Shinhan FG was for many years the best managed of the large Korean financial groups, taking the opportunity around the Asian Financial crisis to acquire competitors and other businesses that increased its scale and expanded its business lines.

It has a good track record, but in the past few years its performance has had more variability. After a bumpy 2020, it had a better 2021, and FY22 again has shown an improvement, thanks to rising interest rates. However, margin growth has stopped in 4Q22. Capital is comfortable, asset quality is sound, and provision coverage is strong.

As one of the “Big Four” financial groups in Korea, we believe that Shinhan FG would very likely receive governmental support if needed.

Credit costs are rising from very low levels as expected, but normalized credit costs (excluding additional provisions) are still stable.

NIM growth challenge came in earlier than expected with 4Q NIM down 1-2 bp QoQ for both the group and the bank, as rising yields were offset by increased finance costs and some amount of moral suasion by the government to not pass on rate increases / reduce mortgage rates.

Shinhan FG has a lower CET 1 ratio target than KBFG and Hana FG at 12%, likely leaving room for future M&A opportunities or share buybacks.

Shinhan FG had some recent missteps, with the misselling of asset management products to retail investors, resulting in KRW 63 bn in fines in 1Q21. The Shinhan Securities senior management was replaced as a consequence.