JB Financial Group Breaks Through the Ceiling: Will Capital Ratio Management Boost Shareholder Dividends?

Launch of RWA Calculation Appropriateness Verification Project
"Strengthening Capital Ratio Management"
If CET1 Ratio Increases Through RWA Management
Positive Impact Expected on Value-Up, Including Shareholder Dividends

JB Financial Group, which has been experiencing a continuous upward trend in the stock market, is expected to accelerate its value-up (corporate value enhancement) efforts. This is because the company plans to verify the appropriateness of its risk-weighted assets (RWA) calculation to manage its capital ratio, and, based on this, to build up the financial strength needed for shareholder dividends.

According to the financial industry on June 17, JB Financial Group recently announced a 'Group RWA Calculation Appropriateness Verification Project' and plans to commence the initiative. JB Financial Group stated that its objective is to respond proactively to the regulatory authorities' (Financial Supervisory Service) strengthening of capital regulations, such as the introduction of stress buffer capital, while at the same time reviewing its credit risk RWA calculation system to enhance capital ratio management. The company also mentioned that it will establish a standardized operations manual to utilize in new investment and loan decision-making.

RWA refers to the amount that reflects the degree of risk in a bank's assets. The higher the risk, the greater the risk weight applied. For example, corporate loans, which are riskier than household loans such as mortgage loans, are assigned higher risk weights. The Common Equity Tier 1 (CET1) ratio is important for assessing the capacity for shareholder dividends and returns. The CET1 ratio is calculated by dividing common equity by RWA and indicates a financial company's loss-absorbing capacity. Most financial holding companies present this ratio as the standard for shareholder returns. If RWA decreases, the CET1 ratio increases. To reduce RWA, a company must either lower the proportion of risk assets or hold more assets with high credit ratings.

JB Financial Group will first identify areas for improvement in RWA calculation requirements. The company will compare and analyze current regulatory requirements with those applied by other firms and prepare improvements. There will also be a review of real estate secured loans, which have lower risk weights. The appropriateness of collateral classification requirements related to corporate exposure will be examined, and especially, improvement measures for real estate collateral, including residential and commercial properties, will be developed. In addition, the possibility of asset classification for real estate collateral, such as completed development projects, will be reviewed in relation to real estate development finance.

The project will also include matters related to equity assets, which are considered one of the ways to ease RWA regulations. The company will review whether it can expand assets that can reduce credit risk, citing 'equity exposure, etc.' as an example. In the past, equities held by financial companies were subject to high RWA weights, but financial authorities are now reviewing ways to reduce the RWA burden to enable banks to increase corporate lending. In addition, investments or loans handled by non-banking affiliates (such as JB Asset Management) and overseas subsidiaries (such as the Vietnamese securities company and Capital Myanmar) will also be reviewed.

If RWA management is properly implemented through this project, the value-up process is expected to accelerate. This is because shareholder dividends may vary depending on the RWA value. JB Financial Group's value-up target includes reviewing an increase in the shareholder return rate to over 50% if the return on equity (ROE) exceeds 15% and the CET1 ratio exceeds 13%.

JB Financial Group is faithfully implementing indicators for value-up and is already seeing the effects. As of the first quarter of this year, JB Financial Group's ROE stood at 11.6%. Although this falls short of the simple average ROE of 12.95% from 2021 to last year, it remains at a high level compared to the ROE target of 10% set by the four major financial holding companies (KB, Shinhan, Hana, and Woori). The CET1 ratio is also at 12.28%. Although this is lower than the 12.71% recorded in the third quarter of last year, it remains high. Recognizing this, JB Financial Group was newly included in the Korea Value-up Index last month. The Korea Value-up Index was created in September last year to help investors identify outstanding value-up stocks. As a result, investment capital has been flowing in. Looking at JB Financial Group's stock price, it closed at 20,450 won on December 3 last year, surpassing 20,000 won for the first time, but declined after the 12·3 Martial Law incident. However, on June 12, it reached 20,900 won, once again surpassing the 20,000 won mark.