Restructuring brings turnaround

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By Kim Jae-kyoung

In the first quarter, KB recorded a better-than-expected quarterly profit on the back of rising interest margin and benefits of restructuring, raising hopes that the group will rebound both in terms of profitability and financial soundness this year.

Net profit came to 757.5 billion won ($706.3 million) in the January-March period, up 23.3 percent from 614.5 billion won during the same period the previous year. It compared with a net loss of 341 billion won in the fourth quarter of last year.

Its return on equity (ROE), a key barometer of profitability, jumped to 16.03 percent in the first quarter from 0.79 percent a quarter ago, while its return on assets (ROAs) increased from 0.06 percent to 1.17 percent during the same period.

KB Chairman Euh Yoon-dae said that ROE is the area that the group should further improve to attract more foreign investment. “If you look at ROE, it is lower than those in China, India and Indonesia. I think the ROE should hover at least 17 percent,” he said.

According to the group, the robust performance is expected to continue in the coming quarters. Given that the second-quarter performance is expected to be better due to one-off factors, such as the sale of Hyundai Engineering and Construction, net income for the full year is expected to reach over 2 trillion won.

Revenue declined 12.1 percent year-on-year to 6.44 trillion won while operating profit jumped 60.3 percent to 1 trillion won, it added. The group's higher net income mainly came as interest income rose amid its improved net interest margin (NIM) and expenses including labor costs declined following its sweeping voluntary retirement program.

Korean banks' NIMs, a key gauge of profitability, have been on the rise as a series of rate hikes by the central bank bolstered interest gains from lending, raising their interest income. KB's NIM reached 3.06 percent in the first quarter, up 0.17 percentage point from three months earlier.

The group said it put aside money worth of 415.6 billion won to cover credit losses last quarter, down 13.8 percent from a year earlier on the back of its improving asset quality.

Kookmin Bank, the flagship unit of the group, logged a net profit of 740.5 billion won in the first quarter, up 24.5 percent from a year earlier.

Euh remains cautious over the earnings outlook for the full year, citing uncertainties surrounding the finance industry.

“We have only passed one fourth of the year. It is not appropriate to talk too much before the year-end. The biggest risk to earnings are external factors, such as risks associated with savings banks,” he said.

The group's total assets reached 344.8 trillion won as of the end of March, up 3.4 percent from the end of last year. KB began to report earnings results in line with the new accounting rule called the International Financial Reporting Standards (IFRS) starting this year. Under the new yardstick, the rules on calculating banks' loan-loss reserves are eased, which helps the group book better earnings.