Commitment to Increase Dividend Payout Ratio Reaffirmed

The authors are analysts of Shinhan Investment Corp. They can be reached at sh.kim@shinhan.com and jongseon@shinhan.com. -- Ed.

 

1Q20NP of controlling interests in line at KRW729.5bn (-13.7% YoY)

KB Financial Group’s 1Q20 net profit of controlling interests came in line with our forecast at KRW729.5bn but missed market expectations by 8.8%. Steep stock market correction and forex rate changes resulted in other one-off operating losses of KRW300bn, including KRW45bn in valuation losses on foreign currency-denominated bonds, KRW66bn from management of principal guaranteed trust products, KRW34bn related to credit valuation adjustment (CVA), and KRW48bn in ELS hedging losses at KB Securities. The brokerage house incurred a net loss of KRW21.4bn in 1Q20.

Total KRW-denominated loans increased 4.8% QoQ as loans to large businesses jumped 20.2% QoQ amid the liquidity crunch in the corporate bond market. Net interest margin (NIM) of KB Kookmin Bank fell by 5bp QoQ, or an estimated 2.5bp QoQ when excluding the impact of relief loans.

2Q20 outlook: NP to recover to ordinary levels at KRW900.6bn (-9.1% YoY)

Stabilization of the financial market in April should lead to the reversal of some of the 1Q20 losses related to principal guaranteed trust products and CVA in 2Q20. In addition, we have yet to see an actual decline in asset quality from the COVID-19 pandemic. Loan loss provisions climbed by KRW33bn YoY, but KB Kookmin Bank’s precautionary loans declined by 4.3% QoQ. Delinquency ratios remained stable at the bank and credit card affiliates. Actual non-performing loans at the bank, excluding write-offs and sales, likely stood near 2Q19 levels at KRW112.2bn. Revision of expected loss (EL) estimates should be pushed back with SMEs and micro businesses allowed to defer interest/principal payments on loans until end-September. NIM will remain unaffected with related interest income to be booked in advance.

Commitment to increase in year-end dividend payout ratio reaffirmed

KB Financial Group, during the 1Q20 earnings call, reaffirmed its commitment to shareholder value improvement, including plans to raise its dividend payout ratio. The addition of PRASAC Microfinance Institution from April and Prudential Life Insurance of Korea from 3Q20 to consolidated statements should add roughly KRW100bn to net profit for full-year 2020. Bargain purchase gains booked through 2020-2021 will likely reach KRW200bn in total.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution