Hana Financial Group Inc. (A086790) Earnings Call Transcript & Summary

Greetings. I am G.H. Park, Head of IR at Hana Financial Group. I express my deepest gratitude to all market participants who are participating in today's business results presentation despite your busy schedules. We will now begin our 2025 First Half Business Results Presentation, and I would like to introduce the executives from our group and major subsidiaries who are here today. Group CFO, Jong Moo Park, is here with us. Group CRO, Jae Shin Kang, is here with us today. Group CSO, Ho Sik Nam is here with us. Next, Hana Bank CFO, Young Seok Jeong, is with us today. Hana Bank, CRO, Chang Wook Pae is here with us. Last but not least, Hana Securities CFO, Dong Sik Kim, is here with us today. Before we begin the main earnings presentation, I would like to share some information with you Hana Financial Group in order to broaden communication with individual investors and to improve accessibility for individual investors to establish our IR-dedicated KakaoTalk channel. Let's take a look at a video clip introducing our channel. If you search for Hana Financial Group IR in the Kakao search window, anyone can add our channel. We believe that this can improve our individual shareholders' information accessibility. In the IR channel, you can find diverse information regarding the financial market and Hana Financial Group shares through reports by Hana Institute of Finance and Hana Securities. Well, there is FAQ, which will, through 1 touch, provide answers to frequently asked questions by individual investors, including quarterly dividends and dividend record dates. In addition, if you ask questions to us via the chat window, we plan to directly answer them. So we look forward to your interest and participation. I would like to invite our group CFO, Jong Moo Park to deliver a presentation regarding our performance.

Greetings. I am Jong Moo Park, CFO of Hana Financial Group. Thank you to all shareholders, investors and analysts, all stakeholders for taking part in today's Hana Financial Group business results presentation. I will now elaborate on 2025 first half group business results. Please refer to Page 1 of the materials. Hana Financial Group's 2025 first half net income posted KRW 2,301 billion, an 11.2% increase Y-o-Y, centering on noninterest income, including fee income and disposition and valuation gains, group's general operating income grew 4.2% Y-o-Y and SG&A expenses and credit cost was stably controlled within our plans, and we were able to achieve robust earnings improvement. Meanwhile, group's Q2 net income posted KRW 1,173.3 billion. And on the back of effect from FX translation income following the dollar-won FX stabilization as well as the fee income growth trend grew 4% Q-o-Q and surpassed market expectations. Accordingly, our group's ROE based on our group's first half posted 10.76%, a 40 bp increase Y-o-Y. In addition, today, our BOD made a resolution for KRW 200 billion of share buyback and cancellation and KRW 913 of cash dividend per share. In order to enhance corporate value, we are continuously expanding shareholder -- share buyback and cancellation. And as a result, the number of distributable shares is decreasing and quarterly dividend per share is gradually increasing. I would like to walk you through some of our group's business performance in more detail. Please refer to Page 2. First, I would like to cover group and bank NIM and interest income. Group's Q2 NIM recorded 1.73% and a 4 bp increase Q-o-Q and Hana Bank Q2 NIM posted 1.48%, which is same as the previous quarter. To explain a little bit more about the bank NIM, although the policy rate cut exerted downward pressure on loan asset yields on the back of portfolio improvement efforts, including expansion of low-cost funding sources, we were able to safeguard bank's Q2 NIM to the level of the previous quarter. On top of this, Hana Card's NIM increased due to the impact from lower funding costs and the group's Q2 NIM improved Q-o-Q. Next, group's first half interest income posted KRW 4,491.1 billion. Group and bank NIM increased Y-o-Y, but through driving RoRWA-based asset growth and the impact from portfolio rebalancing, group's first half interest income increased 2.5% Y-o-Y. Next, bank's loans in won posted KRW 309 trillion, a 2.1% increase YTD. In case of corporate loans, along with high-quality asset-centered asset growth as well as increasing support to SMEs and small businesses that are going through challenges due to the economic slowdown, increased 2.6% YTD. Household loans increased 1.4% YTD. Accordingly, bank loans in won grew within our planned scope at a cumulative 2.5% level by the end of the first half of this year, and in the second half, we will also consider a nominal GDP growth rate that was our goal when we established our business plan and manage this accordingly. Next is the noninterest income. First half of group fee income was KRW 1,080.4 billion. Credit card fee income, which has been leading fee income improvement grew 11.6% Y-o-Y, thanks to increase in overseas credit card sales. And Hana Capital's operating lease fee also increased 22.5% Y-o-Y driven by increase in auto financing assets. Overall, group fee income delivered steady growth. Also other fee income items, including M&A advisory and asset management fees delivered healthy results and group's fee income increased 4.6% Y-o-Y during the first half. Group's first half disposition and valuation gain, which includes FX translation gains, supported by stronger Korean won was KRW 826.5 billion, a 28.1% Y-o-Y increase. Thanks to increase in securities and FX derivative trading gains from flexible response to market volatility and diversified income sources. Please turn to Page 3. Group's first half G&A expense was KRW 2,267.2 billion, a 3.5% increase Y-o-Y. Group's first half cost-income ratio was 38.5%, a 0.2 percentage point drop Y-o-Y. When excluding the ERP expense recognized in Q1, group's G&A expense in first half slightly decreased on a Y-o-Y basis and cost-income ratio improved by 1.6 percentage points Y-o-Y. Thanks to group-wide cost efficiency efforts, including efficient budget allocation and profit linked to budget execution, the cost-income ratio remains stably within full year target range. The group's YTD credit cost ratio was 30 bp, which is 1 bp increase versus Q1. This is also a 6 bp increase on a Y-o-Y basis, which is mainly attributed to the one-off provisioning reversal that had happened in first half of 2024. Despite increase in substandard and below loans of Hana Bank and Hana Asset Trust, high collateralized ratio of bank loans and group level active risk management has limited credit cost increases. As shown in the figure, group's CCR remains below the mid 30 bp range, in line with full year business plan. In the second half, economic uncertainty is expected to continue to a certain extent, and we will continue to preemptively manage the group loan loss provisioning and asset quality to ensure sufficient loss absorption ability for risk assets. Next is the group's capital ratio. At the end of first half, CET1 is expected to be 13.39%. Loan growth anchored in RoRWA and frankly, FX trends led to slight decrease in RWA versus end of first quarter, resulting in an overall 15 bp improvement in the CET1 ratio versus end of Q1. We will continue to focus on maintaining stable RWA and capital ratios based on solid group level fundamentals to ensure that our Value Up program is implemented as planned. The other pages have been provided for your reference. And this ends my presentation on the Hana Financial Group's 2025 first half business results. Thank you.

[Operator Instructions] The first question is from DB Securities, Binu Na.

I am Binu Na from DB Securities. I have 2 questions. The first question is about shareholder return. One of your competitors mentioned that they will surpass 50% of TSR. So I think that you are moving within your plan. So are you going to increase this going forward? Or do you have any plans to revise your going forward? And regarding the different regulations for mortgage loans that was announced in July, do you have any changes to your plans? Can you give us some guidance? Or can you give us some of your changes that you have in mind?

Thank you very much for your questions. We will soon answer them. Thank you very much.

Thank you very much for the 2 questions. I will answer them. And for shareholder return, Group CFO, Jong-Moo Park will answer the first question and guidance related to household loans will be given by our bank. KPFG I believe, gave some information about shareholder return and Shinhan also mentioned that they will have a very high level of shareholder return as well. And as you have mentioned, looking at our plans 50% is our target by 2027, and we are gradually progressing. Compared to the previous year in 2025, we have more than 5% uplift that we are expecting. And then by 2027, we believe that we can smoothly achieve 50%. However, there was a commercial act that was revised in -- 4, that was -- that's preferable to investors and other changes in the market, considering all of those changes, 50% target by 2027, we cannot really say that it is completely fixed target. And regarding when we can achieve this, the timing might be a little bit different and the TSR speed can also be accelerated. So we will need to wait and see. And for additional shareholder return, in the second half of this year, looking at our business performance macro variables, and looking at our CET1 ratio or our ordinary shares, I think we will need to consider the whole picture. So our management and our directors believe that profitability is of utmost priority. So we want to have sustainable profitability that we want to generate and we believe we want to maintain a stable capital ratio and have enough loss absorption capacity, then we can, I think, flexibly have a total shareholder return plan that can actually be revised. And regarding the second question, the bank's CFO, Young Seok Jeong, will answer the question.

For household loans, well, there has been a lower limit for the total limit. And for the household loans, for the collective loan market, we have been actually decreasing our exposure. So the bank's unique product will have about KRW 1 trillion or KRW 1 trillion and it's open for this exposure. So we won't have any issues for mortgage loans or others and about KRW 5.3 trillion of increase for corporate loans. And in the second half, we will have more than KRW 1 trillion going up each month. So we believe that 3.5% growth on an annual basis will be easily achieved. Thank you very much.

We will go to the next question. Next question is from Korea Investment Securities, Doosan Baek.

This is Doosan Baek of Korea Investment Securities. I have a question on noninterest income or nonbank side of the business, your capital and Hana Securities income seems to be weak on the securities. It seems to be less of the brokerage and also valuation and also on the capital side, provisioning. What is your outlook on your nonbank businesses in the second half?

Thank you very much for that question. Please give us a minute while we prepare the answer.

This is Jong Moo Park, the Group CFO, and I'll answer your question about our nonbank businesses. In the first half on a Y-o-Y basis, our earnings did decrease somewhat. And as you mentioned, for Hana Securities, we had some overseas alternative assets that we were holding. The valuation was renewed, which created some valuation losses recognized. On the Hana Capital side, there are corporate loans and provisioning taken for that. So Hana Capital part of that also has some valuation loss of overseas assets. As of 2025, when we created the business plan for this year, we did look into the alternative assets on the nonbanking side, how the loss will be recognized and project financing will be recognized. That is already built into this year's business plan. And as we had expected, this is showing up on our Hana Securities, Hana Asset -- Hana Capital and the Savings Bank. And depending on the market situation, the size would fluctuate somewhat.

We will take the next question. The next question is from SK Securities, Yong Jin Seol.

In my case, for asset quality indicators, I would like to ask you some questions. And unlike other banks that gave earnings releases, it seems that NPL and delinquency rate has climbed a bit for you. And the target that you want to manage for NPL and delinquency rates, I would like to know more. And can you tell us about the asset quality trajectory you are expecting for the second half of this year?

Thank you very much for your question. We will soon answer the question.

I am the Group CRO, Jae Shin Kang. Regarding the delinquency ratio from late last year, it has been climbing gradually. And in the second half, we believe that it will also climb somewhat as well. But most of our delinquencies are covered with collateral. So more than 80% is secured. So we believe that for provisioning it is being very stably managed. So superficially, you might see that the delinquency rate is going to go up until the second half of this year. Our delinquency rate as of now is 0.59%. And by the end of this year, we wanted to have a target of about 0.6% and manage it. But in the first half, it already has almost reached our target. So it seems that the asset quality or the delinquency rate is a little bit less or not as good as we had expected, but we are going to do our best for preemptive risk management so that we can have well-controlled provisioning.