SFG's Business Results for 2025 1Q (Including Script)

Good afternoon.

Thank you for joining the Shinhan Financial Group 2025 Q1 earnings presentation. Before looking at our Q1 results, I would like to start from Page 2 and explain the 2025 Value-Up Plan, which was publicly disclosed today.

The 2025 Value-Up Plan is based on the results of '24 implementation assessment led by the BOD as well as diagnosis of the appropriateness of existing targets and newly established near-term targets and execution plans for 2025.

Looking back on 2024 performance, group ROE fell YoY due to decrease in nonbank affiliate earnings, but the CET1 ratio remained above 13% every quarter despite greater market volatility. That said, considering CET1 sensitivity to macro volatility and uncertainty, current management levels were found somewhat tight.

In shareholder return, active share buyback last year reduced number of outstanding shares to less than 500 million shares as of end of last year, boosting our shareholder return ratio to 40.2%. Based on such performance review, we decided to maintain the original targets covering until 2027, while establishing the following plans for 2025, which will be the first year of proper implementation of our Value-Up Plan.

First, we plan to improve ROE by more than 50 bp YoY through a stable bank earnings and structural improvement of non-bank businesses. Second, we plan to unlock additional capital capacity through efficient asset management.

We aim to maintain CET1 ratio at 13.1% or above, which is 10 bp higher than the existing target level and giving us greater flexibility. Third, given the current PBR levels, which are heavily undervalued, buyback and cancellation will be the focus for a faster pace shareholder return program to increase shareholder return ratio to 42% or above in 2025.

To achieve this Value-Up Plan in 2025, with better execution, we will operate key action initiatives, including structural improvement of non-bank businesses, efficient asset management, and stronger links between evaluation and compensation. For details, please refer to the publicly disclosed materials.

Pages 3 through 5 shows the Value-Up Plan progress as of end of Q1 this year, and we plan to keep you updated each quarter using the same format.

Now to turn to Page 6 for our Q1 business results, starting from the business highlights. 2025 Q1 tentative group CET1 is 13.27%, which is 21 bp improvement YTD. Despite the effects of Basel III group-wide RWA reduction efforts and solid earnings growth from the banking business contributed to the healthy CET1, and based on this, the BOD today resolved on Q1 cash dividend of KRW570, which is a 31% increase QoQ.

Regarding share buyback out of the KRW650 billion plan for the first half, buyback of KRW285.7 billion has been completed as of end of March, and among this, KRW150 billion announced last year is scheduled for cancellation late April and the rest is scheduled for cancellation by end of June. Q1 group net income was KRW1,488.3 billion, which is a 12.6% YoY increase, thanks to absence of non-operating one-offs and solid growth of interest income.

Page 7 looks at capital. Despite a larger buyback program than previous year through CET1 improved 21 bp YTD based on well-managed RWA and stable net income. Despite the RWA increasing effect of KRW5.4 trillion YTD due to regulation including Basel III, appropriate Korean won loan growth combined with group level RWA control efforts including portfolio rebalancing, limited RWA increased to KRW3.1 trillion YTD. We will continue to focus on maintaining stable capital ratio through internal efficiency and strategic management while sufficiently supplying necessary funds to the right places.

Page 8 looks at assets and liabilities. And we move on to Page 9, which looks at group P&L. Group net income increased 12.6% YoY, thanks to absence of non-operating one-offs and growth of interest income. Based on this ROE and ROTCE key metrics of the Value-Up Plan increased by 1 percentage point YoY, respectively, to 11.4% and 12.9% each. And I will break down the details starting from the next page.

On to Page 10 for our interest income. Despite falling market interest rates, our group interest income increased by 1.4% year on year, driven by the average balance effect from growth in our income-producing assets. Bank loans in won increased by 0.4% versus end of last year, mostly driven by blue-chip SME loans. Please refer to Page 27 for details.

For bank NIM, although the yield on interest-bearing assets including loans in won dropped 12 basis points QoQ, nonetheless, we saw alleviated funding pressure amid adequate asset growth under our broad profitability management stance and seasonal deposit inflows, on balance improving NIM by 3 basis points QoQ. Group NIM was also improved by 5 basis points QoQ, thanks to the increase in bank NIM.

Next on to non-interest income. Group non-interest income decreased 6.3% YoY from a decline in commission and insurance-related income. Credit card fee income were impacted by an increase in proactive customer acquisition marketing spend, while brokerage commissions were also down YoY as brokerage trading volume decreased amid market uncertainties.

However, we continue to achieve growth in interest fee income from fund and bancassurance sales centered around our bank business. Also, despite the challenging environment, quite encouragingly investment banking commissions recorded growth on both a YoY and QoQ basis.

In Q4, amid rising external internal uncertainties, income from marketable securities, FX, and derivatives was very poor, but has since recovered back to more recurring levels, reflecting lower market rates. Other insurance-related income showed a decline YoY. This was due to the high base effect from last year where insurance sales were quite brisk. Otherwise, it's being managed at a stable level.

Next, moving on to SG&A and credit costs. Group SG&A is stable with nothing notable versus last year. Cost-to-income ratio was up 1.4 percentage points YoY, recording 37.3%. For credit costs, even though additional provisioning for real estate PF loans fell, there was an increase in recurring provisioning, reflecting the economic cycle, resulting in a 15.4% increase YoY.

As a result, group nominal credit cost recorded 41 basis points, up 3 basis points YoY, while recurring CCR was 38 basis points, up 8 basis points YoY. As we move forward, while credit costs related to real estate PF is expected to stabilize gradually, corporates will likely face greater credit risk from delayed economic recovery and vulnerable customers may become increasingly challenged.

So overall credit cost in terms of size may be slightly greater than our initial expectations, while recovery may take longer. However, we have already built up sufficient loss-absorbing capacity and will enforce even closer monitoring and control for soundness and keep credit costs well under control within the limit of our established business plans. Please refer to Pages 13 and 14 for details on group asset quality and loss absorbing capacity.

Moving on to our group and overseas business earnings, Page 15. For bank, thanks to solid interest income and balanced portfolio, we saw improved fee and marketable security income driving overall performance for the broad group. For Shinhan Card and Capital, as profitability was impacted due to regulatory change and still high-interest rate environment, both continued sluggish performance with pressure on both the funding and credit cost side.

For investment securities, despite increased market uncertainty, we saw gradual recovery in recurring earning power, driven by top-line performance in IB fee income and marketable securities. Insurance continues to deliver consistent performance given last year, thanks to stable KICS ratio.

For Asset Trust business, which recorded a loss last year from large loan loss provisioning, with completion guarantee, real estate trust exposure has turned to profit. Overseas business, we're seeing solid performance trends from Vietnam, Japan this year as well.

From Pages 16 to 18, we outlined the performance on digital and sustainability initiatives. Page 16 provides details on the main digital indicators that we have shared every quarter. Page 17 provides details on the Jeju Bank ERP banking initiative, which you may be interested in. Page 18 outlines our efforts in terms of greenhouse gas emissions reductions, also more on our inclusive and win-win financial initiative as well.

From Page 19, we list the detailed financials and performance of the respective affiliates so please refer to the slides. Recently, the Korean economy faces structural issues as well as many internal and external challenges, which represent a complexity of challenging issues, including poor domestic and export demand, attraction on corporate investment in tranche loan growth.

Our core role as a financial group is as a financial intermediary that supports the real economy, working in coordination with the policy authorities. We want to go beyond just the passive intermediary, and we're looking to be more proactive across many fronts to provide preemptive liquidity to competitive corporates and allocate capital to productive sectors of the economy to support recovery of the real economy and help resolve the issues confronting Korea.

Also as a value-up leader and as a major player in the capital markets, we will faithfully implement our corporate value-up commitments to the market, building on the customer trust and solid underlying fundamentals.

Thank you very much for your attention.