FY 2018 Earnings Release

Greetings, everyone.
I am the new Head of IR in this year.
Thank you all for participating in today's earnings call.
Let us now begin the 2018 business results presentation of Shinhan Financial Group.
We have here with us at today's business presentation our CSO, Park Woo Hyuk, CFO Yu Sung Hun and Head of Finance, Kim Tae Yeon.
We will first hear the 2018 full year business results presentation by our CFO, Yu Sung Hun, and then have a Q&A session.
Let me now invite our CFO, Yu Sung Hun, for the 2018 business results presentation.

Greetings.
I am Yu Sung Hun, the new CFO of Shinhan Financial Group from this year.
I would first like to express my deepest gratitude to all the shareholders, investors, analysts and journalists from home and abroad who are participating in the 2018 full year business results presentation.

From now on, I would like to walk you through the 2018 full year business result of Shinhan Financial Group.
I will start with the group income on Page 3 of the presentation material.
Shinhan Financial Group's 2018 full year net income posted KRW 3,156.7 billion, a 8.2% increase Y-o-Y.
There were visible results of the 2020 SMART Project, which started from 2017.
And with the One Shinhan strategy, the bank, investment, capital and other group subsidiaries' performance improved, leading to a record-high yearly net profit and a sustainable management basis was established.

On the other hand, the Q4 quarterly net income posted KRW 513.3 billion, a 143% increase Y-o-Y.
This was because of the seasonal factors, which occurs in Q4 of every year, including ERP cost, and others greatly declined Y-o-Y.
I will now explain the 4 major characteristics of 2018 business results.

First,
through balanced growth between bank and non-bank, the net income of all group subsidiaries has achieved balanced growth Y-o-Y, leading to a 5-year in a row net income growth trend.
All operational fundamentals, including group fee income growth, cost management and provisioning stabilization trend is continuing, and in particular, with the balanced growth strategy between SMEs and household and the stabilization of the NIM through stable funding management, the group interest income grew again for 3 continuous quarters in a row.
Non-bank also, despite the difficult internal and external operating environments, grew stable portfolio organization posted more than KRW 1 trillion of net profit for 4 years in a row.
Shinhan Investment Capital, Jeju Bank and Savings Bank all achieved the highest net profits since they were established.
Going forward, through our balanced growth strategy and profitability-focused portfolio adjustment, we will expand our profit bases.

Second,
based on the 2020 SMART Project, in the global and the capital market, efforts to strengthen One Shinhan competitiveness led to differentiated visible results, accelerating our group's profit diversification.
Bank global net income, in particular, through a long-term focus on profitability enhancement, posted KRW 321.5 billion, a 36.8% increase Y-o-Y and rose to 14% of the bank's profitability.

This year, in order to accelerate glocalization in non-bank as well, we will do our best to expand and diversify our profitability bases.
On the other hand, in the capital market, through expanding the One Shinhan cooperation collaboration system, we are continuing our remarkable growth trend each year.
In GIB, our IB, KRW 479.1 billion of operating income was realized, a 58.1% and PWM related to retail also a KRW 285.1 billion of operating income was posted, a 10% growth Y-o-Y.

Third,
from a continuous strategic cost-cutting perspective, Shinhan Financial Group has been consistently implementing ERP each year.
In Q4 of last year, a total of 296 employees in the Bank, Investment, Life Insurance and others were included in the ERP, leading to around KRW 100 billion of expenses that was recognized in Q4 through continued efficiency improvement effort, a basis to stably continue the group's cost management in the future was established, through digitalization and organizational system that can nimbly respond to diverse market environmental changes was established last year.

And, last but not least, despite the factors that may lead to provisioning increase from asset quality deterioration, which has been building up from last year, our systematic and aggressive risk management continued, leading to a continuation of Shinhan's credit risk management advantage.
As a result, the group's normalized credit cost ratio recorded the lowest level in history and posted 26 bp, a 8 bp decrease Y-o-Y, and contributed greatly to the group's net income improvement.

Let's go to Page 4,
the income in more detail. On the graph on the far left side, the group's interest income recorded KRW 8.58 trillion, a 9.4% increase Y-o-Y, and the bank's loans through balance between household and corporate, increased 2.2% in Q4, a 7.2% growth YTD. And through expansion of non-audited SME-focused differentiated growth, a robust growth trend is being maintained.

In the case of the bank's NIM, despite the high asset growth, through asset management, taking into consideration profitability, and through stable funding cost improvement, the NIM decline was limited to 1 bp drop Q-o-Q and, on a cumulative basis, it posted 1.62%, a 6 bp improvement Y-o-Y, contributing to the group's interest income.

Let's now go to Page 5.
The group's noninterest income rose 4.3% Y-o-Y to KRW 1,399.5 billion. Without particular one-off gains from securities transactions that occurred in the same period last year and except for the one-off gain on sale of Visa card stocks, the marketable securities-related P&L maintained a similar level Y-o-Y despite the considerable market volatility in 2018.
Fee income grew 13.3% Y-o-Y due to an increase in brokerage and IB fees.
Now moving on to SG&A cost. The group's SG&A increased 32.1% Q-on-Q due to the Q4 ERP, but decreased 1.4% Y-o-Y. An increase in SG&A will be likely contained and managed appropriately as the strategic cost-cutting efforts through the digital platform are becoming more visible.
The group's and the bank's CI ratios are 47.5% and 47.3%, respectively, each showing an improvement of 4.9 percentage point and 6.6 percentage point.
This is the lowest CI ratio in the past 6 years.

And now, the group's credit cost. FY '18 group's provision for credit losses amounted to KRW 738.6 billion and cumulative group credit cost ratio 26 bp, showing the lowest level. Shinhan Bank's credit cost ratio also stood at 10 bp, which is far below the 5-year average of 30 bp. The steady trend is continuing.

And now moving on to Page 6,
group's asset quality. As of year-end last year, the group's NPL ratio had improved 0.09 percentage point Y-o-Y, recording a historical low of 0.53%. This was possible because continued risk management efforts led to a 7.6% NPL reduction.
Shinhan Bank's and card's delinquency ratios each recorded 0.25% and 1.30%, showing a slight increase Y-o-Y, but they are still being maintained at a stable level.
The group's and the bank's BIS ratios were estimated at 14.9% and 16.0%, respectively, and CET1 ratios 12.6% and 12.8% each.
Shinhan Card's adjusted capital ratio was 21.7%, keeping a stable level.
The BOD had proposed a dividend for FY '18 of KRW 1,600 per share. And if it is passed at that Annual General Meeting, we could expect a dividend payout ratio of 24% and dividend yield of 4%.
This has been decided in consideration of reasonable capital adequacy required for future inorganic growth and strengthened capital ratio regulations.
We will continue with our consistent dividend policies that are aligned with both shareholder value and capital adequacy requirements.
Please refer to the remaining slides in the back for further information about the subsidiaries.
Please read them at your leisure for your reference.

May I direct your attention to Page 7,
which talks about notable results of the 2020 SMART Project initiatives.

First,
balanced growth.
We built the 2020 strategy platform, which enabled the bank's net income to grow 33% Y-o-Y and non-bank income to grow 16% Y-o-Y.
Robust growth continued due to harmonized improvement shown among banks and non-bank group.
We also implemented successful M&As to install new growth engines in the group's business portfolio.
With the consolidation of Orange Life as a subsidiary and acquisition of Asia Trust announced in October last year, we expect the non-bank earnings base to expand at an accelerated pace.

Second,
NI from bank's global business grew as much as 37% Y-o-Y, showing that glocalization is on the right growth trajectory.
In addition, acquisition of PVFC and a search for a new growth engine for the group was given final approval in January.
We plan to expand the global business, not only in banks, but non-bank side. We plan to create unique results in the non-banking sector, concentrating on the core markets.

Lastly,
concerning the upgrade to Digital Shinhan.
Starting last year, the group's major platforms, including bank and card, were completely revamped to provide differentiated customer experience.
On the back of diversified digital platform, its contribution to operating income steadily increased, marking KRW 1,185.9 billion, up KRW 247.1 billion Y-o-Y.
Shinhan Financial Group has executed differentiated growth strategies with a strong will and drive, and we will continue to do our best to create continued financial results, riding the One Shinhan growth momentum under a consistent strategy direction.
Lastly, we will continue to practice compassionate finance not only to deliver distinctive results, but to position ourselves as a sustainable management company.

Thank you, this concludes the business results presentation for the full year 2018.