Executive Summary / Key Takeaways

• Shinhan Financial Group is strategically shifting from quantitative expansion to qualitative, capital-efficient growth, targeting a 13% Return on Capital (ROC) and maintaining a CET1 ratio of 13% or higher.
• The Group is committed to an aggressive shareholder return program, aiming for a 50% Total Shareholder Return (TSR) by 2027, primarily through accelerated share buybacks and cancellations, with KRW1.250 trillion projected for 2025.
• Digital innovation and global business expansion are key differentiators, enhancing operational efficiency, customer engagement, and opening new revenue streams, as evidenced by significant MAU growth and cost savings from AI-driven initiatives.
• Despite a challenging macroeconomic environment with rising credit risks and delayed economic recovery, Shinhan maintains a conservative stance on asset quality, proactively provisioning against potential losses, particularly in real estate finance.
• The company's diversified business model and proactive risk management position it to deliver stable financial performance and enhance shareholder value, even amidst competitive pressures and regulatory changes.

A New Paradigm: Shinhan Financial Group's Strategic Evolution

Shinhan Financial Group Co., Ltd. (SHG), founded in 1982 and headquartered in Seoul, South Korea, stands as a diversified financial powerhouse. The company's extensive operations span commercial banking, credit cards, securities, insurance, credit, and other financial services, catering to both domestic and international markets. SHG's journey has been marked by a commitment to comprehensive financial offerings, evolving to meet dynamic market demands and regulatory landscapes.

In recent years, SHG has embarked on a significant strategic transformation, moving away from a sole focus on quantitative expansion towards a paradigm of qualitative, capital-efficient growth. This strategic pivot, encapsulated in its "Corporate Value-up program" announced in July 2024, aims to elevate Return on Equity (ROE) and Return on Capital (ROC) while accelerating shareholder returns. This foundational shift is critical for understanding SHG's current performance and future trajectory.

Technological Edge: Fueling Efficiency and Engagement

At the heart of Shinhan's qualitative growth strategy lies its robust investment in technological differentiation and innovation. The Group leverages advanced digital capabilities to drive platform innovation, enhance social responsibility, and contribute to financial performance. This commitment is evident in several key areas.

Shinhan's digital platforms have achieved substantial growth, with gross Monthly Active Users (MAU) across its finance and non-finance platforms reaching 24.57 million in Q2 2023, representing a 24% year-over-year increase. The non-finance platform alone saw its MAU surpass 4 million, growing by 59% year-over-year in the same period. These figures underscore the company's success in expanding its digital footprint and integrating financial services into customers' daily lives. Furthermore, the finance platform boasts over 5 million Daily Active Users (DAU), indicating high-quality user engagement.

Beyond engagement, technology is a powerful tool for operational efficiency and risk mitigation. In H1 2023, Shinhan achieved KRW200 billion in cost savings through the implementation of Artificial Intelligence Contact Centers (AICC) and Robotic Process Automation (RPA), marking a 10% year-over-year improvement. This directly translates to enhanced profitability by optimizing operational expenses. The Group also deploys UAD-equipped ATMs nationwide, which prevented over 9,200 financial accidents in Q2 2023, showcasing a tangible benefit in security and customer protection. AI detection functions are continuously upgraded to analyze unusual activities and patterns, further bolstering security for financial transactions. For investors, these technological advancements represent a significant competitive moat, driving cost efficiencies, improving customer loyalty through superior digital experiences, and mitigating operational risks.

Looking ahead, Shinhan is actively exploring emerging financial technologies. The Group is a member of a consultative consortium of 14 banks studying stablecoins, viewing this as a long-term opportunity rather than a concern. This proactive engagement positions SHG to potentially leverage future innovations in digital currencies. Additionally, a collaboration with Jeju Bank, initiated in April 2025, aims to deliver meaningful products to Small and Medium-sized Enterprises (SMEs) and small business owners by the end of Q1 2026, demonstrating a commitment to expanding its reach through strategic partnerships and technological integration.

Competitive Landscape: Navigating a Dynamic Market

Shinhan Financial Group operates within a highly competitive South Korean financial sector, contending with major domestic players such as KB Financial Group (KB), Woori Financial Group (WF), and Hana Financial Group (HF), as well as agile fintech companies. SHG's diversified business model, encompassing banking, credit cards, securities, and insurance, provides a resilient market position.

Compared to its peers, Shinhan's extensive network of service centers and ATMs, coupled with its broad product offerings, fosters strong customer loyalty and cross-selling opportunities. While competitors like KB Financial Group may demonstrate greater agility in certain digital innovations, Shinhan's strategic focus on integrated financial products and its significant investment in digital infrastructure aim to close this gap and enhance operational efficiency. For instance, the growth in SHG's digital platform users and cost savings from AICC/RPA directly address the need for digital competitiveness.

The credit card segment, in particular, faces "very challenging, intense competition," prompting Shinhan Card to diversify into non-banking areas and data businesses to identify new revenue sources. In the securities business, Shinhan Investment Securities is actively working to enhance profitability in its Wealth Management (WM) and Investment Banking (IB) segments, with overseas stock market share exceeding 5% and IB underwriting fees increasing by KRW20 billion in H1 2025 compared to the previous year. The company is also taking a cautious, government-aligned approach to acquiring a new issuer license, balancing growth with a stable portfolio.

Shinhan's international expansion, particularly in emerging markets like Vietnam, serves as a key differentiator, potentially enhancing long-term growth prospects and diversifying revenue streams beyond the domestic market. While some competitors may excel in specific niches, Shinhan's comprehensive approach and commitment to capital efficiency position it as a formidable player capable of adapting to evolving market dynamics.

Financial Performance and Capital Strength

Shinhan Financial Group's recent financial performance reflects its strategic shift and resilience in a challenging environment. In Q2 2025, the Group reported a net income of KRW1,549.1 billion, marking a 4.1% quarter-over-quarter increase. This growth was primarily fueled by a significant 34.7% quarter-over-quarter improvement in noninterest income, driven by favorable market conditions for securities and FX derivative-related gains. The Group's Net Interest Income (NII) remained stable quarter-over-quarter, supported by appropriate growth focused on return on capital, despite falling market interest rates.

Profitability metrics underscore the Group's value enhancement strategy, with Return on Equity (ROE) and Return on Tangible Common Equity (ROTCE) each rising by 0.7% to 11.4% and 12.9%, respectively, in Q2 2025. The Cost-to-Income Ratio (CIR) remained stable at 36.6% in H1 2025, demonstrating effective management of Selling, General, and Administrative (SG&A) expenses. The latest TTM financial ratios for SHG show a Gross Profit Margin of 58.14%, an Operating Profit Margin of 32.93%, and a Net Profit Margin of 18.46%, indicating solid operational efficiency.

Capital adequacy remains a core strength. As of the end of June 2025, Shinhan's provisional CET1 ratio stood at a robust 13.59%, an improvement of 32 basis points quarter-over-quarter. This was driven by solid earnings, the impact of a weaker exchange rate, and efficient Risk-Weighted Asset (RWA) management, which saw a decline of KRW4 trillion quarter-over-quarter in Q2 2025. The Group aims to maintain its CET1 ratio at a minimum of 13.1% or higher, a target proactively raised from 12% in Q2 2023 to account for anticipated regulatory changes like the stress capital buffer. This conservative capital management provides a strong buffer against potential economic downturns and supports continued strategic investments.

Outlook and Shareholder Returns

Shinhan Financial Group's forward-looking strategy is anchored in its commitment to qualitative growth and enhanced shareholder returns. The Group has provided concrete guidance for the remainder of 2025 and beyond. For H2 2025, the credit cost outlook is projected to be in the mid-to-late 40 basis points range, with expectations of a slight decrease in Q3 compared to Q2. This reflects a conservative approach to provisioning amidst a delayed economic recovery. The Bank plans to be more proactive in the corporate loan market in H2 2025 to drive asset growth, while managing household loan growth at an appropriate level, considering policy-related environments.

The Net Interest Margin (NIM) is expected to see a continued decline trend in Q4 2024 and into next year due to anticipated benchmark rate cuts. However, management is focused on defending NIM through profitability-based asset growth and diligent funding rate management. Noninterest income, particularly from securities and FX derivatives, is expected to continue its growth trajectory, correlated with market activity. For the next year, the Group targets an RWA growth of approximately 5%, with a corresponding ROC target of about 13%, reinforcing its focus on capital efficiency.

A cornerstone of Shinhan's value proposition is its commitment to shareholder returns. The Board of Directors resolved a cash dividend of KRW571 per share for Q2 2025 and authorized a substantial share buyback of KRW800 billion, with KRW600 billion to be executed in H2 2025 and the remaining KRW200 billion in January 2026. This brings the total projected share buyback for 2025 to approximately KRW1.250 trillion, underscoring a continuous, year-round program. The Group is committed to a 50% Total Shareholder Return (TSR) ratio by 2027, with an initial target of 40%, and intends to accelerate share buybacks and cancellations, which it views as more effective for valuation enhancement when the Price-to-Book Ratio (PBR) is below 0.8x to 1x. The pace of share buybacks is currently ahead of schedule for its 50 million share reduction target by 2027, offering flexibility in its capital deployment strategy.

Risks and Challenges

Despite a compelling investment thesis, Shinhan Financial Group faces several risks and challenges. The delayed economic recovery is a primary concern, potentially leading to rising credit risk for corporates and increased challenges for vulnerable customers. This could push credit costs slightly above initial expectations, as acknowledged by management. The real estate trust sector remains challenged, with NPLs growing faster than anticipated and write-off/disposal prices declining. While Shinhan has proactively provisioned against its KRW9.4 trillion Project Finance (PF) loan exposure, with KRW340 billion in provisioning against KRW380 billion in trust account loans as of June 2025, the overall situation remains fluid.

Macroeconomic uncertainties, including US tariff issues, tighter regulations against household loans, and geopolitical risks, contribute to elevated volatility in FX rates and inflation. Operational risks, as highlighted by the KRW135.7 billion derivatives trading loss at Shinhan Securities in Q3 2024, necessitate continuous strengthening of internal controls. Furthermore, regulatory changes, such as the potential introduction of a stress capital buffer (estimated to be an additional 2.4% requirement), could impact capital management. The competitive landscape, particularly in the credit card segment and from agile fintechs, also presents ongoing challenges to market share and profitability.

Conclusion

Shinhan Financial Group is strategically positioned for sustained value creation, driven by a clear shift towards qualitative, capital-efficient growth and an unwavering commitment to shareholder returns. The Group's robust financial performance, evidenced by solid net income growth and a strong CET1 ratio, provides a stable foundation. Its proactive embrace of digital innovation, yielding tangible benefits in efficiency, security, and customer engagement, alongside strategic global expansion, forms a critical competitive advantage.

While macroeconomic headwinds, particularly in credit risk and real estate, demand vigilant risk management and conservative provisioning, Shinhan's diversified business model and proactive capital allocation strategy are designed to absorb these pressures. The ambitious shareholder return program, with significant share buybacks and a clear TSR target, underscores management's dedication to enhancing investor value. For discerning investors, Shinhan Financial Group represents a compelling opportunity, offering a blend of financial stability, strategic foresight, and a commitment to shareholder-centric growth in a dynamic financial landscape.