3Q FY 2017 Earnings Release

3Q 2017 Earnings Release
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 2017 3Q Shinhan Financial Group's Earnings Presentation.
Today we have with us Vice President, Woo Young-woong, Head of Strategy; CFO, Yim Bo-Hyuk; and Managing Director of Finance, Jang Dong Ki. Today we will begin with a presentation by CFO, Yim Bo-Hyuk, on the 3Q business results and then proceed to a Q&A session. Now we would like to invite CFO Yim Bo-Hyuk to deliver the 2017 3Q earnings presentation.
Good afternoon. I am CFO Yim bo-Hyuk. First of all, I would like to thank our investors, analysts and journalists from both home and abroad who are taking part in Shinhan Financial Group's 3Q earnings presentation. From now on, let me walk you through the highlights of the business results for 3Q 2017 for Shinhan Financial Group.
First, on Page 3 of the presentation material, the Group's income. Shinhan Financial Group's 2017 3Q cumulative net income is KRW 2,706.4 billion, up 25.1% Y-o-Y. The 3Q net income is KRW 817.3 billion, down slightly by 8.4% Q-o-Q. Let me briefly highlight what's noteworthy regarding 3Q results.
First, across all bank and non-bank subsidiaries, the Group's net income increased in a balanced manner Y-o-Y, and for 2 quarters straight over KRW 800 billion of current net income was posted. A solid improvement in the Group's overall business is being achieved, such as, increase in interest income and stabilizing provisions and SG&A.
In particular, the Group's 2020 Project's key pillar, our global business operation, is starting to show visible results starting this year. During 3Q, cumulative net income for the global operation of Bank is up 33.4% Y-o-Y, posting approximately $159 million. This is at a level similar to last year's net income of yearly net income of approximately $162 million, showing sound progress.
In the case of Shinhan Financial Group, we have continued for a long time to pursue a strategy to advance into global markets through localization with an emphasis in promising ASEAN markets. Strategic priorities for the 2020 Project is expansion into global markets and strengthening competitiveness in the capital market. And last July, we have completed a major organizational reshuffle and expansion to secure new growth engine for the future and to broaden and diversify our income streams as well.
Second, on the back of a differentiated loan strategy, centered around non-registered SMEs and stabilizing our NIM, the Group's interest income grew for 2 consecutive quarters. Shinhan has always been able to continuously expand our income base and lead the market through outstanding execution capabilities. This year as well through a differentiated growth strategy focused on non-registered SMEs and preemptive portfolio adjustment based on profitability, we are expanding our interest income base.
Third, through the same cost control efforts, SG&A growth rate is being stabilized. And as for the Group's credit cost ratio, it is down 20bp Y-o-Y, posting 27bp, contributing significantly to improving the Group's net income and this is possible due to an appropriate loan growth strategy based on risk management and maintaining our record strong asset quality.
Now let me go into more details of the Group's P&L on Page 4. If you look at the graph on the furthest left, the Group's interest income is approximately KRW 5.77 trillion, up 8.6% Y-o-Y. The bank's Korean Won loans in 3Q is up 4.0% YTD, or 3.2% QoQ, and through a differentiated growth strategy focused on non-registered SMEs for maintaining a healthy growth trend.
The bank's net interest margin is for 3Q 1.56%, is showing a stabilized trend for 3 consecutive quarters. And on a cumulative basis, is up 6bp Y-o-Y, posting 1.55% contributing towards the Group's interest income.
Next, Page 5. The Group's non-interest income in 3Q is down 13.0% Y-o-Y, posting KRW 1,110.5 billion. The biggest reason for the decline in non-interest income is the one-off gains from disposal of marketable securities that took place same period last year, and this year there was no such special one-off gains that occurred. On the other hand, the Group's fee income is up 9.8% Y-o-Y to post KRW 1,279.3 billion on the back of overall performance improvement of the fund, bancassurance, trust and IB business contributing to strengthening the income base.
And now moving on to SG&A. Our 3Q SG&A amounted to KRW 3,223.7 billion, a slight decrease of 0.2% Y-o-Y. Employee-related costs inched up by 2% due to a wage increase and et cetera, but the increase rate is kept at a minimum with Group-wide strategic cost cutting efforts, including efficient channel strategies and business process improvement. The Group's 3Q CI ratio improved by 2.2 percentage point Y-o-Y to 46.9%, maintaining a sub-50% level for 3 consecutive quarters.
And now the Group's credit cost. In the third quarter, the Group's cumulative loan loss provisioning was KRW 158.9 billion, a huge drop by 81.8% Y-o-Y, from KRW 871.2 billion. In 3Q, the Group's recurring credit cost ratio recorded approximately 27bp, exclusive of the one-off provisioning write-back worth KRW 360 billion, generated from Shinhan Card in Q1. As such, the credit cost ratio greatly improved by 20bp Y-o-Y. In 3Q, the Shinhan Bank's credit cost ratio fell significantly to 15bp Y-o-Y from 35bp. Shinhan Card showed a strong credit cost ratio of 135bp, thanks to its best asset quality in history.
In 3Q, the non-bank subsidiaries contribution to the Group's net income amounted to 40%, which is an improvement from last year's 35%. And now the major subsidiaries income. Shinhan Bank's 3Q cumulative net income was KRW 1, 695.9, up 12.2% Y-o-Y. The improvement was attributed to 10.5% increase in interest income, 56.5% decrease in credit cost and management of SG&A at 0.2%. Shinhan Card's 3Q cumulative net income was KRW 780.6 billion, up 46.6% Y-o-Y. Despite the decline in the small and medium-sized merchant fee income, the P&L is improving, due to an even growth in credit card, installment finance, lease et cetera, as well as stable asset quality management and sound provisioning management.
Other subsidiaries, namely Shinhan Investment Corp, Asset Management and Capital have expanded their sales base and recorded an increase of net income, Y-o-Y, by 83.2%, 42.2% and 122.2%, respectively. Shinhan Life's performance declined Y-o-Y, due to the disappearance of the one-off corporate tax gain a year earlier. But other than for the deferred corporate tax effect, the subsidiary is maintaining a fair P&L position.
Page 6, the Group's asset quality. As of quarter end, the Group's NPL ratio was 0.64%, improved by 0.08 percentage point Q-o-Q, recording a historical low. The delinquency ratios of the Bank and Card are both record low at 0.26% and 1.3%, respectively. As of September end 2017, the BIS ratios of the Group and the Bank are estimated at 15.2% and 16%, respectively. And CET 1 capital ratios are both 13.2%, each up by 0.5 percentage point and 0.4 percentage point YTD.
Shinhan Card's adjusted capital ratio as of September end was 24.3%, maintaining a stable level. From Page 7 and onward are the detailed information on the Group's and subsidiaries performance and major indicators. This concludes the Shinhan Financial Group's 2017 3Q earnings presentation. Thank you for listening.