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Thank you for taking part in the Hana Financial Group Business Results Presentation. I am Lee Jung-hoon, IR Team Leader at Hana Financial Group. Thank you shareholders, analysts, and other market participants, who are joining in today's earnings release via phone or the Internet.

Let us now begin the 2017 first half Hana Financial Group business results presentation. Let me first introduce the group management who are here with us for the business presentation. First, from Hana Financial Group, we have Vice Chairman, Kim Byoung-ho; our CSO and CFO, Kwark Cheol-seung here with us; also we have our CRO, Hwang Hyo-sang, who is here with us.

Next, from KEB Hana Bank, we have our EVP in charge of Planning and Management Group, Lee Seong-yeol; and from Hana Financial Investment, SEVP of Management Support division, Lee Sang-hun; lastly from Hana Card,

Management and Strategy division, EVP and CFO, Song Jong-geun is here with us.

Today's agenda will consist of introductory remarks from our Vice Chairman, followed by our CSO and CFO, Kwark Cheol-seung, business results presentation, and then a Q&A session via phone. First, we will hear introductory remarks from our Vice Chairman, Kim Byoung-ho.

Investors, analysts, it's great to be here. I am Vice Chairman, Kim Byoung-ho. Thank you very much for your keen interest in Hana Financial Group, despite the hot weather, and I know that many of you are on pleasure trips for the summer, but thank you very much for your interest.

I believe that we have great earnings because of your great interest, and we will try our best to repay our thanks for your interest. There were many financial market sensitivities heightening in Q2, due to external politics and policies including – many central banks, including the ECB, implying the possibility of monetary fund tightening.

In the case of Korea, the overall financial market environment is rapidly changing, including the launch of Internet-only bank. Even in this situation, we are happy to announce stable business results, exceeding KRW 1 trillion for this half year. It is with great pleasure that I am able to deliver these results. Most of all, the results of Hana Financial Group are not a one-time result, it is a fruit of our meticulous plans.

So, from the point of view of the group portfolio, SME and SOHO share of the loan portfolio has been adjusted, and we have also expanded the share of core low cost funding, and we started to see the improvement in margins as well. So, the adequate pricing management of the interest earning assets and liabilities has been strengthening. So, this had led to sustain the profitability enhancement.

And with regard to the risk management, now up until last year, I know that you've had concerns about us, but all of our legacy issues have been resolved. And in the first quarter, DSME related provisioning, even if we have to include that, we are within the annual target range of our credit cost ratio. This testifies the fact that our risk management framework is indeed solid.

And with regards to the SG&A, because of the integration during the year before last year, there were some costs related to human resource restructuring, but that has been resolved. And so, we have been able to lay the foundations for stable management of SG&A. And so, the synergistic effects that we have been talking about, that is now being realized, and the sustainability also is something that we can be firmly convinced of.

During the second half as well, we're expecting highly unpredictable financial environment to unfold, but we ensure that stable profit growth continues. We will closely assess the domestic and overseas financial markets, based on which an optimized strategy for sustained growth is devised and implemented. I assure you that each and every one of us at Hana Financial Group will do our very best to repay the immense support and interest that you have shown us with concrete business results.

A more detailed presentation on the business performance will be delivered by our CFO, Cheol-seung Kwark.



Thank you very much. Now, I would like to invite Hana Financial Group 2017 business results presentation given by SEVP, CFO and CSO, Kwark Cheol-seung.

Greetings investors and analysts, I am SEVP, Kwark Cheol-seung, also CFO and CSO of Hana Financial Group. Let me now cover the 2017 first half business results.



P 3. 2017.1H Financial Highlights (1)

First, the group's 2017 first half major highlights. Please refer to page 3.

Hana Financial Group 2017 first half net income posted KRW 1.031 trillion, a 30.5% increase Y-o-Y, and recorded the highest half year net income since the first half of 2012. In addition, Q2 net income posted KRW 538.9 billion, a 9.5% increase Q-o-Q, and recorded the highest quarterly earnings again following the previous quarter.

The following are the major characteristics of the first half business results. First, despite the 12.0% Q-o-Q ordinary operating income decreasing following the drop in the disposition valuation gains in Q2 caused by the won depreciation, NIM improved by a great margin following the previous quarter with the favorable interest environment and active portfolio adjustments. With profitability based on sound loan growth and consistent fee income increase, group's core earnings consisting of interest income and fee income grew 8.1% Y-o-Y, continuing the stable income growth.

Second, with the group's continuous and preemptive risk management efforts, there was continued downward stabilization of normalized provision for loan losses, leading to the cumulative credit cost ratio recording 42 bp, a large improvement Q-o-Q, excluding the DSME-related provisioning impact in Q1, the cumulative credit cost ratio recorded 14 bp in end Q2. On the both right of the page, group's ROE and ROA, each recorded 9.11% and 0.63%, respectively, and the group's Cost-to-Income Ratio posted 49.6% for the half year, showing that the group's normalized fundamentals are strengthening. The group's major business indicators are improving following the previous quarter.

P 4. 2017.1H Financial Highlights (2)

Next, please turn to page 4. First, the NIM.

Group's 2017 Q2 NIM consisting of KEB Hana Bank and Hana Card, posted 1.92%, a 6 bp increase Q-o-Q. The major background behind the NIM increase was favorable interest environment, following the previous quarter focus on strengthening loan deposit pricing management, consistent portfolio improvement, and expansion of core low cost funding or LCF, and through other policy efforts.

Accordingly, interest income posted KRW 2,449.9 billion, a 5.9% increase Y-o-Y and 5.5% increase Q-o-Q, respectively. Fee income as a result of balance growth in all items following the previous quarter, venturing on credit card fees and asset management fees, grew 13.9% Y-o-Y and 1.4% Q-o-Q, and recorded KRW 985.4 billion. Bank loans in won on the right side of the page shows a 2.3% increase compared to last year and a 1.7% increase Q-o-Q.

Sound growth is continuing from the previous quarter, attributable to the growth trend of highly profitable loan items entering on SOHO loans and household loans.

P 5. 2017.1H Financial Highlights (3)

Now, please refer to page 5. First, our provisioning for loan losses.

The cumulative credit cost ratio in Q2 end posted 42 bp, a 30 bp drop Q-o-Q. On the other hand, excluding the DSME provisioning impact in Q1, the normalized loan loss ratio is at the 14 bp level. In particular, the loan loss provision in Q2 posted KRW 76.7 billion, the lowest in a quarterly basis since the acquisition of KEB Bank. Group's NPL ratio as of end 2017 Q2 end posted 0.80%, a 9 bp drop Q-o-Q. Delinquency ratio reported 0.46%, a 7 bp drop Q-o-Q. Overall asset quality indicators are maintaining downward stability and showing soundness as a result of stable earnings growth, trend follwing the previous quarter, the CET1 ratio is expected to post 12.59%, a 18 bp rise Q-o-Q, maintaining a stable level and improvement.

P 7. Group Consolidated Earnings

Next are the group's consolidated earnings in more detail. First refer to page 7. The group's consolidated P&L statement.

First, the group's general operating income. Interest income among the 2017 first half general operating income continued sound loan growth trend, following the previous quarter. As a result of the NIM increase, group's general operating income posted KRW 2,449.9 billion, a 5.9% Y-o-Y and 5.5% Q-o-Q increase.

First half fee income posted KRW 985.4 billion, centering on credit card fee income and asset management-related fee income. All items showed balanced growth going up 13.9% Y-o-Y and 1.4% Q-o-Q. First half disposition and valuation gains went down 10.2% Y-o-Y and 81.7% Q-o-Q. This was mainly caused by the tapering-off of the one-off FX translation effect, which took place in the previous quarter and the KRW 44.9 billion of non-monetary FX translation losses due to the weak won in Q2.

SG&A rose 4.0%, a slight Q-o-Q increase with the bank performance linked compensation paid out in Q2, but with the bank's integrated synergy acceleration and group's wide cost cutting efficiency efforts, SG&A went down 6.0% Y-o-Y and it's being maintained at a stable level. First half provisioning, despite the large amount of provisioning related to DSME in Q1 went down 7.8% Y-o-Y and 80.7% Q-o-Q. In particular, the amount of provisioning in Q2 recorded KRW 81.7 billion, the lowest level since the acquisition of KEB and the amount of normalized provisioning is continuing the downward trend following the previous quarter.

P 8. Business Results of Subsidiaries

Next, please turn to page 8 for our subsidiaries income.

Group's major subsidiary, KEB Hana Bank's 2017 first half net income posted KRW 998.8 billion, a 25.0% increase Q-o-Q. Despite the DSME provisioning impact in Q1, bank recorded the highest level of earnings after the bank integration. Group's major subsidiary, Hana Card's net income in the first half recorded stable growth trend and posted KRW 75.1 billion, a 93.6% increase Y-o-Y. It also recorded the highest earnings since the Card integration.

In the case of Hana Financial Investment, despite that the DSME corporate bond related one-off valuation losses, the first half net income with the consolidated tax payment impact results in Q2 and with the fee income increase following the bullish stock market posted KRW 58 billion, a 73.8% increase Y-o-Y. Please refer to the material for other subsidiary information.

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

From page 9 to 11, you'll find more details about the NIM, non-interest income, and SG&A explained previously. Please refer to the presentation materials.

P 13. Group Total Assets / Total Liabilities & Equity

Next on page 13, the group's total assets, liabilities and capital.

As of the end of Q2 2017, the group's total assets were KRW 349.1 trillion and when the group's trust assets of KRW 94.4 trillion is included, then the total assets come to KRW 443.5 trillion. Among the group's total assets, the main subsidiary, KEB Hana Bank's total assets, including its first assets are KRW 360 trillion, because total liabilities are KRW 324.8 trillion and shareholders’ equity KRW 24.3 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

Next, on page 14, KEB Hana Bank's loans and deposits in won. As of the end of Q2 2017, KEB Hana Bank's loan in Korean won is up 2.3% YTD, and up 1.7% Q-o-Q to reach KRW 182.9 trillion. If we break down the loan growth by segment, loans to large companies is KRW 14.9 trillion, and down 2.6% YTD and loans to SMEs is KRW 70.1 trillion, up 5.4%, showing a sustained growth driven by SOHO loans.

Household loan is KRW 96.2 trillion, and during the first half, despite the KRW 4.8 trillion transferred to KHFC on the back of growing group loan demand solid growth continued from the previous quarter to grow 1.1% YTD. In the second half as well, we will continue to closely watch the regulatory changes and interest rate movements to focus on stable asset growth based on strong asset quality and profitability. Deposits were up 0.5% YTD and up 2.8% Q-o-Q to reach KRW 210.7 trillion, especially, among the deposits in Korean won the low cost deposits are up 5.2% YTD, while time deposits rate grew only 2.5% YTD, demonstrating a sound funding structure. For your information, as can be seen from the lower right-hand graph, LDR for the first half of 2017 is 97.8%.

P 16. Group Asset Quality

Next page 16, group's asset quality. Group’s total loan is KRW 241.2 trillion, up 1.9% as of the end of Q2 2017. NPL amounted KRW 1.9 trillion. New loans fell Q-o-Q, but as a result of the decline in the amount of NPL reclassified as precautionary and above in Q2, the new NPL amount grew KRW 50 billion Q-o-Q. Meanwhile the total NPLs fell 11.1% YTD, owing to an increase in write-offs in sales are showing stable downward trend. As such, the NPL ratio for Q2 2017 is 0.80%, down 12 bp YTD, maintaining a stable level.

Excluding the loan loss reserve subject to the regulatory revision applied at the end the 2016, the NPL coverage ratio is up 2.0%p YTD to reach 84.4% at the end of Q2 2017. If you look at the upper right-hand side of the slide in

Q2, the group's new NPL increased – the total NPL before write-off sales and debt to equity swap is KRW 162.9 billion. The asset quality of the bank will be explained to you in more detail on the next page.

P 17. KEB Hana Bank Asset Quality

Next on page 17, KEB Hana Bank's asset quality.

KEB Hana Bank's total loans as of the end of Q2 2017 is at KRW 214.6 trillion, up 1.8% YTD and NPL is KRW 1.5 trillion, down 13.0% Y-o-Y. As such, the NPL ratio is 0.72%, down 12 bp YTD, and the NPL coverage ratio is 74.4%, up 1.6 %p YTD.

KEB Hana Bank's delinquency ratio as of the end of Q2 2017 is 0.33%, down 8 bp Q-o-Q showing a stable downward trend.

P 18. Provision Analysis

Next, on page 18, provisions.

As I've mentioned before, on a cumulative basis, the percentage of Q2 2017 credit cost ratio is 42 bp, but if the one-off provisioning related to DSME that occurred during Q1 is excluded, the group's recurring credit cost ratio is 14 bp. In particular, during Q2, the loan loss provisions were KRW 76.7 billion, posting the lowest on a quarterly basis since the acquisition of KEB Bank.

In the case of a credit cost ratio of KEB Hana Bank, following Q1, the stable downward trend continues, recurring credit cost ratio is 5 bp, down 32 bp Y-o-Y, maintained at a healthy level. As can be seen from the lower half of the slide, the gross provision in Q2 is KRW 81.7 billion, down KRW 7.8 billion Y-o-Y and 80.7% in Q-o-Q and continuing the stable downward trend from Q1.

Going forward, we will continue to do our best to manage our risks so that provisioning amount can be maintained at a stable level.

P 19. Capital Adequacy

Finally page 19, capital adequacies.

As of the end of Q2 2017, the group's BIS ratio, Tier 1 ratio and CET 1 ratio are expected to stand at 14.82%, 13.13% and 12.59%, respectively, and continue to improve. This owes itself to sustained efforts made by the group to manage risk weighted assets on the back of improving earnings; we will continue to endeavor to keep on enhancing the capital ratio.

For more details on the business results of the subsidiaries, please refer to the appendix.

With this, let me conclude the 2017 first half Hana Financial Group earnings presentation. Thank you very much.