Good afternoon, I am Yu Sung Hun, the head of the IR Team. I would like to thank everyone for taking part in today's earnings presentation. We will now begin the 2016 full year earnings presentation.
Together with us today is Vice President and Head of Strategy Kim Hyung Jin, CFO and Vice President, Yim Bo-Hyuk; and financing head and managing director, Jeon Young-Kyo. For today's earnings presentation, our CFO, Yim Bo-Hyuk would take you through the business results for the full year of 2016 and afterwards, we will hold the Q&A session together. We will now invite Vice President and CFO, Yim Bo-Hyuk to deliver the 2016 full year earnings presentation.
Good afternoon, I am vice president and CFO, Yim Bo-Hyuk. I would like to thank investors, analysts and journalists from both home and abroad for taking part in today's Shinhan Financial Group's earnings presentation. From now on, let me walk you through the main highlights of the 2016 full year business results of Shinhan Financial Group.
First, on page six of the presentation material, the Group's income. In 2016, the Shinhan Financial Group full year net income is up 17.2% YOY to KRW 2774.8 billion and the net income for Q4 is KRW 612.1 billion.
The key highlights of 2016 performance are as follows. First, due to stabilizing NIM and the steady rise of loans, the Group's interest income had increased. The second, with the efforts to improve efficiencies at the Group level, the rise of SG&A was kept to a minimum. Third, thanks to the preemptive and proactive risk management, credit cost was stabilized.
Let me explain in more detail by item. The Group's interest income grew sharply by 7.7% YOY. Despite downward pressure due to the base rate cut last June, through improvements in funding costs and the management of interest-bearing assets focusing on profitability, we were able to maintain the margin at a stable level and achieve appropriate asset growth resulting in increased interest income.
For your information, in 2016, the Group and the Bank's NIM posted 1.98%, and 1.49% respectively, falling only 2bp and 1bp YOY. And the margin in Q4 is 1.97% and 1.49%, the same as the previous quarter.
The Group's non-interest income declined 12% YOY. One-off factors, namely gains from sales of AFS and loan assets declined. The fall in stock market trading amount and increasing volatility led to decrease of the commission income of the Shinhan Investment Corp.
SG&A rose only 0.7% on the back of over four years of strategic cost saving efforts at the Group level and following the previous year in 2016 as well, growth in SG&A was kept to below 1%.
For your reference, in Q4, we carried out voluntary early retirement program. We offer voluntary retirement programs every year, and this year, the number of employees leaving the bank and the Life Insurance through the ERP are 281 and 46 respectively, the costs recognized are KRW94.1 billion and KRW8.9 billion respectively.
The Group's credit cost is up 12.3% YOY. At Shinhan Bank, additional provisioning have been set aside for restructuring company, and due to the loan asset growth of Shinhan Card, the credit cost have increased. But the Group's NPL ratio is the lowest since our establishment, standing at 0.74% and the full year credit cost ratio is also at a stable level at 0.47%.
Finally, let me touch upon the corporate tax gains. In Q1 of 2016, with regards to the Group's unused loss carry forward, the tax deduction effect was recognized as deferred corporate tax assets and the corporate tax gains of approximately KRW210 billion occurred. In Q4 as well, at Shinhan Bank, a similar deduction effect took place and corporate tax gains of KRW140 billion was additionally recognized, therefore, for the full year 2016, approximately KRW350 billion of corporate tax gains occurred, contributing to increase of net income.
Next on page 7, I will provide you with details of the Group's non-interest income. The Group's non-interest income, as I have explained previously, fell 12% YOY on the back of a decline in one-off gains and changes in the market situation. The Group's fee income fell 3.4% YOY, owing to a decline in credit card income and stock brokerage commissions, but due to the growth in trust assets and healthy sales from overseas subsidiaries, the trust fee income and FX Fee income exceeded the growth trend.
For your reference, among the other non-interest income, disposal gains from the loan assets dropped KRW110 billion YOY and this is because of the reduction in sales of loan assets as well as the absence of the securitization effect of the safe conversion loans which was implemented in 2015.
Next on page 8, the Group's SG&A. The Group's SG&A YOY increased only 0.7%. On a quarterly basis, it grew 19.8%, the main factors being the ERP program that was carried out and the temporary increasing costs during Q4. The bank's SG&A grew 3.7% YOY driven by the increase in the number of early retirement applicants. The cost-income ratio of the Group and the bank in 2016 is 51.3% and 52.2% respectively.
Next, page 9, the net income by subsidiaries. The net income of the bank and the non-bank subsidiaries net income after consideration of equity contribution is KRW 1,957.6 billion, and KRW 1,045.7 billion respectively. The non-bank subsidiary's contribution to income is 35%. Excluding the one-off gains related to corporate tax, it's maintained at 39%.
Next, on page 10, the business results of 2016 by subsidiary. The bank's net income grew 30.2% due to strong improvements in the bank's performance. In the case of non-bank subsidiaries, the Shinhan investment and Shinhan Capital saw their net income decline but the income of credit card and life insurance grew so that overall, the non-bank subsidiaries saw a slight decline in profit YOY.
Page 11, Shinhan Bank income and NIM. The Bank's 2016 net income increased 30.2% YOY. Both interest income and non-interest income showed even growth and SG&A and credit costs were well managed, resulting in 8.2% growth in earnings before tax. In Q4, gains from sales of AFS Securities fell and seasonal factors like ERP kicked in which led to a net income decline of 11.6% QOQ.
Page 12 includes detailed information on the bank's non-interest income for your reference.
Moving on to page 13, Shinhan Card income. Shinhan Card's 2016 net income increased 3% YOY. Interest income grew on the back of growing amount of card loan volume. Interest payment decreased due to lowered funding rate. Gains from security sales increased including those of VISA. For your reference, gain on VISA sales in 2016 was KRW 205.6 billion and in 2015, gains from sales of VISA and Mastercard securities recorded KRW 179.5 billion. SG&A decreased 1.6% due to the absence of previous year's ERP effect and credit cost increased 13.4% due to an increase in loan assets and decrease in income from recovery of bad debt.
Page 15, the Group's total consolidated assets grew 6.8% YOY to KRW396 trillion.
Page 16, Shinhan Bank loans and deposits. As of yearend, Shinhan Bank loans in Korean Won recorded KRW 185 trillion, a 4.4% growth YOY. Retail loans grew 6.3% YOY as non-mortgage loans such as credit and transit loans increased. Mortgage loans grew 0.6% but considering the securitized loans, the annual growth rate is 12.1%. The overall corporate loans grew 2.5% over the year due to an increase in loans to prime SMEs not subject to outside audit. In Q4, loans in Korean won decreased 1.6% due to an increase in mortgage loan securitization and decline in large corporate loans.
Next, Shinhan Bank deposits. In 2016 year end, Shinhan Bank's deposits in won grew 4% YOY to approximately KRW 188 trillion. Low cost core deposits increased 9.9% thanks to efforts to acquire more accounts for payroll transfer and merchant's payments. LDR was 97.5%.
On page 17 are the details on Shinhan Card's transaction and funding activities. Operating assets of card went up 7.2% YOY to KRW 22.9 trillion at the end of the year on the back of credit purchase and card loans. Total credit transaction volume on the top left shows an increase of 13.5% YOY to KRW168.4 trillion in 2016.
Asset quality on page 19. At the end of 2016, the Group's NPL ratio was 0.74%, 0.13 percentage point drop YOY hitting a record low since the establishment of the Group. This has been possible by reducing the NPL by 11.2% with risk management efforts. The Group's NPL coverage ratio is 219% and it is 120% excluding the loan loss reserves. Pages 20 to 22 include details on asset quality of Shinhan Bank and Shinhan Card, and for your reference, the Group's annual bad debt sales and write-offs amounted to KRW1.7 trillion down by KRW175 billion YOY.
Page 24 capital adequacy. As of yearend, Group and Bank's estimated BIS ratios are 15.1% and 15.8% respectively, up 1.7 percentage point and 1percentage point YOY respectively. And the year's common equity tier one ratios are expected to be 12.8% and 12.9% for the Group and the bank respectively.
In the fourth quarter, the Group's CET1 ratio went up by 1.6 percentage points because the FIRB approach was approved to the credit card assets in estimating the risk-weighted assets of the Group and also because the credit loss reserves were recognized as common equity. Shinhan Card adjusted equity capital ratio recorded 26.2% in 2016.
For your information, the BOD’s resolution for the dividend payout for the fiscal year 2016 was KRW 1,450 per common share. If it is passed as is at the regular shareholder's meeting, the payout ratio will be 25% and dividend yield, 3.1% approximately. Following last year's precedence, we paid close attention to the shareholders' opinions, improved dividend payout steadily and gradually and we will continue to do our best to maintain this trend by improving our performance and profitability in the future.
Page 25 and onwards are additional earnings information on other subsidiaries, major business indicators, and Shinhan Bank's loans and SMEs.
This concludes the report on business performance of Shinhan Financial Group for the year 2016. Thank you very much.