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KB Financial Group Inc (NYSE:KB)
Q3 2021 Earnings Call
Oct 21, 2021, 3:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, I am Peter Kweon, Head of IR at KB Financial Group. We will now begin the 2021 Q3 Business Results Presentation and thank you for your participation today. We have here with us our group CFO and SEVP, Lee Hwan Ju and other executives from the group. We will first have CFO and SEVP, Lee Hwan Ju, walk us through the 2021 Q3 major highlights and then have a Q&A session after the presentation. I would like to invite our SEVP to deliver the 2021 Q3 presentation.

Hwan Ju Lee -- Chief Finance Officer

Good afternoon. I am Lee Hwan Ju, CFO of KB Financial Group. Thank you for joining KBFG's third quarter 2021 earnings release presentation. Before presenting on the company earnings, I will brief you on the overall operational backdrop first. Last August, in light of recovery trend of domestic economy and inflationary pressure and deepening financial imbalance, BOK hiked policy rate by 25 basis points for the first time in 15 months.

Following the rate hike expectations on NIM improvement drove rise in banking sector share prices, though temporarily, but with the spread of the delta variant and concerns around peak out of economic momentum and early tapering in the U.S., uncertainties, both internal and external, are adding up. Also, as big techs enter the financial business, there is a possibility that authorities may separate the business of manufacturing and sales of products, which may undermine incumbent competitiveness. All in all, operational backdrop doesn't seem positive in the financial sector.

Also, there may be another policy rate hike before the end of the year and as financial support program for SMEs and small merchants harmed by COVID-19 pandemic has been extended by six more months, there is a growing concern over deterioration in asset quality. Hence, a more fine-tuned risk management is required on the part of financial institutions.

Under this backdrop, let me assure you that KB's asset quality management is very solid, underpinned by our rigorous risk management framework. However, even if asset quality management is quite solid as financial business has a retrospective characteristics, one cannot completely preclude chance of crisis after the end of the support program. So we set up comprehensive plan for loan assets and strengthened creditworthiness monitoring on borrowers who are prone to negative impact and have pre-emptively set up sector policies for highly impacted and deteriorating sectors from the COVID pandemic in order to fully prepare for potential risks.

Also, last year, at the group level, we made around KRW380 billion in additional provisioning securing sufficient buffer to counter uncertainties in the future. So even with the end of the financial support, we believe there will be limited chance of a sudden drop in asset quality or a surge in credit cost.

Next, under the trend of digital transformation and financial transactions, which is speeding up on the back of COVID-19 pandemic, KB will accentuate our core competitiveness in financial services and expand customer touch point and further notch up our own platform to transform into a number one financial platform, most loved by our customers.

To elaborate, KB Bank, last July, expanded and implemented PG, which is short for Partnership Group 2.0, which is an innovative model for the offline channel, moving away from the legacy one size fits all branch system to one that is business-centric, i.e., for retail, corporate and wealth management, fully reflecting branch environment and our customer profile to beef up competitiveness of the offline channel.

Also by leveraging the MyData service to be fully launched in this year based on in-depth data analysis on customers scattered data, we will provide comprehensive asset management services, which are super personalized so as to complete our unique channel competitiveness through the omnichannel cutting across both on and offline and by providing seamless services. We also made board enhancements to the group's platform, KB Star Banking from user convenience perspective and will showcase the new platform so that we may leap forward as a number one financial platform. I will provide more details on KB Star Banking in following slides.

Also last June, KB adopted PCAF, which is short for Partnership for Carbon Accounting Financials, and SBTi, Science-based Target initiative, disclosing carbon emission from our asset portfolio in a transparent manner and declared KB Net Zero S.T.A.R., S-T-A-R, seeking to target net zero by 2050. On the 14th of the month, we were the first Asia regional financial company and domestic company to receive SBTi approval on carbon reduction target. This is meaningful in that KBFG's carbon-neutral strategy of KB Net Zero S.T.A.R. was more than a near declaration and has been proven to have global standard objectivity through rigorous and science-based carbon reduction target setting.

With the SBTi approval, as we completed target setting, which is a prerequisite toward carbon neutrality, we will provide strong support to companies for emissions reduction and green investment and will continue to collaborate under various different global initiatives in order to continuously drive ESG management.

Now, let me walk you through our Q3 2021 business results. KBFG's third quarter 2021 net profit reported KRW1.2979 trillion with solid growth in net interest income and net fees and commissions income as well as reversal of provisioning of Hanjin Heavy after the end of the workout procedure and KB Insurance's Q2 ERP and other one-off related base effect. Net profit was up 7.8% QoverQ. Except for the one-off factors, including the reversal of provisions, net profit on a recurring basis was around KRW1.250 trillion. Solid profit up trend continued, thanks to core profit growth and companywide cost control efforts.

In Q2, cumulative basis net profit was KRW3.7722 trillion. Despite difficult internal and external operational environment, we solidified core business model of each business line, expanding source of revenue and diversified business portfolio through M&As, which all drove up profit, 31.1% year-over-year.

Let us now take a look at each of the segments in more detail. Third quarter cumulative net interest income was KRW8.2554 trillion, which is up 15.6% on year. KB Bank's loan in won was up 5.5% compared to the previous year, sustaining sound growth. A NIM improvement, interest income expanded and consolidation effect from M&As, including Prudential Life as well as non-bank subsidiary contribution to interest income also sustained its improving trend.

Q3 cumulative net fee and commission income was KRW2.7439 trillion, which is up 26.4% year-over-year or KRW573.4 billion, driven by fees from securities business around IB business, which reported around KRW116.4 billion, a sizable increase. And on growth in credit card payment volume, merchant fee income increased, driving improvement of non-bank subsidiaries' performance and an increase in early redemption of ELS and growth in new sales. Bank's trust income also posted an improvement.

Also, third quarter net fees and commission income was KRW911.3 billion, despite decline in stock trading volume, which led to lower securities business fee income. Thanks to the IB business of the bank and improvement in the profit of the IB business of the bank and securities and higher trust income from the group, it was up 5.3% year-over-year.

Q3 other our operating account reported KRW114.1 billion of loss slowing QonQ. This is due to the rise in interest rate and FX rates in Q3, which led to lower translation gains from securities, derivatives and FX. And higher loss ratio from P&C insurance on the back of seasonality as well as greater stock market volatility, which led to greater guarantee reserving for Prudential Life.

Next is on the group's G&A expense. Third quarter group G&A reported KRW1.6649 trillion. With the impact of Q2 ERP of KB Insurance and seasonal factors, like the taxes induced eliminated that was a marginal QonQ dip. On a cumulative basis, G&A reported KRW5.0575 trillion, which looks as though there was a slight increase year-over-year but this is due to the consolidation effect from the M&A and ERP expense from the insurance business. Apart from these factors, G&A is kept at a steady state.

Next is provision for credit losses. Q3 cumulative provision for credit losses posted KRW596.5 billion, a KRW157.8 billion drop YoY. This was a result of qualitative growth centering on safe and prime assets as well as continued credit quality management efforts and fading away of the additional provisioning related to COVID-19 in Q2 of the previous year.

On a credit cost basis, it posted 0.22% and is maintaining sound asset quality. Q3 provision for credit losses posted KRW199.4 billion and despite loan asset increase with qualitative growth centering on prime assets and around KRW23 billion of reversal of provision for loan losses related to Hanjin Heavy, it was managed at a low level.

Looking at the graph on the bottom right, the non-banking contribution in the group's net profit recorded a 44.5% level in 2021 Q3 on a cumulative level. This was a result of non-organic growth of financial investment and insurance industry areas through M&As and expanding profit stability and profit generation basis through strengthening core business models for each business area. KB, in order to overcome limitations in the domestic market and to secure a sustainable growth engine is expanding sales capabilities in Southeast Asia, including the bank recently securing 100% of product shares in Cambodia and with the upcoming acquisition by securities of Valbury Securities in Indonesia.

The bank has also secured IB and capital market sales hub in Singapore and is heightening competitiveness in the advanced market and thus is heightening its status in the global market. Going forward, based on the results and competitiveness that has been achieved domestically, we will continuously expand our dominance and profit basis in the global market and enhance our corporate value.

From the next page, I will go over the major financial indicators. 2021 Q3 cumulative group ROA and ROE, on the back of group's core income growth and conservative asset quality management posted 0.81% and 11.85%, respectively and taking into consideration the recurring ROE, it recorded 12.06% and is maintaining sound fundamentals and profitability.

Next, I would like to cover bank's loans in won growth. Bank's loans in won as of 2021, September-end posted KRW312 trillion, a 5.5% YTD and 3.4% QoQ increase, respectively. In detail, household loans centering on Jeonse loans and Prime Unsecured loans continued solid growth and has increased 3.4% compared to end June. In the case of corporate loans, driven by increased demand following economic activity recovery trend, centering on SOHO and Prime SME companies, SME loans grew stably at 2.8% and large corporate loans grew substantially at 7.3% and rose 3.4% compared to end June.

Next is net interest margin. 2021 Q3 bank NIM posted 1.58%, a 2 BP increase QoQ. Despite the funding interest rate repricing effect, which ended last year following last year's big cut, this was a result of selective and sophisticated loan pricing policy and managed asset profitability improvement efforts.

On the other hand, in the case of the group NIM, with funding burden increased following card asset growth, card NIM contracted, but on the back of bank NIM improvement, it rose 1 basis point QoQ. Going forward, KB, based on strong channel competitiveness, will focus on expanding low-cost deposits, including settlement of accounts and corporate core deposits and through flexible interest rate management based on profitability and asset quality, will secure appropriate margin and do our best to improve our NIM as much as possible.

Let's go to the next page. I would like to cover our group's CIR cost income ratio. 2021 Q3 cumulative group CIR posted 46.6% and as a result of solid core income increase and continuous cost management efforts, a downward stability trend is continuing. Excluding one-off factors, including ERP costs, recurring CIR posted a 45% level and additionally taking into account effect from others, we are seeing that the cost efficiency improvement trend is becoming more realized.

Next, I would like to cover credit cost ratio, CCR. 2021 Q3 group and bank credit cost each posted 0.20% and 0.05%, respectively. And on a Q3 cumulative basis, it is still being stably managed at 0.22% and 0.08%, respectively. Even excluding the around KRW23 billion of reversal for provision for loan losses following the conclusion of Hanjin Heavy Industries worked out in this quarter, the group credit cost maintained a low level of 0.23% in Q3 and even in the COVID-19 crisis situation, sound asset quality management capability is being proven.

With the prolongation of COVID-19 related various financial support programs and the possibility of additional BOK interest rate hike, concerns over asset quality is increasing. However, since we are pre-emptively preparing for these possibilities and since we are more strengthening management for potential non-viable exposure, we expect to stably manage asset quality in the future as well.

Next, I would like to cover group's capital ratio. 2021 September-end group BIS ratio posted 16.11% and CET1 ratio recorded 13.91%, respectively, and through 4 bps and 18 bps QoQ, respectively and is maintaining the highest level of capital buffer in the financial industry. Despite higher risk-weighted assets from loan growth, this was possible through a substantial capital improvement on the back of factors such as solid net income generation and securities valuations gain increase.

Let's now go to the next page. From this page, I would like to explain about KB Financial Group's representative digital platform, KB Star Banking that we will be newly launching at the end of this month. Along with the acceleration of online financial transactions due to the COVID-19 pandemic, with the listing of Kakao Bank and opening of Tosbank's operations, competition with platform companies is deepening and digitalization is becoming more pronounced as important competitiveness in the financial industry.

KB Financial Group, which has been responding one step ahead of these changes, focusing on customers' needs and pain points has been reinforcing the group's major platforms. And going forward, we aim to solidify top-tier status within the digital financial market by driving digital transformation from an all-around perspective, encompassing platform, content and marketing.

As a part of these efforts, KB, starting with KB Star Banking, through boldly integrating and reconfiguring the group's core service from the perspective of customers' convenience aims to strengthen KB's unique platform competitiveness and become the number one comprehensive financial platform, which is most beloved by customers.

As you are well aware, the core factors for a platform to succeed or to secure the 3Ts, traffic, time sharing and transaction. The essence is to develop and deliver killer content so that many customers can visit the platform and stay for a long time and make the customers use it often. The new KB Star Banking is an expandable comprehensive financial platform, including the group's hub rule, which offers core services of each subsidiary as one app.

It enhances customer value through strengthening customer engagement by offering database personalization service and through implementing fast and safe service based on mobile optimized infrastructure, we will strengthen customer convenience, and we expect that this will be a strong platform and secure the 3Ts that I aforementioned. To explain in more detail, first, by applying methods such as KB's own KB Mobile Certification and in-app browser, we aim to establish an expandable platform basis, which can encompass not only KB Financial Group subsidiaries, but also diverse external channels.

Going beyond simple service focusing on inquiries and through internalizing the representative core services of subsidiaries, including securities, stock transactions, insurance coverage analysis and insurance claims and KB Card, KB Pay, we aim to establish a KB ecosystem that could fully utilize related services without additional app or application or attrition.

We will also connect to external channels, including Government24 and Hometax and provide a flexible platform basis, which connects seamlessly in the customer's life and will expand alliance with public and private institutions in the future to improve customer user convenience within the platform.

Secondly, through methods, including home screen duration and MyPage service, more sophisticated personalization service will be implemented and through sophisticated data analysis, utilizing AI, machine learning and others. And based on Mydata and open banking service, we will develop more segmented content for customers and provide customer personalized asset management services.

Last but not least, the new KB Star Banking is meaningful since, even if there is continued channel and service expansion in the future. There is an expandable basis, which does not affect speed or stability. With the application of SPA, Single Page Application, in new technology, there will be a flexible transition of the screen as well as a great increase in transaction speed.

Even when errors occur, we expect that for essential transactions through establishing mobile banking optimized infrastructure system, stability will be greatly improved. Apart from this, KB, through connection with nonfinancial platforms, including Liiv Real Estate and Healthcare will complete KB's unique platform competitiveness, which naturally connects finance and lives and become our customers' most beloved lifetime financial partner going forward.

From the next page, please find the detailed materials related to the performance that I just aforementioned. So please refer to it if needed. With this, I will conclude my business results presentation for 2021 Q3 of KB Financial Group. Thank you for listening.

Questions and Answers:

Operator

[Operator Instructions] First question from Hanwha Securities, Do Ha Kim. Please go ahead with your questions.

Do Ha Kim -- Hanwha Securities -- Analyst

Thank you. I would like to ask you two questions. First, we're happy to see that the margin did go up even slightly. Basically, the impact of a rise in loans. Do you think that the impact will play out and full fledge in Q4 because in Q3, if you look at NIS figure, the stand-alone figure in terms of -- rather than rebound in interest income, I think there was a bigger impact on the improvement of the funding cost. So I would like to understand whether the profitability improvement is actually going to be translated into a higher margin in the fourth quarter?

My second question is over many years, you've conducted multiple number of M&As and with regards to credit card, insurance, capital P&C, it seems like your subsidiary portfolio has become very much diversified. Now then every year, this earnings capacity of KRW4 trillion per annum, I would like to understand how you could best leverage off of this significant capital that you're going to be generating in terms of making M&A investment or going abroad or cancellation of shares or buyback of shares. So what are some of your plans regarding the use of the capital?

Peter Kweon -- Managing Director & Head of Investor Relations

Give us one moment as we prepare to respond to the question.

Hwan Ju Lee -- Chief Finance Officer

Thank you, Ms. Do Ha Kim, for the questions. I will respond to the question on NIM. Regarding M&A, Chang Kwon Lee, our Senior Executive VP, will respond a question on M&A. If you look at third quarter NIM profile on a QonQ basis, we saw 1 basis point increase. In terms of investment, we've -- I guess, we had a very selective policy on loans. So on household loans, we were able to bring about improvement in spread and investment yield on securities also went up. So that also drove that improvement in NIM.

On the funding cost, we really focused on expanding the deposit with low funding costs. We had around KRW3.8 trillion increase in core deposits. Now in August, there was interest rate hike. So short-term rate really surged. So the MDA really improved quite significantly. So there was a limit on the -- there was a ceiling on the improvement on NIM. Now, the nominal improvement of 2 basis points, but if you look at the fractional basis, if you round that up or round that down, there's been a 1.3 basis point increase to be quite accurate. Now if you look at on a cumulative basis, bank's NIM, respectively, is 1.82% and 1.57% and so compared to the previous year's NIM, there's been a 6 basis points improvement for both the group and the bank.

Now last year, there was a 75 basis point of rate cut and it was a very difficult environment for us to defend our net interest margin, but we were able to continuously grow our core deposit, and we really focused on a bottom line centric lending policies as well as asset management policies. In terms of the NIM outlook, starting fourth quarter, now the asset repricing impact is gradually being seen following the interest rate hike in August and also with the regulations on households loans as well as more alleviated competitive landscape, we expect the loan-to-deposit spread to improve and NIM to continue on with the gradual improvement trend.

However, we think that a full-fledged NIM expansion will come into play from first quarter of next year. Including this year, November and up to first half of next year, if we assume that there will be two more rate hikes, then next year, following this year's trend, we think there will be meaningful improvement in NIM. Our company is very much focused on profit-centric lending policies, and we comply with the government's aggregate loan limit regulation and under a very conservative growth approach, we will increase on a prime unsecured loans.

And also, I've mentioned this during the presentation, but we will be introducing the settlement account as well as company's core deposits. So these are the low-cost deposits, and we believe that on a funding aspect, we will be able to really manage our profit and make sure that we get appropriate level of profit from these businesses.

Chang Kwon Lee -- Chief Strategy Officer

I am CSO, Lee Chan Kwon from KB Financial Group. Thank you very much for a great question. In terms of capital plan and whether we have any plans for further M&As going forward. As you know, KB, we acquired Prudential Life, and also we've acquired Bukopin Bank from Indonesia and made investment into Cambodia's PRASAC Bank as well. So there were mega deals for us. So for the time being, rather than entering into another M&A, we will focus more on stabilizing these acquired entities organization and really focus on maximizing synergies across our subsidiary.

So value up is our focus, but that doesn't mean that we're completely close to M&A possibilities. If we think that there are any good assets and opportunities that could help with the corporate value of KB, we will definitely look at the capital efficiency aspect as well as different potentials in making the decision. If we were to go ahead with an M&A project, we won't just focus on growing the size. We would look at the target group and we would assess whether that company can give us 10% level of ROIC and the attractiveness of the sector as well as whether the strategic fit is good with our company and after post-acquisition, what are some of the synergies that we could look for. So those different aspects and factors will be considered.

Also, in the global market, for geographies where we think there is high growth potential, we will look at opportunities where we could further expand our influence, but if you look at the global market, there is a sovereign risk as well as regulatory environment and financial market environment. All those aspects must also be considered. At the same time, in order to counter the upcoming trend in financial industry, we will look at potentially investing into good investments to fintech companies and venture companies and innovative technology companies. I hope this answers your question.

Hwan Ju Lee -- Chief Finance Officer

One more thing I would like to add in terms of shareholder return and I think our dividend-related policy question is an area that other analysts are also quite interested in. So if I may respond to that question. With respect to the payout ratio as well as making interim or quarterly payment more regular and also share buyback, I think those are three topics that you have quite a bit of interest in. So since you've mentioned shareholder return, let me just cover all of those topics. So, during our earnings call I've mentioned this on numerous occasions, now we have a progressive dividend policy in place.

And that policy, first of all, is still valid. There is no change in that approach. With respect to this year's payout, although I can't be definitive, we -- there is the COVID pandemic and also we would consider the regulatory direction of the authorities. Our decision will be made based on that. We mentioned this in Q2, but as long as there is no significant macroeconomic changes, we believe the pre-COVID level, which is 26%, payout ratio of 26%. Normalizing to that level, we think is not a big problem at this point.

As you know, we currently hold 6% treasury shares. And so the actual payout ratio could actually be higher than the 26% payout ratio. And because our size of profit has increased significantly compared to previous year, we believe that on a DPS basis, there will be some meaningful increase as well. In terms of quarterly payout, I know Shinhan Holdings has done payout in Q2, and they have not yet disclosed for the third quarter, but we expect there will be a dividend in the third quarter as well.

As you know, this year, for the first time since the setup of the company, we paid out interim dividend. In terms of paying quarterly dividend or making this dividend payout more regular, we have not yet made the final decision, but in light of the shareholder return trends of the global and advanced companies and based on the feedback that we get from our investors, we will make sure that our decision is in line with the interest of our shareholders.

Relating to share buyback and potentially cancellation of such shares, KBFG in light of the year-end dividend as well as macroeconomic backdrop and our communication with the regulator, we've always considered those factors in making a decision. Over many years, we have had a mix and match between dividend payout and share buyback, and we were able to provide total shareholder return above what the market had provided. We still stick to that approach and under that policy, we will make sure that we think hard about ways to further improve on shareholder return and we will be transparent in communicating with the market on this point.

In relation to canceling of such shares due to the economic uncertainties and COVID pandemic impact being prolonged, it's difficult to I guess specify what our position is from a short-term perspective, but we believe that after this year, we will be able to give you a more concrete answer after this year in terms of share cancellation. In terms of use of capital and shareholder return policy, we want to make sure we are at the very forefront and we invest much effort in responding to the expectations of the market and the shareholders.

Peter Kweon -- Managing Director & Head of Investor Relations

Thank you very much for the detailed answer. We will take the next question from Hyundai Securities, Kim Jin-Sang.

Kim Jin-Sang -- Hyundai Securities -- Analyst

Congratulations on your earnings. I have two questions. First question is about something that you have already mentioned about government limitations on aggregate basis the loan limit, and we cannot ignore the regulation risk. Going one step further, it could get stronger or there could be loss sharing for the small merchants or for the borrowers. There could be interest rate adjustments or support for those borrowers and merchants. Because of COVID-19, we could have a regulation risk that could lag until next year and some are also saying that we could have real estate risk. So I think that there could be some concerns over this. So related to regulation risk, can we ask the executives about what your thoughts are and how you're going to respond?

Secondly, looking at this year's profit, we see that 30% increase rates results, but on the other hand, for the investors, because this is on a high base, the ideal profit trend of more than one digit to single digit, can that continue for next year, NIM can improve and COVID-19 provisioning can be reversed, but I think that regarding the asset effect or the NIM improvement and the credit costs, well, they could be picked out and at that time, your profits can visibly decrease and even have an impairment. So can you tell us about what can happen? So what are your thoughts on this? What is your thought process? And any pre-emptive measures.

Peter Kweon -- Managing Director & Head of Investor Relations

Thank you very much for your insightful questions. We will soon answer them.

Jong Hee Yang -- Vice Chairman & Chief Operator Officer

Thank you Kim Jin-Sang for your questions. I am the CFO of the Bank. My name is Jong Hee Yang. You asked about the regulation risk for household loans. And as you are probably aware in the media, many economic experts are saying that because of overburden of household loans. It could be a substantial potential risk for the Korean economy.

And when we have the policy changes and if we do have U.S. tapering and other changes and other uncertainties that could increase, I think everybody thinks that we need to have appropriate household loan management. That is why I believe that there is some intervention about limiting household risk to a certain limits. And I believe that next month, the government will announce some measures.

On the bank side, when there is household loans that increase suddenly, there could be risks. And if we have the interest rate cycle, it will be important for us to pursue conservative policies. In the case of KB, we always think of profitability and asset quality. At the forefront, so until the first part of this year, there was 1.5% growth for loans, and there was a balloon effect by other competitors. And at end September, there was 4.9%. And adhering to the aggregate loan limit in order to provide loan support for Jeonse or mortgage loans or others, we will decrease the limit and to have strengthening of the underwriting of DSR.

And going forward, pursuing growth based on profitability and asset quality will continue, and we will see what the actual demand is and control accordingly. As you've mentioned, in the household side, if this these types of regulations continue what will KB do. Going forward, our bank's performance was differentiated because rather than household loans, large corporates or WN or future core businesses, I believe, will be more focused, and that will be our differentiator.

We do have the reorganization of HR in this area and for capital as well. And in the case of household loans, we improved our working process, and we also will alleviate the burden through having more measures for online. And for the credit underwriting and others, we see automation and advancement of technologies so that we can focus more on marketing and customer management.

After COVID-19, we believe that the business structure will be reorganized, and we are moving in that direction. And we want to pursue additional growth opportunities. So if we are lagging in household side, we need to make up for it and for the prime SMEs or other companies, our HQ is preparing for full-fledged marketing and the government is seeing new deal or fourth industrial revolution industries. So if we have promising companies or platform companies, then we will make sure to strategically include them and to have that into our plans. Our credit rating model will need to be more advanced and our industry policies will be more advanced to meet these needs.

In the case of IB that I aforementioned, based on global IB, it seems that the market is awakening once again. So we want to have more HR and capital and put it into IB. And for ESG and others, we are expanding our strategic investments. You also mentioned during your remarks that for the merchant borrowers and other vulnerable borrowers, what are we going to do and SOHO as well?

After COVID-19, there has been great support, and we don't know whether this will discontinue in March or it will be prolonged. Although it is slated to end in March. And even if it ends in March, we want to alleviate the burden on the borrowers so that we can have a soft landing. We could have a maturity extension, grace period or we could have more time for them to repay.

And we believe that can enable them to remain as our customers, and that can help us in our competitiveness. We want to give active support in this direction so that we can give support to these SMEs and our merchant borrowers. Thank you very much.

Hwan Ju Lee -- Chief Finance Officer

I would like to answer the second question, and I believe that you asked about mid to long-term financial performance and peak out. Well, we can't win the market. That's my basic thoughts. I believe that we need to overcome the market and under this presupposition for next year's business planning, that's what we're doing at the group. And when we plan, we don't think just ahead for one year, we have a rolling plan looking ahead for three to five years' time and what we're thinking of at this point is for us to have a sustainable portfolio structure.

It could be bank and non-bank, and it could be different business portfolios for different subsidiaries. So rather than focusing on short-term profits, we want to focus more on sustainable performance. What I believe is when we look at the bank and nonbank subsidiaries for the bank, we are number one, but I think we have the potential to become the overwhelming number one. And for nonbanking subsidiaries, securities, insurance, card and others, we are not number one yet. This means that we have the potential to become number one. And if we can overcome the situation, non-banking can also provide more contribution.

And in response to your third question, we are making many efforts in global and we are investing many resources. In our portfolio, global contribution is, as you probably know, compared to our competitors is quite low and when we think about increasing our coverage, global-related profits, if it helps us greatly, then I believe that it can help us increase our profit generation basis and as was mentioned in your question, through our great capital or earnings capability, if we can have inorganic additions, then not only for next year, but I believe that we do have some leeway for more growth in the future. So we will make efforts and we will make plans to do so. Thank you very much.

Operator

We now move on to next question from Samsung Securities, Mr. Kim Jaewoo.

Kim Jaewoo -- Samsung Securities -- Analyst

I have two questions. First, I think you did provide some detail on digital platform. I understand there's a new application that's going to be launched, and I know that it's going to support stock trading as well. And I think that's going to have some positive impact, but if all of these features are included in this application, isn't the app going to become overly too heavy? And first, is that not a problem? That's the first question.

And also, what are some of the solution offerings that you are envisioning? Because there's a lot of fintech providers. They adopt open platform, and they provide comparison and referral services, but what then is a differentiating point for KBFG's financial platform? What's the consumer benefit that you're planning to provide?

And second, now Mydata service will be launched. I would like to understand what KBFG's strategy for Mydata business looks like. Another question is KB Insurance performance. It seems like there has been quite a bit of an increase relating to the investment income. Could you provide some elaboration on what that factor is?

Peter Kweon -- Managing Director & Head of Investor Relations

Yes, we will respond to those questions shortly.

Whan Han Dong -- Deputy President CDPO

Thank you. Mr. Kim Jaewoo, for your question. I am Han Dong Whan, CDPO at KBFG. Our CFO provided a lot of information. If I may also add, KB Star Banking. If I were to characterize what this is, basically a bank's core digital channel. It's now going to become the group's core digital channel that's the transition. So in terms of stock trading and claims process for insurance, all of these features are now housed within this platform. Yes, the previous KB Bank app was very heavy. So I understand where your concern is coming from.

However, if we adopt in-app browser technology and API technology is utilized to make sure that interface is seamless. So if you look at the capacity of this app compared to our competitors like Seoul Kakao Bank, our application on a comparative basis is not overly heavy compared to our peers. So, I assure you there is no problem with regards to the system capacity.

And in terms of mobile optimization, this is a new application that is optimized for the mobile platform. So the users when it comes to their experience, they're going to feel more convenient and easy to use on top of the mobile platform. So compared to Kakao Bank and other big tech companies, I believe that we are on par in terms of the optimization level that we're providing.

Now what are some of the key solutions that we may offer on this platform? The big tech platforms, they really focus on convenience aspect, but KBFG, we have financial capabilities and expertise and we have strength and knowhow in how we could help our customers build their wealth and incumbent financial institutions have strengthened that aspect, and we just need to translate that into a digital environment.

And as you've also mentioned, there's just Mydata license, and we want to really link this up with Mydata business so that we could provide better solutions to our user base. For us, Star Banking is simple, easy, speedy and secure. So there are four S's and there is another, which is personalized, but we needed to make this into asset that is suitable for users. So everything is personalized.

All our peers are saying that they're providing personalized and customized services, but at KB, we have significant user base. And at the same time, we have immense amount of user data. We also have very complicated and compounded data with regards to different product offerings. So if we are able to aggregate all of our capabilities and expertise and the data, we believe, and we are most certain that we can provide meaningful services and products to our user base.

And also, we have mobile certificate as well. If you look at platform business and ecosystem business, that mobile certificate is at the very foundation of all of the transactions. So mobile certificate of all the private certificate, KB is the one that's processing the most number of certificates. So based on the certificate, we can actually provide Mydata services as well as very complicated product.

And users do not need to worry about their privacy-related risk and this really provides a good foundation for people to subscribe to and purchase different products and services. So by utilizing all of these elements, we will make sure we come up with a solution that provide the best experience to our customer base.

Byung Joo Oh -- Managing Director, Insurance Business Unit

Yes. I'm from KB Insurance. I will briefly respond to your question on KB Insurance. As you know, this year, if you look at interest rate environment, we weren't able to get gains from disposition of a bond, but our new money yield improved year-over-year basis, but we think that we didn't have ample time for it to actually be reflected in this year's performance, but this year, the equities market, there were a lot of IPOs. And all the PEF and alternative investments, there were liquidation of those positions. So there were gains from the liquidation of such positions, and that really had a bigger impact on increasing our investment gain. We will take the next question from Kiwoom Securities, Seo Young-Soo.

Seo Young-Soo -- Kiwoom Securities -- Analyst

Congratulations on your performance. I have two questions. They are interrelated. The first question is that, in this situation, we need to think about post-COVID, and there will be vulnerable borrowers and small merchants that many are concerned about, but I also think that going forward, there is the debt restructuring interest rate hike that the government has in mind. And right after COVID-19 crisis, there could be the people in their 20s and 30s that invested heavily in the stock market and the real estate market and a lot of those investments were unsecured.

And because of tightening regulation, we could have some repercussions, and I believe that may be another point of concern that we need to be actually more concerned about for the credit card delinquency rate for the first time. After March of 2020, it went up 5 bps. And in the precautionary and below, it seems that it also went up. There were loan regulation strengthening. And if we have more regulations for loans, then there will be more delinquencies going forward. So can you tell us about what you're thinking and how you're going to respond? That is my first question.

This is my second question. Until now, we only saw the asset market up both trends, and there was strong collateral and good market situation. So even if there was less provisioning for the NPLs, it seems that you had provisioned greatly, but looking at your total assets and our provisioning, it seems that our provisioning is low compared to advanced markets such as U.S.

However, if there's adjustments in the future because of government policies and others, I think there will be a burden because of this provisioning. There is IFRS 9 and others and if we utilize them, we could provision more, but in Q4, generally, I think it is a good opportunity for a big path. So going forward, do you have any plans to have bold provisioning? And that can also be in adherence with the government's policies going forward. So do you have any plans for big path or others related to provisioning?

Peter Kweon -- Managing Director & Head of Investor Relations

Thank you very much, Director Seo, for your questions, and we will soon answer them.

Hwan Ju Lee -- Chief Finance Officer

I think you asked two questions. First is when interest rate goes up and when that restructuring regulations are strengthened, those in their 20s and 30s had invested unscrupulously leading to more credit risk because of unsecured loans. And we saw the cash flow for this year, and we saw some going to online assets or virtual assets and others.

And we had monitored them and until now, it seems that the limit for unsecured loans, we try to limit them to a certain extent and to have appropriate management. So we believe that we are not overly concerned about this. And the government's DSR regulations, they said that it will be changed to 40% per person. And the banks on average, 40%. And they ask the banks to regulate this and to have it less than 3% for the bank and 5%. So we had been already regulating this to a low amount.

So for the unsecured loans, we do not think that they will actually act as big burdens to us in the future, but we need to be aware that there is a possibility. So for the loan management department, there are multiple borrowers or there are borrowers that have board against us and other secondary financial institutions. So in those cases, when there is maturity period, then we can allow them for partial repayment and to come up with a plan.

So we will be very thorough in the management of these cases. And for provisioning, you also ask for a possibility of bold provisioning. After next year, I believe that many people believe the economy will recover and become more rosy. And after COVID ends, there will be some polarization of possibilities in the economy, and there could be interest repayment burden.

And for some borrowers their situations can deteriorate. We were very conservative in provisioning because we knew that these possibilities could be realized and because we had provisioned for this vulnerable borrowers compared to our NPL, our coverage ratio as of end of September, it was about 180%. So it has been consistently rising for the past two to three years and I think compared to other banks or competitors, we are pre-emptively managing this.

And last year, due to COVID-19, as was mentioned by the CFO of the group, we had a pre-emptive provisioning, and this helped us this year. Next year, if there is a provisioning burden because of the possibilities that you've enumerated, and we cannot ignore that. So if there is a gradual economic recovery because of the forward-looking scenario, there could be some reversals, but we have not considered those possibilities, and we have a conservative economic forecast scenario and we will apply an overlay method for the economic forecast.

We believe that we could sufficiently be prepared for future risks. And in Q4, bold provisioning, resembling a big bet that you've just mentioned. Well, regarding whether we will do it or not, we will need to think long and hard, but even if we don't boldly provision, there is accumulated risk management and credit underwriting and analysis capabilities that we accumulated. So we believe that we can grow and also focus on our asset quality management. So we spent a bit more than one hour. I think we have time for one last question before we close. From Citi Securities, Yafei.

Yafei Tian -- Citi Securities -- Analyst

I have actually two questions, if I may. So the first question is around the digital initiatives that you have laid out. And I just wanted to understand, have you done much calculation what is the cost to serve for this new channel compared to the traditional branch channel? And have you done any estimate what will be the profitability in the new channel? That's the first question. And then the second one is around asset quality. Are there any possibility you might be able to do write-backs next year given that you have provisioned for COVID previously?

Peter Kweon -- Managing Director & Head of Investor Relations

Yes, Yafei, just give us one moment. We will respond to that question shortly. Ms. Yafei Tian, thank you very much for the question. Regarding your first question on digital transformation or digital initiative. Starting this year, we internally have set some internal indicators to manage against. First, basically we would look at percentage of so-called digital customers and also when we attract or acquire new customers, how much of a new customer are we getting from this digital new channel? And also, when there is sales across our digital channel, out of our total sales, what's the mix of our sales via this digital channel? So those are some of the measures that we are monitoring. In terms of cost structure and profitability, at this point, we are currently undertaking a project for managerial purpose accounting. So once that project is complete, we will be able to get more insight in terms of CIR, how much of a digital channel contribution are we getting in terms of cost income ratio. So we will be able to meet that level, but right now, we're only at the level of activity rate of our users through the digital channel. The post-COVID, we're following COVID in terms of the performance that we're getting from digital channel. We are seeing good performance that come out of digital channel. However, we are in the process of making this data more sophisticated and once we get that, we will come back to you and communicate to you more detail.

Jong Hee Yang -- Vice Chairman & Chief Operator Officer

Thank you very much for that question. In terms of the provision and provisioning policy, we provide you with some explanation before. Just overall to provide you with the big picture, if you look at our coverage ratio and other measures, KBFG's provisioning policy is pre-emptive and is also quite conservative. That has been our approach over the years. And I think that aspect could be seen from all the data points.

Going forward, we will continue to be quite conservative when it comes to provisioning. If you look at this year, and your question was with respect to the potential reversal or write-back of provisions next year, end of this year, we will look at the scenarios at the system level. So there is forward-looking scenarios, which are systems based. And also, there are some sector-based scenario analysis as well. Last year, there was provisioning of KRW380 billion at the systems level, forward-looking FSC. So basically, we have provisioned more conservatively based -- compared to just the systems level analysis. Next year and years to come, what will the economic cycle look like?

So depending on that, are we going to add more on top of the current size of provisioning? Basically, we would have to wait and see how things play out. I think it's a bit too early for me to give you a definitive answer as to whether we would actually be writing back some provisions next year. All in all, basically, our provisioning policy is very pre-emptive and conservative.

Peter Kweon -- Managing Director & Head of Investor Relations

Thank you for your answer. And we will conclude the Q&A on this note and also conclude our earnings presentation. Thank you very much.

Duration: 74 minutes

Call participants:

Hwan Ju Lee -- Chief Finance Officer

Peter Kweon -- Managing Director & Head of Investor Relations

Chang Kwon Lee -- Chief Strategy Officer

Jong Hee Yang -- Vice Chairman & Chief Operator Officer

Whan Han Dong -- Deputy President CDPO

Byung Joo Oh -- Managing Director, Insurance Business Unit

Do Ha Kim -- Hanwha Securities -- Analyst

Kim Jin-Sang -- Hyundai Securities -- Analyst

Kim Jaewoo -- Samsung Securities -- Analyst

Seo Young-Soo -- Kiwoom Securities -- Analyst

Yafei Tian -- Citi Securities -- Analyst

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