Shinhan Financial Group (055550 KS ) Steadily marching forward

Banks 4Q19 review: Net profit attributable to controlling interests of W507.5bn Results Comment For 4Q19, Shinhan Financial Group (SFG) announced net profit attributable to February 6, 2020 controlling interests of W507.5bn (-1.1% YoY, -48.3% QoQ), missing our estimate (W573.5bn) and the consensus (W582.8bn based on FnGuide) by 11-13%. Core income was better than our expectation, but other non-interest losses and non-operating expenses were larger. Major one-off items in the quarter included: 1) W150bn in non- operating expenses caused by changes in the amortization schedule of intangible (Maintain) Buy assets related to city government funds; 2) W120bn in expenses due to the execution of a massive early retirement program (implemented once every two years ); 3) W14bn Target Price (12M, W) 54,000 in reversals of provisions; and 4) W57bn in total return swap impairments (non- interest) at Shinhan Investment related to the redemption suspension of Lime Asset Share Price (02/05/20, W) 39,250 Management’s funds. Minus these one-off i tems, we estimate underlying net profit was around W700bn. Expected Return 38% For the full year, the non-bank contribution to net profit increased to 34% (from 31% in 2018), as bank net profit rose 2% YoY, while non-bank net profit grew 15% YoY . Group NP (19F, Wbn) 3,403 interest income and non-interest income grew 5% and 33% YoY, respectively. Group Consensus NP (19F, Wbn) 3,483 domestic net profit gained 6% YoY, while global net profit expanded 23% YoY to W397.9bn. Group IB (GIB) operating profit before costs grew robustly to W679.4bn EPS Growth (19F, %) 7.8 (+42% YoY), group cross-selling ratio increased to 40.2% (+0.5%p YoY), and operating Market EPS Growth (19F, %) -34.7 income from the digital (online) platform totaled W1.38tr (+16% YoY). P/E (19F, x) 5.5 Market P/E (19F, x) 15.1 Higher-than-expected 2019 DPS of W1,850 KOSPI 2,165.63 For 2019, SFG’s board declared a dividend of W1,850 per share (vs. W1,600 for 2018), which was higher than our expectation (W1,800) and the Bloomberg consensus Market Cap (Wbn) 18,612 (W1,796). This implies a dividend yield of 4.7% based on the current share price (vs. Shares Outstanding (mn) 492 4.1% based on the end-2019 share price). Total dividend payout comes to 26.0% (25.1% Free Float (%) 82.2 for common shares), up from 23.9% in 2018 . While dividend yield lags behind those of Foreign Ownership (%) 64.7 peers, we find it positive that the group has increased its dividend payout to enhance Beta (12M) 0.85 shareholder value, even as its capital ratios have come down due to bus iness/income 52-Week Low 38,900 diversification, M&As to secure future growth engines, and overseas expansion. 52-Week High 48,000 Stable profits to continue in 2020; Maintain Buy and TP of W54,000 (%) 1M 6M 12M Absolute -8.2 -8.8 -9.8 Amid falling bond yields and macro concerns, t he banking sector is currently trading at Relative -7.7 -18.0 -8.2 valuations near financial crisis levels. Despite a decline in net interest margin (NIM), we expect SFG’s profit to grow, backed by the full ownership of Orange Life Insurance, a 120 Shinhan Financial Group well-diversified business portfolio, and growth of the global business. SFG has KOSPI 110 rec orded steady profit growth even during times of falling interest rates, and we

100 believe the group will continue to do so in 2020-21.

90

80

70 1.19 5.19 9.19 1.20

Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/16 12/17 12/18 12/19P 12/20F 12/21F Net interest inc. (Wbn) 7,205 7,843 8,580 9,720 9,837 10,113 [ Banks/Credit Cards ] Net non-interest inc. (Wbn) 1,577 1,341 1,399 1,415 1,748 1,859 Operating profit (Wbn) 3,109 3,829 4,499 5,049 5,152 5,315 Heather Kang +822 -3774 -1903 Net profit (Wbn) 2,775 2,918 3,157 3,403 3,524 3,614 [email protected] EPS (W) 5,767 6,153 6,657 7,177 7,331 7,350

EPS growth (%) 18.2 6.7 8.2 7.8 2.1 0.3 P/E (x) 6.8 6.4 5.9 5.5 5.4 5.3 P/PPOP (x) 4.4 4.3 3.6 3.1 3.0 2.9

P/B (x) 0.60 0.57 0.52 0.48 0.45 0.42 ROE (%) 9.0 9.1 9.2 9.1 8.6 8.1 Dividend yield (%) 3.7 3.7 4.1 4.7 5.0 5.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

February 6, 2020 Shinhan Financial Group

Figure 1. 2020 SMART project major achievements (IR presentation)

Source: Company materials, Mirae Asset Daewoo Research

Figure 2. Earnings breakdown by subsidiary, 2018 (before Figure 3. Earnings breakdown by subsidiary, 2019 (before reflecting consolidation adjustments and other factors) reflecting consolidation adjustments and other factors) Shinhan Capital Orange Life Shinhan Life Shinhan Capital 3.1% Other Insurance Insurance 3.5% 1.4% Shinhan Life 4.5% Other 3.9% Insurance 1.6% Shinhan 3.5% Investment Shinhan 7.5% Investment 6.2%

Shinhan Card 15.5% Shinhan Card 14.3% Banking Banking 66.0% 68.6%

Net profit Ownership Net profit Net profit Ownership Net profit (Wbn) (%) (Wbn) (%) (a) (b) (a) x (b) (a) (b) (a) x (b) Banking 2,306.4 2,298.7 68.6 Banking 2,357.1 2,350.2 66.0 Shinhan Bank 2,279.0 100.0 2,279.0 68.0 Shinhan Bank 2,329.2 100.0 2,329.2 65.4 Jeju Bank 27.4 71.9 19.7 0.6 Jeju Bank 27.9 75.3 21.0 0.6 Non-banking 1,057.4 1,050.7 31.4 Non-banking 1,337.2 1,212.6 34.0 Shinhan Card 508.8 100.0 508.8 14.3 Shinhan Card 519.4 100.0 519.4 15.5 Shinhan Investment 220.8 100.0 220.8 6.2 Shinhan Investment 251.3 100.0 251.3 7.5 Shinhan Life Insurance 123.9 100.0 123.9 3.5 Shinhan Life Insurance 131.0 100.0 131.0 3.9 Orange Life Insurance 271.5 59.2 162.1 4.5 Shinhan BNP Paribas 18.9 65.0 12.3 0.4 Shinhan BNP Paribas 23.1 65.0 15.0 0.4 Shinhan Capital 103.4 100.0 103.4 3.1 Shinhan Capital 126.0 100.0 126.0 3.5 Shinhan Savings Bank 19.4 100.0 19.4 0.6 Shinhan Savings Bank 23.1 100.0 23.1 0.6 Shinhan DS 1.3 100.0 1.3 0.0 Asia Trust 17.8 60.0 10.7 0.3 Shinhan AITAS 8.5 99.8 8.4 0.3 Shinhan DS 2.1 100.0 2.1 0.1 Shinhan Credit Information 1.4 100.0 1.4 0.0 Shinhan AITAS 10.8 99.8 10.8 0.3 Shinhan Alternative Investment -0.8 100.0 -0.8 0.0 Shinhan Credit Information 0.5 100.0 0.5 0.0 Shinhan REITs Management 3.6 100.0 3.6 0.1 Shinhan Alternative Investment 2.1 100.0 2.1 0.1 Total 3,363.8 3,349.4 100 Shinhan REITs Management 7.4 100.0 7.4 0.2 Shinhan AI -0.7 100.0 -0.7 0.0 Total 3,694.3 3,562.8 100

Note: Jeju Bank profit contributions are based on ownership percentages of 68.9% Source: Company data, Mirae Asset Daewoo Research (before paid-in capital increase) and 71.9% (after paid-in capital increase). Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 February 6, 2020 Shinhan Financial Group

Table 1. 4Q19 review YoY chg. QoQ chg. (Wbn) 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19P (%, %p) (%,%p) Net interest income 2,121.4 2,171.8 2,228.1 2,381.5 2,398.9 2,472.7 2,466.6 10.7 -0.2 Net fee & commission income 513.3 479.4 463.7 479.9 609.3 530.3 522.2 12.6 -1.5 Net other income -1.6 -214.6 -225.2 -131.8 -87.6 -138.1 -369.3 RR RR Total net operating income 2,633.1 2,436.6 2,466.5 2,729.5 2,920.5 2,864.9 2,619.5 6.2 -8.6 SG&A expenses 1,126.4 1,089.2 1,439.0 1,168.4 1,236.3 1,225.6 1,504.3 4.5 22.7 PPOP 1,506.7 1,347.4 1,027.5 1,561.2 1,684.2 1,639.2 1,115.2 8.5 -32.0 Provisions 173.8 214.8 170.6 250.8 274.9 221.3 203.8 19.4 -7.9 Operating profit 1,332.9 1,132.6 856.9 1,310.3 1,409.3 1,417.9 911.4 6.4 -35.7 Non-operating income -24.1 33.7 -59.4 12.2 4.8 -1.6 -152.8 RR RR Pretax profit 1,308.8 1,166.3 797.5 1,322.5 1,414.0 1,416.3 758.6 -4.9 -46.4 Net profit (controlling interests) 938.1 847.8 513.3 918.4 996.1 981.6 507.5 -1.1 -48.3

Total assets 453,268 457,709 459,601 513,865 530,149 546,005 552,443 20.2 1.2 Total loans & receivables 287,921 292,360 299,609 307,960 311,472 317,058 323,245 7.9 2.0 Won-denominated loans (bank) 201,294 205,188 209,568 215,007 219,230 220,737 225,002 7.4 1.9 Total credit 276,024 281,369 287,918 295,961 302,193 305,648 312,243 8.4 2.2 Total deposits 259,911 260,651 265,000 273,848 280,382 284,142 297,874 12.4 4.8 Total shareholders' equity 34,299 36,017 36,651 38,594 40,737 41,757 41,932 14.4 0.4

(%) NIM (bank) 1.63 1.62 1.61 1.61 1.58 1.53 1.46 -0.15 -0.07 Cost-to-income ratio 42.8 44.7 58.3 42.8 42.3 42.8 57.4 -0.9 14.6 NPL (substandard & below) ratio 0.59 0.55 0.53 0.54 0.59 0.60 0.52 0.00 -0.07 NPL coverage ratio 276.4 290.7 301.8 297.2 277.6 265.4 291.5 -10.3 26.0 RoA 0.21 0.19 0.11 0.19 0.19 0.18 0.09 -0.02 -0.09 RoE 2.84 2.46 1.45 2.55 2.68 2.55 1.30 -0.15 -1.25 Credit cost ratio 0.06 0.08 0.06 0.08 0.09 0.07 0.07 0.01 -0.01 BIS ratio 14.87 15.25 14.87 14.02 14.26 14.17 13.96 -0.91 -0.21 Tier 1 ratio 13.45 13.79 13.42 12.67 12.84 12.61 12.40 -1.02 -0.21 CET1 ratio 13.04 12.96 12.55 11.76 11.57 11.40 11.17 -1.37 -0.22 Note: ROA, ROE, and credit cost data are non-annualized. Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions Revised Previous Change (%) (Wbn) 2019P 2020F 2021F 2019F 2020F 2021F 2019P 2020F 2021F Net interest income 9,720 9,837 10,113 9,678 9,920 10,314 0.4 -0.8 -1.9 Net non-interest income 1,415 1,748 1,859 1,603 1,865 1,891 -11.8 -6.3 -1.7 Total net operating income 11,134 11,585 11,972 11,281 11,786 12,205 -1.3 -1.7 -1.9 SG&A expenses 5,135 5,350 5,460 5,200 5,354 5,453 -1.3 -0.1 0.1 PPOP 6,000 6,235 6,512 6,081 6,432 6,752 -1.3 -3.1 -3.6 Provisions 951 1,083 1,197 1,034 1,178 1,290 -8.1 -8.0 -7.2 Operating profit 5,049 5,152 5,315 5,047 5,254 5,462 0.0 -1.9 -2.7 Non-operating income -137 7 4 -8 7 4 N/A 0.0 0.0 Pretax profit 4,912 5,158 5,319 5,039 5,260 5,466 -2.5 -1.9 -2.7 Net profit (controlling interests) 3,403 3,524 3,614 3,469 3,517 3,629 -1.9 0.2 -0.4 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 3 February 6, 2020 Shinhan Financial Group

Table 3. SFG: Non-interest income (Wbn) 2019 2018 YoY (%) 4Q19 3Q19 QoQ (%) Net fee & commission income 2141.7 1939.0 10.5 522.2 530.3 -1.5 Credit card fees 318.7 415.8 -23.3 67.1 74.5 -10.0 Brokerage commissions 192.1 267.3 -28.1 46.5 45.8 1.5 Fund/bancassurance commissions 204.5 190.4 7.4 45.8 51.6 -11.3 Trust fees 306.2 234.5 30.6 81.0 74.8 8.2 F/X fees 185.4 166.3 11.5 51.6 45.1 14.6 Electronic banking fees 151.6 146.3 3.6 38.5 38.6 -0.3 Investment banking commissions 151.0 91.3 65.5 32.3 33.1 -2.3 Lease commissions 142.0 82.0 73.2 41.0 37.9 8.0 Other 490.1 345.1 42.0 118.4 128.8 -8.1 Gains/losses on securities, F/X, and derivatives 980.8 756.4 29.7 113.1 311.0 -63.6 Gains/losses on financial products (FVPL) -440.2 580.3 TTR -393.0 131.9 TTR Gains/losses on F/X and derivatives 1192.9 82.2 1351.2 458.8 94.0 388.2 Gains/losses on insurance 1240.0 493.1 151.5 250.4 311.3 -19.6 Other -1210.8 -824.2 RR -320.7 -315.7 RR Fund contributions -311.3 -283.3 RR -82.9 -77.1 RR Deposit insurance premiums -375.0 -353.4 RR -92.3 -95.6 RR Total non-interest income 3151.7 2364.3 33.3 565.0 836.9 -32.5 Source: Company data, Mirae Asset Daewoo Research

Figure 4. SFG: Bank NIM trend (annual) Figure 5. SFG: Bank NIM trend (quarterly)

(%) (%) 2.40 2.4 2.22 2.20 2.13 2.2 1.99 2.00 2.0

1.80 1.76 1.74 1.8 1.62 1.56 1.54 1.60 1.50 1.49 1.44 1.44 1.6 1.40 1.4 1.20 1.2 1.00 01020 1120 1220 1320 1420 1520 1620 1720 1820 1920 2020F 2021F 1.0 1Q10 2Q11 3Q12 4Q13 1Q15 2Q16 3Q17 4Q18 1Q20F

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 February 6, 2020 Shinhan Financial Group

Figure 7. SFG: Bank won-denominated loan breakdown Figure 6. SFG: Bank won-denominated loan trend (4Q19)

(Wtn) Household (general) Household (mortgage) Large corp./ other SME Large corp./other 8.0% 200

160 Household (general) 27.2 % 120

SME 80 40.5%

40 Household (mortgage) 24.3% 0 1Q08 2Q09 3Q10 4Q11 1Q13 2Q14 3Q15 4Q16 1Q18 2Q19

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Figure 8. SFG: Net interest income trend Figure 9. SFG: Net fee income trend

2,600 (Wbn) 650 (Wbn)

2,400 600

2,200 550

2,000 500

1,800 450

1,600 400

1,400 350

1,200 300 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 1Q20F 2Q20F

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Figure 10. SFG: Credit cost trend (quarterly)

(Wbn) (%) 700 Provisioning expenses (L) 0.40 600 % of total credit (R) 0.35 500 0.30 0.25 400 0.20 300 0.15 200 0.10 100 0.05 0 0.00 -100 -0.05 -200 -0.10 -300 -0.15 1Q08 2Q09 3Q10 4Q11 1Q13 2Q14 3Q15 4Q16 1Q18 2Q19

Note: Credit cost ratio is non-annualized. Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 February 6, 2020 Shinhan Financial Group

Figure 11. SFG: Group (bank and credit card) new NPL formation

(Wbn) (%) 1,400 New NPL formation (L) 0.8 % of total credit (R) 1,200 0.7 0.6 1,000 0.5 800 0.4 600 0.3 400 0.2

200 0.1

0 0.0 1Q08 2Q09 3Q10 4Q11 1Q13 2Q14 3Q15 4Q16 1Q18 2Q19

Note: New NPL formation as a % of total credit is non-annualized. Source: Company data, Mirae Asset Daewoo Research

Figure 12. SFG: Bank delinquency ratios for SME and small office/home office segments

0.90% SME SOHO 0.80%

0.70%

0.60%

0.50%

0.40%

0.30%

0.20%

0.10%

0.00%

Source: Company data, Mirae Asset Daewoo Research

Figure 14. SFG: Overseas operations’ net profit breakdown Figure 13. SFG: Net profit contribution from overseas (2019)

(Wbn) 15.9% Shinhan Bank Other, 1% 400.0 Overseas net profit (L) China, 10% 14.0% Contribution to total net profit (R) 13.6% 15% 350.0 370.2 11.5% 300.0 319.5 12% Overseas branches, 36% 9.2% 250.0 8.5% 8.3% 9% 233.0 200.0 6.9% Shinhan Vietnam, 34% 150.0 170.9 177.6 6% 137.8 100.0 124.0 94.1 3% 50.0 Shinhan Bank Japan, 20% - 0% 2012 2013 2014 2015 2016 2017 2018 2019

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 February 6, 2020 Shinhan Financial Group

Table 4. SFG: Quarterly earnings (Wbn) 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19P 1Q20F 2Q20F 3Q20F Net interest income 2,072.2 2,058.8 2,121.4 2,171.8 2,228.1 2,381.5 2,398.9 2,472.7 2,466.6 2,418.5 2,432.6 2,482.0 Net non-interest income 431.7 482.6 513.3 479.4 463.7 479.9 609.3 530.3 522.2 497.5 553.6 518.4 Net other income -195.6 -98.1 -1.6 -214.6 -225.2 -131.8 -87.6 -138.1 -369.3 -81.3 -56.8 -104.8 Total net operating income 2,308.3 2,443.3 2,633.1 2,436.6 2,466.5 2,729.5 2,920.5 2,864.9 2,619.5 2,834.7 2,929.4 2,895.6 SG&A expenses 1,587.5 1,087.0 1,126.4 1,089.2 1,439.0 1,168.4 1,236.3 1,225.6 1,504.3 1,232.5 1,278.3 1,262.4 PPOP 720.8 1,356.3 1,506.7 1,347.4 1,027.5 1,561.2 1,684.2 1,639.2 1,115.2 1,602.2 1,651.1 1,633.3 Provisions 385.4 179.4 173.8 214.8 170.6 250.8 274.9 221.3 203.8 259.2 257.2 244.9 Operating profit 335.4 1,176.9 1,332.9 1,132.6 856.9 1,310.3 1,409.3 1,417.9 911.4 1,343.0 1,393.8 1,388.3 Non-operating income -115.0 17.1 -24.1 33.7 -59.4 12.2 4.8 -1.6 -152.8 0.9 14.7 17.4 Pretax profit 220.5 1,194.0 1,308.8 1,166.3 797.5 1,322.5 1,414.0 1,416.3 758.6 1,343.8 1,408.5 1,405.7 Net profit 211.5 857.5 938.1 847.8 513.3 918.4 996.1 981.6 507.5 922.8 968.1 964.5 Note: Net interest income and net other income differ from the data in SFG’s IR materials, as interest expenses in liabilities under insurance contracts, which are booked as non- interest expenses in financial statements, were classified as interest expenses in IR materials. Source: Company data, Mirae Asset Daewoo Research

Table 5. SFG: Annual earnings (Wbn) 2012 2013 2014 2015 2016 2017 2018 2019P 2020F 2021F Net interest income 6,979.7 6,602.9 6,789.8 6,692.9 7,205.4 7,843.0 8,580.1 9,719.6 9,837.0 10,113.1 Net non-interest income 1,543.1 1,386.4 1,469.2 1,621.0 1,565.5 1,711.0 1,939.0 2,141.7 2,090.2 2,124.9 Net other income 39.1 35.1 -191.3 165.3 11.4 -369.7 -539.5 -726.9 -342.6 -265.6 Total net operating income 8,561.9 8,024.3 8,067.6 8,479.2 8,782.3 9,184.2 9,979.5 11,134.4 11,584.7 11,972.3 SG&A expenses 4,061.6 4,202.5 4,462.9 4,475.1 4,508.6 4,811.2 4,741.6 5,134.7 5,349.6 5,460.3 PPOP 4,500.3 3,821.7 3,604.8 4,004.2 4,273.8 4,373.0 5,238.0 5,999.7 6,235.1 6,512.0 Provisions 1,322.4 1,184.2 949.9 1,031.0 1,165.1 544.4 738.6 950.8 1,083.2 1,196.7 Operating profit 3,178.0 2,637.6 2,654.8 2,973.1 3,108.6 3,828.6 4,499.4 5,048.9 5,151.9 5,315.3 Non-operating income 52.7 44.6 212.8 167.4 61.8 -32.4 -32.8 -137.4 6.6 3.7 Pretax profit 3,230.6 2,682.1 2,867.6 3,140.6 3,170.5 3,796.2 4,466.6 4,911.5 5,158.5 5,319.0 Net profit 2,321.9 1,902.8 2,081.1 2,367.2 2,774.8 2,917.9 3,156.7 3,403.5 3,524.5 3,613.8 Note: Net interest income and net other income differ from the data in SFG’s IR materials, as interest expenses in liabilities under insurance contracts, which are booked as non- interest expenses in financial statements, were classified as interest expenses in IR materials. Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 February 6, 2020 Shinhan Financial Group

Shinhan Financial Group (055550 KS/Buy/TP: W54,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Year-end 12 (Wbn) 12/18 12/19P 12/20F 12/21F Year-end 12 (Wbn) 12/18 12/19P 12/20F 12/21F Interest income 13,572 15,689 15,499 15,906 Cash & dues 17,349 28,358 27,807 27,413 Interest expense 4,992 5,969 5,662 5,793 Securities 112,792 162,511 128,740 128,156 Net interest income 8,580 9,720 9,837 10,113 Net loans and receivables 299,609 323,245 335,191 349,183 Net fees and commissions 1,939 2,142 2,090 2,125 Tangible assets 3,479 4,572 4,485 4,403 Net other non-interest income -540 -727 -343 -266 Other assets 26,372 33,757 33,521 33,312 Total net operating income 9,980 11,134 11,585 11,972 Total assets 459,601 552,443 529,743 542,466 G&A expenses 4,742 5,135 5,350 5,460 Deposits 265,000 297,874 306,684 317,585 PPOP 5,238 6,000 6,235 6,512 Borrowings 29,819 34,860 33,734 32,749 Total provision expenses 739 951 1,083 1,197 Debentures 63,228 75,363 74,405 73,694 Operating profit 4,499 5,049 5,152 5,315 Other liabilities 64,903 102,413 69,328 68,821 Net non-operating income -33 -137 7 4 Total liabilities 422,949 510,510 484,151 492,848 Income before income taxes 4,467 4,912 5,158 5,319 Capital stock 2,645 2,732 2,732 2,732 Income tax expense 1,268 1,269 1,419 1,463 Hybrid securities 1,532 1,731 1,731 1,731 Net profit 3,198 3,642 3,740 3,856 Capital surplus 9,895 10,565 11,228 11,228 Net profit (ex. minority interest) 3,157 3,403 3,524 3,614 Retained earnings 22,959 25,526 28,308 32,091 Normalized net profit 3,157 3,403 3,524 3,614 Capital adjustments -553 -1,117 -1,117 -1,117 Other comprehensive income -753 -258 -258 -258 Core income 10,519 11,861 11,927 12,238 Non-controlling interests 926 2,752 2,968 3,210 Core PPOP 5,778 6,727 6,578 6,778 Total shareholders' equity 36,651 41,932 45,593 49,618

DuPont analysis (%) Key ratios (%) Interest income 3.06 3.10 2.86 2.97 Growth (YoY) Interest expense 1.13 1.18 1.05 1.08 W loan growth (Bank) 7.2 7.4 3.5 4.3 Net interest income 1.94 1.92 1.82 1.89 Net loans & receivables growth 8.7 7.9 3.7 4.2 Net commissions income 0.44 0.42 0.39 0.40 Deposit growth 6.2 12.4 3.0 3.6 Net other non-interest income -0.12 -0.14 -0.06 -0.05 Shareholders' equity growth 8.7 14.4 8.7 8.8 Total net operating profit 2.25 2.20 2.14 2.23 Total assets growth 7.8 20.2 -4.1 2.4 G&A expenses 1.07 1.02 0.99 1.02 Net interest income growth 9.4 13.3 1.2 2.8 PPOP 1.18 1.19 1.15 1.22 Net fee income growth 13.3 10.5 -2.4 1.7 Total provision expenses 0.17 0.19 0.20 0.22 PPOP growth 19.8 14.5 3.9 4.4 Net non-operating income -0.01 -0.03 0.00 0.00 Operating profit growth 17.5 12.2 2.0 3.2 Income before income taxes 1.01 0.97 0.95 0.99 Net profit growth 8.2 7.8 3.6 2.5 Income tax expense 0.29 0.25 0.26 0.27 Profitability Net profit (non-controlling) 0.01 0.05 0.04 0.05 Net interest spread (Bank) 1.87 1.81 1.72 1.72 ROA 0.71 0.67 0.65 0.67 Net interest margin (Bank) 1.62 1.54 1.44 1.44 Leverage (x) 12.9 13.5 13.2 12.0 PPOP margin 1.2 1.2 1.2 1.2 ROE 9.21 9.09 8.62 8.12 ROA 0.7 0.7 0.7 0.7 Asset quality (%) ROE 9.2 9.1 8.6 8.1 NPL ratio 0.53 0.53 0.50 0.47 Liquidity Broad NPL ratio 1.30 1.18 1.16 1.13 W LDR (excl. CDs) (Bank) 99.2 95.4 95.4 95.4 NPL coverage ratio 301.8 291.5 298.5 307.2 Loans to assets 65.2 58.5 63.3 64.4 Reserves to total credits 1.6 1.5 1.5 1.4 Capital adequacy Credit cost (% of total loans) 0.25 0.29 0.32 0.34 Total CAR 14.9 14.0 14.9 15.0 Credit cost (% of total credit) 0.26 0.31 0.34 0.36 Tier 1 CAR 13.4 12.4 13.4 13.9 Per share items (W) Tier 2 CAR 1.5 1.6 1.4 1.1 EPS (reported) 6,657 7,177 7,331 7,350 Operating efficiency EPS (normalized) 6,657 7,177 7,331 7,350 Cost to income 47.5 46.1 46.2 45.6 BVPS 75,339 82,623 86,692 94,385 Cost to assets 1.0 0.9 1.0 1.0 DPS (common share) 1,600 1,850 1,950 2,000 Dividend PPOP/ share 11,046 12,652 12,969 13,244 Payout ratio 23.9 26.0 26.7 27.3 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 8 February 6, 2020 Shinhan Financial Group

APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price (W) Shinhan Financial Group Shinhan Financial Group(055550) 01/22/2020 Buy 54,000 80,000 10/22/2019 Buy 57,000 12/04/2018 Buy 60,000 60,000 10/19/2018 Buy 62,000 07/05/2018 Buy 59,000 40,000 04/16/2018 Buy 63,500 20,000 02/08/2018 Buy 67,000

02/08/2018 Buy 63,500 0 02/04/2018 Buy 67,000 Feb 18 Feb 19 Feb 20

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered ( ■), Buy (▲), Trading Buy (■), Hold (●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 84.05% 9.82% 6.13% 0.00% Investment Banking Services 76.67% 13.33% 10.00% 0.00% * Based on recommendations in the last 12-months (as of December 31, 2019)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Shinhan Financial Group as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial

Mirae Asset Daewoo Research 9 February 6, 2020 Shinhan Financial Group

situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

Mirae Asset Daewoo Research 10 February 6, 2020 Shinhan Financial Group

Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Suites 1109-1114, 11th Floor 41st Floor, Tower 42 Mirae Asset Center 1 Building Two International Finance Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 8 Finance Street, Central London EC2N 1HQ Korea Hong Kong United Kingdom China Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building Vila New York, NY 10019 Los Angeles, California 90071 Olimpia USA USA Sao Paulo - SP 04551-060 Brasil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100

PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52 -53 Jakarta Selatan Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China

Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area Shanghai 91 Pasteur St. 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-7715

Mirae Asset Daewoo Research 11