Shinhan Financial Group Co., Ltd. Q2 FY2026 earnings call

• Capital Position • Group CET1 ratio stood at a stable 13.43% as of Q2 2026, up 13BP quarter-over-quarter even amid exchange rate volatility. The improvement reflects a 3.2 trillion won reduction in risk-weighted assets (RWA) from regulatory optimization for productive finance expansion. • The group maintains a strong capital buffer, with management committed to preserving stable capital ratios via internal efficiency and strategic resource allocation.

• Shareholder Return Policy • The board approved a 7 trillion won share repurchase program to be completed over approximately three months, plus a 740 won per share quarterly cash dividend. Total share repurchases planned for 2026 through October will reach 1.4 trillion won, with an additional repurchase announcement planned for Q4 based on full-year performance and capital adequacy. • Annual total dividend per share (DPS) is expected to rise 12.0%-14.3% year-over-year in 2026, depending on repurchase and payout execution.

• Operational Performance Highlights • Group economic profit grew 8.8% year-over-year, supported by strong net interest income and growth in non-interest income. • Risk asset quality is well managed: Shinhan Bank recorded the industry's lowest annualized NPL ratio despite rising interest rates, and Shinhan Card reduced NPL 9BP quarter-over-quarter to maintain year-end 2025 levels. • The group continues profitable capital allocation: capital market segments saw large fee and revenue growth year-over-year, while consumer finance segments reduced RWA in low-return areas to improve cost efficiency. • The group completed an exit from its New York branch operations to streamline global business and improve profitability.

Q2 2026 group net profit reached 1.8201 trillion won, up 12.2% quarter-over-quarter. ROE was 12.4% and ROTCE was 13.9%, both improving year-over-year due to group-wide profit-focused efforts. Total group interest profit grew 3.6% quarter-over-quarter, driven by expanding loan asset volumes; Shinhan Bank's NIM increased 1BP quarter-over-quarter amid rising market rates. Non-interest income grew broadly quarter-over-quarter: wealth management (WM) product sales rose 29.5% quarter-over-quarter, WM commissions increased 60.8% quarter-over-quarter, and previously negative IB-related income improved 151.3% quarter-over-quarter. Securities-related non-interest profit rose 30.9% quarter-over-quarter, and insurance-related non-interest profit increased 44.6% quarter-over-quarter due to market price gains and guideline changes. Provisions increased 8.1% quarter-over-quarter due to higher taxes and credit loss recognition, but net credit loss cost fell 14.7% quarter-over-quarter to 42BP, an 8BP improvement year-over-year. Group NPL coverage ratio improved 2 percentage points quarter-over-quarter. Shinhan Bank net profit rose 12.5% quarter-over-quarter. Overseas business profit grew 13.0% quarter-over-quarter, led by growth in Japan (SBJ) and Vietnam.

• ROE: The group maintains its target of reaching 10% ROE by 2027, and management expects to hit this target in 2026, earlier than planned. The long-term target ROE range for the group is 10%-12%, aligned with global peer benchmarks.
• Bank NIM: Management expects a 3-4BP additional NIM improvement in the second half of 2026 following July's benchmark rate hike, driven by lagged pass-through of higher market rates to loan yields and a focus on growing high-profit assets.
• RWA growth: Excluding temporary exchange rate impacts, RWA growth is expected to remain in the 4%-5% range for 2026, aligned with the group's Value Up 2.0 strategy. No changes to this long-term guidance were made despite short-term exchange rate volatility.
• Share repurchase payout ratio: The annual share repurchase payout ratio is guided to be between 50.2% (2025 level) and 53% in 2026, within the previously communicated framework.
• Capital market revenue: Shinhan Investment expects second half 2026 capital market revenue to remain at first half 2026 levels; while brokerage revenue is not expected to match the strong Q2 performance amid market volatility, strong demand for structured financial products (EDLS) will support results.
• Cost: The group's cost-to-income ratio (CIR) is expected to remain well managed within the existing 4%-5% annual cost growth guidance, and will stay near the 40% level over the medium term.

• Elevated exchange rate and market volatility creates uncertainty around near-term profit and RWA forecasting, making longer-term fixed capital plans harder to implement.
• Persistent high interest rates and continued benchmark rate uncertainty keep credit risks elevated; management is maintaining a conservative approach to credit loss provisioning.
• Economic polarization in South Korea creates uneven growth dynamics across business segments, requiring careful monitoring of consumer and corporate credit demand.
• M&A transactions carry inherent risk of not meeting required return hurdles; all potential deals are required to meet strict return on investment criteria.

Q: Can the quarterly share repurchase program become permanent, and what is the status of the rumored Sombosa acquisition? / A: The shift to a 3-month repurchase cycle this year is only a temporary adjustment to account for high near-term profit and exchange rate volatility. Management will return to a semi-annual cycle once market volatility stabilizes in 2027. Multiple M&A targets are currently under review, but no deal for Sombosa or any other asset has been finalized. All potential M&A will proceed only if it maintains a stable CET1 ratio and delivers improvements to EPS and ROE, aligned with Value Up 2.0 principles, and investors will be notified promptly once a deal is confirmed.

Q: Does Shinhan Investment need additional capital to grow its IB business, similar to peer groups, and would capital for M&A displace capital allocation for securities? / A: Shinhan Investment already has sufficient regulatory capital headroom from previous approvals, and does not need immediate additional capital. There is enough existing risk limit capacity to grow IB credit exposure. Any business segment with high expected ROE/ROC, including both securities and potential insurance M&A, will receive capital allocation priority with no pre-set preference for one over the other.

Q: What drove Shinhan Bank's 1BP Q2 NIM increase, and what is the outlook for H2 2026? Why should RWA growth guidance exclude exchange rate impacts? / A: The steady quarterly NIM increase came from expanded institutional and corporate deposit balances following a seasonal drop in individual deposits, plus gradual pass-through of higher market rates. Management expects a 3-4BP NIM improvement in H2 2026, driven by lagged effects of the July benchmark rate hike. Exchange rate causes volatile, temporary short-term swings in RWA that do not reflect underlying organic growth, so guidance uses organic RWA growth excluding these impacts, which remains stable at 4%-5% in line with long-term Value Up 2.0 targets.

Q: How will M&A impact the group's shareholder return policy, and what is the long-term cost outlook? / A: M&A will not impact short-term shareholder return programs. The group maintains a 13.0%-13.4% target CET1 range, and any excess capital above this range will be used for either M&A that meets return hurdles or additional shareholder returns. All M&A must meet a 12.5% required return hurdle to be approved. Long-term cost growth is expected to stay aligned with 4%-5% GDP/price inflation, and the cost-to-income ratio will remain well managed near 40% over the medium term, within existing guidance.