Oct 25, 2013
Executives
Kyu Sul Choi - Head of Investor Relations and Managing Director Woong-Won Yoon - Chief Financial Officer and Deputy President
Analysts
Sang-Ho Yoo - HI Investment & Securities Co., Ltd., Research Division Hong-Chul Shin - KB Investment & Securities Co., Ltd. Joon Seok - Morgan Stanley, Research Division Young-Soo Seo - Kiwoom Securities Co., Ltd., Research Division Seok Kyu Hwang - Kyobo Securities Co., Ltd., Research Division
Kyu Sul Choi
Good afternoon. My name is Kyu Sul Choi, the head of IR at KB Financial Group.
Thank you for taking part in today's earnings conference of KB Financial Group for Q3 2013. The access to this conference is being provided via Internet and conference call, being webcast real time for Korea and abroad.
During the Q&A, you may call in to ask questions. Joining us in today's earnings call, we have with us KBFG's CFO, Woong-Won Yoon, as well as executives from KBFG subsidiaries.
The conference will consist of the earnings presentation by our CFO, Won Yoon, on the earnings results for Q3 2013, followed by a Q&A session, at which time you may call in for questions, so please utilize the Q&A session for questions. Let me now present our CFO, Woong-Won Yoon, for the earnings presentation for Q3 2013.
Woong-Won Yoon
Good afternoon. My name is Woong-Won Yoon, the CFO of KB Financial Group.
Let me begin the earnings presentation of KBFG for the third quarter 2013. First, the financial highlights.
KBFG's cumulative profit for Q3 2013 marked KRW 1,037.9 billion, edging down around 36% year-on-year. The narrowing interest income from the NIM contraction, along with the one-off factors such as the equity method valuation loss on BCC recognized in Q2, led to such results.
Profit for Q3 was boosted by the absence of the negative one-offs seen in Q2, such as the BCC equity method loss and impairment loss on securities, while some one-off gains like the sales gain on marketable securities further supported the bottom line. The quarterly profit jumped 183% quarter-on-quarter to KRW 462.9 billion.
The group's gross operating income for Q3 posted KRW 1,996.5 billion. The gross operating income for the recent quarters hovered below KRW 2 trillion due to the one-off losses on the noninterest income side, including the various stock market-driven impairment losses on securities held.
However, Q3 was not only free from such negative one-offs, but also was bolstered by one-off gains through the sales gain on securities. As a result, the gross operating income recovered back to the KRW 2 trillion range.
Including trust and AUM, the group's total asset marked around KRW 383 trillion as of the end of September. Next page, please.
The cumulative provision for credit losses, PCL, for the group came in at KRW 1,084.2 billion, down by around 4% year-on-year. Owing to the proactive resolution measures on NPL, as well as our efforts to enhance asset quality, our quarterly trend of provisioning remains quite stable.
As for Q3, however, our preemptive measures for the year-end NPL ratio management led to the PCL of KRW 406.6 billion, up 15.7% quarter-on-quarter. The cumulative group ROA and ROE recorded 0.48% and 5.55%, respectively.
If you look at the capital adequacy trend on the bottom, the end-of-September group BIS ratio was 14.39%. The Bank BIS ratio rose 54 basis points quarter-on-quarter supported by expanded retained earning from enhanced profit, as well as the subordinated debt issuance, which took place in the third quarter.
The Core Tier 1 ratio of the group and the bank recorded 11.12% and 11.55%, respectively, posting one of the highest capital adequacy in the financial sector. On Page 5, if I may touch upon the group financial performance in more detail.
The Q3 2013 group net interest income was affected by the NIM contraction, declining 4.4% quarter-on-quarter to post KRW 1,577.5 billion. The Q3 net fee and commission stood at KRW 372.4 billion, decreasing 5.1% quarter-on-quarter.
It was mainly due to the muted commission income of the bank in areas such as the securities agency fee. The net other operating income for Q3 amounted to KRW 46.6 billion, significantly rising quarter-on-quarter compared to the KRW 223.2 billion in losses in the previous quarter.
The absence of the negative one-offs such as the impairment losses on securities, further boosted by the CVA-related reversal on the back of the strengthening won and the one-off sales gain on HMM shares, led to such results. I will elaborate later on these points.
The G&A expenses for Q3 logged KRW 957.6 billion, down KRW 57.8 billion quarter-on-quarter, that is. It was possible thanks to the lack of seasonal anomalies, as well as the group-wide cost control efforts.
From next page, I will speak on the breakdown of the group profitability. Let me start with the net interest income.
The bank's cumulative net interest income for Q3 reached KRW 3,891.5 billion, inching down 10.8% year-on-year. Following the negative loan growth during Q1, the average balance of the interest-bearing assets also reduced and the overall loan spread squeeze further compressed the NIM.
The cumulative card net interest income for Q3 recorded KRW 758.8 billion, backed by the lower interest expense from falling funding rate, rising 5.6% year-on-year. However, the Q3 net interest income came down 1% quarter-on-quarter due to factors such as the lower average balance of the cash advance services.
As can be seen on the group NIM graph inclusive of the merchant fees on the bottom right, the group NIM declined 10 basis points quarter-on-quarter to 2.55% for the quarter, while the cumulative number up to Q3 marked 2.64%. Such NIM compression is mainly driven by the narrowing loan-to-deposit spread in the banking sector amidst fierce competition.
After the NIM drop in Q2, there had been efforts made to enhance the margin. The Q4 NIM is expected to remain on par or slightly edge down quarter-on-quarter with gradual rebound from 2014.
Next, let me move on to the net fee and commission income. The bank's cumulative net fee and commission income for Q3 reached KRW 826.6 billion, decreasing 14.7% year-on-year.
It can be attributable to the lower bancassurance fee and credit card agency fee. First of all, the bancassurance fee fell 45.3% year-on-year.
During Q1 last year, the strong marketing efforts led to extraordinarily high sales of bancassurance products, while the tax reform in February and the low interest rate environment this year deteriorated the interest rate competitiveness of the insurance products, leading to a big drop in sales across the entire banking sector. The credit card agency fee seems to be down somewhat, but this reflects the agency fee payment reduction from the card company to the bank, making the net impact on the group neutral.
The cumulative card net fee and commission income for Q3, despite the emergency reduction and other regulations pressuring the bottom line, went up 72.1% year-on-year through cost-cutting efforts such as the reduction of affinity services. As for Q3, the merchant fee income expansion from more number of working days during the quarter, among others, helped increase the net fee and commission by 21.9% quarter-on-quarter.
I will now touch upon the net other operating income. The bank's net other operating income for Q3 was positively affected by the lack of the one-off losses such as the impairment loss on securities in the previous quarter, as well as the one-off sales gain on securities and CVA reversal instead.
It led to a quarter-on-quarter jump. And the net gains of securities amounted to KRW 168.5 billion, climbing significantly quarter-on-quarter.
During Q2, the rising bond yield pushed down the valuation gain on principal preservation trust, as well as the return from the invested private equity funds. However, in Q3, there was the one-off sales gain on securities such as HMM.
If you look at the others category, the derivatives and FX translation gain, excluding deposit insurance and contribution to credit guaranty fund, picked up sizeably quarter-on-quarter, and it was mainly due to the strengthening won and the related CVA reversal of KRW 61 billion in Q3 regarding SPP and Hanjin shipbuilding. However, if you take out such one-off factors, the underlying security assets and the corresponding derivatives or hedging transactions pretty much offset each other in valuation at a stable level.
The net other operating balance of the credit card business for Q3 tapered off due to decreased sales gain on receivables eligible for National Happiness Fund compared to the previous quarter. As for the cumulative net other operating balance of the remaining subsidiaries, the losses went up year-on-year, mainly affected by the lower insurance-related income on the back of the slower underwriting of the immediate annuities products by KB Life to manage the RBC ratio.
Next page, please. The bank's G&A expenses for Q3 came in at KRW 822.5 billion, down 5.9% quarter-on-quarter thanks to the group-wide cost-cutting efforts.
The card and other subsidiaries G&A numbers on the bottom also maintained a steady trend. Backed by such group-wide cost control efforts, the group cost-income ratio also dropped 2.3 percentage point quarter-on-quarter.
As can be seen on the top right graph, the group cost-income ratio has been on an increasing trend since 2012 due to the weaker top line following the reduction in interest income and one-off noninterest losses. Going forward, however, we expect the dissipating negative quarterly one-offs and the resulting normalization of the profit to steadily stabilize the cost-income ratio.
The bank's nonoperating balance for Q3 surged quarter-on-quarter with the absence of the BCC equity method valuation loss of KRW 120.3 billion recognized in Q2. Please turn to Page 10 for your reference.
I will now touch upon the group's asset and liability. First, we will take a look at the group's balance sheet.
As of September-end 2013, group's total asset, based on the balance sheet, is KRW 297 trillion, driven by loan receivables growing 3.9% year-to-date. September earned group total liability increased 4.1% year-to-date to KRW 272 trillion, with shareholder equity coming in at KRW 25 trillion.
September-end group total asset, including trust and AUM, is KRW 383 trillion, growing 5.4% year-to-date. Next is KB Kookmin Bank loans in won and KB Kookmin Card.
First, bank's loans in won as end of September stand at KRW 188 trillion, increasing 1.9% year-to-date and 1.3% compared to end of June. On the back of government's April plan on property market normalization and implementation of August measures on chun-say and monthly rent, housing trades increased, driving household lending growth of 1.7% year-to-date.
For your information, growth rate inclusive securitized loans, the growth is 5.3% year-to-date and 2.4% Q-o-Q. Corporate loans increased 2.2% year-to-date and 0.7% Q-o-Q.
In light of the economic environment and concerns for household debt, overall speed in SOHO lending growth was moderated, with growth coming mostly from loans to prime SMEs, including loans with letter of guarantee. Going forward, for risk management purposes, we will continue on with conservative lending posture, especially for cyclical sectors.
But at the same, we will actively explore good-quality SMEs, thereby applying sophisticated credit evaluation systems, as well as rate schemes, to selectively find opportunities for corporate lending growth. Credit card receivables at end of September stand at KRW 14 trillion, increasing 6.9% year-to-date and 5.3% compared to end of June, mostly driven by factoring receivables.
Next is on the bank's funding position. September-end bank's deposit in won is KRW 194 trillion, growing 1.4% year-to-date and 2.2% against June end.
Due to efforts to attract low-cost deposit and settlement accounts, and with low interest rate and share price decline leading to increases in standby funds, core deposit increased 6.3% year-to-date and 0.2% compared to the end of June. However, with funding position management, reflective of overall stagnant lending growth trend and falling demand from deposit rate cuts, time deposit showed a slight downward adjustment.
The bank's debenture in won as of end of September is KRW 13 trillion. As you can see on the bottom right graph, loan-to-deposit ratio for September end stand at 97.8%, being kept below 100% since the end of 2010.
We expect there to be no material difficulties keeping this figure below 100% going forward. From Page 15, we will look at the group's asset quality.
First is the asset quality of the bank. NPL ratio as of September end is 1.92%, maintaining the level of end of second quarter.
NPL coverage ratio, inclusive of reserve for credit losses, end of September, stand at 111.4%. September-end bank delinquency ratio is 1.05%, inching up 4 basis points Q-o-2 -- Q-o-Q.
Household debt delinquency rate is 0.92%, declining 9 basis points Q-o-Q, mostly due to write-off of collective mortgage loans in Q3 to comply with the year-end NPL ratio guidelines. Delinquency for the corporate loans is 1.20%, increasing 19 basis points Q-o-Q, but most of the increases are due to new delinquency formation from second quarter's below-substandard NIMs, which are marginal companies.
So if we are to carve out these factors, overall asset quality is quite stable. Next is on asset quality for KB Card.
September-end credit card NPL ratio is 1.75% with lower quarterly new NPL formation. And in line with quarterly write-off increases, there was a 5-basis-point decline Q-o-Q.
NPL coverage ratio, inclusive of reserve for credit losses, is 316.1% as of September end. Credit card delinquency as of end of September, on the back of realignment of internal collection organizations and due to various efforts to improve our delinquency rate, fell 13 basis points Q-o-Q to 2.02%, keeping to a stable level on a quarterly basis.
Next is on loan loss provision for the bank and the KB Kookmin Card. The bank's Q3 cumulative LLP is KRW 829.3 billion, improving 6.2% year-over-year.
Q3 provisioning amounted to KRW 303.9 billion, increasing 16% Q-o-Q. For the household loans, Q3 cumulative figure is KRW 252.5 billion, a decline by 17.3% year-over-year.
Q3 LLP came in at KRW 118.5 billion, an increase by a large margin on a Q-o-Q basis. This is due to write-off of some portions of collective loans as part of managing year-end NPL ratio.
And if one excludes this impact, recurring LLP is around the level deemed adequate. Q3 cumulative Corporate LLP came in at KRW 576.8 billion, hovering around a similar level of the previous year.
Q3 provisioning recorded KRW 185.4 billion, falling 15% Q-o-Q. This is due to additional provisioning required by reclassification of asset quality in Q2 as prescribed by the FSS.
When one-off factors are removed, on a nominal basis, the level is similar to that of the previous quarter. Q3 cumulative LLP for credit card business was KRW 240.5 billion, edging down 5% year-on-year.
Q3 provisioning was KRW 89.4 billion, an increase of 7.8% Q-o-Q. But this is due to lower recovery amount as NPL balance declined from the sale of receivables to our National Happiness Fund.
So when this impact is excluded, we are maintaining a stable quarterly level. My last topic is on provisions for each sector.
As can be seen from the top left graph, the group PCL over group total asset in the third quarter on a cumulative basis is 0.50%, improving 6 basis points against 2012 annual credit cost of 0.56%. By each sector, household sector recorded 0.33% cumulative LLP rate in Q3, improving 6 basis points over 2012 annual credit cost.
Q3 credit cost is 0.46%, inching up 28 basis points on the back of collective loan write-off. But on a nominal basis, it is being kept at a stabilized level when such one-off factors are reflected or considered.
Q3 corporate LLP rate on a cumulative basis is 0.77%. Through active clean-up of bad debt and conservative provisioning policy, since 2012, we are seeing a positive trend every quarter.
Q3 LLP for credit card on a cumulative basis came in at 2.41%. For Q3, the figure is 2.63%, slight increase quarter-over-quarter, but overall displaying a steady trend.
We at KB Financial Group continues to manage risk preemptively for many years in light of the economic difficulties and concern for household debt and soundness-related issues in certain sectors. Thanks to such efforts, provisioning trend has been stable, and we expect continued improvement in terms of provisioning, as well as asset quality.
This has been Q3 2013 earnings presentation by KB Financial Group. Thank you very much for your attention.
Kyu Sul Choi
Thank you. That was an earnings presentation by our CFO.
We will now begin the Q&A session.
Kyu Sul Choi
[Operator Instructions] We will take the first question from HI Investment & Securities.
Sang-Ho Yoo - HI Investment & Securities Co., Ltd., Research Division
My name is Sang-Ho Yoo from HI Securities. I have a couple of questions about your margin.
I believe that your NIM contraction size was a little bit larger than anticipated. Now, of course, the interest side of the reduction, I thought it was because of the growth limitation in the market, but when it comes to interest expense, it seems, on a quarter-on-quarter basis, it has -- it's increased.
So between the previous quarter and this quarter, if you look at the deposit rate trend, yes, the policy rate has gone up a little bit, and if you look at the BOK announced table, the trend is actually lower than the rate movement. So I was wondering, why the NIM contraction?
Is it because you spent more money in order to attract more deposit? Or are you continuing to experience limitation as to NIS contraction?
So if this trend is going to continue, when do you think it will bottom? And how do you plan to actually deal with this situation?
Unknown Executive
Yes, our CFO didn't get to hear the last part of your question. Could you repeat that?
Sang-Ho Yoo - HI Investment & Securities Co., Ltd., Research Division
Yes, if I may recap, your interest expense increased quarter-on-quarter, so what are the reasons? And by when do you think that your NIM contraction will hit bottom and start to rebound?
So if your NIM trend is going to recover to achieve that, what areas should you work on so that you could further improve the NIM trend going forward?
Woong-Won Yoon
Regarding the expansion of the interest expense, I believe that it had nothing to do with the funding cost per se. But we had the principal protection trust-related accounting treatment, which was a temporary one-off factor.
The more important thing, I believe the gist of your question was, when is the bottom going to come when it comes to NIM contraction, I believe. We are continuing to work on asset portfolio improvement, and we are trying to attract some sound company clients as corporate clients, during which time we were reducing some interest rate.
And also, such factors, sales at first led to some contraction in terms of NIM for the margin. But nevertheless, we are making various efforts to further expand the NIM going forward.
Now first of all, we need to lay the foundation of solidifying our client relationships, not only through the price competitiveness. We believe that we have to further enhance our service capabilities, and we are trying to use that as appeals to our customers.
And in order to conduct appropriate pricing, we are further upgrading and refining our credit scoring model. So through these efforts, we believe that the NIM trend by the fourth quarter will be bottoming out -- or the third quarter, I believe, would be the bottom.
So after that, I believe through these efforts, we will gradually see the improvement of the margin.
Unknown Executive
Yes, if I may, I would like to elaborate just a little bit more. As was mentioned by our CFO, during the second quarter, I believe I talked about it before, about KRW 42 billion worth of the noninterest income category incurred losses, and that had to do with a principal protection trust.
And that has led to some one-off losses. So the second quarter interest expense, you should look at it actually -- should be considered with extra KRW 42 billion.
So if you look at it in that perspective, actually -- we are actually seeing a smooth trend quarter-on-quarter, so if you add that one-off factor that existed last quarter.
Kyu Sul Choi
Yes, once again, there is the lagging effect, and right now, we do not have any people who have requested for questions. [Operator Instructions] I think there's a question coming in, so please do bear with us for a moment.
Yes, we will take the next question, Hong-Chul Shin from KB Investment & Securities.
Hong-Chul Shin - KB Investment & Securities Co., Ltd.
I believe that in order for us to calculate the profit level in terms of the gains on the sales of HMM, and also with the impact from FX decline and the write-back, as well as the write-off side of the collective mortgage loan, could you be a little more specific and share with us the specific figures?
Woong-Won Yoon
In Q3, there were a couple of one-off factors, and I did include that in my presentation, and I will share with you more specific numbers. In terms of the HMM, as well as other securities and the sales of those securities, the figure in total is about KRW 60 billion in terms of gains from sales.
And we have about 4.67 million shares, and we have sold entirety at per share of KRW 24,000, and it's about KRW 46.5 billion. And so there were also other sales of the securities that we had hold.
And in terms of the CVA reversal and the write-back, in Q3, because FX rate actually declined, SPP and Hanjin shipbuildings in terms of our FX forward position, there was a CVA impact of about KRW 61 billion. Another factor is that in order for us to comply with the NPL guideline by the end of the year, we had in terms -- we had written off some of the collective mortgage loans, and additional provisioning that arose from that was KRW 60 billion.
I hope that answered your question. We will move on to the next question.
Kyu Sul Choi
From SEC Securities [ph], Mr. Jin-Hong Kim [ph].
Unknown Analyst
During the third quarter, your NIM contraction was quite noticeable. And as you recall, that happened during the second quarter as well.
So compared to our expectation, the speed of NIM contraction seems to be faster. So I was wondering whether you are looking -- it seems like you are looking at the NIM trend going forward into the fourth quarter to be flat or slightly down.
So what are the reasons? I think that you should always focus on NIM.
I believe that the market competition has always existed, and I think that all throughout this year, you were very much focused on asset quality in terms of your loan extensions. So if you think that margin contraction could further proceed during the fourth quarter, what would be the reasons?
You talked about the KRW 42 billion worth of losses, which was considered one-off from the principal protection trust item. Then if that does not take place during this fourth quarter, I don't think that your NIM should contract too much.
So -- I mean, I understand the one-off factors for Q3, so could you talk about the fourth quarter?
Woong-Won Yoon
During the third quarter, the margin reduction took place by about 10 basis points. I briefly touched upon it in my presentation earlier, but let me elaborate.
Up to Q2, we were not really growing our assets, so we were trying to grow our assets during the third quarter. And at the same time, in order to attract more high-quality clients such as high-quality SOHOs or high-quality SMEs, we worked on the marketing side.
So through such efforts, we did give them a lower interest rate on their loans. And also, on the retail side of the business, home equity and unsecured loans, we did provide some interest rate reduction for our clients -- retail clients as well, which also led to some further compression of the NIM.
So into the third quarter, the interest rate policies have been adjusted further, and in the future, we will make extra efforts to expand our margin. Looking ahead into the fourth quarter, we are anticipating either a flat or slightly downward trend in terms of the NIM.
Now the pricing policies that were implemented in the third quarter will be normalized to a certain degree by the fourth quarter, and that will be the reasons. And also, in order to secure further margin, we are looking at ways to bring in more gains.
Now one of those examples would be the following. Now the share of the 1-year time deposit duration portion, we want to adjust the portion.
And also, a large amount and low interest rate time deposit, we want to actually control and adjust those shares so that we could better optimize our funding cost side. So overall, I think that during the fourth quarter, we believe that the NIM will be either flat or slightly edge down.
As for the KRW 42 billion one-off that I talked about when it comes to principal protection trust, I was talking about that portion and that referred to the second quarter, and I was talking about the accounting one-off. So it's something that is not including in the net interest margin NIM.
So that's my elaboration.
Kyu Sul Choi
[Operator Instructions] Yes, we will take the next question from Morgan Stanley, Mr. Seok Joon.
Joon Seok - Morgan Stanley, Research Division
Yes, I have 2 questions. First has to do with your fee and commissions.
On the banking side, especially for bancassurance, we've seen significant decline, and I understand your explanation. But from 2014, in terms of this trend of decline, do you think that this is going to continue?
And do you see -- or do you have any measures to increase your fee and commission income going forward? Second question has to do with your G&A.
I think you're doing a good control of this expense. But for cost-to-income ratio for 2014, what do you project the cost-to-income ratio to be?
On the credit card side, do you think that you can pull down the expense a little further? Or is there a need for more marketing activities, or should we expect increase in expenses?
And I understand some of your bank branches are closing down, so I would like to understand what you project for CI ratio?
Woong-Won Yoon
In terms of fees and commissions for this quarter and this year, there's been a significant decrease, and I explained to you the reason why. Especially we've seen some significant decline in bancassurance for beneficiary certificate, and for trust products, fee and commission income was low.
And in order for us to improve this business, we are putting in a lot of efforts. But in particular for bancassurance, what we're doing is improving our product portfolio.
And for beneficiary certificates, we are looking at increasing our competitiveness in wealth management business, so those are aspects where we are really focusing on. And our KB Asset Management and KB Securities, our subsidiaries, we are trying to further solidify our collaboration with these other companies to enhance our competitiveness.
Relating to your second question about G&A. In terms of cost control, we've been very much focused on bringing the cost down.
On the costs relating to the operational aspect, we will continue to make the investment. From a structural perspective, there are some costs that are fixed, for instance, personnel-related costs, IT costs and costs related to maintaining sales branches.
So these are some fixed costs, setting aside the salary aspect, but if you look at the IT costs and the branch network-related costs, we will make sure that we don't make any redundant investments, and we will improve on the process efficiencies. And especially for IT investments, we will improve our efficiency in managing the IT expense, and we will make our sales branches more light and we will relocate, reallocate our branch-related resources to really enhance efficiency.
So in terms of the G&A cost increase, we are putting in efforts to make sure that we can stably control and maintain the level of expense.
Kyu Sul Choi
Next question, Mr. Seo Soo from Kiwoom Securities.
Young-Soo Seo - Kiwoom Securities Co., Ltd., Research Division
I have questions. Now margin and growth seem to be the offsetting factors, especially from KBFG.
I think that when it comes to the home equity loans, if you grow that side of the asset on the retail side very aggressively, then that could actually erode your margin. So if it's the other way, your growth might suffer.
So if that is the case, either in Q4 and next year, where would you actually focus on? In other words, recently, the home equity loans and mortgage loans, you expanded those types of loans quite a bit.
And are you going to persist that policy? And do you plan to continue boosting the SME loans?
Or do you have any strategic plans otherwise? And secondly, the government is pressuring the loan interest rate drop on the card loans.
So how is that under -- proceeding, and how will that impact your bottom line?
Woong-Won Yoon
Yes, thank you for your 2 questions. First of all, I believe that our growth target is to grow in line with the GDP growth rate.
If I may actually break it down to different business lines, we are looking at the corporate customer portfolio. And to enhance the portfolio, we are continuing to identify low-risk SMEs or SOHOs, and such strategy will persist going forward as well.
Now on the retail side, as you have pointed out, we have been focusing on increasing the home equity loans. And if we continue to do that, it could further compress our NIM.
Now when it comes to general loans extended to retail customers, in other words, those unsecured loans, we have certain high-quality target groups who are professionals with high salaries, et cetera. We are targeting those high-quality customer segments so that we could further cross-sell, and we are planning to continue strengthening marketing efforts on those high-quality retail customers as well so that we could also increase high-quality, low-risk retail unsecured loans.
So such efforts, I think, will continue as the basic direction in the future as well. And secondly, you asked about the card loan-related pressure on the interest rate.
To answer that question, regarding the interest rate structure improvement, the government is running a task force team to study this topic. So I believe that our financial group is also coming out with plans to further reduce rates, as well, according to the government policies.
But we haven't decided to which degree we will lower it. But if you look at the current balance we have, when it comes to credit card loans and cash advance, we have outstanding balance around KRW 4 trillion.
In other words, if we lower the rates by 10 basis points, it would be about KRW 4 billion per year. But I think that the actual number that is reduced will be much lower than that.
So again, there has been no decision made to date as to what kind of interest rate adjustment will be made on our loans. And so I think that you could simply apply the reduction basis points to our outstanding balance to come up with the impact.
Kyu Sul Choi
Mr. Seok Kyu Hwang from Kyobo Securities.
Seok Kyu Hwang - Kyobo Securities Co., Ltd., Research Division
I'm Seok Kyu Hwang from Kyobo Securities. I would like to ask 2 questions.
First has to do with your NPL ratio. In order to defend your NPL ratio, you've mentioned that on the collective loan side, you have conducted some write-off.
But still I believe that NPL ratio was on par with your second quarter number. I think that in the Q4, I believe that you are faced with a situation where we would have to lower the NPL ratio.
But if you need to continue to write off the collective loan, I think this will have impact on the provisioning side. So my question is, these NPLs that's been written-off, could they be written back at a future date?
Is there the possibility? And at the end of the rate, what should be your NPL target?
And lastly, I'm sure that you're in the process of coming up with your business plan in terms of growth and NIM objective for 2014. Could you shed some light and provide some color?
Because for next year, in terms of GDP growth and inflation rate, we think that it's going to be higher than this year. So I think growth-wise, next year will be a little more favorable than this year.
So what is your take on this?
Woong-Won Yoon
First of all, let me address the question about the year-end NPL ratio. We believe that compared to last year, our target, we expect, will be a little higher than last year's figure.
And the basis for me saying this is that, as I explained in the second quarter, the supervisory authorities, as you know, with the reclassification of the companies who've entered into voluntary program, there's reclassification and the impact is about 30 basis points, so that has to be catered into our NPL ratio. And our current NPL ratio is 1.92%, and we need to lower that to the target level.
And if you do the calculation, we have about 27 basis points that we need to cut. Last year, in this fourth quarter, our NPL ratio, as you know, compared to the end of September, we were able to cut 39 basis points.
So compared to what we did last year, it's only about 2/3 of what we had already done the previous year, so it's not overly or excessively burdensome. And as I said, in Q3, we've written off KRW 90 billion of collective loans.
So if you consider all those factors, I believe that there is no difficulty in us attaining the NPL target ratio. And there will not be -- well, there will be very minimal additional provisioning that would arise from this process.
So in Q4, in terms of asset quality, we can amply manage this, so within the scope and the plan that we have. Your question relating to the business plan for 2014, yes, it is currently underway, and we don't have any finalized figures to share with you at this point.
But basically, in terms of growth, our basic stance is that, for the retail -- because this is a retail-focused growth, I believe that the economic growth rate, GDP growth rate has to be considered, but we also need to look at the housing market, the household debt-related issues, so these factors all have to be reflected in our business plan. In terms of the corporate side, currently, our target for improving the soundness of our portfolio, that has to be the priority in whatever plan that we come up with.
So I guess in a nutshell, on the retail side, household side, other than the economic growth rate, we will look into the household debt and the consumption-related aspect. For the corporate side, we will look at the internal improvement of the portfolio so that we will have good quality SMEs that will be the main pillar of our growth, so that is always on our priority.
In terms of the margin, as I've previously mentioned couple of times, basically, next year, yes, we believe growth is important, but we also believe that NIM management is as important. And as I said previously, in terms of our pricing strategy and product strategies and improvement of our relationship with the customers and really increasing our sales and marketing capabilities, those aspects will all be factored in so that next year, I believe that we can really start to expect some upward trend.
In terms of specific numbers as to the targets, it's not finalized yet for us to share with you. But basically, I believe that Q4 will be a turning point.
So on a recurring basis, I think come next year, we will be on a trend upward.
Kyu Sul Choi
Next question, please? Mr.
Ha [ph].
Unknown Analyst
I'm from ETRADE Securities, my mane is Ha. Next year, I believe that you have a lot of the maturing high-interest rate loans, and how would that impact your NIM?
Second question, I think that your G&A on a cumulative basis, on a year-on-year basis, it has come down, but would that mean that in the fourth quarter, it would actually come back to you as a burden? And another question, even if you consider the sales gain on marketable securities, I think that your noninterest side of the business results is quite sound.
So any other one-off factors?
Woong-Won Yoon
Excuse me, Mr. Ha, we didn't get to quite hear the second question.
Could you repeat the second question, please?
Unknown Analyst
Yes, I think -- I was talking about G&A. The cumulative G&A up to September has actually come down on a year-on-year basis.
Now especially, the Q3 G&A has come down quite a bit. So it was a reduction on a cumulative basis and also on a quarterly basis.
So the drop was quite sizable. So I was wondering whether the G&A expenses, some of that would actually carry forward to the fourth quarter.
Woong-Won Yoon
Yes, I believe that you had 3 parts to your questions. First of all, next year, you were talking about the redemption of the high legacy rate debt.
Now one thing that I could tell you is that, as we transferred to become a holding company, we had issued about KRW 4 trillion worth of subordinated debt, which is coming due. And secondly, when it comes to the economic crisis, we had issued some covered bond in the amount of about USD 1.2 billion.
And again, that maturity is coming due next year as well. So on those 2 particular issuances, next year, we do expect some refinancing or rollover.
And secondly, regarding the G&A, and you talked about the quarterly volatility, let me try to explain about that. Of course, we had some one-off factors.
For instance, during Q2, we had some one-off situations, so in the third quarter, because of the high base effect, it seems like it has come down quite a bit. And rather than calling it deferring to the fourth quarter, but I think that it was because of the high base effect in Q2 that you saw a bigger drop in Q3.
Now as for the fourth quarter, typically speaking, when companies come up with business plans on a quarterly basis, you could experience some deferral effect of some of the executions. So usually, the fourth quarter G&A tends to go up slightly because of the finishing off of the business plan for that particular year.
So in that sense, we always have a likelihood of a slight increase of the G&A during the last quarter. But it won't be anything very sizable.
I don't think that it will be anything remarkable, so it will be quite minimal. Thirdly, regarding the marketable securities, you were asking whether we had any other one-off factors.
I already spoke about the major one-off factors already. Aside from what I had already mentioned, I think that the interest rate changes are affecting AFS or trading securities.
So to a certain degree, we could experience some gains and losses. And during the third quarter, in that regard, additionally, we have generated some additional gains.
So that was one of the factors that I could share with you.
Unknown Executive
In terms of the high-rated debt, the reason why we can't tell you about the exact impact on the margin improvement is because we don't know what type in the portfolio is going to be redeemed or -- so in terms -- that's why he was only able to share with you the absolute size of the high-rated debt. We don't have any more people waiting to ask questions, but we will wait for a couple of minutes.
Kyu Sul Choi
Thank you. Since we have no further questions and because we had quite a few questions already, I believe that we could wrap up.
So with that, we will now conclude the earnings conference of KB Financial Group for Q3 2013. The presentation and VOD of this conference will be available for access anytime on the IR webpage of KBFG.
Also, if you have more questions, please contact our IR Department. We will do our best to address your questions.
Thank you once again for your participation today. Thank you very much.