Kookmin Bank Q2 2007 Earnings Call Transcript

| About: KB Financial (KB)
Wall Street Breakfast

Kookmin Bank (NYSE:KB)

Q2 2007 Earnings Call

July 30, 2007, 2:30 AM ET


Hyun Gap Shin - CFO, EVP of Finance

Dong Soo Chung - Chairman of The Board of Directors

Chung Won Kang - President and CEO

Dal Soo Lee - EVP


Byung Gun Lee - Shinyoung Securities

Philippa Rogers - Goldman Sachs


Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

Well, good afternoon. My name is Hyun Gap Shin. I am the CFO of KB Kookmin Bank. I would like to go over our 2007 first half performance. The 2007 first half earnings, if you look at the financial highlights, we also have then the P&L, the assets, BIS, and the various assets being analyzed by division.

First, our financial highlights. In 2007 first half, our net income was 1,418 billion won, which is compared on a year-on-year basis a 10% decrease. This is because during the first quarter, there was a gains on the sales of LG Card, which had about 432 billion won effect. Also there was additional pay of corporate taxes during the second quarter of 482 billion won. Also during the first half of 2006, there was a reversal of losses on Hyundai Construction and if we exclude these one-off factors, actually the first half net income would have been similar to that of the previous year.

Our pre-provision income was 2,764 billion won, which is a year-on-year 17% increase. Our provision expense during the first half was 119 billion, which is a 26% decrease year-on-year. Our NPL ratio has continuously decreased, thanks to our efforts to improve our asset soundness. It decreased by 0.59 percentage points and came in at 0.80%. Our annualized ROA and ROE was 1.42% and 19.55% respectively, and even though it is tentative, our BIS ratio is expected to be 13.42% with a Tier I ratio of 10.34%.

This is the major highlights of our P&L and the trends during the first half. As you can see, if we exclude the one-off factors, most of our earnings indicators are quite stable quarter-to-quarter. Our gross profit has maintained a very steady pace and then our G&A expense has slightly increased, but our provisioning expenses have continued to decrease and have offset the G&A expense increase. Our net income has been maintaining around slightly above 700 billion won mark quarterly.

And then the interest income was similar to the previous quarter of around 3,406 billion won. Quarter-to-quarter there was a slight increase because of the increased number of operating or business days during the second quarter. The non-interest income, there was the LG Card sales income and this had a year-on-year 97% increase effect. The details of this non-interest income will be explained in more detail.

The general and administrative expense was 1,782 billion won. There was an increase and our administrative expenses also increased by about 8%. The G&A expense details will be explained later on as well.

The pre-provision income increased by 17% year-on-year due to one-off factors such as the gains on the sales of LG Card. We have continued to improve our asset soundness and our provisioning expense decreased by 34% Q-on-Q and 26% on a year-on-year basis.

Our non-operating income, as I previously mentioned before, recorded a loss of 412.5 billion won due to the one-off factor related with the additional tax payments. At the end, the net income of our first half due to various one-off factors decreased by about 10% year-on-year.

Our interest income slightly increased year-on-year. As you can see on the bottom, our NIM during the second quarter contracted slightly, mainly because there was an increase of corporate loans, increasing more than what we had expected and corporate loans have a relatively low margin. On the other hand, the higher margin credit card asset growth was a bit slower than what we had expected.

Fee income of the first half was similar to the previous year's first half. It increased quarter-on-quarter by 2.4%. Our NHF management fee slightly decreased year-on-year. This is because the Korean Government has pursued to stabilize the real estate market and this has decreased the volume of the housing bond transactions. Thus there was a decrease of individual loan new volume. Also, the trust fees have decreased by about 5% year-on-year because of decrease of the funded trust fees, but on the other hand, Q-on-Q, there was a slight increase.

Bancassurance and trust product sales have continued to grow and they've respectively grown by 8% and 15% respectively quarter-on-quarter. Year-on-year wise, they have grown by 25% and 66% respectively.

On the other item, there was a decrease of foreign exchange and derivatives, gains and losses. Also there was an increase on the trust guarantee fee and overall we have decreased on the other items quarter-on-quarter. SG&A in detail, it increased by 8% Q-on-Q and 11% Y-on-Y.

On the labor side, there was a recognition of some special bonuses and decrease of the stock compensation expense. So, Q-on-Q wise, labor costs decreased by 8%, but on the administrative costs, there was an increase Q-on-Q by 35%. Also depreciation, there was some increase in the depreciation for business purpose movable assets, machinery and intangible fixed assets, and that is why the depreciation Y-on-Y increased by 36%.

The cost income ratio, if we exclude the LG Card sales gain portion, it increased slightly by 2 percentage points, recorded 45% excluding the LG Card effect. If you look at the non-operating side, there was some changes on first quarter in the accounting methods. There was some changes, for example, for the available for sales securities now being classified into non-interest income, and if we exclude these factors they were not major factors affecting our non-operating income. But if you look at the equity method gains, there was an increase of our equity method gains from our subsidiaries and that is why our equity method gains have increased by 57% Q-on-Q and 15% Y-on-Y. On the others, there was the additional taxes that we had to pay this quarter and that is why on a non-operating basis, our income has decreased considerably on both Q-on-Q and Y-on-Y basis.

If you look at our asset growth, our corporate loans and credit card assets continued to grow throughout the second quarter. Our assets have continued to grow throughout the second quarter. Household loans, despite the various changes in the financing of houses, actually during the second quarter, our household loans have increased slightly. Corporate loans have also continued to grow including growth in SME and SOHO, as well as large corporate loans.

Our credit card assets actually decreased slightly during the first quarter, but in the second quarter, it rebounded and has been continuing to grow especially around revolving services and card loans. On the credit card side, we plan to continue this asset growth for various customer services and providing new products that are very competitive and also be very aggressive in our marketing and promotions.

Our BIS very briefly, our total assets as of end of June 2007 including our private placement bonds had an increase of our won loans by 8.5 trillion won, won securities by 1.8 trillion won and foreign exchange asset by 1 trillion won. We were able to close the June with 206.900 trillion won, which is an increase of 11.7 trillion won Y-to-D.

On the funding side, won financial debentures increased by 5.3 trillion, foreign currency liabilities by 1.3 trillion, and overall funding side liabilities have increased by 12 trillion won year-to-D, recording 192 trillion won.

On the household loans, there were some changes in the financing environment of the real estate market. The housing market is also a bit contracting, and so we have been able to maintain housing loans similar to the previous year. Corporate side, both the SMEs and the SOHO subcategory has continued to grow and we are continuing to grow at about 10% growth Q-on-Q and 17% growth Y-on-Y.

The large corporate side also have grown by 26%, due to increase in new loans to corporate as well as project finance loans. The credit card loans is overall growing; as we mentioned, credit card assets are growing and we expect this growth to continue in the second half of this year. Also, if you look at the corporate side as a whole, there has been a significant growth, as you can see on the bottom line of this table.

On the Korean deposits, there was continuous growth on CDs and RPs. Demand deposits saw some decrease because of some funds moving to CMA accounts offered by securities companies and there were some also seasonal influx of funds at the end of last year, and that is why there was a decrease about 3.8 trillion won on demand deposits compared to the end of last year. Also, saving... time and saving deposits have also decreased slightly. We will continue to provide various services and also introduce new products in order to reduce the amount of outflowing demand deposits and savings deposits. Our won debentures have increased by 2.1 trillion won Q-on-Q and 5.3 trillion won Y-on-T.

Let me now move onto the 2007 first half asset quality overview. As you can see on the graphs, the overall delinquency rate for the total loans after the end of 2004 has improved greatly. As of the end of June 2007, it has recorded 0.67%. Compared to the previous quarter, it is a reduction by 19 BPS. This was possible because of the continuous improvement of the asset quality as well as the second quarter sale of NPL and those factors mainly contributed to such reducing delinquency rate.

If I may go into the details, we have the household, corporate credit card, in all these categories, we have seen a downward adjustment of delinquency ratio. And if you consider the NPL sale effect during Q2, the overall categories improved. For your information, as of January 1st of 2007, the new classification criteria for delinquency rate was implemented. Therefore, the figures after 2007 period is applying such new revision of the regulation.

As you can see, the asset quality is improving throughout all categories. So, as a result, the NPL ratio has come down by 20 BPS recordings 0.80%, especially the NPL coverage ratio was 175.8%, which was a whopping increase. This was possible because of the NPL sale conducted during Q2 as well as the fact that we saw a decrease of 148.3 billion won worth of new NPL formation during Q2.

I have already mentioned sufficiently about the delinquency rate in the previous page. So let me skip over that portion. Let me now move onto the provision for loan losses. Due to continuous improvement of asset quality as well as the recovery improvement, we have recorded 62 billion, which was a reduction by 51% quarter-on-quarter and I will skip over the details.

As you can see on the graph, the substandard and below and precautionary and below ratios are continuously decreasing, while the NPL coverage ratio is steadily rising.

Let me now move on to the new NPL formation. Because of the continuous improvement of asset quality, it is on a steady decreasing trend. What used to be at about 300 billion Korean won per quarter since 2006, the NPL formation seemingly increases during Q4 of last year, but this was because on one-off factor from SPC related credit enhancement. But if we exclude that one-off factor, we have actually recorded 261.6 billion won during Q4 last year. So that was actually a decrease. So beyond 2007 period, the continuous decreasing trend is continuing and even during this period, all the sectors saw a downward stabilization. For loan loss provisioning because of the asset quality improvement and sale of NPLs and because of increased recovery rate, the Q2 loan loss provisioning ratio was 0.1% and for the entire first half, it was 0.2%. If you look at per category, as you can see, per each category, we have seen an improvement of credit cost.

Let me now move onto other major issues that pertain to the first half of 2007. During the first half of 2007, one of the greatest achievements made by KB Kookmin Bank is the fact that KB has obtained the highest credit rating from all three major international credit rating agencies, which is the top of the rating system in the domestic banking sector. In the month of March, S&P has allotted the only commercial bank credit rating of A, which is the same as the sovereign rating.

Moody's has raised our credit rating on May 4th of this year, and following that upgrade, on the 25th July, it was further upgraded from the existing A1 to AA3, which was one notch higher than the upgrade taken place in the month of May, which now makes KB Kookmin Bank's credit rating higher than that of sovereign rating. So of the commercial banks in Korea, we are the only bank with the credit rating from Moody's of AA3.

On the 13th of June, Fitch has upgraded our rating from existing A to A+. So as a result, from all major three credit rating agencies internationally, we are now allotted the same rating as the sovereign rating.

One of the biggest factors that led to such upgrade was because of the rigorous risk management system, which was established based on sound management of assets as well as the securing of the profitability stability through asset growth strategy, and also because of our sufficient improvement in terms of capital adequacy. I will not elaborate on the following page, which is the last page. Please refer to the distributed documents.

As you can see, KB Kookmin Bank so far worked on fully establishing the banking infrastructure. We are trying to manage risk management. We are trying to stabilize the profitability, while we prepare for the future growth of the future. Going forward, KB Kookmin Bank will continue to exercise more innovative strategy going forward to maintain our top position. Thank you very much for listening.

Question And Answer


Yes, that was a presentation by our CFO. And now we will open the floor for your questions.

[Operator Instructions]

We have Tan Yan Hwong [ph] of Morgan Stanley waiting for question.

Unidentified Analyst

Yes, good afternoon. Your NIM is relatively weak it seems this quarter. The CFO mentioned that there was an increase of corporate loans and slower growth in credit card assets, which is similar in other banks too. Is there a special reason why compared to other banks, KBs NIM has been weaker? And what are your plans for the second half?

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

About our NIM decreasing, the reasons for that could be divided into our assets side and our funding costs side, and the corporate loans, there was an increase of new corporate loans that's one. And for a long time, we had a large amount of group loans, collective loans that have come to maturity during this quarter. And the new group or collective loans are being booked at a smaller spread, and so that was another factor. The other one that I could mention is on the funding side, we have not been paying a lot of attention on the funding side, but starting from this year, our customers have became I think more sensitive to their deposit rates. And on the other hand, we have also in terms of customer service have increased some of the deposit rates, and that was another reason why our NIM has decreased.


Thank you very much for the answer. We will now take the next question. We have no question at the movement waiting. So we will wait a few more minutes.

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

Until we receive the next question, let me also address the second part of the question that was raised by Mr. Hwong from Morgan Stanley. There was a...the second part of the question regarding the prospects for the second half. In our view, during the second half of this year, we believe that the NIM will contract a little more. However, internally speaking, the loan type of the credit card assets are on the increase at the moment and also the retail unsecured loans-related credit rating system is being addressed. In other words, those lower credit rating bracket of the retail unsecured loans are being reviewed at the moment to expand that scope as well. So of course, we have the market environment that is prone for further NIM contraction, but then again, we are trying to increase the business portfolio with regards to the higher margin business. Therefore, rather than the secular trend which is downward trend, I believe that we will not be going down faster than the secular average market trend.


Thank you very much for the elaboration. We will now be waiting for the next question. The next question is from Mr. Lee from Shinyoung Securities.

Byung Gun Lee - Shinyoung Securities

Good afternoon. My name is Byung Gun Lee from Shinyoung Securities. I have the following two questions. First of all, you talked about the extra tax payment of 482 billion Korean won, could be more specific in the details? The second question has to do with G&A expenses. Earlier you said that the stock compensation reduced and also the special consolation bonus reduced as well. And I think that was partially because of the corporate tax factor. And you said that compared to your expectation, your labor cost has come down. But despite that, your cost income ratio has gone up higher than we anticipated. So, during the second half, what is your prospects for CI ratio and how do you plan to control that ratio going forward?

And second big part of the question is the following. Recently there were rumors about whether KB will acquire a securities brokerage house or not. Of course, it would be up to the top management issues and I'm sure that this not something that you could decide immediately, but into the future, what is your view about the possibility of conversion into a holding company structure or possible acquisition of a brokerage firm?

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

Let me answer the first part of the question regarding the corporate tax payment as well as the reduction of the special consolation bonus, which brought down the overall labor cost. And regarding the acquisition of the brokerage firm, I believe that another member of the top executive will answer. First of all, regarding the extra payment of the corporate tax, it was 481.8 billion. As you know, back in 2003 in the month of September, we merged with KB Card. At that time, we did not provision from the KB Card side, but rather we purchased the shares on the book value basis and from the KB Bank side, we have provisioned for the merger. And the corporate tax was found to have not been paid accordingly back then. On this particular issue, we believe that we do have the larger core ground to possibly appeal. So we are preparing for an appeal going forward, so we will pursue that appeal process.

And regarding the special consolation bonus reduction, by paying extra corporate tax, our profit sharing portion has come down because of that particular formula for profit sharing that has brought down the overall labor cost or the consolation bonus that is.

Unidentified Company Representative

Let me answer the second part of the question regarding the acquisition of a brokerage firm. Currently, we are working on this issue. I guess, as senior securities firm, I don't know whether buying a brokerage firm would have any relations with the status of the top management, but from KB's perspective, because we believe that this particular company is necessary for the overall management plan going forward, we are pursuing it right now and I believe that we would pursue it in the future as well.


I hope that has answered your question. And we'll take the next question from Kyobo Securities, Mr. Kim from Kyobo Securities, please.

Unidentified Analyst

Yes, good afternoon. I also have about two questions. The first question is about the margin. The funding cost in trend is going up. I guess that's one reason of your NIM. But in terms of delinquency ratio, the market is stabilizing. With the increasing funding costs, is there a way of increasing your lending income? And the second question is even though it's a bit too early, last year there was dividends paid out and recently it seems that you're considering the possible purchase of a securities company, and so in terms of shareholders' equity what is your strategy, your capital or shareholders equity strategy, please?

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

Regarding the funding cost increase, as I have just explained, in the future, we are expecting our funding cost, especially because other financial institutions have been so generous to their customers when it comes to deposit rates, we have been responding increasing our funding costs. We think that is something that we need to do to our customers who have been so loyal to Kookmin Bank for such a long time. But market rates have come up, we expect market rates to increase to a certain extent more. And as our CEO mentioned, we have our asset policies being established, especially on the credit card side, our volume is increasing. And so, considering all of these factors, our NIM, it's difficult to say that our NIM will increase, but we don't think there is a lot of room left for additional contractions on our NIM either.

Our strategies on our shareholders' equity, well, first of all, as you know well, we are considering a possible acquisition of a securities company. We also have various strategies for overseas expansion of our banking business. So that would also have some funding needs as well. And as the year-end approaches, we will be able to get a more detailed plan of how to use our capital and so I think we will be able to provide more detailed explanations closer to the end of this year.


I hope that answered your question. We will now take the next question. We have Mr. Philippa Rogers Goldman Sachs. Please go ahead sir.

Philippa Rogers - Goldman Sachs

Yes, it's Philippa Rogers from Goldman Sachs. I have two questions for you. The first question is pertaining to the non-bank financial services that you plan to offer. How intent are you on manufacturing of these products versus distribution? Why do you think the profitability lies in Korea, and the growth? And my second question is can management make some public comments on the progression of the potential renewal of the CEO's time at the end of October, and/or replacement if that's the strategy?

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

We have with us the Head of the Board of Directors of KB, Dong Soo Chung and I believe that that portion could also be addressed by him, and let me talk briefly about the non-bank income portion. As you are well aware, our distribution network in Korea is the best among the peers. Currently, investment trusts and bancassurance related fee income speak for themselves. So when it comes to the manufacturing side, we have the insurance company as well as the asset management company as the affiliated companies, and we want to complement this structure even further by acquiring additional securities company going forward as well.

If I may elaborate just a little bit more on that point, the P&C insurer we do not have under our overall umbrella. In the long term, we believe that, I guess, one could say that we do require a P&C company under our umbrella. Therefore, when it comes to the manufacturing platform, currently we are trying to make sure that we have the securities arm. And when it comes to the distribution network, we have the largest such network among all banks in Korea. We want to make sure that this distribution network becomes more efficient and to that end, we have been working very hard to improve that efficiency and we will continue to do so in the future as well.

Let me also add a little bit on the non-bank financial institution related products. According to our expectation, starting from next year in our bancassurance portfolio, the P&C products will also be allowed to be sold within our branches. That's an area that we have high expectations for. And regarding the corporate pension side, although we are in an infant stage at the moment, in the future we anticipate this sector to grow quite a bit. Currently, KB has the largest market share. Therefore, I believe that KB will become the most beneficiary bank in terms of the corporate pension sector developing.

Dong Soo Chung - Chairman of The Board of Directors

Good afternoon. I am the Head of BOD of KB Kookmin Bank. I am attending today's earnings conference because I would like to listen to the shareholders and analysts voices more. The current CEO's term is due within the next three years... three months, excuse me, and according to the regulation, the BOD's recommendation committee has to recommend the CEO. As you are well aware, we have the outside directors and inside directors deciding on this matter. We believe that KB Bank's leadership should not be shaken up at all. With that in mind, we will make the necessary recommendations in the near future.


I hope that has answered your question. And we will move on to the next question. From Templeton Asset Management, Mr. Chong [ph] from Templeton, please go ahead, sir.

Unidentified Analyst

Yes, good afternoon. My name is Chong Wy [ph] from Templeton Asset Management. This is a question going to the CEO about the management. Looking at the first half performance, I have lost some of the trust I had in the KB management because I am not sure what your strategy actually is, because number one, last year you said that you will try to hold back loan growth, but then this year your assets have been growing quite significantly. I guess it means that you are eating into your own profitability by doing that. And regarding the buying of securities companies, you personally said a couple of years ago that you are not at all interested, but now as prices have gone up so much, now you seem to be interested in buying a securities company. So what exactly is your management strategy? I think it's quite confusing for some of the investors. And one last word that I would like to leave is that you are claiming to be a leading bank and many investors are expecting you to play a role as a leading bank, and please do something to build some confidence in the investors. Why do we need to hold or buy Kookmin Bank? Do you have any clear messages to persuade us?

Chung Won Kang - President and Chief Executive Officer

Thank you very much for that question. Well, actually my answer to that question will be that first of all, our NPL ratio, if you could turn to the page that shows our NPL ratio, I think that's on page 18 of the presentation. Our NPL ratio, so I came in 2004 December. At that time, our substandard and below ratio was highest among all banks in Korea, and the red line which is precautionary and below, that was also at 7%, the highest in December 2004 when I joined KB. Our net interest margin, on the other hand, so that will be including the credit cost was in 2003, which was a minus in 2003, I am sure Templeton, which has been a very long-term holder of Kookmin Bank, will recall a situation before I came to Kookmin Bank. During the past two and half years, our management's mandate was to in a sense turnaround the system so that it could take care of its own equity effectively. And after that it is created, we will be using that as a platform to move up to the next level. That was our plan two and half years ago when we came in as the new management and that is exactly our strategy for the past two and half years.

And frankly speaking, in terms of the improvement of our asset soundness and the improvement of our loan management systems, frankly speaking, the amount of improvement that we had achieved is actually... the achievements have been accelerated than what I had originally expected when I first came to Kookmin Bank. All of our management and employees during the past two and a half years have been focusing on recreating the key systems of our banking business and starting from end of last year, we are starting to see the effects of this management system.

Last year, in 2006, we almost spent the whole year looking at Korea Exchange Bank acquisition. And you did mention that question of whether I was interested in buying a securities company, I also remember receiving that question, but the reason why I responded that way that time was because at that time we were focused on buying KEB. I did not want us looking at several targets at the same time. I'm sure that would have been the concern of the investors if I had said that at that time. Also, last year, we were intending not to increase our assets that I think was a show of our tremendous amount of patience last year because last year large banks took turns increasing their assets, and KB Kookmin Bank was, I am sure, tempted to join, but if we had succumbed to that temptation, I am sure that the investors who have I think shares of not only KB Bank, but also other banks, I am sure the hit on the entire industry would have been more severe. On the other hand, starting from the end of last year, we changed our direction to becoming a bit more aggressive on the asset side. The reason why we changed our approach is shown very clearly in these numbers. Our substandard and below ratio is down to 0.8% and our BIS ratio is above 13%, our Tier I is above 10%. So given that situation on our equity side, we at the end of last year thought that we already had a very strong foundation that enabled us to take a bit more risk. And so that was the logic behind the shift of our asset strategy.

And so it's... the focus of our business has shifted. That would be what I would like to say to explain that changes that you have pointed out during the past two and a half years, we did have a change of direction and we had good reasons for changing those directions and that is my thoughts, very frankly.


Yes. We will now go on to the next question from Prudential Securities, Mr. Song Yong Sue [ph], please go ahead sir.

Unidentified Analyst

Good afternoon. My name is Song from Prudential Securities. I had the following two questions. First of all, the G&A, especially administrative expenses side, it has increased 100 billion increase quarter-on-quarter, and you said that is because of the welfare expenses. Now, was this a one-off factor or would this be a continuing trend into the second half? And second question has to do with the corporate banking considering the asset quality aspect of it, you said you increased the asset. Now, during the second half, what is your target for the corporate loan asset size?

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

On the labor cost side, you asked a question about the administrative expense. Especially during Q2, we saw an increase because about 60 billion contribution to the KB internal welfare fund was made by the bank, but we do not believe that any additional funding will be made throughout this year. If there is any further contribution, I believe that it should be beyond next year. Regarding the corporate loan asset size for second half, we anticipate this asset size to grow, but we do not anticipate the speed of growth to be as accelerated as the previous quarter.


We will take the next question. Mr. Terrence Sloger [ph], please go ahead sir.

Unidentified Analyst

Hi. I have two questions. My first question is on the deposit side. There's been a decline in your core deposits and the trend has continued in the second quarter. And right now, when the CFO commented on the NIM, I think you mentioned that you are doing something about the funding. But I am not sure whether... how you can contain the decline in the core deposits? My second question is about your asset growth strategy, after hearing what you said about your asset growth, I keep on wondering whether the asset growth strategy is going to generate incremental ROE for shareholders. So, in that case, wouldn't it be more prudent for you to increase the payout rather than growing into assets, which does not generate as much return as currently? Thank you.

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

EVP Lee will be explaining the question about the core deposits.

Dal Soo Lee - Executive Vice President

I am in-charge of the marketing products. My name is Dal Soo Lee, EVP. As of end of June, year-on-year, our demand deposits have decreased by about 3.9 trillion won year-on-year. The major reason is, there was some temporary influx of funds at the end of last year. So that was one factor behind this decrease. If you look at our actual average balance, average balance of December and average balance of end of first half is similar. Of course, there was some outflux of funds to the CMA accounts, but what we plan to do is that first of all we will maintain the banking account used for settlements, but we will also try to use other services to enhance the competitiveness of our deposit offering. Also, we will use the KB sERP and other niche markets to generate more low-cost deposits coming into KB. We will also try to attract low-cost deposits by providing services that only banks can provide.

And regarding your question about our asset growth strategy, while your comments are correct, incremental additional ROE will be returned to our shareholders through M&A.


We will know invite the next question.

Hyun Gap Shin - Chief Financial Officer, Executive Vice President of Finance

Well, there were numerous questions and answers, which were quite productive. It seems we have entertained all the questions that were posted. So this concludes the 2007 first half earnings release conference call for KB, Kookmin Bank. The VOD and the presentation materials will be posted at KB website. So you could download these materials any time. And those of you who have other questions other than those given already, please contact the IR department, and we will support your questions to our best ability. Thank you very much.

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