SHG

Shinhan Financial Group Co., Ltd. - 3Q 2023 Filing Summary

Business Context and Reporting Period

This Form 6-K summarizes the Shinhan Financial Group (SFG) Business Report for the third quarter of 2023 (January 1 to September 30, 2023), filed on November 14, 2023. SFG is a major South Korean financial holding company operating under Korean International Financial Reporting Standards (K-IFRS). The group comprises principal subsidiaries including Shinhan Bank, Shinhan Card, Shinhan Securities, Shinhan Life Insurance, and Shinhan Capital, with significant international operations across Asia, the Americas, and Europe.

Key Financial Metrics

Capital and Liquidity:

• BIS Ratio (Consolidated): 15.60% (Sep 30, 2023), down from 16.11% in Dec 2022.
• Debt-to-Equity Ratio (Separate Basis): 44.37% (Sep 30, 2023), up from 40.41% in Dec 2022.
• Liquidity Coverage Ratio (Shinhan Bank): 102.0% (Sep 30, 2023), exceeding the regulatory minimum.
• Foreign Currency Liquidity Coverage Ratio (Shinhan Bank): 144.1% (3Q 2023).

Material Changes vs. Prior Period

• Profitability Decline: Consolidated net profit attributable to equity holders decreased to KRW 3.82 trillion in 3Q 2023 from KRW 4.67 trillion in FY 2022. This reflects a year-over-year contraction in net interest income (down to KRW 8.03 trillion from KRW 10.60 trillion) and net fees/commission income.
• Asset Quality Deterioration: The Non-Performing Loan (NPL) ratio increased to 0.54% (Sep 2023) from 0.44% (Dec 2022). The Substandard & Below ratio rose to 0.63% from 0.51%. Consequently, the provision for credit loss increased to KRW 1.49 trillion.
• Balance Sheet Growth: Total assets grew by approximately 3.6% to KRW 676.9 trillion, driven by loan growth (average balance KRW 409.7 trillion) and increased debt securities issued.
• Dividend Payout: The cash dividend payout ratio for 3Q 2023 was 21.40%, lower than the 23.54% recorded in FY 2022.

Outlook, Risks, and Unusual Items

• Share Repurchase: On October 25, 2023, the Board resolved to acquire and cancel up to 2,857,142 treasury shares (estimated cost KRW 100 billion) between October 26, 2023, and January 25, 2024.
• Dividend Declaration: A quarterly cash dividend of KRW 525 per share (total KRW 270.6 billion) was declared for the quarter ended September 30, 2023.
• Regulatory Changes: Shinhan Life Insurance and Shinhan EZ General Insurance are upgrading their risk measurement systems in anticipation of the new Korean-Insurance Capital Standard (K-ICS). Preliminary ratios are reported, with final figures to be confirmed in subsequent disclosures.
• Concentration Risk: The top ten debtor groups (including SK, Hyundai Motor, Samsung, Lotte, and LG) account for significant exposure, totaling KRW 32.3 trillion as of June 30, 2023.
• Interest Rate Environment: Rising interest rates have increased interest expenses (KRW 12.3 trillion in 3Q 2023 vs. KRW 9.5 trillion in FY 2022), compressing net interest margins.

Investor Verification Checklist

• Asset Quality Trends: Verify the trajectory of the NPL ratio (0.54%) and the adequacy of the loan loss allowance coverage ratio (159.70%) given the rising credit provisions.
• Net Interest Margin Pressure: Assess the impact of rising funding costs on future net interest income, which has declined significantly year-over-year.
• Capital Adequacy: Monitor the BIS ratio (15.60%) to ensure it remains comfortably above regulatory requirements amidst asset growth and potential credit deterioration.
• Shareholder Returns: Confirm the execution of the announced share cancellation program and the sustainability of the dividend payout ratio in a lower-profit environment.
• Regulatory Compliance: Track the final confirmed solvency ratios for insurance subsidiaries under the new K-ICS regime.