KB Financial Group Inc (KB) 2011 Q1 法說會逐字稿

(Interpreted). Good afternoon. I am Kyu-Sul Choi, IR Team Head of KB Financial Group. I would like to first thank you for attending KB Financial Group's 2011 first quarter earnings release despite your busy schedules. This earnings presentation is being broadcasted live by webcasting and conference call in and out of Korea and you can call in to ask questions during the Q&A session after the main presentation.

We have with us President Lim Young-Rok of KBFG and other management from KBFG who are here with us. To give you today's agenda, first we will have the chief IR officer, Wang-Ky Kim, deliver the result of 2011 first quarter earnings results and then we will entertain questions via conference call. Please ask questions during the Q&A session. Now, I would like to invite our CIRO, Wang-Ky Kim, to present to us the 2011 first quarter business results.

(Interpreted). Good afternoon. I am the Chief IR officer or KB Financial Group, Wang-Ky Kim. I'd like to begin the KBFG 2011 first quarter business performance presentation. The agenda will consist of first quarter highlights, (inaudible) and asset qualities.

As you are well aware, we use KGAAP until the previous quarter for our earnings releases, but from 2011 we have to follow the IFRS as required. Accordingly the first quarter business results follow this new IFRS standard and we also drew up 2010 results using the IFRS pro forma formula. For those who are used to KGAAP, to give you a brief background information, we have compared this quarter's earnings results with KGAAP and also IFRS, and it seems that KBFG did not have a big difference in the results according to accounting standard difference.

One more to add, on March 2, 2011, KB Bank Credit Card was spun off. Please take into consideration that the first quarter Bank earnings will include January and February results of the Credit Card so please take this into consideration.

Please look at page 2 of the highlights. KBFG 2011 first quarter net income reported KRW757.5b, a 23% QOQ increase. Compared to last quarter, a KRW340.9 net loss, the situation has greatly turned around. The reason for this turnaround was because the first quarter NIM, net interest margin, following the market interest hike recorded 3.06%, a QOQ 17 basis point increase. Thus, NIM went up and employee salary, benefit and other G&A expense optimization efforts were realized. KB Bank also won a lawsuit for KRW137.6b from Korea Housing Fund on March 25 which had contributed to this boost.

Group total assets including AUM records KRW345 trillion as of March end, an KRW11 trillion increase compared to late last year. Bank BIS Ratio recorded a 5bp increase QOQ recording 13.49%.

Next page. As you can see on the left graph, first quarter Group's operating income before credit losses recorded KRW2,291.4b, a KRW400b increase QOQ. This was mostly because of the NIM increase and the increase of interest income due to loan assets, and also due to the fee income increase caused by the winning of the Housing Fund lawsuit.

First quarter allowance for credit losses recorded KRW416b, a KRW200b decrease. The Bank's BIS ratio moved slightly QOQ, recording 13.49%. Tier 1 recorded a 32bp drop QOQ recording 10.57% and Core Tier 1 recorded a 40bp drop QOQ recording 9.78%. Bank Tier 1 and Core Tier 1 ratios went down because capital decrease with the Credit Card spin off so when you look at the Group Tier 1 and Core Tier 1 ratio there hasn't been a great difference QOQ. ROA and ROE profitability has not -- has been normalized in the first quarter recording 1.17%, 16.03% increase respectively and went up markedly.

Let us look at page five, Group profitability overview. As mentioned before, with the IFRS being used from the first quarter, profitability review has been drawn up following the new standards so the terms maybe familiar to you. To breakdown the major categories in profitability, net interest income, thanks to NIM increase and loan growth, went up KRW65.1b QOQ.

Net fee and commissions income increased, even if we exclude the KRW137.6b of one off factors stemming from the Housing Fund lawsuit win. And net income from FVTPL went up KRW24b QOQ, KRW250b YOY respectively and recorded KRW297.7b.

KBFG's first quarter provision for credit losses recorded KRW415.6b, a KRW197b decrease QOQ and KRW67b drop year-on-year, and is gradually improving.

Employee benefit and other G&A expenses went down compared to last quarter and last year. it was because the cost cutting efforts due to the fourth quarter ERP in last year was realized.

KBFG's first quarter net income recorded KRW757.5b which was a 23.3% increase compared to KRW614.5b QOQ. For your information, last year's fourth quarter recorded KRW340.9b of net income losses.

The Credit Card is in the graph in the right hand downward corner only reflects the results for (inaudible) in early March. So it's only limited to the month of March.

From now on, I would like to elaborate on the group profitability in more detail. First, the interest. The Bank's first quarter interest income recorded KRW1,554.2b which looks like a slight drop QOQ but it is because the Credit Card related earnings for the month of March are excluded because of the Credit Card spinoff. When you include the Credit Card net interest income on the bottom of the slide, you can see that the Group's net interest income is constantly improving.

As you can see from the graph on the right upper hand corner, the Group's NIM including Bank and Credit Card is going up constantly in the first quarter because the policy interest rate has been realized. The interest rate hike effect has been realized and the high interest rate liability whose maturities yearly is constantly being repaid. 2011 yearly NIM, thanks to the asset liability portfolio improvement and margin improvement efforts will maintain a 3% level.

For your information, Credit Card company merchant fees are classed as fee income in IFRS, but in this presentation today we included the Credit Card merchant fees in the interest income in calculating the NIM. Please take that into consideration.

Next, on net fees and commissions income, first quarter Bank net fee and commissions income, there has been KRW137.6b of one off income related to the Housing Fund verdict. And when you add up the Bank's net fees and commissions income and Credit Card fee income, the level is KRW410b, which is an upward trend QOQ. The securities including ITC products in Q1 went down slightly QOQ and year-on-year with the investors' redemptions following the cost [fee surge]. Bank's bancassurance is stably increasing.

Let us go to the next page. Bank's net income from FVPTL recorded KRW279.9b, a KRW38.8b increase QOQ and KRW249b increase year-on-year. In the other operating income of the Bank, KRW150b of deposit insurance fees and credit guarantee fund contributions are included. Accordingly, as long as there is no extraordinary factors, this category recorded a minus figure. But since there was a KRW115b of losses on loan receivables in the fourth quarter last year, with the NPL disposal the figure improved slightly. So you can see this improvement.

Let's go to page nine. Bank and Credit Card first quarter employee benefit and G&A amounted to KRW824b, a great drop QOQ, which is also a 9.4% drop year-on-year. The reason for this drop is because of the cost-cutting efforts following the fourth quarter ERP last year. As you can see on the graph from the upper left hand corner, the Group's overall CIR, cost-income ratio, went down 20% QOQ thanks to G&A cutting efforts of the Bank and due to the net interest income increase. Bank's equity method investment non-operating income grew significantly QOQ since last quarter. KRW100b of BCC-related equity method investment losses were recognized.

Next page 10, Bank profitability. This is for you to compare with the past materials and this is also based on IFRS. Let's go to the next page.

On page 11 let me walk you through the Group assets and liabilities. As of the end of March 2011 Group's total consolidated assets increased by KRW267 trillion or 3% year to date, with loans and receivables arising by KRW3.6 trillion and investment assets increasing by KRW600b. On liabilities, deposits are maintained at the same level as the previous quarter with the borrowings increasing by 17.9%. Group's total assets including trust and AUM stand at KRW345 trillion.

Next on the Bank's loans in won as well as the Credit Card assets. Loans in won as of March increased by 1.6% year to date and recorded KRW177 trillion. Given the fact that the Bank's annual loan growth target is within the nominal growth rate of 5% to 6%, it is our belief that in Q1 loan growth was on an appropriate level.

Now let's look at by segment. Although general loans increased steadily, household loans were kept at comparable level at the end of last year as there were little demand for mortgage loans due to the depressed real estate market. Corporate loans expanded by 2.9% year to date led by loans to SMEs. But Credit Card assets declined by 1.6% over the same period to stand at KRW12.200 trillion. Seasonal factors such as spending increase at the year end and spending drop at the beginning of the year came to play.

For 2011 KB Financial Group will maintain stable loan policy focusing on profitability and risk management within the nominal growth rate range rather than focusing on rapid external growth. For loans efforts will be made to secure appropriate spread. We will want to strengthen the efforts to improve loan portfolio while steadily expanding the loan share among the large corporations.

I will next talk about Bank and Credit Card funding. As of the end of March, of the total deposits, core deposits declined by KRW700b or 0.4% compared to the end of last year to record KRW180 trillion. As can be seen on the right hand graph, deposits from customers increased while funding from the market dropped, contributing to continued stabilization of funding structure with customer deposits accounting for 98.2% of the total.

KB's March-end loan-to-deposit ratio stand at 98.6%. For your reference, according to the regulator's guideline on LDR, commercial banks are to lower this ratio to under 100% by 2013, excluding marketable deposits. Such as, KB already satisfies this requirement.

Next on page 15 I will discuss the Bank's asset quality. Unlike the last quarter, Q1 Bank asset quality numbers only includes household and corporate loans. Credit Card assets are not included.

On the NPL ratio, it increased by 15 basis points to 2.02% as of the end of March, up from 1.87% of the year end. During Q1 loans to constructers, such as [Sambu], that have applied for court receivership in the amount of KRW117.3b have been re-categorized as sub-standard loan, leading to 7bp increase in NPL ratio. Except for these particular loans, NPL ratio is kept at relatively normal range due to large decline in the NPL ratio through a significant sale and write off of NPLs during the Q4 of 2010. For the same period, delinquency rate slightly rose up from 1% to 1.08%. For your reference, NPL coverage ratio is 115.6% and it reflects the newly established reserves for Credit Card losses --- excuse me, credit losses.

On page 16 it shows that the Credit Card NPL ratio stands at 0.96%, an increase of 32 basis points compared to the end of last year. This is due to the fact that the Card receivables from Tong Yang construction company was about KRW25.1b as newly categorized as new NPL. And as a result NPL ratio has increased by about 20 basis points. The NPL coverage ratio has also increased to 1.12% compared to last year. And on the right hand side, the ratio of delinquency trend by credit sales, cash advance and card loans, they are all showing a stable trend.

And next on page 17 this is on Bank and Credit Card loan/loss provisions. KB's loan/loss provision in Q1 recorded KRW399.2b, which is a decline of KRW178.6b QOQ and KRW111.4b year-on-year. By sector, household loan/loss provisions stand at KRW55.7b, which is a drop of KRW17b and KRW9b year-on-year. In the corporate sector there was a drop of KRW185b QOQ despite the fact that KRW137b was provisioned as a result of core receivership application by some construction companies. For your information, for direct exposure to the construction companies with recent upheavals we have actively and sufficiently set up provisions.

Loan/loss provision for the Credit Card rose slightly compared to the preceding quarter to mark KRW58.9b. As you are well aware, we have the restructured NPLs and have sought various ways to improve asset quality. We expect the elements of the loan/losses to steadily normalize in 2011.

Now on the provisions by sector, Credit Cards -- combining Bank and Credit Cards recorded 60 basis points in Q1, a drop of 30 basis points Q-on-Q. On the left hand side the credit cost is showing a downward stabilization peaking in Q2 of last year when we set up large provisions. Household loan/loss provision ratio in Q1 is 0.23% which is an improvement compared to last quarter. Corporate sector saw 79 basis point drop to reach at 1.21%. For Credit Card, the number rose slightly to 1.8%. However, the number rose slightly to 1.8%. However, the number (inaudible) is still at a very stable level.

This has been the earnings report for Q1 of 2011.

During the Q3 earnings call and the annual earnings report in the past few months we have repeatedly expressed our regrets for the lower than expected results and said that we, the new management team of the KBFG, will do its outmost to normalize its business in 2011. As a result of such efforts we are pleased to report enhanced results for the first quarter of 2011. However, the management and the employees of KBFG would not become complacent and will continue to endeavor to generate better results so that the fruits of such endeavor can be shared by our investors, customers and employees of KBFG.

I would like to ask for your continued support and interest. Thank you.

(Interpreted). Thank you very much for the presentation, CIRO Kim. Now we will have a Q&A session. For those who are logging in by webcast, please call in the number that is on the last slide of the presentation. Those who are listening to the earnings release via telephone, please press star and one and ask your question. For reference, you may call in with questions even when other questions are being asked or addressed and please we will take questions in the order of the calls received so please call in with questions any time.

To give you some background information, as you are probably well aware, from this year the accounting standard has changed from KGAAP to IFRS. Accordingly, there are many unfamiliar terms in the presentation materials and we are expecting many technical and detailed questions. However, for these detailed and technical questions, please direct them to our IR department and we will do our best to answer those questions. Webcasting has a two or three second lag so please bear with us until we receive the question. Thank you.

Yes, let me take the question. It is Mr. [Will Jeong] of Templeton Investments.

(Interpreted). Good afternoon. My name is [Jeong] of the Templeton Financial Investment Group. I have about three questions. However, before I ask the questions, I would like to thank you for such excellent results. And the first question is this, this is related to treasury stocks, [KBF2], when you sell the treasury shares, what are your principles that you would employ? Will it be price or will it be conditions that are attached to investors?

And if you cannot sell the treasury shares by the end of September, what are your contingency plans?

And question number two is you have about KRW13 trillion to KRW14 trillion written off assets. And these written assets, given the past experience, there was a lot of write-backs. So about the possibility, I would like to know about the possibilities of these write-backs and if there are write-backs, how much would that be.

And my third question is this, in Q2 I see you are -- when we are estimating the results for the Q2, what is the direction for the NIM and Credit Card? Will they continue to improve as was the case in Q1? Thank you.

Thank you for the questions. Let me answer your third question first. As I said before, in Q1, NIM, thanks to interest increase and improved portfolio, improved. And in Q2 there is a high possibility that NIM will improve. However, compared to Q1, that increase will not be as large as in Q1. However, in this year we will make the efforts to manage our margins and to improve our portfolio and so that our NIM can be maintained on an annual basis to 3.4%.

And I'll ask my colleagues will answer the two questions.

I'm DP Dong Chang Park, responsible for the strategy. And related to our treasury stocks, we have been (inaudible) our first quarter [FMNBC] to [SKCNC]. So these are strategic investors. We have already sold some of our treasury shares. And for the long term investors we have been looking at ways to sell these shares to these such investors and our effort will continue into the future. And as you said, because the actual price of the shares, the actual price of course has to be considered when we sell the treasury shares.

KBFG, as we have mentioned to other investors and promised to the investors, we are delivering our results as we have indicated and promised and we believe that we will be able to sell our treasury shares to the investors that we desire at the price that we desire.

My name is Jong-Kyo Yoon, the CFO of KBFG. And your second question related to the write-backs of the written-off assets of KRW13 trillion to KRW14 trillion. You asked how much write-back there would be. As you said, for our strengthening our efforts for this special bond --- or excuse me, the loans, for the written-off assets. We in the past outsourced them but for -- if needed, we will handle them by ourselves by the Bank. And rather than giving you specific numbers, we do anticipate some write-backs. [PS] and the real estate, and the SMEs, there are some uncertainties and so we expect the provisioning to be up by about 70, around 70 basis points. Thank you.

(Interpreted). For your information, to dispel any misunderstanding regarding the 70bp, it is compared to the total assets and please take it under that understanding.

Let's wait until the next call comes in. Yes. From [Central Investment Securities] we have senior analyst, [Cho Yung Hua]. Please ask your question.

(Interpreted). Yes, I'm [Cho Yung Hua] from [Central Investment Securities]. Congratulations on your exceptional performance. Regarding other bank's earnings results, the market is very much interested in the bank earnings results. However, it seems that there are some things that are uncertain. So in the market, regarding the recovery of the bank earnings, what the market thinks is that with the [SMLPF] loan adjustments, it seems that the banks are -- banks seem to be owned by the government.

And the financial authorities also met with the heads of different banks in Korea so that's what the market believes. So it seems that for the [SMLPF] they will use (inaudible) assets for NPLs and banks will rescue your normalized PF loans, but the market is not really believing this. So it seems that the banks -- and actually we want to know how much the banks will suffer because of rescuing the NPLs of savings and loans institutions.

Regarding the savings and loans banks' NPL issues, I know that it is a very important issue and regarding these NPL real estate PF loans, it seems that the government hasn't come up with a clear guideline so nothing has been decided. We cannot tell you what any of our specific plans going forward because nothing has been determined by the government.

(Interpreted). I am the CFO, and if I may, I know that the market is quite concerned with this because of two reasons. First is because the media is mentioning the bad things and people are worried about the KRW400b of NPLs that will be absorbed by the commercial banks. However, for the bad banks, the issue is these NPLs and how much the pricing will be. And the financial authorities are saying that these receivables will be limited to the bank receivables. So that is what we are expecting.

Also regarding the pricing, of course in IFRS we have off-balance and for asset quality, as you are well aware, it needs to be decided by the market price. So there has been the federated asset management so we believe that it will follow previous measures and we believe that it will follow the market principles.

Secondly, regarding the blue-chip PF loans, it's about KRW400b and there can be some slight differences, but we believe that it's about KRW100b. And the savings and loan institutions, it is KRW400b, and we have to choose from it, we have to choose the ones with good credit worthiness.

So I believe that we will have amicable talks with savings and loans institutions but we will have to wait and see. And we hope for favorable results and we hope that at the end of the day we could meet each other's financial understanding. So please do not worry that commercial banks and turning into institutions owned by the government. After the Asian financial crisis, the government has realized that the commercial bank stability is very important so please do not worry about those concerns. Thank you.

(Interpreted). Thank you very much, next question from CreditSights, [Mera Condusa].

Yes, hello. Congratulations and thanks for the results. I have two questions regarding the IFRS impact on your net income. I just wanted to know the one-off factors that impacted net income most importantly, non-interest income and net interest income, from Q4 to Q1 2011. What particular one-off factors were there between KGAAP a KIFRS?

And what was the actual difference in net income comparing these two accounting standards? Thank you.

(Interpreted). If I may, as I reported on the NIM, it's 3.06% for the Group and for the Bank it's 2.38%.

And regarding one-off items, what kind of one-off factors affected these numbers, I think was your question and there are two things that I would like to say. Regarding the IFRS change, there are two things that I would like to comment on.

First of all, we spun off the Credit Card. And regarding this spin-off we received the merchant fees, but from this year -- until last year it was in interest income, but from now on it will be included in the fee income. That is the general practice in Korean credit card companies. And we have put this into fee income and that was the one by the monoliners. And as I mentioned, when we exclude the Credit Card, 2.38% of the Bank completely is free from this effect.

And compared to the second quarter of last year, we have seen 14bp to 15bp increase. And to elaborate, we have seen some unwinding, so there is the impairment interest. So if we get interest from the impaired losses, it seems that the financial authorities have set the interests in recoveries. So in the NIM we have seen these factors affecting, but they were not significant.

(Interpreted). Yes, thank you. Mr. [Yeung-Bei Kwan]?

(Interpreted). My name is Yeung-Bei Kwan of RBS. My question is related to Credit Cards.

(Interpreted). Mr. [Kwan]?

(Interpreted). Good afternoon. My name is [Yeung-Bei Kwan] of RBS. I have a question related to Credit Cards. Recently, there are some concerns about the card loans and the consumption is quite well so I understand that the top line has been increasing quite well. However, after the spinning off the premium card, are you going to maintain very aggressive policies or are you going to change your strategy to be more on the safer side?

And with the spinning off of the Credit Card company, you have to procure the card loans and I understand that there will be some refinancing. So I wonder how long will it take to do the refinancing.

With the IFRS, I notice the [top line] is increasing. Will that impact your P/F ratio?

(Interpreted). Could you ask your third question again?

(Interpreted). With the change to IFRS, it seems that the capital is improving or increasing. So will that impact the P/F ratio?

(Interpreted). And as for the Credit Cards, our Chairman, with his inauguration and with the spinning off the Credit Card company, has emphasized that there was a vitality brought into the Credit Card company. However, we will have growth based on health, on soundness. And so that is our basic point of view and from there we are implementing our strategy.

In Q1 our credit sales increased. Cash in fact declined a little. So for the credit card, the basic direction is that we are not going to increase the cash loans or the card loans, cash advance and the credit loans. However, we will continue to make efforts to improve the portfolio. And for the credit sales we will be putting ab effort to improve our market share and I believe that our plan is being implemented as planned.

And about the card debt, which is about KRW8 trillion, of these KRW8 trillion about KRW4 trillion would be repaid within this year. And so within the next two years, I think that we will complete re-pricing.

And your third question, with the conversion to IFRS were there some changes to the capital, and you know that we have had the reserve for the credit card losses and there are changes in the scope of the consolidation and so there will be some negative impact on BIS. And we think that for us that is about 60 basis points. However, as you've mentioned, with the treasury share sale and increased income, we will be improving our BIS ratio.

And if we do -- and I think you're asking what are we going to do with the excess capital. We have been saying that we will be maximizing the shareholders' value and so when we have accumulated some income and have sold off the treasury stocks, we will be thinking about returning or contributing to the shareholders' value.

(Interpreted). And let me add to this. About credit cards, I think you asked whether we are going to -- and there are many concerns in the society about aggressive credit card marketing. We are conducting very stringent risk management. In Q1 of this year the newly recruited members, of them the members below the level seven are decreased to 9.53% from 10.59% of last year. So that means that we have not been issuing credit cards to those with low credit ratings. And for our existing customers, we have declined the or decreased the customers with low credit rating from 24.2% to 20.6%.

So if I may add to this, through management and maturity, so when we are making efforts to make sure that there will not be any additional cost when we make the refinancing. So you do not need to worry about that particular part.

(Interpreted). From Daishin Securities, I am Choi Jung-Woo and I would like to ask you a question about the provisioning. It seems that the Credit Card has had more provisioning compared to the past. And is it because of the increase in delinquency as mentioned before or is it because you will have changes in the Credit Card provisioning trend? And there has been KRW284.6b the corporate side and you talked about KRW137.4b of one-off factor and it seems that the others are at a normalized level. And there is a P/F and other worrisome issues, but there has been KRW3 trillion accumulated last year by KBFG and it seems that 72bp provisioning is a bit conservative. So can you explain more about that?

(Interpreted). Regarding the Credit Card, it was a very good question and I was about to elaborate more on that. And thank you very much for that question, analyst Choi. And it seems that we have seen more provisioning in the Credit Card, but when we spun off the Credit Card division, for tax benefits we had to make certain requirements. And to meet these requirements all the businesses have to be spun off regarding the Card. And there is the corporate purchasing card, so it was to have discount CPs and that has changed into Card. So, this is actually the business of the Bank.

However, unfortunately there was Tong Yang Construction that was included, which was about KRW25b. And there has been Sambu Construction. So it's only KRW40m for Sambu so it's very small. So these two amounted to KRW25b. Tong Yang Construction or Sambu Construction, it is still unclear on what will happen to these two companies. But for soundness we had accumulated 100% of loan/loss reserves --- loan/loss allowance for these two companies. So this is a one-off factor and actually this is irrelevant to the Credit Card business. So when we exclude that factor the Credit Card has accumulated only a normal level of loan/loss allowance.

Secondly regarding the loan/loss allowance, the 70bp you commented is a bit conservative, and it may seem so. However, fortunately, the economy seems to be picking up better than our expectations. And if this continues and if construction and real estate P/F normalizes, that would be quite welcome. However, we believe that still there is some room for contingency preparement. So that's why our plans are a bit conservative, but we hope for a better delivery.

(Interpreted). Thank you. So we'll take our next question. It's Ms. (inaudible), HSBC.

(Interpreted). Good afternoon. I have two questions for you. Question number one is the construction companies. The rather large construction companies had a bad fourth quarter, receivership. And in the early part of the year when the management was creating the plan, did you anticipate this? And do you think there will be similar cases in the second half of the year?

And at the same time, with the -- this is related to the P/F of the savings in the mutual banks. Will this bring about adjustments? And the annual targets you set at the year end --- excuse me, at the beginning of the year, and so internally I wonder if you're considering or reviewing this.

And my question number two is related to [BCC]. The provisioning levels for the [BCC], do you think it needs to be increased? Could you give us a specific guideline?

(Interpreted). About the construction companies, actually you had two questions related to the construction companies, whether the things that are happening in this year related to construction company are as we have anticipated or have we considered what could happen in the second half in our plan or do we need to adjust our target with a goal as a result of these changes.

As I said before, construction and the real estate PF, I believe that the uncertainties may last for some time and that is included in our business plan. And as of now things are within the scope of our business plan and it is our hope that the government will actively try to deal with the savings in the mutual banks. And the Bank is --- excuse me, the Korean government is doing that, and the government is doing what it can to stabilize the market.

As the trend continues, I believe that there would not be any need for us to adjust our goals. And in the second half, even if the uncertainties continue, we believe that we will be able to absorb those uncertainties. But I think there are some who are very pessimistic about what are the possibility of the market collapsing. However, I believe that we will be able to absorb the uncertainties arising from the P/F and the savings bank.

And related to BCC, we will continue to do our very best to normalize BCC and at the same time it's going to take us some time to normalize the business. And (inaudible) if we could decrease the capital and to sell off the NPLs, we will do so. So that is what we'll continue to look at, at the situation of the BCC and if needed we will decrease the capital. But we believe the best option is to normalize BCC and we have dispatched a new management team last year and many improvements our efforts are being put into action. And so, however, if our difficulties continue and if there is need for the decrease of the capital, we will take that step.

And I finally add to BCC, as you know, oil price is very high. And so Kazakhstan, as you know, is one of the major oil producers. And so the budget of the Kazakhstan government is improving and Kazakhstan is providing support to the major companies. And they have what's called [National 2 Oil] strategy and so the borrowers of the BCC will be able to benefit from that strategy, which means that the companies that have loans from the BCC will be able for the loans, about [50%] of those loans will be preserved by the Government. So we do have some room to move in the provisioning.

And with the overall economy improving in Kazakhstan, our speed of handling NPLs or selling off NPLs is accelerating. From two companies we have sold off about $30m-worth of the assets and they are being written back. And so I think that BCC's situation would improve beginning this year.

(Interpreted). Thank you very much. The next question, from [Keane Securities], it's [Jung-Tsu So].

(Interpreted). Yes. I'm [Jung-Tsu So] from [Keane Securities]. I have several questions. My first question is that, in the media, they are talking about privatization of Woori and there has been some media reports that KB might acquire Woori. So do you have any revised M&A strategies?

Secondly, I would like to ask about NIM. In 2010 the NIM, was it based on KGAAP?

And after the conversion to IFRS was the NIM affected? And, if so, when you use the same standard, can you tell us the NIM trend also? In your fact book, when you look at the general figures, it says that the NIM was increased, not only because of the drop in the funding rate. So can you tell us about what caused this funding rate drop?

(Interpreted). Yes. I am President of KBFG, Young-Rok Lim. Regarding the M&A, I would like to give you a brief explanation. KBFG's biggest goal is to maximize shareholder value. Also we wish to become once again a true leading bank to meet the expectations of our shareholders. Currently we (technical difficulty) improve our profitability and soundness. Accordingly, we will do our best to strengthen things within our Company. Of course we would need to have synergy created by banking and non-banking balance.

We will exert many efforts in this direction and first of all we will try to reinforce the non-banking side and we will look at our management normalization trend, and we will look for future M&A targets. At the current moment KB is poised to strengthen our fundamentals within our Company and we will focus our efforts to have a balance between the non-banking and banking side. Thank you.

(Interpreted). Yes, as the CFO I would like to elaborate. Regarding (technical difficulty), KBFG has not made any reviews in acquiring Woori.

Regarding the NIM, as mentioned before, when we released fourth-quarter NIM last year, it was 2.94%. And I told you that, last quarter, NIM was 2.89%, so there has been a 5bp drop QoQ. And 2.94% is based on KGAAP. And based on IFRS fourth quarter was 2.89% because of the loan/loss differences. So it was converted into the interest-bearing assets so that is why we had the bp drop, which was 5bps.

As mentioned by the CIRO, for your information, for the analysts, as to the first quarter the Bank 2.19% and second quarter 2.04%, and the third quarter 2.02%, fourth quarter 2.24%. And when we include the Card, 2.85% for the first quarter, 2.65% for the second quarter, third quarter 2.62%, fourth quarter 2.89%. And for more detailed information, please contact our IR team and we will be happy to give you more information.

Regarding the NIM improvement measures, the NIM improvement reasons, there was a policy interest rate hike as well as the funding rate drop. And you are correct in your analysis. When we were a firm leading bank in the past, KBFG was very well-poised, because we had a benefit in the funding rate compared to our competitors. And we are working very hard to regain that capability. From last year and this year -- in the past we had a run of bank receivables or bank debt that we are trying very hard to convert. And regarding the core deposits, we are doing our best to increase it. And we have settlement accounts and other accounts that are low-cost deposits, which we will work hard to expand.

(Interpreted). Yes, thank you. After the presentation of our results, we have conducted our question and answer session for over (technical difficulty) ask additional questions. So I believe that there will not be any further questions. So this concludes the earnings call for the Q1 of 2011. The presentation material and the VOD will be made available on the website of KBFG.

And as for those who have not had the opportunity to ask questions, please ask your questions to IR department and we will do our utmost to answer your questions. And as I said before, for the detailed answers or the detailed information about the IFRS, if you ask those questions we will do our best to answer them. Thank you.

Portions of this transcript that are noted interpreted were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.