P3. 2023 1Q Financial Highlights (1)

First are the key business highlights of the group, which is on Page 3 of the presentation.

Hana Financial Group reported net income of KRW1,102.2 billion in Q1, 22.1% growth Y-o-Y and a 56.8% growth Q-o-Q. Our first quarter net income came in above market expectations. Despite the heightened risks from domestic and global economic slowdown and the financial market instabilities, the group was able to achieve healthy performance, thanks to the disposition and valuation gains that effectively leveraged interest rate changes, an increase in fee income by securing greater customer base and decrease in one-off ERP related expenses.

In terms of the quality of our income, even though the pace of interest income growth decreased and provision increased, overall income increased Y-o-Y, driven by the healthy performance of non-interest income. While fee income is yet to deliver greater tangible results, it has turned around from the low point in Q4, and but we continuously focus on building a cumulative fee income foundation, such as retirement pension products in Hana Bank and Hana Securities, and operational lease fee income at Hana Capital.

Our cost income ratio in Q1 was 37.5%, which was Y-o-Y improvement. Hana Financial Group again proved its industry-best cost efficiency. Our ROE was 12.07%, again delivering industry-leading profitability and capital efficiency. In Q1, we made preemptive and additional loan loss provisioning against domestic real estate project financing loans to further build-up our loss absorption capacity.

Furthermore, today the Hana Financial Group’s Board of Directors approved a quarterly dividend of KRW600 per share. The quarterly dividend is a continuation of Hana Financial Group's tradition of interim dividends and also as our shareholders the added benefit of stable cash flow and better dividend visibility. Going forward, Hana Financial Group will continue to consider various shareholder return plans to enhance shareholder value based on the mid to long-term shareholder return policy announced during the last earnings call.

P4. 2023 1Q Financial Highlights (2)

Now, please turn to Page 4. In Q1, the group's NIM was 1.88%, which is 8 bp decrease from Q4. Hana Bank's NIM was 1.68%, which is a 6 bp Q-o-Q decrease. The NIM contraction of Hana Bank in Q1 is mainly explained by the dissipation of the one-off factor from Q4, related to the early termination of time deposits. However, when compared with a normalized Q4 NIM of 1.67%, NIM in Q1 actually increased by 1 bp at Hana Bank. Despite some changes in the funding side, such as funds shifting from low cost deposits to time deposits, increase in normalized NIM reflects the impact of asset repricing as demand for funds continues especially around large corporate, and also the Q-o-Q increase in the average lending rate of Korean Won loan book.

The financial group's first quarter interest income decreased by 10.6% Q-o-Q due to NIM contraction, fewer calendar days, and the effect of Hana Life's accounting change with the introduction of IFRS 17. However, this is a 7.8% increase Y-o-Y. On the right-hand chart, this shows that within Hana Bank's Korean Won loan book, corporate loans increased by 1.3% from year-end, but household loan decreased by 1%, resulting in an overall stagnant loan growth of only 0.2%.

Next is the non-interest income. For the non-interest income, the group reported non-interest income of KRW778.8 billion in Q1, which is the highest in the past five years. Particularly, the disposition and valuation gain was KRW480.1 billion, which is KRW277.1 billion increase Y-o-Y. Gains from securities trading increased by more than KRW180 billion Y-o-Y by effectively leveraging changes in market rates. According to changes in insurance business accounting standards, approximately KRW86.9 billion that used to be accounted under interest income has now been put under disposition and valuation gain.
On the other hand, due to higher exchange rates during the quarter, the FX translation loss of KRW44 billion was reflected in the disposition and valuation gain. We will continue to focus on maintaining a healthy level of disposition and valuation gain using investment strategies that effectively leverage market volatility and portfolio improvements.

Fee income in Q1 was KRW445.2 billion, which is a significant improvement Q-o-Q. Securities related fee income and IB commissions are yet to recover as investment sentiment remains subdued. However, asset management fees, including fee income from retirement pension funds and bank assurance has increased, and fee income from operational lease, lending and foreign exchange also increased, resulting in 18.6% increase Q-o-Q.

P5. 2023 1Q Financial Highlights (3)

Moving on to Page 5, the group's NPL ratio in Q1 2023 increased 6 bps Q-o-Q to 0.40%. Due to the non-bank subsidiaries, Korean real estate PF exposure and group delinquency ratio also increased to 0.40%, which is 10 bps higher Q-o-Q due to rising delinquency ratios of non-bank subsidiaries. However, the total delinquency ratio including the sales and write-off of the quarterly NPL assets went down by 4 bps Q-o-Q to 51 bps.

The group's Q1 credit cost ratio increased by 17 bps Y-o-Y to 36 bps, however, which can be explained by the preemptive provisioning and we will continue to contain this year's credit cost ratio within 30 bps. As of quarter end, the group's CET1 ratio has decreased by 30 bps Q-o-Q to 12.84%, but it still maintains a fair level compared to the regulatory ratio. And for your reference, during the quarter, Basel III affected the calculation of market and operating RWA, leading to a one-off decrease of 21 bps. Other than that, the decrease in the CET1 ratio is mostly due to an increase in credit RWA, such as FX rate rise, an increase in marketable securities and corporate loan assets.

P6. 2023 Risk Management Plan

Let me now address some additional points about this year's plan for asset quality management. We're mindful of the markets concern over possible deteriorating asset quality indicators going forward, and this year, more than anything, we are looking closely into risk management. Not to mention U.S. Silicon Valley Bank collapse and widening current account deficit in Korea, financial market instability persists. Our subsidiaries' delinquency rates have gone up and the potential risks have increased more than ever. To prepare against the weakening asset quality, Hana Financial Group is focused on implementing the following four risk management measures. First, we improved the non-bank subsidiaries' early warning system, so that signs of deterioration can be identified preemptively, allowing for early response. Under different scenarios of various macroeconomic indicator levels, we are managing intensively a set of preselected marginal borrowers. And to reduce potential NPL exposure, we are constantly operating a delinquency management task force and we stepped our efforts for monitoring real estate PF exposure. We are strengthening risk management not only in Korea but also for overseas. We are providing customized audits suitable for the overseas subsidiaries and we have refined each sector's credit line management depending on the industrial risk by country. We also reinforced overseas alternative investment risk management in case global asset prices fall. We will continue with the preemptive provisioning that we have done for the past three years. We will reflect the future economic outlook scenario in a more conservative manner, and conduct early credit review for the marginal borrowers so we can secure additional loss absorption capacity against any uncertainties. With these risk management measures in place, we will make sure that asset quality metrics are managed soundly, while controlling the credit cost ratio within the annual guidance level, even if some marginal assets suffer from quality deterioration.

P9. Business Results of Subsidiaries

Page 9, subsidiaries income. Hana bank, the group's major subsidiary realized net income for the quarter of KRW970.7 billion, which is a 45.5% increase Y-o-Y. Items in the general operating income, including fee income improved overall. And at the same time, SG&A and credit cost demonstrated robust cost control capabilities leading to better performance. Hana Securities' net income for Q1 reported KRW83.4 billion. The net income decreased Y-o-Y due to increased provisioning, but compared to the previous quarter, IB fee and brokerage fees increased, and also disposition and valuation gain improved. Hana Capital realized net income of KRW65.6 billion in the first quarter on a Y-o-Y basis, the net income fell by KRW25.7 billion, due to increased funding cost and provisioning, but with the improvement in fee income and disposition and valuation gain Q-o-Q, the net income increased by KRW20.3 billion over the quarter. Lastly, Hana Card's general operating income increased, however, due to an increase inprovisioning, the Q1 net income reported KRW20.2 billion, a decrease Y-o-Y. For future risk management, we will focus on high quality assets with a relatively lower delinquency ratio such as auto finance and we will strengthen unused credit line and management of marginal borrowers with multiple loan accounts. Please refer to the following pages for further information. This concludes Hana Financial Group's Q1 2023 earnings presentation. Thank you very much.