Earnings Call Transcript - KB Q1 2022

Peter Kweon, Head of IR

Good afternoon. My name is Peter Kweon, the Head of IR at KB Financial Group. We will now begin the 2022 first quarter business results presentation. I’d like to express my deepest gratitude to everyone for participating today. We have here with us our group CFO and Senior Managing Director, Scott Y. H. Seo, as well as other members from our group management. We will first hear the 2022 first quarter major financial highlights from CFO and Senior Managing Director, Scott Y. H. Seo, and then have a Q&A session. I would like to invite our Senior Managing Director to deliver our 2022 first quarter earnings results.

Scott Y. H. Seo, CFO

Good afternoon. I am Scott Y. H. Seo, CFO of KB Financial Group. Thank you for joining KBFG’s Q1 ‘22 earnings presentation. Before moving on to earnings results, I will first run through key business highlights for KBFG for Q1 2022. First, Q1 ‘22 net profit based on profit attributable to controlling interest was up 14% year-over-year to KRW 1.45 trillion, outperforming market consensus by 13%. Annualized EPS was KRW 14,892, up 14% on year, while ROCE came in at 13.2%, improving 0.7 percentage points year-over-year. Q1 profit, net of one-off factors on a recurring basis was up 4% year-over-year, which shows KB Financial Group’s robust earnings capacity despite market uncertainties and lower trading and retail commissions income following the rate hike. Second, despite declines in household loan balance, thanks to market dynamics on rate hikes, there has been strong demand for SMEs and CIB lending. And as a result, group’s loan in won was up 9.7% year-over-year. Despite strong corporate demand and weak capital markets and quarterly dividend payout, 2021 end of Q1 CET1 ratio was 13.4%, on par with year 2021 level, and Tier 1 BIS ratio compared to end of last year was up by 14 to 23 basis points. KBFG is proud to say that it has the industry’s best capital adequacy ratio. Third, nominal credit cost for the group in Q1 ‘22 was around 15 basis points, but credit cost on a running basis, after considering for write-backs, was 23 basis points, as we maintain a conservative provisioning stance above the average of the 3-year period before the pandemic. Also, NPL coverage ratio in Q1 ‘22 was 218%, up 71 percentage points versus before the pandemic. And NPL coverage ratio had been uptrending for the past 4 consecutive quarters. Fourth, despite the group’s investment into digitalization and rise thereof, on the back of corporate-wide cost control efforts and built-up effect of headcount efficiencies, G&A was down 2% on-year with cost-to-income ratio reporting 45.4%, which is down by 4.3 percentage points compared to CIO of 21. This, following the share cancellation of KRW 150 billion last February, the BOD today made a resolution on Q1 quarterly dividend of KRW 500 per share and set in place a quarterly dividend payout program. Quarterly dividend program helps to enhance visibility of dividend payout and shows the commitment of the BOD and the management to develop and advance shareholder return system. KBFG will consider various other approaches to enhance shareholder value and will implement them in a consistent manner. Lastly, we plan to integrate Prudential Life, which was managed on a stand-alone basis so far, with KB Life Insurance and complete the merger process by the end of the year. Integration of the two subsidiaries will help improve capital adequacy in time for IFRS 17 implementation and bring economy of scale for the life insurance business and enable differentiated and comprehensive financial consulting services. As an integrated life insurer, we expect to gain greater market competitiveness. Now let’s move on to the details of Q1 ‘22 results, Page 2. Q1 group net interest income was KRW 2,648 billion, up 18.6%, or around KRW 400 billion year-over-year. On rate hikes, which led to asset repricing, group NIM was up 6 basis points, driving up NII up 3.3% on quarter. Please note that to provide financial information for better practicality, starting this earnings call, out of the provisions for insurance liability reserve, we reclassified interest expense paid out to policyholders as interest expense under net interest income and restated historical performance through retroactive treatment. Next is on fee and commissions income. Group’s Q1 net fee commission income was KRW 915 billion. And despite sluggish stock market and financial product sales and difficult operational backdrop, performance was strong with 3.8% Q-on-Q growth. This is a result of continuous effort put into gaining competitiveness in not only DCM, but also ECM of the securities business, which resulted in a solid and dominant positioning in the IPO market. On a year-over-year basis, net fees and commissions income dipped slightly due to the base effect from Q1’s high base of brokerage fee income last year and weak performance from the bank’s trust business. Q1 other operating profit recorded KRW 160.7 billion, and rise in bond yields and sluggish stock market, securities and derivative performances were weak, which led to overall subdued result on a year-over-year basis. But with loss ratio improvement for the insurance business, insurance income was up, keeping other operating profit flat Q-on-Q. For your reference, for KB Insurance, driven by loss ratio improvement, mostly around auto insurance and rise in net premium earned, it reported a net profit of KRW 143.1 billion in Q1, continuing the recovery trend. Next, on G&A expense. Q1 group G&A was KRW 1,691.8 billion. Although we are expanding digitalization investment at the group level, our cost saving efforts, including for labor costs, have paid off with G&A down around 2% year-over-year. Except for investments for the future, we plan to review our cost base thoroughly and continue to revamp our headcount organization. Q1 PCL was KRW 130.1 billion, down 25% year-over-year. The bank recovered large sums of bad loans, reversing KRW 59 billion in provisioning. And through upgrading the formula for calculating the loan loss provisions, there were around KRW 23 billion of write-backs. And excluding such one-off impact, provision on a running basis reported around KRW 210 billion. Recurring PCL slightly inched up year-on-year on the back of asset growth, but on a credit cost basis is at 0.23%, sustaining a steady level. Next is on key financial indicators, Page 3. In the first quarter 2022, the group ROA and ROE recorded 0.88% and 13.16%, respectively, showing a continued improvement in the group’s profitability. If we look at the loans in won growth graph, as of the end of March 2022, the bank loans in wons stood at KRW 321 trillion, which is a 0.8% growth YTD. In the case of corporate loans, thanks to a balanced increase in SME, SOHO and large corporate loans, corporate loans grew 3.4% YTD, which is a growth of approximately KRW 5 trillion, sustaining robust growth. Household loans, impacted by the rise in interest rate and regulations, decreased by 1.4% YTD, mostly due to the contraction of unsecured loans. This year, the group will continue to focus on profitability and quality in its lending policy. But with respect to household loans, to protect end borrowers and secure a solid presence in the market, we will apply a flexible interest rate policy in some cases, and agilely respond to changes in household loan regulations. Next is the NIM. In the first quarter 2022, the group NIM increased by 6 basis points quarter-on-quarter to 1.91%. This is an 8 basis point rise compared to the 2021 annualized NIM, which shows the group’s strong profit growth momentum is reinforced even further this year. Such strong quarterly NIM expansion resulted from not only the effect of the three hikes in the key interest rates since August last year, but also the bank’s asset repricing effect, as the future monetary policy direction was reflected in advance in the market interest rate, as well as our persistent efforts to enhance yields earned from securities assets. Next page, the group cost efficiency, the credit cost ratio, and the group BIS ratio were explained earlier. Next, in this page, I’d like to address the competitiveness of KB Financial Group’s corporate banking digital platform that sets us apart. Based on our expertise in corporate banking, we have built the corporate banking digital platform that features various business support services and product lineups. And internally, we have been continuously advancing the platform since quite long ago. Recently, with Internet-only banks entering the corporate loan market, there has been heightened market interest and competitiveness of corporate banking platforms. We have two types of platforms that are optimized for the different needs of various types of corporate clients. The web-based KB Corporate Internet Banking provides full banking services, while the mobile-based KB Star Corporate Banking supports not only core banking services, but also asset management needs as well. We are reinforcing the differentiated competitiveness of each of these platforms. The KB Corporate Banking platforms support not only corporate banking transactions, such as deposits, loans and FX transactions, but also features Star CMS, an integrated cash management solution; and KB One Trade, an e-commerce solution for international trade and FX; and KB Bridge, a non-financial business support solution such as recommendation of customized policy funds and professional advisory services. As such, we offer industry-leading differentiated services to meet the various needs of our corporate clients. As banking services and corporate management activities are intricately linked, we have been able to develop corporate client relationships that go beyond just simple loans. For your reference, the KB Corporate Internet Banking MAU is recorded at about 480,000 as of the end of last year, and KB Star Corporate Banking MAU stands at about 300,000 currently, which is the highest level in the industry. Recently, this growth trend has accelerated, and we soon expect it to be the main corporate banking platform of KB. Lastly, in terms of products as well, in line with the growing online channel and changes in the competitive landscape, we have preemptively and proactively addressed these changes. The KB online small business loan is KB’s flagship online loan product for sole proprietors that features a loan limit of up to KRW 100 million and competitive interest rates. The KB Seller Loan, launched in 2018 was the first early settlement loan product offered in the banking industry in Korea. Since its launch, it has become very well received by online seller clients and maintains market leadership in supply chain finance. We will continue to collaborate with external platforms to launch loan products based on alternative credit information, develop differentiated product lines in corporate banking, and lead the corporate banking market. Moreover, we will establish an extended corporate banking platform to offer various corporate banking services of our subsidiaries on KB Star Corporate Banking to become the #1 banking platform in corporate finance. The following pages are detailed information on the earnings results I have just covered, so please refer to them at your leisure. This concludes the KB Financial Group’s 2022 first quarter earnings results presentation. Thank you for your attention.

Peter Kweon, Head of IR

Thank you. We will now begin the Q&A session. We will take the first question from Mr. Kim Jaewoo from Samsung Securities.

Jaewoo Kim, Analyst

Thank you for good earnings this quarter. I have two questions. First has to do with your shareholder return policy. You decided to pay out quarterly dividend. I would like to understand some more color as to what your plans are regarding such quarterly dividend? I understand that your competitors have decided to do a certain amount of quarterly dividend and then a year-end dividend. So in terms of the total aggregate shareholder return, for instance, Shinhan has also announced it’s going to do share buyback and cancel its shares. So I’m wondering whether KB also has those additional shareholder return plans? Second has to do with the interest rate aspect. I understand that you’ve cut your loan rates quite significantly recently. Recently, if you look at LTV and DSR, there are other regulations in place. So I would like to understand your objective and purpose of the strategies that you have? Also, I think if you look at the current trend, there’s not that big of a rollover demand. So would there be a smaller impact on your margin, meaning if there’s deregulation for your loan portfolio, wouldn’t it be possible for people to actually switch to loans with a lower interest rate? And if consumers use that to move in that direction, what are your plans to counter that?

Peter Kweon, Head of IR

Just give us one moment to respond to the question.

Scott Y. H. Seo, CFO

This is Scott Y. H. Seo, the CFO of KBFG. Thank you for your question regarding dividends. Last year, we executed a 26% dividend payout and also implemented a 3.4% additional payout through the cancellation of treasury shares. For this year, based on the Board of Directors' resolution today, we've decided on a dividend of KRW 500 per share for the first, second, and third quarters, which will be distributed evenly. At year-end, we will consider various factors to determine the final dividend amount. We have several considerations, including cash dividends and potential treasury buybacks, especially given that capital gains are currently tax-free, but dividends are subject to taxation. Additionally, KBFG's price-to-book ratio is below KRW 1, making it crucial to evaluate not only cash dividends but also the possibility of buying back distressed shares, which may be a better choice. Furthermore, while many companies in Korea have started quarterly dividends, several have not, which we need to consider in relation to our overall investment portfolio. As noted in our first quarter results, capital markets have been quite volatile, resulting in slow bond issuance, though demand for large corporate loans is rising. These corporate loans carry a higher risk weight than individual loans, which will also influence our growth strategy. In summary, we will implement quarterly dividends of KRW 500 per share for the first three quarters, with the remaining distribution at year-end, keeping all factors in mind to maximize shareholder returns. Thank you.

Unidentified Company Representative, Representative

I understand you asked about the three questions. The first question had to do with growth. And second question was interest rate-related policy. And third, on LTV. So I will walk through each one of them. Now Q1, as you know, our household loan was reduced by KRW 2.4 trillion because the loan rates have gone up, the property market has become sluggish. So overall loan demand has been quite slow. And there was a cap on the household loan volume as well as a stronger DSR requirement. And because of that, our Q1 performance had been quite weak. On the other hand, corporate loans, in Q1, we grew by KRW 5.5 trillion. For large corporations, SMEs, and SOHO on low-risk borrowers, we are growing. And especially for IB, we have been able to drive significant growth. Now in Q2, we look forward to strong corporate loan growth, and we expect household lending to also recover. So for this year, 5% to 6% growth rate, which is our objective, we believe we will be able to achieve that. And in terms of the slow household loan business, this year, our growth target is 4.5%. We believe that this level of growth is achievable. In the real estate market and related policy changes that are upcoming, there are positive expectations. And although currently, the demand is suppressed at this time, once the regulation becomes more visible, we think that there will be a recovery. And also in terms of the collective loans, there still exists demand. And in August, there is then the Jeonse contract and the relevant rights. If the rest are exercised and once the maturity comes due, then basically, there is a significant need for the Jeonse related payments. So we expect the demand to follow that. Moving on to interest rate cut. Last year, we’ve seen significant demand for loan. And because of the loan cap, we were unable to provide preferential interest rate because of that limit. But we believe that we could provide those preferential interest rates depending on the market backdrop. Beginning of the year, there’s been a significant drop in loan demand, and in order to grow their loan book, some of the banks have continuously cut their interest rates. And our company, in March and in April, we had provided a temporary rate cut to respond to that competitive landscape. Going forward, we’ll be quite flexible in operating our interest rate policies, but we will still have a strong focus on profitability. Moving on to LTV requirement. If LTV requirement is lessened or loosened up, we believe that the demand will go up. Especially in the first tier of the financial market, we think the market backdrop will become quite positive. However, there is DSR requirement. As long as DSR stays the same, the demand increase is going to be capped. In terms of the customers who are subordinated in the overall structure, in order to alleviate their financing cost, we are providing various different benefits so that we can respond to the existing demand.

Peter Kweon, Head of IR

Thank you very much for those detailed answers. We’ll take the next question. UBS Securities, Mr. Kim?

Hyung Kim, Analyst

Next year, IFRS 17 is expected to be introduced. I understand that for the insurance company and your consolidation with the FG, I would like to understand what impact the IFRS 17 implementation will have on your consolidated statement?

Peter Kweon, Head of IR

Yes, give us one moment to respond to that question.

Byung-Joo Oh, Managing Director

My name is Oh Byung-Joo. I’m the Managing Director at KB Financial Group. As you know, IFRS 17, the final requirements are yet to be concluded. And especially, if you look at the insurance accounting, there is an actuarial aspect and economic assumptions as well as financial statements. There are quite a bit of changes there. So when there are changes in the regime, we need to be able to provide reliable financial information. And that actually is going to be the key aspect in terms of our competitiveness. So KB Insurance, before we assess for the financial impact, we have the accounting system, we need to stabilize that. And also in-source all the capabilities and really revisit all the product and channel capabilities, overall assumptions, value in force, and retention policies. All of those aspects, we need to really look very closely, which is what we are doing. After the second half of this year, once the final requirement, and as we conduct KIC’s study and KIC’s impact study, I believe that we will be able to have a clearer understanding of what the financial impact is going to be after the implementation of IFRS 17.

Peter Kweon, Head of IR

We’ll take the next question from Morgan Stanley, Mr. Seok.

Joon Seok, Analyst

In the nonbanking. Last year, securities did quite well. But in the first quarter of this year, of course, we did expect it, but it was a bit sluggish. So second quarter and also maybe in the second half of the year, DCM wasn’t that bad. And you also mentioned the CIB, but what will be the outlook for the securities?

Peter Kweon, Head of IR

Thank you. Mr. Seok. Just give us one moment.

Han Jung-Ho, CFO of KB Securities

I am Han Jung-Ho, CFO of KB Securities. Thank you for that question. Now, let's discuss our Q1 earnings results. As you know, our brokerage fee income has decreased by 26% on a daily average basis. In wealth management, we anticipated a decline in brokerage commissions, and that is indeed what occurred. The primary issue stems from rising interest rates and falling equities, which will heavily impact our sales and trading business. We've encountered some losses in fixed income and with ELS, as the downturn in the equities market has led to a decrease in prepayment amounts. There were some hedge-related costs, and since we could not recover those, we faced losses. Regarding the bond segment, while the won denominated credit spread widened, we managed to cover the interest rate side, resulting in a balance. However, we were unable to cover the FX interest rate on FX bonds. Moving on to investment banking, there were significant deals this year compared to last year, leading to a noticeable profit increase year-over-year. Overall, we’ve seen an improvement in performance. Looking ahead, I believe the total trading volume will not significantly improve compared to today. Wealth management brokerage income is expected to remain relatively flat. Due to some sanctions, we could not sell private equity funds, but we plan to resume those sales, which will positively impact revenue. On the interest rate side, we are seeing some profit increases, although the volume remains steady. The interest rate hikes have led to enhancements in our net interest margin. Our main business is sales and trading, and luckily in Q1, we implemented measures to hedge against credit spread. We are actively seeking hedge positions to protect ourselves from credit spread-related losses, and I believe our trading capabilities will allow us to generate some profit. Concerning ELS and the decline in equity prices, gains from early repayments have been deferred to the second half of the year. By Q3, we anticipate early payment-related gains to be around KRW 30 billion. For index-based products, as the market stands, we expect to achieve more prepayment gains in the second half unless the market declines further. In the investment banking sector, while Q1 saw significant deals, I do not foresee substantial growth going forward. However, relative to last year, we can anticipate better performance. Our international inbound brokerage fee income is also on the rise, indicating improvement in our institutional business. Year-over-year, sales and trading and brokerage remain key business segments for us. While we may not match last year's performance, I expect there to be some improvement from the Q1 figures.

Peter Kweon, Head of IR

Next question is Kim from Dow.

Unidentified Analyst, Analyst

For noninterest income, I have a question about the fees. On a consolidated basis, Q-on-Q increase was quite encouraging. So by subsidiary, looking at the figures, there are the bank’s fee income and the credit card fees, and also in securities, brokerage fees was a bit of a decline, and there was more a one-off factor, which was very much in the IBs. And also banking fees on a Y-o-Y basis was declining. If you can give us some backdrop and context to that? So the consolidated fees, what fee income, what will be the level that we can expect on a consolidated basis for this year?

Peter Kweon, Head of IR

Yes. While we prepare the answer, would you kindly wait for us?

Unidentified Company Representative, Representative

Thank you for your question. I’d like to address that. The bank's trust income experienced a significant drop due to the slow stock market. ELS sales were also sluggish, contributing to the decline in income. Additionally, the overall performance of the stock and capital markets was weak, leading to decreased capital market-related fees and commission income. There was a decline in both ELS and securities, including a drop in income from early repayments, which caused an overall downward trend. Regarding securities income, although you referred to it as one-off, I disagree. KB Securities has long been a leader in DCM and has recently improved its standing in ECM as well. As our CFO in Securities mentioned, we could see some income volatility, but we are consistently generating fee income from ECM and M&A activities. Over the past 4 to 5 years, the Securities franchise has been strengthened, and we believe these initiatives are now paying off. Therefore, I don’t view this as one-off income; instead, I feel that KB Financial Group and KB Securities have been focused on enhancing fee income, and this is the result.

Peter Kweon, Head of IR

Thank you. Next question from DB Investment, Mr. Lee Byung Gun.

Lee Byung Gun, Analyst

Yes, I’m Lee Byung Gun from DB Investment and Securities. I would like to ask two questions. First, regarding NIM, there could be differing perspectives. Some may say that it will uptrend. But looking at recent trends, time deposit rates are going up and core deposit growth speed is decelerating. And on the forward rates, basically, we are seeing early pricing in compared to the policy rate. So at KBFG’s perspective, what’s the expectation of a policy rate hike? And how much of that is already priced in and what remains? Can you provide what your thoughts are on this? And second question is just a simple question. With IFRS 17, this may not be a big issue, but if you look at RBC ratio, it’s falling, and I understand the industry CEOs have come together to talk about that issue in the insurance industry. So for sub debt and Tier 2, using Tier 2 capital were considered to be one of the approaches. But I guess once IFRS 17 kicks in, that may not be an issue at all. But I would like to understand, for your insurance subsidiaries, because of the surge in rate hike, what impact are you seeing come through in your RBC position? And how are you countering that?

Peter Kweon, Head of IR

Just give us one moment to respond to your question.

Han Jung-Ho, CFO of KB Securities

I am Han Jung-Ho, CFO of the bank. You asked about the bank's net interest margin (NIM). Earlier this year, we anticipated a rise of about 7 to 8 basis points per year for NIM. However, after four consecutive quarters of policy rate hikes, we have revised our projection to 10 basis points. As you mentioned, the impact of the policy rate hike has already been factored in. While the increase in NIM may slow down, the overall upward trend will persist. Our repricing cycle for bank interest is longer compared to our peers, as they have a higher portion of variable rates, while ours is smaller. We expect NIM to keep increasing, though at a slower pace.

Unidentified Company Representative, Representative

Also to add a little more color on that question on NIM. As our CFO from the bank has mentioned, we believe that the policy rate is already priced in. But I understand that you know very well that there are many factors that actually impact NIM. I mean, just in top of my mind, there’s more than 10 factors. The yield curve as of today has steepened and is now showing a flattening trend. And so those yield curve trends are being reflected. So in Q2, I believe that the NIM improvement can slow down. However, on an absolute interest rate level, it is going up. It impacts not just core deposit, but loan loss reserve or the shareholders’ equity. And those that have a very strong capital base, all of the, I guess, financial holding companies, those are key sources behind improving the NIM. KBFG, as you know, we have the common equity Tier 1 best in the industry and also the NPL ratio also is best in the industry. So there are all the positive impacts that we can gain on our NIM. On a quarterly basis, we believe our NIM growth may show some volatility. But looking at the entire year 2022, we can tell you that NIM will continue to show an upward trajectory. Mr. Lee, aside from IFRS 17, you asked the interest rate hike having an impact on RBC ratio. As you know, this is the biggest issue that insurers are facing. With the implementation of KICs next year, all the interest rate rise related aspects are going to be resolved. So this issue is actually limited to this year. And this has to do with how the rate is going to move. Under the assumption that the rate is going to continuously go up, as of today, rather than being aggressive, we’re going to reclassify the bond classification to defend against the RBC ratio. Even if the interest rate is elevated, I believe that for this year, we do have other means and other opportunities for us to strengthen our capitalization, including the use of the sub debt. There are multiple avenues and options that we could use, and we are considering that.

Peter Kweon, Head of IR

We’ll take the next question from JP Morgan, Cho Jihyun.

Jihyun Cho, Analyst

The government, in terms of provisioning, has asked for more provisioning. It’s actually putting a little bit more pressure for more provisioning. And other competitors have already put additional provisioning for COVID-related loans. But the reversal of provisioning for us has been a bit big and so I don’t see that. Do you have any additional provisioning that you’ve done? I don’t really see that. And the transitioning committee has mentioned that the SOHO loans should also be provided by the banking sector as well. To what extent that will be possible to transpire, I’m not quite sure, but maybe the pressures regarding the COVID loans have now been put on the banks from the nonbanking sector. So with respect to the government policies going forward, may that pressure the bank’s margin? Is there a possibility? What’s the group’s view and how you will address that?

Peter Kweon, Head of IR

Yes, we’ll take a moment to prepare our answer.

Scott Y. H. Seo, CFO

Thank you for the question. Regarding provisioning, as I mentioned earlier, the nominal credit cost is 15 basis points for the first quarter. However, several items were reversed on the provisioning side during this period. When we take that into account, the recurring provisioning stands at 23 basis points. Last year, the credit cost was 30 basis points, and before COVID, the annual provisioning was around 20 basis points. Thus, the provisioning in the first quarter was significantly higher than pre-COVID levels. When U.S. banks reported their earnings for the first quarter, they also showed additional provisioning. It's important to note that some banks have larger provisioning while others take a more optimistic approach, resulting in smaller amounts. The methodology we use for provisioning in Korea differs considerably from the U.S., which is a critical factor to consider. In the fourth quarter of the previous year, we provisioned under the assumption of a very distressed situation. Compared to our competitors, our provisioning has been noticeably more conservative, and I want to stress this point again. While our competitors made their provisions, I don’t agree that we didn’t do enough. Based on our established principles, we have conducted our provisioning in the most conservative manner possible.

Unidentified Company Representative, Representative

Yes, I’d like to elaborate on that. In 2021, we made provisions of about KRW 377 billion and KRW 264 billion. There has been significant concern regarding the extension of COVID-related loans. However, if you examine the details, it will provide a clearer understanding. There is KRW 850 billion under the principal and interest moratorium. Some customers have reapplied for that extension, with a total amount of KRW 450 billion. Additionally, while some have received the grace period, others have opted to terminate it, which amounts to KRW 370 billion. Overall, in terms of the grace period of the moratorium, the total is about KRW 480 billion. If we consider the provisioning required to support that, based on the recent trends per sector and in the corporate segment, the probability of default does not exceed a certain level. If we take a conservative estimate of 10%, that's out of KRW 480 billion, applying a 5% collateralized percentage gives us a loan-to-value of about 14%. Thus, 14% of KRW 480 billion would be roughly KRW 7 billion. Even with a probability of default at 20%, the overall impact of COVID financial support and moratorium loans on our provisions will be very limited. Moving forward, we are assessing the repayment and maturity schedule for the KRW 480 billion balance to ensure we manage it effectively. Under the government initiative for COVID-19 financial support, aimed at transferring loans from nonbanking to banking sectors, we will monitor that policy closely. Regarding the household segment and concerns about rising interest rates, if you look at KB Bank, the total household loans outstanding year-to-date have decreased by about KRW 2.3 trillion. However, the actual delinquency has increased by 17 basis points to 0.17%. Asset quality for household loans is being effectively managed, and those under the moratorium program remain very small, only KRW 20 billion to KRW 30 billion of total household loans. Any issues affecting the banking sector overall are expected to be quite limited.

Peter Kweon, Head of IR

Thank you for the answer. We do not have, it seems, any further questions. We’ll just wait 1 more minute before we close. Well, for those of you who would like to ask additional questions, please contact us at our IR team and we will provide you with the answers. So I think that brings us to the end of the Q&A session. We will just wait for one more minute before we officially close. Well, with no further questions, we would like to end today’s conference call. Thank you.