JB Financial : IR Letter_2022.06.08

IR Letter (8 June 2022)

JB Financial Group

Dear JB Financial Group Shareholders:

In this IR letter, I would like to give you a brief update on some feedback we received during the NDR including changes in large shareholders and acquisition of a small venture capital firm.

As for changes in the shareholdings, the 14% stake held by Anchor PE, the Government of Singapore Investment Corporation and Asia Alternatives was sold to a Korean private equity firm called Align Partners Capital Management, thus Align Partners Capital Management has now become the second largest shareholder following Samyang Corporation(14.6%). As a result, the four largest shareholders, i.e. 1) Samyang Corporation 14.6% 2) Align Partners 14.0%, 3) OK Savings Bank 11.3%, 4) National Pension Service 9.3% now own about a 49% shareholding.

The market is responding positively to the change in the shareholding structure as concerns about stock overhang from Anchor PE was addressed and the shares were sold at a premium as Align Partners purchased the shares at KRW9,000 per share. Align Partners Capital Management is a private equity firm that has investment professionals with years of work experience in M&A advisory and management buyout at global private equity firms and investment banks. The main activities of the company are to identify undervalued listed companies and make confident investment in such companies.

Second, JB Financial Group acquired a 100% stake in Mega Investment, a venture capital firm, from Mega Study Co. Ltd., etc. Mega Investment is an investment company established in 2012 and engages in venture capital investment. As of the end of 2021, its AUM is estimated at around KRW200 billion and the acquisition price was KRW 48.5 billion which is 1.18 times its book value. For your information, its net income for 2021 was KRW6.8 billion, 16.5% of its net worth of KRW41.1 billion.

The primary goal of acquiring Mega Investment is to explore new growth opportunities in the capital market and to diversify the Group's profit sources by laying the groundwork for non-banking income growth. In addition, we expect that the acquisition of the specialized venture capital firm will help us generate diverse synergies such as the creation of an investment arm within the Group and construction of a value chain for corporate investment.

IR Letter (8 June 2022)

JB Financial Group

Now we'd like to share with you the main discussions and feedback from the NDR which was held for domestic institutions from April 27 to May 4, 2022 in connection with changes in the macro environment.

First off, let me give you a brief summary of some feedback we received in the 1Q NDR. The participants gave us a lot of positive feedback on our business performance such as the sector-highest profitability, solid top-line growth, and improved cost efficiency, whereas they expressed concern over the possibility that the government may apply pressure through policy implementations and regulation such as demand for lower spread, additional provisioning. Also there was much concern about uncertain macroeconomic prospects due to interest rate hikes, rising Won-Dollar exchange rate, soaring raw materials prices, supply chain disruptions, etc.

On May 26, the Bank of Korea raised the benchmark rate by 25 bp to 1.75%. The Monetary Policy Board stated that it would run a monetary policy with a primary focus on consumer prices for the time being and the BOK governor hinted at a couple of benchmark rate hikes by saying "the benchmark rate at the level of 2.25%~2.50% would be a reasonable expectation at the end of this year". Accordingly, as expectation of the benchmark rate at the end of this year is changed from 2% to 2.5%, our margin is likely to improve more than expected. According to the results of a financial system risk survey released on May 30 by the Bank of Korea, economists surveyed responded that the possibility of a short-term shock that would lead to a financial system crisis increased due to rising consumer prices around the world, etc., underscoring the importance of managing asset quality and credit losses. Furthermore, the IMF, the Bank of Korea and domestic and international research institutes including Korea Development Institute are coming up with GDP growth estimates for the year 2022 lower than the figures they released in the latter half of last year. Of course, we shared these prospects for the macro environmental changes with our subsidiaries and we will assess their impact, fine-tune appropriate action plans in concert and apply them to our sales and risk management efforts.

As for approval of internal ratings approach, there was an on-site inspection by the regulator from the end of March to early April. After receiving the requests for some fine-tuning, we conducted reviews of the approach in mid-May. The remaining procedure is the approval process by the assessment committee comprised of outside personnel and we are expecting to obtain approval before the end of the first half of this year. With approval of the internal ratings approach, our CET1 ratio will improve by around 100bp.

If you have any further questions or need more data materials, please contact the IR Department.

Thank You

IR Department, JB Financial Group