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Fundamental View
AS OF 22 Aug 2024Shinhan 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. 1H24 showed some recovery.
Credit costs have increased mainly due to real estate project financing, but are within our expectations. Capital is comfortable.
Business Description
AS OF 22 Aug 2024- Shinhan Financial Group (Shinhan FG) is one of Korea's most diversified financial groups and the holding company of the second largest Korean bank - Shinhan Bank. It also has credit cards, securities, asset management and insurance subsidiaries.
- Shinhan Bank was set up in 1982 with seed capital from Korean residents in Japan. It was more professionally managed than the heavily politicised older banks and came through the 1997 Asian Financial Crisis in relatively good shape, taking the opportunity to acquire the larger and much longer-established Chohung Bank in 2003.
- In 2007, it made another timely acquisition, buying LG Card from its creditors after it failed during the 2003 Korean consumer lending crisis. Shinhan Card is the largest card issuer in Korea.
- Shinhan is also looking for overseas opportunities where growth is strong and Korean businesses have a presence, with a focus on Vietnam (where Shinhan Card also bought a consumer finance business in 2019) and Indonesia.
Risk & Catalysts
AS OF 22 Aug 2024As 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 and overseas real estate investments, with credit costs rising from very low levels. Management expects credit costs to slightly improve in 2H24, but additional provisions may still be needed due to regulators’ guidance for financial institutions to take a more conservative stance on provisioning.
NIMs fell in 2Q24 with inevitably further downward pressure in 2H, given the potential policy rate cuts and LCR regulation adjustments.
Key Metric
AS OF 22 Aug 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.09% | 1.11% | 1.10% | 3.89% | 1.38% |
ROA | 0.60% | 0.66% | 0.72% | 0.66% | 0.79% |
ROE | 8.4% | 9.2% | 10.0% | 8.6% | 10.7% |
Provisions/Average Loans | 0.43% | 0.28% | 0.34% | 0.78% | 0.47% |
NPL Ratio | 0.49% | 0.39% | 0.41% | 0.56% | 0.68% |
CET1 Ratio | 12.90% | 13.10% | 12.79% | 13.17% | 13.05% |
Equity/Assets | 7.3% | 7.3% | 7.6% | 7.8% | 7.5% |
Net Interest Margin | 1.80% | 1.81% | 1.96% | 5.91% | 1.97% |
CreditSight View Comment
AS OF 29 Jul 2024We have a Market perform recommendation on Shinhan FG and the bank. Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with a leading credit card arm. It had over many years the best operating track record, but now we see its operating performance as in line with its peers. FY23 was challenging, as topline revenue growth was more than offset by increasing operating expenses and provisions. 1H24 has been better, helped by solid loan growth, strong fee income and normalizing provisions. The group’s CET 1 ratio at 2Q24 was just above its target 13%, which management views as an appropriate level.
Recommendation Reviewed: July 29, 2024
Recommendation Changed: September 22, 2020