Shinhan Financial Group Co Ltd

Good morning. I am Park Cheol Woo, head of IR. We are conducting today's earnings presentation through our digital platform, the Leveraging Shinhan Financial Group IR YouTube channel and the Zoom app. As we have announced last quarter, at the newly opened Shinhan Financial Group IR YouTube channel, those of you who have missed the live streaming today will be able to find the updated Korean and English presentations. So please subscribe to our channel. Before starting today's earnings presentation, a brief explanation on how to log in. The YouTube live channel will enable the participants to watch the Korean presentation, and if you have questions, please log on to the Zoom app. Also, the YouTube live channel will only stream the Korean presentation, so if you want to listen to English, log on to Zoom and click English for the translation. For more details, please refer to our homepage, www.shinangroup.com. Now, we will begin the 2022 Q3 earnings presentation of Fashion and Financial Group. In today's presentation, we have with us our main presenter, CFO, Lee Tae-kyung of the group, and the group CMO, Ho Young-tae, the group CRO, Bang Dong-kwon, the group CDO, Kim Myung-hee, the group CSSO, Ko Seok-hun, From Shinhan Bank, CFO Jeong Sang-hyuk, Shinhan Card, CFO Moon Dong-kwon, Shinhan Financial Investment, CFO Geum Sung-won, and finally, Shinhan Life CFO Park Kyung-hwan. In order to provide detailed answers to our investors' questions, we would like to give the opportunity to as many people as possible to ask questions. Today, we will first invite CFO Lee Tae-kyung for the business results of Q3 2022 and then CRO Bang Dong-geun will speak on the group's risk management and the achievement of the digital sector will be presented by CDO Kim Myung-hee and then we'll proceed to a Q&A. And now we will invite CFO Lee Tae-kyung for the earnings presentation of Q3 2022. Good morning. I am Lee Tae-kyung, the CFO of Shinhan Financial Group. First of all, I'd like to thank everyone for taking part in the earnings presentation for Q3 of 2022, despite your busy schedules. I'd like to walk you through the highlights of this quarter on page 4, and then go into the details of the business results for Q3 of the group. Page 4. In Q3 of 2022, the Group's cumulative net income posted 4,315.4 billion won, posting solid results despite the deteriorating external environment. In Q3 alone, net income came to 1,594.6 billion won, and ordinary net income, excluding the gains from the sale of the office building of Shinan Investment Securities, posted 1,272.8 billion won. Thus, we were able to defend a stable net income by offsetting the sluggish performance of the non-interest income segment through the growth in interest income and decline in provisioning. In Q3, the cumulative cost-income ratio, CIA, upwards to 40.1%, and despite the increase in digital-related costs, the SG&E was managed at a stable level. The Group's Q3 credit cost ratio was 20 million BIPs maintained at a stable level, and going forward, we plan to maintain our conservative provisioning policy. Finally, the Group's capital policy, The per share dividend in Q3 was $401, and this was decided at the BOG meeting held on Oct. 6, along with the Treasury stock buyback and the cancellation of an additional $150.1 billion. As has been noted last time, we will continue to make an effort to enhance shareholder value through gradual improvement of shareholder return ratio while maintaining an appropriate capital ratio. On page 5, please refer to the key business results of the Group as a whole during the third quarter. So please refer to it. And starting from page 6, I will now explain about the detailed performance of the group. Page 6, the group's interest income. In Q3 of 2022, the group's interest income posted 2 trillion and 716 billion won, up 2.7% QOQ. Interest-bearing assets grew 2.3% QOQ, and this is due to the improvement in the bank NIMS. In Q3, the bank's NIN posted 1.68%, up 5% with QQ. But compared to Q2, the pace of growth of the bank's NIN has slowed down. This is due to the rise in the funding cost owing to the repricing of the deposit interest rate, outflow of low-cost deposits, and growth in time deposits. Now, on the subject of the bank's loan in Korean Won, which is of great interest to you, for your reference, more details can be found on page 29. The loan growth of the bank grew only 0.7% in Q3 owing to the continued decline in retail loans despite the solid growth in corporate loans. Segment-wise, the corporate loans grew 2.5% QOQ due to an increase in demand for loans from large companies and audited companies, which resulted from the liquidity crunch in the corporate bond market. On the other hand, the retail loans were down 1.3% QOQ, impacted by strengthened DSR regulations and declining demand from rapid interest rate hikes. On page 7, we have attached the Shunan Bank's margin funding and lending status for your reference. Next on page 8, the group's non-interest income. The group's non-interest income was down 28.8% QOQ due to declining fee income from the weak capital and real estate PF market as well as the declining gains on AFSA securities and the FX derivatives arising from the growing market volatility. The fee income is down 16.1% QOQ and the decline owes itself to the falling credit card fee income on the back of merchant fee Refund and growth indices no promotional expense despite the solid growth of the credit purchase absence of investment banking fees related to IPO and the real estate big deal that occurred in the first half and the contraction of brokerage commissions. Ains related to AFS Securities was down 22.9% QQ driven by the growing volatility in the securities market and rising interest rates despite efforts to defend against losses as for investment portfolio adjustment and duration management. Next on page 9, the group's SG&A and credit cost. The SG&A increased slightly over the previous quarter, but excluding the expenses related to Shinan Life HR integration that occurred in Q3, it is maintained stably at the Q2 level. The group's CIR grew 1.1 percentage point over Q2, driven by the fall in operating profit, but was up 1.4 percentage point, YOY posting 40.1%. In Q3, provisions for credit losses was managed at a stable level, boosting 250.6 billion won and is up when excluding the 224.5 billion won of counter-cyclical provisioning. As economic uncertainties grow to address potential credit risk, we intend to continue our conservative provisioning policy. If we look at the delinquency rate, which can be taken as a leading indicator of credit cost, in the case of the bank, it is maintained at 0.20% of 1 BIPs QOQ. In the case of the card business, it is down 6 BIPs QOQ. But when excluding the 7 BIPs increase owing to one-off factors like the bank, the card business also posted 0.86% up 1 BIPs QOQ. Please refer to page 10 for issues related to our pre-emptive preparations made to address future uncertainties. For greater details on the Group's asset quality management, please refer to page 11. Next, on page 12, Capital Management and Profitability. As of the end of September, the C2-1 ratio is expected to pose 12.7%, similar to last quarter. Next, on page 13, the Group's Income by Subsidiaries. Despite the weak non-interest income, net income increased, and the bank QOQ thanks to the interest income growth led by NIM improvement and lower provisioning costs. In the case of non-banking subsidiaries, NAM cards recurring net income decreased somewhat despite the growth in credit purchases and operating asset increase driven by business diversification efforts due to rapid hikes in funding costs and the merchant fee cuts. Sinan Securities net income decreased or into a fall in brokerage fees reflecting slow market trading activities and valuation losses and securities on the back of higher interest rates. Sina Life Insurance Profit remains solid, although investment profit decreased due to HR integration costs and the decline in gains from disposal of AFIS securities. Sina Capital Net Income decreased QOQ reflecting valuation losses in IB-related securities on the back of rising interest rates and the increase of provisioning related to real estate-related PF. In addition, in the case of capital market-related subsidiaries, namely Shinan Asset Management and Shinan Asset Trust, the net income declined QQ due to the recent interest rate hikes and growing volatility in the market. For details related to the group's global business, please refer to page 14. As there are heightened interest by our investors for the current state of our risk management owing to growing uncertainties for the future, we have added supplementary slides to explain about our pre-emptive risk management measures. Next, on page 15, our CRO, Bang Dong-kwon, will walk you through our pre-emptive risk management status.

Hello, I'm the Group CRO, Bang Dong-kwon. I would like to talk about the risk side of the group. Uncertainties in the domestic and foreign financial markets are increasing due to the recent tightening monetary policies and the strong dollar. And if the contraction of the real economy intensifies going forward, then the potential risk factors may manifest. In this regard, I would like to address Shinhan Financial Group's risk management system and current status regarding soundness, liquidity, and capital adequacy, which are the main concerns. First, about Shinhan's current status and countermeasures in preparation for possible deterioration of asset quality due to the rapid rise in the market interest rates and the impact of the economic recession. The graph on the left shows the trend of the loan ratio of the potentially vulnerable segments selected by the group on the basis of various risk factors such as income debt level and credit rating. We're maintaining a stable proportion of vulnerable segments by refining the screening strategy for potentially vulnerable segments and strengthening credit line management to support the soft landing of potentially vulnerable borrowers. Various internal programs such as temporary liquidity shortage support for borrowers are being prepared to minimize the system risks. Second, liquidity management amidst the recent strong dollar and the tight funding market. The graph in the center shows our group has maintained a stable liquidity ratio that far exceeds the regulatory standards through a preemptive and conservative liquidity policy. In addition, to withstand the worst stressful situations, we have expanded our FX liquidity funds, and we have prepared an emergency funding plan to regularly check its availability. Lastly, to strengthen efficient capital adequacy management, we are strengthening portfolio rebalancing and management in consideration of asset sector risk return profile. The risk rate level is maintained stably despite the recent sharp rise in the exchange rate through asset management by sector mindful of the risk rate and the expansion of the RWA budget system. In addition, the stress test results show that the capital ratio exceeds the regulatory requirements as can be seen from the table on the right. We will continue to strengthen the group-wide crisis management system to maintain a stable capital ratio even in the face of a financial crisis and take preemptive measures for sectors at issue. Hello, I am Kim Myung Hee, the Group's CDO. I would like to go over the Q3 results based on the Group's digital strategy. We're seeing continuous creation of quantitative and qualitative results centering on the six customer values. Along with the quantitative growth of the platform, its financial contribution is growing. In addition, we are actively fulfilling our social responsibilities by continuing our efforts to ensure the safe financial life of our customers and to overcome the digital divide. By utilizing core technology, business experience is accumulated and process automation is expanded. We'll explain the main achievements for each key index on the right. First, MoreFriendly, which is easier and convenient financing. The group's digital platform, MAU, has surpassed 21 million, which is an increase of 4.01 million YOY. Shinhan's two mega platforms, BankSoul and CardPlay, continue to show solid growth, where the Life platform has nearly doubled the number of monthly users, YTD. Thanks to Shinhan's MyData service, chosen by 6 million people, Shinhan's platform is developing into a platform where customers frequently visit and stay on for a long time. Second, more secure. There are 6 million Shinhan Sign users benefiting from secure mobile financial transactions. And as a result of stronger monitoring activities against foreswishing and fraudulent payment using the latest AI technology, we were able to prevent fraud-induced loss of 38 billion won by Q3 this year. and moving on to more creative the profit from the new digital business has increased to more than 30 billion won among them the data business income exceeded 10 billion won and life platform garnered more than 20 billion won in new business after the stabilization of the pandemic the investment system to expand the global ecosystem has been strengthened along with the creation of a global SI fund worth 200 billion won we also Reorganized the global base of startups. Please refer to the materials for Data Process Technology and People on the next page about the platform growth and business strategy in more detail. The group's financial and non-financial platforms grew 33.3% YOY. As a result of continuous improvement of ease of use and core functions of the financial platform, the number of customers and sales of financial products is increasing. Sales opportunities using digital are steadily expanding, and efficiency is also continuously increasing. The growth of the lifestyle platform closely related to finance has translated to securing non-financial traffic and transactions. This led to an increase in sales from new businesses. We will continue with our digital strategy. Thank you. Both CDO and CRO, page 18 and onward, there are detailed explanations of sustainable management activities and major indices for group and subsidiaries. With this, we would like to conclude the presentation and move on to Q&A. Thank you. Thank you. We will take questions from you. If you have a question, please use the raise hand icon from your Zoom screen. And the same goes for people who want to ask in English. English questions will be interpreted consecutively, which will take time. So after asking your question in English, please wait while it is translated into Korean. We'll take the first question. From BNK, please go ahead.

Thank you very much for the good results. Can you hear me well? Yes, we can hear you well. I have two questions with regards to preemptive risk management. After Q2, there has been steep interest rate rises and there has been big impact on the bond and stock markets. And starting from fourth quarter, I think there will be more concerns about the real estate PF market. What is the PF status and what is your future strategies for this segment? And second question has to do with ESG. Making preparations for ESG is important, and financial companies, I believe, are well prepared for ESG. However, because of the war this year, the fossil fuel cost has increased, and because of Economic uncertainties, a lot of burden is imposed on the corporate sector. And so the pace of progress in ESG, I believe, will slow down. So with regards to ESG going forward, Shina Financial Group, what is your strategy? We have experts here. And so with regards to issues about the pace of progress of years to slowing down, what would be your view, the expert view on this? Thank you very much, Mr. Kim. So while we are preparing an answer to your question, please wait for a few minutes. Thank you.