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

I am Lee Junghoon, IR Team Leader of Hana Financial Group. My appreciation goes out to shareholders, analysts, and other market participants, who are joining in via phone or the internet despite your busy schedules.



We will now begin the 2017 Q3 business results presentation. I will now introduce our group's executives who are here with us for today's earnings presentation.

From Hana Financial Group, we have Vice Chairman, Kim Byoung-ho; we have our Executive Vice President and CFO, Kwark Cheol-seung; and Senior Executive Vice President and CRO, Hwang Hyo-sang. Next, from KEB Hana Bank, we have Executive Vice President, Lee Seong-yol who is here with us. And we also have Lee Sang-hun, here with us as well. First, we will have the Vice Chairman delivers introductory remarks, then CFO and Executive VP, Kwark Cheol-seung will lead with us through the earnings release. Lastly, we will have a Q&A session via phone. Now I will invite our Vice Chairman, Kim Byoung-ho, for introductory remarks.



Thank you, everyone, for your interest in Hana Financial Group, and I express my gratitude to our all participants who are here for today's business results presentation and for your interest. Our business results have been improving at a fast pace since last year, and we realized very stable results until the first half of this year. The market interest in our group heightened, and on the other hand, I believe that the market was also keenly interested in the possibility of additional improvement of our results.

However, in order to maximize profitability, we improved our asset portfolio proactively and efficiently manage our spreads, so that NIM improved further following the first half. We were able to realize net income and financial indicators that were actually higher than our initial business plan.

First, regarding the top line and NIM grew consecutively the first three quarters in a row, a relatively sound level of loan growth rate was maintained continuing that interest income growth trend. Overall, the income also posted growth rate and the group's core profit has reached the highest level in the past five years. Our profit generation capability seems to be consistently strengthening.

And for the bottom line, in case of the asset quality, credit cost included the overall asset quality indices had achieved further improvements over the previous quarter, maintaining a highly stable level.

Meanwhile, on the back of a seasonal rise, a non-personnel expenses as well as a change in performance-related pay, there's been a modest increase in SG&A QoQ , but on a YoY basis it shows a decline and that is being maintained within the range laid out in our annual business plan. We will continue to make steady effort to keep the SG&A stable to realizing further cost efficiencies at the group level.

Because the bank subsidiary takes up a large share of our asset portfolio in our group, we have ROE figures that are relatively lower than that our peers. But starting from last year, our financial results have improved very quickly. And this implies that it's not a temporary development, but that our financial group has been able to lay the business foundation for sustained profit generation. During the remaining fourth quarter, we will strive to further solidify such growth fundamentals. And in addition for the 2018 business plan, we intend to place top priority on efficient execution of the plan to continue to improve shareholder value, taking into consideration the factors that played the financial as well as the economic landscape. So for more details of the business results, this will be presented next by our CFO, Kwark Cheol-seung.

Thank you very much. Now, I would like to invite our CFO and Head of Strategy to talk about our business results.



Greetings. I will now elaborate on the 2017 Q3 business results of Hana Financial Group.



P 3.2017.3Q Financial Highlights (1)

First, group's 2017 Q3 major financial highlights. Please refer to page 3.

Hana Financial Group's 2017 Q3 cumulative net income posted KRW 1.541 trillion, a 24.3% increase YoY. Following the last quarter, it was the highest level of cumulative quarterly net income in the past five years. Among the number, Q3 net income posted KRW 510 billion, a 5.4% QoQ decline, but this was attributable to several one-off factors, recurring level of quarterly income is continuing its solid upward trend following the first half.

Let me now cover the major Q3 financial highlights. With profitability focus proactive portfolio adjustment and sales strategy, group's NIM has gone up continuously for the past three quarters, centering on SME loans and household loans relatively sound loan growth trend is also consistently being maintained, leading to the continued upward trend of the group's interest income. Moreover, overall fee income centering on loan related fees and asset management fees is also showing sound growth. The core income comprised of interest income and fee income grew 3.7% QoQ and has reached the highest level in the past five years. In addition, in the case of provisioning despite the one-off provisioning following Kumho Tire voluntary agreement, our recurring level of provisioning continued. Group's Q3 cumulative credit cost posted 34 bp, a 8 bp decline QoQ and is maintaining a very stable level.

On the other hand, group SG&A is showing a slight increase QoQ, but this is attributable to one-off factors including a subsidiary KEB Hana Bank systemization of performance and competition and seasonal administrative expenses. Even taking all of these factors into consideration, SG&A declined 2.6% YoY showing that the group's SG&A is being appropriately managed within the yearly business plan. I will cover SG&A in more detail later on in the consolidated statements.

Accordingly, the Q3 and group ROE and ROA have reached 8.94% and 0.61%, respectively and the group's cost to income ratio posted 51.4% showing that the overall major financial indicators are at a stable level.

P 4. 2017.3Q Financial Highlights (2)

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

Group's Q3 NIM comprised of KEB Hana Bank and Hana Card posted 1.94%, a 2 bp rise QoQ. This was the result of stronger continued loan deposit pricing management and active efforts to have profitability centered portfolio. Following the first half, there was additional NIM improvement with solid loan growth resulting in interest income posting KRW 1,301.7 billion, a 3.5% increase QoQ.

Next, interest income posted KRW 517.2 billion, a 4.2% increase QoQ and is showing a consistent upward trend.

To elaborate in the case of credit card fees, despite the impact from the additional merchant fee cut, thanks to the increase in credit card transaction volume, total credit card fees maintain the level of the previous quarter and this was attributable to the sound growth trend of overall fee income centered on other asset management fees and loan-related fees. As you can see on the right side of the page, bank loans and loan growth rate posted KRW 187 trillion, a 4.8% growth YTD, and 2.4% growth QoQ centering on SME loan growth focus on SOHO loans, a sound loan asset trend is taking place.

P 5. 2017.3Q Financial Highlights (3)

Next, please refer to page 5.

2017 Q3 and group NPL ratio and delinquency ratio each posted 0.73% and 0.41% respectively, showing a consistent downward trend. In the case of provisioning, despite the one-off provisioning, following Kumho Tire voluntary agreement decision, a recurring level of provisioning continued and the Q3 cumulative credit cost ratio posted 34 bp, a 8 bp decline QoQ. For your reference, the cumulative credit cost ratio, excluding the SME provisioning impact posted 16 bp level. The group CET1 ratio is forecast to be 12.74%, despite the sound loan growth with the growth strategy considering the retained earnings growth and risk on the back of solid net income realization, CET1 ratio is continuing its gradual growth trend.

P 7. Group Consolidated Earnings

Next, I will cover the details of the group's financial highlights. First, please refer to the group's consolidated earnings statement on page 7.

First, group's general operating income. In the general operating income, as aforementioned, NIM rose for three consecutive quarters and SME loans centering on SOHO and household loan growth trend continued. So interest income rose 3.5% QoQ and 8.5% YoY.

The income saw a balanced growth of general fee income items including asset management fees centering on trust fees and loan related fees, and improved 4.2% QoQ and 15.2% YoY. In particular, as aforementioned, in the case of credit card fees, despite the merchant fee cost following the small and mid-sized merchant’s scope expansion in July and reclassification, it maintained the previous quarter level with rise in transaction volume.

Disposition valuation gains grew by a relatively large degree QoQ because apart from the KRW 25 billion of securities' disposition gain, despite the KRW 44.6 billion of impairment losses, and the weak Won in this quarter, there was a base effect occurring on the back of relatively smaller FX translation losses, compared to the previous quarter.

Regarding the SG&A, I would like to cover in more detail the systemization of KB Hana Bank's performance led competition system. Until the first half of this year, the past year's performance and compensation was paid out the following year and accordingly in Q2 2016 performance-based compensation was recognized as one-off labor cost and paid out. We have revised this performance-based compensation system so that from this year all the performance compensation is secured within the fiscal year and accordingly this year's estimated performance compensation is recognized each month and the cumulative performance compensation has secured within this year's budget. Due to this, KRW 58.5 billion one-off performance compensation accumulated from January to September of this year was recognized as a one-off in Q3, and the cumulative performance compensation will be paid out through a performance evaluation process after the year-end closing. Accordingly, it should be noted that 2018 salary and benefits will not be impacted by the 2017 performance linked compensation.

In the case of the non-personnel costs in Q3 seasonal factors and one-off factors like the relocation of the group's data center to Cheongna and the relocation of the bank head office led to an increase over the previous quarter even considering such one-off factors to group's S&A on a YoY basis has declined 2.6% and is being maintained within the rates indicated in the annual business plan. Not only that, following the bank system execution of the performance of compensation, the group's labor costs going forward will be controlled at a more stable level.

As for provisions, in addition, to the KRW 25.3 billion impacts from the voluntary agreement of Kumho Tire, there was a discontinuation of the write back effects on the previous quarter so that provision increased on the QoQ, but recurring provisions are being stabilized and on a YoY basis has declined 16.1% showing a healthy trend.

P 8. Business Results of Subsidiaries

Next on page 8, business results of subsidiaries.

Major subsidiary of the group KEB Hana Bank's 2017 Q3 cumulative net income grew 20.0% YoY to posted KRW 1,513.2 trillion and since the integration of the banks on three quarter cumulative basis achieved are the strongest business results yet.

In case of the Hana Card, despite the fall in merchant fees and marketing cost volume growth in sales because of the credit card transaction volume increased, three quarter cumulative net income is up 64.0% YoY to post KRW 97.3 billion.

Also as for Hana Financial Investment, the three quarter cumulative net income was up 59.6% posting KRW 92.4 billion driven by growth in beneficiary certificate fees and ID commissions. For results of 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 11, you'll find more details of the NIM, non-interest income and SG&A expenses explained previously. Please refer to the presentation material.

P 13. Group Total Assets / Total Liabilities & Equity

Next on page 13, the gross total assets, liabilities and equity.

As of the end of Q3 2017, the group's total assets stood at KRW 363.3 trillion and its trust assets of KRW 95.6 trillion are included, the group's total assets come to KRW 458.9 trillion along the group's total asset KEB Hana Bank's total assets including trust assets is KRW 372.9 trillion and the group's total liabilities is KRW 338.6 trillion and shareholder equity is KRW 24.7 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

Next page 14, KEB Hana Bank's Korean Won loans and deposits.

As of the end of Q3 2017, KEB Hana Bank's loans in Korean Won grew 4.8% YTD and grew 2.4% QoQ to reach KRW 187.2 trillion. If we break down the loan growth trend into each segment, corporate loans are up 6.5% YTD and loans to large companies is at KRW 15.3 trillion, growing by 0.2% YTD. And growth trend geared toward SOHO loans continued and SME loans were up 8.4% YTD, posting KRW 72 trillion. Household loans saw a continued demand for collective loans, and we're up 3.2% YTD, posting KRW 98.2 trillion.

Deposit in Won was up 4.2% YTD and 2.5% QoQ posting KRW 192.7 trillion. Among the Won deposits, the low cost deposits were up 6.8% YTD, but time deposits as well as the high interest rate funding grew only 6.3% YoY, continuing the improvements in the funding structure. And for your information, as can be seen in the lower right hand corner of graph, the LDR for Q3 of 2017 is 98.4%.

P 16. Group Asset Quality

Next on page 16, group's asset quality.

As of the end of Q3 2017, the total loans were up 4.5% YTD, posting KRW247.3 trillion and NPL amount fell 17.0% YTD, standing at KRW 1.8 trillion. As such, as of the end of Q3, the NPL ratio is 0.3% down, 9 bp YTD demonstrating a stable trend. On the upper right hand corner of the page, during Q3,

NPL increased before those write-offs and sales and debt to equity swap, in short, the amount of new NPL information is KRW 113 billion. So the new NPL information trend is very stable. Regarding the bank's asset quality, let's go into more detail on the next page.

P 17. KEB Hana Bank Asset Quality

Next, page 17. Asset quality of the KEB Hana Bank.

KEB Hana Bank 2017 Q3 total loans were up 4.4% YTD, posting KRW 220 trillion and NPL was down 18.3% YTD, posting KRW 1.4 trillion. As such, the NPL ratio fell 18 bp YTD coming to 0.66% and because of the regulatory change implemented since the end of 2016. The 2017 Q3 NPL coverage ratio, excluding the credit loss reserve is up 6.0%p YTD, standing at 78.8%. KEB Hana Bank 2017 Q3 ending delinquency rate is 0.29% showing additional improvement to Q2.

P 18. Provision Analysis

Next, page 18, credit loss provisions. The write-back reversals stock recognized last quarter is absent and owing to the impact of the one-off our provisioning for Kumho Tire, provisions are up QoQ, but the trends were stabilizing in recurring current provision continues with a preemptive risk management. The group's end of Q3 accumulative credit cost ratio fell 8 bp QoQ to standard 34 bp controlled at a stable level.

P 19. Capital Adequacy

Finally, page 19, capital adequacy. As of the end of Q3, the groups BIS ratio, Tier1 ratio are expected to be 14.92%, 13.27% respectively, especially the case of the CET1 ratio, it is expected to be up 1 bp QoQ, reaching 12.74%, continuing a steady growth trend following last quarter. For more details of subsidiaries and other major business indices, please refer to the appendix.



With this, I would like to conclude the 2017 Q3 Hana Financial Group's earnings presentation. Thank you very much.