Thank you for taking part in 2014 full year Hana Financial Group business results presentation. I am Lee Jung-hoon from Hana Financial Group IR team. Thank you shareholders, analysts and other market participants for joining in today's earnings release via phone or the Internet.
Let us now begin 2014 full year Hana Financial Group business results presentation. Let me first introduce the Group's management who are here with us. From Hana Financial Group, we have our new CFO, SeniorVicePresident, KwarkCheol-seung, from Hana Bank, SeniorVicePresidentand CFO, Park Hyung-jun and SeniorVicePresident, CRO, KoHyung-seok are with us. From KEB SeniorVicePresident and CRO, Chung Kyung-sun is here. From Hana Daetoo SecuritiesExecutiveVicePresident, Byun Jae-yeon and finally from KEB Hana Card, Strategy & Planning DivisionHead, Song Joon-geun is here.
We will first hear the 2014 full year business results presentation and then have a Q&A session via phone.Now I would like to invite our CFO, SeniorVicePresident, KwarkCheol-seung to deliver the 2014 full year Hana Financial Group earnings presentation.
Good afternoon. I am the CFO of Hana Financial Group, KwarkCheol-seung. I will now give you a presentation on our full year2014 earnings results. I will go over the earnings in the order of profitability, scale, asset quality and capital adequacy.Let me begin with profitability first. Please turn to page four.
Please refer to page 4.
Hana Financial Group posted 937.7Wbn in 2014net income, up by 0.4% onYoY basis. Q4 net income recorded a QoQ decrease of 81.4% to 51.3Wbn.
Two core income items interest and fee income posted sound growth of 3.8% and 5.2% from a year earlier. While SG&A increased during 2014 was controlled to 2.3%. Non-recurring loss items such as loan loss cost caused byMoneualand impairment loss on Taihan Electric Wire have kept YoY net income growth in 2014 to a mere3.8Wbn.
The decrease in net income in Q4 is mainly attributable to a total 104.3Wbn impairment losson stocks of Taihan Electric Wire and Posco; and 57.5Wbn non-monetary loss that FX translation loss fromthe weakening of the Korean Won, which pushed down disposition & valuation gain substantially from the previousquarter. Among the items below general operating income, another contributing factor was 140.5Wbn rise inSG&A that resulted from retirement reserves and seasonality.
As you see on the graph on the right, Group's main subsidiaries Hana Bank and KEB posted 856.1Wbn and365.1Wbn in consolidated cumulative net income in 2014, up 21.2% and down 17.8% each from one year ago.
Next regarding NIM.
Group's Q4 NIM that combined figures of the Hana Bank KEB and Hana Card was down by 5bpsQoQ to 1.88%. Hana Bank's Q4 NIM came down 7 bps from Q3 to 1.42% while KEB's NIM dropped 39 bpsQoQ to 1.51% following the spin-off of KEB Card from the bank on September 1st, which had the effect of excludinginterest income related to Card assets from that of the bank.For your reference, KEB's NIM when excluding KEB Card was 1.6% in Q3. This means KEB's Q4 NIM fell by 9bps from the previous quarter.
Next page 6. In 2014 Group's ROE and ROA reached 4.55% and 0.32% on acumulative basis while the CI ratio stood at 62.2%. For your reference if we exclude 117.5Wbn amortizationof negative goodwill from KEB acquisition in 2014, the Group's CI ratio comes down to 59.6%.
Now let me addresskey results related to our scale. Including trust assets, the Group's consolidated total assets reached 391.6Wtnas of the end of 2014, posting a 6.3% and 0.2% increase in a YoY and QoQ basis. Of this figure, consolidated totalassets of Hana Bank at the end of 2014 stood at 193Wtn, up by 6.3% from one year ago, while the comparablefigure of KEB was 142Wtn, up 4.4% from 2013-end.
Next is KRW loan.As of 2014-end, the Group's totalKRW loan balance which combined loans of Hana Bank and KEB rose to3.5% from 2013-end to reach 163.4Wtn. In case of Hana Bank, due to efforts to adjust the loan portfolio bydriving SME loan growth while reducing the share of large corporate loans, KRW loan balance increased 3.3%YoY to 110.9Wtn.Also at KEB, SME loans increased to 14.8% from 2013-end while large corporate loans decreased 2.3% during thesame period. Through consistent efforts to expand SME loans share, its KRW loan balance was 4.1%from the end of 2013 to 52.5Wtn.
During 2014, the Group's loan growth was lower than the market average. Because that's part of preparations forintegration with the KEB, we reduced large corporate loans for risk management and profitability. On the other hand,our SME loan growth rate continuously stayed above the market average. This trend of cutting our exposure to largecompany loans will continue in 2015 while making sure that those two conglomerates the promise profitability are notsubject to such reduction.
Next page shows the Group's 2014-end deposit balance, that combines deposits of Hana Bank and KEB. It wasup by 7.6% and 3.7% each on a YoY and QoQ basis to reach 190Wtn. Deposit balance of Hana Bank rose8.2% to 120.8Wbn. That of KEB increased by 6.5% to 69.4Wtn, both from the end of 2013.
Let me now move on to asset quality and NPL ratio. Group's NPL ratio at the end of 2014 recorded 1.35%, down 9 bpsfrom Q3 which marked the most stable figure since Q1 2013.
Group's NPL ratio fell mainly because Hana Bank's NPL dramatically decreased as a result of NPL management andsales and write-off effortsuch as collection through a disposition of collaterals.As you see on your right, NPL ratios of HanaBank and KEB came down by 16 bps and 7 bps each QoQ to 1.18% and 1.36%. So it was down by 16 bps and it wasup by 7 bps for Hana Bank and KEB.
Next page is on delinquency ratio. As of 2014-end, Group delinquency ratiowas down by 15 bpsQoQ to 0.62%. Delinquency rate of Hana Bank fell 20 bps to 0.45% while that of KEB wasdown by 8 bps to 0.44%, both from the previous quarter.We enhanced pre-emptive risk management by consistently reviewing companies fixed on our watch list to minimizenew NPLs while disposing of such entrenched to long-term delinquent loans through sale and write-off during thefourth quarter.As a result, both banks showed stable delinquency rate trends.
Next page as of 2014-end, Group's cumulative credit costrecorded 2 bps rise QoQ to 0.51%. As you see on the graph on the right, credit cost of Hana Bank was down 1 bpsQoQ to 0.34% while that of KEB rose by 4 bps to 0.62% due to additional provisioning of 44.2Wbn forMoneual.
In 2015, to improve asset quality indicators, our focus will be placed on qualitative asset growth that our company'srigorous risk management instead of just pursuing top line expansion in an effort to keep credit cost below 0.5%.
Moving on to capital adequacy on page 13, Group's estimated BIS ratio and Tier 1 ratio as of 2014-end rose 13 bps andfell 7 bps respectively from Q3 to 12.61% and 9.63%.Tier 1 ratio is expected to fall because while retained earnings after setting aside credit loss reservesincreased just 70Wbn from the previous quarter, year-end dividend has already been reflected and subtractedfrom shareholders' equity.
Next page shows Hana Bank BIS and Tier 1 ratios which rose 29 bps and 22 bpsrespectively from Q3 to 14.72% and 11.38%.
In case of KEB, estimated BIS and Tier 1ratios, went up by 28 bps and down by 22 bps each to 14.4% and 11.72%.
Nowon page 17, the Group's consolidated income. First on page 17 is the Group's consolidated income statement. Let mebegin with the Group's general operating income. Despite the NIM drop in Q4, interest income posted a 3.8% YoYgrowth as a result of portfolio adjustments driven by SME loan growth and rebalancing of asset and liabilities thatresulted from the increase in core deposits.
Fee income went up by 5.2%, both onYoY and QoQ basis on the back of increased trust fees from strong equitylinked trust product sales as well as increased credit card fees.Concerning disposition and valuation gains during the fourth quarter, 57.5Wbn FX translation loss thatresulted from the weaker Korean Won and 104.3Wbn impairment loss on securities of Taihan Electric Wire addedup to a total loss of 161.8Wbn.
In disposition and valuation gains this quarter was down by 174.3Wbn from Q3 to 1.4Wbn in loss. As suchGroup's Q4 general operating income fell by 9.8% from Q3. Fee income increased during Q4 offset the decrease ininterest income and annual general operating income growth stopped at 1.5% from up one year ago due to poorperformance in other operating income. Details on this will be given later on regarding the non-interest income section.
In Q4, SG&A rose 14.6% QoQ due to seasonality and so forth, but on an annualized basis, SG&A growth rate wasconfined to 2.3% which demonstrated the effect of the enterprise level cost rationalization drive that includeddownsizing of branch reduction.In Q4 due to a total of 98Wbn, one of the factors that caused provisioning suchas 53.8Wbn for Sambuand 44.2Wbn for Moneual, credit loss provision was slightly higher than theprevious quarter's ordinary level at 290.1Wbn.However, this is still down by 6.2% from 2013.
Next at page 18, business results subsidiary. The Group's keysubsidiary, Hana Bank’s consolidated 2014 cumulative net income isas aforementioned856.1Wbn and KEB’sconsolidated net income is 365.1Wbn. To elaborate, last December, the integration of China’s subsidiaries ofHana Bank and KEB and non-operating loss of 86.9Wbn was recognized so the KEB posted net loss of85.9Wbn in the fourth quarter. However, the last was added back again in the Group consolidated net income.So that in the, and it has no impact on the Group consolidated earnings. Please take note of them. If you look at the details for your net income atsubsidiaries,Hana Daetoo and Hana Capital was up 20.2% and 13.5% YoY to reach 82Wbn and 50.4Wbnnet incomesrespectively. The case of KEB Hana Card in 2014, the net income realized a loss of 11.2Wbn but this isbecause all the businesses reasons after the spin-off KEB Card September and December results for the integrated cardbusiness is included.For your reference is the 16.3Wbn, the income from January to November of Hana SK Cardis included, and the annual net income of KEB Hana Card is estimated to read 5.1Wbn. For the information of othersubsidiaries please refer to the IR data.
Page 19, the Group's NIM.
On page 19,Group NIM. As was mentioned before, the Group's Q4 NIM combined the Bank and Credit Card is down 5bpsQoQ to stand at 1.88%. The two consecutive policy rate cuts in 2014 led to a fall in loan and deposit pricing sothat in Q4, the drop in NIM appears relatively steeper. In 2015 as well as a low interest regime is expected, the recoveryof NIM maybe further delayed. However there is overall improvement in the asset-liability portfolio mainly based onexpansion of SME loans and growth of low-cost core deposits, we intend to descend our NIM.
On page 20, non-interest income and SG&A.
In 2014, at the end of 2014, the non-interest income as the Group fell4.2% YoY and fell 28.3% QoQ, especially as you see on the top right hand corner, the fee for Q4 reached the highestlevel in two years amounting to 461Wbn. This is led by growth in credit card fees while emergency andoverseas credit card usage as well as M&A advisory fee.
Among the Group's non-interest income items, other operating income fell by 215WbnYoY. This was due tothe termination of last year's other income of 123.4Wbn including the 72.6Wbn gains from additional shareacquisition of Hana Life in 2013. In addition to the fact that the cost for ordinary items such as thecontribution to guarantee fund and deposit insurance had increased.
In the case of 2014 SG&A due to the adjustment of the past service costs as it relates to the ordinary rates, allowancefor severance and retirement benefits increased 73.1% YoY picking up the lion's share of the increase in SG&A in2014 which comes to 89.9Wbn. On the other hand, labor cost and non-personnel expenses was kept within 1%increase at the previous year's level attesting to the success of the group-widecost efficiency measures which began in 2013.
Next is the total lending and total borrowings of the Group on page 22.
At the end of 2014, the total asset of theGroup stands at 315.5Wtn and if the trust asset of 76Wtn is included, the total assets come to 391.6Wtn. The Group's key subsidiaries, Hana bank’s and KEB’s total assets including the trust assetcome to 193.4Wtn and 142Wtn each. The Group's total liabilities amounted 293.7Wtn and shareholder’s equity is 21.9Wtn.
On page 23, Hana Bank's KRW loan and deposits. As of the end of 2014, The KRW loan ofHana Bank's rose 3.3% YTD and 1% QoQ to reach 110.9Wtn.
Now let's look at the breakdown in detail. Loans to large corporate sales 6.8% YTD and fell 5.7% QoQ to reach54.4Wtn. Moving to the adjustment in the good allocation to large corporate loans to SMEs increased 6.6%YTD and 1.4% QoQ amounting 236.7Wtn. Household loans grew 5.5% YTD and 3% QoQ to reach57.7Wtn.
Deposits were up 8.2% YTD amounting to 120.8Wtn, especially among the KRWdeposit owing to the expansion of SOHO loans that are engaging a broad range of partnerships with otherorganizations leading to client-based expansion. Core low cost deposit rose 15.8% YTD and 8.7% QoQdemonstrating a sound borrowing to improvement.
On page 24 is KRW loan and deposits of KEB. As at the end of 2014, KEB's KRW loan increased 4.1%YTD and fell 1.6% QoQ to reach 52.5Wtn. If we look in more detail, loans to large corporate fell 2.7%YTD and fell 11.3% QoQ to reach 10.3Wtn and loans to SMEs grew 14.8% YTD and is up 0.4% QoQto realize 19.8Wtn. So the SME centered growth trend continues.On the other hand, household loans fell 2.7% YoY but compared to the previous quarter grew 3.4%. So that overall therewas 1.9% growth to reach 21.3Wtn. Deposits grew 6.5% YTD to reach 69.4Wtn, especially amongthe KRW deposit core low cost deposit grew 10.6% YTD and 6.9% on the previous quarter.So Hana Bank improvement in borrowing structure was achieved.
On page 26, Group asset quality. The Group's total loans atthe end of 2014 posted 230.8Wtn and NPL loans came to 3.1Wtn. Total loans increased by 8.8WtnYoY and NPL fell by 172WbnYoY so that NPL ratio dropped 13 bpsYoY and 9 bpsQoQ toreach 1.35%. NPL coverage ratio was 123.3%.If you look at the graph on the upper right hand corner, during 4Q NPL grew before write-offs, sales and equity swap, in short, the new NPL increase is 464Wbn.
That's pretty good figure compared to the past new NPLat the end of the year. The amount of the new NPL forHana Bank and KEB combined is 372Wbn and other subsidiaries, new NPL growth is 91.8Wtn.
Regarding the asset quality of the bank, we will provide you with more details on the following page.
On page 27,Hana Bank's asset quality.
Total loan of Hana Bank at the end of 2014 is 126.8Wbn and NPL fell by320WbnYoY to stand at 1.5Wtn.Accordingly, the NPL ratio at the end of 2014 fell 29 bpsYoY and fell 16 bpsQoQ to reach 1.18% and the NPLcoverage ratio is 131.0%.
On page 28, the asset quality of KEB.
Total loan of KEB, as at the end of 2014 was81.9Wtn and NPL reached 1.1Wtn, increasing by 172WbnYoY. Accordingly, at the end of2014, NPL ratio rose 19 bpsYoY and 7 bpsQoQ to come to 1.36% and NPL coverage ratio is 105.5%.
Next on page 29, provisioning.
The Group's credit cost as at the end of 2014 fell 2 bpsYoY and rose 2 bpsQoQ toreach 0.51% and credit costs of Hana Bank and KEB was 0.34% and 0.62% respectively.Loan loss provisions for other subsidiaries, please refer to the next page.
On page 32, it covers the Group's capitaladequacy. As at the end of 2014, the Group's expected BIS and Tier 1 ratio is 12.61% and 9.63% respectively. TheGroup's Common Equity Tier 1 ratio is expected to be 9.15% and debt-to-equity ratio and double leverage ratio is30.15% and 127.61% each.
Page 33, covers the capital adequacy of Hana Bank and KEB. As of the end of 2014, Hana Bank's expected BIS and Tier 1 ratio stands at 14.72% and 11.38% respectively and Hana Bank's expected BISand Tier 1 ratio is 14.40% and 11.72% respectively.
For other financial highlights, please refer to the attachments. Now this concludes the earnings report for Hana Financial Group for the full year of 2014. Thank you very much.