KB Financial Group Inc (KB) 2010 Q4 法說會逐字稿

(Interpreted) Good afternoon. My name is Kyu Sul Choi the Head of IR at KB Financial Group. Thank you for taking part in today's earnings conference for the fourth quarter results of 2010 despite your busy schedules.

This conference is being accessed via Internet and conference call, being webcast real time for Korea and abroad. During the Q&A you may call in to ask questions.

Taking part in today's earnings conference we have with us KB's President Young-Rok Lim and executives from KBFG's subsidiaries. The conference will consist of the earnings presentation by the CIRO Wang-Ky Kim on the Q4 results for 2010 followed by a Q&A session at which time you may call in for questions. So please utilize the Q&A session to ask questions.

Let me now present CIRO Wang-Ky Kim for the earnings presentation.

(Interpreted) Good afternoon. My name is Wang-Ky Kim the CIRO of KB Financial Group. Let me present KB Financial Group's Q4 and annual results for 2010. The presentation will consist of the financial highlights, financial performance and asset quality.

Please refer to page two for the key highlights.

The annual net income for KB Financial Group stood at KRW88.3b, coming down KRW451.5b year on year. For Q4 a net loss of KRW230.7b was recorded.

Before going into details I would like to express our regrets in not meeting your expectations with our Group earnings. But let me reassure you that our performance indicators are steadily improving, further normalizing the Group's profitability.

The main reason for the net loss in Q4 was our management efficiency improvement measure of Early Retirement Program for 3,244 employees which led to around KRW650b restructuring expense. Aside from ERP, we had a few other one-off factors, but simply eliminating the ERP amount would have enabled about KRW260b net income for the quarter. This attests to the fact that profitability is gradually recovering.

The NIM for Q4 rose 31 bps quarter on quarter to 2.94% on the back of the interest rate hike cycle, further accelerating the profitability enhancement. I will elaborate on this on the following pages.

Including the asset under management, the total asset for the Group marked about KRW326 trillion, expanding KRW10 trillion year to date. However, the sales and write-offs of NPL assets, among other factors, reduced the total assets by KRW3.6 trillion quarter on quarter.

The bank BIS ratio was down 1 basis point quarter on quarter to 13.43%. The Tier 1 capital decreased by 13 bps quarter on quarter to 10.88%. The Core Tier 1 came down 12 bps quarter on quarter to 10.17%. For your information, the Group BIS ratio and Tier 1 ratio marked 13.17% and 9.74% respectively.

The Bank's delinquency ratio for Q4 remained stable while improving 21 bps quarter on quarter to 1%, supported by the NPL sales and write-offs. And the reduction of newly introduced bad assets and the sales and write-offs of NPL assets enhanced the NPL ratio by 51 bps quarter on quarter to 1.79%.

Let me turn to page two (sic see presentation) for key highlights. As you can see on the top left graph, the gross profit for the Group for Q4 recorded KRW1.94 trillion, increasing KRW134b quarter on quarter. It was mainly boosted by the growing interest income from the rising NIM.

Provisioning expenses for Q4 amounted to KRW553b coming down KRW132b quarter on quarter. For your information the provisioning amount for Q4 includes around KRW82b other provisioning for ERP, as well as the extra provisioning for NPL sales and write-offs of KRW41b implemented to comply with FSA's guidelines.

The Group BIS and Bank BIS for Q4 recorded 13.17% and 13.43% respectively.

Tier 1 for the Group and the Bank marked 9.74% and 10.88% respectively, maintaining steady upward trends. The Group Core Tier 1 was 8.95% and the Bank Core Tier 1 marked 10.17%.

ROA and ROE remained at 0.03% and 0.49% respectively due to lower profitability. Starting from 2011 we anticipate the profitability and asset quality to pretty much normalize, leading to significant improvement in the profitability indicators.

Let us now move on to page five for the Group profitability overview. If I may touch upon the major profitability numbers, the gross profit which combines both interest and non-interest income, rose KRW700b (sic - see presentation) year on year and KRW135b quarter on quarter supported by the NIM expansion.

And in 2011, with the NIM improvement we anticipate the increase of interest income, and we plan to strengthen the sales activities for non-interest income, so overall gross profit will increase.

The G&A for the year reached KRW4.33 trillion going up KRW559b year on year. And for Q4, of course if you consider the ERP expense, in actuality the G&A actually came down by 0.3% year on year and 0.5% quarter on quarter.

Please refer to the middle graph on the right. The operating income before provisioning for Q4 stood at KRW417b, edging down around KRW430b compared to Q3. Again, if you exclude the one-off ERP expense of about KRW570b, the number is KRW987b, showing a gradual improvement trend.

The Group provision expenses for Q4 was KRW553b, steadily improving every quarter. The recurring provision expenses, excluding the ERP related other provision items, remained at around KRW470b.

The annual total provision expenses for 2010 recorded KRW3.147 trillion, up 24% year on year mainly reflecting the corporate restructuring of Q2 and Q3.

As mentioned earlier, KB Financial Group had a KRW230.7b net loss for the fourth quarter while we recorded a net income of KRW88.3b for the year. Excluding the ERP related expenses, the net income for Q4 was around KRW260b, while the net income for the year was KRW580b.

The reason why I keep on mentioning the ERP expense is due to the significant impact it has made on the earnings because of the sheer size.

From the next page I will break down the profitability numbers within the Group.

Page six please. The Bank interest income, despite the stagnant asset growth, grew by 11.7% year on year and 10.4% quarter on quarter, boosted by the steady margin enhancement.

As you can see on the graph on the right, the Bank NIM for Q4 rose 31 bps quarter on quarter to 2.94%. On an annual basis, it went up by 36 bps year on year to 2.77%.

The reason for the market NIM improvement during Q4 were the negative impact of CD rate drops being pretty much absorbed by the market already and the two policy rate hikes in July and November beginning to materialize. Also, the fact that the maturing high yield bonds are being continuously repaid is contributing to the NIM expansion. This year we will do our best to maximize efficient management of asset/liability portfolio, among others, to continue on the NIM enhancement trend.

As you can see on the bottom table, the non-Bank interest income is also showing a steady growth trend.

Next is the non-interest income. First of all, of the Q4 Bank commissions and fees, the bancassurance fees edged down slightly quarter on quarter, while the annual figure increased KRW15b year on year maintaining a stable trend. However, the ITC commission was impacted by the increased redemptions to realize gains during bullish stock market cycle reduced by KRW4b quarter on quarter and KRW35b year on year.

Of the Bank commissions and fees, the other commissions in won reported a loss, as with the previous quarter. It was due to the around KRW38b increase from higher credit card fees and joint marketing expenses.

The gain on securities for Q4 rose KRW38b quarter on quarter supported by the higher gains on sales of securities.

As you can see on the bottom of the page, the non-bank non-interest income edged down compared to the previous year, but it is showing a healthy quarterly improvement trend.

Let me now move on to the G&A section. The Bank G&A for the year expanded KRW526b year on year and KRW554b quarter on quarter. However, if you exclude the ERP expenses, it improved by 1.3% year on year and 1.8% quarter on quarter.

As shown on the graph on the top right, the bank cost income ratio, or CIR, marked 56.9%, going up 4.1 percent point year on year due to various factors that I have listed already, Despite the expanded interest income, the rapid increase in G&A led to such results. Again, if you exclude ERP, the cost income ratio is maintaining a steady improvement trend with 49.2%. We plan to not only expand the top line, but also we plan to efficiently manage costs to improve the CIR to early 40% range.

The Bank non-operating income for the year marked KRW184b, while for Q4 there was a KRW129b non-operating loss. It was mainly due to BCC.

During Q4, the increased provisioning for BCC and the ensuing net loss led to around KRW117b equity method valuation loss.

In the case of BCC, we had some provisioning burden due to the sluggish performance in the past. However, in line with the global economic recovery, the Kazakhstan economy is also showing signs of recovery. Therefore, we expect the asset quality of BCC to gradually normalize. We will continue to strengthen monitoring and management of BCC operations, including risk management.

On page nine we have provided some historical data for comparison on the Bank profitability for your reference.

Next is page 10 on Group assets and liabilities. As of December 2010, Group's consolidated total asset is KRW262 trillion comparable to the end of the previous year. Despite continued efforts to increase new loan originations, loan growth was somewhat sluggish due to clean up efforts for non-performing assets such as sales and write-offs of NPLs.

On the liability side, deposit increased 7.1%, whereas borrowings fell 21.8% from continued repayment of bonds that were coming due. Total assets for the Group, including trusts and AUM is KRW326 trillion.

Next is on loans in won and credit card assets. The Bank's loan in won, including credit card, is KRW186.6 trillion as of December end, a slight increase from the end of the last year. If you look at the breakdown for household loans, general loan increase sustained, but due to the slump in the real estate market, new demand for mortgage loans were not sizeable, so the growth stayed at only 0.8% year to date.

Corporate loans declined 1.3% year to date due to sales and write offs of NPLs.

The credit card assets grew 8.8% year to date as an outcome of activated marketing and other assets.

In 2011, KB Financial Group will maintain a stable loan policy focusing on profitability and risk management within the nominal economic growth rate rather than a steep loan growth policy.

In loans, we will endeavor to secure an adequate level of spread.

For SMEs in particular, we will strengthen efforts to improve the loan portfolio for prime companies and sole hold companies and in the meantime, we will expand our scope in the large corporate segment as well.

Next is on total deposits in won. With both abundant liquidity in the market and preference towards safer assets, as of end of December the total Bank's total deposit in won is KRW181 trillion which is a 6.4% increase year to date. Not just the size of the total won deposits, but the quality also improved.

Marketable deposits such as CDs and RPs have been converging to time deposit. As such, loan to deposit ratio, which was 121.8% at the end of 2009, fell 23 percentage points to 98.5% at the end of 2010. Due to the continuous repayment efforts, the balance of debentures in won declined 25.1% year to date to KRW25 trillion.

As the graph on the right shows, customer deposit is increasing whereas marketable fundings are declining. So out of the deposit in won, savings deposit and customer deposit accounts for 98.2%. And out of the won funding, it is 86.2% which is a continuous increase showing that the funding structure is being further stabilized.

On page 14 let me walk you through the Bank's asset quality. Bank's asset quality is showing improvement on various fronts, i.e. the NPL ratio, NPL coverage ratio and loan loss provision etc.

First, for substandard and below loans, due to NPL write offs and sales, it is KRW3.65 trillion as of end of December, down by KRW1.46 trillion on a qoq basis. During the fourth quarter, we have resolved KRW1.54 trillion of NPLs, of which KRW1.18 trillion have been written off and KRW360b has been sold off. As a result, NPL ratio, which was 2.3% in September, end of September, improved to 1.79% as of end of December which is a 51 basis point improvement.

Delinquency rate was 1.21% in September. At the year-end, it fell significantly to 1%. Especially for corporate delinquencies, due to the impact of NPL sales and write off, it fell 39 basis points compared to the previous quarter.

Next is on Bank's loan loss provisioning. Bank's fourth quarter LLP is KRW373b which is a decline by KRW196b compared to the previous quarter. This figure once again is inclusive of provisioning of additional NPL sales and write offs to meet FSA's NPL guidelines of 1.79% in the amount of KRW41b.

If you look at it by each sector, in the fourth quarter household LLP is KRW83b, a decline by KRW71b from the previous quarter. Total annual number is KRW300b, higher than the previous year by KRW38b. However, considering the temporary increase in the provision in the third quarter due to the collective loans related provisioning of KRW89b, we can say that overall it's been maintained at a quite stable level.

Corporate LLP stands at KRW246b, declined by KRW130b from the previous quarter showing a sustained improvement qoq.

LLPs in 2011 will gradually near a normalized level since we have dealt with significant of our NPLs and as there are signs of recovery in the housing market.

And as you can see from the table below the coverage ratio stands at 119.9%, which is a 13.5 percentage point improvement from the previous quarter.

Next is on the loan loss provision ratio for each sector.

As I mentioned before, with the reduction of the loan loss provision, credit cost for the 4Q is 0.64% as against the total assets, showing 23 basis points decline from the previous quarter. On an annual cumulative basis, credit cost is 1.28%.

By each sector, for household fourth quarter loan loss provision ratio is 0.34% which is 29 basis points lower than the previous quarter. For your reference, in the third quarter there was a one-off factor of KRW89b in provision related to collective loans at a site in the Busan area.

For corporate we see 53 basis point fall QOQ to 1.04%, nearing the level before the financial crisis.

Credit card LLP ratio is 1.36%, slightly higher than the previous quarter but still quite stable.

In 2010, overall credit cost was at a slightly higher end due to conservative provisioning against sectors like real estate, PF with potential for unsoundness and for reasons of corporate restructuring. But from 2011 we project it to near a normalized level, which is around 60 basis points against the total assets per annum.

Lastly, let me move on to Bank's new NPL formation. On this page you will see that the new NPL formation is nearing the normal level of the past and that the soundness is improving.

On the upper left graph, new NPLs in the 4Q 2010 was approximately KRW503b, significantly lower than KRW1.078 trillion of the preceding quarter. Overall trend also shows that there is a rapid decline since the second quarter of last year which was a peak at KRW2 trillion.

By sector, new NPL for household is KRW169b, corporate KRW238b, credit cards KRW96b, all recovering to the past levels. Especially for corporate, thanks to the asset clean up effort so far, new NPL decline is being sustained.

This has been the highlights for the full 2010 annual earnings performance.

Once again I would like to express our regrets for less than expected Group performance in year 2010. But as you've seen, the net interest margin and other asset quality indicators all show that our business operations are getting better. And in 2011, both the management and the employees will do our utmost to bring business normalization and we will be committed to getting good outcomes. So please bear with us, and thank you for your attention.

(Interpreted) That was an earnings presentation by our CIRO.

We will now begin the Q&A session. For those of you taking part through the Internet, I would like to invite you to call the number on the last page of the presentation material to pose questions. (Operator Instructions). For your information, you may call in even while other questions are being entertained. We will take questions according to the order you call in. Please call in any time for questions. Once again, we will take questions according to the order you call in.

In order to accommodate as many questions as possible, please call in even during other questions. Once again we will take the questions according to the order you call in. For your information there is a 30 second time lag between the phone call and the screen shown on the web page. Please bear with us while we wait for questions.

We will now take the questions. From [Tumbu] Securities, [Chong Dong Li]. Please go ahead sir. Please go ahead with your question.

(Interpreted) Yes. My name is Chong Dong Li from Tumbu Securities. It seems your asset quality is continuing to improve, which is very welcome news. Regarding asset quality. I have one thing to confirm, and I have another question regarding NIMs.

From household, there is the new NPL of KRW169b. Of course, it is normalizing, but it is not a small amount indeed. Especially last quarter there was a collective loan related problem in the Busan area. Did that impact this portion, because this balance is not very small and I don't think that this is something to improve in the very short run. So my assumption is that it had to do with the collective loan. So can you give us some more details?

And the second question has to do with NIM. During this quarter it is true that there was quite a bit of improvement in NIM. And during the month of January the policy rate has gone up, and during February or March it will go up once again. So I assume that the NIM will be improving further. But the only thing is that the time deposit accredited rate is also going up. So last year where you had the continuous falling of the funding rate, it's quite different now. So I don't think that the spread expansion potential going forward will be that huge. So by the time the policy rate increase cycle ends, then we cannot exclude the possibility that the NIM increase trend will stop.

Of course we might perceive the time deposit rate going up to be something normal. However, we could also look at it as the funding side pressure increasing as well. So from your perspective, do you believe that the time deposit rate will continue to go up in line with the policy rate increase, or do you think that up to Q1 it will go up, but then again beyond Q2 what is your outlook on the time deposit rate versus the policy rate hike?

(Interpreted) Thank you very much Mr. Li for your question. My name is Jong-Kyoo Yoon and I'm the CFO. Let me answer your question. First of all, regarding asset quality, as you have mentioned there was a collective loan related issue at [Yongju] housing complex and I believe that the amount was about KRW150b. So aside from the Yongju project, we did not have any other major issue with the households.

And regarding NIM, you mentioned two things. Number one, you were talking about the rate hike cycle and how that is impacting the NIM positively. But you were concerned about the time deposit rate also going up.

And secondly, beyond Q1 you were wondering whether the NIM upward trend will stop or change direction,

So first of all regarding the time deposit rate, as you are well aware, on the deposit side the competition among banks are intensifying. In the case of KB, until last year we completed on the necessary adjustments between the deposits and loans. So in order to support the loan growth, we are utilizing deposit base accordingly. So we do not have as high of a pressure as before on the funding side.

So where we are focused on right now is, whereas in the past we focused more on the institutional side of funding, right now we are looking at various channels such as funding through deposits of customers, general customers. And also we are tapping into the corporate customers deposit base as well. So on some deposits, especially the time deposit accounts, we might have some upward pressure in terms of the credit rate, but nevertheless we believe that we have the funding competitiveness.

And secondly, after the first quarter, you were wondering whether the NIM expansion trend will actually reverse. I believe that there is another round of meeting for FSC that is scheduled for tomorrow, and we are not sure how further they will come to additional conclusions. But I believe that within this year many market watchers are saying that about 50 bps additional adjustment will be made within the year. If that is the case, as you know we currently have a negative duration mismatch. Therefore, we will continue to benefit from the rising interest rate cycle.

But, as you have mentioned, what if the interest rate hike cycle ends? On that matter, we are already preparing to deal with the duration mismatch issue so we will be making all the actions necessary to prevent any negative impact from that.

(Interpreted) Thank you very much for that answer. We will take the next question with Mr. Kyu Sun Shim from HI Investment Securities

(Interpreted) I have a couple of questions. The first one has to do with the margin. I understand that there is an impact of repricing for the high yield funding. I would like to understand what basis points impact there was and I understand that it has increased to 2.94% in the first quarter, so what is your production for the whole year?

And the other has to do with PF. What is your balance and what is the amount of provisioning? And of the PF, what is your provisioning amount for precautionary and substandard and below?

And lastly, I understand that the regulatory guidelines have been further strengthened. What is the extra provisioning that you had to do to comply with that strength in the guidelines?

(Interpreted) I understand that you asked three questions. The first question has to do with the NIM. Was that the question? I understand that the question was what is the impact of the interest rate hike and also the future projections for this year?

Okay, as you know, on a year on year basis, in the past, we had debentures and we had sub-debt and we had high interest rate debt. So overall, we had 13 basis points of portfolio improvement and also on a q on q basis, it's about 9 basis points improvement.

So I believe that during the year 2011, we believe that there is a significant portion that is going to come due, so there is going to be a continuous portfolio rearrangement and improvement. We will continue to exert that effort.

With regards to the real estate PF loan, at the end of 2008 it was KRW12.2 trillion. Right now, there was a reduction of KRW6 trillion so currently it stands at KRW6.3 trillion. So if you look at the balance, as of December, there is about KRW6.3 trillion of remaining balance as of December. And also, if you look at delinquency rates, it is about 2.61% and 12.16% and also coverage ratio is 92.2%.

And in the 4Q, the real estate PF assets, we have written off and sold about KRW500b in total. And it was mentioned during the earnings presentation with regards to NPL guidelines, there, KRW41b has been used to comply with the NPL guideline of the assessors.

Next question?

(Interpreted) Next question, please from Citi Securities, Mr. Dong Tung Kim. Please go ahead, sir.

(Interpreted) Thank you very much for the opportunity. Before I ask my question, you just mentioned the PF breakdown and I didn't really get the sound. Maybe that was only my phone line. But if it is okay, could you actually repeat the previous answer regarding the breakdown of the PF loan.

And my questions are as follows. First of all, your margin has gone up quite a bit and you said that 90 bps improvement took place because of repricing. Now, is that a correct understanding? Can you confirm that?

And secondly, can you further break it down? How much of that improvement came from interest rate hikes and if you had any one-off factors, how much was that? So if you could further break it down on a quarter on quarter basis how the margin improvement took place. So that would be appreciated.

And the last question is as follows. If you could go ahead of the sales of treasury shares, I believe that the KB Financial Group would be in a way, over-capitalized, so what are your plans for capital management? Of course, this year, you didn't really have a lot of earnings so you didn't really go ahead with dividend payout. But from next year, do you plan to have any definite dividend policy, or do you have any other ways to spend the capital through ways of such as M&A?

(Interpreted) Regarding the real estate PF, let me repeat the question. As of the end of last year, the outstanding balance of PF leans was about KRW6.3 trillion, delinquent amount was about KRW153b, and NPL ratio 12.2%. Coverage ratio for provisioning was about KRW720b.

And regarding NIM, you wanted us to break it down with regards to the contribution. I would say about 12 bps came from the interest rate hike. And as you mentioned, the funding of the high yield bonds actually came down and also, the portfolio improvement took place, so those two factors contributed by about 9 bps as well.

And also, we recovered some delinquent interest. That amounted to 6 bp and also credit card fees contributed by about 4 bp.

And you also asked about our dividend policy. As you mentioned earlier, in terms of payout ratio, it's a little high but then the amount in absolute terms was not that high. It was rather low.

Going forward, regarding the dividend ratio, now once we normalized management, we would decide whether we will go ahead with dividend or whether we would go ahead with other types of shareholder returns. But in any case, we would do our very best to further enhance shareholder value. So we are targeting about a 30% level of payout ratio once things normalize. That is our plan in the long term.

Regarding the M&A possibilities, in principle, as we have emphasized until recently, in the near future, we will be very much focused on improving the internal fundamentals. But I believe that our CSO, Dong Chang Park, is in a better position to answer this question.

(Interpreted) Good afternoon. My name is Dong Chang Park, the CSO of KB Financial Group.

Regarding the M&A plan, still, we believe that we need to further focus on improving the fundamentals of the financial group so that basic position has not changed. So in 2011, we will go a little further than that. In each business unit we will further strengthen the competitiveness of our businesses.

Now, going forward, we will be conducting sales of treasury shares. So how are we going to best utilize such added capital that was your question, I believe.

In that regard, we will maximize shareholder value while we maximize the capital efficiency and we will be watching the market conditions quite closely. So once internal structures become strengthened and once our business performance ensures high enough of profitability, then if opportunities arise, we will make the necessary action.

So we will be watching the market closely.

(Interpreted) Thank you very much for that answer. Before we take the next question, let me add a little bit about NIM. There was a question whether there were any one-off factors during Q4. At the end of the year, because of seasonality, we tend to have higher recovery ratio on the delinquent interest. However, we don't think that there was any major one-off factors to mention.

Next question, please?

(Interpreted) My name is Seok Kyu Hwang from Kyobo Securities. I would like to ask two questions. The first one has to do with provisions. When you sell off the NPLs, there must have been some written backs and also there could have been some loss on the sales of those NPLs on the non-interest side.

And with regards to credit card, you are going to spin it off this year. I believe that you would be able to grow the business after the spinoff. And I would like to understand what your projection is for that growth.

And FSS is very much wary against a heated competition. So what is your view on that and what is your growth target for that business?

(Interpreted) The sound was not very optimal so let me just, once again, recap the question you asked. I think the first question has to do with the sales and write off and also the amount of write backs and I think we can only provide with the answer on a net basis.

And I think you talked about the one-off on the non-interest side, is that correct? Yes, from the sales, there would have been write backs and also, there will be sales loss. You are talking about the loss from the sales of the loans, yes?

And also, what is our projection for credit card business growth? I understand that is the question.

(Interpreted) Yes, that is correct.

(Interpreted) In the 4Q, the provision or one-off, if you look at the one-off factor for sales and write-off, if you look at the total Group provisioning, please bear with me, can I -- can you just refresh my memory with regards to the question?

(Interpreted) There is the sales, and I would like to understand what the amount of write-back was and since you have sold it off, there would have been loss from the sales of those assets. So can you specify those numbers?

(Interpreted) Out of the sales and write-off, for write-backs is about KRW270.4b and loss is about KRW156b.

And from the credit card business, some people are concerned about overheated competition. We understand that there is that concern. However, we are not going to engage in overheated competition that will infringe on our profitability.

Having said that, once we spin off the credit card company, it's going to have a competiveness as a monoliner and therefore, it would be able to further strengthen its competitiveness. And also, you can further strengthen its fundamentals together with the Bank and I believe that our target is of course, growing the business but we wish to expand our market share about 15%.

It was 14% in 2010 so we want to expand it to 15%. On non-interest aspect, I think our CFO Yoon will be most apt to answer that question.

(Interpreted) With regards to the non-interest side, if you look at the previous year, the growth trend was not very optimal. First, if you look at the traditional aspect of non-interest income which was bond sales, because up to last year there was significant redemption so the numbers were not very good.

But since the end of last year, we see some change in the trend. So from this year, the funds and bancassurance product, we would be able to -- in the past, traditionally, we were able to retain certain profitability and we want to do so going forward as well.

On the non-interest income side, this year, we want to focus on FX and derivatives because last year, we regret that the performance was not optimal. So we have realigned ourselves and we are going to recommit ourselves.

And under IB, the investment banking, in the past, of course, we had some significant sales of PF products. However, the PF market was quite stagnant and we experienced quite a difficulty last year and this year, the reason why we have invited Chang Dong Lee, we are going to further strengthen our IB business operations to further solidify that base.

So in investment banking, we believe that we will be able to get more opportunity this year and we have many plans to --- we will be active in this field and we have plans for that.

And this year, the retirement pension market is also a market where we see there will be quite a bit of competition. Thankfully, we are of a certain good position in the market and we want to keep that position. And after the inauguration of our Chairman, against the large corporates, we have been very active in sales efforts with regards to these retirement pensions, focusing our sales activities on our large companies and also because of that, we were able to further expand our FX-related business.

So we would focus on large companies but not just the loans, but providing the customized solutions to the large corporates so that we can earn commissions is the plan that we have and we want to further expand our large corporate customer base.

(Interpreted) Thank you, before we take the next question, I understand our Deputy President Kim mentioned it on the passing, but with regards to NPL, the write-backs are KRW207b and also the loss is KRW106.6b in the loss from the sales.

The next is from HSBC.

(Interpreted) My name is Soo Han Park from HSBC. I have two questions. First of all, I have another question regarding credit card business. This year, I believe that the market environment will be quite challenging because of the regulatory environment. First of all, the merchant fee reduction pressure is there and you have to provision further. So against that backdrop, how much of an active growth guideline can you give us?

And secondly, you said that the credit costs will likely normalize. So can you be more specific? To what level do you believe that it will be normalizing?

(Interpreted) Let me first answer your question regarding the credit costs first. Out of the total assets, we are looking at about 50 to 60 bps as a normal level. Yes, things have improved quite a bit, but we experienced a credit crisis recently and also, we have to utilize incurred base provisioning method under IFRS.

So we cannot give you the specific number right now, but I believe that it will be above the range of normal levels that I just mentioned to you. So going forward, I believe that the credit costs in the future will gradually decrease. That is our forecast.

And regarding the asset growth of credit card, I think that Mr. Lim would be able to answer that question.

(Interpreted) Starting from March, we will be spinning off the credit card business. And regarding credit card, along with the spin-off action, we expect the following results. First of all, in the past, because of the card division belonging to a bank, I believe that we were not agile enough to meet the market changes. So with that understanding, we decided to spin off the division so in terms of product development, and in terms of the business operations, we believe agility will be improving.

But if you look at the market, regarding cash advances and card loans, there are some market concerns, so we do not have any plans to rapidly increase those assets. So we are only looking at about 5% to 6% growth. And also, in terms of the credit purchase, we will be further focusing on the expansion of the market share in the credit purchase side of the credit card usage.

And once we spin off the company, we could also benefit from additional services. In the past, under the former Kookmin Card structure, they used to have other types of additional services. So we will reinstate such services, so I believe that such ancillary services will be reintroduced in 2011.

So initially, once the spin-off takes place, of course the profitability pressure might be there because of the initial upfront investment. But I believe that we will be sufficiently offset that within 2011 going forward, or at least by 2012.

(Interpreted) Thank you very much for that answer.

Once again, this year, we will be getting quite close to the normalized level of credit cost. As was mentioned by Mr. Kim, it might actually hover a little above that actually.

Next question, please?

(Inaudible) from Credit Suisse.

Yes, hello. Thank you for the presentation. I had one question, you just mentioned regarding the IFRS implementation in 2011. What material changes do you see in your policies regarding loan loss results with regards to the IFRS implementation especially for the credit cards that you just mentioned with the FSS putting across these result brackets to increase. So what do you see as an impact of this IFRS implementation for your loan loss results? Thank you.

(Interpreted) Thank you very much for that question. As you are well aware, IFRS will be adopted from this year. Under the current regulation, IFRS is going to require us to set up provisioning based on the incurred loss basis. But FSS of Korea will be looking at incurred loss based provisioning versus the minimum reserving requirement and between the two, currently, FSS requires the higher amount to be taken.

So there will be that gap between the incurred loss provisioning versus the existing previous requirement in terms of provisioning. So that gap will be captured under a new line item called provisioning reserve under -- and we would be funding that amount from retained earnings.

In other words, under IFRS, we will be provisioning KRW1.3 trillion less than previously so that gap will be set aside under provisioning reserve. So under KGAAP, we used to provision a lot more so that we had extra buffer under the existing system by about KRW600b. So we will have additional requirement under FSS requirement for provisioning for KRW800b.

So under IFRS adoption initially, it will have an impact of lowering the provisioning. But FSS will probably prevent us from setting it aside completely under retained earnings and they will establish another class of line item called provisioning reserves.

So once again, the naming will be slightly different but on the bottom line, I don't think that it will have any major impact.

Regarding the second part of your question, you were asking about the FSS requirement change further asking for extra provisioning for credit card businesses. As you are well aware, there are two elements to it. The minimum provisioning rate would be adjusted upwardly and also, extra provisioning is required on unused credit lines.

According to our estimation, about KRW60b impact will be there. But even in this matter, for instance, the minimum provisioning requirement is not going to be incurred loss based. So it will be a requirement based on the regulatory perspective but it will not be able to meet the IFRS requirements once again.

So once again, this will not have an impact on net income. But, from the retained earning line item, it will be reverted or converted to a provisioning reserve item.

(Interpreted) Next question, please?

From Korea Investment Trust, Mr. [Chang Ho Yu].

(Interpreted) You have mentioned a lot about the margin, I would like to add a follow up question on the margin side. It always seems like the margins increased quite a bit at the end of the quarter. If you look at the spreads between the new and the outstanding, what is the spread like?

And also since 2006, I believe that the gap has contracted quite significantly. So from next year, if there is not big of a funding need and I believe that the loan growth is going to pick up starting this year. So from the beginning of this year, the spread gap which was small at the beginning of the year, between the new and the outstanding, what is the movement going to be in 2011?

Are you going to be able to maintain the current spread between the new and the outstanding or are you thinking of a certain buffer room that could further increase the spread between the new and the outstanding?

(Interpreted) With regards to the NIM, I understand that most of the analysts are interested in the fact that there are four major powers in the market so will the NIM be able to sustain its current level? We are, of course, very much interested and as well, concerned about this issue.

However, in our view, when it comes to NIM, on the new side, it is true that the NIM has come under continuous pressure. But we believe that the banks are now of the same understanding that we have reached a certain limit. So once we have a full major power landscape, we believe that initially, there could be -- we cannot say that there is no potential for overheated competition. However, we have no plan to enter into that overheated or fierce competition.

We will work based off of our customer base and we are currently realigning our operational policy which means that on the products that show less of a margin, smaller margins, we are once again, revisiting the pricing, so we are adjusting that pricing level.

So on the new origination, there are two aspects I think that is going to come. The first is we putting in our efforts to increase the margin and second is the pressure coming from the margins. We believe that the market pressure, even under market pressure, we expect that other banks will also play on a reasonable footing and therefore, we believe on the new loan side, we will be able to see some improvement.

However, when we come with these plans, we are quite conservative in planning. So the basic assumption is that we maintain the current level and what we expect going forward is that for the benefit of the market or for the financial industry, we hope that all the players will engage in reasonable activities that will foster competition based on goodwill.

(Interpreted) As mentioned before, you could call in during other questions. So we have many calls pending but we currently have no calls waiting in line so we will wait for a couple of more minutes.

Thank you. With this, we would like to conclude the earnings conference for the fourth quarter 2010 for KB Financial Group. I believe there are no further questions. For those of you who did not have an opportunity to call in for questions, please contact our IR department. We will do our upmost to address your question.

For your information, the earning presentation material and the VOD will be posted at the website of KB Financial Group. You may access such information any time.

Once again, I would like to extend my appreciation to all the participants. Thank you very much.

Speaker statements on this transcript were Interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.