Shinhan Financial Group Co., Ltd.
Q1 2015 Earnings Call Transcript

Published: 22 Apr 2015

[Operator:]

Greetings, I'm Sung Hun Yu in charge of IR. Thank you for taking part in today's business results presentation despite your busy schedule and let's begin the 2015 Q1 earnings release presentation. We have here with us our CSO, Kim Hyung-Jin; CFO [indiscernible] as well as Managing Director and Financing Head, [indiscernible]. Today we will first hear CFO [indiscernible] 2015 Q1 business results presentation followed by a Q&A session. Now I would like to [indiscernible] to deliver 2015 Q1 earnings release presentation.

[Unidentified Company Representative:]

Greetings, I'm [indiscernible] and I have been appointed the new CFO of Shinhan Financial Group as of March of this year. I would like to extend my gratitude to the investors, analysts and journalist in and out of Korea for taking part in Shinhan Financial Group's 2015 Q1 earnings release. From now I will elaborate on the major highlights of Shinhan Financial Group's 2015 Q1 business performance. Let me begin with the group's income on page six. Shinhan Financial Group's net group in Q1 recorded ¥592.1 billion a 6% increase y-o-y and 89.1% increase q-o-q. Our major characteristic of this quarter's is as follows. There was balance performance improvement of non-bank subsidiaries, expansion of non-interest income and efficiency G&A management accordingly despite interest income declined resulting from margins increase of provision for credit losses following the additional cost credit related to corporate restructuring performance improved y-o-y and q-o-q. Looking at the income breakdown the group's interest income with the decline of the BOK interest rate in October of last year and the additional rate decline in March this year that too the group NIM dropped by 60p resulting in 1.5% y-o-y and 5.7% q-o-q declined respectively. On the other hand non-interest income improved by 59.3% y-o-y and 310.5% q-o-q. Major reasons were the increase of banks fee income and in particular increase of gains on available for sales security sales and decrease of impairment losses from securities holdings as well as increase of gains related to trading securities. SG&A went up only 1% y-o-y. This was possible due to employee related temporary cost expenses increase including the ERP late last year normalizing to a recurring level and also since cost increasing factors were minimized with strategic cost cutting efforts. Provisions for credit losses in 2015 Q1 recorded 88.4% y-o-y and the 49.6% q-o-q increased respectively. The reason behind somewhat significant increase of credit cost was because of the additional provisioning related to the company's undergoing restructuring which occurred in Q1 and also due to the absence of the large scale write-back this quarter which occurred in the same period last year and in the previous quarter. For your reference in 2015 Q1 Shinhan Bank received ¥22.2 billion from ruining a lawsuit against Samsung Motors and this was recorded as non-operational income. Now let's go to page 7, Group subsidiaries income. In 2015, Q1 net income taking into banking and non-banking contribution bank posted ¥393.2 million and non-bank posted ¥257.7 million respectively. Although the bank's income went down y-o-y the vast recovery of the non-bank subsidiary quickly recovered leading to a 40% improvement in the bank's income contribution. Page 8, Group Subsidiary income in Q1, bank income due to the margins was credit card hike went down 7.5% y-o-y but with normalization of SG&A cost and non-interest income increased it went up 106% y-o-y. Non-banking income due to the balance income improvement of non-banking group subsidiaries went up 24% y-o-y and throughout the 3.8% q-o-q respectively. Shinhan Card improved it's income statement flow with stable revenue performance and provisioning decrease. Shinhan Investment is increasing it's net income growth range gradually with the increased brokerage income from trading volume increase, positive improvement of financial product sales and improvement of trading income. Shinhan Life Insurance had a 48% improvement in the income y-o-y with the increase of asset management income. Next page 9, Shinhan Bank performance, 2015 Q1 Shinhan Bank net income recorded ¥389.9 million a 8.3% drop y-o-y. It was because despite the improvement in fee income and securities income leading to a 84.8% hike in non-interest income interest income dropped an additional credit cost related to corporate restructuring incurred. Net income grew 112.8% q-o-q because non-interest income went up because the seasonals SG&A cost including the ERP cost in Q4 of the previous year did not occur in this quarter and also due to the decrease of securities and impairment losses. Bank's Q1 NIM posted 1.58% a 19bp dropped compared to 1.77% in the same period previous year and 9bp dropped compared to the 1.67% the previous quarter despite the continuous increase and interest bearing assets including loans and non-interest income went down. The major credit cost in this quarter were ¥38.4 million for [indiscernible] corporation subsidiaries and ¥21.4 billion for [indiscernible] Energy Tech which newly filed for restructuring. The credit cost for Q1 excluding the provisioning for a corporate restructuring is at a recurring level and the early credit costs are expected to normalize going forward. Next page 10, Shinhan Bank's non-interest income and SG&A. Shinhan Bank's Q1 non-interest income posted ¥318.4 million a 84.8% y-o-y and 229.3% q-o-q increased respectively. The reason why non-interest income went up so much was because the securities related income went up 231.9% y-o-y and fee income increased 87.7% due to the increase in fund and bank assurance sales. To elaborate on the securities related gains, gains related to trading securities and available for securities went up with the fall in the interest rate. On the other hand securities impairment losses went down y-o-y. For your reference pasco [ph] related impairment losses recorded ¥31.2 billion this quarter. The bottom of page 10 refers to Shinhan Bank's SG&A, Shinhan Bank's continuous efforts to cut cost and to improve efficiencies led to a 1.6% SG&A drop y-o-y. Employee related cost went up 4.5% because there was an annual increase in employee wages in Q1, however with the other general administrative cost being efficiently contained including employee welfare, office rental expenses and outsourcing costs, overall SG&A showed a downward trend. According Group and Bank CI ratio recorded 40.9% and 49% respectively and became stabilized to lower than 50% level. Next page 11, Shinhan Card income, Shinhan Card's 2015 Q1 net income recorded ¥154.5 billion a 9.5% y-o-y and 21.3% q-o-q increased respectively. Y-o-y interest income related to installment credit purchase and cash advances decreased and SG&A increased due to new employee recruitment and contribution to internal labor, welfare fund. However fee income increased with the increase in credit card purchase volume and decreased provisions for credit losses leading to income improvement. Q-o-q operational profit decreased with absence of the securities disposition gains occurring this quarter compared to the previous quarter including the fees at MasterCard securities disposal gains which took place in the previous quarter. However net income increased 21.3% with a great decline in SG&A and provisioning, Provisioning went down despite the drop in recovery from written-off assets which help lower provisioning. It was because two month [indiscernible] the role rate was stabilized as a lower and since asset quality improvement effect has been realized to effort such as a high risk asset decline in improvement and recovery of rate. In the case of written-off assets 2015 Q1 balance posted ¥3.5 trillion and the quarterly recovery rate has been maintained at a 5.9% level. Group's assets on page 13, as of March end this year group's total assets on a consolidated basis rose 2.8% q-o-q to ¥347.4 trillion. Bank assets grew 1.6% q-o-q on the back of loan growth. Non-banking side posted a 3% growth due to healthy sales coming from investment, life and capital. Page 14, bank's loans and depoists. As of March end this year, Shinhan Bank's loans in yuan increased by 1.6% q-o-q to ¥162.7 trillion. Retail loans grew 2.9% q-o-q as mortgage loans increased in the midst of housing market recovery and also as credit and [indiscernible] or key money loans steadily grew. Corporate loans recorded a somewhat loan growth rate of 0.5% however starting in Q2 more aggressive SME loans will bolster overall corporate loans. As of March end deposits in yuan increased 1.6% q-o-q to ¥166 trillion. Savings deposits were down by 0.2% whereas low cost deposits were up 4.7% q-o-q showing a steady growth due to an increase in the number of accounts for salary transfer and merchant payments as well as in the amount of institutional client's deposits. As of March end LDR fell to 96.5%. Page 15, Shinhan Cards transaction and funding activities, Shinhan Cards operating assets dropped 2.9% q-o-q to approximately ¥20 trillion with a number of business days in Q1 contracting and due to other seasonal factors the credit purchase decreased by 4.3% in the shrinking cash advances market the outstanding amount was reduced by 5.1%. On the other hand debit card transactions continue to increase. Out of the total credit sale debit card transaction accounted for 15.3% this quarter up from 13.7% in 2014. Asset quality on page 17, group's NPL ratio was 1.10% improved by 5bp from bp q-o-q continued prudent management of NPLs and stronger risk management successfully brought down the NPL ratio for four consecutive quarters. The group's NPL coverage ratio is 171% up 3 percentage point q-o-q. Page 18, Shinhan Bank's NPL ratio was 0.98% falling below the 1% mark. NPL coverage ratio was up 6 percentage point q-o-q to 160%. The delinquency ratio chart on the bottom left shows the bank's delinquency ratio of 0.36% it rose by bips q-o-q but still managed at a stable level. Shinhan Cards assets quality on page 19, cards NPL ratio and NPL coverage ratio were 1.67% and 301% respectively similar to the previous quarter. The delinquency rate rose slightly 1.91% but the two months delinquency roll rate was the same as the previous quarter at 0.36%. Credit costs and NPL write-offs on page 20, as shown on the graph credit cost ratio of the group rose by 14 bps from 0.43% to 0.57%. Going forward the bank's credit cost is expected to return to the normal level as the credit cost related to corporate restructuring will disappear and also considering the healthy delinquency rate trend. Shinhan Cards credit cost is expected to go up slightly due to lower gains from recovered bad debt considering the overall asset quality and NPL coverage ratio the credit cost will probably be maintained at a stable level. Shinhan Bank and Shinhan Card each wrote-off and/or disposed of bad debts amounting to ¥370.6 billion and ¥146.6 billion respectively. Page 22 capital adequacy, BIS ratios of the group and the bank are estimated at 12.9% and 15.2% respectively. Common equity Tier 1 ratios are expected to be 10.7% and 12.7% respectively. Sound flow of net income enabled the common equity Tier 1 ratio to go up q-o-q, however the overall BIS ratios dropped slightly because the grandfather clause reduced the amount of non-qualifying capital that could be recognized as capital. Shinhan Cards adjusted equity capital ratio was 28.4% maintaining a sound capital advocacy level. Please refer to page 23 and onward for additional earnings related information and major business indicator of the subsidiaries and also for the bank's SME loans. This concludes the earnings call of Shinhan Financial Group for Q1 2015. Thank you.

[Operator:]

[Operator Instructions]. Thank you, very much. And now we will be taking questions. [Operator Instructions]. We have the first question, the first question is from Dongbu Securities, Lee Byung Gun. Mr. Lee?

[Lee Byung Gun:]

Yes, I'm Lee Byung Gun from Dongbu Securities. Thank you very much for good performance as always and I would like to ask you two questions. Actually it can be many questions but characterized largely into two questions, first question is very simple. Regarding the interest rate, you’ve some gains from securities and can you tell me what your level was and how is it compared to recurring level. So you see a lot of trading securities gains and also securities for sales, AFS available for securities, sale securities, gains that were quite sizeable but it seems that it's quite mixed. Can you explain more in detail about the background behind these gains because I know sometimes they occur at a recurring level. So can you tell us about which gains were extra-ordinary for this quarter. Second question refers to the relief loan or the [indiscernible] loan, which was set by the government and even if there is positive effect from Q2 it is true that it will be quite a burden. I'm curious about its impact on your NIM going forward. So can you just mention the relief loans effect on your NIM and even if you meet the governments demand and you would need makeup more of the gap. So do you have any forecast about when this will be satisfied and how you can make upwards impact on NIM and others taking into consideration the market situation and Shinhan's plan going forward.

[Kim Hyung-Jin:]

Well regarding the first question let me answer, for non-interest it's true that including the security -- gains from security sales we had a sizeable amount. However in Q1 it was not a very big increase compared to the last year. We had ¥1.5 billion for our ¥61.5 billion and we had ¥19.8 billion for the included in it and for non-interest we had gains from sale of loans about ¥37 billion so that is why it seems that in non-interest we had a sizeable amount and we have ¥99 billion of gains but we also have some losses, examples, our pasco [ph] impairment losses ¥31.2 billion and for non-operating areas for we had ¥22.2 billion gains related to Samsung Motors operational profits. So it was not a very sizeable amount, remarkable the gains from securities sales in Q1 compared to other years. So we had no extra ordinary gains for this quarter.

[Unidentified Company Representative:]

As for the impact of relief loans I will elaborate. I'm [indiscernible] incharge of the finance team. It has been announced in the newspaper and the total amount out of the total amount Shinhan has committed ¥4.4 trillion and out of that ¥1.8 trillion was executed or sold to HF. And considering the interest rate and because of the time mismatch it's very difficult to quantify but in Q1 the impact on NIM was 1.2 bips but looking at the overall asset level, because of the fee income there was a plus factor on short term and the impact will carry through Q2. And as were the relief loans the banks asset size will shrink and how much can we make up for that? The housing market looks very promising right now, within the year we believe that we can make up for the loss. Let me go back, we’re not saying that we will be covering all the ¥4.4 trillion but we will be achieving our internal loan target. Shinhan Bank instead of mortgage loans we focus on credit loans that’s what we prioritize on and we plan to grow our loan portfolio in that manner. Thank you.

[Operator:]

Yes we will take the second question, it's from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

There is an increase in low cost deposits and it seems like a recurring trend and it's not for Shinhan Bank it's for all the banks and I guess it's because of the low interest rate trend but if this does not continue and if the money flows out for I think it will have an impact on the margin for the LDR. How sustainable is the low cost deposit growth and if the money there is flight of this deposit do you’ve any measures to prepare for that? You did talk about the margin it was like that in Q4 last year and this quarter it seems that the margin is falling by a greater amount than the other banks. So what's the reason? And in Q3 and in Q4 will there be a difference compared to the other banks or will the gap widen? Thank you.

[Kim Hyung-Jin:]

Yes let me first talk about the growth in low cost deposit. In Q1 there was an increase of ¥2.9 trillion of core deposits and it was 4.7% growth and the breakdown I think it is very meaningful because we have the self-employed core deposits and it grew by ¥5.1 trillion and this is connected to the salary transfer and ¥1.8 trillion increase was made in that and the merchants account increase of ¥700 billion. So the core deposits increased but we don’t see that the possibility of the money being flight [ph] so we believe that the low cost deposits will remain stable for the time being and Shinhan Bank has strength in government agencies and provisional government agencies and that portion is growing and in Q1 only there was an increase of ¥1.2 trillion of the core deposits. So looking at the profile of these deposits we don’t see the money leaving the deposit account. So in the near term we’re not expecting fluctuation in the amount of core deposits.

[Unidentified Company Representative:]

Regarding the margin squeeze, decline of the margin, let me elaborate for the bank because of the built interest rate full, when that happened, when you look at the changes in the bank margin at the three month it's probably at it's lowest point and then until the six months well it's more or less similar and then it's a flat and then it will change after that. It's because we have subsidy linked loans and six month linked debentures and the bank has a lot of it. It will differ for different banks but about 75% or so is what we have so at the six month point it's probably going to be the lowest and then we’re going to have funding impact so it's probably going to get better. You mentioned that margin seems to have been negatively impacted especially for Shinhan but let me elaborate. Well we have the variable interest rate loans, and it's timing and when it rebounds we will have a better numbers for our margin. Second is in Q4 of last year and in Q1 of this year when you look at Shinhan's portfolio we have increased mostly focused on mortgage loans and you know that the loan margins are lower for mortgage loans compared to other types of loans. So it seems that it's lower than other banks. Overall for P&L for mortgage loans they have lower margins but they have less burden of provisioning so it seems that the situation will get better. Thank you.

[Operator:]

Yes, we will take the next question is from BNP Paribas, Cha Minyoung [ph]. Please go ahead.

[Unidentified Analyst:]

It maybe redundant to margin related questions but let me post a question once again, if we assume that there is no additional interest rate cut how low will be your lowest point and if there is a rebound how much will you recover but in the other scenario of another base rate cut what will your scenario be. Second question about Shinhan Card compared to 2004 the recovery rate is high, is it something that you’re doing company-wide to increase the recovery rate or is it a natural phenomenon?

[Kim Hyung-Jin:]

Yes I will continue to answer the margin related questions, the general flow was mentioned previously and mentioning specific numbers at this point is difficult. When was the BOK rate cut and when is the six month period in August-October last year and in March this year there was rate cut, so the last rate cut was March and the impact will be sustained until September and the last rate cut impact will stop at April this year. So according to our logics in Q2 this year we will be hitting the bottom and compared to Q1 we will go down more in Q2 and then there will be some rebound in Q3. In worst case scenario we will be maintaining the NIM at Q1 level and we will be doing our utmost effort to freeing up the NIM. As for gains on recovered bad debt, on Shinhan Card, there are two factors at play one is the recovery rate of written-off asset was increased because they were stable loans and we were able to recover them and the remaining assets are also off those assets with good recovery ratio. So 5.5% to 6% range is where we’re at and the annualized written off assets amount to ¥450 billion to ¥500 billion and so we’re maintaining a similar recovery rate. In Q1 ¥51.4 billion was recovered and on annualized terms we believe ¥200 billion can be recovered and as of now gains on recovered assets what will be the lowest point. We believe it will be maintained at the ¥200 billion level. In Q1 the gains on recovered assets looked very good and we will be maintaining this level going forward and overall the collection rate of assets on our balance sheets is looking good and we believe that there will be a downward trend on the credit cost.

[Operator:]

Yes we will be taking the next question, it's from UBS Securities, Eigen Hoo [ph]. Please go ahead.

[Unidentified Analyst:]

I have a one very simple question, for Shinhan Banks write-off and sell-off they were considerable but it seems that when you look, once you weight increase for some SMBs you’ve some increase so can you tell us more about that in more detail and why that happened?

[Kim Hyung-Jin:]

Regarding the delinquency ratio for small and medium businesses it seems that it has increased slightly with SMBs. For SOHOs we have office rental and then we have retail and wholesale that were impacted but we believe that this was temporary trend and some companies had increases in their delinquency amount so that is why it seems that the delinquency ratio was impacted. It seems that this is not a new credit cycle or delinquency trend that is our judgment. In Q2 when some of these delinquencies phase out then we will see SOHOs and SMB delinquency ratio that will maintained at a more stable level. Provisions for credit losses, we believe have low possibility of increasing because of this trend.

[Operator:]

Yes we will be taking the next question from KB Securities, Mr. Yu.

[Unidentified Analyst:]

I’ve two questions, as for last year on an annualized basis SOHO loans and retail credit loans grew but as for mortgage loans because of the impact of relief loans it may not have grown as much but it seems it's strange that the SOHO loans did not increase, is it because the SOHO loans grew too much last year and you didn’t work on it, or is it impacted by other banks policies? Because other competitor banks announced the business plan to increase their SOHO and SMB loans, so why was this? Could you reiterate your policies once again and as for loan loss provisioning, you said that there was an one-off factor of corporate restructuring but looking at the level it seems that it grew by large amount. So could you give us a breakdown of the provisioning for the corporate restructuring efforts?

[Kim Hyung-Jin:]

Yes as for Q1 I will elaborate. Usually in Q1 every year we see a similar trend for Shinhan Bank. We have a low growth but in Q2 the growth picks up, and on the technical side usually because of the BIS ratio and because of the debt ratio at the year-end the companies try to reduce the loans and there is a difference among the banks and Shinhan Bank tends to reduce the loan by a small amount and so that’s why there is a smaller marginal rebound compared to the other banks. So there is this seasonal factor and up until now we had a sound growth in SOHO loans and this year there is no special reason to reduce the SOHO loans this year and we have our internal goals and we are going to go ahead actively and beef up the SOHO loans.

[Unidentified Company Representative:]

Yes as for the credit cost related to corporate restructuring in Q1 we had ¥314 billion of credit cost and so it grew by large amount and the annual provisioning last year was ¥949.9 billion so it would be about ¥230 billion per quarter so this is a lot more than the quarterly amount of provisioning. For [indiscernible] enterprise there was provisioning of ¥38.4 billion and as for SPP Shipbuilding there was provisioning of ¥13.8 billion and as far as [indiscernible] there is provisioning of ¥21.4 billion. So in Q1, ¥74 billion of provisioning incurred in Q1. So if we subtract that on an ordinary level it's about ¥24 billion up ¥240 billion of provisioning which is normal level and in Q2 we will be returning to our normal level of provisioning. So on an annualized basis we don’t see the possibility of the provisioning amount going up. Our annual target of 45bp to 48bp I think we can achieve that level. Thank you.

[Operator:]

Next question is from Kyobo Securities, Hwang Seok-Kyu. Mr. Hwang?

[Hwang Seok-Kyu:]

I may have some overlapping questions but my questions also refer to the margin and for the relief loans or loans or -- someone already asked some questions and the ¥4.4 trillion if they are -- they take it off the books then are you going to make them up with mortgage loans or are you going to focus more on the loans for small and medium sized companies. So do you have any room to grow in that area because you’re going to have some gap, so you will need to fill them with loans from other area, so I'm curious about what you’re going to choose to fill up the space. Second question is about the impact of the relief loan so the performance in Q2 the margin decline you mentioned it's difficult to give numbered forecast but there is fee income and if 100% is taken off the books then do you think all of it Q2 fee income or is it going to be extended to Q3? So can you tell us more about those practicalities and for Q3 in funding for demandable deposits the number seem good but for time deposits that are more sizeable it's not a big amount but I see some negative numbers so in the market the flow of funds and the BOK [ph] interest rate decline well maybe time deposits are going through a flighty phase. Can you elaborate more on it? Can elaborate on the future trajectory of time deposits, do you think it's going to go to a minus trend or do you think it's going to be maintained at current level or do you think it's going to be maintained at a positive level? So there are three questions in total.

[Kim Hyung-Jin:]

For the relief loans or [indiscernible] conversion loans let me elaborate. For the relief loans interest income gains have gone down and the fee income or fee gains have gone up. It's because we have ¥4.4 trillion that are committed but depending on when it's really sold than the amount of the gains and losses would differ if all the ¥4.4 trillion is sold off then in this year the fee income would differ between ¥22 billion to ¥39 billion so it will depend on the timing later on we have maintenance fees or commissions so it's going to be 10bp to 20bp effect according to the loan maturity period so we can also receive that. For the interest margins being squeezed to give you an example for the mortgage that’s security, there is interest rate and then we have the loans that were converted interest rate so it will depend on those factor, for example if the difference is 1% then on an annual basis it will be ¥44 billion so it's 50bp it will be ¥22 billion so please understand that along those lines. So please understand that along those lines, the fact the time the deposits have gone down slightly I think you have voiced you concern about this phenomenon for the bank in the funding side. We do not have any issues, so if it leaves it means that for different banks they are doing it for a balance so in the phase of adjusting their interest rate some of it can increase or go down so funding and lending by the bank it will depend on not only the deposits but also on the debentures on the other side. Well there could be the sales of securities or other policies so the funding in that lending policy will differ based on many different variables so to put it simply we had a lot of sales of these loans by the banks so then you get more room for these funding so that is why maybe the time deposits were impacted. Thank you.

[Operator:]

Yes, we will take the next question from Samsung Asset Management, Shim Kyu-sun. Please go ahead.

[Shim Kyu-sun:]

I'm Shim Kyu-sun from Samsung Asset Management I have two questions as for non-bank side we have good numbers and compared to the business plans how did you achieve so looking at the life insurance and other subsidiaries and this is also related to the margin issues as of now the margin is falling and did you expect this much to fall at Shinhan? And putting aside the rate cuts but about your product mix did this also have an impact?

[Kim Hyung-Jin:]

Yes let me answer the first question as for Shinhan Card, Shinhan Securities and Shinhan Life Insurance and Shinhan Capital and Shinhan Savings bank. The five non-bank subsidiaries had improved performance this quarter. As for Shinhan Card in Q1 ¥154 billion of income was recorded so it was a 5.9% growth y-o-y and this has satisfied our expectation level and as for Shinhan Investment the securities arm we have a lot of trading and that’s amounting to ¥8 trillion so we had an increase in brokerage fees and product sales commission. So y-o-y the income increased to ¥48 billion. And so it was an 83% increase in net income in Q1 so the non-bank subsidiaries look very good and as for life insurance compared to the previous year it was a 48% increase and 32 billion one off income was achieved and life insurance we overachieved our target and as for Shinhan Savings Bank. We have now normalized management, I think we’re entering that phase. It does not take up much portion in the total income 3.5 billion one off income was incurred, of course this is a minimal portion but compared to the previous year the performance has improved so the volume of income coming from non-bank side has increased. So just looking at the Q1 results the contribution of non-bank subsidiaries is at 40% level. Shinhan has the strength and it is being maintained looking at the performance of the non-bank subsidiaries.

[Unidentified Company Representative:]

Yes as for the margin forecast, margin is determined by mainly market rate changes. When is the repricing of our assets and liabilities and are products pricing also effect the margin. So they are the main two causes and with the BOK rate cut the assets repricing was done. In Q1 we believe we will be hitting the lowest mark and it will be in the earlier part of Q2, and the conversion of relief loans will have an impact of about 2bps on the margin and hitting bottom in Q2 there is going to be rebound in Q3 and we believe that not only Shinhan Bank but all the other banks have recorded the lowest margin in history and there is a need to recover the margin. And how will we do that? There are many ways to raise the margin backup. We could select a target market and focus our sales activities in that market and we could increase the portion of low cost deposits to reduce the overall cost. There could be many measures taken to improve the margin. Yes as for gains on securities and as for margin, Shinhan Financial Group has grown on the back of strong banking business and the margin is very important in our business but I think we need to change our perspective a bit as was mentioned earlier as if G's [ph] net income came from the non-bank subsidiaries and the contribution level was 40% and about 1/3rd of the credit is coming from the marketable securities. So the bank and it's NIM is not really that powerful and it's portion is shrinking in today's world. And as for our loan growth which is sensitive to the interest rate about half of that is AFS securities or trading securities so we can hedge against the impact of rate cut and I think that worked in this quarter so even if there was a BOK rate cut it hurt the NIM but we had a lot of gains from the securities and of course if the situation was reversed then the gains would also be reversed. We will be staying away from loan growth only and we will diversify our business going forward and I think that is showing gradually. Of course we will be monitoring the core indicators like NIM, but we will be looking at the portfolio in a more holistic level and we will diversify our business further. Thank you.

[Operator:]

We do not have any other questions on the queue. So we will be waiting for other questions to come in. We have no other questions on the queue, but is there is a new question coming in? If you’ve any additional questions please feel free to call in. Credit Suisse, Kim Kiryoung [ph]. Please ask your question Mr. Kim.

[Unidentified Analyst:]

So I would like to ask you a question about LDR in Q1 it's 96.5% and for the relief loan when you take that into consideration in Q2 it seems that the LDR probably will be lowered what that means is conversely said you will more liquidity at your bank. So regardless of the BOK interest rate. Do you think this will impact your deposit interest rate, lower fashion? Do you have any strategic plans?

[Kim Hyung-Jin:]

Q1 LDR as you saw in our presentation materials, it's at a very low level. One of the biggest reason behind this is because seasonally this is not a time for heavy loan demand also in Q1 they both BOK interest rate went down so we had a lot of sales in the loans. So you see that in Q3 it also went down last year so we had quite ample amount of liquidity in Q3. We try to actually cut down on the amount of time deposit at that time. Our bank LDR, about 1% of it is impacting ¥2 trillion and looking at the current funding and lending structure going forward it seems that we will not have much demand for funding so I do not believe that we will have a quite a lot of room for time deposits to grow, however a lot of the companies are going to conclude their shareholders meetings and because of their changes in their investment plans, bank loans may go up so we believe that there will be an upward trend for the LDR maybe in Q2 but we will be able to meet that easily.

[Operator:]

Thank you. We do not have any more additional questions it seems. We will conclude the earnings call of Q1 2015. Thank you for your participation.