Despite Falling Market Interest Rates, Net Interest Income Reaches KRW 3.6 Trillion
Bank Profit Surges 163% in One Year as ELS Provisions Disappear
Non-Banking Businesses Account for 42% of Group Profit
KB Financial Group's net profit for the first quarter of this year increased by 63% compared to the same period last year, surpassing market expectations. The increase was largely due to the disappearance of the base effect from last year's first quarter, when provisions were set aside to compensate for losses on Hong Kong H-Index equity-linked securities (ELS). The group's solid performance was also supported by a slight increase in net interest income, despite declining market interest rates.
KB Financial Group announced on April 24 that its consolidated net profit attributable to controlling interests for the first quarter of this year was KRW 1.6973 trillion, up 62.9% from KRW 1.042 trillion in the same period last year. While this figure falls short of the record quarterly profit of KRW 1.7322 trillion achieved in the second quarter of last year, it marks an all-time high for a first quarter. The result also exceeded the market consensus estimate of KRW 1.578 trillion.
Na Sangrok, CFO of KB Financial, explained, "The base effect from provisions for ELS loss compensation at the bank in the first quarter of last year has disappeared, and group performance was driven by a balanced group portfolio and a general increase in profits from non-banking subsidiaries."
Net interest income was KRW 3.2622 trillion, up 0.6% from the previous quarter. Na stated, "Although interest income declined due to falling market interest rates, efforts to reduce funding costs, such as an increase in core deposit inflows, helped maintain net interest income at a similar level to the previous quarter." The group's net interest margin (NIM) for the first quarter was 2.01%, up 0.03 percentage points from the previous quarter.
Non-interest income, including fees, was KRW 1.292 trillion, up 4.9% from a year earlier. Net fee income was KRW 934 billion, down 5.7% year-on-year. This was due to adjustments in card merchant fee rates and delayed recovery of real estate project financing (PF) fees. On the other hand, other operating income (KRW 358 billion) surged by 47.9%, driven by improved performance from securities amid falling market interest rates for government bonds and other instruments.
By subsidiary, KB Kookmin Bank's net profit for the first quarter was KRW 1.0264 trillion, up 163.5% from a year earlier. This was due to the absence of one-off costs such as ELS loss compensation provisions recognized in the first quarter of last year. Recoveries in securities-related earnings also contributed, with an increase of KRW 636.9 billion year-on-year. Net interest income was KRW 2.5967 trillion, up 0.89% from the previous quarter. NIM was 1.76%, up 0.04 percentage points over the same period.
KB Securities' net profit was KRW 179.9 billion, down 9.1% year-on-year. A KB Financial official explained, "Net profit declined as profit and loss related to securities valuation shrank due to falling stock indices, and securities brokerage commissions decreased due to lower domestic stock trading volumes." KB Insurance posted a net profit of KRW 313.5 billion, up 8.2% over the same period, while KB Life Insurance saw net profit fall 7.7% to KRW 87 billion. KB Kookmin Card's net profit for the first quarter was KRW 84.5 billion, down 39.3%. This was due to lower fee income from merchant fee rate adjustments and higher provisions for credit losses. The share of non-banking businesses in group profit rose to 42%.
As of the end of the first quarter, KB Financial Group's Common Equity Tier 1 (CET1) ratio stood at 13.67%, and its Bank for International Settlements (BIS) capital adequacy ratio was 16.57%. The group's cost-to-income ratio (CIR), a measure of cost efficiency, reached a record low of 35.3%, showing a clear downward stabilization trend. Risk-weighted assets (RWA), which affect the CET1 ratio, were KRW 348 trillion, up 0.7% from the previous quarter. The group stated that it plans to keep annual growth within 4.5%.
Meanwhile, before announcing its earnings, KB Financial held a board meeting and resolved to pay a cash dividend of KRW 912 per share and to repurchase and cancel KRW 300 billion worth of treasury shares. Na commented, "Even with the new government, the value-up program will continue without interruption," adding, "We understand that both the political community and financial authorities are voicing a common stance on resolving the Korea Discount (undervaluation of the domestic stock market), economic stimulus, and maintaining financial sector stability."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
