Rising costs weight on KB Kookmin Cards’s profitability: Moody’s

Cash flow and liquidity are weak, but credit profile will remain resilient over the next 12-18 months.

KB Kookmin Card’s profitability is expected to decline modestly in the next 12 to 18 months amidst rising credit costs and higher funding costs, says Moody’s Investors Service.

The company’s cost-to-income ratio is likely to decline in line with KB Kookmin Card’s plans to reduce marketing expenses, including rewards to members as well as customer acquisition costs, Moody’s wrote in its latest rating commentary of the company.

Its problem loans ratio and net charge-off ratio will also likely rise only modestly, given that the company targets prime and near-prime retail customers and does not have real estate project financing loans, which are of higher risk.

“KB Kookmin Card's cash flow and liquidity are weak. It has a very low debt maturities coverage ratio, offset by an undrawn committed credit line of KRW1.1t as of 31 March 2023, which amounted to 13% of its debt maturing within 12 months,” Moody’s wrote. 

Overall, KB Kookmin Card’s credit profile is expected to remain resilient over the next 12 to 18 months thanks to the company's solid capitalization and leverage, which will be supported by muted, low single-digit percentage asset growth, and its committed credit lines from various financial institutions.

ALSO READ: South Korea’s new capital buffers to strengthen banking system’s resilience

“As a card company affiliated with Kookmin Bank, the company has a competitive advantage in acquiring new customers, by utilizing the bank's vast branch network, which is more cost efficient than third-party card planner channels,” Moody’s wrote in its ratings commentary. 

KB Kookmin Card also has a sizeable balance of unsecured loans, which tend to be of higher profitability than card purchases, the ratings agency added.

The company's capitalization should also remain largely stable at above 15% over the next 12-18 months, driven by slower asset growth as the company shifts to quality overgrowth.