Good afternoon. This is Cheol Woo Park of Shinhan Financial Group in charge of IR. Today's earnings conference call will be provided via YouTube and Zoom simultaneously. Shinhan Financial Group has newly launched its IR YouTube channel, and so we will be uploading both the Korean and English version of today's presentation on our YouTube channel. To give you some technical introductions of how to log in. First, the YouTube live cast will be provided only in Korean language. If you have a question in Korean, then you will have to move over to the Zoom call. Because the YouTube will only be provided in Korean, those who need English language presentations would need to come to our Zoom call. The details of how to log in are provided on our website. Now we will start the 2022 first quarter earnings conference call.
Today's conference call, we have, first of all, our Shinhan Financial Group CFO Taekyung Lee, who will be providing the main presentation. We have the Group CMO Heo Young-Taeg. We also have Group CRO Dongkwon Bang, Group CDO Myung-hee Kim, our Group CSSO Seok-Hon Ko, and Bank CFO Sang-Hyuk Jung, Card CFO Dong-Kwon Moon, Investment CFO Sung-Weon Keum, Life CFO Kyoung-Won Park present. We have our full bench of executives present to take your questions, and we'd appreciate all your questions after the presentation. First, we will start with an overall earnings presentation by our CFO Taekyung Lee, followed by a short presentation on our digital initiative by our CDO Myung-hee Kim before opening up the floor for your questions. First, our CFO will take you through our first quarter earnings.
Good afternoon. This is Taekyung Lee, CFO of Shinhan Financial Group.
Thank you for joining our 2022 first quarter earnings conference call. I would like to start on page four of our presentation, which shows you the key highlights of our first quarter performance, which is a good place to start regarding our first quarter performance and earnings. In 2022 first quarter, net income was KRW 1,400,400,000,000 , which is a significant growth driven by solid growth on both interest and fee income. While our non-interest income decreased by 4.3% YoY due to decrease in securities trading and insurance- related income, fee income, which is the core non-interest income, grew by 9.2%, thanks to increased capital market business, including IB, which offset the decrease in brokerage fees.
The Group level cost income ratio was 38.1%, and our overall G&A costs remained within stable levels despite the cost increases tied to our digital transformation investments. Group level provisioning continues to be controlled within stable levels, with Q1 credit costs being 26 BP. This is thanks to preemptive credit quality management, despite the additional provisioning of KRW 74.5 billion Korean won at the bank to prepare against the end of COVID-19 financial support programs. The last highlight is our capital policy. First of all, on March 24, we announced a KRW 150 billion Korean won share buyback and cancellation. Buyback has been completed within this week and cancellation will be completed within April. Number two, this morning the BOD decided a Q1 quarterly dividend of KRW 400 won per share.
Going forward, we plan to pay out regular quarterly dividends according to an even payout of dividends across quarters. We will continue to focus on increasing the cash dividend amount accompanied by other shareholder value enhancement measures, including treasury stock cancellations, to continuously and gradually enhance our shareholder return. Page six looks at the details of the Group level performance starting from the interest income. Q1 Group level interest income was KRW 2,487,600,000,000 , which is a 17.4% YoY increase, driven by a 6.3% YoY growth of group level interest-bearing assets and a 12 BP gain in bank margins.
During Q1, Bank NIM was 1.51%, which is a 6 BP gain QoQ, driven by better loan profitability from rising market rates and a YTD 2.8% growth in core deposits, which kept our deposit cost rate at stable levels. The solid margin improvement is expected to continue for some time going forward, given that BOK has been increasing its rates, including the recent rate hike in April 14th, and also continued upward pressure on market rates. Q1 Bank Korean won loans grew by 0.5%, which is somewhat lower than Q1 last year, mainly explained by weaker household loan demand due to seasonality and recent rapid rise in rates. Overall loan growth was appropriate, with corporate loans growing 1.9% during Q1, mainly around secured and guaranteed SOHO and small business loans.
We plan to continue to focus on delivering profit-conscious, appropriate loan growth centered around SME loans. Page seven shows the details of Shinhan Bank's margins and lending and funding data, so please refer to that. We'll move on to page eight, which shows the group level non-interest income. Group non-interest income decreased by 4.3% YoY due to securities and FX derivative- related gains and losses and drop in insurance income. That said, our fee income, which is the core non-interest income, grew by 9.2% from credit card, investment banking and lease fees, demonstrating strong fundamentals of our fee business. Our securities gains and losses decreased by 11.7% YoY, despite the drop in trading and valuation gains due to market rate increases. We use active duration management and portfolio rebalancing to prevent losses.
Insurance income decreased by 18.3% YoY due to increase in variable insurance guarantee reserves, reflecting the fall in stock prices and also increase in claim payouts. Within fee income, credit card fees increased by 35.7% YoY, despite the lower merchant fees introduced at the end of last year, thanks to increase in credit purchases by 6.8% year-on-year and decrease in processing cost. Brokerage commission decreased by 47% tied to the significant drop in daily average trading volume. Investment bank fees increased by around 255% YoY, thanks to increase in IPO and real estate-related IB deals. Lease fees increased by 32.3% as lease revenue grew by 21% YoY. Now please turn to page 9, which looks at the group-level G&A and credit cost.
G&A increased by 3.5% YOY, remaining within stable levels despite continued digital transformation investments and inflationary pressure. G&A increased by 8.3% due to increase in MyData advertisement and O2O-related service fees. Labor cost, which is the key component of our G&A, increased by 1.3%, remaining well controlled. The Group level CIR, cost income ratio, was 38.1%, which is a historic low and an additional drop of 2.5 percentage points YOY, driven by growth in OP profit coupled with effective cost management. Group level provisioning increased by 29.7% YOY due to the KRW 74.5 billion additional provisioning against COVID-19- related forbearance, and KRW 27.8 billion provisioning for adjustment of credit card RC values. Credit card ratio was 26 BP.
Now, when the COVID-19- related additional provisioning of KRW 74.5 billion is excluded, our credit card credit cost ratio would be 18 BP, once again controlled within stable levels. Bank and credit card delinquencies, which is a leading indicator of credit costs, was 0.21% and 0.88% respectively, which is an improvement of 4 and 8 BP each, both remaining within fair levels. For the details of our group level asset quality, please refer to page 10. Page 11 looks at capital and profitability metrics. As of end of March, our CET ratio was 13.0%, which is a slight YTD decrease. This is explained by many factors, including the Shinhan Bank equity investment in KT, increase in overseas branch assets, and the increase in credit RWA tied to high-quality asset growth in our card, investment, and capital subsidiaries.
There was also a drop in other comprehensive gains due to higher rates and capital activities such as the dividend and share buyback. Group ROE was 12.6%, a 1.5% YOY improvement driven by significant improvement of our ROA with better margins and fee income growth.
On page twelve are materials on the group's capital policies that have been touched upon earlier. Now on page 13, let us look at net income of each subsidiary. As of end of Q1, non-banking contribution to net income is 41%, with each non-banking subsidiary making balanced contributions in capital markets, retail financing, and insurance businesses. Despite other factors such as recent interest hikes and expanded market volatility, capital market-related subsidiaries such as Shinhan Capital and Shinhan Asset Management were able to post healthy results and pre-tax profit margin, making appropriate level of contribution to the total group net income. Page 14 contains reference materials on the group's global businesses.
For your information, net income of the group's global business recorded KRW 129.5 billion, up 34.5% YoY, thanks to recovery from the COVID-19 pandemic, especially in the APAC region, the group's most active global market. Let me now invite group's CDO VP, Kim Myung-h ee, to talk to us about digital strategies shown here on page 15.
Hello, I am Kim Myung-h ee, the group's CDO. I would like to talk to you about the group's digital unit and its businesses. The group's digital platforms are showing solid growth, both in the financial and non-financial business areas. The group's financial platforms saw its MAU reach over 50 million users, an increase of 820,000 users since the end of last year. The platform's strategy, in line with the group's new vision of becoming easier, newer, and more convenient, is producing remarkable results. The bank's SOL and the card's pLay, the two mega platforms, are steadily growing towards the goal of achieving 10 million users each.
Issuance of Shinhan Sign, the first e-signature certificate in the financial industry, reached 2.6 million, enabling more secure digital financial transactions for the customers. By actively utilizing large IP opportunities in the investment market and by providing MyData asset management services, the group is strengthening connectivity and scalability of the platforms. Our non-financial platform has also attained more than 2 million MAUs. The MAUs of the non-financial platform increased by 310,000 from the previous year as a result of the increased number of lineups, such as automotive, shopping, and travel, and also thanks to differentiated financially linked services available on these platforms. The group, by increasing the synergy between financial and non-financial platforms, intends to strengthen the portfolio on its digital platform. Second, I would like to point out the increased contribution of the digital platforms to sales.
In all types of products and services, digital channels coverage has expanded. In particular, in terms of opening brokerage accounts, 96.4% of them are being done so within the digital channels, accelerating the group's transformation to a digital financial institution. Earlier this year, the bank newly established a digital whole sales department and digital WM sales department. Small businesses and high- net- worth customers are receiving professional services via the digital channels. Chatbot functionalities have been improved to widen the scope of work of digital channels. Marketing activities targeting the MZ generation have helped to identify diverse sales opportunities in the digital channel that have led to enhanced sales results. Lastly, I would like to talk to you about the enhanced financial performance from the digital innovation.
Thanks to digital innovation from the front to the back, it was possible to reduce the cost of KRW 108 billion in Q1 of 2022. This is a KRW 26.6 billion more cost reduction from previous quarter. Cost saving enabled by digital innovation is quickly increasing, with cost reduction in Q1 representing more than 34% of last year's total reduction. In the back end, AICC enhanced call efficiency resulted in cost reduction of about KRW 3.4 billion. The group's digital business unit will more strongly implement its digital-to-value strategy to ensure our digital innovations lead to higher value for our customers and investors. Thank you.
Thank you, CDO Ki, for that explanation. On page 16 are information on the group's sustainability activities, its subsidiaries, and main management metrics for your reference. This concludes the earnings presentation.
We will now move on to Q&A. Thank you.
Now we will open the floor for your questions. If you have a question, you can use the Raise Hand button in Zoom to ask for an opportunity. That goes for questions in either Korean or English. And of course, simultaneous interpretation will be provided in both languages. There may be a little bit of time lag to get your audio connected, so please bear with us. Yes. Our first question is from DB Financial Investment. Pyounggon Lee will be asking the question. Please go ahead, sir.
Yes, good afternoon. This is Pyounggon Lee of DB Financial Investment. Congratulations on your good performance this quarter. I have a question about your capital policy and also your capital ratios. If you look at page 12, you're saying 30% of total shareholder return ratio is your target.
You want to achieve it earlier than originally scheduled. You already. If we take out the existing, the already announced share buyback and cancellation, how much? The remaining would basically be a dividend payout ratio. How much on a quarterly basis would you be giving in terms of dividends based on that full-year payout ratio? It seems we already have a first quarter dividend, which did not happen last year. If we can assume that this amount of quarterly dividend will be maintained, what will be the impact on full-year payout ratio? Second question is, if we look at your insurance subsidiaries, there is the IFRS 17 K-ICS that will be coming in next year, which means that it would probably be under very different financial requirements than right now. Probably the net asset value will be impacted.
If so, technically, what would be the impact on the capital ratio of the entire financial group? Also, recently, rates have been going up, so K-ICS may not be an issue, but if we convert this to RBC, there is a bit of an impact, according to my understanding. Would there be any impact from an RBC base capital calculation in the mid to long term?
Thank you very much for that question. Let us organize how to answer that question amongst ourselves before coming back to you. I think those are mainly two questions. One was about our capital policy, second was about the insurance-related capital requirements.
That will be best answered by the CFO of our Shinhan Life Insurance, Park Kyoung-Won.
I think I can take the question about our capital policy. We announced today a KRW 400 quarterly dividend per share. Our basic plan is the following. The cash dividend would be 60% on a quarterly and 40% at the year-end dividend payout. It will be probably KRW 400 on three quarters, and then there will be around a 40% of the remaining at the year-end fourth quarter dividend. Then on top of that, this will be counted in as. The share buyback will be counted in our shareholder return. We already announced a KRW 150 billion buyback and cancellation in first half. In second half, we will have to look at our net income and total return ratio.
If necessary, and if we have the capacity to do so, we will decide to do an additional share buyback cancellation if we have the capabilities to do that. That is the big picture of our shareholder return and capital policy for this year. I hope that has answered your question. We'll move over to your second question about the insurance capital requirements.
Yes, this is Park Kyoung-Won , CFO of Shinhan Life. Thank you for your question. Now I think I can take from the RBC. In Q1, our RBC is around 255% for Q1, and we already have quite a lot of fixed income instruments that we hold, so there is a bit of risk of RBC ratios going down if rates go up. We do have a sufficient buffer.
Even at 4% rates, we would be able to keep an RBC ratio of above 200%. In the short mid-term, we have no stress related with RBC ratio. Now, with K-ICS, that would have many implications, including an implication on net asset value. In the case of Shinhan Life, you will know that whether it's IFRS 17 or K-ICS, our liability valuation decreases and our capital increases under this new calculation. We have not finalized our approach for IFRS 17, but I think we're in a different position versus other insurance companies, and that actually IFRS 17 gives us a more sustainable capital position, which is not the case for other insurers. With K-ICS, I think the implications overall is the same for us. At an integrated insurance company level, we have sufficient capital buffer.
Yes. We will now take the next question. Yafei Tian of Citi will give us the second question.
Hi, thank you for the opportunity. I have two questions. The first one is on loan growth. I just wanted to get a bit of local color on how you think about household loan growth going forward after a relatively soft start of the year. There is quite a lot of discussion about potential relaxation on the regulation side for household lending. Can you share something on that front, please? Then secondly is on the recent competition increase in the mortgage segment. We are seeing quite a lot of big banks cutting the interest rate on this segment. Would this be a temporary promotion measure, or is this gonna be some thing that we could expect to see going forward? What would be the net interest margin implication from this, please? Thank you.
Yafei Tian, thank you very much for those questions. If you could just give us a moment, we will organize the answer for you.
About the household loans and about the interest rate and about its long-term effect, Jung Sang-Hyuk, the CFO of the bank, will provide you the answer.
In Q1, our household loans actually decreased, but if you include securitized loans, well, it's actually grown by KRW 500 billion. Our market share hasn't. For the market, our goal is to grow by 4.8%, which is about KRW 6.5 trillion. In Q1, our household loan did not grow much because of the uncertainties related to government regulations. Once these uncertainties go away, the household loans will be normalized, growing the way it used to in previous years.
The 4.8% of our KRW 6.5 trillion growth target, I believe, is going to be achieved. About our interest rate cut compared to our competition related to NIM, well, it's quite high, even for the household loans, and we do have some buffers. We are temporarily cutting the interest rates for the household loans. This is something that we are well prepared for. From Q2, we're doing this in order to increase the household loans beginning from Q2. This should not impact our overall NIM.
That has been my answer. I hope it's been. Well, I wonder if it's been sufficient or not.
This is Heo Young-Taeg, the CMO of Shinhan Financial Group. I sense a concern about growth in your question, and I think the key factor around that is the domestic growth. Household growth was weak. We have been offsetting that with corporate loans, which has positive implications. I think global there was a growth around 10%. I think a key source of growth for us was the global business, and I think going forward, our global business will be contributing more to our growth. We see that visibly in our first quarter results. We at Shinhan Financial Group believes and relies on our global business as a main source, one of the main sources of our performance and growth.
We'll take our next question, which comes from Hana Investment Securities. Mr.
Kim, please go ahead.
Yes, this is [Soha] Kim of Hana Investment Securities. I have two question. First is about the capital policy. You explained the 30% total shareholder return. I appreciate that concept. Can you also give us a full- year guidance on your share buyback cancellation? Even if we add that, just to reconfirm, is that a part of that 30% total shareholder return ratio you're mentioning? Number two, about your household loans. Household loan demand is very weak, but the spread is also squeezed, which is the reason I'm a bit concerned. Also, it's not going to be easy to increase your low-cost deposits on the funding side. With this happening both on your funding and lending, wouldn't that be a negative pressure on your NIM in the second half?
Considering all of that, what is your outlook guidance for NIM in the second half?
Yes, thank you very much for that question. We will organize our answers to your questions among ourselves, so please wait momentarily. Yes. Your first question was about the capital policy. Second question was about the household. Your concern was about the household loan. I think the Bank CFO can take your second question.
I'll answer your first question. We're going back to the capital policy. What I can add to the answer that I provided, that we are assuming that we will repeat buybacks and cancellations, and that is part of our 30% total shareholder return ratio. Share buyback cancellations are part of that 30%, and we are planning to repeat buyback and cancellations.
You can see on the left-hand side of the graph, we think that currently our net income is quite strong, but if we go into a period where our net income drops, there was a time when we had a payout ratio of around 40%. We think that what's important is not the ratio, but the cash amount, the absolute size of dividends, which we want to maintain consistently. Right now, we don't expect a huge fluctuation in our net income, and that is why we will use the buffer to, for example, do more buybacks and cancellations to meet that 30% target.
Yes. This is Jung Sang-Hyuk, the CFO of Shinhan Bank. You were concerned about the NIM implications in the second half.
If you look at our mortgage margin on quarter, there's about a 15-20 BP margin that is increasing. There's that increasing effect on a quarterly basis of 15-20 BP. That's why our spread has been brought down from 30 to around 15 BP recently to increase our mortgage assets. That is all within our expectations as we manage our NIM. We have a buffer, sufficient buffer already. We can lower our spread without hurting our NIM plans this year. It will not impact our NIM business plan or budget for this year, even if we temporarily squeeze our spread. About low-cost deposits becoming more difficult to source. When interest rates go up in an upward market, there are some people who believe that's a negative to increasing low-cost deposits. That is true to a certain extent.
We were designated as the bank for Seoul's metropolitan city. We also have various initiatives to increase public deposits. Those will be sources of us gaining additional low-cost deposits. With all of that in mind, we think that in the second half, whether it's July, August, assuming a two-time interest rate increase in the second half, I think we will actually see an increase of 60 BP in the second half. That full year, our NIM would go up to 1.57, which will be about 15, 16 BP increase from 1.41, which was last year's NIM.
I would like to add, I am the Heo Young-Taeg, the CMO, about the total shareholder return. In order to increase the return, of course, the group's income has to increase. In Q1 about the earnings for Q1, there are no special circumstances, and we have been able to show that our fundamentals have been very healthy. Those fundamentals have helped us to produce healthy results. There are many variables to consider when it comes to NIM and others. What sort of business models we're going to have, you know, what sort of profit sources we're going to develop will determine our future growth in terms of income.
We are putting emphasis on our global markets, and we are also producing significant results with our capital market business and asset management business. We will continue to enhance our fundamentals, our fundamental health, and I think that is the best way for us to provide better shareholder returns. Thank you.
We'll take the next question, which comes from HSBC. Wendy Hong, please go ahead.
Oh, thank you very much for this opportunity to ask you a question. I think some of my questions were already asked and answered. I have a question about one of your subsidiaries. I think your non-bank income was quite solid. It was better than I expected, so that's very encouraging. For the securities, for Shinhan Investment, for example, there was an increase in fee. Also, there was increase in valuation gains. For insurance, there was an increase in the provisioning reserves for the variable interest guarantee. Can you give us some size of how much of this it was in terms of size and impact?
Yes. Let us coordinate how to best answer your question amongst us, and we will come back to you soon.
Yes, the CFO of insurance and the CFO of the investment and securities will answer. First, the CFO of Shinhan Investment.
This is Keum Sung- Weon. Thank you very much for your question. There was an increase in our investment banking fee income year-over-year. That was KRW 559 billion increase year-over-year. Last year, our IB income grew by KRW 367 billion. This year was 957 billion, so there was a KRW 559 billion increase year-over-year.
You asked about the size of our variable insurance guarantee reserve. This is the CFO of Shinhan Life. Our first quarter earnings was quite solid at Shinhan Life. There were some disposal gains last year first quarter, so year-over-year it appears to be not a strong growth. Actually, if you take those out, there was a growth. A main factor this quarter was the variable insurance guarantee reserve. Last year first quarter, stock prices were high. This year first quarter, stock prices went down, fund value also decreased, so we actually had to recognize a larger reserve. Last year first quarter, we had a reversal of KRW 3 billion-KRW 4 billion. This year we have to make more reserves. Quarter-on-quarter, because of that base effect, it appears that we had an additional reserve of KRW 24 billion year-over-year.
This is Heo Young-Taeg, the CMO. You also, I think, asked about the changes in the securities fee income. Our brokerage fee decreased by KRW 64.8 billion year-over-year. On the other hand, our overall Shinhan Group level, trading- related income decreased by KRW 1.3 billion. Of course, our brokerage fee is closely tied to the trading volume. At current trading volume levels, probably our brokerage fees would also remain flat at current levels unless trading volume goes up. Now, in terms of the trading income, there is a base effect. Last year, we had large gains and losses, which probably will decrease from Q2 this year, but we will come back to you on the detailed numbers later on.
Thank you. We don't have further questions as of now, so we will wait a few moments. If you have questions on the Zoom screen, please press the hand icon. Well, it seems that we don't have further questions. We would like to conclude the earnings call. Ladies and gentlemen, this concludes the earnings call for Q1 of 2022 of the Shinhan Financial Group. I would like to thank everyone for joining us for this call. The details of the earnings call will be available on both the YouTube channel and the website. On the YouTube channel, there will be information on the earnings. Also there will be a video about the company as well on the YouTube. Thank you for your attention.