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

Greetings, everyone. 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 2026 Q3 business results presentation. I would now like to introduce executives from our group and major subsidiaries who are here with us for today's business results presentation. 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 also here with us. Next, from Hana Bank, Hana Bank CFO, Young Seok Jeong, is here with us. Hana Bank CRO, Chang Pae is here with us today. Last but not least, Hana Securities CFO, Dong Sik Kim, is here with us. Today, we will first have a business results presentation and then engage in a Q&A session. Please note that the forward-looking statements regarding the results discussed today may differ materially from actual business results depending on changes in the macroeconomic and market conditions. I would now invite Group CFO, Jong Moo Park, to walk us through 2026 Q3 business results.

Greetings, everyone. I am Hana Financial Group CFO, Jong Moo Park. I express my deepest gratitude to all of our stakeholders, including shareholders, investors and analysts for taking time out of your busy schedules to join us today for Hana Financial Group's earnings presentation. I will now cover our 2026 Q3 group business results. First, these are our group business results main highlights. Please refer to Page 1 of the materials. Hana Financial Group's 2026 Q3 net income posted KRW 1,221.4 billion, a 2.4% Q-o-Q increase. Although fee income decreased Q-o-Q due to subdued stock market trading activity, the absence of performance-related compensation and one-off provisioning costs led to a 5.9% Q-o-Q decline of G&A expenses and 14.7% Q-o-Q decline of provisioning expenses, which enabled Q-o-Q net income improvement. As a result, Hana Financial Group has been recording around KRW 1.2 trillion of quarterly net income for 3 consecutive quarters starting from Q1 of this year. Despite the presence of one-off factors in each quarter, the group maintained a stable level of earnings, which we believe demonstrates an improvement in its underlying earnings generating capacity. Next, group's 2026 Q3 cumulative net income posted KRW 3,624.3 billion, a 5.6% increase Y-o-Y and achieved an all-time high on a Q3 cumulative basis. The main factor behind the performance improvement was group's core earnings. Group's core earnings, a sum of group's Q3 cumulative net interest -- Q3 cumulative interest income and fee income posted KRW 9,626 billion and increased 14.2% Y-o-Y. Out of this, group's interest income increased 10.4% Y-o-Y and group's fee income increased 29.8% Y-o-Y and showed a steep growth trend. Accordingly, the proportion of fee income in group's core earnings increased 2.7 percentage points from 19.6% in the same period from the previous year to 22.3%, driven by solid growth in key fee income categories, including not only asset management-related fees, but also credit card fees and underwriting and M&A advisory fees. The group continued to make progress in diversifying its revenue streams and Q3 cumulative group ROE posted 10.6% and maintained the previous year's level. Next, Q3 end group CET1 ratio is expected to stand at 13.45%, an 18 bp increase Q-o-Q. While continuing to pursue our group strategy centering on RORWA, the group saw a decline in risk-weighted assets driven by the appreciation of the Korean won and the rationalization of operational risk loss recognition. As a result, the group's CET1 ratio improved Q-o-Q. Next, I will cover shareholder return. At today's BOD meeting, KRW 250 billion of share buyback and cancellation and KRW 1,165 per share of Q3 cash dividend was approved. 2026 total cumulative share buyback and cancellation amount, including KRW 250 billion, which was approved today, is at a KRW 950 billion level, a 26% increase Y-o-Y and is at a record high level. In addition, dividend per share this year consistently increased each quarter. So after year-end dividend payout, this year's annual cash dividend amount is expected to increase more than 10% Y-o-Y. In addition, from 2026 year-end dividend, which will be paid out early next year, we will implement tax exemption dividends so that retail investors will actually receive higher post-tax dividend yields. Hana Financial Group's active shareholder return policy is a result of the firm will of the BOD and management to improve our corporate value. And going forward, based on solid fundamentals and effective shareholder return strategy, we will do our best to continuously improve our corporate value. Next, I will cover the details of our group's management performance. Please refer to Page 4. Group's Q3 interest income posted KRW 2,674.9 billion, a 16.2% increase Q-o-Q. This can be explained by the increase following the variable insurance accounting effect from Hana Life. And excluding this, group's Q3 interest income maintained the previous quarter's level and grew around 9.3% Y-o-Y. Group's Q3 cumulative interest income posted KRW 7,483.2 billion and increased 10.4% Y-o-Y. Out of this, Hana Bank's Q3 cumulative interest income posted KRW 6,777.3 billion. And on the back of asset-backed expansion through growth focus on profitability, it grew 14.1% Y-o-Y and led the improvement trend of group's interest income. Next, looking at NIM. Hana Bank's Q3 NIM posted 1.57%, a 4 bp decline Q-o-Q. The increase was mainly attributable to higher funding costs resulting from a decline in the proportion of low-cost core deposits, and this reflected a seasonal decrease in core deposits from public institutions due to fiscal spending in the second half of the year as well as a shift of corporate funds into time deposits and rising benchmark interest rates. Group's Q3 NIM posted 1.83%. And along with the bank NIM decline that I aforementioned, with the card credit -- with the card NIM decrease effect following funding cost increase, it went down 5 bp Q-o-Q. Hana Bank's Q3 Korean won-denominated loan increased 1.7% on a Q-o-Q basis. Household loan increased 1.0% versus end of Q2, especially around group loans and loans for new apartment final payments. Corporate loans increased 2.3% versus end of Q2, reflecting liquidity and funding demand support to large corporations as well as SMEs, which is in line with our RORWA-focused loan growth policy. Next, Page 5 looks at our group's noninterest income. Group's Q3 fee income was KRW 655.4 billion, which is a 20% Q-o-Q decline. This decrease is mainly attributed to less asset management fees, including brokerage fee, which is linked to trading volume and affected by the less stock market activity versus Q2. That said, on a Y-o-Y basis, Q3 fee income increased 15% and remains above the solid pace of KRW 600 billion per quarter. YTD Q3 group fee income was KRW 2,142.8 billion, which is 29.8% increase Y-o-Y, thanks to asset management-related fee growth. YTD Q3 brokerage fee is KRW 327.7 billion, which is Y-o-Y 142.2% increase. Trust fee income was KRW 341.6 billion, which is a 37.1% increase. Wrap account fee income was KRW 90.1 billion, which is a significant increase versus the KRW 17 billion of last year. Credit card income was KRW 306.4 billion, which is a 7.3% growth Y-o-Y with increased credit card usage volume. M&A and advisory fee was KRW 153.5 billion, which is a 55.6% Y-o-Y growth and demonstrating the growing performance of the group's IB business. Q3 group disposition and valuation gain was KRW 291.5 billion, which is a 55.6% decrease Q-o-Q, mainly reflecting the Hana Life's variable insurance-related account reclassification, which on the disposition and valuation gain side had a decreasing effect. Group's YTD Q3 disposition and valuation gain is KRW 951.6 billion, decreasing 15% Y-o-Y due to a drop in bond-related gains under rising market rates. Please now turn to Page 6, which looks at group G&A expenses. Group's Q3 G&A was KRW 1,214.4 billion, which is a 5.9% decrease from the previous quarter, which had increased labor costs tied to Hana Bank and Hana Securities bonus payouts in Q2. Q3 YTD group G&A was KRW 3,703.4 billion, which is an 8.5% increase Y-o-Y, but Q3 YTD CI ratio is at 38.4%, which is a 0.4 percentage point improvement on a Y-o-Y basis. Despite the increase in education tax by KRW 90.6 billion Y-o-Y due to change in tax regulation starting from this year, the group's cost efficiency has been under stable control through stronger group-wide cost control efforts. Next, Page 7 looks at the group asset quality. Group's Q3 provisioning expense was KRW 356.2 billion, which is a 17.4% decrease Q-o-Q. Q3 YTD provisioning expense was KRW 1,019.2 billion, which is a 10.4% increase on a Y-o-Y basis. This increase is mainly explained by the Cheongna Group corporate rehabilitation related KRW 74.9 billion of one-off provisioning expenses accrued in Q2. Group's Q3 YTD credit cost ratio is at 0.30%, stable and within our original business plan. Now if you turn to Page 8. The group's NPL ratio as of end of Q3 was at 0.93%, similar to last quarter. Our NPL coverage ratio as of end of Q3 was 90.2%, which is a 3.8% improvement Q-o-Q, thanks to less new NPL formation. Group's delinquency ratio was at 0.70%, which is up 11 bp Q-o-Q. This is mainly due to exposure to that previously mentioned large corporate newly being classified as delinquency starting from this quarter. Without this factor, delinquencies would be 0.63%, which is a 4 bp increase on a Q-o-Q basis. With higher rates continuing, managing asset quality is becoming a more important key focus for us. So we will emphasize proactive management of various risk factors and secure sufficient loss absorption buffers to be well prepared against both internal and external uncertainties. The rest of the deck has been prepared for your reference. And this completes my presentation on the Hana Financial Group's Q3 results.

Thank you very much. Now we will start the Q&A session. [Operator Instructions] The first question has come up. We have from Hanwha Investment Securities -- Excuse me, let me repeat. We have from Korea Investment Securities, [Tae Joon Jeong] am from Korea Investment.

I am [Tae Joon Jeong] from Korea Investment. I have 2 questions. So looking at your net interest margin, it seems that the growth has been a little bit subdued. And can you expect a margin reversal from Q4? And can you give us your take on how -- what the level will be? And secondly is about the coverage ratio and asset quality. So looking at your NPL coverage ratio, it seems that compared to the past quarter, it has improved, but still it is a bit shy of 100% or so. So can you tell us about the coverage ratio, how much improvement you expect? And what is the expected loan credit cost ratio that you expect going forward?

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

I am the CFO of Hana Bank, Young Seok Jeong. And for your first question about your Q4 NIM outlook, let me answer. In Q3, the NIM compared to Q2 went down 4 bps. And in July and August, we had the rate hike. And with this rate hike by BOK, it has direct and indirect impact on the bank's profitability. Regarding what is directly impacted in our funding, you can see MMDA or our short-term borrowing, which will be affected directly in many cases. And for indirect effect, you can see that there will be an impact from the market interest rate from the -- and there will be an impact, and there will be our publicly -- public rates that will be changed as well. So it seems that there will be funding impact in the first half, so NIM will be impacted. And then on our loan interest rates, it will be effective. So there will be 2 to 3 bps of impact that will come into being when we have about 25 bps as a standard. And in the case of Q3, well, in Q4, we have seasonal funding impact that is quite large. And with the year-end, the liquidity effect, I think we have actually made room for this. So we -- that has led to more cost ratio. So we had the adjustment in Q3. And in Q4, we believe that in the lending, there will be some impact from the uplift, and it seems that we will have more of the impact from our bonds. So I think that for our lending, we will have some improvement. So we will have this actually materialize in Q4. So I think Q3 will be the low end, and we will see only improvement from this point.

I would like to answer the second question. I am Jae Shin Kang, the Group CRO. Regarding our NPL ratio and asset quality, we had some decline. And I think it was included in the presentation materials. There were some workout from large corps and other procedures, which led some negative impact on our assets. And the sell-off market for NPL market has been subdued. So we couldn't have sufficient NPL sell-off until Q3. That is why we believe in Q4, we will be able to engage more sufficient asset sell-off. And we believe that the NPL increase will fall within our expectation. And through the sell-off, we believe the coverage ratio compared to now in Q4 will go into the 3 digits. compared to the current level we have today. So for credit cost, we do believe that partially it can actually go up. And we believe that about 35 bps was our outlook, but it's now at 30 bps. So we believe that it could have a slight increase, but we will manage to keep it in realm.

Thank you very much. We will take the next question. Next question is from UBS, Doosan Baek.

This is Doosan Baek, UBS. I have a question about the capital ratio. On a Q-o-Q basis, your CET1 did improve, but I think the increments, the size of that improvement wasn't as large as what we had expected. And so there are these other factors that attribute to this less-than-expected increase. So what was that impact of these other factors in Q3? And what will be your guidance on CET1 in Q4?

Yes, please give us a moment to coordinate our answers. Yes.

This is Jong Moo Park, Group CFO. Versus Q2, our CET1 did come up by 18%. We're expecting an 18 -- excuse me, 18 bp improvement. We have to explain that at the capital level and the RWA, there was a net income of KRW 1.2 trillion in Q3. That is a 40 bp improvement effect on our capital. There's the FX which the FX rate decreased KRW 183. So that has a 40 bp upward effect on our capital. And as you know, there was easing operational risk regulations and that had a 15 bp improvement effect. And so there was the effects that increased our capital. And then in Q3, there was the dividend payout and buyback, which had a 20 bp downward impact. And then there is the OCI side, the other comprehensive income side that I have to explain. There was KRW 1.5 trillion of decrease factor of OCI. So that has a 48 bp decreasing effect. And then the exchange rate, if it goes up, RWA assets, for example, forward, FX forwards, that has impact -- increasing impact on the bank's RWA. But when the exchange rate falls, there isn't a proportional decreasing effect on the RWA. So I think that explains the impact of the exchange rate fluctuations on our CET1. To give you the Q4 guidance, as you know, we are to maintain 13% of CET1. That's our goal, but we will have some buffer to absorb FX rate changes. There -- we do not have specific investment plans in the Q4 period. So we would expect to maintain CET1 similar to Q3, but then reflect some changes for FX changes and efficiently increasing our RWA. So overall, we are expecting as a base case scenario of maintaining CET1 similar to Q3.

We will take the next question. The next question will be from HSBC, Jaewoong Won.

Congratulations on your business results in a challenging environment. I actually have 3 questions. The first question is regarding Q4 NIM. I think you mentioned that you could expect a NIM rebound. And I think ambiguously maybe a bit that it could happen. But looking at the flow of recent news, it seems that the money is flowing to time deposits and banks are giving out dollar interest rates 3% to 4%, the interest is going up. So the reverse money move, it seems that in Q3, it may end and then we could have some rebound in Q4, but I think maybe it might not happen. So there could be some concerns about that. So can you give us some color about what your thoughts are? And my second question is about the capital ratio. You mentioned the OCI. And it seems that for the additional area, the numbers are quite sizable compared to the past. So in this quarter, can you tell us about more in detail about why OCI greatly decreased? It seems that looking at the capital ratio, OCI volatility will be quite important. So if you can give us a take on what impacts that, it will be very helpful. And it seems that for the last question, there was a disposition and interest rate effect from Hana Life variable insurance account. So there was the interest income impact. So can you give us your thoughts on going forward? Do you think that this is an issue that will be limited to Q2, but do you think for Q3 and Q4, whenever we have interest rate change, the disposition and valuation and interest income, will they be affected? So will this be an important indicator for the securities market or for the banking industry? Can you tell us about what you think it will affect going forward?

Thank you very much for your questions. And we will soon prepare the answers.

I am the CFO of Hana Bank, Young Seok Jeong. So let me answer that. For Q4, possibility of NIM rebound, I think that was your first question. And you also asked about a question focused on funding. Yes, it's true that for Q3 and Q4, there will be time deposit maturity or a great volume will be matured. And it is true that it is quite sizable. But as you know, during Q2 and Q3 of this year and for large corporations, there was a great liquidity in time deposits. So for the individual, the fund that went out through money move was complemented by corporate fund coming in. And we believe that preemptively, there was a volume that in Q3 -- so about KRW 11.3 trillion. So we had preemptively funded that in Q3 for about 6 to 12 months in advance. And then there is the minimization of the excess funding. And it seems that not really maybe on the funding side, but on the lending side, the CD rate for large corporate loans, we have about 60% from that. And looking at the total loans in won, about 30% is CD-linked loans. So it seems that looking at the lending yield or rate, we will have an improvement from Q4. So from Q3, we can expect a rebound in Q4.

Let me answer the next question, and I'm the CFO of the group, Jong Moo Park. And let me answer your question about OCI in relation to capital ratio. Looking at the group, bank, securities and life, the OCI-related bonds, well, there was -- has been more than KRW 50 trillion that we have. And we have the treasury shares, which has actually risen more than 100 bps. So for treasury and government bonds, so that has been reflected. And looking at the total duration, whether this is sizable or not so, we can't really have apple-to-apple comparison with our competitors, but we believe that it is quite sufficient to cover our needs. So the bonds that we have, well, according -- we think that is an effect from the volume of our bonds. And regarding the account effect from variable insurance, when we calculate NIM, there is the card interest income and the bank that we actually calculate together. And when there is the gains and losses that we look to calculate in Q2, we had a variable insurance leading to disposition and valuation losses, positive effect. And there was the interest income that went down in the cost side. So when you look at the numbers, looking at the stock market, well, when the profitability is high, disposition goes up and interest income goes down. So there is that kind of trade-off. I think this might have led to some distortion in assumptions. So with Hana Life, we are trying to come up with some ways to actually have more transparency in the accounting so that it could be more easily understood. So we are seeing the -- I think the accounting standards that are now being revised. So I think that will naturally, I think, pick up these effects.