KB Financial Group Inc (KB) 2025 Q3 法說會逐字稿

Greetings, everyone. I am Peter Kwon, Head of KB Financial Group IR Division. We will now begin the 2025 Q3 business results presentation. Thank you very much for participating in today's earnings release. We have here with us executives from the group, including our Group CFO, Sang-Rok Na.

We will have our CFO cover 2025 Q3 major business results, and then we will have a Q&A session. I will now invite our group CFO to walk us through 2025 Q3 business results.

Good afternoon. I'm Na, Sang-Rok, CFO of KB Financial Group. Thank you for joining the third quarter 2025 earnings presentation by KBFG. Before running through the third quarter performance, let me first talk about our approach to profitability against changing business environment.

Amid continuing slow growth trend, we face wide-ranging factors, including interest rate and FX volatility, government housing market stabilization measures and policies to revitalize the capital market.

Navigating this environment and underpinned by robust fundamentals, KBFG mitigated the impact of external uncertainties as it continuously ensures stable earnings capacity. On strong growth of core deposit base, we defended the group's NIM resilience offsetting external volatilities, while through nonbank subsidiaries portfolio, we are building a well-balanced earnings structure in this new wave of change.

We are also maintaining appropriate RWA growth, absorbing the impact arising from multiple variables, which we believe forms a steady foundation for the group's overall profitability. Under the government's target of KOSPI reaching 5,000, Korean economy is at an inflection point where the pivot of the economy is moving from real estate to capital market. In line with such change, KBFG will leverage this opportunity and turn the tide of change to one that can strengthen our profit-making capacity in order to broaden the basis of group's future growth.

Upon the bank and KB Securities WM channel, we will expand brokerage, credit and sale of investment products to broaden the basis of earnings while supporting financial asset growth of the Korean people. Leveraging our accumulated expertise and influence in the capital markets, we aim to lead the market tide characterized by expansion of productive finance and venture capital and capture emerging and new business opportunities.

And I believe our experience in investing into venture and innovative companies and the success cases we were able to draw from them will provide greater boost for our market leadership as we make investments into growth sectors. Thus, supported by well-prepared leadership, KBFG will proactively respond to change, driving quality improvement in earnings structure. Before moving on to financial performance, first on Q3 cash dividend.

Today, Board of Directors approved KRW931 DPS with total cash dividend amounting to KRW335.7 billion. Q3 cash dividend per share increased KRW135 Q-on-Q, excuse me, year-over-year on the back of increase in total dividend sum beginning of the year and the impact of share buyback.

Next, moving on to financial performance of KBFG. Group's net profit for the quarter reported KRW1.686 trillion, while on a cumulative basis as of Q3 increased 16.6% year-on-year, reaching KRW5,121.7 billion. Cumulative group ROE in Q3 was 12.78%, an improvement by a large margin versus last year.

This was driven by solid core earnings and with the absence of ELS reserving impact and gains from sales of holdings in our consolidated funds in Q2, there was sizable recovery on the nonoperating accounts.

On top of this, rigorous cost control efforts were compounded, driving and attesting to group's solid fundamentals. Meanwhile, nonbank business accounts for 37% of cumulative Q3 net profit as we maintained diversified earnings portfolio. Next, I will move on to detailed breakdown of earnings results. Group's third quarter cumulative net interest income was KRW9,704.9 billion, flat year-over-year.

In Q3 '25, group's net interest income was KRW3,336.2 billion, but removing the base effect of costs related to liquidation of fund being recognized as interest expense, NII was flat Q-on-Q. Next, I will elaborate on bank loans in Won growth.

As of end September 2025, bank loans in Won stood at KRW375 trillion, a 3.3% growth compared to last year and a 0.9% growth Q-o-Q. Household loans recorded KRW182 trillion, a 0.7% growth Q-o-Q and corporate loans centering on large corps and robust SME loans grew 1.0% Q-o-Q.

Taking into consideration the government stance of strengthening household debt management and housing market stabilization measures, we expect household loans to show limited growth for the time being.

However, we plan to rebalance household loan portfolio from a profitability perspective and pursue a loan growth strategy focusing on robust SMEs to secure our interest income basis. Next is NIM on the bottom right of the page. Q3 bank NIM stood at 1.74% on the back of funding cost management efforts and group NIM posted 1.96%, maintaining a similar level to the previous quarter.

In particular, despite the contract in loan yields this quarter, the bank's NIM remained stable at around KRW7.9 trillion growth in core deposits alleviated funding pressure, enabling a steady defense of our margin. Next, I will cover noninterest income.

Q3 cumulative group noninterest income posted KRW 3,739 billion, a 1.1% decrease Y-o-Y. Q3 cumulative other operating income posted KRW 786.6 billion, a 15.4% decrease Y-o-Y, and it was primarily attributable to the base effect from the reversal of KRW 123 billion in KB Insurance, IBNR reserves in the previous year.

On the other hand, Q3 cumulative net fee income posted KRW 2,952.4 billion, a 3.5% growth Y-o-Y. Along with the increase in stock market trading volume, brokerage commission income grew significantly, while strong bancassurance sales and the expansion of trust-related earnings also contributed to improved performance.

In particular, in case of our subsidiaries, KB Securities showed 16.5% net fee income growth and KB Asset Management showed 23.3% of net fee income growth, respectively, and drove group's fee income expansion.

We believe that this increase in fee income from the capital market, in line with the ongoing momentum of capital market revitalization, has ample potential for further expansion going forward. Since around 70% of the group fee income is generated by nonbanking subsidiaries centering on the capital market, we plan to strengthen nonbanking competitiveness to further expand our fee income basis.

Next, I will cover general G&A. Q3 cumulative general G&A posted KRW5,007.7 billion. And on the back of continuous cost efficiency efforts, it stopped at a 2.8% increase Y-o-Y.

Q3 cumulative group CIR recorded 37.2% and is being stably managed within our target range. We have been exerting efforts to save recurring expenses and at the same time, maintaining an appropriate level of investment in essential areas, including IT, disaster prevention and strengthening information security.

We are strategically expanding investment in growth areas, including AI. And going forward, we will heighten our cost structure efficiency through selective cost implementation. Next is Page 8, group provision for credit losses.

Q3 provision for credit losses posted KRW364.5 billion, a 44.4% decrease Q-o-Q. Q3 group credit cost went down 25 bps Q-o-Q, posting 30 bps and on a cumulative basis, recorded 46 bps and transitioned to a lower stabilization trend.

To give more color about the main reason why this quarter's provisioning decreased around KRW290.6 billion Q-o-Q, it was on the back of the conservative additional provisioning stance we had until now as well as slightly alleviated burden on provisioning accumulation through the portfolio improvement efforts, which took place from the second half of last year as well as the bank retail credit assessment model advancement. In addition, there was a partial provisioning reversal due to NPL recovery in Q3. So overall provisioning size decreased significantly.

We believe that our efforts to strengthen risk management until now have been gradually showing results. And considering this trend of improved soundness, we believe that this year's group -- this year, group's credit cost will be managed around the mid-40bp range.

I will now cover group's capital ratio. At the end of September 2025, estimated group BIS ratio posted 16.28% and CET1 ratio recorded 13.83%, respectively, securing one of the highest levels of capital adequacy in the industry. 2025 September end group risk-weighted asset posted KRW358 trillion and increased 3.5% compared to the end of the previous year.

In Q3, the KRW48 depreciation of the Korean Won against the US dollar acted as a driver of RWA growth, but through RWA monitoring and portfolio adjustment, the FX effect was absorbed, and we adequately manage RWA growth at an appropriate level.

From the next page, please refer to the detailed materials regarding the performance results I have just covered. With this, I will conclude KBFG's Q3 business results presentation. Thank you for your attention.

(Operator Instructions) Do Ha Kim, Hanwha Securities.

Thank you for taking my question. I have one question on margin, and you talked about the reversal. So first, on margin, it seems like the decline has now stopped. And there's been an offset in Q4 or for next year. Do you have, maybe not, a specific number in terms of the guidance? Do you see that the decline in margin has now stopped?

And are you looking forward to a turnaround? And you talked about the reversal from the recovery of the NPL. What is the amount?

Give us one moment as we prepare for the answer to the question that you've submitted.

Yes. Good afternoon. I am Lee, Jong-Min. I'm the CFO of KB Bank. First, we'll talk about the NIM outlook. If you look at Q3 NIM, it was 1.78%, so it's 1 basis point increase. And basically, the rate down-cycle has somewhat slowed. And also our core deposit on an average balance basis, there was an increase of KRW 4.3 trillion.

So through our efforts in reducing the funding cost, we were able to defend the margin from the stagnant loan growth. Now under the government policy in terms of having a very rigorous control over household debt, we believe that for the time being, the loan growth is going to be limited.

We will continue to focus on expanding our core deposit and also reducing the funding costs. That would make the key pillars behind the NIM. We are going to focus on company's institutional sales and expand on the low-cost deposit so that we can drive further savings in terms of funding cost.

On an annual basis, in the second half or in Q4, we expect the NIM -- of course, it will be impacted by the movement of the market policy rate. There are multiple views regarding how the market rate is going to go going forward.

However, looking at the overall direction forward, we think that in the second half, there's going to be a quite gradual decline at low single digit. That is what we are forecasting. And in order to defend its impact on margin, we're going to really make that up and offset the impact through strengthening our deposit base. Regarding the reversal of the provision, and you asked me about the size, it's around KRW70 billion. Basically, overseas acquisition, we were able to recover certain bad debt there.

And for domestic regarding the knowledge complex centers and the loans that were extended, there was a recovery, and that was reflected on the reversal.

[ANZ Slava Shulim].

Oh yes, hi, good afternoon. Thank you so much. Two questions from my side, please. One is, given that the policy rates in the US. are falling now faster than those by BOK, what is the plan for the financial group or for KB Bank -- for Kookmin Bank to issue additional Tier 1 securities in foreign currency in US dollars? That's number one.

And second question is, what is your guidance for NPL coverage for the foreseeable future? Do we expect it to decline further? Or you will keep it at the current levels or approximately around those? Thank you.

(spoken in foreign language) Can you repeat the first question on the Tier 1 capital? Did you say issuance of USD-denominated Tier 1?

Yes. So is the bank -- is the group or the bank planning to issue US. dollar-denominated additional Tier 1 securities given that the cost of foreign currency debt is now falling faster than the Korean won policy rate?

(spoken in foreign language) Just give us one moment.

Regarding the first question, now the FX rate is very elevated at this point. And compared to the fall in the US. Fed rate, if you look at Korea, we have a household loan-related issue and also there are real estate packages. So we do expect that the interest rate decline is not going to be faster than the US. So in consideration of that, so at this point, the US.

dollar-denominated bond or any issuance of a hybrid bond issuance denominated in US. dollars, we're not yet considering to do that. You also asked about the coverage ratio. Right now, we are at about 130% coverage. Now over the past 2 years, we've really cleaned up our bad assets.

And also there were some factors that drove reversal. So from -- it is correct that it went down from 200% level to 130% level. Now over the past 2 years, we've maintained this trajectory. So as we complete the NPL cleanup and we've seen improvement in the portfolio, we think that the inflow of new NPLs is going to be limited. Now having said that, our reserving discipline is going to stay intact. So the coverage ratio compared to where we are right now may slightly go up.

We do not have any questions in the queue as of now, so we will wait.

[BNK Investment Securities, Kim In, Director Kim In].

Congratulations and thank you for the good performance.

Can you speak up a little bit?

I think for KB for Q3, your earnings are good, but this could be a little bit sensitive. But as you probably know, we are hearing some talk about fines, administrative fines. So if you can comment on this, can you tell us about your thoughts, what is currently on your mind regarding these fines?

We will soon answer the question, please.

I am the CFO of the group. So to briefly elaborate, currently, regarding the size of the fine or the timing, it is very hard for us to comment because of its impact or the amount or the calculating standard, it is not finalized. So it is difficult for us to answer it in detail. And for the basic fine or the deductions, I believe that the authorities have shown us some clear guidance. And looking at the current situation, we are actively giving them our responses.

So I think that we're in the process of coming up with a reasonable resolution. I'm sure that we will have some impact, but we are doing our best to minimize the impact, and we're working very hard. So we will work hard so that it will not actually have an impact on the shareholder return policy that we have committed ourselves to. And our bank CFO, I think, will also give a few comments, but maybe we can just conclude the answer at this time. Thank you.

We will, actually wait just a little more.

Won Jaewoong, HSBC Securities

Despite the challenging environment, thank you very much for your great earnings. I have one question and for core deposit growth, I think that is quite notable. And regarding your core deposits, I think all other banks have this increase. So I think NIM has gone up. But I think that the competition is getting fiercer.

Do you think this trend will continue for the time being? Or do you think that because there was the great elevation because of some maybe one-offs, so I'm curious about what was the main reason for this? And another question is, on Page 14 of the presentation, I think when we have a booming stock market for savings products, or I think a lot of the money moves to demand deposits. So do you think this is a trend? Or do you think it's because core deposits are coming in from the outside, so this is actually growing?

So if you can explain about this phenomenon, it will be greatly appreciated.

We will soon answer the question, please hold.

Yes, I will answer your question. For the bank, for the core deposit increase, regarding the reasons, I think on the whole, the interest rate fell. So that was a big impact because when the market rate falls, we tend to have more core deposits. So they are elevated. So I think that is the basic direction.

I believe that recently, we had some of -- more customers that actually are using us to deposit their salaries. And on the whole, I think we have this increase in our customers that is leading to more core deposits. And I think we -- there are some changes so that we can receive more of these deposits from institutions and others and companies.

So I think through these changes, we're seeing more companies and institutions that are providing more core deposits to us, and we are making many efforts. And I think in the stock market, we can see that with unsecured loans, it is inching up a bit and coming in as demand deposits and then going to the stock market.

So I think we have this money move and it's going back and forth. So I think regarding whether that had a big impact, we will need to wait and see. But I think for individuals, we had more customers, customer numbers increased, which was the biggest impact. And I think for corporations, it's because we had some changes to make this easier for them to give us their accounts.

hey are elevated. So I think that is the basic direction. I believe that Recently, we had some of more customers that actually are using us to deposit their salaries and on the whole, all, I think we have this increase in our customers that's leading to more core deposits and I think we there are some changes so that we can receive more of these deposits from institutions and others and companies. So I think through these changes, we are seeing more companies and institutions that are providing more core deposits to us and we are making many efforts.

And I think in the stock market, we can see that with unsecured loans, it is inching up a bit and coming in as demand deposits and then Going to the stock market. So I think we have this money move and it's going back and forth. So I think regarding whether that had a big impact, we will need to wait and see, but I think for individuals, we had more customers, customer numbers increase, which was the biggest impact and I think for corporations it is because we had some changes to make this easier for them to give us their Accounts.

Jihyun, JPMorgan.

Yes, thank you. I have two questions. First one has to do with the productive finance. What are your plans regarding productive finance? And also for RWA and CET 1, what's the impact that you're projecting? Also for the loan growth up to Q3, compared to your peers, we see that your loan growth is weaker and KB usually has a strength in the household lending space.

So going forward, in terms of the loan growth, there is expectation that it may be difficult for you to achieve the target that you've said. So we'd like to gain some insight on Q4 and for next year, what is your loan growth projection, especially in relation to all the inclusive finance related effort? So there was a big write-back in Q3. And because that size is quite big. So in the second half, you seem to allude to the fact that the overall size of the reserve is going to be more downsized.

What can we expect in Q4? Are you looking towards a write-back of the reserves? And your NPL dipped slightly. Is this -- do you think it peaked out? Are we now in a secular trend in terms of the NPL decline?

So I would like to gain your thoughts on this.

Give us one moment.

Thank you for the good questions for productive finance and its impact on RWA. Let me briefly respond to that. Now since there hasn't been any official announcement, we have all the preparation that we've set aside. And once that announcement is made, we will share with the market as to what the extent or the size of this support is. And so in light of the government's official guidance, we will be determining the size of the product to finance package.

But of course, the amount is important, but what's more important than the mere amount is that our asset structure has to be transformed in a way that actually improves on the RWA and that whole process and having that in parallel is what's most important. What that means is that our asset structure now is overly tipped towards properties and financial assets. And if that is redirected to SMEs and manufacturing sector, where we increased the RWAs that basically is our basic approach. So when it comes to not just the productive finance package and also its impact on our assets, there are certain areas that we do need to lower our exposure on. So in consideration of all of those factors that we are planning our RWA direction.

So we think that next year, we will be amply -- we will be able to amply meet that RWA growth rate of around 5%. I say that because from the government's side, they're trying to revitalize the capital market, and they've made adjustments to the risk weights, lower than for the securities for the RWA securities. Now -- so we believe that we are in good alignment with the government's policy approach as well. So for next year, there is an impact of this productive finance. And so in controlling the RWA, it's become much more complicated for us to manage against RWA last year.

And this year, as we monitor the RWA, we were able to build up on our know-how and experience. So we are very certain and confident that we will be able to continue to do so as we move into next year. In terms of the loan growth, I'm going to turn it over to CFO of the bank to respond to that question.

So in terms of the loan growth, just to add, now our bank on a quarterly basis, we try to ensure stable growth, so Q1, 2 and 3, we are growing at about the same rate. So under that approach for the loan growth, especially for household, it will be 3%, 6% to 7% for corporate loans. That's the growth rate that we are working under, so which will bring us about 5% of an annual growth. And we believe that we will be able to achieve that same level next year as well.

Thank you very much.

Well, I would also like to add one more thing. So in terms of the growth of the loans and the assets, if I could elaborate, yes, there is the loan growth aspect. But if you look at this pivot changing to the capital market, now there is also a potential growth from the securities. So if you look at our asset mix, the loan growth is about 4.5%. That's the expected projected growth.

For the securities, we expect it's going to show about 9% securities investment. So for next year, in terms of the mix of our assets, yes, loan growth is important, but there's also securities investment domain that we will also focus on to really drive growth. Just one more thing because you did ask about the asset quality projection. As you have mentioned up to the first half of the year, we went through some difficult patch. But starting end of last year, we've taken on a quite aggressive approach in improving and enhancing our portfolio.

Thanks to these efforts, we have seen the outcome of that starting the second quarter, and we believe that, that improvement continued on into the third quarter. So in terms of the delinquency rate, in terms of NPL ratio, although a bit cautious, I believe that we are now in a period where we are now starting to see a recovery. And especially for the stimulus packages of the government and also support packages for those people and the vulnerable part of the society, we believe that there will be some gradual improvement. In terms of credit cost, we started off at an elevated level in the first half of the year, but we were very conservative in reserving -- we were very conservatively reserving and now we are seeing a reversal of such loan reserves. And we believe that this type of a trend can continue on until the end of Q4.

So CCR we will be able to achieve the target that we set originally. Now having said that, when it comes to asset quality and the level and the extent of that improvement is going to be contingent on how the domestic market recovers and what the situation is for the real estate market. Those are also factors that will impact that going forward. For borrowers who are vulnerable, we will make sure that we keep a close monitoring of those segments so that we can have a rigorous control.

Thank you.

We do not have any questions in the queue as of now, so we will hold.

I think we had a very good Q&A session and we have actually from Samsung Securities, Kim Jaew who We'll ask the next question.

I have two questions. The first question is related to asset quality that was mentioned and regarding credit card delinquency rates. I think we are seeing a notable decline. So if asset quality is improved, and I think for vulnerable borrowers, you said you have a prudent attitude. But do you think internally -- do you think that we have had meaningful improvement?

Or do you think that you will need to wait and see, and this is just what happened in Q3? And I think regarding your forecast for Q4, then for next year for provisions, so what is the level that you're expecting? Because looking at the credit cost for this first half of this year, well, there was an elevated effect in March. So I think if it shows that the economy has deteriorated, do you think that for next year, how do you think it will change? And my second question is the capital adequacy ratio, and I think it has improved significantly.

And I think that excess of 13% in RWA, you mentioned that. So based on that, so when we have simple calculations, I believe that we could see actually more than expected. So maybe I'm speaking a little bit earlier than is concerned. But I think for this year, we are expecting about excess of 50%. Then what do you think is the window that we should open to?

And do you think that will be quite difficult? Or if it follows the formula then for next year, as you had mentioned, do you think that you can have differentiated TSR that can lead the industry? So can you tell us what we can expect?

We will soon answer your question. Thank you.

Regarding credit card delinquency, I would like to answer that question. As you had mentioned, for a credit card, from late last year, we have been very aggressive and active in entry management and having good write-offs and sell-offs. So due to this, we have had portfolio improvement. And I think we're seeing the effects of our efforts materialize. So I think regarding the positive results, it is not just a one-off effect.

I think this will actually continue until next year, the positive results. Of course, for the receivable, the voluntary adjustment and others, we will do so. But I believe that we will be able to manage it at the current level. You also asked a question about asset quality and the level of CCR for next year. And as was mentioned previously, I think until now, we will maintain the stance for management that we have had until now, and I think early 40% range could be the goal that we are going to pursue.

Thank you.

Regarding Q4, capital adequacy rate and expectations for next year's shareholder return, well, regarding the amount of TSR or shareholder return, well, I also have very rosy expectations, and I'm keeping an eye on the situation. And regarding the capital adequacy ratio, well, I think that we have had a very high FX rate and it's being maintained. So we need to have ample buffer for that. So we have been managing our RWA. In Q4, there are seasonal factors.

So it normally falls. And I think this pattern will also be repeated in Q4 of this year as well. So we need to take that into consideration. And regarding TSR, whether it will go up or down, well, you probably know we can't really comment on what we think will happen. But regarding the excess capital that goes beyond our committed number, well, we do have a protocol and this protocol will be maintained next year as well.

But what we can comment on for sure is that regarding the timing or the size of TSR, regarding what we showed this year, we will be very flexible like we had been this year. And this means that in Q2 of this year, there was the expected shareholder return that we had actually implemented earlier than scheduled. So we will maybe pursue a similar stance next year, but we have the first half and second half of the year policy that we will actually commit to and we promise the highest level of TSR in the industry. So we will do our best to meet our commitments so that we can satisfy the expectation that you're looking for. Thank you.

Thank you.

Cho Jihyun, JPMorgan

Yes, just one more question on shareholder return policy. In the General Meeting of Shareholders, you would make resolution on the dividend payments through the use of the capital reduction. So regarding the separate taxation on dividend, now basically, for high dividend paying, criteria is 40%, cash dividend rate or 25% cash dividend, and then looking at past 3 years -- comparing to the last 3 years' average, for instance. So there are different criteria. Now -- and there's a lot of controversy that it should only be a cash basis of 40%.

Now so if -- 25% plus 5%, if basically that theme is what's decided at, then only the company that's doing cash dividend of 30% or 40% that are subject to that separation of taxation. So then can we increase the cash dividend rate up to that ceiling to provide the benefit as much as possible to the shareholders? Now there could be multiple scenarios. How are you going to manage the mix between the dividend and the share buyback and cancellation?

Give us one moment.

Well, thank you very much for the question, a very good question. Now in the first half of the year, we've mentioned during our earnings call that basically in expanding the retail investor base, and to have the positioning and status as a household name in terms of the capital market investment that basically is our tenet, and we stand by that, and we are considering and looking at reviewing various different elements. So I think that's to the extent that I can share with you at this point because the policies or the law itself has not yet been determined or confirmed. We will engage in active discussion with the outside market as well. In terms of the requirement for that separate taxation for the dividend income because the rules and guidelines have not yet been confirmed, it's quite difficult for me to give you a definitive answer at this point.

But when we announced our plan, when PBR is from -- to move from 0.8 to 1, we are going to have a higher level of share buyback and cancellation up until a point we reach a certain PBR ratio. For cash payout ratio, and if the requirement is 30% or set at 40%, so a much higher level, then cash dividend payout ratio, it's difficult for us to really just increase that quite steeply, although the requirement yet has not been determined, we will once again look at the mix between the cash dividend and also the share buyback. Basically, we would based on the discipline that we are using. However, if the taxation requirement is set at a level that we can amply meet, then we will also proactively consider the way to benefit the retail investors as much as possible.

Thank you very much for the answer. We don't have any questions in the queue as of now. And I believe that we have had a good amount of discussion for about 45 minutes since we had the beginning of our earnings release. If you have any questions, please feel free to contact our IR department. And we will wait just a little bit more if you have any other questions.

Well, I think questions are over, and we will conclude our business results presentation and Q&A session. Thank you very much.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.