Shinhan Financial Group Co Ltd (SHG) 2007 Q4 法說會逐字稿

Directors (inaudible) are with us. First we will hear welcoming remarks by the CEO, followed by the 2007 performance presentation by Managing Director, [Kim Yeoung Cha]. And then, we'll follow up that with Q&A session. First, we will turn microphone over to CEO, In Ho Lee, for his welcoming remarks.

(interpreted) Good afternoon. I am In Ho Lee, President and CEO of Shinhan Financial Group. First of all, I would like to extend my deep appreciation to all of you, our shareholders, analysts and reporters from home and abroad, for your continuing confidence and support to the Shinhan Financial Group throughout 2007. Thanks to your continuing support last year, despite very challenging conditions, we were able to successfully integrate LG Card with our own card business. And, maximize synergy to consolidate marketing and cross sales efforts, to increase income contribution from non-banking side to 34%, thus, successfully differentiating Shinhan, as a leading financial group of Korea. We look forward to your continuing support for 2008.

Now, let me turn to giving you a brief summary of our financial performance of 2007 as well as strategic direction envisioned by the Shinhan Financial Group for 2008. Shinhan Financial Group's net income for the year, including fourth quarter income of 2007 was KRW225.7b to KRW2.3964 trillion to pose 30.8% increase year on year, from KRW1.8327 trillion of 2006.

In banking side net income rose to KRW2.602 trillion, a 23.5% growth over 2006. The performance of non-banking side also posted significant increase to grow 107.5% year on year to stand at KRW1.633 trillion. Contribution of non-banking is subsidiaries like Securities, Card, Insurance and Investment Trust to our net income has been growing steadily from 5% in '04 to 11% in '05; 24% in '06 and 34% in '07. Such increasing contribution is helping SFG grow, as a leading financial group with balanced business portfolios.

Group asset on the other hand is also maintaining strong growth. Bank's assets grew 17.6% while non-banking subsidiaries saw strong growth with 67.6%, thanks to acquisition of LG Card. All in all SFG's assets stood at KRW275 trillion, a 27% growth over the end of 2006. Above all, with continuing fierce competition among banks to grow in size, despite steep rise in funding costs, we were able to minimize drop in bank's margin to 12bp while group's margin was the best in the industry, at 3.89%.

Dear shareholders, financial market environment, home and abroad, in 2008, gives us many opportunities, as well as challenges to demand continuous change from financial institutions. Externally, subprime crisis is becoming more serious to increase uncertainties in the global and domestic economies. But, ease of government regulations on banks, as well as non-banking sectors, could stimulate growth on both sectors.

At Shinhan Financial Group, reflecting such changing prospects of financial markets has adopted the following as our strategic goals of '08.

First, in Banking and Card businesses, which are the core business lines for the Group we will refrain from competition in size for putting too much on short-term performance and solidify market dominance.

Second, by strengthening our competitive edge in securities, investment trust, life insurance and other non-banking sectors, where continuing change and growth are anticipated, the Group will bolster its standing as a leading financial Group with more balanced business portfolio.

Third, with continuing priority on asset quality and cost management, we will pool our efforts in improving ROA and efficiency of the Group. Moreover, 2008 is the first year for adopting our second phase of mid to long-term growth strategy. By successfully implementing this strategy Shinhan Financial Group will reach its goal of becoming global top 50 and Asia's top 10 by 2012.

Dear investors, with the aim of meeting shareholders' expectations and to repay for your continuing trust and support and, to improve long-term value for our shareholders, everyone at Shinhan Financial Group will exert our full efforts in 2008. We look forward to your continuing support and interest.

Thank you very much.

(interpreted) Now, we will turn the microphone over to Managing Director, [Kim Yeoung Cha], who is going to brief you on the performance of Q4, as well as the whole year of 2007.

(interpreted) Good afternoon. My name is Kim Yeoung Cha. The fourth quarter of 2007, let me start with earnings highlights. For this earnings conference the presentation format has been slightly changed. We made it easier for you to follow. I hope it's helpful.

The highlights have already been mentioned by the CEO so, I'll move straight to page seven, which gives us the income statement highlights. Now, fourth Q net income is -- for fourth Q 2007 KRW60b but it slightly decreased by KRW300b but there were some factors.

If you turn again to page four, the reasons are explained there. On Q4 the special factors was that the Shinhan card unused credit limit provision was minus KRW207.1b and Shinhan Bank corporate loan additional provision was KRW136.9b, this is after tax. And then, we had the early retirement expenses on Shinhan Bank side, which is KRW99.4b. These were all minus factors and as of plus factors, the income from the VISA card IPO which was KRW94.6b. So, in addition to these one-off factors you can see, for the period, our income was around KRW654b.

Now, moving back to page, slide 11 -- excuse me, slide seven, you can all read from the chart so the income is -- actually on the operating income and non-operating income side increasing very healthy. If you look at the chart on the right side, let me give you quarter on quarter in your own comparisons.

If you look at 2007, the numbers on the total net income, it is KRW2475b and on the -- if you look at the interest bearing side, it's contributed mainly from the LG Card side. On the non-interest bearing side, securities and other sectors have done very well, to contribute to more than KRW2 trillion.

SG&A, the goodwill amortization and card side, it's increased by 33%. If you look at the provisioning you will see that because of the loan loss provision on the group side -- on the bank side and the card side, you see the number changes.

And, on the income tax, because of the deferred taxes it was KRW536b and on the LG -- if you deduce that from the income from the LG card, the total net income is KRW2.475 trillion, as stated in the chart.

If you look at the subsidiaries income on the next slide, if you look at the chart on the right side, the second column, the net income, the 1+Ownership, the Shinhan Bank is more than KRW2 trillion, which is about KRW450b more, year on year; and, Jeju is KRW8.9b. And Shinhan Card is stated there and its contribution -- from the LG card is about KRW400b and from the securities, life insurance, capital, KRW49b. BNPP ITMC was KRW10.7b.

So, overall, KRW425b from the bank and LG card included about KRW400b; and non-banking, excluding LG, the net income rose about KRW200b. So, overall, non-banking side it's up more than KRW1 trillion, which is for the first time. And as our CEO stated, as you can see on the left side graph, the net income contribution by non-banking subsidiaries is 34%.

So, our LG Card because it's from '08, the contribution will be fully calculated so non-banking contribution we think will rise to about 48% to make, bank 66%, Shinhan card 22%, Securities 6% and SH&C and others, 6%. So, the net income contribution is very sound.

Let's look at net interest margins. First on the overall interest and non-interest income, it's staying very healthy. So, although slightly increased -- the margin has also been improving. The fund sales fee has also increased so, non-interest income has also been rising.

So on Q2, if you look at the numbers, you see that inside the Q4 it has risen slightly. So if you look at -- on the right side chart, the non-interest income, interest income has risen. Interest income, 9.2%, non-interest income 40.9%. SG&A expenses have only risen by 3.8%.

And, there is a minus on the loan loss -- earnings before income taxes and, also, loan loss provision, you see there are factors being reflected including the write off of the aged accounts.

If you look at the net interest margin chart on the left side on the quarterly basis, from 2.36 last year, it has dropped a bit to 2.21%. However, overall, it has risen on year only basis, 9bp and on accumulated basis, last quarter it was 2.25. It has risen by, 1bp and over last year it has only dropped by 12bp. So, overall, the interest margin on the Group basis is 3.86%. I think it's one of the best in the industry.

Next is the non-interest income and SG&A, so, slide 10. If you look at the chart on the right side, non-interest income is KRW2.221 trillion and if you see securities related, it has grown significantly by 74.4%.

This is because of the heavy increase due to the LG Card factor but if you look at the fund. Fund fee income is about KRW336.8b on the year end. And, on quarterly basis, 41% was the increase over the last quarter and, on yearly basis it has grown by 113.8%. So Fund has become an important non-interest income source.

If you look at the SG&A expenses, total for the year is KRW2.392 trillion, which is increased by 3.8%. Labor costs by 5.2% but admin expenses decreased 8.9%; so, overall, there was a decrease. But at the last year end there were those who elected for early retirement so that has helped us to control SG&A expenses. And, because of the early retirement package, labor costs we hope will be reduced by KRW34b.

As for the D&A costs, this is due to IT investment. And tax and dues, income from the in company welfare package and education taxes have been factors.

For the cost income ratio in 2007 in the fourth quarter it's up by 40.2% and, if we exclude the depreciation of the goodwill, the cost income ratio of the Group is, here, as you can see, is about 47.2% -- has decreased from 47% to 42%, which is a 5% decrease.

And next is the Shinhan card income. The LG Card was included into Shinhan group in March of last year and, as of October it was integrated with the Shinhan card, so this is based on pro forma basis. And, as you can see on the right hand side, at the bottom, you see the income is about KRW1.6 trillion; this is a 15.9% increase compared to last year.

As for the operating income this is about KRW3.600 trillion and for -- if you look at the lump sum and installment purchases and this, you see the [various] product that cards have increased well, in a balanced manner. And as for the SG&A expenses, it was increased by 19% and this is due to increased investment in IT as well as increase in marketing and advertisement.

So the operating income compared to last year, decreased by 8.5%. However, non-operating income, as I said before, because of the IPO from the VISA that was incorporated, so, non-operating income increased.

And as for the pre-provision income we see that increased as well. However, the income tax compared to last year, we see that it changes into the net income for the year 2007 was KRW1652b. And this is the operating revenue breakdown, the lump sum, installment purchases you see they are increased on a continuous basis. But our cash advances, cards loan, and these products you see, their portion is decreasing in terms of operating revenue. And this means that our product or the asset quality is improving. And as for the recovery from written-off assets for each quarter, it's about KRW110b so this is maintained at a very stable level.

Next, I would like to talk about the fund of procuring and management and let's move on to page 13. As for the total assets, including the Trust A/C and AUM, it's about KRW274 trillion, as of end of 2007. In 2001 when the holding company was launched and when we incorporated -- we acquired (inaudible) bank and Good Morning Securities in 2002 and 2003 we acquired ChoHung Bank and in 2005 we merged -- we acquired Shinhan Life Insurance. In 2007, we acquired LG Card. So, on average, every year our assets grew by 27%.

But in 2007, in particular, with the acquisition of LG Card with the assets from [KRW30 trillion] we have about KRW31 trillion from the bank but KRW2 trillion are from the life insurance and including -- we also had a solid organic growth. So the bank -- we saw the bank's banking assets grow by 17.6%. For the non-banking we saw the assets grow by 67.6%. So, all in all, we saw the assets grow by 27% in 2007 compared to [20%] in 2006.

And, I'd like to talk about the funding and management for bank. As you can see, loan growth in KRW is KRW105 trillion and so that's an increase of 18.3% compared to 2006. For retail that grew by 9%, which is quite stable. And as for the mortgage, we see some stagnant growth so that was only about 4.2%; and (inaudible) the mortgage loans or others, we saw others grow by 17.3%.

And as for the corporate sector, we saw the loans grow by 29% and SMEs we saw a growth of 32.3%, that's about KRW12 trillion. And -- excuse me, KRW11 trillion from SME and SOHO is responsible for KRW4 trillion. And, as for non-registered that's also responsible for KRW4 trillion and the registered is up by KRW3 trillion. So in terms of the size, in terms of the quality of the assets, I think we are quite well balanced.

And, if you look at the total deposits in KRW, it's [about KRW92.907b]. That's an increase of 8.6% compared to 2006. Low cost deposits grew by 1.9% and because people are -- you can see there have been many fund movements to the fund as well as the CME and securities companies. However, we also -- for Others (inaudible) increase by 12.6% and so debentures increased by 15.8%.

So, with the market interest increase the funding cost has increased and has impacted decrease in NIM but, however, we have very stable deposits and we have acquired the settlement accounts of the LG credit card. And we have also actively procured the funds in 2007 and that is why we see a rather stable situation here. As you know, the low cost deposit is the debenture that is responsible for the 21% and time deposit [up by] 34%, low cost deposit 32%.

And let's look at Shinhan card asset growth. If you look at the transaction volume, in Q4 of 2006 it was about KRW22 trillion. In Q4 2007 that number grew to KRW26.949 trillion. So that's an increase of about KRW2 trillion. So every quarter we see the transaction volume increase. Lump sum, installment purchase, cash advance and card loan, we see all of them improve.

And, on the right hand side, when you look at the managed assets, including ABS, in 2007 it was [about] KRW17.273 trillion, an increase of 9.1% compared to the year 2006. With the integration, despite the integration we saw installment purchase increase steadily and we saw that increase by 6.9%. The number of active customers, there was an increase of 2.7% and, the number of merchants also increased by 7.1% compared to 2006. So, the integration had a minimal impact on the sound business of the card business.

And as for the total funding, excuse me, in 2007 was KRW12.347 trillion, an increase of 13.3%. If you look at the composition, debenture was up 11.7%. ABS was -- in the market, with the marketing interest increase we see that we had a short-term funding including CP and in the past the CP funding was around 10%. In the future we hope to decrease the number for the CP. And, about one year -- less than one year is 30%, (inaudible) 30% and less than (inaudible)is also [40%]. So in terms of the period it's rather stable. And with the card business we have been able to acquire stability in terms of funding.

And next is asset quality, this is page 17. In 2007, NPL portion is about 1% as for Q4 and so this is about a 0.6 basis point decrease compared to the previous quarter. And, however, compared to the previous year, we see the -- we have acquired LG Card, which had rather high NPL ratio, that's why this increased. In case of NPL coverage is up 192%. So that is an increase compared to the previous quarter.

And, next is the Shinhan Bank asset of quality, this is page 18. And, of 2007 it's at 0.73% compared to the previous year and compared to the previous quarter, this is a decrease and, including the written off it's about 8.7%. And last year the same number was higher than this; so about 18bps decrease has taken place.

As for the delinquency of more than one month, it's 0.71%. So this is very stable until Q3, with some SMEs, the delinquency will increase a little bit but in Q4 that number decreased to 1.24%. As for the retail, as for the Q4 that delinquency ratio for one month is by 0.41% and as you can see the NPL coverage ratio is 191%.

And next is the Shinhan Card asset quality and in 2006 it was about 4.45%, that decreased to 3.04% in 2007. So every quarter we see the decrease in NPL ratio. The assets have become quarter by quarter. And as for the delinquency ratio, as of last year it was about 4.09% and in -- it has been decreased but it increased in Q4 of 2007, because in Q4 written off amounts increased by KRW20b. And usually we had about written off of KRW140b and, at Q4 we had KRW90b of written off. And, full year, to write off more than KRW50b and the number was very similar to the previous quarter.

In Q4, the reason we had done less writing off is because in Q4, usually the cards, we see the asset growth because it is the end of the year. And, in Q1 compared to the previous quarter we see the decrease and that's because of the seasonality of the credit card business, and that is why we have decreased the volume of write-offs for Q4. And as for the NPL coverage ratio, it is [about] 200%. You see that's an increase compared to the year before.

And as for the loan loss provision and write off, in 2007 that was KRW872b, as of end of 2007. That's an increase of about KRW280b, because there [are about] 159 loans and we had a credit cost of 54 bps. That is what this graph is showing you and that's the write off in 2007. The write off was [about] KRW709b. That's a dramatic increase compared to last year and this is because of acquisition of LG Card or the inclusion of LG Card [with the addition of business group].

And, lastly, capital adequacy. As of end of 2007 the BIS ratio compared to the previous quarter is decreased by 1% and was about 9.8%. In Q4 [the risk-weighted] assets increased by 2.9%, compared to the previous quarter. And, net income decreased because of the special reasons. There was a dividend to be paid out and also, we -- some of the capital was not acknowledged. And also, at Q2 at end of 2007 (inaudible) was not accepted as capital. So, in 2008 we -- as an increase of Tier 1 we expect to see the capital increase in 2008 and we hope that growth of minus -- minus growth will be compensated in 2008.

And Shinhan Bank's BIS ratio, for -- because of risk-weighted assets increased by [2.8%] and capital, because of the dividend payout and disposable securities, a valuation loss and so that decreased by 0.8%. So compared to the previous quarter we had about 12% of the BIS ratio. And Shinhan card adequacy ratio as at end of the quarter, the LG card is about 34% and the Shinhan card is about 15.9%. So, the integrated company that is up by 25% of the capital adequacy ratio, as of 2007.

And for appendix we have Shinhan Bank's investment securities and Shinhan Bank's SME loans. I will not go in to explain them. I hope you will refer to them at your leisure. This concludes the earnings report for the Q4 2007.

(interpreted) We'll now move on to the Q&A session; if you have any questions, please raise your hand.(OPERATOR INSTRUCTIONS). Those who are asking questions in English will have your questions consecutively translated into Korean, so please pause in between so the translators can interpret. So if you have any questions, please raise your hand.

(interpreted) My name's Yu, I'm from [Shinhan] Securities. Thank you for a very good performance. I've two questions. First, NIM. The Bank's NIM was maintained without impact from cards, so that was very encouraging. But if you look at last year, in the beginning of the year the funding was increased. So you defended NIM during the year. But if you look at the beginning of '08 you have some debentures that didn't exist from last year. So some are saying it was carried over from last year. That's what the bond market is saying.

Of course compared to other banks in the beginning of January we weren't very aggressive in funding. So NIM in January compared to competition will be very healthy still. However overall the funding conditions of '08 is not really favorable. And if you look at the SME, [note that's been increasing] in January compared to last year, it's rather significant. So on the bank side, NIM, what's your policy going to be? And funding has become more challenging compared to last year. So CD and others on the end of Q1 or Q2, maturities are coming, so how are you going to respond to that?

And secondly if you look at the page 22 of course Q4 there were less earnings and there were some dividend that was not paid out. So dividends, how -- what was your base for calculation used here? And Basel II, (inaudible) will be implemented from here. So it's not [incurring rating methods]. So some drop has been probably anticipated which means therefore Bank also within the first half of the year, the funding environment, even if it's not a good hybrid or other (inaudible) to be contemplated. So within the first half of the year what's going to be your dividend policy and credit card dividend policy? And overall there are also other factors. So overall your capital policy, could you give some indication on that?

(interpreted) As you said in '07 on the banking [center how] to defend NIM. There was a priority because there was a lot of pressure on the funding side. And the second half the sub-prime issue in the U.S. has also aggravated the situation. So overall there were a lot of challenges.

So these factors ultimately for the bank inevitably means reduction in NIM. However fortunately in early January U.S. decreased its interest rate. And I think that would also have some impact on the rate in Korea. The sub-market is actually rather very weak now which means that the fund income coming to the bank might increase. So the overall cash flow for this year will be less pressuring than last year for the bank.

However not only the external factors but also internally low cost deposit, we're going to expand that. I think that's what we need to do. And through ALM appropriate allocation is something that we need to think about. And we're actually making effort toward it. And for example last year because of the integration of LG Card new, about 1m accounts have been integrated. So I think about KRW400,000 per account deposit income could be anticipated. So total amount, it will be about KRW400b. This year we are going to be more aggressive in attracting credit card accounts to our side. And schools that needs to pay bills or an institution that needs to pay bills coming to our banks and other low cost deposit sources. We actually think there's high potential there for the bank. Thank you.

(interpreted) If I may add to what was just said. There is a competition among financial institutions which means there will be continuing competition for NIM. However last year many financial institutions have gone through a lot of difficulties. So sacrificing margin to grow in size will face limits. So we'll minimize defending margins and we'll not too much focus on short-term income whether card and banks side. We will keep leadership in the market. And that will be the way to manage our assets and maintain our margin level.

So in coming up with the business plan for the year, overall 3% to 4% margin decrease seems inevitable. So that's already been reflected in our plan. However since integrating LG Card to our business the Group level NIM is 3.98% which is the best in the industry. So we will continue to defend margin. But if there is something that we can further accommodate we will do so because we have some strength to do that. Yes, there will be some challenges in the funding side, but going to the -- there are some limitations to continue to [defend] on the bond or debenture. So we need to find new funding sources. And we are making efforts towards that end. So maybe issuing MBAs on the housing side is also under review. And also relate to dividends.

And as you know, since establishing holding company or financial group maybe it is not up to the expectation. But we have made continuous efforts to maximize shareholders' value. And so we maintained consistency in our dividend policy and as you know till now on the Group through M&A efforts we have increased Group's overall value. So there were some limitations in dividends. So this year the preferred stock that needs to be repaid when when we acquired Chohung, KRW800b is outstanding which needs to be repaid this year, about KRW500b. So there are KRW800b that needs to go out, expense including the preferred stock repayment and other factors. So -- but next year we'll not have much money to repay so there will be more room in terms of dividend policies.

And this year's dividends, it'll be about the same level. It needs to be about the same level as last year. That is currently our thinking. So overall our capital policy to increase our corporate value and shareholders' value, that will be our priority. And we're going through tumultuous times because of the sub-prime crisis, the global market, we detect a lot of changes there. So in Korea, and outside of Korea, I think Shinhan needs to weigh different opportunities and we are doing that and are trying to find the best way possible.

In the (inaudible) you mentioned something related to Basel II about dividends of subsidiaries. As was said, with the implementation of Basel II our BIS ratio would decrease by 0.8%. Of course with the basic of internal rating method that is going to be increased by 1.6%. So we are -- BIS ratio at the time would be higher. But temporarily BIS ratio would decrease.

So considering all of this we will have to be very flexible in terms of dividend payout by our subsidiaries with the acquisition of LG Card and integration of LG Card into Shinhan card. We have transferred the Shinhan cards assets to LG Card and so this is the amount KRW1.2 trillion. And with that we would be more flexible, with that money made available to us. And that can be incorporated. That amount [of money] can be incorporated into the dividend payout policy of the Bank.

(interpreted) We will entertain the next question.

(interpreted) My name is (inaudible) of Nomura Securities. In case of Shinhan, for the past two, three years, you have been growing in a very -- a model, I think your share prices have some sort of premium. However I think this is a very important time in terms of your share price. And so I think the situations have improved for you.

And as for other banks, as the President has also mentioned, in this changing environment through the M&As what they will have to do what Shinhan has done, that they have to try to grow in a way that Shinhan Bank, or Shinhan Financial Group has grown. So I wonder how -- I wonder how Shinhan Bank will continue to maintain this positive differentiation from other banks?

So I wonder if you could tell us your differentiation policies going forward? And as related to the credit card business I'm sure there will be a downward pressure on your margin. The government is asking you to decrease the margin fee and the competition is fiercer than before. And the competition in terms of the size is also quite fierce. So I wonder what sort of strategies you have for this? And as for the written off, write-offs, and I think that recovery is taking longer than anticipated.

So I wonder what your recovery size is going to be? Do you think you will be able to maintain the recovery size? And when do you think the recovery amount will begin to decrease?

(interpreted) Thank you for your comments. And as you know, this year the financial environment has been changing dramatically since the Asian financial crisis. We have grown in size by -- through our separate M&As and we have diversified our businesses. We have also increased number of customers. We have also increased and diversified our business lines. So as a result bank and cards, I believe within the Korean market we have solidified our position as the number one player. So with -- we'll have to expand our market dominance through organic growth. So that will be one of our focused strategies.

However, as you know, securities, that is with the capital market, there will be many changes, as you know, so in response to those changes we will have to respond very dynamically in investment banking and asset management. These businesses we've -- for these business models we will have to think about what sort of business models and what sort of capabilities we need to add so that we can maintain -- become and maintain number one financial institution in Korea.

So that is one of our main strategies. And once we -- because you know the Korean financial market has become quite mature. So we will have to increase our business capabilities in the overseas market.

We will have to look for the niche market in Asia. And we will also have to go into other markets with our customers and we will have to localize our business in our existing businesses in overseas markets. And by doing that we believe that we will be able to grow our size and that would be our second goal of this year.

And as for our differentiation policies after the acquisition of LG Card and Chohung Card, the business lines in Korea, we have increased the number of business channels. And in terms of retail customers we have about 23m to 24m customer base. It's a really rather large customer base. And so the 13 subsidiaries within the Shinhan Financial Group will have to be able to provide more differentiated products and services.

And we -- these subsidiaries will have to find a way to produce synergy in terms of the way that they do business. And that's one way that we can differentiate from other companies. And before tax as of last year the synergy income was about KRW600b as of last year. And in going forward through the common operation of the subsidiaries of the Shinhan Financial Group, we would like (inaudible) we'd like a joint operation in IB within our PB, private banking.

And so we would like to expand our basis for synergy effect. And so that's one of the goals that we have. LG Card -- after the acquisition of the LG Card and Chohung Card within the Shinhan Financial Group we have integrated the work flows and the operations. But we also --.

However we need to increase the efficiency and we need to improve efficiency in terms of the cost and reduce overlapping operations. And that work has been -- we have been doing that for some time and we'll continue to do so. Last year through the early retirement of those who used to work for the Chohung Bank, I think that's one of the efforts we have undertaken in order to increase the efficiency. We're trying to increase efficiency and decrease overlapping of investments and operations and this is something that we have been doing for some time and will continue to do so. And at [branches] because we did not have sufficient people, we are also actively implementing our (inaudible) what related to the back offices. We would like to -- our efficiency level is -- has not yet reached the goal that we want incomes for the card business.

In conclusion I think that we have for the credit card business and the Bank for which we are number one in the market. We will have to improve our efficiencies further. However the capital market businesses which we lag behind some players. And last year the non-banking subsidiaries, the contribution to the overall income is going to be around 42% to 43%. But I would still like to further improve the capability of the non-banking businesses so that non-banking businesses can also become number one -- the leading businesses as the banking and credit card businesses have become. So that's one of the tasks that lay ahead of us.

And as for the [ISA] management SH asset and BNP ITMC, these two companies are -- they have to be -- will (inaudible) whether it would be more competitive to integrate them or whether we need to specialize the two separately. We are currently working with an outside firm along with the BNP Paribas to see which is the better option for us. So that's currently under review.

And related to IB with the banking and the securities are separate. We will have to see which business model would be better for the increased competition. And as for the securities, we have to see whether it would be better to increase the size or to increase the human resources.

So we are studying the optimal business model for us. And as for our overseas businesses, yesterday our -- we have received a license for the business in China, we have received license for the Kazakhstan. So we are trying to localize as much as possible our businesses in other countries. And so that's one area that we are also going to be focusing our efforts on.

So we will begin where the possibilities are high. We'll go step by step. As of now in nine countries we have 19 banks and three securities. So we have 22 channels in overseas countries. We will not be rash in doing overseas business. But we will do this step by step, cautiously, in accordance with our capabilities so that our dependency on overseas we would like that ratio as of now -- that's about 4% as of now. We would like to increase that number step by step to about 7% and by 2012 about 12%, by 2015 we would like the number to be 15%.

So we are going to have a mid to long term plan for the overseas business and implement that plan step by step.

About card market, credit card market, think you mentioned about it. The margin is going to be decreasing. I'm concerned about this. However GDP growth rate -- about 60% of GDP growth rate is up from consumers, about 40% to 50% of retail consumption I think is paid by credit cards. So we are -- we understand that our (inaudible) or the purchase, card purchase payment increased by 13% and the card market increased by 15% as overall. So [you'd] hope that our sales by credit card would grow at a level, a nominal growth level, and cash advance portion is decreasing. But -- so that all the margins may decrease.

But I believe our credit card sales which is very much related to the lifestyle of the people will continue to grow. And that's for the merchant. As for the merchant fee to be decreased. I think there will be some impact, but that impact will not be significant.

As for the competition among the credit card companies will continue to be fierce and there will be some confusion within the market. But I believe that the card market is the market where economy of scale or the size of scale is -- size or the scale is very important. We have about -- we have about 25% of the market and our asset size is about KRW17 trillion. So when it comes to competition with other financial institutions, I do not believe that -- we would not be lagging behind others in terms of scale. And with the merger of LG Card and Shinhan Card there was some concerns. However, with the merger taking place in October, we see that the market size did not really decrease.

Beginning this year, that is 2008, after LG Credit Card has become part of Shinhan Financial Group in a sense it has been able to use the channels of Shinhan Financial Group and as well as the benefits of being part of an integrated Financial Group. And we'll have also opportunity to acquire Shinhan Financial Group's customers -- the card business. And in terms of funding I believe this new credit card company will be able to provide better and more services to customers. And therefore also in terms of credit as well. So the Shinhan card this year will be able to increase its competitiveness.

And as for the recovery. As the market is going to be stabilized and the recovery of the write-off is going to decrease. Last year it was about KRW450b and this year our plan is going to be about KRW430b. Of course this number is not going to be increasing this year because of this. We had income of -- and I think we have to have I believe adequate profit and loss given the -- in accordance with the situation. Thank you.

(interpreted) We'll move on to the next question. I think it's going to be from telephone. (inaudible) from Merrill Lynch, you have a question?

Hi. (inaudible), Merrill Lynch. I have two questions. I want to know what is the outstanding amount of hybrid Year One tax accrued level and at the bank level?

And my second question is, can you give me an update on your sub-prime related exposure and write-down?

(interpreted) First let me answer your second question first related to sub-prime exposure. The CDO related to sub-prime as of the last year end is about 4 point -- $5.3m but over 30% has been written off. So currently remaining in terms of outstanding balance is about $3.5m, this is all in dollars. So sub-prime related overall Shinhan Financial Group's level's exposure is rather very low.

And as for the hybrid Tier 1, currently on the Group level hybrid Tier 1, we are not issuing it. So the funding capability was on the Group levels maybe -- there is some room for using our own capital.

Okay. So my question was how much hybrid Tier 1 do you have outstanding now on your books? Including local (inaudible)?

(interpreted) Outstanding wise it is about KRW1 trillion, that would be the outstanding amount that you're looking for.

Okay, that answers my question, thank you.

(interpreted) We'll now move on to the next question. If you have a question, please raise your hand. So we'll receive one last question, via the telephone from Macquarie Securities we have a question.

(interpreted) I joined you late, I was not able to listen to all the presentation, so as for the one-off factors for Q4, what were they and what's the amount of them?

(interpreted) In Q4 for the one-off factors in Shinhan Bank, because of early retirement, it was KRW137b for the retirement benefits. And in 2008 we are expected to pay the management performance bonus. This is about KRW78.8b at the end of last year. Based on the provision ratio change the corporate loan provision had to be added by about KRW188b. This is all before tax.

Related to Shinhan cards, the monoliners, they had to have about to -- the provisions that would not be used to reserve the provisions.

As for the [idle] deposits of the Shinhan Bank, they will this year, have been included in other provisions and that's about [KRW51.3b] and they've been put into the provision as of last year.

And for the plus factors, as you know, Visa, as of October 1 last year we have received our 6.6m shares of Visa. And Visa International sometime within this year. We have an IPO.

So with that, in Q4 we have -- for the money that we have received, the gains we have done the valuation of the gains and that has been reflected in our numbers.

Ladies and gentlemen, I would like to thank you for attending our earnings conference. We have prepared a beverage and snack for you and I hope that you will join us for the beverages and snacks. Once again I would like to thank everyone for joining us for the earnings conference and this concludes our conference today. Thank you.

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