Shinhan Financial Group Co., Ltd. (NYSE:SHG) Q1 2024 Earnings Call Transcript April 26, 2024
Shinhan Financial Group Co., Ltd. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Sang-Hyuk Jung: Good afternoon. Let me first thank everyone for participating at our Q1 2024 Earnings Conference Call despite your busy schedule. I will first go through our business highlights from Page 5 of the slides. In Q1 2024, we achieved KRW1.3215 trillion in net income, despite recognition of large nonoperating expense, thanks to the company's strong fundamentals based on top line growth. Interest income grew 9.4% Y-o-Y, thanks to proactive loan asset growth strategy and efficient margin management. Noninterest income for the group grew 0.3% as we defended the decline in securities-related income with a diversified portfolio. G&A was kept at 1.2% increase, despite the general inflationary factors, thanks to the group's ongoing effort and cost efficiency.
With G&A well under control, the cost to income ratio stood at 35.9%, improved by 2 percentage points Y-o-Y, thanks to sound growth in operating income. Credit cost ratio in Q1 was 38 bp, down by 10 bp Y-o-Y. But the recurring CCR, excluding the additional provisioning that was preemptively recognized, was 30 bp, up 1 bp Y-o-Y. Next is capital ratio and shareholder return policy. The provisional CET1 ratio as of the end of March was 13.09%. The BOD today decided on the dividend per share at KRW540 per Q1 and further resolved on KRW300 billion in share buyback and cancellation for the next 6 months. Looking ahead, the company will continue with sustainable profitability management and active shareholder return policy as we try to secure capital adequacy in response to changes in capital-related regulations based on our strong financial soundness.
Page 6 is on the group's major income indicators provided for your information. Moving on to Page 7 on the group's income breakdown. The group's interest income in Q1 2024 was KRW2.8159 trillion, up 9.4% Q-o-Q. Interest-bearing assets increased 3.6% Y-on-Y on the back of growth in the bank's loan in won and the group's margin also rose by 6 bp. The bank's loan asset in won grew 2.7% in the quarter. Retail loan grew 1.2%, mostly for Jeonse and housing mortgage. Corporate loan grew 3.9% in response to demand by large companies and quality SMEs. We will keep selectively growing our assets by balancing the different factors like efficient RWA management, profitability and market demand. In Q1, bank's NIM was 1.64%, up 2 bp Q-o-Q. The funding cost improved significantly, although the growth in loan assets affected yield.
There was more inflow of low expense core deposits linked to loans and high interest policy products came to maturity. We will keep actively managing the margins through flexible interest policy and effective ALM management. Next, Page 8. The Group's noninterest income grew 16.6% Y-o-Y as fee income saw generally even growth across business areas like credit card securities, fund, Bancassurance and IB. Insurance income grew 21.4% from the increase in CSM write-offs. Credit card fee rose 28.4%. Although credit card transaction volume rose 3.8% Y-o-Y, we improved operational efficiency, for example, reducing high-cost promotions. Brokerage fee was up 25.8% on the back of stock trading increasing by KRW4.3 trillion Y-o-Y. Securities-related income fell 19.4% Y-o-Y despite the growth in recurring income.
There was a preemptive recognition of loss from overseas real estate, among others. The Group's credit cost fell Y-o-Y in both nominal provisioning and CCR with reduction in the additional provisions recognized early in 2023. The bank's recurring provision for credit losses remains flat Y-o-Y, while preemptive provisioning was done in Shinhan Capital and Shinhan Asset Trust to prepare against real estate market downturn and further worsening of financial soundness. Looking ahead, we will actively reinforce loss absorption capabilities through preemptive provisioning for real estate finance in and outside of Korea. Now on to Page 9, please. Group-wide asset soundness indicators have seen a delay in improvement in a protracted high interest rate conditions.
A customer using an automatic teller machine with a credit card.
Related to pre-COVID levels and considering our improved loss absorption capacity, we believe they remain within manageable levels. This trend of weakening asset quality is expected to continue for some time. And we, of course, will remain vigilant in maintaining a conservative stance in managing our asset soundness. As of the end of Q1 2024, our CET1 ratio is down 8 basis points Q-on-Q, recording a tentative 13%. When considering adoption of Basel III transitional measures, rising FX rates, an increase in operational RWA, overall, we believe that overall soundness is being managed appropriately. Now on to shareholder return policy such as cancellation of treasury shares, let me move on and explain in greater detail. We have [indiscernible] upon the cancellation of treasury shares, as mentioned, reflecting our solid top line growth, credit costs and other expenses as well as our BIS capital adequacy ratio.
Based on this resolution, the size of cancellations this year will, thereby, bring us closer to last year's full year level of KRW480 billion. At present, with many risks still outstanding, we will need to continue ongoing control and management. However, as long as we continue to deliver solid financial performance as we did in the first quarter, we are on track to execute on the shareholder return policies that we committed to you at the beginning of the new year without set back. Next, Page 10. Credit card earnings, together with an increase in transaction volume as well as efficiency gains in marketing expense and product pricing, resulted in 1% Y-o-Y increase in earnings. Securities -- as the equity market became active, our brokerage fee income increase.
However, our prop trading income went down, resulting in a 36.6% Y-o-Y decrease in earnings. Capital and Asset Trust business was impacted by preemptive provisioning which resulted in a Y-o-Y decline in earnings. For our global business, alongside, strategically driven to top line expansion and our efficient ALM strategy, both contributed to improved operating; profit, driven mostly by interest income. More of our efforts to recover on NPL assets allowed us to write back provisioning, resulting in a 35.4% Y-o-Y increase in earnings. Our group-wide real estate PS exposure is KRW8.9 trillion, down slightly from end of last year and we recorded a provisioning ration of 3.61%. The next section from Page 11 to 13, covers issues related to an index-linked ELT products and also our measures to enforce stronger internal controls and customer protection.
Also, net line of our digital and sustainability activities are also attached for your reference. Lastly, let me briefly comment on the recent macro environment and also today's changing business conditions as well as our response and future outlook. With the start of this year, thanks to the corporate value program, we have seen greater interest in Korean financial stocks than ever before. At the same time, with widening geopolitical risk, we're seeing elevated volatility across various macro indicators such as FX rates and inflation. At our last conference in February, we commented on conservative expectations for one benchmark rate-cut in the second half of the year. Given the rising inflationary pressure fueled by the risk in the Middle East, it appears that this outlook still remains valid and intact.
Many economic players will likely see delayed improvement in their financial soundness, with continued deterioration of asset quality and a rise in credit costs expected to continue for the time being. We, however, as you have seen in our Q1 results, continue to deliver solid top line results. And through preemptive efforts to enhance our loss absorption capacity and efficient capital management, have been focusing on proactively addressing new market demand, while focusing on minimizing sensitivity externalities to achieve greater financial stability. If the outcome of these efforts become materialized, we expect to maintain a sufficient capital buffer while sustaining stable financial performance. However, we, until very recently, understand that regarding stock prices, there were some concerns in the market with regards to shares held by our major strategic investors.
Further most, most of these trades were completed in the first quarter and we believe that any concern over oversupply will gradually improve. We remain strongly committed to our social responsibilities. And based on our customer support and trust, we'll strive to achieve solid performance and financial stability and outstanding shareholder return policies to enhance our corporate value. Thank you very much.
