KB Financial Group Inc. (NYSE:KB) Q4 2024 Earnings Call Transcript

KB Financial Group Inc. (NYSE:KB) Q4 2024 Earnings Call Transcript February 7, 2024

KB Financial Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Peter Kweon: Greetings. I am Peter Kweon, the head of IR at KBFG. We will now begin the 2023 full year 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, Jae Kwan Kim, as well as other members from our group management. We will first hear the 2023 major financial highlights from CFO and SEVP, Jae Kwan Kim, and then engage in a joint Q&A session. I would like to invite our CFO and SEVP to deliver our 2023 earnings results.

Jae Kwan Kim: Good afternoon. I am Jae Kwan Kim, the CFO of KB Financial Group. Thank you for taking part in our 2023 earnings presentation. Before going into the details of the business results. Let me briefly walk you through the key financial highlights for the year of 2023 of KB Financial Group. KB Financial Group’s net profit attributable to controlling interest for 2023 posted KRW4,631.9 billion, it is up 11.5% Y-o-Y, driven by non-interest income led solid earnings improvements and stable cost control despite macro headwinds thus demonstrating the healthy fundamentals and ability for profit growth. Balanced and strong earnings fundamentals was achieved across all of the top line segments of the group, which resulted in record high gross operating profit for 2023, posting KRW16 Trillion, up 17.8% Y-o-Y.

As a result of efforts to enhance cost efficiency within the group, G&A expenses increased only 0.1% Y-o-Y and the group CIR in 2023 was at record low levels coming in at 41% approximately. However, provisions for credit losses posted at KRW3,146.4 billion last year up significantly Y-o-Y. Due to continuing high interest rates, both at home and abroad, credit risk, especially in the real estate market has expanded substantially. After Taeyoung E&C filed for a debt-restructuring program in December, concerns are running high of deteriorating asset quality in the real estate PF market. To be pre-emptively prepared during the first half of last year through changes in our expected loss modelling, we have set aside KRW490 billion in provisions.

In addition, in the fourth quarter, reflecting a conservative outlook for the future, we have set aside an additional KRW51 billion, approximately and pre-emptively set aside approximately KRW754 billion of additional provisions for priority watch list sectors, including real estate PF and overseas commercial real estate to prepare for any future risk. We expect this to underpin our sustained and strong growth going forward. In terms of returning a profit to society, we have recognized KRW332 billion out of the total of KRW372 billion for social contribution program in Q4. Although last year’s, net income did not quite meet the market expectations because of this, excluding such factors, the group’s ordinary net income is approximately more than KRW5.5 trillion, which is the highest level of fundamentals found in the industry.

Meanwhile, the credit cost ratio of the group in 2023 posted 67 bps, but excluding one off factors, on a recurring basis, it stands at approximately 40 bps thus being maintained at a stable level. Also, as of the end of 2023, the group’s NPL coverage ratio posted 174.5%. In this quarter, the asset quality of priority watch list sectors such as the real estate PF and overseas commercial real estate has been more conservatively rated resulting in a slight fall in the NPL coverage ratio Q-o-Q, despite this however the group still demonstrates the industry’s highest level of loss absorbing capacity. Meanwhile, KB Financial Gross BOD today has decided that the per share dividend for 2023 will be KRW3068, up 4% from KRW2950 of the previous year, and also resolved on the share buyback and cancellation of KRW320 billion.

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Q&A Session

The share buyback and cancellation is in addition to the KRW300 billion in share buyback and cancellation that we undertook in July of last year. Once again, showing the firm commitment of the BOB and the senior management toward enhancing shareholder return and value. Finally, let me briefly touch upon the progress made in 2023 regarding the group’s mid to long term capital management plan that was announced in February of last year. First, the total assets based on the 2023 year end consolidated financial statement posted KRW716 trillion, up 3.9% YTD. And led by the healthy loan growth of the bank assets that have expanded appropriately within the nominal GDP level. Secondly, as was mentioned already, following the previous year in 2023 as well, dividends has been gradually increasing while share buyback as stock cancellation has been proactively undertaken.

So despite a number of uncertainties, we are endlessly striving to achieve shareholder returns in keeping with the expectations of the market. Going forward, the company will uphold its firm commitment to faithfully carry out the group’s long term capital management plan and we’ll do our utmost to implement a proactive shareholder return policy. Let me now explain our business results in greater detail. In 2023, the group’s net interest profit posted KRW12,141,7 billion, up 5.4% over last year. This is the result of improving net interest margins of 12 bps reflecting the effects of loan asset repricing on the back of rising interest rates last year, while Korean won loans of the bank increased 4% YTD securing a stable profit base. Next, in 2023, the group’s net fee income and commission posted KRW3,673,5 billion, up 4.5% Y-o-Y, increasing by KRW159 billion approximately.

Such growth of the net fee income owes itself mainly to the solid growth of the business fees coming from the retail customer base of the credit card, securities and capital business despite the challenging market environment with the wealth management and real estate PF contracting. Next, let me move on to the other operating profit. In 2023, the other operating profit posted KRW413.9 billion, showing significant improvements over the previous year’s large losses, up by KRW1,663.5 billion. Against the backdrop of improving market conditions, including interest rates and stock indexes, efforts have been made to engage in timely responses to the market in addition to diversifying the funding asset portfolio leading to meaningful enhancements in the performance of marketable securities and derivatives.

Indication of insurance related income, despite increase in costs owing to actuarial assumption changes of the financial authorities last year, related to IFRS 17 the second half of the year, growth of 8.5% was posted over the previous year, maintaining a solid earnings momentum. However, the other operating profit in Q4 declined significantly Qo-Q posting losses of KRW595.7 billion. This is due to seasonal factors driving an increase in loss ratio, which led to a fall in insurance income added to which KRW333 billion of social contribution program expense was reflected as other operating expense. Next is on G&A expenses. In 2023, the G&A expense posted KRW6,647.4 billion. As has been previously referred to, this is a mirror 0.1% increase over the previous year, and is the result of personnel restructuring, strict cost control, and other measures taken across the group to enhance cost efficiencies.

Finally, the group’s credit loss are provisions. In Q4, their credit loss provisions posted KRW1,378.2 billion, a significant increase Q-o-Q. This is due mostly to the large scale pre-emptive provisioning, against the priority watch list sectors at the group level, reflecting a conservative FLC and excluding such factors, the credit loss provisions at the recurring level is approximately KRW573 billion. On the next page, I will explain the key financial indices. First the groups profitability, KBFGs 2023 ROE posted 9.18% and the recurring level of ROE excluding one off items stands at 11.53% level, highlighting continuous and solid earnings fundamentals. Next, I will cover bank’s loans in won growth. Banks loans in won, as of end 2023, posted KRW342 trillion a 4% YTD and 1.5% increase Q-o-Q.

Corporate loans posted KRW175 trillion a 7.7% increase YTD around KRW12.5 trillion increase and led last year’s bank loan growth. This was a result of increase in loan demand derived by deterioration in corporate bond market conditions leading to a KRW8.9 trillion YTD increase of large corporate loans and SME loans continuing to grow centring on high quality SME and SOHO loans. On the other hand, household loans after posting minus growth in Q1 has been continuing a gradual stable recovery trend based on real demand and posted KRW167 trillion, a 0.3% growth YTD. In this in this year as well, we will take into consideration multifaceted factors, such as economic circumstances and household death situation, and focus on qualitative growth centring on asset quality and profitability and maintain loan growth within an appropriate level.

Next is NIM. Group And Bank 2023 NIM posted 2.08% and 1.83%, respectively, a 12 BP and 10 BP increase Y-o-Y. This improvement in NIM was a result of our utmost efforts in the management, including reducing funding costs by securing the industry’s highest level of low cost core deposits through our superior sales capability and channel competitiveness and by significantly improving profitability of our financial investments compared to the previous year through profitability centered portfolio management. However, in the case of Q4 Group and Bank NIM with the gradual diminishing of the loan asset repricing effect, reflecting the interest rate hike in the second half of the year, both went down 1 bp Q-o-Q, respectively. Let’s go to the next page.

Regarding the group’s CIR and CCR, I will skip this part since I covered this earlier, and I will elaborate on the group’s capital ratio which is found in the upper right-hand side. 2023 end estimated group BIS ratio posted 16.71% and CET1 ratio posted 13.58%, respectively, despite the increased RWA due to growth centring on corporate loans as well as year-end dividend effect, group’s BIS ratio increased 55 bps Y-o-Y, still maintaining the highest level of robust capital buffer in financial industry still fully prepared for macro uncertainties. I will explain in more detail regarding the CET 1 ratio from the next page. This page is for us to more clearly explain about the indicators that shareholders and investors are interested in, including share related indicators and CET1 ratio.