Shinhan Financial Group Co., Ltd. (NYSE:SHG) Q3 2025 Earnings Call Transcript

Shinhan Financial Group Co., Ltd. (NYSE:SHG) Q3 2025 Earnings Call Transcript October 28, 2025

Cheol Woo Park: Good afternoon. This is Cheol Woo Park, in charge of IR. I thank everyone for joining us at the 2025 third quarter earnings release by Shinhan Financial Group despite your busy schedule. Today, we have here with us Group CFO, Sang Yung Chun; Group CSO, SeogHeon Koh; Group CRO, Dong-kwon Bang; Shinhan Bank CFO, Jeongbin Lee; Shinhan Card CFO, Haechang Park; Shinhan Securities CFO, Jeonghoon Jang; and Shinhan Life CFO, Sunghwan Joo. We will start out with the CFO’s presentation on business performance of Q3 2025, followed by a Q&A session with the executives present here with us. Let me now go to CFO Chun to start the presentation.

Sang Yung Chun: Good afternoon. Thank you for joining us for the third quarter 2025 earnings release. I will begin from Page 2, business performance highlights. As of the end of September 2025, the group’s CET1 ratio was preliminarily estimated at 13.56%, maintaining a stable level. It results from our unending RWA management effort combined with robust profit generation despite the won depreciation and growth in loan assets for future preparedness. Based on this, Board today resolved on cash dividend of KRW 570 per share for the third quarter. Shareholder return in 2025 is expected to be around KRW 2.35 trillion with KRW 1.1 trillion in cash dividend plus KRW 1.25 trillion in share buyback. The shareholder return policy is expected to remain unchanged in the foreseeable future given the stable CET1 ratio and financial soundness.

In Q3, the group’s net income was KRW 1.4235 trillion despite the decrease in securities-related profits as credit costs were well under control. The cost/income ratio also remained stable. Credit cost ratio stood at 46 bp, up 2 basis points year-on-year, but has generally improved, decreasing Q-o-Q. But whether the asset quality will turn around to decreasing trend, we will have to wait and see due to current combination of factors such as uncertainties in the macro environment and domestic economy. Next is Page 3, capital. As explained earlier, the group’s CET1 ratio was kept at 6 bp lower Q-o-Q, thanks to stable net income despite the numerous factors driving up RWA. The group’s RWA increased by KRW 8 trillion Q-o-Q, driven by growth in foreign currency-denominated RWA due to won depreciation and loan-driven asset growth.

We will keep our utmost focus on maintaining a stable capital adequacy ratio by supplying sufficient funds where and when needed, while improving internal efficiency and strategic resource allocation. Please refer to the slide for details on assets and liabilities on Page 4. Page 5, group’s profit and loss. The group’s Q3 net income was managed at 8.1% decline Q-o-Q. There was a decline in securities-related profits, reflecting market rate movements, but credit cost was well controlled. ROE and ROTCE, key indicators in corporate value enhancement plan, rose by 0.7 percentage points, respectively Y-o-Y to 11.1% and 12.5%. I will go into more details by item from the next page. Page 6, interest income. Group interest income rose by 2.9% Q-o-Q, thanks to profitability-based asset growth and active margin control.

The bank’s loan in won increased by 2.7% Q-o-Q. The retail sector grew by 3.1%, primarily driven by policy funds on the back of growing market demand, while the corporate segment grew by 2.3% through proactive funding, also thanks to the active growth strategy from July. Please refer to Page 26 for further details. The bank’s NIM rose to 1.56%, up 1 bp Q-o-Q. Although the interest-bearing asset yield fell by 12 bps Q-o-Q, reflecting market rates, including won-denominated loans, it was more than offset by the improvement in funding cost. Next page, noninterest income. The group’s noninterest income decreased Q-o-Q, reflecting market conditions. Gains on securities, FX and derivatives declined, while fees remained stable. Credit card fees decreased Q-o-Q due to increased promotional expenses in response to seasonal factors like the Chuseok holidays, but brokerage fees, IB-related fees and product sales fees, including funds, surged Q-o-Q on the back of recent capital market activities.

Q&A Session

Insurance-related profits decreased by 2.4% Q-o-Q, but profitability remained stable, thanks to scaled up CSM management. Moving on Page 8, group’s SG&A expense and credit costs. Group’s SG&A increased by 2.2% Q-on-Q due to recognition of voluntary retirement costs at Shinhan Card. However, CIR on a cumulative basis remained stable at 37.3%, maintaining a sound level. Credit cost decreased by 30.1% quarter-on-quarter, reflecting the expiration of corporate credit rating impacts recognized in the previous quarter and the group’s continued efforts to manage asset quality. Additional provisions arising from the government-led real estate PF workout plan also decreased significantly Q-on-Q, remaining within our anticipated range. Credit risk among corporate has risen due to delayed economic recovery and challenges persist among vulnerable customer segments.

Along with timely funding, more prudent asset quality management will be needed. Turning to Page 9, here are the group’s asset quality indicators. Group’s NPL coverage ratio declined by 2.9 percentage points quarter-on-quarter as the balance of substandard and below loans in the nonbank sector increased. However, the bank’s NPL coverage ratio improved by 12.17 percentage points quarter-on-quarter, supported by the NPL sales and strengthened asset quality management. Delinquency ratio at both the bank and card are also gradually improving. Detailed information on the group’s loss absorption capacity NPL sales provided on the following page. Page 11 is profit and loss of our subsidiaries and overseas businesses. Shinhan Bank’s earnings declined slightly from the previous quarter, impacted by noninterest income factors, including marketable securities.

For details, please refer to Page 21. Shinhan Card posted higher earnings over previous quarter despite the decrease in merchant fee income and recognition of voluntary retirement cost, thanks to reduced credit cost supported by improved asset quality. Shinhan Securities earnings decreased Q-on-Q due to lower product management income. However, the company continues to restore its structural earnings capacity year-on-year through enhanced competitiveness in its core business areas. Shinhan Capital continued to face pressure on funding and credit cost showing a subdued performance. Specialty credit subsidiaries, including card and capital, are steadily improving fundamentals through asset rebalancing and various self-help measures and are expected to gradually recover profitability.

Overseas services delivered differentiated results in Q3, particularly in Japan and Vietnam despite ongoing domestic and global uncertainties. Page 12 through 13 summarize our performance in digital initiatives and sustainable management activities. From Page 15 to 18 are the progress of our corporate value-up plan. Overall, the group has achieved solid results in terms of execution, speed and outcomes compared with the plans announced last year and early this year. Please refer to the materials for detailed information. From Page 18 onward, we will find details on the financial status, P&L and funding and investment operations of each subsidiary. Korean financial industry faces challenge, a productive financial transformation to support Korea’s economic recovery and sustainable growth.

Forward, Shinhan Financial Group will continue its consistent approach of allocating resources to corporate finance while providing timing and efficient funding. We will lead in fulfilling the financial industry’s core role in intermediating capital management, managing risk and supporting growth. This concludes our presentation. Thank you very much for your attention.

Cheol Woo Park: Thank you very much. And now we will take your questions. [Operator Instructions] And now we will take your questions. The first question will be delivered by Mr. Jung Jun-Sup from NH Securities.

Jun-Sup Jung: I am Jung Jun-Sup from NH Securities. So I have 2. Now first is about the capital policy. So the government recently is talking about the dividend payout, the separation taxation and then also the similar in other industries as well. So now then in terms of the dividend tax, then I wonder whether related to the dividend tax, have there been any discussions about changes in the group’s dividend policy? And then second is about the loan. So the government continues to control the household loans. And I believe that there has been a bit of an excess in the quota that has been given. Then also more recently, now the deposits are also appearing to decline. So it seems as if both the loans and deposits are unlikely to grow much in the future. Then looking ahead to the fourth quarter and beyond, then what would be the outlook for the group’s loans and deposits? And also, how does the group intend to respond to these changes?

Cheol Woo Park: Thank you very much for the questions. And please wait a moment for us to prepare our response.

Sang Yung Chun: Thank you very much. So there were 2 questions. Now first, about the capital policy, I will respond to that. And then now with regards to the loan and deposit outlook for the longer term, then that will be responded to by the bank’s CFO. Now first, about the capital policy. So you talked about the dividend payout separate taxation and then the non-tax dividend payout. And then first, regarding this, we have had some discussions at the BOD. So through the workshop, we have discussed the shareholder return policy. But given the fact that we have yet to come up with the business plan for next year, we have not made any decisions. But of course, having said that, now with the dividend payment separate taxation then now also to broaden the individual shareholders, now in order to be in alignment with the taxation policy, then we also intend to slightly increase the dividend payout.

Having said that, now there’s a number of indicators for our shareholder return policies. So for example, shareholder — the share buyback and cancellation. So even if we do that, then this will not be undermining each of our policies. So we would also look into that. And next is about the tax-exempt dividend payout. And yes, we have also discussed this several times. And yes, we do have some profit available for dividend payout. But then now, looking at the industry trends then, now yes, there is also this kind of a dividend payout that is [indiscernible]. So we would have to wait and see, but we would also be positive about the changes as well. With regards to these overall changes, I do believe that we will be coming to some kind of decisions as the Board has to come up with the business plan for next year.

But then overall, I can say that we are positive about both aspects.

Lee Jeong-bin: Thank you very much. And now this is the CFO of the bank. So the question was about the deposits and loans. So now first, about the loans, then now in the first half, now given the fact that we have grown in the previous year, so we were conservative in terms of our loan growth outlook. So that was for the corporate loan. And then now for also loan, then — now there was also some increase. And then also, yes, in terms of the banks, then we are a bit over the guidance that was given by the government. But then for the fourth quarter, I do believe that we will be in line with that. And then now for the corporate loan, as I have mentioned earlier, now there was some conservative growth in the first half. But then now in the third quarter, then there was over KRW 1 trillion growth in the corporate loan.

And then now for the year, then we were actually planning for about KRW 9 trillion growth. But then now so the actual utilization will be about KRW 7 trillion to KRW 8 trillion. Then also the loan is in won so we were planning for about 5% growth. But then now for the year 2025, we will be growing by about high [indiscernible] so not too different from the plan. Then we’re looking ahead to next year for the [indiscernible] loans growth. Now for the household loan, obviously, there are a number of regulations [indiscernible] specific environment for this. So it is not likely for the household loan to grow very [indiscernible] But then yes, there would also be some policy funds to be provided by the government. Then now for the corporate loans, then now compared to this year, so to be in line with the government’s policy like the productive finance, I do believe that there will be more growth than this year.

But having said that, next year, it is likely to be around 5% to 6% next year. And then about the [indiscernible]. And for this series, there were also some discussions about the deposit. And this is, of course, funding is very important. And also the cost management is also very important. So now then for this year, so we have also focused on the funding control to also defend the NIM. But then also, on the other hand, we also need to ensure funding stability. So yes, we also have a funding management strategy. Now in the fourth quarter, yes, there are — for the traditionally, now this is the funding maturity period for the bank. So we are also making preparation. And also, the question was some concerns about the expected difficulties for the deposit.

And yes, for the individuals and for example, the time deposit, it is being reduced, but then now we also are managing the interest rate quite tightly. So next year, next year perhaps, you can have more appropriate management of the interest rates so that we will be able to have stable funding.

Unknown Executive: And then also last part of the question, so about funding moving to the capital market and how the group is making the decision for this. Now as the bank’s CFO has mentioned, so it seems as if there is a little change in terms of the capital flow in and outside of the bank. But then now, we can see that now for the money flow, so we see that it continues to be stable. But now in terms of the resource allocation, now for the next year and rather than the resource allocation in the bank, we would also allocate more resources to the capital market, and we intend to be flexible depending on the market circumstances.

Cheol Woo Park: I hope that answered your question. We will move to the next question. [Operator Instructions] HSBC’s Won Jaewoong, you have a question. Please go ahead.

Jaewoong Won: Thank you for good results. Now looking at Page 9, the bank delinquency rate seems to be staying stable. So I was fairly encouraged by that. Now then such trend in fourth Q do you think will continue also for the next year also? That’s my first question. The next question is that card delinquency rate in the third Q, it dropped significantly. So the public will [indiscernible] support coupon, may that happen? Or on the card side, do you think there is also signs of stabilization? And the next question is about the credit cost. Now this year, the guideline was about mid 40 bp. I do believe that was your target range. Then in the third Q, you managed quite well, given that in the fourth Q, seasonality makes that we need more provisioning. So I think it could creep up. And does that mean that the credit cost needs to be expected higher than anticipated and fourth Q one-off provision, it’s not going to be that high. That’s my question.

Cheol Woo Park: Well, thank you for your question. While we prepare for the answer, please bear with us.

Unknown Executive: Yes. Thank you for that question. Now in terms of the asset quality prospects and second was related to credit costs. About credit cost, I will answer first. And about the asset quality on the overall situation, Group CRO, will respond to that. And Banks and Card CFO will talk about banks and cards asset quality related and respectively. Now in terms of guidance on credit costs, if I may give you the conclusion first. As I said, the mid-40 bp in the first half earnings call, I think it’s going to hold for the coming period also. Of course, seasonality require more provisioning. But if our simulation shows that within this range, the mid-40 bp range would cover everything. Of course, in the future, on a short-term basis, there could be some unforeseen circumstances, but in the current position, I believe the mid-40 bp range still stands going forward.

Dong-kwon Bang: And I’m CRO. Let me give you overall response to the asset quality. So bank delinquency rate, yes, you said it was stabilizing. So on a group level, not only bank, but for all of our subsidiaries, including nonbank side. In terms of asset quality, I think we are seeing signs of flattening. But as you know, there’s a lot of uncertainties in terms of economic outlook and also there’s also other external uncertain factors, including tariff situation. So in terms of now the prices and the current policies again are all uncertain. So the flattening, whether it will go down further, I think it’s only to make any judgment. So fourth Q up to the first Q of next year, we just have to wait and see. So we will maintain the current trend up to that time, then I think the result will be positive.

That’s our anticipation. And as you know, on the banking side, on the banking sector, in Korea, we are one of the relatively best in terms of asset quality. So we will try best to maintain that.

Lee Jeong-bin: Yes, I’m CFO of the Bank. So if I may add on a response to the CRO. So for Shinhan Bank, when it comes to asset quality, up to a few years ago, among the top 4 banks in Korea, we were actually falling a bit short. So asset quality, of course, is very important, while continuing growth is also important. So we have made various efforts for asset quality, like credit risk system, the management, the portfolio level. And as a result, among the top 4 banks, delinquency and other things are very much staying positively. But as the CRO stated, asset quality or delinquency rate, whether it has become stable, it’s too early to say. But flattening, it seems to be continuing, but I think we need to keep our guards up. So within first half of next year up to that period, we have to keep close tab on the asset quality and manage it tightly.

Additionally, on the banking side, the credit cost, we are managing on the bank level also. So on the fourth Q, when it comes to credit cards, we will implement more prudent policies. That’s my opinion. Thank you very much.

Hae Chang Park: So my — I’m Card CFO. So the card delinquency ratio, we look at on a monthly basis and keeping close tabs on it. So we also look at the new loans that become delinquent. So it peaked in 0.45%, but it improved to 0.41% in September because of the public relief fund that you talked about that increased small merchant sales, thereby improving the overall finances of the small merchants. But going forward, the government will continue to support small merchants and self-employed. So we have to keep a close watch on that. For example, in the past, for a small merchant, low interest rate lending, they said they will put about KRW 10 trillion toward that. So if the policy continues, in the pandemic era, that also improved the situation. So we think that will be something we will also see here also. Thank you.

Cheol Woo Park: Thank you very much. I hope that has answered your questions, and we will take the next question. [Operator Instructions] So there are — yes. Yes, there is a question. From Hanwha Securities, we have Kim Do Ha.

Do Ha Kim: I’m not sure whether it is a question that would have a specific answer, but I would just like to get your thinking about these topics. So now look at the slides, for the first time in a while, I could see that the interest spread. So it was rising by 3 bp. So from last May to this year, then we see that the interest rate was falling, but then it seems as if considering the circumstances, you were able to really defend the margin. Now then for next year, then if this is the trend, then we need to think about a higher margin next year? And also it seems as if the securities performance is also very good. So then in terms of the resource allocation for next year, then I wonder whether the shareholder return increasing, whether that will be the end all?

But then for example, if the margin is going to be better or if the securities profitability is better, then perhaps you can allocate more for growth? So yes, I know that this is a question that defies an easy answer, but then I was just wondering what the group is thinking. So that is all.

Cheol Woo Park: Thank you very much for the questions. And yes, please give us a moment to prepare our response.

Sang Yung Chun: Thank you very much for the question. And yes, the question that you have raised is actually what we have been thinking for quite some time. So first of all, about the interest spread. Now this is what I would think. So first of all, the policy rate was cut twice this year and then also for the year, then we believe that there is going to be one more cut. And then now we see that, yes, gradually, the interest rate is falling. But then when we look at the market rate, then looking at the usage and also in Korea and then also the FX, so considering other circumstances, then the interest rate taking a clear fall is not really for certain. So that is something that we needed to consider. So yes, the margin perhaps compared to what we have thought last year, the margin did not fall as much as we had expected.

Now that is for the short term, but then now for the longer term then both in the U.S. and Korea, then at least 50 bps or even more than 70 bps. So the prevalent view is that it is going to fall by over 70 bps. So then for the longer term, the interest rate is likely to come down. So then looking at the profit and loss for the end of September, then we can see that the interest rate increase was much lower than the overall revenue increase. So right now, we are just defending the interest income, but then over the long term, we believe that the interest income is likely to fall. So we need to be more conservative about this outlook. On the other hand, what we are more positive about is now on one hand, yes, there is the capital market and also the noninterest income, which is doing much better.

So for example, brokerage and also the IB, so the noninterest income is actually quite sturdy. So those are also the areas, the businesses where we must have in order to keep growing. So we will continue to encourage that. But then in terms of the resource allocation, as I have mentioned earlier, basically, in terms of the allocation for growth, now compared to this year for next year, then rather than in the bank, the allocation would be heavier for the capital market is the direction for next year. But then again, in terms of the allocation for the growth then, now in terms of the shareholder return policy, so we have already stated the target for the shareholder return. So we will keep to this commitment. But then now the ROE continues to improve, but then also compared to the COE that we have, then it is still lower.

So again, we will be flexible about this. But again, overall, the direction is to follow the plan for corporate value enhancement. And then also for the asset growth because the nominal growth is very low. So I mean there is a limit to how much we can pull this up. So in terms of the resource allocation, we will remain with the current framework. But then now in terms of the specific allocation, there could be more — a bit more allocation to the capital market to be in line with the market circumstances. That is all. Thank you.

Cheol Woo Park: Thank you. I hope that has answered your question, and we will take the next question. So next is Kim Jiwon from DAOL.

Jiwon Kim: So CET1 ratio is my — about — my question. So it seems the lending side has grown. So as you said, RWA, it’s relative though on the household lending, and you said that will be in alignment with government policy. But as being higher on the corporate side, you said that there will be more growth. And for us, RWA overall management strategy, how is going to see that going forward? And is there any factors where you could grow CET1 ratio further — CET1 ratio further going forward?

Cheol Woo Park: Please wait as we prepare an answer to your question.

Sang Yung Chun: So RWA and also the future directionality of the — that. So RWA, we have grown slightly in the Q3. So it looks — it’s higher than the first half. But if you look at the ratio of the growth compared to the previous year, it’s still on the lower side. So on the third Q, RWA has grown slightly, but on a yearly basis, compared to the initial expectation of its growth, I think it will be lower than the expected. And going forward, the RWA growth rate, the recurring growth rate would stay on the path of the [ current ] year. And internally, if you take a deep dive for the household lending for the second and third Q because there was high market demand. However, due to regulatory environment now, household lending, I do not think, can grow further.

Then on the corporate side, there will be the growth driver for us. But as you know, relatively speaking, corporate side, we have also allocated resources a lot in this area. So the corporate loan in terms of the share will grow, but it will be managed with the overall framework that we have. And in terms of CET1 ratio, compared to last year, this year, the level is a bit higher. So due to various variabilities that is anticipated, we increased it a bit. CET1 ratio, it’s not always high being the better. So in terms of capital efficiency, the current mid-13% range is the adequate level. But by Q4 seasonality, there will be less earnings given so it will dip a bit from the current level. But on a yearly basis, we said the base will be 13.1%, but it will be managed in a higher level than that.

Anyway, the CET1 ratio be it in the asset growth or it’s a key in the shareholder return policy. So we maintain the base, but would also give a lot of buffer so they can be managed on a stable level.

Cheol Woo Park: Thank you very much for the response, and we will take the next question. [Operator Instructions] So there are currently no questions requested. So it seems as if there are no further questions. And then with that, we will conclude the 2025 third quarter earnings release conference call by Shinhan Financial Group. You can find today’s presentation at our web page as well as the Shinhan Financial Group IR YouTube channel. If you have any further questions, then please contact the IR team. And we will see you again in February next year for earnings release for the year of 2025. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]