JB Financial : IR Letter_2022.11.17

IR Letter (November 2022)

JB Financial Group

Dear JB Financial Group Shareholders,

In this IR letter, we would like to give you an update on the Q&As and feedback we had with our domestic institutional investors during the NDR that was held after the 3Q22 earnings release.

Several pitching points emphasized during the NDR for domestic institutional investors are as follows:

Our 3Q22 net income came out to be KRW167 billion, the largest ever for a 3rd quarter earnings. NIM at the level of the entire Group and Banks improved by 14 bp and 16bp Q-Q respectively, registering the sector-highest growths. This is attributable to our continued portfolio adjustment and a rise in the 3Q NIM of JB Woori Capital arising from the rapid repricing of lending rates. Furthermore, our CIR hit a record low at 37.6% thanks to our constant effort to improve cost efficiency while our Group CET1 ratio reached its historic high at 11.43%, enabling us to lay the foundation for greater business diversification and shareholder return policy.

Asset quality indicators are still on a stabilizing trend. The reasons are that we were not able to go for risk-taking structurally until 3Q19 due to quite low CET1 ratio caused by the acquisition of Kwangju Bank at the end of 2014 and strong risk management culture has taken root since the inauguration of the current Group CEO. As for real estate PF loans that are currently at issue, our two Banks carry senior PF loans on their books and 74% of them are backed by letters of guarantee so that our actual exposure to the PF sector is quite limited. As for JB Woori Capital, real estate PF loans account for 11% of its total loans, which is lower than the sector average and its outstanding balance of bridge loans, which is a great market concern, is very small. To get prepared for a slowdown in the real estate sector, Group management has been heightening the proportion of guaranteed PF loans and is conducting a two-tiered monitoring of all project sites through Risk Management Division and Audit Division and they receive reports on the review results semi-monthly.

IR Letter (November 2022)

JB Financial Group

JBFG is trying to distinguish itself from its peers in terms of corporate value by implementing the sector-highest level of shareholder return policy with its sector-highest profitability based on proactive risk management. In a nut shell, the strategy we are pursuing is to excel at risk pricing where we can compete well. Banking business in essence depends on how well a bank can perform 'risk pricing' as a financial intermediary. JBFG is currently managing 'NIM

• CCR' (= proxy indicators of ROA & risk pricing) at the sector-highest level and is maintaining distinctly high profitability not merely in net profit but also in terms of risk- adjusted return. Furthermore, 'sustainable ROE - sustainable RWA growth rate' (= capital generation capacity & room for shareholder return) is also at the sector-highest level thus JBFG has the fundamentals that enable it to pursue a differentiated shareholder return policy.

Now let us summarize some feedback that we received during the 3Q NDR. There were positive feedbacks regarding our performance such as the sector-highest profitability, solid growth in interest income and improved cost efficiency. Some investors stated that although the indicators related to asset quality look stable and loan loss provisions are being set apart conservatively to provide against the future uncertainties, JBFG needs to thoroughly conduct risk and asset quality management for SME loans, real estate PF loans and unsecured personal loans. We will maintain our conservative stance on next year's business plan given difficult market conditions and are in the process of formulating a business plan that would produce an appropriate level of net income growth over this year.

Please contact us if you have any further questions or need more data.

Thank you.

IR Department, JB Financial Group

IR Letter (November 2022)

JB Financial Group

Key Q&A at 3Q22 NDR

[ALM/Funding]

Q. Is there any funding risk as banks are vying with each other in attracting deposits at higher rates? Does the worsening money market condition affect the funding of JB Woori Capital and what are JBFG's response measures?

A. As large corporations resort to bank loans instead of issuing bonds, banks are competing with one another over deposit rates in order to collect more time deposits with the aim of meeting the regulatory liquidity requirements. JBFG is not engaging in such rate competition as it seldom grants loans to large companies and this is one of the reasons that we have seen a large rise in net interest margin relative to the other banks. Whereas, JB Woori Capital may be negatively affected by the worsening funding market as it cannot secure funds by receiving deposits. To provide against this situation, we are working on several contingency plans. First, we can issue corporate bonds and commercial papers at floating rates with differing maturities. Second, both of our banks have provided lines of credit to JB Woori Capital in case it faces difficulties in funding. Third, Issuance of ABS is another possible option. Lastly, JBFG can participate in increasing JB Woori Capital's paid-in capital. Our double leverage ratio is around 110%, which means we have some capacity to support funding for our subsidiaries. Since JB Woori Capital has been relatively conservative when it comes to growth compared to its peers and it will control the pace of growth in line with the market circumstances, we expect the funding issue to be quite limited.

[Asset Quality]

Q. Default probability of real estate PF loans is getting higher due to the deteriorating real estate market and worsened money market. What's the current status of your real estate PF loans and risk management measures?

A. The outstanding balance of real estate PF loans held by Jeonbuk Bank and Kwangju Bank are KRW1.5 trillion and KRW 3.1 trillion respectively and most of them are senior PF term loans. Since 74% of the loans are backed by letters of guarantee issued by Korea Housing Finance Corporation, actual exposure to PF loans is quite small. JB Woori Capital's real estate PF loans stand at KRW870.6 billion which represents 11% as a percentage of its total credits, lower than the sector average of 15%. We only have two project sites whose pre-sales ratio is below the exit pre-sales ratio which indicates the probability of recovering loan principal. The loan amount for the two sites is minimal, and the difference between the actual pre-sales ratio and exit pre-sales ratio is around 1~2%p so that literally we do not have any problematic project sites. As a matter of fact, we did not start managing the proportion of real estate PF loans recently. Our CEO, since his inauguration in 2019, has continued to undertake proactive risk management for the loan portfolio. In fact, all the new projects we became involved in the 3rd quarter are projects backed by letter of guarantee. Furthermore, we are conducting a two-tiered monitoring of all the project sites through Risk Management Division and Audit Division and our senior management is given semi-monthly reports on the monitoring results.

IR Letter (November 2022)

JB Financial Group

[Growth Potential/Profitability]

Q. How do you forecast business performance for the 4th quarter and next year?

A. As for the 4Q asset growth, we have already achieved our growth target for loans so that we will be growing rather conservatively. Though we cannot tell you exactly about growth target for the next year as we are in the planning stage yet, we are expecting a low-single digit growth given the uncertain market environments. Our margin will vary depending on the level of interest rate hikes determined by the FED and BOK. The current consensus has it that in November the BOK will raise the benchmark rate by 25~50bp and our margin for the next quarter we think will achieve a further mid-single digit or high-single digit growth Q-Q depending on the magnitude of the hikes. NIM for the next year is expected to rise by 10 ~15 bp on an annual basis compared to this year. That's because next year will commence with NIM being already higher, assuming that the benchmark rate that is hiked this year stays at the plateau. Of course, repricing on the funding front including time deposits, etc. will catch up on us to some extent. In the case of demand deposits that comprise part of the funding, we pay no deposit rates so that they do not impact the NIM. On the contrary, time deposits are interest-bearing liabilities that actually affect net interest margin. Thankfully for us, however, time deposits are smaller in amount than interest-earning assets so that the downward pressure on NIM, if any, will be limited. We think the actual pressure to drive down our margin will occur when the BOK lowers the benchmark rate. And we expect to manage the growth of S&GA expenses at around 3~4%. At the end of the day, the pace of growth will slow down but interest income growth will continue. The key factor to determine whether we can achieve a decent net income next year will be the level of loan loss provisions that will vary depending on how well we manage risks and asset quality.