KB Kookmin Card posted double-digit profit growth in the second quarter, driven by higher card spending and cost reductions. However, a surge of more than 30 percent in credit loss provisions limited the earnings gain.
According to KB Financial's second-quarter earnings disclosure released Friday, KB Kookmin Card's net profit for the period — on a controlling interest basis — came to 111.4 billion won ($75.2 million), up 14.6 billion won, or 15.1 percent, from 96.8 billion won in the same quarter last year. Operating profit rose 19.7 billion won, or 15.2 percent, to 149 billion won.
Operating revenue grew 37.7 billion won, or 2.8 percent, year on year to 1.39 trillion won from 1.35 trillion won. Core card revenue increased 21.5 billion won, or 2.0 percent, to 1.11 trillion won from 1.09 trillion won. The fastest-growing line item was installment finance and leasing, which rose 9.6 billion won, or 13.8 percent, to 79.1 billion won from 69.5 billion won. Other revenue edged up 6.6 billion won, or 3.3 percent, to 204.5 billion won from 197.9 billion won.
While revenue increased, costs fell. Operating expenses declined 14.9 billion won, or 1.6 percent, to 925.9 billion won from 940.8 billion won. Interest expenses were nearly flat, dipping 300 million won, or 0.2 percent, to 195.3 billion won from 195.6 billion won. The bulk of the savings came from fees and other operating expenses, which fell 14.6 billion won, or 2.0 percent, to 730.6 billion won from 745.2 billion won.
As a result, gross operating profit expanded 52.6 billion won, or 12.7 percent, to 466.7 billion won from 414.1 billion won. General and administrative expenses also fell 7.8 billion won, or 5.2 percent, to 142.9 billion won from 150.7 billion won, pushing pre-provision operating profit up 60.4 billion won, or 22.9 percent, to 323.8 billion won from 263.4 billion won.
Credit loss provisions surged 40.7 billion won, or 30.4 percent, to 174.8 billion won from 134.1 billion won, offsetting a substantial portion of the profit gain and absorbing roughly two-thirds of the 60.4 billion won increase in pre-provision operating profit. This contrasts sharply with the first quarter, when provisions fell 23.1 percent year on year to 218.8 billion won from 284.7 billion won. A base effect was also at play: the second-quarter provision figure a year earlier — 134.1 billion won — had been roughly half the level recorded in the first quarter of that year.
For the first half of the year (January through June), net profit on a controlling interest basis totaled 218.9 billion won, up 37.6 billion won, or 20.7 percent, from 181.3 billion won in the same period last year. Operating profit rose 59.5 billion won, or 24.7 percent, to 300.3 billion won from 240.8 billion won, while pretax profit increased 58.3 billion won, or 24.4 percent, to 296.9 billion won from 238.6 billion won. Return on equity improved 1.02 percentage points to 7.86 percent from 6.84 percent.
First-half operating revenue, however, grew only 16.1 billion won, or 0.6 percent, to 2.76 trillion won from 2.75 trillion won. Core card revenue was nearly flat, rising just 4.5 billion won, or 0.2 percent, to 2.21 trillion won. This came despite total card spending climbing 4.70 trillion won, or 5.3 percent, to 93.52 trillion won from 88.82 trillion won over the same period — indicating that higher spending volumes did not translate into proportional card revenue growth. Credit card spending rose 5.4 percent while debit card spending increased 4.8 percent.
Among revenue items, installment finance and leasing recorded the largest gain, rising 20.7 billion won, or 15.2 percent, to 157.3 billion won from 136.6 billion won. Other revenue fell 9.1 billion won, or 2.2 percent, to 396.1 billion won from 405.2 billion won.
The earnings improvement came primarily from the cost side. Operating expenses fell 12.4 billion won, or 0.7 percent, to 1.78 trillion won from 1.80 trillion won, largely due to a 13.8 billion won, or 3.5 percent, decline in interest expenses to 381.9 billion won from 395.7 billion won. Card assets grew from 27 trillion won to 28 trillion won over the year, yet absolute funding costs fell — suggesting financing conditions improved from a year earlier. Fees and other operating expenses were essentially unchanged, edging up 1.4 billion won, or 0.1 percent, to 1.40 trillion won.
Gross operating profit rose 28.5 billion won, or 3.0 percent, to 979.5 billion won from 951.0 billion won. General and administrative expenses fell 5.8 billion won, or 2.0 percent, to 285.6 billion won from 291.4 billion won, and credit loss provisions declined 25.2 billion won, or 6.0 percent, to 393.6 billion won from 418.8 billion won.
Breaking down the 59.5 billion won increase in operating profit by component, the rise in gross operating profit accounted for 47.9 percent, the reduction in provisions for 42.4 percent, and the cut in general and administrative expenses for 9.7 percent. Nearly half of the profit growth came from cost items rather than core business margins.
The decline in provisions, however, reflects the first-half aggregate. On a quarterly basis, provisions fell 23.1 percent year on year in the first quarter to 218.8 billion won, but rose 30.4 percent in the second quarter to 174.8 billion won — a reversal in direction even as the overall first-half figure showed improvement.
Asset quality indicators improved. The delinquency rate stood at 1.07 percent at the end of June, down 0.14 percentage points from 1.21 percent at the end of March. The non-performing loan ratio fell 0.27 percentage points to 0.93 percent from 1.20 percent a year earlier. The NPL coverage ratio rose 29.4 percentage points to 300.6 percent from 271.2 percent. With delinquency and NPL ratios improving even as quarterly provisions increased, a key question is whether the higher provisioning trend will continue in the second half.
won@heraldcorp.com
