1Q20 Business Results Greetings and Summary Greetings. I am Peter Kwon, the Head of IR at KBFG. We will now begin the 1Q20 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 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 1Q20 business results highlights. Yes. Good afternoon. This is Ki-Hwan Kim, Deputy President and CFO of KB Financial Group. I'd like to extend my sincere appreciation to everyone for joining us today at KBFG's earnings release for first quarter of 2020. Before moving on to the earnings, let me briefly explain our operational background. In Q1, due to COVID-19 pandemic, global production and consumption slowed, leading to a rapid deterioration in the global economy. Investment assets contracted as a result of higher preference for safer assets and higher liquidity. And as global financial markets experienced a number of circuit breakers, this heightened market uncertainties to a level unseen before. Korean economy also saw great contractions in consumption, slowing of CapEx investment and exports as signs of economic depression surfaced. In line with the policy stance to respond to such shock, BOK swiftly moved to cut policy rates by 50 basis points last month. Even under such trying business environment, bank's Q1 loans in won increased 4.2% year-to-date, attesting to solid asset growth. Net fee and commission income also continued to expand as KBFG manages to sustain its earnings capacity. However, regrettably, COVID-19 pandemic has triggered index declines, rise in exchange rate and credit risk spread, which generated other operating losses with Q1 results reporting somewhat of an underperformance. We believe such a black swan event like the COVID can happen anytime yet again in the future. And so we are determined to build on strong resilience and fundamentals that can help us overcome any crisis that may arise. To this end, based on our unmatched base of 35 million customers, we will enhance core competitiveness of each of our subsidiaries and further bolster both the nonbanking and the global business. Although financial business environment is at its worst, due to the unforeseen impact of COVID-19, KBFG will leverage this opportunity to solidify its core fundamentals so as to leap forward and become a true leading financial group. (2p) 1Q20 Financial Highlights-Overview Now I will move on to 1Q20 financial highlights. KBFG's net profit in 1Q20 was KRW 729.5 billion. In the absence of ERP and other seasonal factors, the net profit increased 36.4% Q-on-Q driven by interest income and fee and commission income growth. However, this was a 13.7% year-on-year decline, a subnormal performance driven by steepening volatility of the financial market in the first quarter, which led to losses in other operating income. Aside from this factor, overall earnings capacity of the group continues to be robust. Next I would like to elaborate on each line item in more detail. Group's Q1 net interest income was KRW 2,349.2 billion despite interest rate cuts and NIM contraction from loan conversion program. Due to solid asset growth in Kookmin Bank and KB Card, net interest income increased 4.3% year-over-year. Due to impact from market rate decline and LOC, net interest income remained flat Q-on-Q. Also, bank loans in won was around KRW 280 trillion as of the end of Q1, up 4.2% or around KRW 11 trillion year-to-date. Group's Q1 net fee and commission income was KRW 670.1 billion, up 21.7% year-over-year. This is mainly driven by improvement in brokerage fees and IB business, which led to higher commissions income for the securities business as well as increases in credit card fee income, which is an outcome of cost efficiency measures. Also, despite difficult operational environment, driven by a group-wide collective effort, net fee and commission income posted a Q-on-Q increase of 4.9%. Next is the group's other operating income. In Q1, the group reported KRW 277.3 billion of other operating loss. Insurance underwriting profit was KRW 78.1 billion, displaying Q-on-Q recovery driven by overall loss ratio improvement, including auto insurance. However, market volatility was severe on the back of COVID-19. Bank trust on principal preservation incurred a loss of KRW 66 billion and KB Securities incurred ELS hedging-related loss of around KRW 48 billion. Such losses and others led to to sizable securities, derivatives and FX-related losses. I would like to elaborate further on other operating losses for this quarter and our strategy in addressing these losses that have resulted from high level of volatility in the capital market. Next is on the group's G&A expense. Q1 group G&A expense was KRW 1,459.2 billion. With the absence of ERP and A&P expenses and other seasonal costs, there was a sizable decline of 19.6% Q-on-Q. On a Y-o-Y basis, with 1Q19 ERP impact removed, there was 3.6% decline. For the time being, speed of G&A expense improvement may slow somewhat on the increase of digitalization expenses at the group level. But we believe this investment is warranted for the group's future growth. Aside from such investment for future, we will revisit all of the expense items from a zero based standpoint to manage costs as we go forward. Next is on PCL, provision for credit losses. Q1 group PCL was KRW 243.7 billion, increasing slightly both Q-on-Q and year-over-year due to asset growth, absence of any large write-backs, and one-off provisioning from KB Securities. However, credit cost recorded 0.25% sustaining high level of asset quality. On the next page, I will walk you through key financial indicators. (3p) 1Q20 Financial Highlights-Key Financial Indicators On widened financial market volatility which triggered securities, derivatives and FX-related losses, Q1 2020 group ROE reported 7.64%. If eliminating nonrecurring factors for the quarter such as CVA or credit valuation adjustment-related losses, which is an adjustment for counterparty credit risk for OTC derivatives, recurring basis ROE is at 8.66%. Although this quarter's profitability indicators have underperformed compared to the past due to temporary rise in other operating losses, group's earning fundamentals continues to be solid as we endeavor to diversify revenue sources and improve cost efficiencies to respond to the low growth and low interest rate environment. Next is on the growth of the bank's loans in won. As of the end of March 2020, bank's loans in won was KRW 280 trillion, up 4.2% year-to-date or approximately KRW 11 trillion. Household loans increased 3.2% year-to-date to KRW 152 trillion, driven by Jeonse loans and high-quality unsecured loans. Corporate loans recorded KRW 128 trillion with even growth across SMEs and large corporates and posted a year-to-date growth of 5.5% or KRW 7 trillion. In particular, loans to large corporates significantly increased and posted a 20.2% year-to-date growth due to increased loan demand from corporates that sought to secure liquidity. KBFG will closely monitor for signs of prolonged economic recession and also closely monitor the property market in order to continue quality driven growth and also employ flexible loan policies so as to solidify basis for growth. Next, let's look at the NIM graph on the right. 1Q20 group and bank NIM posted 1.84% and 1.56%, respectively. Q1 bank NIM, despite the steady increase of low cost deposits and the funding cost reduction, fell 5 bp Q-on-Q, mainly due to decline of market rates and loan conversion program. Q1 group NIM fell 4 bp Q-on-Q, due to increase in card assets including card installments on top of the pressure on the bank NIM. Going forward, KBFG, based on superior sales competency, will expand low-cost deposits including settlement type accounts and corporate customer deposits as well as improve loan pricing so that we can do our utmost to manage our margin. (4p) 1Q20 Financial Highlights-Key Financial Indicators Let's go to the next page. First, I will cover our group's cost income ratio. 1Q20 group CIR recorded 53.2%, but excluding nonrecurring items for this quarter, such as digitalization costs and CVA losses, recurring CIR in Q1 posted a 50% level. CIR on a recurring basis, excluding ERP expenses and other one-off items, has been controlled stably at the early 50% level over the last 4 years, and KBFG will continue to do its best to improve cost efficiency through HR management and group-wide cost controls. Next, I will cover the CCR. 1Q20 group credit cost recorded 0.25% and slightly increased due to the absence of large-scale reversals and one-off provisioning. It is still, however, maintained at a low level. This quarter's rise in credit costs can be seen as a process of gradual normalization from a subnormal level with the decrease of large-scale provisioning reversals. Despite the concerns in the market about asset quality due to COVID-19, KBFG has been shown again its ability to maintain a sound level of asset quality and its high competency in risk management. Next, I will elaborate on the group's capital ratio. As of the end of March 2020, the group's BIS ratio posted 14.02% and CET1 ratio posted 12.96%, respectively. Due to increase in RWA that followed from corporate loan growth and other changes in factors such as the exchange rate that resulted from high volatility in the financial markets, both BIS and CET1 ratios slightly contracted year-to-date. But KBFG is still maintaining the highest level of capital buffer in Korea against economic downturns. (5p) 1Q20 Key Takeaways-Profitability Management in a Changing Financial Environment Let's go to the next page. From Page 5, I will further explain the low performance in other operating income and our asset management strategy during times of high market volatility. I will also elaborate on our group's profitability management strategy, responding to the recent financial environment changes. As aforementioned, in 1Q20, COVID-19 pandemic caused a large shock to the global economy, and in particular, it increased the capital market volatility. As for KBFG, bonds in Korean won that we hold incurred valuation gains due to decline in market rates. But bonds in foreign currencies and some OTC derivatives incurred valuation losses because of credit spread widening and exchange rate hike. And we also incurred losses from securities, derivatives, and FX related products, including ELS hedging losses from our securities business. As such, I would like to cover our asset management strategy responding to future capital market volatility. First, Kookmin Bank and KB Securities currently manage around KRW 6 trillion in foreign currency bonds, which primarily consist of highly rated, investment-grade bonds with 80% being rated A or higher. Because we believe that the bond market can recover with fiscal and foreign currency policies from major governments, we aim to build a strategic position and maintain a hold-and-carry strategy in accordance with market situations. Next, valuation losses incurred in OTC derivatives were partly due to CVA related losses stemming from counter-party credit risk. This was due to temporary increase in total exposure due to exchange rate hikes in Q1 as well as the forward credit risk spread that greatly widened compared to the previous quarter. As an example, the bankruptcy rate of companies with an A rating, which is a measure used in CVA assessment, increased 6x in Q1. As the FX and credit market stabilize over time, we expect such negative impact to be reduced. Lastly, I would like to elaborate on the ELS hedging losses. Currently, KB Securities has an ELS hedging position around KRW 3 trillion. In Q1, KB Securities incurred around KRW 48 billion in losses due to rapid volatility expansion in the markets and key indices. But we expect that a great amount can be recovered when the financial market is stabilized over time. While we aim to minimize the widening of other operating losses that can potentially arise from further expansion in market volatility, we plan to maintain a flexible approach to our issuance strategy and manage our performance by rebuilding the hedging strategy for ELS and other derivative operations as well as changing the proportion of underlying indices linked to foreign stock markets. Next, I would like to cover the group's profitability management strategy in light of the current changes in business environment. In recent times, profitability management in financial companies has been highlighted greatly as low interest rates and low economic growth are becoming the “new norm” in our society. At KBFG, we are revising our group's mid- to long-term strategic direction so that we can proactively respond to such changes. While there are many initiatives that we must undertake, we believe the following initiatives will be vital: to strengthen channel competitiveness, to strengthen new business competitiveness, and to expand our global business. First, KBFG will strengthen its focus on investment banking and wealth management businesses that can best utilize our superior capital, funding, and retail customer network. In investment banking, we plan to strengthen our dominant market position in ECM and DCM through preemptive underwriting. And we will also, at the same time, uncover new deals related to corporate financial structure improvement, including asset securitization. In wealth management, we are focusing on developing product competitiveness that meets customers' needs, including highly recoverable products such as products with low barriers and low knock-in. In addition, KBFG is the leading financial group with the largest sales channel in Korea based on 35 million customers and unmatched sales capability. And we have been strengthening our non-face-to-face sales channels, keeping in step with trends in “untact” following the development of digital technology development. In particular, we want to lead the industry in non-face-to-face channel competitiveness by improving our non-face-to-face channel customer experience in our loans, wealth management, and card businesses and by expanding channel competitiveness through strengthening our product lineup. Last but not least, KB Financial Group is working hard to secure mid- to long-term growth momentum through expanding our global business. As a result of these efforts, on April 10, we acquired 70% of shares from Cambodia's largest microfinance company, PRASAC, and incorporated it as second tier subsidiary. With the acquisition of PRASAC, the net profit contribution from overseas, which was at a 1.5% level, will be increased to around 4%. Going forward, we will continue strengthen the group’s profit base by accelerating global business expansion. Please refer to the following pages for further details regarding our 1Q20 earnings. With this, I will conclude KBFG's 1Q20 business results presentation. Thank you for listening.