Shinhan Financial Group Co Ltd (SHG) 2015 Q1 法說會逐字稿

Greetings. I'm Yu Sung Hun in charge of IR. Thank you for taking part in today's Business Results Presentation despite your busy schedules and let's begin the 2015 Q1 Earnings Release Presentation. We have here with us our CSO, Kim Hyung-Jin; CFO, Yim Bo-hyuk; as well as Managing Director and Financing Head, (inaudible).

Today, we will first hear CFO Yim Bo-hyuk's 2015 Q1 Business Results Presentation, followed by a Q&A session. Now, I would like to invite our CFO, Yim Bo-hyuk to deliver 2015 Q1 earnings release presentation.

Greetings. I am Yim Bo-hyuk and I have been appointed the new CFO of Shinhan Financial Group as of March of this year and I would like to extend my gratitude to the investors, analysts and journalists in and out of Korea for taking part in Shinhan Financial Group's 2015 Q1 Earnings Release. From now on, I will elaborate on the major highlights of Shinhan Financial Group's 2015 Q1 business performance.

Let me begin with the Group's income on page 6. Shinhan Financial Group's net income in Q1 recorded KRW592.1 billion, a 6% increase YoY and 89.1% increase QoQ. A major characteristic of this quarter's performance is as follows. There was balanced performance improvement of non-bank subsidiaries, expansion of non-interest income and efficient G&A management accordingly despite interest income decline resulting from margin squeeze and increase of provision for credit losses following the additional credit costs related to corporate restructuring, performance improved YoY and QoQ.

Looking at the income breakdown, the Group's interest income with the decline of the BOK interest rate in October of last year and the additional rate decline in March this year led to the Group NIM drop by 6 BP resulting in 1.5% YoY and 5.7% QoQ decline respectively. On the other hand, non-interest income improved by 59.3% YoY and 310.5% QoQ. Major reasons were the increase of banks fee income and in particular increase of gains on available for-sale security sales and decrease of impairment losses from securities holdings as well as increase of gains related to trading securities.

SG&A went up only 1% YoY. Is it possible due to employee related temporary cost expenses increase, including the ERP late last year, normalizing to a recurring level and also since cost increasing factors were minimized with strategic cost cutting efforts. Provisions for credit losses in 2015 Q1 recorded 88.4% YoY and the 49.6% QoQ increase respectively. The reason behind the somewhat significant increase of credit cost was because of the additional provisioning related to the Company's undergoing restructuring which occurred in Q1 and also due to the absence of a large scale write-back this quarter, which occurred in the same period last year and in the previous quarter. For your reference, in 2015 Q1, Shinhan Bank received KRW22.2 billion from the winning of lawsuit against Samsung Motors and this was recorded as non-operational income.

Now let's go to page 7, Group subsidiaries income. In 2015 Q1, net income taking into banking and non-banking contribution, bank posted KRW393.2 billion and non-bank posted KRW257.7 billion, respectively. Although the bank's income went down YoY, the fast recovery of the non-bank subsidiaries quickly recovered, leading to a 40% improvement in the bank's income contribution.

Page 8, Group subsidiary income in Q1. Bank income due to the margin squeeze and credit cost hike went down 7.5% YoY, but with normalization of SG&A cost and non-interest income increase, it went up 106% YoY. Non-banking income, due to the balance income improvement of non-banking group subsidiaries, went up 24% YoY and 33.8% QoQ, respectively. Shinhan Card improved its income statement flow with stable revenue performance and provisioning decrease. Shinhan Investment is increasing its net income growth range gradually with the increased brokerage income from trading volume increase, positive improvement of financial product sales and improvement of trading income. Shinhan Life Insurance had a 48% improvement in net income YoY with the increase of asset management income.

Next page 9, Shinhan Bank's performance. 2014 Q1 Shinhan Bank net income recorded KRW389.9 billion, a 8.3% drop YoY. It was because despite the improvement in fee income and securities income leading to a 84.8% hike in non-interest income, interest income dropped and additional credit costs related to corporate restructuring incurred. Net income grew 112.8% QoQ because non-interest income went up, because the seasonal SG&A costs including the ERP costs in Q4 of the previous year did not occur in this quarter and also due to the decrease of securities impairment losses.

Bank's Q1 NIM posted 1.58%, a 19 BP drop compared to 1.77% in the same period previous year and 9 BP drop compared to the 1.67% the previous quarter despite the continuous increase in interest bearing assets including loans and non-interest income went down. The major credit costs in the quarter were KRW38.4 billion for (inaudible) subsidiaries and KRW21.4 billion for (inaudible) which newly filed for restructuring. The credit cost for Q1, excluding the provisioning for a corporate restructuring, is at a recurring level and the yearly credit costs are expected to normalize going forward.

Next, page 10, Shinhan Bank's non-interest income and SG&A. Shinhan Bank's Q1 non-interest income posted KRW318.4 billion, a 84.8% YoY and 229.3% QoQ increase, respectively. The reason why non-interest income went up so much was because the securities related income went up 231.9% YoY and fee income increased 8.7% due to the increase in front-end bank assurance sales. To elaborate on the securities-related gains, gains related to trading securities and available for securities went up with the fall in interest rates. On the other hand, securities impairment losses went down YoY. For your reference, POSCO related impairment losses recorded KRW31.2 billion this quarter.

The bottom of page 10 refers to Shinhan Bank's SG&A. Shinhan Bank's continuous efforts to cut costs and to improve efficiencies led to a 1.6% SG&A drop YoY. Employee-related costs went up 4.5% because there was an annual increase in employee wages in Q1. However, with the other general administrative costs being efficiently contained, including employee welfare, office rental expenses and outsourcing costs, overall SG&A showed a downward trend. Accordingly, Group and Bank's CI ratio recorded 49.4% and 49%, respectively and became stabilized to lower than 50% level.

Next, page 11, Shinhan Card income. Shinhan Card's 2015 Q1 net income recorded KRW154.5 billion, a 9.5% YoY and 21.3% QoQ increase, respectively. YoY interest income related to installment credit purchase and cash advances decreased and SG&A increased due to new employee recruitment and contribution to internal labor welfare fund. However, fee income increased with the increase in credit card purchase volume and decrease of provisions for credit losses leading to income improvement.

QoQ, operational prospect decreased with absence of the securities disposition gains occurring in this quarter compared to the previous quarter, including the Visa, MasterCard securities disposal gains, which took place in the previous quarter. However, net income increased 21.3% with a great decline in SG&A and provisioning. Provisioning went down despite a drop in recovery from written-off assets, which help lower provisioning. It was because two months delinquency roll rate was stabilized at a lower level and since asset quality improvement in fact is being realized to efforts such as a high risk asset decline and improvement in recovery of rates. In the case of written-off assets, 2015 Q1 balance posted KRW3.5 trillion and the quarterly recovery rate has been maintained at a 5.9% level.

Group's assets on page 13. As of March-end this year, Group's total assets on a consolidated basis rose 2.8% QoQ to KRW347.4 trillion. Bank's assets grew 1.6% QoQ on the back of loan growth. Non-banking side posted a 3% growth due to healthy sales coming from Investment, Life and Capital.

Page 14, Bank's loans and deposits. As of March-end this year, Shinhan Bank's loans in Yuan increased by 1.6% QoQ to KRW162.7 trillion. Retail loans grew 2.9% QoQ as mortgage loans increased in the midst of housing market recovery and also as credit and Jeonse or key money loans steadily grew. Corporate loans recorded a somewhat low growth rate of 0.5%. However, starting in Q2, more aggressive SME loans will bolster overall corporate loans.

As of March end, deposits in Yuan increased 1.6% QoQ to KRW166 trillion. Savings deposits were down by 0.2% whereas low cost deposits were up 4.7% QoQ showing a steady growth due to an increase in the number of accounts for salary transfer and merchant payments as well as in the amount of institutional clients’ deposits. As of March end, LDR fell to 96.5%.

Page 15, Shinhan Card's transaction and funding activities. Shinhan Card's operating assets dropped 2.9% QoQ to approximately KRW20 trillion. With the number of business days in Q1 contracting and due to other seasonal factors, the credit purchase decreased by 4.3%. In the shrinking cash advances market, the outstanding amount was reduced by 5.1%. On the other hand, debit card transactions continue to increase. Out of the total credit sales, debit card transaction accounted for 15.3% this quarter, up from 13.7% in 2014.

Asset quality on page 17. Group's NPL ratio was 1.10%, improved by 5 BP from BP QoQ. Continued prudent management of NPLs and stronger risk management successfully brought down the NPL ratio for four consecutive quarters. The Group's NPL coverage ratio is 171%, up 3 percentage point QoQ.

Page 18, Shinhan Bank's NPL ratio was 0.98%, falling below the 1% mark. NPL coverage ratio was up 6 percentage points QoQ to 160%. The delinquency ratio chart on the bottom left shows the Bank's delinquency ratio of 0.36%. It rose by [bps] QoQ, but still managed at a stable level.

Shinhan Card's asset quality on page 19, Card's NPL ratio and NPL coverage ratio were 1.67% and 301%, respectively, similar to the previous quarter. The delinquency rate rose slightly to 1.91%, but the two months delinquency roll rate was the same as the previous quarter at 0.36%.

Credit costs and NPL write-offs on page 20. As shown on the graph, credit cost ratio of the Group rose by 14 bps from 0.43% to 0.57%. Going forward, the Bank's credit cost is expected to return to the normal level as the credit cost related to corporate restructuring will disappear and also considering the healthy delinquency rate trend. Shinhan Card's credit cost is expected to go up slightly due to lower gains from recovered bad debt. Considering the overall asset quality and NPL coverage ratio, the credit cost will probably be maintained at a stable level. Shinhan Bank and Shinhan Card each wrote-off and/or disposed off bad debts amounting to KRW370.6 billion and KRW146.6 billion, respectively.

Page 22, capital adequacy. BIS ratios of the Group and the Bank are estimated at 12.9% and 15.2%, respectively. Common equity Tier 1 ratios are expected to be 10.7% and 12.7%, respectively. Sound flow of net income enabled the common equity Tier 1 ratio to go up QoQ. However, the overall BIS ratios dropped slightly, because the grandfather clause reduced the amount of non-qualifying capital that could be recognized as capital. Shinhan Card's adjusted equity capital ratio was 28.4%, maintaining a sound capital adequacy level.

Please refer to page 23 and onward for additional earnings related information and major business indicators of the subsidiaries and also for the Bank's SME loans. This concludes the earnings call of Shinhan Financial Group for Q1 2015. Thank you.

Thank you very much. And now, we will be taking questions. (Operator Instructions). Lee Byung-gun, Dongbu Securities.

Thank you very much for good performance as always and I would like to ask you two questions. Actually, it can be many questions but categorized largely into two questions.

First question is very simple. Regarding the interest rates, you have some gains from the securities and can you tell me what your level was and how is it compared to recurring level? So, you see a lot of trading securities gains and also securities for sale, AFS available-for-securities, sale securities gains that were quite sizable, but it seems that it's quite mixed. Can you explain more in detail about the background behind these gains, because I know sometimes they occur at recurring levels. So, can you tell us about which gains were extraordinary for this quarter?

Second question refers to the relief loan or the [ancient] loan, which was set by the government. And even if there is positive effect from Q2, it is true that it will be quite a burden. I am curious about its impact on your NIM going forward. So, can you just mention the relief loan effect on your NIM and even if you meet the government demand and you would need make up for the gap. So, do you have any forecast about when this will be satisfied and how you can make upwards impact on NIM and others, taking into consideration the market situation and Shinhan's plan going forward?

Well, regarding the first question let me answer. For non-interest, it's true that including the gains from security sales we had a sizable amount. However, in Q1, it was not a very big increase compared to the last year. We had [KRW1.5 billion for our KRW61.5 billion] and we have KRW19.8 billion for the included in it and for non-interest, we had gains from sale of loans, about KRW37 billion, so that is why it seems that in non-interest, we had a sizable amount and we have KRW99 billion of gains, but we also have some losses, examples are POSCO impairment losses KRW31.2 billion and for non-operating areas or we had KRW22.2 billion gains related to Samsung Motors operational profit. So, it was not a very sizeable amount, remarkable, the gains from securities sales in Q1 compared to other years. So, we had no extraordinary gains for this quarter.

As for the impact of relief loans, I will elaborate. I am (inaudible), in charge of the finance team. It has been announced in the newspaper and the total amount, out of the total amount, Shinhan has committed KRW4.4 trillion, and out of that KRW1.8 trillion was executed or sold to HS. And considering the interest rate and because of the time mismatch, it's very difficult to quantify. But in Q1, the impact on NIM was 1.2 bps. But looking at the overall asset level, because of the fee income, there was a plus factor in the short-term and the impact will carry through Q2.

And as for the relief loans, the bank's asset size will shrink and how much can we make up for that? The housing market looks very promising right now. Within the year, we believe that we can make up for the loss. Sorry, let me go back. We are not saying that we will be covering all the KRW4.4 trillion but we will be achieving our internal loan target. Shinhan Bank instead of mortgage loans we focus on credit loans. That's what we prioritize on and we plan to grow our loan portfolio in that manner.

Choi Chung Uk, Daishin Securities.

There is an increase in low-cost deposits and it seems like a recurring trend, and it's not for Shinhan Bank, it's for all the banks and I guess it's because of the low interest rate trend, but if this does not continue and if the money flows out, I think it will have an impact on the margin or the LDR. How sustainable is the low cost deposit growth and if the money, there is flight of this deposit, do you have any measures to prepare for that? You did talk about the margin. It was like that in Q4 last year and this quarter, it seems that the margin is falling by a greater amount than the other banks. So what's the reason? And in Q3 and in Q4, will there be a difference compared to the other banks or will that gap widen?

Yes, let me first talk about the growth in low cost deposit. In Q1, there was an increase of KRW2.9 trillion of core deposits and there was a 4.7% growth. And the breakdown I think is very meaningful because we have the self-employed core deposits and it grew by KRW5.1 trillion, and this is connected to the salary transfer and KRW1.8 trillion increase was made in that, and the merchants account increase of KRW700 billion. So, the core deposits increased, but we don't see that the possibility of the money being flighty. So, we believe that the low cost deposits will remain stable for the time being and Shinhan Bank has strength in government agencies and provisional government agencies and that portion is growing. And in Q1 only, there was an increase of KRW1.2 trillion of the core deposits. So looking at the profile of these deposits, we don't see the money leaving the deposit account. So, in the near term, we are not expecting fluctuation in the amount of core deposits.

Regarding the margin squeeze, decline of the margin, let me elaborate. For the bank, because of the built interest rate fall, when that happened, when you look at the changes in the bank margin, at the three month, it's probably at its lowest point and then until the six months, well, it's more or less similar and then it's a flat and then it will change after that. It's because we have subsidy linked loans and six months of linked debentures and the bank has a lot of it. It will differ for different banks but about 75% or so is what we have. So, at the six months point, it's probably going to be the lowest and then, we're going to have funding impact. so it's probably going to get better. You mentioned that margin seems to have been negatively impacted especially for Shinhan but let me elaborate. Well, we have the variable interest rate loans, and its timing and when it rebounds, we will have a better numbers for our margins. Second is in Q4 of last year and in Q1 of this year, when you look at Shinhan's loan portfolio, we have increased mostly focused on mortgage loans and you know that the loan margins are lower for mortgage loans compared to other types of loans. So it seems that it's lower than other banks. Overall for P&L, for mortgage loans, they have lower margins but they have less burden of provisioning. So, it seems that the situation will get better.

[Cha Minyoung], BNP Paribas.

It may be redundant to margin related questions, but let me post a question once again. If we assume that there is no additional interest rate cut, how low will be your lowest point and if there is a rebound, how much will you recover, but in the other scenario of another base rate cut, what will your scenario be?

Second question about Shinhan Card, compared to 2004, the recovery rate is high. Is it something that you're doing company-wide to increase the recovery rate or is it a natural phenomenon?

Yes, I will continue to answer the margin related questions. The general flow was mentioned previously and mentioning specific numbers at this point is difficult. When was the BOK rate cut and when is the six month period in August-October last year and in March this year, there was rate cut. So, the last rate cut was March and the impact will be sustained until September and the last rate cut impact will stop at April this year. So, according to our logics, in Q2 this year, we will be hitting the bottom and compared to Q1, we will go down more in Q2 and then there will be some rebound in Q3. In a worst case scenario, we will be maintaining the NIM at the Q1 level and we will be doing our utmost effort to freeing up the NIM.

As for gains on recovered bad debt on Shinhan Card, there are two factors at play. One is the recovery rate of written-off asset was increased because they are stable loans and we were able to recover them, and the remaining assets are also of those assets with good recovery ratio. So, 5.5% to 6.0% range is where we're at, and the annualized written-off assets amount to KRW450 billion to KRW500 billion and so we're maintaining a similar recovery rate. In Q1, KRW51.4 billion was recovered and on annualized terms, we believe KRW200 billion can be recovered. And as of now, gains on recovered assets, what will be the lowest point, we believe it will be maintained at the KRW200 billion level. In Q1, the gains on recovered assets looked very good and we will be maintaining this level going forward. And overall, the collection rate of assets on our balance sheet is looking good and we believe that there will be a downward trend on the credit cost.

[Eigen Hoo], UBS Securities.

I have a one very simple question. For Shinhan Bank's write-off and sell-off, they were considerable but it seems that when you look at the delinquency rate increase for some SMBs, you have some increase. So, can you tell us more about that in more detail and why that happened?

Regarding the delinquency ratio for small and medium businesses, it seems that it has increased slightly with SMBs. For SOHOs, we have office rental or real estate rental and then we have retail and wholesale that were impacted, but we believe that this was a temporary trend. And some companies had increases in their delinquency amount, so that is why it seems that the delinquency ratio was impacted. It seems that this is not a new credit cycle or delinquency trend, and that is our judgment. In Q2, when some of these delinquencies phase out, then we will see SOHOs and SMB delinquency ratio that will be maintained at a more stable level. Provisions for credit losses, we believe have low possibility of increasing because of this trend.

[Yu], KB Securities.

I have two questions. As for last year, on an annualized basis, SOHO loans and retail credit loans grew but as for mortgage loans, because of the impact of relief loans, it may not have grown as much. But it seems -- it's strange that the SOHO loans did not increase. Is it because the SOHO loans grew too much last year and you didn't work on it or is it impacted by other banks' policies, because other competitor banks announced the business plan to increase their SOHO and SMB loans. So, why was this? Could you reiterate your policies once again and as for loan loss provisioning, you said that there was a one-off factor of corporate restructuring, but looking at the level it seems that it grew by large amount. So, could you give us a breakdown of the provisioning for the corporate restructuring efforts?

Yes. As for Q1, I will elaborate. Usually in Q1 every year we see a similar trend for Shinhan Bank. We have a low growth, but in Q2 the growth picks up. And on the technical side, usually, because of the BIS ratio and because of the debt ratio, at the year-end, the companies try to reduce the loans and there is a difference among the banks and Shinhan Bank tends to reduce the loan by a small amount and so that's why there is a smaller marginal rebound compared to the other banks. So there is this seasonal factor and up until now we had a sound growth in SOHO loans and this year, there is no special reason to reduce the SOHO loans this year. And we have our internal goals and we are going to go ahead actively and beef up the SOHO loans.

Yes. As for the credit cost related to corporate restructuring, in Q1, we had KRW314 billion of credit cost and so it grew by large amount. And the annual provisioning last year was KRW949.9 billion. So, it would be about KRW230 billion per quarter. So, this is a lot more than the quarterly amount of provisioning. For Chungnam enterprise, there was provisioning of KRW38.4 billion and as for SPP Shipbuilding there was provisioning of KRW13.8 billion and as far as (inaudible) there is provisioning of KRW21.4 billion. So, in Q1, KRW74 billion of provisioning incurred in Q1. So if we subtract that on an ordinary level, it's about [KRW24 billion, KRW240 billion] of provisioning which is a normal level. And, in Q2, we will be returning to our normal level of provisioning. So, on an annualized basis, we don't see the possibility of the provisioning amount going up. Our annual target of 45bp to 48bp, I think we can achieve that level.

Hwang Seok-Kyu, Kyobo Securities.

I may have some overlapping questions, but my questions also refer to the margin and for the relief loans or ancient loans, someone already asked some questions and the KRW4.4 trillion, if they are taken off the book, then are you going to make them up with mortgage loans or are you going to focus more on the loans for small and medium sized companies. So, do you have any room to grow in that area, because you're going to have some gaps, so you will need to fill them with loans from other area. So, I'm curious about what you're going to choose to fill up the space?

Second question is about the impact of the relief loans. So, the performance in Q2, the margin decline, you mentioned it's difficult to give number forecast, but there is fee income and if 100% is taken off the book, then do you think all of it will go to Q2 fee income or is it going to be extended to Q3? So, can you tell us more about those practicalities and for Q3 in funding for demandable deposits, the number has been good, but for time deposits that are more sizeable it's not a big amount but I see some negative numbers. So, in the market, the flow of funds and the BOK interest rates decline, well, maybe time deposits are going through a flighty phase. Can you elaborate more on it? Can elaborate on the future trajectory of time deposits? Do you think it's going to go to a minus trend or do you think it's going to be maintained at current level or do you think it's going to be maintained at a positive level? So, there are three questions in total.

For the relief loans or ancient loans, ancient conversion loans, let me elaborate. For the relief loans, interest income gains have gone down and the fee income or fee gains have gone up. It's because we have KRW4.4 trillion that are committed, but depending on when it's really sold then the amount of the gains and losses would differ. If all the KRW4.4 trillion is sold off, then in this year, the fee income would differ between KRW22 billion to [KRW39 billion]. So it will depend on the timing. Later on, we have maintenance fees or commissions. So it's going to be 10 BP to 20 BP effect according to the loan maturity period. So we can also receive that.

For the interest margins being squeezed, to give you an example, for the mortgage backed securities there is interest rate and then we have the loans that were converted interest rate. So it will depend on those factors. For example, if the difference is 1%, then on an annual basis it will be KRW44 billion. So, its 50 BP, it will be KRW22 billion. So please understand along those lines.

The fact the time deposits have gone down slightly, I think you have voiced you concern about this phenomenon for the bank in the funding side, we do not have any issues. So [if it leaves], it means that for different banks, they are doing it for a balance. So in the pace of adjusting their interest rate, some of it can increase or go down. So funding and lending by the bank, it will depend on not only the deposits, but also on the debentures. On the other side, while there could be the sales of securities or other policies, so the funding and the lending policy will differ based on many different variables. So, to put it simply, we had a lot of sales of these loans by the banks, so then you get more room for these funding. So, that is why maybe the time deposits were impacted.

Shim Kyu-sun, Samsung Asset Management.

I have two questions. As for non-bank side, we have good numbers and compared to the business plans, how did you achieve, so looking at the Life Insurance and other subsidiaries and this is also related to the margin issues. As of now, the margin is falling and did you expect this much to fall at Shinhan? And putting aside the rate cuts, but about your product mix, did this also have an impact?

Yes, let me answer the first question. As for Shinhan Card, Shinhan Securities and Shinhan Life Insurance and Shinhan Capital and Shinhan Savings Bank, the five non-bank subsidiaries had improved performance this quarter. As for Shinhan Card, in Q1, KRW154 billion of income was recorded. So, it was a 5.9% growth YoY and this has satisfied our expectation level. And, as for Shinhan Investment, the securities arm, we have a lot of trading and that's amounting to KRW8 trillion, so we had an increase in brokerage fees and product sales commission. So, YoY, the income increased to KRW48 billion. And, so it was an 83% increase in net income in Q1. So, the non-bank subsidiaries look very good and as for Life Insurance, compared to the previous year, it was a 48% increase and KRW32 billion of income was achieved. And Life Insurance, we overachieved our target. And as for Shinhan Savings Bank, we have now normalized management. I think we're entering that phase. It does not take up much portion in the total income. KRW3.5 billion of income was incurred. Of course, this is a minimal portion, but compared to the previous year, the performance has improved. So, the volume of income coming from non-bank side has increased. So, just looking at the Q1 results, the contribution of non-bank subsidiaries is at 40% level. Shinhan has the strength and it is being maintained, looking at the performance of the non-bank subsidiaries.

Yes. As for the margin forecast, margin is determined by mainly market rate changes. When is the repricing of our assets and liabilities and our products pricing policies also effect the margin. So, they are the main two causes. And with the BOK rate cut, the assets repricing was done. In Q1, we believe we will be hitting the lowest mark and it will be in the earlier part of Q2 and the conversion of relief loans will have an impact of about 2 bps on the margin. And hitting bottom in Q2, there is going to be rebound in Q3 and we believe that not only Shinhan Bank, but all the other banks have recorded the lowest margin in history and there is a need to recover the margin. And how will we do that? There are many ways to raise the margin backup. We could select a target market and focus our sales activities in that market and we could increase the portion of low cost deposits to reduce the overall cost. There could be many measures taken to improve the margin.

Yes, as for gains on securities and as for margin, Shinhan Financial Group has grown on the back of strong banking business and the margin is very important in our business, but I think we need to change our perspective a bit. As was mentioned earlier, SFG's net income came from the non-bank subsidiaries and the contribution level was 40% and about one-third of the credit is coming from the marketable securities. So, the bank and its NIM is not really that powerful and its portion is shrinking in today's world. And, as for our loan growth, which is sensitive to the interest rate, about half of that is AFS securities or trading securities. So, we can hedge against the impact of a rate cut and I think that worked in this quarter. So, even if there was a BOK rate cut, it hurt the NIM, but we had a lot of gains from the securities, and of course, if the situation was reversed then the gains would also be reversed. We will be staying away from loan growth only and we will diversify our business going forward and I think that is showing gradually. Of course, we will be monitoring the core indicators like NIM, but we will be looking at the portfolio in a more holistic level and we will diversify our business further.

[Kim Taewon], Credit Suisse.

So, I would like to ask you a question about LDR. In Q1, its 96.5% and for the relief loan when you take that into consideration, in Q2, it seems that the LDR probably will be lowered. What that means is, conversely said, you will more liquidity at your bank. So regardless of the BOK interest rate, do you think this will impact your deposit interest rate in a lower fashion? Do you have any strategic plans?

Q1 LDR, as you saw in our presentation materials, it's at a very low level. One of the biggest reason behind this is because seasonally this is not a time for heavy loan demand. Also, in Q1, the BOK interest rates went down. So we had a lot of sales in the loans. So you see that in Q3, it also went down last year. So we had quite ample amount of liquidity in Q3. We try to actually cut down on the amount of time deposits at that time. Our bank LDR, about 1% of this is impacting KRW2 trillion. And looking at the current funding and lending structure, going forward, it seems that we will not have much demand for funding. So, I do not believe that we will have quite a lot of room for time deposits to grow. However, a lot of the companies are going to conclude their shareholders meetings. And because of their changes in their investment plans, bank loans may go up. So, we believe that there will be an upward trend for the LDR maybe in Q2, but we will be able to meet that easily.

Thank you. We do not have any more additional questions it seems. We will conclude the earnings call of Q1 2015. Thank you for your participation.

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.