Shinhan Financial Group Co., Ltd. Sponsored ADR Stock

Good afternoon. It's now approaching the end of the year, and we now are at the last conference call of this year. My name is Cheol Woo Park. I'm the Head of IR at Shinhan Financial Group. Thank you very much for joining us for the Q3 2026 earnings call. Today, as the previous quarter, we have Jeong Hoon Jang, our Group CFO. We have Go Suk-Hyun, the Group CSO. We have Choi Hyuck-Jaei, Head of AX and Digital for the Group. We have Hoon Na, Group CRO. We have Kang Young-hoon, Bank CFO. Lee Jeong-bin, Card CFO; Jaesung Lee, Shinhan Investment Securities CFO; and Joo Sung-hwan Shinhan Life CFO. We will start with a presentation on our Q3 business results by CFO, Jeong Hoon Jang, and then we will open the floor to receive your questions. First, our CFO, Jeong Hoon Jang, will take you through our Q3 earnings results.

Yes. Good afternoon. This is Shinhan Financial Group CFO, Jeong Hoon Jang. Thank you very much for joining our 2026 Q3 earnings call. Let me share our Q3 business results from Page 2, which starts with the business highlights. Percentage of group CET1 at the end of Q3 was 13.62%, maintaining stable levels. Today, the BOD approved a total of KRW 450 billion in share buyback and 400 -- excuse me, KRW 740 per share of Q3 cash dividends. The buyback will be executed in 2 parts, KRW 200 billion within the year and the remaining KRW 250 billion by January next year, and this will make share buyback completed this year to KRW 1.6 trillion, which is a 28% Y-o-Y increase. For dividends, assuming quarterly cash dividends are maintained at this level until year-end, full year DPS would be KRW 2,960, which is a 14.3% Y-o-Y increase. That said, until the BOD meeting early next year, we will pursue to increase the level of year-end dividends, considering various factors, including capital ratio, profit size and shareholder return ratios and maintaining our industry-leading corporate value enhancement, we will continue to pursue a flexible and satisfactory shareholder return policy.

Q3 net income was KRW 1,584.6 billion, which is a 12.9% Q-o-Q decrease. Group ROE and ROTCE improved 0.9 percentage points Y-o-Y to 11.9% and 13.4%, respectively. As announced, we have decided to acquire 77% of Lotte Insurance at KRW 693.3 billion. The purpose is to strengthen the group's insurance business portfolio and to enhance the mid- to long-term profitability and capital efficiency using our retained capital. The acquisition will be funded by reallocating the group's capital without separate outside funding. The acquisition would reduce CET1 by around 19 bp, which is sufficiently manageable considering our current group CET1 ratios. The decision to acquire Lotte Insurance was reached after considering a wide variety of alternatives. And once Lotte Insurance operation is normalized, its profitability will improve and start contributing to the upside of the group's ROE. Many steps do remain until the acquisition and integration process is completed, and we will fully communicate with the market and listen to your feedback at each step. We look very much for your support and feedback during this process.

The following page shows the key shareholder value metrics provided for your reference. Page 4 is capital. As of end of Q3, group CET1 was 13.62%, which is a 12 bp improvement on a quarter-on-quarter basis. The falling exchange rate and our profitability focused selective asset growth resulted in group RWA decreasing by 1.6% Q-o-Q. We will continue to maintain this approach of sufficiently supplying resources to the right places, but emphasizing internal efficiency and strategic asset allocation to maintain a stable capital ratio.

Page 5 deals with assets and liabilities provided for your reference and Page 6 is group P&L. Q3 group operating income before expenses decreased 13.2% Q-o-Q due to reduction in noninterest income despite solid interest income generation. Net income decreased 12.9% due to reduction in operating income before expenses despite gains from disposal of property and well-controlled expenses. Details are explained in the following pages.

Page 7, interest income. The group's interest income grew 1.8% Q-o-Q, driven by growth in average loan balances and higher interest income from bonds held despite the bank's NIM declining 3 bps Q-o-Q. The bank's NIM declined 3 bps Q-o-Q as the rise in the cost of funds outpaced the improvement in asset yields. In the case of the bank's Korean won-denominated loans, it increased 1.4% Q-o-Q as we responded to customer demand while pursuing a profitability focused growth strategy. For more details, please refer to Page 24.

Next page, noninterest income. The group's noninterest income decreased 45.5% Q-o-Q, reflecting the slowdown in capital markets and uncertainty in the interest rate environment. Fee income decreased 27.7% Q-o-Q amid overall weakness in capital market-related businesses and securities-related income, reflecting valuation losses on bonds from rising market interest rates declined significantly Q-o-Q. Insurance-related income declined Q-o-Q as the impact of widening experience variance losses and the changes in actuarial guidelines persisted. As such, noninterest income in 3Q showed an overall slowdown in line with market volatility. However, each business segment will respond to this and focus on securing a stable earnings base.

Next, Page 9, G&A expenses and credit costs. The group's G&A expenses decreased 5.0% Q-o-Q due to a seasonal decrease in taxes and dues and the dissipation of effects such as the securities subsidiaries performance-based compensation recognized in the previous quarter. Accordingly, the cost-to-income ratio stood at 37.6% and still being managed at a stable level. The group's credit cost increased Q-o-Q as we maintained our preemptive provisioning stance. However, the credit cost ratio stood at 4 bps, improving 42 bps Y-o-Y -- stood at 42 bps, improving 4 bps Y-o-Y remained stable within the management range planned at the beginning of the year. Going forward, while maintaining a conservative provisioning policy, we continue preemptive asset quality management and risk reviews.

Next is Page 10, the group's asset quality indicators. The group's NPL coverage ratio despite a slight increase decreased in the loan loss allowance balance rose slightly Q-o-Q to 115.48% as substandard and below assets decreased due to the bank sale of large nonperforming assets and asset reclassification. Advanced delinquency ratio improved 5 bps Q-o-Q and the card delinquency ratio rose 2 bps Q-o-Q, but overall, they remain at manageable levels. However, as economic recovery still appears difficult and credit risk versus centered on some vulnerable borrowers, we plan to continue close monitoring of asset quality and preemptive risk management going forward. Details on the group's loss absorption capacity and write-off sales of NPLs are provided on the next page. So please refer to them.

Next, Page 12, earnings by subsidiary. Shinhan Bank, despite declines in sales of fees on products such as funds, bancassurance and trust and in security-related income, minimized earnings volatility on the back of solid interest income recording a 5.9% decrease Q-o-Q.

Capital market subsidiaries, such as Shinhan Securities and Shinhan Asset Management saw slower earnings Q-o-Q due to lower stock trading value and heightened market volatility. But they still maintained a solid profitability compared with the same period last year. Shinhan Card, amid continued uncertainty in the business environment, improved 68.4% Q-o-Q as a gain on the sale of its office building was reflected. Shinhan Capital decreased 29.7% Q-o-Q due to the continued burden of funding costs and slowing returns on the securities it holds. Shinhan Life decreased 31.3% Q-o-Q due to lower insurance finance income, reflecting widening experience variance losses and valuation losses and securities held.

Page 13, overseas business earnings or Shinhan has been delivering differentiated results. The group's overseas business earnings decreased 9.9% Q-o-Q due to factors such as the lower exchange rate despite the solid earnings generating capacity of major overseas subsidiaries. SBJ continues its stable growth despite the lower exchange rate, driven by strong real estate market and higher interest income following policy rate hikes and the bank's MMC also continued its strong earnings trend centered on the expansion of its IB business.

Meanwhile, funding and credit costs are increasing in some countries due to heightened uncertainty in global financial markets, including rising interest rates in major economies, but they are being managed at an overall controllable level. Pages 14 through Page 15 cover our digital and sustainability management activities and from Page 16 onward, we have provided each subsidiary's financial position, detailed earnings and asset deployment and funding status. So please refer to them. This concludes my presentation. Thank you very much for your attention.

Thank you very much for that presentation. We will now start the Q&A session. [Operator Instructions] I think we can take our first question. It's from HSBC, Jaewoong Wong.

I have a question about your NIM. Last week, other banks announced their results and corporate loans and Korean won loans. As you know, the CD rate is affecting increase in loan pricing. But my understanding is that Shinhan Bank has a different structure. It could be either [indiscernible] base or 1-year bank debenture base. For your Korean won loans, what is the key index, the interest rate index that drives your loan rates? And how much do you expect?

Your NIM in Q3 has decreased. Do you expect your NIM to rebound in Q4? If it does rebound in Q4, would it be because of your lending rates or your funding rates? Where do you think your NIM widening, if it does, would come from?

Also, looking at your group NIM, it's not very different from your bank NIM. I thought your card NIM would have shrunk more. I don't think that happened. Is it because there's a different repricing cycle, or is it because of the repricing cycle, is there more downside for the card NIM further decrease in Q4?

You've given us several questions regarding NIM. Give us a moment to organize the answers. Well, first of all, about the bank NIM, and then there's the group NIM. I think we can answer it in 2 sides. The bank CFO will answer your questions about the bank NIM, and I will answer the other questions.

My name is Jeong Hoon Jang. I'm the CFO of Shinhan Bank. Thank you very much for your question about our NIM. I think I can first answer by giving you an overall situation about update on our NIM. Our Q3 is 5.18%, which is an increase by 2 bp. And because higher policy rates increases NIM. There was the increase in policy rates in July and August, we thought that would improve our Q3 NIM but there were a lot of deposits that came due in Q3, markets we're expecting rates to go up, market competition, over deposits became fiercer and therefore, there was a higher increase in our funding rates versus lending rates. Also, there were some credit guarantee fees that could no longer be added to our loan pricing.

So unlike our original expectations, our quarterly NIM decreased an increased. There probably will be another policy rate hike, but we do have more deposits coming due in Q4. And so we are expecting current NIM levels to be maintained until year-end. You've asked whether Q4, there could be a NIM rebound. We think that current levels would be probably maintained until year-end. Other banks, for example, have more deposits that are linked to CD rates that probably, is what you're referring to. And each bank has different rates that they use as reference. Shinhan Bank, we are mainly linked to the 6-month debentures and 1-year debentures. That accounts for about 60% of our funding. 3-month CD tide is relatively small. It's around 20% or less of our funding.

So our key indicator would be the 6-month rate. That's why our funding costs respond a bit later to rate increases. You've also asked, I think, several other points about NIM. I think, yes, there are many different factors currently in play, affecting NIM in multiple directions. So it's difficult to give you a very clear forecast about NIM. But from next year with funding rates stabilizing and with our lending rates, also, we being repriced, we think that our NIM will stabilize from next year. And that's the end of the response from the bank side.

I think you've asked about the share of different rates in our assets and liabilities. And so I guess, compared to other banks, we have a smaller share of dependency on CD rates. Now about group NIM, including Shinhan Card, card also has a higher funding rate, around 10 bp higher than last quarter. Up then the funding average balance is smaller and interest income -- actually, there were some more interest income coming in, such as installment card loans have increased.

Of course, given the bank NIM accounting for such a large portion of group NIM, card NIM movements, their effect is limited, but it hasn't been a decreasing factor to group NIM. I think in the past, there was this classic movement when there is increasing rates, 2 to 3 bp was sort of automatically expected improvement on our NIM. But currently, the funding rate is the larger factor in NIM direction.

And with -- even though there is another rate hike expected in December, we are at this point, keeping our guidance on NIM neutral because there are some positive factors, but also some negative factors in NIM. So we currently are maintaining a neutral outlook on NIM, but we will continue to communicate with the market.

I hope that was a sufficient answer for your question. We'll now receive the next question. Next question is from Hanwha Investment Securities. It's from Kim Do Ha.

I have a question about the margin as well. And also I want to ask about the OCI, the capital as well in the case of the margin also. We have a strong linkage to the bank debentures in the corporate loans and the CD share is low. That's what you said. However, in the case of the interest rate for the bank debentures, starting with the fourth quarter of last year, it's been going up continuously. And if that was reflected significantly, then I think it should be -- I think there should be additional explanation of why the margin has not gone up significantly.

And also, we should make a simple comparison to the Korean won loans of the bank. But compared to the increase of the profitable asset, it still looks high on a YTD basis, so your deposit is growing steeply. And even if the spread is maintained, the market seems rather negative. So we are not aiming for high growth.

However, what is the reason for requiring such an increase in deposits? Should we look at this as an environment where you have overly excessive deposits? Can you give us some guidance about the future directions?

And so I am concerned about the funding aspect. And in terms of the capital, I think similar trends are being shown by other appears as well. There are always a lot of volatility in the exchange rate in the stock market and won market as well. But I think the OCI has declined further first time at the level that we have seen at KRW 1.4 trillion level. So despite the fact that the losses of PL related, the market securities losses is significant. What is the reason why we have this result in the OCI? I think something that we have to accept some things that we need to adjust. So can you break it down by elements by subsidiaries and provide an explanation about these issues?

So you have asked 2 questions while we prepare the answers for these questions, please hold for a few seconds. So likewise, with regard to the margin question, the bank CFO will take your question, and for the other remaining questions, I will myself take your questions.

So let me answer your questions. In terms of the deposit, well the household deposits compared to previous year, yes, it has been reduced. Time deposits about KRW 7.5 trillion and the liquid assets, KRW 1.5 trillion. So from the household deposits, there's been total about KRW 9 trillion that has been reduced, and there has been about KRW 25 trillion increase in the corporate sector.

So in conclusion, the overall funding is about the same or a little bit higher than the end of last year. So the corporate deposits have increased and the household deposits have come down slightly. And so margins, yes, we did have some issues about the margins. But despite that being so, the reason why we had no choice what to do this. It was because there were the NCI ratio or NSFR ratio, these regulatory ratios that we have to comply with. And so we had to align the deposit, and so the corporate deposits came in first and because of the money move, the household deposits were reduced.

A lot of the funds went to the submarket, so that was reflected. And going into the third quarter, the corporate sector, the term deposit in this segment was reduced, and we were attracting a lot of deposits from the household segment. And that led to the increase in the funding cost. And in terms of margin, well, because of the interest rate hike, the lending rate has gone up by about 10 bps. However, the funding cost was greater than 10 bps. It was about 13 to 14 bps, rose higher.

And that's the reason why the margin was somewhat -- yes, it declined somewhat. And with regards to the bank debentures rate, well, after the policy rate increase after July and August, the bank debenture rate has risen slightly, for instance, the -- if it's a loan that is based on the 6 months maturity and after the 6 months has passed, then there will be change in their interest rate and then the 1-year -- debenture will change after a year. But because of the policy rate increase in the months of July and August, because of this increase in benchmark rate, there was an impact on the bank debenture rate. It has increased.

And that margin has disappeared. So it will take place sequentially when the 6-month time mark has passed. We do believe that the lending returns will continue to improve. And we believe that the funding cost will be maintained at the current level and the lending returns will continue to improve. So after the fourth quarter is over, we do believe that, that NIM will improve.

So a change topic, if you will. As [indiscernible] has mentioned, well, first of all, as we have noted, in the case of the financial debentures, it has been reflected since the earlier part of the year. And if we look at the quarterly NIM in the third quarter, it was about 1.5% and then in the fourth quarter, it went up to 1.58%. And then in the first quarter 1.6%, in the second quarter, 1.61%. That was the logic. And in the early part of the year, it was about 3 bps. And in the third quarter, it went up 6 bps. So that was a trend.

As you have mentioned, our dilemma is the controllability about the deposit. As you have noted is the loan-to-deposit ratio goes up, the NIM should improve. But the end of 2025, it was about 96%. But in the first quarter and the second quarter, it went down as low as 92.6% loan-to-deposit ratio. That becomes a factor that drives down the NIM. So that means that the deposits were not really controlled.

And the reason for that was because the money move that went to the stock market. Well, we have the securities financing, and we have funds in the trillions of won that move back to the deposit. And so, yes, there is that concern at Shinhan about the funding regarding the NIM. And concerning the capital, so the peer groups are not really discussing this matter. But when the exchange rate rises, per KRW 100, 10 to 13 bps of CET1 ratio goes down. But if we really break it down, then -- so we went down, the exchange rate down, about KRW 180. It's now about KRW 1,358. That means the RWA has increased by KRW 12 trillion because of this exchange rate factor. But there is the overseas business translation losses and gains that is included under the retained earnings, and KRW 817 billion of losses will be occurred in this segment. That's the logic.

So the RWA has been reduced. So per trillion or 4 bps, but that should lead to the improvement of the CET1 ratio. However -- but because of the KRW 810 billion of the retained earnings was affected from the OCR side. So netted it's about 22 bps. And secondly, so if we exclude the KRW 817 billion, the SAOC bank has a minus of KRW 170 billion, and the rest is the life. It has about KRW 800 billion of negative, but they have a very long duration, right? If the interest rate rises that you're well aware duration. If it's 10 years, then you have to multiply by 10.

So in conclusion, the capital OCI impact on that is about KRW 800 billion due to the exchange rate decline, overseas business translation losses, and also in the insurance, there's about KRW 800 billion and bank KRW 170 billion. So that led to the result that you have referred to.

I hope that has answered your question. We will take the next question from Tae Joon Jeong of KIS.

I have 1 question. There was a lot of competition on funding, and that's why you're expecting NIM to remain flat in Q4. And there seems to be slowing down of this money move, and there were some funding that was made in Q3. Now what do you have in mind when you say competition, funding competition in Q4? What exactly do you have in mind?

Please give us a moment to prepare your -- the answer. I think the bank CFO can answer that question immediately.

Yes, I'm the bank CFO. You've asked about what we are expecting when we say funding competition. There was a lot of deposits coming due in Q4. There's also some bonds that are coming due in Q4. It's not just Shinhan Bank. I think other banks have similar maturity schedules, and that's why they will have to continue to fund a little bit until Q4. That's why we expect this funding competition. After the end of the year, we think that it would ease up a little bit.

Thank you. We will receive the next question, Jihyun Cho from JPMorgan Securities.

I would like to ask a question about the fee income. In terms of the trading fee income. It came down in the third quarter compared to previous quarter. However, I think the fee income was well extended because of the diversification. So in the case of the fourth quarter compared to third quarter, the trading value has become weaker. And so in the fourth quarter and next year, what is your forecast for the fee income and its growth? The midterm ROE of 12% is targeted. And so you have said that this will come from the subsidiaries involved in the capital market securities market. So can you explain about growth position on this?

And another question is midterm, you have an ROE target of 12%. And at the time, you announced this, you do not have any consideration for the acquisition of the Lotte Insurance. So in the course of acquiring this company and normalizing this acquisition, is there going to be adjustment to the ROE target?

So thank you very much for those 2 questions. Please hold for a few seconds while we prepare the answers. So with regards to brokerage, our Securities CFO will take that question. And noninterest and ROE direction will be explained to you by myself.

So this is Jaesung Lee, the Securities CFO. As you're well aware, in the second quarter, we peaked. And then drastically, the trading value came down in the third quarter, and that trend is continuing in the fourth quarter. But as you're well aware, starting from the mid-October, it has been showing some signs of stabilization.

But in the fourth quarter, the retail investors' investment sentiment is not really reviving. And if you look at various projections up until the earlier part of next year, we do believe that the trading volume will come down compared to present level. But we have been actually very proactive in the sales of financial products since the early part of this year. And through the sales in the ELS and bonds, we have been able to cover for some of these developments.

With regards to the brokerage area, not only the financial products, but starting from July, SOL LINK SuperSOL through this account, we have been able to attract about 600,000 customers. We're still in the nascent recent stage. So the trading volume has not increased drastically, but through sustained marketing, we'll be able to actually increase the trading value and also engaging greater sales, and that can cover for the earnings in the brokerage area.

And also, not only the brokerage profitability, but we do believe there were a lot of factors that had an impact on the brokerage business, including IB. But going into fourth quarter, we see the interest rates stabilizing and a lot of the deals becoming -- going back to normal. And so compared to fourth quarter, third quarter will become fundamental actually, we do believe improve. And then in the noninterest and the fee income for the card and the security business, the trend is toward improvement. So market securities and derivatives, depending on the interest rate direction, how we can actually supplement and complement the development will determine the results for the noninterest income.

The second question is about the ROE 12% target. So our mid- to long-term target is, as we have repeatedly announced, the ROE will be managed between 10% to 12%. It will be difficult for us to continuously grow, but the minimum should be at least an ROE of 10%, and we'd like to aim for 12%. That was the plan that we had established. And if you recall, what we had added to that plan was that, of course, the total return rate should be based on the global business and the nonbanking noninterest income. That was a methodology.

But in the leverage aspect we will be consolidating the margin business or reduce them. And in the M&A, EPS growth is something that we said we might pursue. And the reason for that is because -- so there has been about KRW 40 billion to KRW 50 billion of losses in the insurance. And so if EPS is added, if earnings are increased, then ROE will, for sure, improve as we have included in our presentation deck, without any additional capital increase.

If the minus of KRW 50 billion comes back to about KRW 100 billion earnings, then we will be able to improve the ROE. That was our internal judgment. So what remains is the ROE from the ROE compared to input, what will be the return ratio. As we have seen in the third quarter, the banking subsidiary and insurance, when there is injection of the capital, when there's resources allocated, several years of profitability is guaranteed. That's the kind of business that they have. Of course, it will be difficult to expect any drastic growth, but we will be maintaining a sustained profitability to a certain level.

However, in the case of the capital market, from FY perspective, from an accounting perspective, we have to start from scratch and generate the profitability. And so we cannot help but be exposed to the volatility in this market. So with regards to that segment, we will try to address this through our customer base. And when we become convinced that there will be more profitability to be generated in the IB. We will, of course, try to move in that direction.

But in the end, there will be no capital increase, and we will be including about KRW 300 billion of CET1. So now this group is generate -- if you assume that it's generating about KRW 6 trillion in earnings, then even if we do a shareholder return of 50%, within that range, we'll be able to engage in resource allocation in a way that is helpful to the ROE. If there is a certain business, we will be doing that. And within the ROE 10% to 12% interval, we'll be doing a play that moves within that range. If you have any additional questions, please do not hesitate to pose your questions. Thank you.

Well, thank you very much for that question and answer. We'll take the next question from iM, Yong Jin Seol.

I also have 2 questions about your nonbank businesses. First, on Shinhan Securities. You have started the commercial paper and you've paid -- you've sold around KRW 390 billion in the first half. Can you give us some update? There are so many companies coming into the commercial paper issuing business. What kind of margins are you enjoying from that new business line?

Second is related with P&C insurance. There are some hedge issues coming up in other P&C insurance companies. I think you've also sold a lot of similar products in '23, '24. How is your termination rates looking at this point?

Well, I think the first question can be taken by the CFO of Shinhan Securities. Second question by the Life CFO.

Yes, this is the CFO of Shinhan Securities, Jaesung Lee. It's not just us, but there's a total of 9 companies that have received approval for commercial paper issuance business. There were 3 companies, including us, received this approval. So we were relatively latecomer group. So we had a plan of around KRW 700 billion of stable volume, focusing on pipeline.

And when we started our CP business, the securities market went up, so there was more money going into the market than our issuance. That said, our volume issuance was smaller relative to other companies, but we have conservatively maintained our risk. Risk management was done conservatively. And as we mentioned in the Q2 earnings call, we said that our target margin was 100 bp. Currently, our CP business as of last week, have around 100 bp of asset management, and we have a total issuance of about KRW 530 billion. Merit securities, I think, is starting a new issuance program. So other security companies are continuing to issue paper.

We are not going into excessive competition, either in issuance volume or rates and margins. We think that this is a long-term business. So next year, we would have a stronger pipeline. Next year, we're thinking around KRW 2 trillion volume.

And this is the CFO of Shinhan Life. Thank you very much for that question. That product, I think you're referring to a product that was sold a lot in life insurance. And we have been selling it 15% until it was discontinued. We did not over concentrate in this product. And as you mean, the lapse ratio will be adjusted at the end of the year, we are going to reflect this above the guideline of 30%, and this is something we can absorb within the CSM that has increased during the year.

We do hope that, that provide a sufficient answer to your question. There is no questions waiting in the queue. So yes, we do have another question. This is from WhiteOak Capital.

One question just on the acquisition of Lotte Non-life. Just wanted to understand how you're thinking about the multiple paid 0.9x price to book for the business given there's more capital injections, which needs to be done going forward as well, right? So can you talk a bit more about the rationale for the price multiple you paid over here? And just the timing of the acquisition as well, do you expect a better underwriting cycle in the underlying business, which makes you more confident about this business and hance you went more aggressive into this acquisition at this point in time?

[Foreign Language]

So while we are preparing an answer for your question, please hold for a few seconds. So I think you would have to provide an explanation about this. So the PBRs 0.9 multiple is based on the net asset for the first half. So of course, the valuation was not done like this. It was actually utilized and also the valuation, KRW 170 billion in the invested asset that was also reflected on the basis of book value, yes, looks like a 0.9 multiple.

With regards to capital injections, I think there's some confusion in the market. So let me explain about this. We still have the licensing and permit stage left and because Lotte is listed company after all of these issues have been addressed, we will be presenting more detailed business plan, but the basic capital ratio that is applied in the insurance industry.

As you are well aware, the Tier 1 ratio that is done in the bank is very similar to the Tier 1 ratio that is used in the banking sector. And in the -- so the Tier 1 ratio we do not need to continuously incorporate the CET1 capital if, of course, the required capital becomes bigger, then we will be able to inject capital through other complementary capital. We did have that background. And that's the reason why we have announced that only about KRW 300 billion of capital will be injected. But because there are some stakeholders with regards to the more detailed plans after the acquisition has been completed, we will be communicating with the market again.

And so capital injection, based on our calculations, it's about KRW 900 billion on a simple calculation and about KRW 300 billion of common stock capital increase is being considered. So if the book value, we assume is KRW 900 billion compared to KRW 1.2 trillion of ROE is something that we're looking at. So what's the rationale? Well, as we have noted previously, the easy life insurance has about KRW 50 billion of losses, and we can actually improve upon this through this acquisition. And at a point in time in which interest rate has risen, the PPA we're doing this acquisitions on a consolidated basis. From the valuation point of view, the asset and liability acquisition from the PPA.

We do believe there will be plus about KRW 30 billion to KRW 40 billion. That was our expectation. And so group's capital, it's a matter of allocation. If we had stayed as we were, it would have been minus KRW 50 billion losses. If this went to 0, that would have been KRW 50 billion improvement, and the Lotte Insurance. We don't really expect that the profitability would jump for Lotte Insurance going forward. But if you look at the other factors involved as well from an ROI, ROE perspective, we -- our judgment was that we were able to meet the expectations of the investors.

So going back, there's a lot of talk about the uncertainty of the capital injections, but to give you some hint, not only common stock injections, through using other types of capital, that kind of injection is some of the alternatives that we can leverage what the other existing shareholders were not able to do because this is a financial group, we will be able to engage in such place.

And with regards to your last question, do you believe that the non-life insurance is going to see a significant improvement. Well, yes. The industry is going through difficulties. The CSM is drastically reducing at the moment, as the Life CFO had mentioned. However, if you look at the nature of the Korean insurance industry, if you look at the new business and CSM margin rate, if it becomes normalized, if that is the assumption, then as long as we design the products well, then compared to the product structure that is sold in the life insurance, we do believe that there are better long-term health insurances and these kind of products can be sold.

And also various synergies can be created and which will be disclosed in greater detail later on. So based on that when it comes to the capital injections, well, we do believe that we'll be able to generate sufficient profitability from this acquisition.

Thank you very much for that answer. Currently, we have no questions in waiting. We will wait for a short while to see there is anyone with questions, please use the hand button in the center of your screen. We have a question from NH Securities, Jun-Sup Jung.

This is Jun-Sup Jung from NH. I have a question about your credit cost. This time, we're seeing like past, your asset quality management is good. We're not seeing any problems on credit cost. That said, recently, as you know, rates are climbing quite quickly. And yesterday, there was a bank that focuses on corporate loans that are increasing their provisioning preemptively. What is your outlook about credit quality, about business cycles? Do you expect any additional provisioning to come down the road?

Thank you very much for that question. And please give us a moment to organize the answer. About asset quality, I think our group CRO will be the right person to answer that question.

Yes. This is Hoon Na, the Group CRO. Thank you very much for that question on asset quality. With the rates increasing and economic recovery being delayed, when we look at delinquencies or substandard and below NPL ratios, most of these indicators are actually improving in all of our affiliates. But if the rates continue to go up and the improving economy -- economic improvement delay, there are potential of delinquencies. But as you know, we have been very selective in our asset growth. We've been focusing on high-quality asset growth and segmenting our borrowers. Even if we assume additional provisioning and provisional delinquencies, we think that we will be able to keep our credit card ratios and the credit cost ratios in the low 40 bp range.

So thank you very much for that question. We don't have any further questions waiting in the queue. If you have any further questions, please contact our IR team, and we will provide you with more detailed answers.

Then this concludes Shinhan Financial Group Third Quarter 2026 Earnings Conference. And today's presentation can be viewed again on our website and on the Shinhan Financial Group IR YouTube channel, and if you have any additional results about -- business results, there were some questions about the M&A. So if you have any additional questions, please feel free to contact our IR team. So we look forward to seeing you again at our Q4 2026 earnings conference next year. Thank you very much.

Good afternoon, everyone. It's been a while since we last met. I am Cheol Woo Park from the IR team. I hope you're all looking forward to your summer vacation plans. So ahead of the summer vacation season, I'd like to thank you all for joining Shinhan Financial Group's 2026 Second Quarter Earnings Conference.

Joining today's earnings conference are Jeong Hoon Jang, Group CFO; Go Suk-Hyun, Group CSO; Hyuck Jae Choi, Head of Group AX Digital; Hoon RA, Group CRO; Kan Yeong Hong, CFO of Shinhan Bank; Jeong-bin Lee, CFO of Shinhan Card; Jaesung Lee, CFO of Shinhan Securities; and Sung-hwan JOO, CFO of Shinhan Life. We would appreciate your active interest and participation throughout today's event. Today's conference will begin with a presentation by our Group CFO on the group's financial results for the second quarter of 2026. Afterwards, it will be followed by a Q&A session with the participants.

Now I'd like to invite Group CFO, Jeong Hoon Jang to begin this presentation on the group's financial performance.

Good afternoon, everyone. I am Jeong Hoon Jang, CFO of Shinhan Financial Group. First of all, I'd like to thank everyone for joining our 2026 second quarter earnings presentation. Now let me walk you through our business results for the second quarter of 2026.

Please turn to Page 2, highlights of financial performance. As of the end of second quarter of 2026, the group's CET1 ratio was provisionally tallied at 13.43%, maintaining a stable level despite domestic and external uncertainties, including foreign exchange movements. Today, based on our solid capital position, the Board of Directors approved the repurchase of KRW 700 billion worth of treasury shares over the next approximately 3 months as well as a second quarter cash dividend of KRW 741 per share a (sic) [ 740 per share]. As a result, the total amount of share buyback by October 2026 will reach KRW 1.4 trillion, and we plan to announce an additional share buyback amount during the fourth quarter after considering our expected annual earnings and capital adequacy.

For your reference, the record date for this dividend is July 30, and we have completed both the share buyback and cancellation of the KRW 700 billion for the first half of this year that we have committed to. If the present level of quarterly cash dividend continue until the year-end, the annual DPS will come to KRW 2,951, up 14.3% Y-o-Y and share buyback simply calculating the amount committed until the end of October drives up the amount to 12.0% higher on a Y-o-Y basis.

So going forward, we'll continue to implement a flexible and forward-looking shareholder return policy in line with our industry-leading corporate value enhancement plan. Net income for the second quarter of 2026 amounted to KRW 1,820.1 billion, up 12.2% from the previous quarter. Through our group-wide efforts to enhance profitability, ROE and ROTCE improved by approximately 1 percentage point Y-o-Y to 12.4% and 13.9%, respectively.

The next page summarizes various indicators representing Shinhan's shareholder value for your reference in making investment decisions.

Next, Page 4, capital. First, CET1 ratio as of the end of the first quarter has been revised upward by 11 basis points from the provisional figure to 13.30%. This revision reflects the approval of certain measures under the capital regulation, rationalization initiative aimed at expanding productive finance, resulting in a reduction of the group's RWA by KRW 3.2 trillion. As of the end of second quarter of 2026, the CET1 ratio improved by a further 13 basis points from the revised level to 13.43%, supported by a solid net income despite the impact of rising exchange rate.

Going forward, we'll continue to provide sufficient funding where needed while maintaining a stable capital ratio through internal efficiency improvement and strategic resource allocation.

Please refer to Page 5 for details on assets and liabilities.

Next, Page 6, the group's earnings. The group's operating profit before expense for the second quarter increased by 8.8% Q-o-Q, driven by solid net interest income and another strong expansion in net interest income. I will now explain each item in more detail, beginning with the following pages.

Page 7, interest income. The group's interest income grew by 3.6% Q-o-Q, supported by improvement in the bank's NIM and growth in average loan balances. The bank's NIM increased by 1 basis point from the previous quarter as loan asset yield improved rapidly in line with rising market interest rates. The bank's KRW loans increased by 0.4% Q-o-Q, as we continue to provide balanced financing to both households and corporate sector. Please refer to Page 25 for further details.

The next page covers noninterest income. The group's noninterest income increased by 22.0% Q-o-Q, led by fee income continuing the growth trend seen in the first quarter. Fee income increased across all business areas Q-o-Q. Securities custody fees rose 29.5% and wealth management product sales fees increased 60.8%, benefiting from a strong stock market, while investment banking-related fees rebounded from the previous quarter, improving by 151.3%, affecting a successful turnaround.

Gains on securities increased by 30.9% from the previous quarter, as gains from other securities more than offset bond-related losses reflecting higher market interest rate. Insurance-related income declined by 44.6% Q-o-Q due to larger expected actual various losses and the impact of changes in actuarial guidelines.

Next, Page 9 is on SG&A and credit cost. The group's SG&A increased by 8.1% quarter-on-quarter, driven by seasonal tax and charges and recognition of Shinhan Securities performance fee. However, the cost-to-income ratio remained stable at 33.6% a (sic) [ 36.6% ] , almost unchanged Y-o-Y as operating profit expanded.

Group's credit cost increased by 14.7% Q-o-Q due to the base effect from our conservative provisioning policy. Credit cost ratio was 42 basis points, improved by 8 bp Y-o-Y. Although credit costs are managed within the range planned at the start of the year, given macro uncertainties such as policy rate hikes, sustained high FX and ongoing geopolitical risks, we will continue to manage them from a conservative standpoint.

Turning to Page 10, asset quality indicators. The group's NPL coverage ratio improved by 2 percentage points Q-o-Q, reflecting reductions in nonperforming assets through proactive group-wide asset quality management and conservative provisioning.

For the bank, delinquency ratio rose slightly versus Q1, but it was the lowest net new delinquency in the industry. For the card business, it fell by 9 basis points Q-o-Q regarding to year-end levels, supported by volume growth and continued risk management efforts. The sluggish recovery in domestic demand has increased corporate credit risk and vulnerable customer segments remain under stress, which require continued asset quality management into the future.

Please refer to the next page for a more detailed information on group's loss absorption capacity and write-off and sale activities.

Page 12 is on subsidiary earnings. Shinhan Bank achieved Q-on-Q earnings growth of 12.5%, thanks to top line growth and write-back of fines and lower credit costs. Despite higher SG&A from taxes and public charges. Shinhan Investment Corporation, along with Shinhan Asset Management that showed strong core earnings, delivered earnings growth of 92.5%, benefiting from expanded SAL ETF AUM and proprietary asset returns.

For Shinhan card, in a difficult funding environment, it achieved a Q-o-Q growth of 19.5%, following the lapse of the one-off impact of voluntary retirement and decrease in credit cost. For Shinhan Capital, its earnings fell 28.9% Q-o-Q despite the large improvement in credit costs due to the reduced valuation gain on marketable securities recognized in the first quarter.

Shinhan Life also achieved Q-on-Q earnings growth of 81.8%, led by the significant improvement in insurance and financial gains despite the wider expected versus actual loss and actuarial assumption adjustments. Banking ROCE remains stable and on the path of improvement. Capital market subsidiaries, ROCE improved materially Y-o-Y, driven mainly by fee income. Specialized finance subsidiaries continued profitability enhancement efforts, including cost efficiency and reducing RWA in low ROCE areas.

Page 13, on overseas business earnings, where Shinhan continues to deliver differentiated performance. The group's overseas earnings rose 13% Q-o-Q, supported by growth at major country operations such as Japan and Vietnam. SBJ is seeing expanded interest income amid a brilliant real estate market and higher policy rates and the bank MMC is demonstrating resilient core earnings. Meanwhile, we are also streamlining global operations to enhance profitability, including the withdrawal of securities subsidiary in New York.

Pages 14 to 16 cover our digital and sustainability initiatives. While Page 17 onward provides further details on subsidiary financials, earnings, asset operations and funding.

This concludes the presentation. Thank you very much for your attention.

Thank you very much. We will now open the floor to questions. [Operator Instructions] Yes. The first question will come from IM Securities [indiscernible], the floor is yours.

I have 2 questions. So first question is related to the share buyback. I think the cycle has been reduced 2 or 3 months. So going forward, can we expect that the share buyback will take place on a quarterly basis? And the second question has to do with the non-life insurance acquisition that has reported in the media, so including capital increase, what kind of plans do you have going forward about this matter.

So why -- can you hold for a few seconds while we prepare to answer to your question.

So you have asked 2 questions with regards to the treasury stock policy. Let me take that question first. So we did actually give a lot of thought to this. So normally on a 6-month basis, we have carried out our share buyback policy. But as you are well aware, this year the interest rate and the foreign exchange rate and the stock prices as well, it has been quite volatile, and the changes in the earnings for this year is predicting this 6 months before was not quite easy.

And in order to refine the ratios up until the month of October, we would like to see the direction in which the earnings take till October. And so that's the reason why we have shortened the cycle to 3 months. And as you have noted, so at present, it's going to be KRW 700 billion and at the end of October, when there's an earnings presentation, we'll be taking into consideration various factors in order to determine the share buyback value. But that does not mean that we're going to do it every 3 months, that's fixed. No, that's not the case.

So next year, perhaps if in the first half, if we are able to stably predict the earnings then It can go back to 6 months cycle. But until that happens, I think we're going to refine the cycle to a shorter interval.

And secondly, with regards to your question about the possible acquisition of a non-life insurance company, there's been a lot of media reports about this, so let me be very brief about this matter. So last June, we have announced that nothing has been finalized that this kind of disclosure has been announced.

And with regards to the M&A options, not only we look at nonlife insurance, but we are looking into various options to see which will be really helpful and contribute to our bottom line. And we are reviewing several options, but nothing has been finalized at this point.

And secondly, M&A process always has a counterparty, right? And so our company's position only or the other interest parties position has to be considered fully as well. And so a very balanced compromise need to be sought. And so that can lead to a prolonged process. But I think so, thirdly what I would like to notice that from the point of our company's position, as we have announced at the month of April, we have announced a Corporate Enhancement Plan 2.0, and we will continue to pursue M&As in accordance with that plan, a stable CET1 ratio has to be managed and cared. And within that range, if the EPS or the ROE improvement is significant then we will pursue those M&A options.

So if Shinhan Group engages in an M&A, then I think you can actually look forward to greater performance, because of that M&A. And finally, if there are any detailed or concrete progress made on this front, then we will be sure to communicate this information to the investors with the market as well. We will be very prompt in ensuring that this information is delivered to the market. Thank you.

Thank you very much. I hope that has answered your question. We will take the next question from HSBC, Mr. Won Jaewoong.

Thank you very much, and thank you very much for the good performance. And also about the share buyback yes, I see that there was an announcement of a sizable amount. So thank you very much for that.

So the questions are about the shares and also about the nonbank subsidiaries. So first about the nonbanks subsidiaries, now KB Securities. So they have secured KRW 1 trillion of capital, so increasing their capital to about KRW 8 trillion and are about to get the certification from IME. So then, for example, the short-term note issuance business and so forth. So I believe that now it would also be necessary to expand the business into such areas.

So then, let's say, for the company, then perhaps getting the securities business and also increasing it to KRW 8 trillion to get the IME certification. Does the company have any such plan? And also for the capital injection, so does the company believe that the -- if that is the case, then the capital injection, can this be in -- could be placed in the back corner?

And then the next question is now regarding the share buyback, now there was also the announcement of the shareholder return formula. And I'm just wondering about how this was created. And also if the share buyback is to be announced again in October, then again, out of this formula. So how should we apply this to come up with some prediction for the October share buyback? So could you give us some criteria?

Well, thank you very much for the very detailed questions. So please also give us a moment to prepare the answers.

No. Thank you. So I believe that I should take this question because it is also about capital injections. So allow me. Now first, about the Shinhan Securities and also the resource allocation. That was part of the question and then also about the connection to the nonlife insurer and whether it is going to be the senior or junior. And this is how I see it. Now for Shinhan Securities and also, for example, Korea Securities and KB, so I would say that their cases are a bit different by which I mean -- now in our case, for example, the short-term note issuance. So we just got the approval only last year.

So then, in terms of the leverage line, I believe that we still have some room left there. But then now for the peer groups now in terms of the room in the limit and also the additional needs for the IME business. I believe that, that is the reason why they are moving in that path.

Now in our case, what we need is not the RWA limit, but then it's more about the risk limit. So for example, as part of our capital within the 100%, then, for example, the credit line or the brokerage. So where we fall short in terms of the limit, then we are also trying to increase the limit by acquiring some hyper securities as well. And if there is some outcome from this, then yes, I do believe that resource allocation is going to be possible. But as was mentioned earlier, at this time, now in terms of the limit on the short-term note issuance and also for the business as well, we do have some room left. So compared to the other peers, then I believe that immediate capital injection is not warranted.

And then you also asked about the connection with the non-life insurer. And I believe that it can be undertaken in parallel, and that is because I do know for insurance. Now there is the capital deduction right away. So there would be an impact on the CET1 right away. But then let's say, if there is capital injection into securities, then it does not mean that there is going to be an immediate increase in the RWA or anything. It means that when there is business performance, this will lead to RWA increase leading to decrease in the CET1, and also if you can get the required return, then the CET1 can be maintained.

So now as I mentioned earlier, so we will not be placed in the, let's say, the subordinary level because of this. So if our ROE is high enough, then with this confidence, I believe that we will be able to do the capital injection and the capital allocation as needed.

And then the second question. So that was about the shareholder return formula. So when we announced this at the early part of this year, what we said as a way of hint was that now for the October. So let's say, it was going to be the COE level. And last year, it was about 9.11%. So we said that the target ROE was going to be 10%. And second is, now about the denominator, in other words, the growth rate. So of course, the nominal growth rate continues to change, but then we are looking at about 4% to 5%, which is the ordinary level. So that should be denominator.

So in terms of the capital, then I believe that, that is going to to be maintained. And then now coming to the RWA, then excluding the exchange rate influence, then the growth in the RWA is falling below 2%. So I believe that the 4% to 5% range is going to maintain. And also we did give some hints for the value up 2.5 -- 2.0, but then now in terms of our logic then, the maximum level is going to be probably 53%, that means that we would also have to make the decision within that. And then also in terms of the denominator and the numerator, then we would also have to link them with this size, and also we need to do some political consideration as well, and that is why this was -- this is to be done in October.

And so, so far, the KRW 1.4 trillion of shareholder return and then also considering the quarterly equal dividends and then also in terms of the reversal of the P&L. And -- so considering all this, then we are cautiously optimistic that there could be some additional shareholder return. And that is why we are also mentioning such a shareholder return in October as well.

So I hope that provides a sufficient answer to your question. We will receive the next question. The next question will come from Hana Securities. [indiscernible].

I have 2 questions. First of all, the margin. So you are the very first financial group to do an earnings presentation, but we don't have data on other banks, it seems that margins have gone up by 1 bps, the banking business. But if you look at the market rate and the timing of this log, the rise in the margin does not seem to live up to expectations. It seems that the loan to the large companies have increased, and there's a lot of M&A influence. So there can be a lot of speculations, but what do you think internally are the factors behind this result. And up until this month that was a result. And going forward for the third quarter and fourth quarter, what is your estimation or prediction for the margins?

And another question has to do with the formula. You have presented this formula last quarter you have provided guidance for this year, it can be in the early 50% range. However, just now you said that excluding the foreign exchange rate, the RWA growth was around 2%. So on the surface on a YTD basis, the RWA has increased 4% for the past 6 months ago. When we look forward to the shareholder return, do we have to look at the RWA growth, excluding the non -- the abnormal factors and foreign exchange rate, but that means that we'll have less visibility. So I cannot really assess the tone of your comments to really exclude these issues when predicting this matter going forward.

So thank you very much for that question. We'll be taking some few seconds to prepare the answer.

So with regards to the first question about the margin, the cause for the current results and what we predict going forward. So that question will be taken up by our CFO, and the second question will be taken up by myself.

Thank you very much for your question. I'm the bank's CFO, Jeong Hoon Jang. So with regards to your question, as of the second quarter, the NIM is 1.61%. And so it's up 5 bps Y-o-Y. And on a Q-o-Q basis, it is up 1 bp as you have noted in the first half, the rise of the market rate should have been reflected, but why is it only 1 bp that it is less than market expectations. I think that was a concern that you have presented to us.

But if you look at the market, yes, it has risen to some extent in the first half of the year. But in terms of the funding perspective, because of the strong stock market, there has been a decline in the retail deposits. And overall, the corporate deposits, especially large company deposits have increased significantly. This has had an impact.

And starting from the earlier part of the year, we have been very aggressive in pursuing productive finance. And so although it appears so realistically on Q-o-Q basis, it's 1.60. But compared to the 2 quarters previously, there's been a rise of 2 bps. And so if you look at it from a time series manner, so -- the first quarter has been 1.55, 1.56 and 1.58. So continuously, it's moving up. It is continuously increasing. So I think you need to look at the longer trend.

And if we forecast the second half. In the month of July, the Monetary Commission has actually decided to increase the benchmark rate by 25 bps. And also, we do believe that -- so there is expectation of additional interest rate hikes. And although the NIM appears to have risen only by 1 bps in the second quarter, compared to the first quarter. We do believe that it will be actually making a greater improvement in the second half. And internally, we believe that there will be another interest rate hike, at least once going into the second half. And if that happens, there can be an additional 4 to 3 bps improvement of the NIM.

And also, we have increased the retail deposit, the time deposit rates, and we do believe that this will bring in a greater inflow of deposits. And also from the corporate sector as well, we do expect a greater inflow for the deposit segment. And this will lead to an improvement in the funding structure.

[Interpreted] And going forward, in the second half, while we have focused on the growth in size for the productive finance in the first half, we're going to focus more on profitability going into the second half, and we will be focusing on high credit assets.

So with regards to NIM, let me add 2 things. As has been noted just now, by banks, I think I think there can be some variance by bank because if you look at it on a monthly basis compared to April, as we move toward June, we have seen the NIM rising more. And the reason why there was no inflection point was that because maybe during the quarter, the NIM could have fallen. And as has been noted, because we're seeing a trend -- a long-term trend in increasing NIM, we do believe that going into the second half, aligned with the rise in interest rate, we have a more positive picture for the NIM for the second half.

And for your second question, so yes, the guidance that we have provided in the earlier part of the year, if the foreign exchange rate rises and it becomes KRW 1,600, then our RWA will increase by 8%. Would that mean that the interest rate will go to 20%? No, that's not the case because RWA using only that as a factor would involve too many one-off factors to consider. So when we talk about nominal GDP growth rate, the reason why we noted capital or RWA is because stably we do believe that the capital will maintain a stable growth of 4% to 5% because nowadays in the banking sector, the financial holding companies in the banking sector, their earnings does not have that much of a volatility nowadays.

So we believe even if the 50% or 60% goes to shareholder returns, if you look at the current capital size, 4% to 5% is going to be the normal. But if you look at the RWA from a more balanced perspective, we're not saying that everything should be excluded as nonordinary. But we're going to leave out some of the influence of the foreign exchange rate when we decide on the shareholder return policy. So if you look at our 2.0 plan, we have noted clearly capital or RWA, and we have set that up as a buffer.

And some analysts actually asked back then that when we gave this guideline in the early part of the year, we wanted to say that this is a guideline that will remain unshaken, and that was the communication that we had with the market. If that has to change, if that standard has to change, then we will, of course, communicate that this will be changed. So that was our policy. And so as you have noted, currently, the foreign exchange rate has changed. But as we presented in the Value-up 2.0 plan, in that guideline that we will not be deviating from our set trajectory.

[Interpreted] Thank you very much. I hope that has answered your question. We will take the next question from JPMorgan.

[Interpreted] I have 3. First, I see that the financial performance was much stronger than expected for the first and the second quarters with the very strong fee earnings. But then because the capital market is very much volatile, so what is the expectation of the fee income in the second half? And also because the earnings are really spiking up, then now for this year and also for the next 3 years, what is the company's expectation of the ROE. So I would like to ask for the guidance.

And then the second question is -- how about the share buyback, the company is increasing the size and also the ROE continues to climb up. So the stock price, it appears as if it is likely to now recover. So then going into the third quarter and the fourth quarter, so it was mentioned that in the second latter half, there's also going to be additional share buyback. Now then for the year-end dividend, then not just the equal dividend, but then let's say, if the earnings are better than expected, then the cash dividend as well, of course, considering like TSR and others. So I wonder whether the company is also willing to be flexible about the year-end dividend payout as well.

And the last question is about in this quarter. I wonder whether there have been any one-off costs because the improvement was not as high as expected. So I wonder whether there were any other one-off expenses.

[Interpreted] Thank you very much for the questions and hold for a minute as we prepare the responses.

[Interpreted] First of all, now about the fee, and I would say that it is the securities, Shinhan Securities now that is seeing the biggest impact. So we will first hear from the Shinhan Securities CFO, and then I will come up with additional follow-up.

[Interpreted] Good afternoon. This is Lee Jaesung, the CFO of Shinhan Investment Securities. Now yes, the equity trading volume has continued to grow in Korea, but then at the end of June. So Hynix and also Samsung Electronics, we see that there have been some corrections. So then compared to the first quarter, the equity trading volume has gone down. Now having said that, then in the second half of the year in terms of the brokerage fee growth is not going to be as high as in the first half, but we are expecting that it will be maintained at the second quarter level.

And also for the brokerage fee, then there have also been some financial products fees. So we are also really focusing on selling the financial products and then also the EDS (sic) [ ELS ] sales have also gone up considerably. So again, in the second half, we do expect the performance to continue, perhaps a bit less than the first half.

[Interpreted] Yes. And also about the fee income in the second half. Now -- so yes, along with the securities, the asset management, we are also seeing a good performance. So Y-o-Y, we see that there have been over 100% growth.

So for example, the BBG is the -- as the fee goes up, then the ROE is also improving. And we have been reiterating since the beginning of the year, but then by '27, the target ROE is 10%. But then we also want to accelerate the process. So we did mention that it is an accelerated process of ROE improvement. So we are still cautious, but then -- now of course, internally, we are hoping that there will be more visible outcome within 2026.

And that is why in the Value-up 2.0, similar to the overseas cases, the ROE management range is going to be set at between 10% to 12%. Now the management range of 10% to 12%, the reason why we said it like this is because, of course, ROE keep going up, that would be good. But then there is bound to be volatility in the returns. But despite that, we do intend to maintain the ROE at minimum 10% and then shift towards 12%.

And along the way, then there could be some volatility, but that is why we have offered the 10% to 12% management range. And then second, so about the additional shareholder return, as of October 27, based on the expected performance, we will be making the decisions about the shareholder return. And for this year, now there is also I believe some issues about the time lag. Now what I mean by this is now for the additional shareholder return decision that is to be made in October, but then the closing would be done at the end of December.

So then in terms of the year-end dividend, then we also need to do some adjustment. In other words, instead of -- so of course, in terms of the equal dividend payment, that is to be maintained. And if there has to be some additional dividend payout, then there could be some more dividend added. But yes, so we will be open to such variability.

And then about the one-off cost, so as was mentioned during the presentation, so there was the writeback of the ELS penalty by about KRW 83.7 billion. So that is the one-off cost. And then also, we have talked quite a lot about the credit cost, but we don't believe that, that is one-off. So from the beginning of this year, the group CEO has also mentioned that we will have solid BIS and then also we would have conservative financial policy.

And for the real estate PF and the business feasibility study, so we have been really building up our process of very conservatively analyzing them. And now as a result, we are actually seeing a reversal of about KRW 30 billion from the business feasibility analysis. So again, as we maintain our conservative approach, this is some of the volatility or the variability that we are seeing.

[Interpreted] I hope that provided a sufficient answer to your question. We'll receive the next question. The next question comes from White Oak Capital.

I wanted to get an overview from you on whether the tailwind the Korean economy is experiencing can be an opportunity for you. We saw, for example, a $26 billion bonus package approved for Samsung's employees. Now does this throw up any opportunity for you to grow, let's say, as that money comes into the economy mortgage book or as it is reinvested, can this be a loan growth opportunity for you? Or can this be maybe a wealth management opportunity for you? How are you thinking about the tailwind that is the economy as a business opportunity for the next 1, 2 years?

[Interpreted] So while we are preparing for the answer, please hold for a few seconds.

[Interpreted] So the government as well as the financial institutions, this is something that we are looking forward to, yes. In the past, these individual retail funds and the gains from the equity investment, they have mostly flowed into the real estate sector. There were some concerns about that happening this time around as well.

However, the vendor companies and if this money flows into the consumer economy area, then although we are seeing growth in the export sector for the economy, we do hope that this money can lead to an uptick in the consumption of the domestic economy. But we talk about the K-shaped phenomenon, and we still have a lot of concerns about this polarization, income disparity issues.

And so this flows down to the middle class to the working class. We will have to wait and see whether this will have an effect in the segment. And in the case of the wealth management business, we do have a positive outlook for this. And including other peer securities companies, including ours, yes, for the wealth management segment, we are seeing greater, yes, income flowing in for our financial products segment.

[Interpreted] Thank you very much. I do hope that, that has answered your question. And now I see that there are no further questions. We will pause briefly to see if there are any additional questions. Yes, there is another question. Shane Mathews. Yes, Mr. Shane Mathews. Please go ahead with the question.

Two questions from my end. One, given, let's say, the news flows of acquisitions, et cetera, how would that really return to your shareholder return policy program? How should we think about what impact can that be because certain assets might need more capital than just initial. So can you guide us on how you think about shareholder return plan in conjunction with the M&A opportunities you see?

And second, just on costs, do you have any long-term cost income ratio plans? Any benefits you're seeing from AI? Can you talk more about long-term cost outlook going forward?

Thank you very much. So, please give us a moment to prepare for the question.

[Interpreted] Now first of all, about the shareholder return and the M&A, the possible connection. I believe that we can put it this way. So let's say, from 13.0% to 14%, so that is the management's range. And then going beyond that, then we could be considering, for example, additional growth or anything else. So now then if we could get some, let's say, additional strength from the CET1, then maybe we can also utilize that for the M&A. So then perhaps not big deals, but that is why we are also considering some M&A.

In other words, for the short term, so whether it is going to affect the shareholder return for that particular year, that is not going to be the case. That I can tell you with certainty. But then now if there is M&A, then let's say, the output is, for example, ROI or ROE or EPS perspective, then let's say, the current required return on the capital is then we are also considering the COE for the dividend.

And so it's like this, for example, the current -- the PBR is 0.8 multiple and let's say the COE is 10%, then the required return would be like 15.2%, then given that, then the M&A deal, then for the longer term or for the short term, then it would have to meet the required return. So that is going to be the one consideration or one direction for the M&A initiative. So once again, let me reiterate that there is not going to be any short-term impact from the M&A deal.

And then second, about the SG&A. So our continuous guidance has been that in terms of the expenses, then it's about 4% to 5% GDP growth or the inflation. So we also say that it is going to be in line with that. But then now in this case, now the top line gains and losses growing and then also the performance pay and then also the government's change in the regulations. So for example, education tax or the securities transaction tax. So we see that there have also been increase Y-o-Y. So they are also reflected into our SG&A.

So then looking at the CAGR, then yes, there has been some considerable increase. And they are expenses that are related to the top line. So the CIR is not going to worsen very quickly. But then what we are thinking now is that let's say, low 40% or like around 40% CIR is this the proper level. So compared to the overseas peers, and I believe that it is still too low. But then we are not saying that we are going to dramatically increase this. So for the CIR, then let's say, for the 3-year projection, we believe that there will be little changes, meaning that it will be managed within the guidance.

[Interpreted] I hope it provided a sufficient answer to your question. I think -- yes, actually, we do have one more question. From Hana Securities, [ Kim do Ha ]

[Interpreted] I'm sorry, I did want to ask one further question. So on a median basis, we look at the earnings, it does not appear really conspicuously. However, if you look at the noninterest income, there are securities-related gains and losses and also the insurance-related financial gains, there's plus or minus about KRW 2 trillion they are in the reverse direction.

So plus or minus, how was it recognized? Can you actually explain this for the plus and minus KRW 2 trillion? One. Can I ask another question? I'm sorry, with regards to the easing of the operating risk, I don't -- was it reflected in the second quarter?

[Interpreted] So yes, please hold for a few seconds while we answer -- prepare an answer for this question.

[Interpreted] All right. So I believe that it is right that I respond to this. So as you have mentioned, yes, because it is on a consolidated basis, then, of course, for the individual subsidiary and the Life Insurance CFO can respond to this. So now we have several, for example, the securities and also the life products, yes, there are some variation.

Now for example, looking at the variable products, of course, for the securities gains and losses, then despite the interest rate hike, so the minus in the debt still the prices go up. So we are seeing some losses. So that is what we see. But then now when we apply that to insurance and that is the variable product. So because of the rise in the stock prices, then there are some plus on the securities and also from the insurance, then there is some minus.

And then second is now in terms of the change in the guidelines, so that is also reflected into the financial products' gains and losses. And then second, about the operating RWA, that has not been reflected yet. And for that, so like this time, the -- so it's like the structural position, so as we have reflected aggressively in the second quarter. So we are still considering whether we are going to apply this to the second quarter or into the third quarter. But again, let me repeat that it has not been reflected yet.

[Interpreted] All right. Thank you very much. I hope that has answered your question. And yes, we have, I believe, run through the given time. So if there are no further questions, we could conclude this call. So there being no further questions, that concludes Shinhan Financial Group's Second Quarter 2026 Earnings Call.

A replay of today's presentation is available on our website and on the Shinhan Financial Group IR YouTube channel. If you have any follow-up questions regarding the financial performance, then please contact our IR team at any time. We look forward to seeing you again after the heat of summer gives way to pleasant autumn. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good afternoon. This is Park Cheol, Head of IR or Investor Relations. Thank you for taking time to join Shinhan Financial Group's earnings presentation for the first quarter of 2026.

Joining us today are Group CFO, Jeong Hoon Jang; Group CSO, Go Suk-Hyun; Chief AI Data Officer, Hyuck Jae Choi, Group CRO, RA Hoon ; Shinhan Bank CFO, Kan Yeong Hong; Shinhan Card, CFO, Lee Jeong-bin; Shinhan Securities CFO, Lee Jaesung; and Shinhan Life CFO, JOO Sung-hwan.

We look forward to your active interest and participation. Today's session will begin with a presentation on the group's first quarter 2026 financial results by our Group CFO, followed by a Q&A session.

With that, let me invite Mr. Jang to begin his presentation.

Good afternoon. This is Jang Jeong Hoon, CFO of Shinhan Financial Group. Thank you for joining our earnings presentation for the first quarter of 2026. On Pages 2 and 3 of the presentation, I will walk you through our newly announced corporate value-Up plan, which was disclosed earlier today. In July 2024, we introduced our value-Up plan with three key targets referred to as 10-50-50 and have been executing various initiatives with strong momentum to achieve these goals.

As a result, we achieved our 50% shareholder return target ahead of schedule while also delivering meaningful improvement in PBR, demonstrating both the effectiveness of our strategy and the strength of our execution. In addition, with ongoing tax reforms related to dividend income and continued government effort to revitalize the capital market, we thought it is now an appropriate time to comprehensively review our existing plan.

Accordingly, under the leadership of our Board of Directors, we have upgraded our existing value plan now branded as Shinhan Value Up Triple+, incorporating the current market environment and our strategic direction. Previously announced Value-Up plans by financial holding companies largely focused on setting absolute target at specific points in time to address undervaluation driven by low shareholder returns or maximizing shareholders' return by opting for full return in case of excess of target.

However, we believe it's now time to transition to a new value creation framework that includes not only predictable shareholder return policies, but also a sustainable growth story. Rather than simply returning excess capital or targeting specific numerical threshold, our goal is to establish a sustainable value enhancement framework where shareholder returns and corporate growth are organically aligned, supported by a strong capital base.

Based on this, we have established three new key strategic objectives. First is achieving an ROE of 10% plus. We are targeting an ROE that exceeds our cost of equity with a focus on delivering faster improvement. Given our current business portfolio, we expect this to improve at a notable rapid pace. Building on the bank's strong recurring earnings base, we will strengthen our non-banking competitiveness in phased manner, focusing capital markets through 2026 and on credit finance business thereafter and manage our ROE within the 10 to 12 percentage range through 2028.

In particular, based on Shinhan's proprietary PBR ROC logic free detailed in our value of materials, we will enhance capital efficiency by simultaneously managing capital ratios, improving profitability across our subsidiaries through a set of granular action plans. Second, a total shareholder return ratio of 50% plus. We have removed our upper cap on shareholder return rate while introducing an intuitive formula takes into account both ROE rate and based on principles of capital based on our required return rate.

Through this approach, we believe investors will be able to more easily anticipate both direction and level of shareholders' return policy alongside the company's growth. However, in periods such as present where ROE remains below COE, we will adhere to a principle of gradually increasing shareholder return ratio on a year-on-year basis. We also refined the composition of shareholder returns, taking into full account recent tax reforms related to dividend and investor preferences.

While maintaining our current equal quarterly dividend policy and a gradual increase in both EPS and total dividend amount, we plan to prioritize the use of tax-exempt dividend resources secured through approval at the March Annual General Meeting this year. For your reference, DPS for the next 3 years will continue to grow by more than 10%. And the outlook between dividend and shareholder buyback will be determined based on a rational framework rather than current returns, and we'll continue to communicate transparently with the market regarding progress toward our previously announced target of reducing 50 million treasury shares.

Third is maintaining a CET1 ratio of 13 percentage plus. We will secure a sufficient capital buffer to account for macroeconomic volatility and maintain stable capital ratio under all conditions. In addition, any excess capital generated through improvement in capital efficiency, including RWA optimization will be returned to shareholders in principle. Furthermore, under the oversight of the Board of Directors, we will annually analyze and review gaps against our target, continue to update our 3-year guidance and communicate the results to the market.

Let me now turn to our financial results for the first Q of 2026. Turning to Page 4 is the business highlights. As of end of first Q 2026, the group's CET1 ratio preliminary is stable level estimated at 13.19% despite many uncertainties surrounding us. So the Group Board of Directors resolved to declare a cash dividend of KRW 741 per share for the first quarter of 2026. For reference the record date, this cash dividend is April 30, shares must be purchased by April 28 to be eligible. Dividend schedule is to be paid by May 29.

In addition, out of KRW 700 billion share buyback program scheduled through July 2026 with completion of KRW 404.3 billion and shares will be retired immediately upon the purchase.

Net income for the first quarter of 2026 amounted to KRW 1,622.6 billion, representing a year-on-year increase of 9%, driven primarily by top line growth centered on noninterest income. Supported by the group's strong financial fundamentals and disciplined capital adequacy management, both ROE and ROTCE improved reaching 11.9% and 13.4%, up by 0.5 percentage points, respectively. Please refer to the key indicators that measure the group's shareholder value.

Turning to Page 6 on capital. The group's CET1 ratio declined by a total of 68 basis points due to RWA growth and also shareholder returns. However, it was managed at a more stable level, reflecting a decline of just 16 basis points relative to the end of last year. Group RWA increased by KRW 7.3 trillion due to asset growth and KRW 3.1 trillion due to foreign exchange movement, but remained well within our planned range. Going forward, we will continue to ensure stable capital ratios through efficient internal optimization and strategic resource allocation while fulfilling our role in providing necessary funding to the real economy.

Please refer to Page 7 for a breakdown of assets and liabilities. Now operating profit before expense for the first quarter increased by 11% year-on-year, supported by solid net interest income and significant growth in noninterest income, which I will now explain in greater detail. Group net interest income increased by 5.9% year-on-year as NIM improved and interest income from securities increased significantly.

Bank NIM improved by 2 basis points quarter-on-quarter as loan yields increased in line with rising market interest rates and funding costs were well managed. For loans in won, although we saw a decline in household loans due to regulations, overall Korean won loans increased by 1.4% year-to-date as we strengthened our role in providing productive financing to corporate borrowers.

On to noninterest income. Group noninterest income increased by 26.5% year-on-year with strong performance in fee income and broad-based improvement across other segments. Income performed well across most categories, excluding investment banking fees, which declined due to a high base effect from the prior year. In particular, brokerage fees increased by 215.2% year-on-year, driven by strong equity market activity leading overall growth.

Fees related to fund sales and bancassurance also increased by 54.7% Y-o-Y, continuing their upward trend in line with government policies to promote capital market development. Gains on securities declined in bond-related income due to the recent sharp rise in market interest rates, but was offset by valuation gains on other securities.

Insurance-related profit also increased by 8.7% year-on-year, and we expect to maintain stable earnings through disciplined management of CSM.

Next on to SG&A and credit costs. Group SG&A expenses increased by 10.4% year-on-year due to higher education tax despite ongoing cost efficiency efforts across our subsidiaries, including different business segments. However, with operating profit increasing significantly, the cost-income ratio declined slightly to 36.7%, remaining at a stable level. Credit costs for the first quarter increased by 17.5% year-on-year, driven mainly by higher recurring credit costs, including increased write-offs at the bank and some emergence of corporate nonperforming exposure.

It is somewhat encouraging that one-off credit costs related to real estate project financing has stabilized as a result of our preemptive and conservative provisioning in prior periods. Amid continued uncertainty driven by high interest rates and elevated FX levels and ongoing geopolitical risk, the credit cost ratio increased by 5 basis points year-on-year to 46 basis points. However, we will continue to manage credit costs rigorously with our full year target range of mid-40 basis points.

On to NPL, the group's NPL coverage ratio declined by 12.4 percentage points compared to year-end despite proactive write-off and NPL sale policies and conservative provisioning. This was mainly due to an increase in substandard and below exposures resulting from principal and interest payments related to project financing sites where trust-based construction completion guarantee obligations had expired. These impacts, however, have already been factored in, in prior year credit costs.

Delinquency ratios for both the bank and the card business, which has been gradually improving, increased slightly in the quarter. However, the bank recorded the lowest level of net new delinquency in the industry. And for card, the increase was driven by a reduction in total assets due to lending regulations and remains more than manageable. Given the continued economic slowdown, rising corporate credit risk and ongoing challenges faced by vulnerable customer segments, we believe it will be important to maintain conservative asset quality management while providing timely and appropriate funding support.

I refer to the slide for loss absorption capacity and charge-off activities, and we will move on to subsidiary performance. The securities business delivered strong earnings growth of 167.4% year-on-year, driven by increased brokerage commissions from higher trading volume, improved prop trading income among strong capital market dynamics. The bank recorded 2.6% year-on-year growth in earnings, supported by net interest income despite declines in security-related gains, higher credit costs and the impact of increased education tax.

The card business saw a decline of 14.9% Y-o-Y as improvements in operating revenue and credit costs were offset by one-off expenses related to voluntary retirement programs.

For Shinhan Capital, it recorded a significant improvement in earnings, driven by gains on securities, including dividend income, supported by favorable market conditions. The life insurance business experienced weaker performance Y-o-Y due to higher loss ratios leading to increased insurance variance loss and a decline in insurance finance income from rising market interest rates.

As mentioned earlier, beginning with this earnings release, we are providing additional disclosure of quarterly net income, RWA and return on capital by segment for your reference. Page 15, we have detailed information on our overseas business performance, which continue to demonstrate differentiated growth. Pages 16 and 17 provide updates on our digital initiatives and ESG. From Page 19, you will find detailed financial statements at the subsidiary level, funding and asset liability management as well.

This concludes our presentation. Thank you very much.

Thank you very much. Now we will begin Q&A session.[Operator Instructions]

We will accept first question. Can you hear me? From NH Securities, Mr. Jun-Sup Jung.

This is Jun-Sup Jung from NH Investment Securities. Actually, I have 2. First, regarding your corporate value enhancement program. Thank you very much for your thoughtful program. Now productive finance is being promoted by the government, and there were some announcements by the government to ease capital requirements. So if those eased requirements are applied, how much of an improvement will there be, say, in terms of your CET1?

And in terms of your -- the improvement, can it be -- is it available to fund shareholder returns? For example, the regulatory authorities, the point of easing, the requirement would be to direct more towards productive financing to 13.4%. So excess capital beyond 13%. So how can you use that excess capital? And the second question, you did mention your Value-Up plan. I think it's on Page 16 of your slides. there is an internal limit in terms of internal return. Cost of equity, PBR. So you said you're going to use the ROE, PBR logic. So what is your internal hurdle rate in terms of expected returns, your implied returns?

Yes. Thank you very much for the questions. Please hold for a moment as we prepare the answer.

So regarding the first question regarding the easing of capital requirements, our group CRO will take that first and then the remainder, I think I will be able to follow up on.

Yes, I'm the Group CRO. So you mentioned productive financing and rationalization of capital requirements by the authorities. So from a market risk perspective, so retained earnings and equity contribution, for example, will be included in the scope. So we are still in the process of seeking approval from the authorities. So it is pending. And so depending on the result, it may have an impact.

But 10 basis points or so improvement, we think is possible in terms of our CET1. And then operational risk, exemptions in terms of count, RWA. So things are quite fluid at the moment regarding approval at the Board level and the regulatory authorities position. But market and operational RWA combined, I think maybe we can see about 20 basis points or more in upside in our CET1.

So let me take the remainder of the questions. Like we have heard, 20 basis points or more, potentially, we can see that kind of improvement. But like you said, well, in terms of our Value-Up plan, we actually explained there. But we have been seeing some fluctuation quarter-on-quarter. So net max 36 basis points or so that variance actually was quite wide at about 36 basis points. So while we say 13% plus, so in the DBS model, our peers, maybe from 13.0% to 14.4%, maybe that we will not see additional returns within that range.

But toward the end of the year, we'll look at the balance between growth and shareholder return. So we will have to make some internal decision-making between the 2 sides. And perhaps at the end of this year, it will be factored into our growth plan as well as our shareholder return policy as well.

Regarding our internal hurdle, so for the first quarter, well, the closing of the accounts was done in February. And we mentioned at that conference call that 9.1% is our CET ROE, and we want to grow our net income by more than 10%. That was our guidance. In terms of our internal hurdle, this is about the additional incremental returns. CPR is 0.8% and COE and ROE -- well, our target ROE is 10%. That said, then our internal marginal return will mean it will be slightly higher than the inverse, which is 12.5%. That is our internal view anyway.

But our company-wide ROE is still below COE slightly. So we are looking at things more cautiously. And until we see more of a normalized base, we are looking to gradually increase shareholder returns. So that is already incorporated in our Value-Up plan.

Yes. Usually, I don't comment about the finance part, but I'm in charge of strategy for the Shinhan Financial Group. Regarding productive finance, I do lead our initiatives. So the question by Mr. Jung -- the first question by Mr. Jung, you talked about shareholder return. If we could use that increase in CET1 towards shareholder return. But the purpose or the intention behind easing of the regulations was not for the purpose of returning more to shareholders. It was, in principle, meant to be directed more toward productive financing.

So in principle, we should be aligned to the purpose behind the easing. So it should be more toward growth so that it can be used to fund productive financing. We do believe that, that should -- that is consistent with the intention. But of course, it's not always very clean cut each time. So we will look at the overall situation from a more comprehensive view as was explained by our CFO. So I hope that was a sufficient answer.

We will move on to the next question, please. From HSBC, Mr. Jaewoong Won.

Regarding shareholder return, thank you for giving very careful thought and for providing a very refined program. I have a few questions about that. First, in the formula, what is the definition of growth? I'd like to know. Is it capital growth or RWA growth? So depending on which it is, it can actually mean a big difference in numbers for TSR. If ROE is 5.5%, RWA growth target is between 4% to 5% and capital growth target, I think on average, it's about 3%. So actually, the range is quite big. So between the two, what do you mean exactly when you say growth? So it will help us in our projections. Can you give us more color?

Now I'm thinking that perhaps in the fourth quarter, you might announce a decision about how to use the available amount. So for this year, what should we expect? So will we have to use a different formula at mid-year? So in terms of timing of actual application of this formula, could you give us more color when exactly it will start to be applied?

Thank you very much. We will ask you to hold as we prepare the answer.

So regarding the first question, so like you said, we are thinking hard about what you pointed out. If we deep dive a little bit, we came up with the formula because CET1, so one assumption was that we maintain the CET1 and then the capital growth in inverse, it comes out to the TSR. That's the formula. So maintaining CET1 means that relative to RWA growth, capital growth actually has to be bigger. And so capital growth then can be a main factor. But then temporarily, if RWA will it be 3% growth or 7% growth, it can depend.

So we want more stability and so probably we will find the more stable of the two. But you're concerned that the average growth of capital. We're not using that 2% or 3%. But within, there will be a capital adjustment. There are different buffers that will be removed. And so we're looking at pure capital growth. So something between 4% to 5%, we think that will be the level. That means that RWA growth, we will obviously try to maintain that growth within that range, 4% to 5%.

But we added plus alpha because if we have more upside available, then we can add on potentially, which is why we have that plus in the formula. But in a more -- the most typical example, target ROE and our target growth. By growth, we mean capital growth or RWA growth. So I use the word or, capital growth or RWA growth. But I think ultimately, both will converge within the 4% to 5% band. So within the next 3 years, TSR will likely be within the 50% to 60% range. And so that is what is incorporated in the plan.

Now in terms of the timing of application, like you said, possibly within the fourth quarter, we will probably share our consensus view with you. At that time, we will look at the growth, pricing, margin profile, CCR and we'll share. And I think this will also come up naturally in that context. But based on our business plan, as we have said, for this year anyway, we will -- if we apply this as is, CET1 is 9.1%. So CET ROE is lower than COE. That means CSR should be higher than last year. That's one.

And RWA growth and capital growth, when we did the calculation, as shown in the example, it's about 5.1% or so. But CET1, it has -- the plan was to lower the CET1 by about 8 basis points. So this converts to about a 4% impact in terms of the shareholder return ratio. So for this year, 50.2% plus alpha and the max 53%, I think likely it will be somewhere in between that range. So that is our internal calculation.

Well, I hope that answered your question. We will now go to the next question.[Operator Instructions]

Bae Seung Jun From LS Securities.

From LS Securities, Bae Seung Jun.Now one question I have is that I think you can become issuer in your securities company. So what is your anticipated return or profitability for issued notes?

So please hold while we prepare for your answer. So I think CFO Securities can answer your question.

So I'm Jeong Hoon, CFO of the Securities. Thank you very much for the question. At the year-end, we got license for as an issuer. So in February, we start the issuance and currently, about KRW 240 billion has been issued. For this year, I think to make it as a stable vehicle in terms of issuance size and volume, we would like to keep in control. So I target currently for year 1, about return rate of 100 bp is our plan.

Okay. I hope that answered your question. Now we will accept next question.[Operator Instructions]

The first number is on some numbers in terms of asset soundness. NPL coverage ratio is 110% for the holding company. So it is quite lower than before. Up to now, delinquencies don't appear to have entered the improvement cycle yet. So regarding your added NPL burden, do you need to do additional provisioning of that? So for example, petrochem companies, there might be some -- there are concerns about the lagging effect from that sector. So in terms of your asset quality and the burden in terms of additional provisioning, what is the view?

And the second question -- I also have 2 very simple questions as well. So for the next 3 years, tax exempt dividends will be a priority you said. You have KRW 9.9 trillion available for distribution, but it won't be used all at once. So are you going to leave some? And for AOCI, our capital appears a bit improved, but because of the rising interest rates, I thought that it would go down because of valuation losses. Maybe it's because of your Life business. Could you just explain the duration gap?

Thank you for the question. Please hold for a moment as we prepare the answer.

Yes. Regarding the first question regarding asset soundness, our group CRO will cover that. Regarding the tax distributions, I will explain. And number three, regarding the duration gap, we'll hear from the Shinhan Life side. So the group CRO will begin.

Yes. Thank you for the good question. So first, regarding the NPL coverage ratio, the 0.81% is substandard or below for the group. Now there has been an increase of KRW 468 billion in NPL. And so the NPL coverage ratio did go down about 12.4 percentage points from last year. It's about 113%. If you look at the overall trajectory, credit costs for the group in 2022, prior to that spike in interest rates, we went through a very low rate environment.

At that time, credit cost annually was below KRW 1 trillion. But with rising interest rates, starting in 2023, it started to exceed KRW 2 trillion. But more recently, with the delayed recovery of the economic slowdown, we are seeing more increase in delinquency. For the group overall, substandard or low or delinquency NPL, these indicators actually for the most part, are improving. And so our goal is NPL coverage ratio of 150% as the bottom line for the bank. And then we will engage in selective write-off and sales and to maintain asset quality.

In terms of our current provisioning against our total loan portfolio, NPL coverage ratio, we want to maintain at above 110%. For Tax expense dividends, at the time of planning, we said that we will provide a 3-year guidance. So for the next 3 years, that's what we mean by priority to tax expense dividend. So if we have left over resources, so potentially, we can -- yes, we can consider other options as well. And then after the duration gap answer, if I have anything to add, I will try.

So I'm the CFO of Life. As of -- compared to end of December, interest rates have gone up by more than 40 basis points. As of December, duration gap was 0.2%, so a slight plus. But as of the end of March, it's about 1% is what we expect. So the duration gap actually is improving. So just to explain a little bit, I think you're asking about the capital adjustment. So AOCI valuation loss, yes, there was some loss. But in the past, we had M&A and adjustment of consolidated entity. So it's a mix. And overall, there is an overall offsetting effect among those factors.

I think there's another question from JPMorgan Securities.

I would like to ask about the tax exempt dividends. I'm a little bit confused, so let me ask about that. So KRW 9 trillion or so have been transferred into retained earnings. And you said that with priority, they will be used for tax-exempt dividends. So do you mean that, that full amount will be provided as tax-exempt cash dividends? Or is that also a mix of the separate taxation dividend as well? So separate taxation with the amendment of the tax laws, every year, the cash dividend actually will have to be increased by 10% year-on-year to qualify. So for tax-exempt dividends, do you assume that cash dividends can increase by more than 10% year-on-year? So is that the plan?

The second question is, I think you said before that this year, the capital market will likely be promoted. So you want to grow the securities business and also you will work on improving the card business as well. What is your target ROE for securities and for your credit card business as well? When you think for the capital market, there have been a lot of activities among retail investors as well. So I can see why security business might grow. But merchant fees are increasing and household loans are decreasing. So how do you expect to improve profitability for the credit card business? So do you have a certain strategy in mind that you could share with us?

Yes. Thank you for the question. Please hold as we prepare to answer.

Yes. Regarding the first question, just to clarify, as you said, for this year anyway, as you know, we have the AGM in March to approve the capital reduced dividend. So we cannot do -- well, actually, we cannot do the tax exemption dividend yet. Only upon closing can we do that at the end of the year. So for this year, first and second, third quarter, we will be subject to separate taxation. And then next year, post account closing at the end of the year, we will then move on to tax exempt dividend.

And then three years going forward, we will do full tax exempt dividend. There is a 3-year grace period for separate taxation. So we gave some thought to what would happen after the grace period was finished, but there were high expectations among the investors for tax-exempt dividends. So as much as possible, we wanted to continue to provide that. Because this tax exempt, obviously, that means we don't necessarily have to increase cash dividends by 10% or more every year. That 10% threshold is on the size of the dividend, whereas what we are talking about now is EPS that we want to increase EPS by 10% year-on-year, which is more strongly perceived by the investors.

We think net income is likely to grow by more than 10% this year. Naturally, the DPS likely is also to grow by that much as well. And then on top of that, of course, we will continue to do share buybacks and cancellations. And so when that is considered, even if we increase EPS by 10% or more, as we do tax-exempt dividends, we will be able to -- we're very confident that we can increase EPS by 10% or more. We're very confident, which is why we included in our announcement.

Regarding the securities business, the brokerage business, you will know, but the brokerage business before maybe 10 years ago was always last. But now, as you know, the ROE has improved significantly for the security sector overall. For securities, usually it's about KRW 5.8 trillion in terms of capital base. But the ROE, I think, is likely going to exceed that this year. Now we are working to make sure that, that is sustainable.

Regarding highly specialized finance, you said that you're not convinced. When we talk about the credit card performance, we thought that this year, it's down by about KRW 20 billion year-on-year. But in the first quarter, we already had some impact from the voluntary retirement. We did mention nonrecurring earnings, if we see those earnings coming through, we're contemplating different options. And there are different stakeholder interest involved, so we are cautious, but we did think that we will look at making the composition between cost and earnings more efficient.

So as we do that throughout the year, while performance will not dramatically increase, but we think underlying foundation or the fundamentals can gradually improve. So our approach is that we will see gradual improvement of the performance. That was the full answer.

So from Mirae Asset, we have Mr. Tae Joon Jeong.

I'm Tae Joon Jeong from Mirae Asset Securities. I do have two questions. First is the rate is actually going up and this is resulting in different situation. So what's your guidance going forward on that point is my first question. And second question is, so 34% or above, you said you're going to return it immediately. So at year-end, if it's going to exceed the threshold, then for the exit, that bought back next year, that -- is that correct understanding?

So please hold while we prepare for your answer.

So on your first question, bank CFO can answer. And on the second question, I will answer that.

So good afternoon. I am [KANG Yeong Hong], CFO. So first, NIM, if I share with you, for the first Q NIM is 1.6 compared to previous quarter, it increased by 5 bp so its improvement by 2 bp because of the market situation improvement and favorable conditions formed in the market. And since the latter half of the last year, we focused profit orient growth. I think that also helps. So what will happen to market rate to give you some projections.

Now currently, the domestic economy is not really doing well, meaning there are some downward pressure for the rate, but if you consider inflation and FX rate, there's not much room to move further downward. That's our anticipation. So neutrally, we believe that market rate will continue as is and under that estimation, very profitable, high-quality asset-oriented productive finance can be expanded and that could also help increase our liquidity that were resulting in improvement in NIM, and we'll do our best to achieve that. So in summary, NIM will maintain the current level or we will try best even to improve that.

And in the beginning on the -- about the second question, from 13 points to 13.0%, 13.4% is the range that we'll be managing. But if it existed, is it going to be given out? Not really. If it goes beyond that range, if it's excess amount, of course, needs to return to our shareholders, except in planning any room for excess growth or as I said before, marginal internal return rate, we are very cautious, but ours is a bit higher than the market COE.

So by year-end or beginning of next year, how to utilize that, that decision will be, in other words, will be made at that time. BBS, our international peers, they don't because it exceeded 13.5%. So if it's like excess -- significant increase then the logic is to do it within a few years. So -- but basically, our philosophy as we keep repeating ourselves, the most important thing is ROE. If the ROE increases, then of course, return rate would naturally go up in terms of also size. But through the growth efficiency, we will also focus on maximizing shareholders' return, and we can commit to that.

And Sinyoung Park from Goldman Sachs.

This is Sinyoung Park from Goldman Sachs Securities. Regarding ROE, I had some additional questions for you. So ultimately, as you said, ROE has to grow in order for the shareholder return ratio and the total size of shareholder returns to grow. In the materials, I think you're saying 10% to 12% is your target range for ROE over the next 3 years. And then bank versus nonbank or bank will be maintaining status quo, nonbank based on ROCE is targeting an improvement by about 3 to 4 percentage points, which is actually quite a sizable improvement, I would say.

So what would be the main drivers that allow you to improve it by that much? So will it be about improving the asset quality? Or what kind of improvement in profitability do you expect? Or are you planning?

Thank you. Please hold as we prepare the answer.

So as you've seen in the materials for nonbank, so nonbanking has been a strength of our group for many years. I think we're past the rough patch where it was challenged. The nonbank ROCE, why do we expect it to improve? Well, of course, there will be some impact on the market. So brokerage, of course, is very active for the groups with security arms. In that case, the ROCE, ROE, obviously, will improve. Well, to what extent will it improve?

I talked about how we expect fast improvement because the security firms of other peer groups are already at a high level. And so while they can grow the overall size of their net they're already at a higher level, whereas we start from a lower end. So for securities, ROCE, we're not thinking about just 10%, but we think that we will be able to achieve quite a significant jump in terms of absolute ROCE. So bank and securities will be the two leading pillars. And that said, of course, top line plus profitability, given current conditions, of course, it's not very easy. But for us, the two big directions are like this.

I mentioned how we want a phasing gradual approach. But for this year, we will focus on acquiring more customers because ultimately, they translate into the bottom line for our business. So internally, we are preparing for that customer acquisition. And then in a more direct sense, it's ultimately about cost efficiency. As I said, it's about fundamentally changing the structure to make the cost structure more efficient, to strengthen our fundamentals. So our funding costs going down and provisioning improving, we can't just blankly expect that to happen because the situation is more challenging. It will not happen just on its own. We have to make the cost structure more efficient.

And when there are one-offs in terms of the top line, when there is upside, we will direct that to improve our underlying fundamentals. And EPS allowing then we can contemplate potentially M&A if that is not required, then we can actually do bold consolidation of our business portfolio as well. So we are looking at various options in a broad sense. I hope that was a sufficient answer for you.

Yes, I think we have from White Oak Capital, a question from Mr. Shane Matthews.

Congratulations on the results. Just one question. I wanted to confirm the group level NPL coverage. Is it targeted at 110% now and if that's the case, when we look at pre-2019 levels, the coverage levels are maybe 20, 30 percentage points at least higher. So why consider operating at a lower coverage level now versus before? What is the change in thinking at this point in time? [Foreign Language]

Thank you for the question. Please hold as we prepare the answer.

Yes, this should be answered by the Group CRO, and I will add if required at the end.

I'm the Group CRO. Regarding credit cost, when I was explaining about that, from a long perspective, I talked about credit cost trends. In 2022, after we saw that spike in interest rates, the real estate market was not good and credit cost among all financial growth actually was quite elevated and poor. So NPL in the write-off and sale market -- there's a lot of supply recently, so pricing actually is not good.

So write-offs and sales, it's not very active at the moment either. And real estate market in order for it to recover until that time, we need some time to sort out the exposure. So until then, we do believe that the NPL coverage ratio is likely to be a bit lower than in the past. But given -- depending on how fast the market stabilizes and market interest rates, if we're able to push the write-off and sales more, that can have the effect of improving our NPL coverage ratio.

Let me just add a little bit. For us, 110%, it is lower for us at the group level. But the bank, it's about 150%. We expect to continue to maintain 150% for the bank. But why 110%? We have Shinhan Asset Trust. That was the main reason through litigation or trust we incorporated onto our books. We have already recognized the necessary provisions though. Until the assets are liquidated and sold off, it will be captured and booked as NPL.

So the absolute number is quite substantial, which is the main factor why our group NPL coverage is down to 110%. We will have to see how the real estate property market develops going forward. Even if we have to sell at a certain discount, we want to -- as we recover NPL, it will take a year or 2 years maybe, which is why in the short term, our target is set lower at 110%. Thank you very much. I hope that was a sufficient answer.

So time has passed quite a lot. So if you have any additional -- I mean, it seems to be -- there seems to be no more questions. So with this, we would like to conclude Shinhan Financial Group's earnings call for the Q1 2026. Replay of today's presentation will be available on our website and Shinhan Financial Group IR YouTube channel. If you have any further questions regarding to today's result or new Value-Up plan, it's all disclosed on our website. So please you can reference that. And of course, if you have any additional questions, please contact our IR team.

And with that, we would like to -- we will see you at the next earnings call. Thank you.

[Statements in English on this transcript were

spoken by an interpreter present on the live call.]

Good afternoon. This is Cheol Woo Park, in charge of IR. I thank everyone for joining us at the 2025 third quarter earnings release by Shinhan Financial Group despite your busy schedule.

Today, we have here with us Group CFO, Sang Yung Chun; Group CSO, SeogHeon Koh; Group CRO, Dong-kwon Bang; Shinhan Bank CFO, Jeongbin Lee; Shinhan Card CFO, Haechang Park; Shinhan Securities CFO, Jeonghoon Jang; and Shinhan Life CFO, Sunghwan Joo.

We will start out with the CFO's presentation on business performance of Q3 2025, followed by a Q&A session with the executives present here with us.

Let me now go to CFO Chun to start the presentation.

Good afternoon. Thank you for joining us for the third quarter 2025 earnings release. I will begin from Page 2, business performance highlights. As of the end of September 2025, the group's CET1 ratio was preliminarily estimated at 13.56%, maintaining a stable level. It results from our unending RWA management effort combined with robust profit generation despite the won depreciation and growth in loan assets for future preparedness.

Based on this, Board today resolved on cash dividend of KRW 570 per share for the third quarter. Shareholder return in 2025 is expected to be around KRW 2.35 trillion with KRW 1.1 trillion in cash dividend plus KRW 1.25 trillion in share buyback.

The shareholder return policy is expected to remain unchanged in the foreseeable future given the stable CET1 ratio and financial soundness.

In Q3, the group's net income was KRW 1.4235 trillion despite the decrease in securities-related profits as credit costs were well under control. The cost/income ratio also remained stable. Credit cost ratio stood at 46 bp, up 2 basis points year-on-year, but has generally improved, decreasing Q-o-Q. But whether the asset quality will turn around to decreasing trend, we will have to wait and see due to current combination of factors such as uncertainties in the macro environment and domestic economy.

Next is Page 3, capital. As explained earlier, the group's CET1 ratio was kept at 6 bp lower Q-o-Q, thanks to stable net income despite the numerous factors driving up RWA. The group's RWA increased by KRW 8 trillion Q-o-Q, driven by growth in foreign currency-denominated RWA due to won depreciation and loan-driven asset growth. We will keep our utmost focus on maintaining a stable capital adequacy ratio by supplying sufficient funds where and when needed, while improving internal efficiency and strategic resource allocation.

Please refer to the slide for details on assets and liabilities on Page 4.

Page 5, group's profit and loss. The group's Q3 net income was managed at 8.1% decline Q-o-Q. There was a decline in securities-related profits, reflecting market rate movements, but credit cost was well controlled. ROE and ROTCE, key indicators in corporate value enhancement plan, rose by 0.7 percentage points, respectively Y-o-Y to 11.1% and 12.5%. I will go into more details by item from the next page.

Page 6, interest income. Group interest income rose by 2.9% Q-o-Q, thanks to profitability-based asset growth and active margin control. The bank's loan in won increased by 2.7% Q-o-Q. The retail sector grew by 3.1%, primarily driven by policy funds on the back of growing market demand, while the corporate segment grew by 2.3% through proactive funding, also thanks to the active growth strategy from July. Please refer to Page 26 for further details.

The bank's NIM rose to 1.56%, up 1 bp Q-o-Q. Although the interest-bearing asset yield fell by 12 bps Q-o-Q, reflecting market rates, including won-denominated loans, it was more than offset by the improvement in funding cost.

Next page, noninterest income. The group's noninterest income decreased Q-o-Q, reflecting market conditions. Gains on securities, FX and derivatives declined, while fees remained stable. Credit card fees decreased Q-o-Q due to increased promotional expenses in response to seasonal factors like the Chuseok holidays, but brokerage fees, IB-related fees and product sales fees, including funds, surged Q-o-Q on the back of recent capital market activities. Insurance-related profits decreased by 2.4% Q-o-Q, but profitability remained stable, thanks to scaled up CSM management.

Moving on Page 8, group's SG&A expense and credit costs. Group's SG&A increased by 2.2% Q-on-Q due to recognition of voluntary retirement costs at Shinhan Card. However, CIR on a cumulative basis remained stable at 37.3%, maintaining a sound level.

Credit cost decreased by 30.1% quarter-on-quarter, reflecting the expiration of corporate credit rating impacts recognized in the previous quarter and the group's continued efforts to manage asset quality.

Additional provisions arising from the government-led real estate PF workout plan also decreased significantly Q-on-Q, remaining within our anticipated range. Credit risk among corporate has risen due to delayed economic recovery and challenges persist among vulnerable customer segments. Along with timely funding, more prudent asset quality management will be needed.

Turning to Page 9, here are the group's asset quality indicators. Group's NPL coverage ratio declined by 2.9 percentage points quarter-on-quarter as the balance of substandard and below loans in the nonbank sector increased. However, the bank's NPL coverage ratio improved by 12.17 percentage points quarter-on-quarter, supported by the NPL sales and strengthened asset quality management. Delinquency ratio at both the bank and card are also gradually improving. Detailed information on the group's loss absorption capacity NPL sales provided on the following page.

Page 11 is profit and loss of our subsidiaries and overseas businesses. Shinhan Bank's earnings declined slightly from the previous quarter, impacted by noninterest income factors, including marketable securities. For details, please refer to Page 21.

Shinhan Card posted higher earnings over previous quarter despite the decrease in merchant fee income and recognition of voluntary retirement cost, thanks to reduced credit cost supported by improved asset quality.

Shinhan Securities earnings decreased Q-on-Q due to lower product management income. However, the company continues to restore its structural earnings capacity year-on-year through enhanced competitiveness in its core business areas.

Shinhan Capital continued to face pressure on funding and credit cost showing a subdued performance.

Specialty credit subsidiaries, including card and capital, are steadily improving fundamentals through asset rebalancing and various self-help measures and are expected to gradually recover profitability.

Overseas services delivered differentiated results in Q3, particularly in Japan and Vietnam despite ongoing domestic and global uncertainties.

Page 12 through 13 summarize our performance in digital initiatives and sustainable management activities.

From Page 15 to 18 are the progress of our corporate value-up plan.

Overall, the group has achieved solid results in terms of execution, speed and outcomes compared with the plans announced last year and early this year. Please refer to the materials for detailed information.

From Page 18 onward, we will find details on the financial status, P&L and funding and investment operations of each subsidiary.

Korean financial industry faces challenge, a productive financial transformation to support Korea's economic recovery and sustainable growth. Forward, Shinhan Financial Group will continue its consistent approach of allocating resources to corporate finance while providing timing and efficient funding. We will lead in fulfilling the financial industry's core role in intermediating capital management, managing risk and supporting growth.

This concludes our presentation. Thank you very much for your attention.

Thank you very much. And now we will take your questions. [Operator Instructions] And now we will take your questions.

The first question will be delivered by Mr. Jung Jun-Sup from NH Securities.

I am Jung Jun-Sup from NH Securities. So I have 2. Now first is about the capital policy. So the government recently is talking about the dividend payout, the separation taxation and then also the similar in other industries as well. So now then in terms of the dividend tax, then I wonder whether related to the dividend tax, have there been any discussions about changes in the group's dividend policy?

And then second is about the loan. So the government continues to control the household loans. And I believe that there has been a bit of an excess in the quota that has been given. Then also more recently, now the deposits are also appearing to decline. So it seems as if both the loans and deposits are unlikely to grow much in the future. Then looking ahead to the fourth quarter and beyond, then what would be the outlook for the group's loans and deposits? And also, how does the group intend to respond to these changes?

Thank you very much for the questions. And please wait a moment for us to prepare our response.

Thank you very much. So there were 2 questions. Now first, about the capital policy, I will respond to that. And then now with regards to the loan and deposit outlook for the longer term, then that will be responded to by the bank's CFO.

Now first, about the capital policy. So you talked about the dividend payout separate taxation and then the non-tax dividend payout. And then first, regarding this, we have had some discussions at the BOD. So through the workshop, we have discussed the shareholder return policy. But given the fact that we have yet to come up with the business plan for next year, we have not made any decisions.

But of course, having said that, now with the dividend payment separate taxation then now also to broaden the individual shareholders, now in order to be in alignment with the taxation policy, then we also intend to slightly increase the dividend payout.

Having said that, now there's a number of indicators for our shareholder return policies. So for example, shareholder -- the share buyback and cancellation. So even if we do that, then this will not be undermining each of our policies. So we would also look into that.

And next is about the tax-exempt dividend payout. And yes, we have also discussed this several times. And yes, we do have some profit available for dividend payout. But then now, looking at the industry trends then, now yes, there is also this kind of a dividend payout that is [indiscernible]. So we would have to wait and see, but we would also be positive about the changes as well.

With regards to these overall changes, I do believe that we will be coming to some kind of decisions as the Board has to come up with the business plan for next year. But then overall, I can say that we are positive about both aspects.

Thank you very much. And now this is the CFO of the bank. So the question was about the deposits and loans. So now first, about the loans, then now in the first half, now given the fact that we have grown in the previous year, so we were conservative in terms of our loan growth outlook. So that was for the corporate loan.

And then now for also loan, then -- now there was also some increase. And then also, yes, in terms of the banks, then we are a bit over the guidance that was given by the government. But then for the fourth quarter, I do believe that we will be in line with that.

And then now for the corporate loan, as I have mentioned earlier, now there was some conservative growth in the first half. But then now in the third quarter, then there was over KRW 1 trillion growth in the corporate loan. And then now for the year, then we were actually planning for about KRW 9 trillion growth. But then now so the actual utilization will be about KRW 7 trillion to KRW 8 trillion. Then also the loan is in won so we were planning for about 5% growth. But then now for the year 2025, we will be growing by about high [indiscernible] so not too different from the plan. Then we're looking ahead to next year for the [indiscernible] loans growth.

Now for the household loan, obviously, there are a number of regulations [indiscernible] specific environment for this. So it is not likely for the household loan to grow very [indiscernible] But then yes, there would also be some policy funds to be provided by the government.

Then now for the corporate loans, then now compared to this year, so to be in line with the government's policy like the productive finance, I do believe that there will be more growth than this year. But having said that, next year, it is likely to be around 5% to 6% next year.

And then about the [indiscernible]. And for this series, there were also some discussions about the deposit. And this is, of course, funding is very important. And also the cost management is also very important. So now then for this year, so we have also focused on the funding control to also defend the NIM. But then also, on the other hand, we also need to ensure funding stability. So yes, we also have a funding management strategy.

Now in the fourth quarter, yes, there are -- for the traditionally, now this is the funding maturity period for the bank. So we are also making preparation. And also, the question was some concerns about the expected difficulties for the deposit. And yes, for the individuals and for example, the time deposit, it is being reduced, but then now we also are managing the interest rate quite tightly. So next year, next year perhaps, you can have more appropriate management of the interest rates so that we will be able to have stable funding.

And then also last part of the question, so about funding moving to the capital market and how the group is making the decision for this. Now as the bank's CFO has mentioned, so it seems as if there is a little change in terms of the capital flow in and outside of the bank. But then now, we can see that now for the money flow, so we see that it continues to be stable. But now in terms of the resource allocation, now for the next year and rather than the resource allocation in the bank, we would also allocate more resources to the capital market, and we intend to be flexible depending on the market circumstances.

I hope that answered your question. We will move to the next question. [Operator Instructions]

HSBC's Won Jaewoong, you have a question. Please go ahead.

Thank you for good results. Now looking at Page 9, the bank delinquency rate seems to be staying stable. So I was fairly encouraged by that. Now then such trend in fourth Q do you think will continue also for the next year also? That's my first question.

The next question is that card delinquency rate in the third Q, it dropped significantly. So the public will [indiscernible] support coupon, may that happen? Or on the card side, do you think there is also signs of stabilization?

And the next question is about the credit cost. Now this year, the guideline was about mid 40 bp. I do believe that was your target range. Then in the third Q, you managed quite well, given that in the fourth Q, seasonality makes that we need more provisioning. So I think it could creep up. And does that mean that the credit cost needs to be expected higher than anticipated and fourth Q one-off provision, it's not going to be that high. That's my question.

Well, thank you for your question. While we prepare for the answer, please bear with us.

Yes. Thank you for that question. Now in terms of the asset quality prospects and second was related to credit costs. About credit cost, I will answer first. And about the asset quality on the overall situation, Group CRO, will respond to that. And Banks and Card CFO will talk about banks and cards asset quality related and respectively.

Now in terms of guidance on credit costs, if I may give you the conclusion first. As I said, the mid-40 bp in the first half earnings call, I think it's going to hold for the coming period also. Of course, seasonality require more provisioning. But if our simulation shows that within this range, the mid-40 bp range would cover everything. Of course, in the future, on a short-term basis, there could be some unforeseen circumstances, but in the current position, I believe the mid-40 bp range still stands going forward.

And I'm CRO. Let me give you overall response to the asset quality. So bank delinquency rate, yes, you said it was stabilizing. So on a group level, not only bank, but for all of our subsidiaries, including nonbank side. In terms of asset quality, I think we are seeing signs of flattening. But as you know, there's a lot of uncertainties in terms of economic outlook and also there's also other external uncertain factors, including tariff situation.

So in terms of now the prices and the current policies again are all uncertain. So the flattening, whether it will go down further, I think it's only to make any judgment. So fourth Q up to the first Q of next year, we just have to wait and see. So we will maintain the current trend up to that time, then I think the result will be positive. That's our anticipation. And as you know, on the banking side, on the banking sector, in Korea, we are one of the relatively best in terms of asset quality. So we will try best to maintain that.

Yes, I'm CFO of the Bank. So if I may add on a response to the CRO. So for Shinhan Bank, when it comes to asset quality, up to a few years ago, among the top 4 banks in Korea, we were actually falling a bit short. So asset quality, of course, is very important, while continuing growth is also important.

So we have made various efforts for asset quality, like credit risk system, the management, the portfolio level. And as a result, among the top 4 banks, delinquency and other things are very much staying positively. But as the CRO stated, asset quality or delinquency rate, whether it has become stable, it's too early to say.

But flattening, it seems to be continuing, but I think we need to keep our guards up. So within first half of next year up to that period, we have to keep close tab on the asset quality and manage it tightly. Additionally, on the banking side, the credit cost, we are managing on the bank level also. So on the fourth Q, when it comes to credit cards, we will implement more prudent policies. That's my opinion. Thank you very much.

So my -- I'm Card CFO. So the card delinquency ratio, we look at on a monthly basis and keeping close tabs on it. So we also look at the new loans that become delinquent. So it peaked in 0.45%, but it improved to 0.41% in September because of the public relief fund that you talked about that increased small merchant sales, thereby improving the overall finances of the small merchants.

But going forward, the government will continue to support small merchants and self-employed. So we have to keep a close watch on that. For example, in the past, for a small merchant, low interest rate lending, they said they will put about KRW 10 trillion toward that. So if the policy continues, in the pandemic era, that also improved the situation. So we think that will be something we will also see here also. Thank you.

Thank you very much. I hope that has answered your questions, and we will take the next question. [Operator Instructions]

So there are -- yes. Yes, there is a question. From Hanwha Securities, we have Kim Do Ha.

I'm not sure whether it is a question that would have a specific answer, but I would just like to get your thinking about these topics.

So now look at the slides, for the first time in a while, I could see that the interest spread. So it was rising by 3 bp. So from last May to this year, then we see that the interest rate was falling, but then it seems as if considering the circumstances, you were able to really defend the margin. Now then for next year, then if this is the trend, then we need to think about a higher margin next year?

And also it seems as if the securities performance is also very good. So then in terms of the resource allocation for next year, then I wonder whether the shareholder return increasing, whether that will be the end all? But then for example, if the margin is going to be better or if the securities profitability is better, then perhaps you can allocate more for growth? So yes, I know that this is a question that defies an easy answer, but then I was just wondering what the group is thinking. So that is all.

Thank you very much for the questions. And yes, please give us a moment to prepare our response.

Thank you very much for the question. And yes, the question that you have raised is actually what we have been thinking for quite some time. So first of all, about the interest spread. Now this is what I would think. So first of all, the policy rate was cut twice this year and then also for the year, then we believe that there is going to be one more cut. And then now we see that, yes, gradually, the interest rate is falling. But then when we look at the market rate, then looking at the usage and also in Korea and then also the FX, so considering other circumstances, then the interest rate taking a clear fall is not really for certain. So that is something that we needed to consider. So yes, the margin perhaps compared to what we have thought last year, the margin did not fall as much as we had expected.

Now that is for the short term, but then now for the longer term then both in the U.S. and Korea, then at least 50 bps or even more than 70 bps. So the prevalent view is that it is going to fall by over 70 bps. So then for the longer term, the interest rate is likely to come down. So then looking at the profit and loss for the end of September, then we can see that the interest rate increase was much lower than the overall revenue increase. So right now, we are just defending the interest income, but then over the long term, we believe that the interest income is likely to fall. So we need to be more conservative about this outlook.

On the other hand, what we are more positive about is now on one hand, yes, there is the capital market and also the noninterest income, which is doing much better. So for example, brokerage and also the IB, so the noninterest income is actually quite sturdy. So those are also the areas, the businesses where we must have in order to keep growing. So we will continue to encourage that.

But then in terms of the resource allocation, as I have mentioned earlier, basically, in terms of the allocation for growth, now compared to this year for next year, then rather than in the bank, the allocation would be heavier for the capital market is the direction for next year. But then again, in terms of the allocation for the growth then, now in terms of the shareholder return policy, so we have already stated the target for the shareholder return. So we will keep to this commitment. But then now the ROE continues to improve, but then also compared to the COE that we have, then it is still lower. So again, we will be flexible about this. But again, overall, the direction is to follow the plan for corporate value enhancement.

And then also for the asset growth because the nominal growth is very low. So I mean there is a limit to how much we can pull this up. So in terms of the resource allocation, we will remain with the current framework. But then now in terms of the specific allocation, there could be more -- a bit more allocation to the capital market to be in line with the market circumstances. That is all. Thank you.

Thank you. I hope that has answered your question, and we will take the next question.

So next is Kim Jiwon from DAOL.

So CET1 ratio is my -- about -- my question. So it seems the lending side has grown. So as you said, RWA, it's relative though on the household lending, and you said that will be in alignment with government policy. But as being higher on the corporate side, you said that there will be more growth. And for us, RWA overall management strategy, how is going to see that going forward? And is there any factors where you could grow CET1 ratio further -- CET1 ratio further going forward?

Please wait as we prepare an answer to your question.

So RWA and also the future directionality of the -- that. So RWA, we have grown slightly in the Q3. So it looks -- it's higher than the first half. But if you look at the ratio of the growth compared to the previous year, it's still on the lower side. So on the third Q, RWA has grown slightly, but on a yearly basis, compared to the initial expectation of its growth, I think it will be lower than the expected. And going forward, the RWA growth rate, the recurring growth rate would stay on the path of the [ current ] year.

And internally, if you take a deep dive for the household lending for the second and third Q because there was high market demand. However, due to regulatory environment now, household lending, I do not think, can grow further. Then on the corporate side, there will be the growth driver for us. But as you know, relatively speaking, corporate side, we have also allocated resources a lot in this area. So the corporate loan in terms of the share will grow, but it will be managed with the overall framework that we have.

And in terms of CET1 ratio, compared to last year, this year, the level is a bit higher. So due to various variabilities that is anticipated, we increased it a bit. CET1 ratio, it's not always high being the better. So in terms of capital efficiency, the current mid-13% range is the adequate level. But by Q4 seasonality, there will be less earnings given so it will dip a bit from the current level. But on a yearly basis, we said the base will be 13.1%, but it will be managed in a higher level than that. Anyway, the CET1 ratio be it in the asset growth or it's a key in the shareholder return policy. So we maintain the base, but would also give a lot of buffer so they can be managed on a stable level.

Thank you very much for the response, and we will take the next question. [Operator Instructions]

So there are currently no questions requested. So it seems as if there are no further questions. And then with that, we will conclude the 2025 third quarter earnings release conference call by Shinhan Financial Group. You can find today's presentation at our web page as well as the Shinhan Financial Group IR YouTube channel. If you have any further questions, then please contact the IR team. And we will see you again in February next year for earnings release for the year of 2025. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]