KB Financial Group Inc (KB) 2012 Q2 法說會逐字稿

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 of KB Financial Group for the first half of 2012. The access to this conference is being provided via Internet and conference call, being webcast real time for Korea and abroad. During the Q&A you may call in to ask questions.

Joining us in today's earnings conference we have with us KB FG's CSO, Dong Chang Park, and Executives from KB Financial Group's subsidiaries.

The conference will consist of the earnings presentation by our Group CFO, Jong Kyoo Yoon, on the earnings results for the first half of 2012, followed by a Q&A session, at which time you may call in for questions.

Let me now present our CFO, Jong Kyoo Yoon. for the earnings presentation.

Good afternoon. My name is Jong Kyoo Yoon, the CFO of KB Financial Group. I will now begin the earnings presentation of KB FG for the first half of 2012.

First the financial highlights. KB FG's profit for the first half of 2012 recorded KRW1,150.6 billion, coming down around 27% year on year.

During Q1 of the previous year the winning lawsuit involving NHF resulted in KRW137.6 billion in reversal, while there was a sales gain of Hyundai E&C shares amounting to KRW269.4 billion during Q2, resulting in the KRW407 billion in one-off gains for the first half of last year.

The net operating income before provision for credit losses, PCL, stood at KRW4,267.2 billion for the first half. As you can see on the graph, we are consistently maintaining a stable recurring profitability exceeding KRW2 trillion per quarter. Including trusts and AUM, the Group's total assets marked around KRW369 trillion as of the end of June; up 2.1% year to date.

Next page, please. The provision for credit losses for the first half of 2012 came in at KRW753.9 billion. If you look at the graph, the provision for credit losses edged up somewhat during Q4 of last year, in the process to meet the 1.5% NPL ratio hurdle. But it's sustaining a stable downward trend in 2012.

The Group's ROA and ROE for Q1 were 0.81% and 9.9% respectively.

As you can see on the bottom graph on capital adequacy, despite the KRW4 trillion asset growth during Q2 and the subsequent increase in risk weighted assets, the sustained [grable] profitability and expanded shareholders' capital boosted the Bank's BIS ratio by 9 basis points quarter on quarter to 13.36%.

Tier 1ratio came in at 10.33%, up 3 basis points quarter on quarter, while core Tier 1 ratio improved by 3 basis points to 10.26%. The Group BIS ratio posted 13.23%, improving quarter on quarter. Tier 1 and core Tier 1 recorded 10.39% and 10.33% respectively, improving quarter on quarter across the board.

On page 5 I will touch upon the Group profitability overview. For the first half of 2012, the Group net interest income improved 4.4% year on year, supported by the resilient loan growth, and on a quarter-on-quarter basis the results remained pretty much unchanged.

The net fee and commission income for the first half came down by 22.4% year on year, and 6.1% quarter on quarter. The year-on-year drop was mainly due to the base effect of the previous year when there were one-off gains, such as the KRW137.6 billion proceeds from the NHF law suit.

Other operating income fell sizably year on year, and the sales gain of KRW259.4 billion on Hyundai E&C during Q2 of last year was the main reason for the drop. I will go into more details on the following pages.

The G&A expenses for the first half marked KRW1,955.7 billion, up 4.5% year on year and 1.7% quarter on quarter. The Group net operating income, before provisions for credit losses after deducting expenses, came out to KRW2,301.5 billion for the first half.

Next is a breakdown of the Group profitability on page 6.

Let me start with the net interest income. The net interest income of KB Kookmin Bank for the first half posted KRW2,997.8 billion, on par with the previous quarter.

Let me remind you that the pre-spinoff Card results up to March 2011 was attributed to the Bank, while the post-spinoff results were attributed to the KB Kookmin Card results, separately shown on the bottom of the page. Therefore, actually, there has been improvement in this regard.

As you can see on the graph on the top right, the Group net interest income combining the Bank and Card businesses are sustaining a stable quarterly trend.

The Q2 Group net interest income, inclusive of the Bank and Card results, edged down 4 basis points quarter on quarter to 2.93%. This is the result of our risk-management policy in loan growth, mainly focusing on stable assets, such as mortgage, SOHO and corporate loans, combined with a weaker recovery of delinquent loans affected by the overall economic slowdown.

Following the recent policy rate reduction by the BOK by 0.25 percentage points, we anticipate a slight pressure on our NIM. However, by further expanding low cost deposits, such as a settlement account, and by efficiently managing our margin, we will do our best to maintain the annual NIM of 2012 at the 2.9% level.

Next page, please. Let me now move onto the Group net fee and commission income.

The Bank's net fee and commission income for the first half marked KRW653.5 billion; down 22.4% year on year. It is due to the base effect of the previous year's one-off gain from NHF litigation, as well as the inclusion of the pre-spinoff Card results for January and February last year.

If you look at the details for the Bank, the commission on securities, including commission on fund to sales, was down 22.3% year on year and 4.4% quarter on quarter, affected by the stock price volatility and the subsequent investment contraction.

The Bancassurance commission for the first half grew significantly year on year, supported by the proactive marketing and the increased new business of the single-premium products, but was down quarter on quarter. So this trend has come down during Q2, however.

Going forward, KB will further expand our net fee and commission income by developing market-changing new products and by strengthening the capacity of our sales personnel.

The net fee and commission income of Kookmin Card dropped quite a bit year on year, due to last year's check card fee reduction, the expanded scope of small and medium-sized merchants eligible for preferential fee discounts, as well as the increased joint marketing expenses.

I will now comment on the net other operating income.

The net fees on securities of the Bank for the first half amounted to KRW146.9 billion, reducing significantly year on year. But it is due to last year's high base effect of the sales gain on Hyundai E&C shares of KRW413.9 billion. If you exclude this one-off item, there was a year-on-year growth.

To elaborate, on a Group consolidated basis, the sales gain on Hyundai E&C for Q2 last year was KRW269.4 billion. Due to the different acquisition price per share recognized by the Group consolidation versus the standalone bank results, the sales gain amount of the Group consolidation and the bank naturally show a difference. I told you about this last year, but I just wanted to remind you.

The other operating income under Kookmin Bank widened the loss year on year. While there was the sales gain on loans during Q2 last year amounting to KRW54.8 billion, there was a sales loss on loans in Q2 of KRW22.7 billion.

The Q2 net other operating income for Kookmin Card further widened the loss quarter on quarter. During Q1 last year there was the dividend income from asset sales to the Government credit recovery support programs, such as the bail-out loans to marginal borrowers, in the amount of KRW20.9 billion which did not exist this quarter. For your information, this dividend income is generated in Q1 and Q3 of each year.

The net other operating income for other subsidiaries dropped year on year. The KRW24 billion disposition gain on PEF from KB Investment from Q2 last year led to a big drop year on year.

The first half G&A expenses for the Bank marked KRW1,682.5 billion, edging up 0.9% year on year and 1.4% quarter on quarter. Typically the first quarter tends to show the lowest G&A in the entire year; only the slight edging up of the G&A for Q2 compared to Q1 was the result of our extensive Group-wide efforts to reduce costs.

If you consider the fact that the Card business G&A expenses reflect the post-spinoff number of the four months, the overall G&A trend is quite stable.

Please find the cumulative Group cost income ratio for the first half on the right. For your information, the normalized cumulative CIR, excluding the one-offs for 2010, was 49.8%; 2011, 44.5%; and the first half 2012 was 46.1%, sustaining a stable level.

Going forward, we will continue to control costs and enhance cost efficiencies throughout the Group to maintain a mid-40% range of CIR for year 2012, and ultimately reach low-40% range mid to long term.

Next page, please. On page 10 the KB Kookmin Bank profitability overview is provided for your reference with historical data.

Let me move on to page 11. I will now walk you through our Group's balance sheet.

As of end of June 2012, Group's total assets increased year to date 4.2% to KRW28.9 trillion (sic - see slide 12 "KRW289.2 trillion"].

Total liability, driven mostly by deposit, increased approximately by KRW11 trillion.

As of end of June, Group's shareholder equity is KRW24 trillion.

In Q1 there was dividend payout for fiscal year 2011, where KRW280 billion of surplus was used, but, with KRW1,150 billion of net profit created in the first half, equity increased year to date by approximately KRW900 billion.

As end of June, Group's total assets, including trusts and AUM, is around KRW369 trillion; around KRW7 trillion increase year to date.

But in Q2 it looks as though Group's total assets did not grow, but it's because KB Real Estate Trust's valuation method for its trust assets was changed, bringing down the figure by KRW7.6 trillion QoQ.

Next is on Bank and Credit Card loans.

The bank loan in won as of end of June is around KRW188 trillion, growing 2.2% year to date.

In Q1 household lending growth was slow at 0.2%, but in Q2 it grew by 2%, showing overall recovery in growth trends, including household loans.

In the midst of continued property recession, uncertainties in the euro zone, etc., we have set 2012 annual loan growth target at around 4% to 5%. Going forward, we will continue to focus on profitability and soundness in pursuing a stable growth.

Looking at different sectors for household debt to manage risk, we have been conservative in the origination of collective loans. Accordingly, collective loans outstanding has declined. But the continued growth of mortgages, house loans, in Q2 grew 1.4%.

Corporate loans in Q1 grew 2.2% and in Q2 grew an additional 2.8%, recording a total of 5% on a year-to-date basis, showing a positive growth trend.

Highly collateralized with good asset quality, the SOHO loan continued to show a robust growth trend, with large corporations showing a persistent growth as well.

Credit Card receivables as of end of June is KRW11.7 trillion, similar to last quarter. This is due to our efforts to limit the target customers on card loans and cash advances, which are relatively higher in risk, and by reducing the limits as a way to strengthen risk management.

Next page, please.

As the end of June, deposits in won of the Bank is KRW196 trillion, growing 3.3% year to date. This is due to continued preference for safer assets. And with active marketing by the Bank, time deposits increased around KRW5 trillion year to date.

Debentures in won, thanks to continued efforts to improve funding portfolios, declined around KRW13 trillion as of end of June.

KB Financial Group, rather than large institutional deposit accounts, were focused more on attracting retail deposits that can lead to additional transactions, which would create a new revenue source.

Through new product development and strengthening of products, we will continue to acquire low-cost deposit base to solidify our funding base.

On the lower right graph, the Bank's loan to deposit ratio as of June end is 97.9%, being maintained since end of 2010 below 100%. We will continue to maintain the ratio below 100% and expect no difficulties in making gradual improvements.

Next page is page 15 and I will talk about the Bank's asset quality.

The Bank's June end NPL ratio is 1.64%, similar to the previous quarter.

As written on the bottom of the page, Bank's June end delinquency ratio is 1.03%, a QoQ improvement of 3 basis points. This is mainly because, in Q2, KRW260 billion of NPLs were sold off.

As of end of June, NPL coverage ratio, including reserve for credit losses, is 142%; being kept at an appropriate level. From last year, thanks to more stringent pre-emptive risk management, we were able to minimize formation and addition of NPLs; managing the quality indicators within safe levels.

For household debt, some collective loans could face litigation issues, as borrowers are poised to raise law suits against construction companies. As there is a possibility for new delinquencies, it will not be easy to see significant improvement of soundness on behalf of the sector within the year.

On the other hand, for corporate loans, since restructuring of issue-making industries, like construction, real estate, [PF] and shipbuilding are near conclusion, we expect the churn to look more stable in the future.

On page 16 is Credit Card asset quality. Credit Card NPL ratio as end of June, thanks to aggressive handling of NPLs, improved 6 basis points year to date to record 1.01%. NPL coverage ratio, including reserves for credit losses is 337.7% (sic - see slide 16 "337.4%").

Credit Card delinquency moved to 1.5% the end of March to 1.22% end of June; relatively a big improvement, on the back of NPL write offs and the decline in new delinquency formation.

As previously mentioned, KB Financial Group, through stronger pre-emptive risk management and improvement of recovery of delinquent loans, are committed to prudential management for Credit Card as well.

Next is on loan loss provisioning for the Bank and Credit Card company.

Banks' first half our loan loss provisioning declined 1.9% year on year to KRW589 billion. Q2 provisioning is KRW270.9 billion; a QoQ improvement by 14.8%.

First half LLP is KRW204.7 billion; a year-on-year increase of KRW61.2 billion. Although the rates of increase look slight, considering the total size of household loans of KRW103 trillion, absolute amount provisioning is not too high.

First half corporate provisioning is KRW284.3 billion; a year-on-year improvement of 15.9%. Especially in Q2, regular credit rating review of corporates resulted in KRW33.9 billion of related provisions. But still in Q2 provision recorded KRW178.9 billion; a QoQ decline of around 13%.

First half Credit Card LLP, due to additional provisioning of write offs, increased around KRW57.4 billion year on year to KRW164.9 billion.

So lastly, I will talk about the provisioning ratio by each sector of the Group.

On the upper left graph, Group PCL against the consolidated assets is 0.54%, compared to 2011 0.56%. On a cumulative basis, it improved slightly by major sectors.

Household first half credit cost is 0.4%, showing a slight rise against the 2011 cumulative figure, but it fell 8 basis points on a QoQ basis.

First half Corporate sector credit costs, without any particular one-off factors, recorded 0.77%, compared to last year's 1.04%. It improved by 27 basis points.

Credit Card first half credit costs is 2.69%, showing a rising trend. However, we don't believe it's a cause for concern in terms of its absolute size.

KB Financial Group from last year implemented pre-emptive risk management on high-risk assets, thereby minimizing formation and addition of non-performing assets. So we believe soundness to be maintained in a stable manner going forward as well.

This has been 2012 first half earnings presentation. Thank you very much for your attention.

That was an earnings presentation by our CFO. We will now begin the Q&A session. (Operator Instructions) Byung-Gun Lee, Dongbu Securities.

First of all I would like to congratulate you for your sound earnings, despite the difficult challenging environment.

And my first question; of course, during the first quarter, your assets grew somewhat. But, compared to your beginning of the year anticipation, when it comes to the mortgages and other types of loan growth, it was not as high in terms of the growth.

And with regards to the eligible loans for securitization for (inaudible) loans, that is a program run by the Government, I believe that even KB is launching such eligible qualified loans in the month of August.

So if you have to meet the fixed rate loan percentage and all these other regulations, I believe that your loan growth would be limited and it might have some negative impact on the margin as well.

Earlier this year, (inaudible) talked about the asset growth and the NIM outlook going forward. So, were his earlier comments reflecting all those regulatory changes?

And also, do you have any anticipated changes in terms of the asset growth and NIM because of these factors?

And my second question has to do with ING. We thought that KB would be the most promising acquirer. But, then again, it seems like AIA is emerging as a more promising acquisition party.

So if you do not end up acquiring ING, I was wondering what your alternative option that you have in mind, in order to alleviate the over-capital issue.

I will address your first question. And then the second question will be taken by our CSO, Mr. Park.

First of all, when it comes to the asset growth prospects, as you have pointed out, during the first quarter the retail assets did not really grow much, but it grew slightly. And also when it comes to the corporate loans, as I told you before, we are maintaining a stable asset growth.

So the way I look at it, into the second half, if you consider the current real estate market situation and if you consider various macroeconomic situations, I believe that the current trend is likely to persist going forward.

So in 2012, I told you that we will be maintaining about 4% to 5% asset growth overall. So if you combine the second half when it comes to the retail loans, we are looking at about 2% to 3%; slightly lower than our original anticipation. But when it comes to the corporate loans, about 6% to 7% growth. So, overall, the average loan growth for the entire sectors would be about 4% to 5%.

And, as you have mentioned, in terms of the retail side, when it comes to the qualified loans for securitization, yes, it is correct, we are planning to take part in this program starting from August. There are two reasons why.

First of all, when it comes to mortgage loans, out of the existing mortgage loan portfolio, there will be certain qualified loans. And, of course, it will overlap with our traditional loan portfolio as well.

And when you look at the actual mortgage loan demand being so compressed and sluggish right now, I think that the consumers and the borrowers will be very insensitive to the interest rates.

So when it comes to small houses eligible for such securitization, I think that it is true that KHFC program does have certain interest rate competitiveness. So we will maintain our normal traditional mortgage loan programs but, then again, to a certain degree we will collaborate with KHFC to support this small house-related asset expansion.

And another thing, when it comes to fixed rate products, starting -- until 2016 our target is to increase the share of fixed rate loans up to 30%. That's the guidelines pursued by FSS.

And currently, when it comes to the funding side, because we have limited funding sources available in the fixed rate format, so there can be some mismatching problems. So we do need to manage this issue.

So it when it comes to these eligible qualified loans we will have to set demand and, at the same time, we have to consider the interest rate risk management. So we do need to hedge somewhat. So we considered all those things and we decided to take part in the KHFC program.

When it comes to NIM, in the second half we believe that the retail mortgage loan demand will be rather sluggish and, as a result, there will be more intensified competition between the banks.

And there was a policy rate drop that was conduct by BOK in the month of July and we have been giving you the guideline that we will maintain 3% range of NIM but, unfortunately, we will have adjust it slightly downwards.

So, as I told you before, our new guideline or guidance is about 2.9% NIM for 2012. And in this assumption, yes, we are already reflecting the qualified loan for a securitization program.

And let me also invite our CSO to talk about the ING acquisition.

Good afternoon, my name is Dong Chang Park, in charge of strategy. I believe that there are many speculations in the market regarding the acquisition of ING and I have no way to confirm where these informations are coming out.

During a bidding process, each bidder gets to the [midways] of funding to provide the acquisition cost. So, including KB Financial Group, all the bidders, I believe, have already submitted such plans.

This time around AIA or some other competitors in the bidding process have submitted their funding programs or funding plans, and I believe that some of that information has been leaked to the media.

But I don't think that such plans being disclosed in the public does not really have a big impact on the actual acquisition process, because our competitors are really targeting the emerging growing market in terms of the acquisition portfolio. So, in that regard, I don't think that our competitors in the bidding process are not targeting Japan or Korea.

But in the case of KB Financial Group, we are actually targeting the Korean market, in which we could possibly grow the life insurance market segment in a more proactive way. So that is our strategic position at the moment.

So in that regard I believe that we have taken part in the bidding process in the final round with that mind and we will do our very best and to the very end of the entire bidding process. Thank you very much.

And to add slightly, you asked about our second option available, or what is our alternative plan, you said. I believe that it is a little too early for us to comment on such a plan at this point. Thank you.

I hope that answered your question. We will wait for the next question. We are providing this earnings presentation via the Internet, but I understand there's about a 30 second time lag between the phone call and the screen shown on the web page. So we'll wait for a little while for questions. Citigroup, Jinsang Kim.

If you look at your Credit Card numbers, I think new NPL formation has declined and I think you've written off quite a bit. The new NPLs have declined but I think your provisions have gone up and the market, in general, when it comes to the credit card industry, the delinquency rate is on an upward trend with a higher burden of provisioning.

I don't know if I heard this correct, but in terms of the credit card -- your credit card company, did they experience a decline of the new NPLs and what is the new delinquency rate looking?

And the provisioning range when increased because a loss was created through the sales of the NPLs, could you elaborate as to why the new NPLs and the provisioning is showing a divergent direction?

If you ask the question about our Credit Card business, first of all to give you the big picture, we told you this last year as well, but in year 2011 from July, credit card loan and cash advances we have limited and restricted the limit. And also for multiple borrowers or debt holders we have applied a very conservative approach. So come this year we are seeing the impact of those measures.

First, if you look at the delinquency trend ahead of the NPLs, in the case of credit card loans the new delinquency formation in Q4, and Q1 of this year as well, we have seen a continuous downward trend from Q4 of last year. For cash advance same trend applies; 4Q was the peak, since then we're seeing a downward stabilization.

Having said that, we have the multiple debt holder issues and with marginal borrowers, so in terms of the credit sales for Credit Card business there was an increase of delinquency. And also for pay plan we are seeing a very slight increase, or maybe some slight trend.

We expect that, going forward, for credit card loans and cash advances continue to be stabilized because if you look at July of this year, the measures have actually come in. For pay plan as well, from the first half of this year we have applied additional measures, so it is not going to increase significantly or suddenly.

In terms of new delinquency formation in Q1 excuse me, if we look at new NPL information, excuse me, it's KRW142.4 billion, so on a QoQ basis I think last quarter was KRW134 billion, so it's not really on an increasing trend, it's quite -- on a similar level.

Chung Uk Choi, Daishin Securities.

I also have a question about your Credit Card business. I believe that each bank or each entity has a different definition of a borrower with multiple outstanding loans. So what is KB's definition as to the multiple borrowers? How are you managing them?

And also when it comes to cash advances or card loans, of all the users of these services, what is the proportion of those multiple borrowers who are taking advantage of these services? And what is the change in trend in this regard?

Another question, when it comes to the newly announced regulation change on the merchant fee reduction system, I'm sure you've conducted some stimulation on this. I believe that it would be implemented at the end of this year. So next year, how do you think that it will impact your overall bottom line?

Yes, regarding your questions I believe that it's difficult for us to disclose all the detailed numbers.

On the impact on the Credit Card businesses I could talk about the following two things. Number one, when it comes to the merchant fee reduction impact, I believe that a lot of the analysts have reported your estimations, but rather than talking about a specific number today we will actually defer this question to a one-on-one meeting.

But, for your information, we have been anticipating this type of a regulation change. So starting from last year, and from the beginning of this year, we have been trying to come up with countermeasures.

One, we've been trying to reduce costs. Two, we've been trying to increase the wallet share through cross selling. And, number three, we've been trying increase the share in the new business.

So it's a little too early for us to mention this right now, but starting from October, we are planning to launch the factoring services as well.

And I talked about the card loans and the cash advance services. Assuming that this trend is quite stable, then we need to think about the niche market for those high credit rating borrowers.

So we are constantly looking at ways to, perhaps, increase a certain portion of those respective services for the high credit rating borrowers.

Now pre-tax basis, KRW100 billion or more impact might be anticipated, I believe. But, I believe that, due to a lot of these other ongoing efforts that we are doing to reduce costs, I think that we will be able to make ends meet.

When it comes to the definition of borrowers with multiple loans, we don't have a single definition per se. We currently have many different definitions within the Bank, within the Group, and we are making the simulations. Back in 2002, during the credit card crisis, we went through a similar exercise as well.

Let me give you an example. Of our existing customers, there are some customers that are our customers for the Bank and also the Credit Card. And also in the Credit Card company card loan users, as well as pay plan users as well.

And also we apply other definitions; for instance, those borrowers with transactions with the non-banking sector, or those without non-banking sector transactions. So we do have certain different criteria.

So, accordingly, we are coming out with different ways to approach different types of borrowers with multiple outstanding loans, so called the multiple loan holders, so that we can manage them.

So when it comes to the number of those borrowers with multiple loans, and how we are addressing these issues, we will get back to you with more details through the IR department.

We will take the next question. [Global Securities, Mr. Wong].

This could be a sensitive issue, but Korea Fair Trade Commission has raised an issue about a CD interest rate collusion or manipulation. So, with these issues persisting, I believe that they have had a negative impact on the banking sector.

Now, with these issues emerging, I am concerned that this may have a downward pressure on your margin. So what is your forecast for margin for the second half? Or did you actually reflect these issues on your margin forecast?

Relating to the CD rate issue, we are co-operating with the KFTC in the process. But, as you know, when it comes to the CD rate, there basically has been this issue. So they were talking about changing it to (inaudible), or making it into a fixed rate, or -- I believe that the CD rate percentage, especially in the mortgages, it has also reduced below 40%.

So we are in the process of putting in these efforts and then this issue then emerged, or broke out, and I think this has a serious impact on the trust of the banking sector, so we do have concerns.

Having said that, according to the report that we're getting from the banks, we are quite confident that we have been fair in all our dealings, so we are not that concerned about the potential outcome of the investigation, but still we are quite cautious as we wait for the result.

In the case of the spread, there could be different views, depending on one's perspective. However, at this point we believe that, if you look at the economic situation, which is not faring too well, our customers are also faced with economic difficulties. And I believe, depending on the movement of the policy authorities, they can actually steer the direction to a different path, or these uncertainties can be over-exaggerated because of the current macro situation.

Once again, KB's motto has always been putting customers first, putting our people first. That's been our very consistent platform on which we had operated our business. I believe that as long as we are consistent with this commitment I think there will not be a problem.

In terms of the impact of the CD and the spread, of course, there will be some impact, especially for the CD rate. Out of the total loans currently in the case of the mortgages, it's been declining to 37%, so the impact is going to be restricted. At 2.9% NIM, or margin, that forecast, there could be some negative aspect, and we did consider that.

[Kim Securities, Yong Sim Fahr]

You have a page where you are talking about loan asset growth and it says in Q2 your corporate loans had grown by KNW2.3 trillion. In other categories you didn't really grow your asset side. In the case of SOHO it grew by about KNW2.3 trillion. I think that most of the growth came from SOHO.

So what about by sector? Out of the SOHOs and the corporates, in which category sectors did you grow your assets?

Second question, in the second half, do you plan to continue on asset growth, centering on SOHO loans?

As I told you before, and as you have pointed out, during the first half I believe that the asset growth was especially higher from the SOHO loan category.

Among the SOHO loans, of course, we have the following concerns. Because of the nature of SOHOs, these are sectors that are very sensitive to the economic cycle. So we have a ceiling that is applied on each subsector of the SOHO loans, and we are tightly managing them.

And we also look at the competitiveness of these business owners, and, depending on the business cycle changes, we try to assess these borrowers' ability to overcome the economic difficulties. So among the SOHO borrowers, we have set a separate category of high-risk borrowers, and we are managing them accordingly during the second half.

Because we've seen a rather rapid growth of the asset side during the first half, in the second half we will look at the economic cycle-sensitive sectors, and we will be more cautious. And we've been trying to limit loan growth in those respective areas. So into the future, we will be very prudent in loan growth.

So among the corporates, in which area are we going to grow, is your question. Starting from the first half, we have been expanding the portion of the corporates, large corporates. So in the second half, we will focus on SOHOs plus corporates.

Now when it comes to SMEs, of course, we will continue to support the sound small and medium-sized companies, but we will continue to replace the borrowers among the SME loans, so I do not think that there will be a significant growth out of the SME sector.

As we focus more on the corporate side, you might have concerns that our NIM will contract, going forward. Now in this aspect, as we approach the corporate loans, we are doing two approaches.

Number one, we are trying to expand our presence in the IBank area, IB area, by expanding our capabilities in the IB-related services.

So even if we suffer a little bit in terms of the margin itself, we are trying to expand our cross-selling capabilities, especially with regards to the FX and trade financing aspects. We will try to more than offset the margin contraction, so that we could tightly and wisely manage the corporate side of the business

So overall in the second half, corporate business expansion will take place, led by the large corporations and SOHO loans.

Thank you very much. We don't have any more questions on the wait list but we will wait a little longer before we wrap that up.

Thank you. With that, we will now conclude the earnings' conference of KB Financial Group for the first half of 2012. The presentation and VoD of this conference will be available for access anytime on the IR website of KB Financial Group.

Also, if you have more questions, please contact our IR department. We will do our best to address your questions. Thank you once again for your participation today. Thank you very much.

Thank you very much.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.