Business Context and Reporting Period
This Form 6-K summarizes the 2009 First Quarter (1Q) Business Report of Shinhan Financial Group Co., Ltd. (SFG), filed with the Financial Supervisory Service of Korea on May 15, 2009. The financial data covers the period from January 1, 2009, to March 31, 2009, and is prepared in accordance with Korean Generally Accepted Accounting Principles (K-GAAP).
Key corporate developments during the period include:
- Management Change: Mr. Sang Hoon Shin was appointed President & CEO on March 17, 2009.
- Capital Increase: A rights offering on March 25, 2009, increased common shares by 78 million, raising approximately KRW 1.31 trillion.
- Dividends: No dividend was declared for common stock for FY 2008; preferred stock dividends totaled KRW 244,987 million.
Key Financial Metrics
Profitability (KRW Billion)
| Metric | 2009 1Q | 2008 Full Year |
|---|---|---|
| Operating Income | 204.9 | 3,032.2 |
| Earnings Before Tax | 204.0 | 2,993.7 |
| Consolidated Net Income | 122.4 | 2,025.6 |
| Net Income (Majority Interest) | 118.1 | 2,018.6 |
Liquidity and Capital Adequacy
- Group BIS Ratio: 11.56% (up from 10.20% in 2008), well above the 8% minimum requirement.
- Won Liquidity Ratio: 186.03% (up from 133.35% in 2008), indicating strong short-term liquidity in local currency.
- Liabilities to Equity Ratio: 41.11% (down from 47.19% in 2008), reflecting improved leverage.
- Subsidiary Capital Ratios: Shinhan Bank (14.45%), Shinhan Card (21.51%), Good Morning Shinhan Securities (678.8%), and Shinhan Life Insurance (207.74%) all exceed regulatory minimums.
Material Changes vs. Prior Period
Asset Quality Deterioration
Non-performing loans (NPLs) increased significantly across key subsidiaries compared to the prior year:
- Shinhan Bank: NPLs rose to KRW 2.05 trillion (1.35% of total loans) from KRW 1.31 trillion (0.85%) in Dec 2008.
- Shinhan Card: NPLs increased to KRW 367.9 billion (3.20%) from KRW 339.1 billion (2.91%).
- Good Morning Shinhan Securities: NPLs surged to KRW 125.4 billion (12.14%) from KRW 27.7 billion (2.35%).
Cost of Funds and Earnings
- Interest Rates: The average interest rate on deposits (KRW) decreased to 3.75% in 2009 1Q from 4.08% in 2008. Conversely, the interest rate on loans (KRW) dropped to 6.34% from 7.32%.
- Write-offs: Shinhan Bank recorded KRW 130.96 billion in write-offs for 2009 1Q, a decrease from KRW 340.94 billion in 2008. Shinhan Card write-offs were KRW 106.49 billion, down from KRW 603.88 billion in 2008.
Outlook, Risks, and Contingencies
Management Commentary
The filing notes that the financial information for 2009 1Q is provisional. The group has strengthened its capital base through the rights offering and maintains liquidity ratios significantly above regulatory thresholds. The appointment of a new CEO signals a strategic shift in leadership.
Risks and Contingencies
- Credit Risk: The sharp increase in NPL ratios, particularly at Good Morning Shinhan Securities (12.14%) and Shinhan Bank (1.35%), highlights exposure to the economic downturn.
- Market Risk: Stock prices for both common shares (Korea Exchange) and ADRs (NYSE) showed a downward trend from October 2008 through March 2009.
- Related Party Transactions: Significant inter-company lending exists, with total loans to subsidiaries ending at KRW 2.23 trillion as of March 31, 2009.
Investor Verification Checklist
- Verify the impact of the rising NPL ratio (1.35% for Shinhan Bank) on future loan loss provisions and net income.
- Confirm the utilization of the KRW 1.31 trillion raised via the rights offering and its effect on capital adequacy.
- Monitor the trend of NPLs at Good Morning Shinhan Securities, which spiked to 12.14% in 1Q 2009.
- Review the provisional nature of the 2009 1Q financial figures for potential adjustments in final filings.
- Assess the effectiveness of the new CEO's strategy in stabilizing earnings amidst the global financial crisis.