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Good afternoon everyone and I am Junghoon Lee, Head of the IR team at Hana Financial Group. I'd like to thank all the shareholders and analysts and other market participants who were taking part in today's events via phone or the internet.



And we will now begin the 2019 Q1 earnings presentation. First, let me introduce member of Senior Management here with us today. First, from Hana Financial Group CFO, Seunglyul Lee is with us, and the CRO, Hyosang Hwang is also with us. Next, from KEB Hana Bank Hoo-seung Lee, Senior Executive Vice President who is in charge of the Planning and Management Group, Sang-hoon Lee, Deputy President from the Hana Financial Investment Management Planning Group is with us. Finally, from Hana Card as Division Head, Kwon Kyungtaek from Management Support Division is with us.



Today, we will first hear the presentation from CFO, Seunglyul Lee and then we'll proceed to a Q&A session using the phone calls. Now, I invite a CFO, Seunglyul Lee to present the 2019 Q1 Hana Financial Group Business Results.



Good afternoon. I am Seunglyul Lee, the CFO of Hana Financial Group. Let me now walk you through the group’s business results Q1 of 2019.



P 3. 2019 1Q Financial Highlights (1)

First, major highlights of business performance in Q1 of 2019. Please refer to page 3 of the presentation materials.



Net income of Hana Financial Group in Q1 of 2019, 16.8% YoY decrease and 63% increase QoQ to reach to KRW556 billion. Salary peak ERP, FX transaction losses on the back of a weak Won contributed to large one-off expenses, resulting in lower net income than Q1 of last year. However, if such a collection of factors are removed, the normalized net income is approximately KRW675 billion, a slight improvement from the last year despite the unstable the economic environment at both home and abroad that started deteriorating from last year. And core earnings which combine interest income and fee income is posting a growth trend YoY demonstrating a healthy trend of improving normalized income.



Let me explain the result of Q1, 2019 item by item.

First, the stable growth at end of the quarter earnings was maintained. During Q1, despite the contraction in NIM as a result of the market rate cut, sound loan growth has maintained by focusing on corporate loans, so that interest income grew YoY. Fee income declined YoY basis. However, if one considers the base effect of variable annuity initial fee account transfer for Hana Life Insurance that occurred last year, we have achieved results that are slightly higher than the same period last year. Also, compared to the previous quarter despite the unfavorable environment, notably credit card merchant fee cuts, M&A advisory fees and asset management fees have led a solid growth trend.

Secondly, the SG&A of group in Q1 increased YoY as it allows one-off severance pay expense on the back of a sudden surge in employees’ eligible for early retirement under the salary peak ERP system. However, the normalized SG&A, which excludes expenses occurred by the salary peak ERP system and also some of the labor cost items, which will be spread out over a year starting from this year, is being maintained at an appropriate level similar to the same period last year.

Secondly, the SG&A of group in Q1 increased YoY as it allows one-off severance pay expense on the back of a sudden surge in employees’ eligible for early retirement under the salary peak ERP system. However, the normalized SG&A, which excludes expenses occurred by the salary peak ERP system and also some of the labor cost items, which will be spread out over a year starting from this year, is being maintained at an appropriate level similar to the same period last year.



Finally in the Q1, 2019, loan loss provisioning was down approximately 25% QoQ but increase YoY. This is due mostly to couple with a decline in debt recovery from provisioning write-back compared to Q1 last year, and exceptional one-off factors occurred including additional loan provisioning following Risk Component adjustment early this year and provisioning account transfer of some large company loans. If these one-off factors are removed, the loan loss provisioning is maintained at the ordinary level of Q3-Q4 of last year. And we will continue to engage and sustain in proactive risk management given concerns of possible deterioration in asset quality or an economic downturn at home and abroad. For your information, the group's credit cost ratio in Q1 is 25bp, up 10bp YoY. The credit cost ratio, when removing the impact of such one-offs factors mentioned previously, is 20bp and being maintained at a stable level low is in the annual business on target.



If you look at the bottom right-hand side of the page, at the end of Q1 2019, ROE and ROA are 8.49% and 0.59% respectively. Cost income ratio posted 54%, but if the early retirement expense under the salary peak ERP system is removed, it comes to 47.7%.



P 4. 2019 1Q Financial Highlights (2)

Next we turn to page 4. First, NIM.



The group's 2019, Q1, NIM including KEB Hana Bank and Hana Card is 1.80% down 5bp QoQ. Q1 NIM of KEB Hana Bank is 1.55%, down 1bp QoQ. This is due to the fact that margin ratio has been improving on the back of efforts to strengthen loan to deposit pricing as well as improve portfolio profitability, along with the absence of last quarter's one-off NIM growth factors such as recovery of delinquent interest, there are upward adjustments of contributions to Korea credit guarantee fund in the deposit insurance corporation. Meanwhile, the groups NIM contraction QoQ is a card company’s margin ratio falling steeply impacted by the credit card merchant fee cuts implemented from last February.



Q1 interest income is down slightly due to the impact from their calendar effect, but if compared on a YoY basis, a solid growth of loan asset led by SMEs it is up 6.5%. Fee income grew 5.9% QoQ and maintaining the trend of performance improvement. But on a YoY it is down 6.4% because of base effect of the additionally accounting for approximately KRW38 billion in other fee incomes in Q1 last year following the maturing a variable annuity in life insurance. If such effects are removed, the fee income in Q1 2019 is slightly higher than the same period last year.



If you look at the graph in the lower right hand side, the Bank’s loan in Won is up 6.8% YoY and 1% YTD to reach KRW204.6 trillion.

P 5. 2019 1Q Financial Highlights (3)

Next the page 5.



As of the end of Q1, 2019 the group's NPL ratio is down 14bp YoY and up 3bp QoQ to stand at 0.62%. Although, there was a slight increase on QoQ basis after differing the timing of the sales of distressed asset to improve the disposal value of the real estate collateral, the ratio is still being maintained at a stable level.



Next, the group delinquency rate is maintained at the same level on a YoY basis but it is up by 5bp QoQ and comes to 0.42%. KEB Hana Bank delinquency rate has increased 4bp but if the special one-off factors I've mentioned previously are removed such as non-sell of distressed asset and some large delinquencies of the SOHO loans, the increase in delinquency caused by changes in the macro environment at home and abroad is predicted to be limited. If compared with delinquency trends of the past several years, it is still maintaining a relatively fair level, which engaging pre-emptive delinquency management. We will scrutinize borrowers with early warning signs and strengthened followed measures.



Next approved credit cost ratio is up 10 bp YoY to reach 25bp. As I have mentioned previously, compared to Q1, 2018 the size of the loan loss provisioning has increased. But if one removes the additional provisions set aside due to adjustments and risk component earlier in the year and the effective reclassifying of loan loss provisioning within provision accounts related to specific large company loans, the credit cost ratio is maintained at normalized level as last year Q3, Q4. However, while most of the existing loan assets distressed have been normalized, the domestic economic growth rate is showing a declining trend. Therefore, the possibility of additional insolvencies of vulnerable borrowers and of the marginal companies is high. Therefore, by expanding the scope of entities requiring corporate improvement, and by strengthening the monitoring distress signals as well as preemptive management, we intend to continue proactive management in asset quality.



The group's CET1 ratio at the end of Q1 is expected to reach 12.89% up 3bp QoQ, and continue from the previous quarter; it is projected that appropriate level of asset adequacy will be maintained.

P 7. Group Consolidated Earnings

Next let's go into more detail about each item of the group's business result. First, refer to the group's consolidated income statement on page 7.

The group's general operating income will be looked at first. In Q1 of 2019, among the general operating income, the interest income reaches KRW1, 426.6 billion, up 6.5% showing a healthy trend.



The quarterly fee income was KRW544.9 billion and on a YoY basis, it is down 6.4% due to special one-off factors. If compared with the previous quarter in all of item categories including M&A advisory fee and asset management related fee, but exception of credit card fee, the fee income posted a solid growth rate of 5.9%.



Meanwhile, gain on disposition and valuation is up 158.8% QoQ and up 24% YoY and reach KRW168.4 billion despite the FX translation losses of KRW38.2 billion due to a weak Won.



Finally, the groups SG&A in Q1 of 2019 is KRW1, 072.8billion, down 2.4% QoQ that is up 18.4% YoY. The main cause was a sudden surge in employees subject to salary peak ERP compared to the previous year so that approximately KRW126billion of expense was executed. In addition, some of the labor cost items were usually recognized all at once at the end of the year in the past. But, they were spread out over year recognizing a monthly basis so that on a YoY basis KRW10.5 billion in labor cost was incurred additionally. As such it is our projection going forward to quarterly, labor cost volatility will be significantly reduced. When such special factors are considered, the Q1 normalized SG&A is approximately KRW936 billion and be maintained stably within the target set by the business plan.

P 8. Business Results of Subsidiaries

And now on page 8, net income of subsidiaries.



The group's major subsidiary KEB Hana Bank recorded net income of KRW479.9 billion in Q1, down 24.1% YoY due to the large amount of one-offs. But, was up 46.2% QoQ.



Hana Financial Investment’s net income on a consolidated basis for Q1 increased by 49.3% YoY and 518.1% QoQ to KRW62.5 billion. Stock brokerage fee was sluggish due to the contraction of stock transaction YoY, but clear signs of improvement in M&A advisory fee, and gains on disposition and valuation were there showing heightened earnings power since the capital increase from the previous year.



Despite an increase in credit card sales, Hana Card’s net income in Q1 decreased 28.4% YoY to KRW18.2 billion, due to the merchant fee cut under the government's policy to extend the benefit to more merchants.

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

Please refer to the slides for other subsidiaries results and also please refer to pages 9 to 11 for the NIM, Non-interest income and SG&A details.



P 13. Group Total Assets / Total Liabilities & Equity

And moving on to page 13, group’s total assets, liabilities & equity.



As of the end of Q1 the group's total assets stood at KRW393.5 trillion or KRW503.9 trillion if the group's trust asset of KRW110.4 trillion is included. KEB Hana Bank's asset inclusive of trust assets stands at KRW409 trillion. The group's total liabilities are KRW366.1 trillion and total equity KRW27.4 trillion.



P 14. KEB Hana Bank KRW Loan / Deposit

KEB Hana Banks loans and deposits in Won on page 14.



As of Q1 this year, KEB Hana Banks loans and Won is KRW204.6 trillion, up 1% YTD. Breaking down the loan growth by each item corporate loans increased to KRW98.4 trillion up 2.3% YTD. Of these large corporate loans grew 3.4% YTD to KRW15.1 trillion, SME loans grew by 2.2% to KRW81.4 trillion, out of which SOHO loans grew 1.9% to KRW42.5 trillion. The first quarter loan growth was led by the SME and profit-oriented loans.



Although, there was an increase for Jeonse loans and Collective loans, overall household loan decreased 0.2% YTD to KRW106.3 trillion because the group loans for intermediate and balance payments were repaid at maturity. Deposit and Won in Q1 rose 0.8% YTD to KRW213.3 trillion. There was a slight decrease in time deposit balance whereas there was an increase in the balance of low cost core deposits and MMDA improving the share of the low-cost deposits in the mix. As can be seen from the graph on the bottom right, the LDR in Q1 is 96.9%.



P 16. Group Asset Quality

And now group's asset quality on page 16.



The group's total credit grew 1% QoQ to KRW266.6 trillion and due to a postponement of NPL sales, the amount of NPL rose 5.7% QoQ to KRW1.6 trillion. This brings up the group's Q1 NPL ratio to 0.62% up by 3 bps QoQ. On the top right, you see the group's new NPL formation prior to sale write-off and debt equity swap and it was KRW288.6 billion in Q1. KEB Hana Bank's corporate loans new defaults have been stably managed, but amount of bad debt normalized or recovered contracted. And for some subsidiaries, the loan amount categorized under NPL increased over the last quarter.

Most of the large bad debt has been taken care of and with the slowing down of the economy at home and abroad, there is likelihood that new NPL formation may be higher than the previous year level. Nevertheless, we will strengthen the early warning system so that we can identify the early signs of loan quality deterioration and take pre-emptive measures to manage an appropriate level of new NPL. The Bank’s asset quality on the following page.



P 17. KEB Hana Bank Asset Quality

Moving on to page 17, KEB Hana bank's asset quality.



The bank's total credit rose 0.6% QoQ to KRW233.5 trillion and NPL increased 3.6% to KRW1.3 trillion. This raised the NPL ratio to 0.54%, 2bp increased QoQ and the NPL coverage ratio for Q1 was down 2.2%p at 89.3%. The bank's delinquency ratio in Q1 was 0.29% up 4bp QoQ, household loan delinquency ratio was adequately managed. And as aforementioned, because of this sluggish Korean economy and some one-offs, the SOHO loan delinquency ratio went up raising the total delinquency ratio but it is lower by 2bp YoY.



P 18. Provision Analysis

Provision on page 18.



The group's Q1 credit cards ratio was 0.25% and KEB Hana Banks credit cost ratio recorded 0.15%.



P 19. Capital Adequacy

Lastly, capital adequacy on page 19.



The group's BIS ratio and Tier 1 ratio are estimated at 14.77% and 13.52% respectively in Q1. And as for CET1 ratio we expected to be 12.89%.



Please refer to the appendix for further details, and this brings me to the end of Hana Financial Groups Earnings Presentation. Thank you.