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3Q FY 2018 Earnings Release

Good afternoon.
I am Yu Sung Hun, head of the IR team.

I'd like to thank everyone for taking part in today's earnings presentation.
I would now like to begin the 2018 Q3 earnings presentation.
Today, we have with us Vice President Woo Young-woong, in-charge of strategy; and our CFO, Jang Dong-ki; and Managing Director Kim Tae-yeon, who is in-charge of finance.
In today's earnings presentation, there will be a presentation made by our CFO, Jang Dong-ki, on the business results of Q3 2018.
And then we will have a Q&A session.
And now we would like to invite our CFO, Jang Dong-ki, for explanation of the business results for Q3 of 2018.

Good afternoon.
I am Vice President Jang Dong-ki, the group CFO.

First of all, I would like to thank investors, analysts and journalists from in and out of Korea for taking part in the earnings presentation of Shinhan Financial Group.
From now on, let me walk you through the main highlights of Shinhan Financial Group's 2018 Q3 business results.
We will begin from Page 3 of the presentation deck, titled group's income.
Net income of Shinhan Financial Group in Q3 of 2018 is up 3.7% Y-o-Y, posting KRW 847.8 billion.
And cumulative net income is KRW 2,643.4 billion, although it appears to be down 2.3% Y-o-Y when excluding the one-off card provisioning write-back of last year, same period. Quarterly net income is up 8.8%, maintaining a solid improvement.
The results of the 2020 SMART Project, which has been building up since last year, is becoming more visible and bearing fruit.
Let me briefly, some of the key highlights of the performance for Q3 2018.

driven by balanced growth between the bank and non-bank subsidiaries for 3 straight quarters, ordinary net income of over KRW 800 billion has been posted, attesting to the sound recurring profitability of the group.
Net interest margin has stabilized into stable funding and lending as well as balanced group strategy between SMEs and the retail segment.
This has led the interest income of the group to grow for 3 consecutive quarters.
Going forward, we intend to continue to expand our profit base through a balanced growth strategy and a portfolio adjustment focusing on profitability.

the key strategic pillar of the group's 2020 SMART Project is the global business division and GIB division, which are seeing accelerated income generation.
The net income of the bank of global business is up 24.4% Y-o-Y. It compares to KRW 244.8 billion.
And GIB posted KRW 379.6 billion in operating income, up 52.2% Y-o-Y through an expanded system of One Shinhan in collaboration.

the group's SG&A in Q3 is down 3.3% Q-o-Q on the back of stabilized general and administrative expenses.
Also, efficient channel strategies and business processes improvements translated into expanded digital customer base, resulting in the Q3 CI ratio posting the lowest level in 6 years of 44.0%, demonstrating that fiscal cost efficiency and profitability improvement continues.

systematic and proactive risk management continues, reconfirming Shinhan's strength and in credit risk management.
The group's NPL ratio is at a record low, coming down to 55 bps. And the credit cost ratio has seen downward stabilization, posting 27 bps, thus contributing to the group's improving net income.

On Page 4,
let me provide more details about each income item.
Now if you look at the table at the farthest left.
The gross interest income is up 10.1% Y-o-Y, to reach KRW 6.35 trillion.
The bank's Korean won loan is up 5.0% over last year, maintaining a solid growth trend.
The net interest margin of the bank, despite the fall in the market rate in Q3, is down only 1 bps, standing at 1.62%, contributing to the increase in group's interest income driven by qualitative asset growth strategy and stable funding of low-cost deposits.

Next, on Page 5.
The group's non-interest income is KRW 1,061 billion, up 5.1% Y-o-Y.
Income related to marketable securities is down 13.1% Y-o-Y due to the impact from a bearish capital market, but fee income is up 15.3% Y-o-Y on the back of securities brokerage and financial product sales commissions.
Let me now move on to SG&A costs.
For Shinhan Financial Group, the SG&A cost at KRW 3,302.6 billion is an increase of 2.4% Y-o-Y but decrease of 3.3% Q-o-Q.
The costs, we expect, will come well under control as strategic cost-cutting efforts begin to bear fruit.
For your information, CI ratio for the group and the bank recorded 44% and 43.2%, improvement of 2.9 percentage point and 3.1 percentage points, respectively.

Next is credit costs for the financial group.
Shinhan Financial Group's Q3 cumulative credit cost provisioning is KRW 568 billion, with a credit cost of 27 bp, which is a record low for Q3 of any given year.
The credit cost ratio for the bank remains on a stable trend at 10 bp, far lower than past 5 years' average of 30 bp.

Page 6
covers the group's asset quality.
At the end of September, NPL ratio for the group posted record low of 0.55%, an improvement of 0.7 percentage points compared to the previous year.
NPLs dropping by 5.2% as a result of consistent risk management led to the record number.
Delinquency ratio for the bank and the credit card stand at 0.26% and 1.44%, respectively.
Tentative numbers for the group and the bank BIS ratio at the end of September 2018 are 15.3% and 16.4%.
CET1 for the group and the bank were up from the end of last year 0.1 percentage point and 0.5 percentage point to 13% and 13.3%, respectively.
Capital adequacy ratio of Shinhan Card at the end of September was kept stable at 21.7%.
Please refer to the rest of the presentation deck for more detailed earnings results and major indicators.

Now on Page 7
I would like to present you the progress on the 2020 SMART Project, group's mid-term goal by 2020 by breaking down by major strategic tasks.

in terms of strategies for the group's balanced growth, building of 2020 strategic platform has led to continued and balanced growth between the bank and other subsidiaries.
The bank and the non-bank subsidiaries saw their net income grow by 13% and 14% Y-o-Y, respectively.
Interest and noninterest income were also up 10% and 15%, thus maintaining steady growth trends.
To strengthen non-bank business competitiveness, announcement to acquire Orange Life was made last September.
Shinhan Investment Corp.
launched an asset management fund in Indonesia, a first for a Korean financial institution.

glocalization in relation to globalization continues to do well, with the bank's global income growing 24%.
Net income contribution by the global channel reached 13%, mainly from the core Asia markets helping to overcome the growth limitation within a Korean market.

the progress on the upgrade to Digital Shinhan. Since last year, platforms of major subsidiaries such as the bank and credit card were broadly reformed.
Contribution by the diversified digital platforms to the growth of operating revenue continued, recording KRW 712.9 billion cumulatively in Q3.
Shinhan Financial Group, with its clear orientation towards execution, has boldly implemented differentiated growth strategies.
Going forward in 2019, efforts will continue to ensure sustained financial innovation through consistent strategy of One Shinhan.

utmost efforts will be made to ensure ever improved business performance and sustainability through the group's mission of compassionate finance.

Thank you.