Good afternoon. This is GH Park, Head of IR at Hana Financial Group. I would like to sincerely thank all market participants for joining us today despite your busy schedules. We'll now begin Hana Financial Group's earnings presentation for the first quarter of 2025. Let me first introduce the executives from the group and the major subsidiaries who are joining us today for the earnings presentation. We have with us today Jong-moo Park, Group CFO; the Group CRO, Jae-shin Kang; the Group CSO, Ho-sik Nam; next, from Hana Bank, CFO, Young Seok Jeong; Hana Bank CRO, Chang Wook Pae; and finally, from Hana Securities, Dong Sik Kim, CFO, is with us. Today's event will proceed as follows. First, we will begin with a presentation on Hana Financial Group's business results for the first quarter of 2025, followed by a Q&A session.
Please note that any forward-looking statements related to the group's performance discussed today may differ materially from actual results depending on changes in macroeconomic conditions and market environments. I would now like to invite Jong-moo Park, Group CFO, to present the business results of Hana Financial Group for the first quarter of 2025.
Greetings. I am Hana Financial Group CFO, Jong-moo Park. Thank you to all shareholders, investors, analysts, and all stakeholders for taking part in today's Hana Financial Group business results presentation. I will now walk you through 2025 Q1 Group business results. First, I will cover Group financial highlights. Please refer to page one. Hana Financial Group's 2025 Q1 net income posted KRW 1,127.7 billion, a 9.1% increase YoY, with core earnings combining group interest income and fee income recording a solid growth trend. On the back of stable management of recurring SG&A and credit costs, we were able to deliver solid performance, which exceeded market consensus. Accordingly, Group's Q1 ROE posted 10.62%, an 18 basis points increase YoY, and Group ROA posted 0.72%, a 2 basis points increase YoY. Based on solid fundamentals, Group's profitability indicators showed improvement.
In addition, as we had mentioned during the 2024 annual business results presentation, in order to increase the predictability of cash dividends and to provide a stable cash flow to our shareholders, from this year, we fixed 2025 total dividend amount to KRW 1 trillion and will implement equal quarterly dividends. Accordingly, the dividend per share resolved at today's BOD meeting was KRW 906, and going forward, it is expected to gradually increase with the number of shares eligible for dividends decreasing according to share buyback and cancellation. Next, I will go over details about Group business highlights. Please refer to page two. Group's Q1 NIM posted 1.69%, the same as the previous quarter, and Hana Bank's Q1 NIM posted 1.48%, a 2 basis points increase QoQ.
Despite the market interest rate decline caused by events such as policy rate cuts, on the back of proactive portfolio rebalancing efforts, bank NIM improved QoQ. In order to respond to uncertainties related to recent macro variables, we are actively managing Group's risk-weighted assets, and going forward, we plan to promote an appropriate level of loan asset growth. Through these measures, we will do our utmost to manage so that even if there are additional policy rate cuts, there will be minimal effect to the bank NIM. Next, bank loans in won posted KRW 304 trillion, a 0.5% increase YTD. In the case of corporate loans, based on quality corporate loan-focused asset growth strategy, as a result of supporting SMEs that need funding, it increased 0.6% YTD. Household loans increased 0.3% YTD with mortgage loan balance expansion, mainly among end users with real demand.
As you can see on the bar graph on the left, Group's Q1 interest income posted KRW 2 trillion 272.8 billion. Bank and Group NIM went down 8 basis points and 7 basis points each, respectively, but centering on bank's quality loan assets, there was around 4% increase of interest-bearing assets YoY, and we were able to mitigate the interest income decline caused by yield compression. In addition, with the non-banking interest income improvement, Group total interest income increased 2.3% YoY. As previously mentioned, when we presented our Value-up plan, this year we are targeting our bank loan asset growth rate in line with domestic nominal GDP growth rate.
We plan to implement strategies tailored to the market conditions each quarter, considering various factors such as the BoK rate, domestic and global economic conditions, and the regulatory environment. However, we will primarily maintain an asset growth strategy centered around RORWA, pursuing qualitative rather than quantitative growth. We will continue to manage our capital ratio in a stable manner through consistent growth across the quarters. Next, on the right-hand side of the slide, you can see that the Group's first quarter fee income posted KRW 521.6 billion, while Hana Capital's operating lease fee has been showing stable growth. Credit card fees also increased YoY despite a fall in merchant fees, thanks to the rise in overseas card spending. As a result, the Group's fee income expanded by 1.7% YoY and is expected to contribute to the ongoing growth of the Group's earnings fundamentals this year.
Meanwhile, the Group's first quarter gains on valuation and disposition amounted to KRW 377.6 billion, while the returns on market able securities investment of the bank and Hana Securities showed a healthy increase. The first quarter gains on valuation and disposition decreased by 3.5% YoY due to the effect of the accounting reclassification of Hana Life's variable insurance income, the base effect from recognizing KRW 47.1 billion of IPO-related gains in the first quarter of last year, and the recognition of valuation losses related to overseas commercial real estate by some non-bank subsidiaries. Next is page three. The Group's G&A expenses for the first quarter of 2025 amounted to KRW 1.043 trillion, and the CI ratio recorded 38.9%. Although the Group's G&A increased by 4.1% YoY, the main cause was the ERP cost of approximately KRW 80.8 billion incurred by Hana Bank.
Excluding this, the recurring G&A decreased by 3.3% YoY on the back of group-wide efforts to improve cost efficiency. Next, the Group's first quarter credit cost ratio increased 4 basis points YoY, posting 29 basis points. While the upward trend in delinquency rate and the NPL ratio continues, the Group's credit cost is being managed at a healthy level compared to the business plan, thanks to a loan growth strategy focused on high-quality assets, large-scale preemptive provisioning set aside up to 2023, and a high collateral ratio of Hana Bank's loan assets. However, in preparation for the potential deepening of domestic economic slowdown due to the global tariff uncertainties, we are taking proactive measures to address potential risks and reduce non-performing assets. We will do our utmost to ensure that the Group's credit costs are managed stably this year.
Next, I will explain the Group's capital ratio on the right-hand side of the slide. As of the end of Q1 of 2025, the Group's CET1 ratio is expected to rise 1 basis point QoQ, posting 13.23%. Due to regulatory changes related to risk-weighted assets, the CET1 ratio dropped by approximately 18 basis points during Q1. However, thanks to strong quarterly operating results and a loan asset growth strategy focused on profitability, the Group's CET1 ratio improved QoQ. Despite external uncertainties such as exchange rates since Q4 of last year, the Group has been managing its CET1 ratio stably within the target range of 13%-13.5% in order to secure the capital capacity for expanding shareholder returns. Moving forward, we will continue to enhance capital efficiency and implement our value-up plans steadily based on the Group's solid fundamentals and systematic RWA management. Next, please refer to page 4.
The Group's earnings per share for Q1 2025 is KRW 3,879, up 11.7% YoY and up 130.2% QoQ. In addition, the book value per share is up 10.4% YoY and 2.2% QoQ, reaching KRW 140,109. While the Group's net income for Q1 rose 9.1% YoY, the growth rate of EPS at 11.7% surpassed the increase in net income, demonstrating the effective impact of their proactive share buyback program. As mentioned earlier this year, through our shareholder return policy focused on share buyback and cancellations, we aim for more flexible growth in per-share indicators and to quickly restore the corporate value to an appropriate value. That concludes Hana Financial Group's Q1 2025 earnings presentation. Thank you very much.
Thank you. Next, we will proceed with the Q&A session. First, let me briefly explain about how to ask questions. If you have a question, please press the Raise Your Hand button located at the center bottom of the page. Please note that consecutive interpretation will be provided for questions asked in English. Now, we'll wait for your questions. The first question is from HSBC Securities, Jong-won. Hello. Please ask your question.
Congratulations on your solid earnings despite the challenging environment. I have two questions. My first question is about the SK Telecom that had sold off Kakao shares. I think it was for the financial soundness of SK Telecom. To my knowledge, you also had a very close relationship with SK Telecom, and you had about KRW 500 billion of equities. I think at the end of March, there will be the lockup period that ends.
I believe that maybe because of the attractiveness of dividends and others, this relationship will continue. Going forward, are you continuing dialogue with SK Telecom, or should we have some concerns about overhang going forward? My second question is about the concerns over global tariffs and other uncertainties. We are seeing uncertainty spread in the economy. The bank in Vietnam or the global affiliate profitabilities, can you tell us about what is the current take? Thank you very much.
Thank you very much for your questions. Please hold, and we will soon answer your questions.
Thank you very much for your questions. To answer your first question related to SK Telecom, I will ask our CSO, Ho-sik Nam, to answer it. Regarding the second question about global affiliate profitability, I will be answering that.
Thank you very much. I am Ho-sik Nam, the Group CSO.
As you had mentioned, Hana Financial Group and SK Telecom have cross-holding of shares, and we also have a good strategic partnership. Regarding the lockup period, although it has ended, we are continuing communication currently for SK Telecom and ourselves. We do not have any plans to have changes in the share structure, and we hope to continue our cooperation and to develop it going forward. Thank you very much.
Let me answer your second question related to overseas affiliate profitability. I mean, we cannot really make projections based on Q1 numbers, but it seems that YoY we had about KRW 27.5 billion of reduction. In Asia, there is Indonesia and China that is showing some recovery. However, for the Russia-Ukraine war, we have some issues left, and we have some settlements that have not been cleared yet. There are some valuation losses and some provisioning.
That is why on a YoY basis, it seems to have declined a bit, but there is no grave cause for concern. Thank you very much.
We will receive the next question. The next question is from SK Securities, Seol Yong-jin. You're online, sir?
Thank you very much. I have a question about asset quality. It is true for other banks, but our indicators for that segment are continuing to deteriorate, and the NPL coverage is also continuing to come down. In your view, asset quality deterioration, up until when do you think this will continue? What is your outlook? Can you share that with us? Also, outlook for credit costs. Your outlook previously was the mid-30 basis points. Do you maintain that stance?
Thank you very much for that question. Please hold for a little while while we prepare the answers.
I am Kang Jae-shin, who is in charge of risk. Among the many industry sectors, the SOHO delinquency rate is gradually going up.
Not only the bank, but also from non-banking subsidiaries, delinquency is slightly rising. Because of that, going forward, the delinquency rate and the NPL ratio up until the year, and we do expect it to be an upward trend. With regards to coverage ratio, so NPL assets and the delinquency asset growth, the coverage ratio is coming down. The reason for that is, of course, because we have a very high share of collateral ratio. Even if NPL ratio goes up, the provisioning is rather low. In the case of bank, KRW 1 trillion NPL size, 90% of that NPL is secured and is guaranteed. The credit cost is very low. On the other hand, the coverage ratio is coming down.
Coverage ratio low, coverage ratio undermining asset quality, or it's not actually bringing our asset quality down, but these two contrasting goals, in order to achieve these two contrasting goals, this is something, a phenomenon that is inevitable. This is also connected to the credit cost. It's 0.9 basis points, and mid-30 basis points is going to be maintained. That is our outlook, and we do believe that is a goal that we are more than able to achieve this year. Thank you very much.
We will take the next question. The next question is from NH Investment & Securities, Jun-Sup Jung. You're on the line, sir?
Thank you for the opportunity. I am Jun-Sup Jung from NH Investment & Securities. Recently, the government or the political circle, I think, has asked for corporate loan growth. For loan growth or regarding your RWA growth, can you give us your outlook? Also, in the second half of the year, there might be some policies for additional share buyback. Can you tell us about maybe after Q2 capital ratio and shareholder returns, what kind of level can we expect?
Thank you very much for your questions. We will soon answer them. Please hold.
Thank you very much. I am Jong-moo Park, the CFO of the group. I think you asked two questions, and I think they were very comprehensive.
Let me answer your second question regarding share buyback first. Regarding the situation and the KRW 400 billion of share buyback and cancellation that we had announced in February is ongoing, and it will last up to September in our trust contract, but we are going to actually conclude it by the first half of this year. Regarding additional share buyback plans or the timing of the future plans, currently, we believe that in the settlement period of the first half, we will probably have it then. Regarding the share buyback, we might be able to start it in Q3, so that is our current plan. In addition, the amount and volume of share buyback will be quite important as well. It will depend on our performance, the profits, and the share prices, and the total shareholder return that we are targeting for this year.
We will need to take all of these factors into consideration for the volume, and we will need to also look at the situation for the financial markets. However, I think that you can probably predict that last year we had about 38% that was given out, and we set the consecutively to accomplish 50% by 2027. You can probably predict the level we need to be at for this year. If we can have the net income level of last year, then KRW 1 trillion of cash dividends this year, and then apart from that, all others will come from share buyback and cancellation that we said we will use for shareholder return. In the first half, the KRW 400 billion, and then in the second half, we will have some leeway for more as well.
Regarding the first question, the demand for more corporate loans, I have been to the FSC meetings, and according to the reciprocal tariff policies, different exporting companies or liquidity risks that these companies might have, I think some preparations are being made. Regarding the financing of other methods, it has not been decided yet. I believe that if the direction is set, then the banks will voluntarily support these distressed companies through loans. Regarding our loan growth, looking at our guidelines, we will align it to the level of nominal GDP growth, so that is the direction that we have. However, in Q1, as you had seen in the numbers for loans in won, we had about 0.5% growth, and it was contained.
In Q2 or Q3, looking at our capital ratio and RWA growth rate, we believe that we have sufficient room to improve our assets. However, as was mentioned in the previous earnings releases, we want to have very balanced growth for different quarters. Regarding the CET1 ratio, 13%-13.5% CET1 ratio, the range, we want to maintain that range and aim for loan growth. Thank you very much.
Thank you very much for that answer. We will receive the next question. The next question is from Hanwha Investment & Securities, Kim Do-ha.
Good afternoon. Good afternoon. Thank you very much. RWA, I have two questions related to this topic. RWA, in the case of bank, on a Q2 basis, it is down. However, in non-bank subsidiaries, it is actually up significantly. Calculation-related methods have changed. Is that reflected? The background behind the non-bank subsidiaries is a significant rise. Can you explain about that? Also, the exchange rate is a bit down from the previous quarter. At this point, RWA, how much impact would it receive from the exchange rate? What is the sensitivity?
Thank you very much for those questions. Please hold for a little while while we prepare the answers.
I am Jae-shin Kang, the Group CRO.
With regards to the RWA question, this year, as of March, about KRW 4 trillion of RWA growth was achieved, and 60% of that is from institutional change, regulatory changes. Stock-related risk weight has been changed. Also, with regards to the completion guarantee risk weight, there has been calculation change. Because of that, this has led to the RWA increase. In the second quarter and onwards, there will be no impact from that. Operating asset growth will be the basis for RWA growth going forward. Valuation of the stock exposure was the main cause behind the growth of the RWA in the non-banking subsidiaries. Also, in the securities, in some of the branch offices, there were some new assets that were introduced, and this also contributed to the growth of RWA as well.
Your second question, with regards to RWA sensitivity to the foreign exchange rate, last year when the exchange rate went up, the sensitivity went up as well. In the fourth quarter, the fluctuations of the exchange rate, those assets that were mostly impacted were reduced, and this is an ongoing process. As of now, per 10-1, three basis points of sensitivity is expected, and going forward, we will try to reduce the sensitivity going forward. Thank you very much.
We will take the next question. The next question is from Korea Investment & Securities, Doo-san Baek. You're on the line, sir?
Can you hear me?
Yes, I can hear you.
Thank you. I will be asking questions, and I have questions related to securities. Last year and this year as well, I think that a turnaround can be expected again. FSC has had some improvement plans for investment, and for the different issuance notes, aligning with the government change guidelines or plans, can you tell us about your plans? With the policy rate falling, I think there are higher expectations for bond performance. Taking into consideration the interest rate regime, can you tell us about ROA or other profits in this area that you are expecting? Thank you very much.
Thank you very much for your question, and we will soon answer your questions. Thank you very much.
I am Dong Sik Kim, the CFO of Hana Securities. Regarding Hana Securities, regarding the government's plans for improvement, for the commercial papers or CPs, I think four securities companies have them, and Hana Securities for our financial statements and internal control through many measures will make plans to include them in our plans. We haven't made decisions yet, but we believe that we will probably have a positive move going forward. You asked about the returns or profitability of securities. For Hana Securities, we had challenges in 2023, but from Q1 of 2024, for five consecutive quarters, we are seeing a significant earnings increase.
We believe that we can have about, we had about 20% of growth in earnings, and in Q1 in particular, we were very preemptive for interest rate, so we had good performance in S&T. We believe that this will continue from Q2 to the end of the year so that we can meet the ROE level and the net profit level that we expect. Thank you very much.
Thank you very much for that answer. We'll receive the next question. The next question is from CLSA Securities.
Hello. Good afternoon. Thank you very much. I have a very simple question. NIM. It is better than expected, actually, including NIM, your guidance. Because of the first quarter performance, is there any possibility of your guidance for the year changing?
Thank you very much for that question. Please hold while we are preparing the answer.
I'm Jong-moo Park, the Group CFO. With regards to NIM, yes, we do believe ourselves that it was well defended, but in the case of our peers, listening to their earnings presentation, they are well defended as well. In the case of NIM, our analysts, if we look at the reports written by the analysts, we have read them, and internally, as well, we have done some analysis on our own.
In the end, it comes down to two factors. First is the funding cost reduction. I think the impact of that was quite significant. Secondly, because there are a lot of uncertainties in the economy, in order to maintain the CET1 ratio, aggressive loan growth was not possible, really. The impact from that had enabled us to defend and slightly raise NIM. As you're well aware, despite the BoK rate cut trend, will it continue to go up? I don't think so. The BoK rate is preemptively reflected. However, if they are additionally cut two or three times, then even if the funding cost comes down, the lending profitability also will come down, so it will slightly go down.
However, compared to the level that we have reflected in our business plan, I think we will be able to do better than that, defend better than that level. That is our anticipation. Thank you.
It seems that we do not have any questions in the queue, so we will wait until further questions come in. We will take the next question. The next question is from Samsung Securities, Jae-woo Kim. You're on the line. Please ask your question.
I also have two questions. My first question is about non-banking strengthening. And if it increases, will RWA be well managed for securities? I know that you need to increase some with more risk. What will have the non-banking contribution lifted up like in the past? Can you tell us about the method? Secondly, I have a question about the consortium including Hana Bank. Through this consortium, can you tell us about what you aim to gain?
I don't know if it has been decided yet, but if you can give us some details about the intention of your participation, please let us know. Thank you very much.
Thank you very much for your insightful questions. I will now first answer the first question, and then I will ask the Bank CFO to answer the second question. As you have voiced your concerns, in order to strengthen non-banking, we need to inject resources. We might have the RWA burden that is heavier, as you had mentioned. What you actually voiced was correct. However, to talk about securities, in order for us to meet the goal of strengthening non-banking, we need to have capital investment for IB. We are currently at the step of actually normalizing this.
Regarding the areas like brokerage or sales of investment products that do not need RWA, in order by strengthening retail, we also want to strengthen our fundamentals. We are focusing on those methods. To summarize, we want to strengthen our fundamentals so that non-banking can be expanded. Regarding inorganic ways or excessive injection of capital, we are not considering those types of methods at this time.
Let me answer the second question. I am Young Seok Jeong, the Bank CFO. The fourth internet banking, the consortium that you have mentioned, is customized for sales to SMEs, to my knowledge. There have been many who wanted to participate, but we have decided to participate in the consortium with KCD. There are about 2 million SME customized fund management service apps that exist, and they currently have those members. Hana Bank has a portfolio for SOHO Loans.
We have the completely opposite of the type of customers because we have about 60% of exposure for the rental or hospitals, but that app owner actually has it for retail or for restaurants and others. This will be a chance for us to gain fresh entry into new areas for us to actually widen our footprint in new SOHO sales area. We will be able to share our know-how so that we can have strategy sharing for SOHO sales. Thank you very much.
Thank you very much for that answer. Next question is a foreign investor, Shane Matthews from Widen Capital. Consecutive interpretation will be provided for the question and the answer. Mr. Shane, you can ask your question.
Yep. Thank you for the opportunity and congrats on the results. Just one question, and it's a follow-up on, let's say, the coverage levels, right? I mean, historically, for the group, this seems to be the lowest point in terms of the coverage level. I just want to understand, and by the way, I appreciate the point that there's a lot of collaterals on the NPLs you hold. I just want to better appreciate what makes you more confident this time. Is it, let's say, the quality of collaterals you hold is of, let's say, a higher quality or the loan you originated over, let's say, the past four or five years? They are of better strength, and you're more confident of that.
I just want to better appreciate the point of, let's say, the coverage versus collateral debate, looking into our own, let's say, past as well and how we see things at this point. Thank you.
Thank you very much for that question. Please hold while we prepare the answer.
I'm Jae-shin Kang, the Group CRO. In the case of Hana Bank, starting from five to six years ago, most of the SME-related loans were actually secured collateral-based. As a main creditor bank, in order to become a main creditor bank, main business sites were taken as collateral to extend loans. That was the kind of business transaction that we had with SMEs. Because of that, at present, if you look at Hana Bank, 50% of the NPL asset has real estate as collateral, and about 40% is secured by guarantees. Therefore, delinquency and NPLs, when they grow, unsecured is less than 10%, and our coverage ratio is quite low. For instance, recently in Korea, small-sized construction companies have applied for court receivership. Hana Bank's exposure is quite minimal in that regard.
This is because when dealing with unsecured loans, assessment or screening and rating of the companies is something that we have strong competitive advantage compared to our peers. Unsecured loans and secured loans form a balanced portfolio, and also our ability to screen the potential borrowers is something that we have continued to enhance over the years, and this serves as our strength. That is what serves to our advantage in an economic slowdown and enhances our asset quality, makes it healthier compared to our peers. Thank you very much.
Thank you.
It seems that we have no other questions coming in. I think we had a very fruitful Q&A session. With this, we will conclude Hana Financial Group 2025 Q1 earnings release. For those who missed today's earnings release or would like to watch it again, we will upload a recording by this evening on our website. Please do not hesitate to contact our IR team if you have any further questions or comments. Thank you.