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Thank you for taking part in the Hana Financial Group Business Results Presentation. I am Lee Junghoon, 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 2016 Hana Financial Group Business results presentation.

Let me first introduce the group management who are here with us for the business presentation. From Hana Financial Group, Vice Chairman, Kim Byoung-ho; CSO and CFO, Kwark Cheol-seung has joined us. SEVP and CRO, Hwang Hyo-sang is also here with us. Next, from KEB Hana Bank, EVP in charge of Planning and Management Group, Lee Seung-lyul is here with us and from Hana Financial Investment, SEVP of Management Support Division, Lee Sang-hoon is here with us. Lastly from Hana Card, Management and Strategy Division, EVP and CSO, Song Jong-geun is here with us. Today's agenda will consist of introductory remarks from our Vice Chairman followed by CFO and CSO, Kwark Cheol-seung, business results presentation then a Q&A session via phone. Now, I would like to invite our Vice Chairman, Kim Byoung-ho, for introductory remarks.

Good afternoon and greetings. I express my deepest gratitude to all participants for your interest in Hana Financial Group and for today's participation.

Last year, the global capital market was heavily influenced by political events including UK's decision to exit the EU and the U.S. election. With the prolonged political uncertainty in Korea, we are seeing a great influence on investor sentiment and investor activities.

In particular, for Hana Financial Group in Q4, there was a sizable decline in the disposition and valuation gains with the market interest rate plunge and the strong dollar stemming from the Trump effect. A large part of this was caused by accounting effect caused by the FX fluctuations, and we will work hard to minimize this effect going forward. Likewise, despite the high external and internal uncertainties last year, our group was able to stably manage our core earnings through maintaining an appropriate level of loan growth, improving interest income through NIM defense and efforts to increase credit card fees. In addition, with the drop in provisioning and stabilization of SG&A, despite those 742 employees special ERP, KRW 1.3451 trillion of net income was posted, a 47.9% increase YoY. Additional labor cost savings is expected for this year as well.

I know there were many concerns in the market regarding Hana Financial Group's performance in Q4 of last year. However, despite the market concerns, I believe we were able to achieve net income surpassing our goal despite the non-recurring cost. And this proves that Hana Financial Group's fundamentals are rapidly improving after the bank integration.

This year, with the strengthening protectionist policies of the Trump administration, the interest rate hiked by FED, growing political instability in the EU and slowdown of the Chinese economy, all these combined to make for a highly uncertain market environment. And so, we expect rather tough times ahead for the financial industry as a whole this year.

However, starting from 2016, in the case of Hana Financial Group, we have entered into a profit normalization cycle following the bank merger. And recently, the integrated labor union of the KEB Hana Bank was launched leading to accelerated post-merger integration process. So, we expect, going forward, to see more visible synergistic effects being realized.

As such, we're expecting further improvements in both the top line and bottom line, and for the longer term, we are striving to come up with a group-wide strategy for income diversification and optimal capital allocation. Ultimately, this will translate into promoting stronger shareholder interest.

Other uncertainties and instability are bound both at home and abroad, the entire company is committed to ensuring sustained profit improvement and stable financial structure. So, we ask for your continued support and trust for our group. Greater details about our business results will be provided by our CSO and CFO, Kwark Cheol-seung.



Thank you very much. Next, the earnings presentation of Hana Financial Group for the full year of 2016 will be presented by our CSO and CFO, Kwark Cheol-seung.

Greetings. I'm Kwark Cheol-seung, CSO and CFO of Hana Financial Group. I'd like to walk you through the 2016 Hana Financial Group business results for the whole year. These are the 2016 group's financial highlights.



P 3. 2016 Financial Highlights (1)

Please refer to page 3.

As of mentioned by our Vice Chairman, Hana Financial Group's 2016 cumulative net income posted KRW 1.3451 trillion, a 47.9% growth YoY and recorded the highest full-year earnings since 2012.

Despite the large scale one-off cost in Q4, quarterly net income posted KRW 105 billion, maintaining a satisfactory level.

To elaborate on the breakdown of the 2016 business results, first, overall fee income, including asset management related fees decreased. However, interest income increased because the NIM was defended, thanks to adjustment of profitability-base loan portfolio and core deposit growth. Accordingly, core earnings comprised of interest income and fee income was maintained at a similar level to the previous year.

Second, SG&A in Q4 increased sizably QoQ with the expansion of the year-around ERP, which ended in 2016. However, the full-year SG&A cost is being managed at a stable level and full-year SG&A cost went down 10% YoY, thanks to group-wide cost cutting efforts and realization of bank integration cost synergy.

Third, loan-loss provisions are rapidly improving with the downward stabilization of provisioning due to a recurring level despite the one-off provisioning for marine shipping and shipbuilding in the first half of the year and the loan growth in the second half. If you see the bottom-right-hand side of the page, Q4 cumulative group ROE and ROA posted 5.99% and 0.42%, respectively.

Group's major indices went down slightly QoQ. This was caused by a temporary net income decline caused by one-off costs in Q4. Taking into consideration the recurring SG&A cost level, the group's overall financial statements greatly improved YoY.

P 4. 2016 Financial Highlights (2)

Next, please go to page 4. We will now look at the NIM.

Group's 2016 Q4 NIM consisting of KEB Hana Bank and Hana Card posted 1.80%, the same as the previous quarter. There was lower pressure on the NIM caused by the low interest rate environment, which continued until the second half of 2016. However, NIM was defended through the loan portfolio's qualitative improvement and expansion of core deposits.

Market interest rate is forecast to go up this year with the effect coming from the decrease in funding cost following the previous year's Bank of Korea's base interest rate cut as well as U.S. Fed's base interest rate hike. Accordingly, NIM will be improved through efforts to normalize funding structure and loan pricing. Interest income, thanks to the stable NIM defense and household and SME loan growth, posted KRW 4.642 trillion a 2.3% increase YoY. On the other hand, with the drop in asset management related fees and others, the income dropped 5.6% YoY posting KRW 1.7606 trillion.

Looking at the bottom right of the chart, banks loans in won grew 3.9% YoY and 3.6% QoQ. This shows that the large corporate exposure reduction strategy, which continued until Q3, is continuing and the credit-worthy borrower-centered SME and SOHO loans and home mortgage loans-centered household loans grew rapidly.

P 5. 2016 Financial Highlights (3)

Please go to page 5.

Group's NPL ratio as of end 2016 posted 0.92% and delinquency rate we recorded 0.50%, a QoQ 9bp and 7bp drop, respectively, continuing the downward trend of stabilization. In particular, recurring quarterly level of loan-loss provisions dropped considerably on the back of high-risk portfolio exposure reduction as well as proactive risk management efforts.

Group's yearly cumulative credit cost ratio posted 0.33%, a 14bp drop YoY and 6bp drop QoQ, recording the lowest levels since the KEB Bank acquisition and is being stabilized at a fast pace.

CET1 ratio posting 9.79% at the end of 2015 improved quickly in 2016, maintaining a stable capital adequacy level. This was realized through proactive efforts, reduced RWA, including the reduction of large corporate loans and adoption of internal ratings-based approach or IRB as well as the classification of credit loss reserve as common equity capital at the year-end.

In Q4, a special one-off event was set although there was a 91bp rise in the CET1 ratio with the credit loss reserve classified as common equity capital with the growth in RWA following the growth of loan assets, weakening of the won and the rapid hike of the market interest rates leading to reduction in OCI, CET1 ratio posted 11.73%, a 21bp growth QoQ.

I will now cover the Group's profitability in more detail.

P 7. Group Consolidated Earnings

Please refer to page 7, group's consolidated earnings.

First, group's general operating income. Interest income from the group's 2016 general operating income posted KRW 4.642 trillion. Interest income grew 2.3% YoY and 3.3% QoQ with loan portfolio adjustment and funding cost reduction through core deposit expansion.

2016 fee income posted KRW 1.7606 trillion. It dropped 5.6% YoY with reduction in asset management fees including brokerage and trust fee income. However, fee income grew 4.1% QoQ with increase in credit card fee income followed by increase in credit card sales. 2016 disposition and valuation gains posted KRW 690.6 billion, a 15.9% drop YoY and posted a net loss in Q4. This was a base effect from one-off security disposition gains in 2015. Q4 one-off was caused by KRW 141.7 billion one-off non-monetary translation losses caused by the weak won and the drop in securities disposition gains following the market interest rate hike.

With the year-round ERP executed at 2016 end, KRW 231 billion of one-off retirement expenses net to Q4 SG&A posting KRW 1.2164 trillion, a 27.4% growth QoQ. However, with the group-wide cost-cutting efforts and synergy generation after the integration, full-year SG&A posted KRW 4.077 trillion, a 10.0% drop YoY showing that it is being managed at a stable level. In addition, labor costs are expected to be safe with the year-round ERP, forecasting an improvement in the SG&A to a recurring level from 2017. Credit loss provisions in Q4 posted KRW 149 billion.

There was KRW 27 billion of additional provisioning with the reclassification of KCI or Kookmin Cable Investment and KRW 25.1 billion of provisioning related to SMP. However, with the KRW 23.8 billion one-off write-back for Samboo construction and KRW 12.5 billion of write-back related to Zephyros, credit loss provisions dropped 27.8% QoQ. With the downward stabilization of provisioning to a recurring level in 2016, credit loss provisions went down 21.4% YoY.

Non-operating profit posted KRW 205.8 billion, a 10.7% increase YoY with one-offs in Q4 including KRW 49.6 billion of Hong Kong branch disposition gains as well as Hyundai Cement securities, which previously applied the equity evaluation method, which was converted to available-for-sale securities leading to KRW 71.8 billion one-off equity evaluation method disposition gains.

P 8. Business Results of Subsidiaries

Next on page 8, the business results of the subsidiaries.

The cumulative net income of the group's major subsidiary, KEB Hana Bank, posted KRW 1.3872 trillion, up 229.5% YTD. For your information, on the 1st of September 2015, the former KEB merged with the former Hana Bank with KEB as a surviving entity. Therefore, in the case of the cumulative performance of 2015, prior to the integration, only the performance of the surviving entity, former KEB, is included. As such, proper comparison on YTD basis is difficult. So, as a separate item, the simple sum of the former Hana Bank and the former KEB's performance data before and after the integration is provided for your reference. And even on such a simple sum basis the merged bank's net income grew 43.0% YTD.

Hana Card cumulative net income for 2016 came to KRW 75.6 billion. So, despite the cut in merchant fees driven by the growth in credit purchase and savings in SG&A, the net income is up 647.0% YTD showing significant improvement of performance. Hana Financial Investment posted a 33.3% fall in net income bringing in KRW 86.6 billion YTD owing the decline in stock trading amount and brokerage fees. And further financial highlights and other subsidiaries please refer to the presentation materials.

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

From page 9 to page 11, we provide details of NIM, non-interest income, and SG&A previously mentioned. So 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 equity.

As of the end of 2016, the group's total assets stood at KRW 348.1 trillion. The group's trust asset is KRW 88.6 trillion. If it is combined, the group's total asset comes to KRW 436.7 trillion. Among the group's total assets, KEB Hana Bank's total assets, including trust assets, come to KRW 355.2 trillion. The group's total liabilities stand at KRW 324.7 trillion, and shareholder equity is KRW 23.4 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

Next, on page 14, the KEB Hana Bank's Korean won loans and deposits.

As of the end of 2016, the Korean won loan of KEB Hana Bank grew 3.9% YTD and 3.6% QoQ to reach KRW 178.7 trillion. If we breakdown the loan growth trend by sector, as of the end of 2016 loans to large corporate were KRW 15.3 trillion, falling to 23.8% YTD and 5.4% QoQ.

Following the modifications in our loan portfolio adjustment policy, loans to conglomerates, which until the third quarter was aggressively reduced, started showing a growth trend from Q4 with loans being selectively extended to larger corporate. But because of the year end effect as of the end of Q4, loans to large corporate declined slightly. On the other hand, SME loans grew 6.4% YTD, posting KRW 66.4 trillion, and SME loans showed a sustained growth trend led by SOHO loans. Household loans grew on the back of increasing home mortgage loans and posted KRW 95.1 trillion, up 8.4% YTD.

Deposits posted KRW 209.6 trillion, increasing 6.6% YTD. In particular, among the Korean won deposits, core deposits grew 15.1% YTD. On the other hand, the time deposit which entails high interest grew only 6.7% demonstrating healthy improvements in the funding structure. For your information, as it can be seen from the graph on lower right-hand side, the LDR as of the end of 2016 is 98.1%.

P 16. Group Asset Quality

Next on page 16, the group's asset quality.

Total credit of the group as of the end of 2016 is KRW 236.7 trillion and NPL amount is KRW 2.2 trillion. So total credit grew 1.5% YTD and the NPL amount itself, 27.0% YTD. As such, the NPL ratio of the group as of the end of 2016 is 0.92%, down 35 bp YTD. If you look at the upper right-hand side of the page, during Q4 the growth of NPL before write-off sales and debt to equity swap ensure the group's new NPL formation an increase of KRW 110 billion.

Due to efforts to improve the quality of the loan portfolio, the overall decline in new defaults has continued and the amount of new NPL shows a very stable trend. More details on the bank's asset quality will be provided in the next page.

P 17. KEB Hana Bank Asset Quality

Page 17, asset quality of KEB Hana Bank.

The total credit of KEB Hana bank as of the end of 2016 is KRW 210.8 trillion, up 0.7% YTD; NPL amount fell 30.0% YTD posting KRW 1.8 trillion. As such, the NPL ratio is down 37 bp YTD, standing at 0.84%; and the NPL coverage ratio is up 36% YTD coming to 165.0%. For your information, following new regulations implemented from the end of 2016, the NPL coverage ratio excluding credit loss reserve is 71.7%.

As of the end of the 2016, the delinquency rate of KEB Hana Bank is 0.39%, down 3 bp QoQ and showing steady and stable trends.

P 18. Provision Analysis

Next, on page 18, an overview of provisions.

As of the end of 2016, the group's cumulative credit cost ratio fell 14 bp YTD and a 6 bp QoQ, posting 0.33%; and KEB Hana Bank's credit cost ratio also fell 17 bp YTD and 7 bp QoQ to reach 0.25%. As such, the group's credit loss provisions declined to KRW 57.3 billion QoQ as can be seen from the bottom of the slide, and is being maintained at a stable manner.

P 19. Capital Adequacy

And finally, page 19, capital adequacy.

As of the end of 2016, the group's expected BIS and Tier 1 ratio is 14.26% and 12.27%, respectively. At the group level, sustained management of risk-weighted assets were undertaken, so that the group's CET1 ratio posted 11.73%, up 21 bp QoQ. In particular in Q4, owing to revision in financial regulations, loan loss reserve is now recognizes as CET capital, and this had an effect of a 91 bp increase in CET1 ratio. However, owing to the growth in loan assets, increase in risk-weighted assets on the back of a weak won as well as losses and valuation of debt securities due to the higher gain market rates, such factors had a dampening effect of the rise in CET1 ratio.

For more details on the performance of subsidiaries and other major financial highlights, please refer to the materials attached.

With this I conclude this 2016 earnings presentation of Hana Financial Group for the full year. Thank you for your attention.