BUILT : FOR YOU a New Force in Financial Services Annual Report 2002 BUILT: Ten in One Providing Diversified Financial Services through One Network Established as Korea’s first privately initiated financial holding company, Shinhan Financial Group (SFG) is a premier financial institution with a comprehensive financial network. Through our ten subsidiaries, we offer a complete range of products and services in banking, securities, credit cards, investment trusts, lease financing, credit information, financial advisory, bancassurance and web-based financial portal service. We seek to become a leading one-portal financial services group in Korea by leveraging the strengths of our diversified business platform and cooperating with our partners in order to maximize synergies. We are committed to providing efficient, convenient, and quality financial products and services to our customers while also creating sustainable growth and value for our shareholders. Experience the wide spectrum of financial services provided through the powerful network of Shinhan Financial Group. Extend your financial network! To anchor the holding company model as we adjust our business operations to construct a truly comprehensive financial services group... PROFILE Shinhan Financial Group (“Group”), one of the most dynamic financial holding companies in Korea was established in September 2001 with six subsidiaries including Shinhan Bank as its flagship of the Group. Currently the Group consists of ten subsidiaries ; Shinhan Bank, Goodmorning Shinhan Securities, Shinhan Card, Shinhan Capital, Shinhan BNP Paribas Investment Trust Management, Jeju Bank, Shinhan Macquarie Financial Advisory, SH&C Life Insurance, e-Shinhan, and Shinhan Credit Information. The Group is providing comprehensive and high standard financial services through 494 branches network by approximately 7,000 staffs. As of December 2002, SFG's total assets stood at 80.8 trillion, representing 23.3% year-on-year growth, while shareholders' equity totaled 4,010 billion. Net income for the year amounted to 603.9 billion. Building on its solid performance in 2002, Shinhan Financial Group will continue to focus on customer satisfaction and profit-oriented management, delivering high returns and deriving maximum synergies through its unit companies. CONTENTS Financial Highlights _03 To Our Shareholders_04 CEO’s Inauguration Message to Shareholders_07 A Conversation with CEO _10 Introduction: Shinhan Financial Group_16 New Corporate Identity_17 Subsidiaries_18 Vision and Philosophy _20 Services and Products _21 Staff_22 Network _23 Customers 25 Shareholders and Corporate Governance _27 Culture & Community Involvement _28 Review of Operations _32 Commercial Banking_34 Investment Banking _38 Brokerage _40 Asset Management_41 Credit Cards_42 Private Banking_44 Bancassurance_46 E-Business_47 Risk Management _49 Financial Information _56 Organization Chart_183 Directory _185 Executive Officers and Outside Directors _186 Status Regarding the Group's Shares / Ownership of Subsidiaries _189 Financial Highlights Korean Won in Billions U.S. Dollars in Millions 1) 2002 2001 2002 2001 FOR THE YEAR2) Operating Revenue 5,929 5,249 4,939 4,373 Net Income3) 604 499 503 415 (July to December) 221 184 AT YEAR END Total Assets4) 80,830 65,569 67,336 54,622 Total Loans4) 45,341 35,046 37,772 29,195 Total Deposits4) 47,792 42,667 39,813 35,544 Total Securities4) 19,911 19,285 16,587 16,065 Total Shareholders' Equity5) 4,010 3,788 3,341 3,155 FINANCIAL RATIOS Return on Average Shareholders' Equity6) 17.57% 13.72% Return on Average Assets6) 0.94% 0.79% Cost Income Ratio (Bank only) 36.27% 36.21% (Consolidated) 45.04% 42.23% Substandard & Below Ratio (Bank only) 1.42% 2.42% (Consolidated) 1.78% 2.76% NPL Ratio by FSS7) 0.69% 1.21% Net Interest Margin8) 2.83% 2.79% (Korean Won) 2.97% 2.86% (Foreign Currency) 1.81% 2.33% Net Interest Spread (won) 8) 3.12% 2.81% BIS Capital Adequacy Ratio9) 10.91% 12.02% (Tier 1 Capital Ratio) 6.81% 8.26% (Tier 2 Capital Ratio) 4.23% 3.76% SHARE INFORMATION Earnings Per Share (won, USD)10) 2,066 755 1.72 0.63 Net Asset Value Per Share (won, USD) 13,178 12,312 10.98 10.26 Dividend Per Share (won, USD) 600 600 5.00 5.00 Market Value (won in billions) 3,625 5,131 3,020 4,274 Notes: 1. Translated into U.S. dollars at rate of 1,200.40 per US$1.00, the prevailing rate on December 31, 2002. 2. As the holding company was formed on Sep. 1, 2001, financial statement figures reflect business results from July to December. Annual figures are calculated based on pro forma income statement (Jan.- Jun.) and consolidated income statements (Jul.- Dec.). 3. 2001 net income was based on pro forma figures, while net income of 221 billion on income statement reflects earnings from Jul. - Dec. only. 4. Calculated based on the sum of all subsidiaries minus intra-group transactions. 5. SFG adopted the Statement of Korea Accounting Standards (SKAS) No. 6, ‘Events Occurring after the Balance Sheet Date,’ in the preparation of financial statements as of, and for the year ended, Dec. 31, 2002, respectively. According to the adoption of the new standard, SFG amended its financial statements for year 2001 for comparative purposes causing shareholders' equity to increase by 150.8billion. 6. Actual six month net income of 221billion in 2001 was annualized for both ROA and ROE calculation. 7. NPL ratios, as defined by the FSS, refer to the ratio of loans that do not pay interest to total loans. Substandard & below loans include loans to companies with low credit ratings, although they do pay interest. 8. Includes credit card (Shinhan Bank + Shinhan Card). 9. Based on credit risk. 10. 2001 figures were calculated, based on the holding company's net income for six months. 03 Annual Report 2002 TO OUR SHAREHOLDERS SFG's unique holding company business model features a dynamic one-portal financial institution, a comprehensive service network, to meet the increasingly diverse needs of our valued customers. I am pleased to announce that we were able to attain our goals for 2002 while successfully realizing our vision for building a powerful one-portal financial services network. We believe that these accomplishments should be credited to your valued trust and support for Shinhan Financial Group. A Year of Accomplishments The year 2002 heralded the appearance of powerful new paradigms and changes in Korea. We witnessed, among many other events, increased social participation by our youth via the Internet during the presidential election and the public’s unified support for the national team’s advance into the Big 4 in the World Cup. Fueled by these developments, Korean society continues to reform, liberalize, and evolve into a society centered on public participation and egalitarian values. It was, however, a challenging year for the financial services industry. Overall, financial institutions suffered difficulties in 2002 primarily due to the reverberating effects of continued recession concerns in the global market, compounded by adverse domestic 04 conditions. The combined effects of a prolonged economic slowdown behind low interest rates, rising delinquency ratios for household loans, and downturns in the stock markets all negatively impacted the performance of financial institutions here in Korea. SHINHAN FINANCIAL GROUP Additionally, competition among domestic financial institutions intensified across all business segments, especially in SME and consumer loans, in line with the trend towards enlargement and crossovers. Amid such a challenging business environment, Shinhan Financial Group persevered and produced solid results in 2002. In particular, Shinhan Bank, flagship of the Shinhan fleet, posted strong results with its net earnings exceeding target goals. We particularly devoted ourselves to solidifying foundations, restructuring our business portfolio as a comprehensive financial group with ten subsidiaries. Aggressive Realignment Embarking on our second year as a financial group, we have devoted ourselves to solidifying foundations and restructuring our business portfolio into a fully integrated, all-inclusive system, linking ten subsidiaries into one powerful network. We are dedicated to delivering all of the products and services that you need through a single relationship. To this end, our endeavors in 2002 included the creation of Goodmorning Shinhan Securities through a successful merger between Good Morning Securities and Shinhan Securities; the spin-off of our credit card and credit information divisions; and the establishment of an investment trust joint venture with BNP Paribas as well as the establishment of SH&C Life Insurance, the first bancassurance company in Korea. Through these initiatives, the Group focused on building scale, increasing specialization, and adding breadth to our overall platform. Alongside business realignment, we explored ways to expand our offering of innovative hybrid products and services that meet the diverse needs of our customers. In 2002, we introduced the Financial Plaza and the Corporate Banking Center, venues that enable and foster cross-selling opportunities between the banking and securities businesses. We also changed our corporate identity (CI) to reflect our new vision and strategies under the holding company system. As a result, SFG’s net income grew 77.6% year-on-year to exceed 600 billion at the end of 2002, mainly driven by increases in net income of Shinhan Bank, Jeju Bank and Shinhan Capital. Pre-provisioning income amounted to 1.2 trillion. Total assets also grew 23.3% over the year to 80.8 trillion, led by the growth of our banking, securities and investment & trust businesses. Meeting Future Challenges Today, we are faced with unprecedented, rapid changes and severe competition. The timing for recovery of the world economy remains in doubt due in part to uncertainties related to the war in the Middle East, North Korea nuclear issues, and recent corporate governance issues in Korea. Nonetheless, the government is likely to push ahead with its privatization plan for the retrieval of public funds and domestic financial institutions, as a consequence, will need to continue their restructuring efforts.