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Good afternoon, everyone. Thank you for participating in Hana Financial Group Earnings Presentation. I'm Junghoon Lee, Head of IR. I want to thank the shareholders, analysts and other market participants for taking time out of your busy schedule to participate in today's earnings release via phone or internet. And now, we begin the 2021 first-half earnings presentation.


We have with us today, the group CFO, Hoo-Seung Lee and senior management members responsible for finance, risk and strategy from the group and the major subsidiaries. Today, we will first give a presentation on the group’s business results and then hold the Q&A session via phone.


We'll now invite our CFO, Hoo-Seung Lee for a presentation on the 2021 first half business results of Hana Financial Group.


Good afternoon, investors, capital market participants, research analysts, and financial news journalists. I'm Hoo-Seung Lee, CFO of Hana Financial Group. Thank you very much for your interest in our company. The year is already half over and we meet again in July which is the start of the second half. Although we are warned the record-breaking heatwaves following the end of the monsoon season, we hope that at least in our hearts we will be able to enjoy a cool and refreshing summer. We also wish you the best of luck in all your endeavors in the second half as well.


P3. 1H 2021 Business Highlights (1)

And now, I will walk you through the 2021 first half Hana Financial Group's business results. First, the group's financial highlights. Please refer to page three. The net income of Hana Financial Group in Q2 of 2021 posted KRW917.5 billion, up 33.2% YoY, and 9.8% QoQ.


As such, the first half net income grew 30.2% YoY to post KRW1,753.2 billion. What is noteworthy is the increase in core earnings driven by the simultaneous growth of both interest income and fee income. Credit cost results also managed at a stable level. Against such a backdrop, the group posted record-high results for the first half. Once again, demonstrating this, all the capability of the group to generate profit.


As the vaccination rate in Korea grows, herd immunity is expected to be achieved in the second half and BOK’s forecast for economic growth has been adjusted upward, which is reflecting optimistic expectations. However, the Delta variant of COVID-19 is spreading across the world with pre-emptive level-4 social distancing measures to stand the surge in new cases. And does uncertainties still remain. To respond to such factors that may have an adverse impact on the business environment, Hana Financial Group has already set aside a large-scale loan loss provisioning pre-emptively to prepare for various risk scenarios.


Going forward, we will maintain our conservative provisioning policy to counter any potential COVID-19 related defaults and will strengthen monitoring of relatively high risks exposures to maintain stable risk management. In addition, we will be enhancing the profitability of the group, and extend the shareholder return policy to diversify the group's business portfolio, continue cost management, and strengthen the synergy between the global and digital businesses.


Let me explain in more detail of the group's business results. In the first-half of 2021, the group's core earnings grew 14.5% YoY to post KRW4,515.3 billion. Improving the balanced growth of Hana Bank and non-bank subsidiaries led to a significant increase in interest income and fee income resulting in the largest quarterly and first-half core earnings ever.


If we dive into greater details, on the back of another spike in NIM and the solid growth in loan assets in the second quarter, the group's interest income went up 13.7% YoY for the first half. Fee income for the first half also showed solid growth meaningfully led by brokerage fee, IB related M&A advisory and credit card fee, which went up by 16.7% YoY.


Next, the group's first half cumulative credit cost ratio is 0.12%, +1bp QoQ, but kept well within the annual target levels. The impact of pre-emptive COVID-19 provisioning on a large-scale last year still continues this quarter, and due to the approval by the financial authorities of the modifying credit rating model, the corporate PD has undergone changes, leading to a one-off write-back of KRW41.2 billion in the bank. So the group's credit cost ratio is maintained at a very low level. Also based on the strategy of asset growth focusing on quality and efforts to manage risk at the group level, the delinquency rate and other such key asset quality indicators are being managed at a healthy level.


However, given the possibility of the growing volatility in the financial market due to the spread of the Delta variant and inflation concerned, we will continue to closely monitor the relevant trends. In particular, because of the so-called COVID-19-inducedmacro indices hikes, namely inflation, interest rate hikes, and the rise of the exchange rate, we are keeping a close eye on the possibility of rising interest expense for both household and corporate sectors. And also, the corporate burden saturating going to the rise in the commodity price. At the same time, we intend to implement the necessary measures at the right time by pre-emptively studying the impact of growing new risk in emerging economies as well as the potential pressure for capital outflow.


Finally, the SG&A of the group in the first half of 2021 is KRW2,015 billion, up 13.4% YoY. The key contributors were mostly special one-off factors, including the paying out of bonuses in 1Q21, this setting aside of the reserves which was resumed from 2Q21 for the bank employees’ performance pay, write-back reserves related to Hana Bank’s performance pay 2Q20 and the effect of incorporating insurance as the group’s subsidiary last year June.


With regards to the bank's resumption of provisioning for performance pay reserves, we will provide more details on page 7. Despite its special one-off factors, the size of the SG&A has begun again stabilized below KRW1 trillion, and the first half SG&A cost & C/I ratio are being managed within the annual target. Going forward, to achieve stable business results against the macro uncertainties and to secure the financial capabilities necessary to respond to the trend of digital transformation of the financial industry, we will continue our group-wide cost savings efforts. In relation to the profitability indicators, if you look at the bottom left-hand side, the group's ROE and ROA for the first half of 2021 are 11.25% and 0.76%, respectively improved YoY significantly.


P4. 1H 2021 Business Highlights (2)

Next please refer to Page 4. Including Hana Bank and KEB Hana Card, the group’s 2021 Q2 NIM grew 6% QoQ to post 1.67%. KEB Hana Card contributed to enhancing group NIM through the average balance asset and Hana Bank's NIM grew 5% QoQ to post 1.41%, continuing a solid growth trend. Such a trend is due largely to the additional drop in funding costs for the time deposits and accumulative deposit, and yield rebound in loan assets. The efforts to increase low-cost deposit led to improvement in portfolio mix.


Next, if you look at the right-hand side, the bank's loan in Korean Won is up 1.9% QTD posting KRW 249 trillion as such driven by both improved profitability and sound loan growth, the group's interest income in Q2 grew 6.7% QoQ, and as of the first-half grew 13.7% YoY. Also, the group's Q2 fee income increased 4.3% QoQ led by IB and card fee continuing the trend of healthy improvement of the group's core earnings.


P5. 1H 2021 Business Highlights (3)

Next is Page 5. As of the end of Q2 of 2021, the group's NPL ratio stood at 0.36% down 4 bps QTD, and the delinquency ratio is down 2bps Q2 posting 0.28% and maintained at a stable level overall. Next, the group's cumulative credit cost ratio in the first half is down 15bps YoY to post 0.12%. As I had explained previously, the pre-emptive efforts at risk management and approval of the modified corporate risk model have led to a temporary downward adjustment to Hana Bank’s provisioning cost. And we expect the credit cost ratio to recover gradually back to ordinary levels eventually. Unlike our initial expectations early in the year, the Delta variant of COVID-19 is spreading globally causing concerns about deteriorating macro-environment that in the second half as well, we will take all necessary measures to ensure that sound asset quality is maintained. Finally, the group CET1 ratio grew 12bps QTD approximately and is expected to post 14.16%. Despite the growth in RWA due to the interim dividend payout and increase in loan assets, due to growing retained earnings on the back of enhanced business results, capital adequacy is being maintained at a solid level.


P7. Group Consolidated Earnings

The following are the group's business results by items. Please refer to the group's, consolidated earnings on Page 7. Out of the group's Q2 general operating income, the interest income grew 6.7% QoQ to KRW1,679.7 billion, and on a half-year basis, it has risen 13.7% YoY. The fee income in Q2 rose 4.3% QoQ to KRW643.9 billion, and the first half-year fee income went up 16.7% YoY. The group's Q2 disposition valuation gain increased 121% QoQ to KRW232.1 billion, this is largely due to the disappearance of Q1's large-scale non-monetary FX translation loss. The Group's disposition valuation gain in the first half decreased by 20.2% YoY to KRW337.1 billion because of the different market interest rate environment from last year due to higher inflation pressures and thus produced the base effect of lower returns from trading.


The group's SG&A decreased 2.5% QoQ to KRW994.6 billion. I'd like to elaborate on how Hana Bank restarted putting aside reserves for a performance pay that I had mentioned earlier. As you're well aware, the system was introduced in Q3 2017 to minimize quarterly SG&A volatility related to bonus compensation to bank employees. However, in response to the uncertainties in the financial market and the macroeconomic environment created by the pandemic, the system was put on hold temporarily from Q2 last year to secure an financial buffer through proactive cost control. Luckily, contrary to market concerns, we posted a solid net incomes in the first half of 2021, continuing from last year, allowing us to restart the setting reserves for potential performance payment. A total of KRW55.3 billion, including that of Q1, was recognized in Q2 as the reserve for performance pay. Along with the other one-offs I mentioned earlier, the SG&A in the first half increased by 13.4% YoY, yet the normalized SG&A is maintained at a stable level.


P8. Business Results of Subsidiaries

Moving on to Page 8, business results for the subsidiaries. Hana Bank's net income for the first half of 2021 went up 17.9% YoY to KRW1,253 billion. Despite the one-offs and base effect in SG&A and disposition valuation gain that I had mentioned earlier, the bank achieved a high growth rate, thanks to sound growth in core earnings and lower loan loss provisioning. Hana Financial Investments net income for the first half stood at KRW276 billion, up 60% YoY, thanks to a significantly strengthened earning power with higher fee income in S&T and IB as well as higher interest income.


As for KEB Hana Card, it has improved earnings fundamentals through digital innovation and credit card sales volume recovery. Its net income for the first half was KRW142.2 billion, 117.8% higher YoY. Hana Capital's net income for the first half reached KRW125.5 billion, up 49.3% YoY on the back of higher general operating income, including interest income and disposition valuation gain. Please refer to the table for the other subsidiaries' results.


P9. NIM, P10. Non-Int. Income, P11. SG&A Expenses

And also, please refer to pages 9 through 11 for the NIM, non-interest income and SG&A explained earlier.


P13. Group Total Assets / Total Liabilities & Equity

Also, please refer to page 13 for the group's total assets, liabilities and equity.


P14. Hana Bank KRW Loan / Deposit, P15. Hana Bank KRW Loan Composition

And now moving on to Page 14. Hana Bank's loan and deposit in Korean Won. As of Q2 2021, the bank's loans in KRW stood at KRW249 trillion, up 1.9% QoQ. The asset growth is broken down as follows. Corporate loans grew 2.2% QoQ to KRW119 trillion as funding support continued for non-externally audited SMEs and SOHO borrowers. SME loans increased 3.3% QoQ, driving the overall loan growth. Large Corp loan decreased 4.9% QoQ as some of the companies paid back sizable loans. Households loans increased 1.6% QoQ to KRW130 trillion on the back of Jeonsei loans and credit loans to prime borrowers.


As of quarter-end, the deposit in KRW stood at KRW258 trillion, up 0.8% QoQ. Low-cost deposits increased 3.9% QoQ, reflecting the abundant market liquidity. LCF weight dropped slightly QoQ because of a lower MMDA balance due to a large-scale withdrawal by a few of the large companies and financial institutions. For your reference, the graph on the bottom right shows the LDR in the first half to be 99.4%.


Please refer to Page 15 for Hana Bank's loan composition.


P 17 Group Asset Quality, P 18. Hana Bank Asset Quality

And now moving on to Group's asset quality on page 17. As of quarter-end, the group's total credit grew 3.5% QoQ to KRW333 trillion. NPL decreased 6.4% QoQ to KRW1,201.4 billion, putting down the group's NPL ratio to 0.36%, 4 bps drop from the previous quarter. The top right shows the group's new NPL formation in Q2 was KRW139.5 billion significantly down from the previous quarter as some of the oversea delinquencies in Q1 have been normalized.


Let me elaborate on the bank's asset quality on page 18.


Please look at Page 18, Hana Bank's total credit in Q2 has grown 2.0% QoQ to KRW282 trillion and NPL amounted to KRW849.8 billion. Accordingly, the bank's NPL ratio fell by 4 bps the same as the group Q2 to 0.30% and the NPL coverage ratio is 136.9%. Hana Bank's delinquency ratio at the end of Q2 was 0.20% down 4bps QoQ. With the household loan delinquency remaining at the previous quarter level and lower delinquency ratios in both Large Corp and SMEs and the overall delinquency for the bank decreased.


P 19, P 20. Provision Analysis, P 21. Capital Adequacy

Please refer to the group’s and bank’s provision on pages 19 and 20.


Lastly, capital adequacy on page 21. We expect the group's BIS ratio and Tier 1 ratio to be 16.60% and 15.33%, respectively at the end of Q2. CET1 ratio is expected to be 14.16%. With solid earnings growth, the group was able to maintain a high CET1 ratio over 14%, boasting the highest level of capital adequacy in the industry.


At today's BoD meeting, it was resolved that an interim dividend of KRW700 per share, up KRW200 YoY will be paid out. Despite the worsened conditions such as the emergence of virus variants, sluggish economic recovery despite vaccination, we were still able to normalize shareholder return policy while considering both the shareholders' interest and regulatory environment, and we will further strengthen shareholder return policy in an orderly phased manner.


Despite the uncertainty, Hana Financial Group achieved higher than expected net income , and it is maintaining one of the industry's highest levels of the capital adequacy. We will do our best to implement more active shareholder-friendly policies, such as increased year-end dividend and share buyback to continue to enhance shareholder value.


This concludes the earnings presentation for Hana Financial Group for first half 2021.