Chairman Yoon Jong-kyoo of KB Financial Group

KB Financial Group reported its best-ever quarterly net income for the April-June period, largely supported by recovery of bad debts.

The holding company, in a regulatory filing on July 18, said its net profit in the second quarter jumped 17.2 percent on quarter and 4.72 percent on year to 991.1 billion won ($843.8 million), the largest in its history. Operating profit gained 13.2 percent to 1.31 trillion won, but was down 1.05 percent compared to a year earlier. Revenue increased 2.2 percent on quarter and 11.1 percent on year to 12.6 trillion won.

For the January-June period, the company recorded 1.8 trillion won in net profit, down 4.1 percent from a year ago when it reflected 83 billion won in after-tax profit from the sale of its bank headquarters in downtown Seoul.

Shares of KB Financial Group gained 1.11 percent to close Friday at 45,500 won in Seoul trading on the earnings.
Stable growth of the group’s core businesses and a drop in reserves against bad debt largely helped the company deliver the best-ever quarterly income, said a KB Financial Group official.

The second-quarter net income was 932 billion won, up 5.9 percent against the previous quarter, when excluding one-off factors such as doubtful debt recovery from Hanjin Heavy Industries & Construction and compensation expense for voluntary employee retirement program, according to the official.

Bank unit’s interest income also grew steadily, and non-banking units like securities and insurance improved profitability.
Net interest income for the first half was 4.5 trillion won, up 4.8 percent from the same period a year earlier. Loan sales were slower, but the average outstanding balance of loans grew.

The group’s net interest margin for the second quarter fell 2 basis points to 1.95 percent from the previous three-month period. Its flagship KB Kookmin Bank recorded a net interest margin of 1.70 percent, down 1 basis point on quarter, due to falling market interest rates.

The net commission income in the first half was 585.1 billion won, up 6.3 percent on quarter, thanks to strong sales of trust funds. Other operating income for the same period reached 79.1 billion won after the group added 67.8 billion won from a year earlier on increased trade turnover on bonds and other securities amid fall in interest rates.

Assets totaled 489.2 trillion won as of the end of June, up 3.9 percent from the end of last year. BIS capital adequacy ratio - the minimum capital adequacy ratio that banks must attain under the Basel III standard - was 14.94 percent.

Management strategies can be characterized by: 1) reinforcement; 2) innovation; 3) smart working; and 4) expansion. The company is especially focused on risk management, thus its priorities in its financial strategy are: 1) soundness; 2) profitability; and 3) growth, in order of importance. For 2019, management guides for: 1) 4-5% loan growth; 2) flat NIM; 3) 5% growth in commission income; 4) less than a 5% increase in SG&A cost; and 5) credit cost ratio of 25bps. For our target price, we applied 0.77x target P/B to 2019F BPS (COE 11.9%, ROE 9.2%).

KB Financial Group posted 845.7 billion won in net profit in the first quarter of this year a little down YoY but three times more than the preceding quarter, the group said on April 24.

The group cleared that the Q1 net profit is down 12.7 percent YoY, but rose 339 percent from the preceding quarter, but the Q1 net profit would be about the same as those in the same period in 2018 if the proceeds from the sale of Kookmin Bank’s building in Myeondong, Seoul, amounting to 83 billion won and the early retirement payments of 35 billion won are included in the net profit calculation, the group said.

A view of the head office of KB Financial Group in Yeouido, Seoul. (Photos: KBFG)