KB Financial Group Inc

Greetings. I am Peter Kwon, the head of IR at KBFG. We will now begin the 2024 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 SEVP Jae Kwan Kim, as well as other members from our group management. We will first hear the 2024 first half major financial highlights from CFO and SEVP Jae Kwan Kim, and then engage in a Q&A session. I would like to invite our SVP to deliver 2024 first half earnings results.

Good afternoon. I'm Chae Kwon Kim, CFO of KB Financial Group. Thank you for joining KBFG's 2024 first half earnings presentation. Before going into the second quarter earnings result, I will first go over the company's first half shareholder return plan, which was resolved by today's BOD meeting. Please turn to page four of the presentation deck. Despite difficult operational backdrop, KBFG has been pushing forward with industry-leading shareholder return policy with a sustained effort on capital management to maintain industry's top-notch capital strength. As a result, CET1 ratio as of end of June was up 17 basis point Q over Q, expected to reach 13.59%, which is the highest capital ratio in the domestic market. As you are aware, last quarter we were the first in the industry to start paying out equal amount dividend every quarter on a total amount basis, enhancing visibility on annual payout and DPS, while retaining flexibility in implementing share buyback and cancellation with a view towards improving shareholder return. As part of such efforts, today the BOD decided on quarterly cash payout of 791 won per share and buyback and cancellation amounting to 400 billion Korean won. 791.1 DPS is a marginal increase following the impact from 320 billion won share buyback announced during the first quarter. While additional share buyback and cancellation of 400 billion won is yet again a testament of the commitment of the BOD and the management towards enhancing TSR, total shareholder return that is, and shareholder value. All in all, we will in total buy back and cancel 720 billion won, which distinguishes our shareholder return policy underpinned by industry's top-notch capital strength and stable earnings capacity in spite of challenging operational headwind with growing macro uncertainties. KBFG will endeavor to continue on with a progressive dividend policy employing various means and within the boundaries of sustaining robust capital adequacy so that we may meet the expectations of the market. Now I will move on to KBFG's earnings for the first half of 2024. First and key business performance highlights and metrics of the group. KBFG's first half 2024 group net profit reported $2,781.5 billion. Because of sizable ELS compensation costs in Q1, this was a 7.5% decline year over year. But if you look at the second quarter, on the back of evenly spread growth coming from the bank and non-bank businesses and solid earnings expansion, particularly from non-bank subsidiaries, i.e. securities and insurance, net profit came in at $1,732.4 billion. Putting aside one-offs, such as reversals from ELS compensation costs and loan loss provision, normalized net profit is at around $1.6 trillion. KBFG will continue its effort around keeping stable earnings fundamentals supported by conservative provisioning stance and diversified group portfolio so as to solidify its basis for sustainable growth. G&A expense in the first half was $3,222.1 billion, up 2% year-over-year. Cost income ratio, which represents cost efficiency of the group, was supported by solid earnings growth trend and corporate-wide cost efficiency efforts, keeping in line with the controlled level of 36.4%. Group's labor costs shifted to a downward trajectory last year, and with decline in number of headcount from early retirement program and cost efficiency efforts continuing, we expect to see group CIR trend to continue and stabilize downward. First half cumulative credit cost for the group was 40 basis point, being kept at a steady level. Macro uncertainties are continuing this year, triggering concern on overall asset quality of the industry, but we have ample capacity to respond backed by preemptive conservative provisioning and rigorous management against additional risks. As such, we believe groups' credit costs will be kept under a steady control. Meanwhile, banking sector prices and the market have displayed strength on the back of high expectations placed on the value of programs since the beginning of the year. As I mentioned at the beginning on the shareholder return page, KBFG has been at the forefront of progressive shareholder return, underpinned by stronger fundamentals, capital ratio strength, and stable governance structure, writing its own version of value-up history. Also, to maintain consistency of our value-up approach, we have faithfully implemented mid- to longer-term capital plan, which was announced last year and was the first company in Korea to make preliminary value-up disclosures back in May. In the second half, In addition to scheduled value of disclosures, we will continue to endeavor to drive corporate value and shareholder value enhancement. With that said, I will move on to detailed items.

2024 first half group net interest income posted $6,357.7 billion, and Q2 net interest income recorded $3,206.2 billion and went up 9% YOY and 1.7% QOQ, respectively. This was possible on the back of loan average balance growth and continued interest income contribution expansion, including non-bank subsidiaries such as insurance, despite the net interest margin contraction following the interest rate decline. First half group net fee and commissions income posted $1,909.8 billion and increased 2.4% YOY. This is mostly attributable to the increase in stock transaction amount following higher expectations regarding the value of program, expanding brokerage income, and increasing securities, financial product sales fees, card fees, and capital fees and commissions. However, Q2 group net fee income posted $919.7 billion, and with the IB fee decline following the real estate PF market contraction, it went down slightly, QOQ. However, on the back of strengthening group-wide sales activities and efforts to diversify business, for six consecutive quarters, a $900 billion level net fee income was recorded, attesting to the fact that group fee income generation fundamentals is being robustly maintained. Next, I will cover other operating profit. Q2 other operating profit posted $323.1 billion, and with improvements in the financial market environment including the interest rate and stock index, on the back of expansion of securities investment performance including bonds and beneficiary securities, it posted sound performance with a 19.5% QOQ increase. On a first-half cumulative basis, it posted $593.5 billion, and with a contraction in performance related to securities, FX, and derivatives due to the interest rate and FX rate effect, the performance was lower than the same period compared to the previous year. On the other hand, in the case of the first-half insurance income, it went up $185.7 billion YOY. This is attributable to the previous quarter's non-life insurance, IB&R reverse reserve reversal, and long-term and general insurance loss ratio improvement. Next, I will cover GNA expenses. First half, GNA posted $3,222.1 billion, and on the back of continuous cost rationalization efforts, it went up around 2% YOY, and Q2 GNA decreased 2.1% QOQ and is being well-managed. Next is group provision for credit losses. Due to provision for credit losses posted 552.6 billion won and increased QOQ. Despite the provisioning reversal due to one-offs in this quarter, this is mostly attributable to additional provisioning related to real estate trust and maintaining a conservative provisioning accumulation stance in case of future economic slowdowns. On the other hand, first half cumulative provision for credit losses posted 981 billion won and decreased by a great degree YOY. This was caused by the underlying effect stemming from the preemptive large-scale provisioning reflecting the conservative SLC scenario in the previous year. Last, regarding the Q2 non-operating profit, on the back of the underlying effect following the previous Q1 large-scale ELSC, Provisioning reversal, it grew by a large degree QOQ. From the next page, I will go over key financial indicators. Next, the group's profitability indicators. 2024 first half group ROE posted 10.78%. Non-operating profit, which declined steeply due to the previous quarter's ELS compensation costs recovered, and based on a differentiated business portfolio, core profit growth continued, and the recurring ROE, excluding one-offs, posted 12.26%, and solid profitability is being maintained. Next, I will cover banks' loans-in-one growth. 2024 June end, bank loans-in-one posted $352 trillion, an increase of 2.3% compared to end-March, an increase of 2.9% YTD. Due to our asset quality and profitability-based loan policy and overheated competition in the corporate loan market, the bank's loans-in-one in the early part of the year showed slightly low growth, but from Q2, loan demand increased centering on real demand, and loan growth is gradually recovering. In detail, household loans posted 172 trillion won, and with the expansion in loan demand and loans from national funds due to home transaction increase, it went up 3.0% YTD, around a 5 trillion won increase. In the case of corporate loans in Q2, with the expansion in large corp loans and the addition of moderate SME loan growth, it increased 2.7% YTD. We will monitor the economic circumstances and household loan situation and focus on qualitative growth on asset quality and profitability in the second half, as well as flexibly manage loan growth speed. Next is net interest margin. Q2 Group and Bank NIM each posted 2.08 percentage points at 1.84 percentage points, respectively, and each declined by 3 BP QOQ, respectively. This was mostly attributable to spread contraction and market interest rate decline and other factors leading to lower asset yields. However, on a YOY basis until now, group and bank each increased by 3BP, respectively. Let's go to the next page. I will cover the group's cost-income ratio, CIR. As you can see in the top left-hand graph, 2024, first half group CIR posted 36.4%, and with continuous core profit growth and group-wide cost management efforts, Cost efficiency improvement trend is continuing and is showing downward stabilization. Next is the credit cost ratio. Due to the credit cost posted, a 43 BP level and slightly increased QOQ, but it's still maintaining stable asset quality, still within a predictable scope. Last is group capital adequacy. Despite the one in dollar FX increase in the quarter, on the back of group levels, active risk weighted asset management efforts and solid net profit increase, June and BIS ratio and CT1 ratio is expected to post 16.63% and 13.59% respectively, the highest level in the financial industry. As we had mentioned in the capital policy that was presented in the early part, of the year in the business earnings report, we will manage the CT1 ratio at a 13.5% level and continue group-wide efforts to improve capital adequacy so that shareholder return feasibility can be enhanced. The next pages are detailed material related to shareholder value-related indicators and management performance, so please refer to it if needed. With this, I will conclude KBFG first half business results presentation. Thank you for listening.