KB Financial Group Inc

My name is Peter Kwon, the head of IR at KB Financial Group. We will now begin the 2022 first quarter business results presentation. I'd like to express my deepest gratitude to everyone for participating today. We have here with us our group CFO and senior managing director, Scott Y. H. Saw, as well as other members from our group management. We will first hear the 2022 first quarter major financial highlights from CFO and senior managing director, Scott Y. H. Saw, and then have a Q&A session. I would like to invite our senior managing director to deliver our 2022 first quarter earnings results.

Good afternoon. I am Scott Y. H. Saul, CFO of KB Financial Group. Thank you for joining KBFG's Q1 2022 earnings presentation. Before moving on to earnings results, I will first run through key business highlights for KBFG for Q1 2022. First, Q1 22 net profit based on profit attributable to controlling interest was up 14% year-over-year to 1.45 trillion won, outperforming market consensus by 13%. Annualized EPS was 14,892 won, up 14% on year, while ROCE came in at 13.2%, improving 0.7 percentage points year-over-year. Q1 profit net of one-off factors on a recurring basis was up 4% year-over-year, which shows KB Financial Group's robust earnings capacity despite market uncertainties and lower trading and retail commission's income following the rate hike. Second, despite declines in household loan balance, thanks to market dynamics on rate hikes, There's been strong demand for SMEs and CIB lending, and as a result, Groups Loan and One was up 9.7 percent year over year. Despite strong corporate demand and weak capital markets and quarterly dividend payout, 2021 end of Q1 CET1 ratio was 13.4 percent on par with year 2021 level, and Tier 1 BIS ratio compared to end of last year was up by 14 to 23 basis points. KBFG is proud to say that it has the industry's best capital adequacy ratio. Third, nominal credit cost for the group in Q122 was around 15 basis points, but credit cost on a running basis after considering for writebacks was 23 basis points. As we maintain conservative provisioning stance above the average of three-year period before the pandemic. Also, NPL coverage ratio in Q122 was 218 percent, up 71 percentage points versus before the pandemic, and NPL coverage ratio had been uptrending for the past four consecutive quarters. Fourth, despite groups' investment into digitalization and rise thereof on the back of corporate-wide cost control efforts and built-up effect of headcount deficiencies, GNA, was down 2% on-year, with cost-to-income ratio reporting 45.4%, which is down by 4.3 percentage points compared to CIR of 21. Fifth, following share cancellation of 150 billion won last February, the BOD today made a resolution on Q1 quarterly dividend of 501 per share and set in place quarterly dividend payout program. quarterly dividend program helps to enhance visibility of dividend payout and shows the commitment of the BOD and the management to develop an advanced shareholder return system. KBFG will consider various other approaches to enhance shareholder value and will implement them in a consistent manner. Lastly, we plan to integrate Prudential Life, which was managed on a standalone basis so far, with KB Life Insurance and complete the merger process by the end of the year. Integration of the two subsidiaries will help improve capital adequacy in time for IFRS 17 implementation and bring economy of scale for the life insurance business and enable differentiated and comprehensive financial consulting services. As an integrated life insurer, we expect to gain greater market competitiveness. Now let's move on to the details of Q122 results. Page two. Q1 group net interest income was 2 trillion 648 billion, up 18.6 percent, or around 400 billion one year over year. On rate hikes, which led to asset repricing, group NIM was up six basis points, driving up NII up 3.3 percent on quarter. Please note that to provide financial information for better practicality, starting this earnings call Out of the provisions for insurance liability reserve, we reclassified interest expense paid out to policyholders as interest expense under net interest income and restated historical performance through retroactive treatment. Next is on fee and commission's income. Groups Q1 net fee commission income was 915 billion won, And despite sluggish stock market and financial product sales and difficult operational backdrop, performance was strong with 3.8% queue-on-queue growth. This is a result of continuous efforts put in to gain competitiveness in not only DCM but also ECM of the securities business, which resulted in a solid and dominant positioning in the IPO market. On year-over-year basis, net fees and commission's income dipped slightly, due to the base effect from Q1's high base of brokerage fee income last year and weak performance from the bank's trust business. Q1, other operating profit, recorded 160.7 billion won. On rise in bond yield and sluggish stock market, securities and derivative performances were weak, which led to overall subdued results on year-over-year basis. But with loss ratio improvements for the insurance business, insurance income was up, keeping other operating profit flat Q on Q. For your reference, for KB Insurance, driven by loss ratio improvement, mostly around auto insurance and rise in net premium earned, it reported a net profit of $143.1 billion in Q1, continuing the recovery trend. Next, on G&A expense, Q1 Group G&A was $1,691.8 billion. Although we are expanding digitalization investment at the group level, our cost-saving efforts, including for labor costs, have paid off with G&A down around 2% year over year. Except for investments for future, we plan to review our cost base from 0.0 and thoroughly control cost and continue to revamp our headcount organization. Q1 PCL was 130.1 billion won, down 25% year over year. The bank recovered large sum of bad loans, reversing 59 billion in provisioning, and through upgrading the formula for calculating the loan loss provisions, there was around 23 billion of write-backs, and excluding such one-off impact, provision on a running basis reported around 210 billion yuan. Recurring PCL slightly inched up year on year on the back of asset growth, but on credit cost basis is at 0.23%, sustaining a steady level. Next is on key financial indicators.

Page 3. In the first quarter of 2022, the group ROA and ROE recorded 0.88% and 13.16% respectively, showing a continued improvement in the group's profitability. If we look at the loans and bond growth graph, as of the end of March 2022, the bank loans and bonds stood at 321 trillion won, which is a 0.8% growth YTD. In the case of corporate loans, thanks to a balanced increase in SME, SOHO, and large corporate loans, corporate loans grew 3.4% YTD, which is a growth of approximately 5 trillion won, sustaining robust growth. Household loans, impacted by the rise in interest rate and regulations, decreased by 1.4% YTD, mostly due to the contraction of unsecured loans. This year, the group will continue to focus on profitability and quality in its lending policy. But with respect to household loans to protect end borrowers and secure a solid presence in the market, we will apply a flexible interest rate policy in some cases and agilely respond to changes in household loan regulations. Next is the NIM. In the first quarter of 2022, the group NIM increased by six basis points quarter-in-quarter to 1.91%. This is a 8 basis point rise compared to the 2021 annualized NIM, which shows the group's strong profit growth momentum is reinforced even further this year. Such strong quarterly NIM expansion resulted from not only the effect of the three hikes in the key interest rates since August last year, but also the bank's asset repricing effect as the future monetary policy direction was reflected in advance in the market interest rate. as well as our persistent efforts to enhance yields earned from securities assets. Next page. The group cost efficiency, the credit cost ratio, and the group BIS ratio were explained earlier. Next. In this page, I'd like to address the competitiveness of KB Financial Group's corporate banking digital platform that sets us apart. Based on our expertise in corporate banking, we have built a corporate banking digital platform that features various business support services and product lineups. And internally, we have been continuously advancing the platform since quite long ago. Recently, with internet-only banks entering in the corporate loan market, there has been heightened market interest in the competitiveness of corporate banking platforms. We have two types of platforms that are optimized for the different needs of various types of corporate clients. The web-based KB Corporate Internet Banking provides full banking services, while the mobile-based KB Star Corporate Banking supports not only core banking services, but also asset management needs as well. We are reinforcing the differentiated competitiveness of each of these platforms. The KB Corporate Banking platform supports not only corporate banking transactions, such as deposits, loans, and FX transactions, but also features Star CMS, an integrated cash management solution, and KB OneTrade, an e-commerce solution for international trade and FX, and KB Bridge, a non-financial business support solution such as recommendation of customized policy funds and professional advisory services. As such, we offer industry-leading differentiated services to meet the various needs of our corporate clients. As banking services and corporate management activities are intricately linked, we have been able to develop corporate client relationships that go beyond just simple loans. For your reference, The KB Corporate Internet Banking MAU is recorded at about 480,000 as of the end of last year, and KB Star Corporate Banking MAU stands at about 300,000 currently, which is the highest level in the industry. Recently, this growth trend has accelerated, and we soon expect it to be the main corporate banking platform of KB. Lastly, in terms of products as well, In line with the growing online channel and changes in the competitive landscape, we have preemptively and proactively addressed these changes. The KAB online small business loan is KAB's flagship online loan product for sole proprietors that features a loan limit of up to 100 million won and competitive interest rates. The KAB seller loan launched in 2018 was the first early settlement loan product offered in the banking industry in Korea. Since its launch, it has become very well received by online seller clients and maintains market leadership in supply chain finance. We will continue to collaborate with external platforms to launch loan products based on alternative credit information, develop differentiated product lines in corporate banking, and lead the corporate banking market. Moreover, we will establish an extended corporate banking platform to offer various corporate banking services of our subsidiaries on Thank you. We will now begin the Q&A.