KB Financial Group Inc. Q2 FY2025 earnings call

• Shareholder return: Used KRW 850 billion above CET1 ratio of 13.5% as funds for shareholder return in the second half. Second round of shareholder return in the second half will be around KRW 1.150 trillion. BOD decided KRW 335 billion dividend for second quarter, DPS KRW 920, and KRW 660 billion treasury share buyback/cancellation.
• Group net profit: Q2 net profit KRW 1,738.4 billion, first half cumulative KRW 3,435.7 billion, ROE 13.03%. Driven by higher noninterest income and recovery from nonoperating profit.
• Net interest income: Maintained similar to prior year despite margin contraction, with loan growth stable.
• Bank loans: Household loans and corporate loans grew, with plans to operate loan policy from a comprehensive profitability perspective in the second half.
• Net interest margin: Q2 bank NIM 1.73%, group NIM 1.96%, expected to minimize contraction in the second half.
• Noninterest income: Up 10.9% Y-o-Y, driven by securities and derivatives, net fee income up 2.9% Y-o-Y.
• G&A expenses: 4.1% growth Y-o-Y, cost-to-income ratio (CIR) maintained at 36.9%.
• Provision for credit losses: Q2 provision KRW 655.1 billion, conservative stance, asset quality expected to improve in the second half.
• Capital ratio: CET1 ratio 13.74%, BIS ratio 16.36%, RWA grew 2.4% YTD.

Nonbank accounted for 39% of the group's first half net profit. 2025 first half group net interest income was KRW 6,368.7 billion. Bank loans in won as of end June 2025 were KRW 372 trillion, growing 2.4% year-to-date (YTD) and 1.4% quarter-over-quarter (Q-o-Q). Household loans were KRW 181 trillion, corporate loans KRW 191 trillion. Q2 bank net interest margin (NIM) was 1.73%, group NIM was 1.96%. First half group noninterest income was KRW 2,723.3 billion, up 10.9% year-over-year (Y-o-Y). First half G&A expenses were KRW 3,355.3 billion, a 4.1% growth Y-o-Y. Q2 provision for credit losses was KRW 655.1 billion, group credit cost 55 basis points (bp). Q2 group NPL ratio was 0.72%, NPL coverage ratio 138.5%. Group's BIS ratio at end June 2025 was 16.36%, CET1 ratio 13.74%, and risk-weighted assets (RWA) grew 2.4% YTD.

• Shareholder return: Second half shareholder return ~KRW 1.150 trillion, annual cash dividend KRW 1.34 trillion, second quarter dividend KRW 335 billion, DPS KRW 920.
• Credit cost: Expect credit cost to stabilize in the second half and control at mid-40 bp level.
• Loan growth: Bank loans growth target 4%-5%, household loans expected to grow ~3%, corporate loans targeted at 6%-7%.

• External factors: Potential tariff-related pressures from the new Trump administration may weigh down metrics.
• Asset quality: Still exposed to external factors that could impact asset quality metrics.

Q: Even with the earnings presentation, I still have a question as to the size of your second half shareholder return. In terms of the timing of the share buyback, you will be doing that in the early next year. So for the second half, is it correct for us to say that the size of the shareholder return for the second half is KRW 850 billion. So also for next year, what are your plans to make sure that you have ample amount of distributable profit for dividend? And second is a question related to your provisioning. I was expecting a lower figure in terms of the provision. So I'm a little bit confused. As you've mentioned, all the asset quality-related metrics have improved, but still, we've seen certain increases in the provisioning levels. So I would like to understand as to why that is. I understand the credit cost guidance is 45 basis points for the year. So in the first half, we are announcing CCR at 55 basis points. So that means that in the second half of the year, what would you guide us? Because you usually provision more in the end of the year, even if we consider that on an annual basis, I would like to understand as to the annual guidance. Is it staying the same as per your previous communication?

A: Thank you, Mr. Jaewoo Kim, for your question. Regarding the question on the size of the shareholder return, as mentioned during the presentation in the second half of the year, KRW 850 billion, that is the size. However, the excess capital above the distributable profit, KRW 660 billion, therefore, is decided to be paid to be enforced. With the BOD resolution, the remaining, which is KRW 190 billion will be used as funds for shareholder return. So as mentioned during the presentation, so including the KRW 190 billion, 2025 -- KRW 190 billion will be attributed to 2025 shareholder return, which is in excess of the distributable profit. In the second half, for us to ensure we have ample amount of distributable profit, we are open to many different options. First being receiving the interim dividend payout from our subsidiaries. We think that, that is a way for us to ensure that we have these resources. And also, there is also impaired dividend payout as well. So we are open to various different options, so you do not need to be concerned. So KRW 850 billion as per our presentation, that is the size of the second half shareholder return. With the CCR for the second half of the year, as you have mentioned, the second quarter CCR basically reported a similar level as we've seen in the Q1. So basically, in line with the natural increase in the provision and also to counter decline in the property. What we did was we had a preemptive provisioning of around KRW 100 billion. Out of certain -- potentially, certain loans and exposures, what we did was in terms of the overlay approach, we made certain additional provisioning so that we could ensure a certain level of loss absorption capability in light of the potential sell-out rate of the apartments and the progress as well as rental rate. Also, we went through a very active writing offs and sell-off and also rebalancing of the NPLs, and this really strengthened our collection organization. So we have implemented multiple number of plans, and we are seeing the impact of these changes from the second quarter. So in terms of NPL and asset quality-related metrics, we are seeing improvement. And also on top of that, in the second half, there will be certain level of reversals as we sell off the NPLs and the size of the provisioning for the second half, we think that it's going to stabilize as we enter into the second half. However, we are exposed to potential tariff-related pressures from the outside under the new Trump administration. There are still certain external factors that may weigh down on our metrics. However, based upon our asset quality approach and also with our soft lending policies against the vulnerable borrowers, if we are able to manage those 2 aspects, unless there's any unexpected surprises, we believe that we will be able to control CCR at mid-40 basis point level. I also just would like to add on the shareholder return framework at KBFG. You would already know this quite well. Basically, the excess capital above certain baseline will be fully used to return back to our shareholders. So there is certain carryover to next year. So maybe some of you may be concerned that the shareholder return amount for next year will be lower. However, if you look at the RWA, the resilience and also as we are able to maintain our capital ratio; basically, the carryovers from this year is not going to negatively downsize the amount of shareholder return that the shareholders can expect for next year. So in light of the earnings resilience and our capital management and our capital ratios, because of this carryover, because of the excess capital above the distributable income, it will not have a negative impact on next year's shareholder return. I just wanted to reiterate that.

Q: I am from NH Securities, Jung Jun-Sup. I have 2 questions. First question is regarding your great performance and 0.8 PBR, I think you have achieved nearly that number. And although it may not be imminent for the contribution of dividends and share buyback, I think you can consider that. And if you can have some changes in your policy, can you tell us about the timing and what will change going forward? If you can share with us anything at this juncture? My second question is about your loan growth. In last month, the government came up with measures to control household loans. And in the second half, it seems that the speed of household loan growth will be decelerated compared to the first half. And regarding the loan growth guidance that you have presented in the early part of the year, will this change? And if household loans suffer, are you going to come up with any countermeasures?

A: Thank you very much for the insightful questions. Regarding our shareholder return policy, regarding PBR enhancement and the mix change that may happen, according to our framework, I have been emphasizing that with lower PBR, share buyback and cancellation amount will be increased. And when PBR goes up, share buyback and cancellation contribution will go down and cash dividends will go up. I think we have mentioned this in our corporate value enhancement plan. And regarding your question, as you have just asked, well, our PBR is improving faster than we had expected and a lot of the discount factors have been resolved, and it seems that if we can reach the consensus, then regarding the cash dividend payout ratio, it can go up, and it is being improved very quickly. And we are seriously considering a change in this mix at this juncture. And regarding our loan asset growth, our bank CFO will take that question.

Q: You've mentioned distributable profit. And so I was able to look at the disclosed information from the subsidiaries receiving the dividend within -- before the end of the year. Is that possible? And under the assumption that there is no change in the rules, would the dividend payout from the subsidiaries be possible from February? Because out of your total capital, you would have to deduct certain things and the reserve, if you look at the P&C insurance, it seems like there is no ample room there. So that's why I'm asking this question. And my second question is on PBR. If PBR is improving, you've talked about increasing the amount of cash dividend payout. So at that point in time, do you have a certain valuation level that you're considering as a baseline? I ask this question because other banking holding companies if you look at their value of disclosures, they say PBR 0.8 to 1x the range that they would be willing to adjust the ratio. So could you also share with us a certain band in terms of the PBR multiple?

A: Yes, thank you very much for that good question. So I talked about the potential interim dividend payout from the subsidiaries and using that as funds for profit for dividend. If you look at our life insurance and P&C, the interim dividend that we get paid from that, that is not something that we are considering because there is a capital discipline and capital ratio-related regulation that's changing in the insurance industry. So we are thinking more of that impact coming from next year, not necessarily this year. So setting the insurance aside, we also have securities and brokerage subsidiaries. So we're thinking of getting that interim dividend around these types of subsidiaries. Now for the PBR range and the band, not other holding companies, but us as well, 0.8x to 1x the multiple within that range, we are open to potentially adjusting the mix between the two. This range itself is quite broad. But what's important is 0.9, 0.8, it's not the number itself that's important. It's about actually relieving all the discount factor and the start of the rerating cycle. If we think in our view that, that timing has come, we will be able to come back to you and give you a more concrete answer. The band that other holding companies are talking about, I can also tell you that, yes, we are also moving within that range of PBR.

Q: Congratulations on your great performance and thank you very much for shareholder return. I have 2 questions. The first question is about overseas business. Bukopin Indonesia, Well, I know that you have -- you're turning into a profit, and I think you're seeing stabilization. And regarding Q2 performance, I would like to know more for Bukopin. And in the second half of the year, can you tell us about how you think the earnings will play out? And I know to JB Holdings, you have sold capital. And regarding those profits, how -- when will it be attributable to your P&L? And I know that you have the excess of the distributable profit that makes you need to defer it to the next year. And I think some decisions are made at GSM. So regarding the KRW 190 billion of additional share buyback and cancellation, will it be after March because I'm not very knowledgeable about this. So can you tell us about the timing, if that will be when or not?

A: Thank you very much for your great questions. And for the reduced dividends, well, it needs the resolution from the GSM. And regarding interim dividends, this can be done before that. However, with the interim dividends and after that we close 2025, the books, then there will be the distributable profits that are calculated that can be done for the next year, fiscal year. So at that time, we can tell you that we can have additional shareholder return.

Q: Thank you for your question. I am Kang Nam Che, in charge of global business at KB Kookmin Bank. And I have a question about KBI or Bukopin. And in Q2, we turned up profit. And in the first half, we expect about KRW 20 billion of profit. And in the second half, we believe that this trend will continue. However, for G&A in the second half, we will have a bit more. So it might be a little bit lower than the first half, but we believe a KRW 20 billion level of net income or profit will continue. And regarding KBI subsidiary, JB Capital acquired capital, in the case of Indonesia, for the buyer, well, there is fit and proper test that needs to be passed by the authorities, and it will take about 1 year for this test to be completed. Accordingly, regarding the proceeds of the sale, we believe that it will be booked probably in the first half of next year. Thank you.

Q: I am Baek Doosan from KIS. I know you've talked about this, but I just have one more follow-up question on shareholder return because KRW 190 billion, you will be buying back and canceling next year. And I think this is about 5 basis points in terms of capital. So next year, basically, you will use the sources that's above 13.5% in excess of that. But for next year, it's going to be 13.05% or 13.06%. So would that be the fund for distribution? Or is it still going to be 13.00%? So I just would like to get some color with regards to the excess capital and the CET1 ratio.

A: Yes. I think your question actually has the answer in it because it actually is the same thing. Basically, capital that's in excess of 13% of CET1 will be fully returned back to the shareholders. But the 5 basis points because we did not pay that out yet. So based upon the CET1 ratio of the year-end, it will still be reflected in the CET1 ratio as of the end of the year. So for that amount, that is going to be attributed to 2025 shareholder return amount, as I've mentioned during my opening presentation.

Q: I think I've already answered the second question. And regarding if the separate taxation of dividend income takes place, of course, we need to actively consider whether we're going to expand our cash dividends. And we do not have concrete calculation basis for dividend payout ratio or detailed provisions of the enforcement decree. So we cannot really set forth clear standards. However, I have mentioned that based on PBR, cash and share buyback and cancellation, we are going to do our best to have efficient mix. So regarding the size of our profits, our cash dividend payout ratio and dividend yield, we're going to consider all of this. And regarding the separation of taxation of dividend income, we believe that it will be a great opportunity to expand our shareholder return. And because we are representative stock for the dividend payout, I think if we have the implementation of separate taxation of dividend income, we're going to do our best to have this work in favor of our shareholders.