KB Financial Group Inc (KB) 2011 Q2 法說會逐字稿

Good afternoon. I'm in-charge of the IR Department, KB Financial Group. My name is Kyu-Sul Choi. First of all, I would like to thank you for joining us for the 2011 first half earnings conference despite your busy schedules.

The earnings conference is being webcast live through the Internet and through the telephone line for the domestic and overseas participants and during the Q&A you can call in to ask questions directly.

Today's earnings conference is joined by the President of KB Financial, Mr. Young-Rok Lim, and other members of the management of the Financial Group.

Mr. Jong-Kyoo Yoon, the CFO, will first deliver his presentation on the first-half earnings results and after that we will have a Q&A session through the telephone line. So, if you have any questions, please join us during the Q&A session.

Now I would like to invite our Mr. Jong-Kyoo Yoon for his presentation on the earnings results for the first half of 2011.

(interpreted) Good afternoon, I am Jong-Kyoo Yoon, CFO of KB Financial Group. I will now start the presentation on the first-half earnings of KB Financial Group. The presentation will be made following the order of first-half highlights, financial performance and lastly Group asset quality.

Page 2, profit of KBFG in the first half of 2011 stood at KRW1.5749 trillion. The sizeable year-on-year growth can be attributable to a notable growth in the credit side and NIM improvement and also cost-cutting measures including labor cost. In addition, sharp decrease in the provisioning expenses have also made this growth possible.

Operating income before provision for credit losses which best explains the profit generation capability of the Financial Group stood at KRW4.7544 trillion. As you can see in the graph, the operating income before provision for credit loss which was just under KRW2 trillion in each quarter in 2010 is showing continuous improvement in 2011.

For your reference, the Q1 figure for operating income before provision for credit losses include National Housing Fund management fee and also the Hyundai Engineering & Construction share sales of KRW259.4 billion. So taking this into account, our current operating income before provision for credit losses is estimated to be approximately KRW2.1 to KRW2.2 trillion per quarter and total assets for KBFG including Trust and AUM stands at KRW354 trillion as of the end of June.

Next page, provision for credit losses in the first half recorded KRW718.1 billion which is a significant decrease compared to the same period last year. If you look at the graph, you will see that the trend of the provisioning has peaked at 2Q of 2010 due to provisioning for restructuring and preemptive provisioning has declined ever since.

Thanks to sound profitability, the ROA and ROE for the first half of 2011 recorded 1.2% and 16.2% respectively. The Bank BIS ratio stands at 13.33% with Tier 1 which is a 14 point increase of 10.70% compared to the second half of last year and core Tier 1 at 10.20%, an increase compared to the second half of last year.

As you're well aware, KBFG sold its treasury shares on July 8th. The effect will be reflected on the BIS ratio from Q3, but we have marked on the graph how much of an improvement effect this has as of the end of June.

As you can see, the Group BIS ratio enjoys an improvement of 130bp and the Bank BIS ratio improved 100bp. In particular, the improvement of 100bp in the Bank BIS ratio is reflected entirely on Tier 1 or core Tier 1 ratio.

I will move on to the key financials in the next page. The net interest income has increased 13% compared to the same period last year, thanks to the improvement in NIM and growth in the credit side. And quarterly growth showed an increase of 4% maintaining a positive trend.

Net fee and commission income for the first half increased by 15% compared to the same period last year, but on a quarterly basis it decreased and this is due to the fact that KRW137.6 billion of National Housing Fund management fee has been included.

Other operating income has shown improvement compared to the second half of last year, thanks to the profit of KRW269.4 billion from sales of Hyundai's shares.

Operating income before credit losses has decreased significantly compared to the same period last year, thanks to the realization of efforts on improving asset soundness.

Salaries and G&A expenses increased slightly compared to the same period last year and due to the seasonal reasons G&A increased in the second half showing a rather big increase.

KBFG's profit for the period stood at KRW1.5749 trillion showing a significant improvement compared to the KRW397 billion of the same period last year. Profit for Q2 recorded KRW81.74 billion showing an increase.

Let me go into the details of the Group profitability on the next page. I will talk about the interest side first. The net interest income for the Bank in the first half stands at KRW3.371 trillion. As you may well know, the credit card business has been spun off and as a result, the 2011 profit includes only the profit of January and February for the credit card side.

So please advice that only January and February figures are included and as you can see in the graph on the lower right hand side, the Group NIM Bank and credit card combined stands -- so if you look at the graph, the bank and credit card combined NIM stands at 3.07% in the second half showing a 1bp increase compared to the same period last year.

In the first half of last year, NIM has improved significantly due to the market rate increase, but the debt re-pricing which was carried out in the second half more or less limited the improvement of NIM.

We will continue to make efforts in improving the asset liability portfolio and effective margin management and we expect that based on these efforts we will be able to maintain the NIM at the current level throughout the second half of 2011. For your reference, the NIM figure in this presentation includes credit card merchant fees for easier comparison with last year's figures, so please advice.

Next page, I will like to move on to net fee and commission income. Net fee and commission income has remained steady and I would like to first talk about the net fee and commission income of the credit card business.

The first half of 2011, net fee and commission income have taken a deep fall from the surface, but this is because the relevant income has been separately categorized as net fee and commission of the credit card business at the bottom.

In addition, the credit card operation fee has been newly created as a new line item, which is a fee paid by the credit card company to the bank. As a result, approximately KRW100 billion has been re-categorized as fee and others.

Fee and commission income from represent securities including ITC products in the first half recorded KRW112 billion which is a lower figure compared to last year and as you may well know, due to the continued fund run, fund investment accounts for only 6% in the equity debt market resulting in a decline in the bank's fee and commission income from the represent securities and ITC products.

However, we expect to recover from the decrease through the sales of RAP account fees and other managed service products which has just begun this June. Fee and commission income for bancassurance increased by 37% compared to the same period last year showing signs of steady growth.

Next page, the net gains for KB on FVTPL stood at KRW571.8 billion recording a significant growth of KRW82.8 billion compared to the same period last year. Other operating loss for KB in the first half of 2011 has improved greatly from KRW236.5 billion of last year to KRW80.6 billion this year. This is due to the profit of KRW413.9 billion from sales of Hyundai E&C shares.

To elaborate on the profit from sales of Hyundai E&C shares, the shares were acquired at KRW20,765 per share by KB. But with the launch of the financial group the Hyundai shares have been reevaluated and the acquisition price per share has been appropriated as KRW57,199 per share at the group level, therefore, the profit from sales show differently at the bank level and at the group level. So, I want to clarify that the profit before tax from the sales of Hyundai E&C shares stand at KRW413.9 billion at the Bank level in KRW259.4 billion at the Group level.

In the other operating income, deposit insurance fees and contribution to credit guarantee fund are included and the relevant cost which amount to KRW140 to KRW150 billion per quarter, the figures come out negative.

However, in Q2 the KRW57.4 billion of profit from NPL sales has been reflected slightly improving the figure. And for your reference, the net gain loses on FVTPL, income from derivatives, affects and derivatives income in the other operating loss category is showing a steady trend considering that the fact that underlying assets and the hedging transaction evaluation are items that write off each other.

Next page, salaries and G&A for both the Bank and the Group in the first half stood at KRW1.7785 trillion, showing a slight increase compared to the same period last year and in the second half of 2010 G&A recorded KRW954.5 billion showing a sharp increase compared to the KRW824 billion of the first half.

As you are well aware, we have operated a voluntary retirement program in Q4 of last year through which 13% of the bank personnel have left. This has increased the work burden for the remaining staff and in an attempt to compensate for this, the bank has provided a bonus that is equivalent to 60 hours of overtime which has resulted in incurring a KRW33 billion of one-off expense in Q2.

However, since March, such trend has started stabilization, also KRW23 billon has been invested in setting up the mobile net for smart phones, which has contributed to the increase in G&A in 2Q.

As you can see in the graph on the right hand side, the cumulative cost income ratio is 39.5% maintaining a sound level. One thing to note is that this figure includes the realization of National Housing Fund management fee and the profit from selling Hyundai E&C shares. Excluding these the cost income ratio for the first half is 43.1%.

Next, Bank profitability is on page 10, so, you can compare the numbers with the data from previous quarters.

Next page. Now let me move on to the Group's asset and liabilities. As of the end of June 2011, for the total assets of the group, loans on receivables are increase of KRW9 trillion and cash induced from financial institutions increased KRW2 trillion so that compared to the end of the last year, the total assets is up 5% to be KRW272 trillion.

On the liability side, the saving deposit grew shortly so that the deposits compared to the end of last year increased to KRW5 trillion.

Shareholders' equity increased KRW1.5 trillion compared to end of last year to stand at KRW21 trillion. Despite the large net profit in Q2, the shareholders' equity grew only KRW200 billion over last quarter and this is because in Q2 the bank redeemed KRW400 billion in hybrid securities.

The Group's total assets including assets under management and trust assets come to KRW354 trillion.

Next, let me go on to an overview of bank and the credit card lending. The loans in KRW as of the end of June for the bank is KRW181 trillion, up 3.8% from last quarter. Given that the bank's annual loan growth rate, growth target is to stay within the nominal economic growth rate then during the first half of the year.

We can be seen to have achieved an appropriate level of growth. If you look at each segment in the case of household loans, owning to the slowdown in the real-estate market house sales were down, it's stagnating but the demand for (inaudible) invest sector was mainly driven by home equity loans.

In the case of corporate loans growth were seen mostly in loans for large companies with strong credit profiles and relatively stable share holds, the share of industry segment which have experienced difficulties namely real estate peers, small ship builders, construction companies took up only 12% of our loan exposure by the end of June down from 15% of the end of last year.

In the case of corporate loans in conjunction with the overall economic recovery, we expect steady demand for funding in the later half of the year as well.

KB Financial Group as I have repeatedly emphasized there are plans to maintain a stable loan policy, focusing on profitability and risk management, rather than growth in size in the second half of 2011.

Next page, now I'll move on to the bank and credit card funding overview. As of the end of June, the bank's deposit in KRW is KRW186 trillion, up 3% from end of last year. This is mostly due to the fact that the series of saving bank scandals had prompted customer to take flight to safety and this coupled with the bank's aggressive marketing activities including the introduction of new products have led to KRW6 trillion increase of KRW deposits compared to the previous quarter also.

Our demand deposit compared to the end of last year, increased 9%. So, we are maintaining our leadership position in the size of the demand deposits as you can see from the graph on the lower right side, the bank's loan to deposit ratio is 98.9% as of the end of June and going forward to further strengthen our profitability, KB Financial plans to grow our share of low costs deposit by attracting more payroll transfer accounts and rarely focusing on large institutional deposits, we intend to focus on growing our base of retail customers to leverage opportunities for generating additional profits.

On page 15, I will explain about the asset quality of the bank. The NPL ratio was 2.02% at the end of March and by the end of June it has come down 18bp to reach 1.84%. This is due to the sales and write offs of NPL's worth KRW816.7 billion during Q2. Meanwhile, during Q2 estimate a loss increased KRW348 billion over the last quarter.

This is because in the household sector group loans for the second [Binh Duong] project located in Busan of KRW192 billion was reclassified from downfall to estimate a loss and in the corporate sector because the credit rating adjustment for NPL write off loans for some companies were reclassified to estimate a loss.

Delinquency rate during the same period went slightly from 1.08% to 1.10%, this was because while the delinquency rate for the corporate sector was stable, the household sectors saw an increase in delinquencies in some group loans.

While the overall asset quality of household loans are quite sound, some group loans are threatening to undermine the asset quality of the entire household loans. However, such problems are limited to only a few troubled project site and in the case of group loan project sites after completion of the construction the ownership is transferred to the individuals so that the loans are converted to individual loans, which means that the likelihood of the loans rapidly turning toxic is very low.

The NPL coverage ratio is 124% which calculation includes the new reserves for credit losses item introduced in 2011.

The credit card NPL ratio is 15bp over the end of March coming to 1.11%, this is because during Q2 approximately KRW378 billion of corporate purchase card receivables are reclassified at the bank's corporate loans so that a denominator reduction affect to accord and also because compared to the previous years we had a smaller write off during the first half, the NPL coverage ratio reached to 313%, we believe this is a sufficient level. The credit card delinquency rate is up sharply from 1.13% at the end of March to 1.49% as of the end of June.

Not only is this due to the denominator reduction affect related to the corporate purchase card receivables and the smaller scale of write offs that I mentioned earlier. But also because the KRW25.4 billion card receivable from Tong Yang construction was newly classified as delinquent in Q2 as the company filed for court receivership in Q1.

If such one-off factors are excluded, the asset quality of the overall credit card sector is quite stable.

Next page, next is loan loss provisions overview for the Bank and the credit card business. The Bank's loan loss provisions for the first half was down 61% y-o-y basis to KRW600.5 billion and LLP for Q2 was KRW260.2 billion down 80 billion from the previous quarter.

By segment during the first half LLP for the household sector was 143.5 billion, a KRW16 billion increase over the last year while the corporate sector side declined by as much as KRW958 billion over last year. So, this was a significant improvement.

The loan loss provisions for credit card sector increased KRW35 billion over the last year to pose KRW108.9 billion this includes the credit card receivables for Tong Yang Construction that I mentioned earlier.

Next is NPL coverage ratio by sector. The total credit cards of the Group for the first half is 0.54% and for Q2 this stands at 0.45%. If you look at the graph up here left side, credit cards reached its peak in Q2 with large scale loan loss provision set aside and has since then steadily declined by segment for the household sector in Q2. The coverage ratio is 0.35% up 12bp over last quarter, but for the first half on a cumulative basis the figure is 0.29% similar to last year.

The corporate sector is down 49bp over last year to reach 0.72%. The credit card sector stands at 1.55% having improved 25bp over last quarter. In the case of the credit card sector, the credit card for the entire first half is 1.69% slightly up from last year, but on an absolute basis, it is still at a stable level.

Up until now, we have been able to dispose a large portion of our NPLs and have made only faceted efforts to improve our asset quality which we expect will lead to continued decline of the credit cards during this second half of the year.

With this I would like to end the presentation on the first half earnings results for 2011. Thank you for your attention.

Thank you very much, CFO Yoon, for the presentation. We are now going to take questions. Those of you who are watching the webcast please refer to the last page of the presentation for the number to call in and those of you who are participating via phone press star and number one for your questions. And those of you who want to ask questions during a question is being asked or being answered, you can also ask them. So, if you have any questions, you do not need to wait and your question will be placed on a queue.

We will take the first question from Daishin Securities, Mr. Choi Jung-Woo.

(interpreted) Good afternoon I am Choi Jung-Woo from Daishin Securities. I have three questions. First question is regarding credit card business, corporate card business even if we take that into account your assets have not increased that much. Your competition has the experience increase in asset in the same period, I want to know how you plan to increase the asset side and there are new NPLs in the household side and for the corporate side, I think are you shrinking.

So, I want to know in the corporate side do you think that the NPL in the corporate side will continue to shrink and what do you think would be the prospect for the household NPL? And the credit card business. Some of the NPL has been transferred over to the Bank side.

So, I want to know how you are going to handle that? And I think about excess capital is an issues that were all very keen on knowing more about. So, I want to know how you are going to make use of the excess capital value you have currently?

(interpreted) Thank you very much Mr. Choi for the type of questions.

Regarding the first question, the asset for the credit card has not increased compared to the competition as you have pointed out while spinning off the credit card business as we have already communicated with you. It is very important for us to maintain the market share, but at the same time improve our soundness.

So, in the first half of this year we did increase membership, but at the same time, we have focused on high quality members and so, during the first half we have had an addition of 1 million members, but if we -- 2 million members but if we look at the composition of the members there are very high quality members.

So, we are sticking to the basic principle of the credit card spin off as to asset expansion, in terms of market share, we have 14.7% of market share compared to the first quarter. There has been a slight increase compared to 14.2% and the check card from 21.8%, there has been about 6bp points of increase, however the corporate side, the corporate card because some of the groups have their own credit card companies, they have consolidated the settlement. So, there is a slight decrease in the corporate credit card side however, the other areas are doing quite well.

So, the personal credit side we are continuously expanding, however, due to the characteristics of the bank credit card business we have been focusing more on the card loans and cash advances in the past. However, we are trying to reinforce our portfolio and create a better portfolio.

So, it may look like the asset is not expanding quite as fast as you might expect, however, if you look at the insight, the market share is quite sound and the soundness itself is very solid.

And secondly, regarding NPL you have ask question regarding household and also corporate, the NPL on the household side is increasing, corporate side is reducing. And let me talk about the trend on the both sides.

The household side is due to the mortgages NPL, the Group loans and ultimately in the case of [Kindom], it is classified as estimated loss, and we have adjusted our provision and our classification for assets soundness has also been readjusted and Korea Housing Guarantee Corporation is actually guaranteeing the loss. So, there will be very little loss and because of -- in the case of the characteristic of Group loans as the housing prices go down this trend will continue in the near term, however, ultimately what actually realizes in the credit loss side will be quite limited.

But, until then temporarily it will increase our provision and as I have already mentioned on the corporate side, the corporate side is being stabilized, however, as I have already mentioned in the presentation, the small and medium sized ship builders and PS and the construction side. We have some high exposure to NPLs and, however, there are no additions or very little addition of new NPLs, and we have enough provision for the NPLs.

So, the burden for additional NPL is estimated to be very slow —very small. But, as I have mentioned in the last quarter, during the past three years for the small and medium sized companies, we have provided many support and also on the government level as well. So, any failure is -- has already been anticipated. So, we have already taken that into account and as to the increase of NPL in the corporate side. We do expect some to take place, however, because we have the sufficient NPL I think, we have enough to cover the NPL even if it increases in the second half and I think it is within the scope of our control.

And thirdly, regarding household loan regulation I am sure you are very well aware of the regulation details.

First very important point is the loan to deposit ratio is 100%. So, it is not an issue that we need to be concerned at all and as to changing the loans to the fixed rate ratio, its 3% currently, it is going to increase 30%.

So, I think we will be able to cope with it and changing to CapEx is another effort that we have been making already. So, I think we will be able to deal with the issue, but the interest rate term changing this from three months to six months term is another effort that we are going to make inline with our government policy.

The BIS ratio, the actual contents have not been finalized yet but the high risk household loan will be subject to some limitations in line with the BIS ratio. So, for instance if it exceeds a certain level of the shareholder equity, it will be subject to some limitation, however we need to look at what kind of measure will actually benefit the market. So, we are going to do a thorough study on the best method and as to the civilization of household loans.

The loans that are already out that have already been made, we are going to look at the capability of the borrowers and so, we need to take a step by step approach, but as to the new loan we need to apply more stringent guidelines and standards.

So, we will be very prudent in giving out new loans, however, if we become too stringent on the regulations, it may also bring about a risk of contracting the market. So, we really need to look at those sides and talk with the regulatory agencies closely and I think at a later time we will be able to communicate the outcome to you later and as to the excess capability, our President Young-Rok Lim will be answering the questions.

As to the excess capital, KRW1.8 trillion has been secured, thanks to the sales of treasury stock and by strengthening and through this we are going to strengthen the non-bank business and also push forward with our strategy focusing on MNA.

And through this effort KB financial group will be able to maximize it's shareholder value, however any, if we don't have any emergency funds needs, it will be unnecessary for us to have a high level of capital.

So, we are going to focus on expanding or increasing the shareholder value.

Thank you very much for the answers. Our next question is from Mr. Koo Kyung-hwe from Hyundai Securities.

(interpreted) There are parts of the presentation that I was not able to listen to, if you look at the other operating income there is about KRW60 billion losses, can you elaborate on those losses?

(interpreted) In the other operating losses there is a increase of KRW60 billion. Now the issue in the society is to emphasis also show our responsibility of corporation and so, I am sure you have read it in the newspaper but the KB Public Group Foundation has been established and this was seen as necessary by the senior management of the holding group.

So, we have establish this foundation and we have contributed KRW20 billion to that organization for the economically underprivileged classes, they were cause for greater role for the financial institutions and so, micro economic assistance, micro financing assistance was called for and so with regard to this we have contributed KRW10 billion and also for the good job programs which were undertaken to resolve the youth unemployment issues in Korea.

We have participated in these programs to link with SMEs with unemployed youths and so, we have also contributed KRW4.5 billion as incentives to these programs and finally the fund management aspect are the -- we have a loss that is going on but during the first round of trial we have lost the case.

And so, on a conservative standpoint we have set aside our team building one as a provisioning for this lawsuit. We are appealing. So, we hope to win this case ultimately and we will make an effort to win the case. Thank you.

Thank you very much for the detailed answer. As I have already mentioned that at the beginning of the Q&A session you may ask questions whenever, even during the questions and answers. Mr. Jung-Tsu So from Keane Securities.

(interpreted) Good afternoon, thank you very much for the presentation. For the SOHO, I have a question about the SOHO credit. SOHO credit has increased a lot in the first half and I would like to know the industry mix of this increase and secondly the loans can be from be your existing clients and some of them may have come from other banks, so, I would like to know the ratio.

And thirdly, in the credit card business, I would like to know the ratio of the SOHO business owners and for the SOHO credit, I would like to know what the growth prospect is like?

(interpreted) Thank you very much for the question, as I have mentioned traditionally we have, had strength in the SOHO and as a retail bank we service our individual clients and also SOHO clients to our best effort and as has been mentioned in the first half of this year, if we classify SME and SOHO separately, SME has slightly decreased but SOHO has increased.

As to the SMEs, as I have mentioned in my presentation, we did not reduce the level of support for SMEs, but recently in the SMEs some of the loans, some of the company, some of the SMEs that had loans are had gone through, workout or have gone bankrupt. So, that is why the loan has decreased but SOHO is constantly increasing and it is increasing because, well we are constantly increasing the level of collateral.

So, that we can minimize the loss exposure and secondly in terms of industrial mix, I think your point is that, you want to know the mix because some of the parts of the industry or business can be sensitive to the economy or the economy cycle.

So, retail wholesale, restaurants or rental business, real-estate businesses, these businesses are very sensitive to economic cycle we already have a standard for, that we already control our ratio.

So, 1% decrease has taken place in the loans that went out to SOHO that are very sensitive to economic cycle and also we are going to create a sub limitation to closely monitor these businesses.

The lodging business has increased and also real-estate rental side has also increased and we had actually done a very thorough analysis and according to our analysis in terms of lodging, the motel business has increase and according to our review, these motels are in a very, are situated in a very busy areas.

So, we don't foresee any issues regarding these loans. But we always want to be very cautious. So, we plan to create sub-limits for the SOHO, so, that we can monitor the risk even more closely.

And actually the growth strategy for the SOHO, we need to look at two things regarding SOHO's, first as there are too many shareholders in Korea, some people are worried that the risk can be too excessive, but on the other side -- but on the other hand, for the Bank shareholders are -- for shareholders there are credit and also there are collateral, is collateralized of the side of the Bank. So, it is quite safe and our perspective is that the second point of view makes more sense. However, in the case that the economic cycle turns for the worst, we always need to be prepared for the risk.

So, we are going to look at the concentration of risk very closely, but at the same time as to the shareholder, we're going to focus on the loans for the good quality shareholders. And Mr. Park is going to add to the answer.

(interpreted) Yes, let me build on the answer, because you might be concerned of our recent movement regarding risk management. So let me give you an example, in first half of last year or this year, the good quality credit SMEs took up 61% out of the total loans, but now, it has increased to 83% and loan to collateral ratio which used to be 40% last year has increased to 56% this year.

So, the ratio from loan to collateral has increased to 60.7% and those who are sensitive to economic cycle 1.5% decrease has taken place and for the new loans there has been 1.5% decrease as well. So, in other words, the exposure to economic cycle sensitive business has been decreased. And lastly, the ratio for the shareholder and the credit card business we will contact you directly later.

(interpreted) Thank you very much for the detailed answer.

(interpreted) For more detailed analysis of the industry. So we will provide more information later on if you contact us directly.

Mr. Hunsaker, Nomura Securities.

(interpreted) Good afternoon. The write-offs and sales how much is that figures specifically and the provisioning and the effect this has on profitability I would like to know. The write-off and the sales is bigger than the 1Q, but I don't think the delinquency rate has been greatly impacted because of this, and I believe means the asset delinquencies have risen. So if the write-offs are reduced and delinquency rate will rise further, I think that's the point of concern. So, I would like to know your position about this?

(interpreted) Thank you very much for that question. The question write-off and sales, as I've said during the presentation, in the second quarter, we have conducted sales and write-offs to a significant to [Korea].

Write-offs is [KRW160 billion] and so sales is KRW41.7 billion and in the case of later half 2011, a little of -- financial authorities are emphasizing control of NPL and even if they are concerned about NPL, our bank is also concerned about NPL. So during the second half of the year, we do believe a large write-off in sales will be inevitable, but how to conduct these write-offs and sales and especially will depend on the asset market circumstance.

We are taking preparations to that effect. With regards to write-offs in sales, the major targets are the construction NPLs, PS and shipbuilding NPLs. We have a large exposure to this and so -- rather than additional provisioning, we believe large reversals will take place.

There will be some expenses related to write-offs, but further are -- unless there are extremely large write-offs, there will be no large, excessive large provisioning burdens that will incur. So, with regards to provisioning for credit losses it's declining steadily. That is the trend. And although this trend can go down, we believe this steady downward trend will continue in the second half of year.

(interpreted) Thank you very much for the answer.

(interpreted) Well, as I have mentioned repeatedly, you may pose your questions whenever you have them. So we are going to wait a couple of minutes for additional questions.

And as Mr. Park has mentioned, regarding corporate credit soundness. I would like to make quick clarification, regarding the collateral ratio, the third-party guarantee is not included. So, we have been communicating that the collateral credit ratio is about 90% including shareholder and what Mr. Park has mentioned was focusing on the only one part of the ratio which is focusing on real estate and we are going to wait a couple more minutes and if we don't have any additional questions, we will wrap up soon.

Well, it looks like we do not have any additional questions coming in. With this, the 2011 earnings release for KB Financial Group will close and you can always go to the IR website at KB Financial Group. To view the webcast and if you have any further questions, we will try to answer them to the best of our knowledge. Thank you very much for your participation.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.