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Thank you for taking part in the Hana Financial Group Business Results Presentation.

I am Lee Jung-hoon from Hana Financial Group IR Team. I'm the Team Leader.

Thank you, our shareholders, analysts and other market participants who are joining in today's earnings release via phone or the internet.

Let us now begin the 2016 First Half Hana Financial Group Business Results Presentation.

Let me first introduce the group management who are here with us to answer your questions.

From Hana Financial Group, we have Vice Chairman, Kim Byoung-ho; Executive Vice President and CFO, Kwark Cheol-seung.

We also have Senior Executive Vice President and CRO, Hwang Hyo-sang.

Next from KEB Hana Bank, Executive Vice President, Lee Seung-lyul is here with us. Last but not least, from Hana Card, we have Executive Vice President and CSO, Song Jong-geun here with us.

First, Vice Chairman Kim Byoung-ho will deliver introductory remarks, then CFO and Executive VP Kwark Cheol-seung will lead us through the earnings release.

Lastly, we will have a Q&A session. I would like to now invite our Vice Chairman, Kim Byoung-ho for introductory remarks.

Good afternoon. I would like to thank the analysts and investors for joining the earnings call, despite your busy schedules.

As you know, Q2 was quite hectic with the domestic restructuring of shipbuilding and shipping industries, as well as Brexit-induced financial market volatility.

Uncertainty amplified feelings of uneasiness towards financial institutions in the country and it is true that the market situation was rigid overall.

Despite the difficulties and concerns, it gives me great pleasure to announce stable business results of Hana Financial Group for the first half of 2016.

Group-wide SG&A management and pre-emptive risk managements enhanced cost efficiency.

And through portfolio management and adjustment taking into consideration capital efficiency, net income exceeded the market expectations.

Rigorous efforts to improve the loan portfolio and to downsize risk-weighted assets, we were able to improve the capital ratio greatly and the CET1 ratio grew 106 bps QoQ to 11.44%.

With a stable level of capital ratio, we will be able to accommodate more flexible strategies and dividend policies and this shows the strong will on the part of the management to enhance shareholder value and maximize shareholder return policy.

The IT integration at the KEB Hana Bank level was successfully completed in June, based on which the synergy effect long overdue will hopefully soon be realized.

Unpredictable financial atmosphere persists entailing with it many uncertainties. However, we will do our best to continue with the stable financial structure, and I hope that you will continue to support us.

The CFO's presentation on Q2 earnings results will follow. Thank you.



Thank you very much. Now, I would like to invite the CFO of Hana Financial Group, Kwark Cheol-seung for business result of 2016 first half.

Greetings. I am Kwark Cheol-seung, the CFO of Hana Financial Group. I'd like to walk you through the 2016 First Half Business Results of Hana Financial Group.



P.4 2016.1H Financial Highlights (1)

First, 2016 First Half Group Financial Highlights. Please refer to page 4.

Hana Financial Group in the first half of 2016 posted KRW790 billion of net income, a 5.5% growth YoY. This was a record high half year earnings result since the first half of 2012. Q2 net income posted KRW352.1 billion, a 19.6% drop QoQ. Despite the additional loan loss provisioning caused by shipbuilding and shipping restructuring in Q2, normalized level of quarterly net income was posted.

I'd like to go into the details of Q2 Financial Highlights.

First, through the improvement of loan quality, NIM was defended despite the June BOK base rate cuts. Fee income, which was at a slight standstill in the previous quarter, increased at a relatively high rate. For profit, adding up interest income and fee income went up compared to the previous quarter.

Second, despite the additional loan loss provisioning in sectors such as shipbuilding and shipping, normalized loan loss provisioning decreased, maintaining a downward trend of credit cost ratio.

Third, group-wide cost cutting efforts continued leading to a YoY drop in SG&A. On the bottom right of the slide, first half Group ROE and ROA still sit 7.10% and 0.50%, respectively. Group's major profitability indicators including 55.5% of cost income ratio were stable.

P.5 2016.1H Financial Highlights (2)

Please go to page 5.

First, NIM. Group's 2016 Q2 NIM combining KEB Hana Bank and Hana Card went up 1bp QoQ, posting 1.81%.

The BOK's rate was cut in June, but the funding cost drop was relatively bigger than the loan yield contraction defending the NIM.

On the other hand, interest income due to the decrease of loans in won following the large corporation portfolio adjustments as well as the removal of previous quarter one-off interest income, went down 2.0% QoQ.

On the bottom right side of the chart, bank loans in won growth at Q2 and declined 0.1% QoQ and 1.7% YoY. In the first half, a total of KRW5.5 trillion of mortgage loans were sold, and large corporate loans continuously declined, resulting in a temporary minus growth of total loans in won.

However, the portfolio's improvement in quality is continuing with the increase of sound SME loan growth.

We will focus on portfolio improvement taking into account asset quality and profitability rather than aggressively increase our loan book in the second half of the year.

Fee income showed balanced growth for each category, increasing 8.9% QoQ, showing a recovery from the slowdown of the previous quarter.

P.6 2016.1H Financial Highlights (3)

Next, please go to page 6.

2016 Q2 and group NPL ratio posted 1.23%, delinquency rate recorded 0.67%, Q2 and cumulative group cost income ratio posted 0.44%, a 6 bp increase QoQ. This was caused by one-off factors including additional loan loss provisioning for shipbuilding and shipping restructuring as well as Cable Company related loans. However, the Group's cost income ratio is still being maintained at a stable level at mid-0.4% range.

Group's common equity capital ratio for the first half end is expected to post 11.44%. Accordingly, a record high quarterly CET1 ratio improvement is expected. We had a goal to achieve 11% of CET1 ratio by 2018 with assuming maximum countercyclical capital buffer on a conservative basis. However, this quarter's common equity Tier 1 ratio is expected to surpass the 2018 goal in this quarter.

Through this, we have laid a foundation to more flexibly execute the Group's management strategy and enhance shareholder value including dividend expansion.

P.8 Group Consolidated Earnings

Let's now cover the Group's profitability in more detail. First, please turn to page 8, Group's Consolidated Earnings.

First, let me walk you through the Group's general operating income. Interest income from the Group's general operating income grew 2.2% YoY with the portfolio adjustment from continuous SME loan growth and the drop in funding cost through core low cost deposit growth. Interest income dropped 2.0% QoQ with removal of one-off interest income and interest-bearing asset average balance decrease.

First half fee income had balanced growth in all fee categories including credit card fee income, loan related fee income and asset management fee income, and rose 8.9% QoQ but declined 11.0% YoY.

You can see that there was a rebound. First half disposition and valuation gains went up 17.5% QoQ and dropped 20.7% YoY. This was caused by the removal of one-off securities disposition gains including the disposition gains from the Korea Housing and Urban Guarantee Corporation, previously Korea Housing Corporation, as well as KRW36billion of assets translation losses from the weak won in Q2.

SG&A in the first half went down 4.5% YoY and went up 4.8% QoQ, and it's being continuously improved within an appropriate growth.

Credit loss provision went up 36.8% QoQ with KRW144.9 billion of loan loss provisioning excluding KRW90 billion of shipbuilding and shipping corporate restructuring provisioning as well as KRW54.9 billion of cable broadcast stations loan provisioning. You can see it is being maintained at a stable level in the first half of this year with 14.7% drop YoY.

P.9 Business Results of Subsidiaries

Now, let's go to page 9.

This was the result of subsidiaries. Group's major subsidiary, KEB Hana Bank's 2016 first half net income posted KRW799 billion, a 245.5% increase YoY.

For your reference, with the formerly KEB Bank, the surviving entity being integrated with formerly Hana Bank as of September 1st, 2015, it is difficult to compare QoQ since 2015 Q1 KEB Hana Bank's cumulative performance only includes the formerly KEB surviving entity's Q1 2015 performance. Accordingly, a simple sum of net income of the formerly Hana Bank and formerly KEB Bank's performance data before and after the two banks' integration has been provided separately in other categories, so please refer to if needed.

Even from a simple sum basis, Q1 integrated bank net income grew YoY.

Hana Card's first half net income with the increase in the credit card sales and company-wide cost cutting measures posted KRW33.7 billion, a 252.4% increase YoY and 570.4% increase QoQ, showing the most market performance improvement among subsidiaries.

With the consolidated tax in effect in Q1, Hana's financial investment which realized a temporary quarterly deficit, saw the opposite taking part in Q2, posting KRW46 billion of quarterly net income, a KRW58.7 billion increase. Corporate tax adjustment is just a simple adjustment between subsidiaries and there is no impact on the Group's consolidated income. Please take this into reference and refer to the material for information on other subsidiaries.

P.10 NIM & P.11 Non-Int. Income & P.12 SG&A Expenses

Please refer to pages 10 to 12 for information on NIM, non-interest income and SG&A.

P.14 Group Total Assets / Total Liabilities & Equity

Please turn to page 14 for Group's total assets, liabilities and equity.

As of Q2 2016, the Group's total assets recorded KRW326.7 trillion and at KRW410.7 trillion, its trust asset of KRW84 trillion were added.

Of the Group's total assets, KEB Hana Bank's total assets including trust assets accounted for KRW337 trillion.

The Group's total liability is KRW303.1 trillion and total equity KRW23.5 trillion.

P.15 KEB Hana Bank KRW Loan / Deposit

Page 15. KEB Hana Bank's loan and deposit in won.

As of Q2 this year, KEB Hana Bank's loan in won fell 1.7% YTD and by 0.1% QoQ to KRW169 trillion.

By category, large corporate loan decreased 11.9% year-to-date to KRW17.6trillion and SME loan went up 0.8% year-to-date to KRW63 trillion. In line with the continuous portfolio management policies started in 2014, large corp. loan went down, whereas SME loans including the SOHO Loans grew consistently.

As mortgage sale to Korea Housing Financial Corporation amounted to KRW5.5 trillion this year, household loans fell 1.3% year-to-date. Starting last year, the Group has mainly sold the Housing Financial Corp mortgage loans that were subject to sale in order to manage risks. The sales amount exceeded the new mortgage loan amount this year and thus the year-to-date drop in the household loans.

But in fact, since May this year household loans picked up again and our Q-to-Q trend was a 1.8% increase.

Deposits were down by 0.6% year-to-date at KRW195.4 trillion. Of the deposits in Korean won, core deposits were up 4.8% year-to-date, whereas the increase was only 1.1% year-to-date for the higher cost time deposits. This shows a very favorable funding structure. As you can see from the graph on the bottom right, the loan to deposit ratio as of Q2 was 98.1%.

P.17 Group Asset Quality

Page 17. Group's Asset Quality.

The Group's total credit as of Q2 recorded KRW226.1 trillion, a 3% decrease year-to-date and NPL amounted to KRW2.8 trillion, which fell by 6.2% year-to-date. In return, the second quarter's Group NPL ratio was down by 4 bps year-to-date to 1.23%.

The graph on the top right indicates the Group's new NPL formation amounted to KRW274 billion. It refers to the total NPL that had formed prior to any sales write-off or debt to equity swap had taken place. Despite the downgrading of assets related to shipbuilding and shipping, new NPL formation showed a stable trend, because there was an overall decrease in new default.

The following page deals with the Bank's asset quality in more detail.

P.18 KEB Hana Bank Asset Quality

Page 18, as of Q2 2016, KEB Hana Bank's total credit reduced 4% year-to-date to KRW201 trillion and NPL was down by 6.7% year-to-date to KRW2.4 trillion.

The NPL ratio fell by 4 bps year-to-date to 1.17% and NPL coverage ratio was down by 5 %p to 124%.

The bank's delinquency ratio was 0.54%, which had gone down by 6 bps from the previous quarter, showing a stable trend.

P.19 Provision Analysis

Provisioning on page 19.

The Group's credit cost as of Q2 had gone up 6 bps QoQ to 0.44%.

And KEB Hana Bank's credit cost went up 8 bps QoQ to 0.37%. And as you can see from the bottom chart, loan loss provision went up by KRW78 billion QoQ but this is being managed well beneath the limits set by the annual business plan.

P.20 Capital Adequacy

Lastly, page 20, Capital Adequacy.

The Group's expected BIS and Tier 1 ratios are 14.54% and 11.98%, respectively.

The Group's CET1 ratio is expected to rise to 11.44%, up by 106 bps QoQ, showing a fast recovery in the capital ratio.

This is mainly due to the fact that risk-weighted assets reduced by 8.9% QoQ, because IRB approach for credit card assets was approved and large corporate loans contracted.

In the second half, we will continue to improve the portfolio and make it capital efficient by selectively increasing the appropriate assets.

We will enhance capital adequacy by improving margins and cutting costs, so that the CET1 ratio maintains a sound trajectory.

We will also incrementally implement shareholder-friendly dividend policy, for example, increased dividend payout ratios.

Please refer to the remaining slides for other subsidiaries business results.

This concludes the earnings report of Hana Financial Group in the first half of 2016. Thank you.