KB Financial Group Inc. (NYSE:KB) Q4 2022 Earnings Conference Call February 7, 2023 2:00 AM ET
Company Participants
Peter Kweon – Head of Investor Relations
Scott YH Seo – Senior Executive Vice President and Chief Financial Officer
Cho Nam Hoon – Chief Global Strategy Officer
Cheal Soo Choi – Chief Risk Management Officer
Conference Call Participants
Kim Jae-woo – Samsung Securities
Jihyun Cho – J.P. Morgan
Yafei Tian – Citi
Kim Do-ha – Hanwha Securities
Shim Jongmin – CLSA
Peter Kweon
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.
Scott YH Seo
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 program ends, KBFG decided to provision preemptively based on our own credit assessment principles. This additional provisioning done for domestic and overseas was under a conservative approach to enhance forward-looking projections, and as such, there will not be such a large-scale provisioning for overseas operations in the future.
If such preemptive provisioning was absent, [2020] (ph) group net profit would have been KRW4.971 trillion, which is on par or above market expectations. Common equity-based ROE would have been 11.1%, highest ever in the past decade. This level of earnings for the group has yet again proven our solid fundamentals even under difficult and uncertain financial market and the overall economy.
Drag from securities and trading has been offset by stronger performances from traditional lending and deposit taking of the bank and the P&C insurance business. Q4 consolidated net profit was KRW385.4 billion. Net profit saw a big decline Q-on-Q due to seasonal one-off factors, including ERP and preemptive and additional provisioning, but excluding such impact, on a running basis, net profit reported around KRW1.2 trillion keeping to our solid earnings capacity.
Next, group’s 2022 credit cost on a consolidated basis was 43 basis points against total loans. On preemptive provisioning for domestic and overseas, group credit cost showed steep rise in ’22, but excluding this impact, credit cost on a recurring basis reported 26 basis points, staying within a steady level.
Also, NPL coverage ratio as of end of ’22 on a domestic operations basis was up 7 percentage points year-to-date to 216%. Considering industry top NPL coverage, I believe KBFG has sufficient buffer to fend off possible domestic and global uncertainties that may emerge in the future.
Lastly, KBFG’s BoD today approved a resolution to increase shareholder return rate up by 7 percentage points versus last year to 33%. In more detail, ’22 cash dividend payout ratio was decided at 26%. On top of which, there will be KRW300 billion of share buyback and cancellation.
Also, including KRW1,500 of quarterly dividend already paid out, EPS for FY ’22 was KRW2,951, marginally up from KRW2,941 last year. We will start buying treasury shares starting tomorrow, and it will last for three months. And immediately following the end of that period, those treasury shares will be canceled. I will go into more details on the capital management plan, including dividend policy on the very last page of the presentation.
Next, I will go into more detail on each of the line items. FY ’22 group’s net interest income was KRW11,381.4 billion, up 18.9% year-on-year, while Q4 was KRW3,042.2 billion, up 5% Q-on-Q, driving performance improvement backed by solid loan growth and repricing of the loan book on rise in interest rates, which continue to drive up NIM.
Next, group’s net fee and commission income for FY ’22 was around KRW3.3 trillion. On depressed stock market, trading volume fell, driving down brokerage fee income from the securities business by 45% year-over-year. And on sluggish financial product sales, the bank’s trust and fund sales also posted a decline, bringing a 0.4% year-over-year decline. However, despite difficult operational backdrop, both internal and external, thanks to the group’s continuing efforts behind business diversification and stronger competitiveness, fee and commission income has been above KRW3 trillion for two consecutive years, attesting to robust earnings capacity.
Group’s IB fee income was up around 18% year-over-year, further broadening its market dominance. Net fee commission income for the fourth quarter was KRW717.9 billion. On the back of deepening down trend in trading volume, brokerage fee income fell, and due to seasonal volatilities, IB fee income also contracted, lowering Q4 number down by approximately 12% Q-on-Q.
Next is other operating profit. Group’s other operating profit for FY ’22 was KRW309.6 billion, showing a significant year-over-year decline, overall displaying underperformance. This is because of steep rate hikes. There were greater losses from bond investment. While due to FX rise and stock market declines, there was underperformance from securities and derivatives and FX.
However, other operating profit for Q4 was at KRW196.3 billion, which is an improvement by a large margin versus last year. This is despite around KRW93 billion of valuation losses from securities investment. And on falling $1 exchange rate and bond yield, the bank saw a large improvement in securities and derivative FX-related earnings of around KRW425.5 billion Q-on-Q and base effect from insurance subsidiaries subpar performance due to previous quarter’s seasonality has been removed, while loss ratio of non-life business improved, driving up insurance income by around 34% Q-on-Q.
Next, I will cover group G&A expenses. 2022 G&A expenses posted around KRW7,537.8 billion. This was an increase of about 4.7% compared to the previous year. And despite the increase in the size and cost of ERP in a situation where the group’s digitalization-related investment is expanding, thanks to company-wide cost management efforts and efforts to improve the efficiency of the workforce structure, training is being well managed. On the other hand, Q4 G&A expenses posted KRW2,357.7 billion, and due to seasonal factors, including around KRW316 billion [of ERP] (ph) costs, it decreased significantly Q-o-Q.
The following is the group provision for credit losses. 2022 Q4 group’s consolidated provision for credit losses amounted to KRW1,060.7 billion, a significant increase compared to the previous quarter. As mentioned earlier, this was on the back of preemptive large-scale additional provisioning. And excluding this, provisioning amount on a recurring level posted around a KRW370 billion level. On the other hand, the amount of provision for credit losses on a consolidated basis in 2022 posted KRW1,835.9 billion, excluding one-off items such as preemptive accumulation of additional loan loss provisions on a recurring basis has posted about KRW1.1 trillion.
On the next page, I will cover key financial indicators. First, the group profitability in the upper left corner. As mentioned earlier, the group ROE in 2022 posted 9.9%.
Next, looking at the bank loans in won growth graph in the middle, as of end 2022, bank loans in won posted KRW329 trillion, an increase by 3.1% YTD and maintained a similar level compared to late September. Among the loans, corporate loans posted KRW163 trillion and SME, SOHO and large corporate loans all had balanced growth. And on the back of this, it grew 9.4% YTD and realized a sound growth trend.
On the other hand, corporate loans decreased slightly by 0.2% compared to the end of September, and this was due to decrease in SOHO loan demand due to rising loan interest rates and economic slowdown and also due to overall year-end debt recovery increased, including large corporations.
On the other hand, household loans recorded KRW166 trillion, and due to steep rise in loan interest rates and influence of loan regulations, it decreased by about 2.4% YTD, centering on unsecured loans. However, with a 0.2% growth Q-on-Q, there was a slight stabilization of household loans, which have been declining throughout the year, and in particular, housing loans due to increased real demand just in Q4 increased by about KRW1.7 trillion.
Next, I will cover the net interest margin. 2022 Q4 group and bank NIM recorded 1.99% and 1.77%, respectively, and improved by 1 bp Q-o-Q. Bank NIM due to increase in core deposits and increase in term deposits led to funding cost burden increase, and had a limited expansion until Q3 of the previous year, but with the still continued loan asset repricing effect the overall improvement trend is continuing. On the other hand, regarding group and bank 2022 annual NIM with steady loan asset repricing reflecting interest rate increase as a result of profitability centered loan portfolio management and efforts to enhance managed asset yields, there was a 13 bp and 15 bp sizable increase Y-o-Y, respectively, and led the group’s interest income expansion.
Let’s go to the next page. First, I will cover group cost efficiency. 2022 group CIR recorded 50.2%. And despite the expansion of the group’s ERP volume on the back of solid growth in core earnings, there was only a slight increase Y-o-Y. Recurring CIR is being managed at a stable level at 46.7%, excluding one-off items, including ERP and digitalization costs. Going forward, we will continue to strengthen our top-line profit generation capabilities. And through group-wide cost management efforts, we will further improve the group’s cost efficiency.
Finally, I would like to cover the group’s capital ratio. As the end of 2022, group’s BIS ratio posted 16.16%. CET1 ratio recorded 13.25% and we are maintaining the industry’s highest level robust capital adequacy against economic slowdown and macro uncertainty. In particular, for the BIS ratio, despite the corporate loan center growth, rise in exchange rate and stock price decline leading to RWA increase, on the back of capital management efforts, including hybrid bond issuance and flexible positioning strategy, rose 39 bp YTD.
On this page, I would like to cover KB Financial Group’s mid- to long-term capital management plan. The domestic financial market in 2022 had a rapid change in the macro environment, including steep rise in the key interest rate, sharp rise in $1 exchange rate and expansion of global inflation. In the industry overall, there was greater interest and concern about loss absorption capability against the economic shock, in other words, capital ratio and adequacy.
Accordingly, KB Financial Group, while increasing the group’s capital ratio and managing it at a stable level to respond to economic shocks that may occur in the future, we’ll expand shareholder value and pursue a continuous shareholder return policy. And to this end, we established a mid- to long-term capital management plan for the group. To this end, in early December 2022, after deriving KB Financial Group’s optimal capital structure based on robust capital capability and abundant liquidity, our management plan was established.
After this through in-depth consideration and sufficient discussion between the management and the BoD, we came out with a capital management plan that takes into account complex factors, including appropriate capital ratio, asset growth rate and shareholder return policy. Please look at the right side of the page, and I will explain in detail about our mid- to long-term capital management plan.
First, our CET1 ratio maintenance target is 13%. This will not only meet the 10.5% regulatory capital ratio or RRP basis, but also as a result of the stress test reflecting a conservative scenario at the level of the IMF financial crisis, we found that if the group maintained a CET ratio of 13%, the group will secure a total of 250 bp management buffer.
Secondly, KB Financial Group will pursue group’s growth strategy from the perspective of shareholder value. Therefore, system growth, such as the nominal GDP growth rate, will be used as the basic benchmark, and we will pursue flexible capital allocation and asset growth strategies considering macroeconomic, regulatory environment and business objectives. In addition, with efficient asset management, we will make efforts to improve ROA and PBR in parallel.
Thirdly, after achieving the aforementioned asset growth target, if exceeding target CET1 ratio of 13%, as long as there are no changes in the supervisory regulatory environment or financial market volatility or special reason for the business purpose of the company, our principal will be to actively return to our shareholders.
Fourth, KB Financial Group, based on solid fundamentals and industry highest level capital strength while maintaining the cash dividend payout ratio and amount at a stable level, we’ll utilize various shareholder return tools such as share buyback and cancellations and gradually increase our total shareholder return ratio.
In order to continuously expand shareholder value and stability of dividends must be secured along with the expansion of shareholder return ratio, each year, we plan to maintain at least the same level of DPS at the minimum at the same level as the previous year and gradually increase it so that we can provide stable payout to our shareholders. If KBFG’s valuations, absolute and relative discounted transactions continue, we will actively implement share buyback and cancellations.
Finally, KB Financial Group will do our best to play our role as Korea’s representative financial institution and do our best to harmonize this with shareholder interest. As previously mentioned, KB Financial Group subsidiaries, including our bank, is the most important source of liquidity for economic entities, and we believe that proportion of the role of KB Financial Group occupies in maintaining the stability of the domestic financial system is by no means small.
Accordingly, KBFG as Korea’s representative financial institution at a time when the [unique] (ph) functions and roles of financial institutions are needed, including stability of the domestic financial system and soft landing of economic entities in response to economic fluctuations, we will comprehensively review all interest, including shareholders and stakeholders and implement our capital policy. For the stability of the social system, we plan to faithfully fulfill the role of the group at a time when it is needed. And to this end, we plan to have our sustainable growth in parallel with the expansion of shareholder profits.
Through the group’s mid- to long-term capital management plan, I have covered so far, going forward, we believe that we have come up with a framework, which has developed a level further to implement a more sophisticated capital management and advanced capital policies. We promise you that we will more faithfully implement and develop this further to more solidify the group’s sustainable growth, and at the same time, do our best to implement the industry’s leading shareholder return policy. We will do our best.
From the next page, there is detailed data regarding the business performance I have covered so far, and please refer to it, if needed. With this, I will conclude my report on 2022 business performance report of KBFG. Thank you for your attention.
Peter Kweon
Thank you very much for the presentation. We will now begin the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] We will take the first question, Mr. Kim Jae-woo from Samsung Securities. Please go ahead.
Kim Jae-woo
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.
Scott YH Seo
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 and SG&A, strong control over G&A, and noninterest income increase, that’s the way for us to increase the ROE.
You’d mentioned J.P. Morgan of U.S. For us to pay our dividends like J.P. Morgan, basically, ROE or ROA would have to rise significantly from where we are today. Our CET1 ratio target, if we meet that 13% target and as the biggest financial company, if we achieve the asset growth up to our potential, basically, our principal and discipline of paying back to the shareholders whatever is left in terms of excess capital is a strong commitment. Just want to emphasize it as well.
And then you asked about how we will be paying out, in terms of our quarterly payout plan. We have no plan to change that. Just as we’ve done in 2022, it will be done in the same manner.
Third question relating to the treasury shares. We bought — we mentioned that we will buy KRW300 billion of treasury shares and immediately cancel them. If you look at treasury shares, when you purchase, the market principle is that you should cancel immediately. When we return back to our shareholders, and this will be an element that we will put a lot of interest in. And as I also previously mentioned, for shareholder return and shareholder value, returning back to shareholders is very important. But our price to book or price to earnings at this point is very much at the lower level. Under that situation, share buyback and share cancellation is something that we are planning to progressively expand going forward.
Thank you very much. Thank you for your various questions regarding dividends, and I hope the answer was sufficient.
Operator
We will take the next question from J.P. Morgan, Jihyun Cho. You’re on the line.
Jihyun Cho
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?
Peter Kweon
Thank you very much. We will soon answer your question. Please hold.
Scott YH Seo
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 of capital increase. So, there was about KRW390 billion of the burden, and we had KRW640 billion of capital increase that we have determined as of now.
And until now currently, we have three rounds of investment after getting the shares and total IDR, KRW982.2 billion, which is about KRW790 billion actually that we had invested as shares and the net asset value of Bukopin is IDR11.6 billion. And we had very conservative provisioning for Bukopin. So, I would like to emphasize that and for the Indonesian regulatory authorities, you can see the growth NPL ratios of Bukopin is 6.2% and NPR is KRW2.8 trillion. And on a consolidated basis as of end 2022, the total provision is KRW57 billion — KRW570 billion and compared to the NPL, you can see that provisioning is much higher than this amount.
So that is why this is very preemptive provisioning that we have implemented. For the additional provisioning this year, we believe that it is sufficient enough to absorb the future NPLs. So, we believe that we will not have more provisioning against future losses. And we believe that this will be the year 2023 to cut our ties with these NPLs so that we will not have any additional burden because of this.
And I would like to ask Cho Nam Hoon, who is the CGSO to explain more about the situation.
Cho Nam Hoon
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.
Unidentified Company Representative
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.
Scott YH Seo
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.
Unidentified Company Representative
Thank you for that.
Operator
We will take the next question from Citi, Yafei.
Yafei Tian
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.
Scott YH Seo
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.
Yafei Tian
Thank you very much for the answer.
Operator
We will take the next question from Hanwha Securities, Kim Do-ha. Please?
Kim Do-ha
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.
Peter Kweon
We will soon answer your question. Please hold.
Scott YH Seo
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.
Cheal Soo Choi
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.
Kim Do-ha
Thank you for the answer.
Operator
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.
Shim Jongmin
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?
Unidentified Company Representative
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.
Operator
We will take the last question from DB Securities, [indiscernible]. You are on the line.
Unidentified Analyst
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?
Scott YH Seo
Well, can you repeat your question? I think the line was a little bit unstable.
Unidentified Analyst
2023 outlook for NIM outlook and your rationale behind that?
Scott YH Seo
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.
Operator
Thank you. We do not have any further questions that’s waiting in line, but just bear with us one moment before we close.
Peter Kweon
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.
Operator
With no further questions being submitted, we would like to now close the earnings presentation of KBFG. Thank you very much.
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