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Greetings to all joining in on Hana Financial Group 2017 Q1 Business Presentation.

I am Hana Financial Group IR team leader, Lee Junghoon. I express sincere appreciation to shareholders, analysts and other market participants joining via phone or internet despite your busy schedules. We will now begin the 2017 Q1 business presentation.

First, I would like to introduce our executives here for today's earnings release.

From Hana Financial Group, Vice Chairman, Kim Byoung-ho; Executive Vice President and CFO, Kwark Cheol-seung; Senior Executive Vice President and CRO, Hwang Hyo-sang, are here with us.

From KEB Hana Bank, Executive VP of Planning and Management Group, Lee Seong-yol; from Hana Financial Investment, Executive VP, Lee Sang-hun, from Management Strategy division is here with us.

Last but not least, Hana Card EVP and CFO, Song Jong-geun of Management Strategy division is here with us.

First, we will hear our Vice Chairman's introductory remarks. And then, CFO and EVP, Kwark Cheol-seung, will deliver a business results presentation. And then, we will engage in a phone Q&A session. Now, I would like to invite our Vice Chairman, Kim Byoung-ho, for introductory remarks.

I express my deepest gratitude to all the participants for your interest in Hana Financial Group and for joining in. In Q1, after the Trump Administration took office, there was rapid interest rate and FX rate fluctuations and expansion of EU and Asian country capital market volatility. The domestic market also from last year was affected by the continued political issues and shipbuilding industry restructuring, and the domestic financial industry was amidst ample uncertainty.

In the market, I know there are concerns that our DSME exposure is relatively large among commercial banks, and the uncertainty is high regarding our quarterly results. Our CFO will elaborate soon. But with the recent DSME voluntary agreement decision, we believe that we can dissipate the concerns from the market and, going forward, completely regain our investors' trust by provisioning in Q1 which can remove the uncertainty as much as possible that can impact our company.

With this impact, there was a temporary rise in provisioning in Q1, but we were able to continue strong top line growth by maintaining an appropriate level of loan growth, making aggressive NIM improvement efforts and with the favorable growth trend of overall fee income. In addition, with the realization of synergy creation in earnest, the SG&A improvement effect is continuing. And with the bottom line improvement through aggressive asset quality management, our net income exceeded the market expectation.

I believe, through our preemptive measures, most of our overhang issues related to DSME have been resolved. And the normalized credit-cost ratio, excluding DSME, posted 16 bps and is continuing to go down following last year and is being stabilized. The overall asset quality and normalized provisioning is being improved at a fast pace.

We believe the main driver behind this quarter's net income exceeding the market expectation was because of the synergy creation in earnest following last year's bank IT integration leading to efficient HR and resource allocation. This is a testimony to more strengthened fundamentals of Hana Financial Group.

This year also holds uncertainty in and out of Korea with the strengthened protectionism and strict policies of the Trump government, interest rate hike expectations as well as political volatility expansion following the early presidential elections in Korea.

Hana Financial Group will preemptively respond to these uncertainties and prepare beforehand and maintain a stable financial structure and, at the same time, based on the growth strategy considering efficiency and profitability at the same time, focus on getting mid- to long-term future growth engines for the future. All the employees at Hana Financial Group will strive to realize stable business results and respond positively to your continued support and interest. Our CFO will now elaborate on the detailed business results.



Thank you very much. I would like to you invite our CFO and EVP, Kwark Cheol-seung, for 2017 Q1 Hana Financial Group earnings release.

Greetings. I am CFO, Kwark Cheol-seung, EVP at Hana Financial Group in charge of finance and strategy. Let me now cover the 2017 Q1 group business results.



P 3. 2017.1Q Financial Highlights (1)

First, the group's 2017 Q1 major highlights. Please refer to page 3.

Hana Financial Group's 2017 Q1 net income posted KRW 492.1 billion, a 12.4% YoY and 444.5% QoQ increase, respectively, and recorded the highest quarterly results, once again, following the previous year.

In particular, despite the DSME-related one-off provisioning effect, strong top line growth and bottom line stabilization continued markedly and improved considerably YoY.

To elaborate on the breakdown of the financial highlights in Q1, first, a favorable NIM environment was formed through stable loan growth and the effect from the market interest rate hike, the highest level of interest income since 2013 Q1 was recorded. Overall fee income also grew favorably, leading to considerable improvement in core earnings YoY, comprised of interest income and fee income.

Secondly, after the 2016 June bank IT integration, efficiency improved in HR placement and resource management, leading to the continued drop of SG&A following the previous quarter, creating integration synergy in earnest.

On the bottom right of the page, Q1 and group ROE and ROA each recorded 8.85% and 0.60%, respectively. And the group's cost-to-income ratio posted 45.7%. The group's major financial indices are improving quickly.

P 4. 2017.1Q Financial Highlights (2)

Please refer to page 4. First, the NIM.

The group's 2017 Q1 NIM comprised of KEB Hana Bank and Hana Card posted 1.86%, a 6 bps rise QoQ. With the recent U.S. interest rate hike leading to favorable domestic interest environment, increase in core deposits and adjustment of time deposit funding costs, overall loan deposit pricing improved, posting KRW 1.1919 trillion of interest income, a YoY 2.1% increase and QoQ 0.7% increase, respectively.

Fee income showed healthy improvement overall, including loan-related fee income and asset management fee income, and posted KRW 489.2 billion, an 11.1% YoY increase and 7.1% QoQ increase.

On the bottom right side of the slide, you can see that the bank's loans in Won grew 0.7%, centering on corporate loans for high creditworthy borrowers. But excluding KRW 2.8 trillion of mortgage loan transferred to KHFC, loans in Won grew 2.4% compared to last yearend, showing sound growth

P 5. 2017.1Q Financial Highlights (3)

Please go to page 5. Let me first elaborate on the group's provisioning.

With the additional KRW 350.2 billion of provisioning following the recent DSME creditors voluntary agreement decision, the group's credit-cost ratio posted 0.72%, a 38bps increase QoQ. But excluding this effect, credit-cost ratio posted 0.16%, a significant drop QoQ, which is the lowest rate since the acquisition of KEB Bank. Our uncertainty over the shipbuilding industry restructuring seems to have been removed to a great degree with the provisioning for DSME and we expect the normalized provisioning to quickly stabilize.

Next, 2017 Q1 group's NPL ratio posted 0.89%, a 3 bps drop QoQ. Delinquency rate posted 0.53% and is being stably managed at an appropriate level. Q1 CET1 ratio is expected to report 12.42%, a 65 bps increase QoQ and is expected to improve by a great degree QoQ. This is attributable to profitability-based growth policy and aggressive RWA management. We will strive forward that the CET ratio can continuously improve again this year.

P 7. Group Consolidated Earnings

Now, I will cover the group's profitability in more detail. Please refer to the group's consolidated earnings on page 7.

Let me cover the group's general operating income. Of the general operating income, 2017 Q1 interest income posted KRW 1.1919 trillion.

Through stable loan growth, favorable interest environment and aggressive deposit loan pricing improvement efforts, NIM rose and improved 2.1% YoY and 0.7% QoQ, respectively. 2017 Q1 fee income posted KRW 489.2 billion, a significant growth in credit card fee income YoY. Overall fee income, including loan-related income and asset management-related income including trust income and beneficiary certificate income grew in a balanced manner leading to 18.1% YoY and 7.1% QoQ growth.

Q1 disposition and valuation gains recorded KRW 348.3 billion, a 38.5% increase YoY. The considerable improvement QoQ was attributable to the base effect following the non-monetary foreign currency translation losses occurring in the previous quarter and the KRW 166.7 billion of non-monetary translation gains in this quarter with a strong Won compared to last year.

The significant improvement took place with sound flow of disposition gains from AFS and foreign exchange derivatives. Regarding SG&A, following the bank IT system integration in June of 2016, synergy is now being created in earnest with effective HR management and resource allocation with preemptive HR restructuring.

SG&A posted KRW 878.7 billion, a 5.6% YoY and 27.8% QoQ decline.

Cost-to-income ratio posted 45.7% and is rapidly going down and is being stabilized. Credit loss provision has gone up considerably QoQ with the one-off DSME provisioning effect. But normalized provisioning at KRW 93 billion level is rapidly being improved following the previous quarter.

P 8. Business Results of Subsidiaries

Next, on page 8, business results of subsidiaries.

KEB Hana Bank, a major subsidiary of the group, realized a net income of KRW 478 billion in Q1 of 2017, down 2.9% YoY. However, if we exclude the impact of provisioning for DSME, we have posted our strongest performance since this integration. In the case of KEB Hana Card, net income for Q1 comes to KRW 50 billion, creating record high performance since its creation. Even if you consider the temporary marketing costs with the increase in new cardholders and the one-off gains from disposal of loan debt, the Card business is showing steady growth.

In the case of Hana Financial Investment, the consolidated net income is down QoQ. But this is due to the consolidated tax payment effect, and the pre-tax net income has gone up KRW 23 billion QoQ, continuing a stable growth trend.

For your information, such consolidated tax payment effect occurs in the financial accounting context and is merely an item to be adjusted among the subsidiaries with no impact on the group's consolidated net income. For more details on other subsidiaries, please refer to the presentation material.

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

From page 9 to page 11 deals with NII, non-interest income, and SG&A previously touched upon. Please refer to the material for more information.

P 13. Group Total Assets / Total Liabilities & Equity

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

As of the end of Q1 2017, the group's total assets stood at KRW 343 trillion. And if the group's trust assets of KRW 92.1 trillion is included, then total assets come to KRW 352.6 trillion. The group's total liability and among the total assets, if the trust asset of KEB Hana Bank is included, total asset comes to KRW 352.6 trillion. The group's total liability is KRW 319.5 trillion and shareholder equity, KRW 23.5 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

Next, on page 14, the loans and deposits in Korean Won of KEB Hana Bank.

In Q1 of 2017, the existing Korean Won loans of KEB Hana Bank grew 6.3% YoY and 0.7% QoQ to reach KRW 179.9 trillion. If we break down the loan growth by segment, in Q1, loans to large conglomerate posted KRW 15.7 trillion, up 3.2% QoQ. And this is due to the seasonal factor of total loans contracting temporarily at the yearend and then increasing again afterwards as well as the new loans to high credit large companies. In addition, SME loans grew 3.1% QoQ, posting KRW 68.5 trillion, showing continuing growth led by SOHO loans.

Household retail loans in Q1 posted KRW 93.8 trillion, down 1.3% QoQ, after transferring the KRW 2.8 trillion of mortgage loans to KHFC. If the above transfer is excluded, then the growth rate retail loans in Q1 is 1.9%. And going forward, our profitability and asset quality will be at the center of our loan growth policy.

In the case of deposits, posted KRW 204.9 trillion, up 4.3% YoY. In particular, among the Korean Won deposits, the low-cost loans grew 12.5% YoY. But the more costly time deposits grew only by 3.7% YoY, exhibiting a robust improvement in the funding structure. For your information, as can be seen via the graph at the lower right hand, LDR of Q1 is 98.4%.

P 16. Group Asset Quality

Next, page 16, group's asset quality.

At the end of Q1 of 2017, the total loans are up 3.5% YoY, standing at KRW 235.5 trillion and the NPL amount is down 4.0% YTD, demonstrating a clear and stable downward trend. As such, the group's NPL ratio as of the end of Q1 is 0.89% down 3 bps YTD.

If you look at the upper right-hand corner of the page, during Q1, the growth of new NPL before write-off sales and debt to equity swap is KRW 112.9 billion, largely similar to the previous quarter. And the efforts toward risk management and improving the quality of the loan portfolio, focusing on cyclical factors, led to an overall decline in new default. And as a result, the new NPL amount is maintained at a stable level. Asset quality of the bank will be explained in more detail on the next page.

P 17. KEB Hana Bank Asset Quality

Page 17, asset quality of KEB Hana Bank.

Total loans of KEB Hana Bank as of the end of Q1 2017 is up 2.9% YoY, posting KRW 209.2 trillion and the NPL ratio is down 3 bps QoQ coming to 0.81%. The NPL coverage ratio, which excludes the loan loss reserves in accordance with regulatory changes of last year December, is 91.5%, up 18.7%.

The delinquency ratio as of end of Q1 2017 of KEB Hana Bank is 0.41%, up 2 bps. This slight increase is due to temporary increase of SME delinquency rate and the decline in sales and write-offs YTD. And during Q1, the actual delinquencies that occurred were smaller in amount YoY and QoQ. And during the month of March, the delinquency ratio of SMEs is on a downward trend and is being stably maintained.

P 18. Provision Analysis

Next, page 18, provisions.

The cumulative credit cost ratio of Q1 of the group is up 38 bps, posting 0.72% QoQ, owing to the additional provisioning related to DSME voluntary restructuring workout agreement. However, if DSME impact is excluded, then the group's credit-cost ratio is down 18 bps YTD to reach 0.16%, demonstrating significant improvement in the recurring credit-cost ratio.

In the case of credit-cost ratio of KEB Hana Bank, it is up 46 bps YTD, posting 0.71%. But if the DSME effect is removed, then it is down sharply QoQ to reach 0.05%. As can be seen from the bottom of the page, the provisions for credit loss increased temporarily due to the impact of additional provisioning for DSME as mentioned previously. But if this effect is removed, Q1's recurring credit loss provisions have fallen substantially.

P 19. Capital Adequacy

Finally, page 19, capital adequacy.

The group's BIS ratio, Tier 1 ratio and CET 1 ratio for Q1 of 2017 are expected to reach 14.69%, 12.98% and 12.42%, respectively. And the substantial improvement over the previous quarter can be expected. This is largely driven by, first, the growth policy due to our profitability, increase in retained earnings from improving performance in Q1 and sustained risk-weighted asset management at the group level. Going forward, we will continue to work towards enhancing portfolio efficiency, as well as capital adequacy.

For more information on business results of subsidiaries and major financial highlights, please refer to the attachments.



With this, let me conclude the earnings release presentation of Hana Financial Group Q1 2017. Thank you very much for your attention.