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Fundamental View
AS OF 22 Aug 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 the four major financial groups.
Business Description
AS OF 22 Aug 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.
- KB was the result of several mergers after the Asian economic crisis of the late 1990s. Its 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. 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 22 Aug 2024As one of Korea’s “Big Four” financial groups, we believe that KBFG would likely receive governmental support if needed.
Credit costs have significantly lowered from 73 bp in FY23 to 44 bp in 1H24 – a level more consistent with peers now, mainly due to significant preemptive provisions set aside in FY23. The trust subsidiary’s trusts with a completion guarantee have become a new concern related to real estate project financing, resulting in additional provisions in Q2. The bank’s asset quality has been relatively stable.
The potential policy rate cut in 2H will impact the NIM, but the card’s funding costs is stabilizing, and the group plans to maintain a flat NIM on a FY basis.
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 for the Indonesian investment has been slower than expected, and significant provisions have been set aside since 4Q22 for non-viable assets.
Key Metric
AS OF 22 Aug 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.00% | 1.14% | 1.05% | 1.36% | 1.55% |
ROA | 0.61% | 0.69% | 0.57% | 0.65% | 0.76% |
ROE | 8.6% | 10.2% | 8.8% | 9.2% | 10.8% |
Provisions/Loans | 0.30% | 0.31% | 0.45% | 0.73% | 0.44% |
NPL ratio | 0.41% | 0.33% | 0.34% | 0.57% | 0.68% |
CET1 Ratio | 13.3% | 13.5% | 13.2% | 13.6% | 13.6% |
Equity/Assets | 7.1% | 7.3% | 7.9% | 8.2% | 8.1% |
Net Interest Margin | 1.76% | 1.83% | 1.96% | 2.08% | 2.10% |
CreditSight View Comment
AS OF 29 Oct 2024We have a Market perform recommendation on KBFG and the bank. KBFG enjoys the strongest franchise amongst the top 4 financial groups. Capital standing is the key strength, with the current highest group CET1 ratio. It has a relatively good track record across its businesses. KBFG reported a good FY23 with net income up moderately, driven by higher net interest income and other operating income. However, it’s profit growth in 9M24 was behind peers due to KRW 862 bn of ELS compensation provisions, but its 3Q24 performance was peer-leading. Credit costs have lowered significantly and are more consistent with peers.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: September 22, 2020