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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 2018 Q3 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, our EVP and CFO, Kwark Cheol Seung has joined us; and EVP and CRO, Hwang Hyo Sang is also here with us. Next from KEB Hana Bank, Planning and Management Group EVP, Lee Seung Yeol is here with us. From Hana Financial Investment, Management Support Division EVP, Lee Sang Hoon is here with us. Last but not least, from Hana Card, Management and Strategy Division EVP and CSO, Kwon Kyung Taek is here with us.



Today's agenda will consist of our EVP and CFO, Kwark Cheol Seung's business results presentation, then a Q&A session via phone. Now, I would like to invite our CFO, Kwark Cheol Seung, who will deliver the Hana Financial Group 2018 Q3 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 Q3 group business results.

P 3.2018.3Q Financial Highlights (1)

First, Group's 2018 Q3 major highlights. Please refer to page 3.

Hana Financial Group's 2018 Q3 cumulative net income posted KRW1.892 trillion, a 22.8% increase YoY. Following the first half, the cumulative net income posted a record high for the third quarter since the Holdings Group was established in 2005. The Q3 net income posted a KRW589.4 billion, a 7% drop QoQ caused by external factors, including the Korean stock market and increase of SG&A expenses, due to one-off factors in the quarter. However, the recurring quarterly income considering these one-off and seasonal factors is similar to the previous quarter, and it is at a 15.6% increase QoQ and is continuing solid trend.

Let me now explain the Q3 business performance in more detail.

First, despite the slight NIM contraction due to the market interest rate decline in the quarter, sound loan asset growth trend continued and the Bank's interest income steadily increased. On the other hand, Q3 fee income due to the base effect caused by large scale IB transactions concentrated in the first half, led to the M&A advisory income drop QoQ. And with asset management related fee income decreasing following the bearish Korean stock market, Q3 fee income showed an overall slowdown. Accordingly, the Group's core income decreased 3.3% QoQ, but compared to the same period in the previous year, it grew 7.5%. On a Q3 cumulative basis, it grew 12.5% YoY and showed a sound growth trend.

On the other hand, in the case of SG&A, there was around KRW88 billion one-off costs in Q3 with special ERP expenses and related sports marketing expenses incurred as the official sponsor of the Korean soccer team. In addition, with the addition of some seasonal salary increasing factors, the SG&A in Q3 increased by 13.3% QoQ. However, the recurring SG&A expense excluding these one-off and seasonal factors is similar to the previous quarter. And the total SG&A on a cumulative basis posted KRW2,871.6 billion, showing that even on a nominal basis, it is being appropriately managed within the yearly management plan range.

Next in the case of provisioning, with the Korean Thanksgiving holiday concentrated in the end of the quarter, provisioning slightly increased with the temporary short-term delinquency increase with the delayed interest payment, which was temporal. However, with the partial one-off provisioning write-back, the Q3 cumulative credit cost ratio posted 12bp, the lowest level since the Holdings Group was established.

On the bottom right hand of the page for 2018, Q3 cumulative group ROE and ROA achieved 10.17% and 0.69% respectively. As aforementioned, Q3 SG&A expenses temporarily increased, and the Group's cost to income ratio slightly hovered at higher than 50%, but taking into consideration the one-off expenses, it was at a level of lower than 49% similar to the previous quarter, showing that the major management indicators are stably being managed.

P 4. 2018.3Q Financial Highlights (2)

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

The Group's 2018 Q3 adding up KEB Hana Bank and Hana Card posted 1.9% a 3bp decline QoQ. Despite the fact that internal efforts were made continuously to improve the margin including strengthened loan deposit pricing and loan portfolio adjustments with Q3 market interest rates declining QoQ, according to the foreign exchange rate wise, foreign demand deposits decreased. In addition, in order to comply with the regulation ratio preemptive won deposit funding and foreign exchange mid to long-term funding occurred, and it was also influenced by the continued debt repricing effect, following last November's base interest rate rise. Taking this into consideration that the market interest rate is showing signs of recovery from late Q3, the yearly NIM is expected to end at a sound level. We will preemptively engage in funding, so that we will manage the funding cost and improve our NIM.

Despite the NIM decline for the Q3 interest income, centering on the SME loans and home collateralized loans, a sound loan asset growth trend was achieved and increased 1.8% QoQ. On a Q3 cumulative basis, it increased 11.4% YoY, and posted KRW4,169.1 billion. Accordingly, record high interest income was achieved since the Group was established on a quarterly and cumulative basis.

In the case of fee income, KRW525.9 billion was realized, a 14.8% decrease QoQ. First, that was aforementioned, as a result of the base effect of the large scale IB transactions that were concentrated in the first half, the M&A advisory fees had greatly decreased. In addition, with that recent bearish domestic stock market and plummeting trade volume, there was less early redemption of related ELS product caused by the fall in the Hong Kong H index, which leading to a QoQ decline of the asset management related fee income occurred. Despite these circumstances, the Q3 fee income increased 1.7% YoY, and on a Q3 cumulative basis in 2018 recorded KRW1.733 trillion a 15.3% YoY increase. Accordingly, like the interest income, fee income also achieved a record high on a Q3 cumulative basis.

On the graph on the bottom right side, the Q3 end bank loans in won grew 2.6% QoQ and 6.7% YTD. Also loans continued growth centering on the mortgage loans or home collateralized loans, and for corporate loans, the overall SME loans including SOHO showed a high growth rate and supported the solid growth of the bank loan assets.

P 5. 2018.3Q Financial Highlights (3)

Please refer to page 5.

The NPL ratio as of 2018 Q3 end posted 0.61% a 10bp decline QoQ. In the case of delinquency, due to the macro environment changes, including the recent somewhat conservative economic outlook rose slightly centering on SOHO loans and other SME loans, but with normalization of some large corporate loans, so the delinquency declined and posted 0.4% same as the previous quarter. Group's cumulative credit cost ratio with the business days right after the Korean Thanksgiving ending with just two days in September end, provisioning slightly increased and this led to the temporary increase in the delay of the interest payment, but with one-off provisioning write-back, it posted 12bp, a 2bp declined QoQ. Excluding the one-off, there was a slight increase in the recurring provisioning, but this includes the natural increase profit following the loan asset growth and is being appropriately managed within yearly management plan. We will continuously strengthen preemptive management of marginalized borrowers to prepare for asset deterioration following situations, including a domestic economic downturn in the future.

The Group's Q3 end CET1 ratio is expected to post 12.99%, an 11bp increase QoQ. With the previous quarter's weakening won and interim dividend execution, it declined briefly, but despite the sound loan growth according to the growth strategy considering risk, our RWA was managed daily and the capital adequacy improved greatly.

P 7. Group Consolidated Earnings

Next, I will elaborate on the Group's business performance in more detail. First, please refer to page 7, the Group's consolidated income statement.

Let me explain from the Group general operating income. Interest income in 2018 Q3, general operating income posted KRW1,427.1 billion, and as previously mentioned, despite the NIM decline, thanks to the sound loan growth, it grew 9.9% YoY and 1.8% QoQ.

Quarterly fee income declined 14.8% QoQ, posting KRW525.9 billion. This was due to the base effect stemming from the drop in M&A advisory fee income as well as overall fee income category declining including the bearish Korean stock market situation, and contraction of the ELS early redemptions. However, it increased 1.7% YoY, and accordingly maintained a sound growth trend on a Q3 cumulative basis.

On the other hand, disposition and valuation gains in Q3 posted KRW153.2 billion, a significant increase QoQ. The main reason was the base effect from around KRW100 billion FX translation losses caused by the weakening won and the profit from trading gains also increase in QoQ.

Lastly, 2018 Q3 SG&A posted KRW1,039.4 billion, a 4.7% YoY and 13.3% QoQ increase. With around KRW88 billion one-off, including Q3 ERP and World Cup game related sports marketing expenses, coupled with seasonal salary increasing factors such as wage, peak retirement expenses, SG&A temporarily increased.

However, as aforementioned the recurring Q3 SG&A is being maintained at a level similar to the previous quarter and even based on a one-off and seasonal factors, it is being managed stably within the annual business plan range.

P 8. Business Results of Subsidiaries

Now, moving on to page 8, net income of subsidiaries.

Hana Financial Investments, net income on a consolidated basis for Q3 cumulative increased by 53.7% YoY to KRW142 billion. Because of the base effect of the first half and deteriorating business environments, the fee income decreased, pulling down the Q3 net income QoQ. However, it was a slight increase YoY showing an improvement in its overall earnings power on a recurring basis.

Hana Card's net income in Q3 cumulative decreased 17.7% YoY to KRW80.1 billion, but this is because of the base effect deriving from the one-off gain on sale of loans receivable in Q1. The Card's Q3 net income has risen 9.1% QoQ and 28.3% YoY due to the growth in credit card sales and decrease in provisioning showing sound improvement.

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

Please refer to the slides for other subsidiaries' results. And also please refer to pages 9 through 11 for the NIM, non-interest income and SG&A details.



P 13. Group Total Assets / Total Liabilities & Equity

And now moving on to page 13, Group's total assets, liabilities and equity.

As of the end of Q3, the Group's total assets stood at KRW381.9 trillion or KRW485.9 trillion if the Group's trust asset of KRW104 trillion is included. KEB Hana Bank's assets inclusive of trust assets stand at KRW393.7 trillion.

The Group's total liabilities are KRW355.4 trillion and total equity KRW26.5 trillion.



P 14. KEB Hana Bank KRW Loan / Deposit

In page 14, KEB Hana Bank's loans in won and deposits. As of Q3 and this year, KEB Hana Bank's loans in won is KRW200.8 trillion, up 2.6% QoQ and 6.7% YTD. Breaking down the loan growth by each item, corporate loans increased to KRW95.7 trillion, up 7.4% YTD of those the large corporate loans, focusing on the prime companies grew only 3.8% YTD to KRW14.9 trillion. SME loans grew significantly by 8.3% to KRW79.1 trillion leading profit-oriented loan growth. The SME loan growth was more visible in the corporation subject to or exempt from outside audit and not in the SOHO loans, which had led the growth in the first half.

As for household loans, credit loan growth rate decreased, but due to steady demand for housing residual loans and Jeonse loans, household loans posted KRW105.1 trillion, up 2.4% QoQ and up to 6.1% YTD.

Loans in won in Q3 rose 4.9% YTD to KRW203.7 trillion. Core deposits decreased 2% QoQ, but the average balance amount recorded a slight increase. And if we look at MMDA, due to restrictions placed on MMF redemption following the Turkish financial instability, there were more public institutions, which withdrew from MMDA, and as the corporate interim dividend payout concentrated during this part of the year, MMDA contracted 3.8% QoQ. Funding through time deposits increased 5.8% QoQ which lowered the portion of core deposits to 33.4% or 1.7 %p drop QoQ. Due to the changing economic situations in and out of Korea, it seems unlikely that the funding structure will improve suddenly.

Nonetheless, we will continue to reinforce our low cost funding base and proactively manage the core deposit ratio in the total mix. As can be seen from the graph on the bottom right, the LDR in Q3 is 98.9%.



P 16. Group Asset Quality

And now Group's asset quality on page 16.

The Group's total credit grew 6.9% YTD to KRW263 trillion, amidst a slight decrease in new defaults, thanks to normalization of some large corporate credit, and an increase in debt collection through the sale of collateral, the NPL amount decreased 15.7% YTD to KRW1.6 trillion, and this brings down the Group's Q3 NPL ratio to 0.61%, down by 10bps QoQ continuing the downward trend. On the top right, you see the Group's new NPL formation prior to sale, write-off and debt equity swap in Q3 was KRW21.7 billion, due to normalization of large corporate loans. And considering the one-off, the new NPL has decreased QoQ.

And now, let's move on to the next page for the Bank's asset quality.



P 17. KEB Hana Bank Asset Quality

Page 17, KEB Hana Bank's asset quality.

The Bank's total credit rose 6.5% YTD to KRW231.3 trillion, and NPL decreased 20.1% to KRW1.3 trillion. This brought down the NPL ratio to 0.55%, an 11bps drop QoQ, and the NPL coverage ratio for Q3 was 84.1%, a 7%p increase QoQ. The Bank's delinquency ratio in Q3 was 0.29% or 1 bp drop QoQ. SME loans including SOHO loans and the household loans saw a slight increase in the delinquency ratio. However, this was offset by lower delinquency ratio of large corporate loans, which had normalized, maintaining a stable level continued from the previous quarter. The delinquency ratio is still at historically low levels, but considering potential deterioration in the asset quality due to interest rate hike in Korea and abroad, we will take preemptive measures to manage risk and prevent NPLs, and minimize any increase in delinquency.



P 18. Provision Analysis

Provision on page 18.

As was previously mentioned, the Group's Q3 cumulative credit cost ratio was 0.12% and KEB Hana Banks' cumulative credit cost ratio fell 2 bps QoQ to 0.02%.



P 19. Capital Adequacy

Lastly, capital adequacy on page 19.

The Group's BIS ratio and Tier 1 ratio are estimated at 14.89% and 13.50% respectively as of quarter end this year. As for CET1 ratio, we expected to go up by 11 bps QoQ to 12.99%, due to the sale management of risk-weighted assets and growth of retained earnings. Please refer to the appendix for further details.



And this brings me to the end of Hana Financial Group's earnings release for Q3 2018. Thank you.