Kasikornbank Public Company Limited (KBANK) Earnings Call Transcript & Summary

Good afternoon, good morning, everyone. I'm Kattiya Indaravijaya, CEO of KBank. Thank you for your time today. Together with me are Khun Chongrak Rattanapian, the President of KBank; Khun Sansana Sukhanunth, Executive Vice President and CFO of KBank. Firstly, I would like to give you a brief of our view on the operating environment and challenges we might face. Thai GDP in 2024 is expected to grow at 3.1%, mainly driven by continuous rebound in tourism, export and government spending. However, the uncertainty of the global economy may continue to weigh on Thai economic recovery. Thai economic recovery has been uneven. It will grow better than last year, but downside risk remain high and uneven and K-Shape economic recovery. Meanwhile, Thai economy is expect to grow around 3% in 2025 and 2026. This graph demonstrates Thai economy since 2015, many events and crisis occurred. We could see that Thai economy exhibit limited growth, the performance of the overall banking industry is as evident in the picture. KBank performance is also as evident. We have heard all your concerns, questions such as what is our normalized level of credit cost and when we will achieve that. Weak fee income, when it will improve and how we will generate the new revenue? Cost management and can it be lower? Can the productivity be improved more and single-digit ROE and when ROE will be double digit? What is our dividend policy? So I do hope that today's session will address some of these concerns and questions and relieve some of your doubt. So I would like to take about 20 minutes to take you through our new strategy and plan to achieve double-digit ROE. This is our 3-year strategy. It might sound the same to some of you, but not to us, it's significantly different in terms of our intention, execution plan and our monitoring. We set up the steering committee and I'm the one who share this weekly meeting, together with our new management team to rigorously monitor, prioritize and support and make key management decision. The bank will continue to conduct business with a good corporate governance principles, and we will deliver sustainable values to all stakeholders, which are customers, employee, regulator, society and last but not least, and even more important to address shareholders. To achieve our goals, we come up with the 3.1% strategy in this picture, we invigorate credit performance. That's #1. #2 is scale capital-light fee income businesses, #2; and the #3, strengthen and pioneer sales and service models. The +1 is a new revenue creation for medium term and long term. If we could do all this, the bank will have a high-quality earning and value-based result. We will have a proactive risk management and better asset quality. We will have value-based productivity enhancement. Those will help enhance risk-adjusted return on capital to uplift shareholders' value and reach the double-digit ROE in 2026, and we commit to that target. Allow me to take you through each one of these priorities in detail. The first strategic priority is reinvigorate credit performance. This year and the next few years, we will focus on 2 groups. The first 2 groups is actually all existing KBank customer, the first group, the new-to-credit, but it's a KBank customer, which will focus on the existing noncredit customers aiming to regrow quality of credit product portfolio and we will focus on growing new loan quality to secure credit product, which focus on middle-income customer and the higher segment. How we'd be able to identify the customer in these 2 groups? We will utilize data-driven, modeling techniques and using the internal data, for example, existing K PLUS customer transaction and all the other payment data. The second group is the existing credit customer, the healthy one. We will proactively retain our customers, especially consumer and the SME segment. We will conduct a cross-sell, upsell to increase share of wallet to target that good performance customer. We will early detect and identify the customers that have tendency to refinance, and we will take the preventive action in a timely manner. And we will strengthen relationship with corporate customers and their supply chain to capture the new business opportunity to proven track record. And this first year, we will focus on cleaning, building capacity to prepare ourselves to deliver the result within 3 years. So the percentage of NPL inflow and credit costs will improve from refocusing in secured loan products and upper customer segment. For this slide, I will not go into details. But let me tell you this. Last year, we have managed the 2022 outstanding issue. Some of them are already relieved, but some still require continuous management. Good news is that we managed to reduce the credit cost of this outstanding issue by 10 basis points. However, the targeted credit cost this year remain at this level to provide cushion for economic uncertainty and unexpected incident from big corporate customers. Let me tell you more about what we have been doing. We calibrated the credit approval model to incorporate lesson learned from 2022 resulted in new NPL inflow, significantly reduced by approximately 60% to 70%. We have enhanced early warning sign to capture abnormality, transaction and deploy near real-time monitoring in all segments. Result in percentage of early NPL significantly reduced from 3% to 0.4%. NPL from fraudulent activities from document forgery detected and prevented was also reduced significantly nearly THB 1 billion. For loan collection. We have also utilized collection analytics to identify persona and right treatment. The second is a scale capital-lite fee income businesses. This will consist of Wealth Management, bancassurance and payment. We will do further upgrading Wealth advisory business in several ways and leveraging our market-leading position in K PLUS. We split this into -- in the slide into 3 groups. The Wealth Management. We will start -- I will start talking about the Wealth Management and bancassurance business first. So for this, we will provide the sustainable and holistic Wealth advisory and service through our customers' life stage that will help boost fee income to the bank and investment return to the customer. And we have seen some of the data in 2023, that there's only 3.8% wealth penetration from customers as a bank as a whole, but in mutual fund and bancassurance, look at the private banking, the opportunity, the non-penetrated customers will be around 20%, the bancassurance is around almost 50%, that's the opportunity. And also looking at the affluent segment, the lower segment from the high net worth, the room both for bancassurance and mutual fund is about 50%. So there's a lot of room to grow for Wealth Management product and bancassurance. We categorize it into 3 groups, comprehensive product offering. We will personalize product offering and leveraging customer financial data and use in-depth data analytic model to suit customer persona at the right moment. For mutual fund, KAsset, you might see in the news, KAsset has strategic nonequity collaboration with JPMorgan and Lombard Odier. We saw the opportunity of the Thai investor that statistically is 30% of Thai investor. They're already invest overseas. So this partnership will help us provide more variety of fund selection from the open architecture strategy. And so the target of KAsset, within year 2026, the AUM will grow at 30% to 40%. We will strengthen sales and service capability, especially high net worth and the affluent segment with the collaboration between private banking and the branch network. Because we are the universal bank, the -- we should build on our strength, not only just the private banking or investment product, but we should integrate the transactional banking together to serve our private banking, high net worth segment, the affluent segment. For bancassurance, we will uplift customer experience and launch new sales and service model, improving after-sales service and regularly visit customer. We saw the pain of -- in the bancassurance product, which is mostly is after-sale service. The one who buy bancassurance from the bank usually get worse experience than buying from the agent, we will fix that. And we will set the team within the bank to improve the customer experience. Product offering will be better, especially in the health and legacy. Legacy is the one -- is kind of inherit kind of product that focus on the high net worth and affluent. 2024 insurance market grow at 10%. We will focus on the whole life and the health insurance. For sales and service model enhancement, we will build single trusted relationship for integrated sales and customer service with the wealth expert in the branch and the specialists in the high net worth or the private banking RM. And we will enhance wealth function on K PLUS because of -- from our statistics, more than 90% of new mutual fund account opening, do it and apply it via K PLUS. Another issue is that the number of our license sales, that's quite huge, but the sales rate, some of the staff is not even start to sell more of either mutual fund or bancassurance. So we will provide necessary enough tools to facilitate sales meaning that the tool support from head office with the -- the intelligent will be in the head office and the strategy we're using -- we will leverage the data analytics to see, which type of customer -- what product we should sell that fits to their needs and their lifestyle. So yes, there's a lot of opportunity. The -- well RM now we have like 2,400 person, both from -- for mutual fund and bancassurance. The last one is the wealth brand strengthening, which is WISDOM. We have a brand called WISDOM. We will use that -- the holistic wealth advisory service and integrated customer offering and revisited the exclusive financial benefit and privilege, which go tier by tier. For payment, which is the another capital-lite fee income category. For payment, which we got a lot of questions regarding this payment. So the target is that we will maintain our position as a dominant digital payment bank and increase their main operating bank by using the K PLUS. For payment, we categorize product into 2 groups. One is the product that have a negative or low growth, which are debit card, SMS alert, check collection, online direct debit, retail transfer through the traditional channels. In this category, the one who have a low growth or negative growth, we will optimize across by continuing to migrate customers to online channel. And renegotiating with fee with partner, for example, like switching the operator both in Thailand or in international. This second group of the product that have a positive growth and have a potential to grow in the future. This contribute around 70% of the total revenue from payment. And last year, growth, this category has grown by 19%, whereas the negative growth is a negative 14%. So net of the payment revenues still grew at 6%. We will boost the fee. This positive growth is FX merchant acquiring and the cross-border payment business. So with the second group of the product, we will try to make it grow and exceed the negative growth in the area and compensate the loss in the revenue in the first group. Channel. The third is strengthen the -- and pioneer sales and service model to deliver value-based results. We will create a digital-first experience and cross-channel integration to deliver better customer experience and sales and service. Looking at the -- our leading position for K PLUS, our mobile banking. We have 22 million users and with the 73 active and the 34.7% market share in the transaction. And we are the mobile banking in Thailand that have at least downtown. In terms of cost per transaction, we will continue to improve. The cost per transaction, we improved, we will decrease by 35% to 40% this year, and 40% to 45% in 2025 and 2026. Also, we have K BIZ. K BIZ is the application to offer one-stop banking solution for the small and medium business. We will optimize the digital sales and service costs by looking at the overlap of the service between the digital channel and the physical channel and migrate a simple one to the digital channel. And as I mentioned earlier, there's a new mutual fund account open in K PLUS. The account opening for mutual fund, 90% open via K PLUS. Addition to them, the transaction when they open the mutual fund account, the transaction usually do it through the digital channel, which is 90% of all the transactions. And is 53% growth year-on-year. In terms of cost per transaction, we reduced the cost to serve for all channels. It now is reduced to THB 0.28 and is improved 32%. And it will continue to improve the productivity during these channels. We will migrate the basic transaction to the digital channel. And if it's a complex transaction, we will have the human assist channel. And we will see the customer going to branch, decrease every year. However, still 50% of the customers still prefer going to branch for the complex transaction. And we see the proportion of the complex transaction in the branch, 30% last year. For the ATM we will forecast -- ATM machine. We will focus on the rightsizing by focusing on the location optimization. To tell you some statistic, we have 18% of the -- in terms of number of ATM machines. However, we have 32% in terms of transaction. So low ATM machine, however, the transaction is almost leveled. We also have lowest cost per transaction compared to other brands. For new revenue creation, I will assure you that we will stay focused on the domestic business. However, we cannot deny that we should invest for the future, the medium term and long term. So we call this the +1, the new revenue creation for medium term and long term. The bank will continue to cautiously explore this opportunity while closely monitor their risk and be ready to make -- to take the immediate and timely action for the risk mitigation whenever is required. This +1 will contribute 5% of net profit within 5 years. This consists of, on the right hand is KIV, it's a new business model, a new business partner to address the financial service, new customer segment. The one in the middle is the regional expansion. We will focus on the Indonesia, Vietnam and China. It will be the -- still be the asset-light strategy and digital strategy. The far right, beyond banking and innovation, this one is -- consist of MAKE, the application that we -- that is for the saving and investing for the new generation. Right now, we have 2 million users, and the target, we will add 1 million this year. So the Net Promoter Score is 90% and we will have -- you will see in the slide, like the digital asset, the innovation on the ESG. There's still -- we're still in the test exploring stage. So the number will not be significantly. So in total, this +1, 5% of net profit in 5 years. Enabler, what we do differently is that both the modern technology, the data and AI and also the high performance-driven organization. What we do different is that -- it's -- we will align -- all of this will strictly align with the 3+1 strategy. And we have 3 enabler, the modern technology. We will continue to invest in the core banking and the mobile banking platform to be able to handle double size of the transaction. And also to align with the 3+1, the master plan for IT for both credit Wealth Management and channel distribution will be in this master plan. And also the AI, the data that produce that customized by customer and sales team when and what should be sold to the customer, it will be more precise. Same as the data analytics. We will do the improved both end-to-end data infrastructure and make all the data close to the sales team and to make the decision to offer the product. The performance-driven organization, we will align the organization design, way of work to support the execution of this strategy. And also the rewarding will be strictly aligned with the result of this 3+1. The training, the tools, the equipment, the mindset and the skill, everything, we'll also -- and all the resource allocation will focus on this 3+1. Let me tell you one example about the reward that we had test in November and December last year. I am the one who -- I mean the sales team, both the corporate and retail customer segment. So all the branch team, all the large corporate RM, they directly report to me. So I test that I changed the point system to align with the -- which -- I mean, the product that have highest ROE, give return -- best return to the shareholders, it will get the highest point. So the point system is realigned and reward as well. So this has been tested in November and December. And the result is significantly improved, both in the mutual fund and bancassurance. So this is our 3+1 Strategy, And if we'd be able to do it, we will have a higher quality earnings with the value-based result and the proactive risk management with the improving the asset quality and also the huge improve in productivity. So next is our financial target. ROE, as I mentioned earlier, will reached double-digit in 2026, but for this year -- this year target, 2024, we maintained in line with the interest rate trend and the selective loan growth. Cost of funds remained high from last year, rising interest rate. Loan growth is about 3% to 5%, sensible loan growth, corporate 2% to 4%, SME 1% to 2%, retail 1% to 2%, focusing on growing quality loan and selective recovering sector and asset quality. You might concerned that the loan growth last year is negative 0.2%. How the revenue from interest and revenue will look like? We'll -- this year, we will still improve the credit cost, the capacity, the capability to underwrite the credit, to monitor the credit and take action immediately. So the NII, net interest income, might not increase much, but the credit cost will reduce in a meaningful way. So the net revenue, net to the risk, it will increase. Net fee income will be at the mid- and high-single digit. And the cost-to-income ratio will be low to mid-40s from the continuously cost improvement and productivity improvement. Credit costs will be in 175 to 195 basis points is already peak in 2022. However, in this year will still remain high to cover future uncertainty and the normalized credit cost will be in 2025 by 140 to 160 basis points. NPL ratio will be stable and less than 3.25% amid the uncertain economic recovery. For the dividend issue, over the past few years, we did not answer clearly about the dividend policy. This year, at least, we would like to inform you that we aim to pay not less than 25% dividend payout on the consolidated net profit. So what has changed is the 25% dividend payout, not less than that. And also on the consolidated net profit. Previously, it's bank-only net profit. So this 25% might seems to you that it's not that high, but that's a minimum that we will pay. So the real amount we pay, please wait til we have a Board meeting and have a right time to announce. For the capital, CAR will remain adequate at 19% and CE Tier 1 -- CAR Tier 1 will stay at the 16% level because of the -- to cover -- to be able to cover the Basel, the new Basel and the ongoing uncertainty. Okay. So this is end of my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]