Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 07 Mar 2024KB Financial Group has grown steadily through the acquisitions of non-bank companies in Korea and small banks in Indonesia and Cambodia. Its banking subsidiary, Kookmin Bank, operates the largest branch network in Korea, with a particularly strong presence in the retail market. This makes it a systemically important bank with strong potential government support if needed.
The group has a good track record, and its large mass-market franchise gives it a strong customer base. It has a well-diversified business and the highest CET1 ratio among its peers.
Business Description
AS OF 07 Mar 2024- A well diversified and well run group, KBFG's main subsidiaries in addition to Kookmin Bank (KB) are Kookmin Card, KB Insurance, KB Securities, KB Capital (leasing) and KB Asset Management.
- The result of several mergers after the Asian economic crisis of the late 1990s, KB's main predecessors were Citizen's National Bank and Housing & Commercial Bank, both retail-focused banks that have given it the leading position in Korean retail banking.
- For the near term, the group doesn't expect further M&A opportunities. It has looked for growth overseas, focusing on Indonesia (where it has taken a 67% stake in Bank Bukopin) and Cambodia (it took a 100% shareholding in Prasac, a micro-finance lender, over 2020-21). It also bought Prudential Financial's Korean insurance business in 2020, which was subsequently merged with KB Insurance.
Risk & Catalysts
AS OF 07 Mar 2024As one of the “Big Four” financial groups in Korea, we believe that KBFG would likely receive governmental support if needed.
Credit costs rose 43 bp in FY22 to 67 bp in FY23 – the highest amongst the four FGs, as a result of weakening asset quality and preemptive provisioning. Stripping out one-off factors in 4Q23, the group’s credit cost would be around 40 bp, not exceeding our expectations of 50 bp.
The NIM declined in 4Q23, and for 2024, KBFG intends to manage the NIM to be marginally lower than last year.
KBFG is expanding by business line, and overseas with a focus on Indonesia and Cambodia – markets with more favourable demographics, growth potential and profit margins than Korea but also more risk. The profit plan of the Indonesian investment has been slower than expected, and significant preemptive provisions were set aside in 4Q22 for it.
The group is under investigation for mis-selling equity linked products to retail investors; fines and regulatory actions may ensue.
Key Metrics
AS OF 07 Mar 2024KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.03% | 1.00% | 1.14% | 1.05% | 1.36% |
ROA | 0.66% | 0.61% | 0.69% | 0.57% | 0.65% |
ROE | 8.9% | 8.6% | 10.2% | 8.8% | 9.2% |
Provisions/Loans | 0.21% | 0.30% | 0.31% | 0.45% | 0.73% |
NPL ratio | 0.49% | 0.41% | 0.33% | 0.34% | 0.57% |
CET1 Ratio | 13.6% | 13.3% | 13.5% | 13.2% | 13.6% |
Equity/Assets | 7.4% | 7.1% | 7.3% | 7.9% | 8.2% |
Net Interest Margin | 1.94% | 1.76% | 1.83% | 1.96% | 2.08% |
CreditSights View
AS OF 09 Feb 2024KBFG enjoys the strongest franchise amongst the top 4. Capital standing is the key strength, with the current highest group CET1 ratio. It has a relatively good track record across its businesses, though it struggled with growth in FY22. Overall, KBFG reported a good FY23 with net income up moderately, driven by higher net interest income and other operating income. However, 4Q23 net income fell substantially QoQ due to higher provisions and administrative expenses. Despite a QoQ decline, NIMs improved YoY. Given the company’s performance relative to peers, it is our preferred name amongst the Korean FGs.
Recommendation Reviewed: February 09, 2024
Recommendation Changed: September 22, 2020