KB Financial Group Inc

I am Peter Kwon, the head of IR at KBFG. We will now begin the 2022 first half 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 senior managing director, Scott So, as well as other members from our group management. We will first hear the 2022 first half major financial highlights from CFO and Senior Managing Director Scott So, and then have a Q&A session. I would like to invite our Senior Managing Director to deliver 2022 first half earnings results.

Good afternoon. I am Scott Y. H. Saw, CFO of KB Financial Group. Thank you for joining the company's first half 2022 earnings presentation. Before moving on to our earnings results, allow me to briefly run through key business highlights of the group. Q2-22 group net profit was 1.3 trillion won, up 11.4% year-over-year as of the first half, reporting 2.8 trillion won. Group ROCE was 12.5% being kept at a steady level as of the first half, while annualized EPS, earnings per share, was around 14,000 Korean won, up 11% year-over-year on a robust uptrend. Also, today, KBFG's BOD approved 500 won per share as the quarterly dividend. And following last February, we decided to do share cancellation of 150 billion won of Treasury shares. And as such, through 300 billion won of total share cancellation this year, in the midst of the spread of macro uncertainties and difficult business backdrop underpinned by our outstanding capital adequacy and stable earnings capacity, we have been consistent and differentiated in implementing our shareholder return policy. Globally, there is growing concern over stagflation, while Korean economy is mired with three highs, high interest rate, high inflation, and high exchange rate, which may undermine profitability of the banking business and widen credit risk. We therefore are focused on the fundamentals and preemptive risk management. For example, this quarter, based on conservative projections for GDP growth, policy rates and the FX rate, as well as other indicators and scenario analysis for crisis, we made around 121 billion won of additional provisions. By way of such conservative provisioning stance, we've been enhancing loss absorbing capacity, bringing groups NPR coverage ratio to 222.4%, which is the industry's top notch level, as well as top notch in terms of the global standards. Also last May, we ran a group-level stress test based on internal and external economic conditions and probable future risk factors. And even under a severe recession scenario of negative 6.3% GDP growth of the IMF, the group's capital adequacy will be above the regulatory requirement, yet again attesting to KB's sound financial prudence. Meanwhile, as a leading financial group fulfilling its social responsibilities, KBFG is extending various different financial support for the vulnerable and the less privileged who are suffering from economic slowdown and rate hikes. Also, ahead of the end of COVID-19 financial forbearance program in May, To alleviate burden for small businesses and the self-employed, depending on the borrower's repayment capacity, we allowed up to 10-year extension for amortization and introduced COVID-19 special long-term repayment amortization program offering grace period for repayment of the loans to allow for a soft lending. And out of all of the commercial banks, KB Bank was chosen as an affiliated bank for Citibank Korea for rollover of unsecured retail loans. This has proven KB's distinctive expertise in household loans and customers' trust, and we expect there to be some growth in household loan growth going forward amid somewhat of a sluggish first-half growth. Next, I will move on to the details of the company's earnings. KBFG's Q2 2022 net profit was 1.303.5 billion won, up 11.4% year-over-year to 2.756.6 billion won on the first half basis. On greater macro uncertainties and financial market volatilities, despite such difficult operational backdrop, we have shown the group's solid earnings capacity. However, Q2 net profit was down 10.3% Q1Q as conservative FLC forward-looking criteria was used to preemptively book provisioning and due to the lack of one-off gains such as the bank's corporate tax reversals in Q1 and excluding the impact of such non-recurring items, net profit is down 2.4% Q1Q. In more detail, First half 2022 group net interest income was 5 trillion 441.8 billion won and Q2 net interest income was 2 trillion 793.8 billion won up 18.7% year over year and 5.5% Q on Q. This is driven by rising rates leading to repricing of loans which ended up widening the NIM as well as due to the loan growth. Q2 group net fee and commission income was 874.9 billion won, down 4.4% Q1Q. And on a first-half basis, it reported 1,789.9 billion won, down slightly year over year. This year, against sluggish financial markets at both home and abroad, brokerage fee income was constrained, and on slower sales of financial products, sale of trusts and funds also slowed, dampening the group's fee and commission income. However, thanks to our business diversification and efforts to strengthen competitiveness, earnings fundamental behind generating fee and commission income has improved a notch, driving the IB business performance by twofold year over year, landing the group on a solid market position. And the securities business has gained a leading position on the league table for its DCM as well as ECM, M&A, and acquisition financing business. Next is other operating profit. Other operating profit this year underperformed on the bank of valuation loss from bonds following market rate hikes, while rise in FX rate and fall in equity index drove losses from ELS and CVA valuation, dampening performance from securities and derivatives and FX, leading to a sluggish performance both year-over-year and queue-on-queue. But for insurance underwriting profit, we saw overall improvement in loss ratio from the non-life basis, while life insurance profitability was sustained, continuing on a positive performance trend.

In the second half, we expect additional key interest rate hike. And since there is the added possibility that financial market volatility can increase, including for FX, we wish to maintain a defensive management stance for the time being and improve earnings stability through portfolio diversification and a flexible position strategy. 2022 first half group GNA posted $3,445,001,000,000. Despite the increasing group level investment in digitalization as a result of cost control efforts including labor costs, it only increased 1.6% YOY and is being well controlled. In addition, for Q2 G&A expenses due to seasonal factors, including increase in advertising and promotion costs and taxes and dues, increased 3.7% QOQ. Q2 group provision for credit losses posted 333.1 billion won and increased... by 203 billion won, a slightly high-range QOQ, as was aforementioned, reflecting the conservative FLC scenario in this quarter, with the around 121 billion won of additional provisioning, and with the removal of the Q1 sizable provisioning right back in this quarter, the recurring level of provisioning, excluding these non-recurring items, posted around 210 billion won level. First half, provision for credit losses boosted 463.2 billion won and increased slightly YOY due to preemptive provisioning and asset growth, but is maintaining a stable level on a recurring level. I will be covering the major financial indicators from the next page. First, 2022 first half group ROCE posted 12.49%, and as a result of solid core earnings growth and cost control efforts, a level of higher than 10% is being well maintained. 2022 June end bank loans in won posted 323 trillion won, and compared to end March, it grew 0.4% and 1.2% YTD, and on the whole, loan growth is at a low level. In the case of corporate loans, it posted 157 trillion won as of end June. It increased 2.1% compared to end of March and increased 5.5% YTD and is continuing solid growth rate for each quarter. In particular, general SME loans increased around 4 trillion won YTD and drove SME loans growth. For large corporate loans, with the loan demand growth following worsening conditions for corporate bond issuing and as a result of efforts to strengthen CIB business, it decreased 7.5% YTD. On the other hand, June and household loans posted 166 trillion won and decreased 2.5% YTD and is posting a minus growth rate. This was due to weaker overall loan demand due to strengthened household loan regulations and burden due to loan interest rate hikes. And in particular, since there was an increase of pressure to repay unsecured loans. In the second half of this year, it is forecast that there will be partial recovery of household loan growth, but since this is a period where conservative risk management is required due to internal and external conditions, we wish to focus on asset quality and profitability management and concentrate on qualitative growth centering on high-quality assets. Next is net interest margin. NIMT 2022 Q2 bank NIMT posted 1.73% and rose 7B PQOQ. And from this year, on a cumulative basis expanded to 12 BP. This was mainly attributable to the rapid loan asset repricing reflecting a steep key rate hikes from August of the previous year and the managed asset profitability improvement. On the other hand, Q2 Group NIM posted 1.96% in Rose 5 BP QOQ with the card financial asset yield decline including card loan and cash advance. An effect from card NIM contraction following funding cost increase, the increase was more limited compared to the bank NIM. Let's go to the next page. I would like to touch upon the group's cost income ratio, CIR. As you can see on the top left-hand graph, 2022 first half group CIR posted 46.5%. and the group's cost efficiency is being continuously improved. In addition, even excluding the non-recurring items including digitalization costs, CIR is showing a market-lower stabilization trend. With the visualization of strengthening efforts for workforce efficiency, we believe that the cost efficiency will be additionally improved, and we aim to maintain the group's recurring CIR so that it can improve to mid-40% level. Next, I would like to cover the credit cost. 2022 first half credit cost posted 0.23%, and even in a situation where credit risk is increasing due to rapid interest rate hikes and economic downturn, it is still being maintained at a stable level, and Q2 CCR, when excluding preemptive additional provisioning, is at a low level, at a 0.20% level. Next is the group's capital adequacy. As of end June 2022, Group BIS ratio posted 15.64%, and CT1 ratio posted 12.93%. With expansion of corporate and overseas asset expansion, risk-weighted asset increased, and with interest rate hike and stock price decline, and with the decrease in accumulated other comprehensive income, it decreased YTD. But on the back of robust profit generation and strategic capital management, it is securing the highest level of solid capital buffer in the financial industry. From the next page are the detailed materials related to the performance that I just aforementioned, so please refer to it if needed. With this, I will conclude 2022 First Half KB Financial Group Business Results presentation. Thank you for listening.