Business context and reporting period
Shinhan Financial Group Co., Ltd. is a Korean financial holding company with banking, credit card, securities and insurance businesses. This Form 20-F, filed April 29, 2020, reports the fiscal year ended December 31, 2019—not a standalone fourth-quarter report. Consolidated financial statements are audited and prepared under IFRS as issued by the IASB. Amounts below are in Korean won (W), generally billions unless stated otherwise.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Interest income | W15,707bn | W13,572bn | +15.7% |
| Net interest income | W9,738bn | W8,580bn | +13.5% |
| Net fees and commission income | W2,141bn | W1,939bn | +10.4% |
| Operating income | W5,046bn | W4,499bn | +12.2% |
| Profit before tax | W4,912bn | W4,467bn | +10.0% |
| Profit for the year | W3,642bn | W3,198bn | +13.9% |
| Profit attributable to Group equity holders | W3,403bn | W3,157bn | +7.8%; basic and diluted EPS W7,000 |
| Net interest margin | 2.07% | 2.14% | Down 7 basis points |
| Cost-to-income ratio | 46.13% | 47.51% | Improved |
| Total assets | W552,420bn | W459,601bn | +20.2% |
| Gross loans | W327,578bn | W303,070bn | +8.1% |
| Deposits | W294,874bn | W265,000bn | +11.3% |
| Borrowings and debt securities issued | W110,226bn combined | W93,047bn combined | 2019 borrowings W34,863bn; debt securities W75,363bn |
| Total equity | W41,930bn | W36,651bn | +14.4% |
| Operating cash flow | W7,179bn | (W6,320bn) | Improved; investing cash flow was (W22,688bn), financing cash flow W15,879bn |
| Cash and cash equivalents, year-end | W8,579bn | W8,180bn | Net increase of W399bn in 2019 |
Material changes versus prior year
- Profit attributable to equity holders rose, while net interest margin narrowed as funding costs rose faster than asset yields. Interest expense increased 19.6%, compared with 15.7% growth in interest income.
- Credit-loss provision rose 31.1% to W981bn from W748bn, driven mainly by higher corporate-loan and credit-card allowances. The year-end loan allowance was W2,685bn, down from W2,725bn.
- Year-end non-performing loans increased to W1,325bn, or 0.40% of total loans, from W1,090bn, or 0.36%. Allowances equaled 142.97% of impaired loans.
- Total assets and insurance liabilities expanded substantially, primarily reflecting the consolidation of Orange Life Insurance. Shinhan acquired a 59.15% stake in February 2019; the remaining shares were exchanged for Shinhan shares in January 2020, making Orange Life wholly owned after year-end. Asia Trust and Shinhan Vietnam Finance were also added to the group in 2019.
- The Group adopted IFRS 16 leases in 2019 without a cumulative retained-earnings adjustment; prior-year comparative figures were not restated. IFRS 9 and IFRS 15 were adopted in 2018, so some earlier comparisons are not directly comparable.
Outlook, commentary, risks and unusual items
- Management described the 2020 outlook as highly uncertain, citing COVID-19, weaker global and Korean growth, possible loan deterioration, market volatility and lower interest rates. The Bank of Korea cut its base rate to 0.75% in March 2020; management warned that further rate pressure could weigh on bank margins. The filing gives no specific numerical earnings guidance.
- Management’s stated priorities include efficient growth, overseas expansion, digital transformation, ESG initiatives and stronger risk management. The Group reported 2019 net income of W3,403bn from overseas operations as its highest since inception.
- Capital ratios remained above stated regulatory minimums but declined as risk-weighted assets grew: Group total capital ratio 13.90% versus 14.87%; Tier 1 ratio 12.34% versus 13.42%; common equity ratio 11.12% versus 12.55%. Shinhan Bank’s December 2019 liquidity coverage ratio was 106.10%, foreign-currency liquidity coverage ratio 106.65%, and net stable funding ratio 110.18%. Its loan-to-deposit ratio was 95.4%.
- The 2019 common-stock dividend was W1,850 per share, versus W1,600 for 2018. The filing reports that the 2019 dividend was approved on March 26, 2020; payout ratio was 25.97%.
- Material contingencies include pending lawsuits with aggregate claims of W257bn and a W9bn provision. Separately, the Group disclosed investigations and potential disputes concerning Lime Asset funds: Shinhan Bank sold approximately W277bn and Shinhan Investment approximately W325bn of the affected products. Management said the potential compensation and legal outcomes could not be reliably estimated and no provision was recognized for those matters.
- The filing also describes an appeal of a suspended sentence imposed on the Group’s CEO in a hiring-related case. The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; the internal-control assessment excluded Orange Life, acquired in 2019.
Most important facts an investor should verify
- Whether COVID-19 and subsequent economic conditions materially changed credit losses, asset quality, liquidity or capital after December 31, 2019; the filing says the impact could not then be estimated.
- Progress and potential financial exposure from Lime Asset-related investigations, investor claims and any compensation or litigation.
- How much 2019 earnings growth reflects Orange Life consolidation and other acquisitions versus underlying organic performance, including acquisition-related costs and integration effects.
- Whether margin pressure and the rise in credit-loss provisions continue, particularly in SME, retail and credit-card portfolios.
- Capital-ratio headroom, liquidity metrics, and the final treatment and payment of the W1,850-per-share dividend.