KB Financial Group Inc

KRX:105560

Earnings Call Analysis

Company Boasts Solid Q2 Growth, Plans More Buybacks

Despite challenging market conditions, the company reported a strong second quarter in 2023 with a net profit rise of 12.2%, resulting in a total of KRW 2,996.7 billion in the first half, surpassing market expectations by about 12%. They balanced the slow economy and fragile financial sentiment with growth in both interest and commission income, complemented by tight cost controls. Plans for diversifying business and expanding nonbank and noninterest income are set to sustain growth, alongside a share buyback initiative of KRW 300 billion, reflecting a commitment to enhancing shareholder value. Credit management remains robust with a non-performing loan (NPL) coverage ratio indicating high absorptive capacity for losses at 201% and 254% for the group and the bank, respectively. First-half credit costs grew to 59 basis points (bps), with expectations to level between early to mid-40s bps for the year.

Resilient Performance Amid Market Volatility

KB Financial Group's first half of 2023 results showcased a company withstanding economic headwinds, with a net profit surge of 12.2% year-over-year to KRW 2,996.7 billion. This is indicative of a robust business model that has successfully capitalized on the evenly spread growth across interest and commissions income, coupled with disciplined cost control measures, outperforming market expectations by about 12%. ROE clocked in at 12.2% with an annualized EPS increase of around 9%, suggesting sustained profitability.

Capitalizing on High-Quality Assets and Diversification

Amid rising interest rates and macroeconomic pressures, KB Financial Group's focus has shifted to maintaining a conservative lending stance and prioritizing high-quality asset growth. The emphasis on diversifying by expanding nonbank and noninterest businesses is aimed at reinforcing steady bottom line growth. With a commitment to sustainable and responsible finance, the group is navigating through a recessionary environment with a keen focus on preemptive risk management.

Enhancing Shareholder Value through Returns and Buybacks

Reflecting a strong commitment to shareholder value, the Board of Directors decided on a dividend per share (DPS) of KRW 510 for the quarter and plans for a KRW 300 billion treasury share buyback and cancellation. This follows a similar buyback executed in February, underscoring the group's dedication to delivering on long-term capital plans.

Conservative Approach in Response to Macro Challenges

The group's proactive approach to credit risk management, amidst escalating concerns over asset quality, has led to substantial levels of provisioning. With an industry-leading non-performing loan (NPL) coverage ratio indicating strong loss absorption capacity, KB Financial Group is strategically positioned to mitigate potential economic shocks and maintain business stability.

Cautious Loan Growth and Robust Capital Adequacy

The bank's conservative risk management has resulted in a moderate 1.1% loan growth. While household loans experienced a downturn influenced by higher interest rates, corporate loans have seen steady progress, predominantly driven by large-corporation lending. With a BIS ratio of 16.95% and CET1 ratio of 13.78%, the group's capital ratios well exceed regulatory requirements, reaffirming their solid financial foundation and buffer against uncertain market conditions.

Strategic Global Presence with Focused Expansion

KB Financial Group's international strategy centers on asset quality over aggressive growth, particularly in volatile markets like China, Vietnam, and Myanmar. While wholesale banking remains priority in developed markets, retail and consumer businesses in emerging markets are targeted for faster growth with higher margins. Investments in digital capabilities are envisaged to further solidify market positions, with a mention that no additional investment or rights offering is foreseen for Bukopin in the immediate future, signifying a disciplined capital allocation approach.

Earnings Call Transcript 2023-Q2

[Peter Kweon, Senior MD & Head of IR Department]

Greetings. I'm Peter Kweon, the Head of IR at KBFG. We will now begin the 2023 First Half 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 2023 first half major final highlights from CFO and SEVP, Scott YH Seo and then engage in a Q&A session. I would like to invite our SEVP to deliver our 2023 first half earnings results.

[Young Ho Seo, Senior Executive VP & CFO]

Good afternoon. I'm Scott YH Seo, CFO of KB Financial Group. Thank you very much for joining our first half 2023 earnings conference call. I will begin with key performance metrics followed by earnings performance in greater detail. Second quarter '23 group's net profit was KRW 1,499.1 billion, up 12.2% on year to KRW 2,996.7 billion as of the first half of the year.

Despite difficult operational backdrop with slowing real economy and rising sentiment for instability surrounding the financial market, Q2 net profit was driven by evenly spread growth of interest and commissions income and supported by cost control efforts, we outperformed market consensus by around 12%.

The group's first half ROE also reported 12.2% and annualized EPS was around KRW 15,201 with around 9% year-over-year increase displaying a sustained growth trend. But considering the recent interest rate trend and macro backdrop, we expect NIM to - and to face downward pressure during the second half. And as we continue to stick to conservative lending stance in light of internal and external uncertainties, loan growth will inevitably be constrained with '23 second half interest income growth suppressed.

KBFG will pursue growth around high-quality assets to secure sustainable interest income basis and by continuing our efforts around business diversification, we will drive growth of nonbank and noninterest business, while corporate-wide cost control will help fuel steady and solid bottom line growth during the year.

Also, in order to bring sustainable growth, KBFG has been steadfast towards inclusive financing, leading the efforts and making social contribution, pursuing co-prosperity with the local communities, and we'll continue to find ways to solve society's issues and expand our role in practicing social responsibility that define sustainable transformation.

In the meanwhile, with prolonged global economic recession, domestic economy is also experiencing a slump and higher interest rate which has heightened concern over deepening credit risk. As such, KBFG is focused on preemptive risk management from a more conservative perspective.

As a result, first half group's PCL, including Q1 general provisioning increased significantly versus last year, but we expect this will alleviate the impact from economic shocks going forward and will be a positive factor in removing business uncertainties and reducing profit volatilities driven by credit loss.

For your information, group and bank's NPL coverage ratio as of end of June were 201% and 254%, respectively, attesting to industry's highest loss absorption capacity against potential losses.

Lastly, KBFG BoD today decided on DPS of KRW 510 this quarter and will buy back and cancel KRW 300 billion worth of treasury shares. Following KRW 300 billion of share buyback and cancellation last February, we've decided on yet another buyback and cancellation, which goes to show our commitment in being faithful to our long-term capital plan announced early this year and our role to enhance shareholder value.

KBFG will continue to increase shareholder return through various means while maintaining capital adequacy so that we may live up to meet market's expectations. From now on, I will walk through business results in more detail. First half '23 Group's net interest income was KRW 5,759 billion, while Q2 net interest income reported KRW 2,973.4 billion, gaining 5.2% on year and 6.7% on quarter.

The NIM for the group and the bank in the second quarter of '23 were 2.1 percentage points and 1.85 percentage points, respectively, sustaining an uptrend since last quarter. This is primarily due to market rate hike in the second quarter and against the backdrop of stabilization in core deposit declines, which started since Q3 of last year, followed by a slight uptick and continuing impact from repricing of loans, which drove Q-o-Q NIM expansion of six basis points.

Also, and continuing corporate loan growth, mostly around higher-quality assets, we saw recovery in household loan growth during the second quarter, supported by real demand, which, though limited, brought rebound in loan growth contributing to rise in the interest income.

Next is fee and commission income. Second quarter group's fee and commission income was KRW 951.4 billion and sustained recovery of domestic stock market as seen from an increase in trading volume, we saw an increase in brokerage fees as well as expansion of IB fees on the back of arranging for large-scale acquisitions, which drove Q-on-Q increase of 4.1%.

On a cumulative first half basis, the income was year-over-year flat at KRW 1,865.4 billion, unhindered in maintaining industry's top fee income from the CIB businesses despite higher market volatilities and deepening competition and other difficult operational backdrop, both internal and external.

Next, I will go over other operating income, which includes prop trading income and insurance income. Q2 other operating income recorded KRW 372.5 billion and due to decrease of securities and derivative-related income as a result of a rebound in market interest rates, such as a rise in government bond yields, it decreased approximately 44% Q-o-Q.

However, on a cumulative basis for the first half of the year, it recorded KRW 1,032.4 billion, an increase of KRW 1,514.1 billion compared to the same period the previous year when large-scale losses occurred. This is mainly attributable both to the significant improvement in prop trading income through timely response to market conditions and prompt portfolio adjustment and expansion of insurance income.

S&T division significantly reduced performance volatility compared to the past and achieved stable performance in Q2 following Q1. Insurance income also increased by 13.4% Q-o-Q contributing to the group's profit growth on the back of expansion of long-term insurance sales and the maintenance of a sale loss ratio.

Through our business diversification efforts, we have been reducing our dependence on interest income and increasing the contribution of noninterest income and as a result - of the end of June 2023, the noninterest income contribution has expanded to 34% level and the nonbanking profit contribution has also expanded to the 41% level.

However, as briefly mentioned previously, the expansion of interest income is expected to be limited in the second half, and we expect the contribution of insurance income to group profits to be lower than the first half due to first: the possibility of accounting change method regarding actuarial assumptions; and second, seasonality in the second half.

In response to this, we intend to defend against the decline in operating profit before provisioning and secure a foundation for stable profit growth by additionally expanding noninterest income such as by increasing commissions in the WM and IB business and improving trading performance.

Next, I would like to go over SG&A. The group's cumulative G&A expenses in the first half of 2023 posted KRW 3,159.2 billion and despite continuing digitalization and IT-related investments, thanks to group-wide cost control efforts, it is being well managed overall with only a 4.1% increase Y-o-Y.

Q2 G&A expenses increased 1.7% Q-o-Q due to seasonal factors such as tax and dues. Meanwhile, the cumulative group CIR for the first half of 2023 was at a 36.5% level. It was a significant improvement of more than 10% points compared to the previous year as continued core profit growth and group-wide cost control efforts became visible.

We are targeting an annual CIR of only 40% range in the mid to long-term and we plan to further improve the group's cost efficiency through organizational efficiency and group-wide cost control efforts based on a diversified profit base.

Lastly, it is the group's provision for credit losses. Q2 provision for credit losses posted KRW 651.3 billion and quarterly CCR reported 56 basis points. It was a 2.5% decrease Q-o-Q compared to the large-scale general provisioning accumulated in the previous quarter. But even taking this factor into consideration, it is at a level exceeding the recurring level provisioning after last year.

This is mainly due to the accumulation of additional provisioning worth approximately KRW 170 billion due to the change of Korea Federation of bank's assumption guidance regarding the bank's estimated loss forecast model. In the first half of the year, provision for credit losses was KRW 1,319.5 billion, and group credit cost on a cumulative basis for the first half was 59 basis points compared to total loans, a significant increase compared to the previous year.

However, considering the macro environment, such as the current level of provisioning and market interest rates, it is highly likely that the group's credit cost will record an early mix 40 basis point level per annum in 2023. This is mainly due to a short-term time mismatch between nominal and real provisioning rather than an increase in the delinquency ratio.

With the recent financial company's asset quality indicator deterioration, we understand that there are many concerns about the spread of insolvency risk in the market. However, we have secured the industry's highest level of loss absorption capacity through preemptive risk management and as concerns over asset quality deterioration is continuing, we will further strive for substantial growth in conservative asset quality management.

On the other hand, regarding the issue of provisioning write-back related to a specific ship builder, which has recently become a concern of the market, it was not recognized in the group's earnings in the first half of the year, but we plan to make a careful decision in the near future by considering various aspects such as the group's future performance and financial soundness.

On the next page, I will go over the major financial indicators. First, if you look at the bank's loans in won growth graph as of the end of June 2023, the bank's loans increased by 1.1% compared to the end margin and increased by 0.5% YTD and posted KRW 330 trillion.

Corporate loans posted KRW 167 trillion as of end June and increased 1.8% from the end of March and 2.9% YTD and continuing stable quarterly growth, in particular loans to large corporations centering on prime assets increased by more than KRW 4 trillion YTD, driving corporate loan growth, while SOHO loans and general SME loans also showed a slight net increase YTD.

Meanwhile, as of the end of June, household loans posted KRW 163 trillion, down by 1.8% YTD due to high interest rates and slow demand recovery. However, in this quarter, negative growth pressures eased with an increase of 0.4% Q-o-Q centering on real demand funds such as housing mortgage loans and fund reserve on loans.

As this is a time and conservative risk management is required due to internal and external conditions, we plan to focus on qualitative growth centered high-quality assets in the second half of the year, focusing on asset quality and profitability management.

Let's go to the next page. I would like to go over group capital ratio on the top right of the page. As of the end of June 2023, the group's BIS ratio posted 16.95% and CET1 ratio recorded 13.78%. We are maintaining excellent capital adequacy centering on common equity capital based on stable profit generation while securing a sound capital buffer against macro uncertainties.

Please refer to the next page for details on the performance explained so far, and this concludes KB Financial Group's 2023 first half business performance presentation.

Thank you for your attention.

[Peter Kweon, Senior MD & Head of IR Department]

[Operator Instructions] We will take the first question from [WhiteHawk Capital, Shane]. Please go ahead.

[Unidentified Analyst]

Thanks for the opportunity, can you hear me.

[Unknown Executive]

Yes, go ahead.

[Unidentified Analyst]

Yes. I just wanted to understand on the foreign operations part of KB. How much are we trying to allocate on different markets and what is your growth strategy? Can you provide some numbers as far that you are trying to proceed with Bukopin example and the other foreign investments? Thank you.

[Oh Byung Joo, Managing Director, KB Financial Group Inc.]

Thank you very much for the question. With regards to your first part of the question about our global strategy for foreign operation, if you look at our business, we can divide that into DM, developed markets and EM. In the DM, we will focus mostly on the wholesale banking. Usually, it's been the CIB business, and we were able to grow our asset portfolio quite soundly starting last year and this year, we are at this point going through rebalancing of the asset.

We're very much focusing on the soundness aspect. For the wholesale business, not just the CIB business, going forward, by setting up a capital markets desk, we will diversify and also provide different types of services so that we can grow our business scale going forward. In Southeast Asia, in specific countries, we are looking - we have entered into those companies through M&As - countries through M&As or acquisitions.

And in Southeast Asian market recently due to the global economic recession, we believe that we could be more exposed to the impact. So we will focus more on asset quality rather than aggressively growing those businesses in the market. So for instance, like in China and Vietnam and in Myanmar, there are some markets that's experiencing some turbulence. So, we will focus more on asset quality rather than extensive growth.

But from a long-term perspective, retail business and consumer business are business domains where we believe the growth could be more, faster and where we believe we can take better margin. We will gradually expand our digital tools into those markets so that we can gradually expand our positioning in those market segments. Regarding Bukopin, we did capital injection previously.

And for the - in the near future, we do not foresee any other additional investment or rights offering. Through internal improvement, we are trying to bring in growth. For instance, we will make investment into the IT system so that we can make the business much more upgraded. Thank you.

[Young Ho Seo, Senior Executive VP & CFO]

Also - this is Scott, the CFO. If I may also elaborate regarding our global strategy, our Senior Managing Director, Joo, has just provided you with the details of the strategy. We say that Bukopin and from the time being or short-term, it's not that we won't be making investments short-term and do so in mid to long-term. What we are saying is that last year's capital injection basically was our last capital increase. I just wanted to clarify that so that there is no misunderstanding. Thank you very much.

[Peter Kweon, Senior MD & Head of IR Department]

We will take the next question. The next question is from Hyundai Motor Securities, Jae Hyung Lee. You're on the line.

[Jae Hyung Lee, Hyundai Motor Securities]

Thank you. I'm Hyung Lee from Hyundai Motor Securities. I think you will get more questions again about the bank later on. So I would like to talk about your nonbank business, especially about KB. Now KB Insurance, I would like to understand why did your FSS ratio increase? Is it due to the available capital increase, I think your record capital does not seem to have increased significantly? So relating to the movement in the - or the fluctuation in the required capital. Could you provide some information there? And also, changes to the actuarial assumptions in three. I know that if you were to apply the progressive method rather than retroactive approach, would like to understand as to what your expected figures or numbers are for the insurance business?

[Young Ho Seo, Senior Executive VP & CFO]

Yes, just give us one moment. We will respond to that question shortly.

[Oh Byung Joo, Managing Director, KB Financial Group Inc.]

Yes, hello, I am Byung Joo, Managing Director. I'm in charge of the insurance business. Regarding the changes in the - or the changes in the guideline for the actuarial assumptions and the accounting treatment thereof, now the FSS has a progressive method and CICS fair value method. Basically, they use on IFRS 17 liability, it's a conditional retroactive approach. So there are two things that is currently being considered. And we're currently making some analysis, and we're communicating with FSS on the details.

KB insured in order for us to improve comparability. And this year, since it is the first year where we apply IFRS 17, we want to provide more clarity to the financial statement. So at this point, we are reviewing, applying the conditional retroactive approach. In terms of the level of impact this will have on our financials, the CSM capital and on P&L, we do expect there may be a slight dip, but we do not think that it's going to be as big as what the market is concerned about.

We believe that under our business objective, we can amply make up for any such movement. For the progressive method, as I've mentioned at the beginning, basically, we are currently reviewing, applying the condition of retroactive approach. And within the year, together with the FSS, we will continuously communicate with FSS on the details of the guidelines. And once we come to some sort of a conclusion, we will be able to come back to you.

From KB Insurance perspective, and as I've clearly communicated this since last year is that IFRS 17 and under new CICS regime, KB Insurance is very much focused on improving reliability of our financial statement and also sustainability. And our number one priority is to make sure that we limit as much as possible the volatilities in these numbers.

So, in terms of the specific impact this will have on each of the line items, we will be able to come back to you and communicate with you the details either end of this week and in the near future.

[Peter Kweon, Senior MD & Head of IR Department]

We will take the next question from [Hanwha Securities, Kim Do-ha]. You're on the line.

[Unidentified Analyst]

Thank you for the opportunity. I would like to ask a question about provisioning. Actually, we heard from the CFO that for this quarter, there was additional provisioning that I think you mentioned. So can you actually go over that once again? And - even if you exclude all of this, can you tell us about the recurring level of CCR? And I believe that if it was what you had mentioned, I think it was a 50% increase compared to the same period last year. So I think per annum, it was about 30 bps level. And if you are thinking about additional provisioning on top of that, so can we think of it as higher than the recurring level? I'm curious about your perspective. And the former SME-related provisioning and the main creditor bank situation in the second half of the year? Well, do you believe reversal might not take place? You mentioned that you will actually go over the situation and reach a conclusion later on. So can you tell us about the current situation?

[Young Ho Seo, Senior Executive VP & CFO]

I am the Group CFO, and I would like to answer your question. And if there are additional comments, I would like to ask our CRO, Choi to answer them. And - sorry for my pronunciation, in Q2 regarding provisioning. So for the future forecast model, the assumption guidance was changed, so there was additional KRW 170 billion of additional provisioning. And you also mentioned that until now for investors or shareholders, when we gave guidance for credit cost for 2024 per annum, 35 to 40 bps is what we had mentioned.

But when I mentioned this in my presentation previously, I mentioned that 2023 credit costs will be higher than this. So it will be in the mid to - early to mid, 40 bps range. And I also mentioned that probably it's because of the time gap, a short-term mismatch. So to elaborate a little more on that in Q1, we have KRW 300 billion or higher general provisioning.

And general provisioning refers to our level - irrelevant to a specific credit event, it is just general provisioning. So we had accumulated that. But regarding the accumulation of real provisioning, there will be a time gap. It is inevitable. So general provisioning can cut down on the future credit cost as a result. But when we give quarterly earnings reports, there is bound to be a mismatch.

And because of that mismatch effect for this year, overall, for our calculated credit cost, we believe that it could be a little bit higher than we had mentioned to the market and this does not attest that it's a deterioration of our asset quality. So I would like to make that clear. It was because of that time gap.

[Peter Kweon, Senior MD & Head of IR Department]

Next question from JPMorgan, Jihyun Cho. Please go ahead with your question.

[Jihyun Cho, JPMorgan]

Yes, thank you for taking my question. I would like to ask two questions is - first one relating to your overseas property investment. Many of the banks, bank group and brokerage firms, I understand that they made their overseas investment, their prop investment. So I would like to understand as to what your exposure is geographically and sector-wise? And also, do you have an exposure that you have classified as precautionary for your overseas property exposure and how you're going to manage that risk? And also, it's been mark-to-market. And is it being mark-to-market and are you provisioning against it? And also -- there is also some fund that's been sold. And recently, we've seen banks take on the liability for selling such funds. So, I would like to understand whether this has any impact on your numbers. And the second question that I would like to ask has to do with the policies, your buyback policies. Today, you've announced, to our surprise, that you are going to buy back shares. Is that for the purpose of cancellation? And I understand that the period under which you have to purchase is by July of next year. So do we or can we continue to see that there is going to be a treasury share buyback up until the end of this year? Or at least it a quite large in size, whether you will purchase this by next year?

[Cheal Soo Choi]

Hello, I am Cheal Soo I'm in charge of CRO. I think the first question probably relates to the commercial real estate exposure. I wasn't able to clearly understand or hear your question. So let me just first give it a try. So in terms of our commercial exposure, we have about KRW 5.9 billion of commercial property exposure.

And if you get the type of investment, because they are commercial real estate, usually, the geographies are U.S. and Europe. And if you look at the type of sectors, it's - we have office buildings. We also have multifamily. We also have retail property. We also have logistical centers as well. So overall, out of our total investment, more than two-thirds has been made by the bank. So bank basically, they've been quite conservative.

So 98% have the senior loan, senior secured exposure. So I can tell you that it is a quite stable exposure. We recently seen many press articles about commercial real estate exposure. And because we are living in a high-rated backdrop and people are working from home. And so, there's higher vacancy rate, and we do understand that there is potential for more delinquencies going forward and that is why we took a stock taking of our entire commercial property exposure.

So right now, although it is not loss-making. But if for any at-risk locations, we have define the list of those so-called at-risk or problematic exposures, and we're very closely controlling and managing that. And some of our KB subsidiaries have also made some equity investment or sub debt investment, although that exposure is not very high. We have actually written that as loss, written that as loss, and we also have provisioned for those exposures.

Going forward, for the - so usually, the secured senior exposures is our focus because that takes up the majority. We do not think that the probability of loss is going to be that high. And we want to be proactive and preemptive in managing these exposures. So - and to do that, our underwriting division and our business units are very aggressively managing these loans and exposure. So, we think that its impact on our financial numbers will be very much limited.

[Young Ho Seo, Senior Executive VP & CFO]

Also - this is the CFO for alternative investment. Regarding our fund investment, I think the question was whether we expect there to be loss from those fund investment, if I understood you correctly. Our KB Asset Management, if you look at the funds that we've originated and we've sold or the ones that we sold as a distributor, I think there will be two cases. So for KB Asset Management, the fund that we've created and we've sold, we haven't yet seen any nonperforming asset at this point.

We've reviewed everything, and we haven't been able to identify any significant risk. From a third-party distribution perspective, for us, selling the fund on behalf of other asset managers, we do not -- at this point, believe that there's any risk. As our CRO has just mentioned, even for the fund distribution, just like our prop investment - principal investment, we have the same criteria upon which we review and assess and screen.

So in terms of the fund distribution, we do not believe that compared to our overseas AI exposure, the risk is not high. Second question had to do with the treasury share buyback of KRW 300 billion. Once the KRW 300 billion is completely bought, it will be completely canceled. It will be retired in its entirety. In terms of the period -- for the purchase period in the past, we use direct purchasing, direct buyback.

But from this time on, it will be a share buyback through - a trust approach. So after you do a direct buyback, then you have to complete the purchase within three months after you announced. But if you're making use of a trust vehicle, basically the treasury share buyback will take place over a longer duration.

So according to that, what we've announced today does not mean that we are not going to, in any way, assume that we're not going to do any buyback up until end of this year or end of next year. So relating the retirement of the shares, I think at 4:00 p.m., we've made a disclosure.

[Peter Kweon, Senior MD & Head of IR Department]

We have Won Jaewoong from HSBC Securities. You're on the line. Please go ahead.

[Jaewoong Won, HSBC Securities]

Thank you for the opportunity. I have two questions. The first question is about your NIM because it has, I believe, increased higher than expected. So can you actually break down the NIM for us? Second question is about second half NIM forecast. If you can go over it, it would be greatly appreciated. Second question is about the preemptive additional provisioning, I believe that has taken place. And in the second half of the year, do you believe that there might be additional provisioning as well? Or do you believe that since there was a sizable amount of preemptive provisioning, do you believe that additional provisioning possibility will be quite limited? Thank you very much.

[Young Ho Seo, Senior Executive VP & CFO]

I am the bank CFO, Young Ho Seo. Thank you very much for your question. I would like to answer your question about NIM. There was loan repricing effect. So because of that, in Q1, there was a NIM peak out that we had expected. However, in Q2, there was three-year treasury bond and 37 bps increased. So there was the market interest rate increase, which led to NIM increase as well.

And as was mentioned by our group CFO, for core deposit decrease until now, it was - by a great amount, but in Q2, it has become stabilized. So Q2 peaked out - Q1 peak at we thought, we believe, has been delayed. However, in the second half of the year, NIM in, we believe, will go down, but we believe that it will not be steeper decline than expected. So in the second half of the year, loan repricing effect, we believe, will continue until Q3.

However, there are the LCR regulations and it is becoming normalized, and there is a large amount of the loans that will reach maturity. So - regarding the LDR, we are seeing that the gap is actually narrowing. So, we believe that the NIM will actually go down slightly in Q3. Regarding provisioning, I would like to go over that as well.

Hanwha Securities, Kim, Do Ha asked a question previously, but I believe my answer was not sufficient, so maybe I can add to my answer. In the first half of this year, there is the CCR of our provisioning, which is 59 basis points. But in my presentation, in 2023, annual credit cost for the year, I mentioned that we expect it to be early to mid-40s bps range. So taking all of these numbers into consideration, I think it sufficiently answers your question about the second half.

And Hanwha Ocean or former DSME question, we did not have the reversal of provisioning in the first half. And in the near future, we will make a decision about reversal. And - regarding the timing of weather when to reflect it on our earnings, we will make a decision later on, but it will be made in the near future, and we will let you know.

[Peter Kweon, Senior MD & Head of IR Department]

[Operator Instructions] I think that we've entertained sufficient number of questions, but still, just give us one moment. Yes, I see that there is another question, Jung, Jun-Sup from NH Investment and Securities.

[Jun-Sup Jung, NH Investment and Securities]

I'm Jung, Jun-Sup from NH Investment and Securities. I just have one question I wanted to ask. Despite this very difficult macro backdrop, you've decided to do share buyback and also your CET1 ratio is quite favorable. And beginning of the year, you said that what is in excess of CET1, 13%, you're going to pay that back to the shareholder. So that - having said that, don't you think that you'll be able to increase your total shareholder return above 33%. And you said that there could be additional announcement to share buyback and cancellation end of the year. Do you have plan to further increase your share buyback or cancellation? Basically, what would be the criteria upon which you will announce so that you would return back more to the shareholders?

[Young Ho Seo, Senior Executive VP & CFO]

Yes, this is the group CFO. Regarding your question, I fully understand where you're coming from. The answer that I can provide you is basically based upon what we have already disclosed. And I can tell you that we are committed to that disclosure. Anything that is in excess of 13% of CET1. As a matter of principle, we will return that back to our shareholders. And I can tell you that we are committed and fully complying with that.

And we are very much committed to progressive payout ratio. As we close the first half of the year, if you look at the quarterly dividend payout and the share buyback decision, these actions are in well, good alignment with our previous announcement, and we are committed to keeping to our word so that our investors and shareholders basically, in light of what we have announced at the beginning of the year, can expect us to keep with that promise.

[Peter Kweon, Senior MD & Head of IR Department]

It seems that there are no other questions in the queue. We will wait to see if there are further questions in the queue. It seems that all the questions have been made. So with this, we will conclude our earnings presentation. Thank you very much.