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SHINHAN FINANCIAL GROUP ANNUAL REPORT 2009 OUTSTANDING TO OUTPERFORM Contents 001 Profile 002 Stock Performance 003 Financial Highlights 004 Chairman’s Message 006 CEO’s Message 010 BOD and Management 013 Business Portfolio 014 Shinhan Way Standing Out in the Crowd 018 Vision and Strategy 020 Corporate Governance 022 Risk Management Outperforming through Balance 026 Synergy 028 Retail Banking 030 Corporate Banking 032 Credit Card 034 Wealth Management 036 Brokerage 038 Insurance 040 Investment Banking 042 Asset Management Outstanding Social Stewardship 046 Corporate Social Responsibility 048 Ethical Management 050 Customer Satisfaction Financial Section 053 Management’s Discussion and Analysis 078 Independent Auditors’ Report 080 Consolidated Financial Statements 086 Notes to Financial Statements 166 Global Networks 168 Organization Chart 169 Contact Us Incorporated on September 1, 2001, Shinhan Financial Group(SFG) was the first privately established financial holding company in Korea. Since inception SFG has developed and introduced a wide range of financial products and services in Korea, and aims to deliver comprehensive financial solutions to clients through a convenient one-portal network. SFG currently has 11 subsidiaries offering a wide range of financial products and services, including retail banking, corporate banking, private banking, credit card, asset management, brokerage and insurance services. SFG currently serves approximately 16.1 million active customers through approximately 17,900 employees at more than 1,390 network branches. SFG has experienced substantial growth through several mergers and acquisitions. Most notably, the acquisition of Chohung Bank in Sept. 2003 and LG Card in March 2007 have enabled us to build up a nationwide network of branches and a broad customer base. In addition, SFG has significantly expanded its non-banking business capacity and achieved a balanced business portfolio. History 1897 2001 2006 Establishment of Hanseong Bank Establishment of Shinhan Financial Group Integrated Shinhan Bank Established Hanseong Bank, which later SFG was established in September Shinhan Bank, an innovator in the industry, became Chohung Bank through the merger and immediately followed by a strategic and Chohung Bank, a long-standing of Hanseong and Dongil Banks in 1943 alliance with BNP Paribas Group industry leader, merged to become one 1982 2002 2007 Establishment of Shinhan Bank Launching of GMSH Merger of Shinhan Card & LG Card Shinhan Bank was formed in 1982 with Shinhan Securities, formerly a subsidiary LG Card became an affiliate of SFG and seed money from the Korean Japanese of SFG, and Good Morning Securities soon thereafter merged with Shinhan Card community merged to provide advanced professional on October 1st to become the number 1 financial services card company in Asia OUTSTANDING TO OUTPERFORM STOCK PERFORMANCE NUMBER OF SHARES ISSUED As of December 2009 Type of Stock No. of Shares Registered common stock 474,199,587 Registered redeemable preferred stock 38,373,459 Registered convertible redeemable preferred stock 14,721,000 Total 527,294,046 CREDIT RATINGS Shinhan Bank Moody’s S&P Fitch Long Term A1 A- A Short Term P1 A2 F1 SHARE OWNERSHIP 2007 2008 2009 Domestic 41.9% 48.8% 42.4% Foreign 58.1% 51.2% 57.6% MAJOR SHAREHOLDERS As of December 2009 0 10 BNP Paribas Group 6.35% 90 SFG Employee Stock Ownership Association 4.82% Korea National Pension Fund 4.45% 20 80 Citibank, N.A. (ADR Dept.) 3.08% Saudi Arabian Monetary Agency 2.67% Mirae Asset Management 2.46% 30 70 Lazard Asset Management 1.54% Mizuho Corporate Bank 1.26% 40 60 Samsung Life Insurance 1.23% 50 Government of Singapore Investment Corporation 1.18% Other 70.96% SFG STOCK PRICE PERFORMANCE SHARE OWNERSHIP (%) Share price of SFG KOSPI Index Banking Industry Index Foreign Domestic Market Cap:US$18.6 billion, as of March 2010 (KRW) 50,000 60.0 58.1 57.6 40,000 51.2 50.0 48.8 30,000 42.4 41.9 20,000 40.0 10,000 30.0 0 Sep 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Mar 10 07 08 09 002 / 003 SHINHAN FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL HIGHLIGHTS FY2009 FY2008 change amount change % For the Year (KRW in billions) Operating Revenue 51,171.9 59,722.1 -8,550.2 -14.3% Operating Income Before Provisioning 3,741.9 4,032.5 -290.6 -7.2% Net Income 1,305.3 2,018.6 -713.3 -35.3% At Year End (KRW in trillions) Total Assets (including AUM) 303.9 321.3 -17.4 -5.4% Total Loans 167.0 170.3 -3.4 -2.0% Total Deposits 147.7 126.8 21.0 16.5% Total Shareholders’ Equity 20.7 17.6 3.1 17.7% Key Financial Ratios BIS Capital Adequancy Ratio - Group 12.6% 10.2% 2.4%p - BIS Capital Adequancy Ratio - Shinhan Bank 15.1% 13.4% 1.7%p - (Tier I Ratio) 11.6% 9.3% 2.3%p - NPL (Substandard and Below Loans) Ratio 1.3% 1.1% 0.2%p - NPL Coverage Ratio 157% 172% -15%p - ROA 0.5% 0.8% -0.3%p - ROE 6.8% 12.4% -5.6%p - Group NIM 3.0% 3.5% -0.5%p - Cost-to-Income Ratio 51.5% 49.3% 2.2%p - Cost-to-Income Ratio excluding goodwill amortization 46.0% 43.1% 2.8%p - BPS (KRW) 36,256 35,312 944 2.7% EPS (KRW) 2,324 4,384 -2,060 -47.0% TOTAL ASSETS NET INCOME ROA (%) ROE (%) (KRW in trillions) (KRW in billions) 1.2 400 2,500.0 1.2 20.0 2,396.4 16.8 321.3 2,018.6 303.9 300 2,000.0 0.9 0.8 15.0 276.7 12.4 200 1,500.0 0.6 10.0 0.5 1,305.3 6.8 100 1,000.0 0.3 5.0 07 08 09 07 08 09 07 08 09 07 08 09 OUTSTANDING TO OUTPERFORM CHAIRMAN’S MESSAGE Dear shareholders and customers, The majority of financial institutions this past year, including Shinhan Financial Group, have endured an unprecedented global financial crisis, responding to the aftershock of the storm, some of which, such as sagging consumer sentiment and a climbing unemployment rate, still remain causes for concern. Despite such difficult circumstances, we were able to deliver solid performances and achievements, further strengthening our reputation as the nation’s leading financial group. By taking decisive and often difficult measures, and thanks to our well diversified business structure, we were able to uphold profitability, improve asset quality and secure a strong foundation for future growth. In particular, Shinhan Bank was able to relatively perform well when the entire industry was suffering from compressed spreads, increasing delinquencies and asset deterioration. At the same time, most of the Group’s non-banking subsidiaries outperformed their industry averages, with Shinhan Card and Shinhan Life Insurance deserving particular praise for their highly impressive results. All in all, the Group realized a net income of KRW1.3 trillion, and as a result, led the industry for the second year in a row, and cementing its position as ‘Korea’s leading financial group.’ However, as we see signs of a gradual recovery in the world’s economy, I believe that potential risks still exist. High debt levels of several European countries and emerging markets needs to be closely monitored. In addition, governments have begun to put exit strategies on the table for discussion, and while these are necessary, they must be very carefully orchestrated to promote growth and balance together. 004 / 005 SHINHAN FINANCIAL GROUP ANNUAL REPORT 2009 I am confident that we will further underscore our leading position, a position that significantly contributes to the development of Korea’s economy, while at the same time leap forward to become a leading global fi nancial group. Chairman Eung Chan Ra In the domestic landscape, Korea’s financial industry is expected to experience further change in response to the recent trend of industry convergence. It also looks highly probable that further consolidation of the financial industry will occur in the near future. With its diversified business portfolio, proven track record and clear management in place, Shinhan Financial Group is considered to be in a better position than its competitors. However, we will not take this for granted, but instead reassess our strengths and weaknesses, reshape our ability to respond to change ahead of time, and fortify our platform for sustainable growth. Through these efforts, I am confident that we will further underscore our leading position, a position that significantly contributes to the development of Korea’s economy, while at the same time leap forward to become a leading global financial group. None of our accomplishments would have been possible without our faithful and willing employees, all of whom have worked with passion and energy, even during the most difficult of times. I am confident that their strength, sense of responsibility and level of dedication will accelerate our goal of becoming a ‘world class financial institution.’ Once again, I ask for your continued support and encouragement as we move forward towards a brighter future. Chairman Eung Chan Ra OUTSTANDING TO OUTPERFORM CEO’S MESSAGE Dear shareholders and customers, 2009 started out at the center of the global financial crisis. Some described it as a perfect storm. The scope, severity and duration of this crisis were more serious than most of us have ever experienced before. The financial industry had been shaken to its foundation. Economies fell, unemployment rate rose and we still face daunting and ongoing challenges. However, we are beginning to see signs of recovery. The global economy had slowly begun to turn around by the end of last year.