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

Good afternoon, everyone. I am Kattiya Indaravijaya, CEO of KBank. Thank you for taking the time to join us today. I am pleased to be here today together with our President, Mr. Chongrak Rattanapian; our CFO, Sansana Sukhanunth and Investor Relations team. Let me start by providing an overview of the current challenging operating environment and the strategic measures we are implementing to navigate these challenges. We are facing a very challenging operating environment and significant headwinds due to economic and geopolitic uncertainty. As a result, there are medium-term headwinds to our targets. However, we remain confident in the execution of our strategy and are, therefore, committed to achieving a double-digit ROE. Although the timing of this achievement will depend on the macroeconomic conditions, stability and resilience are more important under slow growth environment and medium-term headwinds. Thus, we will strengthen our capital buffer with a medium-term CET1 of at least 15% and deliver sustainable total shareholder return, TSR, by raising our dividend payout to at least 50%, aiming at 50% to 60% in the medium term and potential for additional capital distribution depending on market conditions, financial performance and capital level. Also, we remain fully committed to the disciplined execution of our strategy and have refined key elements to align with evolving circumstances and a dynamic environment while seeing a strong momentum across all the key focus area, our 3+1 & P strategy. The economic and geopolitical uncertainties have created numerous headwinds and the Thai economy remains subdued. We expect GDP to grow 1.5% this year. The main downside risk come from a slowdown in tourism of 32.2 million people and high household debt. We expect at least one additional rate cut in the second half of this year, which would bring the policy rate to 1.5%. There is also potential for the rate to decrease further. We would like to take you through the journey of our key economic assumptions from the inception of our strategy to where we are today. Since our K-Strategy announcement in late 2023, there have been material changes in economic conditions, particularly GDP growth and interest rates. Thai GDP was initially forecasted to grow 3.1% in 2024, but actual growth was only 2.5%. Also for this year, we initially expected a recovery to 3.7%, but this have been revised down to just 1.5%. While the trade deal was more favorable than initially anticipated, the impact of the tariff is expected to intensify in 2026 and potentially putting GDP on a downward trend. Similarly, Thai policy rate expectations have come down from 2.5% to 2.25% in 2024, further down to 1.5% in 2025 and will decline further in 2026. The downward revision to these two key economic metrics has further downward implication on Thai exports, investment, private consumption and tourism, which we are closely monitoring. Amid the negative implications from the broader operating environment and macro headwinds, we have been able to achieve stable asset quality and strong cost control. However, there are growing economic uncertainty in the future. This page represents the result from the first half of this year, which we discussed with you on the recent quarterly analyst meeting. I will provide more information about dividend payout in the next slide. We are ensuring stability and resilient amid a worse-than-expected operating environment. We remain confident in our 3+1 strategic priorities and productivity enhancement, which will drive sustainable fundamental performance. We, therefore, maintain our double-digit ROE target. Although the timing of achievement depends on the macroeconomic condition, we will secure our balance sheet and capital strength to ensure resilience through macroeconomic uncertainty and the upcoming Basel III reform. As such, we will raise our CET1 target to at least 15% in the medium term with an aspiration to maintain a range of 13% to 15% when growth and economic condition improved. Shareholders' return remain our top priority, and we are committed to delivering sustainable total shareholder returns. Our payout will be at least 50%, aiming 50% to 60% in the medium term. Also, we will consider additional capital distribution alternatives such as special dividends and buybacks, depending on market condition, financial performance and capital level, as mentioned earlier. We continue to execute on our key strategy with discipline and focus. We continue to pursue our 3+1 & P strategic priority, which include: reinvigorating credit performance; scaling capital-lite fee income; strengthening sales and service model; and creating new revenue creation for medium term and long term; along with elevating innovation with data and AI; and enhancing productivity to strengthening our performance. We are confident that disciplined execution of our strategy will anchor our business on strong fundamentals, coupled with effective capital management will enable us to achieve our double-digit ROE target. The execution of our 3+1 & P strategic priority is already delivered strong progress and results. First, to reinvigorate credit performance, we are revamped our credit strategy focused on quality growth along with enhancing end-to-end credit transformation. This is reflected in 97% of new bookings coming from existing customer, 90% from secured loan, and 92% from retail lending with monthly income more than THB 30,000. As SME play a crucial role in driving economic growth, we continue to support them while focusing on quality and selective growth. We leverage Big Data and machine learning to develop subsegmentation based on characteristics, business stage, performance and industry outlook. This allow us to identifying high potential customers, personalized customer experience, tailored customer both credit and payment, and strengthening the capability to resiliency program, including K-SME CARE, K-SME SIERRA. Second, scale the capital-lite fee income with holistic wealth advisory, competitive bancassurance product and dominate digital payment. We maintained #1 position in mutual fund AUM with 6.4% year-to-date growth, outperforming the market by elevating wealth management advisory with comprehensive and competitive investment and protection solution tailored to align the preference and risk tolerance of customers. We're ranked #2 in bancassurance new life premium with 12% year-on-year growth, outperforming the market by using need-based insurance offering across legacy, living benefit, health planning to receive a strong market response. We continue to be #1 position in digital payment with growth opportunity in FX, merchant, cross-border business. Third, sales and service model through a digital-first experience, supporting our #1 digital payment with around 30% market share, #1 overall brand Net Promoter Score or NPS, and #1 mobile banking user with 23.4 million users in K PLUS. For +1, we have prepared to establish further revenue creation in the medium term and long term by assessing opportunity in collaboration with our partners and enhancing ecosystem solution. While monitoring potential risks, also, we focus on enhancing productivity across the entire value chain. As a result of reinvigorating credit performance and focus on the quality over quantity, overall asset quality was stable with an increasing coverage ratio. However, asset quality remain challenging amid significant economic headwinds. Additional buffer has been added to safeguard against any volatilities. We continue to actively monitor our loan portfolio and apply proactive and dynamic asset quality management with a focus on high-quality credit growth. As a result of our effort to scale capital-lite fee income, net fee income still show growth despite the challenging of market condition. We would like to highlight three key segments driving fee income growth, credit, wealth and payment. Credit-related fees contribute 24% of net fee income, declining in percent contribution from last year, reflecting loan contraction in line with moderating economic condition and tightened credit policy. Amidst slowing fee income, we remain #1 position in credit card spending and card acceptance merchant services. Wealth fee contribution remained stable at 37%, reflecting our continued leadership as #1 position in mutual fund and #2 in bancassurance -- I mean, #2 in bancassurance new life premium. Payment fee grew strongly, and the contribution rose to 39% from 37% last year, driven by trade services and bill payments. Our dominant position with #1 in K PLUS will further support digital payment from rising transaction volume and broader adoption across customer segment. The bank continued to shift towards quality loan and build resilient. NIMs in the second quarter dropped 10 basis point to 3.31%. Around 50% of the declining came from lower interest rate. Around 20% from slight decline in loan growth, low yield from liquid assets, but still generate net interest income, and the rest from the quality loan growth strategy and customer relief measures. Also, asset repricing sensitivity is well matched to liability and rate risks remain well managed. We continue to focus on cost and productivity improvement to support our overall operating profitability. We have maintained our cost to income within the target range and have reduced overall operating expense compared to last year. We have built a productivity-focused culture program across the bank and have already delivered positive result, including double-digit improvement in payment and channel cost per transaction improved by double digits. Higher sales conversion rate with over 60% growth in digital sales of wealth management business. Credit process efficiency has also improved with strong control over collection and litigation costs. Tangible benefit from the productivity strategy have been realized across multiple areas from IT contract optimization, workforce streamlining, branch resizing and to accelerate the digital migration and automation. We will continue to enforce strict cost discipline, scale high-yield initiatives like AI, and centralize budgeting and dynamic align expenses to revenue trend to ensure sustainable profitability. We have a clear and prudent capital management framework, which will enhance capital efficiency and deliver sustainable shareholders' return. As mentioned, we made a strategic decision to uplift our medium-term CET1 target to at least 15% to provide greater buffer and amid uncertainty, including 1% to 2% expected impact from Basel III reform. Shareholders' return remain our top priority. We commit to deliver sustainable total shareholders' return. We commit to dividend payout at least 50%, aiming 50% to 60% payout in the medium term. Also, we will consider additional capital distribution alternatives such as special dividend and buyback, depending on the market condition, financial performance and capital level. To conclude, I would like to reiterate our continued focus on executing on our 3+1 strategic priority and drive productivity improvement, while strengthening the balance sheet through proactive asset quality management and resilient capital discipline. We are committed to delivering sustainable total shareholders' return. This year is our 80th anniversary of operation. We have consistently been a driving force of Thailand's economic development, guided by our philosophy of being Bank of Sustainability. We have demonstrated a strong track record of achieving solid financial performance through multiple economic cycles and challenges in the past. Therefore, we are confident and committed to delivering our double-digit ROE, although the time line of achieving this goal will depend on evolving of the macroeconomic condition. Our disciplined growth will reinforce our market leadership and deliver sustainable return to shareholders. Thank you.