KB Financial Group Inc (KB) 2004 Q4 法說會逐字稿

[Inaudible - not English]

The Strategy Officer, Dong Won Kim, our CFO, Kap Shin. EVP Yun Keyn Jung in charge of consumer banking Group 1. EVP Nam Sik Yang in charge of consumer banking Group 2. We have EVP Hyo Sung Won in charge of Consumer Marketing. We have EVP Yong Kook Oh in charge of Corporate Banking. We have EVP Sang Jin Lee in charge of our Credit Card Business Unit and we have EVP Ahn Sook Koo in charge of our PV and Asset Management. We have EVP Young Han Choi in charge of Capital Market and Treasury. And in charge of Credit Management we have EVP Dong Soo Choe. And in charge of Sales Support we have EVP Sung Kyu Lee. We have Mr. Donald MacKenzie in charge of our Risk Management group and in charge of our IT Division we have CTO Young II Kim and we have in charge of our HR EVP Jung Min Kim. We also have EVP Jung Young Kong in charge of Trust and NHF but he is unable to attend today due to his overseas business trip schedule.

First I will introduce to you the overall business improvement and strategy, which will be followed by the Earnings Presentation by our CFO.

I would like to first introduce to you some of the major initiatives improving our business management. First, in order to raise the expertise level of the organization, and also to clarify the accountability of the business operation, we have changed the existing 9 book into a 15 book structure.

Also, I'm sure that all of the investors are very keenly interested in our asset quality. We have focused during the last year in cleaning our assets. We were able to reduce our NPL and delinquency ratios and substandard and below ratios to 2.67 and 2.64%. Our NPL coverage ratio has also improved to 87.6%.

Also I would like to introduce that our 3 labor unions have finally been integrated. I'm sure that this integration will open the door to even better labor management relations, so that both sides cooperate for the betterment of the bank.

And we have also closed as of yesterday, our ERP program. And 2900 employees have applied for the ERP package.

Next I would like to introduce to you our business strategy. Our vision is to create a profitable, convenient, strong and wise bank. In order to do this we will have a strategy of profitable and universal banking. Our target is to have ROA of 1.2%, ROE of 20% by year 2007.

Profitable and universal banking strategy would mean that in the Household we focus on maintaining and managing our Household customers even better, to provide customized services, so that we fully utilize the cross selling and up selling opportunities in our Household customer base. And also in our Corporate side have the existing relationships to expand our business to even transactional businesses in position to loans.

In the consumer side we would like to raise the customer satisfaction level to the greater mass, and also on the Corporate structure we will provide even stronger business support to both large and SMEs. We also will expand our business scope to IB, Foreign Exchange, derivatives and combined products.

Our key strategy for 2005, number 1 would be to once again strengthen our organizational capabilities. To increase our customer care and marketing capabilities. Also to build our capabilities by developing our HR and businesses. And also further improving the asset quality, through stronger risk management and tighter control of delinquencies and NPL. These are the 4 key strategies and that completes my section of introducing our business strategy.

Thank you CEO Accounts. Next I would like to invite our CFO, Mr. Jung Kap Shin.

Good afternoon ladies and gentlemen. I am in charge of the financing and planning at KB. My name is Jung Kap Shin.

Let me begin with the earnings results for 2004. Then I'll talk about the financial highlights and those of profitability and fund management and also asset quality. And finally I will talk about major value drivers.

During the year 2004 KB has turned black from previous years losses to certain level of profits. You'll see the amount of KRW555.2b worth of profit, although it's not that significant and our net interest margin has dropped by about 0.18% to 3.62% between the deposits and loans.

If you look at the structures as the interest rate falls our margin reduces and as you are well aware last year the market interest rate dropped so therefore we experienced a certain loss of the margin. If you look at the provision expenses -- of course the estimated amount is pretty large, but considering the previous year it was a reduction of 31.1% to the [indiscernible] KRW4,618.1b.

Total assets also reduced 2.39% to KRW179.7 trillion. However, we can't quite say that it has reduced in asset size, but it was mainly due to the write off of the NPL. So effectively we had increased the sound high quality assets. As mentioned by our CEO the NPL ratio for 2004 was 2.64% or reduction by 0.95%, ROA 0.3%, ROE 6.21%. BIS ratio 11.08%. Earnings per share was about KRW1811.

Treatment of the interest income side as mentioned earlier because of the narrowing margin, our net interest income reduced slightly as well, but now we are in the process of recovering.

In the area of non-interest income, it is improving steadily. So for KB it's very good news in terms of General and Administrative expenses. The graph shows that our fourth quarter figures are on the rise. However, there was a labor settlement during the fourth quarter 2004. So the full year impact was reflected all at once in the fourth quarter. That is why it seems like there was a hike in the fourth quarter alone. But it should be allocated accordingly throughout the year. And also operating income did a provisioning during fourth quarter, because of the expense side, it has reduced slightly.

For the fourth quarter as mentioned earlier, the General and Administrative expenses, because of the labor settlement ahs expanded quite a bit and provisioning expenses although we had relatively low NPL coverage ratio last year, but as of the end of last year we accumulated as much provisioning as possible. Therefore our coverage ratio has improved quite a bit. So as a result the provisioned expenses went up.

During the fourth quarter it seems like there have been losses. But if you normalize the figures, there have been net profit or net improvement.

The overall market interest rate reduction has led to both the reduction of the interest revenue as well as the interest expenses. And the gain from securities has reduced. So the interest or yield on the securities reduced by 62 BPS and also interest on debentures, reduced in terms of interest income by KRW1 trillion, so there has been about 39 BPS reduction on the debenture interest.

Please turn to net interest margins. Comparing to the third quarter of 2003, there have been certain changes because of the merger with KB Card. As a result, from the fourth quarter 2003, the interest margin started going up significantly. However, because of the margin interest reduction our net interest margin has been showing reduction. However it's stabilizing and slightly improving.

Please look at the non-interest income portion. As you can see ForEx and Others portion in 2004 saw a sizeable growth. About KRW280b worth of gain from valuation of marketable securities attributed to that.

Trust reduced in asset size by about KRW12 trillion, so the commission on Trust has also reduced. And Credit Card assets reduced by KRW4 trillion. So for the Credit Card related commission dropped in amount as well. If you would take the commissions in Won, beneficiaries certificates, related commissions last year saw an increase of 64% last year and the Bancassurance commission increased by about 407%.

Out of the other portions we have the lottery and loans related and deposits related commissions reduced slightly in last year.

Please turn to the Trust and Credit Card volumes. There has been slight reduction there. And the Trust portion saw a more reduction there. However, we do not foresee any further reduction from the current level of Trust in the near future, because quality wise it is stabilizing. In terms of NHF the volume is being maintained.

Because I elaborated on these items on previous pages already I will not go into too much detail on this page. But if you look at Trust income please. The gain from evaluation of the marketable securities are attributed to such improvements.

Going to the General and Administrative expenses. The labor cost, we saw a slight reduction during the fourth quarter we had a salary increase and in outfitting items we had a reduction of about 1700 people head count. So out of that portion about 600 regular workers and 1100 contract paid workers. So as a result we saw a decrease by KRW20b.

And Administrative expenses. We had a reduction of advertising cost by KRW33b. Depreciation and amortization expenses we find reduction by about KRW100b. That was because during year 2004 we reduced investment on the systems, on overall infrastructure. Because of that we saw a slight reduction of depreciation and amortization.

Cost income ratio. As you could see at end of the year last year was 35.2%. We put in a lot of effort to reduce cost and we are continuing with further efforts to improve the cost income ratio. I'm sure this figure will improve even further.

If you look at the middle section there is the gains or losses on investment securities, which has changed quite a bit.

We sold about KRW4 trillion worth of investment securities and so we realized certain gains. But during 2003 and 2004 we saw a slight reduction here. Impairment was there. Of course ST Global was there and ABS Beneficiaries Certificates had certain impairments and AGSs Subordinated Bond saw some impairment. 2004 also experienced a certain impairment on the ABS Subordinated Bond.

If you look at the Others column for 2003, there was a loss of by KRW123.7b. There was some taxes applied on Trust portions in the amount of about KRW140b.

As of the end of the year we have the following condensed balance sheet. As you can see there hasn't been that major change or fluctuation from the previous year but we see a slight reduction. Mainly it was due to the efforts to improve the asset quality.

KRW2.8 trillion out of the deposit reduced and on the bank debenture sector it improved by about 2.19, so they both offset each other.

And we have the ABS volume for Credit Card and other portions together. In year 2003 it was about KRW15.3 trillion and in 2004 was KRW9.5 trillion. So overall it was a reduction by about KRW6 trillion.

On the loans in Won on credit assets, if you see the breakdown. The Household saw an increase, by about KRW2.9 trillion. Mainly these are mortgage-based loans. And on the SME side there was a significant reduction by about 8.4%. On Credit Card was about KRW5.9 trillion. So all together we have the reduction by about KRW7 trillion. So if you see the composition, the Household increase rate, SME and large corporations and Credit Card all saw slight reduction in volume.

On the deposits we had core deposits and Times & Savings and CD and RP. They all saw a certain reduction. However, the debentures made up for such reduction on the other items. If you see the reasons behind the reducing deposits, some of the previous deposits went over to the Beneficiary Certificates accounts. And also the debenture lending cost was slightly lower than the deposit funding cost. That's why we prefer the debenture issue.

In the third quarter of 2004 our NPL ratio, our NPL amount was close to KRW5 trillion. Our new formation was KRW872b. Write offs were KRW1.7 trillion. NPL Sales was KRW513b. We ended up with at the end of 2004 an NPL of KRW3.4 trillion, which gives us an NPL ratio of 2.64%. NPL coverage was substandard and below coverage of 87.6%.

Overall that was the situation. If you look at some of the formation of NPL, as you can see quarter-by-quarter in 2004 our new NPL formation decreased. Our Household NPL ratio was at the end of the year 1.64, with a covered ratio of 64.3% Corporate. Our NPL ratio of 3.64, 75.4 coverage. Credit card NPL was substandard and below ratio was 4.55% with 113% coverage, a dramatic improvement in terms of coverage compared to the previous period.

Our provisioning expenses. In 2003 compared to 2003 and 2004, we were at average 2.4% compared to the total asset. In Household the average increase from 1.3% to 1.7%. Corporate 2003 was 2.2% to 2.4%. In the Household and Corporate the reason why we're seeing a higher ratio of provisioning to full asset is because at the end of last year we tried to build up as much provisioning as possible within the scope allowed by the SS Regulations. And that is why you would probably see a higher ratio. On the Credit Card side, the provisioning ratio came down from 2003's 21.7%. But this is the ratio of provisioning expense to the Credit Card assets. It came down from 21.7 to 15.9%.

This slide I will skip. That will be the slide related with the provisioning expense.

So in terms of the overall asset quality in all segments we're seeing improvements of asset quality. Write offs and sales of NPL was KRW6.4 trillion in 2004. And it was KRW7.3 trillion in 2003.

Next we go into the delinquencies. In Household, 1 month or more delinquency has slightly increased. These are mainly related with the mortgages. Credit card delinquency has improved considerably to 5.19. Corporate is at 2.54% which is somewhat of an improvement. Overall delinquency ratio has shown a consistent improvement quarter-over-quarter.

If you look at the Household. The Household assets -- loan assets -- have continued to increase, but the pace of growth has slowed down compared to the previous year. Precautionary and substandard and below is improving. Delinquency ratios are also improving on the Household loans. New NPL formation for Household is continuing to decrease. Even the vintage analysis shows that our Household assets are improving asset quality.

If you look at the SME loan portfolio, last year SME loan portfolio decreased in terms of volume by about 8%. Substandard and below decreased and the precautionary maintained its previous volume. The delinquency ratio decreased for SME loan portfolio. So when it comes to SMEs, SMEs account for about 30% of our total loan assets, which compared to other banks is relatively low. Last year SME assets decreased by 8% but other banks last year actually continued to grow their SME loan portfolio. So what we think is that KB relatively speaking is relatively less exposed to potential problems in the SME segment.

When it comes to loans to the SMEs the [indiscernible]priced ratio is a bit higher than -- a bit more than 81%, which is higher than the secured or collaterized ratio of 2003.

Credit card asset quality, Credit Card assets volume have continued to decrease. Precautionary or substandard and below loans volumes have also continued to decrease. Also the delinquency ratio continues to come down. New delinquency formation at the end of the year it was KRW38b. And the volume as you can see the credit sales volume is being maintained at a certain level. Cash is down so we see extra room for decrease in the transaction volume.

Our key income is continuing to increase and in 2005 we're expecting fee income to account close to one-third of our revenue.

On the lower left hand corner our fee income increased by 64%. Bancassurance increased by 403%. So Bancassurance and also Beneficiary Certificates, as you can see, compared to other major banks in [indiscernible] we have more than a 35% in Beneficiary Certificates. We have more than a 45% at Bancassurance in terms of market share. For savings-type fund we have more than a 60% market share.

So just looking at these isolated examples, and on top of this, taking into account our strong distribution network. Our sales power and marketing capabilities, we will be able to fully leverage the opportunity and the fee differences. And as our CEO Kang has mentioned, we will further expand our other businesses such as derivatives, by developing new products, use our existing channel power to [indiscernible] these new products and we believe these are nutritious, will help us in maintaining our position as the leading bank in Korea.

General and Administrative expenses have continued to decrease provisioning for loan losses have also decreased dramatically. Our labor rationalization is continuing. We, I think, are coming to the end of the first wave. We believe that about 14% of our existing work force will be reduced within this year. Which means that the overall efficiency of our organization will improve further. We will maintain our interest income base. On the same hand increase our non-interest income base. And as I say in time minimize our expenses and costs in order to come to the stable increasing bottom line.

And that completes my presentation of our earnings of 2004. And I will be more than happy to entertain any questions you may have.

Thank you very much, CFO Shin. We will first take questions from the floor. If there's any questions please raise your hand.

Now Q& A session will be given. [OPERATOR INSTRUCITONS]. Yes. A gentlemen in the front there.

My name is Li from Taiwa Securities. I would like to first of all thank you for your detailed presentation. I have 1 question about the NPL coverage.

Of course, including the CEO and the media and all the IR related parties I already got the first information about that earlier. And we already -- we're aware of the fact that you have built it all the way up to 90%, but you're not quite reached 90% -- but all the indexes are quite okay.

In the process of improving the NPL coverage ratio, you said that you were building as much provisioning as possible as allowed by the Regulatory body. Of course all the financial companies have different structures and I'm sure we cannot apply the same unilateral leverage. However, I see more and more financial institutions with higher coverage ratio than 100.

If this is so, looking at next year, and if you have actually built the most amount of provisioning allowed, then assuming that there will be no further risks next year -- when I say next year, I'm talking about 2005 by the way -- then I guess, I'm wondering whether we cannot expect any further increase or improvement on the NPL coverage.

And also, could you comment on the Treasury shares related plans going forward?

Let me first answer your question about the NPL coverage. As you are well aware, the NPL coverage ratio for the coming year, which is 2005, where we will do our utmost to build as much provisioning as possible that is allowed by the regulatory body. However, the absolute value of NPL, in other words, the amount of sub-standard and below loans, if we are to reduce that portion through write-offs or dispositions, then you could always bring up the NPL coverage ratio.

Therefore, compared to other banks, it is quite difficult to say we have a better NPL coverage versus other competitors or not. It's not an apple-to-apple comparison that we could make. This year, we will continue to sell and also write off NPLs further so I am confident that we will be able to improve the NPL coverage ratio.

Regarding Treasury shares, we have plans for Treasury share sales. However, we do not have any specific plan as to how much, by when, we will conduct this transaction yet.

I hope they have fully answered your question, and we'll take the next question, please. We also have questions through the conference call, so we will first take those, before we take questions from the floor. Mr. Andrew Reynolds from CLSA, please go ahead.

Hi, this is Andrew Reynolds from CLSA. I just wanted to find out 1 thing, especially on the SME side. These loans continue to contract and I'm not sure what your expectations are for this year, but you said you continue to contract. One would expect, in an environment like that, to see increasing delinquencies, and if you are continuing to write-off or even sell loans, does that mean that we can expect to see increased debt provision charges for this year?

The price of the SME, or the volume of the SME loan is continuing to decrease. Were you asking whether this will cause the delinquency ratios to go up?

Yes, I'm not looking so much at the ratio because it doesn't really tell you that much, but in absolute terms, one would expect that in a contracting loan environment that more and more people get into trouble and on the SMEs, that's especially so. And therefore, if you are expecting to see delinquencies in general going up, and what you will then do to keep that level down below the 3% level? Can you expect to see the same as you've done this year, or 2004, in other words, writing off and selling off loans, in which case provision charges can be expected to still be reasonably high this year?

Pricing by scheme has a risk-based pricing system, so there are priority customers who will be paying less, and risky customers will have to pay more interest rates. So then we expect, you know, our semi-loan volume will not decrease substantially this year, and we will continue to write-off and sell NPL portfolio.

I hope that fully answered your question. We will take more questions from the floor. The gentleman on the right, please?

Minus Lee from [Tombot] Securities. I have 2 questions. This is a follow-up question to the previous questioner. It seems like you are going to pursue a rather conservative asset management strategy going forward. Basically speaking, yesterday in the case of [Shinheim] Holding Company, they said that continuing last year's growth, they are looking at further growth in the year 2005 as well.

A conservative strategy in terms of asset quality improvement would be important, I understand, but in the long-term perspective, when you consider the competitiveness and marketing capabilities, you must think about growth at the same time, I'm sure, and your competitor banks are now openly citing themselves as leading banks so in light of such changing environment, what is the plan of the new CEO going forward, and what is your position on the asset growth for the coming year?

My second question is the following. This might be a rather difficult question, but you said that there were over 2,000 people applying for the early retirement plan for this year, and last year, you reduced 600 regular employees and 1,100 contract based employees that were laid off last year as well. So I'm wondering whether you plan to go ahead with similar reductions? Are you simply focusing on the headcount reduction mainly, or do you also plan to restructure the leveled structure within the employee groups? So I would like to, you know, get a better picture about the current status of KB's human resources related structure, so could you share with us your future plans?

Thank you very much for your questions. First of all, let me answer your question about the asset size. This year, we will mainly focus on asset soundness. As mentioned by a couple of people already, compared to competitor banks in terms of coverage ratio and NPL ratio, we are not quite at par with those banks, so this year we will mainly focus on improving the asset quality whilst the asset size increase will not be the top priority for us.

Regarding the HR restructuring plans, as you mentioned just now, our HR structures will be improved and we are already putting in efforts such as early retiring plan, and that was a part of a bigger plan of improvement of the HR restructuring. In the future, we will be able to more actively recruit new employees, and I'm sure we will have enough structure to support such future plans.

I hope that has answered your question. We'll take another question from the floor.

Hello, my name's John Williams. I have a couple of questions. Number 1, CEO Kang, when you came to KB last year, you said that you will raise KB's coverage ratio ultimately to above 100%. KB is below 90% in terms of coverage. Is this 100% coverage ratio still a target for you, and if you are going to bring up the coverage ratio to 100% eventually, are you planning to achieve that during the first half, and devote the second half more to improving the top-line?

My second question is that the market consensuses during the fourth quarter, the coverage ratio was a bit higher than 90%, and so the market expected to see a huge loss during the fourth quarter, but its actual losses are smaller than what the market had been anticipating. Is this because of the pressure for dividend payments from the major shareholders? If so, what will be the future dividend policy that you will implement at KB?

My third question is about your strategy. There are a lot of international banks coming into the Korean market. Yesterday Shinon Financial Group, yesterday had the similar IR session, and I think they explained their strategies against this international competition in the Korean market. What's KB's strategy in response?

Well, the first 2 questions about the coverage ratio and whether we manipulated the level of provisioning to come up with the right earnings level. I will respond to that, and leave the third question to the CEO. As I mentioned previously, the coverage ratio is something that we can always control and bring up above 100% any time if we sell off or write off assets we want, so I don't think 100% itself has a lot of meaning, but within the allowed scope of FSS, we have provisioned as much as possible within the allowed scope, so I think that is what is important rather than the number itself. We have a CEO and I am the CFO of KB, but I can say very sure that KB would never manipulate its earnings due to the reasons that you've quoted.

If I may mention a few comments, dividend pressure was never a factor. Regarding the coverage ratio, within this year, within 2005, I think you can expect that to go above 100% yet in this year, and what I may reiterate is that no matter what other banks, I don't really care, because 2005 for KB is going to be the year that we focus on asset quality and also reinforcing the strength of our organization. That will be the foundation that we would leverage from the second half, or the latter part of this year to show something very different from what the market has seen from KB up till now.

And there was a third question about the strategy overseas, overseas strategy?

Well, I don't think we are in the position to focus a lot of energy into overseas sectors this year.

Thank you very much.

We will take 1 more question from the floor. Please raise your hands. [OPERATOR INSTRUCTIONS].

Minus Lee from Tombot Securities. This is against the long-term strategy you've emphasized the universal banking side briefly. Could you share with a bit more specific plans going forward? Thank you.

As I joined KB, I realized that the previous strategy for KB employees was to multi-strategic, multi-specialist, that is. In other words, 1 employee should be made into a specialist that could sell many different products. I changed that strategy into universal banking. The reason for such change was the following. Within the bank, there are areas of different focuses.

If you think about the European style universal banking, it is basically utilizing what we already have in terms of products and basically using our branch offices as windows for sales. Now, if you compare our strategy with the European style, it might look like it's not that different. However, the focus now will be changed more from the branch office perspective to the Head Office perspective, so the focus and the contact point with the customers has slightly changed. Next question, please.

I believe that the EVP in charge of this strategy should elaborate on that point please.

The CEO has earlier pointed out that during the first phase of KB integration, the bank has announced the strategy of select and focus, a multi-specialist strategy. In other words, in the retail sector, we wanted to divert the low profit generating customers to more of the ATM and other types of system whereas high profit customers were to be treated more with person-to-person contact. In the corporate sector, we were trying to de-market large corporations while we were focusing more on the SMEs and [so-hosts]. So that was the strategy for the first strategy of KB. However, as we launched the second phase of KB with a new CEO, we are focusing on profitable and universal strategy.

What that is, is that profitable means customer strategy, and universal means product strategy. So when I say profitable we mean that KB will be truly the bank of the people of Korea. It's a bank with about a 26m customer base. In the past, we were in a way de-marketing low profit generating customers. However, under the new strategy, we will try to intensify cross-selling and up-selling on the mass customers through which we could generate more profit, and on that particular consumer group, when we say universal strategy, we are seeking to come up with more of the customized services and products for those segments of customers.

And in the corporate banking sector, whereas we used to more focus on the SME than so-hosts and not so much focus on the large corporations, we will now attend to maintain the strong foundation of SMEs and so-hosts going forward, but at the same time, upscale the scope to include more profitable large corporations. So in terms of business strategy, we plan to expand into transactional services that we could interact with large corporations in addition to loans, so we plan to enlarge the scope of our business. Thank you.

I hope that has answered your question. We have another question from CSFB, Mr. Huff, CSFB, please go ahead.

On the asset quality, when we look at the relationship between write-offs and sell-offs there is a close correlation between these 2 usually, but in this quarter, the provisioning was KRW1.2 trillion and the write-offs were KRW1.7 trillion, and so there is a 500b difference between the provisioning and the write-offs in the fourth quarter. Why is this gap happening in the fourth quarter of 2004?

Well, up to now, for whatever reason, KB seems it does not provision within the maximum scope allowed by the FSS. But with the new management, internally we have made a decision that KB, within policy, will provision as much as possible within the allowed scope and flow of as many NPL as possible. That is the policy of the new management, and that is why you have seen this gap during this fourth quarter.

But the provisioning automatically increases if you write off that much, but we don't see that correlation as tightly connected as the previous quarters in the fourth quarter 2004.

I did not look into the details behind those numbers personally, but we did not find any peculiar numbers related with that aspect, although we'll look into it in more detail, and I'm sure that the IR team will come back to you with the details. If so, we'll take another question from the floor.

My name's [Gellen]. I have 1 question. Up to last IR earnings conference, the explanation for high NPL was because those NPLs with collateral were not written off or sold off. That is why your bank's NPL ratio is higher than other competitors. However, that same asset has been either sold off or written off. My question is the following. If so, those remaining NPL assets, when you sell off those NPL assets, I'm sure you incur a lot of the losses so I believe you have the real NPLs in your asset portfolio. In terms of coverage ratio, as you mentioned, it could always be controlled by you, so it could be a number game. So my question is then, regarding the remaining NPLs versus last quarter's NPLs, whether the soundness of the current holding of NPLs shows similar soundness or whether their soundness is quite different from the previous quarter?

My name is Choe, in charge of credit management. Last year, I'm sure you got that answer while analyzing the coverage ratio of KB. When compared to other domestic commercial banks, and if you compare that with KB's portfolio, other banks are mainly corporate banking focused banks and after the economic crisis of 1997, they recently entered into the mortgage business and other collateralized business. However, in the case of KB, we currently have over 75% market share in terms of mortgage, so when NPLs emerge, out of the NPL, we have sometimes guaranteed portions, and the collateral bought portion, and we distinguish them between normal and sub-standard.

What that means is, in terms of large corporations related guarantees, usually immediate reimbursement is possible, so those are categorized as normal, so 100% coverage is possible. But in the case of mortgage portion, if you distinguish them as normal, then we have to always allocate 20% provisioning. When you look at the experienced loss ratio so far, that 20% provisioning portion shows loss ratio of about 0.5%. In other words, by about 19.5% extra, we are provisioning additionally. So up to last year, when we conducted IR conference calls, we gave you the correct reasons behind that situation and currently, on those portions, we are not selling off those NPLs.

Even the FSS, regarding the provisioning regulations, of course, the interpretation of the law differs quite a bit between how much provisioning is appropriate so I believe that our coverage ratio is bound to improve under the current strategy, but in terms of the actual loss ratio, we are actually also compensating in terms of provisioning.

I hope that has fully answered your question. We'll take another question from the floor. Please raise your hands if you have any questions. [OPERATOR INSTRUCTIONS]. If there are no further questions from the floor then I will close the Q&A session. And the presentation and the audio service will be available at KB's IR website. In addition, if you have any further questions, please feel free to address them to the KB IR team. Once again, I would like to thank here all of the domestic and international investors for attending [this session]. Thank you very much.