KB Financial Group Inc (KB) 2016 Q4 法說會逐字稿

Good afternoon, I am [Kwon Bon Ju], IR manager at KB Financial Group. Thank you for joining us today. We would like to now begin 2016 full year earnings presentation.

For today's earnings release, we have our CFO, [Yi Dae-gun] and the Group's executive team. We will begin with 2016 earnings results which will be presented by our CFO, followed by a Q&A session.

Now, let me invite our CFO for 2016 earnings presentation.

Good afternoon, I am CFO, Yi Dae-gun of KB Financial Group. Before going into 2016 earnings, let me briefly talk about the overall business backdrop.

In 2016, we saw global economic uncertainties heightened with low growth trend in the domestic market becoming more pronounced, accompanied by rigorous corporate restructuring. We expect the domestic economy to face difficulties this year due to unfavorable export conditions on slower Chinese growth and difficult trading relations with the US, and prolonged burden of household debt and contractions in the housing market.

Under such challenging environment, KB Financial Group fully consolidated Hyundai Securities as its subsidiary last October and merged it with KB Investment and Securities to launch KB Securities, thereby laying the basis to fuel growth and diversify its business in the low rate, low growth environment.

On top of various strategic efforts to secure source of profitability, we will continue to endeavor towards cost efficiencies, and improvement of asset quality so as to manage cost effectively. Just to note, today, the Company's BoD decided on cash dividend of KRW1,250 per share for 2016 with the payout ratio of 23.2%.

In line with improvement and stability in earnings performance, we plan to gradually increase the payout ratio and we will do our best to satisfy shareholders' expectations and reward their support.

With that, I will move onto 2016 earnings results. Please refer to page 2. KB Financial Group's 2016 net profit was KRW2,143.7 billion, up by 26.2% year-over-year. Such improvement excluding the one-off factors are largely due to sound loan growth and increase in net interest income driven by defending the margin. And declining in provisioning on asset quality improvement.

Q4 Group net profit was KRW453.9 billion, down 19.6% Q-on-Q impacted by one-off factors.

Looking at the breakdown, annual net interest income recorded KRW6,402.5 billion putting a stop to several years of downward trend, growing 3.2% year-over-year.

Also, since hitting bottom in Q1 of 2016, there has been a sustained increase due to the fact that whilst there was a robust loan growth, we were able to actively improve asset liability portfolio and conduct sophisticated pricing enabling a rigorous control of NIM.

Just to note, Q4 Group's performance includes Hyundai Securities' Q4 figures. I will elaborate on relevant items from Hyundai Securities that impact our earnings significantly.

Next, net fees and commissions income came in at KRW1,584.9 billion for the full year and KRW476.9 billion for Q4, up 3.3% year-over-year and 27% Q-on-Q. Q4 net fees and commissions income increased quite significantly compared to Q3 due to the inclusion of Hyundai Securities' fees and commissions income.

Other operating loss was KRW542.5 billion for the full year and KRW422.9 billion for Q4, widening the size of loss both year-over-year and Q-on-Q.

In Q4, net loss was larger than the typical year due to losses from investment securities and fluctuations from interest rate and exchange rate and one off losses created in the process of merging KB Securities.

To provide a bit more color, firstly, due to a sudden rise in the market rate and the FX rate, loss from investment securities increased with significant impact from Hyundai Securities' losses which was consolidated starting this quarter.

And in the process of integrating evaluating models for OTC derivatives of KB Investment and Securities into Hyundai Securities, there was a KRW95.2 billion of loss recognition. Also, there was the impairment loss from HMM shares owned by the bank in the amount of KRW15.3 billion and KRW14.4 billion loss from principal preservation trust and derivative related CVA loss of KRW13.5 billion.

Excluding such factors, we believe the size of loss from the other operating income items are within the ordinary range.

For G&A, driven by extensive voluntary retirement expenses, and inclusion of Hyundai Securities, there was a significant year-over-year and Q-on-Q increase to KRW5,228.7 billion for the full year, and KRW2,110.7 billion for Q4.

If you exclude the ERP expense and Hyundai Securities' impact, G&A was only up 1.3% year-over-year, displaying that our cost cutting efforts to previous ERPs and corporate-wide cost savings efforts were of value.

For your reference, the ERP which took place in Q4 led to the personnel reduction of 3,017 employees in the Group and KRW844.7 billion of expenses. It is expected that these ERP costs will result in cost phasings within three years and all of the expenses will be recovered.

Group's provision for credit losses recorded KRW539.2 billion annually and KRW31.5 billion in Q4. Asset quality was maintained at a sound level and provisioning write-back continuously took place, recording a very low level, lower than the normalized credit cost.

As long as the economic situation doesn't deteriorate rapidly, this year's asset quality is also expected to be maintained at a sound level. However, since there were sizeable write-backs in 2016, the provision for credit losses in 2017 is expected to increase on an absolute amount basis compared to the previous year and is expected to be within a 40 basis point level compared to total loans from a credit cost basis.

Net non-operating profit was impacted by the gains from the bargain purchase related to the share purchase of Hyundai Securities and KB Insurance and posted KRW951.7 billion and KRW734.1 billion in Q4. The total sum of gains from bargain purchase recognized in Q4 was KRW697.9 billion, a sum of KRW622.8 billion from the shares swapped with Hyundai Securities and KRW75.1 billion from third-party allocation to a capital increase with consideration from KB Insurance.

Let me cover the major financial indicators from page 3.

Group's 2016 ROE and ROA recorded 7.26% and 0.63% respectively showing continuously profitability improvement. NIM, a major profitability indicator posted 1.86% annually for the Group, a 3 basis point drop Y-o-Y but recorded 1.89% in Q4, showing a 4 basis point improvement Q-on-Q.

In particular, despite the policy rate cut in June, Group and Bank NIM are both slightly but continuously edging upwards after bottoming out in Q1 showing that the overall NIM improvement efforts are fruitful.

Looking at the cost income ratio on the right, the Group CIR rose 70.2% for the whole year in 2016 and 116.9% in Q4 respectively. A significant increase with a sizable ERP cost in Hyundai Securities' consolidation effect.

Excluding the ERP and Hyundai Securities' consolidation effect, the Group CIR posted an annual 56.1%, similar to the previous year and recorded 62% in Q4, a slight increase from the annual average due to factors including seasonality of general G&A.

Going forward, it is expected that the Group CIR can be improved to the low 50% level after the topline profit base is stabilized and the cost cutting effect from ERP is visualized.

Next, let's look at the asset quality indicators.

The Group's credit cost ratio compared to the total loan greatly fell to 22 basis points for the whole year and 6 basis points in Q4, this is significantly lower than the recurring level due to the decrease in the asset quality deterioration spread due to portfolio improvement and some sizable write-backs. For your reference, we believe normalized credit cost ratio is approximately between 40 basis points to 45 basis points compared to the total loan.

Even the bank's BIS ratio at December end posted 15.25% and 16.32% respectively maintaining the highest level of capital adequacy in the financial industry. The CET1 ratio that the market is focusing on is 14.23% and 14.83% respectively, but has improved with the reserve for credit losses being recognized as CET1 capital.

Let me cover the Hyundai Securities' consolidation and the launch of KB Securities' impact from page 4.

As was mentioned at the beginning, since Hyundai Securities' performance was reflected 100% in the Group's consolidated financial statements from Q4, I will briefly cover the consolidation effect. As you can see from the graph, Hyundai Securities' consolidation effect was KRW61 billion in net interest income, KRW84 billion in net fee and commissions income and KRW171 billion in G&A expenses.

Despite Hyundai Securities' contribution to the top line profit, there was approximately KRW62 billion of loss reflected to the Group with some securities related losses and ERP cost burden.

On the other hand, Hyundai Securities' effect on Group's capital adequacy and asset quality is very limited in Q4. KB Securities which concluded consolidation at the end of last year will strengthen the retail stock brokerage business and advantages in DCM which was its main focus but also actively utilize the synergy between the Group's subsidiaries so that we will be an all-around player in the securities industry in all categories including wealth management, sales and training, investment banking and wholesale, so that we will become an IB offering optimal investment solutions for customer's financial needs.

I will not elaborate on the following slides as it overlaps with what has already been explained.

That now brings me to the end of 2016 earnings report of KB Financial Group. Thank you very much for your attention.

Thank you for the presentation. We will now entertain your questions.

(Operator Instructions). Please bear with us as we wait for questions.

The first question is from HMC Securities, Mr. Jinsang Kim.

Hello, I am Kim Jinsang from HMC Securities. Thank you for a good performance. I would like to ask you three questions.

The first question has to do with NIM, I see that your NIM has risen in Q4, I would like to understand the driver behind the NIM growth and what is your outlook for year 2017?

My second question has to do with G&A. Last year, you controlled your G&A quite well and in the Q4 there was quite a bit of ERP expense but even in light of the ERP, I think the G&A was quite significant in terms of the size, so could you elaborate on SG&A especially what your forecast is for G&A going forward?

My last question is that if I look at your earnings improvement, and also with a successful M&A, I think these movements are being positively reflected on your equity price. At this point in time, I would like to understand whether expanding your share in the KB Insurance could really become a momentum for you and the market is heavily interested in this topic, I would like to understand what your plan is going forward with respect to KB insurance?

Thank you, bear with us for a moment. We will be responding to that question momentarily.

Mr. Jinsang Kim, thank you very much for the questions. You asked, I understand, three questions. First has to do with Q4 NIM, the driver behind the increase and what our outlook is for next year.

And second question had to do with ERP and how our G&A figure was quite high, you asked about the reason behind that and also what our forecast is for G&A going forward.

And your last question had to do with KB Insurance acquisition of additional shares.

I understand your question was about what our plans are for KB Insurance going forward. So let me tackle those questions one by one.

First, in terms of the NIM, the net interest margin, starting year 2011, the benchmark rate has been on a downward trend which had been affecting the NIM of the banks across the board.

In the case of last year, in June, there was a 25 basis point cut in the benchmark rate but despite that, the margin if you look at the quarterly margins on the interest income, there was about KRW1.5 trillion in Q4, there was actually an increase of about KRW300 billion at KRW1.8 trillion. So we have seen such a margin movement and I think the key attributable reason is because improvement in asset and liability portfolio and we really finally segmented our customer base in order to develop more sophisticated pricing.

And on the asset management side, last year, we focused on selling household unsecured loans with high margin, we actually grew by KRW2 trillion per annum basis and on the SOHO loans which is also of a high margin, we did around a growth of KRW5.6 trillion.

So we were able to grow on a highly profitable business. As a result, we were able to expand our margin on the lending side.

On the liability side, if you look at the demand deposit of the core deposits to yearend of 2015, size was around KRW80 trillion and last year, we were able to grow by KRW7 trillion increasing that size to KRW87 trillion, so if you look at the entire market share, it is around 23% and it's on that aspect with the cut in the interest rate, we were able to cover -- we're on the funding side.

With the new CEO coming on-board from the beginning of 2015 to now which is over the past two years, we really focused on pricing, we finely segmented the pricing and also really focused on improving the spreads.

If we look at interest income, it was a downward trend since 2011 with the fall in the benchmark rate but last year, for the first time, our net interest income had actually recorded a turnaround and I think that is a testament to the efforts that we have really focused on over the years.

As I mentioned in my presentation, compared to the third quarter, if you look at Q4 figures for the bank, the NIM was actually increased by 3 basis points from 1.58% to 1.61% and for Group NIM, there was a 4 basis point improvement. So the reason why we were able to increase -- we think that we are quite unique in this industry to bring about such an increase in NIM.

In the case of 2017 NIM, if you assume that there is no additional rate cut, we think that there will be a slight increase in the NIM and we are expecting about a low single digit increase of the NIM on a per annum basis.

Moving onto your second question on G&A. In Q4, yes, it was quite sizable, in terms of ERP, there was KRW844 billion and per annum it's around KRW900 billion of ERP and with the inclusion and consolidation of Hyundai Securities, the consolidated Hyundai Securities in Q4 and there was an increase of [KRW140 billion] of G&A.

As I mentioned during the presentation, there was an integration of the derivatives evaluating model leading to about KRW95.2 billion of an increase in expense, so these are all one-off items.

If you look at the seasonality, Q4 is a high season for G&A spending. You basically defer these execution of the budget and there are fees and commissions and also A&P related expenses which peak at the end of the year. So if we were to carve out the one offs, I believe that we were quite good in controlling the G&As.

From 2017, Hyundai Securities, we expect G&A of around KRW600 billion, that is on a per year basis, so on a year-over-year basis, the size of the G&A will rise, arising from the Hyundai Securities' impact but we really focus companywide on cost savings and CIR low 50% is the target that we are -- have set for ourselves and we believe that that is feasible.

The last question which the market is quite interested in is acquisition of additional shares from KB Insurance. If you look at P&C insurance, there is a total of 66 million shares, we have 20 million shares that we own and as of last year, there was rights offering and we have 66.5 million and other shareholders have about 40 million shares. Because the ROE figure is high and in light of our Company's strategic direction, we want to further bolster [non-bank] portfolio, so this is an attractive business for us.

However, having said that, there are a couple of risk factors that we need to be mindful of. I don't know how much market is aware of this but with the IFRS 17, at the end of April, there is going to be the documentation that would be announced and the supervisory authority will fine tune these guidelines and will decide how they will apply this to the Korean market.

And depending on how that will impact the market is an aspect that we are keenly interested in and there are relevant uncertainties. So those are -- that is one of the risk factor and there will be more stringent RBC regime. There could be requirements for additional capitalization and so you do mark to market valuation on liability, and based on that, you would calculate the size of required capital.

So those are aspects that we need to be aware of. So because of these factors, we are very keenly observing the potential risks based on which we will determine what our next steps should be. So the analysis of the situation will be important for us.

So in terms of whether we will be making the additional acquisition, the timing, the method of such acquisition is something that has not yet been determined, we will consider all these uncertainties and then come to a decision when the right timing comes. And because this insurance company is also a publicly listed company, so please understand, I will not be able to provide you with more details from this topic. Thank you.

Thank you very much for the answer. Next question is from Daishin Securities, we have Mr. Choi Jung-wook on the line.

Hello, I am Choi Jung-wook from Daishin Securities. I have three questions.

First is about other operating profit. I know that you have a lot of fluctuations normally but it seems that the losses are very significant. I know that you mentioned the details in the presentation but I would like a more detailed explanation if possible.

The second question is about Q4 loan loss provision. I know that you were on a downward trend but I think there were some write-backs because it was very low. If there were any one-offs, can you tell us about what they were?

The last question is about the sale of BCC which was mentioned in the media. I know that this was a sizable loss so I know that you probably will sell it off. Can you tell us about its fiscal influence and how it will be reflected onto your earnings? Thank you.

Thank you very much for your questions, Mr. Choi, we will answer in a few moments. Please hold.

Thank you very much, Mr. Choi, for your questions. I think you asked about three questions including the impact on the margin. For the other operating profit, in Q4, it is true that we had an impact and we had a lot of one-off factors, so let me describe in detail about what they were and in Q4, about the loan loss provision.

For each quarter, it was about KRW200 billion but in Q4, it was quite low so let me describe why it was so low. And about any other one-offs.

And lastly, I will mention the financial impact from the disposition of BCC and when it will be reflected to our earnings going forward.

Regarding the other operating profit, I mentioned some details in my presentation so let me go through it a little further.

In Q4, as was mentioned before, in the US, there was anticipation for Fed interest hike, so that is why there was an increase in the FX and interest rate in the market and our AFS and tradable securities, we had some valuation and disposition losses, so it was quite sizable.

And for derivatives-linked securities, we also had some losses, as was mentioned in the presentation. For the bank, we had some tradable securities losses, which was about KRW40 billion. And for KB Securities, there were some derivative-linked securities, including ELS, which was about KRW50 billion.

Normally, for our investment securities or securities, we hedge them, and in this case it went over our hedge limit, so that is why they are incurred as losses.

Next, as was mentioned before, for KB Investment Securities and Hyundai Securities, we had the consolidations. And for the derivative product evaluation system integration, we had a very conservative standard, so that is why we saw KRW95.2 billion of losses. I mentioned this before in the presentation, and there is a discount rate or the credit rating difference adjustments. We had some one-offs because of the fair value evaluation for the derivative products.

And you mentioned about the loan loss reserves as well. For each quarter, we have about KRW200 billion of loan loss reserves, very conservatively. And in Q4, it was only KRW45 billion.

When you look into the details, in the past, in 2007 and 2008, we had shipbuilding industry in the gray zone, so we had a very big impact. During four to five years' time, we continuously sold them off and wrote them off. So, after that, we have preemptive provisioning that is done and we are now managing our NPL very well. And for the new loans, we are quite selective. That is why, for our new loans, we do not have a lot of NPLs. We are quite stable in that. We believe that going forward the loan loss reserves and provisioning is quite low.

For our bank, you can see the NPL loans for each quarter, it's about KRW750 billion -- actually KRW75 billion for substandard loans, but it went down to a very low amount.

And for the one-offs, we had some in Q4, and there was [Hambu Construction] which was KRW65 billion; and for [Son Woon], KRW17 billion; and for [Sammu Construction], after they graduate from the workout, about KRW34 billion. And after we sold off the NPL, about KRW17 billion of write-backs.

We also had some loan recoveries and other write-backs, but they are not very sizable to mention right now. If you need further details, we will be more than happy to send them to you through our IR department.

I know that many are interested in our BCC shares. As was mentioned in the media, Tsesnabank consortium, [Mr. B] and the consortium, it is true that we are in the middle of selling the BCC shares and we are in a very important stage in the disposal so we cannot mention any details, including the price, at this point. As you know, regarding the BCC share investment, we have already recognized all of them as losses. So if we sell them off, the losses will be contracted. I think there is a high possibility of that.

I would like to rate highly the fact that, apart from the financial implication, they have been asking for capital increase from BCC. But through this disposal, we are going to actually remove the uncertainties through the sale.

Regarding the timing of BCC disposal and when it will be reflected to our accounting, well, we cannot mention the exact timing right now, whether it's Q1 or Q2 at this point. I hope you understand my reason for that. Thank you.

We will take the next question from Dongbu Securities, Mr. Lee Byung-gun. Go ahead.

Yes, I am Lee Byung-gun from Dongbu Securities. I would like to ask two questions.

First question is on, if you look at CET1 ratio, it had actually increased quite significantly because of the reserve for credit loss. But the impact from IFRS 9, how do you foresee or how much of an impact do you foresee? And what is your target for CET1? And I ask this question in terms of the dividend aspect. I know that you are paying out a dividend, but your dividend payout ratio and its upward trend is unsatisfactory compared to other companies. So, how -- what is your position in terms of the dividend payout ratio for this year in light of the CET1?

And if you look at your listed subsidiaries, there are two, KB Capital and KB Insurance, those are your two listed subsidiaries. In the case of KB Capital, there seems to be a need for rights offering, and you went to the hybrid security. You went and utilized hybrid securities. And on the other side, if you look at KB Insurance, I know that you haven't reached a conclusion but you just went towards rights increase.

So in relation to these two subsidiaries, you have taken a different route to respond to the stress factor. And of course, capital company and insurance company, they are different in their characteristics but they are all both listed companies. So it seems that your direction going forward will be to go 100% owning the subsidiaries. So, why -- what was the background behind the difference in the approach?

Give us a moment.

Thank you, Mr. Lee, for the question. I think you asked three questions so far. You asked about the IFRS 9, the repercussions, and also CET1 ratio, what is our target CET1. And your second question has to do with payout ratio, saying that it had not reached the -- was not very satisfactory. You asked about our position for this year. And also you asked on KB Insurance and KB Capital, rights offering and recapitalizing through the hybrid securities, what is the reason behind the approach. And going towards that 100% direction, you also asked about our position going forward.

For CET1, we are about 2% to 3% higher compared to our peers in the industry. Our target is the countercyclical buffer capital. In light of that size, we are looking at about 12.5% or 13% as our CET1 target. And the reserve for credit loss has increased slightly, so our CET1 has also slightly increased.

In relating to IFRS 9, the RCL, the reserve for credit loss, and the provisioning amount, they would offset one another. I don't know whether I should be disclosing the figure, but that was around KRW200 billion to KRW300 billion impact. That is the amount that gets offsetted with what gets provisioned. So the additional impact on BIS ratio is around 1 basis point or almost minimal. So we already have quite a bit of provisions already in place, that is why.

And also you asked about the payout ratio. Last year we paid out KRW981 DPS. This is before provisioning for the reserve for credit loss, and this is 22.3% payout ratio. This year it's KRW1,250 DPS and 23.2% is the payout ratio.

Basically, payout ratio is different pre and post RCL deduction. As you know, KRW300 billion and KRW500 billion, so we did a total of KRW800 billion payout, that's about 8%. If we were to say that -- if we were to exclude that then, if you want to maintain KRW1,250 as a DPS, then the payout ratio would have to be 24.4%. So I would have to say that KRW1,250 is not really a low level. It may not be satisfactory but we did do our best.

What's important for this year is not necessarily the amount of the dividend payout but the fact that the Group has a very consistent dividend policy. In the past we did admittedly fluctuate, but recently we have been very consistent in keeping to the committed payout policy. We've been improving on a year over year and we want to continuously draw an upward trend in paying out the dividend.

Your question about KB Capital and KB Insurance. KB Capital in total, there's a total of 21 million shares. We have 11 million shares that we own. So that's around additional 52%. And there are 10 million shares that are being distributed in the secondary market.

Now, the reason why we don't do rights offering, we went through the hybrid securities, is really dependent on our perspective of the capital market. Right now, although they are making money, capital is an industry with no entry barrier. In the case of KB Capital, on the automobile capital side, our asset share is around 85% on the auto side. So there is a credit card related capital and the banks are also providing -- originating auto loans. So, KB Capital is funding itself as a capital company.

And the cost, compared to credit card debentures or bank debentures, the cost is high. So if they were to compete on that cost basis, we have to think about whether KB Capital can really maintain its competitive edge as we go further out into the future. We believe that is one risk point, so we are closely and keenly observing those aspects, that's why we're making use of hybrid securities.

In the case of KB Insurance, last year there was, on the P&C insurance side, there was -- RBC ratio fell under 150%. There was a potential that it could fall below 150%. So KB Insurance made a request on our side, so we reviewed the situation and we went through third-party allotment method. And the types of rights offering of -- or the size was 15 million, that was the capacity, but we didn't issue the entirety of that but we issued 6.5 million.

Going 100%, I don't know what the market thinks about this, but we would have to think about different scenarios. The direction itself is correct, but in terms of the timing and the method, I believe that it will be heavily dependent on the market situation. So it is too early to come to a definitive decision on that point at this point. I hope that answers your question.

Thank you very much for your answer. We have the next question from Franklin Templeton, Jung Moo-il. Director, Jung Moo-il.

Yes, I'm Jung Moo-il from Franklin Templeton. I have two questions.

First question is about your business strategy, management strategy going forward. For my first question, well, I would like to ask you about the corporate fundamentals, and a lot of people will see your value based on that. And thus, I would like to ask you about your corporate fundamentals based on your shares.

As you know, after 2011, your shares are hitting the ceiling and you can see that it's quite prominent among your peers. And when you see your market cap, well, it is very pronounced in the market. And the fact that the market cap is very high, well, I think it means that you have a qualitative difference compared to your peers. So in this environment, can you give us your details about 2016 earnings?

Well, it seems that the policy in the interest income, well, it's a little bit low compared to your peers. And for your asset quality, I guess it's not very preemptive but it is based on the past, and I think your high earnings are because of your gains from bargain purchase. So I guess your capital, that was your advantage in the past -- in the past, well, it is quite prominent. But compared to your peers, well, it seems that the dividend payout ratio is low compared to your peers.

So my question is, KBFG, compared to your peers, compared to your banks, can you tell us about your management guideline that is different from your peers in terms of quality? So, can you tell us and your investors about your message going forward that sets you apart?

My second question is about KB Capital. In 2016 your net profit, well, it went up 50% from the past net income. However, your dividend, it's KRW500, that is similar to the past. So you can see the dividend payout ratio is not very favorable. So, was there a reason for you to push down your dividend payout ratio? I would like to ask you about that. Because it does not correspond to KBFG shareholder guideline, so, is it because it is being moved onto the holdings company, centric policy? Can you tell us about the details behind this move?

Thank you very much for your questions. Please hold while we prepare our answers. Thank you.

Thank you very much, Director Jung from Templeton. I think you asked two big questions. I think first was about the management's strategy and the KB share prices are at the highest, and it is actually going up, the share prices. So in this situation, we are in the top tier in our market cap. So, what is our qualitative difference compared to our peers? Can you tell us about KBFG's differentiating factor? So I think that was the question.

And the second question was about the capital, about dividends. And you said we had a lot of capital increase but the dividend is just KRW500, that is similar to the previous year, so, why the dividend payout ratio went down.

Let me answer the second question first. As you know very well, for capital, I think I mentioned this before, and for capital, the issue is, in the case of KB, we have been seeing two-digit growth, but there's the leverage ratio about the capital, so, less than 10 times the capitals, but the asset we are seeing a lag in the speed. So that is why we need additional capital growth. So that is why for KB Capital, we have seen this event.

In order to grow, if we give out dividends, well, for capital, it will be affected negatively for KB Capital, so that is the reason. And going forward, we're going to pursue stable growth for KB Capital for dividends. In the past, it is true that we gave high amount of dividends, but for last year and for this year, it will just remain at KRW500 level. So, please understand the situation, because of the risk.

And the KB shares, you mentioned that it's at its highest since 2011. It is true that it went up greatly, and you mentioned about the quality of the earnings. Well, I guess your idea is a little bit different from what I think.

Of course, when you look at the top line, it is true that it is not as high as expected. It's because interest income and non-interest income, for interest income, the NIM, well, the base rate, the policy rate is going down continuously. And to cover for that decline, we needed to have asset growth that was quite high, and we needed to grow the interest income if we do not have additional M&As. And in this situation, in the case of KB, compared to our peers, we have room to grow. That's what we believe. And we have possibilities of growing our non-bank. I think there are expectations for that. So that is the current situation.

For KBFG, our differentiating factor, well, as you're well aware, we have a new Chairman, a CEO, and we are starting anew every day. For interest income, as was mentioned, it was on a downward trend, but from last year, we have turned around. And for provisioning, in the past there was a big [bath] and some might think that this is an implication from that, but last year we had preemptive provisioning for the shipbuilding industry compared to our peers. So it was about KRW130 billion to KRW150 billion.

So we don't have a big [bath] to guarantee profits for the future. We believe that the future is uncertain, so that is why we have a very conservative provisioning policy, so that we don't have any issues with our capital. I would like to make note of that.

Regarding our management guideline, we have a mid to long-term management plan but it will take some time to explain it fully, so let me give you the details through our IR department. Thank you.

Thank you. Bear with us for a moment as we wait for additional questions.

It's been about 50 minutes since we began our earnings conference call. We will wait for just one more moment.

I see that we have no additional questions waiting in line. We would like to close the Q&A session. And that brings us to the end of the 2016 earnings conference call. Thank you.

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.