Good afternoon, everyone. Thank you for participating in Hana Financial Group's earnings presentation. I am Guen-hoon Park, Head of IR at the Hana Financial Group. I'd like to thank shareholders, analysts, and other market participants for taking time out of your busy schedule to take part in today's earnings release via phone or the internet. We'll now begin the 2022 Q3 earnings presentation. We have with us today Hana Financial Group CFO, Hoo-seung Lee, and senior management members of the group and its subsidiaries. Especially for today's earnings release, we have in attendance the Group CRO, Ju-Seong Kim, and the senior management members from the group's securities, capital, savings bank arms responsible for risk management to answer risk-related questions. Today, we'll first give a presentation on the group's business results and then hold a Q&A session via phone.
We'll now invite CFO Hoo-seung Lee for the presentation on the 2022 Q3 business results of Hana Financial Group.
Good afternoon, investors, capital market participants, analysts from home and abroad, as well as financial journalists all taking an interest in Hana Financial Group. Hello, everyone. I am Hoo-seung Lee, the CFO of the Hana Financial Group. The weather is growing rather chilly in the early morning hours and during the evening as well. I'm greatly pleased to be able to greet you today with sound business results in keeping with the season of harvest and abundance. The clear blue skies of recent days is indeed lovely. I hope all of you will be able to create fond memories with your family with the autumn in full swing. Now let me walk you through the 2022 Q3 Hana Financial Group's business results.
First, the key financial highlights of the group. Please refer to page three. Hana Financial Group in Q3 of 2022 posted net income of KRW 1,121.9 billion. Despite the growing volatility of the market, which is a source of much concern, the increase in core earnings and efficient cost control grew such stable performance. Reflecting this, the cumulative net income for Q3 is up 6.3% YoY to post KRW 2,849.4 billion. Let me explain in more detail of the business results.
First, the group's cumulative core earnings for Q3, which forms the fundamentals of the group, is up 2.3% QoQ due to the rise in NIM in step with BOK rate hike and a growth in interest income, which reflects stable increase of the loan assets, offsetting the fall in fee income. As such, it is up YoY on a yearly cumulative basis as well. Next, the group's gains on valuation and sale posted FX translation losses of KRW 136.8 billion in Q3 due to steep rise in the Korean won exchange rate. However, due to the increase in FX transaction gains and base effect from the Q2 AFS securities valuation losses, it has improved significantly QoQ. Next is SG&A. Following last quarter, the group's sound and cost controllability was demonstrated.
On a quarterly basis, the SG&A was controlled at KRW 1 trillion level, and we're focusing on the improvement of the core earnings, as has been noted above. General operating profit also grew, thus the quarterly C/I ratio was maintained at 38% level. On a cumulative basis, the SG&A is continuing a stable trend following last quarter, and compared to last year, was improved despite the implementation of the bank's ERP in Q1. In Q4 as well, in order to improve operating efficiency, investment will be made preemptively, and at the same time, enterprise-wide cost-saving efforts will be made so that effective cost control, a key strength of Hana Financial Group, can be sustained going forward. Next, I will explain about the asset quality improvements made this quarter.
The group's credit cost ratio, despite the growing macro uncertainties, posted 0.21% in Q3 on a cumulative basis and has stabilized QoQ as all the key risk management indicators, including delinquency ratio, was managed at a stable level. Finally, in Q3, the group's NPL coverage ratio posted 175.7%, up 11.3 percentage point QoQ. The bank posted 207.3%, and this is the highest level since the founding of the holding company in 2005.
Also, in Q3, the actual NPL coverage ratio that includes KRW 2,493.5 billion and KRW 2,287.7 billion in the group and the bank's loan loss provisioning posted 366.9% and 445.7% respectively, maintaining solid loss absorbing capacity.
Based on such stable management of the top line and bottom line, if you look at the bottom left side of the page, on a cumulative basis, in Q3, the group's ROE and ROA posted 10.90% and 0.71% respectively and has improved QoQ. However, tightening monetary policy globally to fight inflation and the result in contraction in consumer sentiment, geo-economics, rising geopolitical risk leading to worsening trade environment are fueling concerns of an economic recession. Hana Financial Group has announced recently its Happy Finance Linking All project in order to stand together with people who are suffering economically from the high interest rates, high prices, and high exchange rate. This project was announced last September.
While taking part in the government's policies and programs to stabilize livelihoods of the people, we plan to also provide assistance on our own to help customers who are desperate for financial aid to manage self-lending and regain their footing. More specifically, programs such as maturity extension with installment repayment and the interest reduction for the vulnerable borrowers, and programs to provide additional financial benefits to the youth generation, such as the young entrepreneurs, the business startup financial assistance, and the young adult savings account for the future are some of the programs that we have rolled out.
In addition, aside from such financial assistance, we intend to fulfill our responsibilities as a leading financial institution in creating diverse social value, such as revitalizing local economies, job creation for the youth and the elderly, among others, in order to create a Happy Finance that will lead to happiness for all. Next, please refer to page four. The group's 2022 Q3 NIM, including Hana Bank and Hana Card, is up 2 basis points QoQ to post 1.82%. Due to the rise in funding cost, the Hana Card's NIM is down QoQ, but Hana Bank's NIM is up 3 basis points QoQ, resulting in the group's NIM improvement.
Recently, owing to the growing volatility of the asset market and steep BOK interest rate hikes, time deposits have become much more attractive, so that although the overall funding cost has risen, the asset repricing effect has offset this, and the bank's NIM has improved QoQ. Next, if you look at the right-hand side of the slide, the Korean won loans of the bank is up 1.3% QoTD to post KRW 268 trillion and realize stable asset growth. As such, the group's interest income is up both on a quarterly as well as on a yearly cumulative basis. On the other hand, the group's fee income is down 12% QoQ.
This is driven by weak IB commissions led by contraction in investment demand, deal delays due to aggravated IB market operating environment, the fall in asset manager fees, including brokerage fee resulting from the global stock market correction, and the decline in credit card fees on the back of merchant fee refund for small-sized merchants as well. Next is page 5. As of the end of Q3 of 2022, the group's NPL ratio posted 0.35% is down 2 basis points QoQ. The delinquency rate also is the same QoQ to post at 0.32% and is maintained at a sound level. Reflecting such stable asset quality indicators, the cumulative credit card ratio of the group in Q3 posted 0.21%, down 1 basis point compared to the end of first half.
For your reference, let me explain the group's risk management plans to respond to further uncertainties in the economy and the financial market. First, we are operating an early warning system to nimbly respond to any extraordinary situation, by engaging in a real-time monitoring of the financial market volatility, and we have set up risk response system for different scenarios reflecting major changes in key macroeconomic indicators. In the case of loan assets, for the corporate loans, we are operating an early warning system and an ad hoc inspection system, which is undertaken for those exposures in which deterioration of the sector is expected. For the retail loans to respond to possible default of low credit borrowers of the non-banking financial companies, we are strengthening our monitoring of multiple loan borrowers, and for the high-risk segment, loan extension guidelines have been tightened preemptively.
Also, to prepare for possibly greater volatility in the global financial market, such as a rise in the exchange rate, Hana Bank is maintaining a higher LCR ratio compared to the regulatory ratio, and this is being maintained currently, and Hana Securities is maintaining adjusted liquidity ratio at a stable level, focusing on liquidity management, and is also managing the size of the derivatives-linked securities exposure. Other subsidiaries are also securing additional credit lines to prepare for a possible liquidity crunch, and various risk management efforts are being undertaken by each of these subsidiaries.
Finally, to respond to the likelihood of a deteriorating asset quality of the real estate PF market, which is a concern shared by many, at the group level, we have conducted periodic risk management of our exposure to real estate PF. We have, as to the Legoland PF ABCP exposure that has recently become an issue. Hana Financial Group has no exposure. None of its subsidiaries has any exposure at all to this matter. We have reduced the inspection cycle of progress rate, sales rate, construction site inspection for existing loans to enhance and strengthen post-management. We also have selected high-risk real estate PF areas and tightened our loan extension guidelines. Going forward, we will continue with our asset growth strategy that gives top priority to risk control and will maintain sound asset quality.
As of the end of Q3, the Group CET1 ratio posted 12.73%, being maintained at a level that is fair to the regulatory requirement. However, in this quarter, aside from the loan asset growth, due to the steep weakness of the Korean won, the credit RWA increased and the CET1 ratio is down QoQ. For your information, in this quarter, the increased credit RWA resulting from the weak won is approximately KRW 7.7 trillion and contributed to 36 basis points reduction of the Group's CET1 ratio. The CET1 ratio that reflects such exchange rate effect on a recurring basis is still over 13%, and when the FX market becomes stabilized going forward, the won special factors is expected to be removed. As such, stable capital strength continues to be maintained.
We are well aware of the expectations that our shareholders have about improved shareholder return policies. To meet such expectations, not only are we working to increase the dividends, but we are also proactively reviewing the possibility of implementing treasury share buyback and stock cancellation. The management and the BOD is well aware that the Group's low PBR at present is out of the normal range. We are looking into various options for capital utilization to expand shareholder return policies, and we will do our best to announce additional plans in this regard within the year. Now let me walk you through the Group's business results by item. Please refer to page seven. The Group's general operating income in Q3 increased 12.9% QoQ as both core earnings and disposition valuation gain grew.
On a cumulative basis, the core earnings upward trend played favorably, increasing the general operating income 10.7% YoY. Thanks to group-wide cost-cutting efforts, the Q3 SG&A expenses were maintained at KRW 1 trillion, although Hana Bank's ERP cost was recognized within the quarter. On a side note, due to the large scale special retirement package recognized in Q1, the cumulative SG&A expenses increased 7.2% YoY. Q3 provisions decreased 31.7% QoQ due to the base effect of additional provisioning for bad debt the previous quarter. Moving on to page eight, business results for the subsidiaries. Hana Bank, which is an important Hana Financial Group subsidiary, its net income for Q3 increased 23.2% QoQ to KRW 870.2 billion and grew 15.2% YoY.
Despite the large amount of FX translation loss, core earnings grew and bottom line management was under control, including the SG&A and credit loss provision, enabling robust growth. Hana Securities achieved Q3 net income of KRW 146.4 billion due to preemptive risk management and strategic market response, as well as the base effect of the previous quarter's valuation loss related to overseas stock market correction. The subsidiary's net income improved on a QoQ basis. As high interest rates and high volatility in the financial market continue, a slowdown in the overall securities industry is expected. Accordingly, we will strengthen product competitiveness by selling tax saving products and pro-financial products suitable for the market environment, while simultaneously promoting risk management and growth, such as overall IB asset rebalancing.
Hana Capital's net income grew 25.1% QoQ to KRW 89.9 billion, thanks to growth in interest income and disposition valuation gain. We will strengthen the retail base by expanding new alliances while preparing for additional interest rate hikes by diversifying funding structure. Lastly, Hana Card realized net income of KRW 46.9 billion, decreasing QoQ. Despite an increase in profit from credit purchase, including new card transaction volume, external factors were at play, including increased fee cost and funding cost. Going forward, we will focus on preemptive risk management through managing the unused line of credit and strive to diversify our profit base by increasing auto loans and tapping into the simple payment service market. Please refer to the deck for the other subsidiaries results. Pages 9 through 11 outline the details about NIM, non-interest income, and SG&A explained earlier.
Also please refer to page 13 for the group's total assets, liabilities, and equity. Now on page 14, Hana Bank's loans and deposits in Korean won. As of Q3 end 2022, the bank's loans in won stood at KRW 268 trillion, up 1.3% QoQ. The asset growth is broken down as follows. Corporate loans grew 2.5% QoQ to KRW 138 trillion. Large corporate loan maintained a similar level to the previous quarter at 8.2%, as the contraction of the corporate bond market meant continued reliance on bank loans. SME loans also grew 1.8% QoQ, recording a sound growth. As for household loans, demand for pre-registration loan and collective loan increased, slightly raising secured loans QoQ.
With a decrease in unsecured loan balance, it is maintained at a similar level to the previous quarter. As of quarter end, deposits in KRW stood at KRW 296 trillion, up 5% QoQ. This is because of the higher appetite for time deposits with the big step interest rate hikes, leading to a huge increase QoQ. The market trend is likely to continue for the time being, as additional rate hikes are to be expected. Although it may play as a partially negative factor for NIM in terms of funding portfolio composition, it is expected to act as a positive factor for compliance with LCR and NSFR regulatory ratios. As of September end, Hana Bank's LCR and NSFR ratios are 105.4% and 104.6% respectively, well above the requirements.
The graph on the bottom right shows the LDR in Q3 to be 99.1%. Please refer to page 15 for Hana Bank's loan composition. Now moving on to page 17, Group's asset quality. As of quarter end, the group's total credit grew 2.4% QoQ to KRW 376 trillion, and NPL decreased 3.4% QoQ to KRW 1,304.3 billion, as new NPL in the bank's corporate loan decreased. This resulted in the group's NPL ratio to be 0.35%, slightly falling from the previous quarter. NPL coverage ratio recorded 175.7%, up 11.3 percentage points QoQ, showing a robust loss absorption capacity. Let me elaborate on the bank's asset quality on page 18.
Hana Bank's total credit in Q3 has risen 2.4% QoQ to KRW 317 trillion, and NPL is down 9.7% QoQ to KRW 675.9 billion. NPL ratio fell three basis points QoQ to 0.21%, and the NPL coverage ratio increased QoQ to 207.3%. Hana Bank's delinquency ratio was up two basis points QoQ due to the SOHO delinquency ratio. However, it is being maintained at a lower level compared to the same period last year. Please refer to the groups and banks' provision on pages 19 and 20. Lastly, capital adequacy on page 21.
We expect the group's BIS ratio and Tier 1 ratio to be 15.22% and 14.13% respectively, and CET1 ratio is expected to be 12.73%. As was mentioned earlier, due to the weak Korean won, RWA increased, bringing down the overall capital ratios QoQ. All in all, due to the uncertainties in the recent financial markets, such as inflation, higher interest rates, FX rate rise expressed in strong dollar and looming geoeconomics risk caused by the U.S.-China competition, the financial market is more volatile than ever.
As is shown in our deep-rooted culture, historically, Hana Financial Group had put risk management above all else, and our DNA has proven itself strong in the times of financial crisis. We will do our best to position ourselves as the financial group noted for profitability and asset quality delivered through fair results and stringent risk management. This concludes the earnings presentation for Hana Financial Group for Q3 2022. Thank you very much. Thank you very much. Now we will take questions. Let me explain how this works. In order to participate in the call conference, you need to call in using the number that we have notified, or you need to access the website and listen to the webcast.
For those of you who are participating online through the internet, if you want to ask a question, you have to make a call again on your phone. We will take the first question. We will wait for a few seconds. I will receive our first question. The first question comes from Korea Investment & Securities, Mr. Doosan Baek. Mr. Baek, you're online.
Hello, I'm Doosan Baek. I have a question about the PF of the securities company. As of Q2, Hana Securities, it has now KRW 4.9 trillion in guarantees. Among that, what is share of PF guarantees and LTV, sales rate, and progress rate, when you consider all of these among them, what you particularly focus on and manage, the share of this indicator that you focus on is also another question.
The guarantee-related implementation rate, I think, will go up. The adjusted liquidity ratio that you mentioned during your presentation, the liquidity ratio and other relevant indicators. How is Hana managing these liquidity-related indicators? Thank you very much for that question. While we are preparing our answer, please wait for a short while.
I'm Ju-Seong Kim, the Group CRO. Let me answer the question. In the case of Hana Financial Group, with regards to real estate PF for a long time, we have been managing the total amount, including the bank, for all of our subsidiaries every year. When we draft our business plan, we set a ceiling in terms of this amount.
With regards to the debt guarantee, you talked about the figure as of the end of June, and as of the end of September, the figure has gone down compared to June. Our CRO from the securities will give more details. I'm Jung Seung-hwa, the Hana Securities CRO. In the case of contingent debt, it was KRW 4.9 trillion as of June, and it was rather high compared to our period. This is because in the first half, there was some acquisition cases, deals, and so it temporarily has gone up. It is now KRW 3.9 trillion as of end of September. Going forward abroad and in the domestic real estate market, given the uncertainties for the time being, we intend to reduce our exposure to domestic real estate market.
The contingent debt level will continuously go down. With regards to domestic real estate debt guarantee, it's KRW 1.4 trillion. Real estate PF related, it's KRW 1.9 trillion for the group as a whole. The KRW 1.1 trillion for our PF, and KRW 20 billion for the others. The remaining KRW 600 billion is bridge loans. In the case of the PF, we have achieved our exit sales rate. There are some sites where we have not achieved this, but with high credit developers, we have a Trust-related contract, and so we don't believe there is any issue in terms of debt guarantee.
Among the KRW 600 billion for bridge loans with data centers and excluding the logistics centers, the remaining is about KRW 450 billion, and we are focused on managing this amount. In Daegu or some other sites, there are some delays in selecting the construction companies, and approvals are being delayed, so the PF is being delayed. The lender group is engaged in discussion for delaying the maturity. For one site, there is some delinquencies, but in this case, we have collateral and a cash flow. 100% of the cash flow from a different site has been put up as collateral, so we don't think there will be any issues with this site as well.
Through maturity extension going forward, we will carefully manage the PF so that there is no default and that we can exit in a safe manner. That is all.
I'm the CFO of Hana Securities. Let me talk about the adjusted liquidity ratio. Our target ratio is 102%. We're managing it at that level. As our CRO has noted, the debt guarantee level has come down KRW 1 trillion compared to previous quarter, and the liquid assets must be further secured and unsold assets and the debt guarantee level has come down so that we will stably manage this till the end of the year. Let me pick up on that.
Hana Securities and Hana Capital and Hana Savings Bank as well, we have executives in attendance, to answer any questions about the real estate PF. Mr. Kim Ki-dong.
I'm Kim Ki-dong, the Capital C. The case of Capital, we have 15 trillion in financial assets, and PF-related is 695 billion. Bridge is about 200 billion, twelve cases. PF plus bridge loans is about KRW 900 billion. We have this loan exposure among them. At present, delinquent sites in Suncheon, there is a KRW 5 billion shopping mall PF that is delinquent. In Incheon Juan-dong, there is multipurpose building. There is two sites, which comes to KRW 9 billion in delinquency. Aside from that, everything is managed in a very safe manner.
The sales rate and the exit plans are all considered. Everything is managed in a very normal manner. Depending on the sales rate, we are going to stably exit these exposures. That is how we are managing this. Thank you. From the savings bank, as of the end of September, KRW 270 billion in PF, 104 cases, and KRW 300 billion for bridge loans. So PF plus bridge is 25% of the total loans extended. If you look at the collateral, Seoul, Gyeonggi, and Seoul metropolitan areas, the collateral takes up 80%, and the average loans is about KRW 2 billion and 3.5 loans for bridge loans. So per loans, that amount is quite small.
As uncertainties grow, we have looked into all of our sites and the sales rate, and the progress rate has been expected. There is no site in which we expect any deterioration, but there is two delinquent sites, and the amount is KRW 9 billion, and it is 1% of the total. The contractor agreement is going to be looked into. But because uncertainties are growing, we're not going to extend new loans for PF or bridge loans. Contingent loans, these will be considered so that we will continuously strictly manage our exposure to PFs and bridge loans.
We'll take the next question from Goldman Sachs. Park Shin-young, please go ahead. You're online.
Hello, I am Park Shin-young from Goldman Sachs. I have two questions. One, you mentioned earlier about the new buyback and cancellation of shares. Is it a possible scenario that you buy back and retire the existing shares? Or because the multiple is low, maybe you could buy back at a low price, so maybe you could purchase newly. So which comes first? I have a question about the buyback and cancellation. My second question is looking at the P&L, looking at the non-operating income, that seems to be large. So could you give us a breakdown of non-operating income? Thank you.
Yes. Thank you. We'll get back to you. Hello. Thank you for the questions. As for the new share buyback and cancellation, as you're well aware, the PBR is very low. So aside from canceling the shares that we have, new buyback and cancellation is in our plans, and this is in line with the shareholder return policy. As for the non-operating income on P&L, there was an increase of KRW 70 billion. Due to equity method, about KRW 34 billion from Bank of Jilin and from Vietnam BIDV, about KRW 26 billion. There were one-off factors according to the equity method. Thank you.
We'll see the next question. The next question is from Daiwa Securities, Park Hae-jin. Are you online? Good afternoon. I'm Park Hae-jin from Daiwa Securities. I have a simple question. I actually have three questions.
The first is, our gains on valuation disposal has been quite strong, but despite the deteriorating environment, what were the factors behind such a strong performance? In the case of the capital, I think the performance was quite good. I understand that the funding rate increases have been steep. What are the reasons for the strong performance of the capital business? Thirdly, with regards to PF, thank you very much for the detailed answer. The securities and savings bank and the capital PF loans LTV, can you tell us the LTV for the respective subsidiaries? Thank you very much. Thank you very much for the question. While we're preparing the answers, please wait for a short while. Gains and losses from valuation and disposal for the group.
Like the other quarters, in the case of the debt, we had some losses in the FX derivatives. There has been a KRW 50 billion in gain, and the FX gains on disposal, the gains have gone down. Kim Yong-seok from the bank will explain further. Hello. I'm Kim Yong-seok from Hana Bank. On a quarterly basis, the bank has seen gains of KRW 570 billion. In 3Q, the government bond had come down, and on the debt, there has been a KRW 50 billion of gains. The CCP, the LCH-based P&L and based on the exchange rate and interest rate, there are some fluctuations.
Initially, there was about -KRW 30 billion in losses, and then it turned to gains. There was about KRW 20 billion in base effect. We have been able to add to that about KRW 70 billion in gains. On a quarterly basis, there's been a gain of KRW 57.3 billion. The second question. The card and the capital, the funding rate, as you are well aware, is rising steeply and preemptively, in advance. We have raised the funds, we have made preparations that had an impact from the capital. Mr. Kim Ki-dong will provide further details. Thank you very much. Let me answer the question about the capital.
In the case of the capital business, the assets are being stably managed. In the case of interest income on a QoQ basis, KRW 6 billion has increased. And aside from that, other factors, the fee income and the gains on valuation and disposal, there has been some improved performance. In the case of fee income, in 2021, it was about KRW 18 billion. In the case of this year, it was about thirty-six billion won. There's been about KRW 19 billion in increase. This is, the M&A fee income has also played a factor, and so this has led to the increase.
In the case of the gains of valuation disposal, there are logistics center that we have invested in Denmark, and there has been about KRW 12 billion in gains in terms of valuation of this asset. Fee income and the gains of valuation and disposal, I think this had led to the better performance, improved performance of the capital. The project financing related LTV that will be answered by Mr. Jung from Hana Securities. In the case of LTV, it cannot be simply answered. Whether the site and the project is of high quality. In the case of the construction company, whether it's of high quality plays a factor. In the case of apartment complexes, 72% were good, and that is about 60%.
Aside from apartment areas or office tower or logistics that it's within the 60% LTV. The LTV, after once it is completed, construction is completed, debt guarantees is not an issue for us in the case of LTV. In the case of bridge loans, for us, we do a lot of subordinated. The range is from 60%- 100% on average. It's about 80%-90%. Yes, that's about it.
Yes, from the savings bank. PF loans. We have land as a collateral. The LTV is over 100%, and the bridge loan is average of 70%. But in the case of PF loans, the construction company or joint liability companies are there, so I don't think there is any issues in terms of safety.
Thank you. We'll take the next question from Hana Securities, Kim Do-ha. Please go ahead. You're online.
I have a very minor question. In every Q4, our ERP was recognized, but this year it was recognized in Q1, reflecting last year's Q4 to this year's Q1. The top line was very good, so I thought that it would be in Q1, but the FX translation loss was very big. I think that could cause some impact maybe in Q4. There could be ERP. Are you considering that, or will you be deferring that to next year's Q1? Thank you. Thank you very much. Hello. Yes. As for the banks ERP, different from the other financial groups, there was a bit of a difference. This year, we wanted to normalize that, and the details will be dealt with by Mr. Kim Yong-il from the bank's strategy department.
As you mentioned in your question, in Q1, the ERP of KRW 160 billion was recognized. In Q4, we are not considering ERP, and upon entering next year, we could consider additional ERP. We are not considering any more ERP within this year of 2022. Thank you.
At present, we have no further incoming questions.
This concludes the Q3 earnings presentation of Hana Financial Group. Please visit the website for the IR materials. The IR data book will also be uploaded. If you have any additional questions, please contact our IR team, and we will do our best to answer your questions. I'd like to thank you for your participation.