Shinhan Financial Group Co Ltd (SHG)

SHG 
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Shinhan Financial Group Limited (SHG)

Q1 2013 Earnings Call

April 29, 2013 3:00 am ET

Executives

Sung Hun Yu

Jung Kee Min - Chief Financial Officer and Executive Vice President

Analysts

Kyu-sun Shim - HI Investment & Securities Co., Ltd., Research Division

Byung Gun Lee - Dongbu Securities Co., Ltd., Research Division

Seong-Jin Kim - Standard Chartered Bank Korea Ltd

Hyun Soo Shim - KB Investment & Securities Co., Ltd., Research Division

Presentation

Sung Hun Yu

Good afternoon, ladies and gentlemen. My name is Yu Sung Hun, head of the IR team at Shinhan Financial Group. I would like to thank the investors and analysts for joining us despite their busy schedule.

We'll now begin the earnings call for the Q1 of 2013 for Shinhan Financial Group. We have Vice President Choi Buhmsoo, who's responsible for the strategy; and we also have Vice President Min Jung Kee, responsible for the financials. And we also have Mr. Jang Dong-ki, the head of the financial management team with us. Vice President Min, Jung Kee is going to give us descriptions, explanations on the results of Q1. And then we will have questions and answers session. We'll now invite Vice President Min to give us the report on the earnings of Q1.

Jung Kee Min

Good afternoon. I am Jung Kee Min, the CFO of Shinhan Financial Group. First of all, I would like to extend my gratitude to the investors, analysts and journalists in and out of Korea for listening in to the 2013 Q1 Shinhan Financial Group earnings release.

I would now like to cover the major highlights of Shinhan Financial Group's Q1 business performance. Let me elaborate on the group's income on Page 6. Shinhan Financial Group's 2013 Q1 net income posted KRW 481.3 billion. The group's major income-generating interest income, due to the NIM drop and a sluggish loan growth, went down 9.3% Y-o-Y and at 5.0% Q-o-Q, respectively. Noninterest income fell 13% year-on-year with decrease in gains on security sales. Compared to the previous quarters, with the absence of one-off loss factors, including losses from NPL sales and derivative CVA, there was a 94.7% increase in noninterest income Q-o-Q. SG&A went up 3.6% Y-o-Y, showing appropriate growth trends compared to the previous quarter with the overall cost falling following the absence of efforts to save cost, including the voluntary retirement plan, SG&A went down 6.2% Q-o-Q. Credit cost in Q1, due to one-off factors, showed a different trend compared to the previous quarters and went up 50.1% and 20.2% Y-o-Y and Q-o-Q, respectively, going against the previous quarterly trends. With the Shiksan quarter collective loan delinquency prolongation, KRW 71.5 billion of additional provisioning was fully recognized. Additional provisioning took place for certain companies under court receivership, including SunStar and also regarding the STX Shipbuilding voluntary agreement. In the case of card, additional credit cost went up due to a decrease in recovery from written-off assets and additional provisioning for recognition for long-term delinquent loans. Q1 business performance was different from the previous first quarter result in the past because of the drop in the interest income influenced by the policy rate cut, as well as the pushdown in income caused by the one-off credit cost factors. This caused the net income to stop at KRW 481.3 billion. From -- in Q2, we forecast a stable income flow with the NIM margin drop slowdown and the reduction of one-off credit cost factors.

Next, Page 7, group subsidiaries income. In Q1, net income, taking into consideration the ownership of banking and nonbanking, posted KRW 341.5 billion and KRW 248.2 billion, respectively.

The bank's net income contribution and nonbanking income contribution recorded 58% and 42%, respectively. Despite the drop in the income for nonbanking subsidiaries, including Shinhan Card and Shinhan Life with the Shinhan Investment and Shinhan Capital's income recovery, the nonbanking net income contribution slightly grew year-on-year.

Page 8, group subsidiary income in Q1. 2013 Q1 Shinhan Bank income, due to the margin squeeze and credit cost hike, went down 48.6% year-on-year. SG&A decrease in gains from sales of securities led to a 54% increase Q-o-Q for bank income. The nonbanking side, due to the business environment deterioration, including the tightened regulation, base rate cuts and market contraction, went down 12.8% year-on-year and went up 50.6% Q-o-Q thanks to the income recovery of Shinhan Investment and Shinhan Capital. Due to the drop in the credit card income following the merchant fee revisions and increased credit cost, income went down 13.9% year-on-year. Thanks to the rise in interest income, SG&A contraction and sale of the Visa card shares, income went up 2.5% Q-o-Q. Shinhan Investment, despite the drop in the stock brokerage fees resulting from the lower continuous daily stock market volume Q-o-Q and Y-o-Y with the proprietary trading increase and CLN impairment losses write-back, saw a great recovery in net income. Shinhan Life, despite the rise in premium income and gains on bond trading, saw the income fall 38.9% year-on-year because of the low base interest rate and the rise in policy reserves for single premium policies. However, with the decrease in policy reserves with the single premium policies because the tax benefits have been abolished, compared to the previous quarter, Shinhan Life income increased 47.6% Q-o-Q. Shinhan Capital had a stabilized credit cost due to the absence of additional yearly provisioning for ship financing assets, which took place the previous year, leading to an income recovery year-on-year and Q-o-Q.

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