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Good afternoon, everyone. I am Junghoon Lee, Head of the IR team of Hana Financial Group. I'd like to thank all the shareholders, analysts and other market participants for taking part in today's event through phone or via the internet. Let me now begin the 2019 first half earnings presentation.



But first, let me introduce the members of the senior management here with us today.



From Hana Financial Group, CFO, Seung-lyul Lee and CRO, Hyo-sang Hwang are here with us. Next, from KEB Hana Bank, Jae-bong Ryu, Deputy President in charge of Global Group and Bong-yeon Lee from Management Group are here with us. Sang-hoon Lee, Deputy President in charge of Business Planning Group from Hana Financial Investment is here with us. Finally, from Hana Card Division Head, Tae-hong Kim from the Management Support Division is with us today.



Today, we will first hear the earnings presentation from our CFO, Seung-lyul Lee and then proceed to Q&A session through the telephone. We will now invite CFO, Seung-lyul Lee to present the 2019 first half Hana Financial Group business results.



Good afternoon. I am Seung-lyul Lee, the CFO of Hana Financial Group. From now on, let me walk you through the Group's business results for the first half of 2019.



P 3 2019.1H Financial Highlights (1)

First, the business highlights of the Group please refer to page 3 of the presentation material.



Net income of Hana Financial Group in 2019 Q2 is up 20.6% QoQ and up 3.8% YoY to post KRW658.4 billion on the back of sound growth of core income, which combines interest income and fee income. The Group's net income in the first half is KRW1,204.5 billion, down 7.5% YoY. This however is due to large one-off costs including salary peak ERP expenses and when such one-off expense is excluded, the actual first half income has increased YoY, showing sustained improvements in the Group's fundamentals.



Let me provide more details of the first half performance.

First, as I said, the core income in the Group's top-line shows marked improvement. The Group's NIM in Q2 was managed stably, which led to an increase of 1 bp QoQ. The interest income is also up QoQ, owing to the healthy growth of the bank's loan assets. In the case of fee income as well, asset management fees, lending, and FX related fees have led the strong fee income growth over the previous quarter. As such, as the core income in Q2 posted KRW2,050.0 billion, the largest core income since the establishment of the holding company and is up 2.2% YoY, the highest growth yet and a record during the first half.

Meanwhile, cost items were efficiently managed at the bottom line, underpinning the Group's improvement in performance. The SG&A in Q2 fell significantly, given the removal of large one-off ERP costs. The Group's cost-to-income ratio posted 46.2% in Q2, normalizing quickly. In addition, loan loss provisions in Q2 of 2019 improved considerably QoQ on the back of write-back of provisions on the loans of few large companies. As a result, the cumulative credit cost ratio at the end of the first half posted 19 bps, down 6 bps QoQ. Also when the major one-off factors in the first half are excluded, the credit cost ratio is maintained at 21 bps level, as such, based on the group-wide effort to manage risk, the ordinary loan loss provisioning has been maintained stably



If you look at the lower right-hand side, Group's 2019 and the first half ROE and ROA is 9.02% and 0.62% respectively. On a cumulative basis in the first half, the cost-to-income ratio posted 50.1% and when the first half salary peak ERP expenses removed, the ratio is at the 46.9% level.



P.4 2019.1H Financial Highlights (2)

Next, please refer to page 4.



KEB Hana Bank and Hana Card included the Group's 2019 Q2 NIM is 1.81%. KEB Hana Bank's NIM is impacted by the plunging market rate despite internal efforts and portfolio improvement fell 1 bp QoQ. But because of the reduction in interest-free installment purchase assets, the Hana Card’s profit margin had been improved to a certain extent, thus resulting in 1 bp rise in the Group's NIM QoQ. The BOK has undertaken a preemptive interest rate cut and next week the Fed is likely to engage in rate cuts as well. We will continue to make a portfolio re-balancing efforts focusing on profitability to minimize margin reduction in an unfavorable business environment.



The interest income in Q2 is up 2.3% QoQ, owing to the increase in loan assets and is up 4.1% YoY. As such in the first half, 5.3% of fair growth was posted YoY. The fee income in Q2 is down 3.2% YoY due to the sustained impact from the merchant fee cuts implemented last February, but on a QoQ basis on the back of increasing asset management fees due to strong ELT sales, it is up 8.3%, continuing to improve for four straight quarters.



On the lower right-hand side graph, it shows the Korean Won loans at the bank as of the end of the first half, which is up 3% QoQ and up 4.1% YTD to post KRW210.9 trillion.

P 5 2019.1H Financial Highlights (3)

Next the page 5.



The Group's NPL ratio as of the end of Q2 of 2019 is down 6 bps QoQ to post 0.56%. The delinquency ratio is 0.36% and is down 6 bps QoQ as well. The group's cumulative credit cost ratio is down 6 bps QoQ to post 19 bps. This has been achieved despite the one-off provisioning for a few companies because the normalized provisions have been stably managed and also because of the occurrence of large write-back of large company provisions. Through risk management efforts at the Group level, the asset quality indicators have been stabilized, but the recent global trade disputes and the slowdown of domestic economic growth rate continues to fuel uncertainties at home and abroad. So in consideration of this, we intend to further strengthen our asset quality management going forward.



The Group's end of Q2 CET1 ratio is down 27 bps QoQ and is expected to post 12.61%. This is because along with the fall in CET1 ratio by 8 bps due to the payout of interim dividend, asset growth of the bank and securities company has led to the growth of the risk weighted assets. As we engage in both preemptive profit base expansion and shareholder return policy, the capital ratio fell, but it is still well above the Basel III standards and in the second half, we will continue to make efforts to ensure that the capital ratio is stably managed and capital efficiency is enhanced.

P 7 Group Consolidated Earnings

Next, let me go over the Group's business results item-by-item. First on page 7, please refer to the Group's consolidated income statement.

Among the Group's general operating income in the first half of 2019, interest income posted KRW2,886.6 billion and is up 5.3% YoY.



The fee income in the first half is KRW1,134.9 billion and is down 4.7% YoY, but this owes itself largely to the base effect related to the variable annuity initial fee account change as has been the case in the first quarter. If this is excluded, the Group's first half fee income is slightly up YoY.



Meanwhile, gain on disposition and valuation has seen FX translation losses of KRW74.8 billion approximately due to rises in the foreign exchange rate. But based on improved management performance of marketable securities, it is up 62.4% YoY to post KRW256.3 billion.



Finally, the Group's SG&A in the first half of 2019 is up 10.2% YoY to post KRW2,001.7 billion. This is due to the fact that approximately KRW126.0 billion in wage peak ERP expense was paid in Q1 and starting from this year, some of the labor cost items are spread out across the year and recognized on a monthly basis. If such special factors are considered, the first half SG&A is up 10% YoY and is being managed appropriately within the annual business plan target range.

P 8 Business Results of Subsidiaries

And now moving on to page 8, business results for the subsidiaries.



KEB Hana Bank's net income for first half 2019 recorded KRW1,033.8 billion, 13.3% down YoY due to the large one-off such as the salary peak ERP in Q1. The Bank's net income for Q2 has increased 15.4% QoQ to KRW554.0 billion.



Hana Financial Investments net income in the first half on a consolidated basis was up 43.5% YoY to KRW152.8 billion. Due to reduced stock transaction volume, stock brokerage fee decreased. However, with the 34.8% increase in IB underwriting fees and advisory fees coupled with the huge dividend gain, we achieved a robust performance improvement. The Q2 net income has also increased 44.6% QoQ to KRW90.3 billion on the back of larger fee income and less labor cost, maintaining a very sound momentum.



And KEB Hana Card's net income for the first half has decreased 34.7% YoY to KRW33.7 billion due to the lowering of merchant fees that went into effect in February. And please refer to the table for the other subsidiaries performance.

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 now moving on to page 13, the Group's total assets, liabilities and equity.



The Group's total liabilities are KRW377.0 trillion and total equity KRW28.6 trillion.



P 14 KEB Hana Bank KRW Loan / Deposit

Page 14, KEB Hana Bank's loan and deposit in Korean Won.



As of Q2 end 2019, the bank's loans in Won stood at KRW210.9 trillion, up 3.0% QoQ and up 4.1% YTD. The asset growth is broken down as follows. Corporate loans increased 5.7% YTD to KRW101.7 trillion. Large corporate loans increased 3% YTD to KRW15.0 trillion, SME loans grew 4.2% in the second quarter, recording KRW84.8 trillion, up 6.5% YTD. Continuing from the first quarter, the prime SME loans led to the growth into the second quarter, achieving profitability-oriented sound asset growth.



Household loans grew 2.7% YTD to KRW109.2 trillion as Jeonse loans and pre-registration loans continue to increase and as the amount of collective loans due at maturity decreased.



In the first half of 2019, the deposit in Won stood at KRW218.3 trillion, up 3.1% YTD. As the growth rate of low cost deposit and MMDA balance exceeded that of the time deposit balance, the share of the low cost deposit increased YTD, improving the funding structure. For your reference, the graph on the bottom right shows the LDR in the first half to be 97.3%.



P 16 Group Asset Quality

Page 16, the Group's asset quality.



In the first half, the Group's total credit grew 4.9% YTD to KRW276.7 trillion an NPL decreased 1% YTD to KRW1.5 trillion, bringing down the NPL ratio to 0.56%. This was a 3 bp decrease YTD and a 6bp decrease QoQ, stabilizing the NPL ratio at a lower rate.

The top right shows the Group's new NPL formation in Q2 was KRW282.3 billion. The amount that was recognized as other subsidiaries NPL has decreased, but because of some one-off provisioning, KEB Hana Bank's new default volume increased and the Group's new NPL formation was at a similar level to Q1.



P 17 KEB Hana Bank Asset Quality

Let me elaborate on the Bank's asset quality on page 17.



KEB Hana Bank's total credit in the first half has grown 4.1% YTD to KRW241.5 trillion and NPL decreased by 6.1% to KRW1.1 trillion. NPL ratio fell by 7 bp QoQ to 0.47% and the NPL coverage ratio in the first half has increased 5.2 %p to 94.5%.



KEB Hana Bank's delinquency ratio at the end of Q2 was 0.25%, a 4 bp drop QoQ. Household loan delinquency decreased and also SOHO loan delinquency fell sharply as well with the repayment of a large sum of delinquent loans, bringing down the overall delinquency ratio.



P 18. Provision Analysis

Page 18 shows the Group's credit cost to be 0.19% in the first half and the Bank's 0.06%.



P 19. Capital Adequacy

And lastly, capital adequacy on page 19.



We expect the Group's BIS ratio and Tier 1 ratio to be 14.69% and 13.36% respectively at the end of the quarter. CET1 ratio is expected to be 12.61%.



We'd also like to inform you that interim dividend of KRW500 per share will be paid out which is in line with our active shareholder return policies. By increasing core profit and controlling cost, we grew the group's recurring income and continuing from last year, we're able to increase the interim dividend by KRW100 per share again this year. Going forward, we will do our best to maintain the Group's capital adequacy at a stable level including the CET1 ratio based on improved business results. We will reinforce our shareholder return policy so that shareholder value will continue to increase. Please refer to the appendix for detailed information and business indicators of other subsidiaries.



This concludes the earnings presentation for Hana Financial Group for first half of 2019. Thank you.