Shinhan Financial Group (KRX:055550) Q3 2022 Earnings Call

0:00 Good morning. I am Park Cheol Woo, head of IR. We are conducting today's earnings presentation through our digital platform, the Leveraging Shinhan Financial Group IR YouTube channel and the Zoom app. As we have announced last quarter, at the newly opened Shinhan Financial Group IR YouTube channel, those of you who have missed the live streaming today will be able to find the updated Korean and English presentations. So please subscribe to our channel. Before starting today's earnings presentation, a brief explanation on how to log in. The YouTube live channel will enable the participants to watch the Korean presentation, and if you have questions, please log on to the Zoom app. Also, the YouTube live channel will only stream the Korean presentation, so if you want to listen to English, log on to Zoom and click English for the translation. For more details, please refer to our homepage, www.shinangroup.com.

0:58 Now, we will begin the 2022 Q3 earnings presentation of Fashion and Financial Group. In today's presentation, we have with us our main presenter, CFO, Lee Tae-kyung of the group, and the group CMO, Ho Young-tae, the group CRO, Bang Dong-kwon, the group CDO, Kim Myung-hee, the group CSSO, Ko Seok-hun, From Shinhan Bank, CFO Jeong Sang-hyuk, Shinhan Card, CFO Moon Dong-kwon, Shinhan Financial Investment, CFO Geum Sung-won, and finally, Shinhan Life CFO Park Kyung-hwan. In order to provide detailed answers to our investors' questions, we would like to give the opportunity to as many people as possible to ask questions.

1:43 Today, we will first invite CFO Lee Tae-kyung for the business results of Q3 2022 and then CRO Bang Dong-geun will speak on the group's risk management and the achievement of the digital sector will be presented by CDO Kim Myung-hee and then we'll proceed to a Q&A. And now we will invite CFO Lee Tae-kyung for the earnings presentation of Q3 2022. Good morning. I am Lee Tae-kyung, the CFO of Shinhan Financial Group. First of all, I'd like to thank everyone for taking part in the earnings presentation for Q3 of 2022, despite your busy schedules. I'd like to walk you through the highlights of this quarter on page 4, and then go into the details of the business results for Q3 of the group.

2:30 Page 4. In Q3 of 2022, the Group's cumulative net income posted 4,315.4 billion won, posting solid results despite the deteriorating external environment. In Q3 alone, net income came to 1,594.6 billion won, and ordinary net income, excluding the gains from the sale of the office building of Shinan Investment Securities, posted 1,272.8 billion won. Thus, we were able to defend a stable net income by offsetting the sluggish performance of the non-interest income segment through the growth in interest income and decline in provisioning. In Q3, the cumulative cost-income ratio, CIA, upwards to 40.1%, and despite the increase in digital-related costs, the SG&E was managed at a stable level. The Group's Q3 credit cost ratio was 20 million BIPs maintained at a stable level, and going forward, we plan to maintain our conservative provisioning policy.

3:24 Finally, the Group's capital policy, The per share dividend in Q3 was $401, and this was decided at the BOG meeting held on Oct. 6, along with the Treasury stock buyback and the cancellation of an additional $150.1 billion. As has been noted last time, we will continue to make an effort to enhance shareholder value through gradual improvement of shareholder return ratio while maintaining an appropriate capital ratio. On page 5, please refer to the key business results of the Group as a whole during the third quarter. So please refer to it. And starting from page 6, I will now explain about the detailed performance of the group. Page 6, the group's interest income. In Q3 of 2022, the group's interest income posted 2 trillion and 716 billion won, up 2.7% QOQ. Interest-bearing assets grew 2.3% QOQ, and this is due to the improvement in the bank NIMS.

4:20 In Q3, the bank's NIN posted 1.68%, up 5% with QQ. But compared to Q2, the pace of growth of the bank's NIN has slowed down. This is due to the rise in the funding cost owing to the repricing of the deposit interest rate, outflow of low-cost deposits, and growth in time deposits. Now, on the subject of the bank's loan in Korean Won, which is of great interest to you, for your reference, more details can be found on page 29. The loan growth of the bank grew only 0.7% in Q3 owing to the continued decline in retail loans despite the solid growth in corporate loans. Segment-wise, the corporate loans grew 2.5% QOQ due to an increase in demand for loans from large companies and audited companies, which resulted from the liquidity crunch in the corporate bond market. On the other hand, the retail loans were down 1.3% QOQ, impacted by strengthened DSR regulations and declining demand from rapid interest rate hikes.

5:23 On page 7, we have attached the Shunan Bank's margin funding and lending status for your reference. Next on page 8, the group's non-interest income. The group's non-interest income was down 28.8% QOQ due to declining fee income from the weak capital and real estate PF market as well as the declining gains on AFSA securities and the FX derivatives arising from the growing market volatility. The fee income is down 16.1% QOQ and the decline owes itself to the falling credit card fee income on the back of merchant fee Refund and growth indices no promotional expense despite the solid growth of the credit purchase absence of investment banking fees related to IPO and the real estate big deal that occurred in the first half and the contraction of brokerage commissions.

6:13 Ains related to AFS Securities was down 22.9% QQ driven by the growing volatility in the securities market and rising interest rates despite efforts to defend against losses as for investment portfolio adjustment and duration management. Next on page 9, the group's SG&A and credit cost. The SG&A increased slightly over the previous quarter, but excluding the expenses related to Shinan Life HR integration that occurred in Q3, it is maintained stably at the Q2 level. The group's CIR grew 1.1 percentage point over Q2, driven by the fall in operating profit, but was up 1.4 percentage point, YOY posting 40.1%. In Q3, provisions for credit losses was managed at a stable level, boosting 250.6 billion won and is up when excluding the 224.5 billion won of counter-cyclical provisioning.

7:15 As economic uncertainties grow to address potential credit risk, we intend to continue our conservative provisioning policy. If we look at the delinquency rate, which can be taken as a leading indicator of credit cost, in the case of the bank, it is maintained at 0.20% of 1 BIPs QOQ. In the case of the card business, it is down 6 BIPs QOQ. But when excluding the 7 BIPs increase owing to one-off factors like the bank, the card business also posted 0.86% up 1 BIPs QOQ. Please refer to page 10 for issues related to our pre-emptive preparations made to address future uncertainties. For greater details on the Group's asset quality management, please refer to page 11.

8:00 Next, on page 12, Capital Management and Profitability. As of the end of September, the C2-1 ratio is expected to pose 12.7%, similar to last quarter. Next, on page 13, the Group's Income by Subsidiaries. Despite the weak non-interest income, net income increased, and the bank QOQ thanks to the interest income growth led by NIM improvement and lower provisioning costs. In the case of non-banking subsidiaries, NAM cards recurring net income decreased somewhat despite the growth in credit purchases and operating asset increase driven by business diversification efforts due to rapid hikes in funding costs and the merchant fee cuts.

8:47 Sinan Securities net income decreased or into a fall in brokerage fees reflecting slow market trading activities and valuation losses and securities on the back of higher interest rates. Sina Life Insurance Profit remains solid, although investment profit decreased due to HR integration costs and the decline in gains from disposal of AFIS securities. Sina Capital Net Income decreased QOQ reflecting valuation losses in IB-related securities on the back of rising interest rates and the increase of provisioning related to real estate-related PF. In addition, in the case of capital market-related subsidiaries, namely Shinan Asset Management and Shinan Asset Trust, the net income declined QQ due to the recent interest rate hikes and growing volatility in the market.

9:35 For details related to the group's global business, please refer to page 14. As there are heightened interest by our investors for the current state of our risk management owing to growing uncertainties for the future, we have added supplementary slides to explain about our pre-emptive risk management measures. Next, on page 15, our CRO, Bang Dong-kwon, will walk you through our pre-emptive risk management status.

10:02 Hello, I'm the Group CRO, Bang Dong-kwon. I would like to talk about the risk side of the group. Uncertainties in the domestic and foreign financial markets are increasing due to the recent tightening monetary policies and the strong dollar. And if the contraction of the real economy intensifies going forward, then the potential risk factors may manifest. In this regard, I would like to address Shinhan Financial Group's risk management system and current status regarding soundness, liquidity, and capital adequacy, which are the main concerns. First, about Shinhan's current status and countermeasures in preparation for possible deterioration of asset quality due to the rapid rise in the market interest rates and the impact of the economic recession. The graph on the left shows the trend of the loan ratio of the potentially vulnerable segments selected by the group on the basis of various risk factors such as income debt level and credit rating.

11:06 We're maintaining a stable proportion of vulnerable segments by refining the screening strategy for potentially vulnerable segments and strengthening credit line management to support the soft landing of potentially vulnerable borrowers. Various internal programs such as temporary liquidity shortage support for borrowers are being prepared to minimize the system risks. Second, liquidity management amidst the recent strong dollar and the tight funding market. The graph in the center shows our group has maintained a stable liquidity ratio that far exceeds the regulatory standards through a preemptive and conservative liquidity policy. In addition, to withstand the worst stressful situations, we have expanded our FX liquidity funds, and we have prepared an emergency funding plan to regularly check its availability.

12:03 Lastly, to strengthen efficient capital adequacy management, we are strengthening portfolio rebalancing and management in consideration of asset sector risk return profile. The risk rate level is maintained stably despite the recent sharp rise in the exchange rate through asset management by sector mindful of the risk rate and the expansion of the RWA budget system. In addition, the stress test results show that the capital ratio exceeds the regulatory requirements as can be seen from the table on the right. We will continue to strengthen the group-wide crisis management system to maintain a stable capital ratio even in the face of a financial crisis and take preemptive measures for sectors at issue.

12:59 Hello, I am Kim Myung Hee, the Group's CDO. I would like to go over the Q3 results based on the Group's digital strategy. We're seeing continuous creation of quantitative and qualitative results centering on the six customer values. Along with the quantitative growth of the platform, its financial contribution is growing. In addition, we are actively fulfilling our social responsibilities by continuing our efforts to ensure the safe financial life of our customers and to overcome the digital divide. By utilizing core technology, business experience is accumulated and process automation is expanded. We'll explain the main achievements for each key index on the right. First, MoreFriendly, which is easier and convenient financing.

13:45 The group's digital platform, MAU, has surpassed 21 million, which is an increase of 4.01 million YOY. Shinhan's two mega platforms, BankSoul and CardPlay, continue to show solid growth, where the Life platform has nearly doubled the number of monthly users, YTD. Thanks to Shinhan's MyData service, chosen by 6 million people, Shinhan's platform is developing into a platform where customers frequently visit and stay on for a long time. Second, more secure. There are 6 million Shinhan Sign users benefiting from secure mobile financial transactions. And as a result of stronger monitoring activities against foreswishing and fraudulent payment using the latest AI technology, we were able to prevent fraud-induced loss of 38 billion won by Q3 this year. and moving on to more creative the profit from the new digital business has increased to more than 30 billion won among them the data business income exceeded 10 billion won and life platform garnered more than 20 billion won in new business after the stabilization of the pandemic the investment system to expand the global ecosystem has been strengthened along with the creation of a global SI fund worth 200 billion won we also Reorganized the global base of startups. Please refer to the materials

15:16 for Data Process Technology and People on the next page about the platform growth and business strategy in more detail. The group's financial and non-financial platforms grew 33.3% YOY. As a result of continuous improvement of ease of use and core functions of the financial platform, the number of customers and sales of financial products is increasing. Sales opportunities using digital are steadily expanding, and efficiency is also continuously increasing. The growth of the lifestyle platform closely related to finance has translated to securing non-financial traffic and transactions. This led to an increase in sales from new businesses.

16:02 We will continue with our digital strategy. Thank you. Both CDO and CRO, page 18 and onward, there are detailed explanations of sustainable management activities and major indices for group and subsidiaries. With this, we would like to conclude the presentation and move on to Q&A. Thank you. Thank you. We will take questions from you. If you have a question, please use the raise hand icon from your Zoom screen. And the same goes for people who want to ask in English. English questions will be interpreted consecutively, which will take time. So after asking your question in English, please wait while it is translated into Korean.

16:57 We'll take the first question. From BNK, please go ahead.

17:07 Thank you very much for the good results. Can you hear me well? Yes, we can hear you well. I have two questions with regards to preemptive risk management. After Q2, there has been steep interest rate rises and there has been big impact on the bond and stock markets. And starting from fourth quarter, I think there will be more concerns about the real estate PF market. What is the PF status and what is your future strategies for this segment? And second question has to do with ESG. Making preparations for ESG is important, and financial companies, I believe, are well prepared for ESG. However, because of the war this year, the fossil fuel cost has increased, and because of Economic uncertainties, a lot of burden is imposed on the corporate sector.

18:03 And so the pace of progress in ESG, I believe, will slow down. So with regards to ESG going forward, Shina Financial Group, what is your strategy? We have experts here. And so with regards to issues about the pace of progress of years to slowing down, what would be your view, the expert view on this? Thank you very much, Mr. Kim. So while we are preparing an answer to your question, please wait for a few minutes. Thank you. First question is about risk.

18:51 Real Estate PF, the current status and strategy. That was the first question. And our CRO, Bang Dong-kwon, will answer that question. Second question on ESG, the CSSO will answer the question. So for the risk question, good morning. I'm Bang Dong-kwon, the CRO. Thank you very much for the good question. So the real estate PF or the bridge loan, there are a lot of concerns in the market. That is quite true. And in keeping with such a trend, The credit line management and screening of real estate PF is our strategy. If we look at our current status, among our total loans, the real estate PF and the bridge loan, their proportion is about 2% of the total portfolio.

19:38 And recently, across the group, the PF and bridge loan, we had a total inspection conducted, and according to that inspection, NPL is about 20 billion won. And so according to our current situation, I believe we are managing this risk very well. But going forward, what are we going to do going forward? Well, for each business division and the risk-related divisions, we all engage in closed discussion. Next year, credit line management and business strategy is being discussed. The current strategy and policy need to be strengthened going forward. Thank you very much.

20:26 Second question on ESG. So let me get that question. This is my third presentation this year, but this is my first question on ESG. As you have asked, there is economic slowdown because of the rise in the price of fossil fuel. Slowdown in progress is of concern. With regards to lowering carbon emissions, Shinhan, It's also participating in this effort. All of the financial companies across the world is participating. That is quite true. The financial mission management is very important. That is our ultimate goal.

21:12 But the capital intensity management, Starting from 2020, we have been lowering those emissions and 0.6% target has been reached of reduction by Q2. But we have to maintain the sustained efforts on this front. But I don't think this is something that can be achieved by Sinan alone. Globally, assessment criteria or standards have not been devised yet. So ISSP, a draft version, has come out. But by early next year, if an official version comes out, then I believe carbon emissions can be linked to that standard. Among the financial groups, Sinan is the very first and the only financial group Thank you for your answer.

22:21 Thank you very much. We'll take the next question. There is a bit of a delay. Yes. From City, Ms. Ya Hui Tian.

22:33 Please go ahead. Good morning. Thank you for taking my questions. I have two. The first one is more around the card business. I've seen quite a number of quarters of strong fee income coming through, but this quarter is a little bit softer than usual. So just wanted to understand the longer term outlook for the card business in terms of fee income as well as asset quality. Second one is on the liquidity risk. Recently, Bank of Korea has injected liquidity into the system. There seems to be a little bit of stress for corporates as well as for certain financial institutions like securities companies when it comes to liquidity risk. Can you help us to quantify how does this impact funding costs for Xinhang Group going forward? Are there any areas of stress that you are seeing in the system?

23:28 Thank you.

23:35 Thank you for the opportunity to ask questions. I will give you two questions. The first one is related to the card business. During the several quarters, the fee income seemed to be quite strong, but this quarter, it turned out to be a little weak. How do you look at the long-term prospects related to the revenue of the payment? And please tell us about the prospects for the credit card's asset reliability. Next, the second question is related to mobility risk. Recently, Haneun has invested in some stressed-out companies and financial institutions. In this regard, please answer how much this affects the cost of delivery in the new year. Thank you. Thank you for the questions. We will get back to you with the answer in a short while.

24:48 Thank you for the two questions.

24:51 One was about the card fee income and the asset quality. And this will be answered by the card CFO. And as for the liquidity risk and the effect it has on the funding cost, I'll answer that. So the first question to the card CFO. Hello, I am the Shin Han card CFO. Thank you for the question. And I'd like to answer the question. First of all, as for the card fee income, in conclusion, there are some cyclical and seasonal factors. Starting in Q4, we believe that the fee income will normalize. In Q3, it was soft, and as for that reason, The fee income was due to the merchant fee decrease and the marketing fee increase.

25:44 And that's why it was solved temporarily in Q3. Of the Q1 and Q3, for the smaller merchants, we had a lot of refund given to the smaller merchants in Q3. And we also extended the refund to the smaller malls. And that is why we had 14.2 billion won less fee income. And as for the marketing fee income in the 2nd May, June, July, and August, that was reflected in Q3. But starting in Q4, the fee income will be back to normal. And as for the asset quality, the Group CRO in his presentation mentioned that up until Q3, the asset quality did not cause any concerns, but in starting in Q4, We may expect slight hiccups, but Q4, we don't think there will be a huge instance, but we believe that this could become a bigger issue next year, and we will be prepared for that. So what will be the impact on asset quality next year?

27:05 On an annual basis, Compared to the credit cost this year, we believe that the credit cost could rise by 19 to 20% next year. And so we will take the appropriate measures so that we will be able to maintain the recurring profit level. So that will be my answer. Thank you. Thank you. I will address the second part of your question about the liquidity risk. Yes, it has been highlighted since September. There were margin calls, and the financial institutions had liquidity shortage. And the second reason, because of the LCR and the ratios that were excused during the pandemic, the regulations are being strengthened.

28:02 And as for the legal land, there was the commercial paper issue. Yesterday and the day before, the government made announcements, and there are many funds prepared by the government to inject liquidity. So we put out the fire, and as was mentioned by the CFO's presentation, for a long time, Shinhan Financial Group had Thank you. Next question.

28:59 Next question is from Samsung Securities, Mr. Kim Jae-woo. Mr. Kim, you're online. Good morning. I have two questions. First is related to interest rate. The funding interest rate is hyped up, and this is an issue in the month of... Thank you very much. Next year margin, what should be the outlook for next year?

29:55 Guidance or your views? My second question is related to digital. We have looked at the slides that you showed us. One thing of note is that unlike other companies, You have many different applications that are leveraged, not just one single app. Of course, there is no one right answer, but this kind of strategy, you know, one app versus many different apps, what is the difference between these kinds of business strategies, and what do you intend to gain from using these diverse apps? And will you continue to expand the number of apps that you use, or are you going to go in a different direction going forward? Thank you very much for the question. While we are preparing the answer, please wait for a short while. Thank you.

30:50 Those were two questions. The first question had to do with interest rate hikes and how it will impact the margins. Second question was on digital, on the apps. With regards to the digital question, our CDO will take up that question. The bank margin is most important, and the CFO will take that question. From the bank, our CFO. Thank you very much for the question. The funding rate increases as well. In the banking sector, we believe it is a one-off temporary phenomenon. And in the fourth quarter, in the banking sector, not only maturities, but also bond market instability, these are all coinciding, and so the funding rate is increasing.

31:39 After the fourth quarter is over, and starting from next year, first quarter, we believe things will become stabilized. After the end of October, from the banking sector, our view is that the funding rate will not increase that steeply. But with regards to the funding rate increase, is that able to be translated to the loan interest rate? Well, there are vulnerable sectors in our society. We have to consider that. And so we cannot translate all of them to the loan sector. But because the BOK rate has hiked, basically, and has increased, we don't think this will be very much impacted.

32:26 And assistance for the vulnerable sector, Because our profit has increased because of the new increases, so we will be able to provide assistance to the vulnerable sectors. And next year, new outlook for this year, fourth quarter, you know, vulnerable sector assistance and funding rate increases. So temporarily in the fourth quarter, we do believe that margins will be stagnated. There's additional BOK rate hikes at the end of the year. And as in that, we do believe that the funding rate will be stabilized in Q1. And so, given all of these, in 2023, we do believe NIAM will continue to be improved.

33:14 And with regards to sensitivity, although not 100% can be reflected, about 10 bps or more of NIM growth is possible in our view for 2023. That is all. Additionally, let me add to that, that was the bank side, and at the group level, the NIM continues to grow, and capital and other subsidiaries, the NIM is contracting because the funding rate is rising, and the bank's outlook can be offset somewhat by negative impact to other subsidiaries.

33:59 Because of assistance to vulnerable borrowers, it will not have a negative impact on competition for deposits and competition for loans. I think competition can intensify because of that. But as I've said, due to the interest rate hikes, the NIN can possibly continue to stably rise. With regard to digital question, not using one app but using diverse apps, what's difference and the future direction of our strategy? That was your question. In today's earnings presentation, what I talked about is at the group level, bank, card, securities, and life. I talked about the apps at the group level.

34:44 I talked about 21 million MAU. We are employing two strategies through the group-level apps. Each subsidiary is providing services that can be provided digitally, and for the customers making use of these services, they are making use of these subsidiary apps. and the One App Strategy, Universal Convenient App Strategy, that is also slightly different from other financial groups. There's a slightly different tilt. Other financial groups, for instance, a lot of their efforts are focused on the bank, and that is the center of their One App Strategy. But in the case of Shinhan several years ago, Shinhan Plus, This integrated app was launched already. And among the subsidiaries, services can be interlinked through this app. And one step further, going one step further, Bank Securities Card and Life, if they were all one single entity, what kind of integrated functionalities could be provided to the customers?

35:52 This was the focus of our strategy. And so this universal one app strategy is what differentiates us from others. This is a two-point strategy. So that is our current situation and our future strategy. In the month of August, at the Financial Service Commission, Universal One App guideline, I think it has been eased significantly. And so a lot of uncertainty surrounding the Universal One App has been lifted. So I think this is beneficial for our growth strategy. Thank you very much.

36:35 Thank you. We'll take the next question from HSBC. Won Jae-yong, please go ahead, sir. Congratulations on a wonderful quarter. I have two questions. First is about overseas business. Looking at the results, there seem to be no major issues, but Vietnam, Indonesia, Are there any details, NPL ratios, or delinquencies, credit cost, MIM, some more detailed information? Could we get access to them? And the second question is, in the insurance sector, the IFRS 17 will kick in.

37:29 Other insurers, Well, they have to iron out some of the details, but I would like to know the overall trend for the net income, capital, what will be the direction going forward in preparation for IFRS 17 and insurance? Thank you. We'll get back to you with the answers in a short while. Thank you for the two questions. One was about the global Vietnam and Indonesia markets. We would like some detailed indicators.

38:19 And the second question was about introducing IFRS 17 in insurance. The insurance CFO will handle the second question, and the CMO will deal with the first question. First, about the second question, insurance and IFRS 17. I am Park Kyung-hwan. Thank you for the question. IFRS 17, how we are preparing for it and the direction going forward. So we are at the last stretch of our preparation efforts. As for IFRS 17 internal preparation and preparation for the external audit, we are working on the final details.

39:05 And the accounting policies are not finite. So with that in mind, I'd like to give you some numbers. What is most important is when IFRS 17 is introduced, evaluation will change and the capital will be affected. And we will be using the three-year method. And so about 4 trillion won was on average, but with the 17, the capital will increase by twice the amount. And in the future, CSM, the margin, I think you'll be interested in that by 2023.

39:53 We believe we will be able to secure 7 trillion. That is our estimate. So, given that, Shin Hang Life Standard Loan, P&L, will be about an increase of 30% on a recurring basis. Thank you.

40:16 Hello, I am CMO Ho Young-Taek.

40:22 Thank you for taking interest in the global business. And as for the global business results compared to last year, we have seen a huge growth, and overall, In the global channels, there was even growth, and the reasons were as follows. During the pandemic, the economies were sluggish, but there was normalization and our businesses benefited. It was 397 billion in 2019, and we expect 600 billion this year. And looking at the time series in 2020 and 2021, the net income had decreased, but it is now back to normalization and getting back on track.

41:15 And our strength lies in Vietnam and Cambodia, Indonesia. These are the global markets that we are strong in. And looking at the major indicators, ROE in Vietnam is 2, and ROA 15, and NIM 13. And as for Cambodia, ROE 2.6, ROE 13, and NIM about 4.6. In Indonesia, ROE 2%, ROE 4.6%, NIM 2.8%. And as for delinquencies, there are no outliers. They are within the range of 1 to 2%. So looking at the Southeast Asian markets going forward, we believe that there will be robust figures and growth. And as for asset quality or any issues to be expected, we see none. Thank you.

42:22 Thank you very much for those answers. Well, last year, up until last year, I was the head of the Vietnamese unit. I couldn't recall the specific numbers. After the presentations are over, we'll send you the numbers. Thank you very much for those answers. Next question is from the DS Securities, Mr. Na Min-ho. Mr. Na, you're on line. Good morning. I have just one question. Treasurer's stock buyback, another measure have taken in order to raise the shareholder return ratio. I think a high level of dividends is expected by the market at the end of the year. So in the fourth quarter, do you think the dividend level will go down or do you think the current level will maintain going into the fourth quarter?

43:16 Thank you very much for that question. While we're preparing the answer, please wait for a short while. Thank you very much for taking interest in our shareholder return ratio and the dividend-related question. Let me answer that question. Basically, as we have noted in the earlier part of the year, that still stands. The cash dividend will continue to increase in a solid manner. And so we have done cancellation of our trade stock in the fourth quarter. We have noted this previously, but we're going to maintain a solid increase.

44:03 So our policy is to increase it in a solid manner. So I think you can figure out the level. The regulatory says recently that stress tests must be done in a more sophisticated manner so that the capital ratio will be scrutinized closely. And RCO has noted the results of the stress testing. In a global financial crisis situation, even in that kind of situation, the CET1 ratio will go beyond, over an appropriate level. And a more sophisticated stress testing has been done recently. We have shown a relatively high CT1 ratio. And even if a different scenario, a much changed scenario comes upon us, I don't think much will change.

44:53 We will be, I think, be able to maintain the high level of shareholder return ratio. So we'll continue to communicate with regulators and proceed accordingly. Thank you very much for that answer. We will take the next question from CLSA.

45:09 Sim Jong-min, please go ahead. Hello, I am Sim Jong-min from CLSA. I have one question.

45:21 It's about the PF loans. You did mention it recently. Overall, the real estate market is weak and risk management for real estate loans. How are you doing it for retail and corporate loans and as for SOHO loans? The LTV is higher than for the mortgage loan, but if the real estate market continues, then it may increase the risk. So how do you see this and how do you manage the risks? Thank you. Thank you for the question. Please wait for the answer.

46:15 Yes, there are many issues related to real estate, so we get another question about the real estate. The CFO had addressed the PF question earlier, and as for SOHO and retail, yes, the situation is as such. We did talk about the real estate PF earlier, but to develop on that, But the delinquency is 0.09 for mortgage loans, and the LTV is 40.2%. So the delinquency is low, and the LTV is 40.2%, and there's the CR. And so we do not consider this as a risk, but as for the SOHO loans, The real estate collateralized loans, you may consider several as a vulnerable borrower, but if they have real estate as collateral, they are also PB clients, they are well-to-do, and they have good quality real estate as collateral.

47:24 So the delinquency for these segments is lower than the retail loans, 0.04, and as for LTV is higher than retail. But in the non-banking financial institutions, the LTV is higher. But in the bank and in Shinhan, we are managing it tightly. So this is not causing any concerns. Thank you.

47:57 Thank you. Next question. From Kyun Securities, Mr. Ho.

48:04 Good morning.

48:07 My name is Seo Young-soo from Kyun Securities. Thank you very much for giving me this opportunity. Just now, among the questions, the funding rate increase will be reflected in the month of October, and after that, it will come gradually down. I think that was your view. That means, in other words, The interbank interest rate competition is expected to be eased. I think that's your anticipation. The interbank deposit rate competition is linked to the loan rate increase. So this is very important. So first, Recently, the interest rate hike and the subsequent competition compared to 2005 to 2008, when there was interest rate hikes, I think the competition is much more intensified compared to that period.

48:59 Why do you think this is so? Your view is that this will be eased going forward. If it is indeed eased, what kind of factors will drive that easing? Is there any internal views or ideas on that? And second question is, so our anticipation going forward is that the co-fix and the bank loans rate will go up and be okay rate. If it goes additionally up, the average loan rate for the retail loans will go up steeply, so roughly next year we'll need to limit There has been like later half of 5% range. If the interest rate hikes, how much of asset quality deterioration will come about? For now, your NPR ratio is 0.24.

49:56 How much do you think this will go up additionally? Not only vulnerable, very vulnerable borrowers, but moderately vulnerable borrowers as well. How do you intend to respond to these sectors? I think if you show your views on this matter, it will be very helpful. Thank you very much for those questions. While we are preparing an answer, please wait for a short while. Thank you very much for those questions.

50:41 Your first question was, I think, was already answered by the Bank CFO. So, in MQ4, the funding rate increase or, you know, And what are the factors behind that? And second question, if interest rate has continued, it will be reflected in loan rates, and this will have an impact on asset quality. And what is our response or outlook? I think that was your question. So our first question, our bank CFO will take that question. And the second question will be taken up by our CFO. The CFO first. I'm Jeong Sang-yeol, the bank CFO. Thank you very much for that question. The banking sector's upfront competition has intensified, and the very first reason for that is because in the midst of the pandemic, the LCR ratio has been eased, and it is now normalizing.

51:38 Starting from the third quarter, it has been raised to 92.5%. That's the biggest reason. And because of FX rate increases, The derivative products volatility is increasing and also the BOK rate increases has led to highly liquid assets impact and in the fourth quarter the funding maturity is coming due and starting from the month of July The low-cost deposits have started to come down in the month of July. And so, until the end of September, there has been strong funding competition among the banks. That is true.

52:24 The bond market is quite unstable now, and the government. With regard to LCR regulation, they have postponed normalizing the LCR regulation six months, and they said that they will review it after six months is over. and the Reservation Easing and Qualified Collateral Reviews by the BOK. These have been announced by the relevant regulators, and so for the bank's liquidity situation, I think, We will see some buffers starting from the month of October. But starting from September, the banks have been raising funds, so we do have sufficient room. And in the fourth quarter, The fund inflow and the deposit inflow, we believe as we near the end of the year, it will increase. That is our view.

53:25 So starting from the fourth quarter, as we near the end of the fourth quarter, the banking sector's funding rate competition is expected to be eased. That is our expectation. That is all. I'm the CRO, Kang Dong-kwon. So let me see if I understood the question right. As the market rate, COFIX rate goes up, the average WTO loan rate goes up, and this can have a negative impact on the asset quality, and how are we going to respond to this? That is quite true. That is how the process will unfold if it happens.

54:12 As for quality deterioration, we do believe that will happen, and we are making preparations. As we have noted at the beginning, for the vulnerable segment, we have segmentized this sector. We are monitoring closely this segment. Thank you very much. The repayment capability, the stress DSR is being reflected in our screening process and not only has risk management centering around the vulnerable borrowers, we are providing liquidity in order to minimize the risks.

55:12 So customized programs and policies are being formulated. So with the rise of interest rate, in order to respond to sudden asset quality deterioration, various responses are being formulated. Thank you very much. Thank you.

55:32 The next question. We want to have this transparent in our process. Somebody with the Galaxy S has raised his hand, but we need to know your name. From JP Morgan, Cho Ju-hyun, please go ahead. Thank you for giving me the opportunity. I have one question. With the interest rate rise, there is correction in the real estate market and it will affect profitability. What about the overseas real estate exposure? and what type of exposure to overseas real estate and any precautionary assets that we need to watch out for and going forward, any management strategies or expansion strategies for your overseas real estate exposure.

56:30 Thank you.

56:32 Thank you for the question. We'll get back to you in a short while. Please hold. Yes, this is about the overseas property and the CRO will address this question. Thank you. That's a tough one. As you mentioned, for the overseas property risk, we have a similar idea from a group perspective. The overseas real estate exposure is about 3.5 trillion, and the forms are varied. We have PF, and we have equity investments, real estate funds.

57:28 But as of now, The risk is not that visible and as I was talking about PF earlier, We did conduct 100% investigation. And the assets at issue and assets under management, they are two separate buckets. And because of COVID-19, we could not do due diligence. And with that eased regulation, I think we will have a more sophisticated monitoring system. Thank you.

58:08 Thank you very much for that answer. Because we are rather behind time, but we will receive the next question from Clam Securities. Thank you very much for this opportunity to ask a question. The interest income of the group and the bank when compared, the non-banking subsidiary's interest income seems rather low. So I would like to ask a question about the funding for the card business. I think the funding increase has been larger than the others and the mix. The CPAVS has been larger than other instruments. So the funding instrument mix and also the funding rate increase speed, how should we view this? And also at the banking segment, the funding rate has risen steeply And the low-cost deposits has gone down by more than 10 trillion.

59:13 And so I think this has led to an increase in the time deposits as well. So in the banking sector, do you think that going into the fourth quarter, the low-cost deposits will continue this pace of decline as we have seen in the third quarter? So what kind of view should we take about this matter going forward? Thank you very much. Thank you for the question. While we are preparing answer, please wait for a short while. Thank you. This question was a funding-related question for both the card business and the bank business.

59:58 The card CFO will take up the question, and the bank CFO will also take the question on the bank. So first, the card. Thank you very much. With regards to the funding cost for the card business and the outlook, I think, was asked. Let me answer that question. Recently, not only the card, but the entire sector, the funding rate is increasing across the board compared to repayment size. The interest rate itself has risen by several folds. So according to our anticipation, next year, the average of funding currently is 2.2. We think it will grow to 3.2 going into next year.

1:00:53 So 31 trillion, 32 trillion will be the amount. And the pre-tax amount will be about $300 billion to $350 billion of funding cost increase is expected. And that impact is quite large. And how can we respond to that? Starting from the fourth quarter, various asset balancing effort and price realization and for various funding efforts reorganization will be undertaken so that the recurring profitability of the company was monthly 50 billion will be achieved next year and to achieve that we are making preparations starting from the fourth quarter and the funding related cost is also being prepared for and addressed.

1:01:51 Thank you very much for that good question and

1:01:58 With regard to the liquidity reduction, yes, we are also giving this a lot of thought. In the case of Shinan Bank, up until the second quarter, compared to other banks, we had an increase of liquidity. Starting from the month of July, all of the banking sector has seen the reduction of low-cost deposits in the month of July, August, and September decline in low-cost deposits. The absolute level is going down. According to BOK, the reduction of the low-cost deposits throughout the banking sector in July was 53 trillion. In August, it was 15 trillion, and in September, it was 3.3 trillion.

1:02:44 The reduction level is coming down, but we believe that going into the fourth quarter, this reduction trend will continue. Because of various factors, in the first quarter of next year, due to seasonal issues like the government spending and household bonus payment issues, starting from the first quarter of next year, we believe that the low-cost deposit will become normalized. This reduction trend will stop in our expectation. In the case of institution deposits, it was expanded in the first half, and there's a trend of this being reduced in the second half.

1:03:33 So we're taking that into consideration. In the case of... Shinhan Bank, Seoul City, 205 project, 2.5 trillion will be reflected as well. So in the first quarter of next year, in the case of Shinhan Bank, we believe that we will see a rebound of the low-cost deposit starting from first quarter next year.

1:04:00 Thank you for the questions. We are running out of time, and we won't be able to take questions, and we don't have any questions. With this, we would like to conclude Q3 earnings presentation of Shinhan Financial Group. I would like to thank you once again for your participation. You may visit the website and the Shinhan Financial Group IR YouTube channel for the IR materials. Thank you very much.