KB Financial Group Inc

We will now begin the 2024 full year business presentation. Thank you very much for participating in today's earnings release. At today's earnings release, we have here with us executives from the group, including Managing Director and CFO Sangrok Na. First, our Group CFO will cover 2024 major earnings results, and after that, we will engage in a Q&A session. Please note that from this presentation, after our real-time Q&A session, we have set aside additional time for the management team to answer questions that were previously submitted by our shareholders through our website. I will now invite our Group CFO to walk us through 2024 full-year business results.

Good afternoon. I am Na Sang-rok, CFO of KB Financial Group. Thank you all for joining KBFG's earnings presentation for FY 2024. Before going into earnings results, I will first run through business highlights. As concerns over household debt and the real estate market persisted in 2024, we saw financial market volatilities expand on the back of major countries' monetary policy stance, U.S. presidential election and surge in the FX rate. For banking in particular, rate cut cycle eroded profitability and there were rising concerns on asset quality due to a slump in real economy and ELS-related compensation booked at the start of the year exerted a downward pressure on bottom line. Despite all this, Net Profit for the Year reported more than 5 trillion won, sustaining a solid profit uptrend for the group. These results are meaningful in that despite a structural difficulty of profitability declines, concerns on soundness and heightened economic uncertainties, our fundamentals have proven solid on the back of business portfolio diversification efforts that we've placed over the years. Also, 2024 can be regarded as the inaugural year of Value Up, as we placed emphasis on sustainability and predictability, based on which we announced Sustainable Value Up Plan last October, embodying KB's philosophy, which was met with positive market reaction. We were the first to implement share buyback and cancellation in the sector and introduced equal quarterly dividend distribution based on total payout, which shows KBFG is leading the market in shareholder return and has continued to develop such policies, thereby laying a fertile ground. Underpinned by this foundation, I would like to emphasize yet again that we will implement KB's value-out plan firmly with no interruptions. From next page onwards, I will walk through KBFG's performance highlights for 2024. Firstly, KBFG's FY24 net profit was 5 trillion 78.2 billion won, driven by balanced top-line expansion across all domains, reporting 10.5% year-over-year increase. If you look at pre-provisioning operating profit for 2024, it came in at 10 trillion 89.6 billion won, up 5.9% year-over-year, And compared to FY21, merely three years back, this is around 38.5% expansion, attesting to solid earnings capacity of the group. Also, ROE for 2024 recorded 9.72%, improving 0.59% year-over-year, while EPS was 12,881, up 12.2%, whilst still maintaining a mid-13% level, which is industry's top tier. I will elaborate on CET1 on the following pages. Let me also talk about resolution on shareholder return made by the Board of Directors today. KBFG's BOD today decided on a total of 300 billion won cash payout with DPS of 804.1. DPS, including the paid dividend in 2024, amount to 3,174.1, which is an increase of around 3.7% year over year. Do note that total yearly dividend payout of 1.2 trillion won and 820 billion of share buyback and cancellation during the year will amount to TSR of 39.8% for FY24. The BOD today also resolved on 520 billion won of share buyback and cancellation as well. In accordance with our value of framework that aligns TSR to CET1 ratio based on year end CET1 ratio of 13.51%, capital in excess of 13%, which equals approximately 1.76 trillion won was used as resources for cash payout for 25 and first half share buyback and cancellation. For your information, we are looking at a slight year-on-year increase in total cash payout in 2025 by around 40 billion won, but nothing has yet been confirmed. Once the BOD decision is reached, we will make appropriate disclosure in due time. Next, moving on to breakdown and details of the earnings results. In Q4, in accordance with supervisors' interpretation and accounting rules, insurance subsidiaries, including KB Insurance and KB Life, applied changed accounting rules in relation to experience variance and expiring contract, and Q4-22 and Q4-23 earnings have been restated retrospectively for your reference. The main lever behind Group's top-line performance in 2024 was bigger and sustained profit contribution from non-bank portfolio, defining solid earnings enhancement of the Group. Firstly, in 2024, Group NIM was 12 trillion 826.7 billion won, up 5.3% year over year. Despite NIM moving downwards, on the back of rate cut expectations, loan demand rose, expanding the bank's average loan balance, while interest income contribution from non-bank subsidiaries, from credit card and insurance, continued to rise. Group's net fee and commission income in FY24 reported $3,849.6 billion, up 4.8% year-over-year, or around 176.1 billion won. Now, this is despite suspension of ELS sales and depressed real estate PF market, which pushed down the bank and real estate trust fee income. Rather, on the back of increase in credit card merchant fees and cost efficiency gains, credit card fee income posted a whopping 99.7 billion won increase year on year. Also, with higher securities business net fee income for investment banking and steady lease fee income at the KB Capital, enhanced fee income across non-bank subsidiaries were key levers. Worth noting is fourth quarter net fee commission income at 997.2 billion won. Despite a decline in merchant fees following shortened acquiring cycle and decline in stock trading volume and other market events, securities made bigger contribution through acquisition financing, IPO, real estate PF and other IB fees, driving 5.8% growth Q over Q.

Next, 2024 other operating income posted 351.9 billion won. And with the fading of the base effect from the previous year's bank social contribution program costs, it increased 8.5% YOY. However, Q4 other operating income due to significant decrease in performance related to securities derivative products FX caused by the rise of FX rates. And the narrowing bond yield decline, as well as seasonal factors including cold waves and heavy snow, led to a reduction of insurance-related income and recorded muted performance. Next, I will cover SG&A. 2024 SG&A posted 6 trillion 938.6 billion won, and despite the increase in related costs including ERP expansion and increasing depreciation and admin costs of subsidiaries, thanks to ERP implemented over the past several years led to the reflection of the accumulated labor cost reduction effect and is being stably managed. In addition, 2024 Group CIR posted 40.7%. And on the back of solid top-line growth based on core profit and efforts to improve HR structure and manage cost, it declined 0.4 percentage points YOY and is showing market improvement trend in our group's cost efficiency. Going forward, KBFG plans to strengthen cost-efficiency improvement efforts, and in particular, in the case of capital budget, we plan to refrain from big-bank method large-amount injections, and through diversified investments in line with market trends, we will minimize its effect. Also, in the case of recurring costs, we will minimize fixed-cost expenditures in order to improve the rigid cost structure. Lastly is group provisioning for credit losses. 2024 group provisioning for credit losses posted 2 trillion 44.3 billion won and decreased greatly YOY by 1 trillion 102.1 billion won. This was attributable to the effect from preemptive additional provisioning late last year preparing for potential real estate PF and other risks as well as the effect from reversal of about 263 billion yearly provisioning stemming from the bank's valuation re-rating. In addition, 2024 group credit calls posted 43 BPs, and improved 24 BPs YOY, and some reversals took place at selectively normalized PF sites and is being stably managed within the expected range. On the other hand, Q4 provision for credit losses posted 565.1 billion won and increased 13.5% QOQ, and this was caused by the conservative provisioning stance of all subsidiaries preparing for potential economic condition worsening despite the bank's sizable provisioning reversals. Going into detail, according to the asset quality rating adjustment of the bank, around 68 billion won was provisioned against overseas CRA exposure, And in the case of securities, around 58 billion won was provisioned against real estate PF and overseas acquisition financing. And leasing subsidiaries, including card and capital, have provisioned an appropriate amount reflecting the recent asset quality ratio trend under a conservative management approach. From page 9, I will cover major financial indicators. First, Group's profitability indicators. As aforementioned, KB Financial Group's 2024 ROE posted 9.72% and improved 0.59 percentage points YOY. ROE on a recurring basis excluding one-offs stands at 10.76% level. And in particular, as you can see on the right graph, this was a result of the business diversification effort made during the past years and was possible since we secured an optimal business portfolio including 40% non-banking contribution. Going forward, KBFG responding to the low growth interest rate decline regime will strengthen efforts for each business and, on the other hand, continue RORWA-focused qualitative growth efforts. Let's go to the next page. Next, I will cover banks' loans-in-one growth. 2024 end, bank loans-in-one posted 364 trillion won, an increase 6.4% YTD and 0.5% compared to late September. In case of household loans, following key interest rate cuts and real estate market transaction volume increase, saw increase in home mortgage loans and credit loans centering on actual home buyers and rose significantly by 6.2% YTD. Corporate loans, as a result of solid growth rates centering on high-quality SME and SOHO loans, led to a 6.6% increase YTD. We plan to conservatively manage our loan policy, focusing on asset quality and profitability, taking into factors including economic cycle, real estate market and household debt trends and other factors this year as well. And on the other hand, minimize quarterly fluctuations considering our RWA and plan to manage so that loan growth will be predictable. Next is net interest margin. Group and banks 2024 yearly NIM posted 2.03% and 1.78% respectively and went down slightly YOY. Despite the fact that the effect from two rounds of key rate cuts that were made in Q4 was reflected early, In the market interest rate, Banknim stopped at dropping 5 bps YOY and once again proved profitability management capabilities centered on internal soundness. On the other hand, Q4 Banknim posted 1.72% and increased 1 bps QOQ, which was a result of partial improvement of new and balanced loan deposit spread enabled through household loan growth speed control and following funding amount control as well. We expect the downward NIM trend to continue for the time being this year as well, but in line with our asset growth speed, we will flexibly control the volume and speed of funding and strengthen ALM management to strictly manage our NIM. Lastly, let's go to page 12. I would like to cover Group's capital adequacy-related indicators. First, as you can see on the graph on the left, 2024 N-group BIS ratio posted 16.41% and CET1 ratio posted 13.51% respectively. I will explain in more detail regarding CET1 ratio on the right-hand graph. Group CT1 ratio declined 33 bps QOQ, caused by the Q4 net income amount decrease, which limited its contribution to CT1 ratio to a 20 bp level. 2.9% RWA increase due to factors including FX rate surge in the quarter. In addition, 3.3 billion won of quarterly dividends and shareholder returns including share buyback which took place during the quarter led to around 19 BP level downward effect. and as you can see on the graph on the bottom right of the page q4 rwa posted 346.9 trillion won a 2.9 increase qoq there was around 7.5 trillion won of credit risk increase due to fx rate surge including quarterly one dollar fx rate rising more than 151 and this contributed to a decrease of about 30 bps to the Group C-1 ratio. However, despite these downward factors, Group, thanks to rebalancing efforts, including reduction in unused credit limit, is still maintaining the industry's highest level of differentiated capital capability. In order to steadfastly implement our group's value of framework, we will strictly manage the RWA total amount limit and through continuous ALM monitoring, we will manage the volatility of asset growth and to the extent that it does not impair revenue generating ability, We will strengthen efforts to improve capital efficiency through efficient asset rebalancing considering our RWA. Please refer to the details of our business results from the next pages. And with this, I will conclude KBFG's 2024 business results presentation. Thank you for listening.

Thank you for the presentation. We will now begin the Q&A. For those of you joining through the internet, please refer to the contact information on the very last page of the presentation screen. And for those of you using the phone, press star and one to submit your questions. Please bear with us one moment. From Hanha Investment Securities, Kim Doha, please go ahead. Thank you very much for taking my question. I would like to first get an insight on the guidance for your growth and margin. And the second question, I believe that these questions are upcoming, but if you look at CET1 ratio, in light of the effect sensitivity that we understand, Even if the Korean won was weak, the CET1 ratio was lower than what we had expected. And so I think the outcome of the share buyback was less. And I think the RWA increase was not mainly attributable to the bank. So what were the key levers? And can we understand the effect sensitivity on a dollar basis? And in terms of our shareholder return policy, the CET ratio of the year-end and mid-year is going to be quite important. And I know that in order for you to control the year-end CET ratio, I mean, did you endeavour to do so? because if you compare it to other companies, we were able to see that there were a lot of efforts put in to really defend the CET1 ratio at the end of the year because the timing is an important factor. So, of course, I'm not recommending that you arbitrarily do asset rebalancing in order to defend CET1, but having said that, that year in CET1 is quite important. So on an year-end basis and mid-year basis, for you to control CET1 ratio, do you have intention to really focus on controlling that number through any specific policies? Thank you for that question. Just give us one moment before we answer your question. Hello, I am CFO. Thank you very much for the question. Regarding the guidance on growth and margin, first, if you look at growth on a nominal GDP basis, that would be our key benchmark against which we will manage our growth. Basically, on a quarterly basis, we want to minimize the variability from one quarter to the next. So we want to be able to achieve a steady growth. Now, the market is looking at a one or two or three basis point decline. If you look at the secular trend, the decline in margin seems inevitable because of the rate cut cycle that we are in. However, we want to make sure that the volatility on the asset side is minimized and so that we can save on the funding cost and not just interest, but we want to be able to narrow any fluctuations or the big fluctuations that we've seen in the NIM. For CET1 ratio, if you look at Q4, the FX impact was quite sizable. So as we mentioned last year, 10-1, the sensitivity is about two basis points for every 10-1. In Q4, there's been a decline in profit and also with cash dividend payout in Q4. On top of that, we had had a share buyback and cancellation of more than $100 billion. So the plus impact has been offsetted because of these levers. Now, FX increase had impacted an increase in RWA, which lowered this ET1 ratio. Now, as you've mentioned, we are not arbitrarily going to bring down the asset growth for Q3 and Q4 to keep to a certain number. because that is going to impact our earnings capability in a negative way. We want to minimize the volatility and fluctuation as much as possible from one quarter to the next. So if you take a look at our value-of-plan, at the mid-year and year-end, yes, those are very important timing. Shareholder return is not just going to end with one single point. Basically, there is going to be sustainable shareholder return that is ongoing. So rather than arbitrarily cutting the level of asset, we want to make sure that we achieve steady growth of asset and striking a right balance between shareholder return and that asset growth. We felt that was important because if we try to increase this number arbitrarily at the end of the year, then that is going to work as a pressure on the shielded return at the end of the day. So from a first half basis, 13.51% CET ratio is what we've seen. We believe that we will be able to increase the inch that up more as we go forward. I hope that answered your question.

Thank you very much for the answer. We don't have any questions in the queue as of now, so we will wait. We will take the next question from HSBC Securities. We have on the line. Can you hear me? Yes, we can hear you well. Thank you very much for the good performance despite the difficult environment. I have two questions. The first question is about the shareholder return value up because when you announced those plans, you mentioned that in the first half, if it exceeds 13% for that excess capital, you would use all of that for shareholder return. And after that, in the second half, there would be the amount exceeding 13.5% that excess capital would be utilized for shareholder return. And there is some confusion on our part, so I would like a more clearer understanding because I think with the profits that have increased, CT1 increase, it could be 0.2 or 0.3 per quarter. So in Q2, so when you have the earnings presentation in July, well, based on that, If it goes, exceeds 13.5%, will that be used for shareholder return? Or after Q3 in September, if you look at the trend and if you had lower results in Q2, but if it goes beyond 13.5% at that time, would you be more flexible? let us know about the results. So is this a rigid schedule or is it more flexible in your approach according to the different circumstances? And my second question is about loan growth forecast and CCR forecast as well. Thank you. We will soon answer your question. Thank you. I would like to answer your questions, and thank you very much for your insightful questions. In the second half of this year for shareholder return, we will be quite flexible. We're not going to have a hard pinpoint in June, but we will see the situation, and there will be CT1 at the end of the year, and we will need to take that into consideration as well, as well as its repercussions. So we will be as flexible as possible, And for loan growth and CCR, I will ask our CRO of the Financial Holdings Group to answer that question. So I would like to invite Mr. Jongmin Lee. I am Jong-mil Lee, the CFO of the bank, and I would like to answer your question about growth. In 2025, considering profitability and asset quality, we will pursue appropriate growth centering on high-quality assets and also risk management. And we are expecting about 5 percent growth of the bank loan growth rate, and for household loans, through improving non-face-to-face loan process and dedicated product expansion, we will have growth portfolio based on non-face-to-face channel growth. And we will also have growth based on the high quality credit loans and mortgage loans that have profitability. So we expect about 4% of household loan growth rate considering the market situation and for corporate loans we will consider asset quality so we will pursue about six percent of loan growth for corporate loans and we will have control of the growth speed strategically of large corporations and have flexible growth considering the market opportunities and for sme loans we will have appropriate growth based on high quality assets and for soho we will have growth and have portfolio diversification for different categories and regions. I am the CRO of the group, and thank you very much for question related to CCR. For this year, like the previous year, The financial environment is slated to be quite subdued and economic outlook is not very good as well. So we will maintain our conservative provisioning stance as we had maintained. However, the CCR that we are expecting, we believe will be in line with the previous year about the mid 40 bps level.

Thank you. Next, Mr. Chung Tae-joon from Mira Asset. Please go ahead. Yes, hello. I am Chung Tae-joon from Mira Asset. Can you hear me okay? Yes. Can you hear me okay? Yes, we hear you fine. Please go ahead. Thank you for taking my question. I have two questions. The first one is that the shareholder buyback that you've announced, is it same as relating to the first half figure? Or when you made the Q1 earnings presentation, basically if the capital ratio is in excess of what you have shared, would there be additional share buyback? In value of plan that you have mentioned, you specifically talked about phase one and phase two, but you now say that you're going to be quite flexible in paying out, conducting share buybacks. I would like to gain some more clarity on that. Second question is, when we calculate your TSR, Compared to last year, we think that the total shareholder return rate may go down on a year-over-year basis. Is this a possible scenario that we should be mindful of? Thank you. Just give us one moment. I'm the CFO. Responding to your question, based on value of program, we have, yes, phase one, phase two, first and second leg. And my previous answer is that with regards to timing of that second return, basically it is on that aspect that we will be more flexible. In terms of TSR, compared to 2024, we expect TSR will rise. in light of the year-end profit guidance and the CET1 ratio that we're projecting for the second half, and if we redo the calculation, we will definitely not scale back from where we were back last year. So we expect there to be an increase. So just to add on that, Basically, when we made the disclosure, it is two times. So the second is second half. This could be Q3, and it means the second half of the year. So thank you.

SK Security, you're on the line. Please ask your question. Thank you very much for the opportunity. I have a question related to insurance.

Yes, with regards to the Insurance Reform Council regarding CSM and P&L and KICS, what impact does the recent rule change or rule revision have on these different indicators? Give us one moment to respond to that question. Yes, thank you very much for the question. I will respond to your question. Out of all of the rule changes and regulatory changes, especially changes on the experience variance related assumption, basically in Q4 we applied the best estimate figure. So KB insurance, basically the CSM impact was around 400 billion downwards. Mostly it had to do with assumption changes relating to lab supported product. Now, basically, this means that compared to previous Q4, there's been quite a bit of a decline.

Thank you very much for your answer. We don't have any questions in the queue as of now, so we will wait. We have the next question from Goldman Sachs. We have Park Sinyoung. Please ask your question. Thank you very much for the opportunity. I'm Park Sinyoung from Goldman Sachs. You mentioned the CCR and the mid-40 bips level outlook in your previous answer, and in 2024, Regarding additional provisioning burden that existed, it seems a little bit high. So on a recurring level, do you think this will actually climb? And if that is true, then can you give us your assumption in that background or the outlook? Thank you very much. Well, I will explain about that first. In my answer regarding the mid 40 bits level, you mentioned that it may be a little bit of a burdensome level for us. We are seeing the economy recover and seems to be delaying and for real estate PF or for overseas CRE. it seems that there is a possibility that it could deteriorate. So that is why we have been preemptively provisioning, and we want to have additional provisioning on a conservative basis. Of course, we will have some reversals for our previously accumulated provisioning, but we believe that we need to be ready and prepared for this year. So that is the background behind that. Thank you. And you could understand it as a very conservative level of guidance, of provisioning. And Jo Ji-hyun from the next question, please.

Thank you very much for the question. My question also has to do with credit cost. In Q4, you are more conservative and provisioning. And in 2025, you've also mentioned that you would be conservative going forward. But if you look at the increase in provision in Q4, it wasn't by a large margin. And you say that there are also factors that will drive reversals. So can you provide a little more detail relating to this? And... the right back of provisioning in Q4 had an impact on the overall size of the provision. So we would expect that the 40 basis point will start to go down. Basically, what are some of the one-off factor and this mid-40 basis point guidance that you have just shared, is it conservative as we stand or is this just an appropriate level projection As of today? Yes, let me respond to that. Regarding any one-off factors, For the bank, regarding real estate and valuation related, there were some write-backs which was booked. 40 basis point, your question is, is this a neutral projection or is it conservative? My answer to that is that we have taken a conservative stance. That 40 basis point is a conservative view that we have.

From NH Securities, we have a question from Jung Joon-suk. I'm Jung Joon-suk from NH Securities. Thank you for the opportunity. Regarding loan growth guidance that you remarked on, you mentioned about 5% growth that you are thinking of. And I think it's a little bit higher than I had expected. So regarding RWA growth, do you think it will be a similar level? So I would like to know more about your rationale. Regarding the 5%, well, it could be seen as a little bit high, but for household loans, well, similar to nominal growth rate of 4% is what we are expecting. And for corporate loans, we are expecting about 6% in line with the previous year. So I don't think it could be seen as too high, but I think it will be appropriate. thinking of the previous year and RWA growth rate about 4.5%. So it will be a little bit lower than the asset growth rate. Thank you.

We do not yet have any other people who have asked to submit a question. If there are no additional questions, as I have guided at the very beginning, let us walk through the questions that we received from our shareholders before the start of today's conference call. But we will still wait a little more to see if there is anybody else who has questions. If there are no further questions, then why don't we move on to the questions that we received from shareholders. So there are three questions that we will be talking about today. The first one is some of the changes relating to the record date, the dividend record date of 2025. Second question is the cash dividend plan going forward. And last question is the timing and the size of share buyback and cancellation in 2025. There may be some overlap with what we have already mentioned, but I would still like to turn it over to our CFO to respond to these questions. Yes, regarding the quarterly dividend record date this year with the adoption of the Capital Markets Act revision, in the past basically the record date was set as of end of March, June and September, but basically we can change that to the date after the decision on dividend is made. So when we make quarterly earnings presentation, it is at that point in time we will be able to announce the date on which we will be distributing the dividend. Regarding the cash payout, this year as well basically we will continue to implement equal quarterly distribution. Last year we have done about 1.2 trillion of cash dividend payout and according to this year's information as you know we have a total shareholder return amount, and if you subtract the share buyback and cancellation, the rest is going to be in the form of a cash dividend payout. So on a year-over-year basis, we believe that there's going to be about 40 billion won increase, but nothing yet has been confirmed. But going forward, once we have the resolution by the BOD, we will be able to come back to you with more detail through disclosure.

Another question was asked about when we will have the share buyback and cancellation for 2025. And we will have some changes according to CT1 results. And regarding the timing, as we had mentioned, we have first half and second half of the year. So there will be two rounds. And it will be basically two rounds. And in the second half, we will be more flexible, keeping an eye on the trend. Thank you very much. We will conclude today's earnings release. And thank you very much for participating today.