Business context and reporting period
Shinhan Financial Group Co., Ltd. is a Korea-based financial holding company with banking, credit card, securities, life insurance and other financial businesses. This Form 20-F, filed April 28, 2021, reports the fiscal year ended December 31, 2020—not a standalone fourth quarter. Financial statements are consolidated, prepared under IFRS as issued by the IASB, and audited by Samil PricewaterhouseCoopers, which gave an unqualified opinion. Management reported effective internal control over financial reporting.
Key financial metrics
Amounts below are in Korean won (W); trillion figures are rounded. Comparisons are with 2019.
| Metric | FY2020 | Change / comparison |
|---|---|---|
| Interest income | W14.774 trillion | Down 5.9% |
| Interest expense | W4.891 trillion | Down 18.1% |
| Net interest income | W9.883 trillion | Up 1.5% |
| Net fees and commission income | W2.383 trillion | Up 11.3% |
| Operating income | W4.930 trillion | Down 2.3% |
| Profit before tax | W4.754 trillion | Down 3.2% |
| Profit for the year | W3.498 trillion | Down 4.0% |
| Profit attributable to Group equity holders | W3.415 trillion | Up 0.3% |
| Net interest margin | 1.92% | Down from 2.07% |
| Credit-loss provision expense | W1.382 trillion | Up 40.9% |
| Total assets | W605.234 trillion | Up 9.6% |
| Gross loans | W360.804 trillion | Up 10.1% |
| Deposits | W326.417 trillion | Up 10.7% |
| Total liabilities / total equity | W558.877 / W46.357 trillion | Up 9.5% / 10.6% |
| Group capital adequacy / common equity ratio | 15.74% / 12.87% | Up from 13.90% / 11.12% |
| Net cash from operating activities | Outflow W4.409 trillion | 2019 inflow W7.179 trillion |
| Cash and cash equivalents, year-end | W8.963 trillion | 2019: W8.579 trillion |
Cash-flow figures for a financial group are materially affected by movements in loans, deposits and securities; the operating cash outflow should be assessed alongside those balance-sheet changes. The filing reports common-stock dividend of W1,500 per share for 2020, versus W1,850 for 2019; the reported 2020 dividend payout ratio was 25.42%.
Material changes versus the prior comparable period
- Net interest income rose modestly as lower funding costs more than offset lower asset yields. The Bank of Korea cut its base rate to 0.50% during 2020; the Group’s net interest margin fell 15 basis points.
- Loans and deposits expanded, while credit costs increased sharply. Gross non-performing loans rose to W1.689 trillion and the NPL ratio to 0.47%, from W1.325 trillion and 0.40%. Allowance coverage of impaired loans was 152.21%.
- Non-interest income was mixed: net fees increased, including stronger brokerage and lease fees, while trading gains at fair value fell substantially. Other comprehensive income shifted from a W566 billion gain to a W174 billion loss.
- Group assets and liabilities expanded, while total equity increased. The Group issued 39.13 million common shares in September 2020, raising approximately W1.158 trillion before expenses; it also retired 5.036 million treasury shares.
- Shinhan completed its acquisition of the remaining Orange Life Insurance shares and acquired Neoplux, later renamed Shinhan Venture Investment. The Group announced a strategy for 2021 and beyond focused on digital platforms, efficient growth, global expansion, sustainability and proactive risk management.
Outlook, risks, contingencies and unusual items
Management described the 2021 outlook as uncertain and did not provide numerical earnings guidance in the supplied filing text. It anticipated continued pressure from the pandemic and low rates, while noting potential recovery in exports and technology-related demand. The Group’s stated strategy, “F.R.E.S.H. 2020s,” emphasizes resilience, digital ecosystem development, sustainable growth and risk management.
- COVID-19 and credit: The Group recorded W394.4 billion of COVID-19-related provisions in 2020, including W187.3 billion in the fourth quarter. Management said future pandemic-related provisions were difficult to estimate and could remain significant. Government loan-rescheduling and payment-deferral programs were expected to continue through September 2021.
- Liquidity: Shinhan Bank’s December 2020 average liquidity coverage ratio was 90.01% and foreign-currency liquidity coverage ratio 104.73%; its net stable funding ratio was 111.97%. The filing says the temporary regulatory minimums for liquidity coverage ratios were reduced through September 2021. Deposits remain the principal funding source.
- Investment-product matters: Lime Asset-related investigations, investor compensation and potential regulatory sanctions pose financial and reputational risks. In April 2021, a sanctions committee recommended further action, subject to regulatory confirmation. Shinhan Bank recognized an additional W53.2 billion expense after year-end following its acceptance of a non-binding compensation recommendation. In 2020, the Group recorded W138.2 billion of provisions for potential compensation related to German Heritage DLS products; W379.9 billion of principal eligible for payment remained delayed at year-end. Recoveries on underlying funds may be insufficient to recoup investor prepayments.
- Other exposures: Credit commitments, guarantees and related off-balance-sheet items totaled W210.252 trillion at year-end; this is contractual exposure, not an estimate of expected loss. The filing also identifies SME, real-estate and household lending, market and foreign-exchange movements, cyber and operational risks, regulation, competition, and Korea’s economic and geopolitical conditions as material risks.
- Accounting and comparability: IFRS 9 and IFRS 15 were adopted in 2018 and IFRS 16 in 2019 without restating specified prior periods. Some historical comparisons are therefore not directly comparable.
Important facts for investors to verify
- Reconcile the modest increase in profit attributable to equity holders with the decline in total profit for the year, and assess the effect of increased credit provisions on future earnings.
- Review COVID-19-related staging, government payment-relief exposures, and whether provisions adequately reflect post-relief borrower performance.
- Track NPL formation, especially in corporate and SME portfolios, and confirm the quality and valuation of collateral and guarantees.
- Confirm the final Lime Asset regulatory decisions, compensation obligations and recoveries; also monitor German Heritage DLS and Gen2 fund recovery and loss exposure.
- Assess liquidity and funding resilience, including the duration of temporary regulatory relief, deposit pricing, capital ratios and the lower 2020 common dividend.
- Review the acquisition integration and financial effects of Orange Life and Neoplux, and the planned merger of the two life insurers, which remained subject to regulatory approval.