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Edited Transcript of 105560.KS earnings conference call or presentation 24-Apr-19 7:00am GMT

Q1 2019 KB Financial Group Inc Earnings Call

Seoul Apr 30, 2019 (Thomson StreetEvents) -- Edited Transcript of KB Financial Group Inc earnings conference call or presentation Wednesday, April 24, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Joong Kwon Bong

KB Financial Group Inc. - Head of IR

* Ki-Hwan Kim

KB Financial Group Inc. - Deputy President & CFO

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Conference Call Participants

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* Byung Gun Lee

DB Financial Investment Co., Ltd., Research Division - Team Leader

* Cheol Woo Cho

Hanwha Investment & Securities Co., Ltd., Research Division - Analyst

* Jaewoo Kim

Samsung Securities Co. Ltd., Research Division - Analyst

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Presentation

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Joong Kwon Bong, KB Financial Group Inc. - Head of IR [1]

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Greetings, I am Peter Kwon, the head of IR at KBFG. We will now begin the 2019 Q1 Business Results Presentation. Thank you all greatly for your participation. We have here with us at today's business results presentation our group CFO and Deputy President Ki-Hwan Kim and other members of our management. We will first hear the 2019 Q1 business results presentation by Deputy President Ki-Hwan Kim and then have a Q&A session. I will now invite our Deputy President to deliver Q1 business results presentation.

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [2]

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Good afternoon. I'm Kim Ki-Hwan, CFO of KB Financial Group.

Thank you to all of you for joining KBFG's Q1 2019 Earnings Presentation. Before we present on the financials, allow me to briefly talk about the operational backdrop. In Q4, KBFG endeavored to depart from its sluggish performance in noninterest income and regain fundamental earning power. On the back of sustained capacity buildup to generate interest income centered around the bank, which is the group's key earnings driver, we are seeing recovery of profitability from nonbank subsidiaries, i.e., securities and insurance who posted weak performance last quarter. Also contrary to market concerns, asset quality was well managed within a steady expected range improving visibility for the group's capacity to generate recurring profit. However, on lending growth, bank loan in won posted a growth of a mere 0.3%, slowing down somewhat compared to the past. This is an outcome of a more conservative loan growth strategy as we were mindful of the real estate market regulatory landscape and economic forecast as well as operational backdrop for financial businesses and a greater emphasis on soundness factors. As you are aware, negative forecasts continue around the financial industry and its operational environment. There was a reversal in the U.S. Treasury short- and long-term rate spread with financial instability ensuing. United States rate hike stance has become weakened, which affected domestic rate trends, weakening the bank's interest rate momentum, which in turn is casting concern over limitation on earnings growth for bank.

Also prolonged U.S.-China trade dispute has become a drag not only on Korea but the global economy. And global economic indicators are pointing to a slowdown in cycle to which we must actively move to respond more so than in the past.

To respond to such change in the financial environment in a timely manner, this year, we plan to focus on soundness and profitability rather than growth to bring qualitative growth around safe and high-quality assets and expand unstable sources of earnings. For instance, to respond to weak performance from sales and trading of the securities business, we hired managers and stabilized ELS revenue model and realigned relevant processes to manage volatilities in P&L. We are also focusing KB's sales capabilities on acquiring low-cost deposits to respond to new loan-deposit ratio requirement ahead of 2020.

Also this year, by bolstering core competitiveness of each subsidiary, we will support them to become a top-tier player in their respective businesses and achieve inorganic growth through M&As as we seek various options quite aggressively to bring greater corporate and shareholder value enhancement.

In line with such efforts, in order to improve leverage ratio and strengthen sales capabilities, KB Capital conducted rights offering of KRW 50 billion last March. And to improve the BIS ratio and flexibility in the capital structure, the holding company is in the process of issuing hybrid securities of no more than KRW 400 billion. KBFG will rigorously solidify its fundamentals to respond to business environment where uncertainties are heightening. And under a shared understanding we're securing a growth engine through inorganic growth and global expansion are critical. We will take prudent but bold steps so as to bolster our position as a leading financial group.

With that, I will now move on to financial results for Q1 2019. KBFG's Q1 2019 net profit was KRW 845.7 billion. Excluding one-off ERP expense of KRW 35 billion after-tax, on a recurring basis net profit reported KRW 881 billion. This is a sizeable Q-on-Q improvement as previous quarter's performance was be due to one-off such as ERP expense and security-related losses. And in light of Q1, one-off sales gain of KRW 83 billion after-tax basis from bank's Myeongdong office, on a recurring basis, profit came in at a similar level year-over-year.

For your information, due to some changes in the timing of the recognition of the ERP expenses end of last year, we booked around KRW 48 billion of expense this quarter.

Also, we recognized employee welfare fund contribution of around KRW 101 billion every Q1. And if this factor is also considered, we see a clear recovery in terms of our earnings capabilities from sluggish performance of Q4 of last year. Group's total operating profit of Q1 was KRW 2.8648 trillion, up 15.6% Q-on-Q. This is driven by stable financial markets leading to significant improvement in investment performance from securities and derivatives as well as growth in underwriting and fee and commission income.

Looking at each segment in greater detail. Group's Q1 net interest income was KRW 2.2521 trillion, up 5.1% year-over-year. This is driven by bank's loan growth leading to a solid interest income growth and greater interest income contribution from key subsidiaries, i.e., securities, insurance and KB Card. However, on a Q-on-Q basis, net interest income dipped slightly due to less number of business days.

Next is on group's net fee and commission income. Q1 net fee and commission income was KRW 550.6 billion. Despite lower revenue on the back of lowering of merchant fee for the Card business on higher trust and IB commission income, there was a 11.1% Q-on-Q growth. The bank's trust income in particular, thanks to rebound in the global market and early redemption of the ELS product and higher new sales, there was around KRW 27 billion growth Q-on-Q, attesting to our performance improvement compared as against the second half of last year. However, last year on the back of bullish market, there was a great increase in trust and securities fee income. Hence, on a year-over-year basis, net fee and commission income inched down slightly. Q1 other operating profit was KRW 62.1 billion in net profit, stabilizing from the weak performance of KRW 330.8 billion of net lost -- loss posted previous quarter. This is driven by equity market stabilizing unlike Q4, where financial markets showed high volatility, which led to big improvements in securities and derivative performances. In case of sales and trading that reported significant loss last quarter, we strengthened investment management capabilities for equities and ETF and stabilized the ELS revenue model. As we realigned such processes, we are seeing a quick turnaround towards a stable management income. Also non-life insurance reported a weak performance last quarter due to higher loss ratio, but driven by premium hike in auto insurance and seasonal decline in accidents, loss ratio is improving, leading to gradual recovery in profitability. Once there is repricing that reflects the premium hike and cost efficiencies come under full swing, we expect the insurance dynamic to gradually show improvement going forward.

Next is on the G&A expenses. Q1 group G&A was KRW 1.5139 trillion driven by ERP cost and other factors, it was up 8.8% year-over-year. As mentioned, this quarter we booked employee welfare fund contributions, which we do every first quarter. So G&A seems elevated. But for such seasonal factors, quarterly G&A is being managed relatively quite well.

Next is on PCL, Provision for Credit Loss. Q1 PCL was KRW 191.7 billion. On loan asset growth, it was up KRW 27.2 billion year-over-year. But on a credit-cost basis, it was 21 basis points, similar to last year's level and is being well managed. Lastly, Q1 nonoperating profit was KRW 6.7 billion, compared to last year where there was a one-off gain from sales of Myeongdong office building of KRW 115 billion profit decline.

Next is on key financial indicators. 2019 Q1 group ROA posted 0.71% and group ROE posted 9.59% respectively. As you can see in the top left-hand graph, there was a temporary steep decline in the previous quarter with sizable some nonrecurring costs and losses. However, the group's earning power recovered to a certain degree in Q1 and the recurring group ROE posted 9.98%.

Next is the group's cost-income ratio. 2019 Q1 group CIR posted 52.8% and excluding this quarter's nonrecurring ERP cost of approximately KRW 48 billion, the recurring level of CIR posted 52% level. The bank has been implementing ERP each year since 2015 as a part of the bank's mid- to long-term cost structure improvement measures. And it might be difficult to feel firsthand the cost-cutting effect immediately, but only 5 years ago, the group's recurring CIR was at a 60% level. And taking this into consideration, cost efficiency is steadily being improved.

Next I would like to elaborate on the credit cost ratio. As you can see on the right-hand graph, 2019 Q1 group and bank's credit cost ratio is posted 0.21% and 0.05% respectively and is still maintaining a subnormal level. This was the result of our asset quality management so far, including efforts to improve the loan portfolio quality and to maintain a conservative provisioning policy. With concerns regarding a credit cycle being pronounced nowadays, KB group's level -- group level risk management capability is being proven once again.

Let's go to the next page. Let me cover the bank's loans in won growth. As you can see on the top left-hand graph, the bank's loans in won as of March end 2019 increased 0.3% compared to last year-end and posted KRW 258 trillion. Looking at the different categories, household loans increased 0.7% compared to last year-end, centering on safe assets including Jeonsae and monthly rental fee loans, and is continuing a sound growth trend. On the other hand, corporate loans decreased 0.3% compared to last year-end and centering on externally audited prime SME, SME loans grew 0.9%, but large corporate loans declined temporarily with sizable loan repayments. Internally, as a part of preemptive asset quality management measures, it was influenced by rebalancing of potential NPLs and low-profit loans. Taking into consideration the Q1 seasonality factors and temporary loan repayment effect, we forecasted the loan growth will accelerate further from Q2. Basically, we wish to more conservatively manage this year's loan policy so that we can pursue quality growth focusing on safe and sound loans.

Next is the NIM. Q1 NIM posted 1.98% for the group and 1.71% for the bank, respectively, and grew by 1 bp respectively for both Q-on-Q. Q1 bank's NIM improved Q-on-Q on the back of loan asset repricing effect, taking into consideration the interest rate hike as well as efforts to increase the overall asset yields and improve from the previous quarter. In the process of preparing for strengthening of the loan-to-deposit ratio regulation, some funding cost burden can be inevitable but exerting KB's greatest strength of sales capability, we will make efforts to both increase the low-cost core deposits and improve the managed asset yield so that we can at least improve the NIM slightly.

Next is the group's capital ratio. As seen from the graph on the right, the group's BIS ratio as of March end 2019 posted 14.83% and CET1 ratio recorded 14.18% respectively and is still maintaining the highest level of capital adequacy within the financial industry. If the KRW 400 billion of hybrid bonds currently underway complete issuance, the capital ratio is expected to additionally improve by 17 bp.

Let's move forward. On page 5, I would like to explain about KB Financial Group's cost management and bank's personnel and channel management strategy. Recently, for several years, ERP which entails a big cost burden is being implemented on a regular basis for banks to reorganize the personnel structure and to improve cost efficiency. Keeping in step with the financial industry digitalization trend, there is heightened interest in the bank's personnel and channel management. As a part of efforts to improve the mid- to long-term cost efficiency from 2015, although the amounts have been different, we also have been continuing ERP, and as a result, labor cost is basically being well controlled. As you can see on the top left-hand graph, the employee benefits excluding securities, insurance and capital have been continuously decreasing from 2015 when ERP was first implemented. When we assume that the annual rate of wage increase is around 3%, taking into account the natural increase of labor cost, you can realize that ERP has contributed to labor cost savings. In particular, as you can see on the bank G&A graph on the bottom, the employee benefits, which amounted to around KRW 2.321 trillion in 2015 decreased each year. As a result, the 2018 employee benefits decreased by about KRW 190 billion compared to 2015. Also the compound annual growth rate, or CAGR, of the past 5 years recorded a minus 1.09% level. This labor cost savings effect was partly diluted with the group's consolidated G&A expenses greatly increasing during the same period with the acquisition of nonbanking subsidiaries including securities, insurance and capital and turning them into wholly owned subsidiaries. As you can see on the graph on the top, as of 2018, the simple addition of the G&A expenses of the 3 subsidiaries; securities, insurance and capital, amounted to around KRW 1.6 trillion annually and takes up a sizable portion of the group. With the sizable ERP expenses incurring each year, it is true that it may be a slight burden on the group's net performance. But in the mid to long term, the cost effect is expected to be realized. Since the management recognizes the importance of comprehensive personnel management methods including ERP, we will find additional ways to contribute to improve corporate value and work very hard to implement them.

Next, I would like to elaborate on the bank's personnel and channel operation strategy. We have been keeping in step with the changes in the financial environment, including the expansion of non-face-to-face channels, decreasing the numbers of branches and slimming down the operation of ATM machines and reorganizing the branch management organization and expanding extended-service-hour branches. We have been reorganizing the 1,000-or-so number of branches to 138 partnership groups, or PGs, strengthening the sales environment rights and responsibilities. And the PG units have been sharing goals, achievements with specialized Corporate Finance personnel so that the work efficiency is improved and that there is more personnel management flexibility. In addition, in order to expand the 2-way synergy, we have been strengthening the multiservice branches, which is our core business in WM referral sales and expanding the service scope to the corporate asset management area, so that the synergy between subsidiaries can be maximized. In addition, we have been expanding extended-service-hour branches, which are operated flexibly, meeting the characteristics of the branch environment, including 9 to 7 bank and after bank, so that we can have diverse customer marketing points of contact. Likewise, KBFG aims to improve personnel and channel operation efficiency by expanding operations of multiservice branches and extended-service-hour branches, so that we can proactively respond to the changes in the future financial environment. Please refer to the following pages for details regarding the business results I have elaborated on so far. With this, I will conclude KBFG's 2019 Q1 business results presentation. Thank you for listening.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We will take the first question from [Michanday Muri] Securities, Mr. Kim [Yoo-Jung].

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Unidentified Analyst, [2]

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I would like to ask 2 questions. But first, if you look at the numbers of Q1, compared to your past track record is relatively low and also compared to your peers. I would like to understand what your loan growth trend looks like per segment? So if you could provide more detailed explanation it'll be helpful. And I still would like to know if you continue to stick through your loan growth plan this year?

Number 2, G&A on a year-over-year basis went up because I understand that some part of the ERP expense of Q4 is booked under Q1. So if you could provide some more explanation on that, and also when it comes to CIR ratio, you plan to reduce them, can you share with us your mid to target objectives -- your target for CIR, and when do you think you'll be able to achieve that target?

And last question is with the LDR regulatory change, people are concerned about low funding burden, but risk is going up, and I think that is capping a favorable outlook. With the increase in demand deposits, you have some of the measures in place. So, can you provide some more explanation on the funding plan as to how you are going to respond to the loan deposit ratio changes to come in the future?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [3]

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Thank you for the question. Please give us a moment, we will respond. Yes, Mr. Kim, thank you very much for your question. The first question has to do with your -- topic of loan growth. In terms of the growth of loans in won, it was about 0.3%, which is quite slow compared to the past. So if I were to explain per segment, if you look at household loans, basically, we brought about KRW 1 trillion of growth, about 0.7% growth rate. Basically our target is 2% to 3% so -- growth, so I think it is in line with that. Now if you look at the total loans growth, we've seen KRW 1.7 trillion increase compared to -- on a year-to-date basis. If you look at mortgage, we've seen a decline of about KRW 800 billion. This is due to the regulation on mortgage lending will be coming into play. If you look at unsecured loans, we had a loan for police force, which continuously grew. But new origination, it has now reached almost the end. So we are seeing a slowdown in the growth of the loan origination. Now on household loans, under the regulatory impact, we have set our objective quite conservatively from the very onset. So I do not think there will be any difficult for us to achieve those objective. So there's Jeonsae loans, there's collective loan, and also high-quality unsecured loans. These are -- have a focus on safe assets under which we are going to continuously trying to regrow. However, when it comes to DSR and by credit ratings, by product, by region, we are going to conduct a linkage analysis based on our system and we'll restrengthen loan origination based on which we'll however still continue to grow our household loans. In terms of corporate lending on a year-to-date basis, we've seen a decline of 0.3%. So there was a pronounced sluggishness. However, if you look at SME loans, basically, focusing on the prime SME, we were able to grow about 0.9%, which is around KRW 400 billion. So a sustained growth is continuing for such high-quality SME loans. And the large corporations, significant size loans have been repaid. And internally, when it comes to low-margin and problematic loans, we've tried to limit extension of the maturities as we tried to reduce the limit and we did some rebalancing work. So there has been about KRW 500 billion decline for the large corporation. And for SOHO loans, on a year-to-date basis, there has seen a slight decline. For corporate loans, basically this year, we're looking at 5% to 6% growth as our target. Considering the slowdown in the economic cycle, once again we are going to focus more on soundness rather than growth potential, we will be more rigorous, we will be more conservative.

Now when it comes to loan growth plan, our previous plan still stands, and we have many measures in place to achieve the target. Basically, we were focused on high-quality corporates and to make sure that we retain them, so we have a preemptive management process, again such good quality borrower. And also we will focus on high-quality customers where we will focus our sales capabilities so that we will achieve our loan growth target.

My -- your second question had to do with the ERP. Now end of Q4 last year, submitted earnings release. Basically we conducted group wide ERP and basically KRW 286 billion of ERP expense was incurred and that was what we communicated. Now with newer deposits concerning the closing of the account, KRW 48 billion basically we've made some change so that, that will be booked under January of this year. Now end of last year, when we conducted the ERP on the month of December, basically we confirmed that we will continue on with the -- we will do ERP and we'll provide a notification to the people who are qualified for ERP. Now in the process of negotiations with the labor union, that whole process dragged on until January, so people who will take out the ERP package basically and the criteria for the age extended by 1 year. And because of that, there was an addition of 100 people who were added on to this ERP package. So when we announced this package, in order to stick to the consistency for the accounting treatment, since this is a single event, we felt that the timing of the recognizing of this expense from an accounting treatment expenses will be more desirable in light of the people who make use of such accounting information outside. Therefore, in Q4, we've actually booked all these expense all at once under Q4. Afterwards, when we were confirming and finalizing the account closing, there were some additional discussions. And the people who were newly added in the month of January, the 100 people, basically there was an advice that for us to recognize the expense related to these 100 people in the month of January will be much more in compliance with the accounting standard. So hence that's the reason why we reflected that in January.

Now in terms of CIR target for this year, this is on a recurring basis, taking out the one-off recurring, we're looking at upper 40% and in 3 to 4 years' time, we think there will be improvement to the mid-40% level. For ERP, if you look at our peers, we have about 2,000 people more, 2,000 to 3,000 people more. So we would continuously implement ERP package as we go forward.

Now responding to your question about the LDR regulations. KB, for many years, we've been expanding our corporate loans, and we've been reducing the household loan book. However, the household loan book for KB is -- takes up significant share of KB. So I understand there is that concern by the market and I -- this factor is priced in our equity price, which is quite regrettable. With regards to the LDR regulation, we're still waiting for the specifics details to be announced, so it's quite difficult for me to provide you with any specific measures. But I can tell you that we are in the process of sharing our views, and we are providing our feedback and engagement discussions with the regulatory authorities when it comes to the formula for LDR. But at this current point, basically our loan growth target is 4% to 5% as I previously mentioned, so it's moderate. And household is 3%, corporate 5% to 6%, that's our growth target. So with regards to a more stringent LDR regulation, we do not foresee any significant additional burden. And in terms of the funding aspect, rather than being preemptive, we will really look at the trend in terms of loan growth on a monthly and quarterly basis. And we're closely monitoring how the market is playing out in terms of market interest rate, the level of competitiveness in the market as well as the regulatory backdrop. So we're very closely monitoring the market, and we want to make sure that we really match those trends.

In terms of low-cost -- low-cost deposits, we want to use our sales capabilities so that we can expand more payroll accounts and credit card accounts. And in terms of marketable CDs and for covered bonds, we were fully utilizing, so that we could minimize our funding cost as much as possible. Thank you.

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Operator [4]

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We'll take the next question from Samsung Securities, Mr. Kim Jaewoo.

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Jaewoo Kim, Samsung Securities Co. Ltd., Research Division - Analyst [5]

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I am Kim Jaewoo from Samsung Securities. I also have 3 questions. First, is about the KB Securities and the promissory note situation. And if this is finalized, then I'm curious about how you are going to manage the funding.

Secondly, is about the KRW 400 billion of hybrid bond expense that you have announced. And capital adequacy is very high quality for KB. So the market is quite curious about what will happen to the results, and can you tell us about how you're going to utilize the hybrid bond result.

And last question is linked to the second question. In the market, KB is being talked about because the hybrid bonds is about the sales of Kyobo sales -- Kyobo Life. And there are some rumors that you're going -- maybe you're going to use the fund from hybrid bond to actually acquire Kyobo Insurance Company. I know that you're (inaudible) different M&A activities. So I think, many are quite curious about KB because you seem to have ample funding. Can you tell us about future plans?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [6]

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We will answer your question in a short while.

Thank you very much Kim Jaewoo for your question. The first question was about the KB Securities' promissory note situation and how we're going to operate it. Actually we have submitted our approval form to FSC. And if we're approved for business, then we will engage in the following. We believe that approval will be decided in May. We have been enforcing personnel and infrastructure to ready ourselves for promissory note issuance and as soon as we get the approval, we are going to start operations. Regarding the funding for promissory note, we'll take into account our management strategy, we're going to settle on the amount, and we believe that there is individual funding, which is quite stable and corporate funding. And we believe that the ratio will be about 7:3. In addition, regarding the launching of the promissory notes, there will be promotions and marketing that will go on as well, we have plans for that as well. And for the management, well, regarding our asset inclusion standards and internal risk management limitation, we have put them in place, so that we can have stable operations. We also take into account the IB business expansion of securities, and we believe that we will invest more than half in Corporate Finance. And for the rest, it will probably go into real estate asset and MMF and other liquid assets.

Regarding plans to issue hybrid bonds, or hybrid securities, we have the best BIS ratio in the financial industry. And our target BIS ratio is about 15% and we have been managing fine so far. Regarding the hybrid bond issuance, well, there are 3 main reasons for this: first reason is because our management of the BIS ratio, recently from last year for the couple of years, well, we have been expanding our corporate loans and unsecured loans and our BIS ratio has fallen somewhat. Our WA regulation has been strengthening and will be strengthened going forward. And we believe that regarding our BIS ratio, since it can actually deteriorate, we need to manage this proactively. That is why internally we have been reviewing different methods and that is why we have been trying to manage our BIS ratio further.

Secondly, regarding KB's capital structure, it is mostly for CET1 capital. And for this type of capital, we have 1.3x higher CET1, so that is why we believe that we need to have more flexibility. The third reason is because in the past for securities, for insurance and capital for our nonbanking business, we wanted to strengthen the portfolio, and we had less amount slated for investment. So that is why BIS ratio and to have asset flexibility and to have ample funding for investment. These are the reasons why we believe that hybrid bond issuance can help us reach these 3 goals. That is why this is currently underway.

In addition, actually, we do not have further plans to issue more hybrid bonds rather than the one I have now mentioned so far. And we want to manage our RWA and we want to improve our pricing structure. We have been doing that. So it is for efficient capital adequacy management. Related to this and funding for Kyobo Life Insurance acquisition that you have mentioned, I think there was a question about M&A. And to answer that question, we want to have sustainable profitability, and we want to have a market dominant position in the market. So we believe that inorganic growth through M&A is essential. I think we all agree on this, internally and externally. So it is true that we have been mentioning continuously that we want to strengthen our nonbanking portfolio, and we are limited to all sectors. We want to enforce our portfolio and we want to improve our fundamentals. And if any addition helps us in this direction, we're fully open to it.

For the M&A of life insurance company that you have mentioned, well, for life insurance, we have a portfolio in this area. So we are always interested in this sector. We believe that in 1 or 2 years, when there is different regulation in the insurance industry, we might grab a good chance, and we have been mentioning this so far. And for Kyobo Life Insurance, I know that the market is very interested in what will happen. And in the market, it is not still for sale, Kyobo Life Insurance. So I don't think it is appropriate for us to mention this possibility at this time. If we do have an M&A, we will have the deals that help our shareholder value so that the M&A is accretive to us and to our ROE and so that we can have more synergy in -- within our groups. So we will take all of these factors into consideration and decide. Thank you.

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Operator [7]

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We will take the next question from DB Financial investment, Mr. Byung Gun Lee.

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Byung Gun Lee, DB Financial Investment Co., Ltd., Research Division - Team Leader [8]

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My name is Lee Byung Gun from DB Financial Investment. I apologize, but with regards to your loans, I have some follow-up questions. As you have previously mentioned, I think you've seen some increase in the loans to your current SMEs, but on a year-over-year basis and compared to your peers, I see too much difference. Basically in Q1 loan yield and also other, you've seen about KRW 3 trillion to KRW 4 trillion increase. Like last year, it was up KRW 5.1 trillion, so there's been a significant decline. If you look at your competitors, I don't see any significant change in number. But KB, you're able to increase KRW 1.4 trillion, but now there has been a decline by KRW 200 billion. So for SOHO -- excuse me, for SOHO loans, there's been a significant decline. And in Q1 on a year-over-year basis, basically the net addition margin actually really compressed and I think it's mainly because of KB. If you look at corporate SME, basically compared to about KRW 900 billion of net addition by others, I think KB net addition expense was relatively low. So on an annual basis, if you look at your plan, most of the banks performed about at a similar level. But KB, your net addition figure from your shareholders have fallen quite significantly. And I think being -- I think saying that because you're conservative does not really explain everything. So what is that the key reason behind such a big difference between your performance and your peers? Is it only because KB has taken a very conservative approach towards market forecast? What are some other reasons that could actually explain the difference in figures that we are seeing between KB and other banks?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [9]

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Please give us one moment to respond to that question. Thank you Mr. Lee for your question. Now we have the CFO from KB Bank here with us, so he will respond to your question.

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Unidentified Company Representative, [10]

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Mr. Byung Gun Lee, thank you very much for your question. I understand that your concern with regards to corporate, SOHO and SME loan growth was slow compared to our peers, and you're asking the reason behind that. So in Q1, if you -- since we are at the latter part of the business cycle, we believe that in terms of economic stagnation, in Q1, there's been overheating of competition. The reason why we see a dip in SOHO is because we have seen about 60% of the impact from our base moving to our peers, basically 60% of the impact is from that. Basically with -- because of the pricing strategies and with them lowering the interest rate, we had to make a decision as to we were actually compete head-on or considering that we're at the latter economic cycle rather than refunding the price, should we take a step backward and really try to wait out the market. And because we think that the cycle is in the latter part, we decided to do so. Because last year, we grew KRW 20.3 trillion and we grew 2 years ago as well. So from Q1 of last year to this year if you look at the growth rate, basically we have grown the highest in the past. And if you look at from 2017 of Q1, since that point in time, we have posted the highest growth rate. So in light of these factors, would it be appropriate for us to really take the aggressive pricing strategy that undermines our margins, so we did think very hard about that strategy. Since we have already grown quite significantly over the past years, we felt that it's time for us to pay more attention to margin and not be aggressive in pricing just to follow what our competitors are doing.

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Operator [11]

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We now take the next question from Hanwha Investment & Securities, Mr. Cho Cheol Woo.

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Cheol Woo Cho, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [12]

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I am Cho Cheol Woo. I have a question about the bank G&A and the credit card as well. And you mentioned that Y-o-Y, there has an increase up to KRW 120 billion in G&A. As we heard about the KRW 40 billion -- KRW 88 billion for ERP, but still it is just a sizable sum. And I think there is also depreciation, but even taking that into consideration, I think the G&A increase was quite steep. It seems that on a yearly basis, the G&A has been increasing at about a 60% level. But were there other nonrecurring factors for Q2? Will there be more one-off factors? And for credit card, I think it was quite down, but in January and February and March, there have been some factors, but I think there have been good increases. And is it just that in Q1 the situation was good, but do you think for Q2, Q3 and Q4 for credit card, it will also be well performing? And I'm also curious about the write-back of provisioning for the corporate side. Can you elaborate on what those factors are?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [13]

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We will soon respond to your question. Thank you. Thank you very much, Mr. Cho. Can you ask the third question once again?

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Cheol Woo Cho, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [14]

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I think for the bank there was some write-back for corporate loan, so can you elaborate on what it is for provisioning?

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [15]

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Thank you very much Mr. Cho for you question. I will answer your question first about the G&A expenses. For ERP, it was actually KRW 48 billion, not KRW 88 billion, and there is the employee welfare part, which started in Q2 of last year but starting from Q1 in this year and actually was supposed to -- it was recognized from Q1 of this year and for depreciation for rental cost and for IFRS 1116, there was the asset for the lease and the lease liability that we'll recognize. And because of the gap in the depreciation, we had an increase in the depreciation, and we had new employee hiring and the increase of average wages. So because of that, there was about KRW 123 billion increase for the bank. So I think that explains the G&A situation. Let me go to the credit card question and our Credit Card CFO is here with us. So he will answer your question in more detail.

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Unidentified Company Representative, [16]

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Hello, I am (inaudible) of KB Card. For card, you mentioned that the performance was better than expected for Q1. And in February and March, there was a decline in merchant fee. But -- so there was a situation, and another reason was Q1 ERP that we had. So there was nonrecurring expenses from last year. So that did not happen in this quarter as well. However, we believe that we will feel the emergency decline from April. So it might not be as positive, but we're going to enhance our strength and enhance our marketing efforts so that we can have a lesser blow by the merchant fee decline.

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Ki-Hwan Kim, KB Financial Group Inc. - Deputy President & CFO [17]

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Thank you very much Mr. Cho Cheol Woo for your question. And regarding the G&A increase and you also mentioned about the corporate provisioning. For provisioning, we did not have special write-backs compared to the previous quarter. And the amount Q-on-Q was actually smaller than before, and on the whole, we -- there was a write-back for cumulative provisioning, but I think you think that it increased Y-o-Y. But on the whole, the amount of write-back for provisioning was not a sizable sum and Q-on-Q, while even excluding write-backs, well, you can see excluding all the redemptions and looking at the gross provisioning, compared to last year's Q1, in Q1 of this year, well, I don't know if I can mention some numbers, but it was about KRW 120 billion last year. And there was the provisioning, which was about KRW 120 billion. And in Q1 of this year, it's about KRW 88 billion. So even excluding the write-backs, you can see for the migration, the amount is quite stable. That's my answer.

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Cheol Woo Cho, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [18]

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Can I ask an additional question? For the bank, the bank provisioning is about KRW 35 billion for Q1 and for -- you can see for household, KRW 55 billion and for -- you can see KRW 19.4 billion. There were some normal write-backs, and you mentioned there was no special events. But can we expect this to follow in the following quarters or was it just for Q1 that there was some write-back of corporate provisioning?

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Unidentified Company Representative, [19]

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Let me answer that question. On the whole for provisioning for the corporate side, it is true that we had some write-backs. And for household, it actually went up. On the whole for the delinquency rate, well, it is being maintained in our planned scope and we do have some issues, maybe 1 bps in household and unsecured. So -- but it's still within our plan. For the corporate provisioning write-back, it is in a minus situation, but we don't believe the minus situation will continue. I think for the corporations, it will rise somewhat. And I think we're hopeful that it'll decline somewhat. So we believe that the KRW 34 billion amount will probably continue, so that it will be within KRW 200 billion, which is our plan and falls to about KRW 150 billion for the year. And CCR, it will be about 6 bps or 7 bps.

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Operator [20]

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Thank you. We do not have any other people waiting in queue for additional questions. But please bear with us one moment.

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Joong Kwon Bong, KB Financial Group Inc. - Head of IR [21]

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Yes, we have spent about 50 minutes. So I think we have fully entertained your questions. Since we do not have any others on standby, ladies and gentlemen, this brings us to the end of the earnings presentation. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]