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Thank you for taking part in the 2018 Full Year Hana Financial Group Business Results Presentation. I'm Lee Junghoon from Hana Financial Group IR Team. Thank you, shareholders, analysts and other market participants, who are joining in today's earnings release via phone or the internet.

Let's now begin the 2018 Full Year Hana Financial Group Business Results Presentation.

Let me first introduce the Group management, who are here with us. From Hana Financial Group, we have our newly appointed Group Chief Finance Officer, CFO and Deputy President, Lee Seunglyul; and Deputy Chief Risk Management Officer, CRO and Deputy President, Hwang Hyo-sang. From KEB Hana Bank, Management Planning Group Head Lee Hoo-seung. And from Hana Financial Investment, Management Planning Group Head and Deputy President, Lee Sang-hoon. From Hana Card Management Support Division Head, Kwon Kyung-taek is here with us.

We will first hear the 2018 full year business results presentation from our CFO and then move on to a Q&A session via phone connection. Now, I would like to invite our CFO, Lee Seunglyul to deliver the 2018 full year Hana Financial Group earnings presentation.

I'm Deputy President, Lee Seunglyul, and the newly appointed CFO of Hana Financial Group. Against the backdrop of rising uncertainty in the financial markets both home and abroad, I've been entrusted with important responsibilities, as the Group CFO. I will do my best to ensure that Hana Financial Group continues its proactive and market friendly IR activities going forward.

From now on, let me walk you through the Group's full year business results for 2018.

P 3. 2018 Financial Highlights (1)

First, the Group's major financial highlights for 2018. Please refer to Page 3.

Hana Financial Group's full year net income for 2018 is up 10% YoY posting KRW2,240.2 billion, the highest figure since the founding of Hana Financial Group in 2005. Despite domestic and global uncertainties including the China-US trade dispute, Fed interest rate hikes and expansion of the financial market volatility on the back of group-wide efforts to improve business results, we have been able to achieve results that exceed the target set early on in the year. The fourth quarter net income is down QoQ reaching KRW348.1 billion due to one-off factors like SG&A and credit provisioning. But the normalized net income for the quarter is approximately KRW540 billion maintaining a healthy trend.

Now, let me next explain what's noteworthy of the 2018 full year business results.

First, the Group's core income is up 10.5% YoY, and so along with the net income, the core income posted the highest level since the founding of the Financial Group. In the latter half of 2018, the domestic market rate has showed a downward trend, but aided by profitability focused strategy such as enhancing the portfolio efficiency, the Bank's NIM has increased YTD and with the continuing growth of the loan, interest income has risen. In the case of fee income, the strategy to increase non-interest income is bearing fruit and we're seeing market growth of M&A advisory fees and asset management fees as well.

Not only that, as a result of proactive efforts to improve asset quality, the Group's credit cost ratio was down YTD by 15 bp to post 18 bp. In Q4, a large preemptive provisioning was set aside related to ship building sector, but normalized loan loss provisioning has been stably managed over the years based on growth strategy focusing on asset quality. As such, we were able to post the lowest credit cost ratio since the Group's founding on a yearly cumulative basis.

Finally, rising normalized costs are owing to price increases, ERP in the second half of the year and HR system integration all have led to the incurring of one-off expenses. However, despite this in 2018, SG&A is down 2.3% YoY on the back of the Group's cost saving policies and synergies created from the Bank integration. Accordingly, the Group's C/I ratio posted a downward trend for three straight years and ordinary C/I ratio, excluding ERP and HR system integration cost has achieved the annual target of 15% exhibiting a trend of sustained improvement in cost efficiency. In addition, this year, we expect to see approximately KRW100 billion of savings in negative goodwill write-off, allowing for even more stable SG&A management.

If you look on the lower right-hand side of the page, the Group's ROE and ROA at the end of 2018 is 8.89% and 0.61% respectively, a slight increase YTD.

P 4. 2018 Financial Highlights (2)

Next, moving on to Page 4.

First of all that, let me provide some guidance regarding the recent announcement and a change in the accounting method of income recognition of card companies. When closing the books for 2018, the IFRS number 15 was newly introduced into the domestic card sector and accordingly, the yearly credit card sales promotion expense and reward expense was changed from the existing separate expense item to merchant fee income deduction item, because of this change KRW30 billion of sales promotion expense was reclassified from SG&A to fee income deduction item. And so in Q4, credit card fee income, SG&A and C/I ratio were down slightly, but there was no impact on net income. Meanwhile, in the case of reward expense, which have been accounted for as fee expense will change into merchant fee deduction item, which is reflected as interest income in calculating the card NIM. As such, this has had a downward impact on the Group's quarterly NIM in 2018. Starting from Q1 of 2019, we will report to you, based on the changed accounting standards, so please bear this in mind. And also on Page 6 of the presentation deck, separate slides have been prepared related to the recent accounting change, so please refer to this as well.

After the introduction of IFRS number 15, the Group's 2018 Q4 NIM including KEB Hana Bank, Hana Card is up 3 bp QoQ. This owes itself to higher card debt return due to less non-income generating transaction, as the domestic and global business environment change. Asset portfolio and cost adjustment has also led to improving Bank margins.

And with the continued loan growth, the Group's 2018 interest income is up 10.7% YoY standing at KRW5,637.2 billion. So the yearly fee income is up 9.8% Y-o-Y to reach KRW2,224.1 billion on the back of solid growth in all segments and in particular, the M&A advisory fee and asset management fees. For your information, given the reduction in card fee income due to the introduction of IFRS 15, the Group's fee income growth rate is 11.3% YoY.

Looking at the lower right-hand side of the page, you'll find the Korean Won loan of the Bank continuing to post down growth, centering around SMEs and is up 0.9%, Q-o-Q up 7.7% YTD to reach KRW202.6 trillion.

P 5. 2018 Financial Highlights (3)

Next, please refer to Page 5.

As of the end of 2018, the Group's NPL ratio was down by 0.59% 2 bp Q-o-Q and down 19 bp YTD. The Group's NPL ratio was 0.59% down 2 bp Q-o-Q and down 19 bp YTD. Delinquency rate is down 3 bp QoQ and down 2 bp YTD to reach 0.37% maintaining a stable downward trend.

In the case of the credit cost ratio, as I had explained previously, it is down 15 bp YTD to post 18 bp. It is up 6 bp QoQ, but this is mostly because while the impact of the previous quarter's large loan write-back was absent for some large companies, preemptive provisioning had been set aside, and one-off loan write-off of overseas network had occurred. Normailized provisioning is maintained at a stable level on a QoQ basis.

The Group's CET 1 ratio is also 12 bp YTD and expected to reach 12.86%. And despite the year-end dividend, we expect to maintain a healthy capital adequacy. For more details of the dividends in fiscal year 2018, I will provide a detailed explanation at the end of my presentation.

Next, we'll take you through the business results item-by-item.

P 8. Group Consolidated Earnings

On Page 8, please refer to the consolidated Group's income statement. First, the Group's general operating income.

Among the general operating income, interest income on the back of improving NIM and sound loan growth is up 10.7% YoY and up 2.9% QoQ.

Fee income also achieved balanced growth across all segments and is up 9.8% YoY. The Group's “ONE IB” policy and stronger collaboration among subsidiaries led to the M&A advisory fee jumping 83.1% YoY, and asset management fee is up 11.7% YoY due to strong investment in product sales. In the case of credit card fees, in the second half, despite a cut in some merchant fees, the increase in credit purchase sales had resulted in the fees increasing 3%, and if the impact from the accounting standard change is removed, then it is up 6.7% YoY.

Meanwhile, in the case of gains earned from valuation and disposal, a major one-off gain from the previous year was the KRW1,279 billion from disposal of SK Hynix stake and non-monetary translation gain of KRW272.9 billion owing to a strong Won. While such gains are absent in 2018 due to a weaker Won, a total of KRW84.8 billion in non-monetary translation loss occurred. So it is down 63.1% YoY.

In the case of Group's SG&A during Q4, ads and marketing campaign such seasonal admin expenses rose, while one-off expense of KRW80.2 billion related to HR system integration was recognized, so that SG&A is up 3.4% QoQ. However, as I've already explained on a yearly basis through a group-wide effort to save costs and raise the efficiency of our resource management, it is down 2.3% YoY to post a three year straight downward trend.

P 9. Business Results of Subsidiaries

Page 9 covers net income of subsidiaries.

Despite core income growth and effective cost control, net income of KEB Hana Bank in 2018 declined 0.5% YoY to KRW2,092.8 billion, partly due to steep drop in gains from disposal and valuation, as mentioned before.

Hana Financial Investment, so its asset management profit dropped due to financial market uncertainties in the second half of the year. However, the large growth in fee income in the IB business helped it to post net income of KRW152.1billion, up 4% YoY.

Hana Card posted net income of KRW106.7 billion, up 0.3% from last year. Despite the unfavorable external conditions, the fee income increased thanks to higher credit sales and enhanced profitability, and SG&A expenses were reduced through continuous cost cutting efforts. However, gains from sale of loans of about KRW43 billion last year served as a base effect and the year's net income comes to be similar to that of the previous year.

Annual net income of Hana Capital was up 33.2% YoY to KRW120.4 billion, thanks to financial asset growth and stronger cooperation with other subsidiaries, greatly improving the company's profitability, as well as its profit contribution to the Group. Please refer to the slide for other subsidiaries.

P 10. NIM, P 11. Non-Int. Income, P 12. SG&A Expenses

Page 10 and page 12 contain details on NIM, non-interest income and SG&A expenses. Please do refer to the slides.



P 14. Group Total Assets / Total Liabilities & Equity

Let us now move on to Page 14 for the Group's total assets, liabilities and equity.

Total asset of the Group at the end of 2018 recorded KRW385 trillion. When the Group's trust asset of KRW107.9 trillion is added, the total asset of the Group grows to KRW492.9 trillion. And KEB Hana Bank's total assets including its trust asset is KRW387.8 trillion.

Total liability for the Group is KRW357.9 trillion with its equity standing at KRW27.1 trillion.



P 15. KEB Hana Bank KRW Loan / Deposit

On Page 15, our KEB Hana Bank Korean Won denominated loans and deposits.

As of the end of 2018, the Bank's loans grew 0.9% QoQ and 7.7% YTD to KRW202.6 trillion. As for loan growth breakdown, corporate loans increased 8% from the end of last year. Loans to large corporates was KRW14.6 trillion, lower 2.2% QoQ, as the corporates paid back the loans with the aim of improving their financial statements at the year-end, but higher 1.4% on YTD basis. Loans to SMEs including loans to SOHO remain on solid growth path at KRW79.7 trillion, up 9.1% YTD.

Household loans increased to KRW106.6 trillion, up 1.3% QoQ and 7.4% YTD with continued growth in Jeonse loans and collective loans and also due to higher demand for credit loans in the last quarter.

Korean Won deposit is up 9.1% YTD to KRW211.7 trillion. Core deposit rose 6% YTD, while MMDA rose 1.6% QoQ, but fell 7.4% YTD due to dividend payment that occurred in Q2 and Q3. Time deposit, along with loan growth, posted healthy growth, up 14.1% YTD.

As a result, we show our core deposit at the year-end recorded 33.2%, lower 0.2% point QoQ. As unfavorable conditions will continue to make it difficult to improve the funding structure in 2019, organic efforts will be strengthened to expand LCF further. For your information, as seen in the bottom right graph, loan deposit ratio for the year-end of 2018 stands at 98.5%.



P 17. Group Asset Quality

Moving on to the Group's asset quality on Page 17.

Total credit of the Group, as of 2018 year-end stands at KRW263.9trillion, up 7.3% YTD, while the NPL amount dropped 18.6% YTD to KRW1.6 trillion. The Group's NPL ratio during the same period should continue stable downward trend at 0.59%, down 19bp YTD.

As seen in the upper right graph in Q4, 2018, the NPL amount before sales and write-offs, as well as debt equity swap increased significantly QoQ to KRW257.9 billion. However, these numbers are derived from the base effect of Q3 when exposure to Kumho Tire was upgraded and excluded from NPL classification and has one-off recovery amount increased from disposal of collaterals.

When aforementioned write-off amount from one of the overseas subsidiaries or international network is not counted, increasing total NPL amount is in the lower KRW200 billion similar to those of Q1 and Q2.

Details on asset quality of the Bank will be covered in more detail in the following slides.



P 18. KEB Hana Bank Asset Quality

Next on Page 18, KEB Hana Bank asset quality.

The Bank's total credit at the end of 2018 was KRW232 trillion, up 6.8% YTD and its NPL amount was KRW1.2 trillion, down 23.1% YTD. Its NPL ratio is down 21 bp to 0.52% and its NPL coverage ratio is higher by 15.6% point at 91.5% for the same period.

During the same period, the Bank's delinquency ratio was 0.25%, a drop of 4bp from the end of last year. Household delinquency ratio was kept stable. The SMEs not including SOHO and large corporation delinquencies saw steep decline leading to downward stability of overall loan asset delinquencies.



P 19. Provision Analysis

Page 19 looks at provisioning, which has already been covered during this call. Please refer to the slides.



P 20. Capital Adequacy

On the last page, that is page 20 is the status of capital adequacy.

At the end of 2018, the Group's BIS ratio and Tier 1 ratio are assumed to be at 14.9% and 13.53% respectively. CET 1 ratio is expected to be maintained at a healthy level of 12.86%, up 12 bp YTD.

For your information, today the Hana Financial Group's BoD has decided on KRW1,500 per share for the year-end dividend. If approved at the shareholders' meeting, total dividend per ordinary share for the fiscal year including interim dividend of KRW400 would be KRW1,900, and accordingly, the dividend payout ratio would be 25.5% and dividend yield would be 5.24%.

Hana Financial Group will continue to exert efforts to maximize shareholder value through stronger return policies for the shareholders and will try to further expand the policy through steady business results improvement.

Please refer to the appendix for more details on subsidiaries and major management indicators. This concludes earnings results presentation for Hana Financial Group for the year 2018. Thank you very much.