KB Financial Group Reports Q2 Net Profit of 981.8 Billion KRW, Up 34.6% QoQ "Better Than Expected" (Comprehensive)

'Corona Shock' Yet Unexpected Strong Performance
Net Income Up 34.6% QoQ...NIM Down 10bp
Additional Provisions 206 Billion KRW..."Thorough Risk Management"

[Asia Economy Reporter Kangwook Cho] KB Financial Group achieved results in the second quarter that exceeded market expectations. Despite the COVID-19 pandemic, the group performed strongly in the non-bank sector, delivering results far above the average consensus of securities firms.

On the 21st, KB Financial Group announced that its net income for the second quarter reached 981.8 billion KRW, a 34.6% (252.3 billion KRW) increase compared to the previous quarter. This figure significantly surpassed the securities firms' consensus estimate of 850.1 billion KRW. The improvement was driven by the recovery of other operating income and losses due to financial market stabilization, solid expansion of fee income from non-bank affiliates such as securities and credit cards, and improved insurance profit performance. However, compared to the same period last year, it decreased by 0.9%.

The net income for the first half of the year was 1.7113 trillion KRW, down 6.8% (125.5 billion KRW) from the same period last year. KB Financial explained that this result reflects the impact of proactively setting aside additional loan loss provisions in the second quarter based on future economic outlook scenarios, despite solid growth in interest income and net fee income. In fact, KB Financial's loan loss provision for the second quarter was 296 billion KRW, nearly three times higher than the 102.1 billion KRW recorded in the same period last year.

A KB Financial Group official stated, "Other operating losses, which temporarily expanded due to the sharp volatility in financial markets in the first quarter, largely recovered in the second quarter thanks to market stabilization, and fee income from non-bank affiliates such as securities and credit cards expanded, resulting in favorable performance." He added, "Despite the challenging business environment caused by the economic recession triggered by COVID-19 and declining interest rates, we reaffirmed the group's stable profit-generating capability through solid loan growth and strengthening of the non-bank sector."

He further explained, "This quarter, from a conservative perspective, we applied future economic outlook scenarios and reclassified some high-risk Stage 1 loans as Stage 2 loans to proactively prepare for potential deterioration in asset quality due to prolonged economic recession, setting aside approximately 206 billion KRW in additional loan loss provisions at the group level."

He emphasized, "We are continuously monitoring potentially impaired loans and conducting more sophisticated post-management to ensure the group's soundness and risk management."

Meanwhile, at the earnings announcement event, a KB Financial Group finance executive expressed the group's commitment to fulfilling its social role and responsibility in response to the unprecedented crisis caused by COVID-19, while actively adapting to the new financial paradigm.

He specifically mentioned, "In April, we incorporated PRASAC, Cambodia's largest microfinance company, as a subsidiary, and in June, we formed a strategic alliance with the global investment firm Carlyle Group to secure business expansion opportunities. We expect to complete the acquisition of Prudential Life Insurance in the third quarter, steadily advancing strategic tasks to enhance the group's profit stability and secure future growth engines."

Looking at performance by sector, net interest income for the first half was 4.6832 trillion KRW, up 2.9% (134 billion KRW) from the same period last year. This was due to solid loan growth in banks and credit cards despite a reduction in net interest margin (NIM) caused by base rate cuts and the handling of safe conversion loans.

In the second quarter, the group's and bank's NIMs were 1.74% and 1.50%, respectively. The bank's NIM fell 6 basis points quarter-on-quarter due to the full reflection of base rate cuts and increased foreign currency liquidity management burdens, despite relief in funding costs from increased low-cost deposits and reduced time deposits. The group's NIM declined 10 basis points quarter-on-quarter, affected by the bank's NIM decline and a decrease in card NIM due to reduced handling of mid-interest rate products such as card loans and cash advances.

Net fee income for the first half was 1.3813 trillion KRW, a 21.6% (245.6 billion KRW) increase from the same period last year. This was driven by a significant increase in securities brokerage fees centered on stock trading volume and IB fees (59.5%, 126 billion KRW), as well as expanded credit card fee income due to increased card usage and cost-saving efforts, boosting non-bank sector performance. In the second quarter, net fee income rose 6.1% (41.1 billion KRW) quarter-on-quarter, supported by increased fee income from non-bank affiliates such as securities and credit cards, despite a decrease in bank trust income due to regulations on trust ELT sales limits.

Other operating income and losses in the second quarter were 227.7 billion KRW, an increase of 505 billion KRW compared to the previous quarter. This improvement of 505 billion KRW was due to financial market stabilization in the second quarter, which led to a significant recovery from losses related to foreign currency bonds, CVA, and ELS self-hedge valuation losses in securities, derivatives, and foreign exchange in the first quarter, as well as increased insurance profits from improved loss ratios in long-term and automobile insurance, according to KB Financial.

The loan loss provision for the second quarter was 296 billion KRW, a 21.5% increase quarter-on-quarter, influenced by the setting aside of approximately 206 billion KRW in additional provisions reflecting future economic outlook scenarios, despite a large reversal of loan loss provisions (about 76 billion KRW). Excluding these one-time factors, the provision decreased by about 26%.

The group's credit cost for the second quarter was 0.29%, and 0.27% cumulatively for the first half. Although it slightly increased due to additional loan loss provisions, the normalized credit cost remained low at 0.14% and 0.18%, respectively.

As of the end of June, KB Financial Group's total assets stood at 569.6 trillion KRW, up 9.9% (51.1 trillion KRW) from the end of the previous year. The group's assets under management (AUM) reached 304.7 trillion KRW, increasing 14.3% (38.1 trillion KRW) from the end of March, driven by growth in securities investor deposits and asset management trust assets.

Asset quality remained stable. As of the end of June, the group's delinquency ratio was 0.32%, and the non-performing loan (NPL) ratio was 0.48%, down 0.04 percentage points and 0.02 percentage points, respectively, from the end of March. The NPL coverage ratio was 144.4%, maintaining a stable level, and including loan loss reserves, the NPL coverage reached a high level of 296.5%.

The group's BIS capital adequacy ratio and common equity tier 1 ratio were 14.13% and 12.80%, respectively. Despite an increase in risk-weighted assets due to loan growth focused on corporate and credit loans, KB Financial explained that the group maintained one of the highest levels in the domestic financial sector thanks to solid net income growth and strategic capital management, including issuance of capital securities and sale of securities.

This content was produced with the assistance of AI translation services.