KB Financial Group (KRX:105560) Q3 2026 Earnings Call

0:00 Greetings, everyone. I am Jerry Kang, General Manager and Head of KB Financial Group's IR department. We will now begin the 2026 Q3 Business Results presentation. Thank you very much for participating in today's earnings release. We have here with us at today's business results presentation our Group CFO, Sang-Rok Na, as well as executives from our Group. Regarding the agenda today, we will first have our Group CFO deliver the 2026 Q3 business results and then engage in a Q&A session. I will now invite our Group CFO to deliver a presentation on our 2026 Q3 performance.

0:53 Greetings, everyone. I am KBFG CFO Sang-Rok Na. Thank you very much for joining our 2026 Q3 Business Results presentation. Before proceeding with the business results, I'll briefly share our cumulative Q3 2026 major performance highlights. Let's go to page 1. KBFG is pursuing qualitative improvements in our earnings structure by managing actual returns from a risk-adjusted perspective that takes into account the credit loss ratio, moving beyond efforts solely focused on improving the net interest margin. Accordingly, the group's actual interest yield after accounting for credit risk has remained stable at a level one notch higher than the previous year. In addition, in our fee income business, we are building a foundation for sustainable growth in fee income Through flexible resource allocation that takes into account changing capital market conditions and broader market developments, as well as diversification of our revenue sources. In addition, the Group C-I-R has been maintaining a downward stabilization trend. Along with our scale expansion, we're improving cost efficiencies and increasing our residual profit after costs.

2:04 Overall, we are building a profit structure capable of fully absorbing volatility amidst extreme changes in the market environment. Please find on the next page that KBFG, despite increasing volatility and an increasingly unpredictable macroeconomic environment, has continued to deliver stable earnings growth supported by complementary earnings generation from our banking and non-banking businesses. KB Financial Group plans to continuously expand our group's fundamentals by diversifying our revenue streams and by reinforcing solid management to secure sustainable future growth engines. Next, before covering our business performance, I would like to walk you through our Q3 cash dividends. Today, our BOD approved a cash dividend of 1,167 won per share, totaling 404.9 billion won of cash dividends.

2:56 Q3 cash dividend per share increased by 237 won YOY, a 25.5% YOY increase, reflecting a higher total annual dividend amount compared to the previous year and the impact of share buybacks. Next, I will cover KB Financial Group's business performance. KB Financial Group's Q3 net profit posted 1 trillion 907.5 billion won, and on a Q3 cumulative basis, it posted 5 trillion 792.1 billion won, a 13.1 percent YOY increase. Q3 Cumulative Group ROE posted 13.89 percent, marking a significant improvement of 1.1 percentage point YOY. With factors such as the expansion of the stock market volatilities and the market rate increase leading to valuation gain volatilities after the first half, in Q3, non-interest income showed a slight weakness, but based on solid loan growth, net interest income increased in rebounding QOQ and G&A and credit loss reserves are being stably managed and is continuing solid earnings generation capacities.

4:05 From now on, I will go into the details of our business performance in each category. 2026 Q3 Group Net Interest Income toasted 3,507,000,000,000 won, and with the increase of funding costs despite the weak NIM costs by factors including unbalanced funding market supply challenges, it increased by 11.6% QOQ with corporate loan-based solid bank loan growth and the As the base defect of interest expenses related to valuation gains on consolidated funds from the previous quarter dissipated, you can see that there was the result. In addition, on a Q3 cumulative basis, it grew 2.9% YOY and posted 9,985,000,001 and is continuing stable growth trend. Next, I will cover bank loans-in-one growth. Bank loans-in-one based on September and 2026 posted Thank you for joining us.

5:22 Thank you for watching.

5:41 Moving on to the net interest margin on the bottom right. In Q3, the group's NIM recorded 1.92% and bank NIM 1.72%, each contracting by two basis points QOQ. Although the bank's loan asset yield showed some improvement during the quarter, this contraction was due to an increased cost burden stemming from uneven supply and demand dynamics in the funding market alongside with irregular fund flows. However, from Q4, the base rate hikes from July and August will be gradually reflected in the repricing of our loan assets. Therefore, we expect the improvement in asset yields to further expand. and by leveraging the group's greatest strength, our superior sales channels capabilities, we will focus on growing our low-cost deposits and by realigning our asset liability structure to effectively absorb volatility in the funding market, we plan to manage our net interest margin even more stably.

6:38 Next, I will move on to non-interest income. For Q3, the group's cumulative non-interest income stood at $4,758.8 billion won, up 27.3% YOY. Of this, the cumulative net fee income recorded $4,087.8 billion won, an increase of 38.5% YOY. The group's net fee income has exceeded $1 trillion won for four consecutive quarters, demonstrating a solid fee income base that has leveled up. However, due to a decrease in stock market trading volume during Q3, the growth of the capital market-related fee income showed slowdown, resulting in a 29.7% decrease in net fee income QOQ.

7:24 And for the other operating income in Q3, impacted by rising market interest rates and heightened stock market volatility, performance was weaker in securities, derivatives, and FX, which resulted in a sizable decline QOQ. Although the non-interest income leveled up this year, quarterly volatility has expanded. Currently, we are making efforts to smooth out our earnings through replacement trading of securities taking into account interest rate trends. Furthermore, we plan to secure earning stability by strengthening our asset management capabilities in the capital markets and expanding the foundation of our flow business. Next, I will cover G&A expenses. For Q3, cumulative G&A expenses stood at 5 trillion 360.4 billion won, up 7.0% YOY.

8:14 As for the Group CIR, driven by continuous cost-efficiency effort, it recorded 36.4%, maintaining a downward stabilization trend within our target range. Moving forward, under the principle of selective cost execution, we will continue our efforts to reduce recurring expenses and we plan to expand investments in future growth areas such as AI. Turning to page 8, let me discuss the group's provision for credit losses. In Q3, the provision for credit losses was $563.3 billion won, up slightly by 8.4% QQ. This was driven by our conservative For Q3, recorded 43 basis points. On a cumulative basis, it also stood at 40 basis points, indicating that it's still being managed at a stable level.

9:07 Considering this trend of improving asset quality, we project the group's credit cost for the year to be managed within the mid-40 basis point range. In light of the rising interest rate environment, we will strengthen our asset quality monitoring targeting segments vulnerable to credit risk. By maintaining a conservative risk management stance, we plan to respond closely and proactively. Next, I will elaborate on the group's capital ratios. Based on the preliminary figures as of end of September 2026, the group's BIS ratio recorded 16.02% and CET1 ratio recorded 13.80%. The Korean won to U.S. dollar exchange rate fell by approximately 181 from the end of the previous quarter, creating a more favorable environment compared to the first half of this year, but the upside to the CET-1 ratio was somewhat limited, improved by 5 basis points QOQ. This is mainly attributable to the approximately 1.3 trillion Korean won in share buybacks and cash dividends, our largest ever shareholder return, and a decrease in FEOCI valuation gains, As for the group's first round of shareholder returns of 2027 will be determined based on the year-end CET1 ratio. We plan to minimize earnings volatility and focus on a more sophisticated RWA management to stably manage the CET1.

10:29 As of end of September 2026, the group's RWA recorded 368 trillion won, up 3.1% YTD, showing our annual RWA growth rate is stably managed within our target range. The following pages contain details on the earnings we have covered so far, so please refer to them. This concludes the presentation on KB Financial Group's business results for Q3 2026. Thank you very much for your attention. Thank you very much for the presentation. Now we will move on to the Q&A session. For those who are looking at the internet, you could refer to the icon on the last part of the page. And if you are joining through phone, please press star 1 on your phone.

11:22 Now we will pause for questions to come in.

11:29 We have the first question. The first question is from Korea Investment Securities. We have Tae Joon Jung. You're on the line. Thank you very much for the opportunity. I am from Korea Investment Securities. Thank you for this opportunity to ask questions. I have two questions. First question is about the margin. So there was some BP actually going down, but I think it was less than others. So can you tell us about your future outlook and about your... Shareholder Return. So I think there was a 700 billion won of share buyback that was completed. Can you tell us about new shareholder return policies that might happen to your company later on? Thank you very much. We will soon answer your questions.

12:16 Thank you very much. Thank you very much for your good questions. And I think the market is very interested in NIM, N-I-M. And the reason why NIM actually went down a bit is, well, in the first half of the year, there was preemptive funding impact. And then there was market competition for large corporate loans. And I think there was the loan profitability that went down a bit. And unlike in other patterns, I think the circulation cycle really changed. So there was more of the funding for companies rather than for households. And from Q4, I think we're going to see some rebounds.

13:16 We're going to really work hard to do that. And for loan yield, we are seeing some improvement trends from Q3. So it seems that the stabilization of the funding I think we're going to really work hard to focus more on that. and our bank CFO will actually get into more details after my answer. Regarding shareholder return policies that you asked about, for share buyback, it has all been completed and after the first half, as I mentioned, At the end of the year, at the year end dividend, there will be 180 billion won of cash dividend that will be added. So that is still remaining.

14:09 Regarding the new shareholder return policy that we might be working on, well, not really yet. And for our shareholder return policy, we do have our formula, our logic, and we will have shareholder return actually based on the results of our formula. In the beginning, I think it took some time for there to be an understanding in the market. But I think because of our simple but powerful logic, we are going to maintain the merits and strengths of this simple formula, which is very, we believe, impactful. And I think we have been proving ourselves so far. And I hope going forward, we do have some trust from our investors. and from our shareholders in the markets. So after more trust has been accumulated, I think based on our commitment and trust, we will be showing you a more evolved state of shareholder returns. So to give you more color on this, for last year and the year before that and for this year as well, there has been a lot of volatility.

15:11 There has been a lot of the FX and other volatility changes. However, there has been tight capital management and RWA management. We had very unwavering shareholder return policies. And based on that, I think our know-how and manager has been more or less established. And we believe that at the end of the day, our shareholder return policy based on our logic and our results. Thank you for joining us. So I think that will be the natural next phase.

15:59 So I believe that the results, they may be a bit higher or lower, but we will consistently do our best to have upward growth. And to do that, what will be very important is mid to long-term ROA. So near 13%. And regardless of volatilities, we will need to have stable management of our capital ratio. And regarding the size and ratio of our shareholder return, even though it had went up substantially, Well, there might be a level that market and investors want. And when it actually nears that level, then we will not be too fixated on the results. But based on our commitment and trust, we will have upward trajectory. So we believe that will be the way going forward.

16:45 So what that means is that when we gave guidance in the early part of the year, we actually talked about we will give more guidance on the volume and I think direction of shareholder return. So that we can have more communication and trust that will be built. So regarding our shareholder return principles and our priorities and decisions based on having greater greatest priority on our shareholders, we will actually do that going forward as well. I am the bank CFO, Seo Kyung. I have an answer for Nim and In Q3, compared to the previous quarter, there was 1.72%. So two bips actually went down. So I think that actually we were able to safeguard it well. It's because the market rate went up.

17:37 So the repricing is being expanded. And there was the rate hikes, government rate hikes in July and August. There was the funding rates that actually was affected. So compared Thank you for joining us today. You can see the market rate went up, so the MOR actually was affected.

18:24 So in our case, there was about 10 BIP improvement. However, there was a funding cost improvement effect, which was about 8 BIPs. So we had the offsetting, so it seems that there was a QOQ2 BIP improvement. But as you probably know, for our corporate finance or corporate banking, there was the spread that actually narrowed, that led to a minus impact. And our core deposits went down, which affected our portfolio. So it also went down because of this. So that is why we were able to actually safeguard it with two BIPs. And in Q4, it's actually not easy to give you an easy outlook, but for bank debentures or bonds and others, well, we are going to have some reflections on what has been happening so far.

19:12 And for asset yields, we believe that there will be a positive impact. And for corporate loans as well, there are a three-week and six-week That actually were less competitive compared to our peers. But I think in Q2 and Q3, we had more of a percentage for that. So I think there will be more of a repricing effect with the rate hike. And there will be new co-fix and others that will be increased for household loans. And we believe that will also... Thank you very much. We will need to wait and see, but I think we will smoothly be able to provide funding that we need.

20:24 We believe that efficiently managing our funding burden will be a very important task for us to achieve. Regarding the money move, I think the funding Thank you very much. Thank you. Thank you. Thank you very much. As a liability portfolio that will be well balanced.

21:24 Thank you very much.

21:27 Thank you very much for that answer. I will take the next question. So the next question would be from Jae Young-Woon from HSBC Securities. Thank you very much for the opportunity to ask question. I have two questions as well. The first is regarding asset quality and the second is regarding

21:52 Regarding asset quality, there has been some changes and the overall situation has improved quite differently.

22:00 The credit cost ratio has also differed quite difficultly. So moving on from next year, there is going to be a tougher environment. So the credit cost ratio for next year, what are your expectations in terms of the level?

22:13 And I would like to get your answer on that.

22:16 And the overall deposit insurance trend has been talked about. So is it actually the case? And the insurance company impact is quite another issue that I would like to talk about.

22:38 We will soon answer your question. Please hold. Let me answer your question regarding credit costs. You actually talked about next year's guidance, next quarter's guidance.

23:02 So there is a possibility that there could be a deterioration of our asset quality, and we are approaching it in a very conservative manner. So for this year, our target, we're not going to deviate far from that, but we are reviewing the current situation. So I would like to say just as of now, we are going to take a conservative approach. And next, moving on to the question about the deposit insurance. So from the bank side, there hasn't been much of a change or certain movements. However, but for insurance, the details have not been finalized, but there might be some impact.

23:48 So we will have our insurance VP answer that question. Yes, so with regards to the increase regarding the deposit insurance, so there has been a very large portion of increase from the insurance side. So TSM, the KICS ratio will be impacted in a negative way. However, as was pointed out during the state plenary meetings, the point has been raised that the raising We are currently in consultation with the regulatory agencies and we're expecting that the overall increase size will be declined. In terms of the impact So from the business sector itself, even if we are able to absorb it, for KB Insurance, CSM is going to be expected to decline by around 500 billion KRW and the KICS ratio also by 5%.

24:49 So we are going to monitor the situation very closely.

24:56 Thank you for the answer. We will take the next question from IM Securities. Ryong Jin Seo, you're on the line. Thank you very much for the opportunity. I have a question about insurance. I actually have two questions. First is for non-life insurance from July. I think there has been the management coverage. So can you tell us more about that for Q3? What kind of improvements there have been? And from September, there will be the eight-week rule that will be adopted. Well, that has been adopted, I guess. And can you tell us about what impact you think this will have? The second question is about life insurance. And from 2019, there was the seven year, the whole life insurance.

25:42 I think the period has ended and you probably have the lapse ratio results. And I think the numbers might not be very positive. So can you give us some color about the results? Are you going to make some adjustments going forward? Thank you very much. We will soon answer the questions. Yes, for the manual therapy question that you asked, Well, we have the shockwave therapy and the manual therapy that has actually had the guidance from July.

26:29 And I think there was about 7 to 8 billion won of losses that will be actually offset. However, even before it actually was implemented, there are some balloon effects. So there are some non... Different therapies that are not covered that may not lead to pain. So we are seeing 5 to 7 billion won of an increase because of these therapies. So we believe that maybe there will be just about a 2 billion won positive effect. For non-covered therapies, we are going to do our best so that it will not lead to balloon effects. We're going to do, I think, collective measures so that this will not balloon into more costs.

27:24 From the 10th of September, there has been the policy that you've asked about, and it is for the I think maybe end of November or December that we're going to see more numbers related to that. And regarding the Next. So 700 whole life insurance, I guess we can say that was an insurance product.

28:21 And KB Life, we had these whole life insurance related products. We have products like this that actually give back more. We have been seeing the different observational rates and have been making adjustments. And we had made some adjustment in 2025 in the first half as well. So for these types of enhancement rates of refund type of products.

29:09 So I think we are going to try to actually lessen the gap. And even if we have the assumptions for lapse rates that change, we believe the CSM balance will be about 8%. Thank you very much for the question.

29:32 There are no current participants with questions, so we'll take a moment for questions to come in. Yes, next question is from Ji Yeon Jo from JP Morgan Securities. Please ask your question. Hello. Thank you for the opportunity to ask the question. I have two questions. First, there seems to be a decline in commission income in Q3. Were there any one-off factors to be accounted for in Q4 for fee income?

30:20 What is your guidance that you would be able to provide? And the corporate income tax for this quarter seems to be quite low. So I think there has some impact from KBI, the establishment of the holding company. After the establishment of the non-operating holding company, what are your prospects in the future? So allow us to take a few moments to prepare our answers. Yes, thank you very much for the question. So if we look at the one-off factors, so the non-operating holdings, so there was about a 200 billion Korean won of refund that we were able to account for because of the deferred corporate assets. And of course, I think if we do have such recovery, we have the principle that we would account for Thank you for joining us today.

31:49 because we are trying to lay the foundation for future fundamentals. And in terms of next year's fee income, so I think there's a lot of volatility, so it's difficult to give an accurate guidance now. But if you look at the very big upside that we had before that in Q3, Q4 of last year, on a quarterly basis, our fee income always exceeded 1 trillion Korean won. So our basic fundamentals on a quarterly basis is thought to be around 1 trillion KRW and for securities and because of the decline in trading volume and the fee income decline coming from that we have a lot of trading related capabilities and CIB as well so the flow business from trading, retirement, pensions The retirement pension products that we have, the strong capabilities that we have, we plan to establish a firmer foothold so that we are building a better presence.

32:53 A slowdown in the fee income is inevitable and there are bound to be some adjustments, but we will not only look at that, but on the bottom line in order to protect the net income, We will currently look at the rate hike cycle to look at how that would have an impact on the insurance income side and also cost efficiency efforts will be continued and the conservative provisioning stance will continue and we will We will also take into account the different type of savings that we have all together comprehensively. So on the net income side, I think we will be on a continuous path of upward trajectory. And the Indonesia KBI holding company, we will answer that question from KB Bank.

33:46 Mr. Jong Min Lee? Yes? So for the holding company in Indonesia, we are going to be required to make a contribution and establish it until from August 2027. So there will be six subsidiaries and there will be an Indonesian holding company established. So there's not going to be a significant change in the P&L. However, in terms of the timing of the transition, there might be some adjustment of the corporate tax, so there might be some additional impact to be expected. On the P&L, after the establishment of the holding company, we are going to manage the synergy among the different subsidiaries to generate a plus.

34:36 Thank you very much for the answer. We do not have any questions in the queue, so please hold until we receive more questions. It is currently 35 after the hour, so we will wait just a little more. And if we do not have any further questions, we will conclude today's business presentation. If you have further questions or comments, please contact our IR department and we will faithfully answer them. We do not have any questions in the queue.

35:27 And with this, we will conclude our 2026 Q3 business results presentation. Thank you very much for your participation.