KB Financial Group Inc (KB) 2006 Q1 法說會逐字稿

[Translated]. [OPERATOR INSTRUCTIONS]. Thank you for taking part in today's earnings conference. Today we have with us Mr. Dong Soo Chung, the Chair of BOD and also our CEO, Chung Won Kang and all the members of the management are present here with us, and Mr. Jung Kap Shin, the CFO of KB will present the earnings results and then we will take a Q&A. Mr. Shin?

[Translated]. Good afternoon ladies and gentlemen. My name is Shin Jung Kap, CFO of KB. Let me now begin with the financial highlights of Q1 2006 for KB. I will cover the financial highlights for Q1 and other matters of interest. You've seen the effect of Q1 we have the financial performance, major issues and appendix and under financial performance, I'll talk about financial highlights, profitability, assets and liabilities, asset quality overview.

During Q1 net income was KRW803b which was an increase year on year by KRW240.3b which was 136% increase and our NPL ratio has reduced year on year by 1% recording 1.62% and also NPL coverage ratio also was 103.7% which was an increase by 14% year on year. During Q1 the annualized ROA and ROE were 1.77% and 24.64% respectively. And our BIS and Tier One ratios have improved significantly with the increased profit and the issuance of [inaudible] subordinated bonds to record 15.18% and 10.56% respectively.

Let me now move on to the gross profit, which combines the interest income and non-interest income. We record KRW1,885b, which was a rather stable trend. At a glance you might think that our Q1 gross profit has reduced quarter on quarter but because we had two less working days during the quarter, it actually increased by KRW22b. Compared to Q1 which has seasonal factors as it has special bonus at the end of the year in G&A, compared to that our G&A for the quarter reduced.

Provisioning expenses has improved by recording a downward trend because of our tightening provisioning policies and KB's profit is stabilizing, costs reducing and our net income is actually, as you can see on the graph, is on an upward trend.

Let me talk about the interest income compared to the previous year, same quarter. It increased by 8.3%. We saw an increase of NIM because of the rising interest rate and also our continuous efforts to increase the interest-bearing assets has led to such an improvement.

And the fact that we saw a decrease by 0.9% quarter on quarter was because of the less number of working days as mentioned earlier. Our net interest income year on year reduced by 0.9% but on a quarter on quarter basis, has increased by 0.2%. For more detailed information I will cover at the end of my presentation.

Let me talk about G&A. At the end of last year we had a one-off factor payment outlay, such as ESOP and year-end special bonus and if you compare it year on year we saw a reduction by 5.4% and quarter on quarter 21.5% reduced. Both interest and non-interest sides has stabilized quite a bit and G&A reduced quite a bit, though our operating income before provisioning year on year increased 16.6% and quarter on quarter 17.2%.

If you look at the provisioning which is a big part of net income, has reduced 59% year on year and 62% to -- quarter on quarter. This is because of the improvement of asset quality and also it is because of the additional KRW297b for the provisioning for the unused credit line of KRW255.3b. And we had non-operating income issue -- we had a one-off minus factor of KRW255.3b for early retirement plan and however this quarter we had been from the sales of AFS and therefore we recorded 78.3% profit. So as a result net income increased 136% year on year, recording KRW803b.

I already talked about the net interest income already but as you can see, KB has a very advantageous asset liability structure, so we have a minus duration gap, therefore the interest rate increase is quickly reflected on another way, whereas we have a time lapse before interest rate hike is reflected on the departing and barring cost.

As you can see on the bottom, the graph is showing the trend of NIM. As you can see despite the rising interest rate the NIM has reduced slightly in Q1. It was because the Credit Card related expenses reduced by about KRW400b. Before Credit Card fees was reclassified under interest income, the new information is shown on page 26, but if you use the previous rules, the NIM has increased by 3DPS.

Under commissions and fees, despite the reduction of NHF and trust fee income, helped by ITC and Bancassurance fee income, we have seen an increase of 2.6% year on year and 4.9% quarter on quarter increase for Bancassurance and ITC related fee income. It is showing a continuous upward trend compared to the previous quarter. It grew by 17.6% and 39.3% respectively.

If you look at NHF fee, year on year it increased 14.7% but on a quarter on quarter basis it reduced by 6.5%. One of the main reasons for such quarter on quarter reduction is because of the explosive growth of the first home mortgage loan product which began last November.

We saw that upward trend but in the middle of February we saw a tighter lending discipline so we saw a reduction of such product sales and also NHF bond related activities has been allowed to other financial institutions such as [inaudible] Bank and NHF so we saw a KRW2b reduction for fees.

And for trust fee, despite the AUM increase because of the previous years one-off factor, we saw a 36.4% reduction. Credit Card compared to the previous quarter, we saw an improvement there because of other affiliation related costs and under others, the reduction shown there is because of the reduced gain on securities.

Let me talk about G&A, compared to year on year it reduced by 5.4%, on a quarter on quarter basis a 21.5% reduction took place. In the previous year we had a reduction of labor costs because of the early retirement plan and during the first quarter we had the ESOP payout of about KRW43b and at the end of last year we also had a KRW140b in special bonus payments. So therefore the reduction seemed a lot bigger.

The cost income ratio during the first quarter, because of the deferred reflection of certain cost items, we recorded 36.7% and for the second quarter we might see a slight increase there because of the deferred reflection.

Under non-operating income we had early retirement plan related costs of KRW255.3b, however, unlike last year’s early retirement plan related expenses, we had no one-off factors and gain or loss on sales of loans was not there, so therefore compared to the previous quarter, it increased by KRW36.6b, recording KRW78.2b.

Under others, if you reflect the ERP factor you can see that it is quite stable. In order to help your understanding let me show you the profitability trend of our Bank during the past two years. We divided the income, G&A and provisioning by total average assets and you are also looking at the ROA and ROE trend graphs. As you can see on the left, our income to total assets is quite stable. G&A because of the special bonus, it increased slightly, but it is generally stabilizing. Provisioning is also stabilizing at a lower rate. Our ROA and ROE, due to the increased net income, is continuously growing.

Let me also cover the balance sheet briefly. Our total assets increased by KRW6.7 trillion recording KRW186.3 trillion despite the reduction in the loan in won including PES, our marketable securities and foreign currency assets increased including private placement bonds including that our loans in won has increased just slightly from the year end.

In the beginning of the year because of certain re-deployment of workforce within the Bank, we did not get to do our normal level of sales activities and also starting from the second quarter, because a lot of the existing products are nearing their maturity we have seen certain out-payment of the maturing products. That's why we had a certain reduction but we expect from the third quarter of this year, because of the reducing volume of maturing products, I believe that we will be able to turn around for an increase in this category as well. As we mentioned earlier we will be working hard to achieve our 5% target of asset growth rate.

Under liabilities we saw a reduction of KRW1.6 trillion in total deposit in won but with the subordinated debt issues our debt in won increased by KRW2.8 trillion and with the increase in foreign currency asset, our foreign currency liability has also increased by KRW0.9 trillion.

Under Households, there was a reduction of demand for collective loans for household loans or mortgage related products. Because of that factor compared to the end of last year, we saw a decrease by KRW1 trillion.

Under Corporate loans, helped by our Soho loans and also private placement bonds, it increased by 2.3%, including PEF our total loans in won has seen a decrease by KRW100b. As mentioned earlier, our loans in won we believe will improve starting from the second quarter and starting from the third quarter, our growth momentum will strengthen we believe.

And one thing that I would like to emphasize is that our Group or collective loans in large bulk has seen a nearing the maturity phenomenon lately, that's why we saw a reduction. But we had net addition of KRW300b in mortgage and also for Sohos. We saw an increase in Sohos category during the first quarter as well.

Under Credit Card assets, we are stabilizing in our reduction speed and we recorded the reduction of about KRW400b, recording KRW8 trillion this quarter. For your information, under Corporate loans as you can see on the table on the bottom, we have the loans in won and loans in foreign currency, private placement bonds and bills bought in foreign currency. They all grew recording -- increasing by KRW1.1 trillion year on year.

Won deposits have decreased by KRW1.6 trillion quarter on quarter. If you look at the details there were some seasonal factors. Last year there was a rapid increase of about KRW5 trillion on the core deposits last year, but that decreased by KRW24 trillion this quarter. Also we are seeing that the deposits are getting a short maturity and therefore CD and RPs which are more market relating things, increased by KRW2.8 trillion but time and savings deposits decreased by KRW2 trillion.

Time and savings deposits have continuously decreased, part of that we think are moving to ITC products. Also because our loan volume increases are still small, we do not see a very urgent need to increase our time and savings deposits. Bank debentures increased by KRW2.8 trillion because of our issues of sub-debt and coming in at KRW18.3 trillion as of March 2006.

Asset quality, all categories are improving, especially we are seeing a remarkable improvement in delinquency ratios for Corporate and Credit Card. Precautionary decreased by about KRW500b quarter on quarter, sub-standard and below loans. NPLs decreased by KRW107.7b quarter on quarter. Our NPL ratio decreased by 8DP recording 1.62%. Coverage ratio is at 103.7%.

Looking at the delinquencies, the overall delinquency ratio decreased by 8DP from 1.7% of December 2005, to 1.62%.

Household as of March 2006 was at 1.64%, Corporate 1.40% and Credit Cards 2.76%, showing an overall improvement in our delinquencies.

This is the provisioning for loan losses during the first quarter. The total for the first quarter was KRW152.8b, which was a KRW54.8b decrease year on year, plus an increase of KRW63.2b quarter on quarter but overall we are seeing improvements in recovery ratios.

We're also seeing an improvement of the relief of Corporate and Credit Card exposures. Especially, even though there was a decrease in Corporate and Credit Card, the provisioning for Households have increased. This is an increase because there were some one-off factors during the previous quarter, that is the fourth quarter of 2004.

There was a reclassification of the Household financing guarantee related assets, which caused the reversal of provisioning of KRW24.5b and an ABS asset related reversal of provisioning of KRW21.1b in the fourth quarter of 2005. Such one-off factors were not repeated in the first quarter of 2006 and that is why you see this increase of provisioning for Household.

The coverage ratio is on page 17. Our NPL ratio and precautionary and below ratios, as you can see have continuously been showing an improving trend. Please use this as reference. And the NPL, new NPL formation -- there were some one-off factors in the fourth quarter of 2005 in the Household sector. If we exclude that, all NPL new formations, are showing a decreasing trend. And the loan loss provisions are as you can see on the slide on page 19.

Now we go on to some of the major issues and initiatives for 2006. 2006 is the year of a new take-off. It is also the new year of defining our challenges for the next 10 years. So for the key initiatives for 2006 is to make KB a bank that is closer to our customers. We will provide continuous training to our employees to maintain our position as the number one bank in customer satisfaction.

Also we will further leverage our CRM system to provide services and products that fit the needs of our customers. Also we will be preparing for the future. We will foster regional experts.

Also we will improve our capabilities in IT. Also at the same time KB will be a Bank that contributes with society. We will fully respond to the social responsibility that matches the reputation and capabilities of our Bank. Also, we will try to provide social services that serve especially the social minorities and fully meet the needs of each of the different parts of the nation.

As you can see our ITC products and fee generating businesses are continuing to grow. Our course we will continue to leverage our CRM system to increase the market share KB has in all of these markets. Bancassurance, the -- we will focus on growing our savings type volume that will generate continuous income commission. It's still in its very initial stages but KB enjoys quite a large market share here.

This will be one of our long term focused businesses. We will improve our product competitiveness and marketing capabilities to make this into one of our major business lines. Also as you can see, Internet or Mobile Banking has been growing with more technology and as an effort to diversify our service channels. We believe that this growth trend should be maintained in the future.

This is the performance of KB's stock. You can see that our effort to improve our performance has been well reflected in our performance. As of March 2006 our stock price was at KRW83,900 which has a market cap of KRW28.2 trillion. We were at KRW38,400 as of today and as of -- as you can see, as a reference January 2005, our stock has been outperforming closely by 55%.

Therefore overall when we look at the first quarter performance our loan growth has been slower than we expected for seasonal reasons, but we have been maintaining stable asset quality. Also our profit generating momentum has been maintained and we will continue to do our best to create profits.

Since the second quarter and afterwards, we believe that our loan growth will gain more momentum.

And that completes our presentation of the first quarter earnings. Thank you very much.

Thank you very much for the presentation. We will now be having a [inaudible] session. If you have any questions please raise your hand.

Now a Q&A session will begin. [OPERATOR INSTRUCTIONS].

[Translated]. Every quarter we see that we need an ice-breaker and I know it's difficult to ask the first question, but please go ahead.

[OPERATOR INSTRUCTIONS].

[Translated]. Mr. Shin, the CFO of our Bank, has perhaps presented so well that there are no outstanding questions right now, but any questions?

[Translated]. My name is Hu Yan from JP Morgan. I congratulate you on your good performance. Two questions. Number one, the growth in won in loans will grow from the second quarter you said, but what is your targeted loan growth rate? And second question is regarding the provisioning. Currently your provisioning is quite low. This year regarding Basel 2, aside from the Basel 2 related provisioning, what is your expectations for the required provisioning? And you have about 100% or a little higher coverage rate right now, so on your historical loss ratio, how much additional provisioning do you expect for this year, regarding Basel 2 as well?

[Translated]. First of all let me answer your question regarding the asset growth rate. As mentioned during the last quarter's earnings conference, we mentioned that our annual guidance for this year for asset growth rate is about 5% and currently our 5% target is still effective, and as mentioned earlier, at the end of January, we had a major reshuffling and redeployment of employees, so we had some impact by that.

And also as mentioned, during 2002 and 2003 and 2004, the first half of these two years, we had a lot of collective loans -- loans that were issued and they are nearing maturity right now, so because of that factor, despite the fact that we saw some increase of loans, new loans, because of the maturing factor, we are being impacted.

But from this point on, from the third quarter on, we believe that such maturing factor will reduce quite a bit and we will continue to see the growth of loan portfolio as I have mentioned earlier. Our annual guidance of 5% is still valid. And regarding the provisioning related issues, I believe that our officer in charge of loans should answer that question.

[Translated]. Good afternoon. My name is Chung Dong Soo in charge of Loans business. Of course in the first quarter there has been an improvement of provisioning. One of the biggest factors was that from the Corporate and the Credit Card side, our asset quality related role ratio has improved quite a bit.

And also in 2006, if I may share with you our outlook, from -- aside from the one-off factors for Households, I believe that Corporate and Credit Card asset quality will remain at the current positive trend.

For Corporate related provisioning, I believe that during the second quarter, because a lot of the companies will be closing their books at the end of December, we will see some additional provisioning for Corporate side in the second quarter but I believe that in most cases for Credit Card and other areas, we believe that the current level of provisioning will suffice.

Thank you very much. We'll take the next question.

[Translated]. I think most of the questions were addressed by the previous question but I have a couple of questions. My name is Lee Chang from Daiwa Securities. Your provisioning over time -- of course the financial crisis was so serious a factor -- it had a huge impact, and with a lot of time passing since that we're seeing the total opposite end -- the other opposite end of a financial crisis.

If I do have to express ROA, ROE, the metric indicators of the Bank's business, is quite high, especially for 2006 Q1. Now, I'm not sure where -- how to define normal, that's probably a point of argument, but from the Bank's perspective, let's look at the next two years.

Your average assets -- versus your average assets, what will be the appropriate provisioning, looking at your fundamental and overall -- looking at the next two years versus your assets? What will be the appropriate provisioning? What will be a range that you see as an appropriate provisioning versus your total assets, your average assets? That's the first question.

Second question is that yes, finally in the second half KB is going to be poised to increase assets but I'm sure the other banks are probably going to take -- try to make a pre-emptive move, maybe give up some of their margins to gather assets from the market before KB sets forth.

If KB does start or engage in a size war, volume war, what sort of sacrifice are you willing to take on your net interest margin? From a third person perspective margins are important but also profitability is also quite critical. How much compromise are you willing to make on your net interest margin to increase your asset size?

I’ll take that question. You asked about the appropriate credit costs versus our total assets. And when we look at the mid to long term probably between 0.5 to 1% or a bit below 1% is probably the range where we would see a credit cost that is okay.

And about asset growth, during the past year and, well, this year our asset growth target is 5%. And we’ve already spent the first quarter of this year. And our 5% target was established based on an assumption that will give minimum impact to the market.

So, what the other banks have done during the first quarter of this year, I think the -- what we feel is that competition over assets already started last year. And first quarter of this year we did observe a lot of the other banks working very hard to increase their assets. But well, regardless of that, what I think is that a 5% asset growth of KB, this target. I think you used the word competition of size. But this year financials aspects on average -- well, not only financial assets, but the GDP itself will probably grow around 5%. That’s the assumption.

And so, we are just going to keep in line with the GDP growth. That’s the target. We are not planning to or intending to take away market share from other banks. I hope you understand our target in that way.

We have one questioner, Andrew Reynolds from CLSA and he will be asking a question through the phone. Go ahead sir.

Hello, good afternoon and congratulations on a good set of results. Now, just one question that I have, which is actually a bit of a follow-on question from the previous couple of questions, which again relates to loan growth.

I’m just wondering whether with such a very strong capital base, whether you might be losing out on opportunities in what seems to be a very fast growing loan environment, where your competitors are taking advantage of that and growing it around 5% per quarter? Whether using the GDP growth rate as a benchmark, as I said, you may be losing out on certain opportunities, especially given the fact that you’ve got a pretty decent capital backing, if you could perhaps comment on that?

[Translated]. Well, one of the reasons why we didn’t give out dividend at the end of last year, or rather the reason why we were so conservative in dividend is because we kept in mind the possibility of KEB acquisition. That is being proceeded right now. And I’m sure you are aware of that dividend policy related assumption.

Currently, we are accumulating capital. And our hope is to smoothly complete this acquisition process for KEB. And I hope you understand our capital status as that.

And another thing, if you look at KB I think that you should keep in mind this one thing. Earlier there was another question by Daiwa Securities and I believe that the questioner from Daiwa also had similar intent in his question. We believe that KB with this largest market share in the market, if we also go for a 5% growth target quarter by quarter, and enter into this market just as other banks, I believe that that would cause enormous fierce competition causing to some industry problems.

That is why in the case of KB we plan to utilize current capital base to successfully acquire KEB. And then as a leading bank in the industry we believe that we need to increase our size in our global businesses going forward so that we could ultimately contribute to the banking industry of Korea in a sound manner.

Therefore, unlike those smaller players in the market who are fiercely trying to grow their asset size, I believe that KB has to take on a different strategy. Of course, we will have a target of our basic target guidance for asset size. But ultimately we should grow further from our global business. This is what we believe.

Well, if I may supplement to that response. Our asset growth target for this year is 5%. And this 5% target is more of a lower target than what is possible through a systematic or system growth.

The reason we’re taking a conservative growth poise is because our assets have decreased and there are opportunities, but we will not give up opportunities that we can seize just in order to achieve an asset growth that’s above 5%. Our asset growth target will be flexibly operated within the overall strategic plans.

We did various case scenarios or simulations of from 2000 to 2005. We looked at a bank that has actually grown twice or doubled in asset size. And our ROE was even below 1 -- 0.1%. This bank that had grown assets -- doubled assets from 2000 to 2005 and so they actually put themselves into a vicious cycle of profitability. And we are too large a bank to take such high risk. And so our position towards our asset growth will be based on our overall strategic thinking and we will probably maintain our current stance on asset growth.

I think there are some concerns in the market that KB may be missing opportunities to better utilize its capital. And, well, to that question we would -- we think that using our surplus capital to acquire KEB will be the best way of using that additional capital. That is our position.

We’ll take the next question.

[Translated]. My name is Nee Gongwang from [Chinong] Securities. I have two questions. The first one is very simple. On page nine, depreciation has decreased. I guess this means that your IT investment since last year, because last year it wasn’t a good timing. But my understanding is that in terms of the budget that your IT spending would increase compared to last year. But KEB already is at their next generation system.

And so if you are going to merge with KEB, do you think that your IT budget for this year could be probably delayed, because IT spending was scheduled to start from the second quarter? Would that spending be delayed? I would like to have more details about your plans of IT budget execution.

The second question is probably the same thing as the other previous question. But recently what the press has been saying is that for KEB -- KB that they’ve developed a new loan product that targets Sohos and SMEs. And that KB has been providing about a 20BT discount of their loan interest for Sohos or SMEs who take loans first -- for the first time from the bank. How are we supposed to understand these loan policies?

Well, regarding the IT spending, we’re still reviewing of -- the timing of the IT execution. Our Executive in terms of IT is still reviewing the execution plan. But still the principle is that we will spend what we need this year. And so, we are currently not expecting to have any significant changes on our spending plans yet.

And regarding the new loan product, targeting Sohos and SMEs, that sort of an initiative, well we do locally do if there is a need from the customer and if we do have a certain area or segment where we would like to increase our positioning, we have to do such marketing. There is an aspect that is inevitable in such marketing. So, that should be the context in which you understand these loans.

Now, how much of the asset growth we can trigger through such products in Sohos? Well, I don’t think such a product targeting some Sohos would have a major change on our balance sheet. But still Sohos -- and marketing and targeting Sohos will be something that we will continue to do.

I hope that answered your questions.

I have another questioner from Nomura. Mr. Kim Jin Sang is on the line. Please go ahead sir.

[Translated]. I have two questions. First of all, you’re going to get commission and [CEs]. You have bancassurance and ITC products have compared to the previous quarter increased quite a bit in terms of the percentage. Do you feel that this trend can continue?

And do you think that we have special factors that could beat such a high jump quarter on quarter? So, I would like to know the reason for such big leap in those two categories.

And the second question is regarding the provisioning charge ratio. It’s about 0.3 or 0.2%, very low figures. And if you look at the new NPL formation it’s quite limited as well. Do you also feel that these trends could continue as well?

Earlier -- the CEO has said earlier as well that -- you said that as long as your profit or margin is within 0.5 to 1% range you will be happy. Now, for instance, within this year if the average is about 0.5% that means this figure has to go up quite a bit in the second and the third quarter for you to reach 0.5%. Do you think that you will grow like that?

And if so, I’m sure it will be difficult for you to predict it, by when will it increase to that level?

[Translated]. First, let me try to explain the commissions and fees first myself and I will briefly talk about the new NPL formation. But if additional information is required then Mr. Ki, EVP will be answering those questions.

Under ITC and bancassurance the fee income increased quite a bit during the first quarter. In Q1 under ITC we sold a lot of the overseas funds, generally speaking at branches during the first quarter in order to achieve their annual targets. I’m sure the base started the jump-start the process. So, they wanted to secure sufficient volume in the beginning of the year so that they could rest assured. And we sell a lot of the installment type of fund, as you know. So, if they could build their portfolio in the beginning of the year then it’s easier for them to reach their annual guidance. For overseas funds, I believe that the Q1 environment was quite amicable.

And regarding the new NPL formation it has improved quite a bit, as you said. And as you mentioned as mentioned by CEO, normalized credit cost if it is between 0.5 to 0.8%, he said that it would be considered to be normal. If you look at the Q1 credit cost, it’s actually quite lower than that. And I believe that that’s why you might have some confusion.

So, far on the existing asset we’ve cleaned up the asset quality quite a bit. Therefore, as we increased new asset growth the credit cost is bound to change slightly. And with 0.2 to 0.3% credit cost it’s -- those figures would persist continually even with new asset increase. That means that it will be an environment where all the banks are competing under the same conditions. But as you know, we have quite a bit of credit card assets and we have a lot of the retail bank related household loans as well. So, the type of business model that we are thinking of is slightly different from what other banks are doing.

And I would like to ask Mr. Ki for his additional elaboration.

[Translated]. Let me elaborate. As you know, household and credit card, we categorize asset quality by delinquency. Therefore, it effectively sets aside automatic provisioning, whereas Corporate we use the forward-looking criteria by client. And as you know, we expanded the SOC criteria at the end of last year from KRW1b down to KRW500m. So, as you know, we have expanded accordingly the Corporate related provision last year.

And in the first half, or especially in the first quarter of this year, we have already pre-emptively reflected some of these figures. That’s why we were rather conservative and cautious in our explanations earlier.

And regarding SMEs we have by grade credit loss related model, which has been in utilization since April last year. So, we have used it for the past one year. And during the past one year we have conducted a full monitoring on the Sohos using our experienced loss ratio per grade. So, regarding the provisioning we felt that we could expand the volume very slightly without incurring too much risk, because we’ve had that model planned successfully.

And also, our Corporate lending increased by KRW900b this quarter, out of which SME increased by about KRW700b. But if you look closely, of the SMEs about KRW400b under that amount is used for project financing related to real estate development. So, in a way it’s called STC related financing. Therefore, there are [co-]guarantees by the construction companies and other players. This is a type of structured financing really the financing. So, those KRW400b was a sound growth without too much risk.

And also, if you look at the proportion of high quality corporate customers in the first quarter this year, we saw an increase of such positive grade by 5%. So, regarding the growth of our corporate lending perspective and asset quality I could tell you that we are controlling the risk. That is why our CEO has earlier mentioned that we have now more confidence of being able to go ahead with lower credit cost.

[Translated]. Thank you very much. We’ll take the next question.

[OPERATOR INSTRUCTIONS]. [Inaudible] from NH Investment Securities.

[Translated]. KB is going to grow from the second half, but if we just look at the first quarter your NIM is quite appropriate. But from the second half even if you’re growing do you think that your net interest margin will be maintained? That’s the first question.

The second question is related with the first question. And so, if you do grow in the second half what we’re seeing other banks do is that their funding is being sourced mainly through issue of financial debentures. That’s the trend of the other banks’ funding. Would KB also use the same method to fund?

And related with your funding, what is the change of your liability duration between last year and this year?

The third question is related with your plan to acquire KEB. In addition to KEB do you have any plans of acquiring any assets outside the banking sector?

[Translated]. I’ll take the last question and pass the other questions to the Executives. The matter with KEB, Korea Exchange Bank, will probably require our full attention to integrate for the certain future, for the time being.

And related with growth and funding, Mr. Shin?

[Translated]. Well, our net interest margin, even if we do grow, our NIM will probably not be majorly impacted, especially this year because this year the interest rates are overall on an increasing trend. And we do have an asset liability structure that makes us gain if the rates go up. And we are creating income continuously.

So, our interest bearing assets would grow faster than our liabilities. And so that is where we can make up. And there will be some competition. And even if we have to give up some of the spread, we will be able to make up for that spread decrease by the faster increase of our interest bearing assets.

And for our growth this year our deposits will have to increase. And, of course, we think that the debenture issues would also have to increase too. Last year our financial debenture volume was mainly issued to repay the high interest bearing debentures we had issued before. But now we have needs for funding, and so financial debentures this year will probably increase.

[Translated]. I hope that answered your questions. If there are no further questions, we will now conclude the earnings conference. If there are, those of you with remaining questions, please be sure to contact our IR department directly and we will answer your questions as much as possible, and all the presentation material and Q&As will be posted on our Internet web page.

Once again, I would like to thank you for taking part in today’s earning conference call. Once again, I apologize for the delay in holding today’s conference, because of the disclosure system [inaudible]. Thank you very much.