Shinhan Financial (SHG) Q3 2026 Earnings Call Transcript

Tuesday, Oct. 27, 2026

Call participants and highlights

Call participants include Head of Investor Relations Cheol Woo Park, Group Chief Financial Officer Jeong Hoon Jang, Group Chief Strategy Officer Go Suk-Hyun, Head of AX and Digital Choi Hyuck-Jaei, Group Chief Risk Officer Hoon Na, Bank Chief Financial Officer Kang Young-hoon, Card Chief Financial Officer Lee Jeong-bin, Shinhan Investment Securities Chief Financial Officer Jaesung Lee, and Shinhan Life Chief Financial Officer Joo Sung-hwan.

Net Income was KRW 1,584.6 billion, representing a 12.9% decrease quarter over quarter driven by reduced noninterest income. Group CET1 reached 13.6%, an improvement of 12 basis points quarter over quarter reflecting selective asset growth and a falling exchange rate. Share Buybacks of KRW 450 billion total were approved by the Board of Directors, with KRW 200 billion to be executed within the year and KRW 250 billion by Jan. 2027. Total 2026 Buybacks reached KRW 1.6 trillion, a 28% increase year over year as part of a value enhancement plan. Q3 Dividend stood at KRW 740 per share, contributing to an estimated full-year dividend of KRW 2,960 per share. Group ROE and ROTCE recorded 11.9% and 13.4% respectively, both improving 0.9 percentage points year over year.

Lotte Insurance Acquisition required KRW 693.3 billion to acquire a 77% stake, expected to reduce the common equity tier 1 ratio by 19 basis points. Operating Income decreased 13.2% quarter over quarter, primarily due to market volatility affecting noninterest revenue. Interest Income increased 1.8% quarter over quarter, supported by average loan balance growth and higher yields on bonds. Noninterest Income decreased 45.5% quarter over quarter, reflecting capital market slowdowns and valuation losses on bond holdings. Fee Income decreased 27.7% quarter over quarter due to general weakness in capital market-related businesses. G&A Expenses decreased 5.0% quarter over quarter, driven by a seasonal reduction in taxes and dues.

Cost-to-Income Ratio was 37.6%, reflecting effective expense management despite top-line pressure. Credit Cost Ratio was 42 basis points, an improvement of 4 basis points year over year while remaining within the annual management range. NPL Coverage Ratio reached 115.5%, rising slightly quarter over quarter as substandard assets decreased through nonperforming loan sales. Bank Net Income decreased 5.9% quarter over quarter as higher funding costs offset solid interest income. Shinhan Card Net Income increased 68.4% quarter over quarter, benefiting from a gain on the sale of an office building. Shinhan Capital Net Income decreased 29.7% quarter over quarter due to higher funding costs and lower returns on securities.

Shinhan Life Net Income decreased 31.3% quarter over quarter, reflecting experience variance losses and valuation losses on securities. Overseas Business Earnings decreased 9.9% quarter over quarter, primarily impacted by a lower exchange rate. Bank Won Loans increased 1.4% quarter over quarter, focusing on profitability-centered growth in the corporate sector. Commercial Paper recorded KRW 530 billion total issuance as of late October, with a target management margin of 100 basis points. Group RWA decreased 1.6% quarter over quarter due to strategic asset allocation and exchange rate movements.

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Jang noted that the bank's net interest margin declined 3 basis points quarter over quarter because “the rise in the cost of funds outpaced the improvement in asset yields,” pressuring interest profitability. Jang warned that “economic recovery still appears difficult and credit risk versus centered on some vulnerable borrowers,” necessitating close monitoring of asset quality. CFO Jang mentioned that funding and credit costs are increasing in some overseas markets “due to heightened uncertainty in global financial markets, including rising interest rates in major economies.”

Shinhan Financial Group Co., Ltd. (SHG -1.50%) reported a 12.9% decrease in quarterly net income, reflecting a significant decline in noninterest income driven by capital market volatility. Management prioritized shareholder returns, approving a KRW 450 billion buyback program and maintaining a quarterly dividend of KRW 740 per share. The company announced the KRW 693.3 billion acquisition of Lotte Insurance to diversify its non-banking portfolio, intending to fund the purchase through internal capital reallocation. While interest income grew slightly, net interest margins were pressured by rising funding costs and competitive deposit pricing. The group maintained a common equity tier 1 ratio of 13.6% and emphasized selective asset growth to manage risk-weighted assets effectively.

Management indicated that 600,000 customers have been attracted to the SuperSOL platform since its launch in July. CFO Jang stated, “the acquisition would reduce CET1 by around 19 bp, which is sufficiently manageable considering our current group CET1 ratios.” The bank expects net interest margins to remain at current levels through the end of the year due to intense funding competition for maturing deposits. Shinhan Securities CFO Lee noted that “the retail investors' investment sentiment is not really reviving,” which may impact trading volumes in the near term. The group plans to inject KRW 300 billion in common stock capital as part of the Lotte Insurance normalization and integration process. Approximately 60% of bank funding is linked to six-month and one-year debentures, leading to a lagged response in funding costs relative to policy rate hikes.

Industry glossary

• CET1: Common Equity Tier 1, a core measure of a bank's financial strength that focuses on common equity.
• NIM: Net Interest Margin, the difference between interest income generated and the amount of interest paid to lenders.
• RWA: Risk-Weighted Assets, a bank's assets weighted according to their risk profile to determine capital requirements.
• ROTCE: Return on Tangible Common Equity, a ratio that measures the return on the physical capital of a company.
• CSM: Contractual Service Margin, a component of insurance liability representing the unearned profit of a group of insurance contracts.
• SuperSOL: Shinhan's integrated digital financial application designed to provide unified access to its various subsidiary services.
• Experience Variance: The difference between the actual insurance claims or expenses and the expected amounts based on actuarial assumptions.
• ELS: Equity-Linked Securities, investment products whose returns are based on the performance of an underlying equity or index.

Full conference call transcript

Cheol Woo Park: Good afternoon. It's now approaching the end of the year, and we now are at the last conference call of this year. My name is Cheol Woo Park. I'm the Head of IR at Shinhan Financial Group. Thank you very much for joining us for the Q3 2026 earnings call. Today, as the previous quarter, we have Jeong Hoon Jang, our Group CFO. We have Go Suk-Hyun, the Group CSO. We have Choi Hyuck-Jaei, Head of AX and Digital for the Group. We have Hoon Na, Group CRO. We have Kang Young-hoon, Bank CFO. Lee Jeong-bin, Card CFO; Jaesung Lee, Shinhan Investment Securities CFO; and Joo Sung-hwan Shinhan Life CFO.

We will start with a presentation on our Q3 business results by CFO, Jeong Hoon Jang, and then we will open the floor to receive your questions. First, our CFO, Jeong Hoon Jang, will take you through our Q3 earnings results.

Jeong Hoon Jang: Yes. Good afternoon. This is Shinhan Financial Group CFO, Jeong Hoon Jang. Thank you very much for joining our 2026 Q3 earnings call. Let me share our Q3 business results from Page 2, which starts with the business highlights. Percentage of group CET1 at the end of Q3 was 13.62%, maintaining stable levels. Today, the BOD approved a total of KRW 450 billion in share buyback and 400 -- excuse me, KRW 740 per share of Q3 cash dividends.

The buyback will be executed in 2 parts, KRW 200 billion within the year and the remaining KRW 250 billion by January next year, and this will make share buyback completed this year to KRW 1.6 trillion, which is a 28% Y-o-Y increase. For dividends, assuming quarterly cash dividends are maintained at this level until year-end, full year DPS would be KRW 2,960, which is a 14.3% Y-o-Y increase. That said, until the BOD meeting early next year, we will pursue to increase the level of year-end dividends, considering various factors, including capital ratio, profit size and shareholder return ratios and maintaining our industry-leading corporate value enhancement, we will continue to pursue a flexible and satisfactory shareholder return policy.

Q3 net income was KRW 1,584.6 billion, which is a 12.9% Q-o-Q decrease. Group ROE and ROTCE improved 0.9 percentage points Y-o-Y to 11.9% and 13.4%, respectively. As announced, we have decided to acquire 77% of Lotte Insurance at KRW 693.3 billion. The purpose is to strengthen the group's insurance business portfolio and to enhance the mid- to long-term profitability and capital efficiency using our retained capital. The acquisition will be funded by reallocating the group's capital without separate outside funding. The acquisition would reduce CET1 by around 19 bp, which is sufficiently manageable considering our current group CET1 ratios. The decision to acquire Lotte Insurance was reached after considering a wide variety of alternatives.

And once Lotte Insurance operation is normalized, its profitability will improve and start contributing to the upside of the group's ROE. Many steps do remain until the acquisition and integration process is completed, and we will fully communicate with the market and listen to your feedback at each step. We look very much for your support and feedback during this process. The following page shows the key shareholder value metrics provided for your reference. Page 4 is capital. As of end of Q3, group CET1 was 13.62%, which is a 12 bp improvement on a quarter-on-quarter basis. The falling exchange rate and our profitability focused selective asset growth resulted in group RWA decreasing by 1.6% Q-o-Q.

We will continue to maintain this approach of sufficiently supplying resources to the right places, but emphasizing internal efficiency and strategic asset allocation to maintain a stable capital ratio. Page 5 deals with assets and liabilities provided for your reference and Page 6 is group P&L. Q3 group operating income before expenses decreased 13.2% Q-o-Q due to reduction in noninterest income despite solid interest income generation. Net income decreased 12.9% due to reduction in operating income before expenses despite gains from disposal of property and well-controlled expenses. Details are explained in the following pages. Page 7, interest income.

The group's interest income grew 1.8% Q-o-Q, driven by growth in average loan balances and higher interest income from bonds held despite the bank's NIM declining 3 bps Q-o-Q. The bank's NIM declined 3 bps Q-o-Q as the rise in the cost of funds outpaced the improvement in asset yields. In the case of the bank's Korean won-denominated loans, it increased 1.4% Q-o-Q as we responded to customer demand while pursuing a profitability focused growth strategy. For more details, please refer to Page 24. Next page, noninterest income. The group's noninterest income decreased 45.5% Q-o-Q, reflecting the slowdown in capital markets and uncertainty in the interest rate environment.

Fee income decreased 27.7% Q-o-Q amid overall weakness in capital market-related businesses and securities-related income, reflecting valuation losses on bonds from rising market interest rates declined significantly Q-o-Q. Insurance-related income declined Q-o-Q as the impact of widening experience variance losses and the changes in actuarial guidelines persisted. As such, noninterest income in 3Q showed an overall slowdown in line with market volatility. However, each business segment will respond to this and focus on securing a stable earnings base. Next, Page 9, G&A expenses and credit costs. The group's G&A expenses decreased 5.0% Q-o-Q due to a seasonal decrease in taxes and dues and the dissipation of effects such as the securities subsidiaries performance-based compensation recognized in the previous quarter.

Accordingly, the cost-to-income ratio stood at 37.6% and still being managed at a stable level. The group's credit cost increased Q-o-Q as we maintained our preemptive provisioning stance. However, the credit cost ratio stood at 4 bps, improving 42 bps Y-o-Y -- stood at 42 bps, improving 4 bps Y-o-Y remained stable within the management range planned at the beginning of the year. Going forward, while maintaining a conservative provisioning policy, we continue preemptive asset quality management and risk reviews. Next is Page 10, the group's asset quality indicators.

The group's NPL coverage ratio despite a slight increase decreased in the loan loss allowance balance rose slightly Q-o-Q to 115.48% as substandard and below assets decreased due to the bank sale of large nonperforming assets and asset reclassification. Advanced delinquency ratio improved 5 bps Q-o-Q and the card delinquency ratio rose 2 bps Q-o-Q, but overall, they remain at manageable levels. However, as economic recovery still appears difficult and credit risk versus centered on some vulnerable borrowers, we plan to continue close monitoring of asset quality and preemptive risk management going forward. Details on the group's loss absorption capacity and write-off sales of NPLs are provided on the next page. So please refer to them.

Next, Page 12, earnings by subsidiary. Shinhan Bank, despite declines in sales of fees on products such as funds, bancassurance and trust and in security-related income, minimized earnings volatility on the back of solid interest income recording a 5.9% decrease Q-o-Q. Capital market subsidiaries, such as Shinhan Securities and Shinhan Asset Management saw slower earnings Q-o-Q due to lower stock trading value and heightened market volatility. But they still maintained a solid profitability compared with the same period last year. Shinhan Card, amid continued uncertainty in the business environment, improved 68.4% Q-o-Q as a gain on the sale of its office building was reflected.

Shinhan Capital decreased 29.7% Q-o-Q due to the continued burden of funding costs and slowing returns on the securities it holds. Shinhan Life decreased 31.3% Q-o-Q due to lower insurance finance income, reflecting widening experience variance losses and valuation losses and securities held. Page 13, overseas business earnings or Shinhan has been delivering differentiated results. The group's overseas business earnings decreased 9.9% Q-o-Q due to factors such as the lower exchange rate despite the solid earnings generating capacity of major overseas subsidiaries.

SBJ continues its stable growth despite the lower exchange rate, driven by strong real estate market and higher interest income following policy rate hikes and the bank's MMC also continued its strong earnings trend centered on the expansion of its IB business. Meanwhile, funding and credit costs are increasing in some countries due to heightened uncertainty in global financial markets, including rising interest rates in major economies, but they are being managed at an overall controllable level. Pages 14 through Page 15 cover our digital and sustainability management activities and from Page 16 onward, we have provided each subsidiary's financial position, detailed earnings and asset deployment and funding status. So please refer to them. This concludes my presentation.

Thank you very much for your attention.

Unknown Executive: Thank you very much for that presentation. We will now start the Q&A session. [Operator Instructions] I think we can take our first question. It's from HSBC, Jaewoong Wong.

NIM trends and rate indexing

Jaewoong Won: I have a question about your NIM. Last week, other banks announced their results and corporate loans and Korean won loans. As you know, the CD rate is affecting increase in loan pricing. But my understanding is that Shinhan Bank has a different structure. It could be either [indiscernible] base or 1-year bank debenture base. For your Korean won loans, what is the key index, the interest rate index that drives your loan rates? And how much do you expect? Your NIM in Q3 has decreased. Do you expect your NIM to rebound in Q4? If it does rebound in Q4, would it be because of your lending rates or your funding rates?

Where do you think your NIM widening, if it does, would come from? Also, looking at your group NIM, it's not very different from your bank NIM. I thought your card NIM would have shrunk more. I don't think that happened. Is it because there's a different repricing cycle, or is it because of the repricing cycle, is there more downside for the card NIM further decrease in Q4?

Unknown Executive: You've given us several questions regarding NIM. Give us a moment to organize the answers. Well, first of all, about the bank NIM, and then there's the group NIM. I think we can answer it in 2 sides. The bank CFO will answer your questions about the bank NIM, and I will answer the other questions.

Jeong Hoon Jang: My name is Jeong Hoon Jang. I'm the CFO of Shinhan Bank. Thank you very much for your question about our NIM. I think I can first answer by giving you an overall situation about update on our NIM. Our Q3 is 5.18%, which is an increase by 2 bp. And because higher policy rates increases NIM. There was the increase in policy rates in July and August, we thought that would improve our Q3 NIM but there were a lot of deposits that came due in Q3, markets we're expecting rates to go up, market competition, over deposits became fiercer and therefore, there was a higher increase in our funding rates versus lending rates.

Also, there were some credit guarantee fees that could no longer be added to our loan pricing. So unlike our original expectations, our quarterly NIM decreased an increased. There probably will be another policy rate hike, but we do have more deposits coming due in Q4. And so we are expecting current NIM levels to be maintained until year-end. You've asked whether Q4, there could be a NIM rebound. We think that current levels would be probably maintained until year-end. Other banks, for example, have more deposits that are linked to CD rates that probably, is what you're referring to. And each bank has different rates that they use as reference.

Shinhan Bank, we are mainly linked to the 6-month debentures and 1-year debentures. That accounts for about 60% of our funding. 3-month CD tide is relatively small. It's around 20% or less of our funding. So our key indicator would be the 6-month rate. That's why our funding costs respond a bit later to rate increases. You've also asked, I think, several other points about NIM. I think, yes, there are many different factors currently in play, affecting NIM in multiple directions. So it's difficult to give you a very clear forecast about NIM.

But from next year with funding rates stabilizing and with our lending rates, also, we being repriced, we think that our NIM will stabilize from next year. And that's the end of the response from the bank side. I think you've asked about the share of different rates in our assets and liabilities. And so I guess, compared to other banks, we have a smaller share of dependency on CD rates. Now about group NIM, including Shinhan Card, card also has a higher funding rate, around 10 bp higher than last quarter. Up then the funding average balance is smaller and interest income -- actually, there were some more interest income coming in, such as installment card loans have increased.

Of course, given the bank NIM accounting for such a large portion of group NIM, card NIM movements, their effect is limited, but it hasn't been a decreasing factor to group NIM. I think in the past, there was this classic movement when there is increasing rates, 2 to 3 bp was sort of automatically expected improvement on our NIM. But currently, the funding rate is the larger factor in NIM direction. And with -- even though there is another rate hike expected in December, we are at this point, keeping our guidance on NIM neutral because there are some positive factors, but also some negative factors in NIM.

So we currently are maintaining a neutral outlook on NIM, but we will continue to communicate with the market.

Unknown Executive: I hope that was a sufficient answer for your question. We'll now receive the next question. Next question is from Hanwha Investment Securities. It's from Kim Do Ha.

Deposit growth and capital impacts

Do Ha Kim: I have a question about the margin as well. And also I want to ask about the OCI, the capital as well in the case of the margin also. We have a strong linkage to the bank debentures in the corporate loans and the CD share is low. That's what you said. However, in the case of the interest rate for the bank debentures, starting with the fourth quarter of last year, it's been going up continuously. And if that was reflected significantly, then I think it should be -- I think there should be additional explanation of why the margin has not gone up significantly.

And also, we should make a simple comparison to the Korean won loans of the bank. But compared to the increase of the profitable asset, it still looks high on a YTD basis, so your deposit is growing steeply. And even if the spread is maintained, the market seems rather negative. So we are not aiming for high growth. However, what is the reason for requiring such an increase in deposits? Should we look at this as an environment where you have overly excessive deposits? Can you give us some guidance about the future directions? And so I am concerned about the funding aspect.

And in terms of the capital, I think similar trends are being shown by other appears as well. There are always a lot of volatility in the exchange rate in the stock market and won market as well. But I think the OCI has declined further first time at the level that we have seen at KRW 1.4 trillion level. So despite the fact that the losses of PL related, the market securities losses is significant. What is the reason why we have this result in the OCI? I think something that we have to accept some things that we need to adjust. So can you break it down by elements by subsidiaries and provide an explanation about these issues?

Unknown Executive: So you have asked 2 questions while we prepare the answers for these questions, please hold for a few seconds. So likewise, with regard to the margin question, the bank CFO will take your question, and for the other remaining questions, I will myself take your questions.

Jeong Hoon Jang: So let me answer your questions. In terms of the deposit, well the household deposits compared to previous year, yes, it has been reduced. Time deposits about KRW 7.5 trillion and the liquid assets, KRW 1.5 trillion. So from the household deposits, there's been total about KRW 9 trillion that has been reduced, and there has been about KRW 25 trillion increase in the corporate sector. So in conclusion, the overall funding is about the same or a little bit higher than the end of last year. So the corporate deposits have increased and the household deposits have come down slightly. And so margins, yes, we did have some issues about the margins.

But despite that being so, the reason why we had no choice what to do this. It was because there were the NCI ratio or NSFR ratio, these regulatory ratios that we have to comply with. And so we had to align the deposit, and so the corporate deposits came in first and because of the money move, the household deposits were reduced. A lot of the funds went to the submarket, so that was reflected. And going into the third quarter, the corporate sector, the term deposit in this segment was reduced, and we were attracting a lot of deposits from the household segment. And that led to the increase in the funding cost.

And in terms of margin, well, because of the interest rate hike, the lending rate has gone up by about 10 bps. However, the funding cost was greater than 10 bps. It was about 13 to 14 bps, rose higher. And that's the reason why the margin was somewhat -- yes, it declined somewhat.

And with regards to the bank debentures rate, well, after the policy rate increase after July and August, the bank debenture rate has risen slightly, for instance, the -- if it's a loan that is based on the 6 months maturity and after the 6 months has passed, then there will be change in their interest rate and then the 1-year -- debenture will change after a year. But because of the policy rate increase in the months of July and August, because of this increase in benchmark rate, there was an impact on the bank debenture rate. It has increased. And that margin has disappeared. So it will take place sequentially when the 6-month time mark has passed.

We do believe that the lending returns will continue to improve. And we believe that the funding cost will be maintained at the current level and the lending returns will continue to improve. So after the fourth quarter is over, we do believe that, that NIM will improve. So a change topic, if you will. As [indiscernible] has mentioned, well, first of all, as we have noted, in the case of the financial debentures, it has been reflected since the earlier part of the year. And if we look at the quarterly NIM in the third quarter, it was about 1.5% and then in the fourth quarter, it went up to 1.58%.

And then in the first quarter 1.6%, in the second quarter, 1.61%. That was the logic. And in the early part of the year, it was about 3 bps. And in the third quarter, it went up 6 bps. So that was a trend. As you have mentioned, our dilemma is the controllability about the deposit. As you have noted is the loan-to-deposit ratio goes up, the NIM should improve. But the end of 2025, it was about 96%. But in the first quarter and the second quarter, it went down as low as 92.6% loan-to-deposit ratio. That becomes a factor that drives down the NIM. So that means that the deposits were not really controlled.

And the reason for that was because the money move that went to the stock market. Well, we have the securities financing, and we have funds in the trillions of won that move back to the deposit. And so, yes, there is that concern at Shinhan about the funding regarding the NIM. And concerning the capital, so the peer groups are not really discussing this matter. But when the exchange rate rises, per KRW 100, 10 to 13 bps of CET1 ratio goes down. But if we really break it down, then -- so we went down, the exchange rate down, about KRW 180. It's now about KRW 1,358.

That means the RWA has increased by KRW 12 trillion because of this exchange rate factor. But there is the overseas business translation losses and gains that is included under the retained earnings, and KRW 817 billion of losses will be occurred in this segment. That's the logic. So the RWA has been reduced. So per trillion or 4 bps, but that should lead to the improvement of the CET1 ratio. However -- but because of the KRW 810 billion of the retained earnings was affected from the OCR side. So netted it's about 22 bps.

And secondly, so if we exclude the KRW 817 billion, the SAOC bank has a minus of KRW 170 billion, and the rest is the life. It has about KRW 800 billion of negative, but they have a very long duration, right? If the interest rate rises that you're well aware duration. If it's 10 years, then you have to multiply by 10. So in conclusion, the capital OCI impact on that is about KRW 800 billion due to the exchange rate decline, overseas business translation losses, and also in the insurance, there's about KRW 800 billion and bank KRW 170 billion. So that led to the result that you have referred to.

Unknown Executive: I hope that has answered your question. We will take the next question from Tae Joon Jeong of KIS.

Funding competition and fee income

Unknown Analyst: I have 1 question. There was a lot of competition on funding, and that's why you're expecting NIM to remain flat in Q4. And there seems to be slowing down of this money move, and there were some funding that was made in Q3. Now what do you have in mind when you say competition, funding competition in Q4? What exactly do you have in mind?

Unknown Executive: Please give us a moment to prepare your -- the answer. I think the bank CFO can answer that question immediately.

Jeong Hoon Jang: Yes, I'm the bank CFO. You've asked about what we are expecting when we say funding competition. There was a lot of deposits coming due in Q4. There's also some bonds that are coming due in Q4. It's not just Shinhan Bank. I think other banks have similar maturity schedules, and that's why they will have to continue to fund a little bit until Q4. That's why we expect this funding competition. After the end of the year, we think that it would ease up a little bit.

Unknown Executive: Thank you. We will receive the next question, Jihyun Cho from JPMorgan Securities.

Jihyun Cho: I would like to ask a question about the fee income. In terms of the trading fee income. It came down in the third quarter compared to previous quarter. However, I think the fee income was well extended because of the diversification. So in the case of the fourth quarter compared to third quarter, the trading value has become weaker. And so in the fourth quarter and next year, what is your forecast for the fee income and its growth? The midterm ROE of 12% is targeted. And so you have said that this will come from the subsidiaries involved in the capital market securities market. So can you explain about growth position on this?

And another question is midterm, you have an ROE target of 12%. And at the time, you announced this, you do not have any consideration for the acquisition of the Lotte Insurance. So in the course of acquiring this company and normalizing this acquisition, is there going to be adjustment to the ROE target?

Securities and brokerage business outlook

So thank you very much for those 2 questions. Please hold for a few seconds while we prepare the answers. So with regards to brokerage, our Securities CFO will take that question. And noninterest and ROE direction will be explained to you by myself.

So this is Jaesung Lee, the Securities CFO. As you're well aware, in the second quarter, we peaked. And then drastically, the trading value came down in the third quarter, and that trend is continuing in the fourth quarter. But as you're well aware, starting from the mid-October, it has been showing some signs of stabilization. But in the fourth quarter, the retail investors' investment sentiment is not really reviving. And if you look at various projections up until the earlier part of next year, we do believe that the trading volume will come down compared to present level. But we have been actually very proactive in the sales of financial products since the early part of this year.

And through the sales in the ELS and bonds, we have been able to cover for some of these developments. With regards to the brokerage area, not only the financial products, but starting from July, SOL LINK SuperSOL through this account, we have been able to attract about 600,000 customers. We're still in the nascent recent stage. So the trading volume has not increased drastically, but through sustained marketing, we'll be able to actually increase the trading value and also engaging greater sales, and that can cover for the earnings in the brokerage area.

And also, not only the brokerage profitability, but we do believe there were a lot of factors that had an impact on the brokerage business, including IB. But going into fourth quarter, we see the interest rates stabilizing and a lot of the deals becoming -- going back to normal. And so compared to fourth quarter, third quarter will become fundamental actually, we do believe improve. And then in the noninterest and the fee income for the card and the security business, the trend is toward improvement. So market securities and derivatives, depending on the interest rate direction, how we can actually supplement and complement the development will determine the results for the noninterest income.

Return on equity and capital management

The second question is about the ROE 12% target. So our mid- to long-term target is, as we have repeatedly announced, the ROE will be managed between 10% to 12%. It will be difficult for us to continuously grow, but the minimum should be at least an ROE of 10%, and we'd like to aim for 12%. That was the plan that we had established. And if you recall, what we had added to that plan was that, of course, the total return rate should be based on the global business and the nonbanking noninterest income. That was a methodology. But in the leverage aspect we will be consolidating the margin business or reduce them.

And in the M&A, EPS growth is something that we said we might pursue. And the reason for that is because -- so there has been about KRW 40 billion to KRW 50 billion of losses in the insurance. And so if EPS is added, if earnings are increased, then ROE will, for sure, improve as we have included in our presentation deck, without any additional capital increase. If the minus of KRW 50 billion comes back to about KRW 100 billion earnings, then we will be able to improve the ROE. That was our internal judgment. So what remains is the ROE from the ROE compared to input, what will be the return ratio.

As we have seen in the third quarter, the banking subsidiary and insurance, when there is injection of the capital, when there's resources allocated, several years of profitability is guaranteed. That's the kind of business that they have. Of course, it will be difficult to expect any drastic growth, but we will be maintaining a sustained profitability to a certain level. However, in the case of the capital market, from FY perspective, from an accounting perspective, we have to start from scratch and generate the profitability. And so we cannot help but be exposed to the volatility in this market. So with regards to that segment, we will try to address this through our customer base.

And when we become convinced that there will be more profitability to be generated in the IB. We will, of course, try to move in that direction. But in the end, there will be no capital increase, and we will be including about KRW 300 billion of CET1. So now this group is generate -- if you assume that it's generating about KRW 6 trillion in earnings, then even if we do a shareholder return of 50%, within that range, we'll be able to engage in resource allocation in a way that is helpful to the ROE. If there is a certain business, we will be doing that.

And within the ROE 10% to 12% interval, we'll be doing a play that moves within that range. If you have any additional questions, please do not hesitate to pose your questions. Thank you.

Well, thank you very much for that question and answer. We'll take the next question from iM, Yong Jin Seol.

Commercial paper issuance and insurance updates

I also have 2 questions about your nonbank businesses. First, on Shinhan Securities. You have started the commercial paper and you've paid -- you've sold around KRW 390 billion in the first half. Can you give us some update? There are so many companies coming into the commercial paper issuing business. What kind of margins are you enjoying from that new business line? Second is related with P&C insurance. There are some hedge issues coming up in other P&C insurance companies. I think you've also sold a lot of similar products in '23, '24. How is your termination rates looking at this point?

Well, I think the first question can be taken by the CFO of Shinhan Securities. Second question by the Life CFO.

Yes, this is the CFO of Shinhan Securities, Jaesung Lee. It's not just us, but there's a total of 9 companies that have received approval for commercial paper issuance business. There were 3 companies, including us, received this approval. So we were relatively latecomer group. So we had a plan of around KRW 700 billion of stable volume, focusing on pipeline. And when we started our CP business, the securities market went up, so there was more money going into the market than our issuance. That said, our volume issuance was smaller relative to other companies, but we have conservatively maintained our risk. Risk management was done conservatively.

And as we mentioned in the Q2 earnings call, we said that our target margin was 100 bp. Currently, our CP business as of last week, have around 100 bp of asset management, and we have a total issuance of about KRW 530 billion. Merit securities, I think, is starting a new issuance program. So other security companies are continuing to issue paper. We are not going into excessive competition, either in issuance volume or rates and margins. We think that this is a long-term business. So next year, we would have a stronger pipeline. Next year, we're thinking around KRW 2 trillion volume.

And this is the CFO of Shinhan Life. Thank you very much for that question. That product, I think you're referring to a product that was sold a lot in life insurance. And we have been selling it 15% until it was discontinued. We did not over concentrate in this product. And as you mean, the lapse ratio will be adjusted at the end of the year, we are going to reflect this above the guideline of 30%, and this is something we can absorb within the CSM that has increased during the year.

We do hope that, that provide a sufficient answer to your question. There is no questions waiting in the queue. So yes, we do have another question. This is from WhiteOak Capital.

Lotte non-life insurance acquisition rationale

One question just on the acquisition of Lotte Non-life. Just wanted to understand how you're thinking about the multiple paid 0.9x price to book for the business given there's more capital injections, which needs to be done going forward as well, right? So can you talk a bit more about the rationale for the price multiple you paid over here? And just the timing of the acquisition as well, do you expect a better underwriting cycle in the underlying business, which makes you more confident about this business and hance you went more aggressive into this acquisition at this point in time?

[Foreign Language]

So while we are preparing an answer for your question, please hold for a few seconds. So I think you would have to provide an explanation about this. So the PBRs 0.9 multiple is based on the net asset for the first half. So of course, the valuation was not done like this. It was actually utilized and also the valuation, KRW 170 billion in the invested asset that was also reflected on the basis of book value, yes, looks like a 0.9 multiple. With regards to capital injections, I think there's some confusion in the market. So let me explain about this.

We still have the licensing and permit stage left and because Lotte is listed company after all of these issues have been addressed, we will be presenting more detailed business plan, but the basic capital ratio that is applied in the insurance industry. As you are well aware, the Tier 1 ratio that is done in the bank is very similar to the Tier 1 ratio that is used in the banking sector. And in the -- so the Tier 1 ratio we do not need to continuously incorporate the CET1 capital if, of course, the required capital becomes bigger, then we will be able to inject capital through other complementary capital. We did have that background.

And that's the reason why we have announced that only about KRW 300 billion of capital will be injected. But because there are some stakeholders with regards to the more detailed plans after the acquisition has been completed, we will be communicating with the market again. And so capital injection, based on our calculations, it's about KRW 900 billion on a simple calculation and about KRW 300 billion of common stock capital increase is being considered. So if the book value, we assume is KRW 900 billion compared to KRW 1.2 trillion of ROE is something that we're looking at. So what's the rationale?

Well, as we have noted previously, the easy life insurance has about KRW 50 billion of losses, and we can actually improve upon this through this acquisition. And at a point in time in which interest rate has risen, the PPA we're doing this acquisitions on a consolidated basis. From the valuation point of view, the asset and liability acquisition from the PPA. We do believe there will be plus about KRW 30 billion to KRW 40 billion. That was our expectation. And so group's capital, it's a matter of allocation. If we had stayed as we were, it would have been minus KRW 50 billion losses.

If this went to 0, that would have been KRW 50 billion improvement, and the Lotte Insurance. We don't really expect that the profitability would jump for Lotte Insurance going forward. But if you look at the other factors involved as well from an ROI, ROE perspective, we -- our judgment was that we were able to meet the expectations of the investors.

So going back, there's a lot of talk about the uncertainty of the capital injections, but to give you some hint, not only common stock injections, through using other types of capital, that kind of injection is some of the alternatives that we can leverage what the other existing shareholders were not able to do because this is a financial group, we will be able to engage in such place. And with regards to your last question, do you believe that the non-life insurance is going to see a significant improvement. Well, yes. The industry is going through difficulties. The CSM is drastically reducing at the moment, as the Life CFO had mentioned.

However, if you look at the nature of the Korean insurance industry, if you look at the new business and CSM margin rate, if it becomes normalized, if that is the assumption, then as long as we design the products well, then compared to the product structure that is sold in the life insurance, we do believe that there are better long-term health insurances and these kind of products can be sold. And also various synergies can be created and which will be disclosed in greater detail later on. So based on that when it comes to the capital injections, well, we do believe that we'll be able to generate sufficient profitability from this acquisition.

Thank you very much for that answer. Currently, we have no questions in waiting. We will wait for a short while to see there is anyone with questions, please use the hand button in the center of your screen. We have a question from NH Securities, Jun-Sup Jung.

Asset quality and credit cost outlook

This is Jun-Sup Jung from NH. I have a question about your credit cost. This time, we're seeing like past, your asset quality management is good. We're not seeing any problems on credit cost. That said, recently, as you know, rates are climbing quite quickly. And yesterday, there was a bank that focuses on corporate loans that are increasing their provisioning preemptively. What is your outlook about credit quality, about business cycles? Do you expect any additional provisioning to come down the road?

Thank you very much for that question. And please give us a moment to organize the answer. About asset quality, I think our group CRO will be the right person to answer that question.

Yes. This is Hoon Na, the Group CRO. Thank you very much for that question on asset quality. With the rates increasing and economic recovery being delayed, when we look at delinquencies or substandard and below NPL ratios, most of these indicators are actually improving in all of our affiliates. But if the rates continue to go up and the improving economy -- economic improvement delay, there are potential of delinquencies. But as you know, we have been very selective in our asset growth. We've been focusing on high-quality asset growth and segmenting our borrowers.

Even if we assume additional provisioning and provisional delinquencies, we think that we will be able to keep our credit card ratios and the credit cost ratios in the low 40 bp range.

So thank you very much for that question. We don't have any further questions waiting in the queue. If you have any further questions, please contact our IR team, and we will provide you with more detailed answers. Then this concludes Shinhan Financial Group Third Quarter 2026 Earnings Conference. And today's presentation can be viewed again on our website and on the Shinhan Financial Group IR YouTube channel, and if you have any additional results about -- business results, there were some questions about the M&A. So if you have any additional questions, please feel free to contact our IR team. So we look forward to seeing you again at our Q4 2026 earnings conference next year.

Thank you very much.