Shinhan Financial Group has topped 5 trillion won in cumulative net profit through the third quarter this year, helped by increases in interest income and fee income. Improved results at non-bank affiliates such as securities and cards supported the group’s profit growth. Third-quarter net profit, however, fell by double digits from the previous quarter as non-interest income shrank due to a decline in securities trading value and rising rates.

Shinhan Financial said on Oct. 27 that cumulative net profit through the third quarter rose 12.7 percent from a year earlier to 5.03 trillion won. Third-quarter net profit was 1.58 trillion won, down 12.9 percent from the previous quarter.

Cumulative interest income up 7.9 percent, fee income up 35.4 percent; Q3 non-interest income plunges

Cumulative interest income through the third quarter rose 7.9 percent from a year earlier to 9.35 trillion won. Interest income continued to grow as the effects of increased loan assets and improvements in net interest margin (NIM) accumulated.

Third-quarter interest income was 3.19 trillion won, up 1.8 percent from the previous quarter. The group’s third-quarter NIM was 1.91 percent, down 0.02 percentage points from the previous quarter, while bank NIM fell 0.03 percentage points to 1.58 percent. On a cumulative basis through the third quarter, group NIM was 1.93 percent and bank NIM was 1.59 percent, up 0.03 percentage points and 0.04 percentage points, respectively, from a year earlier.

Cumulative non-interest income was 3.43 trillion won, up 8.2 percent from a year earlier. Expansion in fee income, including securities custody fees, led the increase in overall non-interest income.

Cumulative fee income in particular rose 35.4 percent from a year earlier to 2.99 trillion won. Securities custody fees surged 138.8 percent to 921.0 billion won, while fund, bancassurance and trust fees increased 69.4 percent to 577.7 billion won. Fee income related to credit cards and leasing rose 11.3 percent to 699.5 billion won.

Third-quarter non-interest income was 790.2 billion won, down 45.5 percent from the previous quarter. The decline reflected reduced securities custody fees due to weaker securities trading value and deterioration in gains and losses related to securities as market rates rose. Over the same period, fee income fell 27.7 percent and gains related to securities and foreign exchange and derivatives fell 52.3 percent.

Cumulative profit and loss for the non-bank segment through the third quarter was 1.80 trillion won, up 27.3 percent from a year earlier. Results in the securities segment improved sharply, while higher profit in the card and asset management segments also contributed. Third-quarter standalone non-bank profit and loss, however, was 475.3 billion won, down 33.7 percent from the previous quarter.

Shinhan Bank cumulative net profit up 9.8 percent; securities and card growth, weak insurance

Among major affiliates, Shinhan Bank posted cumulative net profit through the third quarter of 3.68 trillion won, up 9.8 percent from a year earlier. Third-quarter net profit was 1.23 trillion won, down 5.9 percent from the previous quarter. The decline reflected reduced non-interest income and an increase in provisioning for credit losses despite higher interest income and lower selling and administrative expenses.

Shinhan Bank’s won-denominated loans outstanding as of end-September rose 3.3 percent from end-last year. Corporate loans increased 4.7 percent, with loans to small and medium-sized firms up 2.4 percent and loans to large firms up 12.3 percent. Household loans rose 1.5 percent, and the growth rates for mortgage loans and general-purpose loans were 2.3 percent and 0.7 percent, respectively. The delinquency ratio and the ratio of fixed and below fixed loans were both tallied at 0.29 percent as of end-September.

Among non-bank affiliates, Shinhan Investment Corp posted cumulative net profit through the third quarter of 642.9 billion won, up 78.9 percent from a year earlier. Higher securities custody fees driven by more active capital markets led the improvement in results. Third-quarter net profit, however, was 65.3 billion won, down 77.4 percent from the previous quarter, affected by slower securities trading value and reduced product management income as rates rose.

Shinhan Card’s cumulative net profit through the third quarter rose 27.7 percent from a year earlier to 485.8 billion won. Third-quarter net profit was 232.4 billion won, up 68.4 percent from the previous quarter. The result reflected higher operating income on increased credit card sales and one-off gains related to the sale of an office building.

Shinhan Life recorded cumulative net profit through the third quarter of 419.4 billion won, down 18.5 percent from a year earlier. The decline was affected by weaker insurance profit and loss due to wider gaps between expected and actual claims, as well as reduced financial profit and loss. Third-quarter net profit was 128.8 billion won, down 31.3 percent from the previous quarter.

Shinhan Capital’s cumulative net profit was 117.8 billion won, up 28.1 percent from a year earlier, while Shinhan Asset Management rose 82.6 percent to 66.6 billion won. Shinhan Asset Management expanded fee income such as management fees as assets under management grew centered on exchange-traded funds (ETFs).

The group’s cumulative selling and administrative expenses through the third quarter rose 8.7 percent from a year earlier to 4.80 trillion won. It reflected wage increases and costs related to voluntary retirement, but the cost-income ratio (CIR) came to 37.6 percent.

Provisioning for credit losses was 1.44 trillion won, down 4.5 percent from a year earlier. The credit cost ratio was 0.42 percent, below last year’s annual 0.45 percent. Third-quarter provisioning for credit losses, however, was 486.3 billion won, up 11.2 percent from the previous quarter.

Cumulative non-operating profit through the third quarter was 310.8 billion won, an increase of 195.6 billion won from a year earlier. It reflected gains on the sale of buildings by bank and card affiliates.

Cumulative profit and loss in overseas operations was 698.3 billion won, up 7.4 percent from a year earlier. By country, Vietnam posted profit of 192.4 billion won and Japan 143.8 billion won, while major overseas financial centers for the bank, including New York, London, Hong Kong and Singapore, recorded profit and loss of 160.8 billion won.

CET1 held at 13.62 percent; shareholder returns seen at about 3 trillion won this year

The group’s common equity tier 1 (CET1) ratio as of end-September was tentatively tallied at 13.62 percent, up 0.12 percentage points from the previous quarter. The Bank for International Settlements (BIS) capital ratio was 15.99 percent. Return on equity (ROE) was 11.9 percent, up about 0.9 percentage points from a year earlier.

Shinhan Financial will also increase shareholder returns based on earnings growth and capital strength. The board decided on a third-quarter cash dividend of 740 won per share and approved an additional share buyback worth 450.0 billion won.

Of that, 200.0 billion won will be bought in the fourth quarter this year and the remaining 250.0 billion won in January next year, to be reflected in shareholder return results for each year. As a result, share acquisition and cancellation this year is expected to reach 1.60 trillion won. Including an estimated annual cash dividend of about 1.40 trillion won, total shareholder returns are expected to be about 3.00 trillion won.

Shinhan Financial plans to strengthen competitiveness in the insurance business and raise mid- to long-term profitability through its recently pursued acquisition of Lotte Insurance. The acquisition price is 693.3 billion won, and it estimated the impact from the acquisition on lowering the CET1 ratio at about 0.19 percentage points.

Jang Jeong-hoon (장정훈), chief financial officer at Shinhan Financial Group, said, "As results toward the ROE 10 percent target are becoming visible, we will continue sustainable growth based on profitability-focused portfolio management and efficient capital allocation." He added, "We will also strengthen the foundation for improving the group’s mid- to long-term profitability through the acquisition of a non-life insurer and normalization of the insurance business."