Cheol Woo Park:

Good afternoon. I am Cheol Woo Park, Head of IR. I would like to thank everyone for taking part in Shinhan Financial Group's 2024 Q2 earnings presentation despite your busy schedule. Today, we have with us CFO, Sang-Hyuk Jung; the Group CSO Suk-Hyun Go; Group CRO, Woo-Gyun Park; Shinhan Bank CFO, Tae Youn Kim; Shinhan Card Financial Planning Division Head, [indiscernible]; Shinhan Securities CFO, Heedong Lee; and Shinhan Life CFO, Kyoung-Won Park. Today, we'll first hear the business results for Q2 of 2024. And afterwards, an explanation about the value plan of Shinhan Financial Group for which a disclosure was made this morning, and this will be followed by a Q&A session afterwards. We'll now invite CFO, Sang-Hyuk Jung, for the earnings presentation. Sang-Hyuk Jung: Good afternoon, everyone. Firstly, I would like to thank you for participating in our 2024 Q2 earnings presentation. On Page 5, let me start with the business highlights. In Q2 of 2024, despite proactive provisioning for potential losses on the back of absence of one-off factors in the previous quarter, top line growth was achieved and net income of KRW 1,425.5 billion was posted. Interest income grew 0.2% Q-o-Q despite a decline in market interest rate environment, owing to our aggressive margin defense and selective asset growth. Noninterest income grew 10.9% Q-o-Q driven by a favorable market environment and a balanced business portfolio. SG&A expenses increased 7.2% Q-o-Q due to higher advertising expenses, but the group's CIR is up 1.6% Y-o-Y due to solid growth in operating profit coming in at 36.7%. The group's credit cost ratio for the second quarter is down 5 bps Y-o-Y to post 48 bps despite additional provisioning is similar to the same period last year. Next is capital ratio and the shareholder return policy. As of the end of June 2024, the CET1 ratio came in at 13.05% tentatively. Also today, the Board of Directors resolved to distribute per share dividend of for KRW 541 in Q2, the KRW 300 billion share buyback resolved by the BOD at the time of the Q1 earnings release is currently underway, and the shares purchased will be canceled as soon as the buyback process is completed. Going forward, we will continue to build on our strong financial stability to respond flexibly to any capital-related regulatory changes. And at the same time, through efficient management of the capital ratio, we'll carry on with our proactive shareholder return policy. Next on Page 6, the group's key profit indicators. For your information from this quarter onwards as has been disclosed earlier this morning, we will be including ROTCE and TBPS, the key indicators of the Shinhan Financial Group for value enhancement plan in every quarterly earnings release. Starting from Page 7, I'll walk you through the group's detailed business results. The group's interest income in Q2 of 2024 is up 0.2% Q-o-Q to post KRW 2,821.8 billion despite lower margins on the back of growing interest-bearing assets. The group NIM declined 5 bps due to a fall in the bank's NIM and the impact of higher funding costs in some of the nonbanking subsidiaries, but interest-bearing assets grew by 2.9% Q-o-Q, driven by growth in the bank's Korean won loans. The bank's Korean won loans grew by 3.7% during the quarter. With a partial recovery of the housing market underway, household loans mostly driven by home mortgages grew 0.1% during the period. The growth is slowed slightly over the second quarter. Corporate loans grew 6.0% during the quarter by selectively responding to the expanding demand from large companies. In the second half of the year, we'll continue to focus on improving profitability and monitoring asset quality to ensure efficient management of RWA. During the second quarter of bank, NIM declined by 4 basis points to post 1.60% Q-o-Q. Due to lower market interest rates and loan asset growth, returns on interest-earning assets declined by 9 basis points, but interest expense ratio of Korean won deposits improved 5 bps. Going forward, we will continue to maintain our flexible interest rate policy and effective ALM management to manage our margins proactively. Next is Page 8. Noninterest income increased 10.9% Q-o-Q to post KRW 1,112.1 billion. Firstly, gains on marketable securities grew 21.6% Q-on-Q, driven by favorable market conditions and the base effect of the impairment losses for overseas alternative investments recognized in the previous quarter. Fee income was up 1.8% Q-o-Q led by gains in credit cards and gains in IB business. SG&A expenses is up 7.2% Q-o-Q and up 1.6% Y-o-Y due to the expanded sales activities in the second quarter, which resulted in higher taxes induced and increased advertising and service expenses. However, the group's operating profit also increased by 6.2% over the same period. Group CI ratio posted 36.7% and is still under stable control. Credit cost is up KRW 231.9 billion Q-o-Q to post KRW 609.8 billion. This is due to the additional provisioning that aside with the application of the real estate project liability assessment guideline and individual product site evaluation of the asset trust business. Because of such factors the nominal credit cost ratio as of the end of June posted 48 bps, but it is down 5 bps Y-o-Y. In addition, when the additional provision recognized in Q1 and Q2 is excluded, the recurring credit cost ratio is 31 bps, which is also down 4 bps compared to 35 bps of the same period last year. As for the bank provisioning grew somewhat due to the rerating of the corporate loan ratings. But for the first half as a whole, credit cost ratio came in at a stable 9 bps. In the case of the card business, asset quality indicators are maintained at a stable level and the credit cost was in line with the previous quarter levels. Overall, what is of new for the credit cost ratio for Q2 is that we have secured preemptively loss absorption capacity based on a conservative outlook for the future and an online survey of the product side affected by the real estate PF and real estate Trust. And now we'll move on to Page 9. With the recent decreases in the market rates, the conditions for borrowers' repayment have slightly improved. And along with the group's active write-off and sales, the group's asset quality indicators are stably managed. The bank's delinquency ratio is on a downward trend with a focus on the SMEs and household loans. So whole loan delinquency ratio has also stopped its upward movement and is moving sideways. . The cards delinquency ratio, which had crept up since 2021 has recovered the level it was at the end of last year by improving 12 bps during Q2. The cards 2 month delinquency transition rate, which serves as a leading indicator for a delinquency ratio through preemptive credit management has stabilized improving 6 bps YTD and 1 bp Q-o-Q. But the fact that we owe this to the artificial management through active sale and write-off. It should be kept in mind and that the improvement is not sustainable given the still high interest rate and slow recovery of the genomic sentiment will remain vigilant and continue with our conservative management of asset quality. Please refer to the slides for the next -- net income by subsidiary and status of real estate PF. Moving on to the next page. As of Q1 2024, the CET1 ratio was tentatively estimated to be 13.05%, down 6 bps Q-o-Q. This is due to the fact that although the common equity increased 2.4% thanks to stable P&L management, because of the bank's strategic early asset growth, RWA grew 2.8% or KRW 9.2 trillion Q-o-Q. In the second half, based on conservative asset growth and stable profit fundamentals, we will engage in active management so that we can continue to maintain a CET1 ratio of higher than 13%. I had talked about shareholder return earlier, so please refer to those comments. And on Pages 11 and 12, there is information on the group's digital and ESG activities. So please refer to them as well. From Page 13, I'll briefly explain the value enhancement plan for Shinhan Financial Group that was disclosed this morning. This value enhancement plan began with the BOD workshop in May this year. It was drafted based on a thorough review of our existing medium-term financial goals, analyses of our overseas peer institution cases and communication with various investors. The plan was finalized through discussions at the BOD meeting and was officially approved in today's Board resolution. We clearly recognize that the group's valuation is low. And through root cause analysis, identified core indicators and objectives. We will move forward with the deadline of 2027 to meet the following core objectives for group value enhancement. First, we will secure sustainable profitability by achieving an ROE of 10% and ROTCE of 11.5% based on a CET1 ratio of over 13%. Second, we will expand the shareholder return rate to 50% by implementing a proactive shareholder return policy. Third, we will enhance per share value by reducing the number of shares. To this end, we plan to reduce the number of shares to below 500 million by 2024 and to 550 million by 2027. The whole initiative, starting with the goal setting, the implementation monitoring, valuation, plan updates, et cetera, will be undertaken with the BOD at the center, and the results will be shared in a transparent manner with the market. Measures to take to achieve the goals are discussed from Page 15 and onwards. First, PBR and ROE Logic Tree of the value enhancement plan, the most fundamental and important task is to enhance sustainable profitability represented by ROE. To this end, we will develop detailed tasks and plans to improve ROA and leverage and implement them consistently. Let's go back to Page 16 a second, we will strengthen execution by establishing and implementing value chain for ROTCE and ROC. To enhance profitability and maintain a stable CET1 base, we will establish the profitability management system based on capital efficiency, and we'll focus on RWA management and efficient capital allocation as key tasks and to strengthen execution, we will make sure to place greater weight on the metrics of ROE, ROTCE, ROC, TSR, et cetera, and tie them closer to the evaluation of and compensation for the company and the management. Page 17, the last measure is the consistent and speedy shareholder return policy. We will consistently carry on with the existing shareholder return policy, and as was mentioned earlier, increase shareholder return rate to 50% and reduce the number of shares to less than 450 million by 2027. Depending on the PBR improvement progress, many different combinations of options will be used, including treasury share buyback and retirement, DPS enhancement, upward adjustment of total cash dividend amount or payout ratio or decision on retained earnings so that we can be more flexible in our shareholder return policy. Starting from 2025 other than maintaining or increasing DPS, taking note of the effect of decrease in the number of shares, the size of the total dividends will be increased every year. Our value-up plan discussed today will be -- have been [indiscernible] with the government and Korea Exchange's policy implementation, direction and guidelines in mind, the BOD will be at the center throughout the valuation updating of the value-up plan and we'll proactively communicate with the market. I ask for your attention and support. And we are preparing a separate briefing for the retail investors in regards to this topic. I ask for your participation, and this concludes my presentation. Thank you very much. Cheol Woo Park: Thank you very much. And now we will proceed with the Q&A. [Operator Instructions] We will take the first question. Mr. Kang Seung-Gun from KB Securities. Seung-Gun Kang: So voluntary disclosure was well explained. I have 2 questions. So for this disclosure, 2027 was the target date for this voluntary disclosure. So the TSR is going to be going up in a phase manner over the next 3 years. Is that what we should expect? Are there any conditions to this arrangement? Can you explain about that? And secondly, for each subsidiary, ROTCE and ROC was explained, but in the end, RWA will be the base case of allocating the capital. Based on the RWA allocated, the performance will be evaluated. That was my understanding [indiscernible], can you explain about this matter as well? Unknown Executive: So thank you very much for the questions. While we prepare the answers, please hold for a few seconds. Thank you very much for those questions. You asked 2 questions. With regards to the shareholder return where you asked about the pace. As you have said, the target date is 2027. There are several factors or variables involved in that every year, how much returns or profit we are able to achieve and CET1 ratio is linked to that as well. The big picture that we're drawing is that if underpinned by earnings then we will grow in a linear manner, the shareholder returns. Secondly, with regard to the ROC and ROTCE, yes, it is, as you have said, on based on capital efficiency, we have RWA. And when we have the RWA, we have the -- multiply that with the target capital allocation and using the profitability, we will evaluate the companies and not only the valuation but the compensation of the executives and also the compensation for the other staff who will be all linked to that. We have these evaluation indicators already, but how we can further internalize this will be across the [indiscernible] and going forward, ROE calculation or improvement or to improve capital efficiency, not only indicator that we have, whenever -- when we set up the business plans, and when we set up the indicators every year, if there are any areas for improvement, we will make those improvements going forward. Cheol Woo Park: Yes, we'll take the next question from HSBC, Won Jaewoong. Jaewoong Won: Congratulations on a wonderful quarter, and thank you for your effort into enhancing shareholder return. I have 2 questions. One is the target ROE. And by 2027, you want to enhance the shareholder return rate to 50% by 2027. So throughout the process, CET1, will it be going up? So is that your expectation? Or will it be just maintaining above 13%? And still, you'll be able to allow for such higher shareholder returns. So a very compact period up until 2027, the amount that the market is expecting is very high. So can you catch both [ targets ] at the same time, have high CET1 ratio and have so much shareholder return policy. And the second question is, in May, the government has announced the soft landing policies and their additional measures. So if there is anything to provision against, we need to reserve more provisions. So not only in Q2, but do we have additional provisions coming up? And recently, for the project sites, there are a lot of noises coming in. So what is the exposure and the provision size, et cetera? Unknown Executive: Thank you for the questions. Yes, please hold as we get ready for the answers. I guess you asked 3 questions actually for ROE and value enhancement plan. You asked about the CET1. As was mentioned, CET1, we will not continue to grow it, but we will maintain it above 13%. That is the plan. So it's not like we are going to continue to grow CET1, but we will maintain it above 13%. And so with the considerable buffer, with that CET1, we will get back to the shareholder return. So it's not going in an upward curve, but we will maintain it above 13%. So you should understand CET1 from that context. And for real estate PF in the first half, when we are closing Q2, the characteristic that stood out was a real estate-related potential losses and any loan absorption, we were able to do that preemptively. In Q2, we have done the viability analysis for the real estate PF and for all the subsidiaries, we have applied that. So up until now, we have reflected anything that is possible in the provisioning. And going forward, there may be new policies or measures announced by the government, and we may need to reflect that in our provisions. But up until now, we have been able to reserve against all the potential losses. And for asset trust, we have set aside sizable provisions, as was mentioned right now, the construction cycle is in past, and we are providing the completion -- the responsible completion commitment. And in closing Q2, we have done an online survey and all the project sites. We looked at the progress and we looked at the risk factors of all the sites and not only loans to trust. But even if it's not loans to trust, we have selected the sites with the potential losses, and we have recognized the provisions already. So as of Q2, additional provision of KRW 182.7 billion. So overall, the total exposure is KRW 269.6 billion for the sites. But for those risky sites compared to the loans to trust, we have reserved 113% higher and the total -- and compared to the total loans to trust, we have set aside 83% of provisions. So to our judgment, we believe that for the recurring potential risk factors, of course, we may set aside more provision, but we have been able to remove the large-sized uncertainties. Of course, in closing the book, we will continue to set aside and reflect on our book, if there are any potential losses. And the CRO would like to make some additional comments. Woo-Gyun Park: Yes, I'm Woo-Gyun, the CRO. Yes, as to the provision about the real estate PF, right now, the amount has increased because the viability survey is done on any sites that have rolled over more than 3 times or if there are delinquencies that we have to apply new standards. But we were more conservative, and we have applied a new liability criteria to all the sites, and we set aside the provision and reclassify the NPL. So that's why we have a bigger impact. Cheol Woo Park: Thank you very much for those answers. We'll receive the next question. Next question is from Citi Securities, Lee Miseon. So we are not able to hear your question. Can you unmute yourself? Miseon Lee: Thank you very much for those excellent results and the value program explanation as well. So you have raised the target from 36% to 40% on Page 14. So last year, it was 36%. And I think you are also leaving the possibility of this year's number being 36% as well. So the pace of competitive improvement and also the outlook for this year is my question. Unknown Executive: So we will prepare the answer for your question. So with regards to the shareholder return rate I did actually explained this previously, but let me add to that. Last year, the rate was 36%. That's really corporate value enhancement plan. Up until 2027, we're going to enhance that to 50%. That is our goal. And as we have already said when it is underpinned by profitability, that we will continue to improve upon this number. In the case of the year-end this year, last year, 36% compared to that level, we do think it will be higher. At least the later up north of 30% rate is our expectation. However, up until 2027, we have explained -- announced a clear road map to that data so [indiscernible] the number is at the year-end. We have this target until 2027 and please trust that we will faithfully implement our plan until that date. Cheol Woo Park: Thank you for the response. We'll take the next question. It is from NH Securities, Jung Jun-Sup. Jun-Sup Jung: I'm Jung Jun-Sup from NH Securities. I also have 2 questions. The first question is, as was mentioned earlier, by 2027, you will -- you talked about the direction of shareholder return and the ROE, if it is achieved. Then -- and also, if the shareholder return rate goes up to 50%, then by 2027, it will be double the amount of shareholder return compared to now. And so the targets treasury buyback and cancellations, well, you may have to cancel more. PBR 0.8, if you cannot achieve that, then do you plan to cancel your treasury more? Or do you want to put more weight on the dividends? I'd like to get your take on that. And the second question is, in the first half, there was asset growth and NIM fell, but in the second half, what is your guidance for the asset growth and NIM? Unknown Executive: Thank you. Please hold as we get ready for the answers. Yes. Thank you for the 2 questions. I'll answer the first question. And the second question will be mentioned by the bank's CFO. Yes, as you said, by 2027, we have set an aggressive goal of shareholder return. And on top of that, we are going to reduce the number of shares, and we disclosed the exact specific numbers. And depending on the rise of the stock price, the amount to be retired could be flexible. Internally, we are running many simulations. But basically, the cancellation of treasury and using that for shareholder return has been set aside as another objective. And as is mentioned, PBR less than 1 from shareholder return policy then the cancellation of treasury stocks would be a better option than dividends. So we will be considering both factors. If PBR falls less than 1, then we will increase the shareholder return rate by canceling our shares. And as for ROE, and cancellation of treasuries if they're in harmony, then that will be most ideal, but we'll have to look at the stock prices and the net income, then I think there will be some adjustments. But since this announcement is very fresh out every quarter or maybe happier, we will update you on this and we may be able to fill you in on more details as time goes. Unknown Executive: Thank you for your second question. I'm [indiscernible], the bank's CFO. As for the asset growth and the NIM prospect, yes. First, let's look at the loan growth. This year, the bank, in the first half, has implemented the early asset growth strategy. But in the second half, we are going to have a more sound growth on the prime assets and KRW 18.6 trillion, it was mostly home mortgage and loans to prime companies for the corporate loans. So we are able to have that growth. But in the second half, we're going to have more profitability-based growth. And so since the home loans are not putting a lot of pressure on our capital, we are going to have a fair speed of asset growth for IB and corporate growth. We are going to implement growth-oriented loan growth. And as for the NIM, in the first quarter, there was the due of the high interest rate products, but that ended in Q2 and the interest rate has fallen. And overall, in the first half, it was 1.62% NIM and compared to last year, it was maintained at a similar level. And so we are able to defend NIM in the first half. And to talk about the second half, the policy rate is expected to decrease. And on top of that, there will be other LCR regulations, so it is inevitable that it will gradually fall, but the funding rate cost is being managed. And so -- the funding cost is being managed and we will time the funding properly then the annual NIM will be managed within the range that we are managing, and it will be slightly lower than last year. Cheol Woo Park: Thank you very much for that answer. So we will receive the next question at present. Yes. We do not have any questions in the queue, so we will wait for the next question. From Hanwha Securities. We have Mr. Kim Do Ha. Do Ha Kim: So I'm trying to formulate my question as smoothly as possible, so '25, '26, '27, the levels that are expected. So every year, if you assume 50% of shareholder return of -- new shares of cancellation then KRW 3 trillion level is expected if you engage in these activities. In order to engaging share buyback and cancellation of this level until 2027, then I think you should engage in share buybacks starting from next year. Also when I do the modeling, I don't think there will be any issue in the CET1 ratio. So that's not a matter, but I think that the position of different stakeholders may be different. So forming a consensus, is there a decision based on consensus of all the relevant stakeholders? That was actually my question. Unknown Executive: While we prepare the answer, please hold. So thank you very much. As is indicated in our plan, corporate value plan, you talked about the targets that are indicated in the plan. And as I have noted previously, I'd say there can be various different scenarios, and we have also engaged in several different simulations. But we're independent by profitability. And if we can move upper curve, right hand upper curve, then I do think we will be able to meet our target. Of course, in the process, target share cancellation will grow larger. I think that will be inevitable. And deposits -- you talked about the stakeholders, I'm not sure to what extent I should talk about this. But internally, through our BOD, we have created an internal consensus. With regard to the grand principles, we have also maintained that we will keep the 30% CET1 level. So with regard to financial regulatory issues are -- for these matters, I don't think we have any problems. We have just announced this plan. We're just starting to implement this plan. And while we are carrying out our plans, from time and again, we will review on the midterm results. Cheol Woo Park: Cho Jihyun from JPMorgan. Jihyun Cho: I also have 2 questions. The first question has to do with Page 9. Compared to the first quarter, the PF bridge loans exposures have increased somewhat. So the industry is shrinking the exposure, but why, the reason for the increase? And compared to the total PF, the provision is at which percent? And you -- when you give us the credit cost guidance, you give it to us on a recurring basis. So we are getting lower numbers. So could you divide the nominal and also the recurring then I think we could use that as a reference. And the other question is you are talking about the shareholder return and DPS will be given in an equivalent amount, but you will be retiring your treasury shares. And you may be differentiating the amount, but DPS has been given out as equal amounts every quarter. But are you considering that there will be less shares, so within the same calendar year, the DPS could also go up is that what is to be expected? So DPS should be equivalent every quarter or maybe the amount could go up because more shares are canceled. So is the DPS going to be on an upward trend? Unknown Executive: Thank you for the question. Please hold as we prepare the answer. Yes, you gave us 4 questions. Let's first talk about the increase in PF and you asked about the percentage of the provision in PF and third about the credit cost guidance and fourth, about the DPS. Let me answer the last question first, and the remaining questions will be referred to by the CRO. As for as DPS and dividends, I think there's some confusion. Yes, it will be paid out in equal amounts every quarter. But what I mentioned as an additional comment is if we are active in retiring our shares, the quarterly equal dividend, the DPS may increase, but the total amount of dividends may stay flat or go down. So we were thinking of both scenarios. We will increase the DPS, but we will make sure that the total amount of dividend does not go down as well. And as for the credit cost guidance, let me deal with that a little bit. In Q1, we did mention a similar level. The nominal is 48 bps and recurring is 31 bps. And by Q2, real estate PF, asset trust and capital subsidiaries related to real estate PF, we have been aggressing in the provisioning. And so in Q3 and 4, we will have less of these one-offs, and we will have more of the recurring provisions. So the total credit cost guidance on an annual basis, we are thinking of around 45 bps and the rest will be mentioned by the CRO. Woo-Gyun Park: Yes. I am Woo-Gyun, the Group CRO. Yes. As for the real estate PF, provision -- the increase -- the PF increase was due to the one -- sorry, through these 2 sites, and they add up to KRW 1 trillion. So the increase came from these 2 major sites. And the provisioning rate for the PF is for securities, it's 12% and for Shinhan Capital, it's 7%. That is the provisioning rate. At a group level, the PF provisioning was higher than 4.2% at a group level. And of your questions, you asked about nominal and so nominal was 45 bps. And on a recurring basis, it would be about 37 to 38 bps. So that's our outlook. Thank you. Cheol Woo Park: Thank you very much for those answers. At present, we don't have any more questions in the queue, so we will hold and wait for further question. [Operator Instructions] It seems there are no additional questions. I think there was sufficient explanation and discussion. If there is any further questions, please contact the IR team, and we will do our best to deal with your questions. As was mentioned by the CFO on the website and [indiscernible] disclosure, there's explanation about the briefing for the value-up briefing for the retail investors. I hope that more investors will take interest in this topic. With this, we'll conclude the earnings presentation for Q2 2024. I am sorry once again for the network problem during the presentation. We will do our best enhance the value of the shareholders and the investors. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]