Shinhan Financial Group Co Ltd

Good afternoon, everyone. This is Park Cheol-woo in charge of IR.

I thank everyone for joining us at this SFG 2023 Q3 earnings presentation. Today, I'm joined by the Group CFO, Lee Tae-kyung, the main presenter. Group CDO, Kim Young-hee, Group CSSO, Ko Seok-heon, Group CRO, Bang Dong-kwon, Sinan Bank CFO, Kim Ki-heung, Sinan Card CFO, Kim Nam-joon, Sinan Investment Security CFO, Lee Hee-dong, and Sinan Life CFO, Park Gyeon. We will first present the group's business results in Q3 2023, followed by the Q&A session. And now, I invite the CFO, Lee Tae-kyung, to present the group's business results in Q3 2023. Good afternoon. This is CFO Lee Tae-kyung of Shinhan Financial Group. Let me thank everyone for participating at our Q3 2023 earnings conference call despite your busy schedule. I will first go through our business highlights from page 5 of the slides. Page 5. We have maintained steady operating income through Q3 2023. Net income was 1.1921 trillion won down 46.2 billion QOQ. There was recognition of one-off costs such as investment-related provisioning in Xinhan Securities. Non-interest income fell from Q2 owing to decrease in securities-related income resulting from market volatility. but fee income is growing evenly across the different items. The group's cost-income ratio was 39.2%, slightly up YOY, but excluding ERP cost, it fell slightly. Provision for credit loss fell QOQ by 81.1 billion. Credit cost ratio was 50 BP, increasing YOY, but falling QOQ. Last, the group's board resolved on the 25th on 525-1 in dividend per share in Q3 and 100 billion-1 in share buyback and cancellation in Q4. It brings the group's total resolution on share buyback and cancellation to 500 billion-1 in 2023. Thank you. Looking ahead, we will continue with sustainable capital and shareholder return policy as we try to secure capital adequacy in response to changes in capital regulations. Page 6 is on the group's major business highlights, and page 7 shows the group's net income and income indicators provided for your information. Moving on to page 8 on the group's income breakdown. Page 8 on the group's interest income. Interest income in Q3 2023 was 2.7633 trillion won, up 2.6% QOQ. It is attributable to growth in interest-bearing assets and business days, despite the fall in the group's margin by 1 BP. In Q3, the bank's NIM was 1.63%, down 1 BP QOQ, due to loan growth primarily in high-quality assets and preemptive funding. The bank's loan assets grew 1.1% in Q3 following the 0.7% in the first half. Retail loan fell 2.5% from the end of last year owing to slowing demand for credit loan from tightening rates and DSR regulations as well as securitization of mortgages. Corporate loan grew 5.5% from the end of last year on the back of continued demand from large companies and quality SMEs. Please refer to page 33 for more details. Page 9 is on Sinan Bank's loan asset growth, funding and margin, provided for your reference. Next, page 10 on non-interest income. The group's non-interest income fell 11.6% QOQ despite growth in fee income and insurance income due to lower securities-related income. Insurance income grew 4.2% QOQ resulting from the increase in CSM amortization from improvement in insurance sales. Next is on fee income breakdown. Credit card fee was up 52.8% QOQ driven by growth in credit card purchases and other fees. Brokerage fee was 8.3% on the back of increased stock trading. But IB fee fell 36.6% QOQ despite the growth in underwriting fee resulting from more brisk DCM sales due to reduced real estate PF and financing arrangement fee. Page 11 includes an income for your reference purposes.

Page 12 is for groups for credit losses. GMA costs increase 4.3% and reclassification of service accounts. Groups CIR on an accumulated basis edged up slightly to 39.2% QOQ, but when excluding ERP costs, Groups CIR was 38.2% down 0.3% point. Groups Q3 provision for credit losses due to declining additional counter-cyclical provisioning fell 14.7% QOQ. Groups recurring provision decreased 8.1 billion 1 QOQ. Shinhan Bank, with the end of corporate credit rating season, its recurring provision fell by 71.1 billion won. Shinhan Card, with long end of September holidays shortening payment cycle, its recurring provision increased by 79.7 billion won. As for the leading indicator of credit cost ratio, that is the frequency rate, The bank's delinquency rate affected by higher interest rates and unfavorable economic conditions continues an upward trend, yet compared to pre-COVID levels in Q3 2019, the absolute delinquency rate still remains low. Through write-offs, delinquency rate remains flat at 0.27%. As for Shenankar, due to write-offs, delinquency rate dropped to 1.35%, but the leading indicator of delinquency, two-month delinquency migration rate, went up . From page 13 to 15, information on groups' GME expenses, credit cost ratio, asset quality, and real estate PF has been included with further details for your reference. From page 16, SFG income by subsidiary will be explained. As for SHB, higher interest rate than FX rate lowered non-interest income while ERP raised GMA expenses. Nevertheless, interest income rose and provisions declined, resulting in an overall increase in net income QOQ. As for non-bank subsidiaries, Shinhan Card, despite increasing provisioning but boosted by operating income growth, kept its net income flat QOQ. For Shinhan Securities, rising interest rates and falling stock prices resulted in sluggish top trading income and reflecting recognition of provisioning for investment products related costs, its net income dropped significantly QOQ. As for Shinhan Life, improved insurance sales led to increasing CSM amortization, which led to increasing insurance service income, but due to higher interest rates, insurance finance income decreased, thereby reducing net income QOQ. As for Shinhan Capital, interest expenses increased, but with decrease in provisioning, its net income grew QOQ. Page 17 shows SFG income by subsidiaries, and page 18 shows SFG overseas business for your information. Page 19, Capital Management and Key Profitability Indicators. At the end of September, CET1 ratio is expected to decrease 9 BP to 12.90% provisionally. This is due to higher FX rates and loan growth resulting in the growth of RWA. As for our digital strategy outline in page 21, CDO Kim Myung-hee will take the floor. Good afternoon. I am CDO Kim Yong-hee. Regarding Q3 2023, I will address you on how the Group aims to strengthen its fundamentals for its digital transformation. To begin, Group's digital strategy framework with six key customer-centric priorities and their key performance has been described on the left. As for SFG's financial and non-financial platform, its gross MAU is $24.42 million, up 16% year-on-year. Financial platform, DAU, is 5.13 million, indicating the platform evolving into a high-traffic site. As for new digital business expansion, data sales business generated 15.5 billion won in revenue, which is 28% growth year-on-year. Such results and customer value creation are enabled by four key core competencies, which I will explain. First, strengthening data competencies. The group is working to understand its customers' financial life thoroughly and extensively by scaling up data collaboration with various industries, which is leading to growth in data business. In addition, data contests for university students and other data-driven CSR initiatives are also taking place continuously. Next is technology. Group is strategically tapping into cloud to drive infrastructure improvement, open development environment, and open source software usage. This will enhance access to new digital technologies and improve service development as well as operational efficiency. Next, process innovation. Enabled by digital technology, we're optimizing operational processes and enhancing employee productivity across the entire group. We're expanding no-code into business units while renewing our groupware to innovate the way we work. Last part is the people domain, talent development. Group, in order to qualitatively expand and qualitatively grow digital talent, has established a common group-wide competency system based on which a customized HRD program for employees is operated. SFG will continue to strengthen its fundamentals to enhance customer value. Thank you. Thank you, CDO Kim, for your presentation. Starting with page 22 onwards, information on the group's ESG initiatives, detailed data by group and key subsidiaries, as well as key management indicators, have been explained for your reference. This concludes the presentation. We will now start the Q&A. Thank you.