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Fundamental View
AS OF 22 Dec 2022Shinhan was for many years the best managed of the large Korean financial groups, taking the opportunity around the Asian Financial crisis to acquire competitors and other businesses that increased its scale and expanded its business lines.
It has a good track record, but in the past few years its performance has had more variability. After a bumpy 2020, it had a better 2021, although it had two good and two relatively poor quarters. 9M22 again has shown an improvement, thanks to rising interest rates. Capital is comfortable, asset quality is sound, and provision coverage is strong.
Business Description
AS OF 22 Dec 2022- Shinhan Financial Group (SFG) is the holding company for one of the most diversified financial groups in Korea, with interests in banking, credit cards, securities, asset management and insurance.
- Shinhan Bank was set up in 1982 with seed capital from Korean residents in Japan. It was more professionally managed than the heavily politicised older banks and came through the 1997 Asian Financial Crisis in relatively good shape, taking the opportunity to acquire the larger and much longer-established Chohung Bank in 2003.
- In 2007, it made another timely acquisition, buying LG Card from its creditors after it failed during the 2003 Korean consumer lending crisis. Shinhan Card is the largest card issuer in Korea.
- Shinhan is also looking for overseas opportunities where growth is strong and Korean businesses have a presence, with a focus on Vietnam (where Shinhan Card also recently bought a consumer finance business), and Indonesia.
Risk & Catalysts
AS OF 22 Dec 2022As one of the “Big Four” financial groups in Korea, we believe that Shinhan FG would very likely receive governmental support if needed.
Credit costs are expected to rise from very low levels due to rising interest rates, but this is likely to be mitigated by government support for SMEs. Increasing NIMs will help too, though the extent of NIM increase may be capped by government intervention.
Overseas growth opportunities are focused on Vietnam, although about 30% of Shinhan Bank’s overseas loan book is in Japan and China.
Shinhan had some recent missteps, with the misselling of asset management products to retail investors, resulting in KRW 63 bn in fines in 1Q21. The Shinhan Securities senior management was replaced as a consequence.
Key Metric
AS OF 22 Dec 2022| KRW bn | 3Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.22% | 1.11% | 1.09% | 1.19% | 1.17% |
| ROA | 0.87% | 0.66% | 0.60% | 0.64% | 0.72% |
| ROE | 11.7% | 9.2% | 8.4% | 9.4% | 9.4% |
| Provisions/Average Loans | 0.26% | 0.28% | 0.43% | 0.32% | 0.27% |
| NPL Ratio | 0.37% | 0.39% | 0.49% | 0.52% | 0.53% |
| CET1 Ratio | 12.66% | 13.10% | 12.90% | 11.20% | 12.50% |
| Equity/Assets | 7.0% | 7.3% | 7.3% | 7.1% | 7.8% |
| Net Interest Margin | 1.96% | 1.81% | 1.80% | 2.00% | 2.10% |
CreditSight View Comment
AS OF 01 Mar 2023We have a Market perform recommendation on Shinhan Financial Group (Shinhan FG). Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with credit card and insurance arms. It had over many years the best operating track record, but the gap has narrowed and we now view Shinhan as overtaken by Hana and KB, although Shinhan’s FY22 performance was strong and KB’s less compelling. Coverage ratios are comfortable and pre-emptive provisions have been taken. Capital had been stretched by acquisitions but improved subsequently. We are surprised to see it set a relatively low CET 1 ratio target of 12%, likely to make room for future M&A opportunities or share buybacks. A senior bond from their card sub is trading at compelling levels.
Recommendation Reviewed: March 01, 2023
Recommendation Changed: September 22, 2020
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