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Thank you for taking part in the Hana Financial Group Business Results Presentation. I am Lee Junghoon, the IR team General Manager of Hana Financial Group. I express my appreciation to all those shareholders, analysts and other market participants for joining in via the phone or the internet despite your busy schedules. I would like to introduce our Executives for the 2019 Q3 Hana Financial Group earnings release.



We have here with us from Hana Financial Group, our CFO & Deputy President, Lee Seung-lyul and our CRO & Deputy President, Hwang Hyo-sang. Next from KEB Hana Bank, SEVP, Lee Hoo-seung is here with us and from Hana Financial Investment, Deputy President, Lee Sang-hoon is here with us. From Hana Card, Division Head of Management Strategy Kim Tae-hong is here with us. I will invite our CFO & Deputy President, Lee Seung-ryul to deliver the earnings presentation and then engage in a Q&A session via the phone.



From now on our CFO & Deputy President, Lee Seung-lyul will deliver the business results for Q3 of Hana Financial Group.



Greetings. I'm Lee Seung-lyul, the CFO & Deputy President of Hana Financial Group. I would like to cover the 2019 Q3 Group business results presentation.



P 3. 2019.3Q Financial Highlights (1)

First, the major business highlights of the Group. Please refer to Page 3 of the material.



The cumulative net earnings of Hana Financial Group posted KRW2,040.4 trillion, a 7.8% increase YoY. On the back of core earnings growth and around KRW320.0 billion of after-tax one-off fixed asset disposition gain Q3, cumulative net income that surpassed last year's performance was achieved for this quarter. Around KRW84.4 billion of FX translation losses as well as donations and other costs were recognized in Q3, but as aforementioned, there was a sizable building disposition gain as well as some provisioning write-back and a KRW836.0 billion of quarterly net income, a 27% increase QoQ was realized. The quarterly recurring income excluding various one-off items posted around KRW590.0 billion, a QoQ drop due to seasonal factors, but maintained the YoY level.



Now let me cover the Group's business performance in more detail.

First of all, the 2019 Q3 cumulative quarter earnings continuously maintained a growth trend YoY. Q3 NIM declined affected by factors including the BOK rate cut but on the back of sound loan asset growth, Q3 interest income maintained the previous quarter level and on a cumulative basis, it grew 4.2% YoY.

On the other hand, in the case of fee income, the Q3 performance decreased QoQ and on a cumulative basis it was slightly lower than YoY results. However, taking into consideration the base effect caused by the transfer of account of the variable annuity from other operating income to other fee income of around KRW70.0 billion, the fee income maintained a sound growth trend. Accordingly, the Group's Q3 cumulative core earnings posted KRW6,015.3 billion, a 2.3% increase YoY and beat the last year’s level.



Next, as a result of the Group’s wide risk management effort, the asset quality indicators to be managed at a very sound level. In particular, in the case of cumulative credit cost at the end of Q3, based on the growth strategies centering on asset quality with the recurring credit cost level being stably maintained and managed, there was the one-off provisioning write-back related to some large corporate loans and it posted a 17bp, a 2bp decline compared to the previous quarter end.



Lastly, Hana Financial Group's 2019 Q3 cumulative SG&A posted KRW2,988.3 billion and rose 4.9% YoY. This was caused not by only around the KRW126.0 billion of Q1 wage peak retirement expenses as well as some labor cost items, which have been divided and recognized throughout each quarters, but also by factors including sports marketing expenses as well as other factors leading to seasonal administrative expense increase in Q3. The Group SG&A expenses even including these one-off cost is being maintained within KRW1.0 trillion per quarter, and is showing the appropriate progress rate compared to the early business management goals.



Looking at the bottom right side of the page, the Group's 2019 Q3 end ROE and ROA, each posted 10.01% and 0.69% respectively and improved QoQ. The Q3 cumulative cost to income ratio posted 50.8% and is at a 48.7% level excluding the sizable wage peak retirement expenses.



P 4. 2019.3Q Financial Highlights (2)

Let us now go to Page 4.



The Group's 2019 Q3 NIM, a sum of KEB Hana Bank and Hana Card posted 1.72% and KEB Hana Bank's NIM posted 1.47%, each declining by a 9 bp and a 7 bp QoQ respectively. The Group's recurring level of decline was around 6 bp. Despite the efforts to have a more efficient internal portfolio, with the BOK rate cuts in Korea and concerns about additional trade conflict between the US and China, the market interest rate in July and August rapidly declined with the bank margin contracting. Card NIM also declined with the fee refund to new small and medium merchants, which were major reasons behind the drop. With the disappearance of the non-recurring items, including the previous quarter's sizable delinquent interest recovery, deposit insurance fee exemption and additional downward pressure pulled down 3 bps and the Group's NIM fell by somewhat a large degree compared to the previous quarter.



With last week's additional BOK interest rate cuts, Korea’s base rate reached a record low level and the Global Central Bank's monetary easing policy is expected to continue until the first half of next year. Accordingly, although we expect the NIM downward pressure to continue for Q4 of this year and in 2020, in order to guard the NIM decline as much as possible following the market environment deterioration, we will selectively increase the high quality assets and manage the proportion of high cost time deposits to actively improve our portfolio so that it is more focused on profitability.



Looking at the bottom right side of the page, you can see the graph and the bank loans in won as of 2019 Q3 posted a 1.8% QoQ and 5.9% YTD growth respectively and posted KRW214.6 trillion loans. Accordingly, despite the NIMs decline, the Group's Q3 interest income maintained the level of the previous quarter on the back of sound loan asset growth and grew 2.2% YoY. In the case of Q3 fee income, with the delay of several IB deal closing, some underwriting and advisory fees decreased and with the decline of asset management-related fees including trust-related fees, fee income declined around 9.3% QoQ. However, Q3 fee income grew 3.3% YoY and accordingly the Group's core earnings also grew 2.5% YoY in Q3.

P 5. 2019.3Q Financial Highlights (3)

Next, let's go to Page 5.



The Group's Q3 and Group's NPL ratio posted 0.48%, a 8 bp drop QoQ end and delinquency rate posted 0.35%, a 1 bp decline QoQ end and showed downward stability. In addition, in the case of the Group's cumulative credit cost ratio, as was aforementioned, it posted a 17 bp, a 2 bp decline QoQ end. Accordingly, on the back of the group wide asset quality improvement and risk management efforts, many asset quality indicators are continuously being stabilized. However, taking into account recent rising concerns of economic downturn expansion, we must continuously take interest and strengthen asset quality management.



The group's Q3 CET1 ratio is expected to post 12.25%, a 37 bp drop QoQ. With the recognition of the Vietnam equity investment related credit and market RWA being recognized in this quarter, the CET1 ratio declined around 31 bp. Other than that with the share buyback and rapid rise of the won dollar exchange rate, around 27 bp of CET1 ratio was pulled down. Excluding these non-recurring factors, the Q3 CET1 ratio of the Group was rose around 20 bp QoQ and is being stably managed according to the profitability focused asset growth strategy.

P 7 Group Consolidated Earnings

And now I will walk you through the Group's business performance by each item. Please refer to Page 7 for the Group's consolidated earnings.

Of the Group's Q3 general operating income, interest income stood at KRW1,458.8 billion maintaining a similar level QoQ. However, if the NIM continues to go down at the current rate, then the interest income in Q4 could be reduced. As was mentioned before, the cumulative interest income is KRW4,345.4 billion, up 4.2% YoY.



Fee income in Q3 was down 9.3% QoQ to KRW535.0 billion. As there is concern about economic recession in and outside the country, the conditions grow unfavorable vis-a-vis fee income related to asset management which is sensitive to the market climate. If some of the IB deals that had been put off are closed, then we may expect our fee income to recover in Q4. The Group's cumulative fee income is KRW1,669.9 billion, down by 2.3% YoY. However, this is mainly due to the base effect of last year, when there was a variable annuity related transfer of account from other operating income to other fee income. So, if we take out this factor, the cumulative normalized fee income grew 1.8% YoY.



With the US dollar continuing to grow stronger against the Korean won, gains on disposition and valuation in Q3 suffered a FX translation losses amounting to KRW84.4 billion. Thus, there was a 30.4% fall QoQ and recording KRW61.2billion. On a cumulative basis, there was a total of KRW159.2 billion of FX translation losses, but there was increase of 1.5% YoY in gains on disposition and valuation, thanks to improved profit from Securities Management.



Lastly, on this page, the cumulative SG&A amounted to KRW2,988.3 billion, managed within the range of the annual business plan. There were seasonal increases such as sports marketing expenses, leading to a 6.2% increase QoQ but on a YoY basis, it fell by 4.4% with the ERP cost taken out.

P 8. Business Results of Subsidiaries

And now on Page 8, net income of subsidiaries.



The Group's major subsidiary, KEB Hana Bank recorded a cumulative net income of KRW1,791.3 billion in Q3, up 1.9% YoY with the disposition gain on the sale of the HQ building, offsetting huge one-off items such as wage peak retirement cost and FX translation loss. Of this, the net income for Q3 is KRW757.5 billion, up 36.7% QoQ and up 33.9% YoY.



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.



Due to the lowered merchant fees Hana Card's cumulative net income up to Q3 decreased 37.8% YoY to KRW49.8 billion and Hana Capital achieved cumulative net income of KRW77.0 billion which is similar to the previous year. Please refer to the slides for other subsidiaries' business results

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

Pages 9 through 11 deal with the NIM, non-interest income and SG&A details that I had mentioned earlier.



P 13. Group Total Assets / Total Liabilities & Equity

Moving on to Page 13, Group's total assets, liabilities and equity.



As of the quarter end, the Group's total assets stand at KRW420.0 trillion or KRW540.0 trillion if the Group's trust asset of KRW120.0 trillion is included. KEB Hana Bank's assets inclusive of trust assets stand at KRW437.0 trillion.



The Group's total liabilities are KRW391.0 trillion and total equity KRW29.0 trillion.



P 14. KEB Hana Bank KRW Loan / Deposit

KEB Hana Bank's loans in won and deposits on Page 14.



As of Q3 end this year KEB Hana Bank's loans in won is KRW214.6 trillion up 1.8% QoQ and up 5.9% YTD.



Breaking down the loan growth by each item, corporate loans increased to KRW102.8 trillion up 6.8% YTD. Corporate bond issuance increased on the back of lowered interest rate and large corporate loans decreased 4.1% in Q3 and by 1.2% YTD to KRW14.4 trillion. SME loans grew by 8.3% YTD to KRW86.3 trillion a robust momentum, led by the sound SME loans.



With an additional 2.4% growth in Q3 driven by the increase in Jeonse loans and loans before registration, the household loans increased 5% YTD to KRW111.8 trillion.



Deposits in won, as of Q3, rose 5.5% YTD to KRW223.3 trillion won. The low-cost core deposits increased 7.7% YTD and time deposits increased 8% year-to-date continuing with a stable funding structure. In the middle of September, the MMDA balance decreased due to huge amounts of withdrawals by some large corporations and public agencies driving down the portion of low cost deposits compared to the previous quarter. As can be seen from the graph on the bottom right, the LDR in Q3 is 97.6%.



P 16 Group Asset Quality

And now Group's asset quality on Page 16.



The Group's total credit grew 7.1% YTD to KRW282.6 trillion and the amount of NPL fell 12.8% YTD to KRW1.4 trillion. The Group's Q3 NPL ratio is 0.48% down by 11 bp YTD and down by 8 bp QoQ, continuing with the downward trend from Q2.



On the top right, you see the Group's new NPL formation in Q3 was KRW145.4 billion, a huge decrease over Q2. That is because there was a significantly lower amount of new defaults and some large corporate exposure was taken out of the NPL because their ratings were adjusted upward.



P 17 KEB Hana Bank Asset Quality

The bank's asset quality will be explained on the next page, Page 17.



The bank's total credit rose 6.3% YTD to KRW246.6 trillion in Q3 and NPL decreased 19.8%, KRW1.0 trillion. This brought down the NPL ratio to 0.4%, down by 12 bp YTD and down by 7 bp QoQ. The NPL coverage ratio for Q3 was up by 2.9%p at 94.4%. The bank's delinquency ratio in Q3 was 0.23%, down 2 bp QoQ recording the lowest ever in the history of the holding company. Household loan delinquency ratio was at a similar level to Q2 and the corporate loan delinquency was improved by 2 bp continuing with the downward curve on the overall loan delinquency.



P 18. Provision Analysis

Provision on page 18.



The Group's Q3 credit cost ratio was 0.17% and KEB Hana Bank's credit cost ratio recorded 0.05%.



P 19. Capital Adequacy

Lastly, capital adequacy on Page 19.



The group's BIS ratio and Tier 1 ratio are estimated at 14.17% and 12.97% respectively in Q3. The group's CET1 ratio is expected to record 12.25%. As was mentioned in the beginning, the capital ratio fell QoQ due to some one-offs, such as policies for securing profit base and shareholder return. However, they are managed at an adequate level on a recurring basis and we will continue to do our best to enhance capital efficiency and shareholder value based on the improved and stable business results.



Please refer to the appendix for further details. This brings me to the end of Hana Financial Group's earnings presentation for Q3, 2019.



Thank you.