Shinhan Financial Group Co Ltd

Thank you everyone for taking part in 2021 Q1 business results presentation. I will cover the 2021 quarters business highlights from page five to six and explain about the details regarding our group's Q1 business results. Let's go to page five. 2021 Q1 nominal net income posted, 1,191.9 billion won and the size of our recurring income considering one-offs recorded approximately 1 trillion 230 billion won level and recorded the highest level ever since we were first established. What is more meaningful than the highest ever quarterly earnings is that this was not just due to one-offs but Young-Taeg Heo, Dong-ki Jang, Keun Soo Jung Young-Dong Kim, Young-Dong Kim, Young-Dong Kim, Young-Dong Kim On April 19th, the Dispute Settlement Committee determined the compensation rate regarding Lime CI Fund sold by Shinhan Bank, and on a pre-tax basis, 62.6 billion won of compensation expenses related to investment products, including Lime CI Fund, was recognized as non-operating expenses. And with this, the ongoing Dispute Settlement Committee has all been concluded, and it's As mentioned in the previous Q4 conference call, there is a very low possibility that we will need to additionally recognize a large amount of related investment products, a large amount of expenses related to investment products at once. In addition, through our preemptive asset quality management last year, the size of provisioning this year's internal card decreased by 34% YOY. COVID-19 Financial Support Program, which has been extended three times due to continuing COVID-19, has been slowing down in 2021. And last point I want to emphasize is shareholder return. Based on our fundamentals, which has been leveled up, our capital ratio and double leverage ratio is becoming more solid. As we had promised, we will utilize this for qualitative growth and diversified aggressive shareholder return. In particular, Article of Incorporation Amendment was completed at the Ordinary Shareholders Meeting in March so that we can allow quarterly dividends from this year. And going forward, we have the environment to execute more diverse shareholder return policies. Let's go to page six. From page six, I will explain about our mid- to long-term strategic direction. From 2017, centering on four tasks, which are harmonious growth, globalization, upgrade to digital Shinhan, and creative inheritance of Shinhan culture was set. and we set the strategic direction of the SMART or SMART project and have successfully executed them in 2020. We expanded SMART of 2017 and established FRESH or Fresh 2020 to make a long-term strategic direction. Financial target is to become the local top in terms of customer investment return and from a shareholder value improvement perspective, we have the goal of overall 10% ROE, Expand and Continue Shareholder Return Policy, and emphasize non-bank and non-interest and matrix-focused growth. As our four strategic initiatives, we chose pursuit of efficient growth, global connection and expansion, innovation opening for digital transformation, and ESG for sustainable management and performance generation. We have selected core KPIs for each initiative and continuously are managing it. The consistent strategic direction that we have pursued for the last four years is gaining visibility as Q1 performance. From page 8, I will cover Q1 financial performance details. As aforementioned, with consistent strategic execution, diversified earnings was realized and realized record high-quality earnings. From 2013, the profit size has been continuously increasing. MIM has been improving and corporate and household financial support expansion has been continuing leading to core interest income increase. The group's non-interest income grew 40% YOY and contributed to the high growth of our income. In particular, what was noteworthy was solid profit growth of card and capital and securities income also greatly improved. Thank you for watching! Young-Taeg Heo, Dong-ki Jang, Keun Soo Jung, Ok-Dong Jin, Cheol Woo Park, Jung Kee Min Young-Taeg Heo, Dong-ki Jang, Keun Soo Jung, Ok-Dong Jin, Cheol Woo Park, Jung Kee Min This is the first margin turnaround since Q3 of 2018. With the bank's time deposit repricing taking place in earnest, demand deposits grew 16.6% YTD, and from October of the previous year, at the lowest point, our monthly NIM is rebounding. With the Q1 margin improvement through maintaining and managing appropriate growth, we will make sure to continue solid growth rate of core interest income. Let's go to page 10. It's group non-interest income. 2021 Q1 group non-interest income posted 1 trillion, 30.8 billion won, and grew 40.4% YOY. There was even income growth for all non-banking subsidiaries and non-banking major subsidiaries, including card and capital, greatly contributed to our earnings improvement. In particular, the securities sector, where profits decreased last year due to investment products And the securities net income increased 260% YOY.

Matrix Business also witnessed significant growth thanks to face income increase from collaboration among the group companies in such a business as solar power business in Japan and REITs. Further details will be provided later on page 14. On page 11, Group G&A Cost and Credit Cost. In Q1, G&A costs increased 6.8% YOY. The group's CIR at 40.6% was at its lowest in a decade. It was possible to secure investment for digital innovation thanks to low CIR. We are confident that we will effectively manage the costs thanks to continued operational efficiency. The groups of provisioning for credit loss declined by 33.6% YOY. Credit card provisioning declined by 59.7 billion won due to drop in two-month delinquency roll rate. It was possible to reduce the credit cost to 22 BP as the need for additional provisioning declined thanks to proactive asset quality management. Looking at the bank and cards, delinquency ratios, which serve as a leading indicator for credit costs, both ratios are lower than the same period last year, with no signs of asset quality deterioration due to COVID-19. However, thorough and careful risk management is more important now than ever, as COVID-19 support programs are still ongoing and economic uncertainties persist. We will prepare for uncertainties with an early warning system based on big data and checking COVID-19 recovery speed of each industry. Now on page 12, the group's CET1 ratio is 13.0% and is However, 11.9% when calculated according to the previous criteria before the introduction of BDR3 credit risk revision in September of 2020. Two-digit ROE of 11.2% was possible thanks to record high quarterly profits. Continuous efforts will be made to improve the earning capabilities of the assets and the capital. Capital ratio movement will be explained on the next page. The Group's CET-1 ratio as of March 2021 was 11.9% according to the previous criteria and 13% according to the new one. As mentioned before, due to earlier introduction of parts of Basel III and resulting temporary improvement of 110bp, CET-1 ratio is conservatively managed according to the prior criteria. Compared to the end of 2020, CET-1 ratio improved by 10bp as a result of 46bp increase from net income and 30 BP decrease from RWA. RWA increase and others were strictly managed so that the shareholder return policies can be implemented as planned. Page 14, as for operating income for matrix organizations, GIB saw 19.6%, GMS 61.2%, WM 8.7%, and Global Business 6.8% growth, YOY, showing continued operating income diversification at the group level. In particular, it was possible to realize profits from sale of Japanese solar PS shares by arranging a syndicate loan through collaboration amongst Sinan Banks, Sinan Asset Management and SBCJ on the group's collaboration platform. On the following page, digital transformations and contributions are explained. On page 15, amidst accelerated digital transformation, in March of 2021, Shinhan has become the first financial institution in Korea to create a 300 billion won strategic investment fund for digital business with investment from bank, card investment, and life insurance companies of Shinhan. We will establish a broad portfolio composed of AI, blockchain, cloud data, and healthcare startups as well as non-financial content platform companies going beyond the existing industrial boundaries. We have also launched ShinhanPay to respond to the big tech, fintech trends. We hope to become the leader in the simple, easy-to-use pay business by combining the bank's potential customer pool, its infrastructure, and car business's 2.7 million merchant network. Thanks to these efforts for innovation, in Q1, contribution by the digital activities to the group's income was 14.2%, which is on a sustained upward trend. Please refer to the presentation material for more details on digital coverage and revenue generation and cost reduction from the digital channels. Lastly, on page 16, there are results of our ESG activities, which Sinan is the leader among the Korean financial institutions. On this page are indices to measure specific loan investment and carbon goals included in the Zero Carbon Drive Declaration of last November. In the upcoming earnings release calls, we will share the results of our climate change related activities. Please take another look at innovative finance and inclusive finance results that have been updated and provided to you. For more detailed information on ESG activities, please refer to the ESG highlight, which includes TCFD and diversity report on the group's home page. For the group and the affiliate company's detailed earnings results and major business indicators, Please refer to the following pages. We are confident that under consistent strategic direction, we will be able to improve our capabilities to create income on a continuous basis. We ask for your continued support and interest. We are going to be holding earnings presentation calls earlier in the day from this year on. We hope that you will see this as an effort on our part to better communicate with the market. This concludes the earnings presentation and we will now begin our Q&A session. Thank you very much. We will now take your questions or comments. If you have a question, please press star and one button on your phone. You may ask your questions in the order of pressing the button. If you want to answer your question, please press star and two. And we provide consecutive interpretation for those who are asking questions in English. So please do wait a while while the consecutive interpretation is being provided. So let us wait a while before we receive the first question.

We will take the first question. From Hyundai Motor Securities, we have Mr. Kim Jin Sang on the line, sir. Please. Hello. Thank you very much for your good earnings. I have two questions. First, regarding your operating Income, it was very good. And the CIR is quite formidable. And looking at your G&A expenses, in Q2, I think there was an increase in employee-related costs, labor costs. And were there any bonuses that were seasonal or Other one-offs, and can you tell us about what is your forecast for the G&A increase for the year that you have in your plan? My second question is about your card business, which showed very good performance overall taking place. And was there any pressure for you to readjust emergencies maybe? So could you tell us about Your plans going forward and give us some guidance related to readjustment of the merchant fees. Thank you very much for your questions. I am the CFO. First, regarding the G&A question, I would like to explain regarding the increase of labor costs, it is true we had two factors that led to the rise. First is for investment. Since we had good market environment, there was some sales-related performance-linked pay that was given, about 20 billion Korean won, and there was the PS that went up as well because the stock market improved. So there was some PS-related expenses, which was about 35 billion Korean won, And those two led to the rise in labor expenses for the GNA. According to our financial plans, we believe that there will be a slight rise compared to the previous year. It's because, as you mentioned, our CIR ratio is quite low. And we believe that we don't need to artificially push it down very hard. And we have new businesses related to digital and others. Because we were able to offset the expenses, we believe that the CI ratio would probably slightly increase this year compared to the previous year. I am the CMO and thank you very much for your questions. Regarding the card, For online and department stores, we are seeing more credit card sales, and you can see that credit card related transactions have been going on steeply, and Shinhan Card is number one in the market, so I think that was a big influence. Regarding the credit card related fees, looking at The COGS, we are analyzing this and from next year we will apply this and there is the Federation so we will look at the different costs and what is happening in the market and we will, I believe, determine the fees for a credit card. So we believe that for this year we will not have an impact from our earnings because of the fees. Thank you very much.