JB Financial : IR Letter_2022.08.16

IR Letter (August 2022)

JB Financial Group

Dear JB Financial Group Shareholders,

In this IR letter, I 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 2Q22 earnings release.

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

Our 2Q22 net income came out to be KRW153.2 billion, the largest ever for a 2nd quarter earnings. Though 2Q net income was slightly lower compared to the previous quarter due to the additional provisioning intended to provide against the uncertain prospect for the future economy, JBFG still maintains its solid fundamentals. NIM at the level of the entire Group and Banks improved by 7bp and 3bp Q-Q respectively. The growth rate of Group margin fell somewhat owing to the increased funding rate on the part of JB Woori Capital. However, we have conducted asset portfolio adjustment and applied market rate hikes to our lending rates in order to induce improvements in JB Woori Capital's margin for the 3rd quarter. In addition, our continued efforts to improve cost efficiency led to CIR recording 38.1%, the lowest ever in history.

In the 2nd quarter, we were able to lay the foundation for undertaking business diversification and shareholder-friendly policy with greater resilience as the Group's CET1 ratio has improved significantly to reach 11.2% thanks to approval of the IRB approach. Our intermediate- & long-term target for CET1 ratio is 12%, which we expect will be achieved in the foreseeable future given that our sustainable profitability(=ROE) exceeds our growth(=RWA growth rate).

Asset quality indicators are exhibiting continued downward trend. The reasons are : 1) due to the acquisition of Kwangju Bank at the end of 2014, low CET1 ratio thereafter structurally prevented us from engaging in high risk-taking business up until 2019 and 2) Since the inauguration of the new Group CEO in the beginning 2019, strong risk management culture has been in place at the Group level. Furthermore, though we have a large share of exposure to the real estate sector, 90% of our property lease business which accounts for half of our real estate-related exposure is backed by collateral and its delinquency ratio is a mere 0.3%,

IR Letter (August 2022)

JB Financial Group

thus indicating that the business is being managed in a stable manner. In the case of real estate PF loans, which is the remaining half of our real estate-related exposure, about 73% of them are secured by a letter of guarantee of HF (Korea Housing-Finance Corporation) thus minimizing our exposure in real terms. On top of it, we are undertaking dual monitoring of each PF site with our Risk Management Division and Audit Division.

JBFG is pursuing differentiated corporate value through the sector-highest shareholder return based on the sector-highest profitability centered around proactive risk management. We think that the quintessence of banking business is 'risk pricing' ability as an intermediary for scarce capital in the society. JBFG prides itself as a financial group that maintains the sector-highest 'NIM - CCR' ratio (= proxy indicators for ROA & risk pricing) and stands out by maintaining the sector-highest profitability as well as exceptionally high risk-adjusted return. In addition, our 'sustainable ROE - sustainable RWA growth rate' (= capacity for capital generation & shareholder return) is also the sector-highest which shows that we have fundamentals strong enough to provide differentiated shareholder return policy.

Now let us summarize some feedback that we received during the 2Q NDR. There were positive feedbacks regarding our performance such as the sector-highest profitability, solid growth in interest income and improved cost efficiency. The investors also reacted positively to our efforts to diversify shareholder return policy through the adoption of quarterly (interim) dividends and showed interest in our future shareholder return policy. On the other hand, they voiced concern over risk from declining real estate prices, economic recession and increased credit risk arising from rate hikes and expressed interest in their impact on our asset quality and our risk management practices. Furthermore, investors expressed concern over policy risk such as the possibility of banks being forced to bear up the burden of debt restructuring and debt waivers for borrowers in distress due to government policies. Recognizing that asset quality and shareholder return policy constitutes an integral part of future corporate value, JBFG management is reviewing and fine-tuning business strategy and risk management policy in consultation with our subsidiaries.

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

Thank you.

IR Department, JB Financial Group

IR Letter (August 2022)

JB Financial Group

Key Q&A at 2Q22 NDR

[Growth]

Q. Is there any risk on the funding side as banks including internet banks compete for funds by raising deposit rates? Any impact of worsening money market on JBFG?

A. Funds are flowing into banks thanks to hikes in deposit rates. On top of it, as the asset markets as represented by stocks, bonds and real estate tank, funds are parked into the banking sector which is an indirect finance market. At both banks, core deposits or low-cost deposits are on the rise and particularly core deposits at Jeonbuk Bank rose sharply Q-Q so that we do not have any issue when it comes to funding. On the other hand, as JB Woori Capital secures funds mostly through debt issuance, there can be some impact if the bond market turns sour. To provide against such circumstances, both banks extended lines of credit to JB Woori Capital. As JBFG does not pursue growth for growth's sake, any impact from funding issue we think will be limited.

[Asset Quality]

Q. Some stories are floating around in the market that the real estate sector may sour impacting provincial banks with respect to real estate in provinces. How do you assess its potential impact on JBFG and do you have any response plan?

A. Real estate prices in Ho-nam region (Gwangju, South Jeolla and North Jeolla provinces), our main business territory, did not rise much relative to the other regions even during the overall rises of property prices, thus the magnitude of price falls was relatively small. As our CRO mentioned in the 2Q22 earnings call, the results of the stress test that assumes a 10% decline in housing prices as of the end of June show an increase of KRW78 billion in NPL. This represents a mere 1.5~1.6% of our property exposure worth KRW5 trillion. That percentage is tolerable for us. Even though JBFG's exposure to the real estate sector is quite large, about 73% of the exposure is secured by a letter of guarantee of HF (Korea Housing- Finance Corporation) thus minimizing our exposure in real terms. On top of it, our Risk Management Division and Audit Division are undertaking dual monitoring of each PF site. However, the pace of growth in real estate assets may decelerate as we are granting loans on a conservative and select basis as we need to provide against the uncertainties surrounding the real estate sector.

IR Letter (August 2022)

JB Financial Group

[Capital / Shareholder Return]

Q. JBFG paid an interim dividend and I am curious as to the background. Is JBFG planning to pay interim dividends on a regular basis? Also please share with us its shareholder return policy given that its CET1 ratio has risen significantly due to approval of the IRB approach.

A. We have decided to pay interim dividends in order to induce long-term investing and to diversify our shareholder return policy. As our CEO stated in the recent earnings call, it wasn't decided yet if we will be paying interim dividends or quarterly dividends next year. The decision will be made after discussions in the Board of Directors meeting later on. Since any decision about shareholder return policy is made at a Board meeting, we are not able to be specific here but we can say that JBFG is increasing its payout ratio by 2~3% every year and our management is committed to pursuing differentiated corporate value through the greatest shareholder return based on its sector-highest profitability (ROA, ROE). Furthermore, JBFG's intermediate- & long-term target for CET1 ratio is 12%, which we expect to attain in the not distant future, and thus its capacity for capital generation and shareholder return is topmost in the financial services industry.