Shinhan Financial Group Co., Ltd. ($A055550)

Good afternoon. This is Park Cheol, Head of IR or Investor Relations. Thank you for taking time to join Shinhan Financial Group's earnings presentation for the first quarter of 2026. Joining us today are Group CFO, Jeong Hoon Jang; Group CSO, Go Suk-Hyun; Chief AI Data Officer, Hyuck Jae Choi, Group CRO, Na Hun; Shinhan Bank CFO, Kan-yong Hong; Shinhan Card, CFO, Lee Jeong-bin; Shinhan Securities CFO, [indiscernible]; and Shinhan Life CFO, Sun Han. We look forward to your active interest and participation. Today's session will begin with a presentation on the group's first quarter 2026 financial results by our Group CFO, followed by a Q&A session. With that, let me invite Mr. Jang to begin his presentation.

Good afternoon. This is Jang jeong Hoon, CFO of Shinhan Financial Group. Thank you for joining our earnings presentation for the first quarter of 2026. On Pages 2 and 3 of the presentation, I will walk you through our newly announced corporate value Up plan, which was disclosed earlier today. In July 2024, we introduced our value Up plan with 3 key targets referred to as 10-50-50 and have been executing various initiatives with strong momentum to achieve these goals. As a result, we achieved our 50% shareholder return target ahead of schedule while also delivering meaningful improvement in PBR, demonstrating both the effectiveness of our strategy and the strength of our execution. In addition, with ongoing tax reforms related to dividend income and continued government effort to revitalize the capital market, we thought it is now an appropriate time to comprehensively review our existing plan. Accordingly, under the leadership of our Board of Directors, we have upgraded our existing value plan now branded as Shinhan Value Up Triple+, incorporating the current market environment and our strategic direction. Previously announced value Up plans by financial holding companies largely focused on setting absolute target at specific points in time to address undervaluation driven by low shareholder returns or maximizing shareholders' return by opting for full return in case of excess of target. However, we believe it's now time to transition to a new value creation framework that includes not only predictable shareholder return policies, but also a sustainable growth story. Rather than simply returning excess capital or targeting specific numerical threshold, our goal is to establish a sustainable value enhancement framework where shareholder returns and corporate growth are organically aligned, supported by a strong capital base. Based on this, we have established 3 new key strategic objectives. First is achieving an ROE of 10% plus. We are targeting an ROE that exceeds our cost of equity with a focus on delivering faster improvement. Given our current business portfolio, we expect this to improve at a notable rapid pace. Building on the bank's strong recurring earnings base, we will strengthen our nonbanking competitiveness in phased manner, focusing capital markets through 2026 and on credit finance business thereafter and manage our ROE within the 10 to 12 percentage range through 2028. In particular, based on Shinhan's proprietary PBR ROC logic free detailed in our value of materials, we will enhance capital efficiency by simultaneously managing capital ratios, improving profitability across our subsidiaries through a set of granular action plans. Second, a total shareholder return ratio of 50% plus. We have removed our upper cap on shareholder return rate while introducing an intuitive formula takes into account both ROE rate and based on principles of capital based on our required return rate. Through this approach, we believe investors will be able to more easily anticipate both direction and level of shareholders' return policy alongside the company's growth. However, in periods such as present where ROE remains below COE, we will adhere to a principle of gradually increasing shareholder return ratio on a year-on-year basis. We also refined the composition of shareholder returns, taking into full account recent tax reforms related to dividend and investor preferences. While maintaining our current equal quarterly dividend policy and a gradual increase in both EPS and total dividend amount, we plan to prioritize the use of tax-exempt dividend resources secured through approval at the March Annual General Meeting this year. For your reference, DPS for the next 3 years will continue to grow by more than 10%. And the outlook between dividend and shareholder buyback will be determined based on a rational framework rather than current returns, and we'll continue to communicate transparently with the market regarding progress toward our previously announced target of reducing 50 million treasury shares. Third is maintaining a CET1 ratio of 13 percentage plus. We will secure a sufficient capital buffer to account for macroeconomic volatility and maintain stable capital ratio under all conditions. In addition, any excess capital generated through improvement in capital efficiency, including RWA optimization will be returned to shareholders in principle. Furthermore, under the oversight of the Board of Directors, we will annually analyze and review gaps against our target, continue to update our 3-year guidance and communicate the results to the market. Let me now turn to our financial results for the first Q of 2026. Turning to Page 4 is the business highlights. As of end of first Q 2026, the group's CET1 ratio is stable level estimated at 13.19% despite many uncertainties surrounding us. So the Group Board of Directors resolved to declare a cash dividend of KRW 741 per share for the first quarter of 2026. For reference the record date, this cash dividend is April 30, shares must be purchased by April 28 to be eligible. Dividend schedule is to be paid by May 29. In addition, out of KRW 700 billion share buyback program scheduled through July 2026 with completion of KRW 404.3 billion and shares will be retired immediately upon the purchase. Net income for the first quarter of 2026 amounted to KRW 1,622.6 billion, representing a year-on-year increase of 9%, driven primarily by top line growth centered on noninterest income. Supported by the group's strong financial fundamentals and disciplined capital adequacy management, both ROE and ROTCE improved reaching 11.9% and 13.4%, up by 0.5 percentage points, respectively. Please refer to the key indicators that measure the group's shareholder value. Turning to Page 6 on capital. The group's CET1 ratio declined by a total of 68 basis points due to RWA growth and also shareholder returns. However, it was managed at a more stable level, reflecting a decline of just 16 basis points relative to the end of last year. Group RWA increased by KRW 7.3 trillion due to asset growth and KRW 3.1 trillion due to foreign exchange movement, but remained well within our planned range. Going forward, we will continue to ensure stable capital ratios through efficient internal optimization and strategic resource allocation while fulfilling our role in providing necessary funding to the real economy. Please refer to Page 7 for a breakdown of assets and liabilities. Now operating profit before expense for the first quarter increased by 11% year-on-year, supported by solid net interest income and significant growth in noninterest income, which I will now explain in greater detail. Group net interest income increased by 5.9% year-on-year as NIM improved and interest income from securities increased significantly. Bank NIM improved by 2 basis points quarter-on-quarter as loan yields increased in line with rising market interest rates and funding costs were well managed. For loans in won, although we saw a decline in household loans due to regulations, overall Korean won loans increased by 1.4% year-to-date as we strengthened our role in providing productive financing to corporate borrowers. On to noninterest income. Group noninterest income increased by 26.5% year-on-year with strong performance in fee income and broad-based improvement across other segments. Income performed well across most categories, excluding investment banking fees, which declined due to a high base effect from the prior year. In particular, brokerage fees increased by 215.2% year-on-year, driven by strong equity market activity leading overall growth. Fees related to fund sales and bancassurance also increased by 54.7% Y-o-Y, continuing their upward trend in line with government policies to promote capital market development. Gains on securities declined in bond-related income due to the recent sharp rise in market interest rates, but was offset by valuation gains on other securities. Insurance-related profit also increased by 8.7% year-on-year, and we expect to maintain stable earnings through disciplined management of CSM. Next on to SG&A and credit costs. Group SG&A expenses increased by 10.4% year-on-year due to higher education tax despite ongoing cost efficiency efforts across our subsidiaries, including different business segments. However, with operating profit increasing significantly, the cost-income ratio declined slightly to 36.7%, remaining at a stable level. Credit costs for the first quarter increased by 17.5% year-on-year, driven mainly by higher recurring credit costs, including increased write-offs at the bank and some emergence of corporate nonperforming exposure. It is somewhat encouraging that one-off credit costs related to real estate project financing has stabilized as a result of our preemptive and conservative provisioning in prior periods. Amid continued uncertainty driven by high interest rates and elevated FX levels and ongoing geopolitical risk, the credit cost ratio increased by 5 basis points year-on-year to 46 basis points. However, we will continue to manage credit costs rigorously with our full year target range of mid-40 basis points. On to NPL, the group's NPL coverage ratio declined by 12.4 percentage points compared to year-end despite proactive write-off and NPL sale policies and conservative provisioning. This was mainly due to an increase in substandard and below exposures resulting from principal and interest payments related to project financing sites where trust-based construction completion guarantee obligations had expired. These impacts, however, have already been factored in, in prior year credit costs. Delinquency ratios for both the bank and the card business, which has been gradually improving, increased slightly in the quarter. However, the bank recorded the lowest level of net new delinquency in the industry. And for card, the increase was driven by a reduction in total assets due to lending regulations and remains more than manageable. Given the continued economic slowdown, rising corporate credit risk and ongoing challenges faced by vulnerable customer segments, we believe it will be important to maintain conservative asset quality management while providing time and appropriate funding support. I refer to the slide for loss absorption capacity and charge-off activities, and we will move on to subsidiary performance. The securities business delivered strong earnings growth of 167.4% year-on-year, driven by increased brokerage commissions from higher trading volume, improved prop trading income among strong capital market dynamics. The bank recorded 2.6% year-on-year growth in earnings, supported by net interest income despite declines in security-related gains, higher credit costs and the impact of increased education tax. The card business saw a decline of 14.9% Y-o-Y as improvements in operating revenue and credit costs were offset by one-off expenses related to voluntary retirement programs. For Shinhan Capital, it recorded a significant improvement in earnings, driven by gains on securities, including dividend income, supported by favorable market conditions. The life insurance business experienced weaker performance Y-o-Y due to higher loss ratios leading to increased insurance variance loss and a decline in insurance finance income from rising market interest rates. As mentioned earlier, beginning with this earnings release, we are providing additional disclosure of quarterly net income, RWA and return on capital by segment for your reference. Page 15, we have detailed information on our overseas business performance, which continue to demonstrate differentiated growth. Pages 16 and 17 provide updates on our digital initiatives and ESG. From Page 19, you will find detailed financial statements at the subsidiary level, funding and asset liability management as well. This concludes our presentation. Thank you very much.

Thank you very much. Now we will begin Q&A session. We will accept first question. Can you hear me? From NH Securities, Mr. Jun-Sup Jung.

This is Jun-Sup Jung from NH Investment Securities. Actually, I have 2. First, regarding your corporate value enhancement program. Thank you very much for your thoughtful program. Now productive finance is being promoted by the government, and there were some announcements by the government to ease capital requirements. So if those eased requirements are applied, how much of an improvement will there be, say, in terms of your CET1? And in terms of your -- the improvement, can it be -- is it available to fund shareholder returns? For example, the regulatory authorities, the point of easing, the requirement would be to direct more towards productive financing to 13.4%. So excess capital beyond 13%. So how can you use that excess capital? And the second question, you did mention your value Up plan. I think it's on Page 16 of your slides. there is an internal limit in terms of internal return. Cost of equity, PBR. So you said you're going to use the ROE, PBR logic. So what is your internal hurdle rate in terms of expected returns, your implied returns?

Yes. Thank you very much for the questions. Please hold for a moment as we prepare the answer.

So regarding the first question regarding the easing of capital requirements, our group CRO will take that first and then the remainder, I think I will be able to follow up on.

Yes, I'm the Group CRO. So you mentioned productive financing and rationalization of capital requirements by the authorities. So from a market risk perspective, so retained earnings and equity contribution, for example, will be included in the scope. So we are still in the process of seeking approval from the authorities. So it is pending. And so depending on the result, it may have an impact. But 10 basis points or so improvement, we think is possible in terms of our CET1. And then operational risk, exemptions in terms of count, RWA. So things are quite fluid at the moment regarding approval at the Board level and the regulatory authorities position. But market and operational RWA combined, I think maybe we can see about 20 basis points or more in upside in our CET1.

So let me take the remainder of the questions. Like we have heard, 20 basis points or more, potentially, we can see that kind of improvement. But like you said, well, in terms of our value plan, we actually explained there. But we have been seeing some fluctuation quarter-on-quarter. So net max 36 basis points or so that variance actually was quite wide at about 36 basis points. So while we say 13% plus, so in the DBS model, our peers, maybe from 13.0% to 14.4%, maybe that we will not see additional returns within that range. But toward the end of the year, we'll look at the balance between growth and shareholder return. So we will have to make some internal decision-making between the 2 sides. And perhaps at the end of this year, it will be factored into our growth plan as well as our shareholder return policy as well. Regarding our internal hurdle, so for the first quarter, well, the closing of the accounts was done in February. And we mentioned at that conference call that 9.1% is our CET ROE, and we want to grow our net income by more than 10%. That was our guidance. In terms of our internal hurdle, this is about the additional incremental returns. CPR is 0.8% and COE and ROE -- well, our target ROE is 10%. That said, then our internal marginal return will mean it will be slightly higher than the inverse, which is 12.5%. That is our internal view anyway. But our company-wide ROE is still below COE slightly. So we are looking at things more cautiously. And until we see more of a normalized base, we are looking to gradually increase shareholder returns. So that is already incorporated in our value plan.

Yes. Usually, I don't comment about the finance part, but I'm in charge of strategy for the Shinhan Financial Group. Regarding productive finance, I do lead our initiatives. So the question by Mr. Jung -- the first question by Mr. Jung, you talked about shareholder return. If we could use that increase in CET1 towards shareholder return. But the purpose or the intention behind easing of the regulations was not for the purpose of returning more to shareholders. It was, in principle, meant to be directed more toward productive financing. So in principle, we should be aligned to the purpose behind the easing. So it should be more toward growth so that it can be used to fund productive financing. We do believe that, that should -- that is consistent with the intention. But of course, it's not always very clean cut each time. So we will look at the overall situation from a more comprehensive view as was explained by our CFO. So I hope that was a sufficient answer.

We will move on to the next question, please. From HSBC, Mr. Jaewoong Won.

Regarding shareholder return, thank you for giving very careful thought and for providing a very refined program. I have a few questions about that. First, in the formula, what is the definition of growth? I'd like to know. Is it capital growth or RWA growth? So depending on which it is, it can actually mean a big difference in numbers for TSR. If ROE is 5.5%, RWA growth target is between 4% to 5% and capital growth target, I think on average, it's about 3%. So actually, the range is quite big. So between the 2, what do you mean exactly when you say growth? So it will help us in our projections. Can you give us more color? Now I'm thinking that perhaps in the fourth quarter, you might announce a decision about how to use the available amount. So for this year, what should we expect? So will we have to use a different formula at midyear? So in terms of timing of actual application of this formula, could you give us more color when exactly it will start to be applied?

Thank you very much. We will ask you to hold as we prepare the answer.

So regarding the first question, so like you said, we are thinking hard about what you pointed out. If we deep dive a little bit, we came up with the formula because CET1, so one assumption was that we maintain the CET1 and then the capital growth in inverse, it comes out to the TSR. That's the formula. So maintaining CET1 means that relative to RWA growth, capital growth actually has to be bigger. And so capital growth then can be a main factor. But then temporarily, if RWA will it be 3% growth or 7% growth, it can depend. So we want more stability and so probably we will find the more stable of the 2. But you're concerned that the average growth of capital. We're not using that 2% or 3%. But within, there will be a capital adjustment. There are different buffers that will be removed. And so we're looking at pure capital growth. So something between 4% to 5%, we think that will be the level. That means that RWA growth, we will obviously try to maintain that growth within that range, 4% to 5%. But we added plus alpha because if we have more upside available, then we can add on potentially, which is why we have that plus in the formula. But in a more -- the most typical example, target ROE and our target growth. By growth, we mean capital growth or RWA growth. So I use the word or, capital growth or RWA growth. But I think ultimately, both will converge within the 4% to 5% band. So within the next 3 years, TSR will likely be within the 50% to 60% range. And so that is what is incorporated in the plan. Now in terms of the timing of application, like you said, possibly within the fourth quarter, we will probably share our consensus view with you. At that time, we will look at the growth, pricing, margin profile, CCR and we'll share. And I think this will also come up naturally in that context. But based on our business plan, as we have said, for this year anyway, we will -- if we apply this as this, CET1 is 9.1%. So CET ROE is lower than COE. That means CSR should be higher than last year. That's one. And RWA growth and capital growth, when we did the calculation, as shown in the example, it's about 5.1% or so. But CET1, it has -- the plan was to lower the CET1 by about 8 basis points. So this converts to about a 4% impact in terms of the shareholder return ratio. So for this year, 50.2% plus alpha and the max 53%, I think likely it will be somewhere in between that range. So that is our internal calculation.

Well, I hope that answered your question. We will now go to the next question.

So I am Song. Now one question I have is that I think you can become issuer in your securities company. So what is your anticipated return or profitability for issued notes?

So please hold while we prepare for your answer. So I think CFO Securities can answer your question.

So I'm I, CFO of the Securities. Thank you very much for the question. At the year-end, we got license for as an issuer. So in February, we start the issuance and currently, about KRW 240 billion has been issued. For this year, I think to make it as a stable vehicle in terms of issuance size and volume, we would like to keep in control. So I target currently for year 1, about return rate of 100 bp is our plan.

Okay. I hope that answered your question. Now we will accept next question.

[indiscernible] The first number is on some numbers in terms of asset soundness. NPL coverage ratio is 110% for the holding company. So it is quite lower than before. Up to now, delinquencies don't appear to have entered the improvement cycle yet. So regarding your added NPL burden, do you need to do additional provisioning of that? So for example, petrochem companies, there might be some -- there are concerns about the lagging effect from that sector. So in terms of your asset quality and the burden in terms of additional provisioning, what is the view? And the second question -- I also have 2 very simple questions as well. So for the next 3 years, tax exempt dividends will be a priority you said. You have KRW 9.9 trillion available for distribution, but it won't be used all at once. So are you going to leave some? And for AOCI, our capital appears a bit improved, but because of the rising interest rates, I thought that it would go down because of valuation losses. Maybe it's because of your Life business. Could you just explain the duration gap?

Thank you for the question. Please hold as we prepare the answer.

Yes. Regarding the first question regarding asset soundness, our group CRO will cover that. Regarding the tax distributions, I will explain. And number three, regarding the duration gap, we'll hear from the Shinhan Life side. So the group CRO will begin.

Yes. Thank you for the good question. So first, regarding the NPL coverage ratio, the 0.81% is substandard or below for the group. Now there has been an increase of KRW 468 billion in NPL. And so the NPL coverage ratio did go down about 12.4 percentage points from last year. It's about 113%. If you look at the overall trajectory, credit costs for the group in 2022, prior to that spike in interest rates, we went through a very low rate environment. At that time, credit cost annually was below KRW 1 trillion. But with rising interest rates, starting in 2023, it started to exceed KRW 2 trillion. But more recently, with the delayed recovery of the economic slowdown, we are seeing more increase in delinquency. For the group overall, substandard or low or delinquency NPL, these indicators actually for the most part, are improving. And so our goal is NPL coverage ratio of 150% as the bottom line for the bank. And then we will engage in selective write-off and sales and to maintain asset quality. In terms of our current provisioning against our total loan portfolio, NPL coverage ratio, we want to maintain at above 110%. For Tax expense dividends, at the time of planning, we said that we will provide a 3-year guidance. So for the next 3 years, that's what we mean by priority to tax expense dividend. So if we have left over resources, so potentially, we can -- yes, we can consider other options as well. And then after the duration gap answer, if I have anything to add, I will try.

So I'm the CFO of Life. As of -- compared to end of December, interest rates have gone up by more than 40 basis points. As of December, duration gap was 0.2, so a slight plus. But as of the end of March, it's about 1 is what we expect. So the duration gap actually is improving. So just to explain a little bit, I think you're asking about the capital adjustment. So OCI valuation loss, yes, there was some loss. But in the past, we had M&A and adjustment of consolidated entity. So it's a mix. And overall, there is an overall offsetting effect among those factors.

I think there's another question from JPMorgan Securities.

I would like to ask about the tax exempt dividends. I'm a little bit confused, so let me ask about that. So KRW 9 trillion or so have been transferred into retained earnings. And you said that with priority, they will be used for tax-exempt dividends. So do you mean that, that full amount will be provided as tax-exempt cash dividends? Or is that also a mix of the separate taxation dividend as well? So separate taxation with the amendment of the tax laws, every year, the cash dividend actually will have to be increased by 10% year-on-year to qualify. So for tax-exempt dividends, do you assume that cash dividends can increase by more than 10% year-on-year? So is that the plan? The second question is, I think you said before that this year, the capital market will likely be promoted. So you want to grow the securities business and also you will work on improving the card business as well. What is your target ROE for securities and for your credit card business as well? When you think for the capital market, there have been a lot of activities among retail investors as well. So I can see why security business might grow. But merchant fees are increasing and household loans are decreasing. So how do you expect to improve profitability for the credit card business? So do you have a certain strategy in mind that you could share with us?

Yes. Thank you for the question. Please hold as we prepare to answer.

Yes. Regarding the first question, just to clarify, as you said, for this year anyway, as you know, we have the AGM in March to approve the capital reduced dividend. So we cannot do -- well, actually, we cannot do the tax exemption dividend yet. Only upon closing can we do that at the end of the year. So for this year, first and second, third quarter, we will be subject to separate taxation. And then next year, post account closing at the end of the year, we will then move on to tax exempt dividend. And then 3 years going forward, we will do full tax exempt dividend. There is a 3-year grace period for separate taxation. So we gave some thought to what would happen after the grace period was finished, but there were high expectations among investors for tax-exempt dividends. So as much as possible, we wanted to continue to provide that. Because this tax exempt, obviously, that means we don't necessarily have to increase cash dividends by 10% or more every year. That 10% threshold is on the size of the dividend, whereas what we are talking about now is EPS that we want to increase EPS by 10% year-on-year, which is more strongly perceived by the investors. We think net income is likely to grow by more than 10% this year. Naturally, the DPS likely is also to grow by that much as well. And then on top of that, of course, we will continue to do share buybacks and cancellations. And so when that is considered, even if we increase EPS by 10% or more, as we do taxe dividends, we will be able to -- we're very confident that we can increase EPS by 10% or more. We're very confident, which is why we included in our announcement. Regarding the securities business, the brokerage business, you will know, but the brokerage business before maybe 10 years ago was always last. But now, as you know, the ROE has improved significantly for the security sector overall. For securities, usually it's about KRW 5.8 trillion in terms of capital base. But the ROE, I think, is likely going to exceed that this year. Now we are working to make sure that, that is sustainable. Regarding highly specialized finance, you said that you're not convinced. When we talk about the credit card performance, we thought that this year, it's down by about KRW 20 billion year-on-year. But in the first quarter, we already had some impact from the voluntary retirement. We did mention nonrecurring earnings, if we see those earnings coming through, we're contemplating different options. And there are different stakeholder interest involved, so we are cautious, but we did think that we will look at making the composition between cost and earnings more efficient. So as we do that throughout the year, while performance will not dramatically increase, but we think underlying foundation or the fundamentals can gradually improve. So our approach is that we will see gradual improvement of the performance. That was the full answer.

So from Mirae Asset, we have Mr. Tae Joon Jeong.

I'm Tae Joon Jeong from Mirae Asset Securities. I do have 2 questions. First is the rate is actually going up and this is resulting in different situation. So what's your guidance going forward on that point is my first question. And second question is, so 34% or above, you said you're going to return it immediately. So at year-end, if it's going to exceed the threshold, then for the exit, that bought back next year, that -- is that correct understanding?

So please hold while we prepare for your answer.

So on your first question, bank CFO can answer. And on the second question, I will answer that.

So good afternoon. I am [indiscernible], CFO. So first, NIM, if I share with you, for the first Q NIM is 1.6 compared to previous quarter, it increased by 5 so its improvement by 2 because of the market situation improvement and favorable conditions formed in the market. And since the latter half of the last year, we focused profit orient growth. I think that also helps. So what will happen to market rate to give you some projections. Now currently, the domestic economy is not really doing well, meaning there are some downward pressure for the rate, but if you consider inflation and FX rate, there's not much room to move further downward. That's our anticipation. So neutrally, we believe that market rate will continue as is and under that estimation, very profitable, high-quality asset-oriented productive finance can be expanded and that could also help increase our liquidity that were resulting in improvement in NIM, and we'll do our best to achieve that. So in summary, NIM will maintain the current level or we will try best even to improve that.

And in the beginning on the -- about the second question, from 13 points to 13.0%, 13.4% is the range that we'll be managing. But if it existed, is it going to be given out? Not really. If it goes beyond that range, if it's excess amount, of course, needs to return to our shareholders, except in planning any room for excess growth or as I said before, marginal internal return rate, we are very cautious, but ours is a bit higher than the market COE. So by year-end or beginning of next year, how to utilize that, that decision will be, in other words, will be made at that time. BBS, our international peers, they don't because it exceeded 13.5%. So if it's like excess -- significant increase then the logic is to do it within a few years. So -- but basically, our philosophy as we keep repeating ourselves, the most important thing is ROE. If the ROE increases, then of course, return rate would naturally go up in terms of also size. But through the growth efficiency, we will also focus on maximizing shareholders' return, and we can commit to that.

And Mr. Park from Goldman Sachs.

This is Sinyoung Park from Goldman Sachs Securities. Regarding ROE, I had some additional questions for you. So ultimately, as you said, ROE has to grow in order for the shareholder return ratio and the total size of shareholder returns to grow. In the materials, I think you're saying 10% to 12% is your target range for ROE over the next 3 years. And then bank versus nonbank or bank will be maintaining status quo, nonbank based on ROCE is targeting an improvement by about 3 to 4 percentage points, which is actually quite a sizable improvement, I would say. So what would be the main drivers that allow you to improve it by that much? So will it be about improving the asset quality? Or what kind of improvement in profitability do you expect? Or are you planning?

Thank you. Please hold as we prepare the answer.

So as you've seen in the materials for nonbank, so nonbanking has been a strength of our group for many years. I think we're past the rough patch where it was challenged. The nonbank ROCE, why do we expect it to improve? Well, of course, there will be some impact on the market. So brokerage, of course, is very active for the groups with security arms. In that case, the ROC, ROE, obviously, will improve. Well, to what extent will it improve? I talked about how we expect fast improvement because the security firms of other peer groups are already at a high level. And so while they can grow the overall size of their net they're already at a higher level, whereas we start from a lower end. So for securities, ROCE, we're not thinking about just 10%, but we think that we will be able to achieve quite a significant jump in terms of absolute ROC. So bank and securities will be the 2 leading pillars. And that said, of course, top line plus profitability, given current conditions, of course, it's not very easy. But for us, the 2 big directions are like this. I mentioned how we want a phasing gradual approach. But for this year, we will focus on acquiring more customers because ultimately, they translate into the bottom line for our business. So internally, we are preparing for that customer acquisition. And then in a more direct sense, it's ultimately about cost efficiency. As I said, it's about fundamentally changing the structure to make the cost structure more efficient, to strengthen our fundamentals. So our funding costs going down and provisioning improving, we can't just blankly expect that to happen because the situation is more challenging. It will not happen just on its own. We have to make the cost structure more efficient. And when there are one-offs in terms of the top line, when there is upside, we will direct that to improve our underlying fundamentals. And APS allowing then we can contemplate potentially M&A if that is not required, then we can actually do bold consolidation of our business portfolio as well. So we are looking at various options in a broad sense. I hope that was a sufficient answer for you.

Yes, I think we have from White Oak Capital, a question from Mr. Shane Matthews.

Congratulations on the results. Just one question. I wanted to confirm the group level NPL coverage. Is it targeted at 110% now and if that's the case, when we look at pre-2019 levels, the coverage levels are maybe 20, 30 percentage points at least higher. So why consider operating at a lower coverage level now versus before? What is the change in thinking at this point in time?

Thank you for the question. Please hold as we prepare the answer.

Yes, this should be answered by the Group CRO, and I will add if required at the end.

I'm the Group CRO. Regarding credit cost, when I was explaining about that, from a long perspective, I talked about credit cost trends. In 2022, after we saw that spike in interest rates, the real estate market was not good and credit cost among all financial growth actually was quite elevated and poor. So NPL in the write-off and sale market -- there's a lot of supply recently, so pricing actually is not good. So write-offs and sales, it's not very active at the moment either. And real estate market in order for it to recover until that time, we need some time to sort out the exposure. So until then, we do believe that the NPL coverage ratio is likely to be a bit lower than in the past. But given -- depending on how fast the market stabilizes and market interest rates, if we're able to push the write-off and sales more, that can have the effect of improving our NPL coverage ratio.

Let me just add a little bit. For us, 110%, it is lower for us at the group level. But the bank, it's about 150%. We expect to continue to maintain 150% for the bank. But why 110%? We have Shinhan Asset Trust. That was the main reason through litigation or trust we incorporated onto our books. We have already recognized the necessary provisions though. Until the assets are liquidated and sold off, it will be captured and booked as NPL. So the absolute number is quite substantial, which is the main factor why our group NPL coverage is down to 110%. We will have to see how the real estate property market develops going forward. Even if we have to sell at a certain discount, we want to -- as we recover NPL, it will take a year or 2 years maybe, which is why in the short term, our target is set lower at 10%. Thank you very much. I hope that was a sufficient answer.

So time has passed quite a lot. So if you have any additional -- I mean, it seems to be -- there seems to be no more questions. So with this, we would like to conclude Shinhan Financial Group's earnings call for the Q1 2026. Replay of today's presentation will be available on our website and Shinhan Financial Group IR YouTube channel. If you have any further questions regarding to today's result or new value-up plan, it's all disclosed on our website. So please you can reference that. And of course, if you have any additional questions, please contact our IR team. And with that, we would like to -- we will see you at the next earnings call. Thank you.