[비즈한국] KB Financial Group105560 appointed Yang Jong-hee as Chairman of KB Financial Group in November 2023. Last year, KB Financial Group recorded 85.2141 trillion won in revenue and 5.0286 trillion won in net profit. This is the highest performance in the company's history. It is a performance that surpasses competitors such as Shinhan Financial Group, Hana Financial Group086790, and Woori Financial Group316140. For Chairman Yang, it is a spectacular first scorecard.
However, the gaze of shareholders and securities firms toward Chairman Yang Jong-hee is not entirely favorable. This is because of the perception that KB Financial Group is stingy with shareholder returns. KB Financial Group announced that it would spend approximately 1.76 trillion won on shareholder returns. However, critics point out that this failed to meet shareholders' expectations given the record-breaking performance.
The growth in KB Financial Group's performance is thanks to the contributions of its non-banking subsidiaries. The net profit of its flagship, KB Kookmin Bank, fell from 3.2615 trillion won in 2023 to 3.2518 trillion won in 2024. Conversely, the net profit of KB Securities increased by 50.3% from 389.6 billion won in 2023 to 585.7 billion won in 2024, and during the same period, the net profit of KB Insurance increased by 17.7% from 713.3 billion won to 839.5 billion won. The net profit of KB Kookmin Card also increased by 14.7% from 351.1 billion won to 402.7 billion won.
In the securities industry, KB Financial Group's record-breaking performance had already been predicted since the middle of last year. At the same time, attention was focused on the company's shareholder return policy. In this year's New Year's address, Chairman Yang Jong-hee stated, "We will unwaveringly implement activities that contribute to the development of our society, along with strengthening shareholder returns, managing capital ratios, and improving the Return on Risk-Weighted Assets (RoRWA)," adding, "We will ensure that this series of activities leads to an increase in customer value."
KB Financial Group announced that it would spend approximately 1.76 trillion won on shareholder returns. On February 5, KB Financial Group reported, "We plan to use approximately 1.76 trillion won in capital that exceeds 13% of the 13.51% CET1 (Common Equity Tier 1) ratio from the end of 2024 as a resource for the 2025 annual cash dividends and share buybacks/cancellations," adding, "The board of directors resolved to buy back and cancel a total of 520 billion won worth of treasury shares, considering the annual total cash dividend."
However, after the announcement of KB Financial Group's shareholder return plan, voices of disappointment emerged from the securities industry. This is because the scale of shareholder returns fell short of expectations. Choi Jung-wook, an analyst at Hana Securities, pointed out, "The planned 520 billion won in share buybacks and cancellations for the first half of the year was somewhat disappointing compared to the heightened expectations," adding, "The desperation for management efforts to raise the CET1 ratio seems less than that of other banks."
Eun Kyung-wan, a research fellow at Shinhan Investment Corp., analyzed, "The sharp drop in (KB Financial Group's) capital ratio is regrettable," and added, "Although KB Financial Group possesses the industry's top-tier profit base and capital strength, a partial dilution of its premium is expected due to the capital ratio and share buyback scale that fell below expectations."
The disappointment with KB Financial Group is also evident in its stock price. KB Financial Group's stock price even exceeded 100,000 won last December. The current stock price remains in the 70,000 to 80,000 won range. In particular, on February 6, the day after KB Financial Group announced its shareholder return plan, the stock price fell by 6.70% compared to the previous trading day. On February 11, KB Financial Group announced that CEOs of all KB Financial Group affiliates and executives of KB Financial Group had directly purchased treasury shares. Nevertheless, KB Financial Group's stock price has not rebounded.
KB Financial Group's CET1 ratio fell by 0.33 percentage points (p) from 13.84% at the end of September last year to 13.51% at the end of December. Of course, the CET1 ratios of other major financial groups besides KB Financial Group also declined. However, voices of regret are emerging because the drop in KB Financial Group is larger than that of other financial groups. Shinhan Financial Group's CET1 ratio fell by 0.10p from 13.13% at the end of September last year to 13.03% at the end of December, and during the same period, Hana Financial Group fell by 0.04p from 13.17% to 13.13%. Woori Financial Group rose by 0.12p from 11.96% to 12.08%.
KB Financial Group stated that it would continue to use capital exceeding the 13.5% CET1 ratio as a source for shareholder returns in the second half of the year. To satisfy shareholders' expectations, KB Financial Group must manage its CET1 ratio. KB Financial Group's stance is to raise the CET1 ratio by reducing risk-weighted assets.
A major reason for the lower CET1 ratio is the sharp rise in the exchange rate. This is because when the exchange rate rises, some foreign currency loans can be converted into risk-weighted assets. Hana Financial Group mentioned in a recent conference call, "For every 10 won increase in the exchange rate, risk-weighted assets move by about 700 to 800 billion won."
The problem is that the uncertainty caused by U.S. President Donald Trump is significant. As President Trump announced measures to strengthen tariffs, the exchange rate is also showing an upward trend. If tariffs increase, trade may shrink, leading to a global economic slowdown, which acts as a factor for a strong dollar. Also, the uncertainty in domestic politics that has continued since the emergency martial law situation last December is cited as a factor for the rise in the exchange rate.
The Korea Chamber of Commerce and Industry's Sustainable Growth Initiative (SGI) stated in a report on February 4, "Even if political uncertainty is settled early, the dollar's strength will continue throughout the year due to the persistent Korea-U.S. interest rate inversion and President Trump's forewarning of tariff hikes," and, "If the current political uncertainty continues throughout the year, the won-dollar exchange rate will be under pressure to rise by about 5.7%, and under this scenario, the exchange rate could soar to the 1,500 won range," offering a pessimistic outlook.
The possibility of an interest rate cut could also be a factor negatively affecting the CET1 ratio. When interest rates fall, interest income in the financial sector may decline. Yoo Sang-young, an analyst at Korea Investment & Securities, predicted, "Unless it is at an exceptional level, such as the exchange rate approaching 1,500 won, a cut in the Korean base interest rate is expected in February."
For this reason, it is expected that it will not be easy for KB Financial Group to manage its CET1 ratio in the second half of the year. If the CET1 ratio is not managed properly, the resources for shareholder returns will decrease accordingly, which could lead to a decline in the stock price. Managing the CET1 ratio is also a matter that could be linked to Chairman Yang Jong-hee's leadership. On the 13th, at the ‘Business Agreement Ceremony for Fostering and Strengthening Capabilities of Outside Directors,’ Chairman Yang Jong-hee mentioned, "I will strive even harder for a value-up."
Na Sang-rok, Chief Financial Officer (CFO) of KB Financial Group, addressed these concerns during the earnings conference call on February 5, saying, "We plan to minimize the volatility of asset management and reduce the resulting procurement costs, thereby minimizing not only interest income but also the fluctuations and downward range of the Net Interest Margin (NIM)," and, "As of the first half, we think we will be able to maintain it at a slightly different level from 13.51%."