Shinhan Financial Group Co Ltd

Good afternoon. Let me first thank everyone for participating at our Q1 2024 earnings conference call despite your busy schedule. I will first go through our business highlights from page 5 of the slides. In Q1 2024, we achieved 1.3215 trillion won in net income despite recognition of large non-operating expense thanks to the company's strong fundamentals based on top-line growth. Interest income grew 9.4% YOY thanks to proactive loan asset growth strategy and efficient margin management. Non-interest income for the group grew 0.3% as we defended the decline in securities-related income with a diversified portfolio. GNA was kept at 1.2% increase despite the general inflationary factors thanks to the group's ongoing effort at cost-efficiency. With GNA well under control, the cost-income ratio stood at 35.9%, improved by 2 percentage points YOY thanks to sound growth in operating income. Credit cost ratio in Q1 was 38 BP, down by 10 BP YOY, but the recurring CCR, excluding the additional provisioning that was preemptively recognized, was 30 BP, up 1 BP YOY. Next is capital ratio and shareholder return policy. The provisional CET1 ratio as of the end of March was 13.09%. The BOD today decided on the dividend per share at 541 per Q1 and further resolved on 300 billion won in share buyback and cancellation for the next six months. Looking ahead, The company will continue with sustainable profitability management and active shareholder return policy as we try to secure capital adequacy in response to changes in capital-related regulations based on our strong financial soundness. Page 6 is on the group's major income indicators provided for your information. Moving on to page 7 on the group's income breakdown. The group's interest income in Q1 2024 was 2.81%. 5.9 trillion won, up 9.4% QOQ. Interest-bearing assets increased 3.6% YY on the back of growth in the bank's loan in won, and the group's margin also rose by 6 BP. The bank's loan asset in won grew 2.7% in the quarter. Retail loan grew 1.2%, mostly for jeonse and housing mortgage. Corporate loan grew 3.9% in response to demand by large companies and quality SMEs. We will keep selectively growing our assets by balancing the different factors like efficient RWA management, profitability, and market demand. In Q1, banks' NIM was 1.64%, up 2BP QOQ. The funding cost improved significantly although the growth in loan assets affected yield. There was more inflow of low-expense core deposit linked to loans, and high-interest policy products came to maturity. We will keep actively managing the margins through flexible interest policy and effective ALM management. Next, page 8. The group's non-interest income grew 16.6% YY as fee income saw generally even growth across business areas like credit card, securities, fund, bank assurance, and IB. Insurance income grew 21.4% from the increase in CSM write-offs. Credit card fee rose 28.4%, although credit card transaction volume rose 2%. 3.8% YOY, we improved operational efficiency, for example, reducing high-cost promotions. Brokerage fee was up 25.8%, on the back of stock trading increasing by 4.3 trillion won YOY. Securities-related income fell 19.4% YOY, despite the growth in recurring income. There was preemptive recognition of loss from overseas real estate, among others. The group's Credit cost fell YOY in both nominal provisioning and CCR, with reduction in the additional provisions recognized early in 2023. The bank's recurring provision for credit losses remains flat YOY, while preemptive provisioning was done in Sinan Capital and Sinan Asset Trust to prepare against real estate market downturn and further worsening of financial soundness. Looking ahead, we will actively reinforce loss absorption capabilities through preemptive provisioning for real estate finance in and outside of Korea.

Now on to page 9, please. Group-wide asset sellness indicators have seen a delay in improvement amid protracted high interest rate conditions. Related to pre-COVID levels and considering our group's loss absorption capacity, we believe they remain within manageable levels. This trend of weakening asset quality is expected to continue for some time, and we, of course, will remain vigilant in maintaining a conservative stance in managing our asset soundness. As at the end of Q1 2024, our CET1 ratio is down 8 basis points Q on Q, recording a tender to 13%. When considering adoption of Basel III transitional measures, rising FX rates, increase in operational RWA, Overall, we believe that overall soundness is being managed appropriately. Now, on to shareholder return policies, such as cancellation of treasury shares, let me move on and explain in greater detail. We have resolved upon a cancellation of treasury shares, as mentioned, reflecting our solid top-line growth, credit costs, and other expenses, as well as our DIS capital adequacy ratio. Based on this resolution, the size of cancellations this year will thereby bring us closer to last year's full-year level, of 480 billion. At present, with many risks still outstanding, we will need to continue ongoing control and management. However, as long as we continue to deliver solid financial performance as we did in the first quarter, we are on track to execute on the shareholder return policies that we committed to you at the beginning of the new year with LSATPAC. Next, stage 10, credit card earnings together with an increase in transaction volume, as well as efficiency gains in market expense and product pricing, resulted in a 1% YOY increase in earnings. Securities, as the equity market became active, our brokerage fee income increased. However, our prop trading income went down, resulting in a 36.6% YOY decrease in earnings. Capital and asset trust business was impacted by preemptive provisioning, which resulted in a YOY decline in earnings. For global business, alongside strategically driven top-line expansion and our efficient ALM strategy, Both contributed to improved operating profits, driven mostly by interest income. Moreover, our efforts to recover on NPO assets allowed us to write back provisioning, resulting in a 35.4% worldwide increase in earnings. Our group-wide real estate PF exposure is 8.9 trillion won, down slightly from end of last year, and we recorded provisioning ratio of 3.61%. The next section from page 11 to 13 covers issues related to age index linked ELT products, and also our measures to enforcing stronger internal controls and customer protection. Also, an outline of our digital and sustainability activities are also attached for your reference. Lastly, let me briefly comment on the recent macro environment and also today's changing business conditions, as well as our response and future outlook. With the start of this year, thanks to the Corporate Value Up program, we have seen greater interest in Korean financial stocks than ever before. At the same time, with widening geopolitical risk, we're seeing elevated volatility across various macro indicators, such as FX rates and inflation. At our last conference in February, we commented on conservative expectations for one benchmark rate cut in the second half of the year. Given the rising inflationary pressure fueled by the risk in the Middle East, it appears that this outlook still remains valid and intact. Many economic players will likely see delayed improvement in their financial soundness, with continued deterioration of asset quality and a rise in credit costs, expected to continue for the time being. We, however, as you have seen in our Q1 results, continue to deliver solid top-line results, and through preemptive efforts to enhance our loss absorption capacity and efficient capital management, have been focusing on proactively addressing new market demands, while focusing on minimizing sensitivity to externalities to achieve greater financial stability. If the outcome of these efforts become materialized, We expect to maintain a sufficient capital buffer while sustaining stable financial performance. However, until very recently, I understand that regarding stock prices, there were some concerns in the market of an overhang with regards to shares held by our major strategic investors. For the most part, most of these trades were complete in the first quarter, and we believe that any concern over oversupply will gradually improve. We remain strongly committed to our social responsibilities and based on our customer support and trust, we'll strive to achieve solid performance and financial stability and outstanding shareholder return policies to enhance our corporate value. Thank you very much.

And now we will take your questions. If you have any questions, then please use the hand up function in Zoom. And for questions in English, please be informed that there will be consecutive interpretation. Thank you. And now we will take your questions. And we will receive the first question. Mr. Park Hae-jin from Taesan Securities. Good afternoon. This is Park Hae-jin from Taesan Securities. I have two questions. Now, first is about the ELS compensation. So I wonder how much of that was reflected. And the second is about the refinancing platform. So especially in January, that was expanded for Cheonsei and mortgage. But then now I understand that the volume is larger than other companies. I wonder whether it will have an impact on the margin. If yes, how much?