SHG

Business Context and Reporting Period

Company: Shinhan Financial Group Co., Ltd. (SFG)
Filing Type: Form 6-K (Summary of 1Q 2021 Business Report)
Reporting Period: First Quarter 2021 (January 1, 2021 – March 31, 2021)
Filing Date: May 20, 2021
Accounting Standards: Korean International Financial Reporting Standards (K-IFRS)

SFG is a diversified financial group operating in banking, insurance, securities, and asset management. The group recently completed the acquisition of remaining interests in Shinhan BNPP Asset Management (renamed Shinhan Asset Management) and Neoplux (renamed Shinhan Venture Investment), making them wholly-owned subsidiaries.

Key Financial Metrics

Capital and Liquidity

• Consolidated BIS Ratio: 15.90% (Mar 31, 2021) vs. 15.74% (Dec 31, 2020).
• Shinhan Bank BIS Ratio: 18.0%.
• Won Liquidity Ratio (Group): 234.3%.
• Liquidity Coverage Ratio (Shinhan Bank): 89.9% (Regulatory minimum temporarily eased to 85% due to COVID-19).
• Debt to Equity Ratio (Separate Basis): 43.20%.

Asset Quality

• Non-Performing Loan (NPL) Ratio: 0.41% (Mar 31, 2021) vs. 0.39% (Dec 31, 2020).
• Substandard & Below Ratio: 0.53%.
• Substandard & Below Coverage Ratio: 157.09%.
• Total Loans: KRW 365,405.7 billion.

Material Changes vs. Prior Period

• Profitability: Consolidated net profit for 1Q 2021 was KRW 1,218 billion, identical to 1Q 2020. However, compared to the full year 2020, the quarterly run rate suggests stability despite the pandemic environment.
• Asset Growth: Total assets increased by approximately KRW 91.6 trillion (17.6%) from Dec 31, 2020 to Mar 31, 2021, driven by loan growth and asset acquisitions.
• Interest Rates: The average interest rate on loans decreased to 3.17% in 1Q 2021 from 3.99% in FY 2020, reflecting lower market rates. Deposit interest rates also declined to 0.64% from 1.30%.
• Acquisitions: SFG finalized the acquisition of remaining interests in Shinhan Asset Management and Neoplux (now Shinhan Venture Investment) in early 2021, consolidating these entities fully.

Guidance, Outlook, and Risks

Management Commentary: The filing does not contain explicit forward-looking guidance or specific numerical targets for future periods. Management focuses on maintaining stable financial conditions and maximizing profits through comprehensive risk management.

Risks and Contingencies:

• Credit Risk: NPL ratio increased slightly to 0.41%, though coverage remains robust at 157.09%.
• Liquidity Regulations: Regulatory minimums for Liquidity Coverage Ratios (LCR) and Foreign Currency LCR were temporarily eased by the Financial Services Commission until September 30, 2021, due to the COVID-19 pandemic.
• Concentration Risk: Significant exposure to major debtor groups, with the top 10 groups (including Samsung, Hyundai Motor, Lotte, SK, LG) accounting for KRW 26.8 trillion in total exposures.
• Market Risk: Exposure to foreign currency assets and liabilities, though the Foreign Currency Liquidity Coverage Ratio for Shinhan Bank stood at 110.4%.

Investor Verification Checklist

• Profit Sustainability: Verify if the flat net profit (1Q 2021 vs 1Q 2020) is sustainable given the compression in net interest margins (loan rates down to 3.17%).
• Asset Quality Trends: Monitor the slight increase in NPL ratio (0.39% to 0.41%) and the adequacy of loan loss allowances (KRW 3,032 billion) against potential economic downturns.
• Liquidity Compliance: Confirm the impact of the expiration of temporary regulatory easing on LCR (currently 89.9% vs. standard 100% requirement) on September 30, 2021.
• Concentration Exposure: Assess the risk profile of the top 10 debtor groups, which represent a significant portion of the loan book, particularly in the automotive and electronics sectors.
• Dividend Policy: Note that no cash dividends were declared for 1Q 2021; review historical payout ratios (23.54% in FY2020) for future expectations.