Good afternoon, everyone, and welcome to the Earning Presentation of Hana Financial Group.

I am GH Park, Head of IR. I would like to thank our shareholders, analysts and other market participants for taking part in today's earnings call via phone and the internet despite busy schedule. We will now begin the 2022 first half earnings presentation.

For today's presentation, we have with us the Group CFO, Hoo-Seung Lee and other members of the Senior Management for the Group and subsidiaries. We will first give the presentation on the business results of the group and then proceed to a Q&A via phone.

Now, we will invite our CFO, Hoo-Seung Lee for the Hana Financial Group's earning presentation for the first half of 2022.

Good afternoon, investors, capital market participants, who have a deep interest in Hana Financial Group, research analysts and financial journalists. I am Hoo-Seung Lee, CFO of Hana Financial Group.

Just now we had some heavy rain in Seoul and summer is now at its hottest. I hope all of you have set up some good vacations plans to cool down from this summer heat.

Before we move on to the financial highlights, I will briefly touch upon the interim dividends of Hana Financial Group that have just been disclosed. Today, the BoD of Hana Financial Group has resolved to declare interim dividend of KRW 800 per share, up KRW 100 from the previous year.

As we maintained a high level of capital buffer based on our sound fundamentals in terms of profit and capital adequacy, we were able to increase our interim dividend for two straight years following last year. As long as there is no unexpected contingency, we expect to able to increase the yearend dividend per share as well.

We are well aware of the high expectations our shareholders have for improved shareholder return. The senior management of the company as well as the BoD place top priority on enhancing shareholder value. Going forward, not only increasing the dividends but treasury buyback and cancellation as well as various other means of capital utilization will be considered to continue to enhance shareholder value.

From now on, let me walk you through the 2022 first half Hana Financial Group's business results.

P3. 2022 1H Business Highlights(1)

First, for key financial highlights of the Group, please refer to Page 3 of the presentation material.

In the first half of 2022, the net income came to KRW 1,727.4 billion. We posted record high core earnings and maintained strong profitability. However, owing to a number of one-off factors, the net income declined 1.4% on a Y-o-Y basis.

In the first half, net income normalized for the one-off factors came to around KRW 2.1 trillion, demonstrating strong fundamentals and superior capabilities for profit generation.

However, as a wide range of factors leading to the complex global crisis has realized, economic uncertainties and concerns of possible recession are growing both at home and abroad.

In order to prepare for the possibility of a potential default turning into an actual event, regulators around the world are recommending the financial companies to expand their abilities to absorb losses. Despite our benign key risk relative indicators, we preemptively responded to intensifying macro risk and termination of COVID-19 financial assistance programs through adjusting forward-looking multiples and additional provisioning for COVID-19-related loan deferral to solidify buffer further.

Also, along with a risk management to implement our shared growth policy with our customers through ‘the Hana Assistance program’, we are already providing support to the customers and planning to increase engagement with the financially vulnerable groups, suffering under the current high-interest rate regime.

I'm sure you all remember that Hana Financial Group has a history and a strong tradition of preemptively and nimbly responding to rapidly changing market environment in various macro factors are based on our DNA that thrives on challenges and innovation. Going forward, we intend to break through the current economic crisis by maximizing the key strengths of the group.

Given our strong Asset Management, IB and Corporate Finance businesses where we have solid customer base and differentiated sales capabilities, our competitive strength will be reinforced via collaboration among the Group’s subsidiaries through innovation. While seeking to expand our global presence of focusing on Asia’s high-growth regions, we will also continue to strive to become the leading financial group in Asia.

In the digital sphere, in pursuit of a comprehensive financial platform, we will strengthen the link between Hana 1Q and 1Q pay, and much more advanced services and experiences will be provided to our customers through the benefits of an Omni-channel. At the same time, in the non-financial ecosystem consisting of highly connected and fast-growing communications, mobility, real estate and healthcare areas, we seek to penetrate into these non-financial platform businesses through bold investment and partnerships.

From now on, let me explain in greater detail about the group's business results. First of all, the Group’s first half quarter earnings, which underpin the fundamentals of the companies, were up by 13.6% YoY to KRW 5,131 billion. On a quarterly basis, it is up 7.6% over the first quarter and continues to grow six straight quarters.

Key drivers were the increase of NIM on the back of the BOK rate hike and the growth in interest income driven by stable increase in loan assets. At the same time, fee income owing to the growth in FX fees and card fees contributed to improving core earning for two straight quarters.

Next, the group's gains on disposition and valuation experienced lower investment returns, due to surging market interest rates, reflecting the increased market volatility. During the first half, driven by the weakened KRW, FX translation losses were also recognized. In addition, due to the sudden correction in the global stock markets, nonrecurring one-off factors led to preemptive recognition this quarter of potential valuation losses has that may occur in the future.

In the second half, we expect a high level of market volatility to continue due to inflation and continuous monetary tightening by major countries, and such an environment will likely pose challenges to our disposition and valuation. Nonetheless, we will do our best to preserve our gains by risk hedging against rate hikes, short-term trading as well as arbitrage.

Next is SG&A. The Group's SG&A for the first half in 2022 was KRW 2,211.2 billion, up, 9.7% Y-o-Y. The increase was largely caused by the one-off cost such as ERP recognition in the first quarter.

However, on a quarterly basis, during second quarter the SG&A stood at KRW 956 billion down QoQ, exhibiting the stabilizing trend. In terms of amount and CI ratio, SG&A was the lowest since the second quarter of 2020, demonstrating a strong ability to control costs.

Going into the second half, we will keep making a group wide effort to effectively control costs, while reducing recurring costs and making investment to enhance our sales efficiency.

Finally, let me elaborate on our loan loss provision.

On top of the additional KRW 60.3 billion loan loss provisions in the first quarter, approximately KRW 124.3 billion of loan loss provision was additionally set aside during this quarter. Despite the additional provisioning, the credit cost ratio of the group in the first half came to 0.23% and it was managed within the annual target.
Let me provide you with a bit more detail about our other plans to manage asset quality.

We have a strengthened loan monitoring through efforts such as DSR simulation for each stage of interest rate hikes, to ensure that marginal borrowers with high likelihood of default can soft-land.

In addition to the existing credit rating model, we’ve built a machine learning based risk system that leverages big data to carry out more precise credit rating for the sound asset quality of our loan portfolio.

Also we have already established plans to monitor borrowers through audits of sectors that are impacted by high oil and commodity prices, and we are also stepping up our liquidity monitoring efforts to respond to possible expansion in the volatility of the financial markets including FX rate increase.

Going forward, we will further strengthen our preemptive risk management by maintaining the strategy to increase strong assets, thus maintaining our healthy assets quality. Aside from the risk management, we will actively participate in the financial regulators’ policies to support small business owners and other vulnerable groups. We will also continue to implement a group’s vision of growing with our customers and every member of our society.

If you look at the lower left hand corner of this slide, you can see the groups ROE and ROA, which posted 10.08% and 0.67%, respectively.

P4. 2022 1H Business Highlights(2)

Next, please refer to Page 4.

The group’s NIM including Hana Bank and Hana Card for the second quarter posted 1.80%, up 9bps Q-o-Q..

Hana Bank's NIM was up 9bps Q-o-Q, driving though the group’s NIM. First of all, along with the asset repricing following the BOK rate hike, healthy asset growth was also positively reflected.

At the same time, there was portfolio improvement including growth in the average balance of core low cost deposits and internal effort such as achieving highest rank among the domestic banks in the TCB rating which assesses funding allocation to innovative SMEs, also contributed to the improvement in NIM.

Next, if you look at the right-hand side of the slide, Korean Won loans of the bank grew 2% QoQ to post at KRW 255 trillion, achieving stable asset growth.
Fee income, like the interest income continued its growth trend, increasing 7.4% QoQ.
Because of the high volatility in the financial markets due to a correction in the stock market, overall investment sentiment has been dampened and asset management fees stagnated. However, there has been an improvement in the FX fees and card fees, leading to sound fee income performance.

P5. 2022 1H Business Highlights(3)

Now let's go to Page 5.

As of Q2 2022, the Group's NPL ratio was 0.37% maintaining a similar level QoQ and YoY. The total delinquency rate increased 3 bps QoQ due to short term delinquency in overseas loan, but it was fully secured with collateral and the delinquency has already been resolved in July.

Next, the group's cumulative credit cost ratio in the first half recorded 0.23%. Although it increased QoQ, this was because of the additional provisioning in Q2 amounting to KRW124.3 billion, and the normalized credit cost ratio was at a stable level of 0.12%.

Lastly, the group's CET1 ratio is expected to be 13.18%, maintaining a sufficient level compared to the regulatory ratio. The QoQ decrease was mainly attributable to the interim dividend, an increase in RWA due to FX rate rise, and loan asset growth.

P7. Group Consolidated Earnings

Next, for the group’s business results by item, please refer to Page 7.

Although the disposition and valuation decreased YoY due to multiple one-offs occurring in the midst of higher volatility in the global financial market, the group's general operating income in the first half increased 6.4% YoY due to higher interest income and diversified fee income, resulting from the group's diversified business portfolio.

SG&A in the first half increased 9.7% Y-o-Y with the recognition of one-offs in the first quarter, but on QoQ basis, it stabilized at mid KRW 900 billion in Q2. With the cumulative preemptive credit loss provisioning of KRW184.6 billion in total, provisions in the first half increased YoY.

P8. Business Results of Subsidiaries

Moving on to Page 8, here are the subsidiaries’ business results. In the first half of 2022, Hana Bank posted a net income of KRW 1,373.6 billion, up 9.6% YoY. The sound growth of core earnings delivered such solid performance despite large scale one-off such as recognition of ERP and additional loan loss provision.

Next, Hana Securities’ net income for the first half of the year was KRW 139.1 billion.
Securities brokerage fees continued to weaken due to a decrease in the stock market's trading volume and the valuation losses resulting from the global stock market correction, which all played a part in the decline in Q2. However, in the second half of the year, we will focus on stable trading that minimizes profit and loss volatility through the strengthening of core businesses using the expanded capital and thus we expect earnings to recover.

Next, Hana Capital on the back of improvement in general operating income such as fee income recorded a high rate of increase Y-o-Y, realizing a net income of KRW163.1 billion in the first half. In the second half, while preparing for an additional increase in interest rates by diversifying funding, we will strengthen our retail customer base by expanding new partnerships.

Lastly, Hana card’s net income in the first half was KRW118.7 billion, down YoY. This was due to the reduction of merchant fees effective from February, preemptive reduction of high risk assets for risk management and ERP leading to a rise in SG&A. However, earnings improved on a quarterly basis as fee income recovered in the second quarter.

Please refer to the table for the other subsidiaries’ results.

P9. NIM, P10. Non-Int. Income, P11. SG&A Expenses, P13. Group Total Assets/Total Liabilities & Equity

Please refer to Pages 9 to 11 for details about NIM, non-interest income and SG&A explained earlier.

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

P14. Hana Bank KRW Loan/Deposit, P.15. Hana Bank KRW Loan Composition

Now on Page 14, here are Hana Bank's loan and deposit in Korean Won.
As of Q2 2022, the bank's loans in Korean Won stood at KRW 265 trillion, up 2% QoQ. The asset growth can be broken down as follows. Corporate loans increased 4.5% QoQ to KRW135 trillion, of which large corporate loans increased 8.3% QoQ as the demand for funding from the banks increased on the back of the unfavorable corporate bond market.

SME loans increased 3% QoQ with continued funding support to the non-externally audited SMEs and SOHO borrowers. Household loans decreased 0.5% QoQ to KRW 130 trillion due to decrease in unsecured loan balance.

As of quarter end in Q2, the deposit in Korean Won stood at KRW 282 trillion, up 1.3% QoQ. Low cost deposit decreased 0.7% over QoQ in terms of ending balance, but increased 1.3% QoQ in terms of average balance with continued inflow of corporate deposit. During the quarter, there was demand for dividend payout by large corporations, thus lowering the MMDA balanced QoQ, but the LDR recorded 98.6% with the inflow of time deposit.

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

P17. Group Asset Quality

Now let’s move on to Page 17 for group’s assets quality. The group's total credit at the end of Q2 2022 was up 3.5% QoQ to KRW 367 trillion. The amount of NPL increased 6.6% QoQ to KRW 1,350.7 billion as the amount to be recovered through collateral disposal decreased. However, new NPL formation has trended downward, decreasing by KRW 51.7 billion QoQ., thanks to the normalization of the previous quarters one-off.

The group's quarter-end NPL ratio was maintained stably at 0.37%. The NPL coverage ratio was up 13.4 percentage point YoY and up 4.2 percentage point QoQ to 164.7%, demonstrating improved capacity for absorbing losses enabled by preemptive provisioning.

P18. Hana Bank Asset Quality

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

Hana Bank's total credit in Q2 has grown 3% QoQ to KRW 310 trillion and NPL increased 4.6% QoQ to KRW 748.4 billion.

The bank's NPL ratio was 0.24%, a similar level to the previous quarter, and as is the case with the groups NPL coverage ratio, the bank's NPL coverage ratio increased YoY and QoQ to 188.4%.

Hana Bank's delinquency ratio at the end of Q2 was 0.16% same as the previous quarter maintaining a stable level.

As can be seen from the data, the asset quality indicators of Hana Bank, which accounts for a high portion of the group's total assets, were kept in very good conditions.
Nevertheless, we preemptively provisioned against the measurable expected loss as conservatively as accounting would allow and the amount in excess of last year's annual provision was recognized within the first half of this year. It goes to show how much the loss absorption capacity has been further strengthened. Given that macro risks are exacerbating due to the increase in economic volatility, we will continue to strengthen monitoring and risk management going forward.

P19, P20. Provision Analysis

Please refer to the group and the bank's provision on Pages 19 and 20.

P21. Capital Adequacy

Lastly, capital adequacy for the group is on Page 21.

We expect the Group's BIS ratio and Tier-1 ratio to be 15.86% and 14.72% respectively for the first-half 2022, and CET1 ratio is expected to be 13.18%. As mentioned before, decrease in capital ratio was due to an increased RWA due to weaker Korean Won and interim dividend.

Thank you for taking the time to listen to the earnings presentation today. I fully understand that shareholders might be concerned about the decrease in net income on a QoQ basis. Uncertainty in the economic environment is expected to continue for the rest of the year. However, we have already strengthened our loss absorption capacity to a meaningful level, as the one-off factors disappear.

In the next quarter, we expect that we'll be able to present you with a performance that reflects the strong fundamentals of Hana Financial Group. In addition, we'll continue to focus not only on business performance, but also an efficient use of capital and take leadership in improving shareholder return policies. Furthermore, we’ll continue to work on sustainable management practices that can contribute to the happiness of customers and members of society at large.

This concludes the earnings presentation of Hana Financial Group for the first half 2022.

Thank you very much.