KB Financial Group Inc (KB) 2013 Q3 法說會逐字稿

(Interpreted) Good afternoon, my name is Kyu Sul Choi, the Head of IR at KB Financial Group. Thank you for taking part on today's Earning's Conference of KB Financial Group for Q3 2013.

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 call we have with us KBFGs CFO Woong Won Yoon, as well as executives from KBFG subsidiaries.

The conference will consist of the earning's presentation by our CFO, Woong Won Yoon, on the earning's results for Q3 2013, followed by a Q&A session, at which time you may call in for questions. So please utilize the Q&A session for questions.

Let me now present our CFO, Woong Won Yoon, for the earning's presentation for Q3 2013.

(Interpreted) Good afternoon, my name is Woong Won Yoon, the CFO of KB Financial Group. Let me begin the earning's presentation of KBFG for the third quarter 2013. First the financial highlight.

KBFGs cumulative profit for Q3 2013 marked KRW1037.9 billion, edging down around 36% year-on-year. The narrowing interest income from the NIM contraction, along with the one-off factors such as the equity method valuation loss on BCC recognized in Q2 led to such results.

Profit for Q3 was boosted by the absence of the negative one-off seen in Q2, such as the BCC equity method loss and impairment loss and securities, while some one-off gains, like the sales gain on marketable securities further supported the bottom line.

The quarterly profit jumped 183% quarter-on-quarter to KRW462.9 billion.

The Group's gross operating income for Q3 posted KRW1996.5 billion. The gross operating income for the recent quarters hovered below KRW2 trillion, due to the one-off losses on the non-interest income side, including the various stock market driven impairment losses on securities held.

However, Q3 was not only free from such negative one-offs but also was bolstered by one-off gains through the sales gain on securities. As a result the gross operating income recovered back to the KRW2 trillion range.

Including trusts and AUM the Group's assets marked around KRW383 trillion as of the end of September. Next page please.

The cumulative provision for credit losses, PCL, for the Group, came in at KRW1084.2 billion, down by around 4% year-on-year.

Owing to the proactive resolution measures on NPL, as well as our efforts to enhance asset quality, our quarterly trend of provisioning remains quite stable. As for Q3, however, our preemptive measures for the year-end NPL ratio management led to the PCL of KRW406.6 billion, up 15.7% quarter-on-quarter.

The cumulative Group, ROA and ROE, recorded 0.48% and 5.55% respectively.

If you look at the capital adequacy trend on the bottom, the end of September Group BIS ratio was 14.39%. The Bank BIS ratio rose 54 basis points quarter-on-quarter, supported by retained earnings from enhanced profit, as well as the subordinated debt issuance, which took place in the third quarter.

The core tier I ratio of the Group and the Bank, recorded 11.12% and 11.55% respectively, boasting one of the highest capital adequacies in the financial sector.

On page 5 if I may touch upon the Group's financial performance in more detail, the Q3 2013 Group net interest income was affected by the NIM contraction, declining 4.4% quarter-on-quarter, to post KRW1577.5 billion.

The Q3 net fee and commission stood at KRW372.4 billion, decreasing 5.1% quarter-on-quarter. It was mainly due to the muted commission income of the Bank in areas such as the securities agency fee.

The net other operating income for Q3 amounted to KRW46.6 billion, significantly rising quarter-on-quarter, compared to the KRW223.2 billion in losses in the previous quarter.

The absence of the negative one-offs such as the impairment losses on securities, further boosted by the [CVA] related reversal on the back of the strengthening won and the one-off sales gain on HMM shares, led to such results. I will elaborate later on these points.

The G&A expenses for Q3 logged KRW957.6 billion, down KRW57.8 billion quarter-on-quarter that is, it was possible thanks to the lack of seasonal anomalies as well as the Group wide cost control efforts.

From next page I will speak on the breakdown of the Group profitability. Let me start with the net interest income. The Bank's cumulative net interest income for Q3 reached KRW3891.5 billion, inching down 10.8% year-on-year.

Following the negative loan growth during Q1 the average balance of the interest bearing assets also reduced and the overall loan spread squeeze further compressed the NIM.

The cumulative Card net interest income for Q3 recorded KRW758.8 billion, backed by the lower interest expense from falling funding rate, rising 5.6% year-on-year. However, the Q3 net interest income came down 1% quarter-on-quarter, due to factors such as the lower average balance of the cash advance services.

As can be seen on the Group NIM graph, inclusive of the merchant fees on the bottom right, the Group NIM declined 10 basis points quarter-on-quarter to 2.55% for the quarter, while the cumulative number up to Q3 marked 2.64%. Such NIM compression is mainly driven by the narrowing loan to deposit spread in the banking sector, amidst fierce competition.

After the NIM drop in Q2 there have been efforts made to enhance the margin. The Q4 NIM is expected to remain on par or slightly edged down quarter-on-quarter with gradual rebound from 2014.

Next, let me move onto the net fee and commission income, the Bank's cumulative net fee and commission income for Q3 reached KRW826.6 billion, decreasing 14.7% year-on-year. It can be attributable to the lower bancassurance fee and credit card agency fee.

First of all the bancassurance fee fell 45.3% year-on-year. During Q1 last year the strong marketing effort led to extraordinarily high sales of bancassurance products, while the tax reform in February and the low interest rate environment this year deteriorated the interest rate competitiveness of the insurance products, leading to a big drop in sales across the entire banking sector.

The credit card agency fee seems to be down somewhat but this reflects the agency fee payment reduction from the Card company to the Bank, making the net impact on the Group neutral.

The cumulative Card net fee and commission income for Q3, despite the merchant fee reduction and other regulations pressuring the bottom line went up 72.1% year-on-year, through cost cutting efforts such as the reduction of affinity services.

As for Q3 the merchant fee income expansion from more number of working days during the quarter, among others, helped increase the net fee and commission by 21.9% quarter-on-quarter.

I will now touch upon the net other operating income.

The Bank's net other operating income for Q3 was positively affected by the lack of the one-off losses such as the impairment loss on securities in the previous quarter, as well as the one-off sales gain on securities and CVA reversal instead. It led to a quarter-on-quarter jump and the net gains of securities amounted to KRW168.5 billion, climbing significantly quarter on quarter.

During Q2 the rising bond yield pushed down the valuation gain on principal preservation trust, as well as the return from the invested private equity funds. However, in Q3 there was the one-off sales gain on securities such as HMM.

If you look at the others category, the derivatives and FX translation gain, excluding deposit insurance and contribution to credit guarantee fund picked up sizably quarter-on-quarter and it was mainly due to the strengthening won and the related CVA reversal of KRW61 billion in Q3, regarding [SBP]and [Tianjin shipbuilding].

However, if you take out such one-off factors the underlying security assets and the corresponding derivatives or hedging transactions pretty much offset each other in valuation at a stable level.

The net other operating balance of the credit card business for Q3 tapered off due to decreased sales gain on receivables eligible for National Happiness Fund, compared to the previous quarter.

As for the cumulative net other operating balance of the remaining subsidiaries the losses went up year-on-year, mainly affected by the lower insurance related income on the back of the slower underwriting of the immediate annuities products by KB Life, to manage the [RBC] ratio. Next page please.

The Bank's G&A expenses for Q3 came in at KRW822.5, down 5.9% quarter-on-quarter, thanks to the Group wide cost cutting effort.

The Card and other subsidiaries G&A numbers on the bottom also maintained a steady trend.

Backed by such Group-wide cost control efforts the Group cost income ratio also dropped 2.3 percentage points quarter-on-quarter.

As can be seen on the top right graph, the group cost income ratio has been on an increasing trend since 2012, due to the weaker topline following the reduction in interest income and one-off non interest losses.

Going forward, however, we expect that these dissipating negative quarterly one-ones and the resulting normalization of the profit to steadily stabilize the cost income ratio.

The Bank's non-operating balance for Q3 [flourished] quarter-on-quarter with the absence of the BCC equity method valuation loss of KRW120.3 billion recognized in Q2.

Please turn to page 10 for your reference; I will now touch upon the Group's assets and liabilities.

First we will take a look at the Group's balance sheet. As of September end 2013 Group's total assets based on the balance sheet is KRW297 trillion, driven by loan receivables growing 3.9% year-to-date.

September end Group total liability increased 4.1% year-to-date to KRW272 trillion, with shareholder equity coming in at KRW25 trillion.

September end, Group total asset including trust and AUM is KRW383 trillion, growing 5.4% year-to-date.

Next is KB Kookmin Bank loans in won and KB Kookmin Cards.

First, Bank's loans in won as end of September stand at KRW188 trillion, increasing 1.9% year-to-date and 1.3% compared to end of June.

On the back of Government's April plan on property market normalization and implementation of August measures on (inaudible) and monthly rent, housing trades increased, driving household lending growth of 1.7% year-to-date.

For your information, growth rate inclusive securitized loans, the growth is 5.3% year-to-date and 2.4% QoQ.

Corporate loans increased 2.2% year-to-date and 0.7% QoQ. In light of the economic environment and concerns for household debt, overall speed and SOHO lending growth was moderated, with growth coming mostly from loans to prime SMEs, including loans with letter of guarantee.

Going forward, for risk management purposes we would continue on with conservative lending posture, especially for cyclical factors. But at the same time we will actively explore good quality SMEs, thereby applying sophisticated credit evaluation systems, as well as rate schemes, to selectively find opportunities for corporate lending growth.

Credit card receivables as end of September stand at KRW14 trillion, increasing 6.9% year-to-date and 5.3% compared to the end of June, mostly driven by factoring receivables.

Next is on the Bank's funding position.

September end Bank's deposit in won is KRW194 trillion, growing 1.4% year-to-date and 2.2% against June end. Due to effort to attract low cost deposits and settlement accounts and with low interest rates and share price decline leading to increases in stand-by funds, core deposits increased 6.3% year-to-date and 0.2% compared to the end of June.

However, with funding position management reflective of overall stagnant lending growth trends and fall in demand from deposit rate cuts, time deposits showed a slight downward adjustment.

The Bank's debenture in won as of end of September is KRW13 trillion.

As you can see on the bottom right graph, loan to deposit ratio for September end stands at 97.8%, being kept below 100% since the end of 2010. We expect there to be no material difficulties keeping this figure below 100% going forward.

From page 15 we will look at the Group's asset quality.

First is the asset quality of the Bank. NPL ratio as of September end is 1.92%, maintaining the level of end of second quarter. NPL coverage ratio, inclusive of reserve for credit losses, end of September stands at 111.4%. September end Bank delinquency ratio is 1.05%, inching up 4 basis points QoQ.

Household debt delinquency rate is 0.92%, declining 9 basis points QoQ, mostly due to write-off of collective mortgage loans in Q3 to comply with the year-end NPL ratio guidelines.

Delinquency for the corporate loans is 1.20%, increasing 19 basis points QoQ, but most of the increases are due to new delinquency formation from second quarter's below substandard names, which are marginal companies. So, if we are to carve out these factors, overall asset quality is quite stable.

Next is on asset quality for KB Card. September end credit card NPL ratio is 1.75%, with lower quarterly new NPL formation and in line with quarterly write-off increases there was a 5 basis points decline QoQ.

NPL coverage ratio inclusive of reserve for credit losses is 316.1% as of September end. Credit card delinquency as of end of September, on the back of realignment of internal collection organizations and due to various efforts to improve our delinquency rate, fell 13 basis point QoQ to 2.02%, keeping to a stable level on a quarterly basis.

Next is on loan loss provision for the bank and the KB Kookmin Card.

The Bank's Q3 cumulative LLP is KRW829.3 billion, improving 6.2% year-over-year. Q3 provisioning amounted to KRW303.9 billion, increasing 16% QoQ.

For the household loans, Q3 cumulative figure is KRW252.5 billion, a decline by 17.3% year-over-year. Q3 LLP came in at KRW118.5 billion, an increase by a large margin on QoQ basis. This is due to write-off of some portions of collective loans as part of managing year-end NPL ratio. And if one excludes this impact, recurring LLP is around a level deemed adequate.

Q3 cumulative corporate LLP came in at KRW576.8 billion, hovering around a similar level of the previous year. Q3 provisioning recorded KRW185.4 billion, falling 15% QoQ. This is due to additional provisioning required by reclassification of asset quality in Q2 as prescribed by [BFSS].

When one-off factors are removed on a nominal basis, the level is similar to that of the previous quarter. Q3 cumulative LLP for credit card business was KRW240.5 billion, edging down 5% year-on-year. Q3 provisioning was KRW89.4 billion, an increase of 7.8% QoQ. But this is due to lower recovery amount as NPL balance declined from the sale of receivables to National Happiness Fund. When this impact is excluded, we are maintaining a stable quarterly level.

My last topic is on provisions for each sector. As can be seen from the top left graph, the Group PCL over Group total asset in the third quarter on a cumulative basis is 0.50%, improving six basis points against 2012 annual credit cost of 0.56%.

By each sector, household sector recorded 0.33% cumulative LLP rate in Q3, improving six basis points over 2012 annual credit cost. Q3 credit cost is 0.46%, inching up 28 basis points on the back of collective loan write-offs. But on a nominal basis it has been kept at a stabilized level when such one-off factors are reflected -- are considered.

Q3 corporate LLP rate on a cumulative basis is 0.77%. (Inaudible) this clean-up of bad debt and conservative provisioning policy since 2012 we are seeing a positive trend every quarter.

Q3 LLP for credit card on a cumulative basis came in at 2.41%. For Q3 the figure is 2.63%, slight increase quarter-over-quarter but overall displaying a steady trend. We, at KB Financial Group, continues to manage risk preemptively for many years in light of economic difficulties and concern for health of debt and soundness related issues in certain sectors.

Thanks to such efforts, provisioning trend has been stable and we expect continued improvement in terms of provisioning as well as asset quality.

This has been Q3 2013 earnings presentation by KB Financial Group. Thank you very much for your attention.

(Interpreted) Thank you. That was an earning presentation by our CFO. We will now begin the q-and-a session.

(Operator instructions)

(Interpreted) We will take questions according to the order you call in. So please call in anytime for questions. We will take the first question from [Hai] Investment Securities, Mr. [You]. Please go ahead, sir.

(Interpreted) Good afternoon, my name is [Hung Ho You] from Hai Securities. Thank you for your presentation.

I have a couple of questions about your margin. I believe that your NIM contraction size was a little bit larger than anticipated. Now, of course the interest side of the reduction, I thought it was because of the growth limitation in the market, but when it comes to interest expense it seems on a quarter-on-quarter basis it [hasn't] increased.

So between the previous quarter and this quarter, if you look at the deposit rate trend, yes, the policy rate has gone up a little bit and if you look at the BOK announced table, the trend is actually lower [than] the rate movement.

So I was wondering why the NIM contraction? Is it because you spent more money in order to attract more deposit or are you continuing to experience limitation as to [NIM] contraction? So if this trend is going to continue, when do you think it will bottom and how do you plan to actually deal with this situation?

(Interpreted) Yes, our CFO didn't get to hear to the last part of your question. Could you repeat that?

(Interpreted) Yes, if I may recap, your interest expense increased quarter-on-quarter, so what are the reasons and by when do you think that your NIM contraction will hit bottom and start to rebound? So if your NIM trend is going to recover, to achieve that what areas should you work on so that you could further improve the NIM trend going forward?

(Interpreted) Regarding the expansion of the interest expense, I believe that it had nothing to do with the funding cost per se, but we had the Principal Protection Trust related accounting treatment, which was a temporary one-off factor.

The more important thing I believe the gist of your question was when is the bottom going to come, when it comes to NIM contraction, I believe. We are continuing to work on asset portfolio improvement and we are trying to attract some sound company clients as corporate clients, during which time we were reducing some interest rates and also such factors.

So the first led to some contraction in terms of NIM with the margin, but nevertheless we are making various efforts to further expand the NIM going forward. Now, first of all we need to lay the foundation of solidifying our client relationships, not only through the price competitiveness. We believe that we have to further enhance our service capabilities and we are trying to use that as appeals to our customers.

And in order to conduct appropriate pricing, we are further upgrading and refining our credit scoring model. So through these efforts we believe that the NIM trend by the fourth quarter will be bottoming out, or the third quarter I believe would be the bottom. So after that I believe through these efforts we will gradually see the improvement of the margin.

(Interpreted) Yes, if I may I would like to elaborate just a little bit more. As was mentioned by our CFO, during the second quarter -- I believe I talked about it before, about KRW42 billion worth of the non-interest income category incurred losses and that had to do with the Principal Protection Trust and that has led to some one-off losses.

So the second quarter interest expense, you should look at it actually -- should be considered with extra KRW42 billion. So if you look at in that perspective, actually we are actually seeing a smooth trend quarter-on-quarter. So if you add that one-off factor that existed last quarter. Thank you very much.

(Interpreted) Yes, once again there is the lagging effect and right now we do not have any people who have requested for questions, so let's take a little time to see if there are any more questions. I think there is a question coming in, so please do bear with us for a moment. Yes, we will take the next question. [Sung-Hyun Kim] from [KB Investment Securities].

(Interpreted) Thank you. I believe that in order for us to calculate the profit level in terms of the gain from the sales of HMM and also with the impact from FX decline and the write-back as well as the write-off size of the collective mortgage loan, could you be a little bit more specific and share with us the specific figures?

(Interpreted) In Q3 there were a couple of one-off factors and I did include that in my presentation and I will share with you more specific numbers. In terms of the HMM, as well as other securities and the sales of those securities, the figure in total is about KRW60 billion in terms of gains from sales and we have about 4.67 million shares and we have sold entirety at per share of KRW24,000 and it's about KRW46.5 billion, and so there were also other sales of the securities that we had held.

And in terms of the CVA reversal and the write-back, in Q3 because FX rate actually declined, SBP and Tianjin Shipbuilding in terms of our FX forward position, there was a CVA impact of about KRW61 billion. Another factor is that in order for us to comply with the NPL guideline by the end of the year, we had in terms -- we had written off some of the collective mortgage loans and additional provisioning that arose from that was KRW60 billion. I hope that answers your question. We will move on to the next.

(Interpreted) From [SCC Securities], Mr. [Jin Sun Kim]. Please go ahead, sir.

(Interpreted) Good afternoon. During the third quarter your NIM contraction was quite noticeable, and as you recall, that happened during the second quarter as well. So compared to our expectation, the speed of NIM contraction seems to be faster, so I was wondering whether you are looking -- it seems like you are looking at the NIM trend going forward into the fourth quarter to be flat or slightly down. So what are the reasons? I think that you should always focus on NIM.

I believe that the market competition has always existed and I think that all throughout this year you were very much focused on asset quality in terms of your loan extensions.

So if you think that margin contractions could further proceed during the fourth quarter, what would be the reasons? You talked about the KRW42 billion worth of losses which was considered one-offs from the Principal Protection Trust I10, and it that does not take place during this fourth quarter, I don't think that your NIM should contract too much. So I mean, I understand the one-off factors for Q3 so could you talk about the fourth quarter?

(Interpreted) During the third quarter, the margin reduction took place by about 10 basis points. I briefly touched upon it in my presentation earlier but let me elaborate.

Up to Q2 we were not really growing our assets, so we were trying to grow our assets during the third quarter, and at the same time, in order to attract more high quality clients, such as high quality SOHOs or high quality SMEs, we worked on the marketing side.

So through such efforts we did give them a lower interest rate on their loans. And also on the retail side of the business, home equity and unsecured loans, we did provide some interest rate reductions for our clients, retail clients, as well, which also led to some further compression of the NIM.

So into the third quarter the interest rate policies have been adjusted further and in the future we will make extra efforts to expand our margin. Looking ahead into the fourth quarter we are anticipating either a flat or slightly downward trend in terms of the NIM.

Now, the pricing policies that were implemented in the third quarter, will be normalized to a certain degree by the fourth quarter and that will be the reason. And also, in order to secure a further margin we are looking at ways to bring in more gains.

Now, one of those examples would be the following. Now, the share of the one-year time deposit duration portion we want to adjust that portion, and also a large amount and low interest time deposit, we want to actually control and adjust the shares so that we can better optimize our funding cost side.

So overall, I think that during the fourth quarter, we believe that the NIM will be either flat or slightly edged down. Thank you.

(Interpreted) Thank you very much for your answer.

(Interpreted) As for the KRW42 billion one-offs that I talked about, when it comes to Principal Protection Trust, I was talking about that portion and that referred to the second quarter and I was talking about the accounting one-offs. So it's something that is not including in the net interest margin NIM, so that's my elaboration. Now, we have no questions waiting at the moment but we will give you a little bit more time.

(Interpreted) Yes, we will take the next question from Morgan Stanley, Mr. [Sou Joon].

(Interpreted) Yes, I have two questions. First has to do with your fee and commissions on the banking side, especially for bancassurance we've seen significant decline and I understand your explanation.

But from 2014 in terms of this trend of decline, do you think that this is going to continue and do you see, or do you have any measures to increase your fee and commission income going forward? Second question has to do with your G&A. I think you're doing a good control of this expense but for cost to income ratio for 2014 what do you project the cost to income ratio to be.

On the credit card side, do you think that you can pull down the expense a little further or is there a need for more marketing activities or should we expect increase in expenses? And I understand some of your bank branches are closing down, so I would like to understand what you project for CI ratio.

(Interpreted) In terms of fees and commissions for this quarter and this year, there's been a significant decrease and I explained to you the reasons why. Especially we've seen some significant decline in bancassurance for beneficial certificate, beneficiary certificate of the trust products, fee and commission income was low.

And in order for us to improve this business we are putting in a lot of effort, but in particular for bancassurance what we're doing is improving our product portfolio and for beneficiary certificate, we are looking at increasing our competitiveness in wealth management business.

So those are aspects where we are really focusing on and our KB Asset Management, and KB Securities and subsidiaries. We are trying to further solidify our collaboration with these other companies to enhance our competitiveness.

Relating to your second question about G&A, In terms of cost control, well we have been very much focused on bringing the costs down.

On the costs relating to the operational aspect, we will continue to make the investment. From a structural perspective there are some costs that are fixed for instance, personnel related costs, IT costs and costs related to maintaining sales branches. So these are some fixed costs, but setting aside the salary aspect.

But if we look at the IT cost and the branch network related costs, we will make sure that we do not make any redundant investment, and we will improve on the process efficiencies. And especially for IT investment we will improve our efficiency in managing the IT expense, and we will make our sales branches more light, and we will relocate -- reallocate our branch related resources to really enhance efficiency.

So in terms of the G&A cost increase we are putting in efforts to make sure that we can stably control and maintain the level of expense.

(Interpreted) Yes thank you, next question Mr. [Shah Ital] from Kiwoom Securities. Please go ahead, sir. Mr. Ital please go ahead, sir.

(Interpreted) Can you hear me?

(Interpreted) Yes we can hear you fine.

[Interpreted] I have questions, now margin and growth seem to be the offsetting factors especially from KBFG, I think that when it comes to the home equity loans, if you grow that side of the asset on the retail side very aggressively then that could actually erode your margin.

So if it is the other way your growth might suffer. So if that is the case either in Q4 and next year, where would you actually focus on? In other words recently the home equity loans and mortgage loans, you expanded those types of loans quite a bit and are you going to persist in that policy? And do you plan to continue boosting the SME loans or do you have any strategic plans otherwise?

And secondly, the government is pressuring the loan interest rate drop on the card loan. So how is that proceeding and how will that impact your bottom line?

(Interpreted) Yes, thank you for your two questions.

First of all, I believe that our growth target is to grow in line with the GDP growth rate. If I may actually break it down to the different business lines. We are looking at the corporate customer portfolio and to enhance the portfolio we are continuing to identify low risk SMEs or SOHOs. Such strategy will persist going forward as well.

Now on the retail side, as you have pointed out, we have been focusing on increasing the home equity loans, and if we continue to do that it could compress our NIM. Now when it comes to general loans, extended to retail customers, in other words those unsecured loans, we have certain high quality target groups who are professionals with high salaries et cetera.

We are targeting those high quality customer segments, so that we could further cross-sell, and we are planning to continue strengthening marketing efforts, on those high quality retail customers as well, so that we could also increase high quality low risk retail unsecured loans. So such efforts I think will continue as the basic direction in the future as well.

And secondly, you asked about the card loan related pressure on the interest rate. To answer that question, regarding the interest rate structure improvement the government is running a task force team to study this topic. So I believe that our financial Group is also coming out with plans to further reduce rates as well according to the government policies.

We haven't decided to which degree we will lower it. But if you look at the current balance we have when it comes to credit card loans and cash advance, we have an outstanding balance of around KRW4 trillion. In other words if we lower the rates by 10 basis points it would be about KRW4 billion per year.

But I think that the actual number that is reduced will be much lower than that. So again there has been no decision made to date as to what kind of interest rate adjustment will be made on our loans. So I think that you could simply apply the reduction basis points to our outstanding balance to come up with the impact.

Thank you, we will take the next question.

(Interpreted) [Choi Do-yeon] from Kyobo Securities.

(Interpreted) Thank you I am Choi Do-yeon, from Kyobo Securities. I would like to ask two questions. First it has to do with your NPL ratio. In order to defend your NPL ration you have mentioned that on the collective loan side you have conducted some write-offs.

But still I believe the NPL ratio was on par with your second quarter number. I think that in the Q4, I believe that you are faced with the situation where we would have to lower the NPL ratio. But if you need to continue to write-off the collective loans I think this will have impact on the provisioning side.

So my question is, these NPLs that have been written off, could they be written back at a future date, is there the possibility? And at the end of the rate what should be your NPL targets?

And lastly, I am sure that you are in the process of coming up with your business plan in terms of growth and NIM objective for 2014. Could you shed some light and provide some color because for next year in terms of GDP growth and the inflation rate we think that it is going to be higher than this year.

So I think growth-wise next year will be a little bit more favorable than this year. So what is your take on this?

(Interpreted) First of all let me address the question about the year-end NPL ratio.

We believe that compared to last year our target we expect will be a little higher than last year's figure. And the basis for me saying this is that as I explained in the second quarter the supervisory authorities, as you know, with the reclassification of the companies have entered into voluntary program, there is reclassification and the impact is about 30 basis points.

So that has to be catered in to our NPL ratio. Our current NPL ratio is 1.92% and we need to lower that to the target level. And if you do the calculation we have about 27 basis points that we need to cut.

Last year in the fourth quarter our NPL ratio, as you know, compared to the end of September we were able to cut 39 basis points. So compared to what we did last year it is only about two thirds of what we had already done the previous year so it is not overly or excessively burdensome.

And as I said, in Q3 we have written off KRW90 billion of collective loan so if you consider all those factors I believe that there is no difficulty in us attaining the NPL target ratio. And there will not be -- well there will be a very minimal additional provisioning that would arise from this process. So in Q4 in terms of asset quality we can amply manage this within the scope and the plan that we have.

Your question relating to the business plan for 2014. Yes it is currently underway and we do not have any finalized figures to share with you at this point. But basically in terms of growth our basic stance is that for the retail, because this is a retail focused growth, I believe that the economic growth rate, GDP growth rate has to be considered.

But we also need to look at the housing market the household debt related issues. So these factors all have to be reflected in our business plan.

In terms of the corporate side, currently our target for improving the soundness of our portfolio that has to be the priority in whatever plan that we come up with. So I guess in a nutshell on the retail side, household side other than the economic growth rate we will look into the household debt and the consumption related aspect.

For the corporate side we will look at the internal improvement of the portfolio so that we will have good quality SMEs that will be the main pillar of our growth. So that is always on our priority.

In terms of the margin, as I have previously mentioned a couple of times, basically next year yes we believe growth is important but we also believe that NIM management is as important.

And, as I said previously, in terms of our pricing strategies and product strategies, improvement of our relationship with the customers, really increasing our sales and marketing capabilities, those aspects will all be factored in so that next year I believe that we can really start to expect some upward trend.

In terms of specific numbers as to the targets it is not finalized yet for us to share with you. But basically I believe that Q4 will be a turning point so on a recurring basis I think come next year we will be on a trend upward.

(Interpreted) Thank you very much for that answer.

(Interpreted) Next question please. Mr. [Ha] please go ahead.

(Interpreted) Yes I am from Etrade Securities, my name is Ha. Now next year I believe that you have a lot of the maturing high interest rate loans and how would that impact your NIM?

The second question, I think that your G&A on a cumulative basis, on a year-on-year basis, it has come down. But would that mean that in the fourth quarter it would actually come back to you as a burden?

And another question, even if you consider the sales gain on marketable securities, I think that your non-interest side of the business result is quite sound, so any other one-off factors?

(Interpreted) Excuse me Mr. Ha, we did not to quite hear the second question. Could you repeat the second question please?

(Interpreted) Yes I think I was talking about G&A. The cumulative G&A up to September has actually come down on a year-on-year basis.

Now especially the Q3 G&A has come down quite a bit, so it was a reduction on a cumulative basis and also on a quarterly basis. So the drop was quite sizeable. So I was wondering whether the G&A expenses some of that would actually carry forward to the fourth quarter?

(Interpreted) Yes I believe that you had three parts to your question.

First of all, next year you were talking about the redemption of the high legacy rate debt. Now one thing that I could tell you is that as we transferred to become a holding company we had issued about KRW4 trillion worth of subordinated debt which is coming due.

And secondly when it comes to the economic crisis we had issued some covered bond in the amount of $1.2 billion. And again that maturity is coming due next year as well. So on those two particular issuances next year we do expect some refinancing or rollover.

And secondly, regarding the G&A, and you talked about the quarterly volatility. Let me try to explain about that.

Of course we had some one-off factors, for instance during Q2 we had some one-off situations so in the third quarter because of the high base effect it seems like it has come down quite a bit. And rather than calling it deferring to the fourth quarter but I think that it was because of the high base effect in Q2 that you saw a bigger drop in Q3.

Now as for the fourth quarter typically speaking when companies come up with business plans on a quarterly basis you could experience some deferral effect of some of the execution. So usually the fourth quarter G&A tends to go up slightly because of the finishing off of the business plan for that particular year.

So in that sense we always have a likelihood of a slight increase of the G&A during the last quarter but it will not be anything very sizeable. I do not think that it will be anything remarkable, it will be quite minimal.

Thirdly regarding the marketable securities you were asking whether we had any other one-off factors. I already spoke about the major one-off factors already. Aside from what I had already mentioned I think that the interest rate changes are affecting [AFX] or trading securities so to a certain degree we could experience some gains and losses. And during the third quarter in that regard, additionally we have generated some additional gain. So that was one of the factors that I could share with you. Thank you.

(Interpreted) Thank you very much for the answer.

(Interpreted) In terms of the high rated debt the reason why we cannot tell you about the exact impact on the margin improvement is because we do not know what type in the portfolio is going to be redeemed. So that is why he was only able to share with you the absolute size of the high-rated debt.

(Interpreted) We do not have any more people waiting to ask questions, but we will wait for a couple of minutes.

(Interpreted) Thank you since we have no further questions and because we had quite a few questions already I believe that we could wrap up. So with that we will now conclude the earnings conference of KB Financial Group for Q3 2013. The presentation and VOD of this conference will be available for access any time on the IR web page of KB FG.

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.