Hana Financial Group Reports Record Net Profit of 2.6 Trillion Won... Dividend Reduced to 20% Following Regulatory Recommendations (Comprehensive)

Net Profit of 2.6372 Trillion KRW Last Year... Increase of 245.7 Billion KRW
Non-Banking Segment Profit Ratio 34.3%... Up 10.3 Percentage Points YoY

Non-bank Sector Shows Remarkable Performance with Increased Profit Share

[Asia Economy Reporter Kiho Sung] Hana Financial Group announced that it recorded a consolidated net income of KRW 2.6372 trillion for the full year of 2020, including KRW 532.8 billion in the fourth quarter. This represents a 10.3% (KRW 245.7 billion) increase compared to the previous year. However, following the financial authorities' recommendation to restrain dividends, Hana Financial Group decided to reduce its dividend payout ratio to 20%.

On the 5th, Hana Financial Group disclosed these results through its 2020 business performance announcement, explaining, "Despite one-time expenses such as proactive provisions for COVID-19 impacts, costs related to private equity funds, and special retirement, the overall cost reduction efforts across the group, the strong performance of the non-bank sector, and diversification of portfolio and sales channels contributed to these results."

In particular, the non-bank sector recorded a profit share of 34.3%, an increase of 10.3 percentage points from the previous year, showing outstanding performance. This included Hana Financial Investment with KRW 410.9 billion (an increase of KRW 130.6 billion, 46.6% year-on-year), Hana Capital with KRW 177.2 billion (an increase of KRW 69.4 billion, 64.5% year-on-year), and Hana Card with KRW 154.5 billion (an increase of KRW 98.2 billion, 174.4% year-on-year).

Group Core Profit Increased by 1.8% Year-on-Year

As a result, the group's core profit, combining interest income (KRW 5.8143 trillion) and fee income (KRW 2.2557 trillion), recorded KRW 8.07 trillion, an increase of 1.8% (KRW 145.4 billion) compared to the previous year.

During the fourth quarter, provisions including bad debt allowances of KRW 276.9 billion were set aside, bringing the total accumulated provisions for 2020 to KRW 847.3 billion, sufficiently securing the group's buffer capacity. Notably, following the third quarter, an additional KRW 108.2 billion was provisioned for COVID-19 related bad debts in the fourth quarter, totaling KRW 337.7 billion for the year. Also, proactive costs related to private equity funds amounting to KRW 112.6 billion were recognized in the fourth quarter, totaling KRW 220.7 billion for the year, following the second quarter.

At the end of 2020, the group's non-performing loan (NPL) ratio improved by 8 basis points to 0.40%, and the delinquency ratio decreased by 4 basis points to 0.26%, maintaining a steady stability.

Key indicators reflecting management efficiency, ROE and ROA, also improved. Return on equity (ROE) rose by 24 basis points to 8.96%, and return on assets (ROA) increased by 1 basis point to 0.61% compared to the previous year.

Despite conducting special retirement programs, the group's selling and administrative expenses decreased by 4.6% (KRW 189.4 billion) year-on-year due to cost reduction efforts. The cost-to-income (C/I) ratio also fell by 5.3 percentage points to 45.3% compared to the previous year.

Thanks to stable management of risk-weighted assets and solid net income performance, the group's estimated BIS ratio rose by 23 basis points to 14.18%, and the estimated common equity tier 1 (CET1) ratio increased by 7 basis points to 12.03% year-on-year. Furthermore, with the introduction of Basel III in March 2021, capital ratios are expected to rise significantly.

The group's net interest margin (NIM) for the fourth quarter was 1.54%, and as of the end of 2020, the group's total assets, including trust assets of KRW 133 trillion, amounted to KRW 593 trillion.

Hana Bank Records KRW 2.0101 Trillion, Down 6.1% Year-on-Year

Hana Bank posted a consolidated net income of KRW 2.0101 trillion for 2020, including KRW 355.7 billion in the fourth quarter. This is a 6.1% (KRW 129.7 billion) decrease compared to the previous year. Hana Bank explained that this was due to an unfavorable business environment caused by the low interest rate trend and COVID-19, despite efficient cost-cutting efforts.

The bank's core profit, combining interest income (KRW 5.3078 trillion) and fee income (KRW 711.3 billion), decreased by 4.5% (KRW 281.3 billion) year-on-year to KRW 6.0191 trillion. The bank's selling and administrative expenses decreased by 10.2% (KRW 337.5 billion) compared to the previous year-end, thanks to the labor cost savings from special retirement programs conducted in 2019 and company-wide cost reduction efforts.

At the end of 2020, Hana Bank's NPL coverage ratio increased by 36 percentage points to 130.1%, the non-performing loan ratio fell by 5 basis points to 0.34%, and the delinquency ratio decreased by 1 basis point to 0.19%, maintaining stable asset soundness. As of the end of 2020, Hana Bank's total assets, including trust assets of KRW 71 trillion, amounted to KRW 462 trillion.

Among non-bank affiliates, Hana Financial Investment posted a net income of KRW 410.9 billion, a 46.6% (KRW 130.6 billion) increase year-on-year, benefiting from a favorable environment with a surge in stock market trading volume and improved overall profit generation capabilities including securities brokerage, underwriting, and advisory fees.

Hana Capital recorded a net income of KRW 177.2 billion, up 64.5% (KRW 69.4 billion) year-on-year, driven by growth in interest income from high-quality retail assets.

Hana Card posted a net income of KRW 154.5 billion, a 174.4% (KRW 98.2 billion) increase year-on-year, due to increased payment fees and cost efficiency from digital innovation.

Hana Asset Trust recorded a net income of KRW 80.8 billion, up 23.0% (KRW 15.1 billion) year-on-year, and Hana Life Insurance posted KRW 26.6 billion, a 12.3% (KRW 2.9 billion) increase year-on-year.

Dividend Payout Ratio Reduced to 20%, Dividend per Share KRW 1,350

Meanwhile, the Hana Financial Group board decided to reduce the dividend payout ratio to 20%. Accordingly, the dividend per share was resolved at KRW 1,350 (including interim dividend, total KRW 1,850, payout ratio 20%). This represents a 16% decrease compared to 2019. Considering that the dividend payout ratio for Hana Financial Group in 2019 was 26%, this is a 6 percentage point reduction.

Hana Financial Group stated, "This decision was made after comprehensively considering the prolonged economic downturn and market uncertainty due to the COVID-19 pandemic, as well as the financial authorities' recommendations on dividend payout ratios."

Previously, the financial authorities recommended that domestic banks lower their dividend payout ratios (dividends/net income) to within 20% until June this year as a measure to respond to COVID-19. This was intended to ensure capital management in the banking sector in preparation for the prolonged COVID-19 situation.