Greetings. I am Peter Kwon, the Head of IR at KBFG. We will now begin the 2020 first half 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 2020 first half major financial highlights from CFO and Deputy President, Kim Ki-Hwan, and then engage in a Q&A session. I would like to invite our Deputy President to walk us through the 2021 first half major financial highlights.

Good afternoon. I am Ki-Hwan Kim, CFO of KB Financial Group. Thank you for joining KBFG's presentation on first half 2020 business results. Before moving on to earnings results, allow me to first present on the operational backdrop. Despite prolonged uncertainties surrounding COVID-19 curve repeating the flattening and rising cycle, helped by strong monetary fiscal policies worldwide in an effort to overcome economic recession, financial markets regained some level of stability. Nevertheless, concerns over global crisis of real economy continues. If and when COVID-19 second wave hits us despite massive quantitative easing, economic recovery could may well be delayed significantly. Thus, we are in no position to loosen our vigilance; and in the face of ultra-low rate, banking industry is tasked with countering structural pressures as well. In such an unprecedented crisis brought on by the pandemic, KBFG will fully live up to its role and responsibility, befitting a top tier company, and will proactively respond to changes in the financial paradigm, so as to solidify our position as a leading financial group. First of all, in order to support companies hit by the pandemic and the vulnerable class, we have provided financial support and KB independently is running various programs including good consumption movement to help small local business operators. Also, we are fully committed to asset quality and risk management. We operate continuous monitoring system on potentially problematic loans and conduct fine-tuned ex post management of marginal borrowers and have uplifted the group's risk management system to be prepared for possible extended economic recession. Also, to be preemptively ready for a possible quality deterioration, we made additional provision of KRW 206 billion this quarter. In addition, KBFG is steadfast at its strategic tasks that seek to enhance earnings stability and gain growth engine for the future. To that…

[Operator Instructions]. From Hyundai Motor Securities, Mr. Kim Jin-Sang. Go ahead with your question.

Yes. First of all, thank you very much for good business results. Starting with your net profit, as well as other financials, all show a quite positive result. But it seems that the bank's NIM has declined quite significantly, which is a bit unfortunate. I believe that the banking industry as a whole, on the backdrop of policy rate cut, it was relatively speaking not as negatively impacted because there was demand for loans and more growth. So, I know that you provided some background information, but could you elaborate a little more as to why your NIM fell and what your plans are to recover? And you've mentioned KRW 206 billion of additional provisioning. Can you provide us some more color and breakdown of more details? My last question has to do with COVID-19 [Technical Difficulty] stabilize. However, the capital markets are fluctuating and the COVID situation also is quite volatile. And if this whole situation prolongs, there would be more pressure felt by the company. So, in terms of asset quality prospects forecast, what's your feel as we experience prolonged COVID-19 pandemic?

Thank you. You submitted three questions. Give us one moment. We will respond shortly.

Well, thank you very much, Mr. Kim Jin-Sang for your question. Bank's NIM basically fell by 6 basis point on Q-on-Q basis. Let me provide you with some more background information. As we entered into Q2, we've seen surge in the market liquidity and basically the low cost deposit on a Q-on-Q basis have risen by about 8%, which is about KRW 9 trillion, time deposit fell by about KRW 3 trillion. So, on the funding cost side, basically the pressures were relieved. But if we were to look at the drivers behind the decline in the NIM, it is as follows. First, the biggest impact was felt from policy rate cut. This year, there was 75 basis point cut, and market rate therefore declined, and that really fed into the NIM erosion. So, due to the market rate decline, NIM was impacted by negative 3.2 basis points. However, in terms of interest rate sensitivity, this extent of interest or movement – or NIM movement, we believe, is within normal range. Second is the impact of spread. Based on COVID, basically, we provided policy loans and also there were market stabilization funds. So, various different types of financial support programs. And also, loans to large corporate and Jeonse loans, where it's less profitable for us, we grew more on high quality loan assets. So, the return and spread basically declined, and that had an impact of about minus 1 basis point on NIM. And Q2, with respect to COVID, in order to respond to potential FX crunch, we wanted to secure ample amount of FC liquidity. So, from a short-term perspective, we expanded foreign currency short-term assets. Therefore, that had a downward impact on NIM by negative 1.2 basis points. But we believe that, after June, things normalized. So, starting…

Thank you very much for the detailed answer. We'll take the next question from Samsung Securities, Mr. Kim Jaewoo.

I have two questions. The first question is, as was given to us, regarding our loan growth, you mentioned that it grew this year. And can you tell us more because it seems that you have reached your goal? So, can you tell us about the changes that you may have and your future loan-related policies guidance going forward? And related to the recovery of your other operating losses, in Q1, you mentioned some details about why you saw some operating losses, other operating losses. And since they were improved, we think it's very fortunate. And can you tell us in more detail about what actually improved leading to the recovering? It will be very helpful if you could explain to us. Thank you.

Thank you, Mr. Kim Jaewoo. And we will soon answer the question for you. Please hold.

Thank you very much for your question, Mr. Kim Jaewoo. Regarding our second half loan growth goal, on a Korean won basis, we have seen a 6.8% growth. And our goal was between 5% to 6% loan growth for this year. So, it has actually exceeded that. Regarding this, in the second half of this year, we are going to focus on profitability and asset quality, and we are going to have a very conservative loan policy. And we're going to have qualitative improvement, centering on portfolio improvement, so that we can actually keep an eye on the speed of our growth. We also will see some regulatory effect from the real estate regulation strengthening and we believe that there might be a decline in the demand for loans. So, we believe that, on the whole, there will be limited growth factors for loan growth in the second half of this year. We believe that our second half loan growth goals will be more limited than in the first half. So that will be our policy going forward. And for household loans, there are unsecured loans, Jeonse loans that we are going to focus on. And for corporate loans, in the second half of this year, we are going to have a more conservative loan policy and we are going to flexibly respond to the market environment. So, we're going to actually control our growth speed, centering on high quality growth industries. I would like to talk about the other operating gains and losses. And you can see that actually it was KRW 227.7 billion and it was actually a minus figure, minus KRW 207 billion. And you can see, for the FX derivatives, in Q1 of last year, we have seen surmountable losses because of the FX market. But…

Thank you for the answer. We will take the next question from Hana Financial Investment, Mr. Choi Jung-wook. Go ahead.

Hello.

Please go ahead with your question.

Apologies. I think we got disconnected. Bear with us one moment. Yes, we will move on to the next question. Mr. Baek Doo-san from Korea Investment Securities. Yes, please go ahead.

I have a question on asset quality and loan classification. My first question is, this quarter, Q-on-Q, I see that your recovered loans volume has declined. Does that have to do with the reversal of the provision? Second question, basically, on substandard loans, we've seen some increases, but this didn't come from bank or card. Is it from KB Securities? What's the type of this loan? And also, as you reclassified stage two, you've also added on the provision. So, below substandard, what is the size of the substandard learns for this quarter in relation to the reclassification into stage two?

Thank you. We will respond shortly. We're preparing to answer your question. So, just give us one moment.

Thank you for your question. Because your question was very specific, I had to look for some numbers. I will be able to respond to certain questions and there are some numbers that I do not have, and I will make sure that our IR department respond to that later. In terms of doubtful loans, now in terms of reversal of the provision, basically, there were reclassification from doubtful to normal. So, there was a reversal right back from doubtful to normal. In terms of substandard, I would have to go back and check our numbers again. For stage two, basically, we reclassified normal loans to precautionary. Thank you.

We will hold on until the next question comes in. From Hana financial securities, Mr. Choi Jung-wook, you're on the line, sir.

Yes. I'm Choi Jung-wook from Hana Financial Securities. Recently, we see fintech or big tech, which are buzzwords in the market, and KakaoBank's asset is fast growing and Naver Financial is trying to expand its influence. So, for these big tech companies, what are your thoughts? And from the group, do you have a specific strategy to respond? And for different subsidiaries, what are their different approaches to big tech?

Please hold and we will soon answer your question.

Thank you very much, Mr. Choi Jung-wook, for your question. There is a lot of talk about big tech and fintech and you asked about what is our strategy to respond to these trends. As you mentioned, with COVID, the on-tech trend has been expanding. And from the offline channel to non-face to face channels, the major channels have been shifting. And we are seeing the competitiveness of fintech which has been expanding according to the government's policies as well, and we're seeing financial [indiscernible] emerging in the market, with more competition with big tech companies and the fintech regulatory policies are quite different from the past. And we are seeing that the commercial customers have been shifting, and this can lead to changes in the profitability. So, we believe that it can actually be a threat to the banking business on the whole. However, seen from another side, we can actually enter into new markets that were blocked in the past and we can actually evolve as new platform companies. So, we believe that we can also fully utilize these changes. So, in the digital, big tech and fintech market, we believe that we can actually lead the way. It's because we have 35 million customers and we have diverse subsidiaries and banks and diverse financial products and we offer diverse services. So, we can utilize these and we have our strong banks offline channel. And we can link these together. We can have seamless services between online and offline services, so that the customer experiences through digital innovation can be provided. From the group, how we're going to respond is the following first. We are going to find out the pain points of customers and we are going to reestablish our platforms. We have our main apps, Star…

Thank you for your answer. It's now been 50 minutes since we began our presentation. I think we are entertaining sufficient number of questions. So, due to the time constraint, we will take the last question. If you have any additional questions, please contact the IR team and we will respond.

Yes, our final question from Cape Investment Securities, Ms. Kim Do-ha, please go ahead.

I just have one question I would like to ask. If you look at credit cost and your delinquency figures, I think the figures are quite positive despite the COVID situation. However, when it comes to the other support programs, the moratoriums that you have applied on the repayment of principal and interest, we believe that that moratorium program had an impact. So, extending of the repayment period or interest rate payment, do you have any specific figure that could actually tell us what the impact of the moratorium program on the principal repayment and interest payment is?

Please bear with us. We will respond shortly.

Ms. Kim Do-ha, thank you very much for your question. In relation to the COVID pandemic, the government has announced various different forbearance program. And at our group, through the government support program, we have been providing preemptive liquidity into the market and have been playing up to our role and responsibility. So, in terms of preemptive liquidity provision, we feel that they play an important role in bringing about soft lending and also help against steep asset quality deterioration or sudden rise in provisioning. If you look at government program, most of these programs actually compensate for the interest rate or also they use a credit guarantee fund and also different types of government guarantees are provided. And most of these forbearance support is all guaranteed by the government. So, actual burden that needs to be borne by the bank is not that significant. If you look at the specifics of the loans that's been originated under such program, we will collect that information and provide that to you later as I do not hold the data at this point. And when we did a forward-looking provisioning, I think we did reflect some impact from these types of financial support program, the government forbearance program. There is government support, but at the same time, the credit cost increases or delinquency increases, we wanted to make sure we can control them and to fend off any asset quality deterioration. So, we have things in place and we will continuously and preemptively really focus in managing our asset quality.

Thank you very much. As I had mentioned, we will conclude our earnings release. Thank you very much.