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Fundamental View
AS OF 12 Jun 2024For many years, Shinhan FG was the best-managed of the large Korean financial groups. 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.
It has a good track record, but its performance has been more variable in the past few years. After a bumpy 2020, it had a better 2021, and FY22 was better still, thanks to rising interest rates. However, operating performance has turned weak again in FY23. NIM is well controlled.
Credit costs have increased but are within our expectations. Recurring credit costs are expected to decrease in FY24, but additional provisions may still be needed. Capital is comfortable, but the distance vs. KBFG has increased.
Business Description
AS OF 12 Jun 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. ~30% of Shinhan Bank's overseas loan book is in Japan and China.
Risk & Catalysts
AS OF 12 Jun 2024As one of Korea’s “Big Four” financial groups, we believe Shinhan FG would likely receive governmental support if needed.
Asset quality pressure is rising from domestic real estate project financing and overseas real estate investments, with credit costs rising from very low levels. Management expects recurring credit costs to decrease in FY24, but additional provisions may still be needed due to regulators’ guidance for financial institutions to take a more conservative stance on provisioning.
Shinhan FG made some relatively recent missteps, including misselling asset management products to retail investors, which resulted in KRW 63 bn in fines in 1Q21. As a consequence, Shinhan Securities’ senior management was replaced.
Key Metrics
AS OF 12 Jun 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.09% | 1.11% | 1.10% | 3.89% | 1.40% |
ROA | 0.60% | 0.66% | 0.72% | 0.66% | 0.77% |
ROE | 8.4% | 9.2% | 10.0% | 8.6% | 10.4% |
Provisions/Average Loans | 0.43% | 0.28% | 0.34% | 0.78% | 0.38% |
NPL Ratio | 0.49% | 0.39% | 0.41% | 0.56% | 0.62% |
CET1 Ratio | 12.90% | 13.10% | 12.79% | 13.13% | 13.09% |
Equity/Assets | 7.3% | 7.3% | 7.6% | 7.8% | 7.7% |
Net Interest Margin | 1.80% | 1.81% | 1.96% | 5.91% | 2.00% |
CreditSights View
AS OF 30 Apr 2024Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with credit card and insurance arms. It had over many years the best operating track record, but the gap has narrowed and we now view Shinhan as overtaken by KB and Hana. 2023 has been challenging, as topline revenue growth was more than offset by increasing operating expenses and provisions. Asset quality is under pressure with the high NPL ratio among the four FGs. In the recent quarter, its CET1 ratio has declined but remained slightly above its 13% target.
Recommendation Reviewed: April 30, 2024
Recommendation Changed: September 22, 2020
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