Business context and reporting period
Shinhan Financial Group Co., Ltd. filed this Form 20-F on April 20, 2023, reporting the fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. The Group is a Korea-based financial holding company with banking, credit card, securities, life and general insurance, asset management, and other businesses. Its financial statements are consolidated and prepared under IFRS as issued by the IASB; amounts below are in Korean won (W).
Key financial and operating metrics
| Metric | FY 2022 / year-end | Comparable period |
|---|---|---|
| Profit before tax | W 6.349 trillion | W 5.584 trillion in 2021 |
| Net income | W 4.732 trillion; W 4.642 trillion attributable to Group shareholders | W 4.113 trillion; W 4.019 trillion attributable to Group shareholders in 2021 |
| Operating income, as reported | W 5.888 trillion | W 5.952 trillion in 2021 |
| Net interest income | W 12.464 trillion | W 10.769 trillion in 2021 |
| Net fees and commission income | W 2.526 trillion | W 2.675 trillion in 2021 |
| Net interest margin | 2.08% | 1.94% in 2021 |
| Total assets / liabilities / equity | W 675.884 / 624.754 / 51.130 trillion | Assets W 648.152 trillion; liabilities W 598.614 trillion; equity W 49.538 trillion in 2021 |
| Gross loans | W 417.827 trillion, up 6.2% | W 393.474 trillion in 2021 |
| Loan loss allowance / non-performing loans | W 3.651 trillion / W 2.028 trillion; NPL ratio 0.49% | W 3.167 trillion / W 1.826 trillion; NPL ratio 0.46% in 2021 |
| Capital adequacy | Group BIS ratio 16.13%; Tier 1 14.85%; common equity Tier 1 12.79% | Group BIS ratio 16.20%; Tier 1 14.94%; common equity Tier 1 13.10% in 2021 |
| Cash flows | Operating W 7.593 trillion; investing W (11.031) trillion; financing W 3.395 trillion; cash and cash equivalents fell W 0.102 trillion to W 24.001 trillion | Cash and cash equivalents were W 24.103 trillion at 2021 year-end |
Net interest income rose 15.7%, reflecting higher rates and loan growth, while interest expense nearly doubled as deposit and borrowing costs increased. The Group’s reported net other operating expense widened to W 9.102 trillion from W 7.492 trillion, including a W 304 billion net loss on financial instruments at fair value through profit or loss versus a W 1.104 trillion gain in 2021. Provision for credit losses increased 32.5% to W 1.292 trillion. The efficiency ratio was 88.49%, compared with 86.77% in 2021.
Material changes and business developments
- Corporate lending was a principal growth driver: corporate loans rose 9.8% year over year, while retail loans rose 0.9%. Corporate loans were 54.8% of the loan portfolio; SME lending was W 131.304 trillion, or 31.4% of the portfolio.
- Asset quality weakened modestly on the Group’s NPL measure: the ratio increased to 0.49% from 0.46%, and the allowance for credit losses rose to 0.87% of loans from 0.80%. The allowance was 175.19% of impaired loans.
- Shinhan Card operating income fell 13.8% to W 880 billion, and securities segment operating income fell 79.0% to W 121 billion. Banking segment operating income increased 16.7% to W 4.060 trillion; life insurance increased 11.2% to W 614 billion.
- The Group acquired BNP Paribas Cardif General Insurance in June 2022, renamed Shinhan EZ General Insurance. Its ownership declined from 94.54% to 85.1% after a subsidiary capital increase. The Group also completed the merger of Shinhan Asset Management and Shinhan Alternative Investment Management in January 2022.
- The Group repurchased and retired 7.815 million shares during 2022. The reported common-share dividend was W 2,065 per share for 2022, including interim distributions; the filing states the final dividend was decided March 23, 2023.
Liquidity, outlook, risks and unusual items
Shinhan Bank reported a December 2022 average liquidity coverage ratio of 97.88%, foreign-currency liquidity coverage ratio of 141.32%, and net stable funding ratio of 110.00%. Its loan-to-deposit ratio was 94.59% at year-end. The Korean regulator temporarily kept the bank liquidity coverage ratio requirement at 92.5% through June 2023 amid money-market volatility; planned restoration to 100% was scheduled from the third quarter of 2023. Management said the Group was not facing material liquidity difficulties and considered working capital sufficient for current requirements.
Management described a weak and uncertain 2023 environment: subdued Korean growth, slower exports and consumption, inflation, volatile rates and currency markets, geopolitical risks, and tighter financing conditions. The Bank of Korea raised its policy rate to 3.50% in January 2023; management noted that further moves and their effect on margins and borrowers were uncertain. The filing gives no clear numerical earnings or revenue guidance for 2023. IFRS 17 and the Korean Insurance Capital Standard took effect in 2023 and may increase measured insurance liabilities and reduce insurer capital ratios; the filing does not provide a clear quantified Group-wide impact.
- Investment-product and litigation exposure: At year-end, W 379.9 billion of German Heritage DLS principal eligible for payment remained delayed, and Shinhan Securities had recognized W 343.8 billion in potential compensation provisions. In 2022, Shinhan Bank and Shinhan Securities recorded W 54.6 billion and W 116.2 billion, respectively, in credit-loss allowances for expected losses associated with financial products including Lime Asset, Discovery Asset and German Heritage DLS. Lime-related compensation settlements were substantially completed by Shinhan Bank; other recovery and settlement outcomes remain uncertain.
- Regulatory investigation: Shinhan Bank reported suspicious overseas wire transfers to regulators. An FSS interim report cited approximately US$2.36 billion routed through the bank as part of broader investigations into transfers across Korean banks; proceedings were ongoing, and potential effects were not clear.
- Other key risks: SME, household and real-estate credit deterioration; higher funding costs and rate volatility; securities valuation losses; regulatory changes; cyber and operational risks; and the holding company’s reliance on subsidiary cash flows for dividends and debt service. The filing reports W 531 billion in aggregate claims in pending lawsuits and regulatory proceedings and W 29 billion in provisions, plus W 4 billion in insurance claim reserves.
Important facts for investors to verify
- Confirm that the reported cash-flow figures and year-end liquidity ratios are understood in light of the Group’s reserve-deposit cash-equivalent reclassification and the temporary regulatory liquidity rules.
- Review the audited IFRS statements and notes for credit-loss assumptions, forward-looking scenarios, the securities portfolio’s fair-value movements, and the effects of IFRS 17/K-ICS.
- Track outcomes, additional provisions or compensation related to Lime, Discovery, German Heritage DLS and the overseas wire-transfer investigation.
- Verify the final 2022 dividend, 2023 capital distributions and buyback activity, and any resulting changes to share count and capital ratios.
- Assess whether higher deposit and wholesale funding costs, worsening borrower conditions, or further market declines could offset the benefit of higher lending yields.