Shinhan FG was the best-managed of the large Korean financial groups over many years. During the Asian Financial Crisis, it took advantage of the opportunity to acquire competitors and other businesses, increasing its scale and expanding its business lines.

Its performance has been more variable in the past few years. After a bumpy 2020, it had a better FY21 and FY22, thanks to rising interest rates. However, operating performance turned weak again in FY23, and its FY24 profit growth was softer than peers, impacted by non-bank performance.

In addition to owning a Big 4 bank in Korea, Shinhan FG also has a diversified non-banking business portfolio, including a leading credit card company and a top 10 securities firm.

As one of Korea’s “Big Four” financial groups, we believe Shinhan FG would likely receive governmental support if needed.

Asset quality pressure has been rising from domestic real estate project financing at non-bank subsidiaries, with credit costs rising from very low levels. Management expects FY25 credit costs to normalize to the mid-30 bp from 47 bp in FY24, though we remain cautious about this outlook.

Loan growth is expected to slow down this year due to both weaker demand and the need to defend its 13% CET 1 ratio target.

Profit growth may encounter challenges if there is volatility in the KRW, which could lead to significant FX losses, or if the high-rate environment in the US persists, causing further overseas CRE valuation losses.