FY 2017 Earnings Release

Good afternoon, everyone. I am Yu Sung Hun, Head of the IR team. I would like to thank everyone for taking time out of your busy schedules to take part in today's 2017 full year earnings presentation.
We will now begin the 2017 full year earnings presentation.
In today's presentation, we have with us our Vice President, Woo Young-woong, Head of Strategy; and our CFO, Vice President, Jang Dong-Ki and Kim Tae-yeon, head of the finance management team.
Today, after hearing our CFO, Jang Dong-Ki’s 2017 full year business presentation, we will hold a Q&A session.
And now we will invite our CFO, Jang Dong-Ki, for the 2017 full year earnings presentation as well as Q4 earnings presentation.
Good afternoon I am Jang Dong-ki, CFO at Shinhan Financial Group.
First of all, I would like to thank the investors, analysts and journalists from home and abroad for taking in the earnings presentation of Shinhan Financial Group.
Let me now give you key highlights of the Shinhan Financial Group's 2017 business results.
On page 3 of the presentation material, let's start with the Group income.
Shinhan Financial Group's 2017 full year net income is KRW 2,917.9 billion, up by 5.2% of last year, and improving for 4th straight years since 2014.
During Q4, the net income came to KRW 211.5 billion, down 74.1% QoQ, owing mostly to seasonal factors, typical of the 4th quarter, including ERP and impairment losses and provisioning.
Let me briefly summarize what's noteworthy of the 2017 business results.
First, bank and non-bank subsidiaries alike all achieved balanced growth in terms of net income and maintained the net income growth trend for the 4th straight years.
Healthy improvement of the overall businesses including increase in interest income and stabilizing provisions continued and especially last year, we became the first financial company in Korea to introduce expanded matrix organization, divided into GIB, Global and digital businesses to ensure the differentiated strategic growth based on the 2020 SMART Project.
Such One Shinhan efforts with Shinhan's competitiveness have started to yield visible results.
The net income of the global division of the bank is up 30.8% YoY, posting KRW 235 billion.
This is the result of focusing on reinforcing profitability in the key Asian markets for quite some time and this year by engaging in broad range of growth strategies we will do our best to expand and diversify our profit base.
The acquisition of the Prudential Vietnam Finance Company announced last month is also a part of our strategy to identify the new growth engines and will contribute substantially to accelerating ‘Glocalization.’ Secondly, our differentiated loan growth strategy focusing on Non-audited SMEs and improving NIM have led the Group's interest income to grow for three consecutive quarters.
This year as well through to a differentiated growth strategy focusing on SMEs based on the systematic adjustment of the portfolio anchored on profitability, we will continue to expand our interest income base, key source of the profitability for the Group.
Thirdly, in Q4, we carried out the early retirement program at Shinhan Bank and Shinhan Card.
In Q4, the number of applications received was up from last year, with the Bank and Card company receiving 707, 199 number of applications and the expense recognized was KRW 280 billion approximately.
Through this year's latest efforts to reform our cost structure, we will be able to further enhance our cost efficiency and profitability on the financial front and organizationally for the Group, we will be able to establish the dynamic company culture that is characterized as strong execution and agility.
Finally, the Group's recurring credit cost ratio posted 34bp, down 13bp YoY on the back of record strong asset quality and risk weighted optimal growth strategy greatly contributing to improving the Group's net income.
Page 4, SFG income by category.
As you can see from the table on far left, Group's interest income reached KRW 7.8 trillion, up 8.8 % YoY. Shinhan Bank's loan in KRW increased 1.9% QoQ, 5.9% YoY through balanced growth in both retail and corporate loans.
A robust growth momentum is maintained with a growth strategy of concentrating on Non-audited SMEs.
The Bank's NIM improved 2bp QoQ to 1.58% thanks to efforts made for active loan growth with defensive pricing policy, enjoying more low cost deposits.
On a cumulative basis, the NIM of the Bank improved 7bp YoY to 1.56%, contributing to the Group's overall interest income gains.
Now please turn to page 5.
The Group's Non-interest income fell 15% YoY to KRW 1.3412 trillion, mainly due to the disappearance of last year's one-off factor where there have been considerable gain on security disposals. And it also has to do with impairment losses of approximately KRW 150 billion in Q4, 2017.
On the other hand, due to sound performances coming from the trust, fund, and bancassurance products, the Group's fee income rose 9.3% YoY to KRW 1.711 trillion, contributing to a stronger income base.
And now moving on to SG&A.
The Group's SG&A increased 6.7% YoY to KRW 4.8112 trillion. This was due to the Q4 ERP.
And if we exclude that factor, other Non-wage related expense, such as advertisement cost, is continually decreasing.
So overall, the SG&A is maintained at sound level.
We will continue to devote ourselves to strategic cost cutting efforts to minimize the expense increase by employing efficient channel strategies and improving work processes.
The Group's CI ratio has been improved by 1.0 percentage point YoY to 49.3% and is at a sub 50% level.
And now the Group's credit cost.
The Group's provisioning amounted to KRW 544.3 billion, which was a drastic reduction of 53.3% from last year, KRW 1.165 trillion.
The Group's credit cost ratio was greatly improved by 13bp YoY to 34bp even if we exclude the write-back of KRW 360 billion from Shinhan Card in Q1.
Shinhan Bank's credit cost ratio was also significantly dropped from last year's 33bp to 21bp.
Shinhan Card's credit cost ratio is showing a robust 150bp, thanks to strongest asset quality in years.
Page 6, Group's asset quality, as of year-end last year, the Group's NPL ratio was 0.62%, a 0.12 percentage point improvement YoY and posting a record low level.
This was possible because consistent risk management efforts paid off and bringing down the NPL by 11.5%.
The delinquency ratios of Bank and Card are at their historical lows of 0.23% and 1.27% respectively.
The Group's and the Bank's BIS ratios are estimated to be 14.7% and 15.4% respectively and their CET1 ratios, 12.8% and 12.7% respectively.
The Group's CET1 ratio was up 0.1 percentage point YoY and the Bank's down by 0.2 percentage point.
Shinhan Card's adjusted capital ratio at year-end was 24.5%, maintaining a stable level.
The Group's dividend per share for the fiscal year 2017 was resolved at KRW 1,450 at the BOD meeting and if it is passed at the annual general meeting then the dividend payout ratio is expected to be 23.6% and the dividend yield, 2.9%.
The decision has taken into consideration the rational level of capital in light of the regulatory movement to higher capital ratios.
We will continue to implement our dividend policy with consistency, balancing both shareholder value and capital adequacy.
Page 7 and onward discusses more detailed information about the Group's and subsidiaries' performances as well as major business indicators.
This concludes the earnings presentation for the whole year of 2017 of Shinhan Financial Group.
Thank you very much.