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.