KB Financial Group Inc

Greetings, everyone. I am Cherry Kang, head of KB FGIR department. We will now begin the 2026 first half business results presentation. Thank you very much for participating in today's earnings release. We have here with us today business results presentation, our group CFO, Sang-Rok Na, as well as executives from our group. Regarding the agenda today, we will first have our group CFO deliver the 2026 first half business results and then have a Q&A session. We will now have our group CFO deliver a presentation on 2026 first half business results. Greetings, everyone. I am KBFG CFO Sang-Rok Na. Thank you very much for taking part in the 2026 first half earnings release. Before we proceed with the business results presentation, I would first like to cover the first half shareholder return approved at today's BOD meeting. Let's go to page one. Despite the operating environment in the first half of the year marked by high SX rate and heightened financial market volatility through strategic capital management efforts, June end group CT1 ratio posted 13.744%, a 10 BP improvement compared to the previous quarter end. According to KV's shareholder return framework, capital that exceeds 13.5% CP1 ratio will be utilized for our second round of shareholder return in 2026. At today's VOD meeting, it was decided to carry out, firstly, $700 billion of share buyback and cancellation. Regarding the remaining surplus capital, we will comprehensively take into account our earnings, PBR, and dividend yield returns at the end of fiscal year 2026 and use this to fund additional shareholder returns. For your reference, if we take into account the $2,820,000,000,000, one of the 2026 first round of shareholder returns which was announced in February, we expect to post $3,700,000,000,000,000 as our 2026 annual total shareholder returns. We will deliver on our commitment to the market to maintain interest-leading level across all shareholder return metrics, and going forward, we plan to consistently maintain our differentiated shareholder return policy based on our stable earnings generation capacity. In addition, at today's VOD meeting, a cash dividend of $1,155 per share for Q2 was approved. Let's go to page two. Through strategic reallocation of capital reflecting the operating environment and growth prospects of each business segment, we are continuously strengthening a virtuous cycle that enhances capital efficiency across the group and at the same time reinvesting in subsidiaries with strong growth potential. As a part of these efforts, in order to absorb the flow of capital market money moving to our recurring earnings base, we decided on two rounds of paid-in capital increase totaling 1,700,000,001. This represents a more efficient and dynamic allocation of capital across the group whereby capital generated by core subsidiaries including the bank is reinvested in the securities business which offers growth potential which is strong. Our security subsidiary plans to utilize the capital secured to proactively respond to changes in the WM market while providing venture capital and supporting productive finance by expanding its promissory note business and fulfilling the requirements ahead of time for IMI IMA Authorization. Going forward, we will further strengthen our group's medium to long-term earnings base across businesses with strong growth potential and high capital efficiency, including the capital market segment. Next, I will cover business results. Q2 net profit posted $1,992.2 billion won, and on the first half cumulative basis, it posted $3,884.6 billion won, A 13.1% increase YOY. This was driven by a significant increase in fee income, which pushed the group's first half total operating income above 10 trillion won for the first time in its history and sustained its stable growth momentum. In particular, our security subsidiary's contribution to the group's net income for the first half increased to approximately a 21% level, leading the growth in earnings from our non-banking business. Meanwhile, supported by this enhanced earnings capacity, the group's ROE for the first half also posted 14.09%, continuing its improvement trend. For your reference first half, Non-operating profit declined significantly while Y. This was mainly attributable to a high base effect from the additional provisioning for ELS-related liabilities in the previous quarter and gains on the disposal of assets held by consolidated funds in the prior year. Let me now walk you through our financial results in greater detail by business segment.

For the first half of 2026, the Group's NII recorded $6.4783 trillion, when a slight increase while Y. However, it was a slight decrease in QOQ due to a slight drop in NIM from pre-ended funding in anticipation of an interest rate hike in the second half of the year. Next is growth of loans in Korean Won. As of the end of June 2026, the bank loans in Won amount to 385 trillion Won, up 2% over the end of 2025 and up 1.6% QOQ. Household loans shifted back to a solid growth trend, reaching 184 trillion won, while corporate loans recorded 201 trillion won, growing 2.2% QOQ, mostly thanks to the growth of productive financing. In the second half of the year, while not compromising asset quality, we plan to pursue our growth strategy with a focus on qualitative growth, such as portfolio shifts through productive financing. Next, net interest margins on the bottom right. Bank NIM for Q2 recorded 1.74%. Due to intensifying competition in corporate loans, yield on assets remained similar, QOQ. The increase in marketable deposits along with preemptive funding in preparation for a second half-of-a-year market rate hike pushed the cost of funds, resulting in a NIM drop of three basis points, QOQ. Meanwhile, Group NIM recorded 1.94% due to the impact of the lower bank NIM combined with the decline in credit card financial assets and preemptive funding by KB Capital. Group NIM is down 5 basis points QOQ. However, in the second half of the year with base rate hikes, asset and liability repricing effects, and normalization of funding structures gradually incorporated, we expect NIMS to show an improvement trend. Accordingly, on an annual basis aligned with our forecast from the beginning of the year, we expect an improvement YOY. Next, non-interest income. Group non-interest income for the first half of the year recorded 3.6292 trillion won, demonstrating a significant improvement of 33.3% YOY. In particular, cumulative net fee income for the first half reached approximately 3 trillion won. and in Q2, rose 17.8% QOQ to 1.6019 trillion won, continuing a double-digit growth trend for three consecutive quarters. This was mainly driven by an expansion in securities brokerage fees under favorable stock market conditions, alongside sales of capital market-linked products such as equity funds and ETFs by the bank, As well as an increase in personal credit card spending. As a result, net fee and commission income contributed more than 31% to our top line for the first time, driving the group's solid performance. Meanwhile, as for the first half of the year's other operating income, mainly due to a decline in insurance income caused by rising loss ratios in long-term and auto insurance, recorded somewhat sluggish results compared to the same period last year. However, in Q2, loss ratios showed improvement, and with the addition of CSM impairment reversals, insurance operating income increased. While promising industries such as AI and semiconductors led to a significant valuation gains on unlisted stocks that are investment subsidiary, resulting in a performance that rose 29.1% QOQ. Next, moving on to general and administrative G&A expenses. 1HG&A expenses increased 8.9% YOY but backed by solid growth in total operating income, the group CIR posted 36.2%. Excluding Q4, when one-off expenses such as ERP typically occur, the group has stably managed its CIR in the mid to upper 30% range every quarter since 2023. Going forward, while actively expanding investments for future growth, we will strengthen earnings capacity and also efficiently manage recurring expenses to maintain a downward stabilizing trend in Group CIR. Next on page 8 is a group provision for credit losses. Due to credit loss provisions recorded due to one-off provisioning related to non-performing corporate loans at the bank, It recorded 519.8 billion won, a slight increased QOQ. Excluding these one-off factors, the group's overall asset quality continues to show an improving trend. Particularly, KADCard's asset quality is stabilizing, primarily in personal cards and card loans, easing provision burdens, while the savings-based subsidiary is also seeing real estate PF-related risks gradually resolving. As a result, Q2 group credit cost recorded 38 BP following QOQ, and on a cumulative basis for the first half, it came in at 39 BP, significantly improving by 15 BP YY. Lastly, moving on to group capital ratios. As of the end of June, preliminary estimates suggest a group DIS ratio of 15.91% and a CET1 ratio of 13.74%. Risk-weighted assets, RWA, recorded approximately 370 trillion won, up 1.1% QOQ, but remains well within our projected RWA annual growth target. To consistently deliver on our shareholder return commitment, we will maintain a balanced pace of asset growth while driving capital efficiency and profitability through war-oriented asset rebalancing. Detailed breakdowns of our financial results are provided in the following slides for your reference. This concludes KB Financial Group's first half 2026 earnings presentation. Thank you for your time. Thank you for the presentation. Now we will have the question and answers. Those of you joining on the internet, please use the phone number on the last presentation slide. Those listening on their phones, please press the star key and number one to ask a question. We will wait for questions.

We have the first question from Goldman Sachs. We have Park Shin Young, head of center. Please ask your question. Thank you very much. I am Park Shin Young from Goldman. And regarding your total shareholder return for the first half, for your cash and for your own shares, can you tell us the distribution also? For price to the multiple for KB, I think that it has gone beyond one multiple. So can you tell us about how you're going to grow your cash dividend? And regarding the... Reduction or impairment capital that was discussed at GSM. Can you tell us about more details? And I think according to the FX fluctuations, there is some change into the capital ratio. So do you have any plans to revise the capital ratio? Or regarding your target ROE level compared to your competitors, do you have plans to share them with us? Thank you very much. Thank you very much for your questions, and we will soon answer them. I will answer the questions, and thank you very much, Shin Young Park, for your great questions. And as you just mentioned, our CP1 ratio of excess capital that exceeds 13.5%, Before the closing of the fiscal year, we have plans to return all of it to our shareholders, so that is still standing. And we had the share buyback and cancellation of 700 billion won, and we have about 180 billion won remaining. And we believe that there could be Two or other scenarios considering the flexibility. In the first case, the year and CT1 ratio, capital ratio management is very important. And from last year to this year, when you look at the quarterly capital ratio trends, in Q4 there were seasonal effects. So that is why it was very challenging to uplift the CT1 ratio. And like always, it's very important to have good capital management, capital ratio management for 2-3. And it is true our earnings capacity has strengthened, so there are positive effects. But there are macro variables like the FX rate. We don't really know what will happen, so there is still uncertainty for other factors. So that is why we believe that we need to be more flexible in the timing. And secondly, as you asked, We have reached PBR of one multiple, and in that case, for cash dividends and your buyback and cancellation, we are thinking of maybe adjusting the ratio of the two, but we're not saying that we are going to shake things up, but it seems that we're going to have the annual earnings size that is going to be more or more materialized. We think the cash dividend will deteriorate Depend on the amount. So I think that we will need to consider these factors. And regarding the method and the timing, I think that we will need to be more flexible. And secondly, related to shareholder return linked to our capital ratio, I think you asked the question. And I think we are thinking of the best method. And until next year, we already disclosed our plan. However, what we're thinking about is The shareholder return related to our capital ratio, this formula will not be greatly affected, but because we think that if we are in an era where ROE is going to be strengthened, then we will need to think about other methods as well. So that is why we are going to consider many factors so that there seems to be there is room for improvement, but We don't have anything concrete yet that we can share with you, so I think that will be what I can share with you today. Thank you very much for your questions.

Thank you so much for that answer. We would like to take the next question. Next question is from IAM Securities, Seol Yong Ji, researcher. Please ask your question. Thank you for giving me the opportunity to ask a question. I have two questions. First of all, recently, there was a large fluctuation in margins. And to look at this in more detail, I would like to hear a breakdown of the factors that impacted the margins and what is your forecast for the 2H margin. And second of all, the return of ELS. Could you provide more detail of that reversal of ELS? I'm the CFO of the bank. First of all, about the NIMS. So in Q2, NIMS went down 3 BP to 1.73%, and YOY, based on the half year, it went up 2 BP. And in terms of operation and funding, we can look at this in these two perspectives. In terms of operation, We are trying to focus on increasing the productive finance, and we are trying to focus more on more stronger loans, and we are also focusing more on conservative loan management. So that led to a reduction in use spreads, and this shows that we are focusing on attaining strong customers and also And we did lose a part of our time deposits because of the money move. and NMDA and marketable deposits are areas where we have focused on funding preemptively to address that change and that has led to a funding cost increase and this is going to alleviate as time goes by. In terms of NIMS forecast, in terms of operation, compared to other banks, we have a 12-month recurring refreshing loans compared to Chang Kwon Lee, Chang Kwon Lee Thank you for joining us today. The annual NIMS outlook will be a slight increase as we have compared to 2025 as we have announced in the early half of the year or at the beginning of the year. And in terms of ELS provisioning, there is a decision to be coming in the end of July. So the Financial Supervisory Service and so financial... and the supervisory commission, they are still pending decision. So that was not built into the report this time. And we are going to build it or incorporate it into the reversal going forward.

Thank you very much for the answer. We will take the next question. From Hanwha Securities, we have Doha Kim on the line. Please go ahead with your question. Thank you very much for the opportunity. I have two questions. My first question is about shareholder returns. You mentioned $700 billion of shareholder buyback and cancellation, and you mentioned that probably you're thinking about increasing the dividend for the fiscal year-end, but looking at the current level, for Q3, there is the remaining shareholder return that you have to give. Well, it seems that maybe you had done that because there's only 700 billion won left. So you mentioned that if you're going to give out more in February of next year, I think that will not actually be completely adherent to what you mentioned. So utilizing it for dividends, and then maybe it's because... You're going to use it from security subsidiary because insurance subsidiary cannot. So I am sure that you have very strong shareholder return, but it seems that for the funding schedule, it's a bit complicated or mixed up. So regarding the market's expectations for you, I think there might be some confusion. So... Regarding this tangled web of funding schedule that we're thinking of in the market, if you can explain the situation to us, I think we can actually predict the future funding flow. And secondly, related to the loans, I think that there is the corporate loan competition that you mentioned that could have been a sobering effect. So can you tell us about any plans for loans for different types of borrowers? It would be very helpful. Thank you very much. Yes, we will hold and soon answer your questions. Thank you very much. Thank you very much, Doha Kim, for your insightful questions. Regarding our funding schedule, well, it's not quite tangled, and There's going to be $180 billion that is remaining, but that is not really a wrench in our process. And from next year, there's going to be capital reduction dividends. And regarding those dividends, we do have profits that are sufficient to give out dividends, so we believe that we have no more issues there. And you also asked, I think, a question regarding capital reduction dividends that we're going to probably – have from next year. So I hope that you understand that. And regarding the dividends from our life insurance, well, it was also included. And it's not difficult for our insurance subsidiaries to give out dividends. And it's not that our funding schedule is very complicated. Well, regarding the hybrid bond issuance and others, we have ample room in our funds. So I do not think you need to be very concerned with that. So I think that you can take reassurance that our shareholder return is going to be normal.

Thank you for that answer. We will take the next question from HSBC. Mr. Won Jae-woong, please ask your question. Thank you. For those very strong performance in spite of the unfavorable environment, I'd like to ask about the non-banking business. So in the securities company, you recently had capital injection, so you're expanding on existing businesses and also trying to begin the INA business as well. NH Investment Securities, and Hankook FG. Compared to those companies, the KBSG is much bigger. And the securities company is also much bigger. And while doing IMA, there might be conflicts of interest among the customers. What are your thoughts on that? And if you're able to begin the IMA business, then how... Much of our profit will be generated and how much it will grow your balance. I would like to know what your projections of that. And second of all, leveraged trust products are being sold recently. And through bank trust, a lot of sales were made. And for non-interest area, there was a lot of fee income as well. So bank trust leverage, how much does it What is the balance and how much is it contributing? So allow us to prepare to answer that question. Thank you for the very good question. So part of your question was about IMA. So if you're able to fulfill the $8 trillion capital requirement, it won't go into full-fledged business right away. It actually will have to be maintained for two years. So our goal is not to expand IMA business right away, but actually gradually prepare for that area of business. Also, About conflicts of interest with the bank business, there will be no conflict of interest. But it's actually going to show a lot of synergistic effect across the security and bank subsidiary. And a lot of deals take place concurrently across the securities and bank and senior loan and subordinated loan. Sometimes the roles are split between those two subsidiaries. So we believe that there is going to be much more synergistic effect rather than conflict of interest with the bank. And about leveraged ETF sales, our CRO will be answering that question. So leveraged ETF trust product was part of your question. At KB, we don't sell this leveraged ETF product. So this was probably referring to what is taking place at other companies. And for customer asset risk management, we are actually not selling that product as yet. So about household loan and corporate loan growth projections for the latter half of the year, there was a question that was not addressed earlier. So household loan, And because of the taxation on capital gains of owners of multiple homes, we have been focusing on other areas for growth. And of course, there's a ceiling on total home loan. So in terms of profitability, We are going to grow within our plans, and we are also going to focus our growth on policy loans. For corporate loans, our balance amounts to 200 trillion, a little over 200 trillion, and that would be QOQ, 0.2% growth, a 4.3 trillion won growth. And because of productive finance policy, we are going to have to continue on this trend in the latter half of the year. And We have been focusing on companies, and as we try to build up our fundamentals, we are showing healthy conversion to SMEs rather than SOHOs. And for household loan, profitability management, and adequacy, capital quality management, we have to be very selective. So in the past, our household loan growth Thank you very much. Growth will be around 6% to 7% throughout the year, as you have said, in the beginning of the year. Thank you so much for those answers. Now we will take the next question.

From J.P. Morgan, we have Jo Ji Hyun. You're on the line. Thank you very much for the opportunity. Regarding shareholder return, I think I'm a little bit confused. So I would like a clarification because I know there is 180 billion won that is remaining in the second half. And if it needs to be calculated into shareholder return resources for 2026, well, I think there needs to be share buyback and cancellation or there needs to be some cash dividends that is distributed. However, regarding this $180 billion, can you tell us about how this will be handled? It's because for your share buyback and cancellation plan, you mentioned that it's going to be completed in mid-December. And when this is executed a bit earlier, then... Does it mean that your buyback will be possible within this year? So that is my first question. Second question is, GNA I think has grown quite a lot. So can you tell us about the reason behind that? It will be very helpful. And another question is that in Q2, there has been a lot of capital market volatility that is quite severe. So in the second half, can you tell us about your outlook for fee income? So is there going to be a peak out in this quarter and it's going to go down or are there other expectations you have for fee income? And my last question is about Q2 provisioning management. I know that you did well in Q2 and can you tell us about the second half and this year's provisioning outlook or target that you have? Thank you very much. Thank you very much for your questions. We will soon answer them. Please hold. Thank you very much for your insightful questions. Regarding shareholder return, to answer that question, I think your question holds the answers. So we're going to choose one out of the two methods and to enact the additional shareholder return. We do have a trust contract, but when we have early execution of share buyback, we can also do it again. So in the past, that was impossible, but now it is not. So it is still open. The possibilities are open. And because we have reached PBR of one multiple, as you mentioned, we could have adjustment toward cash dividends. So it could be included into our fiscal year-end dividend. And regarding the reason why GNA has gone up, It's because there were very good profits in security subsidiary. There was some compensation that was increased for their employees and because of the stock market boom, there was the stock related compensation costs or fees that also increased. Also, there was the education tax that was changed and the corporate tax that was also changed as well. So the education tax And regarding the capital market, the fee outlook, That was your question. It seems that in the securities market, there is very huge volatility. So regarding the level of fee income, whether it can be maintained or not, it's very limiting for us to give you an outlook. But regarding the volume of securities transactions, the amount of securities transaction-related amount, well, it is true that it really has gone up compared to the past. So related fee income will probably go up a level compared to the previous year and remain there. And even if there is less coming in than by CIB, there are some big deals that are actually in our plans for the second half. So the fee income related to productive finance, it can also be a complementary factor. Also, in the first half, there was ECM or DCM securities. That was a little bit sluggish, but we think in the second half, we have plans that will be executed. And if that happens, then the fee income related to the securities or capital market, we think that we could have a good supplement. And we are going to ask the CRO of our holdings group related to provisioning. Yes, I would like to answer your question related to provisioning. It's true that in Q2, CCR was 39 BIPs. So on a QOQ basis, it is improving. Until now, we had conservative provisioning policy. So for our loss absorption capacity, we secured that. And related to higher portfolio management based on quality, we had the normalization of provisioning as well. However, at this juncture, We are seeing the aftermath of Middle East situation and high FX rates and interest rate and situation is currently going on. So if we have sluggish related industries for SMEs or SOHOs or marginal borrowers or vulnerable borrowers, We cannot leave out the possibility that asset quality will deteriorate, so that is why in the second half we will maintain our conservative provisioning stance. Accordingly, there could be some fluctuations, but on a basis for this year, we think that it will be in the early to mid-40 dips level. Thank you.

Thank you for that answer.

We don't have any people waiting to ask questions.

We will wait for a while for people to line up their questions. In terms of securities, Kim Jae-ho, please ask your question. I have just one question. ROE? have gone up quite significantly. And the ROE, what is your target figure for ROE? For the competitor by 2027, they were looking at 10%, but they have adjusted that to 12% to 15%. And KBSG, I would like to know, if you have any guidance on how high your ROE will go and in connection with that, the security subsidiary performance was quite strong and this was probably very helpful. However, the market's concern is that the high volatility in the market calls for a better stability or in other words, to maintain the performance or earnings at this higher level. Could KB Securities please respond to this question? Please bear with us while we prepare to answer. Thank you so much for that very good question. In terms of ROE, this year, our prediction is probably going to exceed 11%. And we're very much looking forward to this. In the long term, our target for ROE is around 13%. And we're probably going to hit that target higher than we initially expected. And as you asked in your question, the ROE had gone up mostly thanks to the securities subsidiaries' strong performance. But because of fluctuations in volatility in the security market, this might go down again. Then this Strength of gains. Will that be able to withstand that volatility? As it was stated in your own report, the transactions in the stock market, structurally, it's expanding and growing. And this is probably going to help uphold such gains. However, KB Securities are also preparing to Better Weather, the volatility, the IB performance and earnings becoming much more visible and recovering, and particularly in S&P, particularly trading, we have been lacking compared to our competitors. And in the first half of the year, we have seen improvement in that area. And we are looking forward to upholding that improvement in the latter half of the year. So the portfolio has to be diversified to be able to maintain the increased gains and performance in the securities. So in terms of venture capital and we will be able to play a larger role and we're not, have high expectations not only in retail but for large deals and also capital transactions for overseas clients and OCI. The fact that we have to bring in more funds Thank you for your time. So I'd like to add on to that, and from KB Securities, the CFO has answered quite sufficiently. However, I'd just like to add on to that. Digital platform advancement, which was mentioned in your question, that's something we're also pursuing. Our MTS is called Marble, and it is separate from other systems. So and ETF and domestic securities, stock view, those are all provided in one shot view and we are going to enhance the services in the latter half of the year and we're going to further advance our MTS and make it much more competitive. I just wanted to add that point.

Thank you very much for your answers. It's already 4.43, so I think this will be the last question from Daol Investment Securities. Kim Ji Hwa, you're on the line. Thank you for this opportunity, and I just have one quick question. As you had answered previously, I understood, and on a group level for ROE exceeding 11% this year, And I think it was said that 13% is your target. Then can you tell us about when you will reach the target ROE? And for the COE level, can you also tell us about the level that you have determined? Thank you very much for your questions. We will soon answer them. Thank you very much for your insightful questions, although they were quite challenging questions, because I think we mentioned our mid- to long-term ROE goal for our group, and it's not very easy for us to answer the goal for each subsidiary, but for the bank, for ROE, I think exceeding 11% is probably our target, and for security subsidiaries, 14%. and for insurance, 13% to 14% we think will be maintained. However, for CARD, recently there were challenging operational environments, so the ROE has fallen a bit, but we want to pull it up to a 10% or so level. And related to this, I think you can just refer to it. And regarding COE, well, because we have PBR1 multiple that we have achieved regarding COE, Well, if we say it's 10% level now for ROE, then for COE, we also think that 10% would be appropriate. However, for PBR, if it goes beyond one multiple, then it might go below 10% is our prudent guess.

Thank you so much for that answer. There are no more people to ask questions. This brings us to the end of our earnings release. So those questions that were not asked during this session, please address them to the IR team. This brings us to the end of the 1H26 KBFG earnings release. Thank you.