KBFG
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
Capital strength, a long re-pricing cycle, and IFRS17 effects were all highlighted in KBFG’s 1Q23 results.
Maintain as top pick despite cut to TP
We believe that three of KBFG’s key strengths were clearly highlighted in its 1Q23 results. Starting with NIM improvement, we note that among major financial holding companies, KBFG was the only one displaying a q-q NIM improvement (Group +5bp, Bank +2bp). Due to the relatively long asset re-pricing cycle, we originally expected a smaller drop in NIM than that for competitors, but the actual result was that it was the only one showing improvement (albeit modest). For 2023, we expect NIM to improve by 7bp y-y, backed by stable NIM performance over 2Q23~3Q23.
Second, the firm’s CET1 level strengthened to 13.7% (+4bp q-q). As the only one of the four major financial holding companies to exceed the 13% CET1 ratio level, stable shareholder return is expected despite growing economic uncertainties and tightening capital regulations. Apart from dividends, treasury stock repurchase/retirement policies are expected to be implemented in 2H23.
Third, we draw attention to positive effects from the transition of IFRS17 of KB Life Insurance. KB Insurance’s NP (excluding minority interest) for 1Q23 upped to W253.8bn, a notable rise y-y (W143.1bn based on IFRS4). And, contractual service margin (CSM) climbed to W8.2tn (W7.6tn in IFRS17 CSM last year). KB Insurance is expected to generate annual NP (excluding minority interest) of about W800bn this year, in turn helping to boost consolidated NP (excluding minority interest) for the financial holding company.
1Q23 review: Announces NP of W1.498tn, +2.5% y-y
KBFG reported 1Q23 NP (excluding minority interest) of W1.498tn, topping consensus. Although large-scale provisioning took place, the effects of improved NIM and increased non-interest income were greater.
[NIM] NIM improved 5bp q-q to 2.04% for Group and 2bp q-q to 1.79% for Bank, backed by the effects of a long asset re-pricing cycle and better credit card yield. [Loan growth] Won-denominated bank loans grew 0.6% q-q (household -2.2%, commercial +1%). Excluding loans to large corporations (+5.5%), overall performance was sluggish. [Loan loss cost] CCR rose sharply to 0.62% (+47bp y-y), affected by mounting economic uncertainties. [Non-interest income] upped to W1,575bn (+77.7% y-y), influenced by a rise in bond valuation gains followed by decreased interest rates and reflection of insurance company performance (increase in ordinary income + shift from interest income to non-interest income for contractual loan income).