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(Mark One) | ||
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2005 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | ||
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Date of event requiring this shell company report |
N/A | The Republic of Korea | |
(Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Title of Each Class: | Name of Each Exchange on Which Registered: | |
Common stock, par value Won 5,000 per share | New York Stock Exchange* | |
American depositary shares | New York Stock Exchange |
* | Not for trading, but only in connection with the listing of American depositary shares on the New York Stock Exchange, pursuant to the requirements of the Securities and Exchange Commission. |
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ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Name | Position | |
Eung Chan Ra | Chairman of the Board of Directors and Head of the Board Steering Committee | |
In Ho Lee | President and Chief Executive Officer and a member of the Board Steering Committee | |
Young Hwi Choi | Executive Director |
Name | Position | |
Young Seok Choi | Non-Executive Director; Audit Committee member | |
Yong Woong Yang | Non-Executive Director | |
Il Sup Kim | Outside Director; Head of Audit Committee; Compensation Committee member | |
Sang Yoon Lee | Outside Director; Board Steering Committee member, Audit Committee member; Compensation Committee member | |
Yoon Soo Yoon | Outside Director; Risk Management Committee member; Compensation Committee member | |
Shee Yul Ryoo | Outside Director; Board Steering Committee member; Risk Management Committee member, Compensation Committee member | |
Byung Hun Park | Outside Director, Board Steering Committee member | |
Young Hoon Choi | Outside Director | |
Si Jong Kim | Outside Director; Audit Committee member | |
Philippe Reynieix | Outside Director; Risk Management Committee member | |
Haeng Nam Chung | Outside Director | |
Myoung Soo Choi | Outside Director |
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Name | Position | |
Jae Woo Lee | Chief Operating Officer; Managing Director of General Affairs Team, Public Relations Team and Human Resources Team | |
Byung Jae Cho | Chief Financial Officer; Managing Director of Finance Planning Team, Risk Management Team and Investor Relations Team | |
Jin Won Suh | Chief Strategy Officer; Managing Director of Strategic Planning Team, Information & Technology Planning Team and Future Strategy & Management Team | |
Jae Woon Yoon | Group Synergy Officer; Managing Director of Synergy Management Team, Joint Procurement Team and Audit & Compliance Team |
Membership in | ||||||
Name | Period | Address | Professional Bodies | |||
Samil PricewaterhouseCoopers | For the year ended December 31, 2003 | Kukje Center Building 15th Floor 191 Hangangro 2ga, Yongsan-gu, Seoul, Korea | Korean Institute of Certified Public Accountants | |||
KPMG Samjong Accounting Corp. | For the years ended December 31, 2004 and 2005 | Star Tower 10th Floor 737 YeokSam-dong, KangNam-gu, Seoul 135-984 Korea | Korean Institute of Certified Public Accountants |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
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ITEM 3. | KEY INFORMATION |
Consolidated Income Statement Data |
Year Ended December 31, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | |||||||||||||||||||
(In billions of Won and millions of US$, except per common share data) | ||||||||||||||||||||||||
Interest and dividend income | W | 3,694 | W | 3,735 | W | 5,331 | W | 7,712 | W | 7,488 | $ | 7,413 | ||||||||||||
Interest expense | 2,439 | 2,305 | 2,998 | 4,138 | 4,014 | 3,974 | ||||||||||||||||||
Net interest income | 1,255 | 1,430 | 2,333 | 3,574 | 3,474 | 3,439 | ||||||||||||||||||
Provision (reversal) for credit losses | 405 | 246 | 965 | 135 | (183 | ) | (182 | ) | ||||||||||||||||
Noninterest income | 632 | 1,037 | 1,118 | 2,092 | 2,702 | 2,675 | ||||||||||||||||||
Noninterest expense | 828 | 1,302 | 1,937 | 3,152 | 3,662 | 3,625 | ||||||||||||||||||
Income tax expense | 223 | 320 | 248 | 764 | 942 | 933 | ||||||||||||||||||
Minority interest | (1 | ) | 10 | 26 | 153 | 16 | 16 | |||||||||||||||||
Income before extraordinary item and effect of accounting change | 432 | 589 | 275 | 1,462 | 1,739 | 1,722 | ||||||||||||||||||
Extraordinary gain | 64 | — | — | 28 | — | — | ||||||||||||||||||
Cumulative effect of a change in accounting principle, net of taxes | — | — | — | (23 | ) | — | — | |||||||||||||||||
Net income | W | 496 | W | 589 | W | 275 | W | 1,467 | W | 1,739 | $ | 1,722 | ||||||||||||
Net income per common share (in currency unit): | ||||||||||||||||||||||||
Net income — basic(1) | W | 1,948 | W | 2,246 | W | 1,024 | W | 4,875 | W | 5,190 | $ | 5.14 | ||||||||||||
Net income — diluted(2) | 1,663 | 2,243 | 984 | 4,347 | 4,882 | 4.83 | ||||||||||||||||||
Weighted average common shares outstanding-basic (in thousands of common shares) | 254,680 | 262,480 | 262,987 | 292,465 | 333,424 | |||||||||||||||||||
Weighted average common shares outstanding-diluted (in thousands of common shares) | 299,215 | 262,812 | 279,745 | 337,479 | 356,140 |
(1) | Basic earnings per share are calculated by dividing the net income available to common stockholders by the weighted average number of common shares issued and outstanding for the period. |
(2) | Diluted earnings per share are computed in a manner consistent with that of basic earnings per share, while giving effect to the potential dilution that could occur if convertible securities, options or other contracts to issue common stock were converted into or exercised for common stock. We have two categories of potentially dilutive common shares: (i) shares issuable on exercise of stock option and (ii) shares issuable on conversion of preferred shares. |
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Consolidated Balance Sheet Data |
As of December 31, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | |||||||||||||||||||
(In billions of Won and millions of US$, except per common share data) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash and cash equivalents | W | 580 | W | 282 | W | 1,897 | W | 2,444 | W | 2,434 | $ | 2,410 | ||||||||||||
Restricted cash | 678 | 1,365 | 3,662 | 3,301 | 3,644 | 3,608 | ||||||||||||||||||
Interest-bearing deposits | 255 | 125 | 409 | 220 | 627 | 621 | ||||||||||||||||||
Call loans and securities purchased under resale agreements | 1,816 | 576 | 1,898 | 1,591 | 1,499 | 1,485 | ||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||
Trading securities and other | 858 | 926 | 2,857 | 4,639 | 3,573 | 3,538 | ||||||||||||||||||
Derivatives assets | 98 | 139 | 520 | 1,678 | 934 | 925 | ||||||||||||||||||
Securities: | ||||||||||||||||||||||||
Available-for-sale securities | 7,087 | 8,737 | 18,099 | 18,108 | 22,480 | 22,257 | ||||||||||||||||||
Held-to-maturity securities | 6,038 | 4,408 | 3,605 | 3,099 | 2,963 | 2,934 | ||||||||||||||||||
Loans (net of allowance for loan losses of W720 billion in 2001, W996 billion in 2002, W3,631 billion in 2003, W2,311 billion in 2004 and W1,512 billion in 2005) | 32,997 | 44,139 | 91,791 | 94,868 | 104,447 | 103,413 | ||||||||||||||||||
Customers’ liability on acceptances | 1,566 | 928 | 2,365 | 2,012 | 1,879 | 1,860 | ||||||||||||||||||
Premises and equipment, net | 530 | 828 | 2,003 | 1,848 | 1,876 | 1,858 | ||||||||||||||||||
Goodwill and intangible assets | 4 | 219 | 1,676 | 1,660 | 2,957 | 2,928 | ||||||||||||||||||
Security deposits | 390 | 466 | 966 | 968 | 1,078 | 1,067 | ||||||||||||||||||
Other assets | 2,205 | 1,648 | 4,601 | 7,072 | 4,724 | 4,676 | ||||||||||||||||||
Total assets | W | 55,102 | W | 64,786 | W | 136,349 | W | 143,508 | W | 155,115 | $ | 153,580 | ||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest-bearing | W | 31,036 | W | 35,886 | W | 82,161 | W | 79,934 | W | 83,278 | $ | 82,454 | ||||||||||||
Non-interest-bearing | 1,184 | 1,163 | 1,328 | 2,746 | 3,143 | 3,112 | ||||||||||||||||||
Trading liabilities | 119 | 131 | 513 | 1,758 | 1,048 | 1,038 | ||||||||||||||||||
Acceptances outstanding | 1,566 | 928 | 2,365 | 2,012 | 1,879 | 1,860 | ||||||||||||||||||
Short-term borrowings | 5,759 | 6,994 | 11,204 | 10,954 | 11,968 | 11,850 | ||||||||||||||||||
Secured borrowings | 4,088 | 4,706 | 6,316 | 6,308 | 7,502 | 7,427 | ||||||||||||||||||
Long-term debt | 4,876 | 8,235 | 21,218 | 23,617 | 26,172 | 25,913 | ||||||||||||||||||
Future policy benefit | — | — | — | — | 4,778 | 4,730 | ||||||||||||||||||
Accrued expenses and other liabilities | 3,562 | 3,193 | 6,555 | 9,713 | 7,089 | 7,019 | ||||||||||||||||||
Total liabilities | 52,190 | 61,236 | 131,660 | 137,042 | 146,857 | 145,403 | ||||||||||||||||||
Minority interest | 2 | 288 | 583 | 66 | 80 | 79 | ||||||||||||||||||
Redeemable convertible preferred stock | — | — | 711 | 736 | 368 | 364 | ||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||
Common stock | 1,462 | 1,462 | 1,472 | 1,596 | 1,795 | 1,779 | ||||||||||||||||||
Additional paid-in capital | 1,041 | 1,048 | 1,073 | 1,658 | 2,407 | 2,383 | ||||||||||||||||||
Retained earnings | 638 | 1,077 | 1,189 | 2,456 | 3,953 | 3,914 | ||||||||||||||||||
Accumulated other comprehensive income, net of taxes | 164 | 70 | 58 | 158 | (100 | ) | (99 | ) | ||||||||||||||||
Less: treasury stock, at cost | (395 | ) | (395 | ) | (397 | ) | (204 | ) | (245 | ) | (243 | ) | ||||||||||||
Total stockholders’ equity | 2,910 | 3,262 | 3,395 | 5,664 | 7,810 | 7,734 | ||||||||||||||||||
Total liabilities, minority interest, Redeemable Convertible Preferred Stock and stockholders’ equity | W | 55,102 | W | 64,786 | W | 136,349 | W | 143,508 | W | 155,115 | $ | 153,580 | ||||||||||||
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Dividends |
Year Ended December 31, | |||||||||||||||||||||
2001(1) | 2002(2) | 2003(2) | 2004(2) | 2005(2) | |||||||||||||||||
(In Won and US$, except ratios) | |||||||||||||||||||||
U.S. GAAP: | |||||||||||||||||||||
Cash dividends per share of common stock: | |||||||||||||||||||||
In Korean Won | W | 750 | W | 600 | W | 600 | W | 600 | W | 750 | |||||||||||
In U.S. dollars | $ | 0.63 | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.74 | |||||||||||
Cash dividends per share of preferred stock | |||||||||||||||||||||
In Korean Won | N/A | N/A | N/A | W | 135.12 | W | 365.34 | ||||||||||||||
In U.S. dollars | N/A | N/A | N/A | $ | 0.13 | $ | 0.36 | ||||||||||||||
Stock dividends per share of common stock | — | — | — | — | — | ||||||||||||||||
Korean GAAP: | |||||||||||||||||||||
Cash dividends per share of common stock:(3) | |||||||||||||||||||||
In Korean Won | W | 600 | W | 600 | W | 600 | W | 600 | W | 750 | |||||||||||
In U.S. dollars | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.74 | |||||||||||
Dividend ratio(4) | 12.00 | % | 12.00 | % | 12.00 | % | 12.00 | % | 15.00 | % | |||||||||||
Cash dividends per share of preferred stock: | |||||||||||||||||||||
In Korean Won | N/A | N/A | N/A | W | 857 | W | 1,183 | ||||||||||||||
In U.S. dollars | N/A | N/A | N/A | $ | 0.83 | $ | 1.17 | ||||||||||||||
Dividend ratio(4) | N/A | N/A | N/A | 17.14 | % | 23.66 | % | ||||||||||||||
Stock dividends per share of common stock | — | — | — | — | — |
(1) | Represents, under U.S. GAAP, dividends declared on common stock of Shinhan Bank for the year ended December 31, 2000 and, under Korean GAAP, dividends accrued in the period to which such dividends relate for the year ended December 31, 2001. |
(2) | Represents dividends declared on the common stock of Shinhan Financial Group for the year ended December 31, 2002, 2003, 2004 and 2005. |
(3) | Represents, under Korean GAAP, for each year ended December 31, 2001 and 2002, dividends accrued on the common stock of Shinhan Financial Group for such year, and, for each year ended December 31, 2003, 2004 and 2005, dividends declared on common stock of Shinhan Financial Group in such year. In connection with our holding company restructuring in 2001, common stock of Shinhan Bank was exchanged for common stock of Shinhan Financial Group on a 1:1 ratio. |
(4) | Dividends declared and paid as a percentage of par value of W5,000 per common share of Shinhan Financial Group. |
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Profitability Ratios |
Year Ended December 31, | ||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||
(Percentages) | ||||||||||||||||||||||
Net income as a percentage of: | ||||||||||||||||||||||
Average total assets(1) | 0.94 | % | 0.94 | % | 0.29 | % | 1.01 | % | 1.16 | % | ||||||||||||
Average stockholders’ equity(1)(2) | 16.14 | 15.99 | 8.83 | 31.44 | 29.80 | |||||||||||||||||
Including Redeemable Convertible Preferred Stock(3) | N/A | N/A | 8.15 | 27.22 | 27.08 | |||||||||||||||||
Including Redeemable Convertible Preferred Stock and Redeemable Preferred Stock(3) | N/A | N/A | 8.24 | 22.73 | 19.98 | |||||||||||||||||
Dividend payout ratio(4) | 38.91 | 25.59 | 57.20 | 15.87 | 15.99 | |||||||||||||||||
Net interest spread(5) | 2.28 | 2.39 | 2.48 | 2.63 | 2.64 | |||||||||||||||||
Net interest margin(6) | 2.66 | 2.58 | 2.65 | 2.78 | 2.70 | |||||||||||||||||
Efficiency ratio(7) | 43.88 | 52.78 | 56.13 | 55.63 | 59.29 | |||||||||||||||||
Cost-to-average assets ratio(8) | 1.57 | 2.08 | 2.01 | 2.18 | 2.45 | |||||||||||||||||
Equity to average asset ratio(9): | 5.84 | 5.89 | 3.24 | 3.22 | 3.91 | |||||||||||||||||
Including Redeemable Convertible Preferred Stock(3) | N/A | N/A | 3.51 | 3.72 | 4.30 | |||||||||||||||||
Including Redeemable Convertible Preferred Stock and Redeemable Preferred Stock(3) | N/A | N/A | 4.04 | 4.83 | 5.39 |
(1) | Average balances are based on (a) daily balances for Shinhan Bank, Chohung Bank and Jeju Bank and (b) quarterly balances for other subsidiaries. |
(2) | Does not include the Redeemable Preferred Stock or the Redeemable Convertible Preferred Stock described below. |
(3) | As consideration for our acquisition of Chohung Bank, in August 2003, we issued to the Korea Deposit Insurance Corporation (i) 46,583,961 shares of our Redeemable Preferred Stock, with an aggregate redemption price of W842,517,518,646 and (ii) 44,720,603 shares of our Redeemable Convertible Preferred Stock, with an aggregate redemption price of W808,816,825,858, which were convertible into shares of our common stock. In November 2005, Korea Deposit Insurance Corporation converted 22,360,302 shares of these shares of our Redeemable Convertible Preferred Stock into 22,360,302 shares of our common stock, representing 6.22% of our total issued shares (or 5.86% of our total issued shares on a fully diluted basis) of our common stock. In April 2006, Korea Deposit Insurance Corporation sold to BNP Paribas S.A. and other institutional investors all of our common shares held by it. As of the date hereof, Korea Deposit Insurance Corporation does not hold any share of our common stock but still holds 22,360,301 shares of Redeemable Convertible Preferred Stock, representing 6.22% of the total issued shares (or 5.86% of the total issued shares on a fully diluted basis) of our common stock. Korea Deposit Insurance Corporation is entitled to convert such shares into our common stock beginning in August 2006. Pursuant to the terms of the Redeemable Preferred Stock issued to Korea Deposit Insurance Corporation, we are required to redeem such shares in five equal annual installments commencing three years from the date of issuance. These Redeemable Preferred Stock are treated as debt under U.S. GAAP. Pursuant to the terms of our Redeemable Convertible Preferred Stock, we are required to redeem the full amount of such shares outstanding five years from the date of issuance to the extent not converted into our common shares. Each share of our Redeemable Convertible Preferred Stock is convertible into one share of our common stock. The dividend ratios on our Redeemable Preferred Stock |
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and Redeemable Convertible Preferred Stock are 4.04% and 2.02%, respectively. In August 2003, we also raised W900 billion in cash through the issuance of 6,000,000 shares of Redeemable Preferred Stock, all of which were sold in the domestic fixed-income market through Strider Securitization Specialty Co., Ltd., a special purpose vehicle. These redeemable preferred shares have terms that are different from the redeemable preferred shares issued to Korea Deposit Insurance Corporation. We are required to redeem these preferred shares issued to the special purpose vehicle in three installments in 2006, 2008 and 2010. See “Item 4. Information on the Company — The Merger of Shinhan Bank and Chohung Bank — Liquidity and Capital Resources” and “Item 10. Additional Information — Articles of Incorporation — Description of Capital Stock — Description of Redeemable Preferred Stock”. | |
(4) | Represents the ratio of total dividends declared on common stock as a percentage of net income. |
(5) | Represents the difference between the yield on average interest-earning assets and cost of average interest-bearing liabilities. |
(6) | Represents the ratio of net interest income to average interest-earning assets. |
(7) | Represents the ratio of noninterest expense to the sum of net interest income and noninterest income, a measure of efficiency for banks and financial institutions. Efficiency ratio may be reconciled to comparable line-items in our income statements for the periods indicated as follows: |
Year Ended December 31, | |||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||
Non-interest expense(A) | W | 828 | W | 1,302 | W | 1,937 | W | 3,152 | W | 3,662 | |||||||||||
Divided by | |||||||||||||||||||||
The sum of net interest income and noninterest income(B) | 1,887 | 2,467 | 3,451 | 5,666 | 6,176 | ||||||||||||||||
Net interest income | 1,255 | 1,430 | 2,333 | 3,574 | 3,474 | ||||||||||||||||
Noninterest income | 632 | 1,037 | 1,118 | 2,092 | 2,702 | ||||||||||||||||
Efficiency ratio ((A) as a percentage of(B)) | 43.88 | % | 52.78 | % | 56.13 | % | 55.63 | % | 59.29 | % |
(8) | Represents the ratio of noninterest expense to average total assets. |
(9) | Represents the ratio of average stockholders’ equity (not including the Redeemable Preferred Stock or the Redeemable Convertible Preferred Stock) to average total assets. |
Asset Quality Ratios |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||
Total loans | W | 33,665 | W | 45,052 | W | 95,295 | W | 97,080 | W | 105,848 | ||||||||||
Total allowance for loan losses | 720 | 996 | 3,631 | 2,311 | 1,512 | |||||||||||||||
Allowance for loan losses as a percentage of total loans | 2.14 | % | 2.21 | % | 3.81 | % | 2.38 | % | 1.43 | % | ||||||||||
Total non-performing loans(1) | W | 530 | W | 518 | W | 1,844 | W | 1,750 | W | 1,594 | ||||||||||
Non-performing loans as a percentage of total loans | 1.57 | % | 1.15 | % | 1.94 | % | 1.80 | % | 1.51 | % | ||||||||||
Non-performing loans as a percentage of total assets | 0.96 | % | 0.80 | % | 1.35 | % | 1.22 | % | 1.03 | % | ||||||||||
Impaired loans(2) | W | 1,492 | W | 1,263 | W | 3,488 | W | 2,646 | W | 2,285 | ||||||||||
Allowance for impaired loans | 385 | 480 | 1,349 | 885 | 704 | |||||||||||||||
Impaired loans as a percentage of total loans | 4.43 | % | 2.80 | % | 3.66 | % | 2.73 | % | 2.16 | % | ||||||||||
Allowance for impaired loans as a percentage of impaired loans | 25.80 | % | 38.00 | % | 38.68 | % | 33.47 | % | 30.81 | % |
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(1) | Non-performing loans are defined as loans, whether corporate or consumer, that are past due more than 90 days. |
(2) | Impaired loans include loans that are classified as “substandard” or below according to the asset classification guidelines of the Financial Supervisory Commission, loans that are past due for 90 days or more and loans that qualify as “troubled debt restructurings” under U.S. GAAP. |
Capital Ratios |
As of December 31, | |||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
(Percentages) | |||||||||||||||||||||
Requisite capital ratio(1) | 134.43 | % | 130.93 | % | 118.41 | % | 129.41 | % | 132.81 | % | |||||||||||
Total capital adequacy ratio for Shinhan Bank(2) | 11.99 | 10.92 | 10.49 | 11.94 | 12.23 | ||||||||||||||||
Tier I capital adequacy ratio(2) | 8.24 | 6.81 | 6.34 | 7.45 | 8.16 | ||||||||||||||||
Tier II capital adequacy ratio(2) | 3.75 | 4.11 | 4.15 | 4.49 | 4.07 | ||||||||||||||||
Total capital adequacy ratio for Chohung Bank(3) | 10.43 | 8.66 | 8.87 | 9.40 | 10.94 | ||||||||||||||||
Tier I capital adequacy ratio(3) | 5.91 | 4.61 | 4.47 | 4.99 | 6.52 | ||||||||||||||||
Tier II capital adequacy ratio(3) | 4.52 | 4.05 | 4.40 | 4.41 | 4.42 | ||||||||||||||||
Adjusted equity capital ratio of Shinhan Card(4) | N/A | 10.86 | 13.78 | 16.48 | 17.68 | ||||||||||||||||
Solvency ratio for Shinhan Life Insurance(5) | 204.5 | 238.9 | 224.7 | 265.7 | 232.1 |
(1) | We were restructured as a financial holding company on September 1, 2001 and became subject to minimum capital requirements as reflected in the requisite capital ratio. Under the guidelines issued by the Financial Supervisory Commission applicable to financial holding companies, we, at the holding company level, are required to maintain a minimum requisite capital ratio of 100%. Requisite capital ratio represents the ratio of net aggregate amount of our equity capital to aggregate amounts of requisite capital (all of which are described in “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy”). This computation is based on our consolidated financial statements prepared in accordance with Korean GAAP. |
(2) | Shinhan Bank’s capital adequacy ratios are computed in accordance with the regulations issued by the Financial Supervisory Commission, which was revised as of December 31, 2002 to take into account market risk as well as credit risk. The capital ratios as of December 31, 2002 were calculated using these revised guidelines. Under these guidelines, Shinhan Bank is required to maintain a minimum capital adequacy ratio of 8%. Applying the previous calculation, which only takes into account credit risks, Shinhan Bank’s total capital adequacy ratio as of December 31, 2002, 2003, 2004 and 2005 were 10.91%, 10.59%, 11.96% and 12.27%, respectively. This computation is based on Shinhan Bank’s consolidated financial statements prepared in accordance with Korean GAAP. See “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Banks — Capital Adequacy.” |
(3) | Chohung Bank’s capital adequacy ratios are computed in accordance with the regulations issued by the Financial Supervisory Commission, which was revised as of December 31, 2002 to take into account market risk as well as credit risk. The capital ratios as of December 31, 2002 were calculated using these revised guidelines. Under these regulations, Chohung Bank is required to maintain a minimum capital adequacy ratio of 8%. Applying the previous calculation, which only takes into account credit risks, |
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Chohung Bank’s total capital adequacy ratio as of December 31, 2002, 2003, 2004 and 2005 was 8.64%, 8.89%, 9.39% and 10.94%, respectively. This computation is based on the Chohung Bank’s consolidated financial statements prepared in accordance with Korean GAAP. See “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Banks — Capital Adequacy.” |
(4) | Represents the ratio of total adjusted shareholders’ equity to total adjusted assets and is computed in accordance with the guidelines issued by the Financial Supervisory Commission for credit card companies. Under these regulations, Shinhan Card, which was established on June 4, 2002, is required to maintain a minimum adjusted equity capital ratio of 8%. This computation is based on Shinhan Card’s nonconsolidated financial statements prepared in accordance with Korean GAAP. |
(5) | Solvency ratio is the ratio of Solvency Margin to Standard Amount of Solvency Margin and is computed in accordance with the regulations issued by the Financial Supervisory Commission for life insurance companies. Under these regulations Shinhan Life Insurance is required to maintain a minimum solvency ratio of 100%. Based on the calculation, Shinhan Life Insurance’s solvency ratio as of March 31, 2006 was 230.8%. |
At End | |||||||||||||||||
Year Ended December 31, | of Period | Average(1) | High | Low | |||||||||||||
(Won per US$1.00) | |||||||||||||||||
2000 | 1,267.00 | 1,130.90 | 1,267.00 | 1,105.50 | |||||||||||||
2001 | 1,313.50 | 1,292.00 | 1,369.00 | 1,234.00 | |||||||||||||
2002 | 1,186.30 | 1,250.31 | 1,332.00 | 1,160.60 | |||||||||||||
2003 | 1,192.00 | 1,192.08 | 1,262.00 | 1,146.00 | |||||||||||||
2004 | 1,035.10 | 1,139.30 | 1,195.10 | 1,035.10 | |||||||||||||
2005 | 1,010.00 | 1,023.75 | 1,059.80 | 997.00 | |||||||||||||
2006 (through June 23) | 955.80 | 962.29 | 1,002.90 | 927.40 | |||||||||||||
January | 958.90 | 981.44 | 1,002.90 | 958.90 | |||||||||||||
February | 970.90 | 969.84 | 976.30 | 962.00 | |||||||||||||
March | 971.40 | 974.71 | 981.95 | 966.80 | |||||||||||||
April | 942.80 | 952.60 | 970.40 | 939.60 | |||||||||||||
May | 945.30 | 940.82 | 951.50 | 927.40 | |||||||||||||
June (through June 23) | 955.80 | 953.75 | 961.80 | 942.70 |
(1) | The average of the Noon Buying Rates over the relevant period. |
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Competition in the Korean banking industry, in particular in the small- and medium-sized enterprises banking, retail banking and credit card operations, is intense, and we may experience declining margins as a result. |
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We are highly dependent on short-term funding sources that are susceptible to price competition, which dependence may adversely affect our operations. |
We have significant exposure to small- and medium-sized enterprises including smaller enterprises, which may result in a deterioration of our asset quality to this segment and have an adverse impact on us. |
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We may not be able to sustain the high rate of growth in our mortgage and home equity lending. In addition, we cannot assure that the asset quality of our mortgage and home equity loans, in particular the long-term mortgage and home equity loans, will not deteriorate. |
A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio. |
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We may experience a further deterioration of the credit quality of our credit card and other consumer lending portfolios. |
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Developments adversely affecting the business and liquidity of credit card companies in Korea, including LG Card, may result in losses in respect of our exposure to such companies. |
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We have significant exposure to the largest Korean business conglomerates, known as “chaebols”, and, as a result, recent and any future financial difficulties of chaebols may have an adverse impact on us. |
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Future financial difficulties of chaebols may adversely affect the credit quality of our small- and medium-sized enterprise customers who serve chaebols. |
We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required and/or the adoption of restructuring plans with which we do not agree. |
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The recent announcement by the Korean National Tax Service relating to the tax treatment of certain deposit products may adversely affect our financial condition and results of operations. |
The loss of deposit accounts maintained by Korean courts with Chohung Bank may adversely affect Chohung Bank’s financial position and results of operations. |
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Any deterioration in the asset quality of our guarantees and acceptances will likely have a material adverse affect on our financial condition and results of operations. |
As a holding company, we are dependant on receiving dividends from our subsidiaries in order to pay dividends on our common shares. |
• | Under the Korean Commercial Code, dividends may only be paid out of distributable income, an amount which is calculated by subtracting the aggregate amount of a company’s paid-in capital and certain mandatory legal reserves from its net assets, in each case as of the end of the prior fiscal year; | |
• | Under the Bank Act, a bank also is required to credit at least 10% of its net profit to a legal reserve each time it pays dividends on distributable income until such time when this reserve equals the amount of its total paid-in capital; and | |
• | Under the Bank Act and the requirements promulgated by the Financial Supervisory Commission, if a bank fails to meet its required capital adequacy ratio or otherwise subject to the management improvement measures imposed by the Financial Supervisory Commission, then the Financial Supervisory Commission may restrict the declaration and payment of dividend by such a bank. |
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We may fail to fully realize the anticipated benefits of the merger of Shinhan Bank and Chohung Bank. |
• | difficulties in operating the integrated information technology system, electronic banking systems, risk management and other systems; | |
• | difficulties in harmonizing the two corporate cultures; | |
• | difficulties in integrating the currently separate labor unions of the former Chohung Bank and Shinhan Bank; and | |
• | difficulties in retaining and attracting customers that overlapped between Chohung Bank and Shinhan Bank prior to the merger. |
We may need to raise additional capital, and adequate financing may not be available to us on acceptable terms, or at all. |
We may not succeed in improving customer service through the introduction of performance-based compensation. |
We may incur significant losses from our investment and, to a lesser extent, trading activities due to market fluctuations. |
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Protracted market declines can reduce liquidity in the markets, making it harder to sell assets and leading to material losses. |
We may generate lower revenue from brokerage and other commission- and fee-based business. |
Our Internet banking services are subject to security concerns relating to the commercial use of the Internet. |
We may experience disruptions, delays and other difficulties from our information technology systems. |
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We are subject to operational risks which our current risk management system may not detect in time or at all. |
We operate in a legal and regulatory environment that is subject to change, which may have an adverse effect on our business, financial condition and results of operations. |
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Structural reforms in the Korean economy and its financial sector may have a substantial impact on our business. |
The Financial Supervisory Commission may impose supervisory measures if it deems us or our operating subsidiaries to be financially unsound. |
The Korean government may encourage lending to and investment in certain types of borrowers in furtherance of government initiatives, and we may take this factor into account. |
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Unfavorable financial and economic conditions in Korea and worldwide may have a material adverse impact on our asset quality, liquidity and financial performance. |
• | failure of restructuring ofchaebolsand accounting irregularities of and regulatory proceedings againstchaebols, together with its negative effect on the Korean financial markets and on the small- and medium-sized enterprises market; | |
• | failure of restructuring of large troubled companies, including LG Card and other troubled credit card companies and financial institutions; | |
• | volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including continued weakness of the U.S. dollar and/or the appreciation of the Korean Won against foreign currencies), interest rates and stock markets; | |
• | increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners; | |
• | adverse developments in the economies of countries to which Korea exports goods and services (such as the United States, China and Japan), or in emerging market economies in Asia or elsewhere that could result in a loss of confidence in the Korean economy; | |
• | the continued emergence of China, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and relocation of the manufacturing base from Korea to China); | |
• | social and labor unrest or declining consumer confidence or spending resulting from lay-offs, increasing unemployment and lower levels of income; | |
• | uncertainty and volatility in real estate prices arising, in part, from the Korean government’s policy-driven tax and other regulatory measures; | |
• | a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for unemployment compensation and other social programs that together could lead to an increased government budget deficit; | |
• | political uncertainty or increasing strife among or within political parties in Korea, including as a result of the increasing polarization of the positions of the ruling progressive party and the conservative opposition; and | |
• | a deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in foreign policy. |
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Tensions with North Korea could have an adverse effect on us and the price of our common stock and our American depositary shares. |
Korea’s new legislation allowing class action suits related to securities transactions may expose us to additional litigation risk. |
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Labor unrest may adversely affect the Korean economy and our operations. |
There are restrictions on withdrawal and deposit of common shares under the depositary facility. |
The value of your investment may be reduced by future sales of our common stock or our American depositary shares by the Korea Deposit Insurance Corporation or BNP Paribas, by other stockholders or holders of American depositary shares or by us. |
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In certain cases, we must obtain the consent of the Korea Deposit Insurance Corporation to declare and pay dividends on our shares or our American depositary shares. If Korea Deposit Insurance Corporation declines to give such consent, holders of American depositary shares may be adversely affected. |
Ownership of our shares is restricted under Korean law. |
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Holders of American depositary shares will not have preemptive rights in certain circumstances. |
• | a registration statement filed by us under the US Securities Act of 1933, as amended, is in effect with respect to those shares; or | |
• | the offering and sale of those shares is exempt from or is not subject to the registration requirements of the US Securities Act. |
Your dividend payments and the amount you may realize upon a sale of your American depositary shares will be affected by fluctuations in the exchange rate between the Dollar and the Won. |
If the government deems that certain emergency circumstances are likely to occur, it may restrict the depositary bank from converting and remitting dividends in Dollars. |
• | sudden fluctuations in interest rates or exchange rates; | |
• | extreme difficulty in stabilizing the balance of payments; and | |
• | a substantial disturbance in the Korean financial and capital markets. |
Holders of American depositary shares may be required to pay a Korean securities transaction tax upon withdrawal of underlying common shares or the transfer of American depositary shares. |
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We do not prepare interim financial information on a U.S. GAAP basis. |
We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries. |
You may not be able to enforce a judgment of a foreign court against us. |
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ITEM 4. | INFORMATION ON THE COMPANY |
• | Shinhan Bank, a nationwide commercial bank; | |
• | Shinhan Securities Co., Ltd., a securities brokerage company; | |
• | Shinhan Capital Co., Ltd., a leasing company; and | |
• | Shinhan Investment Trust Management Co., Ltd., an investment trust management company. |
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• | in commercial banking, we have sought to achieve economies of scale by acquiring Chohung Bank, enabling us to, among other things, capitalize on greater mass market penetration and large corporate portfolio as a complement to Shinhan Bank’s greater emphasis on small-and medium-sized enterprises and high net worth individuals. | |
• | in securities brokerage services, we have sought to achieve economies of scale and enhance brand image through our acquisition of Good Morning Securities. | |
• | in credit cards, we have focused on and will continue to focus on improved credit initiation through higher credit scoring requirements, risk management through continued credit scoring reviews and improved collection results through coordinated call centers and increased collection staff, as well as enhanced marketing. Upon the merger of Shinhan Bank and Chohung Bank in April 2006, we split off the credit card services division of Chohung Bank and merged it into Shinhan Card. Following such split-merger, Shinhan Card is expected to have W4 trillion in assets, W25 trillion in total credit card use (excluding corporate cards) and 5.9 million customers. In terms of the amount of the total credit card use, Shinhan Card currently ranks fourth among credit card service providers (including banks) following the split-merger. In addition, as opportunity arises, we may pursue growth through acquisitions, including the acquisition of LG Card that we are currently targeting. | |
• | in insurance, we have sought to achieve economies of scale by acquiring Shinhan Life Insurance in December 2005 in addition to SH&C Life Insurance, which joined the group in 2002, enabling the development and distribution of more diversified insurance products and services to meet the growing needs of our customers. | |
• | in areas where we lack core competency as compared to the leading global financial institutions, we will continue to expand our relationships through affiliations and business cooperation with world class financial institutions such as BNP Paribas and Macquarie. |
• | integrating our physical and online distribution channels to offer products and services developed by all of our operating subsidiaries and businesses, including as follows: | |
• | making banking, securities brokerage, insurance and other services available at each branch; | |
• | enabling online cross access between commercial banking and our online securities brokerage service; and | |
• | integrating the customer service call centers for our commercial banking, credit card and securities brokerages services. | |
• | focusing on retail and corporate customers with total financial solutions designed to meet their respective needs and utilizing specialized branches to provide convenient access and trained employees to offer and provide relevant products and services, including as follows: | |
• | in retail banking, utilizing private banking centers to provide high net worth customers convenient access to total financial solutions that link banking to brokerage services, asset management and insurance; as well as penetrating the mass market penetration by enhancing brand and customer loyalty through focus on cross selling of products and strengthened customer relationship management; |
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• | in corporate banking, expanding and enhancing the capabilities of our large corporate and small-and medium-sized enterprises specialist branch network and leveraging our increased large corporate customer base to provide total financial solutions that combine banking and non-banking financial products, such as asset backed securities, structured finance, M&A advice; syndication and equity derivatives, acting more as a financial advisor for larger, well established small-and-medium-sized enterprises by providing underwriting, rights offerings and offering related investment banking services in addition to lending, deposit and foreign exchange products and services and focusing on investment in corporate debt securities and initial public offerings for smaller businesses; | |
• | developing and promoting integrated financial products customized to meet the needs and demands of our customer segments, such as Financial Network Accounts that combine banking services and securities brokerage services or that combine credit card services and securities brokerage services and Safe Loans that combine banking services and insurance services. | |
• | enhancing customer loyalty by offering an “All Plus Points System” that combines customers’ banking, securities and credit card activities in a single report from which certain customer benefits are awarded. | |
• | developing joint products and services and joint sales support and enhancing cross-selling by sharing customer information through integrated data-warehousing and customer relationship management systems. |
• | preventing overlapping investments in solution development, information technology related investments, new investments in distribution channels, hiring and training of employees; and | |
• | identifying and realizing synergies such as combined information technology systems, call centers and shared customer services, distribution channels and new products and services; |
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Due August | |||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | Total | ||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||
Redeemable preferred stock issued to KDIC | W | 168,503 | W | 168,503 | W | 168,504 | W | 168,504 | W | 168,504 | W | 842,518 | |||||||||||||
Redeemable preferred stock issued in the market through a special purpose vehicle | 525,000 | — | 365,000 | — | 10,000 | 900,000 | |||||||||||||||||||
Redeemable convertible preferred Stock(1) | — | — | 404,408 | — | — | 404,408 | |||||||||||||||||||
Total | W | 693,503 | W | 168,503 | W | 937,912 | W | 168,504 | W | 178,504 | W | 2,146,926 | |||||||||||||
(1) | In November 2005, Korea Deposit Insurance Corporation (“KDIC”) converted 22,360,302 shares of Redeemable Convertible Preferred Stock into 22,360,302 shares of our common stock, representing 6.22% of the total issued shares (or 5.86% of the total issued shares on a fully diluted basis) of our common stock. The figures herein assumes no further conversion of the Redeemable Convertible Preferred Stock into our common stock. |
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Good | |||||||||||||||||||||||||||||||||||||||
Shinhan Bank | Chohung Bank | Morning | Shinhan | ||||||||||||||||||||||||||||||||||||
Shinhan | Shinhan | Life | |||||||||||||||||||||||||||||||||||||
Retail | Corporate | Retail | Corporate | Jeju Bank | Securities | Card(1) | Insurance | Total | |||||||||||||||||||||||||||||||
Seoul and metropolitan | 162 | 48 | 189 | 44 | 1 | 35 | 5 | 48 | 532 | ||||||||||||||||||||||||||||||
Kyunggi Province | 75 | 15 | 74 | 15 | — | 10 | 3 | 12 | 204 | ||||||||||||||||||||||||||||||
Six major cities: | 48 | 16 | 78 | 15 | 1 | 18 | 5 | 27 | 208 | ||||||||||||||||||||||||||||||
Incheon | 17 | 5 | 18 | 3 | — | 2 | 1 | 7 | 53 | ||||||||||||||||||||||||||||||
Busan | 11 | 5 | 24 | 4 | 1 | 5 | 1 | 7 | 58 | ||||||||||||||||||||||||||||||
Kwangju | 5 | 1 | 6 | 2 | — | 2 | 1 | 5 | 22 | ||||||||||||||||||||||||||||||
Taegu | 6 | 3 | 13 | 3 | — | 4 | 1 | 3 | 33 | ||||||||||||||||||||||||||||||
Ulsan | 4 | 1 | 7 | 1 | — | 2 | — | 1 | 16 | ||||||||||||||||||||||||||||||
Taejon | 5 | 1 | 10 | 2 | — | 3 | 1 | 4 | 26 | ||||||||||||||||||||||||||||||
Sub-total | 285 | 79 | 341 | 74 | 3 | 63 | 13 | 87 | 944 | ||||||||||||||||||||||||||||||
Others | 28 | 10 | 107 | 15 | 29 | 14 | 3 | 30 | 236 | ||||||||||||||||||||||||||||||
Total | 313 | 89 | 448 | 89 | 32 | 77 | 16 | 117 | 1,180 | ||||||||||||||||||||||||||||||
(1) | Represents sales offices focusing on attracting new customers. |
Banking Branch Network |
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Retail Banking Branches |
Corporate Banking Branches |
Self-Service Terminals |
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For the Year Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Shinhan Bank: | |||||||||||||
ATMs and cash dispensers | 2,373 | 2,459 | 2,751 | ||||||||||
Number of transactions (millions) | 107 | 105 | 111 | ||||||||||
Fee revenue (billions of Won) | W | 20 | W | 20 | W | 20 | |||||||
Chohung Bank: | |||||||||||||
ATMs and cash dispensers | 4,655 | 4,397 | 4,395 | ||||||||||
Number of transactions (millions) | 281 | 262 | 205 | ||||||||||
Fee revenue (billions of Won) | W | 42 | W | 34 | W | 33 |
Electronic Banking |
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For the Year Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Shinhan Bank: | |||||||||||||
Telephone banking(1): | |||||||||||||
Number of users(2) | 1,109,552 | 1,398,827 | 1,685,031 | ||||||||||
Number of transactions (in thousands) | 39,670 | 36,646 | 41,608 | ||||||||||
Internet banking(1): | |||||||||||||
Number of users(2) | 1,023,195 | 1,339,571 | 1,656,196 | ||||||||||
Number of transactions (in thousands)(3) | 306,667 | 359,160 | 403,869 | ||||||||||
Total fee revenue (millions of Won) | W | 18,325 | W | 29,884 | W | 26,693 | |||||||
Chohung Bank: | |||||||||||||
Telephone banking(1): | |||||||||||||
Number of users(2) | 2,670,658 | 720,492 | 976,606 | ||||||||||
Number of transactions (in thousands)(3) | 120,931 | 108,745 | 82,349 | ||||||||||
Internet banking(1): | |||||||||||||
Number of users | 2,417,415 | 2,472,415 | 1,395,770 | (4) | |||||||||
Number of transactions (in thousands)(3) | 141,196 | 166,937 | 298,452 | ||||||||||
Total fee revenue (millions of Won) | W | 35,052 | W | 45,007 | W | 43,953 |
(1) | Includes customers simultaneously using both telephone banking and internet banking. |
(2) | Includes customers using services of both Shinhan Bank and Chohung Bank. |
(3) | Includes balance transfers. |
(4) | The decrease in the number of internet banking users of Chohung Bank was due primarily to Chohung bank’s efforts during 2005 to close “non-active” user accounts (meaning accounts that were not used for six months or more). |
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Overseas Branch Network |
Business Unit | Location | Year Established or Acquired | |||||
Subsidiaries | |||||||
Shinhan Finance Limited | Hong Kong SAR, China | 1990 | |||||
Branches | |||||||
Tokyo | Japan | 1988 | |||||
Osaka | Japan | 1986 | |||||
Fukuoka | Japan | 1997 | |||||
New York | U.S.A. | 1989 | |||||
London | United Kingdom | 1991 | |||||
Ho Chi Minh City | Vietnam | 1995 | |||||
Shanghai | China | 2003 | |||||
Qingdao | China | 2005 |
Business Unit | Location | Year Established or Acquired | |||||
Subsidiaries | |||||||
Chohung Finance Ltd., Hong Kong(1) | Hong Kong SAR, China | 1982 | |||||
Chohung Bank (Deutschland) GmbH(2) | Germany | 1994 | |||||
CHB America Bank(3) | U.S.A. | 2003 | |||||
Chohung Vina Bank(4) | Vietnam | 2000 | |||||
Branches | |||||||
Tokyo | Japan | 1981 | |||||
Singapore | Singapore | 1990 | |||||
Tianjin | China | 1994 | |||||
Mumbai | India | 1996 |
(1) | Renamed as Shinhan Asia Ltd. following the merger of Shinhan Bank and Chohung Bank on April 3, 2006. |
(2) | Renamed as Shinhan Bank Europe GmbH following the merger of Shinhan Bank and Chohung Bank on April 3, 2006. |
(3) | Created as a result of a merger of Chohung Bank of New York and California Chohung Bank in March 2003. CHB America Bank has offices in New York City, New York and Los Angeles, California; renamed as Shinhan Bank America following the merger of Shinhan Bank and Chohung Bank on April 3, 2006. |
(4) | Renamed as Shinhan Vina Bank following the merger of Shinhan Bank and Chohung Bank on April 3, 2006. |
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Credit Card Distribution Channels |
Securities Brokerage Distribution Channels |
Insurance Sales and Distribution Channels |
• | Commercial banking services, consisting of the following: |
• | Retail banking services; | |
• | Corporate banking services, comprised of two divisions: |
— | Small- and medium-sized enterprises banking; and |
• | Credit cards services; | |
• | Treasury and securities investment |
• | Other banking services | |
• | Securities brokerage services | |
• | Insurance Services |
• | Life insurance services |
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• | Bancassurance | |
• | Other insurance services | |
• | Reinsurance for life insurance and other insurance services |
• | Asset management services, including brokerage and trading of various securities, related margin lending and deposit and trust services, and other asset management to the extent permitted by law | |
• | Other services, including leasing and equipment financing, investment trust management, regional banking, investment banking advisory and loan collection and credit reporting. |
Deposit-Taking Activities |
• | Demand deposits,which either do not accrue interest or accrue interest at a lower rate than time or savings deposits. Demand deposits allow the customer to deposit and withdraw funds at any time and, if they are interest bearing, accrue interest at a fixed or variable rate depending on the period and the amount of deposit. Retail and corporate demand deposits constituted approximately 10.1% of our total deposits as of December 31, 2004 and paid average interest of 1.33% in 2004, and approximately 8.1% of our total deposits as of December 31, 2005 and paid an average interest of 1.90% in 2005. | |
• | Time deposits,which generally require the customer to maintain a deposit for a fixed term during which the deposit accrues interest at a fixed rate or variable rate based on certain financial indexes, including the Korea Composite Stock Price Index (KOSPI). If the amount of the deposit is withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered. The term for time deposits typically ranges from one month to five years. Retail and corporate time deposits constituted approximately 47.7% of our total deposits as of December 31, 2004 and paid average interest of 3.83% in 2004, and approximately 42.7% of our total deposits as of December 31, 2005 and paid average interest of 3.69% in 2005. | |
• | Mutual installment deposits,which generally require the customer to make periodic deposits of a fixed amount over a fixed term during which the deposit accrues interest at a fixed rate. If the amount of the deposit is withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered. The term for installment deposits typically ranges from six months to five years. Mutual installment deposits constituted approximately 2.9% of our total deposits as of December 31, 2004 and paid average interest of 4.54% in 2004, and approximately 1.8% of our total deposits as December 31, 2005 and paid average interest of 4.16% in 2005. | |
• | Savings deposits,which allow the customer to deposit and withdraw funds at any time and accrue interest at an adjustable interest rate, which is lower than time or installment deposits. Currently, interest on savings deposits ranges from zero to 3.05%. Saving deposits constituted approximately 29.5% of our total deposits as of December 31, 2004 and paid average interest of 1.24% in 2003, and approximately 31.4% of our total deposits as of December 31, 2005 and paid average interest of 0.96% in 2005. | |
• | Marketable deposits,consisting of certificates of deposit, cover bills and bonds sold under repurchase agreements that have maturities ranging from 30 days to two years. Interest rates on marketable deposits are determined based on the length of the deposit and prevailing market interest rates. Certificate of deposits are sold on a discount to their face value, reflecting the interest payable on the certificate of deposit. Under U.S. GAAP, cover bills sold are reflected as short-term borrowings and bonds sold under repurchase agreements are reflected under secured borrowings. |
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• | Foreign currency deposits,which accrue interest at an adjustable rate and are available to Korean residents, nonresidents and overseas immigrants. Shinhan Bank offers foreign currency demand and time deposits and checking and passbook accounts in 20 currencies and Chohung Bank offers such accounts in 20 foreign currencies. Deposits in foreign currency constituted approximately 5.81% of our total deposits as of December 31, 2004 and paid average interest of 0.60% in 2004, and approximately 4.41% of our total deposits as of December 31, 2005 and paid average interest of 1.77% in 2005. |
• | Housing subscription time deposits,which are special purpose time deposit accounts providing the holder with a preferential right to subscribe for new private apartment units under the Housing Construction Promotion Law. This law is the basic law setting forth various measures supporting the purchase of houses and the supply of such houses by construction companies. If a potential home-buyer subscribes for these deposit products and holds them for a certain period of time as set forth in the Housing Construction Promotion Law, such deposit customers obtain the right to subscribe for new private apartment units on a priority basis under this law. Such preferential rights are neither transferable nor marketable in the open market. These products accrue interest at a fixed rate for one year and at an adjustable rate after one year, which are consistent with other time deposits. Deposit amounts per account range from W2 million to W15 million depending on the size and location of the dwelling unit. These deposit products target high and middle income households. | |
• | Housing subscription installment savings deposits,which are monthly installment savings programs providing the holder with a preferential subscription right for new private apartment units under the Housing Construction Promotion Law. Such preferential rights are neither transferable nor marketable in the open market. These deposits require monthly installments of W50,000 to W500,000, have maturities between three and five years and accrue interest at fixed rates depending on the term, which are consistent with other installment savings deposits. These deposit products target low- and middle-income households. |
As of December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In thousands, except branches) | |||||||||||||
Shinhan Bank: | |||||||||||||
Retail deposit customers(1) | 5,551 | 5,934 | 6,436 | ||||||||||
Active retail deposit customers(2) | 1,621 | 1,753 | 1,727 | ||||||||||
Corporate deposit customers | 101 | 113 | 121 | ||||||||||
Domestic branches | 354 | 372 | 402 | ||||||||||
Chohung Bank: | |||||||||||||
Retail deposit customers(1) | 9,239 | 10,361 | 9,063 | ||||||||||
Active retail deposit customers(3) | 2,619 | 2,563 | 2,932 | ||||||||||
Corporate deposit customers | 138 | 142 | 145 | ||||||||||
Domestic branches | 557 | 533 | 537 |
(1) | Based on the classification for the purpose of customer management, retail deposit customers include individual deposit customers, foreigners, sole proprietorships and certain small- and medium-sized enterprises deposit customers classified as retail customers depending on a number of factors, including |
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those small- and medium-sized enterprises to whom a credit of less than W1 billion has been extended and who are sole proprietors. | |
(2) | For Shinhan Bank, represents customers (i) whose average monthly account balance is W300,000 or more or (ii) who is 20 years of age or more, has an average loan balance during the year, and accordingly is required to maintain a deposit account with Shinhan Bank to service payment of interest on, and principal of, such loans. |
(3) | For Chohung Bank, represents customers whose aggregate of outstanding balances of all accounts as of December 31 of each year was W100,000 or more. |
Retail Banking Services |
Overview |
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Consumer Lending Activities |
• | Mortgage and home equity loans,mostly comprised of mortgage loans which are loans to finance home purchases and are generally secured by the home being purchased; and | |
• | Other consumer loans,which are loans made to customers for any purpose (other than mortgage and home equity loans) and the terms of which vary based primarily upon the characteristics of the borrower and which are either unsecured or secured or guaranteed by deposits or a third party. |
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As of December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In billions of Won, except percentages) | |||||||||||||
Consumer loans(1) | |||||||||||||
Mortgage and home-equity | W | 20,517 | W | 22,180 | W | 25,840 | |||||||
Other consumer | 14,580 | 15,546 | 17,874 | ||||||||||
Percentage of consumer loans to total gross loans | 36.8 | % | 38.9 | % | 41.3 | % |
(1) | Before allowance for loans losses and excludes credit card accounts. |
Pricing |
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Private Banking |
Corporate Banking Services |
Overview |
As of December 31, | |||||||||||||||||||||||||
2003 | 2004 | 2005 | |||||||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||||
Small- and medium-sized enterprises loans(1) | W | 38,055 | 40.0 | % | W | 38,713 | 39.9 | % | W | 39,943 | 37.7 | % | |||||||||||||
Large corporate loans(2) | 16,031 | 16.8 | 15,909 | 16.4 | 17,948 | 16.9 | |||||||||||||||||||
Total corporate loans | W | 54,086 | 56.8 | % | W | 54,622 | 56.3 | % | W | 57,891 | 54.6 | % | |||||||||||||
(1) | Represents the principal amount of loans extended to corporations meeting the definition of small- and medium-sized enterprises under the Basic Act on Small- and Medium-sized Enterprises and its Presidential Decree. Certain loans to sole proprietorships are included under retail lending. |
(2) | Includes loans to government-controlled companies. |
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Small- and Medium-sized Enterprises Banking |
• | positioned itself based on accumulated expertise. We believe Shinhan Bank has a better understanding of the credit risks embedded in this market segment and to develop loan and other products specifically tailored to the needs of this market segment; | |
• | begun operating a relationship management system to provide targeted and tailored customer service to small-and medium-sized enterprises. Shinhan Bank has 89 corporate banking branches with relationship management teams. These relationship management teams market products and review and approve smaller loans that pose less credit risks; and | |
• | begun to focus on cross-selling loan products with other products. For example, when Shinhan Bank lends to small- and medium-sized enterprises, it also explores opportunities to cross-sell consumer loans or deposit products to the employees of those companies or to provide financial advisory services. |
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Large Corporate Banking |
Corporate Lending Activities |
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Pricing |
Interest rate = | (Shinhan Bank’s periodic market floating rateorreference rate)plustransaction costplusa credit spreadplusrisk premiumplus or minusa discretionary adjustment rate. |
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Interest rate = | Funds transfer pricingplusoperating cost (or transaction cost)plusloan policy marginplusa credit spreadplusa periodic spreadplusrisk premiumplusestimated marginplus or minusa discretionary adjustment rate. |
Electronic Corporate Banking |
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Credit Card Services |
Overview |
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Products and Services |
• | offering cards that provide additional benefits such as frequent flyer miles and reward program points that can be redeemed by the customer for complementary services, prizes and cash; | |
• | offering gold cards, platinum cards and other preferential members’ cards which have higher credit limits and provide additional services in return for higher annual membership fees; | |
• | acquiring new customers through strategic alliances and cross-marketing with wholesalers and retailers; | |
• | encouraging increased use of credit cards by existing customers through special offers for dormant customers; | |
• | introducing new features to preferred customers, such as revolving credit cards, travel services and insurance; | |
• | developing fraud detection and security systems to prevent the misuse of credit cards and to encourage the use of credit cards over the Internet; and | |
• | issuing smart cards and preparing for a cardless business environment in which customers can use credit cards to make purchases by phone or over the Internet. |
• | general purchases of goods and services on credit, which are repayable on a lump-sum basis at the end of a monthly billing cycle; | |
• | installment purchases, which require payment approximately within 18 to 48 days after purchase and are repayable on an even-payment installment basis over a period of time ranging from two months to three years and generally accrue interest; | |
• | cash advances, which are repayable on a lump-sum basis at the end of a monthly billing cycle and generally accrue interest effective annual rates of approximately 9.8% to 26.8% for Shinhan Card and 18.0% to 26.97% for Chohung Bank; and | |
• | payments on a revolving payment basis, which allow customers to roll over their balance into a revolving basis with fixed minimum percentage or amount of the total outstanding balance. |
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Customers and Merchants |
As of December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
(In thousands, except | ||||||||||||
percentages) | ||||||||||||
Shinhan Card: | ||||||||||||
Number of credit card holders | 2,773 | 3,002 | 3,467 | |||||||||
Personal accounts | 2,678 | 2,905 | 3,370 | |||||||||
Corporate accounts | 95 | 97 | 96 | |||||||||
Active ratio(1) | 56.6 | % | 50.7 | % | 63.8 | % | ||||||
Number of merchants | 2,112 | 2,513 | 2,934 | |||||||||
Chohung Bank: | ||||||||||||
Number of credit card holders | 3,205 | 2,819 | 2,494 | |||||||||
Personal accounts | 3,138 | 2,756 | 2,434 | |||||||||
Corporate accounts | 66 | 63 | 60 | |||||||||
Active ratio(1) | 53.9 | % | 50.9 | % | 56.4 | % | ||||||
Number of merchants(2) | 2,091 | 2,165 | 2,225 |
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(1) | Represents the ratio of accounts used at least once within the last six months to total accounts as of year end. |
(2) | Represents the number of merchants of BC Card’s merchant network. |
Financial and Statistical Information |
As of or for the Year Ended December 31, | ||||||||||||||||||||||||||
2003 | 2004 | 2005 | ||||||||||||||||||||||||
Shinhan | Chohung | Shinhan | Chohung | Shinhan | Chohung | |||||||||||||||||||||
Card | Bank(1) | Card | Bank(1) | Card | Bank(1) | |||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||
Installments | W | 42 | W | 133 | W | 40 | W | 84 | W | 49 | W | 64 | ||||||||||||||
Cash advances | 164 | 354 | 30 | 212 | 111 | 181 | ||||||||||||||||||||
Card loans(2) | 35 | 93 | 34 | 97 | 30 | 60 | ||||||||||||||||||||
Annual membership | 5 | 6 | 2 | 5 | 9 | 4 | ||||||||||||||||||||
Revolving(3) | 7 | 113 | 6 | 71 | 6 | 49 | ||||||||||||||||||||
Late payments | 21 | 5 | 6 | 11 | 18 | 15 | ||||||||||||||||||||
Total | W | 274 | W | 704 | W | 118 | W | 480 | W | 223 | W | 373 | ||||||||||||||
Credit card fees: | ||||||||||||||||||||||||||
Merchant fees(4) | W | 176 | W | 195 | W | 146 | W | 200 | W | 188 | W | 211 | ||||||||||||||
Other fees | 4 | 23 | 8 | 2 | 10 | 5 | ||||||||||||||||||||
Total | W | 180 | W | 218 | W | 154 | W | 202 | W | 198 | W | 216 | ||||||||||||||
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As of or for the Year Ended December 31, | ||||||||||||||||||||||||||||
2003 | 2004 | 2005 | ||||||||||||||||||||||||||
Shinhan | Chohung | Shinhan | Chohung | Shinhan | Chohung | |||||||||||||||||||||||
Card | Bank(1) | Card | Bank(1) | Card | Bank(1) | |||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Charge volume:(5) | ||||||||||||||||||||||||||||
General purchases | W | 3,695 | W | 5,484 | W | 4,835 | W | 5,519 | W | 6,255 | W | 6,039 | ||||||||||||||||
Installment purchases | 1,143 | 2,505 | 1,247 | 2,099 | 1,650 | 2,003 | ||||||||||||||||||||||
Cash advances | 6,805 | 12,585 | 4,355 | 6,875 | 3,488 | 5,564 | ||||||||||||||||||||||
Total | W | 11,643 | W | 20,574 | W | 10,437 | W | 14,493 | W | 11,393 | W | 13,606 | ||||||||||||||||
Outstanding balance (at year end):(6) | ||||||||||||||||||||||||||||
General purchases | W | 395 | W | 455 | W | 456 | W | 538 | W | 539 | W | 528 | ||||||||||||||||
Installment purchases | 455 | 786 | 292 | 563 | 333 | 497 | ||||||||||||||||||||||
Cash advances | 725 | 1,025 | 474 | 653 | 423 | 575 | ||||||||||||||||||||||
Revolving purchases | 39 | 484 | 158 | 200 | 89 | 199 | ||||||||||||||||||||||
Card loans | 329 | 745 | 233 | 529 | 255 | 289 | ||||||||||||||||||||||
Others | 489 | 185 | 376 | 213 | 284 | 190 | ||||||||||||||||||||||
Total | W | 2,432 | W | 3,680 | W | 1,989 | W | 2,696 | W | 1,923 | W | 2,278 | ||||||||||||||||
Average balance | W | 2,212 | W | 4,957 | W | 2,186 | W | 3,288 | W | 1,916 | W | 2,618 | ||||||||||||||||
Delinquent balances:(7) | ||||||||||||||||||||||||||||
From 1 day to 1 month | W | 173 | W | 376 | W | 67 | W | 109 | W | 49 | W | 92 | ||||||||||||||||
Over 1 month: | ||||||||||||||||||||||||||||
From 1 month to 3 months | W | 80 | W | 150 | W | 35 | W | 71 | W | 17 | W | 31 | ||||||||||||||||
From 3 months to 6 months | 71 | 172 | 38 | 44 | 18 | 29 | ||||||||||||||||||||||
Over 6 months | — | — | — | — | — | — | ||||||||||||||||||||||
Sub-total | 151 | 322 | 73 | 115 | 35 | 60 | ||||||||||||||||||||||
Total | W | 324 | W | 698 | W | 140 | W | 224 | W | 84 | W | 152 | ||||||||||||||||
Delinquency ratios:(8) | ||||||||||||||||||||||||||||
From 1 day to 1 month | 7.11 | % | 10.22 | % | 3.37 | % | 4.04 | % | 2.53 | % | 4.04 | % | ||||||||||||||||
Over 1 month: | ||||||||||||||||||||||||||||
From 1 month to 3 months | 3.29 | % | 4.08 | % | 1.76 | % | 2.63 | % | 0.87 | % | 1.34 | % | ||||||||||||||||
From 3 months to 6 months | 2.92 | 4.67 | 1.91 | 1.63 | 0.95 | 1.30 | ||||||||||||||||||||||
Over 6 months(9) | — | — | — | — | — | — | ||||||||||||||||||||||
Sub-total | 6.21 | 8.75 | 3.67 | 4.27 | 1.82 | 2.64 | ||||||||||||||||||||||
Total | 13.32 | % | 18.97 | % | 7.04 | % | 8.33 | % | 4.36 | % | 6.68 | % | ||||||||||||||||
Rewritten loans(10) | W | 25 | W | 680 | W | 9 | W | 495 | W | 4 | W | 269 | ||||||||||||||||
Gross charge-offs | W | 290 | W | 1,304 | W | 223 | W | 649 | W | 94 | W | 227 | ||||||||||||||||
Recoveries | 32 | 58 | 20 | 35 | 25 | 47 | ||||||||||||||||||||||
Net charge-offs | W | 258 | W | 1,246 | W | 203 | W | 614 | W | 69 | W | 180 | ||||||||||||||||
Gross charge-off ratio(11) | 13.11 | % | 26.31 | % | 10.20 | % | 19.74 | % | 4.92 | % | 8.66 | % | ||||||||||||||||
Net charge-off ratio(12) | 11.66 | % | 25.14 | % | 9.29 | % | 18.67 | % | 3.62 | % | 6.87 | % |
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(1) | Represents the credit card business of Chohung Bank, consisting of both BC Card and “Forever” Card, which we acquired in 2003. Effective as of April 3, 2006, the credit card division of Chohung Bank was split off and merged into Shinhan Card. | |
(2) | Card loans consist of loans that are provided on either a secured or unsecured basis to cardholders upon prior agreement. Payment of principal, fees and interest on such a loan can be due either in one payment or in installments after a fixed period. | |
(3) | Revolving purchases were introduced in October 1998 for certain creditworthy credit card customers (e.g., customers who have not been delinquent for more than three times in the past one year) of Shinhan Card and in March 25, 2000 for certain creditworthy credit card customers of Chohung Bank. | |
(4) | Merchant discount fees consist of merchant membership and maintenance fees, charges associated with prepayment by Shinhan Card or Chohung Bank (on behalf of customers) of sales proceeds to merchants, processing fees relating to sales and membership applications. | |
(5) | Represents the aggregate cumulative amount charged during the year. | |
(6) | Represents amounts before allowance for loan losses. | |
(7) | Includes the unbilled balances of installment purchases. | |
(8) | Represents the ratio of delinquent balances to outstanding balances for the year. | |
(9) | Our charge-off policy for Shinhan Card (and Chohung Bank prior to the split-merger of its credit card division into Shinhan Card) has been to charge off all credit card balances which are 180 days past due. |
(10) | Represents delinquent credit card balances for purchase and cash advance which have been rewritten as credit card loans, thereby reducing the balance of delinquent accounts. |
(11) | Represents the ratio of gross charge-offs for the year to average balance for the year. |
(12) | Represents the ratio of net charge-offs for the year to average balances for the year. |
Supervisory Statistical Information prepared in accordance with Korean GAAP |
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Recent Regulatory Changes |
Personal Workout and Debt Forgiveness Program |
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Treasury and Securities Investment |
• | treasury; | |
• | securities investment and trading; | |
• | derivatives trading; and | |
• | international business. |
Recent Regulatory Changes |
• | A private equity fund is a limited partnership company that is incorporated in accordance with the Korean Commercial Code, which has not less than one general partner and not less than one limited partner. | |
• | The minimum value of the equity investment by limited partners is W1 billion for an individual investor or W2 billion for a legal entity. | |
• | Details of the private equity fund, such as its objective, name, location, term of existence, information concerning partners, a summary of the operation, shall be registered with the Financial Supervisory Service. |
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• | A private equity fund shall apply 50% of its assets (provided that, if the Fund (as defined under the Framework Act on Fund Management) is a partner and its method of contribution is other than as capital commitment, such contribution shall be excluded from the calculation of assets), within two years after capital injection by the partners, to (1) an investment in excess of 10% of the total number of shares issued by the target company, (2) an investment that makes it possible for the private equity fund to exercisede factocontrol over major corporate governance matters including appointments and dismissals of officers, (3) an investment in Investment Securities (as defined under the Act on Business of Operating Indirect Investment and Asset) issued by SOC Investment Companies (as defined under the Promotion of Social Overhead Capital Investment Act) or (4) an investment in securities or equities of Investment Purpose Companies (as defined under the Act on Business of Operating Indirect Investment and Asset) under the Act on Business of Operating Indirect Investment and Asset. In addition, a private equity fund shall hold the acquired shares for at least six months following the date of investment. | |
• | As a special rule, if a private equity fund meets the above requirements for investment, for ten years from the date on which such requirements are met, (1) the provisions governing holding companies as provided in the Monopoly Regulation and Fair Trade Act shall not apply and (2) the private equity fund shall not be deemed a financial holding company as provided in the Financial Holding Companies Act. |
Treasury |
Securities Investment and Trading |
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Derivatives Trading |
• | Interest rate swaps and futures relating to Korean Won interest rate risks and LIBOR risks, respectively; | |
• | Cross-currency swaps largely for Korean Won against U.S. dollars, Japanese Yen and Euros; | |
• | Foreign currency forwards, swaps and options; | |
• | Credit derivatives; and | |
• | KOSPI 200 indexed equity options. |
International Business |
Other Banking Services |
Trust Account Management Services |
— Overview |
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— Trust Products |
• | Guaranteed Fixed Rate Trust Accounts. Guaranteed fixed rate trust accounts offer customers a fixed-rate of return and guaranteed principal. We receive any amounts remaining after taking into account the guaranteed return and all expenses of the trust accounts, including provisions for valuation losses on equity securities, loan losses and special reserves. We maintain two types of guaranteed fixed rate trust accounts: general unspecified money trusts and development money trusts. Korean banks, including Shinhan Bank (and, prior to the merger, Chohung Bank), have been restricted from establishing new general unspecified money trusts since January 1, 1996, and development money trusts effective January 1, 1999. As a result, the size of general unspecified money trusts and development money trusts has decreased substantially and most of development money trusts matured by the end of 2001 and most of general unspecified money trusts matured by the end of 2002. As of December 31, 2003, 2004 and 2005, under Korean GAAP, Shinhan Bank’s development money trusts amounted to W0.2 billion, W0.04 billion and W0.04 billion, respectively, and general unspecified money trusts amounted to an aggregate of W0.3 billion, W0.2 billion and W0.2 billion, respectively. As of December 31, 2005, under Korean GAAP, Chohung Bank’s development trusts had no outstanding balance and general unspecified money trusts amounted to an aggregate of W9.1 billion. See Note 35 of our consolidated financial statements in “Item 18. Financial Statements — Notes to consolidated financial statements of Shinhan Financial Group”. | |
• | Variable Rate Trust Accounts. Variable rate trust accounts are trust accounts for which we do not guarantee the return on the trust account but, in certain instances described below, the principal of the trust account is guaranteed. In respect of variable rate trust accounts, we are entitled to receive fixed rate of trust fees. We also receive fees upon the termination of trust accounts prior to their stated maturities. However, the recent trend has been to offer products with stated maturities that are significantly shorter than those offered in the past, resulting in lower fees from early termination. |
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— Distribution Channels and Marketing |
— Recent Regulatory Developments |
Securities Brokerage Services |
Overview |
Recent Regulatory Changes |
Products and Services |
• | Retail Business Divisionprovides equity and bond brokerage, investment advisory and financial planning services to retail customers, with a focus on high net worth individuals. In 2005, revenues generated by the Retail Business Division represented approximately 58.8% of total revenues of our Securities Brokerage Services in 2005. The Retail Business Division earns fees by managing client assets as well as commissions as a broker for our clients in the purchase and sale of securities. In addition, we generate net interest revenue by financing customers’ securities transactions and other borrowing needs through security-based lending and also receive commissions and other sales and service revenues through the sale of proprietary and third-party mutual funds. | |
• | Institutional & International Client and Research Divisionoffers a variety of brokerage services, including brokerage of corporate bonds, futures and options, to our institutional and international customers. In addition, through our research center with more than 50 research analysts, we produce equity, bonds and derivatives research to serve both institutional and international investor clients. |
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• | Capital Markets Divisionoffers a wide array of investment banking services, including selling institutional financial products and trading equity and derivatives and, to a lesser extent, M&A advisory and underwriting, to our corporate customers. |
Other Services |
Leasing and Equipment Financing |
Investment Trust Management Services |
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Regional Banking Services |
Investment Banking and Advisory Services |
Bancassurance |
Life Insurance |
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Loan Collection and Credit Reporting |
Internet Portal Financial Services |
• | building a customer-oriented system to provide customers with diversified and customized financial services; | |
• | establishing a flexible platform which can quickly adapt to new financial products and services; | |
• | introducing a group-wide strategic enterprise management system designed to facilitate swift managerial response; |
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• | empowering the sales operation by a group-wide integrated enterprise data warehousing system and a group-wide integrated customer relationship management system, which are designed to provide us with comprehensive customer information, including transaction history, and thereby allow us to identify potential marketing and cross-marketing opportunities; | |
• | further upgrading our information system in respect of the New Basel Capital Accord (Basel II), the initial layout for which was completed in March 2006; | |
• | upgrading our information reporting system to enable us to monitor our internal control and to test its effectiveness and to enable us to comply with Section 404 of the Sarbanes-Oxley Act; and | |
• | developing IT functions to improve comprehensive back office functions, including deposit taking, lending and foreign exchange activities, at the branch office level. |
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Loan Types |
As of December 31, | |||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Corporate | |||||||||||||||||||||
Commercial and industrial(1) | W | 13,459 | W | 15,800 | W | 35,617 | W | 35,653 | W | 35,728 | |||||||||||
Other commercial(2) | 6,748 | 9,352 | 17,378 | 17,988 | 21,409 | ||||||||||||||||
Lease financing | 598 | 636 | 1,091 | 981 | 754 | ||||||||||||||||
Total — Corporate | 20,805 | 25,788 | 54,086 | 54,622 | 57,891 | ||||||||||||||||
Consumer | |||||||||||||||||||||
Mortgages and home equity | 7,253 | 11,539 | 20,517 | 22,180 | 25,840 | ||||||||||||||||
Other consumer(3) | 3,537 | 4,962 | 14,580 | 15,546 | 17,875 | ||||||||||||||||
Credit cards | 2,070 | 2,763 | 6,112 | 4,732 | 4,242 | ||||||||||||||||
Total — Consumer | 12,860 | 19,264 | 41,209 | 42,458 | 47,957 | ||||||||||||||||
Total gross loans(4) | W | 33,665 | W | 45,052 | W | 95,295 | W | 97,080 | W | 105,848 | |||||||||||
(1) | Consists primarily of working capital loans, general purpose loans, bills purchased, trade-related notes and inter-bank loans. |
(2) | Consists primarily of privately placed bonds, credit facility drawdowns and purchases of commercial paper or notes at a discount from its customers with recourse. |
(3) | Consists of general unsecured loans and loans secured by collateral other than housing to retail customers. |
(4) | As of December 31, 2003, 2004 and 2005, approximately 71.9%, 89.4% and 90.6% of our total gross loans, respectively, were Won-denominated. |
Loan Concentrations |
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Twenty Largest Exposures by Borrower |
Amounts of | |||||||||||||||||||||||||||||
Impaired | |||||||||||||||||||||||||||||
Loans and | |||||||||||||||||||||||||||||
Loans in | Loans in | Guarantees | Guarantees | ||||||||||||||||||||||||||
Won | Foreign | Equity | Debt | and | and | ||||||||||||||||||||||||
Company | Currency | Currency | Securities | Securities | Acceptances | Total Exposure | Acceptances | ||||||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||||||
The Bank of Korea | W | — | W | — | W | — | W | 6,100 | W | — | W | 6,100 | W | — | |||||||||||||||
Ministry of Finance and Economy | — | — | — | 4,501 | — | 4,501 | — | ||||||||||||||||||||||
Korea Deposit Insurance Corporation | 33 | — | — | 3,805 | — | 3,838 | — | ||||||||||||||||||||||
Korea Development Bank | — | — | — | 1,137 | — | 1,137 | — | ||||||||||||||||||||||
Kookmin Bank | 46 | — | 13 | 732 | — | 791 | — | ||||||||||||||||||||||
Samsung Electronics | — | 584 | 180 | — | 22 | 786 | — | ||||||||||||||||||||||
Military Mutual Aid Association | 691 | — | — | — | — | 691 | — | ||||||||||||||||||||||
SK Networks(1) | 253 | 73 | 240 | 7 | 97 | 670 | 424 | ||||||||||||||||||||||
Industrial Bank of Korea | — | — | 2 | 668 | — | 670 | — | ||||||||||||||||||||||
Samsung Card | 395 | 20 | — | 194 | 5 | 614 | — | ||||||||||||||||||||||
Kia Motors | 49 | 368 | 1 | 103 | 34 | 555 | — | ||||||||||||||||||||||
Korea Highway Corporation | — | — | — | 551 | — | 551 | — | ||||||||||||||||||||||
Woori Bank | 1 | 4 | 1 | 538 | — | 544 | — | ||||||||||||||||||||||
Korea Asset Management Corporation | — | — | 14 | 510 | — | 524 | — | ||||||||||||||||||||||
Korea Exchange Bank | — | — | 3 | 467 | — | 470 | — | ||||||||||||||||||||||
Hana Bank | — | 10 | — | 416 | — | 426 | — | ||||||||||||||||||||||
Hyundai Motors | 21 | 282 | 20 | — | 94 | 417 | — | ||||||||||||||||||||||
SK Corporation | 69 | 72 | 132 | 43 | 82 | 398 | — | ||||||||||||||||||||||
National Agricultural Cooperative Federation | — | — | 21 | 368 | — | 389 | — | ||||||||||||||||||||||
LG Electronics | — | 331 | 7 | 24 | 12 | 374 | — | ||||||||||||||||||||||
Total | W | 1,558 | W | 1,744 | W | 634 | W | 20,164 | W | 346 | W | 24,446 | W | 424 | |||||||||||||||
(1) | Includes its remaining offshore subsidiaries, SK Networks Hong Kong and SK Networks Europe. |
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Exposure to Chaebols |
Amounts of | |||||||||||||||||||||||||||||
Impaired | |||||||||||||||||||||||||||||
Loans and | |||||||||||||||||||||||||||||
Loans in | Loans in | Guarantees | Guarantees | ||||||||||||||||||||||||||
Won | Foreign | Equity | Debt | and | Total | and | |||||||||||||||||||||||
Chaebol | Currency | Currency | Securities | Securities | Acceptances | Exposure | Acceptances | ||||||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||||||
Samsung | W | 506 | W | 970 | W | 357 | W | 218 | W | 191 | W | 2,242 | W | — | |||||||||||||||
Hyundai Motors | 576 | 826 | 25 | 240 | 251 | 1,918 | — | ||||||||||||||||||||||
SK | 482 | 255 | 406 | 87 | 230 | 1,460 | 424 | ||||||||||||||||||||||
LG | 229 | 696 | 52 | 55 | 120 | 1,152 | — | ||||||||||||||||||||||
Lotte | 195 | 43 | 1 | 217 | 117 | 573 | — | ||||||||||||||||||||||
Doosan | 159 | 47 | 3 | — | 202 | 411 | — | ||||||||||||||||||||||
Hyundai Heavy Industries | 1 | 24 | 1 | — | 340 | 366 | — | ||||||||||||||||||||||
LS | 39 | 52 | 2 | 5 | 263 | 361 | — | ||||||||||||||||||||||
Hanhwa | 132 | 40 | 9 | 20 | 78 | 279 | — | ||||||||||||||||||||||
Hyosung | 63 | 108 | — | 48 | 43 | 262 | — | ||||||||||||||||||||||
Total | W | 2,382 | W | 3,061 | W | 856 | W | 890 | W | 1,835 | W | 9,024 | W | 424 | |||||||||||||||
Exposure to LG Card |
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Exposures to the Credit Card Industry |
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Securities | |||||||||||||||||||||||||||||
Issued | |||||||||||||||||||||||||||||
Through | |||||||||||||||||||||||||||||
Asset- | |||||||||||||||||||||||||||||
Backed | Loans in | Guarantees | Loans in | ||||||||||||||||||||||||||
Debt | Securiti- | Equity | Won | and | Foreign | ||||||||||||||||||||||||
Company | Securities | zation(1) | Securities | Currency | Acceptances | Currency | Total | ||||||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||||||
Samsung Card(2) | W | 194 | W | 281 | W | — | W | 395 | W | 5 | W | 20 | W | 895 | |||||||||||||||
LG Card | 2 | 31 | 195 | 136 | — | — | 364 | ||||||||||||||||||||||
Hyundai Card | — | 150 | — | 20 | — | — | 170 | ||||||||||||||||||||||
Lotte Card | 129 | — | — | 19 | — | — | 148 | ||||||||||||||||||||||
KDB Capital(3) | — | — | — | 20 | — | — | 20 | ||||||||||||||||||||||
Total | W | 325 | W | 462 | W | 195 | W | 590 | W | 5 | W | 20 | W | 1,597 | |||||||||||||||
(1) | Securities issued by special purpose vehicles of credit card companies, established with credit card receivables as underlying assets. In general, these special purpose vehicles are entitled to credit or collateral support from such credit card companies. |
(2) | Samsung Card recorded net loss of W1,301 billion in 2005, despite a turnaround beginning in the second half of 2005. In the first quarter of 2006, Samsung Card recorded net income of W76 billion. |
(3) | KDB Capital is a subsidiary of Korea Development Bank, which is owned and controlled by the Korean government. |
Exposures to SK Group Companies |
• | the purchase by SK Networks of approximately US$540 million of the US$563 million of total indebtedness of its overseas subsidiaries held by non-Korean institutions in exchange for 43% of the |
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principal amount in promissory notes and 5% of the principal amount in the form of bonds with warrants; | ||
• | the purchase or inclusion in the restructuring plan of SK Networks of all of the approximately US$126 million of indebtedness of its overseas subsidiaries held by Korean financial institutions; and | |
• | the entering into a Memorandum of Understanding on the Corporate Restructuring Implementation, or Memorandum, in respect of the restructuring of the approximately US$2 billion of indebtedness to SK Networks. |
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Amounts of | |||||||||||||||||||||||||||||
Impaired | |||||||||||||||||||||||||||||
Loans and | |||||||||||||||||||||||||||||
Loans in | Loans in | Guarantees | Guarantees | ||||||||||||||||||||||||||
Won | Foreign | Equity | Debt | and | Total | and | |||||||||||||||||||||||
Company | Currency | Currency | Securities | Securities | Acceptances | Exposure | Acceptances | ||||||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||||||
SK Networks | W | 253 | W | 73 | W | 240 | W | 7 | W | 97 | W | 670 | W | 424 | |||||||||||||||
SK Corporation | 69 | 72 | 132 | 43 | 82 | 398 | — | ||||||||||||||||||||||
K Power Co., Ltd. | 59 | — | — | — | — | 59 | — | ||||||||||||||||||||||
SK Telecom Co., Ltd. | 1 | — | 33 | 20 | — | 54 | — | ||||||||||||||||||||||
SK Chemical | 10 | 18 | — | 3 | 21 | 52 | — | ||||||||||||||||||||||
SK C&C Co., Ltd. | 40 | — | — | — | 2 | 42 | — | ||||||||||||||||||||||
SKC Co., Ltd. | 5 | 11 | — | 15 | 2 | 33 | — | ||||||||||||||||||||||
SK Gas Co., Ltd (Kim Se Kwang) | 3 | 24 | — | — | — | 27 | — | ||||||||||||||||||||||
SK Gas Co., Ltd. | — | 27 | — | — | — | 27 | — | ||||||||||||||||||||||
SK Shipping | — | 19 | — | — | — | 19 | — | ||||||||||||||||||||||
Walkerhill | 6 | — | — | — | 8 | 14 | — | ||||||||||||||||||||||
SK Construction | — | — | — | — | 13 | 13 | — | ||||||||||||||||||||||
Choongnam City Gas. Co., Ltd. | 7 | — | — | — | — | 7 | — | ||||||||||||||||||||||
Daehan City Gas Co., Ltd. | 7 | — | — | — | — | 7 | — | ||||||||||||||||||||||
Pohang City Gas | 6 | — | — | — | — | 6 | — | ||||||||||||||||||||||
Pusan City Gas | 5 | — | — | — | — | 5 | — | ||||||||||||||||||||||
Dong Shin Pharm, Co., Ltd. | — | 3 | — | — | 1 | 4 | — | ||||||||||||||||||||||
Global Shipbuilding SA | — | 4 | — | — | — | 4 | — | ||||||||||||||||||||||
Champion Shipbuilding SA | — | 4 | — | — | — | 4 | — | ||||||||||||||||||||||
SK Telesys | — | 1 | — | — | 2 | 3 | — | ||||||||||||||||||||||
Chonnam City Gas Co., Ltd. | 3 | — | — | — | — | 3 | — | ||||||||||||||||||||||
InnoAce Co., Ltd. | 2 | — | — | — | — | 2 | — | ||||||||||||||||||||||
In2gen | 2 | — | — | — | — | 2 | — | ||||||||||||||||||||||
SK Sitech | — | — | — | — | 2 | 2 | — | ||||||||||||||||||||||
Infosec Co., Ltd. | 1 | — | — | — | — | 1 | — | ||||||||||||||||||||||
Kangwon Gas | 1 | — | — | — | — | 1 | — | ||||||||||||||||||||||
Total | W | 480 | W | 256 | W | 405 | W | 88 | W | 230 | W | 1,459 | W | 424 | |||||||||||||||
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Exposures to Ssangyong Group Companies |
Amounts of | |||||||||||||||||||||||||||||
Impaired | |||||||||||||||||||||||||||||
Loans and | |||||||||||||||||||||||||||||
Loans in | Loans in | Guarantees | Guarantees | ||||||||||||||||||||||||||
Won | Foreign | Equity | Debt | and | Total | and | |||||||||||||||||||||||
Company (1) | Currency | Currency | Securities | Securities | Acceptances | Exposure | Acceptances | ||||||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||||||
Ssangyong Corporation | W | 3 | W | 91 | W | 49 | W | — | W | 78 | W | 221 | W | 172 | |||||||||||||||
Ssangyong Cement Industrial | 87 | — | 87 | — | — | 174 | — | ||||||||||||||||||||||
Ssangyong Engineering & Construction | — | 4 | 6 | 14 | 5 | 29 | — | ||||||||||||||||||||||
Ssangyong Resources Development Co., Ltd. | 2 | — | — | — | — | 2 | — | ||||||||||||||||||||||
Total | W | 92 | W | 95 | W | 142 | W | 14 | W | 83 | W | 426 | W | 172 | |||||||||||||||
(1) | Includes domestic and overseas subsidiaries of each company. |
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Loan Concentration by Industry |
Percentage of Total | |||||||||
Industry | Aggregate Loan Balance | Corporate Loan Balance | |||||||
(In billions of Won) | (Percentages) | ||||||||
Manufacturing | W | 22,823 | 39.42 | % | |||||
Retail and wholesale | 8,271 | 14.29 | |||||||
Real estate, leasing, and service | 9,434 | 16.30 | |||||||
Construction | 3,182 | 5.50 | |||||||
Hotel and leisure(1) | 2,114 | 3.65 | |||||||
Finance and insurance | 3,615 | 6.24 | |||||||
Transportation, storage and communication | 2,511 | 4.34 | |||||||
Other service | 5,854 | 10.11 | |||||||
Other | 87 | 0.15 | |||||||
Total | W | 57,891 | 100.00 | % | |||||
(1) | Consists principally of hotels, motels and restaurants. |
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Loan Concentration by Size of Loans |
Aggregate | Percentage of Total | |||||||||
Loan Balance | Loan Balance | |||||||||
(In billions | (Percentages) | |||||||||
of Won) | ||||||||||
Commercial and industrial | ||||||||||
Up to W10 million | W | 116 | 0.11 | % | ||||||
Over W10 million to W50 million | 1,756 | 1.66 | ||||||||
Over W50 million to W100 million | 2,220 | 2.10 | ||||||||
Over W100 million to W500 million | 10,045 | 9.48 | ||||||||
Over W500 million to W1 billion | 4,351 | 4.11 | ||||||||
Over W1 billion to W5 billion | 8,357 | 7.90 | ||||||||
Over W5 billion to W10 billion | 2,899 | 2.74 | ||||||||
Over W10 billion to W50 billion | 4,538 | 4.29 | ||||||||
Over W50 billion to W100 billion | 1,136 | 1.07 | ||||||||
Over W100 billion | 310 | 0.29 | ||||||||
Sub-total | W | 35,728 | 33.75 | % | ||||||
Other commercial | ||||||||||
Up to W10 million | W | 64 | 0.06 | % | ||||||
Over W10 million to W50 million | 481 | 0.45 | ||||||||
Over W50 million to W100 million | 546 | 0.52 | ||||||||
Over W100 million to W500 million | 3,077 | 2.91 | ||||||||
Over W500 million to W1 billion | 1,923 | 1.82 | ||||||||
Over W1 billion to W5 billion | 5,125 | 4.84 | ||||||||
Over W5 billion to W10 billion | 2,473 | 2.34 | ||||||||
Over W10 billion to W50 billion | 5,668 | 5.36 | ||||||||
Over W50 billion to W100 billion | 1,032 | 0.97 | ||||||||
Over W100 billion | 1,020 | 0.96 | ||||||||
Sub-total | W | 21,409 | 20.23 | % | ||||||
Lease financing | ||||||||||
Up to W10 million | W | 2 | — | |||||||
Over W10 million to W50 million | 15 | 0.01 | % | |||||||
Over W50 million to W100 million | 18 | 0.02 | ||||||||
Over W100 million to W500 million | 100 | 0.09 | ||||||||
Over W500 million to W1 billion | 50 | 0.05 | ||||||||
Over W1 billion to W5 billion | 214 | 0.20 | ||||||||
Over W5 billion to W10 billion | 125 | 0.12 | ||||||||
Over W10 billion to W50 billion | 230 | 0.22 | ||||||||
Over W50 billion to W100 billion | — | — | ||||||||
Over W100 billion | — | — | ||||||||
Sub-total | W | 754 | 0.71 | % | ||||||
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Aggregate | Percentage of Total | ||||||||||
Loan Balance | Loan Balance | ||||||||||
(In billions | (Percentages) | ||||||||||
of Won) | |||||||||||
Mortgage and home equity | |||||||||||
Up to W10 million | W | 391 | 0.37 | % | |||||||
Over W10 million to W50 million | 6,817 | 6.44 | |||||||||
Over W50 million to W100 million | 7,662 | 7.24 | |||||||||
Over W100 million to W500 million | 10,222 | 9.65 | |||||||||
Over W500 million to W1 billion | 633 | 0.60 | |||||||||
Over W1 billion to W5 billion | 115 | 0.11 | |||||||||
Over W5 billion to W10 billion | — | — | |||||||||
Over W10 billion to W50 billion | — | — | |||||||||
Over W50 billion to W100 billion | — | — | |||||||||
Over W100 billion | — | — | |||||||||
Sub-total | W | 25,840 | 24.41 | % | |||||||
Other consumer | |||||||||||
Up to W10 million | W | 3,507 | 3.31 | % | |||||||
Over W10 million to W50 million | 5,088 | 4.81 | |||||||||
5.00 | 2,598 | 2.45 | |||||||||
Over W100 million to W500 million | 5,109 | 4.84 | |||||||||
Over W500 million to W1 billion | 841 | 0.79 | |||||||||
Over W1 billion to W5 billion | 686 | 0.65 | |||||||||
Over W5 billion to W10 billion | 46 | 0.04 | |||||||||
Over W10 billion to W50 billion | 0 | 0.00 | |||||||||
Over W50 billion | 0 | 0.00 | |||||||||
Over W100 billion | 0 | 0.00 | |||||||||
Sub-total | W | 17,875 | 16.89 | % | |||||||
Credit cards | |||||||||||
Up to W10 million | W | 2,998 | 2.84 | % | |||||||
Over W10 million to W50 million | 995 | 0.94 | |||||||||
Over W50 million to W100 million | 89 | 0.08 | |||||||||
Over W100 million to W500 million | 120 | 0.11 | |||||||||
Over W500 million to W1 billion | 27 | 0.03 | |||||||||
Over W1 billion to W5 billion | 13 | 0.01 | |||||||||
Over W5 billion to W10 billion | 0 | 0.00 | |||||||||
Over W10 billion to W50 billion | 0 | 0.00 | |||||||||
Over W50 billion to W100 billion | 0 | 0.00 | |||||||||
Over W100 billion | 0 | 0.00 | |||||||||
Sub-total | W | 4,242 | 4.01 | % | |||||||
Total | W | 105,848 | 100.00 | % | |||||||
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Maturity Analysis |
As of December 31, 2005 | ||||||||||||||||||
Over 1 Year but | ||||||||||||||||||
1 Year or | Not More Than | Over | ||||||||||||||||
Less | 5 Years | 5 Years | Total | |||||||||||||||
(In billions of Won) | ||||||||||||||||||
Corporate: | ||||||||||||||||||
Commercial and industrial | W | 30,361 | W | 4,666 | W | 701 | W | 35,728 | ||||||||||
Other commercial | 14,280 | 6,099 | 1,030 | 21,409 | ||||||||||||||
Lease financing | 422 | 325 | 7 | 754 | ||||||||||||||
Total corporate | W | 45,063 | W | 11,090 | W | 1,738 | W | 57,891 | ||||||||||
Consumer: | ||||||||||||||||||
Mortgage and home equity | W | 9,885 | W | 4,648 | W | 11,307 | W | 25,840 | ||||||||||
Other consumer | 12,959 | 3,830 | 1,086 | 17,875 | ||||||||||||||
Credit cards | 4,068 | 162 | 12 | 4,242 | ||||||||||||||
Total consumer | W | 26,912 | W | 8,640 | W | 12,405 | W | 47,957 | ||||||||||
Total gross loans | W | 71,975 | W | 19,730 | W | 14,143 | W | 105,848 | ||||||||||
Interest Rate Sensitivity |
As of December 31, 2005 | |||||||||||||
Due Within | Due After | ||||||||||||
1 Year | 1 Year | Total | |||||||||||
(In billions of Won) | |||||||||||||
Fixed rate loans(1) | W | 34,605 | W | 15,892 | W | 50,497 | |||||||
Variable rate loans(2) | 37,370 | 17,981 | 55,351 | ||||||||||
Total gross loans | W | 71,975 | W | 33,873 | W | 105,848 | |||||||
(1) | Fixed rate loans are loans for which the interest rate is fixed for the entire term. Includes W18,693 billion of loans due within one year and W11,088 billion of loans due after one year, which are priced based on one or more reference rates which may vary at our discretion. However, it is not our practice to change such reference rates during the life of a loan. |
(2) | Variable or adjustable rate loans are for which the interest rate is not fixed for the entire term. |
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Nonaccrual Loans and Past Due Accruing Loans |
As of December 31, | ||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||
(In billions of Won) | ||||||||||||||||||||||
Loans accounted for on a nonaccrual basis | ||||||||||||||||||||||
Corporate | W | 834 | W | 741 | W | 1,536 | W | 1,681 | W | 1,475 | ||||||||||||
Consumer | 78 | 111 | 580 | 479 | 367 | |||||||||||||||||
Credit cards | 234 | 358 | 1,016 | 294 | 210 | |||||||||||||||||
Sub-total | 1,146 | 1,210 | 3,132 | 2,454 | 2,052 | |||||||||||||||||
Accruing loans which are contractually past due one day or more as to principal or interest | ||||||||||||||||||||||
Corporate(1) | 29 | 32 | 196 | 55 | 32 | |||||||||||||||||
Consumer(2) | 32 | 38 | 27 | 17 | 32 | |||||||||||||||||
Credit cards | — | — | — | 76 | 3 | |||||||||||||||||
Sub-total | 61 | 70 | 223 | 148 | 67 | |||||||||||||||||
Total | W | 1,207 | W | 1,280 | W | 3,355 | W | 2,602 | W | 2,119 | ||||||||||||
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(1) | Includes accruing loans which are contractually past due 90 days or more in the amount of W2 billion, W113 billion, W12 billion and W5 billion of corporate loans as of December 31, 2002, 2003, 2004 and 2005, respectively. |
(2) | Includes accruing loans which are contractually past due 90 days or more in the amount of W10 billion, W7 billion, W6 billion and W7 billion of consumer loans as of December 31, 2002, 2003, 2004 and 2005, respectively. |
Troubled Debt Restructurings |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(In billions of Won) | ||||||||||||||||||||
Loans not included in “nonaccrual and past due loans” which are classified as “troubled debt restructurings” | W | 360 | W | 145 | W | 1,179 | W | 916 | W | 735 |
Credit Exposures to Companies in Workout, Court Receivership and Composition |
Workout |
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Court Receivership and Composition |
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Loans in | Guarantees | ||||||||||||||||||||||||
Loans in | Foreign | Equity | Debt | and | Total | ||||||||||||||||||||
Company | Won Currency | Currency | Securities | Securities | Acceptances | Exposure(1) | |||||||||||||||||||
(In billions of Won) | |||||||||||||||||||||||||
SK Networks | W | 253 | W | 73 | W | 240 | W | 7 | W | 97 | W | 670 | |||||||||||||
LG Card | 136 | — | 195 | 2 | — | 333 | |||||||||||||||||||
Ssangyong Corporation(2) | 3 | 91 | 49 | — | 78 | 221 | |||||||||||||||||||
Hyundai Engineering & Construction(3) | — | 8 | 56 | 32 | 62 | 158 | |||||||||||||||||||
Inchon Oil Refinery | 98 | — | 5 | — | — | 103 | |||||||||||||||||||
Daewoo Electronics Corporation | 38 | — | 28 | — | — | 66 | |||||||||||||||||||
Saehan Industries, Inc. | 27 | 5 | 9 | — | 5 | 46 | |||||||||||||||||||
Hankook Ilbo | 43 | — | — | — | — | 43 | |||||||||||||||||||
Daewoo Electronics Co., Ltd. | 33 | — | — | — | — | 33 | |||||||||||||||||||
Dongbang Textile & Mart Co., Ltd. | 3 | 10 | — | — | 13 | 26 | |||||||||||||||||||
Total | W | 634 | W | 187 | W | 582 | W | 41 | W | 255 | W | 1,699 | |||||||||||||
(1) | Only includes the portion of total exposure identified by us as troubled debt restructuring and excludes amount of loans or other exposures to the same borrower that are not subject to workouts, composition or court receivership. |
(2) | The sale of 8,374,236 shares, or 75.00%, of Ssangyong Corporation by the eight members of the creditor group to Morgan Stanley Private Equity Holdings AB for W8,091.31 per share, or W68 billion in the aggregate, was consummated in April 2006. As a result, in April 2006, Ssangyong Corporation graduated from the workout program. |
(3) | In May 2006, Korea Exchange Bank, the lead creditor of Hyundai Engineering & Construction, announced Hyundai Engineering & Construction’s graduation from its workout program. It is expected that the shares currently held by the creditors group will be up for sale in the second half of 2006. |
Potential Problem Loans |
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Provisioning Policy |
Loan Classifications |
Loan Classification | Loan Characteristics | |
Normal | Loans made to customers whose financial position, future cash flows and nature of business are deemed financially sound. No problems in recoverability are expected. | |
Precautionary | Loans made to customers whose financial position, future cash flows and nature of business show potential weakness, although there is no immediate risk of nonrepayment. | |
Substandard | Loans made to customers whose adverse financial position, future cash flows and nature of business have a direct effect on the repayment of the loan. | |
Doubtful | Loans made to customers whose financial position, future cash flows and nature of business are so weak that significant risk exists in the recoverability of the loan, to the extent the outstanding amount exceeds any collateral pledged. | |
Estimated loss | Loans where write-off is unavoidable. |
Corporate Loans |
• | loans classified as “substandard” or below according to the asset classification guidelines of the Financial Supervisory Commission; | |
• | loans that are 90 days or more past due; and | |
• | loans which are “troubled debt restructurings” as defined under U.S. GAAP. |
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— Loans individually identified for review and considered impaired |
— Loans collectively evaluated for impairment |
• | Prevailing economic and business conditions within Korea and foreign jurisdictions in which we operate; | |
• | Industry concentrations; | |
• | Changes in the size and composition of the relevant underlying portfolios; and | |
• | Changes in lending policies and procedures, including underwriting standards and collection, charge-offs, and recovery practices. |
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As of December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
(Percentages) | ||||||||||||
Normal | 2.35 | % | 1.87 | % | 2.42 | % | ||||||
Precautionary | 23.72 | 8.25 | 7.92 | |||||||||
Substandard | 33.01 | 27.79 | 22.41 | |||||||||
Doubtful | 68.63 | 83.15 | 47.60 | |||||||||
Estimated loss | 90.11 | 92.58 | 87.19 |
— Loans not specifically identified as impaired |
Leases |
Consumer loans |
• | Mortgages; | |
• | Home equity loans; | |
• | Other consumer loans (consisting of unsecured and secured consumer loans); and | |
• | Credit cards. |
— Mortgages, home equity loans and other consumer loans |
• | Changes in economic and business conditions such as levels of unemployment and house prices; | |
• | Change in the nature and volume of the portfolio, including any concentrations of credits; and | |
• | The effect of external factors such as regulatory or government requirements. |
— Credit Cards |
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• | Delinquency levels of cardholders; | |
• | Current government involvement within the credit card industry (such as the 2001 Government Amnesty Program); | |
• | Key retail performance indicators (such as ratios of household debt to disposable income and household liabilities to financial assets). |
Loan Aging Schedule |
Past Due | Past Due | Past Due More | ||||||||||||||||||||||||||||||||||
Current | up to 3 Months | 3-6 Months | Than 6 Months | |||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||
As of December 31, | Amount | % | Amount | % | Amount | % | Amount | % | Amount | |||||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||||||||||
2001 | W | 32,648 | 96.98 | W | 487 | 1.45 | W | 144 | 0.43 | W | 386 | 1.14 | W | 33,665 | ||||||||||||||||||||||
2002 | 43,962 | 97.58 | 572 | 1.27 | 121 | 0.27 | 397 | 0.88 | 45,052 | |||||||||||||||||||||||||||
2003 | 91,940 | 96.48 | 1,511 | 1.59 | 714 | 0.75 | 1,130 | 1.18 | 95,295 | |||||||||||||||||||||||||||
2004 | 94,480 | 97.32 | 855 | 0.88 | 431 | 0.45 | 1,314 | 1.35 | 97,080 | |||||||||||||||||||||||||||
2005 | 103,601 | 97.87 | 652 | 0.62 | 243 | 0.23 | 1,352 | 1.28 | 105,848 |
Non-Performing Loans |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||
Total non-performing loans | W | 530 | W | 518 | W | 1,844 | W | 1,750 | W | 1,594 | ||||||||||
As a percentage of total loans | 1.57 | % | 1.15 | % | 1.94 | % | 1.80 | % | 1.51 | % |
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Analysis of Non-Performing Loans |
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of | Ratio of | Ratio of | Ratio of | Ratio of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non- | Non- | Non- | Non- | Non- | Non- | Non- | Non- | Non- | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Performing | Performing | Total | Performing | Performing | Total | Performing | Performing | Total | Performing | Performing | Total | Performing | Performing | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | W | 13,459 | W | 342 | 2.54 | % | W | 15,800 | W | 211 | 1.34 | % | W | 35,617 | W | 739 | 2.07 | % | W | 35,653 | W | 898 | 2.52 | % | W | 35,728 | W | 868 | 2.43 | % | ||||||||||||||||||||||||||||||||
Other commercial | 6,748 | 125 | 1.85 | 9,352 | 205 | 2.19 | 17,378 | 558 | 3.21 | 17,988 | 468 | 2.60 | 21,409 | 387 | 1.81 | |||||||||||||||||||||||||||||||||||||||||||||||
Lease financing | 598 | 3 | 0.50 | 636 | 1 | 0.16 | 1,091 | 8 | 0.73 | 981 | 19 | 1.94 | 754 | 8 | 1.06 | |||||||||||||||||||||||||||||||||||||||||||||||
Total corporate | 20,805 | 470 | 2.26 | 25,788 | 417 | 1.62 | 54,086 | 1,305 | 2.41 | 54,622 | 1,385 | 2.54 | 57,891 | 1,263 | 2.18 | |||||||||||||||||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage and home Equity | 7,253 | 28 | 0.39 | 11,539 | 34 | 0.29 | 20,517 | 133 | 0.65 | 22,180 | 126 | 0.57 | 25,840 | 111 | 0.43 | |||||||||||||||||||||||||||||||||||||||||||||||
Other consumer | 3,537 | 16 | 0.45 | 4,962 | 19 | 0.38 | 14,580 | 232 | 1.59 | 15,546 | 155 | 1.00 | 17,875 | 172 | 0.96 | |||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 2,070 | 16 | 0.77 | 2,763 | 48 | 1.74 | 6,112 | 174 | 2.85 | 4,732 | 84 | 1.78 | 4,242 | 48 | 1.13 | |||||||||||||||||||||||||||||||||||||||||||||||
Total consumer | 12,860 | 60 | 0.47 | 19,264 | 101 | 0.52 | 41,209 | 539 | 1.31 | 42,458 | 365 | 0.86 | 47,957 | 331 | 0.69 | |||||||||||||||||||||||||||||||||||||||||||||||
Total | W | 33,665 | W | 518 | 1.57 | % | W | 45,052 | W | 518 | 1.15 | % | W | 95,295 | W | 1,844 | 1.94 | % | W | 97,080 | W | 1,750 | 1.80 | % | W | 105,848 | W | 1,594 | 1.51 | % | ||||||||||||||||||||||||||||||||
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Top Twenty Non-Performing Loans |
As of December 31, 2005 | ||||||||||||
Gross Principal | Allowance for Loan | |||||||||||
Industry | Outstanding | Losses | ||||||||||
(In billions of Won) | ||||||||||||
1 | Borrower A | Manufacturing | W | 65 | — | |||||||
2 | Borrower B | Manufacturing | 54 | W | 54 | |||||||
3 | Borrower C | Manufacturing | 36 | 25 | ||||||||
4 | Borrower D | Manufacturing | 32 | 33 | ||||||||
5 | Borrower E | Manufacturing | 27 | 12 | ||||||||
6 | Borrower F | Real estate, leasing and service | 16 | — | ||||||||
7 | Borrower G | Manufacturing | 12 | — | ||||||||
8 | Borrower H | Finance and insurance | 12 | 4 | ||||||||
9 | Borrower I | Hotel and leisure | 12 | 7 | ||||||||
10 | Borrower J | Other service | 11 | — | ||||||||
11 | Borrower K | Construction | 10 | 1 | ||||||||
12 | Borrower L | Real estate, leasing and service | 10 | — | ||||||||
13 | Borrower M | Real estate, leasing and service | 9 | 7 | ||||||||
14 | Borrower N | Manufacturing | 8 | — | ||||||||
15 | Borrower O | Manufacturing | 7 | 7 | ||||||||
16 | Borrower P | Transportation, storage and communication | 6 | 1 | ||||||||
17 | Borrower Q | Manufacturing | 6 | 6 | ||||||||
18 | Borrower R | Manufacturing | 6 | 6 | ||||||||
19 | Borrower S | Retail and wholesale | 6 | — | ||||||||
20 | Borrower T | Manufacturing | 6 | — | ||||||||
W | 351 | W | 163 | |||||||||
Non-Performing Loan Strategy |
• | identifying loans subject to a proposed sale by assessing the estimated losses from such sale based on the estimated recovery value of collateral, if any, for such non-performing loans; | |
• | identifying loans subject to charge-off based on the estimated recovery value of collateral, if any, for such non-performing loans and the estimated rate of recovery of unsecured loans; and |
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• | on a limited basis, identifying commercial loans subject to normalization efforts based on the cash-flow situation of the borrower. |
• | making phone calls and paying visits to the borrower requesting payment; | |
• | continuing to assess and evaluate assets of our borrowers; and | |
• | if necessary, initiating legal action such as foreclosures, attachments and litigation. |
• | selling non-performing loans to third parties including the Korea Asset Management Corporation; | |
• | entering into asset-backed securitization transactions with respect to non-performing loans; | |
• | managing consumer loans that are three months or more past due through Shinhan Credit Information under an agency agreement in the case of Shinhan Bank and through Consumer Loan Collection Division in the case of Chohung Bank; and | |
• | using third-party collection agencies including the Solomon Credit Information. |
Allocation of Allowance for Loan Losses |
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||||
Commercial and Industrial | W | 323 | 44.86 | % | W | 341 | 34.24 | % | W | 1,383 | 38.09 | % | W | 1,065 | 46.08 | % | W | 753 | 49.80 | % | ||||||||||||||||||||||
Other commercial | 275 | 38.19 | 365 | 36.65 | 626 | 17.24 | 410 | 17.74 | 305 | 20.17 | ||||||||||||||||||||||||||||||||
Lease financing | 35 | 4.86 | 22 | 2.21 | 45 | 1.24 | 24 | 1.04 | 16 | 1.06 | ||||||||||||||||||||||||||||||||
Total corporate | 633 | 87.91 | 728 | 73.10 | 2,054 | 56.57 | 1,499 | 64.86 | 1,074 | 71.03 | ||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||||
Mortgages and home equity | 9 | 1.25 | 30 | 3.01 | 53 | 1.46 | 36 | 1.56 | 19 | 1.26 | ||||||||||||||||||||||||||||||||
Other consumer | 22 | 3.06 | 59 | 5.92 | 659 | 18.15 | 368 | 15.92 | 183 | 12.10 | ||||||||||||||||||||||||||||||||
Credit cards | 56 | 7.78 | 179 | 17.97 | 865 | 23.82 | 408 | 17.66 | 236 | 15.61 | ||||||||||||||||||||||||||||||||
Total consumer | 87 | 12.09 | 268 | 26.90 | 1,577 | 43.43 | 812 | 35.14 | 438 | 28.97 | ||||||||||||||||||||||||||||||||
Total allowance for loan losses | W | 720 | 100.00 | % | W | 996 | 100.00 | % | W | 3,631 | 100.00 | % | W | 2,311 | 100.00 | % | W | 1,512 | 100.00 | % | ||||||||||||||||||||||
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Analysis of the Allowance for Loan Losses |
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||
Balance at the beginning of the period | W | 828 | W | 720 | W | 996 | W | 3,631 | W | 2,311 | |||||||||||||
Amounts charged against income | 411 | 236 | 1,011 | 195 | (255 | ) | |||||||||||||||||
Allowance relating to loans repurchased from the Korea Asset Management Corporation | 45 | 65 | 32 | 2 | — | ||||||||||||||||||
Gross charge-offs: | |||||||||||||||||||||||
Corporate: | |||||||||||||||||||||||
Commercial and industrial | 379 | 105 | 255 | 465 | 297 | ||||||||||||||||||
Other commercial | 345 | 22 | 223 | 26 | 18 | ||||||||||||||||||
Lease financing | 5 | 10 | 6 | — | — | ||||||||||||||||||
Consumer: | |||||||||||||||||||||||
Mortgage and home equity | 2 | 2 | 12 | 18 | 19 | ||||||||||||||||||
Other consumer | 9 | 17 | 135 | 441 | 296 | ||||||||||||||||||
Credit cards | 39 | 60 | 765 | 872 | 316 | ||||||||||||||||||
Total gross charge-offs | (779 | ) | (216 | ) | (1,396 | ) | (1,822 | ) | (946 | ) | |||||||||||||
Recoveries: | |||||||||||||||||||||||
Corporate: | |||||||||||||||||||||||
Commercial and industrial | 60 | 53 | 82 | 105 | 69 | ||||||||||||||||||
Other commercial | 58 | 21 | 73 | 121 | 217 | ||||||||||||||||||
Lease financing | 1 | 2 | — | 2 | 4 | ||||||||||||||||||
Consumer: | |||||||||||||||||||||||
Mortgage and home equity | — | — | 1 | 1 | 3 | ||||||||||||||||||
Other consumer | 2 | 1 | 23 | 22 | 34 | ||||||||||||||||||
Credit cards | 7 | 17 | 69 | 56 | 72 | ||||||||||||||||||
Total recoveries | 128 | 94 | 248 | 307 | 399 | ||||||||||||||||||
Net charge-offs | (651 | ) | (122 | ) | (1,148 | ) | (1,515 | ) | (547 | ) | |||||||||||||
Acquisition of Chohung Bank | — | 20 | 2,740 | — | — | ||||||||||||||||||
Acquisition of Jeju Bank | — | 77 | 2,740 | — | — | ||||||||||||||||||
Acquisition of Good Morning Securities | 64 | — | 2,740 | — | — | ||||||||||||||||||
Acquisition of Shinhan Securities | 23 | — | 2,740 | — | — | ||||||||||||||||||
Acquisition of Shinhan Life Insurance | — | — | — | — | 3 | ||||||||||||||||||
Balance at the end of the period | W | 720 | W | 996 | W | 3,631 | W | 2,311 | W | 1,512 | |||||||||||||
Ratio of net charge-offs during the period to average loans outstanding during the period | 2.07 | % | 0.30 | % | 1.74 | % | 1.52 | % | 0.53 | % |
Loan Charge-Offs |
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Basic Principles |
Loans To Be Charged-Off |
• | loans for which collection is not foreseeable due to insolvency or bankruptcy, dissolution or the shutting down of the business of the debtor; | |
• | loans for which collection is not foreseeable due to the death or disappearance of debtors; | |
• | loans for which expenses of collection exceed the collectable amount; | |
• | loans on which collection is not possible through legal or any other means; | |
• | payments in arrears in respect of credit cards, which are overdue for more than six months; | |
• | payments outstanding on unsecured consumer loans, which have been overdue for more than six months; | |
• | payments in arrears in respect of leases, which have been overdue for more than twelve months; or | |
• | the portion of loans classified as “estimated loss”, net of any recovery from collateral, which is deemed to be uncollectible. |
Procedure for Charge-off Approval |
Treatment of Loans Charged-Off |
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Treatment of Collateral |
U.S. GAAP Financial Statement Presentation |
Investment Policy |
• | maintain the stability and diversification of our assets; |
• | maintain adequate sources ofback-up liquidity to match our funding requirements; and |
• | supplement income from our core lending activities. |
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Book Value and Market Value |
As of December 31, | As of December 31, | As of December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2005 | ||||||||||||||||||||||||
Book | Market | Book | Market | Book | Market | |||||||||||||||||||||
Value | Value | Value | Value | Value | Value | |||||||||||||||||||||
(In billions of Won) | ||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||
Marketable equity securities | W | 435 | W | 435 | W | 507 | W | 507 | W | 1,978 | W | 1,978 | ||||||||||||||
Debt securities: | ||||||||||||||||||||||||||
Korean treasury and governmental agencies | 8,982 | 8,982 | 8,835 | 8,835 | 8,299 | 8,299 | ||||||||||||||||||||
Financial institutions | 5,998 | 5,998 | 5,675 | 5,675 | 9,255 | 9,255 | ||||||||||||||||||||
Corporations | 1,552 | 1,552 | 1,292 | 1,292 | 1,952 | 1,952 | ||||||||||||||||||||
Foreign government | 13 | 13 | 57 | 57 | 50 | 50 | ||||||||||||||||||||
Mortgage-backed and asset-backed securities | 1,119 | 1,119 | 1,742 | 1,742 | 946 | 946 | ||||||||||||||||||||
Total — Available-for-sale | 18,099 | 18,099 | 18,108 | 18,108 | 22,480 | 22,480 | ||||||||||||||||||||
Held-to-maturity securities | ||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||
Korean treasury and governmental agencies | 2,351 | 2,472 | 1,662 | 1,814 | 1,686 | 1,706 | ||||||||||||||||||||
Financial institutions | 553 | 574 | 1,219 | 1,268 | 1,211 | 1,208 | ||||||||||||||||||||
Corporations | 365 | 376 | 218 | 225 | 66 | 66 | ||||||||||||||||||||
Mortgage-backed and asset-backed securities | 336 | 339 | — | — | — | — | ||||||||||||||||||||
Total — Held-to-maturity | 3,605 | 3,761 | 3,099 | 3,307 | 2,963 | 2,980 | ||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||
Marketable equity securities | 279 | 279 | 312 | 312 | 465 | 465 | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||
Korean treasury and governmental agencies | 1,152 | 1,152 | 1,995 | 1,995 | 493 | 493 | ||||||||||||||||||||
Financial institutions | 1,013 | 1,013 | 1,322 | 1,322 | 1,145 | 1,145 | ||||||||||||||||||||
Corporations | 369 | 369 | 965 | 965 | 1,307 | 1,307 | ||||||||||||||||||||
Mortgage-backed and asset-backed securities | 40 | 40 | 20 | 20 | 140 | 140 | ||||||||||||||||||||
Other trading assets(1) | 4 | 4 | 25 | 25 | 23 | 23 | ||||||||||||||||||||
Total — Trading | 2,857 | 2,857 | 4,639 | 4,639 | 3,573 | 3,573 | ||||||||||||||||||||
Total securities | W | 24,561 | W | 24,717 | W | 25,846 | W | 26,054 | W | 29,016 | W | 29,033 | ||||||||||||||
(1) | Consists of commodity indexed deposits. |
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Maturity Analysis |
Over 1 Year | Over 5 Years | Securities Not Due | |||||||||||||||||||||||||||||||||||||||||||||||
1 Year or Less | Through 5 Years | Through 10 Years | Over 10 Years | In a Single Maturity(1) | Total | ||||||||||||||||||||||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||||||||||||||||||||||||
Carrying | Average | Carrying | Average | Carrying | Average | Carrying | Average | Carrying | Average | Carrying | Average | ||||||||||||||||||||||||||||||||||||||
Amount | Yield(2) | Amount | Yield(2) | Amount | Yield(2) | Amount | Yield(2) | Amount | Yield(2) | Amount | Yield(2) | ||||||||||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale securities: | |||||||||||||||||||||||||||||||||||||||||||||||||
Korean treasury and governmental agencies | W | 1,822 | 4.60 | % | W | 4,391 | 4.36 | % | W | 326 | 4.16 | % | W | — | — | W | 1,760 | 6.24 | % | W | 8,299 | 4.80 | % | ||||||||||||||||||||||||||
Financial institutions | 5,563 | 4.06 | 3,329 | 4.44 | 227 | 6.46 | 60 | 6.17 | % | 76 | 4.93 | 9,255 | 4.28 | ||||||||||||||||||||||||||||||||||||
Corporations | 552 | 4.93 | 1,277 | 5.29 | 96 | 3.92 | 27 | 5.94 | — | — | 1,952 | 5.13 | |||||||||||||||||||||||||||||||||||||
Foreign government | 18 | 2.70 | 23 | 5.14 | 4 | 6.38 | 5 | 4.94 | — | — | 50 | 4.35 | |||||||||||||||||||||||||||||||||||||
Mortgage-backed and asset-backed securities | 143 | 5.04 | 523 | 5.11 | 280 | 5.21 | — | — | — | — | 946 | 5.13 | |||||||||||||||||||||||||||||||||||||
Total — Available for sale | 8,098 | 4.26 | % | 9,543 | 4.55 | % | 933 | 5.01 | % | 92 | 6.04 | % | 1,836 | 6.19 | % | 20,502 | 4.61 | % | |||||||||||||||||||||||||||||||
Held-to-maturity securities: | |||||||||||||||||||||||||||||||||||||||||||||||||
Korean treasury and governmental agencies | 338 | 6.72 | % | 1,318 | 5.71 | % | 30 | 4.01 | % | — | — | — | — | 1,686 | 5.88 | % | |||||||||||||||||||||||||||||||||
Financial institutions | 373 | 4.85 | 821 | 5.17 | 17 | 5.36 | — | — | — | — | 1,211 | 5.08 | |||||||||||||||||||||||||||||||||||||
Corporations | 11 | 6.07 | 55 | 5.56 | — | — | — | — | — | — | 66 | 5.64 | |||||||||||||||||||||||||||||||||||||
Total — Held-to- maturity | 722 | 5.74 | % | 2,194 | 5.51 | % | 47 | 4.50 | % | — | — | — | — | 2,963 | 5.55 | % | |||||||||||||||||||||||||||||||||
Trading securities: | |||||||||||||||||||||||||||||||||||||||||||||||||
Korean treasury and governmental agencies | 72 | 4.41 | % | 362 | 4.15 | % | 8 | 3.90 | % | 1 | 4.79 | % | 50 | 5.05 | % | 493 | 4.27 | % | |||||||||||||||||||||||||||||||
Financial institutions | 950 | 4.13 | 195 | 4.61 | — | — | — | — | — | — | 1,145 | 4.21 | |||||||||||||||||||||||||||||||||||||
Corporations | 417 | 4.35 | 890 | 5.42 | — | — | — | — | — | — | 1,307 | 4.99 | |||||||||||||||||||||||||||||||||||||
Mortgage-backed and asset-backed securities | 140 | 4.09 | — | — | — | — | — | — | — | — | 140 | 4.09 | |||||||||||||||||||||||||||||||||||||
Total — Trading | 1,579 | 4.16 | % | 1,447 | 4.59 | % | 8 | 3.80 | % | 1 | 4.79 | % | 50 | 5.05 | % | 3,085 | 4.33 | % | |||||||||||||||||||||||||||||||
Total Securities | W | 10,399 | W | 13,184 | W | 988 | W | 93 | W | 1,886 | W | 26,550 | |||||||||||||||||||||||||||||||||||||
(1) | The principal repayment schedule for such securities is based on installment due on different maturity dates. |
(2) | The weighted-average yield for the portfolio represents the yield to maturity for each individual security, weighted using its amortized cost. |
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Concentrations of Risk |
As of December 31, 2005 | ||||||||
Book Value | Market Value | |||||||
(In billions of Won) | ||||||||
Name of issuer: | ||||||||
Korean Government | W | 4,682 | W | 4,684 | ||||
Korea Deposit Insurance Corporation | 3,805 | 3,815 | ||||||
Bank of Korea | 6,100 | 6,100 | ||||||
Korea Development Bank | 1,137 | 1,137 | ||||||
Total | W | 15,724 | W | 15,736 | ||||
As of December 31, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
(In billions of Won) | ||||||||||||||
Commitments to extend credit: | ||||||||||||||
Corporate | W | 32,922 | W | 39,323 | W | 46,336 | ||||||||
Credit cards(1) | 17,207 | 23,606 | 16,080 | |||||||||||
Consumer | 3,752 | 5,961 | 5,863 | |||||||||||
Commercial letters of credit(2) | 3,075 | 3,364 | 2,960 | |||||||||||
Standby letters of credit, other financial and performance guarantees and liquidity facilities to SPEs | 4,686 | 3,407 | 4,604 | |||||||||||
Total | W | 61,642 | W | 75,661 | W | 75,843 | ||||||||
(1) | Relates to the unused portion of credit card limits that may be cancelled by us after notice to the borrower if we determine that the borrower’s repayment ability is significantly impaired. |
(2) | These are generally short-term and collateralized by the underlying shipments of goods to which they relate. |
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As of December 31, 2005 | ||||||||||||||
Underlying Notional | Estimated Fair Value | Estimated Fair Value | ||||||||||||
Amount(1) | Assets | Liabilities | ||||||||||||
(In billions of won) | ||||||||||||||
Trading: | ||||||||||||||
Foreign exchange contracts: | ||||||||||||||
Forward contracts | W | 32,420 | W | 341 | W | 376 | ||||||||
Futures | 140 | — | — | |||||||||||
Options purchased | 4,067 | 19 | 26 | |||||||||||
Options written | 2,810 | 12 | 23 | |||||||||||
Sub-total | 39,437 | 372 | 425 | |||||||||||
Interest rate contracts: | ||||||||||||||
Swaps(2) | 29,468 | 173 | 238 | |||||||||||
Futures | 98 | — | — | |||||||||||
Options purchased | 10 | — | — | |||||||||||
Options written | — | — | — | |||||||||||
Sub-total | 29,576 | 173 | 238 | |||||||||||
Cross currency swaps | 11,336 | 310 | 268 |
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As of December 31, 2005 | |||||||||||||||
Underlying Notional | Estimated Fair Value | Estimated Fair Value | |||||||||||||
Amount(1) | Assets | Liabilities | |||||||||||||
(In billions of won) | |||||||||||||||
Equity contracts: | |||||||||||||||
Futures | 312 | — | — | ||||||||||||
Option purchased | 935 | 68 | — | ||||||||||||
Option written | 1,005 | 72 | |||||||||||||
Sub-total | 2,252 | 68 | 72 | ||||||||||||
Other derivatives: | |||||||||||||||
Option purchased | 103 | 11 | — | ||||||||||||
Option written | 103 | — | 11 | ||||||||||||
Sub-total | 206 | 11 | 11 | ||||||||||||
Credit derivatives | 66 | — | — | ||||||||||||
Total | W | 82,873 | W | 934 | W | 1,014 | |||||||||
Hedge accounting: | |||||||||||||||
Interest rate swaps | 1,041 | 1 | 13 | ||||||||||||
Sub-total | 1,041 | 1 | 13 | ||||||||||||
Nontrading that do not qualify for hedge accounting | |||||||||||||||
Interest rate swaps | 5,587 | 13 | 100 | ||||||||||||
Cross currency swaps | 777 | 2 | 11 | ||||||||||||
Total | W | 6,364 | W | 15 | W | 111 | |||||||||
(1) | Notional amounts in foreign currencies were converted into Won at prevailing exchange rates as of December 31, 2005. |
(2) | While we engage in derivatives trading activities to hedge the interest rate risk exposure that arise from our own assets and liabilities, as these nontrading derivative contracts do not qualify for hedge accounting under U.S. GAAP, they are accounted for as trading derivatives in the financial statements. As a result, includes interest rate swaps and cross-currency swaps held for nontrading that do not qualify for hedge accounting treatment in the underlying notional amount, estimated fair value of assets and estimated fair value of liabilities of W6,364 billion, W15 billion and W111 billion, respectively. |
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Deposits |
2003 | 2004 | 2005 | ||||||||||||||||||||||||
Average | Average Rate | Average | Average Rate | Average | Average Rate | |||||||||||||||||||||
Balance(1) | Paid | Balance(1) | Paid | Balance(1) | Paid | |||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||
Interest-bearing demand deposits | W | 2,653 | 1.39 | % | W | 7,880 | 1.33 | % | W | 6,594 | 1.90 | % | ||||||||||||||
Savings deposits | 15,922 | 1.46 | 21,987 | 1.24 | 26,100 | 0.96 | ||||||||||||||||||||
Certificates of deposit | 4,954 | 4.44 | 6,735 | 4.08 | 8,838 | 3.81 | ||||||||||||||||||||
Other time deposits | 27,776 | 4.19 | 41,863 | 3.83 | 39,031 | 3.69 | ||||||||||||||||||||
Mutual installment deposits(2) | 2,109 | 5.36 | 2,487 | 4.54 | 1,997 | 4.16 | ||||||||||||||||||||
Total interest-bearing deposits(3) | W | 53,414 | 3.31 | % | W | 80,952 | 2.93 | % | W | 82,560 | 2.71 | % | ||||||||||||||
(1) | Average balances are based on daily balances for our primary banking operation and quarterly balances for subsidiaries. |
(2) | Mutual installment deposits are interest-bearing deposits offered by Shinhan Bank which enable customers to become eligible for loans while they maintain an account with us. The customer’s account does not have to secure loan amounts once made but is a requirement for loan eligibility. Prior to qualifying for a loan a customer must make required periodic deposits to the mutual installment account for a contracted term of less than five years. A customer is not required to fulfill the deposit term prior to requesting a loan from Shinhan Bank, but loan amounts and terms are not as favorable in the event of a loan request prior to completing the deposit contract term. |
(3) | Under U.S. GAAP, does not include cover bills sold or bonds sold under repurchase agreements, which are offered to our customers as deposit products. These are reflected as short-term borrowings and secured borrowings, respectively. |
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Certificates of Deposit and Other Time Deposits |
As of December 31, 2005 | |||||||||||||||||
Mutual | |||||||||||||||||
Certificates | Other Time | Installment | |||||||||||||||
of Deposit | Deposits | Deposits | Total | ||||||||||||||
(In billions of Won) | |||||||||||||||||
Maturing within three months | 3,775 | 4,971 | 83 | 8,829 | |||||||||||||
After three but within six months | 2,247 | 2,526 | 62 | 4,835 | |||||||||||||
After six but within 12 months | 2,947 | 11,402 | 117 | 14,466 | |||||||||||||
After 12 months | 1,261 | 1,939 | 135 | 3,335 | |||||||||||||
Total | 10,230 | 20,838 | 397 | 31,465 | |||||||||||||
Japanese Yen Deposits and Dispute with the Korean National Tax Service |
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Short-term Borrowings |
2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Highest | Highest | Highest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at | Weighted | Balances at | Weighted | Balances at | Weighted | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Any | Average | Year-End | Average | Any | Average | Year-End | Average | Any | Average | Year-End | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance | Balance | Month- | Interest | Interest | Balance | Balance | Month- | Interest | Interest | Balance | Balance | Month- | Interest | Interest | ||||||||||||||||||||||||||||||||||||||||||||||
Outstanding | Outstanding(1) | End | Rate(2) | Rate | Outstanding | Outstanding(1) | End | Rate(2) | Rate | Outstanding | Outstanding(1) | End | Rate(2) | Rate | ||||||||||||||||||||||||||||||||||||||||||||||
(In billions of Won, except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings from BOK(3) | W | 1,964 | W | 1,122 | W | 2,669 | 2.41 | % | 1.12- 2.50 | % | W | 1,568 | W | 1,737 | W | 2,056 | 2.32 | % | 2.00- 2.50 | % | W | 1,668 | W | 1,581 | W | 1,719 | 1.85% | 0.10- 4.65 | % | |||||||||||||||||||||||||||||||
Call money | 179 | 1,803 | 3,742 | 3.55 | % | 0.15- 3.65 | % | 1,156 | 3,512 | 5,238 | 3.30 | % | 0.75- 5.00 | % | 994 | 2,930 | 5,648 | 3.24% | 1.90- 6.80 | % | ||||||||||||||||||||||||||||||||||||||||
Other borrowings(4) | 9,061 | 8,475 | 11,300 | 2.04 | % | 0.05- 10.15 | % | 8,230 | 9,685 | 11,166 | 2.21 | % | 0.04- 18.00 | % | 9,306 | 10,464 | 11,945 | 2.23% | 0.10- 9.00 | % | ||||||||||||||||||||||||||||||||||||||||
W | 11,204 | W | 11,400 | W | 17,711 | 2.82 | % | W | 10,954 | W | 14,934 | W | 18,460 | 2.48 | % | W | 11,968 | W | 14,975 | W | 19,312 | 2.39% | ||||||||||||||||||||||||||||||||||||||
(1) | Average outstanding balances have been calculated using daily balances for our primary banking operations and quarterly balances for subsidiaries. |
(2) | Weighted-average interest rates during this year are calculated by dividing the total interest expenses by the average amount borrowed. |
(3) | Borrowings from the Bank of Korea generally mature within one month for borrowings in Won and six months for borrowings on foreign currencies. |
(4) | Other short-term borrowings included borrowings from trust accounts, bills sold, borrowings in domestic and foreign currencies and short-term debentures. |
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Overview |
• | identifying and managing all inherent risks; | |
• | standardizing risk management process and methodology; | |
• | ensuring supervision and control of risk management independent of business activities; | |
• | continuously assessing risk preference; | |
• | preventing risk concentration; | |
• | operating a precise and comprehensive risk management system including statistical models; and | |
• | balancing profitability and risk management through risk-adjusted profit management. |
Organization |
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Group Risk Management Committee |
• | establishing basic risk management policies consistent with business strategy; | |
• | establishing risk limits appropriate for the group and each subsidiary; | |
• | establishing and amending, as necessary, risk management regulations, which regulates risk management activities of the group as well as each subsidiary, establishes risk limits and provides risk management guidelines; and | |
• | other risk management-related issues the board of directors or the Group Risk Management Committee see fit to discuss. |
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Group Risk Management Council |
• | changes in risk management policies and strategies for each subsidiary; | |
• | matters warranting discussion of risk management at the group level and cooperation among the subsidiaries; | |
• | the effect of externalities on the group’s risk; and | |
• | other risk management-related matters. |
Credit Risk Management of Shinhan Bank |
• | achieve profit level corresponding to the level of risks involved; | |
• | improve asset quality and achieve optimal industrial and rating loan portfolio; | |
• | focus on the small- and medium-sized enterprises and markets; | |
• | avoid excessive loan concentration to a particular borrower or sector; | |
• | focus on borrower’s ability to repay the debt; and | |
• | financially support our select customers’ growth. |
• | credit evaluation and approval; | |
• | credit review and monitoring; and | |
• | credit risk assessment and control. |
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Credit Evaluation and Approval |
— Consumer loans |
— Corporate loans |
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— Loan Approval Process |
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Approval Limit of Loan Amount | ||||||||||||
Category | Approval Body | Grade B- | Grade AAA | |||||||||
1 | Branch Manager (Individual Loans) | |||||||||||
Unsecured | W100 million or less | W2 billion or less | ||||||||||
Secured | W500 million W1 billion or less | W4 billion or less | ||||||||||
2 | Branch Manager (Corporate loans) | |||||||||||
Unsecured | W300 million or less | W3 billion or less | ||||||||||
Secured | W2 billion or less | W6 billion or less | ||||||||||
3 | Branch Manager and Credit Officer | |||||||||||
Unsecured | W500 million or less | W5 billion or less | ||||||||||
Secured | W3 billion or less | W10 billion or less | ||||||||||
4 | Credit Officer Committee | |||||||||||
Unsecured | W1 billion or less | W10 billion or less | ||||||||||
Secured | W5 billion or less | W20 billion or less | ||||||||||
5 | Senior Credit Officer Committee | |||||||||||
Unsecured | W10 billion or less | W30 billion or less | ||||||||||
Secured | W15 billion or less | W80 billion or less | ||||||||||
6 | Credit Review Committee | |||||||||||
Unsecured | More than W10 billion | More than W30 billion | ||||||||||
Secured | More than W15 billion | More than W80 billion |
Credit Review and Monitoring |
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Credit Risk Assessment and Control |
Credit Card Approval Process of Shinhan Card |
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Market Risk Management of Shinhan Bank |
Market Risk Exposure from Trading Activities |
• | trading activities to realize short-term trading profits in debt and stock markets and foreign exchange markets based on Shinhan Bank’s short-term forecast of changes in market situation and customer demand, for its own account as well as for the account of the trust accounts of Shinhan Bank’s customers; and | |
• | trading activities primarily to realize profits from arbitrage transactions in derivatives such as swap, forward, futures and option transactions, and, to a lesser extent, to sell derivative products to Shinhan Bank’s customers and to cover market risk incurred from those trading activities. |
— Interest Rate Risk |
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— Foreign Exchange Risk |
As of December 31, | |||||||||||||
Currency | 2003 | 2004 | 2005 | ||||||||||
(In millions of US$) | |||||||||||||
U.S. dollars | US$ | 4.6 | US$ | 52.3 | US$ | (2.39 | ) | ||||||
Japanese yen | (8.7 | ) | (1.6 | ) | (18.36 | ) | |||||||
Euro | 0.7 | 0.9 | (0.12 | ) | |||||||||
Others | 1.0 | (1.7 | ) | 1.29 | |||||||||
Total | (2.4 | ) | 49.9 | (19.58 | ) | ||||||||
— Equity Risk |
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Management of Market Risk from Trading Activities |
Trading Portfolio VaR for the Year 2005(1) | |||||||||||||||||
As of | |||||||||||||||||
Average | Minimum | Maximum | December 31 | ||||||||||||||
(In billions of Won) | |||||||||||||||||
Shinhan Bank: | |||||||||||||||||
Interest rate | W | 3.06 | W | 1.62 | W | 6.19 | W | 2.54 | |||||||||
Foreign exchange(2) | 0.35 | 0.12 | 0.78 | 0.28 | |||||||||||||
Equities | 4.14 | 1.38 | 8.12 | 1.50 | |||||||||||||
Less: portfolio diversification(3) | (3.24 | ) | (1.78 | ) | (5.14 | ) | (1.74 | ) | |||||||||
Total VaR(4) | W | 4.31 | W | 1.33 | W | 9.96 | W | 2.55 | |||||||||
Good Morning Shinhan Securities(5): | |||||||||||||||||
Interest rate | W | 0.3 | W | 0.1 | W | 1.1 | W | 0.2 | |||||||||
Equities | 1.3 | 0.3 | 5.0 | 1.3 | |||||||||||||
Beneficiary certificates(6) | 0.1 | 0.0 | 0.1 | 0.0 | |||||||||||||
Less: portfolio diversification(3) | (0.4 | ) | (0.0 | ) | (1.2 | ) | (0.5 | ) | |||||||||
Total VaR | W | 1.3 | W | 0.4 | W | 5.0 | W | 1.0 | |||||||||
(1) | One-day VaR results with a 99% confidence level. |
(2) | Includes both trading and nontrading accounts as Shinhan Bank manages foreign exchange risk on a total position basis. |
(3) | Calculation of portfolio diversification effects for the minimum and maximum VaRs as the minimum and maximum may occur on different days for different risk components. The average and December 31, 2005 VaRs are less than the sum of the VaRs due to offsets resulting from portfolio diversification. |
(4) | Includes trading portfolio in Shinhan Bank’s bank accounts and assets in trust accounts for which it guarantees principal or fixed return. |
(5) | The change in market value of Good Morning Shinhan Securities’ trading portfolio was W0.7 billion per day. |
(6) | Beneficiary certificates that Good Morning Shinhan Securities holds temporarily in connection with its beneficiary certificate sales business. Most of market risk arising from the holding of these beneficiary certificates is interest rate risk and there is minimal amount of equity risk. |
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• | By its nature as a statistical approach, VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, particularly potential future events that are extreme in nature. | |
• | This model may underestimate the probability of extreme market movements. | |
• | The time periods used for the model, generally one or ten days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate the potential loss. | |
• | The use of a 99% confidence level, does not take account of, nor makes any statement about, any losses that might occur beyond this confidence level. | |
• | Shinhan Bank calculates VaRs at the end of every month and therefore do not reflect market changes during a month until the end of the month. | |
• | VaR does not capture all complex effects of various risk factors on the value of positions and portfolios and could underestimate potential losses. |
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— Hedging and Derivative Market Risk |
• | arbitrage transactions to make profits from short-term discrepancies between the spot and derivative markets or within the derivative markets; | |
• | sales of tailor-made derivative products that meet various needs of our corporate customers, principally of Shinhan Bank and Good Morning Shinhan Securities, and related transactions to reduce its exposure resulting from those sales (in the case of Good Morning Shinhan Securities, these activities commenced from February 2003 when it acquired the relevant license); | |
• | taking positions in limited cases when we expect short-swing profits based on its market forecasts; and | |
• | trading to hedge our interest rate and foreign currency risk exposure as described above. |
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Market Risk Management for Nontrading Activities |
— Interest Rate Risk |
• | Earnings: interest rate fluctuations have an effect on Shinhan Bank’s net interest income by affecting its interest-sensitive operating income and expenses. | |
• | Economic value of net assets: interest rate fluctuations influence Shinhan Bank’s net worth by affecting the present value of cash flows from the assets, liabilities and other transactions of Shinhan Bank. |
— Interest Rate Risk Management |
• | Interest Rate Gap Analysis: Interest rate gap analysis measures the difference in the amounts of interest-earning assets and interest-bearing liabilities at each maturity and re-pricing date for a specific time frame. | |
• | Duration Gap Analysis: Duration gap analysis measures durations of Shinhan Bank’s interest-earning assets and interest-bearing liabilities, which are weighted average maturities of these assets and liabilities calculated based on discounted cash flows from these assets and liabilities using yield curves. | |
• | Market Value Analysis: Market value analysis measures changes in the market value of Shinhan Bank’s interest-earning assets and interest-bearing liabilities based on the assumption of parallel shifts in interest rates. | |
• | Net Interest Income Simulation Analysis: Net interest income simulation analysis uses deterministic analysis methodology to measure changes in Shinhan Bank’s annual net interest income (interest income less interest expenses) under the current maturity structure, using different scenarios for interest rates (assuming parallel shifts) and funding requirements. |
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• | Earnings at Risk Analysis: Earnings-at-risk analysis, or “EaR” analysis, measures changes in Shinhan Bank’s annual pretax earnings from its interest-earning assets and interest-bearing liabilities at a 99% confidence level using Monte Carlo simulation. Currently, Shinhan Bank uses EaR analysis as a supplemental measure for interest rate risk management. |
— Interest Rate Gap Analysis |
• | With respect to the maturities and re-pricing dates of Shinhan Bank’s assets, we assume that the maturity of Shinhan Bank’s prime rate-linked loans is the same as that of its fixed-rate loans. We also assume that the debt securities in Shinhan Bank’s trading accounts have maturities of three months. Shinhan Bank excludes equity securities from interest-earning assets. | |
• | With respect to the maturities and re-pricing of Shinhan Bank’s liabilities, we assume that money market deposit accounts and “non-core” demand deposits under the Financial Supervisory Commission guidelines have a maturity of three months or less. With respect to “core” demand deposits under the Financial Supervisory Commission guidelines, we assume a maturity of over three years. |
As of December 31, 2005 | |||||||||||||||||||||||||||||
0-3 Months | 3-6 Months | 6-12 Months | 1-2 Years | 2-3 Years | Over 3 Years | Total | |||||||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||||||||
Interest-earning assets | W | 37,723 | W | 8,678 | W | 4,983 | W | 3,215 | W | 2,710 | W | 2,888 | W | 60,197 | |||||||||||||||
Fixed rates | 7,021 | 2,440 | 4,188 | 2,924 | 2,189 | 1,760 | 20,522 | ||||||||||||||||||||||
Floating rates | 30,671 | 6,179 | 727 | 101 | 51 | 68 | 37,797 | ||||||||||||||||||||||
Interest rate swaps | 30 | 60 | 67 | 190 | 470 | 1,060 | 1,877 | ||||||||||||||||||||||
Interest-bearing liabilities | W | 25,769 | W | 6,282 | W | 10,627 | W | 6,379 | W | 2,730 | W | 7,785 | W | 59,572 | |||||||||||||||
Fixed liabilities | 11,498 | 5,876 | 9,511 | 6,368 | 2,700 | 7,785 | 43,737 | ||||||||||||||||||||||
Floating liabilities | 12,521 | 387 | 1,039 | 10 | 13,958 | ||||||||||||||||||||||||
Interest rate swaps | 1,750 | 20 | 77 | 30 | 1,877 | ||||||||||||||||||||||||
Sensitivity gap | 11,953 | 2,396 | (5,645 | ) | (3,164 | ) | (20 | ) | (4,897 | ) | 625 | ||||||||||||||||||
Cumulative gap | 11,953 | 14,350 | 8,705 | 5,541 | 5,521 | 625 | |||||||||||||||||||||||
% of total assets | 19.9 | % | 23.8 | % | 14.5 | % | 9.2 | % | 9.2 | % | 1.0 | % |
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As of December 31, 2005 | ||||||||||||||||||||||||
0-3 Months | 3-6 Months | 6-12 Months | 1-3 Years | Over 3 Years | Total | |||||||||||||||||||
(In millions of US$, except percentages) | ||||||||||||||||||||||||
Interest-earning assets | $ | 6,970 | $ | 1,279 | $ | 334 | $ | 28 | $ | 278 | $ | 8,888 | ||||||||||||
Interest-bearing Liabilities | 6,511 | 1,512 | 527 | 38 | 208 | 8,798 | ||||||||||||||||||
Sensitivity gap | 458 | (233 | ) | (194 | ) | (11 | ) | 70 | 90 | |||||||||||||||
Cumulative gap | 458 | 225 | 31 | 20 | 90 | |||||||||||||||||||
% of total assets | 5.2 | % | 2.5 | % | 0.4 | % | 0.2 | % | 1.0 | % |
— Duration and Market Value Analysis |
Duration as of | ||||
December 31, | ||||
2005(1) | ||||
(In months) | ||||
Interest-earning assets | 8.1 | |||
Interest-bearing liabilities | 13.2 | |||
Gap | (5.1 | ) |
Market Value as of December 31, 2005(1) | ||||||||||||
Actual | 1% Point Increase | Changes | ||||||||||
(In billions of Won) | ||||||||||||
Interest-earning assets | W | 60,690 | W | 60,515 | W | (175 | ) | |||||
Interest-bearing liabilities | 58,578 | 58,149 | (429 | ) | ||||||||
Gap | 2,112 | 2,366 | 254 |
(1) | Includes interest rate swaps entered for the purpose of hedging. |
— Net Interest Income Simulation |
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Simulated Net Interest Income for 2006 | ||||||||||||||||||||||||||||
(For Nontrading Won-denominated Bank Accounts)(1) | ||||||||||||||||||||||||||||
Change in Net Interest | Change in Net Interest | |||||||||||||||||||||||||||
Assumed Interest Rates | Income | Income | ||||||||||||||||||||||||||
Amount | % Change | Amount | % Change | |||||||||||||||||||||||||
1% Point | 1% Point | (1% Point | (1% Point | (1% Point | (1% Point | |||||||||||||||||||||||
No Change | Increase | Decrease | Increase) | Increase) | Decrease) | Decrease) | ||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Simulated interest income | W | 3,481 | W | 3,872 | W | 3,090 | W | 390 | 11.2 | % | W | (391 | ) | (11.2 | )% | |||||||||||||
Simulated interest expense | 2,104 | 2,379 | 1,826 | 275 | 13.1 | (277 | ) | (13.2 | ) | |||||||||||||||||||
Net interest income | 1,378 | 1,493 | 1,263 | 115 | 8.4 | (114 | ) | (8.3 | ) |
(1) | Includes interest rate swaps for the purpose of hedging. |
— Interest Rate VaRs for Nontrading Assets and Liabilities |
VaR for the Year 2005(1) | ||||||||||||||||
As of | ||||||||||||||||
Average | Minimum | Maximum | December 31 | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest rate — available-for-sale securities | W | 25.65 | W | 22.51 | W | 28.56 | W | 25.60 | ||||||||
Interest rate mismatch — other assets and liabilities | 10.68 | 7.61 | 14.35 | 10.21 |
(1) | One-day VaR results with a 99% confidence level. |
— Equity Risk |
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VaR for the Year 2005(1) | ||||||||||||||||
As of | ||||||||||||||||
Average | Minimum | Maximum | December 31 | |||||||||||||
(In billions of Won) | ||||||||||||||||
Equities | W | 25.65 | W | 17.82 | W | 35.66 | W27.15 |
(1) | One-day VaR results with a 99% confidence level. |
Liquidity Risk Management |
• | maintain an appropriate level of liquidity risk through liquidity risk management based on liquidity gap ordebt-to-equity ratio at each maturity date; | |
• | assess and monitor net cash flows by currency and by maturity and continuously evaluate available sources of funds and possibility of disposal of any liquid assets; | |
• | diversify sources and uses of funds by product and by maturity to prevent excessive concentration in certain periods or products; and | |
• | prepare contingency plans to cope with liquidity crisis. |
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As of December 31, 2005 | |||||||||||||||||||||||||||||
6-12 | Over | Substandard | |||||||||||||||||||||||||||
Won-denominated Accounts | 0-3 Months | 3-6 Months | Months | 1-3 Years | 3 Years | or Below | Total | ||||||||||||||||||||||
(In billions of Won except percentage) | |||||||||||||||||||||||||||||
Assets: | W | 22,476 | W | 9,426 | W | 14,589 | W | 10,278 | W | 16,174 | W | 555 | W | 73,497 | |||||||||||||||
Liabilities: | 20,063 | 6,910 | 13,344 | 11,900 | 15,227 | 0 | 67,443 | ||||||||||||||||||||||
For three months or less: | |||||||||||||||||||||||||||||
Liquidity gap | 2,413 | ||||||||||||||||||||||||||||
Liquidity ratio | 112.0 | % | |||||||||||||||||||||||||||
Limit: | 105 | % |
As of December 31, 2005 | |||||||||||||||||||||||||||||||||
7 Days or | 7 Days- | 6-12 | Over 1 | Substandard | |||||||||||||||||||||||||||||
Foreign Currencies Denominated Accounts: | Less | 1 Months | 3 Months | 3-6 Months | Months | Years | or Below | Total | |||||||||||||||||||||||||
(In millions of US$ except percentage) | |||||||||||||||||||||||||||||||||
Assets: | $ | 2,199 | $ | 1,362 | $ | 1,763 | $ | 1,107 | $ | 1,199 | $ | 1,712 | $ | 46 | $ | 9,389 | |||||||||||||||||
Liabilities | 1,295 | 1,433 | 1,317 | 1,675 | 919 | 2,406 | 0 | 9,046 | |||||||||||||||||||||||||
For three months or less: | |||||||||||||||||||||||||||||||||
Assets | 5,324 | ||||||||||||||||||||||||||||||||
Liabilities | 4,045 | ||||||||||||||||||||||||||||||||
Liquidity ratio | 131.6 | % | |||||||||||||||||||||||||||||||
Limit | 85 | % |
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• | indices that reflect the market movements such as interest rates and stock prices; | |
• | indices that reflect financial market psychology such as the size of money market funds; and | |
• | indices that reflect our internal financial condition. |
Market Risk Management of Chohung Bank |
Market Risk Exposure from Trading Activities |
• | Trading activities to realize short-term trading profits in debt and equity markets and foreign exchange markets based on its short-term forecasts of changes in market conditions and customer demand, for its proprietary account as well as for the trust accounts of its customers; and | |
• | Trading activities primarily to realize profits from arbitrage transactions in derivatives such as swap, forward, futures and option transactions, and, to a lesser extent, to sell derivative products to its customers and to hedge market risk incurred from those trading activities. |
— Interest Rate Risk |
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— Foreign Exchange Risk |
As of December 31, | |||||||||||||
Currency | 2003 | 2004 | 2005 | ||||||||||
(In millions of US$) | |||||||||||||
U.S. dollars | US$ | 8.4 | US$ | 41.7 | US$ | 18.0 | |||||||
Japanese Yen | 0.3 | 0.2 | (6.1 | ) | |||||||||
Euro | 0.3 | 6.7 | (5.0 | ) | |||||||||
Others | 9.0 | 10.5 | 9.8 | ||||||||||
Total | US$ | 18.0 | US$ | 59.1 | US$ | 16.7 | |||||||
— Equity Risk |
Market Risk Management for Trading Activities |
Trading Portfolio Ten-day VaR for the Year 2005(1) | |||||||||||||||||
As of | |||||||||||||||||
Average | Minimum | Maximum | December 31 | ||||||||||||||
(In billions of Won) | |||||||||||||||||
Chohung Bank: | |||||||||||||||||
Interest rate | W | 16.2 | W | 3.2 | W | 50.6 | W | 21.6 | |||||||||
Foreign exchange(2) | 1.8 | 0.7 | 4.2 | 1.1 | |||||||||||||
Equities | 3.2 | 0.2 | 28.7 | 4.1 | |||||||||||||
Total VaR(3) | W | 17.5 | W | 5.5 | W | 50.8 | W | 22.4 | |||||||||
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(1) | Ten-day VaR results at a 99% confidence level. |
(2) | Includes both trading and non-trading accounts as Chohung Bank manages foreign exchange risk on a total position basis. |
(3) | Due to portfolio diversification effects, the total VaR figures are different from the simple additions of interest rate, foreign exchange and equity risks. |
• | a variance-covariance methodology called delta-normal method for its overall VaR calculations; | |
• | a Monte Carlo simulation for its back testing and stress testing to measure nonlinear risk products such as options; and | |
• | a historical simulation for its back testing. |
• | By its nature as a statistical approach, VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, particularly potential future events that are extreme in nature. | |
• | This model may underestimate the probability of extreme market movements. | |
• | The time periods used for the model, generally one or ten days are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate the potential loss. | |
• | The use of a 99% confidence level, does not take account of, nor makes any statement about, any losses that might occur beyond this confidence level. | |
• | VaR does not capture all complex effects of various risk factors on the value of positions and portfolios and could underestimate potential losses. |
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— Hedging and Derivative Market Risk |
• | arbitrage transactions to make profits from short-term discrepancies between the spot and derivative markets or within the derivative markets; | |
• | sales of tailor-made derivatives products to meet various needs of Chohung Bank’s corporate customers and the related transactions to reduce its exposure resulting from those sales; |
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• | taking positions in limited cases when Chohung Bank expects short-swing profits based on its market forecasts; and | |
• | trading to hedge Chohung Bank’s interest rate and foreign currency risk exposure as described above. |
Market Risk Management for Non-trading Activities |
— Interest Rate Risk |
• | Earnings: interest rate fluctuations have an effect on Chohung Bank’s net interest income by affecting its interest-sensitive operating income and expenses. | |
• | Economic value of net assets: interest rate fluctuations influence Chohung Bank’s net worth by affecting the present value of cash flows from the assets, liabilities and other transactions of Chohung Bank. |
— Interest Rate Risk Management |
• | Interest Rate Gap Analysis: Interest rate gap analysis measures the difference in the amounts of interest-earning assets and interest-bearing liabilities at each maturity and re-pricing date for a specific time frame. | |
• | Duration Gap Analysis: Duration gap analysis measures durations of Chohung Bank’s interest-earning assets and interest-bearing liabilities, which are weighted average maturities of these assets and liabilities calculated based on discounted cash flows from these assets and liabilities using yield curves. |
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• | Market Value Analysis: Market value analysis measures changes in the market value of Chohung Bank’s interest-earning assets and interest-bearing liabilities based on the assumption of parallel shifts in interest rates. | |
• | Net Interest Income Simulation Analysis: Net interest income simulation analysis uses statistical analysis methodology to measure changes in Chohung Bank’s annual net interest income (interest income less interest expenses) under the current maturity structure, using different scenarios for interest rates (assuming parallel shifts) and funding requirements. |
Earnings-at-Risk Analysis |
Simulation Results for 2005 | ||||||||||||
Minimum(1) | Average | EaR(1) | ||||||||||
(In billions of Won) | ||||||||||||
Interest income (from interest-earning assets) | W | 3,324.2 | W | 3,504.0 | W | 179.8 | ||||||
Interest expense (from interest-bearing liabilities) | 1,764.2 | 1,852.6 | 88.3 | |||||||||
Net interest income | 1,560.0 | 1,651.5 | 91.5 |
(1) | At a 99% confidence level. |
— Interest Rate Gap Analysis |
• | With respect to the maturities and re-pricing dates of Chohung Bank’s assets, Chohung Bank assumes that maturity of Chohung Bank’s prime rate-linked loans are the same as its fixed-rate loans. For debt securities in its trading accounts, Chohung Bank assumes a maturity of three months. Chohung Bank excludes equity securities from interest-earning assets and also excluded assets classified as substandard or below from its interest rate gap analysis. |
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• | With respect to the maturities and re-pricing of Chohung Bank’s liabilities, Chohung Bank assumes that money market deposit accounts and “non-core” demand deposits have a maturity of three months or less. With respect to “core” demand deposits under the Financial Supervisory Commission guidelines, Chohung Bank assumes a maturity of three years. |
As of December 31, 2005 | ||||||||||||||||||||||||
0-3 Months | 3-6 Months | 6-12 Months | 1-3 Years | Over 3 Years | Total | |||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||
Interest-earning assets | W | 31,633 | W | 4,399 | W | 6,779 | W | 3,844 | W | 2,918 | W | 49,573 | ||||||||||||
(Including interest rate swaps) | ||||||||||||||||||||||||
Interest-bearing liabilities | 20,035 | 6,095 | 8,410 | 10,683 | 5,582 | 50,805 | ||||||||||||||||||
(Including interest rate swaps) | ||||||||||||||||||||||||
Sensitivity gap | 11,598 | (1,696 | ) | (1,631 | ) | (6,839 | ) | (2,664 | ) | (1,232 | ) | |||||||||||||
Cumulative gap | 11,598 | 9,902 | 8,271 | 1,432 | (1,232 | ) | ||||||||||||||||||
% of total assets | 23.4 | % | 20.0 | % | 16.7 | % | 2.9 | % | (2.5 | )% |
As of December 31, 2005 | ||||||||||||||||||||||||
0-3 Months | 3-6 Months | 6-12 Months | 1-3 Years | Over 3 Years | Total | |||||||||||||||||||
(In millions of US$, except percentages) | ||||||||||||||||||||||||
Interest-earning assets | $ | 4,151 | $ | 536 | $ | 135 | $ | 30 | $ | (183 | ) | $ | 4,669 | |||||||||||
Interest-bearing liabilities | 4,031 | 572 | 133 | 101 | 666 | 5,503 | ||||||||||||||||||
Sensitivity gap | 120 | (36 | ) | 2 | (71 | ) | (841 | ) | (834 | ) | ||||||||||||||
Cumulative gap | 120 | 84 | 86 | 15 | (834 | ) | ||||||||||||||||||
% of total assets | 2.6 | % | 1.8 | % | 1.8 | % | 0.3 | % | (17.9 | )% |
— Duration and Market Value Analysis |
Duration as of | ||||
December 31, | ||||
2005(1) | ||||
(In months) | ||||
Interest-earning assets | 4.8 | |||
Interest-bearing liabilities | 9.7 | |||
Gap | (4.1 | ) |
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Market Value as of December 31, 2005(1) | ||||||||||||
Actual | 1% Point Increase | Changes | ||||||||||
(In billions of Won) | ||||||||||||
Interest-earning assets | W | 48,018.5 | W | 47,786.6 | W | (231.9 | ) | |||||
Interest-bearing liabilities | 39,890.7 | 39,505.8 | (384.9 | ) | ||||||||
Gap | 8,127.8 | 8,280.8 | 153.0 |
(1) | Includes interest rate swaps. |
— Net Interest Income Simulation |
Simulated Net Interest Income for 2006 | ||||||||||||||||||||||||||||
(for Nontrading Won-denominated Bank Accounts)(1) | ||||||||||||||||||||||||||||
Change in Net | Change in Net | |||||||||||||||||||||||||||
Assumed Interest Rates | Interest Income | Interest Income | ||||||||||||||||||||||||||
Amount | % Change | Amount | % Change | |||||||||||||||||||||||||
1% Point | 1% Point | (1% Point | (1% Point | (1% Point | (1% Point | |||||||||||||||||||||||
No Change | Increase | Decrease | Increase) | Increase) | Decrease) | Decrease) | ||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Simulated interest income | W | 3,321.8 | W | 3,629.2 | W | 3,013.1 | W | 307.4 | 9.25 | % | W | (308.7 | ) | 9.29 | % | |||||||||||||
Simulated interest expense | 1,763.5 | 1,997.8 | 1,546.7 | 234.3 | 13.29 | (216.8 | ) | 12.29 | ||||||||||||||||||||
Net interest income | 1,558.3 | 1,631.4 | 1,466.4 | 73.1 | 4.69 | (91.9 | ) | 5.90 |
(1) | Includes interest rate swaps. |
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— Interest Rate VaRs for Non-trading Assets and Liabilities |
Ten-day VaR for the Year 2005(1) | ||||||||||||||||
As of | ||||||||||||||||
Average | Minimum | Maximum | December 31 | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest rate — available-for-sale securities | W | 35.1 | W | 22.4 | W | 52.9 | W | 38.6 |
(1) | Ten-day VaR results at a 99% confidence level. |
— Equity Risk |
Trading Portfolio Ten-day VaR for the Year 2005(1) | ||||||||||||||||
As of | ||||||||||||||||
Average | Minimum | Maximum | December 31 | |||||||||||||
(In billions of Won) | ||||||||||||||||
Equities | W | 374.8 | W | 257.9 | W | 558.1 | W | 557.0 |
(1) | Ten-day VaR results at a 99% confidence level. |
Liquidity Risk Management |
• | maintain an appropriate level of liquidity risk through liquidity risk management based on liquidity gap ordebt-to-equity ratio at each maturity date; | |
• | assess and monitor net cash flows by currency and by maturity and continuously evaluate available sources of funds and the possibility of disposal of any liquid assets; | |
• | diversify sources and uses of funds by product and by maturity to prevent excessive concentration in certain periods or products; and | |
• | prepare contingency plans to cope with a potential liquidity crisis. |
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As of December 31, 2005 | |||||||||||||||||||||||||||||
Substandard | |||||||||||||||||||||||||||||
Won-denominated Accounts | 0-3 Months | 3-6 Months | 6-12 Months | 1-3 Years | Over 3 Years | or Below | Total | ||||||||||||||||||||||
(In billions of Won except percentage) | |||||||||||||||||||||||||||||
Assets: | W | 31,619.8 | W | 10,254.3 | W | 15,075.8 | W | 6,556.9 | W | 13,886.4 | W | 493.6 | W | 77,886.7 | |||||||||||||||
Liabilities: | 26,801.3 | 6,295.7 | 12,878.2 | 8,992.7 | 23,625.3 | — | 78,593.2 | ||||||||||||||||||||||
For three months or less: | |||||||||||||||||||||||||||||
Liquidity gap | 4,818.5 | ||||||||||||||||||||||||||||
Liquidity ratio | 117.98 | % | |||||||||||||||||||||||||||
Limit: | 105.00 | % |
As of December 31, 2005 | |||||||||||||||||||||||||||||
7 Days or | 7 Days- | ||||||||||||||||||||||||||||
Foreign Currencies Denominated Accounts: | Less | 1 Months | 3 Months | 3-6 Months | 6-12 Months | Over 1 Years | Total | ||||||||||||||||||||||
(In millions of US$ except percentage) | |||||||||||||||||||||||||||||
Assets: | $ | 2,333.9 | $ | 3,964.0 | $ | 5,277.3 | $ | 3,092.6 | $ | 3,941.6 | $ | 3,739.9 | $ | 22,349.3 | |||||||||||||||
Liabilities | 2,113.4 | 4,165.8 | 4,993.5 | 2,763.7 | 4,403.0 | 2,798.8 | 21,238.2 | ||||||||||||||||||||||
For three months or less: | |||||||||||||||||||||||||||||
Assets | 11,575.2 | ||||||||||||||||||||||||||||
Liabilities | 11,272.7 | ||||||||||||||||||||||||||||
Liquidity ratio | 102.68 | % | |||||||||||||||||||||||||||
Limit | 85.00 | % |
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• | indices that reflect the market movements such as interest rates and stock prices; | |
• | indices that reflect financial market psychology such as the size of money market funds; and | |
• | indices that reflect Chohung Bank’s internal financial condition. |
Operational Risk Management |
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• | general audits, including full-scale audits performed annually for the overall operations, sectional audits of selected operations performed when necessary, and periodic and irregular spot audits; | |
• | special audits, performed when the Audit Committee or standing auditor deems it necessary or pursuant to requests by the chief executive officer or supervisory authorities such as the Financial Supervisory Service; | |
• | day-to-day audits, performed by the standing auditor for material transactions or operations that are subject to approval by the heads of Shinhan Bank’s operational departments or senior executives; | |
• | real-time monitoring audits, performed by the computerized audit system to identify any irregular transactions and take any necessary actions; and | |
• | self-audits as a self-check by each operational department to ensure its compliance with our business regulations and policies, which include daily audits, monthly audits and special audits. |
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Proposed Upgrades and Integration of Risk Management |
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General |
• | financially supporting its subsidiaries and the subsidiaries of its subsidiaries (the “direct and indirect subsidiaries”); | |
• | raising capital necessary for the investment in subsidiaries or providing financial support to its direct and indirect subsidiaries; | |
• | supporting the business of its direct and indirect subsidiaries for the joint development and marketing of new product and the joint utilization of facilities or IT systems; and | |
• | any other businesses exempted from authorization, permission or approval under the applicable laws and regulations. |
• | when there is a change of its officers; | |
• | when there is a change of its largest shareholder; |
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• | when there is a change of major shareholders of a bank holding company; | |
• | when there is a cause for dissolution; and | |
• | when it or its subsidiary ceases to control any of its respective direct and indirect subsidiaries by disposing of the shares of such direct and indirect subsidiaries. |
Capital Adequacy |
(a) the sum of: |
(i) | in the case of a financial institution subsidiary (except for a financial holding company’s indirect subsidiary which is consolidated into a direct subsidiary of a financial holding company), that is subject to minimum capital requirements under the Financial Supervisory Commission regulations, the actual equity capital maintained by such financial institution (e.g., in the case of commercial banks and merchant banks, total Tier I and Tier II capital actually maintained by a bank or a merchant bank); and |
(ii) | in the case of a financial holding company or a financial institution subsidiary (except for a financial holding company’s indirect subsidiary which is consolidated into a direct subsidiary of a financial holding company), that is not subject to minimum capital requirements under the Financial Supervisory Commission regulations, the total stockholders’ equity as recorded on its balance sheet less (x) intangible assets and (y) deferred tax assets, if any. |
(b) less the sum of: |
(i) | the book value of investments between a financial holding company and its direct and indirect subsidiaries, if any; and |
(ii) | the book value of investments among direct and indirect subsidiaries, if any. |
(a) | in the case of a financial institution subsidiary (except for a financial holding company’s indirect subsidiary which is consolidated into a direct subsidiary of a financial holding company), that is subject to minimum capital requirements under the Financial Supervisory Commission regulations, the minimum equity capital amount necessary to meet such requirements (e.g., in the case of commercial banks and merchant banks, the amount of Total Tier I and Tier II capital necessary to meet the 8% minimum capital adequacy ratio requirement); |
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(b) | in the case of a financial institution subsidiary (except for a financial holding company’s indirect subsidiary which is consolidated into a direct subsidiary of a financial holding company), that is not subject to minimum capital requirements under the Financial Supervisory Commission regulations, 8% of its total assets on its balance sheet (including off-balance sheet assets, if any); and | |
(c) | in the case of a financial holding company, 8% of its total assets on its balance sheet (including off-balance sheet assets, if any, but excluding the book value of investments in and financial supports to its direct and indirect subsidiaries, if any). |
Liquidity |
• | maintain a Won liquidity ratio (defined as Won assets due within three months, including marketable securities, divided by Won liabilities due within three months) of not less than 100%; | |
• | maintain a foreign currency liquidity ratio (defined as foreign currency liquid assets due within three months divided by foreign currency liabilities due within three months) of not less than 80%; | |
• | maintain a ratio of foreign currency liquid assets due within seven days less foreign currency liabilities due within seven days divided by total foreign currency assets of not less than 0%; and | |
• | maintain a ratio of foreign currency liquid assets due within a month less foreign currency liabilities due within a month divided by total foreign currency assets of not less than negative 10%. |
Financial Exposure to Any Single Customer and Major Shareholder |
(i) | in case of a financial holding company, the net asset which is total assets less total liabilities on balance sheet as of the end of the most recent quarter; |
(ii) | in case of a bank, the capital amount as defined in Article 2(1), item 5 of the Bank Act; |
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(iii) | in case of a merchant bank, the capital amount as defined in Article 2, item 3 of the Merchant Bank Act; and |
(iv) | in case of a securities company, the total asset amount less the total liability amount in the balance sheet as of the end of the most recent fiscal year and adjusted as determined by the Financial Supervisory Commission, such as the amount of increase or decrease in paid-in capital after the end of the most recent fiscal year; |
(i) | the amount of shares of direct and indirect subsidiaries held by the financial holding company; |
(ii) | the amount of shares which are cross-held by each direct and indirect subsidiary that is a bank, merchant bank or securities company; and |
(iii) | the amount of shares of a financial holding company held by such direct and indirect subsidiaries which are banks, merchant banks or securities companies. |
(a) | a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Financial Holding Companies Act) in excess of 10% (or in the case of a financial holding company controlling regional banks only, 15%) in the aggregate of the financial holding company’s total issued and outstanding voting shares; or | |
(b) | a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Financial Holding Companies Act) more than 4% in the aggregate of the total issued and outstanding voting shares of the financial holding company controlling national banks (other than a financial holding company controlling regional banks only), excluding shares related to the shareholding restrictions on non-financial business group companies as described below, where such shareholder is the largest shareholder or has actual control over the major business affairs of the financial holding company through, for example, appointment and dismissal of the officers pursuant to the Presidential Decree of the Financial Holding Companies Act. |
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Restrictions on Transactions Among Direct and Indirect Subsidiaries and Financial Holding Company |
(i) | For deposits and installment savings, obligations of the Korean government or The Bank of Korea, obligations guaranteed by the Korean government or The Bank of Korea, obligations secured by securities issued or guaranteed by the Korean government or The Bank of Korea: 100% of the amount of the credit extended; |
(ii) | (a) For obligations of local governments under the Local Autonomy Act, local public enterprises under the Local Public Enterprises Act, and investment institutions and other quasi-investment institutions under the Basic Act on the Management of Government-Invested Institution (hereinafter, the “public institutions and others”); (b) obligations guaranteed by the public institutions and others, and (c) obligations secured by the securities issued or guaranteed by public institutions and others: 110% of the amount of the credit extended; and |
(iii) | For any property other than those set forth in the above (i) and (ii): 130% of the amount of the credit extended. |
Disclosure of Management Performance |
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Restrictions on Shareholdings in Other Companies |
Restrictions on Shareholdings by Direct and Indirect Subsidiaries |
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Restrictions on Transactions between a Financial Holding Company and its Major Shareholder |
Restriction on Financial Holding Company Ownership |
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(i) | any same shareholder group with aggregate net assets of all non-financial business companies belonging to such group of not less than 25% of the aggregate net assets of all members of such group; |
(ii) | any same shareholder group with aggregate assets of all non-financial business companies belonging to such group of not less than W2 |
trillion; or |
(iii) | any mutual fund in which a same shareholder group identified in (1) or (2) above owns more than 4% of the total shares issued and outstanding of such mutual fund. |
General |
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• | capital increases or reductions; | |
• | stock cancellations or consolidations; | |
• | transfers of a part or all of business; | |
• | sale of assets; | |
• | closures of branch offices; | |
• | mergers or becoming a subsidiary under the Financial Holding Companies Act of a financial holding company; | |
• | acquisition of a bank by a third party; | |
• | suspensions of a part or all of business operation; or | |
• | assignments of contractual rights and obligations relating to financial transactions. |
Capital Adequacy |
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Liquidity |
Financial Exposure to Any Single Customer and Major Shareholders |
• | a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Bank Act) in excess of 10% (or in the case of regional banks, 15%) in the aggregate of the bank’s total issued and outstanding voting shares; or |
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• | a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Bank Act) more than 4% in the aggregate of the bank’s (excluding regional banks) total issued and outstanding voting shares (excluding shares relating to the shareholding restrictions on non- financial group companies, which include: |
• | any same shareholder group with the aggregate net assets of all non-financial companies belonging to such group of not less than 25% of the aggregate net assets of all members of such group; | |
• | any same shareholder group with aggregate assets of all non-financial companies belonging to such group of not less than W2 trillion; or | |
• | any mutual fund in which a same shareholder group identified in (1) or (2) above, owns more than 4% of the total shares issued and outstanding), |
where such shareholder is the largest shareholder or is able to actually control the major business affairs of the bank, for example, through appointment and dismissal of the chief executive officer or of the majority of the executives. |
Interest Rates |
Lending to Small- and Medium-Sized Enterprises |
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Disclosure of Management Performance |
• | loans bearing no profit made to a single business group in an amount exceeding 10% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month (where the loan exposure to such borrower is calculated as the sum of substandard credits, doubtful credits and estimated loss credits) except where the loan exposure to a single business group is not more than W4 billion; | |
• | occurrence of any financial event involving embezzlement, malfeasance or misappropriation of funds the amount of which exceeds 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions), unless the bank has lost or expects to lose not more than W1 billion as a result thereof, or the Governor of the Financial Supervisory Service has made a public announcement regarding such an occurrence; | |
• | any loss due to court judgments or similar decisions in civil proceedings in an amount exceeding 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month except where the loss is not more than W1 billion; | |
• | any event which can cause a material change in the financial status, such as a capital increase or reduction, issuance of convertible bonds, bonds with warrants, exchangeable bonds, or depositary receipts, cancellation of shares with profit, and split or consolidation of shares; | |
• | any event which can cause a material change in a bank’s management, such as knowledge of imposition of a fine (such as negligence fine, surcharges or collection charges) in an amount exceeding 1% (or 0.5% in the case of a large company whose total assets as of the end of the most recent fiscal year is W2 trillion or more (hereinafter the “Large Company”)) or more of the bank’s Tier I and Tier II capital, proposal or confirmation of a litigation that can have a material effect on the management of the bank such as litigation regarding appointment or dismissal of an officer, or a change in bank’s largest shareholder, representative director, major shareholder, affiliate company, or a business objective; | |
• | any event which can cause a material change in the bank’s property, such as a natural disaster which causes damages in an amount exceeding 5% (or 2.5% in the case of a Large Company) or more of its total assets as of the end of the most recent fiscal year, or giving or receiving of a gift in excess of 1% (or 0.5% in the case of a Large Company) or more of the bank’s Tier I and Tier II capital; | |
• | any event which can cause a material change in the bank’s credit or liability, such as dissolution of, or default of a bill or a check of, an unlisted company in which the bank invested 3% (or 1.5% in the case of a Large Company) or more of the bank’s Tier I and Tier II capital, or commencement or termination of any court receivership of the bank or notification from the court thereof; | |
• | any event which can cause a material change in the bank’s investment, such as acquisition or sale of fixed assets in an amount exceeding 5% (or 2.5% in the case of a Large Company) of its total assets, investment in other companies in an amount exceeding 5% (or 2.5% in the case of a Large Company) or more of the bank’s Tier I and Tier II capital, becoming an oligopoly shareholder (meaning anyone owning 51% or more of the total issued and outstanding shares of a company, including the shares owned by specially related persons, as defined under the Framework Act on National Taxes) of a mutual savings bank or a change in such shareholder status; | |
• | any event which can cause a material change in the bank’s profit or loss, such as an increase or decrease in profit or loss of 30% (or 15% in the case of a Large Company) or more when compared to the previous fiscal year, or profit or loss from derivative transaction representing 5% (or 2.5% in the case of a Large Company) or more of the bank’s Tier I and Tier II capital; and |
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• | any other events which can have material effects on the bank’s operation, such as payment of cash dividend, changes in accounting policy, or distribution of stock option. |
Restrictions on Lending |
• | loans made for the purpose of speculation in commodities or securities; | |
• | loans made directly or indirectly on the pledge of a bank’s own shares, or on the pledge of shares in excess of 20% of the issued and outstanding shares of any other corporation (subject to certain exceptions with respect to financing for infrastructure projects); | |
• | loans made directly or indirectly to enable a natural or legal person to buy the bank’s own shares; | |
• | loans made directly or indirectly to finance political campaigns and other related activities; | |
• | loans made to any of the bank’s officers or employees other than de minimis loans of up to (1) W20 million in the case of a general loan, (2) W50 million in the case of a general loan plus a housing loan, or (3) W60 million in the aggregate for general loans, housing loans and loans to pay damages arising from wrongful acts of employees in financial transactions; | |
• | credit (including loans) provided on the pledge of shares of a subsidiary corporation of the bank or to enable a natural or legal person to buy shares of a subsidiary corporation of the bank; and | |
• | loans made to any officers or employees of a subsidiary corporation of the bank other than de minimis loans of up to W20 million in the case of a general loan or W50 million in the aggregate in the case of general and housing loans. |
Restrictions on Investments in Property |
Restrictions on Shareholdings in Other Companies |
• | the company issuing such shares is engaged in category of financial businesses set forth by the Financial Supervisory Commission (including private equity funds); or | |
• | the acquisition of shares by the bank is necessary for the corporate restructuring of the issuer and is approved by the Financial Supervisory Commission. |
• | the total investment in companies in which the bank owns more than 15% of the outstanding shares with voting rights does not exceed 15% of the sum of Tier I and Tier II capital (less any capital deductions); or | |
• | the acquisition satisfies the requirements determined by the Financial Supervisory Commission. |
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Restrictions on Bank Ownership |
• | up to 10% of a national bank’s outstanding voting shares with the approval of the Financial Supervisory Commission under the condition that such non-financial group companies will not exercise voting rights in respect of such shares in excess of the 4% limit; and | |
• | in the event that a foreigner, as defined in the Foreign Investment Promotion Act, owns in excess of 4% of a national bank’s outstanding voting shares, up to 10% of such bank’s outstanding voting shares without the approval of the Financial Supervisory Commission, and in excess of 10%, 25% or 33% of such bank’s outstanding voting shares, with the approval of the Financial Supervisory Commission, up to the number of shares owned by such foreigner. |
Deposit Insurance System |
Restrictions on Foreign Exchange Position |
Trust Business |
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• | under the Bank Act, assets accepted in trust by a bank in Korea must be segregated from its other assets in the accounts of such bank; accordingly, banks engaged in the banking and trust businesses must maintain two separate accounts, the “banking accounts” and the “trust accounts,” and two separate sets of records which provide details of their banking and trust businesses, respectively; and | |
• | assets comprising the trust accounts are not available to depositors or other general creditors of such bank in the event the trustee is liquidated or is wound up. |
• | prohibitions against officers, directors and employees of one particular business operation from serving as an officer, director and employee in another business operation, except where an officer or a director (1) serving in two or more business operations with no significant conflict of interest in accordance with the Presidential Decree on the Act on Business of Operating Indirect Investment and Asset or (2) serving in a trustee business or a custodian business and simultaneously serving in a general office administrator business in accordance with the Act on Business of Operating Indirect Investment and Asset; | |
• | prohibitions against the joint use or sharing of computer equipment or office equipment; and | |
• | prohibitions against the sharing of information by and among officers, directors and employees engaged in the different business operations. |
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• | acting as trustee of an investment trust managed by such bank; | |
• | purchasing with such bank’s own funds beneficiary certificates of an investment trust managed by such bank; | |
• | using in its sales activities information relating to the trust property of an investment trust managed by such bank; | |
• | selling through a financial institution established under the Bank Act beneficiary certificates of an investment trust managed by such bank; | |
• | establishing a short-term financial indirect investment vehicle; and | |
• | establishing a mutual fund. |
Laws and Regulations Governing Other Business Activities |
General |
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Restrictions on Scope of Business |
Capital Adequacy |
Liquidity |
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Restrictions on Funding |
Restrictions on Loans to Affiliate Companies |
Restrictions on Assistance to Other Companies |
Restrictions on Investment in Real Estate |
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Restrictions on Shareholding in Other Companies |
Disclosure and Reports |
Risk of Loss due to Lost, Stolen, Forged or Altered Credit Cards |
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• | maximum limits for cash advances on credit cards; | |
• | use restrictions on debit cards with respect to per day or per transaction usage; or | |
• | aggregate issuance limits and maximum limits on the amount per card on pre-paid cards. |
Lending Ratio in Ancillary Business |
Issuance of New Cards and Solicitation of New Card Holders |
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Compliance Rules on Collection of Receivable Claims |
• | exerting violence or threat of violence; | |
• | informing a Related Party (a guarantor of the debtor, blood relative or fiancée of the debtor, a person living in the same household as the debtor or a person working in the same workplace as the debtor) of the debtor’s liability without just cause; | |
• | providing false information relating to the debtor’s obligation to the debtor or his/her Related Party; | |
• | threatening to sue or suing the debtor for fraud despite lack of affirmative evidence to establish that the debtor has submitted forged or false documentation with respect to his/her capacity to make payment; | |
• | visiting or telephoning the debtor during late hours between 9:00 p.m. — 8:00 a.m.; and | |
• | utilizing other uncustomary methods to collect the receivables thereby invading the privacy or the peacefulness in the workplace of the debtor or his/her Related Party. |
General |
• | capital increase or reduction; | |
• | a stock cancellation or consolidation; | |
• | a transfer of business; | |
• | closing of branch offices; | |
• | acquisition of such company by a third party; |
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• | a merger with any other entity; | |
• | becoming a subsidiary (under the Financial Holding Companies Act) of a financial holding company; | |
• | a suspension or assignment of a part or all of business operation; | |
• | an assignment of contractual rights and obligations relating to financial transactions; or | |
• | suspension of officer’s performance and appointment of a receiver. |
Scope of Business |
• | brokerage, trading, or underwriting business of equity of undisclosed association (as defined under the Korean Commercial Code) or limited partnership and certain derivative securities linked with prices, interest rates, indices and indicators relating to securities (under the Securities and Exchange Act and the Presidential Decree), foreign securities of similar character, currencies, commodities (under the Futures and Exchange Act), or linked with credit risks; | |
• | trust business under the Trust Business Act orover-the-counter derivative trading linked to credit risks, price of securities, interest rate or indices based on the foregoing, or currency rate, price of goods or indices based on the foregoing, if the company obtains necessary license from the Financial Supervisory Commission. A securities company intending to engage in the business ofover-the-counter derivative trading will be subject to the limit of 30% of its equity capital as the total amount of risks fromover-the-counter derivative trading, and further subject to the limit of 5% of equity capital for the amount of risks from a credit-linked derivative transaction with a person or a company (including specially-related person of such person or company), with the 300% of minimum equity capital regulation rate and with the W100 billion of minimum equity capital requirement (provided that the W100 billion requirement will be applicable only until May 29, 2007) in order to conductover-the-counter derivative trading Pursuant to the amendment of the Trust Business Act effective as of July 29, 2005, a securities company is exempted from regulations under the Trust Business Act regarding the use of the word ’trust’ in the corporate name, the qualifications of officers, restrictions on the management of the trustee’s own fund, and internal control standards; and | |
• | ancillary businesses such as (1) real estate brokerage or consulting business on real estates owned by clients who are being provided with services relating to brokerage on mergers and acquisitions or business management and financing consulting, (2) selling books, reports or electronic documents containing securities-related information and (3) arranging loans to customers of securities companies based on business alliances established with such securities companies. |
Regulations on Financial Soundness — Capital Adequacy |
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Other Provisions on Financial Soundness |
• | restrictions on the holdings by a securities company of securities issued by another company which is the largest shareholder or the major shareholder (each as defined under the Securities and Exchange Act) of such securities company; | |
• | restrictions on providing money or credit to the largest shareholder (including specially-related persons of such shareholder), major shareholders, officers and specially-related persons of the securities company; and | |
• | special provisions concerning the payment guarantee by a securities company. For instance, a securities company is not allowed to provide payment guarantees for third parties other than its overseas subsidiaries. |
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Business Conduct Rules |
Disclosure and Reports |
Customer Protection |
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General |
• | capital increase or reduction; | |
• | stock cancellation or consolidation; | |
• | transfer of a part or all of business; | |
• | sale of assets; | |
• | closing of branch offices; | |
• | merger with any other entity; | |
• | becoming a subsidiary (under the Financial Holding Companies Act) of a financial holding company; | |
• | acquisition of an insurance company by a third party; | |
• | suspension or assignment of a part or all of business operation; | |
• | assignment of contractual rights and obligations relating to financial transactions; or | |
• | suspension of officer’s performance and appointment of a receiver. |
Capital Adequacy |
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1. | (Net premium type policy reserve — Non-amortized acquisition cost) × (Corresponding ratio of risk factor for policy reserve) (4%); and | |
2. | (Net insurance benefits) × (Corresponding ratio of insurance risk factor). |
Liquidity |
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Variable Insurance |
Solicitation of Insurance Policy & Bancassurance Agents |
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Financial Exposure to Any Single Borrower and Major Shareholders |
• | with respect to the sum of credit to a single individual or legal entity, 3% of its Total Asset (as defined above); | |
• | with respect to the total amount of investment in the debentures or shares issued by a single legal entity, 7% of its Total Asset; | |
• | with respect to the sum of (i) credit to a single individual or legal entity and any other persons who share the credit risk of such individual or legal entity (the “similarly situated borrowers”) and (ii) the amount of investment in the debentures or shares issued by such similarly situated borrowers, 12% of its Total Asset; | |
• | with respect to the sum of the large credit which is credit to a single individual or legal entity, similarly situated borrowers or major shareholders that exceeds 1% of its Total Asset, 20% of its Total Asset; | |
• | with respect to the sum of credit to a single subsidiary, 10% of the Equity Capital (defined as the sum of paid-in capital, capital surplus, earned surplus and others equivalent thereto (excluding any recapitalization) that are obtained by subtracting the aggregate amount of items such as goodwill and |
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others equivalent thereto prescribed by the Presidential Decree from the aggregate amount of the items prescribed by the Presidential Decree) of such insurance company; | ||
• | with respect to the sum of credit to major shareholders or subsidiaries designated by the Presidential Decree, the lesser of (i) 40% of its Equity Capital and (ii) 2% of its Total Asset; and | |
• | with respect to the total amount of investment in the debentures or shares issued by major shareholders or subsidiaries designated by the Presidential Decree, the lesser of (i) 60% of its Equity Capital and (ii) 3% of its Total Asset. |
Restrictions on Investment of Assets |
• | subject to certain exceptions, owning precious metals, antiques and paintings and writings; | |
• | owning any real estate (excluding any real estate owned as a result of enforcing their own security interest) other than real estate for the conduct of its business as designated by the Presidential Decree. In any case, the total amount of real estate owned by an insurance company must not exceed 25% of its Total Asset; | |
• | loans made for the purpose of speculation in commodities or securities; | |
• | loans made directly or indirectly to enable a natural or legal person to buy their own shares; | |
• | loans made directly or indirectly to finance political campaigns and other similar activities; and | |
• | loans made to any of the insurance company’s officers or employees other than loans based on insurance policy or de minimis loans of up to (1) W20 million in the case of a general loan, (2) W50 million in the case of a general loan plus a housing loan, or (3) W60 million in the aggregate for general loans, housing loans and loans to pay damages arising from wrongful acts of employees in financial transactions. |
• | with respect to holding unlisted stock, 10% of its Total Asset; | |
• | with respect to holding foreign currency under the Foreign Exchange Transaction Act or owning offshore real estate, 30% of its Total Asset; and | |
• | with respect to the sum of margins for a futures exchange designated by the Presidential Decree or a foreign futures exchange, 5% of its Total Asset. |
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Restrictions on Shareholdings in Other Companies |
• | the finance-related business of the financial institutions as designated under the Act on Structural Improvement of Financial Industry; | |
• | The credit information business designated by the Use and Protection of Credit Information Act (excluding the credit evaluation business designated thereunder); | |
• | The business of administering insurance contracts including the maintenance, rescission, amendment and reinstatement and the like; and | |
• | Other businesses that do not undermine the soundness of the insurance business as prescribed under the Presidential Decree. |
Disclosure of Management Performance |
Deposit Insurance System |
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Area (Square Meters) | ||||||||||
Site | ||||||||||
Type of Facility | Location | Building | (If Different) | |||||||
Registered office and corporate headquarters | 120, 2-Ga, Taepyung-Ro, Jung-Gu, Seoul 100-102, Korea | 59,743 | 4,416 | |||||||
Good Morning Shinhan Securities | 23-2, Yoido-Dong, Youngdungpo-Gu, Seoul, Korea 150-312 | 70,170 | 4,765 | |||||||
Shinhan Centennial Building | 117, Samgak-Dong, Jung-Gu, Seoul, Korea | 19,697 | 1,389 | |||||||
Shinhan Bank Gwanggyo Branch | 14, 1-Ga, Namdaemun-Ro, Jung-Gu, Seoul, Korea | 20,379 | 6,724 | |||||||
Shinhan Myongdong Branch | 53-1, 1-Ga, Myong-Dong, Jung-Gu, Seoul, Korea | 8,936 | 1,014 | |||||||
Shinhan Youngdungpo Branch | 57, 4-Ga, Youngdungpo-Dong, Youngdungpo-Gu, Seoul, Korea | 6,171 | 1,983 | |||||||
Shinhan IT center | 781, Janghang-Dong, Ilsan-Gu, Goyang-Si, Kyunggi Province, Korea | 24,496 | 5,856 | |||||||
731, Yoksam-Dong, Kangnam-Gu, Seoul, Korea | 23,374 | 7,964 | ||||||||
Shinhan Cheongju IT back-up center | 1704-Ga, Yongam-Dong, Sangdang-Gu, Cheongju-Si, Chungcheongbuk-Do | 5,756 | 6,398 |
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ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The Korean Economy |
Government Regulation and Policy |
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Market Developments |
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Interest Rates |
Certificate | ||||||||||||
Corporate | Treasury | of Deposit | ||||||||||
Bond Rates(1) | Bond Rates(2) | Rates(3) | ||||||||||
June 30, 1998 | 16.00 | N/A | 16.30 | |||||||||
December 31, 1998 | 8.00 | 6.95 | 7.70 | |||||||||
June 30, 1999 | 7.96 | 7.20 | 6.35 | |||||||||
December 31, 1999 | 9.95 | 9.03 | 7.34 | |||||||||
June 30, 2000 | 9.37 | 8.31 | 7.18 | |||||||||
December 31, 2000 | 8.13 | 6.70 | 6.87 | |||||||||
June 30, 2001 | 7.10 | 5.93 | 5.57 | |||||||||
December 31, 2001 | 7.04 | 5.91 | 4.86 | |||||||||
June 30, 2002 | 6.59 | 5.66 | 4.91 | |||||||||
December 31, 2002 | 5.68 | 5.11 | 4.90 | |||||||||
June 30, 2003 | 5.45 | 4.16 | 4.30 | |||||||||
December 31, 2003 | 5.58 | 4.82 | 4.36 | |||||||||
June 30, 2004 | 4.84 | 4.24 | 3.93 | |||||||||
December 31, 2004 | 3.72 | 3.28 | 3.43 | |||||||||
June 30, 2005 | 4.41 | 4.02 | 3.54 | |||||||||
December 31, 2005 | 5.52 | 5.08 | 4.09 | |||||||||
March 31, 2006 | 5.25 | 4.93 | 4.27 |
(1) | Measured by the yield on three-year AA- rated corporate bonds. |
(2) | Measured by the yield on three-year treasury bonds. |
(3) | Measured by the yield on certificates of deposit (with maturity of 91 days). |
Financial Holding Company Restructuring |
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Financial Impact of Acquisitions |
Acquisition of Chohung Bank |
From September 1 to | |||||||||
December 31, | |||||||||
2003 | 2003 | ||||||||
(In billions of Won | |||||||||
and millions of US$, | |||||||||
except per common | |||||||||
share data) | |||||||||
Interest and dividend income | W | 1,286 | $ | 1,079 | |||||
Interest expense | 574 | 482 | |||||||
Net interest income | 712 | 597 | |||||||
Provision for loan losses | 427 | 358 | |||||||
Provision for guarantees and acceptances | (19 | ) | (16 | ) | |||||
Non interest income | 163 | 137 | |||||||
Non interest expense | 558 | 468 | |||||||
Income tax expense | 19 | 16 | |||||||
Minority interest | 1 | 1 | |||||||
Net loss | W | (111 | ) | $ | (93 | ) | |||
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As of December 31, | ||||||||
2003 | 2003 | |||||||
(In billions of Won and | ||||||||
millions of US$) | ||||||||
Assets | ||||||||
Cash and cash equivalents | W | 1,276 | $ | 1,070 | ||||
Restricted cash | 502 | 421 | ||||||
Interest-bearing deposits | 159 | 133 | ||||||
Call loans and securities purchased under resale agreements | 392 | 329 | ||||||
Trading assets: | ||||||||
Trading securities | 1,191 | 999 | ||||||
Derivatives instruments | 156 | 131 | ||||||
Securities: | ||||||||
Available-for-sale securities | 7,274 | 6,102 | ||||||
Held-to-maturity securities | — | — | ||||||
Loans (net of allowance for loan losses of W2,498 billion in 2003) | 41,233 | 34,592 | ||||||
Customers’ liability on acceptances | 1,107 | 928 | ||||||
Premises and equipment, net | 1,164 | 977 | ||||||
Goodwill and intangible assets | 35 | 29 | ||||||
Security deposits | 483 | 405 | ||||||
Other assets | 2,138 | 1,796 | ||||||
Total assets | W | 57,110 | $ | 47,912 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Interest-bearing | W | 38,917 | $ | 32,649 | ||||
Noninterest-bearing | 322 | 270 | ||||||
Trading liabilities | 128 | 107 | ||||||
Acceptances outstanding | 1,107 | 928 | ||||||
Short-term borrowings | 4,804 | 4,030 | ||||||
Secured borrowings | 1,432 | 1,201 | ||||||
Long-term debt | 6,504 | 5,456 | ||||||
Accrued expenses and other liabilities | 2,628 | 2,206 | ||||||
Total liabilities | 55,842 | 46,847 | ||||||
Minority interest | 15 | 12 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 3,596 | 3,016 | ||||||
Additional paid-in capital | 1,722 | 1,445 | ||||||
Accumulated deficit | (4,300 | ) | (3,607 | ) | ||||
Accumulated other comprehensive income, net of taxes | 235 | 199 | ||||||
Total stockholders’ equity | 1,253 | 1,053 | ||||||
Total liabilities, minority interest and stockholders’ equity | W | 57,110 | $ | 47,912 | ||||
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Acquisition of Good Morning Securities |
• | the uncertainties of the global economy following the terrorist attack in Bali, Indonesia and as the Iraqi war began to unfold; | |
• | the uncertainties of the Korean economy due to the presidential election in late 2002 and increased tensions on the Korean peninsula with North Korea reported to have resumed its nuclear program; and | |
• | significant deterioration of the financial market and a 40% decline in the share price of Good Morning Shinhan Securities since the acquisition. |
Acquisition of Jeju Bank |
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Spin-off of Shinhan Card |
Acquisition of Shinhan Life Insurance |
Liquidation ofe-Shinhan |
Certain Income Tax Expenses and Provision for Other Losses |
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Allowance for Credit Losses |
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• | loans classified as “substandard” or below according to the asset classification guidelines of the Financial Supervisory Commission; | |
• | loans that are 90 days or more past due; and | |
• | loans which are “troubled debt restructuring” as defined under U.S. GAAP. |
Fair Value of Financial Instruments |
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Goodwill and Other Intangible Assets |
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Consolidation |
Contingent Liabilities |
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Valuation allowance for Deferred Tax Assets |
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Average Balance Sheet and Related Interest |
Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | |||||||||||||||||||||||||||||||||||||
Interest | Interest | Interest | |||||||||||||||||||||||||||||||||||||
Average | Income/ | Yield/ | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||||||||||||||||||||
Balance(1) | Expense | Rate | Balance(1) | Expense | Rate | Balance(1) | Expense | Rate | |||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits | W | 1,618 | W | 66 | 4.08 | % | W | 1,322 | W | 44 | 3.33 | % | W | 1,778 | W | 64 | 3.60 | % | |||||||||||||||||||||
Call loans and securities purchased under resale agreements | 1,609 | 48 | 2.98 | 3,012 | 93 | 3.09 | 2,499 | 85 | 3.40 | ||||||||||||||||||||||||||||||
Trading assets | 1,824 | 102 | 5.59 | 3,666 | 168 | 4.58 | 3,394 | 111 | 3.27 | ||||||||||||||||||||||||||||||
Securities(2) | 17,053 | 928 | 5.44 | 20,924 | 1,265 | 6.05 | 19,348 | 932 | 4.82 | ||||||||||||||||||||||||||||||
Loans:(3) | |||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 25,294 | 1,279 | 5.06 | 35,753 | 1,876 | 5.25 | 36,079 | 2,075 | 5.75 | ||||||||||||||||||||||||||||||
Other commercial | 13,434 | 851 | 6.33 | 21,632 | 1,311 | 6.06 | 20,130 | 1,145 | 5.69 | ||||||||||||||||||||||||||||||
Lease financing | 786 | 70 | 8.91 | 1,039 | 62 | 5.97 | 749 | 47 | 5.80 | ||||||||||||||||||||||||||||||
Total corporate | 39,514 | 2,200 | 5.57 | 58,424 | 3,249 | 5.56 | 56,958 | 3,267 | 5.74 | ||||||||||||||||||||||||||||||
Mortgage and home equity | 12,076 | 697 | 5.77 | 21,408 | 1,138 | 5.32 | 24,630 | 1,290 | 5.24 | ||||||||||||||||||||||||||||||
Credit cards | 3,568 | 495 | 13.87 | 5,575 | 609 | 10.92 | 4,574 | 589 | 12.88 | ||||||||||||||||||||||||||||||
Other consumer | 10,747 | 795 | 7.40 | 14,481 | 1,146 | 7.91 | 15,552 | 1,150 | 7.39 | ||||||||||||||||||||||||||||||
Total consumer | 26,391 | 1,987 | 7.53 | 41,464 | 2,893 | 6.98 | 44,756 | 3,029 | 6.77 | ||||||||||||||||||||||||||||||
Total loans | 65,905 | 4,187 | 6.35 | 99,888 | 6,142 | 6.15 | 101,714 | 6,296 | 6.19 | ||||||||||||||||||||||||||||||
Other interest-earning assets | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Total interest-earning assets | W | 88,009 | W | 5,331 | 6.06 | % | W | 128,812 | W | 7,712 | 5.99 | % | W | 128,733 | W | 7,488 | 5.82 | % | |||||||||||||||||||||
Non-interest-earning assets: | |||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 2,165 | — | 3,467 | — | 3,855 | — | |||||||||||||||||||||||||||||||||
Other assets | 5,990 | — | 12,507 | — | 16,779 | — | |||||||||||||||||||||||||||||||||
Total assets | W | 96,164 | W | 5,331 | W | 144,786 | W | 7,712 | W | 149,367 | W | 7,488 | |||||||||||||||||||||||||||
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||
Interest | Interest | Interest | ||||||||||||||||||||||||||||||||||||
Average | Income/ | Yield/ | Average | Income/ | Yield/ | Average | Income/ | Yield/ | ||||||||||||||||||||||||||||||
Balance(1) | Expense | Rate | Balance(1) | Expense | Rate | Balance(1) | Expense | Rate | ||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | W | 2,653 | W | 37 | 1.39 | % | W | 7,880 | W | 105 | 1.33 | % | W | 6,594 | W | 125 | 1.90 | % | ||||||||||||||||||||
Savings deposits | 15,922 | 232 | 1.46 | 21,987 | 272 | 1.24 | 26,100 | 250 | 0.96 | |||||||||||||||||||||||||||||
Certificates of deposit | 4,955 | 220 | 4.44 | 6,735 | 275 | 4.08 | 8,838 | 338 | 3.81 | |||||||||||||||||||||||||||||
Other time deposits | 27,780 | 1,164 | 4.19 | 41,863 | 1,605 | 3.83 | 39,031 | 1,439 | 3.69 | |||||||||||||||||||||||||||||
Mutual installment deposits | 2,110 | 113 | 5.36 | 2,487 | 113 | 4.54 | 1,997 | 83 | 4.16 | |||||||||||||||||||||||||||||
Total interest-bearing deposits | 53,420 | 1,766 | 3.31 | 80,952 | 2,370 | 2.93 | 82,560 | 2,235 | 2.71 | |||||||||||||||||||||||||||||
Short-term borrowings | 11,400 | 322 | 2.82 | 14,934 | 370 | 2.48 | 14,975 | 357 | 2.38 | |||||||||||||||||||||||||||||
Secured borrowings | 5,331 | 207 | 3.88 | 7,102 | 299 | 4.21 | 6,584 | 240 | 3.65 | |||||||||||||||||||||||||||||
Long-term debt | 13,736 | 703 | 5.12 | 20,136 | 1,099 | 5.46 | 22,209 | 1,182 | 5.32 | |||||||||||||||||||||||||||||
Other interest-bearing liabilities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Total interest bearing liabilities | W | 83,887 | W | 2,998 | 3.57 | % | W | 123,124 | W | 4,138 | 3.36 | % | W | 126,328 | W | 4,014 | 3.18 | % | ||||||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
Non-interest-bearing deposits | 1,002 | — | 2,287 | — | 2,393 | — | ||||||||||||||||||||||||||||||||
Trading liabilities | 290 | — | 668 | — | 1,177 | — | ||||||||||||||||||||||||||||||||
Acceptance outstanding | 1,416 | — | 1,539 | — | 1,944 | — | ||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | 5,765 | — | 11,455 | — | 11,031 | — | ||||||||||||||||||||||||||||||||
Minority interest | 428 | — | 324 | — | 73 | — | ||||||||||||||||||||||||||||||||
Redeemable convertible preferred stock | 263 | — | 723 | — | 585 | — | ||||||||||||||||||||||||||||||||
Stockholders’ equity | 3,113 | — | 4,666 | — | 5,836 | — | ||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | W | 96,164 | W | 2,998 | W | 144,786 | W | 4,138 | W | 149,367 | W | 4,014 | ||||||||||||||||||||||||||
Net interest spread(4) | 2.48 | % | 2.63 | % | 2.64 | % | ||||||||||||||||||||||||||||||||
Net interest margin(5) | 2.65 | % | 2.78 | % | 2.70 | % | ||||||||||||||||||||||||||||||||
Average asset liability ratio(6) | 104.91 | % | 104.62 | % | 101.90 | % |
(1) | Average balances are based on (a) daily balances for Shinhan Bank, Chohung Bank and Jeju Bank and (b) quarterly balances for other subsidiaries. |
(2) | The average balance and yield on securities are based on amortized cost. The yield on the available-for-sale portfolio is based on average historical cost balances, therefore, the yield information does not give effect to changes in fair value that are reflected as a component of stockholders’ equity. |
(3) | Non-accruing loans are included in the respective average loan balances. Income on such non-accruing loans is no longer recognized from the date the loan is placed on nonaccrual status. We reclassify loans as accruing when interest (including default interest) and principal payments are current. |
(4) | The difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities. |
(5) | The ratio of net interest income to average interest-earning assets. |
(6) | The ratio of average interest-earning assets to average interest-bearing liabilities. |
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Analysis of Changes in Net Interest Income — Volume and Rate Analysis |
From 2003 to 2004 | |||||||||||||||
Interest Increase (Decrease) | |||||||||||||||
Due to Change in | |||||||||||||||
Volume | Rate | Change | |||||||||||||
(In billions of Won) | |||||||||||||||
Increase (decrease) in interest income | |||||||||||||||
Interest-bearing deposits | W | (11 | ) | W | (11 | ) | W | (22 | ) | ||||||
Call loans and securities purchased under resale agreements | 43 | 2 | 45 | ||||||||||||
Trading assets | 87 | (21 | ) | 66 | |||||||||||
Securities | 226 | 111 | 337 | ||||||||||||
Loans: | |||||||||||||||
Commercial and industrial | 547 | 50 | 597 | ||||||||||||
Other commercial | 498 | (38 | ) | 460 | |||||||||||
Lease financing | 19 | (27 | ) | (8 | ) | ||||||||||
Total corporate | 1,064 | (15 | ) | 1,049 | |||||||||||
Mortgage and home equity | 500 | (59 | ) | 441 | |||||||||||
Credit cards | 235 | (121 | ) | 114 | |||||||||||
Other consumer | 292 | 59 | 351 | ||||||||||||
Total consumer | 1,027 | (121 | ) | 906 | |||||||||||
Total loans | 2,091 | (136 | ) | 1,955 | |||||||||||
Other interest-earning assets | — | — | — | ||||||||||||
Total interest income | 2,436 | (55 | ) | 2,381 | |||||||||||
Increase (decrease) in interest expense | |||||||||||||||
Interest bearing deposits: | |||||||||||||||
Demand deposits | 70 | (2 | ) | 68 | |||||||||||
Savings deposits | 79 | (39 | ) | 40 | |||||||||||
Certificates of deposit | 74 | (19 | ) | 55 | |||||||||||
Other time deposits | 547 | (106 | ) | 441 | |||||||||||
Mutual installment deposits | 19 | (19 | ) | — | |||||||||||
Total interest-bearing deposits | 789 | (185 | ) | 604 | |||||||||||
Short-term borrowings | 91 | (43 | ) | 48 | |||||||||||
Secured borrowings | 73 | 19 | 92 | ||||||||||||
Long-term debt | 347 | 49 | 396 | ||||||||||||
Other interest-bearing liabilities | — | — | — | ||||||||||||
Total interest expense | 1,300 | (160 | ) | 1,140 | |||||||||||
Net increase (decrease) in net interest income | 1,136 | 105 | 1,241 | ||||||||||||
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From 2004 to 2005 | |||||||||||||||
Interest Increase (Decrease) | |||||||||||||||
Due to Change in | |||||||||||||||
Volume | Rate | Change | |||||||||||||
(In billions of Won) | |||||||||||||||
Increase (decrease) in interest income | |||||||||||||||
Interest-bearing deposits | W | 16 | W | 4 | W | 20 | |||||||||
Call loans and securities purchased under resale agreements | (17 | ) | 9 | (8 | ) | ||||||||||
Trading assets | (12 | ) | (45 | ) | (57 | ) | |||||||||
Securities | (90 | ) | (243 | ) | (333 | ) | |||||||||
Loans: | |||||||||||||||
Commercial and industrial | 17 | 182 | 199 | ||||||||||||
Other commercial | (88 | ) | (78 | ) | (166 | ) | |||||||||
Lease financing | (18 | ) | 3 | (15 | ) | ||||||||||
Total corporate | (89 | ) | 107 | 18 | |||||||||||
Mortgage and home equity | 169 | (17 | ) | 152 | |||||||||||
Credit cards | (119 | ) | 99 | (20 | ) | ||||||||||
Other consumer | 82 | (78 | ) | 4 | |||||||||||
Total consumer | 132 | 4 | 136 | ||||||||||||
Total loans | 43 | 111 | 154 | ||||||||||||
Other interest-earning assets | — | — | — | ||||||||||||
Total interest income | (60 | ) | (164 | ) | (224 | ) | |||||||||
Increase (decrease) in interest expense | |||||||||||||||
Interest bearing deposits: | |||||||||||||||
Demand deposits | (19 | ) | 39 | 20 | |||||||||||
Savings deposits | 46 | (68 | ) | (22 | ) | ||||||||||
Certificates of deposit | 81 | (18 | ) | 63 | |||||||||||
Other time deposits | (106 | ) | (60 | ) | (166 | ) | |||||||||
Mutual installment deposits | (21 | ) | (9 | ) | (30 | ) | |||||||||
Total interest-bearing deposits | (19 | ) | (116 | ) | (135 | ) | |||||||||
Short-term borrowings | 1 | (14 | ) | (13 | ) | ||||||||||
Secured borrowings | (21 | ) | (38 | ) | (59 | ) | |||||||||
Long-term debt | 111 | (28 | ) | 83 | |||||||||||
Other interest-bearing liabilities | — | — | — | ||||||||||||
Total interest expense | 72 | (196 | ) | (124 | ) | ||||||||||
Net increase (decrease) in net interest income | (132 | ) | 32 | (100 | ) | ||||||||||
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2005 Compared to 2004 |
Net Interest Income |
Year Ended December 31, | ||||||||||||||
2004 | 2005 | % Change | ||||||||||||
(In billions of Won, except | ||||||||||||||
percentages) | ||||||||||||||
Interest and dividend income: | �� | |||||||||||||
Interest and fees on loans | W | 6,142 | W | 6,296 | 2.5 | % | ||||||||
Interest and dividends on securities | 1,265 | 932 | (26.3 | ) | ||||||||||
Trading assets | 168 | 111 | (33.9 | ) | ||||||||||
Other interest income | 137 | 149 | 8.8 | |||||||||||
Total interest and dividend income | W | 7,712 | W | 7,488 | (2.9 | ) | ||||||||
Interest expense: | ||||||||||||||
Interest on deposits | W | 2,370 | W | 2,234 | (5.7 | )% | ||||||||
Interest on short-term borrowings | 341 | 340 | (0.6 | ) | ||||||||||
Interest on secured borrowings | 299 | 240 | (19.7 | ) | ||||||||||
Interest on long-term debt | 1,099 | 1,182 | 7.6 | |||||||||||
Other interest expense | 29 | 18 | (37.9 | ) | ||||||||||
Total interest expense | 4,138 | 4,014 | (3.0 | ) | ||||||||||
Net interest income | W | 3,574 | W | 3,474 | (2.8 | )% | ||||||||
Net interest margin(1) | 2.78 | % | 2.70 | % |
(1) | The ratio of net interest income to average interest-earning assets. See “— Average Balance Sheet and Volume and Rate Analysis — Average Balance Sheet and Related Interest.” |
• | a 10.6% increase in interest and fees on commercial and industrial loans from W1,876 billion in 2004 to W2,075 billion in 2005, which was due primarily to an increase by 50 basis points in the average yield on such loans from 5.25% in 2004 to 5.75% in 2005 and a 0.9% increase in average balance of such loans from W35,753 billion in 2004 to W36,079 billion in 2005; and |
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• | a 13.4% increase in interest and fees on mortgage and home equity loans from W1,138 billion in 2004 to W1,290 billion in 2005, which was due primarily to a 15.1% increase in average balance of mortgage and home equity loans from W21,408 billion in 2004 to W24,630 billion in 2005, which was partially offset by a decline of 8 basis points in the average yield on such loans from 5.32% in 2004 to 5.24% in 2005, |
• | a 12.7% decrease in interest and fees on other commercial loans from W1,311 billion in 2004 to W1,145 billion in 2005, which was due primarily to a 6.9% decrease in average balance of other commercial loans from W21,632 billion in 2004 to W20,130 billion in 2005 and a decrease by 37 basis points in the average yield on such loans from 6.06% in 2004 to 5.69% in 2005. |
• | mortgage and home equity loans increased by 15.1% from W21,408 billion in 2004 to W24,630 billion in 2005, which was partially offset by a decrease in the average yield on such loans by eight basis points from 5.32% in 2004 to 5.24% in 2005; and | |
• | other consumer loans increased by 7.4% from W14,481 billion in 2004 to W15,552 billion in 2005, the effect of which was partially offset by a decline of 52 basis points in the average yield on such loans from 7.91% in 2004 to 7.39% in 2005. |
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Provision for credit losses |
• | changes in the asset quality of individually identified impaired corporate loans — Changes in the asset quality of individually identified impaired corporate loans are attributed to a decrease in the outstanding balance which may result from collection through the disposal of collateral or relaxing requirements for troubled debt restructurings. Such changes have a direct impact on provisioning for loan losses through individual analysis of those loans. See “Item 4. Information on the Company — Description of Assets and Liabilities — Loans individually identified for review and considered impaired”. Specific allowances are established by discounting the estimated cash flows expected to receive using the loan’s effective interest rate or by reference to the fair value of the collateral; and | |
• | the improvement in asset quality classifications of loans which are not specially identified as impaired — For loans which are not specially identified as impaired, the general allowance for loan losses is determined based on loss factors taking into consideration past performance of the portfolio, previous loan loss history and charge-off information which are developed through a migration model. See “Item 4. Information on the Company — Description of Assets and Liabilities — Loans not specifically identified as impaired”. Due primarily to enhanced condition of the Korean economy, our asset quality classifications of non-impaired loans improved and the loss rates decreased in 2005 as compared to 2004. As a result, provision for loan losses against non-impaired loans decreased from 2004 to 2005. |
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As of December 31, | |||||||||||||
2004 | 2005 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Total provision for loan losses(A): | |||||||||||||
Corporate | W | (293 | ) | W | (402 | ) | 37.2 | % | |||||
Mortgages and home equity | (1 | ) | (1 | ) | — | ||||||||
Other consumer | 130 | 76 | (41.5 | ) | |||||||||
Credit cards | 359 | 72 | (79.9 | ) | |||||||||
195 | (255 | ) | N/M | ||||||||||
Total provision for off-balance sheet credit instruments(B): | |||||||||||||
Guarantees and acceptances | W | (83 | ) | W | (39 | ) | (53.0 | )% | |||||
Unused portions of credit line | 23 | 111 | 382.6 | ||||||||||
(60 | ) | 72 | N/M | ||||||||||
Total provision for credit losses (A+B) | W | 135 | W | (183 | ) | N/M | |||||||
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Noninterest Income |
As of December 31, | |||||||||||||
2004 | 2005 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Commissions and fees from non-trust management: | |||||||||||||
Brokerage fees and commissions(1) | W | 232 | W | 345 | 48.7 | % | |||||||
Other fees and commissions(2) | 947 | 1,160 | 22.5 | ||||||||||
Net trust management fees(3) | 84 | 100 | 19.0 | ||||||||||
Net trading profits | 143 | 101 | (29.3 | ) | |||||||||
Net gains (losses) on securities | (77 | ) | 96 | N/M | |||||||||
Gain on other investment | 53 | 284 | 435.8 | ||||||||||
Net gain on foreign exchange | 353 | 94 | (73.4 | ) | |||||||||
Insurance income | — | 189 | N/M | ||||||||||
Other | 357 | 333 | (6.7 | ) | |||||||||
Total noninterest income | W | 2,092 | W | 2,702 | 29.1 | % | |||||||
(1) | Consists of commissions, fees and markup on securities brokerage activities. |
(2) | Includes commissions received on remittance, commissions received on imports and export letters of credit and commissions received from foreign exchange transactions. |
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(3) | Consists principally of fees from management of trust accounts in our banking operations. |
Noninterest Expenses |
Year Ended December 31, | |||||||||||||
2004 | 2005 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Employee compensation and other benefits | W | 1,217 | W | 1,480 | 21.6 | % | |||||||
Depreciation and amortization | 429 | 377 | (12.1 | ) | |||||||||
General and administrative expenses | 543 | 516 | (5.0 | ) | |||||||||
Credit card fees | 147 | 134 | (8.8 | ) | |||||||||
Provision for other losses | 16 | 113 | N/M | ||||||||||
Other fees and commission expenses | 364 | 417 | 14.6 | ||||||||||
Taxes (except income taxes) | 92 | 110 | 19.6 | ||||||||||
Insurance operating expense | — | 200 | N/M | ||||||||||
Other | 344 | 315 | (8.4 | ) | |||||||||
Total noninterest expenses | W | 3,152 | W | 3,662 | 16.2 | % | |||||||
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Income Tax Expense |
Net Income Before Extraordinary Item |
2004 Compared to 2003 |
Net Interest Income |
Year Ended December 31, | ||||||||||||||
2003 | 2004 | % Change | ||||||||||||
(In billions of Won, | ||||||||||||||
except percentages) | ||||||||||||||
Interest and dividend income: | ||||||||||||||
Interest and fees on loans | W | 4,187 | W | 6,142 | 46.7 | % | ||||||||
Interest and dividends on securities | 928 | 1,265 | 36.3 | |||||||||||
Trading assets | 102 | 168 | 64.7 | |||||||||||
Other interest expense | 114 | 137 | 20.2 | |||||||||||
Total interest and dividend income | W | 5,331 | W | 7,712 | 44.7 | |||||||||
Interest expense: | ||||||||||||||
Interest on deposits | W | 1,766 | W | 2,370 | 34.2 | % | ||||||||
Interest on short-term borrowings | 315 | 341 | 8.3 | |||||||||||
Interest on secured borrowings | 207 | 299 | 44.4 | |||||||||||
Interest on long-term debt | 703 | 1,099 | 56.3 | |||||||||||
Other interest expense | 7 | 29 | 314.3 | |||||||||||
Total interest expense | 2,998 | 4,138 | 38.0 | |||||||||||
Net interest income | W | 2,333 | W | 3,574 | 53.2 | % | ||||||||
Net interest margin(1) | 2.65 | % | 2.78 | % |
(1) | The ratio of net interest income to average interest earning assets. See “— Average Balance Sheet and Volume and Rate Analysis — Average Balance Sheet and Related Interest.” |
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• | a 41.3% increase in commercial and industrial loans from W25,294 billion in 2003 to W35,753 billion in 2004, and an increase by 19 basis points in the average yield on such loans from 5.06% in 2003 to 5.25% in 2004; | |
• | a 61.0% increase in other commercial loans from W13,434 billion in 2003 to W21,632 billion in 2004, partially offset by a decline of 27 basis points in the average yield on such loans from 6.33% in 2003 to 6.06% in 2004; | |
• | a 77.3% increase in mortgage and home equity loans from W12,076 billion in 2003 to W21,408 billion in 2004, partially offset by a decline of 45 basis points in the average yield on such loans from 5.77% in 2003 to 5.32% in 2004; and | |
• | a 34.7% increase in other consumer loans from W10,747 billion in 2003 to W14,481 billion in 2004, and an increase by 51 basis points in the average yield on such loans from 7.40% in 2003 to 7.91% in 2004. |
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Provision for credit losses |
• | changes in the asset quality of individually identified impaired corporate loans — Changes in the asset quality of individually identified impaired corporate loans are attributed to a decrease in the outstanding balance which may result from collection through the disposal of collateral or relaxing requirements for troubled debt restructurings. Such changes have a direct impact on provisioning for loan losses through individual analysis of those loans. See “Item 4. Information on the Company — Description of Assets and Liabilities — Loans individually identified for review and considered impaired”. Specific allowances are established by discounting the estimated cash flows expected to receive using the loan’s effective interest rate or by reference to the fair value of the collateral; | |
• | the improvement in asset quality classifications of loans which are not specially identified as impaired — For loans which are not specially identified as impaired, the general allowance for loan losses is determined based on loss factors taking into consideration past performance of the portfolio, previous loan loss history and charge-off information which are developed through a migration model. See “Item 4. Information on the Company — Description of Assets and Liabilities — Loans not specifically identified as impaired”. Due primarily to enhanced condition of the Korean economy, our asset quality classifications of non-impaired loans improved and the loss rates decreased in 2004 as compared to 2003. As a result, provision for loan losses against non-impaired loans decreased from 2003 to 2004; and | |
• | the effect of adjustments in loss factors — We adjusted loss factors developed through a migration model with other qualitative and quantitative factors that affect the collectibility or the portfolio as of the evaluation date including prevailing economic and business conditions. See “Item 4. Information on the Company — Description of Assets and Liabilities — Loans collectively evaluated for impairment”. In 2003, we identified a sharp increase in delinquency ratios of loans to small- and medium-sized enterprises which continued to increase until early 2004. To reflect this trend of performance, we applied shorter period migration rates and recognized additional provision for loan losses in the amount of W76 billion in 2003. In 2004, however, as such analysis showed no adverse trend in the performance of this loan portfolio, the additional allowance for loan losses provided in 2003 was reversed in 2004 and resulted in the decrease in provision for loan losses of W151 billion. |
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As of December 31, | |||||||||||||
2003 | 2004 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Total provision for loan losses(A): | |||||||||||||
Corporate | W | 428 | W | (293 | ) | N/M | |||||||
Mortgages and home equity | 1 | (1 | ) | N/M | |||||||||
Other consumer | 63 | 130 | 106.3 | % | |||||||||
Credit cards | 519 | 359 | (30.8 | ) | |||||||||
1,011 | 195 | (80.7 | ) | ||||||||||
Total provision for off-balance sheet credit instruments(B): | |||||||||||||
Guarantees and acceptances | W | (46 | ) | W | (83 | ) | 80.4 | % | |||||
Unused portions of credit line | — | 23 | N/M | ||||||||||
(46 | ) | (60 | ) | (30.4 | ) | ||||||||
Total provision for credit losses(A+B) | W | 965 | W | 135 | (86.0 | )% | |||||||
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Noninterest Income |
As of December 31, | |||||||||||||
2003 | 2004 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Commissions and fees from non-trust management: | |||||||||||||
Brokerage fees and commissions(1) | W | 260 | W | 232 | (10.8 | )% | |||||||
Other fees and commissions(2) | 580 | 947 | 63.3 | ||||||||||
Net trust management fees(3) | 59 | 84 | 42.4 | ||||||||||
Net trading profits | 72 | 143 | 98.6 | ||||||||||
Net gains (losses) on securities | (128 | ) | (77 | ) | (39.8 | ) | |||||||
Gain on other investment | 28 | 53 | 89.3 | ||||||||||
Net gain on foreign exchange | 91 | 353 | 287.9 | ||||||||||
Insurance income | — | — | |||||||||||
Other | 156 | �� | 357 | 128.8 | |||||||||
Total noninterest income | W | 1,118 | W | 2,092 | 87.1 | % | |||||||
(1) | Consists of commissions, fees and markup on securities brokerage activities. |
(2) | Includes commissions received on remittance, commissions received on imports and export letters of credit and commissions received from foreign exchange transactions. |
(3) | Consists principally of fees from management of trust accounts in our banking operations. |
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Noninterest Expenses |
Year Ended December 31, | |||||||||||||
2003 | 2004 | % Change | |||||||||||
(In billions of Won, | |||||||||||||
except percentages) | |||||||||||||
Employee compensation and other benefits | W | 705 | W | 1,217 | 72.6 | % | |||||||
Depreciation and amortization | 247 | 429 | 73.7 | ||||||||||
General and administrative expenses | 392 | 543 | 38.5 | ||||||||||
Credit card fees | 90 | 147 | 63.3 | ||||||||||
Provision for other losses | — | 16 | N/M | ||||||||||
Other fees and commission expenses | 250 | 364 | 45.6 | ||||||||||
Taxes (except income taxes) | 62 | 92 | 48.4 | ||||||||||
Insurance operating expense | — | — | — | ||||||||||
Other | 191 | 344 | 80.1 | ||||||||||
Total noninterest expenses | W | 1,937 | W | 3,152 | 62.7 | % | |||||||
Income Tax Expense |
Net Income Before Extraordinary Item |
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• | Shinhan Bank, further consisting of the following: |
— | retail banking; | |
— | corporate banking; | |
— | treasury and securities investment; and | |
— | other banking services; |
• | Chohung Bank, further consisting of the following: |
— | retail banking; | |
— | corporate banking; | |
— | treasury and international business; | |
— | credit card; and | |
— | other banking services; |
• | securities brokerage services of Good Morning Shinhan Securities; | |
• | credit card services of Shinhan Card; and | |
• | others. |
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Table of Contents
Segment Results(1) | Total Revenues(2) | |||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2003 | 2004 | 2005 | |||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||
Shinhan Bank: | ||||||||||||||||||||||||||
Retail banking | W | 560 | W | 655 | W | 778 | W | 1,221 | W | 1,401 | W | 1,350 | ||||||||||||||
Corporate banking | 212 | 550 | 701 | 749 | 1,006 | 976 | ||||||||||||||||||||
Treasury and securities investment | 62 | 82 | (67 | ) | 904 | 1,292 | 1,745 | |||||||||||||||||||
Other banking services | (148 | ) | (87 | ) | (346 | ) | 339 | 469 | 245 | |||||||||||||||||
Chohung Bank:(3) | ||||||||||||||||||||||||||
Retail banking | 30 | 132 | 307 | 513 | 1,395 | 1,385 | ||||||||||||||||||||
Corporate banking | (58 | ) | 185 | 95 | 133 | 333 | 407 | |||||||||||||||||||
Treasury and international business | (53 | ) | (5 | ) | (26 | ) | 208 | 2,611 | 3,379 | |||||||||||||||||
Credit card | (89 | ) | (320 | ) | 150 | 237 | 590 | 699 | ||||||||||||||||||
Other banking services | (50 | ) | 275 | 169 | (3 | ) | 498 | 573 | ||||||||||||||||||
Good Morning Shinhan Securities | 69 | 44 | 121 | 656 | 697 | 880 | ||||||||||||||||||||
Shinhan Card | (90 | ) | 6 | 59 | 322 | 348 | 358 | |||||||||||||||||||
Other subsidiaries | 36 | 10 | 39 | 305 | 355 | 620 | ||||||||||||||||||||
Total(4) | W | 481 | W | 1,527 | W | 1,980 | W | 5,584 | W | 10,995 | W | 12,617 | ||||||||||||||
(1) | Represents income per segment before income taxes. |
(2) | Represents net interest income plus noninterest income. |
(3) | As we acquired Chohung Bank in August 2003, the segment results for Chohung Bank only reflect the results of operations from the date of our acquisition to December 31, 2003 and is not available on a meaningful comparative basis. |
(4) | Before elimination or adjustments. |
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Shinhan Bank’s Retail Banking |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 782 | W | 844 | W | 959 | 7.9 | % | 13.6 | % | |||||||||||
Noninterest income | 439 | 557 | 391 | 26.9 | (29.8 | ) | |||||||||||||||
Total revenues | 1,221 | 1,401 | 1,350 | 14.7 | (3.6 | ) | |||||||||||||||
Provision for credit losses(1) | (64 | ) | (30 | ) | (11 | ) | (53.1 | ) | (63.3 | ) | |||||||||||
Noninterest expense including depreciation and amortization | (597 | ) | (716 | ) | (561 | ) | 19.9 | (21.6 | ) | ||||||||||||
Segment results(2) | W | 560 | W | 655 | W | 778 | 17.0 | % | 18.8 | % | |||||||||||
(1) | Includes provision for guarantees and acceptances. We recorded no such provision in 2003, 2004 and 2005. |
(2) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
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Comparison of 2004 to 2003 |
Shinhan Bank’s Corporate Banking |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 434 | W | 530 | W | 579 | 22.1 | % | 9.2 | % | |||||||||||
Noninterest income | 315 | 476 | 397 | 51.1 | (16.6 | ) | |||||||||||||||
Total revenues | 749 | 1,006 | 976 | 34.3 | (3.0 | ) | |||||||||||||||
Provision for credit losses(1) | (273 | ) | (66 | ) | (12 | ) | (75.8 | ) | (81.8 | ) | |||||||||||
Noninterest expense including depreciation and amortization | (264 | ) | (390 | ) | (263 | ) | 47.7 | (32.6 | ) | ||||||||||||
Segment results(2) | W | 212 | W | 550 | W | 701 | 159.4 | % | 27.5 | % | |||||||||||
(1) | Includes provision for guarantees and acceptances. We recorded no such provision in 2003, 2004 and 2005. |
(2) | Net income per segment before income taxes. |
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Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Shinhan Bank’s Treasury and Securities Investment |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income (expense) | W | 65 | W | 4 | W | (272 | ) | (93.8 | )% | N/M | |||||||||||
Noninterest income | 839 | 1,288 | 2,017 | 53.5 | 56.6 | % | |||||||||||||||
Total revenues | 904 | 1,292 | 1,745 | 42.9 | 35.1 | ||||||||||||||||
Provision for credit losses | 11 | (8 | ) | — | N/M | N/M | |||||||||||||||
Noninterest expense including depreciation and amortization | (853 | ) | (1,202 | ) | (1,812 | ) | 40.9 | 50.7 | |||||||||||||
Segment results(1) | W | 62 | W | 82 | W | (67 | ) | 32.3 | % | N/M | |||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Shinhan Bank’s Other Banking Services |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 212 | W | 182 | W | 151 | (14.2 | )% | (17.0 | )% | |||||||||||
Noninterest income | 127 | 287 | 94 | 126.0 | (67.2 | ) | |||||||||||||||
Total revenues | 339 | 469 | 245 | 38.3 | (47.8 | ) | |||||||||||||||
Provision for credit losses(1) | (109 | ) | (98 | ) | (150 | ) | (10.1 | ) | 53.1 | ||||||||||||
Noninterest expense including depreciation and amortization | (378 | ) | (458 | ) | (441 | ) | 21.2 | (3.7 | ) | ||||||||||||
Segment results(2) | W | (148 | ) | W | (87 | ) | W | (346 | ) | (41.2 | )% | 297.7 | % | ||||||||
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(1) | Includes provision for guarantees and acceptances of W(0.3) billion, W(1.0) billion and W21.0 billion in 2003, 2004 and 2005, respectively. |
(2) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Chohung Bank’s Retail Banking |
From | Year Ended | ||||||||||||||||||||
September 1 | December 31, | % Change | |||||||||||||||||||
to December 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 418 | W | 1,107 | W | 1,081 | 164.8 | % | (2.3 | )% | |||||||||||
Noninterest income | 95 | 288 | 304 | 203.2 | 5.6 | ||||||||||||||||
Total revenues | 513 | 1,395 | 1,385 | 171.9 | (0.7 | ) | |||||||||||||||
Provision for credit losses | (150 | ) | (466 | ) | (246 | ) | 210.7 | (47.2 | ) | ||||||||||||
Noninterest expense including depreciation and amortization | (333 | ) | (797 | ) | (832 | ) | 139.3 | 4.4 | |||||||||||||
Segment results(1) | W | 30 | W | 132 | W | 307 | 340.0 | % | 132.6 | % | |||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Chohung Bank’s Corporate Banking |
From | Year Ended | ||||||||||||||||||||
September 1 to | December 31, | % Change | |||||||||||||||||||
December 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 62 | W | 258 | W | 294 | 316.1 | % | 14.0 | % | |||||||||||
Noninterest income | 71 | 75 | 113 | 5.6 | 50.7 | ||||||||||||||||
Total revenues | 133 | 333 | 407 | 150.4 | 22.2 | ||||||||||||||||
Provision for credit losses(1) | (145 | ) | 12 | (111 | ) | N/M | N/M | ||||||||||||||
Noninterest expense including depreciation and amortization | (46 | ) | (160 | ) | (201 | ) | 247.8 | 25.6 | |||||||||||||
Segment results(2) | W | (58 | ) | W | 185 | W | 95 | 419.0 | % | (48.6 | )% | ||||||||||
(1) | Includes provision for guarantees and acceptances of W(35) billion in 2003, W(22) billion in 2004 and W(49) billion in 2005. |
(2) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Chohung Bank’s Treasury and International Business |
From | |||||||||||||||||||||
September 1 to | Year Ended December 31, | % Change | |||||||||||||||||||
December 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Net interest income (expense) | W | (26 | ) | W | (1 | ) | W | 45 | (96.2 | )% | N/M | ||||||||||
Noninterest income | 234 | 2,612 | 3,334 | N/M | 27.6 | % | |||||||||||||||
Total revenues | 208 | 2,611 | 3,379 | N/M | 29.5 | ||||||||||||||||
Provision for credit losses | — | 13 | 40 | N/M | 207.7 | ||||||||||||||||
Noninterest expense including depreciation and amortization | (261 | ) | (2,629 | ) | (3,445 | ) | N/M | 31.0 | |||||||||||||
Segment results(1) | W | (53 | ) | W | (5 | ) | W | (26 | ) | (90.6 | )% | N/M | |||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Chohung Bank’s Credit Card |
From | Year Ended | ||||||||||||||||||||
September 1 to | December 31, | % Change | |||||||||||||||||||
December 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 237 | W | 588 | W | 599 | 148.1 | % | 1.9 | % | |||||||||||
Noninterest income | — | 2 | 100 | N/M | N/M | ||||||||||||||||
Total revenues | 237 | 590 | 699 | 148.9 | 18.5 | ||||||||||||||||
Provision for credit losses | (199 | ) | (673 | ) | (392 | ) | 238.2 | (41.7 | ) | ||||||||||||
Noninterest expense including depreciation and amortization | (127 | ) | (237 | ) | (157 | ) | 86.6 | (33.8 | ) | ||||||||||||
Segment results(1) | W | (89 | ) | W | (320 | ) | W | 150 | 259.6 | % | N/M | ||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
Chohung Bank’s Other Banking Services |
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From | Year Ended | ||||||||||||||||||||
September 1 to | December 31, | % Change | |||||||||||||||||||
December 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income (expense) | W | (10 | ) | W | 138 | W | 53 | N/M | (61.6 | )% | |||||||||||
Noninterest income | 7 | 360 | 521 | N/M | 44.8 | ||||||||||||||||
Total revenues | (3 | ) | 498 | 574 | N/M | 15.1 | |||||||||||||||
Provision for credit losses | — | 83 | 73 | N/M | (12.0 | ) | |||||||||||||||
Noninterest expense including depreciation and amortization | (47 | ) | (306 | ) | (478 | ) | N/M | 56.2 | |||||||||||||
Segment results(1) | W | (50 | ) | W | 275 | W | 169 | N/M | (38.9 | )% | |||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Securities Brokerage Services |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 34 | W | 54 | W | 63 | 58.8 | % | 16.7 | % | |||||||||||
Noninterest income | 622 | 643 | 817 | 3.4 | 27.1 | ||||||||||||||||
Total revenues | 656 | 697 | 880 | 6.3 | 26.3 | ||||||||||||||||
Provision for credit losses | — | 5 | 4 | N/M | (20.0 | ) | |||||||||||||||
Noninterest expense including depreciation and amortization | (587 | ) | (658 | ) | (763 | ) | 12.1 | 16.0 | |||||||||||||
Segment results(1) | W | 69 | W | 44 | W | 121 | (36.2 | )% | 175.0 | % | |||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Credit Card Services of Shinhan Card |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 322 | W | 348 | W | 356 | 8.1 | % | 2.3 | % | |||||||||||
Noninterest income | — | — | 2 | N/M | N/M | ||||||||||||||||
Total revenues | 322 | 348 | 358 | 8.1 | 2.9 | ||||||||||||||||
Provision for credit losses | (236 | ) | (176 | ) | (86 | ) | (25.4 | ) | (51.1 | ) | |||||||||||
Noninterest expense including depreciation and amortization | (176 | ) | (166 | ) | (213 | ) | (5.7 | ) | 28.3 | ||||||||||||
Segment results(1) | W | (90 | ) | W | 6 | W | 59 | N/M | N/M | ||||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Other |
Year Ended December 31, | % Change | ||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Income statement data | |||||||||||||||||||||
Net interest income | W | 198 | W | 155 | W | 174 | (21.7 | )% | 12.3 | % | |||||||||||
Noninterest income | 107 | 200 | 446 | 86.9 | 123.0 | ||||||||||||||||
Total revenues | 305 | 355 | 620 | 16.4 | 74.6 | ||||||||||||||||
Provision for credit losses | 9 | (33 | ) | (22 | ) | N/M | (33.3 | ) | |||||||||||||
Noninterest expense including depreciation and amortization | (278 | ) | (312 | ) | (559 | ) | 12.2 | 79.2 | |||||||||||||
Segment results(1) | W | 36 | W | 10 | W | 39 | (72.2 | )% | 290.0 | % | |||||||||||
(1) | Net income per segment before income taxes. |
Comparison of 2005 to 2004 |
Comparison of 2004 to 2003 |
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Assets |
As of December 31, | % Change | ||||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | |||||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||||
Cash and cash equivalents | W | 1,897 | W | 2,444 | W | 2,434 | 28.8 | % | (0.4 | )% | |||||||||||||
Restricted cash | 3,662 | 3,301 | 3,644 | (9.9 | ) | 10.4 | |||||||||||||||||
Interest-bearing deposits | 409 | 220 | 627 | (46.2 | ) | 185.0 | |||||||||||||||||
Call loans and securities purchased under resale agreements | 1,898 | 1,591 | 1,499 | (16.2 | ) | (5.8 | ) | ||||||||||||||||
Trading assets: | |||||||||||||||||||||||
Trading securities | 2,857 | 4,639 | 3,573 | 62.4 | (23.0 | ) | |||||||||||||||||
Derivative assets | 520 | 1,678 | 934 | 222.7 | (44.3 | ) | |||||||||||||||||
Securities: | |||||||||||||||||||||||
Available-for-sale securities | 18,099 | 18,108 | 22,480 | 0.1 | 24.1 | ||||||||||||||||||
Held-to-maturity securities | 3,605 | 3,099 | 2,963 | (14.0 | ) | (4.4 | ) | ||||||||||||||||
Loans: | |||||||||||||||||||||||
Corporate | 54,086 | 54,622 | 57,891 | 1.0 | 6.0 | ||||||||||||||||||
Consumer | 41,209 | 42,458 | 47,957 | 3.0 | 12.9 | ||||||||||||||||||
Total loans, gross | 95,295 | 97,080 | 105,848 | 1.9 | 9.0 | ||||||||||||||||||
Deferred origination costs | 127 | 99 | 110 | (22.0 | ) | 11.1 | |||||||||||||||||
Less allowance for loan losses | 3,631 | 2,311 | 1,511 | (36.4 | ) | (34.6 | ) | ||||||||||||||||
Total loans, net | 91,791 | 94,868 | 104,447 | 3.4 | 10.1 | ||||||||||||||||||
Customers’ liability on acceptances | 2,365 | 2,012 | 1,879 | (14.9 | ) | (6.6 | ) | ||||||||||||||||
Premises and equipment, net | 2,003 | 1,848 | 1,876 | (7.7 | ) | 1.5 | |||||||||||||||||
Goodwill and intangible assets | 1,676 | 1,660 | 2,957 | (1.0 | ) | 78.1 | |||||||||||||||||
Security deposits | 966 | 968 | 1,078 | 0.2 | 11.4 | ||||||||||||||||||
Other assets | 4,601 | 7,072 | 4,724 | 53.7 | (33.2 | ) | |||||||||||||||||
Total assets | W | 136,349 | W | 143,508 | W | 155,115 | 5.3 | % | 8.1 | % | |||||||||||||
2005 Compared to 2004 |
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2004 Compared to 2003 |
Liabilities and Stockholders’ Equity |
As of December 31, | % Change | |||||||||||||||||||||
2003 | 2004 | 2005 | 2003/2004 | 2004/2005 | ||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||
Interest bearing | W | 82,161 | W | 79,934 | W | 83,278 | (2.7 | )% | 4.2 | % | ||||||||||||
Noninterest bearing | 1,328 | 2,746 | 3,143 | 106.8 | 14.5 | |||||||||||||||||
Trading liabilities | 513 | 1,758 | 1,048 | 242.7 | (40.4 | ) | ||||||||||||||||
Acceptances outstanding | 2,365 | 2,012 | 1,879 | (14.9 | ) | (6.7 | ) | |||||||||||||||
Short-term borrowings | 11,204 | 10,954 | 11,968 | (2.2 | ) | 9.3 | ||||||||||||||||
Secured borrowings | 6,316 | 6,308 | 7,502 | (0.1 | ) | 18.9 | ||||||||||||||||
Long-term debt | 21,218 | 23,617 | 26,172 | 11.3 | 10.8 | |||||||||||||||||
Future policy benefit | — | — | 4,778 | — | N/M | |||||||||||||||||
Accrued expenses and other liabilities | 6,555 | 9,713 | 7,089 | 48.2 | (27.0 | ) | ||||||||||||||||
Total liabilities | 131,660 | 137,042 | 146,857 | 4.1 | 7.2 | |||||||||||||||||
Minority interest | 583 | 66 | 80 | (88.7 | ) | 21.2 | ||||||||||||||||
Redeemable convertible preferred stock | 711 | 736 | 368 | 3.5 | (50.0 | ) | ||||||||||||||||
Stockholders’ equity | 3,395 | 5,664 | 7,810 | 66.8 | 37.9 | |||||||||||||||||
Total liabilities, minority interest and stockholders’ equity | W | 136,349 | W | 143,508 | W | 155,115 | 5.3 | % | 8.1 | % | ||||||||||||
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2005 Compared to 2004 |
2004 Compared to 2003 |
226
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As of | |||||
December 31, 2005 | |||||
(In billions of | |||||
Won) | |||||
Deposits | W | 86,421 | |||
Long-term debt(1) | 26,172 | ||||
Call money | 994 | ||||
Borrowings from the Bank of Korea | 1,668 | ||||
Other short-term borrowings | 9,306 | ||||
Asset securitizations | 7,502 | ||||
Redeemable convertible preferred stock | 368 | ||||
Stockholders’ equity | 7,810 | ||||
Total | W | 140,241 | |||
(1) | Long-term debt includes Redeemable Preferred Stock. |
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As of March 31, | ||||||||
2006 | ||||||||
S&P | Moody’s | |||||||
Shinhan Bank | A- | Baa1 | ||||||
Chohung Bank | A- | Baa1 |
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• | a request by the government for credit card companies to effect capital increase in the aggregate amount of W4.6 trillion, as part of their self-rescue efforts; | |
• | banks and other financial institutions agreeing with each other to extend the maturity of all debt securities of credit card companies that they hold; | |
• | asset management companies agreeing with each other to extend the maturity of 50% of the aggregate amount of the debt securities of credit card companies that they hold which are schedule to mature by June 2003; and | |
• | with respect to the remaining 50% of such credit card company debt securities, banks and other financial institutions agreeing with each other to contribute an aggregate amount of W5.6 trillion to purchase such debt securities from asset management companies. |
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Contractual cash obligations |
December 31, 2005 | |||||||||||||||||||||
Payments Due by Period | |||||||||||||||||||||
Up to | Between 1 | Between 3 | Beyond | ||||||||||||||||||
1 Year | and 3 Years | and 5 Years | 5 Years | Total | |||||||||||||||||
(In billions of Won) | |||||||||||||||||||||
Long-term debt(1) | W | 5,663 | W | 13,442 | W | 2,600 | W | 4,561 | W | 26,266 | |||||||||||
Lease obligations | 8 | — | — | — | 8 | ||||||||||||||||
Secured borrowings | 4,182 | 2,528 | 792 | — | 7,502 | ||||||||||||||||
Provisions for accrued severance indemnities(2) | 13 | 6 | 8 | 50 | 77 | ||||||||||||||||
Deposits(3) | 41,091 | 6,089 | 1,606 | 352 | 49,138 | ||||||||||||||||
Total | W | 50,957 | W | 22,065 | W | 5,006 | W | 4,963 | W | 82,991 | |||||||||||
(1) | Long-term debt includes senior debt, subordinated debt and Redeemable Preferred Stock. |
(2) | In accordance with our policy and the Korean Labor Standard Law, employees with one year or more of service are entitled, upon termination of employment, to receive a lump sum severance payment based upon the length of their service and the average of the last three months’ wages. We make provisions for accrued severance indemnities based upon the assumption that all employees terminate their employment with us at the same time. |
(3) | Deposits include certificate of deposits, other time deposits and mutual installment deposits. |
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Commitments and Guarantees |
As of December 31, 2005 | |||||||||||||||||
Commitment Expiration by Period | |||||||||||||||||
Up to | Between 1 | Beyond | |||||||||||||||
1 Year | and 5 Years | 5 Years | Total | ||||||||||||||
(In billions of Won) | |||||||||||||||||
Commitments to extend credit: | |||||||||||||||||
Corporate | W | 43,313 | W | 2,357 | W | 666 | W | 46,336 | |||||||||
Credit card lines(1) | 8,430 | 7,507 | 143 | 16,080 | |||||||||||||
Consumer(2) | 5,644 | 218 | 1 | 5,863 | |||||||||||||
Commercial letters of credit(3) | 2,759 | 190 | 11 | 2,960 | |||||||||||||
Financial Standby letters of credit | 227 | 29 | — | 256 | |||||||||||||
Other Financial guarantees | 697 | 168 | 2 | 867 | |||||||||||||
Performance letters of credit and guarantees | 743 | 111 | 141 | 995 | |||||||||||||
Liquidity facilities to SPEs | 522 | 1,765 | 199 | 2,486 | |||||||||||||
Acceptances | 1,879 | — | — | 1,879 | |||||||||||||
Loans sold with recourse | — | — | 14 | 14 | |||||||||||||
Guarantee on trust accounts | 315 | 312 | 2,462 | 3,089 | |||||||||||||
Total | W | 64,529 | W | 12,657 | W | 3,639 | W | 80,825 | |||||||||
(1) | Relates to the unused portion of credit card limits that may be cancelled by us after notice to the borrower if we determine that the borrower’s repayment ability is significantly impaired. |
(2) | Excludes credit cards. |
(3) | These are generally short-term and collateralized by the underlying shipments of goods to which they relate. |
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• | Trading and investment securities; | |
• | Deferred taxation; | |
• | Guarantees and acceptances (including allowances for losses); and | |
• | Provision for loan loss allowances. |
Consolidated Income Statement Data |
Year Ended December 31, | ||||||||||||||||||||||||
2003(2) | 2004(2) | 2005(2) | 2005(2)(3) | |||||||||||||||||||||
2001(1) | 2002(2) | |||||||||||||||||||||||
Shinhan | Shinhan | Shinhan | Shinhan | |||||||||||||||||||||
Shinhan | Shinhan | Financial | Financial | Financial | Financial | |||||||||||||||||||
Bank | Bank | Group | Group | Group | Group | |||||||||||||||||||
(In billions of Won and millions of US$, except per share data) | ||||||||||||||||||||||||
Interest income | W | 3,607 | W | 3,646 | W | 4,996 | W | 7,016 | W | 7,885 | $ | 7,807 | ||||||||||||
Interest expense | 2,542 | 2,352 | 2,997 | 3,986 | 3,842 | 3,804 | ||||||||||||||||||
Net interest income | 1,065 | 1,294 | 1,999 | 3,030 | 4,043 | 4,003 | ||||||||||||||||||
Provision for credit losses | 510 | 193 | 1,150 | 1,317 | 667 | 661 | ||||||||||||||||||
Net interest income after provision for credit losses | 555 | 1,101 | 849 | 1,713 | 3,376 | 3,342 | ||||||||||||||||||
Noninterest revenue(4) | 1,206 | 2,284 | 3,076 | 7,327 | 7,626 | 7,551 | ||||||||||||||||||
Noninterest expenses(5) | 1,309 | 2,446 | 3,139 | 7,570 | 9,226 | 9,134 | ||||||||||||||||||
Operating income | 452 | 939 | 786 | 1,470 | 1,776 | 1,759 | ||||||||||||||||||
Non-operating income (loss), net | 44 | (86 | ) | (155 | ) | (136 | ) | 235 | 233 | |||||||||||||||
Net income before income tax Expense | 496 | 853 | 631 | 1,334 | 2,011 | 1,992 | ||||||||||||||||||
Income tax expenses | 149 | 255 | 254 | 213 | 264 | 261 | ||||||||||||||||||
Net income before consolidation Adjustment | 347 | 598 | 377 | 1,121 | 1,747 | 1,731 | ||||||||||||||||||
Minority interest in loss (earnings) of consolidated subsidiaries | — | 4 | (14 | ) | (71 | ) | (16 | ) | (15 | ) | ||||||||||||||
Net income | W | 347 | W | 602 | W | 363 | W | 1,050 | W | 1,732 | $ | 1,716 | ||||||||||||
Per common share data (in currency unit): | ||||||||||||||||||||||||
Earnings per share-basic | W | 1,365 | W | 2,294 | W | 1,022 | W | 3,197 | W | 4,874 | $ | 4.83 | ||||||||||||
Earnings per share-diluted | 1,160 | — | 1,063 | 2,820 | 4,591 | 4.55 | ||||||||||||||||||
Cash dividends per common share | 1,000 | 600 | 600 | 750 | 800 | 0.79 |
(1) | Represents the consolidated income statement of Shinhan Bank for the periods indicated. |
(2) | Represents the consolidated income statement of Shinhan Financial Group for the periods indicated. |
(3) | Won amounts are expressed in U.S. dollars at the rate of W1,010.00 per US$1.00, the noon buying rate in effect on December 31, 2005 as quoted by the Federal Reserve Bank of New York in the United States. |
(4) | Noninterest revenue includes fees & commissions income, dividends on securities, gains on security valuations and disposals, gains on foreign currency transaction and gains from derivative transactions. |
(5) | Noninterest expense is composed of fees & commissions paid or payable, general and administrative expenses, losses on securities valuations and disposals, losses on foreign currency transactions and losses from derivative transactions. |
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Consolidated Balance Sheet Data |
Year Ended December 31, | ||||||||||||||||||||||||
2003(1) | 2004(2) | 2005(2) | 2005(2)(3) | |||||||||||||||||||||
2001(1) | 2002(1) | |||||||||||||||||||||||
Shinhan | Shinhan | Shinhan | Shinhan | |||||||||||||||||||||
Shinhan | Shinhan | Financial | Financial | Financial | Financial | |||||||||||||||||||
Bank | Bank | Group | Group | Group | Group | |||||||||||||||||||
(In billions of Won and millions of US$) | ||||||||||||||||||||||||
Cash and due from banks | W | 2,144 | W | 2,817 | W | 6,418 | W | 6,713 | W | 8,476 | $ | 8,392 | ||||||||||||
Loans(4) | 35,382 | 46,030 | 97,757 | 99,116 | 108,390 | 106,713 | ||||||||||||||||||
Less allowance for doubtful accounts(5) | (602 | ) | (786 | ) | (2,836 | ) | (1,917 | ) | (1,741 | ) | (1,724 | ) | ||||||||||||
Trading securities | 2,042 | 2,076 | 4,877 | 7,065 | 5,496 | 5,441 | ||||||||||||||||||
Investment securities | 13,403 | 13,408 | 23,127 | 20,785 | 24,746 | 24,501 | ||||||||||||||||||
Premises and equipments(6) | 604 | 1,101 | 2,854 | 2,922 | 3,491 | 3,463 | ||||||||||||||||||
Other assets(7) | 2,590 | 2,122 | 7,024 | 12,147 | 12,079 | 12,556 | ||||||||||||||||||
Total assets | 55,563 | 66,768 | 139,221 | 146,831 | 160,937 | 159,342 | ||||||||||||||||||
Deposits | 34,217 | 38,722 | 87,593 | 87,528 | 91,521 | 90,615 | ||||||||||||||||||
Borrowings(8) | 9,674 | 11,352 | 17,209 | 14,895 | 15,916 | 15,759 | ||||||||||||||||||
Debentures | 3,513 | 8,395 | 17,748 | 20,114 | 22,840 | 22,614 | ||||||||||||||||||
Other liabilities(9) | 4,988 | 4,337 | 10,552 | 16,459 | 20,408 | 20,206 | ||||||||||||||||||
Total liabilities | 52,392 | 62,806 | 133,102 | 138,996 | 150,685 | 149,194 | ||||||||||||||||||
Minority interests in consolidated subsidiaries | — | 321 | 596 | 88 | 115 | 114 | ||||||||||||||||||
Stockholders’ equity | 3,171 | 3,641 | 5,523 | 7,747 | 10,137 | 10,037 | ||||||||||||||||||
Total liabilities, minority interest and stockholders’ Equity | W | 55,563 | W | 66,768 | W | 139,221 | W | 146,831 | W | 160,937 | $ | 159,345 | ||||||||||||
(1) | Represents the consolidated balance sheet data of Shinhan Bank as of the dates indicated. |
(2) | Represents the consolidated balance sheet data of Shinhan Financial Group as of the dates indicated. The balance sheet as of December 31, 2003 include restatements to retroactively apply the adoption of SKAS No. 15,Equity Method of Accounting, and prior period adjustments that were not material. |
(3) | Won amounts are expressed in U.S. dollars at the rate of W1,010.00 per US$1.00, noon buying rate in effect on December 31, 2005 as quoted by the Federal Reserve Bank of New York in the United States. |
(4) | Loans represent the gross amount of loans, before adjustment for the allowance for loan losses. Accrued interest income is included within other assets. The amount of credit card loans was W2,093 billion, W2,796 billion, W4,931 billion, W4,248 billion and W3,861 billion in 2001, 2002, 2003, 2004 and 2005 respectively. The amount of payment in guarantees was W39 billion, W90 billion, W108 billion, W31 billion and W70 billion in 2001, 2002, 2003, 2004 and 2005, respectively. The amount of bonds purchased under the resale agreement was W7 billion , W0 billion, W470 billion, W160 billion and W140 billion in 2001, 2002, 2003, 2004 and 2005, respectively. |
(5) | Pursuant to the regulations promulgated by the Financial Supervisory Commission, loans are classified as normal, precautionary, substandard, doubtful or estimated loss, and the allowance for loan losses is determined by applying a percentage within a certain range to those classifications. |
(6) | Accumulated depreciation is recorded as a deduction from premises and equipment. |
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(7) | Other assets include leasehold deposits, accounts receivables, accrued interest income, prepaid expenses and unsettled debit of domestic exchange (which represents outstanding balances due from other banks generated in the process of fund settlements of domestic exchange, such as checks, bills, drafts, remittance exchange, ATM use and credit card network). Leasehold deposits are recorded as other assets on the balance sheet. |
(8) | Borrowings consist mainly of borrowings from Bank of Korea, the Korean government and banking institutions. |
(9) | Under Korean GAAP, contingent losses with respect to guarantees and acceptances are recognized by applying the same classification methods and provision percentages used in determining the allowance for loan losses. Previously, provisions were only applied to acceptances and guarantees classified as substandard, doubtful and estimated loss. Effective in 2005, provisions are applied to all acceptances and guarantees, including those classified as normal and precautionary as well as those classified as substandard or below. The amounts of provisions as of December 31, 2001, 2002, 2003, 2004 and 2005 were W13 billion, W4 billion, W57 billion, W37 billion and W60 billion, respectively. These amounts are included in other liabilities. |
Profitability Ratios |
Year Ended December 31, | ||||||||||||||||||||||
2002(1) | 2003(2) | 2004(2) | 2005(2) | |||||||||||||||||||
2001(1) | ||||||||||||||||||||||
Shinhan | Shinhan | Shinhan | Shinhan | |||||||||||||||||||
Shinhan | Financial | Financial | Financial | Financial | ||||||||||||||||||
Bank | Group | Group | Group | Group | ||||||||||||||||||
(Percentages) | ||||||||||||||||||||||
Net income as a percentage of: | ||||||||||||||||||||||
Average total assets(3) | 0.67 | % | 0.91 | % | 0.37 | % | 0.72 | % | 1.04 | % | ||||||||||||
Average stockholders’ equity(3): | ||||||||||||||||||||||
Common shares only | 11.76 | 17.12 | 9.97 | 14.52 | 20.10 | |||||||||||||||||
Including redeemable preferred shares(4) | 11.21 | N/A | 8.42 | 14.08 | 19.93 | |||||||||||||||||
Dividend payout ratio(5) | 43.45 | 26.15 | 66.34 | 22.16 | 16.05 | |||||||||||||||||
Net interest spread(6) | 1.67 | 1.63 | 2.25 | 2.09 | 2.60 | |||||||||||||||||
Net interest margin(7) | 2.15 | 2.08 | 2.30 | 2.28 | 2.74 | |||||||||||||||||
Efficiency ratio(8) | 57.65 | 68.38 | 61.85 | 73.09 | 79.06 | |||||||||||||||||
Cost-to average assets ratio(9) | 2.50 | 3.67 | 3.19 | 5.18 | 5.52 | |||||||||||||||||
Equity to average asset ratio(10): | 5.91 | 5.27 | 4.38 | 5.10 | 5.20 | |||||||||||||||||
Common shares only | 5.63 | 5.27 | 3.70 | 4.95 | 5.15 | |||||||||||||||||
Including redeemable preferred shares(4) | 5.91 | N/A | 4.38 | 5.10 | 5.20 |
(1) | Represents the profitability ratios of Shinhan Bank for the periods indicated. | |
(2) | Represents the profitability ratios of Shinhan Financial Group for the periods indicated. | |
(3) | Average balances are based on (a) daily balances for Shinhan Bank, Chohung Bank and Jeju Bank and (b) quarterly balances for other subsidiaries. | |
(4) | In 2000 and 2001, Shinhan Bank had W292.5 billion of Redeemable Preferred Stock outstanding that it had issued to the Korea Deposit Insurance Corporation in connection with its acquisition of the assets |
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and liabilities of Dongwha Bank, one of the failed banks in Korea, in 1998. All of these Redeemable Preferred Stock were redeemed in 2001. As consideration for our acquisition of Chohung Bank, in August 2003, we issued to the Korea Deposit Insurance Corporation (i) 46,583,961 shares of our Redeemable Preferred Stock, with an aggregate redemption price of W842,517,518,646 and (ii) 44,720,603 shares of our Redeemable Convertible Preferred Stock, with an aggregate redemption price of W808,816,825,858, which were convertible into shares of our common stock. In November 2005, Korea Deposit Insurance Corporation converted 22,360,302 shares of our Redeemable Convertible Preferred Stock into 22,360,302 shares of our common stock, representing 6.22% of our total issued shares (or 5.86% of our total issued common stock on a fully diluted basis). In April 2006, Korea Deposit Insurance Corporation sold to BNP Paribas S.A. and other institutional investors all of our common shares held by it. As of the date hereof, Korea Deposit Insurance Corporation does not hold any share of our common stock but still holds 22,360,301 shares of Redeemable Convertible Preferred Stock, representing 6.22% of the total issued shares (or 5.86% of the total issued shares on a fully diluted basis) of our common stock. Korea Deposit Insurance Corporation is entitled to convert such shares into our common stock beginning in August 2006. Pursuant to the terms of the Redeemable Preferred Stock issued to Korea Deposit Insurance Corporation, we are required to redeem such shares in five equal annual installments commencing three years from the date of issuance. These Redeemable Preferred Stock are treated as debt under U.S. GAAP. Pursuant to the terms of our Redeemable Convertible Preferred Stock, we are required to redeem the full amount of such shares outstanding five years from the date of issuance to the extent not converted into our common shares. Each share of our Redeemable Convertible Preferred Stock is convertible into one share of our common stock. The dividend ratios on our Redeemable Preferred Stock and Redeemable Convertible Preferred Stock are 4.04% and 2.02%, respectively. In August 2003, we also raised W900 billion in cash through the issuance of 6,000,000 shares of Redeemable Preferred Stock, all of which were sold in the domestic fixed-income market through Strider Securitization Specialty Co., Ltd., a special purpose vehicle. These redeemable preferred shares have terms that are different from the redeemable preferred shares issued to Korea Deposit Insurance Corporation. We are required to redeem these preferred shares issued to the special purpose vehicle in three installments in 2006, 2008 and 2010. See “Item 4. Information on the Company — The Merger of Shinhan Bank and Chohung Bank — Liquidity and Capital Resources” and “Item 10. Additional Information — Articles of Incorporation — Description of Capital Stock — Description of Redeemable Preferred Stock”. | ||
(5) | The dividend payout ratio represents the ratio of total dividends paid on common stock as a percentage of net income attributable to common stock. | |
(6) | Net interest spread represents the difference between the yield on average interest earning assets and cost of average interest bearing liabilities. | |
(7) | Net interest margin represents the ratio of net interest income to average interest earning assets. |
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(8) | Efficiency ratio represents the ratio of noninterest expense to the sum of net interest income and noninterest income, a measure of efficiency for banks and financial institutions. Efficiency ratio may be reconciled to comparable line-items in our income statement for the periods indicated as follows: |
Year Ended December 31, | |||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
Shinhan | Shinhan | Shinhan | Shinhan | ||||||||||||||||||
Shinhan | Financial | Financial | Financial | Financial | |||||||||||||||||
Bank | Group | Group | Group | Group | |||||||||||||||||
(In billions of Won, except percentages) | |||||||||||||||||||||
Non-interest expense(A) | W | 1,309 | W | 2,446 | W | 3,139 | W | 7,570 | W | 9,226 | |||||||||||
Divided by | |||||||||||||||||||||
The sum of net interest income and noninterest income(B) | 2,271 | 3,578 | 5,075 | 10,357 | 11,669 | ||||||||||||||||
Net interest income | 1,065 | 1,294 | 1,999 | 3,030 | 4,043 | ||||||||||||||||
Noninterest revenue | 1,206 | 2,284 | 3,076 | 7,327 | 7,626 | ||||||||||||||||
Efficiency ratio ((A) as a percentage of(B)) | 57.64 | % | 68.36 | % | 61.85 | % | 73.09 | % | 79.06 | % |
(9) | Cost-to-average-assets ratio, a measure of cost of funding used by banks and financial institutions, represents the ratio of noninterest expense to average total assets. |
(10) | Equity to average asset ratio represents the ratio of average stockholders’ equity to average total assets |
Capital Ratios |
As of or for the Year Ended December 31, | |||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
(Percentages) | |||||||||||||||||||||
Requisite capital ratio(1) | 134.43 | % | 130.93 | % | 118.41 | % | 129.41 | % | 132.81 | % | |||||||||||
Total capital adequacy (BIS) ratio of Shinhan Bank(2) | 11.99 | 10.92 | 10.49 | 11.94 | 12.23 | ||||||||||||||||
Tier I(2) | 8.24 | 6.81 | 6.34 | 7.45 | 8.16 | ||||||||||||||||
Tier II(2) | 3.75 | 4.11 | 4.15 | 4.49 | 4.07 | ||||||||||||||||
Total capital adequacy (BIS) ratio of Chohung Bank(2) | 10.43 | 8.66 | 8.87 | 9.40 | 10.94 | ||||||||||||||||
Tier I(2) | 5.91 | 4.61 | 4.47 | 4.99 | 6.52 | ||||||||||||||||
Tier II(2) | 4.52 | 4.05 | 4.40 | 4.41 | 4.42 | ||||||||||||||||
Adjusted equity capital ratio of Shinhan Card(3) | N/A | 10.86 | 13.78 | 16.48 | 17.68 |
(1) | We were restructured as a financial holding company on September 1, 2001 and became subject to minimum capital requirements as reflected in the requisite capital ratio. Under the guidelines issued by the Financial Supervisory Commission applicable to financial holding companies, We, at the holding company level, are required to maintain a minimum requisite capital ratio of 100%. Requisite capital ratio represents the ratio of net aggregate amount of our equity capital to aggregate amounts of requisite capital. This computation is based on our consolidated financial statement in accordance with Korean GAAP. See “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy”. |
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(2) | Shinhan Bank comprised 47.83% of our total assets and Chohung Bank comprised 41.53% of our total assets as of December 31, 2005. The capital adequacy ratios of Shinhan Bank and Chohung Bank are computed in accordance with the guidelines issued by the Financial Supervisory Commission, which was revised as of December 31, 2002 to take into account market risk as well as credit risk. For Shinhan Bank, the capital ratios as of December 31, 2001 were recalculated using these revised guidelines. For Chohung Bank, the capital ratios as of December 31, 2002 were calculated using these revised guidelines but the capital ratios as of December 31, 2001 do not reflect the revised guidelines. Under the guidelines of the Financial Supervisory Commission, each of Shinhan Bank and Chohung Bank is required to maintain a minimum capital adequacy ratio of 8%. This computation is based on consolidated financial statements prepared in accordance with Korean GAAP of Shinhan Bank and Chohung Bank, as the case may be. See “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Banks — Capital Adequacy.” |
(3) | Represents the ratio of total adjusted stockholders’ equity to total adjusted assets and is computed in accordance with the guidelines issued by the Financial Supervisory Service for credit card companies. Under these guidelines, Shinhan Card is required to maintain a minimum adjusted equity capital ratio of 8%. This computation is based on Shinhan Card’s nonconsolidated financial statements prepared in accordance with Korean GAAP. |
Asset Quality Ratios |
As of December 31, | ||||||||||||||||||||
2001(1) | 2002(1) | 2003(2) | 2004(2) | 2005(2) | ||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||
Substandard and below loans(3) | W | 540 | W | 843 | W | 3,207 | W | 1,660 | W | 1,195 | ||||||||||
Substandard and below loans as a percentage of total loans | 1.52 | % | 1.83 | % | 3.37 | % | 1.70 | % | 1.09 | % | ||||||||||
Substandard and below loans as a percentage of total assets | 0.97 | 1.26 | 2.30 | 1.13 | 0.74 | |||||||||||||||
Precautionary loans as a percentage of total loans(4) | 2.74 | 1.72 | 3.55 | 3.18 | 2.75 | |||||||||||||||
Precautionary and below loans as a percentage of total loans(4) | 5.17 | 3.55 | 6.92 | 4.88 | 3.84 | |||||||||||||||
Precautionary and below loans as a percentage of total assets(4) | 3.30 | 2.45 | 4.73 | 3.25 | 2.61 | |||||||||||||||
Allowance for loan losses as a percentage of substandard and below loans | 81.01 | 35.25 | 85.85 | 112.63 | 143.43 | |||||||||||||||
Allowance for loan losses as a percentage of precautionary and below loans(4) | 22.51 | 25.38 | 41.80 | 39.21 | 40.75 | |||||||||||||||
Allowance for loan losses as a percentage of total loans | 1.74 | 1.71 | 2.89 | 1.91 | 1.57 | |||||||||||||||
Substandard and below credits as a percentage of total credits(5) | 1.44 | 1.00 | 3.57 | 1.66 | 1.07 | |||||||||||||||
Loans in Korean Won as a percentage of deposits in Korean Won(6) | 83.36 | 96.35 | 99.37 | 99.30 | 107.79 |
(1) | Represents the asset quality ratios of Shinhan Bank as of the dates indicated. |
(2) | Represents the asset quality ratios of Shinhan Financial Group as of the dates indicated. |
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(3) | Substandard and below loans are defined in accordance with regulatory guidance in Korea, except excludes loans provided from Shinhan Bank’s trust accounts and confirmed guarantees and acceptances (including bills purchased and privately placed debentures). In 1999, as well as classifying credit quality into five categories, which are normal, precautionary, substandard, doubtful and estimated loss, in accordance with standards defined by the Financial Supervisory Commission, we also took into account the repayment capability of borrowers. See “Item 4. Information on the Company — Supervision and Regulation — Principal Regulations Applicable to Banks”. |
(4) | As defined by the Financial Supervisory Commission. |
(5) | Credits include loans provided from our trust accounts (including bills purchased and privately placed debentures) and confirmed guarantees and acceptances, as well as the total loan portfolio of the banking accounts. |
(6) | Under Korean GAAP, loans in Korean Won do not include bills bought in Won, advances for customers, credit card accounts, bonds purchased under resale agreements, call loans, private placement corporate bonds and loans in restructurings that have been swapped for equity in the restructured borrower. |
The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments |
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Share-Based Compensation |
Accounting for Exchange of Nonmonetary Assets |
Accounting Changes and Error Corrections |
Accounting for Certain Hybrid Financial Instruments |
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Accounting for Servicing of Financial Assets |
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2005 | ||||||
(In millions of Won) | ||||||
U.S. GAAP net income | W | 1,738,768 | ||||
1. Provision for credit losses | (804,030 | ) | ||||
2. Sale of loans to the Korea Asset Management Corporation | 3,374 | |||||
3. Deferred loan fees and costs | (14,676 | ) | ||||
4. Securities and derivatives for hedging purposes | ||||||
a. Changes in foreign exchange rates on available-for-sale securities | (28,768 | ) | ||||
b. Impairment loss and reclassification of securities | (43,291 | ) | ||||
c. Reversal of hedge accounting treatment for derivatives | 65,813 | |||||
5. Stock based compensation | 2,067 | |||||
6. Formation of Shinhan Financial Group | — | |||||
7. Foreign currency translation | (3,623 | ) | ||||
8. Derecognition and amortization and impairment of goodwill | (94,461 | ) | ||||
9. Sale of Shinhan Securities | — | |||||
10. Negative goodwill | 685 | |||||
11. Amortization of intangible assets | 181,583 | |||||
12. Recognition of minority interest | (565 | ) | ||||
13. Reversal of asset revaluation | (37,773 | ) | ||||
14. Adjustments for Redeemable (Convertible) Preferred Stock | 128,606 | |||||
15. Sale-leaseback | (14,163 | ) | ||||
16. Fair valuation of long-term debt and bonds | (30,363 | ) | ||||
17. Conforming depreciation accounting policy | (24,589 | ) | ||||
18. Measurement of common stock issued for acquisition of subsidiaries | — | |||||
19. Others | 54,083 | |||||
Total of adjustments | (660,091 | ) | ||||
Tax effect of adjustments | 653,390 | |||||
Korean GAAP net income | W | 1,732,067 | ||||
U.S. GAAP stockholders’ equity | W | 7,810,784 | ||||
1. Provision for credit losses | (1,421,664 | ) | ||||
2. Sale of loans to the Korea Asset Management Corporation | (38,830 | ) | ||||
3. Deferred loan fees and costs | (43,557 | ) | ||||
4. Securities and derivatives for hedging purposes | ||||||
a. Changes in foreign exchange rates on available-for-sale securities | — | |||||
b. Impairment loss and reclassification of securities | 1,263,524 | |||||
c. Reversal of hedge accounting treatment for derivatives | 117,079 |
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2005 | |||||
(In millions of Won) | |||||
5. Stock based compensation | (31,981 | ) | |||
6. Formation of Shinhan Financial Group | (43,053 | ) | |||
7. Foreign currency translation | (4,070 | ) | |||
8. Derecognition and amortization and impairment of goodwill | (110,190 | ) | |||
9. Sale of Shinhan Securities | (10,642 | ) | |||
10. Negative goodwill | 76,615 | ||||
11. Amortization of intangible assets | 462,171 | ||||
12. Recognition of minority interest | 79,758 | ||||
13. Reversal of asset revaluation | 76,614 | ||||
14. Adjustments for Redeemable (Convertible) Preferred Stock | 1,597,957 | ||||
15. Sale-leaseback | 7,356 | ||||
16. Fair valuation of long-term debt and bonds | (101,263 | ) | |||
17. Conforming depreciation accounting policy | (22,028 | ) | |||
18. Measurement of common stock issued for acquisition of subsidiaries | 137,738 | ||||
19. Others | (77,806 | ) | |||
Total of adjustments | 1,913,728 | ||||
Tax effect of adjustments | 527,214 | ||||
Korean GAAP stockholders’ equity | W | 10,251,726 | |||
Shinhan Bank | Chohung Bank | |||||||||||||||
Corporate | Consumer | Corporate | Consumer | |||||||||||||
(Percentage) | (Percentage) | |||||||||||||||
Normal | 0.20 - 2.0 | 0.75 | 0.5 | 0.75 | ||||||||||||
Precautionary | 4.0 | 8.0 | 2.0 | 8.0 | ||||||||||||
Substandard | 20.0 | 20.0 | 20.0 | 20.0 | ||||||||||||
Doubtful | 95.0 | 55.0 | 95.0 | 55.0 | ||||||||||||
Estimated Loss | 100.0 | 100.0 | 100.0 | 100.0 |
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ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Name | Age | Position | Director Since | Date Term Ends | ||||||||||
Eung Chan Ra | 68 | Chairman of the Board of Directors and Head of Board Steering Committee | September 1, 2001 | March 25, 2007 | ||||||||||
In Ho Lee | 63 | President and Chief Executive Officer and a member of the Board Steering Committee | September 1, 2001 | March 25, 2007 | ||||||||||
Young Hwi Choi | 61 | Executive Director | March 31, 2003 | March 25, 2007 |
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Name | Age | Position | Director Since | Date Term Ends(1) | ||||||||||||
Young Seok Choi | 77 | Non-Executive Director | March 31, 2003 | March 25, 2007 | ||||||||||||
Yong Woong Yang | 58 | Non-Executive Director | March 25, 2004 | March 25, 2007 | ||||||||||||
Il Sup Kim | 60 | Outside Director | March 31, 2003 | March 21, 2007 | ||||||||||||
Sang Yoon Lee | 64 | Outside Director | March 25, 2004 | March 21, 2007 | ||||||||||||
Yoon Soo Yoon | 61 | Outside Director | March 25, 2004 | March 21, 2007 | ||||||||||||
Shee Yul Ryoo | 67 | Outside Director | March 30, 2005 | March 21, 2007 | ||||||||||||
Byung Hun Park | 78 | Outside Director | September 1, 2001 | March 21, 2007 | ||||||||||||
Young Hoon Choi | 77 | Outside Director | March 30, 2005 | March 21, 2007 | ||||||||||||
Si Jong Kim | 69 | Outside Director | March 30, 2005 | March 21, 2007 | ||||||||||||
Philippe Reynieix | 57 | Outside Director | March 25, 2004 | March 21, 2007 | ||||||||||||
Haeng Nam Chung | 64 | Outside Director | March 21, 2006 | March 21, 2007 | ||||||||||||
Myoung Soo Choi | 48 | Outside Director | March 21, 2006 | March 21, 2007 |
(1) | The date on which each term will end will be the date of the general stockholders’ meeting in the relevant year. |
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Name | Age | Position | ||||
Jae Woo Lee | 55 | Chief Operating Officer; Managing Director of General Affairs Team, Public Relations Team, Human Resources Team | ||||
Byung Jae Cho | 54 | Chief Financial Officer; Managing Director of Finance Planning Team, Risk Management Team, Investor Relations Team | ||||
Jin Won Suh | 54 | Chief Strategy Officer; Managing Director of Strategic Planning Team, Future Strategy & Management Team, Information & Technology Planning Team | ||||
Jae Woon Yoon | 54 | Group Synergy Officer; Managing Director of Joint Procurement Team, Synergy Management Team, Audit & Compliance Team |
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Majority of Independent Directors on the Board |
Executive Sessions |
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Nominating and Corporate Governance Committee |
Compensation Committee |
Establish Corporate Governance Guidelines and Adopt Code of Business Conduct and Ethics |
Shareholder Approval of Equity Compensation Plans |
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Annual Certification of Compliance |
• | the Board Steering Committee; | |
• | the Risk Management Committee; | |
• | the Audit Committee |
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• | the Outside Director Recommendation Committee; and | |
• | the Compensation Committee. |
Board Steering Committee |
Risk Management Committee |
Audit Committee |
Outside Director Recommendation Committee |
Compensation Committee |
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Exercise Period | Number of | Percentage | Number of | |||||||||||||||||||||||||
Exercise | Granted | of Shares | Exercised | |||||||||||||||||||||||||
Name and Position | Grant Date | From | To | Price | Options | Outstanding | Options | |||||||||||||||||||||
(In Won) | (Percentage) | |||||||||||||||||||||||||||
Shinhan Financial Group | ||||||||||||||||||||||||||||
Eung Chan Ra (Chairman of Board of Directors) | 5/22/2002 | 5/23/2004 | 5/22/2008 | W18,910 | 94,416 | 0.03 | % | — | ||||||||||||||||||||
5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 95,390 | 0.03 | — | ||||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 100,000 | 0.03 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 100,000 | 0.03 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 120,000 | 0.03 | — | ||||||||||||||||||||||
In Ho Lee (President & CEO) | 5/22/2002 | 5/23/2004 | 5/22/2008 | 18,910 | 32,162 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 186,500 | 0.05 | — | ||||||||||||||||||||||
Young Hwi Choi (Executive Director) | 5/22/2002 | 5/23/2004 | 5/22/2008 | 18,910 | 47,208 | 0.02 | 47,208 | |||||||||||||||||||||
5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 85,851 | 0.03 | 85,851 | ||||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 90,000 | 0.03 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 90,000 | 0.03 | — | ||||||||||||||||||||||
Il Sup Kim (Outside Director) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 10,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 10,000 | 0.00 | — | ||||||||||||||||||||||
Sang Yoon Lee (Outside Director) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 10,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 10,000 | 0.00 | — | ||||||||||||||||||||||
Yoon Soo Yoon (Outside Director) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 10,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 10,000 | 0.00 | — | ||||||||||||||||||||||
Shee Yul Ryoo (Outside Director) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 10,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 10,000 | 0.00 | — | ||||||||||||||||||||||
Jae Woo Lee (Chief Operating Officer) | 5/22/2002 | 5/23/2004 | 5/22/2008 | 18,910 | 18,873 | 0.01 | — | |||||||||||||||||||||
5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 19,290 | 0.01 | — | ||||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 24,000 | 0.01 | — | ||||||||||||||||||||||
Byung Jae Cho (Chief Financial Officer) | 3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 24,000 | 0.01 | — |
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Exercise Period | Number of | Percentage | Number of | |||||||||||||||||||||||||
Exercise | Granted | of Shares | Exercised | |||||||||||||||||||||||||
Name and Position | Grant Date | From | To | Price | Options | Outstanding | Options | |||||||||||||||||||||
(In Won) | (Percentage) | |||||||||||||||||||||||||||
Jin Won Suh (Chief Strategy Officer) | 3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Jae Woon Yoon (Group Synergy Officer) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | |||||||||||||||||||||
Shinhan Bank | ||||||||||||||||||||||||||||
Sang Hoon Shin (President & CEO) | 5/22/2002 | 5/23/2004 | 5/22/2008 | 18,910 | 28,325 | 0.01 | — | |||||||||||||||||||||
5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 77,160 | 0.03 | — | ||||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 80,000 | 0.03 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 80,000 | 0.03 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 88,000 | 0.02 | — | ||||||||||||||||||||||
Jae Ho Cho (Director & Standing Auditor) | 3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Hong Hee Chae (Deputy President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Baek Soon Lee (Deputy President) | 3/25/2004 | 3/25/2006 | 5/15/2009 | 21,595 | 20,000 | 0.00 | — | |||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/25/2009 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/29/2012 | 38,829 | 24,000 | 0.01 | — | ||||||||||||||||||||||
Sang Young Oh (Deputy President) | 3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 15,000 | 0.01 | — | |||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Hyu Won Lee (Deputy President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Sang Woon Choi (Deputy President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Eun Sik Kim (Deputy President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | �� | ||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Chang Sung Moon (Deputy President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 20,000 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | ||||||||||||||||||||||
Won Suk Choi (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | |||||||||||||||||||||
Shin Sung Kang (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | |||||||||||||||||||||
Yoon Suk Gong (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 22,000 | 0.01 | — | |||||||||||||||||||||
Nam Lee (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 20,000 | 0.01 | — | |||||||||||||||||||||
Chang Ki Huh (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 20,000 | 0.01 | — | |||||||||||||||||||||
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Exercise Period | Number of | Percentage | Number of | |||||||||||||||||||||||||
Exercise | Granted | of Shares | Exercised | |||||||||||||||||||||||||
Name and Position | Grant Date | From | To | Price | Options | Outstanding | Options | |||||||||||||||||||||
(In Won) | (Percentage) | |||||||||||||||||||||||||||
Good Morning Shinhan Securities | ||||||||||||||||||||||||||||
Woo Keun Lee (Representative Director and Vice Chairman) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 40,000 | 0.01 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 40,000 | 0.01 | — | ||||||||||||||||||||||
Dong Girl Lee (President and CEO) | 5/22/2002 | 5/23/2004 | 5/22/2008 | 18,910 | 26,953 | 0.01 | ||||||||||||||||||||||
5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 30,000 | 0.01 | |||||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/25/2009 | 21,595 | 30,000 | 0.01 | |||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 40,000 | 0.01 | |||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 48,000 | 0.01 | — | ||||||||||||||||||||||
Sung Roh Lee (Statutory auditor) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | ||||||||||||||||||||||
Hyeon Jae Han | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
(Senior Exec. Vice | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
President) | ||||||||||||||||||||||||||||
Jin Kook Lee (Senior Exec. Vice President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | ||||||||||||||||||||||
Chae Young Jung (Senior Exec. Vice President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | ||||||||||||||||||||||
Yoo Shin Jung (Senior Exec. Vice President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
Seok Joong Kim (Senior Exec. Vice President) | 3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | |||||||||||||||||||||
Shinhan Life Insurance | ||||||||||||||||||||||||||||
Dong Woo Han (CEO) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 44,000 | 0.01 | — | |||||||||||||||||||||
Seung Choo Kang (Statutory Auditor) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 16,500 | 0.00 | — | |||||||||||||||||||||
Young Chul Bae (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
Kun Jong Lee (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
Byung Chan Lee (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
Ki Won Kim (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 12,000 | 0.00 | — | |||||||||||||||||||||
Sam Seok Roh (Deputy President) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 12,000 | 0.00 | — |
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Exercise Period | Number of | Percentage | Number of | |||||||||||||||||||||||||
Exercise | Granted | of Shares | Exercised | |||||||||||||||||||||||||
Name and Position | Grant Date | From | To | Price | Options | Outstanding | Options | |||||||||||||||||||||
(In Won) | (Percentage) | |||||||||||||||||||||||||||
Shinhan Card | ||||||||||||||||||||||||||||
Sung Kyun Hong (President and CEO) | 5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 4,984 | 0.00 | — | |||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/24/2009 | 21,595 | 27,484 | 0.01 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 40,000 | 0.01 | ��� | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 44,000 | 0.01 | — | ||||||||||||||||||||||
Tae Gyu Lee (Standing Auditor) | 5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 1,661 | 0.00 | — | |||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/24/2009 | 21,595 | 9,161 | 0.00 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 16,500 | 0.00 | — | ||||||||||||||||||||||
Sung Won Kim (Executive Deputy CEO) | 5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 1,661 | 0.00 | — | |||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/24/2009 | 21,595 | 9,161 | 0.00 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 15,000 | 0.00 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | ||||||||||||||||||||||
Yoo Yeop Shim (Executive Deputy CEO) | 5/15/2003 | 5/16/2005 | 5/15/2009 | 11,800 | 1,661 | 0.00 | — | |||||||||||||||||||||
3/25/2004 | 3/25/2006 | 3/24/2009 | 21,595 | 9,161 | 0.00 | — | ||||||||||||||||||||||
3/30/2005 | 3/30/2008 | 3/29/2012 | 28,006 | 12,000 | 0.00 | — | ||||||||||||||||||||||
3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | ||||||||||||||||||||||
Doo Hwan Jun (Executive Deputy CEO) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
Hee Geon Kim (Executive Deputy CEO) | 3/21/2006 | 3/21/2009 | 3/20/2013 | 38,829 | 15,000 | 0.00 | — | |||||||||||||||||||||
Total | 3,026,062 | 0.84 | % | 133,059 | ||||||||||||||||||||||||
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Number of Common | Percentage of Total | ||||||||
Name of Shareholder | Shares Held | Common Shares | |||||||
Korea Deposit Insurance Corporation(1) | 22,360,302 | 6.22 | % | ||||||
Korea National Pension Fund | 14,349,146 | 3.99 | % | ||||||
BNP Paribas Luxembourg | 13,557,832 | 3.77 | % | ||||||
Euro-Pacific Growth Fund | 11,949,400 | 3.33 | % | ||||||
Chohung Bank(2) | 8,985,567 | 2.50 | % | ||||||
Capital World Growth | 6,756,300 | 1.88 | % | ||||||
NTC-GOV Spore | 5,763,090 | 1.60 | % | ||||||
Daekyo | 5,344,397 | 1.49 | % | ||||||
Templeton Foreign Fund | 5,076,900 | 1.41 | % | ||||||
Fidelity Investment Trust | 3,949,840 | 1.10 | % | ||||||
Emerging Market Growth | 3,949,090 | 1.10 | % | ||||||
Others | 257,165,449 | 71.61 | % | ||||||
Total(3) | 359,207,313 | 100.00 | % | ||||||
(1) | In April 2006, Korea Deposit Insurance Corporation sold 22,360,302 common shares held by it, representing 6.22% of the total issued shares (or 5.86% of the total issued shares on a fully diluted basis) of our common stock to BNP Paribas and its affiliates and other investors through an after-trading-hours block sale of which 20,124,272 shares were sold to the BNP Paribas group, making the BNP Paribas group our largest shareholder with a total of 33,682,104 common shares, or 9.38% of our total issued common shares. Currently, Korea Deposit Insurance Corporation does not own any of our common stock. |
(2) | In June 2004, we acquired 108,438,628 shares of common stock of Chohung Bank that we previously did not own through a cash tender offer and a small-scale share swap pursuant to Korean laws. In connection with the share swap transaction, we issued 14,682,590 new shares of our common stock to the existing shareholders of Chohung Bank in exchange for the shares of Chohung Bank’s common stock, of which 8,985,567 shares of our common stock were issued to Chohung Bank in exchange for its treasury shares. Chohung Bank acquired these treasury shares from its shareholders who dissented to the share swap at Chohung Bank’s shareholders’ meeting pursuant to the exercise by those dissenting shareholders the right to request Chohung Bank to purchase their shares in accordance with Korean law. Following this transaction, the total number of shares of our common stock increased to 309,083,890 shares. Under the Financial Holding Companies Act of Korea, the voting rights relating to the 8,985,567 shares of our common stock currently held by Chohung Bank in treasury are restricted. The newly issued 14,682,590 shares of our common stock were listed on the Stock Market Division of the Korea Exchange in July 2004. |
(3) | Includes 10,235,121 shares of our common stock issued in exchange for the equity shares (both common and preferred shares) of Good Morning Shinhan Securities in connection with our obtaining the then minority interest in Good Morning Shinhan Securities in December 2004 through a cash tender offer and a small-scale share swap pursuant to Korean laws, of which 1,444 shares of our common stock was issued to Good Morning Shinhan Securities in exchange for its treasury shares. Good Morning Shinhan Securities acquired these treasury shares from its shareholders who dissented to the share swap at Good |
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Morning Shinhan Securities’ shareholders’ meeting pursuant to the exercise by those dissenting shareholders the right to request Good Morning Shinhan Securities to purchase their shares in accordance with Korean law. Good Morning Shinhan Securities sold the 1,444 shares of our common stock that it held in March 2005. Following this transaction, the total number of shares of our common stock increased to 319,319,011 shares. The newly issued 10,235,121 shares of our common stock were listed on the Stock Market Division of the Korea Exchange in January 2005. |
In November 2005, Korea Deposit Insurance Corporation converted 22,360,302 shares of Redeemable Convertible Preferred Shares into 22,360,302 shares of our common shares, representing 6.22% of the total issued shares (or 5.86% of the total issued shares on a fully diluted basis) of our common stock. This conversion increased the total number of our common shares from 319,319,011 to 341,679,313. | |
In December 2005, in a series of related transactions, we acquired 100% of Shinhan Life Insurance, an insurance company, through a “small scale share exchange” mechanism provided under applicable Korean law, pursuant to which we issued 17,528,000 new shares of our common stock to the shareholders of Shinhan Life Insurance in exchange for all outstanding common stock of Shinhan Life Insurance held by them for an aggregate purchase price of W612 billion, or W15,300 per share. As part of this share exchange, Shinhan Bank exchanged 5,524,772 shares of common stock of Shinhan Life Insurance previously held by it into 2,420,955 shares of our common stock and Good Morning Shinhan Securities exchanged 464,800 shares of common stock of Shinhan Life Insurance previously held by it into 203,675 shares of our common stock. Similarly, as part of this transaction, Shinhan Life Insurance also exchanged 9,000 shares of its common stock, which Shinhan Life Insurance acquired as a result of the exercise of appraisal rights by dissenting shareholders of Shinhan Life Insurance, into 3,943 shares of our common stock. All of such shares of our common stock received by Shinhan Life Insurance were sold in the market on December 29, 2005. | |
As of December 31, 2005, we had 11,610,197 treasury shares of our common stock, which were held by Chohung Bank, Shinhan Bank and Good Morning Shinhan Securities. Of such treasury shares, 1,708,050 shares were granted to the employees of the newly merged Shinhan Bank in April 2006 and 916,580 shares were sold in the market in June 2006. As of the date hereof, 8,985,567 treasury shares of our common stock are held by Shinhan Bank which must be disposed of by June 2007 in accordance with the Financial Holding Company Act of Korea. Under the Financial Holding Company Act of Korea, the voting rights on our treasury shares are subject to certain restrictions and the treasury shares must be sold within six months of acquisition with certain exceptions. |
Number of Preferred | Percentage of Total | ||||||||
Name of Shareholder | Shares Held | Preferred Shares | |||||||
Korea Deposit Insurance Corporation | 46,583,961 | 88.59 | % | ||||||
Strider Securitization Specialty Co., Ltd. | 6,000,000 | 11.41 | |||||||
Total | 52,583,961 | 100.00 | % | ||||||
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ITEM 8. | FINANCIAL INFORMATION |
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ITEM 9. | THE OFFER AND LISTING |
Korea Exchange | New York Stock Exchange | ||||||||||||||||||||||||
Closing Price per | Closing Price per | ||||||||||||||||||||||||
Common Stock | ADS | ||||||||||||||||||||||||
Average Daily | Average Daily | ||||||||||||||||||||||||
High | Low | Trading Volume | High | Low | Trading Volume | ||||||||||||||||||||
(Shares) | (ADSs) | ||||||||||||||||||||||||
2001(from September 10) | W17,550 | W | 9,400 | 1,654,506 | — | — | — | ||||||||||||||||||
Third Quarter (from September 10) | 11,650 | 9,400 | 1,180,076 | — | — | — | |||||||||||||||||||
Fourth Quarter | 17,550 | 10,100 | 1,771,170 | — | — | — | |||||||||||||||||||
2002 | 20,600 | 11,450 | 1,639,306 | — | — | — | |||||||||||||||||||
First Quarter | 20,450 | 16,300 | 2,050,143 | — | — | — | |||||||||||||||||||
Second Quarter | 20,600 | 16,150 | 1,745,556 | — | — | — | |||||||||||||||||||
Third Quarter | 18,150 | 13,850 | 1,152,088 | — | — | — | |||||||||||||||||||
Fourth Quarter | 14,650 | 11,450 | 1,631,030 | — | — | — | |||||||||||||||||||
2003 | 19,700 | 9,500 | 1,408,358 | — | — | — | |||||||||||||||||||
First Quarter | 13,650 | 9,500 | 1,504,051 | — | — | — | |||||||||||||||||||
Second Quarter | 13,900 | 10,100 | 1,592,993 | — | — | — | |||||||||||||||||||
Third Quarter(1) | 18,300 | 12,500 | 1,341,422 | $ | 31.40 | $ | 27.40 | 2,944 | |||||||||||||||||
Fourth Quarter | 19,700 | 15,650 | 1,200,222 | 32.75 | 27.70 | 2,900 | |||||||||||||||||||
2004 | 23,400 | 15,200 | 1,372,443 | 45.65 | 26.50 | 6,039 | |||||||||||||||||||
First Quarter | 23,050 | 18,000 | 1,894,713 | 39.63 | 30.80 | 6,566 | |||||||||||||||||||
Second Quarter | 21,250 | 15,700 | 1,355,687 | 40.80 | 27.60 | 5,111 | |||||||||||||||||||
Third Quarter | 23,400 | 15,200 | 1,154,295 | 37.20 | 26.50 | 6,798 | |||||||||||||||||||
Fourth Quarter | 23,750 | 20,500 | 1,117,511 | 45.65 | 35.90 | 5,655 | |||||||||||||||||||
2005 | 43,100 | 24,100 | 1,210,054 | 74.31 | 51.78 | 14,419 | |||||||||||||||||||
First Quarter | 29,750 | 26,944 | 1,348,839 | 53.53 | 52.72 | 13,916 | |||||||||||||||||||
Second Quarter | 27,650 | 24,100 | 1,054,949 | 52.54 | 51.78 | 10,238 | |||||||||||||||||||
Third Quarter | 37,200 | 31,574 | 1,184,651 | 62.33 | 61.50 | 11,994 | |||||||||||||||||||
Fourth Quarter | 43,100 | 38,187 | 1,256,327 | 74.31 | 73.38 | 21,617 | |||||||||||||||||||
2006(through June 23) | 49,500 | 36,500 | 1,601,332 | 106.60 | 73.01 | 33,128 | |||||||||||||||||||
January | 42,300 | 37,700 | 1,164,508 | 86.55 | 76.50 | 34,765 | |||||||||||||||||||
February | 41,650 | 38,100 | 1,280,464 | 86.90 | 78.66 | 35,279 | |||||||||||||||||||
March | 43,700 | 36,500 | 1,923,926 | 88.50 | 73.01 | 36,643 | |||||||||||||||||||
April | 47,850 | 43,450 | 2,511,118 | 99.69 | 89.51 | 21,816 | |||||||||||||||||||
May | 49,500 | 43,000 | 1,417,193 | 106.60 | 88.50 | 35,668 | |||||||||||||||||||
June (through June 23) | 45,250 | 39,750 | 1,225,124 | 95.48 | 80.15 | 33,394 |
(1) | Trading of our American depositary shares on the New York Stock Exchange commenced on September 16, 2003. |
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The Korea Exchange |
• | Any person’s ownership of shares in the Korea Exchange is limited to 5% or less except for an investment trust company or investment company established under the Act on Business of Operating Indirect Investment and Assets, or the Korean government. However, upon prior approval from the Financial Supervisory Commission, more than 5% ownership in Korea Exchange is permitted if necessary for forming strategic alliance with a foreign stock or futures exchange; | |
• | The number of outside directors on the board of directors of the Korea Exchange shall be more than half of the total number of directors; | |
• | Any amendment to the Articles of Incorporation, transfer or consolidation of business, spin off, stock swap in its entirety or transfer of shares in its entirety of the Korea Exchange will receive prior approval from the Minister of the Ministry of Finance and Economy; and | |
• | In the event the Minister of the Ministry of Finance and Economy determines that the chief executive officer of the Korea Exchange is not appropriate for the position, the Minister of the Ministry of Finance and Economy can request the Korea Exchange upon reasonable cause, within one month from the chief executive officer’s election, to dismiss the chief executive officer. Subsequently, the chief executive officer will be suspended from performing his duties and the Korea Exchange will elect a new chief executive officer within two months from the request. |
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Opening | High | Low | Closing | |||||||||||||
1980 | 100.00 | 119.36 | 100.00 | 106.87 | ||||||||||||
1981 | 97.95 | 165.95 | 93.14 | 131.37 | ||||||||||||
1982 | 123.60 | 134.49 | 106.00 | 127.31 | ||||||||||||
1983 | 122.52 | 134.46 | 115.59 | 121.21 | ||||||||||||
1984 | 116.73 | 142.46 | 114.37 | 142.46 | ||||||||||||
1985 | 139.53 | 163.37 | 131.40 | 163.37 | ||||||||||||
1986 | 161.40 | 279.67 | 153.85 | 272.61 | ||||||||||||
1987 | 264.82 | 525.11 | 264.82 | 525.11 | ||||||||||||
1988 | 532.04 | 922.56 | 527.89 | 907.20 | ||||||||||||
1989 | 919.61 | 1,007.77 | 844.75 | 909.72 | ||||||||||||
1990 | 908.59 | 928.82 | 566.27 | 696.11 | ||||||||||||
1991 | 679.75 | 763.10 | 586.51 | 610.92 | ||||||||||||
1992 | 624.23 | 691.48 | 459.07 | 678.44 | ||||||||||||
1993 | 697.41 | 874.10 | 605.93 | 866.18 | ||||||||||||
1994 | 879.32 | 1,138.75 | 855.37 | 1,027.37 | ||||||||||||
1995 | 1,013.57 | 1,016.77 | 847.09 | 882.94 | ||||||||||||
1996 | 888.85 | 986.84 | 651.22 | 651.22 | ||||||||||||
1997 | 653.79 | 792.29 | 350.68 | 376.31 | ||||||||||||
1998 | 385.49 | 579.86 | 280.00 | 562.46 | ||||||||||||
1999 | 587.57 | 1,028.07 | 498.42 | 1,028.07 | ||||||||||||
2000 | 1,059.04 | 1,059.04 | 500.60 | 504.62 | ||||||||||||
2001 | 520.95 | 704.50 | 468.76 | 693.70 | ||||||||||||
2002 | 724.95 | 937.61 | 584.04 | 627.55 | ||||||||||||
2003 | 635.17 | 822.16 | 515.24 | 810.71 | ||||||||||||
2004 | 821.26 | 936.06 | 719.59 | 895.92 | ||||||||||||
2005 | 893.71 | 1,379.37 | 870.84 | 1,379.37 | ||||||||||||
2006 (through June 23) | 1,383.32 | 1,464.70 | 1,192.09 | 1,228.62 |
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Rounded Down | ||||
Previous Day’s Closing Price | to Won | |||
Less than 5,000 | 5 | |||
5,000 to less than 10,000 | 10 | |||
10,000 to less than 50,000 | 50 | |||
50,000 to less than 100,000 | 100 | |||
100,000 to less than 500,000 | 500 | |||
500,000 or more | 1,000 |
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Total Market Capitalization | Average Daily Trading Volume, Value | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Listed | (Millions of | (Thousands of | Thousands of | (Millions of | (Thousands of | |||||||||||||||||||
Year | Companies | Won) | Dollars)(1) | Shares | Won) | Dollars)(1) | ||||||||||||||||||
1979 | 355 | W | 2,609,414 | $ | 5,391,351 | 5,382 | W | 4,579 | $ | 4,641 | ||||||||||||||
1980 | 352 | 2,526,553 | 3,828,691 | 5,654 | 3,897 | 5,905 | ||||||||||||||||||
1981 | 343 | 2,959,057 | 4,224,207 | 10,565 | 8,708 | 12,433 | ||||||||||||||||||
1982 | 334 | 3,000,494 | 4,407,711 | 9,704 | 6,667 | 8,904 | ||||||||||||||||||
1983 | 328 | 3,489,654 | 4,386,743 | 9,325 | 5,941 | 7,468 | ||||||||||||||||||
1984 | 336 | 5,148,460 | 6,222,456 | 14,847 | 10,642 | 12,862 | ||||||||||||||||||
1985 | 342 | 6,570,404 | 7,380,818 | 18,925 | 12,315 | 13,834 | ||||||||||||||||||
1986 | 355 | 11,994,233 | 13,924,115 | 31,755 | 32,870 | 38,159 | ||||||||||||||||||
1987 | 389 | 26,172,174 | 33,033,162 | 20,353 | 70,185 | 88,584 | ||||||||||||||||||
1988 | 502 | 64,543,685 | 94,348,318 | 10,367 | 198,364 | 289,963 | ||||||||||||||||||
1989 | 626 | 95,476,774 | 140,489,660 | 11,757 | 280,967 | 414,431 | ||||||||||||||||||
1990 | 669 | 79,019,676 | 110,301,055 | 10,866 | 183,692 | 256,500 | ||||||||||||||||||
1991 | 686 | 73,117,833 | 96,182,364 | 14,022 | 214,263 | 281,850 | ||||||||||||||||||
1992 | 688 | 84,711,982 | 107,502,515 | 24,028 | 308,246 | 391,175 | ||||||||||||||||||
1993 | 693 | 112,665,260 | 139,419,948 | 35,130 | 574,048 | 676,954 | ||||||||||||||||||
1994 | 699 | 151,217,231 | 191,729,721 | 36,862 | 776,257 | 984,223 | ||||||||||||||||||
1995 | 721 | 141,151,399 | 182,201,367 | 26,130 | 487,762 | 629,614 | ||||||||||||||||||
1996 | 760 | 117,369,988 | 139,031,021 | 26,571 | 486,834 | 575,733 | ||||||||||||||||||
1997 | 776 | 70,988,897 | 50,161,742 | 41,525 | 555,759 | 392,707 | ||||||||||||||||||
1998 | 748 | 137,798,451 | 114,090,455 | 97,716 | 660,429 | 471,432 | ||||||||||||||||||
1999 | 725 | 349,503,966 | 305,137,040 | 278,551 | 3,481,620 | 3,039,654 | ||||||||||||||||||
2000 | 704 | 188,041,490 | 148,393,204 | 306,154 | 2,602,159 | 2,053,796 | ||||||||||||||||||
2001 | 589 | 255,850,070 | 192,934,221 | 473,241 | 1,947,420 | 1,506,236 | ||||||||||||||||||
2002 | 683 | 258,680,756 | 215,445,465 | 857,245 | 3,041,598 | 2,533,820 | ||||||||||||||||||
2003 | 684 | 355,362,626 | 298,121,331 | 542,010 | 2,216,636 | 1,859,594 | ||||||||||||||||||
2004 | 683 | 412,588,139 | 398,597,371 | 372,895 | 2,232,109 | 2,156,419 | ||||||||||||||||||
2005 | 702 | 655,074,514 | 648,588,628 | 467,629 | 3,157,662 | 3,126,398 | ||||||||||||||||||
2006 (through June 23) | 717 | 599,889,895 | 627,631,194 | 337,652 | 4,111,859 | 4,302,007 |
(1) | Converted at the Market Average Exchange Rate at the end of the periods indicated. |
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Further Opening of the Korean Securities Market |
Protection of Customer’s Interest in Case of Insolvency of Securities Companies |
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ITEM 10. | ADDITIONAL INFORMATION |
General |
273
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Dividends |
274
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Distribution of Free Shares |
Preemptive Rights and Issuance of Additional Shares |
275
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General Meeting of Shareholders |
Voting Rights |
276
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Rights of Dissenting Shareholders |
277
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Register of Shareholders and Record Dates |
Description of Redeemable Preferred Stock |
Description of Series 1/2/3/4/5 Redeemable Preferred Stock |
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Description of Redeemable Convertible Preferred Stock |
279
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Description of Series 6/7/8 Redeemable Preferred Stock |
Annual Report |
280
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Transfer of Shares |
Acquisition of our Shares |
Liquidation Rights |
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• | odd-lot trading of shares; | |
• | acquisition of shares by foreign companies as a result of a merger; | |
• | acquisition of shares (which we refer to as “Converted Shares”) by exercise of warrants, conversion rights, exchange rights or options under bonds with warrants, convertible bonds, exchangeable bonds, stock options or withdrawal rights under depositary receipts issued by a Korean company outside of Korea; | |
• | acquisition of shares by exercise of rights as a shareholder; | |
• | acquisition of shares as a result of inheritance, donation, bequest or exercise of stockholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends; | |
• | sale or purchase of securities through a public bidding among large number of bidders; | |
• | acquisition of shares by exercising rights granted under a covered warrant; | |
• | over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded subject to certain exceptions; | |
• | sale and purchase under repurchase agreements; and | |
• | acquisition or disposition of shares in connection with a tender offer. |
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• | a resident of Korea; | |
• | a corporation organized under Korean law; or | |
• | engaged in a trade or business in Korea through a permanent establishment or a fixed base. |
Dividends on Shares of Common Stock or American Depositary Shares |
Taxation of Capital Gains |
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Inheritance Tax and Gift Tax |
Securities Transaction Tax |
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(i) an individual citizen or resident of the United States; | |
(ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or District of Columbia; | |
(iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; | |
(iv) a trust that is subject to the primary supervision of a court within the United States and one or more U.S. persons has authority to control all substantial decisions of the trust; or | |
(v) a trust that has a valid election in effect under applicable U.S. Treasury Department regulations to be treated as a U.S. person. |
• | a bank; | |
• | a dealer in securities or currencies; | |
• | a financial institution or an insurance company | |
• | a regulated investment company; |
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• | a real estate investment trust; | |
• | a tax-exempt entity; | |
• | a trader in securities that has elected to use amark-to-market method of accounting for your securities holdings; | |
• | a person holding shares or American depositary receipts as part of a hedging, conversion, constructive sale or integrated transaction or a straddle; | |
• | a person liable for the alternative minimum tax; | |
• | a partnership or other investor in a pass-through entity for U.S. federal income tax purposes; | |
• | a person who owns 10% or more of our voting stock; or | |
• | a person whose functional currency is not the U.S. dollar. |
American Depositary Receipts |
Distributions on Shares or American Depositary Receipts |
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Disposition of Shares or American Depositary Receipts |
Passive Foreign Investment Company Rules |
• | at least 75% of our gross income is passive income, or | |
• | at least 50% of the value of our assets is attributable to assets that produce or are held for the production of passive income. |
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• | the excess distribution or gain will be allocated ratably over your holding period for our shares or American depositary shares, | |
• | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we are a passive foreign investment company, will be treated as ordinary income, and | |
• | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
Estate and Gift Taxation |
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Information Reporting and Backup Withholding |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
American Depositary Shares |
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Dividends and Distributions |
— Distributions of Cash |
— Distributions of Shares |
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— Distributions of Rights |
• | We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or | |
• | We fail to deliver satisfactory documents to the depositary bank; or | |
• | It is not reasonably practicable to distribute the rights. |
— Elective Distributions |
— Other Distributions |
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• | We do not request that the property be distributed to you or if we ask that the property not be distributed to you; or | |
• | We do not deliver satisfactory documents to the depositary bank; or | |
• | The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable. |
Changes Affecting Shares |
Issuance of ADSs upon Deposit of Shares |
• | The Shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained. | |
• | All preemptive (and similar) rights, if any, with respect to such Shares have been validly waived or exercised. |
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• | You are duly authorized to deposit the Shares. | |
• | The Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit agreement). | |
• | The Shares presented for deposit have not been stripped of any rights or entitlements. |
Transfer, Combination and Split Up of ADRs |
• | ensure that the surrendered ADR certificate is properly endorsed or otherwise in proper form for transfer; | |
• | provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate; | |
• | provide any transfer stamps required by the State of New York or the United States; and | |
• | pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs. |
Withdrawal of Shares Upon Cancellation of ADSs |
• | Temporary delays that may arise because (i) the transfer books for the Shares or ADSs are closed, or (ii) Shares are immobilized on account of a shareholders’ meeting or a payment of dividends. | |
• | Obligations to pay fees, taxes and similar charges. | |
• | Restrictions imposed because of laws or Principal Regulations Applicable to ADSs or the withdrawal of securities on deposit. |
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Voting Rights |
Fees and Charges |
Service | Fees | |
Issuance of ADSs | Up to U.S. 5¢ per ADS issued | |
Cancellation of ADSs | Up to U.S. 5¢ per ADS canceled | |
Exercise of rights to purchase additional ADSs | Up to U.S. 2¢ per ADS held | |
Distribution of cash dividends | No fee (so long as prohibited by NYSE) | |
Distribution of ADSs pursuant to stock dividend or other free stock distributions | No fee (so long as prohibited by NYSE) | |
Distributions of cash proceeds (i.e., upon sale of rights or other entitlements) | Up to U.S. 2¢ per ADS held | |
Distribution of securities other than ADSs or rights to purchase additional ADSs | Up to U.S. 5¢ per share (or share equivalent) distributed | |
Annual Depositary Services Fee | Annually up to U.S. 2¢ per ADS held at the end of each calendar year, except to the extent of any cash dividend fee(s) charged during such calendar year or unless prohibited by NYSE |
• | Fees for the transfer and registration of Shares charged by the registrar and transfer agent for the Shares in Korea (i.e., upon deposit and withdrawal of Shares). | |
• | Expenses incurred for converting foreign currency into U.S. dollars. | |
• | Expenses for cable, telex and fax transmissions and for delivery of securities. | |
• | Taxes and duties upon the transfer of securities (i.e., when Shares are deposited or withdrawn from deposit). | |
• | Fees and expenses incurred in connection with the delivery or servicing of Shares on deposit. |
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Amendments and Termination |
• | for a period of six months after termination, you will be able to request the cancellation of your ADSs and the withdrawal of the Shares represented by your ADSs and the delivery of all other property held by the depositary bank in respect of those Shares on the same terms as prior to the termination. During such six months’ period the depositary bank will continue to collect all distributions received on the Shares on deposit (i.e., dividends) but will not distribute any such property to you until you request the cancellation of your ADSs. | |
• | After the expiration of such six months’ period, the depositary bank may sell the securities held on deposit. The depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding. |
Books of Depositary |
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Limitations on Obligations and Liabilities |
• | We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith. | |
• | The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement. | |
• | The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in Shares, for the validity or worth of the Shares, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice. | |
• | We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement. | |
• | We and the depositary bank disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any provision of our Articles of Incorporation, any provision of any securities on deposit or by reason of any act of God or war or other circumstances beyond our control. | |
• | We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for the deposit agreement or in our Articles of Incorporation or in any provisions of securities on deposit. | |
• | We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting Shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information. | |
• | We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders of Shares but is not, under the terms of the deposit agreement, made available to you. | |
• | We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties. | |
• | We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement. |
Pre-Release Transactions |
Taxes |
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Foreign Currency Conversion |
• | Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical. | |
• | Distribute the foreign currency to holders for whom the distribution is lawful and practical. | |
• | Hold the foreign currency (without liability for interest) for the applicable holders. |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
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ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. | CODE OF ETHICS |
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ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Aggregate Fees Billed | |||||||||||
During the Year Ended | |||||||||||
December 31, | |||||||||||
Type of Services | 2004 | 2005 | Nature of Services | ||||||||
(In millions of Won) | |||||||||||
Audit fees | W | 4,451 | W | 4,624 | Audit service for Shinhan Financial Group and its subsidiaries. | ||||||
Audit-related fees | 28 | — | Accounting advisory service. | ||||||||
Tax fees | 209 | 146 | Tax return and consulting advisory service. | ||||||||
All other fees | — | — | All other services which do not meet the three categories above. | ||||||||
Total | W | 4,688 | W | 4,770 | |||||||
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ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 17. | FINANCIAL STATEMENTS |
ITEM 18. | FINANCIAL STATEMENTS |
ITEM 19. | EXHIBITS |
Page | ||||
Audited consolidated financial statements of Shinhan Financial Group prepared in accordance with U.S. GAAP | ||||
Report of KPMG Samjong Accounting Corp., Independent Registered Public Accounting Firm, on the consolidated financial statements of Shinhan Financial Group | F-2 | |||
Report of Samil PricewaterhouseCoopers, Independent Registered Public Accounting Firm, on the consolidated financial statements of Shinhan Financial Group | F-3 | |||
Consolidated balance sheets as of December 31, 2004 and 2005 of Shinhan Financial Group | F-4 | |||
Consolidated statements of income for the years ended December 31, 2003, 2004 and 2005 of Shinhan Financial Group | F-6 | |||
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2003, 2004 and 2005 of Shinhan Financial Group | F-8 | |||
Consolidated statements of cash flows for the years ended December 31, 2003, 2004 and 2005 | F-10 | |||
Notes to the consolidated financial statements of Shinhan Financial Group | F-13 |
1 | .1 | Articles of Incorporation (in English)* | ||
2 | .1 | Form of Common Stock Certificate (in English)** | ||
2 | .2 | Form of Deposit Agreement to be entered into among Shinhan Financial Group, Citibank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, including the form of American depositary receipt** | ||
2 | .3 | Long-term debt instruments of Shinhan Financial Group, Shinhan Bank and other consolidated subsidiaries for which financial statements are required to be filed are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Shinhan Financial Group agrees to furnish the Commission on request a copy of any instrument defining the rights of holders of its long-term debt and that of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed.** | ||
4 | .1 | Stock Purchase Agreement by and between Korea Deposit Insurance Corporation and Shinhan Financial Group dated July 9, 2003*** | ||
4 | .2 | Investment Agreement by and between Shinhan Financial Group and Korea Deposit Insurance Corporation dated July 9, 2003** |
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4 | .3 | Agreed Terms, dated June 22, 2004, by and among the President of Korea Deposit Insurance Corporation, CEO of Shinhan Financial Group, CEO of Chohung Bank, Chairman of the National Financial Industry Labor Union of Korea and the Head of the Chohung Bank Chapter of the National Financial Industry Labor Union** | ||
4 | .4 | Merger Agreement between Shinhan Bank and Chohung Bank (in English)* | ||
4 | .5 | Split-Merger Agreement between Shinhan Card and Chohung Bank (in English)* | ||
8 | .1 | List of all Subsidiaries of Shinhan Financial Group | ||
12 | .1 | Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act | ||
12 | .2 | Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act | ||
13 | .1 | Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) | ||
13 | .2 | Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) |
* | A fair and accurate translation from Korean into English. |
** | Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on September 15, 2003. |
*** | Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on September 15, 2003. Confidential treatment has been requested for certain portions of the Stock Purchase Agreement. |
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Shinhan Financial Group Co, Ltd. |
By: | /s/ In Ho Lee |
Name: In Ho Lee |
Title: | President & Chief Executive Officer |
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Page | ||||
Index to financial statements | F-1 | |||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-6 | ||||
F-8 | ||||
F-10 | ||||
F-13 |
F-1
Table of Contents
F-2
Table of Contents
F-3
Table of Contents
2004 | 2005 | 2005 | |||||||||||
(See Note 1) | |||||||||||||
(In millions of Korean Won, | (In thousands | ||||||||||||
except share data) | of US$, except | ||||||||||||
share data) | |||||||||||||
ASSETS | |||||||||||||
Cash and cash equivalents | W | 2,443,900 | W | 2,434,382 | $ | 2,410,279 | |||||||
Restricted cash (Note 4) | 3,300,710 | 3,643,767 | 3,607,690 | ||||||||||
Interest-bearing deposits | 220,478 | 626,771 | 620,565 | ||||||||||
Call loans and securities purchased under resale agreements (Note 5) | 1,591,095 | 1,499,438 | 1,484,592 | ||||||||||
Trading assets (Note 6) | 6,316,341 | 4,507,043 | 4,462,419 | ||||||||||
Securities: | |||||||||||||
Available-for-sale securities (Note 7) | 18,108,229 | 22,479,721 | 22,257,149 | ||||||||||
Held-to-maturity securities (Note 7) | 3,099,322 | 2,963,074 | 2,933,736 | ||||||||||
Loans (net of allowance for loan losses of W2,310,555 in 2004 and W1,511,503 in 2005) (Note 8) | 94,868,094 | 104,446,954 | 103,412,826 | ||||||||||
Customers’ liability on acceptances | 2,012,499 | 1,878,866 | 1,860,264 | ||||||||||
Premises and equipment, net (Note 9) | 1,848,053 | 1,876,496 | 1,857,916 | ||||||||||
Intangible assets (Note 10) | 1,043,756 | 1,834,881 | 1,816,714 | ||||||||||
Goodwill (Note 10) | 615,915 | 1,122,605 | 1,111,490 | ||||||||||
Security deposits | 967,783 | 1,077,658 | 1,066,988 | ||||||||||
Other assets (Note 11) | 7,071,847 | 4,723,657 | 4,676,888 | ||||||||||
Total Assets | W | 143,508,022 | W | 155,115,313 | $ | 153,579,516 | |||||||
F-4
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2004 | 2005 | 2005 | ||||||||||||
(See Note 1) | ||||||||||||||
(In millions of Korean Won, | (In thousands | |||||||||||||
except share data) | of US$, except | |||||||||||||
share data) | ||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
Liabilities | ||||||||||||||
Deposits: | ||||||||||||||
Interest-bearing (Note 12) | W | 79,933,558 | W | 83,278,197 | $ | 82,453,660 | ||||||||
Non-interest-bearing (Note 12) | 2,745,925 | 3,143,170 | 3,112,050 | |||||||||||
Trading liabilities (Note 6) | 1,757,577 | 1,048,157 | 1,037,779 | |||||||||||
Acceptances outstanding | 2,012,499 | 1,878,866 | 1,860,264 | |||||||||||
Short-term borrowings (Note 13) | 10,953,555 | 11,968,300 | 11,849,802 | |||||||||||
Secured borrowings (Note 14) | 6,308,093 | 7,501,707 | 7,427,433 | |||||||||||
Long-term debt (Notes 15 and 22) | 23,616,683 | 26,171,822 | 25,912,695 | |||||||||||
Future policy benefits (Note 16) | — | 4,777,568 | 4,730,265 | |||||||||||
Accrued expenses and other liabilities (Note 17) | 9,714,129 | 7,089,112 | 7,018,922 | |||||||||||
Total Liabilities | 137,042,019 | 146,856,899 | 145,402,870 | |||||||||||
Commitments and contingencies (Note 31) | — | — | — | |||||||||||
Minority interest | 65,540 | 79,758 | 78,969 | |||||||||||
Redeemable convertible preferred stock, W5,000 par value; 44,720,603 shares authorized; 44,720,603 shares issued and outstanding in 2004; 22,360,301 shares issued and outstanding in 2005 (Note 22) | 735,744 | 367,872 | 364,229 | |||||||||||
Stockholders’ equity | ||||||||||||||
Common stock, W5,000 par value; 1 billion shares authorized; 319,319,011 shares issued and 310,320,994 shares outstanding in 2004; 359,207,313 shares issued and 347,597,116 shares outstanding in 2005 (Note 21) | 1,596,595 | 1,796,037 | 1,778,254 | |||||||||||
Additional paid-in capital | 1,658,189 | 2,406,665 | 2,382,836 | |||||||||||
Retained earnings (Note 23) | 2,455,893 | 3,953,742 | 3,914,596 | |||||||||||
Accumulated other comprehensive income (loss), net of taxes (Note 37) | 157,873 | (100,202 | ) | (99,210 | ) | |||||||||
Less: treasury stock, at cost, 8,998,017 shares in 2004 and 11,610,197 shares in 2005 (Note 21) | (203,831 | ) | (245,458 | ) | (243,028 | ) | ||||||||
Total stockholders’ equity | 5,664,719 | 7,810,784 | 7,733,448 | |||||||||||
Total liabilities, minority interest, redeemable convertible preferred stock and stockholders’ equity | W | 143,508,022 | W | 155,115,313 | $ | 153,579,516 | ||||||||
F-5
Table of Contents
2003 | 2004 | 2005 | 2005 | |||||||||||||||
(See Note 1) | ||||||||||||||||||
(In millions of Korean Won, | (In thousands | |||||||||||||||||
except per share data) | of US$, except | |||||||||||||||||
per share data) | ||||||||||||||||||
Interest and dividend income | ||||||||||||||||||
Interest and fees on loans | W | 4,187,380 | W | 6,142,356 | W | 6,295,473 | $ | 6,233,141 | ||||||||||
Interest and dividends on securities (Note 7) | 927,354 | 1,264,839 | 932,395 | 923,163 | ||||||||||||||
Interest and dividends on trading assets | 102,206 | 168,152 | 111,070 | 109,970 | ||||||||||||||
Other interest income | 114,002 | 136,558 | 148,603 | 147,131 | ||||||||||||||
Total interest income | 5,330,942 | 7,711,905 | 7,487,541 | 7,413,405 | ||||||||||||||
Interest expenseInterest on deposits | 1,765,509 | 2,369,936 | 2,234,689 | 2,212,563 | ||||||||||||||
Interest on short-term borrowings | 315,116 | 340,733 | 339,855 | 336,490 | ||||||||||||||
Interest on secured borrowings | 207,446 | 299,173 | 239,663 | 237,290 | ||||||||||||||
Interest on long-term debt | 702,603 | 1,099,175 | 1,182,132 | 1,170,428 | ||||||||||||||
Other interest expense | 7,379 | 28,976 | 17,564 | 17,390 | ||||||||||||||
Total interest expense | 2,998,053 | 4,137,993 | 4,013,903 | 3,974,161 | ||||||||||||||
Net interest income | 2,332,889 | 3,573,912 | 3,473,638 | 3,439,244 | ||||||||||||||
Provision (reversal) for credit losses (Note 8) | 965,587 | 135,414 | (183,488 | ) | (181,673 | ) | ||||||||||||
Net interest income after provision (reversal) for credit losses | 1,367,302 | 3,438,498 | 3,657,126 | 3,620,917 | ||||||||||||||
Non-interest income | ||||||||||||||||||
Commissions and fees (Note 18) | 840,469 | 1,178,814 | 1,505,703 | 1,490,795 | ||||||||||||||
Net trust management fees | 58,985 | 84,496 | 100,216 | 99,224 | ||||||||||||||
Net trading profits (Note 6) | 72,077 | 142,562 | 100,998 | 99,998 | ||||||||||||||
Net gains (losses) on securities (Note 7) | (127,799 | ) | (77,115 | ) | 96,227 | 95,274 | ||||||||||||
Gain on other investment | 27,528 | 53,356 | 283,619 | 280,811 | ||||||||||||||
Net gain on foreign exchange | 91,337 | 352,696 | 93,771 | 92,842 | ||||||||||||||
Insurance income | — | — | 188,722 | 186,853 | ||||||||||||||
Other (Note 19) | 155,757 | 357,884 | 332,525 | 329,233 | ||||||||||||||
Total non-interest income | 1,118,354 | 2,092,693 | 2,701,781 | 2,675,030 | ||||||||||||||
Non-interest expense | ||||||||||||||||||
Employee compensation and other benefits (Note 27) | 704,656 | 1,216,625 | 1,480,293 | 1,465,636 | ||||||||||||||
Depreciation and amortization | 247,016 | 428,835 | 377,350 | 373,614 | ||||||||||||||
General and administrative expenses | 392,375 | 542,821 | 515,882 | 510,774 | ||||||||||||||
Credit card fees | 89,535 | 147,190 | 134,489 | 133,157 | ||||||||||||||
Provision for other losses | — | 16,037 | 112,944 | 111,826 | ||||||||||||||
Other fees and commission expense | 250,483 | 363,918 | 416,645 | 412,520 | ||||||||||||||
Taxes (except income taxes) | 61,844 | 92,096 | 109,918 | 108,830 | ||||||||||||||
Insurance operating expense | — | — | 199,968 | 197,988 | ||||||||||||||
Minority interest | 25,846 | 153,428 | 16,079 | 15,920 | ||||||||||||||
Other (Note 19) | 191,181 | 343,379 | 314,185 | 311,076 | ||||||||||||||
Total non-interest expense | 1,962,936 | 3,304,329 | 3,677,753 | 3,641,341 | ||||||||||||||
F-6
Table of Contents
2003 | 2004 | 2005 | 2005 | ||||||||||||||
(See Note 1) | |||||||||||||||||
(In millions of Korean Won, | (In thousands | ||||||||||||||||
except per share data) | of US$, except | ||||||||||||||||
per share data) | |||||||||||||||||
Income before income tax expense, extraordinary item and cumulative effect of change in accounting principle | 522,720 | 2,226,862 | 2,681,154 | 2,654,606 | |||||||||||||
Income tax expense (Note 25) | 247,402 | 764,451 | 942,386 | 933,055 | |||||||||||||
Income before extraordinary item and cumulative effect of change in accounting principle | 275,318 | 1,462,411 | 1,738,768 | 1,721,551 | |||||||||||||
Extraordinary item (Note 20) | — | 27,508 | — | — | |||||||||||||
Cumulative effect of change in accounting principle, net of taxes (Note 10) | — | (23,049 | ) | — | — | ||||||||||||
Net income | W | 275,318 | W | 1,466,870 | W | 1,738,768 | $ | 1,721,551 | |||||||||
Net income per share of common stock(Note 26) | |||||||||||||||||
Basic | |||||||||||||||||
Income before extraordinary item and cumulative effect of change in accounting principle | W | 1,024 | W | 4,860 | W | 5,190 | $ | 5.14 | |||||||||
Extraordinary item | — | 94 | — | — | |||||||||||||
Cumulative effect of change in accounting principle, net of taxes | — | (79 | ) | — | — | ||||||||||||
Net income per share | W | 1,024 | W | 4,875 | W | 5,190 | $ | 5.14 | |||||||||
Diluted | |||||||||||||||||
Income before extraordinary item and cumulative effect of change in accounting principle | W | 984 | W | 4,333 | W | 4,882 | $ | 4.83 | |||||||||
Extraordinary item | — | 82 | — | — | |||||||||||||
Cumulative effect of change in accounting principle, net of taxes | — | (68 | ) | — | — | ||||||||||||
Net income per share | W | 984 | W | 4,347 | W | 4,882 | $ | 4.83 | |||||||||
Average common shares issued and outstanding | 262,986,588 | 292,464,924 | 333,424,397 | ||||||||||||||
Average diluted common shares issued and outstanding | 279,744,926 | 337,479,411 | 356,140,320 |
F-7
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||
Common Stock | Additional | Comprehensive | Total | |||||||||||||||||||||||||||
Paid-In | Retained | Income (loss), | Treasury | Stockholders’ | ||||||||||||||||||||||||||
Shares | Capital | Capital | Earnings | Net of Taxes | Stock | Equity | ||||||||||||||||||||||||
(In millions of Korean Won and in thousands of US$, except share and per share data) | ||||||||||||||||||||||||||||||
Balance at January 1, 2003 | 292,361,125 | W | 1,048,085 | W | 1,048,085 | W | 1,076,906 | W | 70,361 | W | (394,551 | ) | W | 3,262,607 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||
Net income | — | — | — | 275,318 | — | — | 275,318 | |||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (1,956 | ) | — | (1,956 | ) | |||||||||||||||||||||
Net unrealized losses on available-for-sale securities | — | — | — | — | (10,309 | ) | — | (10,309 | ) | |||||||||||||||||||||
Total comprehensive income | — | — | — | 275,318 | (12,265 | ) | — | 263,053 | ||||||||||||||||||||||
Issuance of common stock | 2,040,175 | 10,201 | 18,183 | — | — | — | 28,384 | |||||||||||||||||||||||
Cash dividends declared (W600 per share) | — | — | — | (157,493 | ) | — | — | (157,493 | ) | |||||||||||||||||||||
Dividends on redeemable convertible preferred stock | — | — | — | (6,043 | ) | — | — | (6,043 | ) | |||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (2,149 | ) | (2,149 | ) | |||||||||||||||||||||
Grant of stock options | — | — | 7,038 | — | — | — | 7,038 | |||||||||||||||||||||||
Other | — | — | 1 | — | — | — | 1 | |||||||||||||||||||||||
Balance at December 31, 2003 | 294,401,300 | W | 1,472,007 | W | 1,073,307 | W | 1,188,688 | W | 58,096 | W | (396,700 | ) | W | 3,395,398 | ||||||||||||||||
Balance at January 1, 2004 | 294,401,300 | W | 1,472,007 | W | 1,073,307 | W | 1,188,688 | W | 58,096 | W | (396,700 | ) | W | 3,395,398 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||
Net income | — | — | — | 1,466,870 | — | — | 1,466,870 | |||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (18,462 | ) | — | (18,462 | ) | |||||||||||||||||||||
Net unrealized losses on available-for-sale securities | — | — | — | — | 118,239 | — | 118,239 | |||||||||||||||||||||||
Total comprehensive income | — | — | — | 1,466,870 | 99,777 | — | 1,566,647 | |||||||||||||||||||||||
Issuance of common stock | 24,917,711 | 124,588 | 427,305 | — | — | — | 551,893 | |||||||||||||||||||||||
Cash dividends declared (W600 per share) | — | — | — | (158,717 | ) | — | — | (158,717 | ) | |||||||||||||||||||||
Dividends and Accretion of discount on redeemable convertible preferred stock | — | — | — | (40,948 | ) | — | — | (40,948 | ) | |||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (203,827 | ) | (203,827 | ) | |||||||||||||||||||||
Sale of treasury stock | — | — | 158,361 | — | — | 396,696 | 555,057 | |||||||||||||||||||||||
Grant of stock options | — | — | (784 | ) | — | — | — | (784 | ) | |||||||||||||||||||||
Balance at December 31, 2004 | 319,319,011 | W | 1,596,595 | W | 1,658,189 | W | 2,455,893 | W | 157,873 | W | (203,831 | ) | W | 5,664,719 | ||||||||||||||||
F-8
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||
Common Stock | Additional | Comprehensive | Total | |||||||||||||||||||||||||||
Paid-In | Retained | Income (loss), | Treasury | Stockholders’ | ||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Net of Taxes | Stock | Equity | ||||||||||||||||||||||||
(In millions of Korean Won and in thousands of US$, except share and per share data) | ||||||||||||||||||||||||||||||
Balance at January 1, 2005 | 319,319,011 | W | 1,596,595 | W | 1,658,189 | W | 2,455,893 | W | 157,873 | W | (203,831 | ) | W | 5,664,719 | ||||||||||||||||
Comprehensive income: | — | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | — | — | — | 1,738,768 | — | — | 1,738,768 | |||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (12,024 | ) | — | (12,024 | ) | |||||||||||||||||||||
Net unrealized gains on available-for-sale securities | — | — | — | — | (246,051 | ) | — | (246,051 | ) | |||||||||||||||||||||
Total comprehensive income | — | — | — | 1,738,768 | (258,075 | ) | — | 1,480,693 | ||||||||||||||||||||||
Issuance of common stock | 17,528,000 | 87,640 | 485,775 | — | — | — | 573,415 | |||||||||||||||||||||||
Conversion of redeemable convertible preferred stock into common stock | 22,360,302 | 111,802 | 256,070 | — | — | — | 367,872 | |||||||||||||||||||||||
Cash dividends declared (W750 per share) | — | — | — | (232,749 | ) | — | — | (232,749 | ) | |||||||||||||||||||||
Dividends on redeemable convertible preferred stock | — | — | — | (8,170 | ) | — | — | (8,170 | ) | |||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (42,392 | ) | (42,392 | ) | |||||||||||||||||||||
Sale of treasury stock | — | — | 80 | — | — | 765 | 845 | |||||||||||||||||||||||
Grant of stock options | — | — | 6,551 | — | — | — | 6,551 | |||||||||||||||||||||||
Balance at December 31, 2005 | 359,207,313 | W | 1,796,037 | W | 2,406,665 | W | 3,953,742 | W | (100,202 | ) | W | (245,458 | ) | W | 7,810,784 | |||||||||||||||
Balance at January 1, 2005 | 319,319,011 | $ | 1,580,787 | $ | 1,641,771 | $ | 2,431,577 | $ | 156,310 | $ | (201,813 | ) | $ | 5,608,632 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||
Net income | — | — | — | 1,721,553 | — | — | 1,721,553 | |||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (11,905 | ) | — | (11,905 | ) | |||||||||||||||||||||
Net unrealized gains (losses) on available-for-sale securities | — | — | — | — | (243,615 | ) | — | (243,615 | ) | |||||||||||||||||||||
Total comprehensive income | — | — | — | 1,721,553 | (255,520 | ) | — | 1,466,033 | ||||||||||||||||||||||
Issuance of common stock | 17,528,000 | 86,772 | 480,965 | — | — | — | 567,737 | |||||||||||||||||||||||
Conversion of redeemable convertible preferred stock into common stock | 22,360,302 | 110,695 | 253,535 | — | — | — | 364,230 | |||||||||||||||||||||||
Cash dividends declared ($0.74 per share) | — | — | — | (230,446 | ) | — | — | (230,446 | ) | |||||||||||||||||||||
Dividends of discount on redeemable convertible preferred stock | — | — | — | (8,088 | ) | — | — | (8,088 | ) | |||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (41,972 | ) | (41,972 | ) | |||||||||||||||||||||
Sale of treasury stock | — | — | 79 | — | — | 757 | 836 | |||||||||||||||||||||||
Grant of stock options | — | — | 6,486 | — | — | — | 6,486 | |||||||||||||||||||||||
Balance at December 31, 2005 | 359,207,313 | $ | 1,778,254 | $ | 2,382,836 | $ | 3,914,596 | $ | (99,210 | ) | $ | (243,028 | ) | $ | 7,733,448 | |||||||||||||||
F-9
Table of Contents
2003 | 2004 | 2005 | 2005 | ||||||||||||||||
(See Note 1) | |||||||||||||||||||
(In thousands | |||||||||||||||||||
(In millions of Korean Won) | of US$) | ||||||||||||||||||
Cash flows from operating activities | |||||||||||||||||||
Net income | W | 275,318 | W | 1,466,870 | W | 1,738,768 | $ | 1,721,550 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||||||||
Provision (reversal) for credit losses | 965,587 | 135,414 | (183,488 | ) | (181,673 | ) | |||||||||||||
Provision for future policy bebefit | — | — | 58,284 | 57,707 | |||||||||||||||
Depreciation and amortization | 247,016 | 428,835 | 377,350 | 373,614 | |||||||||||||||
Accretion of discounts on long-term debt | 583,869 | 324,866 | 181,038 | 179,246 | |||||||||||||||
Amortization on deferred loan fees and origination costs | 87,820 | 92,399 | 47,071 | 46,605 | |||||||||||||||
Amortization on investment debt securities | 20,740 | 16,482 | 30,863 | 30,557 | |||||||||||||||
Net (gain) loss on equity investments | 12,992 | (16,004 | ) | (66,526 | ) | (65,867 | ) | ||||||||||||
Net (gain) loss on valuation of trading assets | 18,680 | (141,819 | ) | (100,936 | ) | (99,937 | ) | ||||||||||||
Net (gain) loss on sale of available-for-sale securities | 2,550 | (73,786 | ) | (101,553 | ) | (100,548 | ) | ||||||||||||
Impairment loss on investment securities | 125,249 | 150,901 | 5,326 | 5,273 | |||||||||||||||
Net gain on sale of premises and equipment | (13,938 | ) | (15,275 | ) | (20,318 | ) | (20,117 | ) | |||||||||||
Net loss on sales of subsidiaries | 378 | — | — | — | |||||||||||||||
Net (gain) on sales of other assets | — | (14,678 | ) | (79,261 | ) | (78,476 | ) | ||||||||||||
Net unrealized foreign exchange (gain) loss | (91,337 | ) | (151,351 | ) | 55,868 | 55,315 | |||||||||||||
Minority interest in net income of subsidiaries | 25,846 | 153,428 | 16,079 | 15,920 | |||||||||||||||
Expense on stock option | 5,688 | (1,604 | ) | 45,459 | 45,009 | ||||||||||||||
Impairment loss on intangible assets | — | 1,893 | — | — | |||||||||||||||
Impairment loss on other investments | 39,541 | 15,521 | 20,958 | 20,750 | |||||||||||||||
Cumulative effect of change in accounting principle | — | 23,049 | — | — | |||||||||||||||
Extraordinary gain | — | (27,508 | ) | — | — | ||||||||||||||
Net gain on sale of loans | (1,032 | ) | (94,411 | ) | (93,476 | ) | |||||||||||||
Net gain on retirement of bonds | — | (10,922 | ) | — | — | ||||||||||||||
Net changes in: | |||||||||||||||||||
Restricted cash | (1,620,257 | ) | 361,287 | (338,795 | ) | (335,441 | ) | ||||||||||||
Trading assets | 71,774 | (2,797,829 | ) | 2,229,119 | 2,207,049 | ||||||||||||||
Other assets | 972,715 | (2,466,414 | ) | 3,035,963 | 3,005,905 | ||||||||||||||
Trading liabilities | (137,904 | ) | 1,244,516 | (713,088 | ) | (706,028 | ) | ||||||||||||
Accrued expenses and other liabilities | (767,410 | ) | 3,030,857 | (3,147,189 | ) | (3,116,029 | ) | ||||||||||||
Net cash provided by operating activities | 824,917 | 1,728,096 | 2,996,581 | 2,966,908 | |||||||||||||||
F-10
Table of Contents
2003 | 2004 | 2005 | 2005 | |||||||||||||||
(See Note 1) | ||||||||||||||||||
(In thousands | ||||||||||||||||||
(In millions of Korean Won) | of US$) | |||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||
Net change in interest-bearing deposits | W | (56,570 | ) | W | 189,962 | W | (13,563 | ) | $ | (13,429 | ) | |||||||
Net change in call loans and securities purchased under resale agreements | 317,103 | 295,274 | 66,636 | 65,976 | ||||||||||||||
Proceeds from sales of available-for-sale securities | 11,032,423 | 12,071,514 | 13,295,391 | 13,163,753 | ||||||||||||||
Purchases of available-for-sale securities | (12,153,357 | ) | (11,845,324 | ) | (16,156,100 | ) | (15,996,139 | ) | ||||||||||
Proceeds from maturities, prepayments and calls of held-to-maturity securities | 3,630,392 | 2,142,497 | 1,307,473 | 1,294,529 | ||||||||||||||
Purchases of held-to-maturity securities | (2,833,074 | ) | (1,596,763 | ) | (1,178,122 | ) | (1,166,457 | ) | ||||||||||
Loan originations and principal collections, net | (6,030,212 | ) | (3,773,137 | ) | (8,318,374 | ) | (8,236,014 | ) | ||||||||||
Payments for repurchase of loans from KAMCO | (37,470 | ) | (24,031 | ) | — | — | ||||||||||||
Proceeds from sales of premises and equipment | 54,414 | 29,546 | 95,971 | 95,021 | ||||||||||||||
Purchases of premises and equipment | (213,882 | ) | (222,825 | ) | (282,909 | ) | (280,108 | ) | ||||||||||
Net change in security deposits | (22,731 | ) | 1,757 | (57,195 | ) | (56,629 | ) | |||||||||||
Cash acquired from acquisitions, net of cash paid | 1,125,128 | 1,553 | 27,225 | 26,955 | ||||||||||||||
Sale of equity interest in subsidiaries | 1,529 | — | 73,489 | 72,761 | ||||||||||||||
Acquisition of equity interest in subsidiaries | (928,423 | ) | (99,293 | ) | (42,568 | ) | (42,147 | ) | ||||||||||
Dividends from equity investees | — | 4,220 | 5,724 | 5,667 | ||||||||||||||
Net change in other investments | — | 10,360 | (206,786 | ) | (204,739 | ) | ||||||||||||
Net cash used in investing activities | (6,114,730 | ) | (2,814,690 | ) | (11,383,708 | ) | (11,271,000 | ) | ||||||||||
Cash flows from financing activities | ||||||||||||||||||
Net increase (decrease) in interest-bearing deposits | 5,338,968 | (2,103,071 | ) | 3,447,855 | 3,413,718 | |||||||||||||
Net increase (decrease) in non-interest-bearing Deposits | (124,905 | ) | 1,417,722 | 397,246 | 393,313 | |||||||||||||
Net increase (decrease) in secured borrowings | 266,164 | (8,167 | ) | 1,193,614 | 1,181,796 | |||||||||||||
Net increase (decrease) in short-term borrowings | (2,974,990 | ) | (230,353 | ) | 1,059,981 | 1,049,486 | ||||||||||||
Proceeds from issuance of long-term debt | 12,244,298 | 9,385,571 | 26,507,592 | 26,245,142 | ||||||||||||||
Repayment of long-term debt | (7,707,107 | ) | (7,059,193 | ) | (23,942,920 | ) | (23,705,861 | ) | ||||||||||
Proceeds from issuance of common stock | 27,504 | — | — | — | ||||||||||||||
Purchases of treasury stock | (2,149 | ) | (204,150 | ) | (479 | ) | (473 | ) | ||||||||||
Reissuance of treasury stock | — | 622,190 | 845 | 837 | ||||||||||||||
Cash dividends paid | (157,493 | ) | (166,670 | ) | (260,775 | ) | (258,192 | ) | ||||||||||
Cash payment on capital reduction of subsidiary | — | (1,750 | ) | — | — | |||||||||||||
Net cash provided by financing activities | 6,910,290 | 1,652,129 | 8,402,959 | 8,319,766 | ||||||||||||||
Effect of exchange rate changes on cash | (6,004 | ) | (18,432 | ) | (25,350 | ) | (25,098 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 1,614,473 | 547,103 | (9,518 | ) | (9,424 | ) | ||||||||||||
Cash and cash equivalents | ||||||||||||||||||
Beginning of year | 282,324 | 1,896,797 | 2,443,900 | 2,419,703 | ||||||||||||||
End of year | W | 1,896,797 | W | 2,443,900 | W | 2,434,382 | $ | 2,410,279 | ||||||||||
F-11
Table of Contents
2003 | 2004 | 2005 | 2005 | ||||||||||||||
(See Note 1) | |||||||||||||||||
(In thousands | |||||||||||||||||
(In millions of Korean Won) | of US$) | ||||||||||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||
Acquisitions: | |||||||||||||||||
Fair value of net assets acquired | W | 2,012,190 | W | 1,062,640 | W | 243,067 | $ | 240,660 | |||||||||
Goodwill | 341,271 | (411,456 | ) | 289,800 | 286,931 | ||||||||||||
Cash paid | 928,423 | 99,293 | 1,405 | 1,391 | |||||||||||||
Consideration other than cash | 1,425,038 | 551,893 | 531,462 | 526,200 | |||||||||||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||||||||
Loans repurchased from KAMCO in exchange for held-to-maturity securities | 1,593 | — | — | — | |||||||||||||
Securities and other investments received in connection with loan restructuring | 307,545 | 214,758 | 27,328 | 27,057 | |||||||||||||
Preferred stocks acquired from Hanmaum Financial Company in exchange for non-performing loans | — | 3,618 | — | — | |||||||||||||
Increase (decrease) in cumulative translation adjustments, net of taxes | (1,956 | ) | (18,461 | ) | (12,024 | ) | (11,905 | ) | |||||||||
Increase (decrease) in unrealized gains (losses) on available-for-sale securities, net of taxes | (10,309 | ) | 118,240 | (246,051 | ) | (255,368 | ) | ||||||||||
Account payable for contingent consideration | — | 166,516 | 20,461 | 20,258 | |||||||||||||
F-12
Table of Contents
1. | General Information and Summary of Significant Accounting Policies |
Business |
Percentage of | ||||||||||||||||
Ownership(1) | ||||||||||||||||
Country of | ||||||||||||||||
Incorporation | 2003 | 2004 | 2005 | |||||||||||||
Shinhan Bank | Korea | 100 | % | 100 | % | 100 | % | |||||||||
Chohung Bank | Korea | 81.15 | % | 100 | % | 100 | % | |||||||||
Good Morning Shinhan Securities Co., Ltd. | Korea | 60.47 | % | 100 | % | 100 | % | |||||||||
Shinhan Card Co., Ltd. | Korea | 100 | % | 100 | % | 100 | % | |||||||||
Shinhan Capital Co., Ltd. | Korea | 100 | % | 100 | % | 100 | % | |||||||||
Jeju Bank | Korea | 62.42 | % | 62.42 | % | 62.42 | % | |||||||||
Shinhan Credit Information Co., Ltd. | Korea | 51.00 | % | 100 | % | 100 | % | |||||||||
Shinhan Private Equity Inc. | Korea | — | 100 | % | 100 | % | ||||||||||
Shinhan Life Insurance Co., Ltd. | Korea | 12.90 | % | 12.90 | % | 100 | % |
(1) | Direct and indirect ownership are combined. |
(2) | All holdings are in the common stock of the respective subsidiaries. |
Principles of Consolidation |
F-13
Table of Contents
Variable Interest Entities |
Foreign Currency Translation |
Use of Estimates |
Cash and Cash Equivalents |
F-14
Table of Contents
Securities Purchased under Resale Agreements and Securities Sold under Repurchase Agreements |
Trading Assets and Liabilities, including derivatives |
Derivatives and Hedging Activities |
F-15
Table of Contents
Investment Securities |
F-16
Table of Contents
Non-marketable or restricted equity securities |
Loans |
F-17
Table of Contents
Allowance for Loan Losses |
• | Loans classified as “substandard” or below according to asset classification guidelines of the Financial Supervisory Commission (FSC) of the Republic of Korea. | |
• | Loans that are 90 days or more past due; and | |
• | Loans which are “troubled debt restructurings” under US Generally Accepted Accounting Principles (US GAAP) |
F-18
Table of Contents
Allowance for off-balance sheet credit instruments |
Foreclosed Assets |
Securitizations |
F-19
Table of Contents
Transfers of Financial Assets |
Premises and Equipment |
Buildings | 40 years | |||
Equipment and furniture | 4 – 5 years | |||
Leasehold improvements | 5 years | |||
Operating lease assets | 3 – 5 years | |||
Capitalized software costs | 4 – 5 years |
F-20
Table of Contents
Goodwill and Other Intangible Assets |
F-21
Table of Contents
Actual | Pro Forma | ||||||||
(In millions of Won, | |||||||||
except per share data) | |||||||||
2003 | |||||||||
Income before extraordinary gain | 275,318 | 256,972 | |||||||
Basic net income per share of common stock | 1,024 | 954 | |||||||
Diluted net income per share of common stock | 984 | 919 | |||||||
Net income | 275,318 | 256,972 | |||||||
Basic net income per share of common stock | 1,024 | 954 | |||||||
Diluted net income per share of common stock | 984 | 919 | |||||||
2004 | |||||||||
Income before extraordinary gain | 1,462,411 | 1,462,411 | |||||||
Basic net income per share of common stock | 4,860 | 4,860 | |||||||
Diluted net income per share of common stock | 4,333 | 4,333 | |||||||
Net income | 1,466,870 | 1,489,919 | |||||||
Basic net income per share of common stock | 4,875 | 4,954 | |||||||
Diluted net income per share of common stock | 4,347 | 4,415 |
Deferred Policy Acquisition Costs (DAC) |
F-22
Table of Contents
Future policy benefits |
Separate account assets and liabilities. |
Insurance premium |
Impairment |
F-23
Table of Contents
Stock-Based Compensation |
Commissions and Fees |
Net Trust Management Fees |
Co-branding Credit Card Arrangements |
F-24
Table of Contents
Dormant accounts |
Income Taxes |
Earnings Per Share |
Comprehensive Income |
Convenience Translation |
F-25
Table of Contents
Reclassification |
2. | Accounting Changes and Future Application of Accounting Standards |
Derivative Instruments and Hedging Activities |
Liabilities and Equity |
Consolidation of Variable Interest Entities |
F-26
Table of Contents
Accounting for Loan Commitments Accounted for as Derivatives |
Employers’ Disclosure about Pensions and Other Postretirement Benefits |
Accounting for Certain Loans or Debt Securities Acquired in a Transfer |
The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments |
F-27
Table of Contents
Share-Based Compensation |
Accounting for Exchange of Nonmonetary Assets |
Accounting for Conditional Asset Retirement Obligations |
Accounting Changes and Error Corrections |
F-28
Table of Contents
Accounting for Certain Hybrid Financial Instruments |
Accounting for Servicing of Financial Assets |
3. | Business Changes and Developments |
Formation of Shinhan Financial Group |
F-29
Table of Contents
Number of | ||||||||
Shares of the Group’s | ||||||||
Common Stock | ||||||||
Exchange Ratio | Issued | |||||||
Shinhan Bank | 1 | 275,182,814 | ||||||
Shinhan Capital | 0.3048 | 4,877,424 | ||||||
Shinhan Securities | 0.3594 | 8,570,322 | ||||||
Shinhan ITM | 0.4642 | 3,713,632 |
Acquisition of Jeju Bank |
Spin-off of Shinhan Card Co., Ltd |
Acquisition of Good Morning Securities Co., Ltd. (Good Morning Securities) |
F-30
Table of Contents
Disposal of Shinhan ITM |
Acquisition of Chohung Bank |
F-31
Table of Contents
(In Millions of | |||||
Korean Won) | |||||
Cash and cash equivalents | W | 900,552 | |||
Deposits | 723,630 | ||||
Call loans | 1,322,150 | ||||
Trading assets | 1,617,579 | ||||
Securities | 6,651,839 | ||||
Loans, net of allowance for loan losses | 34,547,592 | ||||
Premises and equipment, net | 1,008,855 | ||||
Other assets | 4,144,543 | ||||
Total assets | 50,916,740 | ||||
Due to depositors | 33,076,845 | ||||
Borrowings and debentures | 12,671,215 | ||||
Other liabilities | 4,285,705 | ||||
Minority interest at book value | 11,675 | ||||
Total liabilities | 50,045,440 | ||||
Fair value of net assets of Chohung Bank | W | 871,300 | |||
(In Millions of | ||||||
Korean Won) | ||||||
Market value of consideration | W | 2,325,038 | ||||
Direct acquisition costs | 28,423 | |||||
Total purchase price | W | 2,353,461 | (1) | |||
Allocation of purchase price: | ||||||
Fair value of net assets of Chohung Bank (excluding effect of deferred taxes) | W | 1,329,932 | ||||
Deferred tax | (458,632 | ) | ||||
Core deposit intangible asset | 770,705 | |||||
Court deposit intangible asset | 186,093 | |||||
Credit card relationship intangible asset | 184,092 | |||||
Goodwill | 341,271 | |||||
Total purchase price | W | 2,353,461 | ||||
(1) | The total purchase price is approximately W2,353,461 million, which comprised of the following: |
1. | Cash of W900,000 million; | |
2. | 46,583,961 newly issued shares of the Group’s redeemable preferred stock (RPS) with an aggregate estimated fair value of W710,258 million; | |
3. | 44,720,603 newly issued shares of the Group’s redeemable convertible preferred stock (RCPS) with an aggregate estimated fair value of W714,780 million; and | |
4. | Direct acquisition costs of W28,423 million. |
F-32
Table of Contents
Asset Indemnity |
General Indemnity |
Profit Earn-out |
F-33
Table of Contents
(In millions of | ||||||
Korean Won) | ||||||
Cash | W | 94,884 | ||||
Stock exchange | 331,263 | |||||
Direct acquisition cost | 565 | |||||
Total purchase price | W | 426,712 | ||||
Allocation of purchase price: | ||||||
Fair value of net assets of Chohung Bank | W | 403,111 | ||||
Core deposit intangible asset | 133,151 | |||||
Court deposit intangible asset | 115,364 | |||||
Credit card relationship intangible asset | 35,264 | |||||
Negative goodwill | (260,178 | ) | ||||
Total purchase price | W | 426,712 | ||||
Premises and equipment | W | 169,040 | |||
Core deposit intangible asset | 89,067 | ||||
Court deposit intangible asset | 77,170 | ||||
Credit card relationship intangible asset | 23,589 | ||||
Deferred tax | (98,688 | ) | |||
Total allocation | W | 260,178 | |||
Acquisition of Shinhan Credit Information Co., Ltd. |
F-34
Table of Contents
Incorporation of Shinhan Private Equity Inc. |
Acquisition of Shinhan Life Insurance Co., Ltd. |
(In millions of | |||||
Korean Won) | |||||
Cash and cash equivalents | W | 5,108 | |||
Deposits | 389,627 | ||||
Trading securities | 268,980 | ||||
Available-for-sale securities | 1,529,922 | ||||
Loans, net of allowance for loan losses | 1,155,413 | ||||
Premises and equipment, net | 12,446 | ||||
Other assets | 409,067 | ||||
Total assets | W | 3,770,563 | |||
Future policy benefit | W | 4,012,622 | |||
Borrowings | 39,962 | ||||
Other liabilities | 453,444 | ||||
Total liabilities | W | 4,506,028 | |||
Fair value of net liabilities of Shinhan Life Insurance | W | (735,465 | ) | ||
F-35
Table of Contents
(In millions of | ||||||
Korean Won) | ||||||
Cash | W | 138 | ||||
Stock exchange | 531,394 | |||||
Direct acquisition costs | 1,335 | |||||
Total purchase price | W | 532,867 | ||||
Allocation of purchase price: | ||||||
Fair value of net liabilities of Shinhan Life Insurance | W | (735,465 | ) | |||
Value of business acquired | 978,532 | |||||
Goodwill | 289,800 | |||||
Total purchase price | W | 532,867 | ||||
4. | Restricted Cash |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Reserve deposits with the BOK | W | 2,615,574 | W | 2,711,000 | ||||
Cash restricted for investment activities | 199,183 | 220,997 | ||||||
Other | 485,953 | 711,770 | ||||||
W | 3,300,710 | W | 3,643,767 | |||||
5. | Call Loans and Securities Purchased under Resale Agreements |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Call loans | W | 1,431,095 | W | 1,359,738 | ||||
Securities purchased under resale agreements | 160,000 | 139,700 | ||||||
W | 1,591,095 | W | 1,499,438 | |||||
F-36
Table of Contents
6. | Trading Activities |
2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Debt securities: | |||||||||
Korean treasury and governmental agencies | W | 1,994,688 | W | 492,776 | |||||
Corporations | 964,837 | 1,307,131 | |||||||
Mortgage-backed and asset-backed securities | 20,003 | 140,052 | |||||||
Financial institutions | 1,322,329 | 1,145,210 | |||||||
Equity securities | 311,636 | 464,596 | |||||||
Derivative instruments: | |||||||||
Foreign exchange derivatives | 1,435,690 | 681,441 | |||||||
Interest rate derivatives | 208,814 | 173,130 | |||||||
Equity derivatives | 29,875 | 68,117 | |||||||
Credit derivatives | 38 | 100 | |||||||
Commodity derivatives | 3,159 | 11,167 | |||||||
Other trading assets — commodity indexed deposits | 25,272 | 23,323 | |||||||
W | 6,316,341 | W | 4,507,043 | ||||||
2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Derivative instruments: | |||||||||
Foreign exchange derivatives | W | 1,493,120 | W | 692,923 | |||||
Interest rate derivatives | 190,234 | 237,853 | |||||||
Equity derivatives | 35,888 | 71,884 | |||||||
Credit derivatives | 50 | 371 | |||||||
Commodity derivatives | 3,154 | 11,120 | |||||||
Other trading liabilities — commodity indexed deposits | 35,131 | 34,006 | |||||||
W | 1,757,577 | W | 1,048,157 | ||||||
F-37
Table of Contents
2003 | 2004 | 2005 | |||||||||||
(In millions of Won) | |||||||||||||
Debt securities | W | (2,292 | ) | W | 97,844 | W | 66,716 | ||||||
Equity securities | 35,025 | 14,703 | 116,353 | ||||||||||
Derivative instruments | 38,905 | 29,272 | (82,133 | ) | |||||||||
Other trading activities — commodity indexed deposits | 439 | 743 | 62 | ||||||||||
Net trading profits | W | 72,077 | W | 142,562 | W | 100,998 | |||||||
7. | Securities |
2004 | 2005 | ||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Amortize | Unrealized | Unrealized | ||||||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||||||
Available-for-sale securities | |||||||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||||||
Korean treasury and governmental agencies | W | 8,724,892 | W | 128,443 | W | 18,318 | W | 8,835,017 | W | 8,442,283 | W | 13,176 | W | 156,942 | W | 8,298,517 | |||||||||||||||||
Corporations | 1,275,621 | 17,979 | 848 | 1,292,752 | 1,971,273 | 6,878 | 25,871 | 1,952,280 | |||||||||||||||||||||||||
Financial institutions | 5,644,618 | 30,419 | 326 | 5,674,711 | 9,322,309 | 2,767 | 70,542 | 9,254,534 | |||||||||||||||||||||||||
Foreign governments | 56,599 | — | 99 | 56,500 | 51,615 | 39 | 1,956 | 49,698 | |||||||||||||||||||||||||
Mortgage-backed and asset-backed securities | 1,733,939 | 8,643 | 3 | 1,742,579 | 946,843 | 1,892 | 2,479 | 946,256 | |||||||||||||||||||||||||
Marketable equity securities | 442,232 | 67,936 | 3,498 | 506,670 | 1,818,040 | 173,951 | 13,555 | 1,978,436 | |||||||||||||||||||||||||
W | 17,877,901 | W | 253,420 | W | 23,092 | W | 18,108,229 | W | 22,552,363 | W | 198,703 | W | 271,345 | W | 22,479,721 | ||||||||||||||||||
Held-to-maturity securities | |||||||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||||||
Korean treasury and governmental agencies | W | 1,661,777 | W | 152,210 | W | 59 | W | 1,813,928 | W | 1,686,368 | W | 28,218 | W | 8,349 | W | 1,706,237 | |||||||||||||||||
Corporations | 218,424 | 7,092 | 416 | 225,100 | 65,818 | 649 | 147 | 66,320 | |||||||||||||||||||||||||
Financial institutions | 1,219,121 | 49,188 | 52 | 1,268,257 | 1,210,888 | 1,809 | 5,085 | 1,207,612 | |||||||||||||||||||||||||
Mortgage-backed and asset-backed securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
W | 3,099,322 | W | 208,490 | W | 527 | W | 3,307,285 | W | 2,963,074 | W | 30,676 | W | 13,581 | W | 2,980,169 | ||||||||||||||||||
F-38
Table of Contents
2003 | 2004 | 2005 | |||||||||||
(In millions of Won) | |||||||||||||
Available-for-sale securities | W | 125,249 | W | 150,901 | W | 5,326 | |||||||
Total other-than-temporary impairment losses | W | 125,249 | W | 150,901 | W | 5,326 | |||||||
Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||
Gross | Gross | Gross | |||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||
Available-for-sale securities | |||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||
Korean treasury and governmental agencies | W | 4,467,601 | W | (144,152 | ) | W | 613,385 | W | (12,790 | ) | W | 5,080,986 | W | (156,942 | ) | ||||||||||
Corporations | 1,207,968 | (25,594 | ) | 19,723 | (277 | ) | 1,227,691 | (25,871 | ) | ||||||||||||||||
Financial institutions | 6,426,158 | (70,140 | ) | 82,073 | (402 | ) | 6,508,231 | (70,542 | ) | ||||||||||||||||
Foreign governments | 45,310 | (1,880 | ) | 988 | (76 | ) | 46,298 | (1,956 | ) | ||||||||||||||||
Mortgage-backed and asset-backed securities | 203,024 | (1,670 | ) | 26,691 | (809 | ) | 229,715 | (2,479 | ) | ||||||||||||||||
Marketable equity securities | 146,641 | (13,520 | ) | 174 | (35 | ) | 146,815 | (13,555 | ) | ||||||||||||||||
12,496,702 | (256,956 | ) | 743,034 | (14,389 | ) | 13,239,736 | (271,345 | ) | |||||||||||||||||
Held-to-maturity securities | |||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||
Korean treasury and governmental agencies | 420,891 | (8,349 | ) | — | — | 420,891 | (8,349 | ) | |||||||||||||||||
Corporations | 19,835 | (147 | ) | — | — | 19,835 | (147 | ) | |||||||||||||||||
Financial institutions | 851,331 | (5,085 | ) | — | — | 851,331 | (5,085 | ) | |||||||||||||||||
1,292,057 | (13,581 | ) | — | — | 1,292,057 | (13,581 | ) | ||||||||||||||||||
Total temporarily impaired securities | W | 13,788,759 | W | (270,537 | ) | W | 743,034 | W | (14,389 | ) | W | 14,531,793 | W | (284,926 | ) | ||||||||||
F-39
Table of Contents
• | Identification and evaluation of investments that have indications of possible impairment | |
• | Analysis of individual investments that have fair values less than 80% of amortized cost, including consideration of the length of time the investment has been in an unrealized loss position | |
• | Discussion of evidential matter, including an evaluation of factors or triggers that would or could cause individual investments to qualify as having other-than-temporary impairments and those that would not support other-than-temporary impairment | |
• | Documentation of the results of these analyses as required under business policies |
2003 | 2004 | 2005 | ||||||||||
(In millions of Won) | ||||||||||||
Interest income | W | 923,222 | W | 1,200,356 | W | 911,417 | ||||||
Dividends | 4,132 | 64,483 | 20,978 | |||||||||
W | 927,354 | W | 1,264,839 | W | 932,395 | |||||||
Available-for-sale | Held-to-maturity | |||||||||||||||
Debt Securities | Debt Securities | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In millions of Won) | ||||||||||||||||
Within 1 year | W | 8,108,840 | W | 8,096,892 | W | 721,317 | W | 724,469 | ||||||||
Over 1 year through 5 years | 9,711,477 | 9,542,554 | 2,194,415 | 2,211,904 | ||||||||||||
Over 5 years through 10 years | 980,114 | 933,651 | 47,147 | 43,597 | ||||||||||||
Over 10 years | 94,331 | 92,795 | — | — | ||||||||||||
Securities not due at a single maturity date | 1,839,561 | 1,835,393 | 195 | 199 | ||||||||||||
W | 20,734,323 | W | 20,501,285 | W | 2,963,074 | W | 2,980,169 | |||||||||
F-40
Table of Contents
8. | Loans |
2004 | 2005 | |||||||||
(In millions of Won) | ||||||||||
Commercial: | ||||||||||
Commercial and industrial | W | 35,653,127 | W | 35,728,132 | ||||||
Other commercial | 17,988,288 | 21,408,703 | ||||||||
Lease financing | 981,002 | 754,473 | ||||||||
Consumer: | ||||||||||
Mortgage and home equity | 22,180,112 | 25,840,334 | ||||||||
Credit cards | 4,731,913 | 4,241,562 | ||||||||
Other consumer | 15,545,796 | 17,874,852 | ||||||||
Total loans, gross | 97,080,238 | 105,848,056 | ||||||||
Deferred loan origination costs | 98,411 | 110,401 | ||||||||
97,178,649 | 105,958,457 | |||||||||
Less: Allowance for loan losses | 2,310,555 | 1,511,503 | ||||||||
Total loans, net | W | 94,868,094 | W | 104,446,954 | ||||||
2003 | 2004 | 2005 | ||||||||||
(In millions of Won) | ||||||||||||
Impaired loans with an allowance | W | 3,113,325 | W | 2,268,924 | W | 1,794,283 | ||||||
Impaired loans without an allowance | 374,711 | 376,606 | 490,913 | |||||||||
W | 3,488,036 | W | 2,645,530 | W | 2,285,196 | |||||||
Allowance for impaired loans | W | 1,349,272 | W | 885,332 | W | 703,529 | ||||||
Average balance of impaired loans during the year | 2,867,370 | 2,057,663 | 2,039,445 | |||||||||
Interest income recognized on impaired loans | 51,986 | 90,548 | 70,116 |
F-41
Table of Contents
Allowance for Off-balance Sheet | ||||||||||||||||||||||||||
Allowance for Loan Losses | Credit Instrument(1) | |||||||||||||||||||||||||
2003 | 2004 | 2005 | 2003 | 2004 | 2005 | |||||||||||||||||||||
(In millions of Won) | ||||||||||||||||||||||||||
Balance at beginning of the year | W | 995,725 | W | 3,630,728 | W | 2,310,555 | W | 81,512 | W | 176,653 | W | 115,616 | ||||||||||||||
Provision (reversal) for loan losses | 1,011,366 | 195,446 | (255,146 | ) | — | — | — | |||||||||||||||||||
Provision (reversal) for off balance sheet credit commitment | — | — | — | (45,779 | ) | (60,032 | ) | 71,658 | ||||||||||||||||||
Allowance relating to: | ||||||||||||||||||||||||||
Acquisition of Shinhan Life Insurance | — | — | 2,792 | — | — | — | ||||||||||||||||||||
Acquisition of Chohung Bank | 2,739,297 | — | — | 140,920 | — | — | ||||||||||||||||||||
Loans reacquired from | ||||||||||||||||||||||||||
KAMCO subject to recourse | 31,831 | 1,900 | — | — | — | — | ||||||||||||||||||||
Reclassification to other liabilities | — | — | — | — | (1,005 | ) | — | |||||||||||||||||||
2,771,128 | 1,900 | 2,792 | 140,920 | (1,005 | ) | — | ||||||||||||||||||||
Charge-offs | (1,395,907 | ) | (1,824,897 | ) | (946,022 | ) | — | — | — | |||||||||||||||||
Recoveries | 248,416 | 307,378 | 399,324 | — | — | — | ||||||||||||||||||||
Balance at end of the year | W | 3,630,728 | W | 2,310,555 | W | 1,511,503 | W | 176,653 | W | 115,616 | W | 187,274 | ||||||||||||||
(1) | The allowance for off-balance sheet credit instruments is included in other liabilities. |
F-42
Table of Contents
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Gross lease payments receivable | W | 1,056,681 | W | 807,291 | ||||
Estimated unguaranteed residual values | 31,125 | 24,030 | ||||||
Unearned income | (106,804 | ) | (76,848 | ) | ||||
W | 981,002 | W | 754,473 | |||||
(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 285,995 | ||
2007 | 193,234 | |||
2008 | 115,689 | |||
2009 | 63,606 | |||
2010 | 44,350 | |||
Thereafter | 51,599 | |||
W | 754,473 | |||
9. | Premises and Equipment |
2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Lands | W | 942,717 | W | 937,711 | |||||
Buildings | 697,075 | 730,675 | |||||||
Equipment and furniture | 594,132 | 631,264 | |||||||
Capitalized software costs | 106,320 | 195,063 | |||||||
Leasehold improvements | 108,312 | 134,368 | |||||||
Construction in progress | 2,781 | 10,164 | |||||||
Operating lease assets | 173,634 | 116,859 | |||||||
Total premises and equipment, gross | 2,624,971 | 2,756,104 | |||||||
Less: Accumulated depreciation and amortization | (776,918 | ) | (879,608 | ) | |||||
Total premises and equipment, net | W | 1,848,053 | W | 1,876,496 | |||||
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Table of Contents
10. | Goodwill and Intangible Assets |
Good Morning | ||||||||||||||||||||
Chohung | Shinhan | Shinhan | Shinhan | |||||||||||||||||
Bank | Securities | Capital | Life Insurance | Total | ||||||||||||||||
(In millions of Won) | ||||||||||||||||||||
Balance at January 1, 2004 | W | 355,409 | W | 145,364 | W | 1,616 | W | — | W | 502,389 | ||||||||||
Acquisition | — | — | — | — | — | |||||||||||||||
Disposition | — | — | — | — | — | |||||||||||||||
Impairment loss | — | — | — | — | — | |||||||||||||||
Other | 113,526 | — | — | — | 113,526 | |||||||||||||||
Balance at December 31, 2004 | 468,935 | 145,364 | 1,616 | — | 615,915 | |||||||||||||||
Acquisition | — | — | — | 289,800 | 289,800 | |||||||||||||||
Disposition | — | — | — | — | — | |||||||||||||||
Impairment loss | — | — | — | — | — | |||||||||||||||
Other | 216,890 | — | — | — | 216,890 | |||||||||||||||
Balance at December 31, 2005 | W | 685,825 | W | 145,364 | W | 1,616 | W | 289,800 | W | 1,122,605 | ||||||||||
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Table of Contents
Treasury & | Other | Securities | ||||||||||||||||||||||||||||||
Retail | Corporate | International | Credit | Banking | Brokerage | |||||||||||||||||||||||||||
Banking | Banking | Business | Card | Services | Services | Other(1) | Total | |||||||||||||||||||||||||
Balance at January 1, 2004 | W | 223,200 | W | 32,345 | W | 20,489 | W | 51,500 | W | 5,439 | W | 129,285 | W | 40,131 | W | 502,389 | ||||||||||||||||
Acquisition | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Disposition | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other | 71,295 | 1,072 | 6,545 | 16,450 | 1,737 | — | 16,427 | 113,526 | ||||||||||||||||||||||||
Balance at December 31, 2004 | 294,495 | 33,417 | 27,034 | 67,950 | 7,176 | 129,285 | 56,558 | 615,915 | ||||||||||||||||||||||||
Acquisition | — | — | — | — | — | — | 289,800 | 289,800 | ||||||||||||||||||||||||
Disposition | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other | 136,209 | 15,456 | 12,503 | 31,428 | 3,319 | — | 17,975 | 216,890 | ||||||||||||||||||||||||
Balance at December 31, 2005 | W | 430,704 | W | 48,873 | W | 39,537 | W | 99,378 | W | 10,495 | W | 129,285 | W | 364,333 | W | 1,122,605 | ||||||||||||||||
(1) | Includes goodwill relating to Shinhan Life Insurance. |
F-45
Table of Contents
2004 | 2005 | ||||||||||||||||||||||||
Gross Carrying | Accumulated | Net Carrying | Gross Carrying | Accumulated | Net Carrying | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||
Core deposit of Jeju Bank | W | 2,508 | W | (2,508 | ) | W | — | W | 2,508 | W | (2,508 | ) | W | — | |||||||||||
Brokerage customer relationship | 68,266 | (64,551 | ) | 3,715 | 68,266 | (66,207 | ) | 2,059 | |||||||||||||||||
KSFC deposit | 10,941 | (10,415 | ) | 526 | 10,941 | (10,649 | ) | 292 | |||||||||||||||||
Core deposit of Chohung Bank | 825,477 | (156,342 | ) | 669,135 | 825,477 | (284,041 | ) | 541,436 | |||||||||||||||||
Credit card relationship of Chohung Bank | 198,320 | (54,693 | ) | 143,627 | 198,320 | (106,688 | ) | 91,632 | |||||||||||||||||
VOBA | — | — | — | 978,532 | (5,822 | ) | 972,710 | ||||||||||||||||||
Total intangible assets subject to amortization | 1,105,512 | (288,509 | ) | 817,003 | 2,084,044 | (475,915 | ) | 1,608,129 | |||||||||||||||||
KSFC borrowing | 400 | — | 400 | 400 | — | 400 | |||||||||||||||||||
Court deposit of Chohung Bank | 226,353 | — | 226,353 | 226,353 | — | 226,353 | |||||||||||||||||||
Total indefinite-lived intangible assets | 226,753 | — | 226,753 | 226,753 | — | 226,753 | |||||||||||||||||||
W | 1,332,265 | W | (288,509 | ) | W | 1,043,756 | W | 2,310,797 | W | (475,915 | ) | W | 1,834,882 | ||||||||||||
(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 263,481 | ||
2007 | 262,807 | |||
2008 | 215,837 | |||
2009 | 170,691 | |||
2010 | 135,244 | |||
Thereafter | 560,069 | |||
W | 1,608,129 | |||
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Table of Contents
11. | Other Assets |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Accrued interest and dividends receivable | W | 455,262 | W | 555,193 | ||||
Receivables for foreign exchange spot contracts | 2,463,992 | 512,457 | ||||||
Accounts receivable | 2,042,601 | 1,512,779 | ||||||
Accrued interest income | 64,358 | 83,916 | ||||||
Deferred tax assets | 829,276 | 183,604 | ||||||
Other investments(1) | 1,076,326 | 1,419,128 | ||||||
Prepaid expenses | 56,183 | 82,009 | ||||||
Separate account assets | — | 124,249 | ||||||
Others | 83,849 | 250,322 | ||||||
W | 7,071,847 | W | 4,723,657 | |||||
(1) | Other investments include unlisted equity securities, securities with sales restriction, and investments accounted for by the equity method. |
12. | Deposits |
2004 | 2005 | ||||||||||||||||
Weighted- | Weighted- | ||||||||||||||||
Average | Average | ||||||||||||||||
Balance | Interest Rate | Balance | Interest Rate | ||||||||||||||
(In millions of Won, except percentages) | |||||||||||||||||
Interest-bearing deposits | |||||||||||||||||
Demand deposits | W | 5,620,644 | 1.33 | % | W | 6,997,857 | 1.90 | % | |||||||||
Savings deposits | 24,427,179 | 1.24 | % | 27,142,438 | 0.96 | % | |||||||||||
Certificate of deposits | 8,051,525 | 4.08 | % | 10,649,687 | 3.81 | % | |||||||||||
Other time deposits | 39,449,288 | 3.83 | % | 36,901,099 | 3.69 | % | |||||||||||
Mutual installment deposits | 2,384,922 | 4.54 | % | 1,587,116 | 4.16 | % | |||||||||||
79,933,558 | 2.93 | % | 83,278,197 | 2.71 | % | ||||||||||||
Non-interest-bearing deposits | |||||||||||||||||
Demand deposits | 2,745,925 | — | 3,143,170 | — | |||||||||||||
W | 82,679,483 | 2.85 | % | W | 86,421,367 | 2.63 | % | ||||||||||
F-47
Table of Contents
(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 41,090,629 | ||
2007 | 4,964,700 | |||
2008 | 1,124,837 | |||
2009 | 516,644 | |||
2010 | 1,089,384 | |||
Thereafter | 351,708 | |||
W | 49,137,902 | |||
13. | Short-Term Borrowings |
2004 | 2005 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Balance | Interest Rate | Balance | Interest Rate | |||||||||||||
(In millions of Won, except percentages) | ||||||||||||||||
Borrowings from BOK | W | 1,567,708 | 2.32 | % | W | 1,668,335 | 1.85 | % | ||||||||
Borrowings in foreign currencies | 3,999,173 | 1.09 | % | 4,473,370 | 1.57 | % | ||||||||||
Borrowings from trust accounts | 706,578 | 3.84 | % | 877,858 | 3.15 | % | ||||||||||
Call money | 1,155,569 | 3.30 | % | 994,121 | 3.24 | % | ||||||||||
Other borrowings(1) | 3,524,527 | 3.41 | % | 3,954,616 | 3.48 | % | ||||||||||
W | 10,953,555 | W | 11,968,300 | |||||||||||||
(1) | The majority of other borrowings relate to borrowings from other financial institutions. |
F-48
Table of Contents
14. | Secured Borrowings |
2004 | 2005 | ||||||||||||||||||||||||||||
Collateral | Collateral | ||||||||||||||||||||||||||||
Secured | Secured | ||||||||||||||||||||||||||||
Maturity | Borrowings | Loans(1) | Securities | Borrowings | Loans(1) | Securities | |||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||
Shinhan 2nd Securitization Specialty L.L.C. | 2011 | W | 10,737 | W | 19,303 | W | 7,549 | W | — | W | — | W | — | ||||||||||||||||
7.85% collateralized bond obligation | |||||||||||||||||||||||||||||
Shinhan 4th Securitization Specialty L.L.C. | 2011 | 250 | 19,074 | 3,371 | — | — | — | ||||||||||||||||||||||
20.00% collateralized bond obligation | |||||||||||||||||||||||||||||
Sprout I ABS Specialty Co., Ltd. | 2013 | 407,186 | 791,405 | — | 385,859 | 731,038 | — | ||||||||||||||||||||||
1M Libor+0.60% collateralized bond obligation | |||||||||||||||||||||||||||||
Shinhan Fun and Joy 2nd Securitization Specialty L.L.C. | 2006 | 27,953 | 9 | — | — | — | — | ||||||||||||||||||||||
5.20%-5.69% collateralized bond obligation | |||||||||||||||||||||||||||||
Good & Secure Co., Ltd. | 2005 | 81,522 | — | 73,142 | — | — | — | ||||||||||||||||||||||
3.68%-7.00% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
Goldwing Co., Ltd. | 2006 | 383,167 | 94,140 | 320,023 | 328,000 | 39,256 | 346,681 | ||||||||||||||||||||||
4.30%-5.47% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
Shinhan Card 2003-1 Securitization Specialty L.L.C. | 2009 | 406,086 | 801,694 | — | 406,086 | 701,366 | — | ||||||||||||||||||||||
4.65% Type 1 beneficiary certificate | |||||||||||||||||||||||||||||
CSC 1st Securitization Specialty L.L.C. | 2005 | 59,700 | — | 100,576 | — | — | — | ||||||||||||||||||||||
CD+1.57% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
Shinhan 5th Securitization Specialty L.L.C. | 2006 | 44,888 | 131,287 | — | 44,999 | 65,490 | — | ||||||||||||||||||||||
3.75%-3.86% collateralized bond obligation | |||||||||||||||||||||||||||||
CHB NPL 2004-1 ABS Specialty Co., Ltd. | 2007 | 89,759 | 197,116 | — | 79,904 | 98,897 | 1,474 | ||||||||||||||||||||||
3.91%-4.49% collateralized bond obligation | |||||||||||||||||||||||||||||
CHB NPL 2004-2 ABS Specialty Co., Ltd. | 2007 | 104,679 | 276,813 | 556 | 84,865 | 141,239 | 2,541 | ||||||||||||||||||||||
3.54%-3.85% collateralized bond obligation | |||||||||||||||||||||||||||||
Auto 1st ABS Specialty Co., Ltd. | 2008 | 72,500 | — | 71,000 | — | — | — | ||||||||||||||||||||||
CD+0.70%-7.00% ABCP and collateralized bond obligation | |||||||||||||||||||||||||||||
KTF 3rd ABS Specialty Co., Ltd. | 2007 | 199,740 | — | 200,000 | 199,853 | — | 200,000 | ||||||||||||||||||||||
5.67% collateralized bond obligation | |||||||||||||||||||||||||||||
Dongbu Hannong Chemical 1st ABS Specialty Co. | 2005 | 96,980 | — | 97,000 | — | — | — | ||||||||||||||||||||||
3.65%-6.75% ABCP and collateralized bond Obligation | |||||||||||||||||||||||||||||
Dogong 1st ABS Specialty Co., Ltd. | 2006 | 326,499 | — | 326,500 | 143,500 | — | 152,500 | ||||||||||||||||||||||
3.94%-7.00% ABCP and collateralized bond Obligation | |||||||||||||||||||||||||||||
Enclean 3rd ABS Specialty Co., Ltd. | 2007 | 155,498 | — | 200,433 | 150,500 | — | 200,233 | ||||||||||||||||||||||
4.05%-30% ABCP and collateralized bond obligation | |||||||||||||||||||||||||||||
Miraedon Co., Ltd. | 2005 | 120,000 | — | 157,776 | 407,200 | — | 616,761 | ||||||||||||||||||||||
4.22%-4.68% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
Work and Joy 2004-1 ABS Specialty Co., Ltd. | 2007 | 149,592 | — | 150,000 | 149,765 | — | 150,000 | ||||||||||||||||||||||
3.75% collateralized bond obligation | |||||||||||||||||||||||||||||
Shinhan 6th Securitization Specialty L.L.C. | 2007 | — | — | — | 124,668 | 144,677 | — | ||||||||||||||||||||||
3.94%-6.40% collateralized bond obligation | |||||||||||||||||||||||||||||
HiBrand ABCP Ltd. | 2008 | — | — | — | 48,050 | 47,191 | — | ||||||||||||||||||||||
3.95%-7.00% ABCP and collateralized bond obligation | |||||||||||||||||||||||||||||
SamsungShinhan 4th ABS Specialty Co. Ltd | 2009 | — | — | — | 250,346 | — | 250,500 | ||||||||||||||||||||||
4.13%-7.00% ABCP and collateralized bond obligation |
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Table of Contents
2004 | 2005 | ||||||||||||||||||||||||||||
Collateral | Collateral | ||||||||||||||||||||||||||||
Secured | Secured | ||||||||||||||||||||||||||||
Maturity | Borrowings | Loans(1) | Securities | Borrowings | Loans(1) | Securities | |||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||
Dongbu Steel 2nd ABS Specialty Co. Ltd | 2008 | — | — | — | 74,649 | — | 85,000 | ||||||||||||||||||||||
4.07% collateralized bond obligation | |||||||||||||||||||||||||||||
Auto 2nd ABS Specialty Co., Ltd | 2008 | — | — | — | 196,050 | — | 195,000 | ||||||||||||||||||||||
4.22%-7.00% ABCP and collateralized bond obligation | |||||||||||||||||||||||||||||
Blooming 2nd ABS Specialty Co., Ltd | 2006 | — | — | — | 20,000 | — | 38,000 | ||||||||||||||||||||||
4.13% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
CHB NPL 2005-1 ABS Specialty Co., Ltd | 2007 | — | — | — | 55,829 | 124,146 | 63 | ||||||||||||||||||||||
4.19%-4.52% collateralized bond obligation | |||||||||||||||||||||||||||||
CHB NPL 2005-2 ABS Specialty Co., Ltd | 2007 | — | — | — | 40,805 | 102,392 | — | ||||||||||||||||||||||
5.13%-5.78% collateralized bond obligation | |||||||||||||||||||||||||||||
Cheongge ABS Specialty Co., Ltd | 2008 | — | — | — | 96,712 | — | 97,307 | ||||||||||||||||||||||
4.11%-6.00% collateralized bond obligation | |||||||||||||||||||||||||||||
Humax 1st ABS Specialty Co., Ltd | 2006 | — | — | — | 40,000 | — | 62,328 | ||||||||||||||||||||||
4.36% Asset-Backed Commercial Papers | |||||||||||||||||||||||||||||
Other secured borrowings | 2008 | 40,182 | 3,904 | 21,187 | 12,861 | 3,840 | 2,745 | ||||||||||||||||||||||
5.85%-25% collateralized bond obligation | |||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 2006 | 3,531,175 | — | 7,094,006 | 4,161,206 | — | 7,257,244 | ||||||||||||||||||||||
2.50%-15.6% | |||||||||||||||||||||||||||||
W | 6,308,093 | W | 2,334,745 | W | 8,823,119 | W | 7,501,707 | W | 2,199,532 | W | 9,658,377 | ||||||||||||||||||
(1) | Represents the carrying amounts, exclusive of the related specific allowance for loan losses. |
F-50
Table of Contents
15. | Long-Term Debt |
Interest | ||||||||||||||||||
Rates (%) | Maturity | 2004 | 2005 | |||||||||||||||
(In millions of Won) | ||||||||||||||||||
Senior | ||||||||||||||||||
Won-denominated | ||||||||||||||||||
Notes payable to the Small Business Corporation | 2.00-4.90 | 2006-2015 | W | 703,641 | W | 492,543 | ||||||||||||
Notes payable to the Industrial Bank of Korea | 1.00-4.25 | 2006-2013 | 22,501 | 190,558 | ||||||||||||||
Notes payable to the Institute of Information Technology Assessment | 0.62-5.00 | 2006-2010 | 233,091 | 150,821 | ||||||||||||||
Notes payable to the Korea Energy Management Corporation | 1.50-6.00 | 2006-2020 | 225,641 | 265,740 | ||||||||||||||
Notes payable to other Korean Government Funds | 0.63-5.50 | 2006-2020 | 177,610 | 255,685 | ||||||||||||||
Fixed and floating rate debentures(1)(2) | 0.50-11.95 | 2006-2015 | 14,229,164 | 15,281,503 | ||||||||||||||
Other notes payable | 2.00-8.12 | 2006-2014 | 388,063 | 1,684,662 | ||||||||||||||
Subtotal | 15,979,711 | 18,321,512 | ||||||||||||||||
Foreign currency-denominated | ||||||||||||||||||
Floating rate debentures(1) | 5.23-5.43 | 2006-2008 | 599,386 | 714,384 | ||||||||||||||
Other floating rate notes payable | 1.95-6.83 | 2006-2035 | 1,400,962 | 701,598 | ||||||||||||||
Subtotal | 2,000,348 | 1,415,982 | ||||||||||||||||
Total senior debt | 17,980,059 | 19,737,494 | ||||||||||||||||
Subordinated | ||||||||||||||||||
Won-denominated | ||||||||||||||||||
Hybrid bonds(3) | 5.70-7.80 | 2033-2034 | 495,033 | 495,033 | ||||||||||||||
Other fixed rate notes payable(4) | 4.56-14.45 | 2006-2014 | 3,325,202 | 3,640,192 | ||||||||||||||
Subtotal | 3,820,235 | 4,135,225 | ||||||||||||||||
Foreign currency-denominated | ||||||||||||||||||
Floating rate debentures(1) | 5.94 | 2014 | 52,190 | 50,650 | ||||||||||||||
Other fixed rate notes payable | 5.12-6.25 | 2013-2015 | 260,950 | 607,800 | ||||||||||||||
Subtotal | 313,140 | 658,450 | ||||||||||||||||
Total subordinated debt | 4,133,375 | 4,793,675 |
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Table of Contents
Interest | ||||||||||||||||||
Rates (%) | Maturity | 2004 | 2005 | |||||||||||||||
(In millions of Won) | ||||||||||||||||||
Redeemable preferred stock(5) | ||||||||||||||||||
Series 1 Redeemable preferred stock | 4.04 | 2006 | 168,503 | 168,503 | ||||||||||||||
Series 2 Redeemable preferred stock | 4.04 | 2007 | 168,503 | 168,503 | ||||||||||||||
Series 3 Redeemable preferred stock | 4.04 | 2008 | 168,504 | 168,504 | ||||||||||||||
Series 4 Redeemable preferred stock | 4.04 | 2009 | 168,504 | 168,504 | ||||||||||||||
Series 5 Redeemable preferred stock | 4.04 | 2010 | 168,504 | 168,504 | ||||||||||||||
Series 6 Redeemable preferred stock | 7.00 | 2006 | 525,000 | 525,000 | ||||||||||||||
Series 7 Redeemable preferred stock | 7.46 | 2008 | 365,000 | 365,000 | ||||||||||||||
Series 8 Redeemable preferred stock | 7.86 | 2010 | 10,000 | 10,000 | ||||||||||||||
Total redeemable preferred stock | 1,742,518 | 1,742,518 | ||||||||||||||||
Long-term debt, gross | 23,855,952 | 26,273,687 | ||||||||||||||||
Less: Unamortized discounts | (239,269 | ) | (101,865 | ) | ||||||||||||||
Long-term debt, net | W | 23,616,683 | W | 26,171,822 | ||||||||||||||
(1) | Interest rates on floating rate debt were those rates in effect at December 31, 2005. | |
(2) | Majority of these debentures related to miscellaneous bank borrowings from individual lenders. | |
(3) | Chohung Bank and Shinhan Bank have a call option that can be exercised five years after the issuance date, or earlier with the approval of the Financial Supervisory Service. The call options mature in 30 years from the issuance date, but may be extended by Chohung Bank and Shinhan Bank at any time. | |
(4) | Majority of these debentures related to miscellaneous bank borrowings from corporate lenders and Korean governmental entities. | |
(5) | See Note 22 for the terms of the RPS. |
F-52
Table of Contents
(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 5,670,958 | ||
2007 | 6,108,247 | |||
2008 | 7,333,576 | |||
2009 | 1,429,343 | |||
2010 | 1,170,510 | |||
Thereafter | 4,561,053 | |||
Long-term debt, gross | 26,273,687 | |||
Less: Unamortized discount | (101,865 | ) | ||
Long-term debt, net | W | 26,171,822 | ||
16. | Future Policy Benefits |
2005 | ||||
(In millions of | ||||
Won) | ||||
Life insurance | W | 2,590,044 | ||
Annuity contracts | 1,388,679 | |||
Other contract liabilities | 603,333 | |||
Unpaid claims and claim adjustment expenses | 195,512 | |||
W | 4,777,568 | |||
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Table of Contents
17. | Accrued Expenses and Other Liabilities |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Accrued interest and dividend payables | W | 1,778,560 | W | 1,901,498 | ||||
Payables for foreign exchange spot contracts | 2,606,201 | 750,144 | ||||||
Accrued severance benefits | 74,835 | 181,767 | ||||||
Accrued expenses | 85,491 | 157,453 | ||||||
Accounts payable | 2,280,240 | 1,096,240 | ||||||
Unearned income | 157,192 | 147,502 | ||||||
Income tax payable | 277,818 | 221,993 | ||||||
Withholding value-added tax and other taxes | 43,114 | 88,221 | ||||||
Deferred tax liabilities | 525,407 | 302,339 | ||||||
Guarantee deposits received | 305,649 | 299,814 | ||||||
Due to agencies | 938,465 | 1,118,606 | ||||||
Allowance for losses on off-balance sheet credit instruments | 115,616 | 187,273 | ||||||
Utility bill payments received on behalf of government | 108,035 | 59,112 | ||||||
Separate account liabilities | — | 124,249 | ||||||
Other | 417,506 | 452,901 | ||||||
W | 9,714,129 | W | 7,089,112 | |||||
18. | Commissions and Fees |
2003 | 2004 | 2005 | ||||||||||||
(In millions of Won) | ||||||||||||||
Brokerage fees and commissions | W | 260,412 | W | 231,520 | W | 345,265 | ||||||||
Other fees and commissions: | ||||||||||||||
Credit card fees | 255,775 | 360,624 | 421,249 | |||||||||||
Commissions received on remittance | 59,685 | 78,657 | 72,626 | |||||||||||
Commissions received on import and export letters of credit | 51,166 | 80,528 | 70,625 | |||||||||||
Financial guarantee fees | 9,102 | 24,916 | 21,358 | |||||||||||
Commissions received in foreign exchange activities | 30,273 | 68,391 | 70,325 | |||||||||||
Commission received as agency | 5,987 | 49,132 | 71,032 | |||||||||||
Commission received as electronic charge receipt | 42,583 | 74,232 | 69,962 | |||||||||||
Commission received as early repayment | 36,350 | 33,958 | 35,245 | |||||||||||
Other fees | 89,136 | 176,856 | 328,016 | |||||||||||
Total other fees and commissions | 580,057 | 947,294 | 1,160,438 | |||||||||||
W | 840,469 | W | 1,178,814 | W | 1,505,703 | |||||||||
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19. | Other Non-interest Income and Other Non-interest Expenses |
2003 | 2004 | 2005 | ||||||||||
(In millions of Won) | ||||||||||||
Gain on sale of premises and equipment | W | 22,609 | W | 30,408 | W | 74,868 | ||||||
Income from operating leases | 39,922 | 52,787 | 42,227 | |||||||||
Rental income | 11,924 | 15,199 | 15,870 | |||||||||
Extinguished prescription of deposits | 16,053 | 13,353 | 1,383 | |||||||||
Other | 65,249 | 246,137 | 198,177 | |||||||||
W | 155,757 | W | 357,884 | W | 332,525 | |||||||
2003 | 2004 | 2005 | ||||||||||
(In millions of Won) | ||||||||||||
Impairment loss on intangible assets | W | — | W | 1,893 | W | — | ||||||
Impairment loss on other investments | 39,541 | 15,521 | 20,958 | |||||||||
Loss on sale of premises and equipment | 8,670 | 15,134 | 54,550 | |||||||||
Loss on sale of other real estate | 3,199 | 1,448 | 6,758 | |||||||||
Other | 139,771 | 309,383 | 231,919 | |||||||||
W | 191,181 | W | 343,379 | W | 314,185 | |||||||
20. | Extraordinary Gain |
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Table of Contents
(In millions of | |||||
Won) | |||||
Fair value of net assets of Good Morning Shinhan Securities | W | 301,334 | |||
KSFC deposit intangible asset | 6,276 | ||||
Brokerage customer relationship intangible asset | 50,956 | ||||
KSFC borrowing intangible asset | 262 | ||||
Negative goodwill | (149,791 | ) | |||
Total purchase price | W | 209,037 | |||
(In millions of | |||||
Won) | |||||
Premises and equipment | W | 111,172 | |||
KSFC deposit intangible asset | 6,276 | ||||
Brokerage customer relationship intangible asset | 50,956 | ||||
KSFC borrowing intangible asset | 262 | ||||
Deferred tax asset | (46,383 | ) | |||
Extraordinary gain | 27,508 | ||||
Total allocation | W | 149,791 | |||
21. | Common Stock |
Issuances of common stock |
Treasury stock |
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Table of Contents
22. | Redeemable Preferred Stock and Redeemable Convertible Preferred Stock |
RPS issued to KDIC (Series 1 to 5) | 4.04 | % | |||
RPS issued to Strider: | |||||
Series 6 | 7.00 | % | |||
Series 7 | 7.46 | % | |||
Series 8 | 7.86 | % |
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(In millions of | ||||
Years Ending | Won) | |||
2006 | W | — | ||
2007 | — | |||
2008 | 404,408 | |||
Discount on RCPS | (36,536 | ) | ||
W | 367,872 | |||
23. | Retained Earnings |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Appropriated retained earnings for legal reserves under Korean GAAP | W | 118,692 | W | 223,722 | ||||
Unappropriated retained earnings under US GAAP | 2,337,201 | 3,730,020 | ||||||
W | 2,455,893 | W | 3,953,742 | |||||
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24. | Regulatory Requirements |
2004 | 2005 | |||||||
(In millions of Won, | ||||||||
except capital ratio) | ||||||||
Equity Capital | W | 9,867,854 | W | 11,434,801 | ||||
Requisite Capital | 7,625,261 | 8,609,121 | ||||||
Requisite Capital Ratio | 129.41 | % | 132.81 | % |
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Shinhan Bank | Chohung Bank | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
(In millions of Won, except capital ratio) | ||||||||||||||||||
Tier 1 capital | W | 3,618,254 | W | 4,381,101 | W | 2,023,051 | W | 2,968,489 | ||||||||||
Tier 2 capital | 2,183,527 | 2,287,736 | 2,023,051 | 2,172,639 | ||||||||||||||
Less: Treasury stock, etc | (257 | ) | (100,712 | ) | (230,373 | ) | (157,383 | ) | ||||||||||
Total risk-adjusted capital | W | 5,801,524 | W | 6,568,125 | W | 3,815,729 | W | 4,983,745 | ||||||||||
Risk-weighted assets | ||||||||||||||||||
On-balance sheet assets | W | 44,603,127 | W | 49,216,505 | W | 38,841,232 | W | 43,258,274 | ||||||||||
Off-balance sheet assets | 3,886,979 | 4,305,776 | 1,796,797 | 2,292,389 | ||||||||||||||
Total risk-weighted assets | W | 48,490,106 | W | 53,522,281 | W | 40,638,029 | W | 45,550,663 | ||||||||||
Capital adequacy ratio | 11.96 | % | 12.27 | % | 9.39 | % | 10.94 | % | ||||||||||
Tier 1 capital ratio | 7.46 | % | 8.19 | % | 4.98 | % | 6.52 | % | ||||||||||
Tier 2 capital ratio | 4.50 | % | 4.27 | % | 4.98 | % | 4.77 | % |
Shinhan Bank | Chohung Bank | |||||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||||
(In millions of Won, except capital ratio) | ||||||||||||||||||
Tier 1 capital | W | 3,618,254 | W | 4,381,101 | W | 2,023,051 | W | 2,968,489 | ||||||||||
Tier 2 capital | 2,183,270 | 2,187,024 | 1,792,678 | 2,015,256 | ||||||||||||||
Total risk-adjusted capital | W | 5,801,524 | W | 6,568,125 | W | 3,815,729 | W | 4,983,745 | ||||||||||
Total risk-weighted assets | W | 48,578,597 | W | 53,708,592 | W | 40,580,874 | W | 45,546,697 | ||||||||||
Capital adequacy ratio | 11.94 | % | 12.23 | % | 9.40 | % | 10.94 | % | ||||||||||
Tier 1 capital ratio | 7.45 | % | 8.16 | % | 4.99 | % | 6.52 | % | ||||||||||
Tier 2 capital ratio | 4.49 | % | 4.07 | % | 4.41 | % | 4.42 | % |
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25. | Income Taxes |
2003 | 2004 | 2005 | ||||||||||||
(In millions of Won) | ||||||||||||||
Current tax expense | ||||||||||||||
National | W | 218,340 | W | 392,306 | W | 414,073 | ||||||||
Local | 21,834 | 39,231 | 41,408 | |||||||||||
Total current tax expense | 240,174 | 431,537 | 455,481 | |||||||||||
Deferred tax expense | ||||||||||||||
National | 6,571 | 302,649 | 442,641 | |||||||||||
Local | 657 | 30,265 | 44,264 | |||||||||||
Total deferred tax expense | 7,228 | 332,914 | 486,905 | |||||||||||
Total tax expense | W | 247,402 | W | 764,451 | W | 942,386 | ||||||||
2003 | 2004 | 2005 | ||||||||||
(In millions of Won, except tax rates) | ||||||||||||
Statutory tax rate | 29.7 | % | 29.7 | % | 27.5 | % | ||||||
Income before income tax expense, minority interest, extraordinary item and cumulative effect of a change in accounting principle | W | 548,566 | W | 2,380,290 | W | 2,697,233 | ||||||
Income tax calculated at the statutory tax rate | 162,924 | 706,946 | 741,739 | |||||||||
Income not assessable for tax purposes | (8,939 | ) | (75,926 | ) | (25,519 | ) | ||||||
Expenses not deductible for tax purposes | 19,880 | 171,556 | 205,402 | |||||||||
Foreign tax rate differentials | (359 | ) | (205 | ) | (429 | ) | ||||||
Adjustment of deferred tax liability on investment in subsidiaries and associates | 291 | 13,502 | (7,670 | ) | ||||||||
Change in statutory tax rate(1) | 56,462 | (33,688 | ) | — | ||||||||
Change in valuation allowance | 15,507 | (18,125 | ) | 27,374 | ||||||||
Other | 1,636 | 391 | 1,489 | |||||||||
Income tax expense | W | 247,402 | W | 764,451 | W | 942,386 | ||||||
(1) | In December 2003, the Korean government reduced the corporate income tax rate from 29.7% to 27.5%, effective from January 1, 2005. |
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2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Deferred income tax assets | |||||||||
Allowance for loan losses | W | 276,859 | W | 14,078 | |||||
Other allowances | 51,376 | 172,768 | |||||||
Valuation of trading assets | 15,733 | 12,588 | |||||||
Premises and equipment | 58,942 | 40,349 | |||||||
Available-for-sale securities | 233,868 | 323,181 | |||||||
Other assets | 26,906 | 118,976 | |||||||
Future policy benefits | — | 144,833 | |||||||
Long-term debt | 33,492 | 35,763 | |||||||
Other temporary differences | 9,819 | 5,704 | |||||||
Net operating loss carry forwards | 177,905 | 32,520 | |||||||
884,900 | 900,760 | ||||||||
Less: Valuation allowance | (55,624 | ) | (79,173 | ) | |||||
Deferred income tax assets | 829,276 | 821,587 | |||||||
Deferred income tax liabilities | |||||||||
Valuation of trading assets | (1,701 | ) | (8,006 | ) | |||||
Foreign exchange contracts and derivative instruments | (566 | ) | (22,956 | ) | |||||
Allowance for loan losses | (78,424 | ) | (191,901 | ) | |||||
Accrued interest and dividend receivable | (73,952 | ) | (52,393 | ) | |||||
Other assets | (354,922 | ) | (660,365 | ) | |||||
Long-term debt | (8,594 | ) | (294 | ) | |||||
Other temporary differences | (7,248 | ) | (4,407 | ) | |||||
Deferred income tax liabilities | (525,407 | ) | (940,322 | ) | |||||
Net deferred income tax assets/ (liabilities) | W | 303,869 | W | (118,735 | ) | ||||
2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Deferred tax assets | W | 829,276 | W | 183,604 | |||||
Deferred tax liabilities | (525,407 | ) | (302,339 | ) | |||||
Total net deferred tax assets/ (liabilities) | W | 303,869 | W | (118,735 | ) | ||||
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(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 97,823 | ||
2007 | — | |||
2008 | 1,118 | |||
2009 | 437 | |||
2010 | 18,876 | |||
W | 118,254 | |||
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26. | Earnings Per Share |
2003 | 2004 | 2005 | ||||||||||||
(In millions of Won, except per share data) | ||||||||||||||
Basic EPS | ||||||||||||||
Net income before extraordinary gain and cumulative effect of a change in accounting principle | W | 275,318 | W | 1,462,411 | W | 1,738,768 | ||||||||
Extraordinary gain, net of taxes | — | 27,508 | — | |||||||||||
Cumulative effect of a change in accounting principle, net of taxes | — | (23,049 | ) | — | ||||||||||
Accretion and dividends on redeemable convertible preferred stock | (6,043 | ) | (40,948 | ) | (8,169 | ) | ||||||||
Net income attributable to common stock shareholders | W | 269,275 | W | 1,425,922 | W | 1,730,599 | ||||||||
Weighted-average number of common stocks outstanding (in thousands) | 262,987 | 292,465 | 333,424 | |||||||||||
Net earnings per share | ||||||||||||||
Net income before extraordinary gain and cumulative effect of a change in accounting principle | W | 1,024 | W | 4,860 | W | 5,190 | ||||||||
Extraordinary gain | — | 94 | — | |||||||||||
Cumulative effect of a change in accounting principle | — | (79 | ) | — | ||||||||||
Basic net income per share | W | 1,024 | W | 4,875 | W | 5,190 | ||||||||
Diluted EPS | ||||||||||||||
Net income before extraordinary gain and cumulative effect of a change in accounting principle for purposes of computing diluted net income per share | W | 275,318 | W | 1,462,411 | W | 1,738,768 | ||||||||
Extraordinary gain, net of taxes | — | 27,508 | — | |||||||||||
Cumulative effect of a change in accounting principle, net of taxes | — | (23,049 | ) | — | ||||||||||
Net income attributable to common stock shareholders | W | 275,318 | W | 1,466,870 | W | 1,738,768 | ||||||||
Weighted-average number of common stocks outstanding (in thousands) | 262,987 | 292,465 | 333,424 | |||||||||||
Diluted effect of redeemable convertible preferred stock (in thousands) | 16,540 | 44,721 | 22,360 | |||||||||||
Diluted effect of bond with warrants (in thousands) | 212 | — | — | |||||||||||
Diluted effect of stock options (in thousands) | 6 | 294 | 356 | |||||||||||
Weighted-average number of common stock outstanding, Assuming dilution (in thousands) | 279,745 | 337,480 | 356,140 |
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2003 | 2004 | 2005 | ||||||||||||
(In millions of Won, except per share data) | ||||||||||||||
Net earnings per share | ||||||||||||||
Net income before extraordinary gain and cumulative effect of a change in accounting principle | W | 984 | W | 4,333 | W | 4,882 | ||||||||
Extraordinary gain | — | 82 | — | |||||||||||
Cumulative effect of a change in accounting principle | — | (68 | ) | — | ||||||||||
Diluted net income per share | W | 984 | W | 4,347 | W | 4,882 | ||||||||
27. | Employee Severance Plans |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Balance at beginning of the year | W | 348,264 | W | 175,861 | ||||
Severance benefits | 94,914 | 181,603 | ||||||
Balance from the acquisition of subsidiaries | — | 2,784 | ||||||
Plan payments | (267,317 | ) | (105,530 | ) | ||||
175,861 | 254,718 | |||||||
Less: Balance of payments remaining with National Pension Fund and severance insurance deposit | (101,026 | ) | (72,951 | ) | ||||
Balance at end of the year | W | 74,835 | W | 181,767 | ||||
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(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 21,494 | ||
2007 | 12,096 | |||
2008 | 11,026 | |||
2009 | 12,773 | |||
2010 | 14,771 | |||
2011-2015 | W | 124,163 |
28. | Employee Stock Option Plans |
Shinhan Financial Group | ||||||||
2004 | 2005 | |||||||
Risk-free interest rate | 4.39 | % | 4.07 | % | ||||
Expected lives | 3.50 years | 5.00 years | ||||||
Expected volatility | 42.26 | % | 42.31 | % | ||||
Expected dividend rate | 2.82 | % | 2.79 | % |
Shinhan Financial Group Plan |
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Shinhan Bank Plan |
Chohung Bank Plan |
Shinhan Financial Group | Shinhan Bank | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Number of | Price Per | Number of | Price Per | |||||||||||||
Shares | Share | Shares | Share | |||||||||||||
(In Won) | (In Won) | |||||||||||||||
Outstanding at January 1, 2003 | 1,004,200 | W | 18,910 | 472,543 | W | 12,686 | ||||||||||
Granted | 1,156,300 | 11,800 | — | — | ||||||||||||
Forfeited | (113,955 | ) | 16,483 | — | — | |||||||||||
Outstanding at December 31, 2003 | 2,046,545 | 15,028 | 472,543 | 12,686 | ||||||||||||
Granted | 1,301,600 | 21,595 | — | — | ||||||||||||
Exercised | (3,500 | ) | 18,910 | (469,043 | ) | 12,693 | ||||||||||
Forfeited | (247,703 | ) | 16,219 | — | — | |||||||||||
Outstanding at December 31, 2004 | 3,096,942 | 17,698 | 3,500 | 11,700 | ||||||||||||
Granted | 2,695,200 | 28,006 | — | — | ||||||||||||
Exercised | (363,665 | ) | 15,054 | (1,750 | ) | 11,700 | ||||||||||
Forfeited | (101,684 | ) | 26,360 | — | — | |||||||||||
Outstanding at December 31, 2005 | 5,326,793 | W | 22,848 | 1,750 | W | 11,700 | ||||||||||
Exercisable at December 31, 2005 | 1,506,227 | W | 15,079 | 1,750 | W | 11,700 | ||||||||||
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Chohung Bank | ||||||||
Weighted- | ||||||||
Average | ||||||||
Exercise | ||||||||
Number of | Price Per | |||||||
Shares | Share | |||||||
(In Won) | ||||||||
Outstanding at September 1, 2003 | 934,286 | W | 5,033 | |||||
Granted | — | — | ||||||
Forfeited | (365,580 | ) | 4,856 | |||||
Outstanding at December 31, 2003 | 568,706 | 5,147 | ||||||
Granted | 340,000 | 5,000 | ||||||
Forfeited | (5,316 | ) | 5,000 | |||||
Outstanding at December 31, 2004 | 903,390 | 5,093 | ||||||
Granted | — | — | ||||||
Forfeited | (19,739 | ) | 5,000 | |||||
Outstanding at December 31, 2005 | 883,651 | W | 5,093 | |||||
Exercisable at December 31, 2005 | 581,301 | W | 5,264 | |||||
Shinhan Financial Group | ||||||||||||||||||||
Options Outstanding | ||||||||||||||||||||
Options Exercisable | ||||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
Exercise Price | Outstanding | Life(1) | Price | Exercisable | Price | |||||||||||||||
(In Won) | (In Won) | |||||||||||||||||||
W18,910 | 694,643 | 2.39 | 18,910 | 694,643 | 18,910 | |||||||||||||||
11,800 | 811,584 | 3.38 | 11,800 | 811,584 | 11,800 | |||||||||||||||
21,595 | 1,248,605 | 3.24 | 21,595 | — | — | |||||||||||||||
28,006 | 2,571,961 | 6.25 | 28,006 | — | — | |||||||||||||||
5,326,793 | 4.60 | 22,848 | 1,506,227 | 15,079 | ||||||||||||||||
Shinhan Bank | ||||||||||||||||||||
Options Outstanding | ||||||||||||||||||||
Options Exercisable | ||||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
Exercise Price | Outstanding | Life(1) | Price | Exercisable | Price | |||||||||||||||
(In Won) | (In Won) | |||||||||||||||||||
W11,700 | 1,750 | 0.24 | 11,700 | 1,750 | 11,700 | |||||||||||||||
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Chohung Bank | ||||||||||||||||||||
Options Outstanding | ||||||||||||||||||||
Options Exercisable | ||||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
Exercise Prices | Outstanding | Life(1) | Price | Exercisable | Price | |||||||||||||||
(In Won) | (In Won) | |||||||||||||||||||
W5,260 | 99,054 | 2.24 | 5,260 | 99,054 | 5,260 | |||||||||||||||
5,000 | 579,301 | 0.24-3.23 | 5,000 | 276,951 | 5,000 | |||||||||||||||
5,598 | 187,200 | 1.24 | 5,598 | 187,200 | 5,598 | |||||||||||||||
5,860 | 18,096 | 1.24 | 5,860 | 18,096 | 5,860 | |||||||||||||||
883,651 | 1.83 | 5,097 | 581,301 | 5,264 | ||||||||||||||||
(1) | Contractual life indicates the sum of service (vesting) period and exercisable period. |
Employee Stock Ownership Association |
29. | Fair Value of Financial Instruments |
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2004 | 2005 | ||||||||||||||||
Carrying | Carrying | ||||||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||||||
(In millions of Won) | |||||||||||||||||
Financial assets: | |||||||||||||||||
Financial assets for which carrying value approximates fair value | W | 8,758,750 | W | 8,758,750 | W | 9,210,439 | W | 9,210,439 | |||||||||
Interest-bearing deposits in banks | 220,478 | 220,478 | 626,771 | 626,771 | |||||||||||||
Trading assets | 6,316,341 | 6,316,341 | 4,508,435 | 4,508,435 | |||||||||||||
Securities | 21,207,551 | 21,415,514 | 25,442,795 | 25,459,890 | |||||||||||||
Loans | 94,868,094 | 95,261,537 | 104,446,954 | 104,569,756 | |||||||||||||
Non-marketable equity investments included in other assets | 1,076,326 | 1,217,285 | 1,419,127 | 2,603,441 | |||||||||||||
Financial liabilities: | |||||||||||||||||
Financial liabilities for which carrying value approximates fair value | 2,934,129 | 2,934,129 | 1,901,498 | 1,901,498 | |||||||||||||
Deposits | 82,679,483 | 83,034,668 | 86,421,367 | 87,043,877 | |||||||||||||
Trading liabilities | 1,757,577 | 1,757,577 | 1,061,289 | 1,061,289 | |||||||||||||
Short-term borrowings | 10,935,555 | 10,935,555 | 11,968,300 | 11,968,300 | |||||||||||||
Secured borrowings | 6,308,093 | 6,388,404 | 7,501,707 | 7,547,573 | |||||||||||||
Long-term debt | 23,616,683 | 25,398,145 | 26,171,822 | 25,423,632 | |||||||||||||
Redeemable convertible preferred stock | W | 735,744 | W | 1,046,462 | W | 367,871 | W | 917,890 |
30. | Derivative Instruments and Hedging Activities |
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31. | Commitments and Contingencies |
Legal and Tax Contingencies |
Lease Commitments |
(In millions of | ||||
Years Ending | Won) | |||
2006 | W | 29,725 | ||
2007 | 13,981 | |||
2008 | 7,910 | |||
2009 | 4,578 | |||
2010 | 1,485 | |||
Thereafter | 135 | |||
W | 57,814 | |||
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Credit Commitments and Guarantees |
2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Commitments to extend credit: | |||||||||
Corporate | W | 39,322,638 | W | 46,335,824 | |||||
Credit card lines | 23,605,859 | 16,080,414 | |||||||
Consumer(1) | 5,960,613 | 5,862,898 | |||||||
Commercial letters of credit | 3,364,005 | 2,960,190 | |||||||
W | 72,253,115 | W | 71,239,326 |
(1) | excluding credit card |
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Maximum | ||||||||||||||||||||||||
Total | Current | Amount of | Potential | |||||||||||||||||||||
Notional | Carrying | Recourse or | Amount of | |||||||||||||||||||||
Expire within | Expire after | Amount | Liability | Collateral | Future | |||||||||||||||||||
One Year | One Year | Outstanding | Amount(1) | Held | Payments | |||||||||||||||||||
(In millions of Won) | ||||||||||||||||||||||||
Financial stand-by letters of credit | W | 227,385 | W | 28,630 | W | 256,015 | W | 3,357 | W | 67,972 | W | 256,015 | ||||||||||||
Other financial guarantees | 696,860 | 170,073 | 866,933 | 9,930 | 177,329 | 866,933 | ||||||||||||||||||
Performance letters of credit and guarantees | 743,770 | 251,690 | 995,460 | 10,974 | 113,275 | 995,460 | ||||||||||||||||||
Liquidity facilities to SPEs | 521,524 | 1,963,778 | 2,485,302 | 31,781 | — | 2,485,302 | ||||||||||||||||||
Loans sold with recourse | — | 14,225 | 14,225 | 4,069 | 11,527 | 14,225 | ||||||||||||||||||
Guarantees on trust accounts | 314,728 | 2,773,884 | 3,088,612 | — | — | 3,088,612 | ||||||||||||||||||
Credit derivatives | 25,325 | 40,520 | 65,845 | 371 | — | 65,845 | ||||||||||||||||||
W | 2,529,592 | W | 5,242,800 | W | 7,772,392 | W | 60,482 | W | 370,103 | W | 7,772,392 | |||||||||||||
(1) | Includes allowance for guarantees and acceptances, allowance for unfunded loan commitment and liabilities recorded under FIN. 45. |
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Pledged Assets |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Short-term and long-term deposits | W | 21,314 | W | 64 | ||||
Trading securities | 423,243 | 663,229 | ||||||
Available-for-sale securities | 12,683,355 | 11,473,807 | ||||||
Held-to-maturity securities | 758,446 | 1,546,167 | ||||||
Loans | 2,975,468 | 2,430,559 | ||||||
Real estate | 29,326 | 31,361 | ||||||
Other assets | 31,362 | 29,910 | ||||||
W | 16,922,514 | W | 16,175,097 | |||||
32. | Concentrations of Geographic and Credit Risks |
Geographic Risk |
Credit Risk |
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Table of Contents
2004 | 2005 | |||||||||||||||||||||||
On-Balance | Off-Balance | On-Balance | Off-Balance | |||||||||||||||||||||
Credit Exposure | Sheet | Sheet | Credit Exposure | Sheet | Sheet | |||||||||||||||||||
(In millions of Won) | ||||||||||||||||||||||||
Commercial and industrial | W | 58,789,035 | W | 35,653,127 | W | 23,135,908 | W | 66,211,349 | W | 35,728,132 | W | 30,483,217 | ||||||||||||
Other commercial | 40,946,060 | 17,988,288 | 22,957,772 | 44,825,210 | 21,408,703 | 23,416,507 | ||||||||||||||||||
Lease financing | 981,002 | 981,002 | — | 754,473 | 754,473 | — | ||||||||||||||||||
Mortgage and home equity | 22,439,050 | 22,180,112 | 258,938 | 26,142,838 | 25,840,334 | 302,504 | ||||||||||||||||||
Credit cards | 28,337,772 | 4,731,913 | 23,605,859 | 33,955,266 | 17,874,852 | 16,080,414 | ||||||||||||||||||
Other consumer | 21,247,470 | 15,545,796 | 5,701,674 | 9,801,956 | 4,241,562 | 5,560,394 | ||||||||||||||||||
W | 172,740,389 | W | 97,080,238 | W | 75,660,151 | W | 181,691,092 | W | 105,848,056 | W | 75,843,036 | |||||||||||||
33. | Related Party Transactions |
Trust Accounts |
Loans to Executives, Directors and Affiliated Parties |
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Loans at beginning of the year | W | 132,410 | W | 213,270 | ||||
New loans | 108,893 | 26,660 | ||||||
Repayments | (28,033 | ) | (59,233 | ) | ||||
Loans at end of the year | W | 213,270 | W | 180,697 | ||||
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2003 | 2004 | 2005 | ||||||||||||||||||||||
Executives, | Executives, | Executives, | ||||||||||||||||||||||
Directors and | Directors and | Directors and | ||||||||||||||||||||||
Trust | Affiliated | Trust | Affiliated | Trust | Affiliated | |||||||||||||||||||
Accounts | Parties | Accounts | Parties | Accounts | Parties | |||||||||||||||||||
(In millions of Won) | ||||||||||||||||||||||||
Loans | W | — | W | 132,410 | W | — | W | 213,270 | W | — | W | 180,697 | ||||||||||||
Accrued expenses and other assets | 27,659 | — | 91,624 | — | 65,795 | — | ||||||||||||||||||
Short-term borrowings | 859,974 | — | 600,924 | — | 669,427 | — | ||||||||||||||||||
Other liabilities | — | — | 669 | — | 354 | — | ||||||||||||||||||
Other interest income | — | — | 768 | — | — | — | ||||||||||||||||||
Net trust management fees | 50,177 | — | 115,711 | — | 104,955 | — | ||||||||||||||||||
Interest expense on short-term borrowings | 10,910 | — | 16,985 | — | 17,714 | — | ||||||||||||||||||
Interest on loans | — | 5,526 | — | 6,828 | — | 3,538 |
34. | Segment Reporting |
• | Retail banking — Activities within this segment include savings and demand deposits, consumer loans and mortgages of individual customers and sole proprietors who borrowed W1,000 million or less. | |
• | Corporate banking — Activities within this segment include loans, overdrafts, other credit facilities, deposits in foreign currencies and other foreign currency activities. The corporate banking segment’s assets and liabilities are mainly from transactions with customers including small and medium sized private companies, publicly traded enterprises and sole proprietors who borrowed more than W1 billion. | |
• | Securities brokerage services — Activities within this segment include a full range of brokerage services, investment advice and financial planning to retail customers, and various investment banking services to corporate customers conducted through Good Morning Shinhan Securities. | |
• | Credit card — Activities within this segment include processing domestic as well as overseas credit and debit card operations conducted through Shinhan Card and Chohung Bank. The credit card segment’s assets and liabilities are mainly from transactions with individual or corporate cardholders and card merchants. |
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• | Treasury and securities investment — Activities within this segment include Shinhan Bank’s internal asset and liability management, proprietary trading in securities and derivatives, and proprietary investment in security portfolios using Shinhan Bank’s capital. | |
• | Treasury and international business — Activities within this segment include Chohung Bank’s internal asset and liability management, proprietary trading in securities and derivatives, proprietary investment in security portfolios using Chohung Bank’s capital, and operation of Chohung Bank’s overseas branches. | |
• | Other banking services — Activities within this segment include Shinhan Bank’s impaired loan management, administration of Shinhan Bank and Chohung Bank operations, and operation of Shinhan Bank’s overseas branches. |
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2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shinhan Bank | Chohung Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury & | Other | Securities | Treasury & | Other | Subtotal | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail | Corporate | Securities | Banking | Brokerage | Credit | Retail | Corporate | International | Credit | Banking | before | US GAAP | Inter-Segment | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking | Banking | Investment | Services | Services(1) | Card(2) | Banking | Banking | Business | Card | Services | Other | Elimination | Adjustments | Transactions(3) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | W | 781,600 | W | 433,993 | W | 64,630 | W | 211,695 | W | 34,272 | W | 321,686 | W | 418,054 | W | 62,404 | W | (26,154 | ) | W | 236,974 | W | (10,425 | ) | W | 197,907 | W | 2,726,636 | W | (401,139 | ) | W | 7,392 | W | 2,332,889 | ||||||||||||||||||||||||||||||
Non-interest income | 439,446 | 314,895 | 839,330 | 127,300 | 621,902 | 636 | 94,601 | 70,855 | 234,214 | 577 | 7,317 | 495,552 | 3,246,625 | (103,211 | ) | (2,025,060 | ) | 1,118,354 | |||||||||||||||||||||||||||||||||||||||||||||||
Total revenues | 1,221,046 | 748,888 | 903,960 | 338,995 | 656,174 | 322,322 | 512,655 | 133,259 | 208,060 | 237,551 | (3,108 | ) | 693,459 | 5,973,261 | (504,350 | ) | (2,017,668 | ) | 3,451,243 | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses | 63,765 | 272,639 | (10,841 | ) | 109,488 | (26 | ) | 235,936 | 150,000 | 145,037 | — | 199,454 | 300 | (8,797 | ) | 1,156,955 | (179,065 | ) | (12,303 | ) | 965,587 | ||||||||||||||||||||||||||||||||||||||||||||
Non-interest expense | 562,619 | 261,096 | 851,750 | 344,475 | 564,012 | 176,449 | 296,062 | 33,330 | 249,639 | 120,378 | 39,686 | 234,475 | 3,733,971 | (6,667 | ) | (2,011,384 | ) | 1,715,920 | |||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 34,971 | 3,194 | 592 | 33,385 | 23,575 | — | 36,962 | 13,385 | 11,106 | 6,785 | 7,119 | 42,074 | 213,148 | 33,653 | 215 | 247,016 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) before tax | 559,691 | 211,959 | 62,459 | (148,353 | ) | 68,613 | (90,063 | ) | 29,631 | (58,493 | ) | (52,685 | ) | (89,066 | ) | (50,213 | ) | 425,707 | 869,187 | (352,271 | ) | 5,804 | 522,720 | ||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 166,228 | 62,952 | 18,550 | (37,997 | ) | 32,801 | (239 | ) | 26,883 | 711 | 2,436 | (8,370 | ) | 3,171 | 3,042 | 270,168 | 11,040 | (33,806 | ) | 247,402 | |||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | 393,463 | 149,007 | 43,909 | (110,356 | ) | 35,812 | (89,824 | ) | 2,748 | (59,204 | ) | (55,121 | ) | (80,696 | ) | (53,384 | ) | 422,665 | 599,019 | (363,311 | ) | 39,610 | 275,318 | ||||||||||||||||||||||||||||||||||||||||||
US GAAP adjustments | 32,708 | 57,164 | (37,207 | ) | (8,013 | ) | (2,633 | ) | 62,440 | 156,506 | 141,382 | (116,432 | ) | (22,170 | ) | (45,687 | ) | (581,369 | ) | (363,311 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Intersegment transactions | (141,024 | ) | (181,445 | ) | 9,971 | 209,100 | 15,387 | 114,660 | — | (4,135 | ) | 20,345 | — | — | (3,249 | ) | 39,610 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Consolidated net income (loss) | W | 285,147 | W | 24,726 | W | 16,673 | W | 90,731 | W | 48,566 | W | 87,276 | W | 159,254 | W | 78,043 | W | (151,208 | ) | W | (102,866 | ) | W | (99,071 | ) | W | (161,953 | ) | W | 275,318 | — | — | W | 275,318 | |||||||||||||||||||||||||||||||
Segments’ total assets | W | 24,851,188 | W | 21,757,503 | W | 18,421,101 | W | 5,041,401 | W | 2,928,017 | W | 1,778,191 | W | 23,837,861 | W | 14,938,062 | W | 11,308,167 | W | 3,569,073 | W | 3,111,520 | W | 14,979,278 | W | 146,521,362 | W | (1,358,680 | ) | W | (8,813,351 | ) | W | 136,349,331 | |||||||||||||||||||||||||||||||
(1) | Securities brokerage business is conducted through Good Morning Shinhan Securities. |
(2) | Credit card business is conducted through Shinhan Card. |
(3) | Includes eliminations for consolidation, intersegment transactions and certain differences in classification under management reporting system. |
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2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shinhan Bank | Chohung Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury & | Other | Securities | Treasury & | Other | Subtotal | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail | Corporate | Securities | Banking | Brokerage | Credit | Retail | Corporate | International | Credit | Banking | before | US GAAP | Inter-Segment | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking | Banking | Investment | Services | Services(1) | Card(2) | Banking | Banking | Business | Card | Services | Other | Elimination | Adjustments | Transactions(3) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | W | 844,382 | W | 529,838 | W | 3,662 | W | 182,097 | W | 54,043 | W | 347,968 | W | 1,107,296 | W | 257,782 | W | (718 | ) | W | 587,550 | W | 137,663 | W | (2,607 | ) | W | 4,048,956 | W | (541,271 | ) | W | 66,227 | W | 3,573,912 | ||||||||||||||||||||||||||||||
Non-interest income(4) | 557,114 | 475,536 | 1,288,449 | 286,953 | 643,209 | — | 287,694 | 74,997 | 2,612,061 | 2,350 | 360,342 | 1,710,856 | 8,299,561 | (5,974,088 | ) | (205,272 | ) | 2,120,201 | |||||||||||||||||||||||||||||||||||||||||||||||
Total revenues | 1,401,496 | 1,005,374 | 1,292,111 | 469,050 | 697,252 | 347,968 | 1,394,990 | 332,779 | 2,611,343 | 589,900 | 498,005 | 1,708,249 | 12,348,517 | (6,515,359 | ) | (139,045 | ) | 5,694,113 | |||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses | 29,712 | 65,943 | 7,820 | 97,605 | (4,696 | ) | 175,799 | 465,565 | (12,176 | ) | (12,631 | ) | 672,851 | (83,472 | ) | 23,977 | 1,426,297 | (1,257,428 | ) | (33,454 | ) | 135,415 | |||||||||||||||||||||||||||||||||||||||||||
Non-interest expense(5) | 684,550 | 386,902 | 1,201,264 | 422,726 | 642,572 | 160,998 | 744,102 | 158,775 | 2,627,917 | 235,565 | 266,068 | 508,387 | 8,039,826 | (4,921,411 | ) | (219,872 | ) | 2,898,543 | |||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 30,981 | 2,832 | 632 | 35,126 | 15,560 | 5,348 | 53,215 | 1,489 | 768 | 1,263 | 39,982 | 46,458 | 233,654 | 195,181 | — | 428,835 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) before tax | 656,253 | 549,697 | 82,395 | (86,407 | ) | 43,816 | 5,823 | 132,108 | 184,691 | (4,711 | ) | (319,779 | ) | 275,427 | 1,129,427 | 2,648,740 | (531,701 | ) | 114,281 | 2,231,320 | |||||||||||||||||||||||||||||||||||||||||||||
Income tax expense(benefit) | 194,907 | 163,260 | 24,471 | (24,813 | ) | 240 | — | 1,233 | 1,723 | (44 | ) | (2,984 | ) | 2,570 | 32,202 | 392,765 | 300,093 | 71,593 | 764,451 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | 461,346 | 386,437 | 57,924 | (61,594 | ) | 43,576 | 5,823 | 130,875 | 182,968 | (4,667 | ) | (316,795 | ) | 272,857 | 1,097,225 | 2,255,975 | (831,793 | ) | 42,688 | 1,466,870 | |||||||||||||||||||||||||||||||||||||||||||||
US GAAP adjustments | (54,683 | ) | 159,677 | (43,514 | ) | (6,867 | ) | 15,784 | 35,602 | (48,736 | ) | 423,706 | (83,376 | ) | 199,194 | (176,632 | ) | (1,251,948 | ) | (831,793 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Intersegment transactions | (1,185 | ) | (93,011 | ) | (622 | ) | (239 | ) | 9,849 | 110,954 | (5,893 | ) | 57,452 | (3,871 | ) | (576 | ) | (2,114 | ) | (28,056 | ) | 42,688 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Consolidated net income (loss) | W | 405,478 | W | 453,103 | W | 13,788 | W | (68,700 | ) | W | 69,209 | W | 152,379 | W | 76,246 | W | 664,126 | W | (91,914 | ) | W | (118,177 | ) | W | 94,111 | W | (182,779 | ) | W | 1,466,870 | — | — | W | 1,466,870 | |||||||||||||||||||||||||||||||
Segments’ total assets | W | 28,076,926 | W | 21,648,284 | W | 14,734,042 | W | 5,666,668 | W | 2,956,183 | W | 1,469,925 | W | 25,363,826 | W | 11,894,605 | W | 16,584,883 | W | 2,486,816 | W | 9,058,969 | W | 18,816,473 | W | 158,757,600 | W | (4,932,814 | ) | W | (10,316,764 | ) | W | 143,508,022 | |||||||||||||||||||||||||||||||
(1) | Securities brokerage business is conducted through Good Morning Shinhan Securities. | |
(2) | Credit card business is conducted through Shinhan Card. | |
(3) | Includes eliminations for consolidation, intersegment transactions and certain differences in classification under management reporting system. | |
(4) | Includes extraordinary gain of W27,507 million. | |
(5) | Includes cumulative effect of change in accounting principle of W23,049 million. |
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2005 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shinhan Bank | Chohung Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury & | Other | Securities | Treasury & | Other | Subtotal | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail | Corporate | Securities | Banking | Brokerage | Credit | Retail | Corporate | International | Credit | Banking | before | US GAAP | Inter-Segment | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking | Banking | Investment | Services | Services(1) | Card(2) | Banking | Banking | Business | Card | Services | Other(3) | Elimination | Adjustments | Transactions(4) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of Won) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | W | 958,715 | W | 578,981 | W | (272,097 | ) | W | 151,058 | W | 63,580 | W | 355,238 | W | 1,080,661 | W | 293,639 | W | 45,288 | W | 598,671 | W | 52,994 | W | 271,882 | W | 4,178,610 | W | (706,977 | ) | W | 2,005 | W | 3,473,638 | |||||||||||||||||||||||||||||||
Non-interest income | 391,467 | 397,438 | 2,016,760 | 93,845 | 816,703 | 2,292 | 303,767 | 113,550 | 3,334,388 | 99,738 | 521,428 | 2,135,598 | 10,226,974 | (7,191,557 | ) | (333,636 | ) | 2,701,781 | |||||||||||||||||||||||||||||||||||||||||||||||
Total revenues | 1,350,182 | 976,419 | 1,744,663 | 244,903 | 880,283 | 357,530 | 1,384,428 | 407,189 | 3,379,676 | 698,409 | 574,422 | 2,407,480 | 14,405,584 | (7,898,534 | ) | (331,631 | ) | 6,175,419 | |||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit losses | 11,364 | 12,287 | — | 149,952 | (3,550 | ) | 86,177 | 246,092 | 111,330 | (40,352 | ) | 392,147 | (73,443 | ) | 23,714 | 915,718 | (1,094,656 | ) | (4,550 | ) | (183,488 | ) | |||||||||||||||||||||||||||||||||||||||||||
Non-interest expense | 530,567 | 260,034 | 1,811,618 | 405,600 | 747,699 | 207,459 | 777,890 | 198,521 | 3,443,661 | 155,436 | 442,205 | 343,776 | 9,324,466 | (5,623,340 | ) | (400,723 | ) | 3,300,403 | |||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 30,130 | 3,316 | 326 | 34,995 | 15,082 | 5,478 | 53,611 | 2,660 | 1,174 | 1,073 | 36,057 | 40,869 | 224,771 | 152,579 | 0 | 377,350 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) before tax | 778,121 | 700,782 | (67,281 | ) | (345,644 | ) | 121,052 | 58,416 | 306,835 | 94,678 | (24,807 | ) | 149,753 | 169,603 | 1,999,121 | 3,940,629 | (1,333,117 | ) | 73,642 | 2,681,154 | |||||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 212,824 | 191,671 | (18,402 | ) | (94,537 | ) | 33,812 | 4,175 | (19,257 | ) | (5,942 | ) | (15,200 | ) | (9,399 | ) | (10,645 | ) | 29,945 | 299,045 | 543,082 | 100,259 | 942,386 | ||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | 565,297 | 509,111 | (48,879 | ) | (251,107 | ) | 87,240 | 54,241 | 326,092 | 100,620 | (9,607 | ) | 159,152 | 180,248 | 1,969,176 | 3,641,584 | (1,876,199 | ) | (26,617 | ) | 1,738,768 | ||||||||||||||||||||||||||||||||||||||||||||
US GAAP adjustments | (43,949 | ) | 180,345 | (56,282 | ) | 152 | (11,575 | ) | 35,521 | 15,784 | (186,138 | ) | (146,123 | ) | 241,033 | (89,241 | ) | (1,815,726 | ) | (1,876,199 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Intersegment transactions | (15,544 | ) | (88,837 | ) | (6,012 | ) | (1,485 | ) | 6,572 | 84,727 | (39,039 | ) | 82,496 | (18,467 | ) | (3,049 | ) | (15,860 | ) | (12,119 | ) | (26,617 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||
Consolidated net income (loss) | W | 505,804 | W | 600,619 | W | (111,173 | ) | W | (252,440 | ) | 82,237 | 174,489 | 302,837 | (3,022 | ) | (174,197 | ) | 397,136 | 75,147 | 141,331 | 1,738,768 | — | — | 1,738,768 | |||||||||||||||||||||||||||||||||||||||||
Segments’ total assets | W | 31,194,906 | W | 23,571,673 | W | 17,347,719 | W | 3,527,670 | W | 3,882,713 | W | 1,532,291 | W | 27,755,451 | W | 11,985,147 | W | 13,342,010 | W | 2,156,188 | W | 11,370,730 | W | 27,281,908 | W | 174,948,406 | W | (10,200,361 | ) | W | (9,632,732 | ) | W | 155,115,313 | |||||||||||||||||||||||||||||||
(1) | Securities brokerage business is conducted through Good Morning Shinhan Securities. |
(2) | Credit card business is conducted through Shinhan Card. |
(3) | Includes, among others, the life insurance business conducted through Shinhan Life Insurance. |
(4) | Includes eliminations for consolidation, intersegment transactions and certain differences in classification under management reporting system. |
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2004 | 2005 | ||||||||
(In millions of Won) | |||||||||
Segments’ total assets | W | 158,757,600 | W | 174,948,406 | |||||
US GAAP adjustments | (4,932,814 | ) | (10,200,361 | ) | |||||
Intersegment transactions | (10,316,764 | ) | (9,632,732 | ) | |||||
Consolidated total assets | W | 143,508,022 | W | 155,115,313 | |||||
2003 | 2004 | 2005 | |||||||||||
(In millions of Won) | |||||||||||||
Segments’ total revenues | W | 5,973,261 | W | 12,348,517 | W | 14,405,584 | |||||||
US GAAP adjustments | (504,350 | ) | (6,515,359 | ) | (7,898,534 | ) | |||||||
Intersegment transactions | (2,017,668 | ) | (139,045 | ) | (331,631 | ) | |||||||
Consolidated total revenues | W | 3,451,243 | W | 5,694,113 | W | 6,175,419 | |||||||
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Table of Contents
2004 | 2005 | |||||||
(In millions of Won) | ||||||||
Loans | W | 2,527,651 | W | 2,008,800 | ||||
Securities | 4,115,372 | 4,710,614 | ||||||
Other assets | 416,940 | 529,467 | ||||||
W | 7,059,963 | W | 7,248,881 | |||||
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2004 | 2005 | ||||||||||||||||
Maximum | Maximum | ||||||||||||||||
Total Assets | Exposure | Total Assets | Exposure | ||||||||||||||
(In millions of Won) | |||||||||||||||||
SPEs created for structured financing | W | 2,946,962 | W | 1,514,870 | W | 4,302,822 | W | 2,743,489 | |||||||||
Credit enhancement provided to SPEs | 2,880,693 | 1,123,710 | 13,554,109 | 3,055,887 | |||||||||||||
Collateralized loan obligation | 10,117 | — | 13,342 | — | |||||||||||||
Guaranteed principal money trusts | 3,199,292 | 3,124,430 | 3,160,917 | 3,060,652 | |||||||||||||
Total | W | 9,037,064 | W | 5,763,010 | W | 21,031,190 | W | 8,860,028 | |||||||||
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Table of Contents
Foreign | Net Unrealized | Accumulated | ||||||||||
Currency | Gain on | Other | ||||||||||
Translation | Available-for- | Comprehensive | ||||||||||
Adjustments | Sale Securities(1) | Income | ||||||||||
(In millions of Won) | ||||||||||||
Balance at January 1, 2003 | W | 7,995 | W | 62,366 | W | 70,361 | ||||||
Foreign currency translation adjustment, net of tax effect of W742 | (1,956 | ) | — | (1,956 | ) | |||||||
Unrealized gain on available-for-sale securities, net of tax effect of W5,518 | — | 14,549 | 14,549 | |||||||||
Less: Reclassification adjustment for net realized gain included in income, net of tax effect W9,428 | — | 24,858 | 24,858 | |||||||||
Balance at December 31, 2003 | 6,039 | 52,057 | 58,096 | |||||||||
Foreign currency translation adjustment, net of tax effect of W7,003 | (18,462 | ) | — | (18,462 | ) | |||||||
Unrealized gain on available-for-sale securities, net of tax effect of W47,851 | — | 128,195 | 128,195 | |||||||||
Less: Reclassification adjustment for net realized gain included in income, net of tax effect W3,776 | — | 9,956 | 9,956 | |||||||||
Balance at December 31, 2004 | (12,423 | ) | 170,296 | 157,873 | ||||||||
Foreign currency translation adjustment, net of tax effect of W4,561 | (12,024 | ) | — | (12,024 | ) | |||||||
Unrealized gain on available-for-sale securities, net of tax effect of W81,975 | — | (220,975 | ) | (220,975 | ) | |||||||
Less: Reclassification adjustment for net realized gain included in income, net of tax effect W9,512 | — | 25,076 | 25,076 | |||||||||
Balance at December 31, 2005 | W | (24,447 | ) | W | (75,755 | ) | W | (100,202 | ) | |||
(1) | Equity method investments included. |
F-85
Table of Contents
2003 | 2004 | 2005 | |||||||||||
(In millions of Won) | |||||||||||||
Cash dividends paid by: | |||||||||||||
Consolidated subsidiaries | W | 185,896 | W | 252,807 | W | — | |||||||
Equity method investees | 1,000 | 3,730 | 4,846 | ||||||||||
W | 186,896 | W | 256,537 | W | 4,846 | ||||||||
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Table of Contents
2004 | 2005 | |||||||||
(In millions of Korean Won) | ||||||||||
Assets | ||||||||||
Deposits with banking subsidiary | W | 31,145 | W | 64,374 | ||||||
Advances to, and receivables from, subsidiaries: | ||||||||||
Banking subsidiaries | 73,140 | 93,140 | ||||||||
Non-banking subsidiaries | 1,685,609 | 1,390,910 | ||||||||
Investment (at equity) in subsidiaries: | ||||||||||
Banking subsidiaries | 7,546,185 | 8,729,742 | ||||||||
Non-banking subsidiaries | 1,064,808 | 1,848,179 | ||||||||
Premises and equipment | 2,165 | 2,290 | ||||||||
Other assets | 63,559 | 159,698 | ||||||||
Total assets | W | 10,466,611 | W | 12,288,333 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
Short-term debt | W | 50,000 | W | 85,188 | ||||||
Long-term debt | 3,688,841 | 3,860,573 | ||||||||
Accrued expenses and other liabilities | 327,307 | 163,917 | ||||||||
Total liabilities | 4,066,148 | 4,109,678 | ||||||||
Redeemable convertible preferred stock | 735,744 | 367,872 | ||||||||
Stockholders’ equity | 5,664,719 | 7,810,784 | ||||||||
Total liabilities, redeemable convertible preferred stock and stockholders’ equity | W | 10,466,611 | W | 12,288,333 | ||||||
F-87
Table of Contents
2003 | 2004 | 2005 | ||||||||||||
(In millions of Korean Won) | ||||||||||||||
Income | ||||||||||||||
Dividends from banking subsidiaries | W | 185,896 | W | 244,807 | W | 367,210 | ||||||||
Dividends from non banking subsidiaries | 1,000 | 11,730 | 16,846 | |||||||||||
Interest income from banking subsidiaries | 6,007 | 6,111 | 7,189 | |||||||||||
Interest income from non banking subsidiaries | 91,819 | 108,153 | 88,622 | |||||||||||
Other interest income | 961 | — | — | |||||||||||
Other income | 735 | 19,253 | 4,749 | |||||||||||
Total income | 286,418 | 390,054 | 484,616 | |||||||||||
Expenses | ||||||||||||||
Interest expense | 136,889 | 247,711 | 240,609 | |||||||||||
Salaries and employee benefits | 9,998 | 15,328 | 23,163 | |||||||||||
Other expense | 16,712 | 32,490 | 14,400 | |||||||||||
Total expenses | 163,599 | 295,529 | 278,172 | |||||||||||
Income before income tax expense and undistributed net income (loss) of subsidiaries | 122,819 | 94,525 | 206,444 | |||||||||||
Income tax expense (benefits) | 5,682 | 46,480 | (2,879 | ) | ||||||||||
Income before undistributed net income (loss) of subsidiaries | 117,137 | 48,045 | 209,323 | |||||||||||
Equity in undistributed net income (loss) of subsidiaries: | ||||||||||||||
Banking subsidiaries | 252,766 | 1,259,134 | 1,320,723 | |||||||||||
Non-banking subsidiaries | (94,585 | ) | 159,691 | 208,722 | ||||||||||
Net income | W | 275,318 | W | 1,466,870 | W | 1,738,768 | ||||||||
F-88
Table of Contents
2003 | 2004 | 2005 | |||||||||||||
(In millions of Korean Won) | |||||||||||||||
Cash flows from operating activities | |||||||||||||||
Net income | W | 275,318 | W | 1,466,870 | W | 1,738,768 | |||||||||
Less: Net income of subsidiaries | (345,077 | ) | (1,675,362 | ) | (1,913,501 | ) | |||||||||
Parent Company net income (loss) | (69,759 | ) | (208,492 | ) | (174,733 | ) | |||||||||
Depreciation on premises and equipment | 696 | 763 | 767 | ||||||||||||
Grant of stock options | 6,802 | 1,988 | 7,087 | ||||||||||||
Cash dividends from subsidiaries | 186,896 | 256,537 | 384,056 | ||||||||||||
Loss on sale of investment (at equity) in subsidiaries | 378 | — | — | ||||||||||||
Loss on sale of available-for-sales securities | 1,755 | — | — | ||||||||||||
Interest expense | 42,936 | 42,919 | 29,487 | ||||||||||||
Unrealized foreign exchange gain | (231 | ) | (18,141 | ) | (2,156 | ) | |||||||||
Unrealized foreign exchange loss | 231 | 18,132 | 2,156 | ||||||||||||
Other assets, net | (35,921 | ) | 53,937 | (34,905 | ) | ||||||||||
Accrued expenses and other liabilities, net | 166,385 | 94,656 | 82,011 | ||||||||||||
Net cash provided by operating activities | 300,168 | 242,299 | 293,770 | ||||||||||||
Cash flows from investing activities | |||||||||||||||
Repayments (Advances) from subsidiaries | (1,176,009 | ) | 168,024 | 272,543 | |||||||||||
Purchases of investment (at equity) in subsidiaries | (1,128,423 | ) | (111,894 | ) | (368,104 | ) | |||||||||
Disposition of investment (at equity) in subsidiaries | 1,529 | — | 2,912 | ||||||||||||
Net change in premises and equipment | — | (1,706 | ) | — | |||||||||||
Available-for-sales securities: | |||||||||||||||
Purchases | — | — | — | ||||||||||||
Proceeds from sales | 1 | — | — | ||||||||||||
Net cash provided by (used in) investing activities | (2,302,902 | ) | 54,424 | (92,649 | ) | ||||||||||
Cash flows from financing activities | |||||||||||||||
Net change in short-term debt | — | (44,000 | ) | 35,188 | |||||||||||
Proceeds from issuance of long-term debt | 2,146,129 | 246,036 | 780,000 | ||||||||||||
Repayments of long-term debt | (18,666 | ) | (230,921 | ) | (635,600 | ) | |||||||||
Proceeds from issuance of common stock and stock related awards | 27,504 | — | — | ||||||||||||
Net change in treasury stock | — | 59 | 62 | ||||||||||||
Cash dividends paid | (157,493 | ) | (242,105 | ) | (347,542 | ) | |||||||||
Net cash provided by (used in) financing activities | 1,997,474 | (270,931 | ) | (167,892 | ) | ||||||||||
Net increase (decrease) in cash and due from banks | (5,260 | ) | 25,792 | 33,229 | |||||||||||
Cash and due from banks, beginning of the year | 10,613 | 5,353 | 31,145 | ||||||||||||
Cash and due from banks, end of the year | W | 5,353 | W | 31,145 | W | 64,374 | |||||||||
Cash paid for interest | W | 93,952 | W | 204,791 | W | 211,122 |
F-89
Table of Contents
1 | .1 | Articles of Incorporation (in English)* | ||
2 | .1 | Form of Common Stock Certificate (in English)** | ||
2 | .2 | Form of Deposit Agreement to be entered into among Shinhan Financial Group, Citibank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, including the form of American depositary receipt** | ||
2 | .3 | Long-term debt instruments of Shinhan Financial Group, Shinhan Bank and other consolidated subsidiaries for which financial statements are required to be filed are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Shinhan Financial Group agrees to furnish the Commission on request a copy of any instrument defining the rights of holders of its long-term debt and that of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed.** | ||
4 | .1 | Stock Purchase Agreement by and between Korea Deposit Insurance Corporation and Shinhan Financial Group dated July 9, 2003*** | ||
4 | .2 | Investment Agreement by and between Shinhan Financial Group and Korea Deposit Insurance Corporation dated July 9, 2003** | ||
4 | .3 | Agreed Terms, dated June 22, 2004, by and among the President of Korea Deposit Insurance Corporation, CEO of Shinhan Financial Group, CEO of Chohung Bank, Chairman of the National Financial Industry Labor Union of Korea and the Head of the Chohung Bank Chapter of the National Financial Industry Labor Union** | ||
4 | .4 | Merger Agreement between Shinhan Bank and Chohung Bank (in English)* | ||
4 | .5 | Split-Merger Agreement between Shinhan Card and Chohung Bank (in English)* | ||
8 | .1 | List of all Subsidiaries of Shinhan Financial Group | ||
12 | .1 | Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act | ||
12 | .2 | Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act | ||
13 | .1 | Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) | ||
13 | .2 | Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) |
* | A fair and accurate translation from Korean into English. |
** | Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on September 15, 2003. |
*** | Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on September 15, 2003. Confidential treatment has been requested for certain portions of the Stock Purchase Agreement. |
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