Good afternoon. Thank you for joining the Earnings Conference Call of Hana Financial Group. I am Guenhoon Park, Head of IR at Hana Financial Group. I would like to thank everyone, including our shareholders, analysts and other market participants who are joining us via the call line and the Internet. With that, let’s begin Q3 2023 earnings presentation. We have here today, CFO Jong-moo Park of Hana Financial Group together with other key executives of the Group and its subsidiaries. We will start with a presentation on business results followed by a Q&A conducted over the call lines. I will now give the floor to CFO Jong-moo Park, who will take you through the third quarter earnings of Hana Financial Group.
Good afternoon. I'm Jong-moo Park, CFO of Hana Financial Group. Allow me to walk you through the third quarter 2023 business performance of Hana Financial Group. I will first begin with financial highlights.
P3. Financial Highlights (1)
Please refer to Page three of the deck. On the back of core earnings growth and improvement in disposition and valuation gains, Q3 2023 cumulative net income of Hana Financial Group was up 4.2% Y-o-Y, reporting KRW 2,977.9 billion, yet again attesting to our solid income-generating capacity, notwithstanding heightened financial market volatility driven by macro uncertainties and sluggish performance from non-bank subsidiaries.
Net income for Q3 alone was KRW 957 billion, up 4.2% Q-o-Q. Although there was preemptive provisioning for the purpose of expanding loss-absorbing capacity as well as one-off factors, including FX valuation loss following strong dollar. Notwithstanding a decline in NIM, we were able to marginally outperform market expectations, underpinned by steady and resilient interest income and efficient cost control.
Looking at Q3 cumulative result at a more granular level, first, core earnings, including interest and fee income, continued to display a solid uptrend. In particular, disposition and valuation gains drove improvement in the Group's general operating income supported by solid earnings generation and the Bank's active trading, taking advantage of market volatilities in interest rate and FX rate.
Moving on, Q3 cumulative SG&A expense reported KRW 3,199.4 billion. At the backdrop of cost pressures with rising inflation and digital-related investments, we kept SG&A cost close to the normalized level, leveraging the Group's strength and controlling costs. As such, Group's C/I ratio reported 37.8%, sustaining the 37% level for three consecutive quarters as we maintained resilient cost efficiency.
The Group's Q3 cumulative provisioning was a total of KRW 1,218.3 billion, up by two-fold Y-o-Y. As was the case in the first half of the year, during Q3, we conservatively made preemptive provisioning, which was the main reason behind the increase. I will delve into more detail on the following pages.
As you can see on the bottom left corner of the page, Group's ROE and ROA were 10.49% and 0.68% respectively. Lastly, Hana Financial Group's BoD today decided on quarterly cash dividend of KRW 600 per share. We have institutionalized dividend payout program to enhance payout visibility and the yearend dividend will be decided based on the Group's annual net income and total shareholder return.
As we revert back to weaker Won, Group's capital ratios have been affected. In Q4, rather than driving aggressive asset growth, we plan to actively manage RWA upon which, we will strive to deliver above-average shareholder returns through profitability-focused strategy.
P4. Financial Highlights (2)
Please now turn to Page four. Q3 2023 Group NIM was down 5bp Q-o-Q reporting 1.79%, with Hana Bank's NIM down around 4bp Q-o-Q. In line with the outlook for major global central banks' longer tightening cycle, increase in market rates has pushed up the funding cost for time deposits and debentures, which negatively impacted interest spread and pricing. We expect this trend to continue until the end of the year and we don't expect meaningful NIM improvement in the foreseeable future. We will therefore focus on managing our loan deposit portfolio, expand the share of fixed-rate loans, and optimize funding structure so that we may continue to maintain Group's profitability.
Despite the bank's NIM decline, the Group's quarterly interest income was up 5.6% Y-o-Y and on a cumulative basis was up 1.9% Y-o-Y driven by solid asset growth.
More details are shown on the right.
Hana Bank's loan in Won was up 2.5% Q-o-Q and 5.1% YTD. On the back of demand for corporate loans for working capital needs and demand-driven household loans, we implemented an asset growth strategy focusing on quality - high-quality assets, which drove solid results. We are in line with our annual loan growth target at levels on par with nominal GDP growth and in Q4, we will focus on asset quality and profitability management upon which we will drive selective asset growth.
Next, I would like to elaborate on non-interest income. Group's Q3 cumulative non- interest income posted KRW 1,696.4 billion, which increased greatly Y-o-Y. First, in the case of Group's cumulative fee income, it went up 3.4% Y-o-Y. This was mostly due to the increase of loan-related fee income, following the growth of loan assets and improvement of accumulative fee income including trust, pension, and operating lease. However, on a quarterly basis, it decreased slightly Q-o-Q due to factors including decrease of acquisition financing fee income.
Next, accumulative disposition and valuation gains posted KRW 787.6 billion, a robust improvement Y-o-Y. The main factors for the disposition gains related to securities and FX derivatives utilizing market volatility and increase in FX transaction gains at the Bank branches following travel demand recovery. Regarding quarterly disposition and valuation gains, due to KRW 42.8 billion of FX translation losses following the appreciation of USD and recognition of KRW 55.1 billion of our security subsidiary valuation losses, it decreased Q-o-Q but the normalized performance, excluding these factors, is maintaining a sound level.
P5. Financial Highlights (3)
Next is Page five. Q3 end Group NPL ratio posted 0.46%, a 1bp increase Q-o-Q. Group NPL posted 0.46%, an increase 3 bp Q-o-Q driven by rising overdue loans in Bank's corporate segment and non-banking subsidiaries. Accordingly, although it did not rapidly change as much as in the beginning of the year, we are seeing a slight deterioration of the asset quality indicators following the previous quarter. Although an overall economic downturn and high-interest environment is continuing, we believe that our major subsidiary, Hana Bank's asset quality will not be very problematic. On the other hand, since our non-banking side is exposed to relatively high risk according to the characteristics of its assets, we plan to focus on preemptive NPL asset management. However, since our Group's normalized profit fundamentals and provisioning have been continuously growing during the past few years, we believe that we will sufficiently withstand the situation without a significant impact on our profit.
On the other hand, we had pre-emptive provisioning also in this quarter with the goal of expanding loss absorption capacity preparing for economic contraction possibilities, in and out of Korea. We provisioned against the total of KRW 52.2 billion through conservative adjustment of credit LGD and KRW 20.6 billion of loans related to deferred loan repayment during COVID-19. Accordingly, the Group's credit cost ratio posted 0.42% and it's being maintained at the previous quarter's level. The normalized credit cost ratio excluding non-recurring factors posted around 30bp. Lastly, the Group's Q3 CET1 ratio posted 12.74%, a 8bp drop compared to the end of the previous quarter due to the sharp depreciation of KRW.
P9. Business Results of Subsidiaries
Next, let's go to Page nine, subsidiaries' business results. Q3 cumulative net income of the Group's major subsidiary, Hana Bank, posted KRW 2,766.4 billion, thanks to robust growth of core earnings and improvement of disposition and valuation gains; it led the Group's earnings improvement trend. On the other hand, Hana Securities Q3 cumulative net income posted KRW 14.3 billion, continuing its weak trend. It was caused by increase of credit cost and proactive reflection of impairment losses related to domestic real estate PF and overseas commercial real estate.
Concerns over a soft landing of the global economy have been alleviated but we expect that if the US and Europe's austerity stance is maintained, the real estate market downturn will continue even in Q4. Accordingly, we are conducting a full-fledged investigation regarding the status of our investment assets and evaluation possibilities for losses. And if additional provisioning or evaluation loss recognition is needed, we plan to do it in the most conservative fashion.
Hana Capital and Hana Card's Q3 cumulative net income posted KRW 191 billion and KRW 127.4 billion respectively. Hana Capital's operating lease fee income greatly increased, but the amount of provisioning also increased and performance has decreased Y-o-Y.
In the case of Hana Card, although the transaction volumes increased, its profit also decreased Y-o-Y due to the increase in acquisition cost and provisioning burden. Please refer to the remaining slides for further information.
With this, I’d like to conclude Hana Financial Group 2023 Q3 business results presentation. Thank you very much.
