Hana Financial Group Inc. ($A086790)

Greetings, I am GH Park, the 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 2026 Q1 business results presentation. I would first like to introduce the group and subsidiary management who are here with us attending today's earnings presentation. Group CFO, Jong Moo Park is here with us. Group CRO, Jae Shin Kang, is also here with us. We have here with us, Group CSO, Ho Sik Nam; and also Hana Bank CFO, Young Seok Jeong; Hana Bank CRO, Chang Wook Pae, as well as Hana Securities CFO, Dong Sik Kim is here with us. Today's session will begin with a presentation on 2026 Q1 group performance, followed by a Q&A session. Please note that the forward-looking statements regarding the group's performance discussed today may differ materially from actual business results depending on changes in macroeconomic and market conditions. I would like to invite our CFO, Jong-Moo Park to walk us through Hana Financial Group's 2026 Q1 business results.

Greetings, everyone. I am Hana Financial Group CFO, Jong-Moo Park. I would like to extend my sincere appreciation to all stakeholders, including our shareholders, investors and analysts for attending Hana Financial Group's earnings presentation. I will now walk you through 2026 Q1 group business results. First, the key highlights of our group's business performance. Please refer to Page 1 of the presentation materials. Hana Financial Group's 2026 Q1 net income increased by 7.3% Y-o-Y and posted KRW 1,210 billion, delivering results that exceeded market expectations. The key driver behind the group's solid performance in Q1 was the growth in core earnings, which combined interest income and fee income. On the back of Hana Bank's expanded profit base and enhanced profitability as well as strength in core business competitiveness of major nonbank subsidiaries, such as Hana Securities, group's interest income and fee income both increased Y-o-Y. As a result, the group's Q1 core profit expanded 13.6% Y-o-Y. As the Group's overall earnings capacity improved, Q1 group's ROE increased by 29 basis points Y-o-Y and posted 10.91%. We believe that in order to enhance Hana Financial Group's sustainable corporate value, improving our group's ROE is our utmost priority. Going forward, by continuing to strengthen the fundamentals of our nonbanking business, we will do our best to continuously improve the group's profitability and capital efficiency. Next, the group's CET1 ratio at the end of Q1 in 2026 is expected to decline by 29 basis points from the end of the previous year to 13.09%. The introduction of Basel III transitional arrangements and the weak Korean won resulted in downward pressure of approximately 33 basis points based on the CET1 ratio. However, leveraging the group's accumulated capabilities in managing risk-weighted assets over the recent years, we were able to maintain the group CET1 ratio at above 13% as of the end of Q1. Next, I would like to cover shareholder return. At today's BOD meeting, we approved the share buyback and cancellation of KRW 200 billion, along with a quarterly cash dividend of KRW 1,145 per share. Starting with treasury shares, out of the KRW 400 billion of share buyback and cancellation plan for the first half of the year announced earlier this year, KRW 200 billion of repurchase has already been completed by April and the additional KRW 200 billion of repurchase approved today is expected to be completed by July. Next, Q1 dividend per share is KRW 1,145, including the last year's Q4 cash dividends to meet the high dividend company requirement, it increased around 11.6% compared to 2025 average DPS. And when compared to Q1 of the previous year, the DPS went up around 26.4% (sic) [ 24.6% ] from KRW 906 to KRW 1,145. Keeping in step with the implementation of the high dividend separate taxation regime and to flexibly enhance shareholders after-tax dividend yield, we have decided to increase the cash dividend for Q1 compared to the previous year. Let me briefly outline our dividend plan for this year as well. Hana Financial Group has met the requirements for a high dividend company as of 2025. Accordingly, including the 2025 Q4 dividend, which is already paid regarding the cash dividend for the first, second and third quarters of 2026, it will be eligible for separate taxation treatment benefits on dividend income. In addition, at the shareholders' meeting -- the General Shareholders Meeting held in March, KRW 7.4 trillion of capital reserves was transferred to retained earnings to secure resources for implementing tax exempt dividends and the application of tax exempt dividends will begin with the year-end dividend for this year. Accordingly, starting from the cash dividend for Q4 of 2026 to be paid early next year, we plan to implement tax exempt dividends under which no dividend income tax will be imposed. We expect this to further enhance the effective shareholder return that our shareholders can experience firsthand. Hana Financial Group under the objective of enhancing corporate value is committed to pursuing the most effective shareholder return strategy. Going forward, we will do our best to proactively and flexibly respond to changes in the regulatory and capital market environment to maximize shareholder value. Let me now move on to the detailed review of our group's business performance. Please refer to Page 4 of the presentation materials. Group's 2026 Q1 interest income was KRW 2,505 billion, which is a 10.2% Y-o-Y growth. Based on our profitability focused growth strategy, NIM and asset size, both increase delivering solid interest income growth for the group. Q1 Hana Bank NIM was 1.58%, which is 6 bp Q-o-Q improvement driven by loan portfolio rebalancing, focused on RORWA enhancement. NIM improved 10 bp Y-o-Y, thanks to better funding cost efficiency. Group's Q1 NIM was 1.82%, which is a 4 bp Q-o-Q improvement and 13 bp improvement Y-o-Y. Next is Hana Bank's Q1 Korean won loan, which increased by 0.9% YTD, household loans decreased 0.3% YTD due to decrease in new household loans rather than -- other than policy mortgage products as the mortgage market shifted to home buyers purchasing homes to live in rather than as investments. But corporate loans increased 1.8% YTD as we supplied corporate loans to high-quality borrowers in response to increased corporate loan demand to fund their investments. Next is group noninterest income, which is on Page 5. 2026 Q1 group fee income was KRW 667.8 billion, which is a 28% Y-o-Y increase and a historic record high. The major drivers of strong fee income performance in Q1 was asset management-related fees. With the bullish Korean stock market continuing, Hana securities sales channel enhancement efforts has led to 203.9% increase Y-o-Y of brokerage fee income. And the wrap and operation fee income increased 167.6% Y-o-Y, thanks to a strong inflow into equity wrap accounts. Hana Bank's trust fee income also increased 45.6% Y-o-Y as the ETF focus sales strategy proved effective. Overall, Group's asset management-related fee income increased 87.3% Y-o-Y. On the group's M&A and advisory fee also increased 36.2% Y-o-Y. Hana Security successfully strengthened its IB portfolio around high quality priority deals leading to healthy profit growth. Group's disposition and valuation gain in Q1 was KRW 123.9 billion, which is a 67.2% Y-o-Y decrease, mainly attributed to the KRW 82.3 billion in FX translation loss due to the surge in exchange rate in Q1 as well as rise in market interest rates, driven by inflation concerns, which led to weaker bond performance. Page 6 looks at group's G&A expense. Group's Q1 G&A expense was KRW 1,198.4 billion. C/I ratio was 38.8%. Despite expense increasing factors such as higher education tax rate and increased depreciation tied to our IT investments, we successfully controlled group's CI ratio at last year's level by minimizing recurring labor and nonlabor expense increases through efficient labor and budget management. Next is a look at group's asset quality on Page 7. Group's Q1 loss provisioning expense was KRW 231.6 billion, which is a 23.1% decrease Y-o-Y. Credit cost ratio was 0.21%, which is a 8 bp fall Y-o-Y. Hana Bank saw decrease in stressed assets, leading to KRW 38.5 billion in reversal of provisioning and a significant improvement Y-o-Y in group's loss provisioning expense and credit cost ratio. Next is Page 8. Group's NPL coverage ratio was 95.6% as of end of Q1, which is a 19.6 percentage point drop Y-o-Y. Even though the group delinquency ratio and NPL ratio increased somewhat on a Y-o-Y basis because most of the newly forms of standard and below assets are covered with collateral, incremental provisioning was limited. NPL coverage ratio has temporarily fallen as a result below 100%, but is expected to recover 100% or above in Q2 with increased write-off sales and cleanup of stressed assets. Recently, macro uncertainties, including interest rate, FX rate and oil prices are continuing and an extended Middle East situation is likely to cause downward pressure on the Korean economy. Accordingly, we will focus on preemptive response against potential risk and reduction of stressed assets to ensure that the group's asset quality metrics, including NPL coverage ratio is managed within this year's business plan targets. The other slides have been provided for your reference. And this completes my presentation on Hana Financial Group's Q1 results.

[Operator Instructions]. The first question is from Mirae Asset Securities, we have Tae Joon Jeong.

I am Tae Joon Jeong from Mirae Asset Securities. And thank you for the great results. I have two questions. The first question is about your NIM that actually had a huge uplift and I believe that it will keep on going up. So can you give us some margin guidelines for this year. Is there an update? Second question is about the CET1 ratio. It went down somewhat, but you are maintaining above 13%, and the government is also easing its regulation. So I think this is a very advantageous environment for you. So can you give us maybe a new -- your new share related policies -- share return policies, maybe if they're updated, if you can share them with us.

Thank you very much for the insightful questions. I am Jong Moo Park, the CFO, and I will answer your questions. In Q1, we had actually better-than-expected NIM uplift. And some reasons behind them is that our pricing for the spread has gone off. So I think it is because of the market rate changes, and we had portfolio rebalancing. So due to that I think we had a better profitability from one operations. And then for our FX, I think we had more efficiency, so we were able to have greater results. And in the second half of the year, there will -- there has been some factors such as productive finance investment and changes in the banking-related laws, then I believe that maybe there we will have some limitations in growth. But when we first drew up plans for 2026, it seems that the numbers actually could get better than we had planned for. So it seems that maybe it will not be a big uplift like Q1, but we believe that even after Q2, we believe that the upward trajectory will be better than we had enjoyed in the previous year. And regarding the CET1 ratio, regarding additional shareholder return plans, I think you asked those questions. And regarding our shareholder return plans, I think that you will have additional questions. In Q1, during this earnings presentation regarding our value of plans, well, we were planning to give you a more clearer picture. However, we believe that for a more sustainable and realistic plan going forward, we believe that -- as we had mentioned in the previous business results presentation, in Q1, our nonbanking results, although that they are not as high as we want, but they have been much improved. So I think we will need to look at our earnings trend until Q2. And then I think we will see much more clarity, and then we will have ROE targets or other indicators that we can review with everyone, including the management and can share with you. So it seems that we will be able to share it with you for our first half earnings presentation in the future.

We'll take the next question which comes from KIS.

This is Doosan Baek of KIS. Congratulations on your good results. I have some questions about credit cost. I think during the presentation, as you mentioned, the Hana Bank -- the trust asset decreased, and there was reversal of provisioning. But even if that's taken into account your credit costs or loan loss ratios look low. Do you have plans of adjusting that versus your business plan? So what is your outlook about credit cost ratio? Your NPL ratio has gone up. Your delinquencies have gone up. So what are your plans about responding to that?

Yes. Thank you for that question. Please give us some time as we prepare the answer.

Yes, this is Jae Shin Kang, Group CRO. You've asked about the provisioning. There was around KRW 38 billion of reversal of provisioning at Hana Bank and some other reversals at overseas subsidiaries. So actually, there was about a 5 bp effect in increase of our credit cost from this reversal. Now this will not occur in Q2 because it was a one-off in Q1. So actually, you should read in about 5 bp to our credit costs to make it -- normalize it. And then usually, when we call -- talk about credit cost, it is alternative investments or real estate project financing, we had less of that recognized in Q1, which was a positive factor in credit cost in Q1. We do see that they could return to an increasing trend in Q2. So our plan until end of this year is mid-30 bp credit cost ratio. That's our guidance. We will try to keep it below maybe -- but still it may go up to the high 20s bp credit cost ratio. That is what we are assuming in our business plan.

We will take the next question. The next question is from HSBC Securities from Jaewoong Won.

Despite a challenging environment, thank you very much for your stellar results. I would like to ask a question about nonbanking. As the CEO mentioned, and we do know and we put importance -- you put -- that you put importance on nonbanking profitability improvement. And it seems that your securities profitability needs the greatest uplift. So promissory note issuance or NPL cleaning up, I think it has been mentioned frequently in the market. However, when I look at the picture, it seems that your own capital compared to other bank subsidiaries, it's a KRW 6 trillion, and your brokerage market share, I think, is less than 2%. But for other competitors, it's about 5% to 6%. So I think your brokerage MS needs to go up or your ROE uplift will not be easy. So are there any efforts that you're making to make this happen? It's because I believe that is a must for ROE to go up. So if you have any plans in mind, please share them with us.

Yes. Thank you very much for your question. We will answer that question.

And from Hana Securities, I am the CFO, Dong Sik Kim. For your insightful questions. It is true that we have about KRW 6 trillion of our shareholder equity, and we had the license for promissory notes. So we were able to have KRW 700 billion coming in. So we had invested in productive finance and for other efforts as well. And in order to strengthen competitiveness for WM in May, we will have a new MTS that will be launched and with the launching along with our large branch in Gangnam area, we will have it enlarged and have more channel utilization. And on a fee basis, the MS is about 3%, but we believe that there is room for MS to grow and MTS and digital channel strengthening will lead to Hana's WM strengthening, and we believe that Hana Securities competitiveness will grow, and we will become a firm access of Hana Financial Group. Thank you very much.

And we'll take the next question from Hanwha Investment & Securities, Do Ha Kim.

Even though we had fewer business days in Q1, we are seeing a Q-o-Q increase in your business results, which is very encouraging. First question is about CET1. You are more sensitive for external environment, your CET1. What were the factors in RWA increase, for example, FX and the Basel III transitional measures? Can you break that down a little bit in terms of RWA increase or CET1 ratio impact? I think breaking that down will help us track your sensitivity better. Second question is, you said that this year's dividends will be separately taxed and next year will be nontax. But then does that mean that in terms of total shareholder return, will dividends take up a larger share of total shareholder return? Or will next year will you focus more on buybacks, given that on post-tax real terms, the same amount of dividends would be worth more?

Yes. Thank you very much for those questions. We will prepare answers if you give us a moment. Thank you very much for those wonderful questions. Yes, about our CET1, I think our CRO will answer the detailed breakdown. And then second question is about shareholder return and the portion of dividends. I think I can answer that question for you.

Yes, this is Jae Shin Kang, the CRO about the CET1. Recently, in Q1, there was KRW 78 increase of exchange rate, which means that there was a 25 bp impact on our CET1 because of the exchange rate. And then the Basel III transition measures from start of year, equity weights were supposed to be raised and that was KRW 1.8 trillion, which brings down it by 8 bp. Combining the two, there was a 33 bp impact on our CET1 ratio on a negative downward direction due to regulation changes. And then this year, cash dividends, as we mentioned during the presentation, on a Y-o-Y basis, we will be increasing it by around 10% on a Y-o-Y basis, cash on cash basis. When you look at 2025, we have a TSR of 47%. This year 50%, which was supposed to be met in '27. We think we'll be able to reach that earlier this year. I think this is a consensus. And so given that consensus, even though our PBR is still below 1, we are around 0.78. Given our PBR, we do see the need to gradually increase the portion of cash dividends. So already, that's why last year, we satisfied the high dividend payout qualification requirements. Also, the Annual General Meeting of Shareholders have approved that transfer from capital to retained earnings. We will be able to provide our shareholders stable cash flow, increase real-term dividend yield, have stable shareholder base. We will be able to pull in new retail investors and long-term investors. So those are all of the best benefits. Our retail investor base is still low at around 5%. We want to increase that to 20%, 30% in the long term. We think that this separate taxation program will be a trigger to increasing our retail investor base. We are still working on the final -- fine points of our new value plan, but key points will be, up till now, we've been focusing more on share buybacks, but we will be looking more -- leaning toward more to increasing cash dividend payouts.

The next question is from Goldman Sachs. We have center head, Sinyoung Park.

Yes, I am Sinyoung Park from Goldman Sachs. There was a question about securities profitability. And I also have a similar question. Regarding fee income for this quarter, I think there was a great increase. But looking at the absolute ROE level, it is less than 7%. So I think compared to other company security subsidiaries, it is still low. That is why, as was mentioned, the initiatives that you have aforementioned, in 2027, if we say that earnings are going to be normalized in 2027, regarding the recurring ROE level, can you tell us about what it is? And I think there was some valuation loss that was quite sizable. And can we understand it to be terminating in this year?

Thank you very much for your question, and we will soon answer your questions.

Thank you very much for your questions. I'm CFO and regarding when things will be normalized. Well, maybe I can answer the question in the beginning. And then our securities CFO can answer your additional questions regarding our group from 2023, there were sizable recurring losses that were incurred -- a nonrecurring losses that occurred, and we had some that reached maturity and we needed to structuralize some of the assets. So that is why some were recognized as valuation losses and some were recognized in other ways. So that has been -- what has been ongoing. So it seems that in our 2026 business plan, it has been reflected. And looking at things from a group-wide perspective from 2026, it seems that we will have more accelerated pace toward normalization. That is, I think, what we can predict. And regarding if -- it will be completed by 2026, we do have some assets that have maturities that are remaining. So we cannot give you an absolute answer, but we believe that we will have a turnaround, and we believe that the valuation losses will visibly be reduced.

Yes, I am the CFO of Hana Securities. I would like to answer your question in Q1. Hana Securities ROE was about 7% compared to other securities companies, well, Hana Securities in brokerage, I think, had more than threefold fee income increase. And with the Middle East situation, in March, we had about 50 bp increase for the interest rate. So it seems that in bonds we did see some losses. However, in April, that was recovered completely. And because they're included in some Q1 business results it may seem that we are a little bit lagging behind. But if we say that everything -- if everything becomes normalized, our recurring ROE will be about 10%.

Next question comes from NH Securities, Jun-Sup Jung.

This is Jun-Sup Jung of NH Securities. Thank you very much for giving me this opportunity. About CET1, I have another question follow-up. I think it was some time ago, the authority said that they will encourage productive finance by reading the capital requirements for banks. And that has a positive impact. Does it have a positive impact on your capital ratio? And if so, how -- are these new ease regulation reflected. If they are reflected, will your CET1 range -- target range change? Also, with the new capital regulations, would your sensitivity to FX fluctuation also change?

Yes, please give us a moment while we prepare your answer.

Yes. This is Jae-Shin Kang, Group CRO. First of all, in the start of this year, the equity weights were eased and that had a 7 bp increase in factor. Recently, you've seen in the media about the structural FX positions that has not been finalized yet. We're still talking with the authorities about that. But according to what we have -- we think that we can expect an 11 bp upward effect due to that. So today, our CET1 was 13.09%, and then if you add 11%, it will be 13.2% would be our closing Q1 number. And then there is the operating risk related regulation, which will be a larger impact. We're talking with the authorities about recognizing operational risk losses, that does though require more steps. We need to prove that these were operational risk one-offs. So it's difficult to quantify in terms of CET1 impact yet. But that said, when we look at Q2 CET1, we think that Q2 CET1 will be far more stable than what we saw in Q1.

The next question is from DB Securities. We have Min Wook Na.

I have two questions related to securities. First is regarding promissory note issuance. Well, for the subsidiary securities from banks, it seems that it's quite conservative in your funding. So can you tell us about the balance of promissory note issuance that you have as guidance for this year? And regarding RWA, I think you need to see things from a holding group perspective. So can you tell us about whether any difficulties in the supply funding? And another is overseas investments. So can you tell us about when it will be normalized? When do you think it will get into a more normal pace?

Yes, please wait until we give you the answers.

I am the CFO of Hana Securities. Regarding promissory note issuance, well there are seven securities companies that have received a license. KB, Shinhan and Hana are the subsidiaries of banks or holdings groups. So we are regulated under RWA. So compared to our own shareholders' equity, we can issue up to 2x, but for this year, we believe at least KRW 2 trillion to at most KRW 3 trillion of issuance. In 2027 and 2028, we believe that it can go up to KRW 6 trillion. And regarding overseas alternative investment in 2026, I think a lot has been completed, and it is well managed. So I believe in 2027, it will be completely managed, and it will be done. Thank you very much.

We currently have no one waiting in queue for questions. I think we've had sufficient Q&A. And so if there's no other questions, we will end the earnings conference call of Hana Financial Group for First Quarter 2026. If you have missed the call, we will be uploading this video to our Group website tonight. Of course, if you have any remaining questions, please forward them to the IR team, and we will be more than happy to answer. Thank you very much for staying with us till the end.