KB Financial Group Inc

Greetings. I am Peter Kwon, the head of IR at KB Financial Group. We will now begin our 2022 Q3 earnings release. I would like to express my deepest gratitude to all of you for participating. We have here with us today at our business results presentation, Scott YH Seo, Senior Managing Director and CFO of the group, as well as other group executives. CFO Scott YH Seo will first present the 2022 Q3 major business highlights, and then we will have a Q&A session. We will invite our CFO to walk us through the 2022 Q3 earnings results.

Good afternoon. I'm Scott Y. H. Saw, CFO of KB Financial Group. Thank you for joining the company's Q3 2022 earnings presentation. Before going into earnings results, I will briefly run through key business highlights of the group. First, KBFG's Q3 cumulative net profit was 4 trillion 27.9 billion won, up 6.8% year over year. Despite greater financial market volatility and difficult operational backdrop, we once again displayed the group's robust fundamentals and earnings capacity. Also, cumulative ROE reported 12.11%, and annualized EPS earnings per share was 13,530 won. EPS was up 5.9% year-over-year, sustaining an uptrend. Q3 net profit was 1,271.3 billion won, seeming to have dipped marginally versus Q2, but excluding one-off gain from sale of real estate from KB Insurance last quarter, KBFG's headline profit was up 7.7% Q on Q. Next, Q3 cumulative credit costs for the group against total loan was 24 basis points. Despite slower global demand, trade deficit, and heightened uncertainties in the real economy, as well as steep rate hikes leading to higher credit risk, we have been keeping credit costs at a steady level at around 20 basis points, which KBFG has maintained since 2016. While Group's NPL coverage ratio as of end of September was around 220%, which is the highest level of loss absorption capacity in the industry. Lastly, KBFG's BOD today has decided on 501 quarterly dividend pay per share. Let me now walk through the details of the business performance. Q3 2022 cumulative net interest income for the group was approximately $8,339,000,000 and net interest income for Q3 reported $2,897,000,000. Driven by solid loan asset growth and higher NIM on a rate hike cycle, it was up 19% year-over-year and 3.7% Q&Q. Groups Q3, cumulative net fee, commission income, reported around 2 trillion 600 billion won. On the back of stock market slump, driving a significant fall in trading volume, brokerage fee income from the securities entity was down by around 42% year over year, and we also saw sluggish sales of trust and funds for the bank. However, we are also seeing meaningful results from our continuing multifaceted efforts around bolstering the group's IB business competitiveness, bringing the group's IB fee commission income up 56% year-over-year. We expect our dominance in the IB market will further expand and contribute to strengthening the group fundamentals. Also, Q3 net fee commission income was 813.8 billion won. With the slump in the overall stock market, securities business fee commission income contracted declining 7% Q1Q. Next is other operating profit. Other operating profit in Q3 was somewhat sluggish due to variabilities in seasonal profit from insurance entities. There were heavy rainfall, typhoon and other seasonal factors and large fire this quarter, leading to an increase in loss ratio of the insurance business and lower investment gains, including dividend income. But this quarter, there was marginal Q&Q improvement in Q3 performances from securities, derivatives, and FX, especially in September. Despite unprecedented level of capital market volatility this quarter, through a diversified investment portfolio and elastic positioning strategy, we were able to nimbly and efficiently respond to the market. Next is on G&A Expense. Q3 cumulative GNA was approximately 5,180,000,000,000. Despite higher digitalization investment, thanks to sustained operational revamping efforts and group-wide cost controls, cost increase was well kept at 2.4% year-over-year. In particular, in the face of concerns of a recession next year, the disciplined cost control will be the priority for the business. Hence, we will revisit all of the cost items starting from a zero basis and not lose focus in group-wide cost controls.

Lastly, the group's provision for credit losses. Q3 cumulative provision for credit losses posted around 775 billion won and increased 179 billion won YOY. This was due to around 121 billion won of additional provisioning in Q2 reflecting a conservative future economic outlook scenario and excluding this, this is generally at a level which meets the increase of the group's loan assets. On the other hand, Q3 provision for credit losses posted around 314 billion won, and due to the additional provisioning base effect in Q2, decreased slightly QOQ. I will cover the key financial highlights from the next page. First, please look at the bank loans-in-one growth graph in the middle. Bank loans-in-one as of end September posted 329 trillion won and grew 1.9% compared to end June and increased 3.1% YTD. Corporate loans posted 163 trillion won and SME loans and large corp loans saw balanced growth respectively and with the 9.6% and around 14 trillion won growth YTD, corporate loan is leading the bank loan growth. In particular, in Q3 alone, there was a 4% growth compared to June end, and it was attributable to a sizable growth in loan demand due to contraction of corporate bond issuance market, leading to around $3.4 trillion, one of large corporate loans. In the case of household loans, with a steep increase of loan interest rate and effect from loan regulations, Loan demand decrease and repayment continue leading to a 2.6% decrease by TDN is generally sluggish. But in Q3, 전세 loans recovered an increase of around 900 billion won. And with Citibank unsecured loan conversion demand coming in, reverse growth pressure greatly went down. Next is net interest margin NIM. 2022 Q3 group NIM and bank NIM each posted 1.98% and 1.76% respectively. And Q3 bank NIM increased 3BPQOQ. With the decrease of low-cost deposits and great surge of time deposits, funding cost burden increased and compared to the first half of this year, the rate of increase is limited. But with the asset repricing reflecting the interest rate hike, it is still maintaining an expansionary stance. For your reference, Q3 Group NIM reflected the card business funding cost rise and grew 2BPQOQ. Let's go to the next page. First, the group's cost-effectiveness, the cost-to-income ratio. 2022 Q3 cumulative group CIR posted 46.9%, and the recurring CIR excluding one-off factors such as digitalization costs posted a 45.7% level. The group's cost efficiency is showing a very visible improvement trend due to solid top line growth, group level manpower structure improvement, and as a result of cost management. In the mid to long term, the group CIR aims to reach the early to mid 40% level. Next is the credit cost. As mentioned earlier, the Q3 cumulative group credit cost is still low. at 24 BP compared to total loans. In particular, even in a situation where risks have increased due to COVID-19 pandemic and rising interest rates, the group's recurring credit cost has been stably being maintained at the early 20 BP level from 2020 to the present. It can be said that this proves our conservative asset quality management policy and preemptive risk management capabilities. Finally, I will cover the group's capital ratio. As of end September, the group BIS ratio is 15.42% and the C2-1 ratio is 12.60%. With risk-weighted asset increase due to corporate loan center growth and overseas asset expansion and accumulated other comprehensive income decrease due to interest rate hikes and stock price decline, BIS ratio decreased compared to end June, but still a solid capital buffer is being secured against macro uncertainties. From the next page, we have detailed results regarding the business performance I've described so far. This concludes KB Financial Group's business performance report for the third quarter of 2022. Thank you for your attention.