SHG

Business Context and Reporting Period

Company: Shinhan Financial Group Co., Ltd. (SFG)
Filing Type: Form 6-K (Summary of 2010 1H Business Report)
Reporting Period: January 1, 2010 to June 30, 2010
Filing Date: August 16, 2010
Accounting Basis: Korean Generally Accepted Accounting Principles (K-GAAP)

SFG is a diversified financial holding company with principal subsidiaries including Shinhan Bank, Shinhan Card, Shinhan Investment Corp., Shinhan Life Insurance, and Shinhan Capital. During the period, the group disaffiliated certain subsidiaries (CHB Valuemeet SPCs) and consolidated Shinhan Data System as a direct subsidiary.

Key Financial Metrics

Liquidity and Capital Adequacy

• Group BIS Ratio: 13.11% (June 30, 2010) vs. 12.60% (Dec 31, 2009).
• Won Liquidity Ratio: 178.82% (2010 1H) vs. 125.03% (2009).
• Liabilities to Equity Ratio: 29.70% (2010 1H) vs. 30.84% (2009).
• Subsidiary Capital Ratios: Shinhan Bank (16.15%), Shinhan Card (24.64%), Shinhan Investment Corp. (636.94%), Shinhan Life Insurance (329.67%). All exceed regulatory minimums.

Asset Quality

• Shinhan Bank NPL Ratio: 1.07% (June 30, 2010) vs. 0.77% (Dec 31, 2009).
• Shinhan Card NPL Ratio: 1.91% (June 30, 2010) vs. 3.08% (Dec 31, 2009).
• Shinhan Investment Corp. NPL Ratio: 15.74% (June 30, 2010) vs. 17.90% (Mar 31, 2010).

Material Changes vs. Prior Period

• Profitability: Consolidated net income for the first half of 2010 (KRW 1,374.5 billion) exceeded the full-year net income of 2009 (KRW 1,328.2 billion), indicating a significant year-over-year improvement in profitability.
• Asset Growth: Total funding increased to KRW 263,217.5 billion in 2010 1H from KRW 261,126.7 billion in 2009. Loans in KRW grew significantly, with household loans averaging KRW 62,401.2 billion and corporate loans KRW 69,882.2 billion.
• Cost of Funds: The average interest rate on interest-bearing funding decreased to 3.20% in 2010 1H from 3.59% in 2009, reflecting lower funding costs.
• Asset Quality Trends: While Shinhan Bank's NPL ratio increased slightly to 1.07%, Shinhan Card's NPL ratio improved significantly to 1.91% from 3.08%.

Outlook, Risks, and Contingencies

Management Commentary: The filing notes that financial information for 2010 1H is provisional. The group continues to maintain capital adequacy ratios well above regulatory requirements across all major subsidiaries.

Risks and Contingencies:

• Credit Risk: Non-performing loans (NPLs) remain a key risk, particularly in the investment and card sectors, though card NPLs have improved. The top 20 NPLs for Shinhan Bank totaled KRW 220 billion with allowances of KRW 80 billion.
• Concentration Risk: Significant exposure to major debtor groups including Hyundai Heavy Industries (KRW 3,908 billion), Samsung (KRW 3,564 billion), and Hyundai Motors (KRW 2,123 billion). Manufacturing and Household loans represent the largest industry concentrations (20.39% and 40.85% respectively).
• Related Party Transactions: The group maintains loans to subsidiaries (Shinhan Investment Corp., Shinhan Capital, Shinhan Card) totaling KRW 1,525 billion as of June 30, 2010.

Investor Verification Checklist

• Provisional Figures: Confirm that the 2010 1H financial results are provisional and verify final audited numbers upon release.
• NPL Trends: Monitor the trajectory of Shinhan Bank's NPL ratio (1.07%) and Shinhan Investment Corp.'s high NPL ratio (15.74%) in upcoming quarters.
• Concentration Exposure: Assess the impact of economic conditions on the top debtor groups (Hyundai, Samsung) which represent a significant portion of the loan book.
• Capital Adequacy: Verify that the Group BIS Ratio (13.11%) remains stable against potential increases in risk-weighted assets.
• Related Party Loans: Review the terms and repayment status of the KRW 1,525 billion in loans extended to subsidiaries.