Shinhan Financial Group Co Ltd

Greetings. I am Park Cheol Woo, head of IR. I would like to thank all the participants in our business results presentation and begin the Shinhan Financial Group 2020 first half earnings release. From Q1, we have been holding this website with only voice and without video to minimize the number of participants amidst the COVID situation. We ask for your understanding. We have here with us our CFO, Noh Yong-hoon, CSO Park Sung-hyun, CRO Bang Dong-kwon, and Head of the Finance Management Team Kim Tae-hyun. We will first hear the 2020 First Half Business Results Presentation by CFO Nu Yong-hoon and then engage in a Q&A session. I will now invite CFO Nu Yong-hoon to deliver the 2020 First Half Business Results Presentation. Greetings. I am Lo Yong-hoon, CFO of Shinhan Financial Group. Thank you for participating in the 2020 first half business results presentation. Amidst concerns over spread of COVID-19, it is still cautious to have confidence in economic recovery. Since it is hard to look into the future at this time in this situation, it is important to make efforts to minimize future uncertainties. Jin Han Financial Group in Q2 continued financial support to customers to overcome COVID-19 and actively responded to the economic downturn cycle through additional provisioning. In addition, we have been working hard to recover trust by taking preemptive actions regarding customer losses related to financial investment products including Lime and Heritage. It is evident that this is the most opaque business environment with many unusual factors. However, compared to Q1, with the stabilization effects of the financial market in Q2, recurring financial performance at business indicators improved. I will walk you through the related content from page 5 to page 8, and then elaborate on the group's first task performance. Let's go to page 5. I will explain about our response to the COVID-19 crisis. Keeping in step with the government's financial relief package for corporate and retail clients, we have been continuing our inclusive, compassionate financial policy so that prompt funding can be provided to our society and customers. Until July 3, we provided a cumulative $16.7 trillion won of support for SMEs. We not only extended new loans but have programs to extend maturity and defer principal repayment. Jinan Bank supported around 135,000 cases. On the other hand, Bank and Card additionally provisioned 180.6 billion won against COVID-19 to preemptively respond to the uncertainty in the COVID-19 crisis. With the change in the RCA value, adjusting future outlook data, including economic growth slowdown, bank and card additionally provisioned 115.5 billion won. In addition, there was 65.1 billion won of additional provisioning through identification and application of CCF valuations for vulnerable loans, including 4.1 billion won of COVID provisioning from capital and other subsidiaries A total of 184.7 billion won of provisioning from the group is reflected in Q2 performance. In the second half, we will also comprehensively monitor the financial market, real economy, and group assets, and continued efforts to minimize future uncertainty. We will protect our proprietary assets and customer assets, and also improve our capital efficiency through RWA management, leading to optimal growth. From page 6, I would like to explain about our digital platform sales expansion responding to COVID-19 crisis. After the COVID outbreak, the numbers of non-face-to-face channel customers wanting to utilize Shinhan's trusted and solid digital platform increased. In particular, the numbers of MyAsset users, our comprehensive asset management service, increased from 1.95 million in 2019 and to 4.17 million as of end June 2020. It was not only a simple lock-in effect, but we have been closely watching and monitoring user behavior so that we can expand the high-value added WM sales base. The operating profit through non-face-to-face channels compared to the previous year rose 26.6%, posting 830.6 billion won. Let's go to page 7. I will elaborate on a response to the financial investment products. Shin Han, regarding the financial investment products that were recently an issue, has considered the possibility of losses through sold products as well as reconciliation recommendations and we are pushing for preemptively compensation and liquidity supply to customers. The Financial Disputes Resolution Committee has not decided whether to accept the financial investment sales Line Fund recommendations, but we included this and posted it conservatively in the non-operating costs. For Heritage Trust, we also considered the expected collateral recovery amount and liquidity supply amount and provisioned accordingly. Accordingly, we reflected pre-tax $201.6 billion won in our financial statements to respond to the financial investment products in the first half of the year. We improved our product sales process so these types of incidents won't occur again, changed our KPI so that it is customer-centered, and have made so-called happy calls or follow-up calls after selling all products and have implemented early subscription rights. From page 8, there is a summary of first half and Q2 major financial overview for your reference. Next, I will cover Group's financial highlights from page 9. We maintained our strong recurring fundamentals in the first half of this year. Even after our active response system was implemented, including COVID-19 provisioning to resolve market uncertainties, we posted 1,805.5 billion won of net income. We had realized recurring income of around 1 trillion won through efforts to strengthen fundamental profitability. On the other hand, with expansion of COVID financial support, Banks loans and won through 5.5% YTD. Even under an interest rate cut regime, we guarded our margins from falling through active ALM management. In Q1, with the expansion of financial market volatility surpassing the volatility of the 2008 financial crisis, financial product losses increased, but in Q2, it greatly stabilized and the group's non-interest income went up 1.8% YOY. In the COVID crisis, through strategic cost management, SG&A increased 2.7% YOY. Group CIR posted 42.5%, a 0.1% point drop YOY, and is being managed within our financial business plan. As aforementioned, we provisioned to be prepared for the possibility of credit risk expansion following future economic downturn leading to a 50BP credit cost ratio in the first half of the year. However, excluding COVID provisioning as well as investment product related one-offs, it stands at 32BP, a 3BP drop YOY. All the subsidiaries in the group are closely monitoring asset quality. From page 10, I will explain about group's interest income in more detail.

In the first half, the group's interest income grew 3.1% YOY through both asset growth and proactive margin management. In the first half, the base rate was cut 75 pips, increasing the downward pressure on the NIM. However, due to proactive ALM measures amidst the low interest rate trend, we were able to contain the fall within 2 bps over the quarter. The bank's loans in one grew 5.5% YTD. By segment, household loans increased 3.1% and corporate loans 8.2% on an annualized basis. Loans for SMEs and self-employed in need of COVID-19 credit support increased, driving the overall loan growth. Large corporate loans had exceptionally grown because the companies were in need of liquidity. However, the monthly growth is trending downward as the market stabilized. In the second half, the group will do its best to maintain its fundamentals through risk-sensitive adequate growth and ALM measures. Next, the group's non-interest income on page 11. The group's non-interest income in the first half rose 1.8% YOY to 1,780,000,001. This is due to valuation gain on securities due to capital market stabilization and also due to increase in fee income. In the first half, the fee income increased 3.7% YOI to 1,129.3 billion won. With a significant increase in stock trading brokerage fee income increased 86.7% YOI. In Q2, consumption partially picked up, showing signs of recovery in the credit card fee income. The group's SG&A and credit costs on page 12. The first half SG&A is up 2.7% YOY. The group's CI ratio fell 0.1 percentage point YOY to 42.5%. There will be continuous effort made for strategic cost saving to prepare for the uncertainty in the second half. The group's credit cost ratio increased to 50 BIPs, which is inclusive of the one-offs, 11 BIPs for the COVID-19 provisioning and 8 BIPs for the heritage issue. If we were to take these out, the credit cost ratio would be 32 BIPs, 3 BIP decline YOY. The banks and cards delinquency ratios are being maintained at a stable level despite the pandemic. In case credit risk goes up when the COVID-19 support programs expire, we will implement continuous risk management. Next, on page 13, capital adequacy. Thanks to strong fundamentals and stable management of the cap on RWA, the group's CET1 ratio under Basel III posted 11.4%. 30 pips improvement from the end of last year. In May, with the completion of 150 billion won's worth of share buyback and cancellation, there was a 6-pip impact on the group's PIS ratio, but capital adequacy is being improved with stable recurring earnings power. In the first half, ROE and ROA each recorded 9.6% and 0.65%, Normalized ROE and ROA without the one-offs are at a similar level YOY. The subsidiary's income and business performance on the next page. In the first half, asset prices fell due to volatile capital market and the group had to set aside conservative provisioning against COVID-19, which impacted earnings in WM and global. However, thanks to CARD, Insurance Capital, and IEB's performance in Shinhan's diversified business portfolio, non-bank's net income weight increased to 38%. Going forward, we will continue to strengthen non-bank business so that we can enhance the fundamentals of the overall group's earnings base. More detailed explanation about the global business on the next page. The group's income from the global business was 152.7 billion won in the first half, down 14.7% YOY. Although income from major overseas networks, both interest and non-interest, were resilient, and recurring profits remained at a similar level YOY, we provisioned against COVID-19 conservatively for the global segment, complying not with the local standards, but according to the domestic standard. We will continue to manage profitability, liquidity, and soundness in each country under the pandemic. Next, ESG on page 16. ESG has become a relevant topic due to COVID-19. Under the challenging business environment, we're continuing with investment in and execution of eco-friendly, inclusive, and innovative finance. In the first half, total amount of green finance was $1,129.6 billion. New technology financing in the first half amounted to $10,838.5 billion won, and the cumulative innovative and inclusive financing in the first half amounts to $14,787.3 billion won. The remaining slides are for your reference, guiding you through major subsidiaries' performance and business indicators. So please read them for your reference. In the second half, we continue to face headwinds and we will not be expecting too much of the high results but we will do our best to minimize the uncertainties in the second half. We will work hard to building the fundamentals and based on the future growth engine, we will ride over the crisis and we will continue hard to enhance the value for the shareholders and for the society. With this, I'd like to conclude my presentation and we will be taking questions. Thank you. Thank you. We will now take questions. If you have a question, please press star and one on your phone and you will be given a chance to ask your question in the order that you press the numbers. And if you wish to cancel, please press star and 2. And if you have to ask in English, your questions will be translated into Korean, which will take some time because it is consecutive, so please wait. And there will be some latency when your question is connected, so please hold.

First question, Mr. Kim Jin-sang. from HBC. Please go ahead, sir. Hello.