Earnings Call Transcript - KB Q4 2022

Peter Kweon, Head of IR

Greetings. I am Peter Kweon, the Head of IR at KBFG. We will now begin the 2022 Annual 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 SEVP, Scott YH Seo, as well as other members from our group management. We will first hear the 2022 annual major financial highlights from our CFO and SEVP, and then have a Q&A session. I would like to invite our SEVP and CFO to deliver the 2022 annual earnings results.

Scott YH Seo, CFO

Good afternoon. I'm Scott YH Seo, CFO of KBFG. Thank you for joining the company's annual 2022 earnings presentation. Before looking at the details of the income statement, I will briefly run through the highlights of business performance and key indicators of the group. KBFG's FY '22 net profit was KRW4,413.3 billion, flat year-over-year but has underperformed market expectations or the consensus estimates of the analysts. EPS for '22 was KRW11,002, down 1.2% year-over-year, and ROE on a common stock basis was 9.9%. As a CFO, it's regrettable to have to announce results that fall short of expectations of shareholders and investors. The biggest reason we fell short of market expectations in '22 was due to preemptive provisioning based on conservative forward-looking criteria. For three years leading up to '22 with the outbreak and spread of COVID-19 and living with COVID, experiences that no one expected drove a sense of instability and brought uncertainties to the global economy and the financial markets, which heightened concerns. We expect macro uncertainties to grow this year globally, and the signals for recession in the domestic economy across consumption, investment, and exports are becoming more visible, building on the concern over the rise in delinquency ratio and non-performing loan (NPL) ratio. At KBFG, to thoroughly prepare against such events, we adopted a more conservative future forward-looking criteria versus previous years. Preemptive provisions for domestic operations in '22, reflecting conservative criteria, was KRW242 billion, up more than 30% year-over-year. This is to secure ample room if and when credit risks heighten. Next, provisions for overseas banks, which we acquired that we set aside in Q4 on a consolidated basis was KRW570 billion and was KRW382 billion on an equity holding basis. Although local supervisors continue to operate COVID-19-related forbearance programs to prepare for possible deterioration once the program ends, KBFG decided to provision preemptively based on our own credit assessment principles. This additional provisioning done for domestic and overseas was under a conservative approach to enhance forward-looking projections, and as such, there will not be such large-scale provisioning for overseas operations in the future. If such preemptive provisioning was absent, group net profit would have been KRW4.971 trillion, which is on par or above market expectations. Common equity-based ROE would have been 11.1%, the highest ever in the past decade. This level of earnings for the group has yet again proven our solid fundamentals even under difficult and uncertain financial markets and the overall economy. Drag from securities and trading has been offset by stronger performances from traditional lending and deposit-taking of the bank and the P&C insurance business. Q4 consolidated net profit was KRW385.4 billion. Net profit saw a significant decline Q-on-Q due to seasonal one-off factors, including ERP and preemptive and additional provisioning, but excluding such impact, on a running basis, net profit reported around KRW1.2 trillion, keeping to our solid earnings capacity. Next, the group's 2022 credit cost on a consolidated basis was 43 basis points against total loans. On preemptive provisioning for domestic and overseas, group credit cost showed a steep rise in '22, but excluding this impact, credit cost on a recurring basis reported 26 basis points, staying within a steady level. Also, the NPL coverage ratio as of end of '22 on a domestic operations basis was up 7 percentage points year-to-date to 216%. Considering industry top NPL coverage, I believe KBFG has a sufficient buffer to fend off possible domestic and global uncertainties that may emerge in the future. Lastly, KBFG's Board of Directors today approved a resolution to increase the shareholder return rate up by 7 percentage points versus last year to 33%. In more detail, the '22 cash dividend payout ratio was decided at 26%. On top of which, there will be KRW300 billion of share buyback and cancellation. Also, including KRW1,500 of quarterly dividend already paid out, EPS for FY '22 was KRW2,951, marginally up from KRW2,941 last year. We will start buying treasury shares starting tomorrow, and it will last for three months. Immediately following the end of that period, those treasury shares will be canceled. I will go into more details on the capital management plan, including dividend policy on the very last page of the presentation. Next, I will go into more detail on each of the line items. FY '22 group's net interest income was KRW11,381.4 billion, up 18.9% year-on-year, while Q4 was KRW3,042.2 billion, up 5% Q-on-Q, driving performance improvement backed by solid loan growth and repricing of the loan book on rise in interest rates, which continue to drive up NIM. Next, group's net fee and commission income for FY '22 was around KRW3.3 trillion. On a depressed stock market, trading volume fell, driving down brokerage fee income from the securities business by 45% year-over-year. On sluggish financial product sales, the bank's trust and fund sales also posted a decline, bringing a 0.4% year-over-year decline. However, despite a difficult operational backdrop, both internally and externally, thanks to the group's continuing efforts behind business diversification and stronger competitiveness, fee and commission income has been above KRW3 trillion for two consecutive years, attesting to robust earnings capacity. Group's investment banking fee income was up around 18% year-over-year, further broadening its market dominance. Net fee commission income for the fourth quarter was KRW717.9 billion. On the back of a deepening downtrend in trading volume, brokerage fee income fell, and due to seasonal volatilities, investment banking fee income also contracted, lowering Q4 numbers down by approximately 12% Q-on-Q. Next is other operating profit. Group's other operating profit for FY '22 was KRW309.6 billion, showing a significant year-over-year decline, overall displaying underperformance. This is because of steep rate hikes, leading to greater losses from bond investment. Due to FX rise and stock market declines, there was underperformance from securities and derivatives and FX. However, other operating profit for Q4 was at KRW196.3 billion, which is an improvement by a large margin versus last year. This is despite around KRW93 billion of valuation losses from securities investment. On falling $1 exchange rate and bond yield, the bank saw a large improvement in securities and derivative FX-related earnings of around KRW425.5 billion Q-on-Q, and the base effect from insurance subsidiaries' subpar performance due to previous quarter's seasonality has been removed, while the loss ratio of the non-life business improved, driving up insurance income by around 34% Q-on-Q. Next, I will cover group general and administrative expenses. 2022 G&A expenses posted around KRW7,537.8 billion. This was an increase of about 4.7% compared to the previous year. Despite the increase in the size and cost of ERP in a situation where the group's digitalization-related investment is expanding, thanks to company-wide cost management efforts and efforts to improve the efficiency of the workforce structure, training is being well managed. On the other hand, Q4 G&A expenses posted KRW2,357.7 billion, and due to seasonal factors, including around KRW316 billion of ERP costs, it decreased significantly Q-on-Q. The following is the group's provision for credit losses. 2022 Q4 group's consolidated provision for credit losses amounted to KRW1,060.7 billion, a significant increase compared to the previous quarter. As mentioned earlier, this was on the back of preemptive large-scale additional provisioning. Excluding this, the provisioning amount on a recurring level posted around a KRW370 billion level. On the other hand, the amount of provision for credit losses on a consolidated basis in 2022 posted KRW1,835.9 billion; excluding one-off items such as preemptive accumulation of additional loan loss provisions, on a recurring basis posted about KRW1.1 trillion. On the next page, I will cover key financial indicators. First, the group profitability in the upper left corner. As mentioned earlier, the group ROE in 2022 posted 9.9%. Next, looking at the bank loans in KRW growth graph in the middle, as of end 2022, bank loans in KRW posted KRW329 trillion, an increase of 3.1% year-to-date and maintained a similar level compared to late September. Among the loans, corporate loans posted KRW163 trillion, and SME, SOHO, and large corporate loans all had balanced growth. On the back of this, it grew 9.4% year-to-date and realized a sound growth trend. On the other hand, corporate loans decreased slightly by 0.2% compared to the end of September due to a decrease in SOHO loan demand due to rising loan interest rates and economic slowdown, as well as an overall year-end debt recovery increase, including large corporations. On the other hand, household loans recorded KRW166 trillion and due to the steep rise in loan interest rates and influence of loan regulations, it decreased by about 2.4% year-to-date, centering on unsecured loans. However, with a 0.2% growth Q-on-Q, there was a slight stabilization of household loans, which have been declining throughout the year, and particularly housing loans due to increased real demand just in Q4 increased by about KRW1.7 trillion. Next, I will cover the net interest margin. 2022 Q4 group and bank NIM recorded 1.99% and 1.77%, respectively, and improved by 1 bp Q-on-Q. Bank NIM due to the increase in core deposits and the increase in term deposits led to funding cost burden increase, and had limited expansion until Q3 of the previous year, but with the still continued loan asset repricing effect, the overall improvement trend is continuing. On the other hand, regarding group and bank 2022 annual NIM with steady loan asset repricing reflecting interest rate increase as a result of profitability-centered loan portfolio management and efforts to enhance managed asset yields, there was a 13 bp and 15 bp sizable increase year-over-year, respectively, and led to the group's interest income expansion. Let's go to the next page. First, I will cover group cost efficiency. 2022 group CIR recorded 50.2%. Despite the expansion of the group's ERP volume on the back of solid growth in core earnings, there was only a slight increase year-over-year. Recurring CIR is being managed at a stable level at 46.7%, excluding one-off items, including ERP and digitalization costs. Going forward, we will continue to strengthen our top-line profit generation capabilities and, through group-wide cost management efforts, we will further improve the group's cost efficiency. Finally, I would like to cover the group's capital ratio. As of the end of 2022, the group's BIS ratio posted 16.16%. CET1 ratio recorded 13.25% and we are maintaining the industry's highest level of robust capital adequacy against economic slowdown and macro uncertainty. In particular, for the BIS ratio, despite the corporate loan-centered growth, rise in exchange rate and stock price decline leading to RWA increase, on the back of capital management efforts, including hybrid bond issuance and flexible positioning strategy, rose 39 bp year-to-date. On this page, I would like to cover KB Financial Group's mid- to long-term capital management plan. The domestic financial market in 2022 had a rapid change in the macro environment, including steep rise in the key interest rate, sharp rise in the $1 exchange rate, and expansion of global inflation. In the industry overall, there was greater interest and concern about loss absorption capability against the economic shock, in other words, capital ratio and adequacy. Accordingly, KB Financial Group, while increasing the group's capital ratio and managing it at a stable level to respond to economic shocks that may occur in the future, will expand shareholder value and pursue a continuous shareholder return policy. To this end, we established a mid- to long-term capital management plan for the group. In early December 2022, after deriving KB Financial Group's optimal capital structure based on robust capital capability and abundant liquidity, our management plan was established. With thorough consideration and sufficient discussion between the management and the Board of Directors, we came out with a capital management plan that takes into account complex factors, including appropriate capital ratio, asset growth rate, and shareholder return policy. Please look at the right side of the page, and I will explain in detail about our mid- to long-term capital management plan. First, our CET1 ratio maintenance target is 13%. This will not only meet the 10.5% regulatory capital ratio or RRP basis, but as a result of the stress test reflecting a conservative scenario at the level of the IMF financial crisis, we found that if the group maintained a CET ratio of 13%, the group will secure a total of 250 bp management buffer. Secondly, KB Financial Group will pursue the group's growth strategy from the perspective of shareholder value. Therefore, system growth, such as the nominal GDP growth rate, will be used as the basic benchmark, and we will pursue flexible capital allocation and asset growth strategies considering macroeconomic, regulatory environment, and business objectives. In addition, with efficient asset management, we will make efforts to improve ROA and PBR in parallel. Thirdly, after achieving the aforementioned asset growth target, if exceeding target CET1 ratio of 13%, as long as there are no changes in the supervisory regulatory environment or financial market volatility or special reasons for the business purpose of the company, our principle will be to actively return to our shareholders. Fourth, KB Financial Group, based on solid fundamentals and the industry's highest level of capital strength while maintaining the cash dividend payout ratio and amount at a stable level, will utilize various shareholder return tools such as share buyback and cancellations and gradually increase our total shareholder return ratio. In order to continuously expand shareholder value and maintain the stability of dividends, we plan to provide at least the same level of DPS at a minimum as the previous year and gradually increase it so that we can provide a stable payout to our shareholders. If KBFG's valuations, absolute and relatively discounted transactions continue, we will actively implement share buyback and cancellations. Finally, I would like to cover KB Financial Group's role in the domestic economy as a representative financial institution. We believe that the proportion of the role that KB Financial Group occupies in maintaining the stability of the domestic financial system is significant. KBFG as Korea's representative financial institution, at a time when the unique functions and roles of financial institutions are needed, will comprehensively review all interests, including shareholders and stakeholders, and implement our capital policy. We plan to fulfill the role of the group faithfully to assure the stability of the social system. And to this end, we plan to achieve sustainable growth in parallel with the expansion of shareholder profits. Through the group's mid- to long-term capital management plan, I have covered so far, going forward, we believe that we have come up with a framework that has developed a level further to implement a more sophisticated capital management and advanced capital policies. We promise you that we will faithfully implement and develop this further to solidify the group's sustainable growth, and at the same time, do our best to implement the industry's leading shareholder return policy. We will do our best. From the next page, there is detailed data regarding the business performance I have covered so far, and please refer to it if needed. With this, I will conclude my report on the 2022 business performance report of KBFG. Thank you for your attention.

Peter Kweon, Head of IR

Thank you very much for the presentation. We will now begin the Q&A.

Operator, Operator

We will take the first question from Mr. Kim Jae-woo from Samsung Securities. Please go ahead.

Kim Jae-woo, Analyst

Thank you for taking my question. I would like to inquire about your shareholder return policy. You've shared some details, but I have a few items I'd like to clarify. What is your target for the total shareholder return rate? Also, how do you distribute that between dividends and share buybacks? I'm interested in how you plan to balance the two. You've been paying dividends quarterly, so I'm curious if you plan to continue with quarterly dividends or if you might shift to a year-end payout. Will there be any changes to your dividend policies? Additionally, if I recall correctly, there was no shareholder buyback last year, but I believe you intend to be more aggressive with share buybacks and cancellations moving forward. You mentioned a CET1 ratio target of 13% and that you would use excess capital aggressively for dividends. However, when you reach that CET1 target, a share buyback of about KRW12 billion was announced by J.P. I’m wondering how actively you will approach dividend payouts at that point. I’d also like to know what you plan to do with any shares bought back. Some global companies opt to use them for executive and employee compensation instead of canceling them. I would appreciate your insight on that. Thank you.

Scott YH Seo, CFO

Thank you for the question. It’s a challenging one to address. As I mentioned earlier, we have a mid- to long-term capital management plan in place. I want to clarify that this decision was not influenced by any external factors; rather, it was an internal necessity to demonstrate our strong commitment to the market. When considering capital management, we model ourselves after advanced economies like the U.S., Japan, Singapore, and Australia, among others. We have studied these countries and use them as benchmarks. However, when discussing dividend payouts, we must first establish our target CET1 ratio, make assumptions on growth, and maintain principles and discipline regarding excess capital. Last year, our group's return on equity (ROE) based on common equity was 9.9%. If we assume a nominal GDP growth rate of 5% for this year, along with 5% asset growth, our 2023 ROE would remain at 9.9%. Under these circumstances, it means we cannot raise our payout ratio to 50%, which is straightforward arithmetic. Instead, based on our fundamental capital plan, we aim to increase our return on assets (ROA) through steady asset growth, increased leverage, and improved ROE, rather than solely focusing on dividends. This involves maintaining controlled credit costs and selling, general and administrative expenses, while boosting noninterest income. To match the dividend payment capabilities of a company like J.P. Morgan, we would need to see a significant increase in our ROE or ROA from current levels. If we can achieve our CET1 ratio target of 13% and tap into our asset growth potential as the largest financial institution, we would be committed to returning excess capital to shareholders. Additionally, we plan to maintain our quarterly payout strategy as we did in 2022, with no changes anticipated. Regarding the treasury shares, we stated that we would purchase KRW300 billion worth and cancel them promptly. The market principle is to cancel shares immediately upon buyback. Shareholder return and value are priorities for us, and at present, our price to book and price to earnings ratios are quite low. Given this situation, we are planning to gradually expand our approach to share buybacks and cancellations moving forward. Thank you.

Operator, Operator

We will take the next question from J.P. Morgan, Jihyun Cho. You're on the line.

Jihyun Cho, Analyst

Thank you very much for this opportunity to ask questions. I would like to ask about provisioning for your overseas subsidiaries. I know that related to Bukopin, probably the provision is for that. I think you mentioned this briefly. Can you tell us about the operations? And regarding the provisioning, will it not be a burden for the future since it's already sufficient at this level? I know that you are working to normalize the operations of this bank. When do you think this bank will add to your earnings for the group? Are there other overseas subsidiaries that you can tell us about that may lead to these types of provisioning or losses? Or are there any positive movements for overseas subsidiaries? If you can answer that, it will be helpful. I would also like to ask you regarding the 2023 guidance; looking at your book compared to your competitors, your loan growth or others seem to be a bit lower. Can you tell us about 2023 guidance, NIM and loan growth and credit cost guidance along with what kind of growth you envisage based on your guidance for 2023?

Scott YH Seo, CFO

Thank you for your questions. I would like to elaborate on the situation with Bukopin. As the CFO, I can discuss the financial aspects. We can also hear from our CGSO, Cho Nam Hoon, regarding the situation. We acquired shares in Indonesia's Bukopin, a mid to large bank, in July 2018. In July 2020, we conducted a third-party capital increase and now hold about 67% of the shares, making us the largest shareholder. Our decision to acquire Bukopin was driven by Indonesia's high economic growth potential, strong internal demand, a solid economic structure, and a growing middle class. The population of 270 million has a lower utilization rate of financial services, which we saw as an attractive market, prompting us to enter quickly through our investment in Bukopin Bank. This acquisition allowed us to establish a strong customer base and extensive sales operations, differentiating us from other Korean banks focusing on organic growth. However, despite our efforts to turn Bukopin around, the prolonged effects of COVID-19 delayed the anticipated growth. Consequently, we faced higher non-performing loans than expected. In November 2021, we underwent a capital increase due to a third-party allotment, leading to a burden of approximately KRW390 billion, while confirming a KRW640 billion capital increase. To date, we have completed three rounds of investment totaling IDR 982.2 billion, with a realistic investment amounting to around KRW790 billion. The net asset value of Bukopin stands at IDR11.6 billion. We have taken a conservative approach to provisioning for Bukopin, which I want to stress. According to Indonesian regulatory authorities, Bukopin's growth in non-performing loan ratios is at 6.2%, with an NPL amount of KRW2.8 trillion. By the end of 2022, our total provision was KRW570 billion, exceeding the NPL amount and indicating that our provisioning is significantly higher than NPL growth. We believe this proactive provisioning will be adequate for future NPLs, and we are confident that 2023 will be the year we can move past these NPLs without incurring additional burdens. Now, I will turn it over to Cho Nam Hoon to provide further details about the situation.

Cho Nam Hoon, Global Strategy Head

Regarding Bukopin, when it can add to the earnings of our group, because it is not yet normalized, we believe that we need a bit more time for it to become normalized. We are managing this situation with a long-term perspective. As mentioned by our CFO previously, we have seen delays of two to three years for the normalization of Bukopin relative to what we initially planned. I foresee that prudently we can estimate by 2025 we could turn a profit, and by 2026, it can at least add to our ROE instead of working against it. We are doing our best to faithfully implement our plans for normalization. Regarding our other subsidiaries for 2022, we acquired a bank in Cambodia, PRASAC, and other overseas subsidiaries we established are being managed well concerning asset quality. Their earnings are positively going over our expectations, so they won't be burdensome to our earnings. The contribution they can make to our earnings will become quite positive going forward. Thank you very much.

Unidentified Company Representative, CFO of the bank

Regarding loan growth, in Q4, for household loans, there was KRW0.4 trillion in growth, and strategically in Q4, we saw KRW9.9 trillion growth in securities. For this year, I would like to comment on our loan growth rate, which we estimate to be 3% to 4%. However, we do have the burden of interest rates, which leads to a lot of repayment of loans. Additionally, the corporate loan market is stabilizing. We believe that going forward, the loan growth will be below expectations, but we will do our best to meet the real demand in the market. We are focusing on profitability and asset quality on high-quality loans rather than just growth based on size. Thank you very much.

Scott YH Seo, CFO

To add to that, regarding the guidance for 2023 that you asked about, in principle, we do not give our net earnings guidance, but what I can comment on is that with the IFRS 17 change for accounting, and when this macro situation continues while taking into account our preemptive provisioning, then the 2023 earnings guidance will be quite positive. In the case of earnings releases related to Bukopin preemptive provisioning and forward-looking preemptive provisioning, if we exclude that, it would have been KRW4.9 trillion of additional earnings. This provides sufficient guidance for 2023.

Unidentified Company Representative, Unidentified Analyst

Thank you for that.

Operator, Operator

We will take the next question from Citi, Yafei.

Yafei Tian, Analyst

Hi. Thank you for taking my questions. I have a follow-up on capital return. You mentioned that 2023 profit will still be very good and loan growth is relatively subdued. I just wanted to plug those numbers together and given your CET1 ratio already ahead of a 13% target, is it possible that the payout ratio, including buybacks, will be materially higher than what you had for this year, probably somewhere around the 40% or even 50% range? Thank you.

Scott YH Seo, CFO

Yes, once again, regarding our mid- to long-term capital management plan, we have a very detailed plan laid out. But as I mentioned before, our principle again is not to provide a specific number in terms of the payout ratio target. As you've mentioned, once we achieve the net profit target internally and once we have enough capital ratio applicable under the mid- to long-term capital management plan, our clear principle is something that we will remain committed to.

Operator, Operator

We will take the next question from Hanwha Securities, Kim Do-ha. Please?

Kim Do-ha, Analyst

Thank you for the opportunity. I have three questions. The first question is quite detailed. You mentioned a target and spoke about excess capital return. I believe we will finalize this at the end of the year, and we will also see the earnings finalized at the end of February. You mentioned that share buybacks will start tomorrow. Do you anticipate this schedule continuing? If shares are canceled, will this be factored into the previous year's shareholder return? If you don’t reach the 13% CET1 ratio by year-end, will it be difficult to expect buybacks? Could we anticipate increased dividends in this scenario? Next, regarding the shares you currently hold, what are your plans? Concerning credit risk, I understand there has been some provisioning. Can you elaborate on your plans for the CET1 ratio considering these factors? Thank you very much.

Scott YH Seo, CFO

Thank you for your questions. I would like to respond to them. We previously discussed our mid-capital management and dividend strategy, and I want to clarify this point. For cash dividends, our principle is to maintain a level that is at least equal to the previous year. Additionally, regarding shareholder returns, the KRW300 billion share buyback will be counted in the 2022 Total Shareholder Return. There is also a potential change to dividends initiated by the government, which we will incorporate if it is confirmed. We will be in touch with the bank about this. To address the Basel III credit risk, I would like to invite our group Chief Risk Officer, Cheal Soo Choi, to respond to that question.

Cheal Soo Choi, CRO

Regarding Basel III, I would like to answer your question about credit risk. We have actually implemented that already. For this year, for Basel III, there are market risk and operational risk that we will implement. For market risks on sensitivity and for operational alerts, there are some internal multiples that we will use. While I cannot mention the exact numbers as of now for PI ratio or CET1 ratio, we believe that it will have a positive impact, aligning with our expectations.

Unidentified Company Representative, Unidentified Analyst

Thank you for the answer.

Operator, Operator

We do not have any more questions waiting in the queue, but give us one moment. Yes, we have one question from CLSA. Please go ahead with your question.

Shim Jongmin, Analyst

Can you hear me okay? My name is Shim Jongmin from CLSA. Thank you for taking my questions. I have one question relating to the domestic economic outlook. I would like to understand the executives' take on the future outlook of the domestic market. We hear these days a lot about the real estate market, and SOHO loans in the past have grown quite steeply. So, there's a concern relating to the real estate-related or mortgage-related loans. But is it okay for us to interpret that you are well prepared against such domestic economic recessions? Are there any areas where you are overly concerned about in terms of the domestic market?

Unidentified Company Representative, Unidentified Analyst

Allow me to respond to that question. With the very high rate cycle, we are clearly aware of heightened uncertainty. So, we do have concerns, and we are mindful of asset quality, of course. As our CFO has mentioned, we've been very conservative. Based on our forward-looking criteria, we have provisioned significantly. Even aside from Bukopin, we've applied a lot of stress on our economic scenario, based on which we've provisioned for the reserve. Our asset quality management through our portfolio has always been in range that we foresee. Once again, with an ample amount of provisions, we will do our best to focus on asset quality management. In some areas where there may be more concern compared to the past, we believe that with company-wide effort, we will be able to keep that under control. By the end of the year, I believe that our outlook and projection will materialize.

Operator, Operator

We will take the last question from DB Securities. You are on the line.

Unidentified Analyst, Unidentified Analyst

Yes. Thank you for this opportunity. I just have one question. Based on your NIM and your outlook, can you tell us about the situation? What is the NIM outlook?

Scott YH Seo, CFO

Can you repeat your question? I think the line was a little bit unstable.

Unidentified Analyst, Unidentified Analyst

2023 outlook for NIM outlook and your rationale behind that?

Scott YH Seo, CFO

Thank you for the question. Continuing from the previous year to this year, we have seen core deposits going down, and the interest rate hike cycle has already been implemented into the market preemptively, leading to the spread going down. Therefore, it seems that we will have difficulty achieving a significant hike in NIM. However, with key rate increases, we also have some loan repricing. We can expect a slight increase in NIM on a year-over-year basis in 2023.

Operator, Operator

Thank you. We do not have any further questions waiting in the line, but just bear with us one moment before we close.

Peter Kweon, Head of IR

While preparing for the earnings presentation, we believe there will be a lot of interest regarding the mid- to long-term capital management plan, additional provisioning, and we had this opportunity to discuss quite a bit about these items. I would think that in terms of the financial performance itself, there won't be too many questions as they are quite clear in and of themselves. But we will still wait just a couple more seconds.

Operator, Operator

With no further questions being submitted, we would like to now close the earnings presentation of KBFG. Thank you very much.