Shinhan Financial Group Q3 2024 Earnings Report

Shinhan Financial Group EPS Results

• Actual EPS: $1.76
• Consensus EPS: $1.74
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Shinhan Financial Group Revenue Results

• Actual Revenue: $3.11 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Shinhan Financial Group Announcement Details

• Quarter: Q3 2024
• Date: 10/25/2024
• Time: N/A
• Conference Call Date: Friday, October 25, 2024
• Conference Call Time: 1:00AM ET

Shinhan Financial Group (NYSE:SHG) is a South Korea–based financial holding company headquartered in Seoul. Established in 2001 as a banking and financial services group, it brings together a range of financial subsidiaries operating under the Shinhan brand, including commercial banking, card services, life insurance, securities and asset management businesses. The group serves both retail and corporate clients and is one of the leading diversified financial institutions in Korea.

The company’s principal activities span retail and corporate banking, credit card issuance and payment services, life insurance and related protection products, brokerage and investment banking, and asset and wealth management. Its product set includes deposit and lending products, transaction banking for businesses, mortgage and consumer loans, credit and charge cards, investment and retirement products, brokerage services, and managed funds. Shinhan has also invested in digital banking platforms and fintech capabilities to extend customer-facing channels and improve back-office efficiency.

While its core market is South Korea, Shinhan Financial Group operates internationally with business units and branches across multiple regions including Asia, the Americas and Europe, serving multinational corporations, small and medium-sized enterprises, and individual customers. The group pursues growth through regional expansion, strategic partnerships, and local service offerings adapted to each market.

Shinhan is governed by a board of directors and an executive management team that oversee risk management, regulatory compliance and strategic initiatives. The group has emphasized digital transformation, customer-centric product development and prudent risk controls as key elements of its operating strategy as it seeks to expand its franchise both domestically and abroad.

Shinhan Financial Group Q3 2024 Earnings Call Transcript

Key Takeaways

• Shinhan Securities reported a KRW 135.7 billion loss on KOSPI 200 futures trades unrelated to its LP hedge, weighing on Q3 noninterest income and cutting the group CET1 ratio by 6 bps.
• Group net income fell 13.1% QoQ to KRW 1.239 trillion in Q3, as strong loan-driven interest income (+1.2% QoQ) was more than offset by securities/derivative losses and overseas investment impairments.
• The Board approved a Q3 dividend of KRW 5.41 per share and a KRW 400 billion share buyback/cancellation plan, reinforcing its commitment to year-round shareholder returns while maintaining a ~13.13% CET1 ratio.
• Bank loans grew 3.5% QoQ (10.2% annualized), supporting a 1.2% rise in interest income, but NIM slipped 4 bps to 1.56% amid lower market rates, with further compression expected in Q4.
• The group’s credit cost ratio improved 4 bps HoH to 44 bps, and asset quality remains stable as real-estate exposures undergo normalization, with provisioning set to normalize around 45 bps by year-end.

Presentation

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Good afternoon, I am Kim Jiho from the IR Group, IR Team at Shinhan Financial Group. Thank you for taking the time out of your busy schedule to attend Shinhan Financial Group's Q3 2024 earnings presentation. I will be moderating today's earnings presentation today. We have with us today the Group CFO, Cheon Sang-young, Group CSO, Koh Seok-heon, Group CRO, Bang Dong-kwon, Shinhan Bank CFO, Kim Ki-hong, Shinhan Card CFO, Choi Jae-hoon, Shinhan Securities CFO, Lee Hee-dong, and from Shinhan Life, CFO Park Kyung-won. We'll first start with a presentation on our overall Q3 results, followed by a Q&A session. Now, I'd like to turn it over to CFO Cheon Sang-young for a presentation on our business performance. Good afternoon, everyone. Thank you for joining us for our Q3 2024 earnings presentation.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Before going through the overall business performance, I would like to discuss the recent losses on derivatives trading at Shinhan Securities. As we shared in our disclosures and in a letter last week from the chairman of the Shinhan Financial Group's board of directors and the CEO, department of Shinhan Securities that provides liquidity to exchange traded funds and performs hedging operations, incurred large losses due to a trade in KOSPI 200 futures unrelated to the LP hedge. We recognized a loss of KRW 135.7 billion in the third quarter financial statements as a result of this incident and do not expect any further losses. In addition to the capital reduction due to the losses, the impact on the group, CET1 ratio from this event, including the impact of the increase in operational risk RWA, is -6 basis points.

[Cheon Sang-young, CFO at Shinhan Financial Group]

We sincerely regret that this incident occurred while we are working to strengthen our internal control system across the group. Given the seriousness of the situation, the group's board of directors and the management have committed to informing our shareholders as soon as possible of this incident and sharing updates. Currently, Shinhan Securities is actively cooperating with the regulators' investigation and has launched its own contingency response force to diagnose the root cause. Together with the Shinhan Financial Group, they are reviewing the deficiencies in the internal control system and taking steps to improve it. We will examine our internal control system from the ground up and fix it, bearing in mind once again that customer trust and strong internal controls are the essence of our business.

[Cheon Sang-young, CFO at Shinhan Financial Group]

We're also committed to ensuring that this incident does not impact the enterprise value enhancement plans that we have been communicating. So from now on, we'll move on to our Q3 results. Please refer to page 5, financial highlights. In Q3 of 2024, despite the removal of one-off factors, such as credit costs related to real estate PF, large losses were incurred in the non-interest income segment, with net income posting KRW 1.2386 trillion, down 13.1% QoQ. Interest income, driven by growth in the bank's loan book, which continues from the first half of the year, increased through efficient ALM, up 1.2% QoQ.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Non-interest income decreased by 25.6% QoQ due to the aforementioned losses in securities derivative transactions, as well as the conservatively recognized valuation impairments on overseas alternative investments. SG&A expenses were managed fairly, increasing only 1.2% QoQ, despite the impact of depreciation. The group's cumulative CIR for the third quarter improved by 1.2 percentage point YoY to post 37.9%, driven by higher operating profit before expenses, along with well-managed SG&A expenses. The group's cumulative credit cost ratio for the third quarter decreased by four basis points compared to first half of the year, posting 44 basis points, primarily due to the baseline effect of additional provisions recognized in the prior quarter related to real estate PFs and Asset Trust. Next is capital ratio and the shareholder return policies.

[Cheon Sang-young, CFO at Shinhan Financial Group]

The CET1 ratio at the end of September 2024 is estimated to come to 13.13%. In addition, the board of directors today approved a third quarter dividend of 541 per share and resolved to undertake share buyback and cancellation totaling KRW 400 billion, which includes the amount for 2025 as well. Let me explain further about the treasury stock. To accelerate our shareholder return policy, which we announced in July with our enterprise value enhancement plan, following share buyback of KRW 250 billion in the fourth quarter of 2024, through buying back another KRW 150 billion of treasury shares in early 2025, we intend to fulfill our policy of year-round share buyback.

[Cheon Sang-young, CFO at Shinhan Financial Group]

We have been engaged in share buyback and cancellation on a regular basis throughout the year, and the amount to be undertaken for the first quarter of 2025 will be announced in our annual earnings release next February, along with the quarterly dividend per share, subject to board approval, and going forward, we will strive to flexibly respond to capital-related regulatory changes based on our strong financial stability, while efficiently managing our capital ratios, so that we can fulfill the shareholder return policy we promised through our Corporate Value-up Plan. On page six, we present the group's key profit metrics. Please refer to them at your leisure. Yes, on to page seven for further detailed performance for the group.

[Cheon Sang-young, CFO at Shinhan Financial Group]

In the third quarter, despite overall deterioration in profitability from the decline in market interest rates, the group's interest income was supported by an increase in interest-bearing assets centered around the bank-

[Cheon Sang-young, CFO at Shinhan Financial Group]

... KRW loans, recording a total of KRW 2,850 billion, up 1.2% QoQ. Next, bank KRW loans increased by 3.5% during the quarter, for annual growth of 10.2% as the key driver of interest income growth. Household loans increased by 6.3% QoQ, driven by real estate purchasing demand, and increased our policy loans for the vulnerable borrowers. Corporate loans increased by 1.4% in the third quarter, centered around blue-chip corporate borrowers, as we moderated from the rapid pace of growth we saw throughout the first half. We intend to minimize loan growth in the fourth quarter relative to our group, our RWA budget, as we focus on enhancing profitability and asset soundness.

[Cheon Sang-young, CFO at Shinhan Financial Group]

In the second quarter, Shinhan Bank's NIM, despite negative impact from lower market rates, recorded 1.56%, down four basis points versus the prior quarter, thanks to our nimble ALM strategy. We defended the decline in yield on interest-bearing assets to five basis points, despite the decline in loan asset yields, through strategic management of our securities investments. In terms of our liability funding cost, it was improved by one basis point QoQ, as we issued long-dated bank debentures as preemptive debt funding, as we expect more intense competition in the funding market in the fourth quarter. We will maintain flexible interest rate policy as well as effective ALM to manage our margins proactively. The group's non-interest income recorded KRW 827.8 billion, down 25.6% QoQ, due to poor earnings from securities and derivatives.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Securities and derivatives earnings were down 47.1% QoQ, from KRW 135.7 billion in derivative trading loss by Shinhan Securities, as well as 71.2 billion in valuation loss from overseas alternative investments, which we recognized preemptively this quarter. Fee income declined by 3.5% QoQ due to poor fee income from Shinhan Card, despite the increase in IB earnings from the bank and securities business. SG&A is stable, increasing by 1.2% QoQ or 0.9% YoY. Our group CIR improved by 1.2 percentage points year-on-year, as operating profit before expense increased 4.2%.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Cumulative credit cost as of the third quarter was forty-four basis points, improving by four basis points versus the first half, as the impact of additional provisioning against real estate PF Asset Trust exposure dissipated, and also from asset growth. Cumulative credit cost, when normalized to remove the effect of additional provisioning, was thirty-two basis points, similar to end of June levels. In the future, we'll continue to consistently implement the government-led measures to normalize real estate PF loans. We will also maintain well-calibrated management of asset quality and enforce tight management of recurring credit cost. Onto asset soundness, they are stable as we've been performing write-offs and sales of NPL. Bank delinquencies remain stable after improving by five basis points in the second quarter.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Card delinquencies saw additional improvement this quarter as well, while the two-month delinquency migration rate, which is a leading indicator for delinquencies, has remained flat. This stable trend in asset soundness is due in large part to proactive write-downs and sales as part of our asset management. And despite the one rate policy cut that we have seen recently, interest rates still remain high amid a slow recovery in the real economy, so it's hard to say that asset quality is seeing trend growth or improvement. Consequently, we will stay vigilant and maintain conservative stance in terms of asset quality. Please refer to the slides for a breakdown of net profit by affiliates.

[Cheon Sang-young, CFO at Shinhan Financial Group]

And moving on, as of the third quarter, 2024, on a tentative basis, the CET1 ratio was measured at 13%, which is an improvement of seven basis points QoQ. Although risk-weighted assets increased by KRW 4.1 trillion from the bank's asset growth, the effect of reduced FX rates and stable earnings performance resulted in a QoQ increase of 1.8% in common stock equity. In the fourth quarter, similarly, we intend to minimize asset growth while delivering stable financial performance to manage our CET1 at 13% or above. And I've already commented on our shareholder return policy, and we will move on. Pages 11 to 12 offer details on our digital and sustainable management initiatives, so please refer to the slides.

[Cheon Sang-young, CFO at Shinhan Financial Group]

On page fourteen, as we promised when we announced our Value-up Program in July, here are the results from our implementation review across six core indicators up to the third quarter. It is still quite early on, but moving ahead, led by our board of directors, we will continue to closely monitor implementation of our Value-up Plan and proactively communicate our findings with the market to keep you updated. According to our current timeline, we are planning to provide a review of our execution results when we announce our full year performance next year, while also updating you on our implementation plan in greater, more concrete terms. We look forward to your interest as we proceed. This concludes our overall earnings presentation. Thank you very much.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

We will now proceed to our Q&A session. For those of you who have questions, please use the Raise Your Hand function on the Zoom. And for your information, questions in English will be interpreted consecutively. So after the question is posed in English, a Korean interpretation will be provided.

[Cheon Sang-young, CFO at Shinhan Financial Group]

... Won-Jae Hong from HSBC will ask the first question.

[Won-Jae Hong, Analyst at HSBC]

Can you hear me well?

[Cheon Sang-young, CFO at Shinhan Financial Group]

Yes, we can hear you well.

[Won-Jae Hong, Analyst at HSBC]

In a very difficult environment, thank you very much for the good performance that you have delivered. I have two questions. The first question has to do with the shareholder return rate. So up until 2027, 50% TSR has been announced, but the share buyback, if we base our calculations on those numbers, last year's was at 36%, and it's going to go up 2% from that. So by 2027, if you're going to reach that target of 50%, so this year it was raised 2%, and going forward, every year you have to raise it by 4% every year.

[Won-Jae Hong, Analyst at HSBC]

Shinhan Financial Group, we do believe you will keep your promise, and we do believe you have the capability to keep your promise. But from the 2 percentage-point increase, if we are to raise that to 4% going forward every year, what kind of trigger do you need, a CET1 growth or earnings growth? Based on what do you think we can raise the TSR rate increase from 2% to 4% going forward from next year?

[Won-Jae Hong, Analyst at HSBC]

My second question has to do with NIM, the NIM outlook. So interest rate has been cut, and so the NIM is also declining in the fourth quarter and also for next year. What is your outlook for NIM?

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Thank you, Mr. Hong, for your questions. While we are preparing the answers, please hold.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Thank you very much for the question. With regards to the TSR rate, and then the second question was on the NIM. So I'll take the first question, and the second question will be answered by the CFO. In the case of the shareholder return rate, based on the share cancellation up until 2027, we announced that the 50% target. And in the course of carrying out that promise, as you have mentioned, the image that we have in mind, a gradual increase. That is our basic assumption going forward. So as you can see from today's plan of our share cancellation, this year we have done KRW 700 billion, and 2027, the TSR, and ...

[Cheon Sang-young, CFO at Shinhan Financial Group]

And we have said that KRW 450 million of share cancellation will be done. So, I think based on those announcements, we can anticipate the amounts of this year. KRW 400 billion was announced, and KRW 150 billion for next year. January and February was included as well. So that means that we will expand the shareholder returns going forward. And also, if the share buyback and cancellation amount grows, this can have an impact on the market, and we want to distribute that impact throughout the year. And what your question was, in order to carry out our promise, what kind of trigger is necessary?

[Cheon Sang-young, CFO at Shinhan Financial Group]

So we have just started, and what we can say at this point is that confidently, including share buyback and cancellation, the shareholder return-related very specific targets were announced, and the action plan for that has been announced as well. So we do think we can keep that promise. And also, CET1 ratio is not going to go up continuously. We're going to manage it at 13%. So, and the share cancellation and new shareholder return, if the current earnings growth is underpinning these plans, I think that promise can be kept going forward. Thank you very much for your good question. I'm the CFO. So NIM in the third quarter, the market declines and also the benchmark rate impact was reflected as ...

[Cheon Sang-young, CFO at Shinhan Financial Group]

It was 1.56, so down four basis points. In the fourth quarter, the interbank rate cut impact will continue, and the NIM decline trend will continue. With regards to funding, we will continue to manage the funding rate in order to manage the NIM. And then this year, the NIM, as we have continuously announced compared to last year, it will go down slightly. That is how we're going to manage it. And you asked about the outlook for next year. And next year, additional cuts of benchmark rate is expected, and LCR-related response is necessary. So the NIM decline trend we expect to continue, and the profitability based on growth of assets and also funding rate will continue to be managed in order to defend the NIM. Thank you very much.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

I hope and believe that that was a sufficient answer to your questions. It does not seem that there is anybody lining up to ask a question, so we will wait until the next question, please. We have a question from Do Ha Kim from Hanwha Investment & Securities. Please go ahead.

[Do Ha Kim, Analyst at Hanwha Investment & Securities]

Yes, I have a very simple question. In terms of next year targets.

[Do Ha Kim, Analyst at Hanwha Investment & Securities]

... What is your target in terms of loan growth? And, what about RWA growth? What is your assumption? And RORWA, if you have a assumption on that, I would appreciate some color on that.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yes, please, bear with us and wait just a moment as we prepare to answer.

[Cheon Sang-young, CFO at Shinhan Financial Group]

For next year, our targets in terms of asset growth, well, when we announced our value up program, one of the key messages then was that up to now, we've been focused on quantitative growth, but we want to more toward qualitative growth and change the paradigm to be more focused on capital efficiency as measured by ROE. In line with the value up program, our ROC target, well, we want to manage it at a group-wide level, internalize that as a key metric. In terms of asset growth, we're planning, of course, we're in the process of writing out our business plan, but, based on RWA, our target loan growth is about 5%. And then, so loan asset growth. RWA growth of 5%, loan asset growth will be in line with that.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Regarding RORWA, we are using ROC as it is more intuitive, so our target ROC would be about 13%. So I think you can calculate the RORWA, the equivalent, figure. Perhaps, I can share with you further details on the RORWA at a later opportunity, if required.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

I hope that provided a sufficient answer to your question, and we will receive the next question. Next question is from NH Securities, Jun Sup Jung.

[Jun-Sup Jung, Analyst at NH Securities]

Good afternoon, Jun-Sup Jung from NH Investment & Securities. I have two questions as well. So the first question is on the larger-than-expected share buyback program that is very positively viewed. But going forward, this size of share buyback and cancellation every quarter, can we expect that it will be continued? And so, I think you are speeding up given the level of stock price increase. But going forward, if the current stock price level is maintained, and then before 2027, the share reduction level that you target, I think that can be achieved before 2027.

[Jun-Sup Jung, Analyst at NH Securities]

So then, going forward, PBR one time, would that be the basis, or would the priority be on reducing the number of shares? Can you provide guidance on this? And my second question is on going forward, the outlook for the provisioning.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Thank you very much for those questions. While we are preparing the answers, please hold.

[Cheon Sang-young, CFO at Shinhan Financial Group]

You have asked two questions. With regards to share cancellation, so as we have mentioned, the targeted level is by 2027, KRW 450 billion is the target. The number of share reduction, that specific target has been given. By 2027, the number of shares, the cancellation of shares, we would like to accelerate that first. That is our top priority.

[Cheon Sang-young, CFO at Shinhan Financial Group]

We have announced this in our Corporate Value-up Program, PBR below one times, zero point eight. We think that cancellation is lower at that rate. So, well, we're going to place priority on cancellation of shares. Also, in terms of the speed for every year, as I've said, a gradual increase is our basic assumption going forward. But every year, the P&L and the CET1 ratio, depending on these factors, it may vary. Second, the outlook for provisioning, CCR outlook, I think, should be provided to you. As of the end of September, 44 basis points and ordinary CCR is 32 basis points. And in June, we have answered this question. In our view, by the year-end, the credit cost ratio is about around 45 basis points.

[Cheon Sang-young, CFO at Shinhan Financial Group]

The benchmark rate is declining. However, still, we have higher interest rate regime prevailing. And so in the short term, we don't think that the asset quality will improve significantly. But early this year, after the year-end and early next year, we think the situation will improve. And from a conservative point of view, we have set aside sufficient provisioning. So even if ordinary provision increase by the year-end, we think that the credit cost ratio will be around 45 basis points at the year-end. Thank you.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yeah, so I believe that should have been a sufficient answer to your question. And, there is no one in queue yet, so we will wait for the next question. So we have no one queuing to ask a question just yet, so let us wait another moment... Yes, from J.P. Morgan, Xian Zhou, please go ahead. Xian Zhou, please go ahead and ask your question, please.

[Xuan Zhou, Analyst at J.P. Morgan]

Yes, hello. Thank you for the chance to ask a question. I would like to ask more about your PF exposure. I understand that it has been reduced, and you commented that provisioning is lower. So I would like to ask that as we move more toward the end of the year, the PF market restructuring led by the government authorities altogether seems to be accelerating.

[Xuan Zhou, Analyst at J.P. Morgan]

So at the end of the year or next year, in terms of Asset Trust, any burden from that side or additional provisioning burden, how much should we expect overall? Is the situation improving in your view? Some banks are seeing some reversal of provisioning even, and as interest rates are being cut, we're seeing restructuring take place. So it does appear that maybe the conditions are improving more than had been expected. So if you could take us through the current status of your PF exposure, what is the situation in terms of provisioning or perhaps reversals at the affiliate level? What kind of impact there is, and cycle-wise, by early next year, do you think that it will overall be resolved? What are your expectations?

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yes, thank you for the question.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Please wait just one moment as we prepare to answer your question.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

Yes, thank you for the good question. I am Bang Dong-kwon, the CRO. So as you have said, interest rates, we're seeing a downward cycle, and so the market has some expectations blooming of recovering the PF market. However, that being said, as you mentioned, led by the government, there are efforts to normalize PF loans, and I think that likely it will proceed quite speedily until the start of next year. There may be some pricing adjustments across project sites. So for the non-banking sector, there might be still ongoing source of concern for additional NPL or loss.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

For our group, in terms of the situation for us, if I could comment, we have KRW 9.4 trillion in overall PF loan exposure, which is about 2.2% of our total loan book. As you know, the regulatory authorities every quarter is doing an economic viability assessment. So for all of our assets, we have already completed our viability review, and we have distinguished all of the assets into four categories. For anything cautious, we are proceeding by setting up restructuring and other plans. So 210 billion are actually, were, in plan or under plan in the second quarter. Also, in the third quarter, we have done a full-scope review, and we will submit to the government our plans for further restructuring.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

So overall, 440 billion is the restructuring amount, and we have set aside significant provisioning already against that exposure amount. So we think any risk of distress is very limited. That being said, the overall situation up to early next year is quite fluid. There are many moving parts, and it may be very variable. So we do believe that there still are risks that are outstanding, and so we will respond as we see the developments unfold.

[Cheon Sang-young, CFO at Shinhan Financial Group]

So right now, the CRO mentioned that, well, in terms of the overall real estate market, our exposure and how we are managing our exposure, he mentioned. Let me just elaborate a little bit more on our provisioning.

[Cheon Sang-young, CFO at Shinhan Financial Group]

As we have said, as of the end of June, in terms of our capital or Asset Trust or real estate, financing affiliates, we have done a full-scope review already, and we set aside provisioning at the end of June. Of course, afterwards, in the third quarter, there are some deteriorations on a recurring basis, and so we have been adding on, provisioning. And as, the analyst said, we have been doing refinancing or write-downs and sales of certain NPL, which has resulted in reversal of some of those provisions as well. We think that at the end of this year and past the start of next year, we think that we may see, gradual improvement, but as provisioning is concerned, there will be no large-scale provisioning as we did in the first half.

[Cheon Sang-young, CFO at Shinhan Financial Group]

But on a recurring normalized basis, there may be smaller provisioning that is required, but in relative to fundamentals, it will not be a meaningful scale. In terms of Asset Trust, the issue right now is about the completion guarantee exposure. Up to the first half of 2020, that was the peak of those contracts. So for those projects, they tended to be smaller in scale, so usually the time period was two to three years. So for the completion guarantee project sites, I think the peak period will be perhaps the second half of 2024, where we will have to mobilize lending or their lending to the banking accounts. But as we go, I think that banking account lending balance should diminish.

[Cheon Sang-young, CFO at Shinhan Financial Group]

But, there can, of course, there can be additional losses leading to increased lending to the banking account, but we do not expect any large provisioning that we saw in the first half of this year. We don't think that that is likely as well. But for loss absorption purposes, we will continue with incremental provisioning as we go.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

I hope that provided sufficient answer to the question. We have another question from Yafei Mi from Citi,

[Yafei Tian, Analyst at Citi]

Yafei Mi from Citi. RWA, a lot of external factors impact this. However, going forward, the RWA predictability, in order to enlarge the scope of analysis of RWA, the data related to RWA, can you disclose more segmented data about this? What kind of segmented data about RWA going forward?

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Thank you very much for a further question. While we are preparing to answer, please hold.

[Cheon Sang-young, CFO at Shinhan Financial Group]

So I'm not in a position to provide many specific details, but in implementing our Corporate Value-up Program, and we have given the focus on qualitative growth, and so managing RWA is all the more important. So going forward, with regards to RWA, very specific targets will be provided, and penalties for exceeding that target will be considered. And so, we're going to have more detailed management of RWA going forward. And what you just said, the data about RWA, you want us to share more data about that? So specifically, I'm not really sure what level of data you are asking. If you can provide more feedback, if we are in a position to provide those data, we will be willing to do so. And our CRO will add to that.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

I'm Bang Dong-kwon, the CRO. In the third quarter, let me give you some data. So, KRW 337 trillion of RWA has been increased by KRW 4.1 trillion in the credit RWA. The banks' asset growth and card asset growth, and then the FX effect was large, and so there wasn't any increase from the credit side. KRW 1.7 trillion was increased from the operation side. That was the ETF related losses from Shinhan Securities. In the case of the market, one ELS new issuance was occurred, so there was an increase of KRW 1.5 trillion from that.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

As the CFO said, going forward, we're going to strengthen the RWA budget system, and data alignment and data integrity is very important, and also simulation function. This analysis function will be strengthened, and going forward, starting from next year, based on all of these, RWA based portfolio management will be undertaken. I hope that provided a sufficient answer to your question. The detailed data about RWA, according to the disclosures that are made, based on the Financial Group Disclosure Act, we have sufficient details contained in those documents, and you can ask further questions to our IR Team.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

And next from Baek Doo-san from Hanwha Investment & Securities, please.

[Baek Doosan, Analyst at Hanwha Investment & Securities]

Yes, this is Baek. I would like to ask more about asset growth. In the third quarter, compared to other companies, you saw more rapid growth in household or mortgage loans. If you look at comments from the authorities this year, for banks with a big increase in household loans in establishing business plan, so there was some comment on constraining that rate of growth to take and to take measures like that. So if mortgage growth decreases last or next year compared to this year, what will be the drivers of asset growth within banking like this, the first half of this year? Will you focus on corporate loans or high ROC affiliates? Will they drive up more asset growth?

[Baek Doosan, Analyst at Hanwha Investment & Securities]

So in terms of asset growth, what are the key drivers, and how will that growth be allocated across the different affiliates, not just banking?

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

So please, wait as we prepare to answer that question.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

So you asked about growth. So for the bank loan side, the bank CFO will answer. And in terms of assets or resource allocation for next year, I think I will add on after he is finished. Yes, for our bank asset growth, originally, in the first half of the year, we had seen asset growth, front-loading of asset growth, in the second half, we wanted to focus more on qualitative growth. But in the first half, there was a lot of excess demand for household mortgage loans, like you said, and in the fourth quarter, it is overall, on a full year basis, we will maintain total household loan growth within our target level.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

So for next year, household loan growth, well, this year, the size was not that big, and so next year, we think overall, as we tighten management, the pace of household loan growth will either be similar to this year or otherwise moderate, so as the CFO continues to say, we want to focus on RWA-based ROE-driven growth at the bank, so in terms of allocation of growth, so this is not definitive at the moment. The financial business plan is currently being compiled, and so between the group companies and the holding company, we have been engaged in close discussions. The theme of those discussions recently has been for each of the different business domains, we want to assess the ROC and then examine potential, future potential and areas of improvement.

[Bang Dong-kwon, CRO at Shinhan Financial Group]

So that is where we are in terms of our discussions. Overall, in terms of RWA growth, for next year, I would say 5% or so. So it would be difficult to have any large-size growth that like we saw this year. But for household or corporate loans, risk rates are very low. So household loans, even if it's growing lower, there will be sizable potential to grow the corporate lending side. But we will focus on ROC or RWA-based profitability to guide our asset allocation or resource allocation, and that will be reflected into our business plan for next year.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Yes, I imagine that has been a full answer to your question, so we will move on.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

We don't have any further questions in the queue. We will wait for further questions. Yes, we have a question. We have Sinyoung Park from Goldman Sachs.

[Sinyoung Park, Analyst at Goldman Sachs]

Good afternoon. I'm Sinyoung Park from Goldman Sachs. I do have one question. In last quarter, the target ROE was 10% that you have shared with us. In order to achieve that, the non-banking subsidiaries and then the non-interest income, I think earnings has to be increased. In relation to this, what kind of direction or what kind of detailed plans can you share with us? Thank you.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Thank you for the question. While we are preparing the answer, please hold.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Thank you very much for those questions. In our corporate Value-up Program, we have two pillars.

[Cheon Sang-young, CFO at Shinhan Financial Group]

First, based on ROE improving and profitability, and also accelerated shareholder returns. In the beginning, with regard to shareholder returns, how we're going to implement our commitments, there was a question about that. Internally, share cancellation and increasing shareholder returns, we are internally confident about this matter. However, ROE is something that we're giving a lot of thought to how to enhance profitability based on this. And, let me share with you several points. First of all, the beginning, the starting point should be not quantity-based growth, but qualitative growth. We need to have this awareness shared throughout the group. And also qualitative growth, we need to set targets for this, and also evaluation and the resource allocation, it should all be aligned.

[Cheon Sang-young, CFO at Shinhan Financial Group]

And so in relation to that, when we set the plan for this year and next year, the overall group's ROE and the ROC of the subsidiaries must be aligned and internalized. That is being embedded in our plans, and we're going to strengthen those aspects going forward from next year. And as we have said, for each area, rather than the bank, especially this year in the capital market side, we were sluggish, the performance was, and there were provisioning, large provisionings set aside. So if you look at the group subsidiaries, in order to enhance the competitiveness in the capital market, you know, I think that is our top priority.

[Cheon Sang-young, CFO at Shinhan Financial Group]

Like the incident in the Shinhan Securities has shown, we need to focus on strengthening our internal controls, but I think the priority is really on enhancing the competitiveness in the capital market side. And also, we have RWA burden, but our competitiveness, we think, lies in the global business side. And also IB related WM asset management we intend to strengthen our competitiveness in these areas as well. So our resource allocation and the planning is being discussed. As we have mentioned during our presentation, once it is all set up and next year's plan is formulated, when we provide updates on our Corporate Value-up Program, more details about this matter, our OE will be shared.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

I hope this provided a sufficient answer to your question.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yes, nobody is in line just yet, so we will wait for the next question. From Citi, analyst Yafei Mi, please go ahead.

[Yafei Tian, Analyst at Citi]

May I ask just one additional question? CET1, can you share the FX rate sensitivity with us for your CET1?

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yes, please wait as we prepare to answer.

[Cheon Sang-young, CFO at Shinhan Financial Group]

So for CET1, FX, sensitivity, it's 0.8 basis points for KRW 10, and about 8 billion sensitivity to net income from a KRW 10 increase in the FX rate.

[Kim Jiho, Head of Investor Relations at Shinhan Financial Group]

Yes, I think it has been 40 minutes up to now. I believe that that has been enough to have discussions on many topics. So with that, we will now conclude the third quarter 2024 earnings call for Shinhan Financial Group. Going forward, we will continue to engage in close communications with the market to keep you updated. Please come to our homepage or the Shinhan Financial Group YouTube IR channel. So we look forward to your interest, and thank you again for attending today's earnings call.

Participants

Executives

• Cheon Sang-young, CFO
• Bang Dong-kwon, CRO
• Kim Jiho, Head of Investor Relations

Analysts

• Xuan Zhou, Analyst at J.P. Morgan
• Do Ha Kim, Analyst at Hanwha Investment & Securities
• Sinyoung Park, Analyst at Goldman Sachs
• Baek Doosan, Analyst at Hanwha Investment & Securities
• Won-Jae Hong, Analyst at HSBC
• Jun-Sup Jung, Analyst at NH Securities
• Yafei Tian, Analyst at Citi