KB Financial Group Inc (KB) 2021 Q4 法說會逐字稿

[Interpreted] Greetings. I am Peter Kweon, the Head of IR at KBFG. We will now begin the 2021 early business results presentation. I would like to express my deepest gratitude to everyone for participating today.

We have here with us our Group CFO and Senior Managing Director, Scott Seo, as well as other members from our Group management. We will first hear the 2021 major financial highlights from our CFO and Senior Management Director, Scott Seo, and then have a Q&A session.

I would like to invite our Senior Managing Director and CFO, to deliver our 2021 earnings results.

[Interpreted] Good afternoon. I am Scott Seo, CFO at KB Financial Group. Thank you all for joining KBFG's Q4 and Full Year 2021 Earnings Release Presentation.

Before presenting on the 2021 business performance, allow me to first run through key highlights. First, 2021 net profit on a controlling share basis was up 28% on year KRW 4.41 trillion, meeting the market consensus. Diluted EPS was KRW 10,891, up 25%. ROE was 10.2% up 1.4 percentage points year-over-year, which is a testament to notched up earnings capacity.

In the middle of the COVID pandemic, Korean economy posted a record high export growth last year on the back of global recovery, achieving 4.0% economic growth rate showing a clear sign of recovery. Driven by solid loan growth, interest rate hikes, booming stock market, core income, including interest income and commissions posted a growth-driving earnings improvement. This earnings improvement, however, is not merely driven by interest income, but an outcome of stronger competitiveness gained from WM and IB as well as better insurance market backdrop and M&A impact of Prudential Life and acquisitions in Cambodia and Indonesia.

Also, nonbank contribution to net profit, which used to be 30% has risen to 43% level in 2021.

Second point to note is that net profit growth and double-digit ROE were achieved even under the Group's conservative provisioning stance, which it took voluntarily. 2021 Group's credit cost was around 30 basis points, 1.5x the pre-COVID average of the preceding 3 years. Also, 2021 NPL coverage ratio was 209%, up 62 percentage points versus pre-COVID level.

All this is an outcome of preemptive provisioning for 2021 in the midst of softening of the asset market experienced in the equities, fixed income and real estate market on the back of lower liquidity and interest rate hikes, as well as concerns from the market on asset quality. Regarding household debt levels and government-led COVID-19 forbearance support.

Third, during today's BOD, FY 2021 payout ratio was set at 26%, and we were able to bring back payout ratio to the pre-COVID levels after the temporary decline to 20% since the pandemic. In terms of the DPS for full year 2021, including interim dividend of KRW 750 per share paid out in August amounts to [KRW 294] supported by normalization of payout policy and higher net profit DPS was up 66% year-over-year.

There was also a derivative solution to cancel KRW 150 billion worth of treasury shares. This is equivalent to 3.4% of '21 net profit. This decision was point of our commitment to enhance shareholder value in the midst of difficult backdrop brought on by COVID-19 pandemic. We will continue to explore wide-ranging options for a more advanced shareholder return policy and do what we must to raise it up to the global standard.

Lastly, let me provide an update on our digitalization efforts. Over the course of 2021, to redefine ourselves as a #1 financial platform company, we undertook bold strategies. Last year, we launched the new KB Star Banking, a super app and the Group's hub platform that connects core subsidiaries, including the bank through which we were able to level up platform competitiveness as a comprehensive financial group. In the same vein, we also launched Liiv Next, which is a financial platform for Gen Zs to ensure potential customers for the future. This year, MyData service will fully initiate triggering a fiercer competition between financial versus nonfinancial and big tech versus financial incumbents. Nonetheless, underpinned by valuable information of KBFG's 36 million customers, we will utilize data analytics capabilities, critical content of affiliates and expert asset management know-how to rise as a #1 financial platform in 2022.

I will now run through our Q4 and full year 2021 business results in more detail. Page 2. KBFG's 2021 net profit was KRW 4,409.6 billion on the back of interest income and net fees and commissions income, which are solid core profit growth and through inorganic growth via M&As, there was sizable year-over-year growth of 27.6% attesting to enhanced earnings capacity of the Group. Meanwhile, Q4 net profit was KRW 637.2 billion, a large decline Q-on-Q due to ERP expense this quarter, preemptive provisioning, one-off items and seasonality. But recurring basis net profit was around KRW 1.1 trillion, sustaining a robust earnings capacity.

As can be seen from the bottom right graph, through continuous efforts to improve business competitiveness of our subsidiaries, bank, securities, insurance and credit card have all seen meaningful performance improvements. Nonbank contribution to Group's net profit, hence, expanded to 42.6%.

I will now dive into the details of each item. 2021 Group net interest income was KRW 11,229.6 billion, up 15.5% year-over-year or around KRW 1.5 trillion, a sizable increase, which drove Group performance improvement. This result is driven by the Bank's solid loan growth and NIM improving, driving interest income, up 11%, while impact of Prudential Life and Cambodian PRASAC M&A further drove around KRW 500 billion of rise in interest income.

Q4 net interest income was KRW 2,974.2 billion, up 4.2% Q-on-Q. The bank of -- the Bank's loan in won going up 2.2% versus September and continuing the uptrend as well as NIM improvement of 3 basis points Q-on-Q.

Next, 2021 Group's net fees and commissions income was KRW 3,625.6 billion, up 22.5% or KRW 667 billion year-over-year. This improvement to increases in credit card fee income riding on the recovery and consumption and Bank's trust product sales recovery, which led to better trust income as well as strong equities market and IB competitiveness driving a growth in fee income from securities business.

On the other hand, Q4 net fees and commissions income came in at KRW 881.7 billion, a marginal Q-on-Q decline on the back of seasonal squeeze on fee income from securities business, mainly around brokerage and IB. But compared to KRW 2 trillion of annual Group fee commission income, in 2021, we notched up that level to mid KRW 3 trillion level endorses Group's improved capacity in generating such income.

Next is on other operating profit. Group's '21 other operating profit was impacted by a rise in market rate and won-dollar exchange rate, which squeezed earnings related to securities, derivatives and FX driving other operating balance down KRW 183 billion year-over-year. But for the insurance business, with gradual earnings improvement from KB Insurance and acquisition of Prudential Life making its mark, there was KRW 256.7 billion improvement year-over-year.

Q4 other operating profit was impacted by higher financial market volatilities in terms of interest rate and equities index, which led to erosion of securities trading performance also seasonal factors like cold wave and heavy snowfall and high-value accidents drove up loss ratio, constraining insurance underwriting income, all leading to a lower Q-on-Q result.

Next is on Group's G&A. Q4 Group G&A was KRW 7,200.9 billion, 5.4% or KRW 368 billion year-over-year, mainly due to the acquisition of Prudential Life, Indonesia's Bukopin Bank and Cambodia's PRASAC which added approximately KRW 300 billion of expenses. Apart from such M&A impact, G&A was up only 0.8% on year, which we believe is the tangible outcome of corporate-wide effort on cost management and headcount efficiencies.

Q4 G&A was KRW 2,143.4 billion on the back of KRW 262 billion of ERP expenses and higher ad and promotion expense and other seasonal factors reporting a significant increase.

Next is on provision for credit losses. Q4 '21 Group PCL was KRW 588.6 billion. As part of preemptive risk management, large additional provisioning amounting to 3x usual quarterly size took place up to Q3 of 2021. And due to such one-off impact, there was KRW 389.2 billion rise Q-on-Q. To fully prepare for COVID-19-related uncertainties during the fourth quarter, we used conservative economic forecast scenarios reclassifying certain loans related to COVID-19, which led to around KRW 264 billion of additional provisioning.

As you know, on top of KRW 377 billion of preemptive provisioning made last year, we've set aside yet additional provisions which we believe has given us ample buffer against the COVID-19 uncertainties. For the credit card business, in compliance with Basel III revisions, new PD, probability of default model was applied. And accordingly, in line with the required upgrade of the retail credit scoring model, there was additional provisioning of KRW 34 billion in Q4.

2021 PCL reported for the full year, KRW 1,185.1 billion. Credit cost was 30 basis points, following KRW 1,043.4 billion of FY '20 provisioning and credit cost of 26 basis points, we decided to take a conservative approach to meaningfully provision above the 20 basis point level for 2 consecutive years.

Next is on key financial indicators. Page 3. First is on Group's profitability. KBFG's 2021 ROE was 10.22%. On solid growth in core earnings and diversified revenue sources, Group's earnings fundamentals notched up with recurring basis, ROE sustaining a steady 10% quarterly level since the beginning of the year.

Next is growth in won denominated loans. Bank's loan in won as of end of '21 is KRW 319 trillion, up 7.9% year-to-date and 2.2% versus September end. Household loans reported KRW 170 trillion, and driven by Jeonse loans pinned by actual demand, there was a fair level of growth of 5.1% year-to-date. However, that growth slowed down in Q4 due to the regulatory impact on household loans.

Corporate loan reported KRW 149 trillion on a YTD basis. SME loan continued steady uptrend at around 3% quarterly basis and large corporate saw recovery in demand and stronger CIB business, leading to a solid growth in acquisition financing driving 11.2% growth. On a Q-over-Q basis, as corporate bond market was constrained on rate hikes, there was a rise in demand for loans on top of acquisition financing, which drove around KRW 4 trillion of large corporate lending, leading to a Q-on-Q growth of 2.6%.

Next, I will elaborate on the NIM. 2021, Q4 Group and Bank NIM each posted 1.85% and 1.61%, respectively, and continued an expansionary trend for 2 consecutive quarters. In particular, Bank NIM reflected the interest rate hike and while the loan asset repricing taking place, as a result of our continuous efforts to improve managed asset profitability and selective loan policies centering on profitability, it improved 3 basis points Q-o-Q.

On the other hand, in case of the Group and Bank's 2021 annualized NIM, the spread widened on the back of profitability-centered portfolio management. And with the effect of lighter funding burden following the core deposit growth, it improved by 7 basis points Y-o-Y and led the Group's interest income expansion. We will not only thoroughly manage funding costs taking into consideration, the loan pricing advancement and market circumstances going forward, but also improved profitability through securities, management portfolio advancements and managed the NIM thoroughly. From Q1 of this year, we are expecting the NIM to additionally expand with the full-fledge reduction of the effect from the BOK interest rate hike.

Let's go to the next page, Page 4. First, I want to cover the Group cost efficiency. 2021, Group cost income ratio posted 49.7% and greatly improved Y-o-Y. And on the back of solid increase of core earnings and improvement of headcount structure, the cost efficiency improvement trend is truly taking place. In particular, when we exclude one-offs, including ERP and digitalization costs, CIR posted 46.3%, a record low. Going forward, through strengthening profit generation capacity and Group-wide cost management, we plan to manage the CIR so that the CIR, which was at a standstill at a mid-50% level in the past can approach it early to mid-40% level in the mid- to long term.

Next is the credit cost ratio. 2021 Group credit cost posted 30 basis points. And due to the aforementioned sizable preemptive provisioning effect, it increased slightly Y-o-Y but the credit costs, excluding nonrecurring items posted 21 bps and has been stably maintaining a 20 bps level for the last 5 years and has been proving industry-leading risk management competency. Although there are increasing concerns about asset quality, with the interest rate upcycle and impending COVID-19 forbearance program termination, since we are securing sufficient buffer by accumulating additional provisioning, we believe that the credit cost will be stably managed going forward.

Next, I will cover the capital ratio of the Group. 2021 year-end Group BIS ratio posted 15.78%. Tier 1 ratio recorded 14.55% and CET1 ratio posted 13.46%, all increasing Y-o-Y. Despite the increase of RWA following loan growth and increase of dividends, on the back of strategic capital management, including solid profit generation capacity and hybrid bond issuance, we are still maintaining the highest level of capital adequacy in the industry.

Let's go to the next page. It is Page 5. From this page, among the many challenges that the financial industry is facing this year in 2022, I would like to cover those that the market is very concerned about and interested in the 2022 challenging factors and then elaborate on KB Financial Group's countermeasures. This year, there are concerns that the noninterest income, which performed positively last year in a favorable sales environment, including the strong equities market will weaken due to many reasons, including equity market slowdown, interest rate hike and credit card merchant fee cuts.

There are also concerns that with the reflection of the possibility that the asset quality can also worsen with a key interest rate hike in termination of the COVID-19 forbearance program, the earnings improvement momentum might slow down. In addition with the lowering boundaries between financial and nonfinance and not only that platform competition between fintech and big tech is intensifying but also with the complete rollout of MyData service with full-fledged competition to secure data initiative and early market dominance -- this year will be a very important time for financial companies to find ways to secure platform competitiveness, market dominance and to secure them as soon as possible.

To this end, we broke down the 2022 challenge factors into four: first, concerns about noninterest business deterioration; second, possibility of asset quality worsening; third, intensifying platform competition; and fourth full-fledged MyData competition and are coming up with strategies to respond to these 4.

First of all, regarding concerns about weakening noninterest income, I would like to elaborate on KB's countermeasures. 2021 was a year when the performance of nonbanking business was prominent in the overall financial industry. In particular, KB Finance was evaluated to have improved our level of noninterest earnings power based on the most diversified business portfolio in the industry. We also expect that we will be able to continue our additional growth momentum this year as well by reaping visible results in the group's 4 major growth businesses, including WM, CIB capital markets and insurance.

In the WM area, basically, we will expand product sourcing, including ETF, alternative investment and overseas investments. In asset management service, we will advance channels, products and services for customer subsegments and provide differentiated asset management service for ultra-high asset customers. And in non-face-to-face asset management, we will link MyData and band market share. In the CIB and capital market, we will expand the Group CIB coverage and expand revenue sources through new investment in equal friendly and future-oriented business, Investment IB and Global IB business, diversified capital market magic portfolio and strengthen our treasury book management capabilities to thoroughly manage profitability.

In insurance, we will advance CPC, customer-product-channel operating system and expand revenue sources and increased investment in high-yield assets, including alternative investment in structured products so that we can improve our managed asset profitability.

Next, I would like to cover our countermeasure to the second challenge, which is related to the possibility of asset quality deterioration. KB Financial Group has been proving the highest level of risk management capability until now. 2021 and the Bank's comprehensive delinquency rate and comprehensive NPL ratio is posted 0.36% and 0.27%, respectively, and is being managed stably at the lowest level in the industry, and the Group's NPL coverage ratio posted 208.9% and is being evaluated to a faithfully secured loss absorption capacity.

Despite this, this is a year when credit risk can rise with the interest rate hike in COVID-19 forbearance program termination, we will do our best to more strengthen our asset quality management system. To respond to the interest rate upcycle, we have defined high-risk sectors of multiple borrowers and are monitoring them and strengthening stress tests for high exposure borrowers and to respond to post and with COVID, we are tightening credit review of vulnerable sectors and issue industries and executing proper rebalancing based on semiannual intensive examination on potential NPLs and we plan to support soft landing of firms after the termination of the COVID-19 forbearance program through stage support.

Let's go to the next page. Third is the intensifying platform competition, KB Financial Group is focusing on our group's capacity and support so that we can secure a top-tier level digital platform competitiveness. Through KB Star Banking, the Group's super app, which strengthen the connectivity of core services and representative comprehensive asset management platform and comprehensive digital KB Pay, we established the basic banking app and, of course, a financial platform, which will lead to asset management and the settlement market, and we have to enable Mini, which targets the MZ generation investment in stock market offices and Liiv Next, the financial platform customize with the Z generation, we are now expanding our coverage of our customers.

Moreover, with KB Star Corporate Banking, we plan to lead the platform market in the corporate finance sector. With this platform competitiveness, if we can secure seamless connectivity with the offline channel and provide the most optimal products and high-quality services from the customer's perspective, we believe that we can secure top-tier competitiveness.

Lastly, I would like to cover our countermeasure to MyData, which is the most talked about topic in the financial industry. With the full rollout of MyData in January of this year, the data economy era opened up. KB Financial Group strategy is to provide not only KB's unique differentiated content based on our financial expertise and also link business specialized services to our Group's platform, but also provide hyperpersonalized asset management services that will reflect the daily activities of our customers.

Going into more detail in the area of asset management service, in the case of the bank, it will provide comprehensive asset management service based on on-off line omnichannel securities and card, each will provide investment specialized and lifestyle-based asset management services, respectively, business specialized service, not our insurance will provide health management service, which converges health care and finance.

Capital will provide auto finance and auto-related lifestyle platform service and thus, customized lifestyle financial contents will be provided for different businesses. If we can secure KB's unique content competitiveness through this method, we believe that we can have early dominance in the MyData market and contribute to accelerating our Group's top-tier platform competitiveness.

In 2022, this year, KB Financial Group will respond to these challenges through seamless innovation, focusing on our customers, secure sustainable growth and leap forward once again as a leading financial group.

From the next page, there are details regarding the earnings results that I have aforementioned. So please refer to them as needed. With this, I will conclude KB Financial Group's 2021 earnings release presentation. Thank you for listening.

[Interpreted] (Operator Instructions) We will take the question from Mr. Kim, Jin-Sang from Hyundai Motor Securities.

[Interpreted] I would like to ask you 2 questions. First, relating to capital management. In terms of your treasury share cancellation and normalizing your dividend payout ratio, I would like to extend my gratitude to your decision? And also, I would like to understand what your direction going forward would be from a midterm perspective as well as for this year because this year, you have already canceled some of the shares, but I think the size is not that significant. So would you be making some additional share cancellations as we go forward?

And also, you've paid out interim dividend, are you -- at the same time, considering quarterly dividend payouts, would like to understand whether that will be your approach and your payout ratio is 26%. So we'd like to understand from a progressive payout policy perspective. I know that is the position that you have taken, could we also expect a more increase from your payout ratio?

And second question, the CFO has already mentioned, there are some of the challenges that you've -- the company would probably face is on the noninterest earnings side. If we break that down, they are going to be card business, securities business and insurance business. So these are the nonbank-related businesses. These 3 businesses already reported a high base. So do you see some discrepancies across these different businesses with some subsidiaries perform better vis-a-vis this year and some others not, would like to get some color on that?

[Interpreted] Thank you very much for your question. I would like to say hello and also to say Happy New Year. I would answer the question on capital management. And then the second part of the question, including our commissions income and overall operational backdrop. With regards to that question, I'm going to invite our CFO from KB Bank, and Managing Director, Young from KB Securities and also Senior EVP of KB Insurance and also Managing Director Dong from KB Card to respond to that question.

So let me first talk about our capital management. There is DPS, there's payout ratio. And third, there is also treasury share cancellation and share buybacks. Based on our strong fundamentals and based on our strong capital strength, we want to adopt a more advanced shareholder return policy as we go forward. As part of those efforts, for the past 2 years, due to the COVID-19 crisis, dividend payout has been capped. We want to, however, very quickly normalize to the 30% level. KB has a sufficient capital buffer. So we believe that we do have capability to pay out to that level.

We need to continue to also grow our earnings and make sure that the DPS continue to show an uptrend. We do have earnings capacity as well as the fact that we have a very conservative policy in terms of provisioning as well. So we expect DPS to also go up as we go forward.

And also another very important aspect is about interim dividend. We are thinking of many different options so that we could further boost up total shareholder return level. We have not yet made a firm decision on share buyback or cancellation, but that is always an option that we are open to. Including interim dividend, including quarterly dividend, we are going -- we are fully benchmarking against global advanced financial institutions and we will listen to the feedback of the shareholders so that at the end of the day, we can come to a more shareholder-friendly policy.

I would now like to turn over the microphone to the CFO of the KB Bank, who will provide you with the elaboration on how they see the market.

[Interpreted] So since we're only at the beginning of the year and considering there are many different variables, I would like to take a cautious stance in responding to this question. In terms of interest income or the NIM income, as you know, due to the upcycle in interest rate on a per annum basis, we're looking at about 7 to 8 basis point growth. And the loan market, 5% to 6% growth, we think, is achievable.

On the noninterest income side, looking at the volatilities of the financial market that we are experiencing, we believe there will be some difficulties. But at this point, we are growing our flow base and considering the growth of our IB business, we expect the noninterest earnings power. We will be able to further build on that capacity.

In terms of G&A, looking at some potential future business areas, we are continuously increasing our investment, but all of that investment is based off of on the premise that we are going to be very much cost efficient. In provisioning, we've taken a conservative approach, and we've been provisioning continuously and we plan to continue on with that stance this year. The PPOP basis, on a net profit basis, at a certain level, we believe the uptrend in terms of provisioning to continue.

[Interpreted] I am (inaudible) from KB Securities. You will probably know well about the current stock market situation. So putting that aside, in terms of the trading volume, it's gone down about 20% compared to previous year. So we expect brokerage income to somehow decline to a certain extent. Having said that, as you know, KB Securities, we were one of the main arrangers for the LG Energy Solution IPO. And hence, we expect there are more big deals to come this year. And also for the global acquisition financing is another area that we're actively participating in.

Also, we are seeing continuous growth. And so out of the WM -- any decline from the WM, we think we will be able to make up for that in other businesses.

In Sales & Trading, interest rate is going up and also equity price is going down. So what impact would that have on our P&L would be one of the areas that you'll be probably interested in. On the bond side, we're taking a short position. And on ESs, short delta long gamma is the positioning so that we could be protected on the equities market decline. So our performance is more or less well defended. On the institutional client-side domestic brokering, maybe the income may decline. But starting last year, on the outbound sales activities, we were able to really boost that business. So that will maintain.

So overall brokerage income decline, how much could we offset that from other business lines. There may be some fluctuation in our P&L income. However, we think that impact is not going to be all that significant to a level that it could be felt at the group level.

[Interpreted] From KB Insurance. Yes. Good afternoon. I am Kim Jin, Young from KB Insurance. So let's first look at the overall insurance market. There is both pros and cons in this market. So structurally, the medical indemnity loss ratio the extent of increase is going to slow, but it will take time for it to fully normalize. Also, as we enter into the so-called with COVID phase, we expect auto loss ratio to aggravate.

Now having said that, looking at 2021, last year, and if you look at the breakdown of our P&L, profitability of a P&C insurance is investment yield and underwriting income. Basically, in '21, we were able to reach the earnings with a better underwriting profit. Basically key drivers behind underwriting profit is improving loss ratio as well as expense ratio. So in 2022, we expect there to be a quite steady level of profit-making capabilities in '22.

And on top of that, last year, the focus that we have really looked at is increasing and improving the long-term persistency ratio and increasing the high-quality policies. That really underpins our growth. And then if you look at the lines of businesses, we've been improving on the portfolio of the policies for the auto, and we've made improvement on the labor cost as overall expense structure. And if interest rates starts to go up, we expect that there's going to be a higher yield from investment. So through hard work this year, we think that we will be able to outperform what we were able to achieve last year.

[Interpreted] Yes. Good afternoon. I am Jong Yoon from KB Kookmin Card. Now credit card company this year, after the merchant fee reduction in 2019, we have been expecting similar level of cut in merchant fees, so we would be able to minimize the impact from that. We have our core businesses. We have new business. We also have platform as our key business line. We want to secure key competitiveness, and we are, at this point, really focusing on building on both the profitability and the top line.

Basically, we will grow based on our credit card numbers and driving up our income. And in the payment business, we will stay away from excessive marketing, which is not profitable. In terms of financial business, in order to increase high-quality customers, we're going to further upgrade our credit scoring model and respond to a new marketing and regulatory environment. And in order to expand on new revenue sources, last year, global business contributed to our profit. We want to further bring about organic growth of these global businesses. through which we could expand on our new business earnings.

On KB Pay, I would like to also further upgrade and make that service more sophisticated and strength make it more stronger so that we can expand on our capabilities in the -- on the platform.

[Interpreted] Thank you for the very detailed answers. We will take the next question. From Samsung Securities, we have Mr. Kim, Jaewoo on the line.

[Interpreted] I'm Kim, Jaewoo from Samsung Securities. I have 2 questions. The first question is about your digital transformation. I know that you have new Star Banking and other impressive feats. And what I'm curious about is with the intensified competition nowadays, what is your MAU goal? And I think not only the MAU numbers are important, but also I think the time is important in using the app. So how are you going to increase the time people use, time spent using the app? And can you call us about what will be the merits of your platform? Why should customers use your platform?

And second is asset quality that was aforementioned. Of most concern is for the SOHO for those loans. And it is in the news often nowadays. So I think people have a sense of apprehension. So can you tell us about your take on the upcoming SOHO risks? And compared to the past, I know that for the bank, there is capital buffer and other capacity that can lead to a soft landing going forward, but can you tell us about your plans going forward? And if there are problems that occur, then what is the amount of losses that the bank can withstand because I know that the security has increased, so you have other ways. But can you tell us about how much you can take?

[Interpreted] Thank you very much, Kim, Jaewoo for your questions, and we will wait for an answer.

[Interpreted] Thank you very much for your questions. Thank you very much, Mr. Kim, Jaewoo and we would like to answer your questions in 2 ways. So for the digital question, we have Digital Platform Head, Cho Young, Suh, Senior Managing Director from KB Financial Group that will answer that question and for asset quality and SOHO and the soft landing and concerns and what happens if we suffer losses, our risk head, Im, Pil-Kyu, Senior Executive Vice President of KB Financial Group will answer that question.

So I would like to hand the microphone to Cho Young, Suh.

[Interpreted] Yes, that's me. I'm the Senior Managing Director of KB Financial Group. And regarding the 3 questions you asked, I would like to answer them. In Korea, overall, looking at the mobile banking apps, we think that MAU is about 7,000. And for a financial platform to be recognized, we would need to have more than 10 million MAUs, and we have a challenging goal of becoming the #1 financial platform. So our Star Banking Super App MAU goal is 15 million. For Star Banking after its revamp, we have reached MAU up to 9 million. And so on a log-in basis, we will make the calculations, and through many strategies, I believe that we can reach 15 million goal. And to do this end, we will have the structure of the product so that it can induce MAU. So we are currently updating that as well.

And for our base customers, we have a new -- a great number of them. So we have our 24 million base customers. We are having our Super App strategy focused on them, so we are planning targeted marketing as well.

And secondly, regarding how we can extend the time people spend on the app, I think it will be quite important. And to this end last year, with the bank and the financial group, there is the digital content center which is belonging in both of our Group's subsidiaries. And I think that was the first attempt. And in order to improve MAU, our product and transaction services are very important. But at the end of the day, we need to have a development of content that will induce customers to visit our app. So we are going to do our best to innovatively improve this.

And since this is the first year full rollout of MyData, we have the asset management and expense management services, if they are well included in our super app, it will be very conducive to attracting customers.

And we believe that our differentiating points are as follows: first, is our capability in asset management. We have 36 million financial group customers, and we have a long-term relationship with them and we believe that we will make extra effort so that we can have a life cycle based asset management cycle so that in our WM, we have developed an asset management solution, and we are going -- we have put that on that so we will link it together so that we can strengthen customer management. I think that is an advantage we have over others and in big tech.

[Interpreted] Thank you very much for your question. I am Im, Pil-Kyu, in-charge of Risk at the KB Financial Group. Regarding SOHO loans and the concerns and vulnerability and our future prospects, I would like to explain our stance. So we have -- for the corporate SOHOs, their delinquency rate is 16 bps, and they have 93% security or collateral. And we have 19 bp for retail delinquency rate and their security rate is also similar. So in a COVID situation, it is true that many people can be concerned. But looking at delinquency rate and the collateral rate, it is very high. So we believe that we will not see accumulating risk.

Also related to additional losses for SOHOs, their collateral rate or security rate is very important. And in our case, regarding LGD in the collateral role. So the loss rate is 5 bp. So if you are collateralized or if you're secure, that even if there is a default, only 5 bp of losses. So we have more than 90% of security rate or collateral rate. So even if the situation deteriorates very seriously, you do not have to be very concerned about additional losses going over that. Of course, for SOHO loans for retail SOHOs, then for the borrowers, well, it can be linked to individual loans, so we can have the risk of multiple borrowers.

So from late last year, for the SOHO loan holders, if they are -- they have other individual loans, then we have a cap on how much of the loans we grant to them. So we are tightly managing these multiple borrowers. So for the SOHO loans, we don't think that the risk will accumulate even if the situation aggravates in 2022, we believe that looking at the situation in 2021 for the provision for SOHO loans, it was only between KRW 10 billion to KRW 20 billion. So in this situation, in 2022 this year, if we believe that it will be at a similar level to 2021.

[Interpreted] We will move on to take the next question from Hanwha Investment Securities, Do Ha Kim.

[Interpreted] I'm Do Ha Kim from Hanwha Investment Securities. I have 1 question on bank's margin and the other question relates to Prudential Life. Last year, in Q1, your margin uptrend was quite steep, but in Q2 and Q3 compared to your peers, that increase was not as fast. Is it due -- if it's due to the cycle difference, for this year, 7 to 8 basis point margin improvement is your target, but on a quarterly basis, in light of the time lag, when do you think would we be able to really see this feed into the actual numbers as we move into different quarters?

Regarding Prudential Life, now because it has a lot of variable exposure in terms of the write-backs regarding the increase in the interest rate. But if we look at the reserves, that may not be the case. It seems like the investment yield is also moving in a similar manner, maybe the hedge ratio is quite high. Can you provide some more details regarding the variable exposure at Prudential Life?

[Interpreted] So give us one moment to respond to that question.

[Interpreted] Yes. Regarding the margin, the net interest margin, the CFO -- as the bank CFO has previously mentioned as of today, if we assume that there's going to be a policy rate hike in Q4, we are currently looking at 7 to 8 basis point increase. Now if the policy rate moves quicker and by a larger margin, then net interest margin, we have -- we think has room to go up further.

Second point, I would like to also add is that if you look at the balance sheet of the bank and if you think that they are sensitive to asset and if the NIM analysis conducted based on the rate hike cycle, or the loan rolling cycle, repricing cycle. But one thing I want to emphasize is that we also have to take into consideration the funding side. So this has to do with the interest-free fund.

KBFG or KB Bank compared to the competitors, the net interest margin on an absolute basis is high. And this is because of the bigger contribution of the interest-free aspect. So for demand deposit, KBFG has outstanding deposit franchise. And out of its whole shareholder equity, the size is big, and its loan loss reserve, the size and coverage is also big compared to the peers. So that also makes contribution to the overall NIM profile.

As you know, if the absolute level of interest rate goes up, then there's going to be a bigger impact on NIM. So my view is -- my personal view is, if the policy rate actually goes up more or moves quicker than our forecast, then the interest-free fund contribution because that's bigger for KBFG, we think that, therefore, KBFG could see higher NIM improvement compared to the peers.

In terms of strategy, for interest rate hikes, we are going to be very flexible in terms of the policies of the variable interest as well as the mix interest rate exposures. And we will make sure that we secure appropriate level of margin and grow our loans in 1 accordingly. And we will expand our capabilities in the core market and also respond to the changing regulatory environment so that compared to our peers, we will endeavor more to further expand our NIM margin.

Regarding your question on Prudential Life, we will come back to you through our IR team after the call.

[Interpreted] The next question is from DB Securities, Lee Byung, Gun, Team Leader.

[Interpreted] I'm Lee Byung, Gun from DB Securities. I would like to ask a more detailed question, if possible. For growth for KB, we know that you are seeing very stable growth. So I don't think there is cause for concern. However, in January, looking at the loan trend, looking at what was reported in the media, it seems that there is a change compared to the past. If in the past, in Europe world, for the Jeonse loans that contributed mostly to the bank. And after 2017, it seems that, that has decreased. So it seems that maybe the market environment is changing. So I think there might be some cost for concern. Looking at the Jeonse or household loan trend, can you tell us about your thoughts and your quarterly growth strategies, breaking them down?

Second question is about the NIM. So for the bank, I know that you are doing a great job, and there is no cause for concern. But in the case of credit card, for the funding rate for your products, for other credit card companies that deliver their earnings, it seems that it has already reached average the interest rates on a rated basis. So for your card NIM, can you tell us about your outlook for the year?

[Interpreted] I would like to first answer your question. And for our loan goal for household loans and for corporate loans and then looking at the data points in January, for those implications, we have our bank CFO, Mr. Kim, who would answer that question. And for the funding cost increase concerns for credit card, will hear from Dong, Cheol, the CFO of KB Kookmin Card.

First, for household loans for this year, we have a goal of 5% growth this year. Of course, the government regulations exist. We are aware of that. But looking at the recent demand for household loans, we believe that 5% growth is possible. For corporate loans, with the trend of economic recovery trend, we believe that there is strong demand from SMEs for loans. And for large corporates, we believe their loan demand will be solid as well. For corporate side in 2022, we believe that there will be 7% growth Y-o-Y. And next, we will hear from the bank and credit card.

[Interpreted] I am Kim, Young-Jin from the bank. In January, it's a seasonal effect because we see the household loans going down because of the bonuses, but with more people moving in February, we believe there will be more demand for Jeonse loans. And in July, we will have the increase of the guarantees for Jeonse loans with the termination of some regulations. So we have the household loan cap and DSR. And due to that, although we do believe there will be some obstacles to household loan growth because of the household cap, it's about 4.5%. So we believe that there will not be many obstacles in achieving growth. And because there is a limited goal for growth, we will have support for the real demand for Jeonse on others. And we will try to give selective loans to the high-quality borrowers based on our profitability and asset quality.

[Interpreted] And I would like to answer the question from KB Card. Looking at our balance, it's about KRW 90 trillion. And this year, for the credit card debt receivables, it was 1.5% to 1.8%. But for 3 years in a row, it's about 2.7% and a 5-year basis compared to a 3-year basis, we are seeing those rates. So what we can do at this time is except for the credit receivables for long-term CPs or for those notes, there are some plans, so we have about KRW 400 million of FX receivables that we have and ABS and others.

We plan to do our best to push down the funding cost. And for the interest rate, some people are expecting interest rate hike in Q4 and others are saying that there will be additional interest rate hike in the first half of this year. But regarding what will happen, we will keep a close eye on the trends and on a 2- to 3-year bond basis, if they are too expensive, then we will take -- we will actually change 2- to 3-year bonds -- dated bonds.

I think we are having a very fruitful discussion about the industry, and it has already been almost 1 hour since we started our presentation. So we will wait for further questions. If you don't have any further questions, at this time, please contact our IR department, and we will provide you with a detailed answer.

We will take the next question from Citi Securities, Yafei Tian.

I have 2 quick ones. The first one is on buyback. The question is, would there be any time to have a buyback program this year? I apologize for the echo on the line. The second question is really on the IT expenses.

Yafei? Yafei?

Hello, can you hear me?

[Interpreted] No, I think you've disconnected. Can you repeat your second question, Yafei?

Yes. Yes. The second question is on the technology spending. We've heard quite a lot of investments by the U.S. banks this year on the inflationary pressure. So I just wanted to understand how much additional spending you would need to support all these initiatives that you mentioned in the call. So January guidance on the future cost progression?

[Interpreted] Yes, give us one moment. We will come back to you with the answer, just one moment.

[Interpreted] Thank you for the question. Regarding buyback, as we mentioned previously, share buyback is always on our list. We will look at the market conditions and on a need basis. And whenever possible, we will employ share buyback. And in terms of dividend payout ratio, we want to first normalize the payout ratio and share buyback is going to be an additional way for us further bolster shareholder return, and it's always in our minds, and it's always on our list.

Regarding your second question on technology and IT cost and spending, the U.S. banks released their Q4 earnings and said that due to the IT investment that impacted some negative stock prices. So if that was the basis for your question, we are fully aware of that and prepared for that. In 2022, although it's difficult to share with you specific numbers, in order for us to achieve sustainable growth including IT spend and for investment, we will take bold and aggressive investment approach.

On a recurring basis, on our G&A spending, we will continue to be very conservative. All in all, our top line revenue growth is basically the basis upon which we will decide on the spending. So cost-to-income ratio of the group in '22 is going to show a downward trend compared to 2021, that basically is a direction that we have in mind. If you need more specific details regarding this technology or IT spending, please contact our IR team.

[Interpreted] I think this will become our last question from JPMorgan, we have Cho Jihyun on the line.

[Interpreted] I have a simple question. For your provisioning for this quarter, I think you were quite conservative. And looking at the macro processes and others, because they were sufficiently conservative, I thought that they were well reflected -- so -- but it seems that your macro view was actually changed. So can you tell us about the extent of your conservativeness? So can you give us some assumptions about your macro and Basel III model changes in COVID-19 and others you have mentioned. So can you give us a breakdown for that?

For the COVID-19 forbearance program, about the amount of deferral and how much of the default or NPL do you think you'll be covered? And if you can give us some numbers, it will be greatly appreciated.

[Interpreted] I will give a big picture and our risk head. Pil-Kyu, Im of KB Financial Group will give a more detailed answer. During my presentation, I have aforementioned that before COVID-19 outbreak, our average credit cost was 20 to 22 bps -- 21 bps. And looking at the credit cost, it was 26 bps. And in '21, it was 30 bps.

So as we have aforementioned, we are fully aware that there are market concerns and ultimately, to improve and increase our shareholder value and to give a return to our shareholders, we are going to focus on our earnings and have higher dividend payout and EPS. So from this perspective, in 2022, preemptively, we are planning -- we have planned to have preemptive provisioning and in a bigger picture during the past 20 years, you can see that we have taken into calculation the highest risk for our assumption.

So I will give the floor to Pil-Kyu Im, our Risk Head of KB Financial Group.

[Interpreted] I am Pil-Kyu Im. And for FLC for the assumptions, I would like to explain on a group-wide basis for provisioning and provisioning policy and risk policy. On an overall basis, we mentioned they will be preemptive and conservative we have continued with that trend. And this year, looking at our solvency capacity, we will also be quite conservative, and there's omni and others risks that still linger. So in 2022, looking at provisioning, we will be quite conservative as mentioned by our CFO.

Looking at the past, with the Asian financial crisis and others, looking at the past 20 years' time, at a very dire financial situation looking at those GDP growth numbers and the real estate numbers and other numbers, well, we took into assumption a very serious financial situation crisis.

And look, you asked about some detailed numbers about COVID-19 forbearance program. So it is planned to be terminated in March. So principal and interest payment deferral will be a very important point. And we believe that it will be about KRW 860 billion for those and to divide them up for the borrower, that can say that voluntarily, they will just normally payback. So KRW 370 billion is for that amount. So for the borrowers looking at their asset quality, it's hard to say whether they will differ or not. But there are borrowers that said they will repay earlier than is expected. So that is about KRW 370 billion.

And looking at their delinquency rate or the amount, it's about KRW 4 billion, so less than 1%. So among that, 85% is secured. So for the others, even if it's KRW 500 billion if they payback in March, then looking at the repayment capacity and their collateral, then we believe that we will not have a risk for additional losses.

And another point to add is that for the company's with the determination of COVID-19 forbearance program, if it is a problem for companies then with the interest rate hike, with the household borrowers, well, we are very interested in asset quality and managing those loans. And currently, among the household borrowers, they might not have turned delinquent with the interest rate hike, there might be a possibility that the asset quality might deteriorate for those borrowers. And we believe that the multiple borrowers are at the greatest risk.

So if we see, there are multiple borrowers with lower rates than rating of 5 or with high DSR, well, for those borrowers we believe that we have provisioned enough to prepare for those situations and for household likewise. So for those borrowers for multiple borrowers then they might be normal now, but there might be a possibility of them turning delinquent going forward. So we have sophisticated our system to classify them and to look at our exposure and to set our limits and last year on an overall basis for the households, we have set an early warning system so that if these events occur, in the future, then we can extract them and target them so that we can have very detailed management of these borrowers.

I believe that, that was a sufficient answer by our CRO. And it is not -- he instead including the IMF crisis, but actually, this is 2022. So I -- we will change the wording to the last 20 years.

We do not see any further questions waiting in the queue. Just give us one moment before we close. I see that there are no additional questions raised. This brings us to the end of KBFG's earnings release. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]