Banks/Credit Cards Earnings stability and solid dividend yields arising from improved fundamentals and business diversification

Heather Kang +822-3774-1903 [email protected]

본 자료는 미래에셋대우가 제작한 것이며, 투자권유를 위한 광고물로 활용될 수 없고, 투자자에게 배포될 수 없습니다. 본 자료에 수록된 내용은 신뢰할만한 자료 및 정보로부터 Analysts얻어진 것이나who prepared 당사는 그this 정확상이나 report are 안정성을 registered 보장할 as research 수 없습니다. analysts 따라서 in Korea 어떠한 but 경우에도 not in any 본 자료는other jurisdiction, 고객의 투자 including 결과에 대한 the 법적 U.S. 책임소재에 PLEASE대한 증빙자료로 SEE ANALYST 사용될 CERTIFICATIONS 수 없습니다. AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Summary] Bet on earnings stability and dividend yields

Prepare for future via 2H19 outlook structural changes Overweight on (financial holding companies) Business portfolio diversification (Expansion of non-banking businesses) Solid earnings, despite market interest Revenue source rate declines diversification (Expansion of non-interest earnings, Top pick: such as commission income) Valuation merits HFG

Globalization KBFG Dividend merits (Overseas expansion, SFG regional diversification)

Digital transformation

2 | [Banks/Credit Cards] Mirae Asset Research Preparing for the future via structural changes

① Business portfolio • The market views non-banking M&As positively, unless an excessive price is paid. diversification via • Non-banking M&As are seen as a good strategy to diversify revenue sources, particularly at a time when the medium/long-term growth of banks’ domestic loan assets is in doubt due to household debt and the economic M&As slowdown. • The market cap of KBFG exceeded that of SFG when the former moved to make KB Insurance and KB Capital into wholly-owned subsidiaries through tender offers/equity swaps (for remaining shares); SFG overtook KBFG in market cap when its move to acquire Orange Life Insurance gained approval from financial authorities and it reported solid quarterly results.

Market caps of KBFG and SFG and major M&As

Good Morning Sec.

Source: Company data, Quantiwise, Mirae Asset Daewoo Research

3 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

① Business portfolio • SFG’s acquisition of Orange Life Insurance and Asia Trust: The financial holding company is striving to continue diversification via M&A-fueled growth, raising expectations on earnings growth; the acquisition of remaining shares of Orange Life Insurance and Asia Trust would drive further growth in SFG’s net profit attributable to controlling interests. M&As • KBFG, a financial holding company boasting the sector’s strongest capital power, is best positioned to capture attractive M&A opportunities when they arise.

SFG: Net profit attributable to controlling interests KBFG: Net profit attributable to controlling interests

(Wbn) (Wbn) 3,900 3,900

3,705 3,700 3,700 3,670 3,562 3,528 3,488 3,500 3,500 3,393 3,312 3,300 3,300 3,157

3,100 3,100 3,061

2,918 2,900 2,900

2,700 2,700

2,500 2,500 2017 2018 2019F 2020F 2021F 2017 2018 2019F 2020F 2021F

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

4 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

① Business portfolio • Well-diversified business portfolios: In a low-interest-rate environment, fee & commission income and non- interest income tend to grow, and credit card or capital companies also benefit from lower funding costs, diversification via defending group net interest income. M&As • Focusing on non-banking businesses can improve earnings stability amid interest rate volatility, offer a new growth driver, and boost group ROE. • Financial holding companies (or banks) should be able to attract capital flows (deposits  various financial products; indirect financing  direct financing), which have been volatile amid low interest rates and capital market development. • Leveraging banks’ strengths in sales networks and customer reach, the customer base for non-banking subsidiaries can be expanded via combined branches and referral sales. SFG: Profit contributions from banking/non-banking businesses KBFG: Profit contributions from banking/non-banking businesses (before consolidation adjustments/other adjustments) (before consolidation adjustments/other adjustments) (Wbn) (Wbn) 4,000 4,000 Other Other Orange Life KB Kookmin Card 3,500 3,349 3,500 3,316 KB Securities 3,099 Shinhan Investment 3,229 280 242 KB Insurance 3,003 Shinhan Card 242 3,000 3,000 Banking 245 251 297 2,596 214 Banking 287 115 212 272 179 2,500 2,388 182 519 2,500 262 170 216 716 330 118 914 2,000 2,000 635 695 1,679 1,476 162 1,500 1,500 75 355 317 2,298 976 55 2,175 2,259 892 1,000 1,958 1,000 120 1,728 113 71 48 85 78 1,465 1,503 122 81 75 500 500 1,107 964 623 573 0 0 2014 2015 2016 2017 2018 1Q19 2015 2016 2017 2018 1Q19

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

5 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

① Business portfolio • SFG: Acquisition of ANZ Vietnam’s retail unit via purchase and assumption (P&A) agreement, Prudential Vietnam diversification via Financial (consumer finance company), Orange Life, and Asia Trust • KBFG: Acquisition and full ownership of capital, non-life insurance, and securities firms; ample capital and sound M&As financial structure allow for additional M&As in 2019 and beyond • HFG: Acquired remaining stake in Hana Capital, thus taking full control of the company; CET1 ratio and earnings power have improved significantly; we expect further diversification into non- operations via M&As.

SFG’s and KBFG’s profit contributions from banking/non-banking businesses as of 2018 SFG: Earnings breakdown by subsidiary KBFG: Earnings breakdown by subsidiary (before reflecting consolidation adjustments and other factors) (before reflecting consolidation adjustments and other factors)

Shinhan Other KB Asset KB Capital Other Shinhan Life Capital 1.4% Management 3.5% 2.8% Insurance 3.1% 1.2% 3.9% Shinhan Inv. KB Kookmin 7.5% Card 8.9% KB Securities Shinhan Card 5.5% 15.6% KB Insurance Banking 8.1% Banking 68.4% 70.0%

Net profit Ownership Net profit Net profit Ownership Net profit (Wbn) (%) (Wbn) (%) (a) (b) (a) x (b) (a) (b) (a) x (b) Bank 2,306.4 2,279.0 68.4 Bank 2,259.2 2,259.2 70.0 Shinhan Bank 2,279.0 100.0 2,279.0 68.4 KB Kookmin Bank 2,259.2 100.0 2,259.2 70.0 Jeju Bank 27.4 71.9 0.0 0.0 Non-bank 969.6 970 30.0 Non-bank 1,057.4 1,050.7 31.6 KB Insurance 262.3 100.0 262.3 8.1 Shinhan Card 519.4 100.0 519.4 15.6 KB Securities 178.8 100.0 178.8 5.5 Shinhan Inv. 251.3 100.0 251.3 7.5 KB Kookmin Card 286.6 100.0 286.6 8.9 Shinhan Life Insurance 131.0 100.0 131.0 3.9 KB Life Insurance 14.8 100.0 14.8 0.5 Shinhan BNP Paribas 18.9 65.0 12.3 0.4 KB Asset Management 39.6 100.0 39.6 1.2 Shinhan Capital 103.4 100.0 103.4 3.1 KB Capital 111.9 100.0 111.9 3.5 Shinhan Savings Bank 19.4 100.0 19.4 0.6 KB Savings Bank 11.0 100.0 11.0 0.3 Shinhan Data System 1.3 100.0 1.3 0.0 KB Real Estate Trust 47.0 100.0 47.0 1.5 Shinhan AITAS 8.5 99.8 8.4 0.3 KB Investment 14.5 100.0 14.5 0.4 Shinhan Credit Informatio 1.4 100.0 1.4 0.0 KB Credit Information 0.2 100.0 0.2 0.0 Shinhan Alternative Inv. -0.8 100.0 -0.8 0.0 KB Data Systems 2.9 100.0 2.9 0.1 Shinhan REITs MMgmt 3.6 100.0 3.6 0.1 Total 3,228.8 3,228.8 100 Total 3,363.8 3,329.7 100

Source: Company data, Mirae Asset Daewoo Research 6 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

② Revenue source • Despite marked growth in net interest income amid recovering NIMs and steady loan asset growth, banks have diversification seen an increase in the profit contribution of non-interest income, supported by fee & commission income growth and a recovery in other non-interest income. (expansion of non- • The growth of non-interest income is encouraging from the standpoint of revenue source diversification and interest earnings) capital efficiency.

Profit contributions of net interest income, net commission Net commission income growth income, and other non-interest income (2014 vs. 2018) Net interest income (Wbn) 8,000 140% Net fee & commission income Other non-interest income 7,000 120% +32.4% 0.5% 100% 19% 19% 19% 6,000 21% 18% 16% 26% 27% 80% 5,000

60% 4,000 89% 91% 40% 82% 84% 86% 84% 74% 74% 3,000

20% 2,000 0% -3% -2% -5% -2% -0.1% 1,000 -8% -9% -20% 2014 2018 2014 2018 2014 2018 2014 2018 0 KB Shinhan Hana Woori 2014 2018

Note: Based on consolidated financial statements Note: Based on consolidated financial statements Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

7 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

③ Overseas expansion • To secure medium/long-term growth drivers, boost profits, and diversify their domestic-oriented asset portfolios, a growing number of banks have been expanding into overseas markets like Southeast Asia, where financial demand is on the rise and margins are higher. • In 2018, the four major banks’ overseas net profit combined reached a record high of W864.4bn (+32.7% YoY); Shinhan > KEB Hana > Woori > KB

Four major banks’ overseas net profit Overseas net profit by bank (2017 vs. 2018) Overseas net profit breakdown (2018)

(Wbn) (Wbn) 1,000 2018 2017

900 864.4 60.5 KB, 7.0% +32.7% KB 23.5 KEB 800 Hana, Woori, 33.0% 700 651.2 22.8% 196.9 Woori 600 556.8 167 515.3 500

400 321.5 Shinhan 235.5 300

200 285.5 KEB Hana Shinhan, 100 238.8 37.2%

0 2015 2016 2017 2018 0 100 200 300 400

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

8 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes

③ Overseas expansion • SFG: Overseas bank operations posted combined won-denominated net profit of W321.5bn in 2018, with Vietnam and Japan making the largest contributions. • HFG: Through end-2017, HFG had the biggest global earnings (combined earnings of overseas subsidiaries/branches and invested firms) among domestic financial holding companies, but it was overtaken by SFG in 2018. By country, Indonesia and China are making the largest contributions.

SFG: Net profit at overseas bank operations HFG: Pretax profit at overseas bank operations (overseas subsidiaries/branches and invested firms) (overseas subsidiaries/branches and invested firms) (Wbn) (Wbn) 350 420 Overseas net profit (L) 412.8 Contribution to net profit (R) 14.1% 15% 13.7% 410 406.1 300 400 11.6% 12% 250 390 386.6 9.3% 380 8.6% 200 8.4% 9% 370 7.0% 321.5 360 150 5.2% 6% 350 235.0 350 100 172.5 179.7 340 139.4 125.6 3% 111.0 330 50 95.7 320

0 0% 310 2011 2012 2013 2014 2015 2016 2017 2018 2015 2016 2017 2018

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

9 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

① Moderate loan growth • Korean banking system’s total loan growth: 7.8% in 2014, 10.2% in 2015, 6.6% in 2016, and 6.6% in 2017 possible despite • Excluding the few years following the 2008 global financial crisis, the Korean banking system’s annual loan growth has not fallen markedly below Korea’s nominal GDP growth. concerns about • Not just household loans but also corporate loans could drive banks’ loan growth this year. household debt • In 2017-18, household loan growth (which had accelerated in 2015-16) slowed, while corporate loan growth regulations weighing expanded. on overall loan growth

Korea’s nominal GDP growth vs. banking system’s total loan Korean banking system’s total loan growth (YoY) growth (YoY) (%) (%) 30 Loan growth Nominal GDP growth 50 Total loans Corporate loans Household loans

25 40

20 30

15 20

10 10

5 0

0 -10 1Q01 2Q03 3Q05 4Q07 1Q10 2Q12 3Q14 4Q16 1Q19 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Note: Based on system loan balance including KHFC mortgages Note: Based on system loan balance including KHFC mortgages Source: BOK, Bloomberg, Mirae Asset Daewoo Research Source: BOK, Bloomberg, Mirae Asset Daewoo Research

10 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

① Moderate loan growth • After a period of weakness (2-3% growth) in 2012-13, major listed banks’ loan growth accelerated in 2014 and possible despite 2015. • In 2016-17, major listed banks’ loan growth remained solid at 4-6%; by segment, corporate loan growth outpaced concerns about household loan growth, while SME loans grew faster than large corporate loans. household debt • In 2018, major Korean banks again delivered stronger-than-expected loan growth (Kookmin: 9.6%, KEB Hana: regulations weighing 7.7%, Shinhan: 7.2%, IBK: 6%). on overall loan growth

Korean banking system’s loan asset growth (2016-17) Korean banks’ loan asset growth (2018)

KB Shinhan KEB Hana Woori IBK Growth (%) KB Shinhan KEB Hana Woori IBK Growth (%) 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 Household 8.9 7.5 7.4 6.5 5.5 Household 6.8 5.4 6.3 5.6 8.4 4.2 11.2 3.9 4.3 2.7 General 5.4 13.7 6.3 7.5 6.0 General 4.5 4.7 14.4 11.7 -2.1 2.8 15.7 2.3 3.4 0.1 Mortgage 12.6 2.1 7.6 4.2 4.8 Mortgage 9.5 6.2 0.6 0.8 10.5 4.5 2.5 7.5 5.5 6.4 Corporate 10.5 6.9 7.8 4.2 6.2 Corporate 5.9 7.8 2.5 6.3 -0.9 7.0 -2.9 5.8 6.6 5.6 SME 10.0 8.2 9.1 5.8 6.5 SME 7.4 10.4 6.6 9.5 6.4 9.9 1.6 9.0 6.6 5.9 Large cop. -0.4 -4.2 -10.4 -5.8 -23.8 -5.9 -16.7 -6.1 6.8 -1.0 Large corp. 13.4 1.3 1.4 -2.6 0.8 Public/other 9.0 -13.5 -27.3 -17.8 9.1 5.5 Public/other 15.2 -15.3 -9.6 Won-denominated 6.4 6.5 4.4 5.9 3.9 5.3 3.6 4.4 6.2 5.1 Won-denominated 9.6 7.2 7.7 5.2 6.0

Busan Kyongnam Daegu Jeonbuk Kwangju Growth (%) BNK DGB JB Growth (%) 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 Household 6.2 4.8 -5.7 Household 13.5 6.2 18.5 13.2 2.8 8.1 34.0 32.2 55.9 21.1 General 8.2 15.0 25.2 General 18.8 20.3 23.5 9.7 0.4 20.1 3.5 3.7 24.4 24.0 Mortgage 5.6 -6.2 -13.5 Mortgage 11.6 0.8 17.6 13.9 5.0 -2.4 52.4 44.0 64.9 20.5 Corporate 3.0 1.7 -1.0 Corporate 4.1 0.8 2.3 1.0 5.2 5.8 5.0 -0.7 2.2 -7.0 SME 2.5 1.2 0.8 SME 5.2 1.5 5.0 2.9 6.3 5.8 3.3 2.4 3.2 -6.3 Large cop. -5.3 -6.2 -17.9 -17.0 -5.5 5.5 22.7 -27.7 -8.9 -15.7 Large corp. 8.0 7.0 -25.7 Public/other -2.7 -8.8 -14.5 -10.0 3.7 8.3 -4.6 -9.4 -5.7 -11.6 Public/other 13.7 11.0 21.3 Won-denominated 6.3 2.7 6.8 4.8 4.5 6.4 14.5 12.1 20.7 5.6 Won-denominated 4.3 2.8 -3.0

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

11 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

① Moderate loan growth • We think there is enough underlying demand to support moderate loan growth. For banks under our coverage, possible despite we expect average loan growth of 4% for 2018 (7.6% for large banks and 1.2% for regional banks) and 4.0% for 2019 (4.8% for large banks and 3.3% for regional banks). concerns about • For large banks, loan growth exceeded our previous expectation in 2018 but has been slowing down in 2019; household debt nevertheless, we forecast 2019 loan growth to be resilient at 3-5%. regulations weighing • The increase in average loan balances in 2018 has laid the foundation for earnings growth in 2019. on overall loan growth

Won-denominated loan growth by bank

(%)

24.0 2016 2017 2018 2019F 2020F 22.0 20.0 18.0 16.0 14.0 12.1 12.0 9.6 10.0 7.2 7.7 8.0 6.5 5.9 6.0 6.5 5.3 5.2 5.1 6.3 4.8 5.6 6.0 4.9 4.4 4.8 4.7 3.6 4.4 4.3 4.2 4.0 3.7 2.8 3.2 1.9 2.0 0.10.0 0.0 -2.0 -4.0 -6.0 -8.0 -5.3 Kookmin Shinhan KEB Hana Woori IBK Busan Daegu Kyongnam Kwangju Jeonbuk

Source: Company data, Mirae Asset Daewoo Research

12 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

② NIM to hold steady at • Theoretically, a base rate cut of 25bps drives down NIM by 2.5bps within one year of the cut, all else unchanged. lower levels • Compared with theoretical sensitivity, most of our coverage banks’ NIMs were well-managed from 2H16 to 2Q18, thanks to: 1) efforts to improve lending/deposit portfolios (e.g., raising the proportion of low-cost core deposits, shifting the growth driver to high-margin SME loans and credit loans); 2) more fragmented pricing; 3) moderate loan growth, preventing cutthroat competition; and 4) stricter household loan screening and lower limits on lending rate cuts.

Korean banks: Rate-sensitive assets and liabilities (W)

(Wbn) 0-3 months 3-6 months 6-12 months 1-3 years Over 3 years Total Rate-sensitive assets 721,551 269,125 172,055 219,721 124,429 1,507,288 Rate-sensitive liabilities 499,620 200,539 328,419 134,744 114,143 1,278,393 Rate-sensitive asset-liability gap 221,931 68,586 -156,364 84,977 10,286 228,895 Assuming 25bp base rate cut Impact on net interest income -555 -171 391 -335 Impact on NIM (bps) -4.1 -1.3 2.9 -2.5

Listed banks’ simple average NIM trend

(%) (%) 3.5 2.8 2.6 3.0 2.4 2.5 2.2 2.0 2.0 1.8 1.5 1.6 1.0 1.4 1.2 0.5 1.0 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19F 0.0 02 04 06 08 10 12 14 16 18 20F Note: Above figures are based on end-March 2019 data Source: Company data, Mirae Asset Daewoo Research

13 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

② NIM to hold steady at • The percentage of low-cost core deposits has increased, supported by: 1) robust demand for various financial lower levels products thanks to the ample liquidity in a low-interest-rate environment; and 2) increased balances of demand deposit accounts held by credit card users and merchants, backed by growth in credit card transaction volume. • The recent decline in market interest rates has reduced the appeal of time deposits; if the BOK cuts the base rate, this would further reduce the appeal of time deposits, thus leading to an increase in the mix of low-cost core deposits.

Mix of low-cost core deposits by bank

(Wtr) (%) Kookmin Shinhan KEB Hana 120 2013 2014 2015 2016 2017 2018 50 Woori IBK

100 45

80 40

60

35 40

30 20

0 25 Kookmin Shinhan KEB Hana Woori IBK 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 3Q17 2Q18 1Q19

Source: Company data, Mirae Asset Daewoo Research

14 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

② NIM to hold steady at • Coverage banks’ floating-rate loan rates move largely in line with short-term bank debenture (mostly three- lower levels month, six-month, one-year) rates, COFIX rates, and CD rates, while fixed-rate loan rates move largely in sync with three- and five-year bank debenture rates.

Loan breakdown by interest rate type

(%) Shinhan KB KEB Hana Woori IBK Busan Kyongnam Daegu Jeonbuk Kwangju Fixed-rate loan 23.4 44.3 19.3 33.6 45.6 19.1 13.9 12.6 26.3 9.4 Floating-rate loan 76.6 55.7 80.7 66.4 47.3 80.9 86.1 87.4 69.8 83.4 Mixed-rate loan - - - - 7.1 - - - 3.9 7.1

(%) Shinhan KB KEB Hana Woori IBK Busan Kyongnam Daegu Jeonbuk Kwangju Floating-rate 76.6 55.7 80.7 66.4 47.3 80.9 86.1 87.4 69.8 83.4 Bank debentures 27.8 15.7 32.2 - 55.3 45.6 70.8 25.5 48.7 COFIX (new) 12.9 22.9 12.0 25.3 1.6 13.0 22.7 10.3 34.7 25.2 COFIX (outstanding) 9.6 3.1 4.2 8.4 15.8 3.2 1.7 3.1 CD 19.8 13.1 30.0 13.9 0.3 1.2 1.3 3.1 4.3 5.4 KORIBOR 37.5 Other 6.5 0.9 2.3 27.2 7.9 3.0 0.7 - 3.6 1.0 Fixed-rate 23.4 44.3 19.3 33.6 45.6 19.1 13.9 12.6 26.3 9.4 Mixed-rate - - - 7.1 - - - 3.9 7.1

Note: Data based on end-March; “other” includes bank debentures and KORIBOR-based loans for Woori Bank; W15tr worth of IBK’s loans were reclassified as floating-rate loans (previously fixed-rate loans) Source: Company data, Mirae Asset Daewoo Research

15 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

② NIM to hold steady at • Yields on ultra-short-term bank debentures (AAA; three- and six-month), which tend to track long-term bank lower levels debenture yields, have been trending upward since late-3Q18. While long-term (five-year or longer) debenture yields have declined steadily, short-term (three-month, six-month, and one-year) yields had remained steady at higher levels until turning downward in April 2019. • COFIX rates for short-term and new funding had been on the rise since end-3Q18 but turned down in April 2019.

AAA-rated bank debenture, CD, and COFIX rate trends

(%) (%)COFIX (new funding) (%) (%) 4.5 COFIX (new funding) 2.2 COFIX (outstanding balance) 2.2 5.0 Bank debenture (AAA, 3M) COFIX (short-term) COFIX (ending balance) Bank debenture (AAA, 6M) CD (91D) COFIX (short-term) Bank debenture (AAA, 1Y) 4.0 Bank debenture (AAA, 1Y) (R) 2.1 4.5 CD (91D) Bank debenture (AAA, 2Y) Bank debenture (AAA, 1Y) 2.0 2.0 4.0 3.5

1.9 3.5 1.8 3.0 1.8 3.0 2.5 1.6 1.7 2.5

2.0 1.6 2.0 1.4 1.5 1.5 1.5

1.0 1.2 1.4 1.0 10 11 12 13 14 15 16 17 18 19 1/17 8/17 3/18 10/18 5/19 10 11 12 13 14 15 16 17 18 19

Source: KOSCOM, BOK, Mirae Asset Daewoo Research

16 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

② NIM to hold steady at • Recently, market interest rates have been trending down amid the increasing likelihood of a BOK base rate cut. lower levels • NIMs of most banks under our coverage are believed to have declined slightly from 1Q19's levels.

AAA-rated bank debenture rate trends

(%) Bank debenture (AAA, 3M) (%) Bank debenture (AAA, 6M) (%) Bank debenture (AAA, 1Y) (%) Bank debenture (AAA, 5Y) 1.9 2.0 2.2 3.0

1.9 2.1 2.8 1.8

2.0 2.6 1.8 1.7 1.9 2.4 1.7 1.6 1.8 2.2 1.6 1.7 2.0 1.5 1.5 1.6 1.8 1.4 1.4 1.5 1.6

1.3 1.3 1.4 1.4 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 1/19 4/19 7/19 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 1/19 4/19 7/19 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 1/19 4/19 7/19 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 1/19 4/19 7/19

Source: KOSCOM, BOK, Mirae Asset Daewoo Research

17 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

③ Net commission • Over the past three to four years, major banks (financial holding companies) have delivered marked growth in fee income growth to & commission income. • With the exception of credit card merchant fees, all fee & commission incomes—including equity-linked securities slow, but absolute (ELS)/equity-linked trust (ELT) sales fees, trust fees, and commissions received on securities businesses, including amounts to remain at IB—have been on the uptrend. robust levels • Key drivers behind the strong growth of fee income include: 1) banks’ focus on selling a variety of financial products in the low-interest-rate environment; 2) favorable stock market conditions; 3) expansion of combined branches; and 4) collaboration between banks and non-banking affiliates.

Clear uptrend in quarterly net commission income

(Wbn) SFG (Wbn) KBFG 550 700

500 600

450 500

400 400

350 300

300 2Q19F 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 200 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F

Source: Company data, Mirae Asset Daewoo Research

18 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

③ Net commission • Net fee & commission income, which was abnormally high in 1Q-2Q18, is unlikely to maintain strong growth in income growth to light of its high sensitivity to the equity market environment; indeed, banks’ net commission income growth slowed in 3Q-4Q18 due to lower stock market turnover and declines in early redemptions and ELS/ELT sales. slow, but absolute • The recent growth in commission income is partly due to structural changes (e.g., diversified revenue sources, amounts to remain at improvements in capital markets). robust levels • In addition, with both customer accounts and deposits having shown steady growth, any pickup in equity market conditions will likely drive a solid increase in banks’ commission income. • The uptrend in commission income is positive in terms of both capital efficiency and profit growth.

Clear uptrend in quarterly net commission income

(Wbn) (Wbn) HFG Woori Bank 600 325

550 300

500 275

450 250

400 225

350 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F 200 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Note: For Woori Bank’s 3Q18 data, one-off card commission expenses are highlighted in blue. Source: Company data, Mirae Asset Daewoo Research

19 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

④ Credit costs to remain • Large banks and financial holding companies under our coverage have steadily improved their loan portfolios, largely stable expanding their exposure to quality corporate loans.

KBFG’s exposure to high-quality Woori Bank’s exposure to high-quality IBK’s exposure to high-quality SME corporate loans (BBB- or above) corporate loans (BBB or above) loans (A or above) (%) (%) (%) 90 90 50 84.4 85.1 81.3 45.0 45.6 45 42.9 80 77.0 77.2 80 75.5 73.1 39.3 69.5 40 70 67.1 70 60.0 35 60 55.4 60 30 28.9 50 50 25 40 40 20 30 30 15

20 20 10

10 10 5

0 0 0 2014 2015 2016 2017 2018 1Q19 2015 2016 2017 2018 1Q19 2011 2016 2017 2018 1Q19

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

20 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

④ Credit costs to remain • Listed banks’ asset soundness indicators are largely improving. largely stable • In 1Q19, all domestic banks’ and large banks’ average delinquency ratios were 0.46% (+6bps QoQ) and 0.35% (+4bps QoQ), respectively, with KBFG, SFG, HFG, and Woori Bank seeing QoQ declines; for large banks, there are no clear signs of sharp asset quality deterioration. For provincial banks, the average delinquency ratio was 0.68% (+12bps QoQ).

Major financial holding companies’ and banks’ NPL ratios Major financial holding companies’ and banks’ NPL (consolidated) coverage ratios (consolidated; including provisions) 3.7 (%) 350 SFG (%) SFG 3.2 KBFG 300 KBFG HFG 2.7 HFG WFG 250 2.2 WFG IBK 200 1.7 BNKFG IBK 150 1.2 DGBFG BNKFG JBFG 0.7 100 DGBFG JBFG 0.2 50 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q17 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19 1Q17 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19

Delinquency ratio trends (bank only)

1.4 (%) Shinhan 1.6 (%) IBK Busan 1.2 Kookmin 1.4 KEB Hana 1.2 Daegu 1.0 Woori 1.0 Kyongnam 0.8 0.8 Jeonbuk 0.6 0.6 Kwangju 0.4 0.4 0.2 0.2 0.0 0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q17 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q17 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19

Source: FSS, Company data, Mirae Asset Daewoo Research

21 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

④ Credit costs to remain • Since the global financial crisis, listed banks have markedly improved asset quality on the back of loan portfolio largely stable improvements (reducing loan exposure to large companies engaging in cyclical industries); large banks’ new NPL formation and credit costs (lowered recurring credit costs + write-backs) have declined steadily. • Average credit costs for listed banks under our coverage (consolidated data for financial holding companies) declined from 77bps in 2012 to 74bps in 2013, 53bps in 2014, 49bps in 2015, 41bps in 2016, 36bps in 2017, and 31bps in 2018. However, average credit costs are projected to improve to 37bps in 2019, 40bps in 2020, and 41bps in 2021, as: 1) there are no signs of sharp asset quality deterioration at large banks and financial holding companies, and 2) credit risks may ease amid the recent downtrend in market interest rates.

Listed and domestically operating Banks’ and financial holding companies’ Listed banks’ new NPL formation banks’ average NPL ratios credit cost ratio trend (%) (Wtr) (%) (%) Avg. of listed banks 2.5 7 New NPL formation (L) 0.6 2.3 Avg. of domestic banks % of total credit (R) 6 2.1 0.5 2.0

1.9 5 0.4 1.5 1.7 4 0.3 1.5 3 1.0 1.3 0.2 2 1.1 0.5 0.1 1 0.9 0.0 0.7 0 0.0 1Q09 3Q10 1Q12 3Q13 1Q15 3Q16 1Q18 1Q12 4Q13 3Q15 2Q17 1Q19 Note: Domestically operating banks include KDB, NongHyup, National Federation of Fisheries Cooperatives, Bank Korea, and Citibank Korea Source: FSS, company data, Mirae Asset Daewoo Research

22 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

④ Credit costs to remain • While the credit cost ratio of large banks (financial holding companies) has declined markedly, regional banks largely stable have not seen a clear drop.

Combined credit costs of KBFG, SFG, HFG, and Woori Bank Combined credit costs of IBK, BNKFG, DGBFG, and JBFG

(Wbn) (%) (Wbn) (%) 7,000 0.80 3,000 0.80 Credit costs (L) Credit costs (L) % of total credit (R) % of total credit (R) 6,000 0.70 0.70 2,500

0.60 0.60 5,000 2,000 0.50 0.50 4,000 0.40 1,500 0.40 3,000 0.30 0.30 1,000 2,000 0.20 0.20

500 1,000 0.10 0.10

0 0.00 0 0.00 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

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

23 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

④ Credit costs to remain • Given trends in asset quality indicators and new NPL formation, we believe large banks (holding companies) largely stable appear better able than regional banks (holding companies) to keep their credit cost ratios at lower levels.

Credit costs of KBFG, SFG, HFG, and WFG Credit costs of IBK, BNKFG, DGBFG, and JBFG

(%) (%) 1.6 SFG KBFG WFG HFG 1.6 IBK BNKFG DGBFG JBFG

1.4 1.4

1.2 1.2

1.0 1.0

0.8 0.8

0.6 0.6

0.4 0.4

0.2 0.2

0.0 0.0 2008 2010 2012 2014 2016 2018 2020F 2008 2010 2012 2014 2016 2018 2020F

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

24 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

⑤ Provisioning costs • Efficiency enhancement efforts: Workforce (large-scale early-retirement programs, etc.) and channel/organization  to remain on the (shutting down or consolidating low-margin or adjacent branches) Streamlining of cost structure downtrend No. of domestic branches of four major banks No. of employees (excluding contract workers) at five listed banks

(Persons) 4,300 28,000 Shinhan Kookmin KEB Hana 4,200 26,000 Woori IBK 4,100 24,000 4,000 22,000 3,900 20,000 3,800 18,000 3,700 3,600 16,000 3,500 14,000 3,400 12,000 3,300 10,000 3,200 8,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: FSS, company data, Mirae Asset Daewoo Research Source: FSS, company data, Mirae Asset Daewoo Research

Combined no. of employees (excluding contract workers) Five listed banks’ and financial holding companies’ at four major banks cost-to-income ratio

70,000 65% Incl. IBK Excl. IBK 60% 65,000 55% 50% 60,000 45%

55,000 40% 35% 50,000 30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 11 12 13 14 15 16 17 18 19F 20F Source: FSS, company data, Mirae Asset Daewoo Research Source: FSS, company data, Mirae Asset Daewoo Research

25 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

⑤ Provisioning costs • The core profit cycle remains robust. to remain on the • Backed by robust core income and streamlined cost structures, cost-to-income ratios will likely trend downward. downtrend

Major financial holding companies’ and banks’ SG&A expense trends Cost-to-income ratios of key financial holding companies and banks

(Wtr) SFG KBFG HFG WFG 7.0 75% IBK BNKFG DGBFG JBFG 2016 2017

6.0 2018 2019F 70% 2020F 2021F 65% 5.0 60% 4.0 55%

3.0 50%

2.0 45%

40% 1.0

35% 0.0 SFG KBFG HFG Woori IBK BNKFG DGBFG JBFG 30% Bank 12 13 14 15 16 17 18 19F 20F 21F

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

26 | [Banks/Credit Cards] Mirae Asset Daewoo Research Earnings to expand in 2019 despite falling interest rates

⑥ ROE of around 9% • Financial holding companies and banks under our coverage are unlikely to see their earnings decline in 2019. projected for 2018-20 • Loan asset growth is likely to decelerate due to high base effects (following unexpectedly high loan demand in 2018), but should remain at a decent level. Moreover, the increase in average loan balances in 2018 likely laid the foundation for earnings growth in 2019. • There is a chance of slight NIM contraction due to the interest rate downtrend, but reduced credit risks should limit upside to credit cost growth and positively affect loan demand. • We estimate the combined ROE of KBFG, SFG, HFG, IBK, BNKFG, DGBFG, and JBFG—which was 6.5% in 2015 and 7.3% in 2016—to be around 9% in 2017-20. Combined net profit of financial holding companies and banks Combined ROE of financial holding companies and banks under our under our coverage coverage (Wtr) (%) 14.0 9.5 13.0 12.4 9.0 8.8 8.9 12.0 11.3 8.7 8.7 10.7 8.5 10.0 8.0 8.3 8.0 7.0 7.5 7.3

6.0 7.0 6.5 6.5 4.0 6.0

2.0 5.5

0.0 5.0 2015 2016 2017 2018 2019F 2020F 2015 2016 2017 2018 2019F 2020F

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

27 | [Banks/Credit Cards] Mirae Asset Daewoo Research Dividend growth taking on greater importance

Attractive shareholder • The confirmation of the final standards of Basel III at end-2018 and the scheduled introduction of IFRS 9 in 2019 return policy to facilitate have had a smaller-than-feared impact on CET1 ratios. • Even conservatively assuming a maximum 2.5% countercyclical capital buffer requirement, we think most M&As coverage banks have already met the CET1 capital requirements (10.5% for systemically important banks or SIBs; 9.5% for non-SIBs). • As a result of SFG’s acquisition of a 59.15% stake in Orange Life Insurance, its CET1 ratio is expected to be the third-highest among major financial holding companies in Korea, following KBFG and HFG.

BIS capital ratio by bank (1Q19) BIS capital ratio by financial group (1Q19)

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

28 | [Banks/Credit Cards] Mirae Asset Daewoo Research Dividend growth taking on greater importance

Large-cap stocks’ 2019-2020F dividend yields: 4-6%, assuming a very slow increase in dividend payout ratios

Dividend payout ratio (%) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F SFG 12.1 32.8 24.6 18.9 17.0 19.5 24.6 26.7 24.8 23.6 23.9 24.4 24.9 25.2 KBFG - 14.6 46.6 11.7 13.4 15.3 21.5 22.3 23.2 23.2 24.8 25.8 26.5 27.1 HFG 8.7 27.3 14.5 11.8 6.7 12.4 18.5 21.1 23.4 22.5 25.5 26.2 26.4 26.9 WFG - 7.9 16.9 9.4 12.3 - 27.7 31.8 21.4 26.7 21.7 N/A N/A N/A IBK 0.2 21.7 20.5 25.5 21.8 24.1 27.3 25.8 27.3 27.0 25.7 26.7 27.0 27.4 BNKFG 10.7 12.2 14.0 16.9 17.4 17.8 5.8 7.9 14.9 18.6 19.5 20.0 20.5 21.2 DGBFG 12.6 12.4 17.4 14.8 16.1 15.8 18.7 16.1 17.6 19.0 15.9 19.9 21.2 22.4 JBFG 11.2 5.0 23.2 5.2 9.9 10.7 2.3 6.7 5.4 8.6 14.4 14.9 16.9 19.2 Card 28.5 24.3 15.9 22.9 10.8 29.6 17.6 51.9 47.1 42.5 49.5 51.1 52.0 52.0

Dividend per common share share (DPS) (W) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F SFG - 400 750 750 700 650 950 1,200 1,450 1,450 1,600 1,750 1,800 1,830 KBFG - 230 120 720 600 500 780 980 1,250 1,920 1,920 2,250 2,400 2,550 HFG 200 400 700 600 450 400 600 650 1,050 1,550 1,900 2,150 2,350 2,550 WFG - 100 250 250 250 - 500 500 400 600 650 N/A N/A N/A IBK - 240 410 580 400 330 430 450 480 617 690 720 760 800 BNKFG 200 160 250 350 330 280 200 150 230 230 300 320 350 380 DGBFG 250 160 300 350 330 280 320 280 300 340 360 400 450 490 JBFG 100 50 250 100 100 100 100 50 50 100 180 250 300 350 Samsung Card 600 1,200 1,500 700 700 700 1,000 1,500 1,500 1,500 1,600 1,700 1,800 1,900

Dividend yield (%) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F SFG - 0.9 1.7 1.7 1.6 1.5 2.1 2.7 3.3 3.3 3.6 3.9 4.0 4.1 KBFG - 0.5 0.3 1.6 1.3 1.1 1.7 2.2 2.8 4.3 4.3 5.0 5.3 5.7 HFG 0.5 1.1 1.9 1.6 1.2 1.1 1.6 1.8 2.9 4.2 5.2 5.9 6.4 7.0 WFG - 0.7 1.8 1.8 1.8 - 3.6 3.6 2.9 4.3 4.7 N/A N/A N/A IBK - 1.7 3.0 4.2 2.9 2.4 3.1 3.3 3.5 4.5 5.0 5.2 5.5 5.8 BNKFG 2.8 2.2 3.4 4.8 4.6 3.9 2.8 2.1 3.2 3.2 4.1 4.4 4.8 5.2 DGBFG 3.2 2.0 3.8 4.4 4.2 3.6 4.1 3.6 3.8 4.3 4.6 5.1 5.7 6.2 JBFG 1.7 0.9 4.3 1.7 1.7 1.7 1.7 0.9 0.9 1.7 3.1 4.3 5.1 6.0 Samsung Card 1.6 3.2 4.0 1.9 1.9 1.9 2.7 4.0 4.0 4.0 4.3 4.6 4.8 5.1 Notes: Dividend payout ratios are based on consolidated net profit attributable to controlling interests; interim and year-end dividends combined; dividend yields are based on July 3rd closing prices; IBK’s 2018 dividend payout ratio was 23.4% (25.7% for general shareholders; 20.9% for controlling shareholders). Source: Company data, Mirae Asset Daewoo Research

29 | [Banks/Credit Cards] Mirae Asset Daewoo Research Dividend growth taking on greater importance

Large-cap stocks’ 2019- • Korean banks’ and financial holding companies’ dividend payout ratios are generally lower than those of global 2020F dividend yields: peers. When a company’s growth slows, demand for stronger shareholder return policies tends to grow. In our view, given the higher dividend payout ratios of banks in Taiwan, Australia, and Singapore, it is time for Korean 4-6%, assuming a very banks (particularly financial holding companies with sufficient capital power) to raise their dividend payout ratios. slow increase in dividend Dividend payout ratios of global peers payout ratios Country Company FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Taiwan Cathay 58.7 188.5 75.4 NA 43.8 133.2 45.6 46.3 62.3 50.9 43.7 52.8 55.8 65.4 Fubon 0.0 99.8 80.2 0.0 NA 42.9 23.8 32.7 39.9 51.0 32.2 42.3 44.4 54.1 Mega 76.2 107.8 81.0 938.8 77.2 65.9 54.2 60.6 61.4 57.6 69.3 86.0 79.3 66.7 CTBC 22.8 N/A 13.7 11.7 430.9 55.5 26.5 48.2 26.0 31.3 41.3 69.7 56.5 58.5 Singapore DBS 84.3 41.0 36.7 63.8 63.3 80.5 43.3 35.9 38.7 35.8 34.1 35.9 83.7 55.1 OCBC 23.7 18.8 42.5 51.4 48.0 45.9 46.4 29.1 43.6 35.5 38.2 44.1 38.9 40.6 UOB 63.7 49.0 88.0 50.5 50.4 41.7 42.5 40.8 40.7 38.2 46.5 38.1 50.6 51.3 Australia CBA 74.9 73.3 75.2 74.1 73.1 79.7 78.3 75.2 77.4 75.5 75.7 78.4 75.9 80.7 Westpac 67.8 69.3 70.4 66.8 98.3 65.2 67.3 85.2 88.3 74.7 73.6 84.3 79.5 79.7 ANZ 65.0 62.6 59.8 80.6 80.4 70.4 65.3 65.3 71.4 67.4 68.6 81.9 73.9 65.8 NAB N/A 64.9 68.9 77.3 126.6 81.4 75.9 106.4 86.7 93.7 76.0 83.4 87.3 92.5 Macquarie 27.5 54.4 54.3 52.7 60.2 60.4 67.2 70.9 85.1 72.0 72.3 69.5 71.4 64.0 China ICBC 9.4 69.2 54.5 49.7 44.1 38.9 34.0 35.0 35.0 32.7 30.0 30.0 30.0 30.0 CCB 7.2 44.6 67.5 49.0 44.2 39.3 34.9 34.7 34.9 33.0 30.0 30.0 30.0 30.0 BOC N/A 23.8 45.1 51.3 44.0 39.0 34.8 35.0 34.9 32.3 30.2 30.1 31.3 31.3 ABC N/A N/A N/A 0.0 0.0 74.5 35.0 35.0 34.6 32.9 30.8 30.8 30.7 30.0 Japan MUFG 9.0 12.8 23.2 N/A 42.5 30.1 17.6 22.1 23.4 24.5 26.2 26.2 26.3 25.4 Mizuho 7.8 14.0 39.1 N/A 54.3 32.4 30.3 26.2 23.1 30.3 28.0 28.0 31.5 33.0 SMFG 3.4 12.5 20.5 N/A 46.8 30.0 26.8 21.3 20.3 26.2 32.7 32.7 29.9 32.7 Resona Holdings 3.1 1.8 4.2 12.6 11.7 29.5 12.4 11.4 15.9 19.8 22.5 22.5 28.4 20.0 US JP Morgan 58.6 35.6 33.6 186.2 9.4 5.3 22.9 23.8 33.7 30.3 28.6 30.3 33.4 30.0 BoA 46.6 45.7 72.3 401.3 NA NA 491.7 15.8 4.2 33.3 14.6 15.9 23.9 20.4 44.0 42.9 49.1 182.0 26.6 9.0 16.9 25.9 29.1 32.4 35.3 37.6 37.3 38.1 Citi 46.2 46.1 363.5 N/A N/A 0.0 0.8 1.6 0.9 1.8 3.0 8.9 N/A 23.0

Notes: Bloomberg’s dividend payout ratio = (cash common dividends/(income before extraordinary items – minority interest – cash preferred dividends))*100; for Taiwanese banks’ and financial holding companies’ FY18 dividend payout ratio, we used dividend paid in the cash flow statement due to the absence of Bloomberg data; (dividends paid/(income before extraordinary items – minority interest – cash preferred dividends))*100. Source: Bloomberg, Mirae Asset Daewoo Research

30 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Negative impacts of • In the domestic market, there are a total of 22 credit card companies, including eight monoline credit card merchant fee rate cuts issuers and 11 credit card issuing banks. • Of the eight monoline credit card issuers, four are banking subsidiaries, and the others are non-banking vs. volume growth subsidiaries. arising from increased simplified payments + fall in funding rates

Status of credit card issuers Personal credit card purchase volume M/S

Type No. Credit card companies (%) Shinhan Samsung Hyundai 30 KB Kookmin KEB Hana Woori Monoline credit card issuers 8 Lotte Banking 4 Shinhan, KB Kookmin, KEB Hana, Woori Non-banking 4 Samsung, Hyundai, Lotte, BC 25 IBK, Kyongnam, Kwangju, Daegu, Busan, Suhyup, Credit card-issuing banks 11 Standard Chartered, Citi, Jeonbuk , NongHyup 20 Hyundai Department Store, Galleria Department Credit card-issuing retailers 3 Store, Handsome Total 22 15

Article 3 of the Specialized Credit Finance Business Act: Licensed or registered by FSC 10 KDB Capital: Acquired a business license only for corporate card issuance (1/00) LG Card: Merged with Shinhan Card (10/1/07) Hana SK Card: Launched as Hana Card (11/2/09); changed company name to Hana SK 5 Card (2/19/10); changed name back to Hana Card and acquired KEB Card (12/1/14) KB Kookmin Card: Spun off from KB (3/2/11) Woori Card: Spun off from Woori Bank (4/1/13) 0 KEB Card: Acquired by Hana Card (12/1/14) 2014 2015 2016 2017 2018

Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research

31 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Merchants have not • The domestic credit card market has been growing steadily, backed by the convenience of credit/debit card use been allowed to refuse as well as policy support from the government (aimed at increasing tax revenue). • As merchants have not been allowed to refuse payment by credit card since 1987, most businesses have become payment by credit card credit card merchants, leading to the expansion of the credit card payment infrastructure. since 1987

No. of credit cards issued; Average no. of credit cards held by No. of credit card merchants each economically active person (mn) (mn) 3.0 140.0 No. of credit cards issued (L) 6.0 No. of credit cards/economically active person (R) 120.0 2.5 5.0

100.0 2.0 4.0

80.0 1.5 3.0 60.0

1.0 2.0 40.0

1.0 0.5 20.0

0.0 0.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research

32 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Drivers of rapid credit • The credit card market has grown rapidly, driven by a number of government policy measures aimed at boosting card market growth: Ban overall consumption and increasing tax revenue; these include the income tax deduction for credit card usage (1999) and the credit card receipt lottery system (2000). on credit card payment • Credit cards have become the dominant payment method, accounting for over 70% of all private sector refusal, tax deduction, transactions. and convenience

Personal credit card purchase volume as a % of total private Credit card purchase volume sector transactions (Wtr) (%) 700 Lump sum 80.0 Installments 71.6 70.0 600 70.3 63.8 69.3 60.0 63.6 500 58.7 60.7 60.7 55.0 50.0 51.1 400 39.0 48.4 40.0 38.8 44.1 41.1 39.1 300 37.0 30.0 30.1

200 20.0 13.8 100 10.0

0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research Source: FSC, FSS, Credit Finance Association, Mirae Asset Daewoo Research

33 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Steadily falling merchant • There had been growing calls to correct the unfair disparity in fee rates between large merchants (1.5%) and fee rates general merchants (4.5%), which had existed for 35 years. • Therefore, at the end of 2012, a revision to the Specialized Credit Finance Business Act changed the calculation method for credit card fees so that only “fair costs” (including financing and risk management costs) would be borne by merchants.

Expansion of lower-fee merchant classification and fee reductions since 2007

Date Category Target Previous Revised Aug. 2007 Credit card merchant fees Micro merchants 2.0-4.5% 2.0-2.2% General merchants 1.5-4.5% 1.5-3.6% Debit card merchant fees Overall 1.5-4.5% 1.5-2.5% Oct. 2008 Credit card merchant fees Small/mid-sized merchants providing everyday services 2.74% 2.57% (hair salons, clothing stores, restaurants) Feb. 2009 Credit card merchant fees Small/mid-sized merchants in traditional markets 2.0-3.6% 2.0-2.2% Apr. 2010 Credit card merchant fees Small/mid-sized merchants in traditional markets 2.0-2.2% 1.6-1.8% Other small/mid-sized merchants 3.3-3.6% 2.0-2.15% Mar. 2011 Debit card merchant fees Small/mid-sized merchants 2.0-2.1% 1% Small/mid-sized merchants in traditional markets 1.6-1.8% 1% General merchants (large merchants excluded) 2.0-2.5% 1.5-1.7% Dec. 2011 Credit card merchant fees Merchants with annual revenue less than W200mn 1.80% 1.50% 80% of avg. merchant fee rate, or 1.5% May 2014 Credit card merchant fees Micro merchants with annual revenue of W200mn or less 1.50% (whichever is lower) Avg. merchant fee rate, or 2.0% Small/mid-sized merchants with annual revenue of W200mn-W300mn 2.0-2.15% (whichever is lower) Nov. 2015 Credit card merchant fees Micro merchants with annual revenue of W200mn or less 1.50% 0.80% (Applied from Feb. 2016) Small/mid-sized merchants with annual revenue of W200mn-W300mn 2.00% 1.30% General merchants with annual revenue of W300mn-W500mn Approx. 2.15% Approx. 1.85% General merchants with annual revenue of W0.3bn-W1bn Approx. 2.22% Approx. 1.92% General merchants with annual revenue of W1bn or more Approx. 1.96% Approx. 1.96% Upper limit of fee rate 2.70% 2.50% National tax fee rate 1.00% 0.80% Debit card merchant fees Micro merchants with annual revenue of W200mn or less 1.00% 0.50% Small/mid-sized merchants with annual revenue of W200mn-300mn 1.50% 1.00% Source: FSC, FSS, Mirae Asset Daewoo Research

34 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Steadily falling merchant • Merchant fee rates are adjusted every three years to reflect changes in the market environment; rates were fee rates reassessed and trimmed at the end of 2015, and the reassessment cycle arrived at the end of 2018. • Regulatory developments: Expansion of lower-fee merchant classification (micro merchants and small/mid-sized merchants) in August 2017; reduction in the legal interest rate ceiling in April 2018; decline in fee rate ceiling in July 2018 • In November 2018, financial regulators announced a credit card processing fee overhaul plan that will: 1) raise the annual revenue threshold for merchants eligible for reduced fees (from W0.5bn or less to W3bn or less); 2) sharply reduce fees on newly introduced revenue brackets; and 3) introduce a lower average fee for general merchants with annual revenue of W50bn or less. • Previously announced measures that took effect in January 2019 (e.g., refunds of some fees to new merchants, fee rate cuts for micro/small online retailers and self-employed taxi drivers) should markedly reduce credit card fees.

Expansion of lower-fee merchant classification and fee reductions since 2017

Date Category Target Previous Revised Jun. 2017 Reclassification Micro merchants Annual revenue of W200mn or less Annual revenue of W300mn or less (Applied from Aug. 2017) Small/mid-sized merchants Annual revenue of W200-300mn Annual revenue of W300-500mn Jun. 2018 Lower fees for small merchants VAN fees: Flat-fee system Fixed-rate system (Applied from Jul. 31, 2018) Upper limit of fees 2.50% 2.30% Aug. 2018 Refund of fees to new merchants (Applied from Jan. 2019) Lower fees for micro/small online merchants 3.00% 1.8-2.3% Lower fees for self-employed taxi drivers 1.50% 1.00% Nov. 2018 Credit card merchant fees Lower fees for merchants with annual sales of W0.5-1bn Approx. 2.05% 1.40% (Applied from Jan. 2019) Lower fees for merchants with annual sales of W1-3bn Approx. 2.21% 1.60% Lower fees for general merchants with annual sales of W3-10bn Approx. 2.20% 1.90% (avg.) Lower fees for general merchants with annual sales of W10-50bn Approx. 2.17% 1.95% (avg.) Debit card merchant fees Lower fees for merchants with annual sales of W0.5-1bn Approx. 1.56% 1.10% Lower fees for merchants with annual sales of W1-3bn Approx. 1.58% 1.30% General merchants with annual sales over W3bn Approx. 1.60% 1.45% (avg.)

Source: FSC, FSS, Mirae Asset Daewoo Research

35 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Credit card fee rates • In Korea, credit card merchant fee rates have steadily fallen (to 1.5-1.6% as of 1Q19 ); American Express had a merchant fee rate of 2.37% in 2018. • The US credit card industry has a four-party scheme with a fee rate of around 2.7%.

American Express’s merchant fee rate Shinhan Card’s merchant fee rate

(%) (%) 2.7 2.0

2.6 1.9

2.5 1.8

2.4 1.7 2.3

1.6 2.2 Impact of the decrease in 1.5 low-fee national tax payments 2.1

2.0 1.4 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018

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

36 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Credit card transaction volume has grown in line with the expansion of e-commerce and simplified payment markets. In 2018, the number of simplified payments increased 69% YoY, with credit and check cards accounting for 91.2% of basic payment tools linked to simplified payment platforms.

Korea: No. of simplified payments Korea: Transaction value of simplified payments

(mn) (Wbn) 2,377 2,500 Online 100,000 Online 80,145 Offline Offline 2,000 80,000 Total Total 1,409 1,500 60,000 50,051 858 1,000 40,000 26,880

500 20,000

0 0 2016 2017 2018 2016 2017 2018

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

Korea: Transaction value of simplified payments by type Korea: % of simplified payments by type

(Wbn) Debit card Bank transfer Prepaid card Credit card+Check card 80,000 2016 2017 2018 100% 2.1% 3.7% 3.9% 70,000 90% 2.9% 2.8% 4.9% 60,000 80% 70% 50,000 60% 40,000 50% 95.0% 93.5% 91.2% 30,000 40% 20,000 30% 20% 10,000 10% 0 0% Credit card Prepaid card Bank transfer Debit card 2016 2017 2018

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

37 | [Banks/Credit Cards] Mirae Asset Daewoo Research Credit cards

Positives: Falling bond • Credit card companies’ funding rates have declined on falling bond yields. yields and increasing • Increasing potential for a rate cut: A rate cut would drive down funding rates, improving investor sentiment on credit card companies. potential for a rate cut

Credit card bond (AA+) yield trends Credit card bond (AA+) yield trends

(%) (%) Credit card bond (AA+, 1Y) Credit card bond (AA+, 1Y) 8.0 3.5 Credit card bond (AA+, 3Y) Credit card bond (AA+, 3Y) Credit card bond (AA+, 5Y) Credit card bond (AA+, 5Y) Credit card bond (AA+, 10Y) 7.0 Credit card bond (AA+, 10Y) 3.0

6.0

2.5 5.0

4.0 2.0

3.0 1.5 2.0

1.0 1.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1/16 5/16 9/16 1/17 5/17 9/17 1/18 5/18 9/18 1/19 5/19

Source: KOSCOM, Mirae Asset Daewoo Research Source: KOSCOM, Mirae Asset Daewoo Research

38 | [Banks/Credit Cards] Mirae Asset Daewoo Research Valuation overview

SFG KBFG HFG IBK BNKFG DGBFG JBFG Samsung Card Ticker 055550 KS 105560 KS 086790 KS 024110 KS 138930 139130 KS 175330 KS 029780 KS Rating Buy Buy Buy Buy Buy Buy Buy Trading Buy TP (W) 60,000 65,000 58,500 19,500 8,900 12,000 8,300 40,500 Current price (W) 44,450 45,050 36,600 13,800 7,250 7,870 5,880 37,300 Upside (%) 35.0 44.3 59.8 41.3 22.8 52.5 41.2 8.6 Market cap (Wbn) 21,078 18,836 10,989 7,934 2,363 1,331 1,158 4,322 Foreign ownership (%) 67.2 67.7 70.2 23.5 52.8 59.6 42.2 11.6 P/B (x) 2017 0.64 0.55 0.45 0.46 0.33 0.34 0.37 0.62 2018 0.59 0.53 0.42 0.43 0.31 0.32 0.37 0.64 2019F 0.54 0.50 0.39 0.41 0.30 0.30 0.33 0.62 2020F 0.52 0.46 0.36 0.39 0.28 0.27 0.30 0.59 2021F 0.50 0.42 0.33 0.35 0.27 0.25 0.27 0.57 P/E (x) 2017 7.2 5.6 5.3 6.0 5.9 4.4 4.9 11.2 2018 6.7 6.2 4.9 5.2 4.7 3.5 3.8 12.5 2019F 6.0 5.6 4.5 4.9 4.5 3.9 3.4 12.2 2020F 6.0 5.3 4.1 4.7 4.2 3.7 3.4 11.7 2021F 6.0 5.1 3.9 4.5 4.1 3.6 3.3 11.1 P/PPOP (x) 2017 4.8 4.1 3.0 2.7 2.1 2.2 1.8 5.5 2018 4.0 3.8 3.0 2.3 1.9 2.6 1.6 4.9 2019F 3.5 3.4 2.6 2.3 1.9 1.9 1.8 5.0 2020F 3.5 3.2 2.4 2.2 1.8 1.7 1.7 4.7 2021F 3.4 3.1 2.2 2.0 1.7 1.6 1.7 4.5 Dividend yield (%) 2017 3.3 4.3 4.2 4.5 3.2 4.3 1.7 4.0 2018 3.6 4.3 5.2 5.0 4.1 4.6 3.1 4.3 2019F 3.9 5.0 5.9 5.2 4.4 5.1 4.3 4.6 2020F 4.0 5.3 6.4 5.5 4.8 5.7 5.1 4.8 2021F 4.1 5.7 7.0 5.8 5.2 6.2 6.0 5.1 ROE (%) 2017 9.1 10.2 8.8 8.0 5.8 8.0 7.8 5.7 2018 9.2 8.8 8.9 8.6 6.8 9.4 8.7 5.0 2019F 9.4 9.3 9.0 8.6 6.8 7.8 9.9 5.2 2020F 8.8 9.0 9.1 8.4 6.9 7.7 9.4 5.2 2021F 8.5 8.5 8.8 8.2 6.8 7.3 8.7 5.2 ROA (%) 2017 0.7 0.8 0.6 0.6 0.4 0.5 0.4 1.7 2018 0.7 0.7 0.6 0.6 0.5 0.6 0.5 1.5 2019F 0.7 0.7 0.6 0.6 0.5 0.5 0.7 1.5 2020F 0.7 0.7 0.6 0.6 0.5 0.5 0.7 1.5 2021F 0.7 0.7 0.7 0.6 0.5 0.5 0.7 1.5 EPS growth (%) 2017 6.7 45.6 53.1 29.4 -19.6 5.0 25.2 10.7 2018 8.2 -8.9 9.0 16.8 24.6 26.9 29.2 -10.7 2019F 10.5 10.8 9.5 5.4 4.1 -11.3 12.4 2.8 2020F 0.7 4.0 8.2 3.6 6.7 5.7 1.5 4.1 2021F 0.7 4.0 6.8 4.9 4.6 2.8 2.5 5.6 PPOP margin (%) 2017 1.1 1.1 1.0 1.3 1.2 1.1 1.1 3.5 2018 1.2 1.1 1.0 1.4 1.3 0.9 1.3 3.8 2019F 1.2 1.1 1.0 1.3 1.2 1.0 1.3 3.6 2020F 1.1 1.1 1.1 1.3 1.2 1.1 1.4 3.7 2021F 1.2 1.1 1.1 1.3 1.3 1.1 1.5 3.8 Note: Based on July 3rd closing prices; Source: Company data, Mirae Asset Daewoo Research 39 | [Banks/Credit Cards] Mirae Asset Daewoo Research Target Price Valuation

SFG KBFG HFG IBK BNKFG DGBFG JBFG Samsung Card Ticker 055550 KS 105560 KS 086790 KS 024110 KS 138930 KS 139130 KS 175330 KS 029780 KS Rating Buy Buy Buy Buy Buy Buy Buy Trading Buy TP (W) 60,000 65,000 58,500 19,500 8,900 12,000 8,300 40,500 Current price (W) 44,450 45,050 36,600 13,800 7,250 7,870 5,880 37,300 Upside (%) 35.0 44.3 59.8 41.3 22.8 52.5 41.2 8.6

Major assumptions Target P/B (x) 0.73 0.72 0.63 0.57 0.37 0.44 0.47 0.68 2019F BPS (W) 81,904 90,016 93,699 33,631 23,877 26,584 17,686 60,039 Sustainable ROE (%) 8.4 8.3 8.1 7.8 6.6 7.3 8.1 7.4 COE (%) 10.8 10.7 11.7 12.1 12.7 12.7 13.9 10.0 Rf 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Beta 1.38 1.37 1.53 1.60 1.70 1.70 1.90 1.25 Rp 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Growth (%) 2.0 2.0 2.0 2.0 3.0 3.0 3.0 2.0

P/B, P/E, and dividend yield based on TP 2019F P/B (x) 0.73 0.72 0.62 0.58 0.37 0.45 0.47 0.67 2020F P/B (x) 0.71 0.66 0.57 0.54 0.35 0.42 0.42 0.64 2021F P/B (x) 0.67 0.61 0.52 0.50 0.33 0.39 0.38 0.64

2019F P/E (x) 8.2 8.0 7.1 6.9 5.6 6.0 4.8 13.2 2020F P/E (x) 8.1 7.7 6.6 6.7 5.2 5.6 4.7 12.7 2021F P/E (x) 8.1 7.4 6.2 6.4 5.0 5.5 4.6 12.7

2019F dividend yield (%) 2.9 3.5 3.7 3.7 3.6 3.3 3.0 4.2 2020F dividend yield (%) 3.0 3.7 4.0 3.9 3.9 3.8 3.6 4.4 2021F dividend yield (%) 3.1 3.9 4.4 4.1 4.3 4.1 4.2 4.4

Note: Based on July 3rd closing prices Source: Company data, Mirae Asset Daewoo Research

40 | [Banks/Credit Cards] Mirae Asset Daewoo Research Peer Comparison - P/B, ROE

Maintain Overweight • In 2019, we expect earnings to expand despite falling interest rates. • We are encouraged by banks’ proactive responses to the medium/long-term challenges of low interest rates, low economic growth, and population aging (i.e., portfolio diversification via strengthening of non-banking businesses and non-interest income, overseas expansion, and digitalization). • Valuations are very attractive (lower P/B-ROE ratios compared with global peers). • 2019-20 dividend yields estimated at 4-5%  Attractive value plays from a medium/long-term perspective

P/B-ROE comparison versus global peers (FY1) P/B-ROE comparison versus global peers (FY2)

2.5 FY1 2.5 FY2 P/B (x) P/B (x) Macquarie CBA Macquarie 2.0 RBC 2.0 CBA R² = 0.7826 RBC R² = 0.8081 1.5 JPM 1.5 JPM ANZ ANZ WF WF BoA 1.0 1.0 RBS Citi BoA BNPP SantanderRBS Citi SC Santander SC SFG BNPP SFG 0.5 Barclays KBFG 0.5 SG KBFG Commerzbank Commerzbank SG IBK HFG HFG DGBFG IBK BNKFG Deutsche BNKFG Deutsche DGBFG - - FY1 ROE (%) FY2 -0.5 -0.5 ROE (%) 0.0 5.0 10.0 15.0 20.0 0.0 5.0 10.0 15.0 20.0

Notes: FY1 refers to the year ending Dec. 31, 2019 (Sept. 30, 2019 for ANZ; Mar. 31, 2020 for Note: FY2 refers to the year ending Dec. 31, 2020 (Sept. 30, 2020 for ANZ; Mar. 31, 2021 for Macquarie; June 30, 2019 for CBA); share prices as of July 3rd Macquarie; June 30, 2020 for CBA); share prices as of July 3rd Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research 41 | [Banks/Credit Cards] Mirae Asset Daewoo Research APPENDIX 1

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

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price BNK Financial Group(138930) JB Financial Group(175330) 01/30/2019 Buy 8,900 07/01/2019 Buy 8,300 12/04/2018 Buy 10,500 01/24/2019 Buy 8,000 07/05/2018 Buy 12,000 12/04/2018 Buy 8,200 03/28/2018 Buy 13,500 10/21/2018 Buy 8,500 11/01/2017 Buy 12,000 08/01/2018 Buy 8,100 07/19/2017 Buy 13,000 07/05/2018 Buy 7,700 02/07/2017 Buy 12,000 02/08/2018 Buy 8,000 (086790) 09/07/2017 Buy 7,800 01/21/2019 Buy 58,500 01/02/2017 No Coverage 12/04/2018 Buy 62,000 KB Financial Group(105560) 07/05/2018 Buy 64,000 04/23/2019 Buy 65,000 01/31/2018 Buy 70,000 01/17/2019 Buy 70,500 10/24/2017 Buy 62,500 12/04/2018 Buy 75,000 07/23/2017 Buy 61,000 07/05/2018 Buy 78,000 07/11/2017 Buy 56,000 02/05/2018 Buy 85,000 04/22/2017 Buy 49,000 10/23/2017 Buy 75,000 Samsung Card(029780) 07/20/2017 Buy 73,000 04/26/2019 Trading Buy 40,500 07/10/2017 Buy 70,000 04/22/2019 Trading Buy 38,500 04/21/2017 Buy 63,500 01/26/2019 After 1yr DGB Financial Group(139130) 01/26/2018 Hold - 01/30/2019 Buy 12,000 01/11/2018 Trading Buy 43,000 12/04/2018 Buy 13,000 10/19/2017 Trading Buy 41,000 10/21/2018 Buy 14,000 06/26/2017 Hold - 07/05/2018 Buy 13,500 (055550) 01/24/2018 Buy 15,500 12/04/2018 Buy 60,000 03/09/2017 Buy 14,500 10/19/2018 Buy 62,000 (024110) 07/05/2018 Buy 59,000 01/22/2019 Buy 19,500 02/08/2018 Buy 63,500 12/04/2018 Buy 20,500 02/04/2018 Buy 67,000 07/05/2018 Buy 21,000 10/25/2017 Buy 64,500 02/06/2018 Buy 22,000 07/21/2017 Buy 63,500 10/28/2017 Buy 20,000 04/21/2017 Buy 61,000 10/26/2017 Buy 19,000

42 | [Banks/Credit Cards] Mirae Asset Daewoo Research APPENDIX 1

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price 10/25/2017 Buy 18,500 07/18/2017 Buy 17,500 10/25/2017 Buy 19,000 04/17/2017 Buy 16,000 07/23/2017 Buy 18,500

(W) BNK Financial Group(W) Hana Financial Group(W) Samsung Card (W) Shinhan Financial (W)Group JB Financial Group

15,000 80,000 50,000 80,000 10,000

40,000 8,000 60,000 60,000 10,000 30,000 6,000 40,000 40,000 20,000 4,000 5,000 20,000 20,000 10,000 2,000

0 0 0 0 0 Jul 17 Jul 18Jul Jul17 19 Jul 18Jul Jul17 19 Jul 18Jul Jul17 19 Jul 18Jul Jul17 19 Jul 18 Jul 19

(W) KB Financial Group(W) DGB Financial Group(W) Industrial Bank of Korea

100,000 20,000 25,000

80,000 20,000 15,000 60,000 15,000 10,000 40,000 10,000

5,000 20,000 5,000

0 0 0 Jul 17 Jul 18Jul Jul 17 19 Jul 18Jul Jul17 19 Jul 18 Jul 19

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 & Services Buy Trading Buy Hold Sell Equity Ratings Distribution 83.14% 8.72% 8.14% 0.00% Investment Banking Services 77.78% 11.11% 11.11% 0.00% * Based on recommendations in the last 12-months (as of June 30, 2019)

43 | [Banks/Credit Cards] Mirae Asset Daewoo Research APPENDIX 1

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 Industrial Bank of Korea, Shinhan Financial Group, Hana Financial Group, KB 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 . 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 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.

44 | [Banks/Credit Cards] Mirae Asset Daewoo Research APPENDIX 1

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45 | [Banks/Credit Cards] Mirae Asset Daewoo Research Mirae Asset Daewoo International Network

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46 | [Banks/Credit Cards] Mirae Asset Daewoo Research