KB Financial Group (KB) Q3 FY25 earnings call: guidance and Q&A

Has the decline in NIM stopped, and is a turnaround expected? What was the amount of NPL provision reversal from recovery?

NIM decline has slowed, with Q3 bank NIM up 1 bp. A gradual, low single-digit decline is expected in H2/Q4 due to market policy rates, but will be offset by core deposit expansion. The NPL provision reversal was around KRW 70 billion, mainly from overseas bad debt recovery and domestic knowledge complex centers.

“On an annual basis, in the second half or in Q4, we expect the NIM -- of course, it will be impacted by the movement of the market policy rate. There are multiple views regarding how the market rate is going to go going forward. However, looking at the overall direction forward, we think that in the second half, there's going to be a quite gradual decline at low single digit. That is what we are forecasting.”

asked by Do Ha Kim · answered by Jong-Min Lee

Is KBFG planning to issue USD-denominated additional Tier 1 securities given falling foreign currency debt costs? What is the guidance for NPL coverage?

Not considering USD-denominated bond issuance due to elevated FX rates and slower expected interest rate decline in Korea compared to the U.S. NPL coverage is currently around 130%. Management expects it to slightly go up from current levels due to improved portfolio and limited inflow of new NPLs, while maintaining reserving discipline.

“Regarding the first question, now the FX rate is very elevated at this point. And compared to the fall in the U.S. Fed rate, if you look at Korea, we have a household loan-related issue and also there are real estate packages. So we do expect that the interest rate decline is not going to be faster than the U.S. So in consideration of that, so at this point, the U.S. dollar-denominated bond or any issuance of a hybrid bond issuance denominated in U.S. dollars, we're not yet considering to do that.”

asked by Unknown Analyst · answered by Sang-Rok Na

Can management comment on the ongoing discussions regarding administrative fines?

It's difficult to comment on the size or timing as it's not finalized. KBFG is actively responding to authorities and working towards a reasonable resolution to minimize impact, especially on shareholder return policy.

“So to briefly elaborate, currently, regarding the size of the fine or the timing, it is very hard for us to comment because of its impact or the amount or the calculating standard, it is not finalized. So it is difficult for us to answer it in detail.”

asked by Unknown Analyst · answered by Sang-Rok Na

What are the main reasons for the notable core deposit growth, and will this trend continue? Is it due to market trends or internal efforts?

Core deposit growth is primarily driven by the overall fall in interest rates, increased customer numbers (especially salary accounts), and efforts to attract institutional and corporate deposits. While some money moves to demand deposits for stock market trading, the biggest impact is from increased individual customers and changes making it easier for corporations to deposit.

“I think on the whole, the interest rate fell. So that was a big impact because when the market rate falls, we tend to have more core deposits. So they are elevated. So I think that is the basic direction. I believe that recently, we had some of -- more customers that actually are using us to deposit their salaries.”

asked by Jaewoong Won · answered by Jung-Soo Huh

What are the plans for productive finance and its impact on RWA and CET1? Given weaker loan growth, what are the Q4/next year projections, especially with inclusive finance efforts?

Productive finance plans are pending official announcement, but KBFG aims to transform its asset structure to improve RWA by redirecting exposure from properties/financial assets to SMEs/manufacturing. They are confident in meeting a 5% RWA growth rate next year, aided by government adjustments to risk weights for securities. Loan growth is projected at 5% annually, with a focus on corporate loans (6-7%) and household loans (3%). Securities investment is expected to grow 9%.

“What that means is that our asset structure now is overly tipped towards properties and financial assets. And if that is redirected to SMEs and manufacturing sector, where we increased the RWAs that basically is our basic approach. So when it comes to not just the productive finance package and also its impact on our assets, there are certain areas that we do need to lower our exposure on.”

asked by Jihyun Cho · answered by Sang-Rok Na

Is the decline in credit card delinquency a meaningful improvement or a one-off? What is the forecast for provisions/CCR for Q4/next year? With improved capital adequacy, what are the expectations for TSR next year?

Credit card delinquency decline is a meaningful, not one-off, improvement expected to continue into next year due to aggressive entry management and write-offs. CCR goal for next year is early 40% range. While not commenting on specific TSR numbers, KBFG will maintain its protocol for excess capital and be flexible on timing/size of TSR, committing to the highest level in the industry.

“Regarding credit card delinquency, I would like to answer that question. As you had mentioned, for a credit card, from late last year, we have been very aggressive and active in entry management and having good write-offs and sell-offs. So due to this, we have had portfolio improvement. And I think we're seeing the effects of our efforts materialize. So I think regarding the positive results, it is not just a one-off effect. I think this will actually continue until next year, the positive results.”

asked by Jae Woo Kim · answered by Jung-Soo Huh