KB Financial Group Inc (KB) Q2 2021 Earnings Call Transcript

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KB Financial Group Inc (KB -2.28%)
Q2 2021 Earnings Call
Jul 22, 2021, 3:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Peter Bongjoong Kwon -- Head of Investor Relations

Greetings, I am Peter Kwon, Head of IR at KB Financial Group. We will now begin the 2021 First Half Earnings Release Presentation. I would like to express my deepest gratitude to everyone for your participation. We have here with us at today's earnings release, KBFG SVP, Lee Hwan Ju, who is our Group CFO and other executives from the Group. We will first hear SVP, Lee Hwan Ju's presentation on 2021 first half major earnings highlights and then we will engage in a Q&A session. I would like to invite our SVP to deliver 2021 first half business results presentation.

Hwan Ju Lee -- Chief Financial Officer

Good afternoon. I am Lee Hwan Ju, CFO of KB Financial Group. Thank you all for joining KBFG's first half 2021 earnings release presentation. Before presenting on the business performance, let me first brief you on the operational backdrop. In the second quarter, amid continuing COVID-19 vigilance, there were positive exports and capex investments and with a full-fledged vaccine rollout, pent up demand drove higher private consumption, speeding up momentum behind Korea's economic recovery.

Share prices of the banking sector reflected expectations on market rate hikes, better performance, and greater shareholder return, accompanying assessment that we've entered a rerating cycle followed by outperformance above the market. However, on the flip side, delta variant is currently spreading and with concerns over inflation especially from the U.S., uncertainties both internal and external have surfaced leading to a difficult operational backdrop for the financial industry.

Under this environment, KB Financial Group is doing its utmost to enhance shareholder value through continued bottom line improvement and efficient capital management and is determined to fulfill our role and responsibility befitting a leading financial group. First, during today's BOD meeting, for the first time since the launch of the financial holding company structure, we resolved to pay out interim dividend of 751 [Phonetic] DPS as of June end 2021.

This is so that, underpinned by KFBG's industry's top capital adequacy and earnings fundamentals we wish to provide to our shareholders more stable and fluid cash flow, and also to continue with KB's steadfast progressive dividend policy. Going forward, we promise to continue to consider ways for efficient capital management and various different shareholder return policies so as to enhance shareholder value.

I would also like to emphasize that as a leading financial group, KB continues to make robust its green leadership in the financial industry. In order to provide financial support to companies that drive environmental and social values, KBFG is issuing various different types of ESG bonds and are actively participating in the government's New Deal project by way of launching a New Deal Infrastructure Fund, who sizes KRW200 billion, making investments into renewable energy sources, environmental facilities, and electric vehicles. As such, we've been undertaking ESG management with quite some speed.

Also, last June, we were the first domestic financial group to disclose amount of carbon emissions from our asset portfolio and declared KB Net Zero Star, S-t-a-r, which is an objective to go carbon neutral by 2050. By applying partnership for carbon accounting financials and science-based target initiatives, we were able to measure carbon emissions in a scientific manner that meet global standards and it is meaningful in that there was transparent disclosure of amount of carbon emissions that relate to investing and lending activities. KBFG will upgrade its ESG management through continuous collaborations under global initiatives and will do our best to bring finance that changes the world where every one of us can grow.

Now, let me present on the earnings for the first half of the year 2021. KB Financial Group's 2021 first half net profit was KRW2,474.3 billion. Driven by solid growth from core earnings, there were stronger earnings stability supported by non-organic growth from M&As. As such, net profit was up 44.6% on year from base effect of additional provisioning in Q2 of last year, recording biggest half year figure since the establishment of the company. Q2 net profit was KRW1,204.3 billion while net interest income was up on the back of solid loan growth. Net fee and commission income growth was somewhat subdued due to a decline in securities trading volume and the bank's trust sales.

And valuation gains from bond declined on higher market interest rate, which led to a QonQ 5.2% decline. But on a recurring basis, excluding ERP expenses from KB Insurance, the non-life insurance arm QonQ performance was quite solid.

Let's now look at each of the segments in more detail. Group's net interest income for the first half of 2021 was KRW5,401.1 billion driven by Prudential Life acquisitions and other M&A impact and bank's solid loan growth and non-bank affiliates' greater contribution to interest income, there was 15.3% year-over-year growth. First half Group's net fees and commission income was KRW1,832.6 billion, up 32.7% year-on-year, or KRW451.3 billion which is a sizable increase. This is driven by growth in clients' assets under management and activation of our IB business which led to sizable increases in brokerage income accompanied by growth in bank's trust income on higher ELS sales as well as growth in credit card merchant fee income from recovery of private consumption.

However, second quarter's fee commission income was KRW865.4 billion which is down 10.5% QonQ. Despite solid growth of securities IB business, in Q2, equity trading income fell leading to lower fee income from securities business and on reduced sale of trust products, trust income dipped marginally. Second quarter, other operating loss was KRW57.2 billion, somewhat subdued Q-on-Q, which is mainly due to lower valuation gains on bond against the market rate hike.

Insurance underwriting profit was KRW161.7 billion, apart from one-off factors, i.e. payment for large scale fire that took place this quarter, there was a slight QonQ increase. This is driven by lower auto accident rate and increases in premium which led to continued improvement in loss ratio around the auto insurance.

Next is Group's G&A. Q2 Group G&A reported KRW1,669.5 billion. On the back of cost saving efforts across the Group, there was absence of impact from last quarters setting aside of Welfare Fund, which led to a decline in G&A expense of 3.1% QonQ. Excluding the ERP cost impact for the quarter, the figure is lower by around 5%. Meanwhile, first half G&A was KRW3,392.6 billion. It seems slightly elevated year-over-year, but this is due to Prudential Life and other M&A impact as well as the ERP expense for the non-life insurance business. Excluding these factors G&A is being managed solidly.

Next is on PCL. Group's first half PCL reported KRW397.1 billion, together with quality growth around prime assets and pre-emptive risk management efforts. Additional provisioning impact of Q2 of last year was absent, with PCL down significantly by 26.4% year-over-year. Q2 group PCL was KRW223.7 billion, driven by bank's asset growth and decline in the reversal of specialty bonds. There was an increase, but credit cost reported 0.25% keeping to a premier asset quality.

Next, if you look at the graph on the lower right, non-bank's share of Group's net profit in first half of 2021 was around 45.2%. This is due to the efforts of business portfolio diversification through M&As and strengthening of core business models that has been made, which solidly contributed to the revenue base. We will continue to explore sustainable growth engine and to make group portfolio more solid, while bolstering core competitiveness of our subsidiaries so as to enhance the corporate value. Next, is on key financial indicators.

2021 first half cumulative group ROA and ROE each recorded 0.81% and 11.95% respectively. Earnings capacity improved on the back of stable growth in core income as well as diversified business portfolio through M&As, taking into account major one offs, recurring ROE also posted 12.38%, maintaining sound fundamentals and profitability.

Next, to elaborate on the bank's loans in won growth. As of end June 2021, bank's loans in won posted KRW302 trillion a 2% increase YTD and in Q2 on the back of profitability and asset quality centered qualitative growth and a focus on sales, there was a 1.7% growth compared to the end of the previous quarter. Household loans posted KRW164 trillion and driven by Jeonse and prime on secure loans, it increased 1.5% YTD and 0.9% compared to the end of the previous quarter respectively.

Corporate loans continued stable growth driven mostly by SOHO and prime SMEs and grew 2.8% YTD and 2.7% compared to the end of the previous quarter respectively. KB Financial Group will monitor the economic situation and household debt situation in the second half and continue qualitative growth centering on asset quality, but also apply a flexible and timely pricing policy to secure a growth basis.

Next is the NIM. 2021 first half Group and bank NIM each posted 1.82% and 1.56%, respectively, and rose by 4 BP and 3 BP YoY respectively. As a result of efforts to expand low cost deposits, core deposits grew around KRW11 trillion in the first half, but savings type deposits decreased around KRW4 trillion and with factors including the contribution growth of low cost deposits in the total deposits, funding burden alleviated and on the back of profitability centered loan strategy, margin increased leading to a continued overall improvement trend.

However, Q2 NIM was at the level of the previous quarter due to the loan asset repricing effect, which reflected the interest rate cut last year. KB, based on our highest level of channel competitiveness domestically, will focus on expanding low cost deposits and on the other hand, through a more sophisticated loan pricing method, we will improve asset yield and focus on managing NIM and do our best to diversify our income sources as a group.

Next, I would like to cover our group cost income ratio, CIR. 2021 first half cumulative CIR posted 47.1% and as a result of top-line growth and results of cost control efforts, it increased by a significant improvement YoY. Excluding one-offs including ERP costs, recurring CIR posted 45.3%, continuing a stable downward trend and additionally taking into account the adjustment for accrual of bonus expenses from the bank, first half CIR is at 44.1% level and the cost efficiency improvement trend is becoming more visible. Going forward, we will do our best to improve management efficiency through continuing earnings expansion efforts and companywide cost control.

Next, I would like to cover the CCR credit cost ratio. 2021 first half Group and credit cost posted 0.22% and 0.10% respectively. As a result of high-quality assets centered qualitative growth and pre-emptive risk management efforts, it is being managed safely at a low level. We are aware that there are concerns over asset quality deterioration after the financial support ends due to the prolongation of various COVID-19 related financial support programs.

Regarding interest forbearance that the market is most concerned about, the loan balance as of end June posted around KRW300 billion, which was only around 0.1% compared to total loans in won. Prime loans and secured loans are 70% and 90%, respectively. And considering that the loan balance is on a downward trend due to voluntary repayment from companies that had applied, we expect that it will be managed sustainably even after the end of financial support.

The Group last year additionally provisioned KRW380 billion and since we pre-emptively have secured a buffer, we believe that the possibility that the Group's credit cost will rapidly increase is very limited. KBFG will maintain our pre-emptive and conservative risk management stance including strengthening potential NPL management and having a more sophisticated risk management system for industries and borrowers so that even in the future, we can stably manage asset quality.

Next, I would like to cover the group's capital ratio. As of late June 2021, Group BIS is ratio posted 16.03% and CET1 ratio posted 13.70%. Despite the increase of risk weighted assets following loan growth and interim dividend effect on the back of strategic capital management, including solid net income growth and hybrid bond issuance, we are still maintaining the highest level of capital adequacy in the domestic financial industry.

Let's now go to the next page. From this page, I would like to cover our insurance division's collaboration strengthening strategy within KBFG, through acquiring Prudential Life in August of last year, we have strengthened our life insurance business portfolio and through providing continuous financial services keeping in step with the customers' life cycle, taking into consideration that we can sustain and strengthen a contact point with the customer, we expect that the role of KB Insurance Prudential Life and KB Life in the group will be expanded.

KBFG in order to increase group level business value and synergy is strengthening our collaboration system in all areas including product channel and organization. First, we have established store WM, Wealth Manager, the group's premium outbound channel and we are pilot operating it and through this, Prudential Life's superior Life Planner, LP organization and the bank and securities PB will collaborate and established an advanced WM service, including providing integrated advisory services, including inheritance, retirement and older age management and strengthen customer experience regarding KB Financial Services, so that we will steadily increase our influence in the affluent market.

In addition, in the case of asset management for insurance subsidiaries, we will expand the outsourcing to KB Asset Management, which has expertise in this area and establish an integrated Asset Management System. Through this, the insurance subsidiaries will be reorganized centering on planning and review, leading to advanced ALM and strengthening its review function. On the other hand, the asset management company through establishing a basis for economies of scale for asset management and based on asset management experts and a superior network in and out of Korea, we aim to secure differentiated management capability by a close collaboration system with our insurance subsidiaries.

We expect KB Asset Management's AUM after migration of management assets of KB Insurance and KB Life as of late June to post KRW98 trillion and in 2021, when Prudential Life's assets are expected to be migrated, it is expected to increase to a KRW114 trillion level and is expected to grow to be the second biggest in the industry based on asset management companies' AUM. On the other hand, we are expanding collaboration between our insurance subsidiaries and through activating cross-selling between insurance subsidiaries, we will increase customer inflow by securing sales channels and through expanding product sales opportunities for other subsidiaries within the Group, we will strengthen sales competitiveness of dedicated channels.

And through systematic planner training and management, we will reduce mis-selling sales risk, leading to a practical synergy between insurance subsidiaries. For your reference, the number of cross-selling customers between insurance subsidiaries in Q2 was about 280,000 customers and it increased by about 9% after Q4 of last year, right after acquiring Prudential Life. Going forward through sales of high value products and expanding sales capable manpower, we have plans to have a stepwise activation of cross-selling.

In addition with the accelerating trend of manufacturing and sales separation in the insurance industry, KB Financial Group taking into consideration that GA's product sales influence is growing aims to share the GA channel management capability owned by KB Insurance and KB Life and execute collaboration marketing to maximize the organization's operational efficiency. The contribution of GA, new sales of insurance subsidiaries in Q2 of this year was around 52% compared to total sales and through balance growth of the dedicated channel and the GA channel, we aim to increase our market share.

Apart from this we are applying the shared service center to the overall insurance division and are expanding our group's synergy. Before the adoption of IFRS 17 accounting system in 2023, we will share working capability between insurance subsidiaries to establish business management methods and by exchanging human resources and sharing know how, we are expanding collaboration for product development centering on values. We are also improving cost efficiency in many ways, including establishing IT and call center colocation operational models and utilizing shared infrastructure to execute digital marketing to secure a sustainable growth momentum. From the next page, we have the details regarding the results that I have aforementioned. With this, we will conclude KBFG's 2021 first half earnings presentation. Thank you for listening.

Questions and Answers:

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you to our CFO for the presentation. We will now move on to a Q&A session. For those of you joining us via the Internet, please refer to the contact info on the very last page of the presentation screen. [Operator Instructions]. From Samsung Securities to Jae Woo Kim, please go ahead.

Kim Jae Woo -- Samsung Securities -- Analyst

Hi, I am Kim Joo from Samsung Securities. Thank you very much for good performance in Q2. I have two questions. First is your shareholder return policy. KBFG, this is the first time for you to pay out your interim dividend. And now you think that this makes your shareholder return policy quite solid. So we are happy to see that. When it comes to shareholder return, together with the annual guidance -- payout guidance, a lot of U.S.-based banks have been quite aggressive in share buybacks. I'm just wondering whether KB also has planned to do share buybacks. From a long-term perspective, I think that -- I'm wondering whether you could make the interim payout more regular and also, from the mid to long-term perspective, what will be your payout ratio? If possible, I would like to ask for your answer regarding that.

And the second question is a rollover, loan related platform. With regards to my data, and if the rollover loan platform gets combined, I think that this would have a significant impact on your loan sales. Unlike the financial holding companies, the non-bank and smaller financial providers, for them they will be quite actively making use of that platform because they will provide them with the new channel. From KBFG's perspective, you have a very strong platform, you have a very strong customer base. So we'd like to understand that what is your assessment is with respect to the introduction of the possible rollover loan platform.

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you for those questions. Please give us one moment.

Hwan Ju Lee -- Chief Financial Officer

Thank you. This is CFO, Lee Hwan Ju. Thank you very much, Kim for your questions. Regarding the shareholder return policy, I will respond to that question. CFO from KB Bank will be responding to that question. As I mentioned in the opening presentation, during today's BOD, for the first time in the establishment of KBFG, we have decided on resolved on KRW751 per share for dividend. As you know, the financial authority had made recommendations with regards to the dividend payout and in light of the capital strength and asset quality as well as many other factors, we have made a very comprehensive assessment. And as part of a shareholder friendly approach, we have decided to pay out an DPS of KRW751 for the interim payment.

In terms of mid to long-term payout ratio. I understand that that was your question. On a payout ratio for an annual basis, I think it's a bit too early for us to provide you with a specific number. Because we have to wait and see how the COVID situation plays out in the second half as well as the policy direction of the financial authorities. We will be mindful of that in making the final decision but as long as the macroeconomic indicators don't fluctuate significantly, we believe that we will be able to probably return to the payout ratio pre-COVID-19 era. At this point in time, that is our assessment that we'll be able to go back to the former level.

In terms of the share buyback, as you know, KBFG for the current year, when it comes to the payout ratio at the end of the year and we will also look at the overall market backdrop and also communicate with the supervisory authorities. We have always done that to actually go ahead with certain plans and for the past years, we were able to continuously increase our total shareholder return stance over many years. We have utilized the dividend and share buyback in the past as well. In terms of dividend payout policy, we have really implemented the progressive dividend policy stance. Based on that consistent policy, we will continuously up our payout ratio continuously toward that 30% level.

One last point I would like to say is that, KB Financial Group, as we've done in the past, we will efficiently make use of our capital and when it comes to shareholder return, we will engage in in-depth review and we will always be a step ahead so that we can really payback the trust and the support that our shareholders have shown us to date.

Unidentified Speaker

Thank you, Mr. Kim Woo for your question. I am CFO of KB Bank. I am Cheong Mun Cho [Phonetic], Senior Managing Director. You asked me a question about the rollover loan platform. FSC has come up with proposed system whereby that, they will provide a platform for rollover loans and some interest rate comparison services, but their whole objective is to reduce the interest burden for the users and also to enhance convenience, but in this process, one of the aspects that we have a bit of a concern about is, if there is excessive rollover, this could trigger a very fierce interest rate competition, which could undermine profitability of the banks.

And also, when it comes to the customer facing, there could be a transition or movement from bank to BigTechs or FinTechs that could actually accelerate. So from that perspective, from the bank's perspective, we are a bit mindful of those negative impact. If you look at local provincial banks, for them in terms of securing new channel to provide their product. The FinTech and BigTechs have their interest rate comparison product. And these smaller institutions are already providing their information via that platform. But a large institution like ours, the banking institution, we more or less have similar concerns as well as our peers in this industry.

So we are making recommendations to the FSC and we are in discussions with the government authorities. At this point in time, there has not been any decisions as to what the fee commission structure will be like or who will be the main entities that will operate this platform. None of these details have been decided yet. Rather than however, focusing on short-term gains or short-term disadvantages, we want to take a long-term horizon. We need to be able to secure our customer base in order for us to be able to bring about bottom line in our business. So we will decide on our strategy with a very long haul approach.

Also, with regards to the rollover loan platform, we will of course need to respond to this but at the same time, we need to further enhance competitiveness of our lending business. On the digital channel, the online channel, we are currently making improvements on the process. For instance, proposing interest rate and product that best fit and that is most personalized and customized to the customers and also, we have our strength in offline channel as well.

For instance, people who apply for loans on the digital channel can fulfill that application on the offline and vice versa. There could be many different connections between offline and online and in terms of their process, we're making many efforts to bring about improvement in the overall process. And when it comes to different occupation or credit ratings of the borrowers or the customers, we will go more granular and give a certain loan limit and interest rates that best fit that specific category. Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you for the answer. We will take the next question. From Hyundai Motor securities, we have Mr. Kim Jin-Sang on the line.

Kim Jin-Sang -- Hyundai Motor Securities -- Analyst

Greetings. Congratulations on your earnings and I have two questions. With the COVID situation getting more serious, there are concerns over on credit risks of SOHOs. Also, regarding financial support for the SOHOs, do we have to be concerned that this is going to be expanded to them and cause some cause for concern?

Second, KB in Q1 had weaker loan growth. But in Q2, I think you have recovered. But looking at the industry as a whole, I think your loan performance was very good. And I think it's still good. So for the government, I think they have some loan related regulations for household loans coming up. So can you tell us about your plans for them going forward?

Peter Bongjoong Kwon -- Head of Investor Relations

Yes, we will soon answer your questions. Please hold.

Hwan Ju Lee -- Chief Financial Officer

Thank you very much, Mr. Kim Jin-Sang, for your questions. You gave us two questions. First was about asset quality and second was expected loan growth. Regarding asset quality, I would like to briefly answer your question. Due to concerns about prolonged COVID-19 situation, it is true that the economic situation is still very difficult. And for SOHOs and small business owners, there has been some forbearance, and there are still are steadfast concerns about asset quality.

Regarding the group's asset quality status, as of June 2021, delinquency 0.14% and 0.26% respectively. And this is becoming stably managed. And for the credit card delinquency rate, it is still being managed quite favorably. So, even in this situation, it seems to be very -- it seems that it is very favorable. And for the NPL, it's 0.2% and 0.32% respectively. So, you can see that we are seeing a downward stability.

As I have aforementioned [Phonetic] in the presentation, regarding the government's financial support programs, there are the concerns about principal repayment and interest forbearance. And they are only at a KRW500 billion to KRW300 billion level. And regarding the prime and secured loans, they are more than 80% or so -- they are about 70% or so in higher up, so it is being well managed. And the credit costs for this year, we believe, can be cautiously managed at a similar level in the market. I know that after the financial support ends, there might be deterioration in the credit or a rapid increase in provisioning. But after the financial support ends, the repayment will not be called back at once. But according to your crediting [Phonetic], it could be a general -- there could be prolongation of -- and there could be the prolongation of the maturity for the new loans. And for the repayment of principal, it is going to be the rescheduled. So, it will not cause serious credit crunch at once.

We also have had about KRW380 billion of additional provisioning. So, we have pre-emptively secured a buffer for potential NPLs. However, I know that as you have voiced your concern, if the government's financial program support ends in September, there might be some possibilities that there will be NPLs going forward. So, we will rereview our loan classification and situation for different industries. And we will also look at our vulnerable borrowers, and as we have done in the past, and do our best so that we can stably manage this situation.

Regarding your second question, it was about loan growth. And as I had mentioned in the presentation, in Q1, it was a bit slow, and in Q2, it recovered. And for the household and the corporate side, I think we can look at it separately. And for the household loans, on a yearly basis, within a 5% range, this is being managed. And we have a portfolio based on asset quality and profitability. And we believe that we can grow based on that. For the corporate loans, as we have been voicing continuously, we put a priority on asset quality. And because we're going to grow based on profitability, we believe that 5% to 6% growth per annum for this year will be possible. Thank you very much.

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you for that answer. We will now take the next question from Hanwha Investment & Securities, Kim Do Ha [Phonetic], please.

Kim Do Ha -- Hanwha Investment & Securities -- Analyst

Yes. I am Kim Do Ha from Hanwha Investment & Securities. I have a question on margin. This quarter, your NIM was quite flat. If you look at the profitability on the loan side, as well as some of the factors that contributed to this, it seems like from June, their short-rated rate is going up. I would like to understand how the profitabilities are coming in and the funding costs. Is it not because of the funding costs? Or do you think that the profitability can actually go up and start to contribute to your NIM? When do you think that that could actually materialize?

Peter Bongjoong Kwon -- Head of Investor Relations

We will soon answer your question. Please hold.

Hwan Ju Lee -- Chief Financial Officer

Thank you very much, Do Ha Kim, for your question. You asked a question about NIM, about the current status, and I believe the future expectations. As I had mentioned in my presentation, in this quarter -- in the previous quarter, we had 5 bp increase. And for this quarter, it is flat. And for Q2 NIM, to explain briefly, we have the management side and the funding and lending side, and we had the low cost deposits increase with our efforts. And in Q2, we had KRW4.4 trillion increase in core earnings. And for the time deposits, we have the average balance going down. So in the funding side, in Q2 as well as in Q1, we had the funding burden going down. And you can see that we had profitability and quality-based selective loan management stance that was well managed. And like in the previous quarter, we had a favorable situation surrounding the NIM. However, in early last year, there was a big cut in the interest rate. So, this led to the repricing and some influence in the loan side for the assets. And we had the flexible LCR management, and we had the deposit insurance fee that was adjusted. I believe these factors led to offsetting some factors that you had mentioned. So, that is why in this quarter, it was similar to the previous quarter.

So for the bank NIM, it might seem that it's stalled [Phonetic] compared to our competitors. But as you're well aware, looking at the bank NIM flow, we're not looking at certain quarters, but looking at four or five NIM quarter trends, I think it could help you actually know more about the margin. And after the big cut of last year, looking at the NIM flow of our competitors as well, for the quarterly fluctuations, you can see some differences. But looking at the asset-liability portfolio and duration differences, I think that led to some differences. But as a result, after the big cut from Q2 of last year to Q4, you can see that it might seem similar, but there has been a 6 bp increase. So comparatively speaking, I think we can say that we have very favorable NIM trends. In the second half of this year, the repricing effect from the big cut will be alleviated, and the low-cost deposits, and there will be the average balance effect coming in from time deposit differences, and this will continue. And as I have mentioned, since we are going to maintain our loan policy based on asset quality and profitability, we believe that for the bank NIM, we can safeguard it to the first half level. And if we have changes in the interest rate environment or other factors, there could be a slight improvement.

As you have voiced your concern for our funding and lending, we will do our best to have more sophisticated profitability banishment so that we can have an appropriate level of earnings. Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

Next question from DB Financial Investment, Mr. Lee Byung-gun.

Lee Byung-gun -- DB Financial Investment -- Analyst

Thank you. I am Lee Byung-gun from DB. I would like to first thank you also for good performance. I have two questions for you. First one is, soon, we will see the IPO price for KakaoBank. Right now, KakaoBank is really promoting the online mortgage loans. But when it comes to this whole mortgage loans, there is mortgage -- a mortgage and home equity is going to be part of their initiative. But can you really make this or sell this online or through digital channels?

And also, if you look at not just the Internet bank, but the commercial banks, basically they're trying to provide and handle home equity or home mortgage loans and distributing that via online. So I'd like to understand what your plans are regarding mortgage and home equity loans, using non-offline channels? So what types of process are you envisioning?

Second question is quite simple, relating to Prudential. I know that you mentioned this previously. On a stand-alone basis, if you look at the profit versus the consolidated profit, we see a gap between the two figures. I would like to understand where this trend is going to stay in Q3 and next year and year after?

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you very much. Just give us one moment.

Hwan Ju Lee -- Chief Financial Officer

Mr. Lee Byung-gun, you asked me questions about mortgage and home equity loans. When it comes to mortgage loans and Jeonse loans, most likely mortgage loans, they are closely related to government's property or real estate policy direction. So it's very complicated, and how you actually pledge a security or collateral. There are a lot of exceptions. So would you be able to actually handle this on a digital channel or an online channel? One would have to say that that will be quite difficult.

When it comes to home equity loans, at KB, we actually already have a process where people don't have to actually visit offline branch. But as you've mentioned, compared to unsecured loans, the usage of this process is much lower. If you look at mortgage and home equity loans, unlike other types of smaller loans, if it's a loan for a large amount to actually pay for a property, you have to really match the timing. For instance, for Jeonse loans, if you don't meet that deadline or meet that timing, it creates a big fuss for the users. That is why customers would still prefer an offline face-to-face channel. Having said this, I believe that the overall transition is definitely toward online. And I believe that at the end of the day, there will be much more need for such digital online channel rather than having to do this on a face-to-face basis. So we are aware of this trend.

At KB, we are currently upgrading our Star Banking platform. We are going to improve this whole process more intuitively and innovated [Phonetic] so that it could actually cater better to the types of products that you have mentioned. We want to be able to have a process where we could really offer and recommend a product that best fits a borrower. For instance, if there needs to be a joint title pledged or if this is a type of a rollover loan, home mortgage loan that involves another financial institution, it becomes quite complicated. But we are, at this point, improving the overall origination process so that the users can very conveniently make use of the non-offline channels.

Unidentified Speaker

Thank you, Mr. Lee Byung-gun for a good question. Responding to your second question relating to Prudential. After we acquired Prudential for PPA adjustment, and there's stand-alone and there's consolidated basis, and there's a gap between the two. And you're asking for how long that will continue. Last year, as well as this year, we think that that situation will continue until the end of the year. And we think that that could actually go into a year after as well. But 2023, IFRS 17 is going to come into play. And in that case, I believe that from that point in time, there could be some changes from what you're seeing right now. So that's what we're thinking internally. Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

Now, we are at 53 minutes, and we will take the next question from Kiwoom Securities.

Seo Young-soo -- Kiwoom Securities -- Analyst

I am Seo Young-soo from Kiwoom Securities. I would like to ask a question from a bit of a different perspective regarding the household loan management plan by the government, which was actually announced. Regarding the DSR, they have mentioned that I think it will be full-fledgedly adopted going forward. And credit management, I think will be based on repayment rather than on the delinquencies. Can you give us your take on what you're doing to actually prepare for this change? I believe that it is -- after you give out a loan, it is hard to recover it for the DSR. And for the new customers, I think it will be hard. So maybe it will be better to implement this standard two years in advance before it is adopted two years in the future.

And regarding my second question, regarding DSR, this actually includes all that. But realistically, I think a lot is still missing. In particular, rather than mortgage loans, there are people that could use KB's Jeonse loans and make investments, which will lead to more leverage and higher risk. But looking at the situation, I believe that through DSR evaluation, you could actually sift through this and find out what is real. So, including [Phonetic] Jeonse loans and others, I think this might be calculated and your risk will be managed. So, do you have any plans to do this in the future? Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

Thank you very much, Director Seo Young-soo. We will soon answer your question.

Hwan Ju Lee -- Chief Financial Officer

Thank you very much, Director Seo Young-soo. In April, there was the household that advancement plan announced by the government, and there were two plans. And first is to have appropriate management of household loans and to limit it to about 5% this year. And secondly, for -- do the DSR management not based on the bank, but on the borrowers. So, from July -- from KRW600 billion of mortgage loans and for the unsecured loans over a certain amount, so going level by level, they had set forth some strategies and regulation rules. As you had aforementioned, in managing the DSR, some of the loans could have been left out from calculating the DSR, for example, Jeonse loans and the moving loans or the mid-repayment loans. And regarding the DSR, firstly, as you mentioned, customers might use this and get leverage. And you mentioned that it may lead to higher risk by the bank, and there is a possibility of that.

As you mentioned, I think there will be partly some possibilities. But I think it will take some -- since we have some time left regarding how to reflect it in this calculation standards and models, I think we will use our time to do that. And we will also have some demand. So, we are managing this at an appropriate level now. And when we have strengthened adoption of DSR, I believe that the customers will have a lower profit than before. So, we will have advancement of the credit review model and come up with a more detailed model. So, we will give them the appropriate limitations and interest rate so that we can grow it accordingly. For example, looking at the different customers, some people's income might be very evident and some people's incomes might not be very easily seen or visible. So, we will need to actually consult with the government so that it will be at an appropriate level.

Regarding the DSR, I think this will be my answer. Thank you very much.

Peter Bongjoong Kwon -- Head of Investor Relations

Next question from Citi Securities' Tian Yafei.

Yafei Tian -- Citigroup -- Analyst

Thank you very much. I just have a couple of very good follow-ups. The first is on dividends. Is this going to be a quarterly dividend? Or it is interim dividend?

And then the second question is around the net interest margin. Under circumstances, if there is going to be competition, do you expect it to grow your loan book or maintain the margin? Thank you. Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

Give us one moment.

Hwan Ju Lee -- Chief Financial Officer

Thank you very much for those questions. Regarding the quarterly dividend, I think I could just simply answer by saying that, if you look at the current circumstances, in terms of, I guess, providing you with a definitive answer, I think we are not at a position to be able to do that at this point. And I've mentioned shareholder return and cash flow, fluid cash flow, flexible cash flow. So in light of the economic situation and the policy direction of the government authorities, we were definitely -- we are engaged in discussions. And once we know of more concrete direction, then we will come back to you and communicate to you with respect to that quarterly dividend.

You've asked me a question then about NIM. Well, in the past, when it comes to growth and profitability, as well as asset quality, there seemed to be some trade-off relationship between all of those three factors. That was how we thought in the past. But we think that growth, profitability and quality, I would like to emphasize that we have a policy in place to help us attain all of those three at once. So, we [Technical Issues] go for excessive growth that's going to undermine our profitability or our margin. We have a very clear stance on that. In Q1, the reason why the growth of the loan book was slow is because we did not jump into price competition, which will undermine our profitability. So, that actually is the reason why the NIM was where it was. But that doesn't mean that we're going to give up on our growth just to protect our bottom line. On our basis, we want to make sure that we can guarantee our profitability and at the same time bring about growth. That is our approach. Thank you.

Peter Bongjoong Kwon -- Head of Investor Relations

I think one hour has passed, and there are no other questions in the queue, so we will wait a moment to check. I believe that all the questions have been posed, and we will conclude our Q&A session. With this, we will end our earnings presentation. Thank you for your participation.

Duration: 62 minutes

Call participants:

Peter Bongjoong Kwon -- Head of Investor Relations

Hwan Ju Lee -- Chief Financial Officer

Unidentified Speaker

Kim Jae Woo -- Samsung Securities -- Analyst

Kim Jin-Sang -- Hyundai Motor Securities -- Analyst

Kim Do Ha -- Hanwha Investment & Securities -- Analyst

Lee Byung-gun -- DB Financial Investment -- Analyst

Seo Young-soo -- Kiwoom Securities -- Analyst

Yafei Tian -- Citigroup -- Analyst

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