Business Context and Reporting Period
Company: Shinhan Financial Group Co., Ltd. (SFG)
Filing Type: Form 6-K (Summary of 2013 3Q Business Report)
Reporting Period: January 1, 2013 to September 30, 2013 (3Q 2013)
Filing Date: November 14, 2013
Accounting Standards: Korean International Financial Reporting Standards (K-IFRS)
SFG is a diversified financial group with principal subsidiaries including Shinhan Bank, Shinhan Card, Shinhan Investment Corp., Shinhan Life Insurance, and Shinhan Savings Bank. The group operates globally with indirect subsidiaries in the US, Europe, Asia, and other regions.
Key Financial Metrics
| Metric (KRW Billion) | 3Q 2013 (YTD) | FY 2012 | FY 2011 |
|---|---|---|---|
| Operating Income | 2,170.2 | 3,194.0 | 4,172.4 |
| Consolidated Net Income | 1,679.7 | 2,494.1 | 3,272.6 |
| Net Income (Majority Interest) | 1,559.5 | 2,322.7 | 3,100.0 |
| Total Assets | 312,808.6 | 298,042.5 | 282,694.3 |
| Total Liabilities | 283,824.4 | 270,198.8 | 254,509.7 |
| Shareholders' Equity | 28,984.2 | 27,843.7 | 28,184.6 |
Liquidity and Capital Adequacy
- Consolidated BIS Ratio: 13.04% (Sep 30, 2013) vs. 12.46% (Dec 31, 2012).
- Won Liquidity Ratio (Group): 254.0% (Sep 30, 2013).
- Foreign Currency Liquidity Ratio (Shinhan Bank): 120.8% (Sep 30, 2013).
- Debt to Equity Ratio (Separate Basis): 36.19% (Sep 30, 2013), down from 38.37% in 2012.
Asset Quality
- Non-Performing Loan (NPL) Ratio: 1.06% (Sep 30, 2013) vs. 1.07% (Dec 31, 2012).
- Substandard & Below Ratio: 1.52% (Sep 30, 2013) vs. 1.34% (Dec 31, 2012).
- Substandard & Below Coverage Ratio: 144.38% (Sep 30, 2013).
- Total Write-offs (YTD 3Q 2013): KRW 910.3 billion.
Material Changes vs. Prior Period
- Revenue Decline: Operating income decreased significantly to KRW 2,170.2 billion in 3Q 2013 compared to KRW 3,194.0 billion for the full year 2012. Note: The 3Q 2013 figure is year-to-date (9 months), while FY2012 is 12 months, but the trend indicates lower profitability.
- Net Income Decline: Consolidated net income for the 9-month period (KRW 1,679.7 billion) is lower than the full-year 2012 result (KRW 2,494.1 billion).
- Asset Growth: Total assets increased by approximately KRW 14.8 trillion (5.0%) from Dec 31, 2012 to Sep 30, 2013.
- Capital Strength: The Consolidated BIS Ratio improved by 58 basis points to 13.04%, driven by an increase in Aggregate Equity Capital to KRW 25,987.8 billion.
- Asset Quality Deterioration: The Substandard & Below ratio increased from 1.34% to 1.52%, though the NPL ratio remained relatively stable at 1.06%.
Outlook, Risks, and Contingencies
Management Commentary: The filing is a summary of the Business Report filed with the Korean Financial Supervisory Service. It does not contain explicit forward-looking guidance or management commentary on future market conditions beyond the presentation of historical data.
Risks and Contingencies:
- Credit Risk Concentration: Significant exposure to major conglomerates (Chaebols). The top 10 debtor groups (Samsung, Hyundai Heavy Industries, Hyundai Motors, SK, LG, POSCO, Lotte, LS, GS, Hyosung) account for KRW 23,047 billion in total exposures.
- Industry Exposure: The "Finance and Insurance" sector represents the largest exposure at 21.8% (KRW 60,771 billion), followed by "Consumers" at 35.7% (KRW 99,617 billion).
- Non-Performing Loans: The top 20 non-performing loans total KRW 1,095 billion, with significant concentrations in the "Building of Steel Ships" and "Development and Subdividing of Residential Buildings" sectors.
- Related Party Transactions: The group maintains loans to subsidiaries totaling KRW 1,337.5 billion as of Sep 30, 2013.
Key Facts for Investor Verification
- Profitability Trend: Verify the reasons for the decline in operating income and net income compared to prior periods, considering the 9-month vs. 12-month comparison.
- Asset Quality: Monitor the rising Substandard & Below ratio (1.52%) and the specific exposure to the shipbuilding and real estate sectors within the top non-performing loans.
- Capital Adequacy: Confirm the sustainability of the improved BIS Ratio (13.04%) amidst potential future provisioning needs.
- Concentration Risk: Assess the impact of the top 10 debtor groups, which represent a significant portion of the loan book, particularly given the exposure to Hyundai Heavy Industries and Samsung.
- Stock Performance: Common shares traded on the Korea Exchange reached a high of KRW 48,650 in October 2013, with an average price of KRW 45,990 for the month.