SHG

Business Context and Reporting Period

This Form 6-K, filed on April 13, 2004, summarizes the 2004 Annual Business Report of Shinhan Financial Group Co., Ltd. (SFG), a Korean financial holding company. The financial data presented covers the fiscal year ended December 31, 2003, prepared in accordance with Korean GAAP. The Group's principal subsidiaries include Shinhan Bank (100%), Chohung Bank (81.2%), Goodmorning Shinhan Securities (59.02%), and Shinhan Card (100%).

Key Financial Metrics

Capitalization and Equity

As of December 31, 2003, the Group's total capital stock amounted to KRW 1,958.5 billion. This comprised 294.4 million common shares, 52.6 million redeemable preferred shares, and 44.7 million redeemable convertible preferred shares. Stockholders' equity represented 73.82% of total funds in 2003, up from 89.45% in 2002, while borrowings increased significantly to 25.48% of total funds.

Performance of Affiliated Companies (2003)

Note: The consolidated net loss of KRW 523.3 billion is primarily driven by significant losses at Chohung Bank and Shinhan Card.

Liquidity and Capital Adequacy

• Requisite Capital Ratio: 118.41% (Required minimum: 100%).
• Won Liquidity Ratio: 107.46% (Required minimum: 100%).
• Liabilities to Equity Ratio: 35.58% (up from 19.32% in 2002).
• Non-Performing Loans (NPL): Shinhan Bank NPL ratio was 0.82%; Chohung Bank was 4.2%; Shinhan Card was 6.34%.

Material Changes vs. Prior Period

• Acquisition of Chohung Bank: The Group acquired Chohung Bank in August 2003. Consequently, Chohung Bank's financials are included in the 2003 average balances but not in 2002. The acquisition contributed to a significant increase in total assets and liabilities.
• Capital Structure Shift: Borrowings increased from 9.11% of total funds in 2002 to 25.48% in 2003, largely due to debentures issued to fund the Chohung Bank acquisition.
• Profitability Divergence: While Shinhan Bank reported net earnings of KRW 476 billion, Chohung Bank reported a net loss of KRW 966 billion, and Shinhan Card reported a net loss of KRW 89.8 billion. The aggregate condensed subsidiaries reported a net loss of KRW 523 billion for the year.
• Stock Price Performance: Common shares traded on the Korea Stock Exchange reached a high of KRW 23,050 in February 2004, up from a low of KRW 15,600 in September 2003. American Depositary Shares (ADS) on the NYSE reached a high of $39.63 in February 2004.

Guidance, Risks, and Unusual Items

Management Commentary and Outlook: The filing does not contain specific forward-looking guidance or earnings projections for 2004. Management focus appears centered on the integration of Chohung Bank and maintaining regulatory capital ratios.

Risks and Contingencies:

• Asset Quality: Chohung Bank and Shinhan Card exhibit higher NPL ratios (4.2% and 6.34% respectively) compared to Shinhan Bank (0.82%). Significant write-offs were recorded, particularly at Chohung Bank (KRW 1.78 trillion) and Shinhan Card (KRW 277 billion).
• Regulatory Compliance: The Group maintains capital and liquidity ratios above the minimums required by the Financial Supervisory Commission of Korea.
• Unusual Items: The substantial net loss at the subsidiary level is attributed to the integration costs and asset quality issues associated with the newly acquired Chohung Bank and the credit card portfolio of Shinhan Card.

Investor Verification Checklist

• Chohung Bank Integration: Verify the timeline and financial impact of the Chohung Bank acquisition, specifically the source of the KRW 966 billion net loss and the adequacy of loan loss provisions.
• Consolidated vs. Condensed Results: Confirm the difference between the "Condensed Financial Statements of Subsidiaries" (which show a loss) and the actual consolidated financial statements of the Group, as intercompany eliminations may alter the final bottom line.
• Preferred Share Obligations: Review the terms of the 97.3 million redeemable preferred shares issued in 2003 to understand future cash flow requirements for redemption or conversion.
• NPL Trends: Monitor the trajectory of Non-Performing Loans at Chohung Bank and Shinhan Card to assess potential future credit costs.
• Regulatory Capital: Ensure the Group continues to meet the 100% requisite capital ratio and 100% Won liquidity ratio requirements under Korean regulations.