KB Financial Achieves 'Largest' Profit... Dividend Payout Ratio Reduced to 20% Following Regulatory Recommendations (Comprehensive)

Record High Annual Profit in 2020
Q4 Sees Slight Decline
954 Voluntary Retirements... Voluntary Retirement Costs Approx. 249 Billion KRW
Dividend Payout Ratio Reduced to 20% Despite Record High Profit

[Asia Economy Reporter Park Sun-mi] KB Financial Group recorded a net profit of 3.4552 trillion KRW last year, an increase of 4.3%, achieving its highest-ever performance. Although the bank's net profit decreased by 5.8% due to costs such as expanded voluntary retirement, securities net profit surged by 65% as the KOSPI entered the 3000 era. Despite the record performance, KB Financial decided to reduce its dividend payout ratio to 20% following the financial authorities' recommendation to restrain dividends.

On the 4th, KB Financial Group announced its 2020 business results, reporting an annual net profit of 3.4552 trillion KRW. Despite challenging domestic and international business environments, the group achieved a 4.3% increase compared to the previous year, driven by steady core profit growth and inorganic growth through mergers and acquisitions (M&A).

However, the group's net profit for the fourth quarter was 577.3 billion KRW, significantly down from 1.1666 trillion KRW in the previous quarter. This was due to a substantial increase in voluntary retirement costs (approximately 249 billion KRW after tax) and additional COVID-19 related provisions (approximately 124 billion KRW after tax), as the number of voluntary retirements in the fourth quarter rose sharply to 954 compared to the previous year, along with a base effect from recognizing a bargain purchase gain of about 145 billion KRW from Prudential Life Insurance.

As of the end of 2020, KB Financial Group's total assets stood at 610.7 trillion KRW, and including assets under management (AUM), the group's total assets reached 940.4 trillion KRW. This represents a 17.8% increase from the end of the previous year, driven by robust loan growth (+36.7 trillion KRW) and the inclusion of Prudential Life Insurance subsidiaries (+25.1 trillion KRW). The group continued to improve asset quality and maintained the highest level of capital adequacy in the domestic financial sector. The non-performing loan (NPL) ratio improved by 0.08 percentage points to 0.41% compared to the previous year-end. The group's BIS capital adequacy ratio and common equity tier 1 ratio were recorded at 15.27% and 13.29%, respectively.

KB Kookmin Bank’s Net Profit Declines Due to Increased Costs Despite Loan Growth

By subsidiary, KB Kookmin Bank's net profit was 2.2982 trillion KRW, down 5.8% from the previous year. Despite steady interest income growth from robust loan expansion and reduced funding costs, and solid increases in securities, derivatives, and foreign exchange-related profits, costs rose due to expanded voluntary retirement and proactive COVID-19 related provisions. Particularly, the fourth-quarter net profit was 415.8 billion KRW, down from the previous quarter due to voluntary retirement costs (approximately 219 billion KRW after tax), increased seasonal expenses such as advertising, and additional COVID-19 related provisions (approximately 95 billion KRW after tax).

The fourth-quarter net interest margin (NIM) was 1.51%. Despite continued asset yield compression due to falling interest rates, the overall funding cost burden eased, and selective loan growth focused on profitability led to a 2 basis point increase compared to the previous quarter.

KB Securities' net profit was 425.6 billion KRW, a 65.0% increase year-on-year, driven by increased stock trading volume and efforts to grow customer custody assets, which significantly boosted commission income. The return on equity (ROE), which had been around 5%, improved substantially to 8.8%. The fourth-quarter net profit was 87.1 billion KRW, slightly down from the previous quarter due to the disappearance of one-time gains such as overseas investment property sales, provisions for trade finance fund liabilities (approximately 23 billion KRW after tax), and voluntary retirement costs (approximately 14 billion KRW after tax).

KB Insurance recorded a net profit of 163.9 billion KRW, down 70.4 billion KRW from the previous year, affected by deteriorated investment conditions due to COVID-19. The loss ratio for 2020 was 85.5%, a 0.6 percentage point decrease from the previous year-end. KB Kookmin Card's net profit was 324.7 billion KRW, up 2.6% year-on-year, driven by market share expansion focused on high-quality customers and marketing cost reduction efforts.

A KB Financial Group official explained, "Based on the bank's steady loan growth, interest income steadily expanded, and non-bank sectors saw a significant increase in net fee income. Balanced performance improvements in both banking and non-banking sectors, along with inorganic growth through M&A, helped maintain strong profit resilience."

Profits Increased but Dividends Reduced

While KB Financial Group recorded a 4.3% increase in net profit to 3.4552 trillion KRW last year, the dividend payout ratio was decided to be reduced to 20%. The dividend payout ratio for 2020 is 20%, with a dividend per share of 1,770 KRW. Considering that KB Financial's payout ratio was 26% in 2019, this represents a 6 percentage point decrease.

A KB Financial Chief Financial Officer stated regarding this decision, "Due to the prolonged COVID-19 pandemic causing economic recession and the need to prepare for domestic and international macro uncertainties, conservative capital management and support for the real economy are required, leading to a temporary reduction in dividend levels compared to the previous year."

However, he added, "Based on solid profit resilience and the highest level of capital adequacy in the financial sector, we will always take the lead in implementing various shareholder return policies that meet global standards, including dividend increases and share buybacks."

Earlier, financial authorities recommended that domestic banks lower their dividend payout ratios (dividends/net profit) to within 20% until June this year as part of COVID-19 response measures. This was to ensure capital management in the banking sector in preparation for the prolonged pandemic.

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