Shinhan Financial Group Co Ltd

Recording in progress. Group CSSO Ko Seok-hyun, Group CMO Heo Young-taek, Group CRO Bang Dong-kwon, Shinhan Bank CFO Jeong Sang-hyuk,

Shinhan Card CFO Moon Dong-kwon and Shinhan Investment CFO Kim Sung-won here with us. We will first hear about the 2021 yearly business results presentation highlights from Group CFO Lee Tae-kyung and then Group CTO Kim Young-woo will also deliver results and then we will have a Q&A session. I will invite Group CFO Lee Tae-kyung who will deliver 2021 full year business results presentation. Greetings. I am CFO Lee Tae-kyung in charge of Group Finance from this year. First of all, I would like to express my gratitude to everyone who is participating in our 2021 Business Results presentation despite your busy schedules. Along with the global spread of Omicron among pressures for global interest rate hike, there's still very high uncertainty including concerns over inflation and global supply chain vulnerabilities. In this situation, we have been strengthening our basic fundamentals and securing our future new growth engines and striving to continually increase our shareholder profitability rate. Now, let's go to page 4 of our business results presentation, Group Business Results Highlights, and I will cover the 2021 business highlights. In 2021, Shunan posted 4 trillion 19.3 billion won of net income, a record high level since we were first established, and the earning level has been on the rise for eight consecutive years. Excluding non-recurring items which occurred in 2021, including 173.4 billion won of increase in ERP costs and 467.6 billion won of investment product-related losses, recurring level net income posted a 4 trillion 500 billion won level. Interest income along with SME-centered loan asset growth and banks' quarterly margin improving by 4 bips grew 898.4 billion won. In non-interest income as well, non-banking securities and fee income improved and drove our earnings growth. CRF posted 45.3%, which may seem to have slightly risen YOY, but excluding ERP effect, C.I.R. posted 43.1%, a 1.3 percentage point improvement YOY. Lastly, despite the additional provisioning preparing for uncertain economic outlook and termination of COVID-19 forbearance programs, our credit cost ratio C.C.R. posted 27 BIPs, a 14 BIP improvement YOY, and is in a downward stabilization trend. From the next page, I would like to elaborate on the current status of investment product losses, which was pointed out to be a factor of uncertainty for our group. Until 2020, according to our conflict settlement process, we recognized expenses which was limited to the investment products which could be recognized as expenses. However, from 2021 latter half, In order for customer confidence recovery and removal of uncertainties regarding losses, we actively implemented private reconciliation. Accordingly, constructive obligation occurred and it became possible to reasonably recognize costs, and the maximum amount of losses was assumed according to the accounting standard in 2021. 467.6 billion won of investment product losses was recognized as non-operating expenses and minimized uncertainty going forward. However, there are parts where losses could not be recognized according to accounting standard as of late last year, and we expect that there could be after-tax 90 billion won to a maximum of 200 billion won of losses that can occur during the next two to three years. However, we improved all processes from product sourcing to sales so that such incidents do not occur again. Next, I would like to explain in more detail regarding net interest income. Group interest income posted 9,553.5 billion won, 898.4 billion won, increasing 11.0% growth. This was driven by the bank's margin quarterly for BIP improvement and growth in bank loans, 9% growth, focusing on SME loans. And I would like to explain about the group non-interest income on page seven. Group non-interest income posted 3,638.1 billion won, A 7.7% increase YOY. However, excluding insurance-related non-interest income centering on non-banking, it increased 19.7% YOY. Fee income increased 292.1 billion won, a 12.3% increase. And when you look at the details in the table below, you can see that there was an increase of trust fee income on the back of Asia Trust Trust Income and Bank ERP Pension Trust Balance Growth. as well as a sizable increase in FX fee income, investment banking, and lease financing fees. Securities and FX derivative income posted 289.5 billion won, a 25% growth, and this was on the back of good performance in securities transaction gains and financial investment self-trading. I would like to explain in more detail regarding expenses from page 8. 2021 GNA posted 5,754.3 billion won, A 10.2% increase YOY. Including the sizeable ERP expense of 268.1 billion won in the previous year, GNA growth rate boosted 7%. The high growth rate compared to average years was due to group digital platform and new business-related advertisement and promotion expense increase. The strategic expenses which were saved through digital transformation is being utilized in new businesses including activation of digital platforms. As aforementioned, the CIR excluding ERP expenses posted 43.1%, a 1.3 percentage point improvement YOY. On the other hand, group provisioning on the back of the fading of the 2020 COVID-related additional provisioning due to the underlying effect decreased 394.2 billion won, a 28.3% drop YOY. Despite the 187.9 billion won of additional provisioning preparing for uncertain economic situation including the spread of Omicron and the termination of COVID-19 financial forbearance programs, the credit cost ratio posted 27 bps, showing stabilization. Delinquency rate, which can be seen as a leading indicator of credit cost as you can see on the table on the right, is showing downward stabilization for both bank and card. Next is page 9, capital and major income indicators. CT1 ratio is 13.0%, a 13 BP improvement YTD. CT1 ratio based on the standard before the adoption of revised Battle 3 credit risk is forecast to be 11.8%. On the other hand, with the profit expansion in businesses with high ROE, including capital and asset management, Group ROE improved by 0.8% points YOY. Please refer to the graph. In the lower right side of the slide for our CET movement in 2021, we plan to continuously improve capital adequacy and profitability including establishing core earnings basis and solid net income growth. The Group's common share year end dividend for the fiscal year of 2021 was resolved at the BOC to be 1,400 won per share and including the quarterly dividend in the previous year It is 1,961 and the common share dividend payout ratio puts it 25.2% and the total dividend payout ratio including preferred share is 26%. We will strive forward to continuously improve shareholder value including making equal payout for quarterly dividends and make them routine. Next is page 10, results for different businesses.

For the Group's 2021 net profit, the non-bank contribution is approximately 42%. Within the non-banking sector, the profit contribution of the capital market sector, including Shinhan Capital and Investment, expanded to 40%, confirming the diversified business portfolio despite the uncertain business environment. For the digital strategy on the next pages 11 and 12, I'd like to invite the new CDO in charge of the group's digital strategy, Vice President Kim Myung-hee. Hello, I am Kim Myung-hee, as was introduced. I will talk about the group's digital strategy. In 2021, the group has continued its efforts to improve customer experience and provide services close to life on the digital platform, which is a customer contact channel. As a result, MAU of Bank Seoul and Card Play grew 25% and 28%, respectively, YOY, recording the highest growth rate in the industry. In particular, Bank conducted various gamification-based marketing with KBO Metaverse Baseball Field and Nexon Cart Rider for the MZ generation and is currently promoting the establishment of Hae Young Smart Campus through an agreement with a university. In October last year, Shinhan Card newly launched Play, which converges various life services with the existing pay-oriented service. and recently introduced services that apply new technologies such as MyNFT. In addition, Shinhan Bank and Card are promoting their business in earnest this year as they acquired the MyData business license last year, and Shinhan Investment and Life are preparing to acquire the license. Each subsidiary plans to provide differentiated services by integrating data into their main businesses such as banking, payment, investment and healthcare. In addition, we plan to enhance customer value through bold attempts in non-financial as well as financial areas such as HowFit, an AI motion recognition-based home training platform, and Denggyoyo, the first delivery app launched by a financial company. For detailed digital coverage and cost savings from digital channels, please refer to the document. Next page. The group is also actively pursuing investment and alliances with digital new technology companies. Last year, we created a 300 billion won digital strategic investment fund, a first for a domestic financial company, and invested 173 billion won in 11 companies, expanding our efforts to improve customer contact points, capture future markets early, and secure new technologies. In addition, we are expanding the ecosystem of win-win growth with startups through Shinhan Futures Lab, the first accelerator launched in the financial sector. In the Baby Unicorn 200 fostering project hosted by the Ministry of SMEs and Startups, 10 companies, the largest number in the financial sector, were selected, and their expertise was recognized, playing a pivotal role in accelerating the group's DT. In addition, we are strengthening cooperation for future businesses through strategic partnerships with other industries such as FinTech and ICT. Recently, we signed a digital alliance with KT in the form of a share swap of 440 billion won. The two companies plan to jointly advance to a digital company that goes beyond finance and telecommunication in fields such as AI, metaverse, and NFT. The group declared a new vision of how finance should be more friendly, more secure, more creative, which is consistent with the group's vision.