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Thank you very much for attending our earnings conference call.

My name is Junghoon Lee, and I'm the Head of the IR team at Hana Financial Group.

Thank you very much for attending our conference call despite your busy schedule.

We will now start the 2018 Q1 earnings conference call of Hana Financial Group.

I would like to introduce the officers present for the call.



First, from the Hana Financial Group, we have our CFO, Cheol-seung Kwark; as well as our CRO, Hyo-sang Hwang present.

From KEB Hana Bank, we have the SEVP in charge of Planning and Management, Seung-lyul Lee; and from Hana Financial Investment, we have our SEVP, Sang-hoon Lee.

Hana Card, we have the Head of Management Support Division, Kyung-taek Kwon.



We will start with a presentation on our earnings results from our CFO, Cheol-seung Kwark before taking your questions.

Now, our CFO Cheol-seung Kwark will take you through our first quarter earnings results.



Greetings, I am CFO Kwark Cheol-seung in-charge of Finance and Strategy at Hana Financial Group.

Let me now cover the 2018 Q1 group business results.



P 3. 2018 1Q Financial Highlights (1)

First, Group's 2018 Q1 major highlights. Please refer to page 3.



Hana Financial Group's 2018 Q1 net income posted KRW 671.2 billion, a 36.4% Y-o-Y and 35.4% Q-o-Q increase respectively.

This was a record high quarterly net income on a normalized level since the acquisition of KEB in 2012.

Despite the uncertainties in and out of Korea, including the recent global trade conflict expansion and rapidly changing financial environment, we were able to accomplish business results, they are passing the market expectations because of the following factors.



First, what was notable was the growth of the Group's core earnings consisting of interest income and fee income in a favorable interest environment, NIM greatly improved through profitability-centered sales strategy.

In addition, SME and household loan-centered sound loan asset growth was realized leading to a great increase of interest income Y-o-Y.



In addition, as a result of strengthening the Group's investment product sales and IB capabilities and increasing cooperation between subsidiaries, interest income also showed a market growth centering on asset management and M&A advisory fees.

Moreover, provisioning quickly stabilized with continued asset quality improvement efforts.

The previous year's major one-off centering on shipbuilding industry was absent and according to preemptive risk management efforts, a normalized level of downward stabilization of provisioning continued leading to the Group's Q1 credit cost ratio recording 14bp the lowest level since the holdings group was established in 2005.



Lastly, with wide cost cutting efforts and continued cost synergy following bank integration with the underlying effect stemming from removal of major one-off including bank subsidiary performance-linked bonus and ERP, SG&A declined greatly Q-o-Q. Accordingly, Group's Q1 cost to income ratio posted 48.3%, a 4.8%p drop Q-o-Q and underpin the positive improvement trend of the bottom line.



On the bottom right hand of the page, major group management indicators improved rapidly with 2018 Q1 and Group ROE and ROA posting 11.25% and 0.76% respectively.

In particular, Group ROE reflected the group's solid profit generation capabilities and posted a first-ever quarterly level surpassing 10% since the acquisition of KEB Bank in 2012.

P 4. 2018 1Q Financial Highlights (2)

Please refer to page 4. First, the NIM.



The Group's 2018 Q1 NIM consisting of KEB Hana Bank and Hana Card posted 1.99%, a 4bp rise Q-o-Q. This was a result of the stronger deposit loan pricing under a continued favorable interest rate environment with the base interest rate hike in the latter half of last year as well as profitability-centered policies, including low-cost deposit increase and making the loan portfolio more efficient.



Along with the margin improvement, loan assets posting a solid growth trends.

Interest income posted KRW 1 trillion 339.5 billion, a 12.5% increase Y-o-Y. In addition, with the market improvement in the overall fee income items including asset management and M&A advisory fees, fee income posted KRW 591 billion, a 20.8% Y-o-Y and 12.9% increase Q-o-Q.



Looking at the graph on the bottom right side, bank's loans in Won growth rate grew 6.5% Y-o-Y and 1.8% compared to the end of the previous year.

With SME loans including SOHO loans leading growth like in the previous year, growth trend of household loans centering on real demand led to a solid growth rate.

P 5. 2018 1Q Financial Highlights (3)

Next, please go to page 5.



Group's NPL ratio as of 2018 Q1 posted 0.76%, a 2bp drop Q-o-Q.

It is being consistently stabilizing downward due to the group's aggressive risk management efforts.

In addition, the Group's delinquency ratio posted 0.42%, and it's being managed steadily at an approximate and stable level.



In particular, the Group's credit costs with efforts to improve the quality of the loan portfolio centering on economic cycle-sensitive industries and low-credit borrowers showed a rapid improvement of the normalized level of provisioning.

With the previous year's major one-off removed, it recorded 14bp, the lowest level since the holdings group was established.



The Group's CET1 ratio is expected to record 12.88%, a 14bp growth Q-o-Q and is expected to maintain a sound level of capital adequacy following the previous quarter.

P 7. Group Consolidated Earnings

I would like to cover the Group's business results in more detail. First, please refer to the Group consolidated earnings on page 7.



Let me begin with the general operating income.

In 2018 Q1 general operating income, interest income as aforementioned was underpinned by the NIM rise and solid loan growth and grew 12.5% Y-o-Y.



Fee income posted KRW 591 billion and asset management-related fees centering on brokerage and trust fees led the growth and showed a balanced growth rate including M&A advisory fees and grew 20.8% Y-o-Y and 12.9% Q-o-Q.



On the other hand, disposition and valuation gains posted KRW 132.9 billion, a 61.8% drop Y-o-Y and 71.4% drop Q-o-Q. This was mostly due to the base effect from the removal of major one-offs in the previous year, including non-monetary translation gains from the strong Won and SK Hynix's securities disposition gains.

Apart from these factors normalized disposition and valuation gain showed a slight increase Q-o-Q.



In the case of SG&A it posted KRW 914.5 billion, a 27.1% drop Q-o-Q. With the absence of major one-offs, including performance-linked bonus and ERP, which occurred in the previous year, SG&A improved greatly Q-o-Q with continued efficiencies in HR and asset allocation following the bank integration.

Accordingly, the Group's Q1 cost to income ratio posted 48.3%, an improvement Q-o-Q and is being managed at a stable level.

On the other hand, SG&A increased 4.1% Y-o-Y, but this was caused by the systematization of KEB Hana Bank's performance bonus payouts, which first to place in Q3 of 2017 and on a normalized level, it is a decrease Y-o-Y.



For your reference the corporate tax increase effect following the 2017 and corporate tax revision is reflected in this material.

P 8. Business Results of Subsidiaries

Next to page 8, net income of subsidiaries.



KEB Hana Bank's net income in Q1 2018 was KRW 631.9 billion, which were a 32.2% Y-o-Y increase and the largest quarterly income since the merger of the two banks.



The consolidated net income of Hana Financial Investment in Q1 was KRW 41.9 billion, which is a 179.3% increase Y-o-Y.

Compared to the previous quarter, net income decreased by 22.3%, but this is due to the consolidated tax payment effect, and on a pretax basis net income increased by KRW2.3 billion on a Q-o-Q basis maintaining a growth trend. For your reference, the consolidated tax payment effect is only an effect on the financial accounts and is simply an adjustment among subsidiaries that do not affect the Group's consolidated income.



Hana Card's Q1 net income was KRW 25.5 billion, which is a 180.2% increase Q-o-Q. Even though the net income decreased by 49% on a Y-o-Y basis, this is mainly due to the base effect caused by the one-off gains from disposition of loans in Q1 of 2017 and Hana Card also continues to maintain healthy growth including significant improvement in fee income from increased credit sales during Q1.



Lastly, with the acquisition of all remaining shares of Hana Capital in February, KRW 6.9 billion of net income was additionally recognized in Q1 and from Q2 with full quarter effects of the acquisitions, we expect greater profit contributions from Hana Capital. Please refer to the material for the other related company details.

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

Pages 9 through 11 show the NIM, Non-Interest Income, and SG&A in more detail. Please refer at your leisure.

P 13. Group Total Assets / Total Liabilities & Equity

Next is page 13, which is the Group's total assets, total liabilities and capital.



As of end of Q1 2018, the Group's total assets was KRW 368.9 trillion and KRW 467.1 trillion when including the KRW 98.2 trillion in the Group's assets and trusts.

Among the Group's total assets, the total asset of KEB Hana Bank including trust assets was KRW 363.8 trillion.



The Group's total liabilities was KRW 343.6 trillion, shareholders' equity KRW 25.3 trillion.

P 14. KEB Hana Bank KRW Loan / Deposit

Page 14 is the Korean Won denominated loans and deposits of KEB Hana Bank.



As of end of Q1 2018, the Korean Won loans of KEB Hana Bank was KRW 191.6 trillion, which is a 6.5% Y-o-Y increase and 1.8% YTD increase.

In terms of the loan growth, a corporate loan is KRW 91.4 trillion, which is a 2.6% increase versus end of 2017.



Large corporate was KRW 14.4 trillion, which is a 0.3% increase.

SME loans including SOHO loans was KRW 75.1 trillion, a 2.8% increase versus end of last year and continuing a solid growth trend.



Household loans recorded a KRW 100.2 trillion, which is a 1.2% increase versus end of last year.

Thanks to continued demand from mortgage loans and group loans.



Korean Won deposit as the end of Q1 was KRW 195.6 trillion, which is a 0.8% increase versus end of 2017

Time deposits, which is a source of high-cost funding only increased by 1.1% compared to the end of last year while core deposit increased by 3.3%, which improved our funding structure.

For your reference, the loan to deposit ratio as of end of Q1 was 98.4% as shown on the bottom right-hand graph.

P 16. Group Asset Quality

Next, please turn to page 16, which is the Group asset quality.



Total loans of the Group as of end of Q1 2018 was KRW 250.5 trillion, which is a 1.9% increase from end of 2017.

Substandard and below was KRW 1.9 trillion same as end of 2017. And so the Group's substandard and below ratio was 0.76%, a 2bp decrease from end of 2017 and continuing a decreasing trend.

On the upper right-hand side, the Group's total new NPL formation is shown before sales and debt to equity swap, which was a KRW 188 billion, which is a 46.6% decrease. Because of the one-off factors from the previous quarter including downgrading of Kumho Tire exposure to substandard and below, and decrease in recovery through sales of collateral have been removed and so the new generation of substandard and below is back to stable levels.

The following page looks at Bank Asset Quality in more detail.

P 17. KEB Hana Bank Asset Quality

Page 17 is KEB Hana Bank's Asset Quality.



As of end of Q1 2018 KEB Hana Bank's total loans was KRW 219.9 trillion, which is a 1.2% increase from end of 2017. Substandard and below loans was KRW 1.5 trillion, which is a 2.3% decrease, substandard and below ratio was at 0.70%, a 3bp drop from end of 2017. NPL Coverage ratio is 78.3%, which is a 2.4% increase from end of 2017.



KEB Hana Bank's delinquency ratio as of end of Q1 was 0.31%, which is an increase by 2bp compared to the end of last year.

This is due to seasonal temporary increase of SME delinquencies in February, and we have seen SME delinquency ratios normalized quickly in March returning to normal levels.

P 18. Provision Analysis

Page 18 is the loan loss provision.



As we have already seen with improved loan quality and removed all of one-off factors from last year.

The credit cost ratio as of end of Q1 was 0.14%, which is 19bp decrease from end of Q4.

KEB Hana Bank's credit cost ratio was 0.05%, which is a 20bp decrease from end of Q4.

P 19. Capital Adequacy

Lastly, page 19 is capital adequacy.



As of end of Q1 2018 the Group's BIS ratio and Tier 1 ratio was 14.80%, and 13.41% respectively.

CET1 is expected to be 12.88%, which is a 14bp increase from Q4.

Further details regarding each of the subsidiaries, please refer to the appendix.



And this completes my presentation on our Q1 earnings of Hana Financial Group.

Thank you.