KB Financial Group Inc (KB) 2005 Q3 法說會逐字稿

Good afternoon ladies and gentlemen. My name is [Chu Win Sook], I’m the IR team leader of Kookmin Bank. I would like to thank all of you for joining us for the third quarter earnings conference of Kookmin Bank.

We are holding this earnings conference at the KRX which is also being webcasted in Korea and overseas. Therefore, even though you are not physically present at the news conference, you can also participate through the internet and the conference call. You can also ask questions through the webcast as well as the conference call.

We will first hear from our CEO, Mr. Chung Won Kang, and then go into the presentation of our earnings third quarter from our Vice President, Shin Jung Kap. After the presentation we will be receiving your questions.

On today’s earnings conference we have the members of the Kookmin Bank Board present. Therefore, they will be available for any questions regarding the corporate governance structure of Kookmin Bank during the Q&A session. We will now start the comments of our CEO, Kang Chung Won.

Good afternoon ladies and gentlemen. It’s a great pleasure to meet you again. Since the last conference call and earnings conference, I've received a feedback that the IR sessions of Korean banks are very similar to each other. That they all focus on increasing customer satisfaction, on increasing internal control and transparency. And I've got the feedback of what is different between Kookmin Bank and other Korean banks, and we will reflect that comment in today’s earnings conference.

And I would like to briefly emphasize the uniqueness of Kookmin Bank, and also the potential growth of Kookmin Bank compared to other Korean banks, based on this uniqueness. As you all very well know, KB, Kookmin Bank, went through a merger four years ago and became Korea’s largest bank with assets of KRW180 trillion. The old Kookmin and old HNCB Bank were all very large banks with more than KRW50 trillion of assets.

Even though we had some initial problems because of the huge asset size, we also had to resolve many of the problems that we experienced, because of the doubling of the asset size, number of employees, and the number of branches. I am sure you are very well aware of the problems, and how we have overcome these problems.

During the initial phase of the integration, we focused on increasing our organizational capabilities, and have introduced the latest techniques in all of our business units. Of course, in the initial phase we had some trial and error and, as a result of these trial and errors, our performance and asset soundness at some times has declined. There were also some structural issues that were not easily resolved from the consolidation and integration process.

However, KB, Kookmin Bank, does have its strengths which is that we have actually experienced and learned how difficult it is to raise the efficiency of such a huge organization. I believe this very unique and valuable lesson will be our valuable asset that promises a better future for the bank. It’s been one year since we have completed the integration process, and since the past year -- during the past year, we have focused on several areas for our improvement.

First of all, our lending process has been improved. Last year in the -- in personal loans, less than 15% of our loans were filtered through our credit management system. However, from this year 95% of our personal loans are being screened and filtered through our credit system. We will continue to reinforce our scoring system and maintain the best credit scoring system among Korean banks.

Second area that we have focused during the past year is customer satisfaction. We had started out with the lowest customer satisfaction rate but we have been able to break free from this problem. In the recent survey, Kookmin Bank ranked top in terms of customer satisfaction. The clear improvement in customer satisfaction was possible, not only because of our officers but also because of the devotion of all KB employees who work in the branches.

All of the employees and officers are feeling pride on this improved customer satisfaction. We've also during the past year focused on creating a culture for the integrated new bank. We have an IVP program that had run for the past three months. 24,000, all KB employees, have received the same training of the corporate value, and we have also conducted a three-day workshop with 900 of our managers which is currently underway.

These efforts are focused, or intended, to improve the culture - a more unified and integrated culture for the entire KB. Also we've focused on improving our IT systems and internal control systems during the past year. The third quarter started out very difficult. This July our IT system had gone down for three hours. But during the past two months we had checked all of our major hardware and software, and currently the IT system architecture of the entire bank is being assessed by an external consulting company.

We are expecting the external review to go over three to four months. So that our entire IT system will be comprehensively reviewed by a third party, which will prepare us for the next generation system. There was also a CD fraud incident in late July, which also triggered -- heightened the interest and the need for an internal control strengthening.

We have created -- we had created a taskforce to look into the internal control system, and this taskforce has been in operation for about three months, to identify the areas of internal control that need to be strengthened. Also, under the leadership of KPMG Consulting, we are under a due diligence process of around 70 branches. Also, we will try to build a self-auditing system by training 200 to 300 experts in self-auditing.

Also, we have the product management system. As you well know, KB, Kookmin Bank has more than 200 products. These 200 or so products, in order to manage them more efficiently, we had established a product management committee in July, which is currently defining all of the product segments and the lifecycle management process. This work will go on to early next year, and we believe that by early next year KB, Kookmin Bank will have a more enhanced product management system.

Also, we have the customer relationship management system, the CRM system, has been developed by the IT center. We have about 50 people involved in the development of a new CRM system. We believe that once completed, the new CRM system will enable us for -- enable us to conduct better customer management. And lastly, last Friday we had a Board meeting which decided on improvements in our corporate governance system.

I believe that these decisions and efforts are the results of our commitment to improve our governance structure, and by the end of this year many of the projects that I've just mentioned will be completed. And from next year, from 2006, KB, Kookmin Bank will be able to expand its operational abilities based on these reinforced infrastructure.

Once again, if I may reiterate, KB, Kookmin Bank had gone through some problems. However, it has overcome these problems and is now prepared to fully utilize the potential that it has gained through this merger. We believe that we have not yet fully commercialized on the potential that we have, as a bank with 1,100 branches and 24,000 employees. But I believe that, through these efforts that we will complete until end of this year, from next year KB, Kookmin Bank will be fully prepared to tap and utilize its growth potential.

And with that, I would like to end my comments and ask our Vice President, Shin Jung Kap, to report on the earnings.

Thank you very much, CEO Kang. Next we will hear from Vice President, Shin Jung Kap, of the Q3 earnings.

Good afternoon ladies and gentlemen. My name is Shin Jung Kap, and I would like to introduce to you the 2005 third quarter earnings of Kookmin Bank. Firstly financial highlights, then our P&L, fund management, and asset quality, will be the present -- the table of content today.

Until Q3 our net income was KRW1.813 trillion, up to Q3, which is a 222.2% increase year-on-year. The major reasons behind this increase is the major decrease in our provisional expenses, that is the major cause of this improvement in performance. Last year it was KRW3.168 trillion but this year we’re at KRW1.199 trillion until third quarter. Our NPL ratio were -- came down to 1.98%. Our NPL coverage ratio was at 103.9%, which is a 31% increase from the 72.6% of third quarter last year. Our ROA improved 1.34%, ROE 22.8%, BIS ratio is at 12.65% with Tier 1, 9.4%.

Our net income increases were mainly due to the following factors. Our interest income had actually decreased year-on-year, mainly because of the decrease of our won loans and credit card asset decreases. However our interest income, as you can see, is increasing first, second and third quarter in 2005. Our loan interest income had increased year-on-year, especially our fee income had increased.

This is mainly because -- even though our securities-related income had decreased over -- or even though our fee income had increased, our securities-related income has slightly decreased because of the increase in market interest.

Our G&A appears to have increased by 7.6% but we had a one-time, or one-off factor, of KRW144.5b, and also wage increase average effect which is KRW65.7b. And so if we exclude these two factors, our G&A had actually -- is actually decreasing by 3.2% year-on-year. Which is the result of our strategic control of expenses.

The major increase of, once again, of our net income increase is because of our 62% decrease of provisioning expenses year-on-year. And provisioning expenses decreased because of improved soundness in all areas, and because of the increase in the recovery of written-off assets. Also, non-operating income actually increased despite the early retirement package related expenses of KRW255.3b spent in February.

Our private equity fund related gains increased, and also our gains on loan sales increased by KRW174.3b, and these contributed to non-operating income increase as well. And we have a net income which increased by 222.2% year-on-year, recording KRW1.813 trillion.

As I've already mentioned, in our interest income decreased year-on-year. However, we have hit the low point in the first quarter this year and our interest income has continued to increase throughout this year. Our interest-bearing assets have increased, whereas our interest-bearing liabilities are decreasing. Also, our funding costs have been lowered due to the increase of low-cost core deposits.

You can see in the graph how our interest-bearing assets have increased, whereas our interest-bearing liabilities have decreased throughout the year 2005.

As you can see in this table, our NIM has continued to increase since the first quarter of 2005. We have sold off our Treasury stock and net income has increased, which has increased our equity. We also did not have the need for additional funding and, therefore, we have repaid KRW5.5 trillion of debentures without issuing new debentures. We also had an increase of core deposits which contributed to lower funding cost.

We believe, considering the competitive factors and the market interest rate situation, the NIM in the short-term would maintain its current level. But in the long-term the NIM may decrease slightly.

In terms of fee income the largest portion is the credit card fee, which has actually increased year-on-year. Mainly due to the increase of the merchant fee rates, and the decrease of the delinquency management fee. Our trust fees and the National Housing Fund commissions have increased by about 10.8%. There was a one-off factor in trust by KRW24.3b, and if we split this the trust income and fees have actually decreased compared to the previous year.

In terms of our won fee commissions and fee, they are increasing. However, because we have stopped selling [low tows] through our counter, that income source had disappeared. And our ABS market, ABS-related fee income, has also slightly decreased, and our total commissions in won only increased by 3.7%. The others are mainly a decrease in the sales of short-term, marketable securities which decreased by KRW120b, compared to the same period last year.

In terms of our beneficiary certificates, the share of savings type funds and overseas funds has increased, which helped our fee income to increase by 67%. Also, the monthly premium of Bancassurance has slightly decreased but, because of the share of saving type, Bancassurance products have increased. Our commissions or fees have also increased in the Bancassurance area as well.

And as I previously mentioned, our G&A expense. If we exclude the one-off factor and the wage increase, averaging effect actually decreased by 3.2% year-on-year. The depreciation and amortization expenses decreased because of the decrease in our capital spending. In terms of our cumulative cost income ratio, our first quarter cost income ratio was 42.4% but on an accumulated basis it came down to 38.5% in Q3.

In our Q2 earnings conference, we said that we would like to keep our cost income ratio between 38 to 39%, and we have brought down our cost income ratio to within this target range.

And then the non-operating income. Despite the expense related with the early retirement package during the first quarter, we have had gains on sales of loans and also gains on marketable securities, which helped our non-operating income to increase significantly compared to the same period last year.

Our total assets had actually increased by 0.7% compared to the end of the previous year, despite the decrease of our won loans and credit card assets. We sold KRW0.9 trillion of assets and written off KRW1.5 trillion, and considering these write-offs and sales, the assets have grown quite healthy. Our equity has increased through the sales of Treasury stock, and our won debenture issues or the balance of the won debentures, have also decreased.

The total of the won loans and credit card assets have decreased by 3.9%, compared to the end of the previous year, and 1.6% compared to the previous quarter. However, the home equity related or mortgages have increased by 7.9%. Especially in the credit card assets the decrease is stabilizing, and we are seeing an increase in the credit purchase volume continuing from the second quarter of this year.

It appears that there is a decrease but, as you can see, the won loans and foreign currency loans and trade loans -- if you will include this, actually the corporate loans are increasing compared to the end of last year.

Our on-demand deposits and marketable deposits are increasing by KRW1.8 trillion and KRW3.2 trillion respectively, and our savings deposits and debentures have actually decreased by KRW5.5 trillion. And you can see that our balance on the funding side has decreased by 3.5% compared to the same period the previous year. Our liquidity had improved with the increase of our income and the sales of our Treasury stock. The funding rates have improved considerably during the same period.

Next moving on to the provision for loan losses, etc. In all sectors we have an improvement in asset quality, and an increase in the write-backs and written-off loans. The provision of loan losses year-on-year decreased 64%. In the first quarter through the reclassification of asset quality, KRW107b write-backs, and also in the second quarter we were able to see an increase in this as well. So in the second quarter we were able to see an increase in the provision.

And in the third quarter, there were some special one-off factors. There was some write-backs from the written-off loans, from KLB Securities, and also from [Shindo]. And also with regarding the coverage ratio, in household it was 118%, corporate 87%, card 127%. So overall, it was -- at the end of last year it was 88% but that has been significantly improved to 104%. As you all know very well, in corporate the coverage ratio is low, and the reason for that is because in the place of secured loans, substandard and below.

Even though it falls to substandard and below, if there is some property we can only provision at 20%, so there are some limitations in increasing the coverage ratio in the corporate sector. As you see and know, precautionary loans decreased 32.5% from KR6.125 trillion to KRW4.132, and substandard and below decreased 25% from KRW3.6 trillion to KRW2.7 trillion.

Delinquency ratio was 2.67% at the end of last year. That has decreased 54% of A/Bs to 2.03%. Please refer to the table for the delinquency ratios for each of the different sectors. The graph on the bottom, as I mentioned earlier, substandard and below loans, the NPL ratio, and the precautionary and below ratio, also fell. And the coverage ratio increased for both from the fourth quarter of last year. The coverage ratio it has been increasing, and this very well helps you to probably understand the provision policy of the current management.

New NPL formation as a result of the improvement in asset quality and because, compared to the previous quarter, it decreased 55%. If we look at it by sector, compared to the previous quarter in the household it’s 2%, in corporate it declined by 69%, and in card it declined by 25%. And so we see the following trend as is in the graph. Such decrease in the NPL formation also is expected to lead to a decrease in loan loss provisions.

The provision expense ratio, which was 2.4% on average in 2004, has fallen to 0.9% in the third quarter of 2005, and the reason for that is because of our continuous effort to improve asset quality. And because of a write-back of written-off loans. So the normalized credit cost range, which we mentioned earlier, we are within that range. During the past earnings conferences, we mentioned that our normalized credit cost range would be 0.8 to 1.0% and we are within that range.

As I mentioned earlier, improvement of asset quality has led to a decrease in the provision for loan losses, and also with the increased buyback from written-offs. As you see in the graph below, we have been able to see significant improvement, and in order to have a smoothing effect, we have come up with a two quarter moving average graph as well, as you see on the right.

Of the major areas of focus, I would like to touch upon corporate governance and also the profitability analysis before I conclude my presentation. First, improvement in corporate governance. KB in the past as well has been considered to be a model case of corporate governance by many corporate governance assessing organizations. Recently the corporate governance related environment is becoming strict than in the past, and the Board of Directors and the management also recognize the need for improvement of corporate governance.

From May to October, for about five months, we have had a consulting project with an external party and we finalized improvements for -- regarding corporate governance were improved by the BoD. And we have been implementing them since then.

So if we look at some of the improvements that have been made. As an organization supporting the BoD, we have newly established a Board Secretariat. And the Non-Executive Director Nominating Committee and the Compensation Committee for the major sub-committees, we have decided to [staff] them with only non-executive directors. And we have reinforced the independence and expertise of the Board of Directors.

And also, the Compensation Committee has amended with management and extended it for top management and directors, in order to maintain continuity in the mid- and long-term strategy of the Bank. Also, by reinforcing communication with the shareholders, we have refined the relevant rules, so that we can reflect the opinions of the shareholders in the bank management. And the BoD activities and also their performance results will be reflected in the business report, and reported at the AGM.

Lastly, to ensure continuous growth of the Bank, we have reinforced the function of advisory and monitoring of mid- and long-term strategy, and its implementation, in order to improve shareholder value and corporate value as well.

And profitability trend analysis as of 2005. The P&L factors that impacted the P&L of the Bank, that is the income that is interest and non-interest income, and the G&A, the provision, was divided by the total average assets, as you see on the left. So the net interest and non-interest income divided by the average balance of total assets is increasing, and the G&A and provision expenses are declining. So as you see on the right, the ROA and the ROE are continuously increasing.

This concludes my presentation. Thank you very much.

Thank you very much for that presentation, Vice President Shin. Now we will take your questions. First we’ll take questions from those present at the KRX. Please raise your hands if you have any questions. Yes, please pass the mike to the person in the front row.

Yes. I am from [Hannah] Securities, my name is [Koo]. Your P&L and soundness related indicators are improved quite a lot. But when I go to the Bank and ask questions, one of the major reasons why the loan assets were not growing as fast was because of the internal system revising. But still the third quarter, even if we consider the write-offs and the sales, has not seen very good asset growth.

One of the common factors of the bank price -- or banks that have better stock prices have been the fact that they are growing. I think, therefore, there is a market concern on KB about its not much growing assets. Is there a special reason why your assets are not growing as fast as other banks?

Well, there were some internal factors related with building our systems for better sales and operation, and most of those systems, I think, were difficult to complete within the first and second quarters of this year. Especially for Kookmin Bank, with such a large scale, it does take a longer time to build up the systems. And as we just mentioned, there was a major incident in the Bank in July related with our internal control.

It did show a major weakness in our internal control system, and since July we had been focusing a lot of our efforts in strengthening our internal control system, which is continuing until this day. And so, at the end of the first and second quarter, I did give you the message that we will be increasing our loans, and our sales-related Vice Presidents have heard this message.

But I did say that, especially in the individual loans, if we had pushed too hard during the first and second quarter to increase our loans, they would in the long-term not be very helpful to the Bank’s profitability. From the third quarter we are pushing to increase our corporate loans, and you can see that our corporate exposure has grown quite healthy in the third quarter.

And if we try to be more customer-centric in the personal loans, I think it will take us at least to the end of this year and the start of next year, for us to be fully prepared internally to serve our customers better in terms of private loans. And so, at this given time and point, our asset growth -- we’ll have to wait until we’re better prepared. I don’t think we’ll have no problem, even if we wait for when we are internally fully prepared.

Has that answered your question, sir? And then we’ll take our next question. Please deliver the microphone to the front.

My name’s Lee Chang from Daiwa Securities. This is related to the question that was raised earlier. I would like to address this to the CEO. The CEO mentioned earlier that internal improvements are being made, and he gave a very detailed explanation. And as you mentioned, you said that growth will be - we don’t need to rush into a focusing of your growth. But growth, or growing, that could be the decision of the CEO. But it’s not just internal controls but it’s also comes from competing with the market as well. So how do you foresee the bank environment next year and what will be the position of Kookmin Bank in the market next year? What will be the direction that you will pursue growth, if you would like to speak about that?

And secondly, the third quarter earnings are much higher than I had earlier thought, so from the shareholders’ perspective that is also related with dividend and this year also mentioned -- I heard that you were going to make an announcement about dividends next year. So -- how -- what is the relation between these earnings and also dividends? If you can speak about that as well?

I will -- with respect to the answer to the first question. Ever since I joined the Bank this is something that I have been consistently trying to pursue, and I have made a consistent message about this. Looking at the size of our bank, the most important thing is our customers -- our existing customers, our existing franchise has to be better managed through more better capabilities.

How quickly we develop those capabilities to focus on our existing customers is our most immediate, pressing concern. And in that process, of course market share, where we’re losing slightly since last year. But the focus is not that we shouldn’t give up on market share, but the fact that our existing customers - in order to better serve these existing customers, what are our weaknesses? That -- those weaknesses have to be filled as quickly as possible, and that I believe is a priority concern.

And a bank our size, our loan management policy has to be well-formulated. Unless we do that, and just increase in size, as the market saw repeatedly, that just gives us problems that we had earlier. So in terms of service for our customers, maintaining customers that you can’t really service very well, that actually could backfire in the end. So from that perspective next year -- even with next year in mind, our focus is basically re-establishing our sales framework. So that from next year we can show better sales capabilities in the market, and I am confident about that strategy.

And secondly, in the third quarter if you look at our earnings, there was a variable there and we also included that in the disclaimer. The FSC said that for unused limits could be part of provisions. Actually [Worry] Bank in the third quarter, I think they did have some provisioning there, and right now we are consulting with the FSC about this.

And whether this is going to reflect it in the third quarter or if it’s going to be reflected in the fourth quarter, I'm not sure about that yet. And so from that perspective in the third quarter, after tax, actually we haven’t completed our audit yet. So these are just tentative figures. So with respect to dividend, the BoD is reviewing the dividend policy at this moment.

So we will be making a decision on that by the -- early next year. This is just a very -- a general comment but the Bank, when it feels that it has sufficient capital -- so any surplus capital that could either be dividend or it could be invested. If there is an area that needs to be invested, if you don’t have enough capital, then to the shareholders we could get some more money. So from that perspective, at the AGM next year our dividend policy will be finalized and announced.

So by then I think all of your questions will be answered.

Did that answer your question? Currently we have a question through the conference call. We will take the conference call question before moving on. Please connect the conference call.

[OPERATOR INSTRUCTIONS].

Please go ahead sir. Do you have any questions?

Yes, I do. My name is Andrew Reynolds from CLSA. First of all, I’d like to congratulate Mr. Kang and his team for a good set of results. The question I have, well, two actually. The first one relating to provision charges. I just want to know whether Mr. Kang feels that the level of provision charges, at roughly 1% of loans, is sustainable and for how long?

And the second one relates to the margins. I know that the indication was that in the longer-term margins could be squeezed, but in the short-term we could see a widening. If we do see an increasing interest rate environment, does Mr. Kang feel that margins could still widen for the foreseeable future?

Well, for the first question about the provision charges. To the total loan until the third quarter was at 1.2%, until Q3 of this year. Our -- we think that the normalized range would be about 1.1%. You asked whether this will continue in the future. We think that actually it could come down a bit more in the future.

About the margins. What I mentioned during the presentation was that in the short term the current NIM could be sustained or maintained, and that in the mid to long term it could come down. And the reason I have projected that the mid to long term it could come down is because this is very dependent on future market rate movements. Our core deposits have increased, and if our income continues to increase and if our debenture balance is decreased, and our savings deposits are decreasing.

That these are many and other factors behind our improved NIM. Of course, if the market rates increase our asset and liability structure enables us to actually increase our NIM, if the market rates increase. So depending on how the market rates move our NIM, whether it will increase or decrease, is subjected to future market rate changes.

And I hope that has answered your question, and we will continue to take questions from the audience here in Korea. For those of you who have a question please raise your hand.

Yes, good afternoon. My name is Scott Seo from JP Morgan. I have two questions. The first question is, reinvestment related IT, this process improvement related. In the future what type of plans do you have, and what will be the scale of the expenses required? And second question is, during the third quarter as well in terms of provisions, there's some -- a lot of write-backs. So if you could elaborate on those write-backs as well?

Then I would like to first answer that question with respect to IT, then VP Shin will be speaking about the provisions. In the case of IT, as I mentioned earlier, during November our IT assessment will begin. I believe that will take about three to four months. It’s a project that will be undertaken for about three to four months. And after we get the results of that project, then we will decide what type of investment is required for IT.

Regarding IT investment, the -- I believe that we have sufficient resources to make that investment. And regarding provisions, if Mr. Shin would like to answer that question.

Yes. Overall provision write-backs, as you saw earlier, write-backs are increasing. For now we -- I believe that we will maintain the current level or a level very similar to the current level. The write-backs will be maintained at the current level or a similar level, and in household, write-backs has continuously increasing. And also recently there were some write-backs regarding auto loans, and there's write-backs regarding ABS.

And as I mentioned earlier, there was also write-backs from written-off loans. And so regarding write-backs, it’s a bit difficult to come up with an exact forecasting but we believe that we will maintain at least the current level. That is what I think. Up till next year, I believe that we will be able to maintain the current level.

I hope that has answered your question. We have another question through the conference call from Reuters, please go ahead.

Yes, good afternoon. Last week you had the BoD meeting which made a decision of improving your corporate governance structure. There was press release about this. Is there a special reason why the Board had taken such a decision? And what do you think will be the major improvement that will be achieved through these -- to these changes to the governance structure?

Perhaps our Chair of the Board could respond to that question?

Good afternoon. I'm Mr. Dong Soo Chung, I'm the Chair of the BoD at Kookmin Bank. I'm also a Chair Professor at Sangmyung University. If I put in a nutshell, the reason we've taken this decision to improve our corporate governance is to make a more efficient Board. An efficient Board, first of all, would need to be able to appoint the most capable CEO and support him.

Also, the second purpose of an efficient Board would be to change itself from a reporting -- receiving Board to a working Board that can actually contribute to the strategic decisions and the operation of the Bank. Of course, we are to support the CEO and the management, but also the Board has to play a very healthy check and balance function.

In order to select or appoint the most capable CEO, we need to improve our CEO appointment process. In the past we started the process of the subsequent CEO only a couple of months before the term of the present CEO came to an end. Last time we were still lucky to have such a capable CEO as CEO Kang, despite this limited process. But we've experienced the difficulty of appointing a very capable CEO in this very short period of time.

Therefore, we will this time change our process so that the BoD will be constantly managing a short list of capable CEO candidates. We will accumulate information about candidate pools, and when it -- when there's a reason to appoint a new CEO, we will receive that information of candidates and use that. And, of course, we as a Board need to support the newly appointed CEO, so that he can fulfill -- fully exercise his capabilities.

We will very fairly assess the CEO and the management so that they can also be compensated fairly, based on this fair assessment. That is also included in the improvement of the governance structure that was passed last week.

Also to become a working Board, 70% of the Board, which were independent directors, should be recommended and appointed in a very transparent and fair manner. And in order to have this fair appointment of independent directors, we need to exclude the influence of the CEO in the independent director appointment process. That is why we have now excluded the CEO from our Outsider Director Nomination Committee.

Also to provide a stronger role for the Directors, we will now report to the general meeting of shareholders on the activities of the Board members and the Board member assessment evaluation results. Also, in order to achieve the business or the management goals of the Bank, we will support the CEOs and the management, and also encourage them as well.

Also, in key strategic issues of the Bank, the Board and the management will hold workshops once or twice a year. Also the regular Board meetings, we believe, should be longer than half a day. In the future the regular Board meetings will be a full-day session. Also we have separately opened a secretariat to support the Board’s operation. In the past the support of the Board was also covered by the secretary’s office to the CEO. But now the Board will have its own secretariat that’ll be dedicated to supporting the operations of the Board.

Now we believe that this is a much more sophisticated and advanced form of corporate governance, which will enable the Board to closely corporate with the CEO. But also keep a very healthy check and balance to the CEO and the management, for the further growth and development of Kookmin Bank. And I ask for your further interest.

I hope that has answered your question, and we will now go back to the audience and receive questions from the audience. Yes. Please deliver the microphone to the front.

Good afternoon. I'm from Deutsche Securities. I have a question to the CEO. Currently in the banking sector in Korea there is a lot of talk about M&As, and as a target candidate, some banks are being repeatedly mentioned. And there are also some talk about who is going to buy which bank. In the case of KB, there isn’t a lot of talk of M&A. But if we were to punch in the figures and analyze the various scenarios, in our opinion we believe that KB would be in a better position.

And the reason for that is because the financing for takeover in the case of KB, in terms of capital is very strong, and the size is bigger. And so we believe that rather than equity issues or hybrid issues, just for debt issues, they're in a very good position to buy. And even just looking at debt issues, the funding cost is lower relatively speaking for KB. So, for example compared to other local banks, we believe that KB is in a better position to acquire target candidates.

So as the CEO of KB what are your thoughts on this? Why is it that we don’t hear much about KB regarding these issues? And the remaining candidates, once they're sold, you may lose your window of opportunity. And another thing is that in terms of better capital management, I feel that there is enough value to consider. What are then some other factors why you're not considering this, or what are your opinions on this?

This too I have been making a consistent message since early this year, and there's no difference. Not now per se but before I joined the Bank, the problem of KB was that we lacked internal capabilities considering our size. So in light of that, I feel that in order to manage this current size, we need to develop internal capabilities. Only then can we think about acquiring a bank.

Before we develop those internal capabilities I don’t think we’re in a position to really consider that option. We have to focus our attention and efforts, so we’re really not in a position to think about other options right now. But I don’t know what type of data you are now analyzed, but I don’t know which target you had in mind, but if you can give us that data, I would be more than happy to see it.

I hope that has answered your question and we will now take the -- a few last questions. I think there is a person on the right-hand which -- who is asking for the microphone.

My names is Kim from [Surgon] Securities. I have a couple of questions. First of all, related with the reversal of your provisioning, can you break that down into detailed items? Second, about the unused limits or credit lines. If that is used, what will be the amount of that? And number two, you were saying that your write-offs are being normalized, but next year as a CEO how much asset growth are you expecting next year?

And if KB does grow next year, I think because it has -- KB has a large share of mortgages which are expected to actually contract next year. Where are you expecting to see asset growth next year for KB?

Then I will respond on your asset growth question, and then toss the other question to our VP. I think next year KB could grow its assets by about 5%, and where the growth will come from? Rather than household secured loans, I think those and corporate will be where our assets would mostly grow next year. And about provisioning?

About the reversal of write-offs or write-backs from provisioning, we will break that down for you offline, and then give you the details later on. About the unused credit line amounts, I think the criteria has not yet been decided by the FSC yet. We have to wait for their final decisions of the new criteria. But perhaps we will use the minimum provisioning rate for these unused credit lines.

There is a discussion of whether to use the experienced rate or the minimum provisional ratio, which will - it’s not yet decided which to use. And depending on which we go towards, there will be a significant difference in the amount of provisioning required. If we use the minimum provisioning ratio, actually the provisioning requirement could be higher than when we use an experienced rate.

I hope that has answered your question and the IR department will be immediately distributing the fact book, which will include the breakdown of our provisioning reverses or write-backs. I think we have still more questions remaining, but we will close the earnings conference for the third quarter 2005 here. Any questions that have not been asked yet could also be forwarded to the IR team, through the Internet, through telephone calls or through personal visits.

I would like to thank all of you for attending personally, and also for logging on through the conference call and the webcast. Thank you very much.