Greetings. I am Park Cheol-woo, in charge of IR. It is now April with beautiful spring weather. Thank you everyone for participating in today's earnings release. From now on, we will begin the 2021 Q1 business results presentation. From this quarter's earnings release, we are holding it earlier in the day so that the market can analyze our performance in more detail. We would like to ask institutional investors and individual investors for your keen interest. We have here with us at the earnings presentation our CFO Noh Yong-hoon, CMO Heo Young-taeg, CSO Park Sung-hyun, and CRO Bang Dong-kwon. First, CFO Noh Yong-hoon will walk us through the 2021 Q1 business results. Then engage in a Q&A session with you. I would like to invite CFO Noh Yong-hoon for 2021 Q1 earnings presentation. Greetings. I am Shinhan Financial Group CFO, Noh Yong-hoon.
Thank you everyone for taking part in 2021 Q1 business results presentation. I will cover the 2021 quarter's business highlights from page five to six and explain about the details regarding our group's Q1 business results. Let's go to page five. 2021 Q1 nominal net income posted KRW 1,191.9 billion, and the size of our recurring income, considering one-offs, recorded approximately KRW 1,230 billion level, and recorded the highest level ever since we were first established. What is more meaningful than the highest-ever quarterly earnings is that this was not just due to one-offs, but that our earnings is consistently expanding through our strong fundamentals, which is based on diversified recurring earnings. In particular, keeping in step with our mid to long-term strategic direction pursuing efficient growth, we are seeing even bank and non-bank income improvement. Non-interest income increased by 40% YOY and 55% QOQ respectively.
Non-bank net income before reflecting ownership hosted KRW 620 billion, an 84% increase YOY, which is also a record high quarterly income. Core profit also grew. NIM, which declined due to the low interest rate, rebounded in two years and a half, and along with loan growth, group's interest income grew by 5.7% YOY. We ask for your understanding. I will proceed. On the other hand, future uncertainty related to future expenses for Lime in 2020 and COVID-19 provisioning is greatly declining. On April 19th, the dispute settlement committee determined the compensation rate regarding the Lime CI funds sold by Shinhan Bank, and on a pre-tax basis, KRW 62.6 billion of compensation expenses related to investment products, including Lime CI fund, was recognized as non-operating expenses.
With this, the ongoing dispute settlement committee has all been concluded, and as mentioned in the previous Q4 conference call, there is a very low possibility that we will need to additionally recognize a large amount of expenses related to investment product at once. In addition, through our preemptive asset quality management last year, the size of provisioning this year's Shinhan Card decreased by 34% YOY. COVID-19 financial support program, which has been extended three times due to continuing COVID-19, has been slowing down in 2021. Last point I want to emphasize is shareholder return. Based on our fundamentals, which has been leveled up, our capital ratio and double leverage ratio is becoming more solid. As we had promised, we will utilize this for qualitative growth and diversified aggressive shareholder return.
In particular, article of incorporation amendment was completed at the ordinary shareholders meeting in March so that we can allow quarterly dividends from this year. Going forward, we have the environment to execute more diverse shareholder return policies. Let's go to page six. From page six, I will explain about our mid-to-long-term strategic direction. From 2017, centering on four tasks, which are harmonious growth, globalization, upgrade to digital Shinhan, and creative inheritance of Shinhan culture was set. We set the strategic direction of the S.M.A.R.T. or SMART project and have successfully executed them. In 2020, we expanded SMART of 2017 and established F.R.E.S.H. or FRESH 2020's mid-to-long-term strategic direction.
Financial target is to become the local top in terms of customer investment return, and from a shareholder value improvement perspective, we have the goal of over 10% ROE, expand and continue shareholder return policy, and emphasize non-bank and non-interest and matrix-focused growth. As our four strategic initiatives, we chose pursuit of efficient growth, global connection and expansion, innovation open for digital transformation, and ESG for sustainable management and performance generation. We have selected core KPIs for each initiative and continuously are managing it. The consistent strategic direction that we have pursued for the last four years is gaining visibility as Q1 performance. From page eight, I will cover Q1 financial performance details. As aforementioned, with consistent strategic execution, diversified earnings were realized and realized record high quarterly earnings. From 20 13, the profit side has been continuously increasing.
NIM has been improving, and corporate and household financial support expansion has been continuing, leading to core interest income increase. The group's non-interest income grew 40% YOY and contributed to the high growth of our income. In particular, what was noteworthy was solid profit growth of card and capital. Securities income also greatly improved. On the other hand, through digital-based cost-cutting efforts, the group's CIR posted 40.6% and decreased 3.1 percentage points compared to the previous quarter. The group's mid to long-term CIR is also in the low range of management, leading to more investment capability for digital transformation going forward. Credit cost is also being managed very stably. Taking into account COVID-19 financial support and economic situation, we are focusing on credit risk monitoring and management. Q1 credit cost ratio posted 22 BP, and the NPL coverage ratio posted 142%. Let's go to page nine.
2021 Q1 group interest income grew 5.7% YOY and posted KRW 2,118.1 billion. Bank loans in KRW grew 2.5% YTD and is maintaining a semi-centered solid growth rate. Bank net interest margin posted 1.39% and improved 5 BP QOQ. This is the first margin turnaround since Q3 of 2018. With the bank's time deposit repricing taking place in earnest, demand deposits grew 16.6% YTD. From October of the previous year, the lowest point, our monthly NIM is rebounding. With the Q1 margin improvement through maintaining and managing appropriate growth, we will make sure to continue solid growth rate of core interest income. Let's go to page 10. It's group non-interest income. 2021 Q1 group non-interest income posted KRW 1,030.8 billion and grew 40.4% YOY.
There was even income growth for all non-banking subsidiaries and non-banking major subsidiaries, including card and capital, greatly contributed to our earnings improvement. In particular, the securities sector, where profits decreased last year due to investment product expenses recovered and the securities net income increased 260% YOY. Matrix business also witnessed a significant growth, thanks to fees income increase from collaboration among the group companies in such business as solar power business in Japan and REITs. Further details will be provided later on page 14. On page 11, group G&A cost and credit cost. In Q1, G&A cost increased 6.8% YOY. The group's CIR at 40.6% was at its lowest in a decade. It was possible to secure investment for digital innovation, thanks to low CIR. We are confident that we would effectively manage the cost, thanks to continued operational efficiency.
The group's provisioning for credit loss declined by 33.6% YOY. Credit card provisioning declined by KRW 59.7 billion due to drop in two-month delinquency roll rate. It was possible to reduce the credit cost to 22 BP as the need for additional provisioning declined, thanks to proactive asset quality management. Looking at the bank and card delinquency ratios, which serve as a leading indicator for credit cost, both ratios are lower than the same period last year, with no signs of asset quality deterioration due to COVID-19. However, thorough and careful risk management is more important now than ever, as COVID-19 support programs are still ongoing and economic uncertainties persist. We will prepare for uncertainties with an early warning system based on big data and checking COVID-19 recovery speed of each industry. Now on page 12.
The group CET1 ratio is 13.0% and is, however, 11.9% when calculated according to the previous criteria before the introduction of Basel III credit risk revision in September of 2020. Two-digit ROE of 11.2% was possible, thanks to record high quarterly profits. Continuous efforts will be made to improve the earning capabilities of the assets and the capital. Capital ratio movement will be explained on the next page. The group's CET1 ratio as of March 2021 was 11.9% according to the previous criteria and 13% according to the new one. As mentioned before, due to earlier introduction of parts of Basel III and resulting temporary improvement of 110 BP, CET1 ratio is conservatively managed according to the prior criteria. Compared to the end of 2020, CET1 ratio improved by 10 BP as a result of 46 BP increase from net income and 30 BP decrease from RWA.
RWA increase and others were strictly managed so that the shareholder return policies can be implemented as planned.
Page 14. As for operating income for matrix organizations, GIB sell 19.6%, GMS 61.2%, WM 8.7%, Global business 6.8% growth year-over-year, showing continued operating income diversification at the group level. In particular, it was possible to realize profits from sale of Japanese SolarPS shares by arranging a syndicate loan through collaboration among Shinhan Bank, Shinhan Asset Management, and SBJ on the group's collaboration platform. On the following page, digital transformations and contributions are explained on page 15. Amidst accelerated digital transformation in March 2021, Shinhan has become the first financial institution in Korea to create a KRW 300 billion strategic investment fund for digital business with investment from Bank, Card Investment, and Life Insurance companies of Shinhan. We will establish a broad portfolio composed of AI, blockchain, cloud data, and healthcare startups, as well as non-financial content platform companies going beyond the existing industrial boundaries.
We have also launched Shinhan Pay to respond to the big tech, fintech trends. We hope to become the leader in the simple, easy-to-use pay business by combining the Bank's potential customer pool, its infrastructure, and Card business' 2.7 million merchant network. Thanks to these efforts for innovation in Q1, contribution by the digital activities to the group's income was 14.2%, which is on a sustained upward trend. Please refer to the presentation material for more details on digital coverage and revenue generation and cost reduction from the digital channels. Lastly, on page 16, there are results of our ESG activities, which Shinhan is the leader among the Korean financial institutions. On this page are indices to measure specific loan investment and carbon goals included in the Zero Carbon Drive Declaration of last November. In the upcoming earnings release call, we will share the results of our climate change-related activities.
Please take another look at innovative finance and inclusive finance results that have been updated and provided to you. For more detailed information on ESG activities, please refer to the TCFD highlight, which includes TCFD and diversity report on the group's home page. For the group and the affiliate companies' detailed earnings results and major business indicators, please refer to the following pages. We are confident that under consistent strategic direction, we will be able to improve our capabilities to create income on a continuous basis. We ask for your continued support and interest. We are going to be holding earnings presentation calls earlier in the day from this year on. We hope that you will see this as an effort on our part to better communicate with the market. This concludes the earnings presentation, and we will now begin our Q&A session. Thank you very much.
We will now take your questions or comments. If you have a question, please press star and one button on your phone. You may ask your questions in the order of pressing the button. If you want to transfer your question, please press star and two, and we provide consecutive interpretation for those who are asking questions in English. Please do wait a while the consecutive interpretation is being provided. Let us wait a while before we receive the first question. We will take the first question from Hyundai Motor Securities. We have Mr. Kim Jin-chang on the line, sir. Please.
Hello. Thank you very much for your good earnings. I have two questions. First, regarding your operating income, it was very good, and the CIR is quite formidable. Looking at your G&A expenses in Q2, I think there was an increase in employee-related costs, labor costs. Were there any bonuses that were seasonal or other one-offs? Can you tell us about what is your forecast for the G&A increase for the year that you have in your plans? My second question is about your card business, which showed very good performance. Overall, the figures are quite outstanding, and there was a readjustment of merchant fees that will also be taking place. Was there any pressure for you to readjust the merchant fees, maybe? Could you tell us about your plans going forward and give us some guidance related to readjustment of the merchant fees?
Thank you very much for your questions. I am the CFO.
Regarding the G&A question, I would like to explain. Regarding the increase of labor cost, it is true we had two factors that led to the rise. First, is for investment. Since we had good market environment, there was some sales-related performance link pay that was given, about KRW 20 billion, and there was the PS that went up as well because the stock market improved. There was some PS-related expenses, which was about KRW 35 billion, and those two led to the rise in labor expenses. For the G&A, according to our financial plan, we believe that there will be a slight rise compared to the previous year. It is because, as you mentioned, our CIR ratio is quite low, and we believe that we do not need to artificially push it down very hard. We have new businesses related to digital and others.
Because we were able to offset the expenses, we believe that the CIR ratio will probably slightly increase this year compared to the previous year.
I am the CMO and thank you very much for your questions. Regarding the card, for online and department stores, we are seeing more credit card sales, and you can see that credit card-related transactions have been going up steeply, and Shinhan Card is number one in the market. I think that was a big influence. Regarding the credit card-related fees, looking at the costs, we are analyzing this, and from next year, we will apply this. There is the federation. We will look at the different costs and what is happening in the market, and we will, I believe, determine the fees for a credit card.
We believe that for this year, we will not have an impact from our earnings because of the fees. Thank you very much.
We'll now take a question from KP Securities. Please ask your question. Excuse me, from Citi Securities. Please go ahead with your question.
Hello? Can you hear me?
Yes, please We can hear you, yes.
Hello? Hello, can you hear me?
Please go ahead and ask your question.
Yeah, thank you. I have two questions, if I may. This is Yafei Tian from Citigroup. The first question is on the net interest margin outlook. Congratulations for the sequential QOQ expansion. Would it be possible to give us a bit more color? How much further do you think the funding side improvement can go on in the coming quarters, and how much further upside are there for the net interest margin for the rest of the year? Secondly, I wanted to follow up on the fee income. Can you give us some update? Is it true that the Lime Asset Management-related issue is now being fully provisioned for and there will be no further Lime-related cost that is going to be booked going forward? Consequently, looking at the trust-related fee income, you can see that the growth is somewhat behind peers.
Are there any organizational changes that you're doing going forward to drive the strength of the trust-related sales to drive the fee income growth going forward? Thank you.
I'm the CFO. Thank you very much for your questions. Related to NIM, in Q1, we've seen a lot of improvement because of the improvement in the funding cost. There was an improvement of five BP in Q2. We're not so sure if we'll see as much improvement as in Q1. We do believe there will continue to be improvement. In our case, LDR is relatively low. Therefore, we do have room for improving ALM, which is related to NIM. Your second question related to Lime about additional provisioning, whether it's needed. Well, financially, related to Lime, we do not believe that there will be any financial impacts because of Lime and because Lime-related effects have already been incorporated. About other private equities, every quarter, we do receive assessments from an external organization, and those reviews or assessments are incorporated in the financial numbers.
Excluding those numbers from a dispute assessment committee, I don't think we do have to make any changes. Once we do have very objective and fair numbers from the external accounting firm, we're going to be incorporating that.
I am the CMO, I'm going to talk about the fees. Non-interest income increased by 40% YOY, which is a significant increase. Well, compared to our peers, and I think that's because the baseline is different, where we have the credit card fees and those core fees. It is increasing quite healthily and about trust product sales fees, I think we're maintaining the same level in terms of sales of trust fund as the same period last year. About the financial fund fees, it's also increasing by 10%. We've seen a turnaround in terms of fees from the sale of funds and trust products.
About retail investors, because the increase of retail investors, that is, as you know, impacting the market quite significantly here in Korea. Depending on such impact on the market, there could be a potential increase in the fees income. We do expect the fees income to increase more than it is right now. In terms of fund and trust product fees, there have already been a turnaround, and other types of fees are growing rather solidly. Thank you.
Thank you so much.
It seems that there are no questions in the queue as of now, so we will wait for further questions. From DB Securities, we have Mr. Lee Byung-gon, the Team Leader. Please, sir.
Hello, I'm from DB Financial Investment. I am Lee Byung-gon. Thank you for your good earnings results. I have some simple questions. Then I will ask about your dividends. I would just like you to confirm first, regarding your earnings for Orange Life, they were quite good. I think there were some gains from sale of securities. Is it related to variable products, or were there any other one-offs? My second question that I would like to ask you is related to trust. It seems that your proportion of ELS is lower than others. Regarding the Consumer Protection Act, I know that you have some obstacles to sales from March. Do you think that will be influential on your performance related to dividends for interim dividends or for quarterly dividends? Do you think that will take place?
Do you think even if your financial group has intentions to do so, there might be other external factors? Can you tell us about the possibility of interim dividends going forward? Thank you.
Yes. Thank you. I'm the CMO. Regarding Orange Life earnings, strategically speaking, there was something there because in the long term, we have been also at Shinhan Life Insurance, doing our best to focus on profitability.
I hope that you can focus on that fact. Looking at insurance, we had good results, and it is true that we had some gains from sale of securities because the stock market was very good, but still, we have been focusing on strategies to push up our profitability, even if it had an impact on our market share going forward. We had long-term strategies, I think, that worked. Regarding the trust-related fees, regarding the Financial Consumer Protection Act, it is true that at the windows of our banks, there was some confusion at the tellers. We can see that as time is passing, the confusion is winding down, and people are understanding. We need to follow the Financial Consumer Protection Act, and I think the consumers are now getting adjusted to the new environment.
We don't think that there will be a big impact to our financials due to the enactment of the Financial Consumer Protection Act.
I'm the CFO. I would like to answer your question regarding dividends. From last year, as we have been mentioning, we have plans for quarterly dividends going forward. We have reviewed different aspects to it and different ways. Regarding the timing, it is true, it is evident that we have external factors. Regarding those external factors, we are considering the external factors. We believe that in the execution of our plan, those external factors will not be a big hindrance. As you know, we had some dividend payout ratio that changed. We plan to take that into account when we do have quarterly dividends. We believe that the rate of shareholder return will be very different.
We are going to well-manage that. We have to actually execute the plans going forward. That happened sadly last year, and there will be the expenses that will be added to it in Q4, and that will add to our total dividend plans going forward.
From Kiwoom Securities.
Thank you. I'm Seo Young-su from Kiwoom Securities. Congratulations on your excellent performance. I have an additional question to a question that was already asked, and this is related to Financial Consumer Protection Act. It seems that people are more interested on the funds and the trust, but this act is also applied to all types of financial products, including deposits. The Act emphasizes principles. I think that the company will have to have a different strategy for different products. I think it's very important to be able to assess the customers properly. It seems that the companies are more focused on explaining the product to the consumers. I was just wondering how you're preparing, what your strategies are.
It's been about a month since the Act has gone into effect. Thank you.
About this Act, it's been about a month, as you said, since it has gone into effect. As to the implications, well, it's not still clear. As I stated before, we are trying to adapt to changes. We have the private equity fund issues, and based on our experiences, we are very cautious when it comes to choosing the products that we're going to sell to our customers. I think it is very important that we choose the products that we sell to our customers very carefully. Our strategy is to focus on selection of the product to sell. About the implications of this Act, it seems that I think we have made improvements since the Act first went into effect. Well, it's difficult to say that we have sufficient improvement, but I think we will make necessary adaptations.
Because not enough time was given to the financial institutions to prepare for the Act, the companies, all the financial institutions, had some difficulties, but they now have reviewed the relevant Acts and are making necessary changes. We do see those changes taking place.
About the fees from the sales aside, Asia Trust, we do see some fees. This is not related to the act whatsoever. This act, as you know, is still ongoing. It's difficult for me to say for sure exactly what impact there is going to be, but we are making improvements, and we are moving on a very positive path.
I am the CFO, as was mentioned, when it comes to the deposits and the loans are also impacted by this Financial Consumer Protection Act, and about 70% of the deposits and 50% of the loan are taking place online, especially with the younger customers. The Financial Consumer Protection Act procedure would be quite different from that of an offline. Depending on the customers and depending on the channels, what we are monitoring, how we should implement the Financial Consumer Protection Act differently.
We will provide you with further information later on. From HSBC Securities, Director Won Jae-yong, you are on the line.
Hello. Thank you for your good earnings. Looking at the earnings for the bank, it is good. You have good non-interest income as well. Your earnings are very even, and Shinhan, I think, has made many efforts for M&As going forward, so you have had good performance. My question is, going forward in the overseas or in your Korean subsidiaries, do you have plans to grow them? If so, what are your detailed plans? Hana Financial Group also had a KRW 500 billion of increase, a KRW 500 billion capital increase. In this direction, regarding the COVID-19 environment, are you going to focus more on overseas or others? I'm curious about your strategy for M&A abroad.
Yes. Thank you for your question. Regarding M&A and the group's new business, I think they are quite aligned. Regarding our Korean M&A strategy, I think there is some part of the portfolio that we still want to add. We are always keeping an eye on this, and we have our own standards. The return on investment, ROI, needs to be more than 10%, and how much synergy we can generate with the M&A. If we have additions to our portfolio that can accomplish these goals, it would be very welcoming. Regarding our other focus regarding M&A to fintech or other platforms that already have a user basis. We are looking for the right fit with Shinhan, and we are always keeping an eye on these possibilities. For global, for Citibank, there was talk about the sale of retail in Asia.
For the advanced countries, regarding our strategy, well, we always think about balance, and we don't think that focusing on expansion is the right answer in some cases. We need to concentrate on what we truly need. For Southeast Asia, we also have an eye on different possibilities. There could be Indonesia or Vietnam or other Southeast Asian countries, where we have business. We believe that if there are opportunities that can lead to synergy, it would be very welcoming. Thank you very much.
I am the CMO, and let me elaborate on two more points. We're talking about inorganic growth and looking at the group subsidiaries for bank and non-bank. We have a business strategy of focusing on ROE. The CET1 ROE is the center of our assessment. We want efficient division of our resources.
We want our group subsidiaries' ROE to grow. That will be our strategy going forward, and I think we will make more efforts in that direction and execute our plans. Thank you.
Yes, thank you. Well, it seems that there are no questions waiting, I will wait just a moment before we conclude. It seems that there are no further questions. With this, we would like to conclude Q1 2021 earnings presentation of Shinhan Financial Group. We'll continue to improve our recurring earnings and try to differentiate ourselves. Thank you for taking part in today's call, and I hope you have a wonderful, beautiful weekend. Thank you.