KB Financial Group posts 30.5% net profit drop in Q1 due to ELS compensation

KB Financial Group reported net profit of $764.5 million, a 30.5 percent drop for the first quarter, due largely to the payout of compensation for losses from Hong Kong-tied ELS.

KB Financial Group headquarters building in western Seoul [KB FINANCIAL GROUP]

KB Financial Group saw a 30.5 percent on-year drop in net profit in the first quarter due to compensation paid out for investor losses incurred from troubled Hong Kong-tied derivative products.

According to its earnings report Thursday, the financial firm reported a quarterly net profit of 1.05 trillion won ($764.5 million) in the January-March period, down 30.5 percent from a year prior to miss the analyst consensus of 1.08 trillion won compiled by market tracker FnGuide.

Operating profit rose 10.1 percent to 2.35 trillion won, above the market expectation of 2.05 trillion won. Net interest income increased 11.6 percent to 3.15 trillion won, with a net interest margin of 2.11 percent.

The group’s flagship KB Kookmin Bank saw a 58.2 percent plunge in net profit to 389.5 billion won, weighed down heavily by the 862 billion won in voluntary compensation for traders of the high-risk equity-linked securities (ELS) connected to the Hang Seng China Enterprises Index (HSCEI).

KB Financial Group issued the compensation to cover some of the losses inflicted by the sale of the ELS tied to the movement of HSCEI, the value of which has collapsed to half of its 2021 peak.

KB Kookmin Bank was far and away the largest seller of the HSCEI-linked ELS among commercial banks, selling more than 7 trillion won worth of the products.

Excluding the ELS compensation and other one-off expenses, the quarterly net profit came to 1.59 trillion won, according to KB.

Meanwhile, KB’s board of directors declared a dividend of 784 won per share for the first quarter.

The company said it will implement a new shareholder return policy starting this year, including a quarterly equalized dividend payout with a predetermined amount of total dividends paid through the year, which currently stands at a minimum of 1.2 trillion won.

With the new policy, the quarterly dividend will be paid with relative consistency from a minimum of 300 billion won allotted for each quarter. The amount may gradually increase through the year if KB cancels its treasury stocks.

Last year, KB Financial Group paid 1.17 trillion won in dividends.

“To enhance the visibility and predictability of cash dividends while maintaining the current mid- to long-term capital policy, [KB] decided to pay quarterly dividends equalized based on the total dividend amount,” said KB Financial Group Chief Financial Officer Kim Jae-kwan.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]