20-F: Shinhan Financial Group Navigates Global Economic Turbulence; Focuses on Risk Management and Sustainable Growth

Shinhan Financial Group's 20-F filing highlights its strategic response to global economic challenges, emphasizing risk management, digital innovation, and sustainable practices.

Summary

• Shinhan Financial Group's 20-F filing outlines its financial performance and strategic initiatives amidst a challenging global economic landscape.
• The document emphasizes adjustments in fair value, dividend plans, and macroeconomic outlook considerations.
• Shinhan Bank applied GDP growth rate and private consumption index increase rate as major variables for forward-looking information, while Shinhan Card used private consumption rate and CPI increase rate.
• The group recognized goodwill impairment losses in PT Shinhan Sekuritas Indonesia and Shinhan Financial Plus Co., Ltd. due to economic downturn and underperformance.
• The company is revising its Articles of Incorporation to allow the Board of Directors to determine the dividend base date.
• Shinhan AITAS Co., Ltd. changed its name to Shinhan Fund Partners Co., Ltd. on April 3, 2023.
• The document details the application of IFRS 9, IFRS 4, and IFRS 17 accounting standards, including the overlay approach and changes in business models related to insurance contracts.
• The amount of uncollected loans currently in recovery (principal and interest) is W9,964,573 million as of December 31, 2023.
• Unused credit commitments provided to card customers amounted to W90,832,893 million for the year ended December 31, 2023.
• Convertible preferred shares of 17,482,000 were converted into common shares on May 1, 2023.

Sentiment

Score: 6

Explanation: The document presents a balanced view, acknowledging both positive and negative aspects of the company's performance and outlook. The sentiment is neutral overall.

Positives

• The company is revising its Articles of Incorporation to allow the Board of Directors to determine the dividend base date.
• Dividend rate per share increased from 39.2% in 2021 to 42.0% in 2023.

Negatives

• Goodwill impairment losses were recognized in PT Shinhan Sekuritas Indonesia and Shinhan Financial Plus Co., Ltd. due to economic downturn and underperformance.
• Shinhan EZ General Insurance Co., Ltd. suffered a net loss for the current period, leading to non-recognition of deferred corporate tax assets.

Risks

• The document mentions the impact of the Ukraine crisis and global high interest rates on recoverable amounts.
• Shinhan EZ General Insurance Co., Ltd. suffered a net loss for the current period, leading to non-recognition of deferred corporate tax assets.
• The macroeconomic outlook figures are estimates and could differ from other institutions' estimates.

Future Outlook

The Group reflected the future economic outlook considering the default forecast period.

Management Comments

• The macroeconomic outlook figures are estimated by the Group for the purpose of calculating expected credit losses based on information from domestic and foreign research institutes.
• Therefore, it could be different from other institutions estimates.

Industry Context

The announcement reflects the broader trend in the financial industry of adapting to economic uncertainty and regulatory changes.

Comparison to Industry Standards

• The document mentions Shinhan Bank applying the GDP growth rate and private consumption index increase rate as major variables, while Shinhan Card applied the private consumption rate and CPI increase rate.
• This is comparable to other financial institutions that tailor their macroeconomic outlook based on their specific business activities.
• Shinhan Bank and Jeju Bank reviewed and reflected the Worst scenario (during the foreign exchange crisis) in addition to the three scenarios of Upside, Central and Downside, which is a conservative approach to risk management.

Corporate Governance

Legal Proceedings

• It includes W466,775 million, W168,020 million and W51,948 million, respectively, for the years ended December 31, 2021, 2022 and 2023 of estimated claim for damages that are highly probable to be paid in case of customer losses expected due to redemption delays of Lime CI funds, etc.

Stakeholder Impact

• The dividend policy changes may impact shareholders.
• The goodwill impairment losses may affect investor confidence.

Next Steps

• Shinhan AI Co., Ltd, a subsidiary of the Group, did not recognize deferred corporate tax assets for temporary differences in consideration of liquidation in 2024.

Key Dates

Keywords

financial instruments, insurance contracts, credit risk, fair value, dividends, goodwill, impairment, consolidation, IFRS, Shinhan