Greetings. I am Peter Kwon the Head of IR at KBFG. We will now begin the 2019 Business Results Presentation. I would like to express my deepest gratitude to everyone for participating in our call. We have here with us our group CFO and Deputy President, Kim Ki-Hwan as well as other members from our group management.

We will first hear the 2019 major financial highlights from our CFO and Deputy President, Kim Ki-Hwan and then have a Q&A session. I would like to invite our CFO and Deputy President to elaborate on our 2019 business results highlights..

KB Financial Group as a leading financial company pursuing sustainable growth, which is to strengthen ESG management initiative in 2020. We will also establish an ESG system adhering to the global standard, so that we can lead the way in social change and future value.

To this end, KBFG has established the ESG-based sustainable management leading strategy. First, to support the ESG innovation growth for sustainable finance, we will reflect ESG in our products and services. Second, we will internalize responsible management for interested parties, including the local community.

Third, we will advance climate change strategy for the environment, so that through our ESG management activities of KBFG, we can more actively respond to the climate change issue.

Actually, the sustainable management strategies, centering on KBFG's ESG was continuously executed even until now and these efforts have led to very meaningful results and positive reviews from external institutions.

For example, in February, KB Bank was the first to issue $450 million of FX subordinated sustainability contingent convertible bonds in Asia. And in order for the group to more actively and realistically support the entrepreneurs venture companies and SMEs' innovative growth, we launched the KB Innovative Finance Council.

In addition, we signed Principles for Responsible Banking under the UNEP Finance Initiative in September and participated in collective commitment to climate action and actively engage in external ESG activities. As a result of these efforts, KBFG was well evaluated and reviewed by many major institutions in and out of Korea.

For the first time as a Korean company, for two consecutive years, we were incorporated into the Bloomberg Gender-Equality Index. And for four consecutive years, we were incorporated into the Dow Jones Sustainability Index.

We also received A+ rating and was awarded the Best CGS Company by KCGS for two consecutive years for our superior corporate governance. Going forward, KBFG through expansion of ESG-based management system will do our best to solidify our status as a role model financial group, leading sustainable management.

From the next page, I would like to cover KB Group's globalization and PRASAC share stake acquisition. KBFG believes that in order to overcome the growth limitation of the domestic market and to expand the sustainable growth engine, we need to enter into overseas markets. This is essential and we are accelerating globalization of our group.

We are focusing on entering into Southeast Asian regions including Vietnam, Indonesia and Cambodia that have high economic growth rates and where relative early market dominance is possible.

Through organic growth by expanding the existing network and expansion of working scope and through inorganic growth by acquiring local companies, we aim to expand the ratio of net income in the group which was below 2% in 2018 and expand it to around a 20% level in the mid to long term.

In particular, looking at the recent major results related to globalization, within the Cambodian market, Liiv KB Cambodia, which is the KB digital banking brand, attracted more than 100,000 members within three years of launching.

In the case of KB Daehan Specialized Bank, a Cambodian specialized credit finance company which was established in September of 2018 posted a profit within 10 months after launching. In addition, KB Securities Vietnam increased capital by around KRW 70 billion last year and became a securities company in tenth place in Vietnam.

As briefly aforementioned, in December, KB Kookmin Bank decided to acquire 70% of PRASAC stock, the biggest microfinance financial institution in Cambodia. As of 2018, existing PRASAC Cambodia MDI loan market share, reached an overwhelming level of 41.4% and the recent five years of average loan growth rate reached 36%.

2018 ROE posted 29.4% and NPL ratio posted 0.7%, showing industry's highest level of profitability and asset quality. Going forward, while maintaining the core competitiveness of PRASAC we will relocate our retail and digital sector capability and designate six out of nine PRASAC BoD directors and keep our management controlling power.

Under strict PMI management, we wish to acquire 30% of PRASAC's remaining shares and convert it to a commercial bank after 2021, so that we can be forward as a leading bank in Cambodia. Please refer to the next pages for details regarding the earnings that I have just highlighted.

With this, I will conclude KBFG's 2019 full year business results presentation. Thank you for listening..

Thank you. Now, we will engage in a Q&A session. [Operator Instructions] Yes. Please go ahead, Mr. Kim Jin-sang from Hyundai Motor Securities. Go ahead, sir..

Yes. Good afternoon. Thank you for the detailed explanation. I have three questions. First of all, the banking industry is affected by the base rate changes lowering of the rate or so development of the real estate market. So it's very hard to defend profitability it seems.

So what is the internal view for this year? What are the major management plans in terms of NIM forecast or lending loan targets for example? If you could share, I would like appreciate more explanation. And the conversion loans maybe smaller than initially expected, so it may have a limited effect.

But what is the effect for fourth quarter and also the New Year? And so the P&C insurance industry is very struggling and results of KB Insurance is also sluggish. So lowering of the real loss indemnity premium for example maybe affected as well.

So what kind of profitability, do you foresee for the P&C insurance business this year?.

Thank you for the three questions. We will soon answer your questions. Please hold. Thank you very much, Mr. Kim Jin-sang for your questions. Regarding the first question, I will answer that. And for the loan conversion program, we will have the bank CFO, who will answer the question. And for KB Insurance, we will hear from the CFO of KB Insurance.

So I will answer the first question. As you have just mentioned, this year we have low interest rates and we are seeing low growth. And it seems that the profit growth will be limited. In particular, with base rate cuts, or tighter regulations on real estate, it seems that interest income based on the bank will be quite difficult.

We aim to have more concentration in WM capital market and our global business so that we can expand our earnings portfolio. We will have cost-cutting efforts across the board, so that we can have better profits. Through these efforts, we will have continuous earnings growth.

Regarding the management plan, we will let you know in detail although it may take some time for loan growth. We believe that taking many factors into consideration, we believe 4% to 5% growth is estimated and for household loans for credit loans and Jeonsae and monthly lease loans 2% to 3%; and for corporate loans for the prime company 5% to 6%.

So those are our targets for growth. In particular, because we have tighter real estate regulations, we are concerned about our loan growth. And because we have a high percentage of household loans, some might be concerned that we will be impacted.

However, KB has been during the past many years focusing more on corporate loan growth rather than on household loan growth. And for household loans, it was mostly centered on credit loans and Jeonsae and monthly lease loans. So Jeonsae loans or credit loans or unsecured loans can help make up for our market circumstances.

So we believe that we can soon meet our loan goals. For NIM because there was base rate cuts last year and because we had the impact from loan conversion on a yearly basis, we believe that it will be within a 1.6% level. In Q1, we are – we have assumed that one-time of base rate cuts will be executed in Q1.

And to guard the NIM contraction, we want to have appropriate loan growth so that we can safeguard our loan growth and have more securities growth and have more income our fee income growth for credit card, so that we can have more interest income and non-interest income.

We also need to focus more on non-interest income, because of the circumstance so WM and IB and capital market will be our main focus so that we can have better financials. However, for the bank, in the case of this year trust or funds or bancassurance, we believe and for the core commissions or fee growth will not be easy.

So we will be looking more at our securities and credit card so that we can push up our commissions and fees. In the case of our expenses, because top line growth seems to not be very easily reachable, we will do our best to start from zero lease and we have actually reviewed all the different expenses.

Accordingly, we will actually control our costs on a recurring level to 3%. So our recurring CIR, we believe can be improved to a high 40% level for this year. In the case of provisioning for this year, because there was asset growth and because we had less reversals of provisioning compared to the year before, it seems that it will grow.

But based on our credit costs, it will be within 25 bp level. So it will still be quite safely manageable on a stable basis. Within our group, there are non-banking subsidiaries like card and securities that will play a major role.

And KB Securities needs to improve our competitiveness and we will make many efforts so that it can be a mega for these companies and expand our IB business. And S&T has actually improved greatly and we will have diversified portfolio, we will have better management and we will do risk management so that we can have stable earnings growth.

For example, for KB Securities we want to level up the earning fundamentals and we believe that it will be possible. In the case of credit card, there is lead or installment finance that we want to have more competitiveness in and to -- and there's a P business processing business.

And in BA business we want to uncover new market opportunities and we want to have better efficiency in the product and marketing, so that it can have better contribution to the group. In the case of KB Insurance, overall it is a difficult situation with the deterioration in loss rates.

We want to focus on value and strengthen the overall earnings potential so that the insurance arm can also contribute to the broader group's earnings. So we are facing low-growth, low-rate environment this year so this will constrain growth and profitability and is a source of concern for asset soundness as well.

So it is a difficult situation where we have to seek, to capture all three rabbits at the same time if you will. So these risk factors and the problems, I -- we believe we can manage them as long as we are aware if the winds are blowing and the kite actually flies higher. So we have to be able to change this crisis into an opportunity.

Yes, it is a difficult situation, but we need to work hard to drive consistent sustainable growth. Regarding the conversion loans, our bank CFO will take that question..

I am Ki-Hwan Kim, in charge of finance for the bank. In the case of that relief loan conversions or conversion loans, as you know, for those who have signed up according to their eligibility and the price of their housing, the prices are changing and volatile, so the reviews will continue up till March.

In last year on the books, it was about KRW2.4 trillion that was securities -- securitized as that relief conversion. And for other institutions it was about KRW1 trillion and for us it was KRW1.4 trillion. And we securitized KRW2.4 trillion to Korea Housing Finance Corporation and it seems that the amount is smaller than expected.

And regarding the early fees that were recovered in Q4, we believe that there were KRW3 billion of minus effect. And in 2020, we believe that although it has not been confirmed yet internally, we believe that if we add everything together we will have minus impact that will be around KRW20 billion.

Regarding the impact to the NIM, we believe that it will be around one bp to two bp that will have downward pressure on the NIM. Thank you..

Yes. I'm from KB Insurance. Thank you for the questions. So we have heard at a high level from the KBFG CFO, but as you mentioned we are facing low growth low rates and aging of demographics which are all negative factors impacting the P&C industry.

In terms of long-term insurance, there is this competition over new business anticipating the deterioration expense ratios and weighing on our profitability. And due to lower market rates, the investment yields are also diminishing. So, this year, overall, it will be difficult to expect significant or meaningful improvement in our performance.

And more so than anything else as you mentioned, this year the auto insurance premium price actually has been determined at 3.5% which is lower than expected. And for the indemnity real loss health policies as well, there are many factors that could call for higher increase.

However, the actual increase was decided at a rate that was much lower than the industry expectations. And also with increased coverage of medical health insurance there actually has been an increase in medical claims for previously un-reimbursable items.

So, overall, for 2020, we think that the sluggish performance for P&C players is likely to continue this year and real loss indemnity premiums will only be increased by about 9%.

Now, even taking into consideration these difficult conditions, still we think that compared to 2019, our net income on a full year basis well the target is about KRW250 billion. For the long-term business, there is the driver insurance, comprehensive health insurance, these insurance products for persons with preconditions.

So, we will focus on these strategic products to drive growth. And we also want to strengthen management profitability be more sophisticated in terms of managing our loss rates through tighter claim management.

For auto line, we want to strengthen our underlying -- underwriting capabilities and also adjust our pricing rates by segment, by customer group, and coverage type in order to secure more adequate pricing. And we also want to manage loss rates at more stable levels by improving the efficiency of our coverage.

For general liner commercial, we want to focus on property and the liability insurance which tends to have low -- or higher margins. So, that will continue to be our focus as we build out our high-quality commercial insurance business.

We also want to use reinsurance for -- upon renewal of large contracts as a means of risk management and we will move into new markets and new platforms. In terms of asset management, of course, we are seeing lowering of fields, we want to increase our investments into alternative investments and our asset portfolio should be diversified.

We want to increase outsourcing and also strengthen our internal investment management capabilities to further boost investment yield. And as the group CFO has mentioned, our company over the last several years has been focused on driving value-centric business and that will remain unchanged.

And we will also accompany that with various measures to drive topline quantitative growth as well..

Thank you for the question and answer. We're waiting for the next question..

From Samsung Securities we have Mr. Kim Jaewoo on the line..

I'm Kim Jaewoo from Samsung Securities. I have three questions. The first question is about your treasury shares. And KB, for the first time in the industry, had the timing of the treasury shares and you have had continuous shareholder return policies. And I think you were quite significant.

Regarding your positive review at the company that returns value to your shareholders, it is very positive.

And regarding retirement or share buyback or related to dividend, can you brief us on your future plans for usage of capital? Do you believe that you will have retirement of shares this year as well? Second question is about Cambodia PRASAC and you mentioned briefly in your presentation.

And can you tell us more about why you acquired the stake and the background? You can please briefly on -- briefly tells us on the upcoming schedule if you can? And if you can tell us about when the earnings will be consolidated to the group. The third question is related to Prudential.

And it is seeing constantly -- actually brought up in the media for Prudential Life and I know that it's hard for you to answer at this time. But if you can brief us on the future forecast, it will be greatly appreciated. Other than this, if you can tell us about any other M&A spend for the group; it would be greatly appreciated as well. Thank you..

Thank you very much. Please hold and we will soon answer your question..

Thank you very much Kim Jaewoo for your questions. Regarding the first question, it was about the share buyback or share retirement possibilities and other ways to use capital. We acquired KRW 1.5 trillion of shares last year. And for the first time in the industry we had the retirement or cancellation of the shares.

So we believe that in terms of shareholder return policies we played a significant role and we will continue to play that role as well. In the case of dividends, actually it was at a 20% level 20 years ago, but our dividend payout ratio is at 26%. And our DPS has actually through the earnings improvement and share buyback has improved greatly as well.

As we have been mentioning consistently, we aim to have the dividend payout ratio go up to 30%. And for the DPS we want to have it go up consistently as well.

Regarding the cancellation or retirement of shares, I cannot tell you with solid numbers now but we do know the retirement of shares leads to more value for our shareholders and for the capital usage. So we are truly aware of it and we are fully open to future possibilities.

Regarding the share buyback we know that it is also always an option for us to utilize our capital. However, there are different M&As that we are thinking about now and other ways to use our capital, so we will need to look at the timing and at the amount for us to make the final prudent decision. We have differentiated capital power.

So for dividends and for share buyback, we have been consistently giving back to our shareholders and we also want to add to our ROE through M&A. We want to have many efficient ways to utilize our capital and to our best so that we can maximize shareholder value.

Regarding the second question that you asked about the background behind PRASAC stock acquisition and the schedule going forward and when the earnings will be consolidated to our group, the reason why we entered into the Cambodian market was because in Cambodia, we believe that the financial industry possibility is very high.

There is a young population there and the consumer market is consistently growing but the financial service market is underdeveloped. We believe that going forward there is high possibility for the financial industry to grow.

And in Cambodia, 84% of the deals are done in dollars so there is low-risk for currency and we don't have to have any currency hedges for FX. So that is why Cambodia is preferred for global entrants. That is why the bank and the credit card has been – trying to make inroads into the Cambodian market and we are seeing some tangible results.

That is why we decided to enter Cambodia. Another reason is that in the Asia emerging markets there are limited opportunities to acquire management control. However in the case of our PRASAC acquirement, we could acquire 100% of the shares in a top financial company. We believe that we can scale up KB's global business through this opportunity.

And going forward, we believe that it will help us go into other countries in the region. So we believe that it can be a great bridgehead. In early January, we signed a contract to acquire the shares. And after we get supervisory approval then we will acquire the stake in March.

If it goes along our schedule then we believe that PRASAC's earning could be consolidated to our earnings in our first half of the year. In 2021, we believe that we can acquire the remaining shares then. And if we acquire 100% of the shares then we believe that our book basis as of end 2021, it will be 1.4%.

According to our mid- to long-term global business roadmap we have made the decision. And through our existing global network, we will expand, but we will also have inorganic growth, so that as I mentioned in the presentation, we can have expansion of our profit basis, which is very stable.

Now regarding your third question about Prudential possible acquisition or the possibility of acquisition of Prudential Life. To date, I think it's too early for us to make an official comment about a specific company. I can only provide an answer just at a high generic level. I would say within the group we want to diversify our portfolio.

And so we would be open to M&A and various other options and we are currently in the process of examining what would be aligned to our group management and something that would contribute to our group's fundamentals. We will not be limited to any specific business and we are weighing our options very carefully.

Prudential Life could be one of the potential targets, certainly. But at any rate today nothing has been firmly decided, whether it has to do with Prudential or not. There can be many multiple potential targets that we are in the process of carefully examining at the moment.

If you look at the possibility of synergy contribution to our profitability and so we will be weighing these very factors from multiple standpoints to make a carefully weighed decision..

Thank you, very much..

50 minutes have already passed and the business results presentation covered many details and I think we had a full Q&A session. I believe that we can receive one more question and then conclude our earnings call..

From DB Investment Securities, we have Mr. Byung Gun Lee on the line..

So, let me just ask a very brief question because, I think there's not a lot of time. Regarding the conversion loans, you said KRW 2.4 trillion were stated last year, KRW 800 billion have been securitized.

So, December and January, if you look at the securitized, it's about KRW 810 billion that was securitized in December and then in January, it was about KRW 920 billion. So combined, it's about KRW 1.74 trillion that is a securitized in total.

So, according to what you said before, there's a lot of -- have you already done a lot? So, there will be less to come out of KB in the next months like February and March? If that is the case, then the effect of the conversion loan securitization is -- will it stop after January? And then LOC accelerated amortization actually was a major factor you mentioned earlier.

So, does that mean that that kind of factor has already been priced and factored in? There's no further outstanding effect on account of LOC amortization?.

We will soon answer your question. To answer your question, regarding the -- that Liiv conversion loan as aforementioned, for the other institutions amount received because we can't generate fee income, so the financial impact will be there revenue-wise. And until Q4, KRW 2.4 trillion was mentioned.

And among the KRW 2.4 trillion for our bank, we handled KRW 1.4 trillion. So, from our mortgage loans, it became securitized and that is why we have the LOC impact. In Q4, I mentioned that we had one bp for the NIM, but on a yearly basis it's 0.25 bp impact -- NIM impact for the year.

As mentioned previously, to actually assume the total amount, it's still too early because, it has not been confirmed yet because, we need to get a review until March and we need to see how March will come to us. And as was mentioned in the beginning, that impact we believe that on a yearly basis for this year will be minus KRW 20 billion..

For those who have additional questions, please contact our IR department and we will do our best to answer your questions. We will conclude our earnings call. Thank you very much..