Earnings Call Transcript - KB Q2 2021

Peter Kwon, Head of IR

Greetings. I am Peter Kwon, Head of IR at KB Financial Group. We will now begin the 2021 First Half Earnings Release Presentation. I would like to express my gratitude to everyone for your participation. We have here with us at today's earnings release, KBFG SVP, Ki Hwan Ju, who is our Group CFO; and other executives from the group. We will first hear SVP Ki Hwan Ju's presentation on 2021 first half major earnings highlights, and then we will engage in a Q&A session. I would like to invite our SVP to deliver 2021 first half business results presentation.

Ki Hwan Ju, CFO

Good afternoon. I am Ki Hwan Ju, CFO of KB Financial Group. Thank you all for joining KBFG's first half 2021 earnings release presentation. Before presenting on the business performance, let me first brief you on the operational backdrop. In the second quarter amid continuing COVID-19 vigilance, there were positive exports and CapEx investments. And with the full-fledged vaccine rollout, pent up demand drove higher private consumption, speeding up momentum behind Korea's economic recovery. Share prices of the banking sector reflected expectations on market rate hikes, better performance and greater shareholder return, accompanying assessment that we've entered a rerating cycle followed by outperformance above the market. However, on the flip side, the delta variant is currently spreading and with concerns over inflation, especially from the U.S., uncertainties both internal and external have surfaced, leading to a difficult operational backdrop for the financial industry. Under this environment, KB Financial Group is doing its utmost to enhance shareholder value through continued bottom line improvement and efficient capital management. And is determined to fulfill our role and responsibility befitting a leading financial group. First, during today's BOD meeting, for the first time since the launch of the financial holding company structure, we resolved to pay out an interim dividend of KRW751 DPS as of June end 2021. This is so that underpinned by KBFG's industry's top capital adequacy and earnings fundamentals, we wish to provide to our shareholders more stable and fluid cash flow, and also to continue with KB's steadfast progressive dividend policy. Going forward, we promise to continue to consider ways for efficient capital management and various different shareholder return policies, to enhance shareholder value. I would also like to emphasize that as a leading financial group, KB continues to make robust its green leadership in the financial industry. In order to provide financial support to companies that drive environmental and social values, KBFG is issuing various different types of ESG bonds and is actively participating in the government's New Deal project by way of launching a New Deal Infrastructure Fund, sizing KRW200 billion, making investments into renewable energy sources, environmental facilities, and electric vehicles. As such, we've been undertaking ESG management with quite some speed. Also, last June, we were the first domestic financial group to disclose the amount of carbon emissions from our asset portfolio and declared KB Net Zero Star, which is an objective to go carbon neutral by 2050. By applying partnership for carbon accounting, financials and science-based target initiatives, we were able to measure carbon emissions in a scientific manner that meets global standards. It's meaningful that there was transparent disclosure of the amount of carbon emissions that relate to investing and lending activities. KBFG will upgrade its ESG management through continuous collaborations under global initiatives. And we'll do our best to bring finance that changes the world where every one of us can grow. Now, let me present on the earnings for the first half of 2021. KB Financial Group's 2021 first half net profit was KRW2474.3 billion. Driven by solid growth from core earnings, there were stronger earnings stability supported by non-organic growth from M&As. As such, net profit was up 44.6% on year, from the base effect of additional provisioning in Q2 of last year, recording the biggest half-year figure since the establishment of the company. Q2 net profit was KRW1204.3 billion, while net interest income was up on the back of solid loan growth. Net fee and commission income growth was somewhat subdued due to a decline in securities trading volume and the bank's trust sales. Valuation gains from bonds declined on higher market interest rates, which led to a Q-on-Q 5.2% decline. But on a recurring basis, excluding ERP expenses from KB Insurance, the non-life insurance arm Q-on-Q performance was quite solid. Let's now look at each of the segments in more detail. The Group's net interest income for the first half of 2021 was KRW5401.1 billion, driven by Prudential Life acquisitions and other M&A impact, along with the bank's solid loan growth and non-bank affiliates' greater contribution to interest income, which resulted in 15.3% year-over-year growth. The first half group's net fees and commission income was KRW1832.6 billion, up 32.7% year-on-year, or KRW451.3 billion which is a sizable increase. This is driven by growth in clients' assets under management and the activation of our IB business which led to sizeable increases in brokerage income, accompanied by growth in the bank's trust income on higher ELS sales, as well as growth in credit card merchant fee income from the recovery of private consumption. However, second quarter's fee commission income was KRW865.4 billion which is down 10.5% Q-on-Q. Despite solid growth of securities, the IB business in Q2 saw equity trading income fall, leading to lower fee income from the securities business, and reduced sales of trust products resulted in marginally limited trust income. The second quarter other operating loss was KRW57.2 billion, somewhat subdued Q-on-Q, which is mainly due to lower valuation gains on bonds against the market rate hike. Insurance underwriting profit was KRW161.7 billion, apart from one-off factors, i.e., payment for large scale fire that took place this quarter, there was a slight Q-on-Q increase. This is driven by lower auto accident rates and increases in premium, which lead to continued improvement in loss ratio around auto insurance. Next is group's G&A. Q2 group G&A reported KRW1669.5 billion. Backed by cost-saving efforts across the group, there was an absence of impact from last quarter's setting aside of Welfare Fund, which led to a decline in G&A expense of 3.1% Q-on-Q. Excluding the ERP cost impact for the quarter, this figure is lower by around 5%. Meanwhile, the first half G&A stood at KRW3392.6 billion. It seems slightly elevated year-over-year, but this is due to Prudential Life and other M&A impact, as well as the ERP expense for the non-life insurance business. Excluding these factors, G&A is being managed solidly. Regarding PCL, the group's first half PCL reported KRW397.1 billion, together with quality growth around prime assets and pre-emptive risk management efforts. The additional provisioning impact of Q2 from last year was absent, with PCL down significantly by 26.4% year-over-year. Q2 group PCL was KRW223.7 billion, driven by the bank's asset growth and a decline in the reversal of specialty bonds. While there was an increase, credit cost reported 0.25%, maintaining premier asset quality. If you look at the graph on the lower right, non-bank's share of the group's net profit in the first half of 2021 was around 45.2%. This is due to the efforts of business portfolio diversification through M&As and strengthening core business models that have solidly contributed to the revenue base. We will continue to explore sustainable growth engines and solidify the group portfolio, while bolstering the core competitiveness of our subsidiaries so as to enhance the corporate value. On key financial indicators, 2021 first half cumulative group ROA and ROE each recorded 0.81% and 11.95% respectively. Earnings capacity improved on the back of stable growth in core income and a diversified business portfolio through M&As, with recurring ROE also posting 12.38%, maintaining sound fundamentals and profitability. As of end June 2021, the bank's loans in won posted KRW302 trillion, a 2% increase YTD. In Q2, backed by profitability and asset quality centered quantitative growth and focus on sales, there was a 1.7% growth compared to the end of the previous quarter. Household loans posted KRW164 trillion, driven by Jeonse and prime secured loans, saw an increase of 1.5% YTD and 0.9% compared to the end of the previous quarter. Corporate loans continued stable growth, primarily driven by SOHO and prime SMEs, grew 2.8% YTD and 2.7% compared to the end of the previous quarter. KB Financial Group will monitor the economic situation and household debt situation in the second half and continue qualitative growth, centering on asset quality but will apply a flexible and timely pricing policy to secure a growth basis. The NIM for the 2021 first half group and bank each posted 1.82% and 1.56%, respectively, rising by 4 BP and 3 BP YoY respectively. As a result of efforts to expand low cost deposits, core deposits grew around KRW11 trillion in the first half, but savings type deposits decreased around KRW4 trillion, and with factors including the contribution growth of low cost deposits in the total deposits, funding burden alleviated. On the backing of a profitability-centered loan strategy, margin increased leading to a continued overall improvement trend. However, Q2 NIM was at the level of the previous quarter due to the loan asset repricing effect, reflecting the interest rate cut last year. Based on our highest level of channel competitiveness domestically, we'll focus on expanding low cost deposits. And on the other hand, through a more sophisticated loan pricing method, we will improve asset yield and focus on managing NIM while doing our best to diversify our income sources as a group. I would like to cover our group's cost income ratio, CIR. The 2021 first half cumulative CIR posted 47.1%. As a result of top-line growth and cost control efforts, it increased by a significant improvement YoY. Excluding one-offs including ERP costs, recurring CIR posted 45.3%, continuing a stable downward trend, and additionally taking into account the adjustment for accrual of bonus expenses from the bank, the first half CIR is at a 44.1% level showing the visible trend of cost efficiency improvement. Moving forward, we will do our best to improve management efficiency through continuing earnings expansion efforts and company-wide cost control. Next, I would like to cover the credit cost ratio. The 2021 first half group credit cost posted 0.22% and 0.10% respectively. As a result of high-quality assets centered qualitative growth and pre-emptive risk management efforts, it is being managed safely at a low level. We are aware of concerns over asset quality deterioration after financial support ends due to the prolongation of various COVID-19 related financial support programs. The loan balance for interest forbearance as of end June posted around KRW300 billion, which was only around 0.1% compared to total loans in won. Prime loans and secured loans are 70% and 90%, respectively. Considering that the loan balance is on a downward trend due to voluntary repayment from companies that had applied, we expect that it will be managed sustainably even after the end of financial support. Last year, the group additionally provisioned KRW380 billion. Since we've pre-emptively secured a buffer, we believe that the possibility of the group's credit cost rapidly increasing is very limited. KBFG will maintain our pre-emptive and conservative risk management stance, including strengthening potential NPL management and implementing a more sophisticated risk management system for industries and borrowers so that we can stably manage asset quality in the future. Lastly, I'd like to cover the group's capital ratio. As of late June 2021, Group BIS ratio posted 16.03% and CET1 ratio posted 13.70%. Despite the increase of risk-weighted assets following loan growth and the interim dividend effect, backed by strategic capital management, including solid net income growth and hybrid bond issuance, we are still maintaining the highest level of capital adequacy in the domestic financial industry. Let's now move on to the next page. From this page, I would like to cover our insurance division's collaboration strategy within KBFG. Through acquiring Prudential Life, in August of last year, we have strengthened our life insurance business portfolio. Through providing continuous financial services keeping in step with customers' lifelong life-cycle, we expect that the role of KB Insurance, Prudential Life, and KB Life in the group will be expanded. To increase group level business value and synergy, KBFG is strengthening our collaboration system in all areas, including product, channel, and organization. First, we have established store WM, Wealth Manager, the group's premium outbound channel. We are pilot operating it, and through this, Prudential Life's superior Life Planner, LP organization, in collaboration with the bank and securities PB, we will establish an advanced WM service, including integrated advisory services, including inheritance, retirement, and older age management to strengthen customer experience regarding KB Financial Services. Additionally, in the case of asset management for insurance subsidiaries, we will expand outsourcing to KB Asset Management which has expertise in this area and establish an integrated Asset Management System. This will reorganize the insurance subsidiaries centering on planning and review, leading to advanced ALM and strengthening its review function. The asset management company will establish a basis for economies of scale for asset management, aiming to secure differentiated management capability by closely collaborating with our insurance subsidiaries. We expect KB Asset Management's AUM after the migration of management assets of KB Insurance and KB Life, as of late June, to reach KRW98 trillion. By 2021, when Prudential Life's assets are expected to be migrated, it is anticipated to increase to KRW114 trillion, making it the second biggest in the industry based on asset management companies' AUM. We will also expand collaboration between our insurance subsidiaries to activate cross-selling between insurance subsidiaries, aiming to increase customer inflow by securing sales channels and increasing product sales opportunities for other subsidiaries within the group to strengthen sales competitiveness. Through systematic planner training and management, we will reduce missed sales risks, leading to actual synergy between insurance subsidiaries. For your reference, the number of cross-selling customers between insurance subsidiaries in Q2 was about 280,000 customers, up about 9% since Q4 of last year, right after acquiring Prudential Life. We plan to activate cross-selling stepwise through high value product sales and expanding our capable manpower. Considering the accelerating trend of manufacturing and sales separation in the insurance industry, KB Financial Group aims to share the GA's product sales influence, executing collaboration marketing to maximize efficiency. The contribution of GA new sales from insurance subsidiaries in Q2 of this year was around 52% compared to total sales. Through balanced growth of dedicated and GA channels, we aim to increase our market share. Beyond this, we are applying shared service centers to the overall insurance division and expanding synergy across the group. Before the adoption of IFRS 17 accounting system in 2023, we will share working capability between insurance subsidiaries to establish management methods. By exchanging human resources and sharing know-how, we are expanding collaboration for product development centered on value. We are also improving cost efficiency in many ways, including establishing IT and call center co-location operational models and utilizing shared infrastructure to execute digital marketing to secure sustainable growth momentum. With this, we will conclude KBFG's 2021 first half earnings presentation. Thank you for listening.

Peter Kwon, Head of IR

Thank you to our CFO for the presentation. We will now move on to a Q&A session. From Samsung Securities to Jae Woo Kim, please go ahead.

Kim Jae Woo, Analyst

Hi. I am Kim Jae Woo from Samsung Securities. Thank you very much for the good performance in Q2. I have two questions. First is your shareholder return policy. KBFG, this is the first time for you to pay out your interim dividend. And now you think that this makes your shareholder return policy quite solid. So we are happy to see that. When it comes to shareholder return, together with the annual guidance - payout guidance, a lot of U.S.-based banks have been quite aggressive in share buybacks. I'm just wondering whether KB also has plans to do share buybacks. From a long-term perspective, I think that, I'm wondering whether you could make the interim payout more regular. And also, from the mid to long-term perspective, what will be your payout ratio? If possible, I would like to ask for your answer regarding that. And the second question is a rollover loan related platform. With regards to my data, if the rollover loan platform gets combined, I think that this would have a significant impact on your loan sales. Unlike the financial holding companies, the non-bank and smaller financial providers, for them, they will be quite actively making use of that platform because they will provide them with a new channel. From KBFG's perspective, you have a very strong platform, and you have a very strong customer base. So we'd like to understand that what is your assessment regarding the introduction of the possible rollover loan platform.

Ki Hwan Ju, CFO

Thank you. This is CFO Ki Hwan Ju. Thank you very much, Mr. Kim for your questions. Regarding the shareholder return policy, I will respond to that question; specifically, our CFO from KB Bank will respond to that question. As I mentioned in the opening presentation, during today's BOD, for the first time in the establishment of KBFG, we have decided on a dividend of KRW751 per share for interim payment. As you know, the financial authority made recommendations regarding the dividend payout. In light of the capital strength and asset quality, as well as various other factors, we conducted a comprehensive assessment. As part of a shareholder-friendly approach, we made the decision to pay out an EPS of KRW751 for the interim payment. In terms of mid to long term payout ratio, I understand that was your question. On a payout ratio for an annual basis, I think it's a bit too early for us to provide you with a specific number because we have to wait and see how the COVID situation plays out in the second half, as well as the policy direction of the financial authorities. We will be mindful of that in making the final decision. But as long as the macroeconomic indicators don't fluctuate significantly, we believe that we will be able to probably return to the payout ratio pre-COVID-19 era. That is our assessment at this moment. In terms of share buyback, as you know, KBFG for the current year, when it comes to the payout ratio at the end of the year, we'll look at the overall market backdrop and also communicate with the supervisory authorities. We have always done that to move forward with certain plans. We have been able to continuously increase our total shareholder return stance over many years. We have utilized dividends and share buybacks in the past as well. Regarding dividend payout policy, we have indeed implemented a progressive dividend policy stance. Based on that consistent policy, we will continuously raise our payout ratio towards that 30% level. One last point, I would like to say is that KB Financial Group, as we've done in the past, will efficiently make use of our capital. When it comes to shareholder return, we will engage in in-depth reviews and always be a step ahead so that we can pay back the trust and the support that our shareholders have shown us to date.

Unidentified Company Representative, CFO of KB Bank

Thank you, Mr. Kim Jae Woo for your question. I am Tong Wun Cho, Senior Managing Director. You asked me a question about the rollover loan platform. The FSC has come up with a proposed system whereby they will provide a platform for rollover loans and some interest rate comparison services. Their whole objective is to reduce the interest burden for the users and enhance convenience. However, one concern we have is if there is excessive rollover, this could trigger a fierce interest rate competition that might undermine bank profitability. Additionally, when it comes to the customer-facing side, there could be a transition or movement from banks to BigTechs or FinTechs that could actually accelerate. So from that perspective, we are a bit mindful of those potential negative impacts. For local provincial banks, they might be able to secure a new channel to provide their products. The FinTech and BigTechs have their interest rate comparison products. Smaller institutions are providing their information via that platform. A large institution like ours, the banking institution shares similar concerns as our peers in this industry. So we are making recommendations to the FSC and are in discussions with government authorities. As of now, there haven't been any decisions regarding the fee commission structure or the primary entities that will operate this platform. Instead of focusing solely on short-term gains or disadvantages, we want to take a long-term perspective. We need to secure our customer base to achieve stable bottom-line performance. Thus, we will coordinate our strategy with a long-term approach. With regard to the rollover loan platform, we will indeed need to respond, but at the same time, we need to enhance the competitiveness of our lending business. In our digital channel, we are currently improving processes; for example, proposing interest rates and products that best fit and customize to customers. We also have our strength in offline channels, allowing customers to apply for loans through digital channels and fulfill applications offline or vice versa. There are many different connections between offline and online processes, which we are working to improve.

Peter Kwon, Head of IR

Thank you for the answer. We will take the next question from Hyundai Motor Securities, we have Mr. Kim Jin-Sang on the line.

Kim Jin-Sang, Analyst

Greetings. Congratulations on your earnings. I have two questions. With the COVID situation getting more serious, there are concerns over the credit risks of SOHOs. Also, regarding financial support for the SOHOs, do we have to be concerned that this is going to be expanded to them and cause some cause for concern? Second, KB in Q1 had weaker loan growth. But in Q2, I think you have recovered. But looking at the industry as a whole, I think your loan performance was very good and I think it's still good. So for the government, I think they have some loan-related regulations for household loans coming up. Can you tell us about your plans for them going forward?

Ki Hwan Ju, CFO

Thank you very much, Mr. Kim Jin-Sang for your questions. You gave us two questions. The first was about asset quality and the second was expected loan growth. Regarding asset quality, I would like to briefly answer your question. Due to concerns about the prolonged COVID-19 situation, it is true that the economic situation is still very difficult. For SOHOs and small business owners, there have been some forbearances, and there are steadfast concerns about asset quality. Regarding the group's asset quality status, as of June 2021, delinquency is at 0.14% and 0.26% respectively. This is being managed with increasing stability, and the credit card delinquency rate is still being managed quite favorably. The NPL is at 0.2% and 0.32% respectively, indicating downward stability. As I have mentioned in the presentation, regarding the government's financial support programs, concerns about principal repayment and interest forbearance have resulted in only around KRW500 billion to KRW300 billion at this level. For prime and secured loans, they are more than 80% or about 70% lot in higher. So it is being well managed. We believe that credit costs this year can be cautiously managed at a similar level in the market. After the financial support ends in September, repayments will not be called back all at once. According to the credit ratings, there may be prolongation in repayment terms for new loans. And for principal repayments, it is expected to be scheduled. So we do not anticipate a serious credit crunch immediately. Last year we also had about KRW380 billion of additional provisioning, so we have pre-emptively secured a buffer for potential NPL concern. I know that after financial support ends, there might be deterioration in credit or a rapid increase in provisioning. We will conduct additional reviews of our loan classification and situations for different industries and look closely at our vulnerable borrowers. As we have done in the past, we will do our utmost to manage this situation safely. Responding to your second question, regarding loan growth, I previously mentioned that in Q1 it was a bit slow, but in Q2, it recovered. For household loans, we are managing them on a yearly basis within a 5% range. Our portfolio is based on asset quality and profitability, which we believe can grow based on that. For corporate loans, as we have consistently stated, we are prioritizing asset quality. Therefore, we believe that 5% to 6% growth per annum for this year will be possible. Thank you very much.

Peter Kwon, Head of IR

Thank you for that answer. We will now take the next question from Hana Investment Securities, Kim Do Ha, please.

Kim Do Ha, Analyst

Yes. I am Kim Do Ha from Hana Investment Securities. I have a question on margin. This quarter your NIM was quite flat. If you look at the profitability on the loan side, as well as some of the factors that contributed to this, it seems like from June their short-rated rates are going up. I would like to understand how the profitabilities are coming in and the funding costs. Is it not because of the funding costs, or do you think that the profitability can actually go up and start to contribute to your NIM? When do you think that that could actually materialize?

Ki Hwan Ju, CFO

Thank you very much, Do Ha Kim for your question. You asked about NIM, its current status, and future expectations. As I had mentioned in my presentation, in this quarter, we had a 5 BP increase. However, for this quarter, it remained flat. To briefly explain Q2 NIM, we had the management side and the funding and lending side. We had low-cost deposits increase due to our efforts. In Q2, we had a KRW4.4 trillion increase in core earnings. And for time deposits, our average balance went down slightly. Consequently, in the funding side, both in Q2 and in Q1, we experienced a decreasing funding burden, while profitability and quality-based selective loan management were well managed. Just like the previous quarter, we handled the NIM situation favorably. However, early last year, we had a substantial interest rate cut, which affected loan assets due to repricing, influencing our NIM. Although we implemented flexible LCR management alongside adjusted deposit insurance fees, these factors offset some of the influences mentioned earlier. Therefore, this quarter’s performance is similar to the previous one. We think that the bank's NIM might appear to stall relative to our competitors. However, considering the recent banking context, we should look at longer trends rather than just one or two quarters. After the big interest cut from Q2 of last year to Q4, other quarterly fluctuations would show certain differences. However, as a result, we observed a very favorable NIM trend. In the second half of this year, the repricing effect from last year's significant cut will ease, and the effect of balances from time deposits will continue. While we will prioritize asset quality and profitability in our loan policy, we believe we can safeguard and even improve the first tap level of our bank's NIM while ensuring appropriate levels of earnings.

Peter Kwon, Head of IR

Next question from DB Financial Investment, Mr. Lee Byung Gun.

Lee Byung Gun, Analyst

Thank you, I am Lee Byung Gun from DB. I would like to first thank you also for good performance. I have two questions for you. First, soon we will see the IPO price for KakaoBank. Right now, KakaoBank is really promoting online mortgage loans. But when it comes to this whole mortgage loans, there is mortgage and home equity to be part of their initiative. But can you sell this or deal with it online through digital channels? Also, if you look at not just the Internet banks, but the commercial banks, they are providing home equity or home mortgage loans and distributing them online. So we would like to understand what your plans are regarding mortgage and home equity loans using non-offline channels. So what types of processes are you envisioning? Second question is quite simple relating to Prudential. On a standalone basis, if you look at the profit versus the consolidated profit, we see a gap between two figures. I would like to understand where this trend is going to stay in Q3 and next year and the year after?

Ki Hwan Ju, CFO

Mr. Lee Byung Gun, you asked about mortgage and home equity loans. When it comes to mortgage and Jeonse loans, these are highly related to government property or real estate policy, making things quite complicated. Thus, handling them via digital channels is challenging. However, KB already has processes in place for home equity loans that do not require visiting an offline branch. Yet, as you've pointed out, the usage is much lower compared to unsecured loans. Given their nature, mortgage loans and home equity loans have to align closely with timing. For Jeonse loans, a missed timing can create significant issues for users, which is why many customers still prefer an offline, face-to-face channel. Nevertheless, there is a clear trend towards digital, and it is expected to increase in the future. At KB, we are currently upgrading our Star Banking platform. We plan to improve these processes to cater better to the products mentioned. We aim to offer and recommend products that best fit borrowers, considering that joint title pledges or rollover loans, which can involve multiple financial institutions, complicate things, and thus we are improving origination processes for user convenience through non-offline channels.

Unidentified Company Representative, Representative

Thank you, Mr. Lee Byung Gun for a good question. Responding to your second question regarding Prudential. After we acquired Prudential for PPA adjustment, on a standalone and consolidated basis, there is a gap we observe. You asked how long that might continue. Last year and this year, we anticipate that situation will persist until year's end. We think that this will extend even into next year, but by 2023, with IFRS 17 coming into implementation, we believe that there will be some changes compared to what you're seeing at the moment.

Peter Kwon, Head of IR

Now, we are at 53 minutes. We will take the next question from Kim Securities.

Unidentified Analyst, Analyst

I am So Yunsoo from Kim Securities. I would like to ask a question from a bit of a different perspective. Regarding the household loan management plan by the government, which was actually announced regarding the DSR. They have mentioned that I think it will be fully adopted going forward. And credit management will be based on repayment rather than on delinquencies. Can you give us your take on what you're doing to prepare for this change? I believe that after you give out a loan, it will be hard to recover it under the DSR. Implementing this standard two years in advance before its full rollout might be more beneficial. My second question related to DSR includes everything, but realistically, a lot is still missing. In particular, rather than mortgage loans, there are people who could use KB's Jeonse loans, leading to investments that will incur more leverage and higher risks. Through the DSR evaluation, I believe you could filter this and manage risks accordingly. Do you have any plans to reflect this in your future practices?

Ki Hwan Ju, CFO

Thank you very much, Director So Yunsoo. In April, the government announced a household loan advancement plan with two primary objectives: appropriately managing household loans and limiting them to about 5% this year, and implementing DSR management based on borrowers rather than banks. This entails setting rules and strategies to scale levels from KRW600 billion of mortgage loans for unsecured loans exceeding a certain amount. As you mentioned, some loans could be excluded from the DSR calculation, like Jeonse and moving loans. Firstly, you noted that these loans could lead to increased leverage and higher risks; we acknowledge that possibility exists. However, we still have some time left to consider how to reflect this in cash flow and calculation standards. In managing the DSR, I expect customers will have lower profits than before which calls for advancing our credit review model and providing suitable interest rate offerings. We will adjust according to borrowers’ discretionary incomes to ensure our methods align fairly with market demands. That concludes my answer regarding the DSR management.

Peter Kwon, Head of IR

Next question from Citi Securities.

Unidentified Analyst, Analyst

A couple of follow-ups. The first is on dividends. Is this going to be a quarterly dividend or interim dividend? The second question concerns net interest margin. Under certain circumstances, if there is going to be competition, do you expect to grow your loan book or maintain the margin?

Ki Hwan Ju, CFO

Thank you very much for those questions. Regarding the quarterly dividend, I think I could briefly respond by saying that using current circumstances as a context, it is too soon to provide a definitive answer. Moreover, I mentioned earlier that we aim for shareholder returns while ensuring fluid cash flow. Given the economic landscape and the policy directions set by authorities, discussions and communications over the dividend will continue. As for NIM, historically we have seen some trade-offs between growth, profitability, and asset quality. However, we believe we can achieve all these factors effectively. We will not pursue excessive growth that undermines profitability or margin. In Q1, we experienced slow growth due to avoidance of aggressive pricing competition to preserve profits. Our stance is clear; we aim to ensure that profitability and growth are both prioritized. Thank you.

Peter Kwon, Head of IR

I think one hour has passed. There are no other questions in the queue, so we will wait a moment to check. I believe that all the questions have been posed. We will conclude our Q&A session and with this we will end our earnings presentation. Thank you for your participation.