Apr 22, 2022
Peter Kweon
Good afternoon. My name is Peter Kweon, the Head of IR at KB Financial Group.
We will now begin the 2022 first quarter business results presentation. I’d like to express my deepest gratitude to everyone for participating today.
We have here with us our group CFO and Senior Managing Director, Scott Y. H.
Seo, as well as other members from our group management. We will first hear the 2022 first quarter major financial highlights from CFO and Senior Managing Director, Scott Y.
H. Seo, and then have a Q&A session.
I would like to invite our Senior Managing Director to deliver our 2022 first quarter earnings results.
Scott Y. H. Seo
Good afternoon. I am Scott Y.
H. Seo, CFO of KB Financial Group.
Thank you for joining KBFG’s Q1 ‘22 earnings presentation. Before moving on to earnings results, I will first run through key business highlights for KBFG for Q1 2022.
First, Q1 ‘22 net profit based on profit attributable to controlling interest was up 14% year-over-year to KRW 1.45 trillion, outperforming market consensus by 13%. Annualized EPS was KRW 14,892, up 14% on year, while ROCE came in at 13.2%, improving 0.7 percentage points year-over-year.
Q1 profit, net of one-off factors on a recurring basis was up 4% year-over-year, which shows KB Financial Group’s robust earnings capacity despite market uncertainties and lower trading and retail commissions income following the rate hike. Second, despite declines in household loan balance, thanks to market dynamics on rate hikes, there has been strong demand for SMEs and CIB lending.
And as a result, group’s loan in won was up 9.7% year-over-year. Despite strong corporate demand and weak capital markets and quarterly dividend payout, 2021 end of Q1 CET1 ratio was 13.4%, on par with year 2021 level, and Tier 1 BIS ratio compared to end of last year was up by 14 to 23 basis points.
KBFG is proud to say that it has the industry’s best capital adequacy ratio. Third, nominal credit cost for the group in Q1 ‘22 was around 15 basis points, but credit cost on a running basis, after considering for write-backs, was 23 basis points, as we maintain conservative provisioning stance above the average of 3-year period before the pandemic.
Also, NPL coverage ratio in Q1 ‘22 was 218%, up 71 percentage points versus before the pandemic. And NPL coverage ratio had been uptrending for the past 4 consecutive quarters.
Fourth, despite group’s investment into digitalization and rise thereof, on the back of corporate-wide cost control efforts and built-up effect of headcount efficiencies, G&A was down 2% on-year with cost-to-income ratio reporting 45.4%, which is down by 4.3 percentage points compared to CIO of 21. This, following share cancellation of KRW 150 billion last February, the BOD today made a resolution on Q1 quarterly dividend of KRW 500 per share and set in place quarterly dividend payout program.
Quarterly dividend program helps to enhance visibility of dividend payout and shows the commitment of the BOD and the management to develop and advance shareholder return system. KBFG will consider various other approaches to enhance shareholder value and will implement them in a consistent manner.
Lastly, we plan to integrate Prudential Life, which was managed on a stand-alone basis so far, with KB Life Insurance and complete the merger process by the end of the year. Integration of the two subsidiaries will help improve capital adequacy in time for IFRS 17 implementation and bring economy of scale for the life insurance business and enable differentiated and comprehensive financial consulting services.
As an integrated life insurer, we expect to gain greater market competitiveness. Now let’s move on to the details of Q1 ‘22 results, Page 2.
Q1 group net interest income was KRW 2,648 billion, up 18.6%, or around KRW 400 billion year-over-year. On rate hikes, which led to asset repricing, group NIM was up 6 basis points, driving up NII up 3.3% on quarter.
Please note that to provide financial information for better practicality, starting this earnings call, out of the provisions for insurance liability reserve, we reclassified interest expense paid out to policyholders as interest expense under net interest income and restated historical performance through retroactive treatment. Next is on fee and commissions income.
Group’s Q1 net fee commission income was KRW 915 billion. And despite sluggish stock market and financial product sales and difficult operational backdrop, performance was strong with 3.8% Q-on-Q growth.
This is a result of continuous effort put in to gain competitiveness in not only DCM, but also ECM of the securities business, which resulted in a solid and dominant positioning in the IPO market. On a year-over-year basis, net fees and commissions income dipped slightly due to the base effect from Q1’s high base of brokerage fee income last year and weak performance from the bank’s trust business.
Q1 other operating profit recorded KRW 160.7 billion, and rise in bond yields and sluggish stock market, securities and derivative performances were weak, which led to overall subdued result on a year-over-year basis. But with loss ratio improvement for the insurance business, insurance income was up, keeping other operating profit flat Q-on-Q.
For your reference, for KB Insurance, driven by loss ratio improvement, mostly around auto insurance and rise in net premium earned, it reported a net profit of KRW 143.1 billion in Q1, continuing the recovery trend. Next, on G&A expense.
Q1 group G&A was KRW 1,691.8 billion. Although we are expanding digitalization investment at the group level, our cost saving efforts, including for labor costs, have paid off with G&A down around 2% year-over-year.
Except for investments for future, we plan to review our cost base from 0.0 and thoroughly control costs and continue to revamp our headcount organization. Q1 PCL was KRW 130.1 billion, down 25% year-over-year.
The bank recovered large sum of bad loans, reversing KRW 59 billion in provisioning. And through upgrading the formula for calculating the loan loss provisions, there was around KRW 23 billion of write-backs.
And excluding such one-off impact, provision on a running basis reported around KRW 210 billion. Recurring PCL slightly inched up year-on-year on the back of asset growth, but on credit cost basis is at 0.23%, sustaining a steady level.
Next is on key financial indicators, Page 3. In the first quarter 2022, the group ROA and ROE recorded 0.88% and 13.16%, respectively, showing a continued improvement in the group’s profitability.
If we look at the loans in won growth graph, as of the end of March 2022, the bank loans in wons stood at KRW 321 trillion, which is a 0.8% growth YTD. In the case of corporate loans, thanks to a balanced increase in SME, SOHO and large corporate loans, corporate loans grew 3.4% YTD, which is a growth of approximately KRW 5 trillion, sustaining robust growth.
Household loans, impacted by the rise in interest rate and regulations, decreased by 1.4% YTD, mostly due to the contraction of unsecured loans. This year, the group will continue to focus on profitability and quality in its lending policy.
But with respect to household loans, to protect end borrowers and secure a solid presence in the market, we will apply a flexible interest rate policy in some cases, and agilely respond to changes in household loan regulations. Next is the NIM.
In the first quarter 2022, the group NIM increased by 6 basis points quarter-on-quarter to 1.91%. This is an 8 basis point rise compared to the 2021 annualized NIM, which shows the group’s strong profit growth momentum is reinforced even further this year.
Such strong quarterly NIM expansion resulted from not only the effect of the three hikes in the key interest rates since August last year, but also the bank’s asset repricing effect, as the future monetary policy direction was reflected in advance in the market interest rate, as well as our persistent efforts to enhance yields earned from securities assets. Next page, the group cost efficiency, the credit cost ratio, and the group BIS ratio were explained earlier.
Next, in this page, I’d like to address the competitiveness of KB Financial Group’s corporate banking digital platform that sets us apart. Based on our expertise in corporate banking, we have built the corporate banking digital platform that features various business support services and product lineups.
And internally, we have been continuously advancing the platform since quite long ago. Recently, with Internet-only banks entering in the corporate loan market, there has been heightened market interest and the competitiveness of corporate banking platforms.
We have two types of platforms that are optimized for the different needs of various types of corporate clients. The web-based KB Corporate Internet Banking provides full banking services, while the mobile-based KB Star Corporate Banking supports not only core banking services, but also asset management needs as well.
We are reinforcing the differentiated competitiveness of each of these platforms. The KB Corporate Banking platforms supports not only corporate banking transactions, such as deposits, loans and FX transactions, but also features Star CMS, an integrated cash management solution; and KB One Trade, an e-commerce solution for international trade and FX; and KB Bridge, a nonfinancial business support solutions such as recommendation of customized policy funds and professional advisory services.
As such, we offer industry-leading differentiated services to meet the various needs of our corporate clients. As banking services and corporate management activities are intricately linked, we have been able to develop corporate client relationships that go beyond just simple loans.
For your reference, the KB Corporate Internet Banking MAU is recorded at about 480,000 as of the end of last year, and KB Star Corporate Banking MAU stands at about 300,000 currently, which is the highest level in the industry. Recently, this growth trend has accelerated, and we soon expect it to be the main corporate banking platform of KB.
Lastly, in terms of products as well, in line with the growing online channel and changes in the competitive landscape, we have preemptively and proactively addressed these changes. The KB online small business loan is KB’s flagship online known product for sole proprietors that features a loan limit of up to KRW 100 million and competitive interest rates.
The KB Seller Loan, launched in 2018 was the first early settlement loan product offered in the banking industry in Korea. Since its launch, it has become very well received by online seller clients and maintains market leadership in supply chain finance.
We will continue to collaborate with external platforms to launch loan products based on alternative credit information, develop differentiated product lines in corporate banking, and lead the corporate banking market. Moreover, we will establish an extended corporate banking platform to offer various corporate banking services of our subsidiaries on KB Star Corporate Banking to become the #1 banking platform in corporate finance.
The following pages are detailed information on the earnings results I have just covered, so please refer to them at your leisure. This concludes the KB Financial Group’s 2022 first quarter earnings results presentation.
Thank you for your attention.
A - Peter Kweon
Thank you. We will now begin the Q&A.
[Operator Instructions] We will take the first question, Mr. Kim Jaewoo from Samsung Securities.
Jaewoo Kim
Thank you for good earnings this quarter. I have two questions.
First has to do with your shareholder return policy. You decided to pay out quarterly dividend.
I would like to understand some more color as to what your plans are regarding such quarterly dividend? I understand that your competitors have decided to do a certain amount of quarterly dividend and then a year-end dividend.
So in terms of the total aggregate shareholder return, for instance, Shinhan has also announced it’s going to do share buyback and cancel its shares. So I’m wondering whether KB also has those additional shareholder return plans?
Second has to do with the interest rate aspect. I understand that you’ve cut your loan rates quite significantly recently.
Recently, if you look at LTV and DSR, there are other regulations in place. So I would like to understand your objective and purpose of the strategies that you have?
Also, I think if you look at the current trend, there’s not that big of a rollover demand. So would there be a smaller impact on your margin, meaning if there’s deregulation for your loan portfolio, wouldn’t it be possible for people to actually switch to loans with a lower interest rate?
And if consumers use that to move that direction, what are your plans to counter that?
Peter Kweon
Just give us one moment to respond to the question.
Scott Y. H. Seo
This is Scott Y. H.
Seo, the CFO of KBFG. Thank you very much for your question.
With respect to the dividends, I’d like to offer you our thoughts. Last year, 26% dividend payout was done, and also through cancellation of treasury shares, 3.4% additional dividend payout was done.
So our plan this year is, based on the BOD resolution today, first quarter, second quarter, third quarter, KRW 500 dividend per share has been decided. And it will be done evenly.
And at the end of the year, dividend, taking into consideration a lot of different situations for the rest, we will decide what the exact amount will be. There are many things that we need to consider.
And so we have much to think about. First, the cash dividend.
And then also, if there’s a treasury buyback and cancellation, if there’s a rise in the stock price, then with respect to capital gains, there’s no tax right now. But on dividend, there’s a tax.
So we have to think about that tax issue as well. And then secondly, currently, KBFG, the price book is less than KRW 1 -- it’s transacted at less than KRW 1.
So not only the cash dividend is important, but also distressed KBFG shares might need to be bought and then canceled. That might be a better option.
So that’s something that we need to consider. And then thirdly, when we did the quarterly dividend this time, the top 10 market caps that have been listed in Korea, most of them have started quarterly dividends, but there are many companies who still don’t do quarterly dividends yet.
So we also need to think about what impact that will have on our indirect portfolio as well in great investment portfolio. And as you saw in the first quarter results, there’s been volatile changes in the capital market.
And so a bond issuance has been slow, but CIB large corporate loans demand is increasing. Compared to individual loans, the risk weight is much higher for these corporate loans.
And so we also need to factor that into our growth strategy as well. So in conclusion, in 2022, first quarter, second, third quarter, we will do a quarterly dividend with a DPS of KRW 500 and the rest will be paid out at the end of the year, taking into consideration all of the different factors in a way that we maximize the shareholder return.
And so that’s what I can say at this moment. Thank you.
Unidentified Company Representative
I understand you asked about the three questions. The first question had to do with growth.
And second question was interest rate-related policy. And third, on LTV.
So I will walk through each one of them. Now Q1, as you know, our household loan was reduced by KRW 2.4 trillion because the loan rates have gone up, the property market has become sluggish.
So overall loan demand has been quite slow. And there was cap on the household loan volume as well as a stronger DSR requirement.
And because of that, our Q1 performance had been quite weak. On the other hand, corporate loans, in Q1, we grew by KRW 5.5 trillion.
For large corporation SMEs and SOHO on low-risk borrowers, we are growing. And especially for IB, we have been able to drive significant growth.
Now in Q2, we look forward to strong corporate loan growth, and we expect household lending to also recover. So for this year, 5% to 6% growth rate, which is our objective, we believe we will be able to achieve that.
And in terms of the slow household loan business, this year, our growth target is 4.5%. We believe that this level of growth is achievable.
In the real estate market and related policy changes that are upcoming, there are positive expectations. And although currently, the demand is suppressed at this time, once the regulation becomes more visible, we think that there will be a recovery.
And also in terms of the collective loans, there still exists demand. And in August, there is then the Jeonse contract and the relevant rights.
If the rest are exercised and once the maturity comes due, then basically, there is a significant need for the Jeonse related payments. So we expect the demand to follow that.
Moving on to interest rate cut. last year, we’ve seen significant demand for loan.
And because of the loan cap, we were unable to provide preferential interest rate because of that limit. But we believe that we could provide those preferential interest rates depending on the market backdrop.
Beginning of the year, there’s been a significant drop in loan demand, and in order to grow their loan book, some of the banks have continuously cut their interest rate. And our company, in March and in April, we had provided a temporary rate cut to respond to that competitive landscape.
Going forward, we’ll be quite flexible in operating our interest rate policies, but we will still have a strong focus on profitability. Moving on to LTV requirement.
If LTV requirement is lessened or loosened up, we believe that the demand will go up. Especially in the first tier of financial market, we think the market backdrop will become quite positive.
However, there is DSR requirement. As long as DSR stays the same, the demand increase is going to be capped.
In terms of the customers who are subordinated in the overall structure, in order to alleviate their financing cost, we are providing various different benefits, so that we can respond to the existing demand.
Peter Kweon
Thank you very much for those detailed answers. We’ll take the next question.
UBS Securities, Mr. Kim?
Hyung Kim
Next year, IFRS 17 is expected to be introduced. I understand that for the insurance company and your consolidation with the FG, I would like to understand what impact the IFRS 17 implementation will have on your consolidated statement?
Peter Kweon
Yes, give us one moment to respond to that question.
Byung-Joo Oh
My name is Oh Byung-Joo. I’m the Managing Director at KB Financial Group.
As you know, IFRS 17, the final requirements are yet to be concluded. And especially, if you look at the insurance accounting, there is actuarial aspect and economic assumptions as well as financial statements.
There are quite a bit of changes there. So when there are changes in the regime, we need to be able to provide reliable financial information.
And that actually is going to be key aspects in terms of our competitiveness. So KB Insurance, before we assess for the financial impact, we have the accounting system, we need to stabilize that.
And also in-source all the capabilities and really revisit all the product and channel capabilities and overall assumptions, value in force and retention policies. All of those aspects, we need to really look very closely, which is what we are doing.
After the second half of this year, once the final requirement, and as we conduct KIC’s study and KIC’s impact study, I believe that we will be able to have a more clearer understanding of what the financial impact is going to be after the implementation of IFRS 17.
Peter Kweon
We’ll take the next question from Morgan Stanley, Mr. Seok.
Joon Seok
In the nonbanking. Last year, securities did quite well.
But in the first quarter of this year, of course, we did expect it, but it was a bit sluggish. So second quarter and also maybe in the second half of the year, DCM wasn’t that bad.
And you also mentioned the CIB, but what will be the outlook for the securities?
Peter Kweon
Thank you. Mr.
Seok. Just give us one moment.
Han Jung-Ho
I am Han Jung-Ho, CFO of KB Securities. Thank you for that question.
Now our Q1 earnings results. As you know, our brokerage fee income has gone down by 26% on a daily average basis.
So in wealth management, brokerage commissions, we were expecting it to decline, and that’s actually what happened. The problem is that the interest rate is going up, equity is coming down.
And the biggest impact is going to be felt in our sales and trading business. In fixed income, we’ve had some losses.
And on ELS, with the equities market going down, the prepayment amount actually fell. So there was some hedge related costs, but because we weren’t able to recover that, there were some losses.
Now on the bond segment, won denominated credit spread did widen, but interest rate -- we were able to cover, on the interest rate side. So it was even.
But on FX bond, basically, we were unable to cover for that on the FX interest rate. So then moving on to IB.
On a year-over-year basis, there were big deals, IPO deals. So on a year-over-year basis, our profit has gone up quite significantly.
And so we’ve seen overall improvement in the performance. Now going forward, what is our projection for the securities business?
In my view, I believe that the total trading volume is not going to really significantly improve compared to today. But on wealth management, brokerage income is more or less going to be flat.
But because of some of the sanctions that have been levied, we were unable to sell private equity funds, but we will be able to resume that sales, so that will have some positive impact. Now on the interest rate side, we are seeing some profit go up, not big difference in volume.
But with the interest rate hike, we are seeing improvement in NIM. But the biggest business of our company is sales and trading.
And fortunately, in Q1, credit spread, as a way to hedge credit spread, there were certain measures put in place. And right now, we have looked for some hedging positions where we could protect against credit spread.
So we are -- as long as we make sure that we don’t incur any additional credit spread-related losses, I believe that with our trading capabilities, we will be able to generate some level of profit. In index, on ELSs and with falling equity price, gains from early repayment has been pushed back to the second half.
I think come Q3, our early payment related gains is going to be about KRW 30 billion. So index-based products, as of the current stock market, we expect -- unless the market falls further, I think as we go into the second half, we will be able to make more of prepayment gains.
For our IB business, in Q1, there was quite big deals. Even in light of that, I think that going forward, I don’t think there’s going to be more growth.
But definitely, compared to previous year, we can look forward to a better performance. And international inbound brokerage fee income is also going up.
So for our institutional business, we are expecting better performance. So year-over-year, S&T and brokerage are key businesses for the company.
So we may not perform as well as last year, but I believe that compared to Q1 figure, I expect there to be some improvement.
Peter Kweon
Next question is Kim from Dow. [Ph]
Unidentified Analyst
For noninterest income, I have a question about the fees. On a consolidated basis, Q-on-Q increase was quite encouraging.
So by subsidiary, looking at the figures, there are the bank’s fee income and the credit card fees, and also in securities, brokerage fees was a bit of a decline, and there was more a one-off factor, which was very much in the IBs. And also banking fees on a Y-o-Y basis was declining.
If you can give us some backdrop and context to that? So the consolidated fees, what fee income, what will be the level that we can expect on a consolidated basis for this year?
Peter Kweon
Yes. While we prepare the answer, would you kindly wait for us?
Unidentified Company Representative
Yes. Thank you for that question.
I’d like to answer that. First, the bank trust income declined sharply, and that’s because of the sluggish stock market.
The ELS sales was sluggish and that’s why we saw a decline in the income there. And also the stock market and the capital market overall were quite sluggish.
And so the capital market-related fees and commission income declined. This was in the ELS -- just like trust decline in ELS and also in securities, there was a decline in the income for the early repayment, and that’s why there was a downward trend.
But securities income, you mentioned it being a one-off income, but I beg to differ. KB Securities, in DCM, for a very long time has very much been a leader.
And recently, in the ECM as well, it has really risen in the ranks. So as our CFO in Securities mentioned, with respect to this, there could be some income volatility, but ECM and M&A, we are continuously generating fee income.
And so the Securities franchise during the past 4 to 5 years has really been reinforced, and we believe these efforts are now materializing. And so I don’t think this is one-off income, but rather I feel that KB Financial Group and also KB Securities continuously has focused on enhancing fee income and that’s the result of that.
Peter Kweon
Thank you. Next question from DB Investment, Mr.
Lee Byung Gun.
Lee Byung Gun
Yes, I’m Lee Byung Gun from DB Investment and Securities. I would like to ask two questions.
First, regarding NIM, there could be differing perspectives. Some may say that it will uptrend.
But looking at recent trends, time deposit rates are going up and core deposit growth speed is decelerating. And on the forward rates, basically, we are seeing early pricing in compared to the policy rate.
So at KBFG’s perspective, what’s expectation of a policy rate hike? And how much of that is already priced in and what remains?
can you provide what your thoughts are on this? And second question is just a simple question.
With IFRS 17, this may not be a big issue, but if you look at RBC ratio, it’s falling, and I understand the industry CEOs have come together to talk about that issue in the insurance industry. So for sub debt and Tier 2, using Tier 2 capital were considered to be one of the approaches.
But I guess once IFRS 17 kicks in, that may not be an issue at all. But I would like to understand, for your insurance subsidiaries, because of the surge in rate hike, what impact are you seeing come through in your RBC position?
And how are you countering that?
Peter Kweon
Just give us one moment to respond to your question.
Han Jung-Ho
I’m Han Jung-Ho, CFO of the bank. You asked a question about the bank’s NIM.
Early this year, we were expecting about 7 to 8 basis point rise per annum NIM. But 4 consecutive quarters, the policy rates have been hiked.
So we now see -- we’ve adjusted our projection at 10 basis points. So as you’ve mentioned, the policy rate hike has been already priced in.
So the rise in the NIM may decelerate, but the overall uptrend is going to continue. The repricing cycle for the bank interest.
For other banks, they have higher variable rate portion. But in our case, that portion is smaller compared to peers.
So our repricing cycle compared to peers is a little more extended. So we expect NIM will continue on an upward trajectory.
It’s just that the speed may slow.
Unidentified Company Representative
Also to add a little more color on that question on NIM. As our CFO from the bank has mentioned, we believe that the policy rate is already priced in.
But I understand that you know very well that there are many factors that actually impact NIM. I mean, just in top of my mind, there’s more than 10 factors.
The yield curve as of today has steepened and is now showing flattening trend. And so those yield curve trends are being reflected.
So in Q2, I believe that the NIM improvement can slow down. However, on an absolute interest rate level, it is going up.
It impacts not just core deposit, but loan loss reserve or the shareholders’ equity. And those that has a very strong capital base, all of the, I guess, financial holding companies, those are key sources behind improving the NIM.
KBFG, as you know, we have the common equity Tier 1 best in the industry and also the NPL ratio also is best in the industry. So there are all the positive impacts that we can gain on our NIM.
On a quarterly basis, we believe our NIM growth may show some volatility. But looking at the entire year 2022, we can tell you that NIM will continue to show an upward trajectory.
Unidentified Company Representative
Mr. Lee, aside from IFRS 17, you asked the interest rate hike having impact on RBC ratio.
As you know, this is the biggest issue that insurers are facing. With implementation of KICs next year, all the interest rate rise related aspects are going to be resolved.
So this issue is actually limited to this year. And this has to do with how the rate is going to move.
Under the assumption that the rate is going to continuously go up, as of today, rather than being aggressive, we’re going to reclassify the bond classification to defend against the RBC ratio. Even if the interest rate is elevated, I believe that for this year, we do have other means and other opportunities for us to strengthen our capitalization, including the use of the sub debt.
There are multiple avenues and options that we could use, and we are considering that.
Peter Kweon
We’ll take the next question from JP Morgan, Cho Jihyun.
Jihyun Cho
The government, in terms of provisioning, has asked for more provisioning. It’s actually putting a little bit more pressure for more provisioning.
And other competitors has already put additional provisioning for COVID-related loans. But the reversal of provisioning for us has been a bit big and so I don’t see that.
Do you have any additional provisioning that you’ve done? I don’t really see that.
And the transitioning committee has mentioned that the SOHO loans should also be provided by the banking sector as well. To what extent that will be possible to transpire, I’m not quite sure, but maybe the pressures regarding the COVID loans has now been put on the banks from the nonbanking sector.
So with respect to the government policies going forward, may that pressure the bank’s margin? Is there a possibility?
What’s the group’s view and how you will address that?
Peter Kweon
Yes, we’ll take a moment to prepare our answer.
Scott Y. H. Seo
Yes. Thank you very much for the question.
With respect to provisioning, as I mentioned during my presentation, the nominal credit cost is 15 basis points. That’s the provisioning in the first quarter.
But as you asked, during the first quarter, there were many items that were reversed on the provisioning side. Taking that into consideration, on a recurring basis, the provisioning was 23 basis points.
30 basis points of credit cost happened last year. And before COVID, on an annual business, about 20 basis points in provisioning was done.
So during the first quarter, provisioning was much larger than pre-COVID levels. And on the U.S.
banks, when they announced the earnings in the first quarter, we do understand that they also had additional provisioning done. But as you know, some banks have larger provisioning, some banks have a little bit more of an optimistic outlook and so they don’t have that much large of a provisioning.
In the case of -- the way that we do provisioning in Korea is very different from the way that it is done in the U.S. And I think we need to take that into consideration.
And also in the fourth quarter of last year, at that time, as I explained, we did provisioning based on the assumption that it would be a very distressed situation. Compared to our competitors, our provisioning has been much more conservative, and I just want to emphasize that once again.
So during the first quarter, our competitors did provisioning, but we didn’t do enough. I don’t agree with that.
Based on the principles that we have established, we have done our provisioning in the most conservative way that we see.
Unidentified Company Representative
Yes, I’d like to elaborate on that. My name is [Yu Lim] from the Financial Group.
In 2021, about KRW 377 billion and KRW 264 billion in provisioning was done. I know there’s been a lot of concern about the extension of the COVID-related loans.
But if you look at the details, I think it will help you to better understand the situation. There’s KRW 850 billion under the principal and interest moratorium.
But there are customers who reapplied for that extension and the total amount is KRW 450 billion. And some people say that although they have received the grace period, some said that they would terminate that, which amounted to KRW 370 billion.
So still, in terms of the grace period of the moratorium, it’s about KRW 480 billion in total. Just simply put, if you look at the amount of provisioning required to support that, if you look at the recent trend per sector, corporate segment, even probability of default, they don’t go above more than a certain level.
But let’s just take 10% and be conservative. So that’s out of KRW 480 billion, and applying the probability of default, there’s about 5% collateralized percentage.
So LGV is about 14%. So 14% of KRW 480 billion is going to be below about KRW 7 billion.
So PD, even if you said PD at 20%, and if you do the calculation, overall, the COVID financial support, those under moratorium, the amount of impact on our provision is going to be extremely limited. Well, having said that, on that KRW 480 billion of balance, we are looking at the repayment schedule, the maturity schedule, and we will thoroughly manage, so that we can get good performance out of that.
And under the government policy and initiative relating to COVID-19 financial support, basically transferring that loan from nonbanking to the banking sector, we will wait and see and look at more details of that policy. But overall, on the household segment, relating to interest rate rise or hike, people are greatly concerned about that.
If you look at KB Bank, household loans on a YTD basis, total loans outstanding is about KRW 2.3 trillion less YTD basis. But the actual delinquency has actually gone up by 17 basis points.
So it’s 0.17%. So asset quality of household loan is being well managed.
And also relating to COVID, those under the moratorium program is still very small. It’s only KRW 20 billion to KRW 30 billion out of the total household loans.
So even if there’s any problem in terms of it having an impact on the banking sector as a whole is going to be once again quite limited.
Peter Kweon
Thank you for the answer. We do not have, it seems, any further questions.
We’ll just wait 1 more minute before we close. Well, for those of you who would like to ask additional questions, please contact us at our IR team and we will provide you with the answers.
So I think that brings us to the end of the Q&A session. We will just wait for one more minute before we officially close.
Well, with no further questions, we would like to end today’s conference call. Thank you.