Greetings. I am Peter Kweon, the Head of IR at KBFG. We will now begin the 2022 Annual Business Results Presentation. I would like to express my deepest gratitude to everyone for participating today. We have here with us our group CFO and SEVP, Scott YH Seo, as well as other members from our group management. We will first hear the 2022 annual major financial highlights from our CFO and SEVP, and then have a Q&A session. I would like to invite our SEVP and CFO to deliver 2022 annual earnings results.

Good afternoon. I'm Scott YH Seo, CFO of KBFG. Thank you for joining the company's annual 2022 earnings presentation. Before looking at the details of the income statement, I will briefly run through the highlights of business performance and key indicators of the group. KBFG's FY '22 net profit was KRW4,413.3 billion, flat year-over-year but has underperformed market expectations or the consensus estimates of the analysts. EPS for '22 was KRW11,002, down 1.2% year-over-year, and ROE on common stock basis was 9.9%. As a CFO, it's regretful to have to announce results that fall short of expectations of shareholders and investors. Biggest reason why we fell short of market expectations in '22 net profit is due to preemptive provisioning based on conservative FLC, forward-looking criteria. For three years up to '22 with the outbreak and spread of COVID-19 and living with COVID, experiences which no one expected drove sense of instability and brought uncertainties to global economy and the financial markets, which heightened concerns. We expect macro uncertainties to grow this year globally and the signals for recession in the domestic economy across consumption, investment and exports are becoming more visible, building on the concern over rise in delinquency ratio and NPL ratio. At KBFG, to thoroughly prepare against such event, we adopted a more conservative FLC future -- forward-looking criteria versus previous years. Preemptive provisions for domestic operations in '22, reflecting conservative FLC, was KRW242 billion, up more than 30% year-over-year. This is to secure ample room if and when credit risks heighten. Next, provisions for overseas banks who we acquired that we set aside in Q4 on a consolidated basis was KRW570 billion and was KRW382 billion on an equity holding basis. Although local supervisors continue to operate COVID-19-related forbearance program to prepare for possible deterioration once the…

Thank you very much for the presentation. We will now begin the Q&A.

[Operator Instructions] We will take the first question, Mr. Kim Jae-woo from Samsung Securities. Please go ahead.

Thank you very much for taking my question. My first question relates to your shareholder return policy. You did provide us with the detail, but I still do have a couple of items that I want to clarify. In terms of the total shareholder return rate, what is your target? And how do you break that between dividend and share buyback? I would like to understand how you're going to balance between the two. And you've been paying out on a quarterly basis, and I am wondering what your plans are, quarterly dividend or year-end dividend payout? Would there be any change in your dividend payout policies? Would like to understand that in more detail. And also last year, if my memory is correct, there was no shareholder buyback, but I believe that going forward, you will be quite aggressive in share buyback and cancellation. And you talked about CET1 ratio of target of 13% and excess capital, you would use aggressively to pay dividend. But when you achieve CET 13%, one-third, about KRW12 billion of share buyback was announced by J.P. So, I'm just wondering whether you would move very aggressively and actively in actually paying out your dividend. And I would like to understand the shares, did you buy back, how would you use them? Some of the global companies rather than canceling them, they would use it to compensate their executives and employees. I would like to understand what your plans are with regards to that practice. Thank you.

Thank you very much for the question. That is a quite difficult question to tackle. As I presented at the beginning, we came up with the mid- to long-term capital management plan. And I can tell you for certain that this was not attributable to any outside drivers, but we felt that internally, it was necessary for us to really provide a strong commitment to the market. I just wanted to preface this answer with that. If you look at capital management, we look towards advanced countries, U.S., Japan, Singapore and Australia. There are multiple number of countries that we looked into. We studied them and we adopted them as our benchmark. But as you would appreciate, when we need to talk about the dividend payout, we need to first start off with our target CET1 ratio. We also need assumptions on growth. And thirdly, with regards to the excess capital, we need to have a principle and discipline in place. At this point in time, last year, our group's ROE on a common equity basis, was 9.9%. Now, for this year, if the nominal GDP growth rate for '23 was assumed at 5% -- this is just for illustrative purposes, let me remind you. Now, so if nominal GDP growth was 5%, if there's 5% asset growth for the group, then in 2023, we would reach ROE of 9.9%. So, under this capacity, this means that we cannot increase our payout ratio to 50%. It is just simple arithmetic, so you would understand this. So, based on our basic capital plan, through asset growth, increasing leverage and increasing ROE rather than taking that approach, what I want to emphasize that we would like to increase ROA continuously. And the way we could do that is a steady credit cost…

We will take the next question from J.P. Morgan, Jihyun Cho. You're on the line.

Thank you very much for this opportunity for me to ask questions. And I would like to ask about provisioning for your overseas subsidiaries. And I know that related to Bukopin, probably the provision is for that. And I think you mentioned this briefly. And can you tell us about the operations? And regarding the provisioning, if it will not be burden for the future if it's already sufficient at this level? And I know that you are working to normalize the operations of this bank. And when do you think this bank will add to your earnings to the group? Are there other overseas subsidiaries that you can tell us about that may lead to these types of provisioning or losses? Or are there any positive movements for overseas subsidiaries? If you can answer that, it will be helpful. And in 2023 guidance, I would like to ask you questions, because looking at your book compared to your competitors, regarding your loan growth or others, it seems that it's a bit lower. So, can you tell us about 2023 guidance, NIM and loan growth and credit cost guidance and your bottom-line, what kind of growth that you are envisaging based on your guidance for 2023?

Thank you very much. We will soon answer your question. Please hold.

Thank you very much for you questions. And regarding Bukopin, I would like to explain a bit more about the situation. I'm the CFO, so maybe I can explain about the financials. And from KBFG, we can hear about the situation more from our CGSO, Cho Nam Hoon. Regarding Bukopin, to explain the situation, in 2018, in July, Indonesia's mid to large bank, Bukopin shares were acquired. And in July of 2020, we had -- and in September, we had third-party allotment of capital increase. So, we have about 67% of shares as of now, and we are the largest shareholder. The reason why we decided to acquire Bukopin because we paid attention to the possibility potential of Indonesia, it is because they have a very high economic growth rate. Compared to other countries, they have very strong internal demand economic structure and abundant resources and a middle-class increase. They have a very large population of 270 million. And we found that they have a lower utilization rate of financial service. So, we found that it's a very attractive market. And we tried to enter into the local market very quickly through acquiring the shares of Bukopin Bank. And by acquiring this mid to long -- mid to large bank with a large customer structure with very vast sales operations, we believe that we could have a differentiated move compared to other Korean banks that were pursuing organic growth. However, Bukopin Bank after -- although we made many efforts to turn around Bukopin Bank, there was the COVID-19 situation that became prolonged, and the top-line growth that we had thought of in the beginning was actually delayed. And there was the NPLs of the loans, so it went against our expectations in 2021 in November. There was the third-party allotment…

I am Global Strategy Head, Cho Nam Hoon. Regarding Bukopin and when it can add to the earnings of our group, well, because this is not normalized as of now, so we believe that we will need a bit more time for it to become normalized. And we are managing this situation with a long-term perspective. And as was mentioned by our CFO previously, compared to what we had planned, it is true that we have been delayed for two to three years for the normalization of Bukopin. And I am quite prudent -- but because we had sizable provisioning this year, although it has not been normalized yet, I think prudently, we can estimate that by 2026, we can have -- 2025, actually where we can make a profit. And we believe that by 2026, it can add to our ROE, at least not work against our ROE, and we are doing our best to faithfully implement our plans for normalization. And for our other subsidiaries, for 2022, there was Cambodia PRASAC that we had acquired another bank, and there's also other overseas subsidiaries that we had acquired and established. Then they are being managed well for asset quality. And for their earnings actually, they are actually quite positive even going over our expectations. So, it is not a burden to us in our earnings. And we believe that the contribution they can make to our earnings will become very positive going forward. Thank you very much.

I am [Kim Sung Hyun] (ph), the CFO of the bank. And for loan growth, I would like to answer your question. In Q4, for the household loans, there was KRW0.4 trillion growth -- KRW0.2 trillion growth and strategically in Q4, there were securities KRW9.9 trillion growth. And for this year, I would like to comment on loan growth rate. 3% to 4% that we are estimating as an outlook, but we do have the interest rate burden we are seeing a lot of the repayment of the loans, and there is the special program loan situation and corporate loan market is stabilizing. So, we believe that large core demand will stabilize. So, we believe that going forward, the loan growth -- loan book growth will be a bit lower than expected, but we will do our best to meet the real demand in the market. And we are focusing more on profitability and asset quality on high-quality loans rather than just size --growth based on size. Thank you very much.

Just to add to that answer, for our capital management plan, I mentioned that for the asset growth, well it will follow system growth for the midterm plans. And regarding the guidance for 2023 that you asked about, well, in principle, we don't give our net earnings guidance NP guidance, but what I can comment on is that with IFRS 17 change for accounting and when this macro situation continues and taking into account our preemptive provisioning, then 2023 earnings guidance will be quite positive. And when we have these earnings releases related to Bukopin preemptive provisioning and FLC preemptive provisioning, if excluding that, then it would have been KRW4.9 trillion of additional of these earnings. So, we believe that this will become sufficient guidance for 2023. Thank you.

Thank you for that.

We will take the next question from Citi, Yafei.

Hi. Thank you for taking my questions. I have a follow-up on capital return. So, it's really around -- you mentioned that 2023 profit will still be very good and, to loan growth, it's relatively subdued. I just wanted to [plug] (ph) those numbers together and given your CET1 ratio already ahead of a 13% target, so is it possible that the payout ratio, including buybacks, is going to be materially higher than what you have for this year, so probably somewhere around 40% or even 50% range? Thank you.

Yes, once again, from a mid- to long-term capital management plan, we have a very detailed plan laid out. But as I mentioned before, our principle once again is not to give out a specific number in terms of the payout ratio target. But as you've mentioned, once we achieve the net profit target internally and once we have enough of the capital ratio, as mentioned under the mid- to long-term capital management plan, our clear principle that we shared with you previously is something that we will faithfully comply with.

Thank you very much for the answer.

We will take the next question from Hanwha Securities, Kim Do-ha. Please?

Thank you for the opportunity. I have three questions. The first question could be a detailed question, and you mentioned towards a target and you told us about excess return -- excess capital return. And I believe that it can be finalized at the end of the year. And like today, we will see the earnings finalized at the end of February, and you mentioned that you will have share buyback from tomorrow. So, do you think this will be the schedule going forward if you have the cancellation of the shares? So, after the end of the year when everything is finalized, so at the end of the financial year, so it will be included in the previous year's shareholder return? And at the end of the year, if you did not reach 13% CET1 ratio, then it will be hard to expect your buyback? But could we also expect more dividends in this situation? And next, regarding the share -- what are you going to do with the shares that you hold now? And regarding the credit risk, I know that you have seen some provisioning. So, can you tell us about your plans for the CET1 ratio, taking these factors into consideration? Thank you very much.

We will soon answer your question. Please hold.

Thank you for various questions, and I would like to answer those questions. We mentioned our mid capital management and dividend plan and maybe I was not clear enough, so I would like to emphasize this once again. For cash dividends, compared to the past -- compared to the previous year, our principle is not to actually have at a level lower than the previous year. So that is our principle. And secondly, for shareholder return that you aforementioned, for a share buyback, as was mentioned in your question, for the KRW300 billion of these shares, well, this will be included in the 2022 TSR, total shareholder return, and there is government-initiated dividend related change for the dividends. And when this is confirmed, then of course, we will include that if the change is confirmed. So, we will communicate with the bank regarding this. And for the Basel III credit risk, well, I would like to ask our group CRO, Cheal Soo Choi, to answer that question.

Yes, regarding Basel III, I would like to answer your question for the credit risk. I'm the CRO. And we have actually implemented that already. And for this year, for Basel III, there's market risk and operational risk that we will implement. And for market risks on sensitivity and for operational alerts, there are some multiples -- internal multiples that we will use. And for the numbers, well, we will need to divide that in March. But I think, although I cannot mention the numbers as of now for PI ratio or CET1 ratio, we believe that it will have a positive impact. And we believe that the results will probably be similar to what we have been expecting.

Thank you for the answer.

We do not have any more questions waiting in the queue, but give us one moment. Yes, we have one question from CLSA. Please go ahead with your question.

Can you hear me okay? My name is Shim Jongmin from CLSA. Thank you for taking my questions. I have one question relating to domestic economic outlook. I would like to understand what the executives take is on the future outlook of the domestic market. We hear these days a lot about the real estate market, and SOHO loans in the past have grown quite steeply. And so, there's a concern relating to the real estate-related or mortgage-related loans. But is it okay for us to interpret that you are well prepared against such domestic economic recessions? Are there any areas where you are overly concerned about in terms of the domestic market?

Allow me to respond to that question. With the very high rate cycle, we are clearly aware of heightened uncertainty. So, we do have concerns. We are mindful of the asset quality, of course. As our CFO has mentioned, we've been very conservative. And based on our forward-looking criteria, we have provisioned significantly. Even aside from Bukopin, we've applied a lot of stress on our economic scenario based on which we've provisioned for the reserve. And also, our asset quality management through our portfolio has always been the range that we have we have been foreseeing. And so, once again, with ample amount of provisions, we will do our best to focus on asset quality management. On some of the areas where there may be more concern compared to the past, as long as we put in corporate-wide effort, we believe that we will be able to keep that under control. And come end of the year, I believe that our outlook and projection will more or less materialize. And so, in terms of loan policy and managing the overall portfolio, we believe that we will have ample capability to be able to manage the issues. Thank you.

We will take the last question from DB Securities, [indiscernible]. You are on the line.

Yes. Thank you for this opportunity. I just have one question. Well, based on your NIM and your outlook, can you tell us about the situation? What is the NIM outlook?

Well, can you repeat your question? I think the line was a little bit unstable.

2023 outlook for NIM outlook and your rationale behind that?

Thank you for the question. Continuing from the previous year to this year, we have seen core deposits that are going down and the interest rate hike cycle, well, there are expectations that this will end. So, it has been already implemented into the market preemptively, and we are seeing the spread going down. So, it seems that we will have a difficulty in having a great NIM hike. However, with the key rate increase, we have some loan repricing that we can have. So, on a Y-o-Y basis, we can have a slight increase that we can expect for the NIM in 2023.

Thank you. We do not have any further questions that's waiting in line, but just bear with us one moment before we close.

While preparing for the earnings presentation, we believe there will be a lot of interest regarding the mid- to long-term capital management plan, additional provisioning, and we had this opportunity to discuss quite a bit about these items. As I would think that in terms of the financial performance itself, there won't be too many questions as they are quite clear in and of themselves. But we will still wait just a couple more seconds.

With no further questions being submitted, we would like to now close the earnings presentation of KBFG. Thank you very much.