Shinhan Financial Group Co Ltd (SHG) 2012 Q4 法說會逐字稿

(Interpreted) Good afternoon. I am Seung Heon Ryu, Head of the IR Team. I would like you all for taking time out of your busy schedule to attend today's earnings conference. We will now begin Shinhan Financial Group's FY 2012 Earnings Release.

Our CFO, Jung-Kee Min, Head of CSO, [Buhm-Soo Choi] Chair and then [Jin Hee-Chan], the Head of the Finance Team, is attending today's earnings conference.

First we will start off with a presentation on 2012's Earnings Release and afterwards we will hold a Q&A session.

Now fourth quarter of last year and for the full year of 2012 our presentation will be made by our CFO, Vice President Jung-Kee Min.

(Interpreted) Good afternoon. This is Jung-Kee Min, I'm the CFO of Shinhan Financial Group. First I would like to thank you for taking the time out to attend our earnings call for financial year 2012.

I will give you a short presentation on Shinhan Financial Group's earnings results for 2012.

Let me start from the Group income on page 6. Shinhan Financial Group posted KRW429.9 billion (sic - "KRW419.9 billion") in net income in Q4 2012, which made the full year income KRW2.3626 trillion.

Group's interest income fell by 1.6% YoY due to NIM contraction and slower bond growth.

Non-interest income came down by 23.7% from the previous year as the Bank's gains on security sales decreased from 2011 and Shinhan Cards and Shinhan Investment's fee income also fell.

On the other hand, as G&A shrank by 1.8% from 2011 due to a fall in employee related expenses, such as the retirement allowances and performance incentives.

Credit cost increased by 36.5% from 2011 due to a preemptive provisioning for potential NPLs at Shinhan Bank and Capital and an ordinary increase in credit cost at Shinhan Card.

To give you more details on each segment, on interest income first, while the Bank continued to expand its interest income base as it posted an annual 3.7% growth in Korean won loans thanks to a rise in retail credit loans during the second half and a steady increase in [shorthold] loans, interest income at the Group level came down by 1.6% as the two rate cuts each by 25bps during the second half pushed down the NIM of the Bank and the Group by 23bps and 17bps each.

Now on non-interest income. The Bank's gain on securities sale fell by 25.5% from 2011 as they no longer had the extraordinary gains such as the one it enjoyed in 2011 upon selling (inaudible) shares. Due to the impact of expanded base of small merchants and two rounds of merchant fee cuts credit card operating revenue decreased by 0.9% YoY.

Shinhan Investments also saw its fee income, including stock brokerage fees, drop by 22.6% from 2011 due to reduced daily turnover in the stock market. All-in-all the Group's non-interest income decreased by 23.7% from 2011 while SG&A fell by 1.8% from 2011 due to decreases in employee related expenses such as the retirement allowance and management incentives, as growth was appropriately controlled at around 3% even after excluding one-off factors.

The Group's credit cost in 2012 increased by 36.5% from 2011, not because of the increase caused by actual corporate defaults but due to the additional preemptive provisioning.

The Bank's credit cost went up by 13.3% YoY due to recognition of additional provisioning for potential NPLs following the increase in restructuring companies and expansion of scope for individual loan impairment assessments.

At Shinhan Capital credit cost moved up by 151.7% YoY due to additional provisioning for ship financing loans, as the shipping market remained in a prolonged downturn.

Shinhan Card also saw a 79.3% rise in credit costs from 2011 when the loan loss provisions had been written back due to slight increases in delinquency rate and a fall in recovery from written-off assets. All-in-all the Group's credit cost increased by 36.5% YoY while its net income decreased by 23.8%.

Now regarding our quarterly results, interest income fell by 6.2% from Q3 due to a 10bps drop in NIM during the quarter following the policy rate cuts.

Q4 non-interest income came down by 54.6% from Q3 due to one-off factors, including the KRW46 billion [derivative CVA], KRW32.6 billion loss on sale of loans receivables and KRW31.5 billion impairment loss on securities resulting from the change in investment (inaudible) impairment standards.

Despite a KRW43.1 billion early retirement cost at Shinhan Bank, Q4 SG&A came down from Q3 thanks to a KRW96.1 billion retirement allowance write-back.

While the Banks recognized KRW92.1 billion in Q3 due to changes in actuarial assumptions for retirement allowance, KRW96.1 billion was written-back in Q4 as the Bank recalculated the retirement allowance in consideration of the rate hike and decreased retirement rate.

Credit cost posted a stabilizing trend in Q4 versus Q3. Despite KRW35.5 billion additional provisioning due to expanded scope for individual loan loss -- loan impairment assessment and KRW43.5 billion quarterly increase in ship financing related provisioning at Shinhan Capital, credit cost came down by 37.1% QoQ thanks for KRW45.1 billion credit cost write-back resulting from the sale of loans and absence of (inaudible) related provisioning needs.

Next, page 7 is on P&L of our Group companies. In 2012 our banking and non-banking business posted KRW1.715 trillion and KRW1.263 trillion (sic - "KRW1.0263 trillion") each in net income after equity [measures], maintaining a similar Group income contribution ratios of 63% to 37% from last year.

Page 8 shows each Group companies 2012 and Q4 earnings results. On a YoY basis income of our banking business fell due to a margin squeeze and credit cost increase. On a QoQ basis however income rose thanks to SG&A reduction and credit cost stabilization.

Non-banking business income decreased by 19.9% and 34% respectively on a YoY and QoQ basis due to external variables such as regulatory changes, base rate cuts and market shrinking coupled with proactive provisioning.

At Shinhan Card net income decreased YoY as operating revenue fell due to the two rounds of fee cuts for smaller merchants and credit costs rose to an ordinary level. On a QoQ basis net income increased by 1% thanks to credit cost stabilization.

At Shinhan Investment's net income fell by 37.2% YoY due to decreased stock brokerage fees resulting from the fall in (inaudible) market turnover. On a QoQ basis as well its net income came down by 93.1% due to falls in brokerage fees and gains from proprietary trading.

At Shinhan Life during 2012 premium income and gains on bond trading rose from 2011 while its overall income fell by 11.6% due to a low interest rate impact and an increase in policy reserves from single premium policy growth.

Shinhan Capital saw a dramatic fall in both annual and quarterly income as its credit cost increased by KRW70.4 billion from 2011 due to prolonged shipping market recession and additional provisioning for ship financing related assets.

Next is page 9, regarding Shinhan Bank's earnings results. In 2012 Shinhan Bank's Korean won loans grew by 3.7%. However, as its annual accumulative NIM fell by 23 percentage points YoY to 1.99%. Its interest income came down by 4.4% from the previous year.

The Bank's non-interest income decreased by 25.5% YoY due to falls in fund distribution fees and securities related one-off gains and a KRW46 billion derivatives related credit value adjustment.

SG&A shrank by 3.3% and 18% on a YoY and QoQ basis respectively thanks to -- due to the write-back of retirement allowances and falls in one-off expenses such as early retirement costs and performance incentives.

Loan loss provision increased by 13.3% YoY due to the rise in one off credit costs resulting from large company restructuring troubles and additional (inaudible) group companies and tightening of impairment recognition criteria. However, during Q4 credit cost stabilized with a 53% QoQ drop.

Shinhan Bank hosted KRW1.6967 trillion in annual net income, a 19.9% YoY drop due to decreased non-interest income and increased credit cost.

On the NIM front, Q4 NIM of the banking business, including Shinhan Card, fell by 18bps YoY to 2.4%. This is attributable to Shinhan Bank's 25bps quarterly NIM contraction caused by policy rate cuts during the year. As the impact of policy rate changes decreases in 2013 we expect the NIM contraction to be slower than in 2012.

Next page 10. On Shinhan Bank's non-interest income and SG&A performance. Fee income such as fund and trust fees fell by 3.3% from 2011 due to the decrease in sales volume. Securities related gains also fell by 40.5% from 2011 as the Bank had no one-off gain this year such as the one it enjoyed last year from the sale of (inaudible) [ENC] Securities.

FX trading derivatives related income fell by 27.3% from 2011 as the Bank recognized KRW46 billion in derivative related [CVA]during Q4. All-in-all non-interest income decreased by 25.5% from 2011.

Let me now move onto the Bank's SG&A. Shinhan Bank's SG&A decreased by 2.3% and 33.2% respectively on a YoY and QoQ basis due to the KRW86.6 billion write-back of retirement allowance and YoY falls in early retirement cost and management performance incentives. And excluding one off factors however there has been a slightly increase SG&A to an ordinary level. [Groups] and the Bank remained appropriate cost efficiency levels with CI ratios at 47.3% and 48.6% respectively.

Shinhan Card's net income for 2012 is KRW749.8 billion. Despite the 15.4% and 6.7% fall in interest expense and SG&A, the cut in merchant's fees for small merchants led to a decline in credit card profit and credit cost rose 79.3% YoY resulting in a 14.4% drop in net income. In 2012 the operating revenue of the Card business declined on the back of the merchant fee cuts but owing to improved spending conditions interest expense has fallen by 15.4% on a yearly basis, moving the NIM up by 58bp.

SG&A also came down 6.7% YoY due to labor and other cost saving measures taken. Through continued improvements in cost efficiency we will strive to enhance our profitability.

Provisioning cost, the credit cost for the Card business came to KRW295 billion on a yearly basis and increased 79.3% over the last year when there was a reversal of provisions. But this is due to the recurring credit cost resulting from the rise in delinquency rates and falling again (inaudible).

As of the end of 2012 written-off asset balance stands at KRW6.5 trillion and in Q4 we saw gains on [recovery of assets] reaching KRW67.3 billion, posting a recovery rate of 4.3%.

Next is page 13, overview of Group assets. As of the end of 2012 the Group's consolidated total assets came to KRW301 trillion, a 4.5% increase YoY, continuing the asset growth trend. This results from the annual 1.1% asset growth at the Shinhan Bank as well as the 35.3% and 21.2% product asset increase in Shinhan Investments and Shinhan Life Insurance respectively.

Moving onto page 14 on lending and funding activities of Shinhan Bank. The Korean won loans of Shinhan Bank stood at KRW144.2 trillion as of the end of 2012, up 3.7% YoY, continuing the growth in loan assets. The trend toward loan growth started in Q2 and continued onward into Q4 which saw a 0.6% increase. By sector, household loans grew 7.0% YoY while corporate loans was up 0.8% over the previous year.

The case of household loans due to the increase in loans to public servants, general purpose loans grew 22.8% YoY and mortgage loans, because of a decline in demand, increased only slightly by 0.2%. Overall there was a 7.0% increase for the household sector for the year and the corporate sector loans to large enterprises and public sector and shorthold loans posted a 7.0% and 9.7% increase each, displaying a high rate of growth for the Bank's core assets.

As of the end of 2012 Korean won deposits reached KRW147 trillion, savings deposits, including time deposits, grew by 5.3%, to low cost deposits grew 2.9% annually, resulting in a 4.5% increase YoY for Korean won deposits. Expansion of deposit base and stable asset growth led to a health loans to deposit ratio of 98.0%.

On page 15, going on to lending and funding activities of Shinhan Card, as you can see on the upper left hand side in 2012 the credit card transaction volume was KRW134.1 trillion, a slight dip of 1.1% YoY and operating assets rose 1.3% YoY owing to the growth in credit sales of 4.1%.

In 2013 as well we intend to continue an appropriate rate of asset growth to a selective marketing activity, centering on credit sales for high quality merchant and card customers.

Next, on page 17 let me give you some highlights on asset quality. As of the end of 2012 the NPL loan ratio of the Group came to 1.28% a slight increase of 0.03% percentage points YoY and precautionary below loan ratio was 2.76% up, 0.30% (inaudible) YoY.

In 2012 we continued conservative asset quality management of potentially bad debts but in 2012 there was a one-off downgrading of the asset quality of delinquent collective loans, resulting in a slight increase in NPL loan ratio. And the reason for the growth in precautionary and below loan is because we have classified as precautionary the revolving card balance for which over 80% of the card's limit has already been reached, which comes to a total of KRW410 billion.

For the NPL loans, the loan loss provisioning ratio for the Group is 174%, up 8% YoY, so we're fully prepared in the case the above mentioned debts turn bad.

On page 18, moving asset quality of Shinhan Bank. As of the end of 2012 the Shinhan Bank's NPL ratio was 1.08%, a drop of 0.01percentage point YoY and the NPL coverage ratio is 168%, up 2% YoY, thus continuing to show an improvement in the asset quality.

The delinquency rate of Shinhan Bank is shown on the lower left had corner chart. Loans to SMEs declined 0.15 percentage point over last year but also debt was impacted by the temporary rise in collective loan delinquencies and thus increased on as YoY basis but it has been managed at a stable level.

Next to page 19, asset quality of credit card business. The NPL ratio of Card business rose 0.43% YoY to reach 2.15% owing to the impact of preemptive risk management of multiple debt holders and the NPL coverage ratio rose 20 percentage points over last year to stand at 254%, a level sufficient to cope with the impact of a possible economic downturn.

As of the end of 2012 the delinquency rate has rose 34bp to reach 2.35% YoY as a result of preemptive risk management (inaudible) reducing the limit for multiple debt holders the delinquency rate rose a bit but it's been controlled at a manageable level.

Next, moving onto page 20, provision for our credit losses and write-offs. The Group's annual provisioning rate is shown on the upper left hand graph, from 0.47% last year it rose to 0.64% YoY, showing a trend towards increasing provisioning rate. As I mentioned above, due to the rise in the credit cost of the Bank card and Capital business the overall credit cost rose on a YoY basis. But this result's not from any meaningful increase to non-performing assets but it's due to the recognition of additional credit costs for potential NPLs. We intend to continue conservative asset quality management going into 2013 but the provision rate is expected to be stabilized somewhat.

In 2012 Shinhan Bank's write-offs and NPL sales stood at KRW696 billion and KRW649 billion respectively and by continuing to restructure mostly our corporate loans, write-offs totaling KRW1.3456 trillion was undertaken and a 9.4% decline over 2011 was posted.

In the Card business on the back of growing operating assets, write-offs reached KRW511.6 billion and [gains and recovered bad] debt was reduced so that the annual loan loss reserves came to KRW295 billion.

Page 22, capital adequacy. As of the end of 2012 the Group's BIS capital adequacy ratio is expected to [post] to 12.4%, up one 0.2% YoY, owing to the growth in profit in Q4 and a slight decline in risk-weighted assets. The Tier 1 ratio fell slightly due to the deduction of accrued dividends and it is expected to come in at 9.5%.

As of the end of 2012 Shinhan Bank's BIS capital adequacy ratio is expected to rise to 15.8%, this is due to the drop in market risk weighted assets such as the reduction in the ForEx position and a reduction in credit risk weighted assets, resulting from a fall in corporate exposure which together led to a fall in overall risk weighted assets.

Shinhan Cards adjusted capital ratio is 27.4%, continuing to maintain a stable capital adequacy. Going forward, we expect the Group's risk assets will achieve an appropriate rate of growth, focusing on safe assets and also the ability to generate profit will remain sound so that it is highly likely that the Group's capital ratio will continue to improve. We also expect the Group's Tier 1 capital will show continued enhancement as well.

From page 23 onward, [addition] of business is also the financial group member companies and key management data. Shinhan Bank's loans to SMEs are detailed so please refer to them.

With this I will conclude the report on fiscal year 2012 Shinhan Financial Group's earning's release. Thank you very much.

(Interpreted) Now we are ready to take your questions.

(Operator Instructions).

For those who will be asking questions in English, we have prepared a consecutive translation. So please wait until the consecutive translation is provided before we address the questions that are posed in English. We do not have any questions yet so we will be waiting for the questions for a while. Thank you.

We are ready to address the first question that comes from Mr. [Shingu Chan] from [Hana] Securities.

(Interpreted) Good afternoon, my name is Shingu Chan from Hana Securities. My apologies for coming to this conference a bit late. What are the one off factors that you recognized during Q4? That's my first question and secondly for 2013 in terms of growth rate and margin and income, what are your expectations and outlook for 2013. And can you please give separate explanations regarding the credit card operation?

(Interpreted) We will address the first question first. In the case of Q4 concerning the extraordinary factors that we recognized, let me start with SG&A. At Shinhan Bank there has been early retirements that was executed. Some of the employees left the bank under the ERP package. So we recognized a KRW43.1 billion in cost and there has been impairment of securities in the amount of KRW31.5 billion. Again during Q4 we have again written off the NPLs and the loss on the write off was about KRW35 billion.

Concerning the provisions, of course this has been mentioned during the presentation. A Shinhan capital concerning the (inaudible) financial related assets. They've provisioned KRW43.5 billion. At the same time during Q4 we had to provision additionally the amount of KRW35.5 billion due to the assessment of individual loans under the DT method. All in all net income in Q4 was KRW419 billion level so if you include all of these one off factors then that income on an ordinary level is about KRW542.50 billion.

Regarding 2013, you've asked about our growth expectations. In the case of last year 2012, the bank KRW loans grew by 3.7%. In the case of the credit card business the growth rate was 1.6%. Let me address the banking business first. In the case of the overall loan growth rate for our banking business there is expected at around 2% to 3% level. That is internally our thinking here inside our Group. There could be two reasons that will be contributing to the lower growth rate next year.

So far the household loans has drove the overall loan growth. However, in 2013 we expect the household loan growth to become much slower and in fact the main drivers of the household loans last year in our case was the credit loans that were extended to public servants in Korea. That was about KRW1.8 trillion in credit loans. And relatively speaking, compared to previous years, the household loan growth will not be as fast as before. And in the case of last year, we did not proactively sell the mortgage loans but according to our plan for this year we plan to sell about KRW1.5 trillion in home equity loans. So all of this will contribute to a slower growth in household loan segment.

Concerning the corporate loans, the SOHO loan growth is expected during this year as well. Last year the annual growth rate for SOHO loans was 9%. However, given the expected fall in demand for SOHO loans, maybe the growth rate of SOHO loans this year will be lower than 2011 or 2012, excuse me.

Now regarding the credit cards business. Growth will remain difficult this year. For growth, consumer sentiment needs to be recovered this year. However, we do not expect that to happen this year. That will mean that the growth at our credit card company will not be that high. In the case of Shinhan Card, the cash advance card loans were reduced last year. That has been our strategy throughout last year. Cash advance revenue came down by 13% annually. So growth of high risk assets will be controlled this year as well. Given that credit card business growth will not be higher than the one that we posted last year. Thank you.

We are going to receive the second question. The second question is from Franklin Templeton Asset Management, [Mr. Win Chung]. Mr. Chung -- good afternoon, Mr. Chung from Templeton Franklin has three questions.

(Interpreted) First is regarding capital regulation. The Basel III capital regulation was for two years and for liquidity recovery regulation has been (inaudible) somewhat. So I believe this (inaudible) as an opportunity for us to change our policies regarding capital adequacies. This might pose I think some changes in the event strategy. With regard to these changes though, what are your views at Shinhan Financial Group?

And second question related to the money flow in the market. The comprehensive global taxation on financial income. So I believe that your plans and money flows in the market is much superior to other peers. So what do you think are some of the plans going forward with regards to this issue?

Third question is on Shinhan Life Insurance. If you look at the performance of the life insurance, it has been very poor for every quarter. It is because of your structural reasons of because of other factors? So these are the three questions I would like to ask.

(Interpreted) I'm [Chang Dung Kee], Head of the Finance Team. With regards to the Basel III regulations. Under the Basel III regulations, what is most important is the capital regulation. This will be changed into our [qualitative] regulation and our liquidity controls will all be strengthened. In the case of Korea's larger financial institutions, the capital regulations as they become stronger -- Korean banks are composed of common stocks. And also compared to our western counterparts they don't have that large an exposure with regards to derivatives. So with regards to capital regulations, I think domestic banks have a comparative advantage.

So even if Basel regulation is implemented immediately this would not have a significant impact on the domestic banks but we are prepared, none the less. What we were concerned with was about [LCR] and the liquidity controls. In the case of LCR -- the case of domestic banks -- they are forced to hold a share of base assets like sovereign bonds on a larger scale than they would like to. However, the supply is limited and there was a large demand recently and life insurance companies prefer and had a need to hold large, long duration assets. A lot of foreign companies are also looking to buy more of safer Korean assets, Korean bonds. So there was that imbalance of supply and demand in the Korean bond market.

So what we were looking for was that capital control of something that was expected but in the case of the liquidity controls, because of the limited Korean market, we were looking forward to the delay of implementation of liquidity controls. And we were communicating this with the regulatory authorities and our opinions have been reflected in the Government policy. How much of good news this will become to us is something that we will have to wait and see. But for the time being NIM and with regards to asset and liability portfolio management a lot of pressure has been lifted so it is good news. And with regards to capital regulations, I think domestic banks were already well prepared. In the case of Shinhan Group especially Basel III numbers are higher than the previous regulations. So even if this is delayed I don't think the Basel III's original purpose will be diminished in any manner.

And second question with regards to the global taxation on financial income. The base have come down from 30 million to 20 million this is quite a shock and I think that this will serve as a limitation on time deposits for the banks. And for the funds that are seeking mid-level risks and profits, they will be negatively impacted, [ELS] as well. But in the case of domestic equity centric funds and [world] listed index funds, these are financial instruments that have a comparative advantage in terms of taxation. But as of yet Korean investors are -- with regards to indirect investment and funds -- they have lost confidence because of the recent global financial crisis. But with regards to the above mentioned products which have advantage in terms of taxation, I think they will be looking more closely into these instruments. So these kind of portfolios are something that I believe will provide an opportunity for us to allocate our capital in a more efficient manner.

(Interpreted) Good afternoon, my name is Choi Beom Su, I'm the CSO of the Shinhan Financial Group. Concerning the Basel regulations, right from the beginning, the Basel regulations were too ambitious. Almost certainly we were thinking that the timing for implementation would be delayed. Not just in Korea but also in Europe. Especially given the experience of the past with regards to the [BIS].

In order to facilitate a domestic economy we are expecting another round of adjustment. The reason that we have been controlling the growth rate was not because of the Basel requirements but because of world economic environment. We felt that the high growth would not be helpful to us. This year we do not believe that the present environment is right for posting a high rate of growth.

There has been many controversies in the market and we are taking a lot of calls from the market. However, it's not clear to us which products would be best for this year. Which is the reason that there hasn't been much changes in terms of our strategy going forward. If the stock market improves in the future that will provide a lot of liquidity into the stock market. When it comes to savings accounts at the bank, especially deposits at banks, maybe such a situation will reduce the attractiveness of such bank deposit products. And concerning the life insurance, for the past two years we have been driving fast organic growth of our insurance business in terms of the first month premiums, our growth rate has been quite fast.

As you must be well aware in the case of insurance business, if your growth rate is fast then the cost will also increase because of the front loading nature of the expenses at insurance companies. Which means that there is an offsetting effect in terms of the growth rate and expenses and profitability. Because we have been posting high growth for the past two years we are planning to slow our years so that we can recover our profitability in the near future. Thank you.

Let me take the next questions from Mr. Lee Byun Gun of Dongbu Securities.

(Interpreted) Good afternoon my name is Lee Byun Gun, can you hear me?

Yes.

(Interpreted) I have two questions. First in the case of Shinhan Life's earnings deterioration, of course you've made some comments but the things that were mentioned by Mr. (inaudible) of course are right and true but this is one of my concerns. In terms of the numbers can you make a comment regarding the yield? For instance, related to the change in standard for yield. I believe that there could be some impact on the profitability and you have been quite dependent on the gains on bond trading. That means that there could be quite of an impact from the asset yield. So can you (inaudible) some numbers concerning the impact of the asset yield change?

My second question is with regards to the assumptions that you have for this year. What is your NIM expectation for 2013 and I believe that the funding costs could come down so could you be more specific on your NIM outlook for 2013.

(Interpreted) We'll address the first question first. In the case of Shinhan Life the change of the new business expense standard and the reduction of requirement concerning the asset yield. Of course there could be impact on our P&L.

According to our business plan for this year, due to the impact the business income will come down by KRW57 billion. That will be KRW43 billion after tax. If you break these numbers down, due to the change in the expected business expense standard there will be a KRW30 billion pushing down effect and due to the changes related to asset yield the decrease will be about by KRW28 billion.

As you've mentioned, due to the changes in the system, the standard, there will be structural impact on Shinhan Life which will push down the profit for this year. And in the case of 2012 through the sale of fixed income assets that we had we were able to bring benefits in terms of profitability. However, such impact will be reduced this year and this is not only -- this is not a situation that is faced only by Shinhan Life and due to the factors that I mentioned I think it is inevitable for Shinhan Life to see a decrease in income this year.

Let me talk about the NIM. In the case of the Bank's NIM in the first and second and third quarter was maintained at a stable level so the market was reflected. In fourth quarter it then came down by 1.8%. Then early when we did this year when we did some simulation about the NIM, the fourth quarter NIM was used as a standard and the interest income for the year is simulated -- oh there might be some changes to the simulation results but what we see is this. We don't believe that short term interest rates will be going up in the near future but if you look at the external and internal environment at changes, the yield curve, we believe, might dynamically change.

In Korea what has been of concern was that interest rate has been too low and there were (inaudible) difference between the long term rates and the short term rates. So the curve was too steep -- too flat -- and we believe that problems will be alleviated this year and so if the different between the long and short term rates will become larger I think there will be more room for adjustment. So this year if the difference grows larger there will be more room for maneuvering and our interest income based on the fourth quarter results, we will maintain our interest income at that level.

As has been mentioned Life Insurance, the gains on trading of bonds had provided significant benefit up to now and this was because of the falling interest rate. In the future, even if the interest rates falls even further we don't believe it will go down by a degree. So because income is something that can be generated when the environment will ask for it, the private sector or the secondary financial circles debt is growing. This is something that is well aware so with regard to this issue a lot of discussions are underway in the financial circles and measures are being taken to reduce this level of debt that has been accruing in the secondary financial sector. In the case of the life insurance company, there is a lot of time required to make a turnaround and it's going to take some time for us to completely address this issue but we are looking into this issue closely and we are coming up with measures to cope with it.

Hello.

Hello.

(Inaudible).

Hello.

(Interpreted) Can I ask a simple fact about the question that was asked before? As I've explained we do believe that situation will be improved. We need to grasp what level of recovery will be possible. In the case of Shinhan Life Insurance, what is the volume of [bonds] that you hold? Then I think we can sort of estimate the improvement that can take place.

(Interpreted) Our yield is something that we will come back to you afterwards.

We do not have more questions that are currently placed in the queue so we will be waiting.

(Interpreted) I believe that there's no more questions. This year we have certain strategic focus. First because the business environment is challenging we will focus our efforts on cost reduction. As you must be aware financial companies have quite rigid cost structure so it's not easy for us to reduce expenses. So we will be pushing the initiative of strategic cost reduction this year. Last year, as a part of such efforts and thanks to certain favorable environments, SG&A came down from the previous year and we'll be accelerating such cost cutting efforts this year.

Secondly we are promoting the corporate brand of compassionate finance and we will try to internalize this throughout this year. We feel that the society is viewing the financial industry with a critical eye which makes the operating environment for us quite difficult. I believe that there are certain things that need to be done by financial companies. And through our routine operations we will try to accelerate the activities that will make contributions to the socially unprivileged people in Korea.

Thirdly because the growth is stagnant we will try to identify new sources of income. Last year we launched WM and CIB business and the unit have stabilized now. And we will try to speed up the activities at WM and CIB businesses and in overseas markets of course we're not thinking of making any dramatic investment. However, given the fluctuations in the global financial market, coupled with some stabilizing signs that we are starting to detect we will try to identify and capture business opportunities outside the Korean market. Thank you.

We're not receiving any more questions so the 2012 business results conference will be concluded at this point. So we'd like to thank you all for taking part in today's earnings conference, thank you all.