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Fundamental View
AS OF 12 Jun 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 12 Jun 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 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 12 Jun 2024As one of Korea’s “Big Four” financial groups, we believe that KBFG would likely receive governmental support if needed.
Credit costs decreased for the group from 67 bp in 4Q23 to 38 bp in 1Q24, mainly due to significant provisions in 2023.
Despite headwinds from the cost of funding in the credit card business, the group’s NIM increased by 3 bp QoQ to 2.11% in 1Q24, which is the highest amongst the FGs.
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 preemptive provisions were set aside in 4Q22 for it.
Key Metrics
AS OF 12 Jun 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.00% | 1.14% | 1.05% | 1.36% | 1.54% |
ROA | 0.61% | 0.69% | 0.57% | 0.65% | 0.59% |
ROE | 8.6% | 10.2% | 8.8% | 9.2% | 8.2% |
Provisions/Loans | 0.30% | 0.31% | 0.45% | 0.73% | 0.39% |
NPL ratio | 0.41% | 0.33% | 0.34% | 0.57% | 0.63% |
CET1 Ratio | 13.3% | 13.5% | 13.2% | 13.6% | 13.4% |
Equity/Assets | 7.1% | 7.3% | 7.9% | 8.2% | 8.1% |
Net Interest Margin | 1.76% | 1.83% | 1.96% | 2.08% | 2.11% |
CreditSights View
AS OF 30 Apr 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. More recently, KBFG’s 1Q24 net profit fell 30.5% YoY due to KRW 862 bn of ELS compensation, mitigated by lower provisions and stable core income growth. Kookmin Bank, as a result of guidance from the authorities, provided compensation to investors with ELS exposures. The group’s capital ratios remained strong, with the CET1 ratio declining slightly to 13.40%
Recommendation Reviewed: April 30, 2024
Recommendation Changed: September 22, 2020
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