Business context and reporting period
Shinhan Financial Group Co., Ltd. is a Korea-based financial holding company with banking, credit card, securities, life and general insurance, and other financial businesses. This is its annual report on Form 20-F for the fiscal year ended December 31, 2023, filed April 18, 2024—not a standalone 2023 Q4 report. Financial statements are consolidated and prepared under IFRS as issued by the IASB.
IFRS 17 took effect in 2023. The 2022 comparative figures were retrospectively restated under IFRS 17; 2021 figures generally remain under IFRS 4 and may not be directly comparable. Unless noted otherwise, amounts below are in Korean won (W).
Key financial metrics
| Metric | 2023 | Prior comparable period |
|---|---|---|
| Operating income | W6.101 trillion | W5.906 trillion in 2022; up 3.3% |
| Net interest income | W10.818 trillion | W10.597 trillion in 2022; up 2.1% |
| Net fees and commission income | W2.647 trillion | W2.414 trillion in 2022; up 9.7% |
| Net other operating expense | W7.365 trillion | W7.105 trillion in 2022 |
| Profit before income taxes | W5.965 trillion | W6.367 trillion in 2022 |
| Income tax expense | W1.487 trillion | W1.611 trillion in 2022 |
| Profit for the year | W4.478 trillion | W4.756 trillion in 2022; down 5.8% |
| Profit attributable to Group shareholders | W4.368 trillion | W4.666 trillion in 2022 |
| Net interest margin | 1.78% | 1.78% in 2022 |
| Gross loans | W417.346 trillion | W413.436 trillion in 2022; up 0.9% |
| Total assets | W691.795 trillion | W664.433 trillion in 2022; up 4.1% |
| Total liabilities | W635.473 trillion | W611.010 trillion in 2022 |
| Total equity | W56.322 trillion | W53.424 trillion in 2022 |
The 2023 effective income tax rate was 24.9%, versus 25.3% in 2022. Return on average equity attributable to the Group was 8.43%, versus 9.54%; return on average assets was 0.66%, versus 0.71%.
Cash flow, funding and capital
Net cash from operating activities was W0.530 trillion in 2023, down from W7.188 trillion in 2022. Investing activities used W4.272 trillion, compared with W10.696 trillion in 2022; financing activities provided W9.760 trillion, compared with W3.395 trillion. Cash and cash equivalents ended 2023 at W30.417 trillion, versus W24.414 trillion at the end of 2022. The filing does not provide a simple non-financial-company-style free-cash-flow measure.
Customer deposits were W381.513 trillion at year-end, while borrowings were W56.901 trillion and debt securities issued were W81.562 trillion. The Group BIS capital ratio was 15.98%, down from 16.11%; the common equity capital ratio improved to 13.17% from 12.79%. Shinhan Bank’s total capital ratio was 18.08%. Its December 2023 average liquidity coverage ratio was 100.07% in won and 168.87% in foreign currency; its net stable funding ratio was 113.99%. Shinhan Bank’s loan-to-deposit ratio was 96.2%.
Material changes versus 2022
- Profit attributable to Group shareholders fell 6.4% to W4.368 trillion, despite 3.3% higher operating income. Net other operating expenses rose to W7.364 trillion, including higher credit-loss provisions and changes in insurance finance results.
- Provision for credit losses on financial assets rose 73.8% to W2.245 trillion. The allowance for loan losses increased to W4.330 trillion, or 1.04% of gross loans, from W3.651 trillion, or 0.88%.
- Non-performing loans increased to W2.216 trillion, or 0.53% of gross loans, from W1.756 trillion, or 0.42%. Allowance coverage of impaired loans declined to 143.73% from 175.64%.
- Other comprehensive income was positive W0.845 trillion, versus a loss of W1.006 trillion, primarily reflecting a reversal in fair-value movements on securities, partly offset by insurance finance effects.
- Group total equity increased 5.4%. The capital adequacy ratio declined modestly, while the common equity capital ratio increased.
- Shinhan Bank’s separate-basis net interest margin edged up to 1.86% from 1.85%; the Group’s consolidated net interest margin was unchanged at 1.78%.
Guidance, outlook, commentary and risks
The filing gives no numerical earnings guidance. Management’s 2024 priorities include preemptive internal controls and risk management, customer and digital-platform growth, capital-markets and global business development, ESG initiatives, and improving competitiveness, efficiency and profitability. Management expects a challenging environment, citing slower global growth, elevated inflation and interest rates, financial-market volatility, weaker domestic consumption and investment, household debt, and rising real-estate project-finance delinquencies. The Bank of Korea’s base rate was 3.50% in January 2024; the filing states that future rate decisions remain uncertain.
Credit quality is a key risk. Shinhan Bank’s delinquency ratio rose to 0.26% at year-end 2023 from 0.21% in 2022. SME loans were W134.271 trillion, 32.2% of the Group’s total loan portfolio; delinquencies in that portfolio rose to 0.40% from 0.29%. The Group disclosed Shinhan Bank real-estate project-financing exposure of W6.6 trillion. Retail borrower stress, collateral-value declines, guarantees, and corporate and construction-sector exposure could increase losses.
Material unusual and contingent items include ongoing product-sale disputes and investigations. The Financial Supervisory Service began investigating sales of Hong Kong H-Index equity-linked trust products; Shinhan Bank began voluntary settlement discussions in April 2024, but the filing does not provide a clear estimate of potential compensation or a clear value for any related provision. For Lime Asset products, Discovery Asset products and German Heritage DLS products, the Group described settlements, prepayments and recovery uncertainty; in 2023, Shinhan Bank and Shinhan Securities recorded W27.3 billion and W154.7 billion, respectively, in credit-loss allowances associated with financial products including these cases. At year-end, pending lawsuits and regulatory proceedings had aggregate claims of W731.6 billion, with W31.4 billion of provisions and an additional W3.6 billion of insurance contract liabilities recorded for litigation.
Shinhan Bank America faced significant U.S. anti-money-laundering enforcement actions in 2023: FinCEN assessed a $15 million penalty, the FDIC a $5 million penalty credited against the FinCEN penalty, and New York State a $10 million penalty, for $25 million in total penalties. Consent orders require further compliance remediation. Other risks include regulatory changes, cyber incidents, consumer-protection obligations, interest- and foreign-exchange-rate movements, competition from fintech firms, geopolitical tensions including North Korea, and potential constraints on dividends if subsidiaries’ capital or regulatory positions weaken.
Important facts for investors to verify
- Confirm the IFRS 17 restated 2022 comparison and avoid treating 2021 IFRS 4 figures as directly comparable.
- Review the audited statements and notes for the drivers of the W2.245 trillion provision, the rise in non-performing loans, and the decline in allowance coverage.
- Check subsequent disclosures on H-Index ELT investigations, voluntary settlements, compensation amounts and any provisions recorded after April 18, 2024.
- Track real-estate project-finance, construction, SME and household credit exposures, including collateral values and loan delinquency trends.
- Verify capital and liquidity headroom against regulatory changes, including the 1.00% cyclical capital buffer scheduled to take effect May 1, 2024, and confirm the status of Shinhan Bank America’s remediation orders.
- Confirm dividend and share-repurchase execution: 2023 common dividend was W2,100 per share; the Group repurchased 13.5 million shares in 2023. The filing also reports a February 2024 board decision to acquire and retire W150 billion of treasury shares.