KB Financial Group Inc

I am Peter Kwon, head of IR at KB Financial Group. We will now begin the 2021 Q1 earnings release presentation. I would like to express my gratitude to everyone for your participation. We have here with us at today's earnings release, KBFG SEVP Lee Hwan-joo, who is our group CFO, as well as other executives from the group. We will first hear SEVP Lee Hwan-joo's presentation on 2021 Q1 major business highlights and and then we will engage in a Q&A session. I would like to invite our SEVP to deliver 2021 Q1 business results presentation.

Good afternoon. I am Lee Hwan Joo, CFO of KB Financial Group. Thank you for joining KBFG's Q1 2021 earnings release presentation. Also, Even in the middle of an unprecedented crisis brought on by the COVID-19 pandemic, I extend my deep gratitude to shareholders for your undivided support and kind patience. Fortunately, during the first quarter, COVID-19 spread came under somewhat of a control and there was vaccination rollout, which brought expectations for economic recovery. As such, Korean economy is displaying signs of improvement driven by exports and capex investment and as there were signs of uptrend in the market rate, more positivity was expressed for the sector and banking share prices outperformed the market first time in a long while. But when optimisms abound, We at KBFG feel that it is important to focus on the fundamentals and think of ways to enhance corporate value and undertake bold innovations so as to respond to future changes. First, we have placed foremost priority on profitability and soundness, thereby focusing on improving fundamentals for sustainability. This quarter, Driven by the bank's core deposit growth and sophisticated loan pricing, we were able to improve NIM five basis points on quarter. And the insurance business, whose performance was relatively subdued last quarter, managed to recover margin, supported by loss ratio improvements. Also, on stronger competitiveness of core businesses, including trust, WM, and investment banking, we expanded NIM. net fees and commission income of the group. To overcome economic crisis triggered by the COVID pandemic, KB actively joined in on efforts towards soft landing of the financial system. We have also been quite rigorous in controlling the asset quality through systematic monitoring of problem-prone exposures and reexamination of the portfolio. Second, We issued 600 billion won of hybrid bond last February, securing additional capital buffer against internal and external uncertainties. On top of reinforcing flexibility of the capital structure to realize shareholder value that fall in line with our capital adequacy levels, which is top tier in the industry, we are conducting in-depth reviews of the shareholder return policy as we speak. To make the leap and become a number one financial platform, KB Financial Group is steadfast at implementing its strategic tasks. KB Star Banking application now has around 17 million customer base, and from convenience perspective, we are currently integrating Group's core services, thereby upgrading to an earnings-generating and all-encompassing financial platform. For the credit card business, LiveMate, which is the MyData platform, and KBPay, an open payment platform, form the basis for delivering product and services in connection with group affiliates. And externally, we have expanded product partnerships with many other institutions and have bolstered our competitiveness as an open and comprehensive financial platform. KBFG will boldly respond to impending crisis and risks and will do our utmost to prepare against future changes to further upgrade group fundamentals and corporate value. With that, I will now move on to Q1 2021 Financial Highlights. KBFG in Q1 2021 reported a net profit of 1 trillion 270.1 billion won, which is a historical quarterly performance since the company was launched, driven by our efforts to beef up competitiveness of Group's core businesses and the result of business portfolio diversification from our M&A efforts. quarterly figure reported a sizable increase of 74.1% on year which is attributable to solid core profit growth led by net interest income and net fees and commission income while at the same time there was large improvement in other operating income which was impacted from sudden volatilities of the financial market in the first quarter of last year. As can be seen from the upper right graph, KBFG meaningfully expanded earnings generating capacity across all segments over the past year, while securing incremental earnings from the capital market and the insurance businesses. We also have proven our unparalleled capability in asset quality management, elevating the group's earnings profile in a stable and robust manner. Let's now take a look at each segment in more detail. Q1 net interest income was 2,642.3 billion won, driven by M&As, i.e. acquisition of presidential life and solid loan growth of the bank, which led to 12.5% year-on-year increase, while an improvement in NIM, there was an increase of 2.5%, versus last quarter. Q1 net fees and commission income was 967.2 billion won. There was a sizable increase of around 297 billion won on year and 179 billion won on quarter, which was driven by significant increase in fee income from securities business on the back of the bullish stock market. Also, there was recovery of trust sales, boosting trust income for the bank, and in the recovery of consumer spending, merchant fees from the credit card business also recorded an increase. Particularly in Q1, banks' trust income, which was somewhat muted for some time on the back of regulations and worsening market conditions, largely regained its level. and by bolstering market competitiveness of the IB business, for the first time on a quarterly basis, net fees and commission income came in at around 900 billion won level, which attests to a more improved earnings capacity in the non-interest income businesses. Next is on other operating profit for Q1. With the removal of securities and derivatives and FX-related losses of Q1 of 2020, and consolidation impact of prudential life, other operating profit was up 311.2 billion won on year. For the insurance underwriting profit, for non-life insurances, there was a decline in auto accident rate and on premium hikes, loss ratio improved mostly around auto insurance. And in terms of the life insurance, on base effect of year-end guarantee reserves, and improved investment yield, there was performance improvement versus last quarter. Next is on the group's G&A expense. Q1 group G&A was 1,722.8 billion won, which is up 18.1% year-on-year, seeming to have risen quite significantly. Unlike Q1 of 2020, following the acquisition of Prudential Life, Prasak, etc., 134 billion won was booked as related expenses, and also there was additional expense adjustments for employees' welfare fund and year-end special bonuses. So if we were to exclude such factors, we can say that GNA is being well controlled. Next is on PCL. Q1 group PCL was 173.4 billion won. Despite group's yearly loan asset growth of 37 trillion won, PCL was actually down 70.3 billion won year over year. And thanks to our continuous efforts towards quality improvement of the loan portfolio and preemptive risk management, we are keeping asset quality at a steady level. Next, if you look at the bottom right graph, KBFG has been expanding its earnings capacity by driving up core competitiveness of each of its subsidiaries, and as a result, non-banking businesses, as of Q1, account for 48.6% of the group's net income. As such, company's earnings profile has improved. For the banking business, in order to overcome difficult business environment in the domestic market, we sought out for inorganic growth opportunities in the global market, reinforcing our earnings capacity. For the securities business, aside from brokerage services, we strengthened profitability across all of the businesses, including wealth management, capital market, and investment banking. And while for insurance, by acquiring Prudential Life, we were able to increase its contribution to the performance of the group. On the next page, I will walk through key financial metrics.

2021 Q1 group ROA and ROE each posted 0.85% and 12.5% respectively. Through interest income and fee income-centered core earnings growth and group-level revenue diversification, We are improving profitability and maintaining sound earnings fundamentals. Next, to elaborate on banks' loans-in-one growth, as of March end 2021, banks' loans-in-one posted 297 trillion won and grew 0.4% YTD. Amidst this situation, household loans posted 163 trillion won, Centering on Jeonse loans and prime unsecured loans, household loans grew 0.6% YTD. Considering the overall household debt level and loan portfolio mix, we are partially controlling the speed of growth compared to the previous year. Corporate loans grew 0.1% YTD, a marginal increase, but it was because in the case of corporate loans, Due to the revitalization of corporate loan issuing market, there was overall loan demand decrease and in March, temporarily, there was a great increase of repayments leading to a around 1 trillion won decrease YTD. In the case of SME loans centering on SOHO loans, it increased 1% YTD and is stably growing. Next is the net interest margin. 2021 Q1 Group and Bank NIM posted 1.82% and 1.56% respectively, and following the previous Q4, a growth momentum is continuing, and since it has already increased by a 526 BP level compared to the previous year's annual NIM, this year's solid interest income growth momentum has gained more visibility. Going into detail, in the case of the bank NIM, core deposits increased by around 6 trillion won in this quarter, and with the proportion of low-cost deposits among the total deposits continuously increasing, alleviating the overall funding cost burden, bank NIM increased by 5 BPQOQ. In the case of the group NIM, reflecting card asset yield improvement centering on installment financing, coupled with bank NIM improvement, group NIM increase by 7BP QOQ. Let's go to the next page. First, I would like to cover the group's cost-income ratio, the CIR. The group CIR, based on 2021 Q1, posted 47.3%, and efforts to increase core earnings and control costs is gaining visibility. On a recurring basis, excluding one-offs including digitalization costs, it posted 46.1%. And even on a recurring CIR basis, it is showing a lower stabilization trend, which is gradual. For your reference, taking into consideration the cost adjustment effect from employee welfare fund reserved in the quarter and year-end bonus expenses accrual, The cost efficiency improvement trend is gaining more visibility and on the back of sound top line expansion and group wide cost control efforts, cost efficiency is expected to additionally improve. Next is the credit cost. 2021 Q1 group and bank credit cost as a result of our continued prudent lending policy and credit Credit quality management posted 0.20% and 0.08% respectively and is being maintained stably at a low level, proving KBFG's advanced risk management efforts. We are taking into account the situation where COVID-19 related uncertainty is being continued and we are going to maintain preemptive and conservative asset quality management for the time being. Next is the group's capital ratio. As of end March 2021, the group BIS ratio posted 16%, and the CET1 ratio posted 13.75% respectively, and grew by 0.72 percentage points and 0.45 percentage points, respectively QOQ. Based on our solid earnings fundamentals centering on CT1, we are maintaining the highest level of capital strength in the industry and we are also improving our capital structures flexibility through strategic capital management including issuing hybrid bonds. Let's go to the next page. From this page, I will cover KBFG's non-face-to-face or digital channel competitiveness. With the development of IT technology, platform models are evolving and service expediency and efficiency is rapidly improving. The population structure is changing with the increase of one-person households and the rise of the MZ generation, leading to a rapid increase of consumers preferring digital channels With the expansion of COVID-19, transition into the untapped generation is accelerating, and the center of weight of financial transaction channels is rapidly moving from face-to-face channels to digital or non-face-to-face channels. KBFG, which has been preemptively responding to these changes as of late last year, has secured more than 110 million digital customers. which is around 44% of the group's total active customers. In addition, in the case of Bank's KB Star Banking, which is our group's representative digital platform, we have secured around 8 million monthly active users, MAU as of now, and is maintaining the industry's leading position. As a result of customer-centered UI UX reorganization and diverse product offerings, customer convenience has improved in an innovative way, leading to rapidly growing MAU each year. Looking at the financial transactions through the group's digital channels, in the case of major investment products, including time deposits and fund, around 50% of new accounts are being transacted through digital channels such as internet and mobile banking. In the case of loan products, in the past, there was a smaller proportion of digital channel transactions relatively, but as a result of online product lineup alignment and focus on process simplification, it is growing at a fast speed. In particular, in the case of unsecured loans in 2017, the size of digital channel new loans was only 400 billion won per annum, but last year, it grew to around 3 trillion won level and is rapidly expanding. In addition, I would like to elaborate on some of the major efforts we're making to bolster our group's non-face-to-face or digital channel competitiveness. In January of this year, among our subsidiaries, bank and card subsidiaries acquired MyData Business License, and we are doing our best to prepare for service launch in August. The bank subsidiary, through KB Star Banking, with the goal of establishing the group's integrated comprehensive financial platform, is advancing seamless wealth management services through converging wealth management know-how and specialized data connection technology. CART subsidiary plans to offer optimized customized financial product solutions by utilizing LiveMate 3.0, which connects information from around 130 financial institutions as an externally open comprehensive financial platform. In addition, KB Mobile Certificate, which received attention from the market by being the industry's first private digital certificate as a local financial group, and the only public sector digital signature pilot provider among financial companies, as a result of securing definite competitive edge in customer convenience and security in just one year and eight months after launching, has surpassed 7.3 million registered users. We expect the competitiveness of these mobile certificates to contribute to expanding the group's customer touchpoints and customers' convenience. In addition, CARD has launched KB Pay, which has strengthened competitiveness compared to other existing app cards to expediently respond to the rapidly changing settlement market. Insurance. KB Insurance, based on customers' health information, plans to offer ultra-customized comprehensive digital healthcare service, and we plan to secure a newly elevated level of competitiveness. Last but not least, KBFG plans to not only bolster digital channel competitiveness, but also for wealth management, loan consulting, and other areas where face-to-face channels' importance is high. We plan to offer services that are elevated through centering on a more specialized consulting and differentiated products. Through seamless connection between digital channels and face-to-face channels, leading to maximizing customer convenience and satisfaction, we will work hard to grow as the solid leading financial group even amidst the future financial industry's paradigm change. From the next page, there are detailed pages regarding the earnings that I have covered so far. With this, I will conclude KBFG's Q1 2021 Business Results presentation. Thank you for listening.