[Click eStock] "Shinhan Financial Group, Steady Profit Growth Expected Due to NIM Improvement"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained its buy rating and target price of 50,000 KRW for Shinhan Financial Group on the 12th. This is based on the expectation of stable performance this year due to improvements in net interest margin (NIM) from the base rate hike and the end of provision setting.

It is analyzed that the company's net profit for the fourth quarter of last year will decrease by 48% compared to the previous quarter, reaching 582.5 billion KRW. The net profit is expected to fall about 8% short of the consensus of 632.4 billion KRW. Although core earnings such as interest income and non-interest income remained solid, this was due to provisions related to voluntary retirement and private equity funds.

The bank's NIM is predicted to improve by 5 basis points (1bp=0.01%p) from the previous quarter to 1.45%, which is expected to be the largest improvement among major banks. The growth rate of won-denominated loans is also expected to increase by 3% to 271.6 trillion KRW. Loan growth was unusually driven by mortgage loans, which are estimated to have increased by 6.5% from the previous quarter to 59 trillion KRW. Hyejin Park, a researcher at Daishin Securities, explained, “Since household loan growth was the lowest until the third quarter, the loan capacity was relatively higher compared to other banks, resulting in a higher growth rate of won-denominated loans.”

This year, in addition to voluntary retirement at the bank, voluntary retirements are also planned at Shinhan Card and Shinhan Life. Accordingly, selling and administrative expenses are analyzed to reach 1.8 trillion KRW, a 19.4% increase compared to the same period last year. The total voluntary retirement cost for affiliates is estimated to be reflected at 200 billion KRW, and bad debt costs are expected to increase by 59% from the previous quarter to 328 billion KRW. The company's annual profit for this year is expected to exceed 4.1 trillion KRW, which is more than a 21% increase compared to 2020.

Last year, the company conducted a full investigation of funds related to incomplete sales and continuously set aside provisions. It is expected to set aside about 100 billion KRW in provisions this quarter as well. Researcher Hyejin Park said, “Although the company experienced unusually many internal conflicts until last year, with the provisions in the fourth quarter being the last, a fresh new start is expected this year,” adding, “With NIM improvement due to the base rate hike, steady profit growth is anticipated, so along with equal quarterly dividends, a more proactive dividend policy can be expected.”