Shinhan Financial ((SHG)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Shinhan Financial Group’s recent earnings call painted a picture of mixed sentiments. While the company celebrated significant improvements in its CET1 ratio and net income, driven by robust noninterest income and proactive shareholder returns, there were underlying concerns. Increased credit costs, sluggish loan growth, and challenges in the real estate trust business were highlighted as areas needing attention. Despite these challenges, the Group’s overseas business continued to perform well, providing a silver lining to the overall outlook.
Improved CET1 Ratio
The Group’s CET1 ratio saw a provisional increase to 13.59%, marking an improvement of 32 basis points from the previous quarter. This positive change was attributed to solid earnings and a favorable exchange rate, underscoring the Group’s effective financial management.
Net Income Growth
Shinhan Financial reported a net income of KRW1,549.1 billion, reflecting a 4.1% growth quarter-over-quarter. This growth was primarily driven by enhancements in noninterest income, showcasing the Group’s ability to diversify its revenue streams effectively.
Increased Shareholder Returns
In a move to enhance shareholder value, the Board approved a cash dividend of KRW571 per share and announced a share buyback program totaling KRW800 billion. This initiative is part of a year-round strategy to return capital to shareholders.
Noninterest Income Surge
The Group experienced a remarkable 34.7% increase in noninterest income, largely due to gains from securities and FX derivatives. This surge highlights the Group’s strategic investments and risk management capabilities.
Overseas Business Performance
Despite global uncertainties, Shinhan Financial’s overseas business maintained solid performance, contributing positively to the Group’s overall financial health and demonstrating resilience in international markets.
Increased Credit Costs
The earnings call revealed a slight increase in the credit cost ratio, attributed to a delayed economic recovery. The Group anticipates credit costs to remain in the mid- to late 40 basis points range for the second half of the year.
Sluggish Loan Growth
Loan growth did not meet expectations in the first half of the year, particularly in the corporate segment. The Group’s conservative approach, focusing on profitability and asset quality, was cited as a reason for this slowdown.
Challenges in Real Estate Trust
The real estate trust business faced ongoing challenges, with KRW340 billion in provisioning against KRW380 billion in loans. This area remains a concern for the Group moving forward.
Asset Quality Concerns
Asset quality issues persist, with the non-performing loan (NPL) ratio remaining unchanged. Additionally, the price for write-offs and disposals has decreased rapidly compared to the previous year, indicating potential challenges in asset recovery.
Forward-Looking Guidance
Looking ahead, Shinhan Financial aims to maintain capital stability and strategically allocate resources. The Group plans to execute a significant portion of its share buyback program in the latter half of 2025 and early 2026. Despite higher credit costs, the Group remains focused on sustaining its financial health through efficient management of risk-weighted assets and strategic investments.
In summary, Shinhan Financial’s earnings call reflected a cautiously optimistic outlook. While there are areas of concern, such as increased credit costs and asset quality issues, the Group’s strong noninterest income and overseas performance provide a solid foundation for future growth. The proactive measures in shareholder returns further enhance confidence in the Group’s strategic direction.