Good afternoon, everyone. I am Lee Junghoon, Head of IR from Hana Financial Group. I'd like to thank shareholders, analysts and other market participants for taking part from your phone or the internet in today's event, despite your busy schedules. We'll now begin the 2020 First Half Hana Financial Group's Earnings Presentation.

First, let me introduce the members of our senior management joining us today. From Hana Financial Group, the new CFO, Lee Hoo-Seung is with us. Our CRO, Hwang Hyo-Sang; and our CSO, Ahn Seon-Jong are here with us. Next from Hana Bank, the Vice President Lee Seung-Lyul from the business strategy group is here and from Hana Financial Investment Vice President, Lee Sang-Hoon is with us. Finally, from Hana Card Managing Director, Kim Tae-Hong from Business Planning Division is with us. So first we will invite Lee Hoo-Seung for our presentation on the business results and afterwards, we will hold Q&A session via phone. We will now commence the 2020 First Half Earnings presentation of Hana Financial Group by CFO, Lee Hoo-Seung.

Good afternoon. I'm glad to have everyone with us. I honored to have this chance to introduce myself to the investors and market participants, who continue to show their support and interest towards Hana Financial Group. I am Lee Hoo-Seung, the newly appointed CFO of the group. I have come to assume this position at a time when uncertainties are running high in financial markets both home and abroad due to COVID-19. Going forward, I will do my best to sustain the proactive market friendly IR activities of Hana Financial Group.

P 3. 2020.1H Financial Highlights (1)

From now on, let me speak on the subject of Hana Financial Group business results for the first half of 2020. First, the group's financial highlights. Please refer to Page 3 of the presentation deck. The net income of Hana Financial Group in 2020 posted is KRW687.6 billion, up 4.4% YoY and up 4.7% QoQ. As such, the net income for the first half of 2020 posted KRW1,344.6 billion, up 11.6% YoY. Despite setting aside on a large loan loss provisioning in response to the protection of COVID-19 and reserves related to private equity funds, sound core earnings growth in the non-bank and global segments, and also one-off gains, such as non-monetary FX gains are due to performances higher than market expectations. With the recent increase in the number of confirmed COVID-19 cases in Korea, we are projecting a difficult business environment ahead in the second half as well. As such, Hana Financial Group based on healthy and stable business results. We'll continue with its efforts to secure sufficient capability to absorb losses and strengthen our ability to reliably supply funds into the real economy.

In addition, expansion of the securities income from the bank and security subsidiary let us substantial increase of the gains in valuation and disposal Y-o-Y, for the group in the first half of the year was more because of the structural reforms undertaken by the Chinese economy last year, gains from equity investment into China recovered and BIDV gains from equity method valuation was added, thus diversifying the sources of income for the group.

Next, efficient control of the group's SG&A continued. Group-wide cost-cutting efforts along with the impact from last year and pre-emptive ERP left a stable management of the group's recurring SG&A. Not only that, a partial write back of the reserve set aside last year for the bank's performance linked bonus took place in Q2, so that the group's SG&A fell 9.7% YoY. The group's cost efficiency was improved, and served at the basis for a stronger income stability despite the worsening external environment due to the COVID-19.

Finally, as uncertainties continue both at home and abroad, various proactive provisions were set aside. With COVID-19 cases on the rise again to respond to a possible recession approximately KRW165.5 billion of provisioning was additionally recognized, leading to a considerable increase in the cumulative credit cost ratio of the group in the first half. However, recurring credit cost ratio is maintained at a stable level, and approximately KRW118.5 billion in reserves related to private equity funds were set aside to secure the funds that may be needed to respond to possible indemnities. Such measures have cleared much of the uncertainties related to future performance, and at the same time secure the ability to meet potential external shocks.

Next, as a result of continued recurring cost rationalization efforts of the group after one-off retirement expenses, including wage peak ERP, which was recognized in Q4, Q1 and group SG&A expenses dropped 12.1% YoY and was stably controlled. Q1 cost to income ratio also greatly dropped YoY improving our cost efficiency.

If you look at the lower, left-hand corner of the page, the group's ROE at the end of the first half of 2020 is 9.44% off from the end of the previous quarter, and ROA posted 0.63% similar as the end of the previous quarter. The group's cumulative CI ratio posted 43.1%, falling significantly over Q1, due to the impact from one-off the factors such as labor cost savings.

P 4. 2020.1H Financial Highlights (2)

Next moving on to Page 4. The group's 2020 Q2 NIM, including Hana Bank and Hana Card, posted 1.62% same as Q1. Hana Bank's NIM came to 1.37% falling 2bps QoQ. During the quarter, additional cutting of BOK rates weakened the NIS, but with funding portfolio improving owing to increase in low-cost deposit and with the bank maintaining a profit center asset growth strategy, the fall in the bank's NIM was minimized. Meanwhile, card NIM improved significantly QoQ on the back of increase in payment related to fee income, this offsetting the drop in the bank's NIM.

The group second quarter interest income maintained the previous quarter's level despite the fall in the NIM, due to the fair growth in the loan assets. The fee income increased 5.3% QoQ as well driven by card and brokerage fees. As such, the group's Q2 core earnings is up 1.7% QoQ to post KRW1,987.8 billion. Referring to the right-hand side of the page, the bank's Korean Won loans mostly extended to SMEs posting KRW226.8 trillion, up 1.8% QTD, and up 3.8% YTD.

Group's 2020 Q1 interest income despite the NIM drop maintained the previous year's level on the back of loan asset growth. Fee income centering on credit card fees and loan and FX related fees rose 2.0% YoY. Accordingly, the group's Q1 core earnings posted KRW 1,960.6 billion, a slight increase YoY.

P 5. 2020.1H Financial Highlights (3)

Next on Page 5. As of the end of Q2 2020, the group's NPL ratio stood at 0.45%, down 2bps QTD. And the delinquency rate posted 0.31% same as the end of Q1. The bank's delinquency rate was the same as the QTD level, and a group delinquency rate increase with recent inclusion of the delinquent assets of Hana Insurance. However, on the back of the government financial assistance and internal risk management efforts, the overall nonbanking subsidiaries delinquency rate declined, sustaining the stable trend of the group's asset quality indicators. Meanwhile, the group's first half cumulative credit cost ratio posted 0.27%, up 14 bps QTD, due to the large pre-emptive provision reflecting fluctuations in the economic situation.

But when excluding the provisions related to COVID-19, the figure comes to 0.16% being managed within our annual target level with the additional recognition of loan loss provision to counter a possible recession, the group's ability to absorb losses has expanded and going into the second half, we will strengthen our asset quality management through continued risk factor monitoring. The group's 2020 end of Q2 CET1 ratio is up or 14 bps QTD, expecting to post 12.04%. Despite the higher RWA due to the growth in loan assets, healthy income levels were realized and the overall capital adequacy was improved.

P 7. Group Consolidated Earnings

Now let me walk you through the group's business results by item. Please refer to the group's consolidated earnings on Page 7. The group's quarterly interest income grew slightly QoQ to KRW1,433.3 billion, and its half year interest income fell 0.9% YoY to KRW2,861.3 billion. Q2 fee income recorded KRW554.5 billion, showing a decline in asset management and IB related fees, due to COVID-19. However, this was offset by the growth in credit card and brokerage fees driving a 5.3% growth QoQ. In the first half, the fee income was KRW1,080.9 billion maintaining a similar level YoY.
The group's Q2 disposition valuation gain increased significantly QoQ to KRW348 billion. This is due to the base effect of Q1's large-scale non-monetary FX loss KRW40.8 billion worth of non-monetary FX gain in Q2, and improved returns from major subsidiary securities. As a result, the group's disposition valuation gain in the earlier half of the year recorded KRW422.1 billion, up 64.7% YoY. SG&A in Q2 stood at KRW848.4 billion, lower by 8.6% QoQ resulting from the performance salary write-back. SG&A also decreased on a half year basis. Thanks to the pre-emptive execution of the large-scale ERP at the end of the last year recording 9.7% decrease YoY.

P 8. Business Results of Subsidiaries

Moving on to Page 8, business results for the subsidiaries. Hana Bank's net income for first half 2020 went up 2.7% YoY, recording KRW1,062 billion. Despite the reduced core earnings due to worsened business environment and a considerable increase in COVID-19 related provisions, the bank posted a robust performance, thanks to improved returns on securities and SG&A savings. And Hana Financial Investment's net income in the first half was up 12.9% YoY to KRW172.5 billion. Despite the pandemic, the stock markets in and out of Korea rallied in the second quarter, stock subscription amount increase leading to higher brokerage fees and also disposition valuation gain increased. Hana Capital's net income for the first half increased 78.7% YoY to KRW84.1 billion, thanks to overall performance improvement including interest income.

Moving on to Page 8, business results for the subsidiaries. Hana Bank's net income for first half 2020 went up 2.7% YoY, recording KRW1,062 billion. Despite the reduced core earnings due to worsened business environment and a considerable increase in COVID-19 related provisions, the bank posted a robust performance, thanks to improved returns on securities and SG&A savings. And Hana Financial Investment's net income in the first half was up 12.9% YoY to KRW172.5 billion. Despite the pandemic, the stock markets in and out of Korea rallied in the second quarter, stock subscription amount increase leading to higher brokerage fees and also disposition valuation gain increased. Hana Capital's net income for the first half increased 78.7% YoY to KRW84.1 billion, thanks to overall performance improvement including interest income.

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

Please refer to Pages 9 through 11 for the details about NIM, non-interest income and SG&A explained earlier.

P 13. Group Total Assets / Total Liabilities & Equity

And also, please refer to Page 13, for the group's total assets, liabilities and equity.

P 14. Hana Bank KRW Loan / Deposit, P 15. Hana Bank KRW Loan Composition

Now on Page 14, Hana Bank's loan and deposit in Korean Won. As of Q2 and 2020, the bank's loans in Won stood at KRW226.8 trillion, up 1.8% QTD. The assets growth is broken down as follows: Corporate loans stood at KRW109.7 trillion, growing 2.6% QTD. Large corporation loan decreased 1% QTD to KRW15.4 trillion as liquidity crunch was eased in the financial market. SME loans grew 3.1% QTD, driven by the demand from the externally audited companies and Soho loans for funding support related to COVID-19. And as for household loans, it grew 1.1% QTD to KRW117.1 trillion as Jeonse loans increased.
Let's look at a breakdown of the loan growth by segment. Corporate loans increased to KRW 106.9 trillion or 3.1% QoQ. Large corporate loans increased by 14.4% QoQ to KRW 15.6 trillion, and made a surge in funding demand at the end of the quarter, amid widening of financial market volatility. SME loans showed continued growth driven by real funding demand from quality mid-tier SMEs recording KRW 89.4 trillion, which is an increase of 1.7% compared to the fourth quarter. Hana household loans grew 0.9% in the first quarter recording KRW 115.8 trillion on the back of continued demand for Tranche A loans and unsecured credit loans same as in the previous quarter. Deposits in won as of Q1 end rose by 3% QoQ to KRW 237 trillion. Low-cost core deposits increased by 5.8%, MMDA by 13.8% increasing the share of low-cost deposits in the funding mix to 35.1% versus the end of the previous quarter. And for your reference as you can see on the bottom right graph.

P 17 Group Asset Quality, P 18. Hana Bank Asset Quality

And now let's move to Page 17, the group's asset quality. As of quarter end, the group's total credit grew 2.1% QTD to KRW301.4 trillion and NPL decreased 3.2% QTD to KRW1.4 trillion, bringing down the group's NPL ratio to 0.45%. This is 2 bps drop from the previous quarter end. The top right shows the group's new NPL formation in Q2 was KRW196.9 billion, down from the previous quarter. This is because the NPL decreased in the bank's corporate segments and some of the non-bank subsidiaries. There was also the base effect of Q1 when NPL had increased due to a revision and supervision regulations making the loan classification criteria more stringent in such and subsidiaries.

Let me elaborate on the bank's asset quality on Page 18. Please refer to Page 18, Hana Bank's total credit in Q2 end has grown 1.6% QTD to KRW260.7 trillion, and NPL decreased by 4.6% to KRW0.9 trillion. NPL ratio fell by 2 bps QTD to 0.35% and the NPL coverage ratio has significantly increased to 120.9%. Hana Bank's delinquency ratio at the end of Q2 was 0.21% same as the previous quarter end.

P 19, P 20. Provision Analysis, P 21. Capital Adequacy

Corporate loan delinquency increased, but was offset by lower household loan delinquency, enabling stable management of the bank's overall delinquency ratio. Please refer to the group's and bank's provisions on Pages 19 and 20.

Lastly, capital adequacy on Page 21. We expect the group's BIS ratio and Tier 1 ratio to be 14.08% and 12.89% respectively at the end of the quarter. CET1 ratio is expected to be 12.04%. The group's capital ratio and ability to absorb losses increased over the quarter. Thanks to stable management of risk-weighted assets and robust quarterly net income. We'd also like to inform you that in line with our active shareholder return policy, it was resolved today that interim dividend of KRW500 per share will be paid out. Based on improved performance from non-bank and global, as well as on better business results possible through cost management or able to maintain last year's interim dividend level.