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Greetings to all participants in the Hana Financial Group Earnings Conference.

I am Lee Junghoon, IR team leader at Hana Financial Group.



I express my deepest gratitude to all shareholders, analysts and other market participants, who are here with us via phone or the internet.

We will now begin the 2018 first half business results presentation.

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



First, we have here with us from Hana Financial Group, our CFO and CSO, SEVP, Kwark Cheol-seung and also CRO and Deputy President, Hwang Hyo-sang.

Next from KEB Hana Bank, SEVP, Lee Seung-ryul is here with us, and from Hana Financial Investment, SEVP, Lee Sang-hoon from Management Planning Group is here.

Last, but not least, from Hana Card, we have Division Head, Kwon Kyung-taek from the Management Support Division.

Today, we will begin with our CSO and CFO, SEVP, Kwark Cheol-seung, who will deliver our business results presentation, followed by a Q&A session via phone.

I would like to invite our SEVP, Kwark Cheol-seung to deliver Hana Financial Group's 2018 first half business results presentation.

Greetings, everyone. I am Kwark Cheol-seung, CFO of Hana Financial Group in charge of finance and strategy.

I would like to elaborate on the 2018 first half Group business results.

P 3. 2018 1H Financial Highlights (1)

First, the major highlights of 2018 first half Group business results. Please refer to page three of the material.



Hana Financial Group's net income in the first half of 2018 posted KRW1,303.8 billion, a 26.5% increase Y-o-Y and recorded the highest normalized half year earnings since the Holdings Company was established in 2005.



Core earnings also continued its growth trend in Q2 following Q1, in particular, efforts to minimize cost through synergy creation between group subsidiaries and group-wide efforts to manage preemptive risk led to positive results, resulting in the first half normalized earnings to achieve solid growth.

On the other hand, Q2 net income posted KRW635.3 billion, a slight decrease Q-o-Q, but this was mostly due to one-off FX translation losses, with the rapidly weakening Won in Q2.

Now let me cover the earnings results in more detail.



In the case of core earnings with the unstable macro environment on the back of efficiently managed NIM and sound loan interest growth, income grew steadily compared to Q1.

In addition, through strengthening the group's IB capability and cooperation between subsidiaries, overall fee income centering on M&A advisory fees also grew rapidly.

In addition, core earnings of the group in Q2 comprised of interest income and fee income, rose 4.5% compared to Q1, and based on the first half, grew 15% Y-o-Y.



In particular, through group-wide risk management efforts, the downward trend of loan loss provisioning continued through strategy based on asset quality with stable management of normalized loan loss provision and partial write-back of one-off provisioning, the cumulative credit cost posted the lowest level since the Holdings Group was established, following the previous quarter and posted 13 bp.



Lastly in the case of SG&A, following the previous quarter and in Q2, SG&A was stably managed within the yearly management plan.

Despite seasonal cost increase factors in the quarter including property tax payment, cost synergy through bank integration and Group-wide cost cutting efforts, Q2 SG&A posted a similar level from the previous quarter.



On the bottom right side of the page, you can see that the 2018 group's first half ROE and ROA posted 10.7% and 0.73% respectively.

In addition, the group's cost-to-income ratio posted 48.7%, and likewise major management indicators were stabilized and the normalized fundamentals became stronger.

P 4. 2018 1H Financial Highlights (2)

Please refer to page 4. First, the NIM.



The Group's 2018 Q2 NIM, comprised of KEB Hana Bank and Hana Cards, posted 1.99%, the same as the previous quarter's NIM.

The margin improvement continued through strengthening the loan-to-deposit pricing, but with the loan repricing effect, reflected following the base interest rate hike in November of last year and some one-off factors including the interest settlement for tailored loan product to support vendors of large corporation, the NIM maintained the level of the previous quarter.



In the case of core earnings in Q2, as aforementioned, it recorded strong growth trend.

Based on loan asset growth, Q2 interest income posted KRW1,402.4 billion, a 4.7% increase Q-o-Q, and based on the first half of 2018 posted KRW2,742.0 billion, a 12.2% increase Y-o-Y.



Q2 fee income centering on M&A advisory fees continued to achieve balanced growth, following the previous quarter and posted KRW613 billion, a 3.9% increase Q-o-Q. First half fee income posted KRW1,203.1 billion, a 22.1% increase Y-o-Y.

With the aforementioned, continued stable growth trend, interest income and fee income, all achieved a record high group results on a half-year and also in quarterly basis.



Looking at the bottom right-hand graph on the material, bank loans in Won at the end of Q2 increased 2.2% Q-o-Q and 4% compared to the last year end of YTD.

Household loans including Jeonse and collective loans continue to grow and reflected solid growth in Q2 with SOHO loans and large corporate loans centering on sound mid-sized companies leading the growth.

P 5. 2018 1H Financial Highlights (3)

Next, please refer to page five.



2018 Q2 end group NPL ratio posted 0.71%, a 5 bp decline from late last quarter and delinquency ratio posted 0.40%, a 2 bp drop compared to last year end.

In addition, in the case of the group's cumulative credit cost ratio with the aforementioned downward stabilization of normalized provisioning and some provisioning write-back posted 13 bp, the lowest level ever since the Holdings Group was established.

Various asset quality indicators are being consistently stabilized through aggressive efforts by the group for risk management and asset quality improvement.



Groups Q2 end CET1 ratio is expected to post 12.87%, a 5 bp drop Q-o-Q. The main reasons were with the rise of the won/dollar exchange rate in Q2, the Bank's RWA went up approximately KRW1.7 trillion and with interim dividend,CET1 ratio slightly increased.

Excluding the aforementioned one-off factors, Q2 end group CET1 ratio is expected to slightly rise Q-o-Q and is expected to incrementally improve going forward.

P 7. Group Consolidated Earnings

I will now like to elaborate in more detail the group's business results. First please refer to page seven, the group's consolidated income statement.



First the group's general operating income. Interest income posted KRW2,742.0 billion among the general operating income in 2018 first half, and as aforementioned, interest income rose 12.2% on the back of solid loan growth.



Fee income posted KRW1,203.1 billion, and apart from M&A advisory fees there was consistent growth overall including credit card and asset management and rose 22.1% Y-o-Y.



On the other hand, first half disposition and valuation gains posted KRW156 billion a 62.1% decline Y-o-Y.

The main reasons were along with the base effect from the approximate KRW120 billion of FX translation income from the strengthening of the Won in the first half of last year.

Conversely, in Q2 this year, the Won rapidly weakened and approximately KRW93 billion of FX translation losses took place.



Lastly, first half SG&A that posted KRW1,832.0 billion, a 2.2% slight increase Y-o-Y.

The cost increase this year including Winter Olympic Games advertisement cost and others were offset with the removal effect of the Bank's performance linked compensation costs, which was a one-off in the same quarter the previous year.

Although the Bank systematized the performance linked compensation system from Q3 of last year and the unpaid performance linked compensation was additionally recognized in the first half of the year.

As mentioned previously Q2's SG&A has been adequately managed within the yearly business plan with only a 0.3% rise compared to Q1.

P 8. Business Results of Subsidiaries

And now we'll look at the subsidiaries net income on page eight, the group's major subsidiary, KEB Hana Bank recorded a net income of KRW1,193.3 billion in the first half this year, up 19.5% Y-o-Y, breaking the record for all-time high half-year results since the integration of the two banks.



Hana Financial Investment's net income on a consolidated basis in the first half increased significantly by 83.6% Y-o-Y to KRW106.5 billion on the back of stronger M&A advisory and asset management-related fees.

Q2 net income increased 54.4% Q-o-Q showing a clear performance improvement since the paid-in capital increase in Q1.



Hana Card's net income for the first half decreased 31.3% Y-o-Y to KRW51.6 billion, but this is because of the base effect deriving from the one-off gain on sale of loans in Q1.

Hana Card's Q2 net income has risen actually by 2.5% Q-o-Q and with the growth in credit sales, the card fee income has increased 9.4% Y-o-Y showing robust growth.



As for Hana Capital, whose remaining shares were purchased as of February, posted a net income of KRW56.1 billion, up 8.7% Y-o-Y.

In Q2 only the net income rose by 20.5% Q-o-Q to KRW30.7 billion due to the gain on sale of loans,and as the share acquisition effect was recognized fully starting in Q2, Hana Capital's contribution to the group's profit increased.

And please refer to the slides for other subsidiary results.

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

And the pages nine to 11 talks about the NIM, non-interest income and the SG&A details.

Please refer to them at your leisure.

P 13. Group Total Assets / Total Liabilities & Equity

And now the group's total assets, liabilities and equity on page 13.



In the first half, the group's total assets stood at KRW373.2 trillion or KRW476.1 trillion if the group's trust asset of KRW102.9 trillion is included.

KEB Hana Bank's assets inclusive of trust assets stood at KRW385.7 trillion.

The group's total liabilities are KRW347.3 trillion and total equity KRW26 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

KEB Hana Bank's loans in Won and deposits on page 14.



As of Q2 and in 2018, KEB Hana Bank's loan in Won is KRW195.8 trillion, up 2.2% Q-o-Q and 4% YTD.

Breaking down the loan growth by each item, our corporate loans increased 4.5% year-to-date to KRW93.1 trillion and the large corp.

loans showcasing on the prime companies grew 2.7% in the second quarter to KRW14.8 trillion, up 3% year-to-date.

SME loans growth became flattish in Q2, but the SOHO loans led the continuous growth momentum, amounting to KRW76.5 trillion, up 4.7% YTD.



And as for our household loans despite the recent sluggish housing market, on the back of steady demand for Jeonse and collective loans, it posted KRW102.7 trillion, up 3.6% year-to-date.



Deposits in the first half rose 3% year-to-date to KRW199.9 trillion. Core deposits grew 5% year-to-date and time deposits also grew 5.2% year-to-date along with the rising interest rates, sustaining a stable funding structure.

However, as MMDA decreased due to the dividend payout in Q2, a proportion of low cost deposits fell slightly.

As can be seen from the graph on the bottom right, the LDR in the first half is 97.7%.

P 16. Group Asset Quality

And now the group's asset quality on page 16.



The group's total credit grew 4.8% year-to-date to KRW257.8 trillion with a slight rise in the NPL sale and write-off in Q2, the NPL amount decreased to 4.6% year-to-date to KRW1.8trillion.

This brought down the NPL of the group to 0.71% down by 5 bp Q-o-Q continuing the downward trend.



The group's new NPL before sale write-off and debt-to-equity swap was KRW199.8 billion, up 6.3% Q-o-Q.

Auto component suppliers who signed up for workout programs are bankrupt.

There was increased exposure to loans that are expected to normalize in the second half and with the asset quality already sound, there was less collateral liquidation, which was usually contributing to the NPL decrease.

As for KEB Hana Bank, as the size of new bankruptcies decreased Y-o-Y and the banks NPL are managed at a stable level.

And I'll talk about the bank's asset quality in more detail on the following page.

P 17. KEB Hana Bank Asset Quality

Page 17, KEB Hana Bank asset quality.



KEB Hana Bank's total credit rose 4% year-to-date to KRW225.9 trillion and NPL decreased 6.2% to KRW1.5 trillion.

This brought down the NPL ratio to 0.66%, a 4 bp drop Q-o-Q. And the NPL coverage ratio for the Q2 end was 77.2%, a 1.1 %p drop Q-o-Q.



The bank's delinquency ratio as of quarter-end was 0.3%, a 1 bp drop Q-o-Q with the household loan delinquency ratio maintained at a stable level.

The corporate loan delinquency ratio, which had risen temporarily in Q1 due to seasonal factors quickly, came down, driving the overall downward trend in the delinquency ratio.

P 18. Provision Analysis

And now the provision on page 18.



As was mentioned, the group's credit cost ratio on a cumulative basis was 0.13% and KEB Hana Bank's cumulative credit cost ratio fell 1 bp Q-o-Q to 0.04%.

The main reason why other provision took a huge drop Q-o-Q is because of the one-off write-back due to a favorable ruling in a loan related court case.

P 19. Capital Adequacy

And lastly, capital adequacy on page 19.



The group's BIS ratio and Tier 1 ratio are estimated at 14.84% and 13.38% respectively as of Q2 end. As for CET1 ratio, we expect it to go down by 5 bp Q-o-Q to 12.87% due to the rising RWA amidst Won appreciation, but excluding the one-offs, we expect a slight rise from the previous quarter, and the group CET1 ratio is expected to incrementally increase going forward.



As part of active shareholder return policy, we have resolved, as of today, for an interim dividend of KRW400 per share.

We're committed to implementing our shareholder return policies and we'll manage group's capital adequacy, including CET1 ratio, and increase our dividend policy going forward.



Please refer to the appendix for further details and this brings me to the end of Hana Financial Group's earnings release for the first half of 2018. Thank you.