KB Financial Group Inc. — FY 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed April 27, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are consolidated, prepared under IFRS as issued by the IASB, and amounts below are in Korean won (₩) unless stated otherwise.
Business context and financial performance
KB Financial Group is a Korean financial holding company operating banking, credit card, securities, insurance, asset management and other businesses. Its largest subsidiary, Kookmin Bank, represented about 71.7% of group assets at year-end.
- Profit: Net profit was ₩3.50 trillion, up 5.7% from 2019. Profit attributable to shareholders of the parent was ₩3.46 trillion, up 4.3%. Basic EPS increased to ₩8,809 from ₩8,451.
- Income and margins: Net interest income rose 5.7% to ₩9.72 trillion, while net interest margin declined to 1.98% from 2.14%. Net fee and commission income increased 25.6% to ₩2.96 trillion. Net insurance income was essentially unchanged at ₩300 billion.
- Costs and credit provisions: Operating profit before credit-loss provisions increased 9.7% to ₩5.66 trillion. General and administrative expenses rose 9.0% to ₩6.83 trillion. Provision for credit losses rose 55.7% to ₩1.04 trillion, reflecting COVID-19-related precautionary provisioning and loan growth.
- Assets and lending: Total assets grew 17.8% to ₩610.7 trillion. Gross loans increased 11.2% to ₩380.5 trillion; deposits rose 10.8% to ₩338.6 trillion. Foreign loans increased sharply, from ₩8.0 trillion to ₩19.2 trillion, partly reflecting overseas acquisitions.
- Asset quality: Non-performing loans increased to ₩1.11 trillion, or 0.29% of loans, from ₩756 billion, or 0.22%. Loan-loss allowances rose to ₩3.28 trillion, equal to 0.86% of gross loans versus 0.70% in 2019. Other impaired loans also increased.
- Capital and balance-sheet funding: Group total equity was ₩43.4 trillion. Group total capital adequacy was 15.28%, up from 14.48%; common equity Tier 1 was 13.30%, down from 13.58%. Year-end borrowings were ₩49.8 trillion and debentures ₩62.8 trillion.
- Cash flow and liquidity: Operating cash flow was an outflow of ₩11.5 trillion, versus an inflow of ₩9.4 trillion in 2019; investing outflow was ₩11.0 trillion and financing inflow ₩25.3 trillion. Cash and cash equivalents increased to ₩8.69 trillion. Kookmin Bank’s December average liquidity coverage ratios were 92.53% in won and 101.18% in foreign currency, above the temporarily reduced regulatory minima of 85% and 70%, respectively.
Material changes versus 2019
- Lower market interest rates reduced average asset yields and NIM, but lower deposit and funding costs supported higher net interest income.
- Credit-loss provisions increased substantially, and group NPL and impaired-loan measures worsened despite credit-card delinquency improving.
- Fee growth was led by securities brokerage and leasing. Securities brokerage activity benefited from high market trading volumes.
- Group assets, deposits and loans expanded, with significant contributions from acquisitions and growth in overseas lending.
- Other comprehensive income increased to ₩475 billion from ₩152 billion, including gains on equity instruments at fair value through other comprehensive income.
Outlook, commentary, risks and unusual items
- Management described the Korean and global economic outlook as uncertain and warned that COVID-19 could continue to affect borrowers, asset quality, markets and operations. Government-supported loan extensions and payment deferrals may delay recognition of credit deterioration. Disclosed exposure to COVID-affected sectors was ₩145.0 trillion, with ₩92 billion of additional provisions.
- Retail and SME lending are significant exposures. Risks include household indebtedness, unemployment, real-estate declines, borrower distress, collateral recovery and government-directed lending support. Retail loans were 48.0% of total lending; other consumer loans were largely unsecured.
- Short-term funding is material: approximately 96.2% of deposits were payable on demand or had maturities of one year or less. Management noted that withdrawals or non-renewals could require more expensive replacement funding.
- Insurance subsidiaries face claims, reserve and capital risks, including prospective regulatory solvency changes and IFRS 17 implementation, then scheduled for 2023. The filing does not provide a quantified forecast of IFRS 17’s financial impact.
- Acquisitions included Prudential Life Insurance for ₩2.3 trillion in August 2020, a 70% stake in Cambodia’s PRASAC, and the increase of Kookmin Bank’s stake in Bank Bukopin to 67%. A ₩145 billion bargain-purchase gain was recorded for Prudential; acquisition and integration costs and risks may affect comparability.
- Other unusual items included ₩361 billion of termination benefits, mainly from a December 2020 early-retirement program, and litigation-related provisions involving KB Securities; the filing text does not provide a clear amount for those provisions.
- The board recommended a ₩1,770 per-share dividend for FY 2020, approved by shareholders on March 26, 2021. The payout ratio was 19.97%. No standalone earnings guidance is provided in the filing.
- The auditors issued an unqualified opinion on the 2020 financial statements and internal controls. The internal-control assessment excluded Prudential Life, acquired in 2020; it represented 4.11% of year-end assets and 1.94% of consolidated pretax profit.
Most important facts for investors to verify
- Whether higher provisions and rising NPLs adequately reflect delayed COVID-related defaults, payment deferrals and overseas acquisition portfolios.
- How sustained lower interest rates, loan pricing and deposit competition affect NIM and earnings.
- Capital and liquidity headroom under normal, rather than temporarily relaxed, regulatory requirements, including the maturity and renewal profile of deposits and wholesale funding.
- Integration progress, acquired-business performance and goodwill or valuation risks for Prudential Life, PRASAC and Bank Bukopin.
- Potential outcomes and recoveries in material litigation, including the Bank Bukopin and Australian investment-fund matters; claimed amounts are not necessarily expected losses.
- The timing and quantified financial and capital effects of IFRS 17 and the planned insurance solvency regime.