Builds high-quality business portfolio of banking, securities and non-life insurance businesses by taking over Prudential Life Insurance
KB Financial Group Chairman Yoon Jong-kyu. (Photo: KB Financial Group)
KB Financial Group succeeded in 2020 with net income growing 4.3 percent from a year before. The financial group attributed the growth to the fact that it recorded solid profits from increased core profits and impacts from M&A deals.
However, the company’s earnings fell short of consensus by securities firms. KB Financial Group announced on Feb. 4 that its net profit stood at 3,455.2 billion won in 2020, up 4.3 percent from the previous year.
Although the financial group fared well, its business results were somewhat below market estimates.
According to the securities information company Fn Guide, KB Financial Group was expected to reach 3,488 billion won in net profit in 2020, up 5.3 percent from the previous year.
In particular, in the fourth quarter of 2020 alone its net profit stood at 577.3 billion won, down from 1,166.6 billion won in the third quarter. The figure was less than the 504.2 billion consensus by the stock market.
This is because the cost of voluntary retirement was reflected during the fourth quarter and additional allowances were incurred due to the COVID-19 pandemic. Affiliate business performances were mixed.
KB Kookmin Bank’s net profit fell 5.8 percent year on year to 2,298.2 billion won in 2020. KB Insurance earned 163.9 billion won, down 30 percent during the same period.
On the other hand, KB Securities’ net profit surged 65 percent to 425.6 billion won thanks to a big investment boom in the stock market during the same period. KB Kookmin Card earned 324.7 billion won, growing 2.6 percent.
Still, KB Financial Group solidified its foundation for its core profits despite an ultra-low interest rate trend and large-scale provisioning issues caused by the COVID-19 crisis and overcame cost burdens thanks to increased commission profits.
Its interest income totaled 9,722.3 billion won in 2020, up 5.7 percent from the previous year thanks to a 9.9 percent increase in won-currency loans by banks despite a reduction in net interest margin (NIM) due to falling interest rates.
Its net commission profit surged 25.6 percent to 2,958.9 billion won during the same period, pushing up operating profit.
This is because non-banking affiliates improved their business performances with stock trading commissions alone rising by 347.3 billion won in one year and credit card commissions expanding thanks to strengthening marketing and cost-saving efforts.
General administrative expenses amounted to 6,833.2 billion won, up 9 percent from a year earlier. In 2020, the cost of voluntary retirements reached about 344 billion won before tax, and additional M&A-related costs amounted to 243 billion won with respect to Prasac, a micro finance institution in Cambodia, Prudential Life Insurance, a Korean life insurer and Bank Bukopin, a bank in Indonesia.
KB Financial Group had to accumulate more provisions for bad debts. The transferred amount of credit loss allowances swelled by 373.1 billion won year on year as KB Financial Group set aside additional provisions worth about 377 billion won (206 billion won in the second quarter and 171 billion won in the fourth quarter) in 2020 due to uncertainties triggered by COVID-19.
The group’s total assets stood at 610.7 billion won as of the end of 2020, up 17.8 percent from a year earlier due to an increase in loans and the inclusion of Prudential Life as an affiliate.
The NPL ratio stood at 0.41 percent, down 0.08 percentage points from the end of 2020. The BIS capital adequacy ratio stood at 15.27 percent and the CET1 ratio at 13.29 percent, enabling KB Financial Group to abide by the capital adequacy index.
“In 2020, concerns were raised over a drop in bank profitability due to the Bank of Korea’s key interest rate cut and the prolonged COVID-19 crisis,” said a KB Financial Group official.
“But KB Financial Group’s interest income steadily grew based on the bank’s solid loan growth. Moreover, non-banking affiliates enjoyed a sharp rise in net commission income.”
“In 2020, KB Financial Group built a high-quality business portfolio of banking, the securities business, non-life insurance by taking over Prudential Life Insurance, a blue-chip life insurer in the Korean life industry,” the official said.
“The enhanced business portfolio helped KB Financial Group sharpen its competitiveness in the financial industry.”