Shinhan Financial Group Co., Ltd. Q3 FY2026 earnings call

• Capital & Shareholder Returns: Group CET1 ratio stood at 13.62% (up 12 bps Q-o-Q). Board approved KRW 450 billion in share buybacks (KRW 200 billion this year, KRW 250 billion next Jan) and KRW 740 per share in Q3 dividends. Full-year DPS expected at KRW 2,960 (14.3% YoY increase), with potential for further increases.
• Strategic Acquisition: Approved acquisition of 77% stake in Lotte Insurance for KRW 693.3 billion to strengthen insurance portfolio and mid-to-long-term profitability. Funded via internal capital reallocation; expected to reduce CET1 by ~19 bps. Target ROI is 6%, aiming to normalize profitability and contribute positively to group ROE.
• Interest Margin (NIM): Bank NIM declined 3 bps Q-o-Q to 5.18% because funding cost increases outpaced lending rate improvements. Funding structure relies heavily on 6-month and 1-year debentures (~60%), causing a lagged response to rate hikes compared to CD-linked peers. NIM outlook for Q4 is neutral/maintained.
• Noninterest Income: Dropped 45.5% Q-o-Q due to capital market slowdown, rising bond yields causing valuation losses, and insurance experience variance issues. Management focuses on securing stable earnings bases across segments.
• Asset Quality: Credit cost ratio remains stable at 42 bps (improved 4 bps YoY). NPL coverage is 115.48%. Management maintains a conservative provisioning stance and proactive risk monitoring given uncertain economic recovery.
• Digital & Sustainability: Continued focus on digital transformation and sustainability management activities as part of long-term strategy.

Group Net Income: KRW 1,584.6 billion (down 12.9% Q-o-Q). Group ROE: 11.9%; ROTCE: 13.4%. Shinhan Bank: Earnings decreased 5.9% Q-o-Q due to lower fee income from funds, bancassurance, and securities, offset by solid interest income. Capital Market Subsidiaries (Shinhan Securities/Asset Management): Earnings slowed Q-o-Q due to lower stock trading values and market volatility, though profitability remained solid YoY. Shinhan Card: Earnings improved 68.4% Q-o-Q driven by a gain on the sale of an office building. Shinhan Capital: Earnings decreased 29.7% Q-o-Q due to high funding costs and slowing returns on held securities. Shinhan Life: Earnings decreased 31.3% Q-o-Q due to widening experience variance losses and valuation losses on securities. Overseas Business: Earnings decreased 9.9% Q-o-Q primarily due to unfavorable exchange rates, despite strong operational performance at SBJ and Shinhan MMC.

• NIM Outlook: Maintains a neutral outlook for Q4, expecting current levels to be maintained until year-end due to competing factors (rising funding costs vs. stabilizing lending rates). Expects NIM to stabilize/improve from next year once funding rates settle and lending rates are repriced.
• ROE Target: Reaffirms mid-to-long-term ROE target of 10%-12%. The acquisition of Lotte Insurance is integrated into this framework, with expectations that normalized profitability will support the upper end of this range without additional capital increases.
• Credit Costs: Expects to maintain credit cost ratios in the low 40 bp range through selective asset growth and rigorous borrower segmentation, despite potential headwinds from delayed economic recovery.

• Funding Competition & Cost Pressure: Intense competition for deposits in Q4 due to maturing liabilities could keep funding costs elevated, pressuring NIM. Household deposits have shifted to corporate sectors or markets, affecting liquidity ratios (LCR/NSFR).
• Exchange Rate Volatility: Significant impact on OCI and capital ratios. A weaker won increases RWA and causes translation losses in overseas operations and insurance subsidiaries, negatively impacting CET1 and retained earnings.
• Insurance Underwriting Risks: Widening experience variance losses and actuarial guideline changes continue to pressure insurance segment profitability. Potential for increased lapse ratios in specific product lines.
• Capital Market Volatility: High market uncertainty leads to reduced trading volumes and valuation losses on bonds, significantly impacting noninterest income from securities and asset management arms.

Q: Analyst asked about NIM drivers, specifically why bank NIM declined despite policy rate hikes, and if it would rebound in Q4. Also questioned card NIM trends.

A: Bank CFO explained that funding costs rose 13-14 bps while lending rates only increased ~10 bps, squeezing margins. Shinhan’s funding mix (60% debenture-linked) reacts slower than CD-linked peers. Q4 NIM is expected to remain flat due to continued deposit competition and maturing liabilities. NIM stabilization is projected for next year as funding costs level off and lending rates adjust.

Q: Analyst inquired about the rationale behind the 0.9x Price-to-Book multiple paid for Lotte Insurance and future capital injection needs.

A: Management clarified that the 0.9x multiple reflects H1 net assets plus revaluated invested assets. While initial calculations suggested ~KRW 900 billion in total capital needs, only ~KRW 300 billion is expected in common equity, with the rest potentially met via other capital instruments. The acquisition aims to offset existing life insurance losses and improve group ROE, leveraging synergies in health insurance products and cross-selling.

Q: Analyst asked about the trajectory of fee income and whether the 12% ROE target needs adjustment post-Lotte acquisition.

A: Securities CFO noted that trading volumes have stabilized since mid-October but remain weak due to cautious retail sentiment. Growth will rely on financial product sales (ELS/bonds) and new customer acquisition via SOL LINK accounts. Regarding ROE, management confirmed the 10-12% target remains valid. The acquisition is viewed as accretive to EPS over time, helping to meet the upper bound of the target range without requiring new external capital.

Q: Analyst requested updates on Shinhan Securities’ new Commercial Paper (CP) issuance business and margin expectations.

A: Shinhan Securities CFO reported issuing KRW 530 billion in CP so far, targeting a 100 bp margin. With a pipeline of KRW 700 billion initially, they aim for KRW 2 trillion volume next year. They emphasized conservative risk management and avoiding excessive price competition, positioning CP as a long-term steady revenue stream rather than a high-growth volatile area.

Q: Analyst asked about credit quality outlook and potential for additional provisioning amid rising rates and delayed economic recovery.

A: Group CRO stated that delinquency and NPL indicators are currently improving across affiliates. However, acknowledging risks from higher rates and slow recovery, the bank maintains a conservative provisioning stance. Management expects to keep credit cost ratios within the low 40 bp range through selective high-quality asset growth and strict borrower segmentation.