Hong Kong ELS Provision Liability 274 Billion KRW
Partial Recovery Due to Strong Non-Interest Income in Overseas Sector
Shinhan Financial Group announced on the 26th that its net profit for the first quarter decreased by 4.8% year-on-year to 1.3215 trillion KRW.
Shinhan Financial set aside 274 billion KRW in provisions related to losses from the Hong Kong H-Share Index (Hang Seng China Enterprises Index·HSCEI) based equity-linked securities (ELS) in the first quarter, but partially offset this through increased won-denominated loans and fee income from major group companies.
Interest income rose 9.4% year-on-year to 2.8159 trillion KRW. This was due to a 2.7% growth rate in won-denominated loans (1.2% for households, 3.9% for corporations) and an improvement in the group's quarterly net interest margin (NIM) to 2.00%, up 6 basis points (1bp=0.01%) from the same period last year.
Non-interest income increased by 0.3% to 1.0025 trillion KRW. Although gains related to securities decreased, fee income increased. Fee income rose by 28.4% for credit cards, 25.8% for securities custody, and 21.4% for insurance.
Provision for loan losses decreased by 18.0% to 377.9 billion KRW. The loan loss expense ratio for the first quarter remained stable at 0.38%. Non-operating losses amounted to 277.7 billion KRW, impacted by the provision for the Hong Kong H-Share Index ELS losses at Shinhan Bank (274 billion KRW).
The contribution from the global division expanded. The global division's net profit for the first quarter increased by 35.4% to 215 billion KRW. Shinhan Financial is expanding its overseas business, including a recent equity investment in Credila, India's leading student loan company.
By affiliate, Shinhan Bank posted a net profit of 928.6 billion KRW, down 0.3%. Shinhan Investment Corp. recorded 75.7 billion KRW, down 36.6%, but turned profitable compared to the previous quarter. Shinhan Card (185.1 billion KRW), Shinhan Life (154.2 billion KRW), and Shinhan Capital (64.3 billion KRW) also posted net profits.
A Shinhan Financial official stated, “Despite the challenging market environment, we demonstrated solid fundamentals and a diversified business portfolio, resulting in favorable performance. In particular, the increase in interest income driven by asset growth and margin improvement centered on corporate loans at the bank, along with increased non-interest income based on fee income growth from credit cards, securities custody, and insurance profits at major group companies such as card, securities, and life insurance, improved the group’s operating profit.”
On the same day, Shinhan Financial’s board resolved a first-quarter dividend of 540 KRW per share and approved the acquisition and cancellation of treasury shares worth 300 billion KRW during the second and third quarters. The treasury share acquisition and cancellation will be conducted over six months through a trust contract, with all acquired shares planned to be canceled upon completion.
Regarding the sale of shares by BNP Paribas and some private equity funds, which had participated in management through shareholding in Shinhan Financial, the company said, “As major investors such as private equity funds have largely completed their share sales during the first quarter, the supply-demand instability caused by the previously concerning overhang (potential sell-off volume) is expected to gradually improve. The cooperative relationship as business partners will continue, as seen in the recent joint investment between Shinhan Bank and Credila in India.”
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