted to KRW1.292 trillion, improving both on a Q-o-Q and a Y-o-Y basis. This was largely due to significant improvements in securities related performance as a decline in market rates, including government bonds continued.

As a result, other operating income increased KRW115.9 billion Y-o-Y. Additionally, the first quarter’s net fee income reached approximately KRW934 billion, although it was down slightly Y-o-Y due to adjustments in card merchant fees and delays in the recovery of real estate PF fees. Since 2023, we have maintained an earnings fundamental of over KRW900 billion each quarter. On the other hand, insurance operating profits amounted to KRW437.8 billion, down slightly Y-o-Y. However, excluding base effects such as the write-back of IBNR reserves and non-life insurance during the fourth quarter of last year, there was a modest increase on a recurring basis. While some challenges are expected this year, including adjustments to the optimal assumptions and the realization of insurance liability discount rates, we plan to sustain stable earnings through improvements in insurance profitability based on CSM growth, and expansion of investment returns.

Next, I’ll go on to general and administrative expenses. In the first quarter, G&A were kept at stable KRW1.6056 trillion, down 1.4% Y-o-Y, thanks to efforts to rationalize costs mainly in recurring expenses. Additionally, the group CIR reached a record low of 35.3% reflecting a strong top-line growth in efforts to optimize the workforce and cost structure as such. There is a clear improvement in cost efficiency. Looking ahead, we expect a downward stabilizing trend of the group CIR to continue, driven by ongoing cost efficiency efforts at the group level. On Page 8, we have the group’s provisions for credit losses. On the first quarter, a provision for credit loss amounted to KRW655.6 billion, with the group’s credit cost standing at 54 bps up slightly Q-o-Q.

However, excluding one-off factors from the bank, the recurring level of the group’s credit cost is 45 bps and is still being managed at a predictable level. Going forward, we will continue to strengthen our management to potential non-performing exposures and maintain a conservative risk management stance to ensure asset quality. For your reference, considering the current level of provisions, market interest rates and the macroeconomic environment, we expect the group’s annual credit costs for 2025 to be a manageable mid-40 bps level. Finally, let me discuss the group’s capital ratio. As mentioned earlier, thanks to the group’s efforts in managing risk-weighted assets and a solid increase in net income, the group’s tentative BIS ratio as of the end of March 2025 was 16.57% and the CET1 ratio was 13.67%.

Now please refer to the next page. This year, our target for the annual growth rate of risk-weighted asset is 4.5%. And to achieve this, the group is strengthening its RoRWA management system for each subsidiary and business segment and is making every effort to achieve efficient asset growth from a comprehensive profitability perspective. At the same time, one of our management strategies for achieving a stable capital ratio is not solely focused on unconditionally reducing the growth rate of risk-weighted assets. Rather, the risk-weighted assets are also the customer base of KB Financial Group and are assets that guarantee our sustainable strength. We believe that the most important goal is to generate appropriate returns for the asset through efficient capital allocation while ensuring stable growth.

From the next page onwards, you will find detailed materials related to the performance that I’ve just explained, so please refer to them at your leisure. With that, let me conclude the KB Financial Group’s Q1 2025 management performance report. Thank you very much for your attention.

Q&A Session

Operator: Thank you very much for the presentation. We will now proceed to the Q&A session. [Operator Instructions]. We will take the first question from NH Securities. Jun-Sup Jung, you’re on the line.

Jun-Sup Jung: I am Jung Jun-Sup from NH Securities. Congratulations on your performance and the unexpectedly high shareholder return that you had announced. I have two questions. The first question is regarding Q1. Well, I did not expect this, and we are seeing KRW300 billion of share buyback and the annual dividend has increased by KRW100 billion, so it seems that in the first half, the shareholder return amount is quite sizable and higher than expected. And if this actually continues then in the second half, I think that this will probably be lower. So is there going to be a change in your policy? Or in the second half, if the market situation deteriorates, are you going to have preemptively shareholder return like you had in the first half or first quarter?

And my second question is about the impairment dividends because we have seen some of your competitors saying that they would also engage in this. And I think that there is capital surplus in the reserve. So regarding this, can you tell us about what your position is? Thank you very much.

Peter Kwon: Thank you very much for your question. We’ll soon answer your question.

Sang-Rok Na: Thank you very much. I am Sang-Rok Na, the CFO, and regarding the principle of our value program, it has still remained the same. It hasn’t changed. And the excess capital that actually goes over our target capital ratio, well, that will be used, and we will keep to the principle. And regarding our second half shareholder return policies, we will be quite flexible looking at what happens in the market. And regarding this year, regarding 2024 performance and our shareholder return plans going forward, I think we mentioned in the second half, we will be quite flexible with our shareholder returns. So please understand it’s a continuation and taking into consideration many different factors, and there are some uncertainties in the market.

But in order to have stability in the market, and to show you that our strong will still exist for shareholder return, we wanted to show you this. And in the second half the amount of shareholder returns that were planned will preemptively were implemented in this quarter. I hope that you can take it with that understanding. And regarding the amount in the second half, I don’t think you need to think that it will go down. But in the Q2 capital ratio, the growth trend will be a little bit sluggish, but it will still grow. And regarding the decision for share buyback and for RWA robust growth, taking all of that into consideration, we also expect a slight increase. However, regarding the robust growth of RWA for the amount of shareholder returns, it will have a positive impact because our value program has RWA and the excess capital ratio that actually is used in the formula.

So we believe that it will not be a problem going forward. Also, regarding the — we need to take out the shareholder return amount, but the Q1 CET1 ratio, well, taking into consideration that ratio, we believe that it will still maintain this level going forward. And regarding the impairment dividends, well, we do understand about the intention, and we are looking into the possibility, but we haven’t come up with any detailed policies yet, but we will keep an eye on the trend and the market response and make decisions later on. Thank you for your question.

Jun-Sup Jung: Thank you for your answer.

Operator: We will receive the next question, Park Hye-jin from Daishin Securities.

Park Hye-jin: Good afternoon. Thank you very much for allow me to ask my question. So I have a question about the securities business recently, so there was a new regulation announced by the regulatory body regarding securities business. IMA new regulations has been issued. So KB is involved in this. If new subscribers are coming in, then competition will intensify. RWA control is important. But from the point of view of the growth, securities capital is slightly below KRW7 trillion. So increasing capital — entering into the IMA sector, what is your view about the possible entry into this segment? Next is credit loss. So SME delinquency rate is going up very sharply. You talked about the target CCR with mid-40 bps CCR as the target. Is that taking into account the increase in the delinquency rate of the SME sector as well?

Peter Kwon: So we will soon answer one by one to each of your questions. Thank you.

Choi Yunsun: Yunsun, CFO from Securities. So let me take the first question. So recently, IMA related to the entry into this business, many companies are thinking about this possibility in the case of KB Securities. As of yet, IMA entry into this business, we’re not really thinking about that possibility. We’re still watching the trends and then make the decision. And with regards to the issuance of commercial paper, there are a number of companies who have been issuing commercial papers and maintaining a stable margin and maintaining competitiveness. This is an issue that has become a challenge for many securities companies. But in the case of KB Securities, based on our competitiveness in the IB sector, we have high-quality investment products. We will identify these high-quality investment products that will continue to be the focus, and we will continue to secure appropriate margins. We do have that competitiveness to achieve that, and thank you.

Sang-Rok Na: You asked about the CCR. As you are well aware, the economic slowdown continues and the self-employed and there are borrowers with poor quality in terms of repaying their debt. And so we do have a significant number of delinquencies. And in the first quarter, a special factor was that for the construction companies, there are increasing borrowers who are asking for court receivership. And also conservative provisioning policies has been undertaken by the financial companies. So in the first quarter, credit cost provisioning compared to our business plan and compared to the previous quarter, yes, it has grown significantly over that. So we are starting from a high basis point. And in consideration of this, our company, we have focused on asset quality recovery, and we will focus upmost in reducing the NPL ratio.

And in terms of the asset inflow for about two to three years ago, we have been very careful in dealing with the new companies and also — we are also rebalancing potential non-NPLs, and we have introduced a warning system. And also for the borrowers in the card sector, we are actually placing very strict limits on the borrowing. And also the delinquencies, we are actually flexibly reorganizing our organization so that we are focusing on recovery of the short-term delinquencies. And when there is NPLs that arise, we will pursue a very fast recovery as well as write-off policies. And so up until the first half of this year, asset quality decline trend, we do believe this trend will continue in the first half. But going forward, if you look at the macroeconomic situation, we have supplemented budget and we have the new administration coming in.

So we have these positive developments that we can consider. And unless there are other surprising events breaking out, these kind of — the target of the annual provisioning, we do believe it will be at a manageable level similar to previous years.

Park Hye-jin: Thank you very much for your answer.

Operator: We are waiting for a question to come in, and we will wait for the next question to come in. We will take the next question from SK Securities, Seol Yong-Jin, you are on the line.

Seol Yong-Jin: Can you hear me?

Operator: I think we are having some technical difficulties. So maybe we can take the next question from Hanwha Investment Securities, Do-Ha Kim, you are on the line ma’am.

Do-Ha Kim: Thank you very much for the opportunity. I have two questions. You mentioned in your explanation regarding the margin about the low-cost deposits that are going — coming in that was — that added to your margin defense. And in Q2 or in the second half, do you think this defense will be continued? Second question is regarding RWA defense and CET1 improvement that was quite positive. And I think that led to active shareholder return. However, because we do have a lot of uncertainties, I know that there is some concern about corporate loans. So regarding the level of corporate loans, regarding your expected CET1 ratio, do you think that it can deteriorate because of these corporate loans that are under concern? If you have any strategies, we would appreciate it because it could appease our uncertainties and anxieties. Thank you very much.

Peter Kwon: We’ll soon answer your question, please hold.

Jong-Min Lee: I am Jong-Min Lee, the CFO of the Bank. Regarding the NIM, the N-I-M, 1.76%, a 4 bp increase was for this quarter. And as you just mentioned, with the interest rate decline, there was asset repricing and the loan profitability went down. But with the core deposit increase and the repricing, we were able to have these funding costs that was actually rationalized. And going forward, we believe that the loan-to-deposit business growth rate will be curbed. So the NIM growth rate will be a little bit diminished. But regarding the asset growth speed and more transactions and more of our corporate customers, we believe our core deposits will grow. And taking all of this into consideration, we believe that we will be able to limit the decline of the NIM.

Also related to the growth of RWA in Q1, for asset growth, we had about 1% growth. And for household loans, the regulations are still ongoing. And for the real estate transactions, we are seeing some downturn and the growth is curbed. How — and for corporate loans, recently, we are seeing some concerns about economic downturn. So it is true that corporate growth is diminished because concerns about growth. However, we have as our goal, about 6% growth, and we will work toward that goal going forward. And regarding the current growth level, we believe that regarding the request from the government, even if we take that into consideration, it will be maintained within our planned range. Thank you.

Sang-Rok Na: I am the CFO of the Group. And regarding the CET1 ratio deterioration concerns that you voiced, well, I want to appease your concerns. You can be rest assured because RWA Q1 growth is 0.7%, and we are going to manage it within 4.5% for the year. And in Q2, we have a plan to manage it between 1% to 2.5%. And regarding corporate loan support for high-quality companies, of course, we are going to have selective support. And regarding the government policies and our own policies, we’re not just going to blindly supply credit, but we are going to have also consulting in addition to providing credit to worthy borrowers, and we are going to work toward having, I think, like the goal, which is the — a soft landing. So we are going to work so that our capital ratio is not deteriorating. Thank you.

Operator: Receive the next question, Jung Jun-Sup from NH Securities.

Jun-Sup Jung: So thank you very much for taking my question. So I have just one more question. So recently, Homeplus related, so I think some of that has been reflected in your provisioning, but there might be contingent liabilities that, that may be possibly reflected. Do you have any expected provisioning that will rise from Homeplus and not only Homeplus, commercial real estate or in any other sectors going forward, do you expect any NPLs coming out from any other sectors? If you have, please, can you share them with us?

Peter Kwon: So we’ll prepare the answer to your question. So please hold for few seconds.

Sang-Rok Na: Let me take your question. So in the case of Homeplus, in relation to that, in the first quarter, with regard to that exposure, we have satisfied the necessary provisions. And indirect exposure related through some of the funds, the investments that have been made into the funds those are indirect exposure, and we are reviewing that as well. And aside from that, real estate or overseas real estate already in the first quarter, as has been the practice in the past, we have very conservatively set aside provisions. In the case of the real estate properties, this year, there are some that are maturing. For those additionally, it actually becomes difficult or if payback becomes difficult to prepare for those situations, we are taking a conservative approach to this.

Operator: It seems that there are no questions in the queue. We will wait a little bit more. And if there are no other additional questions, we will be receiving questions that our shareholders sent to us through diverse SNS channels. However, before we take those questions, we will wait for questions coming in, in real time. It seems that there are no questions yet now. So maybe we can take the questions from the shareholders. So I think there are three main questions. And first, due to the next administration’s policy changes, can there be changes to KB’s value of plans? Second is about whether the annual cash dividend amount can be increased? Third is, 2025 share buyback and cancellation amount and timing? The CFO will answer these questions.

Sang-Rok Na: Well, regarding the first question, the conclusion is that regarding the value of program, it will continue as planned without any stoppages. And the political circle and the financial authorities all have the common understanding that the Korean stock market needs to be boosted to eliminate the Korean discount. So we believe that there will be different policies to this end. And the relevant programs will continue without suspension. That is our conviction. Regarding the cash dividend total amount increase that we may have for this year. Well, as was mentioned, we had KRW100 billion of increase compared to our plan. And when we compare ourselves to others, I think we have seen some comments that it was lower than others.

So regarding the dividend payout ratio and others, we decided to have additional KRW100 billion of additional dividends. With regards to the third question about the 2025 share buyback and we talked about already the KRW300 billion approved additionally today. And because of the uncertainties, both at home and abroad, there are market volatility. And to respond to the volatility preemptively, we have implemented the shareholder return policy. And in the second half, those capital exceeding the 13.5% CET1 ratio, the excess capital will be used as funds for shareholder returns. That is all.

Operator: Thank you very much. We will conclude today’s business results presentation. Thank you very much.