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Greetings to all participants in the Hana Financial Group Business Results Presentation. I am Lee Junghoon, the Head of IR at Hana Financial Group. I would like to express my deepest gratitude to all shareholders, analysts and other market participants who are joining us via phone and the internet despite your busy schedules. We're now going to begin the 2019 business results presentation.



I would like to introduce our group executives who are here with us today.



First, from Hana Financial Group, Group CFO and Deputy President, Lee Seung-Iyul is here with us. And we also have with us Hwang Hyo-sang, who is our CRO and Deputy President. Next, from Hana Bank we have Senior Executive VP of Planning and Management Group, Lee Hoo-seung; from Hana Financial Investment, Deputy President of Management Planning Group, Lee Sang-hoon is here with us. Last but not least, from Hana Card we have Management Strategy Division Head, Kwon Tae-gyun.



We will first hear from our CFO and Deputy President, Lee Seung-Iyul, regarding the business results presentation and then have a Q&A session via phone. I would like to invite our CFO, Deputy President, Lee Seung-Iyul, who will walk us through the Hana Financial Group 2019 annual business results.



Greetings. I am Lee Seung-Iyul, CFO and Deputy President of Hana Financial Group. I would like to cover the 2019 annual group business results presentation.



P 3. 2019.4Q Financial Highlights (1)

First, the major business highlights of the group. Please refer to Page 3 of the material.



Hana Financial Group's 2019 annualized net income grew 7.8% YoY, posting KRW2.4084 trillion. Last year with the continued trade conflict between the U.S. and China, the base rate was cut twice due to concerns about domestic economic downturn, with sizeable one-off expenses including FX translation losses on the back of KRW-USD FX rate increase and ERP costs. Domestic and global business environment uncertainty heightened, however, along with the core earnings growth, normalized credit cost and SG&A expenses were managed stably and the group's fundamentals improved. The aforementioned one-off expenses were offset by the one-off gains, including gains from sale of the Myeong-dong building, and we were able to achieve the performance target that was established early this year. In 2020, with the worsening global economic circumstances, difficult economic environment is expected to continue with trade slowdown and expansion of financial market volatility. However, we will do our best to post performance that meets the market expectations by strengthening normalized earnings generation capability. For your reference, Group's Q4 net income posted KRW367.2 billion and dropped QoQ following the recognition of various one-off items. However, the normalized quarterly income maintained a solid level of KRW500 billion, similar to the same period in the previous year.



I would like to go through the major highlights of the 2019 annualized business results presentation.

First, as aforementioned, the group's core earnings grew YoY. The two domestic base rate cuts led to a NIM decline, but on the back of solid growth of loan assets, the group's interest income was able to grow YoY. Fee income also grew YoY, centering on the M&A and advisory fees and loan and FX related fees, and posted a solid growth rate YoY. Accordingly, the group's annualized core earnings reached for KRW 8.030 trillion, a record high level since the holdings group was established, like the high net income which was record high as well.

Moreover, as a result of the continued group-wide active efforts to improve asset quality, despite the unfriendly external environment including the decline of the local and global economic growth rate, the 2019 end group credit cost ratio posted 18 bp, a similar level YoY. This was caused mainly by the stable management of normalized loan loss provisions as well as the write back of one-off provisioning related to some large corporate loans. Even excluding these one-off write back items, the annualized cumulative credit cost ratio posted around 21 bp, a stable level compared to the business plan.



On the other hand, the 2019 group SG&A posted KRW 4.174 trillion, a 5.8% increase YoY. The cumulative SG&A until Q3 was managed soundly below KRW3 trillion, but around KRW151 billion of expenses was additionally recognized in Q4 due to factors including pre-emptive salary peak ERP and exceeded KRW4 trillion, which was our annual performance target. However, excluding this expense, the group's annualized SG&A posted around KRW4.020 trillion and posted a similar level to the annual target even reflecting the KRW126 billion of salary peak ERP expenses, which took place in Q1 of 2019. Normalized SG&A expenses was managed efficiently, thanks to the group wide cost-cutting efforts.



Looking at the bottom left of the page, the group's ROE and ROA at the end of 2019 posted 8.78% and 0.60% respectively. The group CI ratio is slightly exceeding to 50%, but has improved YoY and has achieved four consecutive years of declined. Excluding the additional salary peak ERP expenses in Q4, the CI ratio posted 48.9% which met the goals set forth early in the year showing improved cost efficiency.



P 4. 2019.4Q Financial Highlights (2)

Please refer to Page 4.



The group comprised of Hana Bank and Hana Card in 2019 Q4 NIM posted 1.68%, a 4 bp drop QoQ. Hana Bank's NIM posted 1.41% and with the impact of the sudden market interest rate drop which continued until Q4, the loan deposit pricing weakened and dropped 6 bp QoQ. On the other hand, in the case of credit card NIM, on the back of increased credit card transactions, there was a recovery QoQ, and partially offset the Bank's NIM drop. With the market interest rate slightly rebounding in Q4, downward pressure on NIM slightly lessened. However, since there is additional anticipation for BOK base rate cuts to stimulate the Korean economy, we will continue our efforts to improve our profitability centered portfolio.



The group's Q4 interest income slightly decreased QoQ with the Bank NIM decline, but grew 2.4% on an annualized cumulative level. On the other hand, the Q4 fee income with a sharp increase in M&A advisory fees and increase of credit card transactions leading to credit card fee income improvement rose 9.6% QoQ and grew 1.5% on an annualized cumulative level. In particular, taking into account the base effect from last year when around KRW66 billion of variable pension initiation fee line item changed from other operating income to other fee income, the normalized fee income increased around 4.6% YoY.



On the right side of the material, Bank's loans in won, with the balanced growth of household and corporate loans continued and posted KRW218.4 trillion, a 1.8% growth QoQ and 7.8% YoY growth.

P 5. 2019.4Q Financial Highlights (3)

Next let's go to Page 5.



The group's NPL ratio at the end of 2019 posted 0.48%, and dropped 11 bps YoY. In addition, the delinquency ratio posted 0.30%, 7 bps drop YoY. And on the back of the group-wide risk management efforts, the overall group's asset quality indicator stable downward trend continued.



Cumulative credit cost ratio rose 0.18%, a 1 bp increase YoY. Despite the preemptive additional recognition of loan loss provisioning in Q4, including provisioning to adjust the risk component, as aforementioned on the back of stable management of normalized provisioning and some large corporate loan for provisioning write back, the annualized cumulative credit cost ratio was maintained at a sound level. Since there are possibilities of trade environment worsening with the local and global uncertainties in 2020, we will continue to strengthen asset quality management.



The group CET1 ratio as of end 2019 is expected to post 11.95%, 24 bps decline QoQ. A major reason was the decreased of the CET1 capital with the year-end dividend. And other than this, in Q4, there were various one-off expenses recognized, including salary peak ERP with the Bank subsidiary overseas capital investment equity fair value evaluation and RWA increase following the asset growth, the capital ratio decreased QoQ. However, taking into account the preemptive expense execution which has been completed in 2019, we expect normalized quarterly earnings to be posted this year, and that the overall capital ratio will gradually recover.

P 7 Group Consolidated Earnings

Next, I would like to explain in more detail about the group's business results. Please refer to the group's consolidated earnings statement on Page 7.

Interest income among the general operating income in 2019 posted KRW 5.774 trillion. Despite the decline of the NIM it grew 2.4% YoY on the back of solid loan assets.



Fee income also posted a solid growth rate YoY and posted an annualized KRW 2.257 trillion. The group's IB competitiveness strengthened, and with the efforts to improve positive cyclical cooperation between subsidiaries bearing fruit, M&A advisory fees increased 48.4% YoY and loan and FX related fees grew 10.2% YoY, and maintained a continuous growth trend. In the case of credit card fees, on a yearly basis there was a slight drop YoY due to the merchant fee rate decline. But on the back of seasonal credit card transaction increase in Q4, there was a 9.4% increase QoQ and a partial improvement of earnings took place.



Next group disposal and valuation gains in 2019 posted a sharp increase of 110.8% YoY and posted KRW796.4billion, due to the FX rate increase around KRW76 billion of FX translation losses took place. However, this was mainly due to around KRW228 billion of one-off derivative gain recognition caused by factors including the stock price increase of the company that we invested in after signing the Vietnam Equity Investment contract. Excluding the aforementioned one-off gains, the annualized disposition and valuation gains has reached the level of around 50% increase YoY. It posted a growth trend on the back of the group's overall improvement of the group's securities management performance and valuation gains following the market interest rate drop. Lastly, the group's annualized SG&A posted KRW 4.174 trillion, and grew 5.8% YoY. As aforementioned, the normalized expenses were efficiently managed within the business plan scope, but with the greatly sizable additional execution of salary peak ERP expenses in Q4, following the Q1 execution, the nominal based SG&A slightly exceeded KRW4 trillion. However, with the preemptive execution of sizable salary peak ERP, we expect salary expenses to go down, and accordingly we project 2020 annualized SG&A related expenses to slightly decrease compared to expectations.



Before I discuss the net income of subsidiaries, I would like to briefly explain about the group's one-offs in Q4 other than the salary peak ERP and gains from BIDV investment that I just mentioned. There were additional expenses that had been executed to hedge against the uncertain business environment in 2020 and onward. First of all, after revaluation of the book value of Hana Bank's investment in CMIG leasing, we recognized an impairment loss of KRW136 billion. We also set aside provisions of approximately KRW35 billion against the company's loans. We had preemptively recognized the expense up front, regardless of whether its mother company CMIG will normalize or not, thereby limiting the possibilities of additional cost incurring regarding CMIG leasing. At the same time, we have set aside reserves for the DLF compensation up to KRW160 billion. Amidst the highly volatile financial market, we have set aside the reserve conservatively, factoring in the possibility that the value of the underlying asset may fall further before maturity. Going forward, we expect to relieve the uncertainties by completing the payment of compensation with the reserve we have set aside.

P 8. Business Results of Subsidiaries

And now on Page 8, net income of subsidiaries.



The group's major subsidiary, Hana Bank, recorded a net income of KRW 2.157 trillion in 2019, up 3.4% YoY. One-off gains, such as disposal gain of the Myeong-dong building and gains from BIDV investment were offset by the preemptive expenses such as salary peak ERP, and reserves for DLF compensation. Still, the largest income in the history of the merged bank was possible on the back of increased core earnings and stable provisioning management.



Hana Financial Investments net income for the year increased 84.3% YoY to KRW280.3 billion. The 2018 capital increase helped boost the recurring fundamentals of the subsidiary and we are seeing visible improvement in the overall performance, such as the M&A advisory fee increase of 55% YoY. As a result the non-bank subsidiary's contribution to the group's earnings increased from last year's 19.7% to 21.9% in 2019.



Due to the lowered merchant fees, Hana Card's net income in 2019 decreased 47.2% YoY to KRW56.3 billion, and that of Hana Capital decreased 10.5% YoY to KRW107.8 billion. Please refer to the slides for other subsidiaries results.

P 9. NIM, P 10. Non-Int. Income, P 11. SG&A Expenses

And also, please refer to pages 9 through 11 for the NIM non-interest income and SG&A details.



P 13. Group Total Assets / Total Liabilities & Equity

Moving on to Page 13, group's total assets, liabilities and equity.



As of year-end 2019, the group's total assets stand at KRW422 trillion or KRW541 trillion if the group's trust asset of KRW119 trillion is included. Hana Bank's assets, inclusive of trust assets, stand at KRW436 trillion. The group's total liabilities are KRW393 trillion and total equity KRW29 trillion.



P 14. KEB Hana Bank KRW Loan / Deposit

Hana Bank's loans in KRW deposits on Page 14.



As of year-end 2018 Hana Bank's loans in won is KRW is KRW218.4 trillion, up 1.8% QoQ and up 7.8% YoY.



Breaking down the loan growth by each item, corporate loans increased to KRW103.6 trillion, up 7.7% YoY. Of these, the large corporation loans recorded KRW13.6 trillion, down 6.5% YoY, continuing the downward trend from Q2. SME loans showed a robust growth recording KRW87.9 trillion, up 10.3% YoY, thanks to the growth strategy focusing on sound SMEs.



In the household loans, Jeonse loans continued to increase, and with the improvement in credit loans, thanks to the Hana 1Q Credit Loans launched in June, household loans increased to KRW114.8 trillion, up 7.8% YoY.



Deposits in KRW in 2019 rose 8.7% YoY to KRW230 trillion. Low-cost core deposits and time deposits increased by 13.3% and 11.2% respectively YoY, increasing the share of low-cost deposits in the mix to 33.6%. As can be seen from the graph on the bottom right, the LDR in 2019 is 94.4%.



P 15 Hana Bank Loan Composition

Please refer to Page 15 for Hana Bank's loan breakdown.



P 17 Group Asset Quality

And now Page 17, group's asset quality.



The group's total credit grew 8.6% Y-o-Y to KRW286.5 trillion, and the amount of NPL fell 12.5% YoY to KRW1.4 trillion. This brought down the group's NPL ratio to 0.48%, down by 11bp YoY.



On the top right, you see the group's new NPL formation prior to sale and write-off and debt equity swap in Q4 was KRW259.4 billion. In the previous quarter, with the upward adjustment of some of the large corporation exposure ratings, they have been taken out of the NPL category, and with the base effect no longer present, new NPL increased to the level of the same period last year.



P 18. Hana Bank Asset Quality

Bank's assets quality on the following page, Page 18.



The Bank's total credit rose 7.5% Y-o-Y to KRW249.3 trillion and NPL decreased 19.2% to KRW1 trillion. This lowered the NPL ratio to 0.39%, a 13 bp decrease YoY. And the NPL coverage ratio at the end of 2019 was up 2.6%p at 94.1%.



The Bank's delinquency ratio as of year-end was 0.2%, down 5 bp YoY, continuing to record the lowest as the previous quarter in the history of the financial holding company. Both household and corporate loan delinquency ratios were down by 3 bp and 6 bp each, maintaining a stable delinquency ratio.



P 19, P 20. Provision Analysis

Pages 19 and 20. The group's 2019 credit cost ratio was 0.18% and Hana Bank's credit cost ratio recorded 0.05%.



The group's BIS ratio and Tier 1 ratio are estimated at 14.17% and 12.97% respectively in Q3. The group's CET1 ratio is expected to record 12.25%. As was mentioned in the beginning, the capital ratio fell QoQ due to some one-offs, such as policies for securing profit base and shareholder return. However, they are managed at an adequate level on a recurring basis and we will continue to do our best to enhance capital efficiency and shareholder value based on the improved and stable business results.





P 21. Capital Adequacy

Lastly, capital adequacy on Page 21.



The group's BIS ratio and Tier 1 ratio are estimated at 13.94% and 12.66% respectively in 2019. And as for CET 1 ratio, we expect it to be around 11.95%. The capital ratio is lower than the previous quarter, due to the shareholder return policy and one-off factors. But we have more than enough to fulfill the capital requirement and we will do our best to manage capital efficiency by improving the business results.



For your reference, the Hana Financial Group's BOD resolved today that the cash dividend as of the year-end shall be KRW1,600 per share. If it is passed as is at the General Shareholders Meeting, the year-end cash dividend per common share is KRW2,100, adding the interim dividend of KRW500 already paid out. The annual payout ratio is expected to be 25.6% and dividend yield ratio to be 5.7%. The total shareholder return ratio, including the KRW300 billion of treasury buyback in 2019 amounts to 38.1%. We were able to expand shareholder return YoY, thanks to improved business performance. We will incrementally reinforce our shareholder return policy going forward by managing, in a stable manner, our business performance and capital adequacy.


This brings me to the end of Hana Financial Group's earnings presentation for the year 2019. Thank you.