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Edited Transcript of 105560.KS earnings conference call or presentation 6-Feb-20 7:00am GMT

Q4 2019 KB Financial Group Inc Earnings Call

Seoul Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of KB Financial Group Inc earnings conference call or presentation Thursday, February 6, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Peter Kwon

KB Financial Group Inc. - Head of IR

* Huh Jung-Soon

Kookmin Bank - VP of Finance & CFO

* Ki-Hwan Kim

KB Financial Group Inc. - Deputy President & CFO

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Conference Call Participants

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* Byung Gun Lee

DB Financial Investment Co., Ltd., Research Division - Team Leader

* Jaewoo Kim

Samsung Securities Co. Ltd., Research Division - Analyst

* Jin-sang Kim

Hyundai Motor Company Investment Securities Co., Ltd. - Analyst

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Presentation

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Peter Kwon, KB Financial Group Inc. - Head of IR [1]

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[Interpreted] Greetings. I am Peter Kwon, the Head of IR at KBFG. We will now begin the 2019 business results presentation.

I would like to express my deepest gratitude to everyone for participating in our call. We have here with us our group CFO and Deputy President, Kim Ki-Hwan, as well as other members from our group management. We will first hear the 2019 major financial highlights from our CFO and Deputy President, Kim Ki-Hwan, and then have a Q&A session.

I would like to invite our CFO and Deputy President to elaborate on our 2019 business results highlights.

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [2]

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Yes. Good afternoon. This is Ki-Hwan Kim, Deputy President and CFO of KB Financial Group. I'd like to extend my sincere appreciation to everyone for joining us today at KBFG's earning call for full year 2019.

Before beginning with our presentation of financial results, let me briefly take you through our key management highlights for 2019. In 2019, as the U.S.-China trade conflict became protracted, we saw a significant escalation of concerns over a global economic slowdown and the Korean economy entering a low-rate, low-growth trajectory going forward. For the banking business in particular, there have been consistent concerns of a deterioration in profitability due to diminished goal for further growth, together with a squeeze in the loan-to-deposit margin.

In spite of this negative business environment, however, KBFG Group placed utmost priority on financial soundness and profit-driven operations, as a result, achieving qualitative growth centered on our high-quality loan book, improved net interest margin and noninterest income ultimately reaching KRW 3.3 trillion in net profit and recurring ROE of 9.51%, representing strong underlying fundamentals. Moreover, as part of KB Financial Group's efforts toward enhancing shareholder value, we were the first banking financial holding group in Korea to retire roughly 2.3 million treasury shares last December, which was assessed as a firm step toward more advanced shareholder return policies.

For your reference, our Board of Directors resolved on a dividend payout of 26% for 2019 at today's BOD meeting, which is 1.2 percentage points higher than last year, as part of progressive dividend policies. Also, this year's dividend per share is KRW 2,210, which is 15.1% higher than last year as a result of improved financials and additional buyback of treasury shares. Going forward, KB Financial Group will continue to enforce diverse shareholder return measures on the strength of our robust capital position.

Over the past year, in 2019, KBFG has been working to speed up our globalization initiatives as well. One example as everyone is aware is our December acquisition of a 70% stake in Cambodia's largest micro finance product. We believe that the acquisition will help us overcome limitations of organic growth on the global front, helping lay the platform for further scale-up of our global business. In addition, last November, we were the first in the financial industry to launch Liiv M, our MVNO or mobile virtual network operator services, as we step up efforts to acquire further growth drivers for the future. Liiv M is all about delivering an altogether new form of convenient financial services, powered by digital innovation using telecommunications as a medium for enhancing KBFG's competitiveness.

Lastly, over the last year, each of our respective subsidiaries has set out to strengthen the competitiveness of their core businesses. KB Securities, for example, started ramping up its promissory note issuance business starting May last year, expanding its earnings base as a mega IB. KB Card, meanwhile, has focused on enforcing stricter cost efficiency despite being weighed by emergency cuts, growing its market share with a focus on high-quality customers, making stable profitability as a result.

This year in 2020, we intend to continue to focus on furthering strengthening of our competitiveness as a group, the competitiveness of our core businesses to solidify the basis for sustainable growth, driven by bold, customer-centric innovation, so that we can again springboard into a leading financial group leading the group. I will explain the direction of our overall management strategies in some later slides.

Now then let me start and walk you through our 2019 financial results. KBFG's 2019 full year net profit was KRW 3,311.8 billion, driven by solid growth in our interest and fee and commission income, representing 8.2% or KRW 250.6 billion increase from the previous year. Meanwhile, fourth quarter net profit was KRW 534.7 billion, a slight decline on a quarter-to-quarter basis due to our voluntary ERP expenses on the bank side and sluggish performance from insurance. But when compared on a year-on-year basis and considering the significant investment loss previously incurred from the sales and trading side from widening financial market volatility, it is a clear improvement.

Now let's look at our results in greater detail by business area. On a group-wide basis, net interest income was KRW 9,196.8 billion, growing by 3.3% year-on-year or KRW 291.9 billion, driven by loan growth in banking and cards. In the fourth quarter, net interest margin or NIM growth was limited due to a drop in loan deposit margins from falling market interest rates and also from origination of conversion loans, which led to an accelerated amortization of LOC. And so NIM growth was limited to 0.4% Q-on-Q.

Next is our net fees and commission income. Full year 2019 net fees and commission income was KRW 2,355 billion, a 5% increase year-on-year. This was possible due to a steady increase in KB Bank's trust income and also KBFG's IB commissions, which helped offset the effect of a significant decline in securities custody fee income. Fourth quarter net fees and commission income was KRW 638.5 billion, a 9.9% increase Q-on-Q, thanks to an increase in end-of-the-year credit card sales, an increase in credit card fee income and also improved IB performance from our banking and securities arms.

Next, on to our other operating income. Although we recorded an operating loss of KRW 119.9 billion, it was nevertheless an improvement of KRW 168.7 billion compared to the previous year. This was mostly because despite a slight decline in insurance earnings from a deterioration in loan rates, nonetheless, we saw an increase in valuation gain on bond holding from falling market rates and a significant improvement in S&T investment earnings, which performed poorly last year. Meanwhile, we recorded other operating loss of KRW 169 billion in the fourth quarter, which is a slight widening of loss from the previous quarter. This is due to a continued slowdown in insurance performance, compounded by an upturn in market rates -- or market interest rates in the fourth quarter after bottoming out in Q3, which led to the increase in valuation loss on bond holdings.

Next, on to G&A expenses. In 2019, G&A totaled KRW 6,271 billion, which is a 6% increase year-on-year. The expense ratio closely appears slightly high, but this is mostly due to about KRW 240 billion in voluntary ERP expenses incurred from the bank and insurance side as well as KRW 180 billion in additional expenses from our group-wide digitization program. When taking out these one-off items, however, full year G&A expense saw a moderate increase of 4.4% Y-o-Y. G&A expense in the fourth quarter was KRW 1,814.3 billion, representing an increase, again, due to roughly KRW 173 billion in ERP-related expenses from the bank and also a seasonal increase in advertisement and promotion expenses.

Next, moving on to PCL, which is provisions for credit loss. For full year 2019, PCL was KRW 670.3 billion, which is a slight decrease year-on-year due to qualitative growth in high-quality loan assets and a reversal in loan loss provisions. As a group, our credit cost maintained subnormal levels at 20 bp. And even on a normalized basis, after taking out the one-off effect from the reversal, credit cost is 25 bp. Meanwhile, PCL in Q4 was KRW 210.4 billion as the effect of the reversal last quarter related to KCI rolled off. So this represents a slight increase Q-on-Q. But apart from this one-off factor, PCL was otherwise quite moderate.

And next, we recorded nonoperating loss of KRW 24 billion in the fourth quarter 2019, mostly due to seasonal end-of-the-year factors, including increase in social contribution donations and also partly due to recognition of provisions related to Australian real estate funds distributed by KB Securities.

Lastly, let me briefly explain about the new loan-to-deposit ratio scheme that will go into effect this year. As of December end, the new loan-to-deposit ratio for KB Bank stands at 98.7%. KB Bank responded both preemptively and strategically ahead of implementation of the new regulations, making active use of covered bonds while focusing on securing more low-cost core demand deposits and high-quality corporate loans, as a result, has been steeply maintaining loan deposit rates well within the new regulatory thresholds.

Now let me introduce our key financial highlights on the next slide. 2019 group ROE was 8.93%, up slightly Y-o-Y. Normalized ROE, taking out any particular one-off, was 9.51%, representing, in spite broad concerns over deteriorating profitability from the economic slowdown, firm underlying fundamentals for the group.

Next, on to growth of bank loans in won. As of the end of 2019, bank loans in won posted KRW 269 trillion, growing 4.5% YTD and 3% Q-on-Q. Household loans centered around Jeonsae and unsecured credit loans grew by 4.7% year-to-date and 3.4% Q-on-Q, while corporate loans, driven by high-quality SOHO, SME loans grew by 4.3% YTD and 2.5% Q-on-Q. This year, we intend to continue to carry forward quality-driven growth with utmost priority on asset soundness and profitability but for the possibility of a potential economic slowdown as well as real estate market developments. So we intend to be a bit more flexible in our lending policies compared to last year to respond to downward pressure on NIM and build a bigger basis for interest income.

Next, please look at the NIM margin graph on the right. The group and bank 2019 NIM posted 1.94% and 1.67%, respectively, and slightly fell Y-o-Y. However, despite the 2 base rate cuts and intensified market competition, the bank NIM start by dropping by just 4 bp Y-o-Y, proving KB's prudent financial management competency. On the other hand, Q4 bank NIM dropped by 6 bp Q-o-Q with the market interest rate decline and amortization of LOC related to the loan conversion program.

Let's go to the next page. I would first like to elaborate on our group cost income ratio. The group CIR in 2019 posted 54.9%, a similar level to the previous year with the increase of bank ERP costs and group-wide digitalization-related costs. Excluding these one-offs, CIR, on a recurring basis, recorded a 50.9% level. KB Financial Group, through solid top line growth and cost management, aims to gradually improve cost efficiency. And in particular, we aim to tighten the level of cost control by revisiting all group-wide cost from 0 base, excluding investment-related costs for future growth. Although the CIR, which has been continuously improving, seems to have come to a standstill in the 50% range with the recent cost increase related to digitalization, with the realization of salary cost-cutting effect we expect the group's normalized CIR to improve to a mid-40% level in the mid- to long-term.

Next, I would like to elaborate on the credit cost. 2019 group credit cost posted 0.20% and, on the back of asset quality-focused loan growth and provisioning reversals, maintained a subnormal level. And the group credit costs in Q4, despite seasonal factors, including year-end FLC valuation and no sizable provisioning reversals, posted 0.25%. This year's group credit cost is expected to increase from the current level since the provisioning reversal is expected to decrease compared to the past. However, since the asset's credit quality has been greatly improved, there will not be a high possibility for rapid increase in the provisioning burden due to asset quality conversion.

Next, I would like to elaborate on the group's capital adequacy ratio. Group's BIS ratio as of end 2019 posted 14.48%, and CET1 ratio posted 13.59%, respectively. Despite the increase in the net income, with the increase in risk-weighted assets and impact from year-end dividend, the BIS ratio slightly decreased Q-o-Q. However, we are still meeting the best level of capital adequacy in the domestic financial sector.

Let's go to the next page. From this page, I will cover the 2020 management strategic direction of KBFG and our ESG-based sustainable management leading strategy. KB Financial Group's 2020 management strategic direction is sustainable management through customer-centric innovation, LEAD 2020. LEAD 2020, which is the keyword of our strategic direction of 2020, is comprised of L from level of the core, E from expansion of the territory, A from active and creative KB and D from digital innovation. Level of the core means strengthened our group's core competitiveness; expansion of the territory means expand our business portfolio; active and creative KB means established dynamic and creative culture; and lastly, digital innovation means our management's strategic direction of pursuing customer-centric digital innovation.

Following the meaning of LEAD, KBFG will this year solidify the core businesses of our subsidiaries and, at the same time, find opportunities to improve our completeness of our group's portfolio through M&As and focus on continuously expanding our global business. In addition, within the group, based on nimble and efficient operating systems, we will maximize our cooperation and synergy. We will focus on our customer-centric digitalization effort so that it can lead to tangible results.

Next, I would like to cover the ESG-based sustainable management strategy of KBFG: KB Financial Group as a leading financial company pursuing sustainable growth, which is to strengthen ESG management initiative in 2020. We will also establish an ESG system adhering to the global standard so that we can lead the way in social change and future value. To this end, KBFG has established an ESG-based sustainable management-leading strategy. First, to support the ESG innovation growth for sustainable finance, we will reflect ESG in our products and services. Second, we will internalize responsible management for interested parties, including the local community. Third, we will advance climate change strategy for the environment, so that through our ESG management activities of KBFG, we can more actively respond to the climate change issue.

Actually, the sustainable management strategies centering on KBFG's ESG was continuously executed even until now, and these efforts have led to very meaningful results and positive reviews from external institutions. For example, in February, KB Bank was the first to issue $450 million of FX subordinated sustainability contingent convertible bonds in Asia. And in order for the group to more actively and realistically support the entrepreneurs, venture companies and SMEs' innovative growth, we launched the KB Innovative Finance Council. In addition, we signed Principles for Responsible Banking under the UNEP Finance Initiative in September and participated in collective commitment to climate action and actively engaged in external ESG activities.

As a result of these efforts, KBFG was well evaluated and reviewed by many major institutions in and out of Korea. For the first time as a Korean company, for 2 consecutive years, we were incorporated into the Bloomberg Gender-Equality Index. And for 4 consecutive years, we were incorporated into the Dow Jones Sustainability Index. We also received A+ rating and was awarded the Best CGS Company by KCGS for 2 consecutive years for our superior corporate governance. Going forward, KBFG, through expansion of ESG-based management system, will do our best to solidify our status as a role model financial group leading sustainable management.

From the next page, I would like to cover KB Group's globalization and PRASAC share stake acquisition. KBFG believes that in order to overcome the group limitation of the domestic market and to expand the sustainable growth engine, we need to enter into overseas markets. This is essential, and we are accelerating globalization of our group. We are focusing on entering into Southeast Asian regions, including Vietnam, Indonesia and Cambodia that have high economic growth rates and where relative early market dominance is possible. Through organic growth by expanding the existing network and expansion of working scope and through inorganic growth by acquiring local companies, we aim to expand the ratio of net income in the group, which was below 2% in 2018 and expand it to around a 20% level in the mid- to long-term.

In particular, looking at the recent major results related to globalization, within the Cambodian market, Liiv KB Cambodia, which is the KB digital banking brand, attracted more than 100,000 members within 3 years of launching. In the case of KB Daehan Specialized Bank, a Cambodian specialized credit finance company which was established in September of 2018, posted a profit within 10 months after launching. In addition, KB Securities Vietnam increased capital by around KRW 70 billion last year and became a securities company in tenth place in Vietnam. As briefly aforementioned, in December, KB Kookmin Bank decided to acquire 70% of PRASAC's stock, the biggest microfinance financial institution in Cambodia. As of 2018, existing PRASAC Cambodia MDI loan market share reached an overwhelming level of 41.4%, and the recent 5 years of average loan growth rate reached 36%. 2018 ROE posted 29.4%, and NPL ratio posted 0.7%, showing industry's highest level of profitability and asset quality.

Going forward, while maintaining the core competitiveness of PRASAC, we will relocate our retail and digital sector capability and designate 6 out of 9 PRASAC BOD directors and keep our management controlling power. Under strict PMI management, we wish to acquire 30% of PRASAC's remaining shares and convert it to a commercial bank after 2021 so that we can be forward as a leading bank in Cambodia.

Please refer to the next pages for details regarding the earnings that I have just highlighted.

With this, I will conclude KBFG's 2019 full year business results presentation. Thank you for listening.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Mr. Kim Jin-sang from Hyundai Motor Securities.

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Jin-sang Kim, Hyundai Motor Company Investment Securities Co., Ltd. - Analyst [2]

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Yes. I have 3 questions. First of all, the banking industry is affected by the base rate changes, lowering of the rate or so development of the real estate market. So it's very hard to defend profitability, it seems. So what is the internal view for this year? What are the major management plans in terms of NIM forecast or lending loan targets, for example? If you could share, I would like -- appreciate more explanation. And the conversion loans may be smaller than initially expected, so it may have a limited effect. But what is the effect for fourth quarter and also the new year? And so the P&C insurance industry is very -- is struggling, and the results of KB Insurance is also sluggish. So lowering of the real loss indemnity premium, for example, may be a factor as well. So what kind of profitability do you foresee for the P&C insurance business this year?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [3]

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Thank you very much, Mr. Kim Jin-sang, for your questions. Regarding the first question, I will answer that. And for the loan conversion program, we will have the bank CFO who will answer the question. And for KB Insurance, we will hear from the CFO of KB Insurance. So I will answer the first question.

As you have just mentioned, this year we have low interest rates, and we are seeing low growth. And it seems that the profit growth will be limited. In particular, with base rate cuts or tighter regulations on real estate, it seems that interest income based on the bank will be quite difficult. We aim to have more concentration in WM capital market and our global business so that we can expand our earnings portfolio. We will have cost-cutting efforts across the board so that we can have better profits. Through these efforts, we will have continuous earnings growth.

Regarding the management plan, we will let you know in detail, although it may take some time for loan growth. We believe that taking many factors into consideration, we believe 4% to 5% growth is estimated. And for household loans, for credit loans and Jeonsae and monthly Liiv loans, 2% to 3%; and for corporate loans for the prime company, 5% to 6%. So those are our targets for growth. In particular, because we have tighter real estate regulations, we are concerned about our loan growth. And because we have a high percentage of household loans, some might be concerned that we will be impacted. However, KB has been, during the past many years, focusing more on corporate loan growth rather than on household loan growth. And for household loans, it was mostly centered on credit loans and Jeonsae and monthly lease loans. So Jeonsae loans or credit loans or unsecured loans can help make up for our market circumstances. So we believe that we can soon meet our loan goals.

For NIM, because there was base rate cuts last year, and because we had the impact from the loan conversion, on a yearly basis we believe that it will be within a 1.6% level. In Q1, we are -- we have assumed that one time of base rate cuts will be executed in Q1. And to guard the NIM contraction, we want to have appropriate loan growth so that we can safeguard our loan growth and have more securities growth and have more income, our fee income growth for credit card, so that we can have more interest income and noninterest income. We also need to focus more on noninterest income because of the circumstance, so WM and IB and capital market will be our main focus so that we can have better financials. However, for the bank, in the case of this year, trust or funds or bancassurance, we believe, and for the core commissions or fee growth will not be easy. So we will be looking more at our securities and credit card so that we can push up our commissions and fees.

In the case of our expenses, because top line growth seems to not be very easily reachable, we will do our best to start from 0 base, and we have actually reviewed all the different expenses. Accordingly, we will actually control our costs on a recurring level to 3%. So our recurring CIR, we believe, can be improved to a high 40% level for this year. In the case of provisioning for this year, because there was asset growth and because we had less reversals of provisioning compared to the year before, it seems that it will grow. But based on our credit costs, it will be within 25 bp level. So it will still be quite safely manageable on a stable basis.

Within our group, there are nonbanking subsidiaries like card and securities that will play a major role. And KB Securities needs to improve our competitiveness, and we will make many efforts so that it can be a mega-securities company and expand our IB business. And S&T has actually improved greatly, and we will have diversified portfolio, we will have better management and we will do risk management so that we can have stable earnings growth. For example, for KB Securities, we want to level up the earning fundamentals, and we believe that it will be possible. In the case of credit card, there is lease or installment finance that we want to have more competitiveness in and to -- and there's a [PA] business, processing business. And in [DA] business, we want to uncover new market opportunities, and we want to have better efficiency in the product and marketing so that it can have better contribution to the group.

In the case of KB Insurance, overall it is a difficult situation with the deterioration in loss rates. We want to focus on value and strengthen the overall earnings potential, so that the insurance arm can also contribute to the broader group's earnings. So we are facing low-growth, low-rate environment this year, so this will constrain growth and profitability and is a source of concern for asset soundness as well. So it is a difficult situation where we have to seek to capture all 3 rabbits at the same time, if you will. So these risk factors and the problems, I -- we believe we can manage them as long as we are aware if the winds are blowing and the kite actually flies higher. So we have to be able to change this crisis into an opportunity. Yes, it is a difficult situation, but we need to work hard to drive consistent, sustainable growth.

Regarding the conversion loans, our bank CFO will take that question.

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Huh Jung-Soon, Kookmin Bank - VP of Finance & CFO [4]

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I am [Huh Jung-Soon], in charge of finance for the bank. In the case of that relief loan conversions or conversion loans, as you know, for those who have signed up according to their eligibility and the price of their housing, the prices are changing and volatile, so the reviews will continue up till March. In last year, on the books it was about KRW 2.4 trillion that was securities -- securitized as that relief conversion. And for other institutions, it was about KRW 1 trillion, and for us, it was KRW 1.4 trillion. And we securitized KRW 2.4 trillion to Korea Housing Finance Corporation, and it seems that the amount is smaller than expected. And regarding the early fees that were recovered, in Q4 we believe that there were KRW 3 billion of minus effect. And in 2020, we believe that, although it has not been confirmed yet internally, we believe that if we add everything together, we will have minus impact that will be around KRW 20 billion.

Regarding the impact to the NIM, we believe that it will be around 1 to 2 bp that will have downward pressure on the NIM. Thank you.

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Unidentified Company Representative [5]

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Yes. I'm from KB Insurance. Thank you for the questions. So we have heard at a high level from the KBFG CFO, but as you mentioned, we are facing low growth, low rates and aging of demographics, which are all negative factors impacting the P&C industry. In terms of long-term insurance, there is stiff competition over new business, and this is leading to deterioration [sic - deteriorating) expense ratios and weighing on our profitability. And due to lower market rates, the investment yields are also diminishing. So this year, overall, it will be difficult to expect significant or meaningful improvement in our performance.

And more so than anything else, as you mentioned, this year, the auto insurance premium price actually has been determined at 3.5%, which is lower than expected. And for the indemnity real loss health policies as well, there are many factors that could call for higher increase. However, the actual increase was decided at a rate that was much lower than the industry expectations. And also, with increased coverage of medical health insurance, there actually has been an increase in medical claims for previously unreimbursable items.

So overall, for 2020, we think that the sluggish performance for P&C players is likely to continue this year. And real loss indemnity premiums will only be increased by about 9%.

Now even taking into consideration these difficult conditions, still we think that compared to 2019, our net income, on a full year basis, well, the target is about KRW 250 billion. For the long-term business, there is the driver insurance, comprehensive health insurance, these insurance products for persons with preconditions. So we will focus on these strategic products to drive growth. And we also want to strengthen management of profitability, be more sophisticated in terms of managing our loss rates through tighter claim management.

For auto line, we want to strengthen our underlying -- underwriting capabilities and also adjust our pricing rates by segment, by customer group and coverage type in order to secure more adequate pricing. And we also want to manage loss rates at more stable levels by improving the efficiency of our coverage. For general liner commercial, we want to focus on property and the liability insurance, which tends to have low -- or higher margins. So that will continue to be our focus as we build out our high-quality, commercial insurance business. We also want to use reinsurance for -- upon renewal of large contracts as a means of risk management, and we will move into new markets and new platforms.

In terms of asset management, of course, we are seeing lowering of yields. We want to increase our investments into alternative investments and our asset portfolio should be diversified. We want to increase outsourcing and also strengthen our internal investment management capabilities to further boost investment yield. And as the group CFO has mentioned, our company, over the last several years, has been focused on driving value-centric business, and that will remain unchanged. And we will also accompany that with various measures to drive top line, quantitative growth as well.

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Operator [6]

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From Samsung Securities, we have Mr. Kim Jaewoo on the line.

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Jaewoo Kim, Samsung Securities Co. Ltd., Research Division - Analyst [7]

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I'm Kim Jaewoo from Samsung Securities. I have 3 questions. The first question is about your treasury shares. And KB, for the first time in the industry, had retirement of the treasury shares, and you have had continuous shareholder return policies. And I think [returns] were quite significant. Regarding your positive review at the company that returns value to your shareholders, it is very positive. And regarding retirement or share buyback or related to the dividend, can you brief us on your future plans for usage of capital? Do you believe that you will have retirement of shares this year as well?

Second question is about Cambodia PRASAC, and you mentioned briefly in your presentation. And can you tell us more about why you acquired the stake and the background? You can please briefly on -- briefly tells us on the upcoming schedule, if you can? And if you can tell us about when the earnings will be consolidated to the group? The third question is related to Prudential. And it is seeing constantly -- actually brought up in the media for Prudential Life, and I know that it's hard for you to answer at this time. But if you can brief us on the future forecast, it will be greatly appreciated. Other than this, if you can tell us about any other M&A plans for the group, it would be greatly appreciated as well.

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [8]

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Thank you very much, Kim Jaewoo, for your questions. Regarding the first question, it was about the share buyback or share retirement possibilities and other ways to use capital. We acquired KRW 1.5 trillion of shares last year. And for the first time in the industry, we had the retirement or cancellation of the shares. So we believe that in terms of shareholder return policies, we played a significant role, and we will continue to play that role as well. In the case of dividends, actually, it was at a 20% level 20 years ago, but our dividend payout ratio is at 26%. And our DPS has actually, through the earnings improvement and share buyback has improved greatly as well. As we have been mentioning consistently, we aim to have the dividend payout ratio go up to 30%. And for the DPS, we want to have it go up consistently as well.

Regarding the cancellation or retirement of shares, I cannot tell you with solid numbers now, but we do know that retirement of shares leads to more value for our shareholders and for the capital usage. So we are truly aware of it, and we are fully open to future possibilities.

Regarding the share buyback, we know that it is also always an option for us to utilize our capital. However, there are different M&As that we are thinking about now and other ways to use our capital, so we will need to look at the timing and at the amount for us to make the final prudent decision.

We have differentiated capital power. So for dividends and for share buybacks, we have been consistently giving back to our shareholders, and we also want to add to our ROE through M&A. We want to have many efficient ways to utilize our capital, and do our best so that we can maximize shareholder value.

Regarding the second question that you asked about the background behind PRASAC stock acquisition and the schedule going forward, and when the earnings will be consolidated to our group, the reason why we entered into the Cambodian market was because in Cambodia, we believe that the financial industry possibility is very high. There is a young population there, and the consumer market is consistently growing, but the financial service market is underdeveloped. We believe that going forward, there is high possibility for the financial industry to grow. And in Cambodia, 84% of the deals are done in dollars, so there is low risk for currency, and we don't have to have any currency hedges for FX. So that is why Cambodia is preferred for global entrants. That is why the bank and the credit cards have been trying to make inroads into the Cambodian market, and we are seeing some tangible results. That is why we decided to enter Cambodia.

Another reason is that in the Asia emerging markets, there are limited opportunities to acquire management control. However, in the case of our PRASAC acquirement, we could acquire 100% of the shares in a top financial company. We believe that we can scale up KB's global business through this opportunity. And going forward, we believe that it will help us go into other countries in the region. So we believe that it can be a great bridgehead.

In early January, we signed a contract to acquire the shares. And after we get supervisory approval, then we will acquire the stake in March. If it goes along our schedule, then we believe that PRASAC's earning could be consolidated to our earnings in our first half of the year. In 2021, we believe that we can acquire the remaining shares then. And if we acquire 100% of the shares, then we believe that our book basis, as of end 2021, it will be 1.4%.

According to our mid- to long-term global business road map, we have made the decision and through our existing global network, we will expand, but we will also have inorganic growth so that, as I mentioned in the presentation, we can have expansion of our profit basis, which is very stable.

Now regarding your third question about Prudential, possible acquisition or the possibility of acquisition of Prudential Life, to date, I think it's too early for us to make an official comment about a specific company. I can only provide an answer just at a high generic level. I would say, within the group, we want to diversify our portfolio. And so, we would be open to M&A and various other options, and we are currently in the process of examining what would be aligned to our group management and something that would contribute to our group's fundamentals. We will not be limited to any specific business, and we are weighing our options very carefully.

Prudential Life could be one of the potential targets, certainly. But at any rate, to date nothing has been firmly decided whether it has to do with Prudential or not. There can be many multiple potential targets that we are in the process of carefully examining at the moment. If you look at the possibility of synergy, contribution to our profitability, and so we will be weighing these very factors from multiple standpoints to make a carefully weighed decision.

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Peter Kwon, KB Financial Group Inc. - Head of IR [9]

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50 minutes have already passed, and the business results presentation covered many details, and I think we had a full Q&A session. I believe that we can receive 1 more question and then conclude our earnings call.

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Operator [10]

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From DB Investment Securities, we have Mr. Byung Gun Lee on the line.

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Byung Gun Lee, DB Financial Investment Co., Ltd., Research Division - Team Leader [11]

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So let me just ask a very brief question, because I think there's not a lot of time. Regarding the conversion loans, you said KRW 2.4 trillion were stated last year, KRW 800 billion have been securitized. So December and January, if you look at the securitized, it's about KRW 810 billion that was securitized in December, and then in January, it was about KRW 920 billion. So combined, it's about KRW 1.74 trillion that has been securitized in total. So according to what you said before, there's a lot of -- have you already done a lot? So there will be less to come out of KB in the next months, like February and March? If that is the case, then the effect of the conversion loan securitization is -- will it stop after January? And then LOC accelerated amortization actually was a major factor you mentioned earlier. So does that mean that that kind of factor has already been priced and factored in? There's no further outstanding effect on account of LOC amortization?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [12]

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To answer your question regarding the -- that Liiv conversion loan, as I fore mentioned, for the other institutions amount received it because we can't generate fee income, so the financial impact will be there on a -- revenue-wise. And until Q4, KRW 2.4 trillion was mentioned. And among the KRW 2.4 trillion for our bank, we handled KRW 1.4 trillion. So from our mortgage loans, it became securitized, and that is why we have the LOC impact.

In Q4, I mentioned that we had 1 bp for the NIM, but on a yearly basis, it's 0.25 bp impact -- NIM impact for the year. As mentioned previously, to actually assume the total amount, it's still too early because it has not been confirmed yet, because we need to get a review until March, and we need to see how much will come to us. And as was mentioned in the beginning, that impact, we believe that on a yearly basis for this year will be minus KRW 20 billion.

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Peter Kwon, KB Financial Group Inc. - Head of IR [13]

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For those who have additional questions, please contact our IR department, and we will do our best to answer your questions. We will conclude our earnings call. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]