Earnings Call Transcript - KB Q1 2026

Bong Kwon, Head of Investor Relations, KB Financial Group

Greetings, everyone. I am Bong Kwon, Head of KBFG's IR Department. We will now begin 2026 Q1 Business Results Presentation. Thank you very much for participating in today's earnings release. We have here with us our CFO, Sang-Rok Na as well as other executives from the group. Regarding the agenda today, we will first have our Group CFO deliver the 2026 Q1 major business results and then engage in a Q&A session. I would like to invite our Group CFO to deliver a presentation on our 2026 Q1 performance.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

Greetings, everyone. I am KB Financial Group CFO, Sang-Rok Na. I would like to express my deepest gratitude to everyone for taking part in 2026 Q1 business results presentation. Before I share the details of our business results, I would like to briefly cover our group's shareholder return policy and major highlights. Let's go to Page 1. KBFG established a market-leading shareholder return model through our industry's first implementation of quarterly cash dividends, share buyback and Korea's only CET1 ratio linked corporate value enhancement policy. Based on this strong policy direction today, our Board of Directors, in order to once again demonstrate our firm commitment to enhancing shareholder value, resolved to cancel the entirety of our existing treasury shares. The shares subject to cancellation amount to approximately 14.26 million shares, representing about 3.8% of total issued shares. This constitutes the largest ever single cancellation in the industry in terms of value. Following the recent amendment to the commercial code, the cancellation of treasury shares has been mandated with a grace period of 1 year and 6 months. However, despite this grace period, KB Financial Group has decided to proceed with the immediate cancellation of all treasury shares currently held upon the amendment to the law. This reflects the strong commitment of our Board of Directors and management to prioritize shareholders as well as the firm decision to proactively align with the government's policy direction and the advancement of Korea's capital market. As a result, the group's number of total issued shares have been reduced by 15.2% compared to 10 years ago. You can see that significantly widening the extent of the reduction. As a result, key per share indicators such as EPS and DPS have also demonstrated growth comparable to that of leading global financial institutions. Next, let's go to Page 2. Bank core deposits have increased by approximately KRW 9.8 trillion compared to last year. And through strategic efforts to reduce funding costs, we have maintained a solid NIM. Despite concerns over potential fund outflows to capital markets, we are stably securing a stable interest income base. Accordingly, while stably guarding stable core earnings, we have actively leveraged our money move environment towards investment assets to elevate the profitability of our noninterest and nonbanking segment to the next level, and this has become a strong driver of our group's overall fundamentals. In particular, the bank's wealth management income has expanded meaningfully driven primarily by trust fees, while the securities business has substantially strengthened its profit-generating capacity through increased brokerage income and higher WM fees, thereby further enhancing its contribution to the group's earnings. In addition, securities and asset management business' AUM increased by 55.9% and 18.4% Q-o-Q, respectively, thereby further strengthening the noninterest income base that supports improved RORWA efficiency. With the nonbanking subsidiary driving approximately 72% of the group's fee income, KB plans to further solidify our fee income base through efficient capital allocation, leveraging the competitiveness of our nonbanking portfolio. Next, I will address shareholder returns for Q1. Today's Board meeting, we resolved to approve a quarterly cash dividend of KRW 1,143 per share totaling KRW 405.4 billion as well as the second round of share buybacks and cancellations in the first half of 2026 amounting to KRW 600 billion. Q1 cash dividend per share, reflecting the share buyback, increased by KRW 231, a 25.3% increase year-on-year. The current share buyback and cancellation program follows the completion of the initial purchase of KRW 600 billion out of total KRW 1.2 trillion of buyback and cancellation plan for the first half of 2026, and we plan to proceed with additional purchases immediately. For your reference, the 3.9 million shares acquired in the first round will be canceled in a single batch on May 15, together with the 14.26 million treasury shares already held as previously mentioned. Next, I will walk you through KBFG's financial performance. To begin with the key highlights of Q1 of 2026 can be summarized as a demonstration of KBFG's strong fundamentals that remains resilient despite unprecedented dual headwinds, including a sharp rise in exchange rates and the war in the Middle East. The group's 2026 Q1 net income posted KRW 1,892.4 billion, while the bank's interest income base was managed in a stable manner. Net fee income from the bank, securities and asset management businesses grew significantly, resulting in an 11.5% Y-o-Y increase. In addition, the group's Q1 ROE improved by 0.9 percentage points Y-o-Y, posting 13.94%, demonstrating solid growth across both profitability and capital efficiency. I will now provide a more detailed breakdown of our financial performance by business segment. For Q1 of 2026, KBFG's net interest income recorded KRW 3.3348 trillion, representing a 2.2% increase Y-o-Y. Despite a challenging environment marked by strong capital outflows to the capital markets, this was achieved through effective cost control via an optimized funding mix strategy, including the expansion of core deposits. Such strengthening of the earnings structure supported qualitative growth in interest income alongside an improvement in net interest margin. Next, we will discuss the growth of the bank's Korean won denominated loans. As of the end of March 2026, the bank's Korean won loans totaled KRW 379 trillion, showing a slight increase of 0.4% compared to year-end. Household loans, due to household debt management regulations and rising market interest rate, recorded a slight decrease of 0.4% compared to year-end. For corporate loans, loans to large corporations continue to grow, while solid growth in high-quality SME loans centered on productive finance was added, resulting in an overall increase of 1.2% compared to year-end. Going forward, KBFG for household loans will make portfolio adjustments that take into account overall profitability to enhance profitability and strengthen our earnings from lending. In parallel for corporate loans, in line with productive finance, KBFG plans to continue to identify and expand high-quality customers with strong growth potential to maintain a growth framework that ensures sustainable growth and stable earnings base. Next, we will turn to the net interest margin shown in the lower right. For Q1, KBFG and the bank recorded NIMs of 1.99% and 1.77%, respectively. The bank's NIM, driven by the expansion of core deposits and the repricing of high-rate term deposits as the rebalancing of the funding portfolio materialized into tangible cost reductions, improved by 2 bps Q-o-Q. In addition, KBFG's NIM, supported by the expansion of the bank's NIM as well as broad-based improvements in card assets, including credit card receivables and installment financing, improved by 4 bps Q-o-Q. Next, we will discuss noninterest income. For Q1, KBFG's noninterest income recorded KRW 1.6509 trillion, representing a significant increase of 27.8% Y-o-Y and marking the highest quarterly noninterest income in the group's history. In particular, for Q1, KBFG's net fee and commission income recorded KRW 1.3593 trillion, increasing by 45.5% Y-o-Y, approximately KRW 425.3 billion. This was driven by a significant expansion in fee income from capital market-related subsidiaries, including securities and asset management. In addition, the bank's wealth management fee income also improved meaningfully, providing further support. Meanwhile, for Q1, other operating profit, amid intensified competition for new contracts across the industry and increased downward pressure on insurance operating profit due to a rise in the loss ratio for the long-term insurance, recorded KRW 291.6 billion, decreasing 18.5% Y-o-Y. Next, we will cover G&A expenses. For Q1, G&A expenses recorded KRW 1.7649 trillion. Despite continued efforts to improve cost efficiency focused on recurring operating expenses, due to higher tax induced following the tax reform at the year-end, it recorded an increase Y-o-Y. However, in the case of the group's CIR, supported by an all-time high total operating income of approximately KRW 5 trillion and strong top line growth, combined with ongoing efforts to enhance workforce efficiency and optimize the cost structure, recorded 35.4%. This once again demonstrates that the group's cost efficiency is being managed in a stable manner. Next is Page 9, the group's provision for credit losses. For Q1, credit loss provisions recorded KRW 493.2 billion, representing a significant decrease of 24.8% Y-o-Y or KRW 162.4 billion. The decrease was mainly due to the elimination of the base effect from last year's one-off large-scale provisioning at the bank and supported by the proactive efforts to secure loss absorption capacity and the group's conservative risk management efforts, the burden of the provisioning was reduced. In addition, the group's credit cost ratio, despite a slowdown in asset growth, driven by improvements in credit quality also recorded a significant decline of 14 bps Y-o-Y to 40 bps. Lastly, we will discuss the group's capital ratios. On a preliminary basis, as of end of March 2026, the group's BIS ratio recorded 15.75% and its CET1 ratio recorded 13.63%. The CET1 ratio decreased by approximately 19 bps Q-o-Q. However, despite a sharp rise in the Korean won–USD exchange rate by nearly KRW 80 during the quarter and the downward pressure from large-scale shareholder returns at the beginning of the year, presenting a challenging management environment, solid earnings generation capacity and strategic capital management focused on RORWA enabled us to keep the ratio at a stable level. As you are well aware, since shareholder returns in the second half of the year are linked to the CET1 ratio as of the first half, KBFG will continue to maintain disciplined capital management in Q2 to align with market expectations. Meanwhile, as of end of March 2026, the group's RWA amounted to KRW 366 trillion, increasing by approximately KRW 9 trillion or 2.5% compared to year-end. However, excluding the impact of the increase in exchange rate, the increase was limited to KRW 4 trillion or 1.1% Y-o-Y, remaining within the group's target level showing appropriate growth. The group will continue to implement qualitative growth, efficient capital allocation and stringent limit management as part of a sophisticated RWA management strategy in order to keep the growth rate at an appropriate level. The following pages provide detailed supporting materials of the earnings just presented for your reference. This concludes the presentation of KBFG's 2026 Q1 business results. Thank you very much for your attention.

Bong Kwon, Head of Investor Relations, KB Financial Group

Thank you very much, CFO. We will now entertain questions.

Operator, Operator

Operator instructions. I believe we have the first question from a securities firm, an analyst.

Analyst, Equity Analyst, Securities Firm

I have a question related to the company's or KBFG's capital policy. First of all, for the core bank and nonbank entities like securities and cards, can you tell us about the RWA allocation and RORWA as well? If you can share it with us, it would be greatly appreciated. Secondly, regarding efficiency making the capital ratio more efficient, I think there is some deregulation trend. I think that probably has been reflected in your second half planning. Can you tell us about the reflection of those changes?

Operator, Operator

We will hold and then we will soon answer your question.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

Thank you very much for the insightful questions. Related to the capital ratio predictions, as you have mentioned, there has been the rationalization of capital regulations. There are some positive aspects stemming from that. However, FX rate trends and ELS, fees and other productive finance products are increasing. So I think there are plus factors and minus factors that are mixed in. I believe that regarding the impact of these policies, it will not happen very short term, but everything will be mixed and offset. From last year, we have been emphasizing that our goal in capital ratio management is to have very stable management and continuous flow, so that is our goal going forward. We will do our best with that goal in mind. Regarding the RWA allocation, I don't think I can answer in great detail right now. But regarding our group's RWA, about 70% is for the bank and about 15% is for securities. For the rest, roughly 15%, we have capital and other subsidiaries sharing that allocation. For RORWA and ROE, when we try to compare those indicators for securities and asset management, those related to financial investment tend to be managed at a higher level than the group's ROE or group's RORWA. Recently, the bank's RORWA or ROE and the group's ROE have also been greatly improved. I hope that answers your question.

Operator, Operator

The next question is from Jun-Sup Jung from NH Securities.

Jun-Sup Jung, Analyst, NH Securities

This is Jun-Sup Jung from NH Securities. I have two questions in total. The first one is with regards to the efficiency of the capital ratio and the plans to achieve that and the capacity you have on hand. The CET1 ratio, I think definitely has a lot of pressure and potential for upside. Of course, there will be an impact from your earnings, but also impact from regulations as well. As of Q1 end, the CET1 ratio of 13.5% is quite positive, but then there is going to be a shareholder buyback and additional cancellation of shares that would have an impact on that. So I would like to ask for your plan and commitment to maintaining that number. And the second question is with regards to the role of the nonbank subsidiaries. The increase in RWA: I would like to know the group-wide strategy that you have. For example, is it to maintain that at current levels and for securities to increase the portion of RWA? Do you have an internal strategy? If so, please provide some more information.

Operator, Operator

Yes, please allow some time to ask the questions and prepare the answers.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

Yes, I would like to answer the question now. As you asked, with regards to our shareholder return policy, we target a CET1 ratio of 13% as a reference, and to use surplus earnings for shareholder returns beyond that. From two years ago, we have been committed to execute this strategy, and this year this holds steady as well. Compared to other companies, we don't have a single internal numeric target posted publicly, but we have logic and a system-wide number, and we provide results through our shareholder return actions, and we will continue to carry out such commitments and efforts. Regarding the role of the nonbank subsidiaries, of course, it is quite important and compared to peer groups, we currently have the highest contribution from nonbank subsidiaries. As of now, we have a complete portfolio and we are trying to accelerate the growth engine, and we are at that phase now. In terms of RWA allocation from a group perspective, for businesses with lower RORWA and ROE, we would try to reduce capital allocation and recover more. For the bank, in line with expansion of productive finance, we are looking at overall profitability and securing additional customers and future growth potential, focusing on SMEs and productive finance. So RWA allocation will be allocated more towards that. For banks, it's not that we're going to reduce and downsize RWA as a whole, but we're looking at the role of our expanded presence in the capital markets and our expanded contribution to productive finance to set and execute our RWA allocation strategy. For securities, there was a paid-in capital increase of KRW 700 billion. As of last year, ROE of securities was higher than the group, and it has improved to that level. Recently, we're expecting continuous improvement and additional capital was injected as a result. So for growth areas, RWA will be increased further for those growth areas. Overall, the principle will be, as I mentioned before, that for areas expected to show growth and that are showing high profitability, we will allocate more RWA, and that principle will continue to be upheld.

Operator, Operator

We will take the next question from Mirae Asset Securities, Jeong Tae Joon.

Tae Joon Jeong, Analyst, Mirae Asset Securities

I'm Jeong Tae Joon from Mirae Asset Securities. I have one question. I see NIM is actually on an upward trend and other positive numbers. For margin guidance, can you talk about any new guidance news that you might have?

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

Regarding the bank NIM, maybe I can answer the question. In Q1, the bank NIM was 1.77%, a 2 bps increase compared to the previous quarter. The market rate has gone up, and you can see household loan profitability has been on a rebound. For high interest-rate time deposits, we had such funding, but through rebalancing, we made the funding structure more even. When we made a prediction last year, we thought that the policy rate would go down — that was our prediction. But recently, looking at the base interest rate, an increase is coming up. So compared to our plans last year, I think it will probably have a slight increase and end there.

Operator, Operator

Next question is from Do Ha Kim, Hanwha Investment & Securities.

Do Ha Kim, Analyst, Hanwha Investment & Securities

Yes. Thank you for the opportunity to ask a question. I think many questions relate to CET1. This is probably the most important number that we look at. For RWA in Q1, you said the FX impact was KRW 4 trillion, or 1.1%. So if we do a simple calculation, the FX impact was about 15 bps negative to CET1. Would that be the right sensitivity number to take into account? For Q1, the Basel III capital recognition related requirements and the RWA down impact were also mentioned, but the Q1 specific numbers were not released. For Q2, what external factors should investors look out for for RWA? It would be great to have that as a reference for us for the second half. Next, the NPL coverage ratio in Q1 dropped significantly Q-o-Q, and it is above 120% recently. Compared to recent levels, it's not as high as during COVID. Are you going to record additional provisioning for this? Or are there factors that might put downward pressure on the NPL coverage ratio?

Operator, Operator

Please wait a bit while we prepare to answer your question.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

I think you asked two questions in total regarding RWA and the NPL coverage ratio downward trend. First on RWA: as you mentioned, the FX impact on the CET1 ratio was about 19 bps in the first quarter. For the rest of the year, there is potential for RWA growth and downsizing, but the majority of the downward impact we've seen was driven by FX. Regarding RWA sensitivity, we're making efforts to reduce that sensitivity. For example, we are managing over-the-counter derivatives, adjusting duration and maturities to reduce sensitivity. On top of that, data refinement, portfolio rebalancing and additional RWA optimization options and plans are underway. Regarding further rationalization of capital regulations, we do not have a lot of buffer but we do have some room. That's about the extent I can answer now on RWA. In terms of the NPL coverage ratio, on a continuous basis we have maintained a cautious stance on provisioning and have maintained a high coverage ratio as a result. For NPL management, we have been quite active in rebalancing. Moving forward, we will continue to remain conservative in our provisioning stance. What we are focusing on now is reducing NPLs with active write-offs, sell-offs and exit strategies for existing real estate exposures. We will try to actively reduce our NPLs and thereby ultimately improve the NPL coverage ratio as well.

Operator, Operator

We will take the next question. From HSBC Securities, we have Won Jaewoong.

Jaewoong Won, Analyst, HSBC Securities

Despite a challenging environment, thank you very much for the great results. I have two questions. The first is about operational risk RWA deregulation. I know this was applied to you. I think that in 2024, there was ELS-related operational risk that you had accumulated. When it's deregulated, in 2027, how much CET1 improvement would you enjoy? If you can explain that positive impact, it would be greatly appreciated. Second, regarding KB Kookmin Bank, to my recollection, I think you actually turned profitable from last year with great improvements. For this year, including KB Kookmin Bank, what is the expected overseas earnings contribution or increase in their profit? Can you share that with us?

Operator, Operator

Please hold and we will soon answer your questions.

Chief Risk Officer, Chief Risk Officer (CRO), KB Financial Group

Regarding the ELS-related operational risk and RWA recognition exemption: you asked about the impact. At that time, there was about KRW 745 billion of voluntary compensation that we paid to customers, which was earmarked as losses. If this is recognized in the first half of next year, there will be about a 20 bps positive impact on CET1.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

Yes, I'm the CFO. Regarding the question on RWA, I can add a little more. We're doing a lot of work to reduce sensitivity to foreign exchange rate. The 15 bps sensitivity mentioned earlier is one reference, and there are fines that are not actually confirmed yet, so we will have to consider how much of any potential penalties will be derived. We have recognized KRW 97 billion and are provisioning for that amount. Related to optimization or rationalization of capital regulations, the details have not been finalized and we are in discussion with regulators, so we cannot pinpoint a clear-cut answer. Regarding past ELS-related operational risk, as our CRO mentioned, from next year I believe that it will be gradually reflected. In the case of Bukopin and our global operations about contribution to earnings: Bukopin underwent restructuring for many years and had its IT system upgraded, so now we have set a strong foundation and the operational base is firm. Regarding acquisition of CASA deposits, we are doing our best to reduce funding costs and have a Korea desk for wholesale-retail activities. We cannot say there will be a significant percentage improvement immediately, but you can see that profit contribution from global operations was about 5% last year. This year, we believe that it may rise to around 6% to 7% and we have a very prudent prediction that it may raise to that level this year.

Operator, Operator

Next, it's from Jihyun Cho from JPMorgan.

Jihyun Cho, Analyst, JPMorgan

Thank you for the opportunity to ask questions. Fee income increased considerably. At the early start of the year, NIM guidance was quite conservative, and thus we saw a slight increase. For 2026 guidance: the loan growth target of 5% and household loan 2.2% to 3% as I recall — if we look at Q1 and the overall market environment, is the 5% loan growth target sustainable? On SG&A, it increased by 10% in Q1; early guidance was 4%. Is this manageable? In Q1 the credit cost was around 40 bps. Considering inflation and macro conditions, there may be a time lag in credit cost. Is 40 bps for the year attainable, or does the credit cost guidance need upward revision?

Operator, Operator

Please allow some time for us to prepare the answer.

Unknown Executive, Group Executive (moderator for internal responses)

In terms of loan growth, the bank's CFO will provide an answer. For CCR guidance and projections, our CRO will provide an answer. After that, the CFO will follow up with additional answers.

Sang-Rok Na, Group Chief Financial Officer (CFO), KB Financial Group

So in terms of loan asset growth: as of end of March, Korean won loan balance rose 0.4% compared to year-end. Household loans compared to year-end were down 0.4% and corporate loans were up 2.2%. As you know, household loans are subject to the total cap and linked policies, which present restrictions. However, within the cap, we are leveraging channels to increase our loan book, including policy loans and youth and elderly support loan programs. We are trying to increase that portion. The household loan target is to increase by 1% to 2%. For corporate loans, under the productive finance direction, we expect growth of 6% to 7%, and that is our target. There will be intensified competition to attract corporate loans, so in line with productive finance, we will be proactive in converting that into growth momentum and diversifying our portfolio to secure future growth areas. For SME loans we will follow productive finance focusing on prime assets, and for SOHO we will be selective to ensure adequate growth. Overall, we target bank-level credit growth around 4% for the year. Regarding credit loss provisions: in Q1 we maintained a conservative stance on provisioning and saw qualitative improvement in the portfolio. Despite declining NPLs, we have maintained a CCR around 40 bps. However, the Middle East war and FX rate pressure could impact asset quality. We will continue a conservative provisioning stance. For vulnerable borrowers with considerable risk of loss, we will apply preventive provisioning. For existing real estate projects, if possible we will ensure sufficient loss absorption capacity for restructuring and also sell off to reduce distressed exposure. The 40 bps, in the early-to-mid range, is thought to be attainable as of now, and we currently maintain that view. On SG&A, you asked about upward pressure: the education tax and corporate tax increased, which raised G&A. Additionally, securities and the bank had very strong performance, and adjustments to bonus pools were reflected accordingly, which increased G&A. Given the top-line growth, these adjustments were made. We are managing overall group costs and continuing efforts for cost optimization. If that does not undermine our cost efficiency target, we believe the SG&A increase is at a manageable, sustainable level.

Operator, Operator

Thank you very much for your answer. There are no questions in the queue for now. So we will wait to see if other questions come in.

Bong Kwon, Head of Investor Relations, KB Financial Group

It seems that about 40 minutes has passed since we started our earnings presentation. If you have any further questions, please contact our IR department, and we'll be happy to provide you with answers. Because we have no questions in the queue, we will conclude the 2026 Q1 business results presentation. Thank you for your attention.