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Fundamental View
AS OF 22 Dec 2022- Kookmin FG (KBFG) has grown steadily through the acquisitions of non-bank companies in Korea and small banks outside Korea. Its banking subsidiary Kookmin Bank operates the largest branch network in Korea, with a particularly strong presence in the retail market. This makes it a systemically important bank with strong potential government support if needed.
- The group has a good track record and its large mass market franchise gives it a strong customer base. It has a well diversified business. It had the highest CET1 ratio amongst peers but is now broadly flat to Shinhan and Hana. We view KBFG as the strongest credit among the Korean financial groups.
Business Description
AS OF 22 Dec 2022- A well diversified and well run group, KBFG's main subsidiaries in addition to Kookmin Bank (KB) are Kookmin Card, Prudential Insurance (the KB insurance business is to merge into it from Jan-23), KB Securities, KB Capital (leasing) and KB Asset Management.
- The result of several mergers after the Asian economic crisis of the late 1990s, KB's main predecessors were Citizen's National Bank and Housing & Commercial Bank, both retail-focused banks that have given it the leading position in Korea's retail banking market.
- For the near term the group doesn't expect further M&A opportunities. It has looked for growth overseas with a focus on Indonesia (where it has taken a 67% stake in Bank Bukopin) and Cambodia (it took a 100% shareholding in Prasac, a micro-finance lender, over 2020-21). It also bought Prudential Financial's Korean insurance business in 2020.
Risk & Catalysts
AS OF 22 Dec 2022- Credit costs are expected to rise from very low levels due to rising interest rates, but this is likely to be mitigated by government support for SMEs. Increasing NIMs will help too, though the extent of NIM increase may be capped by government intervention.
- Korean banks have turned to Jeonse and SME loans for growth following regulatory curbs on mortgages and personal unsecured lending since 2021. Large corporate loans growth is likely too if capital markets are constrained.
- KBFG is expanding by business line and overseas with a focus on Indonesia and Cambodia – markets with more favourable demographics, growth potential and profit margins than Korea, but also more risk. It acquired Prudential’s Korean insurance business in 2020, which has boosted its insurance income and also offered cross sell-opportunities for the bank’s wealth management business.
Key Metric
AS OF 22 Dec 2022| KRW bn | 3Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.08% | 1.14% | 1.00% | 1.03% | 1.07% |
| ROA | 0.71% | 0.69% | 0.61% | 0.66% | 0.66% |
| ROE | 11.4% | 10.2% | 8.6% | 8.9% | 8.8% |
| Provisions/Loans | 0.30% | 0.31% | 0.30% | 0.21% | 0.22% |
| NPL ratio | 0.32% | 0.33% | 0.41% | 0.49% | 0.61% |
| CET1 Ratio | 12.6% | 13.5% | 13.3% | 13.6% | 14.0% |
| Equity/Assets | 6.8% | 7.3% | 7.1% | 7.4% | 7.4% |
| Net Interest Margin | 1.98% | 1.83% | 1.76% | 1.94% | 1.99% |
CreditSight View Comment
AS OF 20 Feb 2023We have a Market perform recommendation on KB financial Group (KBFG). KBFG enjoys the strongest franchise amongst the top 4. Capital standing is a strength with the current highest CET1 ratio but will likely fall behind Hana FG which has a higher CET1 ratio target and is only slightly behind KBFG. It has a relatively good track record across its businesses, though it has comparatively struggled with growth in FY22. It recently acquired Prudential’s Korean life insurance operations, as well as a small bank in Indonesia (Bank Bukopin) and a leading NBFI in Cambodia, as it looks to widen its business. Asset quality has remained sound, and substantial pre-emptive provisions (with a particularly large increase in 4Q22 for Bank Bukopin) have led to a >200% coverage ratio.
Recommendation Reviewed: February 20, 2023
Recommendation Changed: September 22, 2020
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