KB Bank posted record quarterly net interest income after years of losses
A turnaround could lift KB Financial to second place among Korean banking groups in overseas earnings
Yang Jong-hee, chairman of KB Financial Group
[Insight Korea = Park Ji-hun]
Yang Jong-hee, chairman of KB Financial Group, appears to have laid the groundwork for a rebound at KB Bank, the group’s Indonesian sub-subsidiary, after pushing through a broad overhaul. If profitability continues to improve this year after last year’s return to profit, KB Financial could rise to second place among Korean bank-based financial groups in global performance, measured by net income from overseas local subsidiaries. The improvement at KB Bank could also serve as a positive signal for Mr. Yang’s bid for another term. His current term ends in November.
KB Bank, KB Kookmin Bank’s Indonesian subsidiary, recently disclosed that it posted consolidated net interest income of 407.044 billion rupiah, or about 34.4 billion won, in the first quarter. That was up 63.9 percent from the same period last year and marked the largest quarterly figure since the bank became a subsidiary of Kookmin Bank in September 2020.
KB Bank, formerly Bukopin Bank, had a large volume of bad loans when it was acquired. It struggled with losses as the Covid-19 pandemic sharply increased the number of vulnerable borrowers. After posting net income of 216.3 billion rupiah in 2019, the bank recorded net losses of 3.9 trillion rupiah in 2020, 5 trillion rupiah in 2022, 6 trillion rupiah in 2023 and 7 trillion rupiah in 2024.
Mr. Yang was nominated as chairman in September 2023, when KB Bank was undergoing a capital increase of more than 700 billion won because of its heavy losses. At the time, he identified three top priorities for KB Financial Group: credit risk management, organizational slack during the leadership transition and the normalization of KB Bank.
After Mr. Yang took office, KB Bank shifted the focus of its branch network operations from large-scale restructuring to efficiency through selection and focus. Before his appointment, the bank had carried out sweeping restructuring of inefficient branches and staff. Afterward, it began equipping branches with products and services tailored to the characteristics of their customers.
The bank also worked to change its loan portfolio. It reduced its heavy dependence on corporate clients, including large companies, and increased the share of retail customers. Many of its existing corporate borrowers operated in industries facing uncertainty from factors such as U.S.-China tensions. Loans to these customers were low in profitability and high in credit costs.
KB Bank targeted specific industrial ecosystems expected to benefit from Indonesia’s new capital city construction and modernization policies, including infrastructure, health care and renewable energy. It also used Kookmin Bank’s strengths to expand household lending, centered on mortgage loans, which still have low penetration in the local market.
Even as it reduced branches, the bank strengthened its digital competitiveness to maintain customer contact points. At the time of the acquisition, KB Bank’s branches were not properly connected digitally with one another or with headquarters. Systems that had remained fragmented by branch and had not been digitized were converted into a next-generation IT system, or NGBS, through the SHINE project.
As a result of these management reforms, KB Bank posted net income of 66.588 billion rupiah, or about 5.6 billion won, last year on a local financial reporting basis, turning profitable. In the first quarter of this year, it also recorded net income of 14.026 billion rupiah, or about 1.2 billion won.
This year’s performance also shows signs of significant improvement. Above all, impairment losses on credit losses fell sharply to 12 billion rupiah in the first quarter from 152.6 billion rupiah a year earlier. The loan-at-risk ratio, or LAR, which measures risky loans including nonperforming loans as a share of total loans, had approached 50 percent in 2022 but dropped to about 20 percent by the end of last year.
With net interest income rising sharply and credit costs falling significantly, the bank’s earnings-generating capacity is expected to improve further.
A Move Toward Second Place in Global Earnings
As KB Bank enters a normalization phase, KB Financial’s global performance, measured by net income from overseas local subsidiaries, is expected to rise to second place among Korean bank-based financial groups. Last year, Kookmin Bank’s overseas local subsidiaries posted net income of 63.6 billion won, ranking third behind Hana Bank’s 70.6 billion won.
Hana Bank and Woori Bank, which had each generated around 200 billion won in annual net income from overseas subsidiaries, have slowed. Hana Bank’s earnings base in China, a key market, has weakened as Korean companies have pulled out. Woori Bank recently recognized large losses in Indonesia. With short-term rebounds difficult for both banks, industry observers say Kookmin Bank could move into second place with even a modest improvement in performance.
First place remains difficult for now. Shinhan Bank continues to show stable growth in Japan and Vietnam. KB Bank’s total assets are about 8 trillion won, meaning even if it achieves a 1 percent return on assets, it would generate only a little over 80 billion won.
The immediate point to watch is whether KB Bank can turn profitable under Korean financial reporting standards. It has already turned profitable under local standards, but under Korean standards it recorded a net loss of 68.3 billion won last year. That is because Korean standards for loan-loss provisioning are stricter than local standards.
Since its acquisition, KB Bank has been a major concern for the group. Nearly 2 trillion won has been invested, including capital increases, but normalization had long been seen as difficult.
“KB Bank was a medium-to-large bank in Indonesia, but I understand that it had more unprofitable branches than profitable ones and that its level of digitalization was so low that data was recorded by hand,” said one financial industry official. “If those problems are resolved and the bank turns profitable under Korean standards, it would provide a clear justification for the chairman’s bid for another term.”
-This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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