KB Financial Group Inc. (KB) Q4 2025 Earnings Call Transcript

Greetings, everyone. I am Jerry Kang, head of KBFC IR team. We will now begin the 2025 full-year business results presentation. Thank you very much for participating in today's earnings release. We have here with us executives from the group, including CFO Sang-nong-na. and first our group CFO will cover 2025 full-year business results after that we will have a Q&A session I will now invite our group CFO to walk us through 2025 full-year business results greetings everyone I am KBFG CFO thank you very much for joining our 2025 full-year business results presentation before Before proceeding with the business results, I'll briefly share some of our key performance highlights. 2025 was a year of unprecedented volatility in the financial market. As volatility in the exchange rate and market interest rates widened, the influence of external factors intensified, economic recovery was somewhat delayed, and a challenging operating environment continued with asset quality pressures.

On the other hand, as government policies materialized and discounted factors with the domestic market became resolved partially the capital market is gaining unprecedented momentum toward the Cosby 5000 era in a situation where diverse variables and new trends are intertwined KBFC with our stable portfolio and consistent risk management policies is absorbing external uncertainties and we are working hard to expand non banking earnings contribution and to shift to a business structure focused on the capital market added to these strategic efforts as a result of the fading away of valuable one-off effects, including 2024 ELS customer compensation cost, 2025 net profit posted $5.8 trillion, a 15.1% increase YOY and proved our robust profit generating capacity. On the other hand, today the BOD resolved to approve a year-end cash dividend of $1,605.1 per share amounting to a total of $575.5 billion. Accordingly, the 2025 total cash dividend amount stands at 1,580,000,000 won, an increase of approximately 32 percent compared to the previous year. The 2025 dividend per share, including previously paid quarterly dividends, recorded a total of 4,367 won, marking a significant increase of approximately 37.6 percent YOY. The total year-end cash dividend amount includes an additional 240.5 billion won on top of the existing 2025 quarterly uniform dividend amount this reflects our efforts not only to meet the corporate eligibility criteria for separate taxation on dividend income but also our efforts to reevaluate our shareholder return mix in line with the normalization of our PBR which has recently surpassed 0.8 multiple while striving to achieve an industry leading dividend payout ratio according to our shareholder return framework linked to our CT1 ratio 2025 total shareholder return ratio posted 52.4% a 12.6% percentage point increase yoy and also achieved an industry leading level in both shareholder return ratio and scale in addition we efficiently manage to accumulate a capital and maintain industries highest level capital adequacy level and 2025 and anticipate to see to one ratio is accepted to be 13.79 percent and demonstrated significantly enhanced capital management capabilities taking into account the downward impact of approximately 6 BPO rising from the $240.5 billion of additional cash dividend amount, the effective 2025 and CET1 ratio can be considered to have remained at a high level of approximately 13.85%. A portion of this additional cash dividend amount utilized 190 billion won of deferred shareholder return for 2025. Next I will cover details of our 2026 first phase of shareholder returns. The funding for total shareholder returns the first half of the year amounts to a total of $2,820,000,001 in capital, corresponding to 79 BP above last year NCT 1 ratio of 13%. It has already reached more than 92% of the total annual shareholder return of the previous year and has been expanded on a proactive basis. Of this amount, $1,620,000,001 will be returned as total cash dividends for 2026, while the remaining $1,200,000,001 will be returned through first half-share buyback and cancellations. accordingly the BOD today resolved to conduct 600 billion won of share buyback and cancellation which is the first round of share buyback and will commence immediately after this earnings release the remaining 600 billion won is scheduled to be repurchased during the second quarter following an additional BOD resolution upon the completion of the first round also separate from this regarding the tax exempt dividends that have garnered significant market interest we're actively reviewing the procedures for implementation including the submission of agenda items to the GSM and plan to proceed accordingly this year under the government's economic stimulus policy stands including productive finance the sole the role of financial institutions in enhancing the dynamism of the real economy is expected to expand based on our group's diversify portfolio by proactively allocating resources to high value-added areas such as AI semiconductors and innovative SMEs fundamentally transforming the group's business model and to secure future growth engines we will continue to expand our customer base and business scope and seek to preemptively seize new opportunities amid a rapidly changing financial environment centering on subsidiaries with competitiveness in corporate banking and capital market business we will identify and preempt additional growth areas and thereby fill the foundation for future growth engines and at the same time evolve into a reliable partner that directly contributes the real economy of the nation through these management strategies of transformation and expansion we plan to further enhance shareholder and corporate value by solidifying our profitability and earning space while improving capital efficiency next i will cover kbsg business results first our keywords of 2025 group business results are as follows first the full normalization of bank earnings which has been somewhat substituted due to 2024 one-off factors second a business portfolio well prepared for the money move trend toward capital markets as demonstrated by a significant improvement in non-interest income Third, enhancing cost efficiency through group-wide cost management efforts and optimal resource allocation. Fourth, while maintaining the broad framework of KB's proprietary shareholder return formula, this can be summarized as a flexible response aimed at maximizing shareholder and investor value, including a proactive expansion of the scale of shareholder returns and the achievement of a total shareholder return ratio at the highest level in the industry. As aforementioned, our group's 2025 annual net profit posted $5,843,000,000, and despite unfavorable conditions such as increased volatility in exchange rates and interest rates, earnings of core subsidiaries, including bank and securities, expanded. In particular, the group's earnings power expanded as non-interest income grew, significantly driven by capital market-related gains. In addition, 2025 ROE posted 10.86%, a 1.1% increase YOY, and the basic EPS earnings per share was 15,437.1, representing an approximate 20% increase YOY. On the other hand, for Q4 net profit with a reflection of a sizable one-off items including group CRP costs and provisioning for penalties including ELS as well as seasonal contraction in insurance performance, it declined significantly QOQ. Now I will cover business results in more detail.

In 2025, the group's net interest income amounted to $13,73.1 billion, increasing slightly by 1.9% YOY. This is attributed to improved profitability despite concerns over margin pressure from the base right cut cycle that continues through the first half, driven by growth in the average balance of the bank's loan assets and reduced funding costs through the policy to expand our core deposits. Next, I will discuss the growth of the bank's Korean One Loans. As of the year-end 2025, the bank's Korean One Loan balance did add $377 trillion, representing growth of 3.8% versus year-end. of last year and 0.5% versus end of September. Within this, household loans increased by 3.7% versus year end of last year and by 0.8% QOQ as we pursued growth at an appropriate level under the government's household debt management stance. While corporate loans grew by 3.9% versus year end of last year and by 0.4% QOQ, supported by the steady expansion of loans to high-quality SMEs and increased lending to large corporates. Considering government regulations and the slowdown in housing transaction volumes, household lending is expected to show limited growth this year as well. Accordingly, taking into account factors such as our loan portfolio mix centered on productive finance, we'll continue to pursue household lending policies focused on improving profitability, and we plan to strengthen a corporate finance-based growth framework by shifting our growth axis toward corporate lending. Next, let me move to the net interest margin shown at the bottom right. In 2025, the annual NIM of the group and the bank recorded 1.97% and 1.74%, respectively, representing a slight decline from the prior year. In the fourth quarter, the bank's NIM was 1.75%, up by 1-bis QOQ, as we flexibly adjusted the pay survey household loan growth despite pressure on the loan to deposit spread from the higher deposit rates and reduce funding costs through the establishment of an optimal funding mix, resulting in a slight improvement in NIM versus the previous quarter. And this year as well, based on our strong channel competitiveness, we plan to rigorously manage NIM by increasing low-cost deposits and through more sophisticated ALM management. Next, I'll discuss non-interest income. In 2025, the group's non-interest income amounted to $4,872.1 billion, billion one expanding sharply by 16% why in 2025 the group's net fee income was a 4 trillion and 98.3 billion one increasing by 6.5% or approximately 248 point 7 billion and compared to previous year this was driven by a significant increase in brokerage commissions at the securities business due to the expansion of equity market trading value despite a decline in card fees amid economic slowdown and also by meaningful improvements in the bank's fee income such as bank accounts and fund sales, as well as trust-related income. In addition, capital market affiliates other than securities, such as asset management and investment, also posted fee income growth of 28.9% and 73.2% respectively, compared to previous year, further supporting the expansion of the group's fee income. Meanwhile, fourth quarter net fee income is $1,145.9 billion, with securities, leading to improvement through a substantial expansion in brokerage fees and IB fees, and as fee-generating capabilities across affiliates improved overall, including trust income at the bank and asset management. Given that non-banked subsidiaries are driving approximately 70% of the group's fee income, KB will further strengthen the competitiveness of its capital market center, non-banked portfolio in line with the government's policy direction to activate the capital markets, thereby further solidifying the fee income base. Meanwhile, other operating income in 2025 recorded $773.8 billion, despite the base effect from the reversal of non-life insurance IVNR reserves in 2024. It increased by approximately 120% as a result of the efficient management of the securities portfolio, including expanded performance from the management of equity securities. However, in the fourth quarter, other operating income was somewhat weak quarter on quarter due to a decline in the bank income and securities amid rising bond yield. It declined the securities business derivatives income as well. In 2025, the SG&A expenses totaled $7 trillion and 51 billion won, and due to ongoing cost efficiency efforts combined with cumulative effects of the ERP program implemented over the past several years, they increased by only 1.6% YOY. In addition, the group CIR recorded 39.3% in 2025, reaching an all-time low, supported by a solid top-line growth, ongoing improvements to our workforce structure and cost control efforts. And for the first time in the group's history, coming in below 40% on an annual basis, thereby demonstrating clearly improved cost efficiency versus the past. Meanwhile, fourth quarter SG&A expenses amounted to $2,043,000,000,000, one increasing sharply QOQ as seasonal factors were reflected, including approximately $248.0 billion in group-wide ERP costs and higher advertising and promotion expenses. Going forward, the KB Financial Group will expand investments in essential areas such as future growth fields including AI and strengthening information security while continuing efforts to reduce recurring expenses in parallel to efforts to further enhance the efficiency of our cost structure Next is page 8, the group's provision for credit loss In 2025, the credit loss provision amounted to $2 trillion and $318.7 billion increasing by 15.6% or $318.7 billion compared to previous year, and the group's credit cards recorded 48 bps in 2025. This was despite improvements in asset quality indicators and reduced provisioning burdens resulting from portfolio enhancement efforts and was due to the maintenance of a conservative provisioning stance across all subsidiaries to prepare for potential economic volatility, including delayed rate cuts. As such, we built additional provisions at an appropriate level from the beginning of the year. Based on the law's absorbing capacity we have proactively secured and our conservative risk management stance, we expect to manage credit costs stably this year at a level in the low to mid 40 BIPs range. Next, I will discuss the group's capital ratios. On a preliminary basis, as of the year end of 2025, the group's BIS ratio recorded 16.16 percent and the C2-1 ratio recorded 13.79%, maintaining industry-leading capital adequacy despite the downward impact from the increased year-end dividend. Meanwhile, in the fourth quarter of 2025, the group's risk-weighted assets stood at $358 trillion, remaining at levels similar to the prior quarter, increasing by only 3.3% versus year-end of the prior, thereby growing at an appropriate level within our target range. This year as well, while various factors such as interest rate and fixed volatility may affect the RWA, as demonstrated by our 2025 RWA growth rate, we'll continue a sophisticated and thorough group-level RWA management strategy, including rigorous limit monitoring and portfolio adjustments in order to manage the growth rate at an appropriate level for the RWA. From the next page onward, you'll find detailed data on the results explained thus far, so please refer to those materials at your leisure. With that, we conclude the presentation of KB Financial Group's 2025 business results. Thank you very much for your attention. Thank you very much for that presentation. We will now proceed to the Q&A session. Those of you listening in through the Internet, please use the contact information that is on the last page of the proper presentation. And those who are participating through the phone, please press 1, and the asterisk will wait for questions.

We will take the first question. From HSBC, we have Jae-yong Won. You're on the line.

Thank you very much for such good results in this challenging environment, and also for your concern about the shareholder returns. So looking at your results, it's like I feel I received, you know, new year present. So I have two questions. First is that in the fourth quarter, the year-end cash dividend was actually larger than what we expected, so the cash dividend payout ratio should have been at least 25%, but I think you gave much more than that for a high-dividend company, so is there any special reason for that? And my second question is the size was really larger than I expected, and that was really surprising. So two rounds of 600 billion, I think that's been paid out. So looking at your disclosure, it seems that you're doing it in two rounds. What is the reason you're doing it in two rounds instead of one consolidated round? So while we are preparing the answer, please hold for a few seconds. So thank you very much for your congratulations as well as for your questions. You asked for the reason why there was a significant expansion of the year-end dividends, as you have said. One of the first reasons was that at the end of the first half of the 2025, when we announced the second round of shareholder return amount, it was a total of $850 billion at the time. The size of the shareholder returns was actually larger than what we had expected initially, And so we lacked earnings for distribution, and so unavoidably about 100 billion won was deferred to early 2026 that was announced previously through our disclosures. And so we had to use that 190 billion won. And afterwards we have continuously, you know, gave a lot of thought into how to use that 100 billion won, whether to do a cash dividend or whether to do a share buyback. And so starting from last half, various policies from the government came out related to revitalizing the capital market, and there was introduction of the separation tax on dividend income. And so we have been looking to various options in about the right dividend yield. And so also given the quickly improving PVR improvement trends, we thought that there should be some changes to the mix of the means that we use for shareholder returns. And certainly recently the performance of our share prices have been really strong. And so in consideration of this rise in the share prices, we believe that there was a need for upward adjustment of the dividend yield. And that is the reason why – these three reasons are the reason why we have decided on this decision. And so added to the $900 billion won, $50 billion won has been added in the decision, so $575.5 billion won has been decided as a year-end cash dividend. So the total in 2025 for cash dividends was $1 trillion, $580 billion won. So compared to last year, it's up by 32% on annual DPS is $436.7 billion. So compared to last year, there's about 3% increase. And this dividend payout ratio is 27%. So we have qualified as a high dividend paying company. But what's also important is that starting from last year, as we have said, you know, we needed to establish ourselves as people's most preferred dividend share. And in accordance with the corporate value program that we have announced, we will maintain that basic framework and the formula for shareholder returns, but we'll continue to look into different means and options in order to further enhance the shareholder value as well as the investors value. So we'll maintain a flexible stance going forward and we'll continue to ensure that our shareholders and investors benefit from the enhanced corporate value.

I would like to ask you a question about why two rounds? Well, regarding our first half, share buyback was 520 billion won. And compared to that, it is true that we have the amount of share buyback that was much bigger. So we took that into consideration, and we took into consideration the timing or duration. It's because when we need to think about the funding for share buyback, we believe that direct acquisition was better than a trust acquisition method. And when we have the direct acquisition, we need to buy the shares within three months. So that is why we believe that two rounds would be better. And an advantage to this is that within the year, we will continue with a share buyback. So there is that advantage. So that is why we decided to have two separate rounds of share buyback. So we have the $600 billion of share buyback that was determined through today's BOD that will be done immediately. And we will have the rest of $600 billion of share buyback that will be done additionally in Q2 after the BOD resolution. Thank you very much.

So thank you very much for that answer. We'll now receive the next question from Goldman Sachs Securities, Park Shin-Yong Center Director. The line is yours. I'm Park Shin-Yong from Goldman Sachs Securities. So I have a question about the ROE target. So in your Value Up program it says more than 10 percent, but previously other peers have have actually referred to their ROE target as 12%, and also in our case, already the non-banking sector portfolio has become diversified, and this year's ROE is already reaching 11%. So going forward, what is your stance on a sustainable level of ROE? In addition, with your overseas business, the improvement in profitability, do you think this can actually help in terms of the ROE aspect and what are the trends? Thank you very much. So please hold for a few seconds while we prepare the answer. So let me answer your question. Our mid-long-term ROE target, we do believe that we have to upwardly adjust the target. In the case of last year, you know, a lot of the discount factors for ROE share prices have been diffused and addressed, and so the valuation is going up. And so we need to also raise the, you know, value fundamentals at this point. So we are targeting our ROE for more than 11 percent in the mid to long term. And we do believe that the extension of the leverage cannot be more than 10 percent, as it has been done in the past. And so we do believe we have this task of raising the ROE target. But as we have noted, increased fee income, the increase in the non-interest income is very important for this. And also, so we do believe that for the improvement of ROE, the improvement of the non-interest income is very important. And also recently, the profit generation by the non-banking affiliates have actually, in coupled with the money move, been very helpful. As you have mentioned, of course, in the case of the overseas business, any improvement in profitability will be very helpful as well. Our KPI or Preston Bank, these overseas, you know, entities, improvement in profit is actually becoming more visible, and this is very helpful. Thank you very much for the answer.

It seems that we do not have any questions in the queue, so we will wait.

Thank you.

We will take the next question. From Mirai Asset Securities, we have Taejun Jung. You're on the line. Thank you for the opportunity. I am Jung Taejun from Mirai Asset Securities. Thank you very much for the good performance. Regarding shareholder return, I think it is quite positive. And I think you gave us a range of 40 to 50 percent, and it seems 60 percent. So maybe it will surpass that after a couple of years. so I just wanted to check that scope we will answer that question as soon as possible please hold thank you very much I will answer that question regarding our corporate value enhancement program in the beginning when we made our announcement compared to our peer groups we were different because actually we did not give a shareholder return ratio at a certain percentage I think what we committed ourselves to was when we have an excess of a CT1 ratio that we had promised that we will use all of that as resources for shareholder return so as was mentioned it that commitment it is very open for a shareholder return so we have a very flexible and open shareholder return policy thank you thank you very much for that answer we have no further questions coming in we'll wait for further questions.

We'll receive the next question from Goldman Sachs Securities. You're on the line again. Thank you very much. I have one further follow-up question with regards to dividend policy, the separate taxation, and also the capital reduction dividend. What kind of details can you share about these two topics? Thank you very much. Please hold while we prepare the answers. So for these two issues, as I've already said, in order to establish ourselves as the most preferred dividend paying share stock, these are very important issues. And we have qualified for the hypertaxation for the dividend income. And so starting from this year, the dividend that is being paid out, it will be applied with this policy. And in the case of the capital reduction dividend, we have already made the preparations. and we're nearing the completion of this preparation stage. But because it has not been fully finalized as of yet in the near future, we do believe that we'll be able to deliver good news in this regard. So any changes in the mix of the dividend and the shareholder return policies, we will be making decisions that are beneficial for our shareholders and investors.

Thank you very much. We have Joe Jihan from JPMorgan. you're on the line thank you for the opportunity i have a question about guidance for 2026 for different indicators if possible because regarding asset quality i think you gave us a provisioning goal and can you tell us about what is the name interest rate our credit cost last year's impact that will lead to this year's loan growth so can you tell us about productive finance effect and SG&A pressure I think it will be heightened so can you tell us about any factors for SG&A boost can you tell us about the quarterly performance trend and regarding the financing needed for shareholder return what is the trajectory of CT1 do you expect for different quarters thank you very much please hold and we will soon answer your questions let me cover the bank nim for 2026 well for 2025 our cfo already mentioned that so for 2026 household loan is expected to be restricted and we will need to shift quickly to corporate finance so we need to expand a productive finance so companies will have portfolio diversification new growth, high profits, and having a sustainable future platform. So in this situation, we will have corporate loan-centered growth, but we will refrain from excessive price competition. So for asset profitability, we are going to actually safeguard some of that. And for 2026, for low-cost deposit expansion or having rebalancing of high interest rate loans, we will do our best to have the best portfolio. so that we can have strategic financing cost expansion so that funding cost expansion so we can manage the NIM. So I think we have potentially one of net deposit the core deposit that grew and we will have similar growth this year as well and we cannot really give you a accurate target but for the NIM low to mid single-digit level of NIM I think we expect a gradual decline of NIM for 2026 and for our asset growth well for the household loans we think there will be some limitations there will be some government policies regarding debt management so that is why on a yearly basis I think for the bank alone growth it will be around 5% take more or less and for household loans we think it will be around two to three percent and for corporate loans it seems that like last year about 6 to 7 percent level is what we are anticipating in the case of corporate loans well we think that there will be more competition intensification for that so I think that we are thinking of special ways to quickly move to more profitable areas so we are going to have those as our growth access and have portfolio diversification and have SME productive finance expansion and have our focus on blue assets and so that and soho as well so I think that is the asset growth that we're planning I would like to add to the SG&A and for this year we have the education tax that will be increased so there is a little bit of a more burden so compared to 2025 we think it's inevitable that we will have sgna growth but we think it will be plus minus four percent or four percent growth more or less and i think on a recurrent level excluding the education tax increase it will be around two percent that we will manage plus minus and two and then for cp1 ratio regarding the annual trajectory that we expect for 2025 from two three to end of the year it actually went up for last year at year end when we were managing the capital adequacy ratio we believe that it will should be at an appropriate level it's because for this year there will be active participation in productive finance so we need as a growth based on that and there is equity investment that will also get go up as well so taking all of these factors into consideration for the year nc to one ratio we think they will be best for us to have it as high as possible for us to have asset growth and to have profitability so we believe that there will be many variables such as FX and interest rate at the end of last year but we were able to have CT one ratio that was hiked up with our efforts and we think for this year it will be a little bit different because there will be some similar movement maybe a slight decline and we think that it will not really move much but with q3 we believe that it will actually go up on an upward trajectory thank you very much thank you very much for the answer we don't have anybody waiting in the queue for questions so we'll wait for a little while for further questions so we'll receive the next question the next question is from patient securities and packaging so you're on the line

I also have two questions, first, this time around ELS and LTV related, what was the amount of provisioning that you have set aside, and secondly, you said you're reviewing the separate taxation for dividend income. If you look at it in 2026, the total increase rate of the cash dividend is about 25%, so the dividend payout ratio should be 25 percent and so the increase rate should be about 10 percent but I think you're meeting that requirement so in 2026 do you also plan on another surprise a dividend payout in the fourth quarter as well while we are preparing the answer please hold for a little while thank you so with regards to the LTV the provisioning is 69.7 billion one and the case of the ELS penalty, it's $263.3 billion that has been reflected already. Let me add to it a little bit, with regards to the provision that has been set aside, we are receiving the views of the external legal counsel as well as the other experts and as it has been reported by the media reports, our exposure to the penalty is the largest However, given our earnings fundamentals and also the stance of the regulatory authorities, we are able to manage this issue without damaging our capacity. So there might be some adjustment of the amount itself. What I'd like to, however, note is that this penalty issue is something that will be completely diffused within the year 2026. So when that issue disappears, there will be a significant rebound, that is for sure. And also, with regards to separate taxation and the dividend income, so you also talked about the increased rate of the dividend payout ratio for 2026, so we have 27 percent dividend payout ratio, and that's based on 2025 levels. We are actually, however, step-by-step making upward adjustments, and as we have already noted, we're going to maintain a flexible stance when it comes to the shareholder returns, and so the year-end 2026 dividend may also go up as well.

There is a possibility of that, and so we also have considered the capital reduction All of this has been considered together to reach this conclusion. thank you very much for your answer we will hold in case we have more questions coming in we have had a 40-minute earnings call till now and we will hold and if we do not have any additional questions we will conclude today's business results presentation if you have any further questions please do not hesitate and contact our IR team I will be more than happy to answer any questions you may have it seems we do not have any further questions in the queue with this we will conclude our 2025 full year business results presentation thank you for your attention