KB Financial Profit Misses Forecast on Loan Provisions

KB Financial Group, which runs top South Korean bank Kookmin, posted a lower-than-expected quarterly net profit on Wednesday as the rapidly cooling economy led to more provisions against bad loans and reduced fee income.

KB and other South Korean banks are expected to post a sharp fall in earnings again in 2009, after a 47 percent tumble last year as the spreading global recession pressures loan growth. A series of interest rate cuts by the Bank of Korea is also likely to hurt net interest margins.

With analysts forecasting the South Korean economy will contract 3-4 percent this year, lenders started weeding out troubled manufacturers last month and are in the process of restructuring the weakest, which should increase bad loans and provisioning charges for banks.

Earnings at the country's No. 3 financial holding company came to 43.9 billion won ($31.5 million) in the quarter ended December, versus 568.0 billion won in the July-September period.

No year-ago comparison figures are available because the group was launched
in late September.

The results sharply missed an average forecast for 442.8 billion won by 7 analysts polled by Reuters Estimates, even though the group booked one-off gains from the sale of its stake in ING Group's South Korean unit back to the Dutch group.

KB put aside 1.2 trillion won in provisions against potential loan losses. In 2009, KB Financial is expected to earn 1.6 trillion won according to 18 analysts surveyed by Reuters Estimates, down 16 percent from last year's 1.9 trillion won.

The net interest margin (NIM) at Kookmin Bank rose to 3.03 percent from the third quarter's 2.89 percent, which was a record low for the bank.

KB had expanded its exposure to small companies at a faster pace than local rivals such as Shinhan and Woori over the past two years.

Merrill Lynch analyst Bryan Song said in a recent research note that KB's fast loan growth in the 2007-2008 period might take a heavier toll on the group going forward, with small companies more vulnerable to economic cycles.

Shares of KB Financial, with a market value of 12.7 trillion won, closed 3.8 percent lower at 34,550 won prior to the announcement.

The stock had shed 30 percent by end-December since its Oct. 10 listing, lagging the wider market's 13 percent fall during the period.

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Shinhan Financial Group, the country's biggest financial services company, posted a much smaller-than-expected net profit of 283.7 billion won last week, and unveiled a plan to raise $1.2 billion in a new share issues.

Analysts say KB Financial, in which Kookmin Bank accounts for 94 percent of assets, may not need to raise additional capital this year. The planned sale of Kookmin's stake in the parent group, valued at 1.7 trillion won at market prices, should shore up its capital base.

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