Shinhan Financial Group Co., Ltd. Q2 FY2023 earnings call

Business Results

• Net income declined due to conservative provisioning, but non-interest income increased. Interest income rose as market rates increased and term deposits matured.

Asset Quality

• Bank delinquency rate flat at 0.27%, card delinquency up but roll rate stabilizing. Preemptive provisioning to secure loss absorption capacity.

Affiliate P&L

• Bank's net income down due to provisioning and G&A, non-bank subsidiaries had mixed results, securities and life segments had varying performances.

Capital Management

• CET 1 ratio expected to improve to 12.95% Q-o-Q, target raised to 13%. Quarterly dividend of KRW525 for Q2, share buyback of KRW100 billion in Q3.

Digital Strategy

• Platform innovation with 24.57 million gross MAU, social responsibility with AI security and senior services, financial contribution with KRW200 billion cost savings from digital tools.

In Q2 2023, the Group's interest income stood at KRW2.69 trillion, a 4.7% Q-o-Q increase, driven by higher interest bearing assets and bank margins. Non-interest income was KRW1.33 trillion, up after Q1, with fee income and insurance related income recovering. Fee income increased 7.6% Q-o-Q but decreased 8.1% Y-o-Y. G&A expenses increased, and the credit cost ratio was 53 bps, up 22 bps Y-o-Y due to increased provisions.

CET 1 Target

• Raised CET 1 ratio target to 13% from 12% due to regulatory changes.

Dividend and Buyback

• Set quarterly dividend for Q2 at KRW525, plan KRW100 billion share buyback in Q3.

NIM Outlook

• Expect NIM to be stable or slightly higher in the second half due to market conditions.

• Credit risk from economic slowdown and rate hikes leading to rising delinquency.
• Real estate exposure risks, including overseas commercial real estate.
• Uncertainty from regulatory changes and stress capital buffer requirements.

Q: On OCI trajectory, CET 1 and buyback plans, credit card delinquency A: Delinquency roll rate for credit card peaked in February and is trending down; CET 1 target raised to 13%, plans to maintain buyback Q: Expansion outside Korea, household debt A: Global expansion in emerging markets like Vietnam, household debt to be managed with risk mitigation Q: NIM outlook, credit cost, buyback A: NIM expected to be stable or higher in second half, credit cost to come down, buyback plans continue as per policy Q: Overseas commercial real estate exposure A: Overseas real estate exposure around KRW4 trillion, monitored proactively