KB Financial Group Inc. (KB) Earnings

Management highlights

### Shareholder Return Framework & Actions - The BOD approved a $700 billion won share buyback and cancellation for 2026's second round of shareholder return, leveraging surplus capital above the 13.5% CET1 ratio threshold. - Including the $2.82 trillion won first round of shareholder return announced in February 2026, 2026 full-year total shareholder return is expected to reach 3.52 trillion won. A Q2 cash dividend of $1,155 per share was also approved. - Management committed to maintaining a market-leading shareholder return policy, with decisions on remaining surplus capital deferred to year-end 2026 to account for earnings, PBR, and dividend yield targets. ### Strategic Capital Allocation - The group approved a total paid-in capital increase of 1.7 billion won for its securities subsidiary to support growth in wealth management (WM), venture capital, productive financing promissory note business, and pre-meet capital requirements for IMA authorization. - Capital generated by mature core subsidiaries (including the main bank) is reinvested in high-growth, high-return segments (notably capital markets) to strengthen the group's medium-to-long-term earnings base and improve group-wide capital efficiency. ### Overall Financial Performance - Q2 2026 group net profit was 1.9922 trillion won, with first half cumulative net profit reaching 3.8846 trillion won, up 13.1% YOY. First half total operating income exceeded 10 trillion won for the first time in group history. - First half group return on equity (ROE) reached 14.09%, continuing a steady improvement trend.

Guidance

- Group NIM is expected to improve gradually in the second half of 2026 as base rate hikes, asset-liability repricing, and funding structure normalization take effect; full-year 2026 NIM is projected to see a slight YOY increase, maintaining the original annual forecast. - Full-year 2026 group ROE is expected to exceed 11%, with a medium-to-long-term group target ROE of 13%, which management now expects to reach earlier than originally projected. Segment ROE targets are 11%+ for the core bank, 14% for KB Securities, 13-14% for insurance, and 10% for the credit card segment. - Full-year 2026 group credit cost is projected to land in the early-to-mid 40 BP range, with management maintaining a conservative provisioning stance going forward. - Full-year 2026 household loan growth is projected to remain in the 6-7% range, consistent with the start-of-year guidance, with growth focused on policy loans and selective profitable lending. - Annual RWA growth is expected to remain within the original target range, with management maintaining a balanced pace of asset growth to support shareholder return commitments.

Segment performance

Core Bank Segment: As of end-June 2026, total Korean Won loans reached 385 trillion won, up 2% year-end 2025 and 1.6% quarter-over-quarter (QOQ). Household loans hit 184 trillion won, while corporate loans reached 201 trillion won (up 2.2% QOQ, driven by productive financing growth). Q2 bank net interest margin (NIM) was 1.74%, down 3 basis points (BP) QOQ. Group-wide: First half 2026 net interest income (NII) was 6.4783 trillion won, with a slight year-over-year (YOY) increase but a QOQ decrease. Group NIM was 1.94%, down 5 BP QOQ. Non-interest income for the first half was 3.6292 trillion won, up 33.3% YOY; cumulative net fee income reached ~3 trillion won, contributing over 31% of total revenue for the first time. General & administrative (G&A) expenses increased 8.9% YOY, bringing the group cost-to-income ratio (CIR) to 36.2%. Credit loss provisions for the first half were 519.8 billion won, with a cumulative credit cost of 39 BP, an improvement of 15 BP YOY. End-of-period CET1 ratio was 13.74%, and risk-weighted assets (RWA) were ~370 trillion won, up 1.1% QOQ. Non-banking Segments: KB Securities (the group's securities subsidiary) contributed approximately 21% of group net income for the first half, leading non-banking earnings growth. First half insurance operating income was sluggish YOY due to higher long-term and auto insurance loss ratios, but Q2 insurance income improved on lower loss ratios and CSM impairment reversals, with Q2 other operating income up 29.1% QOQ.

Risks & headwinds

- Heightened macroeconomic uncertainty, including high FX volatility, elevated interest rates, and geopolitical instability from the Middle East situation, creates downside risk for asset quality, particularly among SMEs, SOHOs, and vulnerable/marginal borrowers. - Intensifying corporate loan competition is putting downward pressure on loan yields and NIM. - Capital market volatility creates earnings uncertainty for the securities segment, which has been a major contributor to recent group profit growth. - Uncertainty remains around the pending regulatory decision on ELS liability provisions, with no provisions for potential reversals included in the first half results.

Analyst Q&A

• Q: With excess capital above the 13.5% CET1 threshold returning to shareholders, what is the plan for dividend growth after reaching a PBR of 1, and will the capital ratio framework or ROE target change? /

  A: The commitment to return all excess CET1 capital to shareholders by fiscal year-end remains in place. After the 700 billion won buyback, ~180 billion won in excess capital remains; management will retain flexibility over timing and method (buyback vs dividend) due to seasonal Q4 capital pressures and macro uncertainty like FX volatility. No major changes to the capital-linked shareholder return framework are planned, but management is considering minor adjustments to increase cash dividend allocations as earnings grow, with no concrete changes to announce yet. A long-term ROE target of 13% is set, with 2026 expected to exceed 11%, hitting the target earlier than planned.

• Q: What drove the Q2 NIM decline, and what is the 2H 2026 NIM outlook? When will ELS provision reversals be recorded? /

  A: The 3 BP Q2 NIM decline came from two main factors: a focus on high-quality productive finance lending that narrowed spreads slightly, and preemptive funding ahead of expected second half rate hikes that increased funding costs. Funding cost pressures are expected to ease over time, and full-year 2026 NIM will still see a slight YOY increase per original guidance. A final regulatory decision on ELS provisions is expected in late July, so no reversals have been included in first half results; any changes will be incorporated after the decision is released.

• Q: What is the growth outlook for the newly capitalized KB Securities' IMA business, what are conflict of interest concerns, and what is KB's exposure to leveraged trust products? /

  A: KB Securities is only preparing for IMA authorization, which requires meeting the 8 trillion won capital requirement for two years before full operations can launch, so no immediate large-scale expansion is planned. The IMA business will create synergies rather than conflicts with the core bank, as deals often split roles between the bank (senior loans) and securities (subordinated debt) to serve clients. KB does not currently sell leveraged ETF trust products, prioritizing customer asset risk management over this product line.

• Q: How will the remaining 180 billion won in 2026 excess capital be allocated, what drove G&A growth, and what is the second half fee income outlook? /

  A: The 180 billion won can be allocated to either an earlier share buyback or added to year-end cash dividends, with both options still open. G&A increased this quarter primarily due to higher performance-based compensation at KB Securities tied to strong stock market results, plus changes to education and corporate tax rates. While high capital market volatility makes exact forecasting difficult, fee income is expected to hold at a higher level than 2025; planned CIB and productive finance deals plus a projected pick-up in ECM/DCM activity in the second half will offset any potential weakness in transaction volumes.