Shinhan Financial (SHG) 20-F 2021 FY Annual report (foreign)

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As filed with the Securities and Exchange Commission on April 

20

, 2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

OR

☐ 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

Commission File Number:

001-31798

Shinhan Financial Group Co., Ltd.

(Exact name of registrant as specified in its charter)

N/A	The Republic of Korea
(Translation of registrant’s name into English)	(Jurisdiction of incorporation or organization)

20, Sejong-daero

9-gil,

Jung-gu

Seoul 04513, Korea

(Address of principal executive offices)

Park Cheolwoo, +822 6360 3129 (T), cheol.park@shinhan.com, +822 6360 3098 (F), 20, Sejong-daero

9-gil,

Jung-gu, Seoul 04513, Korea

(Name, Telephone,

E-mail

and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Trading Symbol(s)	Name of Each Exchange on Which Registered:
Common stock, par value Won 5,000 per share	SHG	New York Stock Exchange*
American depositary shares	SHG	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.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of Shinhan Financial Group’s classes of capital or common stock as of the close of the last full fiscal year covered by this Annual Report: 516,599,554 shares of common stock, par value of Won 5,000 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    

Yes

☒

    No  

☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:    

Yes  

☐

    No  

☒

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    

Yes  

☒

    No  

☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

.  

  Yes  

☒

    No  

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  

☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    

Yes  

☒

    No  

☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒ Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:   

 Item 17  

☐

    Item 18  

☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act):    

Yes  

☐

No  

☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court:    

Yes  

☐

    No  

☐

TABLE OF CONTENTS

					Page
PART I
		ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			3
		ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE			3
		ITEM 3.	KEY INFORMATION			3
			ITEM 3.A.	[Reserved]		3
			ITEM 3.B.	Capitalization and Indebtedness		3
			ITEM 3.C.	Reasons for the Offer and Use of Proceeds		3
			ITEM 3.D.	Risk Factors		3
		ITEM 4.	INFORMATION ON THE COMPANY			48
			ITEM 4.A.	History and Development of the Company		48
			ITEM 4.B.	Business Overview		53
			ITEM 4.C.	Organizational Structure		197
			ITEM 4.D.	Properties		198
		ITEM 4A.	UNRESOLVED STAFF COMMENTS			199
		ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS			199
			ITEM 5.A.	Operating Results		199
			ITEM 5.B.	Liquidity and Capital Resources		236
			ITEM 5.C.	Research and Development, Patents and Licenses, etc.		242
			ITEM 5.D.	Trend Information		242
			ITEM 5.E.	Critical Accounting Estimates		242
	��	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			242
			ITEM 6.A.	Directors and Senior Management		242
			ITEM 6.B.	Compensation		247
			ITEM 6.C.	Board Practices		248
			ITEM 6.D.	Employees		250
			ITEM 6.E.	Share Ownership		251
		ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			252
			ITEM 7.A.	Major Shareholders		252
			ITEM 7.B.	Related Party Transactions		253
			ITEM 7.C.	Interests of Experts and Counsel		253
		ITEM 8.	FINANCIAL INFORMATION			253
			ITEM 8.A.	Consolidated Statements and Other Financial Information		253
			ITEM 8.B.	Significant Changes		257
		ITEM 9.	THE OFFER AND LISTING			257
			ITEM 9.A.	Offer and Listing Details		257
			ITEM 9.B.	Plan of Distribution		258
			ITEM 9.C.	Markets		258
			ITEM 9.D.	Selling Shareholders		266
			ITEM 9.E.	Dilution		266
			ITEM 9.F.	Expenses of the Issue		266
		ITEM 10.	ADDITIONAL INFORMATION			266
			ITEM 10.A.	Share Capital		266
			ITEM 10.B.	Memorandum and Articles of Incorporation		266
			ITEM 10.C.	Material Contracts		274
			ITEM 10.D.	Exchange Controls		274
			ITEM 10.E.	Taxation		275
			ITEM 10.F.	Dividends and Paying Agents		284
			ITEM 10.G.	Statements by Experts		284
			ITEM 10.H.	Documents on Display		284

i

				Page
		ITEM 10.I.	Subsidiary Information		284
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			284
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			284
		ITEM 12.A.	Debt Securities		284
		ITEM 12.B.	Warrants and Rights		284
		ITEM 12.C.	Other Securities		284
		ITEM 12.D.	American Depositary Shares		285
PART II
	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			287
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			287
	ITEM 15.	CONTROLS AND PROCEDURES			287
	ITEM 16.	[RESERVED]			288
	ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT			288
	ITEM 16B.	CODE OF ETHICS			288
	ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES			289
	ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			289
	ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			290
	ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			290
	ITEM 16G.	CORPORATE GOVERNANCE			290
	ITEM 16H.	MINE SAFETY DISCLOSURE			295
	ITEM 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS			295
PART III
	ITEM 17.	FINANCIAL STATEMENTS			295
	ITEM 18.	FINANCIAL STATEMENTS			295
	ITEM 19.	EXHIBITS			295
INDEX OF EXHIBITS					296
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS					F-1

ii

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Unless otherwise specified or the context otherwise requires:

• the terms “we,” “us,” “our,” “Shinhan Financial Group,” “SFG” and the “Group” mean Shinhan Financial Group Co., Ltd. and its consolidated subsidiaries;

• the terms “Shinhan Financial Group Co., Ltd.,” “our company” and “our holding company” mean Shinhan Financial Group Co., Ltd.; and

• “Shinhan Card” refers to Shinhan Card Co., Ltd., “Shinhan Life Insurance” refers to Shinhan Life Insurance Co., Ltd., “Shinhan Investment” refers to Shinhan Investment Corp. and “Orange Life Insurance” refers to Orange Life Insurance, Ltd.

All references to “Korea” or the “Republic” contained in this annual report are to the Republic of Korea. All references to the “Government” are to the government of the Republic of Korea. References to the “Financial Services Commission” are to the Financial Services Commission of Korea, and references to the “Financial Supervisory Service” are to the Financial Supervisory Service of Korea, the executive body of the Financial Services Commission.

The fiscal year for us and our subsidiaries ends on December 31 of each year. Unless otherwise specified or the context otherwise requires, all references to a particular year are to the year ended December 31 of that year.

The currency of the primary economic environment in which we operate is Korean Won.

In this annual report, unless otherwise indicated, all references to “Korean Won”, “Won” or “

W

” are to the currency of the Republic of Korea, and all references to “U.S. Dollars,” “Dollars,” “$” or “US$” are to the currency of the United States of America. Unless otherwise indicated, all translations from Won to Dollars were made at

W

1,188.6 to US$1.00, which was the noon buying rate in the City of New York on December 30, 2021 for cable transfers according to the H.10 statistical release of the Federal Reserve Board (the “Noon Buying Rate”). On April 15, 2022, the Noon Buying Rate was

W

1,228.0 to US$1.00. The Noon Buying Rate has been volatile recently and the U.S. Dollar amounts referred to in this report should not be relied upon as an accurate reflection of our results of operations. We expect this volatility to continue in the near future. No representation is made that the Won or U.S. Dollar amounts referred to in this report could have been or could be converted into Dollars or Won, as the case may be, at any particular rate or at all.

Unless otherwise indicated, the financial information presented in this annual report has been prepared on a consolidated basis in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Any discrepancies in the tables included herein between totals and sums of the amounts listed are due to rounding.

FORWARD LOOKING STATEMENTS

This annual report includes “forward-looking statements,” as defined in Section 27A of the U.S. Securities Act, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations and projections for future operating performance and business prospects. The words “believe,” “expect,” “anticipate,” “estimate,” “project” and similar words used in connection with any discussion of our future operating or financial performance identify forward-looking statements. In addition, all statements other than statements of historical facts included in this annual report are forward-looking statements.

1

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. This annual report discloses, under the caption “Item 3.D. Risk Factors” and elsewhere, important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”). Included among the factors discussed under the caption “Item 3.D. Risk Factors” are the followings risks related to our business, which could cause actual results to differ materially from those described in the forward-looking statements: the risk of adverse impacts from an economic downturn; increased competition; market volatility in securities and derivatives markets, interest or foreign exchange rates or indices; other factors impacting our operational plans; or legislative and/or regulatory developments. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

2

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

ITEM 3.A. [Reserved]

ITEM 3.B. Capitalization and Indebtedness

Not applicable.

ITEM 3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

ITEM 3.D. Risk Factors

An investment in the American depositary shares representing our common shares involves a number of risks. You should carefully consider the following information about the risks we face, together with the other information contained in this annual report, in evaluating us and our business.

Summary

The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Item 3.D. “Risk Factors” in this annual report for a more thorough description of these and other risks:

• Risks Relating to Our Overall Business

• The extent to which the recent coronavirus (COVID-19) pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

• Difficult conditions and turbulence in the Korean and global economy and financial markets may adversely affect our business, asset quality, capital adequacy and earnings.

• Competition in the Korean financial services industry is intense, and may further intensify.

• We and our subsidiaries need to maintain our capital ratios above minimum required levels, and the failure to so maintain could result in the suspension of some or all of our operations.

• Liquidity, funding management and credit ratings are critical to our ongoing performance.

• Changes in interest rates, foreign exchange rates, bond and equity prices, and other market factors have affected and will continue to affect our business, results of operations and financial condition.

• Reforms of London Interbank Offered Rate and other interest rate benchmarks could adversely affect our business, financial condition and results of operations.

• We may incur losses associated with our counterparty exposures.

3

• Risks Relating to Our Banking Business

• We have significant exposure to small- and medium-sized enterprises, and financial difficulties experienced by such enterprises may result in a deterioration of our asset quality.

• A decline in the value of the collateral securing our loans or our inability to fully realize the collateral value may adversely affect our credit portfolio.

• Guarantees received in connection with our real estate financing may not provide sufficient coverage.

• A limited portion of our credit exposure is concentrated in a relatively small number of large corporate borrowers, and future financial difficulties experienced by them may have an adverse impact on us.

• The asset quality of our retail loan portfolio may deteriorate.

• Any deterioration in the asset quality of our guarantees and acceptances will likely have a material adverse effect on our financial condition and results of operations.

• Risks Relating to Our Credit Card Business

• Future changes in market conditions as well as other factors, such as stricter regulation, may lead to reduced revenues and deterioration in the asset quality of credit card receivables.

• Risks Relating to Our Other Businesses

• We may experience significant losses from our investments and, to a lesser extent, trading activities due to market fluctuations.

• We may generate losses from our brokerage and other commission- and fee-based business.

• Prolonged periods of declining or low interest rates may reduce or turn negative our investment margin on savings insurance products and result in an increase in the valuation of our liabilities associated with these products.

• We may fail to realize the anticipated benefits of and encounter significant risks in connection with mergers and acquisitions.

• We may suffer losses or record provisions for credit loss allowance for expected losses in connection with financial products sold by us or our subsidiaries, including Shinhan Investment and Shinhan Bank, which may have a negative impact on us, including our reputation.

• Other Risks Relating to Us as the Holding Company

• Our ability to continue to pay dividends and service debt will depend on the level of profits and cash flows of our subsidiaries.

• Damage to our reputation could harm our business.

• Our risk management policies and procedures may not be fully effective at all times.

• We may experience disruptions, delays and other difficulties relating to our information technology systems.

• Our activities are subject to cyber security risk.

• Our customers may become victims to “voice phishing” or other financial scams, for which we may be required to make monetary compensation and suffer damage to our business and reputation.

• Legal claims and regulatory risks arise in the conduct of our business.

4

• Risks Relating to Law, Regulation and Government Policy

• We are a heavily regulated entity and operate in a legal and regulatory environment that is subject to change, and violations could result in penalties and other regulatory actions.

• The Government may encourage targeted lending to certain sectors in furtherance of policy objectives, and we may take this factor into account.

• The Government may also encourage investments in certain institutions in furtherance of policy objectives, and we may not recoup our investments therein in a timely or otherwise commercially reasonable manner.

• The level and scope of government oversight of our retail lending business, particularly regarding mortgage and home equity loans, may change depending on the economic or political climate.

• We engage in limited settlement transactions involving Iran and also in limited business in and related to Russia which may subject us to legal or reputational risks.

• Risks Relating to Korea

• Unfavorable financial and economic conditions in Korea and globally may have a material adverse impact on our asset quality, liquidity and financial performance.

• Tensions with North Korea could have an adverse effect on us, the price of our common shares and our American depositary shares.

• Risks Relating to Our American Depositary Shares

• There are restrictions on withdrawal and deposit of common shares under the depositary facility.

• Ownership of our shares is restricted under Korean law.

• Holders of our ADSs will not have preemptive rights in certain circumstances.

• Holders of our ADSs will not be able to exercise dissent and appraisal rights unless they have withdrawn the underlying shares of our common stock and become our direct stockholders.

• The market value of your investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

• Your dividend payments and the amount you may realize upon a sale of your ADSs will be affected by fluctuations in the exchange rate between the U.S. 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.

• Other Risks

• 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.

• We may become a passive foreign investment company (“PFIC”), which could result in adverse U.S. tax consequences to U.S. investors.

Risks Relating to Our Overall Business

The extent to which the recent coronavirus

(COVID-19)

pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

The rapid and diffuse spread of the recent coronavirus

(COVID-19)

and global health concerns relating to this outbreak, which was declared a “pandemic” by the World Health Organization in March 2020, have had

5

severe negative impact on, among other things, financial markets, liquidity, economic conditions and trade and could continue to do so or could worsen for an unknown period of time, which could in turn have a material adverse impact on the our business, results of operations and financial condition, including liquidity, asset quality and growth. Risks associated with a prolonged outbreak of

COVID-19

may include:

• an increase in defaults on loan payments from our customers who may not be able to meet payment obligations, which may lead to an increase in delinquency;

• decreases in interest rates worldwide or increases in interest rates in response to inflation resulting from expansive fiscal and monetary policies implemented by governments worldwide as response measures to COVID-19 (see “Changes in interest rates, foreign exchange rates, bond and equity prices, and other market factors have affected and will continue to affect our business, results of operations and financial condition.” and “Risks Relating to Our Other Businesses — Prolonged periods of declining or low interest rates may reduce or turn negative our investment margin on savings insurance products and result in an increase in the valuation of our liabilities associated with these products.”);

• depreciation of the Won against major foreign currencies, which may increase our costs in servicing foreign currency-denominated debt and result in foreign exchange losses (see “Changes in interest rates, foreign exchange rates, bond and equity prices, and other market factors have affected and will continue to affect our business, results of operations and financial condition.”);

• impairments in the fair value of our investments in companies that may be adversely affected by COVID-19;

• disruption in the normal operations of our business resulting from the contraction of the disease by our employees or customers, which may necessitate its employees to be quarantined and/or its offices or branches to be temporarily shut down;

• disruption resulting from the necessity for social distancing, including, for example, temporary arrangements for employees to work remotely or in two or more teams on alternating shifts, which may lead to a reduction in labor productivity; and

• increased cyberattacks and financial crimes under the new working arrangements such as expanded telework for employees.

The extent to which the

COVID-19

pandemic further impacts our business, results of operations and financial condition will depend on future developments, including the timeliness and effectiveness of actions taken or not taken to contain and mitigate the effects of

COVID-19

both in Korea and internationally by governments, central banks, healthcare providers, health system participants, other businesses and individuals, which are highly uncertain and difficult to predict. For example, the alleviation of social distancing restrictions as part of the Government’s “With

COVID-19”

policy may encourage private consumption and promote economic recovery, but such measures may lead to further deterioration of the situation and ultimately necessitate even more extreme social distancing measures in the future, thereby adversely affecting the economy and consumption levels in general. Recently, Korea has been experiencing high level of daily infection cases as a result of such government policy. Also in response to recent surge of infections in China, the Chinese government has been imposing stringent social distancing measure throughout the country. Even in countries that succeed in significantly reducing the number of the cases from the current outbreak, the level of economic activity may not fully recover in the short term or at all due to concerns of future waves of

COVID-19,

the distribution and effectiveness of vaccines or changes in lifestyle and business practices. In addition, a number of governments and organizations have revised GDP growth forecasts for 2022 downward in response to the economic slowdown caused by the spread of

COVID-19,

and it is possible that the

COVID-19

pandemic will cause a prolonged global economic crisis or recession. Even in countries that succeed in significantly reducing the number of the cases from the current outbreak, the level of economic activity may not fully recover in the short term or at all due to concerns of future waves of

COVID-19,

the distribution and effectiveness of vaccines or changes in lifestyle and business practices. Therefore, the Korean and global economy may remain volatile or continue to deteriorate. To

6

the extent that the ongoing

COVID-19

pandemic prolongs and adversely affects our business, results of operations and financial conditions, it may also have the effect of increasing the likelihood and magnitude of the other risks described in this annual report.

We are continuously assessing forward looking information to reasonably estimate the adverse impact of

COVID-19

on our asset portfolio. We accumulated an additional

W

187.9 billion in

COVID-19-related

provisions during 2021 (which were accumulated during the fourth quarter of 2021) by reflecting forward looking criteria amid the

COVID-19

pandemic, based on discounted cash flow assessment and reclassification of loss allowance stages depending on the extent of credit risk for certain loan assets. It is difficult to estimate the amount, if any, of additional special provisions for credit losses that will be incurred going forward as a result of

COVID-19,

and there is no guarantee that any such special provisions for credit losses will not be significant during first half of 2022 and beyond, and accordingly, the impact of

COVID-19,

including any special provisions for credit losses due to

COVID-19,

may have a material adverse effect on our business, liquidity, financial condition and results of operations. See “Item 5.A. Operating Results — Results of Operations.”

Difficult conditions and turbulence in the Korean and global economy and financial markets may adversely affect our business, asset quality, capital adequacy and earnings.

Most of our assets are located in, and we generate most of our income from, Korea. Accordingly, our business and profitability are largely dependent on the general economic and social conditions in Korea, including interest rates, inflation, exports, personal expenditures and consumption, unemployment, demand for business products and services, debt service burden of households and businesses, the general availability of credit, the asset value of real estate and securities and other factors affecting the financial well-being of our corporate and retail customers.

The Korean economy is closely integrated with, and is significantly affected by, developments in the global economy. In light of the periodic

re-proliferation

of

COVID-19,

inflation caused by rising energy prices and global supply chain disruptions, the Russia-Ukraine conflict and the subsequent economic slowdown and global inflation, capital flight risks in emerging economies as a result of changes in monetary policy led by developed countries, credit risks of Chinese real estate developers, and ongoing

US-China

trade conflicts, signs of economic slowdown in China, the continuing geopolitical and social instability in various parts of the Middle East, including Iraq, Syria and Yemen, among others, significant uncertainty remains as to the global economic prospects in general and has adversely affected, and may continue to adversely affect, the Korean economy. In addition, as the Korean economy matures, it is increasingly exposed to the risk of a “scissor effect,” namely being pursued by competitors in less advanced economies while not having fully caught up with competitors in advanced economies, which risk is amplified by the fact that Korean economy is heavily dependent on exports. The Korean economy also continues to face other difficulties, including sluggishness in domestic consumption and investment, volatility in the real estate market, rising household debt, potential declines in productivity due to aging demographics and low birth rates, and a rise in youth unemployment. Any future deterioration of the global and Korean economies could adversely affect our business, financial condition and results of operations.

In particular, difficulties in financial and economic conditions could result in significant deterioration in the quality of our assets and accumulation of higher provisioning, allowance for credit losses on loans and charge-offs as an increasing number of our corporate and retail customers declare bankruptcy or insolvency or otherwise face increasing difficulties in meeting their debt obligations. For example, in 2011 and 2012, the continuing slump in the real estate market and the shipbuilding industry led to increased delinquency among our corporate borrowers, including some Korean commercial conglomerates knowns as “

chaebol

s,” in such industries, and in certain cases, even insolvency, workouts, recovery proceedings and/or voluntary arrangements with creditors. During the same period, the sustained slump in the real estate market also led to increased delinquency among our retail borrowers, and in particular, borrowers with collective loans for

pre-sale

of newly constructed apartment units. Accordingly, Shinhan Bank’s delinquency ratio (based on delinquency of one or more months past due and after charge-offs and loan sales) increased from 0.48% as of December 31, 2010 to 0.60% as of

7

December 31, 2011 and 0.61% as of December 31, 2012. Since 2013, primarily due to a modest rebound in the housing market and Shinhan Bank’s active efforts to reduce its exposure to such troubled industries and other

at-risk

borrowers through preemptive risk management policies and increased lending to borrowers with high-quality credit profiles as part of Shinhan Bank’s strategic initiative to improve its asset quality, Shinhan Bank’s delinquency ratio steadily decreased. Shinhan Bank’s delinquency ratio has remained stable during the past few years mainly due to Shinhan Bank’s efforts to increase asset quality for both its retail and corporate loans and reduce exposures in certain industries such as IT, manufacturing and construction. More recently, various

Government-led

financial support programs introduced in response to the

COVID-19

pandemic, such as loan rescheduling and principal and interest payment deferral programs, have helped financial institutions, including Shinhan Bank, manage their asset quality at a stable level. Such financial support programs have been introduced since April 1, 2020 and are available to small- and

medium-sized

enterprises and “small office, home office” (“SOHO”) that meet certain criteria, such as that they have not been delinquent on their prior loans and are not subject to liquidation or bankruptcy proceedings. Such financial support programs are expected to continue through September 30, 2022. Accordingly, Shinhan Bank’s delinquency ratio was 0.39% as of December 31, 2013, 0.31% as of December 31, 2014, 0.33% as of December 31, 2015, 0.28% as of December 31, 2016, 0.23% as of December 31, 2017, 0.25% as of December 31, 2018, 0.26% as of December 31, 2019, 0.24% as of December 31, 2020 and 0.19% as of December 31, 2021. There is no assurance, however, that Shinhan Bank will not experience further credit losses on loans from borrowers, particularly those in troubled industries, since the quality of loans to such borrowers may further deteriorate due to a continued slump in volatile industries amid sluggish economic situation or for other reasons. In addition, the coronavirus

(COVID-19)

outbreak is expected to have a direct impact on global and domestic consumption, most notably in the transportation, tourism, retail, lodging, catering, industrial production and construction industries particularly small- and

medium-sized

enterprises and retail customers may face significant difficulties in making timely interest and principal payments, which may lead to an increase in delinquency and adversely affect Shinhan Bank’s asset quality. Further,

Government-led

financial support programs or other countermeasures may not achieve their intended results and could also result in unintended consequences or otherwise adversely affect our business, financial condition and results of operations.

Moreover, as was the case during the global financial crisis of 2008-2009, depending on the nature of the difficulties in the financial markets and general economy, we may be forced to scale back certain of our core lending activities and other operations and/or borrow money at a higher funding cost or face a tightening in the net interest spread, any of which may have a negative impact on our earnings and profitability. Furthermore, while we and our principal subsidiaries currently maintain a capital adequacy ratio at a level higher than the required regulatory minimum, there is no guarantee that an even higher capital requirement will not be imposed by the Government in case of a renewed economic crisis.

In addition, given the highly integrated nature of financial systems and economic relationships worldwide, there may be other unanticipated systemic or other risks that may not be presently predictable. Any of these risks, if materialized, may have a material adverse effect on our business, liquidity, financial condition and results of operations.

Competition in the Korean financial services industry is intense, and may further intensify.

Competition in the Korean financial services industry is, and is likely to remain, intense, including as a result of the sustained low interest rate environment (which narrows opportunities to make profit based on the spread between lending rates and funding rates), the continuing sluggishness in the general economy, the growing maturation and saturation of the industry as a whole, the entry of new market participants and deregulation, among others.

In the banking sector, Shinhan Bank competes principally with other national commercial banks in Korea, but also faces competition from a number of additional banking institutions, including branches and subsidiaries of foreign banks operating in Korea, regional banks, Internet-only banks, government-owned development banks

8

and Korea’s specialized banks, such as Korea Development Bank, the Industrial Bank of Korea and the National Federation of Fisheries Cooperatives, as well as various other types of financial service providers, including savings institutions (such as mutual savings and finance companies, credit unions and credit cooperatives), investment companies (such as securities brokerage firms, merchant banking corporations and asset management companies) and life insurance companies. As of December 31, 2021, Korea had six major nationwide domestic commercial banks (including Citibank Korea Inc. and Standard Chartered Bank Korea Limited, both of which are domestic commercial banks acquired by global financial institutions), six regional commercial banks, two Internet-only banks and branches and subsidiaries of 36 foreign banks. Foreign financial institutions, many of which have greater experiences and resources than we do, may continue to enter the Korean market and compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions.

In the small- and

medium-sized

enterprise and retail banking segments, which have been Shinhan Bank’s traditional core businesses, competition is expected to increase further. In recent years, Korean banks, including Shinhan Bank, have increasingly focused on stable asset growth based on quality credit, such as corporate borrowers with high credit ratings, loans to SOHO with high levels of collateralization, and mortgage and home equity loans within the limits of the prescribed

loan-to-value

ratios and

debt-to-income

ratios. This common shift in focus toward stable growth based on less risky assets has intensified competition as banks compete for the same limited pool of quality credit by engaging in price competition or by other means although Shinhan Bank has traditionally focused, and will continue to focus, on enhancing profitability rather than increasing asset size or market share, and has avoided, to the extent practicable, engaging in price competition by way of lowering lending rates. In addition, such competition may result in lower net interest margin and reduced overall profitability, especially if the low interest rate environment were to continue for a significant period of time. Shinhan Bank’s net interest margin (on a separate basis) increased to 1.41% in 2021 from 1.37% in 2020 due to, at least partly, increases in base interest rate by the Bank of Korea from 0.50% to 0.75% in August 2021 and from 0.75% to 1.00% in November 2021. The Bank of Korea further raised the base interest rate from 1.00% to 1.25% on January 14, 2022 and then from 1.25% to 1.50% on April 14, 2022, which may be further increased during 2022. Even if interest rates were to increase, the effect on Shinhan Bank’s results of operations may not be as beneficial as expected, or at all, due to factors such as increased volatility of market interest rates and tighter regulations regarding SOHO loans, including the implementation of additional credit review guidelines for individual businesses. Further, if competing financial institutions seek to expand market share by lowering their lending rates, Shinhan Bank may suffer customer loss, especially among customers who select their lenders principally on the basis of lending rates. In response thereto or for other strategic reasons, Shinhan Bank may subsequently lower its lending rates to stay competitive, which could lead to a further decrease in its net interest margins and outweigh any potential positive impact on the net interest margin from a general rise in market interest rates. Any future decline in Shinhan Bank’s customer base or its net interest margins could have an adverse effect on our results of operations and financial condition.

In the credit card sector, Shinhan Card competes principally with existing “monoline” credit card companies, credit card divisions of commercial banks, consumer finance companies, other financial institutions and, recently, credit card service providers allied with mobile telecommunications service providers in Korea. Competition has been historically intense in this sector and the market has shown signs of saturation as existing and new credit card service providers make significant investments and engage in aggressive marketing campaigns and promotions to acquire new customers and target customers with high credit quality. While competition has subsided somewhat recently due to stricter government regulations, such as curbs on excessive marketing expenses, competition remains intense and credit card issuers may continue to compete with Shinhan Card for customers by offering lower interest rates and fees, higher credit limits, more attractive promotions and incentives and alternative products such as credit card reward points, gift cards and

low-interest

consumer loan products. As a result, Shinhan Card may lose customers or service opportunities to competing credit card issuers and/or incur higher marketing expenses. Also, over the years, the Government has implemented regulations lowering certain merchant fees chargeable by credit card companies. In 2012, the Government adopted regulations mandating lower merchant fees chargeable to small- and

medium-sized

enterprises, and beginning

9

January 31, 2016, a further reduction in the merchant fees chargeable to small- and

medium-sized

enterprises went into effect. The Enforcement Decree of the Specialized Credit Finance Business Act was amended in July 2017 and January 2019 to further expand the range of small- and

medium-sized

enterprises subject to lower merchant fees. Pursuant to the Specialized Credit Financial Business Act, the rates of fees chargeable to merchants are subject to review and revision every three years, and beginning January 2022, the fees chargeable to small- and

medium-sized

enterprises with respect to credit cards were further reduced as a result of this periodic review and revision. Additional amendments to regulations requiring further downward adjustments to merchant fees may come into force in the future. For further details on the Government’s regulations on merchant fees chargeable by credit card companies, See “— Risks Relating to Our Credit Card Business — Future changes in market conditions as well as other factors, such as stricter regulation, may lead to reduced revenues and deterioration in the asset quality of credit card receivables.”

In addition, since the implementation of the Improper Solicitation and Graft Act in September 2016, revenue growth for corporate cards and service related industries such as dining, floral and entertainment have shown signs of decline, and additional regulations on loans reducing maximum interest rates chargeable from 24% to 20% came into effect in July 2021.These developments have put further downward pressure on the results of operations for credit card companies, including Shinhan Card. Furthermore, the Government’s recent guidelines to bolster consumer protection and protect customers’ personal data in the aftermath of data leaks at certain credit companies (not including Shinhan Card) may result in additional compliance costs for Shinhan Card. Customer attrition, together with any further lowering of fees or reduction in base and market interest rates and/or additional expenses from more extensive marketing and promotional campaigns that Shinhan Card might implement to acquire and retain customers, could reduce its revenues and earnings. Furthermore, the average credit quality of Shinhan Card’s customers may deteriorate if customers with higher credit quality borrow from our competitors rather than Shinhan Card and it may become more difficult for Shinhan Card to attract and maintain quality customers. In general, the growth, market share and profitability of Shinhan Card’s operations may decline or become negative as a result of market saturation in this sector, interest rate competition, pressure to lower fee rates and incur higher marketing expenses, as well as Government regulation and social and economic developments in Korea that are beyond our control, such as changes in consumer confidence levels, spending patterns or public perception of credit card usage and consumer debt. If Shinhan Card fails to maintain or attract new cardholders or increase the card usage by existing customers or experiences deterioration in its asset quality and a rise in delinquency, our business, financial condition and results of operations may be adversely affected. In other financial services sectors, our other subsidiaries also compete in a highly fragmented market. Some of our competitors, particularly major global financial institutions, have greater experience and resources than we do.

Consolidation among our rival institutions and the Government’s privatization efforts may also add competition in the markets in which we and our subsidiaries conduct business. A number of significant mergers and acquisitions in the industry have taken place in Korea recently, including Hana Financial Group’s acquisition of Korea Exchange Bank in 2012 and the resulting merger of Hana Bank and Korea Exchange Bank in September 2015. In October 2014, the Government’s ownership interests in the holding companies of Kwangju Bank and Kyongnam Bank were acquired by JB Financial Group and BS Financial Group (now BNK Financial Group), respectively. In January 2019, Woori Financial Group was established pursuant to a comprehensive stock exchange under the Korean Commercial Code whereby holders of the common stock of Woori Bank and certain of its subsidiaries transferred all of their shares to Woori Financial Group (the new financial holding company) and in return received shares of Woori Financial Group. As a result, Woori Bank and certain of its former wholly-owned subsidiaries became direct and wholly-owned subsidiaries of Woori Financial Group. The Korea Deposit Insurance Corp., which as of April 9, 2021 owned 17.25% of the outstanding common stock of Woori Financial Group, has sold 13.63% of the outstanding common stock of Woori Financial Group in multiple transactions in accordance with its plan that was approved by the FSC in June 2019, and currently owns only 3.62% of the outstanding common stock of Woori Financial Group, which are also expected to be sold off by 2022. In the securities brokerage sector, Mirae Asset acquired KDB Daewoo Securities in 2016, creating the largest brokerage company in Korea by assets, and on June 1, 2016, KB Financial Group completed its

10

acquisition of Hyundai Securities and merged it with its existing brokerage unit, KB Investment & Securities Co, creating the fifth largest brokerage company in Korea by assets. In the asset management business sector, Woori Financial Group acquired two asset management companies, Tongyang Asset Management and ABL Global Asset Management (former Allianz Global Investors). In August 2021, KB Financial Group completed the acquisition of Prudential Life Insurance, the former Korean unit of Prudential Financial Inc.Any of these developments may place us at a competitive disadvantage and outweigh any potential benefit to us in the form of opportunities to acquire new customers who are displeased with the level of services at the newly reorganized entities or to provide credit facilities to corporate customers who wish to maintain relationships with a wide range of banks in order to diversify their sources of funding.

In September 2018, we announced the acquisition of a 59.15% interest in Orange Life Insurance, the former Korean unit of ING Life Insurance, as part of our efforts to diversify and enhance our

non-banking

businesses and closed on February 1, 2019. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles

360-2

of the Korean Commercial Code whereby holders (other than us) of Orange Life Insurance’s common stock transferred all of their shares to us and in return receive shares of our common stock, and hence Orange Life Insurance became our wholly owned subsidiary as of such date. In May 2021, the Financial Services Commission approved the merger of Shinhan Life Insurance and Orange Life Insurance, with Shinhan Life Insurance being the surviving entity upon completion of the merger. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021. On September 29, 2020, we acquired a 96.8% interest in Neoplux Co., Ltd. (“Neoplux”), a venture capital company formerly under the Doosan Group. On December 30, 2020, we acquired the remaining interest in Neoplux by effecting a small-scale stock exchange under Article

360-10

of the Korean Commercial Code, and hence Neoplux has become our wholly owned subsidiary as of such date. On January 11, 2021, Neoplux changed its legal name to Shinhan Venture Investment. In addition, on January 15, 2021, we acquired the remaining 35% interest in Shinhan BNP Paribas Asset Management Co., Ltd. (“Shinhan BNP Paribas Asset Management”) and changed its legal name to Shinhan Asset Management, and hence Shinhan Asset Management has become our wholly-owned subsidiary as of such date. We expect that such consolidation and other structural changes in the financial industry will continue. Other financial institutions may seek to acquire or merge with other entities, and the financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide greater competition for us. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability.

Regulatory reforms and the general modernization of business practices in Korea have also led to increased competition among financial institutions in Korea. Since July 2015, the Financial Services Commission has provided, through the Korea Financial Telecommunications and Clearings Institute, the integrated automatic payment transfer management service, which allows account holders to search for, terminate or modify automatic payments they have set up with financial institutions participating in such service (currently including banks, securities companies and other financial institutions such as The Post Office, Korean Federation of Community Credit Cooperatives, National Credit Union Federation of Korea, Mutual Savings Bank and National Forestry Cooperative Federation). In addition, the Financial Services Commission began providing the integrated account management service from December 2016, which allows account holders to search for detailed information of their bank accounts opened in banks participating in such service, close

small-sum

inactive accounts (i.e., accounts with no transaction activity during the previous one year period and with a balance of less than

W

500,000) and transfer the balance in such accounts to other accounts. Moreover, in December 2017, the Financial Services Commission introduced the “my account at a glance” system, which enables consumers to view their key financial account information online, including information on banks, insurances, mutual finance, loan and card issuances on one page. The “my account at a glance” system became available on mobile channels in February 2016 and expanded its scope of services to include savings banks and securities companies. Since their introduction, the integrated automatic payment transfer management service, integrated account management service and “my account at a glance” system have gained widespread acceptance. As the reform of the financial sector continues, competition may become more intense among existing banks, insurance companies, securities companies and other financial organizations, and may lead to significant changes in the

11

current Korean financial market. Moreover, since January 1, 2020, in calculating loan to deposit ratio, retail loans and corporate loans are weighed differently, with retail loans subject to a multiple of 115% and corporate loans (excluding loans to SOHOs) subject to a multiple of 85%, thereby increasing the impact of retail loans and reducing the impact of corporate loans in calculating such ratio. This may further intensify competition for corporate loans and deposits among commercial banks and, as a result, Shinhan Bank may face difficulties in increasing or retaining its corporate loans and deposits, which in turn may result in an increase in its cost of funding.

Furthermore, as the Korean economy further develops and new business opportunities arise, more competitors may enter the financial services industry. For example, as online service providers and technology companies with large-scale user networks, such as Kakao Corp., NAVER and Samsung Electronics, recently make significant inroads in providing virtual payment services through a system based on a growing convergence of financial services and technology commonly referred to as “fintech,” competition for online customers is growing not just among commercial banks, but also from online and mobile payment service providers. Also, widespread consumer acceptance of mobile phone payment services in lieu of credit card services could add to the competitive threat faced by existing credit card service providers, including our credit card subsidiary. In 2015, the Government announced its plans to allow Internet-only banks to operate in Korea. KT consortium’s

K-Bank,

Kakao consortium’s Kakao Bank and Viva Republica consortium’s Toss Bank commenced operations in April 2017, July 2017 and October 2021, respectively. Internet-only banks may have advantages over traditional banks as the former can pass savings in labor and overhead costs to their customers by offering higher interest rates on deposit accounts, lower loan costs and reduced service fees. Accordingly, commercial banks will likely face increasing pressure to upgrade their service platforms to attract and maintain online users, which represents a growing customer base compared to traditional customers who have primarily conducted banking

in-person

at physical banking branches.

As part of the Government’s financial policies to promote innovative digital finance, 10 commercial banks, including Shinhan Bank, began offering a preliminary open banking service in October 2019. More local banks and fintech companies joined in December 2019, when the open banking service was fully and officially launched. Open banking service allows each fintech company and bank to provide banking services, such as checking balances and making withdrawals and transfers, with regards to customers’ accounts at other banks. Using open banking service, customers can easily access accounts, products and services across multiple banks, instead of being limited to the accounts, products and services available at the particular bank that they deal with. In addition, on January 9, 2020, the Korean National Assembly passed amendments to three major data privacy laws (the Personal Information Protection Act, the Act on the Promotion of Information and Communications Network Utilization and Information Protection and the Act on the Use and Protection of Credit Information). These amendments introduced the MyData service, allowing and requiring (upon the customer’s request and subject to compliance requirements) financial institutions that have been approved by the Financial Service Commission as a MyData service provider access and sharing of customers’ personal information, credit information and transaction data. On January 27, 2021, Shinhan Bank and Shinhan Card each obtained a license from the Financial Services Commission as a MyData service provider and are planning to provide advanced wealth management and various financial services. Until October 13, 2021, the Financial Services Commission granted MyData licenses to 58 companies (46 companies receiving main licenses and 12 companies receiving preliminary licenses), 22 of which were fintech firms (19 companies receiving main licenses and three companies receiving preliminary licenses), and competition between traditional financial institutions like us and fintech firms is expected to intensify, particularly with respect to asset management services. On January 5, 2022, the

API-based

MyData service was fully implemented and 33 companies (including ten fintech firms) are providing services. As additional fintech companies receive authorization as MyData service providers, we expect competition for customers among banks and fintech firms such as Kakao Pay, Toss and Bank Salad to further intensify.

Recently, following the global financial crisis, the Government has subjected Korean financial institutions to stricter regulatory requirements and guidelines in areas of asset quality, capital adequacy, liquidity and

12

residential and other lending practices (including a requirement to maintain a certain ratio of core capital to total risk exposure, which was introduced in January 2018 in order to control excessive leverage), which has had a dampening effect on competition. The Financial Services Commission implemented the capital requirements of Basel III, whose minimum requirements were phased in sequentially from December 1, 2013 through full implementation by January 1, 2015, based on the guidelines set forth in the amended Regulation on the Supervision of the Banking Business and the Detailed Regulation on the Supervision of the Banking Business. In addition, the Financial Services Commission has implemented the Basel III requirements relating to liquidity coverage ratio and capital conservation buffer, each of which have been fully phased in as of January 1, 2019. As of January 1, 2016, the Financial Services Commission implemented Basel III requirements relating to accumulation of additional capital for systemically important banks and bank holding companies and countercyclical capital buffer requirements. Each year, the Financial Services Commission may designate banks with significant influence (based on size and connectivity with other financial institutions) on the domestic financial system as a domestic systemically important bank and require the accumulation of additional capital in accordance with the highest of: (i) ratio of common equity capital to risk-weighted assets, ranging from 0.0% to 2.0%, depending on the systematic importance evaluation score, (ii) if the bank’s holding company is a domestic systemically important bank holding company, the capital ratio corresponding to the additional capital required for the bank holding company under the Financial Holding Company Supervision Regulations, or (iii) if the bank is also a global systemically important bank, as defined by the Basel Committee on Banking Supervision (the “Basel Committee”), the capital ratio as required by the Basel Committee. According to the instructions of the Financial Services Commission, domestic systematically important banks including Shinhan Bank have been required to maintain an additional capital buffer of 0.25% since January 1, 2016, with such buffer increased by 0.25% annually to reach 1.00% as of January 1, 2019. The Financial Services Commission may also, upon quarterly review, determine and require banks to accumulate a required level of countercyclical capital buffer within the range of 0% to 2.5% of risk-weighted assets, taking into account factors such as the degree of increase in credit relative to the gross domestic product. However, there is no assurance that these measures will have the effect of curbing competition or that the Government will not reverse or reduce such measures or introduce other deregulatory measures, which may further intensify competition in the Korean financial services industry. For further details on the capital requirements applicable to us, see “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy.”

If, despite our efforts to adapt to the changing macroeconomic environment and comply with new regulations, we are unable to compete effectively in the changing business and regulatory environment, our profit margin and market share may erode and our future growth opportunities may become limited, which could adversely affect our business, financial condition and results of operations.

We and our subsidiaries need to maintain our capital ratios above minimum required levels, and the failure to so maintain could result in the suspension of some or all of our operations.

We and our subsidiaries in Korea are required to maintain specified capital adequacy ratios. For example, since January 1, 2015, we and our banking subsidiaries in Korea are required to maintain a minimum common equity Tier I capital adequacy ratio of 4.5%, a Tier I capital adequacy ratio of 6.0% and a total capital (BIS) ratio of 8.0%. These ratios measure the respective regulatory capital as a percentage of risk-weighted assets on a consolidated basis and are determined based on guidelines of the Financial Services Commission. In addition, as further described below, Shinhan Bank is also required to maintain a capital conservation buffer and additional capital as a domestic systemically important bank and may be required to maintain a countercyclical capital buffer. Also, our subsidiaries Shinhan Card, Shinhan Life Insurance and Shinhan Investment are each required to maintain a consolidated adjusted equity capital ratio of 8.0%, a solvency ratio of 100% and a net capital ratio of 100%, respectively.

While we and our subsidiaries currently maintain capital adequacy ratios in excess of the respective required regulatory minimum levels, we or our subsidiaries may not be able to continue to satisfy the capital adequacy requirements for a number of reasons, including an increase in risky assets and provisioning expenses,

13

substitution costs related to the disposal of problem loans, declines in the value of securities portfolios, adverse changes in foreign currency exchange rates, changes in the capital ratio requirements, the guidelines regarding the computation of capital ratios, or the framework set by the Basel Committee upon which the guidelines of the Financial Services Commission are based, or other adverse developments affecting our asset quality or equity capital.

In December 2010, the Basel Committee issued final rules in respect of (i) a global regulatory framework for more resilient banks and banking systems and (ii) an international framework for liquidity risk measurement, standards and monitoring, which together are commonly referred to as “Basel III.” Under Basel III, Tier I capital is defined to include common equity Tier I and additional Tier I capital. Common equity Tier I capital is a new category of capital primarily consisting of common stock, capital surplus, retained earnings and other comprehensive income (progressively phased into the capital ratio calculation over several years). The new minimum capital requirements, including the minimum common equity Tier I requirement of 4.5% and additional mandatory capital conservation buffer requirement of 2.5%, have been fully implemented as of January 1, 2019. Additional discretionary countercyclical capital buffer requirements are also expected to be phased in, which will range at the discretion of national regulators between 0% and 2.5% of risk-weighted assets. Basel III also introduces a minimum leverage ratio requirement. On December 7, 2017, the Basel Committee finalized several key methodologies for measuring risk-weighted assets. The revisions include a standardized approach for credit risk, a standardized approach for operational risk, revisions to the credit valuation adjustment (CVA) risk framework and constraints on the use of internal models. The Basel Committee had also previously finalized a revised standardized model for counterparty credit risk, revisions to the securitization framework and its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. The revisions also include an output floor set at 72.5% of total risk-weighted assets based on the revised standardized approaches to limit the extent to which banks can reduce risk-weighted asset levels through the use of internal models. In order to provide additional operational capacity for banks and supervisors to respond to the impact of

COVID-19

on the global banking system, the Basel Committee has announced deferral of the implementation date of the final Basel III standards by one year, to January 2023, including the revised standardized approach for credit and operational risk, revised CVA framework, and revised market risk framework. The 72.5% output floor is subject to a

six-year

phase-in

period, beginning at 60% in January 2020 and increasing to 72.5% by January 2028. Upon implementation, banks in jurisdictions that permit reference to external credit ratings will be able to take into account external credit ratings in determining the risk weights for certain exposure classes, and different mortgage risk weights will apply depending on the

loan-to-value

ratio of the mortgage. In addition, the 2017 reforms remove the option to use internal ratings-based approaches for measurement of equity exposures, thus requiring use of the standardized approach. Banks will also need to reflect internal loss data in evaluating operational risk and comply with the principles for sound management of operational risk. According to the decision of the Korean financial authorities, we have introduced and applied the credit risk division of Basel III from September 2020 and plan to introduce both market risk and operation risk in January 2023.

In order to implement the capital requirements under Basel III in Korea, the Regulation on the Supervision of the Banking Business was amended, effective December 1, 2013. Under the amended Regulation on the Supervision of the Banking Business, effective from January 1, 2015, commercial banks in Korea are required to maintain a minimum common equity Tier I ratio of 4.5%, a minimum Tier I capital ratio of 6.0% and a minimum total capital (BIS) ratio of 8.0%. The Regulation on the Supervision of the Banking Business was further amended on December 26, 2014, to implement the liquidity coverage ratio requirements under Basel III in increments of 5% annually, from 80% as of January 1, 2015 to 100% as of January 1, 2019. In April 2020, in response to the

COVID-19

pandemic, the Financial Services Commission temporarily lowered the liquidity coverage ratio requirement from 100% to 85%. This temporary lower ratio requirement will apply through June 2022 and beginning as of July 1, 2022, the Financial Services Commission announced it would begin to gradually increase the liquidity coverage ratio to 100% by June 30, 2023. Capital conservation buffer requirements have also been phased in from January 1, 2016 in increments of 0.625% annually, to the effect that commercial banks in Korea are required to maintain a capital conservation buffer of 2.5% as of January 1, 2019.

14

If a commercial bank fails to maintain such capital conservation buffer requirements, such bank will be subject to certain restrictions relating to its use of income, such as distributing dividends and purchasing treasury stock. As of January 1, 2016, the Financial Services Commission implemented Basel III requirements relating to accumulation of additional capital for systemically important banks and bank holding companies and countercyclical capital buffer requirements. Each year, the Financial Services Commission may designate banks with significant influence (based on size and connectivity with other financial institutions) on the domestic financial system as a domestic systemically important bank and require the accumulation of additional capital in accordance with the highest of: (i) ratio of common equity capital to risk-weighted assets, ranging from 0.0% to 2.0%, depending on the systematic importance evaluation score, (ii) if the bank’s holding company is a domestic systemically important bank holding company, the capital ratio corresponding to the additional capital required for the bank holding company under the Financial Holding Company Supervision Regulations, or (iii) if the bank is also a global systemically important bank, as defined by the Basel Committee, the capital ratio as required by the Basel Committee. Shinhan Financial Group and Shinhan Bank were selected as a domestic systemically important bank holding company and domestic systemically important bank, respectively, from 2016 through 2022. According to the instructions of the Financial Services Commission, domestic systematically important banks including Shinhan Bank have been required to maintain an additional capital buffer of 0.25% since January 1, 2016, with such buffer increased by 0.25% annually to reach 1.00% as of January 1, 2019. The Financial Services Commission may also, upon quarterly review, determine and require banks to accumulate a required level of countercyclical capital buffer within the range of 0% to 2.5% of risk-weighted assets, taking into account factors such as the degree of increase in credit relative to the gross domestic product. Since March 2016, the Financial Services Commission has maintained countercyclical capital buffer requirements at 0%, and the Financial Supervisory Service has maintained the countercyclical capital buffer requirement at 0% for the first quarter of 2022.

We and our banking subsidiaries are currently, and have been, in full compliance with Basel III requirements as implemented in Korea since its introduction in December 2013.However, there is no assurance that we will continue to be able to be in compliance with Basel III requirements. New requirements under Basel III may require an increase in the credit risk capital requirements in the future, which may require us or our subsidiaries to either improve asset quality or raise additional capital. In addition, if the capital adequacy ratios of us or our subsidiaries were to fall below the required levels, the Financial Services Commission might impose penalties ranging from a warning to suspension or revocation of our or our subsidiaries’ business licenses. In order to maintain the capital adequacy ratios above the required levels, we or our subsidiaries may be required to raise additional capital through equity financing, but there is no assurance that we or our subsidiaries will be able to do so on commercially favorable terms or at all and, even if successful, any such capital raising may have a dilutive effect on our shareholders with respect to their interest in us or on us with respect to our interest in our subsidiaries.

Liquidity, funding management and credit ratings are critical to our ongoing performance.

Liquidity is essential to our business as a financial intermediary, and we may seek additional funding in the near future to satisfy liquidity needs, meet regulatory requirements, enhance our capital levels or fund the growth of our operations as opportunities arise.

For example, Basel III includes an international framework for liquidity risk measurement, standards and monitoring, as noted above, including a new minimum liquidity standard, known as the liquidity coverage ratio, which is designed to ensure that banks have an adequate stock of unencumbered high quality liquid assets (“HQLA”) that can be easily and speedily converted into cash in the private marketplace to survive a significant stress scenario lasting 30 calendar days. The liquidity coverage ratio is computed as (a) the value of a banking organization’s HQLA, divided by (b) its total expected net cash outflows over the next 30 calendar days under stress scenarios. The minimum liquidity coverage ratio is 100%. In January 2013, the Basel Committee released a revised formulation of the liquidity coverage ratio, one of two quantitative liquidity measures approved in December 2010 as part of Basel III. The Basel Committee extended the timetable for full

phase-in

of the liquidity

15

coverage ratio to the effect that the minimum liquidity coverage ratio was set at 60% as of January 1, 2015 and thereafter was increased in annual increments of 10% so that the minimum liquidity coverage ratio reached 100% as of January 1, 2019. In December 2014, the Financial Services Commission promulgated regulations to implement the liquidity requirements of Basel III, including raising the minimum liquidity coverage ratio to 80% as of January 1, 2015 and thereafter by annual increments of 5% so that the minimum liquidity coverage ratio for commercial banks in Korea is 100% since January 1, 2019. In April 2020, in response to the

COVID-19

pandemic, the Financial Services Commission temporarily lowered the liquidity coverage ratio requirement from 100% to 85%. This temporary lower ratio requirement will apply through June 2022 and beginning as of July 1, 2022, the Financial Services Commission announced it would begin to gradually increase the liquidity coverage ratio to 100% by June 30, 2023.

A substantial part of the liquidity and funding requirements for our banking subsidiaries is met through short-term customer deposits, which typically roll over upon maturity. While the volume of our customer deposits has generally been stable over time, customer deposits have from time to time declined substantially due to the popularity of other, higher-yielding investment opportunities, namely stocks and mutual funds, for example, during times of bullish stock markets. During such times, our banking subsidiaries were required to obtain alternative funding at higher costs. There is no assurance that a similar development will not occur in the future. In addition, in recent years, we have faced increasing pricing competition from our competitors with respect to our deposit products. If we do not continue to offer competitive interest rates to our deposit customers, we may lose their business, which has traditionally provided a stable and

low-cost

source of funding. In addition, even if we are able to match our competitors’ pricing, doing so may result in an increase in our funding costs, which may have an adverse impact on our results of operations.

We and our subsidiaries also raise funds in capital markets and borrow from other financial institutions, the cost of which depends on market rates and the general availability of credit and the terms of which may limit our ability to pay dividends, make acquisitions or subject us to other restrictive covenants. While we and our subsidiaries are not currently facing liquidity difficulties in any material respect, if we or our subsidiaries are unable to obtain the funding we need on terms commercially acceptable to us for an extended period of time for whatever reason, we may not be able to ensure our financial viability, meet regulatory requirements, implement our strategies or compete effectively.

Credit ratings affect the cost and other terms upon which we and our subsidiaries are able to obtain funding. Domestic and international rating agencies regularly evaluate us and our subsidiaries, and their ratings of our and our subsidiaries’ long-term debt are based on a number of factors, including our financial strength as well as conditions affecting the financial services industry and the Korean economy in general. There can be no assurance that the rating agencies will maintain our current ratings or outlooks. There is no assurance that Shinhan Bank, Shinhan Card, any of our other major subsidiaries or our holding company will not experience a downgrade in their respective credit ratings and outlooks for reasons related to the general Korean economy or reasons specific to such entity. Any downgrades in the credit ratings and outlooks of us and our subsidiaries will likely increase our cost of funding, limit our access to capital markets and other borrowings, or require us to provide additional credit enhancement in financial transactions, any of which could adversely affect our liquidity, net interest margins and profitability, and in turn, our business, financial condition and results of operations.

Changes in interest rates, foreign exchange rates, bond and equity prices, and other market factors have affected and will continue to affect our business, results of operations and financial condition.

The most significant market risks we face are interest rate, foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realized between lending and borrowing costs. Changes in foreign currency exchange rates, particularly in the Korean Won to U.S. Dollar exchange rates, affect the value of our assets and liabilities denominated in foreign currencies, the reported earnings of our

non-Korean

subsidiaries and income from foreign exchange dealings, and substantial and rapid fluctuations in exchange rates may cause difficulty in obtaining foreign currency-

16

denominated financing in the international financial markets on commercial terms acceptable to us or at all. The performance of financial markets may affect bond and equity prices and, therefore, cause changes in the value of our investment and trading portfolios. While we have implemented risk management systems and risk thresholds to mitigate and control these and other market risks to which we are exposed, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on our business, financial condition and results of operations.

Of particular importance is the change in the base and market interest rates. Since 2009, Korea, like many other countries, has experienced a low interest rate environment despite some marginal fluctuations, in part due to the Government’s policy to stimulate the economy through active rate-lowering measures. Between 2009 and 2014, the base interest rate set by the Bank of Korea remained within the band between 2.00% and 3.25%. In an effort to support Korea’s economy in light of the recent slowdown in Korea’s growth and uncertain global economic prospects, the Bank of Korea reduced the base interest rate to 1.75% in March 2015, 1.50% in June 2015, and further reduced such rate to the historic low of 1.25% in June 2016. In November 2017, the Bank of Korea raised the base interest rate to 1.50%, marking the first time it has increased the base interest rate since 2011, and further raised such rate to 1.75% in November 2018. The Bank of Korea reduced the base interest rate from 1.75% to 1.50% in July 2019, from 1.50% to 1.25% in October 2019, from 1.25% to 0.75% in March 2020 and from 0.75% to 0.50% in May 2020. In 2021, the Bank of Korea raised the base interest rate from 0.50% to 0.75% in August and from 0.75% to 1.00% in November. The Bank of Korea further raised the base interest rate from 1.00% to 1.25% on January 14, 2022 and then from 1.25% to 1.50% on April 14, 2022, which may be further increased during 2022. Interest rate movements, in terms of magnitude and timing as well as their relative impact on our assets and liabilities, have a significant impact on our net interest margin and profitability, particularly with respect to our financial products that are sensitive to such movements. For example, if the interest rates applicable to our loans (which are recorded as assets) increase at a slower pace or by a thinner margin than the interest rates applicable to our deposits (which are recorded as liabilities), our net interest margin will shrink and our profitability will be negatively affected. In addition, the relative size and composition of our variable rate loans and deposits (as compared to our fixed rate loans and deposits) may also impact our net interest margin. Furthermore, the difference in the average repricing frequency of our interest-earning assets (primarily loans) compared to our interest-bearing liabilities (primarily deposits) may also impact our net interest margin. For example, since our deposits tend to have longer terms, on average, than those of our loans, our deposits are on average less sensitive to movements in the base interest rates on which our deposits and loans tend to be pegged, and therefore, a decrease in the base interest rates tends to decrease our net interest margin while an increase in the base interest rates tends to have the opposite effect. While we continually manage our assets and liabilities to minimize our exposure to interest rate volatility, such efforts by us may not mitigate the impact of interest rate volatility in a timely or effective manner, and our net interest margin, and in turn our financial condition and results of operations, could suffer significantly.

17

The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in Won per US$1.00.

Year Ended December 31,	At End of Period		Average (1)		High		Low
	(Won per US$1.00)
2017		1,067.4		1,141.6		1,207.2		1,067.4
2018		1,112.9		1,099.3		1,141.7		1,054.6
2019		1,155.5		1,165.8		1,220.7		1,111.8
2020		1,086.1		1,180.6		1,267.3		1,081.9
2021		1,188.6		1,144.9		1,198.7		1,081.6
October		1,174.9		1,181.9		1,198.7		1,167.3
November		1,187.5		1,184.1		1,194.4		1,177.0
December		1,188.6		1,183.9		1,192.4		1,173.6
2022 (through April 15)		1,228.0		1,208.6		1,242.7		1,187.0
January		1,206.8		1,196.0		1,209.0		1,187.0
February		1,202.3		1,199.1		1,209.4		1,192.1
March		1,211.6		1,220.8		1,242.7		1,204.3
April (through April 15)		1,228.0		1,222.5		1,236.0		1,212.6

Source: Federal Reserve Board

Note:

(1) The average rate for annual and interim periods were calculated by taking the simple average of the Noon Buying Rates on the last day of each month during the relevant period. The average rates for the monthly periods (or portion thereof) were calculated by taking the simple average of the daily Noon Buying Rates during the relevant month (or portion thereof).

We have translated certain amounts in Korean Won, which appear in this annual report, into U.S. Dollars for convenience. This does not mean that the Won amounts referred to could have been, or could be, converted into U.S. Dollars at any particular rate, the rates stated above, or at all. Unless otherwise stated, translations of Won amounts to U.S. Dollars are based on the Noon Buying Rate in effect on December 30, 2021, which was

W

1,188.6 to US$1.00. On April 15, 2022, the Noon Buying Rate in effect was

W

1,228.0 to US$1.00.

We cannot assure you when and to what extent the Bank of Korea will in the future adjust the base interest rate, to which the market interest rate correlates. A decision to adjust the base interest rate is subject to many policy considerations as well as market factors, including the general economic cycle, inflationary levels, interest rates in other economies and foreign currency exchange rates, among others. In general, a decrease in interest rates adversely affects our interest income due to the different maturity structure for our assets and liabilities as discussed above. In contrast, if there were to be a significant or sustained increase in interest rates, all else being equal, such movement would lead to a decline in the value of traded debt securities and could also raise our funding costs, while reducing loan demand, especially among retail customers. Rising interest rates may therefore require us to

re-balance

our assets and liabilities in order to minimize the risk of potential mismatches in our asset liability management and to maintain our profitability. In addition, rising interest rates may adversely affect the Korean economy and the financial condition of our corporate and retail borrowers, including holders of our credit cards, which in turn may lead to deterioration of asset quality for our credit portfolio. Since most of our retail and corporate loans bear interest at rates that adjust periodically based on prevailing market rates, a sustained increase in interest rates will increase the funding costs of our borrowers and may adversely affect their ability to make payments on their outstanding loans. See “The extent to which the recent coronavirus

(COVID-19)

outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.” and “Item 5.A. Operating Results — Interest Rates.”

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Reforms of London Interbank Offered Rate and other interest rate benchmarks could adversely affect our business, financial condition and results of operations.

Many of our products and services refer to benchmark interest rates such as the London Interbank Offered Rate (“LIBOR”) in many currencies, including the U.S. Dollar. We also utilize such benchmark interest rates for our own evaluation of financial instruments and various other internal management purposes. LIBOR for different periods and currencies is determined and announced on a daily basis by the ICE Benchmark Administration, the administrator of LIBOR, based on rate submissions provided by groups of panel banks for the relevant currencies. In July 2017, the U.K. Financial Conduct Authority (the “FCA”), which has regulatory authority with respect to LIBOR, announced that it does not intend to continue to encourage, or use its power to compel, panel banks to provide rate submissions for the determination of LIBOR beyond the end of 2021. On March 5, 2021, the FCA formally announced the dates of the future cessation or loss of representativeness of all 35 LIBOR settings currently published by the ICE Benchmark Administration. In accordance with the announcements, the ICE Benchmark Administration have ceased publication of all Sterling, Euro, Swiss Franc, Japanese Yen and

one-week

and

two-month

U.S. Dollar LIBOR settings since December 31, 2021 and will cease publication of overnight,

1-month,

3-month,

6-month

and

12-month

U.S. Dollar LIBOR settings in their current forms after June 30, 2023.

In response to such discontinuation of the publication of LIBOR, we have been taking measures to deal with the reform of LIBOR and other interest rate benchmarks and the transition to an alternative interest rate, including launching a task force within Shinhan Bank in March 2020 as well as developing a governance framework across multiple departments and subsidiaries to allow for flexibility, autonomy and efficiency across the Group in addressing these issues. However, such transition is complex and uncertain in many respects and may have various adverse impacts on our business, financial position and operating results. For example, the Secured Overnight Financing Rate, or SOFR, has been identified by the Alternative Reference Rates Committee convened by the Board of Governors of the U.S. Federal Reserve System and the Federal Reserve Bank of New York as the preferred alternative benchmark reference rate for LIBOR and differs from LIBOR in many respects, including its basis on actual observed transactions in the U.S. Treasury market as opposed to LIBOR’s usage of estimations of borrowing rates. While there are a number of international working groups focused on transition plans and the provision of fallback contract language that seek to minimize market disruption, replacement of LIBOR or any other benchmark, such as SOFR, with a new benchmark rate could adversely impact the value of and return on existing instruments and contracts. In particular, such transition may, among other things:

• adversely affect the price, liquidity, profitability, and tradability of a wide range of financial instruments, such as loans and derivatives, included in our financial assets and liabilities that reference LIBOR and other interest rate benchmarks;

• require negotiations with our counterparties to modify contracts to replace the reference rate for existing contracts based on or linked to LIBOR and other interest rate benchmarks with an alternative interest rate;

• result in disputes with customers and counterparties concerning the interpretation of affected contracts or economic adjustments to the alternative interest rate adopted in connection with the reform of LIBOR and other interest rates and the transition to alternative interest rates, or disputes concerning inappropriate trade practices or abuse of a dominant bargaining position in transactions with customers;

• require us to respond to regulatory authorities in connection with the reform of LIBOR and other interest rates and the transition to an alternative interest rate;

• require us to develop risk management and other operational systems and processes (including information technology systems) necessary to effectively deal with the reform of LIBOR and other interest rates and the transition to an alternative interest rate, which may prove challenging or impossible, or incur significant investment and other costs in connection with such reform and transition; or

• result in accounting or other issues, such as by causing hedging accounting items to be derecognized.

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There can be no assurance that a change in the benchmark interest rate and related valuation methods will not have a material adverse effect on our business, results of operations and financial condition.

We may incur losses associated with our counterparty exposures.

We face the risk that counterparties will be unable to honor contractual obligations to us or our subsidiaries. These parties may default on their obligations to us or our subsidiaries due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, from entering into swaps or other derivative contracts under which counterparties have obligations to make payments to us or our subsidiaries or in executing currency or other trades that fail to settle at the required time due to

non-delivery

by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Any realization of counterparty risk may adversely affect our business, operations and financial condition.

Risks Relating to Our Banking Business

We have significant exposure to small- and

medium-sized

enterprises, and financial difficulties experienced by such enterprises may result in a deterioration of our asset quality.

Our banking activities are conducted primarily through our wholly-owned subsidiary, Shinhan Bank. One of our core banking businesses has historically been and continues to be lending to small- and

medium-sized

enterprises (as defined in “Item 4.B. Business Overview — Our Principal Activities — Corporate Banking Services — Small- and

Medium-sized

Enterprises Banking”). Shinhan Bank’s loans (before allowance for loan losses and deferred loan origination costs and fees) to such enterprises amounted to

W

91,162 billion as of December 31, 2019,

W

108,016 billion as of December 31, 2020 and

W

121,961 billion as of December 31, 2021, representing 27.8%, 29.9% and 31.0%, respectively, of our total loan portfolio as of such dates.

Compared to loans to large corporations, which tend to be better capitalized and better able to weather business downturns, or loans to individuals and households, which tend to be secured with homes and with respect to which the borrowers are therefore less willing to default, loans to small- and

medium-sized

enterprises have historically had a relatively higher delinquency ratio. Many small- and

medium-sized

enterprises represent sole proprietorships or small businesses dependent on a relatively limited number of suppliers or customers and tend to be affected to a greater extent than large corporate borrowers by fluctuations in the Korean and global economy. In addition, small- and

medium-sized

enterprises often maintain less sophisticated financial records than large corporate borrowers. Therefore, it is generally more difficult for banks to judge the level of risk inherent in lending to such enterprises, as compared to large corporations. In addition, many small- and

medium-sized

enterprises are dependent on business relationships with large corporations in Korea, primarily as suppliers. Any difficulties encountered by those large corporations would likely hurt the liquidity and financial condition of related small- and

medium-sized

enterprises, including those to which we have exposure, also resulting in an impairment of their ability to repay loans. As large Korean corporations continue to expand into China, Southeast Asia and other countries with lower labor costs and other expenses by relocating their production plants and facilities to such countries, such development may have a material adverse impact on such small- and

medium-sized

enterprises.

Financial difficulties experienced by small- and

medium-sized

enterprises as a result of, among other things, recent economic difficulties in Korea and globally and aggressive marketing and intense competition among banks to lend to this segment in recent years, coupled with our efforts to counter asset quality deterioration through conservative lending policy, have led to a fluctuation in the asset quality of our loans to this segment. As of December 31, 2019, 2020 and 2021, Shinhan Bank’s delinquent loans to small- and

medium-sized

enterprises were

W

346 billion,

W

372 billion and

W

363 billion, respectively, representing delinquency ratios (net of charge-offs and loan sales) of 0.38%, 0.34% and 0.30%, respectively. If the ongoing difficulties in the Korean or global economy were to continue or aggravate, the delinquency ratio for our loans to small- and

medium-sized

enterprises may rise.

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Of particular concern is our exposure to enterprises in the real estate and leasing and construction industries. As of December 31, 2021, Shinhan Bank had outstanding loans (before allowance for credit losses on loans and deferred loan origination costs and fees) to enterprises in the real estate and leasing and construction industries (many of which are small- and

medium-sized

enterprises) of

W

38,218 billion and

W

3,437 billion, respectively, representing 11.7% and 1.0%, respectively, of its total loan portfolio as of such date. We also have other exposure to borrowers in these sectors of the Korean economy, including extending guarantees for the benefit of such companies and holding debt and equity securities issued by such companies. In addition, Shinhan Bank has exposure to borrowers in the shipbuilding and shipping industries, which have yet to stage a meaningful turnaround.

The enterprises in the real estate development and construction industries in Korea, which are heavily concentrated in the housing market, have recently seen modest growth backed by the housing market which has remained strong over the recent few years. However, the Government’s policy measures to stabilize the real estate market, oversupply of residential property, ongoing economic sluggishness in Korea and globally and demographic changes in the Korean population may result in difficulties to the housing market in general as well as these enterprises. We also have limited exposure to real estate project financing, particularly by construction companies that have built residential units in provinces outside the metropolitan Seoul area, which had experienced a relatively low rate of

pre-sales,

the proceeds from which the construction companies primarily rely on as a key source for liquidity and cash flow.

Any of the foregoing developments may result in deterioration in the asset quality of our banking subsidiaries. See “Item 4.B. Business Overview — Description of Assets and Liabilities — Credit Exposures to Companies in Workout and Recovery Proceedings.” We have been taking active steps to curtail delinquency among our small- and

medium-sized

enterprise customers, including by way of strengthening loan application review processes and closely monitoring borrowers in troubled sectors. Despite such efforts, there is no assurance that the delinquency ratio for our loans to small- and

medium-sized

enterprises will not rise in the future, especially if the Korean economy were to face renewed difficulties and, as a result, the liquidity and cash flow of these borrowers deteriorate. A significant rise in the delinquency ratios among these borrowers would lead to increased charge-offs and higher provisioning and reduced interest and fee income, which would have a material adverse effect on our business, financial condition and results of operations.

A decline in the value of the collateral securing our loans or our inability to fully realize the collateral value may adversely affect our credit portfolio.

Most of our mortgage and home equity loans are secured by borrowers’ homes, other real estate, other securities and guarantees (which are principally provided by the Government and other financial institutions), and a substantial portion of our corporate loans are also secured, including by real estate. As of December 31, 2021, the secured portion were collateralized or guaranteed of Shinhan Bank’s loans amounted to

W

204,266 billion, representing 62.3% of its total loans. No assurance can be given that the collateral value will not materially decline in the future. Shinhan Bank’s general policy for mortgage and home equity loans is to lend up to 45% to 82% of the appraised value of the collateral, but subject to the maximum

loan-to-value

ratio,

debt-to-income

ratio and debt service ratio requirements for mortgage loans implemented by the Government, and to periodically

re-appraise

such collateral. In order to mitigate our loss in the event of a decrease in the value of collateral, we have made effort to increase the proportion of installment principal repayment-based loans and manage the

loan-to-value

ratio of loans. As of December 31, 2021, installment principal repayment-based housing loans accounted for 52.5% of the housing loans extended by Shinhan Bank, and the

loan-to-value

ratio of mortgage and home equity loans of Shinhan Bank was 40.7%. Despite these efforts however, if the real estate market in Korea experiences a downturn, the value of the collateral may fall below the outstanding principal balance of the underlying mortgage loans. Borrowers of such under-collateralized mortgages or loans may be forced to pay back all or a portion of such mortgage loans or, if unable to meet the collateral requirement through such repayment, sell the underlying collateral, which sales may lead to a further decline in the price of real estate in general and set off a chain reaction for other borrowers due to the further decline in the value of collateral.

21

Declines in real estate prices reduce the value of the collateral securing our mortgage and home equity loans, and such reduction in the value of collateral may result in our inability to cover the uncollectible portion of our secured loans. A decline in the value of the real estate or other collateral securing our loans, or our inability to obtain additional collateral in the event of such decline, may result in the deterioration of our asset quality and require us to make additional loan loss provisions. In Korea, foreclosure on collateral generally requires a written petition to a Korean court. Foreclosure procedures in Korea generally take 7 to 12 months from initiation to collection depending on the nature of the collateral, and foreclosure applications may be subject to delays and administrative requirements, which may result in a decrease in the recovery value of such collateral. No assurance can be given that we will be able to realize the full value of collateral as a result of, among others, delays in foreclosure proceedings, defects in the perfection of collateral and general declines in collateral value. Our failure to recover the expected value of collateral could expose us to significant losses.

Guarantees received in connection with our real estate financing may not provide sufficient coverage.

Primarily through Shinhan Bank, we, alone or together with other financial institutions, provide financing to real estate development projects, which are concentrated largely in the construction of residential complexes. Developers in Korea commonly use project financing to acquire land and pay for related project development costs. As a market practice, lenders in project financing, including Shinhan Bank, generally receive from general contractors a performance guarantee for the completion of projects by the developers as well as a payment guarantee for the loans raised by a special purpose financing vehicle established by the developers in order to procure the construction orders, as the developers tend to be small and highly leveraged. Shinhan Bank has actively managed and reduced its real estate project financing-related exposure, particularly during sustained downturns in the Korean real estate market. As of December 31, 2021, the total outstanding amount of Shinhan Bank’s real estate project financing-related exposure was

W

4.9 trillion. However, if defaults were to significantly increase under our existing loans to real estate development projects and the general contractors fail to pay the guaranteed amount necessary to cover the amount of our financings, this may have an adverse effect on our business, financial condition and results of operations.

A limited portion of our credit exposure is concentrated in a relatively small number of large corporate borrowers, and future financial difficulties experienced by them may have an adverse impact on us.

Of Shinhan Bank’s 10 largest corporate exposures as of December 31, 2021, three were companies for which Shinhan Bank was a main creditor bank. All of the 10 companies are or were members of the main debtor groups as identified by the Governor of the Financial Supervisory Service, which are mostly comprised of the largest Korean commercial conglomerates known as

“chaebols.”

As of such date, the total amount of Shinhan Bank’s exposures to the 10 companies was

W

29,121 billion, or 5.1%, of its total exposures. As of that date, Shinhan Bank’s single largest outstanding exposure to a main debtor group amounted to

W

5,825 billion, or 1.0%, of its total exposures. Largely due to the continued stagnation in the shipbuilding industry, current and former member companies of the STX Group, one of the leading conglomerates in Korea, entered into voluntary arrangements in 2013 with their creditors (including Shinhan Bank) to improve their credit situation, and STX Offshore & Shipbuilding and STX Heavy Industries, two of the STX Group’s member companies, recently filed for court receivership in May 2016 and July 2016, respectively. Due to stagnation in the construction industry, Keangnam Enterprises Co., Ltd., a large construction company in Korea, also entered into workout proceedings in 2013 and subsequently filed for recovery proceedings in March 2015. Dongbu Steel Co., Ltd. and Sambu Construction Co., Ltd. also experienced significant hardship and entered into workout or recovery proceedings in 2015. Additionally, in October 2015, creditors of Daewoo Shipbuilding & Marine Engineering Co., Ltd., led by Korea Development Bank, announced a restructuring plan that included cash injection and additional loans totaling

W

4.2 trillion and extensive streamlining measures, and in November 2016, Korea Development Bank agreed to swap

W

1.8 trillion of debt to equity and the Export-Import Bank of Korea agreed to issue

W

1 trillion of perpetual bonds. Amid continued deterioration of Daewoo Shipbuilding & Marine Engineering Co., Ltd.’s financial conditions, in March 2017, Korea Development Bank and the Export-Import Bank of Korea further agreed to provide an additional

W

2.9 trillion in loans and swap

W

1.6 trillion of debt to equity, provided that

22

other creditors and bondholders agree to certain

debt-to-equity

swaps and extension of maturities. In January 2016, Hanjin Heavy Industries & Construction Co., Ltd. entered into voluntary restructuring agreements with its creditors due to liquidity shortage in the wake of prolonged industry slowdown. Partly as a result of its active past efforts to reduce exposure to the shipbuilding and construction sectors, Shinhan Bank currently has limited exposure to the aforementioned troubled companies. However, if the credit quality of Shinhan Bank’s exposure to large corporations, including those in the main debtor groups, declines, Shinhan Bank may be required to record additional loan loss provisions in respect of loans and impairment losses in respect of securities, which would adversely affect its financial condition, results of operations and capital adequacy. No assurance can be given that the allowances it has established against these exposures will be sufficient to cover all future losses arising from such exposures, especially in the case of a prolonged or renewed economic downturn.

A limited number of the main debtor groups to which Shinhan Bank has credit exposure are subject to restructuring programs or are otherwise making significant efforts to improve their financial conditions, such as by obtaining intragroup loans and entering into agreements to further improve their capital structures. No assurance can be given that there will not be future restructuring with Shinhan Bank’s major corporate customers or that such restructuring will not result in significant losses to Shinhan Bank with less than full recovery. In addition, if the Government decides to pursue an aggressive restructuring policy with respect to distressed companies, Korean commercial banks, including Shinhan Bank, may face a temporary rise in delinquencies and intensified pressure for additional provisioning. Furthermore, bankruptcies or financial difficulties of large corporations, including

chaebol

groups, may have an adverse ripple effect of triggering delinquencies and impairment of Shinhan Bank’s loans to small- and

medium-sized

enterprises that supply parts or labor to such corporations. If Shinhan Bank experiences future losses from its exposure to large corporations, including

chaebol

groups, it may have a material adverse effect on Shinhan Bank’s business, financial condition and results of operations. See “Item 4.B. Business Overview — Description of Assets and Liabilities — Loans — Loan Portfolio — Exposure to Main Debtor Groups.”

The asset quality of our retail loan portfolio may deteriorate.

In recent years, consumer debt, including lending to households and small unincorporated businesses, has continued to increase in Korea. Shinhan Bank’s portfolio of retail loans is comprised of two principal product types, namely secured retail loans (which are primarily comprised of mortgage and home equity loans secured by real estate) and general purpose loans (which are unsecured loans and tend to carry a higher credit risk). As of December 31, 2021, Shinhan Bank’s retail loan portfolio (before allowance for loan losses and deferred loan origination costs and fees and excluding credit card loans) was

W

145,479 billion, representing 44.4% of its total loans outstanding. As of December 31, 2019, 2020 and 2021, Shinhan Bank’s

non-performing

retail loans (excluding credit card loans) were

W

271 billion,

W

281 billion and

W

261 billion, respectively, representing

non-performing

loan ratios (net of charge-offs and loan sales) of 0.22%, 0.21% and 0.18%, respectively.

Our large exposure to consumer debt means that we are exposed to changes in economic conditions affecting Korean consumers. For example, a rise in unemployment, an increase in interest rates or a decline in housing prices in Korea could adversely affect the ability of consumers to make payments and increase the likelihood of potential defaults. Economic difficulties in Korea that hurt consumers could result in increasing delinquencies and a decline in the asset quality of our household loan portfolio, which may in turn require us to record higher provisions for credit loss and charge-offs and may materially and adversely affect our financial condition and results of operations.

Any deterioration in the asset quality of our guarantees and acceptances will likely have a material adverse effect on our financial condition and results of operations.

In the normal course of banking activities, we make various commitments and incur certain contingent liabilities in the form of guarantees and acceptances. Financial guarantees, which are contracts that require us to make specified payments to reimburse the beneficiary of the guarantee for a loss such beneficiary incurs because

23

the debtor in respect of which the guarantee is given fails to make payments when due in accordance with the terms of the relevant debt instrument, are recognized initially at fair value, and such initial fair value is amortized over the life of the financial guarantee. Other guarantees are recorded as

off-balance

sheet items in the notes to our financial statements and those guarantees that we have confirmed to make payments are recorded on the statements of financial position. As of December 31, 2021, Shinhan Bank had aggregate guarantees and acceptances of

W

16,547 billion, for which it provided allowances for losses of

W

81.2 billion. If there is significant deterioration in the quality of assets underlying our guarantees and acceptances, our allowances may be insufficient to cover actual losses resulting in respect of these liabilities.

Risks Relating to Our Credit Card Business

Future changes in market conditions as well as other factors, such as stricter regulation, may lead to reduced revenues and deterioration in the asset quality of credit card receivables.

As of December 31, 2019, 2020 and 2021, Shinhan Card’s interest-earning credit card assets amounted to

W

30,597 billion,

W

32,812 billion and

W

35,636 billion, respectively. Our large exposure to credit card and other consumer debt means that we are exposed to changes in economic conditions affecting Korean consumers in general. For example, a rise in unemployment, an increase in interest rates, a downturn in the real estate market, or a general contraction or other difficulties affecting the Korean economy may lead Korean consumers to reduce spending (a substantial portion of which is conducted through credit card transactions), which in turn leads to reduced earnings for our credit card business, as well as to higher default rates on credit card loans, deterioration in the quality of our credit card assets and increased difficulties in recovering

written-off

assets from which a significant portion of Shinhan Card’s revenues is derived. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

Increasing consumer and corporate spending and borrowing on our card products and growth in card lending balances depend in part on Shinhan Card’s ability to develop and issue new or enhanced card and prepaid products and increase revenue from such products and services, as well as the level of discretionary income among our cardholders, which is largely affected by macroeconomic factors beyond our control. In addition, credit card companies in Korea, including Shinhan Card, may not be able to enjoy any rapid growth in revenue over the long term due to the maturing nature of the credit card industry, in part due to oversaturation of credit card service providers. Shinhan Card’s future earnings and profitability also depend on its ability to attract new cardholders, reduce cardholder attrition, increase merchant coverage and capture a greater share of customers’ total credit card spending in Korea and overseas. Shinhan Card may not be able to manage and expand cardholder benefits in a cost-effective manner or contain the growth of marketing, promotion and reward expenses to a commercially reasonable level. If Shinhan Card is not successful in increasing customer spending, maintaining or expanding its market position and asset growth, or containing costs or cardholder benefits, its financial condition, results of operations and cash flow could be negatively affected.

Non-financial

companies, such as

e-commerce

and retail business, as well as fintech companies have become major competitors in various business areas. Fast-growing online service providers and tech companies joined the financial payment service market, changing the landscape of the payment service industry. Convenient payment service providers such as Kakao Pay, Naver Pay, and Coupang Pay are competing against the payment services of Shinhan Card. As a response to such market changes, Shinhan Card developed the “Shinhan pLay”, which is a platform for mobile application-credit card payment model that can be used for both online and offline payments. Shinhan Card pioneered “touch payment” using magnetic secure transmission technology and commercialized biometric “Face Pay,” which allows for payment without the need for card plates or digital devices. Competition is expected to intensify as MyData services are launched and the sharing of customer personal information, credit information, and transaction data across a variety of digital platforms is expanded.

In addition, Government policies and regulations aimed at protecting small- and

medium-sized

enterprises, such as the reduction of fees chargeable to small- and

medium-sized

merchants, may have a material adverse

24

effect on our revenues from Shinhan Card. In January 2012, the Government expanded the definition of a small- and

medium-sized

merchant to include those with annual sales of up to

W

200 million and, effective September 2012, lowered fees chargeable to such merchants from 1.8% to 1.5% with respect to credit cards. In January 2015, the Government further expanded the definition of a small- and

medium-sized

merchant to include those with annual sales of more than

W

200 million and up to

W

300 million, and imposed a cap on fees chargeable to such merchants at 2.0% with respect to credit cards. In November 2015, the Government announced a further reduction in the merchant fees chargeable to small- and

medium-sized

enterprises with respect to credit cards, effective January 31, 2016, from 2.0% to 1.3% for merchants with annual sales of more than

W

200 million and up to

W

300 million, and from 1.5% to 0.8% for merchants with annual sales of up to

W

200 million. In July 2017, the Enforcement Decree of the Specialized Credit Finance Business Act was amended to expand the range of small- and

medium-sized

enterprises subject to lower merchant fees. Upon the amendment, merchants with annual sales of more than

W

300 million and up to

W

500 million are subject to merchant fees chargeable with respect to credit cards of 1.3%, and merchants with annual sales of up to

W

300 million are subject to merchant fees chargeable with respect to credit cards of 0.8%. In January 2019, the government further expanded the definition of a small- and

medium-sized

merchant to include those with annual sales of more than

W

500 million and up to

W

3 billion. Upon the amendment, merchants with annual sales of less than

W

500 million are subject to merchant fees chargeable with respect to credit cards of 0.8%, merchants with annual sales of more than

W

500 million and up to

W

1 billion are subject to merchant fees chargeable with respect to credit cards of 1.4%, and merchants with annual sales of more than

W

1 billion and up to

W

3 billion are subject to merchant fees chargeable with respect to credit cards of 1.6%. Effective January 2022, the fees chargeable to small- and

medium-sized

enterprises with respect to credit cards were further reduced. Upon the amendment, merchants with annual sales of less than

W

300 million are subject to merchant fees chargeable with respect to credit cards of 0.5%, merchants with annual sales of more than

W

300 million and up to

W

500 million are subject to merchant fees chargeable with respect to credit cards of 1.1%, merchants with annual sales of more than

W

500 million and up to

W

1 billion are subject to merchant fees chargeable with respect to credit cards of 1.25%, and merchants with annual sales of more than

W

1 billion and up to

W

3 billion are subject to merchant fees chargeable with respect to credit cards of 1.5%. Pursuant to the Specialized Credit Financial Business Act, the rates of fees chargeable to merchants are subject to review and revision every three years, starting from 2012, and the rates of fees chargeable may be further adjusted due to changes in relevant regulations or Government policy. A task force comprised of representatives from the credit card industry, consumers, merchants and the Financial Services Commission is expected to convene during 2022 to discuss improvements to the current system of adjustments to merchant commission rates. Additionally, during 2018, the Seoul metropolitan and other regional governments have launched “Zero Pay”, a government sponsored QR code-based mobile payment platform charging little to no transaction fees (up to 0.5% depending on volume of sales) and aimed at reducing transaction fees small businesses pay to credit card companies. The Financial Services Commission also announced its plans to establish an open banking system that would provide fintech firms access to banks’ payment systems at lower costs. Additional amendments to regulations requiring further downward adjustments to merchant fees or Government policies aimed at reducing transaction fees paid to credit card companies may be implemented in the future, placing further downward pressure on the results of operations for credit card companies, including Shinhan Card.

In 2013, the Government also implemented measures regulating marketing costs in order to control excessive marketing campaigns and curtail undue marketing expenses, which had the effect of impeding revenue growth for credit card companies but also reduced or slowed the growth in their marketing expenses. Effective December 2013, the Government also introduced guidelines to curb the interest rates that credit card companies, including Shinhan Card, may charge on card loans and cash advances. Furthermore, the Government also provides tax incentives, among others, for the use of check cards (where the amounts paid with check cards are instantly debited from the customer’s bank accounts) to encourage the use of check cards in lieu of credit cards in an attempt to preempt a potential rise in delinquency among credit card users, and if check cards are widely used in lieu of credit cards, this would reduce interest income from credit cards, which generally have a longer repayment period than that of check cards, and may have an adverse impact on Shinhan Card’s revenues and results of operations. On November 26, 2018, the Financial Services Commission introduced additional

25

guidelines aimed at curtailing excessive marketing expenses for credit card companies, for example by limiting the benefits credit card companies may offer to large corporate credit card clients or merchants as well as requiring a reasonable level of annual service fees for credit card holders. Although these and similar Government initiatives and measures may result in a reduction in marketing expenses, which in turn may help reduce the overall expenses of our credit card business, there is no assurance that Government measures will achieve their intended results, and such measures may result in a decline in the volume of credit card transactions or otherwise adversely affect our business, financial condition and results of operations.

Risks Relating to Our Other Businesses

We may experience significant losses from our investments and, to a lesser extent, trading activities due to market fluctuations.

We enter into and maintain large investment positions in fixed income products, primarily through our treasury and investment operations. These activities are described in “Item 4.B. Business Overview — Our Principal Activities — Other Banking Services.” We also maintain smaller trading positions, including equity and equity-linked securities and derivative financial instruments as part of our operations. Taking these positions entails making assessments about financial market conditions and trends. The revenues and profits we derive from many of these positions and related transactions are dependent on market prices, which are beyond our control. When we own assets such as debt or equity securities, a decline in market prices, for example, as a result of fluctuating market interest rates or stock market indices, can expose us to trading and valuation losses. If market prices move in a way that we have not anticipated, we may experience losses. In addition, when markets are volatile and subject to rapid changes in price directions, actual market prices may be contrary to our assessments and lead to lower than anticipated revenues or profits, or even result in losses, with respect to the related transactions and positions.

We may generate losses from our brokerage and other commission- and

fee-based

business.

We, through our investment and other subsidiaries, currently provide, and seek to expand the offerings of, brokerage and other commission- and

fee-based

services. Downturns in stock markets typically lead to a decline in the volume of transactions that we execute for our customers and, therefore, a decline in our

non-interest

revenues. In addition, because the fees that we charge for managing our clients’ portfolios are often based on the size of the assets under management, a downturn in the stock market, which has the effect of reducing the value of our clients’ portfolios or increasing the amount of withdrawals, also generally reduces the fees we receive from our securities brokerage, trust account management and other asset management services. Even in the absence of a market downturn, below-market performance by our securities, trust account or asset management subsidiaries may result in increased withdrawals and reduced cash inflows, which would reduce the revenue we receive from these businesses. In addition, protracted declines in asset prices can reduce liquidity for assets held by us and lead to material losses if we cannot close out or otherwise dispose of deteriorating positions in a timely way or at commercially reasonable prices.In July 2019, we made a capital contribution of

W

660 billion by subscribing for new shares of common stock of Shinhan Investment, enabling Shinhan Investment to satisfy the

W

4 trillion capitalization requirement required to apply to the Financial Services Commission for designation as a mega-investment bank (“

mega-IB

”). Upon designation as a

mega-IB,

Shinhan Investment will be able to issue debt securities up to 200% of its capitalization amount and would be able to utilize such proceeds for corporate lending and other businesses. This capital contribution was made in line with our strategic initiative to strengthen our

non-banking

businesses and capital market activities. However, we cannot assure you that this capital contribution, any designation of Shinhan Investment as a

mega-IB

or any resulting developments will not have a negative effect on our business, financial condition and results of operations that outweigh any potential benefits, and we may not be successful in furthering our strategic initiative.

26

Prolonged periods of declining or low interest rates may reduce or turn negative our investment margin on savings insurance products and result in an increase in the valuation of our liabilities associated with these products.

We, principally through Shinhan Life Insurance, offer fixed rate insurance policies such as savings insurance products that include guaranteed benefits. These products expose us to the risk that changes in interest rates will reduce our investment margin, which is the difference between the amounts that we are required to pay under the contracts and the rate of return we earn on investments intended to support obligations under such contracts. During periods of declining or low interest rates, we may have to invest insurance cash flows and reinvest the cash flows we received as interest or return of principal on our investments in lower yielding instruments. In addition, during periods of declining or low interest rates, fixed rate policies may become relatively more attractive investments to consumers. This could result in an increase in payments we are required to pay on such products and higher percentage of such products remaining

in-force

from year to year, during a period when our new investments carry lower returns. During periods of sustained lower interest rates, our reserves for policy liabilities may not be sufficient to meet future policy obligations and may need to be strengthened.

Significantly lower or negative investment margins may cause us to accelerate amortization, thereby reducing net income in the affected reporting period and potentially negatively affecting our credit instrument covenants or rating agency assessment of our financial condition. In addition, under IFRS 17, which is expected to become effective beginning 2023, insurance contract liabilities will be calculated in terms of market value (as the present value of future insurance cash flows with a provision for risk) instead of book value. As the discount rate will reflect current interest rates rather than book yields, we may have a significantly higher debt balance under IFRS 17 due to higher insurance liabilities, thereby resulting in a decrease in our risk-based capital. See “Item 3. Key Information — Risk Factors — Risks Relating to Our Overall Business — The extent to which the recent coronavirus

(COVID-19)

outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.”

We may fail to realize the anticipated benefits of and encounter significant risks in connection with mergers and acquisitions.

We continue to seek and evaluate opportunities for diversification and growth of our business, including through strategic acquisitions, and have experienced substantial growth through several mergers and acquisitions. Most notably, our acquisition of Chohung Bank in 2003 has enabled us to have the second largest banking operations in Korea. In addition, our acquisition in March 2007 of LG Card, the then largest credit card company in Korea, has enabled us to have the largest credit card operations in Korea and significantly expand our

non-banking

business capacity so as to achieve a balanced business portfolio. In September 2018, we announced the acquisition of a 59.15% interest in Orange Life Insurance, the former Korean unit of ING Life Insurance, as part of our efforts to diversify and enhance our

non-banking

businesses and closed on February 1, 2019. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles

360-2

of the Korean Commercial Code whereby holders (other than us) of Orange Life Insurance’s common stock transferred all of their shares to us and in return receive shares of our common stock, and hence Orange Life Insurance became our wholly owned subsidiary as of such date. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021. On October 31, 2018, we agreed to acquire Asia Trust Co., Ltd. in order to expand our real estate business capacity and have also acquired certain

small-sized

overseas financial service companies and asset management companies. On September 29, 2020, we acquired a 96.8% interest in Neoplux, a venture capital company formerly under the Doosan Group. On December 30, 2020, we acquired the remaining interest in Neoplux by effecting a small-scale stock exchange under Article

360-10

of the Korean Commercial Code, and hence Neoplux has become our wholly owned subsidiary as of such date. On January 11, 2021, Neoplux changed its legal name to Shinhan Venture Investment. In addition, on January 15, 2021, we acquired the remaining 35% interest in Shinhan BNP Paribas Asset Management and changed its legal name to Shinhan Asset Management, and hence Shinhan Asset Management

27

has become our wholly-owned subsidiary as of such date. We expect to integrate these and any future acquisitions with our existing businesses and generate synergies and expand our business capabilities. However, we may encounter significant risks, including difficulty in successfully integrating acquired businesses, increased expenses such as working capital requirements or capital expenditures, regulatory risks and financial risks such as potential liabilities of the businesses we acquire. In addition, evaluating potential acquisitions may require us to incur significant expenses or divert management’s attention away from other business issues. As such, no assurance can be given that any completed or contemplated acquisitions will not have a negative effect on our business, financial condition and results of operations that outweigh any potential benefits.

We may suffer losses or record provisions for credit loss allowance for expected losses in connection with financial products sold by us or our subsidiaries, including Shinhan Investment and Shinhan Bank, which may have a negative impact on us, including our reputation.

We are subject to lawsuits and other claims in the ordinary course of our business, including with respect to financial products sold by us or our subsidiaries, including Shinhan Investment and Shinhan Bank. We may suffer losses or record provisions for credit loss allowance for expected losses in connection with the sales of such financial products and related legal or other proceedings related to such matters, which may have a negative impact on us, including our reputation.

In August 2019, the Financial Supervisory Service launched an investigation into Lime Asset Management Co., Ltd. (“

Lime Asset

”), Korea’s largest hedge fund managing approximately

W

4.1 trillion in assets as of December 31, 2020, including with regards to allegations that Lime Asset had concealed the fact that it had changed the multi-manager trade finance fund’s investment method and concealed losses in their trade finance funds. Beginning in October 2019, Lime Asset suspended withdrawals from certain of its funds, freezing approximately

W

1.7 trillion in total as of the end of 2019, according to the Financial Supervisory Service. According to Financial Supervisory Service investigations, Lime Asset’s

W

211 billion trade finance fund was found to have been associated with a debacle involving the International Investment Group LLC (“IIG”), a New York-based investment adviser charged with securities fraud and running a Ponzi scheme. On November 26, 2019, the SEC revoked the registration of IIG for allegedly overvaluing defaulted loans in the fund’s portfolio to conceal losses in its flagship hedge fund and selling at least $60 million in fake loan assets to clients. According to the Financial Supervisory Service, Lime Asset signed a contract with a Singaporean commodity trader, which took over Lime Asset’s ownership stake in an IIG fund in June 2019, with the Singaporean entity issuing promissory notes to Lime Asset, and Lime Asset did not properly disclose to its investors such change in the fund’s investment target from the IIG fund to promissory notes.

Certain investors in funds of Lime Asset have filed dispute mediation claims to the Financial Supervisory Service and criminal and civil claims against Lime Asset, as well as against financial institutions that have sold such products, claiming they learned of the change in the trade finance fund’s investment method and losses only in October 2019 and that they were also misguided and not fully informed of the risks associated with these funds when investing in such products. The Financial Supervisory Service conducted a comprehensive audit in November and December 2019. In February 2020, the Prosecutors’ Office of Korea announced that they had launched an investigation into Lime Asset as well as Shinhan Investment and also searched Shinhan Bank’s headquarters on July 1, 2020 in connection with this matter. The Financial Supervisory Service conducted investigations into Lime Asset as well as financial institutions that have sold Lime Asset products, including Shinhan Bank and Shinhan Investment, and in November 2020, imposed a partial business suspension on Shinhan Investment and suspension from duties and a cautionary warning to its two former CEOs. On December 10, 2021, the Financial Supervisory Service imposed a partial business suspension and a fine of

W

4 billion on Shinhan Investment, and a cautionary warning on two former employees of Shinhan Investment in connection with alleged violations of the Capital Markets Act and the Act on Real Name Financial Transactions and Confidentiality. On April 22, 2021, the sanctions committee of the Financial Supervisory Service recommended a partial business suspension and fine of

W

8.7 billion on Shinhan Bank, a cautionary warning to the CEO of Shinhan Bank, an institutional caution and fine of

W

50 million on Shinhan Financial Group and a

28

caution to the CEO of Shinhan Financial Group in connection with Shinhan Bank’s alleged improper solicitation of troubled Lime Asset funds and management’s oversight in risk management. The partial business suspension on Shinhan Bank and the fines on Shinhan Bank and Shinhan Financial Group recommended by the sanctions committee will be deliberated at the Securities and Futures Commission of the Financial Services Commission and will be confirmed if approved at a regular meeting of the Financial Services Commission.

On December 5, 2021, the Supreme Court concluded that a former employee of Shinhan Investment was partially guilty on charges of conspiring to conceal from investors Lime Asset’s losses and change in investment target and imposed a sentence of eight years’ imprisonment and a

W

300 million fine. In May 2020, Shinhan Investment announced that its board of directors has resolved to compensate certain investors for amounts ranging between 30% to 70% (in the case of retail investors) and 20% to 50% (in the case of institutional investors) of the amount of such investor’s investment in Lime Asset products. In June 2020, Shinhan Bank announced that its board of directors has resolved to make prepayments to investors in certain Lime Asset funds that have reached maturity in an amount equal to 50% of such investor’s investment in the relevant product. On June 30, 2020, the Financial Supervisory Service’s dispute settlement committee recommended through a

non-binding

ruling for brokerages, including Shinhan Investment, to return 100% of the amount of investors’ investment in certain of Lime Asset products sold after November 2018 in the aggregate of approximately

W

161 billion. In August 2020, the board of directors of Shinhan Investment resolved to accept the

non-binding

ruling for certain Lime Asset’s trade finance funds sold around November 2018. With these resolutions by the board of directors of Shinhan Investment, the total amount of compensation to investors of Lime Asset funds that Shinhan Investment has agreed to pay has reached

W

42.46 billion. On April 19, 2021, the Financial Supervisory Service’s dispute settlement committee recommended through a

non-binding

ruling for Shinhan Bank to compensate investors of certain Lime Asset products (Lime Credit Insured Funds) it had sold by applying a 55% base compensation ratio, with adjustments depending on particular facts, such as the nature of the investor (e.g., whether retail or institutional investor, the age and experience level of the investor, etc.) and adequacy of documentation, which would result in compensation of such investors for amounts ranging between 40% to 80% of the loss they have suffered on such products. As such, Shinhan Bank is expected to compensate the investors in respect of the remaining 50% of such investor’s investment based on the above compensation guideline recommended by the Financial Supervisory Service’s dispute settlement committee through Shinhan Bank’s self-regulated mediation procedures.

In June 2020, the Financial Supervisory Service launched an investigation into Discovery Asset Management Co., Ltd. (“

Discovery Asset

”), which operated funds that invested in certain funds in the U.S. managed by Direct Lending Investment, LLC (“

DLI

”). In April 2019, the U.S. Securities and Exchange Commission obtained a preliminary injunction and order appointing a receiver to freeze DLI’s funds based on the complaint that DLI fabricated values of its assets under management and reported returns. In response, Discovery Asset suspended withdrawals from funds under its management, thereby freezing approximately

W

256 billion in total of its investors’ funds as of April 2019. While neither Shinhan Bank nor Shinhan Investment was involved in sale of such

DLI-related

funds structured by Discovery Asset, Shinhan Bank and Shinhan Investment did sell other Discovery Asset funds (affected by such suspension of withdrawal) to investors in Korea. Between 2017 and 2019, Shinhan Bank and Shinhan Investment sold approximately

W

93.6 billion and

W

50.8 billion, respectively, of such Discovery Asset products (unrelated to DLI funds), of which only Shinhan Bank has recovered approximately W45.1 billion from Discovery Asset. Of the remaining balance of approximately

W

48.5 billion and

W

50.8 billion, respectively, Shinhan Bank and Shinhan Investment are in discussion with the investors to settle these amounts based on mutually agreeable terms.

From May 2017 to December 2018, Shinhan Investment sold approximately

W

390.7 billion of certain German Heritage derivative-linked securities (“German Heritage DLS Products”). As of December 31, 2021, the principal amount of German Heritage DLS Products that have become eligible for payment but for which payment has been delayed is

W

379.9 billion. The German Heritage DLS Products are derivative-linked trust products where performance is based on underlying Singapore funds that invest in Germany’s monument status building development projects. Since July 2019, maturity payments have been delayed on the German Heritage

29

DLS Products as recovery on the underlying funds has been delayed. In March 2020, Shinhan Investment announced that its board of directors has resolved to make prepayments to investors who have consented to the extension of maturity in an amount equal to 50% of the amount of such investor’s investments in the German Heritage DLS Products. As of December 31, 2021, Shinhan Investment recognized

W

229.1 billion in

non-operating

expenses as provisions for potential future compensation in connection with the sale of German Heritage DLS Products. During the fiscal year 2021, Shinhan Bank and Shinhan Investment recorded

W

220.8 billion and

W

256.3 billion, respectively, for credit loss allowance to account for expected future losses associated with financial products, including Lime Asset, Discovery Asset and German Heritage DLS Products. Depending on a variety of factors, including those outside the control of Shinhan Bank or Shinhan Investment, such as the performance of the underlying funds and progression of discussions with investors, Shinhan Bank or Shinhan Investment may record additional provisions for credit loss allowance to account for expected future losses from these or other financial products, and there is no guarantee that such amounts, if any, will not be significant.

The prepayments made or to be made by Shinhan Bank and Shinhan Investment to investors of Lime Asset funds, Discovery Asset funds and German Heritage DLS Products, respectively, as explained above, have been or will be, as the case may be, settled at the time of recovery of the underlying funds. If the amount recovered on the underlying fund is less than the amount prepaid to investors, Shinhan Bank and Shinhan Investment may not be able to recover from investors the amount of the prepaid amount that is in excess of the recovered amount and accordingly suffer losses. Depending on the performance of such underlying funds, we may record provisions for credit loss allowance to account for expected future losses.

Any legal or administrative proceedings in connection with these matters, if brought and particularly if adversely determined, may have a negative impact on us, including our reputation. Accordingly we cannot assure you that these matters and related events will not have an adverse effect on us, including our reputation. For further details, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.” and Note 43 of the notes to our consolidated financial statements included in this annual report.

Other Risks Relating to Us as the Holding Company

Our ability to continue to pay dividends and service debt will depend on the level of profits and cash flows of our subsidiaries.

We are a financial holding company with minimal operating assets other than the shares of our subsidiaries. Our primary source of funding and cash flow is dividends from, or disposition of our interests in, our subsidiaries or our cash resources, most of which are currently the result of borrowings. Since our principal assets are the outstanding capital stock of our subsidiaries, our ability to pay dividends on our common and preferred shares and service debt will mainly depend on the dividend payments from our subsidiaries.

Companies in Korea are subject to certain legal and regulatory restrictions with respect to payment of dividends. For example, under the Korean Commercial Code, dividends may only be paid out of distributable income, 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. In addition, financial companies in Korea, including banks, credit card companies, securities companies and life insurers, such as our subsidiaries, must meet minimum capital requirements and capital adequacy ratios applicable to their respective industries before dividends can be paid. For example, under the Banking Act of 1950, as amended (the “Banking Act”), a bank 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 Banking Act, the Specialized Credit Financial Business Act and the regulations promulgated by the Financial Services Commission, if a bank or a credit card company fails to meet its required capital adequacy ratio or is otherwise subject to the management improvement measures imposed by the Financial Services Commission, then the Financial Services Commission may restrict the declaration and payment of dividend by

30

such a bank or credit card company. In addition, if our or our subsidiaries’ capital adequacy ratios fall below the required levels, our ability to pay dividends may be restricted by the Financial Services Commission.

Damage to our reputation could harm our business.

We are one of the largest and most influential financial institutions in Korea by virtue of our financial track records, market share and the size of our operations and customer base. Our reputation is critical to maintaining our relationships with clients, investors, regulators and the general public. Our reputation can be damaged in numerous ways, including, among others, employee misconduct (including embezzlement), cyber or other security breaches, litigation, compliance failures, corporate governance issues, failure to properly address potential conflicts of interest, the activities of customers and counterparties over which we have limited or no control, prolonged or exacting scrutiny from regulatory authorities and customers regarding our trade practices, or uncertainty about our financial soundness and our reliability. If we are unable to prevent or properly address these concerns, we could lose our existing or prospective customers and investors, which could adversely affect our business, financial condition and results of operations. For details of the claims, disputes, legal proceedings and government investigations we are subject to, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.”

Our risk management policies and procedures may not be fully effective at all times.

In the course of our operations, we must manage a number of risks, such as credit risks, market risks and operational risks. We seek to monitor and manage our risk exposures through a comprehensive risk management platform, encompassing centralized risk management organization and credit evaluation systems, reporting and monitoring systems, early warning systems and other risk management infrastructure, using a variety of risk management strategies and techniques. See “Item 4.B. Business Overview — Risk Management.” Although we devote significant resources to developing and improving our risk management policies and procedures and expect to continue to do so in the future, our risk management practices may not be fully effective at all times in eliminating or mitigating risk exposures in all market environments or against all types of risk, including risks that are unidentified or unanticipated. For example, in the past, a limited number of our and our subsidiaries’ personnel engaged in embezzlement of substantial amounts for an extended period of time before such activities were detected by our risk management systems. In response to these incidents, we have strengthened our internal control procedures by, among others, implementing a real-time monitoring system, but there is no assurance that such measures will be sufficient to prevent similar employee misconducts in the future. Management of credit, market and operational risk requires, among others, policies and procedures to record properly and verify a large number of transactions and events, and we cannot assure you that these policies and procedures will prove to be fully effective at all times against all the risks we face.

We may experience disruptions, delays and other difficulties relating to our information technology systems.

We rely on our information technology systems to seamlessly provide our wide-ranging financial services as well as for our daily operations, including billing, online and offline financial transactions settlement and record keeping. We continually upgrade, and make substantial expenditures to upgrade, our group-wide information technology system, including in relation to customer data-sharing and other customer relations management systems, particularly in light of the heightened cyber security risks from advances in technology. Despite our best efforts, however, we may experience disruptions, delays, cyber or other security breaches or other difficulties relating to our information technology systems, and may not timely upgrade our systems as currently planned. Any of these developments may have an adverse effect on our business, particularly if our customers perceive us to not be providing the

best-in-class

cyber security systems and failing to timely and fully rectify any glitches in our information technology systems.

31

Our activities are subject to cyber security risk.

Our activities have been, and will continue to be, subject to an increasing risk of cyber-attacks, the nature of which is continually evolving. Cyber security risks include unauthorized access, through system-wide “hacking” or other means, to privileged and sensitive customer information, including passwords and account information, and illegal use thereof. Cyber security risk is generally on the rise as a growing number of our customers increasingly rely on our Internet- and mobile phone-based banking services for various types of financial transactions. While we vigilantly protect customer data through encryption and other security programs and have made substantial investments to build and upgrade our systems and defenses to address the growing threats from cyber-attacks, there is no assurance that such data will not be subject to future security breaches. In addition, there can be no assurance that we will not experience a leakage of customer information or other security breaches as a result of illegal activities by our employees, outside consultants or hackers, or otherwise.

For example, in March 2013, we experienced a temporary interruption in providing online financial services due to large-scale cyber-attacks by unidentified sources on the security systems of major broadcasting networks and financial institutions in Korea. The interruption of our online financial services lasted approximately 90 minutes, after which our online system resumed without further malfunction. The Financial Supervisory Service conducted an investigation into the incident and found that Shinhan Bank and Jeju Bank had not properly maintained their information technology administrator accounts and vaccine servers. As a result, in December 2013, the Financial Supervisory Service notified Shinhan Bank and Jeju Bank of an institutional caution (which does not give rise to significant sanctions unlike in the case of repeated institutional warnings) and imposed disciplinary actions against five of Shinhan Bank’s employees and three of Jeju Bank’s employees. We do not believe such incident resulted in any material loss or leakage of customer information or other sensitive data.

Major financial institutions in Korea and around the world have also fallen victim to large-scale data leakage in the past. In December 2013, it was reported that there was a leakage of personal information of approximately 130,000 customers of Standard Chartered Bank and Citibank in Korea, which leakage was attributed to a third party

sub-contractor

in the case of Standard Chartered Bank, and an employee in the case of Citibank. In addition, in January 2014, it was reported that there was a leakage of personal information of approximately 100 million customers of NH Card, Lotte Card and KB Card in Korea due to illegal access to such information by an employee of a third party credit information company in the course of developing information technology programs for these three credit card companies. In 2017, Equifax Inc., a U.S. credit reporting company, was reported to have suffered a breach of personal information of over 143 million people.

Other than the cyber security attack in March 2013 as discussed above, we have not experienced any material security breaches in the past, including any similar large scale leakage of customer information. In order to minimize the risk of security breaches related to customer and our other proprietary information, we have taken a series of group-wide preventive measures, such as the adoption and implementation of a

best-in-class

information security system and reinforcement of internal control measures. We are fully committed to maintaining the highest standards of cyber security and consumer protection measures and upgrading them continually. We have implemented the ISO 27001-certified security management system for us and all our subsidiaries, and we have obtained the Information Security Management System certification for most of our subsidiaries. We believe such certifications represent third-party validations that we are in compliance with

best-in-class

international standards on matters of information security. Our Integrated Security Control Center’s security management system enables us to continuously monitor for signs of potential cyber-attacks and provides us with advance warnings that will allow us to promptly respond to such attacks. Our security management system continuously monitors for signs of potential cyber-attacks and is designed to provide early warning alerts to enable prompt action by us. In order to prevent intentional and accidental security issues by our employees, we have created a violation monitoring system, reinforcing our security measures by preemptively identifying various scenarios of threats and by collecting and analyzing different types of data that allows us to quickly identify any potential security violations. Moreover, we established a new information security lab to build a continuous security research and development system to respond to hacking and other cyber threats. Through

32

these measures, we are developing technical capabilities necessary to respond to the latest security threats. We also provide intensive employee training to our information technology staff and other employees on cyber security and have adopted advanced security infrastructure (including through hiring a highly competent team of information security experts) for online financial services such as mandatory website certification and keyboard security functions. In addition, reviews of our system are conducted, across all of our subsidiaries, through periodic audits and simulation reviews by external experts. In addition, in compliance with applicable regulations we currently carry insurance to cover cyber security breaches up to

W

10 billion in relation to our banking business and up to

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3 billion in the aggregate and up to

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1 billion per incident for our securities investment business and have set aside a reserve of

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1 billion for our credit card business. In addition, in light of the growing use of mobile devices to access financial services, we have implemented security measures (including encryptions and service terminal monitoring) to provide a secure mobile banking service as well as to prevent illegal leakage or sharing of customer data and otherwise enhance customer privacy. We are also keenly aware of the litigation and regulatory sanctions risks that may arise from security breaches and are aggressively reinforcing a group-wide culture that stresses safety and good custodianship as among our highest priorities. Furthermore, we are actively taking steps to implement preventive and other steps recommended or required by the regulatory authorities in relation to actual and potential financial scams. However, given the unpredictable and continually evolving nature of cyber security threats due to advances in technology or other reasons, there is no assurance that, notwithstanding our best efforts at maintaining the

best-in-class

cyber security systems, we will not be vulnerable to major cyber security attacks in the future.

The public is developing heightened awareness about the importance of keeping their personal data private, and the financial regulators are placing greater emphasis on data protection by financial service providers. For example, under the Personal Information Protection Act, as last amended in August 2020, financial institutions, as personal information manager, may not collect, store, maintain, utilize or provide resident registration numbers of their customers, unless other laws or regulations specifically request or permit the management of resident registration numbers. Further, under the Use and Protection of Credit Information Act, as last amended in December 2021, a financial institution has a higher duty to protect credit information, meaning information necessary to assess the creditworthiness of the counterparty to financial transactions and other commercial transactions. Such regulations have considerably restricted a financial institution’s ability to transfer or provide the information to its affiliate or holding company, and quintuple damages can be imposed on a financial institution for a leakage of such information. In addition, under the Electronic Financial Transaction Act, as last amended in June 2020 with effect from December 2020, a financial institution is primarily responsible for compensating its customers harmed by the financial institution’s cyber security breach, even if the breach is not directly attributable to the financial institution. Recently, on January 9, 2020, the Korean National Assembly passed amendments to three major data privacy laws (the Personal Information Protection Act, the Act on the Promotion of Information and Communications Network Utilization and Information Protection and the Act on the Use and Protection of Credit Information), expanding the scope of personal information that may be shared among financial institutions. With this, we expect cyber security and ensuring confidentiality of customers’ information to become more important than ever for financial institutions. We maintain an integrated system that closely monitors customer information to ensure compliance with data protection laws and regulations as well as our internal policies.

If a cyber or other security breach were to happen with respect to us or any of our subsidiaries, it may result in litigation by affected customers or other third parties (including class actions), compensation for any losses suffered by victims of cyber security attacks, reputational damage, loss of customers, heightened regulatory scrutiny and related sanctions, more stringent compliance with the present and future regulatory restrictions, and other costs related to damage control, reparation and reinforcement of information security systems, any of which may have a material adverse effect on our business, results of operations and financial condition.

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Our customers may become victims to “voice phishing” or other financial scams, for which we may be required to make monetary compensation and suffer damage to our business and reputation.

In recent years, financial scams known as voice phishing have been on the rise in Korea. While voice phishing takes many forms and has evolved over time in terms of sophistication, it typically involves the scammer making a phone call to a victim under false pretenses (for example, the scammer pretending to be a member of law enforcement, an employee of a financial institution or even an abductor of the victim’s child) and luring the victim to transfer money to an untraceable account controlled by the scammer. More recently, voice phishing has increasingly taken the form of the scammer “hacking” or otherwise wrongfully obtaining personal financial information of the victim (such as credit card numbers or Internet banking login information) over the telephone or other means and illegally using such information to obtain credit card loans or cash advances through automated telephone banking or Internet banking. Reportedly, a substantial number of such scammers belong to international criminal syndicates with bases overseas, such as China, with operatives in Korea.

In response to the growing incidents of voice phishing, regulatory authorities have undertaken a number of steps to protect consumers against voice phishing and other financial scams. There is no assurance, however, that the regulatory activities will have the desired effect of substantially eradicating or even containing the incidents of voice phishing or other financial scams. For example, following an investigation in November and December 2011 of major credit card companies, including Shinhan Card, as to their compliance with regulations on card loan-related voice phishing and the scope of damage suffered by customers as a result of voice phishing, the Financial Supervisory Service issued a number of guidelines for credit companies to comply with in order to minimize damage from voice phishing, including, among others, (i) strengthening identity verification procedures for card loan applications that are made online or through the automated response system, (ii) delaying the timing of loan payout by a few hours following the approval of card loan application, and (iii) giving an option to customers to block card loan applications. In May 2012, Shinhan Card completed all necessary steps to fully comply with these additional guidelines and has been in full compliance since then.

Although the financial institutions are often not legally at fault for the damage suffered by victims of voice phishing, the compensation scheme was adopted largely in consideration of social responsibility among financial institutions and that the financial institutions were not required to, and therefore in many instances did not, confirm the personal identity of the card loan or cash advance applicants prior to the adoption of such scheme. On December 8, 2011, Shinhan Card began implementing a mandatory outcall procedure to verify the personal identity of applicants for card loans and cash advances if not requested in person. In January 2012, financial institutions, the Financial Supervisory Service, the police and other related institutions formed a joint committee to prevent voice phishing incidents and implemented preventive measures such as enforcing a 10 minute delay for withdrawal of credit card loans of

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3 million or more from an automated teller machine. In addition, Shinhan Card and our other subsidiaries have established a fraud detection system that identifies any questionable transactions based on deviations from a customer’s conventional transaction patterns.

Partly as a result of these efforts, Shinhan Card did not receive any claims in 2021 in relation to voice phishing. Accordingly, we do not believe that any currently outstanding claims in relation to voice phishing will have a material adverse impact on our business, financial condition or results of operations. Additionally, other than voice phishing incidents and the recent cyber security attacks as discussed above, we have not experienced any material security breaches in the past. However, given continual advances in technology and the increasing sophistication of the financial scammers, there is no assurance that we will be able to prevent future financial scams or that the frequency and scope of financial scams will not rise. If financial scams involving us and our subsidiaries were to continue or to become more prevalent, it may result in compensation for any losses suffered by victims thereof, reputational damage, loss of customers, heightened regulatory scrutiny and related sanctions, compliance with the present and future regulatory restrictions, and other costs related to damage control, reparation and reinforcement of our preventive measures, any of which may have a material adverse effect on our business, results of operations and financial condition.

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Legal claims and regulatory risks arise in the conduct of our business.

In the ordinary course of our business, we are subject to regulatory oversight and potential legal and administrative liability risk. We are also subject to a variety of other claims, disputes, legal proceedings and government investigations in Korea and other jurisdictions where we are active. See “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.” These types of proceedings may expose us to substantial monetary and/or reputational damages and legal defense costs, injunctive relief, criminal and civil penalties and the potential for regulatory restrictions on our businesses. The outcome of these matters cannot be predicted and they could adversely affect our future business.

While we plan to rigorously defend our positions in the lawsuits or other regulatory proceedings against us, it is difficult to predict the final outcome of such cases. The total amount in dispute may increase during the course of litigation and other lawsuits may be brought against us based on similar allegations. Accordingly, these lawsuits and other proceedings may have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Law, Regulation and Government Policy

We are a heavily regulated entity and operate in a legal and regulatory environment that is subject to change, and violations could result in penalties and other regulatory actions.

As a financial services provider, we are subject to a number of regulations that are designed to maintain the safety and soundness of Korea’s financial system, to ensure our compliance with economic and other obligations and to limit our risk exposure. These regulations may limit our activities, and changes in these regulations may increase our costs of doing business. Regulatory agencies frequently review regulations relating to our business and implement new regulatory measures, including increasing the minimum required provisioning levels or capital adequacy ratios applicable to us and our subsidiaries from time to time. We expect the regulatory environment in which we operate to continue to change. Changes in regulations applicable to us, our subsidiaries and our or their business or changes in the implementation or interpretation of such regulations could affect us and our subsidiaries in unpredictable ways and could adversely affect our business, results of operations and financial condition.

Furthermore, the Financial Consumer Protection Act (the “FCPA”) was enacted on March 24, 2020 and took effect beginning March 25, 2021. The FCPA unifies the systems for the protection of consumers of financial products, which had been dispersed in various laws, while tightening the existing consumer protection systems to strengthen the rights afforded to consumers of financial products. Banks under the Banking Act are financial instrument distributors subject to the FCPA, and deposit and loan products under the Banking Act are financial instruments subject to the FCPA.

Under the FCPA, a financial instrument distributor who intends to sell financial instruments shall comply with the following requirements: (i) confirmation of suitability and adequacy of financial instruments, (ii) compliance with the duty to explain, (iii) prohibition of unfair sales activities, (iv) prohibition of undue solicitation, and (v) prohibition of false or exaggerated advertising, etc. (collectively, the “Sales Principles”). If a financial instrument distributor breaches any of the Sales Principles, consumers may request the termination of such financial instrument within a period to be prescribed by a Presidential Decree and are entitled to unilaterally terminate the contract if the financial instrument distributor fails to present a justifiable reason for not accepting the consumer’s request. Consumers who purchased a loan product, in particular, shall be entitled to withdraw from the contract within 14 days from the later of (i) the date of receipt of the proceeds pursuant to the contract and (ii) the execution date of the contract (or the date of receipt of the documents necessary for execution of the contract (if required under the FCPA), regardless of whether the financial instrument distributor breached any of the Sales Principles. When a consumer files a lawsuit for damages against a financial instrument distributor for breach of the duty to explain, the financial instrument distributor (and not the consumer) shall bear the burden of proof to prove that no willful conduct or negligence was involved in such breach of the duty to explain. In the

35

event of a dispute with a financial instrument distributor, consumers may apply for mediation to the Dispute Mediation Committee of the Financial Services Commission. If a financial instrument distributor files a lawsuit with a court while such mediation is in progress, the court may suspend the litigation proceedings. For certain

small-sum

cases, a financial instrument distributor may not file a lawsuit with a court until the completion of such mediation. Financial instrument distributors must accept requests from its consumers to access information for purposes of litigation or mediation. In the event the Financial Services Commission determines that there is a clear risk that a financial product may cause significant damage to the properties of customers, the Financial Services Commission may prohibit or restrict the solicitation of, and execution of a contract for, such financial product.)

We and our subsidiaries have been proactively taking actions necessary to comply with the FCPA, including the examination of our financial products and training of our officers and employees. However, no assurance can be given that the implementation of the FCPA will not adversely affect us our subsidiaries’ businesses or lead to a material adverse effect on their reputation, business, results of operations or financial condition. We may also become subject to other restrictions on our operations as a result of future changes in laws and regulations, including more stringent liquidity and capital requirements under Basel III, which are being adopted in phases in Korea in consideration of, among others, the pace and scope of international adoption of such requirements. Any of these regulatory developments may have a material adverse effect on our ability to expand operations or adequately manage our risks and liabilities. For further details on the principal laws and regulations applicable to us as a holding company and our principal subsidiaries, see “Item 4.B. Business Overview — Supervision and Regulation.”

In addition, violations of law and regulations could expose us to significant liabilities and sanctions. For example, the Financial Supervisory Service conducts periodic audits on us and, from time to time, we have received institutional warnings from the Financial Supervisory Service. If the Financial Supervisory Service determines as part of such audit or otherwise that our financial condition, including the financial conditions of our operating subsidiaries, is unsound or that we have violated applicable law or regulations, including Financial Services Commission orders, or if we or our operating subsidiaries fail to meet the applicable requisite capital ratio or the capital adequacy ratio, as the case may be, set forth under Korean law, the Financial Supervisory Service may ask the Financial Services Commission to order, among other things, cancellations of authorization, permission or registration of the business, suspensions of a part or all of the business, closures of branch offices, recommendations for dismissal of officers or suspensions of officers from performing their duties, or may order, among other things, institutional warnings, institutional cautions, reprimanding warnings on officers, cautionary warnings on officers or cautions on officers. From time to time, our subsidiaries, including Shinhan Bank and Shinhan Card, have been subject to investigations and/or sanctions from the Financial Supervisory Service. See “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.” If any such measures are imposed on us or our subsidiaries as a result of unsound financial condition or failure to comply with minimum capital adequacy requirements or for other reasons, it will have a material adverse effect on us and our subsidiaries’ business, financial condition and results of operations.

The Government may encourage targeted lending to certain sectors in furtherance of policy objectives, and we may take this factor into account.

The Government has encouraged and may in the future encourage targeted lending to certain types of enterprises and individuals in furtherance of government initiatives. The Government, through its regulatory bodies such as the Financial Services Commission, from time to time announces lending policies to encourage Korean banks and financial institutions, including us and our subsidiaries, to lend to particular industries, business groups or customer segments, and, in certain cases, has provided lower cost funding through loans made by the Bank of Korea for further lending to specific customer segments.

For example, the Government has taken and is taking various initiatives to support small- and

medium-sized

enterprises and

low-income

individuals, who were disproportionately affected by the downturn in the Korean and

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global economy in the late 2000s and have yet to fully recover. As part of these initiatives, the Financial Supervisory Service has recently encouraged banks in Korea to increase lending to small- and

medium-sized

enterprises in order to ease the financial burden on such enterprises amid sluggish economic recovery, and in February 2016, the Bank of Korea announced that it would increase support for loans to small- and

medium-sized

enterprises in anticipation of growing liquidity difficulties among such enterprises in light of the sustained sluggishness of the general economy and to stimulate trade exports, infrastructure investments and entrepreneurial efforts. The financial regulators have also adopted several measures designed to improve certain lending practices of the commercial banks which practices were perceived as having an unduly prohibitive effect on extending loans to small- to

medium-sized

enterprises. Moreover, in response to the threat posed to the economy by the recent coronavirus

(COVID-19)

outbreak, the Government has implemented various emergency aid initiatives involving Korean banks, including Shinhan Bank, to provide liquidity assistance to small- and

medium-sized

enterprises. Such initiatives include extending new loans to borrowers with low credit ratings, extending maturity dates on existing loans and deferring interest payment obligations on certain loans. Our participation in such Government initiatives may lead us to extend credit to small- and

medium-sized

enterprises that we would not otherwise extend, or offer terms on such credit that we would not otherwise offer, in the absence of such initiatives. There is no guarantee that the financial condition and liquidity of the small- and

medium-sized

enterprises benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis or at all. Accordingly, an increase in our exposure to small- and

medium-sized

enterprise borrowers resulting from such Government initiatives may have a material adverse effect on our financial condition and results of operations.

In addition, as a way of supporting the Government’s initiative to assist promising startups,in February 2015, the financial regulators announced that they would encourage the banks in Korea to increase lending to technology companies in the small- to

medium-sized

enterprise segment and to enhance technology-related credit review capabilities. According to the Korea Federation of Banks, the aggregate balance of loans to technology companies in the small- to

medium-sized

enterprise segment reached

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205.5 trillion,

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266.9 trillion and

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316.3 trillion as of December 31, 2019, 2020 and 2021, respectively. Shinhan Bank’s total balance of outstanding loans to technology companies as of December 31, 2019, 2020 and 2021 was

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26.2 trillion,

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36.6 trillion and

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46.2 trillion, respectively.

Furthermore, in response to an increasing level of consumer debt and amid concerns over the debt-servicing capacity of retail borrowers if interest rates were to rise, the Financial Services Commission announced in February 2014 that it plans to increase the proportion of fixed interest rate loans and installment principal repayment-based loans within the total housing loans extended by commercial banks (which loans have historically been, for the most part, variable interest rate loans with the entire principal being repaid at maturity, which is usually rolled over on an annual basis). According to this plan, the target proportion for fixed interest rate loans was set at 35%, 37.5% and 40% and the target proportion for installment principal repayment-based housing loans was set at 35%, 40% and 45%, each by the end of 2015, 2016 and 2017, respectively. Amid concerns about increasing household debt, in May 2016 the target proportion for fixed interest rate loans and installment principal repayment-based housing loans for 2016 were increased to 40% and 45%, respectively, and in February 2017 the target proportion for fixed interest rate loans and installment principal repayment-based housing loans for 2017 were increased to 45% and 55%, respectively. The target proportions for fixed interest rate loans and installment principal repayment-based housing loans for 2020 were increased to 50% and 57.5%, respectively, and remained the same for 2021.

In furtherance of the policy to expand the proportion of fixed rate housing loans, the Financial Services Commission implemented “Relief Debt Conversion” program from March 24 to March 27, 2015 and from March 30 to April 3, 2015, respectively, under which borrowers of eligible housing loans (namely, loans that have been in existence for one year or more since the original loan date, with no delinquency in the past six months, with principal amounts of

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500 million or less and for houses valued at

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900 million or less that are on a floating rate basis and/or an interest payment only basis) might convert such loans to new fixed rate loans in respect of which the borrowers would be required to repay the principal and interest in installment for a term of

37

10, 15, 20 or 30 years without a grace period, provided that the new loans pass the maximum

loan-to-value

ratio of 70% (irrespective of the location of the property) and the maximum

debt-to-income

ratio of 60% (only in respect of apartment units located in the greater Seoul metropolitan area, subject to certain exceptions). The borrowers were allowed to convert the original loans only at the banks that extended such loans. According to the Financial Services Commission, under this program, approximately 327,000 borrowers converted loans in the aggregate amount of

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31.7 trillion to fixed rate loans, of which Shinhan Bank accounted for approximately 13.5%. Due in large part to such initiatives, fixed interest rate loans and installment principal repayment-based loans accounted for 44.2% and 51.0%, respectively, of the total housing loans extended by commercial banks in Korea as of June 30, 2018, according to data published by the Government in December 2018. Fixed interest rate and installment principal repayment-based housing loans accounted for 47.2% and 52.5%, respectively, of the housing loans extended by Shinhan Bank as of December 31, 2021.

On August 26, 2019, the Financial Services Commission announced that it will implement an additional round of the program for up to

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20 trillion. Despite tighter thresholds for eligibility, including newly adopted restrictions on annual income, and the imposition of prepayment penalties, the newly implemented program is expected to be substantively similar to the mortgage refinancing program implemented in 2015. Similar to the 2015 program, banks holding newly converted fixed rate loans will be required to sell such loans to Korea Housing Finance Corporation, which will then securitize such loans and issue mortgage-backed securities (backed by such loans) to be purchased by the banks who sold the loans in proportion to the amounts of the loans sold. The amount of loans Shinhan Bank will need to transfer to Korea Housing Finance Corporation is

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1.7 trillion, but the amount of mortgage-backed securities Shinhan Bank will need to purchase from Korea Housing Finance Corporation has yet to be determined. Similar to the 2015 program, in the event that market interest rates increase from those applicable during this program’s implementation, we may experience valuation or realization losses on the mortgage-backed securities to be held by Shinhan Bank. Further, Shinhan Bank will be required to hold mortgage-backed securities it purchases from Korea Housing Finance Corporation under the program for a period of one year, and Shinhan Bank also may not be able to sell or otherwise dispose of the mortgage backed securities in the market or otherwise in amounts or at prices commercially reasonable due to the prevailing interest rate environment and/or other market conditions. As a result of this program, we may incur additional costs from recalibrating our asset portfolio and asset-liability management policy. Any of these developments could adversely affect our results of operations and financial condition.

We, on a voluntary basis, may factor the existence of the Government’s policies and encouragements into consideration in making loans although the ultimate decision whether to make loans remains with us and is made based on our internal credit approval procedures and risk management systems independently of Government policies. In addition, in tandem with providing additional loans to small- and

medium-sized

enterprises and

low-income

individuals, Shinhan Bank takes active steps to mitigate the potential adverse impacts from making bad loans to enterprises or individuals with high risk profiles as a result of such arrangement, such as by strengthening its loan review and post-lending monitoring processes. However, we cannot assure you that such arrangement did not or will not, or similar or other

government-led

initiatives in the future will not, result in a suboptimal allocation of our loan portfolio from a risk-reward perspective compared to what we would have allocated based on purely commercial decisions in the absence of such initiatives. The Government may implement similar or other initiatives in the future to spur the overall economy or encourage the growth of targeted industries or relief to certain segments of the population. Specifically, the Government may introduce lending-related initiatives or enforce existing ones in a heightened fashion during times when small- and

medium-sized

enterprises or

low-income

households on average are facing an increased level of financial distress or vulnerability due to an economic downturn, which makes lending to them in the volume and the manner suggested by the Government even riskier and less commercially desirable. Accordingly, such policy-driven lending may create enhanced difficulties for us in terms of risk management, deterioration of our asset quality and reduced earnings, compared to what would have been in the absence of such initiatives, which may have an adverse effect on our business, financial condition and results of operations.

38

The Government may also encourage investments in certain institutions in furtherance of policy objectives, and we may not recoup our investments therein in a timely or otherwise commercially reasonable manner.

In addition to targeted lending, the Government may from time to time encourage or request the financial institutions in Korea, including us and our subsidiaries, to make investments in, or provide other forms of financial support to, certain institutions in furtherance of the Government’s policy objectives. In response thereto, we have made and will continue to make the ultimate decision on whether, how and to what extent we will comply with such encouragements or requests based on our internal risk assessment and in accordance with our risk management systems and policies. At the same time, as a leading member of the financial service industry in Korea and as a responsible corporate citizen we will also fully give due consideration to such encouragements or requests from the Government, especially in relation to the long-term benefit arising from furthering the policy objective of maintaining a sound financial system, even if complying with such requests may involve additional short-term costs and risks to a limited extent.

For example, to deal with a growing number of

non-performing

loans in the wake of the global financial crisis of 2008-2009, the Government sponsored the establishment of United Asset Management Company Ltd. (“UAMCO”) in October 2009 through capital contributions from six major policy and commercial banks, namely Shinhan Bank, Kookmin Bank, KEB Hana Bank, Industrial Bank of Korea, Woori Bank and Nonghyup Bank. The Government originally planned to dispose of UAMCO during 2015 and establish a new company that specializes in corporate restructuring, but the Government scrapped such plans and instead decided to reorganize UAMCO and expand its restructuring business. As part of an effort to strengthen its balance sheet, UAMCO received additional capital contributions in May 2016 from two new shareholders, Korea Development Bank and the Export-Import Bank of Korea, and two of its existing shareholders, Woori Bank and Nonghyup Bank. In July 2020, UAMCO notified its shareholders of a capital contribution in the aggregate amount of

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200.0 billion (to be borne in proportion to the respective shareholding percentages of its shareholders) to improve financial soundness and secure additional investment capacity in case sales of

non-performing

loans increase due to the

COVID-19

pandemic. Accordingly, on July 28, 2020, Shinhan Bank made a capital contribution of

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28 billion. Shinhan Bank has committed to contribute

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140 billion of capital to UAMCO, of which

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113.1 billion has been contributed to date. As of the date hereof, Shinhan Bank holds a 14% equity interest in UAMCO, while seven other policy and commercial banks each hold interests ranging from 2% to 14%.

UAMCO seeks to achieve financial improvement of struggling companies through a wide range of restructuring programs, including debt restructuring, capital injection, asset sales, corporate reorganization, workouts and liquidation and bankruptcy proceedings and is the largest purchaser in Korea of

non-performing

financial assets generally. Shinhan Bank sold

non-performing

assets to UAMCO in the amount of

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110.4 billion,

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246.5 billion and

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92.4 billion, in 2019, 2020 and 2021, respectively. With an enlarged capital base following the recent capital contributions mentioned above, it is expected that UAMCO will play a more active role in the restructuring of the Korean corporate sector. The Government is also considering an amendment of the Financial Investment Services and Capital Markets Act of Korea to facilitate the business activities of UAMCO.

If UAMCO is successful in its expanded restructuring activities, it is anticipated that financial institutions including us will be able to further enhance their financial soundness by transferring more

non-performing

loans to UAMCO rather than directly engaging in the restructuring activities of the troubled borrowers. However, Shinhan Bank or other banks may be requested by the Government to make additional capital contributions or loans to UAMCO, which may entail unanticipated costs. Additionally, given the generally poor quality of our

non-performing

assets, there is no assurance that we will be able to sell such assets held by us to UAMCO on commercially reasonable terms and on a timely basis. Furthermore, there is no assurance that in furtherance of similar or other policy objectives, the Government may not request or otherwise encourage us or our subsidiaries to provide similar or other investments or provide other financial support for which we are not duly compensated or otherwise take up additional risk that we would not normally have undertaken, which may have an adverse effect on our business, financial condition and results of operations.

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The level and scope of government oversight of our retail lending business, particularly regarding mortgage and home equity loans, may change depending on the economic or political climate.

Real estate comprises the most significant asset for a substantial number of households in Korea, and movements of housing prices have generally had a significant impact on the domestic economy. Accordingly, regulating housing prices, either in terms of attempting to stem actual or anticipated excessive speculation during times of a suspected housing price bubble and spur the pricing and/or volume of real estate transactions during times of a depressed real estate market by way of tax subsidy, guidelines to lending institutions or otherwise, has been a key policy initiative for the Government.

For example, since 2017, the Government led by President Moon

Jae-in

has announced and implemented a series of robust polices aimed at taming speculation and deterring the rise of housing prices. The Government has continuously increased the number of areas subject to the “speculative districts”, “overheated speculative districts” and “adjustment targeted areas” (collectively, the “regulated areas”), where tighter

loan-to-value

ratios and

debt-to-income

ratios are applicable to mortgage or home equity loans. For example, homes located in a

non-regulated

area are currently subject to a

loan-to-value

ratio of 70% of the appraised value thereof, whereas homes located in “speculative districts” or “overheated speculative districts” are subject to a

loan-to-value

ratio of 40% and homes located in “adjustment targeted areas” are subject to a

loan-to-value

ratio of 50%. Furthermore, for homes located in any of the “speculative districts” or “overheated speculative districts” with a value equal or less than

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1.5 billion but greater than

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900 million (based on the evaluation data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), the loans may only be up to 40% of the appraised value up to

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900 million and 20% of any remaining value between

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1.5 billion and

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900 million, and for homes located in any “adjustment targeted areas” with a value equal or greater than

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900 million, the loans may only be up to 50% of the appraised value up to

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900 million and 30% of any remaining value exceeding

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900 million. In addition, if the value of a home located in any of the “speculative districts” or “overheated speculative districts” is greater than

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1.5 billion, no mortgage or home equity loans may be provided, and no mortgage or home equity loans may be provided to purchase a new home located in any of the regulated areas to a household that already owns one or more housing units. Similarly, the

debt-to-income

ratio applicable to apartment units located in the greater Seoul metropolitan area which are not “speculative districts”, “overheated speculative districts” or “adjustment targeted areas” is 60%, whereas homes located in “speculative districts” or “overheated speculative districts” are subject to a

debt-to-income

ratio of 40% and homes located in “adjustment targeted areas” are subject to a

debt-to-income

ratio of 50%.

The Financial Services Commission also introduced a debt service ratio and a modified

debt-to-income

ratio in order to modernize credit review methods and stabilize the management of household debt. The modified

debt-to-income

ratio, which has been implemented beginning January 31, 2018 reflects (i) both principal and interest payments on the applicable mortgage and home equity loan and existing mortgage and home equity loans and (ii) interest payments on other loans. Previously,

debt-to-income

ratio had only reflected (i) both principal and interest payments on the applicable mortgage and home equity loan and (ii) interest payments on existing mortgage and home equity loans. Debt service ratios reflect principal and interest payments on both the applicable loan and other loans and have been fully implemented since October 2018. The modified

debt-to-income

ratios are used as the primary reference index in the evaluation and approval process for mortgage and home equity loans, and debt service ratios are generally used as a supplementary reference index providing additional limits on mortgage and home equity loans. For example, debt service ratios applicable to the loan applicant who has (i) a loan secured by housing (including apartments) located in areas of excessive investment, high speculation or adjustment target, in each case, as designated by the government, where the price exceeds

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600 million (based on the data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), (ii) more than

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100 million in credit loans or (iii) more than

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200 million in total loans are limited to 40%.

Pursuant to the Regulation on the Supervision of the Banking Business, Shinhan Bank must maintain a loan to deposit ratio of no more than 100%. Since January 1, 2020, in calculating such loan to deposit ratio, retail

40

loans and corporate loans are weighed differently, with retail loans subject to a multiple of 115% and corporate loans (excluding loans to SOHOs) subject to a multiple of 85%, thereby increasing the impact of retail loans and reducing the impact of corporate loans in calculating such ratio. In response to the

COVID-19

pandemic, on April 20, 2020, the Financial Services Commission announced a series of measures to temporarily ease the regulations on

loan-to-deposit

ratio. In particular, until March 2022, the

loan-to-deposit

ratio of 1:1 (100%) was temporarily increased to 105%, and corporate loans to SOHOs extended since January 1, 2020 to December 2021 was also subject to a multiple of 85% provided such loans are not real estate related. On March 30, 2022, the Financial Services Commission announced plans to cease the temporary easement of regulations relating to the

loan-to-deposit

ratio as of June 30, 2022 and to gradually normalize the

loan-to-deposit

ratio back down to 1:1 (100%) beginning July 1, 2022. Additionally, the Detailed Regulation on the Supervision of the Banking Business was amended on June 30, 2018 to provide for a weighted multiple to be applied to mortgage and home equity loans where the

loan-to-value

ratio exceeds 60% in determining required minimum total capital (BIS) ratio. The Detailed Regulation on the Supervision of the Banking Business was also amended on June 30, 2018 to add “concentration of risk in the retail sector” as an additional criterion when the Financial Supervisory Service evaluates the risk management systems of Korean banks.

There is no assurance that Government measures will achieve their intended results. While any Government measure that is designed to stimulate growth in the real estate sector may result in growth of, and improved profitability for, our retail lending business (particularly with respect to mortgage and home equity loans) at least for the short term, such measure could also result in unintended consequences, including potentially excessive speculation resulting in a “bubble” for the Korean real estate market and a subsequent market crash. In contrast, any Government measure changing the direction of its stimulus measures (for example, in order to preemptively curtail an actual or anticipated bubble in the real estate market) may result in a contraction of the real estate market, a decline in real estate prices and consequently, a reduction in the growth of, and profitability for, our retail and/or other lending businesses, as well as otherwise have an adverse effect on our business, financial condition and results of operations or profitability. See “— Risks Relating to Our Banking Business — A decline in the value of the collateral securing our loans or our inability to fully realize the collateral value may adversely affect our credit portfolio.”

We engage in limited settlement transactions involving Iran and also in limited business in and related to Russia which may subject us to legal or reputational risks.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) administers and enforces certain laws and regulations (“OFAC Sanctions”) that impose restrictions upon dealings with or related to certain countries, governments, entities and individuals that are the subject of OFAC Sanctions, including Iran, and maintains a list of specially designated nationals (the “SDN List”), whose assets are blocked and with whom U.S. persons are generally prohibited from dealing. Some OFAC Sanctions require a U.S. nexus in order to apply (“Primary Sanctions”) while other OFAC Sanctions on certain dealings with or related to Iran, North Korea, and Russia apply even in the absence of a U.S. nexus (“Secondary Sanctions”).

Non-U.S.

persons are subject to Secondary Sanctions and can also be held liable for violations of Primary Sanctions on various legal grounds, such as causing violations by U.S. persons by engaging in transactions completed in part in the United States. The European Union also enforces certain laws and regulations that impose restrictions upon nationals and entities of, and business conducted in, member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such laws and regulations. The United Nations Security Council and other governmental entities also impose similar sanctions.

In August 2016, the Government authorized Shinhan Bank to act as a settlement bank for Euro-denominated transactions between Korean and Iranian businesses. Prior to the granting of this permission, payments for business activities were settled only in Korean Won and we did not participate in such settlements. From August 2016 through August 2017, Shinhan Bank processed ten such transactions that resulted in a minimal amount of revenue. Since August 2017, Shinhan Bank has ceased processing any such transactions and has no intention to process any such transactions in the future. We are committed to engaging only in lawful activities and in

41

obeying all relevant OFAC Sanctions and European Union sanctions but cannot guarantee that actions taken by our employees will not violate such sanctions. On May 8, 2018, U.S. President Donald Trump announced his decision to terminate the participation of the United States in the Joint Comprehensive Plan of Action (the “JCPOA”), pursuant to which certain relief of OFAC Sanctions relating to Iran had been provided. Following two wind down periods, one that ended on August 6, 2018 and one that ended on November 4, 2018, all Iran-related Secondary Sanctions that had been waived pursuant to the JCPOA were

re-imposed

and

non-U.S.

persons now face risk of Secondary Sanctions for dealing with certain key sectors of the Iranian economy or for providing associated services related to the targeted activities. As such, any Iran-related activities may subject us to OFAC Sanctions and to potential legal or reputational risks.

Shinhan Bank engages in certain limited lending activities in or related to Russia. In response to the Russia-Ukraine conflict, the U.S., E.U., U.K., and Korean governments have imposed economic sanctions on Russia, Belarus, and certain regions of Ukraine. Such sanctions target, among other persons, a wide range of Russian financial institutions as sanctioned parties as well as the Russian Central Bank and certain other state entities. Russia-related activities may subject us to sanctions and potential legal or reputational risk.

Risks Relating to Korea

Unfavorable financial and economic conditions in Korea and globally may have a material adverse impact on our asset quality, liquidity and financial performance.

We are incorporated in Korea, where most of our assets are located and most of our income is generated. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our business, results of operations and financial condition are substantially dependent on developments relating to the Korean economy. As Korea’s economy is highly dependent on the health and direction of the global economy, and investors’ reactions to developments in one country can have adverse effects on the securities price of companies in other countries, we are also subject to the fluctuations of the global economy and financial markets. Factors that determine economic and business cycles in the Korean or global economy are for the most part beyond our control and inherently uncertain. In addition to discussions of recent developments regarding the global economic and market uncertainties and the risks relating to us as provided elsewhere in this section, factors that could have an adverse impact on Korea’s economy in the future include, among others:

• continued volatility or deterioration in Korea’s credit and capital markets;

• difficulties in the financial sectors in Europe, China and elsewhere and increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets, including possibility of global inflation and the spread of economic recession to Europe as a result of geopolitical risks arising from Russia-Ukraine conflict;

• declines in consumer confidence and a slowdown in consumer spending and corporate investments;

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. Dollar, the Euro or the Japanese Yen exchange rates or revaluation of the Chinese Renminbi, increased exchange rate volatility as a result of COVID-19 (and recovery therefrom) and consequent government interventions, interest rates, inflation rates or stock markets;

• increasing levels of household debt;

• increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers;

• continuing adverse conditions in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere;

• the economic impact of any pending or future free trade agreements;

42

• potential escalation of the ongoing trade war between the U.S. and China as each country introduces tariffs on goods traded with the other;

• social and labor unrest;

• significant fluctuations or decreases in the market prices of Korean real estate;

• a decrease in tax revenue and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased government budget deficit;

• financial problems or lack of progress in the restructuring of Korean business groups, other large troubled companies, their suppliers or the financial sector;

• loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean business groups;

• increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

• geopolitical uncertainty and risk of further attacks by terrorist groups around the world, including the actions of the so-called “Islamic State”;

• the occurrence of severe health epidemics in Korea and other parts of the world, including the recent coronavirus (COVID-19), Ebola, Middle East Respiratory Syndrome (MERS) and Zika virus outbreaks;

• deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy such as the recent diplomatic tension between Korea and China with respect to the deployment of the Terminal High Altitude Area Defense (THAAD) system in Korea and trade disputes between Korea and the United States with respect to the imposition of anti-dumping duties on Korean steel, washing machines, transformers and solar panels;

• political uncertainty, or increasing strife among or within political parties in Korea, and political gridlock within the government or in the legislature, which prevents or disrupts timely and effective policy making;

• hostilities or political or social tensions involving oil-producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

• political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets;

• the occurrence of natural or man-made disasters in Korea (such as the sinking of the Sewol ferry in April 2014, which significantly dampened consumer sentiment in Korea for months) and other parts of the world, particularly in trading partners of Korea; and

• an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

Any future deterioration of the Korean economy could have an adverse effect on our business, financial condition and results of operations.

Tensions with North Korea could have an adverse effect on us, the price of our common shares and our American depositary shares.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between Korea and North Korea has fluctuated and may increase abruptly as a result of current and future

43

events. In particular, there continues to be heightened security tension in the region stemming from North Korea’s hostile military and diplomatic actions, including in respect of its nuclear weapons and long-range missile programs. Some examples from recent years include the following:

• North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

• In August 2015, two Korean soldiers were injured in a landmine explosion while on routine patrol of the southern side of the demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both sides. High-ranking officials from North Korea and Korea subsequently met for discussions intending to diffuse military tensions and released a joint statement whereby, among other things, North Korea expressed regret over the landmine explosions that wounded the Korean soldiers.

• In February 2016, in retaliation of North Korea’s launch of a long-range rocket, Korea announced that it would halt its operations of the Kaesong Industrial Complex, an industrial complex in the border city of Kaesong, to impede North Korea’s utilization of funds from the industrial complex to finance its nuclear and missile programs. In response, North Korea announced that it would expel all Korean employees from the industrial complex and freeze all Korean assets in the complex. All 280 Korean workers present at Kaesong left hours after the announcement by North Korea, and the complex remains closed as of the date hereof.

• In March 2013, North Korea stated that it had entered “a state of war” with Korea, declaring the 1953 armistice invalid, and put its artillery at the highest level of combat readiness to protest the Korea-United States allies’ military drills and additional sanctions imposed on North Korea for its missile and nuclear tests.

North Korea’s economy also faces severe challenges, including severe inflation and food shortages, which may further aggravate social and political tensions within North Korea. In addition, reunification of Korea and North Korea could occur in the future, which would entail significant economic commitment and expenditure by Korea that may outweigh any resulting economic benefits of reunification.

In April, May and September 2018, President Moon

Jae-in

met Kim

Jong-un

in a series of summit meetings to discuss, among other matters, denuclearization of the Korean peninsula. In June 2018, U.S. President Donald Trump and Kim

Jong-un

in turn had an official summit in Singapore, the first ever meeting between leaders of the United States and North Korea. Subsequent to the Singapore summit, they signed a joint statement, which stated, among others, new peaceful relations and the denuclearization of the Korean peninsula. A second official summit between U.S. President Donald Trump and Kim

Jong-un

was held in Vietnam in February 2019 but ended abruptly and without an agreement. In June 2019, U.S. President Donald Trump and Kim

Jong-un

had another summit at the Korean Demilitarized Zone, following which both sides announced a resumption of denuclearization talks. However, in December 2019, North Korea announced its intention to resume missile testing, heightening tensions. On June 16, 2020, North Korea destroyed the joint liaison office in Kaesong, citing

44

anti-regime propaganda allegedly disseminated using balloons across the border by Korean activists, and cut all other communication channels with Korea.

In the aftermath of these developments, there remains significant uncertainty regarding peace talks and the denuclearization of the Korean peninsula. As such, there can be no assurance that the level of tension on the Korean peninsula will not escalate in the future or that the political regime in North Korea may not suddenly collapse. Any further increase in tension or uncertainty relating to the military, political or economic stability in the Korean peninsula, including a breakdown of diplomatic negotiations over the North Korean nuclear program, occurrence of military hostilities, heightened concerns about the stability of North Korea’s political leadership or its actual collapse, a leadership crisis, a breakdown of high-level contacts or accelerated reunification could have a material adverse effect on our business, financial condition and results of operations, as well as the price of our common shares and our American depositary shares.

Risks Relating to Our American Depositary Shares

There are restrictions on withdrawal and deposit of common shares under the depositary facility.

Under the deposit agreement, holders of shares of our common stock may deposit those shares with the depositary bank’s custodian in Korea and obtain American depositary shares, and holders of American depositary shares may surrender American depositary shares to the depositary bank and receive shares of our common stock. However, under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us for the issuance of American depositary shares (including deposits in connection with the initial and all subsequent offerings of American depositary shares and stock dividends or other distributions related to these American depositary shares) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We have consented to the deposit of outstanding shares of common stock as long as the number of American depositary shares outstanding at any time does not exceed 40,432,628. As a result, if you surrender American depositary shares and withdraw shares of common stock, you may not be able to deposit the shares again to obtain American depositary shares.

Ownership of our shares is restricted under Korean law.

Under the Financial Holding Companies Act, any single shareholder (together with certain persons in a special relationship with such shareholder) may acquire beneficial ownership of up to 10% of the total issued and outstanding shares with voting rights of a bank holding company controlling national banks such as us. In addition, any person, except for a

“non-financial

business group company” (as defined below), may acquire in excess of 10% of the total voting shares issued and outstanding of a financial holding company which controls a national bank, provided that a prior approval from the Financial Services Commission is obtained each time such person’s aggregate holdings exceed 10% (or 15% in the case of a financial holding company controlling regional banks only), 25% or 33% of the total voting shares issued and outstanding of such financial holding company. The Government and the Korea Deposit Insurance Corporation are exempt from this limit. Furthermore, certain

non-financial

business group companies (i.e., (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

W

2 trillion; (iii) any mutual fund in which the same shareholder group identified in (i) or (ii) above owns more than 4% of the total shares issued and outstanding of such mutual fund; (iv) any private equity fund (a) where a person falling under any of items (i) through (ii) above is a limited partner holding not less than 10% of the total amount of contributions to the private equity fund, or (b) where a person falling under any of items (i) through (iii) above is a general partner, or (c) where the total equity of the private equity fund acquired by each affiliate belonging to several enterprise groups subject to the limitation on mutual investment is 30% or more of the total amount of contributions to the private equity fund; or (v) the investment purpose company concerned, where a private equity fund falling under item (iv) above

45

acquires or holds stocks in excess of 4% of the shares or equity of such company or exercises de facto control over significant managerial matters of such company through appointment or dismissal of executives or in any other manner)) may not acquire beneficial ownership in us in excess of 4% of our outstanding voting shares, provided that such

non-financial

business group companies may acquire beneficial ownership of up to 10% of our outstanding voting shares with the approval of the Financial Services Commission under the condition that such

non-financial

business group companies will not exercise voting rights in respect of such shares in excess of the 4% limit. See “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Restrictions on Financial Holding Company Ownership.” To the extent that the total number of shares of our common stock that you and your affiliates own together exceeds these limits, you will not be entitled to exercise the voting rights for the excess shares, and the Financial Services Commission may order you to dispose of the excess shares within a period of up to six months. Failure to comply with such an order would result in a fine of up to

W

100 million, plus an additional charge of up to 0.03% of the book value of such shares per day until the date of disposal.

Holders of our ADSs will not have preemptive rights in certain circumstances.

The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the depositary bank, after consultation with us, may make the rights available to you or use reasonable efforts to dispose of the rights on your behalf and make the net proceeds available to you. The depositary bank, however, is not required to make available to you any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

• a registration statement filed by us under the U.S. 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 U.S. Securities Act.

We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission. If a registration statement is required for you to exercise preemptive rights but is not filed by us, you will not be able to exercise your preemptive rights for additional shares and you will suffer dilution of your equity interest in us.

Holders of our ADSs will not be able to exercise dissent and appraisal rights unless they have withdrawn the underlying shares of our common stock and become our direct stockholders.

Under Korean law, in some limited circumstances, including the transfer of the whole or any significant part of our business and the merger or consolidation of us with another company, dissenting stockholders have the right to require us to purchase their shares under Korean law. However, under our deposit agreement, holders of our American depositary shares do not have, and may not instruct the depositary as to the exercise of, any dissenter’s rights provided to the holders of our common shares under Korean law. Therefore, if holders of our American depositary shares wish to exercise dissenting rights, they must withdraw the underlying common stock from the American depositary shares facility (and incur charges relating to that withdrawal) and become our direct stockholders prior to the record date of the shareholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.

The market value of your investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

Our common stock is listed on the KRX KOSPI Division of the Korea Exchange, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European

46

countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the Stock Market Division of the Korea Exchange. The Stock Market Division of the Korea Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the Stock Market Division of the Korea Exchange has prescribed a fixed range in which share prices are permitted to move on a daily basis. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.

The Government has the potential ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Government has promoted mergers to reduce what it considers excess capacity in a particular industry and has also encouraged private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actions by the government, or the perception that such actions are taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.

Your dividend payments and the amount you may realize upon a sale of your ADSs will be affected by fluctuations in the exchange rate between the U.S. Dollar and the Won.

Investors who purchase the American depositary shares will be required to pay for them in U.S. Dollars. Our outstanding shares are listed on the Korea Exchange and are quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the American depositary shares will be paid to the depositary bank in Won and then converted by the depositary bank into U.S. Dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. Dollar will affect, among other things, the amounts a registered holder or beneficial owner of the American depositary shares will receive from the depositary bank in respect of dividends, the U.S. Dollar value of the proceeds which a holder or owner would receive upon sale in Korea of the shares obtained upon surrender of American depositary shares and the secondary market price of the American depositary shares.

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.

If the Government deems that certain emergency circumstances are likely to occur, it may impose restrictions such as requiring foreign investors to obtain prior Government approval for the acquisition of Korean securities or for the repatriation of interest or dividends arising from Korean securities or sales proceeds from disposition of such securities. These emergency circumstances include any or all of the following:

• 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.

The depositary bank may not be able to secure such prior approval from the government for the payment of dividends to foreign investors when the Government deems that there are emergency circumstances in the Korean financial markets.

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Other Risks

We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which differ in many respects from standards applicable in other countries, including the United States. As a reporting company registered with the Securities and Exchange Commission and listed on the New York Stock Exchange, we are, and in the future will be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002. However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. For significant differences, see “Item 16G. Corporate Governance.” There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or

non-public

companies in other countries. Such differences in corporate governance standards and less public information could result in less than satisfactory corporate governance practices or disclosure to investors in certain countries.

You may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. All or substantially all of our directors and officers and other persons named in this annual report reside in Korea, and all or a substantial portion of the assets of our directors and officers and other persons named in this annual report and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of the American depository shares to effect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

We may become a passive foreign investment company (“PFIC”), which could result in adverse U.S. tax consequences to U.S. investors.

Based upon the past and projected composition of our income and assets and valuation of our assets, we do not believe that we were a PFIC for 2021, and we do not expect to be a PFIC in 2022 or to become one in the foreseeable future, although there can be no assurance in this regard. If, however, we become a PFIC, such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we become a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. Our PFIC status is determined on an annual basis and depends on the composition of our income and assets. Specifically, we will be classified as a PFIC for U.S. tax purposes if either: (i) 75% or more of our gross income in a taxable year is passive income, or (ii) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which generally includes cash) is at least 50%. Special rules treat certain income earned by a

non-U.S. corporation

engaged in the active conduct of a banking business as

non-passive

income.See “Item 10.E. Taxation — Certain United States Federal Income Tax Consequences — Passive Foreign Investment Company Rules.” We cannot assure you that we will not be a PFIC for 2022 or any future taxable year.

ITEM 4. INFORMATION ON THE COMPANY

ITEM 4.A. History and Development of the Company

Introduction

We are one of the leading financial institutions in Korea in terms of total assets, revenues, profitability and capital adequacy, among others. Incorporated on September 1, 2001, we are the first privately-held financial

48

holding company to be established in Korea. Since inception, we have developed and introduced a wide range of financial products and services in Korea and aimed to deliver comprehensive financial solutions to clients through a convenient

one-portal

network. According to reports by the Financial Supervisory Service, we are the second largest financial services provider in Korea (as measured by consolidated total assets as of December 31, 2021) and operate the second largest banking business (as measured by consolidated total bank assets as of December 31, 2021) and the largest credit card business (as measured by total credit purchase volume in 2021) in Korea.

We have experienced substantial growth through several mergers and acquisitions. Most notably, our acquisition of Chohung Bank in 2003 has enabled us to have the second largest banking operations in Korea. In addition, our acquisition in March 2007 of LG Card, the then largest credit card company in Korea, has enabled us to have the largest credit card operations in Korea and significantly expand our

non-banking

business capacity so as to achieve a balanced business portfolio. In September 2018, we announced the acquisition of a 59.15% interest in Orange Life Insurance, the former Korean unit of ING Life Insurance, as part of our efforts to diversify and enhance our

non-banking

businesses and closed on February 1, 2019. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles

360-2

of the Korean Commercial Code whereby holders (other than us) of Orange Life Insurance’s common stock transferred all of their shares to us and in return receive shares of our common stock, and hence Orange Life Insurance became our wholly owned subsidiary as of such date. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021

As of December 31, 2021, we have 17 direct and 34 indirect subsidiaries offering a wide range of financial products and services, including commercial banking, corporate banking, private banking, credit card, asset management, brokerage and insurance services. We believe that such breadth of services will help us to meet the diversified needs of our present and potential clients. We currently serve approximately 19 million active customers, which we believe is the largest customer base in Korea, through approximately 24,275 employees at approximately 1,217 network branches group-wide. While over 80% of our revenues have been historically derived from Korea, we aim to serve the needs of our customers through a global network of 244 offices in the United States, Canada, the United Kingdom, Japan, the People’s Republic of China, Germany, India, Australia, Hong Kong, Vietnam, Cambodia, Kazakhstan, Singapore, Mexico, Uzbekistan, Myanmar, Poland, Indonesia, the Philippines and the United Arab Emirates.

Our registered office and corporate headquarters are located at 20, Sejong-daero

9-gil,

Jung-gu,

Seoul, Korea 04513 and our telephone number is +822 6360 3000.

Our Strategy

‘Excellent Shinhan’ for 2020 and beyond

The Group has implemented the ‘2020 SMART Project’ since 2017, and we have seen this strategy result in balanced growth across the Group, such as expanding and strengthening the Group’s offerings, establishing new subsidiaries, acquisitions of domestic and foreign financial companies, upgrading digital platforms and promoting sustainable management. In 2020, we established a new

mid-term

group-wide strategy known as ‘F.R.E.S.H. 2020s’, building upon and replacing the existing 2020 SMART Project. ‘F.R.E.S.H.’ stands for ‘Fundamental’ (solid fundamentals), ‘Resilience’ (ability to adapt to and overcome crisis situations), ‘Ecosystem’ (creating an integrated digital ecosystem), ‘Sustainability’ (consistent Group-wide effort to achieve sustainable growth) and ‘Human-talent’ (talented human resources leading the Fourth Industrial Revolution). Under this ‘F.R.E.S.H. 2020s’ initiative, we have established seven detailed strategic directions for 2022 and beyond to allow us to achieve distinguished and sustainable growth despite uncertainties and become a leading financial group.

Under the unique growth directive summarized as ‘F.R.E.S.H.’, we have established seven detailed strategic directions for 2022 that comprehensively consider the management environment in 2022.

49

1. Conversion to Innovative and Open Digital Platforms

We plan to accelerate

all-around

digital transformation, particularly through developing innovative digital platforms, acquiring a competitive advantage in data-based businesses, fostering digital startups and creating new business models through competitive partnerships. In addition, we will continue to

scale-up

our group-wide digital capabilities and human resources.

2. Pursuit of Efficient Growth

We plan to efficiently enhance our profitability by developing existing business lines and investing in future growth areas. To strengthen the efficiency of our existing business lines, we aim to improve the quality of our core businesses, enhance our

non-interest

income generating businesses, strategically allocate our existing resources, promote new business opportunities and expand our business portfolio to discover future growth areas.

3. Global connectivity and expansion

We will look to diversify our global business model by shifting our focus from a volume-based expansion to a more advanced quality focused growth initiative for our global business, implementing our unique localization strategies and increasing cooperation and cross-selling across the Group. We will also work to increase our global product sourcing capabilities and foreign asset management capabilities.

4. Sustainable Performance

Our plans to foster sustainable finance consist of three strategic pillars – (1) environmentally friendly, (2) inclusive and (3) trust-based business management system. In 2020, we declared “Zero Carbon Drive”, as part of our vision to go carbon-neutral by 2050. We plan to promote environmentally sustainable development through financing of projects aimed at reducing carbon and greenhouse gas emission. Moreover, in December 2019 we launched the

Triple-K

Project to provide promising

start-ups

and tech companies with systematic support in our efforts to promote inclusive and innovative growth ecosystems.

5. Proactive Risk Management

Due to continuously increasing uncertainty and unstable market conditions, we place particular importance on the proactive management of risk. We will continue to enhance our core risk management competencies, including by upgrading our Group-wide digital capabilities and IT infrastructure. We also intend to develop a sophisticated customer protection system with a greater emphasis on customer-oriented risk management.

6. Development of a Dynamic Organization System

To further efficient management on a Group-wide basis, we plan to develop a dynamic Group-wide portfolio system. In particular, we plan to efficiently streamline our portfolio across various Group subsidiaries, while strengthening each subsidiaries’ organizational efficiency and flexibility, and establish a customer-oriented organizational system.

7. Convergent Human Resources Management

In order to recruit and retain talent, we plan to go beyond simply improving our human resources system by establishing an innovative human resource management platform. Our specific plans include fostering a healthy working environment, creating a flexible organization and innovative culture. Moreover, we intend to increase our brand value, allowing us to target and recruit talented professionals.

We have built a balanced portfolio across the financial industry and plan to enhance market competitiveness and reduce costs by further optimizing each of our business lines. In 2021, we established a new vision of “More

50

Friendly, More Secure, More Creative”, and are promoting organizational capacity, strengthening of each subsidiaries, enhancing organizational efficiency and flexibility, and establishing a customer-oriented organizational system in accordance with such vision.

“Convergence Talent Management” serves as the foundation for other core strategic initiatives, and we will continue to build and grow a talented workforce that posesses traits and capabilites required to thrive in the digital era. In particular, we have promoted “Shinhan RE:BOOT”, a major transformation of our corporate culture since 2021. We intend to accelerate the execution of strategies and changes within the Group through cultural transformation projects such as data-driven working methods, a fast and flexible organizational culture, and HR digitalization.

Our History and Development

On September 1, 2001, we were formed as a financial holding company under the Financial Holding Companies Act, as a result of acquiring all of the issued shares of the following four entities from their former shareholders in exchange for shares of our common stock: (i) Shinhan Bank, a nationwide commercial bank listed on the Korea Exchange, (ii) Shinhan Securities Co., Ltd., a securities brokerage company listed on the Korea Exchange, (iii) Shinhan Capital Co., Ltd., a leasing company listed on the Korea Exchange Korean Securities Dealers Automated Quotations (“KRX KOSDAQ”), and (iv) Shinhan Investment Trust Management Co., Ltd., a privately held investment trust management company. On September 10, 2001, the common stock of our holding company was listed on what is currently the KRX KOSPI Market.

Since our inception, we have expanded our operations, in large part, through strategic acquisitions, establishing subsidiaries or formation of joint ventures. Our key acquisitions, capital contributions and joint venture formations are described as below:

Date of Acquisition	Entity	Principal Activities	Method of Establishment
April 2002	Jeju Bank	Regional banking	Acquisition from Korea Deposit Insurance Corporation
July 2002	Shinhan Investment Corp. (1)	Securities and investment	Acquisition from the SsangYong Group
August 2002	Shinhan BNP Paribas Investment Trust Management Co., Ltd. (2)	Investment advisory	50:50 joint venture with BNP Paribas
August 2003	Chohung Bank	Commercial banking	Acquisition from creditors
December 2005	Shinhan Life Insurance	Life insurance services	Acquisition from shareholders
March 2007	LG Card	Credit card services	Acquisition from creditors
January 2012	Tomato Mutual Savings Bank (3)	Savings bank	Purchase and assumption of assets and liabilities from creditors
January 2013	Yehanbyoul Savings Bank (4)	Savings bank	Acquisition from Korea Deposit Insurance Corporation
October 2017	Shinhan REITs Management	Real estate asset management	Newly established

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Date of Acquisition	Entity	Principal Activities	Method of Establishment
February 2019, January 2020	Orange Life Insurance (5)	Life insurance services	Acquisition from majority shareholders and subsequent comprehensive stock exchange
May 2019	Asia Trust Co. Ltd. (6)	Real estate trust business	Acquisition from majority shareholders
August 2019	Shinhan AI. Co., Ltd.	Investment advisory	Incorporated and joined as a wholly-owned subsidiary
September 2020, December 2020	Shinhan Venture Investment) (7)	Venture capital	Acquisition from majority shareholders and subsequent comprehensive stock exchange
January 2021	Shinhan Asset Management (8)	Asset management services	Acquisition of remaining interests from BNP Paribas Asset Management Holding

Notes:

(1) Renamed as Shinhan Investment Corp. from Goodmorning Shinhan Securities Co., Ltd. effective August 2009.

(2) In January 2009, SH Asset Management Co., Ltd. and Shinhan BNP Paribas Investment Trust Management merged to form Shinhan BNP Paribas Asset Management.

(3) Shinhan Hope Co., Ltd. was established on December 12, 2011, to purchase and assume certain assets and liabilities of Tomato Mutual Savings Bank. On December 28, 2011, Shinhan Hope Co., Ltd. obtained a savings bank license, changed its name to Shinhan Savings Bank and became our direct subsidiary.

(4) In January 2013, we entered into a share purchase agreement with Korea Deposit Insurance Corporation for the acquisition of Yehanbyoul Savings Bank, a savings bank located in Korea, for W 45.3 billion, and received regulatory approval to merge Yehanbyoul Savings Bank into our existing subsidiary Shinhan Saving Bank. On April 1, 2013, Shinhan Savings Bank and Yehanbyoul Savings Bank merged into a single entity, with Yehanbyoul Savings Bank being the surviving entity and the newly merged bank being named Shinhan Savings Bank.

(5) On February 1, 2019, we acquired a 59.15% interest in Orange Life Insurance, the former Korean unit of ING Life Insurance, as part of our efforts to diversify and enhance our non-banking businesses. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles 360-2 of the Korean Commercial Code whereby holders (other than us) of Orange Life Insurance’s common stock transferred all of their shares to us and in return receive shares of our common stock, and hence Orange Life Insurance became our wholly owned subsidiary as of such date. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021.

(6) In October 2018, we announced the acquisition of a 60.0% interest in Asia Trust Co. Ltd. According to the transaction agreement, we seek to complete the acquisition by acquiring the remaining 40.0% shares in Asia Trust Co. Ltd. by 2022. The acquisition was approved by the Financial Services Commission on February 17, 2019 and closed on May 2, 2019. Upon closing, Asia Trust Co. Ltd. became our direct subsidiary.

(7) On September 29, 2020, we acquired a 96.8% interest in Neoplux, a venture capital company formerly under the Doosan Group. On December 30, 2020, we acquired the remaining interest in Neoplux by

52

effecting a small-scale stock exchange under Article

360-10

of the Korean Commercial Code, and hence Neoplux has become our wholly owned subsidiary as of such date. On January 11, 2021, Neoplux changed its legal name to Shinhan Venture Investment.

(8) On January 15, 2021, we acquired the remaining 35% interest in Shinhan BNP Paribas Asset Management from BNP Paribas Asset Management Holding and changed its legal name to Shinhan Asset Management, and hence Shinhan Asset Management has become our wholly-owned subsidiary as of such date.

ITEM 4.B. Business Overview

Unless otherwise specifically mentioned, the following business overview is presented on a consolidated basis under IFRS.

Our Principal Activities

We provide comprehensive financial services, principally consisting of the following:

• commercial banking services, mainly consisting of:

• retail banking, which primarily focuses on making loans to or receiving deposits from individual customers (including high net-worth individuals and families) and, to a lesser extent, not-for-profit institutions such as hospitals, airports and schools;

• corporate banking, which primarily focuses on making loans to or receiving deposits from for-profit corporations, including small- and medium-sized enterprises, and providing investment banking services to corporate clients;

• international banking, which primarily focuses on management of overseas subsidiaries and branch operations and other international businesses; and

• other banking, which consists of treasury business (including internal asset and liability management and other non-deposit funding activities), securities investing and trading and derivatives trading, as well as administration of the overall banking operations.

• credit card services;

• securities brokerage services;

• life insurance services;

• specialized credit services;

• asset management services, including brokerage and trading of various securities, related margin lending and deposit and trust services, and other asset management services; and

• other services, savings banking services, loan collection and credit reporting, collective investment administrative services, financial system development services, real estate trust services, investment advisory services, venture capital services as well as engaging in alternative investments through formation of private equity funds on a private placement basis.

In addition to the above-mentioned business activities, we, at the holding company level, have the following business departments and planning offices, the primary functions of which are to support cross-divisional management with respect to these specific functional areas: group & global investment banking business department, global market & securities planning office, global business planning office, wealth management planning office and retirement pension planning office.

Our principal business activities are not subject to any material seasonal trends. Although we have a number of overseas branches and subsidiaries, substantially all of our assets are located, and substantially all of our revenues are generated, in Korea.

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Deposit-Taking Activities

Principally through Shinhan Bank, we offer many deposit products that target different customer segments with features tailored to each segment’s financial and other profiles. Our deposit products consist principally of the following:

• Demand deposits.  Demand deposits do not accrue interest or accrue interest at a lower rate than time or savings deposits and allow the customer to deposit and withdraw funds at any time. If interest-bearing, demand deposits have interest accruing at a fixed or variable rate depending on the period and the amount of deposit. Demand deposits constituted 15.6%, 18.7% and 19.8% of our total deposits as of December 31, 2019, 2020 and 2021, respectively. Demand deposits paid average interest of 0.42%, 0.33% and 0.32% in 2019, 2020 and 2021, respectively.

• Time and savings deposits.  Time deposits generally require the customer to maintain a deposit for a fixed term during which the deposit accrues interest at a fixed rate or a variable rate based on certain financial indexes, including the “cost of funds index,” or COFIX, published by the Korean Federation of Banks. If the deposit is withdrawn prior to the end of the fixed term, the customer is paid a lower interest rate than that originally offered. The term typically ranges from one month to five years. Time deposits constituted 52.4%, 47.8% and 43.8% of our total deposits as of December 31, 2019, 2020 and 2021, respectively, and paid average interest of 1.92%, 1.46% and 1.05% in 2019, 2020 and 2021, respectively. Savings deposits allow the customer to deposit and withdraw funds at any time and accrue interest at an adjustable interest rate, which is typically lower than the rate applicable to time or installment deposits. Savings deposits constituted 28.7%, 31.7% and 31.9% of our total deposits as of December 31, 2019, 2020 and 2021, respectively, and paid average interest of 0.58%, 0.32% and 0.23% in 2019, 2020 and 2021, respectively.

• Other deposits.  Other deposits consist mainly of certificates of deposit. Certificates of deposit typically have maturities from 30 days to two years. Interest rates on certificates of deposit are determined based on the length of the deposit and prevailing market interest rates. Certificates of deposit are sold at a discount to their face value, reflecting the interest payable on the certificates of deposit. Certificates of deposit constituted 3.3%, 1.8% and 4.5% of our total deposits as of December 31, 2019, 2020 and 2021, respectively and paid average interest of 2.07%, 1.42% and 0.91% in 2019, 2020 and 2021, respectively.

We also offer deposits which provide the customer with preferential rights to housing subscriptions under the Housing Law and Rules on Housing Supply (the “Housing Law”), and eligibility for mortgage and home equity loans. As a result of an amendment to the Housing Law in June 2015, new subscriptions to housing subscription savings accounts, housing subscription time deposits accounts and housing subscription installment savings accounts became no longer available after September 1, 2015. Instead, general housing subscription savings accounts (which combine all of the functions of the aforementioned three accounts) presently remain available to all. The contribution period is from the subscription date to the date on which the account holder is selected as the purchaser of a house, and the required monthly contribution amount is from a minimum of

W

20,000 to a maximum of

W

500,000. The interests accrued on general housing subscription savings accounts are paid in lump sum upon termination of the account, and such interests shall be calculated at the interest rate determined and announced by the Ministry of Land, Infrastructure and Transport. Those who have a general housing subscription savings account and meet certain other criteria are granted a preferential subscription right for the purchase of a house. In the case of privately funded houses, the aggregate amount of contributions made to the account must be at least the applicable deposit threshold amount for the location and area of the relevant house (from

W

2 million up to

W

15 million). It is impossible to change the account holder name of a general housing subscription savings account except in the case of inheritance by the death of the original account holder. For information on our deposits in Korean Won based on the principal types of deposit products we offer, see “— Description of Assets and Liabilities — Funding — Deposits.”

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The rate of interest payable on our deposit products may vary significantly, depending on average funding costs, the rate of return on our interest-earning assets, prevailing market interest rates among financial institutions and other major financial indicators.

We also offer court deposit services for litigants in Korean courts, which involve providing effectively an escrow service for litigants involved in certain types of legal or other proceedings. Chohung Bank historically was a dominant provider of such services since 1958, and following the acquisition of Chohung Bank, we continue to hold a dominant market share in these services. Such deposits typically carry interest rates lower than the market rates (by approximately 0.5% per annum) and amounted to

W

6,015 billion,

W

6,816 billion and

W

7,610 billion as of December 31, 2019, 2020 and 2021, respectively.

The Monetary Policy Committee of the Bank of Korea imposes a reserve requirement on Won currency deposits at commercial banks at rates ranging from 0% to 7%, based generally on maturity and the type of deposit instrument. See “— Supervision and Regulation — Principal Regulations Applicable to Banks — Liquidity.”

The Depositor Protection Act provides for a deposit insurance system under which the Korea Deposit Insurance Corporation guarantees repayment of eligible bank deposits to depositors up to

W

50 million per depositor and

W

50 million per insured under the defined contribution retirement pension per bank. See “— Supervision and Regulation — Principal Regulations Applicable to Banks — Deposit Insurance System.”

Retail Banking Services

Overview

We provide retail banking services primarily through Shinhan Bank, and, to a significantly lesser extent, through Jeju Bank, a regional commercial bank. Our retail loans, before allowance for credit losses on loans and deferred loan origination costs and fees and excluding credit card receivables, amounted to

W

159,007 billion as of December 31, 2021.

Retail banking services include mortgage and home equity lending and retail lending as well as demand, savings and fixed deposit-taking, checking account services, electronic banking and automatic teller machines (“ATM”) services, bill paying services, payroll and check-cashing services, currency exchange and wire fund transfer. We believe that providing modern and efficient retail banking services is important to maintaining our public profile and as a source of

fee-based

income. Accordingly, we believe that our retail banking services and products will become increasingly important in the coming years as the domestic banking sector further develops and becomes more complex.

Retail banking has been and will continue to remain one of our core businesses. Our strategy in retail banking is to provide prompt and comprehensive services to retail customers through increased automation and improved customer service, as well as a streamlined branch network focused on sales. The retail segment places an emphasis on targeting high

net-worth

individuals.

Retail Lending Activities

We offer various retail loan products, consisting principally of loans to individuals and households. Our retail loan products target different segments of the population with features tailored to each segment’s financial profile and other characteristics, including customer’s occupation, age, loan purpose, collateral requirements and the duration of the customer’s relationship with Shinhan Bank. Our retail loans consist principally of the following:

• Mortgage and home equity loans, which are mostly comprised of mortgage loans that are used to finance home purchases and are generally secured by the housing unit being purchased; and

55

• Other retail 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 by a third party. Other retail loans also include advance loans extended on an unsecured basis to retail borrowers the use of proceeds for which is restricted to financing of home purchases prior to the completion of the construction.

As of December 31, 2021, our mortgage and home equity loans and other retail loans accounted for 50.2% and 49.8% of our total retail loans, respectively.

For secured loans, our policy is to lend up to 40% to 100% of the appraisal value of the collateral, after taking into account the value of any lien or other security interest that has priority over our security interest (other than petty claims). For mortgage and home equity loans, our general policy is to lend up to 45% to 82% of the appraisal value of the collateral, but subject to the maximum

loan-to-value

ratio,

debt-to-income

ratio and debt service ratio requirements for mortgage loans implemented by the Government. The

loan-to-value

ratio of secured loans, including mortgage and home equity loans, is updated on a monthly basis using the most recent appraisal value of the collateral, and maximum

loan-to-value

ratios are further adjusted based on factors such as the location of the secured property, nature and purpose of the loans and level of competition in the market. Since January 11, 2019, maximum

loan-to-value

ratios are determined and may be adjusted in increments of 1% (as opposed to increments of 5%, which was the case prior to January 11, 2019), allowing us to set more precise and tailored maximum

loan-to-value

ratios for our secured loans. As of December 31, 2021, the

loan-to-value

ratio of mortgage and home equity loans of Shinhan Bank was 40.7%. As of December 31, 2021, substantially all of its mortgage and home equity loans were secured by residential property.

Under the Regulation on the Supervision of the Banking Business and the Detailed Regulation on the Supervision of the Banking Business, our banking subsidiaries were subject to, when extending mortgage and home equity loans, the maximum

loan-to-value

ratio of 70% (irrespective of the location of the property, subject to certain exceptions) and the maximum

debt-to-income

ratio of 60% (only in respect of apartment units located in the greater Seoul metropolitan area, subject to certain exceptions).

On January 31, 2018, the existing

debt-to-income

requirement was replaced by the modified

debt-to-income

ratio requirement, which reflects (i) both principal and interest payments on the applicable mortgage and home equity loan and existing mortgage and home equity loans and (ii) interest payments on other loans. The previous

debt-to-income

requirement had only reflected (i) both principal and interest payments on the applicable mortgage and home equity loan and (ii) interest payments on existing mortgage and home equity loans.

Since 2017, the Government led by President Moon

Jae-in

has announced and implemented a series of robust polices aimed at taming speculation and deterring the rise of housing prices. The Government has continuously increased the number of areas subject to the “speculative districts”, “overheated speculative districts” and “adjustment targeted areas” (collectively, the “regulated areas”), where tighter

loan-to-value

ratios and

debt-to-income

ratios are applicable to mortgage or home equity loans. For example, homes located in a

non-regulated

area are currently subject to a

loan-to-value

ratio of 70% of the appraised value thereof, whereas homes located in “speculative districts” or “overheated speculative districts” are subject to a

loan-to-value

ratio of 40% and homes located in “adjustment targeted areas” are subject to a

loan-to-value

ratio of 50%. Furthermore, for homes located in any of the “speculative districts” or “overheated speculative districts” with a value equal or less than

W

1.5 billion but greater than

W

900 million (based on the evaluation data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), the loans may only be up to 40% of the appraised value up to

W

900 million and 20% of any remaining value between

W

1.5 billion and

W

900 million, and for homes located in any “adjustment targeted areas” with a value equal or greater than

W

900 million, the loans may only be up to 50% of the appraised value up to

W

900 million and 30% of any remaining value exceeding

W

900 million. In addition, if the value of a home located in any of the “speculative districts” or “overheated speculative districts” is greater than

W

1.5 billion, no mortgage or home equity loans may be provided, and no mortgage or home equity loans may be provided to

56

purchase a new home located in any of the regulated areas to a household that already owns one or more housing units. Similarly, the

debt-to-income

ratio applicable to apartment units located in the greater Seoul metropolitan area which are not “speculative districts”, “overheated speculative districts” or “adjustment targeted areas” is 60%, whereas homes located in “speculative districts” or “overheated speculative districts” are subject to a

debt-to-income

ratio of 40% and homes located in “adjustment targeted areas” are subject to a

debt-to-income

ratio of 50%.

The Financial Services Commission also introduced a debt service ratio and a modified

debt-to-income

ratio in order to modernize credit review methods and stabilize the management of household debt. The modified

debt-to-income

ratio, which has been implemented beginning January 31, 2018 reflects (i) both principal and interest payments on the applicable mortgage and home equity loan and existing mortgage and home equity loans and (ii) interest payments on other loans. Previously,

debt-to-income

ratio had only reflected (i) both principal and interest payments on the applicable mortgage and home equity loan and (ii) interest payments on existing mortgage and home equity loans. Debt service ratios reflect principal and interest payments on both the applicable loan and other loans and have been fully implemented since October 2018. The modified

debt-to-income

ratios are used as the primary reference index in the evaluation and approval process for mortgage and home equity loans, and debt service ratios are generally used as a supplementary reference index providing additional limits on mortgage and home equity loans. For example, debt service ratios applicable to the loan applicant who has (i) a loan secured by housing (including apartments) located in areas of excessive investment, high speculation or adjustment target, in each case, as designated by the government, where the price exceeds

W

600 million (based on the data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), (ii) more than

W

100 million in credit loans or (iii) more than

W

200 million in total loans are limited to 40%.

In addition, the supervising authorities in Korea from time to time issue administrative instructions to Korean banks, which have the effect of regulating the access of borrowers to housing loans and, as such, demand for real estate properties. For example, the Financial Supervisory Service issued administrative instructions to financial institutions to (except in limited circumstances) verify the borrower’s ability to repay based on proof of income prior to making a mortgage and home equity loan regardless of the type or value of the collateral or the location of the property, which has had the effect of practically barring the grant of any new mortgage and home equity loans to borrowers without verifiable income.

Our banking subsidiaries extend mortgage and home equity loans in compliance with the applicable regulations and administrative instructions by the relevant supervising authorities.

The following table sets forth a breakdown of our retail loans.

	As of December 31,
	2019			2020			2021
	(In billions of Won, except percentages)
Retail loans (1)
Mortgage and home-equity loans	W	68,074		W	73,188		W	79,860
Other retail loans		66,350			73,602			79,146
Percentage of retail loans to total gross loans		41.0	%		40.7	%		40.4	%

Note:

(1) Before allowance for credit losses on loans and deferred loan origination costs and fees and excludes credit card receivables.

The total mortgage and home equity loans amounted to

W

79,860 billion as of December 31, 2021, and as of such date, consisted of amortizing loans (whose principal is repaid by part of the installment payments) in the amount of

W

49,596 billion and

non-amortizing

loans in the amount of

W

30,264 billion. In addition, as of

57

December 31, 2021, we also provided lines of credit in the aggregate outstanding amount of

W

748 billion for

non-amortizing

loans.

Pricing

The interest rates payable on Shinhan Bank’s retail loans are either periodically adjusted floating rates (based on a base rate determined for three-month,

six-month

or twelve-month periods derived using an internal transfer price system, which reflects the market cost of funding, as adjusted to account for expenses related to lending and the profit margin of the relevant loan products) or fixed rates that reflect the market cost of funding, as adjusted to account for expenses related to lending and the profit margin. Fixed rate loans are offered only on a limited basis and at a premium to floating rate loans. For unsecured loans, which Shinhan Bank provides on a floating or fixed rate basis, interest rates thereon reflect a margin based on, among other things, the borrower’s credit score as determined during its loan approval process. For secured loans, the credit limit is based on the type of collateral, priority with respect to the collateral and the

loan-to-value

ratio. Shinhan Bank may adjust the pricing of these loans to reflect the borrower’s current and/or expected future contribution to Shinhan Bank’s profitability. The interest rate on Shinhan Bank’s loan products may become adjusted at the time the loan is extended. If a loan is repaid within three years following the date of the loan, the borrower is required to pay an early repayment fee, which is typically 0.7% to 1.4%, depending on types of loans and applicable interest rates, of the outstanding principal amount of and accrued and unpaid interest on the loan, multiplied by a fraction the numerator of which is the number of the remaining days on the loan until maturity and the denominator of which is the number of days comprising the term of the loan or three years, whichever is greater.

As of December 31, 2021, Shinhan Bank’s three-month,

six-month

and twelve-month base rates were 1.28%, 1.59% and 1.72%, respectively. As of December 31, 2021, Shinhan Bank’s fixed rates for mortgage and home equity loans with a maturity of five years was 3.60%. Shinhan Bank’s fixed rates for other retail loans with a maturity of one year ranged from 2.59% to 14.00%, depending on the credit scores of its customers.

As of December 31, 2021, 94.0% of Shinhan Bank’s total retail loans were floating rate loans and 6.0% were fixed rate loans. As of the same date, 94.6% of Shinhan Bank’s retail loans with maturity of more than one year were floating rate loans and 5.4% were fixed rate loans.

The interest rate charged to customers by our banking subsidiaries is based, in part, on the “cost of funds index”, or COFIX, which is published by the Korean Federation of Banks. COFIX is computed based on the weighted average interest of select funding products (including time deposits, housing and other installment savings deposits, repos, discounted bills and senior

non-convertible

financial debentures) of eight major Korean banks (comprised of Shinhan Bank, Kookmin Bank, Woori Bank, KEB Hana Bank, Nonghyup Bank, Industrial Bank of Korea, Citibank Korea Inc. and Standard Chartered Bank Korea Limited). Each bank then independently determines the interest rate applicable to its respective customers by adding a spread to the COFIX based on the difference between the COFIX and such bank’s general funding costs, administration fees, the customer’s credit score, the maturity of the loan and other customer-specific premiums and discounts based on the customer relationship with such bank. These interest rates are typically adjusted on a monthly basis. In January 2019, the Financial Services Commission announced plans to reflect rates for short term deposits such as demand deposits when computing the “cost of funds index,” or COFIX, which is expected to result in lower interest rates for household loans compared to the previous COFIX rate.

Private Banking

Historically, we have focused on customers with high

net-worth.

Our retail banking services include providing private banking services to high

net-worth

customers who seek personal advice in complex financial matters. Our aim in private banking is to help enhance wealth accumulation by, and increase the financial sophistication of, our high

net-worth

clients by offering them customized wealth management solutions and comprehensive financial services including asset portfolio and fund management, tax consulting, real estate

58

management and family office services, among others. Since the end of 2011, in order to preemptively respond to evolving customer needs and promote asset growth by inducing greater synergy between commercial banking and investment advisory services offered by Shinhan Investment, Shinhan Bank launched private wealth management centers which combine certain branches of Shinhan Bank with those of Shinhan Investment located in the same area. Shinhan Bank’s strength in private banking has been widely recognized by a number of significant industry awards in recent years, including the grand prize at the Premium Brand Index by Korean Standards Association, Chosun Ilbo and Ministry of Trade, Industry and Energy (awarded 14 consecutive years), the Korea Prestige Brand Award by the Korea Economic Daily (awarded six consecutive years), the Star Brand Award by Maekyung Media Group (awarded five consecutive years), National Brand Award by Chosun Ilbo (awarded four consecutive years) in 2021.

As of December 31, 2021, Shinhan Bank operated 26 private wealth management service centers nationwide, including 18 in Seoul, three in the suburbs of Seoul and five in cities located in other regions in Korea. As of December 31, 2021, Shinhan Bank had approximately 17,663 private banking customers, who typically are required to have

W

500 million in deposits with the Bank to qualify for its private banking services.

Corporate Banking Services

Overview

We provide corporate banking services, primarily through Shinhan Bank, to small- and

medium-sized

enterprises, including enterprises known as SOHO (standing for “small office, home office”), which are small enterprises operated by individuals or households, and, to a lesser extent, to large corporations, including corporations that are affiliated with

chaebols

. We also lend to government-controlled enterprises.

The following table sets forth the balances and percentage of our total loans (before allowance for credit losses on loans and deferred loan origination costs and fees) attributable to each category of our corporate lending business as of the dates indicated.

	As of December 31,
	2019				2020				2021
	(In billions of Won, except percentages)
Small- and medium-sized enterprises loans (1)	W	91,162	27.8	%	W	108,016	29.9	%	W	121,961	31.0	%
Large corporate loans		34,466	10.5			35,289	9.8			40,368	10.3
Others (2)		43,502	13.3			46,950	13.0			46,139	11.7
Total corporate loans	W	169,130	51.6	%	W	190,255	52.7	%	W	208,468	53.0	%

Notes:

(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.

(2) Includes loans to governmental agencies, loans to banks and other corporate loans, including loans originated by subsidiaries other than Shinhan Bank which are classified as corporate loans for purposes of financial reporting.

Small- and

Medium-sized

Enterprises Banking

Under the Basic Act on Small- and

Medium-sized

Enterprises (the “SME Basic Act”) and the related Presidential Decree, as amended and effective from January 27, 2016, in order to qualify as a small- and

medium-sized

enterprise, (i) the enterprise’s total assets at the end of the immediately preceding fiscal year must be less than

W

500 billion, (ii) the enterprise must meet the standards prescribed by the Presidential Decree in

59

relation to the average and total annual sales revenues applicable to the type of its main business, and (iii) the enterprise must meet the standards of management independence from ownership as prescribed by the Presidential Decree, including

non-membership

in a conglomerate as defined in the Monopoly Regulations and Fair Trade Act. An enterprise shall not qualify as a small- or

medium-sized

enterprise if it is incorporated into, or is deemed to be incorporated into a business group subject to disclosure under the Monopoly Regulations and Fair Trade Act.

Non-profit

enterprises that satisfy certain requirements prescribed in the SME Basic Act and its Presidential Decree may qualify as a small- and

medium-sized

enterprise. Furthermore, cooperatives and federations of cooperatives as prescribed by the Presidential Decree are deemed as small- and

medium-sized

enterprises, effective from April 15, 2014. As of December 31, 2021, we made loans to 469,576 small- and medium-sized enterprises for an aggregate amount of

W

121,961 billion (before allowance for credit losses on loans and deferred loan origination costs and fees).

We believe that Shinhan Bank, whose traditional focus has been on small- and

medium-sized

enterprises lending, is well-positioned to succeed in the small- and

medium-sized

enterprises market in light of its marketing capabilities (which we believe have provided Shinhan Bank with significant customer loyalty) and its prudent risk management practices, including conservative credit rating systems for credit approval. To maintain or increase its market share of small- and

medium-sized

enterprises lending, Shinhan Bank:

• has accumulated a market-leading expertise and familiarity as to customers and products . We believe Shinhan Bank has an in-depth understanding of the credit risks embedded in this market segment, allowing Shinhan Bank to develop loan and other products specifically tailored to the needs of this market segment;

• operates a relationship management system to provide customer services that are tailored to small- and medium-sized enterprises . Shinhan Bank currently has relationship management teams in 170 banking branches, of which 51 are corporate banking branches and 119 are hybrid banking branches designed to serve both retail customers and, to a limited extent, corporate customers. These relationship management teams market products, and review and approve smaller loans with less credit risks; and

• continues 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 retail loans or deposit products to the employees of these enterprises or to provide financial advisory services.

Large Corporate Banking

Large corporate customers consist primarily of member companies of

chaebols

and financial institutions. Our large corporate loans amounted to

W

40,368 billion (before allowance for credit losses on loans and deferred loan origination costs and fees) as of December 31, 2021. Large corporate customers tend to have better credit profiles than small- and

medium-sized

enterprises, and accordingly, Shinhan Bank has expanded its focus on these customers as part of its risk management policy.

Shinhan Bank aims to be a

one-stop

financial solution provider that also partners with its corporate clients in their corporate expansion and growth endeavors. To that end, Shinhan Bank provides a wide range of corporate banking services, including investment banking, real estate financing, overseas real estate project financing, large development project financing, infrastructure financing, structured financing, equity investments/venture investments, mergers and acquisitions consulting, securitization and derivatives services, including securities and derivative products and foreign exchange trading. Shinhan Bank, through its Hong Kong branch, also arranges financing for, and offers consulting services to, Korean companies expanding their business overseas, particularly in Asia.

Digital Corporate Banking

Shinhan Bank offers corporate customers a

web-based

total cash management service known as “Shinhan Bizbank.” Shinhan Bizbank supports substantially all types of banking transactions ranging from basic

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transaction history inquiries and fund transfers to opening letters of credit, trade finance, payment management, collection management, sales settlement service, acquisition settlement service,

business-to-business

settlement service, sweeping, pooling, ERP interface service,

host-to-host

banking solutions, SWIFT SCORE service and global cash and liquidity management service. In addition, Shinhan Bank provides customers with integrated and advanced access to its financial services through its “Inside Bank” program, which combines Internet banking, capital management services and enterprise resource planning to better serve corporate customers. The Inside Bank program also seeks to provide customized financial services to meet the comprehensive needs of target corporate customers ranging from conglomerates to small enterprises in various industries, with the goal of enhancing convenience to our corporate customers in accessing our financial services as well as assisting them to strategically manage their funds. In line with Shinhan Bank’s efforts to facilitate

non-face-to-face

online transactions for corporate transactions, in 2018, Shinhan Bank upgraded its virtual account-based corporate fund management service, known as “Shinhan Damoa Service”, making it available on mobile channels. In addition, Shinhan Bank has made the fund transfers via phone number service (allowing customers to make fund transfers without the recipients’ account number), which was previously only available for personal banking customers, available for corporate banking customers as well. As part of Shinhan Bank’s effort to lower settlement fees for small business owners, in May 2019, Shinhan Bank launched “ZeroPay Biz Shinhan”, an account-based mobile payment service enabling vendors to easily receive payments from customers’ accounts by scanning the vendor’s QR code with a smartphone. In October 2020, Shinhan Bank upgraded the “Shinhan S Corporate Bank” platform to launch “Shinhan SOL Biz”, a

non-face-to-face

application for corporate clients, with the goal of improving the platform so that Shinhan Bank can offer

non-face-to-face

channels to corporate clients that are as convenient and user-friendly as Shinhan Bank’s online retail banking platforms. In August 2021, Shinhan Bank launched a

non-face-to-face

name verification for corporate banking customers via smartphone using Shinhan SOL Biz, enabling corporate customers to open new bank accounts without visiting a branch.

Corporate Lending Activities

Our principal loan products for corporate customers are working capital loans and facilities loans. Working capital loans, which include discounted notes and trade financing, are generally loans used for general working capital purposes. Facilities loans are provided to finance the purchase of equipment and construction of manufacturing plants. As of December 31, 2021, working capital loans and facilities loans amounted to

W

66,387 billion and

W

73,629 billion, respectively, representing 46.5% and 51.6% of our total

Won-denominated

corporate loans. Working capital loans generally have a maturity of one year, but may be extended on an annual basis for an aggregate term of three years in the case of unsecured loans and five or ten years in the case of secured loans. Facilities loans have a maximum maturity of 15 years, are typically repaid in semiannual installments per annum and may be entitled to a grace period not exceeding

one-third

of the loan term with respect to the first repayment; facilities loans with a term of three years or less may be paid in full at maturity.

Loans to corporations may be unsecured or secured by real estate, deposits or guaranty certificates. As of December 31, 2021, secured loans and guaranteed loans (including loans secured by guaranty certificates issued by credit guarantee insurance funds) accounted for 64.5% and 15.0%, respectively, of our

Won-denominated

loans to small- and

medium-sized

enterprises. As of December 31, 2021, 45.8% of the corporate loans were secured by real estate.

When evaluating whether to extend loans to corporate customers, Shinhan Bank reviews their creditworthiness, credit score, value of any collateral and/or third party guarantee. The value of collateral is computed using a formula that takes into account the appraised value of the collateral, any prior liens or other claims against the collateral and an adjustment factor based on a number of considerations including, with respect to property, the average value of any nearby property sold in a court-supervised auction during the previous year. Shinhan Bank revalues collateral when a secured loan is renewed or if a trigger event occurs with respect to the loan in question.

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Pricing

Shinhan Bank determines the price for its corporate loan products based principally on their respective cost of funding and the expected loss rate based on the borrower’s credit risk. As of December 31, 2021, 71.1% of Shinhan Bank’s corporate loans with outstanding maturities of one year or more had variable interest rates as determined by the applicable market rates.

More specifically, interest rates on Shinhan Bank’s corporate loans are generally determined as follows:

Interest rate = (Shinhan Bank’s periodic market floating rate

or

reference rate)

plus

transaction cost

plus

credit spread

plus

risk premium

plus or minus

discretionary adjustment.

Depending on the market condition and the agreement with the borrower, Shinhan Bank may use either its periodic market floating rate or the reference rate as the base rate in determining the interest rate for the borrower. As of December 31, 2021, Shinhan Bank’s periodic market floating rates (which are based on a base rate determined for a three-month,

six-month,

one-year,

two-year,

three-year or five-year period, as applicable, as derived using Shinhan Bank’s market rate system) were 1.28% for three months, 1.59% for six months, 1.72% for one year, 1.88% for two years, 2.05% for three years and 2.23% for five years. As of the same date, Shinhan Bank’s reference rate was 4.00%. The reference rate refers to the base lending rate used by Shinhan Bank and is determined annually by Shinhan Bank’s Asset & Liability Management Committee based on, among others, Shinhan Bank’s funding costs, cost efficiency ratio and discretionary margin.

Transaction cost reflects the standardized transaction cost assigned to each loan product and other miscellaneous costs, including contributions to the Credit Guarantee Fund, and education taxes. The Credit Guarantee Fund is a statutorily created entity that provides credit guarantees to loans made by commercial banks and is funded by mandatory contributions from commercial banks in the amount of approximately 0.22% of all loans (excluding certain loans such as facility loans) made by them.

The credit spread is added to the periodic floating rate to reflect the expected loss based on the borrower’s credit rating and the value of any collateral or payment guarantee. In addition, Shinhan Bank adds a risk premium which takes into account the potential of unexpected loss that may exceed the expected loss from the credit rating assigned to a particular borrower.

A discretionary adjustment rate is added or subtracted to reflect the borrower’s current and/or future contribution to Shinhan Bank’s profitability. If additional credit is provided by way of a guarantee, the adjustment rate is subtracted to reflect such change in the credit spread. In addition, depending on the price and other terms set by competing banks for similar borrowers, Shinhan Bank may reduce the interest rate to compete more effectively with other banks.

International Business

Shinhan Bank also engages in treasury and investment activities in international capital markets, principally including foreign currency-denominated securities trading, foreign exchange trading and services, trade-related financial services, international factoring services and foreign banking operations through its overseas branches and subsidiaries.Shinhan Bank aims to become a leading bank in Asia and expand its international business by focusing on further bolstering its overseas network, localizing its overseas operations and diversifying its product offerings, particularly in terms of asset management, in order to meet the various financing needs of its current and potential customers overseas.

Other Banking Services

Other banking businesses carried on by Shinhan Bank include treasury business (including internal asset and liability management and other

non-deposit

funding activities), trading of, and investment in, debt securities and, to a lesser extent, equity securities for its own accounts, derivative trading activities, as well as managing back-office functions.

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Treasury

Shinhan Bank’s treasury division provides funds to all of Shinhan Bank’s business operations and ensures the liquidity of its operation. To secure stable long-term funds, Shinhan Bank uses fixed and floating rate notes, debentures, structured financing and other advanced funding methods. As for overseas funding, Shinhan Bank closely monitors the feasibility of raising funds in currencies other than the U.S. Dollar, such as the Japanese Yen and the Euro. In addition, Shinhan Bank makes call loans and borrows call money in the short-term money market. Call loans are short-term lending among banks and financial institutions in either Korean Won or foreign currencies with a minimum transaction amount of

W

100 million and maturities of typically one day.

Securities Investment and Trading

Shinhan Bank invests in and trades securities for its own accounts in order to maintain adequate sources of liquidity and to generate interest income, dividend income and capital gains. Shinhan Bank’s trading and investment portfolios consist primarily of Korean treasury securities and debt securities issued by Government agencies, local governments or certain government-invested enterprises, debt securities issued by financial institutions and equity securities listed on the KRX KOSPI Market and KRX KOSDAQ Market of the Korea Exchange. For a detailed description of our securities investment portfolio, see “— Description of Assets and Liabilities — Investment Portfolio.”

Derivatives Trading

Shinhan Bank provides to its customers, and to a limited extent, trades for its proprietary accounts, a broad range of derivatives products, which include:

• interest rate swaps, options, 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;

• equity and equity-linked options;

• foreign currency forwards, options and swaps;

• commodity forwards, swaps and options;

• credit derivatives; and

• KOSPI 200 indexed equity options.

Shinhan Bank’s outstanding derivatives commitments in terms of notional amount were

W

246,982 billion,

W

217,006 billion and

W

241,415 billion in 2019, 2020 and 2021, respectively. Such derivative operations generally focus on addressing the needs of Shinhan Bank’s corporate clients to enter into derivatives contracts to hedge their risk exposure and entering into

back-to-back

derivatives to hedge Shinhan Bank’s risk exposure that results from such client contracts.

Shinhan Bank also enters into derivative contracts to hedge the interest rate and foreign currency risk exposures that arise from its own assets and liabilities. In addition, to a limited extent, Shinhan Bank engages in the proprietary trading of derivatives within its regulated open position limits. See “— Description of Assets and Liabilities — Derivatives.”

Trust Account Management Services

Overview

Shinhan Bank’s trust account management services involve management of trust accounts, primarily in the form of money trusts. Trust account customers are typically individuals seeking higher rates of return than those

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offered by bank account deposits. Because deposit reserve requirements do not apply to deposits held in trust accounts as opposed to deposits held in bank accounts, and regulations governing trust accounts tend to be less strict, Shinhan Bank is generally able to offer higher rates of return on trust account products than on bank deposit products. However, in recent years, due to the ongoing low interest environment, Shinhan Bank has not been able to offer attractive rates of return on its trust account products.

Trust account products generally require higher minimum deposit amounts than those required by comparable bank account deposit products. Unlike bank deposit products, deposits in trust accounts are invested primarily in securities(consisting principally of debt securities and beneficiary certificate for real estate financing)and, to a lesser extent, in loans, as the relative shortage of funding sources require that trust accounts be invested in a higher percentage of liquid assets.

Under the Banking Act, the Financial Investment Services and Capital Markets Act and the Trust Act, assets in trust accounts are required to be segregated from other assets of the trustee bank and are unavailable to satisfy the claims of the depositors or other creditors of such bank. Accordingly, trust accounts that are not guaranteed as to principal (or as to both principal and interest) are accounted for and reported separately from the bank accounts. See “— Supervision and Regulation.” Trust accounts are regulated by the Trust Act and the Financial Investment Services and Capital Markets Act, and most national commercial banks offer similar trust account products. Shinhan Bank earns income from trust account management services, which is recorded as net trust management fees.

As of December 31, 2019, 2020 and 2021, Shinhan Bank had total trust assets of

W

93,127 billion,

W

96,269 billion and

W

92,077 billion, respectively, comprised principally of securities investments of

W

23,902 billion,

W

21,427 billion and

W

22,438 billion, respectively; real property investments of

W

13,493 billion,

W

12,696 billion and

W

10,926 billion, respectively; and loans with an aggregate principal amount of

W

415 billion,

W

348 billion and

W

396 billion, respectively. Securities investments consisted of corporate bonds, government-related bonds and other securities, primarily commercial paper. As of December 31, 2019, 2020 and 2021, debt securities accounted for 24.9%, 21.7% and 23.8%, respectively, and equity securities constituted 0.8%, 0.6% and 0.6%, respectively, of Shinhan Bank’s total trust assets. Loans made by trust accounts are similar in type to those made by bank accounts, except that they are made only in Korean Won. As of December 31, 2019, 2020 and 2021, 62.7%, 72.2% and 76.0%, respectively, of the amount of loans from the trust accounts were collateralized or guaranteed. In making investment from funds received for each trust account, each trust product maintains investment guidelines applicable to each such product which set forth, among other things, company-, industry- and security-specific limitations.

Trust Products

In Korea, trust products typically take the form of money trusts, which are discretionary trusts over which (except in the case of a specified money trust) the trustees have investment discretion subject to applicable law and is commingled and managed jointly for each type of trust account. The specified money trusts are established on behalf of customers who give specific directions as to how their trust assets should be invested.

Money trusts managed by Shinhan Bank’s trust account business amounted to

W

49,695 billion,

W

51,998 billion and

W

53,763 billion as of December 31, 2019, 2020 and 2021, respectively.

Shinhan Bank offers variable rate trust products through its retail branch network. As of December 31, 2019, 2020 and 2021, Shinhan Bank’s variable rate trust accounts amounted to

W

45,627 billion,

W

47,930 billion and

W

49,831 billion, respectively, of which principal guaranteed variable rate trust accounts amounted to

W

4,067 billion,

W

4,067 billion and

W

3,931 billion, respectively. Variable rate trust accounts offer their holders variable rates of return on the principal amount of the deposits in the trust accounts and do not offer a guaranteed return on the principal of deposits, except in the limited cases of principal guaranteed variable rate trust accounts, for which payment of the principal amount is guaranteed. Shinhan Bank charges a lump sum or a fixed

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percentage of the assets held in such trusts as a management fee, and, depending on the trust products, is also entitled to additional fees in the event of early termination of the trusts by the customer. Korean banks, including Shinhan Bank, are currently allowed to guarantee the principal of the following types of variable rate trust account products: (i) existing individual pension trusts, (ii) new individual pension trusts, (iii) existing retirement pension trusts, (iv) new retirement pension trusts, (v) pension trusts and (vi) employee retirement benefit trusts.Shinhan Bank also offers an insignificant amount of guaranteed fixed rate trust products (amounting to

W

1.0 billion,

W

1.0 billion and

W

1.0 billion as of December 31, 2019, 2020 and 2021, respectively), which provide to its holders a guaranteed return of the principal as well as a guaranteed fixed rate of return. These products are carry-overs from past offerings, and Shinhan Bank no longer offers guaranteed fixed rate trust products.

Credit Card Services

Products and Services

We currently provide our credit card services principally through our credit card subsidiary, Shinhan Card, and to a limited extent, Jeju Bank.

Shinhan Card offers a wide range of credit card and other services, principally consisting of the following:

• credit card services , which involve providing cardholders with credit up to a preset limit to purchase products and services. Repayment for credit card purchases may be made either (i) on a lump-sum basis, namely, in full at the end of a monthly billing cycle or (ii) on a revolving basis subject to a minimum monthly payment. The minimum monthly payment for holders of credit cards issued before December 30, 2014 is the greater of (x) 5% to 20% of the amount outstanding (depending on the cardholder’s credit) or (y) W 30,000. The minimum monthly payment for holders of credit cards issued on or after December 30, 2014 is the greater of (x) 10% to 20% of the amount outstanding (depending on the cardholder’s credit) or (y) W 50,000. Currently, the outstanding credit card balance subject to the revolving basis payments generally accrues interest at the effective annual rates of approximately 5.4% to 19.9%.

• cash advances , which enable the cardholders to withdraw cash subject to a preset limit from an ATM or a bank branch. Repayments for cash advances may be made either on a lump-sum basis or, in the case of credit cards issued before December 30, 2014, on a revolving basis. Currently, the lump-sum cash advances generally accrue interest at the effective annual rates of approximately 6.1% to 19.9% and the revolving cash advances generally accrue interest at a minimum rate of 6.4% to 19.9% of the outstanding balance (depending on the cardholder’s credit).

• installment purchases , which provide customers with an option to purchase products and services from select merchants on an installment basis for which repayments must be made in equal amounts over a fixed term generally ranging from two to 24 months, and for certain limited types of cards, up to 36 months. Currently, the outstanding installment purchase balances generally accrue interest at the effective annual rates of approximately 9.5% to 19.9%.

• card loans , which enable cardholders to receive, up to a preset limit, a loan which is generally unsecured. Repayment of card loans is made generally by (i) repaying principal and interest in equal amounts on an installment basis over a fixed term of two to 36 months, (ii) repaying the principal and interest amounts in full at maturity, or (iii) making interest-only payments during the initial grace period of either three months or six months and repaying the principal and interest amounts on a monthly installment basis over the remaining period of typically two to 36 months. Currently, the outstanding card loan balances generally accrue interest at the effective annual rates of approximately 6.16% to 19.9%. Delinquent credit card receivables can also be restructured into loans, which we classify as card loans, and these loans generally accrue interest at the effective annual rates of approximately 11.9% to 19.5% over a fixed term whose maximum is 72 months.

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Shinhan Card derives revenues from annual membership fees paid by credit cardholders, interest charged on credit card balances, fees and interest charged on cash advances and card loans, interest charged on late and deferred payments and merchant fees paid by retail and service establishments. Merchant fees and interest on cash advances constitute the largest source of revenue.

The annual membership fees for credit cards vary depending on the type of credit card and the benefits offered thereunder. For standard credit cards and most of the affinity and

co-branded

cards, Shinhan Card charges an annual membership fee ranging from

W

1,000 to

W

2,000,000 per credit card, depending on the type of the card and the cardholder profile. Certain government affinity cards have no annual membership fee. If Shinhan Card’s customers make cash advances using ATMs of a financial institution other than Shinhan Card, Shinhan Card also charges a usage fee for such cash advances in an amount equivalent to the fees charged by such financial institution for the use of its ATM plus costs to cover Shinhan Card’s related administration expenses.

Any accounts that are unpaid when due are deemed to be delinquent accounts, for which Shinhan Card levies a late charge in lieu of the interest rates applicable prior to default. The late charge rate currently ranges from 8.3% to 20.0% per annum. Since the first half of 2018, instead of levying a late charge in lieu of interest rates prior to default, Shinhan Card maintained the interest rates prior to default but added a late charge rate of 3% in addition to the interest rates prior to default.

Merchant discount fees, which are processing fees Shinhan Card charges to merchants, can be up to the regulatory limit of 2.3% of the purchased amount depending on the merchant used, with the average charge for credit cards being 1.45% in 2021. For small- and

medium-sized

merchants, the applicable regulations impose reduced fee rates of 0.8% (in the case of merchants with annual sales of

W

300 million or less) and 1.3% (in the case of merchants with annual sales of more than

W

300 million and up to

W

500 million), respectively, of the purchased amount.

Although making payments on a revolving basis is more common in many other countries, this payment method is still in its early stages of development in Korea. Cardholders in Korea are generally required to repay their purchases within approximately 14 to 44 days of purchase depending on their payment cycle, except in the case of installment purchases where the repayment term is typically three to sixmonths. Accounts that remain unpaid after this period are deemed to be delinquent, and Shinhan Card levies late charges on and closely monitors such accounts. For purchases made on an installment basis, Shinhan Card charges interest on unpaid amounts at rates that vary according to the terms of repayment.

Cardholders are required to settle their outstanding balances in accordance with the terms of the credit cards they hold. Cardholders are required to select the monthly settlement date when they open the credit card account and may subsequently change the settlement date but no more than once every 60 days. Settlement dates at or around the end of each month are the most popular since salaries are typically paid at the end of the month.

In addition to credit card services, Shinhan Card also offers check cards, which are similar to debit cards in the United States and many other countries, to retail and corporate customers. A check card can be used at any of the merchants that accept credit cards issued by Shinhan Card and the amount charged to a check card is directly debited from the cardholder’s designated bank account. Check cards have a low risk of default and involve minimal funding costs. Although Shinhan Card does not charge annual membership fees on the majority of check cards, merchants are charged fees on the amount purchased using check cards at a rate between 0.50% and 2.50%, depending on the type of business, which is lower than the corresponding fee charged for credit card use.

Recently, the Financial Services Commission has allowed certain financial institutions, including Shinhan Card, to test innovative financial services. Shinhan Card obtained approval from the Financial Services Commission to test nine business:

(i) peer-to-peer

credit card remittance services whereby individuals can send money to others directly using credit cards, (ii) a credit scoring system that evaluates individual business owners’ credit standing based on their revenue records and history of credit card use, (iii) small-scale investment using

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credit cards, (iv) face recognition payments, (v) house rent payments using credit cards, (vi) rental brokerage platforms, (vii) overseas remittance using credit cards, (viii) quick payment to small merchants using credit card reward points and (ix) family cards for underage children. As of December 31, 2021, six businesses have been successfully commercialized, and we expect to launch the remaining three services in the foreseeable future.

Credit Card Products

Shinhan Card offers a wide range of credit card products tailored for credit cardholders’ lives and to satisfy their preferences and needs. Credit card products offered by Shinhan Card include:

• cards that provide additional benefits such as frequent flyer miles and reward program points that can be redeemed by the customer for complementary services, prices or cash;

• platinum cards and other preferred membership cards, which have higher credit limits and provide additional services in return for higher annual membership fees;

• cards with additional features to preferred customers, such as revolving credit cards, travel services and insurance;

• cards with fraud detection and security systems to prevent the misuse of credit cards and to encourage the use of credit cards over the Internet;

• corporate and affinity cards that are issued to employees or members of particular companies or organizations; and

• mobile phone cards allowing customers to conduct wireless credit card transactions through their mobile phones.

Customers and Merchants

In addition to internal growth through cross-selling, we seek to enhance our market position by selectively targeting new customers with high

net-worth

and solid credit quality through the use of a sophisticated and market-oriented risk management system. Shinhan Card screens its credit card applicants and sets individualized credit limits for such applicants according to internal guidelines based on a comprehensive credit scoring system. We also seek to provide a wide variety of differentiated products and services tailored to our customers’ individualized needs through precision analysis and customer segmentation based on the “big data” we have compiled on our approximately 22 million customers. We have also formed a team dedicated to the “fintech” business by actively pursuing technology developments and strategic alliances with key partners as well as additional teams focused on innovation and creating new sources of value for our clients through the development of big data and digital platforms and provision of big data-based consulting services. In 2019, utilizing an innovative platform based on big data analysis, Shinhan Card launched a “Super Personalization Service”, aimed at providing our individual customers with tailored and personalized services that meet their individual needs. As Shinhan Card has obtained a license from the Financial Services Commission as a MyData service provider, Shinhan Card expects to be able to utilize additional external data to enhance its ability to further refine and tailor personalized services for its customers. In 2022, Shinhan Card expects to further leverage its existing big data capabilities by diversifying and accelerating revenue-generating businesses such as MyData-based loan brokerage, big data sales, credit bureau for small businesses, and commercial real estate analysis. Additionally, Shinhan Card plans to advance big data marketing, further personalizing its marketing and servicing methods based on MyData service. Shinhan Card seeks to optimize data processing to align its internal services, systems, processes, and channels and use such data throughout the financial services it provides in order to enhance customer experience.

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The following table sets forth the number of customers of Shinhan Card and the number of merchants at which Shinhan Card can be used for purchases as of the dates indicated.

	As of December 31,
	2019			2020			2021
	(In thousands, except percentages)
Shinhan Card:
Number of credit card holders (1)		12,843			13,056			13,283
Personal accounts		12,667			12,861			13,091
Corporate accounts		176			195			192
Active ratio (2)		96.05	%		95.86	%		96.62	%
Number of merchants		2,909			2,741			2,894

Notes:

(1) Represents the number of cardholders whose card use is not subject to suspension or termination as of the relevant date.

(2) Represents the ratio of accounts used at least once within the last six months to the total accounts as of year-end.

Installment Finance

Shinhan Card provides installment finance services to customers to facilitate purchases of durable consumer goods such as new and used cars, appliances, computers and other home electronics products. Revenues from installment finance operations accounted for 3.54% of Shinhan Card’s total operating revenue in 2021. Shinhan Card pays the merchants when Shinhan Card’s customers purchase such goods, and the customers remit monthly installment payments to Shinhan Card over a number of months, generally up to 36 months (and, in the case of installment financings for automobile purchases, up to 72 months), as agreed with the customers. For installment finance products for new cars, Shinhan Card historically charged, in addition to interest, an initial financing fee of up to 9.9% of the purchase price, depending on the customer’s credit score, the installment period and installment amount. Initial financing fees charged in connection with installment finance products for new cars, however, were abolished effective March 2, 2013 pursuant to the Financial Consumer Report (Automobile Financings) issued by the Financial Supervisory Service on January 29, 2013. Shinhan Card has installment financing arrangements with over 41,000 merchants in Korea, including major car dealers, manufacturers and large retailers with nationwide networks, such as electronics goods stores.

Shinhan Card promptly processes installment financing applications and, based on the extensive credit information it possesses or can access, it is able to offer flexible installment payment terms tailored to individual needs of the customers. Shinhan Card also devotes significant efforts to developing and maintaining its relationships with merchants, which are the most important source of referrals for installment finance customers. Shinhan Card makes prompt payments to merchants for goods purchased by the installment finance customers.

Auto Lease

Shinhan Card provides auto leasing financing to retail customers and corporations. Revenues from auto lease operations accounted for 4.83%, 6.64% and 9.19% of Shinhan Card’s total operating revenue in 2019, 2020 and 2021, respectively.

Securities Brokerage Services

Overview

Through Shinhan Investment, we provide a wide range of financial investment services to our diversified customer base including corporations, institutional investors, governments and individuals. Financial investment

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services offered by Shinhan Investment range from securities brokerage services, investment advice and financial planning services, and investment banking services such as underwriting and mergers and acquisitions advisory services.Subject to market conditions, Shinhan Investment also engages in equity- and stock index-linked derivatives sales and brokerage, proprietary trading and brokerage services for futures involving interest rates, currency and commodities as well as foreign exchange margin trading.

As of December 31, 2021, according to internal data, Shinhan Investment’s annual market share of Korean equity brokerage market was 7.31% (consisting of 2.87% in the retail segment, 0.57% in the institutional segment and 3.88% in the international segment) in terms of total brokerage volume, ranking seventh among securities firms in Korea. As of the same date, according to internal data, Shinhan Investment’s annual market share of Korean options and futures brokerage market were 8.85% and 11.98%, respectively, in terms of total brokerage volume with respect to these products.

Products and Services

Shinhan Investment provides principally the following services:

• retail client services.  These services include equity and bond brokerage, investment advisory and financial planning services to retail customers, with a focus on high net-worth individuals. The fees generated include brokerage commissions for the purchase and sale of securities, asset management fees, interest income from credit extensions (including in the form of stock subscription loans), margin transaction loans and loans secured by deposited securities.

• institutional client services :

• brokerage services.  These services include brokerage of stocks, corporate bonds, futures and options provided to Shinhan Investment’s institutional and international customers and sale of institutional financial products. These services are currently supported by a team of approximately 68 research analysts that specialize in equity, bonds and derivatives research.

• investment banking services.  These services include a wide array of investment banking services to Shinhan Investment’s corporate customers, such as domestic and international initial public offerings, mergers and acquisitions advisory services, bond issuances, underwriting, capital increase, asset-backed securitizations, issuance of convertible bonds and bonds with warrants, structured financing, issuance of asset-backed commercial papers and project financings involving infrastructure, real estate and shipbuilding.

Shinhan Investment also engages, to a limited extent, in proprietary trading in equity and debt securities, derivative products and

over-the-counter

market products.

With respect to brokerage services, in the face of intense competition in the domestic brokerage industry, Shinhan Investment primarily focuses on strengthening profitability through service differentiation and efficient management of its distribution network rather than enlarging its market share indiscriminately through lowering fees and commissions. Shinhan Investment’s service differentiation efforts include offering its customers opportunities to purchase stocks in a wide range of countries (currently more than 30 countries), leveraging synergy opportunities afforded by affiliation with other Shinhan entities such as offering brokerage accounts maintained at Shinhan Bank and Shinhan Capital.

With respect to investment banking services, Shinhan Investment concentrates on equity capital markets, debt capital markets, project finance and mergers and acquisitions. To a limited extent, Shinhan Investment also engages in private equity investments through formation of private equity funds by soliciting investors on a private placement basis. To better serve its international customers, Shinhan Investment has established four overseas service centers in Hong Kong, New York, Vietnam and Indonesia. In July 2015, we acquired a 100% stake in Nam An Securities (subsequently launched as Shinhan Securities Vietnam Co., Ltd.), a Vietnamese

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securities services firm that provides investment banking and asset management services. In addition, in order to capitalize on the rapid growth opportunity and as part of its expansion efforts in Indonesia, Shinhan Investment acquired a 99% stake in PT Makinta Securities, an Indonesian investment banking firm in July 2016 and subsequently launched it as an overseas subsidiary offering investment banking and brokerage services under the name PT Shinhan Sekuritas Indonesia in December 2016. To further expand and stabilize our global businesses, we made further capital investments totaling US$62 million in December 2017 in our subsidiaries located in Hong Kong, New York, Vietnam and Indonesia

.

In 2018, we acquired PT Archipelago Asset Management, the first acquisition of an Indonesian asset management firm by a Korean financial group, which we believe will strengthen our business portfolio in Indonesia and enhance our competitiveness in the Asian financial markets.

Life Insurance Services

We provide life insurance products and services primarily through Shinhan Life Insurance. Shinhan Life Insurance provides services through diversified distribution channels consisting of financial planners, telemarketers, agency marketers and bancassurance specialists. Shinhan Life Insurance had total assets of

W

34,134 billion,

W

36,777 billion and

W

70,536 billionas of December 31, 2019, 2020 and 2021, respectively, and net profits of

W

124 billion,

W

178 billion and

W

391 billion for the years ended December 31, 2019, 2020 and 2021, respectively. Total assets and net profits of Shinhan Life Insurance in 2021 included Orange Life Insurance’s total assets and net profits after Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021.

Specialized Credit Services

We provide leasing and equipment financing services to our corporate customers mainly through Shinhan Capital. Shinhan Capital provides customers with leasing, installment financing and new technology financing, equipment leasing, and corporate credit financing. Shinhan Capital’s strength has traditionally been in leasing of ships, printing machines, automobiles and other specialty items, but it also offers other leasing and financing services, such as corporate restructuring services for financially troubled companies, project financing for real estate and infrastructure development, corporate leasing and equipment financing.

Other Services

Through our other subsidiaries, we also provide asset management, savings banking, loan collection and credit reporting, collective investment administration and financial system development services. Through Shinhan Asset Management, which merged with Shinhan Alternative Investment Management in January 2022 (in addition to Shinhan Investment), we are also engaged in alternative investments through formation of private equity funds by soliciting investors on a private placement basis.

Asset Management Services

In addition to personalized wealth management services provided as part of our private banking and securities brokerage services, we also provide asset management services through Shinhan BNP Paribas Asset Management, formerly a joint venture with BNP Paribas Asset Management Holding, of which we and BNP Paribas Asset Management Holding held 65:35 interests, respectively. On January 15, 2021, we acquired the remaining 35% interest in Shinhan BNP Paribas Asset Management and changed its legal name to Shinhan Asset Management, and hence Shinhan Asset Management has become our wholly-owned subsidiary as of such date. Shinhan Asset Management ranked fifth among asset managers in Korea in terms of assets under management as of December 31, 2021, and provides a wide range of investment products, including traditional equity/fixed income funds as well as alternative investment products, to retail and institutional clients. As a former joint venture with BNP Paribas Asset Management Holding, we believe Shinhan Asset Management derives significant benefits from BNP Paribas’s global network of investment professionals and expertise in the asset management industry. As of December 31, 2021, Shinhan Asset Management had assets under management

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amounting to

W

57,882 billion. To a limited extent, Shinhan Investment also provides asset management services for discretionary accounts, see “— Securities Brokerage Services.”

Savings Banking

Through Shinhan Savings Bank, we provide savings banking services in accordance with the Mutual Savings Bank Act to customers that generally would not, due to their credit profile, qualify for our commercial banking services or who seek higher returns on their deposits than those offered by our commercial banking subsidiaries. Established in December 2011, Shinhan Savings Bank offers savings and other deposit products with relatively higher interest rates and loans (usually in relatively small amounts and on customer-tailored terms and including loans for which we receive credit support from the Government) primarily to small- to

medium-sized

enterprises and low income households who would not generally qualify for our commercial banking services. Shinhan Savings Bank has assumed the assets and liabilities of Tomato Savings Bank, which we acquired in January 2012, and has merged into Yehanbyoul Savings Bank, which we acquired in March 2013, with Yehanbyoul Savings Bank as the surviving entity with its name changed to Shinhan Savings Bank. Both Tomato Savings Bank and Yehanbyoul Savings Bank were facing liquidity troubles due to difficulties in the real estate project financing business as a result of the prolonged slump in the Korean real estate market at the time we acquired them. We closely monitor the business activities and product offerings of Shinhan Savings Bank to ensure its financial soundness.

Loan Collection and Credit Reporting

We centralize credit collection and credit reporting operations for our subsidiaries through Shinhan Credit Information Co. Ltd. (“Shinhan Credit Information”), which also provides similar services to third party customers. Shinhan Credit Information’s services include debt collection, credit inquiries, credit reporting, civil application/petition services and process agent services, among others. Shinhan Credit Information also manages participants in credit recovery programs and provides support to the Kookmin Happy Fund, which is a Government-established fund that supports retail borrowers with low credit scores by purchasing defaulted loans from creditors or providing credit guarantees to enable such borrowers to refinance at lower rates.

Collective Investment Administration Services

We provide integrated collective investment administration services through Shinhan AITAS Co., Ltd. Shinhan AITAS provides general management service, asset management systems, accounting systems and trading systems to asset management companies and institutional investors. The target customers for these collective investment administration services are asset managers, investment advisors and institutional investors, and Shinhan AITAS seeks to provide a comprehensive service package including the computation of the reference value for funds, evaluation of fund performance, provision of trading systems and fund-related legal administrative services.

Alternative Investments

To a limited extent, through Shinhan Asset Management, which merged with Shinhan Alternative Investment Management in January 2022, we are also engaged in private equity investments through formation of private equity funds. The private equity funds receive funding from investors on a private placement basis, which funds are then invested in alternative assets and equity securities in companies for a variety of reasons, including management control, business turnaround or corporate governance improvements.

Financial System Development Services

We provide financial system development services through Shinhan DS, which offers system integration, system management, IT outsourcing, business process outsourcing and IT consulting services.

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Real Estate Investment Trust (REIT) Asset Management

Through our wholly owned subsidiary, Shinhan REITs Management Co., Ltd., we provide real estate investment and management services to real estate investment trusts.

Real Estate Trust Services

Asia Trust Co., Ltd is a comprehensive real estate trust service provider, providing services including land development trust, management trust, proxy and agency businesses and consulting, etc.

Artificial Intelligence Based Investment Consulting

Shinhan AI. Co., Ltd. is an artificial intelligence-based investment consulting company established to enhance our competitiveness in the digital age and provide differentiated investment consulting services, with plans to expand business into the asset management sector.

Venture Capital Investment

Shinhan Venture Investment Co, Ltd. is an alternative investment management firm specializing in identifying and investing in

start-up

companies as well as small to

mid-sized

companies and also promoting the formation and operation of early stage investment funds and private equity investment funds.

Our Distribution Network

We offer a wide range of financial services to retail and corporate customers through a variety of distribution networks and channels established by our subsidiaries. The following table presents the geographical distribution of our distribution network based on the branch offices and other distribution channels of our principal subsidiaries, as of December 31, 2021.

	Shinhan Bank		Jeju Bank		Shinhan Card		Shinhan Investment		Shinhan Life Insurance		Total
Distribution Channels in Korea (1)
Seoul metropolitan		321		1		9		38		119		488
Gyeonggi province		172		—		4		11		26		213
Six major cities:		149		1		8		21		49		228
Incheon		53		—		1		3		7		64
Busan		35		1		2		5		16		59
Gwangju		12		—		1		3		6		22
Daegu		20		—		1		4		8		33
Ulsan		14		—		1		3		5		23
Daejeon		15		—		2		3		7		27
Sub-total		642		2		21		70		194		929
Others		142		29		8		13		28		220
Total		784		31		29		83		222		1,149

Note:

(1) Includes our main office and those of our subsidiaries.

Banking Service Channels

Our banking services are primarily provided through an extensive branch network, specializing in retail and corporate banking services, as complemented by self-service terminals and electronic banking, as well as an overseas services network.

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As of December 31, 2021, Shinhan Bank’s branch network in Korea comprised of 784 service centers, consisting of our headquarters, 601 retail banking service centers, 13 large corporate banking service centers, 51 corporate banking services centers and 119 hybrid banking branches designed to serve retail as well as

small-business

corporate customers. Shinhan Bank’s banking branches are designed to provide

one-stop

banking services tailored to their respective target customers. Recently, Shinhan Bank has been actively adopting digital technology to improve operational efficiency of its banking service channels. For example, Shinhan Bank introduced digital kiosks to banking branches, established ‘Paperless Banking’ by replacing paper applications with electronic documents, implemented a “robotic process automation system” for the automation of certain tasks and processes and increased the volume of client communications through

non-face-to-face

platforms.

Retail Banking Channels

In Korea, many retail transactions are conducted in cash or with credit cards, and conventional checking accounts are generally not offered or used as widely as in other countries such as the United States. An extensive retail branch network has traditionally played an important role as the main platform for a wide range of banking transactions. However, a growing number of customers are turning to other service channels to meet their banking needs, such as Internet banking, mobile banking and other forms of

non-face-to-face

platforms. In response to such changes, Shinhan Bank has recently focused on reorganizing its retail branch network, including shifting, merger or closure of certain branches that are considered redundant.

Recently, one of the key initiatives at Shinhan Bank has been to target high

net-worth

individuals through private banking. Our private banking services are provided principally through private banking relationship managers who, within target customer groups, assist clients in developing individual investment strategies. We believe that such relationship managers help us foster enduring relationships with our clients. Private banking customers also have access to Shinhan Bank’s retail branch network and other general banking products Shinhan Bank offers through its retail banking operations.

Corporate Banking Channels

Shinhan Bank currently provides corporate banking services through corporate banking service centers primarily designed to serve large corporate customers and hybrid banking branches designed to serve retail as well as small-business corporate customers. Small- and

medium-sized

enterprises have traditionally been Shinhan Bank’s core corporate customers and we plan to continue to maintain Shinhan Bank’s strength

vis-à-vis

these customers.

Self-Service Terminals

In order to complement its banking branch network, Shinhan Bank maintains an extensive network of automated banking machines, which are located in branches and in unmanned outlets. These automated banking machines consist of ATMs, cash dispensers and passbook printers. In December 2015, Shinhan Bank introduced digital kiosks, a new generation of automated self-service machines in the Seoul metropolitan area featuring biometric authentication technology and the ability to perform a wide range of services that were not available through traditional ATMs, such as opening new accounts, issuance of debit and check cards, foreign currency exchange and overseas remittance of foreign currency. These digital kiosks are currently being operated at 35 branches in the Seoul metropolitan area. As of December 31, 2021, Shinhan Bank had 5,234 ATMs, 7 cash dispensers and 85 digital kiosks. Shinhan Bank has actively promoted the use of these distribution outlets in order to provide convenient service to customers, as well as to maximize the marketing and sales functions at the branch level, reduce employee costs and improve profitability. In 2021, automated banking machine transactions accounted for a substantial portion of total deposit and withdrawal transactions of Shinhan Bank in terms of the number of transactions and fee revenue generated, respectively.

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Digital Banking

Shinhan Bank’s digital banking services are more comprehensive than those available at the counter, including services such as

24-hour

account balance posting, real-time account transfer, overseas remittance, and loan requests. As of December 31, 2021, Shinhan Bank had 21,818,545 subscribers to its Internet banking services and 18,150,902 users of its smart banking apps, representing an increase of 5.8% and 9.2%, respectively, compared to December 31, 2020. Shinhan Bank continues to experience a rise in the number of online and mobile banking users. Shinhan Bank began offering online and mobile banking initially to save costs rather than to increase revenues, but it is exploring ways to increase revenues through online and mobile banking. These services offer customers more straightforward and convenient access to banking services without limitations of time and space and offer tailored and customized service to each customer. In February 2018, Shinhan Bank launched “SOL,” a new mobile banking application integrating Shinhan Bank’s six previously existing mobile applications. SOL is the accumulation of Shinhan Bank’s efforts to provide a customer-oriented and user-friendly mobile banking platform and features, among others,

easy-to-use

biometric and

non-face-to-face

identity authentication technology. In addition to innovative features allowing customers to withdraw from their accounts at other banks using Shinhan Bank’s ATMs and transfer funds with minimal time and effort (for example, with no need to log in or insert account numbers). Shinhan Bank began offering an open banking service in October 2019, allowing customers to access accounts, products, and services across multiple banks using only SOL. In November 2019, Shinhan Bank also launched “SOL Global,” a mobile banking application for foreigners, allowing foreign customers to use open banking and other financial services. In 2020, Shinhan Bank expanded the network of financial institutions accessible through SOL’s open banking service. It implemented upgrades that allowed users to customize the user interface to reflect personal asset management preferences. In addition, Shinhan Bank launched the “MoneyVerse” service in December 2021, which utilizes the financial MyData service and enables customers to transfer assets held in other institutions, such as banks, securities, insurance, pension, real estate, and automobiles, to Shinhan SOL. The service made it possible to conduct an integrated inquiry and management of assets. Additionally, in 2022, we are planning to launch an innovative new banking platform that will offer a higher level of mobile banking service than SOL. Shinhan Bank is promoting various efforts to transform SOL into a digital platform that goes beyond a financial service platform and becomes closely connected to customers’ lives. In 2020 and 2021, Shinhan Bank launched the

COVID-19

Government relief application service through SOL, allowing users to apply for Government emergency funds through the mobile application. In addition, in February 2020, Shinhan Bank launched a medical insurance claim service on SOL, allowing users to easily submit medical insurance claims by sending photos of supporting documents through the SOL mobile application. In line with the recent trends of “live commerce,” in October 2020, Shinhan Bank launched “SOL Live,” a live broadcast marketing stream channelfor financial products. Shinhan Bank also promoted digital innovation at its existing offline branches in 2021. For example, customers are greeted by an AI concierge and they can choose to use smart kiosk that enables self-service banking and digital service including remote video consulting. By taking part in the Consumer Electronics Show 2021, Shinhan Bank was able to introduce its innovative branch services and digital service devices such as digital desks that offer

AI-powered

customer service assistance and live video chat with service representatives to the world.

Overseas Distribution Network

The table below sets forth Shinhan Bank’s overseas banking subsidiaries and branches as of December 31, 2021.

Business Unit	Location	Year Established or Acquired
Subsidiaries (1)
Shinhan Bank Europe GmbH (2)	Frankfurt, Germany		1994
Shinhan Bank America	New York, U.S.A.		1990
Shinhan Bank (China) Limited	Beijing, China		2008
Shinhan Bank (Cambodia) PLC	Phnom Penh, Cambodia		2007

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Business Unit	Location	Year Established or Acquired
Shinhan Bank Kazakhstan Limited	Almaty, Kazakhstan		2008
Shinhan Bank Canada	Toronto, Canada		2009
Shinhan Bank Japan (3)	Tokyo, Japan		2009
Shinhan Bank Vietnam Ltd. (4)	Ho Chi Minh City, Vietnam		2011
Banco Shinhan de Mexico (5)	Mexico City, Mexico		2015
PT Bank Shinhan Indonesia (6)	Jakarta, Indonesia		2016
Branches
New York	U.S.A.		1989
Singapore	Singapore		1990
London	United Kingdom		1991
Mumbai	India		1996
Hong Kong	China		2006
New Delhi	India		2006
Kancheepuram	India		2010
Pune	India		2014
Manila	Philippines		2015
Dubai	United Arab Emirates		2015
Sydney	Australia		2016
Yangon	Myanmar		2016
Ahmedabad	India		2016
Ranga Reddy	India		2016
Representative Offices (7)
Mexico	Mexico City, Mexico		2008
Uzbekistan	Tashkent, Uzbekistan		2009
Poland (2)	Wroclaw, Poland		2014
Hungary (8)	Budapest, Hungary		2021

Notes:

(1) Shinhan Bank’s subsidiary in Hong Kong SAR, China, Shinhan Asia Ltd., was liquidated as of July 14, 2020.

(2) Shinhan Bank Europe GmbH established a representative office in Poland in 2014.

(3) While Shinhan Bank established the subsidiary in Japan in 2009, Shinhan Bank has provided banking services in Japan through a branch structure since 1986.

(4) Prior to the establishment of this subsidiary in 2011, Shinhan Bank provided banking services in Vietnam through a branch since 1995.

(5) Banco Shinhan de Mexico commenced operations in March 2018.

(6) Shinhan Bank acquired a 98.01% stake in Bank Metro Express and a 100% stake in Centratama Nasional Bank, two banks in Indonesia, in November 2015 and December 2016, respectively. On March 3, 2016, Bank Metro Express obtained a license to conduct business activities in the name of PT Shinhan Bank Indonesia. Centratama Nasional Bank was merged with PT Bank Shinhan Indonesia on December 6, 2016.

(7) Shinhan Bank’s representative office in Myanmar was closed as of June 8, 2018.

(8) Shinhan Bank’s representative office in Hungary commenced operations on October 19, 2021.

Currently, our overseas subsidiaries and branches are primarily engaged in trade financing and local currency funding for Korean companies and Korean nationals in the overseas markets, as well as providing foreign exchange services in conjunction with Shinhan Bank’s headquarters. On a limited basis, these overseas branches and subsidiaries also engage in investment and trading of securities of foreign issuers.In the future, as

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part of our globalization efforts, we plan to expand our coverage of local customers in the overseas markets by providing a wider range of services in retail and corporate banking, and to that end, we have increasingly established subsidiaries in lieu of branches in select markets and in 2011 merged two of our Vietnam banking subsidiaries in order to enhance our presence and enable greater flexibility in its service offerings in these markets. We plan to maintain our focus on organic growth, while we may selectively pursue acquisitions in markets where it is difficult to obtain local banking licenses through greenfield entry. In furtherance of this objective, Shinhan Bank acquired a 98.01% stake in Bank Metro Express and a 100% stake in Centratama Nasional Bank, two banks in Indonesia, in November 2015 and December 2016, respectively. The Bank completed the merger of the two banks in December 2016. The Bank also opened additional branches in Australia, Myanmar and India in the second half of 2016. In April 2017, Shinhan Bank Vietnam Co., Ltd. acquired ANZ Bank (Vietnam) Limited’s retail division. In 2017, Shinhan Bank became the first Korean Bank to obtain a license to set up a local subsidiary in Mexico and started local business in Mexico in March 2018. We plan to continue our efforts to expand our overseas banking service network and global operations.

Credit Card Distribution Channels

Shinhan Card primarily uses four distribution channels to attract new credit card customers: (i) the banking and credit card branch network, (ii) sales agents, (iii) business partnerships and affiliations with vendors and (iv) digital platforms such as Shinhan PaypLay.

The branch network for our credit card operations consisted of 784branches as of December 31, 2021of Shinhan Bank and 29 card sales branches of Shinhan Card. The use of the established distribution network of Shinhan Bank is part of the group-wide cross-selling efforts of selling credit card products to existing banking customers. In 2021, the number of new cardholders acquired through our banking distribution network accounted for approximately 19.9% of the total number of new cardholders. We believe that the banking distribution network will continue to provide a stable and

low-cost

venue for acquiring high-quality credit cardholders.

The sales agents represented the most significant source of Shinhan Card’s new cardholders in 2021, and the number of new cardholders acquired through sales agents accounted for approximately 26.2% of the total number of Shinhan Card’s new cardholders in 2021. As of December 31, 2021, Shinhan Card had 1,357 sales agents, who were independent contractors. These sales agents assist prospective customers with the application process and customer service. Compensation of these sales agents is generally tied to the transaction volume of the customers introduced by them, and we believe this system helps to enhance profitability.

As a way of acquiring new cardholders, Shinhan Card also has business partnership and affiliation arrangements with a number of vendors, including gas stations, major retailers, airlines and telecommunication and Internet service providers. Shinhan Card plans to continue to leverage its alliances with such vendors to attract new cardholders.

As part of a group-wide initiative to streamline our operations and create a digital-friendly business platform, Shinhan Card has strategically expanded its digital platforms. In October 2021, Shinhan Card launched “Shinhan pLay”, a mobile platform providing consolidated financial and

non-financial

services. In addition to providing traditional financial services such as payment, open banking and asset management as well as services provided through traditional customer service means such as call centers and website applications, Shinhan pLay also offers a variety of

non-financial

content including entertainment, shopping, personal certificates and memberships in order to better provide customized financial services aimed at meeting the comprehensive needs of customers. In addition to providing traditional payment services, Shinhan pLay utilizes digital technology such as artificial intelligence and big data to provide real-time customized services tailored to individual users and integrated access across services provided by various merchants and affiliates.

In November 2014, as an initial step to exploring potential opportunities overseas, Shinhan Card established its first overseas subsidiary in Kazakhstan, LLP MFO Shinhan Finance, as Kazakhstan was deemed to have

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relatively low entry barriers to foreign financial institutions, high growth potential for retail operations and the possibility of leveraging Shinhan Bank’s network. LLP MFO Shinhan Finance obtained its business license in the first half of 2015 and commenced operations in July 2015, including installment financing and credit loans. In 2018, LLP MFO Shinhan Finance expanded its sales channels and introduced new credit loan products, while in 2019, the company further expanded its sales coverage while enhancing its risk management capabilities. In 2021, LLP MFO Shinhan Finance established a foundation for its automobile finance business through a captive partnership with a local dealership in Kazakhstan.

In December 2015, Shinhan Card acquired a majority stake in PT Swadharma Indotama Finance, a multi finance company in Indonesia, and changed its legal name to PT Shinhan Indo Finance. PT Shinhan Indo Finance engages in corporate and retail operations, including installment financing and financial leases, and began offering credit card services in January 2017 after obtaining its credit card business license in December 2016. In 2018, PT Shinhan Indo Finance began to expand its retail business across Indonesia. In 2019, PT Shinhan Indo Finance launched its joint finance product with Shinhan Bank, maintaining a conservative approach to its retail business while steadily increasing its corporate leasing assets, particularly corporate fleet vehicle finance products. In 2020, PT Shinhan Indo Finance focused on expanding its fleet business and improving its financial performance. In 2022, PT Shinhan Indo Finance plans to maintain its fleet-centered strategy and also plans to explore additional partnerships for new businesses.

In March 2016, to accelerate our global business expansion, we established Shinhan Microfinance, a local subsidiary in Myanmar. Shinhan Microfinance obtained its microfinance business license in July 2016 and launched operations in September 2016. In 2017, it expanded its business operations from Yangon to nearby Bago. In 2018, Shinhan Microfinance increased its assets and profit volume by diversifying the range of microfinance products it offers. In 2019, Shinhan Microfinance actively expanded its sales network and sought long term growth opportunities. In 2020, Shinhan Microfinance has grown significantly despite the spread of

COVID-19

by expanding its branch network and launching new products. In 2022, Shinhan Microfinance plans to focus on risk management to achieve stable growth amidst the continued instability from the

COVID-19

situation.

In January 2018, Shinhan Card acquired Prudential Vietnam Finance Company Limited in order to gain a stronger presence in Vietnam and increase synergy with Shinhan Bank and Shinhan Investment’s Vietnam operations. In July 2019, Shinhan Card changed its legal name into Shinhan Vietnam Finance Company Ltd. (“Shinhan Vietnam Finance Company”). Utilizing its relatively lower funding cost resulting from cooperation with other affiliates in Vietnam such as Shinhan Bank and Shinhan Investment, Shinhan Vietnam Finance was able to expand its asset base, reaching total assets of US$397 million as of December 31, 2021. As part of its diversification efforts, new products such as automobile loans, niche loans, and easy loans were launched in 2021, resulting in increased sales. The State Bank of Vietnam recently introduced Circular 18, which amends the regulation on consumer lending activities in Circular 43 and is aimed at improving soundness of Vietnam’s consumer finance industry and facilitating a transition towards a cashless society by regulating the proportion of direct disbursements (for example, cash loans) to the total outstanding loans. According to the amendment, the rate of total consumer loans with direct disbursements to total consumer credit balance should gradually be decreased to 30% by 2024. In 2020, in concurrence with the State Bank of Vietnam’s policies promoting consumer finance and movement towards a cashless society, Shinhan Vietnam Finance Company further diversified its offerings to include installment financing for automobiles and durable goods. Shinhan Vietnam Finance Company also launched iShinhan 3.0, a

non-face-to-face

loan platform. Shinhan Vietnam Finance Company plans to grow into a leading consumer finance company in Vietnam by accelerating digital transformation to increase business efficiency and create customer value. In response to the new regulatory changes, Shinhan Vietnam Finance plans to further diversify its business offerings and continue to leverage Shinhan Card’s digitalization capabilities to increase efficiency and provide customers with innovative services.

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Securities Brokerage Distribution Channels

Our securities brokerage services are conducted principally through Shinhan Investment. As of December 31, 2021, Shinhan Investment had 83 service centers nationwide, and four overseas subsidiaries based in Hong Kong, New York, Vietnam and Indonesia to service our corporate customers.

Approximately 59% of our brokerage branches are located in the Seoul metropolitan area with a focus on attracting high

net-worth

individual customers as well as enhancing synergy with our retail and corporate banking branch network. We plan to continue to explore new business opportunities, particularly in the corporate customer segment, through further cooperation between Shinhan Investment and Shinhan Bank.

Insurance Sales and Distribution Channels

We sell and provide our insurance services primarily through Shinhan Life Insurance. In addition to distributing bancassurance products through our bank branches, also distribute a wide range of life insurance products through their own branch network, agency network of financial planners and telemarketers, as well as through the Internet. As of December 31, 2021, Shinhan Life Insurance had 222 branches and 11 customer support centers. These branches are staffed by financial planners, telemarketers, agent marketers and bancassurance to meet the various needs of our insurance and lendingcustomers. Our group-wide customer support centers arrange for policy loans (namely loans secured by the cash surrender value of the underlying insurance policy) for our insurance customers and, to a limited extent, other loans to other customers, and also handle insurance payments.

Information Technology

We dedicate substantial resources to maintaining a sophisticated information technology system to support our operations management and provide high quality customer service. Our information and technology system is operated at a group-wide level based on comprehensive group-wide information collection and processing. We also operate a single group-wide enterprise information technology system known as “enterprise data warehouse” for customer relations management capabilities, risk management systems and data processing. We continually upgrade our group-wide information technology system in order to apply the

best-in-class

technology to our risk management systems to reflect the changes in our business environment as well as enhance differentiation from our competitors.

In 2013, we completed the construction of the Shinhan Data Center, which is responsible for comprehensive management of information technology systems for our subsidiaries on a group-wide basis. This center ensures a stable use of a central information processing facilities for at least 15 years and is designed to maximize operational and cost efficiency as well as enhance information security by combining the various data centers previously used by our subsidiaries. All of our subsidiaries relocated their information management capabilities to this center in 2014.

In order to enhance security and trustworthiness of the financial services provided by us, we continually seek to enhance a group-wide set of standards for information security and upgrade the related systems. In 2008, we established group-wide information systems and policies, which have since been continually updated and upgraded. In 2017, we further upgraded the group-wide information security control tower to a

best-in-class

level and replaced most of our internal information security staff with highly qualified experts in order to reinforce our security defense capabilities in the event of cyber breaches. In addition, we have a team within our group to provide specialized data protection and related support services to our smaller operating subsidiaries, and we take active measures to preemptively forestall any security breaches through mock trials.

At the subsidiary level, we also continue to upgrade the information technology infrastructure and services for each of our subsidiaries to enhance the quality of our customer service specific to such subsidiary and thereby

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bolster their respective competitiveness, including with respect to electronic and mobile banking, online consultation, expanded sales services and customized informational services. In addition, we have recently strengthened our indirect service channels through a major upgrade of the corporate online banking services and expansion of mobile phone-based product offerings and sales and service networks, such as the launch of Shinhan Bank’s banking application SOL and upgrades to Shinhan Investment’s Shinhan iAlpha application system, in light of the growing base of customers who increasingly access financial services through their mobile phones. We also established in April 2015 a new credit evaluation system with enhanced precision in assessing the creditworthiness of our corporate customers, which has enabled us to manage our credit risk more effectively. On a group-wide level, we are enhancing the efficiency of the information technology operations of our subsidiaries through cloud computing. Furthermore, we have expanded, and will continue to expand, our information technology systems to support the sales and operational capabilities of our overseas subsidiaries and branches through a global customer management system as well as provide country-specific financial services.

The information technology system for each of our subsidiaries is currently backed up on a real-time basis. In 2014, we converted the

pre-existing

data center to a

back-up

and disaster recovery center for all our subsidiaries’ operations in order to provide customer services in a continued seamless manner even in the case of an interruption at Shinhan Data Center. We believe that our centralized

back-up

systems, including our data

back-up

centers and disaster recovery centers, enable more efficient

back-up

at a higher level of security.

Competition

Competition in the Korean financial services industry is, and is likely to remain, intense, including as a result of the sustained low interest rate environment (which narrows opportunities to make profit based on the spread between lending rates and funding rates), the continuing sluggishness in the general economy, the growing maturation and saturation of the industry as a whole, the entry of new market participants and deregulation, among others.

In the banking sector, Shinhan Bank competes principally with other national commercial banks in Korea, but also faces competition from a number of additional banking institutions, including branches and subsidiaries of foreign banks operating in Korea, regional banks, Internet-only banks, government-owned development banks and Korea’s specialized banks, such as Korea Development Bank, the Industrial Bank of Korea and the National Federation of Fisheries Cooperatives, as well as various other types of financial service providers, including savings institutions (such as mutual savings and finance companies, credit unions and credit cooperatives), investment companies (such as securities brokerage firms, merchant banking corporations and asset management companies) and life insurance companies. As of December 31, 2021, Korea had six major nationwide domestic commercial banks (including Citibank Korea Inc. and Standard Chartered Bank Korea Limited, both of which are domestic commercial banks acquired by global financial institutions), six regional commercial banks, two Internet-only banks and branches and subsidiaries of 36 foreign banks. Foreign financial institutions, many of which have greater experiences and resources than we do, may continue to enter the Korean market and compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions.

In the small- and

medium-sized

enterprise and retail banking segments, which have been Shinhan Bank’s traditional core businesses, competition is expected to increase further. In recent years, Korean banks, including Shinhan Bank, have increasingly focused on stable asset growth based on quality credit, such as corporate borrowers with high credit ratings, loans to SOHO with high levels of collateralization, and mortgage and home equity loans within the limits of the prescribed

loan-to-value

ratios and

debt-to-income

ratios. This common shift in focus toward stable growth based on less risky assets has intensified competition as banks compete for the same limited pool of quality credit by engaging in price competition or by other means although Shinhan Bank has traditionally focused, and will continue to focus, on enhancing profitability rather than increasing asset size or market share, and has avoided, to the extent practicable, engaging in price competition by way of lowering lending rates. In addition, such competition may result in lower net interest margin and reduced overall

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profitability, especially if the low interest rate environment were to continue for a significant period of time. Shinhan Bank’s net interest margin (on a separate basis) increased to 1.41% in 2021 from 1.37% in 2020 due to, at least partly, increases in base interest rate by the Bank of Korea from 0.50% to 0.75% in August 2021 and from 0.75% to 1.00% in November 2021. The Bank of Korea further raised the base interest rate from 1.00% to 1.25% on January 14, 2022 and then from 1.25% to 1.50% on April 14, 2022, which may be further increased during 2022. Even if interest rates were to increase, the effect on Shinhan Bank’s results of operations may not be as beneficial as expected, or at all, due to factors such as increased volatility of market interest rates and tighter regulations regarding SOHO loans, including the implementation of additional credit review guidelines for individual businesses. Further, if competing financial institutions seek to expand market share by lowering their lending rates, Shinhan Bank may suffer customer loss, especially among customers who select their lenders principally on the basis of lending rates. In response thereto or for other strategic reasons, Shinhan Bank may subsequently lower its lending rates to stay competitive, which could lead to a further decrease in its net interest margins and outweigh any potential positive impact on the net interest margin from a general rise in market interest rates. Any future decline in Shinhan Bank’s customer base or its net interest margins could have an adverse effect on our results of operations and financial condition.

In the credit card sector, Shinhan Card competes principally with existing “monoline” credit card companies, credit card divisions of commercial banks, consumer finance companies, other financial institutions and, recently, credit card service providers allied with mobile telecommunications service providers in Korea. Competition has been historically intense in this sector and the market has shown signs of saturation as existing and new credit card service providers make significant investments and engage in aggressive marketing campaigns and promotions to acquire new customers and target customers with high credit quality. While competition has subsided somewhat recently due to stricter government regulations, such as curbs on excessive marketing expenses, competition remains intense and credit card issuers may continue to compete with Shinhan Card for customers by offering lower interest rates and fees, higher credit limits, more attractive promotions and incentives and alternative products such as credit card reward points, gift cards and

low-interest

consumer loan products. As a result, Shinhan Card may lose customers or service opportunities to competing credit card issuers and/or incur higher marketing expenses. Also, over the years, the Government has implemented regulations lowering certain merchant fees chargeable by credit card companies. In 2012, the Government adopted regulations mandating lower merchant fees chargeable to small- and

medium-sized

enterprises, and beginning January 31, 2016, a further reduction in the merchant fees chargeable to small- and

medium-sized

enterprises went into effect. The Enforcement Decree of the Specialized Credit Finance Business Act was amended in July 2017 and January 2019 to further expand the range of small- and

medium-sized

enterprises subject to lower merchant fees. Pursuant to the Specialized Credit Financial Business Act, the rates of fees chargeable to merchants are subject to review and revision every three years, and beginning January 2022, the fees chargeable to small- and

medium-sized

enterprises with respect to credit cards were further reduced as a result of this periodic review and revision. Additional amendments to regulations requiring further downward adjustments to merchant fees may come into force in the future. For further details on the Government’s regulations on merchant fees chargeable by credit card companies, See “Item 3.D. Risk Factors — Risks Relating to Our Credit Card Business — Future changes in market conditions as well as other factors, such as stricter regulation, may lead to reduced revenues and deterioration in the asset quality of credit card receivables.” In addition, since the implementation of the Improper Solicitation and Graft Act in September 2016, revenue growth for corporate cards and service related industries such as dining, floral and entertainment have shown signs of decline, and additional regulations on loans reducing maximum interest rates chargeable from 24% to 20% came into effect in July 2021.These developments have put further downward pressure on the results of operations for credit card companies, including Shinhan Card. Furthermore, the Government’s recent guidelines to bolster consumer protection and protect customers’ personal data in the aftermath of data leaks at certain credit companies (not including Shinhan Card) may result in additional compliance costs for Shinhan Card. Customer attrition, together with any further lowering of fees or reduction in base and market interest rates and/or additional expenses from more extensive marketing and promotional campaigns that Shinhan Card might implement to acquire and retain customers, could reduce its revenues and earnings. Furthermore, the average credit quality of Shinhan Card’s customers may deteriorate if customers with higher credit quality borrow from our competitors rather than

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Shinhan Card and it may become more difficult for Shinhan Card to attract and maintain quality customers. In general, the growth, market share and profitability of Shinhan Card’s operations may decline or become negative as a result of market saturation in this sector, interest rate competition, pressure to lower fee rates and incur higher marketing expenses, as well as Government regulation and social and economic developments in Korea that are beyond our control, such as changes in consumer confidence levels, spending patterns or public perception of credit card usage and consumer debt. If Shinhan Card fails to maintain or attract new cardholders or increase the card usage by existing customers or experiences deterioration in its asset quality and a rise in delinquency, our business, financial condition and results of operations may be adversely affected. In other financial services sectors, our other subsidiaries also compete in a highly fragmented market. Some of our competitors, particularly major global financial institutions, have greater experience and resources than we do.

Consolidation among our rival institutions and the Government’s privatization efforts may also add competition in the markets in which we and our subsidiaries conduct business. A number of significant mergers and acquisitions in the industry have taken place in Korea recently, including Hana Financial Group’s acquisition of Korea Exchange Bank in 2012 and the resulting merger of Hana Bank and Korea Exchange Bank in September 2015. In October 2014, the Government’s ownership interests in the holding companies of Kwangju Bank and Kyongnam Bank were acquired by JB Financial Group and BS Financial Group (now BNK Financial Group), respectively. In January 2019, Woori Financial Group was established pursuant to a comprehensive stock exchange under the Korean Commercial Code whereby holders of the common stock of Woori Bank and certain of its subsidiaries transferred all of their shares to Woori Financial Group (the new financial holding company) and in return received shares of Woori Financial Group. As a result, Woori Bank and certain of its former wholly-owned subsidiaries became direct and wholly-owned subsidiaries of Woori Financial Group. The Korea Deposit Insurance Corp., which as of April 9, 2021 owned 17.25% of the outstanding common stock of Woori Financial Group, has sold 13.63% of the outstanding common stock of Woori Financial Group in multiple transactions in accordance with its plan that was approved by the FSC in June 2019, and currently owns only 3.62% of the outstanding common stock of Woori Financial Group, which are also expected to be sold off by 2022. In the securities brokerage sector, Mirae Asset acquired KDB Daewoo Securities in 2016, creating the largest brokerage company in Korea by assets, and on June 1, 2016, KB Financial Group completed its acquisition of Hyundai Securities and merged it with its existing brokerage unit, KB Investment & Securities Co, creating the fifth largest brokerage company in Korea by assets. In the asset management business sector, Woori Financial Group acquired two asset management companies, Tongyang Asset Management and ABL Global Asset Management (former Allianz Global Investors). In August 2021, KB Financial Group completed the acquisition of Prudential Life Insurance, the former Korean unit of Prudential Financial Inc. Any of these developments may place us at a competitive disadvantage and outweigh any potential benefit to us in the form of opportunities to acquire new customers who are displeased with the level of services at the newly reorganized entities or to provide credit facilities to corporate customers who wish to maintain relationships with a wide range of banks in order to diversify their sources of funding.

In September 2018, we announced the acquisition of a 59.15% interest in Orange Life Insurance, the former Korean unit of ING Life Insurance, as part of our efforts to diversify and enhance our

non-banking

businesses and closed on February 1, 2019. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles

360-2

of the Korean Commercial Code whereby holders (other than us) of Orange Life Insurance’s common stock transferred all of their shares to us and in return receive shares of our common stock, and hence Orange Life Insurance became our wholly owned subsidiary as of such date. In May 2021, the Financial Services Commission approved the merger of Shinhan Life Insurance and Orange Life Insurance, with Shinhan Life Insurance being the surviving entity upon completion of the merger. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021. On September 29, 2020, we acquired a 96.8% interest in Neoplux, a venture capital company formerly under the Doosan Group. On December 30, 2020, we acquired the remaining interest in Neoplux by effecting a small-scale stock exchange under Article

360-10

of the Korean Commercial Code, and hence Neoplux has become our wholly owned subsidiary as of such date. On January 11, 2021, Neoplux changed its legal name to Shinhan Venture Investment. In addition, on January 15, 2021, we acquired the remaining 35%

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interest in Shinhan BNP Paribas Asset Management and changed its legal name to Shinhan Asset Management, and hence Shinhan Asset Management has become our wholly-owned subsidiary as of such date. We expect that such consolidation and other structural changes in the financial industry will continue. Other financial institutions may seek to acquire or merge with other entities, and the financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide greater competition for us. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability.

Regulatory reforms and the general modernization of business practices in Korea have also led to increased competition among financial institutions in Korea. Since July 2015, the Financial Services Commission has provided, through the Korea Financial Telecommunications and Clearings Institute, the integrated automatic payment transfer management service, which allows account holders to search for, terminate or modify automatic payments they have set up with financial institutions participating in such service (currently including banks, securities companies and other financial institutions such as The Post Office, Korean Federation of Community Credit Cooperatives, National Credit Union Federation of Korea, Mutual Savings Bank and National Forestry Cooperative Federation). In addition, the Financial Services Commission began providing the integrated account management service from December 2016, which allows account holders to search for detailed information of their bank accounts opened in banks participating in such service, close

small-sum

inactive accounts (i.e., accounts with no transaction activity during the previous one year period and with a balance of less than

W

500,000) and transfer the balance in such accounts to other accounts. Moreover, in December 2017, the Financial Services Commission introduced the “my account at a glance” system, which enables consumers to view their key financial account information online, including information on banks, insurances, mutual finance, loan and card issuances on one page. The “my account at a glance” system became available on mobile channels in February 2016 and expanded its scope of services to include savings banks and securities companies. Since their introduction, the integrated automatic payment transfer management service, integrated account management service and “my account at a glance” system have gained widespread acceptance. As the reform of the financial sector continues, competition may become more intense among existing banks, insurance companies, securities companies and other financial organizations, and may lead to significant changes in the current Korean financial market. Moreover, since January 1, 2020, in calculating loan to deposit ratio, retail loans and corporate loans are weighed differently, with retail loans subject to a multiple of 115% and corporate loans (excluding loans to SOHOs) subject to a multiple of 85%, thereby increasing the impact of retail loans and reducing the impact of corporate loans in calculating such ratio. This may further intensify competition for corporate loans and deposits among commercial banks and, as a result, Shinhan Bank may face difficulties in increasing or retaining its corporate loans and deposits, which in turn may result in an increase in its cost of funding.

Furthermore, as the Korean economy further develops and new business opportunities arise, more competitors may enter the financial services industry. For example, as online service providers and technology companies with large-scale user networks, such as Kakao Corp., NAVER and Samsung Electronics, recently make significant inroads in providing virtual payment services through a system based on a growing convergence of financial services and technology commonly referred to as “fintech,” competition for online customers is growing not just among commercial banks, but also from online and mobile payment service providers. Also, widespread consumer acceptance of mobile phone payment services in lieu of credit card services could add to the competitive threat faced by existing credit card service providers, including our credit card subsidiary. In 2015, the Government announced its plans to allow Internet-only banks to operate in Korea. KT consortium’s

K-Bank,

Kakao consortium’s Kakao Bank and Viva Republica consortium’s Toss Bank commenced operations in April 2017, July 2017 and October 2021, respectively. Internet-only banks may have advantages over traditional banks as the former can pass savings in labor and overhead costs to their customers by offering higher interest rates on deposit accounts, lower loan costs and reduced service fees. Accordingly, commercial banks will likely face increasing pressure to upgrade their service platforms to attract and maintain online users, which represents a growing customer base compared to traditional customers who have primarily conducted banking

in-person

at physical banking branches.

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As part of the Government’s financial policies to promote innovative digital finance, 10 commercial banks, including Shinhan Bank, began offering a preliminary open banking service in October 2019. More local banks and fintech companies joined in December 2019, when the open banking service was fully and officially launched. Open banking service allows each fintech company and bank to provide banking services, such as checking balances and making withdrawals and transfers, with regards to customers’ accounts at other banks. Using open banking service, customers can easily access accounts, products and services across multiple banks, instead of being limited to the accounts, products and services available at the particular bank that they deal with. In addition, on January 9, 2020, the Korean National Assembly passed amendments to three major data privacy laws (the Personal Information Protection Act, the Act on the Promotion of Information and Communications Network Utilization and Information Protection and the Act on the Use and Protection of Credit Information). These amendments introduced the MyData service, allowing and requiring (upon the customer’s request and subject to compliance requirements) financial institutions that have been approved by the Financial Service Commission as a MyData service provider access and sharing of customers’ personal information, credit information and transaction data. On January 27, 2021, Shinhan Bank and Shinhan Card each obtained a license from the Financial Services Commission as a MyData service provider and are planning to provide advanced wealth management and various financial services. Until October 13, 2021, the Financial Services Commission granted MyData licenses to 58 companies (46 companies receiving main licenses and 12 companies receiving preliminary licenses), 22 of which were fintech firms (19 companies receiving main licenses and three companies receiving preliminary licenses), and competition between traditional financial institutions like us and fintech firms is expected to intensify, particularly with respect to asset management services. On January 5, 2022, the

API-based

MyData service was fully implemented and 33 companies (including ten fintech firms) are providing services. As additional fintech companies receive authorization as MyData service providers, we expect competition for customers among banks and fintech firms such as Kakao Pay, Toss and Bank Salad to further intensify.

Recently, following the global financial crisis, the Government has subjected Korean financial institutions to stricter regulatory requirements and guidelines in areas of asset quality, capital adequacy, liquidity and residential and other lending practices (including a requirement to maintain a certain ratio of core capital to total risk exposure, which was introduced in January 2018 in order to control excessive leverage), which has had a dampening effect on competition. The Financial Services Commission implemented the capital requirements of Basel III, whose minimum requirements were phased in sequentially from December 1, 2013 through full implementation by January 1, 2015, based on the guidelines set forth in the amended Regulation on the Supervision of the Banking Business and the Detailed Regulation on the Supervision of the Banking Business. In addition, the Financial Services Commission has implemented the Basel III requirements relating to liquidity coverage ratio and capital conservation buffer, each of which have been fully phased in as of January 1, 2019. As of January 1, 2016, the Financial Services Commission implemented Basel III requirements relating to accumulation of additional capital for systemically important banks and bank holding companies and countercyclical capital buffer requirements. Each year, the Financial Services Commission may designate banks with significant influence (based on size and connectivity with other financial institutions) on the domestic financial system as a domestic systemically important bank and require the accumulation of additional capital in accordance with the highest of: (i) ratio of common equity capital to risk-weighted assets, ranging from 0.0% to 2.0%, depending on the systematic importance evaluation score, (ii) if the bank’s holding company is a domestic systemically important bank holding company, the capital ratio corresponding to the additional capital required for the bank holding company under the Financial Holding Company Supervision Regulations, or (iii) if the bank is also a global systemically important bank, as defined by the Basel Committee, the capital ratio as required by the Basel Committee. According to the instructions of the Financial Services Commission, domestic systematically important banks including Shinhan Bank have been required to maintain an additional capital buffer of 0.25% since January 1, 2016, with such buffer increased by 0.25% annually to reach 1.00% as of January 1, 2019. The Financial Services Commission may also, upon quarterly review, determine and require banks to accumulate a required level of countercyclical capital buffer within the range of 0% to 2.5% of risk-weighted assets, taking into account factors such as the degree of increase in credit relative to the gross domestic product. However, there is no assurance that these measures will have the effect of curbing competition or that

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the Government will not reverse or reduce such measures or introduce other deregulatory measures, which may further intensify competition in the Korean financial services industry. For further details on the capital requirements applicable to us, see “— Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy.”

If, despite our efforts to adapt to the changing macroeconomic environment and comply with new regulations, we are unable to compete effectively in the changing business and regulatory environment, our profit margin and market share may erode and our future growth opportunities may become limited, which could adversely affect our business, financial condition and results of operations. See “Item 3.D. Risk Factors — Risks Relating to Our Overall Business — Competition in the Korean financial services industry is intense, and may further intensify” and “— Supervision and Regulation.”

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Description of Assets and Liabilities

Loans

As of December 31, 2021, our total gross loan portfolio was

W

393,474 billion, which represented an increase of 9.1% from

W

360,804 billion on December 31, 2020. The increase in our portfolio primarily reflects a 9.6 % increase in corporate loans and an 8.3% increase in retail loans.

Asset Quality Ratios

	As of December 31,
	2019			2020			2021
	(In billions of Won, except percentages)
Total gross loans	W	327,578		W	360,804		W	393,474
Total allowance for credit losses on loans	W	2,685		W	3,061		W	3,167
Allowance for credit losses on loans as a percentage of total loans		0.82	%		0.85	%		0.80	%
Impaired loans (1)	W	1,878		W	2,011		W	1,864
Impaired loans as a percentage of total loans		0.57	%		0.56	%		0.47	%
Allowance as a percentage of impaired loans		142.97	%		152.21	%		169.90	%
Total non-performing loans (2)	W	1,325		W	1,689		W	1,826
Non-performing loans as a percentage of total loans		0.40	%		0.47	%		0.46	%
Allowance as a percentage of total assets		0.49	%		0.51	%		0.49	%

Notes:

(1) Impaired loans include (i) loans for which the borrower has defaulted under Basel standards applicable during the relevant period and (ii) loans that qualify as “troubled debt restructurings” applicable during the relevant period.

(2) Non-performing loans are defined as loans, whether corporate or retail, that are past due more than 90 days.

Loan Types

The following table presents our loans by type as of the dates indicated. Except where specified otherwise, all loan amounts stated below are before deduction of allowance for credit losses on loans. Total loans reflect our loan portfolio, including past due amounts.

	As of December 31,
	2019 (6)		2020 (6)		2021 (6)
	(In billions of Won)
Corporate
Corporate loans (1)	W	161,501	W	179,255	W	199,559
Public and other (2)		3,312		3,735		3,469
Loans to banks (3)		2,634		5,492		3,850
Lease financing		1,683		1,773		1,590
Total — Corporate		169,130		190,255		208,468
Retail
Mortgages and home equity		68,074		73,188		79,860
Other retail (4)		66,350		73,602		79,146
Total — Retail		134,424		146,790		159,006
Credit cards		24,024		23,759		26,000
Total loans (5)	W	327,578	W	360,804	W	393,474

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Notes:

(1) Consists primarily of working capital loans, general purpose loans, bills purchased and trade-related notes and excludes loans to public institutions and commercial banks.

(2) Consists of working capital loans and loan facilities to public institutions and non-profit organizations.

(3) Consists of interbank loans and call loans.

(4) Consists of general unsecured loans and loans secured by collateral other than housing to retail customers.

(5) As of December 31, 2019, 2020 and 2021, 87.9%, 87.5% and 87.0% of our total gross loans, respectively, were Won-denominated.

(6) Loan amounts include loans at amortized cost and loans at fair value classified in accordance with IFRS 9. Corporate loans include loans at fair value in the amount of W 2,155 billion, W 2,017 billion and W 1,683 billion as of December 31, 2019, 2020 and 2021, respectively.

Loan Portfolio

The total exposure of us or our banking subsidiaries to any single borrower and exposure to any single group of companies belonging to the same conglomerate is limited by law to 20% and 25%, respectively, of the Net Total Equity Capital (as defined in “— Supervision and Regulation”).

Twenty Largest Exposures by Individual Borrower

As of December 31, 2021, our 20 largest exposures, consisting of loans, securities and guarantees and acceptances, totaled

W

76,602.7 billion. The following table sets forth our total exposures to these top 20 borrowers as of December 31, 2021.

	As of December 31, 2021
	Loans in Won Currency		Loans in Foreign Currency		Securities		Guarantees and Acceptances		Others		Total Exposure
	(In billions of Won)
Ministry of Economy and Finance	W	—	W	—	W	29,129.6	W	—	W	—	W	29,129.6
Korea Housing Finance Corporation		—		—		9,334.5		—		—		9,334.5
Korea Development Bank		1.1		151.1		6,117.9		—		—		6,270.1
Bank of Korea.		—		—		6,179.6		0.1		—		6,179.7
Industrial Bank of Korea		370.5		3.6		4,542.4		—		—		4,916.4
Samsung Electronics Co., Ltd		—		2,086.3		—		—		—		2,086.3
NongHyup Bank		714.4		7.1		1,019.2		63.6		—		1,804.2
Export-Import Bank of Korea		—		9.4		1,686.9		14.6		—		1,710.9
Mirae Asset Securities		900.3		22.5		640.4		—		—		1,563.3
KEB Hana Bank.		716.7		130.0		671.7		33.4		—		1,551.8
Korea Expressway Corporation		—		—		1,483.9		—		—		1,483.9
LG Display.		72.9		759.1		139.1		476.3		—		1,447.3
Woori Bank.		664.2		—		753.3		—		—		1,417.5
Korea Land & Housing Corporation		—		—		1,381.8		—		—		1,381.8
Kookmin Bank		520.2		137.7		627.3		26.4		—		1,311.7
Hyundai Steel		383.5		338.6		381.2		27.3		—		1,130.5
Korea SMEs and Startups Agency		—		—		1,115.4		—		—		1,115.4
KB Koonmin Card Corp		—		—		954.0		—		—		954.0
Korea Electric Power Corporation		0.3		—		807.4		119.1		—		926.7
National Agricultural Cooperative Federation		48.4		—		838.7		—		—		887.1
Total	W	4,392.5	W	3,645.3	W	67,804.2	W	760.7	W	—	W	76,602.7

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Exposure to Main Debtor Groups

As of December 31, 2021, our total exposure to the main debtor groups as identified by the Governor of the Financial Supervisory Serviceamounted to

W

29,121.1 billion. The main debtor groups are largely comprised of

chaebols

.The following table shows, as of December 31, 2021, our total exposures to the 10 main debtor groups to which we have the largest exposure.

	As of December 31, 2021
Main Debtor Groups	Loans in Won Currency		Loans in Foreign Currency		Securities		Guarantees and Acceptances		Others		Total Exposure
	(In billions of Won)
Hyundai Motors	W	897.7	W	2,347.6	W	2,140.9	W	438.5	W	—	W	5,824.7
Samsung		247.7		2,669.4		1,271.1		1,388.9		2.9		5,580.0
LG		339.0		1,143.9		1,003.8		883.1		—		3,369.8
SK		595.7		476.7		1,934.4		265.1		—		3,272.0
Lotte		75.8		690.2		1,827.6		543.3		—		3,137.0
Hanwha		214.7		441.0		1,271.3		367.8		—		2,294.7
Hyundai Heavy Industries		171.7		312.9		174.9		1,410.3		—		2,069.9
LS		196.0		455.4		233.1		884.1		—		1,768.6
HyoSung		84.7		614.0		52.4		176.5		—		927.6
Posco		156.6		358.4		304.5		57.3		—		876.9
Total	W	2,979.6	W	9,509.6	W	10,213.9	W	6,415.0	W	3.0	W	29,121.1

Loan Concentration by Industry

The following table shows the aggregate balance of our corporate loans by industry concentration as of December 31, 2021.

	As of December 31, 2021
Industry	Aggregate Loan Balance		Percentage of Total Corporate Loan Balance
	(In billions of Won)		(Percentages)
Manufacturing	W	56,413		27.1	%
Real estate, leasing and service		45,708		21.9
Retail and wholesale		26,559		12.7
Finance and insurance		19,152		9.2
Transportation, storage and communication		5,607		2.7
Hotel and leisure		9,880		4.7
Construction		4,366		2.1
Other service (1)		23,117		11.1
Other (2)		17,666		8.5
Total	W	208,468		100.0	%

Notes:

(1) Includes other service industries such as publication, media and education.

(2) Includes other industries such as agriculture, forestry, mining, electricity and gas.

Maturity Analysis

The following table sets out the scheduled maturities (presented in terms of time remaining until maturity) of our loan portfolio as of December 31, 2021. The amounts below are before allowance for credit losses on

87

loans and deferred loan origination costs and fees. In the case of installment payment loans, maturities have been adjusted to take into account the timing of installment payments.

	As of December 31, 2021
	1 Year or Less		Over 1 Year but Not More Than 5 Years		Over 5 Year but Not More Than 15 Years		Over 15 Years (1)		Total
	(In billions of Won)
Corporate:
Corporate loans	W	123,856	W	68,511	W	6,293	W	899	W	199,559
Public and other		1,969		1,111		283		106		3,469
Loans to banks		3,494		278		77		1		3,850
Lease financing		570		1,016		4		—		1,590
Total corporate	W	129,889	W	70,916	W	6,657	W	1,006	W	208,468
Retail:
Mortgage and home equity	W	15,950	W	23,887	W	18,047	W	21,976	W	79,860
Other retail		46,801		18,602		4,671		9,072		79,146
Total retail	W	62,751	W	42,489	W	22,718	W	31,048	W	159,006
Credit cards	W	22,414	W	3,377	W	209	W	—	W	26,000
Total loans	W	215,054	W	116,782	W	29,584	W	32,054	W	393,474

Note:

(1) Includes overdue loans.

We may roll over our corporate loans (primarily consisting of working capital loans and facility loans) and retail loans (to the extent not payable in installments) after we conduct our standard loan reviews in accordance with our loan review procedures. Working capital loans may generally be extended on an annual basis for an aggregate term of up to five years. Facilities loans, which are generally secured, may generally be extended on an annual basis for a maximum of 15 years from the initial loan date. Retail loans may be extended for additional terms of up to 12 months for an aggregate term of ten years from the initial loan date for both unsecured loans and secured loans other than mortgages and home equity loans which can be extended up to 30 years in aggregate.

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Interest Rate Sensitivity

The following table presents a breakdown of our loans in terms of interest rate sensitivity as of December 31, 2021.

	As of December 31, 2021
	Due Within 1 Year		Due After 1 Year		Total
	(In billions of Won)
Fixed rate loans (1)
Corporate:
Corporate loans	W	56,399	W	27,321	W	83,720
Public and other		801		448		1,249
Loans to banks		3,389		356		3,745
Lease financing		90		137		227
Total corporate	W	60,679	W	28,262	W	88,941
Retail:
Mortgage and home equity	W	145	W	2,913	W	3,058
Other retail		6,331		5,845		12,176
Total retail	W	6,476	W	8,758	W	15,234
Credit cards	W	168	W	1	W	169
Total Fixed rate loans	W	67,323	W	37,021	W	104,344
Variable rate loans (2)
Corporate:
Corporate loans	W	67,457	W	48,382	W	115,839
Public and other		1,168		1,052		2,220
Loans to banks		105		—		105
Lease financing		480		883		1,363
Total corporate	W	69,210	W	50,317	W	119,527
Retail:
Mortgage and home equity	W	15,805	W	60,997	W	76,802
Other retail		40,470		26,500		66,970
Total retail	W	56,275	W	87,497	W	143,772
Credit cards	W	22,246	W	3,585	W	25,831
Total Variable rate loans	W	147,731	W	141,399	W	289,130
Total loans	W	215,054	W	178,420	W	393,474

Notes:

(1) Fixed rate loans are loans for which the interest rate is fixed for the entire term of the loan.

(2) Variable or adjustable rate loans are for which the interest rate is not fixed for the entire term of the loan.

For additional information regarding our management of interest rate risk, see “— Risk Management.”

Nonaccrual Loans and Past Due Accruing Loans

Except in the case of repurchased loans, we generally recognize interest income on nonaccrual loans using the rate of interest used to discount the future cash flows of such loans for the purpose of measuring impairment loss. Generally, we discontinue accruing of interest on loans (other than repurchased loans) when payment of interest and/or principal becomes past due by 90 days. Loans (other than repurchased loans) are not reclassified as accruing until interest and principal payments are brought current.

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We generally do not request borrowers to make immediate repayment of the whole outstanding principal balances and related accrued interest on loans whose interest payments are past due up to 14 days, 60 days, and 30 days in the case of commercial loans, mortgages and home equity loans and other retail loan, respectively.

Interest foregone is interest due on nonaccrual loans that has not been accrued in our books of account. In 2019, 2020 and 2021, we would have recorded gross interest income of

W

64 billion,

W

59 billion and

W

66 billion, respectively, on loans accounted for on a nonaccrual basis throughout the respective years, or since origination for loans held for part of the year, had the loans been current with respect to their original contractual terms. The amount of interest income on those loans that was included in our net income in 2019, 2020 and 2021 were

W

38 billion,

W

33 billion and

W

30 billion, respectively.

The following table shows, at the dates indicated, the amount of loans that are placed on a nonaccrual basis and accruing loans which are past due one day or more. The term “accruing but past due one day” includes loans which are still accruing interest but on which principal or interest payments are contractually past due one day or more. We continue to accrue interest on loans where the total amount of loan outstanding, including accrued interest, is fully secured by cash on deposits.

	As of December 31,
	2019		2020		2021
	(In billions of Won)
Loans accounted for on a nonaccrual basis (1)
Corporate	W	903	W	1,139	W	1,120
Retail		413		467		427
Credit cards		101		106		112
Sub-total		1,417		1,712		1,659
Accruing loans which are contractually past due one day or more as to principal or interest
Corporate		258		329		165
Retail		874		661		594
Credit cards		545		431		383
Sub-total		1,677		1,421		1,142
Total	W	3,094	W	3,133	W	2,801

Note:

(1) “Troubled debt restructuring” and loans for which payment of interest and/or principal became past due by 90 days or more (adjusting for any overlap due to loans that satisfy both prongs so as to avoid double counting) may be included in loans accounted for on a nonaccrual basis.

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Troubled Debt Restructurings

The following table presents, at the dates indicated, our loans which are “troubled debt restructurings.” These loans mainly consist of corporate loans that have been restructured through the process of workout and recovery proceedings. See “— Credit Exposures to Companies in Workout and Recovery Proceedings.” These loans accrue interest at rates lower than the original contractual terms, or involve the extension of the original contractual maturity as a result of a variation of terms upon restructuring.

	As of December 31,
	2019		2020		2021
	(In billions of Won)
Loans classified as “troubled debt restructurings” (excluding nonaccrual and past due loans)	W	89	W	96	W	91
Loans classified as “troubled debt restructurings” (including nonaccrual and past due loans)	W	425	W	290	W	237

The following table presents, for the periods indicated and with respect to the restructured loans, the amounts that would have been recorded as our interest income under the original contract terms of the restructured loans, and the amounts that were actually recorded as our interest income for such loans under the restructured contractual terms of such loans.

	As of December 31,
	2019		2020		2021
	(In billions of Won)
Interest income under the original contractual terms of the restructured loans (1)	W	19	W	13	W	10
Interest income under the restructured contractual terms of the restructured loans (1)	W	6	W	3	W	2

Note:

(1) Includes nonaccrual and past due loans.

The following table presents a breakdown of the outstanding balance and specific allowance for credit losses on loans as of December 31, 2019, 2020 and 2021 of corporate loans classified as “troubled debt restructurings” (including nonaccrual and past due loans) by the type of restructuring to which such loans are subject.

	As of December 31,
	2019				2020				2021
	Outstanding Balance		Allowance		Outstanding Balance		Allowance		Outstanding Balance		Allowance
	(In billions of Won)
Workout	W	292	W	140	W	190	W	86	W	160	W	54
Recovery Proceedings		121		32		95		28		74		24
Others (1)		12		8		5		5		3		—
Total	W	425	W	180	W	290	W	119	W	237	W	78

Note:

(1) Principally consists of loans subject to corporate turnaround or corporate reorganization pursuant to the Debtor Rehabilitation and Bankruptcy Act (also known as the Consolidated Insolvency Act).

The following table presents the outstanding balance and specific allowance for credit losses on loans as of December 31, 2019, 2020 and 2021 of retail loans (including nonaccrual and past due loans) subject to credit rehabilitation programs for retail borrowers. All such loans became modified under credit rehabilitation programs and became beneficiaries of maturity extension and interest rate reductions, while a substantially limited portion of such loans also became beneficiaries of debt forgiveness and deferral. For more information on the credit

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rehabilitation program, see “— Credit Exposures to Companies in Workout and Recovery Proceedings — Credit Rehabilitation Programs for Delinquent Consumer and Small- and

Medium-sized

Enterprise Borrowers.”

As of December 31,

2019

2020

2021

Outstanding Balance

Allowance

Outstanding Balance

Allowance

Outstanding Balance

Allowance

(In billions of Won)

Retail loans subject to credit rehabilitation programs (1)

W

126

W

73

W

148

W

81

W

125

W

49

Note:

(1) Includes nonaccrual and past due loans.

The following table presents, as of the dates indicated and with respect to corporate loans, the amounts of restructured loans that were considered impaired and classified as nonaccrual pursuant to our general interest accrual policy as described in “— Accrual Policy for Restructured Loans.” The table also presents, for the periods indicated and with respect to corporate loans, the amounts of total

charge-off

on restructured loans and the amounts of

charge-off

as part of

debt-to-equity

conversions.

	As of and for the year ended December 31,
	2019		2020		2021
	(In billions of Won)
Impaired and nonaccrual restructured loans	W	336	W	194	W	146
Total charge-off of restructured loans	W	138	W	80	W	58
Charge-off as part of debt-to-equity conversion	W	230	W	59	W	32

Credit Exposures to Companies in Workout and Recovery Proceedings

Our credit exposures to restructuring are monitored and managed by our Corporate Credit Support Department. As of December 31, 2021, 0.06% of our total loans, or

W

237 billion (of which

W

146 billion was classified as nonaccrual and

W

91 billion was classified as accruing), was under restructuring. Restructuring of our credit exposures generally takes the form of workout and recovery proceedings.

Workout

The original Corporate Restructuring Promotion Act (Act No. 6504) was enacted on August 14, 2001 in order to facilitate the

out-of-court

restructuring of insolvent companies. This law expired on December 31, 2005, and new Corporate Restructuring Promotion Acts were enacted on August 3, 2007 (expired on December 31, 2010), May 19, 2011 (expired on December 31, 2013), January 1, 2014 (expired on December 31, 2015), March 18, 2016 (expired on June 30, 2018) and October 16, 2018 (to be expired on October 15, 2023, the new CRPA enacted and implemented on October 16, 2018 is hereinafter referred to as the “CRPA”).

If the ‘main Creditor Financial Institution’ of a Failing Company provided notice of convening a Creditor Committee (defined below) on or before October 15, 2023, any proceedings commenced by such Creditor Committee will remain subject to the CRPA even after October 15, 2023 unless and until such proceedings are completed or discontinued.

The following is a summary of the key provisions of the CRPA. The CRPA applies to a financial creditor (the “Financial Creditor”) who has financial claims against a debtor company by ‘providing credit’ to such debtor company or other third parties. “Provision of Credit” is defined in the CRPA as any transaction determined by the Financial Supervisory Commission to fall under any of the following:

• loans;

• purchase of promissory notes and debentures or bonds;

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• equipment leasing;

• payment guarantees;

• providing advance payments on acceptances and guarantees under a payment guarantee;

• any direct or indirect financial transaction which may cause a loss to a counterparty as a consequence of a payment failure by a debtor company; or

• any transaction other than the transactions set out above which may have in substance the same effect as the transactions set out above.

The “debtor company” is defined under the CRPA as a company established under the Korean Commercial Code or other person performing profit-making activities. The Failing Company means a debtor company deemed, through a credit evaluation carried out in the manner set out in the CRPA, by its ‘main Creditor Financial Institution’ as having difficulty to repay debts to its financial creditor without external financial support or an additional loan (excluding loans obtained in the course of conducting normal financial transactions).

Once the debtor company is notified by the main Creditor Financial Institution to fall under the definition of Failing Company, such company may submit its business restructuring plan and the list of its Financial Creditors, and apply to such main Creditor Financial Institution for commencement of the management procedure to be assumed by a committee of Financial Creditors (the “Creditor Committee”) or such main Creditor Financial Institution.

Under the CRPA, the main Creditor Financial Institution of a Failing Company is required to take or arrange one of the following actions if it determines that there is a possibility that the financial condition of the Failing Company may be rehabilitated or brought back to normal in accordance with its business restructuring plan:

• convocation of the first meeting of the Creditor Committee to decide whether to commence the management of the Failing Company by the Creditor Committee; or

• assumption of management of the Failing Company by the main Creditor Financial Institution.

Under the CRPA, in order to call for the first meeting of the Creditor Committee, the main Creditor Financial Institution is required to notify the Financial Creditors, the Failing Company and the Financial Supervisory Service. However, the main Creditor Financial Institution may omit the notification to some extent of the Financial Creditors who are set out in the CRPA such as a Financial Creditor who does not perform the financial business or a Financial Creditor who has only small claims against the Failing Company. The Financial Creditors who do not receive the notification from the main Creditor Financial Institution will be excluded from the Creditor Committee; provided that if they nevertheless want to attend the meeting, the main Creditor Financial Institution may not exclude such Financial Creditors. When the main Creditor Financial Institution calls for the first meeting of the Creditor Committee, it may require the Financial Creditors to grant a moratorium on the enforcement of claims (including the enforcement of security interests) until the end of the first meeting of the Creditor Committee. In addition, at the first meeting of the Creditor Committee, the Financial Creditors may resolve to declare a moratorium for up to one month (or three months if an investigation of the Failing Company’s financial status is necessary) from the commencement date of the management procedure (which may be extended by one additional month by resolutions of the Creditor Committee).

The Financial Creditors who attend the first meeting of the Creditor Committee may resolve, among other things: (i) commencement of the management procedure, (ii) composition of the Financial Creditors who will participate in such management procedure and (iii) declaration of moratorium mentioned above.

Once the management procedure commences, the main Creditor Financial Institution is required to prepare the corporate restructuring plan of the Failing Company considering the investigation results of the Failing Company’s financial status and submit such plan to the Creditor Committee for approval thereof. The corporate restructuring plan may include, among other things, the matters regarding rescheduling of debt owed by the

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Failing Company, provision of new credit and the business restructuring plan of the Failing Company. If the corporate restructuring plan is not approved by the date the moratorium period ends, the Creditor Committee’s management of the Failing Company shall be deemed to have terminated.

The resolution at the Creditor Committee is generally passed by an approval of the Financial Creditors representing at least 75% of the outstanding credit to the Failing Company of the Financial Creditors who constitute the Creditor Committee; provided that if a single Financial Creditor holds at least 75% of the outstanding credit, the resolution shall be passed by an approval of not less than 40% of the total number of the Financial Creditors who constitute the Creditor Committee, including such single Financial Creditor. An additional approval of the Financial Creditors holding interests in 75% or more of the total amount of the secured claims owned by the Financial Creditors constituting the Creditor Committee against the Failing Company is required with respect to the debt rescheduling of the Failing Company.

A Financial Creditor which has opposed the resolutions of the Creditor Committee in respect of the commencement of management of the Failing Company by the Creditor Committee, establishment of or amendment to the corporate restructuring plan, extension of management procedure, the rescheduling of claims or provision of new credit (the “Opposing Financial Creditor”) may, within seven days of such resolutions, request the main Creditor Financial Institutions to purchase its outstanding claims against the Failing Company, stating the type and number of claims. The Financial Creditors that have approved such resolutions (the “Approving Financial Creditors”) shall jointly purchase such claims within six months of such request.

The purchase price and terms of such purchase shall be determined by mutual agreement of the Approving Financial Creditors and the Opposing Financial Creditor. Pending the agreement of such matters, the payments shall be made at a provisional price, and adjusting payments made once an agreement has been reached. If no such agreement is reached, then such matters shall be determined by the coordination committee established under the CRPA.

Recovery Proceedings

Under the Debtor Rehabilitation and Bankruptcy Act, which took effect on April 1, 2006, court receiverships have been replaced with recovery proceedings. In a recovery proceeding, unlike court receivership proceedings where the management of the debtor company was vested in a court appointed receiver, the existing chief executive officer of the debtor company may continue to manage the debtor company, provided, that (i) neither fraudulent conveyance nor concealment of assets existed, (ii) the financial failure of the debtor company was not due to gross negligence of such chief executive officer, and (iii) no creditors’ meeting was convened to request, based on reasonable cause, a court-appointed receiver to replace such chief executive officer. Recovery proceeding may be commenced by any insolvent debtor. Furthermore, in an effort to meet global standards, international bankruptcy procedures have been introduced in Korea under which a receiver of a foreign bankruptcy proceeding may, upon receiving Korean court approval of the ongoing foreign bankruptcy proceeding, apply for or participate in a Korean bankruptcy proceeding. Similarly, a receiver in a domestic recovery proceeding or a bankruptcy trustee is allowed to perform its duties in a foreign country where an asset of the debtor is located to the extent the applicable foreign law permits.

As of December 31, 2021, the total loan amount subject to recovery proceedings was

W

74 billion. No loan amount was subject to court receivership or composition proceedings.

Loans in the process of workout and recovery proceedingsare reported as nonaccrual loans on our statements of financial position as described in “— Nonaccrual Loans and Past Due Accruing Loans” above since generally, they are past due by more than 90 days and interest does not accrue on such loans. Restructured loans that meet the definition of a troubled debt restructuring are reported as troubled debt restructurings as described above in “— Troubled Debt Restructurings.” Such restructured loans are reported as either loans or securities on our statements of financial position depending on the type of instrument we receive as a result of the restructuring.

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Credit Rehabilitation Programs for Delinquent Consumer and Small- and

Medium-sized

Enterprise Borrowers

In light of the gradual increase in delinquencies in credit card and other consumer credit, the Government has implemented a number of measures intended to support the rehabilitation of the credit of delinquent consumer borrowers. These measures may affect the amount and timing of our collections and recoveries on our delinquent consumer credits.

The Credit Counseling and Recovery Service offers two programs for individual debtors, the

pre-workout

program and the individual workout program, both of which are available to individuals with total debt amounts of

W

1.5 billion or less (secured debt amount of

W

1 billion or less and unsecured debt amount of

W

500 million or less). The

pre-workout

program is offered to individuals whose delinquency period is between 31 days and 89 days (including those whose delinquency period is between one day and 30 days but with annual income of

W

40 million or less and cumulative delinquency period of 30 days or more within the year immediately preceding the application date), and the individual workout program is offered to individuals whose delinquency period is three months or more. When an individual debtor applies for the

pre-workout

or individual workout program, the Credit Counseling and Recovery Service will deliberate and resolve on a debt restructuring plan, and once the creditor financial institution that is in a credit recovery support agreement with the Credit Counseling and Recovery Service and holding the majority of each of the unsecured claims and secured claims to the relevant individual debtor agrees to such debt restructuring plan, the plan will be finalized and debt restructuring measures, such as extension of maturity, adjustment of interest rates or reduction of debt, will be taken according to the

pre-workout

program or individual workout program applied for.

Under the Debtor Rehabilitation and Bankruptcy Act, a qualified individual debtor with outstanding debts in an aggregate amount not exceeding threshold amounts of

W

1 billion of unsecured debt and/or

W

1.5 billion of secured debt may restructure his or her debts through a court-supervised debt restructuring that is binding on creditors.

Once a borrower is deemed to be eligible to participate in the

pre-workout

program, we promptly sell the collateral underlying such borrower’s secured loans to mitigate our losses, and we may restructure such borrower’s unsecured loans (regardless of their type) as follows:

• Extension of maturity : Based on considerations of the type of loan, the total loan amount, the repayment amount and the probability of repayment, the maturity of unsecured loans may be extended by up to 10 years and maturity of secured loans may be extended by up to 20 years with a grace period not exceeding three years.

• Interest rate adjustment: The interest rate of unsecured loans may be adjusted to 50% of the original interest rate within the range of the highest interest rate of 10% per annum and the lowest interest rate of 5% per annum; provided that if the original interest rate is less than 5% per annum, no adjustment applies. The adjusted interest rate applies to the principal amount following any adjustment thereto as part of the pre-workout program, and no interest accrues on the interest already accrued or fees payable.

• Debt forgiveness : Debt forgiveness under the pre-workout program is limited to the default interest.

• Deferral : If the foregoing three measures are deemed to be insufficient in terms of providing meaningful assistance to a qualifying borrower due to layoff, unemployment, business closure, disaster or earnings loss, loan repayment may be deferred for a maximum of three year, provided that the pre-workout committee may extend such deferral period every six months, for a period not to exceed six months, upon the borrower’s application. The deferral period is not counted toward the repayment period, and interest accrues at 2% per annum during the deferral period.

In 2021, the aggregate amount of our retail credit (including credit card receivables) which became subject to the

pre-workout

program was

W

125 billion. We believe that our participation in such

pre-workout

program has not had a material impact on the overall asset quality of our retail loans and credit card portfolio or on our results of operations and financial condition to date.

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Loan Modification Programs for Loans under Troubled Debt Restructuring

We generally offer the following types of concessions in relation to restructured loans: reduction of interest rate, forgiveness of overdue interest, extension of the term for repayment of principal, conversion of debt into equity or a combination of the foregoing. The nature and degree of such concessions vary depending on, among other things, the creditworthiness of the borrower, the size of loans being restructured, the existing terms of the loans and other factors deemed relevant by the relevant creditors’ committee.We generally do not restructure an existing loan into multiple new loans. More recently, various

Government-led

financial support programs introduced in response to the

COVID-19

pandemic, such as loan rescheduling and principal and interest payment deferral programs, have helped financial institutions, including Shinhan Bank, manage their asset quality at a stable level. Such financial support programs have been introduced since April 1, 2020 and are available to small- and

medium-sized

enterprises and SOHOs that meet certain criteria, such as that they have not been delinquent on their prior loans and are not subject to liquidation or bankruptcy proceedings. Such financial support programs are expected to continue through September 30, 2022. Our participation in such Government initiatives may lead us to extend credit to small- and

medium-sized

enterprises and SOHOs that we would not otherwise extend, or offer terms on such credit that we would not otherwise offer, in the absence of such initiatives. There is no guarantee that the financial condition and liquidity of the small- and

medium-sized

enterprises benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis or at all. Accordingly, an increase in our exposure to small- and

medium-sized

enterprise borrowers resulting from such Government initiatives may have a material adverse effect on our financial condition and results of operations. We have classified the loans subject to loan rescheduling and principal and interest payment deferral under such financial support programs into stage 2 loans. For further details of our exposures due to such financial support programs, see Note 49 of the notes to our consolidated financial statements included in this annual report. For a discussion of expected credit losses related to the

COVID-19

pandemic, see Note 4 of the notes to our consolidated financial statements included in this annual report.

The following table presents a breakdown of the gross amount of loans under restructuring as of December 31, 2019, 2020 and 2021 by our loan modification programs, as further categorized according to the loan category and performing versus

non-performing

status at each fiscal year end.

As of December 31, 2019
Modification Programs	Non-Performing		Performing		Total
	(In billions of Won)
Extension of due date for principal and interest	W	—	W	76	W	76
Reduction of interest rate		45		211		256
Forgiveness of principal		—		—		—
Equity conversion		—		—		—
Additional lending (1)		—		2		2
Others (2)		56		35		91
Total	W	101	W	324	W	425

As of December 31, 2020
Modification Programs	Non-Performing		Performing		Total
	(In billions of Won)
Extension of due date for principal and interest	W	3	W	—	W	3
Reduction of interest rate		29		186		215
Forgiveness of principal		—		—		—
Equity conversion		—		—		—
Additional lending (1)		—		1		1
Others (2)		35		36		71
Total	W	67	W	223	W	290

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As of December 31, 2021
Modification Programs	Non-Performing		Performing		Total
	(In billions of Won)
Extension of due date for principal and interest	W	5	W	—	W	5
Reduction of interest rate		16		156		172
Forgiveness of principal		—		—		—
Equity conversion		—		—		—
Additional lending (1)		—		—		—
Others (2)		28		33		61
Total	W	49	W	189	W	238

Notes:

(1) Represents additional loans provided to the borrower at favorable terms as part of the restructuring package, which may include extension of the due date or reduction of interest rate, among others.

(2) Principally consists of restructured loans whose restructuring terms were not determined as of the date indicated. A loan is deemed to be subject to restructuring upon the commencement of the recovery proceedings or when the relevant creditors’ committee or our credit officer determines that the borrower will be subject to workout, and in many cases the restructuring terms for such loans are not determined at the time such loans are deemed to be subject to restructuring.

Debt-to-equity

Conversion

We distinguish between loans that we consider to be collectible under modified terms and loans that we consider to be uncollectible regardless of any modification of terms. With respect to loans that are in the latter category, we convert a portion of such loans into equity securities following negotiation with the borrowers and charge off the remainder of such loans as further described below. The equity securities so converted are recorded at fair value, based on the market value of such securities if available or the appraisal value of such securities by an outside appraiser if a market value is unavailable. In 2021, our loans restructured into equity securities amounted to

W

31 billion, which was subsequently charged off.

Debt-to-equity

conversion generally has two primary benefits. One, the

debt-to-equity

conversion reduces the amount of loans and related interest expenses of the borrower, resulting in lesser debt burden and greater liquidity for the borrower, a greater likelihood of its exit from restructuring and the repayment of its obligations to us. Two, in the case of a successful turnaround of the borrower, we are entitled to the upside gains from the increase in the value of the equity securities so converted. Notwithstanding these benefits, however, the resulting impact from the

debt-to-equity

conversion on our interest income is generally not material as the loans being converted as part of restructuring are generally deemed to be uncollectible regardless any modification of terms. As for the impact on our asset classification, we generally apply the same asset classification standards to both

non-restructured

and restructured loans. As for restructured loans, we also consider additional factors such as the borrower’s adherence to its business plans and execution of the self-help measures, among others, to the extent applicable. In consideration of such criteria, we generally classify loans subject to workout as “precautionary.” For a general discussion of our loan classifications, see “— Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy.”

Evaluation of Loan Modification Programs

We currently do not conduct a systematic or quantitative evaluation of the success of any particular concession by type, whether historically, relative to each other or relative to other financial institutions in Korea, although we do monitor on an individual basis the compliance by the borrower with the modified terms of the restructured loans. This is principally due to the following reasons.

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One, in the case of large corporations subject to or about to be subject to restructuring, which represents the most significant restructuring cases in Korea, the restructuring process is generally not driven by us, but by a creditors’ committee involving several large creditor financial institutions, and in the case of very large corporations or corporations that are members of large business conglomerates, the process frequently involves the guidance of the Government in light of the potential ripple effects of the restructuring on the general economy. Hence, it is difficult for us to collect data that would help us to evaluate the success of a particular concession based on the credit profile of the borrower and the type of concessions offered.

Two, the unavailability of systematic analysis notwithstanding, our general sense is that the restructuring cases in Korea have, to a large part, been successful as measured in terms of the ability of the borrowers to exit restructuring programs relatively quickly and further that the failed cases have not been particularly material. As a result, to date, we have not found it particularly necessary or helpful to expend the time and resources required to conduct a systematic analysis for purposes of evaluating the success of concessions by the type of a particular concession offered.

We do, however, measure the success of concessions in limited ways, that is, principally in terms of how well the borrower complies with the terms and conditions of the restructuring plan as agreed between the borrower and its creditor institutions. A restructuring plan typically includes a business plan and self-help measures to be undertaken by the borrower. We monitor the borrower’s compliance with the restructuring plan on a periodic basis (namely, annual, semiannual or quarterly in accordance with the terms of the restructuring plan) and evaluate the success thereof principally in terms of three attributes: (i) the progress in the execution of the business plan, (ii) the progress in the execution of the self-help measures and (iii) other qualitative factors such as major developments in the general economy, the regulatory environment, the competitive landscape, the quality of senior management and personnel, and transparency in management. We also closely monitor the cash inflows and outflows of the borrower, and the creditors’ committee typically has the right to participate in decision-making related to major spending and borrowings by the borrower.

Accrual Policy for Restructured Loans

For purposes of our accrual policy, we classify restructured loans principally into (i) loans subject to workout pursuant to the Corporate Restructuring Promotion Act and (ii) loans subject to recovery proceedings pursuant to the Debtor Rehabilitation and Bankruptcy Act, which is the comprehensive bankruptcy-related law in Korea. See “— Credit Exposures to Companies in Workout and Recovery Proceedings.” As for loans subject to workout, our general policy is to discontinue accruing interest on a loan when payment of principal and/or interest thereon becomes past due by 90 days or more, as described above in “— Nonaccrual Loans and Past Due Accruing Loans”. Interest is recognized on these loans on a cash basis (i.e., when collected) from the date such loan is reclassified as

non-accruing,

and such loans are not reclassified as accruing until the overdue principal and/or interest amounts are paid in full. This general policy also applies to loans subject to workout even if such loans are restructured loans. In the case of loans subject to recovery proceedings, we discontinue accruing interest immediately upon the borrowers becoming subject to recovery proceedings (even if such loans are not yet delinquent) in light of the heightened uncertainty regarding the borrower’s ability to repay. Interest on such loans is recognized on a cash basis and such loans are not reclassified as accruing until the borrower exits recovery proceedings. Accordingly, under our accrual policy, the number of payments made on a nonaccrual restructured loan is not a relevant factor in determining whether to reinstate such loan to the accrual status.

Determination of Performance of Restructured Loans

In determining whether a borrower has satisfactorily performed its obligations under the existing loan terms, we principally review the payment history of the borrower, namely whether the borrower has been delinquent by one day or more pursuant to our general interest accrual policy. In determining whether a borrower has shown the capacity to continue to perform under the restructured terms, we primarily rely upon the assessment of our credit officers (or the creditors’ committee in the case of large corporate borrowers with significant outstanding loans)

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of the likelihood of the borrower’s ability to repay under the restructured terms, which assessment takes into account the size of the loans in question, the credit profile of the borrower, the original terms of the loans and other factors deemed relevant by the relevant credit officers. Depending on various factors such as the size of the loans in question and the credit profile of the borrower, we or the relevant creditors’ committee, as the case may be, sometimes engage an outside advisory firm to perform further due diligence in order to supplement the aforementioned assessment. In certain cases, the borrowers also submit self-help proposals to facilitate obtaining the approval for restructuring, which measures are then also taken into consideration by our credit officers or the relevant creditors’ committees, as the case may be, in determining their future capacity to continue to perform under the restructured terms.

Charge-off

of Restructured Loans

As for loans that we consider to be collectible under modified terms (for example, by extending the due date for the payment of principal and/or interest or reducing the interest rate below the applicable interest rate to a rate below the prevailing market rate, or a combination of the foregoing), we generally restructure such loans under the modified terms and do not charge off any portion of such loans.

As for loans that we consider to be uncollectible regardless of any modification of terms, we negotiate with the borrower to have a portion of such loans converted into equity securities (usually common stock) of the borrower in consideration, among others, of (i) the degree to which such conversion will alleviate the debt burdens and liquidity concerns of the borrower, (ii) our potential upside from the gain in the value of the equity securities compared to the likelihood of collection if the loans were not converted into equity securities, and (iii) the borrower’s concerns regarding its shareholding structure subsequent to such conversion. We then charge off the remainder of the loans not converted into equity securities. The value of the equity securities so converted is recorded at fair value, based on the market value of such securities if available or the appraisal value of such securities by an outside appraiser if a market value is unavailable.

Since we generally do not accrue interest on loans subject to recovery proceedings while we generally accrue interest on loans subject to workout unless past due by 90 days or more,

charge-off

is not a relevant factor we consider when determining the accrual status of a particular restructured loan.

We continue to accrue interest on restructured loans if we conclude that repayment of interest and principal contractually due on the entire debt is reasonably assured. Such conclusion is reached only after we have carefully reviewed the borrower’s ability to repay based on an assessment, among others, of various factors such as the size of the loans in question and the credit quality of the borrower by our credit officer or the relevant creditors’ committee as supplemented by the due diligence by outside advisory firms, as the case may be.

Potential Problem Loans

We operate an “early warning system” in order to enable a more systematic and real-time monitoring of loans with significant potential of default. This system assists our management in making decisions by identifying loans which have serious doubt as to the ability of the borrowers to comply with their respective loan repayment terms as well as loans with significant potential of

non-repayment.

We classify potential problem loans as loans that are designated as “early warning loans” and reported to the Financial Supervisory Service. The “early warning loans” designation applies to borrowers that have been (i) identified by our early warning system as exhibiting signs of credit risk based on the relevant borrower’s financial data, credit information and/or transactions with banks and, following such identification and (ii) designated by our loan officers as potential problem loans on their evaluation of known information about such borrowers’ possible credit problems. Such loans are required to be reported on a quarterly basis to the Financial Supervisory Service. If a borrower’s loans are designated as “early warning loans” pursuant to the process described above and included in our quarterly report to the Financial Supervisory Service, we consider

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this to be an indication of serious doubt as to such borrower’s ability to comply with repayment terms in the near future. As of December 31, 2021, we had

W

614 billion of potential problem loans.

Provisioning Policy

Loans

We conduct periodic and systematic detailed reviews of our loan portfolios to identify credit risks and to establish the overall allowance for credit losses on loans. Our management believes the allowance for credit losses on loans reflects the best estimate of the expected credit losses as of the date of each statement of financial position.

At each reporting date, we assess whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, we use the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. Upon assessment, each asset is classified as in one of the following three stages, which is used as the basis of calculating the loss allowances at the

12-month

expected credit losses (“ECL”) or the lifetime ECL, depending on the stage.

Category		Provision for credit loss allowance
Stage 1	When credit risk has not increased significantly since the initial recognition	12-months ECL: The ECL associated with the probability of default events occurring within the next 12 months
Stage 2	When credit risk has increased significantly since the initial recognition	Lifetime ECL: A lifetime ECL associated with the probability of default events occurring over the remaining lifetime
Stage 3	When assets are impaired

To make that assessment, we compare the risk of default of the financial instrument as at the reporting date with such risk of default as at the date of initial recognition, taking into account reasonable supporting information that is available without undue cost or effort and is indicative of significant increases in credit risk since initial recognition. Supporting information also includes historical default data held by us and analysis conducted by internal credit risk rating specialists.

We assign an internal credit risk rating to each individual exposure based on observable data and historical experiences that have been found to have a reasonable correlation with the risk of default. The internal credit risk rating is determined by considering both qualitative and quantitative factors that indicate the risk of default, which may vary depending on the nature of the exposure and the type of borrower.

We accumulate information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower as well as results of internal credit risk assessment. For some portfolios, we use information obtained from external credit rating agencies when performing these analyses.

We apply statistical techniques to estimate (i) the probability of default for the remaining life of the exposure from the accumulated data and (ii) the changes in the estimated probability of default over time.

We use the indicators defined as per portfolio to determine the significant increase in credit risk. Such indicators generally consist of changes in the risk of default estimated from changes in the internal credit risk rating, qualitative factors, days of delinquency and others.

We consider a financial asset to be in default if it meets one or more of the following conditions:

• if a borrower is overdue 90 days or more from the contractual payment date, or

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• if we determine that it is not possible to recover principal and interest without enforcing the collateral on a financial asset.

We use the following indicators when determining whether a borrower is in default:

• qualitative factors (e.g., breach of contract terms),

• quantitative factors (e.g., if the same borrower does not perform more than one payment obligations to us, the number of days past due per payment obligation. However, in the case of a specific portfolio, we use the number of days past due for each financial instrument), and

• internal and external data.

The definition of default applied by us generally conforms to the definition of default defined for regulatory capital management purposes. However, depending on the situation, the information used to determine whether default has incurred and the extent thereof may vary.

We measure expected credit losses on a forward-looking basis, and expected credit losses reflects information presented by internal experts based on a variety of sources. For purposes of estimating such forward-looking information, we utilize economic outlook and projections published by domestic and overseas research institutes or government and public agencies.

We reflect future macroeconomic conditions anticipated from a bias-free, neutral standpoint in measuring expected credit losses. Expected credit losses in this respect reflect conditions that are most likely to occur and are based on the same assumptions that we use in our business plan and management strategy.

Key variables used in measuring expected credit losses are as follows:

• Probability of default (PD)

• Loss given default (LGD)

• Exposure at default (EAD)

These variables have been estimated from historical experience data by using statistical techniques developed internally by Shinhan Bank and have been adjusted to reflect forward-looking information. When measuring expected credit losses on financial assets, Shinhan Bank reflects a period of expected credit loss measurement based on a contractual maturity. The Bank takes into consideration the extension rights held by a borrower when deciding the contractual maturity.

Risk factors such as PD, LGD and EAD are collectively estimated according to the following criteria:

• Type of products,

• Internal credit risk rating,

• Type of collateral,

• Loan-to-value ratio,

• Industry that the borrower belongs to,

• Location of the borrower or collateral, and

• Days of delinquency.

The criteria for classification of groups are periodically reviewed to maintain homogeneity of the group and are adjusted if necessary. We use external benchmark information to supplement internal information for a particular portfolio that does not have sufficient internal data accumulated from the past experience.

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Credit Cards

Prior to 2017, we established an allowance for the credit card portfolio using a roll-rate model. A roll-rate model is a statistical tool used to monitor the progression of loans based on aging of the balance and established loss rates. The actual loss rates derived from this model are used to project the percentage of losses within each aging category based on performance over a five-year look-back period. Basel II requires a minimum of nine years of data collection (consisting of a minimum five-year observation period for defaults and a minimum four-year observation period for post-default recoveries) as a necessary condition to using the internal model approach. After its merger with LG Card in 2007, Shinhan Card has worked to establish a risk management system and met the Basel II nine-year data collection requirement in October 2016. Through the operation of a credit review system and risk management system based on Basel II requirements, we have gained the necessary data to create internal models that can calculate PD/LGD and credit conversion factors for different groups of borrowers of financial assets.

At the end of December 2016, the Financial Supervisory Service granted Shinhan Card final approval to use the internal model approach. During the first quarter of 2017, Shinhan Card completed the establishment of the IFRS loan loss calculation system, for example, by replacing Basel II risk components with risk components for financial reporting in accordance with IAS 39, and Shinhan Card revised the calculation methodology of loan losses from a roll-rate model to an internal model approach.

The internal model approach calculates separate default rates and loss given default for different groups of customers, differentiated based on the characteristics of both the customers and the products that they use. The internal model approach disaggregates customers into more than twice the number of groups than does the roll-rate model. Whereas the roll-rate model does not distinguish between customers with high and low risks of default when calculating roll rates, the internal model approach allows for a more sophisticated calculation of loan loss that reflects the customers’ credit ratings.

Our general policy is to be proactive in our collection procedures, and we therefore emphasize collections at an early stage of delinquency, although we increase the level of collection efforts as the delinquency period increases with respect to the relevant account. Efforts to collect from cardholders whose account balances are up to 30 days past due are generally made by our credit support centers at Shinhan Card.

For credit card accounts with balances that are more than 30 days past due, we generally assign collection to collection companies such as Shinhan Credit Information, a subsidiary of ours, and Mirae Credit Information. For credit card accounts that are charged off, we outsource collection to collection companies such as Shinhan Credit Information, Mirae Credit Information Services Corp. and Koryo Credit Information.

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Loan Aging Schedule

The following table shows our loan aging schedule (excluding accrued interest) for all loans as of the dates indicated.

	Current				Past Due Up to 3 Months				Past Due 3-6 Months				Past Due More Than 6 Months				Total
As of December 31,	Amount		%		Amount		%		Amount		%		Amount		%		Amount
	(In billions of Won, except percentages)
2019		324,458		99.05		1,795		0.55		772		0.24		553		0.16		327,578
2020		357,729		99.15		1,386		0.38		769		0.21		920		0.26		360,804
2021		390,297		99.19		1,351		0.34		773		0.20		1,053		0.27		393,474

Non-Performing

Loans

Non-performing

loans are defined as loans past due by more than 90 days. The following table shows, as of the dates indicated, the amount of the total

non-performing

loan portfolio and as a percentage of our total loans.

	As of December 31,
	2019			2020			2021
	(In billions of Won, except percentages)
Total non-performing loans	W	1,325		W	1,689		W	1,826
As a percentage of total loans		0.40	%		0.47	%		0.46	%

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Analysis of

Non-Performing

Loans

The following table sets forth, for the periods indicated, the total

non-performing

loans by the borrower type.

	As of December 31,
	2019							2020							2021
	Total Loans		Non- Performing Loans (1)		Ratio of Non- Performing Loans			Total Loans		Non- Performing Loans (1)		Ratio of Non- Performing Loans			Total Loans		Non- Performing Loans (1)		Ratio of Non- Performing Loans
	(In billions of Won, except percentages)
Corporate
Corporate loans	W	161,501	W	388		0.24	%	W	179,255	W	716		0.40	%	W	199,559	W	775		0.39	%
Public and other (2)		3,312		12		0.36			3,735		14		0.37			3,469		13		0.37
Loans to banks		2,634		—		—			5,492		—		—			3,850		—		—
Lease financing		1,683		17		1.01			1,773		13		0.73			1,590		9		0.57
Total corporate		169,130		417		0.25			190,255		743		0.39			208,468		797		0.38
Retail
Mortgage and home equity		68,074		70		0.10			73,188		63		0.09			79,860		57		0.07
Other retail		66,350		385		0.58			73,602		421		0.57			79,146		539		0.68
Total retail		134,424		455		0.34			146,790		484		0.33			159,006		596		0.37
Credit cards		24,024		453		1.89			23,759		462		1.94			26,000		433		1.67
Total	W	327,578	W	1,325		0.40	%	W	360,804	W	1,689		0.47	%	W	393,474	W	1,826		0.46	%

Notes:

(1) The number of days past due of restructured credit card loans is calculated from the first date of non-payment regardless of subsequent modification of terms.

(2) Includes debtors such as local and regional authorities, state-owned enterprises and non-profit organizations.

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Non-Performing

Loans by Industry

The following table sets forth a breakdown of our

non-performing

corporate loans by industry as of December 31, 2021.

Industry	Aggregate Non- Performing Corporate Loan Balance		Percentage of Total Non-Performing Corporate Loan Balance
	(In billions of Won)		(Percentages)
Construction	W	39		4.9	%
Manufacturing		136		17.1
Real estate, leasing and service		31		3.9
Retail and wholesale		88		11.0
Finance and insurance		31		3.9
Hotel and leisure		15		1.9
Transportation, storage and communication		22		2.8
Other service (1)		58		7.3
Other (2)		377		47.2
Total	W	797		100.0	%

Notes:

(1) Includes other service industries such as publication, media and education.

(2) Includes other industries such as agriculture, forestry, mining, electricity and gas.

Top 20

Non-Performing

Loans

As of December 31, 2021, our 20 largest

non-performing

loans accounted 26.7% of our total

non-performing

loan portfolio. The following table shows, at the date indicated, certain information regarding our 20 largest

non-performing

loans.

		As of December 31, 2021
		Industry	Gross Principal Outstanding		Allowance for credit losses on loans
		(In billions of Won)
1	Borrower A	Other service	W	158	W	—
2	Borrower B	Other service		113		113
3	Borrower C	Other service		56		56
4	Borrower D	Other service		27		—
5	Borrower E	Retail and wholesale		24		18
6	Borrower F	Finance and insurance		16		14
7	Borrower G	Transportation, storage, and communication		14		11
8	Borrower H	Construction		11		4
9	Borrower I	Retail and wholesale		10		8
10	Borrower J	Finance and insurance		8		4
11	Borrower K	Finance and insurance		8		4
12	Borrower L	Retail and wholesale		5		5
13	Borrower M	Construction		5		1
14	Borrower N	Other service		5		1
15	Borrower O	Retail and wholesale		5		2
16	Borrower P	Other service		5		1

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		As of December 31, 2021
		Industry	Gross Principal Outstanding		Allowance for credit losses on loans
		(In billions of Won)
17	Borrower Q	Manufacturing		5		—
18	Borrower R	Retail and wholesale		4		2
19	Borrower S	Other service		4		1
20	Borrower T	Other service		4		1
			W	487	W	246

Non-Performing

Loan Strategy

One of our primary objectives is to prevent our loans from becoming

non-performing.

Through our corporate credit rating system, which is designed to prevent our loan officers from extending new loans to borrowers with high credit risks based on the borrower’s credit rating, we seek to reduce credit risk related to future

non-performing

loans. Our early warning system is designed to bring any sudden increase in a borrower’s credit risk to the attention of our loan officers, who then closely monitor such loans.

If a loan becomes

non-performing

notwithstanding such preventive mechanism, an officer at the branch level responsible for monitoring

non-performing

loans will commence due diligence on the borrower’s assets, send a notice demanding payment or a notice that we will take or prepare for legal action.

At the same time, we also initiate our

non-performing

loan management process, which includes:

• 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

• to a limited extent, identifying commercial loans subject to normalization efforts based on the cash-flow situation of the borrower.

Once the details of a

non-performing

loan are identified, we pursue early solutions for recovery. Actual recovery efforts for

non-performing

loans are handled by the relevant department, depending on the nature of such loans and the borrower, among others. The officers or agents of the responsible departments and units use a variety of methods to resolve

non-performing

loans, including:

• making phone calls and paying visits to the borrower to request payment;

• continuing to assess and evaluate assets of our borrowers; and

• if necessary, initiating legal action such as foreclosures, attachment and litigation.

In order to promote speedy recovery on loans subject to foreclosures and litigation, the branch responsible for handling these loans may transfer them to the relevant unit at headquarters.

Our policy is to commence legal action within one month after default on promissory notes and four months after delinquency of payment on other types of loans. For loans to insolvent or bankrupt borrowers or when we conclude that it is not possible to recover through normal procedures, we take prompt legal actions regardless of the grace period.

In addition to making efforts to collect on these

non-performing

loans, we take other measures to reduce the level of our

non-performing

loans, including:

• selling non-performing loans to third parties including the Korea Asset Management Corporation;

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• entering into asset-backed securitization transactions with respect to non-performing loans;

• managing retail loans that are three months or more past due through Shinhan Credit Information under an agency agreement; and

• using third-party collection agencies including credit information companies.

In 2021, we sold

non-performing

loans in the amount of

W

30 billion to third parties, including

W

14 billion transferred to UAMCO., Ltd., an investment management company. Loans transferred to third parties meet the criteria of true sale and are derecognized accordingly.

The following table presents a roll-forward of our

non-performing

loans in 2021.

	(In billions of Won)
Non-performing loans as of December 31, 2020	W	1,689
Additional non-performing loans due to delinquency		858
Loans sold		(30	)
Loans charged off		(444	)
Loans modified and returned to performing		(66	)
Other adjustments (1)		(181	)
Non-performing loans as of December 31, 2021	W	1,826

Note:

(1) Represents loans paid down or paid off and loans returned to performing other than as a result of modification. We do not separately collect and analyze data relating to non-performing loans other than those that were sold, charged off, modified and returned to performing, or transferred to held-for-sale investment portfolio.

Allocation of Allowance for Credit Losses on Loans

The following table presents, as of the dates indicated, the allocation of our allowance for credit losses on loans by loan type.

	As of December 31, 2019
	(In billions of Won, except percentages)
	12-month expected credit Losses		Lifetime expected credit losses						% of Total Allowances
			Not-impaired		Impaired		Total
Corporate
Corporate loans	W	393	W	511	W	435	W	1,339		49.9	%
Public and other		4		8		2		14		0.5
Loan to banks		5		0		—		5		0.2
Lease financing		26		20		34		80		3.0
Total corporate		428		539		471		1,438		53.6
Retail
Mortgages and home equity		2		5		4		11		0.4
Other retail		131		86		165		382		14.2
Total retail		133		91		169		393		14.6
Credit cards		174		365		315		854		31.8
Total allowance for credit losses on loans	W	735	W	995	W	955	W	2,685		100.0	%

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	As of December 31, 2020
	(In billions of Won, except percentages)
	12-month expected credit Losses		Lifetime expected credit losses						% of Total Allowances
			Not-impaired		Impaired		Total
Corporate
Corporate loans	W	542	W	650	W	436	W	1,628		53.2	%
Public and other		6		10		6		22		0.7
Loan to banks		8		—		—		8		0.3
Lease financing		24		15		46		85		2.8
Total corporate		580		675		488		1,743		57.0
Retail
Mortgages and home equity		3		6		22		31		1.0
Other retail		146		80		176		402		13.1
Total retail		149		86		198		433		14.1
Credit cards		204		374		307		885		28.9
Total allowance for credit losses on loans	W	933	W	1,135	W	993	W	3,061		100.0	%

	As of December 31, 2021
	(In billions of Won, except percentages)
	12-month expected credit Losses		Lifetime expected credit losses						% of Total Allowances
			Not-impaired		Impaired		Total
Corporate
Corporate loans	W	501	W	727	W	485	W	1,713		54.1	%
Public and other		4		10		6		20		0.6
Loan to banks		11		—		—		11		0.3
Lease financing		24		15		35		74		2.3
Total corporate		540		752		526		1,818		57.4
Retail
Mortgages and home equity		1		3		6		10		0.3
Other retail		173		87		184		444		14.0
Total retail		174		90		190		454		14.3
Credit cards		205		401		289		895		28.3
Total allowance for credit losses on loans	W	919	W	1,243	W	1,005	W	3,167		100.0	%

Our total allowance for credit losses on loans increased by

W

106 billion, or 3.5%, to

W

3,167 billion as of December 31, 2021 from

W

3,061 billion as of December 31, 2020, primarily due to a significant increase in provision for such allowances in 2020 resulting from the Bank’s proactive measures in responding to changes in the financial environment, such as the spread of

COVID-19.

Our total allowance for credit losses on loans increased by

W

376 billion, or 14.0%, to

W

3,061 billion as of December 31, 2020 from

W

2,685 billion as of December 31, 2019, primarily due to the

re-estimate

of probability of default reflecting forward-looking information and the additional selection of borrowers subject to individual assessment in order to proactively responding to changes in the financial environment, such as the spread of

COVID-19,

as well as an increase in the proportion of unsecured corporate loans which are subject to higher loss given default rates compared to secured corporate loans.

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Analysis of Allowance for Credit Losses on Loans

The following tables present an analysis of our credit losses on loans experience for each of the years indicated.

		As of December 31, 2021
		(In billions of Won, except percentages)
		12-month expected credit Losses			Lifetime expected credit losses
					Not-impaired			Impaired			Total
Balance at the beginning of the period		W	933		W	1,135		W	993		W	3,061
Stage Transfer			47			(83	)		36			—
Amounts charged against income			17			336			554			907
Gross charge-offs:
Corporate:
Corporate loans			—			—			(287	)		(287	)
Public and other			—			—			(1	)		(1	)
Loan to banks			—			—			—			—
Lease financing			—			—			(40	)		(40	)
Retail:
Mortgage and home equity			—			—			(17	)		(17	)
Other retail			—			—			(281	)		(281	)
Credit cards	��		—			—			(559	)		(559	)
Total gross charge-offs			—			—			(1,185	)		(1,185	)
Recoveries:
Corporate:
Corporate loans			—			—			58			58
Public and other			—			—			1			1
Loan to banks			—			—			—			—
Lease financing			—			—			18			18
Retail:
Mortgage and home equity			—			—			2			2
Other retail			—			—			101			101
Credit cards			—			—			208			208
Total recoveries			—			—			388			388
Net charge-offs			—			—			(797	)		(797
Other			(78	)		(145	)		219			(4	)
Business combination			—			—			—			—
Balance at the end of the period		W	919		W	1,243		W	1,005		W	3,167
Ratio of net charge-offs during the period to average loans outstanding during the period			—			—			0.21	%		0.21	%
Corporate:
Corporate loans			—			—			0.12	%		0.12	%
Public and other			—			—			—			—
Loan to banks			—			—			—			—
Lease financing			—			—			1.33	%		1.33	%
Retail:
Mortgage and home equity			—			—			0.02	%		0.02	%
Other retail			—			—			0.23	%		0.23	%
Credit cards			—			—			1.42	%		1.42	%

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	As of December 31, 2020
	(In billions of Won, except percentages)
	12-month expected credit Losses			Lifetime expected credit losses
				Not-impaired			Impaired			Total
Balance at the beginning of the period	W	735		W	995		W	955		W	2,685
Stage Transfer		33			(86	)		53			—
Amounts charged against income		264			419			609			1,292
Gross charge-offs:
Corporate:
Corporate loans		(1	)		—			(321	)		(322	)
Public and other		—			—			(3	)		(3	)
Loan to banks		—			—			—			—
Lease financing		—			—			(36	)		(36	)
Retail:
Mortgage and home equity		—			—			(3	)		(3	)
Other retail		—			—			(276	)		(276	)
Credit cards		—			—			(580	)		(580	)
Total gross charge-offs		(1	)		—			(1,219	)		(1,220	)
Recoveries:
Corporate:
Corporate loans		—			—			48			48
Public and other		—			—			—			—
Loan to banks		—			—			—			—
Lease financing		—			—			16			16
Retail:
Mortgage and home equity		—			—			—			—
Other retail		—			—			85			85
Credit cards		—			—			201			201
Total recoveries		—			—			350			350
Net charge-offs		(1	)		—			(869	)		(870	)
Other		(98	)		(193	)		245			(46	)
Business combination		—			—			—			—
Balance at the end of the period	W	933		W	1,135		W	993		W	3,061
Ratio of net charge-offs during the period to average loans outstanding during the period		—			—			0.25	%		0.25	%
Corporate:
Corporate loans		—			—			0.16	%		0.16	%
Public and other		—			—			0.08	%		0.08	%
Loan to banks		—			—			—			—
Lease financing		—			—			1.08	%		1.08	%
Retail:
Mortgage and home equity		—			—			—			—
Other retail		—			—			0.28	%		0.28	%
Credit cards		—			—			1.63	%		1.63	%

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	As of December 31, 2019
	(In billions of Won, except percentages)
	12-month expected credit Losses			Lifetime expected credit losses
				Not-impaired			Impaired			Total
Balance at the beginning of the period	W	732		W	1,028		W	965		W	2,725
Stage Transfer		56			14			(70	)		—
Amounts charged against income		2			270			639			911
Gross charge-offs:
Corporate:
Corporate loans		—			—			(287	)		(287	)
Public and other		—			—			(10	)		(10	)
Loan to banks		—			—			—			—
Lease financing		—			—			(22	)		(22	)
Retail:
Mortgage and home equity		—			—			(3	)		(3	)
Other retail		—			—			(277	)		(277	)
Credit cards		—			—			(338	)		(338	)
Total gross charge-offs		—			—			(937	)		(937	)
Recoveries:
Corporate:
Corporate loans		—			—			50			50
Public and other		—			—			2			2
Loan to banks		—			—			—			—
Lease financing		—			—			13			13
Retail:
Mortgage and home equity		—			—			—			—
Other retail		—			—			70			70
Credit cards		—			—			191			191
Total recoveries		—			—			326			326
Net charge-offs		—			—			(611	)		(611	)
Other		(71	)		(321	)		8			(384	)
Business combination		16			4			24			44
Balance at the end of the period	W	735		W	995		W	955		W	2,685
Ratio of net charge-offs during the period to average loans outstanding during the period		—			—			0.19	%		0.19	%
Corporate:
Corporate loans		—			—			0.15	%		0.15	%
Public and other		—			—			0.26	%		0.26	%
Loan to banks		—			—			—			—
Lease financing		—			—			0.53	%		0.53	%
Retail:
Mortgage and home equity		—			—			—			—
Other retail		—			—			0.33	%		0.33	%
Credit cards		—			—			0.64	%		0.64	%

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Loan Charge-offs

Our gross charge-offs decreased by 2.9% from

W

1,220 billion in 2020 to

W

1,185 billion in 2021, primarily due to a decrease in the amount of charge-offs for corporate loans in 2021 compared to 2020. Our gross charge-offs increased by 30.2% from

W

937 billion in 2019 to

W

1,220 billion in 2020, primarily due to an increase in the amount of charge-offs for credit cards in 2020 compared to 2019. Our gross charge-offs increased by 0.4% from

W

933 billion in 2018 to

W

937 billion in 2019, primarily due to an increase in the amount of charge-offs for credit cards in 2019 compared to 2018.

In 2021, the

charge-off

on restructured loans amounted to

W

58 billion, of which

W

32 billion was related to loans converted into equity securities as part of restructuring. With respect to a loan that we consider to be uncollectible regardless of any modification of terms, we convert a portion of such loan into equity securities following negotiation with the borrower and charge off the remainder of such loan as previously discussed in “— Troubled Debt Restructurings —

Charge-off

of Loans Subject to Restructuring.” The equity securities so converted are recorded at fair value, based on the market value of such securities if available or the appraisal value of such securities by an outside appraiser if a market value is unavailable.

We attempt to minimize loans to be charged off by practicing a sound credit approval process based on credit risk analysis prior to extending loans and a systematic management of outstanding loans. For

charge-off

of restructured loans, see “— Loan Modification Programs for Loans under Restructuring —

Charge-off

of Restructured Loans” above.

Loans to be

Charged-off

Loans are charged off if they are deemed to be uncollectible by falling under any of the following categories:

• loans for which collection is not foreseeable due to insolvency or bankruptcy, dissolution or the termination of the debtor’s business;

• loans for which collection is not foreseeable due to the death or disappearance of debtors;

• loans for which collection expenses exceed the collectible amount;

• loans for which collection is not possible through legal or any other means;

• payments in arrears in respect of credit cards that are overdue for more than six months;

• payments outstanding on unsecured retail loans that are overdue for more than 12 months;

• payments in arrears in respect of leases that are overdue for more than 12 months;

• the portion of loans classified as “estimated loss,” net of any recovery from collateral, which is deemed to be uncollectible; or

• domestic loans that are required by the Financial Supervisory Service to be charged-off, or loans held by our foreign subsidiaries or branches for which a charge-off or special provisioning is required by the relevant regulatory authority.

Timeline for

Charge-off

Shinhan Bank’s loans to be

charged-off

must be

charged-off

within one year of the month they are deemed to be uncollectible. If such loans are not

charged-off

within one year, the reason for the delay must be reported to Shinhan Bank’s Audit Department.

Procedure for

Charge-off

Approval

An application for Shinhan Bank’s loans to be

charged-off

is submitted by the relevant branch or department to the Credit Collection Department. The Credit Collection Department refers the application to the

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Audit Department for their review to ensure compliance with Shinhan Bank’s internal procedures for charge-offs. The Credit Collection Department, after reviewing the application to confirm that it meets relevant requirements, seeks approval from the Financial Supervisory Service for the charge-offs, which is typically granted. Once the Financial Supervisory Service approves (except for household loans with estimated losses of

W

10 million or less, whose

charge-off

is considered automatically approved by the Financial Supervisory Service), loans are

charged-off

upon approval by the President of Shinhan Bank. As for Shinhan Card, it generally charges off receivables that are 180 days past due following internal review.

Treatment of Loans

Charged-off

Once loans are charged off, they are derecognized from our statements of financial position and are classified as

charged-off

loans. We continue collection efforts in respect of these loans through third-party collection agencies, including the Korea Asset Management Corporation, and Shinhan Credit Information, which is our subsidiary. The General Manager of the Credit Collection Department must report to the Financial Supervisory Service the amounts of loans permanently written off or recovered during each reporting period.

Treatment of Collateral

When wedetermine that a loan collateralized by real estate cannot be recovered through normal collection channels, we generally petition a court to foreclose and sell the collateral through a court-supervised auction within one month after default and insolvency and within four months after delinquency. However, this procedure does not apply to companies under restructuring, recovery proceedings, workout or other court proceedings where there are restrictions on such auction procedures. Filing of such petition with the court generally encourages the debtor to repay the overdue loan. If a debtor ultimately fails to repay and the court grants its approval for foreclosure, we sell the collateral and recover the principal amount and interest accrued up to the sales price, net of expenses incurred from the auction. Foreclosure proceedings under the laws and regulations of Korea typically take seven months to one year from initiation to collection depending on the nature of the collateral.

Financial Statement Presentation

Our financial statements generally report as charge-offs all unsecured retail loans that are overdue for more than 12 months. Leases are charged off when past due for more than 12 months. For collateral dependent loans, we charge off the excess of the book value of the subject loan over the amount received or to be received from the sale of the underlying collateral when the collateral is sold as part of a foreclosure proceeding and its sale price becomes known through court publication as part of such proceeding.

Investment Portfolio

Investment Policy

We invest in and trade

Won-denominated

and, to a lesser extent, foreign currency-denominated securities for our own account in order to:

• maintain the stability and diversification of our assets;

• maintain adequate sources of back-up liquidity to match our funding requirements; and

• supplement income from our core lending activities.

When making an investment decision with respect to particular securities, we consider macroeconomic trends, industry analysis and credit evaluation, among others.

Our securities investment activities are subject to a number of regulatory guidelines, including limitations prescribed under the Financial Holding Companies Act and the Banking Act. Generally, a financial holding

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company is prohibited from acquiring more than 5% of the total issued and outstanding shares of another finance-related company (other than its direct and indirect subsidiaries). Furthermore, under these regulations, Shinhan Bank must limit its investments in shares and securities with a maturity in excess of three years (other than monetary stabilization bonds issued by the Bank of Korea and national government bonds) to 100.0% of the sum of Tier I and Tier II capital (less any deductions) of Shinhan Bank. Generally, Shinhan Bank is also prohibited from acquiring more than 15.0% of the shares with voting rights issued by any other corporation (other than for the purpose of establishing or acquiring a subsidiary). Further information on the regulatory environment governing our investment activities is set out in “— Supervision and Regulation — Principal Regulations Applicable to Banks — Restrictions on Investments in Property,” “— Principal Regulations Applicable to Banks — Restrictions on Shareholdings in Other Companies,” “— Principal Regulations Applicable to Financial Holding Companies — Liquidity” and “— Principal Regulations Applicable to Financial Holding Companies — Restrictions on Shareholdings in Other Companies.”

Book Value and Fair Value

The following tables set out the book value and fair value of investments in our investment portfolio as of the dates indicated.

	As of December 31,
	2019				2020				2021
	Book Value		Fair Value		Book Value		Fair Value		Book Value			Fair Value
	(In billions of Won)
Securities at fair value through other comprehensive income
Equity securities	W	808	W	808	W	907	W	907	W	1,031		W	1,031
Debt securities:
Korean treasury and governmental agencies		15,701		15,701		17,834		17,834		23,742			23,742
Debt securities issued by financial institutions		21,527		21,527		20,054		20,054		19,702	��		19,702
Corporate debt securities		17,177		17,177		15,690		15,690		15,827			15,827
Debt securities issued by foreign government		1,897		1,897		1,536		1,536		1,945			1,945
Mortgage-backed and asset-backed securities		2,271		2,271		2,295		2,295		2,591			2,591
Total — Securities at fair value through other comprehensive income	W	59,381	W	59,381	W	58,316	W	58,316	W	64,838		W	64,838
Securities at amortized cost
Debt securities:
Korean treasury and governmental agencies	W	29,277	W	31,088	W	30,698	W	32,147	W	33,425		W	33,579
Debt securities issued by financial institutions		4,937		5,050		4,071		4,222		3,718			3,772
Corporate debt securities		5,308		5,732		5,065		5,467		5,010			7,546
Debt securities issued by foreign government		1,108		1,154		1,118		1,245		1,254			798
Mortgage-backed and asset-backed securities		4,952		4,979		6,331		6,373		6,523			3,910
Total — Securities at amortized cost	W	45,582	W	48,003	W	47,283	W	49,454	W	49,930		W	49,605

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	As of December 31,
	2019				2020				2021
	Book Value		Fair Value		Book Value		Fair Value		Book Value		Fair Value
	(In billions of Won)
Financial assets at fair value through profit or loss
Equity securities	W	1,598	W	1,598	W	1,736	W	1,736	W	2,375	W	2,375
Debt securities:
Korean treasury and governmental agencies		2,742		2,742		4,038		4,038		3,557		3,557
Debt securities issued by financial institutions		12,849		12,849		14,013		14,013		13,627		13,627
Corporate debt securities		18,353		18,353		19,181		19,181		21,245		21,245
Debt securities issued by foreign governments		131		131		210		210		404		404
Mortgage-backed and asset-backed securities		380		380		595		595		265		265
Other debt securities (1)		13,946		13,946		17,050		17,050		19,130		19,130
Sub-total — Securities at fair value	W	49,999	W	49,999	W	56,823	W	56,823	W	60,603	W	60,603
Others:
Loans at fair value		2,155		2,155		2,017		2,017		1,683		1,683
Due from banks at fair value		897		897		63		63		34		34
Gold/Silver deposits		112		112		188		188		84		84
Total — Financial assets at fair value through profit or loss	W	53,163	W	53,163	W	59,091	W	59,091	W	62,404	W	62,404

Note:

(1) Other debt securities included puttable equity investment, beneficiary certificates and restricted reserve for claims of customers’ deposits (trusts) classified as debt instruments in accordance with IFRS 9.

Maturity Analysis

The following table categorizes our securities at amortized cost by maturity and weighted average yield as of December 31, 2021.

	As of December 31, 2021
	1 Year or Less					Over 1 but within 5 Years					Over 5 but within 10 Years					Over 10 Years					Total
	Carrying Amount		Weighted Average Yield (1)			Carrying Amount		Weighted Average Yield (1)			Carrying Amount		Weighted Average Yield (1)			Carrying Amount		Weighted Average Yield (1)			Carrying Amount		Weighted Average Yield (1)
	(In billions of Won, except percentages)
Korean treasury securities and government agencies	W	4,278		1.53	%	W	10,336		2.18	%	W	6,659		3.62	%	W	12,152		2.36	%	W	33,425		2.45	%
Debt securities issued by financial institutions		1,445		2.46			1,357		2.68			107		5.05			809		3.21			3,718		2.78
Corporate debt securities		396		1.35			1,394		3.23			735		3.47			2,485		2.78			5,010		2.89
Debt securities issued by foreign governments		97		3.10			511		3.28			129		7.20			517		3.04			1,254		3.57
Mortgage-backed securities and asset-backed securities		648		2.00			2,705		1.98			1,614		2.21			1,556		2.26			6,523		2.10
Total	W	6,864		1.78	%	W	16,303		2.31	%	W	9,244		3.43	%	W	17,519		2.47	%	W	49,930		2.50	%

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Note:

(1) The weighted-average yield for the portfolio represents the yield to maturity for each individual security, weighted using its amortized cost.

Concentrations of Risk

The following table presents securities held by us whose aggregate book value exceeded 10% of our stockholders’ equity as of December 31, 2021. As of December 31, 2021, 10% of our stockholders’ equity was

W

4,954 billion.

	As of December 31, 2021
	Book Value		Fair Value
	(In billions of Won)
Name of issuer:
Ministry of Strategy and Finance	W	57,966	W	58,816
The Korea Development Bank		6,135		6,150
The Bank of Korea		8,738		8,736
The Korea Housing Finance Corp		9,267		9,172
Industrial Bank of Korea		4,984		4,984

All of the above entities are either an agency of the Government or an entity controlled by the Government.

Credit-Related Commitments and Guarantees

In the normal course of our operations, we make various commitments and guarantees to meet the financing and other business needs of our customers. Commitments and guarantees are usually in the form of, among others, commitments to extend credit, commercial letters of credit, standby letters of credit and performance guarantees. The contractual amount of these financial instruments represents the maximum possible loss amount if the account party draws down the commitment or we should fulfill our obligation under the guarantee and the account party fails to perform under the contract.

The following table sets forth our credit-related commitments and guarantees as of the dates indicated.

	As of December 31,
	2019		2020		2021
	(In billions of Won)
Commitments to extend credit	W	96,936	W	99,512	W	101,055
Commercial letters of credit		2,760		2,700		3,505
Others (1)		100,484		108,040		113,723
Total	W	200,180	W	210,252	W	218,283

Note:

(1) Consists of financial guarantees, performance guarantees, liquidity facilities to special purpose entities, acceptances, guarantee on trust accounts, endorsed bills and unused credit limits on credit cards.

We have credit-related commitments that are not reflected in our statements of financial position, which primarily consist of commitments to extend credit and commercial letters of credit. Commitments to extend credit, including credit lines, represent unfunded portions of authorizations to extend credit in the form of loans. These commitments expire on fixed dates and a customer is required to comply with predetermined conditions to draw funds under the commitments. Commercial letters of credit are undertakings on behalf of customers authorizing third parties to make drawdowns up to a stipulated amount under specific terms and conditions. They are generally short-term and collateralized by the underlying shipments of goods to which they relate.

116

We also have guarantees that are recorded on our statements of financial position at their fair value at inception which are amortized over the life of the guarantees. Such guarantees generally include standby letters of credit, other financial and performance guarantees and liquidity facilities to special purpose entities. Standby letters of credit are irrevocable obligations to pay third-party beneficiaries when our customers fail to repay loans or debt instruments, which are generally in foreign currencies. A substantial portion of these standby letters of credit is secured by collateral, including trade-related documents. Other financial and performance guarantees are irrevocable assurances that we will pay beneficiaries if our customers fail to perform their obligations under certain contracts. Liquidity facilities to special purpose entities are irrevocable commitments to provide contingent liquidity credit lines to special purpose entities established by our customers in the event that a triggering event such as shortage of cash occurs.

The commitments and guarantees do not necessarily represent our exposure since they often expire unused.

Derivatives

As discussed under “— Our Principal Activities — Other Banking Services — Derivatives Trading” above, we engage in derivatives trading activities primarily on behalf of our customers so that they may hedge their risks and also enter into

back-to-back

derivatives with other financial institutions to cover exposures arising from such transactions. In addition, we enter into derivatives transactions to hedge against risk exposures arising from our own assets and liabilities, some of which are

non-trading

derivatives that do not qualify for hedge accounting treatment.

117

The following table shows, as of December 31, 2021, the gross notional or contractual amounts of derivatives held or issued for (i) trading and

(ii) non-trading

that qualify for hedge accounting.

	As of December 31, 2021
	Underlying Notional Amount (1)		Estimated Fair Value Assets		Estimated Fair Value Liabilities
	(In billions of Won)
Trading:
Foreign exchange derivatives:
Future and forward contracts	W	146,811	W	2,184	W	1,798
Swaps		36,549		651		748
Options		2,270		12		12
Sub-total		185,630		2,847		2,558
Interest rate derivatives:
Future and forward contracts		3,294		2		2
Swaps		108,417		167		303
Options		313		4		1
Sub-total		112,024		173		306
Credit derivatives:
Swaps		4,737		494		65
Sub-total		4,737		494		65
Equity derivatives:
Swaps and forward contracts		2,074		29		70
Options		3,977		10		176
Future contracts		1,678		1		20
Sub-total		7,729		40		266
Commodity derivatives:
Swaps and forward contracts		790		19		3
Options		12		—		9
Future contracts		158		2		2
Sub-total		960		21		14
Total	W	311,080	W	3,575	W	3,209
Non-trading:
Hedge accounting:
Foreign exchange derivatives:
Swaps	W	3,727	W	63	W	79
Future and forward contracts		1,280		—		46
Interest rate derivatives:
Swaps		8,696		161		253
Total	W	13,703	W	224	W	378

Note:

(1) Notional amounts in foreign currencies were converted into Won at prevailing exchange rates as of December 31, 2021.

Funding

We obtain funding from a variety of sources, both domestic and foreign. Our principal source of funding is customer deposits obtained from our banking operations, and we from time to time issue equity and debt

118

securities, including preferred shares. In addition, our subsidiaries acquire funding through call money, borrowings from the Bank of Korea, other short-term borrowings, corporate debentures and other long-term debt, including debt and equity securities issuances, asset-backed securitizations and repurchase transactions, to complement, or if necessary, replace funding through customer deposits. For further details relating to funding by us and our subsidiaries, see “Item 5.B. Liquidity and Capital Resources.”

Deposits

Although the majority of our bank deposits are short-term, the majority of our depositors have historically rolled over their deposits at maturity, providing our banking operation with a stable source of funding.

The following table shows the average balances of our deposits and the average rates paid on our deposits for the periods indicated, and the outstanding balances of uninsured deposits as of the ends of periods indicated.

	2019					2020					2021
	Average Balance (1)		Average Rate Paid			Average Balance (1)		Average Rate Paid			Average Balance (1)		Average Rate Paid
	(In billions of Won, except percentages)
Non-interest-bearing deposits:	W	3,608		—		W	3,908		—		W	4,818		—
Interest-bearing deposits:
Demand deposits	W	40,379		0.42	%	W	50,751		0.33	%	W	65,907		0.32	%
Savings deposits		77,652		0.58			91,474		0.32			106,172		0.23
Time deposits		147,479		1.92			154,516		1.46			153,718		1.05
Other deposits		9,297		2.07			8,482		1.42			11,180		0.91
Total interest-bearing deposits	W	274,807		1.33	%	W	305,223		0.93	%	W	336,977		0.65	%
	2019					2020					2021
	(In billions of Won)
Uninsured deposits		W 218,117					W 242,927					W 275,519

Note:

(1) Average balances are based on (a) daily balances of Shinhan Bank and (b) quarterly balances for other subsidiaries.

For a breakdown of deposit products, see “— Our Principal Activities — Deposit-taking Activities,” except that cover bills sold are recorded on short-term borrowings and securities sold under repurchase agreements are recorded as secured borrowings.

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Uninsured Time Deposits

The following table shows the amount of time deposits that exceed the insurance limit as of December 31, 2021, and the amount of time deposits that are otherwise uninsured, segregated by remaining maturity as of December 31, 2021.

	As of December 31, 2021
	(In billions of Won)
Portion of Time deposits in excess of insurance limit:	W	69,650
Time deposits otherwise uninsured with a maturity of:
Maturing within three months	W	21,253
After three but within six months		12,250
After six but within 12 months		26,223
After 12 months		2,668
Total	W	62,394

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Short-term Borrowings

The following table presents information regarding our short-term borrowings (borrowings with a maturity of one year or less) for the periods indicated.

	2019												2020												2021
	Balance Outstanding		Average Balance Outstanding (1)		Highest Balances at Any Month-end		Weighted Average Interest Rate (2)			Year-end Interest Rate			Balance Outstanding		Average Balance Outstanding (1)		Highest Balances at Any Month-end		Weighted Average Interest Rate (2)			Year-end Interest Rate			Balance Outstanding		Average Balance Outstanding (1)		Highest Balances at Any Month-end		Weighted Average Interest Rate (2)			Year-end Interest Rate
	(In billions of Won, except for percentages)
Borrowings from
The Bank of Korea (3)	W	2,429	W	2,312	W	2,474		0.63	%		0.50 – 0.75	%	W	5,351	W	3,479	W	5,351		0.30	%		0.25	%	W	5,278	W	5,310	W	5,545		0.25	%		0.25	%
Call money		712		1,414		1,659		2.08			0.00 – 5.25			1,760		1,221		1,760		1.60			0.35 – 0.55			1,535		1,575		2,015		1.31			(0.30) – 1.52
Other short-term borrowings (4)		25,861		23,700		25,861		1.36			0.00 – 13.65			24,360		25,401		27,347		1.05			0.00 – 12.45			28,559		25,602		28,559		0.75			(0.49) – 12.29
	W	29,002	W	27,426	W	29,994		1.33	%				W	31,471	W	30,101	W	34,458		0.98	%				W	35,372	W	32,487	W	36,119		0.70	%

Notes:

(1) Average balances are based on (a) daily balances of Shinhan Bank and (b) quarterly balances for other subsidiaries.

(2) Weighted-average interest rates 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 in foreign currencies.

(4) Other short-term borrowings included borrowings from trust accounts, bills sold, and borrowings in domestic and foreign currencies.

Our short-term borrowings have maturities of less than one year and are generally unsecured with the exception of borrowings from the Bank of Korea, which are generally secured with securities at fair value through other comprehensive income or at amortized cost held by us.

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Risk Management

Overview

As a financial services provider, we are exposed to various risks relating to our lending, credit card, insurance, securities investment, trading and leasing businesses, our deposit taking and borrowing activities and our operating environment. The principal risks to which we are exposed are credit risk, market risk, interest rate risk, liquidity risk and operational risk. These risks are recognized, measured and reported in accordance with risk management guidelines established at our holding company level and implemented at the subsidiary level through a carefully stratified

checks-and-balances

system.

We believe that our risk management system has been instrumental to building our reputation as a well-managed and prudent financial service provider and withstanding various external shocks. In particular, during the global financial crisis of 2008 and 2009, we believe our risk management provided effective early warning signals which helped us to proactively reconfigure our asset portfolio and substantially reduce our exposure to troubled debtors and thereby avoid what could have been a substantially greater credit loss during such crisis, and we are carefully upgrading and refining our risk management system in the face of current and potential economic difficulties at global, regional and domestic levels.

Our group-wide risk management philosophy is to instill a culture of effective risk management and awareness at all levels of our organization and pursue a proper balance between risk and return in our business activities in order to achieve a sustainable growth. In particular, our group-wide risk management is guided by the following core principles:

• carrying out all business activities within prescribed risk tolerance levels and prudently balancing profitability and risk management;

• standardizing the risk management process and monitoring compliance at a group-wide level;

• operating a prudent risk management decision making system backed by active participation by management;

• creating and operating a risk management organization independent of business activities;

• operating a performance management system that enhances clear and prompt identification of risks when making business decisions;

• aiming to achieve preemptive and practical risk management; and

• prudent preparation for known and unknown contingencies.

We take the following steps to implement the foregoing risk management principles:

• risk capital management – Risk capital refers to capital necessary to compensate for losses in case of a potential risk being realized, and risk capital management refers to the process of asset management based on considerations of risk exposure and risk appetite for our total assets so that we can maintain an appropriate level of risk capital. As part of our risk capital management, we and our subsidiaries have adopted and maintain various risk planning processes and reflect such risk planning in our business and financial planning. We also maintain a risk limit management system to ensure that risks in our business do not exceed prescribed limits.

• risk monitoring – We proactively, preemptively and periodically review risks that may impact our overall operations, including through a multidimensional risk monitoring system. Currently, each of our subsidiaries is required to report to the holding company any factors that could have a material impact on group-wide risk management, and the holding company reports to our chief risk officer and other members of our senior management the results of risk monitoring weekly, monthly and on an ad hoc basis as needed. In addition, we perform preemptive risk management through a “risk dashboard

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system” under which we closely monitor any increase in asset size, risk levels and sensitivity to external factors with respect to the major asset portfolios of each of our subsidiaries, and to the extent such monitoring yields any warning signals, we promptly analyze the causes and, if necessary, formulate and implement actions in response thereto.

• risk review – Prior to entering any new business, offering any new products or changing any major policies, we review any relevant risk factors based on a prescribed risk management checklist and, in the case of changes for which assessment of risk factors is difficult, perform reasonable decision-making in order to avoid taking any unduly risky action. The risk management departments of all our subsidiaries are required to review all new businesses, products and services prior to their launch and closely monitor the development of any related risks following their launch, and in the case of any action that involves more than one subsidiary, the relevant risk management departments are required to consult with the risk management team at the holding company level prior to making any independent risk reviews.

• crisis management – We maintain a group-wide risk management system to detect the early warning signals of any crisis and, in the event of a crisis actually happening, to respond on a timely, efficient and flexible basis so as to ensure our survival as a going concern. Each of our subsidiaries maintains crisis planning for three levels of contingencies, namely, “alert,” “imminent crisis” and “crisis,” determination of which is made based on quantitative and qualitative monitoring and consequence analysis, and upon the occurrence of any such contingency, is required to respond according to a prescribed contingency plan. At the holding company level, we maintain and install a crisis detection and response system which is applied consistently group-wide, and upon the occurrence of an “imminent crisis” or “crisis” event at a subsidiary level, we directly take charge of the situation at the holding company level so that we manage it on a concerted group-wide basis.

Organization

Our risk management system is organized along the following hierarchy (from top to bottom): at the holding company level, the Group Risk Management Committee, the Group Risk Management Council, the Group Chief Risk Officer and the Group Risk Management Team, and at the subsidiary level, the Risk Management Committee, the Chief Risk Officer and the Risk Management Team of the relevant subsidiary. The Group Risk Management Committee, which is under the supervision of our holding company’s board of directors, sets the basic group-wide risk management policies and strategies. Our Group Chief Risk Officer reports to the Group Risk Management Committee, and the Group Risk Management Council coordinates the risk management policies and strategies at the group level as well as at the subsidiary level among each of our subsidiaries. Each of our subsidiaries also has a separate Risk Management Committee, Risk Management Working Committee and Risk Management Team, whose tasks are to implement the group-wide risk management policies and strategies at the subsidiary level as well as to set risk management policies and strategies specific to such subsidiary in line with the group-wide guidelines. We also have the Group Risk Management Team, which supports our Chief Risk Officer in his or her risk management and supervisory role.

In order to maintain the group-wide risk at an appropriate level, we use a hierarchical risk limit system under which the Group Risk Management Committee assigns reasonable risk limits for the entire group and each of our subsidiaries, and the Risk Management Committee and the Risk Management Working Committee of each of our subsidiaries manage the subsidiary-specific risks by establishing and managing risk limits in more detail by type of risk and type of product for each department and division within such subsidiary. Further details follow.

At the holding company level:

• Group Risk Management Committee — The Group Risk Management Committee consists of four outside directors of our holding company. The Group Risk Management Committee convenes at least

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quarterly and on an

ad hoc

basis as needed. Specifically, the Group Risk Management Committee does the following: (i) establish the overall risk management policies consistent with management strategies, (ii) set reasonable risk limits for the entire group and each of our subsidiaries, (iii) approve appropriate investment limits or permissible loss limits, (iv) enact and amend risk management regulations, and (v) decide other risk management-related issues the board of directors or the Group Risk Management Committee sees fit to discuss. The results of the Group Risk Management Committee meetings are reported to the board of directors of our holding company. The Group Risk Management Committee makes decisions through affirmative votes by a majority of the committee members.

• Group Risk Management Council — Comprised of the Group Chief Risk Officer and Chief Risk Officers of each of our subsidiaries, the Group Risk Management Council provides a forum for risk management executives from each subsidiary to discuss our group-wide risk management guidelines and strategy in order to maintain consistency in the group-wide risk policies and strategies.

• Group Chief Risk Officer — The Group Chief Risk Officer assists the Group Risk Management Committee by implementing the risk policies and strategies as well as ensuring consistency in the risk management systems of our subsidiaries. Furthermore, the Group Chief Risk Officer evaluates the Chief Risk Officer of each subsidiary in addition to monitoring the risk management practices of each subsidiary.

• Group Risk Management Team — This team provides support and assistance to the Group Chief Risk Officer in carrying out his or her responsibilities.

At the subsidiary level:

• Risk Management Committee — In order to maintain group-wide risk at an appropriate level, we have established a hierarchical risk limit system where the Group Risk Management Committee establishes risk limits for us and our subsidiaries, and each of our subsidiaries establishes and manages risk limits in more detail by type of risk and type of product for each department and division within such subsidiary. In accordance with the group risk management policies and strategies, the Risk Management Committee at the subsidiary level establishes its own risk management policies and strategies in more detail and the respective risk management department implements those policies and strategies.

• Risk Management Team — The Risk Management Team, operating independently from the business units of each of our subsidiaries, monitors, assesses, manages and controls the overall risk of its operations and reports all major risk-related issues to the Group Risk Management Team at the holding company level, which then reports to the Group Chief Risk Officer.

The following is a flowchart of our risk management system at the holding company level and the subsidiary level.

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Credit Risk Management

Credit risk, which is the risk of loss from default by borrowers, other obligors or other counterparties to the transactions that we have entered into, is the greatest risk we face. Our credit risk management encompasses all areas of credit that may result in potential economic loss, including not just transactions that are recorded on our balance sheets, but also

off-balance-sheet

transactions such as guarantees, loan commitments and derivatives transactions. A substantial majority of our credit risk relates to the operations of Shinhan Bank and Shinhan Card.

Credit Risk Management of Shinhan Bank

Shinhan Bank’s credit risk management is guided by the following principles:

• achieve a profit level corresponding to the level of risks involved;

• improve asset quality and achieve an optimal mix of asset portfolios;

• avoid excessive loan concentration in a particular borrower or sector;

• closely monitor the borrower’s ability to repay the debt; and

• provide financial support to advance the growth of select customers.

Major policies for Shinhan Bank’s credit risk management, including Shinhan Bank’s overall credit risk management plan and credit policy guidelines, are determined by the Risk Policy Committee of Shinhan Bank, the executive decision-making body for management of credit risk. The Risk Policy Committee is headed by the Chief Risk Officer, and also comprises of the Chief Credit Officer and the heads of each business unit. In order to separate the loan approval functions from credit policy decision-making, Shinhan Bank has a Credit Review Committee that performs credit review evaluations with a focus on improving the asset quality of and profitability from the loans being made and operates separately from the Risk Policy Committee. Both the Risk Policy Committee and the Credit Review Committee make decisions by a vote of

two-thirds

or more of the attending members of the respective committees, which must constitute at least

two-thirds

of the respective committee members to satisfy the respective quorum.

Shinhan Bank complies with credit risk management procedures pursuant to internal guidelines and regulations and continually monitors and improves these guidelines and regulations. Its credit risk management procedures include:

• credit evaluation and approval;

• credit review and monitoring; and

• credit risk assessment and control.

Credit Evaluation and Approval

All loan applicants and guarantors are subject to credit evaluation before approval of any loans. Credit evaluation of loan applicants is carried out by senior officers of Shinhan Bank specifically charged with granting loan approvals. Loan evaluation is carried out by a group rather than by an individual reviewer through an objective and deliberative process. Credit ratings of loan applicants and guarantors influence loan interest rates, the level of internal approval required, credit exposure limits, calculation of potential losses and estimated cost of capital, and therefore are determined objectively and independently by the relevant business unit. Shinhan Bank uses a credit scoring system for retail loans and a credit-risk rating system for corporate loans.

Each of Shinhan Bank’s borrowers is assigned a credit rating, which is based on a comprehensive internal credit evaluation system that considers a variety of criteria. For retail borrowers, the credit rating takes into

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account the borrower’s biographic details, past dealings with Shinhan Bank and external credit rating information, among other things. For corporate borrowers, the credit rating takes into account financial indicators as well as

non-financial

indicators such as industry risk, operational risk and management risk, among other things. The credit rating, once assigned, serves as the fundamental instrument for Shinhan Bank’s credit risk management, and is applied to a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing and computation of allowance for credit losses on loans. Shinhan Bank has separate credit evaluation systems for retail customers, SOHO customers and corporate customers, which are further segmented and refined to meet Basel II requirements, which requirements have not changed under Basel III.

Retail Loans

Loan applications for retail loans are reviewed in accordance with Shinhan Bank’s credit scoring system and the objective statistics models for secured and unsecured loans maintained and operated by Shinhan Bank’s Retail Banking Division. Shinhan Bank’s credit scoring system is an automated credit approval system used to evaluate loan applications and determine the appropriate pricing for the loan, and takes into account factors such as a borrower’s personal information, transaction history with Shinhan Bank and other financial institutions and other relevant credit information. The applicant is assigned a score, which is used to determine (i) whether to approve the applicant’s loan, (ii) the amount of loan to be granted, and (iii) the interest rates thereon. The applicant’s score also determines whether the applicant is approved for credit, conditionally approved, subject to further assessment, or denied. If the applicant becomes subject to further assessment, the appropriate discretionary body, either at the branch level or at the headquarter level, makes a reassessment based on qualitative as well as quantitative factors, such as credit history, occupation and past relationship with Shinhan Bank.

For mortgage and home equity loans and loans secured by real estate, Shinhan Bank evaluates the value of the real estate offered as collateral using a proprietary database, which contains information about real estate values throughout Korea. In addition, Shinhan Bank uses

up-to-date

information provided by third parties regarding the real estate market and property values in Korea. While Shinhan Bank uses internal staff from the processing centers to appraise the value of the real estate collateral, Shinhan Bank also hires certified appraisers to review and

co-sign

the appraisal value of real estate collateral that have an appraisal value exceeding

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3 billion, as initially determined by the processing centers. Shinhan Bank also reevaluates internally, on a summary basis, the appraisal value of collateral at least every year.

For loans secured by securities, deposits or other assets other than real estate, Shinhan Bank requires borrowers to observe specified collateral ratios in respect of secured obligations.

Corporate Loans

Shinhan Bank rates all of its corporate borrowers using internally developed credit evaluation systems. These systems consider a variety of criteria (quantitative, qualitative, financial and

non-financial)

in order to standardize credit decisions and focus on the quality of borrowers rather than the size of loans. The quantitative considerations include the borrower’s financial and other data, while the qualitative considerations are based on the judgment of Shinhan Bank’s credit officers as to the borrower’s ability to repay. Financial considerations include financial variables and ratios based on customer’s financial statements, such as return on assets and cash flow to total debt ratios, and

non-financial

considerations include, among other things, the industry to which the borrower’s businesses belong, the borrower’s competitive position in its industry, its operating and funding capabilities, the quality of its management and controlling stockholders (based in part on interviews with its officers and employees), technological capabilities and labor relations.

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In addition, in order to enhance the accuracy of its internal credit reviews, Shinhan Bank also considers reports prepared by external credit rating services, such as Nice Information Service and Korea Enterprise Data, and monitors and improves the effectiveness of the credit risk-rating systems using a database that it updates continually with actual default records.

Based on the scores calculated under the credit rating system, which takes into account the evaluation criteria described above and the probability of default, Shinhan Bank assigns the borrower one of 23 grades (from the highest of AAA to the lowest ofD3). Grades AA through B are further broken down into “+”, “0” or “-.” Grades AAA through

B-

are classified as normal, grade CCC precautionary, and grades CC through D3

non-performing.

The credit risk-rating model is further differentiated by the size of the corporate borrower and the type of credit facilities.

Loan Approval Process

Loans are generally approved after evaluations and approvals by the relationship manager at the branch level as well as the committee of the applicable business unit at Shinhan Bank. The approval limit for retail loans is made based on Shinhan Bank’s automated credit scoring system. In the case of large corporate loans, approval limits are also reviewed and approved by a Credit Officer at the headquarter level. Depending on the size and the importance of the loan, the approval process is further reviewed by the Credit Officer Committee or the Master Credit Officer Committee. If the loan is considered significant or the amount exceeds the discretion limit of the Master Credit Officer Committee, further evaluation is made by the Credit Review Committee, which is Shinhan Bank’s highest decision-making body in relation to credit approval. The Credit Review Committee’s evaluation and approval of loan limits vary depending on the credit ratings of the borrowers as determined by Shinhan Bank’s internal credit rating system. For example, for borrowers with a credit rating of

B-,

the Credit Review Committee evaluates and approves unsecured loans in excess of

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10 billion and secured loans in excess of

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15 billion, whereas for borrowers with a credit rating of AAA, the Credit Review Committee evaluates and approves unsecured loans in excess of

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40 billion and secured loans in excess of

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90 billion. The Credit Review Committee holds at least two meetings a week to approve applications for

large-sized

loans whose principal amounts exceed prescribed levels set by it.

The chart below summarizes the credit approval process of our banking operation. The Master Credit Officer and the Head of Business Division do not make individual decisions on loan approval, but are part of the decision-making process at the group level

The reviewer at each level of the review process may in its discretion approve loans up to a maximum amount per loan assigned to such level. The discretionary loan approval limit for each level of the loan approval process takes into account the total amount of loans extended to the borrower, the credit level of the applicant based on credit review, the existence and value of collateral and the level of credit risk established by the credit rating system. The discretionary loan amount approval limit ranges from

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15 million for unsecured retail loans with a credit rating of

B-,

which are subject to approvals by the retail branch manager, to

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90 billion for secured

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loans with a credit rating of AAA, which are subject to approvals by the Master Credit Officer Committee. Any loans exceeding the maximum discretionary loan amount approval limit must be approved by the Credit Review Committee.

Credit Review and Monitoring

Shinhan Bank continually reviews and monitors credit risks primarily with respect to borrowers. In particular, Shinhan Bank’s automated early warning system conducts daily examination for borrowers using financial and

non-financial

factors, and the branch manager and the credit officer must conduct periodic loan monitoring and report to an independent Credit Review Department which analyzes the results in detail and adjusts monitoring grades and credit ratings accordingly. Based on these reviews, Shinhan Bank adjusts a borrower’s credit rating, credit limit and credit policies. In addition, the group credit ratings of the main debtor groups, if applicable, may be adjusted followed by a periodic review of the main debtor groups, as identified by the Governor of the Financial Supervisory Service based on their outstanding credit exposures. Shinhan Bank also continually reviews other factors, such as industry-specific conditions for the borrower’s business and its domestic and overseas asset base and operations, in order to ensure that the assigned ratings are appropriate. The Credit Review Department provides credit review reports, independent of underwriting, to the Chief Risk Officer on a monthly basis.

The early warning system performs automatic daily checks for borrowers to whom Shinhan Bank has credit exposure (which represents the total outstanding amount due from a borrower, net of collateral for deposit, installment savings, guarantees and import guarantee money). When the early warning systems detect warning signals, such signals and other findings from the loan monitoring are reviewed by the Credit Review Department. In addition, Shinhan Bank carries out credit review in a timely manner on each borrower in accordance with changes in credit risk factors based on changes in the economic environment. The results of such credit review are continually reported to the Chief Risk Officer of Shinhan Bank.

Depending on the nature of the signals detected by the early warning system, a borrower may be classified as “worsening credit” and become subject to evaluation for a possible downgrade in credit rating, or may be initially classified as “showing early warning signs” or become reinstated to the “normal borrower” status. For borrowers classified as “showing early warning signs,” the relevant branch manager gathers information and conducts a review of the borrower to determine whether the borrower should be classified as a worsening credit or whether to impose management improvement warnings or implement joint creditors’ management. If the borrower becomes

non-performing,

Shinhan Bank’s collection department directly manages such borrower’s account in order to maximize recovery rate, and conducts auctions, court proceedings, sale of assets or corporate restructuring as needed.

Pursuant to the foregoing credit review and monitoring procedures and in order to promptly prevent deterioration of loan qualities, Shinhan Bank classifies potentially problematic borrowers into (i) borrowers that show early warning signals, (ii) borrowers that require precaution, (iii) borrowers that require observation and (iv) normal borrowers, and treats them differentially accordingly.

In order to curtail delinquency among its corporate customers, Shinhan Bank primarily takes the following measures: (i) systematic monitoring of borrowers with outstanding loans, (ii) heightened monitoring of borrowers with bad credit history and/or belonged or belonging to troubled industries and (iii) assignment of industry-specific lending caps, as adjusted for whether specific industries are particularly sensitive to general business cycles and/or are troubled at a given time.

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Systematic monitoring of borrowers with outstanding loans

. Shinhan Bank currently applies a heightened monitoring system to corporate borrowers with outstanding loans (other than guaranteed loans and loans secured by specified types of collaterals such as deposits with us or letters of credit). Under this monitoring system, each borrower is assigned to one of the following ratings:

• “Normal Company” — a borrower who is determined to have a low probability of insolvency with a credit rating above CCC (sub-borrower rating applicable);

• “Observation Company” — a borrower that carries some risk of affecting the corporate insolvency in the future and is subject to consistent observation to detect any change of such risk;

• “Precaution Company” — a borrower with a possibility of insolvency due to an increase in risk of default and therefore requires detailed inspection of the credit quality of such borrower and precaution in extending any further loans;

• “Early Warning Company” — a borrower with a high possibility of insolvency; and

• “Problematic Reorganized Company” — a borrower currently undergoing rehabilitation procedures, such as management improvement plans, workout or corporate recovery or showing no signs of recovery.

Shinhan Bank conducts systematic monitoring of the foregoing borrowers at intervals depending on the borrower’s monitoring grade determined by the early warning system (for example, every 3 or 6 months for an “Observation Company”, and 3 months for borrowers with a monitoring grade below “Precaution Company” or borrowers with a credit rating below CCC, and no regular monitoring for a “Normal Company.”) In addition, the Review Credit Officer may request more frequent monitoring if the borrower is showing signs of deteriorated credit quality. For borrowers with outstanding loan amounts of

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2 billion or more, Shinhan Bank also monitors the revenues and earnings of such borrower on a quarterly basis within seven weeks following the end of each quarter.

Heightened monitoring of borrowers with bad credit history and/or belonged or belonging to troubled industries

. In addition to the systematic monitoring discussed above, Shinhan Bank also carries out additional monitoring for borrowers that, among others, (i) are rated as “requiring observation,” “requiring precaution” or “with early warning signs” as noted above, (ii) have prior history of delinquency or restructuring or (iii) have borrowings that are classified as substandard or below. Based on the heightened monitoring of these borrowers, Shinhan Bank adjusts contingency planning as to how the overall asset quality of a specific industry should be managed for each phase of the business cycle, how Shinhan Bank should limit or reduce its credit exposure to such borrowers, and how our group-wide delinquency and

non-performing

ratio would be changed, among other things.

Credit Risk Assessment and Control

In order to assess credit risk in a systematic manner, Shinhan Bank has developed and upgraded systems designed to quantify credit risk based on selection and monitoring of various statistics, including delinquency rate,

non-performing

loan ratio, expected loan losses and weighted average risk rating.

Shinhan Bank controls loan concentration by monitoring and managing loans at two levels: portfolio level and individual loan account level. In order to maintain portfolio-level credit risk at an appropriate level, Shinhan Bank manages its loans using

value-at-risk

(“VaR”) limits for the entire bank as well as for each of its business units. In order to prevent concentration of risk in a particular borrower or borrower class, Shinhan Bank also manages credit risk by borrower, industry, country and other detailed categories.

Shinhan Bank measures credit risk using internally accumulated data. Shinhan Bank measures expected and unexpected losses with respect to total assets monthly, which Shinhan Bank refers to when setting risk limits for,

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and allocating capital to, its business groups. Expected loss is calculated based on the probability of default, the loss given default, the exposure at default and the past bankruptcy rate and recovery rate, and Shinhan Bank provides allowance for loan losses accordingly. Shinhan Bank makes provisioning at a level which is the higher of the Financial Supervisory Service requirement or Shinhan Bank’s internal calculation. Unexpected loss is predicted based on VaR, which is used to determine compliance with the aggregate credit risk limit for Shinhan Bank as well as the credit risk limit for the relevant department within Shinhan Bank. Shinhan Bank uses the AIRB method as proposed by the Basel Committee to compute VaR at the account-specific level as well as to measure risk adjusted performance.

Credit Risk Management of Shinhan Card

Major policies for Shinhan Card’s credit risk management are determined by Shinhan Card’s Risk Management Council, and Shinhan Card’s Risk Management Committee is responsible for approving them. Shinhan Card’s Risk Management Council is headed by the Chief Risk Officer, and also comprises of the heads of each business unit, supporting unit and relevant department at Shinhan Card. Shinhan Card’s Risk Management Council convenes at least once every month and may also convene on an

ad hoc

basis as needed. Shinhan Card’s Risk Management Committee is comprised of three

Non-Standing

Directors. Shinhan Card’s Risk Management Committee convenes at least once every quarter and may also convene on an

ad hoc

basis as needed.

The risk of loss from default by the cardholders or credit card loan borrowers is Shinhan Card’s greatest credit risk. Shinhan Card manages its credit risk based on the following principles:

• achieve profit at a level corresponding to the level of risks involved;

• improve asset quality and achieve an optimal mix of asset portfolios; and

• closely monitor borrower’s ability to repay the debt.

Credit Card Approval Process

Shinhan Card uses an automated credit scoring system to approve credit card applications or credit card authorizations. The credit scoring system is divided into two

sub-systems:

the behavior scoring system and the application scoring system. The behavior scoring system is based largely on the credit history of the cardholder or borrower, and the application scoring system is based largely on personal information of the applicant. For credit card applicants with whom we have an existing relationship, Shinhan Card’s credit scoring system considers internally gathered information such as the ability to repay, total assets, the length of the existing relationship and the applicant’s contribution to Shinhan Card’s profitability. The credit scoring system also automatically conducts credit checks on all credit card applicants. Shinhan Card gathers information about the applicant’s transaction history with financial institutions, including banks and credit card companies, from a number of third party credit reporting agencies including, among others, National Information & Credit Evaluation Inc. and Korea Credit Bureau. These credit checks reveal a list of the delinquent customers of all credit card issuers in Korea.

If a credit score assigned to an applicant is above the minimum threshold, the application is approved unless overridden based on other considerations such as delinquencies with other credit card companies. For a credit card application by a long-standing customer with a good credit history, Shinhan Card may, on a discretionary basis, approve the application notwithstanding the assigned credit score unless overridden by other considerations. All of these factors also serve as the basis for setting a credit limit for approved applications.

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The following describes the process of how Shinhan Card sets credit limits for credit cards, cash advances and card loans:

• Credit purchase and cash advance limit s — These limits are set based on the applicant’s limit request and Shinhan Card’s credit screening criteria. Unless a cardholder requests a reduction in the credit purchase and/or cash advance limit, Shinhan Card is required to provide prior notice to the cardholder for any reduction in such cardholder’s limit. However, if the account holder defaults or the cardholder’s credit limit is reduced according to the terms of the card agreement, Shinhan Card may lower the credit limit before notifying the account holder.

• Card loan limit — This limit is set monthly by Shinhan Card based on the cardholder’s credit rating and transaction history. The card loan limit can be adjusted monthly based on the cardholder’s credit standing without prior notification.

Monitoring

Shinhan Card continually monitors all cardholders and accounts using a behavior scoring system. The behavior scoring system predicts a cardholder’s payment pattern by evaluating the cardholder’s credit history, card usage and amounts, payment status and other relevant data. The behavior score is recalculated each month and is used to manage the accounts and approval of additional loans and other products to the cardholder. Shinhan Card also uses the scoring system to monitor its overall risk exposure and to modify its credit risk management strategy.

Loan Application Review and

On-going

Credit Review

When reviewing new applications and conducting an ongoing credit review for retail loans, installment purchase loans and personal leases, Shinhan Card uses criteria substantially similar to those used in the credit underwriting system and the credit review system for cardholders. For retail loans, installment purchase loans and personal leases to existing cardholders, Shinhan Card reviews their card usage history in addition to other factors such as their income, occupation and assets.

Fraud Loss Prevention

Shinhan Card seeks to minimize losses from the fraudulent use of credit cards issued by it. Shinhan Card focuses on preventing fraudulent uses and, following the occurrence of a fraudulent use, makes investigations in order to make the responsible party bear the losses. Misuses of lost credit cards account for a substantial majority of Shinhan Card’s fraud-related losses. Through its fraud loss prevention system, Shinhan Card seeks to detect, on a real-time basis, transactions that are unusual or inconsistent with prior usage history and calls are made to the relevant cardholders to confirm their purchases. A team at Shinhan Card dedicated to investigating fraud losses also examines whether the cardholder was at fault by, for example, not reporting a lost card or failing to endorse the card, or whether the relevant merchant was negligent in checking the identity of the user. Fault may also lie with delivery companies that fail to deliver credit cards to the relevant applicant. In such instances, Shinhan Card attempts to recover fraud losses from the responsible party. To prevent misuse of a card as well as to manage credit risk, Shinhan Card’s information technology system will automatically suspend the use of a card (i) when, as a result of ongoing monitoring, fraudulent use or loss of the card is suspected based on the account holder’s credit score, or (ii) at the request of the account holder.

Approximately 94%of Shinhan Card’s cardholders consent to Shinhan Card’s accessing their travel records to detect any misuse of credit cards while they are traveling abroad. Shinhan Card also offers cardholders additional fraud protection through a

fee-based

texting service. At the cardholder’s option, Shinhan Card notifies the cardholder of any credit card activity in his or her account by sending a text message to his or her mobile phone. This notification service allows customers to quickly and easily identify any fraudulent use of their credit cards.

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Credit Risk Management of Shinhan Investment

In accordance with the guidelines of the Financial Supervisory Service, Shinhan Investment assesses its credit risks (including through VaR analyses) and allocates the maximum limit for the credit amount at risk by department. Shinhan Investment also assesses the counterparty risks in all credit-related transactions, such as loans, acquisition financings and derivative transactions and takes corresponding risk management measures. In assessing the credit risk of a corporate counterparty, Shinhan Investment considers such counterparty’s corporate credit rating obtained from Shinhan Group Corporate Credit Rating System. Through its risk management system, Shinhan Investment also closely monitors credit risk exposures by counterparty, industry, conglomerates, credit ratings and country. Shinhan Investment conducts credit risk stress tests on a daily basis based on probability of default and also conducts more advanced stress tests from time to time, the results of which are then reported to its management as well as the Group Chief Risk Officer to support group-wide credit risk management.

Credit Risk Management of Shinhan Life Insurance

Shinhan Life Insurance also assesses credit risks for all of its credit-related transactions, including provision of loans and acquisitions of financial instruments. Shinhan Life Insurance conducts additional risk reviews for new types of investments and financial instruments, such as those denominated in currencies it previously did not deal with. In assessing the credit risk of corporate customers, Shinhan Life Insurance considers such corporation’s credit rating obtained from Shinhan Group Corporate Credit Rating System. Through its risk management system Shinhan Life Insurance conducts credit risk monitoring based on the credit history of debtors. To closely monitor credit risk, Shinhan Life Insurance’s loan review department performs periodic loan review of its loan assets and plans

on-site

inspections where necessary. Furthermore, in the retail business, Shinhan Life Insurance operates its own credit-scoring system to assess credit risk and update customers’ behavior scores.

Market Risk Management

Market risk is the risk of loss generated by fluctuations in market prices such as interest rates, foreign exchange rates and equity prices. The principal market risks to which we are exposed are interest rate risk and, to a lesser extent, foreign exchange and equity price risk. These risks stem from our trading and

non-trading

activities relating to financial instruments such as loans, deposits, securities and financial derivatives. We divide market risk into risks arising from trading activities and risks arising from

non-trading

activities.

Our market risks arise primarily from Shinhan Bank, and to a lesser extent, Shinhan Investment, our securities trading and brokerage subsidiary, which faces market risk relating to its trading activities.

Shinhan Bank’s Risk Management Committee establishes overall market risk management principles for both the trading and

non-trading

activities of Shinhan Bank. Based on these principles, the Risk Policy Committee acts as the executive decision-making body in relation to Shinhan Bank’s market risks in terms of setting its risk management policies and risk limits in relation to market risks and assets and controlling market risks arising from trading and

non-trading

activities of Shinhan Bank. The Risk Policy Committee consists of deputy presidents in charge of Shinhan Bank’s seven business groups and Shinhan Bank’s Chief Risk Officer and the Chief Financial Officer. At least on a monthly basis, the Risk Policy Committee reviews and approves reports relating to, among others, the position and VaR with respect to Shinhan Bank’s trading activities and the position, VaR, duration gap and market value analysis and net interest income simulation with respect to its

non-trading

activities. In addition, Shinhan Bank’s Risk Engineering Department comprehensively manages market risks on an independent basis from Shinhan Bank’s operating departments, and functions as the middle office of Shinhan Bank. Shinhan Bank measures market risk with respect to all assets and liabilities in bank accounts and trust accounts in accordance with the regulations promulgated by the Financial Services Commission.

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Shinhan Investment manages its market risk based on its overall risk limit established by its risk management committee as well as the risk limits and detailed risk management guidelines for each product and department established by its Risk Management Working Committee. Shinhan Investment’s Risk Management Working Committee is the executive decision-making body for managing market risks related to Shinhan Investment, and determines, among other things, Shinhan Investment’s overall market risk management policies and strategies, and assesses and approves trading activities and limits. In addition, Shinhan Investment’s Risk Management Department manages various market risk limits and monitors operating conditions on an independent basis from Shinhan Investment’s operating departments. Shinhan Investment assesses the adequacy of these limits at least annually. In addition, Shinhan Investment assesses the market risks of its trading assets. The assessment procedure is based on the standard procedures set by the Financial Supervisory Service as well as an internally developed model. Shinhan Investment assesses the risk amount and VaR, and manages the risk by setting a risk limit per sector as well as a VaR limit.

Shinhan Life Insurance manages its market risk based on its overall risk limit established by its risk management committee. Shinhan Life Insurance manages market risk in regard to assets that are subject to trading activities and foreign exchange positions. Shinhan Life Insurance assesses the market risk amount and the

10-day

VaR, a procedure based on the delta-normal method, and manages market risk by setting a

10-day

VaR limit. Shinhan Life Insurance assessed the adequacy of these limits at least annually and implements back tests on market risk determinations by comparing daily profit and loss against

one-day

VaR in 2017.

Shinhan Card does not have any assets with significant exposure to market risks and therefore does not maintain a risk management policy with respect to market risks.

We use financial information prepared on a separate basis according to IFRS for the market risk management of our subsidiaries and, unless otherwise specified herein, financial information in this annual report presented for quantitative market risk disclosure relating to our subsidiaries have been prepared in accordance with IFRS on a separate basis

.

Market Risk Exposure from Trading Activities

Shinhan Bank’s trading activities principally consist of:

• trading activities to realize short-term profits from trading in the equity and debt securities markets and the foreign currency 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 trust accounts of Shinhan Bank’s customers; and

• trading activities primarily to realize profits from arbitrage transactions involving derivatives such as swaps, forwards, futures and options, and, to a lesser extent, to sell derivative products to Shinhan Bank’s customers and to cover market risk associated with those trading activities.

Shinhan Investment’s trading activities principally consist of trading for customers and for proprietary accounts equity and debt securities and derivatives based on stock prices, stock indexes, interest rates, foreign currency exchange rates and commodity prices.

As a result of these trading activities, Shinhan Bank is exposed principally to interest rate risk, foreign currency exchange rate risk and equity risk, and Shinhan Investment is exposed principally to equity risk and interest rate risk.

Interest Rate Risk

Shinhan Bank’s exposure to interest rate risk arises primarily from

Won-denominated

debt securities, directly held or indirectly held through beneficiary certificates, and, to a lesser extent, from interest rate

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derivatives. Shinhan Bank’s exposure to interest rate risk arising from foreign currency-denominated trading debt securities is minimal since its net position in those securities is not significant. As Shinhan Bank’s trading accounts are

marked-to-market

daily, it manages the interest rate risk related to its trading accounts using VaR, a market value-based tool.

Shinhan Investment’s interest rate risk arises primarily from management of its interest rate-sensitive asset portfolio, which mainly consists of debt securities, interest rate swaps and government bond futures, and the level of such risk exposure depends largely on the variance between the interest rate movement assumptions built into the asset portfolio and the actual interest rate movements and the spread between a derivative product and its underlying assets. Shinhan Investment quantifies and manages the interest rate-related exposure by daily conducting VaR and stress tests on a

marked-to-market

basis.

Foreign Currency Exchange Rate Risk

Shinhan Bank’s exposure to foreign currency exchange rate risk mainly relates to its assets and liabilities, including derivatives such as foreign currency forwards and futures and currency swaps, which are denominated in currencies other than the Won. Shinhan Bank manages foreign currency exchange rate risk, including the corresponding risks faced by its overseas branches, on a consolidated basis by covering all of its foreign exchange spot and forward positions in both trading and

non-trading

accounts.

Shinhan Bank’s net foreign currency open position represents the difference between its foreign currency assets and liabilities as offset against forward foreign currency positions, and is Shinhan Bank’s principal exposure to foreign currency exchange rate risk. The Risk Policy Committee oversees Shinhan Bank’s foreign currency exposure for both trading and

non-trading

activities by establishing limits for the net foreign currency open position, loss limits and VaR limits. Shinhan Bank centrally monitors and manages its foreign exchange positions through its Financial Engineering Center. Dealers in the Financial Engineering Center manage Shinhan Bank’s consolidated position within preset limits through spot trading, forward contracts, currency options, futures and swaps and foreign currency swaps. Shinhan Bank sets a limit for net open positions by currency. The limits for currencies other than the U.S. Dollar, Japanese Yen, Euro and Chinese Yuan are set in a conservative manner in order to minimize trading in such currencies.

Shinhan Investment faces foreign currency exchange rate risk in relation to the following product offerings: currency forwards, currency swaps and currency futures. Shinhan Investment centrally monitors and manages transactions involving such products through its Fixed Income, Currency & Commodities Departments. Shinhan Investment’s Risk Management Working Committee, which is delegated with the authority to approve foreign currency-related transactions and limits on the related open positions, manages the related foreign exchange risk by setting nominal limits on the amounts of foreign exchange-related products and monitoring compliance with such limits on a daily basis. As of December 31, 2021, Shinhan Investment’s net open position related to foreign currency-related products was US$1,213 million, and its open positions related to the sale of

Won-U.S.

Dollar forwards and

Won-U.S.

Dollar futures were US$420 million and US$(33) million, respectively.

Shinhan Capital manages its foreign exchange risk resulting from the difference in its foreign currency assets and liabilities through derivative transactions such as forwards or swaps and maintains its net exposure at US$22.1 million.

The net open foreign currency positions held by our other subsidiaries are insignificant.

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The following table shows Shinhan Bank’s net foreign currency open positions as of December 31, 2019, 2020 and 2021. Positive amounts represent long exposures and negative amounts represent short exposures.

	As of December 31,
Currency	2019			2020			2021
	(In millions of US$)
U.S. Dollars	$	(147.4	)	$	(299.4	)	$	(15.6	)
Japanese Yen		(14.1	)		3.9			447.3
Euro		12.1			12.4			23.6
Others		1,169.2			1,201.2			2,247.7
Total	$	1,019.9		$	918.0		$	2,703.1

Equity Risk

Shinhan Bank’s equity risk related to trading activities mainly involves trading equity portfolios of Korean companies and Korea Stock Price Index futures and options. The trading equity portfolio consists of stocks listed on the KRX KOSPI Market or the KRX KOSDAQ Market of the Korea Exchange and nearest-month or second nearest-month futures contracts under strict limits on diversification as well as limits on positions. Shinhan Bank maintains strict scrutiny of these activities in light of the volatility in the Korean stock market and closely monitors the loss limits and the observance thereof. Although Shinhan Bank holds a substantially smaller amount of equity securities than debt securities in its trading accounts, the VaR of trading account equity risk is generally higher than that of trading account interest rate risk due to high volatility in the value of equity securities. As of December 31, 2019, 2020 and 2021, Shinhan Bank held

W

126.3 billion,

W

13.7 billion and

W

171.7 billion, respectively, of equity securities in its trading accounts (including the trust accounts).

Shinhan Investment’s equity risk related to trading activities also mainly involves the trading of equity portfolio of Korean companies and Korea Stock Price Index futures and options. As of December 31, 2019, 2020 and 2021, the total amount of equity securities at risk held by Shinhan Investment was

W

27.8 billion,

W

53.8 billion and

W

55.3 billion, respectively.

Equity positions held by our other subsidiaries are insignificant.

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Management of Market Risk from Trading Activities

The following tables present an overview of market risk, measured by VaR, from trading activities of Shinhan Bank and Shinhan Investment, respectively, as of and for the year ended December 31, 2021. For market risk management purposes, Shinhan Bank includes in the computation of total VaR its trading portfolio in bank accounts and assets in trust accounts, in each case, for which it guarantees principal or fixed return in accordance with the Financial Services Commission regulations.

	Trading Portfolio VaR for the Year 2021
	Average			Minimum			Maximum			As of December 31, 2021
	(In billions of Won)
Shinhan Bank: (1)
Interest rate	W	28.7		W	17.5		W	55.8		W	28.0
Foreign exchange (2)		159.2			136.9			185.5			162.0
Equities		11.6			3.9			21.3			19.6
Option volatility (3)		0.2			0.0			0.4			0.1
Commodity		0.0			0.0			0.2			0.0
Less: portfolio diversification (4)		(25.0	)		(13.2	)		(52.6	)		(17.5	)
Total VaR (5)	W	174.6		W	145.1		W	210.5		W	192.2
Shinhan Investment: (1)
Interest rate	W	21.07		W	7.72		W	35.50		W	27.20
Equities		31.66			15.85			62.31			33.29
Foreign exchange		24.35			2.54			43.82			28.59
Option volatility (3)		49.34			31.15			96.35			79.59
Less: portfolio diversification (4)		(47.75	)		(7.38	)		(104.14	)		(58.24	)
Total VaR	W	78.68		W	49.90		W	133.84		W	110.44

Notes:

(1) Shinhan Bank and Shinhan Investment’s 10-day VaR is based on a 99.9% confidence level.

(2) Includes both trading and non-trading accounts as Shinhan Bank and Shinhan Investment manage foreign exchange risk on a total position basis.

(3) Volatility implied from the option price using the Black-Scholes or a similar model.

(4) Calculation of portfolio diversification effects is conducted on different days’ scenarios for different risk components. Total VaRs are less than the simple sum of the risk component VaRs due to offsets resulting from portfolio diversification.

(5) Includes trading portfolios in Shinhan Bank’s bank accounts and assets in trust accounts, in each case, for which it guarantees principal or fixed return.

Shinhan Bank generally manages its market risk from the trading activities of its portfolios on an aggregated basis. To control its trading portfolio market risk, Shinhan Bank uses position limits, VaR limits, stop loss limits, Greek limits and stressed loss limits. In addition, it establishes separate limits for investment securities. Shinhan Bank maintains risk control and management guidelines for derivative trading based on the regulations and guidelines promulgated by the Financial Services Commission, and measures market risk from trading activities to monitor and control the risk of its operating divisions and teams that perform trading activities. Shinhan Bank manages VaR measurements and limits on a daily basis based on automatic interfacing of its trading positions into its market risk measurement system. In addition, Shinhan Bank presets limits on loss, sensitivity, investment and stress for its trading departments and desks and monitors such limits and observance thereof on a daily basis.

Value-at-risk

analysis.

 Shinhan Bank uses

10-day

and

one-day

VaRs to measure its market risk. Shinhan Bank calculates (i)

10-day

VaRs on a daily basis based on data for the previous 12 months for the holding

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periods of 10 days and

(ii) one-day

VaRs on a daily basis based on data for the previous 12 months for the holding periods of one day. A

10-day

VaR and

one-day

VaR are statistically estimated maximum amounts of loss that can occur for 10 days and one day, respectively, under normal market conditions. If a VaR is measured using a 99% confidence level, the actual amount of loss may exceed the expected VaR, on average, once out of every 100 business days, while if a VaR is measured using a 99.9% confidence level, the actual amount of loss may exceed the expected VaR, on average, once out of 1,000 business days.

Shinhan Bank currently uses the

10-day

99% confidence level-based VaR and stressed VaR for purposes of calculating the regulatory capital used in reporting to the Financial Supervisory Service. Stressed VaR reflects the potential significant loss in the current trading portfolio based on scenarios derived from a crisis simulation during the preceding 12 months. Shinhan Bank also uses the more conservative

10-day

99.9% confidence level-based VaR for purposes of calculating its “economic” capital used for internal management purposes, which is a concept used in determining the amount of Shinhan Bank’s requisite capital in light of the market risk. In addition, Shinhan Bank uses the

one-day

99% confidence level-based VaR on a supplemental basis for purposes of setting and managing risk limits specific to each desk or team in its operating units as well as for back-testing purposes. For Shinhan Bank, the amount of losses (either actual or virtual) exceeded the

one-day

99% confidence level-based VaR amount five times in 2019, two times in 2020 and one time in 2021. The increased frequency of instances in which the amount of losses exceeded the VaR amount in 2019 was primarily because the foreign currency exchange market experienced unusually high volatility. The VaR exceptions referred to above were all due to the amount of virtual losses exceeding the VaR amount. Virtual losses represent the potential changes in the value of a portfolio when simulating the same portfolio with market variables of the next trading day.

Shinhan Investment currently uses the same

10-day

99.9% confidence level-based historical VaR for purposes of calculating its “economic” capital used for internal management purposes, although such model is not subject to regulatory review or reporting requirements. In addition, Shinhan Investment applies this VaR as a risk limit for the entire company as well as individual departments and products, and the adequacy of such VaR is reviewed by way of daily back-testing. When computing VaR,Shinhan Investment does not assume any particular probability distribution and calculates it through a simulation of the “full valuation” methodbased on changes of market variables such as stock prices, interest rates and foreign exchange rates in the past one year. For Shinhan Investment, the amount of losses (either actual or virtual) exceeded the

one-day

99% confidence level-based VaR amount zero times in 2019, four times in 2020 and zero times in 2021. The VaR exceptions referred to above were all due to the amount of virtual losses exceeding the VaR amount.

Value-at-risk

is a commonly used market risk management technique. However, VaR models have the following shortcomings:

• 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 reliable indicator of future events, particularly those that are extreme in nature;

• VaR may underestimate the probability of extreme market movements;

• Shinhan Bank’s VaR models assume that a holding period of generally one to 10 days is sufficient prior to liquidating the underlying positions, but such assumption regarding the length of the holding period may actually prove to be inadequate;

• The 99.9% confidence level does not take into account or provide indication of any losses that might occur beyond this confidence level; and

• VaR does not capture all complex effects of various risk factors on the value of positions and portfolios and could underestimate potential losses.

Currently, Shinhan Bank and Shinhan Investment conduct back-testing of VaR results against actual outcomes on a daily basis.

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Shinhan Bank operates an integrated market risk management system which manages Shinhan Bank’s

Won-denominated

and foreign-denominated accounts. This system uses historical simulation to measure both linear risks arising from products such as equity and debt securities and nonlinear risks arising from other products including options. We believe that this system enables Shinhan Bank to generate elaborate and consistent VaR information and to perform sensitivity analysis and back testing in order to check the validity of the models on a daily basis. Shinhan Life Insurance also measures market risks based on a VaR analysis.

Stress test.

 In addition to VaR, Shinhan Bank performs stress tests to measure market risk. As VaR assumes normal market situations, Shinhan Bank assesses its market risk exposure to unlikely abnormal market fluctuations through the stress test. Stress test is a valuable supplement to VaR since VaR does not cover potential loss if the market moves in a manner which is outside Shinhan Bank’s normal expectations. Stress test projects the anticipated change in value of holding positions under certain scenarios assuming that no action is taken during a stress event to change the risk profile of a portfolio.

Shinhan Bank uses seven relatively simple but fundamental scenarios for stress test by taking into account four market risk components: foreign currency exchange rates, stock prices, and

Won-denominated

interest rates and foreign currency-denominated interest rates. For the worst case scenario, Shinhan Bank assumes instantaneous and simultaneous movements in four market risk components: appreciation of Won by 20%, a decrease in Korea Exchange Composite Index by 30% and increases in

Won-denominated

and U.S. Dollar-denominated interest rates by 200 basis points each, respectively. Under this worst-case scenario, the market value of Shinhan Bank’s trading portfolio would have declined by

W

645 billion as of December 31, 2021. Shinhan Bank performs stress test on a daily basis and reports the results to its Risk Policy Committee on a monthly basis and its Risk Management Committee on a quarterly basis.

Shinhan Investment uses nine scenarios for stress tests by taking into account four market risk components: stock prices (both in terms of stock market indices and ß-based individual stock prices), interest rates for

Won-denominated

loans, foreign currency exchange rates and historical volatility. As of December 31, 2021, under the worst case scenario assuming a 1% point increase in the three-year government bond yield, the market value of Shinhan Investment’s trading portfolio would have fluctuated by

W

92 billion for one day.

Shinhan Bank sets limits on stress testing for its overall operations. Shinhan Investment sets limits on stress testing for its overall operations as well as at its department level. Although Shinhan Life Insurance does not set any limits on stress testing, it monitors the impact of market turmoil or other abnormalities. In the case of Shinhan Bank, Shinhan Investment and Shinhan Life Insurance, if the potential impact is large, their respective head of Risk Management will notify such impact and may request a portfolio restructuring or other proper action.

Hedging and Derivative Market Risk

The principal objective of our group-wide hedging strategy is to manage market risk within established limits. We use derivative instruments to hedge our market risk as well as to make profits by trading derivative products within preset risk limits. Our derivative trading includes interest rate and cross-currency swaps, foreign currency forwards and futures, stock index and interest rate futures, and stock index and currency options.

While we use derivatives for hedging purposes, derivative transactions by nature involve market risk since we take trading positions for the purpose of making profits. These activities consist primarily of the following:

• 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 Shinhan Investment, and related transactions to reduce their exposure resulting from those sales;

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• taking positions in limited cases when we expect short-swing profits based on our market forecasts; and

• trading to hedge our interest rate and foreign currency risk exposure as described above.

In accordance with accounting requirements under IFRS 9, “Financial instruments”, which has replaced IAS 39, “

Financial Instruments: Recognition and Measurement

” since January 1, 2018, we have implemented internal processes which include a number of key controls designed to ensure that fair value is measured appropriately, particularly where a fair value model is internally developed and used to price a significant product.

Shinhan Bank assesses the adequacy of the fair market value of a new product derived from its internal model prior to the launch of such product. The assessment process involves the following:

• computation of an internal dealing system market value (based on assessment by the quantitative analysis team of the adequacy of the formula and the model used to compute the market value as derived from the dealing system);

• computation of the market value as obtained from an outside credit evaluation company; and

• following comparison of the market value derived from an internal dealing system to that obtained from outside credit evaluation companies, determination as to whether to use the internally developed market value based on inter-departmental consensus.

The dealing system market value, which is used officially by Shinhan Bank after undergoing the assessment process above, does not undergo a sampling process that confirms the value based on review of individual transactions, but is subject to an additional assessment procedure of comparing such value against the profits derived from the dealing systems based on the deal portfolio sensitivity.

Shinhan Investment follows an internal policy as set by its Fair Value Evaluation Committee for computing and assessing the adequacy of fair value of all of its

over-the-counter

derivative products. Shinhan Investment computes the fair value based on an internal model and internal risk management systems and assesses the adequacy of the fair value through cross-departmental checks as well as comparison against fair values obtained from outside credit evaluation companies.

See Note 3 of the notes to our consolidated financial statements included in this annual report.

Market risk from derivatives is not significant since derivative trading activities of Shinhan Bank and Shinhan Investment are primarily driven by arbitrage and customer deals with highly limited open trading positions. Market risk from derivatives is also not significant for Shinhan Life Insurance as its derivative trading activities are limited to those within preset risk limits and are subject to heavy regulations imposed on the insurance industry. Market risk from derivatives is not significant for our other subsidiaries since the amount of such positions by our other subsidiaries is insignificant.

Market Risk Management for

Non-trading

Activities

Interest Rate Risk

Interest rate risk represents Shinhan Bank’s principal market risk from

non-trading

activities. Interest rate risk is the risk of loss resulting from interest rate fluctuations that adversely affect the financial condition and results of operations of Shinhan Bank. Shinhan Bank’s interest rate risk primarily relates to the differences between the timing of rate changes for interest-earning assets and that for interest-bearing liabilities.

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Interest rate risk affects Shinhan Bank’s earnings and the economic value of Shinhan Bank’s net assets as follows:

• 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.

Accordingly, Shinhan Bank measures and manages interest rate risk for

non-trading

activities by taking into account the effects of interest rate changes on both its income and net asset value. Shinhan Bank measures and manages interest rate risk on a daily and monthly basis with respect to all interest-earning assets and interest-bearing liabilities in Shinhan Bank’s bank accounts (including derivatives denominated in Won which are principally interest rate swaps entered into for the purpose of hedging) and in trust accounts, except that Shinhan Bank measures VaRs on a monthly basis. Most of Shinhan Bank’s interest-earning assets and interest-bearing liabilities are denominated in Won.

Interest Rate Risk Management

The principal objectives of Shinhan Bank’s interest rate risk management are to generate stable net interest income and to protect Shinhan Bank’s net asset value against interest rate fluctuations. Through its asset and liability management system, Shinhan Bank monitors and manages its interest rate risk based on various analytical measures such as interest rate gap, duration gap and net present value and net interest income simulations, and monitors on a monthly basis its interest rate VaR limits, interest rate earnings at risk (“EaR”) limits and interest rate gap ratio limits. Shinhan Bank measures its interest rate VaR and interest rate EaR based on interest rate risk in the banking book standardized approach presented by the Bank for International Settlements (the “IRRBB standardized approach”). IRRBB, which is part of the Basel capital framework’s Pillar 2 and subject to the Committee’s guidance set out in the 2004 revised principles for the management and supervision of interest rate risk, refers to current or prospective risk to a bank’s capital and earnings arising from adverse movements in interest rates that affect the bank’s banking book position. Interest rate risk is managed by reflecting possible future interest rate environments and customer behavior based on the IRRBB standardized approach. Interest rate VaR is measured by the change in economic value of equity under six types of scenarios (parallel up, parallel down, stiffener, flattener, short-term interest

rate-up

and short-term interest rate-down). Interest rate EaR is measured by the largest loss amount based on two types of scenarios (parallel up and parallel down). The Risk Policy Committee sets the interest rate risk limits for Shinhan Bank’s

Won-denominated

and foreign currency-denominated

non-trading

accounts and trust accounts, and the Risk Management Committee sets Shinhan Bank’s overall interest rate risk limit, in both cases, at least annually. The Risk Management Department monitors Shinhan Bank’s compliance with these limits and reports the monitoring results to the Risk Policy Committee on a monthly basis and the Risk Management Committee on a quarterly basis. Shinhan Bank uses interest rate swaps to control its interest rate exposure limits.

Interest rate VaR represents the maximum anticipated loss in a net present value calculation (computed as the present value of interest-earning assets minus the present value of interest-bearing liabilities), whereas interest rate EaR represents the maximum anticipated loss in a net earnings calculation (computed as interest income minus interest expenses) for the immediately following

one-year

period, in each case, as a result of negative movements in interest rates. Therefore, interest rate VaR is a more expansive concept than interest rate EaR in that the former covers all interest-earning assets and all interest-bearing liabilities, whereas the latter covers only those interest-earning assets and interest-bearing liabilities that are exposed to interest rate volatility for a

one-year

period.

Hence, for interest rate VaRs, the duration gap (namely, the weighted average duration of all interest-earning assets minus the weighted average duration of all interest-bearing liabilities) can be a more critical factor than the relative sizes of the relevant assets and liabilities in influencing interest rate VaRs. In comparison, for

140

interest rate EaRs, the relative sizes of the relevant assets and liabilities in the form of the “one year or less interest rate” gap (namely, the volume of interest-earning assets with maturities of less than one year minus the volume of interest-bearing liabilities with maturities of less than one year) are the most critical factor in influencing the interest rate EaRs.

On a monthly basis, we monitor whether the

non-trading

positions for interest rate VaR and EaR exceed their respective limits as described above.

Interest rate VaR cannot be meaningfully compared to the

10-day

99% confidence level based VaR (“market risk VaR”) for managing trading risk principally because (i) the underlying assets are different (namely,

non-trading

interest-bearing assets as well as liabilities in the case of the interest rate VaR, compared to trading assets only in the case of the market risk VaR), and (ii) interest rate VaR is sensitive to interest rate movements only while the market risk VaR is sensitive to interest rate movements as well as other factors such as foreign currency exchange rates, stock market prices and option volatility.

Even if comparison were to be made between the interest rate VaR and the interest rate portion only of the market risk VaR, we do not believe such comparison would be meaningful since the interest rate VaR examines the impact of interest rate movements on both assets and liabilities (which will likely have offsetting effects), whereas the interest rate portion of the market VaR examines the impact of interest rate movements on assets only.

Shinhan Bank uses various analytical methodologies to measure and manage its interest rate risk for

non-trading

activities on a daily and monthly basis, including the following analyses:

• Interest rate gap analysis;

• Duration gap analysis;

• Market value analysis; and

• Net interest income simulation analysis.

Interest Rate Gap Analysis

Shinhan Bank performs an interest gap analysis to measure the difference between the amount of interest-earning assets and that of interest-bearing liabilities at each maturity and

re-pricing

date for specific time intervals by preparing interest rate gap tables in which Shinhan Bank’s interest-earning assets and interest-bearing liabilities are allocated to the applicable time intervals based on the expected cash flows and

re-pricing

dates.

On a daily basis, Shinhan Bank performs interest rate gap analysis for

Won-

and foreign currency-denominated assets and liabilities in its bank and trust accounts. Shinhan Bank’s gap analysis includes

Won-denominated

derivatives (which are interest rate swaps for the purpose of hedging) and foreign currency-denominated derivatives (which are currency swaps for the purpose of hedging), which are managed centrally at the Financial Engineering Center. Through the interest rate gap analysis that measures interest rate sensitivity gaps, cumulative gaps and gap ratios, Shinhan Bank assesses its exposure to future interest risk fluctuations. For interest rate gap analysis, Shinhan Bank assumes and uses the following maturities for different types of assets and liabilities:

• With respect to the maturities and re-pricing dates of Shinhan Bank’s assets, Shinhan Bank assumes that the maturity of Shinhan Bank’s prime rate-linked loans is the same as that of its fixed-rate loans. Shinhan Bank excludes equity securities from interest-earning assets.

• With respect to the maturities and re-pricing of Shinhan Bank’s liabilities, Shinhan Bank assumes that money market deposit accounts and “non-core” demand deposits under the Financial Services Commission guidelines have a maturity of one month or less for both Won-denominated accounts and foreign currency-denominated accounts.

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• With respect to “core” demand deposits under the Financial Services Commission guidelines, Shinhan Bank assumes that they have maturities of eight different intervals ranging from one month to five years.    

The following tables show Shinhan Bank’s interest rate gaps as of December 31, 2021 for

(i) Won-denominated

non-trading

bank accounts, including derivatives entered into for the purpose of hedging and (ii) foreign currency-denominated

non-trading

bank accounts, including derivatives entered into for the purpose of hedging.

Won-denominated

non-trading

bank accounts

(1)

	As of December 31, 2021
	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		150,098			77,435			34,656			28,824			21,767			31,909			344,688
Fixed rates		22,222			20,254			20,267			25,408			16,236			16,775			121,163
Floating rates		127,526			56,410			13,539			3,415			5,531			15,084			221,505
Interest rate swaps		350			770			850			0			0			50			2,020
Interest-bearing liabilities		151,176			53,418			75,263			28,249			18,706			34,775			361,586
Fixed liabilities		64,890			36,721			58,312			11,713			2,356			2,258			176,249
Floating liabilities		84,266			16,696			16,951			16,536			16,349			32,517			183,316
Interest rate swaps		2,020			0			0			0			0			0			2,020
Sensitivity gap		(1,078	)		24,017			(40,607	)		575			3,061			(2,866	)		(16,898	)
Cumulative gap		(1,078	)		22,939			(17,668	)		(17,093	)		(14,031	)		(16,898	)		(16,898	)
% of total assets		(0.31	)%		6.65	%		(5.13	)%		(4.96	)%		(4.07	)%		(4.90	)%		(4.90	)%

Foreign currency-denominated

non-trading

bank accounts

(1)

	As of December 31, 2021
	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		28,422			9,637			3,756			5,398			5,772			52,985
Interest-bearing liabilities		23,816			6,988			7,046			9,274			8,048			55,173
Sensitivity gap		4,606			2,650			(3,290	)		(3,876	)		(2,277	)		(2,188	)
Cumulative gap		4,606			7,255			3,965			89			(2,188	)		(2,188	)
% of total assets		8.69	%		13.69	%		7.48	%		0.17	%		(4.13	)%		(4.13	)%

Note:

(1) Includes merchant banking accounts.

Duration Gap Analysis

Shinhan Bank performs a duration gap analysis to measure the differential effects of interest rate risk on the market value of its assets and liabilities by examining the difference between the durations of Shinhan Bank’s interest-earning assets and those of its interest-bearing liabilities, which durations represent their respective weighted average maturities calculated based on their respective discounted cash flows using applicable yield curves. These measurements are done on a daily basis and for each operating department, account, product and currency, the respective durations of interest-earning assets and interest-bearing liabilities.

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The following tables show duration gaps and market values of Shinhan Bank’s

Won-denominated

interest-earning assets and interest-bearing liabilities in its

non-trading

accounts as of December 31, 2021 and changes in these market values when interest rate increases by one percentage point.

Duration as of December 31, 2021 (for

non-trading

Won-denominated

bank accounts

(1)

)

	Duration as of December 31, 2021
	(In months)
Interest-earning assets		11.16
Interest-bearing liabilities		10.78
Gap		0.38

Note:

(1) Includes merchant banking accounts and derivatives for the purpose of hedging.

Market Value Analysis

Shinhan Bank performs a market value analysis to measure changes in the market value of Shinhan Bank’s interest-earning assets compared to that of its interest-bearing liabilities based on the assumption of parallel shifts in interest rates. These measurements are done on a monthly basis.

Market Value as of December 31, 2021 (for

non-trading

Won-denominated

bank accounts

(1)

)

	Market Value as of December 31, 2021
	Actual		1% Point Increase		Changes
	(In billions of Won)
Interest-earning assets		371,652		368,455		(3,197	)
Interest-bearing liabilities		367,287		364,195		(3,093	)
Gap		4,365		4,260		(104	)

Note:

(1) Includes merchant banking accounts and derivatives for the purpose of hedging.

Net Interest Income Simulation

Shinhan Bank performs net interest income simulation to measure the effects of the change in interest rate on its results of operations. Such simulation uses the deterministic analysis methodology to measure the estimated 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. For simulations involving interest rate changes, based on the assumption that there is no change in funding requirements, Shinhan Bank applies three scenarios of parallel shifts in interest rate: (1) no change, (2) a 1% point increase in interest rates and (3) a 1% point decrease in interest rates.

The following table illustrates by way of an example the simulated changes in Shinhan Bank’s annual net interest income for 2021 with respect to

Won-denominated

interest-earning assets and interest-bearing liabilities, using Shinhan Bank’s net interest income simulation model, assuming (a) the maturity structure and funding

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requirement of Shinhan Bank as of December 31, 2021 and (b) the same interest rates as of December 31, 2021 and a 1% point increase or decrease in the interest rates.

	Simulated Net Interest Income for 2021
	(For Non-Trading Won-Denominated Bank Accounts (1) )
	Assumed Interest Rates						Change in Net Interest Income					Change in Net Interest Income
	No Change		1% Point Increase		1% Point Decrease		Amount (1% Point Increase)		% Change (1% Point Increase)			Amount (1% Point Decrease)			% Change (1% Point Decrease)
	(In billions of Won, except percentages)
Simulated interest income		9,774		11,728		7,820		1,954		19.99	%		(1,954	)		(19.99	)%
Simulated interest expense		3,945		5,250		2,641		1,304		33.06	%		(1,304	)		(33.06	)%
Net interest income		5,829		6,478		5,179		650		11.15	%		(650	)		(11.15	)%

Note:

(1) Includes merchant banking accounts and derivatives entered into for the purpose of hedging.

Shinhan Bank’s

Won-denominated

interest-earning assets and interest-bearing liabilities in

non-trading

accounts have a maturity structure that benefits from an increase in interest rates, because the

re-pricing

periods for interest-earning assets in Shinhan Bank’s

non-trading

accounts are, on average, shorter than those of the interest-bearing liabilities in these accounts. This is primarily due to a sustained low interest rate environment in the recent years in Korea, which resulted in a significant increase in demand for floating rate loans (which tend to have shorter maturities or

re-pricing

periods than fixed rate loans) as a portion of Shinhan Bank’s overall loans, which in turn led to the shortening, on average, of the maturities or

re-pricing

periods of Shinhan Bank’s loans on an aggregate basis. As a result, Shinhan Bank’s net interest income tends to decrease during times of a decrease in the market interest rates while the opposite is generally true during times of an increase in the market interest rates.

Interest Rate VaRs for

Non-trading

Assets and Liabilities

Shinhan Bank measures VaRs for interest rate risk from

non-trading

activities on a monthly basis. The following table shows, as of and for the year ended December 31, 2021, the VaRs of interest rate mismatch risk for other assets and liabilities, which arises from mismatches between the

re-pricing

dates for Shinhan Bank’s

non-trading

interest-earning assets (including

available-for-sale

investment securities) and those for its interest-bearing liabilities. Under the regulations of the Financial Services Commission, Shinhan Bank includes in calculation of these VaRs interest-earning assets and interest-bearing liabilities in its bank accounts and its merchant banking accounts.

	VaR for the Year 2021 (1)
	Average		Minimum		Maximum		As of December 31
	(In billions of Won)
Interest rate mismatch — non-trading assets and liabilities		613		432		780		733

Note:

(1) One-year VaR results computed based on the interest rate risk in the banking book standardized approach presented by the Bank for International Settlements. See “— Interest Rate Risk Management.”

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Interest Rate Risk for Other Subsidiaries

Shinhan Card monitors and manages its interest rate risk for all its interest-bearing assets and liabilities (including

off-balance

sheet items) in terms of the impact on its earnings and net asset value from changes in interest rates. Shinhan Card primarily uses interest rate VaR and EaR analyses to measure its interest rate risk.

The interest rate VaR analysis used by Shinhan Card principally focuses on the maximum impact on its net asset value from adverse movements in interest rates and consists of (i) historical interest rate VaR analysis and (ii) interest rate gap analysis. The historical interest rate VaR analysis is made through simulation of net asset value based on the interest rate volatility over a fixed past period to produce expected future interest rate scenarios and computes the maximum value at risk at a 99.9% confidence level by analyzing the net present value distribution under each such scenario. As for interest rate gap analysis, Shinhan Card computes the value at risk based on the duration proxies and interest rate shocks for each time interval as recommended under the Basel Accord.

The interest rate EaR analysis used by Shinhan Card computes the maximum loss in net interest income for a

one-year

period following adverse movements in interest rates, based on an interest rate gap analysis using the time intervals and the “middle of time band” as recommended under the Basel Accord.

Shinhan Investment uses historical interest rate VaR analysis based on its internal model to monitor and manage its interest rate risk. The historical interest rate VaR analysis is made through simulation of net asset value based on the interest rate volatility over the past three years to compute the maximum value at risk at a 99.9% confidence level. Shinhan Investment also measures its level of IRRBB exposure.

Shinhan Life Insurance monitors and manages its interest rate risk for its investment assets and liabilities based on simulations of its asset-liability management system. These simulations typically involve subjecting Shinhan Life Insurance’s current and future assets and liabilities to more than 2,000 market scenarios based on varying assumptions, such as new debt purchases and current investment portfolios, so as to derive its net asset value forecast for the next one year at a 99.9% confidence level.

Interest rate risk for our other subsidiaries is insignificant.

Equity Risk

Substantially all of Shinhan Bank’s equity risk relates to its portfolio of common stock in Korean companies. As of December 31, 2021, Shinhan Bank held an aggregate amount of

W

532.6 billion of equity interest in unlisted foreign companies (including

W

0.6 billion invested in unlisted private equity funds).

The equity securities in Won held in Shinhan Bank’s investment portfolio consist of stocks listed on the KRX KOSPI Market or the KRX KOSDAQ Market of the Korea Exchange and certain

non-listed

stocks. Shinhan Bank sets exposure limits for most of these equity securities to manage their related risk. As of December 31, 2021, Shinhan Bank held equity securities in an aggregate amount of

W

928.1 billion in its

non-trading

accounts, including equity securities in the amount of

W

228.3 billion that it held, among other reasons, for management control purposes and as a result of

debt-to-equity

conversion as a part of reorganization proceedings of the companies to which it had extended loans.

As of December 31, 2021, Shinhan Bank held

Won-denominated

convertible bonds in an aggregate amount of

W

107.0 billion and did not hold any

Won-denominated

exchangeable bonds or

Won-denominated

bonds with warrants, in each case, in its

non-trading

accounts. Shinhan Bank does not measure equity risk with respect to convertible bonds, exchangeable bonds or bonds with warrants, and the interest rate risk of these equity-linked securities are measured together with the other debt securities. As such, Shinhan Bank measures interest rate risk VaRs but not equity risk VaRs for these equity-linked securities.

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Liquidity Risk Management

Liquidity risk is the risk of insolvency, default or loss due to disparity between inflow and outflow of funds, including the risk of having to obtain funds at a high price or to dispose of securities at an unfavorable price due to lack of available funds. Each of our subsidiaries seeks to minimize liquidity risk through early detection of risk factors related to the sourcing and managing of funds that may cause volatility in liquidity and by ensuring that it maintains an appropriate level of liquidity through systematic management. At the group-wide level, we manage our liquidity risk by conducting monthly stress tests that compare liquidity requirements under normal situations against those under three types of stress situations, namely, our group-specific internal crisis, crisis in the external market and a combination of internal and external crisis. In addition, in order to preemptively and comprehensively manage liquidity risk, we measure and monitor liquidity risk management using various indices, including the “limit management index,” “early warning index” and “monitoring index.”

Shinhan Bank applies the following basic principles for liquidity risk management:

• raise funds in sufficient amounts, at the optimal time at reasonable costs;

• maintain liquidity risk at appropriate levels and preemptively manage them through a prescribed risk limit system and an early warning signal detection system;

• secure stable sources of revenue and minimize actual losses by implementing an effective asset-liability management based on diversified sources of funding with varying maturities;

• monitor and manage daily and intra-daily liquidity positions and risk exposures for timely payment and settlement of financial obligations due under both normal and crisis situations;

• conduct periodic liquidity stress test in anticipation of any potential liquidity crisis and establish and implement contingency funding plans in case of an actual crisis; and

• consider liquidity-related costs, benefits of and risks in determining the pricing of our products and services, performance evaluations and approval of launching of new products and services.

Each of our subsidiaries manages liquidity risk in accordance with the risk limits and guidelines established internally and by the relevant regulatory authorities. Pursuant to principal regulations applicable to financial holding companies and banks as promulgated by the Financial Services Commission, we, at the holding company level, are required to maintain a liquidity coverage ratio and a foreign currency liquidity coverage ratio. These ratios require us to maintain the relevant ratios above certain minimum levels.

Shinhan Bank manages its liquidity risk within the limits set on Won and foreign currency accounts in accordance with the regulations of the Financial Services Commission. The Financial Services Commission implemented a minimum liquidity coverage ratio requirement for Korean banks, including Shinhan Bank, of at least 90.0% as of January 1, 2017, 95.0% as of January 1, 2018 and 100.0% as of January 1, 2019.Financial Services Commission defines liquidity coverage ratio as high quality liquid assets that can be immediately converted into cash with little or no loss in value, as divided by the net amount of cash outflow for the next 30 day period, under the stress level established according to the liquidity coverage ratio, pursuant to the Regulation on the Supervision of the Banking Business, which was amended as of June 28, 2016 to implement the liquidity coverage ratio requirements under Basel III. In addition to the liquidity coverage ratio, the Financial Supervisory Commission introduced the net stable funding ratio into the Regulation on the Supervision of the Banking Business that came in effect in January 2018. Whereas liquidity coverage ratio is aimed at measuring liquidity for the next

30-day

period, net stable funding ratio, calculated as the ratio of available stable funding to required stable funding, is aimed at measuring liquidity for the next

one-year

period. A bank’s available stable funding is the portion of its capital and liabilities that are safely expected to remain with the bank for more than one year. A bank’s required stable funding is the amount of stable funding that it is required to hold given the liquidity characteristics and residual maturities of its assets and the contingent liquidity risk arising from its

off-balance

sheet exposures. Shinhan Bank is required by the Financial Services Commission to maintain a net stable funding ratio of at least 100%.

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With respect to foreign currency liquidity coverage ratio, the Regulation on the Supervision of the Banking Business requires that financial institutions dealing with foreign exchange affairs (i.e., banks) whose foreign-currency denominated liabilities are equal to or greater than US$500 million or 5% of its total liabilities, as of the end of the immediately preceding half-year period, maintain a foreign currency liquidity coverage ratio of 60% or higher beginning January 1, 2017, 70% or higher beginning January 1, 2018 and 80% or higher beginning January 1, 2019. The term “foreign currency liquidity coverage ratio” means the ratio of high quality liquidity assets to the net cash outflow in respect of foreign-currency denominated assets and liabilities for the next 30 days.

In April 2020, in response to the

COVID-19

pandemic, the Financial Services Commission temporarily lowered the liquidity coverage ratio requirement from 100% to 85% and the foreign currency liquidity coverage ratio requirement from 80% to 70%. These temporary lower ratio requirements will apply through June 2022, and beginning July 1, 2022, the lowered liquidity coverage ratio requirement will be gradually increased to 100% by June 30, 2023, and the lowered foreign currency liquidity coverage ratio requirement will be increased to 80% as of July 1, 2022.

Shinhan Bank’s Treasury Department is in charge of liquidity risk management with respect to Shinhan Bank’s Won and foreign currency funds. The Treasury Department submits Shinhan Bank’s monthly funding and asset management plans to Shinhan Bank’s Asset and Liability Committee for approval, based on the analysis of various factors, including macroeconomic indices, interest rate and foreign exchange movements and maturity structures of Shinhan Bank’s assets and liabilities. Shinhan Bank’s Risk Engineering Department measures Shinhan Bank’s liquidity coverage ratio on a daily basis and net stable funding ratio on a monthly basis and reports whether they are in compliance with the respective limits to Shinhan Bank’s Risk Policy Committee, which sets and monitors Shinhan Bank’s liquidity coverage ratio and net stable funding ratio on a monthly basis.

The following tables show Shinhan Bank’s (i) average liquidity coverage ratio, (ii) average foreign currency liquidity coverage ratio, and (iii) net stable funding ratio, each for the month of December 2021 in accordance with the regulations of the Financial Services Commission.

Shinhan Bank’s Average Liquidity Coverage Ratio for the Month of December 2021

	For the Month of December 2021
	(in billions of Won, except percentages)
High quality liquid assets (A)	W	70,580
Net cash outflows over the next 30 days (B)		78,749
Cash outflow		102,953
Cash inflow		24,205
Liquidity coverage ratio (A/B)		89.63	%

Shinhan Bank’s Average Foreign Currency Liquidity Coverage Ratio for the Month of December 2021

	For the Month of December 2021
	(in millions of US$, except percentages)
High quality liquid assets (A)	$	5,339
Net cash outflows over the next 30 days (B)		4,817
Cash outflow		14,625
Cash inflow		9,809
Liquidity coverage ratio (A/B)		110.84	%

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Shinhan Bank’s Net Stable Funding Ratio for the Month of December 2021

	For the Month of December 2021
	(in billions of Won, except percentages)
Available stable funding (A)	W	279,125
Required stable funding (B)		253,677
Net stable funding ratio (A/B)		110.03	%

Shinhan Bank maintains diverse sources of liquidity to facilitate flexibility in meeting its funding requirements. Shinhan Bank funds its operations principally by accepting deposits from retail and corporate depositors, accessing the call loan market (a short-term market for loans with maturities of less than one month), issuing debentures and borrowing from the Bank of Korea. Shinhan Bank uses the funds primarily to extend loans or purchase securities. Generally, deposits are of shorter average maturity than loans or investments.

Shinhan Card manages its liquidity risk according to the following principles: (i) provide a sufficient volume of necessary funding in a timely manner at a reasonable cost, (ii) establish an overall liquidity risk management strategy, including in respect of liquidity management targets, policy and internal control systems, and (iii) manage its liquidity risk in conjunction with other risks based on a comprehensive understanding of the interaction among the various risks. As for any potential liquidity shortage at or near the end of each month, Shinhan Card maintains liquidity at a level sufficient to withstand credit shortage for three months.

In addition, Shinhan Card manages liquidity risk by setting and complying with specific guidelines for various measures of liquidity, including the breakdown of contractual payment obligations by maturity, overseas funding, the ratio of asset-backed securitized borrowings to the total borrowing, the ratio of requisite liquidity to reserve liquidity, and the ratio of fixed interest rate borrowings to floating interest rate borrowings. Furthermore, Shinhan Card closely monitors various indicators of a potential liquidity crisis, such as the actual liquidity gap ratio (in relation to the different maturities for assets as compared to liabilities), the liquidity buffer ratio. Shinhan Card also has contingency plans in place in case of any emergency or crisis. In managing its liquidity risk, Shinhan Card focuses on a prompt response system based on periodic monitoring of the relevant early signals, stress testing and contingency plan formulations. Shinhan Card identifies its funding needs on a daily, monthly, quarterly and annual basis based on the maturity schedule of its liabilities as well as short-term liquidity needs, based upon which it formulates its funding plans using diverse sources such as corporate debentures, commercial papers, asset-backed securitizations and credit line facilities. When entering into asset-backed securitizations, Shinhan Card provides sufficient credit enhancements to avoid triggering early amortization events. In addition, prior to entering into any funding transaction and related derivative transaction, Shinhan Card conducts

pre-transaction

risk analyses, including in respect of counterparty credit risk and its total exposure limit by country and by financial institution.

Shinhan Card also manages its liquidity risk within the limits set on Won accounts in accordance with the regulations of the Financial Services Commission. Under the Specialized Credit Financial Business Act and the regulations thereunder, credit card companies in Korea are required to maintain a Won liquidity ratio of at least 100.0%.

The following tables show Shinhan Card’s liquidity status and limits for

Won-denominated

accounts as of December 31, 2021 in accordance with the regulations of the Financial Services Commission.

Shinhan Card’s

Won-denominated

accounts

	As of December 31, 2021
Won-Denominated Accounts	7 Days or Less		1 Month or Less		3 Months or Less			6 Months or Less		1 Year or Less		Over 1 Year		Total
	(In billions of Won, except percentages)
Assets	W	2,875	W	12,734	W	18,951		W	23,165	W	28,072	W	10,677	W	38,749
Liabilities		901		3,990		5,024			6,492		9,887		19,862		29,749
Liquidity ratio						377.2	%

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Shinhan Investment manages its liquidity risk for its

Won-denominated

accounts by setting a limit of

W

300 billion on each of its

seven-day,

one-month

and three-month liquidity gap, a limit of 110% on its

one-month

and three-months liquidity ratios and a limit of

W

10 billion on its liquidity VaR. As for its foreign currency-denominated accounts, Shinhan Investment manages the liquidity risk on a quarterly basis in compliance with the guidelines of the Financial Supervisory Service, which requires the

seven-day

and

one-month

maturity mismatch ratios to be 0% and

-10%

or higher, respectively, and the three months liquidity ratio to be 80% or higher.

Our other subsidiaries fund their operations primarily through call money, bank loans, commercial paper, corporate debentures and asset-backed securities. Our holding company acts as a funding vehicle for long-term financing of our subsidiaries whose credit ratings are lower than the holding company, including Shinhan Card and Shinhan Capital, to lower the overall funding costs within regulatory limitations. Under the Monopoly Regulations and Fair Trade Act, however, a financial holding company is prohibited from borrowing funds in excess of 200% of its total stockholders’ equity.

In addition to liquidity risk management under the normal market situations, we have contingency plans to effectively cope with possible liquidity crisis. Liquidity crisis arises when we would not be able to effectively manage the situations with our normal liquidity management measures due to, among other reasons, inability to access our normal sources of funds or epidemic withdrawals of deposits as a result of various external or internal factors, including a collapse in the financial markets or abrupt deterioration of our credit. We have contingency plans corresponding to different stages of liquidity crisis: namely, “alert stage,” “imminent-crisis stage” and “crisis stage,” based on the following liquidity indices:

• indices that reflect the market movements such as interest rates and stock prices;

• indices that reflect financial market sentiments, an example being the size of money market funds; and

• indices that reflect our internal liquidity condition.

Operational Risk Management

Operational risk is difficult to quantify and subject to different definitions. The Basel Committee defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from other external events. Similarly, we define operational risk as the risks related to our overall management other than credit risk, market risk, interest rate risk and liquidity risk. These include risks arising from system failure, human error,

non-adherence

to policy and procedures, fraud, inadequate internal controls and procedures or environmental changes and resulting in financial and

non-financial

loss. We monitor and assess operational risks related to our business operations, including administrative risk, information technology risk (including cyber security risk), managerial risk and legal risk, with a view to minimizing such losses. As Basel III requirements relating to operational risk are expected to be implemented from January 2023, we and our subsidiaries have formed a task force and are currently developing necessary systems to calculate group-wide risk-weighted assets and develop internal controls.

Our holding company’s Audit Committee, which consists of four outside directors, one of whom is an accounting or financial expert as required by internal control regulations under the Act on Corporate Governance of Financial Companies, oversees and monitors our operational compliance with legal and regulatory requirements. The Audit Committee also oversees management’s operations and may, at any time it deems appropriate, demand additional operations-related reporting from management and inspects our asset condition. At the holding company level, we define each subsidiary’s operational process and establish an internal review system applicable to each subsidiary. Each subsidiary’s operational risk is internally monitored and managed at the subsidiary level and the Group Internal Audit Department at our holding company, which reports to our Audit Committee, continuously monitors the integrity of our subsidiaries’ operational risk management system. Our holding company’s board of directors and the Group Risk Management Committee establish our basic policies

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for internal control at the group level. The Group Internal Audit Department at our holding company is directly responsible for overseeing our internal controls with a focus on legal, regulatory, operational and reputational risks. The Group Internal Audit Department audits both our and our subsidiaries’ operations and asset condition in accordance with our annual audit plan, which is approved by the Audit Committee, and submits regular reports to the Audit Committee pursuant to our internal reporting system. If the Group Internal Audit Department discovers any

non-compliance

with operational risk procedures or areas of weaknesses, it promptly alerts the business department in respect of which such

non-compliance

was discovered and demands implementation of corrective measures. Implementation of such corrective measures is subsequently reviewed by the Group Internal Audit Department.

To monitor and manage operational risk, Shinhan Bank maintains a system of comprehensive policies and has in place a control framework designed to provide a stable and well-managed operational environment throughout the organization. Currently, the primary responsibility for ensuring compliance with our banking operational risk procedures remains with each of the business units and operational teams. In addition, the Audit Department, the Risk Management Department and the Compliance Department of Shinhan Bank also play important roles in reviewing and maintaining the integrity of Shinhan Bank’s internal control environment.

The operational risk management system of Shinhan Bank is managed by the operational risk team under the Risk Management Department. The current system principally consists of risk control self-assessment, risk quantification using key risk indicators, loss data collection, scenario analysis and operational risk capital measurement. Shinhan Bank operates several educational and awareness programs designed to have all of its employees to be familiar with this system. In addition, Shinhan Bank has a designated operational risk manager at each of its departments and branch offices, who serves as a coordinator between the operational risk team at the headquarters and the employees in the front office and seeking to provide centralized feedback to further improve the operational risk management system.

As of December 31, 2021, Shinhan Bank has conducted risk control self-assessments on its departments as well as domestic and overseas branch offices, from which it collects systematized data on all of its branch offices, and uses the findings from such self-assessments to improve the procedures and processes for the relevant departments or branch offices. In addition, Shinhan Bank has accumulated risk-related data since 2003, improved the procedures for monitoring operational losses and is developing risk simulation models. In addition, Shinhan Bank selects and monitors, at the department level, approximately 188 key risk indicators.

The Audit Committee of Shinhan Bank, which consists of one standing director and two outside directors, is an independent inspection authority that supervises Shinhan Bank’s internal controls and compliance with established ethical and legal principles. The Audit Committee performs internal audits of, among other matters, Shinhan Bank’s overall management and accounting, and supervises its Audit Department, which assists Shinhan Bank’s Audit Committee. Shinhan Bank’s Audit Committee also reviews and evaluates Shinhan Bank’s accounting policies and their changes, financial and accounting matters and fairness of financial reporting.

Shinhan Bank’s Audit Committee, Audit Department and Compliance Department supervise and perform the following duties:

• general audits, including full-scale audits performed annually for the overall operations, sectional audits of selected operations performed as needed, and periodic and irregular spot audits;

• special audits, performed when the Audit Committee 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 member of Shinhan Bank’s Audit Committee 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

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• 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.

In addition to these audits and compliance activities, Shinhan Bank’s Risk Management Department designates operational risk management examiners to monitor the appropriateness of operational risk management frameworks and the functions and activities of the board of directors, relevant departments and business units, and conducts periodic checks on the operational risk and reports such findings. Shinhan Bank’s Audit Department also reviews in advance proposed banking products or other business or service plans with a view to minimizing operational risk. General audits, special audits,

day-to-day

audits and real-time monitoring audits are performed by Shinhan Bank’s examiners, and self-audits are performed by the self-auditors of the relevant operational departments.

As for Shinhan Investment, its audit department conducts an annual inspection as to whether the internal policy and procedures of Shinhan Investment relating to its overall operational risk management are being effectively complied. The inspection has a particular focus on the appropriateness of the scope of operational risks and the collection, maintenance and processing of relevant operating data. Shinhan Investment, through its operational risk management system, also conducts self-assessments of risks, collects loss data and manages key risk indicators. The operational risk management system is supervised by its audit department, compliance department and risk management department, as well as a risk management officer in each of Shinhan Investment’s departments.

Shinhan Card’s audit committee reviews whether the internal policy and procedures of Shinhan Card are effective and implements measures to improve such policies as needed. Shinhan Card’s audit committee also contributes to work efficiency, financial risk minimization and management rationalization. Shinhan Card is developing an operational risk management system in accordance with the Financial Supervisory Service’s oversight guidelines regarding operational risk measurement, which it plans to use to assess operational risk by department in order to identify operational risk factors and to assess and mitigate potential risks on a periodic basis.

Shinhan Life Insurance’s Risk Management Department and Compliance Department reviews whether the internal policy and procedures of Shinhan Life Insurance are being effectively complied with. Shinhan Life Insurance implemented an operational risk management process in 2018 by setting up key risk indicators in each department and utilizes it to assess operational risk, collect data and manage key indicators. Furthermore, Shinhan Life Insurance established a standard roadmap to improve its operational risk assessment capabilities. Shinhan Life Insurance established an Operational Risk Management Team in an effort to improve its operational risk assessment capabilities and implement operational risk management systems. In order to reduce operational risk across products, projects, outsourcings and sales channels, risk assessments are conducted, and high risk areas are identified on a regular basis and then subject to heightened risk monitoring. In addition, Shinhan Life developed a business continuity plan to prepare for disastrous events and conduct annual drills. Shinhan Life Insurance plans to advance its operational risk management system and to enhance operational risk management capabilities in additional areas by establishing an operational risk management system in response to the implementation of Basel III operational risk requirements.

In addition to internal audits and inspections, the Financial Supervisory Service conducts general annual audits of our and our subsidiaries’ operations. The Financial Supervisory Service also performs special audits as the need arises on particular aspects of our and our subsidiaries’ operations such as risk management, credit monitoring and liquidity. In the ordinary course of these audits, the Financial Supervisory Service routinely issues warning notices where it determines that a regulated financial institution or such institution’s employees have failed to comply with the applicable laws or rules, regulations and guidelines of the Financial Supervisory Service. We and our subsidiaries have in the past received, and expect in the future to receive, such notices and we have taken and will continue to take appropriate actions in response to such notices. For example, in October 2018, the Financial Supervisory Service requested Shinhan Bank to submit supporting documents in connection

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with allegations of inadequate compliance controls. In November 2018, the Financial Supervisory Service notified Shinhan Bank of an institutional caution for alleged deficiencies in its customer due diligence and imposed an administrative fine of

W

100 million citing negligence in carrying out its customer verification obligations. In December 2019, the Financial Supervisory Service notified Shinhan Bank of an institutional caution and imposed an administrative fine of

W

3 billion for alleged prohibited activities, including promotional activities for specified money trusts, investment solicitation for derivatives and management of trust properties. In 2021, the Korea Exchange imposed a total of three penalties on Shinhan Investment for regulatory violations, totaling

W

2.7 million in fines. In 2021, the Financial Supervisory Service imposed a total of eight penalties against Shinhan Investment for regulatory violations, totaling

W

4,092 million in fines, which include a fine of

W

1,800 million for certain employees’ violation of conflict of interest obligations in connection with the Lime Asset incident and a fine of

W

1,160 million for violation of rules against advertising certain money trust products. In January 2020, the Financial Supervisory Service notified Shinhan Life Insurance of an institutional caution and imposed an administrative fine of

W

266 million for allegedly omitting certain information regarding the level of expenses deducted from premiums paid when selling savings insurance products over the telephone. In February 2021, the Financial Supervisory Service notified Shinhan Bank of an institutional warning and imposed an administrative fine of

W

2.1 billion for reasons including alleged violation of internal regulations and reporting procedures in connection with Shinhan Bank’s designation as the primary bank for Seoul Metropolitan Government in 2018. In March 2021, the FSS notified Shinhan Bank of an institutional caution and imposed an administrative fine of

W

31.2 million for alleged violation of the safety standard in operating its information system in respect of the electronic financial transaction and alleged negligence in notifying its customers of the errors occurred to the electronic financial transaction and measures taken to correct the errors. In January 2021, the Financial Services Commission imposed a fine of

W

28.8 million on Shinhan Card citing failure to discard personal information after transaction. For further details, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.”

We consider legal risk as a part of operational risk. The uncertainty of the enforceability of obligations of our customers and counterparties, including foreclosure on collateral, creates legal risk. Changes in laws and regulations could also adversely affect us. Legal risk is higher in new areas of business where the law is often untested in the courts although legal risk can also increase in our traditional business to the extent that the legal and regulatory landscape in Korea changes and many new laws and regulations governing the banking industry remain untested. We seek to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting legal advisers. The Compliance Department operates Shinhan Financial Group’s compliance system. This system is designed to ensure that all employees of Shinhan Financial Group and its subsidiaries comply with the relevant laws and regulations. The compliance system’s main function is to monitor the degree of improvement in compliance with the relevant laws and regulations, maintain internal controls (including ensuring that each department has established proper internal policies and that it complies with those policies) and educate employees about observance of the relevant laws and regulations. The Compliance Department also supervises the management, execution and performance of self-audits.

Upgrades to Risk Management Systems

Our recent material upgrades in relation to risk management systems are as follows.

Shinhan Financial Group

In May 2015, we developed and implemented a credit review system to unify our corporate credit review and risk measurements, allowing us and our subsidiaries to utilize a uniform and consistent credit review system with respect to each borrower. In addition, in preparation of full implementation of Basel III requirements relating to liquidity coverage ratios for bank holding companies and to enhance our liquidity risk management capabilities, we have implemented a Basel III liquidity coverage ratio risk management system by which we calculate our liquidity coverage ratio each month.

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Shinhan Bank

In order to strengthen risk management of its overseas subsidiaries and effectively comply with local and domestic regulations, Shinhan Bank is in the process of laying out a global risk management system network, which records the risk data of its overseas subsidiaries. Shinhan Bank seeks to leverage the development of this system for further overseas expansion and stable growth of existing overseas subsidiaries. To date, Shinhan Bank has completed the development of such system for its subsidiaries in China, Japan, Vietnam, the United States, Canada, India, Europe and Mexico. Shinhan Bank also plans to expand the application of this system to its other overseas subsidiaries.

Shinhan Bank has also completed development of a system to calculate stressed VaR based on Basel II standards in order to prepare for stress situations such as the global financial crisis in 2008. Shinhan Bank has received approval for such system from the Financial Supervisory Service and has been implemented since 2012.

In 2012, Shinhan Bank developed a system for improving collection and recovery of bad assets through enhanced LGD data processing. In addition, in 2012, Shinhan Bank received approvals from the Financial Supervisory Service for upgrades to its credit evaluation modeling for risk assessment of small- to

medium-sized

enterprises that are not required to be audited by outside accounting firms and for SOHOs, which upgrades related to factoring in the credit profile of the head of such enterprises and SOHOs. In 2014, Shinhan Bank further upgraded the credit evaluation modeling for risk assessment of small- and

medium-size

enterprises that are not required to be audited by outside accounting firms by entirely revamping the modeling for enterprises subject to outside audits, enterprises that are not subject to outside auditors and enterprise heads. Such upgraded modeling was approved by the Financial Supervisory Service, and Shinhan Bank began implementation of the upgraded system since 2014. In 2014, Shinhan Bank reclassified its credit evaluation models for risk assessment of enterprises into the following four categories: (i) IFRS (enterprises subject to external audits under IFRS as adopted by Korea), (ii) GAAP (enterprises subject to external audits under Generally Accepted Accounting Principles), (iii) small- and

medium-size

enterprises and (iv) SOHO. Such reclassification was approved by the Financial Supervisory Service, and Shinhan Bank began to implement the system in 2015.

In addition, in 2013, Shinhan Bank obtained approval from the Financial Supervisory Service to use an internal evaluation model with respect to Basel II credit risks related to Shinhan Bank’s retail and SOHO exposures. In 2016, Shinhan Bank developed a new internal evaluation model and obtained approval from the Financial Supervisory Service to use the new model with respect to Basel II credit risks related to Shinhan Bank’s retail exposures. In addition, Shinhan Bank received another approval in 2016 for LGD data processing using the AIRB approach in order to reflect changes in economic conditions such as prolonged recovery periods and low interest rates, and the newly approved LGD data processing will replace existing LGD data processing for both retail and SOHO exposures.

Shinhan Bank also upgraded the asset and liability management system in 2012 in order to timely comply with Basel III, IFRS and other regulatory requirements as well as to upgrade the quality of risk-related data. In 2014, Shinhan Bank upgraded the liquidity coverage ratio and net stable funding ratio systems under Basel III in order to facilitate daily measurement and efficient management.

Following the approval by the Financial Supervisory Service of the advanced measurement approach for risk management, Shinhan Bank has

re-established

the operational risk management system in order to further enhance its operational risk management capabilities.

Shinhan Card

In 2012, Shinhan Card completed further upgrades to its credit risk measurement system in satisfaction of the Basel II standards, as well as other regulatory requirements and internal needs in order to address the ongoing volatility in the economic and regulatory environment. In December 2016, Shinhan Card obtained approval from the Financial Supervisory Service to use a new internal evaluation model with respect to Basel III credit risks related to its retail and SOHO exposures.

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Shinhan Investment

In 2016, Shinhan Investment established a Risk Engineering Team and updated its market risk management system to increase its value assessment capabilities for

over-the-counter

derivatives, strengthen its VaR risk analysis capabilities and improve various simulation functions. Beginning in 2017, the Risk Engineering Team conducts value assessment and reviews

over-the-counter

derivatives directly using various enhanced simulation functions such as updated stress tests in order to stabilize financial accounting prices and enhance the risk management of

over-the-counter

derivatives. In January 2019, the Risk Engineering Team was elevated to a department, becoming the Risk Engineering Department, expanding the scope of products reviewed by the department and strengthening its simulation analysis capabilities.

Shinhan Life Insurance

In 2017, Shinhan Life Insurance updated its interest rate risk measurement system, called the ALM system, in anticipation of

Korea-ICS,

a new insurance liability market valuation system designed to replace the existing risk based capital system, and IFRS 17. In 2018, the new asset liability management system implemented an interest rate risk management system based on the Europe Solvency II standard. The asset liability management system can measure both asset and liability based on marking to market valuation. Shinhan Life Insurance also updated its interest rate risk management system to control net income margin volatility resulting from market interest rate changes and has tailored its business scheme to this system in order to better manage risk and profits and match the duration of its assets and liabilities.In 2019, Shinhan Life Insurance further upgraded its insurance risk measurement system in anticipation of

Korea-ICS,

which is expected to become effective beginning 2022. However, on March 17, 2020, the IASB announced deferral of the effective date for IFRS 17 from 2022 to 2023, and it is likely that

Korea-ICS

will correspondingly also become effective beginning 2023. The upgraded system can more elaborately measure insurance risk associated with mortality, longevity, morbidity, disability, lapse and expenses. Shinhan Life Insurance measures its insurance risk using shock scenarios and parameters calibration based on internal statistical estimates.

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Supervision and Regulation

Principal Regulations Applicable to Financial Holding Companies

General

The Korean financial holding companies and their subsidiaries are regulated by the Financial Holding Companies Act (last amended on April 20, 2021, Law No. 18128). In addition, Korean financial holding companies and their subsidiaries are subject to the regulations and supervision of the Financial Services Commission and the Financial Supervisory Service.

Pursuant to the Financial Holding Companies Act, the Financial Services Commission regulates various activities of financial holding companies. For instance, it approves the application for setting up a new financial holding company and promulgates regulations on the capital adequacy of financial holding companies and their subsidiaries and other regulations relating to the supervision of financial holding companies.

The Financial Supervisory Service is subject to the instructions and directives of the Financial Services Commission and carries out supervision and examination of financial holding companies and their subsidiaries. In particular, the Financial Supervisory Service sets forth liquidity and capital adequacy requirements for financial holding companies and reporting requirements pursuant to the authority delegated to the Financial Supervisory Service under the Financial Services Commission regulations, pursuant to which financial holding companies are required to submit quarterly reports on business performance, financial status and other matters prescribed in the Presidential Decree of the Financial Holding Companies Act.

Under the Financial Holding Companies Act, the establishment of a financial holding company must be approved by the Financial Services Commission. A financial holding company is required to be mainly engaged in controlling its subsidiaries by holding the shares or equities of the subsidiaries in the amount of not less than 50% of aggregate amount of such financial holding company’s assets based on the latest balance sheet. A financial holding company is prohibited from engaging in any profit-making businesses other than controlling the management of its subsidiaries and certain ancillary businesses as prescribed in the Presidential Decree of the Financial Holding Companies Act which includes the following businesses:

• financially supporting its subsidiaries and the subsidiaries of its subsidiaries (the “direct and indirect subsidiaries”), including lending properties with economic values such as monies and securities, guaranteeing obligation performance and other direct or indirect transactions involving transactional credit risk;

• 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 products;

• supporting the operations of its direct and indirect subsidiaries by providing access to data processing, legal and accounting resources; and

• pursuing any other activities exempted from authorization, permission or approval under the applicable laws and regulations.

The Financial Holding Companies Act requires every financial holding company (other than any financial holding company that is controlled by any other financial holding company) or its subsidiaries to obtain the prior approval from the Financial Services Commission before acquiring control of another company or to file with the Financial Services Commission a report within thirty days after acquiring such control. Permission to liquidate or to merge with any other company must be obtained in advance from the Financial Services Commission. A financial holding company must report to the Financial Services Commission regarding certain events including:

• when there is a change of its largest shareholder;

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• when there is a change of principal shareholders of a bank holding company;

• when the shareholding of the largest shareholder or a principal shareholder as prescribed under the Financial Holding Companies Act or a person who is in a special relationship with such largest or principal shareholder (as defined under the Presidential Decree of the Financial Holding Companies Act) changes by 1% or more of the total issued and outstanding voting shares of the financial holding company;

• when there is a change of its name;

• 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

The Financial Holding Companies Act does not provide for a minimum

paid-in

capital of financial holding companies. All financial holding companies, however, are required to maintain a specified level of solvency. In addition, in its allocation of the net profit earned in a fiscal term, a financial holding company is required to set aside in its legal reserve an amount equal to at least 10% of the net income after tax each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its

paid-in

capital.

A financial holding company controlling banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act (hereinafter, the “bank holding company”) is required to maintain a minimum consolidated equity capital ratio of 8.0%. “Consolidated equity capital ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on the Bank of International Settlements standards. “Equity capital,” as applicable to bank holding companies, is defined as the sum of Tier I capital, Tier II capital, and Tier III capital less any deductible items, each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

For regulatory reporting purposes, we maintain allowances for credit losses on the following loan classifications that classify corporate and retail loans as required by the Financial Services Commission. In making these classifications, we take into account a number of factors, including the financial position, profitability and transaction history of the borrower, the value of any collateral or guarantee taken as security for the extension of credit, probability of default and loss amount in the event of default. This classification method, and our related provisioning policy, is intended to reflect the borrower’s capacity to repay. To the extent there is any conflict between the Financial Services Commission guidelines and our internal analysis in such classifications, we adopt whichever is more conservative.

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The following table sets forth loan classifications according to the guidelines of the Financial Services Commission.

Loan Classification	Loan Characteristics
Normal	Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, do not raise concerns regarding their ability to repay the loans.
Precautionary	Loans extended to customers that (i) based on our consideration of their business, financial position and future cash flows, show potential risks with respect to their ability to repay the loans, although showing no immediate default risk or (ii) are in arrears for one month or more but less than three months.
Substandard	(i) Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, are judged to have incurred considerable default risks as their ability to repay has deteriorated; or (ii) the portion that we expect to collect of total loans (a) extended to customers that have been in arrears for three months or more, (b) extended to customers that have incurred serious default risks due to the occurrence of, among other things, final refusal to pay their debt instruments, entry into liquidation or bankruptcy proceedings or closure of their businesses, or (c) extended to customers who have outstanding loans that are classified as “doubtful” or “estimated loss.”
Doubtful	Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, have incurred serious default risks due to noticeable deterioration in their ability to repay; or (ii) have been in arrears for three months or more but less than 12 months.
Estimated loss	Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, are judged to be accounted as a loss because the inability to repay became certain due to serious deterioration in their ability to repay; (ii) have been in arrears for 12 months or more; or (iii) have incurred serious risks of default in repayment due to the occurrence of, among other things, final refusal to pay their debt instruments, liquidation or bankruptcy proceedings or closure of their business.

In accordance with the Regulations for the Supervision of Financial Institutions, we establish regulatory reserve for loan loss in the amount of the difference between allowance for credit losses as calculated pursuant to our provisioning policy in accordance with IFRS and allowance for credit losses based on the loan classifications set forth above as required by the Financial Services Commission. In determining consolidated equity capital ratio, we deduct regulatory reserve for loan loss from equity capital.

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Liquidity

All financial holding companies are required to match the maturities of their assets to those of liabilities in accordance with the Financial Holding Companies Act in order to ensure liquidity. Financial holding companies are required to submit quarterly reports regarding their liquidity to the Financial Supervisory Service and must:

• maintain a Won liquidity ratio (defined as Won assets due within one month, 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% except for financial holding companies with a foreign currency liability to total assets ratio of less than 1%;

• 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%, except for financial holding companies with a foreign currency liability to total assets ratio of less than 1%; 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% except for financial holding companies with a foreign currency liability to total assets ratio of less than 1%.

Financial Exposure to Any Single Customer and Major Shareholders

Subject to certain exceptions, the total sum of credit (as defined in the Presidential Decree of the Financial Holding Companies Act, the Bank Act, the Presidential Decree of the Financial Investment Services and Capital Markets Act, the Insurance Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a financial holding company and its direct and indirect subsidiaries which are banks, merchant banks or securities companies (“Financial Holding Company Total Credit”) extended to a single group of companies that belong to the same conglomerate as defined in the Monopoly Regulations and Fair Trade Act will not be permitted to exceed 25% of the Net Total Equity Capital.

“Net Total Equity Capital”

for the purpose of the calculation of financial exposure to any single customer and Major Shareholder (as defined below) as applicable to us and our subsidiaries is defined under the Presidential Decree of the Financial Holding Companies Act as

(a) the sum of:

(i) in the case of a financial holding company, the shareholders’ equity as defined under Article 24-3, Section 7(2) of the Presidential Decree of the Financial Holding Companies Act, which represents the difference between the total assets less total liabilities on the balance sheet as of the end of the most recent quarter;

(ii) in the case of a bank, the shareholders’ equity as defined under Article 2, Section 1(5) of the Bank Act, which represents the sum of Tier I and Tier II capital amounts determined according to the standards set by the BIS;

(iii) in the case of a merchant bank, the capital amount as defined in Article 342, Section (1) of the Financial Investment Services and Capital Markets Act;

(iv) in the case of a financial investment company, the shareholders’ equity as defined under Article 37, Section 3 of the Presidential Decree of the Financial Investment Services and Capital Markets Act, which represents the total shareholders’ equity as adjusted as determined by the Financial Services Commission, such as the amount of increase or decrease in paid-in capital after the end of the most recent fiscal year;

(v) in the case of an insurance company, the shareholders’ equity as defined under Article 2, Section 15 of the Insurance Act, which represents the sum of items designated by the

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Presidential Decree, such as

paid-in-capital,

capital surplus, earned surplus and any equivalent items, less the value of good will and other equivalent items;

(vi) in the case of a mutual savings bank, the shareholders’ equity as defined under Article 2, Section 4 of the Mutual Savings Bank Act, which represents the sum of Tier I and Tier II capital amounts determined in accordance with the standards set by the Bank for International Settlements; and

(vii) in the case of a credit card company or a specialty credit provider, the shareholders’ equity as defined under Article 2, Section 19 of the Specialized Credit Financial Business Act, which represents the sum of the items designated by the Presidential Decree, such as paid-in-capital, capital surplus, earned surplus and any equivalent items;

(b) less the sum of:

(i) the amount of shares in direct and indirect subsidiaries held by the financial holding company;

(ii) the amount of shares in the direct and indirect subsidiaries that are cross-held by such subsidiaries; and

(iii) the amount of shares in the financial holding company held by its direct and indirect subsidiaries.

The Financial Holding Company Total Credit to a single individual or legal entity may not exceed 20% of the Net Total Equity Capital.

Furthermore, the total sum of credits (as defined under the Financial Holding Companies Act, the Banking Act and the Financial Investment Services and Capital Markets Act, respectively) of a bank holding company and its direct and indirect subsidiaries (“Bank Holding Company Total Credit”) extended to a “Major Shareholder” (together with the persons who have special relationship with such Major Shareholder) (as defined below) generally may not exceed the smaller of (x) 25% of the Net Total Equity Capital and (y) the amount of the equity capital of the financial holding company multiplied by the shareholding ratio of such Major Shareholder, subject to certain exceptions.

“Major Shareholder”

is defined under the Financial Holding Companies Act as follows:

(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.

In addition, the total sum of the Bank Holding Company Total Credit extended to all of a bank holding company’s Major Shareholder may not exceed 25% of the Net Total Equity Capital. Furthermore, the bank holding company and its direct and indirect subsidiaries that intend to extend the Bank Holding Company Total Credit to the bank holding company’s Major Shareholder not less than the lesser of (i) the amount equivalent to 0.1% of the Net Total Equity Capital or (ii) 

W

5 billion, with respect to a single transaction, must obtain prior unanimous board resolutions and then, immediately after the completion of the transaction, must file a report with the Financial Services Commission and publicly disclose the filing of such report (for example, through a website).

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Restrictions on Transactions among Direct and Indirect Subsidiaries and Financial Holding Company

Generally, a direct or indirect subsidiary of a financial holding company may not extend credit to the financial holding company which directly or indirectly controls such subsidiary. In addition, a direct or indirect subsidiary of a financial holding company may not extend credit to any other single direct or indirect subsidiary of the financial holding company in excess of 10% of its stockholders’ equity and to any other direct and indirect subsidiaries of the financial holding company in excess of 20% of its stockholders’ equity in the aggregate. The direct or indirect subsidiaries of a financial holding company must obtain an appropriate level of collateral for the credits extended to the other direct and indirect subsidiaries unless otherwise approved by the Financial Services Commission. The appropriate level of collateral for each type of such collateral is as follows:

(i) For deposits and installment savings, obligations of the Government or the Bank of Korea, obligations guaranteed by the Government or the Bank of Korea, obligations secured by securities issued or guaranteed by the 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.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is prohibited from owning the shares of any other direct or indirect subsidiaries (other than those directly controlled by the direct and indirect subsidiaries in question) in common control by the financial holding company. However, a direct or indirect subsidiary of a financial holding company may invest as a limited partner in a private equity fund that is a direct or indirect subsidiary of the same financial holding company. The transfer of certain assets subject to or below the precautionary criteria between the financial holding company and its direct or indirect subsidiary or between the direct and indirect subsidiaries of a financial holding company is prohibited except for (i) the transfer to an asset-backed securitization company, typically a special purpose entity, or the entrustment with a trust company, under the Asset-Backed Securitization Act, (ii) the transfer to a mortgage-backed securitization company under the Mortgage-Backed Securitization Company Act, (iii) the transfer or

in-kind

contribution to a corporate restructuring vehicle under the Corporate Restructuring Investment Company Act or (iv) the acquisition by a corporate restructuring company under the Industrial Development Act.

Disclosure of Management Performance

For the purpose of protecting the depositors and investors in the subsidiaries of the financial holding companies, the Financial Services Commission requires financial holding companies to disclose certain material matters including (i) financial condition and profit and loss of the financial holding company and its direct and indirect subsidiaries, (ii) how capital was raised by the financial holding company and its direct and indirect subsidiaries and how such capital was used, (iii) any sanctions levied on the financial holding company and its direct and indirect subsidiaries under the Financial Holding Companies Act or any corrective measures or sanctions under the Law on Improvement of Structure of Financial Industry or (iv) occurrence of any

non-performing

assets or financial incident which may have a material adverse effect.

Restrictions on Shareholdings in Other Companies

Subject to certain exceptions, a bank holding company may not own more than 5% of the total issued and outstanding shares of another company (other than its direct and indirect subsidiaries). If the financial holding company owns shares of another company (other than its direct and indirect subsidiaries) which is not a finance-

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related company, the financial holding company is required to exercise its voting rights in the same manner and same proportion as the other shareholders of the company exercise their voting rights in favor of or against any resolutions under consideration at the shareholders’ meeting of the company.

Restrictions on Shareholdings by Direct and Indirect Subsidiaries

Generally, a direct subsidiary of a financial holding company is prohibited from controlling any other company;

provided

that a direct subsidiary of a financial holding company may control (as an indirect subsidiary of the financial holding company): (i) subsidiaries in foreign jurisdiction which are engaged in a financial business, (ii) certain financial institutions which are engaged in the business that the direct subsidiary may conduct without any licenses or permits, (iii) certain financial institutions whose business is related to the business of the direct subsidiary as prescribed under the Presidential Decree of the Financial Holding Companies Act (for example, the companies which a bank subsidiary may control are limited to credit information companies, credit card companies, trust business companies, securities investment management companies, investment advisory companies, futures business companies, and asset management companies), (iv) certain financial institutions whose business is related to financial business as prescribed by the regulations of the Ministry of Strategy and Finance, and (v) certain companies which are not financial institutions but whose business is related to the financial business of the financial holding company as prescribed by the Presidential Decree of the Financial Holding Companies Act (e.g. finance-related research company, finance-related information technology company, etc.). Acquisition by the direct subsidiaries of such indirect subsidiaries requires a prior permission from the Financial Services Commission or a report to be submitted to the Financial Services Commission, depending on the types of the indirect subsidiaries and the amount of total assets of the indirect subsidiaries.

An indirect subsidiary of a financial holding company is prohibited from controlling any other company, provided, however, that in the case where a company held control over another company at the time such company initially became an indirect subsidiary of a financial holding company, such indirect subsidiary shall be required to dispose of its interest in such other company within two years after becoming an indirect subsidiary of a financial holding company.

A subsidiary of a financial holding company may invest in a special purpose company as its largest shareholder for purposes of making investments under the Act on Private Investment in Social Infrastructure without being deemed as controlling such special purpose company.

In addition, a private equity fund established in accordance with the Financial Investment Services and Capital Markets Act is not considered to be a subsidiary of a financial holding company even if the financial holding company is the largest investor in the private equity fund unless the financial holding company is the asset management company for the private equity fund.

Restrictions on Transactions Between a Financial Holding Company and its Major Shareholder

A bank holding company and its direct and indirect subsidiaries are prohibited from acquiring (including acquisition by a trust account of its subsidiary bank) shares issued by such bank holding company’s Major Shareholder in excess of 1% of the Net Total Equity Capital. In addition, the financial holding company and its direct and indirect subsidiaries which intend to acquire shares issued by such Major Shareholder not less than the lesser of (i) the amount equivalent to 0.1% of the Net Total Equity Capital or (ii) 

W

5 billion, with respect to a single transaction, must obtain prior unanimous board resolutions and then, immediately after the acquisition, must file a report with the Financial Services Commission and publicly disclose the filing of such report (for example, through a website).

Restrictions on Financial Holding Company Ownership

Under the Financial Holding Companies Act, foreign financial institutions are permitted to establish financial holding companies in Korea. Pursuant to the Presidential Decree of the Financial Holding Companies

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Act, a foreign financial institution can control a financial holding company if, subject to satisfying certain other conditions, it, together with its specially-related persons, holds 100% of the total shares in the financial holding company.

In addition, any single shareholder and persons who stand in a special relationship with such shareholder (as defined under the Presidential Decree to the Financial Holding Companies Act) may acquire beneficial ownership of up to 10% of the total issued and outstanding shares with voting rights of a financial holding company controlling national banks (or 15% in the case of a financial holding company controlling regional banks only). The Government and the Korea Deposit Insurance Corporation are not subject to such a ceiling.

However,

“non-financial

business group companies” (as defined below) may not acquire beneficial ownership of shares of a bank holding company in excess of 4% of such financial holding company’s outstanding voting shares, provided that such

non-financial

business group companies may acquire beneficial ownership of up to 10% of such financial holding company’s outstanding voting shares with the approval of the Financial Services Commission under the condition that such

non-financial

business group companies will not exercise voting rights in respect of such shares in excess of the 4% limit. In addition, any person (whether a Korean national or a foreigner), with the exception of

non-financial

business group companies described above, may also acquire in excess of 10% of total voting shares issued and outstanding of a financial holding company which controls national bank, provided that an approval from the Financial Services Commission is obtained in instances where the total holding exceeds 10% (or 15% in the case of a financial holding company controlling regional banks only), 25% or 33% of the total voting shares issued and outstanding of such bank holding company.

“Non-financial

business group companies”

are defined under the Financial Holding Companies Act as companies, which include:

(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 W 2 trillion;

(iii) any mutual fund in which the same shareholder group identified in item (i) or (ii) above holds more than 4% of the total shares issued and outstanding of such mutual fund;

(iv) any private equity fund (x) which has a partner with limited liability that falls under item (i), (ii) or (iii) above and holds equity equivalent to 10% or greater of the total amount invested by the private equity fund, (y) which has a partner with unlimited liability that falls under item (i), (ii) or (iii) above or (z) whose affiliates belonging to an enterprise group subject to limitation on mutual investment hold in aggregate equity equivalent to 30% or greater of the total amount invested by such private equity fund; or

(v) any investment purpose company in which a private equity fund that falls under item (iv) above acquires and holds no less than 4% of such company’s shares or equity or exercises de-facto influence on such company’s significant managerial matters.

Sharing of Customer Information among Financial Holding Companies and their Subsidiaries

Under the Act on Use and Protection of Credit Information, any individual customer’s credit information may only be disclosed or otherwise used by financial institutions to determine, establish or maintain existing commercial transactions with them and only after obtaining written consent to use information. In addition, under the Act on Real Name Financial Transactions and Confidentiality, an individual working at a financial institution may not provide or reveal information or data concerning the contents of financial transactions to other persons unless such individual receives a request or consent in writing from the holder of a title deed, except under

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certain exceptions stipulated in the Act. Under the Financial Holding Company Act, a financial holding company and its direct and indirect subsidiaries, however, may share certain credit information of individual customers among themselves for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act (such as credit risk management, internal control and customer analysis) without the customers’ written consent, provided they adhere to the methods and procedures for provision of such information set forth therein. A financial investment company subsidiary of a financial holding company with a dealing and/or brokerage license may provide the financial holding company and its other direct and indirect subsidiaries information relating to the aggregate amount of cash or securities that a customer of the financial investment company has deposited for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act, provided they adhere to the methods and procedures for provision of such information set forth therein. Certain amendments to the Financial Holding Company Act, which became effective on November 29, 2014, limit the scope of credit information that may be shared without the customers’ prior consent and require certain procedures for provision of customer information as prescribed by the Financial Services Commission. Beginning on November 29, 2014, notice must be given to customers at least once a year regarding (i) the provider of customer information, (ii) the recipient of customer information, (iii) the purpose of providing the information and (iv) the categories of the information provided.

The Act on Corporate Governance of Financial Companies

The Act on Corporate Governance of Financial Companies came into effect as of August 1, 2016. The Act was enacted to address calls for strengthened regulations on corporate governance of financial companies and to serve as a uniform regulation on corporate governance matters applicable to all financial companies in place of the separate regulations for each sector that existed. The Act contains several key measures, including, but not limited, to (i) condition of eligibility of officers of financial companies and standards for determining whether financial companies’ officers may hold concurrent positions in other companies, (ii) standards for composition and operation of board of directors, (iii) standards for establishment, composition and operation of committees of the board of directors, (iv) internal control and risk management, (v) requirements and procedures for the approval of a change of major shareholders and (vi) special regulations for rights of minority shareholders of financial companies.

Financial Investment Services and Capital Markets Act

General

The Financial Investment Services and Capital Markets Act categorizes capital markets-related business into six different functions, as follows:

• dealing (trading and underwriting of “financial investment products” (as defined below));

• brokerage (brokerage of financial investment products);

• collective investment (establishment of collective investment schemes and the management thereof);

• investment advice;

• discretionary investment management; and

• trusts (together with the five businesses set forth above, the “Financial Investment Businesses”).

Accordingly, all financial businesses relating to financial investment products are reclassified as one or more of the Financial Investment Businesses described above, and financial institutions are subject to the regulations applicable to their relevant Financial Investment Businesses, irrespective of the type of the financial institution it is. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses conducted by securities companies and future companies will be subject to the same regulations under the Financial Investment Services and Capital Markets Act, at least in principle.

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The banking business and insurance business are not subject to the Financial Investment Services and Capital Markets Act and will continue to be regulated under separate laws; provided, however, that they may become subject to the Financial Investment Services and Capital Markets Act if their activities involve any financial investment businesses requiring a license based on the Financial Investment Services and Capital Markets Act.

Comprehensive Definition of Financial Investment Products

In an effort to encompass the various types of securities and derivative products available in the capital markets, the Financial Investment Services and Capital Markets Act sets forth a comprehensive term “financial investment products,” defined to mean all financial products with a risk of loss in the invested amount (in contrast to “deposits,” which are not financial investment products for which the invested amount is protected or preserved). Financial investment products are classified into two major categories: (i) “securities” (relating to financial investment products where the risk of loss is limited to the invested amount) and (ii) “derivatives” (relating to financial investment products where the risk of loss may exceed the invested amount). As a result of the general and open-ended manner in which financial investment products are defined, any future financial product could potentially fall under the definition of financial investment products, which would enable Financial Investment Companies (as defined below) to handle a broader range of financial products. Under the Financial Investment Services and Capital Markets Act, securities companies, asset management companies, futures companies and other entities engaging in any Financial Investment Business are classified as “Financial Investment Companies.”

License System

Financial Investment Companies are able to choose what Financial Investment Business to engage in (through the “check the box” method set forth in the relevant license application), by specifying the desired (i) Financial Investment Business, (ii) financial investment product and (iii) target customers to which financial investment products may be sold (namely, general investors or professional investors). Licenses will be issued under the specific business

sub-categories

described above. For example, it would be possible for a Financial Investment Company to obtain a license to engage in the Financial Investment Business of (i) dealing

(ii) over-the-counter

derivatives products (iii) only with professional investors.

Expanded Business Scope of Financial Investment Companies

Under the previous regulatory regime in Korea, it was difficult for a financial institution to explore a new line of business or expand upon its existing line of business. For example, a financial institution licensed as a securities company generally could not engage in the asset management business. In contrast, under the Financial Investment Services and Capital Markets Act, pursuant to the integration of its current business involving financial investment products into a single Financial Investment Business, a licensed Financial Investment Company is permitted to engage in all types of Financial Investment Businesses, subject to compliance with the relevant regulations, for example, maintaining an adequate “Ethical Screens,” to the extent required. As to incidental businesses (i.e., a financial related business which is not a Financial Investment Business), the Financial Investment Services and Capital Markets Act generally allows a Financial Investment Company to freely engage in such incidental businesses by shifting away from the previous system of permitting only the listed activities towards a more comprehensive system. In addition, a Financial Investment Company is permitted (i) to outsource marketing activities by contracting with “introducing brokers” that are individuals but not employees of the Financial Investment Company, (ii) to engage in foreign exchange business related to their Financial Investment Business and (iii) to participate in the settlement network, pursuant to an agreement among the settlement network participants.

Improvement in Investor Protection Mechanism

While the Financial Investment Services and Capital Markets Act broadens the scope of financial businesses in which financial institutions are permitted to engage, a more rigorous investor-protection mechanism is

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imposed upon Financial Investment Companies dealing in financial investment products. The Financial Investment Services and Capital Markets Act makes a distinction between general investors and sophisticated investors and provides new or enhanced protections to general investors. For instance, the Financial Investment Services and Capital Markets Act expressly provides for strict know-your-customer rules for general investors and imposes an obligation on Financial Investment Companies that they should market financial investment products suitable to each general investor considering his or her personal attributes, including investment objective, net worth, and investment experience. Under the Financial Investment Services and Capital Markets Act, a Financial Investment Company can be held liable if a general investor proves (i) damages or losses relating to such general investor’s investment in financial investment products solicited by such Financial Investment Company and (ii) absence of explanation, false explanation, or omission of material fact (without having to prove fault or causation). In case there are any conflicts of interest between the Financial Investment Companies and investors, the Financial Investment Services and Capital Markets Act expressly requires (i) disclosure of any conflict of interest to investors and (ii) mitigation of conflicts of interest to a comfortable level or abstention from the relevant transaction.

Other Regulatory Changes Related to Securities and Investments

The Financial Investment Services and Capital Markets Act brought changes to various rules in securities regulations including those relating to public disclosure, insider trading and proxy contests, which had previously been governed by the Securities and Exchange Act. For example, the 5% and 10% reporting obligations under the Securities and Exchange Act have become more stringent under the Financial Investment Services and Capital Markets Act. For instance, the number of events requiring an investor to update its 5% report have increased under the Financial Investment Services and Capital Markets Act. Previously, only a change in the shareholding of 1% or more or in the purpose of shareholding (such as an intention to influence management) could trigger the obligation to update the 5% report. The Government has issued detailed regulations stipulating additional events requiring updates to 5% reports, such as the change in the type of holding and change in any major aspect of the relevant contract. As for the 10% report filing obligation, the initial filing is expected to be required to be made within five business days of the date of the event triggering the 10% reporting obligation, compared to 10 calendar days under the previous law. The due date for reporting a subsequent change after the initial 10% report filing has been reduced from the 10th day of the first month immediately following the month in which such change took place to five business days of the date of such change. Under the previous law, there had been a limitation on the type of investment vehicles that could be used in a collective investment scheme (namely, to trusts and corporations), the type of funds that could be used for collective investments, and the types of assets and investment securities a fund could invest in. However, the Financial Investment Services and Capital Markets Act significantly liberalizes these restrictions, permitting all legal entities, including limited liability companies or partnerships, to be used for the purpose of collective investments, allowing the formation of fund complexes and permitting investment funds to invest in a wide variety of different assets and investment instruments.

Principal Regulations Applicable to Banks

General

The banking system in Korea is governed by the Banking Act and the Bank of Korea Act of 1950, as amended (the “Bank of Korea Act”). In addition, Korean banks are subject to the regulations and supervision of the Bank of Korea, the Bank of Korea’s Monetary Policy Committee, the Financial Services Commission and its executive body, the Financial Supervisory Service.

The Bank of Korea, established in June 1950 under the Bank of Korea Act, performs the customary functions of a central bank. It seeks to contribute to the sound development of the national economy by price stabilization through establishing and implementing efficient monetary and credit policies. The Bank of Korea acts under instructions of the Monetary Policy Committee, the supreme policy-making body of the Bank of Korea.

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Under the Bank of Korea Act, the Monetary Policy Committee’s primary responsibilities are to formulate monetary and credit policies and to determine the operations, management and administration of the Bank of Korea. The Financial Services Commission, established on April 1, 1998 as the Financial Supervisory Commission and later changed its name to the Financial Services Commission on March 3, 2008, regulates commercial banks pursuant to the Banking Act, including establishing guidelines on capital adequacy of commercial banks, and promulgates regulations relating to supervision of banks. Furthermore, pursuant to the Amendment to the Government Organization Act and the Banking Act on May 24, 1999, the Financial Services Commission, instead of the Ministry of Strategy and Finance, now regulates market entry into the banking business.

The Financial Supervisory Service is subject to the instructions and directives of the Financial Services Commission and carries out supervision and examination of commercial banks. In particular, the Financial Supervisory Service sets requirements both for the prudent control of liquidity and for capital adequacy and establishes reporting requirements pursuant to the authority delegated to it under the Financial Services Commission regulations, pursuant to which banks are required to submit annual reports on financial performance and shareholdings, regular reports on management strategy and

non-performing

loans, including write-offs, and management of problem companies and plans for the settlement of bad loans.

Under the Banking Act, approval to commence a commercial banking business or a long-term financing business must be obtained from the Financial Services Commission. Commercial banking business is defined as the lending of funds acquired predominantly from the acceptance of deposits for a period not exceeding one year or, subject to the limitation established by the Financial Services Commission, for a period between one year and three years. Long-term financing business is defined as the lending, for periods in excess of one year, of funds acquired predominantly from

paid-in

capital, reserves or other retained earnings, the acceptance of deposits with maturities of at least one year, or the issuance of bonds or other securities. A bank wishing to enter any business other than commercial banking and long-term financing businesses, such as the trust business, must obtain approval from the Financial Services Commission. Approval to merge with any other banking institution, to liquidate, to close a banking business or to transfer all or a part of a business must also be obtained from the Financial Services Commission.

If the Financial Services Commission deems a bank’s financial condition to be unsound or if a bank fails to meet the applicable capital adequacy ratio set forth under Korean law, the Financial Services Commission may order, among others:

• capital increases or reductions;

• suspension of officers’ performance of their duties and appointment of custodians;

• stock cancellations or consolidations;

• transfers of a part or all of business;

• sale of assets and bar on acquisition of high-risk assets;

• closures or downsizing of branch offices or workforce;

• 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 (not more than six months in the case of suspension of all business operations); or

• assignments of contractual rights and obligations relating to financial transactions.

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Capital Adequacy

The Banking Act requires nationwide banks to maintain a minimum

paid-in

capital of

W

100 billion and regional banks to maintain a minimum

paid-in

capital of

W

25 billion.

In addition to minimum capital requirements, all banks including foreign bank branches in Korea are required to maintain a prescribed solvency position. A bank must also set aside as its legal reserve an amount equal to at least 10% of its net profits after tax each time it pays dividends on net profits earned until such time when the reserve equals the amount of its total

paid-in

capital.

Under the Banking Act, the capital of a bank is divided into two categories: Tier I and Tier II capital. Tier I capital (typically referred to as “Core Capital”) consists of (i) the capital that can absorb losses incurred by a bank such as capital, capital surplus and earned surplus generated from the issuance of common shares (collectively, “Common Stock Capital”), and (ii) the capital that can absorb the losses of a bank after depletion of the Common Stock Capital such as capital and capital surplus generated from the issuance of Tier I capital instruments satisfying the requirements designated by the Financial Supervisory Service (collectively, “Other Core Capital”). Tier II capital (typically referred to as “Supplementary Capital”) represents the capital which is equivalent to, but not included in, the Core Capital and can absorb losses incurred upon the liquidation of a bank such as capital and capital surplus generated from the issuance of Tier II capital instruments satisfying the requirements designated by the Financial Supervisory Service and allowance for bad debts set aside for loans classified as “normal” or “precautionary.”

Under the Detailed Regulations on the Supervision of the Banking Business, Tier I capital instruments must satisfy, among others, the following requirements in order to be recognized as Other Core Capital:

(i) the price for such instruments shall have been fully paid through the procedure for issuance, and the instruments shall be in a perpetual form with no cause triggering a step-up or redemption;

(ii) such instruments shall be bound by a special agreement on being subordinate to depositors, general creditors and subordinated debt of the bank (referring to a special agreement under which subordinated creditors’ right to claim payment shall take effect only after unsubordinated creditors’ claims are fully paid, when bankruptcy or any similar incident occurs; hereinafter the same shall apply) but shall not fall within liabilities exceeding assets at the time when bankruptcy is declared under the Debtor Rehabilitation and Bankruptcy Act;

(iii) the payment of dividends or interests shall be suspended from the date when the bank is designated as a “insolvent financial institution” under the Act on Structural Improvement of the Financial Industry of Korea or under the Depositor Protection act of Korea as applicable, or the Financial Supervisory Service takes measures under the Regulations on the Supervision of the Banking Business such as the managerial improvement recommendation, the managerial improvement request, the managerial improvement order and the emergency measures against the bank to the date when the above-mentioned event is removed;

(iv) the payment of dividends or interests shall not be determined in connection with the credit rating of the bank;

(v) the dividends may only be paid out of distributable income;

(vi) the bank shall be able to revoke in its sole discretion the payment of dividends or interests at any time;

(vii) the cancellation of paying dividends must not impose restrictions on the bank except in relation to dividends to common stockholders;

(viii) the revocation of the payment of dividends or interests shall not be deemed as the event of defaults, and the bank shall be able to use in its sole discretion the amount which was revoked to pay as dividends or interests to redeem any other debts of the bank then due and payable;

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(ix) such instruments shall not be redeemed within five years from the issuance date and the bank shall be able to determine in its sole discretion whether it redeems such instruments even after five years from the issuance date, and the instruments shall not be subject to any condition that arouse investors’ expectation to have the instruments redeemed or any condition that imposes a burden of redemption upon the issuing bank in fact;

(x) the requirements prescribed in Appendix 3-5 (Trigger Events for Contingent Capital Securities) of the Detailed Enforcement Rules of Regulation on Supervision of Banking Business shall be satisfied;

(xi) the bank or the person who has de facto control over the bank shall not purchase capital instruments or provide a purchaser of such securities with funds for the purchase by providing a collateral or guarantee for payment or by lending a loan, shall not raise the priority of its claims, legally or economically, for the price paid for the securities, and shall not provide a collateral or guarantee to the purchasers of the securities directly or via a related company; and

(xii) such capital instruments shall have no condition that hinders the issuing bank’s procurement or expansion of capital in the future.

Under the Detailed Regulations on the Supervision of the Banking Business, Tier II capital instruments must satisfy, among others, the following requirements in order to be recognized as Supplementary Capital:

(i) the procedure for issuance shall have been completed, the price for such capital instruments shall have been fully paid, and the capital instruments shall be bound by a special agreement of subordination to deposits and ordinary debts;

(ii) the maturity shall not be less than five years from the issuance date, and Tier II capital instruments shall not be redeemed within five years from the issuance date;

(iii) there is no condition to promote the bank to redeem such capital instruments such as a step-up provision, and the bank shall be able to determine in its sole discretion whether to redeem such instruments prior to the maturity date, and the instruments shall not be subject to any condition that arouse investors’ expectation to have the instruments redeemed or any condition that imposes a burden of redemption upon the issuing bank in fact;

(iv) other than the case where the bank is subject to the bankruptcy or liquidation, the holder of Tier II capital instruments shall not have the right to require bank to pay the principal or interests of such instruments earlier than the original due date thereof;

(v) the payment of dividends or interests shall not be determined in connection with the credit rating of the bank;

(vi) the requirements prescribed in Appendix 3-5 (Trigger Events for Contingent Capital Securities) of the Detailed Enforcement Rules of Regulation on Supervision of Banking Business shall be satisfied;

(vii) the bank or any person or entity over which the bank exercises substantial control shall not purchase the capital instruments issued by such bank nor provide, directly or indirectly, the funds to acquire the capital instruments by providing any collateral or guaranty or loan in favor of the person or entity which tries to acquire such instruments; and

(viii) the bank shall not enhance, legally or economically, the payment priority of the capital instruments, nor provide, directly or indirectly through its affiliated company, any collateral or guaranty in favor of the person or entity which acquires such instruments.

All banks must meet standards regarding minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets, determined in accordance with the Financial Services Commission requirements that have been formulated based on the BIS Standards. These standards were adopted and became effective in 1996. Under these regulations, all domestic banks and foreign bank branches are required to meet the minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8%.

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Furthermore, as Basel III was adopted and is being implemented in stages in Korea since December 1, 2013, all banks in Korea are required to meet minimum ratios of common stock capital (less any capital deductions) and core capital (less any capital deductions) to risk-weighted assets as set out in the Regulation on the Supervision of the Banking Business. The required minimum ratio of common stock capital (less any capital deductions) to risk-weighted assets is 4.5%, and the required minimum ratio of core capital (less any capital deductions) to risk-weighted assets is 6.0%. In addition, additional capital conservation buffer requirements have been implemented in stages from January 1, 2016 to January 1, 2019. Under such requirements, all banks in Korea are required to maintain a capital conservation buffer of 0.625% from January 1, 2016, which was gradually increased to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019.

Under the Regulation on the Supervision of the Banking Business and the Detailed Regulations promulgated thereunder, Korean banks apply the following risk-weight ratios in respect of their home mortgage loans:

(i) for those banks adopting a standardized approach for calculating credit risk-weighted assets, the risk-weight ratio of 35% (only in the case where the loan is fully secured by a first ranking mortgage) but, with respect to high risk home mortgage loans (even if such loans are fully secured by a first ranking mortgage) the risk-weight ratio of 50% and 70% for second-level high risk home mortgage loans; and

(ii) for those banks adopting an internal ratings-based approach for calculating credit risk-weighted assets, a risk-weight ratio calculated with reference to the probability of default, loss given default and exposure at default, each as defined in the Detailed Regulations on the Supervision of the Banking Business.

In Korea, Basel II, a convention entered into by the Basel committee in June 2004 for the purpose of improving risk management and increasing capital adequacy of banks, was implemented in January 2008. Pursuant to Basel II, operational risk, such as inadequate procedure, loss risk by employees, internal system, occurrence of unexpected event, as well as credit risk and market risk, is taken into account in calculating the risk-weighted assets, in addition to maintaining the capital adequacy ratio of 8% for banks. Under Basel II, the capital requirements for credit risk can be calculated by the internal rating based (IRB) approach or the standardized approach.

Under the standardized approach, a home mortgage loan fully secured by a first ranking mortgage over the residential property is risk-weighted at 35%, but certain home mortgage loans with

loan-to-value

ratio exceeding 60% are risk weighted at 50% pursuant to an amendment of the Detailed Regulation on the Supervision of the Banking Business on December 31, 2018.

Under the Regulation on the Supervision of the Banking Business, banks shall set aside allowances for bad debts for each class of soundness in accordance with IFRS as adopted by Korea. If the amount for each class of soundness calculated in accordance with the following criteria exceeds the allowances for bad debts set aside, the excess amount shall, at the time of each settlement of accounts, be set aside as regulatory reserve for credit losses.

• 0.85% of normal credits (or 0.9% in the case of normal credits comprising loans to certain industries including construction, retail and wholesale sales, accommodations, restaurant, real estate and lease, 1.0% in the case of normal credits comprising loans to individuals and households, 2.5% in the case of normal credits comprising credit card loans and 1.1% in the case of normal credits comprising other credit card receivables);

• 7% of precautionary credits (or 10% in the case of precautionary credits comprising loans to individuals and households, 50% in the case of precautionary credits comprising credit card loans and 40% in the case of precautionary credits comprising other credit card receivables);

• 20% of substandard credits (or 10% in the case of substandard credits comprising assets for which the bank has the right to receive payment in priority pursuant to the Corporate Restructuring Promotion

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Act of Korea or Paragraph 180, Subparagraph 2 of the Debtor Rehabilitation and Bankruptcy Act of Korea (the “Priority Assets”), 20% in the case of normal credits comprising loans to individuals and households, 65% in the case of substandard credits comprising credit card loans and 60% in the case of substandard credits comprising other credit card receivables);

• 50% of doubtful credits (or 25% in the case of doubtful credits comprising Priority Assets, 55% in the case of doubtful credits comprising loans to individuals and households and 75% in the case of doubtful credits comprising credit card loans and other credit card receivables); and

• 100% of estimated loss credits (or 50% in the case of estimated loss credits comprising of Priority Assets).

Furthermore, under the Regulation on the Supervision of the Banking Business, banks must maintain allowances for bad debts and regulatory reserve for credit losses in respect of their confirmed guarantees (including confirmed acceptances) and outstanding

non-used

credit lines in an aggregate amount calculated at the same rates applicable to normal, precautionary, substandard, doubtful and estimated loss credits comprising their outstanding loans and other credits as set forth above.

As of January 1, 2016, the Financial Services Commission implemented Basel III requirements relating to accumulation of additional capital for systemically important banks and countercyclical capital buffer requirements. Each year, the Financial Services Commission may designate banks with significant influence (based on size and connectivity with other financial institutions) on the domestic financial system as a domestic systemically important bank and require the accumulation of additional capital in accordance with the highest of: (i) ratio of common equity capital to risk-weighted assets, ranging from 0.0% to 2.0%, depending on the systematic importance evaluation score, (ii) if the bank’s holding company is a domestic systemically important bank holding company, the capital ratio corresponding to the additional capital required for the bank holding company under the Financial Holding Company Supervision Regulations, or (iii) if the bank is also a global systemically important bank, as defined by the Basel Committee, the capital ratio as required by the Basel Committee. Shinhan Financial Group and Shinhan Bank were selected as a domestic systemically important bank holding company and domestic systemically important bank, respectively, from 2016 through 2022. According to the instructions of the Financial Services Commission, domestic systematically important banks including Shinhan Bank have been required to maintain an additional capital buffer of 0.25% since January 1, 2016, with such buffer increased by 0.25% annually to reach 1.00% as of January 1, 2019. The Financial Services Commission may also, upon quarterly review, determine and require banks to accumulate a required level of countercyclical capital buffer within the range of 0% to 2.5% of risk-weighted assets, taking into account factors such as the degree of increase in credit relative to the gross domestic product. Since March 2016, the Financial Services Commission has maintained countercyclical capital buffer requirements at 0%, and the Financial Supervisory Service has maintained the countercyclical capital buffer requirement at 0% for the first quarter of 2022. The Detailed Regulation on the Supervision of the Banking Business was also amended on June 30, 2018 to add “concentration of risk in the retail sector” as an additional criterion when the Financial Supervisory Service evaluates the risk management systems of Korean banks.

Liquidity

All banks are required to match the maturities of their assets and liabilities in accordance with the Banking Act in order to ensure adequate liquidity. Banks may not invest in excess of an amount exceeding 100% of their Tier I and Tier II capital (less any capital deductions) in stocks and other securities with a period remaining to maturity of over three years. However, this restriction does not apply to government bonds or to Monetary Stabilization Bonds issued by the Bank of Korea.

The Financial Services Commission requires Korean banks to maintain a liquidity coverage ratio of at least 90.0% as of January 1, 2017, 95.0% as of January 1, 2018 and 100.0% as of January 1, 2019. The Financial Services Commission defines liquidity coverage ratio as high quality liquid assets that can be immediately

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converted into cash with little or no loss in value, as divided by the net amount of cash outflow for the next 30 day period, under the stress level established according to the liquidity coverage ratio, pursuant to the Regulation on the Supervision of the Banking Business, which was amended as of June 28, 2016 to implement the liquidity coverage ratio requirements under Basel III.

With respect to foreign currency liquidity coverage ratio, the Regulation on the Supervision of the Banking Business requires that financial institutions dealing with foreign exchange affairs (i.e., banks) whose foreign-currency denominated liabilities are equal to or greater than US$500 million or 5% of its total liabilities, as of the end of the immediately preceding half-year period, maintain a foreign currency liquidity coverage ratio of 60% or higher beginning January 1, 2017, 70% or higher beginning January 1, 2018 and 80% or higher beginning January 1, 2019. The term “foreign currency liquidity coverage ratio” means the ratio of high-liquidity assets to the net cash outflow in respect of foreign-currency denominated assets and liabilities for the next 30 days.

In April 2020, in response to the

COVID-19

pandemic, the Financial Services Commission temporarily lowered the liquidity coverage ratio requirement from 100% to 85% and the foreign currency liquidity coverage ratio requirement from 80% to 70%. These temporary lower ratio requirements will apply through and beginning July 1, 2022, the lowered liquidity coverage ratio requirement will be gradually increased to 100% by June 30, 2023, and the lowered foreign currency liquidity coverage ratio requirement will be increased to 80% as of July 1, 2022.

The Monetary Policy Committee of the Bank of Korea is authorized to fix and alter minimum reserve requirements that banks must maintain against their deposit liabilities. The current minimum reserve ratio is 7.0% of average balances for

Won-denominated

demand deposits outstanding, 0.0% of average balances for

Won-denominated

employee asset establishment savings deposits, employee long-term savings deposits, employee house purchase savings deposits, long-term house purchase savings deposits, household long-term savings deposits and employee preferential savings deposits outstanding and 2.0% of average balances for

Won-denominated

time and savings deposits, mutual installments, housing installments and certificates of deposit outstanding. For foreign currency deposit liabilities, a 2.0% minimum reserve ratio is applied to savings deposits outstanding and a 7.0% minimum reserve ratio is applied to demand deposits, while a 1.0% minimum reserve ratio is applied for offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and The Export-Import Bank of Korea as well as foreign currency certificates of deposit held by account holders of such offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and The Export-Import Bank of Korea.

Loan-to-Deposit

Ratio

In December 2009, the Financial Supervisory Service announced that it would introduce a new set of regulations on the

loan-to-deposit

ratio by amending the Regulation on the Supervision of the Banking Business upon its determination that the overall liquidity of banks in Korea had become unstable due to the ongoing increase in the

loan-to-deposit

ratio resulting from banks expanding their asset size too competitively by granting mortgages on houses and loans to small- and

medium-sized

enterprises over the last couple of years. The Regulation on the Supervision of the Banking Business, which was amended as of August 19, 2010 and December 26, 2014 and took effect on January 1, 2014 and January 1, 2015, respectively, requires banks with

Won-denominated

loans of not less than

W

2 trillion in value as of the last month of the immediately preceding quarter to maintain a ratio of

Won-denominated

loans (excluding certain types of loans using funds borrowed from Korea Development Bank or the Government or loans made under certain operational rules of Korea Federation of Banks) to

Won-denominated

deposits (excluding certificates of deposit) and the balance of the covered bonds under the Act on Issuance of Covered Bonds, the maturity of which is not less than five years (only in case when such financing from the issuance of covered bonds is used in Won currency and up to 1% of

Won-denominated

deposits) of no more than 100%. Since January 1, 2020, in calculating such loan to deposit ratio, retail loans and corporate loans are weighed differently, with retail loans subject to a multiple of 115% and

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corporate loans (excluding loans to SOHOs) subject to a multiple of 85%, thereby increasing the impact of retail loans and reducing the impact of corporate loans in calculating such ratio. In response to the

COVID-19

pandemic, on April 20, 2020, the Financial Services Commission announced a series of measures to temporarily ease the regulations on

loan-to-deposit

ratio. In particular, until March 2022, the

loan-to-deposit

ratio maximum of 100% was temporarily increased to 105%, and corporate loans to SOHOs extended since January 1, 2020 to December 2021 was also subject to a multiple of 85% provided such loans are not real estate related. On March 30, 2022, the Financial Services Commission announced plans to cease the temporary easement of regulations relating to the

loan-to-deposit

ratio as of June 30, 2022 and to gradually normalize the

loan-to-deposit

ratio back down to 1:1 (100%) beginning July 1, 2022. Shinhan Bank’s

loan-to-deposit

ratio as of December 31, 2021 was 99.05%, based on monthly average balances.

Financial Exposure to Any Single Customer and Major Shareholders

Under the Banking Act, the sum of material credit exposures by a bank, namely, the total sum of its credits to single individuals, legal entities or persons sharing credit risk with such individuals or legal entities such as companies belonging to the same enterprise groups as defined under the Monopoly Regulations and Fair Trade Act that exceed 10% of the sum of Tier I and Tier II capital (less any capital deductions), must not exceed five times the sum of Tier I and Tier II capital (less any capital deductions), subject to certain exceptions. Subject to certain exceptions, no bank is permitted to extend credit (including loans, guarantees, purchases of securities (only in the nature of a credit) and such other transactions which directly or indirectly create credit risk) in excess of 20% of the sum of Tier I and Tier II capital (less any capital deductions) to an individual or a legal entity, and no bank may grant credit in excess of 25% of the sum of Tier I and Tier II capital (less any capital deductions) to individuals, legal entities and companies that belong to the same enterprise group as defined in the Monopoly Regulations and Fair Trade Act.

Under the Banking Act, certain restrictions apply to extending credits to a major shareholder. The definition of a “major shareholder” is as follows:

• a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Banking 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

• a shareholder holding (together with persons who have a special relationship with such shareholder as defined in the Presidential Decree of the Banking Act) more than 4% in the aggregate of the total issued and outstanding voting shares of a bank (other than a regional bank), 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.

Under the Banking Act, banks are prohibited from extending credits in the amount greater than the lesser of (1) 25% of the sum of such bank’s Tier I and Tier II capital (less any capital deductions) and (2) the relevant major shareholder’s shareholding ratio multiplied by the sum of the bank’s Tier I and Tier II capital (less any capital deductions) to a major shareholder (together with persons who have special relationship with such major shareholder as defined in the Presidential Decree of the Banking Act). Also, no bank is allowed to grant credit to its major shareholders in the aggregate in excess of 25% of its Tier I and Tier II capital (less any capital deductions).

When managing the credit risk of banks, among the methods for providing credit support by banks, a loan agreement, a purchase agreement for asset-backed commercial papers, purchase of subordinate beneficiary certificates, and assumption of liability by providing warranty against default under asset-backed securitization are examples of creating financial exposure to banks.

Interest Rates

Korean banks remain dependent on the acceptance of deposits as their primary source of funds. Currently, there are no legal controls on interest rates on bank loans in Korea, except for the cap of 20.0% per annum on

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interest rates on loans to individuals or small corporations, as defined under the Framework Act on Small and Medium Enterprises under the Act on Registration of Credit Business, Etc. and Protection of Finance Users.

Lending to Small- and

Medium-sized

Enterprises

When commercial banks (including Shinhan Bank) make

Won-denominated

loans to certain startup, venture, innovative and other strategic small- and

medium-sized

enterprises specially designated by the Bank of Korea as “priority borrowers,” the Bank of Korea generally provides the underlying funding to these banks at concessionary rates for up to 50% of all such loans made to the priority borrowers subject to a monthly-adjusted limit prescribed by the Bank of Korea provided that if such loans to priority borrowers made by all commercial banks exceed the prescribed limit for a given month, the concessionary funding for the following month will be allocated to each commercial bank in proportion to such bank’s lending to priority borrowers two months prior to the time of such allocation, which has the effect that, if a particular bank lags other banks in making loans to priority borrowers, the amount of funding such bank can receive from the Bank of Korea at concessionary rates will be proportionately reduced.

Disclosure of Management Performance

For the purpose of enforcing mandatory disclosure of management performance so that the general public, especially depositors and stockholders, will be in a better position to monitor banks, the Financial Services Commission requires commercial banks to disclose certain matters as follows:

• 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 pursuant to the criteria under the Detailed Regulations promulgated under the Regulation on the Supervision of the Banking Business), except where the loan exposure to a single business group is not more than W 4 billion; and

• 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 W 1 billion.

Restrictions on Lending

According to the Banking Act, commercial banks are prohibited from making any of the following categories of loans:

• loans made directly or indirectly on the pledge of a bank’s own shares;

• loans made directly or indirectly to enable a natural or a legal person to buy the bank’s own shares;

• loans made to any of the bank’s officers or employees other than de minimis loans of up to (1)  W 20 million in the case of a general loan, (2)  W 50 million in the case of a general loan plus a housing loan, or (3)  W 60 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) secured by a pledge of shares of a subsidiary corporation of the bank or to enable a natural or juridical person to buy shares of a subsidiary corporation of the bank; and

• loans to any officers or employees of a subsidiary corporation of the bank, other than general loans of up to W 20 million or general and housing loans of up to W 50 million in the aggregate.

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Recent Regulations Relating to Retail Household Loans

The Financial Services Commission has implemented a number of changes in recent years to the regulations relating to retail household lending by banks. Under the currently applicable regulations:

• as to any new loans secured by houses (including apartments) located nationwide, the loan-to-value ratio (the aggregate principal amount of loans secured by such collateral over the appraised value of the collateral) shall not exceed 70%;

• as to any new loans secured by houses (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the Government, the loan-to-value ratio should not exceed 40%, except that such maximum loan-to-value ratio is 50% for low-income households that (i) have an annual income of less than W 80 million (or W 90 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at equal or less than W 600 million;

• as to any new loans secured by high-priced houses (including apartments) located in areas of excessive investment or high speculation for which the price exceeds W 900 million (based on evaluation data of a certified rating institution and the detailed standards as determined by the director of the Financial Supervisory Service), the loan to value ratio should not exceed 40% for a housing price of W 900 million or less and shall not exceed 20% for a housing price exceeding W 900 million;

• as to any new loans secured by houses (including apartments) located nationwide to be extended to a household that already owns one or more houses, the maximum loan-to-value ratio must be adjusted to 10% lower than the applicable loan-to-value ratio described above;

• any new loans secured by houses (including apartments) located in areas of excessive investment or high speculation to a household that already owns one or more houses are not permitted unless otherwise specified by the applicable regulations;

• any new loans secured by high-priced houses (including apartments) located in areas of excessive investment or high speculation for which the price exceeds W 1.5 billion (based on evaluation data of a certified rating institution and the detailed standards as determined by the director of the Financial Supervisory Service) are generally prohibited;

• as to any new loans secured by houses (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the Government, the borrower’s debt-to-income ratio (calculated as (1) the aggregate annual total payment amount of (x) the principal of and interest on loans secured by such housing and existing mortgage and home equity loans and (y) the interest on other debts of the borrower over (2) the borrower’s annual income) should not exceed 40%, except that such maximum debt-to-income ratio is 50% for low-income households that (i) have an annual income of less than W 80 million (or W 90 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at equal or less than W 600 million;

• as to any new loans secured by apartments to be extended to a household that already owns one or more houses but wishes to purchase additional houses located in an unregulated Seoul metropolitan area, the maximum debt-to-income ratio must be adjusted to 10% lower than the applicable debt-to-income ratio described above; and

• as to any new loans extended to a household that has already obtained (i) a loan secured by housing (including apartments) located in areas of excessive investment, high speculation or adjustment target, in each case, as designated by the government, where the price exceeds W 600 million (based on the data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), (ii) more than W 100 million in credit loans or (iii) more than W 200 million in total loans, the borrower’s debt-service-ratio (calculated as (1) the aggregate annual total payment amount of the principal of and interest on financial liabilities, including the loans secured by such high-priced housing, divided by (2) the borrower’s annual income) should not exceed 40% unless otherwise specified by the applicable regulations.

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Restrictions on Investments in Property

A bank may possess real estate property only to the extent necessary for conducting its business; provided that the aggregate value of such real estate property must not exceed 60% of the sum of its Tier I and Tier II capital (less any capital deductions). Any property acquired by a bank (1) through the exercise of its rights as a secured party or (2) the acquisition of which is prohibited by the Banking Act must be disposed of within three years, unless otherwise provided by the regulations thereunder.

Restrictions on Shareholdings in Other Companies

Under the Banking Act, a bank may not own more than 15% of shares outstanding with voting rights of another company, except where, among other reasons:

• the company issuing such shares is engaged in a business that falls under the category of financial businesses set forth by the Financial Services Commission (including companies which business purpose is to own equity interests in private equity funds); or

• the acquisition of shares by the bank is necessary for corporate restructuring of such company and is approved by the Financial Services Commission.

In the above cases, a bank must satisfy either of the following requirements:

• the total investment in companies in which the bank owns more than 15% of the outstanding shares with voting rights does not exceed 20% of the sum of Tier I and Tier II capital (less any capital deductions); or

• the total investment in companies in which the bank owns more than 15% of the outstanding shares with voting rights does not exceed 30% of the sum of Tier I and Tier II capital (less any capital deductions) where the acquisition satisfies the requirements determined by the Financial Services Commission.

The Banking Act provides that a bank using its bank accounts and its trust accounts is not permitted to acquire the shares issued by the Major Shareholder of such bank in excess of an amount equal to 1% of the sum of Tier I and Tier II capital (less any capital deductions).

Restrictions on Bank Ownership

Under the Banking Act, subject to certain exceptions, a single shareholder and persons who stand in a special relationship with such shareholder (as described in the Presidential Decree to the Banking Act) may acquire beneficial ownership of up to 10% of a national bank’s total issued and outstanding shares with voting rights and up to 15% of a regional bank’s total issued and outstanding shares with voting rights. The government, the Korea Deposit Insurance Corporation and financial holding companies qualifying under the Financial Holding Companies Act are not subject to such ceilings. However,

non-financial

business group companies — namely, (1) any same shareholder group with an aggregate net assets of all

non-financial

companies belonging to such group of not less than 25% of the aggregate net assets of all corporations that are members of such group; (2) any group with aggregate assets of all

non-financial

companies belonging to such group of not less than

W

2 trillion; (3) any mutual fund in which the same shareholder group, as described in items (1) and (2) above, owns more than 4% of the total shares issued and outstanding; (4) a private equity fund (under the Financial Investment Services and Capital Markets Act) where (i) the general partner of such private equity fund, (ii) the limited partner whose equity holding ratio in such private equity fund is 10% or more, or (iii) the limited partners, being member companies of a single group of companies that belong to the same conglomerate as defined in the Monopoly Regulations and Fair Trade Act, whose aggregate equity holding ratio in such private equity fund is 30% or more falls under either of item (1) to (3) above; or (5) a special purpose company of a private equity fund where a private equity fund, as described in item (4) above, owns 4% or more of the special

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purpose company’s issued and outstanding shares or has actual control over the major business affairs of the special purpose company through, for example, appointment and dismissal of the officers – may not acquire beneficial ownership of shares of a national bank in excess of 4% of such bank’s outstanding voting shares, provided that such

non-financial

business group companies may acquire beneficial ownership of:

• up to 10% of a national bank’s outstanding voting shares with the approval of the Financial Services 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 not less than 10% of a national bank’s outstanding voting shares, up to 10% of such bank’s outstanding voting shares without the approval of the Financial Services Commission, and in excess of 10%, 25% or 33% of such bank’s outstanding voting shares, with the approval of the Financial Services Commission, up to the number of shares owned by such foreigner.

In addition, any person (whether a Korean national or a foreigner), with the exception of

non-financial

business group companies described above, may also acquire in excess of 10% of a national bank’s total voting shares issued and outstanding, provided that an approval from the Financial Services Commission is obtained in instances where the total holding exceeds 10% (or 15% in the case of regional banks), 25% or 33% of the bank’s total voting shares issued and outstanding.

Deposit Insurance System

The Depositor Protection Act provides, through a deposit insurance system, insurance for certain deposits of banks in Korea. Under the Depositor Protection Act, all banks governed by the Banking Act, including Shinhan Bank and Jeju Bank, are required to pay to the Korea Deposit Insurance Corporation an insurance premium on a quarterly basis at such rate as determined by the Presidential Decree to the Depositor Protection Act, which shall not exceed 0.5% of the bank’s insurable deposits in any given year. The current insurance premium is 0.02% of insurable deposits for each quarter. If the Korea Deposit Insurance Corporation pays the insured amount, it will acquire the claims of the depositors within the payment amount. Under current rules, the Korea Deposit Insurance Corporation insures only up to a total of

W

50 million per an individual for deposits and interest in a single financial institution, regardless of when the deposits were made and the size of the deposits.

The Financial Consumer Protection Act

The Financial Consumer Protection Act (the “FCPA”) was enacted on March 24, 2020 and took effect beginning March 25, 2021. The FCPA unifies the systems for the protection of consumers of financial products, which had been dispersed in various laws, while tightening the existing consumer protection systems to strengthen the rights afforded to consumers of financial products. Banks under the Banking Act are financial instrument distributors subject to the FCPA, and deposit and loan products under the Banking Act are financial instruments subject to the FCPA.

Under the FCPA, a financial instrument distributor who intends to sell financial instruments shall comply with the following requirements: (i) confirmation of suitability and adequacy of financial instruments, (ii) compliance with the duty to explain, (iii) prohibition of unfair sales activities, (iv) prohibition of undue solicitation, and (v) prohibition of false or exaggerated advertising, etc. (collectively, the “Sales Principles”). If a financial instrument distributor breaches any of the Sales Principles, consumers may request the termination of such financial instrument within a period to be prescribed by a Presidential Decree and are entitled to unilaterally terminate the contract if the financial instrument distributor fails to present a justifiable reason for not accepting the consumer’s request. Consumers who purchased a loan product, in particular, shall be entitled to withdraw from the contract within 14 days from the later of (i) the date of receipt of the proceeds pursuant to the contract and (ii) the execution date of the contract (or the date of receipt of the documents necessary for execution of the contract (if required under the FCPA), regardless of whether the financial instrument distributor breached any of

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the Sales Principles. When a consumer files a lawsuit for damages against a financial instrument distributor for breach of the duty to explain, the financial instrument distributor (and not the consumer) shall bear the burden of proof to prove that no willful conduct or negligence was involved in the breach of such duty to explain. In the event of a dispute with a financial instrument distributor, consumers may apply for mediation to the Dispute Mediation Committee of the Financial Services Commission. If a financial instrument distributor files a lawsuit with a court while such mediation is in progress, the court may suspend the litigation proceedings. For certain

small-sum

cases, a financial instrument distributor may not file a lawsuit with a court until the completion of such mediation. Financial instrument distributors must accept requests from its consumers to access information for purposes of litigation or mediation. In the event the Financial Services Commission determines that there is a clear risk that a financial product may cause significant damage to the properties of customers, the Financial Services Commission may prohibit or restrict the solicitation of, and execution of a contract for, such financial product.

Trust Business

A bank that intends to enter into the trust business must obtain the approval of the Financial Services Commission. Trust activities of banks are governed by the Financial Investment Services and Capital Markets Act. Banks engaged in the banking business and trust business are subject to certain legal and accounting procedures requirements, including the following:

• under the Banking Act, the Financial Investment Services and Capital Markets Act and the Trust 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.

In the event that a bank qualifies and operates as a collective investment business entity, a trustee, a custodian or a general office administrator under the Financial Investment Services and Capital Markets Act, it is required to establish relevant operation and management systems to prevent potential conflicts of interest among the banking business, the collective investment business, the trustee or custodian business and general office administration. These measures include:

• 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 Financial Investment Services and Capital Markets Act or (2) serving in a trustee business or a custodian business and simultaneously serving in a general office administrator business in accordance with the Financial Investment Services and Capital Markets Act;

• 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.

A bank which qualifies and operates as a collective investment business entity may engage in the sale of beneficiary certificates of investment trusts which are managed by such bank. However, such bank is prohibited from engaging in the following activities:

• 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;

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• using in its sales activities of other collective investment securities information relating to the trust property of an investment trust managed by such bank;

• selling through other banks established under the Banking Act beneficiary certificates of an investment trust managed by such bank;

• establishing a short-term financial collective investment vehicle; and

• establishing a mutual fund.

Laws and Regulations Governing Other Business Activities

To enter the foreign exchange business, a bank must register with the Minister of the Ministry of Strategy and Finance. The foreign exchange business is governed by the Foreign Exchange Transaction Law. To enter the securities business, a bank must obtain the approval of the Financial Services Commission. The securities business is governed by regulations under the Financial Investment Services and Capital Markets Act. Pursuant to the above-mentioned laws, banks are permitted to engage in the foreign exchange business and the underwriting business for government and other public bonds.

In 2018, regulatory authorities are encouraging financial institutions to lower the ATM usage fees in order to decrease the financial expense burden on consumers. Further, in light of the increasing household debt, regulatory authorities are encouraging financial institutions to gradually increase the proportion of the principal of retail loans that are subject to the fixed interest rates from 14% in 2012 to 45% by 2017.

Principal Regulations Applicable to Credit Card Companies

General

Any person, including a bank, wishing to engage in the credit card business must obtain a license from the Financial Services Commission. In addition, in order to enter the credit card business, a bank must obtain a license from the Financial Services Commission (hereinafter, a bank which obtains such license is defined as “licensed bank engaged in the credit card business”). The credit card business is regulated and governed by the Specialized Credit Financial Business Act. Under the Specialized Credit Financial Business Act and regulations thereunder, a company in the same conglomerate group (as defined in the Monopoly Regulations and Fair Trade Act) may engage in the credit card business even though another company in the same conglomerate group is already engaged in such business, which was previously not permitted.

The Specialized Credit Financial Business Act establishes guidelines on capital adequacy and provides for other regulations relating to the supervision of credit card companies. The Specialized Credit Financial Business Act delegates regulatory authority over credit card companies to the Financial Services Commission and its executive body, the Financial Supervisory Service.

A licensed bank engaging in the credit card business is regulated by the Financial Services Commission and the Financial Supervisory Service.

The Financial Services Commission regulates credit card companies and licensed banks engaged in the credit card business by establishing guidelines or regulations on management of such companies. Moreover if the Financial Services Commission deems the financial condition of a credit card company or a licensed bank engaged in the credit card business to be unsound or such companies fail to satisfy the guidelines or regulations, the Financial Services Commission may take certain measures to improve the financial condition of such companies.

Restrictions on Scope of Business

Under the Specialized Credit Financial Business Act, a credit card company may conduct only the following types of business: (i) credit card business as licensed or other specialized credit finance businesses as registered

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pursuant to the Specialized Credit Financial Business Act; (ii) the businesses ancillary to the credit card business, (for example, providing cash advance loans to existing credit card holders, issuing and settling of debit cards and issuing, selling and settling of

pre-paid

cards); (iii) provision of unsecured or secured loans; (iv) provision of discount on notes; (v) purchase, management and collection of account receivables originated by companies in the course of providing goods and services; (vi) provision of payment guarantee; (vii) asset management business under the Asset Backed Securitization Act; (viii) credit investigation; and (ix) other incidental businesses related to the foregoing. Under the Specialized Credit Financial Business Act, a credit card company’s scope of business includes “businesses that utilize existing manpower, assets or facilities in a credit card company, as designated by the Financial Services Commission.” Under the current regulation established by the Financial Services Commission, a credit card company may engage in various types of business including, but not limited to,

e-commerce,

operation of insurance agency, delegation of card issuance, supply of payment settlement system, loan brokerage and brokerage of collective investment securities.

A credit card company’s average balance of claim amounts arising from the advance of loans to credit card holders (excluding such claims arising from the

re-advance

of loans to credit card holders following a change in the maturity or interest rate of such loans as part of a debt restructuring) as of the end of each quarter may not exceed the sum of the following amounts:

• Average balance of claims during a quarter arising from the purchase of goods or services by credit card holders with credit cards; and

• Amount of debit card usage during a quarter by debit card members.

Capital Adequacy

The Specialized Credit Financial Business Act provides for a minimum

paid-in

capital amount of: (i) 

W

20 billion in the case of a specialized credit financial business company which wishes to engage in no more than two kinds of core businesses (i.e., credit card, installment finance, leasing and new technology business) and (ii) 

W

40 billion in the case of an specialized credit financial business company, which wishes to engage in three or more kinds of core businesses.

Under the Specialized Credit Financial Business Act and regulations thereof, a credit card company must maintain a “capital adequacy ratio,” defined as the ratio of adjusted equity capital to adjusted total asset, of 8% or more and a “delinquent claim ratio,” defined as the ratio of delinquent claims to total claims as set forth under the regulations relating to the Specialized Credit Financial Business Act, of less than 10%.

Under the Specialized Credit Financial Business Act and regulations thereof, the minimum ratio of allowances for losses on loans, leased assets (except assets subject to an operating lease) and suspense receivables as of the date of accounting settlement (including semiannual preliminary accounts settlement) would be 0.5% of normal assets, 1% of precautionary assets and 20% of substandard assets, 75% of doubtful assets and 100% of estimated loss assets, and the minimum ratio of allowances for losses on card assets would be 1.1% (or 2.5%, in the case of card loan assets and revolving assets) of normal assets, 40% (or 50%, in the case of card loan assets and revolving assets) of precautionary assets, 60% (or 65%, in the case of card loan assets and revolving assets) of substandard assets, 75% of doubtful assets and 100% of estimated loss assets. In addition, a credit card company has to reserve a certain amount calculated according to relevant regulations as loss allowances for unused credit limits.

Liquidity

Under the Specialized Credit Financial Business Act and regulations thereunder, a credit card company must maintain a Won liquidity ratio

(Won-denominated

current

assets/Won-denominated

current liabilities) of 100% or more. In addition, once a credit card company is registered as a foreign exchange business institution with the Minister of the Ministry of Strategy and Finance, such credit card company is required to (1) maintain a

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foreign-currency

liquidity ratio within three months (defined as foreign-currency liquid assets due within three months divided by foreign-currency liabilities due within three months) of not less than 80%, (2) maintain a ratio of foreign-currency liquid assets due within seven days (defined as 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 (3) maintain a ratio of foreign-currency liquid assets due within a month (defined as 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%. The Financial Services Commission requires a credit card company to submit quarterly reports with respect to the maintenance of these ratios.

Restrictions on Funding

Under the Specialized Credit Financial Business Act, a credit card company may raise funds using only the following methods: (i) borrowing from financial institutions, (ii) issuing corporate debentures or notes, (iii) selling securities held by the credit card company, (iv) transferring claims held by the credit card company, (v) borrowing and issuing foreign currency securities after registering itself as a foreign exchange business institutions under the Foreign Exchange Transactions Law, (vi) transferring claims held by the credit card company in connection with its businesses, or (vii) issuing securities backed by the claims held by the credit card company relating to its businesses.

Furthermore, a credit card company may borrow funds from offshore or issue foreign currency denominated securities once it is registered as a foreign exchange business institution with the Minister of the Ministry of Strategy and Finance.

A credit card company must ensure that its total asset does not exceed eight times the amount of its equity capital. However, if the credit card company cannot comply with such limit due to the occurrence of unavoidable events such as drastic changes in the domestic and global financial markets, such limit of its total assets compared to the equity capital may be adjusted by a resolution of the Financial Services Commission. A

non-credit

card company must ensure that its total asset does not exceed ten times the amount of its equity capital.

Restrictions on Loans to Affiliate Companies

Under the Specialized Credit Financial Business Act and regulations thereof, a credit card company may not provide loans exceeding 50% of its equity capital, in the aggregate, to its specially related persons (as defined under the relevant laws) including, but not limited to, its affiliates.

Restrictions on Assistance to Other Companies

Under the Specialized Credit Financial Business Act, a credit card company may not engage in any of the following acts in conjunction with other financial institutions or companies: (i) holding voting shares under cross shareholding or providing credit for the purpose of avoiding the restrictions on loans to affiliate companies; (ii) acquiring shares under cross shareholding for the purpose of avoiding the limitation on purchase of its treasury shares under the Korean Commercial Code or the Financial Investment Services and Capital Markets Act; or (iii) other acts which are likely to have a material adverse effect on the interests of transaction parties as stipulated by the Presidential Decree to the Specialized Credit Financial Business Act, which are not yet provided.

A credit card company also may not extend credit for enabling another person to purchase the shares of such credit card company or to arrange financing for the purpose of avoiding the restrictions on loans to affiliate companies.

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Restrictions on Investment in Real Estate

Under the Specialized Credit Financial Business Act and the regulations thereof, a credit card company may possess real estate only to the extent that such business conduct is designated by such laws and regulations, with certain exceptions such as for the purposes of factoring or leasing or as a result of enforcing its security rights, provided that the Financial Services Commission may limit the maximum amount a credit card company may invest in real estate investments for business purposes up to a percentage equal to or in excess of 100% of its equity capital.

Restrictions on Shareholding in Other Companies

Under the Specialized Credit Financial Business Act and the Act on the Structural Improvement of the Financial Industry, a credit card company and its affiliate financial institutions (together a “group”) are required to obtain prior approval of the Financial Services Commission if such credit card company, together with its affiliate financial institutions, (i) owns 20% or more of outstanding voting shares of a target company or (ii) owns 5% or more of outstanding voting shares of a target company, and shall be deemed to have control of the target company, including being the largest shareholder of such target company or otherwise.

Disclosure and Reports

Pursuant to the Specialized Credit Financial Business Act and the regulations thereof, the ordinary disclosure requirement for a credit card company is to disclose any material matters relating to management performance, profits and losses, corporate governance, competence of the employees or risk management within three months from the end of each fiscal year and within two months from the end of the first half of the fiscal year. In addition, a credit card company is required to disclose on an

on-going

basis certain matters such as the occurrence of

non-performing

loans, a financial incident or losses exceeding certain amounts. In addition, under the regulations issued by the Financial Services Commission, a credit card company or a licensed bank engaging in the credit card business must submit such report as required by the Governor of the Financial Supervisory Service, with certain important matters being reported as frequently as each month. In addition, all companies engaged in the specialized credit financial business under the Specialized Credit Financial Business Act, including, without limitation, credit card companies, must file a report to the Financial Supervisory Service regarding the result of settlement of accounts within one month after the end of its fiscal year. Also, these companies are required to conduct a provisional settlement of accounts for each quarter and file a report to the Financial Supervisory Service within one month after the end of such quarter.

Risk of Loss Due to Lost, Stolen, Forged or Altered Credit Cards

Under the Specialized Credit Financial Business Act, upon notice from the holder of a credit card or a debit card of its loss or theft, a credit card company or a licensed bank engaged in the credit card business, as the case may be, is liable for any loss arising from the unauthorized use of credit cards or debit cards thereafter as well as any loss from unauthorized transactions made within 60 days prior to such notice. However, a credit card company or a licensed bank engaged in the credit card business, as the case may be, may transfer to the cardholder all or part of the risks of loss associated with unauthorized transactions made within 60 days prior to such notice, in accordance with the standard terms and conditions agreed between the credit card company or the licensed bank engaged in the credit card business, as the case may be, and the cardholder, provided that the loss or theft must be due to the cardholder’s willful misconduct or negligence. Disclosure of a cardholder’s password under duress or threat to the cardholder’s or his/her family’s life or health will not be deemed as the cardholder’s willful misconduct or negligence.

Moreover, a credit card company or a licensed bank engaged in the credit card business, as the case may be, is also responsible for any losses resulting from the use of forged or altered credit cards, debit cards and

pre-paid

cards. However, a credit card company or a licensed bank engaged in the credit card business, as the case may

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be, may transfer all or part of this risk of loss to holders of credit cards in the event of willful misconduct or gross negligence by holders of such cards if the terms and conditions of the written agreement entered between the credit card company or a licensed bank engaged in the credit card business, as the case may be, and holders of such cards specifically provide for such transfer. For these purposes, disclosure of a customer’s password that is made intentionally or through gross negligence, or the transfer of or giving as collateral of the credit card or debit card, is considered willful misconduct or gross negligence.

In addition, the Specialized Credit Financial Business Act prohibits a credit card company from transferring to merchants the risk of loss arising from lost, stolen, forged or altered credit cards, debit cards or

pre-paid

cards; provided, however, that a credit card company may enter into an agreement with a merchant under which the merchant agrees to be responsible for such loss if caused by the merchant’s gross negligence or willful misconduct.

Each credit card company or a licensed bank engaged in the credit card business must institute appropriate measures such as establishing reserves, purchasing insurance or joining a cooperative association in order to fulfill its obligations related to the risk of loss arising from unauthorized use due to lost, stolen, forged or altered credit cards, debit cards or

pre-paid

cards.

Under the Specialized Credit Financial Business Act, the Financial Services Commission may take necessary measures to maintain credit order and protect consumers by establishing standards to be complied with by credit card companies relating to:

• maximum limits for cash advances on credit cards;

• restrictions on debit cards with respect to per day or per transaction usage;

• aggregate issuance limits and maximum limits on the amount per card on pre-paid cards;

• calculation and determination of credit limits;

• determination of the amount limit of credit cards;

• provisions included in credit card agreements;

• management of credit card merchants;

• collection on claims; or

• classification of credit card holders for purposes of determining the fees applicable to such holders.

Lending Ratio in Ancillary Business

Pursuant to the Presidential Decree of the Specialized Credit Financial Business Act, as amended in January 2020, a credit card company must maintain a quarterly average balance of receivables arising from cash advances to credit card holders (excluding cash advances incurred by

re-lending

to a credit card holder after modifying the terms and conditions, such as maturity or interest rate, of the original cash advance for debt rescheduling purposes) no greater than its aggregate quarterly average balance of receivables arising from credit card holders’ purchase of goods and services (excluding the amount of receivables arising from the purchase of goods and services using an exclusive use card for business purposes) plus its aggregate quarterly amount of payments made by members using their debit cards.

Issuance of New Cards and Solicitation of New Card Holders

The Presidential Decree of the Specialized Credit Financial Business Act establishes the conditions under which a credit card company or a licensed bank engaged in the credit card business may issue new cards and solicit new members. Specifically, new credit cards may be issued only to the following persons that meet all of

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the following criteria: (i) age of 19 years or more as defined in the Korean Civil Code, or age of 18 years or more with evidence of employment as of the date of the credit card application; (ii) satisfaction of a minimum credit score as publicly announced by the Financial Services Commission, provided that the minimum personal credit score requirement will not apply in the case where (a) the credit card company can confirm through objective evidence that an applicant is sufficiently capable of paying for his or her credit card use or such applicant can provide objective evidence therefor, or (b) a credit card function is added to an existing debit card for added convenience to the card holder and the credit card function is subject to limits determined by the Financial Services Commission; (iii) satisfaction of the application scoring system for the relevant credit; and (iv) verification of personal identity.

In addition, a credit card company or a licensed bank engaged in the credit card business, as the case may be, may not engage in the following methods of soliciting credit card holders: (i) providing economic benefits or conditioning such benefits in excess of 10% of the annual credit card fee (in the case of

no-annual

fee credit cards, the average annual fees will be

W

10,000) in connection with issuance of credit cards; (ii) solicitation on streets and private roads as prescribed under the Road Act and Private Road Act, public place and corridors used by the general public; (iii) solicitation through visits, except those visits made upon prior consent and visits to a business area; (iv) solicitation through pyramid sales methods; and (v) solicitation through the Internet, as further discussed below.

In addition, a credit card company or a licensed bank engaged in the credit card business is required to check whether the credit card applicant has any delinquent debt owed to any other credit card company or other financial institutions which the applicant is unable to repay, and also require, in principle, with respect to solicitations made through the Internet, the certified electronic signature of the applicant. Moreover, persons who intend to engage in solicitation of credit card applicants must register with the Financial Services Commission, unless the solicitation is made by officers or employees of a credit card company or a company in business alliance with such credit card company.

Compliance Rules on Collection of Receivable Claims

Pursuant to the Specialized Credit Financial Business Act and its regulations, a credit card company or a licensed bank engaged in the credit card business are prohibited from collecting its claims by way of:

• 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 or 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. and 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 or her Related Party.

Principal Regulations Applicable to Financial Investment Companies

General

The securities business is regulated and governed by the Financial Investment Services and Capital Markets Act. Financial investment companies are under the regulation and supervision of the Financial Services Commission, the Financial Supervisory Service and the Securities and Futures Commission.

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Under the Financial Investment Services and Capital Markets Act, a financial investment company may engage in dealing, brokerage, collective investment, investment advice, discretionary investment management or trust businesses if it has obtained relevant licenses from the Financial Services Commission.

A financial investment company may also engage in certain businesses ancillary to the primary business or certain other additional businesses by submitting a report to the Financial Services Commission within two weeks from the commencement of the business without obtaining any separate license. Approval to merge with any other entity or to transfer all or substantially all of a business must also be obtained from the Financial Services Commission.

Under the Act on the Structural Improvement of the Financial Industry, if the Government deems a financial investment company’s financial condition to be unsound or if a financial investment company fails to meet the applicable Net Operating Equity Ratio (as defined below), the government may order certain sanctions, including among others, sanctions against a financial investment company or its officers or employees, capital increase or reduction and a suspension or assignment of a part or all of business operation.

Regulations on Financial Soundness — Capital Adequacy

The Financial Investment Services and Capital Markets Act sets forth various types of brokerage and/or dealing business licenses based on (i) the scope of products and services that may be provided by each type of the brokerage and/or dealing licensee and (ii) the type of customers to which such products and services may be provided. For example, a financial investment company engaged in the brokerage, dealing and underwriting businesses with retail investors as well as professional investors in connection with all types of securities is required to have a minimum

paid-in

capital of

W

53 billion in order to obtain a license for such brokerage, dealing and underwriting businesses.

Under the Financial Investment Service Regulations, as amended and effective as of January 31, 2019, the soundness requirement of financial investment companies changed from the previous net operating equity ratio requirement to a net equity ratio requirement. The net equity ratio is calculated according to the following formula:

Net Equity Ratio = (Net Operating Equity – Total Risk) / Equity Capital Maintenance Requirement for Each Service Unit

The terms “Net Operating Equity” and “Total Risk” for the purpose of the above-stated formula are defined and elaborated in the regulations of the Financial Services Commission. Generally, the Net Operating Equity, the Total Risk and the Equity Capital Maintenance Requirement for Each Service Unit are to be calculated according to the following formula:

Net Operating Equity = Net assets (total assets - total liabilities) - the total of items that may be deducted + the total of items that may be added;

Total Risk = market risk + counterparty risk + management risk; and

Equity Capital Maintenance Requirement for Each Service Unit = Mandatory Equity Capital to be Required for Each Licensed Service Unit × 70%

The regulations of the Financial Services Commission require, among other things, financial investment companies to maintain the net equity ratio at a level equal to or higher than 100% at the end of each quarter of the fiscal year.

In addition, all Korean companies, including financial investment companies, are required to set aside, as a legal reserve, 10% of the cash portion of the annual dividend or interim dividend in each fiscal year until the reserve reaches 50% of the stated capital.

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Under the Financial Investment Services and Capital Markets Act and regulations thereunder, the minimum ratio of allowances for losses on loans and suspense receivables specified under such regulations is 0.5% of normal assets, 2% of precautionary assets, 20% of substandard assets, 75% of doubtful assets and 100% of estimated loss assets.

Other Provisions on Financial Soundness

The Financial Investment Services and Capital Markets Act, the Presidential Decree of the Financial Investment Services and Capital Markets Act and the regulations of the Financial Services Commission also include certain provisions which are designed to regulate certain types of activities relating to the management of the assets of a securities company, subject to certain exceptions. Such provisions include:

• 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 Financial Investment Services and Capital Markets Act) of such securities company; and

• 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.

Principal Regulations Applicable to Insurance Companies

General

Insurance companies are regulated and governed by the Insurance Business Act (the “Insurance Business Act”). In addition, insurance companies in Korea are under the regulation and supervision of the Financial Services Commission and its governing entity, the Financial Supervisory Service.

Under the Insurance Business Act, approval to commence an insurance business must be obtained from the Financial Services Commission based on the type of insurance businesses, which are classified as life insurance business,

non-life

insurance business and third type insurance business. Life insurance business means an insurance business which deals with life insurance policies or pension insurance policies (including retirement insurance policies).

Non-life

insurance business means an insurance business which deals with fire insurance policies, marine insurance policies, car insurance policies, guaranty insurance policies, reinsurance policies, liability insurance policies or other insurance policies prescribed under the Presidential Decree of the Insurance Business Act. Third type insurance business means an insurance business which deals with injury insurance policies, health insurance policies or nursing care insurance policies. Under the Insurance Business Act, insurance companies are not allowed to engage in both a life insurance business and a

non-life

insurance business, subject to certain exceptions.

If the Government deems an insurance company’s financial condition to be unsound or if an insurance company fails to properly manage the business as set forth under relevant Korean law, the government may order certain sanctions including, among others, sanctions against an insurance company or its officers or employees, capital increase or reduction and a suspension or assignment of a part or all of business operation.

Capital Adequacy

The Insurance Business Act requires a minimum

paid-in

capital of

W

30 billion for an insurance company; provided, that, the insurance company which intends to engage in only certain types of insurance policies may have a lower

paid-in

capital pursuant to the Presidential Decree of the Insurance Business Act.

In addition to the minimum capital requirement, an insurance company is required to maintain a Solvency Margin Ratio of 100% or more. “Solvency Margin Ratio” is the ratio of the Solvency Margin to the Standard

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Amount of the Solvency Margin. Solvency Margin is the aggregate amount of

paid-in

capital, reserve for dividends to policyholders, allowance for bad debt and subordinated debt amount and others similar thereto as set out in the regulation of the Financial Services Commission, less

non-amortized

acquisition costs, goodwill and others similar thereto as appearing in the regulation of the Financial Services Commission. The Standard Amount of Solvency Margin for life insurance companies is defined under the regulation of the Financial Services Commission and is required to comply with the risk based capital regime.

Under the Insurance Business Act, the Presidential Decree and other regulations thereunder, for each accounting period, insurance companies are required to appropriate policy reserve that is earmarked for future payments of insurance money, refund and dividends to policyholders (hereinafter collectively referred to as “Insurance Money”) for each insurance contract. However, if an insurance company has reinsured a portion of its insurance contracts with a creditworthy reinsurance company in order to lower its overall risk, in principle, the insurance company is not required to appropriate policy reserve for the reinsured contracts. Instead, the reinsurance company is required to appropriate such policy reserve for the reinsured contracts. However, if an insurance company transfers more than 50% of its risk to a reinsurance company, the amount of risk transferred in excess of 50% will be disregarded for purposes of calculating the solvency margin ratio. In particular, if the ratio of the risks transferred to the reinsurance company to the total risks insured by an insurance company exceeds 50%, such insurance company will be required to have net assets in relation to such risks transferred in excess of the 50% threshold for purposes of the solvency margin requirement. The Insurance Business Act was amended on January 24, 2011 to classify the insurance products into two categories: (i) reportable insurance products and (ii) voluntary insurance products. Under this amendment, only the changes to the terms and conditions of the reportable insurance products require a prior report and approval from the Financial Supervisory Service and the voluntary insurance products can be sold without prior approval from the Financial Supervisory Service. The policy reserve needs to be appropriated in accordance with the policy reserve calculation method for each insurance product as stipulated in amended Insurance Business Act.

The policy reserve amount consists of the following: (i) premium reserves and prepaid insurance premiums which are calculated under the methods determined by the written calculation methods for insurance premiums and policy reserves by insurance types or by lapses of insurance period, with regard to the contracts for which the causes for payment of the Insurance Money have yet to occur as of the end of each accounting period; (ii) amounts for which a lawsuit is pending on the Insurance Money or amounts for which a payment has been fixed with regard to the contracts for which the causes for payment of Insurance Money have occurred as of the end of each accounting period, and amounts which have not been paid yet due to an unsettled amount for paying the Insurance Money, even if the causes for payment of the Insurance Money have already occurred; and (iii) amounts reserved by an insurance company for allocation to policyholders.

Pursuant to the regulations established by the Financial Services Commission, insurance companies are required to maintain allowances for outstanding loans, accounts receivables and other credits (including accrued income, payment on account, and bills receivables or dishonored) in an aggregate amount covering not less than 0.5% of normal credits, 2% of precautionary credits, 20% of substandard credits, 50% of doubtful credits and 100% of estimated loss credits, provided that the minimum ratio of allowances for certain type of outstanding loans by insurance companies to individuals and households (including, retail loans, housing loans, and other forms of retail loans extended to individuals not registered for business), is increased to 1% of normal credits, 10% of precautionary credits and 55% of doubtful credits. Furthermore, the regulations on insurance companies became more stringent in September 2010 by adding a requirement that insurance companies maintain allowance for bad debts in connection with real estate project financing loans in excess of 0.9% of normal credits and 7% of precautionary credits.

Variable Insurance and Bancassurance Agents

Variable insurance is regulated pursuant to the Insurance Business Act and the Financial Investment Services and Capital Markets Act. In order for an insurance company to sell variable insurance to a policyholder

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and operate such variable insurance, the insurance company must obtain a license with respect to collective investment business from the Financial Services Commission and register as a selling company with the Financial Services Commission. In this case, according to the Financial Investment Services and Capital Markets Act, an insurance company will be regulated as an investment trust and assets acquired in connection with variable insurance must be held by a trust company that is registered with the Financial Services Commission pursuant to the Financial Investment Services and Capital Markets Act.

According to the Financial Investment Services and Capital Markets Act, insurance companies may operate variable insurance through (i) mandating all of the management and the management instruction business to another asset management company, (ii) operating by way of discretionary investment all of the assets constituting the investment advisory assets out of the investment trust assets, or (iii) operating all of the investment trust assets into other collective investment securities, thereby allowing all of the particular variable insurance assets to be outsourced.

The Insurance Business Act permits banks, securities companies, credit card companies and other financial institutions to register as insurance agents or insurance brokers and engage in the insurance business (the “Bancassurance Agents”), who are currently permitted to sell all types of life and

non-life

insurance products, except for protection type insurance products, such as whole life insurance, critical illness insurance and automobile insurance.

Restrictions on Investment of Assets

According to the Insurance Business Act, insurance companies are prohibited from making any of the following investment of assets:

• owning any real estate (excluding any real estate owned as a result of enforcing their own security interest) other than real estate for conducting 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 Assets, provided that investment in real estate for a separate account is limited to 15% of the assets of such separate account;

• 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)  W 20 million in the case of a general loan, (2)  W 50 million in the case of a general loan plus a housing loan, or (3)  W 60 million in the aggregate for general loans and housing loans.

In addition, insurance companies are not allowed to exceed the following limits in making the following investments:

• with respect to holding foreign currency under the Foreign Exchange Transaction Act or owning offshore real estate, 50% of its Total Assets; and

• with respect to the sum of margins for a futures exchange designated by the Presidential Decree or a foreign futures exchange, and commitment amounts of over-the-counter derivatives must not exceed 6% of its Total Assets, provided that the over-the-counter derivative trades are limited to 3%. The derivatives trades of a separate account are limited to 6% of the assets of separate account, provided that the over-the-counter derivatives trades are limited to 3%.

Regulations on Class Actions Regarding Securities

The Law on Class Actions Regarding Securities was enacted as of January 20, 2004 and last amended on May 28, 2013. The Law on Class Actions Regarding Securities governs class actions suits instituted by one or

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more representative plaintiff(s) on behalf of 50 or more persons who claim to have been damaged in a capital markets transaction involving securities issued by a listed company in Korea.

Applicable causes of action with respect to such suits include:

• claims for damages caused by misleading information contained in a securities statement;

• claims for damages caused by the filing of a misleading business report, semi-annual report, or quarterly report;

• claims for damages caused by insider trading or market manipulation; and

• claims instituted against auditors for damages caused by accounting irregularities.

Any such class action may be instituted upon approval from the presiding court and the outcome of such class action will have a binding effect on all potential plaintiffs who have not joined the action, with the exception of those who have filed an opt out notice with such court.

U.S. Regulations

As a substantial majority of our and our subsidiaries’ operations are in Korea, we are primarily subject to the regulations and supervision of the Financial Services Commission and the Financial Supervisory Service. Our subsidiaries, however, have limited operations in the United States, and we own a bank in the United States. Therefore, we and our U.S. operations are subject to U.S. supervision, regulation and enforcement by relevant authorities in the United States with regard to our U.S. operations.

U.S. Banking Regulations

Our operations in the United States are subject to a variety of regulatory regimes. Shinhan Bank maintains an uninsured branch in New York, which is licensed by the New York State Department of Financial Services (the “Department”) and registered with the banking authority of Korea.Shinhan Bank’s New York branch is subject to regulation and examination by the Department under its licensing authority. In addition, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) exercises examination and regulatory authority over Shinhan Bank’s U.S. branch. We also own a

non-member

state chartered bank, Shinhan Bank America, which is regulated by the Department, as its chartering authority, and by the Federal Deposit Insurance Corporation (“FDIC”), as its primary federal banking regulator and as the insurer of its deposits. Our U.S. branch and U.S. bank subsidiary are subject to restrictions on their respective activities, as well as prudential restrictions, such as limits on extensions of credit to a single borrower, and restrictions on transactions with affiliates, among other things. We are also a financial holding company and a bank holding company under U.S. banking laws and our U.S. operations are subject to regulation, supervision and enforcement by the Federal Reserve Board.

Shinhan Bank’s U.S. Branch

The Department, as the licensing authority of Shinhan Bank’s U.S. branch, has the authority, in certain circumstances, to take possession of the business and property of Shinhan Bank located in New York. Such circumstances generally include violations of law, unsafe business practices and insolvency. If the Department exercised this authority over the New York branch of Shinhan Bank, all assets of Shinhan Bank located in New York would generally be applied first to satisfy creditors of the New York branch. Any remaining assets would be applied to satisfy creditors of other U.S. offices of Shinhan Bank, after which any residual assets of the New York branch would be returned to the principal office of Shinhan Bank, and made available for application pursuant to any Korean insolvency proceeding.

Financial Holding Company

In addition to the direct regulation of Shinhan Bank’s U.S. branch by the Department and the Federal Reserve Board, because we operate a U.S. branch and have a subsidiary bank in the U.S., our nonbanking

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activities in the United States are subject to regulation by the Federal Reserve Board pursuant to the International Banking Act of 1978, the Bank Holding Company Act of 1956 (the “BHC Act”), and other laws. We have elected to be a “financial holding company” under the BHC Act. Financial holding companies may engage in a broader spectrum of activities than bank holding companies or foreign banking organizations that are not financial holding companies, including underwriting and dealing in securities. To maintain our financial holding company status, (i) we and our U.S. subsidiary bank located in New York are required to be “well capitalized” and “well managed,” (ii) our U.S. branch is required to meet certain examination ratings, and (iii) our subsidiary bank in New York is required to maintain a rating of at least “satisfactory” under the Community Reinvestment Act of 1977 (the “CRA”).

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to us and our subsidiaries impose obligations to maintain effective policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of clients. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious consequences for the firm, both in legal terms and in terms of our reputation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted on July 21, 2010 in response to the financial crisis, impacts the financial services industry by addressing, among other issues, systemic risk oversight, bank capital standards, the liquidation of failing systemically important institutions,

over-the-counter

and cleared derivatives, the ability of banking entities, including

non-U.S.

banks with branches in the U.S., like us, to engage in proprietary trading activities and invest in hedge funds and private equity funds (the

so-called

Volcker rule), consumer and investor protection, hedge fund registration, securitization, investment advisors, shareholder “say on pay,” the role of credit-rating agencies, and more. The Dodd-Frank Act requires various federal banking and financial regulatory authorities to adopt a broad range of implementing rules and regulations. Such authorities have significant discretion in drafting the implementing rules and regulations.

The Dodd-Frank Act provides regulators with tools to impose greater capital, leverage and liquidity requirements and other prudential standards, particularly for financial institutions that pose significant systemic risk. Pursuant to the Dodd-Frank Act, the Federal Reserve Board has implemented rules that establish enhanced prudential standards for the U.S. operations of foreign banking organizations (“FBOs”) such as us. In imposing such heightened prudential standards on

non-U.S.

banks such as us, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which the foreign bank holding company is subject to comparable home country standards.

On May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Reform Act”) was signed into law. Among other regulatory changes, the Reform Act amends various sections of the Dodd-Frank Act, including by raising the asset threshold for automatic application of enhanced prudential standards to FBOs under the Dodd-Frank Act from $50 billion in total global consolidated assets to $250 billion. The bill exempted FBOs with total global consolidated assets of less than $100 billion from these enhanced prudential standards effective immediately upon enactment of the bill. In October 2019, the Federal Reserve Board issued a final rule to implement the Reform Act’s changes to the application of enhanced prudential standards with respect to U.S. bank holding companies and FBOs (the “EPS Tailoring Rule”). The EPS Tailoring Rule delineates three categories of enhanced prudential standards (“EPS categories”) applicable to FBOs based on an FBO’s asset size and other factors such as the degree of the cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and

off-balance

sheet exposures of an FBO’s U.S. operations. The EPS Tailoring Rule generally determines the stringency of enhanced prudential standards applicable to FBOs based on the risk profile of the FBO’s U.S. operations, rather than its global footprint, with most enhanced prudential standards applying only to FBOs with combined U.S. assets of at least $100 billion. FBOs with global assets of $100 billion or more and a relatively limited U.S. presence, such as us, are subject to certain minimum standards under the EPS Tailoring Rule, with the Federal Reserve Board relying primarily on compliance with comparable home-country prudential standards with respect to such FBOs.

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If our size or risk profile were to increase, our combined U.S. operations may be subject to certain further enhanced prudential standards. In particular, enhanced prudential standards applicable to FBOs require an FBO with both significant total global consolidated assets and significant U.S. assets (excluding the total assets of each U.S. branch and agency) to establish a U.S.

top-tier

intermediate holding company (“IHC”) over all U.S. bank and nonbank subsidiaries, and generally subject such an FBO’s IHC to the same capital adequacy standards, including minimum risk based capital and leverage requirements, liquidity, liquidity risk management, stress testing and single counterparty credit limits as those applicable to U.S. bank holding companies in the same EPS category under the EPS Tailoring Rule. In addition, certain enhanced prudential standards will apply to the combined U.S. operations of an FBO whether or not the FBO is required to establish a U.S. IHC. We continue to assess the full impact of these enhanced prudential requirements and the EPS Tailoring Rule on our business.

In addition, as an FBO with more than $100 billion in total consolidated assets, we are currently required to submit annually to the Federal Reserve Board and FDIC a resolution plan for the orderly resolution of our U.S. operations under the U.S. Bankruptcy Code or other applicable insolvency laws in a rapid and orderly fashion in the event of future material financial distress or failure. If the Federal Reserve Board and the FDIC jointly determine that the resolution plan is not credible and the deficiencies are not cured in a timely manner, they may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. If we were to fail to address the deficiencies in the resolution plan when required, we could eventually be required to divest certain assets or operations.

In October 2019, the Federal Reserve Board and FDIC issued a final rule addressing the applicability of resolution planning requirements for FBOs (the “FBO Resolution Plan Rule”). The FBO Resolution Plan Rule applies reduced resolution plan filing requirements to FBOs that have $250 billion or more in total global consolidated assets and that do not otherwise meet certain category thresholds identified in the EPS Tailoring Rule, such as us, requiring such FBOs to submit a reduced content resolution plan every three years.

In July 2019, U.S. federal regulatory agencies adopted amendments to the Volcker Rule regulations to implement the Volcker Rule amendments included in the Reform Act, and also in 2019 such U.S. federal regulatory agencies adopted certain targeted amendments to the Volcker Rule regulations to simplify and tailor certain compliance requirements relating to the Volcker Rule. In June 2020, U.S. federal regulatory agencies adopted additional revisions to the Volcker Rule’s current restrictions on banking entities sponsoring and investing in certain covered hedge funds and private equity funds, including by proposing new exemptions allowing banking entities to sponsor and invest without limit in credit funds, venture capital funds, customer facilitation funds and family wealth management vehicles (the “Covered Fund Amendments”). The Covered Fund Amendments also loosen certain other restrictions on extraterritorial fund activities and direct parallel or

co-investments

made alongside covered funds. The Covered Fund Amendments therefore should expand the ability of banking entities to invest in and sponsor private funds. The ultimate consequences of the Reform Act on the Fund and its activities remain uncertain, and it remains unclear whether any particular other legislative or regulatory proposals will be enacted or adopted.

Shinhan Bank America

Shinhan Bank America, a state chartered bank that is located in New York and is not a member of the Federal Reserve Board, is subject to extensive regulation and examination by the Department, as its chartering authority, and by the FDIC, as the insurer of its deposits and as its primary federal banking regulator. The federal and state laws and regulations which are applicable to banks regulate, among other things, the activities in which they may engage and the locations at which they may engage in them, their investments, their reserves against deposits, the timing of the availability of deposited funds and transactions with affiliates, among other things. Shinhan Bank America must file reports with the Department and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions, such as establishing branches and mergers with, or acquisitions of, other depository institutions. The Department and the

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FDIC periodically examine the bank to test Shinhan Bank America’s safety and soundness and its compliance with various regulatory requirements. This comprehensive regulatory and supervisory framework restricts the activities in which a bank can engage and is intended primarily for the protection of the FDIC insurance fund and the bank’s depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves. Any change in such regulations, whether by the Department, the FDIC or as a result of the enactment of legislation, could have a material adverse impact on Shinhan Bank America and its operations.

Capital Requirements

. The FDIC imposes capital adequacy standards on state-chartered banks like Shinhan Bank America. The “prompt corrective action” framework under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), provides, among other things, for expanded regulation of insured depository institutions, including banks, and their parent holding companies. As required by FDICIA, the federal banking agencies have established five capital tiers ranging from “well capitalized” to “critically undercapitalized” for insured depository institutions. In order for our U.S. bank subsidiary to be classified as “well capitalized,” which is necessary in order for us to maintain our financial holding company status, it must maintain a minimum 5% Tier I leverage ratio, a 6.5% common equity Tier I capital ratio, a 8% Tier I risk-based capital ratio and a 10% total risk-based capital ratio.

In order for Shinhan Bank America to be classified as “adequately capitalized” under FDICIA’s prompt corrective action standards, which is necessary in order for Shinhan Bank America to avoid certain restrictions under FDICIA, it must maintain a minimum 4% Tier I leverage ratio, a 4.5% common equity Tier I capital ratio, a 6% Tier I risk-based capital ratio and a 8% total risk-based capital ratio.

As of December 31, 2021, Shinhan Bank America exceeded all of the capital ratio standards for a well-capitalized bank with a Tier I leverage ratio of 11.18%, a common equity Tier I risk-based capital ratio of 15.93%, a Tier I risk-based capital ratio of 15.93% and a total risk-based capital ratio of 16.76%.

Activities and Investments of New York-Chartered Banks

. Shinhan Bank America derives its lending, investment and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the Department, as well as FDIC regulations and other federal laws and regulations. See “– Activities and Investments of FDIC-Insured State-Chartered Banks” below. These New York laws and regulations authorize Shinhan Bank America to invest in real estate mortgages, consumer and commercial loans, certain types of debt securities, including certain corporate debt securities and obligations of federal, State and local governments and agencies, and certain other assets. A bank’s aggregate lending powers are not subject to percentage of asset limitations, but, as discussed below, there are limits on the amount of credit exposure that a bank may have to a single borrower or group of related borrowers. A New York-chartered bank may also exercise trust powers upon approval of the Department. Shinhan Bank America does not currently have trust powers.

With certain limited exceptions, Shinhan Bank America may not make loans or extend credit for commercial, corporate or business purposes (including lease financing) to a single borrower, the aggregate amount of which would be in excess of 15% of Shinhan Bank America’s net worth, on an unsecured basis, and 25% of the net worth if the excess is collateralized by readily marketable collateral or collateral otherwise having a value equal to the amount by which the loan exceeds 15% of Shinhan Bank America’s net worth. In calculating the amount of outstanding loans or credit to a particular borrower for this purpose, Shinhan Bank America must include its credit exposure arising from derivative transactions with the borrower.

Activities and Investments of FDIC-Insured State-Chartered Banks.

The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured

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state bank may, among other things, (i) acquire or retain a majority interest in a subsidiary that is engaged in activities that are permissible for the bank itself to engage in, (ii) invest as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, and (iii) acquire up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions. In addition, an FDIC-insured state-chartered bank may not directly, or indirectly through a subsidiary, engage as “principal” in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements.

Regulatory Enforcement Authority

. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue

cease-and-desist

or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. On June 12, 2017, Shinhan Bank America entered into a consent order with the FDIC with respect to certain weaknesses relating to its anti-money laundering compliance program. Shinhan Bank America has taken corrective measures and provides periodic reports to the FDIC with regard to such matters.

Under the New York State Banking Law, the Department may issue an order to a New York-chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices and to keep prescribed books and accounts. Upon a finding by the Department that any director, trustee or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Department to discontinue such practices, such director, trustee or officer may be removed from office by the Department after notice and an opportunity to be heard. The Department also may take possession of a banking organization under specified statutory criteria.

Prompt Corrective Action.

Section 38 of the Federal Deposit Insurance Act provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” A bank is deemed to be (i) “well capitalized” if it has total risk-based capital ratio of 10.0% or greater, has a Tier I risk-based capital ratio of 8.0% or greater, has a common equity Tier I capital ratio of 6.5% or greater, has a Tier I leverage capital ratio of 5.0% or greater, and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure, (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, has a Tier I risk-based capital ratio of 6.0% or greater, has a common equity Tier I capital ratio of 4.5% or greater, has a Tier I leverage capital ratio of 4.0% or greater and does not meet the definition of “well capitalized,” (iii) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio that is less than 6.0%, has a common equity Tier I capital ratio of less than 4.5%, or has a Tier I leverage capital ratio that is less than 4.0%, (iv) “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, has a Tier I risk-based capital ratio that is less than 4.0%, has a common equity Tier I capital ratio that is less than 3.0%, or has or a Tier I leverage capital ratio that is less than 3.0%, and (v) “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. The regulations also provide that a federal banking regulator may, after notice and an opportunity for a hearing, reclassify a “well capitalized” institution as “adequately capitalized” and may require an “adequately capitalized” institution or an “undercapitalized” institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or engaging in an

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unsafe or unsound practice. The federal banking regulator may not, however, reclassify a “significantly undercapitalized” institution as “critically undercapitalized.”

An institution generally must file a written capital restoration plan which meets specified requirements, as well as a performance guaranty by each company that controls the institution, with an appropriate federal banking regulator within 45 days of the date that the institution receives notice or is deemed to have notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Immediately upon becoming undercapitalized, an institution becomes subject to statutory provisions, which, among other things, set forth various mandatory and discretionary restrictions on the operations of such an institution.

FDIC Insurance

. Shinhan Bank America’s deposits are insured by the FDIC. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC.

During the 2008-2009 financial crisis, there were many failures and near-failures among financial institutions. The FDIC insurance fund reserve ratio, representing the ratio of the fund to the level of insured deposits, declined due to losses caused by bank failures and the FDIC then increased its deposit insurance premiums on remaining institutions in order to replenish the insurance fund. The FDIC insurance fund balance increased throughout 2010 and turned positive in 2011. The Dodd-Frank Act requires the FDIC to increase the ratio of the FDIC insurance fund to estimated total insured deposits (“Reserve Ratio”) to 1.35% by September 30, 2020. If bank failures in the future are more costly than the FDIC currently anticipates, then the FDIC may be required to continue to impose higher insurance premiums. Any such increase would increase our

non-interest

expense. Thus, despite the prudent steps Shinhan Bank America may take to avoid the mistakes made by other banks, its costs of operations may increase as a result of those mistakes by others.

As required by the Dodd-Frank Act, the FDIC revised its deposit insurance premium assessment rates in 2011. In 2016, the FDIC adopted a rule in accordance with provisions of the Dodd-Frank Act that requires large institutions to bear the burden of raising the Reserve Ratio from 1.15% to 1.35% through assessment surcharges for such large institutions. The Reserve Ratio exceeded 1.35% in September 2018. Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the Reserve Ratio to decline below the statutory minimum of 1.35%, resulting in the FDIC establishing a restoration plan on September 15, 2020 which contemplates the Reserve Ratio returning to 1.35% within 8 years.

As a result of the Dodd-Frank Act, the increase in the standard FDIC insurance limit from US$100,000 to US$250,000 was made permanent. The Dodd-Frank Act also removed the prohibition on banks paying interest on demand deposits.

The FDIC may terminate the deposit insurance of any insured depository institution, including Shinhan Bank America, if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that would result in termination of Shinhan Bank America’s deposit insurance.

Brokered Deposits

. Under federal law and applicable regulations, (i) a well-capitalized bank may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) an adequately capitalized bank may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the FDIC and (iii) an undercapitalized bank may not (x) accept, renew or roll over any brokered

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deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution’s normal market area or in the market area in which such deposits are being solicited. The term “undercapitalized insured depository institution” is defined to mean any insured depository institution that fails to meet the minimum regulatory capital requirement prescribed by its appropriate federal banking agency. The FDIC may, on a

case-by-case

basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. In January 2021, the FDIC adopted rules on aspects of FDIC’s brokered deposit and interest rate regulations. The impact of these rules on Shinhan Bank America’s operations in the future is uncertain. Shinhan Bank America had an aggregate amount of US$30 million of brokered deposits outstanding as of December 31, 2021.

Community Reinvestment and Consumer Protection Laws

. In connection with its lending activities, Shinhan Bank America is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act,

Truth-in-Lending

Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and CRA.

The CRA requires FDIC insured banks to define the assessment areas that they serve, identify the credit needs of those assessment areas and take actions that respond to the credit needs of the community. The FDIC must conduct regular CRA examinations of Shinhan Bank America and assign it a CRA rating of “outstanding,” “satisfactory,” “needs improvement” or “unsatisfactory.” Shinhan Bank America is also subject to provisions of the New York State Banking Law which impose similar obligations to serve the credit needs of its assessment areas. The Department and the FDIC each periodically assess a bank’s compliance, and makes the assessment available to the public. Federal and New York State laws both require consideration of these ratings when reviewing a bank’s application to engage in certain transactions, including mergers, asset purchases and the establishment of branch offices. A negative assessment may serve as a basis for the denial of any such application. Shinhan Bank America has received “satisfactory” ratings from both the Department and the FDIC in its most recent CRA performance evaluation.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) proposed comprehensive amendments to the CRA, which would significantly affect the manner in which banks seek to satisfy their CRA obligations (including by modifying incentives for banks to lend to, invest in, and provide services to their communities generally, and in

low-

and moderate-income (“LMI”) areas, in particular) and modify the CRA examination process for all but the smallest banks by moving from the current subjective rating system to a “metric-based” rating system. On May 20, 2020, the OCC finalized comprehensive amendments to the CRA (“2020 CRA Rules”). In December 2021, the OCC rescinded the 2020 CRA rules and replaced them with CRA regulations based on those adopted jointly by the U.S. banking agencies in 1995, as amended. The OCC indicated that the rescission of the 2020 CRA Rules was intended to facilitate the ongoing interagency work to modernize the CRA regulatory framework. It remains unclear whether the FDIC or other regulatory agencies will adopt final rules amending the CRA and, if such rules were to be adopted, we cannot predict at this time the extent to which the scope of such final rules would resemble or maintain the CRA regulations that are currently in effect. It also remains unclear whether any other particular legislative or regulatory proposals will be enacted or adopted concerning CRA requirements applicable to us. To the extent any such final amendments to CRA requirements applicable to us are adopted, such regulatory developments may impact the ability of Shinhan Bank America to achieves “satisfactory” CRA performance ratings.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (the “Bureau”) with broad authority to regulate and enforce consumer protection laws. The Bureau has the authority to adopt regulations under numerous existing federal consumer protection statutes. The Bureau may also decide that a particular consumer financial product or service, or the manner in which it is offered, is an unfair, deceptive, or abusive act or practice. If the Bureau so decides, it has the authority to outlaw such act or practice.

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Limitations on Dividends

. The payment of dividends by Shinhan Bank America is subject to various regulatory requirements. Under New York State Banking Law, a New York-chartered stock bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Superintendent of Banks is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments.

Assessments

. Banking institutions are required to pay assessments to both the FDIC and the Department to fund the operations of those agencies. The assessments are based upon the amount of Shinhan Bank America’s total assets. Shinhan Bank America must also pay an examination fee to the Department when it conducts an examination.

Transactions with Related Parties

. Shinhan Bank America’s authority to engage in transactions with related parties or “affiliates” (i.e., any entity that controls or is under common control with an institution) is limited by Sections 23A and 23B of the Federal Reserve Act. Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the institution and also limits the aggregate amount of transactions with all affiliates to 20% of the institution’s capital and surplus. The term “affiliate” includes, for this purpose, us and any company that we control other than Shinhan Bank America and its subsidiaries.

Loans to affiliates must be secured by collateral with a value that depends on the nature of the collateral. The purchase of low quality assets from affiliates is generally prohibited. Loans and asset purchases with affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with nonaffiliated companies. In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards that in good faith would be offered to or would apply to nonaffiliated companies. Shinhan Bank America’s authority to extend credit to executive officers, directors and 10% shareholders, as well as entities controlled by such persons, is governed by Regulation O of the Federal Reserve Board. Regulation O generally requires such loans to be made on terms substantially similar to those offered to unaffiliated individuals (except for preferential loans made in accordance with broad based employee benefit plans), places limits on the amount of loans Shinhan Bank America may make to such persons based, in part, on Shinhan Bank America’s capital position, and requires certain approval procedures to be followed.

Standards for Safety and Soundness

. FDIC regulations require that Shinhan Bank America adopt procedures and systems designed to foster safe and sound operations in the areas of internal controls, information systems, internal and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings and compensation, fees and benefits. Among other things, these regulations prohibit compensation and benefits and arrangements that are excessive or that could lead to a material financial loss. If Shinhan Bank America fails to meet any of these standards, it will be required to submit to the FDIC a plan specifying the steps that will be taken to cure the deficiency. If it fails to submit an acceptable plan or fails to implement the plan, the FDIC will require it to correct the deficiency and until corrected, may impose restrictions on it.

The FDIC has also adopted regulations that require Shinhan Bank America to adopt written loan policies and procedures that are consistent with safe and sound operation, are appropriate for its size, and must be reviewed by its board of directors annually. Shinhan Bank America has adopted such policies and procedures, the material provisions of which are discussed above as part of the discussion of our lending operations.

U.S. Regulation of Other U.S. Operations

In the United States, Shinhan Investment America Inc., our U.S.-registered broker-dealer subsidiary, is subject to regulations that cover all aspects of the securities business, including, sales methods, trade practices among broker-dealers, use and safekeeping of clients’ funds and securities, capital structure; record-keeping, the financing of clients’ purchases, and the conduct of directors, officers and employees.

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Shinhan Investment America Inc. is regulated by a number of different government agencies and self-regulatory organizations, including the SEC and the Financial Industry Regulatory Authority (“FINRA”). Our U.S. subsidiaries are also regulated by some or all of the NYSE, the Municipal Securities Rulemaking Board, the U.S. Department of the Treasury, the Federal Reserve Board and the Commodities Futures Trading Commission. In addition, the U.S. states, provinces and territories have local securities commissions that regulate and monitor activities in the interest of investor protection. These regulators have a variety of sanctions available, including the authority to conduct administrative proceedings that can result in censure, fines, the issuance of

cease-and-desist

orders or the suspension or expulsion of the broker-dealer or its directors, officers or employees.

FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA covers a broad spectrum of securities businesses, including, registering and educating industry participants, examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering a dispute resolution forum for investors and registered firms. It also performs market regulation under contract for the NASDAQ Stock Market, the American Stock Exchange and the Chicago Climate Exchange.

Many of the provisions of the Dodd-Frank Act discussed above will affect the operation of Shinhan Investment America, as well as our U.S. banking operations. Again, the impact of this statute on our operations will depend on the final regulations ultimately adopted by various agencies and oversight boards in coming years.

Shinhan Bank America may be impacted by provisions of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, or other legislation or regulations adopted in response to the

COVID-19

pandemic, which may contain certain temporary regulatory forbearance measures applicable during the

COVID-19

pandemic.

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ITEM 4.C. Organizational Structure

We currently have 17 direct and 34 indirect subsidiaries. The following diagram provides an overview of our organizational structure, including our significant subsidiaries and our ownership of such subsidiaries as of the date of this annual report:

1) We and our subsidiaries currently own 96.74% in the aggregate.

2) We and our subsidiaries currently own 34.6% in the aggregate.

3) We and our subsidiaries currently own 18.9% in the aggregate.

4) We and our subsidiaries currently own 14.21% in the aggregate.

5) SBJ BANK own 100% in the aggregate.

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All of our subsidiaries are incorporated in Korea, except for the following:

• Shinhan Bank America (incorporated in the United States);

• Shinhan Bank Canada (incorporated in Canada);

• Shinhan Bank (China) Limited (incorporated in the People’s Republic of China);

• Shinhan Bank Europe GmbH (incorporated in Germany);

• Shinhan Bank Kazakhstan Limited (incorporated in Kazakhstan);

• Shinhan Bank Japan (incorporated in Japan);

• Shinhan Bank (Cambodia) PLC (incorporated in Cambodia);

• Shinhan Bank Vietnam Ltd. (incorporated in Vietnam);

• PT Bank Shinhan Indonesia (incorporated in Indonesia);

• Banco Shinhan de Mexico (incorporated in Mexico);

• LLP MFO Shinhan Finance (incorporated in Kazakhstan);

• PT Shinhan Indo Finance (incorporated in Indonesia);

• Shinhan Microfinance Co., Ltd. (incorporated in Myanmar);

• Shinhan Vietnam Finance Company Ltd. (incorporated in Vietnam);

• Shinhan Investment Corp., USA Inc. (incorporated in the United States);

• Shinhan Investment Corp., Asia Ltd. (incorporated in Hong Kong);

• Shinhan Securities Vietnam Co., Ltd. (incorporated in Vietnam);

• PT Shinhan Sekuritas Indonesia (incorporated in Indonesia);

• Shinhan Asset Management Indonesia (incorporated in Indonesia);

• Shinhan Asset Management (Hong Kong) Limited (incorporated in Hong Kong);

• Shinhan DS Vietnam Co. Limited (incorporated in Vietnam); and

• SBJ DNX (incorporated in Japan).

ITEM 4.D. Properties

The following table provides information regarding certain of our properties in Korea.

		Area (In square meters)
Type of Facility	Location	Building		Site (If Different)
Registered office and corporate headquarters	20, Sejong-daero 9-gil, Jung-gu, Seoul, Korea 04513		59,519		5,418
Shinhan Card headquarters	100, Eulji-ro, Jung-gu, Seoul, Korea 04551		65,774		4,634
Shinhan Investment Corp.	70, Yeoui-daero, Yeoungdeungpo-gu, Seoul, Korea 07325		70,170		4,765
Shinhan Centennial Building	29, Namdaemun-ro 10-gil, Jung-gu, Seoul, Korea 04540		19,697		1,389
Shinhan Bank Gwanggyo Branch	54, Cheonggyecheon-ro, Jung-gu, Seoul, Korea 04540		16,727		6,783
Shinhan Myongdong Branch	43, Myeongdong-gil, Jung-gu, Seoul, Korea 04534		8,936		1,017
Shinhan Youngdungpo Branch	27, Yeongjung-ro, Yeoungdeungpo-gu, Seoul, Korea 07301		6,171		1,983

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		Area (In square meters)
Type of Facility	Location	Building		Site (If Different)
Shinhan Back Office Support Center	1311, Jungang-ro, Ilsandong-gu, Goyang-si, Gyeonggi-do, Korea 10401		25,238		5,856
Shinhan Bank Back Office and Call Center	251, Yeoksam-ro, Gangnam-gu, Seoul, Korea 06225		40,806		7,964
Shinhan Bank Back Office and Storage Center	1221, 1sunwhan-ro, Sangdang-gu, Cheongju-Si, Chungcheongbuk-do, Korea 28777		6,019		5,376
Shinhan Card Yoksam-Dong Building	176, Yeoksam-ro, Gangnam-gu, Seoul, Korea 06248		7,348		1,185
Shinhan Data Center	67, Digital Valley-ro, Suji-gu, Yongin-si, Gyeonggi-do, Korea 16878		45,277		9,114

Our subsidiaries own or lease various land and buildings for their branches and sales offices.

As of December 31, 2021, Shinhan Bank had a countrywide network of 784 branches. Approximately 25% of these facilities were housed in buildings owned by us, while the remaining branches were leased properties. Lease terms are generally between two to three years and generally do not exceed five years. As of December 31, 2021, Jeju Bank had 31 branches of which we own 12 of the buildings in which the facilities are located, representing 39% of its total branches. Lease terms are generally between one to two years and seldom exceed five years.

As of December 31, 2021, Shinhan Card had 29 branches, including its headquarters, all but three of which were leased. Lease terms are generally between one to two years. As of December 31, 2021, Shinhan Investment had a nationwide network of 82 branches of which we own five of the buildings in which the facilities are located, representing 6.1% of its total branches in Korea. Lease terms are generally between one to two years. As of December 31, 2021, Shinhan Life Insurance had 222 branches, which we lease for a term of generally one to two years.

The net book value of all the properties owned by us on December 31, 2021 was

W

2,930 billion. We do not own any material properties outside of Korea.

ITEM 4A. UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the staff of the U.S. Securities and Exchange Commission regarding our periodic reports under the Securities Exchange Act of 1934, as amended.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and notes thereto included in this annual report. The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS.

ITEM 5.A. Operating Results

Overview

We are one of the leading financial institutions in Korea in terms of total assets, revenues, profitability and capital adequacy, among others. Incorporated on September 1, 2001, we are the first privately-held financial holding company to be established in Korea. Since inception, we have developed and introduced a wide range of

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financial products and services in Korea and aimed to deliver comprehensive financial solutions to clients through a convenient

one-portal

network. According to reports by the Financial Supervisory Service, we are the second largest financial services provider in Korea (as measured by consolidated total assets as of December 31, 2021) and operate the second largest banking business (as measured by consolidated total bank assets as of December 31, 2021) and the largest credit card business (as measured by total credit purchase volume in 2021) in Korea.

Most of our assets are located in, and we generate most of our income from, Korea. Accordingly, our business and profitability are largely dependent on the general economic and social conditions in Korea, including interest rates, inflation, exports, personal expenditures and consumption, unemployment, demand for business products and services, debt service burden of households and businesses, the general availability of credit, the asset value of real estate and securities and other factors affecting the financial well-being of our corporate and retail customers. The Korean economy is closely integrated with, and is significantly affected by, developments in the global economy and financial markets. In recent years, the global economy and financial markets experienced adverse conditions and volatility, which also had an adverse impact on the Korean economy and in turn on our business and profitability. See “Item 3.D. Risk Factors — Risks Relating to Our Overall Business — Difficult conditions and turbulence in the Korean and global economy and financial markets may adversely affect our business, asset quality, capital adequacy and earnings.”

We derive most of our income from interest earned on our corporate and retail loans, net of funding costs (which primarily consist of interest payable on customer deposits). Net interest income is largely a function of the average volume of loans and the net interest spread thereon.

In 2020, the average volume of retail loans increased by 8.3% from 2019, primarily as a result of continued increase in home rental long-term deposit loans. In 2020, the average volume of corporate loans increased by 10.2% from 2019, primarily as a result of an increase in facilities loans.

In 2021, the average volume of retail loans increased by 8.9% from 2020, primarily as a result of continued increase in home rental long-term deposit loans. In 2021, the average volume of corporate loans increased by 10.2% from 2020, primarily as a result of policies to support small and medium sized enterprises amidst the prolonged

COVID-19

pandemic.

From 2019 to 2020, both the average yield on interest-earning assets and the average rate on interest-bearing liabilities decreased primarily due to decreases in the base interest rate by the Bank of Korea from 1.25% to 0.75% in March 2020 and from 0.75% to 0.50% in May 2020. Shinhan Bank’s net interest income increased by 1.0% from

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5,872 billion in 2019 to

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5,928 billion in 2020. Net interest income after provision for loan losses amounted to

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5,501 billion and

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5,284 billion in 2019 and 2020 respectively. Shinhan Bank’s operating income decreased by 10.7% from

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3,263 billion in 2019 to

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2,914 billion in 2020.

From 2020 to 2021, both the average yield on interest-earning assets and the average rate on interest-bearing liabilities decreased primarily due to a decrease in the weighted average base interest rate set by the Bank of Korea from 0.71% in 2020 to 0.61% in 2021. The average balance increased for both interest-earning assets and interest-bearing liabilities. Shinhan Bank’s net interest income increased by 11.5% from

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5,928 billion in 2020 to

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6,611 billion in 2021. Net interest income after provision for loan losses amounted to

W

5,284 billion and

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6,265 billion in 2020 and 2021, respectively. Shinhan Bank’s operating income increased by 23.1% from

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2,914 billion in 2020 to

W

3,587 billion in 2021.

As for Shinhan Card, its operating revenue is largely dependent on transaction volume and less sensitive to interest rate movements than our banking business, since merchant fees (representing a fixed percentage of a credit card purchase amount) provide a stable source of income and our credit card business enjoys more diversified sources of funding, including commercial paper, corporate debentures (which have maturities longer than most bank deposit products) and asset-backed securitizations. The credit card transaction volume is largely

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dependent on the overall trends of the general Korean economy, such as general consumer spending patterns in Korea. Shinhan Card’s operating revenues increased by 5.1% from

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3,892 billion in 2019 to

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4,091 billion in 2020, largely due to an increase in net foreign currency transaction gain mainly incurred in the transactions on bonds and borrowings in foreign currency, due to a decline in foreign currency exchange rates amid stronger valuation of the Won. In addition, fees and commission income increased by 3.3% from

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1,432 billion in 2019 to

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1,479 billion in 2020, primarily as a result of an increase in fees and commission income from lease operations as a result of expansion of operations, such as purchasing operating assets. Shinhan Card’s operating revenues increased by 6.6% from

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4,091 billion in 2020 to

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4,360 billion in 2021, largely due to an increase in gains on hedging items as well as a decrease in losses on hedging items resulting from the change in foreign currency exchange rates. In addition, fees and commission income increased by 9.4% from

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1,479 billion in 2020 to

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1,618 billion in 2021, primarily as a result of an increase in fees and commission income from lease operations and, to a lesser extent, an increase in fees income on credit cards, which was offset in part by a decrease in fees expense on credit cards.

The following provides a discussion of the major trends surrounding the general economy and the financial services sector in Korea in 2021 and our current outlook for 2022 as they relate to our core businesses. The following discussion represents the subjective view of our management and may significantly differ from the actual results for 2022.

Trends in the Korean Economy

In 2021, it is estimated that the global economy recorded a growth rate of approximately 5% in part due to active policy responses from countries in order to recover from the pandemic. While advanced countries were more successful in recovering to

pre-pandemic

growth levels during the first half of 2021 by supporting weakened consumer spending through fiscal expansion and strengthening public health systems, emerging countries still suffered through a sluggish economy amidst low vaccination rates.

The U.S. economy recorded its highest growth rate in 37 years, driven by a significant increase in personal consumption, the majority coming from within the U.S. Unemployment rate also dropped significantly from 6.7% as of December 31, 2020 to 3.9% as of December 31, 2021. However, labor force participation rate remains lower than

pre-pandemic

levels due to the spread of the Delta and Omicron variants and increased retirement of the baby boomer generation. In 2022, the U.S. economy is expected to grow at a rate that would be slightly lower than 2021. Although personal consumption growth is expected to slow slightly due to the base effect of the previous year and the waning effect of the government’s income support, personal consumption levels are expected to continue recovery, particularly as service consumption is expected to increase with the easing of social distancing measures. High inflation rates, combined with supply chain turmoil and demand-side pressure, lurk as risk factors for the U.S. economy in 2022 and beyond.

The European Union achieved an economic growth rate of approximately 5.2% in 2021, supported by expansive fiscal and monetary policies, as well as increased supply of

COVID-19

vaccines. While government spending, product consumption, and product exports drove the recovery, facility investment and service consumption remained somewhat sluggish. The European Union is expected to record a lower growth rate in 2022 compared to 2021 as economic activity levels continue to moderately recover.

China recorded a steep economic growth rate of 18% during the first quarter of 2021, but the growth rate slowed to 4% during the second half of 2021 as China’s

“Zero-COVID-19”

policy disrupted production and reduced consumption, and the slowing of the real estate economy amidst the Hengda default and resulting slowing within the construction sector as well. In 2021, the Chinese economy recorded an annual growth rate of 8.1%, which was in part due to the base effect of the sluggishness of 2020. China’s economic growth rate is expected to be lower in 2022 compared to 2021 as high-intensity quarantine policies continue, together with the increased deleveraging of real estate and strengthening of corporate regulations in accordance with the Xi Jinping government’s

co-wealth

policy, aided by the lowering of the loan prime rate in December 2021 and February 2022.

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The Korean economy achieved a growth rate of approximately 4% in 2021 owing to robust exports of key products and a recovery of private consumption and an increase in

COVID-19

vaccination rates. The

so-called

“Big Three” industries (electric vehicles, semiconductors and biomedical technologies), which received significant Government support, achieved record-high exports in 2021. The growth rate decreased by 0.3% in the third quarter of 2021 compared to the same period of 2020 due to the spread of the Delta variant and deepening global supply bottlenecks. In particular, personal consumption, which drove growth in the second quarter, declined by 0.2% in the third quarter of 2021 compared to the second quarter of 2021 as consumption of services decreased amidst stronger social distancing measures. In the fourth quarter of 2021, levels of exports, consumption and construction increased, resulting in the growth rate increasing by 1.1% compared to the same period of 2020. Exports of semiconductors, petrochemicals, machinery, and equipment increased, resulting in increased facility investment. Private consumption increased by 1.7%. Social distancing restrictions were eased as part of the Government’s “With

COVID-19”

policy but were later strengthened again due to the wide spread of the Omicron variant. However, consumers became less sensitive to such restrictions as a result of fatigue from the prolonged

COVID-19

situation, and the Korean economy ended up recording a growth rate of 4.0% for the year 2021.

In 2022, the Korean economy is expected to experience moderate growth as exports and investment continue to improve, while private consumption is also expected to gradually recover with the Government’s implementation of “With

COVID-19”

policy. Exports are expected to improve as IT exports, including semiconductors, which are Korea’s major export, will likely increase in volume as a result of the global economic recovery from

COVID-19.

Private consumption may experience slower recovery as concerns about health risks persist, as evidenced by the repeated strengthening and easing of social distancing measures by the Government in response to the

COVID-19

situation. The Government is planning large-scale fiscal expenditures in 2022, focusing on employment and welfare. Furthermore, the Government plans to increase investment in industries that promote carbon-neutral,

eco-friendly,

and digital economy in order to respond to global competition and secure future growth drivers in fields including data, network, artificial intelligence, gene technology and the so-called “Big Three” industries (electric vehicles, semiconductor and biomedical technologies). The Government is also expected to expand investment to narrow the socioeconomic gap that

COVID-19

has worsened. Negative consumer sentiment in relation to

COVID-19

is gradually weakening, which may promote recovery in consumption. However, the future growth of Korean economy is highly uncertain as there are multiple risk factors such as the unpredictability of

COVID-19

situation, prolonged global inflation, accelerated monetary tightening in major economies, and the possibility of an economic slowdown in China.

In response to the U.S. Federal Reserve Board’s increase in base rate which is expected to continue throughout 2022, the Bank of Korea also raised the base rate by 25 basis points in each of November 2021, January 2022 and April 2022. The base rate may be increased further, depending on the global and domestic economic conditions. In addition, the supplementary budget to be implemented following the presidential election and resulting issuance of treasury bonds may exert pressure on market interest rates. In Korea, household debt has reached an

all-time

high of more than W1,800 trillion, and further increases in base rate are likely to have a negative impact on consumption, given the household debt burden. While the financial aid packages offered to small business owners hit by

COVID-19

are expected to lessen, the financial burden to small businesses are likely to grow. Moreover, the U.S. dollar is expected to strengthen due to the possibility of accelerated monetary tightening in the U.S. and the growing preference for safe assets as geopolitical risks such as the U.S.-China tensions and the Russia-Ukraine conflict. The Russia-Ukraine conflict may result in volatility in international raw material costs and a slowdown in cross border trades, slowing the recovery in exports. The volatility of the

won-dollar

exchange rate is expected to increase in 2022 as internal and external uncertainties continue to grow.

Recent Developments and Outlook for the Korean Financial Sector

Commercial Banking

Since the financial crisis in 2008, the asset size of Korean commercial banks has consistently grown year over year, including in 2021. Asset quality of commercial banks in Korea continued to improve, primarily as a result of Korean commercial banks’ risk management efforts as well as, more recently,

Government-led

financial

202

support programs introduced in response to the

COVID-19

pandemic such as loan rescheduling and principal and interest payment deferral programs. Household loans as well as corporate loans increased amidst

Government-led

financial support programs implemented in response to the

COVID-19

pandemic as well as an increase in Government expenditures and fiscal stimulus measures. However, net income for Korean commercial banks increased in 2021 compared to 2020, primarily due to high growth in loan assets and improvement in net interest margin following interest rate hike.

In 2022, asset growth for commercial banks in Korea is expected to slow due to a variety of factors, including the Russia-Ukraine conflict and the subsequent economic slowdown and global inflation, implementation of revised Basel III, volatility in the base interest rate and the continued strengthening of the Government’s policies to curb growth of household debt. Moreover, the prolonged

COVID-19

pandemic may lead to an increase in defaults on loan payments, particularly small- and

medium-sized

enterprises, which may lead to an increase in delinquency and a have a negative impact on the asset quality of commercial banks. In addition, as the demand for consumer protection in investment products increases, the banks’ organization and key performance indicators are expected to be readjusted, and fees and commission income generally is expected to decrease. Competition between banks and fintech firms is expected to further intensify due to the introduction of open banking and implementation of MyData service. The resulting competition is expected to go beyond traditional price-based competition, requiring banks to focus on recruiting talented and innovative individuals and also on offering customized products and services based on big data analysis and integrating financial services with customers’ daily life patterns in order to attract high

net-worth

individuals and younger customers. The Government’s policies focusing on protection of consumers and encouraging inclusive financial policies are also expected to lead to further competition among banks for relevant businesses, such as businesses to support the middle class, socially disadvantaged classes, small businesses and startups. Environmental, social, and governance (ESG) issues, as well as the opportunities and risks associated with them, are becoming increasingly important to commercial banks. We believe that strengthening risk management capabilities will become increasingly important and have a more direct impact on the financial performance of commercial banks in Korea.

Credit Cards

In 2021, the prolonged impact of

COVID-19

increased uncertainty in the Korean credit card industry, and a series of challenges contributed to the market’s volatility, including increased “untact”

(non-face-to-face)

consumption, uncertain economic forecasts, a complex regulatory environment, and growing competition with fintech companies. Despite the challenging market environment, the scale and profitability of Korean credit card businesses have increased as a result of the Government’s fiscal stimulus policies, which include consumption vouchers and subsidies, proactive business diversification into automobile finance,

non-member

loans, and data, and cost-cutting efforts through digital transformation.

In 2022, searching for proactive and prompt responses to long-term changes resulting from the

COVID-19

crisis is expected to be the key challenge faced by the Korean credit card industry. Credit card companies are required to manage emerging issues in traditional financial services business, which includes efficient financing and household debt risk management, as well as to effectively respond to increasingly stringent regulatory environments, which include reduced merchant fees and tightened

debt-to-service

ratio regulations on financial products. Additionally, the role of digital platforms is expected to grow in importance as integrated financial services such as open banking and MyData have become prevalent, requiring credit card companies to develop customer-friendly digital platforms. As a result, credit card companies will need to enhance their core financial services business capabilities, while also evolving and innovating their digital business in order to satisfy the demanding needs of credit card customers.

Securities

In 2021, securities companies are expected to continue efforts to diversify revenue sources other than traditional brokerage services, expanding into investment banking and sales and trading in an effort to reduce the

203

impact of stock price fluctuations on the profitability of securities companies. Competition has particularly intensified as entry barriers into the securities industry is relatively low and there are a limited number of factors allowing companies to differentiate its services with other financial companies. Despite the introduction of new net capital ratio requirements in 2016, which regulate minimum equity capital requirements for each authorized business unit separately and were intended to loosen restrictions on businesses, management of traditional net capital ratios remains important as it directly affects credit rating. In addition, introducing leverage ratio regulations, for example, the application of the BIS capital adequacy ratio, is expected to give larger securities firms an advantage over their smaller competitors as larger securities firms will have larger capital buffers compared to small and

medium-sized

firms. As more securities companies enter the wealth management and corporate and investment banking markets, more companies are expected to combine and integrate their banking and financial investment services. Moreover, fintech companies such as KakaoPay and Toss have entered the online brokerage and asset management markets through the launch of KakaoPay Securities Corp. and Toss Securities, respectively, in February 2021, further intensifying competition within the segment.

In 2022, securities companies are expected to face a difficult business environment as a result of the market uncertainty and fierce competition. Increasing volatilities in financial indices and interest rates are expected to weaken financial market sentiments, and competition with fintech companies and other securities companies is expected to intensify. The brokerage services industry is also implementaing systematic changes in response to the Government’s strengthening financial consumer protection measures. Competition for expanding ICT infrastructure is expected to intensify further in order to develop future growth opportunities created by the increase in digital service users and tech-savvy young customers.

Life Insurance

In 2021, the life insurance industry’s overall revenue continued to decline due to a persisting low interest rate environment, competition against tech companies who have been expanding into the life insurance market, slowing growth of the economy, an aging population and low birthrates.

In 2022, the life insurance industry’s overall profitability is expected to continue to decline as the factors mentioned above continue to persist, and it is expected that risk management and underwriting (risk takeover) capability will become an increasingly important factor in life insurance companies’ ability to strategically reduce business expenses, while the Government’s “With

COVID-19”

policy is expected to encourage private consumption and promote economic recovery. In addition, the demands for health insurance products and retirement pension insurance have increased steadily, and as a result it is expected that sales channels, products, and digital-based competitiveness will become more important in the future. As the line between financial and

non-financial

sectors become blurry and the life insurance market matures, we expect overall growth potential for the industry to be limited and the importance of developing differentiated products and services tailored to customers’ individualized needs and expanding digital-based customer services to become increasingly important. In addition, the Korean Insurance Capital Standards regulations are expected to be implemented by 2023 and will require insurance companies to apply market price valuation to their assets and liabilities in calculating capital requirement ratios in line with the new IFRS 17 accounting standards, thereby posing further challenges which may result in increased volatility for Korean life insurance companies.

Specialized Credit

The specialized credit business was introduced in Korea in August 1997. The specialized credit business cannot accept customer deposits and generally involves providing a combination of four types of financing: equipment and facilities leasing, installment finance, new technology finance and credit card services, and sources funding primarily by issuing debentures and commercial papers. The specialized credit business generally targets customers with higher risk profile in return for higher return compared to customers of commercial banks, which makes risk management (including customer screening) a particularly key factor for commercial success of this business.

204

Due, in part, to the variety of services being offered and the broad range of potential customers, specialized credit providers often find it relatively easy to develop new customer segments and provide niche offerings. In September 2015, the National Assembly of Korea passed an amendment to the Credit Finance Business Act, which, among other things, reduced entry barriers into the credit finance industry by lowering the minimum capital requirements for new entrants. Due to the relatively low barriers of entry, however, competition is intense and has further intensified as commercial banks have been offering automobile loan offerings as well as medium-interest loan products and

peer-to-peer

companies and lenders have been expanding their credit loan businesses as well. As a result, overall profitability has declined in recent years and competition has been further intensifying.

Asset Management

The total amount of assets under management by Shinhan Asset Management, decreased by 1.2% to

W

68.0 trillion as of December 31, 2021 from

W

68.8 trillion as of December 31, 2020. The total amount of fund assets under management decreased by 1.4% to

W

57.8 trillion as of December 31, 2021 from

W

58.6 trillion as of December 31, 2020. The total amount of discretionary investment contracts decreased by 6.3% to

W

22.3 trillion as of December 31, 2021 from

W

23.8 trillion as of December 31, 2020. Operating profit increased by 23.2% to

W

430 billion in 2021 from

W

349 billion in 2020 and net profit increased by 20.6% to

W

32.2 billion in 2021 from

W

26.7 billion in 2020 due primarily to

one-off

factor from compensation for performance related to solar power in Japan.

In 2022, diversification of investment strategies is expected to continue due to increased liquidity in the financial markets. In particular, direct investment and demand for alternative investment opportunities, such as real estate and alternative assets, is expected grow as investors seek to offset increases in base interest rates with high-yield investment products. In addition, it is expected that interest in retirement pension-linked products will continue to grow, as will online sales. Such growth in alternative investments is expected to offer new opportunities; however, increasing market volatility due to governments’ monetary policies, prolonged

COVID-19

situation, stricter regulation on private equity activities and increased risk of class action suits from investors may pose additional risks.

As estimated returns on investments in the Korean market are expected to remain low due to slowing growth of the Korean economy, demand for investments in overseas markets and

non-financial

assets is expected to increase. Demand for long-term investment products in the public fund market, such as individual annuity funds and retirement pension funds, is expected to continue to rise. Demand from investors looking to invest in ESG products is expected to continue to be strong as new ESG products are introduced into the market and gradually attract interest from retail investors.

Interest Rates

Interest rate movements, in terms of magnitude and timing as well as their relative impact on our assets and liabilities, have a significant impact on our net interest margins and profitability, particularly with respect to its financial products that are sensitive to such movements. For example, if the interest rates applicable to Shinhan Bank’s loans (which are recorded as our assets) decrease at a faster pace or by a wider margin, or increase at a slower pace or by a thinner margin, compared to the interest rates applicable to its deposits (which are recorded as our liabilities), Shinhan Bank’s net interest margin will shrink and its profitability will be negatively affected. In addition, the relative size and composition of Shinhan Bank’s variable rate loans and deposits (as compared to our fixed rate loans and deposits) may also impact Shinhan Bank’s net interest margin. Furthermore, the difference in the average repricing frequency of Shinhan Bank’s interest-earning assets (primarily loans) compared to its interest-bearing liabilities (primarily deposits) may also impact its net interest margin. For example, since Shinhan Bank’s deposits currently have a longer term, on average, than that of its loans, its deposits are on average less sensitive to movements in the base interest rates on which its deposits and loans tend to be pegged, and therefore, an increase in the base interest rates tends to increase its net interest margin while a

205

decrease in the base interest rates tends to have the opposite effect. Since Shinhan Bank is one of our principal operating subsidiaries, its net interest margin and profitability have a substantial effect on our overall net interest margin and profitability. While we continually manage our assets and liabilities to minimize our exposure to the interest rate volatility, such efforts by us may not mitigate the impact of interest rate volatility in a timely or effective manner.

The interest rate charged to customers by our banking subsidiaries is based, in part, on the “cost of funds index,” or COFIX, which is published by the Korean Federation of Banks. COFIX is computed based on the weighted average interest of select funding products (including time deposits, housing and other installment savings deposits, repos, discounted bills and senior

non-convertible

financial debentures) of eight major Korean banks (comprised of Shinhan Bank, Kookmin Bank, Woori Bank, KEB Hana Bank, Nonghyup Bank, Industrial Bank of Korea, Citibank Korea and Standard Chartered Bank Korea). Each bank then independently determines the interest rate applicable to its respective customers by adding a spread to the COFIX based on the difference between the COFIX and such bank’s general funding costs, administration fees, the customer’s credit score, the maturity of the loan and other customer-specific premiums and discounts based on the customer relationship with such bank. These interest rates are typically adjusted on a monthly basis.

The following table shows certain benchmark

Won-denominated

borrowing interest rates as of the dates indicated.

	Corporate Bond Rates (1)		Treasury Bond Rates (2)		Certificate of Deposit Rates (3)		COFIX Balance- Based (4)		New COFIX Balance-Based (5)		COFIX New Borrowing-Based (6)
June 30, 2017		2.24		1.70		1.38		1.58		—		1.47
December 31, 2017		2.68		2.14		1.66		1.66		—		1.77
June 30, 2018		2.77		2.12		1.65		1.83		—		1.82
December 31, 2018		2.29		1.82		1.93		1.95		—		1.96
June 30, 2019		1.80		1.47		1.78		2.00		—		1.85
December 31, 2019		1.78		1.36		1.53		1.81		1.55		1.63
June 30, 2020		1.57		0.85		0.79		1.55		1.26		1.06
December 31, 2020		1.39		0.97		0.66		1.21		0.96		0.90
June 30, 2021		1.81		1.45		0.67		1.02		0.81		0.82
December 31, 2021		2.41		1.80		1.28		1.19		0.94		1.55

Source: Korea Financial Investment Association Bond Information Service

Notes:

(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).

(4) Measured based on the weighted average of the borrowing rates for the monthly ending balances of the funding made by the commercial banks that are subject of the COFIX reporting.

(5) New COFIX on Outstanding Balance (the “New COFIX”) is a new benchmark COFIX introduced since July 2019. The New COFIX also takes into account other deposits such as inter-bank time deposits and non-resident deposits and other funding sources such as subordinated bonds and convertible bonds in calculating the weighted average of the borrowing rates for the monthly ending balances of the funding made by the commercial banks that are subject of the COFIX reporting.

(6) Measured based on the weighted average of the borrowing rates for new funding for each month made by the commercial banks that are subject of the COFIX reporting.

206

Average Balance Sheet and Volume and Rate Analysis

Average Balances and Related Interest

The following table shows our average balances and interest rates, as well as the net interest spread, net interest margin and asset liability ratio, for the years ended December 31, 2019, 2020 and 2021.

	For the Year Ended December 31,
	2019							2020							2021
	Average Balance (1)		Interest Income/ Expense		Yield / Rate			Average Balance (1)		Interest Income/ Expense		Yield / Rate			Average Balance (1)		Interest Income/ Expense		Yield / Rate
	(In billions of Won, except percentages)
Assets:
Interest-earning assets
Due from banks (2)	W	10,996	W	242		2.20	%	W	12,099	W	142		1.17	%	W	10,476	W	87		0.83	%
Loans (3)
Retail loans		128,474		4,672		3.64			139,099		4,446		3.20			151,535		4,560		3.01
Corporate loans		158,797		5,686		3.58			174,937		5,272		3.01			192,743		5,331		2.77
Securities purchased with agreements to resell		4,028		61		1.51			3,751		35		0.94			3,685		31		0.85
Other corporate loans		154,769		5,625		3.63			171,186		5,237		3.06			189,058		5,300		2.80
Public and other loans		3,159		110		3.50			3,596		103		2.85			3,627		97		2.68
Loans to banks		3,969		107		2.69			5,597		76		1.35			6,019		46		0.76
Credit card loans		23,059		1,917		8.31			23,307		1,875		8.04			24,641		1,891		7.67
Total loans		317,458		12,492		3.94			346,536		11,772		3.40			378,565		11,925		3.15
Securities (4)		141,855		2,880		2.03			155,860		2,778		1.78			165,970		2,648		1.60
Other interest-earning assets		—		93		—			—		82		—			—		64		—
Total interest-earning assets	W	470,309	W	15,707		3.34	%	W	514,495	W	14,774		2.87	%	W	555,011	W	14,724		2.65	%
Non-interest-earning assets
Cash and due from banks	W	12,731						W	14,574						W	17,291
Derivative assets		2,757							3,892							4,073
Property and equipment and intangible assets		9,229							9,537							9,488
Other non-interest-earning assets		32,028							36,016							39,693
Total non-interest-earning assets	W	56,745						W	64,019						W	70,545
Total assets	W	527,054	W	15,707				W	578,514	W	14,774				W	625,556	W	14,724
Liabilities:
Interest-bearing liabilities
Deposits
Demand deposits	W	40,379	W	171		0.42	%	W	50,751	W	167		0.33	%	W	65,907	W	209		0.32	%
Savings deposits		77,652		452		0.58			91,474		293		0.32			106,172		243		0.23
Time deposits		147,479		2,830		1.92			154,516		2,262		1.46			153,718		1,620		1.05
Other deposits		9,297		192		2.07			8,482		121		1.42			11,180		102		0.91
Total interest-bearing deposits		274,807		3,645		1.33			305,223		2,843		0.93			336,977		2,174		0.65
Borrowings
Securities sold with agreements to repurchases		8,013		122		1.52			10,032		71		0.71			10,905		62		0.57
Other borrowings		24,323		429		1.77			28,288		356		1.26			31,018		269		0.87
Total interest-bearing borrowings		32,336		551		1.71			38,320		427		1.11			41,923		331		0.79
Debt securities issued		70,087		1,666		2.38			74,435		1,554		2.09			77,137		1,390		1.80
Other interest-bearing liabilities		4,192		107		2.55			4,207		67		1.60			5,805		60		1.04
Total interest-bearing liabilities	W	381,422	W	5,969		1.57	%	W	422,185	W	4,891		1.16	%	W	461,842	W	3,955		0.86	%

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	For the Year Ended December 31,
	2019							2020							2021
	Average Balance (1)		Interest Income/ Expense		Yield / Rate			Average Balance (1)		Interest Income/ Expense		Yield / Rate			Average Balance (1)		Interest Income/ Expense		Yield / Rate
	(In billions of Won, except percentages)
Non-interest-bearing liabilities
Non-interest-bearing deposits	W	3,608						W	3,908						W	4,818
Derivatives liabilities		2,691							3,527							3,512
Insurance liabilities		50,742							52,682							53,847
Other non-interest-bearing liabilities		48,211							52,225							53,245
Total non-interest-bearing liabilities	W	105,252						W	112,342						W	115,422
Total liabilities	W	486,674	W	5,969				W	534,527	W	4,891				W	577,264	W	3,955
Total equity attributable to equity holder of the Group		37,844							41,914							46,040
Non-controlling interests		2,536							2,073							2,252
Total liabilities and equity	W	527,054	W	5,969				W	578,514	W	4,891				W	625,556	W	3,955
Net interest spread (5)						1.77	%						1.71	%						1.79	%
Net interest margin (6)						2.07	%						1.92	%						1.94	%
Average asset liability ratio (7)						123.30	%						121.86	%						120.17	%

Notes:

(1) Average balances are based on (a) daily balances for Shinhan Bank and (b) quarterly balances for other subsidiaries.

(2) Due from banks as of December 31, 2019, 2020 and 2021, consists of due from banks at amortized cost and due from banks at fair value through profit or loss.

(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. Loans as of December 31, 2019, 2020 and 2021, consist of loans at amortized cost and loans at fair value through profit or loss.

(4) Average balance and yield on securities are based on book value. Securities as of December 31, 2019, 2020 and 2021, consist of securities at fair value through profit or loss, securities at fair value through other comprehensive income and securities at amortized cost.

(5) Represents the difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities.

(6) Represents the ratio of net interest income to average interest-earning assets.

(7) Represents the ratio of average interest-earning assets to average interest-bearing liabilities.

208

Analysis of Changes in Net Interest Income — Volume and Rate Analysis

The following table provides an analysis of changes in interest income, interest expense and net interest income between changes in volume and changes in rates for (i) 2021 compared to 2020 and (ii) 2020 compared to 2019. Volume and rate variances have been calculated on the movement in average balances and the change in the interest rates on average interest-earning assets and average interest-bearing liabilities in proportion to absolute volume and rate change. The variance caused by the change in both volume and rate has been allocated in proportion to the absolute volume and rate change.

	From 2020 to 2021 Interest Increase (Decrease) Due to Change in
	Volume			Rate			Change
	(In billions of Won)
Increase (decrease) in interest income
Due from banks	W	(17	)	W	(38	)	W	(55	)
Loans:
Retail loans		383			(269	)		114
Corporate loans		512			(453	)		59
Public and other loans		1			(7	)		(6	)
Loans to banks		5			(35	)		(30	)
Credit card loans		105			(89	)		16
Total loans		1,006			(853	)		153
Securities		173			(303	)		(130	)
Other interest-earning assets		—			(18	)		(18	)
Total interest income	W	1,162		W	(1,212	)	W	(50	)
Increase (decrease) in interest expense
Deposits:
Demand deposits	W	48		W	(6	)	W	42
Savings deposits		42			(92	)		(50	)
Time deposits		(12	)		(630	)		(642	)
Other deposits		32			(51	)		(19	)
Total interest-bearing deposits		110			(779	)		(669	)
Borrowings		37			(133	)		(96	)
Debt securities issued		55			(219	)		(164	)
Other interest-bearing liabilities		9			(16	)		(7	)
Total interest expense	W	211		W	(1,147	)	W	(936	)
Net increase (decrease) in net interest	W	951		W	(65	)	W	886

209

	From 2019 to 2020 Interest Increase (Decrease) Due to Change in
	Volume			Rate			Change
	(In billions of Won)
Increase (decrease) in interest income
Due from banks	W	22		W	(122	)	W	(100	)
Loans:
Retail loans		367			(593	)		(226	)
Corporate loans		542			(956	)		(414	)
Public and other loans		14			(21	)		(7	)
Loans to banks		34			(65	)		(31	)
Credit card loans		21			(63	)		(42	)
Total loans		978			(1,698	)		(720	)
Securities		269			(371	)		(102	)
Other interest-earning assets		—			(11	)		(11	)
Total interest income	W	1,269		W	(2,202	)	W	(933	)
Increase (decrease) in interest expense
Deposits:
Demand deposits	W	38		W	(42	)	W	(4	)
Savings deposits		70			(229	)		(159	)
Time deposits		129			(697	)		(568	)
Other deposits		(15	)		(56	)		(71	)
Total interest-bearing deposits		222			(1,024	)		(802	)
Borrowings		90			(214	)		(124	)
Debt securities issued		99			(211	)		(112	)
Other interest-bearing liabilities		—			(40	)		(40	)
Total interest expense	W	411		W	(1,489	)	W	(1,078	)
Net increase (decrease) in net interest	W	858		W	(713	)	W	145

Profitability Ratios and Other Data

	Year Ended December 31,
	2019			2020			2021
	(Percentages)
Net income attributable to the Group as a percentage of:
Average total assets (1)		0.69	%		0.60	%		0.66	%
Average total Group stockholders’ equity (1)		9.02			7.95			8.52
Dividend payout ratio (2)		25.97			25.42			28.28
Net interest spread (3)		1.77			1.71			1.80
Net interest margin (4)		2.07			1.92			1.94
Efficiency ratio (5)		87.11			89.33			86.77
Cost-to-income ratio (6)		46.13			45.20			45.25
Cost-to-average assets ratio (1)(7)		6.30			6.88			5.85
Equity to average asset ratio (1)(8)		7.66			7.60			7.72

Notes:

(1) Average total assets (including average interest-earning assets), liabilities (including average interest-bearing liabilities) and stockholder’s equity are based on (a) daily balances for Shinhan Bank and (b) quarterly balances for other subsidiaries.

210

(2) Represents the ratio of total dividends declared on common and preferred stock and hybrid bonds as a percentage of net income attributable to the Group.

(3) Represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Represents the ratio of net interest income to average interest-earning assets.

(5) Represents the ratio of non-interest expense to the sum of net interest income and non-interest income. Efficiency ratio is used as 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,
	2019			2020			2021
	(In billions of Won, except percentages)
Non-interest expense (A)	W	33,203		W	39,788		W	36,606
Divided by
The sum of net interest income and non-interest income (B)		38,114			44,542			42,189
Net interest income		9,738			9,883			10,769
Non-interest income		28,376			34,659			31,420
Efficiency ratio ((A) as a percentage of (B))		87.11	%		89.33	%		86.77	%

(6) Represents the ratio of general and administrative expenses to the sum of net interest income, net fee and commission income, net gain on financial assets and liabilities at fair value through profit or loss and net other operating income.

(7) Represents the ratio of non-interest expense to average total assets.

(8) Represents the ratio of average stockholders’ equity to average total assets.

Results of Operations

2021 Compared to 2020

The following table sets forth, for the periods indicated, the principal components of our operating income.

	Year Ended December 31,
	2020			2021			% Change
	(In billions of Won, except percentages)
Net interest income	W	9,883		W	10,769			9.0	%
Net fees and commission income		2,383			2,675			12.3
Net other operating income (expense)		(7,336	)		(7,492	)		2.1
Operating income	W	4,930		W	5,952			20.7	%

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Net Interest Income

The following table shows, for the periods indicated, the principal components of our net interest income.

	Year Ended December 31,
	2020			2021			% Change
	(In billions of Won, except percentages)
Interest income:
Cash and deposits at amortized cost	W	128		W	86			(32.8	)%
Deposits at fair value through profit or loss		14			1			(92.9	)
Securities at fair value through profit or loss		743			660			(11.2	)
Securities at fair value through other comprehensive income		958			896			(6.5	)
Securities at amortized cost		1,077			1,092			1.4
Loans at amortized cost		11,698			11,890			1.6
Loans at fair value through profit or loss		74			35			(52.7	)
Others		82			64			(22.0	)
Total interest income	W	14,774		W	14,724			(0.3	)%
Interest expense:
Deposits	W	2,843		W	2,174			(23.5	)%
Borrowings		427			331			(22.5	)
Debt securities issued		1,554			1,390			(10.6	)
Others		67			60			(10.4	)
Total interest expense	W	4,891		W	3,955			(19.1	)%
Net interest income	W	9,883		W	10,769			9.0	%
Net interest margin (1)		1.92	%		1.94	%

Note:

(1) Represents the ratio of net interest income to average interest-earning assets. See “— Average Balance Sheet and Volume and Rate Analysis — Average Balances and Related Interest.”

Interest income.

Interest income decreased by 0.3% from

W

14,774 billion in 2020 to

W

14,724 billion in 2021 primarily due to a decrease in interest on securities and, to a lesser extent, a decrease in interest on due from banks. Interest on securities decreased by 4.7% from

W

2,778 billion in 2020 to

W

2,648 billion in 2021 primarily as a result of decreases in the weighted average base interest rate by the Bank of Korea from 0.71% in 2020 to 0.61% in 2021, despite an increase in the average balances of securities. The average lending rate on the securities decreased to 1.60% in 2021 from 1.78% in 2020, principally due to a decrease in average lending rates for securities resulting from the lower average market interest rate for 2021 compared to 2020 as discussed above. The average balance of the securities increased by 6.5% to

W

165,970 billion in 2021 from

W

155,860 billion in 2020, principally due to increases in the average balances of government bonds.

Interest on due from banks decreased by 38.7% from

W

142 billion in 2020 to

W

87 billion in 2021 primarily due to a decrease in the average lending rates of due from bank.

More specifically, the decrease in interest income was due to the following:

Interest income on securities at fair value through profit or loss decreased by 11.2% from

W

743 billion in 2020 to

W

660 billion in 2021, primarily due to a decrease in the average lending rate for securities at fair value through profit or loss from 1.40% in 2020 to 1.14% in 2021, despite a 8.9% increase in the average balance of securities at fair value through profit or loss from

W

53,122 billion in 2020 to

W

57,859 billion in 2021. The average lending rate for securities at fair value through profit or loss decreased primarily as a result of decreases

212

in the weighted average base interest rate of the Bank of Korea, despite increase in the base interest rate by the Bank of Korea in August and November. The base interest rate set by the Bank of Korea greatly influences the market interest rates of financial instruments, and which determines the interest rate of our securities at fair value through profit or loss. The average balance of securities at fair value through profit or loss increased primarily as a result of an increase in the average balance of CMA assets.

Interest income on securities at fair value through other comprehensive income decreased by 6.5% from

W

958 billion in 2020 to

W

896 billion in 2021, primarily due to a decrease in the average lending rate for securities at fair value through other comprehensive income from 1.70% in 2020 to 1.51% in 2021, despite a 5.6% increase in the average balance of securities at fair value through other comprehensive income from

W

56,243 billion in 2020 to

W

59,386 billion in 2021. The average lending rate for securities at fair value through other comprehensive income decreased primarily as a result of decreases in the weighted average base interest rate of the Bank of Korea, despite increase in the base interest rate by the Bank of Korea in August and November. The average balance of securities at fair value through other comprehensive income increased principally as a result of increases in the average balances of government bonds.

Interest expense.

Interest expense decreased by 19.1% from

W

4,891 billion in 2020 to

W

3,955 billion in 2021, due primarily to a 23.5% decrease in interest expense on deposits from

W

2,843 billion in 2020 to

W

2,174 billion in 2021, as well as a 10.6% decrease in interest expense on debt securities issued from

W

1,554 billion in 2020 to

W

1,390 billion in 2021.

The decrease in interest expense on deposits was due to a decrease in the average interest rate of total interest-bearing deposits from 0.93% in 2020 to 0.65% in 2021, despite a 10.4% increase in the average balance of deposits from

W

305,223 billion in 2020 to

W

336,977 billion in 2021. The decrease in the average rate of interest paid on deposits was mainly due to a decrease in the average rate of interest paid on time deposits from 1.46% in 2020 to 1.05% in 2021 as well as a decrease in the average rate of interest paid on savings deposits from 0.32% in 2020 to 0.23% in 2021. The average rate of interest paid on time deposits and savings deposits decreased largely as a result of decrease in the weighted average base interest rate by the Bank of Korea from 0.71% in 2020 to 0.61% in 2021. The increase in the average balance of deposits was primarily due to a 16.1% increase in the average balance of savings deposits, which was largely a result of policies to increase liquidity including funding supports of government and local government due to prolonged

COVID-19.

The decrease in interest expense on debt securities issued was due primarily to a decrease in the average interest rate of debt securities issued from 2.09% in 2020 to 1.80% in 2021, which was partially offset by a 3.6% increase in the average balance of debt securities issued from 

W

74,435 billion in 2020 to 

W

77,137 billion in 2021. The average interest rate of debt securities issued decreased principally as a result of decrease in the weighted average base interest rate of the Bank of Korea from 0.71% in 2020 to 0.61% in 2021.

Net interest margin.

Net interest margin represents the ratio of net interest income to the average balance of interest-earning assets. Our overall net interest margin increased by 2 basis points from 1.92% in 2020 to 1.94% in 2021, largely due to increases in the average volume of interest-earning assets, despite a decrease in the weighted average base interest rate of the Bank of Korea from 0.71% in 2020 to 0.61% in 2021.

Net interest spread, which represents the difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities, increased by 8 basis points from 1.71% in 2020 to 1.79% in 2021 due to a 30 basis point decrease in the average rate of interest on interest-bearing liabilities from 1.16% in 2020 to 0.86% in 2021 and a 22 basis point decrease in the average rate of interest on interest-earning assets from 2.87% in 2020 to 2.65% in 2021. The average rate of interest on interest-bearing liabilities decreased primarily due to a 28 basis point decrease in the average interest rate on deposits. The average rate of interest on interest-earning assets decreased primarily due to a 25 basis point decrease in the average interest rates on loans, which was mainly due to the reduced average interest rate on corporate loans. The average volume of interest-earning assets increased by 7.9% from

W

514,495 billion in 2020 to

W

555,011 billion

213

in 2021 largely as a result of an increase in the volume of retail and corporate loans. The average volume of interest-bearing liabilities increased by 9.2% from

W

422,185 billion in 2020 to

W

461,842 billion in 2021 largely due to policies to increase liquidity including funding supports of government and local government due to prolonged

COVID-19.

Fees and Commission Income (Expense), Net

The following table shows, for the periods indicated, the principal components of our net fees and commission income.

	Year Ended December 31,
	2020		2021		% Change
	(In billions of Won, except percentages)
Fees and commission income:
Credit placement fees	W	95	W	71		(25.3	)%
Commission received as electronic charge receipt		143		149		4.2
Brokerage fees		546		577		5.7
Commission received as agency		145		147		1.4
Investment banking fees		161		189		17.4
Commission received in foreign exchange activities		239		272		13.8
Asset management fees		255		310		21.6
Credit card fees		1,170		1,175		0.4
Operating lease fees		245		365		49.0
Others		815		885		8.6
Total fees and commission income	W	3,814	W	4,140		8.5	%
Fees and commission expense:
Credit-related fees	W	46	W	39		(15.2	)%
Credit card fees		849		837		(1.4	)
Others		536		589		9.9
Total fees and commission expense	W	1,431	W	1,465		2.4	%
Net fees and commission income	W	2,383	W	2,675		12.3	%

Net fees and commission income increased by 12.3% from

W

2,383 billion in 2020 to

W

2,675 billion in 2021 primarily due to increases in operating lease fees income, asset management fees income, commission received in foreign exchange activities, brokerage fees income, which was partially offset by a decrease in credit placement fees income.

Operating lease fees income increased by 49.0% from

W

245 billion in 2020 to

W

365 billion in 2021 primarily due to the expansion of operations, such as purchasing operating assets including leases classified as operating leases. Asset management fees income increased by 21.6% from

W

255 billion in 2020 to

W

310 billion in 2021, primarily due to an increases in management fees received from real estate related trust accounts of Asia Trust and an increase in both money market trust and pension trust of Shinhan Bank. Commission received in foreign exchange activities increased by 13.8% from

W

239 billion in 2020 to

W

272 billion in 2021, largely due to an increase in fees and commission income of Shinhan Investment resulting from an increase in overseas stock transactions due to the increase in interest in overseas stocks. Brokerage fees income increased by 5.7% from

W

546 billion in 2020 to

W

577 billion in 2021 primarily due to an increase in daily average stock trading volume resulting from the booming stock market in Korea during the current period.

214

Other Operating Income (Expense), Net

The following table shows, for the periods indicated, the principal components of our net operating expense.

	Year Ended December 31,
	2020			2021			% Change
	(In billions of Won, except percentages)
Net insurance expenses	W	(604	)	W	(775	)		28.3	%
Dividend income		98			125			27.6
Net gain on financial instruments at fair value through profit or loss		273			1,104			304.4
Net gain (loss) on financial instruments at fair value through profit or loss (overlay approach)		(136	)		43			N/M
Net gain (loss) on financial instruments designated at fair value through profit or loss		198			(88	)		N/M
Net foreign currency transaction gain		527			223			(57.7	)
Net gain on disposal of financial asset at fair value through other comprehensive income		274			86			(68.6	)
Provision for credit loss allowance		(1,382	)		(975	)		(29.5	)
General and administrative expenses		(5,213	)		(5,744	)		10.2
Other operating expenses, net		(1,371	)		(1,491	)		8.8
Net other operating expenses	W	(7,336	)	W	(7,492	)		2.1	%

N/M = not meaningful

Net other operating expenses increased by 2.1% from

W

7,336 billion in 2020 to

W

7,492 billion in 2021, primarily due to an increase in general and administrative expense by 10.2% from

W

5,213 billion in 2020 to

W

5,744 billion in 2021 and a decrease in net foreign currency transaction gain by 57.7% from

W

527 billion in 2020 to

W

223 billion in 2021. Also, we recognized net loss on financial instruments designated at fair value through profit or loss of

W

88 billion in 2021 compared to net gain on financial instruments designated at fair value through profit or loss of

W

198 billion in 2020. The increase in net other operating expenses was partially offset by a 304.4% increase in net gain on financial instruments at fair value through profit or loss of from

W

273 billion in 2020 to

W

1,104 billion in 2021.

Provision for Credit Loss Allowance on Financial Assets

The following table sets forth for the periods indicated the provisions for credit loss allowance by type of financial asset.

	Year Ended December 31,
	2020		2021			% Change
	(In billions of Won, except percentages)
Loans :
Retail	W	200	W	164			(18.0	)%
Corporate		626		330			(47.3	)
Credit card		452		415			(8.2	)
Others		13		(2	)		N/M
Subtotal		1,291		907			(29.7	)
Securities (1)		5		26			420.0
Others		86		42			(39.5	)
Total provision for credit loss allowance on financial assets	W	1,382	W	975			(29.5	)%

N/M = not meaningful

Note:

(1) Consist of securities at amortized cost and securities at fair value through other comprehensive income.

215

Provision for credit loss allowance decreased by 29.5% from

W

1,382 billion in 2020 to

W

975 billion in 2021 principally due to a 29.7% decrease in credit loss allowance on loans from

W

1,291 billion in 2020 to

W

907 billion in 2021. Our credit loss allowancefor loans decreased primarily due to a decrease in allowance for credit losses on corporate loans. Provision for credit loss allowance for corporate loans remained relatively low in 2021 primarily due to a significant increase in provision for credit loss allowance in 2020 mainly as the Group

re-estimated

the probability of default reflecting forward-looking information and increased the number of borrowers subject to individual assessment of probability of default as part of the Group’s proactive measures in responding to changes in the financial environment, such as the spread of

COVID-19,

as well as a decrease in the proportion of unsecured corporate loans which are generally subject to higher loss given default rates compared to secured corporate loans. Provision for credit loss allowance for others decreased mainly due to a decrease in the aggregate amount of lines of unutilized credit resulting from a decrease in the volume of retail loans.

Income Tax Expense

Income tax expense increased by 17.1% from

W

1,256 billion in 2020 to

W

1,471 billion in 2021 primarily as a result of an increase in profit before income taxes by 17.5% to

W

5,584 billion in 2021 from

W

4,754 billion in 2020. There was no change in our effective rate of income tax of 26.4% in 2021 compared to 2020.

Net Income for the Period

As a result of the foregoing, our net income for the period increased by 17.6% from

W

3,498 billion in 2020 to

W

4,113 billion in 2021.

Other Comprehensive Income (loss) for the Period

	Year Ended December 31,
	2020			2021			% Change
	(In billions of Won, except percentages)
Items that are or may be reclassified to profit or loss:
Net loss on financial assets at fair value through other comprehensive income	W	(87	)	W	(880	)		911.5	%
Net gain (loss) on financial instruments at fair value through profit or loss (overlay approach)		90			(20	)		N/M
Equity in other comprehensive income (loss) of associates		(3	)		3			N/M
Foreign currency translation adjustments for foreign operations		(162	)		252			N/M
Net change in unrealized fair value of cash flow hedges		(14	)		22			N/M
Other comprehensive income (loss) of separate account		4			(41	)		N/M
		(172	)		(664	)		286.0
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit liability		16			43			168.8
Valuation gain on financial assets at fair value through other comprehensive income		7			35			400.0
Loss on disposal of financial assets at fair value through other comprehensive income		(28	)		(29	)		3.6
Changes in own credit risk on financial liabilities designated at fair value through profit of loss		3			(3	)		N/M
		(2	)		46			N/M
Total other comprehensive loss, net of income tax	W	(174	)	W	(618	)		255.2	%

N/M = not meaningful

216

Other comprehensive loss increase by 255.2% from

W

174 billion in 2020 to

W

618 billion in 2021, primarily due to an increase in net loss on financial asset at fair value through other comprehensive income by 911.5% from

W

87 billion in 2020 to

W

880 billion in 2021, which was partially offset as we recognized gain on foreign currency translation adjustments for foreign operations of

W

252 billion in 2021 compared to loss on foreign currency translation adjustments for foreign operations of

W

162 billion in 2020. Net loss on financial assets at fair value through other comprehensive income increased, primarily due to fluctuations in interest rates and stock prices. We recognized gain on foreign currency translation adjustments for foreign operations of

W

252 billion in 2021 compared to loss on foreign currency translation adjustments for foreign operations of

W

162 billion in 2020, primarily due to an increase in foreign currency exchange rates amid weaker valuation of the Won.

2020 Compared to 2019

The following table sets forth, for the periods indicated, the principal components of our operating income.

	Year Ended December 31,
	2019			2020			% Change
	(In billions of Won, except percentages)
Net interest income	W	9,738		W	9,883			1.5	%
Net fees and commission income		2,141			2,383			11.3
Net other operating income (expense)		(6,833	)		(7,336	)		7.4
Operating income	W	5,046		W	4,930			(2.3	)%

Net Interest Income

The following table shows, for the periods indicated, the principal components of our net interest income.

	Year Ended December 31,
	2019			2020			% Change
	(In billions of Won, except percentages)
Interest income:
Cash and deposits at amortized cost	W	210		W	128			(39.0	)%
Deposits at fair value through profit or loss		32			14			(56.3	)
Securities at fair value through profit or loss		741			743			0.3
Securities at fair value through other comprehensive income		1,078			958			(11.1	)
Securities at amortized cost		1,061			1,077			1.5
Loans at amortized cost		12,435			11,698			(5.9	)
Loans at fair value through profit or loss		57			74			29.8
Others		93			82			(11.8	)
Total interest income	W	15,707		W	14,774			(5.9	)%
Interest expense:
Deposits	W	3,645		W	2,843			(22.0	)%
Borrowings		551			427			(22.5	)
Debt securities issued		1,666			1,554			(6.7	)
Others		107			67			(37.4	)
Total interest expense	W	5,969		W	4,891			(18.1	)%
Net interest income	W	9,738		W	9,883			1.5	%
Net interest margin (1)		2.07	%		1.92	%

Note:

(1) Represents the ratio of net interest income to average interest-earning assets. See “— Average Balance Sheet and Volume and Rate Analysis — Average Balances and Related Interest.”

217

Interest income.

Interest income decreased by 5.9% from

W

15,707 billion in 2019 to

W

14,774 billion in 2020 primarily due to a decrease in interest on loans at amortized cost and, to a lesser extent, a decrease in interest on securities at fair value through other comprehensive income. Interest on loans at amortized cost decreased by 5.9% from

W

12,435 billion in 2019 to

W

11,698 billion in 2020 primarily as a result of a decrease in the average lending rates of both retail loans and corporate loans, despite an increase in the average balances of both retail loans and corporate loans as further described below. Interest on securities at fair value through other comprehensive income decreased by 11.1% from

W

1,078 billion in 2019 to

W

958 billion in 2020 primarily due to a decrease in the average lending rates of securities at fair value through other comprehensive income, despite an increase in the average balances of securities at fair value through other comprehensive income.

Interest income on retail loans decreased by 4.8% from

W

4,672 billion in 2019 to

W

4,446 billion in 2020, primarily due to a decrease in the average lending rate for retail loans from 3.64% in 2019 to 3.20% in 2020, despite a 8.3% increase in the average balance of retail loans from

W

128,474 billion in 2019 to

W

139,099 billion in 2020. The average lending rate for retail loans decreased primarily as a result of decreases in the base interest rate by the Bank of Korea from 1.25% to 0.75% in March 2020 and from 0.75% to 0.50% in May 2020. The base rate set by the Bank of Korea largely determines the market rates for certificates of deposit, which in turn largely determines the lending rates for a substantial majority of our retail loans. The average balance of retail loans increased primarily as a result of increased demand in the housing market despite stricter regulations on maximum

debt-to-income

and

loan-to-value

ratios implemented by the Government on mortgage loans. In particular, the volume of mortgage and home equity loans increased as more households chose to purchase homes due to a continued increase in the amounts of long-term deposits required for housing rentals and a decrease in the supply of homes available for long-term deposit leases.

Interest income from corporate loans decreased by 7.3% from

W

5,686 billion in 2019 to

W

5,272 billion in 2020, primarily due to a decrease in the average lending rate for corporate loans from 3.58% in 2019 to 3.01% in 2020, despite a 10.2% increase in the average balance of corporate loans from

W

158,797 billion in 2019 to

W

174,937 billion in 2020. The average lending rate for corporate loans decreased primarily as a result of the general decrease in market interest rates largely driven by the decrease in the base interest rate by the Bank of Korea in March 2020 and May 2020 as discussed above. The average balance of corporate loans increased principally as a result of policies to support small and medium sized enterprises due to the prolonged

COVID-19

pandemic and their efforts to secure funds.

Interest expense.

Interest expense decreased by 18.1% from

W

5,969 billion in 2019 to

W

4,891 billion in 2020, due primarily to a 22.0% decrease in interest expense on deposits from

W

3,645 billion in 2019 to

W

2,843 billion in 2020, as well as a 22.5% decrease in interest expense on borrowings from

W

551 billion in 2019 to

W

427 billion in 2020.

The decrease in interest expense on deposits was due to a decrease in the average interest rate of total interest-bearing deposits from 1.33% in 2019 to 0.93% in 2020, despite a 11.1% increase in the average balance of deposits from

W

274,807 billion in 2019 to

W

305,223 billion in 2020. The decrease in the average rate of interest paid on deposits was mainly due to a decrease in the average rate of interest paid on time deposits from 1.92% in 2019 to 1.46% in 2020 as well as a decrease in the average rate of interest paid on savings deposits from 0.58% in 2019 to 0.32% in 2020. The average rate of interest paid on time deposits and savings deposits decreased largely as a result of lower average market interest rates for 2020 compared to 2019 as described above. The increase in the average balance of deposits was primarily due to a 17.8% increase in the average balance of savings deposits, which was largely a result of policies to increase liquidity including funding supports of government and local government due to the prolonged

COVID-19.

The decrease in interest expense on borrowings was due primarily to a decrease in the average interest rate of borrowings from 1.71% in 2019 to 1.11% in 2020, which was partially offset by a 18.5% increase in the average balance of borrowings from 

W

32,336 billion in 2019 to 

W

38,320 billion in 2020. The average interest rate of borrowings decreased principally as a result of the general decrease in market interest rates largely driven by the decrease in the base interest rate by the Bank of Korea in March 2020 and May 2020 as discussed above.

218

Net interest margin.

Net interest margin represents the ratio of net interest income to the average balance of interest-earning assets. Our overall net interest margin decreased by 15 basis points from 2.07% in 2019 to 1.92% in 2020 largely due to a decrease in the average market interest rates for 2020 compared to 2019 as described above, despite an increase in the average volume of interest-earning assets.

Net interest spread, which represents the difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities, decreased by 6 basis points from 1.77% in 2019 to 1.71% in 2020 due to a 41 basis point decrease in the average rate of interest on interest-bearing liabilities from 1.57% in 2019 to 1.16% in 2020 and a 47 basis point decrease in the average rate of interest on interest-earning assets from 3.34% in 2019 to 2.87% in 2020. The average rate of interest on interest-bearing liabilities decreased primarily due to a 40 basis point decrease in the average interest rate on deposits. The average rate of interest on interest-earning assets decreased primarily due to a 54 basis point decrease in the average interest rates on loans, which was mainly due to the reduced average interest rate on corporate loans. The average volume of interest-earning assets increased by 9.4% from

W

470,309 billion in 2019 to

W

514,495 billion in 2020 largely as a result of an increase in the volume of retail and corporate loans. The average volume of interest-bearing liabilities increased by 10.7% from

W

381,422 billion in 2019 to

W

422,185 billion in 2020 largely due to policies to increase liquidity including funding supports of government and local government due to the prolonged

COVID-19.

Fees and Commission Income (Expense), Net

The following table shows, for the periods indicated, the principal components of our net fees and commission income.

	Year Ended December 31,
	2019		2020		% Change
	(In billions of Won, except percentages)
Fees and commission income:
Credit placement fees	W	67	W	95		41.8	%
Commission received as electronic charge receipt		152		143		(5.9	)
Brokerage fees		353		546		54.7
Commission received as agency		140		145		3.6
Investment banking fees		151		161		6.6
Commission received in foreign exchange activities		244		239		(2.0	)
Asset management fees		307		255		(16.9	)
Credit card fees		1,234		1,170		(5.2	)
Operating lease fees		142		245		72.5
Others		767		815		6.3
Total fees and commission income	W	3,557	W	3,814		7.2	%
Fees and commission expense:
Credit-related fees	W	42	W	46		9.5	%
Credit card fees		916		849		(7.3	)
Others		458		536		17.0
Total fees and commission expense	W	1,416	W	1,431		1.1	%
Net fees and commission income	W	2,141	W	2,383		11.3	%

Net fees and commission income increased by 11.3% from

W

2,141 billion in 2019 to

W

2,383 billion in 2020 primarily due to increases in brokerage fees income, operating lease fees income and decrease in credit card fees expense, which was partially offset by a decrease in credit card fees income and asset management fees income.

219

Brokerage fees income increased by 54.7% from

W

353 billion in 2019 to

W

546 billion in 2020 primarily due to an increase in daily average stock trading volume amidst volatile market conditions. Operating lease fees income increased by 72.5% from

W

142 billion in 2019 to

W

245 billion in 2020 primarily due to the expansion of operations, such as purchasing operating assets including leases classified as operating leases. As a result of

COVID-19,

credit card fees expense decreased by 7.3% from

W

916 billion in 2019 to

W

849 billion in 2020 primarily due to a decrease in the number of offline transactions which have higher fees and expenses compared to online transactions.

Credit card fees income decreased by 5.2% from

W

1,234 billion in 2019 to

W

1,170 billion in 2020, primarily as a result of a decrease in general sales fees and a decrease in foreign currency credit card fees. The decrease in general sales fees was mainly due to a decrease in the number of offline transactions which have higher fees and expenses compared to online transactions. The decrease in foreign currency credit card fees was due to a decrease in credit card sales incurred in foreign transactions due to

COVID-19.

Asset management fees income decreased by 16.9% from

W

307 billion in 2019 to

W

255 billion in 2020, primarily due to a decrease in management fees received from specified money and real estate related trust accounts of Shinhan Bank.

Other Operating Income (Expense), Net

The following table shows, for the periods indicated, the principal components of our net operating expense.

	Year Ended December 31,
	2019			2020			% Change
	(In billions of Won, except percentages)
Net insurance expenses	W	(497	)	W	(604	)		21.5	%
Dividend income		82			98			19.5
Net gain on financial instruments at fair value through profit or loss		1,385			273			(80.3	)
Net loss on financial instruments at fair value through profit or loss (overlay approach)		(247	)		(136	)		(44.9	)
Net gain (loss) on financial instruments designated at fair value through profit or loss		(846	)		198			N/M
Net foreign currency transaction gain		441			527			19.5
Net gain on disposal of financial asset at fair value through other comprehensive income		152			274			80.3
Provision for credit loss allowance		(981	)		(1,382	)		40.9
General and administrative expenses		(5,135	)		(5,213	)		1.5
Other operating expenses, net		(1,187	)		(1,371	)		15.5
Net other operating expenses	W	(6,833	)	W	(7,336	)		7.4	%

N/M = not meaningful

Net other operating expenses increased by 7.4% from

W

6,833 billion in 2019 to

W

7,336 billion in 2020, primarily due to a decrease in net gain on financial instruments at fair value through profit or loss by 80.3% from

W

1,385 billion in 2019 to

W

273 billion in 2020, as well as, to a lesser extent, an increase in provision for credit loss allowance by 40.9% from

W

981 billion in 2019 to

W

1,382 billion in 2020, which was partially offset as we recognized net gain on financial instruments designated at fair value through profit or loss of

W

198 billion in 2020 compared to net loss on financial instruments designated at fair value through profit or loss of

W

846 billion in 2019.

220

Provision for Credit Loss Allowance on Financial Assets

The following table sets forth for the periods indicated the provisions for credit loss allowance by type of financial asset.

	Year Ended December 31,
	2019			2020		% Change
	(In billions of Won, except percentages)
Loans :
Retail	W	226		W	200		(11.5	)%
Corporate		203			626		208.4
Credit card		484			452		(6.6	)
Others		(2	)		13		N/M
Subtotal		911			1,291		41.7
Securities (1)		7			5		(28.6	)
Others		63			86		36.5
Total provision for credit loss allowance on financial assets	W	981		W	1,382		40.9	%

N/M = not meaningful

Note:

(1) Consist of securities at amortized cost and securities at fair value through other comprehensive income.

Provision for credit loss allowance increased by 40.9% from

W

981 billion in 2019 to

W

1,382 billion in 2020 principally due to a 41.7% increase in credit loss allowance on loans from

W

911 billion in 2019 to

W

1,291 billion in 2020. Our credit loss allowancefor loans increased primarily due to an increase in allowance for credit losses on corporate loans, which was partially offset by a decrease in allowance for credit loss on credit card loans. Allowance for credit losses on corporate loans increased mainly because of the

re-estimate

of probability of default reflecting forward-looking information and the additional selection of borrowers subject to individual assessment in order to proactively responding to changes in the financial environment, such as the spread of

COVID-19.

Allowance for credit losses on credit card loans decreased primarily as a result of a decrease in allowance for credit losses resulting from the lower rate of overdue transfers and an increase in gains on collection of bad debts.

Income Tax Expense

Income tax expense decreased by 1.0% from

W

1,269 billion in 2019 to

W

1,256 billion in 2020 primarily as a result of a decrease in profit before income taxes by 3.2% to

W

4,754 billion in 2020 from

W

4,911 billion in 2019. Our effective rate of income tax increased to 26.4% in 2020 from 25.8% in 2019.

Net Income for the Period

As a result of the foregoing, our net income for the period decreased by 4.0% from

W

3,642 billion in 2019 to

W

3,498 billion in 2020.

221

Other Comprehensive Income (loss) for the Period

	Year Ended December 31,
	2019			2020			% Change
	(In billions of Won, except percentages)
Items that are or may be reclassified to profit or loss:
Net gain (loss) on financial assets at fair value through other comprehensive income	W	352		W	(87	)		N/M	%
Net gain on financial instruments at fair value through profit or loss (overlay approach)		163			90			(44.8	)
Equity in other comprehensive income (loss) of associates		3			(3	)		N/M
Foreign currency translation adjustments for foreign operations		106			(162	)		N/M
Net change in unrealized fair value of cash flow hedges		(19	)		(14	)		(26.3	)
Other comprehensive income of separate account		11			4			(63.6	)
		616			(172	)		N/M
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit liability		(55	)		16			N/M
Valuation gain on financial assets at fair value through other comprehensive income		19			7			(63.2	)
Loss on disposal of financial assets at fair value through other comprehensive income		(6	)		(28	)		366.7
Changes in own credit risk on financial liabilities designated at fair value through profit of loss		(8	)		3			N/M
		(50	)		(2	)		(96.0	)
Total other comprehensive income (loss), net of income tax	W	566		W	(174	)		N/M	%

N/M = not meaningful

We recognized total other comprehensive loss of

W

174 billion in 2020 compared to total other comprehensive income of

W

566 billion in 2019. The change in total other comprehensive loss was primarily due to net loss on financial assets at fair value through other comprehensive income in 2020 compared to net gain on financial assets at fair value through other comprehensive income in 2019. To a lesser extent, we recognized net loss on foreign currency translation adjustments for foreign operations in 2020 compared to net gain on foreign currency translation adjustments for foreign operations in 2019, and we recognized decreased net gain on financial instruments at fair value through profit or loss (overlay approach) in 2020 compared to 2019. primarily as we recognized net loss on financial assets at fair value through other comprehensive income in 2020 compared to net gain on financial assets at fair value through other comprehensive income, as well as to a lesser extent as we recognized loss on foreign currency translation adjustments for foreign operations in 2020 compared to loss on foreign currency translation adjustments for foreign operations in 2019 and due to a decrease in net gain on financial instruments at fair value through profit or loss (overlay approach). We recognized net loss on financial assets at fair value through other comprehensive income of

W

87 billion in 2020 compared to net gain on financial assets at fair value through other comprehensive income of

W

352 billion in 2019, primarily due to fluctuations in interest rates and stock prices. We recognized loss on foreign currency translation adjustments for foreign operations of

W

162 billion in 2020 compared to gain on foreign currency translation adjustments for foreign operations of

W

106 billion in 2019, primarily due to a decline in foreign currency exchange rates amid stronger valuation of the Won. Net gain on financial instruments at fair value through profit or loss (overlay approach) decreased by 44.8% from

W

163 billion in 2019 to

W

90 billion in 2020, primarily as gain on valuation and disposal of financial instruments increased in 2020 due to a decrease in market interest rates towards the end of 2020, resulting in an increase in the fair value of financial instruments.

222

Results by Principal Business Segment

As of December 31, 2021, we were organized into six major business segments as follows:

• commercial banking services, which are principally provided by Shinhan Bank:

• credit card services, which are principally provided by Shinhan Card;

• securities brokerage services, which are provided by Shinhan Investment;

• life insurance services, which are provided by Shinhan Life Insurance; and

• specialized credit services, which are provided by Shinhan Capital.

We report our segment information in accordance with the provisions of IFRS 8 (Operating Segments). We categorize our operating segments according to a business based approach. See Note 7 of the notes to our consolidated financial statements included in this annual report.

Operating Income by Principal Business Segment

The table below provides the income statement data for our principal business segments for the periods indicated.

	Year Ended December 31,								% Change
	2019		2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Banking	W	3,162	W	2,802		W	3,478			(11.4	)%		24.1	%
Credit card		812		887			1,021			9.2			15.1
Securities		240		373			577			55.4			54.7
Life insurance		585		568			552			(2.9	)		(2.8	)
Specialized credit		156		179			341			14.7			90.5
Others		13		158			260			1,115.4			64.6
Consolidation adjustment (1)		78		(37	)		(277	)		N/M			648.6
Total operating income	W	5,046	W	4,930		W	5,952			(2.3	)%		20.7	%

N/M = not meaningful

Note:

(1) Consolidation adjustment consists of adjustments for inter-segment transactions.

Banking Services

The banking services segment offers commercial banking and related services and includes: (i) retail banking, which consists of banking and other services provided primarily through the retail branches of Shinhan Bank and Jeju Bank to individuals and households; (ii) corporate banking, which consists of corporate banking products and services provided through Shinhan Bank’s corporate banking branches to its corporate customers, most of which are small- and

medium-sized

enterprises and large corporations, including members of the

chaebol

groups; (iii) international banking, which primarily consists of the operations of Shinhan Bank’s overseas subsidiaries and branches; and (iv) other banking, which primarily consists of treasury business for our banking business (including internal asset and liability management and other

non-deposit

funding activities), securities investing and trading and derivatives trading, as well as administration of our overall banking operations.

223

The table below provides the income statement data for our banking services segment for the periods indicated.

	Year Ended December 31,									% Change
	2019			2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	5,989		W	6,038		W	6,738			0.8	%		11.6	%
Net fees and commission income (expense)		950			822			818			(13.5	)		(0.5	)
Net other income (expense)		(3,777	)		(4,058	)		(4,078	)		7.4			0.5
Operating income (expense)	W	3,162		W	2,802		W	3,478			(11.4	)%		24.1	%

Comparison of 2021 to 2020

Operating income for banking services increased by 24.1% from

W

2,802 billion in 2020 to

W

3,478 billion in 2021.

Net interest income increased by 11.6% from

W

6,038 billion in 2020 to

W

6,738 billion in 2021 primarily due to increases in net interest income for retail banking and corporate banking services. More specifically:

• Net interest income for retail banking increased by 15.2% from W 2,429 billion in 2020 to W 2,799 billion in 2021 primarily due to an increase in Shinhan Bank’s net interest margin. The increase in our net interest margin was largely due to an increase in the average volume of retail loans as well as an increase in our net interest margin. The average volume of retail loans increased largely due to an increase in home mortgage loans. The increase in the Shinhan Bank’s net interest margin was largely due to the increase in average volume of interest-earning assets as described above outpacing the decrease in yield rate of interest-earning assets.

• Net interest income for corporate banking increased by 9.6% from W 2,295 billion in 2020 to W 2,515 billion in 2021 primarily due to increase in the average balance of corporate loans, notwithstanding a decrease in the average lending rate for corporate loans as discussed above. The average volume of corporate loans increased largely as a result of policies to support small and medium sized enterprises amidst the prolonged COVID-19 pandemic as discussed above.

• Net interest income for international banking increased by 11.9% from W 773 billion in 2020 to W 865 billion in 2021 primarily due to an increase in the average balance of loans extended by the Shinhan Bank’s overseas subsidiaries, especially in China and Vietnam.

• Net interest income for other banking services increased by 3.3% from W 541 billion in 2020 to W 559 billion in 2021, primarily due to an increase in interest income on securities by the Securities Management department of Shinhan Bank.

Net fees and commission income decreased by 0.5% from

W

822 billion in 2020 to

W

818 billion in 2021 primarily due to a decrease in net fees and commissions for retail banking services, which was offset in part by an increase in net fees and commissions for corporate banking services. Net fees and commissions for retail banking services decreased principally as the Shinhan Bank generally charges lower fees and commissions, despite an increase in the proportion of online banking transactions. The increase in net fees and commissions for corporate banking services was mainly due to an increase in brokerage fees.

Net other expense increased by 0.5% from

W

4,058 billion in 2020 to

W

4,078 billion in 2021 primarily due to an increase in net other expense for others banking services, which was partially offset by a decrease in net other expense for corporate banking services. Net other expense for other banking services increased mainly due to a decrease in net foreign currency transaction gain. The decrease in net other expense for corporate banking services was principally due to an increase in gains on sale and valuation of equity securities at fair value through profit or loss.

224

Comparison of 2020 to 2019

Operating income for banking services decreased by 11.4% from

W

3,162 billion in 2019 to

W

2,802 billion in 2020.

Net interest income increased by 0.8% from

W

5,989 billion in 2019 to

W

6,038 billion in 2020 primarily due to increases in net interest income for international banking and other banking services, which was partially offset by a decrease in net interest income for retail banking services and corporate banking. More specifically:

• Net interest income for retail banking decreased by 7.3% from W 2,620 billion in 2019 to W 2,429 billion in 2020 primarily due to a decrease in Shinhan Bank’s net interest margin which was partially offset by an increase in the average volume of retail loans. The decrease in Shinhan Bank’s net interest margin was largely due to the decrease in net interest income resulting from decreases in base interest rate by the Bank of Korea from 1.25% to 0.75% in March 2020 and from 0.75% to 0.50% in May 2020, despite the increase in average volume of interest-earning assets. The average volume of retail loans increased largely due to an increase in home mortgage loans.

• Net interest income for corporate banking decreased by 2.5% from W 2,353 billion in 2019 to W 2,295 billion in 2020 primarily due to a decrease in the average lending rate for corporate loans, notwithstanding increase in the average balance of corporate loans. The average lending rate for corporate loans decreased primarily as a result of the general decrease in market interest rates largely driven by the decrease in the base interest rate by the Bank of Korea in March 2020 and May 2020 as discussed above. The average balance of corporate loans increased principally as a result of an increase in facilities loans.

• Net interest income for international banking increased by 3.6% from W 746 billion in 2019 to W 773 billion in 2020 primarily due to an increase in the average balance of loans extended by Shinhan Bank’s overseas subsidiaries, particularly in Vietnam.

• Net interest income for other banking services increased by 100.4% from W 270 billion in 2019 to W 541 billion in 2020, primarily due to an increase in interest income on securities by the Securities Management department of Shinhan Bank.

Net fees and commission income decreased by 13.5% from

W

950 billion in 2019 to

W

822 billion in 2020 primarily due to a decrease in net fees and commissions for others banking services, and to a lesser extent, a decrease in net fees and commissions for retail banking services. Net fees and commissions for others banking services decreased primarily due to a decrease in trust management fees. Net fees and commissions for retail banking services decreased primarily due to an increase in the proportion of online banking transactions, for which the Bank generally charges lower fees and commissions notwithstanding an increase in the overall volume of transactions.

Net other expense increased by 7.4% from

W

3,777 billion in 2019 to

W

4,058 billion in 2020 primarily due to an increase in net other expense for others banking services, and to a lesser extent, an increase in net other expense for international banking services. Net other expense for other banking services increased mainly due to an increase in net foreign currency transaction gain. Net other expense for international banking services increased primarily due to an increase in expenses related to the expansion of Shinhan Bank’s overseas network.

225

Credit Card Services

The credit card services segment consists of the credit card business of Shinhan Card, including its installment finance and automobile leasing businesses.

	Year Ended December 31,									% Change
	2019			2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	1,754		W	1,755		W	1,799			0.1	%		2.5	%
Net fees and commission income (expense)		403			483			635			19.9			31.5
Net other income (expense)		(1,345	)		(1,351	)		(1,413	)		0.4			4.6
Operating income (expense)	W	812		W	887		W	1,021			9.2	%		15.1	%

Comparison of 2021 to 2020

Operating income for the credit card business increased by 15.1% from

W

887 billion in 2020 to

W

1,021 billion in 2021.

Net interest income increased by 2.5% from

W

1,755 billion in 2020 to

W

1,799 billion in 2021 primarily due to an increase in interest income on loans measured at amortized cost and a decrease in interest expense on debt securities issued. Interest income on loans at amortized cost increased principally due to an increase in interest income on loans resulting from our acquisition of assets of Shinhan Capital and, to a lesser extent, an increase in interest income on credit card loans. The decrease in interest expense on debt securities issued was mainly attributable to a decreased interest expense resulting from amortization of discount on asset-backed securities. The increase in net interest income was partially offset by an increase in interest expense on borrowings. Interest expense on borrowings increased primarily due to an increase in issuances of money-market securities, particularly commercial paper.

Net fees and commission income increased by 31.5% from

W

483 billion in 2020 to

W

635 billion in 2021 primarily as a result of an increase in fees and commission income from lease operations and, to a lesser extent, an increase in fees income on credit cards and a decrease in fees expense on credit cards. Fees and commission income from lease operations were primarily due an increase in the average balance of operating leased assets resulting from an expansion of operating assets. The increase in fees income on credit cards was mainly due to an overall increase in assets associated with credit cards. Fees expense on credit cards decreased principally due to lower fees expense on credit card recruitments resulting from the recruitment channels diversified, focusing on online recruitment.

Net other expense increased by 4.6% from

W

1,351 billion in 2020 to

W

1,413 billion in 2021, primarily due to net loss on foreign currency transaction came to

W

188 billion in 2021 resulting from an increase in foreign currency exchange rates amid weaker valuation of the Won, compared to net gain on foreign currency transaction of

W

159 billion in 2020. Such change was offset by an increase in gains on hedging items as well as a decrease in losses on hedging items resulting from the change in foreign currency exchange rates. The increase in net other operating expense was enhanced by an increase in general and administrative expenses increased mainly as a result of the voluntary retirement implemented during 2021, and an increase in advertising expenses resulting from the launch of new product services.

Comparison of 2020 to 2019

Operating income for the credit card business increased by 9.2% from

W

812 billion in 2019 to

W

887 billion in 2020.

226

Net interest income increased by 0.1% from

W

1,754 billion in 2019 to

W

1,755 billion in 2020 primarily due to an increase in the average balance of loans as a result of the expansion of operations, such as purchasing operating assets, and to a lesser extent, an increase in the average balance of foreign currency loans as a result of an increase in the amount of foreign subsidiaries offering loans. The increase in net interest income was partially offset by a decrease in interest income on credit card loans resulting from a decrease in the interest rates on credit card loans.

Net fees and commission income increased by 19.9% from

W

403 billion in 2019 to

W

483 billion in 2020 primarily as a result of an increase in fees and commission income from lease operations as a result of expansion of operating assets. Credit card fees expense decreased as a result of a decrease in the number of offline transactions which have higher fees and expenses compared to online transactions. The increase in net fees and commission income was partially offset due to a decrease in income from credit card fees. The decrease in income from credit card fees was attributed to a decrease in foreign currency credit card fees. The decrease in foreign currency credit card fees was due to the decrease in credit card sales incurred in foreign transactions due to

COVID-19.

Net other expense increased by 0.4% from

W

1,345 billion in 2019 to

W

1,351 billion in 2020, primarily due to a decrease in gains on hedging items and an increase in losses on hedging items, and, to a lesser extent, an increase in depreciation expense on operating leases. The decrease in gains on hedging items and the increase in losses on hedging items were primarily due to a decline in foreign currency exchange rates amid stronger valuation of the Won. Depreciation expense on operating leases increased mainly due to the expansion of operations, such as purchasing operating assets including leases classified as operating. The increase in net other expense was partially offset by an increase in net foreign currency transaction gain resulting from a decline in foreign currency exchange rates.

Securities Brokerage Services

Securities brokerage services segment primarily reflects securities brokerage and dealing services on behalf of customers, which is conducted by Shinhan Investment, our principal securities brokerage subsidiary.

	Year Ended December 31,									% Change
	2019			2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	458		W	517		W	517			12.9	%		0.0	%
Net fees and commission income (expense)		351			544			602			55.0			10.7
Net other income (expense)		(569	)		(688	)		(542	)		20.9			(21.2	)
Operating income (expense)	W	240		W	373		W	577			55.4	%		54.7	%

Comparison of 2021 to 2020

Operating income for securities brokerage services increased by 54.7% from

W

373 billion in 2020 to

W

577 billion in 2021.

There is no change in net interest income of

W

517 billion, as a decrease in interest income was offset by an increase in interest expense. More specifically, there was a decrease in interest income on securities measured at fair value through profit or loss and, to a lesser extent, a decrease in interest income on loans measured at fair value through profit or loss, which was partially offset by a decrease in interest expense on borrowings as well as a decrease in interest expense on bonds. The decrease in interest income on securities measured at fair value through profit or loss was primarily due to a decrease in interest income from special purpose bonds as a result of a decrease in the average balance of special purpose bonds and a decrease in interest rate. The interest income on

227

loans measured at fair value through profit or loss decreased mainly due to a decrease in both the average balance of domestic currency facility loan and foreign currency facility loan, attributed to the increase in sell-down speed in the market, which is common for sell-down to be within six months. The interest expense decreased primarily due to the decrease in interest expense on borrowings was primarily due to a decrease in the average balance of other borrowings, resulting from the repayment of short-term borrowings lent in 2020 due to the liquidity crisis caused by

COVID-19,

and, to a lesser extent, the decrease in interest expense on bonds resulting from a decrease in short-term bond interest rate.

Net fees and commission income increased by 10.7% from

W

544 billion in 2020 to

W

602 billion in 2021 primarily due to an increase in fees and commission income on brokerage as a result of an increase in daily average stock trading volume resulting from the booming stock market in Korea during the current period, and, to a lesser extent, an increase in fees and commission income on underwriting and mergers and acquisitions advisory services resulting from the increased number of cases of underwriting and mergers and acquisitions advisory. Fees and commission income also increased due to the significant increase in overseas stock transactions due to the increase in interest in overseas stocks. The increase in net fees and commission income was partially offset by an increase in the corresponding trading commissions as fees and commission income on brokerage increased. Also, to a lesser extent, fees and commission expenses on legal and advisory services increased due to the expansion of input personnel.

Net other expense decreased by 21.2% from

W

688 billion in 2020 to

W

542 billion in 2021 due primarily to net gain on financial instruments at fair value through profit or loss came to

W

369 billion in 2021, shifting from net loss on financial instruments at fair value through profit or loss of

W

383 billion in 2020. The decrease in net other operating expense was partially offset as we recognized net loss on financial instruments designated at fair value through profit or loss of

W

88 billion in 2021 compared to net gain on financial instruments designated at fair value through profit or loss of

W

198 billion in 2020. Also, the decrease in net other operating expense was offset in part as we recognized net loss on foreign currency transaction of

W

108 billion in 2021 attributed to an increase in losses on foreign currency transaction of customer deposits in foreign currency resulting from an increase in foreign currency exchange rates amid weaker valuation of the Won, compared to net gain on foreign currency transaction of

W

115 billion in 2020.

Comparison of 2020 to 2019

Operating income for securities brokerage services increased by 55.4% from

W

240 billion in 2019 to

W

373 billion in 2020.

Net interest income increased by 12.9% from

W

458 billion in 2019 to

W

517 billion in 2020 primarily due to an increase in interest income on securities measured at fair value through profit or loss and, to a lesser extent, an increase in interest income on loans measured at amortized cost. The increase in interest income on securities measured at fair value through profit or loss was due to an increase in interest income from consolidated structured entities as a result of an increase in the average balance of investment in beneficiary certificate as the size of commitments in consolidated structured entities increased. Interest income from loans measured at amortized cost increased mainly due to an increase in the average balance of credit loans to households attributed to an increase in the size of customers’ credit loans resulting from the booming stock market in Korea, and, to a lesser extent, an increase in the average balance of foreign currency corporate loans attributed to an increase in the amount of foreign currency loans to the consolidated structured entities as a result of an increase in the size of foreign currency commitments in consolidated structured entities. The increase in net interest income was partially offset by a decrease in interest income from cash and due from banks as a result of a decrease in interest rate.

Net fees and commission income increased by 55.0% from

W

351 billion in 2019 to

W

544 billion in 2020 primarily due to an increase in fees and commission received on brokerage as a result of an increase in daily average stock trading volume resulting from the booming stock market in Korea during the current period, which

228

was partially offset by an increase in fees and commission expenses for legal and advisory fees as a result of increased legal disputes, including those involving Lime Asset products and Discovery Asset products sold by Shinhan Bank and Shinhan Investment.

Net other expense increased by 20.9% from

W

569 billion in 2019 to

W

688 billion in 2020 due primarily to an increase in provision for credit loss allowance, which was attributed to an increase in allowance for credit losses including allowance for loans related to overseas real estate assets and allowance for loans to structured entities.

Life Insurance Services

Life insurance services segment consists of life insurance services provided by Shinhan Life Insurance.

	Year Ended December 31,									% Change
	2019			2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	1,648		W	1,609		W	1,620			(2.4	)%		0.7	%
Net fees and commission income (expense)		167			162			171			(3.0	)		5.6
Net other income (expense)		(1,230	)		(1,203	)		(1,239	)		(2.2	)		3.0
Operating income (expense)	W	585		W	568		W	552			(2.9	)%		(2.8	)%

Comparison of 2021 to 2020

Operating income for life insurance services decreased by 2.8% from

W

568 billion in 2020 to

W

552 billion in 2021.

Net interest income increased by 0.7% from

W

1,609 billion in 2020 to

W

1,620 billion in 2021 due primarily to an increase in interest income on securities at amortized cost, which was offset in part by a decrease in interest income on deposits at fair value through profit or loss and a decrease in interest income on securities at fair value through profit or loss. Interest income on securities at amortized cost increased primarily due to an increase in the average balance of securities at amortized cost as a result of an increase in the proportion of long-term government bonds with high interest rate sensitivity into securities at amortized cost resulting from an increase in the interest rate in 2021. The decrease in interest income on deposits at fair value through profit or loss was principally due to a decrease in the average balance of deposits at fair value through profit or loss as a result of most structured deposits repaid in 2021 resulting from the exercise of call options by the issuer of structured deposits. Interest income on securities at fair value through profit or loss decreased mainly due to a decrease in the average balance of securities at fair value through profit or loss attributable to a decrease in financial institution bonds repaid as the issuer of financial institution bonds exercised call options.

Net fees and commission income increased by 5.6% from

W

162 billion in 2020 to

W

171 billion in 2021 due primarily to a decrease in fees and commission expense, which was partially offset by a decrease in fees and commission income. Fees and commission expense increased principally due to a decrease in special account fees due to economic fluctuations. To a lesser extent, the decrease in fees and commission expense was due to a decrease in fees on trust accounts. The account of fees on trust accounts was no longer used since a merger of our two life insurance companies, Shinhan Life Insurance and Orange Life Insurance. The decrease in fees and commission income was mainly due to a decrease in fees on special accounts resulting from a decrease in payment cases related to special accounts due to the merger.

Net other expense increased by 3.0% from

W

1,203 billion in 2020 to

W

1,239 billion in 2021 primarily due to a decrease in gains on hedging items as well as an increase in losses on hedging items. The decrease in gains

229

on hedging items and the increase in losses on hedging items were primarily due to an increase in foreign currency exchange rates amid weaker valuation of the Won. The increase of net other operating expense was enhanced by an increase in general and administrative expenses increased mainly as a result of the voluntary retirement implemented in December 2021. The increase of net other operating expense was partially offset as we recognized net gain on foreign currency transaction of

W

239 billion in 2021, shifting from net loss on foreign currency transaction of

W

79 billion in 2020, as a result of an increase in foreign currency exchange rates amid weaker valuation of the Won.

Comparison of 2020 to 2019

Operating income for life insurance services decreased by 2.9% from

W

585 billion in 2019 to

W

568 billion in 2020.

Net interest income decreased by 2.4% from

W

1,648 billion in 2019 to

W

1,609 billion in 2020 due primarily to a decrease in interest income on securities measured at fair value through other comprehensive income resulting from the decreased average balances of government bond and corporate bond. The decrease in net interest income was partially offset due to an increase in interest income on securities measured at amortized cost as a result of an increase in the average balance of government bond in the process of the ALM (Asset Liability Management) in order to reduce the gap of maturity duration between assets and liabilities.

Net fees and commission income decreased by 3.0% from

W

167 billion in 2019 to

W

162 billion in 2020 due primarily to an increase in fees and commission expense resulting from an increase in the rate of premium reserve (guaranteed interest benefit), which was partially offset by an increase in fee income earned from our management of separate accounts.

Net other expense decreased by 2.2% from

W

1,230 billion in 2019 to

W

1,203 billion in 2020 primarily due to an increase in gains on hedging items as well as a decrease in losses on hedging items. The increase in gains on hedging items and the decrease in losses on hedging items were primarily due to a decline in foreign currency exchange rates amid stronger valuation of the Won.

Specialized Credit Services

The specialized credit services segment consists of the specialized credit business of Shinhan Capital, including facilities leasing, installment finance, new technology finance businesses.

	Year Ended December 31,							% Change
	2019		2020			2021		2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	127	W	159		W	232		25.2	%		45.9	%
Net fees and commission income (expense)		11		21			29		90.9			38.1
Net other income (expense)		18		(1	)		80		N/M			N/M
Operating income (expense)	W	156	W	179		W	341		14.7	%		90.5	%

N/M = not meaningful

Comparison of 2021 to 2020

Operating income for the specialized credit business increased by 90.5% from

W

179 billion in 2020 to

W

341 billion in 2021.

Net interest income increased by 45.9% from

W

159 billion in 2020 to

W

232 billion in 2021 primarily reflecting the changes in loans measured at amortized cost. Interest income on loans denominated in Korean won

230

increased resulting from an increase in the average balance of loans for working capital as a result of an increase in interest-earning financial assets related to corporate finance. Interest-earning financial assets related to corporate finance increased as the Shinhan Capital’s identity as a specialized credit company composed of investment banking and corporate finance, has been solidified since 2020. The increase in interest income on loans measured at amortized cost was partially offset by a decrease in interest income on loans for installment credit principally resulting from a decrease in the average balance of loans for auto and retail installment credit as a result of no additional new loans for installment credit in Shinhan Capital since transferring such assets to Shinhan Card in October, 2020.

Net fees and commission income increased by 38.1% from

W

21 billion in 2020 to

W

29 billion in 2021 primarily as a result of an increase in commission received as agency and an increase in investment banking fees. The increase in commission received as agency was principally due to an increase in management fees and performance fees earned by us as acting the general partner based on the growth trend centered on corporate finance and investment banking. Investment banking fees increased mainly as a result of an increase in underwriting fees reflecting the expansion of business operations centered on corporate finance and investment banking.

Net other income came to

W

80 billion in 2021, shifting from net other expense of

W

1 billion in 2020, primarily due to an increase in net gain on financial instruments at fair value through profit or loss and, to a lesser extent, a decrease in provision for credit loss allowance, which was offset in part by an increase in general and administrative expenses. Net gain on financial instruments at fair value through profit or loss increased mainly due to an increase in gain on valuation of puttable financial instruments. Despite an additional provision for credit loss allowance reflecting the adverse impact of

COVID-19

on our asset portfolio in 2021, provision for credit loss allowance decreased principally due to an increase in reversal of provision for credit loss allowance resulting from the redemption of large loans, including loans for aircrafts, in 2021. General and administrative expenses increased mainly as a result of the expansion of experienced employees hiring and new hiring, salaries increase, the voluntary retirement first implemented, and

in-house

welfare fund contribution increase.

Comparison of 2020 to 2019

Operating income for the specialized credit business increased by 14.7% from

W

156 billion in 2019 to

W

179 billion in 2020.

Net interest income increased by 25.2% from

W

127 billion in 2019 to

W

159 billion in 2020 primarily reflecting an increase in loans measured at amortized cost, which was partially offset by an increase in interest expense on borrowings and debt securities issued. Interest income on loans measured at amortized cost increased mainly due to an increase in interest income on loans denominated in Korean won resulting from an increase in average balance of loans for working capital as a result of an increase in interest-earning financial assets related to corporate finance. Interest-earning financial assets related to corporate finance increased as the Shinhan Capital’s identity as a specialized credit company composed of investment banking and corporate finance, has been solidified since 2020. The increase in interest income on loans measured at amortized cost was partially offset by a decrease in interest income on loans for installment credit principally resulting from a decrease in the average balance of loans for auto and retail installment credit as a result of no additional new loans for installment credit in Shinhan Capital since transferring such assets to Shinhan Card in October 2020. Also, the increase in net interest income was partially offset by an increase in interest expense on borrowings mainly due to additional borrowings, as a source of financing, in order for expanding business operations and increasing its assets.

Net fees and commission income increased by 90.9% from

W

11 billion in 2019 to

W

21 billion in 2020 primarily as a result of an increase in investment banking fees due to an increase in underwriting fees reflecting the expansion of business operations centered on corporate finance and investment banking.

231

Net other expense came to

W

1 billion in 2020, shifting from net other income of

W

18 billion in 2019, primarily due to an increase in provision for credit loss allowance and, to a lesser extent, an increase in net foreign currency transaction loss, which was partially offset by an increase in net gain on financial instruments at fair value through profit or loss. The increase in provision for credit loss allowance was primarily as result of an additional provision for credit loss allowance and a higher expected credit loss reflecting the adverse impact of

COVID-19

on our asset portfolio. Net foreign currency transaction loss increased mainly due to losses on foreign currency transaction incurred in 2020 resulting from the settlement of foreign currency purchases of dollar through forward transactions. The increase in net gain on financial instruments at fair value through profit or loss was principally due to an increase in dividends on investment securities resulting from an increase in the number of funds with underlying assets based on interest-earning assets as a result of expansion of business operations.

Others

Other segment primarily reflects all other activities of Shinhan Financial Group, as the holding company, and our other subsidiaries, including the results of operations of Shinhan Credit Information, Shinhan Asset Management, Shinhan Savings Bank, Asia Trust Co. Ltd., Shinhan REITs Management and back-office functions maintained at the holding company.

	Year Ended December 31,									% Change
	2019			2020			2021			2019/2020			2020/2021
	(In billions of Won, except percentages)
Income statement data
Net interest income (expense)	W	—		W	8		W	69			N/M	%		762.5	%
Net fees and commission income (expense)		261			347			415			33.0			19.6
Net other income (expense)		(248	)		(197	)		(224	)		(20.6	)		13.7
Operating income (expense)	W	13		W	158		W	260			1,115.4	%		64.6	%

N/M = not meaningful

Comparison of 2021 to 2020

Operating income for others increased by 64.6% from

W

158 billion in 2020 to

W

260 billion in 2021.

Net interest income was increased by 762.5% from

W

8 billion in 2020 to

W

69 billion in 2021 primarily due to an increase in net interest income of Shinhan Financial Group and, to a lesser extent, an increase in net interest income of consolidated structured entities. Net interest income of Shinhan Financial Group increased mainly reflecting a decrease in interest expense as a result of a decrease in interest rate, despite an increase in the average balance of debt securities issued. The increase in net interest income of consolidated structured entities was principally due to an increase in interest income on loans measured at amortized cost.

Net fees and commission income increased by 19.6% from

W

347 billion in 2020 to

W

415 billion in 2021 primarily due to an increase in income of Asia Trust Co., Ltd. resulting from the Group’s strengthening the

non-banking

portfolio through real estate business line. The increased income from Asia Trust Co., Ltd. was mainly due to the increased number of land trusts managed by Asia Trust Co., Ltd.

Net other expense increased by 13.7% from

W

197 billion in 2020 to

W

224 billion in 2021, primarily due to an increase in net other operating expense of Shinhan Financial Group, which was partially offset by an increase in net other operating income of consolidated structured entities. The increase in net other operating expense of Shinhan Financial Group was mainly due to a decrease in net gain on financial instruments at fair value through profit or loss. Net other operating income of consolidated structured entities increased as we recognized net gain on foreign currency transaction of

W

34 billion in 2021 compared to net loss on foreign currency transaction of

W

12 billion in 2020.

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Comparison of 2020 to 2019

Operating income for others increased by 1,115.4% from

W

13 billion in 2019 to

W

158 billion in 2020.

Net interest income was incurred

W

8 billion in 2020, up

W

8 billion from 2020, primarily due to an increase in interest income of consolidated structured entities resulting from an increase in the average balance of financial assets at fair value through profit or loss.

Net fees and commission income increased by 33.0% from

W

261 billion in 2019 to

W

347 billion in 2020 primarily due to an increase in income of Asia Trust Co., Ltd. resulting from the Group’s strengthening the

non-banking

portfolio through real estate business line. The increased income from Asia Trust Co., Ltd. was mainly due to the increased number of land trusts managed by Asia Trust Co., Ltd.

Net other expense decreased by 20.6% from

W

248 billion in 2019 to

W

197 billion in 2020, primarily due to an increase in gains and losses related to financial instruments measured at fair value through profit or loss, which were mainly recognized by Shinhan Financial Group.

Financial Condition

Assets

The following table sets forth, as of the dates indicated, the principal components of our assets.

	As of December 31,						% Change
	2019		2020		2021		2019/2020			2020/2021
	(In billions of Won, except percentages)
Cash and due from banks at amortized cost	W	28,424	W	33,411	W	28,453		17.5	%		(14.8	)%
Financial assets at fair value through profit or loss		53,163		59,091		62,404		11.2			5.6
Derivative assets		2,829		5,634		3,799		99.2			(32.6	)
Securities at fair value through other comprehensive income		59,381		58,316		64,838		(1.8	)		11.2
Securities at amortized cost		45,582		47,283		49,930		3.7			5.6
Loans at amortized cost		323,245		356,222		389,137		10.2			9.2
Property and equipment, net		4,083		3,990		4,046		(2.3	)		1.4
Intangible assets		5,559		5,481		5,645		(1.4	)		3.0
Investments in associates		1,453		2,658		2,914		82.9			9.6
Current tax receivables		88		52		15		(40.9	)		(71.2	)
Deferred tax assets		218		215		135		(1.4	)		(37.2	)
Investment property		489		615		675		25.8			9.8
Asset for defined benefit obligations		2		18		142		800.0			688.9
Other assets		27,879		32,194		35,975		15.5			11.7
Assets held for sale		25		54		44		116.0			(18.5	)
Total assets	W	552,420	W	605,234	W	648,152		9.6	%		7.1	%

2021 Compared to 2020

Our assets increased by 7.1% from

W

605,234 billion as of December 31, 2020 to

W

648,152 billion as of December 31, 2021, principally due to increases in loans at amortized cost, securities at fair value through other comprehensive income, other assets and financial assets at fair value through profit or loss.

Our loans at amortized cost increased by 9.2% to

W

389,137 billion as of December 31, 2021 from

W

356,222 billion as of December 31, 2020, due primarily to an increase in corporate loans and, to a lesser extent an increase in retail loans.

233

Our securities at fair value through other comprehensive income increased by 11.2% to

W

64,838 billion as of December 31, 2021 from

W

58,316 billion as of December 31, 2020, due primarily to an increase in the balance of debt securities measured at fair value through other comprehensive income, such as government bonds, public bonds and corporate bonds.

Our Other assets increased by 11.7% to

W

35,975 billion as of December 31, 2021 from

W

32,194 billion as of December 31, 2020, due primarily to an increase in domestic exchange settlements debits.

Our Financial assets at fair value through profit or loss increased by 5.6% to

W

62,404 billion as of December 31, 2021 from

W

59,091 billion as of December 31, 2020, due primarily to an increase in the balance of debt securities measured at fair value through profit or loss, such as beneficiary certificates, equity investment with put option, CMA and corporate bonds.

2020 Compared to 2019

Our assets increased by 9.6% from

W

552,420 billion as of December 31, 2019 to

W

605,234 billion as of December 31, 2020, principally due to increases in loans at amortized cost, financial assets at fair value through profit or loss, cash and due from banks at amortized cost, other assets and derivative assets.

Our loans at amortized cost increased by 10.2% to

W

356,222 billion as of December 31, 2020 from

W

323,245 billion as of December 31, 2019, due primarily to an increase in corporate loans and, to a lesser extent an increase in retail loans.

Our Financial assets at fair value through profit or loss increased by 11.2% to

W

59,091 billion as of December 31, 2020 from

W

53,163 billion as of December 31, 2019, due primarily to an increase in the balance of debt securities measured at fair value through profit or loss, such as beneficiary certificates, government bonds, public bonds and corporate bonds.

Our cash and due from banks at amortized cost increased by 17.5% to

W

33,411 billion as of December 31, 2020 from

W

28,424 billion as of December 31, 2019, due primarily to an increase in reserve deposits with the Bank of Korea to account for debt securities with approaching maturities.

Our Other assets increased by 15.5% to

W

32,194 billion as of December 31, 2020 from

W

27,879 billion as of December 31, 2019, due primarily to an increase in receivables.

Our derivative assets increased by 99.2% to

W

5,634 billion as of December 31, 2020 from

W

2,829 billion as of December 31, 2019, primarily due to an increase in derivative assets in foreign currency resulting from a decline in foreign currency exchange rates amid stronger valuation of the Won.

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Liabilities and Equity

The following table sets forth, as of the dates indicated, the principal components of our liabilities.

	As of December 31,						% Change
	2019		2020		2021		2019/2020			2020/2021
	(In billions of Won, except percentages)
Deposits	W	294,874	W	326,417	W	364,897		10.7	%		11.8	%
Financial liabilities at fair value through profit or loss		1,632		1,437		1,369		(11.9	)		(4.7	)
Financial liabilities designated at fair value through profit or loss (IFRS 9)		9,409		8,456		8,024		(10.1	)		(5.1	)
Derivative liabilities		2,303		5,017		3,587		117.8			(28.5	)
Borrowings		34,863		41,594		43,167		19.3			3.8
Debt securities issued		75,363		75,134		80,149		(0.3	)		6.7
Liability for defined benefit obligations		121		63		51		(47.9	)		(19.0	)
Provisions		557		805		1,167		44.5			45.0
Current tax payable		513		390		703		(24.0	)		80.3
Deferred tax liabilities		452		580		176		28.3			(69.7	)
Liabilities under insurance contracts		52,164		53,459		54,333		2.5			1.6
Other liabilities		38,238		45,525		40,991		19.1			(10.0	)
Total liabilities		510,489		558,877		598,614		9.5			7.1
Total equity attributable to equity holders of the Group		39,179		44,070		47,291		12.5			7.3
Non-controlling interests		2,752		2,287		2,247		(16.9	)		(1.8	)
Total equity		41,931		46,357		49,538		10.6			6.9
Total liabilities and equity	W	552,420	W	605,234	W	648,152		9.6	%		7.1	%

2021 Compared to 2020

Our total liabilities increased by 7.1% from

W

558,877 billion as of December 31, 2020 to

W

598,614 billion as of December 31, 2021, primarily due to an increase in deposits (which principally consist of customer deposits) and an increase in debt securities issued and, to a lesser extent, an increase in borrowings.

Our deposits increased by 11.8% from

W

326,417 billion as of December 31, 2020 to

W

364,897 billion as of December 31, 2021, primarily due to an increase in time and savings deposits largely resulting from policies to increase liquidity including funding supports of government and local government due to prolonged

COVID-19.

Our debt securities issued increased by 6.7% from

W

75,134 billion as of December 31, 2020 to

W

80,149 billion as of December 31, 2021, primarily due to an increase in debt securities issued denominated in Korean won.

Our borrowings increased by 3.8% from

W

41,594 billion as of December 31, 2020 to

W

43,167 billion as of December 31, 2021 primarily as a result of an increase in borrowings denominated in Korean won including borrowings from the Bank of Korea and other borrowings.

Total equity increased by 6.9% from

W

46,357 billion as of December 31, 2020 to

W

49,538 billion as of December 31, 2021, largely due to an increase in retained earnings and an increase resulting from additional hybrid bonds issued by the Group.

235

2020 Compared to 2019

Our total liabilities increased by 9.5% from

W

510,489 billion as of December 31, 2019 to

W

558,877 billion as of December 31, 2020, primarily due to an increase in deposits (which principally consist of customer deposits) and an increase in other liabilities and an increase in borrowings and, to a lesser extent, an increase in derivative liabilities.

Our deposits increased by 10.7% from

W

294,874 billion as of December 31, 2019 to

W

326,417 billion as of December 31, 2020, primarily due to an increase in time and savings deposits largely resulting from customers’ preference for

low-risk

investments in light of the continuing uncertainty in financial markets.

Our other liabilities increased by 19.1% from

W

38,238 billion as of December 31, 2019 to

W

45,525 billion as of December 31, 2020, primarily due to an increase in domestic exchanges payables and account payables.

Our borrowings increased by 19.3% from

W

34,863 billion as of December 31, 2019 to

W

41,594 billion as of December 31, 2020 primarily as a result of an increase in borrowings denominated in Korean won including borrowings from the Bank of Korea and other borrowings.

Our derivative liabilities increased by 117.8% from

W

2,303 billion as of December 31, 2019 to

W

5,017 billion as of December 31, 2020, primarily due to an increase in derivative liabilities in foreign currency resulting from a decline in foreign currency exchange rates amid stronger valuation of the Won.

Total equity increased by 10.6% from

W

41,931 billion as of December 31, 2019 to

W

46,357 billion as of December 31, 2020, largely due to an increase in retained earnings and an increase in paid in capital resulting from common stock issued by the Group.

ITEM 5.B. Liquidity and Capital Resources

We are exposed to liquidity risk arising from the funding of our lending, trading and investment activities and in the management of trading positions. The goal of liquidity management is for us to be able, even under adverse conditions, to meet all of our liability repayments on time and fund all investment opportunities. For an explanation of how we manage our liquidity risk, see “Item 4.B. Business Overview — Risk Management — Market Risk Management — Market Risk Management for

Non-trading

Activities — Liquidity Risk Management.” In our opinion, the working capital is sufficient for our present requirements.

The following table sets forth our capital resources as of December 31, 2021.

	As of December 31, 2021
	(In billions of Won)
Deposits	W	364,897
Long-term debt		78,023
Call money		1,535
Borrowings from the Bank of Korea		5,278
Other short-term borrowings		28,559
Asset securitizations		10,709
Stockholders’ equity (1)		17,657
Total	W	506,658

Note:

(1) Includes capital stock, share premium, and hybrid bonds issued.

We obtain funding from a variety of sources, both domestic and foreign. Our principal source of funding is customer deposits obtained from our banking operations, and we from time to time issue equity and debt

236

securities. In addition, our subsidiaries acquire funding through call money, borrowings from the Bank of Korea, other short-term borrowings, corporate debentures, other long-term debt and asset-backed securitizations.

Our primary funding strategy has been to achieve

low-cost

funding by increasing the average balances of

low-cost

retail customer deposits. Customer deposits accounted 70.1% of our total funding as of December 31, 2019, for 70.9% of our total funding as of December 31, 2020 and 72.0% of our total funding as of December 31, 2021. Historically, except in limited circumstances, largely due to the lack of alternative investment opportunities for individuals and households in Korea, especially in light of a low interest rate environment and volatile stock market conditions, a substantial portion of such customer deposits were rolled over upon maturity and accordingly provided a stable source of funding for our banking subsidiaries. However, in the face of attractive alternative investment opportunities such as during a bullish run of the stock market, customers may transfer a significant amount of bank deposits to alternative investment products in search of higher returns, which may result in temporary difficulties in finding sufficient funding on commercial terms favorable to us. In addition, in recent years, we have faced increasing pricing competition from our competitors with respect to our deposit products. If we do not continue to offer competitive interest rates to our deposit customers, we may lose their business, which has traditionally provided a stable and

low-cost

source of funding. Even if we are able to match our competitors’ pricing, doing so may result in an increase in our funding costs, which may have an adverse impact on our results of operations.

While our banking subsidiaries generally have not faced, and currently are not facing, liquidity difficulties in any material respect,if we or our banking subsidiaries are unable to obtain the funding we need on terms commercially acceptable to us for an extended period of time for reasons of Won devaluation or otherwise, we may not be able to ensure our financial viability, meet regulatory requirements, implement our strategies or compete effectively. See “Item 3.D. Risk Factors — Risks Related to Our Overall Business — Changes in interest rates, foreign exchange rates, bond and equity prices, and other market factors have affected and will continue to affect our business, results of operations and financial condition.”

As of December 31, 2019, 2020 and 2021,

W

6,015 billion,

W

6,816 billion and

W

7,610 billion, or 2.1%, 2.1% and 2.1%, respectively, of Shinhan Bank’s total deposits were deposits made by litigants in connection with legal proceedings in Korean courts. Court deposits carry interest rates which are generally lower than market rates.

In addition, we obtain funding through borrowings and the issuances of debt and equity securities, primarily through Shinhan Bank. Our borrowings consist mainly of borrowings from financial institutions, the Government and Government-affiliated funds. Call money, which is available in both Won and foreign currencies, is obtained from the domestic call loan market, a short-term loan market for loans with maturities of less than one month. As for our long-term debt, it is principally in the form of corporate debt securities issued by Shinhan Bank. Since 1999, Shinhan Bank has actively issued and continues to issue long-term debt securities with maturities of over one year in the Korean fixed-income market. Shinhan Bank and we have maintained one of the highest credit ratings in the domestic fixed-income market since their inception in 1999 and 2001, respectively. As Shinhan Bank maintains one of the highest debt ratings in the fixed-income market in Korea, we believe that Shinhan Bank will be able to obtain replacement funding through the issuance of long-term debt securities. Shinhan Bank’s interest rates on long-term debt securities are in general 20 to 30 basis points higher than the interest rates offered on their deposits. However, since long-term debt is not subject to premiums paid for deposit insurance and the Bank of Korea reserves, we estimate that our funding costs on long-term debt securities are generally on par with our funding costs on deposits. In addition, our company, as well as Shinhan Bank may also issue long-term debt securities denominated in foreign currencies in overseas markets. Our company and Shinhan Bank each have a global medium term notes program under which foreign currency-denominated notes may be issued with an aggregate program limit of US$5 billion and US$6 billion, respectively. As of December 31, 2019, 2020 and 2021, our long-term debt amounted to

W

73,299 billion,

W

75,089 billion and

W

78,023 billion, respectively.

We also have funding requirements for our credit card activities. We obtain funding for our credit card activities from a variety of sources, primarily in Korea. The principal sources of funding for Shinhan Card are

237

debentures, commercial papers (including call money), borrowings from the holding company and third-parties, which amounted to

W

20,842 billion,

W

3,765 billion,

W

2,190 billion and

W

708 billion, or 75.8%, 13.7%, 8.0%, and 2.5%, respectively, of the funding for our credit card activities, as of December 31, 2021. Unlike other credit card companies, Shinhan Card has the benefit of obtaining funding at favorable rates through loans from Shinhan Financial Group, which currently maintains the highest credit rating assigned by local rating agencies. Shinhan Card aims to further diversify its funding sources and more actively tap the domestic and international capital markets to ensure access to liquidity as needed.

Credit ratings affect the cost and other terms upon which we and our subsidiaries are able to obtain funding. Domestic and international rating agencies regularly evaluate us, and our subsidiaries and their ratings of our and our subsidiaries’ long-term debt are based on a number of factors, including our financial strength as well as conditions affecting the financial services industry generally.

There can be no assurance that we or our subsidiaries will maintain our current credit ratings if, among other reasons, the global or Korean economy were to face another downturn, there are any changes in our corporate governance or our businesses significantly deteriorate. Our failure to maintain current credit ratings and outlooks could increase the cost of our funding, limit our access to capital markets and other borrowings, and require us to post additional collateral in financial transactions, any of which could adversely affect our liquidity, net interest margins and profitability.

Secondary funding sources also include call money, borrowings from the Bank of Korea and other short-term borrowings which amounted to

W

29,002 billion,

W

31,471 billion and

W

35,372 billion, as of December 31, 2019, 2020 and 2021, respectively, each representing 6.9%, 6.8% and 7.0%, respectively, of our total funding as of such dates.

We may also from time to time obtain funding through issuance of equity securities. For example, On September 29, 2020, partly in response to the prolonged

COVID-19

pandemic and to increase our loss absorption capacity, we issued 39,130,000 common shares to two private equity funds, thereby increasing our

paid-in

capital by

W

195.7 billion. As a result of such offering, which was substantially fully subscribed and resulted in a capital increase of approximately 7.5%, we raised approximately

W

1,158 billion (before underwriting commissions and other offering expenses).

In addition, we obtain funding through issuance of hybrid bonds. The total of our hybrid bonds issued were

W

3,335 billion. In 2021, the additional hybrid bonds of

W

1,155 billion were newly issued to improve the capital adequacy ratio by expanding the capital.

In limited situations, we may also issue convertible and/or preferred shares. For example, in August 2003, in order to partly fund our acquisition of Chohung Bank, we raised a total of

W

2,552 billion through domestic private placements of redeemable preferred shares and redeemable convertible preferred shares to domestic financial institutions and governmental entities in Korea, all of which shares have since been redeemed or converted. In addition, in January 2007, partly to fund the acquisition of LG Card, we raised a total of

W

3,750 billion through domestic private placements of redeemable preferred shares and redeemable convertible preferred shares, all of which have been redeemed as of the date hereof. In April 2011, we issued redeemable preferred shares to fund redemption of such securities, and in April 2016, we redeemed the redeemable preferred shares issued in April 2011. In February 2019, we raised a total of

W

750 billion through domestic private placements of convertible preferred shares. For further details of our preferred shares, see “Item 10.B. Memorandum and Articles of Incorporation — Description of Preferred Stock.”

Pursuant to laws and regulations in Korea, we may redeem our preferred stock to the extent of our retained earnings of the previous fiscal year, net of certain reserves. At this time, we expect that cash from our future operations would be adequate to provide us with sufficient capital resources to enable us to redeem our preferred stock on or prior to their scheduled maturities. In the event there is a short-term shortage of liquidity to make the

238

required cash payments for redemption as a result of, among other things, failure to receive dividend payments from our operating subsidiaries on time or as a result of significant expenditures resulting from future acquisitions, we plan to raise cash liquidity through the issuance of long-term debt in the Korean fixed-income market in advance of the scheduled maturity on our preferred stock. To the extent we need to obtain additional liquidity, we plan to do so through the issuance of long-term corporate debentures or further preferred stock and/or the use of our other secondary funding sources.

We generally may not acquire our own shares except in certain limited circumstances such as a capital reduction. However, pursuant to the Financial Investment Services and Capital Markets Act and regulations under the Financial Holding Companies Act, we may purchase our own shares on the KRX KOSPI Market of the Korea Exchange or through a tender offer, or retrieve our own shares from a trust company upon termination of a trust agreement subject to the restrictions that (1) the aggregate purchase price of such shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year less the amounts of dividends and reserves for such fiscal year, subtracted by the sum of (a) the purchase price of treasury stock acquired if any treasury stock has been purchased after the end of the preceding fiscal year pursuant to the Commercial Act or the Financial Investment Services and Capital Markets Act, (b) the amount subject to a trust contract, and (c) the amount of dividends approved at the ordinary general shareholders’ meeting after the end of the preceding fiscal year and the amount of retained earnings reserve required under the Commercial Act; plus if any treasury stock has been disposed of after the end of the preceding fiscal year, the acquisition cost of such treasury stock, and (2) the purchase of such shares shall meet the requisite ratio under the Financial Holding Companies Act and regulations thereunder. In addition, pursuant to the Financial Investment Services and Capital Markets Act, in certain limited circumstances, dissenting holders of shares have the right to require us to purchase their shares.

Contractual Obligations, Commitments and Guarantees

In the ordinary course of our business, we have certain contractual cash obligations and commitments which extend for several years. As we are able to obtain liquidity and funding through various sources as described in “— Liquidity and Capital Resources” above, we do not believe that these contractual cash obligations and commitments will have a material effect on our liquidity or capital resources.

Contractual Cash Obligations

The following table sets forth our contractual cash obligations as of December 31, 2021.

	As of December 31, 2021 Payments Due by Period (1)
	Less than 1 Month		1-3 Months		3-6 Months		6-12 Months		1-5 Years		More than 5 Years		Total
	(In billions of Won)
Deposits	W	212,378	W	36,147	W	40,880	W	59,303	W	17,047	W	2,590	W	368,345
Borrowings		13,160		3,928		3,644		5,172		14,168		3,649		43,721
Debt securities issued		4,833		7,034		7,257		17,537		41,800		5,335		83,796
Lease liability		28		37		50		89		287		122		613
Total	W	230,399	W	47,146	W	51,831	W	82,101	W	73,302	W	11,696	W	496,475

Note:

(1) Reflects all estimated contractual interest payments due on our interest-bearing deposits, borrowings, debt securities issued and lease liability, and the estimated contractual interest payments on borrowings and debt securities that are on a floating rate basis as of December 31, 2021 were computed as if the interest rate used on the last applicable date (for example, the interest payment date for such floating rate loans immediately preceding the determination date) were the interest rate applicable throughout the remainder of the term.

239

Commitments and Guarantees

In the normal course of business, we and our subsidiaries make various commitments and guarantees to meet the financing needs of our customers. Commitments and guarantees are usually in the form of, among others, commitments to extend credit, commercial letters of credit, standby letter of credit and performance guarantees. The contractual amount of these financial instruments represents the maximum possible loss amount if the counterparty draws down the commitment or we should fulfill our obligation under the guarantee and the counterparty fails to perform under the contract. See “Item 4.B. Business Overview — Description of Assets and Liabilities — Credit-Related Commitments and Guarantees.”

The following table sets forth our commitments and guarantees as of December 31, 2021. These commitments, apart from certain guarantees and acceptances, are not included within our consolidated statements of financial position.

	As of December 31, 2021 Commitment Expiration by Period
	Less than 1 Year		1-5 Years		More than 5 Years		Total
	(In billions of Won)
Commitments to extend credit (1)	W	99,321	W	1,477	W	257	W	101,055
Commercial letters of credit (2)		3,392		113		—		3,505
Financial guarantees (3)		2,770		1,105		7		3,882
Performance guarantees (4)		3,694		3,334		8		7,036
Liquidity facilities to SPEs (5)		1,198		513		275		1,986
Acceptances (6)		769		3		—		772
Endorsed bills (7)		7,691		—		—		7,691
Unused credit limits on credit cards		87,060		—		—		87,060
Other		1,628		307		3,361		5,296
Total	W	207,523	W	6,852	W	3,908	W	218,283

Notes:

(1) Commitments to extend credit represent unfunded portions of authorizations to extend credit in the form of loans. The commitments expire on fixed dates and a customer is required to comply with predetermined conditions to draw funds under the commitments. Commitments to extend credit, including credit lines, are in general subject to provisions that allow us to withdraw such commitments in the event there are material adverse changes affecting an obligor.

(2) Commercial letters of credit are undertakings on behalf of customers authorizing third parties to draw drafts on us up to a stipulated amount under specific terms and conditions. These are generally short-term and collateralized by the underlying shipments of goods to which they relate.

(3) Financial guarantees are contracts that require us to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are recognized initially at their fair value, and the initial fair value is amortized over the life of the financial guarantee. The financial guarantee liability is subsequently carried at the higher of this amortized amount and the present value of any expected payment when a payment under the guarantee has become probable. Financial guarantees are included within other liabilities.

(4) Performance guarantees are issued to guarantee customers’ tender bids on construction or similar projects or to guarantee completion of such projects in accordance with contractual terms. They are also issued to support a customer’s obligation to supply products, commodities, maintenance or other services to third parties.

(5) Liquidity facilities to SPEs represent irrevocable commitments to provide contingent credit lines including commercial paper purchase agreements to special purpose entities for which we serve as the administrator.

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(6) Acceptances represent guarantees by us to pay a bill of exchange drawn on a customer. We expect most acceptances to be presented, but reimbursement by the customer is normally immediate.

(7) Endorsed bills represent notes transferred to third parties by us. We are obligated to fulfill the duty of payment if the person primarily liable does not honor the bill on the due date.

See also Note 43 of the notes to our consolidated financial statements included in this annual report.

Capital Adequacy

The Financial Services Commission regulations require that capital ratios be computed based on our consolidated financial statements under IFRS and regulatory guidelines. The following table sets forth a summary of our capital and capital adequacy ratios as of December 31, 2019, 2020 and 2021 based on Basel III.

	As of December 31,
	2019			2020			2021
	(In millions of Won, except percentages)
Tier I Capital:
Tier I CE Capital	W	28,561,568		W	32,461,864		W	35,469,554
Paid-in capital		2,645,053			2,882,231			2,882,231
Capital reserve		9,494,769			10,692,543			10,692,438
Retained earnings		25,525,821			27,777,169			30,541,300
Non-controlling interests in consolidated subsidiaries		70,398			66,966			50,475
Others		(9,174,473	)		(8,957,045	)		(8,696,890	)
Additional Tier I Capital		3,138,262			3,805,372			4,965,931
Total Tier I Capital	W	31,699,830		W	36,267,236		W	40,435,485
Tier II Capital:
Allowances for credit losses		479,393			700,892			743,451
Subordinated debt		105,000			70,000			—
Others		3,430,347			2,670,949			2,684,500
Total Tier II capital	W	4,014,740		W	3,441,841		W	3,427,951
Total Capital	W	35,714,570		W	39,709,077		W	43,863,436
Risk-weighted assets
Credit risk	W	226,670,310		W	220,626,623		W	235,174,053
Market risk		11,660,212			11,768,520			14,042,483
Operational risk		18,561,142			19,926,283			21,475,647
Total risk-weighted assets	W	256,891,664		W	252,321,426		W	270,692,183
Capital adequacy ratio		13.90	%		15.74	%		16.20	%
Tier I capital adequacy ratio		12.34	%		14.37	%		14.94	%
Common equity capital adequacy ratio		11.12	%		12.87	%		13.10	%
	As of December 31,
	2019			2020			2021
	(Percentages)
Group BIS ratio (1)		13.90	%		15.74	%		16.20	%
Total capital adequacy ratio of Shinhan Bank		15.91			18.47			18.18
Adjusted equity capital ratio of Shinhan Card (2)		20.08			19.91			18.85
Solvency ratio for Shinhan Life Insurance (3)		227.9			249.5			284.6

Notes:

(1) Under the guidelines of the Financial Services Commission applicable to financial holding companies, the minimum requisite capital ratio applicable to us is the Bank for International Settlement (“BIS”) ratio of

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8%. This computation is based on our consolidated financial statements in accordance with IFRS. See “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Capital Adequacy.”

(2) Represents the ratio of total adjusted shareholders’ equity to total adjusted assets and is computed in accordance with the guidelines issued by the Financial Services Commission for credit card companies. Under these guidelines, a credit card company is required to maintain a minimum adjusted equity capital ratio of 8%. This computation is based on the consolidated financial statements of the credit card company prepared in accordance with IFRS. See “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Credit Card Companies — Capital Adequacy.”

(3) Solvency ratio is the ratio of the solvency margin to the standard amount of solvency margin as defined and computed in accordance with the guidelines issued by the Financial Services Commission for life insurance companies. Under these guidelines, Shinhan Life Insurance is required to maintain a minimum solvency ratio of 100%. See “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Insurance Companies — Capital Adequacy.”

ITEM 5.C. Research and Development, Patents and Licenses, etc.

Not applicable.

ITEM 5.D. Trend Information

These matters are discussed under Items 4.B., 5.A. and 5.B. above where relevant.

ITEM 5.E. Critical Accounting Estimates

Not applicable.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

ITEM 6.A. Directors and Senior Management

Executive Directors

Our executive director is as follows:

Name	Date of Birth		Position	Director Since		Date Term Ends (1)
Cho Yong-byoung		Jun. 30, 1957	Chief Executive Officer		March 23, 2017		March 2023

Note:

(1) The date on which the term will end will be the date of the general shareholders’ meeting in the relevant year.

Cho Yong-byoung

is our Chief Executive Officer. Prior to being elected to his current position on March 23, 2017, Mr. Cho served as the president and chief executive officer of Shinhan Bank from 2015. Mr. Cho also served as the chief executive officer of Shinhan BNP Paribas Asset Management in 2013 and as the deputy president of Shinhan Bank in 2011. Mr. Cho received a bachelor’s degree in law from Korea University.

Non-Executive

and Outside Directors

Non-executive

directors are directors who are not our employees and do not hold executive officer positions with us. Outside directors are

non-executive

directors who also satisfy the requirements set forth under the Financial Investment Services and Capital Markets Act to be independent of our major shareholders, affiliates

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and management. Our

non-executive

directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economics, management and accounting. Currently, 13

non-executive

directors are in office, all of whom were nominated by our board of directors and approved at a general meeting of shareholders.

Our

non-executive

and outside directors are as follows:

Name	Date of Birth	Position	Director Since	Date Term Ends (1)
Jin Ok-dong	Feb. 21, 1961	Non-Executive Director	March 27, 2019	March 2023
Park Ansoon	Jan. 24, 1945	Outside Director	March 23, 2017	March 2023
Bae Hoon	Mar. 30, 1953	Outside Director	March 25, 2021	March 2023
Byeon Yang-ho	Jul. 30, 1954	Outside Director	March 27, 2019	March 2023
Sung Jae-ho	Mar. 18, 1960	Outside Director	March 27, 2019	March 2023
Lee Yong Guk	May 11, 1964	Outside Director	March 25, 2021	March 2023
Lee Yoon-jae	Nov. 3, 1950	Outside Director	March 27, 2019	March 2023
Kim Jo Seol	Dec. 5, 1957	Outside Director	March 24, 2022	March 2024
Choi Jae Boong	Feb. 18, 1965	Outside Director	March 25, 2021	March 2023
Huh Yong-hak	Sep. 10, 1958	Outside Director	March 27, 2019	March 2023
Kwak Su Keun	Aug. 16, 1953	Outside Director	March 25, 2021	March 2023
Yoon Jaewon	Aug. 29, 1970	Outside Director	March 26, 2020	March 2023
Jin Hyun-duk	Sep. 10, 1955	Outside Director	March 26, 2020	March 2023

Note:

(1) The date on which each term will end will be the date of the general shareholders’ meeting in the relevant year.

Jin

Ok-dong

has beenour

non-executive

director since March 27, 2019. Mr. Jin is currently the chief executive officer of Shinhan Bank and previously served as the deputy president of Shinhan Financial Group from 2017 to 2018, the deputy president of Shinhan Bank in 2017 and the chief executive officer of Shinhan Bank Japan from 2015 to 2016. Mr. Jin received a master’s degree in business administration from Chung Ang University.

Park Ansoon

has been our outside director since March 23, 2017. Mr. Park currently serves as the chairman of Taisei Group Co., Ltd. and the chairman of the Korean Residents Union in Japan. Mr. Park served as the chief executive officer from 1993 to 2012 and held various executive roles at Taisei Group Co., Ltd. from 1968 to 2018. Mr. Park received a bachelor’s degree in philosophy from Waseda University.

Bae Hoon

has been our outside director since March 25, 2021. Mr. Bae is a Korean lawyer and Certified Public Accountant in Japan and currently serves as a representative attorney at Orbis Legal Profession Corporation. Mr. Bae received a master’s degree in business administration from Kobe University.

Byeon

Yang-ho

has been our outside director since March 27, 2019. Mr. Byeon is currently a company advisor at VIG Partners and also served as a former government official of the Korean Ministry of Finance and Economy, and independent director of TongYang Life Insurance. Mr. Byeon received a Ph.D. in economics from Northern Illinois University.

Sung

Jae-ho

has been our outside director since March 27, 2019. Mr. Sung is currently a professor at Sung Kyun Kwan University School of Law. Mr. Sung previously served as a policy advisor of the Ministry of Unification in 2009 and the Ministry of Foreign Affairs and Trade in 2002. Mr. Sung also served as an outside director of NICE Holdings from 2018 to 2019 and Shinhan Card from 2015 to 2019, and chairman of Korea Council of International Law. Mr. Sung received a Ph.D. in law from Sung Kyun Kwan University.

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Lee Yong Guk

has been our outside director since March 25, 2021. Mr. Lee is a clinical professor at Seoul National University, School of Law. Mr. Lee was previously an attorney at Cleary Gottlieb Steen & Hamilton LLP for 27 years. Mr. Lee received a J.D. from Harvard University Law School.

Lee

Yoon-jae

has been our outside director since March 27, 2019. Mr. Lee served as an outside director for various Korean companies, such as LG, KT&G and

S-Oil

from 2006 to 2015. In addition, he held the chief executive officer position at KorEI from 2001 to 2010. Mr. Lee received a master’s degree in business administration from Stanford Graduate School of Business.

Kim Jo Seol

has been newly appointed as our outside director since March 24, 2022. Ms. Kim is a Korean-Japanese professor who teaches economics at Osaka University of Commerce and economist with a high awareness of Northeast Asian economics. Ms Kim received a Ph.D. in economics from Osaka City University

.

Choi Jae Boong

has been our outside director since March 25, 2021. Mr. Choi currently serves as a professor of mechanical engineering at Sung Kyun Kwan University, College of Engineering and director of Human-centered Convergence Design BK(Brain Korea)21+ Project, which is a human resource development program initiated by the Government. Mr. Choi received a Ph.D. in mechanical engineering from University of Waterloo.

Huh

Yong-hak

has been our outside director since March 27, 2019. Mr. Huh currently serves as the chief executive officer of First Bridge Strategy Limited since 2015. Mr. Huh served as the chief investment officer of alternative investment of the Hong Kong Monetary Authority from 2008 to 2014. Mr. Huh received a master’s degree in international affairs from Columbia University.

Kwak Su Keun

has been our outside director since March 25, 2021. Mr. Kwak currently serves as an honorary professor of accounting at Seoul National University, Business School and chair of Corporate Governance Advisory Board at Korea Listed Companies Association. Mr. Kwak received a Ph.D in business administration from University of North Carolina Chapel Hill.

Yoon Jaewon

has been our outside director since March 26, 2020. Ms. Yoon is currently a professor at Hongik University College of Business Administration and member of the committee for National Tax Service as well as the committee on national accounting policy of the Ministry of Economy and Finance and Korea Custom Service. Ms. Yoon previously served as a

non-executive

judge at the Tax Tribunal from 2013 to 2019. Ms. Yoon received a Ph.D in accounting from Korea University.

Jin

Hyun-duk

has been our outside director since March 26, 2020. Mr. Jin currently serves as the chief executive officer of Phoedra Co., Ltd. since 1988 and councilor of the Korea Educational Foundation. Mr. Jin was previously a professor at Sakushin-gakuin University and Utsunomiya University. Mr. Jin received a master’s degree in business administration from Keio Business School.

Any director wishing to enter into a transaction with Shinhan Financial Group or any of its subsidiaries in his or her personal capacity is required to obtain the prior approval of our board of directors. The director having an interest in the transaction may not vote at the meeting of our board of directors at which the relevant transaction is subject to vote for approval.

244

Executive Officers

In addition to the executive directors who are also our executive officers, we currently have the following executive officers.

Name	Date of Birth	Position	In Charge of
Heo Young Taeg	Aug. 13, 1961	Deputy President and Chief Management Officer	Business Management Team 1, 2, 3
Jang Dong-ki	Jan. 2, 1964	Deputy President	Global Markets & Securities Business Group
An Hyo-ryul	May. 26, 1965	Deputy President	Wealth Management Business Group
Lee Young jong	Feb. 7, 1966	Deputy President	Pension Business Group
Wang Ho-min	Mar. 4, 1964	Deputy President and Chief Compliance Officer	Compliance Team
Lee Een-kyoon	Apr. 1, 1967	Deputy President and Chief Operation Officer	Shinhan Leadership Center Management Support Team ICT Planning Team
Ahn Jun Sik	May 1, 1965	Deputy President and Chief Public Relations Officer	Brand PR Division
Jung Keun Soo	Apr. 1, 1966	Deputy President	Global Investment Banking Business Group
Kim Soung Jo	Jan. 18, 1967	Deputy President	Group Audit
Bang Dong-kwon	Feb. 10, 1966	Deputy President and Chief Risk Officer	Risk Management Team Risk Model Validation Team Credit Review Team
Seo Seung Hyeon	Mar. 3, 1967	Deputy President and Head of Global Business Group	Global Business Management Group
Lee Taekyung	May. 30, 1966	Deputy President and Chief Financial Officer	Finance Management Team Investor Relations Team Accounting Division
Kim Myoung Hee	Jan. 16, 1968	Deputy President and Chief Digital Officer	Digital Planning Team
Koh Seogheon	Sept. 27, 1968	Executive Director and Chief Strategy & Sustainability Officer	Strategic Planning Team ESG Planning Team
Kim Tae Youn	Jul. 7, 1968	Executive Director and Head of Accounting Division	Accounting Planning Team Internal Control on Financial Reporting Team

None of the executive officers have any significant activities outside Shinhan Financial Group.

Heo Young Taeg

has been our deputy president and chief management officer since January 1, 2021. Mr. Heo previously served as the chief executive officer of Shinhan Capital and the head of global business at Shinhan Bank. Mr. Heo received a bachelor’s degree in business administration from Korea University.

Jang

Dong-ki

has been our deputy president since January 1, 2018. Mr. Jang previously served as Chief Financial Officer of Shinhan Financial Group, the head of finance management team, managing director and the head of the capital market and trading division of Shinhan Bank. Mr. Jang received a bachelor’s degree in economics from Seoul National University.

An Hyo-ryul

has been our deputy president since June 1, 2020. Mr. An is currently the head of group wealth management business. Mr. An previously served as a managing director and the head of management planning

245

and consumer protection group of Shinhan Bank. Mr. An received a bachelor’s degree in business administration from Korea University.

Lee Young jong

has been our deputy president since January 1, 2022. Mr. Lee is currently the head of group pension business. Mr. Lee previously served as a vice president of Orange Life. Mr. Lee received a bachelor’s degree in business administration from Seoul National University.

Wang

Ho-min

has been our deputy president and chief compliance officer since January 1, 2019. Mr. Wang previously served as the branch manager of Southern

Jam-sil

branch, Seoul Southern District Court branch and the head of corporate culture development team. Mr. Wang received a bachelor’s degree in law from Hankuk University of Foreign Studies.

Lee

Een-kyoon

has been our deputy president and chief operation officer since January 1, 2019. Mr. Lee previously served as the head of management support team and the head of secretary’s office of Shinhan Bank. Mr. Lee received a bachelor’s degree in English literature from Hanyang University.

Ahn Jun Sik

has been our deputy president and chief public relations officer since January 1, 2021. Mr. Ahn previously served as the head of Seocho Division at Shinhan Bank. Mr. Ahn received a bachelor’s degree in economics from Pusan National University.

Jung Keun Soo

has been our deputy president and the head of Group and Global Investment Banking group since January 1, 2021. Mr. Jung previously served as the managing director of investment and finance division at Shinhan Bank. Mr. Jung received a bachelor’s degree in Chinese language and literature from Korea University.

Kim Soung Jo

has been our deputy president since January 1, 2021. Mr. Kim previously served as the head of audit team at Shinhan Financial Group. Mr. Kim received a bachelor’s degree in economics from Seoul National University.

Bang Dong-kwon

has been our chief risk officer since January 1, 2020. Mr. Bang previously served as the head of risk management department of Shinhan Bank. Mr. Bang received a bachelor’s degree in English language and literature from Sung Kyun Kwan University.

Seo Seung Hyeon

has been our deputy president and the head of group global business since January 1, 2022. Mr. Seo previously served as the director of global business at Shinhan Bank. Mr. Seo received a master’s degree in economics from Korea University.

Lee Taekyung

has been our deputy president and chief financial officer since January 1, 2022. Mr. Lee previously served as the CEO of Shinhan Bank Vietnam and the CEO of Shinhan Bank Cambodia. Mr. Lee received a bachelor’s degree in economics from Seoul National University.

Kim Myoung Hee

has been our deputy president and chief digital officer since January 1, 2022. Before joining Shinhan Financial Group, Ms. Kim was the CEO, Hancom MDS Inc. Ms. Kim received a Ph.D. in Knowledge Consulting from Dankook University and master’s degree in Management Information System from Sogang University.

Koh Seogheon

has been our executive director and chief strategy & sustainability officer since January 1, 2022. Mr. Koh previously served as the head of business management division and strategic planning team of Shinhan Financial Group. Mr. Koh received a bachelor’s degree in economics from Seoul National University.

Kim TaeYoun

has been our executive director and head of accounting division since January 1, 2022. Mr. Kim previously served as the managing director of finance management team of Shinhan Financial Group. Mr. Kim received a bachelor’s degree in economics from Yonsei University.

246

There are no family relationships among our directors and/or executive officers.

ITEM 6.B. Compensation

The aggregate remuneration and

benefits-in-kind

paid by us to our chairman, our executive directors, our

non-executive

directors and our executive officers for the year ended December 31, 2021 was

W

4.9 billion, consisting of

W

4.0 billion in salaries and wages and

W

0.9 billion in bonus payments.

We do not offer any service contracts to outside directors upon their retirement, but we may offer such service contracts to certain members of our senior management upon termination of their employment with us. We do not pay any severance payment to outside directors upon their retirement, but we pay fixed sums of severance payment to members of our senior management pursuant to our internal guidelines on severance payments. In 2021, we accrued

W

0.1 billion for retirement bonus.

Prior to April 1, 2010, we granted stock options to our chairman, our president and chief executive officer and other directors and executive officers. Effective April 1, 2010, we ceased granting stock options. On March 18, 2015, the exercise period for all outstanding stock options expired, except for a limited number of stock options for which exercise of such stock options (and hence the expiration of the exercise period as well) were suspended by a resolution of the board of directors in December 2010. In May 2017 and September 2017, by a resolution of the board of directors, we lifted such suspension for a portion of the stock options. As of December 31, 2021, we have no stock options that remain unexercisable. We did not record any accrued expense for stock options in 2021.

During the period from March 20, 2007 to December 31, 2013, we granted “performance units” to certain high-ranking officers of select group companies. These performance units are performance-based cash compensation, the

per-unit

value of which is initially determined at the time of grant subject to adjustment after a fixed number of years based on the operating and financial performance of the relevant group company over the same or another fixed term, at the end of which a cash amount equal to the adjusted number of the performance units is paid out. For performance units granted prior to April 1, 2010, the performance review period was three years, and the payout was made at the end of the three-year term. For performance units granted on or after April 1, 2010 until December 31, 2013, the applicable performance review period is generally four years (and to a limited extent, five years), and the payment is made at the end of such four- or five-year term. We ceased granting performance units since January 1, 2014.

Since April 1, 2010, we have also granted “performance shares” to certain high-ranking officers of select group companies. The performance shares are conceptually similar to the performance units granted since April 1, 2010, in that the number of performance shares is based on the operating and financial performance of the relevant group company, except that the number of performance shares granted is adjusted on the basis of movements in the market price of our shares. The aggregate amount of performance shares granted to a given grantee is generally equal to the expected incentive compensation payable to such grantee for three years (in the case of performance shares granted prior to January 1, 2014) and one year (in the case of performance shares granted since January 1, 2014) of service starting from the grant date, which initial amount is computed based on the expected performance of the grantee’s company and the expected price movements of our shares over the applicable adjustment period, which is generally four years (and to a limited extent, five years). The performance shares are paid out in cash at the end of the applicable adjustment period (even if employment is terminated prior to such date), and the grantee is contractually and in accordance with our internal regulations required to use the payout solely to purchase our shares in the market at the then-prevailing market price (in the case of performance shares granted prior to January 1, 2014).

Neither performance units nor performance shares have been granted to outside directors. In 2021, we recognized no accrued expenses for performance units and

W

10.6 billion as accrued expenses for performance shares.

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Under the Financial Supervisory Service’s standards for preparing corporate disclosure forms, which standards were amended in December 2016, we are required to disclose in our Korean annual report the individual annual compensation (including stock options) paid by us to our directors and statutory auditors if the individual annual compensation for such persons is

W

500 million or greater.

In 2021, Cho Yong-byoung, our Chief Executive Officer, received 

W

839 million, consisting of salaries and wages. In addition, in 2021, Mr. Cho was granted 30,000 performance shares. The exercisability of these performance shares will be determined based on a review of our business performance and share price movements during four years, beginning with the fiscal year in which such shares were granted.

The Group determines annual incentive compensation by conducting performance evaluations. Performance measures include quantitative measures, such as total shareholder return, profitability, risk-adjusted return, nonperforming loan ratios before sales and write-offs and efficiency ratios, as well as qualitative measures such as the achievement of

pre-established

strategic initiatives. The Group determines long-term incentive compensation by conducting performance evaluations over a four-year period. Performance measures include quantitative measures, such as the relative stock price performance, net profit, adjusted ROE and

non-performing

loans ratio. The maximum number of performance shares that may be granted to directors of the board of the Group in respect of the fiscal year 2022 has been set at 30,000 shares in the aggregate.

ITEM 6.C. Board Practices

Board of Directors

Our board of directors, which currently consists of one executive director, one

non-executive

director and 12 outside directors, has the ultimate responsibility for the management of our affairs.

Our Articles of Incorporation provide for no less than three but no more than 15 directors, the number of outside directors must be more than 50% of the total number of directors, and we must maintain at least three outside directors. All directors are elected for a term not exceeding three years as determined by the shareholders’ meeting, except that outside directors are elected for a term not exceeding two years, provided that the term of

re-election

shall not exceed one year and the term cannot be extended in excess of six years. The aggregate term served as an outside director of us or any of our subsidiaries shall not exceed nine years.

Terms are renewable and are subject to the Korean Commercial Code, the Financial Holding Companies Act, the Act on Corporate Governance of Financial Companies and related regulations. See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office of our directors and executive officers.

Our board of directors meets on a regular basis to discuss and resolve material corporate matters. Additional extraordinary meetings may also be convened at the request of the chairman and chief executive officer or a director designated by the board.

Currently, there are no outstanding service contracts between any of our directors or executive officers and us or any of our subsidiaries providing for benefits upon termination of employment by such director or executive officer.

Committees of the Board of Directors

We currently have seven management committees that serve under the board:

• the Risk Management Committee;

• the Audit Committee;

• the Remuneration Committee;

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• the Committee for Recommending Candidates for Independent Directors and Members of Audit Committee;

• the Committee for Recommending Candidates for CEO;

• the Environment, Social and Governance (ESG) Strategy Committee; and

• the Committee for Managing Subsidiary’s Business.

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of shareholders.

Risk Management Committee

The Risk Management Committee currently consists of four outside directors, namely

Huh-Yong-hak

(Chair), Byeon

Yang-ho,

Lee Yong Guk and Choi Jae Boong.The committee oversees and makes determinations on all issues relating to our comprehensive risk management function. In order to ensure our stable financial condition and to maximize our profits, the committee monitors our overall risk exposure and reviews our compliance with risk policies and risk limits. In addition, the committee reviews risk and control strategies and policies, evaluates whether each risk is at an adequate level, establishes or abolishes risk management divisions, reviews risk-based capital allocations, and reviews the plans and evaluation of internal control. The committee holds regular meetings every quarter.

Audit Committee

The Audit Committee currently consists of four outside directors, namely Yoon Jaewon (Chair), Kwak Su Keun, Bae Hoon and Sung

Jae-ho.

The committee oversees our financial reporting and approves the appointment of and interaction with our independent auditors and our internal audit-related officers. The committee also reviews our financial information, audit examinations, key financial statement issues and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors for each general meeting of shareholders. The committee holds regular meetings every quarter.

Remuneration Committee

The Remuneration Committee currently consists of three outside directors, namely Lee Yong Guk (Chair), Byeon

Yang-ho

and Bae Hoon. At least

one-half

of the members of this committee must be outside directors and currently all members of Remuneration Committee are outside directors. This committee is responsible for reviewing and approving the management’s evaluation and compensation programs. The committee meetings are called by the chairman of this committee, who must be an outside director.

Committee for Recommending Candidates for Independent Directors and Members of Audit Committee

The Committee for recommending candidates for independent directors and members of audit committee currently consists of five outside directors, namely Choi Jae Boong (Chair), Kim Jo Seol, Park Ansoon, Yoon Jaewon, and Huh

Yong-hak.

Members of this committee will be appointed by our board of directors only to the extent necessary to recommend and nominate candidates for our outside director positions, audit committee members and related matters. However, when the procedure for final recommendation of outside director and audit committee member candidates commences, all outside directors are called to participate in the committee and in this case, all outside directors are deemed as enrolled. The committee meetings are called by the chairman of this committee, who must be an outside director. This committee is responsible and authorized for: (i) establishment, review and reinforcement of policies for outside director and audit committee member selection, (ii) recommendation of outside director and audit committee member candidates for approval at the general shareholders’ meeting and (iii) continual recruitment and screening of potential outside director candidates.

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Committee for Recommending Candidates for CEO

The Committee for recommending candidates for Chief Executive Officer (CEO) was established in March 2012 and currently consists of seven directors, namely Sung

Jae-ho

(Chair), Jin

Hyun-duk,

Lee

Yoon-jae,

Kwak Su Keun, Bae Hoon, Lee Yong Guk and Choi Jae Boong. However, when the meeting for final selection of candidates for Chief Executive Officer, all outside directors are called to participate in the committee and in this case, all outside directors are deemed as enrolled. This committee is responsible for matters concerning the recommendation of candidates for the CEO including establishing and reviewing our management succession plan and its operation, setting and evaluating the qualifications and criteria for the CEO and CEO candidate pool and other matters necessary for improving our overall corporate governance structure. The chair of the committee must be an outside director, and the incumbent CEO may be restricted from participating and voting on matters related to the CEO selection.

Environmental, Social and Governance (ESG) Strategy Committee

The ESG Strategy Committee was established in March 2015 and currently consists of five directors, namely Kwak Su Keun (Chair), Kim Jo Seol, Byeon Yang-ho, Yoon Jaewon and Cho Yong-byoung. This committee is responsible for setting the corporate policy for sustainable management, corporate disclosure of sustainability report and discussing specific business agenda in relation to socially responsible management and other matters such as corporate strategy toward climate change.

Committee for Managing Subsidiary’s Business

The Committee for managing subsidiary’s business was established in March 2021 and currently consists of five directors, namely Cho Yong-byoung (Chair), Lee Yoon-jae, Huh-Yong-hak, Sung

Jae-ho

and Park Ansoon. This committee is responsible for matters concerning the evaluation of subsidiary management leadership, establishment of subsidiary CEO qualifications, verification and recommendation of subsidiary CEO candidates and other matters deemed necessary by the committee.

ITEM 6.D. Employees

At the holding company level, we had 157, 152 and 165 regular employees as of December 31, 2019, 2020 and 2021, respectively, almost all of whom are employed within Korea. Our subsidiaries had 19,850, 21,500 and 21,365 regular employees as of December 31, 2019, 2020 and 2021, respectively, almost all of whom are employed within Korea. In addition, we had seven, three and five

non-regular

employees at the holding company level as of December 31, 2019, 2020 and 2021, respectively, and 2,190, 1,436 and 1,942

non-regular

employees at the subsidiary level as of December 31, 2019, 2020 and 2021, respectively. Of the total number of regular and

non-regular

employees at both the holding company and subsidiaries, approximately 1.14% were managerial or executive employees.

8,973 employees of Shinhan Bank and 307 employees of Jeju Bank were members of the Korean Financial Industry Union as of December 31, 2021. 2,140 employees of Shinhan Card were members of the Korean Federation of Clerical and Financial Labor Union as of December 31, 2021. 1,581 employees of Shinhan Investment, 1,528 employees of Shinhan Life Insurance and 207 employees of Shinhan AITAS were members of the Korea Finance & Service Workers’ Union as of December 31, 2021.

Under Korean law, we may not terminate full time employees except under limited circumstances.

Since our acquisition of Chohung Bank in 2003, we have not experienced any general employee work stoppages and consider our employee relations to be good.

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Under the Korean National Pension Law, we annually contribute an amount equal to 4.5% of employee wages, and each employee contributes 4.5% of his or her wages, to the National Pension Management Corporation. In addition, pursuant to the Employee Retirement Security Act, we operate a retirement pension system under which we make annual contributions to pension funds managed by financial institutions (which replaced our former retirement pension system under which we managed the pension fund

in-house)

that provide employees both regular pension payments and a lump sum payment upon termination of employment. We believe that our retirement pension system confers the following benefits: (1) insulation of employees from the risk of default on their pension payments as the pension funds are deposited with large financial institutions; (2) offer of varied forms of payment, i.e., regular pension payments and a lump sum payment, upon termination of employment; (3) offer to employees the option to make investment decisions for his or her individual pension account and (4) elimination of the ability of employees to cash in his or her retirement fund prematurely, thereby guaranteeing such employee a lump sum payment upon termination of employment. Under this retirement pension system, we and our subsidiaries can opt for either a defined benefit plan or a defined contribution plan, or a combination of both. Under the defined benefit plan, the amount of pension payable upon an employee’s retirement is fixed in advance, and the employer is responsible for making the requisite payments to the pension fund and making investment decisions in relation to the fund assets. Under the defined contribution plan, the employee sets aside a fixed percentage or amount of his salaries to the pension fund and exercises investment decisions for his or her individual pension account. As of December 31, 2019, 2020 and 2021, we recognized liabilities (asset) for defined benefit obligations of

W

119 billion,

W

44 billion and

W

(91) billion, respectively. See Note 25 of the notes to our consolidated financial statements included in this annual report.

ITEM 6.E. Share Ownership

As of April 6, 2022, the persons who are currently our directors or executive officers, as a group, beneficially held an aggregate of 127,036 shares of our common stock, representing approximately 0.02% of our outstanding common stock as of such date. None of these persons individually held more than 1% of our outstanding common stock as of such date.

Members of the employee stock ownership association have certain

pre-emptive

rights in relation to our shares that are publicly offered under the Financial Investment Services and Capital Markets Act. As of December 31, 2021, the employee stock ownership association owned 25,464,625 shares of our common stock.

Prior to April 1, 2010, we granted stock options to our chairman, our president and chief executive officer and other directors and executive officers. Effective April 1, 2010, we ceased granting stock options. On March 18, 2015, the exercise period for all outstanding stock options expired, except for a limited number of stock options for which exercise of such stock options (and hence the expiration of the exercise period as well) were suspended by a resolution of the board of directors in December 2010. In May 2017 and September 2017, by a resolution of the board of directors, we lifted such suspension for a portion of the stock options. As of December 31, 2021, there were no unexercisable stock options.

On February 1, 2019, we acquired a 59.15% interest in Orange Life Insurance. On January 28, 2020, we acquired the remaining interests in Orange Life Insurance by effecting a comprehensive stock exchange under Articles

360-2

of the Korean Commercial Code. As part of the comprehensive stock exchange, we transferred 980,780 shares of our common stock to Orange Life Insurance in exchange for 1,485,697 treasury shares of Orange Life Insurance held by Orange Life Insurance in accordance with the exchange ratio for the comprehensive stock exchange. Pursuant to paragraph (2) of Article

342-2

of the Korean Commercial Code, Orange Life Insurance was required to dispose of these shares of our common stock within six months from the acquisition date. In addition, we also transferred 5,514,807 shares of our common stock to Orange Life Insurance in exchange for 8,353,891 shares of Orange Life Insurance which were purchased by Orange Life Insurance as a result of the exercise of appraisal rights by dissenting shareholders of Orange Life Insurance. Pursuant to paragraph (1) of Article

62-2

of the Financial Holding Company Act, Orange Life Insurance was required to dispose of these shares of our common stock within three years from the acquisition date. The acquisition date of

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these shares of common stock was December 30, 2020. Orange Life Insurance disposed all of such shares as of January 28, 2021. Orange Life Insurance was subsequently merged with and into Shinhan Life Insurance in July 2021.

On September 29, 2020, we acquired a 96.8% interest in Neoplux, a venture capital company formerly under the Doosan Group. On December 30, 2020, we acquired the remaining interest in Neoplux by effecting a small-scale stock exchange under Article

360-10

of the Korean Commercial Code. As part of the small-scale stock exchange, we transferred 7,153 shares of our common stock to Neoplux in exchange for 80,090 treasury shares of Neoplux held by Neoplux in accordance with the exchange ratio for the small-scale stock exchange. Pursuant to paragraph (2) of Article

342-2

of the Korean Commercial Code, Neoplux was required to dispose of these shares of our common stock within six months from the acquisition date. In addition, we also transferred 1,755 shares of our common stock to Neoplux in exchange for 19,653 shares of Neoplux which were purchased by Neoplux as a result of the exercise of appraisal rights by dissenting shareholders of Neoplux. Pursuant to paragraph (1) of Article

62-2

of the Financial Holding Company Act, Neoplux was required to dispose of these shares of our common stock within three years from the acquisition date. The acquisition date of these shares of common stock was December 30, 2020. Neoplux subsequently changed its name to Shinhan Venture Investment on January 11, 2021 and disposed all of such shares as of March 8, 2021.

On September 29, 2020, partly in response to the prolonged

COVID-19

pandemic and to increase our loss absorption capacity, we issued 39,130,000 common shares to two private equity funds, thereby increasing our

paid-in

capital by

W

195.7 billion.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEM 7.A. Major Shareholders

The following table sets forth certain information relating to the beneficial ownership of our common shares as of December 31, 2021.

Name of Shareholder	Number of Common Shares Beneficially Owned		Beneficial Ownership (%)
National Pension Service		45,340,437		8.78	%
BlackRock Fund Advisors (1)		28,133,027		5.45	%
Shinhan Financial Group Employee Stock Ownership Association		25,464,625		4.93	%
Centennial Investment Limited		20,440,000		3.96	%
BNP Paribas SA		18,690,310		3.62	%
Supreme, L.P.		18,690,000		3.62	%
Citibank, N.A. (ADR Department)		15,728,396		3.04	%
Norges Bank		10,436,161		2.02	%
The Government of Singapore		9,477,462		1.83	%
Vanguard Total International Stock Index		6,398,267		1.24	%
People’s Bank of China		5,522,909		1.07	%
Others		312,277,960		60.45	%
Total		516,599,554		100.00	%

Note:

(1) Based on Form SC 13G filed by BlackRock, Inc. on February 3, 2022.

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As of December 31, 2021, the number of treasury shares held by us is 6,352 common shares, which do not have voting rights. Other than those listed above, no other person or entity known by us, jointly or severally, directly or indirectly own more than 1% of our issued and outstanding voting securities or otherwise exercise control or could exercise control over us. None of our shareholders have different voting rights.

As of the date hereof, our total authorized share capital is 1,000,000,000 shares, par value

W

5,000 per share.

As of December 31, 2021, the latest date on which we closed our shareholders’ registry, 619 shareholders of record were notated as U.S. persons, holding in the aggregate 23.45% of our then total outstanding shares (including Citibank, N.A., as the depositary for our American depositary shares, each representing one share of our common stock effective October 15, 2012, prior to which each American depositary share represented two common shares).

ITEM 7.B. Related Party Transactions

Since the beginning of the preceding three financial years, none of our directors or officers has or had any transactions with us that are or were unusual in their nature or conditions or significant to our business, other than as set forth below and also described in Note 45 of the notes to our consolidated financial statements included in this annual report.

In December 2001, BNP Paribas acquired 4.00% of our common stock in return for an investment of approximately

W

155 billion in cash pursuant to an alliance agreement. Under the terms of the alliance agreement, for so long as BNP Paribas does not sell or otherwise transfer (except to any of its wholly-owned subsidiaries) any portion of its ownership interest in our common stock and maintains, after any issuances of new shares by us from time to time, its shareholding percentage of not less than 3.5% of our issued common stock, we are required to call a meeting of our shareholders to recommend that one nominee of BNP Paribas be elected to our board of directors. In addition, under the alliance agreement, BNP Paribas has the right to subscribe for new issuances of our common shares in the event that such new issuances would result in the dilution of the shareholding percentage of BNP Paribas below 3.5%. As of December 31, 2021, BNP Paribas held 18,690,310 shares, or 3.62% of our total common stock.

As of December 31, 2019, 2020 and 2021, we had principal loans outstanding to our directors, executive officers and their affiliates in the principal amount of

W

4.4 billion,

W

5.1 billion and

W

6.1 billion, which were made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.

ITEM 7.C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

ITEM 8.A. Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and our consolidated financial statements included in this annual report.

Legal Proceedings

We and our subsidiaries are involved in various legal actions and regulatory proceedings arising from the normal course of business. As of December 31, 2021, we and our subsidiaries were defendants in pending

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lawsuits (including regulatory proceedings) in the aggregate claim amount of

W

404 billion, for which we recorded a provision of

W

10 billion. We also recorded additional

W

4 billion for insurance contract liabilities (reserve for claims) for litigations, etc.

In January 2017, the Financial Supervisory Service notified Shinhan Investment of an institutional warning and imposed an administrative fine of

W

852 million for alleged prohibited trading of entrusted properties. In October 2018, the Financial Supervisory Service requested Shinhan Bank to submit supporting documents in connection with allegations of inadequate compliance controls. In November 2018, the Financial Supervisory Service notified Shinhan Bank of an institutional caution for alleged deficiencies in its customer due diligence and imposed an administrative fine of

W

100 million citing negligence in carrying out its customer verification obligations. In December 2019, the Financial Supervisory Service notified Shinhan Bank of an institutional caution and imposed an administrative fine of

W

3 billion for alleged prohibited activities, including promotional activities for specified money trusts, investment solicitation for derivatives and management of trust properties. In 2021, the Korea Exchange imposed a total of three penalties on Shinhan Investment for regulatory violations, totaling

W

2.7 million in fines. In 2021, the Financial Supervisory Service imposed a total of eight penalties against Shinhan Investment for regulatory violations, totaling

W

4,092 million in fines, which include a fine of

W

1,800 million for certain employees’ violation of conflict of interest obligations in connection with the Lime Asset incident and a fine of

W

1,160 million for violation of rules against advertising certain money trust products. In January 2020, the Financial Supervisory Service notified Shinhan Life Insurance of an institutional caution and imposed an administrative fine of

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266 million for allegedly omitting certain information regarding the level of expenses deducted from premiums paid when selling savings insurance products over the telephone. In February 2021, the Financial Supervisory Service notified Shinhan Bank of an institutional warning and imposed an administrative fine of

W

2.1 billion for reasons including alleged violation of internal regulations and reporting procedures in connection with Shinhan Bank’s designation as the primary bank for Seoul Metropolitan Government in 2018. In March 2021, the FSS notified Shinhan Bank of an institutional caution and imposed an administrative fine of

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31.2 million for alleged violation of the safety standard in operating its information system in respect of the electronic financial transaction and alleged negligence in notifying its customers of the errors occurred to the electronic financial transaction and measures taken to correct the errors. In January 2021, the Financial Services Commission imposed a fine of

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28.8 million on Shinhan Card citing failure to discard personal information after transaction.

It has been reported in the press that certain employees of Shinhan Bank have been indicted by the Prosecutors’ Office for allegedly illegally influencing the hiring process of new employees and manipulating hiring standards for certain candidates. As of the date hereof, six current and former employees of Shinhan Bank, each of whom had occupied positions within Shinhan Bank’s recruiting department between 2013 and 2016, have been indicted for alleged illegal hiring activities while they occupied such positions at Shinhan Bank. In addition to these employees, on September 17, 2018, the Prosecutors’ Office also indicted our current Chief Executive Officer, who previously served as Shinhan Bank’s president, chief executive officer and executive director from March 2015 through March 2017, for alleged illegal hiring activities while he occupied such position at Shinhan Bank. In January 22, 2020, the Seoul Eastern District Court found him partially guilty on charges of influence-peddling and issued a

six-month

prison term, suspended for two years, which was appealed to the Seoul High Court. In November 22, 2021, our current Chief Executive Officer was acquitted by the Seoul High Court of such allegations. The case is currently pending in the Supreme Court. We believe that we have robust and fair internal procedures for hiring new employees. As part of Shinhan Bank’s efforts to enhance fairness and transparency of its hiring practices, Shinhan Bank has adopted the model hiring procedures promulgated by the Korea Federation of Banks, and beginning in 2018 has established a hiring committee consisting of third-party human resources experts and internal compliance officers.

In August 2019, the Financial Supervisory Service launched an investigation into Lime Asset, Korea’s largest hedge fund managing approximately

W

4.1 trillion in assets as of December 31, 2020, including with regards to allegations that Lime Asset had concealed the fact that it had changed the multi-manager trade finance fund’s investment method and concealed losses in their trade finance funds. Beginning in October 2019, Lime

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Asset suspended withdrawals from certain of its funds, freezing approximately

W

1.7 trillion in total as of the end of 2019, according to the Financial Supervisory Service. According to Financial Supervisory Service investigations, Lime Asset’s

W

211 billion trade finance fund was found to have been associated with a debacle involving the IIG, a New York-based investment adviser charged with securities fraud and running a Ponzi scheme. On November 26, 2019, the SEC revoked the registration of IIG for allegedly overvaluing defaulted loans in the fund’s portfolio to conceal losses in its flagship hedge fund and selling at least $60 million in fake loan assets to clients. According to the Financial Supervisory Service, Lime Asset signed a contract with a Singaporean commodity trader, which took over Lime Asset’s ownership stake in an IIG fund in June 2019, with the Singaporean entity issuing promissory notes to Lime Asset, and Lime Asset did not properly disclose to its investors such change in the fund’s investment target from the IIG fund to promissory notes.

Certain investors in funds of Lime Asset have filed dispute mediation claims to the Financial Supervisory Service and criminal and civil claims against Lime Asset, as well as against financial institutions that have sold such products, claiming they learned of the change in the trade finance fund’s investment method and losses only in October 2019 and that they were also misguided and not fully informed of the risks associated with these funds when investing in such products. The Financial Supervisory Service conducted a comprehensive audit in November and December 2019. In February 2020, the Prosecutors’ Office of Korea announced that they had launched an investigation into Lime Asset as well as Shinhan Investment and also searched Shinhan Bank’s headquarters on July 1, 2020 in connection with this matter. The Financial Supervisory Service conducted investigations into Lime Asset as well as financial institutions that have sold Lime Asset products, including Shinhan Bank and Shinhan Investment, and is expected to impose regulatory sanctions on institutions and employees for improper solicitation and inadequate internal controls. In November 2020, the Financial Supervisory Service imposed a partial business suspension on Shinhan Investment and suspension from duties and a cautionary warning to its two former CEOs. On December 10, 2021, the Financial Supervisory Service imposed a partial business suspension and a fine of W4 billion on Shinhan Investment, and a cautionary warning on two former employees of Shinhan Investment in connection with alleged violations of the Capital Markets Act and the Act on Real Name Financial Transactions and Confidentiality. On April 22, 2021, the sanctions committee of the Financial Supervisory Service recommended a partial business suspension and fine of

W

8.7 billion on Shinhan Bank, a cautionary warning to the CEO of Shinhan Bank, an institutional caution and fine of

W

50 million on Shinhan Financial Group and a caution to the CEO of Shinhan Financial Group in connection with Shinhan Bank’s alleged improper solicitation of troubled Lime Asset funds and management’s oversight in risk management. The partial business suspension on Shinhan Bank and the fines on Shinhan Bank and Shinhan Financial Group recommended by the sanctions committee will be deliberated at the Securities and Futures Commission of the Financial Services Commission and will be confirmed if approved at a regular meeting of the Financial Services Commission.

On December 5, 2021, the Supreme Court concluded that a former employee of Shinhan Investment was partially guilty on charges of conspiring to conceal from investors Lime Asset’s losses and change in investment target and imposed a sentence of eight years’ imprisonment and a

W

300 million fine. In May 2020, Shinhan Investment announced that its board of directors has resolved to compensate certain investors for amounts ranging between 30% to 70% (in the case of retail investors) and 20% to 50% (in the case of institutional investors) of the amount of such investor’s investment in Lime Asset products. In June 2020, Shinhan Bank announced that its board of directors has resolved to make prepayments to investors in certain Lime Asset funds that have reached maturity in an amount equal to 50% of such investor’s investment in the relevant product. On June 30, 2020, the Financial Supervisory Service’s dispute settlement committee recommended through a

non-binding

ruling for brokerages, including Shinhan Investment, to return 100% of the amount of investors’ investment in certain of Lime Asset products sold after November 2018 in the aggregate of approximately

W

161 billion. In August 2020, the board of directors of Shinhan Investment resolved to accept the

non-binding

ruling for certain Lime Asset’s trade finance funds sold around November 2018. With these resolutions by the board of directors of Shinhan Investment, the total amount of compensation to investors of Lime Asset funds that Shinhan Investment has agreed to pay has reached

W

42.46 billion. On April 19, 2021, the Financial Supervisory Service’s dispute settlement committee recommended through a

non-binding

ruling for Shinhan Bank to

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compensate investors of certain Lime Asset products (Lime Credit Insured Funds) it had sold by applying a 55% base compensation ratio, with adjustments depending on particular facts, such as the nature of the investor (e.g., whether retail or institutional investor, the age and experience level of the investor, etc.) and adequacy of documentation, which would result in compensation of such investors for amounts ranging between 40% to 80% of the loss they have suffered on such products. As such, Shinhan Bank is expected to compensate the investors in respect of the remaining 50% of such investor’s investment based on the above compensation guideline recommended by the Financial Supervisory Service’s dispute settlement committee through Shinhan Bank’s self-regulated mediation procedures.

In June 2020, the Financial Supervisory Service launched an investigation into Discovery Asset Management Co., Ltd. (“

Discovery Asset

”), which operated funds that invested in certain funds in the U.S. managed by Direct Lending Investment, LLC (“

DLI

”). In April 2019, the U.S. Securities and Exchange Commission obtained a preliminary injunction and order appointing a receiver to freeze DLI’s funds based on the complaint that DLI fabricated values of its assets under management and reported returns. In response, Discovery Asset suspended withdrawals from funds under its management, thereby freezing approximately

W

256 billion in total of its investors’ funds as of April 2019. While neither Shinhan Bank nor Shinhan Investment was involved in sale of such

DLI-related

funds structured by Discovery Asset, Shinhan Bank and Shinhan Investment did sell other Discovery Asset funds (affected by such suspension of withdrawal) to investors in Korea. Between 2017 and 2019, Shinhan Bank and Shinhan Investment sold approximately

W

93.6 billion and

W

50.8 billion, respectively, of such Discovery Asset products (unrelated to DLI funds), of which only Shinhan Bank has recovered approximately

W

45.1 billion from Discovery Asset. Of the remaining balance of approximately

W

48.5 billion and

W

50.8 billion, respectively, Shinhan Bank and Shinhan Investment are in discussion with the investors to settle these amounts based on mutually agreeable terms.

From May 2017 to December 2018, Shinhan Investment sold approximately

W

390.7 billion of certain German Heritage DLS Products. As of December 31, 2021, the principal amount of German Heritage DLS Products that have become eligible for payment but for which payment has been delayed is

W

379.9 billion. The German Heritage DLS Products are derivative-linked trust products where performance is based on underlying Singapore funds that invest in Germany’s monument status building development projects. Since July 2019, maturity payments have been delayed on the German Heritage DLS Products as recovery on the underlying funds has been delayed. In March 2020, Shinhan Investment announced that its board of directors has resolved to make prepayments to investors who have consented to the extension of maturity in an amount equal to 50% of the amount of such investor’s investments in the German Heritage DLS Products. As of December 31, 2021, Shinhan Investment recognized

W

229.1 billion in

non-operating

expenses as provisions for potential future compensation in connection with the sale of German Heritage DLS Products. During the fiscal year 2021, Shinhan Bank and Shinhan Investment recorded

W

220.8 billion and

W

256.3 billion, respectively, for credit loss allowance to account for expected future losses associated with financial products, including Lime Asset, Discovery Asset and German Heritage DLS Products. Depending on a variety of factors, including those outside the control of Shinhan Bank or Shinhan Investment, such as the performance of the underlying funds and progression of discussions with investors, Shinhan Bank or Shinhan Investment may record additional provisions for credit loss allowance to account for expected future losses from these or other financial products, and there is no guarantee that such amounts, if any, will not be significant.

The prepayments made or to be made by Shinhan Bank and Shinhan Investment to investors of Lime Asset funds, Discovery Asset funds and German Heritage DLS Products, respectively, as explained above, have been or will be, as the case may be, settled at the time of recovery of the underlying funds. If the amount recovered on the underlying fund is less than the amount prepaid to investors, Shinhan Bank and Shinhan Investment may not be able to recover from investors the amount of the prepaid amount that is in excess of the recovered amount and accordingly suffer losses. Depending on the performance of such underlying funds, we may record provisions for credit loss allowance to account for expected future losses.

In response to increased incidents involving alleged improper sales of financial products such as those involving Lime Asset products, Discovery Asset products and German Heritage DLS Products, we have taken

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additional measures to improve our risk management systems and internal controls to prevent similar incidents. Shinhan Bank and Shinhan Investment have each updated their internal controls and performance evaluation systems and have made improvements to various stages of the sales cycle for financial products. For example, Shinhan Bank and Shinhan Investment have both upgraded their product review departments (which were initially under the investment products and services divisions) to independent divisions, thereby facilitating independent review and thorough assessment of the merits of financial products prior to such products being sold through sales channels. In addition, we have modified the composition of key performance indicators used as a basis for personnel evaluations and promotions to move away from simply increasing the volume of sales, thereby further incentivizing employees to adhere to prudent sales practices and avoid speculative or high risk sales.

As of the date hereof, our management believes that these proceedings will not have a material adverse effect on our financial condition, equity or results of operations. However, although we plan to rigorously defend our positions in the lawsuits or other regulatory proceedings against us, it is difficult to predict the final outcome of these proceedings and the potential impact these proceedings and related events may have on our financial condition, equity or results of operations. The total amount in dispute may increase during the course of litigation, and other lawsuits may be brought against us based on similar allegations. Accordingly, we cannot assure you that these proceedings and related events will not have an adverse effect on our business, financial condition and results of operations. For further details of these and other litigations, see Note 43 of the notes to our consolidated financial statements.

Dividend Policy

For a detailed description on the dividend policy, please see “Item 10.B. Memorandum and Articles of Incorporation — Description of Share Capital — Dividends.”

ITEM 8.B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

ITEM 9.A. Offer and Listing Details

Market Prices of Common Stock and American Depositary Shares

The principal trading market for our common shares is the KRX KOSPI Market Division of the Korea Exchange, where our common shares were listed on September 10, 2001. Our American depositary shares have been listed on the New York Stock Exchange since September 16, 2003 and are identified by the symbol “SHG.”

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The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Korea Exchange for our common stock since 2017, and their high and low closing prices and the average daily volume of trading activity on the New York Stock Exchange for our American depositary shares since 2017.

	Korea Exchange						New York Stock Exchange
	Closing Price per Common Stock				Average Daily Trading Volume		Closing Price per ADS				Average Daily Trading Volume
	High		Low		(Shares)		High		Low		(ADSs)
2017		55,400		44,800		998,487		48.76		36.81		85,658
2018		53,400		39,050		1,024,181		50.35		34.78		101,168
2019		48,000		38,350		987,989		40.54		32.23		85,258
2020		42,750		22,200		2,366,124		37.45		17.37		144,214
First Quarter		42,750		22,200		1,941,682		37.45		17.37		161,626
Second Quarter		35,750		26,550		2,448,915		29.49		21.63		163,218
Third Quarter		33,800		27,200		1,954,918		28.86		22.97		147,969
Fourth Quarter		34,650		27,200		2,854,741		31.96		23.20		104,264
2021		43,000		30,650		1,784,390		39.07		27.67		112,478
First Quarter		37,450		30,650		2,987,958		33.54		27.67		126,331
Second Quarter		43,000		36,350		1,570,402		39.07		32.94		124,956
Third Quarter		40,400		37,100		1,339,266		35.67		31.66		97,602
Fourth Quarter		40,700		34,650		1,290,183		34.67		29.14		101,702
October		40,700		38,250		1,400,387		34.67		32.24		79,524
November		38,350		34,650		1,234,132		32.68		29.14		92,010
December		38,400		35,250		1,251,058		32.07		29.52		133,571
2022 (through April 18)		41,500		36,400		1,445,684		34.32		29.41		157,732
January		39,750		37,250		1,588,925		33.74		31.02		196,343
February		41,250		38,600		1,542,210		34.32		32.27		149,939
March		41,500		36,400		1,467,894		34.09		29.41		153,949
April (through April 18)		41,500		40,150		1,025,771		34.03		32.63		131,909

Source: Korea Exchange; New York Stock Exchange.

ITEM 9.B. Plan of Distribution

Not applicable.

ITEM 9.C. Markets

The Korea Exchange

Pursuant to the Korea Stock and Futures Exchange Act, as of January 27, 2005, the Korea Stock Exchange, which began its operations in 1956, the KRX KOSDAQ, which began its operation on July 1, 1996, and the Korea Futures Exchange (as an exchange operating futures market and options market), which began its operation on February 1, 1999, were unified to form the Korea Exchange.

The Korea Exchange was established in a form of a limited liability stock company in accordance with the Korean Commercial Code with the minimum

paid-in

capital of

W

100 billion in accordance with the Financial Investment Services and Capital Markets Act. Historically, the Korea Exchange was the only exchange authorized under the Financial Investment Services and Capital Markets Act. On May 28, 2013, however, the Financial Investment Services and Capital Markets Act was amended to implement a license system under which a license may be granted to an exchange upon satisfaction of certain requirements. In addition, the Financial

258

Services Commission has authorized the establishment of alternative trading systems that engage in the trading of listed beneficial certificates, among other things, for a multiple number of parties through electronic means. Notwithstanding the foregoing regulatory developments, the Korea Exchange is presently the only duly licensed exchange in Korea and there have been no definitive developments regarding newly licensed exchanges or alternative trading systems in Korea. The Korea Exchange operates and supervises four market divisions, the KRX KOSPI Market Division, the KRX KOSDAQ Market Division, the KRX Futures Market Division and the KRX KONEX Market Division. It has its principal office in Busan.

As of December 31, 2021, the aggregate market value of equity securities listed on the KOSPI was approximately

W

2,203.4 trillion. The average daily trading volume of equity securities for 2021 was approximately 1,039.5 million shares with an average transaction value of

W

15,424.2 billion.

Even though the Financial Investment Services and Capital Markets Act prescribed that the Korea Exchange be established in a form of a limited liability stock company, the Korea Exchange is expected to play a public role as a public organization. In order to safeguard against a possible conflict, the Financial Investment Services and Capital Markets Act has placed restrictions on the ownership and operation of the Korea Exchange and any newly established exchanges approved by the Financial Services Commission as follows:

• 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 Financial Investment Services and Capital Markets Act, or the Government. However, more than 5% ownership in Korea Exchange is permitted if necessary for forming a strategic alliance with a foreign stock or futures exchange and such amount of ownership is approved by the Financial Services Commission on grounds that such ownership may contribute to the efficiency and soundness of capital markets and the distribution of shares held by shareholders;

• 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 Financial Services Commission; and

• In the event the Financial Services Commission determines that the chief executive officer of the Korea Exchange is not appropriate for the position, the Financial Services Commission 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.

The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to

de-list

a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semiannually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector of the Korean economy and its actions may depress or boost the stock market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.

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The Korea Exchange publishes the Korea Composite Stock Price Index (“KOSPI”) every ten seconds, which is an index of all equity securities listed on the Korea Exchange. Historical movements in KOSPI are set out in the following.

	Opening (1)		High		Low		Closing
2001		503.31		715.93		463.54		693.70
2002		698.00		943.54		576.49		627.55
2003		633.03		824.26		512.30		810.71
2004		821.26		939.52		713.99		895.92
2005		893.71		1,383.14		866.17		1,379.37
2006		1,389.27		1,464.70		1,192.09		1,434.46
2007		1,435.26		2,085.45		1,345.08		1,897.13
2008		1,853.45		1,901.13		892.16		1,124.47
2009		1,157.40		1,723.17		992.69		1,682.77
2010		1,696.14		2,051.00		1,552.79		2,051.00
2011		2,070.08		2,228.96		1,652.71		1,825.74
2012		1,826.37		2,049.28		1,769.31		1,997.05
2013		2,031.10		2,059.58		1,780.63		2,011.34
2014		1,967.19		2,082.61		1,886.85		1,915.59
2015		1,926.44		2,173.41		1,829.81		1,961.31
2016		1,918.76		2,068.72		1,835.28		2,026.46
2017		2,026.16		2,557.97		2,026.16		2,467.49
2018		2,479.65		2,598.19		1,996.05		2,041.04
2019		2,010.00		2,248.63		1,909.71		2,197.67
2020		2,175.17		2,873.47		1,457.64		2,873.47
2021		2,944.45		3,305.21		2,839.01		2,977.65
2022 (through April 18)		2,988.77		2,989.24		2,614.49		2,693.21

Source: Korea Exchange

Note:

(1) The figures represent the daily closing price of the first trading day of the respective year.

Shares are quoted

“ex-dividend”

on the first trading day of the relevant company’s accounting period.

“Ex-dividend”

refers to a share no longer carrying the right to receive the following dividend payment because the settlement date occurs after the record date for determining which shareholders are entitled to receive dividends.

“Ex-rights”

refers to shares no longer carrying the right to participate in the following rights offering or bonus issuance because the settlement date occurs after the record date for determining which shareholders are entitled to new shares. The calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted

“ex-dividend”

and

“ex-rights,”

permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 30% of the previous day’s closing price of the shares, rounded down as set out below:

Previous Day’s Closing Price	Rounded Down to Won
Less than 1,000		1
1,000 to 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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As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the financial investment companies with brokerage licenses.

The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table.

			Total Market Capitalization				Average Daily Trading Volume, Value
Year	Number of Listed Companies		(Millions of Won)		(Thousands of Dollars) (1)		Thousands of Shares		(Millions of Won)		(Thousands of Dollars) (1)
2000		704	W	188,041,490	$	148,414,751		306,163	W	2,602,211	$	2,053,837
2001		689		255,850,070		194,784,979		473,241		1,997,420		1,520,685
2002		683		258,680,756		218,056,778		857,245		3,041,598		2,563,937
2003		684		355,362,626		298,123,008		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		655,074,595		648,588,708		467,629		3,157,662		3,126,398
2006		731		704,587,508		757,620,976		279,096		3,435,180		3,693,742
2007		746		951,917,907		1,017,223,666		363,846		5,540,151		5,920,229
2008		765		576,927,703		457,153,489		355,440		5,190,180		4,112,663
2009		770		887,935,183		763,060,356		485,657		5,795,552		4,980,495
2010		777		1,141,885,458		1,009,981,831		380,859		5,619,768		4,970,607
2011		791		1,041,999,162		899,438,206		353,760		6,863,146		5,924,166
2012		784		1,154,294,167		1,085,638,395		486,480		4,823,643		4,536,739
2013		777		1,185,973,724		1,123,826,139		328,325		3,993,422		3,784,158
2014		773		1,192,252,867		1,092,907,569		278,082		3,983,580		3,651,646
2015		770		1,242,832,089		1,062,885,563		455,256		5,351,734		4,576,870
2016		779		1,308,440,374		1,087,015,348		376,773		4,523,044		3,757,617
2017		774		1,605,820,912		1,504,422,814		340,457		5,325,760		4,989,470
2018		788		1,343,971,858		1,207,630,387		397,972		6,548,622		5,884,286
2019		799		1,475,909,366		1,277,290,667		470,723		4,989,807		4,318,309
2020		795		1,980,543,162		1,823,536,656		895,256		12,200,417		11,233,235
2021		818		2,203,366,546		1,853,749,408		1,039,479		15,424,224		12,976,800
2022 (through April 18)		814		2,112,795,552		1,720,517,550		667,402		10,954,525		8,920,623

Source: Korea Exchange

Note:

(1) Converted at the Noon Buying Rate at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Services Commission and the Financial Investment Services and Capital Markets Act. The law imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

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Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies

Under Korean law, the relationship between a customer and a financial investment company in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the securities company) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a financial investment company, the customer of the financial investment company is entitled to the proceeds of the securities sold by the financial investment company. In addition, the Financial Investment Services and Capital Markets Act recognizes the ownership of a customer in securities held by a financial investment company in such customer’s account.

When a customer places a sell order with a financial investment company which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the

non-member

company from the member company regardless of the bankruptcy or reorganization of the

non-member

company. Likewise, when a customer places a buy order with a

non-member

company and the

non-member

company places a buy order with a member company, the customer has the legal right to the securities received by the

non-member

company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the

non-member

company’s creditors are concerned.

In addition, under the Financial Investment Services and Capital Markets Act, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.

As the cash deposited with a financial investment company is regarded as belonging to the financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company if a bankruptcy or reorganization procedure is instituted against the financial investment company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that the Korea Deposit Insurance Corporation will, upon the request of the investors, pay each investor up to

W

50 million per financial institution in case of the financial investment company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. The premiums related to this insurance are paid by financial investment companies. Pursuant to the Financial Investment Services and Capital Markets Act, a financial investment company with a dealing or brokerage license is required to deposit the cash received from its customers with the Korea Securities Finance Corporation, a special entity established pursuant to the Financial Investment Services and Capital Markets Act.

Set-off

or attachment of cash deposits by securities companies with the Korea Securities Finance Corporation is prohibited. In addition, in the event of bankruptcy or dissolution of the financial investment company, the cash so deposited shall be withdrawn and paid to the customer prior to payment to other creditors of the financial investment company.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of our ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying the ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately reported to the governor of the Financial Services Commission, either by the foreigner or by his standing proxy in Korea.

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Persons who have acquired shares of our common stock as a result of the withdrawal of shares underlying our ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further Korean governmental approval.

Under current Korean laws and regulations, the depositary is required to obtain our prior consent for the number of shares of our common stock to be deposited in any given proposed deposit that exceeds the difference between:

(1) the aggregate number of shares of our common stock deposited by us for the issuance of our ADSs (including deposits in connection with the initial issuance and all subsequent offerings of our ADSs and stock dividends or other distributions related to these ADSs); and

(2) the number of shares of our common stock on deposit with the depositary at the time of such proposed deposit. We have agreed to grant such consent to the extent that the total number of shares on deposit with the depositary would not exceed 40,432,628 at any time.

Reporting Requirements for Holders of Substantial Interests

Under the Financial Investment Services and Capital Markets Act, any person whose direct or beneficial ownership of our common stock with voting rights, whether in the form of shares of common stock or ADSs, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (which we refer to collectively as “Equity Securities”), together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5% or more of the total outstanding shares (including Equity Securities of us held by such persons) is required to report the status of the holdings and the purpose of the holdings (for example, whether intending to seek management control) to the Financial Services Commission and the Korea Exchange within five business days after reaching the 5% ownership level. In addition, any change in the ownership interest subsequent to the report that equals or exceeds 1% of the total outstanding Equity Securities or change in the purpose of the holdings is required to be reported to the Financial Services Commission and the Korea Exchange within five business days from the date of the change, provided that (i) if the investment is for passive investment purposes the change must be reported by the 10th day of the month following an amendment event and (ii) if the investment is for general investment purposes (i.e., an investment that is not intended for active management participation, but with a intention to actively exercise its rights as a shareholder with respect to the matters such as a distribution policies of the issuer) the change must be reported within 10 business days following an amendment event. For institutional investors as prescribed by the Financial Services Commission, (i) if the investment is for portfolio investment purposes, the change must be reported by the 10th day of the following quarter in which the change occurred and (ii) if the investment is for general investment purposes, the change must be reported by the 10th day of the month following an amendment event).

Violation of these reporting requirements may subject a person to criminal sanctions such as administrative sanctions, fines, imprisonment and/or a loss of voting rights with respect to the portion of ownership of Equity Securities exceeding 5% of the total outstanding shares. In addition, the Financial Services Commission may order the disposal of the unreported Equity Securities. Any persons who reports management control as the purpose for its holdings is prohibited from acquiring additional shares or from exercising voting rights during the following five days following the reporting date.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our stock accounts for 10% or more of the total issued and outstanding shares (which we refer to as a “major stockholder”) must report the status of his/her shareholding to the Korea Securities Futures Commission and the Korea Exchange within five days after he/she becomes a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Korea Securities Futures Commission and the Korea Exchange within five days after the change occurred, provided that the obligation to report such change shall be exempt if the number shares that changed in ownership is less than 1,000 shares and the aggregate

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amount of such shares that changed in ownership is less than W10 million. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment. Any single stockholder or persons who have a special relationship with such stockholder that jointly acquire more than 10% (4% in case of

non-financial

business group companies) of the voting stock of a Korean financial holding company who controls national banks will be subject to reporting or approval requirements pursuant to the Financial Holding Company Act. See “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Restrictions on Financial Holding Company Ownership.”

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws and Financial Services Commission regulations, as amended (collectively, the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the Stock Market Division of the Korea Exchange or on the KOSDAQ Market Division of the Korea Exchange, unless prohibited by specific laws. Foreign investors may trade shares listed on the Stock Market Division of the Korea Exchange or on the KOSDAQ Market Division of the Korea Exchange only through the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange, except in limited circumstances, including:

• odd-lot trading of shares;

• acquisition of shares (which we refer to as “Converted Shares”) by exercise of warrants, conversion rights or exchange rights under bonds with warrants, convertible bonds or exchangeable bonds or withdrawal rights under depositary receipts issued outside of Korea by a Korean company;

• 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;

• 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; and

• sale and purchase of shares at fair value between foreigners who are part of an investor group comprised of foreign companies investing under the control of a common investment manager pursuant to applicable laws or contract.

For

over-the-counter

transactions of shares between foreigners outside the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a securities company licensed in Korea must act as an intermediary.

Odd-lot

trading of shares outside the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange must involve a licensed securities company in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions with respect to shares that are subject to a foreign ownership limit.

The Investment Rules require a foreign investor who wishes to invest in shares on the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange (including Converted Shares and shares being issued for initial listing on the Stock Market Division of the Korea Exchange or on KOSDAQ Market Division of the Korea Exchange) to register its identity with the Financial Supervisory Service prior to making any such investment. The registration requirement does not, however, apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card, which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or more, foreign governments,

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foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree of the Ministry of Strategy and Finance under the Korean Securities and Exchange Act. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial Supervisory Service at the time of each such acquisition or sale. A foreign investor must ensure that any acquisition or sale by it of shares outside the Stock Market Division of the Korea Exchange or the KOSDAQ Market Division of the Korea Exchange in the case of trades in connection with a tender offer,

odd-lot

trading of shares, trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the governor of the Financial Supervisory Service by himself or his standing proxy, or, in the case of sale and purchase of shares at fair value between foreigners, who are part of an investor group comprised of foreign companies investing under the control of a common investment manager pursuant to applicable laws or contract. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), securities companies (including domestic branches of foreign securities companies), asset management companies, futures trading companies and internationally recognized custodians which will act as a standing proxy to exercise stockholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than its standing proxy, to exercise rights relating to his shares or perform any tasks related thereto on his behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only foreign exchange banks (including domestic branches of foreign banks), securities companies (including domestic branches of foreign securities companies), the Korea Securities Depository, asset management companies, futures trading companies and internationally recognized custodians are eligible to act as a custodian of shares for a

non-resident

or foreign investor. A foreign investor must ensure that his custodian deposits his shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.

Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person in their articles of incorporation. Furthermore, an investment by a foreign investor in 10% or more of the issued and outstanding shares with voting rights of a Korean company is defined as a foreign direct investment under the Foreign Investment Promotion Act of Korea. Generally, a foreign direct investment must be reported to the Ministry of Commerce, Industry and Energy of Korea. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign or other shareholding restrictions in the event that the restrictions are prescribed in a specific law that regulates the business of the Korean company. For a description of such

265

restrictions applicable to Korean banks, see “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Banks — Restrictions on Bank Ownership.”

ITEM 9.D. Selling Shareholders

Not applicable.

ITEM 9.E. Dilution

Not applicable.

ITEM 9.F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

ITEM 10.A. Share Capital

Not applicable.

ITEM 10.B. Memorandum and Articles of Incorporation

We are a financial holding company established under the Financial Holding Company Act. As set forth in our Articles of Incorporation, our objects and purposes as a financial holding company are, among others, to operate and manage financial companies or companies engaged in similar lines of business, to provide financial support to, or investments in, our subsidiaries and to develop and jointly sell products with our subsidiaries. We are registered with the commercial registry office of Seoul Central District Court.

Our articles of incorporation, which was last amended on March 25, 2021, is annexed to this annual report as Exhibit 1.1.

Description of Share Capital

This section provides information relating to our capital stock, including brief summaries of material provisions of our Articles of Incorporation, the Korean Commercial Code, the Financial Investment Services and Capital Markets Act, the Financial Holding Companies Act and certain related laws of Korea, all as currently in effect. The following summaries are intended to provide only summaries and are subject to the full text of the Articles of Incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act, the Korean Commercial Code, and certain other related laws of Korea.

General

As of December 31, 2021 and as of the date hereof, our authorized share capital is 1,000,000,000 shares. Our Articles of Incorporation provide that we are authorized to issue shares of preferred stock up to

one-half

of all of the issued and outstanding shares. Furthermore, through an amendment of the Articles of Incorporation, we have created new classes of shares in addition to the common shares and the preferred shares. As of December 31, 2021, the number of our issued and outstanding common shares was 516,599,554.

On January 25, 2007, we issued 28,990,000 Series 10 redeemable preferred shares and 14,721,000 Series 11 redeemable convertible preferred shares as part of our funding for the acquisition of LG Card, all of which were redeemed on January 25, 2012. On April 21, 2011, as part of funding for partial redemption of the Series 10

266

redeemable preferred stock and the Series 11 redeemable convertible preferred stock, we issued 11,100,000 shares of the Series 12

non-voting

redeemable preferred stock, all of which were redeemed on April 21, 2016. On May 1, 2019, as part of funding for the acquisition of Orange Life Insurance, we issued 17,482,000 shares of

non-voting

convertible preferred stock through third-party allotment at a price of

W

42,900. In addition, we issued 8,232,906 shares of common stock in relation to a comprehensive stock exchange between Shinhan Financial Group and Orange Life Insurance on January 28, 2020. See “— Description of Preferred Stock.”

From April 29, 2020 to May 28, 2020, we acquired 5,035,658 treasury shares which we retired entirely on June 1, 2020. On September 29, 2020, partly in response to the prolonged

COVID-19

pandemic and to increase our loss absorption capacity, we issued 39,130,000 common shares to two private equity funds, thereby increasing our

paid-in

capital by

W

195.7 billion. On December 30, 2020, as part of the small-scale stock exchange for the acquisition of the remaining interest in Neoplux, we issued 72,719 shares of common stocks.

All of the issued and outstanding shares are fully-paid and

non-assessable,

and are in registered form. As of March 31, 2021, our authorized but unissued share capital was 308,767,224 shares. We may issue the unissued shares without further shareholder approval but subject to a board resolution as provided in the Articles of Incorporation. See “— Distribution of Free Shares.” Share certificates are issued in denominations of one, five, ten, 50, 100, 500, 1,000 and 10,000 shares. The par value of our common shares per share is

W

5,000.

Dividends

Dividends are distributed to shareholders in proportion to the number of shares of the relevant class of capital stock owned by each shareholder following approval by the shareholders at an annual general meeting of shareholders. We pay full annual dividends on newly issued shares (such as the common shares representing the American depositary shares (“ADSs”)) for the year in which the new shares are issued. We declare our dividend annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. Once declared, the annual dividend must be paid to the stockholders of record as of the end of the preceding fiscal year within one month after the annual general meeting unless otherwise resolved thereby. Annual dividends may be distributed either in (i) cash or (ii) shares provided that shares must be distributed at par value and, if the market price of the shares is less than their par value, dividends in shares may not exceed

one-half

of the total annual dividends (including dividends in shares). In addition to the annual dividend, we may also distribute cash dividends to the stockholders of record as of the end of March, June and September of each year upon a resolution by the board of directors. Under the Korean Commercial Code we do not have an obligation to pay any annual dividend unclaimed for five years from the scheduled payment date.

In addition, under the Financial Investment Services and Capital Markets Act and our Articles of Incorporation, we may pay quarterly dividends to our shareholders of record as of the end of March, June and September of each year upon the resolution of the board of directors. The quarterly dividend, if any, will be paid to the shareholders in cash. Our Articles of Incorporation stipulates that any quarterly dividends shall not exceed the net assets as of the end of the immediately preceding fiscal year, after deducting (i) the

paid-in

capital as of the end of the immediately preceding fiscal year, (ii) the aggregate amount of the capital reserves and earned surplus reserves, accumulated up to the end of the immediately preceding fiscal year, (iii) unrealized profits as prescribed under the Enforcement Decree of the Commercial Code, (iv) the amount resolved to be distributed as dividends at the Ordinary General Meeting of Shareholders held in respect of the immediately preceding fiscal year, (v) voluntary reserves accumulated for specific purposes in accordance with the relevant provisions of these Articles of Incorporation or by the resolution of the General Meetings of Shareholders as of the end of the immediately preceding fiscal year, (vi) earned surplus reserves that account for at least 10% of the net profits of the relevant fiscal year until such reserves equal the aggregate amount of its stated capital and (vii) the aggregate amount of quarterly dividends paid during the current fiscal year, if any.

The table below sets forth the cash dividend per share of common stock and the cash dividend per share of preferred stock declared by us in respect of the years ended December 31, 2019, 2020 and 2021.

267

Dividends

	Year Ended December 31,
	2019		2020		2021
	(In Won and US$)
Cash dividends per share of common stock:
In Korean Won	W	1,850	W	1,500	W	1,960
In U.S. Dollars (1)	$	1.60	$	1.38	$	1.65
Cash dividends per share of preferred stock:
In Korean Won	W	1,850	W	1,716	W	1,960
In U.S. Dollars (1)	$	1.60	$	1.58	$	1.65

N/A = not available

Note:

(1) Won amounts for 2019, 2020 and 2021 are expressed in U.S. Dollar at the rate of W 1,155.5, W 1,086.1 and W 1,188.6, respectively, to US$1.00, the Noon Buying Rate in effect on December 31, 2019 and 2020 and December 30, 2021, respectively, for the convenience of readers. No representation is made that the Won or U.S. Dollar amounts referred to above could have been or could be converted into U.S. Dollars or Won, as the case may be, at any particular rate or at all.

Under the Financial Holding Companies Act and the regulations thereunder, a financial holding company may not pay an annual dividend unless it has set aside as its legal reserve an amount equal to at least

one-tenth

of its net income after tax and shall set aside such amount as its legal reserve until its legal reserve reaches at least the aggregate amount of its stated capital.

Other than as set forth above and the dividend rights granted to preferred shareholders as further described in “— Description of Preferred Stock,” our articles of incorporation do not provide special rights to our common or preferred shareholders to share in our profits. For information regarding Korean taxes on dividends, see “Item 10.E. Taxation — Korean Taxation.”

Distribution of Free Shares

In addition to permitting dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits a company to distribute to its shareholders, in the form of free shares, an amount transferred from the capital surplus or legal reserve to stated capital. These free shares must be distributed to all of the shareholders pro rata. Our Articles of Incorporation require the same types of preferred shares to be distributed to the holders of preferred shares in case of distribution of free shares. For information regarding the treatment under Korean tax laws of free share distributions, see “Item 10.E. Taxation — Korean Taxation — Taxation of Dividends on Shares of Common Stock or American Depositary Shares.”

Preemptive Rights and Issuance of Additional Shares

Unless otherwise provided in the Korean Commercial Code, a company may issue authorized but unissued shares at such times and upon such terms as the board of directors of the company may determine. The company must offer the new shares on uniform terms to all shareholders who have preemptive rights and who are listed on the shareholders’ register as of the record date. Our shareholders are entitled to subscribe for any newly issued shares in proportion to their existing shareholdings. However, as provided in the Articles of Incorporation, we may issue new shares by resolution of board of directors to persons other than existing shareholders if those shares are (1) publicly offered (where the number of such shares so offered may not exceed 50% of our total number of issued and outstanding shares); (2) preferentially allocated to the members of the ESOA pursuant to relevant provisions of the Financial Investment Services and Capital Markets Act; (3) issued for the purpose of issuing depositary receipts pursuant to relevant provisions of the Financial Investment Services and Capital

268

Markets Act (where the number of such shares so issued may not exceed 50% of our total number of issued and outstanding shares); (4) issued to directors or employees as a result of exercise of stock options we granted to them pursuant to the Korean Commercial Code; (5) issued to a financial investment company, a private equity fund or a special purpose company under the Financial Investment Services and Capital Markets Act; or (6) issued to any specified foreign investors, foreign or domestic financial institutions or alliance companies for operational needs such as introduction of advanced financial technology, improvement of its or subsidiaries’ financial structure and funding or strategic alliance (where such number of shares so issued may not exceed 50% of our total number of issued and outstanding shares). Under the Korean Commercial Code, a company may vary, without stockholders’ approval, the terms of such preemptive rights for different classes of shares. Public notice of the preemptive rights to new shares and the transferability thereof must be given not less than two weeks (excluding the period during which the shareholders’ register is closed) prior to the record date. We will notify the shareholders who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to the deadline. If a shareholder fails to subscribe on or before such deadline, the shareholder’s preemptive rights will lapse. Our board of directors may determine how to distribute shares in respect of which preemptive rights have not been exercised or where fractions of shares occur.Under the Financial Investment Services and Capital Markets Act, if a listed company intends to issue new shares by way of allotment to shareholders, it must issue a certificate of preemptive right to the newly issued shares. Furthermore, the company must list the newly issued shares on the Korea Exchange for a certain period of time or designate a securities company to broker and/or deal in such newly issued shares in order to ensure that they are properly distributed. In the event certain shareholder forfeit their right to subscribe to newly issued shares, the company may allot the forfeited shares to a third party under certain conditions, including in relation to the purchase price of such shares, although in principle, the company must withdraw the forfeited shares. Under the Korean Commercial Code, when a company issues new shares by way of allotment to a third party, such company must notify its stockholders or make public notice of the conditions and other details of such new shares not less than two weeks prior to the relevant subscription payment date. Under the Financial Investment Services and Capital Markets Act, however, a listed company may substitute such notification or public notice by disclosing the material fact in a report publicly filed with the listing authorities.

Under the Financial Investment Services and Capital Markets Act, members of a company’s employee stock ownership association, whether or not they are shareholders, have a preemptive right, subject to certain exceptions, to subscribe for up to 20% of the shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. However, this right is exercisable only to the extent that the total number of shares so acquired and held by such members does not exceed 20% of the total number of shares to be newly issued and shares then outstanding. As of December 31, 2021, the employee stock ownership association owned 25,464,625 shares, or 4.93%, of our common stock.

General Meeting of Shareholders

There are two types of general meetings of shareholders: annual general meetings and extraordinary general meetings. We are required to convene our annual general meeting within three months after the end of each fiscal year. Subject to a board resolution or court approval, an extraordinary general meeting of shareholders may be held when necessary or at the request of our Audit Committee. In addition, under the Korean Commercial Code, an extraordinary general meeting of shareholders may be held at the request of the shareholders holding shares for at least six months of an aggregate of 1.5% or more of the outstanding shares with voting rights of the listed company, subject to a board resolution or court approval. Furthermore, under the Act on the Corporate Governance of Financial Companies of Korea and its

sub-regulations,

an extraordinary general meeting of shareholders may be held at the request of the shareholders holding shares for at least six months of an aggregate of 1.5% (0.75% in the case of a financial holding company (i) whose total assets at the end of the latest fiscal year is

W

5 trillion or more and (ii) who is in control of two or more subsidiaries, each with total assets of

W

2 trillion or more) or more of the outstanding shares of the company, subject to a board resolution or court approval. Meeting agendas are determined by the board of directors or proposed by holders of an aggregate of 3% or more of the outstanding shares with voting rights by way of a written proposal to the board of directors at

269

least six weeks prior to the meeting. In addition, under the Korean Commercial Code, the meeting agenda may be proposed by the shareholders holding shares for at least six months of an aggregate of 1% (0.5% in the case of a listed company whose capital at the end of the latest operating year is

W

100 billion or more) or more of the outstanding shares of the listed company. Furthermore, under the Act on the Corporate Governance of Financial Companies and its

sub-regulations,

the meeting agenda may be proposed by the shareholders holding shares for at least six months of an aggregate of 0.1%. Written notices stating the date, place and agenda of the meeting must be given to the shareholders at least two weeks prior to the date of the general meeting of shareholders; provided, that, notice may be given to holders of 1% or less of the total number of issued and outstanding shares which are entitled to vote, by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers or by using an electronic method defined under the Korean Commercial Code and related regulations at least two weeks in advance of the meeting. Currently, we use

The Korea Economic Daily

and

Maeil Business Newspaper

for the publication of such notices. Shareholders who are not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders, and they are not entitled to attend or vote at such meeting.

The general meeting of shareholders is held at our executive office (which is our registered executive office) or, if necessary, may be held anywhere in the vicinity of our executive office.

Voting Rights

Holders of common shares are entitled to one vote for each share. However, voting rights with respect to common shares that we hold and common shares that are held by a corporate shareholder, more than

one-tenth

of the outstanding capital stock of which is directly or indirectly owned by such shareholder, may not be exercised. Unless stated otherwise in a company’s Articles of Incorporation, the Korean Commercial Code permits holders of an aggregate of 3% (1%, in case of a company whose total assets as at the end of the latest fiscal year is

W

2 trillion or more) or more of the outstanding shares with voting rights to request cumulative voting when electing two or more directors. Our Articles of Incorporation currently do not prohibit cumulative voting. If a listed company’s total assets amounted to

W

2 trillion or more as of the end of the latest fiscal year, the company is required to establish and maintain an audit committee, whose members must be composed of directors of such company as appointed at a shareholders meeting. At least one member of the audit committee must be an outside director of such company. If the aggregate number of voting shares held by any shareholder exceeds 3% of the total number of issued and outstanding voting shares, then the shareholder may not exercise its voting rights with respect to the shares it holds in excess of such 3% threshold to elect or remove a member of the audit committee. In case the shareholder is the company’s largest shareholder, the shareholder and its specially related persons (as defined under the relevant laws) may not exercise their voting rights with respect to the shares they collectively hold in excess of the 3% threshold to elect or remove the audit committee member who is not an outside director of the company. If the listed company’s total assets amounted to

W

100 billion or above but below

W

2 trillion as of the end of the latest fiscal year, the company is required to appoint at least one standing director or one director to its audit committee through a shareholders’ meeting. If the aggregate number of voting shares held by any shareholder of such company exceeds 3% of the total number of issued and outstanding voting shares, then the shareholder may not exercise its voting rights with respect to the shares it holds in excess of the 3% threshold to elect or remove the company’s statutory auditor.

The Korean Commercial Code and our Articles of Incorporation provide that an ordinary resolution may be adopted if approval is obtained from the holders of at least a majority of those common shares present or represented at such meeting and such majority also represents at least

one-fourth

of the total of our issued and outstanding common shares. Holders of

non-voting

shares (other than enfranchised

non-voting

shares) are not entitled to vote on any resolution or to receive notice of any general meeting of shareholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. The Korean Commercial Code provides that a company’s articles of incorporation may prescribe conditions for enfranchisement of

non-voting

shares. For example, if our general shareholders’ meeting resolves not to pay to holders of preferred shares the annual dividend as determined by the board of directors at the time of issuance of

270

such shares, the holders of preferred shares will be entitled to exercise voting rights from the general shareholders’ meeting immediately following the meeting adopting such resolution until the end of the meeting to declare to pay such dividend with respect to the preferred shares. Holders of such enfranchised preferred shares have the same rights as holders of common shares to request, receive notice of, attend and vote at a general meeting of shareholders.

The Korean Commercial Code provides that to amend the Articles of Incorporation (which is also required for any change to the authorized share capital of the company) and in certain other instances, including removal of a director of a company, dissolution, merger or consolidation of a company, transfer of the whole or a significant part of the business of a company, acquisition of all of the business of any other company or issuance of new shares at a price lower than their par value, a special resolution must be adopted by the approval of the holders of at least

two-thirds

of those shares present or represented at such meeting and such special majority must also represent at least

one-third

of the total issued and outstanding shares with voting rights of the company.

In addition, in the case of amendments to the Articles of Incorporation or any merger or consolidation of a company or in certain other cases which affect the rights or interest of the shareholders of the preferred shares, a resolution must be adopted by a separate meeting of shareholders of the preferred shares. Such a resolution may be adopted if the approval is obtained from shareholders of at least

two-thirds

of the preferred shares present or represented at such meeting and such preferred shares also represent at least

one-third

of the total issued and outstanding preferred shares of the company.

A shareholder may exercise his voting rights by proxy given to another shareholder. If a particular shareholder intends to obtain proxy from another shareholder, a reference document specified by the Financial Supervisory Service must be sent to the shareholder giving proxy, with a copy furnished to the company’s executive office or the branch office, transfer agent and the Financial Services Commission. The proxy must present the power of attorney prior to the start of the general meeting of shareholders.

Rights of Dissenting Shareholders

Pursuant to the Financial Investment Services and Capital Markets Act, in certain limited circumstances (including, without limitation, if we transfer all or any significant part of our business or if we merge or consolidate with another company), dissenting holders of shares have the right to require us to purchase their shares. Pursuant to the Financial Holding Companies Act, the Financial Investment Services and Capital Markets Act and the Korean Commercial Code, if a financial holding company acquires a new direct or indirect subsidiary through the exchange or transfer of shares except in limited circumstances, the dissenting holders of such shares have the right to require us to purchase their shares. To exercise such a right, shareholders must submit to us a written notice of their intention to dissent prior to the general meeting of shareholders. Within 20 days (or 10 days under certain circumstances according to the Financial Holding Companies Act) after the date on which the relevant resolution is passed at such meeting, such dissenting shareholders must request in writing that we purchase their shares. We are obligated to purchase the shares of dissenting shareholders within one month after the end of such request period at a price to be determined by negotiation between the shareholder and us. If we cannot agree on a price with the shareholder through such negotiations, the purchase price will be the arithmetic mean of (1) the weighted average of the daily closing share prices on the KRX KOSPI Market of the Korea Exchange for two months prior to the date of the adoption of the relevant board of directors’ resolution, (2) the weighted average of the daily closing share prices on the KRX KOSPI Market of the Korea Exchange for one month prior to the date of the adoption of the relevant board of directors’ resolution and (3) the weighted average of the daily closing share prices on the KRX KOSPI Market of the Korea Exchange for one week prior to the date of the adoption of the relevant board of directors’ resolution. If we or the dissenting shareholder who requested purchase of their shares do not accept such purchase price, we or the shareholder may request to the court to adjust such purchase price.

271

Register of Shareholders and Record Dates

We maintain the register of our shareholders at our transfer agent’s office in Seoul, Korea. The Korea Securities Depository as our transfer agent, registers transfers of shares on the register of shareholders upon presentation of the share certificates.

The record date for annual dividends is December 31. For the purpose of determining the holders of shares entitled to annual dividends, the register of shareholders may be closed for the period from January 1 of each year up to January 15 of such year. Further, the Korean Commercial Code and the Articles of Incorporation permit us upon at least two weeks’ public notice to set a record date and/or close the register of shareholders for not more than three months for the purpose of determining the shareholders entitled to certain rights pertaining to the shares. The trading of shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.

Other Shareholder Rights

Our articles of incorporation do not have sinking fund provisions or provisions creating liability to further capital calls. Other than to amend our articles of incorporation in accordance with the Korean Commercial Code, no particular action is necessary to change the rights of holders of our capital stock. In addition, our articles of incorporation do not have specific provisions for governing changes in capital or which would have an effect of delaying, deferring or preventing a change in control of us and that would operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.

Directors

Under the Korean Commercial Code and our articles of incorporation, any director wishing to enter into a transaction with us or our subsidiaries in his or her personal capacity is required to obtain the prior approval of the board of directors, and any director having an interest in the transaction may not vote at the meeting of the board of directors to approve the transaction.

Neither our articles of incorporation nor applicable Korean laws have provisions relating to (i) the directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body (ii) borrowing powers exercisable by the directors and how such borrowing powers can be varied; (iii) retirement or

non-retirement

of directors under an age limit requirement; or (iv) the number of shares required for a director’s qualification.

Description of Preferred Stock

On January 25, 2007, as part of funding our acquisition of LG Card, we issued 28,990,000 Series 10

non-voting

redeemable preferred shares. On January 25, 2012, we redeemed all of the Series 10 preferred shares.

On January 25, 2007, as part of funding our acquisition of LG Card, we issued 14,721,000 Series 11

non-voting

redeemable convertible preferred shares. On January 25, 2012, we redeemed all of the Series 11 preferred shares.

On April 21, 2011, as part of funding for preferred stocks due to be redeemed in January 2012, we issued 11,100,000 Series 12

non-voting

redeemable preferred shares for the subscription price of

W

100,000 per share, or

W

1,110 billion in the aggregate. On April 21, 2016, we redeemed all of the Series 12 redeemable preferred shares.

On May 1, 2019, as part of funding for the acquisition of Orange Life Insurance, we issued 17,482,000 shares of

non-voting

convertible preferred stock through third-party allotment at a price of

W

42,900.

272

Annual Report

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the Korea Exchange an annual business report (containing audit report and audited annual nonconsolidated and consolidated financial statements) within 90 days after the end of our fiscal year as well as a semiannual business report within 45 days after the end of the first six months of our fiscal year and quarterly business reports within 45 days after the end of the first three months and nine months of our fiscal year, respectively (in each case, containing review report and reviewed interim nonconsolidated and consolidated financial statements). Copies of such reports are available for public inspection at the websites of the Financial Services Commission and the Korea Exchange.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. In order to exercise shareholders’ rights, the transferee must have his name and address registered on the registry of shareholders. For this purpose, shareholders are required to file with us their name, address and seal. Nonresident shareholders must notify us of the name of their proxy in Korea to which our notice can be sent. Under the Financial Services Commission regulations, nonresident shareholders may appoint a standing proxy and may not allow any person other than the standing proxy to exercise rights regarding the acquired share or perform any task related thereto on his behalf, subject to certain exceptions. Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians are authorized to act as standing proxy and provide related services. Certain foreign exchange controls and securities regulations apply to the transfer of shares by nonresidents or

non-Koreans.

See “Item 10.D. Exchange Controls.” As to the ceiling on the aggregate shareholdings of a single shareholder and persons who have a special relationship with such shareholder, please see “Item 4.B. Business Overview — Supervision and Regulation — Principal Regulations Applicable to Financial Holding Companies — Restrictions on Financial Holding Company Ownership.”

Acquisition of Treasury Shares

Under the Korean Commercial Code, we may acquire our own shares upon resolution of the general meeting of the shareholders or resolution of the board of directors pursuant to Article

165-3

of the Financial Investment Services and Capital Markets Act by either (i) purchasing them on a stock exchange or (ii) purchasing a number of shares, other than the redeemable shares as set forth in Article 345, Paragraph (1) of the Korean Commercial Code, from each shareholder in proportion to its existing shareholding ratio through the methods set forth in the Presidential Decree, provided that the total purchase price does not exceed the amount of our profit that may be distributed as dividends in respect of the immediately preceding fiscal year. In addition, pursuant to the Financial Investment Services and Capital Markets Act and regulations under the Financial Holding Companies Act, we may purchase our own shares on the KRX KOSPI Market of the Korea Exchange, through a tender offer, or through a trust agreement with a trust company, or retrieve our own shares from a trust company upon termination of a trust agreement, subject to the restrictions that (1) the aggregate purchase price of such shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year less the amounts of dividends and reserves for such fiscal year, subtracted by the sum of (a) the purchase price of treasury stock acquired if any treasury stock has been purchased after the end of the preceding fiscal year pursuant to the Commercial Act or the Financial Investment Services and Capital Markets Act, (b) the amount subject to trust agreements, and (c) the amount of dividends approved at the ordinary general shareholders’ meeting after the end of the preceding fiscal year and the amount of retained earnings reserve required under the Commercial Act; plus if any treasury stock has been disposed of after the end of the preceding fiscal year, the acquisition cost of such treasury stock and (2) the purchase of such shares shall meet the requisite capital ratio under the Financial Holding Companies Act and the guidelines issued by the Financial Services Commission. In general, under the Financial Holding Companies Act, our subsidiaries are not permitted to acquire our shares.

273

Liquidation Rights

In the event we are liquidated, the assets remaining after the payment of all debts, liquidation expenses and taxes will be distributed to shareholders in proportion to the number of shares held by such shareholders. Holders of preferred shares may have preferences over holders of common shares in liquidation.

ITEM 10.C. Material Contracts

None.

ITEM 10.D. Exchange Controls

General

The Foreign Exchange Transaction Act of Korea the related Presidential Decree and the regulations under such Act and Decree (collectively the “Foreign Exchange Transaction Laws”) herein, regulate investment in Korean securities by nonresidents and issuance of securities by Korean companies outside Korea. Under the Foreign Exchange Transaction Laws, nonresidents may invest in Korean securities only to the extent specifically allowed by these laws or otherwise permitted by the Ministry of Strategy and Finance of Korea. The Financial Services Commission has also adopted, pursuant to its authority under the Financial Investment Services and Capital Markets Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities by Korean companies outside Korea.

Under the Foreign Exchange Transaction Laws, (1) if the Government determines that it is inevitable due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances or other situations equivalent thereto, the Ministry of Strategy and Finance may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe keep, deposit or sell means of payment in or to certain Korean governmental agencies or financial institutions; and (2) if the Government determines that international balance of payments and international finance face or are likely to face serious difficulty or the movement of capital between Korea and abroad will cause or is likely to cause serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who intends to perform capital transactions to obtain permission or to require any person who performs capital transactions to deposit part of the payments received in such transactions at certain Korean governmental agencies or financial institutions, in each case subject to certain limitations.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to make a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a financial investment company with a securities dealing or brokerage license. Funds in the foreign currency account may be remitted abroad without any Korean governmental approval.

Dividends on shares of Korean companies are paid in Won. No Korean governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a nonresident of Korea must be deposited either in a Won account with the investor’s financial investment company with a securities dealing or brokerage license or in his Won account. Funds in the investor’s Won account may be

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transferred to his foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses by any one person exceeding US$10,000 per day needs to be reported to the governor of the Financial Supervisory Service by the foreign exchange bank at which the Won account is maintained. Funds in the Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, financial companies with a securities dealing, brokerage or collective investment license may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

ITEM 10.E. Taxation

The following summary is based upon tax laws, regulations, rulings, decrees, income tax conventions (treaties), administrative practice and judicial decisions of Korea and the United States as of the date of this annual report, and is subject to any change in Korean or United States law that may come into effect after such date. Investors in shares of common stock or American depositary shares are advised to consult their own tax advisers as to the Korean, United States or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.

Korean Taxation

The following summary of Korean tax considerations applies to you so long as you are not:

• a resident of Korea;

• a corporation having its head office, principal place of business, or place of effective management in Korea (a Korean corporation); or

• engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.

Taxation of Dividends on Shares of Common Stock or American Depositary Shares

We will deduct Korean withholding tax from dividends (whether in cash or in shares) paid to you at a rate of 22% (including local income surtax). If you are a qualified resident and a beneficial owner of the dividends in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See “— Tax Treaties” below for a discussion of treaty benefits. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into

paid-in

capital, such distribution may be subject to a Korean withholding tax.

Taxation of Capital Gains from Transfer of Common Shares or American Depositary Shares

As a general rule, capital gains earned by

non-residents

upon transfer of our common shares or American depositary shares (“ADSs”) are subject to a Korean withholding tax at the lower of (1) 11% (including local income surtax) of the gross proceeds realized or (2) 22% (including local income surtax) of the net realized gain, subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs associated with common shares or ADSs, unless exempt from Korean income taxation under an applicable tax treaty between Korea and the country of your tax residence. See “— Tax Treaties” below for a discussion on treaty benefits. Even if you do not qualify for the exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you meet certain requirements for the exemption under Korean domestic tax laws discussed in the following paragraphs.

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You will not be subject to the Korean income taxation on capital gains realized upon a transfer of our common shares through the Korea Exchange if you (1) have no permanent establishment in Korea and (2) do not own and have never owned (together with any shares owned by any entity with which you have a special relationship and possibly including the shares represented by the ADSs) 25% or more of our total issued and outstanding shares at any time during the calendar year in which the sale occurs and during the five consecutive calendar years prior to the calendar year in which the sale occurs.

Under Korean tax law, ADSs are viewed as shares of stock for capital gains tax purposes. Accordingly, capital gains from sale or disposition of ADSs are taxed (if taxable) as if such gains are from sale or disposition of shares of our common stock. It should be noted that (i) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea, or the STTCL, provided that the issuance of ADSs is deemed to be an overseas issuance under the STTCL, but (ii) in the case where an owner of the underlying shares of stock transfers ADSs after conversion of the underlying shares into ADSs, the exemption under the STTCL described in (i) will not apply. In the case where an owner of the underlying shares of stock transfers the ADSs after conversion of the underlying shares of stock into ADSs, such person is obligated to file corporate income tax returns and pay tax unless a purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays the tax on capital gains derived from transfer of ADSs, as discussed below.

If you are subject to tax on capital gains with respect to a sale of common shares or ADSs, the purchaser or, in the case of a sale of common shares on the Korea Exchange or through a financial investment company with a brokerage license in Korea, the financial investment company is required to withhold Korean tax from the sales proceeds in an amount equal to 11% (including local income surtax) of the gross realization proceeds and to remit the withheld tax to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law or produce satisfactory evidence of your acquisition costs and certain direct transaction costs associated with common shares or ADSs. See the discussion under “— Tax Treaties” below for an explanation of claiming treaty benefits.

Tax Treaties

Korea has entered into a number of income tax treaties with other countries, including the United States, which reduce or exempt Korean withholding tax on the income derived by residents of such treaty countries. For example, under the

Korea-U.S. income

tax treaty, reduced rates of Korean withholding tax on dividends of 16.5% or 11.0%, respectively (including local income surtax), depending on your shareholding ratio, and an exemption from Korean withholding tax on capital gains are generally available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment or Holding Companies) of the

Korea-U.S. income

tax treaty, such reduced rates and exemption do not apply if (1) you are a United States corporation, (2) by reason of any special measures the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (3) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the

Korea-U.S. income

tax treaty, the exemption on capital gains does not apply if (a) you have a permanent establishment in Korea and any shares of common stock in which you hold an interest and which gives rise to capital gains are effectively connected with such permanent establishment, (b) you are an individual and you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your common shares or ADSs giving rise to capital gains are effectively connected with such fixed base or (c) you are an individual and you are present in Korea for a period or periods of 183 days or more during the taxable year.

You should inquire for yourself whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or

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capital gains to submit to us, the purchaser, the financial investment company, or other withholding agent, as the case may be, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser, the financial investment company, or other withholding agent, as the case may be, must withhold tax at the normal rates. Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income (e.g., dividends or capital gains) under an applicable tax treaty as the beneficial owner of such Korean source income, Korean tax law requires you (or your agent) to submit an application (in the case for reduced withholding tax rate, an “application for entitlement to reduced tax rate,” and in the case for exemption from withholding tax, an “application for tax exemption”) with a certificate of your tax residency issued by the competent authority of your country of tax residence, subject to certain exceptions (together, the “BO application”). For example, a U.S. resident would be required to provide a Form 6166 as a certificate of tax residency with the application for entitlement to reduced tax rate or the application for tax exemption, as the case may be. Subject to certain exceptions, where the relevant income is paid to an overseas investment vehicle (an “OIV”) that is not the beneficial owner of such income, a beneficial owner claiming the benefit of an applicable tax treaty with respect to such income must submit its BO application to such OIV, which in turn must submit an OIV report and a schedule of beneficial owners (and the BO applications collected from each beneficial owner, if such beneficial owner is applying for tax exemption) to the withholding agent prior to the payment date of such income. Effective as of January 1, 2022, an OIV shall be deemed to be a beneficial owner of the Korean source income if (i) under the applicable tax treaty, the OIV bears tax liabilities in the country in which it is established and (ii) the Korean source income is eligible for the treaty benefits under the tax treaty. The benefits under a tax treaty between Korea and the country of such OIV’s residence will apply with respect to the relevant income paid to such OIV, subject to certain application requirements as prescribed by the Corporate Income Tax or Individual Income Tax Law. In the case of a tax exemption application, the withholding agent is required to submit such application (together with the applicable OIV report in the event the income will be paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of the payment of such income.

Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you would be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the shares of common stock and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax, which ranges from 10% to 50% recently, assessable based on the value of the ADSs or shares of common stock and the identity of the individual against whom the tax is assessed.

If you die while holding a common share or donate a subscription right or a common share, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.

Securities Transaction Tax

If you transfer common shares through the Korea Exchange in 2022, you will be subject to a securities transaction tax at the rate of 0.08% (no such securities transaction tax to be imposed on transfers from and after January 1, 2023) and an agriculture and fishery special surtax at the rate of 0.15% of the sales price of common shares. If your transfer of common shares is not made through the Korea Exchange, subject to certain exceptions, you will be subject to a securities transaction tax at the rate of 0.43% if the transfer is made in 2022 (to be reduced to 0.35% for transfers from and after January 1, 2023) but will not be subject to an agriculture and fishery special surtax.

Depositary receipts, which the ADSs constitute, are included in the scope of securities transfer subject to securities transaction tax. Nonetheless, transfer of depositary receipts listed on a foreign securities exchange

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similar to the Korea Exchange (e.g., the New York Stock Exchange, the NASDAQ National Market) will not be subject to the securities transaction tax.

In principle, the securities transaction tax, if applicable, must be paid by a transferor of common shares. When a transfer is effected through a securities settlement company in Korea, such settlement company is generally required to withhold and remit the tax to the tax authorities. When such transfer is made through a financial investment company only, such financial investment company is required to withhold and remit the tax. Where a transfer is affected by a

non-resident

who has no permanent establishment in Korea by a method other than through a securities settlement company or a financial investment company, the transferee is required to withhold the securities transaction tax.

Non-reporting

or underreporting of securities transaction tax will generally result in the imposition of penalties equal to 20% to 60% of the

non-reported

or 10% to 60% of underreported tax amount and a failure to timely pay securities transaction tax due will result in penalties of 8.03% per annum of the due but unpaid tax. The penalty is imposed on the party responsible for paying the securities transaction tax or, if the securities transaction tax is to be withheld, on the party that has the withholding obligation.

Certain United States Federal Income Tax Consequences

The following summary describes certain U.S. federal income tax considerations for beneficial owners of our common shares or ADSs that hold the common shares or ADSs as capital assets and are “U.S. holders.” You are a “U.S. holder” if you are for U.S. federal income tax purposes:

(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 has one or more U.S. persons with 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 regulations to be treated as a U.S. person.

In addition, this summary only applies to you if you are a U.S. holder that is a resident of the United States for purposes of the current income tax treaty between the United States and Korea (the “Treaty”), your common shares or ADSs are not, for purposes of the Treaty, effectively connected with a permanent establishment in Korea and you otherwise qualify for the full benefits of the Treaty.

This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations (including proposed regulations), rulings and judicial decisions thereunder as of the date hereof, as well as the Treaty, all of which are subject to change, perhaps retroactively. It is for general purposes only and you should not consider it to be tax advice. In addition, it is based in part on representations by the ADS depositary and assumes that each obligation under the deposit agreement will be performed in accordance with its terms. This summary does not represent a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances, and does not address the Medicare tax on net investment income, U.S. federal estate and gift taxes or the effects of any state, local or

non-U.S.

tax laws. In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

• a bank;

• a dealer in securities or currencies;

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• an insurance company or one of certain financial institutions;

• a regulated investment company;

• a real estate investment trust;

• a tax-exempt entity;

• a trader in securities that has elected to use a mark-to-market method of accounting for your securities holdings;

• a person holding common shares or ADSs 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 pass-through entity for U.S. federal income tax purposes;

• a person who owns or is deemed to own 10% or more of our stock (by vote or value);

• a person required to accelerate the recognition of any item of gross income with respect to our common shares or ADSs as a result of such income being recognized on an applicable financial statement; or

• a person whose functional currency is not the U.S. Dollar.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you are urged to consult your tax advisor.

You should consult your own tax advisor concerning the particular U.S. federal tax consequences to you of the ownership and disposition of common shares or ADSs, as well as any consequences arising under the laws of any other taxing jurisdiction.

American Depositary Shares

If you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying common shares that are represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax.

Distributions on Common Shares or American Depositary Shares

Subject to the discussion below under “Passive Foreign Investment Company Rules,” the gross amount of distributions on our common shares or ADSs (including amounts withheld to reflect Korean withholding tax) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day you actually or constructively receive it, in the case of our common shares, or the day actually or constructively received by the ADS depositary, in the case of ADSs. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.

With respect to

non-corporate

U.S. holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The U.S. Treasury Department has determined that the Treaty meets these requirements, and we believe we are eligible for the benefits of the Treaty. A foreign corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are

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readily tradable on an established securities market in the United States. Our common shares will generally not be considered readily tradable for these purposes. U.S. Treasury Department guidance indicates that securities such as our ADSs, which are listed on the New York Stock Exchange, are treated as readily tradable on an established securities market in the United States for these purposes. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years.

Non-corporate

U.S. holders that do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Furthermore,

non-corporate

U.S. holders will not be eligible for the rate reduction if we are a passive foreign investment company (as discussed below under “Passive Foreign Investment Company Rules”) in the taxable year in which such dividends are paid or were a passive foreign investment company in the preceding taxable year. If you are a

non-corporate

U.S. holder, you should consult your own tax advisor regarding the application of these rules given your particular circumstances.

The amount of any dividend paid in Korean Won will equal the U.S. Dollar value of the Korean Won received calculated by reference to the exchange rate in effect on the date you receive the dividend, in the case of our common shares, or the date received by the ADS depositary, in the case of ADSs, regardless of whether the Korean Won are converted into U.S. Dollars. If the Korean Won received as a dividend are converted into U.S. Dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the Korean Won received are not converted into U.S. Dollars on the day of receipt, you will have a basis in the Korean Won equal to their U.S. Dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Korean Won will be treated as United States source ordinary income or loss.

Subject to certain significant conditions and limitations, Korean taxes withheld from dividends (at a rate not exceeding the rate provided in the Treaty) will be treated as foreign income taxes eligible for credit against your U.S. federal income tax liability. See “— Korean Taxation — Tax Treaties” for a discussion of the Treaty rate. Korean taxes withheld in excess of the rate provided in the Treaty will not be eligible for credit against your U.S. federal income tax until you exhaust all effective and practical remedies to recover such excess withholding, including the seeking of competent authority assistance from the Internal Revenue Service. For purposes of the foreign tax credit, dividends paid on our common shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. If you do not elect to claim a credit for any foreign taxes paid during a taxable year, you may instead elect, subject to certain limitations, to claim a deduction in respect of such foreign taxes, provided that you apply this election to all foreign taxes paid or accrued in the taxable year.

Further, in certain circumstances, if you have held our common shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on our common shares or ADSs. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a

tax-free

return of capital, causing a reduction of your adjusted basis in our common shares or ADSs (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of our common shares or ADSs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to determine earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will be reported and generally be treated as a dividend (as discussed above).

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Distributions of our common shares or ADSs or rights to subscribe for our common shares or ADSs that are received as part of a pro rata distribution to all of our shareholders (including holders of ADSs) generally will not be subject to U.S. federal income tax to recipient common shareholders (including holders of ADSs). Consequently, such distributions will not give rise to foreign source income and you will not be able to use the foreign tax credit arising from any Korean withholding tax unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other income derived from foreign sources.

Disposition of Common Shares or American Depositary Shares

For U.S. federal income tax purposes, you will recognize gain or loss upon the sale, exchange or other disposition of our common shares or ADSs in an amount equal to the difference between the amount realized upon the sale, exchange or other disposition and your adjusted tax basis in our common shares or ADSs, as the case may be, both as determined in U.S. Dollars. Subject to the discussion below under “— Passive Foreign Investment Company Rules,” such gain or loss will generally be capital gain or loss and will generally be long-term capital gain or loss if at the time of sale, exchange or other disposition, our common shares or ADSs have been held for more than one year. Long-term capital gains of

non-corporate

U.S. holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss you recognize on the sale, exchange or other disposition of our common shares or ADSs will generally be treated as United States source gain or loss. Consequently, you may not be able to claim a foreign tax credit for any Korean tax imposed on the disposition of our common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. However, pursuant to recently issued U.S. Treasury regulations that apply to taxes paid or accrued in taxable years beginning on or after December 28, 2021, any such Korean tax would generally not be a foreign income tax eligible for a foreign tax credit (regardless of any other income that you may have that is derived from foreign sources). You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

You should note that any Korean securities transaction tax imposed upon a disposition of our common shares or ADSs generally will not be treated as a creditable foreign tax for U.S. federal income tax purposes.

Passive Foreign Investment Company Rules

Based upon the past and projected composition of our income and assets and valuation of our assets, we do not believe that we were a PFIC for 2021, and we do not expect to be a PFIC in 2022 or to become one in the foreseeable future, although there can be no assurance in this regard. PFIC status is a factual determination that is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in composition of our income or assets or valuation of our assets.

In general, we will be considered a PFIC for any taxable year in which:

• at least 75% of our gross income is passive income; or

• at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income.

For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). In addition, cash and other assets readily convertible into cash are generally considered passive assets. Certain proposed U.S. Treasury regulations and other administrative pronouncements from the Internal Revenue Service provide special rules for determining the character of income and assets derived in the active conduct of a banking business for purposes of the PFIC rules. Specifically, these rules treat certain income earned by a

non-U.S. corporation

engaged in the active conduct of a banking business as

non-passive

income. Although we believe we have adopted a reasonable interpretation of the proposed U.S. Treasury regulations and administrative

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pronouncements, there can be no assurance that the Internal Revenue Service will follow the same interpretation. You should consult your own tax advisor regarding the application of these rules.

If we own at least 25% by value of another corporation’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of the income of that corporation.

If we are a PFIC for any taxable year during which you hold our common shares or ADSs (and you do not make a timely

mark-to-market

election, as described below), you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from the sale or other disposition (including a pledge) of our common shares or ADSs. These special tax rules generally will apply even if we cease to be a PFIC in future years. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for our common shares or ADSs will be treated as excess distributions. Under these special tax rules:

• the excess distribution or gain will be allocated ratably over your holding period for our common shares or ADSs;

• the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we are a PFIC, 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 for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

In certain circumstances, you could make a

mark-to-market

election, under which in lieu of being subject to the special rules discussed above, you will include gain on our common shares or ADSs on a

mark-to-market

basis as ordinary income, provided that our common shares or ADSs are regularly traded on a qualified exchange or other market. Our common shares are listed on the Korea Exchange, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the

mark-to-market

election, and no assurance can be given that the common shares are or will continue to be “regularly traded” for purposes of the

mark-to-market

election. Our ADSs are currently listed on the New York Stock Exchange, which constitutes a qualified exchange, although there can be no assurance that the ADSs are or will continue to be “regularly traded.” If you make a valid

mark-to-market

election, for each year that we are a PFIC you will include as ordinary income the excess of the fair market value of your common shares or ADSs at the end of the year over your adjusted tax basis in the common shares or ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the common shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the

mark-to-market

election. If you make an effective

mark-to-market

election, in each year that we are a PFIC any gain you recognize upon the sale or other disposition of your common shares or ADSs will be treated as ordinary income, and any loss will be treated as ordinary loss, but such loss will be ordinary only to the extent of the net amount previously included in income as a result of the

mark-to-market

election.

A U.S. holder’s adjusted tax basis in common shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the

mark-to-market

rules. If a U.S. holder makes a

mark-to-market

election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or other market or the Internal Revenue Service consents to the revocation of the election. You should consult your tax advisor about the availability of the

mark-to-market

election, and whether making the election would be advisable with respect to your particular circumstances.

In addition, a holder of common shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the company as a “qualified electing fund” under Section 1295 of the Code. This option is not

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available to you because we do not intend to comply with the requirements necessary to permit holders to make this election.

If we are a PFIC for any taxable year during which you hold our common shares or ADSs and any of our

non-U.S.

subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. You will not be able to make the

mark-to-market

election described above in respect of any lower-tier PFIC. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

If you hold our common shares or ADSs in any year in which we are classified as a PFIC, you will generally be required to file Internal Revenue Service Form 8621.

Non-corporate

U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or were a PFIC in the preceding taxable year. You should consult your tax advisor concerning the determination of our PFIC status and the U.S. federal income tax consequences of holding our common shares or ADSs if we are considered a PFIC in any taxable year.

Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our common shares or ADSs and the proceeds from the sale, exchange or other disposition of our common shares or ADSs that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

FATCA

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), certain entities in a broadly defined class of foreign financial institutions (“FFIs”) may be subject to a 30% United States withholding tax on certain United States source payments made to the FFI, unless the FFI is a “participating FFI,” which is generally defined as an FFI that (i) enters into an agreement with the Internal Revenue Service pursuant to which it agrees to comply with a complicated and expansive reporting regime or (ii) complies with the requirements of an intergovernmental agreement entered into by the United States and another jurisdiction regarding the implementation of FATCA (an “IGA”), or the FFI is otherwise deemed compliant with or exempt from FATCA.

The FATCA legislation also contains complex provisions requiring certain participating FFIs to withhold on certain “foreign passthru payments” made to FFIs that are not participating FFIs or otherwise exempt from FATCA withholding and to holders that fail to provide the information required by FATCA. Although the definition of a “foreign passthru payment” is still reserved under current regulations, the term generally refers to payments that are from

non-United

States sources but that are “attributable to” certain United States payments described above. Pursuant to proposed U.S. Treasury regulations (upon which taxpayers may rely until final regulations are issued), withholding on foreign passthru payments, if applicable, would not be required with respect to payments made before the date that is two years after the date of publication of final regulations defining the term foreign passthru payment. It is unclear whether or to what extent payments on our common shares or ADSs would be considered foreign passthru payments that are subject to withholding under FATCA.

283

On June 10, 2015, the United States and Korea entered into an IGA to implement the foregoing requirements. The IGA is intended to result in the automatic exchange of tax information through reporting by FFIs to the Internal Revenue Service. Prospective investors should consult their tax advisors regarding the application of the FATCA rules to an investment in our common shares or ADSs.

ITEM 10.F. Dividends and Paying Agents

Not applicable.

ITEM 10.G. Statements by Experts

Not applicable.

ITEM 10.H. Documents on Display

We are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form

20-F,

and other information with the U.S. Securities and Exchange Commission. You may inspect and copy these materials, including this annual report and the exhibits thereto, at SEC’s Public Reference Room 100 Fifth Street, N.E., Washington, D.C. 20549. Please call the Commission at

1-800-SEC-0330

for further information on the public reference rooms. As a foreign private issuer, we are also required to make filings with the Commission by electronic means. Any filings we make electronically will be available to the public over the Internet at the Commission’s web site at

http://www.sec.gov

.

ITEM 10.I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 4.B. Business Overview — Risk Management” for quantitative and qualitative disclosures about market risk.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 12.A. Debt Securities

Not applicable.

ITEM 12.B. Warrants and Rights

Not applicable.

ITEM 12.C. Other Securities

Not applicable.

284

ITEM 12.D. American Depositary Shares

Depositary Fees and Charges

Under the terms of the Deposit Agreement in respect of our American depositary shares (“ADSs”), the holder of ADSs may be required to pay the following fees and charges to Citibank, N.A., acting as depositary for our ADSs:

Item	Services	Fees	Paid by
1	Issuance of ADSs upon deposit of common shares (excluding issuances contemplated by items 3(b) and 5 below	Up to US$5.00 per 100 ADSs (or fraction thereof) issued	Person depositing common shares or person receiving ADSs
2	Delivery of deposited securities against surrender of ADSs	Up to US$5.00 per 100 ADSs (or fraction thereof) surrendered	Person surrendering ADSs for purpose of withdrawal of deposited securities or person to whom deposited securities are delivered
3	Distribution of (a) cash dividends or (b) ADSs pursuant to stock dividends	No fee, to the extent prohibited by the exchange on which the ADSs are listed. If the charging of such fee is not prohibited, the fees specified in item 4 below shall be payable	Person to whom distribution is made
4	Distribution of (a) cash proceeds (i.e., upon sale of rights and other entitlements) or (b) free shares in the form of ADSs (not constituting a stock dividend)	Up to US$2.00 per 100 ADSs (or fraction thereof) held	Person to whom distribution is made
5	Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spinoff shares)	Up to US$5.00 per 100 ADSs (or fraction thereof) distributed	Person to whom distribution is made
6	Depositary Services	Unless prohibited by the exchange on which the ADSs are listed, up to US$2.00 per 100 ADSs (or fraction thereof) held as of the last day of each calendar year, except to the extent of any cash dividend fee(s) charged under paragraph (3)(a) above during the applicable calendar year	Person holding ADSs on last day of calendar year
7	Distribution of ADSs pursuant to exercise of rights to purchase additional ADSs	Up to US$2.00 per 100 ADSs (or fraction thereof) held	Person who exercises such rights

285

Holders and beneficial owners of ADSs, persons depositing common shares for deposit and persons surrendering ADSs for cancellation and for the purpose of withdrawing deposited securities shall be responsible for the following charges:

(i) taxes (including applicable interest and penalties) and other governmental charges;

(ii) such registration fees as may from time to time be in effect for the registration of common shares or other deposited securities on the share register and applicable to transfers of common shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;

(iii) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing or withdrawing common shares or holders and beneficial owners of ADSs;

(iv) the expenses and charges incurred by the depositary in the conversion of foreign currency;

(v) such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to common shares, deposited securities, ADSs and ADRs; and

(vi) the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities.

Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients.

Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or

un-certificated

in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, The Depository Trust Company (DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the Deposit Agreement, refuse the requested service until payment is received or may

set-

off the amount of the depositary fees from any distribution to be made to the ADS holder.

The fees and charges the ADS holders may be required to pay may vary over time and may be changed by us and by the depositary. The ADS holders will receive prior notice of such changes.

286

Depositary Payments for the Fiscal Year 2021

In 2021, we received the following payments from Citibank, N.A., acting as depositary for our ADSs:

Reimbursement of settlement infrastructure fees (including DTC fees)	US$	—
Reimbursement of proxy process expenses (printing, postage and distribution)	US$	54,279.87
Legal expenses	US$	2,842.20
Contributions towards our investor relations efforts (i.e., non-deal roadshows, investor conferences and IR agency fees) and legal expenses incurred in connection to the preparation of our Form 20-F for the fiscal year 2020	US$	—
Total:	US$	57,122.07

Note:

The amounts provided above are after deduction of applicable of U.S. taxes.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Control

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule

13a-15(e)

under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2021. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures as of December 31, 2021 were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decision regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act, for our company. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Internal Control-Integrated Framework (2013) suspended the original framework issued by COSO in 1992 on December 15, 2014. We adopted the 2013 Framework on December 15, 2014. Further details of the changes made are set out below. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with

287

generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.

The effectiveness of our internal control over financial reporting has been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm, who has also audited our consolidated financial statements for the year ended December 31, 2021. Samil PricewaterhouseCoopers has issued an attestation report on the effectiveness of our internal control over financial reporting an independent registered public accounting firm, as stated in its report included herein, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021.

Attestation Report of the Independent Registered Public Accounting Firm

Samil PricewaterhouseCoopers’s attestation report on the effectiveness of internal control over financial reporting can be found on page

F-2

of this annual report.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Audit Committee currently consists of four outside directors, namely Yoon Jaewon (Chair), Sung

Jae-ho,

Kwak Su Keun and Lee

Yoon-jae.

Our board of directors has determined that Yoon Jaewon, the chair of our Audit Committee is an “audit committee financial expert,” as such term is defined by the regulations of the Securities and Exchange Commission issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. Yoon Jaewon, Sung

Jae-ho,

Kwak Su Keun and Lee

Yoon-jae

are independent as such term is defined in Section 303A.02 of the NYSE Listed Company Manual, Rule

10A-3

under the Exchange Act and the Korea Stock Exchange listing standards.

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as required under Section 406 of the Sarbanes-Oxley Act of 2002, together with an insider reporting system in compliance with Section 301 of the Sarbanes-Oxley Act. We have not granted any waiver, including an implicit waiver, from a provision of the code of ethics to any of the above-mentioned officers during our most recently completed fiscal year. As a further detailed guideline to the code of ethics, we have also adopted a code of ethics applicable to all the officers and employees of our holding company and our subsidiaries and established a supplemental code of behavior for all officers and employees of our holding company and our subsidiaries in order to provide additional guideline for the performance of their work-related duties as well as their daily behavior. Our code of ethics is available on our website

www.shinhangroup.com

.

288

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed for professional services rendered by our principal auditors for the years ended December 31, 2019, 2020 and 2021, for various types of services and a brief description of the nature of such services. KPMG Samjong Accounting Corp., a Korean independent registered public accounting firm, was our principal auditors for the year ended December 31, 2019. Samil PricewaterhouseCoopers, a Korean independent registered public accounting firm, was our principal auditors for the year ended December 31, 2020 and 2021 and we currently expect Samil PricewaterhouseCoopers to serve as our principal auditors for the year ended December 31, 2021.

Type of Services	Aggregate Fees Billed During the Year Ended December 31,						Nature of Services
	2019		2020		2021
	(In millions of Won)
Audit fees	W	10,659	W	11,751	W	12,533	Audit service for Shinhan Financial Group and its subsidiaries.
Audit related fees		30		244		434	Assurance services rendered in the ordinary course of our business
Tax fees		35		152		—	Tax return and consulting advisory service.
All other fees		284		—		—	All other services which do not meet the three categories above.
Total	W	11,008	W	12,147	W	12,967

Our Audit Committee generally

pre-approves

all engagements of our principal accountants pursuant to policies and procedures adopted by it. Our Audit Committee has adopted the following policies and procedures for consideration and approval of requests to engage our principal accountants to perform audit and

non-audit

services. Engagement requests for audit and

non-audit

services for us or our subsidiaries must, in the first instance, be submitted to our Audit Team. If the request relates to services that would impair the independence of our principal accountants, the request must be rejected. If the engagement request relates to audit and permitted

non-audit

services, it must be forwarded to the Audit Committee for consideration. To facilitate the consideration of engagement requests between its meetings, the Audit Committee has delegated approval authority of the following: (i) permitted

non-audit

services to our holding company, (ii) audit services to our subsidiaries and (iii) permitted

non-audit

services to our subsidiaries, to one of its members who is “independent” as defined by the Securities and Exchange Commission and the New York Stock Exchange. Such member in our case is Yoon Jaewon, the chair of our Audit Committee, and she is required to report any approvals made by her to the Audit Committee at its next meeting. Our Audit Committee meets regularly once every quarter.

Any other audit or permitted

non-audit

service must be

pre-approved

by the Audit Committee on a

case-by-case

basis. Our Audit Committee did not

pre-approve

any

non-audit

services under the de minimis exception of Rule 2.01(c)(7)(i)(C) of Regulation

S-X

as promulgated by the Securities and Exchange Commission.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

289

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth information regarding purchases by us of our common shares during the period covered by this annual report.

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (as of end of period)
January 1 to January 31, 2021		—	W	—		—	$	—
February 1 to February 28, 2021		—		—		—		—
March 1 to March 31, 2021		—		—		—		—
April 1 to April 30, 2021		—		—		—		—
May 1 to May 31, 2021		—		—		—		—
June 1 to June 30, 2021		—		—		—		—
July 1 to July 31, 2021		—		—		—		—
August 1 to August 31, 2021		—		—		—		—
September 1 to September 30, 2021		1		40,400		—		—
October 1 to October 31, 2021		—		—		—		—
November 1 to November 30, 2021		—		—		—		—
December 1 to December 31, 2021		1		36,800		—		—
Total		2	W	38,600		—	$	—

Other than as described above, neither we nor any “affiliated purchaser,” as defined in Rule

10b-18(a)(3)

of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

We are committed to high standards of corporate governance. We are in compliance with the corporate governance provisions of the Korean Commercial Code, the Financial Holding Companies Act of Korea, the Act on Corporate Governance of Financial Companies, the Financial Investment Services and Capital Markets Act and the Listing Rules of the Korea Exchange. We, like all other companies in Korea, must comply with the corporate governance provisions of the Korean Commercial Code. In addition, as a financial holding company, we are also subject to the Financial Holding Companies Act and the Act on Corporate Governance of Financial Companies. Also, our subsidiaries that are financial institutions must comply with the respective corporate governance provisions under the Act on Corporate Governance of Financial Companies and relevant laws under which they were established.

The Act on Corporate Governance of Financial Companies came into effect as of August 1, 2016. The Act was enacted to address calls for strengthened regulations on corporate governance of financial companies and to serve as a uniform regulation on corporate governance matters applicable to all financial companies in place of the separate regulations for each sector that existed. The Act contains several key measures, including, but not limited, to (i) condition of eligibility of officers of financial companies and standards for determining whether financial companies’ officers may hold concurrent positions in other companies, (ii) standards for composition

290

and operation of board of directors, (iii) standards for establishment, composition and operation of committees of the board of directors, (iv) internal control and risk management, (v) requirements and procedures for the approval of a change of major shareholders and (vi) special regulations for rights of minority shareholders of financial companies.

We are a “foreign private issuer” (as such term is defined in

Rule 3b-4

under the Exchange Act), and our ADSs are listed on the New York Stock Exchange, or NYSE. Under Section 303A of the NYSE Listed Company Manual, NYSE-listed companies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate governance provisions specified by the NYSE with limited exceptions. Under the NYSE Listed Company Manual, we as a foreign private issuer are required to disclose significant differences between NYSE’s corporate governance standards and those we follow under Korean law. The following summarizes some significant ways in which our corporate governance practices differ from those followed by U.S. companies listed on the NYSE under the listing rules of the NYSE:

Majority of Independent Directors on the Board

Under the NYSE listing rules, U.S. companies listed on the NYSE must have a board the majority of which is comprised of independent directors satisfying the requirements of “independence” as set forth in Rule

10A-3

under the Exchange Act. While as a foreign private issuer, we are exempt from this requirement, but our board of directors is in compliance with this requirement as it currently consists of 14 directors, of which 12 directors satisfy the requirements of “independence” as set forth in Rule

10A-3

under the Exchange Act. 12 of our directors are also “outside directors” as defined in the Financial Holding Companies Act of Korea. An “outside director” for purposes of the Act on Corporate Governance of Financial Companies and the Korean Commercial Code means a director who does not engage in the regular affairs of the financial holding company, and who is elected at a shareholders’ meeting, after having been nominated by the outside director nominating committee, and none of the largest shareholder, those persons “specially related” to the largest shareholder of such company, persons who during the past two years have served as an officer or employee of such company, the spouses and immediate family members of an officer of such company, and certain other persons specified by law may qualify as an outside director of such company. Under the Korea Exchange listing rules and the Korean Commercial Code, at least

one-fourth

of a listed company’s directors must be outside directors. In the case of “large listed companies” as defined under the Korean Commercial Code, like us, a majority of the directors must be outside directors provided that there must be at least three outside directors.

Executive Session

Under the NYSE listing rules,

non-management

directors of U.S. companies listed on the NYSE are required to meet on a regular basis without management present and independent directors must meet separately at least once per year. There is no such requirement under Korean law or listing standards or our internal regulations.

Audit Committee

Under the NYSE listing rules, listed companies must have an audit committee that has a minimum of three members, and all audit committee members must satisfy the requirements of independence set forth in Section 303A.02 of the NYSE Listed Company Manual and Rule

10A-3

under the Exchange Act. We are in compliance with this requirement as our Audit Committee is comprised of four outside directorsmeeting the requirements of independence set forth in Section 303A.02 of the NYSE Listed Company Manual and Rule

10A-3

under the Exchange Act. Under the Korea Exchange listing rules and the Korean Commercial Code, a large listed company must also establish an audit committee of which at least

two-thirds

of its members must be outside directors and whose chair must be an outside director. In addition, under the Act on Corporate Governance of Financial Companies, at least one member of the audit committee who is an outside director must also be an accounting or financial expert. We are also in compliance with the foregoing requirements.

291

Nomination/Corporate Governance Committee

Under the NYSE listing rules, U.S. companies listed on the NYSE must have a nomination/corporate governance committee composed entirely of independent directors. In addition to identifying individuals qualified to become board members, this committee must develop and recommend to the board a set of corporate governance principles. Under the Korean Commercial Code and other applicable laws, large listed companies, financial holding companies, commercial banks, and certain other financial institutions are required to have an outside director nominating committee of which at least

one-half

of its members are required to be outside directors. However, there is no requirement to establish a corporate governance committee under applicable Korean law. Our outside director nominating committee is formed on an ad hoc basis prior to a general shareholders’ meeting if the agenda for such meeting includes appointment of an outside director. The composition of the committee is in compliance with the relevant provisions under the Korean Commercial Code and the Act on Corporate Governance of Financial Companies, and the chair of the committee must be an outside director pursuant to the Act on Corporate Governance of Financial Companies.

We currently have a committee for recommending candidates for CEO, which is responsible for general corporate governance, reviewing and recommending nominees for the president and/or CEO of our group and the development, operation and review of our management succession plan, including setting the qualifications for he CEO, evaluating the CEO candidate pool and recommending CEO candidates. The chair of the committee must be an outside director, and the incumbent CEO may be restricted from participating and voting on matters related to CEO selection. We also have a committee for recommending candidates for independent directors and members of the audit committee, which is responsible for matters related to the recommendation and nomination of outside directors including audit committee members. In addition, in light of the recent emphasis on corporate governance, in March 2021, we transferred certain functions, such as those relating to code of ethics and other code of behavior, determination of the size of the board of directors and other matters necessary for improving our overall corporate governance structure, from the corporate governance committee to the board of directors.

Compensation Committee

Under the NYSE listing rules, U.S. companies listed on the NYSE are required to have a compensation committee which is composed entirely of independent directors. In January 2013, the SEC approved amendments to the listing rules of NYSE and NASDAQ regarding the independence of compensation committee members and the appointment, payment and oversight of compensation consultants. The listing rules were adopted as required by Section 952 of the Dodd-Frank Act and rule

10C-1

of the Securities Exchange Act of 1934, as amended, which direct the national securities exchanges to prohibit the listing of any equity security of a company that is not in compliance with the rule’s compensation committee director and advisor independence requirements. Certain elements of the listing rules became effective on July 1, 2013 and companies listed on the NYSE must comply with such listing rules by the earlier of the company’s first annual meeting after January 15, 2014, or October 31, 2014.

Under the Act on Corporate Governance of Financial Companies, financial institutions including financial holding companies must establish a compensation committee of which at least

one-half

of its members must be outside directors and whose chairman must be an outside director.

We currently have a remuneration committee, which is responsible for reviewing and approving the management’s evaluation and compensation programs. The committee consists of four members, all of whom are outside directors and satisfy the independent director requirements as set forth in Rule

10A-3

under the Exchange Act.

Corporate Governance Guidelines and Code of Business Conduct and Ethics

Under the NYSE listing rules, U.S. companies listed on the NYSE are required to establish corporate governance guidelines and to adopt a code of business conduct and ethics for directors, officers and employees,

292

and promptly disclose any waivers of the code for directors or executive officers. As a foreign private issuer, we are exempt from this requirement. In Korea, the Financial Services Commission implemented the Standard Corporate Governance Guidelines for Financial Service Companies in December 2014, and accordingly, we have adopted in February 2015 and are currently complying with international regulators on corporate governance modeled after the standard guidelines implemented by the Financial Services Commission,

Pursuant to the requirements of the Sarbanes-Oxley Act, we have adopted a code of ethics applicable to all the officers and employees of our holding company and our subsidiaries, including all financial, accounting and other officers and employees that are involved in the preparation and disclosure of Shinhan Financial Group’s consolidated financial statements and internal control of financial reporting. As a further detailed guideline to the code of ethics, we have also established a supplemental code of behavior for all officers and employees of our holding company and our subsidiaries in order to provide additional guideline for the performance of their work-related duties as well as their daily behavior. We have also adopted an insider reporting system in compliance with Section 301 of the Sarbanes-Oxley Act. The above-mentioned code of ethics and the code of behavior are available on our website

www.shinhangroup.com

.

On May 25, 2011, the SEC adopted final rules to implement whistleblower provisions of the Dodd-Frank Act, which are applicable to foreign private issuers with securities registered under the U.S. securities laws. The final rules provide that any eligible whistleblower who voluntarily provides the SEC with original information that leads to the successful enforcement of an action brought by the SEC under U.S. securities laws must receive an award of between 10 and 30 percent of the total monetary sanctions collected if the sanctions exceed US$1,000,000. An eligible whistleblower is defined as someone who provides information about a possible violation of the securities laws that he or she reasonably believes has occurred, is ongoing, or is about to occur. The possible violation does not need to be material, probably or even likely, but the information must have a “facially plausible relationship to some securities law violation”; frivolous submissions would not qualify. The final rules also prohibit retaliation against the whistleblower. While the final rules do not require employees to first report allegations of wrongdoing through a company’s corporate compliance system, they do seek to incentivize whistleblowers to utilize internal corporate compliance first by, among other things, (i) giving employees who first report information internally the benefit of the internal reporting date for purposes of the SEC program so long as the whistleblower submits the same information to the SEC within 120 days of the initial disclosure; (ii) clarifying that the SEC will consider, as part of the criteria for determining the amount of a whistleblower’s award, whether the whistleblower effectively utilized the company’s corporate compliance program or hindered the function of the program; and (iii) crediting a whistleblower who reports internally first and whose company passes the information along to the SEC, which would mean the whistleblower could receive a potentially higher award for information gathered in an internal investigation initiated as a result of the whistleblower’s internal report.

In addition, the final rules address concerns that the whistleblower rules incentivize officers, directors and those with legal, audit, compliance or similar responsibilities to abuse these positions by making whistleblower complaints to the SEC with respect to information they obtained in these roles by generally providing that information obtained through a communication subject to attorney-client privilege or as a result of legal representation would not be eligible for a whistleblower award unless disclosure would be permitted by attorney conduct rules. Accordingly, officers and directors, auditors and compliance personnel and other persons in similar roles would not be eligible to receive awards for information received in these positions unless (x) they have a reasonable basis to believe that (1) disclosure of the information is necessary to prevent the entity from engaging in conduct that is likely to cause substantial injury to the financial interests of the entity or investors; or (2) the entity is engaging in conduct that will impede an investigation of the misconduct, for example, destroying documents or improperly influencing witnesses; or (y) 120 days have passed since the whistleblower provided the information to senior responsible persons at the entity or 120 days have passed since the whistleblower received the information at a time when these people were already aware of the information.

In Korea, the Act on the Protection of Public Interest Whistleblowers (the “Act on Whistleblowers”) was enacted in March 29, 2011 and became effective on September 30, 2011, and was last amended on April 17,

293

2018. Under the Act on Whistleblowers, a “conduct detrimental to the public interest” means any conduct falling under the penalty provisions of certain acts or any conduct subject to administrative measures such as cancellation or suspension of an approval or a permit. As the Financial Holding Companies Act is included in the “certain acts” above, any conduct falling under the penalty provisions or subject to administrative measures for a violation of the Financial Holding Companies Act constitutes a “conduct detrimental to the public interest.” Any person deeming that a conduct detrimental to the public interest has been, or is likely to be, committed may make a public interest report to a representative of the organization involved or a relevant investigative agency. The personal information of a public interest whistleblower shall be kept in confidence, and the measures necessary for personal protection of a public interest whistleblower shall be taken. In addition, any disadvantageous measures against a public interest whistleblower, including discriminatory treatment and delayed payment of wage, are prohibited, and where a public interest report leads to a recovery of, or increase in, revenues of the Government, the public interest whistleblower may be entitled to compensation by the Anti-Corruption and Civil Rights Commission of Korea.

We established a group-wide whistleblower policy in July 2005 and maintain related policies and programs for most of our subsidiaries. For example, Shinhan Bank maintains a whistleblower program named “

Shinhan Jikimi,

” through which any employee, vendor or customer can raise concerns and report suspicious circumstances in confidence using a variety of channels including the Internet, email, postal mail, facsimile and mobile phones. In addition, Shinhan Bank distributes to its employees a quarterly email notice intended to raise awareness of the whistleblower program and posts relevant informative materials on the company bulletin board. At Shinhan Card and Shinhan Investment, we strive to maintain transparency in every aspect of business activities and provide secure and accessible channels for all related parties to raise concerns and report violations.

Shareholder Approval of Equity Compensation Plans

Under the NYSE listing rules, shareholders of U.S. companies listed on the NYSE are required to approve all equity compensation plans.

Under Korean law, if a company issues stock options amounting to 10% or more of its issued and outstanding shares, only a board of director resolution is required for such issuance if permitted by such company’s articles of incorporation.Under our articles of incorporation, we may also grant stock options, but since April 1, 2010, we have not granted any stock options.

We currently have two equity compensation plans, consisting of a performance share plan for directors and key employees and an employee stock ownership plan for all employees under the Framework Act on Labor Welfare.

In accordance with our internal regulations, performance shares granted to directors are granted pursuant to a resolution by the board of director, subject to the limit amount set by a resolution at the shareholders’ meeting while performance shares granted to key employees are granted pursuant to a resolution by the board of director, without any requirement that the limit amount be approved at the shareholders’ meeting. There are no requirements relating to the granting of performance shares under applicable Korean laws and our articles of incorporation.

Under the Framework Act on Labor Welfare, a Korean company may issue stock options up to 20% of its issued and outstanding shares by a resolution at the shareholders’ meeting, if permitted by the articles of incorporation. Our articles of incorporation does not contain such provision. The equity compensation scheme for the employee stock ownership association is governed by its internal regulations, over which we have no control under Korean law.

Annual Certification of Compliance

Under the NYSE listing rules, a chief executive officer of a U.S. company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance

294

standards. As a foreign private issuer, we are not subject to this requirement. However, in accordance with rules applicable to both U.S. companies and foreign private issuers, we are required to promptly notify the NYSE in writing if any executive officer becomes aware of any material noncompliance with the NYSE corporate governance standards applicable to us. In addition, foreign private issuers, including us, are required to submit to the NYSE an annual written affirmation relating to compliance with Sections 303A.06 and 303A.11 of the NYSE listed company manual, which are the NYSE corporate governance standards applicable to foreign private issuers. All written affirmations must be executed in the form provided by the NYSE, without modification. An annual written affirmation is required to be submitted to the NYSE within 30 days of filing with the SEC our annual report on Form

20-F.

We have been in compliance with this requirement in all material respects and plan to submit such affirmation within the prescribed timeline.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS .

Not applicable.

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

Reference is made to Item 19(a) for a list of all financial statements filed as part of this annual report.

ITEM 19. EXHIBITS

(a) Exhibits filed as part of this Annual Report:

See Exhibit Index beginning on page 296 of this annual report.

(b) Financial Statements filed as part of this Annual Report:

See Index to Financial Statements on page

F-1

of this annual report.

295

INDEX OF EXHIBITS

1.1	Articles of Incorporation, last amended as of March 25, 2021 (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 shares 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, 2003, 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) † ***
4.6	Form of Share Purchase Agreement, dated January 17, 2007, by and between Shinhan Financial Group and the holders of the redeemable preferred shares and the redeemable convertible shares issued by Shinhan Financial Group as part of the funding for the acquisition of LG Card Co., Ltd. (in English) †****
4.7	LG Card Acquisition Agreement, dated 2006, between Korea Development Bank and 13 other financial institutions, on the one hand, and Shinhan Financial Group†*****
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)
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

† 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.

296

** 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.

*** Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on June 30, 2006.

**** Incorporated by reference to the registrant’s previous filing on Form 20-F (No. 001-31798), filed on June 29, 2007.

***** Incorporated by reference to registrant’s previous filing on Form 20-F (No. 001-31798), filed on June 30, 2008.

297

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form

20-F

and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 20, 2022

Shinhan Financial Group Co., Ltd.
By:	/s/ Cho Yong-byoung
	Name: Cho Yong-byoung
	Title:  Chairman and Chief Executive Officer

298

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Index to Consolidated Financial Statements		F-1
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (as of December 31, 2021 and for each of the two years in the period ended)		F-2
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (as of December 31, 2019 and for the year then ended)		F-5
Consolidated Statements of Financial Position		F-6
Consolidated Statements of Comprehensive Income		F-7
Consolidated Statements of Changes in Equity		F-9
Consolidated Statements of Cash Flows		F-12
Notes to the Consolidated Financial Statements		F-16

Auditor Firm ID: 1103 Auditor Name: Samil PricewaterhouseCoopers Auditor Location: 17th Flr, 100, hangang-daero, Yongsan-gu, Seoul, Republic of Korea 04386

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Shinhan Financial Group Co., Ltd.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Shinhan Financial Group Co., Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in

Internal Control — Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in

Internal Control — Integrated Framework

(2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-2

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses of Loans Measured at Amortized Cost

As described in Notes 4, 5, and 12 to the consolidated financial statements, as of December 31, 2021, the allowance for credit losses was

W

3,167,068 million on total loans at amortized cost retained of

W

392,304,224 million. The Company recognizes allowance for expected credit losses of loans measured at amortized cost under both individual and collective assessments. For collectively assessed loans, the calculation of the allowance for credit losses required management to make a number of judgments, assumptions and estimates. The most significant included probability of default, the accuracy of borrower credit risk ratings, and forward-looking information. Allowance for credit losses for individually assessed loans are determined by the estimation of the expected cash flows.

The principal considerations for our determination that performing procedures relating to the allowance for credit losses of loans measured at amortized cost is a critical audit matter are: (i) there was significant judgment by management in determining the allowance, which in turn led to a high degree of auditor subjectivity in performing procedures related to the impairment models, key assumptions, such as probability of default, credit risk ratings, determination of the forward-looking information and the expected future cash flows related to individual exposures; (ii) there was significant judgment and effort in evaluating audit evidence related to these models, judgments and assumptions used to determine the allowance; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the estimation process, which included controls over the data, models and assumptions used in determining the allowance for credit losses. These procedures also included, among others, the

F-3

involvement of professionals with specialized skill and knowledge to assist in testing management’s process to estimate the allowance for credit losses including evaluating the appropriateness of methodology and models, and evaluating the reasonableness of significant assumptions used in the impairment models, such as probability of default and credit risk ratings. It also included evaluating the reasonableness of key assumptions in the forward-looking information. Evaluating the forward-looking information assumptions involved assessing their reasonableness against external data and economic events that have occurred. We also assessed the reasonableness of the accuracy of borrower credit risk ratings and expected future cash flows related to individually assessed exposures.

Valuation of

Over-The-Counter

Derivatives Classified as Level 3 Subject to Internal Valuation Models

As described in Note 4.(e) to the consolidated financial statements, over-the-counter derivatives classified as level 3 of Shinhan Investment Corp. subject to fair value measurement were

W

8,376,316 million as of December 31, 2021. Valuation of such derivatives requires broad judgement on internal valuation models and the type of unobservable inputs used. When adopting or modifying models or unobservable inputs used for valuation of such derivatives, the most significant includes the appropriateness of internal valuation models or unobservable inputs used.

The principal considerations for our determination that performing procedures relating to valuation of level 3 over-the-counter derivatives is a critical audit matter are: (i) there was significant judgment by management in determining the internal valuation models, which in turn led to a high degree of auditor subjectivity in performing procedures related to the valuation of derivatives using internal valuation models; (ii) there was significant judgment and effort in evaluating audit evidence related to these internal valuation models and unobservable inputs used to determine the valuation of level 3 over-the-counter derivatives; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation process, which included controls over the review on development and validation on change of the internal valuation models and unobservable inputs used in valuation of level 3 derivatives. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of fair value using independently assessed internal valuation models and unobservable inputs for the evaluation of the management’s valuation.

/s/ Samil PricewaterhouseCoopers

Seoul, the Republic of Korea

April 20, 2022

We have served as the Company’s auditor since 2020.

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Shinhan Financial Group Co., Ltd.:

Opinion on the Consolidated Financial Statements

We have audited the consolidated statements of comprehensive income, changes in equity, and cash flows of Shinhan Financial Group Co., Ltd. and subsidiaries (the “Group”) for the year ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows of the Group for the year ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor from 2002 to 2020.

Seoul, Korea

April 29, 2020

F-5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2020 and 2021

(In millions of won)	Note		2020			2021
Assets
Cash and due from banks at amortized cost		4, 8, 12, 19	W	33,410,542			28,453,404
Financial assets at fair value through profit or loss		4, 9, 19		59,091,403			62,403,759
Derivative assets		4, 10		5,633,915			3,799,189
Securities at fair value through other comprehensive income		4, 11, 19		58,316,112			64,838,323
Securities at amortized cost		4, 11, 19		47,282,623			49,930,076
Loans at amortized cost		4, 12		356,221,519			389,137,156
Property and equipment, net		13, 18, 19		3,989,697			4,046,164
Intangible assets		14		5,480,619			5,644,782
Investments in associates		15		2,657,768			2,913,745
Current tax receivable				51,894			15,159
Deferred tax assets		41		215,345			134,854
Investment property		16		615,235			675,391
Net defined benefit assets		25		18,374			142,020
Other assets		4, 12, 17, 19		32,194,666			35,973,754
Assets held for sale				54,392			44,409
Total assets			W	605,234,104			648,152,185
Liabilities
Deposits		4, 20	W	326,416,868			364,896,675
Financial liabilities at fair value through profit or loss		4, 21		1,436,694			1,369,225
Financial liabilities designated at fair value through profit or loss		4, 22		8,455,724			8,023,870
Derivative liabilities		4, 10		5,016,567			3,586,564
Borrowings		4, 23		41,594,064			43,167,065
Debt securities issued		4, 24		75,134,394			80,149,363
Net defined benefit liabilities		25		62,514			51,204
Provisions		26		804,736			1,166,856
Current tax payable				389,586			702,660
Deferred tax liabilities		41		579,656			175,947
Liabilities under insurance contracts		27		53,460,230			54,333,498
Other liabilities		4, 28		45,526,213			40,990,836
Total liabilities			W	558,877,246			598,613,763
Equity		29
Capital stock			W	2,969,641			2,969,641
Hybrid bonds				2,179,934			3,334,531
Capital surplus				12,234,939			12,095,043
Capital adjustments				(687,935	)		(664,429	)
Accumulated other comprehensive loss				(404,181	)		(984,936	)
Retained earnings				27,777,169			30,541,300
Total equity attributable to equity holders of Shinhan Financial Group Co., Ltd.				44,069,567			47,291,150
Non-controlling interests				2,287,291			2,247,272
Total equity				46,356,858			49,538,422
Total liabilities and equity			W	605,234,104			648,152,185

See accompanying notes to the consolidated financial statements.

F-

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2019, 2020 and 2021

(In millions of won)	Note		2019			2020			2021
Interest income
Financial assets at fair value through other comprehensive income and at amortized cost			W	14,878,516			13,943,159			14,027,418
Financial assets at fair value through profit or loss				828,846			830,837			696,812
				15,707,362			14,773,996			14,724,230
Interest expense				(5,969,398	)		(4,891,296	)		(3,954,905	)
Net interest income		31		9,737,964			9,882,700			10,769,325
Fees and commission income				3,557,013			3,814,474			4,139,885
Fees and commission expense				(1,416,494	)		(1,431,541	)		(1,464,888	)
Net fees and commission income		32		2,140,519			2,382,933			2,674,997
Insurance income				7,569,425			7,247,753			6,484,523
Insurance expenses				(8,066,351	)		(7,851,685	)		(7,259,909	)
Net insurance expenses		27		(496,926	)		(603,932	)		(775,386	)
Dividend income		33		82,158			97,956			124,531
Net gain on financial instruments at fair value through profit or loss		34		1,385,482			272,830			1,103,631
Net gain (loss) on financial instruments at fair value through profit or loss (overlay approach)		9		(247,585	)		(136,255	)		43,003
Net gain (loss) on financial instruments designated at fair value through profit or loss		35		(846,046	)		198,239			(88,301	)
Net gain on foreign currency transaction				440,948			526,615			222,819
Net gain on disposal of securities at fair value through other comprehensive income		11		152,278			273,793			85,596
Net gain (loss) on disposal of securities at amortized cost		11		66			(25	)		(319	)
Provision for allowance for credit loss		36		(980,692	)		(1,382,179	)		(974,685	)
General and administrative expenses		37		(5,134,674	)		(5,212,473	)		(5,743,088	)
Other operating expenses, net		39		(1,187,242	)		(1,370,466	)		(1,490,027	)
Operating income				5,046,250			4,929,736			5,952,096
Equity method income		15		53,287			159,533			158,600
Other non-operating expense, net		40		(188,029	)		(335,398	)		(527,032	)
Profit before income taxes				4,911,508			4,753,871			5,583,664
Income tax expense		41		1,269,124			1,255,795			1,471,036
Profit for the year			W	3,642,384			3,498,076			4,112,628

See accompanying notes to the consolidated financial statements.

F-

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Continued)

For the years ended December 31, 2019, 2020 and 2021

(In millions of won, except earnings per share data)	Note		2019			2020			2021
Other comprehensive income for the year, net of income tax		29
Items that are or may be reclassified to profit or loss:
Gain (loss) on securities at fair value through other comprehensive income			W	352,085			(86,784	)		(879,671	)
Gain (loss) on financial instruments at fair value through profit or loss (overlay approach)		9		162,967			90,298			(20,098	)
Equity in other comprehensive income (loss) of associates				3,302			(3,318	)		2,748
Foreign currency translation adjustments for foreign operations				105,771			(161,365	)		252,308
Net change in unrealized fair value of cash flow hedges				(18,589	)		(14,460	)		21,700
Other comprehensive income (loss) of separate account				10,427			3,884			(41,273	)
				615,963			(171,745	)		(664,286	)
Items that will never be reclassified to profit or loss:
Remeasurements of the defined benefit liability				(54,644	)		15,812			43,277
Equity in other comprehensive loss of associates				(8	)		(10	)		(2	)
Valuation gain on securities at fair value through other comprehensive income				18,885			6,841			35,441
Loss on disposal of securities at fair value through other comprehensive income				(5,861	)		(27,826	)		(29,421	)
Changes in own credit risk on financial liabilities designated at fair value through profit of loss				(8,425	)		3,084			(2,798	)
				(50,053	)		(2,099	)		46,497
Total other comprehensive income  (lo ss),  net of income tax				565,910			(173,844	)		(617,789	)
Total comprehensive income for the year			W	4,208,294			3,324,232			3,494,839
Profit attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.		29, 42	W	3,403,497			3,414,595			4,019,254
Non-controlling interests				238,887			83,481			93,374
			W	3,642,384			3,498,076			4,112,628
Total comprehensive income attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.			W	3,890,701			3,242,745			3,402,925
Non-controlling interests				317,593			81,487			91,914
			W	4,208,294			3,324,232			3,494,839
Earnings per share:		29, 42
Basic and diluted earnings per share in won			W	7,000			6,654			7,308

See accompanying notes to the consolidated financial statements.

F-

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the year ended December 31, 2019

(In millions of won)	Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
	Capital stock		Hybrid bonds		Capital surplus		Capital adjustments			Accumulated other compre- hensive income (loss)			Retained earnings			Sub-total			Non- controlling interests			Total
Balance at January 1, 2019	W	2,645,053		1,531,759		9,895,488		(552,895	)		(753,220	)		22,959,440			35,725,625			925,805			36,651,430
Total comprehensive income for the year
Profit for the year		—		—		—		—			—			3,403,497			3,403,497			238,887			3,642,384
Other comprehensive income (loss), net of income tax:
Gain on valuation and disposal of securities at fair value through other comprehensive income		—		—		—		—			297,652			—			297,652			67,457			365,109
Gain on financial instruments at fair value through profit or loss (overlay approach)		—		—		—		—			150,678			—			150,678			12,289			162,967
Equity in other comprehensive income of associates		—		—		—		—			3,294			—			3,294			—			3,294
Foreign currency translation adjustments for foreign operations		—		—		—		—			104,388			—			104,388			1,383			105,771
Net change in unrealized fair value of cash flow hedges		—		—		—		—			(15,960	)		—			(15,960	)		(2,629	)		(18,589	)
Other comprehensive income of separate account		—		—		—		—			10,427			—			10,427			—			10,427
Remeasurements of defined benefit plans		—		—		—		—			(54,850	)		—			(54,850	)		206			(54,644	)
Changes in own credit risk on financial liabilities designated at fair value through profit or loss		—		—		—		—			(8,425	)		—			(8,425	)		—			(8,425	)
Total other comprehensive income		—		—		—		—			487,204			—			487,204			78,706			565,910
Total comprehensive income		—		—		—		—			487,204			3,403,497			3,890,701			317,593			4,208,294
Other changes in equity
Dividends		—		—		—		—			—			(753,041	)		(753,041	)		—			(753,041	)
Dividends to hybrid bonds		—		—		—		—			—			(61,993	)		(61,993	)		—			(61,993	)
Issuance of hybrid bonds		—		199,476		—		—			—			—			199,476			—			199,476
Issuance of convertible preferred shares		87,410		—		660,381		—			—			—			747,791			—			747,791
Acquisition of treasury stock		—		—		—		(444,077	)		—			—			(444,077	)		—			(444,077	)
Change in other capital adjustments		—		—		9,484		(119,798	)		—			(16,222	)		(126,536	)		—			(126,536	)
Change in other non-controlling interests		—		—		—		—			—			—			—			1,509,037			1,509,037
		87,410		199,476		669,865		(563,875	)		—			(831,256	)		(438,380	)		1,509,037			1,070,657
Reclassification of OCI retained earnings		—		—		—		—			5,860			(5,860	)		—			—			—
Balance at December 31, 2019	W	2,732,463		1,731,235		10,565,353		(1,116,770	)		(260,156	)		25,525,821			39,177,946			2,752,435			41,930,381

F-

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity (Continued)

For the year ended December 31, 2020

(In millions of won)	Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
	Capital stock		Hybrid bonds		Capital surplus		Capital adjustments			Accumulated other compre- hensive income (loss)			Retained earnings			Sub-total			Non- controlling interests			Total
Balance at January 1, 2020	W	2,732,463		1,731,235		10,565,353		(1,116,770	)		(260,156	)		25,525,821			39,177,946			2,752,435			41,930,381
Total comprehensive income for the year
Profit for the year		—		—		—		—			—			3,414,595			3,414,595			83,481			3,498,076
Other comprehensive income (loss), net of income tax:
Loss on valuation and disposal of securities at fair value through other comprehensive income		—		—		—		—			(107,484	)		—			(107,484	)		(285	)		(107,769	)
Gain on financial instruments at fair value through profit or loss (overlay approach)		—		—		—		—			90,298			—			90,298			—			90,298
Equity in other comprehensive loss of associates		—		—		—		—			(3,328	)		—			(3,328	)		—			(3,328	)
Foreign currency translation adjustments for foreign operations		—		—		—		—			(159,596	)		—			(159,596	)		(1,769	)		(161,365	)
Net change in unrealized fair value of cash flow hedges		—		—		—		—			(14,460	)		—			(14,460	)		—			(14,460	)
Other comprehensive income of separate account		—		—		—		—			3,884			—			3,884			—			3,884
Remeasurements of defined benefit plans		—		—		—		—			15,752			—			15,752			60			15,812
Changes in own credit risk on financial liabilities designated at fair value through profit or loss		—		—		—		—			3,084			—			3,084			—			3,084
Total other comprehensive loss		—		—		—		—			(171,850	)		—			(171,850	)		(1,994	)		(173,844	)
Total comprehensive income(loss)		—		—		—		—			(171,850	)		3,414,595			3,242,745			81,487			3,324,232
Other changes in equity																��
Dividends		—		—		—		—			—			(883,929	)		(883,929	)		—			(883,929	)
Dividends to hybrid bonds		—		—		—		—			—			(85,327	)		(85,327	)		—			(85,327	)
Issuance of hybrid bonds		—		448,699		—		—			—			—			448,699			—			448,699
Paid-in capital increase		237,178		—		1,197,774		—			—			—			1,434,952			—			1,434,952
Acquisition of treasury stock(Note 29)		—		—		—		(150,467	)		—			—			(150,467	)		—			(150,467	)
Disposal of treasury stock(Note 29)		—		—		—		451,809			—			—			451,809			—			451,809
Retirement of treasury stock(Note 29)		—		—		—		150,000			—			(150,025	)		(25	)		—			(25	)
Change in other capital adjustments		—		—		471,812		(22,507	)		—			(16,141	)		433,164			—			433,164
Change in other non-controlling interests		—		—		—		—			—			—			—			(546,631	)		(546,631	)
		237,178		448,699		1,669,586		428,835			—			(1,135,422	)		1,648,876			(546,631	)		1,102,245
Reclassification of OCI retained earnings		—		—		—		—			27,825			(27,825	)		—			—			—
Balance at December 31, 2020	W	2,969,641		2,179,934		12,234,939		(687,935	)		(404,181	)		27,777,169			44,069,567			2,287,291			46,356,858

See accompanying notes to the consolidated financial statements.

F-

10

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity (Continued)

For the year ended December 31, 2021

(In millions of won)	Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
	Capital stock		Hybrid bonds		Capital surplus			Capital adjustments			Accumulated other compre- hensive income (loss)			Retained earnings			Sub-total			Non- controlling interests			Total
Balance at January 1, 2021	W	2,969,641		2,179,934		12,234,939			(687,935	)		(404,181	)		27,777,169			44,069,567			2,287,291			46,356,858
Total comprehensive income for the year
Profit for the year		—		—		—			—			—			4,019,254			4,019,254			93,374			4,112,628
Other comprehensive income (loss), net of income tax:
Loss on valuation and disposal of securities at fair value through other comprehensive income		—		—		—			—			(871,104	)		—			(871,104	)		(2,547	)		(873,651	)
Loss on financial instruments at fair value through profit or loss (overlay approach)		—		—		—			—			(20,098	)		—			(20,098	)		—			(20,098	)
Equity in other comprehensive income of associates		—		—		—			—			2,746			—			2,746			—			2,746
Foreign currency translation adjustments for foreign operations		—		—		—			—			251,842			—			251,842			466			252,308
Net change in unrealized fair value of cash flow hedges		—		—		—			—			21,700			—			21,700			—			21,700
Other comprehensive loss of separate account		—		—		—			—			(41,273	)		—			(41,273	)		—			(41,273	)
Remeasurements of defined benefit plans		—		—		—			—			42,656			—			42,656			621			43,277
Changes in own credit risk on financial liabilities designated at fair value through profit or loss		—		—		—			—			(2,798	)		—			(2,798	)		—			(2,798	)
Total other comprehensive loss		—		—		—			—			(616,329	)		—			(616,329	)		(1,460	)		(617,789	)
Total comprehensive income(loss)		—		—		—			—			(616,329	)		4,019,254			3,402,925			91,914			3,494,839
Other changes in equity
Dividends		—		—		—			—			—			(803,838	)		(803,838	)		—			(803,838	)
Interim dividends		—		—		—			—			—			(299,082	)		(299,082	)		—			(299,082	)
Dividends to hybrid bonds		—		—		—			—			—			(116,388	)		(116,388	)		—			(116,388	)
Issuance of hybrid bonds		—		1,154,597		—			—			—			—			1,154,597			—			1,154,597
Acquisition of treasury stock (Note 29)		—		—		—			(79	)		—			—			(79	)		—			(79	)
Disposal of treasury stock (Note 29)		—		—		—			23,589			—			—			23,589			—			23,589
Change in other capital adjustments		—		—		(105	)		(4	)		—			(241	)		(350	)		—			(350	)
Change in other non-controlling interests		—		—		(139,791	)		—			—			—			(139,791	)		(131,933	)		(271,724	)
		—		1,154,597		(139,896	)		23,506			—			(1,219,549	)		(181,342	)		(131,933	)		(313,275	)
Reclassification of OCI retained earnings		—		—		—			—			35,574			(35,574	)		—			—			—
Balance at December 31, 2021	W	2,969,641		3,334,531		12,095,043			(664,429	)		(984,936	)		30,541,300			47,291,150			2,247,272			49,538,422

F-

11

See accompanying notes to the consolidated financial statements

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2019, 2020 and 2021

(In millions of won)	Note		2019			2020			2021
Cash flows from operating activities
Profit before income taxes			W	4,911,508			4,753,871			5,583,664
Adjustments for:
Interest income		31		(15,707,362	)		(14,773,996	)		(14,724,230	)
Interest expense		31		5,969,398			4,891,296			3,954,905
Dividend income		33		(82,158	)		(97,956	)		(124,531	)
Net fees and commission expense		32		125,975			187,304			124,486
Net insurance loss		27		2,098,617			1,726,150			1,356,064
Net loss (gain) on financial instruments at fair value through profit or loss		34		(38,738	)		136,191			(174,279	)
Net loss (gain) on derivatives		10		(388,880	)		(245,681	)		64,128
Net loss (gain) on financial instruments at fair value through profit or loss (overlay approach)		9		247,585			136,255			(43,003	)
Net loss (gain) on foreign currency translation				147,952			(232,723	)		(21,130	)
Net loss (gain) on financial instruments designated at fair value through profit or loss		35		33,872			(241,066	)		(423,914	)
Net gain on disposal of securities at fair value through other comprehensive income		11		(152,278	)		(273,793	)		(85,596	)
Net loss (gain) on disposal of securities at amortized cost		11		(66	)		25			319
Provision for allowance for credit loss		36		980,692			1,382,179			974,685
Employee benefit		25		188,313			175,539			221,259
Depreciation and other amortization		37		677,152			768,488			902,692
Other operating expense		39		305,781			202,178			457,359
Equity method income, net		15		(53,287	)		(159,533	)		(158,600	)
Other non-operating expense		40		148,091			153,360			447,138
			W	(5,499,341	)		(6,265,783	)		(7,252,248	)

See accompanying notes to the consolidated financial statements.

F-1

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the years ended December 31, 2019, 2020 and 2021

(In millions of won)	Note	2019			2020			2021
Changes in assets and liabilities:
Due from banks at amortized cost		W	(10,059,356	)		(4,915,143	)		9,570,696
Securities at fair value through profit or loss			(3,977,211	)		(7,088,599	)		(2,934,113	)
Due from banks at fair value through profit or loss			73,904			862,047			92,944
Loans at fair value through profit or loss			(943,321	)		132,172			341,140
Financial instruments designated at fair value through profit or loss			847,715			(708,627	)		(9,466	)
Derivative instruments			58,532			(65,288	)		14,548
Loans at amortized cost			(18,831,825	)		(32,897,127	)		(28,740,535	)
Other assets			(4,452,651	)		(7,866,826	)		(6,920,943	)
Deposits			29,123,272			33,139,123			36,948,828
Liabilities for defined benefit obligations			(263,882	)		(243,428	)		(261,750	)
Provisions			28,380			51,567			(25,526	)
Other liabilities			7,851,505			8,503,803			(4,489,460	)
			(544,938	)		(11,096,326	)		3,586,363
Income taxes paid			(1,130,148	)		(1,184,910	)		(1,149,965	)
Interest received			15,200,114			14,570,884			14,325,392
Interest paid			(5,793,865	)		(5,267,781	)		(4,114,027	)
Dividends received			35,716			80,728			100,936
Net cash inflow (outflow) from operating activities		W	7,179,046			(4,409,317	)		11,080,115

See accompanying notes to the consolidated financial statements.

F-1

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the years ended December 31, 2019, 2020 and 2021

(In millions of won)	Note		2019			2020			2021
Cash flows from investing activities
Decrease in financial instruments at fair value through profit or loss			W	3,690,283			4,537,421			4,362,417
Increase in financial instruments at fair value through profit or loss				(6,712,873	)		(4,982,663	)		(5,409,361	)
Proceeds from disposal of securities at fair value through other comprehensive income				36,334,241			53,048,284			29,991,033
Acquisition of securities at fair value through other comprehensive income				(46,908,632	)		(52,657,353	)		(37,575,878	)
Proceeds from disposal of securities at amortized cost				6,722,627			5,923,611			5,203,156
Acquisition of securities at amortized cost				(12,209,898	)		(7,645,000	)		(7,343,501	)
Proceeds from disposal of property and equipment		13, 40		51,942			248,037			20,068
Acquisition of property and equipment		13		(270,386	)		(279,654	)		(334,874	)
Proceeds from disposal of intangible assets		14, 40		24,825			5,298			15,867
Acquisition of intangible assets		14		(318,930	)		(362,415	)		(555,340	)
Proceeds from disposal of investments in associates		15		182,604			266,322			357,401
Acquisition of investments in associates		15		(669,341	)		(776,799	)		(588,827	)
Proceeds from disposal of investment property		16, 40		86,422			113,038			276
Acquisition of investment property		16		(2,774	)		(243,806	)		(8,292	)
Proceeds from disposal of assets held for sale				137			2,048			47,792
Change in other assets				(264,585	)		11,233			(220,636	)
Proceeds from settlement of hedging derivative financial instruments				19,303			25,722			61,502
Payment of settlement of hedging derivative financial instruments				(195,900	)		(186,169	)		(53,313	)
Net cash flow from business combination		47		(2,246,932	)		(73,081	)		0
Net cash outflow from investing activities			W	(22,687,867	)		(3,025,926	)		(12,030,510	)

See accompanying notes to the consolidated financial statements.

F-1

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the years ended December 31, 2019, 2020 and 2021

(In millions of won)	Note		2019			2020			2021
Cash flows from financing activities
Issuance of hybrid bonds			W	199,476			448,698			1,154,597
Net increase in borrowings				5,017,269			7,465,106			849,212
Proceeds from debt securities issued				31,083,390			21,480,455			28,561,082
Repayments of debt securities issued				(19,881,717	)		(21,508,827	)		(24,143,252	)
Change in other liabilities				(33,619	)		(30,526	)		83,067
Dividends paid				(830,772	)		(968,847	)		(1,218,761	)
Proceeds from settlement of hedging derivative financial instruments				1,694,362			851,381			1,223,033
Payment of settlement of hedging derivative financial instruments				(1,716,320	)		(807,705	)		(1,210,366	)
Acquisition of treasury stock				(444,077	)		(150,182	)		(79	)
Disposition and redemption of treasury stock				0			161,863			23,588
Increase(decrease) in non-controlling interests				312,390			566,673			(84,998	)
Redemption of lease liabilities				(269,362	)		(781,867	)		(275,273	)
Paid-in capital increase				0			1,154,347			0
Issuance of convertible preferred shares				747,791			0			0
Payment of stock issuance costs				0			0			(105	)
Net cash inflow from financing activities				15,878,811			7,880,569			4,961,745
Effect of exchange rate changes on cash and cash equivalents held				29,428			(61,518	)		109,553
Increase in cash and cash equivalents				399,418			383,808			4,120,903
Cash and cash equivalents at beginning of year		44		8,179,756			8,579,174			8,962,982
Cash and cash equivalents at end of year		44	W	8,579,174			8,962,982			13,083,885

See accompanying notes to the consolidated financial statements.

F-1

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

1. Reporting entity

Shinhan Financial Group Co., Ltd., the controlling company, and its subsidiaries included in consolidation (collectively the “Group”) are summarized as follows:

(a) Controlling company

Shinhan Financial Group Co., Ltd. (the “Shinhan Financial Group” or the “Company”), the controlling company, is incorporated on September 1, 2001 for the main purposes of controlling, managing and funding Shinhan Bank, Shinhan Securities Co., Ltd., Shinhan Capital Co., Ltd. and Shinhan BNP Asset Management Co., Ltd. by way of share transfers. The total capital stock amounted to

W

1,461,721 million. Also, Shinhan Financial Group’s shares have been listed on the Korea Exchange since September 10, 2001 and Shinhan Financial Group’s American Depositary Shares have been registered with the Securities and Exchange Commission (SEC) and listed on the New York Stock Exchange since September 16, 2003.

(b) Ownership of Shinhan Financial Group and its major consolidated subsidiaries as of December 31, 2020 and 2021 are as follows:

			Date of financial information	Ownership (%)
Investor	Investee(*1)	Location		2020		2021
Shinhan Financial Group Co., Ltd.	Shinhan Bank	Korea	December 31		100.0		100.0
”	Shinhan Card Co., Ltd.	”	”		100.0		100.0
”	Shinhan Investment Corp.	”	”		100.0		100.0
”	Shinhan Life Insurance Co., Ltd. (*2)	”	”		100.0		100.0
”	Orange Life Insurance Co., Ltd. (*2)	”	”		100.0		0
”	Shinhan Capital Co., Ltd.	”	”		100.0		100.0
”	Jeju Bank	”	”		75.3		75.3
”	Shinhan Credit Information Co., Ltd.	”	”		100.0		100.0
”	Shinhan Alternative Investment Management Inc.	”	”		100.0		100.0
”	Shinhan Asset Management Co., Ltd. (*3)	”	”		65.0		100.0
”	SHC Management Co., Ltd.	”	”		100.0		100.0
”	Shinhan DS	”	”		100.0		100.0
”	Shinhan Savings Bank	”	”		100.0		100.0
”	Asia Trust Co., Ltd.	”	”		60.0		60.0
”	Shinhan AITAS Co., Ltd.	”	”		99.8		99.8
”	Shinhan REITs Management Co., Ltd.	”	”		100.0		100.0
”	Shinhan AI Co., Ltd.	”	”		100.0		100.0
”	Shinhan Venture Investment Co., Ltd. (*4)	”	”		100.0		100.0
Shinhan Bank	Shinhan Bank America	USA	”		100.0		100.0
”	Shinhan Bank Europe GmbH	Germany	”		100.0		100.0

F-1

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

1. Reporting entity (continued)

			Date of financial information	Ownership (%)
Investor	Investee(*1)	Location		2020		2021
”	Shinhan Bank Cambodia	Cambodia	December 31		97.5		97.5
”	Shinhan Bank Kazakhstan Limited	Kazakhstan	”		100.0		100.0
”	Shinhan Bank Canada	Canada	”		100.0		100.0
”	Shinhan Bank (China) Limited	China	”		100.0		100.0
”	Shinhan Bank Japan	Japan	”		100.0		100.0
”	Shinhan Bank Vietnam Ltd	Vietnam	”		100.0		100.0
”	Banco Shinhan de Mexico	Mexico	”		99.9		99.9
”	PT Bank Shinhan Indonesia	Indonesia	”		99.0		99.0
Shinhan Bank Japan	SBJDNX	Japan	”		100.0		100.0
Shinhan Card Co., Ltd.	LLP MFO Shinhan Finance	Kazakhstan	”		100.0		100.0
”	PT. Shinhan Indo Finance	Indonesia	”		50.0+1 share		50.0+1 share
”	Shinhan Microfinance Co., Ltd.	Myanmar	”		100.0		100.0
”	Shinhan Vietnam Finance Co., Ltd.	Vietnam	”		100.0		100.0
Shinhan Investment Corp.	Shinhan Investment Corp. USA Inc.	USA	”		100.0		100.0
”	Shinhan Investment Asia Ltd.	Hong Kong	”		100.0		100.0
”	SHINHAN SECURITIES VIETNAM CO., LTD.	Vietnam	”		100.0		100.0
”	PT. Shinhan Sekuritas Indonesia	Indonesia	”		99.0		99.0
PT Shinhan Sekuritas Indonesia	PT. Shinhan Asset Management Indonesia	”	”		75.0		75.0
Shinhan Life Insurance Co., Ltd.	Shinhan Financial Plus	Korea	”		100.0		100.0
”	Shinhan CubeOn Co., Ltd. (*5)	Korea	”		0		100.0
”	Shinhan Life Insurance Vietnam Co., Ltd. (*6)	Vietnam	”		0		100.0
Shinhan Asset Management Co., Ltd.	SHINHAN ASSET MGT HK, LIMITED (*7)	Hong Kong	”		100.0		100.0
Shinhan DS	SHINHAN DS VIETNAM CO., LTD.	Vietnam	”		100.0		100.0

(*1) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

(*2) Shinhan Life Insurance Co., Ltd. and Orange Life Insurance Co., Ltd. merged on July 1, 2021. The company name after the merger is Shinhan Life Insurance Co., Ltd.

F-1

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

1. Reporting entity (continued)

(*3) The Group acquired additional shares of Shinhan BNPP Asset Management Co., Ltd. for the year ended December 31, 2021, and Shinhan BNPP Asset Management Co., Ltd. became a wholly owned subsidiary of the Group. Shinhan BNPP Asset Management Co., Ltd. changed its name to Shinhan Asset Management Co., Ltd.

(*4) For the year ended December 31, 2021, Neoplux Co., Ltd. changed its name to Shinhan Venture Investment Co., Ltd.

(*5) Newly invested subsidiaries subject to consolidation are included for the year ended December 31, 2021.

(*6) Newly invested subsidiaries subject to consolidation are included for the year ended December 31, 2021. Shinhan Insurance Vietnam Co., Ltd. changed its name to Shinhan Life Insurance Vietnam Co., Ltd.

(*7) For the year ended December 31, 2021, SHINHAN BNP ASSET MGT HK, LIMITED changed its name to SHINHAN ASSET MGT HK, LIMITED.

(c) Consolidated structured entities

Consolidated structured entities are as follows:

Category	Consolidated structured entities	Description
Trust	Shinhan Bank (including development trust) and 17 others	A trust is consolidated when the Group as a trustee is exposed to variable returns, if principle or interest amounts of the entrusted properties falls below guaranteed amount, the Group should compensate it, and the Group has the ability to affect those returns.
Asset-Backed Securitization	MPC Yulchon Green I and 225 others	An entity for asset backed securitization is consolidated when the Group has sole decision-making authority to dispose assets or change the conditions of the assets, and the Group is exposed to, or has rights to related variable returns by providing credit enhancement and purchases of subordinated securities.
Structured Financing	SHPE Holdings One Co., Ltd.	An entity established for structured financing relating to real estate, shipping, or mergers and acquisitions is consolidated, when the Group has the greatest credit to the entity, has sole decision-making authority of these Entities due to the entities default, and is exposed to, or has rights to related variable returns.
Investment Fund	KoFC Shinhan Frontier Champ 2010-4 PEF and 131 others	An investment fund is consolidated, when the Group manages or invests assets of the investment funds on behalf of other investors as a collective investor or a business executive, or has the ability to dismiss the manager of the investment funds, and is exposed to, or has rights to, the variable returns.

(*) The Group provides credit contribution (ABCP purchase agreements) of W 7,457,666 million for the purpose of credit enhancement of structured companies.

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8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

2. Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS are the standards and related interpretations issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements of the Group were authorized for issue by the Board of Directors on February 9, 2022. In addition, the adjustment that is explained in ‘Note 29. Equity’ was approved by the Board of Directors on March 15, 2022 and the consolidated financial statements were submitted for approval to the stockholder’s meeting held on March 24, 2022.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position:

• derivative financial instruments measured at fair value

• financial instruments at fair value through profit or loss measured at fair value

• financial instruments at fair value through other comprehensive income measured at fair value

• liabilities for cash-settled share-based payment arrangements measured at fair value

• financial assets and liabilities designated as hedged items in a fair value hedge accounting of which changes in fair value attributable to the hedged risk recognized in profit or loss

• liabilities for defined benefit plans recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(c) Functional and presentation currency

The respective financial statements of the Group entities are prepared in the functional currency of the respective economic environment in which the group entities operate. These consolidated financial statements are presented and reported in Korean won, which is the Controlling Company’s functional currency and the currency of the primary economic environment in which the Group operates.

(d) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management tomake judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. If the estimates and assumptions based on management’s best judgment as of December 31, 2021 are different from the actual environment, these estimates and actual results may be different.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have a significant effect on the amounts recognized in the consolidated financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are described in Note 5.

F-1

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

2. Basis of preparation (continued)

In preparing these consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty are the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2020.

(e) Change in accounting policy

Except for the following new standards, which have been applied from January 1, 2021, the accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2020.

i) IFRS 9, ‘Financial Instruments’, IAS 39, ‘Financial Instruments: Recognition and Measurement’, IFRS 7, ‘Financial Instruments: Disclosures’, IFRS 4, ‘Insurance Contracts’ and IFRS 16, ‘Leases’ amended – Interest rate benchmark reform

The effective interest rate, not the carrying value, is adjusted when replacing the interest rate index of a financial instrument measured at amortized cost in relation to the reform of the interest rate index. It includes exceptions, such as allowing hedge accounting to continue uninterrupted even if an interest rate indicator replacement occurs in a hedging relationship. The amendment does not have a significant impact on the consolidated financial statements.

Regarding the suspension of LIBOR interest rate calculation, the financial instruments that have not been converted to replaced interest rate benchmark among the LIBOR interest rates as of December 31, 2021 are as follows:

-Non-derivative

financial assets

	Carrying value
	USD LIBOR(*2)		JPY LIBOR		EUR LIBOR		Other LIBORs
Due from banks and loans at amortized cost:
Loans	W	2,768,972		207,660		49,642		122,104
Securities at fair value through other comprehensive income:
Financial institution bonds		167,167		—		—		—
Corporate bonds and others		281,949		—		—		—
		449,116		—		—		—
Commitments and guarantee contracts(*1)	W	280,224		39,148		56,552		13,853

(*1) The commitments and guarantee contracts are in nominal amount.

(*2) The instruments that will be matured before the end of June 30, 2023 are excluded when USD LIBOR interest rate calculation is discontinued.

F-

20

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

2. Basis of preparation (continued)

-Non-derivative

financial liabilities

	Carrying value
	USD LIBOR(*)		JPY LIBOR		EUR LIBOR		Other LIBORs
Financial liabilities at amortized cost:
Deposits	W	200,000		—		—		—
Borrowings		347,420		—		—		—
Debt securities issued		986,871		—		—		—
	W	1,534,291		—		—		—

(*) The instruments that will be matured before the end of June 30, 2023 are excluded when USD LIBOR interest rate calculation is discontinued.

-Derivative

	Notional amount
	USD LIBOR(*)		JPY LIBOR		EUR LIBOR		Other LIBORs
Trading:
Interest rates related	W	10,772,390		—		—		—
Foreign currency related		10,900,844		—		—		—
Equity related		268,243		—		—		—
Credit related		1,108		—		—		—
Others		379,360		—		—		—
		22,321,945		—		—		—
Hedge:
Interest rates related		4,150,155		—		—		—
Foreign currency related		278,705		—		—		—
	W	4,428,860		—		—		—

(*) The instruments that will be matured before the end of June 30, 2023 are excluded when USD LIBOR interest rate calculation is discontinued.

ii) Amendments to IFRS 16 ‘Lease’ – The practical expedient to

COVID-19

related rent exception, discount or deferral

The International Accounting Standards Board amended this Standard in March 2021. According to the amendment, the International Accounting Standards Board has extended the application of the practical expedient for reduction in lease payments where lessee may elect not to assess whether a rent concession occurring as a direct consequence of the

COVID-19

pandemic is a lease modification, by one year. A lessee who chose to apply the application of the practical expedient will account consistently for changes in lease fees that not a lease change due to rent concession , in the manner prescribed by the amendments. However, no practical expedient under this amendment is provided to lessors. The practical expedient in this amendment applies only to rent concessions occurring as a direct consequence of the

COVID-19

pandemic and only if all of the following conditions are met:

• The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change

F-

2

1

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

2. Basis of preparation (continued)

• Any reduction in lease payments affects only payments originally due on or before June 30, 2022; and

• There is no substantive change to other terms and conditions of the lease.

The Group has applied the practical expedient that allows a lessee to choose not to assess whether a rent concession occurring as a direct consequence of the

COVID-19

pandemic is a lease modification. The amount recognized in profit or loss is

W

47,589 million to reflect the change in lease payments arising from the same lease discount for the year ended December 31, 2021.

3. Significant accounting policies

Significant accounting policies applied by the Group upon the preparation of consolidated financial statements under IFRS are described below, and consolidated financial statements for the year ended December 31, 2021 and comparative periods were prepared using the same accounting policy, except for changes in accounting policy described in the Note 2.

(a) Operating segments

The Group has divided the segments based on internal reports reviewed periodically by the top sales decision maker to make decisions about the resources allocated to the segments and evaluate their performance. There are six reporting segments as described in Note 7. The reporting segments are operated separately according to the nature of the goods and services provided and the organizational structure of the Group.

The segment reported to the Chief Executive Officer (“CEO”) includes items directly attributable to a segment as well as those that can be allocated on a reasonable basis

.

It is the CEO’s responsibility to evaluate the resources to be distributed to the business and the performance of the business, and to make strategic decisions.

(b) Basis of consolidation

i) Subsidiaries

Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

If a member of the Group uses accounting policies other than those adopted in the consolidated financial statements for the same transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.

ii) Structured entity

The Group establishes or invests in various structured entities. It does not own shares directly or indirectly for these companies. Considering the terms and conditions of the arrangement in which the structured entity was established, the consolidated entity gains and losses from the operations of the structured entity. It is included in the consolidated entities if it is determined that it has the ability to direct the activities of a

F-2

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

consolidated structured entity that can most significantly affect these gains and losses. The Group does not recognize any

non-controlling

interests as equity in relation to structured entities in the consolidated statements of financial position since the

non-controlling

interests in these entities are recognized as liabilities of the Group.

iii) Intra-group transactions eliminated on consolidation

Intra-group balances, transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealized intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

iv)

Non-controlling

interests

Non-controlling

interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and

non-controlling

interest holders, even when the

non-controlling

interests balance is reduced to below zero.

(c) Business combinations

i) Business combinations

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Each identifiable asset or liability is measured at its acquisition-date fair value except for below:

• Leases are required to be classified based on the contractual terms and other factors

• Only those contingent liabilities assumed in a business combination that are a present obligation and can be measured reliably are recognized

• Deferred tax assets or liabilities are recognized and measured in accordance with IAS 12, ‘Income Taxes’

• Employee benefit arrangements are recognized and measured in accordance with IAS 19, ‘Employee Benefits’

• Compensation assets are recognized and measured on the same basis as the items subject to compensation.

• Reacquired rights are measured in accordance with special provisions

• Liabilities or equity instruments related to share-based payment transactions are measured in accordance with the method in IFRS 2, ‘Share-based Payment’

• Non-current assets held for sale are measured at fair value less costs to sell in accordance with IFRS 5, ‘Non-current Assets Held for Sale and Discontinued Operations’

As of the acquisition date,

non-controlling

interests in the acquired are measured as the

non-controlling

interests’ proportionate share of the acquirer’s identifiable net assets.

F-2

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

The transfer consideration in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquired and the equity interests issued by the acquirer. However, any portion of the acquirer’s share-based payment awards exchanged for awards held by the acquired employee that is included in transfer consideration in the business combination shall be measured in accordance with the method described above rather than at fair value.

Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include broker’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. Acquisition-related costs, other than those associated with the issue of debt or equity securities, which are recognized in accordance with IAS 32 and IFRS 9, are expensed in the periods in which the costs are incurred and the services are received.

(d) Investments in associates and joint ventures

An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The investment in an associate and a joint venture is initially recognized at cost, and the carrying value is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate and the joint venture after the date of acquisition. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated the Group’s stake in preparing the consolidated financial statements. Unrealized losses are also being derecognized unless the transaction provides evidence of an impairment of the transferred assets.

If an associate or a joint venture uses accounting policies different from those of the Group for transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method.

When the carrying value of that interest, including any long-term investments, is reduced to nil, the recognition of further losses is discontinued except to the extent that the Group has an obligation or has to make payments on behalf of the investee for further losses.

(e) Cash and cash equivalents

The Group classifies cash balances, call deposits and highly liquid investment assets with original maturities of three months or less from the acquisition date that are easily converted into a fixed amount of cash, and are subject to an insignificant risk of changes in their fair value as cash and cash equivalents. Equity instruments are excluded from cash equivalents unless they are, in substance, cash equivalents, like in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.

F-2

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

(f) Non-derivative financial assets

Financial assets are recognized in the consolidated statement of financial position when the Group becomes a party to the contract. In addition, a standardized purchase or sale (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market concerned) is recognized on the trade date.

A financial asset is measured initially at its fair value plus, for an item not at Fair Value Through Profit or Loss (“FVTPL”), transaction costs that are directly attributable to its acquisition of the financial asset. Transaction costs on the financial assets at FVTPL that are directly attributable to the acquisition are recognized in profit or loss as incurred.

i) Financial assets designated at FVTPL

Financial assets can be irrevocably designated as measured at FVTPL despite of classification standards stated below, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases.

ii) Equity instruments

For the equity instruments that are not held for short-term trading, at initial recognition, the Group may make an irrevocable election to present subsequent changes in fair value in other comprehensive income. Equity instruments that are not classified as financial assets at Fair Value through Other Comprehensive Income (“FVOCI”) are classified as financial assets at FVTPL.

The Group subsequently measures all equity investments at fair value. Valuation gains or losses of the equity instruments that are classified as financial assets at FVOCI previously recognized as other comprehensive income is not reclassified as profit or loss on recognition. The Group recognizes dividends in profit or loss when the Group’s right to receive payments of the dividend is established.

Valuation gains or losses due to changes in fair value of the financial assets at FVTPL are recognized in the consolidated statement of comprehensive income gains or losses on financial assets at FVTPL. Impairment loss (reversal) on equity instruments at FVOCI is not recognized separately.

iii) Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model in which the asset is managed and the contractual cash flow characteristics of the asset. Debt instruments are classified as financial assets at amortized cost, at FVOCI, or at FVTPL. Debt instruments are reclassified only when the Group’s business model changes.

① Financial assets at amortized cost

Assets that are held within a business model whose objective is to hold assets to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a financial asset measured at amortized cost that is not subject to a hedging relationship is recognized in profit or loss when the financial asset is derecognized or impaired. Interest income on the effective interest method is included in the ‘Interest income’ in the consolidated statement of comprehensive income.

F-2

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

② Financial assets at FVOCI

Assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Other than (reversal of) impairment losses, interest income, foreign exchange differences, gains or losses of the financial assets at FVOCI are recognized as other comprehensive income in equity. On removal, gains or losses accumulated in other comprehensive income are reclassified to profit or loss. The interest income on the effective interest method is included in the ‘Interest income’ in the consolidated statement of comprehensive income. Foreign exchange differences and impairment losses are included in the ‘Net foreign currency transaction gain’ and ‘Provision for credit losses allowance’ in the consolidated statement of comprehensive income, respectively.

③ Financial assets at FVTPL

Debt securities other than financial assets at amortized costs or FVOCI are classified at FVTPL. Unless hedge accounting is applied, gains or losses from financial assets at FVTPL are recognized as profit or loss and are included in ‘Net gain(loss) on financial assets at fair value through profit or loss’ in the consolidated statement of comprehensive income.

iv) Embedded derivatives

Financial assets with embedded derivatives are classified regarding the entire hybrid contract, and the embedded derivatives are not separately recognized. The entire hybrid contract is considered when it is determined whether the contractual cash flows represent solely payments of principal and interest.

v) Derecognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group does not have or transfer most of the risks and rewards of ownership of the financial asset, the entity shall remove the financial asset if it does not control the financial asset. If the Group continues to control the financial asset, it continues to recognize the transferred asset to the extent that it is continuously involved and recognizes the related liability together.

If the Group transfers the right to cash flows of a financial asset but holds most of the risks and rewards of ownership of the financial asset, the entity shall continue to recognize the asset. Also, the amount of disposal received is recognized as a liability.

vi) Offsetting

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to set off the recognized amounts, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

(g) Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

F-2

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

i) Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction. In addition, this document describes the hedging instrument, hedged item, and the method of evaluating the effect of the hedging instrument offsetting changes in the fair value or cash flow of the hedged item due to the hedged risk at the initiation of the hedging relationship and in subsequent periods.

① Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the separate statement of comprehensive income.

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria. Any adjustment arising from G/L on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

② Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

③ Net investment hedge

The portion of the change in fair value of a financial instrument designated as a hedging instrument that meets the requirements for hedge accounting for a net investment in a foreign operation is recognized in other comprehensive income and the ineffective portion of the hedge is recognized in profit or loss. The portion recognized as other comprehensive income that is effective as a hedge is recognized in the statement

F-2

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

of comprehensive income as a result of reclassification adjustments in accordance with IAS 21, “Effect of Changes in Foreign Exchange Rates” at the time of disposing of its overseas operations or disposing of a portion of its overseas operations to profit or loss.

ii) Other derivative financial instruments

All derivatives except those designated as hedging instruments and are effective in hedging are measured at fair value. Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

iii) Gains and losses on initial recognition

Any difference between the fair value of over the counter derivatives at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognized in profit or loss but is deferred, and the deferred gains and losses on initial transaction are depreciated on a straight-line basis over the life of the instrument or the remainder is recognized in profit or loss immediately when the fair value becomes observable.

(h) Expected credit losses of Financial assets

The Group recognizes allowance for credit loss(“ACL”) for debt instruments measured at amortized cost and fair value through other comprehensive income, and lease receivable, loan commitments and financial guarantee contracts using the expected credit loss impairment model. Financial assets migrate through the following three stages based on the change in credit risk since initial recognition and allowance for credit loss for the financial assets are measured at the

12-month

expected credit losses (“ECL”) or the lifetime ECL, depending on the stage.

Category		Allowance for credit loss
STAGE 1	When credit risk has not increased significantly since the initial recognition	12-months ECL: the ECL associated with the probability of default events occurring within the next 12 months
STAGE 2	When credit risk has increased significantly since the initial recognition	Lifetime ECL: a lifetime ECL associated with the probability of default events occurring over the remaining lifetime
STAGE 3	When assets are impaired	Same as above

The Group, meanwhile, only recognizes the cumulative changes in lifetime expected credit losses since the initial recognition as an allowance for credit loss for purchased or originated credit-impaired financial assets.

The total period refers to the expected life span of the financial instrument up to the contract expiration date.

i) Reflection of forward-looking information

The Group reflects forward-looking information presented by internal experts based on a variety of information when measuring expected credit losses. Assuming that the measurement factor of expected credit losses has a certain correlation with economic fluctuations, the expected credit losses are calculated by reflecting forward-looking information through modeling between macroeconomic variables and measurement factors.

F-2

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

ii) Measurement of expected credit loss of financial assets at amortization cost

The expected credit loss of an amortized financial asset is measured as the difference between the present value of the cash flows expected to be received and the cash flow expected to be received. For this purpose, we calculate expected cash flows for individually significant financial assets. For

non-individual

significant financial assets, the financial assets collectively include expected credit losses as part of a set of financial assets with similar credit risk characteristics.

Expected credit losses are deducted using the allowance for credit loss account and are written off if the financial assets are not recoverable. The allowance for credit loss is increased when the

written-off

loan receivables are subsequently collected and changes in the allowance for credit loss are recognized in profit or loss.

iii) Measurement of estimated credit loss of financial assets at FVOCI

The calculation of expected credit losses is the same as for financial assets measured at amortized cost, but changes in allowance for credit loss are recognized in other comprehensive income. In the case of disposal and redemption of other comprehensive income – fair value, the allowance for credit loss is reclassified from other comprehensive income to profit or loss and recognized in profit or loss.

(i) Property and equipment

Property and equipment are initially measured at cost and after initial recognition. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Certain land and buildings are measured at fair value at the date of transition to IFRS, which is deemed cost, in accordance with IFRS 1,

‘First-time Adoption of IFRS’

. Subsequent to initial recognition, the asset is measured at cost less accumulated depreciation and accumulated impairment losses, if any.

The Group recognizes in the carrying value of an item of property and equipment the cost of replacing part of property and equipment when that cost is incurred if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of those parts that are replaced is derecognized. The costs of the

day-to-day

servicing of property and equipment are recognized in profit or loss as incurred.

Land is not depreciated. Other property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:

Descriptions	Useful lives
Buildings	40~50 years
Other properties	4~5 years

Depreciation methods, useful lives and residual values are reassessed at each fiscal

year-end

and in case adjustments are needed, it is accounted for as a change in accounting estimate.

F-2

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

(j) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets as shown below, from the date that they are available for use. The residual value of intangible assets is zero. However, if there are no foreseeable limits to the periods over which certain intangible assets are expected to be available for use, they are determined to have indefinite useful lives and are not amortized.

Descriptions	Useful lives
Software	5 years
Capitalized development cost	5 years
Other intangible assets	5 years or contract periods

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

(k) Investment properties

Investment property is property held either to earn rental income or for capital appreciation or both. An investment property is initially recognized at cost including any directly attributable expenditure. Subsequent to initial recognition, the asset is measured at cost less accumulated depreciation and accumulated impairment losses, if any.

The depreciation method and the estimated useful lives for the current and comparative periods are as follows:

Descriptions	Useful lives	Depreciation method
Buildings	40 years	Straight-line

(l) Leases

i) Accounting treatment as the lessee

The Group leases various tangible assets, such as real estate and vehicles, and each of the lease contract is negotiated individually and includes a variety of terms and conditions. There are no other restrictions imposed by the lease contracts, but the lease assets cannot be provided as collaterals for borrowings.

F-

30

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

At the commencement date of the lease, the Group recognizes the

right-of-use

assets and the lease liabilities. Each lease payment is allocated to payment for the principal portion of the lease liability and financial costs. The Group recognizes in profit or loss the amount calculated to produce a constant periodic rate of interest on the lease liability balance for each period as financial costs.

Right-of-use

assets are depreciated using a straight-line method from the commencement date over the lease term.

Lease liabilities are measured at the present value of the lease payments that are not paid at the commencement date of the lease, and the lease payments included in the measurement of the liabilities consist of the following payments:

• Fixed payments (including in-substance fixed payments, less any lease incentives receivable)

• Variable lease payments depending on the index or rate(interest rate)

• Amounts expected to be paid by the lessee under the residual value guarantee

• The exercise price of a purchase option if the lessee is reasonably certain to exercise that option

• Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease

If the interest rate implicit in the lease is readily determined, the lease payments are discounted by the rate; if the rate is not readily determined, the lessee’s incremental borrowing rate is used.

The cost of the

right-of-use

assets comprise:

• The amount of the initial measurement of the lease liability

• Any lease payments made at or before the commencement date (less any lease incentives received)

• Any initial direct costs incurred by the lessee

• An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease

Lease payments related to short-term leases or

low-value

assets are recognized as current expenses over the lease term using the straight-line method. A short-term lease is a lease that has a lease term of 12 months or less, and the

low-value

assets lease is a lease of which the underlying asset value is not more than

W

6 million.

Additional considerations for the Group when accounting for lessees include:

Extension and termination options are included in a number of real estate lease contracts of the Group. In determining the lease term, management considers all relevant facts and circumstances that create an economic incentive not to exercise the options. The periods covered by, a) an option to extend the lease if the lessee is reasonably certain to exercise that option, or b) an option to terminate the lease if the lessee is reasonably certain not to exercise that option, is included when determining the lease term. The Group reassesses whether the Group is reasonably certain to exercise the extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee, and affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term.

F-

31

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

ii) Accounting treatment as the lessor

The Group leases out to lessee various tangible assets, including vehicles under operating and finance lease contracts, and each of the lease contract is negotiated individually and includes a variety of terms and conditions. The risk management method for all rights held by the Group in the underlying assets includes repurchase agreements, residual value guarantees, etc.

① Finance leases

The Group recognizes them as a receivable at an amount equal to the net investment in the lease, and the difference from the carrying value of the leasing asset as of the commencement date is recognized as profit or loss from disposal of the lease asset. In addition, interest income is recognized by applying the effective interest method for the amount of the Group’s net investment in finance leases. Lease-related direct costs are included in the initial recognition of financial lease receivables and are accounted for in a way that reduces the revenue for the lease term.

② Operating leases

The Group recognizes the lease payments as income on straight-line basis, and adds the lease initial direct costs incurred during negotiation and contract phase of the operating lease to the carrying value of the underlying asset. In addition, the depreciation policy of operating lease assets is consistent with the Group’s depreciation policy of other similar assets.

(m) Assets held for sale

Non-current

assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as

non-current

assets held for sale are measured at the lower of their carrying value and fair value less cost to sell.

The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

An asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(n) Impairment of non-financial assets

The carrying values of the Group’s

non-financial

assets, other than assets arising from employee benefits, deferred tax assets and

non-current

assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying value.

F-3

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

The Group estimates the recoverable amount of an individual asset, and if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a

pre-tax

discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or the CGU.

An impairment loss is recognized if the carrying value of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying value of the other assets in the CGU on a pro rata basis. Impairment losses of goodwill cannot be reversed in the subsequent period. At the end of each reporting period, the Group reviews whether there are any signs of impairment loss that has been recognized in the prior period no longer exists or has decreased, and reversal occurs only if there is a change in the estimate used to determine the recoverable amount after the recognition of the impairment loss. The asset’s carrying value does not exceed the carrying value that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(o) Non-derivative financial liabilities

The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

Transaction costs on the financial liabilities at FVTPL are recognized in profit or loss as incurred.

i) Financial liabilities designated at FVTPL

Financial liabilities can be irrevocably designated as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases, or a group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. The amount of change in the fair value of the financial liabilities designated at FVTPL that is attributable to changes in the credit risk of that liabilities shall be presented in other comprehensive income.

ii) Financial liabilities at FVTPL

Since initial recognition, financial liabilities at FVTPL is measured at fair value, and changes in the fair value are recognized as profit or loss.

iii) Other financial liabilities

Non-derivative

financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities, and other financial liabilities include deposits, borrowings, debt

F-3

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

securities and etc. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expires).

(p) Foreign currency

i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency using the exchange rate at the end of the reporting period.

Non-monetary

foreign currency items measured at fair value are converted to the exchange rate on the date the fair value is determined, and

non-monetary

items measured at historical cost are converted to the exchange rate on the trading day.

All foreign currency differences arising from the conversion of monetary items are recognized in profit or loss. However, the Group excludes currency differences at the time of settlement of monetary items, conversion differences in net investments in foreign operations and conversion differences for financial liabilities designated cash flow hedges.

If gains or losses arising from

non-monetary

items are recognized in other comprehensive income, the effect of exchange rate changes included in those gains or losses is also recognized in other comprehensive income. In addition, if recognized in profit or loss, the effect of exchange rate changes is also recognized in profit or loss.

ii) Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying values of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation and are translated using the exchange rate at the reporting date.

Upon disposal of foreign operations, the cumulative amount of the exchange differences recognized as a separate line item within the equity and other comprehensive income is reclassified from other comprehensive income to profit and loss at the time of recognition. When disposing subsidiaries, including foreign operations, proportional shares of exchange differences recognized in other comprehensive income are reverted to

non-controlling

shares of foreign operations, and in other cases, disposing some of the portions of foreign operations, only the proportional shares of the accumulated exchange differences recognized in other comprehensive income are classified as profit and loss.

F-3

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

iii) Net investment in a foreign operation

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, then foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognized in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

(q) Equity capital

i) Capital stock

Capital stock is classified as equity. Incremental costs directly attributable to the transaction of stock are deducted from equity, net of any tax effects.

Preferred stocks are classified as equity if they do not need to be repaid or are repaid only at the option of the Group and if payment is determined by the Group’s discretion, and dividends are recognized when the shareholders’ meeting approves the dividends. Preferred stocks that are eligible for reimbursement of a defined or determinable amount on or after a certain date are classified as liabilities. The related dividend is recognized in profit or loss at the time of occurrence as interest expense

.

ii) Hybrid bonds

The Group classifies an issued financial instrument, or its component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. Hybrid bonds where the Group has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation are classified as an equity instrument and presented in equity. Hybrid bonds issued by subsidiaries of the group are classified as

non-controlling

interests according to this classification criteria. In addition, distributions paid are treated as net income attributable to

non-controlling

interests in the consolidated statement of comprehensive income.

iii) Capital adjustment

The effect of changes in ownership interests in subsidiaries that do not lose control over the equity attributable to owners of the parent is included in capital adjustments.

(r) Employee benefits

i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

ii) Other long-term employee benefits

The Group’s net obligation in respect of other long-term employee benefits that are not expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

F-3

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

iii) Retirement benefits: defined contribution plans

The Group recognizes the contribution expense as an account of severance payments in profit or loss in the period according to the defined contribution plans, when an employee provides work services for a certain period of time, except for the case when it is included in the cost of the asset. Contributions payable are recognized as liabilities (unpaid expenses) after deducting the contributions already paid. In addition, if the contribution already paid exceeds the contribution due for services provided before the end of the reporting period, the future contribution is reduced or cash refunded due to the excess is recognized as an asset (prepaid expense).

iv) Retirement benefits: defined benefit plans

For the year ended December 31, 2021, defined benefit liabilities related to the defined benefit plan are recognized by deducting the fair value of external reserve from the present value of the defined benefit plan debt.

Defined benefit liabilities are calculated annually by independent actuaries using the predicted unit credit method. If the net present value of the defined benefit obligation less the fair value of the plan assets is an asset then the present value of the economic benefits available to the entity in the form of a refund from the plan or a reduction in future contributions to the plan.

The remeasurement component of net defined benefit liability is the change in the effect on asset ceiling except for the amount included in the net interest income of plan assets and net revenues of plan assets excluding actuarial gains and losses to the net of defined benefit liabilities. It is immediately recognized in other comprehensive income. The Group determines the net interest on the net defined benefit obligation (asset) by multiplying the net defined benefit obligation (asset) by the discount rate determined at the beginning of the annual reporting period and is the net present value of the net defined benefit obligation. It is determined by taking into consideration the fluctuations. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When an amendment or reduction of the system occurs, the gain or loss resulting from the change or decrease in the benefits to the past service is immediately recognized in profit or loss. The Group recognizes gains or losses on settlement when the defined benefit plan is settled.

v) Termination benefits

Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(s) Share-based payment transactions

In regards to the share-based payment transactions which grants an employee a stock or stock option in exchange for the goods or services provided, if the fair value of the goods or services provided or the fair value of the goods or services provided cannot be reliably measured, the Group indirectly measures the fair

F-3

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

value of the goods or services based on the fair value of the given equity, and the amount is recognized as employee benefit expenses and capital during the vesting period. For share-based payment awards with

non-vesting

conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no

true-up

for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.

(t) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

Provisions shall be used only for expenditures for which the provisions are originally recognized.

(u) Financial guarantee contract

A financial guarantee contract is a contract that requires the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are recognized initially at their fair value, and the initial fair value is amortized over the life of the financial guarantee contract.

After initial recognition, financial guarantee contracts are measured at the higher of:

• Loss allowance in accordance with IFRS 9, ‘ Financial Instruments ’

• The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15, ‘ Revenue from Contracts with Customers ’

(v) Insurance contracts

i) Investment contract liabilities, including insurance contract liabilities and discretionary dividend factors

The group establishes liability reserves in accordance with the Insurance Business Law and the related regulations. The reserves are calculated according to the insurance policy, insurance premiums and liability reserve calculation method. The main contents are as follows.

F-3

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

i-1)

Premium reserves

This is the amount to be accumulated for insurance claim payable for the existing contracts as of the end of the reporting period, the reserves are calculated by deducting the present value of net premiums to be earned after the end of the reporting period from the present value of claims to be paid to the policyholder after the date of the statement of financial position.

i-2)

Prepaid premium reserves

Among premiums that are due for payment before the end of the reporting period, the prepaid premium reserves for the next period are calculated through a premium and liability reserves calculation method.

i-3)

Guarantee reserves

The total amount of reserve for variable minimum guarantee (①) and reserve for general account guarantee (②) is provided as guarantee reserve.

① Variable minimum guarantee reserve

This reserve is the amount that must be accumulated to guarantee insurance premiums above a certain level for contracts maintained as of the end of the reporting period, and is measured at the higher of:

i) the average amount of the top 30% of net loss expected in the future

ii) the minimum required amount by insurance types, minimum guarantees, level of guarantees and limits of stock investment portion

② General account guarantee reserve

As of the end of the reporting period, the amount of reserve for insurance contracts that are insured under general account is required to be paid to guarantee the level of refunds, and select the largest of the following:

i) Average of the amount deducted from the appropriateness of the liability reserve calculated by excluding the guarantee option from the appropriateness evaluation of the liability reserve calculated by including the guarantee option for each interest rate scenario

ii) The amount of compensation (including annulment contract) against the guarantee received from the policy holder by the rate applied at the premium calculation in the insurance premium and liability reserve calculation method

i-4)

Reserve for outstanding claims

As of the end of the reporting period, the Group has accrued the amount for which the reason for the payment of insurance claims, etc. has been incurred and the amount of the claim payment has not been paid yet due to the dispute or lawsuit related to the insurance settlement (pending in the Financial Dispute Mediation Committee). In addition, the Group recognizes unrecognized losses based on historical experience.

F-3

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

i-5)

Reserves for participating policyholders’ dividends

The reserve is provided for the purpose of contributing to the policyholder dividend according to the laws and regulations and the reserve for dividend reserve for the policyholder and the dividend reserve for the subsequent business year.

The policyholder dividend reserve is the amount that is not paid as of the end of the reporting period for the settlement amount and the reserve for dividend policy for the next fiscal year is based on the policyholder dividend calculated on the insurance contract effective as of the end of the reporting period.

① Excess crediting rate reserve

In the case of a dividend insurance contract which has been maintained for more than one year as of the end of the reporting period among contracts signed before October 1, 1997, the difference between the planned interest rate and the

one-year

maturity deposit rate shall be preserved.

② Mortality dividend reserve

Dividends arising from contracts that are maintained for more than one year at the end of the reporting period are used to offset the expected mortality and actual mortality rates applied to premiums.

③ Interest dividend reserve

For the contracts that have been maintained for more than one year as of the end of the reporting period, the amount calculated by applying the interest dividend reserve rate to the net written premium reserve less the unearned acquisition costs. However, the insurance sold before October 1, 1997 is applied to the amount deducted from the net premium in the event that the planned interest rate by the insurance product is less than the dividend standard.

④ Reserves for long-term special dividends

For the effective dividend policy agreement that has been maintained for 6 years or more, the amount calculated by applying the long-term special dividend rate to the amount deducted from the net premiums for the end of the year.

However, insurance sold before October 1, 1997 is applied to the deduction of unearned premiums at the end of the year when the expected interest rate by the insurance product is less than the dividend standard rate.

i-6)

Reserve for interest dividends

In order to cover the policyholder dividend in the future, the total amount is set aside according to business performance according to the law or insurance contracts.

i-7)

Reserve for dividend insurance loss reserve

In accordance with the regulations set by the supervisory authority, dividend insurance profit is accumulated within 30/100 of the contractor’s stake. The reserve for the compensation of dividend insurance losses shall

F-3

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

compensate for the loss of dividend insurance contracts in accordance with the provisions of the fiscal year within five years from the end of the accumulated reporting period and shall be used as the policyholder dividend source for the individual contractor.

ii) Contractor’s equity adjustment

In accordance with IAS 39, the Group classifies the gains and losses of available for sale financial assets as policyholder’s equity and shareholders’ equity based on the reserve ratio for dividend paying and

non-dividend

paying insurance for the year ended December 31, 2021, and the portion of policyholder’s equity is accounted as policyholder’s equity adjustment.

iii) Evaluation of debt appropriateness

At the end of each reporting period, the group assesses whether the recognized insurance liability is appropriate using the current estimates of future cash flows of the policy, and if the carrying value of the insurance liability is deemed to be inappropriate in terms of the estimated future cash flows. The reserve for premiums is added to the profit or loss by the amount corresponding to the deficiency.

iv) Reinsurance assets

The group presents the recoverable amount of reinsurance assets. The group assesses at the end of each reporting period whether there is objective evidence that a reinsurance asset is impaired. If there is objective evidence that the entity will not be able to collect all amounts under the terms of the agreement as a result of an event that occurred after the initial recognition and if the event has a reliable and measurable impact on the amount to be received. If reinsurance assets are determined to be impaired, impairment loss is recognized in the profit and loss for the current period.

v) Deferred acquisition cost

The group recognizes unrealized gains and losses arising from long-term insurance contracts as assets and amortizes the premiums over the life of the insurance contracts equally. If the contribution period exceeds 7 years, the amortization period is 7 years if there is an unrecognized balance at the date of the cancelation, the entire amount of the cancelation is amortized in the fiscal year to which the cancelation date belongs. But, if the ratio of additional premiums is higher at the early stage of the insurance period for the purpose of recovering the excess of the unearned premiums and the early settlement costs, the new settlement expenses are treated as the period expense.

(w) Recognition of revenues and expenses

The Group’s revenues are recognized using five-step revenue recognition model as follows: ① ‘Identifying the contract’

g

② ‘Identifying performance obligations’

g

③ ‘Determining the transaction price’

g

④ ‘Allocating the transaction price to performance obligations’

g

⑤ ‘Recognizing the revenue by satisfying performance obligations’.

i) Interest income and expense

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts

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40

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

through the expected life of the financial asset or liability or, where appropriate, a shorter period to the net carrying value of the financial asset or liability.

When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, and all other premiums or discounts. When it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Group uses the contractual cash flows over the full contractual term of the financial instrument.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is thereafter recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

ii) Fees and commission

The recognition of revenue for financial service fees depends on the purposes for which the fees are assessed and the basis of accounting for any associated financial instrument.

① Fees that are an integral part of the effective interest rate of a financial instrument

Such fees are generally treated as an adjustment to the effective interest rate. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, preparing and processing documents, closing the transaction and the origination fees received on issuing financial liabilities. However, when the financial instrument is measured at fair value with the change in fair value recognized in profit or loss, the fees are recognized as revenue when the instrument is initially recognized.

② Fees earned as services are provided

Fees and commission income, including investment management fees, sales commission, and account servicing fees, are recognized as the related services are provided.

③ Fees that are earned on the execution of a significant act

The fees that are earned on the execution of a significant act including commission on the allotment of shares or other securities to a client, placement fee for arranging a loan between a borrower and an investor and sales commission, are recognized as revenue when the significant act has been completed.

iii) Insurance income

The Group recognizes insurance income for the insurance premium paid of which the payment date arrived by the premium payment methods of the insurance contract; and recognizes advance receipts for the insurance premium paid of which the payment date has not arrived at the end of the reporting period.

iv) Dividend income

Dividend income is recognized when the shareholder’s right to receive payment is established. Usually this is the

ex-dividend

date for equity securities. The Group provides compensation in various forms such as payment discounts and gifts.

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41

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

(x) Revenue from Contracts with Customers

The fair value of the consideration received or receivable in exchange for the initial transaction is allocated to the reward points (“points”) and the remainder of the fee income. The Group provides compensation in various forms such as payment discounts and free gifts. The consideration to be allocated to the points is estimated based on the fair value of the monetary benefits to be provided in consideration of the expected recovery rate of points awarded in accordance with the customer loyalty program and the expected time of recovery. Points for distribution through the cost paid by the customer is recognized by deducting from the revenue from fees.

(y) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and

non-taxable

or

non-deductible

items from the accounting profit. The unpaid taxes related to the Group’s current tax are calculated using the enacted or substantially established tax rate.

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The Group applies a consolidated tax method based on a consolidated tax base and a domestic corporation (hereinafter referred to as the “Consolidated Entity Corporation”) that is fully controlled by the consolidated parent company and the consolidated tax base.

The Group evaluates the feasibility of temporary differences, taking into account the future taxable income of individual companies and consolidated groups, respectively. The change in deferred tax assets (liabilities) was recognized as expense (income), except for the amount associated with items directly added to the equity account.

For additional temporary differences in subsidiaries, associates, and joint venture investment interests, the Group may control the timing of the disappearance of temporary differences. All deferred tax liabilities are recognized except in cases where temporary differences are unlikely to dissipate in the foreseeable future. Deferred tax assets arising from deductible temporary differences are likely to be extinguished in the foreseeable future. In addition, it is recognized when taxable income is likely to be used for temporary differences.

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2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

The carrying value of deferred tax assets is reviewed at the end of each reporting period. The carrying value of deferred tax assets is reduced when it is no longer likely that sufficient taxable income will be generated to use benefits from deferred tax assets.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying value of its assets and liabilities.

Deferred tax assets and liabilities are corporate taxes imposed by the same taxation authority. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets.

Because of the tax polices taken by the Group, tax uncertainties arise from the complexity of transactions and differences in tax law analysis. Also, it arises from a tax refund suit, tax investigation, or a refund suit against the tax authorities’ tax amount. The Group paid the tax amount by the tax authorities in accordance with IFRIC 23. However, it will be recognized as the corporate tax assets if there is a high possibility of a refund in the future. In addition, the amount expected to be paid as a result of the tax investigation is recognized as the tax liability.

(z) Accounting for trust accounts

The Group accounts for trust accounts separately from its bank accounts under the Financial Investment Services and Capital Markets Act No. 114 and thus the trust accounts are not included in the accompanying consolidated financial statements. In this regard, the funds lent to the trust account are counted as trust account loans and loans borrowed from the trust account as other accounting accounts

(non-payment

of the trust account). In accordance with the Financial Investment Business Regulations, trust remuneration is acquired in connection with the operation, management, and disposal of trust property, and it is counted as the operating profit of trust business.

(aa) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to the ordinary shareholder of the Group by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

(ab) New standards and amendments not yet adopted by the Group

The following new accounting standards and amendments have been published that are not mandatory for annual periods beginning after January 1, 2021, and have not been early adopted by the Group.

i) IFRS 3 ‘Business combination’ amended – Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to be recognized in a business combination in revised Conceptual Framework for Financial Reporting. However, the amendments add an

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3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37

‘Provisions, Contingent Liabilities and Contingent Assets’

, and IFRIC 21

‘Levies’

. The amendments also clarify that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group expects that the amendments will not have a significant impact on the consolidated financial statements.

(ii) IAS 16 ‘Property, Plant and Equipment’ amended – Proceeds before the intended use

The amendments require the entity to recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss, and prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group expects that the amendments will not have a significant impact on the consolidated financial statements.

(iii) IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’ amended – Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group expects that the amendments will not have a significant impact on the consolidated financial statements.

(iv) IAS 1 ‘Presentation of Financial Statements’ amended – Classification of Liabilities as Current or

Non-current

The amendments clarify that liabilities are classified as either current or

non-current,

depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management. Also, the settlement of liability includes the transfer of the entity’s own equity instruments, however, it would be excluded if an option to settle them by the entity’s own equity instruments if compound financial instruments is met the definition of equity instruments and recognized separately from the liability. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Group is reviewing the impact of amendments to the consolidated financial statements.

v) IFRS 17 ‘Insurance Contracts’

IFRS 17

‘Insurance Contracts’

will be applied for annual periods beginning on or after January 1, 2023. The standard will replace IFRS 4

‘Insurance Contracts’

which is the current standard.

The main features of IFRS 17 include measurement of the current value of insurance liabilities, recognition of insurance revenue on an accrual basis, and separate presentation of investment income from insurance performance. Under IFRS 4, insurance liability was measured using historical information (e.g., interest rates at sale, etc.). In addition, when the entity receives the premium, it recognizes the premium received as an insurance revenue on a cash basis and there is no obligation to present insurance and investment income

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4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

or expense separately. On the contrary, IFRS 17 measures insurance liability at its present value by using updated discount rates which reflect current market-based information (i.e. at the reporting date) such as assumptions and risks. An insurance revenue is recognized on an accrual basis, reflecting the services provided to the policyholder by the insurance company for each accounting periods. Moreover, insurance finance income or expenses and the investment income or expenses will be presented separately.

If the Group applies IFRS 17 in preparation of financial statements, significant differences with current financial statements may arise due to the following reasons. These differences do not include all of the future differences and they may be changed depending on further analysis.

① Evaluation of insurance liabilities

Under IFRS 17, the Group estimates all cash flows under the insurance contract, then measure insurance liability by using discount rates that reflect assumptions and risks at the reporting date.

Specifically, the Group identifies a portfolio of insurance contracts which comprises contracts subject to similar risks and managed together and disaggregate the groups of insurance contracts with similar profitability within the portfolio. Then, the Group measures the groups of insurance contracts at the total of estimates of future cash flows (reflecting cash flows related to insurance contracts and the time value of money), risk adjustment and contractual service margin. Upon the application of IFRS 17, contractual service margin account has been newly introduced. The contractual service margin presents the unrealized profit that the Group will recognize as it provides services in the future.

Reinsurance contract is an insurance contract issued by one entity (the reinsurer) to compensate another entity for claims arising from one or more insurance contracts issued by that another entity (underlying insurance contracts). When estimating present value of future cash flows arising from reinsurance contracts, the Group would use assumptions consistent with those it uses for the underlying contracts.

② Recognition and measurement of financial performance

According to IFRS 17, insurance revenue is recognized on an accrual basis including services (insurance coverage) provided to the policyholder for each accounting period. Investment components (such as cancelation or maturity refunds) being repaid to the policyholder even if an insured event does not occur, are excluded from insurance revenue. Insurance finance income or expenses and investment income or expenses are presented separately to enable information users to understand the sources of profits or losses.

The Group includes time value of money and financial risk, and the effect of changes in the time value of money and financial risk related to the groups of insurance contracts in the insurance finance income or expenses. This requires the Group to make an accounting policy choice as to whether to disaggregate insurance finance income or expenses for the period between profit or loss and other comprehensive income.

③ Accounting policies related to conversion

According to IFRS 17, the Group shall adjust the groups of insurance contracts issued before the transition date, that is measured at cost to be measured at its current value by applying a full retrospective approach, modified retrospective approach or fair value approach (January 1, 2022, the beginning of the annual reporting period immediately preceding the date of initial application).

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5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

3. Significant accounting policies (continued)

In principle, the Group shall identify, recognize, and measure (full retrospective approach) each group of insurance contracts as if IFRS 17 had been applied even before the transition date. However, if this approach is impracticable, the Group may choose to apply either the modified retrospective approach or fair value approach. On the other hand, for groups of insurance contracts with direct participation features which meet certain criteria, a fair value approach may be applied even if the full retrospective approach is applicable.

The objective of the modified approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort. The fair value approach is an approach of assessing a group of insurance contracts using fair value assessments, etc. in accordance with IFRS 13

‘Fair Value Measurement’

. To apply the fair value approach, the Group shall determine the contractual service margin or loss component of the liability for remaining coverage at the transition date as the difference between the fair value of a group of insurance contracts and the fulfillment cash flows measured at that date.

④ Preparing for the application

As part of preparations for the launch of an integrated corporation in 2021, the Group has completed setting up actuarial assumptions and models and insurance liability settlement system. Within 2022, the Group is planning to foster and reinforce additional professionals and will continuously promote advancement, including improvements on system stability and verification of the consistency of data output. Also, the Group will overhaul and establish an internal accounting control system that goes along with the dynamic accounting environment in order to prepare and disclose reliable accounting information.

The application of IFRS 17 will not only result to a change in accounting standards, but will also affect insurance product development, sales strategies, and long-term management strategies. Therefore, with the aim of

re-establishment

of the overall business management system, the Group will continue to provide training to the employees and report to the management the status and implementation plan of IFRS 17.

⑤ Financial impact assessment

As the implementation of IFRS 17 results to changes in the valuation of liabilities, revenue recognition, etc., the Group believes that the impact of this standard on the financial statements will be significant. The Group is determining the impacts on the consolidated financial statements due to the application of the standard. As of December 31, 2021, the Group has an insurance contract liability of

W

61,183,934 million, calculated in accordance with IFRS 4 ‘Insurance contracts’.

vi) Annual Improvements to IFRSs 2018-2020 Cycle

For Annual Improvements to IFRSs 2018-2020 Cycle, the amendments will take effect for annual periods beginning after January 1, 2022 and are permitted for early application. The Group expects that the amendments will not have a significant impact on the consolidated financial statements.

• IFRS 1, ‘First-time Adoption of IFRS’ – First-time adopter subsidiaries

• IFRS 9, ‘Financial Instruments’ – 10% test-related fee for financial liabilities removal

• IFRS 16, ‘Leases’ – Lease incentives

• IAS 41, ‘Agriculture’ – Fair value measurement

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6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management

(a) Overview

Shinhan Financial Group Co., Ltd. (collectively the “Group”) manages various risks that may be arisen by each business sector and the major risks to which the Group is exposed include credit risk, market risk, interest rate risk, and liquidity risk. These risks are recognized, measured, controlled and reported in accordance with risk management guidelines established at the controlling company level and at the subsidiary level.

i) Risk management principles

The risk management principles of the Group are as follows:

• All business activities take into account the balance of risks and profits within a predetermined risk trend.

• The controlling company shall present the Group Risk Management Model Standards and supervise their compliance, and have responsibility and authority for group-level monitoring.

• Operate a risk-related decision-making system that enhances management’s involvement.

• Organize and operate risk management organizations independent of the business sector.

• Operate a performance management system that clearly considers risks when making business decisions.

• Aim for preemptive and practical risk management functions.

• Share a cautious view to prepare for possible deterioration of the situation.

ii) Risk management organization

The basic policies and strategies for risk management of the Group are established by the Risk Management Committee (collectively the “Group Risk Management Committee”) within the controlling company’s Board of Directors. The Group’s Chief Risk Management Officer (CRO) assists the Group Risk Management Committee and consults the risk policies and strategies of the group and each subsidiary through the Group Risk Council, which includes the Chief Risk Management Officer of each subsidiary. The subsidiary implements the risk policies and strategies of the Group through each company’s risk management committee, risk-related committee, and risk management organization, and consistently establishes and implements the detailed risk policies and strategies of the subsidiary. The risk management team of the controlling company assists the Group’s chief risk management officer for risk management and supervision.

Shinhan Financial Group has a hierarchical limit system to manage the risks of the Group to an appropriate level. The Group Risk Management Committee sets the risk limits that can be assumed by the Group and its subsidiaries, while the Risk Management Committee and the Committee of each subsidiary set and manage detailed risk limits by risk, department, desk and product types.

① Group Risk Management Committee

The Group established the risk management system for the Group and each of its subsidiaries, and comprehensively manages group risk-related matters such as establishing risk policies, limits, and approvals. The Committee consists of directors of the Group.

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7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The resolution of the Committee is as follows:

• Establish risk management basic policy in line with management strategy

• Determine the level of risk that can be assumed by the Group and each subsidiary

• Approve appropriate investment limit or loss allowance limit

• Enact and amend the Group Risk Management Regulations and the Group Risk Council Regulations

• Matters concerning risk management organization structure and division of duties

• Matters concerning the operation of the risk management system;

• Matters concerning the establishment of various limits and approval of limits

• Make decisions on approval of the FSS’s internal rating law for non-retail and retail credit rating systems

• Matters concerning risk disclosure policy

• Analysis of crisis situation, related capital management plan and financing plan

• Matters deemed necessary by the board of directors

• Materials required by external regulations such as the Financial Services Commission and other regulations and guidelines

• Matters deemed necessary by the Chairman

The resolution of the Group Risk Management Committee is reported to the Board of Directors.

② Group Risk Management Council

In order to maintain the Group’s risk policy and strategy consistently, the Group decides what is necessary to discuss the risks of the Group and to carry out the policies set by the Group Risk Management Committee. The members are chaired by the group’s risk management officer and consist of the risk management officers of major subsidiaries.

iii) Group Risk Management System

① Management of the risk capital

Risk capital refers to the capital required to compensate for the potential loss (risk) if it is actually realized. Risk capital management refers to the management of the risk assets considering its risk appetite, which is a datum point on the level of risk burden compared to available capital, so as to maintain the risk capital at an appropriate level. The Group and subsidiaries establish and operate a risk planning process to reflect the risk plan in advance when establishing financial and business plans for risk capital management, and establish a risk limit management system to control risk to an appropriate level.

② Risk Monitoring

In order to proactively manage risks by periodically identifying risk factors that can affect the group’s business environment, the Group has established a multi-dimensional risk monitoring system. Each

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8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

subsidiary is required to report to the Group on key issues that affect risk management at the group level. The Group prepares weekly, monthly and occasional monitoring reports to report to Group management including the CRO.

In addition, the Risk Dash Board is operated to derive abnormal symptoms through three-dimensional monitoring of major portfolios, increased risks, and external environmental changes (news) of assets for each subsidiary. If necessary, the Group takes preemptive risk management to establish and implement countermeasures.

③ Risk Reviewing

When conducting new product

,

new business and major policy changes, risk factors are reviewed by using a

pre-defined

checklist to prevent indiscriminate promotion of business that is not easy to judge risk and to support rational decision making. The subsidiary’s risk management department conducts a preliminary review and post-monitoring process on products, services, and projects to be pursued in the business division. In case of matters that are linked or jointly promoted with other subsidiaries, the risk reviews are carried out after prior-consultation with the risk management department of the Group.

④ Risk management

The Group maintains a group wide risk management system to detect the signals of any risk crisis preemptively and, in the event of a crisis actually happening, to respond on a timely, efficient and flexible basis so as to ensure the Group’s survival as a going concern. Each subsidiary maintains crisis planning for three levels of contingencies, namely, ‘alert’, ‘imminent crisis’ and ‘crisis’ determination of which is made based on quantitative and qualitative monitoring and consequence analysis, and upon the happening of any such contingency, is required to respond according to a prescribed contingency plan. At the controlling company level, the Group maintains and installs crisis detection and response system which is applied consistently group-wide, and upon the happening of any contingency at two or more subsidiary level, the Group directly takes charge of the situation so that the Group manages it on a concerted group wide basis.

(b) Credit risk

Credit risk is the risk of potential economic loss that may be caused if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and is the largest risk which the Group is facing. The Group’s credit risk management encompasses all areas of credit that may result in potential economic loss, including not just transactions that are recorded on balance sheets, but also

off-balance-sheet

transactions such as guarantees, loan commitments and derivative transactions.

Shinhan Bank’s basic policy on credit risk management is determined by the Risk Policy Committee. The Risk Policy Committee consists of the chairman of the CRO, the Chief Credit Officer (CCO), the head of the business group, and the head of the risk management department, and decides the credit risk management plan and the direction of the loan policy for the entire bank. Apart from the Risk Policy Committee, the Credit Review Committee is established to separate credit monitoring, such as large loans and limit approval, and is composed of chairman, the CCO, CRO and the head of the group in charge of the credit-related business group, the head of the credit planning department, and the senior examination team to enhance the credit quality of the loan and profitability of operation.

Shinhan Bank’s credit risk management includes processes such as credit evaluation, credit monitoring, and credit supervision, and credit risk measurement of counterparties and limit management processes and credit

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9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

risk measurements for portfolios. All loan customers of Shinhan Bank are evaluated and managed with credit ratings. Retail customers are evaluated by summing up the information of personal information the bank’s internal information and external credit information, and the corporate customers are evaluated by considering financial and

non-financial

items such as industrial risk, operating risk, and management risk. The evaluated credit rating is used for credit approval, limit management, pricing, credit loss provisioning, etc., and is the basis for credit risk management. The credit evaluation system is divided into an evaluation system for retail customers, a SOHO evaluation system, and an evaluation system for corporate customers. It is subdivided and refined by each model to reflect the Basel III requirements. The corporate credit decision is based on a collective decision-making system, making objective and prudent decisions. In the case of a general credit of loans, the credit is approved based on the consultation between branch’s RM (Relationship Manager) and loan officers of each business division’s headquarters. In the case of a large or important credit, the credit is approved by the review council. In particular, the Credit Deliberation Committee, the highest decision-making body of the loan, reviews for important loans such as large loans. Credits for retail customers are monitored by an automated credit scoring systems (CSS) based on objective statistical methods and bank credit policies.

The Bank operates a regular monitoring system for the regular management of individual loans. The loan officers and RM evaluate the adequacy of the result of the loan review by automatically searching for anticipated insolvent companies among business loan partners, and if necessary, the credit rating of the corporate is requested of an adjustment. In accordance with these procedures, the corporate customers are classified as an early warning company, an observation company, and a normal company, and then are managed differently according to the management guidelines for each risk stage, thereby preventing the insolvency of the loan at an early stage. The financial analysis support system affiliated with a professional credit rating agency supports credit screening and management, and the credit planning department calculates and manages industrial grades, and analyzes and provides industry trends and company information. In order to control the credit risk for the credit portfolio to an appropriate level, credit VaR limits are set and managed for each business and business sector, and to prepare for the credit risk caused by biased exposure to specific sectors, the Group sets and manages exposure limits for each sector by the party, industry, country, etc.

Shinhan Card’s basic policy on credit risk is determined by the Risk Management Committee. The Risk Management Committee consists of the Risk Management Officer (CRO) as the chairperson, and is composed of the heads of each business division and supporting division, and the heads of related departments. Apart from the RMC, a credit committee in charge of monitoring corporate credits and other important credits over a certain amount has been established to separate credit policy decisions from credit monitoring.

Shinhan Card’s credit rating system is divided into ASS(Application Scoring System) and BSS(Behavior Scoring System). Unless a customer fall under “rejections due to policy” (such circumstances include delinquency of other credit card companies) and his/her credit rating is above a certain rate, an application of AS is approved. There is a separate screening criterion for credit card customers, who has maintained its relationship with Shinhan Financial Group for a long-term and has a good credit history. In addition, the elements of credit ratings are used as the basis for setting limits when issuing cards. The BSS, which is recalculated monthly, predicts the delinquency probability of cardholders, and utilizes it to monitor members and monitor portfolio risk.

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50

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

i) Techniques, assumptions and input variables used to measure impairment

i-1)

Determining significant increases in credit risk since initial recognition

At the end of each reporting period, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses.

To make the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, and is indicative of significant increases in credit risk since initial recognition. Information includes the default experience data held by the Group and analysis by an internal credit rating expert.

i-1-1)

Measuring the risk of default

The Group assigns an internal credit risk rating to each individual exposure based on observable data and historical experiences that have been found to have a reasonable correlation with the risk of default. The internal credit risk rating is determined by considering both qualitative and quantitative factors that indicate the risk of default, which may vary depending on the nature of the exposure and the type of borrower.

i-1-2)

Measuring term structure of probability of default

Internal credit risk rating is the main variable inputs to determine the duration structure for the risk of default. The Group accumulates information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower and results of internal credit risk assessment. For some portfolios, the Group uses information obtained from external credit rating agencies when performing these analyzes.

The Group applies statistical techniques to estimate the probability of default for the remaining life of the exposure from the accumulated data and to estimate changes in the estimated probability of default over time.

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51

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

i-1-3)

Significant increases in credit risk

The Group uses the indicators defined as per portfolio to determine the significant increase in credit risk and such indicators generally consist of changes in the risk of default estimated from changes in the internal credit risk rating, qualitative factors, days of delinquency, and others. The method used to determine whether credit risk of financial instruments has significantly increased after the initial recognitions is summarized as follows:

Corporate exposures	Retail exposures	Card exposures
Significant change in credit ratings	Significant change in credit ratings	Significant change in credit ratings
Continued past due more than 30 days	Continued past due more than 30 days	Continued past due more than 7 days(personal card)
Loan classification of precautionary or below	Loan classification of precautionary or below	Loan classification of precautionary or below
Borrower with early warning signals	Borrower with early warning signals	Specific pool segment
Negative net assets	Specific pool segment
Adverse audit opinion or disclaimer of opinion	Collective loans for housing for which the constructors are insolvent
Interest coverage ratio below 1 for a consecutive period of three years or negative cash flows from operating activities for a consecutive period of two years	Loans with identified indicators for significant increases in other credit risk
Loans with identified indicators for significant increases in other credit risk

The Group assumes that the credit risk of the financial instrument has been increased significantly since initial recognition if a specific exposure is past due more than 30 days (except, for a specific portfolio if it is past due more than 7 days). The Group counts the number of days past due from the earliest date on which the Group fails to fully receive the contractual payments from the borrower, and does not take into account the grace period granted to the borrower.

The Group regularly reviews the criteria for determining if there have been significant increases in credit risk from the following perspective:

• A significant increase in credit risk shall be identified prior to the occurrence of default.

• The criteria established to judge the significant increase in credit risk shall have a more predictive power than the criteria for days of delinquency.

i-2)

Modified financial assets

If the contractual cash flows on a financial asset have been modified through renegotiation and the financial asset is not derecognized, the Group assesses whether there has been a significant increase in the credit risk

F-5

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

of the financial instrument by comparing the risk of a default occurring at initial recognition based on the original, unmodified contractual terms and the risk of a default occurring at the reporting date based on the modified contractual terms.

The Group may adjust the contractual cash flows of loans to customers who are in financial difficulties in order to manage the risk of default and enhance the collectability (hereinafter referred to as ‘debt restructuring’). These adjustments generally involve extension of maturity, changes in interest payment schedule, and changes in other contractual terms.

Debt restructuring is a qualitative indicator of a significant increase in credit risk and the Group recognizes lifetime expected credit losses for the exposure expected to be the subject of such adjustments. If a borrower faithfully makes payments of contractual cash flows that are modified in accordance with the debt restructuring or if the borrower’s internal credit rating has recovered to the level prior to the recognition of the lifetime expected credit losses, the Group recognizes the

12-month

expected credit losses for that exposure again.

i-3)

Risk of default

The Group considers a financial asset to be in default if it meets one or more of the following conditions:

• If a borrower is overdue 90 days or more from the contractual payment date,

• If the Group judges that it is not possible to recover principal and interest without enforcing the collateral on a financial asset

The Group uses the following indicators when determining whether a borrower is in default:

• Qualitative factors (e.g. breach of contractual terms),

• Quantitative factors (e.g. if the same borrower does not perform more than one payment obligations to the Group, the number of days past due per payment obligation. However, in the case of a specific portfolio, the Group uses the number of days past due for each financial instrument),

• Internal observation data and external data

The definition of default applied by the Group generally conforms to the definition of default defined for regulatory capital management purposes; however, depending on the situations, the information used to determine whether a default has occurred and the extent thereof may vary.

i-4)

Reflection of forward-looking information

The Group reflects future forward-looking information presented by a group of internal experts based on various information when measuring expected credit losses. The Group utilizes economic forecasts disclosed by domestic and foreign research institutes, governments, and public institutions to predict forward-looking information.

The Group reflects future macroeconomic conditions anticipated from a neutral standpoint that is free from bias in measuring expected credit losses. Expected credit losses in this respect reflect conditions that are most likely to occur and are based on the same assumptions that the Group used in its business plan and management strategy.

The Group analyzed the data experienced in the past, derived correlations between major macroeconomic variables and credit risks required for predicting credit risk and credit loss for each portfolio, and then

F-5

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

reflected future forecast information through regression estimation. To reflect the

COVID-19

economic situation, the Group has reviewed the 3 scenarios of upside, central and downside to reflect the final forward-looking information. For the years ended December 31, 2020 and 2021, macroeconomic variables used by the Group are as follows for each scenario.

① Upside scenario

Major variables(*1)	Correlation between credit risks			2020.4Q (*2)			2021
							1Q		2Q		3Q		4Q
GDP growth rate(YoY %)		(-	)		(2.8	)		0.0		3.9		3.0		4.3
Private consumption index(YoY %)		(-	)		(4.8	)		3.0		2.3		3.5		4.1
Facility investment growth rate(YoY %)		(-	)		3.5			5.5		6.5		1.5		5.0
Consumer price index growth rate(%)		(-	)		0.3			0.6		0.9		0.8		0.9
Balance on current account(billion dollars)		(-	)		170.0			130.0		160.0		190.0		180.0
Government bond 3y yields(%)		—			0.90			1.00		1.00		1.10		1.10

② Central scenario

Major variables(*1)	Correlation between credit risks			2020.4Q (*2)			2021
							1Q			2Q		3Q		4Q
GDP growth rate(YoY %)		(-	)		(2.8	)		(0.7	)		3.6		2.5		3.7
Private consumption index(YoY %)		(-	)		(4.8	)		2.6			2.1		3.0		3.5
Facility investment growth rate(YoY %)		(-	)		3.5			5.0			6.0		0.8		4.5
Consumer price index growth rate(%)		(-	)		0.3			0.5			0.9		0.7		0.8
Balance on current account(billion dollars)		(-	)		170.0			120.0			150.0		180.0		170.0
Government bond 3y yields(%)		—			0.90			1.00			1.00		1.00		1.00

③ Downside scenario

Major variables(*1)	Correlation between credit risks			2020.4Q (*2)			2021
							1Q			2Q		3Q			4Q
GDP growth rate(YoY %)		(-	)		(2.8	)		(1.5	)		2.3		1.7			3.0
Private consumption index(YoY %)		(-	)		(4.8	)		1.9			1.1		2.6			3.4
Facility investment growth rate(YoY %)		(-	)		3.5			3.5			4.5		(1.0	)		3.0
Consumer price index growth rate(%)		(-	)		0.3			0.4			0.8		0.6			0.7
Balance on current account(billion dollars)		(-	)		170.0			110.0			140.0		170.0			160.0
Government bond 3y yields(%)		—			0.90			1.10			1.10		1.10			1.10

(*1) Shinhan Bank applied the private consumption index and facility investment growth rate as the major variables. In addition, Shinhan Card applied the GDP growth rate, consumer price index growth rate, facility investment growth rate, consumer price index growth rate, balance on current account, and government bond 3y yields as the major variables. In addition to the table above, the Group has selected additional forecasts for the KOSPI.

(*2) Considering the default forecast period, the Group reflected the future economic outlook.

F-5

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*3) The macroeconomic outlook figures are estimated by the Group for the purpose of calculating expected credit losses based on information from domestic and foreign research institutes. Therefore, it could be different from other institutions’ estimates.

① Upside scenario

Major variables(*1)	Correlation between credit risks			2021.4Q (*2)		2022
						1Q		2Q		3Q		4Q
GDP growth rate(YoY %)		(-	)		4.1		3.0		3.1		3.8		3.7
Private consumption index(YoY %)		(-	)		6.3		5.1		2.5		3.7		3.8
Facility investment growth rate(YoY %)		(-	)		4.1		0.5		1.2		5.0		5.1
Consumer price index growth rate(%)		(-	)		3.6		2.6		2.4		2.0		2.0
Balance on current account(billion dollars)		(-	)		202.0		230.0		200.0		220.0		230.0
Government bond 3y yields(%)		—			1.87		1.90		1.90		2.00		2.00

② Central scenario

Major variables(*1)	Correlation between credit risks			2021.4Q (*2)		2022
						1Q		2Q		3Q		4Q
GDP growth rate(YoY %)		(-	)		4.1		2.3		2.4		3.0		3.4
Private consumption index(YoY %)		(-	)		6.3		4.4		1.8		2.9		3.5
Facility investment growth rate(YoY %)		(-	)		4.1		0.2		0.8		4.5		4.9
Consumer price index growth rate(%)		(-	)		3.6		2.7		2.5		2.2		2.0
Balance on current account(billion dollars)		(-	)		202.0		220.0		180.0		200.0		220.0
Government bond 3y yields(%)		—			1.87		1.80		1.80		1.90		1.90

③ Downside scenario

Major variables(*1)	Correlation between credit risks			2021.4Q (*2)		2022
						1Q			2Q		3Q		4Q
GDP growth rate(YoY %)		(-	)		4.1		1.3			1.3		1.8		3.1
Private consumption index(YoY %)		(-	)		6.3		3.4			0.7		1.8		3.1
Facility investment growth rate(YoY %)		(-	)		4.1		(0.5	)		0.3		4.3		4.5
Consumer price index growth rate(%)		(-	)		3.6		3.2			3.0		3.0		2.8
Balance on current account(billion dollars)		(-	)		202.0		200.0			170.0		180.0		200.0
Government bond 3y yields(%)		—			1.87		2.00			2.00		2.20		2.40

(*1) Shinhan Bank applied the GDP growth rate and private consumption index as the major variables. In addition, Shinhan Card applied the GDP growth rate, facility investment growth rate, consumer price index growth rate, and balance on current account as the major variables. In addition to the table above, the Group has selected additional forecasts for the KOSPI.

(*2) Considering the default forecast period, the Group reflected the future economic outlook.

(*3) The macroeconomic outlook figures are estimated by the Group for the purpose of calculating expected credit losses based on information from domestic and foreign research institutes. Therefore, it could be different from other institutions’ estimates.

F-5

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The predicted correlations between the macroeconomic variables and the risk of default, used by the Group, are derived based on long-term data over the past ten years.

The recent historical default rate is an important reference when estimating the default rate in consideration of the future economic outlook. Economic indicators have worsened in 2021 due to the economic contraction caused by the

COVID-19.

However, the historical default rate of the Group’s has remained stable because of various government support in response to the

COVID-19.

The Group manages the credit risk through classifying borrowers in moratorium of interest payments and moratorium of repayment that is one of the financial relief programs into Stage2 to reflect the impact of potential insolvency.

The Group has considered multiple economic scenarios in applying forward-looking information to measure the expected credit losses. Assuming a 100% weighting of Upside, Central, and Downside scenarios, the sensitivity to the Group’s provision for expected credit loss is not significant.

i-5)

Measurement of expected credit losses

Key variables used in measuring expected credit losses are as follows:

• Probability of default (“PD”)

• Loss given default (“LGD”)

• Exposure at default (“EAD”)

These variables have been estimated from historical experience data by using the statistical techniques developed internally by the Group and have been adjusted to reflect forward-looking information.

Estimates of PD over a specified period are estimated by reflecting characteristics of counterparties and their exposure, based on a statistical model at a specific point of time. The Group uses its own information to develop a statistical credit assessment model used for the estimation, and additional information observed in the market is considered for some portfolios such as a group of large corporates. When a counterparty or exposure is concentrated in specific grades, the method of measuring PD for those grades would be adjusted, and the PD by grade is estimated by considering contract expiration of the exposure.

LGD refers to the expected loss if a borrower defaults. The Group calculates LGD based on the experience recovery rate measured from past default exposures. The model for measuring LGD is developed to reflect type of collateral, seniority of collateral, type of borrower, and cost of recovery. In particular, LGD for retail loan products uses loan to value (LTV) as a key variable. The recovery rate reflected in the LGD calculation is based on the present value of recovery amount, discounted at the effective interest rate.

EAD refers to the expected exposure at the time of default. The Group derives EAD reflecting a rate at which the current exposure is expected to be used additionally up to the point of default within the contractual limit. EAD of financial assets is equal to the total carrying value of the asset, and EAD of loan commitments or financial guarantee contracts is calculated as the sum of the amount expected to be used in the future.

In measuring expected credit losses on financial assets, the Group uses the contractual maturity as the period subject to expected credit loss measurement. The contractual maturity is computed taking into account the extension right held by the borrower.

Risk factors of PD, LGD and EAD are collectively estimated according to the following criteria:

• Type of products

• Internal credit risk rating

F-5

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

• Type of collateral

• Loan to value (“LTV”)

• Industry that the borrower belongs to

• Location of the borrower or collateral

• Days of delinquency

The criteria classifying groups is periodically reviewed to maintain homogeneity of the group and adjusted if necessary. The Group uses external benchmark information to supplement internal information for a particular portfolio that did not have sufficient internal data accumulated from the past experience.

i-6)

Write-off

of financial assets

The Group writes off a portion of or entire loan or debt security that is not expected to receive its principal and interest. In general, the Group conducts

write-off

when it is deemed that the borrower has no sufficient resources or income to repay the principal and interest. Such determination on

write-off

is carried out in accordance with the internal rules of the Group and is carried out with the approval of an external institution, if necessary. Apart from

write-off,

the Group may continue to exercise its right of collection under its own recovery policy even after the

write-off

of financial assets.

ii) Maximum exposure to credit risk

Exposure to credit risk is the exposure related to due from banks, loans, investments in debt securities, derivative transactions,

off-balance

sheet accounts such as loan commitment. The exposures of due from banks and loans are classified into government, bank, corporation or retail based on the exposure classification criteria of BASEL III credit risk weights, and the net carrying value, excluding provisions, is presented as the maximum amount that can be exposed by credit risk.

F-5

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The Group’s maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements as of December 31, 2020 and 2021 is as follows:

	2020		2021
Due from banks and loans at amortized cost (*1),(*3):
Banks	W	17,016,263		14,166,508
Retail		170,314,316		186,358,002
Government/Public sector/Central bank		24,778,332		15,251,465
Corporations		152,895,324		172,527,573
Card receivable		22,822,546		25,065,621
		387,826,781		413,369,169
Due from banks and loans at fair value through profit or loss(*3):
Banks		93,109		34,262
Corporations		1,986,804		1,683,344
		2,079,913		1,717,606
Securities at fair value through profit or loss		55,275,031		58,310,838
Securities at fair value through other comprehensive income		57,409,433		63,806,919
Securities at amortized cost(*1)		47,282,623		49,930,076
Derivative assets		5,633,915		3,799,189
Other financial assets(*1),(*2)		20,341,191		23,238,932
Guarantee contracts(*4)		4,481,506		5,399,286
Loan commitments and other credit liabilities		187,067,821		193,853,866
	W	767,398,214		813,425,881

(*1) The maximum exposure amounts for due from banks, loans, securities at amortized cost and other financial assets at amortized cost are recorded as net of allowances.

(*2) Other financial assets mainly comprise of accounts receivable, accrued income, deposits, domestic exchange settlement debit and suspense payments.

(*3) Classified as similar credit risk group based on calculation of the BIS ratio under new Basel Capital Accord (Basel III).

(*4) These amounts represent financial guarantees, and the non-financial guarantees amount to W 10,799,393 million and W 11,346,421 million as of December 31, 2020 and 2021, respectively.

F-5

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

iii) The maximum amount of exposure to credit risk by type of collateral as of December, 31, 2020 and 2021 is as follows:

	2020
	12 months Expected credit loss		Life time expected credit loss				Total
Classification			Not impaired		Impaired
Guarantee	W	36,355,387		5,944,417		185,777		42,485,581
Deposits and Savings		1,258,934		313,723		1,509		1,574,166
Property and equipment		1,301,810		324,098		12,341		1,638,249
Real estate		109,092,694		13,914,172		311,946		123,318,812
Securities		2,181,874		108,718		88,025		2,378,617
Others		4,830,557		—		1,943		4,832,500
Total	W	155,021,256		20,605,128		601,541		176,227,925

	2021
	12 months Expected credit loss		Life time expected credit loss				Total
Classification			Not impaired		Impaired
Guarantee	W	61,890,908		8,354,723		214,589		70,460,220
Deposits and Savings		2,166,075		285,965		2,446		2,454,486
Property and equipment		1,560,567		416,545		20,162		1,997,274
Real estate		127,505,563		14,318,098		256,972		142,080,633
Securities		1,906,005		128,293		7		2,034,305
Others		5,035,546		—		5,495		5,041,041
Total	W	200,064,664		23,503,624		499,671		224,067,959

F-5

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

iv) Impairment information by credit risk of financial assets

Details of impaired financial assets due to credit risk as of December 31, 2020 and 2021 are as follows:

	2020
	12-month expected credit loss				Life time expected credit loss						Total		Allowances			Net		Mitigation of credit risk due to collateral
	Grade 1		Grade 2		Grade 1		Grade 2		Impaired
Due from banks and loans at amortized cost:
Banks	W	14,935,722		1,996,948		87,084		10,027		—		17,029,781		(13,518	)		17,016,263		29,994
Retail		152,159,976		8,385,069		6,062,587		3,686,863		574,354		170,868,849		(554,533	)		170,314,316		91,711,254
Government/Public sector/Central bank		23,849,701		834,912		96,183		1,748		—		24,782,544		(4,212	)		24,778,332		9,000
Corporations		93,740,349		34,637,533		11,391,410		13,758,332		982,037		154,509,661		(1,614,337	)		152,895,324		83,580,715
Card receivable		16,995,332		2,304,536		1,754,723		2,197,877		454,451		23,706,919		(884,373	)		22,822,546		6,845
		301,681,080		48,158,998		19,391,987		19,654,847		2,010,842		390,897,754		(3,070,973	)		387,826,781		175,337,808
Securities at fair value through other comprehensive income (*)		48,506,057		8,636,241		—		267,135		—		57,409,433		—			57,409,433		—
Securities at amortized cost		45,888,769		1,404,340		—		—		—		47,293,109		(10,486	)		47,282,623		—
	W	396,075,906		58,199,579		19,391,987		19,921,982		2,010,842		495,600,296		(3,081,459	)		492,518,837		175,337,808

(*) Credit loss allowance recognized as other comprehensive income of securities at fair value through other comprehensive income amounted to  W  23,171 million as of December 31, 2020.

F-

60

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	12-month expected credit loss				Life time expected credit loss						Total		Allowances			Net		Mitigation of credit risk due to collateral
	Grade 1		Grade 2		Grade 1		Grade 2		Impaired
Due from banks and loans at amortized cost:
Banks	W	10,793,973		3,278,144		112,254		434		—		14,184,805		(18,297	)		14,166,508		133,618
Retail		169,313,467		7,015,361		7,900,192		2,127,173		581,534		186,937,727		(579,725	)		186,358,002		126,988,030
Government/Public sector/Central bank		14,531,532		710,527		17,433		257		—		15,259,749		(8,284	)		15,251,465		9,000
Corporations		101,866,101		44,060,819		10,743,965		16,702,928		853,977		174,227,790		(1,700,217	)		172,527,573		93,682,859
Card receivable		18,793,517		2,541,833		1,829,837		2,350,634		428,068		25,943,889		(878,268	)		25,065,621		8,774
		315,298,590		57,606,684		20,603,681		21,181,426		1,863,579		416,553,960		(3,184,791	)		413,369,169		220,822,281
Securities at fair value through other comprehensive income (*)		56,176,008		7,478,125		—		152,786		—		63,806,919		—			63,806,919		—
Securities at amortized cost		48,305,398		1,605,335		—		36,290		—		49,947,023		(16,947	)		49,930,076		—
	W	419,779,996		66,690,144		20,603,681		21,370,502		1,863,579		530,307,902		(3,201,738	)		527,106,164		220,822,281

(*) Credit loss allowance recognized as other comprehensive income of securities at fair value through other comprehensive income amounted to  W 37,486 million as of December 31, 2021.

F-

61

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

v) Credit risk exposures per credit grade of

off-balance

items

Credit risk exposures per credit grade of

off-balance

items as of December 31, 2020 and 2021 are as follows:

	2020
	Grade 1		Grade 2		Impaired		Total
Guarantee contracts(*):
12-month expected credit loss	W	2,884,641		1,110,945		—		3,995,586
Life time expected credit loss		308,785		176,977		—		485,762
Impaired		—		—		158		158
		3,193,426		1,287,922		158		4,481,506
Loan commitment and other credit line
12-month expected credit loss		156,787,448		20,715,236		—		177,502,684
Life time expected credit loss		6,738,016		2,822,003		—		9,560,019
Impaired		—		—		5,118		5,118
		163,525,464		23,537,239		5,118		187,067,821
	W	166,718,890		24,825,161		5,276		191,549,327

	2021
	Grade 1		Grade 2		Impaired		Total
Guarantee contracts(*):
12-month expected credit loss	W	3,469,002		1,382,415		—		4,851,417
Life time expected credit loss		342,224		205,179		—		547,403
Impaired		—		—		466		466
		3,811,226		1,587,594		466		5,399,286
Loan commitment and other credit line
12-month expected credit loss		160,307,100		23,370,613		—		183,677,713
Life time expected credit loss		7,406,324		2,759,057		—		10,165,381
Impaired		—		—		10,772		10,772
		167,713,424		26,129,670		10,772		193,853,866
	W	171,524,650		27,717,264		11,238		199,253,152

(*) These amounts represent financial guarantees, and the non-financial guarantees amount to W 10,799,393 million and W 11,346,421 million as of December 31, 2020 and 2021, respectively.

vi) Credit qualities are classified based on the internal credit rating as follows:

Type of Borrower	Grade 1	Grade 2
Individuals	Probability of default below 2.25% for each pool	Probability of default 2.25% or above for each pool
Government/Public agency/Central bank	OECD sovereign credit rating of 6 or above	OECD sovereign credit rating of below 6
Banks and Corporations (Including credit card bond)	Internal credit rating of BBB+ or above	Internal credit rating of below BBB+
Card receivables (Individuals)	Behavior scoring system of 7 grade or above	Behavior scoring system of below 7 grade

F-6

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

vii) Credit risk exposures per credit quality of derivative assets

Credit quality of derivative assets as of December 31, 2020 and 2021 are as follows:

	2020		2021
Grade 1	W	4,994,809		3,201,912
Grade 2		639,106		597,277
	W	5,633,915		3,799,189

(*) Credit quality of derivative assets is classified based on the internal credit ratings.

F-6

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

viii) Concentration by geographic location

An analysis of concentration by geographic location for financial instrument, net of allowance, as of December 31, 2020 and 2021 are as follows:

	2020
Classification (*1)	Korea		USA		UK		Japan		Germany		Vietnam		China		Other		Total
Due from banks and loans at amortized cost
Banks	W	6,990,520		823,698		156,002		784,538		316,293		1,166,397		2,889,115		3,889,700		17,016,263
Retail		161,434,788		392,499		6,724		4,124,680		2,386		1,780,361		1,329,067		1,243,811		170,314,316
Government/Public sector/Central bank		20,998,640		952,215		0		1,418,805		121,663		209,395		441,863		635,751		24,778,332
Corporations		133,827,181		3,278,234		435,135		3,796,824		103,647		2,319,327		3,039,177		6,095,799		152,895,324
Card receivable		22,614,285		8,867		351		1,983		194		152,141		27,926		16,799		22,822,546
		345,865,414		5,455,513		598,212		10,126,830		544,183		5,627,621		7,727,148		11,881,860		387,826,781
Deposits and loans at FVTPL
Banks		61,476		31,633		—		—		—		—		—		—		93,109
Corporations		1,057,690		466,812		—		19,807		—		744		—		441,751		1,986,804
		1,119,166		498,445		—		19,807		—		744		—		441,751		2,079,913
Securities measured at FVTPL		51,574,884		2,129,355		198,567		46,086		4,486		24,539		168,863		1,128,251		55,275,031
Securities at FVOCI		53,386,556		1,464,611		112,001		221,917		36,412		172,904		886,080		1,128,952		57,409,433
Securities at amortized cost		44,537,890		723,287		—		243,592		—		710,106		45,121		1,022,627		47,282,623
	W	496,483,910		10,271,211		908,780		10,658,232		585,081		6,535,914		8,827,212		15,603,441		549,873,781
Off-balance accounts
Guarantees (*2)	W	3,818,973		65,164		6,198		1,344		6,041		95,793		363,042		124,951		4,481,506
Loan commitments and other liabilities related to credit		178,311,828		528,596		275,629		645,794		64,050		1,042,458		2,443,779		3,755,687		187,067,821
	W	182,130,801		593,760		281,827		647,138		70,091		1,138,251		2,806,821		3,880,638		191,549,327

(*1) The following accounts are the net carrying value less provision for doubtful accounts.

(*2) These amounts represent financial guarantees, and the non-financial guarantees amount to  W  10,799,393 million as of December 31, 2020.

F-6

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
Classification(*1)	Korea		USA		UK		Japan		Germany		Vietnam		China		Other		Total
Due from banks and loans at amortized cost
Banks	W	4,310,888		1,525,158		235,591		450,689		530,688		1,676,080		2,677,445		2,759,969		14,166,508
Retail		175,777,754		392,882		7,683		4,338,281		3,111		2,412,670		1,944,105		1,481,516		186,358,002
Government/Public sector/Central bank		11,807,591		796,405		0		1,279,012		217,773		248,301		462,308		440,075		15,251,465
Corporations		151,625,249		3,684,068		254,051		4,375,807		94,186		3,012,133		2,947,746		6,534,333		172,527,573
Card receivable		24,832,367		10,435		462		2,033		233		170,929		32,281		16,881		25,065,621
		368,353,849		6,408,948		497,787		10,445,822		845,991		7,520,113		8,063,885		11,232,774		413,369,169
Deposits and loans at FVTPL
Banks		—		34,262		—		—		—		—		—		—		34,262
Corporations		1,113,229		282,513		—		19,274		—		—		—		268,328		1,683,344
		1,113,229		316,775		—		19,274		—		—		—		268,328		1,717,606
Securities measured at FVTPL		53,942,627		2,359,478		255,023		91,766		19,048		27,613		76,107		1,539,176		58,310,838
Securities at FVOCI		59,353,250		1,871,526		164,340		250,768		52,199		120,884		679,527		1,314,425		63,806,919
Securities at amortized cost		46,896,258		777,546		—		244,149		—		902,377		80,041		1,029,705		49,930,076
		529,659,213		11,734,273		917,150		11,051,779		917,238		8,570,987		8,899,560		15,384,408		587,134,608
Off-balance accounts
Guarantees(*2)		4,991,349		45,650		2,099		821		4,384		95,565		246,080		13,338		5,399,286
Loan commitments and other liabilities related to credit		182,701,367		686,381		260,036		771,183		87,080		2,772,750		2,157,388		4,417,681		193,853,866
	W	187,692,716		732,031		262,135		772,004		91,464		2,868,315		2,403,468		4,431,019		199,253,152

(*1) The following accounts are the net carrying value less provision for doubtful accounts.

(*2) These amounts represent financial guarantees, and the non-financial guarantees amount to W 11,346,421 million as of December 31, 2021.

F-6

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ix) Concentration by industry sector

An analysis of concentration by industry sector of financial instrument, net of allowance, as of and December 31, 2020 and 2021 is as follows:

	2020
Classification (*1)	Finance and insurance		Manufacturing		Retail and wholesale		Real estate and business		Construction service		Lodging and Restaurant		Other		Retail customers		Total
Due from banks and loans at amortized cost:
Banks	W	16,656,030		—		—		—		—		—		360,233		—		17,016,263
Retail		—		—		—		—		—		—		—		170,314,316		170,314,316
Government/Public sector/Central bank		24,671,308		—		—		1,796		—		—		105,228		—		24,778,332
Corporations		10,403,261		48,430,680		18,679,397		35,920,334		3,521,216		6,479,253		29,461,183		—		152,895,324
Card receivable		44,980		169,900		252,537		36,372		38,456		23,150		1,685,293		20,571,858		22,822,546
		51,775,579		48,600,580		18,931,934		35,958,502		3,559,672		6,502,403		31,611,937		190,886,174		387,826,781
Due from banks and loans at FVTPL
Banks		63,112		—		—		29,997		—		—		—		—		93,109
Corporations		1,114,789		641,554		19,210		51,008		3,000		—		157,243		—		1,986,804
		1,177,901		641,554		19,210		81,005		3,000		—		157,243		—		2,079,913
Securities at fair value through profit or loss		34,294,362		2,978,991		1,223,958		574,547		248,399		46,177		15,908,597		—		55,275,031
Securities at fair value through other comprehensive income		26,528,743		3,448,765		577,781		830,988		974,333		22,643		25,026,180		—		57,409,433
Securities at amortized cost		10,361,913		21,750		—		1,053,779		963,348		—		34,881,833		—		47,282,623
		124,138,498		55,691,640		20,752,883		38,498,821		5,748,752		6,571,223		107,585,790		190,886,174		549,873,781
Off-balance accounts
Guarantees (*2)		919,485		1,173,940		539,195		149,213		86,624		49,544		1,563,217		288		4,481,506
Loan commitments and other liabilities related to credit		13,474,195		25,825,767		9,652,509		3,619,939		2,159,128		513,565		19,277,732		112,544,986		187,067,821
	W	14,393,680		26,999,707		10,191,704		3,769,152		2,245,752		563,109		20,840,949		112,545,274		191,549,327

(*1) The composition details by industry are net book value less allowances.

(*2) These amounts represent financial guarantees, and the non-financial guarantees amount to W 10,799,393 million as of December 31, 2020.

F-6

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
Classification (*1)	Finance and insurance		Manufacturing		Retail and wholesale		Real estate and business		Construction service		Lodging and Restaurant		Other		Retail customers		Total
Due from banks and loans at amortized cost:
Banks	W	13,447,829		—		—		—		—		—		718,679		—		14,166,508
Retail		—		—		—		—		—		—		—		186,358,002		186,358,002
Government/Public sector/Central bank		15,216,403		—		—		1,797		—		—		33,265		—		15,251,465
Corporations		13,384,083		53,134,572		21,167,564		41,106,836		3,727,338		6,544,166		33,463,014		—		172,527,573
Card receivable		51,123		252,973		228,900		46,896		45,568		29,713		1,899,301		22,511,147		25,065,621
		42,099,438		53,387,545		21,396,464		41,155,529		3,772,906		6,573,879		36,114,259		208,869,149		413,369,169
Due from banks and loans at FVTPL
Banks		34,262		—		—		—		—		—		—		—		34,262
Corporations		986,736		492,598		15,107		78,753		22,537		2,637		84,976		—		1,683,344
		1,020,998		492,598		15,107		78,753		22,537		2,637		84,976		—		1,717,606
Securities at fair value through profit or loss		33,769,892		3,248,846		1,169,038		773,687		299,972		152,341		18,897,062		—		58,310,838
Securities at fair value through other comprehensive income		27,034,695		3,529,756		523,631		775,967		1,144,998		30,928		30,766,944		—		63,806,919
Securities at amortized cost		10,309,318		—		—		1,074,393		1,249,070		—		37,297,295		—		49,930,076
		114,234,341		60,658,745		23,104,240		43,858,329		6,489,483		6,759,785		123,160,536		208,869,149		587,134,608
Off-balance accounts
Guarantees (*2)		775,357		948,440		396,571		126,393		36,001		56,105		3,059,953		466		5,399,286
Loan commitments and other liabilities related to credit		15,445,541		25,389,003		8,908,201		3,676,457		2,213,871		499,633		20,404,848		117,316,312		193,853,866
	W	16,220,898		26,337,443		9,304,772		3,802,850		2,249,872		555,738		23,464,801		117,316,778		199,253,152

(*1) The composition details by industry are net book value less allowances.

(*2) These amounts represent financial guarantees, and the non-financial guarantees amount to W 11,346,421 million as of December 31, 2021.

F-6

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(c) Market risk

i) Market risk management from trading positions

i-1)

Concept of Market risk

Market risk is defined as the risk of loss of trading account position of financial institutions due to changes on market price, such as interest rates, exchange rates and stock prices, etc. and is divided into general market risks and individual risks. A general market risk refers to a loss from price variability caused by events affecting the market as a whole, such as interest rates, exchange rates and stock prices; and an individual risk refers to a loss from price variability related to individual events of securities issuer, such as bonds and stocks.

i-2)

Market Risk Management Method

The basic principle of market risk management in the trading sector is to maintain the maximum possible loss due to market risk within a certain level. To this end, the Group sets and operates VaR limits, investment limits, position limits, sensitivity limits, and loss limits from the portfolio to individual desks. These limits are managed daily by the department in charge of risk management, independent from the operating department.

Trading positions refer to securities, foreign exchange positions, and derivative financial instruments held for the purpose of obtaining short-term trading gains. As a method of measuring market risk, VaR (Value at Risk) is typical, and it is a statistical measurement of the potential maximum loss that can occur due to changes in market conditions. VaR calculates the standard method market risk using the Group Market Risk Measurement System (TRMS), and Shinhan Bank and Shinhan Financial Investment use their own internal model market risk calculation system.

Stress tests are conducted to supplement risk measurement by statistical methods and to manage losses that may arise from rapid changes in the economic environment.

Shinhan Bank measures the market risk of linear products, such as stocks and bonds, as well as

non-linear

products, such as options by applying historical simulation method of 99% confidence level-based VaR. Trading position data is automatically interfaced into management system, and the system conducts VaR measurement and manages the limit. In addition, the Bank sets loss limit, sensitivity limit, investment limit, stress limit, etc. for Trading Department and desks, and monitors daily.

Shinhan Investment measures daily market risk by applying historical simulation VaR method of 99.9% confidence level-based VaR. Historical simulation VaR method does not require assumption on a particular distribution since the method derives scenarios directly from historical market data, and measures

non-linear

products, such as options, in details. In addition to the VaR limit, the Shinhan Investment sets and manages issuance and transaction limit, and stop-loss limit for each department.

F-6

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

An analysis of the Group’s requisite capital in light of the market risk for trading positions as of and for the years ended December 31, 2020 and 2021 based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, is as follows:

	2020
	Average		Maximum		Minimum		December 31
Interest rate risk	W	525,465		592,668		495,292		592,668
Stock price risk		222,277		240,535		202,036		222,544
Foreign exchange risk		120,088		124,915		113,497		113,497
Commodity risk		13,818		22,982		9,539		9,539
Option volatility risk		8,910		23,224		3,234		3,234
	W	890,558		1,004,324		823,598		941,482
	2021
	Average		Maximum		Minimum		December 31
Interest rate risk	W	587,482		625,298		557,622		576,515
Stock price risk		209,101		231,137		179,415		219,900
Foreign exchange risk		274,140		301,271		245,232		299,909
Commodity risk		8,544		9,571		8,043		8,043
Option volatility risk		16,404		30,244		1,269		19,032
	W	1,095,671		1,197,521		991,581		1,123,399

i-3)

Shinhan Bank

The analyzes of the

ten-day

99% confidence level-based VaR for managing market risk for trading positions of Shinhan Bank as of and for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Average			Maximum			Minimum			December 31
Interest rate risk	W	41,165			56,950			28,322			42,867
Stock price risk		27,077			66,254			7,545			7,893
Foreign exchange risk (*)		65,309			83,335			27,668			69,024
Option volatility risk		305			1,073			114			138
Commodity risk		13			170			—			1
Portfolio diversification effect		(27,839	)		(53,295	)		(14,163	)		(25,310	)
	W	106,030			154,487			49,486			94,613

F-6

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Average			Maximum			Minimum			December 31
Interest rate risk	W	28,749			55,773			17,537			28,030
Stock price risk		11,583			21,340			3,850			19,618
Foreign exchange risk (*)		159,165			185,514			136,936			161,978
Option volatility risk		162			368			29			60
Commodity risk		11			151			0			8
Portfolio diversification effect		(25,023	)		(52,611	)		(13,207	)		(17,470	)
	W	174,647			210,535			145,145			192,224

(*) Both trading and non-trading accounts are included since Shinhan Bank manages foreign exchange risk on a total position basis.

i-4)

Shinhan Card

The analyzes of Shinhan Card’s requisite capital in light of the market risk for trading positions as of and for the years ended December 31 2020 and 2021, based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, are as follows:

	2020
	Average		Maximum		Minimum		December 31
Interest rate risk	W	2,034		2,400		1,900		2,400
	2021
	Average		Maximum		Minimum		December 31
Interest rate risk	W	1,996		2,350		1,700		1,700

(*) Foreign subsidiaries are excluded from the calculation.

i-5)

Shinhan Investment

The analyzes of the

ten-day

99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Investment as of and for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Average			Maximum			Minimum		December 31
Interest rate risk	W	20,512			30,903			12,076		23,551
Stock price risk		26,136			51,509			2,412		36,573
Foreign exchange risk		12,477			46,970			632		15,557
Option volatility risk		43,324			162,008			2,894		57,924
Portfolio diversification effect		(27,223	)		(103,405	)		634		(38,397	)
	W	75,226			187,985			18,648		95,208

F-

70

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Average			Maximum			Minimum			December 31
Interest rate risk	W	21,079			35,503			7,724			27,207
Stock price risk		31,668			62,315			15,856			33,295
Foreign exchange risk		24,354			43,826			2,548			28,594
Option volatility risk		49,345			96,355			31,155			79,589
Portfolio diversification effect		(47,759	)		(104,149	)		(7,380	)		(58,241	)
	W	78,687			133,850			49,903			110,444

i-6)

Shinhan Life Insurance

The analyzes of the

ten-day

99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Life Insurance as of and for the years ended December 31, 2020 and 2021 are as follows:

<Shinhan Life Insurance>

	2020
	Average		Maximum		Minimum		December 31
Interest rate risk	W	2,967		6,934		354		619
Stock price risk		10,953		16,592		4,481		13,742
Foreign exchange risk		10,485		21,588		4,665		13,669
Option volatility risk		433		1,096		40		1,089
	W	24,838		46,210		9,540		29,119

	2021
	Average		Maximum		Minimum		December 31
Interest rate risk	W	4,161		9,262		457		1,259
Stock price risk		8,938		15,009		1,909		6,303
Foreign exchange risk		7,680		13,746		481		11,404
Option volatility risk		1,252		2,828		26		47
	W	22,031		40,845		2,873		19,013

<Orange Life Insurance>

	2020
	Average		Maximum		Minimum		December 31
Foreign exchange risk	W	17,064		19,597		10,172		17,964
Option volatility risk		73		84		7		73
	W	17,137		19,681		10,179		18,037

F-

71

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ii) Interest rate risk management from

non-trading

positions

ii-1)

Principle

Interest rate risk refers to the possibility of a decrease in net interest income or in net asset value that occurs when interest rates fluctuate unfavorably from the Group’s financial position. The Group manages changes in net interest income or net asset value that occur due to changes in interest rates by early predicting the factors of interest rate risk fluctuation related to the Group’s net interest income and net asset value through the interest rate risk management.

ii-2)

Managements

Shinhan Financial Group’s major financial subsidiaries manage interest rate risks independently by the risk management organization and the treasury department, and have internal regulations on interest rate risk management strategies, procedures, organization, measurement, and major assumptions.

One of the key indicators of managing interest rate risk is the Earnings at Risk (EaR) from an earning perspective and the Value at Risk (VaR) from an economic value perspective. Interest rate VaR represents the maximum anticipated loss in a net present value calculation, whereas interest rate EaR represents the maximum anticipated loss in a net interest income calculation for the immediately following

one-year

period, in each case, as a result of negative movements in interest rates.

The precision of risk management system differs by each subsidiary. Interest rate VaR and interest rate EaR are measured by internal method or IRRBB (Interest Rate Risk In The Banking Book), and interest rate risk limits are set and monitored based on the interest rate VaR. In accordance with the amendments in Regulations for Supervision of Financial Holding Companies, the Group measures the interest rate risk using the Basel III based IRRBB, which measures the interest rate risk more precisely than the existing BIS standard framework by segmenting maturities of interest rates, reflecting customer behavior models and diversifying interest rate shocks. The interest rate VaR scenario based IRRBB measures ① parallel up shock ② parallel down shock ③ steepener shock ④ flattener shock ⑤ short rate up shock ⑥ short rate down shock. By the parallel up shock and parallel down shock, the interest rate VaR scenario measures the scenario value with the largest loss as interest rate risk. Under the existing BIS standard framework, ± 200bp parallel shock scenario is applied to all currency. However, as the shock width is set differently by currency and period, interest rate risk is measured significantly by the IRRBB. ((KRW) Parallel ± 300bp, Short Term ± 400bp, Long Term ± 200bp, (USD) Parallel ± 200bp, Short Term ± 300bp, Long Term ± 150bp) In the IRRBB method, the existing interest rate VaR and the interest rate EaR are expressed as Δ EVE (Economic Value of Equity) and Δ NII (Net Interest Income), respectively.

Since impacts of each subsidiary on changes of interest rates are differentiated by portfolios, the Group is preparing to respond proactively while monitoring the financial market and regulatory environment, and making efforts to hedge or reduce interest rate risk. In addition, the subsidiaries conduct the crisis analysis on changes in market interest rates and report it to management and the Group.

In particular, through its ALM (Asset and Liability Management) system, Shinhan Bank measures and manages its interest rate risk based on various analytical measures such as interest rate gap, duration gap and NPV (Net Present Value) and NII (Net Interest Income) simulations, and monitors on a monthly basis its interest rate VaR limits, interest rate EaR (Earnings at Risk) limits and interest rate gap ratio limits.

F-7

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The details of interest rate VaR and EaR for major subsidiaries for as of December 31, 2020 and 2021 are as follows:

ii-3)

Shinhan Bank

	2020		2021
ΔEVE (*1)	W	468,327		774,352
ΔNII (*2)		115,221		96,145

ii-4)

Shinhan Card

	2020		2021
ΔEVE (*1)	W	463,647		831,361
ΔNII (*2)		594,210		672,303

ii-5)

Shinhan Investment

	2020		2021
ΔEVE (*1)	W	209,929		186,587
ΔNII (*2)		89,925		187,548

ii-6)

Shinhan Life Insurance

	2020					2021
	Shinhan Life Insurance		Orange Life Insurance		��	Shinhan Life Insurance
ΔEVE (*1)	W	4,140,109		2,007,029			2,751,977
ΔNII (*2)		46,073		38,733			84,812

(*1) ΔEVE is the change in economic value of equity capital that can arise from changes in interest rates that affect the present value of assets, liabilities and off-balance sheet items by using the Basel III standard based IRRBB method.

(*2) ΔNII is the change in net interest income that can occur over the next year due to changes in interest rates by using the Basel III standard based IRRBB method.

iii) Foreign exchange risk

Exposure to foreign exchange risk can be defined as the difference (net position) between assets and liabilities presented in foreign currency, including derivative financial instruments linked to foreign exchange rate. Foreign exchange risk is a factor that causes market risk of the trading position and is managed by the Group under the market risk management system.

The management of Shinhan Bank’s foreign exchange position is centralized at the S&T Center. Dealers in the S&T Center manage Shinhan Bank’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps. Shinhan Bank sets a limit for

F-7

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

net open positions by currency and the limits for currencies other than the U.S. dollars (USD), Japanese yen (JPY), Euros (EUR) and Chinese yuan (CNY) are set in order to minimize exposures from the other foreign exchange trading.

Foreign currency denominated assets and liabilities as of December 31, 2020 and 2021 are as follows:

	2020
	USD		JPY			EUR		CNY		Other			Total
Assets:
Cash and due from banks at amortized cost	W	4,729,453		1,988,215			402,137		798,053		3,053,388			10,971,246
Due from banks at FVTPL		31,633		—			—		—		—			31,633
Loans at FVTPL		745,277		19,807			91,503		—		—			856,587
Loan at amortized cost		21,435,678		9,076,702			1,296,284		4,130,855		8,987,453			44,926,972
Securities at FVTPL		4,426,257		2,574			455,769		—		316,468			5,201,068
Derivative assets		913,778		21,531			50,842		1,100		114,055			1,101,306
Securities at FVOCI		3,868,880		149,718			222,547		460,681		1,000,855			5,702,681
Securities at amortized cost		1,273,204		240,619			69,132		45,151		1,588,358			3,216,464
Other financial assets		2,180,140		284,695			177,538		336,325		559,805			3,538,503
	W	39,604,300		11,783,861			2,765,752		5,772,165		15,620,382			75,546,460
Liabilities:
Deposits	W	17,542,371		10,136,700			991,501		4,650,406		8,438,144			41,759,122
Financial liabilities at FVTPL		—		—			—		—		544,916			544,916
Derivative liabilities		558,064		10,819			33,940		858		105,134			708,815
Borrowings		8,431,144		810,819			306,829		163,454		692,305			10,404,551
Debt securities issued		8,417,214		87,504			933,570		—		1,652,835			11,091,123
Financial liabilities designated at FVTPL		1,068,245		—			—		—		—			1,068,245
Other financial liabilities		3,479,117		123,510			250,428		564,623		843,635			5,261,313
	W	39,496,155		11,169,352			2,516,268		5,379,341		12,276,969			70,838,085
Net domestic and foreign currency exposure	W	108,145		614,509			249,484		392,824		3,343,413			4,708,375
Off-balance derivative exposure		438,469		(166,923	)		187,408		44,764		(896,933	)		(393,215	)
Net foreign currency exposure	W	546,614		447,586			436,892		437,588		2,446,480			4,315,160

F-7

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	USD			JPY			EUR		CNY			Other			Total
Assets:
Cash and due from banks at amortized cost	W	4,958,621			1,878,286			479,644		700,378			3,630,253			11,647,182
Due from banks at FVTPL		34,262			—			—		—			—			34,262
Loans at FVTPL		534,098			—			—		—			—			534,098
Loan at amortized cost		24,443,325			9,901,710			975,680		5,090,928			10,093,297			50,504,940
Securities at FVTPL		5,417,837			15,557			577,157		233			553,519			6,564,303
Derivative assets		863,223			526			10,440		1,429			33,576			909,194
Securities at FVOCI		4,264,191			162,023			240,705		397,010			998,246			6,062,175
Securities at amortized cost		1,306,357			241,232			69,282		80,133			1,812,470			3,509,474
Other financial assets		4,347,761			242,919			324,886		173,906			927,110			6,016,582
	W	46,169,675			12,442,253			2,677,794		6,444,017			18,048,471			85,782,210
Liabilities:
Deposits	W	20,060,092			10,642,720			1,376,168		4,820,793			9,766,248			46,666,021
Financial liabilities at FVTPL		7,114			—			—		—			581,458			588,572
Derivative liabilities		496,616			418			12,042		1,712			13,642			524,430
Borrowings		7,518,545			940,877			181,027		463,098			931,802			10,035,349
Debt securities issued		8,887,807			137,022			892,220		—			982,736			10,899,785
Financial liabilities designated at FVTPL		1,553,683			—			—		—			—			1,553,683
Other financial liabilities		3,806,778			116,544			195,387		551,976			1,112,455			5,783,140
	W	42,330,635			11,837,581			2,656,844		5,837,579			13,388,341			76,050,980
Net domestic and foreign currency exposure	W	3,839,040			604,672			20,950		606,438			4,660,130			9,731,230
Off-balance derivative exposure		(419,387	)		(62,614	)		325,000		(95,526	)		(2,113,543	)		(2,366,070	)
Net foreign currency exposure	W	3,419,653			542,058			345,950		510,912			2,546,587			7,365,160

(d) Liquidity risk

Liquidity risk refers to the risk of unexpected losses (such as the disposal of assets abnormal pricing, the procurement of high interest rates, etc.) or insolvency due to inconsistency in funding periods between assets and liabilities or a sudden outflow of funds.

Each subsidiary seeks to minimize liquidity risk through early detection of risk factors related to the sourcing and managing of funding that may cause volatility in liquidity and by ensuring that it maintains an appropriate level of liquidity through systematic management. At the Group level, the Group manages liquidity risk by conducting monthly stress tests that compare liquidity requirements under normal situations against those under three types of stress situations, namely, the group-specific internal crisis, crisis in the external market and a combination of internal and external crisis. Therefore, the Group is checking the liquidity side for abnormalities in preparation for the usual crisis.

F-7

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

In addition, in order to

pre-emptively

and comprehensively manage liquidity risk, the Group measures and monitors liquidity risk management using various indices, including the ‘limit management index’, ‘early warning index’ and ‘monitoring index’.

Shinhan Bank applies the following basic principles for liquidity risk management:

• Raise funding in sufficient amounts, at the optimal time at reasonable costs;

• Maintain risk at appropriate levels and preemptively manage them through a prescribed risk limit system and an early warning signal detection system;

• Secure stable sources of revenue and minimize actual losses by implementing an effective asset-liability management system based on diversified sources of funding with varying maturities;

• Monitor and manage daily and intra-daily liquidity positions and risk exposures for timely payment and settlement of financial obligations due under both normal and crisis situations;

• Conduct periodic contingency analysis in anticipation of any potential liquidity crisis and establish and implement emergency plans in case of a crisis actually happening; and

• Consider liquidity-related costs, benefits of and risks in determining the pricing of the Group’s products and services, employee performance evaluations and approval of launching of new products and services.

Shinhan Card sets and operates a level that can withstand a

3-month

credit crunch for

end-of-month

liquidity. The Group defines and manages the level of caution, anxiety and risk for the real-life liquidity gap ratio, liquidity buffer ratio, and ABS weight compared to borrowings which are major indicators related to liquidity risk. A contingency plan has been established to prepare for a crisis.

F-7

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The details of the composition of

non-derivative

financial instruments and derivative financial instruments by remaining period are as of December 31, 2020 and 2021 are as follows:

	2020
	Less than 1 month		1~3 months		3~6 months		6 months ~ 1 year		1~5 years		More than 5 years		Total
Non-derivative financial instruments:
Assets:
Cash and due from banks at amortized cost	W	30,486,441		845,977		501,733		860,975		4,467		516,661		33,216,254
Due from banks at fair value through profit or loss		63,113		—		—		—		—		—		63,113
Loans at fair value through profit or loss		31,100		689,261		46,369		117,820		310,954		880,595		2,076,099
Loans at amortized cost		30,170,280		38,040,760		52,331,623		82,840,301		119,243,663		69,258,709		391,885,336
Securities at fair value through profit or loss		44,779,587		1,413,545		571,552		1,160,406		3,384,948		4,729,943		56,039,981
Securities at fair value through other comprehensive income		55,002,284		10,740		207		414		79,640		3,321,488		58,414,773
Securities at amortized cost		385,809		2,070,392		1,202,211		3,649,376		19,054,766		34,889,104		61,251,658
Other financial assets		15,451,455		102,714		138,116		287,473		231,608		1,571,561		17,782,927
	W	176,370,069		43,173,389		54,791,811		88,916,765		142,310,046		115,168,061		620,730,141
Liabilities:
Deposits (*2)	W	187,299,944		28,357,521		36,578,825		59,863,780		14,894,480		2,355,459		329,350,009
Financial liabilities at fair value through profit or loss		1,409,608		794		7,042		2,785		18,870		—		1,439,099
Borrowings		14,670,192		3,783,621		2,920,338		5,463,070		10,692,374		4,392,815		41,922,410
Debt securities issued		5,872,508		6,261,775		5,039,503		11,457,246		43,712,609		6,454,265		78,797,906
Financial liabilities designated at fair value through profit or loss		596,675		221,857		336,784		1,277,802		5,043,549		979,057		8,455,724
Other financial liabilities		29,128,836		97,138		151,655		542,221		643,043		75,813		30,638,706
	W	238,977,763		38,722,706		45,034,147		78,606,904		75,004,925		14,257,409		490,603,854
Off balance (*3):
Guarantee contracts (*4)	W	4,481,506		—		—		—		—		—		4,481,506
Other liabilities related to loan commitments		187,536,416		—		—		19,900		—		—		187,556,316
	W	192,017,922		—		—		19,900		—		—		192,037,822
Derivatives	W	419,951		29,829		75,483		149,274		103,770		101,072		879,379

F-7

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Less than 1 month		1~3 months		3~6 months		6 months ~ 1 year		1~5 years			More than 5 years		Total
Non-derivative financial instruments:
Assets:
Cash and due from banks at amortized cost	W	24,864,116		796,046		329,809		1,151,073		108,491			1,299,438		28,548,973
Due from banks at fair value through profit or loss		34,263		—		—		—		—			—		34,263
Loans at fair value through profit or loss		170,540		628,905		117,975		49,932		563,246			167,284		1,697,882
Loans at amortized cost		32,258,357		45,442,330		57,821,874		89,630,955		129,534,255			75,571,202		430,258,973
Securities at fair value through profit or loss		51,899,638		106,637		385,952		608,957		2,024,069			5,776,840		60,802,093
Securities at fair value through other comprehensive income		60,818,846		1,204,770		91,704		634,600		1,249,183			897,270		64,896,373
Securities at amortized cost		515,883		2,542,470		1,992,334		4,273,021		18,358,433			36,658,577		64,340,718
Other financial assets		21,052,012		50,602		25,096		372,536		253,373			1,800,309		23,553,928
	W	191,613,655		50,771,760		60,764,744		96,721,074		152,091,050			122,170,920		674,133,203
Liabilities:
Deposits (*2)	W	212,378,477		36,147,003		40,879,482		59,303,450		17,046,796			2,589,696		368,344,904
Financial liabilities at fair value through profit or loss		1,371,503		—		—		—		—			—		1,371,503
Borrowings		13,159,909		3,928,317		3,643,545		5,171,542		14,168,441			3,649,507		43,721,261
Debt securities issued		4,833,061		7,033,973		7,257,291		17,537,101		41,799,782			5,334,848		83,796,056
Financial liabilities designated at fair value through profit or loss		332,597		294,931		586,682		1,298,402		4,165,201			1,346,057		8,023,870
Other financial liabilities		26,754,163		175,952		136,110		568,997		579,871			159,352		28,374,445
	W	258,829,710		47,580,176		52,503,110		83,879,492		77,760,091			13,079,460		533,632,039
Off balance (*3):
Guarantee contracts (*4)	W	5,399,286		—		—		—		—			—		5,399,286
Other liabilities related to loan commitments		193,853,866		—		—		—		—			—		193,853,866
	W	199,253,152		—		—		—		—			—		199,253,152
Derivatives	W	380,609		23,508		11,867		23,099		(363,034	)		47,464		123,513

(*1) These amounts include cash flows of principal and interest on financial assets and financial liabilities.

(*2) Demand deposits amounting to W 148,725,197 million and W 172,107,724 million as of December 31, 2020 and 2021 are included in the ‘Less than 1 month’ category, respectively.

(*3) Though guarantees, loan agreements, and other credit offerings corresponding to financial guarantees such as bond issuance and loan collateral provided by the Group exist, if the counterparty requests a payment, the Group should fulfill the obligation immediately.

(*4) These amounts represent financial guarantees, and the non-financial guarantees amount to W 10,799,393 million and W 11,346,421 million as of December 31, 2020 and 2021 .

F-7

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(e) Measurement of fair value

The fair values of financial instruments being traded in an active market are determined by the published market prices of each period end. The published market prices of financial instruments being held by the Group are based on the trading agencies’ notifications. If the market for a financial instrument is not active, such as OTC (Over The Counter market) derivatives, fair value is determined either by using a valuation technique or independent third-party valuation service.

The Group uses its judgment to select a variety of methods and make rational assumptions that are mainly based on market conditions existing at the end of each reporting period. The fair value of financial instruments is determined using valuation techniques; a method of using recent transactions between independent parties with reasonable judgment and willingness to trade, a method of referring to the current fair value of other financial instruments that are substantially identical, discounted cash flow model and option pricing models. For example, the fair value of an interest rate swap is calculated as the present value of the expected future cash flows, and the fair value of foreign exchange forwarding contract is calculated by applying the public forward exchange rate at the end of the reporting period.

The Group classifies and discloses fair value of financial instruments into the following three-level hierarchy:

• Level 1: Financial instruments measured at quoted prices from active markets are classified as fair value level 1.

• Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

• Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

F-7

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

i) Financial instruments measured at fair value

i-1) The fair value hierarchy of financial instruments presented at their fair values in the statements of financial position as of December 31, 2020 and 2021 are as follows:

	2020
	Level 1		Level 2		Level 3 (*3)		Total
Financial assets
Due from banks measured at FVTPL	W	—		—		63,112		63,112
Loans at FVTPL (*1)		—		708,111		1,308,690		2,016,801
Securities at FVTPL:
Debt securities and other securities (*2)		7,029,453		39,335,739		8,721,500		55,086,692
Equity securities		693,816		210,230		832,413		1,736,459
Gold/silver deposits		188,339		—		—		188,339
		7,911,608		39,545,969		9,553,913		57,011,490
Derivative assets:
Trading		125,339		4,623,218		408,855		5,157,412
Hedging		—		475,708		795		476,503
		125,339		5,098,926		409,650		5,633,915
Securities measured at FVOCI:
Debt securities		17,515,390		39,861,238		32,805		57,409,433
Equity securities		172,403		49,673		684,603		906,679
		17,687,793		39,910,911		717,408		58,316,112
	W	25,724,740		85,263,917		12,052,773		123,041,430
Financial liabilities:
Financial liabilities measured at FVTPL:
Securities sold	W	897,129		—		—		897,129
Gold/silver deposits		539,565		—		—		539,565
		1,436,694		—		—		1,436,694
Financial liabilities designated at fair value through profit or loss:
Derivatives-combined securities (*2)		—		314,220		8,141,504		8,455,724
Derivative liabilities:
Trading		161,628		4,431,080		87,356		4,680,064
Hedging		—		233,684		102,819		336,503
		161,628		4,664,764		190,175		5,016,567
	W	1,598,322		4,978,984		8,331,679		14,908,985

(*1) Of the Financial assets at FVTPL invested by the Group, P-note’s valuation of amount related to Lime Asset Management is W 161.2 billion. As of December 31, 2020, in this regard, international disputes are under way, the Group has estimated its fair value based on financial information within the recent audit report of underlying assets since it doesn’t have fair market value observable through active trading markets. Accounting estimates and assumptions used in preparing consolidated financial statements may lead to

F-8

0

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

adjustment in response to changes in uncertainty, such as information and market conditions available in the future. In addition, the ultimate impact on the business, financial condition, performance, and liquidity of the Group is unpredictable.

(*2) Financial instruments (Beneficiary certificates: W 211.7 billion and derivatives-combined securities: W 211.7 billion) related to GEN2 Partners asset management were delayed in repurchase for the year ended December 31, 2020. The Group estimated fair value using the net asset value based on the most recent data available for the repurchase suspension fund. Since then, it has an uncertainty in measuring fair value due to market conditions.

(*3) The valuation amount for the over-the-counter derivatives classified as Level 3 by Shinhan Investment Corp. are W 204,608 million in financial assets at FVTPL, W 8,141,504 million in financial liabilities designated at fair value through profit or loss, W 405,313 million in derivative assets, and W 83,269 million in derivative liabilities. The above level 3 over-the-counter derivatives measure fair value using the internal valuation model of Shinhan Investment Corp.

F-

81

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Level 1		Level 2		Level 3 (*3)		Total
Financial assets
Due from banks measured at FVTPL	W	—		—		34,262		34,262
Loans at FVTPL (*1)		—		790,510		892,834		1,683,344
Securities at FVTPL:
Debt securities and other securities (*2)		7,250,389		40,396,692		10,580,066		58,227,147
Equity securities		942,433		107,416		1,325,466		2,375,315
Gold/silver deposits		83,691		—		—		83,691
		8,276,513		40,504,108		11,905,532		60,686,153
Derivative assets:
Trading		11,542		3,033,965		528,619		3,574,126
Hedging		—		225,063		—		225,063
		11,542		3,259,028		528,619		3,799,189
Securities measured at FVOCI:
Debt securities		24,951,761		38,855,158		—		63,806,919
Equity securities		257,947		48,225		725,232		1,031,404
		25,209,708		38,903,383		725,232		64,838,323
	W	33,497,763		83,457,029		14,086,479		131,041,271
Financial liabilities:
Financial liabilities measured at FVTPL:
Securities sold	W	787,767		—		—		787,767
Gold/silver deposits		581,458		—		—		581,458
		1,369,225		—		—		1,369,225
Financial liabilities designated at fair value through profit or loss:
Derivatives-combined securities (*2)		—		401,345		7,622,525		8,023,870
Derivative liabilities:
Trading		191,061		2,862,761		153,933		3,207,755
Hedging		—		196,060		182,749		378,809
		191,061		3,058,821		336,682		3,586,564
	W	1,560,286		3,460,166		7,959,207		12,979,659

(*1) Of the Financial assets at FVTPL invested by the Group, P-note’s valuation of amount related to Lime Asset Management is W 157.9 billion. As of December 31, 2021, in this regard, international disputes are under way, the Group has estimated its fair value based on financial information within the recent audit report of underlying assets since it doesn’t have fair market value observable through active trading markets. Accounting estimates and assumptions used in preparing consolidated financial statements may lead to adjustment in response to changes in uncertainty, such as information and market conditions available in the future. In addition, the ultimate impact on the business, financial condition, performance, and liquidity of the Group is unpredictable.

F-8

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*2) Financial instruments (Beneficiary certificates: W 300.2 billion and derivatives-combined securities: W 300.2 billion) related to GEN2 Partners asset management were delayed in repurchase for the year ended December 31, 2021. The Group estimated fair value using the net asset value based on the most recent data available for the repurchase suspension fund. Since then, it has an uncertainty in measuring fair value due to market conditions.

(*3) The valuation amount for the over-the-counter derivatives classified as Level 3 by Shinhan Investment Corp. are W 72,980 million in financial assets at FVTPL, W 7,622,526 million in financial liabilities designated at fair value through profit or loss, W 527,726 million in derivative assets, and W 153,084 million in derivative liabilities. The above level 3 over-the-counter derivatives measure fair value using the internal valuation model of Shinhan Investment Corp.

i) Financial instruments measured at fair value

i-2) Classification of financial instruments as fair value level 3

The Group uses the evaluation value from evaluators who are qualified and external independent to determine the fair value for Group’s assets at the end of each reporting period. Changes in carrying values of financial instruments classified as Level 3 for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Financial asset at fair value through profit or loss			Securities at fair value through other comprehensive profit or loss			Financial liabilities designated at fair value through profit or loss			Derivative assets and liabilities, net
										Held for trading			Held for hedging
Beginning balance	W	11,762,259			660,118			(8,511,489	)		342,830			(186,974	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		(59,931	)		(2,094	)		(196,743	)		51,436			84,950
Recognized in other comprehensive income (loss) for the year		69,819			(2,521	)		(9,689	)		—			—
		9,888			(4,615	)		(206,432	)		51,436			84,950
Purchase		4,461,802			61,919			—			1,171			—
Issue		—			—			(9,043,503	)		—			—
Settlement		(5,231,666	)		(14	)		9,928,472			(74,584	)		—
Reclassification (*3)		(377,641	)		—			—			—			—
Transfer to level3 (*2)		358,123			—			(308,552	)		625			—
Transfer from level3 (*2)		(57,513	)		—			—			21			—
Business combination (Note 47)		463			—			—			—			—
Ending balance	W	10,925,715			717,408			(8,141,504	)		321,499			(102,024	)

F-8

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Financial asset at fair value through profit or loss			Securities at fair value through other comprehensive profit or loss			Financial liabilities designated at fair value through profit or loss			Derivative assets and liabilities, net
										Held for trading			Held for hedging
Beginning balance	W	10,925,715			717,408			(8,141,504	)		321,499			(102,024	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		271,065			448			(273,536	)		348,046			(80,725	)
Recognized in other comprehensive income (loss) for the year		38,566			24,672			(1,526	)		—			—
		309,631			25,120			(275,062	)		348,046			(80,725	)
Purchase		4,792,810			21,440			—			4,394			—
Issue		—			—			(8,488,977	)		—			—
Settlement		(3,498,968	)		(38,736	)		9,283,018			(299,633	)		—
Reclassification (*3)		(9,641	)		—			—			—			—
Transfer to level3 (*2)		507,984			—			—			446			—
Transfer from level3 (*2)		(194,903	)		—			—			(66	)		—
Ending balance	W	12,832,628			725,232			(7,622,525	)		374,686			(182,749	)

(*1) Recognized profit or loss of the changes in carrying value of financial instruments classified as Level 3 for the years ended December 31, 2020 and 2021 are included in the accounts of the statements of comprehensive income, of which the amounts and the related accounts are as follows:

	2020
	Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of December 31
Net loss on financial assets at fair value through profit or loss	W	(8,495)			(179,989	)
Net gain (loss) on financial liabilities designated at fair value through profit or loss		(196,743	)		189,885
Net loss on securities at fair value through other comprehensive income		(2,094	)		(2,094	)
Net other operating income		84,950			19,065
	W	(122,382)			26,867
	2021
	Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of December 31
Net gain on financial assets at fair value through profit or loss	W	619,111			322,974
Net gain (loss) on financial liabilities designated at fair value through profit or loss		(273,536	)		186,003
Net gain on securities at fair value through other comprehensive income		448			0
Net other operating expense		(80,725	)		(83,669	)
	W	265,298			425,308

F-8

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*2) The investment securities transferred to Level 3 as the availability of observable market data changed due to reasons such as suspension of trading, and the derivative instruments transferred to Level 3 as the availability of observable market data changed due to reasons such as changes in the valuation.

(*3) It has been replaced by investment assets in associates.

i-3) Valuation techniques and significant inputs not observable in markets

i-3-1) Valuation techniques and inputs used in measuring the fair value of financial instruments classified as level 2 as of December 31, 2020 and 2021 are as follows:

	2020
Type of financial instrument	Valuation technique		Carrying value		Significant inputs
Assets
Financial asset at fair value through profit or loss
Debt securities		DCF	W	40,043,850	Discount rate, interest rate, stock price, and etc.
Equity securities		NAV		210,230	Price of underlying assets such as stocks, bonds
				40,254,080
Derivative assets
Trading		Option model, DCF		4,623,218	Discount rate, foreign exchange rate, volatility, stock price, and commodity index, etc.
Hedging				475,708
				5,098,926
Securities at fair value through other comprehensive income
Debt securities		DCF		39,861,238	Discount rate, interest rate and price of underlying assets such as stock, bonds
Equity securities		NAV		49,673
				39,910,911
			W	85,263,917
Liabilities
Financial liabilities designated at fair value through profit or loss
Compound financial instruments		DCF	W	314,220	Discount rate
Derivative liabilities
Trading		Option model, DCF		4,431,080	Discount rate, foreign exchange rate, volatility, stock price, and commodity index, etc.
Hedging				233,684
				4,664,764
			W	4,978,984

F-8

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
Type of financial instrument	Valuation technique		Carrying value		Significant inputs
Assets
Financial asset at fair value through profit or loss
Debt securities		DCF	W	41,187,202	Discount rate, interest rate, stock price, and etc.
Equity securities		NAV		107,416	Price of underlying assets such as stocks, bonds, etc.
				41,294,618
Derivative assets
Trading		Option model, Implied forward interest rate, DCF		3,033,965	Discount rate, foreign exchange rate, volatility, stock price, and commodity index, etc.
Hedging				225,063
				3,259,028
Securities at fair value through other comprehensive income
Debt securities		DCF		38,855,158	Interest rate, discount rate and price of underlying assets such as stock, bonds, etc.
Equity securities		NAV		48,225
				38,903,383
			W	83,457,029
Liabilities
Financial liabilities designated at fair value through profit or loss
Compound financial instruments		Black-Scholes model	W	401,345	Discount rate
Derivative liabilities
Trading		Option model, DCF		2,862,761	Discount rate, foreign exchange rate, volatility, stock price, and commodity index, etc.
Hedging				196,060
				3,058,821
			W	3,460,166

F-8

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

i-3-2) Valuation techniques and significant inputs, but not observable, used in measuring the fair value of financial instruments classified as level 3 as of December 31, 2020 and 2021 are as follows:

	2020
Type of financial instrument	Valuation technique	Carrying value (*2)		Significant unobservable inputs	Range
Financial assets
Financial asset at fair value through profit or loss
Debt securities	DCF, Option model (*1), Comparable company analysis	W	10,093,302	The volatility of the underlying asset, Discount rate, and Correlations	5.06%~61.32% 0.35%~27.17% 0.00%~100.0%
Equity securities	DCF, NAV, Option model (*1), Comparable company analysis		832,413	The volatility of the underlying asset, Discount rate, and Correlations	21.00%~40.00% 5.83%~16.87% 20.00%~79.00%
			10,925,715
Derivative assets
Equity and foreign exchange related	Option model (*1)		113,496	The volatility of the underlying asset, and Correlations	4.30%~127.00% -3.00%~82.00%
Interest rates related	Option model (*1)		23,112	The volatility of the underlying asset, Regression coefficient, and Correlations	0.47%~1.00% 0.30%~0.58% 26.00%~90.45%
Credit and commodity related	Option model (*1)		273,042	The volatility of the underlying asset, and Correlations	1.00%~40.00% -43.00%~92.00%
			409,650
Securities at fair value through other comprehensive income
Debt securities	DCF, NAV, Option model (*1), Comparable company analysis		32,805	The volatility of the underlying asset, Discount rate, and Growth rate	22.11% 0.05%~19.05% 0.00%~2.00%
Equity securities			684,603
			717,408
		W	12,052,773

F-8

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2020
Type of financial instrument	Valuation technique	Carrying value (*2)		Significant unobservable inputs	Range
Financial liabilities
Financial liabilities designated at fair value through profit or loss
Equity related	Option model (*1)	W	8,141,504	The volatility of the underlying asset, and Correlations		1.00%~127.00% -43.00%~92.00%
Derivative liabilities
Equity and foreign exchange related	Option model (*1)		25,525	The volatility of the underlying asset, and Correlations		4.30%~61.00% -3.00%~82.00%
Interest rates related	Option model (*1)		134,759	The volatility of the underlying asset, Regression coefficient, and Correlations		0.47%~40.00% 0.30%~0.63% 20.13%~90.34%
Credit and commodity related	Option model (*1)		29,891	The volatility of the underlying asset, and Correlations		1.00%~102.00% -43.00%~92.00%
			190,175
		W	8,331,679

(*1) Option model that the Group uses in derivative valuation includes Black-Scholes model, Hull-White model, Monte Carlo simulation, etc.

(*2) There is no disclosure for valuation techniques and input variables related to items where the carrying value is recognized as a reasonable approximation of fair value and the carrying value is disclosed at fair value.

F-8

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
Type of financial instrument	Valuation technique	Carrying value (*2)		Significant unobservable inputs	Range
Financial assets
Financial asset at fair value through profit or loss
Debt securities	DCF, NAV, Option model (*1), Comparable company analysis	W	11,507,162	The volatility of the underlying asset, Discount rate, Correlations, and Growth rate		19.48%~72.69% 0.07%~27.30% 23.17%~58.47% 0.00%~1.00%
Equity securities	DCF, NAV, Option model (*1), Comparable company analysis		1,325,466	The volatility of the underlying asset, Discount rate, Correlations, and Growth rate		16.00%~32.00% 5.45%~16.35% 00.00%~54.00% 1.00%
			12,832,628
Derivative assets
Equity and foreign exchange related	Option model (*1)		28,783	The volatility of the underlying asset, and Correlations		2.29%~50.00% -5.00%~91.00%
Interest rates related	Option model (*1)		6,029	The volatility of the underlying asset, Correlations, and Discount rate		0.70% 80.00%~82.00% 1.11%~1.83%
Credit and commodity related	Option model (*1)		493,807	The volatility of the underlying asset, and Hazard Rate		0.70%~4.70% 5.17%~93.69%
			528,619
Securities at fair value through other comprehensive income
Equity securities	DCF, NAV, Option model (*1), Comparable company analysis		725,232	The volatility of the underlying asset, Discount rate, and Growth rate		25.49% 9.80%~22.79% 0.00%~2.00%
			725,232
		W	14,086,479
Financial liabilities
Financial liabilities designated at fair value through profit or loss
Equity related	Option model (*1)	W	7,622,525	The volatility of the underlying asset, and Correlations		0.50%~94.90% -12.00%~88.00%
Derivative liabilities
Equity and foreign exchange related	Option model (*1)		13,214	The volatility of the underlying asset, and Correlations		2.29%~42.00% -5.00%~91.00%
Interest rates related	Option model (*1)		258,364	The volatility of the underlying asset, Regression coefficient, and Correlations		0.46%~0.78% 0.00%~0.54% 0.00%~90.34%
Credit and commodity related	Option model (*1)		65,104	The volatility of the underlying asset, and Hazard Rate		1.90%~94.90% 5.17%~100.79%
			336,682
		W	7,959,207

F-8

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*1) Option model that the Group uses in derivative valuation includes Black-Scholes model, Hull-White model, Monte Carlo simulation, etc.

(*2) There is no disclosure for valuation techniques and input variables related to items where the carrying value is recognized as a reasonable approximation of fair value and the carrying value is disclosed at fair value.

i-4) Sensitivity for changing in unobservable inputs

For level 3 fair value measurement, changing one or more of the unobservable inputs used to reasonably possible alternative assumptions would have the following effects on profit or loss, or other comprehensive income as of December 31, 2020 and 2021.

	2020
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1),(*2):
Financial asset at fair value through profit or loss	W	53,821		(48,547	)
Derivative assets		23,011		(21,532	)
Securities at fair value through other comprehensive income (*2)		26,817		(21,044	)
	W	103,649		(91,123	)
Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	72,042		(71,690	)
Derivative liabilities		17,976		(18,368	)
	W	90,018		(90,058	)
	2021
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1),(*2):
Financial asset at fair value through profit or loss	W	39,084		(43,072	)
Derivative assets		16,893		(11,809	)
Securities at fair value through other comprehensive income (*2)		38,865		(38,210	)
	W	94,842		(93,091	)
Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	45,493		(50,845	)
Derivative liabilities		25,326		(23,486	)
	W	70,819		(74,331	)

(*1) Fair value changes are calculated by increasing or decreasing the volatility of the underlying asset (-10~10%p) or correlations (-10~10%p), a significant unobservable input.

(*2) Fair value changes are calculated by increasing or decreasing discount rate (-1~1%p) and applying growth rate, a significant unobservable input at 0%~1%.

F-

90

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ii) Financial instruments measured at amortized cost

ii-1) The method of measuring the fair value of financial instruments measured at amortized cost is as follows:

Type	Measurement methods of fair value
Cash and due from banks	The carrying value and the fair value for cash are identical and most of deposits are floating interest rate deposits or next day deposits of a short-term instrument. For this reason, the carrying value approximates fair value.
Loans	The fair value of the loans is measured by discounting the expected cash flow at the market interest rate and credit risk of the borrower.
Securities	An external professional evaluation agency is used to calculate the valuation amount using the market information. The agency calculates the fair value based on active market prices, and DCF model is used to calculate the fair value if there is no quoted price.
Deposits and borrowings	The carrying value and the fair value for demand deposits, cash management account deposits, call money as short-term instrument are identical. The fair value of others is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.
Debt securities issued	Where available, the fair value of deposits and borrowings is based on the published price quotations in an active market. In case there is no data for an active market price, it is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.
Other financial assets and other financial liabilities	The carrying value is measured at fair value for short-term and suspense accounts, such as spot exchange, inter-bank fund transfer, and domestic exchange of payments, and for the remaining financial instruments, the present value is calculated by discounting the contractual cash flows at a discount rate which considered residual risk at the market interest rate.

F-

91

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ii-2) The carrying value and the fair value of financial instruments measured at amortized cost as of December 31, 2020 and 2021 are as follows:

	2020				2021
	Carrying value		Fair value		Carrying value		Fair value
Assets:
Deposits measured at amortized cost	W	31,605,262		31,607,122		24,232,013		24,216,932
Loans measured at amortized cost
Retails		146,843,366		147,634,589		159,090,991		159,262,881
Corporations		177,046,416		178,420,230		197,356,011		198,053,452
Public and other funding loans		4,021,926		4,048,167		3,795,225		3,812,717
Loans between banks		5,487,147		5,495,236		3,844,227		3,839,726
Credit card		22,822,664		23,220,987		25,050,702		25,438,046
		356,221,519		358,819,209		389,137,156		390,406,822
Securities measured at amortized cost
Government bonds		31,816,320		33,391,597		34,679,301		34,377,110
Financial institution bonds		3,835,577		3,987,172		3,423,536		3,477,834
Corporation bonds		11,630,726		12,075,175		11,827,239		11,750,467
		47,282,623		49,453,944		49,930,076		49,605,411
Other financial assets		20,341,191		20,359,778		23,238,932		23,389,209
	W	455,450,595		460,240,053		486,538,177		487,618,374
Liabilities:
Deposit liabilities
Demand deposits	W	148,725,197		148,725,197		172,107,724		172,107,724
Time deposits		157,833,891		157,936,969		161,498,901		161,301,409
Certificate of deposit		5,946,704		5,965,139		16,576,536		16,606,894
Issued bill deposit		6,226,937		6,226,855		5,818,001		5,817,844
CMA deposits		4,006,319		4,006,319		5,246,478		5,246,478
Others		3,677,820		3,678,316		3,649,035		3,648,983
		326,416,868		326,538,795		364,896,675		364,729,332
Borrowing debts:
Call-money		1,760,042		1,760,042		1,534,611		1,534,611
Bills sold		10,706		10,696		9,032		9,019
Bonds sold under repurchase agreements		11,065,584		11,065,584		10,709,115		10,709,115
Borrowings		28,757,732		28,863,015		30,914,307		30,803,417
		41,594,064		41,699,337		43,167,065		43,056,162
Debts:
Borrowings in Korean won		64,083,920		64,842,258		69,288,982		69,081,140
Borrowings in foreign currency		11,050,474		11,262,332		10,860,381		11,076,757
		75,134,394		76,104,590		80,149,363		80,157,897
Other financial liabilities		34,129,626		34,136,128		29,880,879		29,872,186
	W	477,274,952		478,478,850		518,093,982		517,815,577

F-9

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ii-3) The fair value hierarchy of financial assets and liabilities which are not measured at their fair values in the statements of financial position but with their fair value disclosed as of December 31, 2020 and 2021 are as follows:

	2020
	Level 1		Level 2		Level 3		Total
Assets:
Deposits measured at amortized cost	W	779,759		29,957,444		869,919		31,607,122
Loans measured at amortized cost
Retails		—		—		147,634,589		147,634,589
Corporations		—		—		178,420,230		178,420,230
Public and other funding loans		—		—		4,048,167		4,048,167
Loans between banks		—		2,187,270		3,307,966		5,495,236
Credit card		—		—		23,220,987		23,220,987
		—		2,187,270		356,631,939		358,819,209
Securities measured at amortized cost:
Government bonds		22,130,487		11,261,110		—		33,391,597
Financial institution bonds		1,070,220		2,916,952		—		3,987,172
Debentures		—		11,994,724		80,451		12,075,175
		23,200,707		26,172,786		80,451		49,453,944
Other financial assets		—		8,661,345		11,698,433		20,359,778
	W	23,980,466		66,978,845		369,280,742		460,240,053
Liabilities:
Deposit liabilities
Demand deposits	W	—		148,725,197		—		148,725,197
Time deposits		—		—		157,936,969		157,936,969
Certificate of deposit		—		—		5,965,139		5,965,139
Issued bill deposit		—		—		6,226,855		6,226,855
CMA deposits		—		4,006,319		—		4,006,319
Other		—		3,534,696		143,620		3,678,316
		—		156,266,212		170,272,583		326,538,795
Borrowing debts:
Call-money		—		1,760,042		—		1,760,042
Bills sold		—		—		10,696		10,696
Bonds sold under repurchase agreements		95,400		—		10,970,184		11,065,584
Borrowings		—		8,500		28,854,515		28,863,015
		95,400		1,768,542		39,835,395		41,699,337
Debts:
Borrowings in won		—		35,740,750		29,101,508		64,842,258
Borrowings in foreign currency		—		7,944,242		3,318,090		11,262,332
		—		43,684,992		32,419,598		76,104,590
Other financial liabilities		—		10,383,020		23,753,108		34,136,128
	W	95,400		212,102,766		266,280,684		478,478,850

F-9

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Level 1		Level 2		Level 3		Total
Assets:
Deposits measured at amortized cost	W	252,474		23,964,458		—		24,216,932
Loans measured at amortized cost
Retails		—		—		159,262,881		159,262,881
Corporations		—		—		198,053,452		198,053,452
Public and other funding loans		—		—		3,812,717		3,812,717
Loans between banks		—		2,387,533		1,452,193		3,839,726
Credit card		—		—		25,438,046		25,438,046
		—		2,387,533		388,019,289		390,406,822
Securities measured at amortized cost:
Government bonds		23,045,322		11,331,788		—		34,377,110
Financial institution bonds		698,105		2,779,729		—		3,477,834
Debentures		—		11,662,046		88,421		11,750,467
		23,743,427		25,773,563		88,421		49,605,411
Other financial assets		—		14,200,356		9,188,853		23,389,209
	W	23,995,901		66,325,910		397,296,563		487,618,374
Liabilities:
Deposit liabilities
Demand deposits	W	—		172,107,724		—		172,107,724
Time deposits		—		—		161,301,409		161,301,409
Certificate of deposit		—		—		16,606,894		16,606,894
Issued bill deposit		—		—		5,817,844		5,817,844
CMA deposits		—		5,246,478		—		5,246,478
Other		—		3,553,942		95,041		3,648,983
		—		180,908,144		183,821,188		364,729,332
Borrowing debts:
Call-money		—		1,534,611		—		1,534,611
Bills sold		—		—		9,019		9,019
Bonds sold under repurchase agreements		—		—		10,709,115		10,709,115
Borrowings		—		—		30,803,417		30,803,417
		—		1,534,611		41,521,551		43,056,162
Debts:
Borrowings in won		—		38,474,804		30,606,336		69,081,140
Borrowings in foreign currency		—		7,956,414		3,120,343		11,076,757
		—		46,431,218		33,726,679		80,157,897
Other financial liabilities		—		9,413,875		20,458,311		29,872,186
	W	—		238,287,848		279,527,729		517,815,577

F-9

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

ii-4) Valuation techniques and inputs used in the fair value measurements categorized within Level 2 and Level 3 for fair value disclosures, which are not recognized at fair value, as at December 31, 2020 and 2021, are as follows:

	2020
	Fair value (*)		Valuation technique		Inputs
Financial instruments classified as level 2 :
Assets
Due from banks measured at amortized cost	W	29,957,444		DCF	Discount rate
Loans measured at amortized cost		2,187,270		DCF	Discount rate, credit spread, prepayment rate
Securities measured at amortized cost		26,172,786		DCF	Discount rate
Other financial assets		8,661,345		DCF	Discount rate
Financial instruments classified as level 3 :
Assets
Due from banks measured at amortized cost		869,919		DCF	Discount rate
Loans measured at amortized cost		356,631,939		DCF	Discount rate, credit spread, prepayment rate
Securities measured at amortized cost		80,451		DCF	Discount rate
Other financial assets		11,698,433		DCF	Discount rate
	W	436,259,587
Financial instruments classified as level 2 :
Liabilities
Deposits	W	156,266,212		DCF	Discount rate
Borrowings		1,768,542		DCF	Discount rate
Debt securities issued		43,684,992		DCF	Discount rate
Other financial liabilities		10,383,020		DCF	Discount rate
Financial instruments classified as level 3 :
Liabilities
Deposits		170,272,583		DCF	Discount rate
Borrowings		39,835,395		DCF	Discount rate
Debt securities issued		32,419,598		DCF	Discount rate, regression coefficient, correlation coefficient
Other financial liabilities		23,753,108		DCF	Discount rate
	W	478,383,450

F-9

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*) Valuation techniques and inputs are not disclosed when the carrying value is a reasonable approximation of fair value

	2021
	Fair value (*)		Valuation technique		Inputs
Financial instruments classified as level 2 :
Assets
Due from banks measured at amortized cost	W	23,964,458		DCF	Discount rate
Loans measured at amortized cost		2,387,533		DCF	Discount rate, credit spread, prepayment rate
Securities measured at amortized cost		25,773,563		DCF	Discount rate
Other financial assets		14,200,356		DCF	Discount rate
Financial instruments classified as level 3 :
Assets
Loans measured at amortized cost		388,019,289		DCF	Discount rate, credit spread, prepayment rate
Securities measured at amortized cost		88,421		DCF	Discount rate
Other financial assets		9,188,853		DCF	Discount rate
	W	463,622,473
Financial instruments classified as level 2 :
Liabilities
Deposits	W	180,908,144		DCF	Discount rate
Borrowings		1,534,611		DCF	Discount rate
Debt securities issued		46,431,218		DCF	Discount rate
Other financial liabilities		9,413,875		DCF	Discount rate
Financial instruments classified as level 3 :
Liabilities
Deposits		183,821,188		DCF	Discount rate
Borrowings		41,521,551		DCF	Discount rate
Debt securities issued		33,726,679		DCF	Discount rate, regression coefficient, correlation coefficient
Other financial liabilities		20,458,311		DCF	Discount rate
	W	517,815,577

(*) Valuation techniques and inputs are not disclosed when the carrying value is a reasonable approximation of fair value

F-9

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

iii) Changes in gains or losses on valuation at the transaction date for the years ended December 31, 2020 and 2021, are as follows:

	2020			2021
Beginning balance	W	(172,859	)		(292,599	)
New transactions		(347,030	)		(206,897	)
Recognized in profit for the year		227,290			338,971
Ending balance	W	(292,599	)		(160,525	)

(f) Classification by categories of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The financial instruments measured at fair value or amortized costs are measured in accordance with the Group’s valuation methodologies, which are described in Note 4.(e) Measurement of fair value.

The carrying values of each category of financial assets and financial liabilities as of December 31, 2020 and 2021 is as follows:

	2020
	FVTPL		FVOCI		Amortized cost		Derivatives held for hedging		Total
Assets:
Cash and due from banks at amortized cost	W	0		0		33,410,542		0		33,410,542
Due from banks at fair value through profit or loss		63,112		0		0		0		63,112
Securities at fair value through profit or loss		57,011,490		0		0		0		57,011,490
Derivatives assets		5,157,412		0		0		476,503		5,633,915
Loans at fair value through profit or loss		2,016,801		0		0		0		2,016,801
Loans at amortized cost		0		0		356,221,519		0		356,221,519
Securities at fair value through other comprehensive income		0		58,316,112		0		0		58,316,112
Securities at amortized cost		0		0		47,282,623		0		47,282,623
Others		0		0		20,341,191		0		20,341,191
	W	64,248,815		58,316,112		457,255,875		476,503		580,297,305

F-9

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2020
	FVTPL		FVTPL liabilities designated		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	0		0		326,416,868		0		326,416,868
Financial liabilities at fair value through profit or loss		1,436,694		0		0		0		1,436,694
Financial liabilities designated at FVTPL		0		8,455,724		0		0		8,455,724
Derivatives liabilities		4,680,064		0		0		336,503		5,016,567
Borrowings		0		0		41,594,064		0		41,594,064
Debt securities issued		0		0		75,134,394		0		75,134,394
Others		0		0		34,129,626		0		34,129,626
	W	6,116,758		8,455,724		477,274,952		336,503		492,183,937

	2021
	FVTPL		FVOCI		Amortized cost		Derivatives held for hedging		Total
Assets:
Cash and due from banks at amortized cost	W	0		0		28,453,404		0		28,453,404
Due from banks at fair value through profit or loss		34,262		0		0		0		34,262
Securities at fair value through profit or loss		60,686,153		0		0		0		60,686,153
Derivatives assets		3,574,126		0		0		225,063		3,799,189
Loans at fair value through profit or loss		1,683,344		0		0		0		1,683,344
Loans at amortized cost		0		0		389,137,156		0		389,137,156
Securities at fair value through other comprehensive income		0		64,838,323		0		0		64,838,323
Securities at amortized cost		0		0		49,930,076		0		49,930,076
Others		0		0		23,238,932		0		23,238,932
	W	65,977,885		64,838,323		490,759,568		225,063		621,800,839

F-9

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	FVTPL		FVTPL liabilities designated		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	0		0		364,896,675		0		364,896,675
Financial liabilities at fair value through profit or loss		1,369,225		0		0		0		1,369,225
Financial liabilities designated at FVTPL		0		8,023,870		0		0		8,023,870
Derivatives liabilities		3,207,755		0		0		378,809		3,586,564
Borrowings		0		0		43,167,065		0		43,167,065
Debt securities issued		0		0		80,149,363		0		80,149,363
Others		0		0		29,880,879		0		29,880,879
	W	4,576,980		8,023,870		518,093,982		378,809		531,073,641

(g) Transfer of financial instruments

i) Transfers that do not qualify for derecognition

① Sale of repurchase bonds

Among the Group’s sale of repurchase bonds, followings are the details of financial instruments that do not qualify for derecognition because the Group sold under repurchase agreement at a fixed price as of December 31, 2020 and 2021:

	2020		2021
Transferred asset:
Securities at FVTPL	W	8,915,488		9,883,335
Securities at FVOCI		1,638,651		647,541
Securities at amortized cost		205,639		210,490
	W	10,759,778		10,741,366
Associated liabilities:
Bonds sold under repurchase agreements	W	11,075,004		10,709,115

② Securities loaned

If the securities owned by the Group are loaned, the ownership of the securities is transferred, but is required to be returned at the end of the loan period. Therefore, the Group continues to recognize the entire securities loaned as it holds most of the risks and compensation of the securities.

F-9

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

Securities loaned as of December 31, 2020 and 2021 are as follows:

	2020		2021		Borrowers
Government bonds	W	3,213,719		9,044,914	Korea Securities Finance Corp., Korea Securities Depository, etc
Financial institutions bonds		220,324		209,594	Korea Securities Finance Corp., Korea Securities Depository, etc
Equity securities		99,670		8,109	Korea Securities Finance Corp.,etc
	W 3,533,713		9,262,617

③ Securitization of financial assets

The Group uses the securitization of financial assets as a means of financing and to transfer risk. Generally, these securitization transactions result in the transfer of contractual cash flows to the debt securities holders issued from the financial asset portfolio. The Group recognizes debt securities issued without derecognition of assets under individual agreements, partially recognizes assets to the extent of the Group’s level of involvement in assets, or recognizes rights and obligations arising from the derecognition and transfer of assets as separate assets and liabilities. The Group derecognizes the entire asset only if it transfers contractual rights to the cash flows of financial assets or if it holds contractual rights but bears contractual obligations to pay cash flows to the other party without significant delays or reinvestment and transfers most of the risks and benefits of ownership (e.g., credit risk, interest rate risk, prepayment risk, etc.). For the years ended December 31, 2020 and 2021, the carrying value of financial assets related to securitization transactions that have neither been transferred nor derecognized are

W

11,355,488 million and

W

11,529,634 million, respectively; the carrying values of related liabilities are

W

8,351,211 million and

W

8,284,109 million, respectively.

ii) Financial instruments qualified for derecognition and continued involvement

There are no financial instruments which qualify for derecognition and in which the Group has continuing involvements as of December 31, 2020, and 2021.

F-

100

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(h) Offsetting financial assets and financial liabilities

Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2020 and 2021 are as follows:

	2020
	Gross amounts of recognized financial assets/ liabilities		Gross amounts of recognized financial assets/ liabilities set off in the statement of financial position		Net amounts of financial assets/ liabilities presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amount
							Financial instruments		Cash collateral received
Assets:
Derivatives (*1)	W	5,361,225		0		5,361,225		4,448,496		314,328		12,129,369
Other financial instruments (*1)		18,033,663		6,502,695		11,530,968
Securities repurchased under repurchase agreements and bonds purchased under repurchase agreements (*2)		13,694,305		0		13,694,305		13,185,633		0		508,672
Securities loaned (*2)		1,202,494		0		1,202,494		1,202,494		0		0
Domestic exchange settlement debit (*3)		29,911,693		25,785,507		4,126,186		116,290		0		4,009,896
Receivables from disposal of securities (*4)		29,341		3,140		26,201		0		0		26,201
Insurance receivables		8,374		0		8,374		5,526		0		2,848
	W	68,241,095		32,291,342		35,949,753		18,958,439		314,328		16,676,986
Liabilities:
Derivatives (*1)(*5)	W	13,153,952		0		13,153,952		5,490,974		1,000		18,500,005
Other financial instruments (*1)		17,340,722		6,502,695		10,838,027
Bonds purchased under repurchase agreements (*2)		11,065,584		0		11,065,584		10,260,684		0		804,900
Securities borrowed (*2)		897,129		0		897,129		897,129		0		0
Domestic exchange settlement pending (*3)		31,605,249		25,785,507		5,819,742		4,099,248		0		1,720,494
Payable from purchase of securities (*4)		3,148		3,140		8		8		0		0
Insurance payables		5,742		0		5,742		5,526		0		216
	W	74,071,526		32,291,342		41,780,184		20,753,569		1,000		21,025,615

(*1) The Group has certain derivative transactions subject to the ISDA (International Derivatives Swaps and Dealers Association) agreement. According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, all derivative agreements are terminated and set off. At the time of termination, the parties to the transaction will offset the amount of payment or payment to each other, and one party will pay the other party a single amount will be paid to the other party.

F-

101

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*2) Resale and repurchase agreement, securities borrowing and lending agreement are also similar to ISDA agreement with respect to enforceable netting agreements.

(*3) The Group has legally enforceable right to set off and settles financial assets and liabilities on a net basis under normal business terms. Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the consolidated statements of financial position.

(*4) It is an account that deals with bonds and liabilities based on the settlement of listed stocks traded in the market. The Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis. Therefore, the net amount is presented in the consolidated statement of financial position. The offset amount of related bonds and liabilities based on the settlement of over-the-counter derivatives in-house payment by Central Clearing System is included.

(*5) As of December 31, 2020, the total amount of financial liabilities includes  W  8,455,724 million of ELS (equity-linked securities) products and of DLS (derivative linked securities) products. In the course of this transaction, the Group has provided collateral for some transactions. The financial instruments provided as collateral of  W  1,087,349 million are included in the related instruments not offset in the statement of financial position. The total amount of financial liabilities recognized as of December 31, 2020 is W 693,017 million for transactions with the other party with collective offset contracts or similar arrangements.

F-10

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

	2021
	Gross amounts of recognized financial assets/ liabilities		Gross amounts of recognized financial assets/ liabilities set off in the statement of financial position		Net amounts of financial assets/ liabilities presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amount
							Financial instruments		Cash collateral received
Assets:
Derivatives (*1)	W	3,821,253		0		3,821,253		9,509,183		409,487		1,775,888
Other financial instruments (*1)		7,873,305		0		7,873,305
Securities repurchased under repurchase agreements and bonds purchased under repurchase agreements (*2)		12,749,800		0		12,749,800		12,618,359		0		131,441
Securities loaned (*2)		2,648,248		0		2,648,248		2,648,248		0		0
Domestic exchange settlement debit (*3)		44,872,022		38,171,649		6,700,373		0		0		6,700,373
Receivables from disposal of securities (*4)		7,082,779		3,477,874		3,604,905		2,668,065		0		936,840
Insurance receivables		70,087		0		70,087		45,849		0		24,238
	W	79,117,494		41,649,523		37,467,971		27,489,704		409,487		9,568,780
Liabilities:
Derivatives (*1)(*5)	W	11,434,081		0		11,434,081		10,093,812		1,000		8,120,313
Other financial instruments (*1)		6,781,044		0		6,781,044
Bonds purchased under repurchase agreements (*2)		10,709,115		0		10,709,115		10,492,779		0		216,336
Securities borrowed (*2)		787,767		0		787,767		787,767		0		0
Domestic exchange settlement pending (*3)		40,062,057		38,171,649		1,890,408		1,809,727		0		80,681
Payable from purchase of securities (*4)		7,036,630		3,477,874		3,558,756		2,668,767		0		889,989
Insurance payables		45,940		0		45,940		45,849		0		91
	W	76,856,634		41,649,523		35,207,111		25,898,701		1,000		9,307,410

(*1) The Group has certain derivative transactions subject to the ISDA (International Derivatives Swaps and Dealers Association) agreement. According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, all derivative agreements are terminated and set off. At the time of termination, the parties to the transaction will offset the amount of payment or payment to each other, and one party will pay the other party a single amount will be paid to the other party.

(*2) Resale and repurchase agreement, securities borrowing and lending agreement are also similar to ISDA agreement with respect to enforceable netting agreements.

(*3) The Group has legally enforceable right to set off and settles financial assets and liabilities on a net basis under normal business terms. Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the consolidated statements of financial position.

F-10

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

(*4) It is an account that deals with bonds and liabilities based on the settlement of listed stocks traded in the market. The Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis. Therefore, the net amount is presented in the consolidated statement of financial position. The offset amount of related bonds and liabilities based on the settlement of over-the-counter derivatives in-house payment by Central Clearing System is included.

(*5) As of December 31, 2021, the total amount of financial liabilities includes  W  8,023,870 million of ELS (equity-linked securities) products and of DLS (derivative linked securities) products. In the course of this transaction, the Group has provided collateral for some transactions. The financial instruments provided as collateral of  W  717,841 million are included in the related instruments not offset in the statement of financial position. The total amount of financial liabilities recognized as of December 31, 2021 is W 445,128 million for transactions with the other party with collective offset contracts or similar arrangements.

(i) Capital risk management

The criteria for capital adequacy to be complied with by the Group are 8.0% or more of the total equity capital ratio, 6.0% or higher of the basic capital ratio, and 4.5% or more of the common stock capital ratio. In addition, the minimum regulatory BIS capital ratio, which should be maintained additionally to increase the ability to absorb losses, has been raised to up to 14% as the capital regulation based on the Basel III standard is enforced from 2016. This is based on the addition of capital conservation capital (2.5%p) and domestic system-critical banks

(D-SIB)

capital (1.0%p) and economic response capital (2.5%p) to the existing lowest common equity capital ratio, and economic response capital can be charged up to 2.5%p during credit expansion period. As of December 31, 2021, the minimum regulatory BIS capital ratio to be observed is 11.5%, which is the standard for applying capital conservation capital (2.5%p),

D-SIB

capital (1.0%p), and economic response capital (0%p).

Basel III capital ratio is the concept of ‘International Agreement on the Measurement and Standards of Equity Capital’ of the Basel Bank Supervisory Commission of BIS (International Settlement Bank). It is calculated as ‘(common stock capital (after deduction of deductions) + other basic capital + supplementary capital) ÷ risk weighted assets’.

The capital of common stock can be the first to make up for the loss of the financial holding company. The capital of common stock consists of capital stock, capital reserve, retained earnings and other, which will not be redeemed until the liquidation and will be redeemed at the last during the liquidation. Other basic capital consists of capital securities that meet certain requirements as capital of permanent nature. Complementary capital is capital that can compensate for losses of financial holding companies during liquidation, and consists of capital securities, etc. that meet certain requirements. The deduction items are those held by the Group as assets or capital items, but do not contribute to the ability to absorb losses. Unless otherwise noted, it will be deducted from common stock capital.

F-10

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

4. Financial risk management (continued)

The capital ratio of the Group based on Basel III is as of December 31, 2020 and 2021 are as follows:

	2020			2021
Capital :
Tier I common equity capital	W	32,461,864			35,469,554
Additional tier 1 capital		3,805,372			4,965,931
Tier I capital		36,267,236			40,435,485
Tier II capital		3,441,841			3,427,951
Total capital (A)	W	39,709,077			43,863,436
Total risk-weighted assets (B)	W	252,321,426			270,692,183
Capital adequacy ratio (A/B)		15.74	%		16.20	%
Tier I capital adequacy ratio		14.37	%		14.94	%
Common stock ratio		12.87	%		13.10	%

(*) As of December 31, 2021, the Group has maintained an appropriate consolidated equity capital ratio according to the BIS equity capital regulation.

5. Significant estimates and judgments

The preparation of financial statements requires the Group to make estimates and assumptions concerning the future. Management also needs to exercise judgment in applying the Group’s accounting policies. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. As the resulting accounting estimates will, by definition, seldom equal the related actual results, it can contain a significant risk of causing a material adjustment. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial year are discussed below.

(a) Estimation of impairment of goodwill

The Group reviews the goodwill annually in accordance with the accounting policy in Note 3. The recoverable amount of the cash-generating unit (group) is determined based on the

value-in-use

calculation. These calculations are based on estimates.

(b) Income taxes

The Group is subject to tax laws from various countries. In the normal course of business, there are various types of transactions and different accounting methods that may add uncertainties to the decision of the final income taxes. The Group has recognized current and deferred taxes that reflect tax consequences based on the best estimates in which the Group expects, at the end of the reporting period, to recover or settle the carrying value of its assets and liabilities. However, actual income taxes in the future may not be identical to the recognized deferred tax assets and liabilities, and this difference can affect current and deferred tax at the period when the final tax effect is determined.

F-10

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

5. Significant estimates and judgments (continued)

(c) Fair value of financial instruments

The fair values of financial instruments (e.g.

over-the-counter

derivatives) which are not actively traded in the market are determined by using valuation techniques. The Group determines valuation techniques and assumptions based on significant market conditions at the end of each reporting period. Diverse valuation techniques are used to determine the fair value of financial instruments, from generic valuation techniques to internally developed valuation models that incorporate various types of assumptions and variables.

(d) Allowance for credit loss, guarantees and unused loan commitments

The Group determines and recognizes allowances for losses on debt securities, loans and other receivables measured at amortized cost or FVOCI, and recognizes provisions for guarantees and unused loan commitments through impairment testing. The accuracy of allowances and provisions for credit losses are determined by the estimation of expected cash flows for individually assessed allowances, and methodology and assumptions used for collectively assessed allowances and provisions for groups of loans, guarantees and unused loan commitments.

6. Investment in subsidiaries

(a) The summarized financial information of the controlling company and the Group’s major subsidiaries as of December 31, 2020 and 2021 is as follows:

	2020						2021
Investees (*1)(*2)	Asset balance		Liability balance		Equity balance		Asset balance		Liability balance		Equity balance
Shinhan Financial Group(separate)	W	35,483,914		10,426,817		25,057,097		36,815,893		10,410,517		26,405,376
Shinhan Bank		427,675,103		400,009,589		27,665,514		467,435,213		438,199,575		29,235,638
Shinhan Card Co., Ltd.		34,885,223		28,465,675		6,419,548		38,472,228		31,737,225		6,735,003
Shinhan Investment Corp.		46,632,433		42,258,341		4,374,092		44,446,803		39,421,314		5,025,489
Shinhan Life Insurance Co., Ltd. (*3)		36,777,496		34,232,052		2,545,444		70,535,556		65,382,992		5,152,564
Orange Life Insurance Co., Ltd. (*3)		33,813,587		30,574,073		3,239,514		0		0		0
Shinhan Capital Co., Ltd.		8,901,349		7,710,010		1,191,339		10,921,698		9,189,041		1,732,657
Jeju Bank		6,531,838		6,022,397		509,441		6,944,214		6,428,269		515,945
Shinhan Credit Information Co., Ltd.		27,806		10,826		16,980		31,377		12,334		19,043
Shinhan Alternative Investment Management Inc.		87,053		71,591		15,462		114,973		70,449		44,524
Shinhan Asset Management Co., Ltd.		191,127		20,530		170,597		242,760		40,181		202,579
SHC Management Co., Ltd.		9,644		—		9,644		9,636		0		9,636
Shinhan DS		95,150		70,916		24,234		92,591		52,804		39,787
Shinhan Savings Bank		1,842,231		1,635,433		206,798		2,644,942		2,413,176		231,766
Asia Trust Co., Ltd.		259,899		85,274		174,625		373,267		122,038		251,229
Shinhan AITAS Co., Ltd.		87,378		12,159		75,219		90,116		9,786		80,330
Shinhan REITs Management Co., Ltd.		52,555		8,582		43,973		63,026		10,584		52,442
Shinhan AI Co., Ltd.		42,903		1,890		41,013		44,031		2,563		41,468
Shinhan Venture Investment Co., Ltd.		72,550		12,697		59,853		98,914		23,331		75,583

(*1) The consolidated financial statements of the consolidated subsidiaries are based on consolidated financial statements, if applicable.

(*2) Trusts, beneficiary certificates, securitization special limited liability companies, associates and private equity investment specialists that are not actually operating their own business are excluded.

(*3) Shinhan Life Insurance Co., Ltd. and Orange Life Insurance Co., Ltd. were merged on July 1, 2021. After the merger, the name is Shinhan Life Insurance Co., Ltd.

F-10

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

6. Investment in subsidiaries (continued)

(b) The summarized income information of the controlling company and the Group’s major subsidiaries for the years ended December 31, 2019, 2020 and 2021 is as follows:

	2019								2020								2021
Investees (*1)(*2)	Operating Income		Net Income (*3)			Comprehensive Income (*3)			Operating Income		Net Income (*3)			Comprehensive Income (*3)			Operating Income		Net Income (*3)			Comprehensive Income (*3)
Shinhan Financial Group (separate)	W	1,480,030		1,129,173			1,127,202			1,718,407		1,274,443			1,274,892			1,875,675		1,413,956			1,413,675
Shinhan Bank		23,145,476		2,329,268			2,527,665			25,049,392		2,078,232			1,911,575			23,540,347		2,494,894			2,396,829
Shinhan Card Co., Ltd.		3,892,257		509,032			486,114			4,091,178		606,554			599,451			4,359,627		676,297			710,090
Shinhan Investment Corp.		6,139,926		220,764			225,963			9,290,965		154,531			147,210			7,592,350		320,662			366,000
Shinhan Life Insurance Co., Ltd.		5,413,175		123,870			326,783			5,405,933		177,834			227,596			7,079,569		174,811			(162,161	)
Orange Life Insurance Co., Ltd. (*4)		4,662,085		271,455			433,510			4,456,340		279,282			132,425			2,112,353		216,826			(96,157	)
Shinhan Capital Co., Ltd.		455,246		126,050			123,032			626,455		160,583			162,134			783,890		274,855			275,760
Jeju Bank		239,732		27,934			30,519			214,615		17,521			16,557			204,543		18,446			11,739
Shinhan Credit Information Co., Ltd.		38,648		507			658			42,658		1,493			1,650			42,417		1,936			2,079
Shinhan Alternative Investment Management Inc.		32,401		2,144			2,144			17,219		3,433			3,433			28,010		9,163			9,163
Shinhan Asset Management Co., Ltd.		84,256		23,090			22,655			88,870		26,663			26,663			107,598		32,152			32,066
SHC Management Co., Ltd.		154		82			82			70		5			5			0		(7	)		(7	)
Shinhan DS		138,697		2,074			1,292			164,327		1,862			2,845			244,445		4,100			5,653
Shinhan Savings Bank		116,849		23,122			22,972			123,590		26,953			26,888			163,643		30,310			30,037
Asia Trust Co., Ltd.		54,920		18,098			18,128			102,816		45,791			45,765			144,971		76,455			76,604
Shinhan AITAS Co., Ltd.		51,823		10,821			10,821			58,599		13,020			12,954			53,005		9,816			9,816
Shinhan REITs Management Co., Ltd.		7,342		7,414			7,411			12,176		3,764			3,764			16,440		8,481			8,469
Shinhan AI Co., Ltd.		3,088		(654	)		(654	)		10,246		304			284			12,106		478			455
Shinhan Venture Investment Co., Ltd. (*5)		0		0			0			3,500		(1,146	)		(1,015	)		32,134		15,929			15,750

(*1) The consolidated financial statements of the consolidated subsidiaries are based on consolidated financial statements, if applicable.

(*2) Trusts, beneficiary certificates, securitization special limited liability companies, associates and private equity investment specialists that are not actually operating their own business are excluded.

(*3) This amount includes non-controlling interests.

(*4) For the Orange Life Insurance Co., Ltd., the amount is from the consolidated statements of operating revenue, net income and comprehensive income for six months before the merger date.

(*5) For the acquired company, the amount is from the consolidated statements of comprehensive income for the period after the acquisition point.

F-10

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

6. Investment in subsidiaries (continued)

(c) Change in the scope of consolidation

i) Change in consolidated subsidiaries for the year ended December 31, 2020 are as follows:

	Company	Description
Included	Shinhan Venture Investment Co., Ltd.	Newly acquired subsidiary
Included	SBJDNX	Newly invested subsidiary
Included	Shinhan Financial Plus Co., Ltd	Newly invested subsidiary
Excluded	Shinhan Asia Ltd.	Liquidation

(*) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

ii) Change in consolidated subsidiaries for the year ended December 31, 2021 are as follows:

	Company	Description
Included	Shinhan Life Insurance Vietnam Co., Ltd.	Newly acquired subsidiary
Included	Shinhan CubeOn Co., Ltd.	Newly acquired subsidiary
Excluded	Orange Life Insurance Co., Ltd.	Extinguished due to merger with Shinhan Life Insurance Co., Ltd.

(*) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

7. Operating segments

(a) Segment information

The general descriptions by operating segments as of December 31, 2021 are as follows:

Segment	Description
Banking	Credit to customers, lending to and receiving deposits from customers, and their accompanying work
Credit card	Sales of credit cards, cash services, card loan services, installment financing, lease and their accompanying work
Securities	Securities trading, consignment trading, underwriting and their accompanying work
Life insurance	Life insurance business and their accompanying work
Credit	Facility rental, new technology business financing, others and their accompanying work
Others	Business segments that do not belong to the above segments, such as real estate trust, investment advisory services, venture business investment and other remaining business

F-10

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

7. Operating segments (continued)

(b) The following tables provide information of income and expense for each operating segment for the years ended December 31, 2019, 2020 and 2021:

	2019
	Banking			Credit card			Securities			Life insurance			Credit			Others			Consolidation adjustment			Total
Net interest income	W	5,989,462			1,753,966			457,852			1,647,795			127,094			470			(238,675	)		9,737,964
Net fees and commission income		950,389			403,259			351,303			167,324			11,160			261,084			(4,000	)		2,140,519
Reversal of (provision for) allowance for credit loss		(389,004	)		(566,415	)		1,325			(797	)		747			(25,777	)		(771	)		(980,692	)
General and administrative expenses		(3,177,158	)		(745,848	)		(511,418	)		(443,013	)		(47,734	)		(287,356	)		77,853			(5,134,674	)
Other income (expense), net		(211,882	)		(33,204	)		(59,006	)		(786,103	)		64,273			64,999			244,056			(716,867	)
Operating income		3,161,807			811,758			240,056			585,206			155,540			13,420			78,463			5,046,250
Equity method income (loss)		(764	)		0			18,163			(1,296	)		11,886			379			24,919			53,287
Income tax expense		718,650			205,863			68,311			187,608			40,009			33,204			15,479			1,269,124
Profit for the year	W	2,256,652			609,582			220,764			395,325			126,050			(25,791	)		59,802			3,642,384
Controlling interest	W	2,256,576			609,350			220,850			395,325			126,050			(25,791	)		(178,863	)		3,403,497
Non-controlling interests		76			232			(86	)		0			0			0			238,665			238,887
	2020
	Banking			Credit card			Securities			Life insurance			Credit			Others			Consolidation adjustment			Total
Net interest income	W	6,037,632			1,755,039			517,044			1,608,953			158,817			7,805			(202,590	)		9,882,700
Net fees and commission income		822,408			483,486			544,183			162,284			21,346			347,004			2,222			2,382,933
Reversal of (provision for) allowance for credit loss		(690,084	)		(483,883	)		(111,796	)		(12,236	)		(63,429	)		(22,522	)		1,771			(1,382,179	)
General and administrative expenses		(3,237,641	)		(698,796	)		(565,485	)		(463,439	)		(58,494	)		(314,097	)		125,479			(5,212,473	)
Other income (expense), net		(130,488	)		(169,304	)		(11,348	)		(727,530	)		120,735			140,138			36,552			(741,245	)
Operating income		2,801,827			886,542			372,598			568,032			178,975			158,328			(36,566	)		4,929,736
Equity method income (loss)		(811	)		0			37,760			(1,244	)		32,133			(2,489	)		94,184			159,533
Income tax expense		673,972			251,357			48,464			156,698			49,211			44,883			31,210			1,255,795
Profit for the year	W	1,999,002			703,305			154,531			457,116			160,583			112,992			(89,453	)		3,498,076
Controlling interest	W	1,998,563			703,204			154,772			457,116			160,583			112,992			(172,635	)		3,414,595
Non-controlling interests		439			101			(241	)		0			0			0			83,182			83,481
	2021
	Banking			Credit card			Securities			Life insurance			Credit			Others			Consolidation adjustment			Total
Net interest income	W	6,738,165			1,799,153			517,296			1,620,266			231,679			68,991			(206,225	)		10,769,325
Net fees and commission income		818,426			634,716			601,793			170,781			28,812			415,212			5,257			2,674,997
Reversal of (provision for) allowance for credit loss		(364,291	)		(442,668	)		(80,134	)		(21,760	)		(34,064	)		(35,421	)		3,653			(974,685	)
General and administrative expenses		(3,409,144	)		(790,733	)		(696,278	)		(557,292	)		(80,056	)		(366,149	)		156,564			(5,743,088	)
Other income (expense), net		(305,508	)		(179,695	)		234,209			(660,416	)		194,564			177,912			(235,519	)		(774,453	)
Operating income		3,477,648			1,020,773			576,886			551,579			340,935			260,545			(276,270	)		5,952,096
Equity method income (loss)		25,401			(1,109	)		65,341			(739	)		29,644			16,201			23,861			158,600
Income tax expense		821,201			266,798			94,864			139,106			94,329			71,120			(16,382	)		1,471,036
Profit for the year	W	2,417,880			771,757			320,662			391,637			274,855			205,880			(270,043	)		4,112,628
Controlling interest	W	2,417,361			770,457			320,783			391,637			274,855			205,880			(361,719	)		4,019,254
Non-controlling interests		519			1,300			(121	)		0			0			0			91,676			93,374

F-10

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

7. Operating segments (continued)

(c) Interest gains and losses from segment external customers and cross-sector interest gains and losses for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019
	Banking			Credit card			Securities		Life insurance			Credit			Others			Consolidation adjustment (*)			Total
Net interest income from:
External customers (*)	W	5,995,097			1,781,266			450,268		1,647,988			137,179			(34,018	)		(239,816	)		9,737,964
Internal transactions		(5,635	)		(27,300	)		7,584		(193	)		(10,085	)		34,488			1,141			0
	W	5,989,462			1,753,966			457,852		1,647,795			127,094			470			(238,675	)		9,737,964

	2020
	Banking		Credit card			Securities			Life insurance		Credit			Others			Consolidation adjustment (*)			Total
Net interest income from:
External customers (*)	W	6,037,205		1,809,149			526,167			1,605,575		169,192			(54,902	)		(209,686	)		9,882,700
Internal transactions		427		(54,110	)		(9,123	)		3,378		(10,375	)		62,707			7,096			0
	W	6,037,632		1,755,039			517,044			1,608,953		158,817			7,805			(202,590	)		9,882,700

	2021
	Banking			Credit card			Securities			Life insurance		Credit			Others		Consolidation adjustment (*)			Total
Net interest income from:
External customers (*)	W	6,741,279			1,849,209			534,969			1,617,186		241,035			781		(215,134	)		10,769,325
Internal transactions		(3,114	)		(50,056	)		(17,673	)		3,080		(9,356	)		68,210		8,909			0
	W	6,738,165			1,799,153			517,296			1,620,266		231,679			68,991		(206,225	)		10,769,325

(*) Consolidated adjustment to net interest income from external customers is from the securities and others which were measured in fair values as a part of business combination accounting.

(d) The following tables provide information of net fees and commission income (expense) of each operating segment for the years ended December 31, 2019, 2020 and 2021.

	2019
	Banking			Credit card			Securities			Life insurance			Credit			Others		Consolidation    adjustment			Total
Net fees and commission income from:
External customers	W	974,636			436,523			361,526			175,171			12,241			180,422		0			2,140,519
Internal transactions		(24,247	)		(33,264	)		(10,223	)		(7,847	)		(1,081	)		80,662		(4,000	)		0
	W	950,389			403,259			351,303			167,324			11,160			261,084		(4,000	)		2,140,519

F-1

10

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

7. Operating segments (continued)

	2020
	Banking			Credit card			Securities			Life insurance			Credit			Others		Consolidation    adjustment		Total
Net fees and commission income from:
External customers	W	859,225			531,394			553,308			173,865			22,381			242,760		0		2,382,933
Internal transactions		(36,817	)		(47,908	)		(9,125	)		(11,581	)		(1,035	)		104,244		2,222		0
	W	822,408			483,486			544,183			162,284			21,346			347,004		2,222		2,382,933

	2021
	Banking			Credit card			Securities			Life insurance			Credit		Others		Consolidation    adjustment		Total
Net fees and commission income from:
External customers	W	863,879			681,129			615,414			181,345			27,351		305,879		0		2,674,997
Internal transactions		(45,453	)		(46,413	)		(13,621	)		(10,564	)		1,461		109,333		5,257		0
	W	818,426			634,716			601,793			170,781			28,812		415,212		5,257		2,674,997

(e) Financial information of geographical area

The following table provides information of income from external consumers by geographical area for the years ended December 31, 2019, 2020 and 2021.

	2019		2020		2021
Domestic	W	4,378,239		4,436,252		5,404,278
Overseas		668,011		493,484		547,818
	W	5,046,250		4,929,736		5,952,096

The following table provides information of

non-current

assets by geographical area as of December 31, 2020 and 2021.

	2020		2021
Domestic	W	9,734,468		10,029,650
Overseas		351,083		336,687
	W	10,085,551		10,366,337

(*) Non-current assets comprise property and equipment, intangible assets and investment properties.

F-1

11

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

8. Cash and due from banks at amortized cost

(a) Cash and due from banks at amortized cost as of December 31, 2020 and 2021 are as follows:

	2020			2021
Cash and cash equivalents
Cash	W	1,782,301			4,194,831
Cash equivalents		22,979			26,560
	1,805,280			4,221,391
Deposits denominated in Korean won:
Reserve deposits		16,957,521			9,851,064
Time deposits		950,624			892,053
Other		3,953,337			2,701,873
		21,861,482			13,444,990
Deposits denominated in foreign currency:
Deposits		5,576,206			6,731,190
Time deposits		2,721,849			2,148,955
Other		1,455,732			1,924,601
		9,753,787			10,804,746
Allowance for credit losses		(10,007	)		(17,723	)
	W	33,410,542			28,453,404

(b) Restricted due from banks at amortized cost as of December 31, 2020 and 2021 are as follows:

	2020		2021		Related Regulations or Acts
Deposits denominated in Korean won:
Reserve deposits	W	16,957,521		9,851,064	Article 55 of the Bank of Korea Act
Other		2,390,761		1,174,670	Article 28 and 70 of the Bank of Korea Act, Article 74 of the Capital Markets and Financial Investment Business Act, etc.
		19,348,282		11,025,734
Deposits denominated in foreign currency		2,621,129		2,870,908	Articles of the Bank of Korea Act, New York State Banking Act, derivatives, etc.
	W	21,969,411		13,896,642

F-11

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

9. Financial assets at fair value through profit or loss

(a) Financial assets at fair value through profit or loss as of December 31, 2020 and 2021 are as follows:

	2020			2021
Debt instruments:
Governments	W	4,248,448			3,961,045
Financial institutions		13,997,922			13,449,550
Corporations		9,356,842	��		9,618,302
Stocks with put option		583,590			627,275
Equity investment with put option		1,860,195			2,625,297
Beneficiary certificates		12,451,709			13,386,212
Commercial papers		6,369,854			7,042,045
CMA		2,806,485			3,591,822
Others (*)		3,411,647			3,925,599
		55,086,692			58,227,147
Equity instruments:
Stocks		1,627,020			2,182,829
Equity investment		1,697			12,962
Others		107,742			179,524
		1,736,459			2,375,315
	W	56,823,151			60,602,462
Other:
Loans at FVTPL	W	2,016,801			1,683,344
Due from banks at fair value		63,112			34,262
Gold/silver deposits		188,339			83,691
	W	59,091,403			62,403,759

(*) As of December 31, 2020 and 2021, restricted reserve for claims of customers’ deposits (trusts) are W 1,907,210 million and W 2,080,626 million, respectively.

(b) Financial assets to which overlay approach are applied in accordance with IFRS 9 ‘Financial Instruments’ and IFRS 4 ‘Insurance Contracts’ as of December 31, 2020 and 2021 are as follows:

	2020		2021
Due from banks at fair value through profit or loss	W	63,112		34,262
Securities at fair value through profit or loss		4,865,908		4,903,275
	W	4,929,020		4,937,537

A financial asset is eligible for designation for the overlay approach, if it is measured at fair value through profit or loss applying IFRS 9 but would not have been measured at fair value through profit or loss in its entirety applying IAS 39; and it is not held in respect of an activity that is not associated with contracts within the scope of IFRS 4.

F-11

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

9. Financial assets at fair value through profit or loss (continued)

The reclassified amounts between profit or loss and other comprehensive income due to the overlay approach as of and for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Profit or loss					Other comprehensive income (*)
	By IFRS 9		By IAS 39			Amount			Tax effect
Net gain (loss) on valuation of financial assets at fair value through profit or loss	W	123,808		(21,488	)		145,301			(39,958	)
Net gain (loss) on disposal of financial assets at fair value through profit or loss		53,806		62,926			(9,120	)		2,508
Net gain (loss) on foreign currency conversion of financial assets at fair value through profit or loss		74		—			74			(20	)
	W	177,688		41,438			136,255			(37,470	)

(*) The amount of the policyholders equity adjustment for the reclassification of other comprehensive income is W (8,487) million for the years ended December 31, 2020.

	2021
	Profit or loss					Other comprehensive income (*)
	By IFRS 9			By IAS 39		Amount			Tax effect
Net gain (loss) on valuation of financial assets at fair value through profit or loss	W	130,170			83,288		46,882			(12,893	)
Net gain (loss) on disposal of financial assets at fair value through profit or loss		(2,668	)		87,217		(89,885	)		24,719
	W	127,502			170,505		(43,003	)		11,826

(*) The amount of the policyholders equity adjustment for the reclassification of other comprehensive income is W 11,079 million for the years ended December 31, 2021.

F-11

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives

(a) The notional amounts of derivatives outstanding as of December 31, 2020 and 2021 are as follows:

	2020		2021
Foreign currency related:
Over the counter:
Currency forwards	W	117,566,233		146,169,864
Currency swaps		33,562,251		36,548,884
Currency options		2,501,983		2,270,594
		153,630,467		184,989,342
Exchange traded:
Currency futures		1,102,534		641,104
		154,733,001		185,630,446
Interest rates related:
Over the counter:
Interest rate forwards and swaps		36,205,843		35,518,719
Interest rate options		324,238		258,460
		36,530,081		35,777,179
Exchange traded:
Interest rate futures		2,465,374		3,293,821
Interest rate options		0		54,890
Interest rate swaps (*)		68,475,400		72,898,275
		70,940,774		76,246,986
		107,470,855		112,024,165
Credit related:
Over the counter:
Credit swaps		4,536,626		4,737,329
Equity related:
Over the counter:
Equity swaps and forwards		2,628,661		2,073,995
Equity options		508,686		677,824
		3,137,347		2,751,819
Exchange traded:
Equity futures		1,638,126		1,678,070
Equity options		4,277,882		3,298,673
		5,916,008		4,976,743
		9,053,355		7,728,562

F-11

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2020		2021
Commodity related:
Over the counter:
Commodity swaps and forwards	W	537,351		789,930
Commodity options		0		11,500
		537,351		801,430
Exchange traded:
Commodity futures and options		263,460		158,550
		800,811		959,980
Hedge:
Currency forwards		1,281,945		1,279,598
Currency swaps		4,328,333		3,726,939
Interest rate forwards and swaps		7,844,392		8,695,960
		13,454,670		13,702,497
	W	290,049,318		324,782,979

(*) The notional amounts of derivatives outstanding those will be settled in the ‘Central Counter Party (CCP)’ system.

(b) Fair values of derivative instruments as of December 31, 2020 and 2021 are as follows:

	2020				2021
	Assets		Liabilities		Assets		Liabilities
Foreign currency related:
Over the counter:
Currency forwards	W	3,135,319		3,021,258		2,183,315		1,797,419
Currency swaps		1,145,619		979,022		651,292		748,302
Currency options		33,253		31,871		12,218		11,591
		4,314,191		4,032,151		2,846,825		2,557,312
Exchange traded:
Currency futures		90		186		12		210
		4,314,281		4,032,337		2,846,837		2,557,522
Interest rates related:
Over the counter:
Interest rate forwards and swaps		311,403		363,297		166,855		303,227
Interest rate options		2,148		2,217		3,748		611
		313,551		365,514		170,603		303,838
Exchange traded:
Interest rate futures		900		422		1,701		1,828
Interest rate options		0		0		83		0
		900		422		1,784		1,828
		314,451		365,936		172,387		305,666

F-11

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2020				2021
	Assets		Liabilities		Assets		Liabilities
Credit related:
Over the counter:
Credit swaps	W	273,578		29,682		493,829		65,103
Equity related:
Over the counter:
Equity swap and forwards		122,034		48,218		28,803		69,880
Equity options		2,750		9,840		3,884		8,671
		124,784		58,058		32,687		78,551
Exchange traded:
Equity futures		34,816		7,711		817		19,903
Equity options		77,973		153,461		6,324		167,237
		112,789		161,172		7,141		187,140
		237,573		219,230		39,828		265,691
Commodity related:
Over the counter:
Commodity swaps and forwards		5,949		32,693		18,557		3,149
Commodity options		0		0		0		8,406
		5,949		32,693		18,557		11,555
Exchange traded:
Commodity futures and options		11,580		186		2,688		2,218
		17,529		32,879		21,245		13,773
Hedge:
Currency forwards		91,747		10,507		106		46,139
Currency swaps		65,256		186,150		63,560		79,407
Interest rate forwards and swaps		319,500		139,846		161,397		253,263
		476,503		336,503		225,063		378,809
	W	5,633,915		5,016,567		3,799,189		3,586,564

(c) Gain or loss on valuation of derivatives for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Foreign currency related
Over the counter
Currency forwards	W	174,340			(108,854	)		268,310
Currency swaps		(24,827	)		210,072			(201,500	)
Currency options		4,056			4,979			2,007
		153,569			106,197			68,817
Exchange traded
Currency futures		—			(96	)		(199	)
		153,569			106,101			68,618

F-11

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2019			2020			2021
Interest rates related
Over the counter
Interest rate forwards and swaps	W	(75,349	)		(73,926	)		(142,703	)
Interest rate options		(1,938	)		(372	)		792
		(77,287	)		(74,298	)		(141,911	)
Exchange traded
Interest rate futures		1,008			4,236			(4	)
		(76,279	)		(70,062	)		(141,915	)
Credit related
Over the counter
Credit swaps		213,754			7,255			192,729
Equity related
Over the counter
Equity swap and forwards		46,770			(15,979	)		(176,430	)
Equity options		(841	)		(2,082	)		3,307
		45,929			(18,061	)		(173,123	)
Exchange traded
Equity futures		(2,275	)		26,305			(19,408	)
Equity options		58,721			196,288			32,555
		56,446			222,593			13,147
		102,375			204,532			(159,976	)
Commodity related
Over the counter
Commodity swaps and forwards		3,191			(13,519	)		(19,097	)
Commodity options		29			—			(4,956	)
		3,220			(13,519	)		(24,053	)
Exchange traded
Commodity futures		(7,759	)		11,374			469
		(4,539	)		(2,145	)		(23,584	)
Hedge		332,778			120,700			(203,563	)
	W	721,658			366,381			(267,691	)

(d) Impact of hedge accounting on the consolidated financial statements

F-11

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

i) Gains(losses) on fair value hedged items and hedging instruments attributable to the hedged ineffectiveness for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Losses on fair value hedges (hedged items)			Gains on fair value hedges (hedging instruments)		Hedge ineffectiveness recognized in profit or loss (*2)
Fair value hedges:
Interest rate swaps (*1)	W	(228,266	)		233,008		4,742
Foreign exchange risk (*1)		(21,336	)		12,071		(9,265	)
	W	(249,602	)		245,079		(4,523	)

	2021
	Gains on fair value hedges (hedged items)		Losses on fair value hedges (hedging instruments)			Hedge ineffectiveness recognized in profit or loss (*2)
Fair value hedges:
Interest rate swaps (*1)	W	273,219		(281,649	)		(8,430	)
Foreign exchange risk (*1)		26,547		(32,829	)		(6,282	)
	W	299,766		(314,478	)		(14,712	)

(*1) The related account categories are presented as interest rate swap assets / liabilities and currency swap assets.

(*2) Ineffective portion of hedge: the difference between hedging instruments and hedged items.

ii) Due to the ineffectiveness of hedge of cash flow risk and hedge of net investment in foreign operations during the year, the amounts recognized in the income statement and other comprehensive income are as follows:

	2020
	Gains (losses) on hedges recognized in other comprehensive income			Hedge ineffectiveness recognized in profit or loss (*2)			From cash flow hedge reserve to profit or loss reclassified amount
Cash flow hedges:
Interest rate risk (*1)	W	(3,220	)		(343	)		—
Foreign exchange risk (*1)		(16,693	)		(6,539	)		26,405
Discontinuation of cash flow hedges		(45	)		—			45
Hedge of net investments:
Foreign exchange risk (*1)		44,049			(2,134	)		—
	W	24,091			(9,016	)		26,450

F-11

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2021
	Gains (losses) on hedges recognized in other comprehensive income			Hedge ineffectiveness recognized in profit or loss (*2)			From cash flow hedge reserve to profit or loss reclassified amount
Cash flow hedges:
Interest rate risk (*1)	W	15,492			(49,882	)		0
Foreign exchange risk (*1)		14,439			(14,955	)		24,464
Discontinuation of cash flow hedges		0			0			8,799
Hedge of net investments:
Foreign exchange risk (*1)		(74,525	)		(2,094	)		0
	W	(44,594	)		(66,931	)		33,263

(*1) The related account categories are presented as interest rate swap assets / liabilities and currency swap assets / liabilities, currency forwards assets / liabilities and borrowings.

(*2) Ineffective portion of hedge: The difference between hedging instruments and hedged items.

(e) Effect of hedge accounting on financial statement, statement of comprehensive income, statement of changes in equity

i) Purpose and strategy of risk avoidance

The Group transacts with derivative financial instruments to hedge its interest rate risk and currency risk arising from the assets and liabilities of the Group. The Group applies the fair value hedge accounting for the changes in the market interest rates of the Korean won structured notes, foreign currency generated financial debentures, structured deposits in foreign currencies and foreign currency investment receivables; and cash flow hedge accounting for interest rate swaps and currency swaps to hedge cash flow risk due to interest rates and foreign exchange rates of the Korean won debt, the Korean won bonds, foreign currency bonds, etc. In addition, in order to hedge the exchange rate risk of the net investment in overseas business, the Group applies the net investment hedge accounting for foreign operations using currency forward and

non-derivative

financial instruments.

ii) Nominal amounts and average hedge ratios for hedging instruments as of December 31, 2020 and 2021 are as follows:

	2020
	Less than 1 year			1~2 years			2~3 years			3~4 years			4~5 years			More than 5 years			Total
Interest risk:
Nominal values:	W	657,656			640,992			1,217,588			456,688			247,244			4,624,224			7,844,392
Average price condition (*1)		1.12	%		0.88	%		1.30	%		0.98	%		0.67	%		0.38	%		0.67	%
Average hedge ratio:		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Exchange risk: (*2)
Nominal values:		2,340,409			1,448,787			1,734,593			457,199			575,527			250,014			6,806,529
Average hedge ratio:		100	%		100	%		100	%		100	%		100	%		100	%		100	%

(*1) Interest rate swaps consist of 3M CD, 3M USD Libor, 3M Euribor, and 3M AUD Bond.

(*2) The average exchange rates of net investment hedge instruments are USD/KRW 1,154.76, JPY/KRW 10.61, EUR/KRW 1,287.16, GBP/KRW 1,480.30, AUD/KRW 800.67, CAD/KRW 895.95, SGD/KRW 847.09, CNY/KRW 168.84, SEK/KRW 124.60

F-1

20

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2021
	Less than 1 year			1~2 years			2~3 years			3~4 years			4~5 years			More than 5 years			Total
Interest risk:
Nominal values:	W	693,057			1,256,392			641,413			158,833			1,589,729			4,356,536			8,695,960
Average price condition (*1)		0.88	%		1.21	%		1.30	%		1.00	%		1.00	%		0.66	%		0.87	%
Average hedge ratio:		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Exchange risk: (*2)
Nominal values:		2,328,042			2,164,591			568,991			699,433			480,878			22,525			6,264,460
Average hedge ratio:		100	%		100	%		100	%		100	%		100	%		100	%		100	%

(*1) Interest rate swaps consist of 3M CD, 3M USD Libor, 3M Euribor, and 3M AUD Bond.

(*2) The average exchange rates of net investment hedge instruments are USD/KRW 1,143.95, JPY/KRW 10.53, EUR/KRW 1,288.52, GBP/KRW 1,484.00, AUD/KRW 817.06, CAD/KRW 868.95, SGD/KRW 859.87, CNY/KRW 174.40, SEK/KRW 124.85

iii) Effect of derivatives on statement financial position, statement of comprehensive income, statement of changes in equity

	2020
	Nominal amount		Carrying value of asset (*)		Carrying value of liabilities (*)		Changes in fair value in the period
Fair value hedges
Interest rate swap	W	6,965,492		319,294		120,728		181,151
Currency swap		—		—		67		985
Currency forward		254,023		20,093		66		24,481
Cash flow hedge
Interest rate swap		878,900		206		19,118		3,303
Currency swap		4,328,333		65,256		186,083		(8,560	)
Currency forward		810,322		60,473		—		(4,181	)
Hedge of net investments in foreign operations
Currency forward		217,600		11,181		10,441		(2,991	)
Borrowings		1,196,252		—		1,193,269		44,907

(*) The related account categories are presented as interest rate swap assets / liabilities and currency forward assets and liabilities.

F-1

21

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2021
	Nominal amount		Carrying value of asset (*)		Carrying value of liabilities (*)		Changes in fair value in the period
Fair value hedges
Interest rate swap	W	7,079,468		156,710		236,758		(277,450	)
Currency forward		176,369		0		4,995		(8,835	)
Cash flow hedge
Interest rate swap		1,616,492		4,687		16,505		23,257
Currency swap		3,726,939		63,560		79,407		156,271
Currency forward		866,129		106		31,486		(63,659	)
Hedge of net investments in foreign operations
Currency forward		237,100		0		9,658		(14,948	)
Borrowings		1,257,923		0		1,256,241		(61,672	)

(*) The related account categories are presented as interest rate swap assets / liabilities and currency forward assets and liabilities.

iv) Effect of hedging items on statement financial position, statement of comprehensive income, statement of changes in equity

	2020
	Carrying value of asset (*)		Carrying value of liabilities (*)		Assets of Cumulative fair value hedge adjustment		Liabilities of Cumulative fair value hedge adjustment		Changes if fair value in the year			Cash flow hedge reserve			Foreign currency conversion reserves
Fair value hedges
Interest rate risk Borrowings and others	W	143,496		6,750,929		6,563		193,452		(175,369	)		—			—
Foreign exchange risk Securities in foreign currency		342,205		—		—		—		(26,927	)		—			—
Cash flow hedge
Interest rate risk Debentures in won and debentures in foreign currency		617,463		1,674,460		—		—		2,296			60,659			—
Foreign exchange risk Debentures in foreign currency and loans in foreign currency		3,264,740		2,962,041		—		—		(58,557	)		(32,001	)		—
Hedge of net investments in foreign operations
Foreign exchange risk Net assets in foreign operation		—		—		—		—		44,049			—			(141,151	)

(*) The related account categories are presented as interest rate swap assets / liabilities and currency forwards.

F-12

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

	2021
	Carrying value of asset (*)		Carrying value of liabilities (*)		Assets of Cumulative fair value hedge adjustment		Liabilities of Cumulative fair value hedge adjustment			Changes if fair value in the year		Cash flow hedge reserve			Foreign currency conversion reserves
Fair value hedges
Interest rate risk Borrowings and others	W	704,942		6,370,330		6,207		(85,441	)		274,005		0			0
Foreign exchange risk Securities in foreign currency		415,693		0		0		0			23,109		0			0
Cash flow hedge
Interest rate risk Debentures in won and debentures in foreign currency		607,062		1,714,303		0		0			22,432		67,553			0
Foreign exchange risk Debentures in foreign currency and loans in foreign currency		2,848,303		2,782,574		0		0			336,281		(19,296	)		0
Hedge of net investments in foreign operations
Foreign exchange risk Net assets in foreign operation		0		0		0		0			74,525		0			(66,626	)

(*) The related account categories are presented as interest rate swap assets / liabilities and currency forwards.

(f) Hedge relationships affected by an interest rate index

The revised Standard requires exceptions to the analysis of future information in relation to the application of hedge accounting, while uncertainty exists due to movements of the interest rate indicator reform. The exception assumes that when assessing whether the expected cash flows that comply with existing interest rate indicators are highly probable, whether there is an economic relationship between the hedged item and the hedging instrument, and whether there is a high hedge effectiveness between the hedged item and the hedging instrument, the interest rate indicators that are based on the hedged item do not change due to the effect of the interest rate index reform. The nominal amount of the hedging instrument related to the interest rate index exposed to the hedging relationship due to the Group’s reform of the interest rate index as of December 31, 2021 is as follows:

Interest rate index	Carrying value of hedged item, Assets		Carrying value of hedged item, Liabilities		Nominal amount of hedging instrument
KRW 3M CD (*1)	W	0		2,509,045		2,580,000
USD 1M LIBOR (*2)		0		241,192		241,842
USD 3M LIBOR(*1),(*2)		539,197		3,589,452		4,187,018
EURIBOR 1M		0		220,992		221,050
EURIBOR 3M		25,094		267,830		293,972
	W	564,291		6,828,511		7,523,882

(*1) Include nominal amount of the hedging instrument related to the CMS(Constant Maturity Swap) calculated based on the CD and LIBOR rate.

(*2) Exclude the nominal amount that will mature before the end of June 30, 2023, when LIBOR interest rate calculation is discontinued.

F-12

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

10. Derivatives (continued)

The USD LIBOR interest rate will be replaced by a Secured Overnight Financing Rate (SOFR) based on the actual transactions, and the EUR LIBOR interest rate will be replaced by an overnight unsecured rate, Euro Short-Term Rate (ESTER). From November 2021, the “Korea Overnight Financing Repo Rate (KOFR)” has been calculated and disclosed in line with global interest rate benchmark reform, and it is likely to be used as an alternative rate for CD rates. The Group has assumed that in this hedging relationship, the spread which has changed based on SOFR, ESTER and RFR would be similar to the spreads of interest rate swap and interest rate forward used as the hedging instrument. Besides this, the Group did not make assumptions on further changes of conditions.

11. Securities at fair value through other comprehensive income and securities at amortized cost

(a) Details of securities at FVOCI and securities at amortized cost as of December 31, 2020 and 2021 are as follows:

	2020		2021
Securities at FVOCI:
Debt securities:
Government bonds	W	19,370,393		25,687,070
Financial institutions bonds		20,053,716		19,702,292
Corporate bonds and others		17,985,324		18,417,557
		57,409,433		63,806,919
Equity securities (*):
Stocks		777,901		922,579
Equity investments		4,445		4,118
Others		124,333		104,707
		906,679		1,031,404
		58,316,112		64,838,323
Securities at amortized cost:
Debt securities:
Government bonds		31,816,320		34,679,301
Financial institutions bonds		3,835,577		3,423,536
Corporate bonds and others		11,630,726		11,827,239
		47,282,623		49,930,076
	W	105,598,735		114,768,399

(*) Equity securities in the above table are classified as other comprehensive income—equity securities designated as fair value items, and other comprehensive income and fair value options are exercised for the purpose of holding as required by the policy.

F-12

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

11. Securities at fair value through other comprehensive income and securities at amortized cost (continued)

(b) Changes in carrying value of debt securities at fair value through other comprehensive income and securities at amortized cost for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Debt securities at fair value through other comprehensive income									Debt at amortized cost
	12-month expected credit loss			Life time expected credit loss			Total			12-month expected credit loss			Life time expected credit loss			Total
Beginning balance	W	58,334,000			239,094			58,573,094			45,568,563			23,272			45,591,835
Transfer (from)to 12-month expected credit loss		30,233			(30,233	)		0			0			0			0
Transfer (from)to life time expected credit loss		(83,132	)		83,132			0			0			0			0
Net increase and decrease (*)		(1,138,803	)		(24,858	)		(1,163,661	)		1,724,546			(23,272	)		1,701,274
Ending balance	W	57,142,298			267,135			57,409,433			47,293,109			0			47,293,109
	2021
	Debt securities at fair value through other comprehensive income									Debt securities at amortized cost
	12-month expected credit loss			Life time expected credit loss			Total			12-month expected credit loss			Life time expected credit loss			Total
Beginning balance	W	57,142,298			267,135			57,409,433			47,293,109			0			47,293,109
Transfer (from)to 12-month expected credit loss		51,055			(51,055	)		0			0			0			0
Transfer (from)to life time expected credit loss		(35,665	)		35,665			0			(35,505	)		35,505			0
Net increase and decrease (*)		6,496,445			(98,959	)		6,397,486			2,653,129			785			2,653,914
Ending balance	W	63,654,133			152,786			63,806,919			49,910,733			36,290			49,947,023

(*) Included the effects from changes in purchase, disposal, repayment, foreign exchange rate, amortization of fair value adjustments recognized through business combination accountings.

F-12

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

11. Securities at fair value through other comprehensive income and securities at amortized cost (continued)

(c) Changes in allowance for credit loss of debt securities at fair value through other comprehensive income and securities at amortized cost for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Debt securities at fair value through other comprehensive income									Debt securities at amortized cost
	12 months expected credit loss			Life time expected credit loss			Total			12 months expected credit loss			Life time expected credit loss			Total
Beginning balance	W	27,581			655			28,236			9,759			11			9,770
Transfer (from)to 12-month expected credit loss		22			(22	)		0			0			0			0
Transfer (from)to life time expected credit loss		(193	)		193			0			0			0			0
Provision (reversal)		3,480			349			3,829			1,086			(11	)		1,075
Disposal and others (*)		(8,397	)		(497	)		(8,894	)		(359	)		0			(359	)
Ending balance	W	22,493			678			23,171			10,486			0			10,486
	2021
	Debt securities at fair value through other comprehensive income									Debt securities at amortized cost
	12 months expected credit loss			Life time expected credit loss			Total			12 months expected credit loss			Life time expected credit loss			Total
Beginning balance	W	22,493			678			23,171			10,486			0			10,486
Transfer (from)to 12-month expected credit loss		33			(33	)		0			0			0			0
Transfer (from)to life time expected credit loss		(63	)		63			0			(216	)		216			0
Provision (reversal)		19,722			(25	)		19,697			5,065			240			5,305
Disposal and others (*)		(5,302	)		(80	)		(5,382	)		1,149			7			1,156
Ending balance	W	36,883			603			37,486			16,484			463			16,947

(*) Included the effects from changes in foreign exchange rate, debt restructuring, investment conversion.

(d) Gain or loss on disposal of securities at fair value through other comprehensive income and securities at amortized cost for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Gain on disposal of securities at FVOCI	W	301,920			131,189
Loss on disposal of securities at FVOCI		(28,127	)		(45,593	)
Gain on disposal of securities at amortized cost (*)		42			24
Loss on disposal of securities at amortized cost (*)		(67	)		(343	)
	W	273,768			85,277

(*) The issuers of those securities have exercised the early redemption options and the others.

F-12

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

11. Securities at fair value through other comprehensive income and securities at amortized cost (continued)

(e) Income or loss on equity securities at fair value through other comprehensive income

i) The Group recognizes dividends, amounting to W 21,503 million and W 24,216 million, related to equity securities at fair value through other comprehensive income for the years ended December 31, 2020 and 2021, respectively.

ii) The details of disposal of equity securities at fair value through other comprehensive income for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
	Stocks acquired by investment conversion
Fair value at the date of disposal	W	69,969			84,624
Cumulative net gain at the time of disposal		(38,380	)		(42,058	)

(*) The reason for the disposal is the disposal of stocks acquired by investment conversion.

12. Loans at amortized cost, etc.

(a) Loans at amortized cost for configuration by customer as of December 31, 2020 and 2021 are as follows:

	2020			2021
Retail loans	W	146,789,916			159,006,999
Corporate loans		179,011,251			199,465,807
Public and other loans		3,734,629			3,468,917
Loans between banks		5,492,400			3,849,565
Credit card receivables		23,759,422			25,999,576
		358,787,618			391,790,864
Discount		(21,948	)		(30,001	)
Deferred loan origination costs		516,815			543,361
		359,282,485			392,304,224
Less: Allowance for credit loss		(3,060,966	)		(3,167,068	)
	W	356,221,519			389,137,156

F-12

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

(b) Changes in carrying value of loans at amortized cost, etc. as of December 31, 2020 and 2021 are as follows:

i) Loans at amortized cost

	2020
	Retail									Corporate									Credit card									Others
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	126,586,551			7,870,908			415,892			135,591,673			24,661,662			1,001,587			19,419,606			4,124,576			444,235			5,167,393			629,468			16,263			325,929,814
Transfer (from) to 12 months expected credit losses		2,891,847			(2,885,809	)		(6,038	)		6,009,242			(6,006,226	)		(3,016	)		351,253			(350,651	)		(602	)		15,976			(15,976	)		0			0
Transfer (from) to lifetime expected credit losses		(3,916,612	)		3,944,714			(28,102	)		(9,015,428	)		9,027,416			(11,988	)		(571,971	)		572,291			(320	)		(85,337	)		85,337			0			0
Transfer (from) to credit- impaired financial assets		(189,681	)		(157,637	)		347,318			(195,863	)		(441,969	)		637,832			(114,388	)		(191,777	)		306,165			(3,964	)		(37	)		4,001			0
Net increase and decrease (*1)		13,457,675			(556,142	)		81,131			20,679,401			(1,030,466	)		15,944			(115,242	)		(202,750	)		290,907			3,311,105			(33,596	)		2,402			35,900,369
Charge off (*2)		0			0			(254,723	)		0			0			(317,514	)		0			0			(572,008	)		0			0			(2,531	)		(1,146,776	)
Disposal		(313,150	)		(897	)		(89,051	)		(731,001	)		0			(264,913	)		0			0			0			0			0			(1,910	)		(1,400,922	)
Ending balance	W	138,516,630			8,215,137			466,427			152,338,024			26,210,417			1,057,932			18,969,258			3,951,689			468,377			8,405,173			665,196			18,225			359,282,485

(*1) The amount is due to execution, collection, debt restructuring, investment conversion, exchange rate fluctuation, etc.

(*2) The amount of uncollected loans currently in recovery (principal and interest) is W 10,436,407 million, which is written off as of December 31, 2020.

F-12

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

ii) Due from banks at amortized cost and other financial assets

	2020
	12 month expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	43,245,002			106,517			45,965			43,397,484
Transfer (from) to 12 month expected credit losses		15,157			(15,123	)		(34	)		0
Transfer (from) to lifetime expected credit losses		(25,839	)		25,848			(9	)		0
Transfer (from) to credit- impaired financial assets		(1,628	)		(7,342	)		8,970			0
Net increase and decrease (*)		8,633,124			(10,001	)		30,490			8,653,613
Charge off		0			0			(26,814	)		(26,814	)
Disposal		0			0			(910	)		(910	)
Business combination(Note 47)		15,982			0			0			15,982
Ending balance	W	51,881,798			99,899			57,658			52,039,355

(*) The amount is due to execution, collection, debt restructuring, investment conversion, exchange rate fluctuation, etc.

F-12

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

i) Loans at amortized cost

	2021
	Retail									Corporate									Credit card									Others
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	138,516,630			8,215,137			466,427			152,338,024			26,210,417			1,057,932			18,969,258			3,951,689			468,377			8,405,173			665,196			18,225			359,282,485
Transfer (from) to 12 months expected credit losses		3,200,712			(3,192,315	)		(8,397	)		6,566,663			(6,494,160	)		(72,503	)		390,658			(390,593	)		(65	)		43,343			(43,343	)		0			0
Transfer (from) to lifetime expected credit losses		(3,482,541	)		3,516,278			(33,737	)		(9,636,590	)		9,659,114			(22,524	)		(674,961	)		675,063			(102	)		(94,270	)		94,272			(2	)		0
Transfer (from) to credit- impaired financial assets		(194,192	)		(134,008	)		328,200			(230,972	)		(322,361	)		553,333			(110,704	)		(158,036	)		268,740			(896	)		(2	)		898			0
Net increase and decrease (*1)		12,821,174			(255,318	)		38,153			20,922,205			(222,364	)		(146,801	)		2,772,167			88,680			287,576			(1,810,906	)		(47,466	)		(108	)		34,446,992
Charge off (*2)		0			0			(279,789	)		0			0			(299,661	)		0			0			(566,944	)		0			0			(1,218	)		(1,147,612	)
Disposal		0			(724	)		(53,241	)		(84,433	)		(180	)		(139,019	)		0			0			0			0			0			(44	)		(277,641	)
Ending balance	W	150,861,783			8,149,050			457,616			169,874,897			28,830,466			930,757			21,346,418			4,166,803			457,582			6,542,444			668,657			17,751			392,304,224

(*1) The amount is due to execution, collection, debt restructuring, investment conversion, exchange rate fluctuation, etc.

(*2) The amount of uncollected loans currently in recovery (principal and interest) is W 10,613,730 million, which is written off as of December 31, 2021.

F-1

30

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

ii) Due from banks at amortized cost and other financial assets

	2021
	12 month expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	51,881,798			99,899			57,658			52,039,355
Transfer (from) to 12 month expected credit losses		13,111			(13,079	)		(32	)		0
Transfer (from) to lifetime expected credit losses		(29,026	)		29,048			(22	)		0
Transfer (from) to credit- impaired financial assets		(1,049	)		(11,797	)		12,846			0
Net increase and decrease (*)		(4,315,675	)		580			37,428			(4,277,667	)
Charge off		0			0			(27,929	)		(27,929	)
Disposal		0			(1	)		(855	)		(856	)
Ending balance	W	47,549,159			104,650			79,094			47,732,903

(*) The amount is due to execution, collection, debt restructuring, investment conversion, exchange rate fluctuation, etc.

F-1

31

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

(c) Changes in allowance for credit loss of loans at amortized cost and other financial assets as of December 31, 2020 and 2021 are as follows:

i) Loans at amortized cost

	2020
	Retail									Corporate									Credit cards									Others
	12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	133,412			91,025			169,038			419,752			531,286			469,207			173,884			365,248			314,850			7,501			7,481			2,151			2,684,835
Transfer (from) to 12 months expected credit losses		20,082			(19,487	)		(595	)		67,590			(66,777	)		(813	)		22,148			(21,591	)		(557	)		164			(164	)		0			0
Transfer (from) to lifetime expected credit losses		(9,077	)		18,772			(9,695	)		(49,727	)		55,512			(5,785	)		(11,568	)		11,834			(266	)		(242	)		242			0			0
Transfer (from) to credit- impaired financial assets		(3,247	)		(9,010	)		12,257			(1,590	)		(52,383	)		53,973			(901	)		(2,041	)		2,942			(13	)		(9	)		22			0
Provision (reversal)		5,253			(5,319	)		199,765			149,400			211,341			265,557			103,793			210,592			137,254			4,188			2,048			6,823			1,290,695
Charge off		0			0			(254,723	)		0			0			(317,514	)		0			0			(572,008	)		0			0			(2,531	)		(1,146,776	)
Amortization of discount		0			0			(5,630	)		0			0			(15,151	)		0			0			(7,807	)		0			0			0			(28,588	)
Disposal		(343	)		(8	)		(18,605	)		(726	)		0			(24,473	)		0			0			0			0			0			(182	)		(44,337	)
Collection		0			0			85,819			0			0			63,822			0			0			200,234			0			0			134			350,009
Others (*)		2,954			10,075			20,809			(16,085	)		(13,896	)		(7,579	)		(83,448	)		(189,589	)		232,048			(164	)		3			0			(44,872	)
Ending balance	W	149,034			86,048			198,440			568,614			665,083			481,244			203,908			374,453			306,690			11,434			9,601			6,417			3,060,966

(*) Other changes are due to debt restructuring, investment conversion and changes in foreign exchange rate.

F-13

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

ii) Due from banks at amortized cost and other financial assets

	2020
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	33,987			7,272			37,590			78,849
Transfer (from) to 12 months expected credit losses		286			(273	)		(13	)		0
Transfer (from) to lifetime expected credit losses		(259	)		264			(5	)		0
Transfer (from) to credit- impaired financial assets		(256	)		(1,492	)		1,748			0
Provision (reversal)		(2,143	)		2,650			33,278			33,785
Charge off		0			0			(26,814	)		(26,814	)
Disposal		(2	)		0			(32	)		(34	)
Collection		0			0			2,166			2,166
Others (*2)		4,078			(140	)		1,012			4,950
Ending balance	W	35,691			8,281			48,930			92,902

(*1) It includes allowances for expected credit losses of deposits at amortized cost and other financial assets.

(*2) Other changes are due to debt restructuring, investment conversion and changes in foreign exchange rate.

F-13

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

i) Loans at amortized cost

	2021
	Retail									Corporate									Credit cards									Others
	12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			12 month expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	149,034			86,048			198,440			568,614			665,083			481,244			203,908			374,453			306,690			11,434			9,601			6,417			3,060,966
Transfer (from) to 12 months expected credit losses		20,528			(19,794	)		(734	)		85,187			(79,571	)		(5,616	)		26,178			(26,149	)		(29	)		200			(200	)		0			0
Transfer (from) to lifetime expected credit losses		(9,078	)		21,383			(12,305	)		(55,055	)		63,834			(8,779	)		(14,471	)		14,548			(77	)		(359	)		359			0			0
Transfer (from) to credit- impaired financial assets		(3,203	)		(7,112	)		10,315			(1,830	)		(48,468	)		50,298			(1,003	)		(1,503	)		2,506			(7	)		0			7			0
Provision (reversal)		10,812			(1,321	)		154,260			(68,403	)		135,401			263,327			75,981			202,000			137,456			(1,342	)		(503	)		(598	)		907,070
Charge off		0			0			(279,789	)		0			0			(299,661	)		0			0			(566,944	)		0			0			(1,218	)		(1,147,612	)
Amortization of discount		0			0			(4,651	)		0			0			(12,894	)		0			0			7,973			0			0			0			(9,572	)
Disposal		0			(1	)		(13,617	)		(6	)		0			(14,528	)		0			0			0			0			0			(1	)		(28,153	)
Collection		0			0			103,316			0			0			76,245			0			0			207,631			0			0			887			388,079
Others (*)		5,912			11,209			34,571			1,793			5,973			(9,310	)		(85,882	)		(162,272	)		194,026			269			1			0			(3,710	)
Ending balance	W	174,005			90,412			189,806			530,300			742,252			520,326			204,711			401,077			289,232			10,195			9,258			5,494			3,167,068

(*) Other changes are due to debt restructuring, investment conversion and changes in foreign exchange rate.

F-13

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

12. Loans at amortized cost, etc. (continued)

ii) Due from banks at amortized cost and other financial assets

	2021
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			Total
Beginning balance	W	35,691			8,281			48,930			92,902
Transfer (from) to 12 months expected credit losses		241			(230	)		(11	)		0
Transfer (from) to lifetime expected credit losses		(284	)		288			(4	)		0
Transfer (from) to credit- impaired financial assets		(290	)		(2,012	)		2,302			0
Provision (reversal)		8,555			1,426			42,181			52,162
Charge off		0			0			(27,929	)		(27,929	)
Disposal		0	��		0			(40	)		(40	)
Collection		0			0			2,357			2,357
Others (*2)		139,995			255			2,257			142,507
Ending balance	W	183,908			8,008			70,043			261,959

(*1) It includes allowances for expected credit losses of deposits at amortized cost and other financial assets.

(*2) Other changes are due to debt restructuring, investment conversion and changes in foreign exchange rate.

(d) Changes in deferred loan origination costs for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance	W	534,530			516,815
Loan origination		257,034			255,482
Amortization, etc.		(274,749	)		(228,936	)
Ending balance	W	516,815			543,361

13. Property and equipment

(a) Details of property and equipment as of December 31, 2020 and 2021 are as follows:

	2020
	Acquisition cost		Accumulated depreciation			Carrying value
Land	W	2,219,227		0			2,219,227
Buildings		1,230,187		(419,426	)		810,761
Right-of-use assets		1,016,183		(425,766	)		590,417
Other assets		2,197,485		(1,828,193	)		369,292
	W	6,663,082		(2,673,385	)		3,989,697

F-13

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

13. Property and equipment (continued)

	2021
	Acquisition cost		Accumulated depreciation			Accumulated Impairment			Carrying value
Land	W	2,173,134		0			0			2,173,134
Buildings		1,210,401		(446,321	)		(7,594	)		756,486
Right-of-use assets		1,229,169		(621,042	)		0			608,127
Other assets		2,294,740		(1,786,323	)		0			508,417
	W 6,907,444		(2,853,686)			(7,594)			4,046,164

(b) Changes in property and equipment for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Land			Buildings			Right-of-use assets			Others			Total
Beginning balance	W	1,815,112			790,449			1,112,796			364,971			4,083,328
Acquisition (*1)		78,066			56,828			305,958			140,958			581,810
Disposal		(92,683	)		(46,897	)		(24,173	)		(2,398	)		(166,151	)
Depreciation		—			(56,041	)		(286,028	)		(133,437	)		(475,506	)
Amounts transferred from(to) investment property		55,316			(51,252	)		—			—			4,064
Amounts transferred from(to) intangible assets		—			—			—			3,738			3,738
Amounts transferred from(to) non-current assets held for sale (*2)		(31,622	)		(11	)		—			—			(31,633	)
Amounts transferred from(to) right-of-use assets		395,346			118,091			(513,437	)		—			—
Others		—			—			0			(2,235	)		(2,235	)
Effects of foreign currency adjustments		(308	)		(406	)		(5,380	)		(2,459	)		(8,553	)
Business combination (Note 47)		—			—			681			154			835
Ending balance	W	2,219,227			810,761			590,417			369,292			3,989,697

(*1) W 56,575 million transferred from assets-under-construction is included.

(*2) Includes buildings, land, etc.

F-13

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

13. Property and equipment (continued)

	2021
	Land			Buildings			Right-of-use assets			Others			Total
Beginning balance	W	2,219,227			810,761			590,417			369,292			3,989,697
Acquisition (*1)		513			32,777			316,925			289,614			639,829
Disposal		(709	)		(1,378	)		(26,930	)		(5,086	)		(34,103	)
Depreciation (*2)		0			(49,646	)		(289,585	)		(154,104	)		(493,335	)
Impairment		0			(7,594	)		0			0			(7,594	)
Amounts transferred from(to) investment property		(46,046	)		(27,727	)		0			0			(73,773	)
Amounts transferred from(to) intangible assets		0			0			0			3,676			3,676
Amounts transferred from(to) non-current assets held for sale (*3)		(169	)		(853	)		0			0			(1,022	)
Effects of foreign currency adjustments		318			146			17,300			5,025			22,789
Ending balance	W	2,173,134			756,486			608,127			508,417			4,046,164

(*1) W 18,748 million transferred from assets-under-construction is included.

(*2) Included in general administrative expense and other operating income(loss) of the consolidated statements of comprehensive income.

(*3) Includes buildings, land, etc.

(c) Insured assets and liability insurance as of December 31, 2021 are as follows:

	December 31, 2021
Type of insurance	Insured assets and objects	Amount covered		Insurance company
Comprehensive insurance for financial institutions	Cash(including ATM)		25,500	Samsung Fire & Marine Insurance Co., Ltd., etc.
Comprehensive Property insurance	Property Total Risk, Machine Risk, General Liability Collateral		1,920,218	Samsung Fire & Marine Insurance Co., Ltd., etc.
Fire insurance	Business property and real estate		26,164	Meritz Fire & Marine Insurance Co., Ltd., etc.
Compensation liability insurance for officers	Officer liability of executives		50,000	Meritz Fire & Marine Insurance Co., Ltd., etc.
Compensation liability insurance for employee accident	Employee		79,798	Meritz Fire & Marine Insurance Co., Ltd., etc.
Burglary insurance	Cash and securities		79,755	Samsung Fire & Marine Insurance Co., Ltd., etc.
Others	Personal information liability insurance etc.		33,478	Samsung Fire & Marine Insurance Co., Ltd., etc.

(*) Aside from the insurance mentioned above, the Group has entered into car insurance, medical insurance, and property insurance.

F-13

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

14. Intangible assets

(a) Details of intangible assets as of December 31, 2020 and 2021 are as follows:

	2020		2021
Goodwill	W	4,689,792		4,670,134
Software		144,535		192,582
Development cost		183,592		229,148
Others		462,700		552,918
	W 5,480,619		5,644,782

(b) Changes in intangible assets for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Goodwill			Software			Development cost			Others			Total
Beginning balance	W	4,690,049			129,235			144,100			595,330			5,558,714
Acquisition		0			64,195			105,101			64,079			233,375
Disposal and Write-off		0			(1	)		(75	)		(26,785	)		(26,861	)
Amounts transferred from(to) property and equipment		0			1,415			(7,820	)		2,667			(3,738	)
Impairment (*1)(*2)		(14,235	)		0			0			(27,075	)		(41,310	)
Amortization (*3)		0			(49,159	)		(57,690	)		(145,756	)		(252,605	)
Effects of changes in foreign exchange rate		0			(1,150	)		(24	)		(222	)		(1,396	)
Business combination (Note 47)		13,978			0			0			462			14,440
Ending balance	W	4,689,792			144,535			183,592			462,700			5,480,619

(*1) The number of customer contacts decreased due to the decrease in the base interest rate in Indonesia in 2020 and the impact of COVID-19. Therefore, reclaimable amount decreased due to reduced loan and increased provisioning by corporate borrowers. PT Bank Shinhan Indonesia’s CGUs can recover W 409,968 million. The carrying value exceeding the recoverable amount of PT Bank Shinhan Indonesia’s CGUs is W 14,379 million. The Group recognized as impairment losses of W 14,235 million based on the 99% stake the Group owns.

(*2) The Group reviewed the recoverable value of intangible assets related to the rights to be the depository bank of local governments due to the performance below forecast and future prospects. For the year ended December 31, 2020, the impairment loss amounted to W 27,133 million. The impairment loss is included in the non-operating expenses in the consolidated statement of comprehensive income.

(*3) Included in general administrative expense and other operating income (expense) of the consolidated statements of comprehensive income.

F-13

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

14. Intangible assets (continued)

	2021
	Goodwill			Software			Development cost			Others			Total
Beginning balance	W	4,689,792			144,535			183,592			462,700			5,480,619
Acquisition		0			103,929			127,993			225,228			457,150
Disposal and Write-off		0			(2,341	)		(719	)		(5,349	)		(8,409	)
Amounts transferred from(to) property and equipment		0			0			(3,676	)		0			(3,676	)
Impairment (*1)		(33,509	)		0			(270	)		(765	)		(34,544	)
Amortization (*2)		0			(55,531	)		(77,734	)		(129,615	)		(262,880	)
Effects of changes in foreign exchange rate		0			1,990			(38	)		719			2,671
Business combination (Note 47)		13,851			0			0			0			13,851
Ending balance	W	4,670,134			192,582			229,148			552,918			5,644,782

(*1) Goodwill impairment has occurred at Shinhan Bank Indonesia within the banking sector and PT Shinhan Sekuritas Indonesia within the securities sector among the cash-generating units. After the impairment test for goodwill of Shinhan Bank Indonesia, among the carrying value exceeding recoverable amount of cash-generating unit, which is W 32,396 million, the Group has recognized W 32,072 million as an impairment of goodwill which is 99% of the Group’s total stake. After the impairment test for goodwill of PT Shinhan Sekuritas Indonesia, among the carrying value exceeding recoverable amount of cash-generating unit, which is W 2,595 million, the Group has recognized W 2,569 million as an impairment of goodwill which is 99% of the Group’s total stake. This has occurred as a result of the persistent low-interest rate in Indonesia, the impact of COVID-19, and the decrease in the recoverable amount due to increased provisions of corporate borrowers. For the year ended December 31, 2021, the decrease in the asset’s recoverable amount in comparison to the previous year is W 56,587 million and W 8,715 million, respectively. The amount of goodwill impairment recognized is included in the non-operating expenses of the consolidated statement of comprehensive income.

(*2) Included in general administrative expense and other operating income (expense) of the consolidated statements of comprehensive income.

(c) Goodwill

i) Goodwill allocated in the Group’s CGUs as of December 31, 2020 and 2021 is as follows:

	2020		2021
Banking	W	795,823		764,883
Credit card		2,880,383		2,880,383
Securities		7,904		5,335
Life insurance		839,947		853,798
Others		165,735		165,735
	W	4,689,792		4,670,134

F-13

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

14. Intangible assets (continued)

ii) Changes in goodwill for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance	W	4,690,049			4,689,792
Acquisitions through business combinations (*1)(*2)		13,978			13,851
Impairment losses		(14,235	)		(33,509	)
Ending balance	W	4,689,792			4,670,134

(*1) It is the goodwill recognized by Shinhan Financial Plus, a subsidiary acquired in the period, from a business transfer for the GF division and IMGA division of Leaders Financial Marketing (Note 47).

(*2) It is the goodwill recognized by the Group as it newly acquired the Shinhan Venture Investment Co., Ltd. for the year ended December 31, 2020 (Note 47).

iii) Goodwill impairment test

The recoverable amounts of each CGU are evaluated based on their respective value in use.

• Explanation on evaluation method

The income approach is applied when evaluating the recoverable amounts based on value in use, considering the characteristics of each unit or group of CGU.

• Projection period

When evaluating the value in use, 4.5 years~5.5 years of cash flow estimates are used in projection and the value thereafter is reflected as terminal value. 99 years of cash flow estimates for Shinhan Life Insurance Co., Ltd. is applied and the present value of the future cash flows thereafter is not applied as it is not significant.

• Discount rates and terminal growth rates

The required rates of return expected by shareholders are applied to the discount rates. It is calculated in consideration of which comprises a risk-free interest rate, a market risk premium and systemic risk (beta factor). In addition, terminal growth rate is estimated based on inflation rate.

Discount rates and terminal growth rates applied to each CGU are as follows:

	Discount rate(%)	Terminal growth rate(%)
Banking	9.7~12.1	1.0~2.0
Credit card	9.3~11.8	1.0~2.0
Securities	11.6~12.6	2.0
Life insurance	7.5~12.7	—
Others	10.8~14.9	1.0

F-1

40

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statement

s

(In millions of won)

14. Intangible assets (continued)

iv) Key assumptions

Key assumptions used in the discounted cash flow calculations of CGUs (other than life insurance components) are as follows:

	2021		2022		2023		2024		2025		2026
CPI growth(%)		2.2		1.7		1.4		1.7		1.5		1.5
Private consumption growth(%)		3.1		2.6		2.5		2.7		2.6		2.6
Real GDP growth(%)		3.8		2.7		2.5		3.0		2.8		2.8

Key assumptions used in the discounted cash flow calculations of life insurance (Shinhan life insurance) components are as follows:

	Key assumptions
Rate of return on investment(%)		3.1
Risk-based capital ratio(%)		150.0

v) Total recoverable amount and total carrying value of CGUs to which goodwill has been allocated, are as follows:

	Amount
Total recoverable amount	W	51,932,888
Total carrying value (*1)		45,482,263
	W	6,450,625

(*1) It is the carrying value after reflecting the impairment loss in the banking and securities sector.

15. Investments in associates

(a) Investments in associates as of December 31, 2020 and 2021 are as follows:

Investees	Country	Reporting date	Ownership (%)
			2020		2021
BNP Paribas Cardif Life Insurance (*1)(*2)	Korea	September 30		14.99		14.99
Songrim Partners (*3)(*4)	Korea	December 31		35.34		35.34
Partners 4th Growth Investment Fund (*1)	Korea	September 30		25.00		25.00
KTB Newlake Global Healthcare PEF (*1)	Korea	September 30		30.00		30.00
Daekwang Semiconductor Co., Ltd. (*7)	Korea	—		20.94		—
Shinhan-Neoplux Energy Newbiz Fund (*5)	Korea	December 31		31.66		31.66
Shinhan-Albatross tech investment Fund (*5)	Korea	December 31		49.97		50.00
VOGO Debt Strategy Qualified IV Private	Korea	December 31		20.00		20.00
Shinhan-Midas Donga Secondary Fund (*6)	Korea	December 31		50.00		50.00
ShinHan – Soo Young Entrepreneur Investment Fund No.1	Korea	December 31		24.00		24.00

F-1

41

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
Shinhan Praxis K-Growth Global Private Equity Fund (*9)	Korea	December 31		18.87		18.87
Credian Healthcare Private Equity Fund II (*7)	Korea	—		34.07		—
Kiwoom Milestone Professional Private Real Estate Trust 19	Korea	December 31		50.00		50.00
AIP EURO Green Private Real Estate Trust No.3	Korea	December 31		21.28		21.28
Shinhan Global Healthcare Fund 1 (*9)	Korea	December 31		4.41		4.41
JB Power TL Investment Type Private Placement Special Asset Fund 7 (*7)	Korea	—		33.33		—
KB NA Hickory Private Special Asset Fund	Korea	December 31		37.50		37.50
Koramco Europe Core Private Placement Real Estate Fund No.2-2	Korea	December 31		44.02		44.02
BNP Paribas Cardif General Insurance (*9)	Korea	December 31		7.46		5.46
Hermes Private Investment Equity Fund	Korea	December 31		29.17		29.17
Shinhan-Nvestor Liquidity Solution Fund	Korea	December 31		24.92		24.92
Shinhan AIM FoF Fund 1a	Korea	December 31		25.00		25.00
IGIS Global Credit Fund 150-1	Korea	December 31		25.00		25.00
Partner One Value up I Private Equity Fund	Korea	December 31		27.91		27.91
Genesis No.1 Private Equity Fund	Korea	December 31		22.80		22.80
Korea Omega Project Fund III	Korea	December 31		23.53		23.53
Soo Delivery Platform Growth Fund	Korea	December 31		30.00		30.00
Genesis North America Power Company No.1 PEF	Korea	December 31		39.96		40.03
Hyungje art printing (*12)	Korea	—		31.54		—
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3	Korea	December 31		23.33		23.33
Korea Finance Security (*1),(*9)	Korea	September 30		14.91		14.91
Multimedia Tech Co.Ltd. (*12)	Korea	—		21.06		—
MIEL CO.,LTD. (*3),(*4)	Korea	December 31		28.77		28.77
AIP Transportation Specialized Privately Placed Fund Trust #1	Korea	December 31		35.73		35.73
DB Epic Convertiblebond Private Trust No.2 (*7)	Korea	—		50.98		—
E&Healthcare Investment Fund No.6	Korea	December 31		21.05		21.05
One Shinhan Global Fund 1 (*5)	Korea	December 31		19.96		20.56
Kiwoom-Shinhan Innovation Fund I (*6)	Korea	December 31		50.00		50.00
Daishin-K&T New Technology Investment Fund	Korea	December 31		31.25		31.25
Midas Asset Global CRE Debt Private Fund No.6	Korea	December 31		41.16		41.16
Richmond Private Investment Trust No.82 (*7)	Korea	—		60.00		—
Tiger Alternative Real Estate Professional Private5 (*7)	Korea	—		48.71		—
Samchully Midstream Private Placement Special Asset Fund 5-4	Korea	December 31		42.92		42.92
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3	Korea	December 31		20.00		20.00
NH-Amundi Global Infrastructure Trust 14	Korea	December 31		30.00		30.00
Jarvis Memorial Private Investment Trust 1 (*6)	Korea	December 31		99.01		99.01

F-14

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
Mastern Private Private Investment Trust 68 (*7)	Korea	—		53.76		—
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37 (*8)	Korea	December 31		60.00		60.00
Milestone Private Real Estate Fund 3	Korea	December 31		32.06		32.06
IGIS Private Real Estate Investment Trust 286 (*7)	Korea	—		41.44		—
Nomura-Rifa Private Real Estate Investment Trust 31	Korea	December 31		31.31		31.31
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2	Korea	December 31		21.27		21.27
Hana Semiconductor New Technology Fund (*7)	Korea	—		24.30		—
J&Magnet Startup Venture Specialized Private Equity Fund (*7)	Korea	—		24.39		—
Cape IT Fund No.3	Korea	December 31		32.89		32.89
FuturePlay-Shinhan TechInnovation Fund 1 (*6)	Korea	December 31		50.00		50.00
Stonebridge Corporate 1st Fund	Korea	December 31		44.12		44.12
Vogo Realty Partners Private Real Estate Fund V	Korea	December 31		21.64		21.64
Korea Credit Bureau (*1),(*9)	Korea	September 30		9.00		9.00
Goduck Gangil1 PFV Co., Ltd. (*1),(*9)	Korea	September 30		1.04		1.04
SBC PFV Co., Ltd. (*1),(*10)	Korea	September 30		25.00		25.00
NH-amundi global infra private fund 16	Korea	December 31		50.00		50.00
IMM Global Private Equity Fund	Korea	December 31		33.00		33.00
HANA Alternative Estate Professional Private122 (*8)	Korea	December 31		75.19		74.02
Hanwha-Incus Plus New Technology Fund No.1 (*7)	Korea	—		42.64		—
SH Corporate Professional Investment Type Private Security Investment Trust No.7	Korea	December 31		45.96		45.96
SH BNCT Professional Investment Type Private Special Asset Investment Trust (*11)	Korea	December 31		72.39		72.50
PSA EMP Private Equity Fund (*7)	Korea	—		28.99		—
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24 (*8)	Korea	December 31		52.28		52.28
BRAIN DO PROFESSIONALE PRIVATE No. 27	Korea	December 31		29.13		29.13
UI Venture Fund 7th (*7)	Korea	—		24.39		—
Sparklabs-Shinhan Opportunity Fund 1	Korea	December 31		49.50		49.50
BNW Tech-Innovation Private Equity Fund	Korea	December 31		29.85		29.85
IGIS Real-estate Private Investment Trust No.33	Korea	December 31		40.86		40.86
Findvalue PreIPO 6th Professional Investment Type Private Investment Trust (*7)	Korea	—		31.58		—
WWG Global Real Estate Investment Trust no.4	Korea	December 31		29.55		29.55
Goduck Gangil10 PFV Co., Ltd (*1),(*9)	Korea	September 30		19.90		19.90
Fidelis Global Private Real Estate Trust No.2 (*8)	Korea	December 31		78.26		78.26
IGIS PRIVATE REAL ESTATE TRUST NO.331 (*7)	Korea	—		30.77		—
AIP EURO PRIVATE REAL ESTATE TRUST No. 12	Korea	December 31		28.70		28.70
Shinhan Healthcare Fund 2 (*9)	Korea	December 31		13.68		13.68
Pebblestone CGV Private Real Estate Trust No.1	Korea	December 31		48.53		48.53

F-14

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
SH Corporate Professional Investment Type Private Security Investment Trust No.45	Korea	December 31		—		43.65
Shinhan AIM Real Estate Fund No.2	Korea	December 31		30.00		30.00
Shinhan AIM Real Estate Fund No.1	Korea	December 31		21.01		21.01
SH Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust	Korea	December 31		22.02		22.02
SH Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust	Korea	December 31		29.19		29.19
SH Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2 (*8)	Korea	December 31		71.43		71.43
SH Japan Photovoltaic Private Special Asset Investment Trust No.1 (*7)	Korea	—		30.00		—
Korea Omega-Shinhan Project Fund I (*6)	Korea	December 31		50.00		50.00
ST-Bonanja Food tech	Korea	December 31		38.83		38.83
New Green Shinhan Mezzanine Fund (*7)	Korea	—		39.22		—
KORAMKO-Daum Professional Private Investment Trust No.12 (*7)	Korea	—		33.33		—
Samsung SRA Real Estate Professional Private 45	Korea	December 31		25.00		25.00
IBK Global New Renewable Energy Special Asset Professional Private2	Korea	December 31		28.98		28.98
VS Cornerstone Fund	Korea	December 31		41.18		41.18
Aone Mezzanine Opportunity Professional Private (*8)	Korea	December 31		66.12		66.09
KiwoomUnicorn3 New Technology Business Investment Fund (*7)	Korea	—		21.28		—
Multi Asset The United States Thortons Professional Private1 (*7)	Korea	—		25.00		—
Kiwoom Milestone US Real Estate Professional Private20 (*7)	Korea	—		75.27		—
NH-Amundi US Infrastructure Private Fund2	Korea	December 31		25.91		25.91
KB Distribution Private Real Estate1 (*8)	Korea	December 31		62.00		62.00
SH Jigae Namsan BTO professional Investment Type Private Special Asset Investment Trust (*7)	Korea	—		28.93		—
SH Japan Photovoltaic Private Special Asset Investment Trust No.2	Korea	December 31		30.00		30.00
Kakao-Shinhan 1st TNYT Fund	Korea	December 31		48.62		48.62
IMM Special Situation 1-2 PRIVATE EQUITY FUND	Korea	December 31		20.02		20.00
Pacific Private Placement Real Estate Fund No.40	Korea	December 31		24.73		24.73
Mastern Private Real Estate Loan Fund No.2	Korea	December 31		33.57		33.57
LB Scotland Amazon Fulfillment Center Fund 29 (*8)	Korea	December 31		70.14		70.14
JR AMC Hungary Budapest Office Fund 16	Korea	December 31		32.57		32.57
IGIS 372 Real Estate Professional Private (*7)	Korea	—		28.39		—
EDNCENTRAL Co.,Ltd. (*9)	Korea	December 31		19.87		19.87

F-14

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statement

s

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
KoFC-Neoplux R&D-Biz Creation 2013-1 Venture Capital Fund (*7)	Korea	—		19.00		—
Future-Creation Neoplux Venture Capital Fund (*5)	Korea	December 31		16.25		16.25
Gyeonggi-Neoplux Superman Fund (*5)	Korea	December 31		21.76		21.76
NewWave 6th Fund (*5)	Korea	December 31		30.00		30.00
KTC-NP Growth Champ 2011-2 Private Equity Fund (*5)	Korea	December 31		5.56		5.56
Neoplux No.3 Private Equity Fund (*5)	Korea	December 31		10.00		10.00
PCC Amberstone Private Equity Fund I	Korea	December 31		21.67		21.67
KIAMCO POWERLOAN TRUST 4TH	Korea	December 31		47.37		47.37
Mastern Opportunity Seeking Real Estate Fund II	Korea	December 31		20.00		20.00
AION ELFIS PROFESSIONAL PRIVATE 1	Korea	December 31		20.00		20.00
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business	Korea	December 31		29.68		29.68
Neoplux Market-Frontier Secondary Fund (*5)	Korea	December 31		19.74		19.74
Harvest Private Equity Fund II	Korea	December 31		22.06		22.06
Synergy Green New Deal 1st New Technology Business Investment Fund	Korea	December 31		28.17		28.17
KAIM Real-estate Private Investment Trust 20	Korea	December 31		38.46		38.46
KIAMCO Vietnam Solar Special Asset Private Investment Trust (*6)	Korea	December 31		50.00		50.00
Daishin New Technology Investment Fund 5th	Korea	December 31		23.44		23.44
CSQUARE SNIPER PROFESSIONAL PRIVATE 10 (*8)	Korea	December 31		62.50		62.50
Acurus Hyundai Investment Partners New Technology	Korea	December 31		26.79		26.79
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1 (*8)	Korea	December 31		97.85		97.10
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2 (*8)	Korea	December 31		97.85		97.10
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45	Korea	December 31		25.00		25.00
IGIS Professional Investors Private Investment Real Estate Investment LLC No.395 (*7)	Korea	—		58.82		—
SHINHAN-NEO Core Industrial Technology Fund (*5)	Korea	December 31		49.75		49.75
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2	Korea	December 31		30.00		30.00
SIMONE Mezzanine Fund No.3	Korea	December 31		29.38		29.38
Eum Private Equity Fund No.7	Korea	December 31		21.00		21.00
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund	Korea	December 31		25.00		25.00
Kiwoom Hero No.4 Private Equity Fund	Korea	December 31		21.05		21.05
Vogo Canister Professional Trust Private Fund I	Korea	December 31		36.68		36.53
SW-S Fund	Korea	December 31		—		30.30

F-14

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
CL Buyout 1st PEF	Korea	December 31		—		21.43
Timefolio The Venture-V second	Korea	December 31		—		20.73
Newlake Growth Capital Partners2 PEF	Korea	December 31		—		29.91
Shinhan Smilegate Global PEF I (*9)	Korea	December 31		—		14.21
Fount Professional Investors Private Investment Trust No.3	Korea	December 31		—		49.98
Genesis Eco No.1 PEF	Korea	December 31		—		29.01
SHINHAN-NEO Market-Frontier 2nd Fund (*5)	Korea	December 31		—		42.70
NH-Synergy Core Industrial New Technology Fund	Korea	December 31		—		36.93
J& Moorim Jade Investment Fund	Korea	December 31		—		24.89
Ulmus SHC innovation investment fund	Korea	December 31		—		24.04
Mirae Asset Partners X Private Equity Fund	Korea	December 31		—		35.71
T Core Industrial Technology 1st Venture PEF	Korea	December 31		—		31.47
Curious Finale Corporate Recovery Private Equity Fund	Korea	December 31		—		27.78
TI First Property Private Investment Trust 1	Korea	December 31		—		40.00
MPLUS Professional Private Real Estate Fund 25	Korea	December 31		—		41.67
IBKC Global Contents Investment Fund	Korea	December 31		—		24.39
Nautic Smart No.6 Private Equity Fund	Korea	December 31		—		37.74
Premier Luminous Private Equity Fund	Korea	December 31		—		27.78
Hanyang-Meritz 1 Fund	Korea	December 31		—		22.58
KNT 2ND PRIVATE EQUITY FUND	Korea	December 31		—		21.74
Maple Mobility Fund	Korea	December 31		—		20.18
AVES 1st Corporate Recovery Private Equity Fund (*6)	Korea	December 31		—		76.19
JS Shinhan Private Equity Fund (*5)	Korea	December 31		—		3.85
Daishin Newgen New Technology Investment Fund 1st (*8)	Korea	December 31		—		50.60
META ESG Private Equity Fund I	Korea	December 31		—		27.40
SWFV FUND-1	Korea	December 31		—		40.25
PHAROS DK FUND	Korea	December 31		—		24.24
Shinhan VC tomorrow venture fund 1 (*5)	Korea	December 31		—		39.62
Highland 2021-8 Fund	Korea	December 31		—		32.67
Medicii 2021-3 Fund	Korea	December 31		—		24.81
Tres-Yujin Trust (*6)	Korea	December 31		—		50.00
Shinhan-Time mezzanine blind Fund (*6)	Korea	December 31		—		50.00
Capstone REITs No.26 (*6)	Korea	December 31		—		50.00
JB Incheon-Bucheon REITS No.54	Korea	December 31		—		39.31
Hankook Smart Real Asset Investment Trust No.3	Korea	December 31		—		33.33
JB Hwaseong-Hadong REITs No.53	Korea	December 31		—		31.03
KB Oaktree Trust No.3	Korea	December 31		—		33.33
Daehan No.36 Office Asset Management Company	Korea	December 31		—		48.05
Rhinos Premier Mezzanine Private Investment Fund No.1	Korea	December 31		—		27.93
SH Real Estate Loan Investment Type Private Real Estate Investment Trust No.2	Korea	December 31		—		29.73

F-14

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2020		2021
Shinhan JigaeNamsan Road Private Special Asset Investment Trust	Korea	December 31		—		24.85
SKS-Yozma Fund No.1	Korea	December 31		—		29.85
IBKC-METIS Global Contents Investment Fund	Korea	December 31		—		36.36
Keistone Unicorn Private Equity Fund	Korea	December 31		—		28.00

(*1) The financial statements of September 30, 2021 are used for the equity method since the financial statements as of December 31, 2021 are not available. Significant trades and events occurred within the period are properly reflected.

(*2) The Group applies the equity method accounting as the Group has a significant influence on the investees through important business transactions.

(*3) In the course of the rehabilitation process, the shares were acquired through investment conversion. Although voting rights cannot be exercised during the rehabilitation process, normal voting rights are exercised because the rehabilitation process was completed before December 31, 2021. Also, it has been reclassified into the investments in associates.

(*4) The latest financial statements are used for the equity method since the financial statements as of December 31, 2021 are not available. Significant trades and events occurred within the period are properly reflected.

(*5) As a managing partner, the Group has a significant influence over the investees.

(*6) As a limited partner, the Group does not have an ability to participate in policy-making processes to obtain economic benefit from the investees that would allow the Group to control the entity.

(*7) Excluded from the investments in associates due to full or partial disposal of shares, or loss of significant influence.

(*8) Although the ownership percentages are more than 50%, the Group applies the equity method accounting as the Group does not have an ability to participate in the financial and operating policy-making process.

(*9) Although the ownership percentages are less than 20%, the Group applies the equity method accounting since it participates in policy-making processes and therefore can exercise significant influence on investees.

(*10) The rate of Group’s voting rights is 4.65%.

(*11) Although the Group has a significant influence with ownership percentage more than 50%, the contribution was classified as investments in associates as the Group is not exposed to variable returns due to the payment guarantee for the entire investment amount.

(*12) Excluded from the associates due to redemption of shares.

F-14

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

(b) Changes in investments in associates for the years ended December 31, 2020 and 2021 are as follows:

	2020
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income(loss)			Impairment loss			Ending balance
BNP Paribas Cardif Life Insurance	W	52,586		0			(928	)		(1,058	)		0			50,600
Songrim Partners (*1)		0		0			0			0			0			0
Neoplux Technology Valuation Investment Fund (*3)		16,384		(16,171	)		(213	)		0			0			0
Partners 4th Growth Investment Fund		14,917		(4,474	)		1,515			0			0			11,958
KTB Newlake Global Healthcare PEF		11,280		(1,950	)		74			0			0			9,404
Daekwang Semiconductor Co., Ltd.		3,388		0			243			0			0			3,631
Shinhan-Neoplux Energy Newbiz Fund(*4)		7,880		5,887			703			0			0			14,470
Shinhan-Albatross tech investment Fund		8,734		4,650			(62	)		0			0			13,322
Plutus-SG Private Equity Fund		4,231		(5,230	)		999			0			0			0
Eum Private Equity Fund No.3		3,574		(5,621	)		2,050			0			0			3
KTB Confidence Private Placement		6,067		(6,063	)		(4	)		0			0			0
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		4,256		(772	)		(3,484	)		0			0			0
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		8,916		(48	)		(8,868	)		0			0			0
VOGO Debt Strategy Qualified INV Private		9,930		(1,700	)		472			0			0			8,702
Shinhan-Midas Donga Secondary Fund		3,486		1,150			116			0			0			4,752
ShinHan – Soo Young Entrepreneur Investment Fund No.1		4,549		1,495			3,924			0			0			9,968
Synergy-Shinhan Mezzanine New Technology Investment Fund		3,912		(4,406	)		494			0			0			0
Shinhan Praxis K-Growth Global Private Equity Fund		10,302		78			(435	)		0			0			9,945
Credian Healthcare Private Equity Fund II		2,377		(4,937	)		8,395			0			0			5,835
Kiwoom Milestone Professional Private Real Estate Trust 19		10,407		(265	)		(224	)		0			0			9,918
AIP EURO Green Private Real Estate Trust No.3		20,884		(1,189	)		1,326			0			0			21,021
Hanhwa US Equity Strategy Private Real Estate Fund No.1		25,964		(26,907	)		3,220			0			0			2,277
Shinhan Global Healthcare Fund 1		3,209		0			128			0			(3,337	)		0
JB Power TL Investment Type Private Placement Special Asset Fund 7		16,800		(1,359	)		745			0			0			16,186
IBK AONE convertible 1		6,077		(6,048	)		(29	)		0			0			0
Rico synergy collabo Multi-Mezzanine 3		3,217		(3,221	)		4			0			0			0
KB NA Hickory Private Special Asset Fund		35,930		(2,609	)		1,617			0			0			34,938

F-14

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

 

	2020
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income(loss)			Impairment loss		Ending balance
Koramco Europe Core Private Placement Real Estate Fund No.2-2	W	19,562		(1,330	)		386			0			0		18,618
BNP Paribas Cardif General Insurance		2,113		3,066			(1,244	)		(40	)		0		3,895
Axis Global Growth New Technology Investment Association		3,205		(2,920	)		(285	)		0			0		0
Hermes Private Investment Equity Fund		6,376		0			(277	)		0			0		6,099
SHC ULMUS Fund No.1		3,149		(3,289	)		140			0			0		0
Shinhan-Nvestor Liquidity Solution Fund		4,865		(1,004	)		632			0			0		4,493
Shinhan AIM FoF Fund 1a		7,242		1,324			194			0			0		8,760
IGIS Global Credit Fund 150-1		9,718		(4,002	)		1,566			0			0		7,282
GX Shinhan Intervest 1st Private Equity Fund		33,166		(54,515	)		21,349			0			0		0
Soo Commerce Platform Growth Fund		6,343		(8,474	)		3,278			0			0		1,147
Partner One Value up I Private Equity Fund		11,891		(20	)		(92	)		0			0		11,779
Genesis No.1 Private Equity Fund		51,150		388			28,575			0			0		80,113
GMB ICT New Technology Investment Fund		7,854		(7,853	)		(1	)		0			0		0
Korea Omega Project Fund III		3,016		0			547			0			0		3,563
Soo Delivery Platform Growth Fund		8,922		(7,929	)		3,075			0			0		4,068
Genesis North America Power Company No.1 PEF		18,275		(3,869	)		2,577			0			0		16,983
Hyungje art printing (*1)		0		0			0			0			0		0
SHBNPP MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		20,712		(10,794	)		664			0			0		10,582
Shinhan-Rhinos 1 Fund		3,029		(1,004	)		574			0			0		2,599
Pacific Private Investment Trust No.20		4,076		(1,289	)		212			0			0		2,999
Susung Mezzanine project P1 Private Investment Trust		5,128		(3,613	)		(170	)		0			0		1,345
Korea Finance Security		3,235		0			(180	)		0			0		3,055
Multimedia Tech Co.Ltd (*1)		19		0			(19	)		0			0		0
MIEL CO.,LTD (*1)		0		0			0			0			0		0
AIP Transportation Specialized Privately Placed Fund Trust #1		31,580		1,366			47			0			0		32,993
DB Epic Convertiblebond Private Trust No.2		5,063		202			520			0			0		5,785
PCC S/W 2nd Fund		3,001		(3,328	)		327			0			0		0
E&Healthcare Investment Fund No.6		7,776		0			7,387			0			0		15,163
One Shinhan Global Fund1		4,441		0			(412	)		0			0		4,029
Kiwoom-Shinhan Innovation Fund I		7,284		7,500			1,185			0			0		15,969

F-14

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income(loss)		Impairment loss		Ending balance
Daishin-K&T New Technology Investment Fund	W	7,057		0			(57	)		0		0		7,000
Midas Asset Global CRE Debt Private Fund No.6		23,731		21,537			2,121			0		0		47,389
Richmond Private Investment Trust No.82		15,120		(855	)		784			0		0		15,049
Tiger Alternative Real Estate Professional Private5		19,820		(1,376	)		55			0		0		18,499
Samchully Midstream Private Placement Special Asset Fund 5-4		30,742		(968	)		(956	)		0		0		28,818
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		53,831		9,253			2,532			0		0		65,616
AUCTUS FITRIN Corporate Recovery Private Equity Fund		14,358		(14,484	)		126			0		0		0
NH-Amundi Global Infrastructure Trust 14		18,497		(460	)		782			0		0		18,819
Pacific Private Real Estate Fund Investment Trust No.30 (*3)		14,816		(15,374	)		558			0		0		0
Jarvis Memorial Private Investment Trust 1		10,166		(763	)		640			0		0		10,043
Mastern Private Private Invetstment Trust 68		9,999		(460	)		471			0		0		10,010
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		4,397		30,510			734			0		0		35,641
Milestone Private Real Estate Fund 3		17,186		(838	)		2,180			0		0		18,528
IGIS Private Real Estate Investment Trust 286		9,768		(1,361	)		437			0		0		8,844
Nomura-Rifa Private Real Estate Investment Trust 31		8,914		(932	)		425			0		0		8,407
Lime Pricing Private Equity Fund		8,300		(8,217	)		(83	)		0		0		0
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		41,991		(29,980	)		1,312			0		0		13,323
DS Solid.II Hedge Fund		4,123		(6,397	)		2,274			0		0		0
Hana Semiconductor New Technology Fund		12,856		(2,557	)		13,832			0		0		24,131
J&Magnet Startup Venture Specialized Private Equity Fund		5,979		(2,151	)		2,107			0		0		5,935
Cape IT Fund No.3		9,967		(580	)		1,262			0		0		10,649
FuturePlay-Shinhan TechInnovation Fund 1		868		3,661			(234	)		0		0		4,295

F-1

50

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income(loss)		Impairment loss		Ending balance
Stonebridge Corporate 1st Fund	W	2,981		0			258			0		0		3,239
Vogo Realty Partners Private Real Estate Fund V		10,376		(566	)		1,017			0		0		10,827
IL GU FARM CO.,LTD (*1)		0		0			0			0		0		0
Korea Credit Bureau		6,812		(90	)		254			0		0		6,976
Goduck Gangil1 PFV Co., Ltd (*1)		48		0			(48	)		0		0		0
SBC PFV Co., Ltd		20,000		0			(1,792	)		0		0		18,208
Sprott Global Renewable Private Equity Fund II		19,016		(18,909	)		(107	)		0		0		0
NH-amundi global infra private fund 16		48,158		(1,236	)		(3,083	)		0		0		43,839
IMM Global Private Equity Fund		28,925		90,776			1,154			0		0		120,855
HANA Alternative Estate Professional Private122		26,205		(644	)		4,070			0		0		29,631
Hanwha-Incus Plus New Technology Fund No.1		5,499		0			5,527			0		0		11,026
SHBNPP Corporate Professional Investment Type Private Security Investment Trust No.7		51,293		(1,613	)		1,530			0		0		51,210
SHBNPP BNCT Professional Investment Type Private Special Asset Investment Trust		150,317		127,753			8,461			0		0		286,531
PSA EMP Private Equity Fund		9,927		(278	)		165			0		0		9,814
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		29,463		(239	)		177			0		0		29,401
SHBNPP Peace of Mind TDF 2035 Security Investment Trust		5,727		(5,727	)		0			0		0		0
SHBNPP Peace of Mind TDF 2040 Security Investment Trust		5,729		(5,729	)		0			0		0		0
BRAIN DO PROFESSIONALE PRIVATE No. 27		3,065		0			376			0		0		3,441
VISION US Muni US Local Debt Opportunities Professional Private1(*3)		9,869		(10,032	)		163			0		0		0
UI Venture Fund 7th		0		3,000			279			0		0		3,279
Sparklabs-Shinhan Opportunity Fund 1		0		4,999			(167	)		0		0		4,832
BNW Tech-Innovation Private Equity Fund		0		6,000			(58	)		0		0		5,942
IGIS Real-estate Private Investment Trust No.33		0		13,945			154			0		0		14,099

F-1

51

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Beginning balance		Investment and dividend		Equity method income (loss)			Change in other comprehensive income(loss)		Impairment loss			Ending balance
Findvalue PreIPO 6th Professional Investment Type Private Investment Trust.	W	0		3,000		2			0		0			3,002
WWG Global Real Estate Investment Trust no.4		0		16,874		878			0		0			17,752
Fidelis Global Private Real Estate Trust No.2		0		18,582		903			0		0			19,485
IGIS PRIVATE REAL ESTATE TRUST NO.331		0		3,932		(167	)		0		0			3,765
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		0		45,082		3,262			0		0			48,344
Pebblestone CGV Private Real Estate Trust No.1		0		12,793		553			0		0			13,346
Shinhan AIM Real Estate Fund No.2(*2)		0		36,186		(7,652	)		0		(6,070	)		22,464
Shinhan AIM Real Estate Fund No.1(*2)		0		45,415		1,530			0		0			46,945
SHBNPP Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust (*2)		0		32,258		686			0		0			32,944
SHBNPP Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust (*2)		0		22,003		(1,101	)		0		0			20,902
SHBNPP Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2(USD)		0		7,273		(581	)		0		0			6,692
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No. 1 (*2)		0		4,859		(14	)		0		0			4,845
Korea Omega-Shinhan Project Fund I		0		6,000		(69	)		0		0			5,931
New Green Shinhan Mezzanine Fund		0		4,000		916			0		0			4,916
KORAMKO-Daum Professional Private Investment Trust No.12		0		6,930		598			0		0			7,528
Samsung SRA Real Estate Professional Private 45		0		10,701		(35	)		0		0			10,666
IBK Global New Renewable Energy Special Asset Professional Private2		0		29,177		3,172			0		0			32,349
VS Cornerstone Fund		0		3,500		(36	)		0		0			3,464
Aone Mezzanine Opportunity Professional Private		0		8,000		1,580			0		0			9,580

F-15

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Beginning balance		Investment and dividend		Equity method income (loss)			Change in other comprehensive income(loss)		Impairment loss		Ending balance
KiwoomUnicorn3New Technology Business Investment Fund	W	0		3,000		1,283			0		0		4,283
Multi Asset The United States Thortons Professional Private1(*2)		0		44,202		(2,762	)		0		0		41,440
Kiwoom Milestone US Real Estate Professional Private20		0		49,791		1,721			0		0		51,512
NH-Amundi US Infrastructure Private Fund2 (*2)		0		24,647		783			0		0		25,430
KB Distribution Private Real Estate1 (*2)		0		29,984		714			0		0		30,698
SHBNPP Jigae Namsan BTO professional Investment Type Private Special Asset Investment Trust (*2)		0		19,968		744			0		0		20,712
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No.2 (*2)		0		28,251		898			0		0		29,149
Kakao-Shinhan 1st TNYT Fund		0		6,000		(319	)		0		0		5,681
IMM Special Situation 1-2 PRIVATE EQUITY FUND		0		10,000		870			0		0		10,870
Pacific Private Placement Real Estate Fund No.40		0		11,273		374			0		0		11,647
Mastern Private Real Estate Loan Fund No.2		0		5,740		(48	)		0		0		5,692
LB Scotland Amazon Fulfillment Center Fund 29		0		30,753		429			0		0		31,182
JR AMC Hungary Budapest Office Fund 16		0		11,380		824			0		0		12,204
IGIS 372 Real Estate Professional Private		0		58,200		(1,365	)		0		0		56,835
KoFC-Neoplux R&D-Biz Creation 2013-1 Venture Capital Fund (*4)		0		4,058		(228	)		0		0		3,830
Future-Creation Neoplux Venture Capital Fund (*4)		0		4,204		(408	)		0		0		3,796
Gyeonggi-Neoplux Superman Fund (*4)		0		7,665		(1,266	)		0		0		6,399
NewWave 6th Fund (*4)		0		6,242		(92	)		0		0		6,150
Neoplux No.3 Private Equity Fund (*4)		0		10,825		(530	)		0		0		10,295
PCC Amberstone Private Equity Fund I(*2)		0		22,066		414			0		0		22,480
KIAMCO POWERLOAN TRUST 4TH		0		43,390		565			0		0		43,955
Mastern Opportunity Seeking Real Estate Fund II		0		19,508		291			0		0		19,799
AION ELFIS PROFESSIONAL PRIVATE 1		0		5,000		528			0		0		5,528

F-15

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

 

	2020
Investees	Beginning balance		Investment and dividend		Equity method income (loss)			Change in other comprehensive income(loss)			Impairment loss			Ending balance
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business	W	0		4,500		(47	)		0			0			4,453
Neoplux Market-Frontier Secondary Fund(*4)		0		10,974		571			0			0			11,545
Synergy Green New Deal 1st New Technology Business Investment Fund		0		10,000		8			0			0			10,008
KAIM Real-estate Private Investment Trust 20		0		5,000		98			0			0			5,098
KIAMCO Vietnam Solar Special Asset Private Investment Trust		0		8,150		(202	)		0			0			7,948
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		0		3,125		0			0			0			3,125
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		0		44,780		(9	)		(177	)		0			44,594
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		0		44,780		(9	)		(177	)		0			44,594
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45		0		16,000		(145	)		0			0			15,855
IGIS Professional Investors Private Investment Real Estate Investment LLC No.395		0		30,000		(356	)		0			0			29,644
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		0		21,142		0			0			0			21,142
Eum Private Equity Fund No.7		0		7,872		0			0			0			7,872
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		0		5,034		0			0			0			5,034
Kiwoom Hero No.4 Private Equity Fund		0		4,707		0			0			0			4,707
Vogo Canister Professional Trust Private Fund I(*2)		0		43,975		0			0			0			43,975
Others		85,517		25,966		19,814			(5	)		0			131,292
	W	1,452,861		1,056,238		159,533			(1,457	)		(9,407	)		2,657,768

(*1) The Group has stopped recognizing its equity method income or loss due to the carrying value of ‘0’ resulting from the investees’ cumulative loss.

(*2) Classified as investments in associates without cash transactions.

F-15

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

(*3) For the year ended December 31, 2020, it is incorporated into the consolidation target as it held control due to increased equity ratio.

(*4) For the year ended December 31, 2020, it is incorporated into the investments in associates as Neoplux Co., Ltd.is incorporated into the consolidation target.

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss			Ending balance
BNP Paribas Cardif Life Insurance	W	50,600		0			(660	)		(5,918	)		0			44,022
Songrim Partners (*1)		0		0			0			0			0			0
Partners 4th Growth Investment Fund		11,958		(16,144	)		12,525			4,694			0			13,033
KTB Newlake Global Healthcare PEF		9,404		0			8			0			0			9,412
Daekwang Semiconductor Co., Ltd.		3,631		(3,742	)		113			(2	)		0			0
Shinhan-Neoplux Energy Newbiz Fund		14,470		475			1,087			0			0			16,032
Shinhan-Albatross tech investment Fund		13,322		(9,000	)		6,067			0			0			10,389
VOGO Debt Strategy Qualified IV Private		8,702		(1,733	)		210			0			0			7,179
Shinhan-Midas Donga Secondary Fund		4,752		(500	)		(301	)		0			0			3,951
ShinHan – Soo Young Entrepreneur Investment Fund No.1		9,968		(7,879	)		2,137			0			0			4,226
Shinhan Praxis K-Growth Global Private Equity Fund		9,945		(2,310	)		126			0			0			7,761
Credian Healthcare Private Equity Fund II		5,835		(5,835	)		0			0			0			0
Kiwoom Milestone Professional Private Real Estate Trust 19		9,918		(66	)		(361	)		0			(4,238	)		5,253
AIP EURO Green Private Real Estate Trust No.3		21,021		(1,335	)		10,017			0			0			29,703
Shinhan Global Healthcare Fund 1(*1)		0		0			0			0			0			0
JB Power TL Investment Type Private Placement Special Asset Fund 7		16,186		(15,947	)		(239	)		0			0			0
KB NA Hickory Private Special Asset Fund		34,938		(2,266	)		1,704			0			0			34,376
Koramco Europe Core Private Placement Real Estate Fund No.2-2		18,618		(1,204	)		2,078			0			0			19,492
BNP Paribas Cardif General Insurance		3,895		176			(708	)		(9	)		0			3,354
Hermes Private Investment Equity Fund		6,099		(3,167	)		6,850			0			0			9,782
Shinhan-Nvestor Liquidity Solution Fund		4,493		331			514			0			0			5,338
Shinhan AIM FoF Fund 1a		8,760		(79	)		475			0			0			9,156
IGIS Global Credit Fund 150-1		7,282		(3,246	)		1,366			0			0			5,402
Partner One Value up I Private Equity Fund		11,779		(6,933	)		3,045			0			0			7,891
Genesis No.1 Private Equity Fund		80,113		388			(24,968	)		0			0			55,533
Korea Omega Project Fund III		3,563		0			727			0			0			4,290
Soo Delivery Platform Growth Fund		4,068		0			1,805			0			0			5,873
Genesis North America Power Company No.1 PEF		16,983		(5,229	)		1,982			0			0			13,736

F-15

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income		Impairment loss		Ending balance
Hyungje art printing(*2)	W	0		0			0			0		0		0
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		10,582		24,500			6,467			0		0		41,549
Korea Finance Security		3,055		0			(61	)		0		0		2,994
Multimedia Tech Co.Ltd.(*2)		0		0			0			0		0		0
MIEL CO.,LTD.(*1)		0		0			0			0		0		0
AIP Transportation Specialized Privately Placed Fund Trust #1		32,993		347			1,348			0		0		34,688
DB Epic Convertiblebond Private Trust No.2		5,785		(5,538	)		(247	)		0		0		0
E&Healthcare Investment Fund No.6		15,163		(3,431	)		(4,866	)		0		0		6,866
One Shinhan Global Fund 1		4,029		(519	)		263			0		0		3,773
Kiwoom-Shinhan Innovation Fund I		15,969		(5,150	)		912			0		0		11,731
Daishin-K&T New Technology Investment Fund		7,000		0			991			0		0		7,991
Midas Asset Global CRE Debt Private Fund No.6		47,389		(2,701	)		3,617			0		0		48,305
Richmond Private Investment Trust No.82		15,049		(19,411	)		4,362			0		0		0
Tiger Alternative Real Estate Professional Private5		18,499		(20,848	)		2,349			0		0		0
Samchully Midstream Private Placement Special Asset Fund 5-4		28,818		(843	)		(504	)		0		0		27,471
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		65,616		(41,622	)		1,210			0		0		25,204
NH-Amundi Global Infrastructure Trust 14		18,819		(1,609	)		1,091			0		0		18,301
Jarvis Memorial Private Investment Trust 1		10,043		(700	)		766			0		0		10,109
Mastern Private Private Investment Trust 68		10,010		(10,332	)		322			0		0		0
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		35,641		(4,981	)		2,493			0		0		33,153
Milestone Private Real Estate Fund 3		18,528		(472	)		488			0		0		18,544
IGIS Private Real Estate Investment Trust 286		8,844		(9,176	)		332			0		0		0
Nomura-Rifa Private Real Estate Investment Trust 31		8,407		(705	)		200			0		0		7,902
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		13,323		(3,511	)		424			0		0		10,236

F-15

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income		Impairment loss		Ending balance
Hana Semiconductor New Technology Fund	W	24,131		(26,129	)		1,998			0		0		0
J&Magnet Startup Venture Specialized Private Equity Fund		5,935		(7,247	)		1,312			0		0		0
Cape IT Fund No.3		10,649		(580	)		(4	)		0		0		10,065
FuturePlay-Shinhan TechInnovation Fund 1		4,295		3,025			(171	)		0		0		7,149
Stonebridge Corporate 1st Fund		3,239		0			(275	)		0		0		2,964
Vogo Realty Partners Private Real Estate Fund V		10,827		(681	)		620			0		0		10,766
Korea Credit Bureau		6,976		(90	)		809			0		0		7,695
Goduck Gangil1 PFV Co., Ltd.(*1)		0		0			0			0		0		0
SBC PFV Co., Ltd.		18,208		12,499			(1,121	)		0		0		29,586
NH-amundi global infra private fund 16		43,839		346			7,823			0		0		52,008
IMM Global Private Equity Fund		120,855		(10,462	)		8,222			0		0		118,615
HANA Alternative Estate Professional Private122		29,631		(1,001	)		859			0		0		29,489
Hanwha-Incus Plus New Technology Fund No.1		11,026		(8,284	)		(2,742	)		0		0		0
SH Corporate Professional Investment Type Private Security Investment Trust No.7		51,210		(1,518	)		207			0		0		49,899
SH BNCT Professional Investment Type Private Special Asset Investment Trust		286,531		(15,191	)		10,859			0		0		282,199
PSA EMP Private Equity Fund		9,814		(9,755	)		(59	)		0		0		0
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		29,401		(2,630	)		1,541			0		0		28,312
BRAIN DO PROFESSIONALE PRIVATE No. 27		3,441		(3,048	)		583			0		0		976
UI Venture Fund 7th		3,279		(3,269	)		(10	)		0		0		0
Sparklabs-Shinhan Opportunity Fund 1		4,832		0			(192	)		0		0		4,640
BNW Tech-Innovation Private Equity Fund		5,942		0			(61	)		0		0		5,881
IGIS Real-estate Private Investment Trust No.33		14,099		(714	)		499			0		0		13,884
Findvalue PreIPO 6th Professional Investment Type Private Investment Trust		3,002		(3,301	)		299			0		0		0
WWG Global Real Estate Investment Trust no.4		17,752		(7,855	)		747			0		0		10,644
Goduck Gangil10 PFV Co., Ltd (*1)		32		0			(32	)		0		0		—

F-15

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income		Impairment loss			Ending balance
Fidelis Global Private Real Estate Trust No.2	W	19,485		(911	)		1,199			0		0			19,773
IGIS PRIVATE REAL ESTATE TRUST NO.331		3,765		(3,765	)		0			0		0			0
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		48,344		(5,436	)		6,309			0		0			49,217
Shinhan Healthcare Fund 2 (*1)		986		0			(75	)		0		(911	)		0
Pebblestone CGV Private Real Estate Trust No.1		13,346		(748	)		1,112			0		0			13,710
SH Corporate Professional Investment Type Private Security Investment Trust No.45		0		174,154			(199	)		0		0			173,955
Shinhan AIM Real Estate Fund No.2		22,464		1,911			(1,100	)		0		0			23,275
Shinhan AIM Real Estate Fund No.1		46,945		(4,412	)		1,779			0		0			44,312
SH Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust		32,944		(911	)		915			0		0			32,948
SH Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		20,902		7			(359	)		0		0			20,550
SH Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2		6,692		13,667			(1,504	)		0		0			18,855
SH Japan Photovoltaic Private Special Asset Investment Trust No.1		4,845		(4,845	)		0			0		0			0
Korea Omega-Shinhan Project Fund I		5,931	��	2,000			(687	)		0		0			7,244
ST-Bonanja Food tech		1,993		0			1,366			0		0			3,359
New Green Shinhan Mezzanine Fund		4,916		(5,622	)		706			0		0			0
KORAMKO-Daum Professional Private Investment Trust No.12		7,528		(7,756	)		228			0		0			0
Samsung SRA Real Estate Professional Private 45		10,666		2,656			(442	)		0		0			12,880
IBK Global New Renewable Energy Special Asset Professional Private2		32,349		(1,988	)		1,526			0		0			31,887
VS Cornerstone Fund		3,464		0			(54	)		0		0			3,410
Aone Mezzanine Opportunity Professional Private		9,580		(28	)		(12	)		0		0			9,540
KiwoomUnicorn3 New Technology Business Investment Fund		4,283		(3,633	)		(650	)		0		0			0
Multi Asset The United States Thortons Professional Private1		41,440		(41,607	)		167			0		0			0

F-15

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income		Impairment loss		Ending balance
Kiwoom Milestone US Real Estate Professional Private20	W	51,512		(51,512	)		0			0		0		0
NH-Amundi US Infrastructure Private Fund2		25,430		207			1,387			0		0		27,024
KB Distribution Private Real Estate1		30,698		(1,423	)		1,419			0		0		30,694
SH Jigae Namsan BTO professional Investment Type Private Special Asset Investment Trust		20,712		(22,293	)		1,581			0		0		0
SH Japan Photovoltaic Private Special Asset Investment Trust No.2		29,149		(16,798	)		665			0		0		13,016
Kakao-Shinhan 1st TNYT Fund		5,681		9,000			(184	)		0		0		14,497
IMM Special Situation 1-2 PRIVATE EQUITY FUND		10,870		(160	)		883			0		0		11,593
Pacific Private Placement Real Estate Fund No.40		11,647		(747	)		698			0		0		11,598
Mastern Private Real Estate Loan Fund No.2		5,692		1,429			370			0		0		7,491
LB Scotland Amazon Fulfillment Center Fund 29		31,182		(1,734	)		1,820			0		0		31,268
JR AMC Hungary Budapest Office Fund 16		12,204		(821	)		757			0		0		12,140
IGIS 372 Real Estate Professional Private		56,835		(56,835	)		0			0		0		0
EDNCENTRAL Co.,Ltd. (*1)		1,040		0			(1,040	)		0		0		0
KoFC-Neoplux R&D-Biz Creation 2013-1 Venture Capital Fund		3,830		(8,388	)		4,558			0		0		0
Future-Creation Neoplux Venture Capital Fund		3,796		(995	)		216			0		0		3,017
Gyeonggi-Neoplux Superman Fund		6,399		(2,257	)		3,736			0		0		7,878
NewWave 6th Fund		6,150		7,575			730			0		0		14,455
KTC-NP Growth Champ 2011-2 Private Equity Fund		2,853		0			1,137			0		0		3,990
Neoplux No.3 Private Equity Fund		10,295		10,182			2,124			0		0		22,601
PCC Amberstone Private Equity Fund I		22,480		(2,356	)		2,666			0		0		22,790
KIAMCO POWERLOAN TRUST 4TH		43,955		(164	)		1,510			0		0		45,301
Mastern Opportunity Seeking Real Estate Fund II		19,799		(737	)		2,255			0		0		21,317
AION ELFIS PROFESSIONAL PRIVATE 1		5,528		(1,350	)		244			0		0		4,422
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business		4,453		0			(93	)		0		0		4,360
Neoplux Market-Frontier Secondary Fund		11,545		(614	)		382			0		0		11,313

F-15

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income		Impairment loss		Ending balance
Harvest Private Equity Fund II	W	2,982		0			499			0		0		3,481
Synergy Green New Deal 1st New Technology Business Investment Fund		10,008		(247	)		(77	)		0		0		9,684
KAIM Real-estate Private Investment Trust 20		5,098		(350	)		300			0		0		5,048
KIAMCO Vietnam Solar Special Asset Private Investment Trust		7,948		(1,112	)		691			0		0		7,527
Daishin New Technology Investment Fund 5th		2,850		0			1,589			0		0		4,439
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		3,125		0			122			0		0		3,247
Acurus Hyundai Investment Partners New Technology		2,927		0			1,787			0		0		4,714
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		44,594		4,103			11,371			3,876		0		63,944
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		44,594		4,103			11,371			3,876		0		63,944
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45		15,855		0			(1,077	)		0		0		14,778
IGIS Professional Investors Private Investment Real Estate Investment LLC No.395		29,644		(29,644	)		0			0		0		0
SHINHAN-NEO Core Industrial Technology Fund		1,979		3,960			(248	)		0		0		5,691
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		21,142		5,271			830			0		0		27,243
SIMONE Mezzanine Fund No.3		2,980		0			74			0		0		3,054
Eum Private Equity Fund No.7		7,872		121			(120	)		0		0		7,873
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		5,034		0			2,560			0		0		7,594
Kiwoom Hero No.4 Private Equity Fund		4,707		0			(402	)		0		0		4,305
Vogo Canister Professional Trust Private Fund I		43,975		(4,712	)		1,809			0		0		41,072
SW-S Fund		0		7,000			(276	)		0		0		6,724
CL Buyout 1st PEF		0		13,875			(84	)		0		0		13,791
Timefolio The Venture-V second		0		4,000			572			0		0		4,572
Newlake Growth Capital Partners2 PEF		0		13,000			(79	)		0		0		12,921

F-1

60

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend		Equity method income (loss)			Change in other comprehensive income		Impairment loss		Ending balance
Shinhan Smilegate Global PEF I	W	0		3,376		(40	)		0		0		3,336
Fount Professional Investors Private Investment Trust No.3		0		5,000		197			0		0		5,197
Genesis Eco No.1 PEF		0		11,292		(162	)		0		0		11,130
SHINHAN-NEO Market-Frontier 2nd Fund (*3)		0		25,620		(1,014	)		0		0		24,606
NH-Synergy Core Industrial New Technology Fund		0		6,500		(63	)		0		0		6,437
J& Moorim Jade Investment Fund		0		5,500		40			0		0		5,540
Ulmus SHC innovation investment fund		0		5,000		192			0		0		5,192
Mirae Asset Partners X Private Equity Fund		0		8,000		(142	)		0		0		7,858
T Core Industrial Technology 1st Venture PEF		0		4,500		35			0		0		4,535
Curious Finale Corporate Recovery Private Equity Fund		0		3,377		313			0		0		3,690
TI First Property Private Investment Trust 1		0		2,879		176			0		0		3,055
MPLUS Professional Private Real Estate Fund 25		0		3,010		280			0		0		3,290
IBKC Global Contents Investment Fund		0		5,000		(57	)		0		0		4,943
Nautic Smart No.6 Private Equity Fund		0		4,000		(26	)		0		0		3,974
Premier Luminous Private Equity Fund		0		7,095		(104	)		0		0		6,991
Hanyang-Meritz 1 Fund		0		3,500		(17	)		0		0		3,483
KNT 2ND PRIVATE EQUITY FUND		0		3,000		1,157			0		0		4,157
Maple Mobility Fund		0		9,274		(591	)		0		0		8,683
AVES 1st Corporate Recovery Private Equity Fund		0		4,800		(64	)		0		0		4,736
JS Shinhan Private Equity Fund		0		5,076		(39	)		0		0		5,037
Daishin Newgen New Technology Investment Fund 1st		0		8,000		4,169			0		0		12,169
META ESG Private Equity Fund I		0		5,726		(49	)		0		0		5,677
SWFV FUND-1		0		9,700		(54	)		0		0		9,646
PHAROS DK FUND		0		4,000		(51	)		0		0		3,949
Shinhan VC tomorrow venture fund 1		0		9,113		(71	)		0		0		9,042
Highland 2021-8 Fund		0		4,900		(1	)		0		0		4,899
Medicii 2021-3 Fund		0		9,752		(24	)		0		0		9,728
Tres-Yujin Trust		0		10,000		(5	)		0		0		9,995
Shinhan-Time mezzanine blind Fund		0		15,000		(58	)		0		0		14,942
Capstone REITs No.26		0		4,849		(454	)		0		0		4,395
JB Incheon-Bucheon REITS No.54		0		5,000		(1	)		0		0		4,999

F-1

61

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Beginning balance		Investment and dividend		Equity method income (loss)			Change in other comprehensive income			Impairment loss			Ending balance
Hankook Smart Real Asset Investment Trust No.3	W	0		4,173		169			0			0			4,342
JB Hwaseong-Hadong REITs No.53		0		5,000		(1	)		0			0			4,999
KB Oaktree Trust No.3		0		3,141		18			0			0			3,159
Daehan No.36 Office Asset Management Company		0		21,500		0			0			0			21,500
Rhinos Premier Mezzanine Private Investment Fund No.1		0		3,000		5			0			0			3,005
SH Real Estate Loan Investment Type Private Real Estate Investment Trust No.2		0		19,426		477			0			0			19,903
Shinhan JigaeNamsan Road Private Special Asset Investment Trust		0		39,996		109			0			0			40,105
SKS-Yozma Fund No.1		0		6,000		(55	)		0			0			5,945
IBKC-METIS Global Contents Investment Fund		0		4,000		0			0			0			4,000
Keistone Unicorn Private Equity Fund		0		6,300		0			0			0			6,300
Others		121,040		63,729		5,881			(3	)		(5,570	)		185,077
	W	2,657,768		101,582		158,600			6,514			(10,719	)		2,913,745

(*1) The Group has stopped recognizing its equity method income or loss due to the carrying value of ‘0’ resulting from the investees’ cumulative loss.

(*2) For the year ended December 31, 2020, the Group has stopped recognizing its equity method income or loss to accumulated deficits and the shares are retired for the year ended December 31, 2021.

(*3) Classified as investments in associates without cash transactions.

(c) The statement of financial information as of and for the years ended December 31, 2020 and 2021 are as follows:

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance	W	3,526,148		3,188,562		38,669		(6,555	)		(7,052	)		(13,607	)
Songrim Partners		1,003		1,065		548		0			0			0
Partners 4th Growth Investment Fund		48,678		846		7,231		6,059			0			6,059
KTB Newlake Global Healthcare PEF		31,005		225		598		244			0			244
Daekwang Semiconductor Co., Ltd.		23,682		6,339		3,836		1,163			0			1,163
Shinhan-Neoplux Energy Newbiz Fund		44,615		25		4,221		1,749			0			1,749
Shinhan-Albatross tech investment Fund		27,685		385		982		594			0			594
Eum Private Equity Fund No.3		20		4		13,445		9,875			0			9,875

F-16

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund	W	1		1		89		89			0			89
Meritz AI-SingA330-B Investment Type Private Private Placement Special Asset Fund		2		2		363		361			0			361
VOGO Debt Strategy Qualified INV Private		43,540		28		6,361		2,359			0			2,359
Shinhan-Midas Donga Secondary Fund		9,504		0		365		233			0			233
ShinHan – Soo Young Entrepreneur Investment Fund No.1		41,532		0		16,561		16,349			0			16,349
Shinhan Praxis K-Growth Global Private Equity Fund		52,890		183		201		(2,306	)		0			(2,306	)
Credian Healthcare Private Equity Fund II		17,141		15		25,926		24,638			0			24,638
Kiwoom Milestone Professional Private Real Estate Trust 19		58,393		38,558		2,772		(449	)		0			(449	)
AIP EURO Green Private Real Estate Trust No.3		98,866		86		6,893		6,231			0			6,231
Hanhwa US Equity Strategy Private Real Estate Fund No.1		5,798		721		32,667		7,180			0			7,180
Shinhan Global Healthcare Fund 1		55		2,104		1,034		(74,736	)		0			(74,736	)
JB Power TL Investment Type Private Placement Special Asset Fund 7		48,605		45		23,547		2,251			0			2,251
KB NA Hickory Private Special Asset Fund		93,236		69		13,464		4,312			0			4,312
Koramco Europe Core Private Placement Real Estate Fund No.2-2		46,239		3,948		4,920		877			0			877
BNP Paribas Cardif General Insurance		85,278		33,063		23,632		(7,972	)		(161	)		(8,133	)
Hermes Private Investment Equity Fund		20,919		8		11		(948	)		0			(948	)
Shinhan-Nvestor Liquidity Solution Fund		18,032		0		2,704		2,537			0			2,537
Shinhan AIM FoF Fund 1a		35,060		20		4,378		777			0			777
IGIS Global Credit Fund 150-1		29,153		24		10,076		6,263			0			6,263
Soo Commerce Platform Growth Fund		4,661		3		13,172		13,314			0			13,314
Partner One Value up I Private Equity Fund		42,205		0		457		(329	)		0			(329	)
Genesis No.1 Private Equity Fund		382,353		31,024		158,070		125,312			0			125,312
Korea Omega Project Fund III		15,141		0		2,383		2,323			0			2,323
Soo Delivery Platform Growth Fund		13,563		3		11,300		10,249			0			10,249
Genesis North America Power Company No.1 PEF		48,221		5,727		6,976		6,449			0			6,449
Hyungje art printing		866		1,130		253		0			0			0

F-16

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
SHBNPP MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3	W	46,514		1,164		11,240		2,846			0		2,846
Shinhan-Rhinos 1 Fund		11,561		1		2,784		2,554			0		2,554
Pacific Private Investment Trust No.20		13,805		11		974		974			0		974
Susung Mezzanine project P1 Private Investment Trust		3,220		0		3,412		(373	)		0		(373	)
Korea Finance Security		37,522		17,032		118,906		(1,174	)		0		(1,174	)
Multimedia Tech Co.Ltd		593		662		555		(158	)		0		(158	)
MIEL CO.,LTD		474		559		585		(169	)		0		(169	)
AIP Transportation Specialized Privately Placed Fund Trust #1		92,454		101		17,221		132			0		132
DB Epic Convertiblebond Private Trust No.2		11,382		34		1,169		1,021			0		1,021
E&Healthcare Investment Fund No.6		72,023		0		36,332		33,844			0		33,844
One Shinhan Global Fund1		22,244		0		92		(406	)		0		(406	)
Kiwoom-Shinhan Innovation Fund I		32,096		158		2,984		2,371			0		2,371
Daishin-K&T New Technology Investment Fund		55,501		33,101		64		(183	)		0		(183	)
Midas Asset Global CRE Debt Private Fund No.6		115,240		118		7,041		5,153			0		5,153
Richmond Private Investment Trust No.82		49,961		24,879		1,658		1,306			0		1,306
Tiger Alternative Real Estate Professional Private5		38,064		86		7,827		113			0		113
Samchully Midstream Private Placement Special Asset Fund 5-4		67,177		36		8,012		(2,228	)		0		(2,228	)
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		327,973		56		13,607		12,656			0		12,656
NH-Amundi Global Infrastructure Trust 14		62,729		1		7,216		2,606			0		2,606
Jarvis Memorial Private Investment Trust 1		10,147		4		651		647			0		647
Mastern Private Private Invetstment Trust 68		18,620		0		878		877			0		877
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		59,422		20		6,374		1,224			0		1,224
Milestone Private Real Estate Fund 3		57,792		2		7,083		6,797			0		6,797
IGIS Private Real Estate Investment Trust 286		74,406		53,065		5,298		696			0		696

F-16

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Nomura-Rifa Private Real Estate Investment Trust 31	W	98,291		71,442		7,584		1,356			0		1,356
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		62,682		45		6,511		6,169			0		6,169
Hana Semiconductor New Technology Fund		111,661		12,346		70,303		56,926			0		56,926
J&Magnet Startup Venture Specialized Private Equity Fund		24,381		50		8,291		8,638			0		8,638
Cape IT Fund No.3		32,448		75		4,145		3,837			0		3,837
FuturePlay-Shinhan TechInnovation Fund 1		8,621		31		5		(469	)		0		(469	)
Stonebridge Corporate 1st Fund		7,342		1		679		584			0		584
Vogo Realty Partners Private Real Estate Fund V		50,139		99		8,137		4,701			0		4,701
Korea Credit Bureau		114,571		37,062		93,275		3,992			0		3,992
Goduck Gangil1 PFV Co., Ltd		334,349		348,276		0		(10,065	)		0		(10,065	)
SBC PFV Co., Ltd		119,994		7,199		0		(7,169	)		0		(7,169	)
NH-amundi global infra private fund 16		87,908		230		20,499		(6,215	)		0		(6,215	)
IMM Global Private Equity Fund		367,570		1,368		17,222		2,995			0		2,995
HANA Alternative Estate Professional Private122		39,449		38		6,836		5,487			0		5,487
Hanwha-Incus Plus New Technology Fund No.1		25,860		0		13,169		12,961			0		12,961
SHBNPP Corporate Professional Investment Type Private Security Investment Trust No.7		198,644		87,218		4,479		3,329			0		3,329
SHBNPP BNCT Professional Investment Type Private Special Asset Investment Trust		395,815		0		14,737		11,688			0		11,688
PSA EMP Private Equity Fund		33,953		97		8		(393	)		0		(393	)
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		57,026		784		13,342		339			0		339
BRAIN DO PROFESSIONALE PRIVATE No. 27		11,827		12		1,414		1,292			0		1,292
UI Venture Fund 7th		13,466		21		2,044		1,145			0		1,145
Sparklabs-Shinhan Opportunity Fund 1		9,760		0		0		(340	)		0		(340	)
BNW Tech-Innovation Private Equity Fund		20,119		213		45		(194	)		0		(194	)
IGIS Real-estate Private Investment Trust No.33		88,319		53,812		1,570		378			0		378

F-16

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Findvalue PreIPO 6th Professional Investment Type Private Investment Trust	W	9,505		0		5		5			0		5
WWG Global Real Estate Investment Trust no.4		60,083		12		8,431		2,971			0		2,971
Fidelis Global Private Real Estate Trust No.2		24,901		2		1,902		1,214			0		1,214
IGIS PRIVATE REAL ESTATE TRUST NO.331		57,655		45,417		20		(388	)		0		(388	)
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		173,538		783		40,882		13,425			0		13,425
Pebblestone CGV Private Real Estate Trust No.1		63,907		36,405		7,451		1,141			0		1,141
Shinhan AIM Real Estate Fund No.2		75,018		138		7,611		(45,741	)		0		(45,741	)
Shinhan AIM Real Estate Fund No.1		223,471		28		22,855		7,284			0		7,284
SHBNPP Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust		149,686		75		3,342		3,117			0		3,117
SHBNPP Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		71,774		169		4,948		(3,773	)		0		(3,773	)
SHBNPP Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2		9,380		12		576		(814	)		0		(814	)
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No. 1		61,389		45,239		47,240		(46	)		0		(46	)
Korea Omega-Shinhan Project Fund I		11,861		0		0		(139	)		0		(139	)
New Green Shinhan Mezzanine Fund		12,538		1		2,387		2,337			0		2,337
KORAMKO-Daum Professional Private Investment Trust No.12		22,740		157		1,949		1,792			0		1,792
Samsung SRA Real Estate Professional Private 45		42,895		230		4,155		(355	)		0		(355	)
IBK Global New Renewable Energy Special Asset Professional Private2		116,284		4,679		19,514		10,943			0		10,943
VS Cornerstone Fund		8,413		0		2		(87	)		0		(87	)
Aone Mezzanine Opportunity Professional Private		14,530		40		2,507		2,390			0		2,390
KiwoomUnicorn3New Technology Business Investment Fund		20,132		0		6,112		6,031			0		6,031

F-16

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Multi Asset The United States Thortons Professional Private1	W	165,775		15		2,111		671			0		671
Kiwoom Milestone US Real Estate Professional Private20		68,591		157		3,508		2,286			0		2,286
NH-Amundi US Infrastructure Private Fund2		99,409		1,248		16,758		3,025			0		3,025
KB Distribution Private Real Estate1		50,013		500		1,174		1,151			0		1,151
SHBNPP Jigae Namsan BTO professional Investment Type Private Special Asset Investment Trust		71,647		54		2,677		2,571			0		2,571
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No.2		97,412		248		5,176		2,993			0		2,993
Kakao-Shinhan 1st TNYT Fund		12,014		331		2		(657	)		0		(657	)
IMM Special Situation 1-2 PRIVATE EQUITY FUND		54,328		33		4,378		4,344			0		4,344
Pacific Private Placement Real Estate Fund No.40		145,123		98,029		2,554		1,511			0		1,511
Mastern Private Real Estate Loan Fund No.2		17,156		201		98		(143	)		0		(143	)
LB Scotland Amazon Fulfillment Center Fund 29		44,483		28		1,975		612			0		612
JR AMC Hungary Budapest Office Fund 16		38,581		1,112		2,531		2,531			0		2,531
IGIS 372 Real Estate Professional Private		628,769		428,577		10,221		(4,808	)		0		(4,808	)
KoFC-Neoplux R&D-Biz Creation 2013-1 Venture Capital Fund		18,460		2,824		1,673		240			0		240
Future-Creation Neoplux Venture Capital Fund		27,271		4,137		7,270		4,300			0		4,300
Gyeonggi-Neoplux Superman Fund		31,898		186		533		(212	)		0		(212	)
NewWave 6th Fund		20,501		0		2,757		1,528			0		1,528
Neoplux No.3 Private Equity Fund		103,712		756		9,114		(7,108	)		0		(7,108	)
PCC Amberstone Private Equity Fund I		104,930		1,194		12,280		5,501			0		5,501
KIAMCO POWERLOAN TRUST 4TH		92,817		23		815		1,193			0		1,193
Mastern Opportunity Seeking Real Estate Fund II		99,087		93		1,391		1,453			0		1,453
AION ELFIS PROFESSIONAL PRIVATE 1		27,672		30		2,710		2,642			0		2,642

F-16

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business	W	15,074		73		0		(160	)		0		(160	)
Neoplux Market-Frontier Secondary Fund		56,363		1,636		1,359		(339	)		0		(339	)
Synergy Green New Deal 1st New Technology Business Investment Fund		35,539		12		39		27			0		27
KAIM Real-estate Private Investment Trust 20		13,254		0		254		254			0		254
KIAMCO Vietnam Solar Special Asset Private Investment Trust		15,902		6		0		(404	)		0		(404	)
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		5,010		10		10		0			0		0
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		45,582		9		0		(9	)		0		(9	)
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		45,582		9		0		(9	)		0		(9	)
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45		141,811		93,336		1		1,290			0		1,290
IGIS Professional Investors Private Investment Real Estate Investment LLC No.395		116,853		66,459		0		(605	)		0		(605	)
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		70,487		14		194		180			0		180
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		20,174		40		4,210		4,134			0		4,134
Kiwoom Hero No.4 Private Equity Fund		22,359		1		0		3,358			0		3,358
Vogo Canister Professional Trust Private Fund I		119,968		76		17,022		4,148			0		4,148

(*) Excluded the financial information of associates that are not subject to equity method due to disposal or of which the financial information is not available as of end of the year.

F-16

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance	W	3,268,153		2,974,519		48,207		(4,499	)		(39,454	)		(43,953	)
Songrim Partners		1,003		1,065		548		0			0			0
Partners 4th Growth Investment Fund		60,073		7,939		52,019		50,100			18,774			68,874
KTB Newlake Global Healthcare PEF		30,969		161		552		27			0			27
Shinhan-Neoplux Energy Newbiz Fund		66,213		1,002		20,575		18,016			0			18,016
Shinhan-Albatross tech investment Fund		20,677		464		12,058		10,912			0			10,912
VOGO Debt Strategy Qualified IV Private		35,919		23		5,393		1,138			0			1,138
Shinhan-Midas Donga Secondary Fund		7,902		0		72		(602	)		0			(602	)
ShinHan – Soo Young Entrepreneur Investment Fund No.1		17,960		352		27,318		8,906			0			8,906
Shinhan Praxis K-Growth Global Private Equity Fund		41,193		60		1,217		669			0			669
Kiwoom Milestone Professional Private Real Estate Trust 19		49,101		38,596		2,505		(9,199	)		0			(9,199	)
AIP EURO Green Private Real Estate Trust No.3		219,110		79,534		52,789		47,070			0			47,070
Shinhan Global Healthcare Fund 1		43		3,507		0		(1,414	)		0			(1,414	)
KB NA Hickory Private Special Asset Fund		91,752		84		15,540		4,502			0			4,502
Koramco Europe Core Private Placement Real Estate Fund No.2-2		46,169		1,894		7,743		4,719			0			4,719
BNP Paribas Cardif General Insurance		140,179		78,748		61,951		(6,872	)		(28	)		(6,900	)
Hermes Private Investment Equity Fund		33,545		8		23,536		23,486			0			23,486
Shinhan-Nvestor Liquidity Solution Fund		21,420		0		2,169		2,064			0			2,064
Shinhan AIM FoF Fund 1a		36,651		28		4,527		(1,466	)		0			(1,466	)
IGIS Global Credit Fund 150-1		21,625		16		3,138		1,763			0			1,763
Partner One Value up I Private Equity Fund		28,273		0		304		10,910			0			10,910

F-16

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Genesis No.1 Private Equity Fund	W	243,534		0		0		(109,494	)		0		(109,494	)
Korea Omega Project Fund III		18,234		0		3,154		3,093			0		3,093
Soo Delivery Platform Growth Fund		19,578		0		6,243		6,018			0		6,018
Genesis North America Power Company No.1 PEF		34,626		316		11,654		4,951			0		4,951
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		178,427		358		28,997		27,719			0		27,719
Korea Finance Security		35,044		14,966		63,693		(412	)		0		(412	)
MIEL CO.,LTD.		491		632		36		(56	)		0		(56	)
AIP Transportation Specialized Privately Placed Fund Trust #1		104,512		7,415		16,239		3,773			0		3,773
E&Healthcare Investment Fund No.6		32,615		0		17,133		(23,116	)		0		(23,116	)
One Shinhan Global Fund 1		15,799		41		8,276		(1,280	)		0		(1,280	)
Kiwoom-Shinhan Innovation Fund I		23,613		151		4,803		1,823			0		1,823
Daishin-K&T New Technology Investment Fund		25,637		66		8,639		3,171			0		3,171
Midas Asset Global CRE Debt Private Fund No.6		117,396		49		2,817		1,451			0		1,451
Samchully Midstream Private Placement Special Asset Fund 5-4		65,966		35		11,141		(4,113	)		0		(4,113	)
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		126,043		23		6,544		6,048			0		6,048
NH-Amundi Global Infrastructure Trust 14		61,005		1		4,134		4			0		4
Jarvis Memorial Private Investment Trust 1		10,214		4		39		35			0		35
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		55,273		19		6,500		23			0		23
Milestone Private Real Estate Fund 3		57,956		114		1,880		1,522			0		1,522

F-1

70

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Nomura-Rifa Private Real Estate Investment Trust 31	W	97,211		72,103		7,364		639			0		639
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		48,157		33		2,106		1,991			0		1,991
Cape IT Fund No.3		30,651		52		2,100		(11	)		0		(11	)
FuturePlay-Shinhan TechInnovation Fund 1		14,297		0		3		(342	)		0		(342	)
Stonebridge Corporate 1st Fund		6,718		0		1		(622	)		0		(622	)
Vogo Realty Partners Private Real Estate Fund V		49,842		82		2,110		(2,066	)		0		(2,066	)
Korea Credit Bureau		129,478		43,981		121,982		8,988			0		8,988
Goduck Gangil1 PFV Co., Ltd		301,513		317,276		88,085		(1,835	)		0		(1,835	)
SBC PFV Co., Ltd.		334,262		175,976		0		(4,462	)		0		(4,462	)
NH-amundi global infra private fund 16		297,837		193,821		25,560		14,770			0		14,770
IMM Global Private Equity Fund		362,514		3,099		50,060		24,933			0		24,933
HANA Alternative Estate Professional Private122		39,878		38		2,608		1,160			0		1,160
SH Corporate Professional Investment Type Private Security Investment Trust No.7		268,037		167,939		3,231		415			0		415
SH BNCT Professional Investment Type Private Special Asset Investment Trust		389,240		0		14,978		14,978			0		14,978
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		54,914		756		23,920		2,948			0		2,948
BRAIN DO PROFESSIONALE PRIVATE No. 27		3,351		0		2,002		2,002			0		2,002
Sparklabs-Shinhan Opportunity Fund 1		9,372		0		0		(388	)		0		(388	)
BNW Tech-Innovation Private Equity Fund		20,215		513		95		(204	)		0		(204	)
IGIS Real-estate Private Investment Trust No.33		87,790		53,808		1,123		440			0		440

F-1

71

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
WWG Global Real Estate Investment Trust no.4	W	36,030		11		2,538		293			0		293
Goduck Gangil10 PFV Co., Ltd		253,607		261,969		0		(8,526	)		0		(8,526	)
Fidelis Global Private Real Estate Trust No.2		25,271		6		1,575		1,532			0		1,532
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		172,398		909		23,567		21,983			0		21,983
Shinhan Healthcare Fund 2		35		138		340		(7,310	)		0		(7,310	)
Pebblestone CGV Private Real Estate Trust No.1		64,667		36,415		7,147		2,350			0		2,350
Shinhan AIM Real Estate Fund No.2		79,162		1,580		9,672		(3,666	)		0		(3,666	)
Shinhan AIM Real Estate Fund No.1		226,809		15,901		20,209		8,467			0		8,467
SH Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust		149,702		75		4,451		4,152			0		4,152
SH Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		70,637		236		0		(1,231	)		0		(1,231	)
SH Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2(USD)		26,429		33		2,310		(2,105	)		0		(2,105	)
Korea Omega-Shinhan Project Fund I		14,488		0		0		(1,373	)		0		(1,373	)
ST-Bonanja Food tech		8,650		0		3,666		3,519			0		3,519
Samsung SRA Real Estate Professional Private 45		56,083		4,564		3,833		(1,769	)		0		(1,769	)
IBK Global New Renewable Energy Special Asset Professional Private2		114,645		4,633		5,520		5,265			0		5,265
VS Cornerstone Fund		8,281		0		2		(132	)		0		(132	)
Aone Mezzanine Opportunity Professional Private		15,247		800		1,409		(18	)		0		(18	)
NH-Amundi US Infrastructure Private Fund2		104,374		61		6,769		5,351			0		5,351

F-17

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
KB Distribution Private Real Estate1	W	50,014		508		2,335		2,289			0		2,289
SH Japan Photovoltaic Private Special Asset Investment Trust No.2		43,540		155		7,216		2,216			0		2,216
Kakao-Shinhan 1st TNYT Fund		29,948		133		8		(379	)		0		(379	)
IMM Special Situation 1-2 PRIVATE EQUITY FUND		57,965		3		4,610		4,418			0		4,418
Pacific Private Placement Real Estate Fund No.40		46,898		0		398		398			0		398
Mastern Private Real Estate Loan Fund No.2		22,453		139		549		410			0		410
LB Scotland Amazon Fulfillment Center Fund 29		44,614		37		5,177		3,345			0		3,345
JR AMC Hungary Budapest Office Fund 16		38,545		1,271		0		0			0		0
EDNCENTRAL Co.,Ltd.		94,405		96,892		1,381		(5,093	)		0		(5,093	)
Future-Creation Neoplux Venture Capital Fund		22,488		3,919		10,294		1,332			0		1,332
Gyeonggi-Neoplux Superman Fund		36,815		620		21,349		17,163			0		17,163
NewWave 6th Fund		48,185		0		4,009		2,434			0		2,434
KTC-NP Growth Champ 2011-2 Private Equity Fund		80,853		9,024		20,479		20,472			0		20,472
Neoplux No.3 Private Equity Fund		226,970		962		38,467		21,233			0		21,233
PCC Amberstone Private Equity Fund I		105,169		0		12,174		12,302			0		12,302
KIAMCO POWERLOAN TRUST 4TH		95,658		24		3,282		3,188			0		3,188
Mastern Opportunity Seeking Real Estate Fund II		111,276		4,692		11,332		11,274			0		11,274
AION ELFIS PROFESSIONAL PRIVATE 1		22,143		31		4,212		1,219			0		1,219
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business		15,062		374		0		(312	)		0		(312	)
Neoplux Market-Frontier Secondary Fund		58,273		954		7,913		1,932			0		1,932
Harvest Private Equity Fund II		15,877		97		2,496		2,262			0		2,262

F-17

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Synergy Green New Deal 1st New Technology Business Investment Fund	W	34,379		0		977		(272	)		0		(272	)
KAIM Real-estate Private Investment Trust 20		13,125		0		125		125			0		125
KIAMCO Vietnam Solar Special Asset Private Investment Trust		15,065		12		0		0			0		0
Daishin New Technology Investment Fund 5th		18,970		30		6,903		6,778			0		6,778
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		5,269		75		425		195			0		195
Acurus Hyundai Investment Partners New Technology		17,642		42		6,881		6,679			0		6,679
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		60,740		59		6,767		6,637			2,339		8,976
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		60,740		59		6,767		6,637			2,339		8,976
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45		134,667		94,282		6		(8,090	)		0		(8,090	)
SHINHAN-NEO Core Industrial Technology Fund		11,439		0		5		(499	)		0		(499	)
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		90,848		38		3,650		2,767			0		2,767
SIMONE Mezzanine Fund No.3		10,404		9		345		253			0		253
Eum Private Equity Fund No.7		37,495		0		0		(573	)		0		(573	)
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		30,434		59		10,475		10,241			0		10,241
Kiwoom Hero No.4 Private Equity Fund		20,478		29		1		(1,908	)		0		(1,908	)

F-17

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
Vogo Canister Professional Trust Private Fund I	W	112,505		72		16,029		4,949			0		4,949
SW-S Fund		22,191		0		0		(909	)		0		(909	)
CL Buyout 1st PEF		64,518		159		1		(390	)		0		(390	)
Timefolio The Venture-V second		22,829		769		3,361		2,941			0		2,941
Newlake Growth Capital Partners2 PEF		43,187		0		290		(263	)		0		(263	)
Shinhan Smilegate Global PEF I		23,469		0		0		(281	)		0		(281	)
Fount Professional Investors Private Investment Trust No.3		10,416		17		411		394			0		394
Genesis Eco No.1 PEF		38,369		4		308		(377	)		0		(377	)
SHINHAN-NEO Market-Frontier 2nd Fund		58,138		513		1,466		(2,375	)		0		(2,375	)
NH-Synergy Core Industrial New Technology Fund		17,430		0		0		(170	)		0		(170	)
J& Moorim Jade Investment Fund		22,265		6		356		160			0		160
Ulmus SHC innovation investment fund		21,601		0		956		801			0		801
Mirae Asset Partners X Private Equity Fund		22,035		33		1		(398	)		0		(398	)
T Core Industrial Technology 1st Venture PEF		14,418		5		197		113			0		113
Curious Finale Corporate Recovery Private Equity Fund		13,346		61		1,275		1,126			0		1,126
TI First Property Private Investment Trust 1		7,654		17		156		139			0		139
MPLUS Professional Private Real Estate Fund 25		8,186		290		451		396			0		396
IBKC Global Contents Investment Fund		20,265		0		0		(235	)		0		(235	)
Nautic Smart No.6 Private Equity Fund		10,565		32		50		(68	)		0		(68	)
Premier Luminous Private Equity Fund		25,170		3		0		(375	)		0		(375	)
Hanyang-Meritz 1 Fund		15,423		0		0		(77	)		0		(77	)
KNT 2ND PRIVATE EQUITY FUND		19,133		9		5,402		5,324			0		5,324
Maple Mobility Fund		43,024		1		0		(2,930	)		0		(2,930	)
AVES 1st Corporate Recovery Private Equity Fund		6,215		0		0		(85	)		0		(85	)

F-17

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Asset		Liability		Operating revenue		Net profit (loss)			Other comprehensive income (loss)		Total comprehensive income (loss)
JS Shinhan Private Equity Fund	W	130,967		1		7		(1,036	)		0		(1,036	)
Daishin Newgen New Technology Investment Fund 1 st		24,050		2		1		8,238			0		8,238
META ESG Private Equity Fund I		21,722		0		1		(178	)		0		(178	)
SWFV FUND-1		24,055		90		0		(135	)		0		(135	)
PHAROS DK FUND		16,349		60		0		(210	)		0		(210	)
Shinhan VC tomorrow venture fund 1		22,603		0		23		(397	)		0		(397	)
Highland 2021-8 Fund		15,000		2		0		(2	)		0		(2	)
Medicii 2021-3 Fund		39,217		15		0		(98	)		0		(98	)
Tres-Yujin Trust		20,000		11		0		(11	)		0		(11	)
Shinhan-Time mezzanine blind Fund		29,885		0		0		(115	)		0		(115	)
Capstone REITs No.26		12,223		3,433		0		0			0		0
JB Incheon-Bucheon REITS No.54		12,718		2		0		(2	)		0		(2	)
Hankook Smart Real Asset Investment Trust No.3		13,146		120		532		506			0		506
JB Hwaseong-Hadong REITs No.53		16,113		2		0		(2	)		0		(2	)
KB Oaktree Trust No.3		9,552		77		130		52			0		52
Daehan No.36 Office Asset Management Company		133,884		95,993		1,000		111			0		111
Rhinos Premier Mezzanine Private Investment Fund No.1		10,759		0		19		17			0		17
SH Real Estate Loan Investment Type Private Real Estate Investment Trust No.2		66,959		12		1,617		1,605			0		1,605
Shinhan JigaeNamsan Road Private Special Asset Investment Trust		161,417		27		467		440			0		440
SKS-Yozma Fund No.1		19,915		0		1		(185	)		0		(185	)

(*) Excluded the financial information of associates that are not subject to equity method due to disposal or of which the financial information is not available as of end of the year.

F-17

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying value of its interests in the associates as of December 31, 2020 and 2021 are as follows:

	2020
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions			Other		Carrying value
BNP Paribas Cardif Life Insurance	W	337,586			14.99		50,632			(32	)		0		50,600
Songrim Partners(*1)		(62	)		35.34		(22	)		0			22		0
Partners 4th Growth Investment Fund		47,832			25.00		11,958			0			0		11,958
KTB Newlake Global Healthcare PEF(*2)		30,780			30.00		9,234			0			170		9,404
Daekwang Semiconductor Co., Ltd.		17,343			20.94		3,631			0			0		3,631
Shinhan-Neoplux Energy Newbiz Fund		44,590			31.66		14,470			0			0		14,470
Shinhan-Albatross tech investment Fund		27,300			49.97		13,322			0			0		13,322
Eum Private Equity Fund No.3		16			20.76		3			0			0		3
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		0			23.89		0			0			0		0
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		0			20.16		0			0			0		0
VOGO Debt Strategy Qualified INV Private		43,512			20.00		8,702			0			0		8,702
Shinhan-Midas Donga Secondary Fund		9,504			50.00		4,752			0			0		4,752
ShinHan – Soo Young Entrepreneur Investment Fund No.1		41,532			24.00		9,968			0			0		9,968
Shinhan Praxis K-Growth Global Private Equity Fund		52,707			18.87		9,945			0			0		9,945
Credian Healthcare Private Equity Fund II		17,126			34.07		5,835			0			0		5,835
Kiwoom Milestone Professional Private Real Estate Trust 19		19,835			50.00		9,918			0			0		9,918
AIP EURO Green Private Real Estate Trust No.3		98,780			21.28		21,021			0			0		21,021
Hanhwa US Equity Strategy Private Real Estate Fund No.1		5,077			44.84		2,277			0			0		2,277
Shinhan Global Healthcare Fund 1(*1)		(2,049	)		4.41		(90	)		0			90		0
JB Power TL Investment Type Private Placement Special Asset Fund 7		48,560			33.33		16,186			0			0		16,186
KB NA Hickory Private Special Asset Fund		93,167			37.50		34,938			0			0		34,938
Koramco Europe Core Private Placement Real Estate Fund No.2-2		42,291			44.02		18,618			0			0		18,618
BNP Paribas Cardif General Insurance		52,215			7.46		3,895			0			0		3,895
Hermes Private Investment Equity Fund		20,911			29.17		6,099			0			0		6,099
Shinhan-Nvestor Liquidity Solution Fund		18,032			24.92		4,493			0			0		4,493
Shinhan AIM FoF Fund 1a		35,040			25.00		8,760			0			0		8,760
IGIS Global Credit Fund 150-1		29,129			25.00		7,282			0			0		7,282
Soo Commerce Platform Growth Fund		4,658			24.62		1,147			0			0		1,147
Partner One Value up I Private Equity Fund		42,205			27.91		11,779			0			0		11,779
Genesis No.1 Private Equity Fund		351,329			22.80		80,113			0			0		80,113

F-17

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions		Other		Carrying value
Korea Omega Project Fund III	W	15,141			23.53		3,563			0		0		3,563
Soo Delivery Platform Growth Fund		13,560			30.00		4,068			0		0		4,068
Genesis North America Power Company No.1 PEF		42,494			39.96		16,983			0		0		16,983
Hyungje art printing(*1)		(264	)		31.54		(83	)		0		83		0
SHBNPP MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		45,350			23.33		10,582			0		0		10,582
Shinhan-Rhinos 1 Fund		11,560			22.48		2,599			0		0		2,599
Pacific Private Investment Trust No.20		13,794			21.74		2,999			0		0		2,999
Susung Mezzanine project P1 Private Investment Trust		3,220			41.31		1,345			0		0		1,345
Korea Finance Security		20,490			14.91		3,055			0		0		3,055
Multimedia Tech Co.Ltd.(*1)		(69	)		21.06		(15	)		0		15		0
MIEL CO.,LTD(*1)		(85	)		28.77		(25	)		0		25		0
AIP Transportation Specialized Privately Placed Fund Trust #1		92,353			35.73		32,993			0		0		32,993
DB Epic Convertiblebond Private Trust No.2		11,348			50.98		5,785			0		0		5,785
E&Healthcare Investment Fund No.6		72,023			21.05		15,163			0		—		15,163
One Shinhan Global Fund1		22,244			19.96		4,029			0		0		4,029
Kiwoom-Shinhan Innovation Fund I		31,938			50.00		15,969			0		0		15,969
Daishin-K&T New Technology Investment Fund		22,400			31.25		7,000			0		0		7,000
Midas Asset Global CRE Debt Private Fund No.6		115,122			41.16		47,389			0		0		47,389
Richmond Private Investment Trust No.82		25,082			60.00		15,049			0		0		15,049
Tiger Alternative Real Estate Professional Private5		37,978			48.71		18,499			0		0		18,499
Samchully Midstream Private Placement Special Asset Fund 5-4		67,141			42.92		28,818			0		0		28,818
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		327,917			20.00		65,616			0		0		65,616
NH-Amundi Global Infrastructure Trust 14		62,728			30.00		18,819			0		0		18,819
Jarvis Memorial Private Investment Trust 1		10,143			99.01		10,043			0		0		10,043
Mastern Private Private Invetstment Trust 68		18,620			53.76		10,010			0		0		10,010
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		59,402			60.00		35,641			0		0		35,641
Milestone Private Real Estate Fund 3		57,790			32.06		18,528			0		0		18,528
IGIS Private Real Estate Investment Trust 286		21,341			41.44		8,844			0		0		8,844
Nomura-Rifa Private Real Estate Investment Trust 31		26,849			31.31		8,407			0		0		8,407
SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		62,637			21.27		13,323			0		0		13,323

F-17

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions		Other		Carrying value
Hana Semiconductor New Technology Fund	W	99,315			24.30		24,131			0		0		24,131
J&Magnet Startup Venture Specialized Private Equity Fund		24,331			24.39		5,935			0		0		5,935
Cape IT Fund No.3		32,373			32.89		10,649			0		0		10,649
FuturePlay-Shinhan TechInnovation Fund 1		8,590			50.00		4,295			0		0		4,295
Stonebridge Corporate 1st Fund		7,341			44.12		3,239			0		0		3,239
Vogo Realty Partners Private Real Estate Fund V		50,040			21.64		10,827			0		0		10,827
Korea Credit Bureau		77,509			9.00		6,976			0		0		6,976
Goduck Gangil1 PFV Co., Ltd (*1)		(13,927	)		1.04		(145	)		0		145		0
SBC PFV Co., Ltd		112,795			25.00		18,208			0		0		18,208
NH-amundi global infra private fund 16		87,678			50.00		43,839			0		0		43,839
IMM Global Private Equity Fund		366,202			33.00		120,855			0		0		120,855
HANA Alternative Estate Professional Private122		39,411			75.19		29,631			0		0		29,631
Hanwha-Incus Plus New Technology Fund No.1		25,860			42.64		11,026			0		0		11,026
SHBNPP Corporate Professional Investment Type Private Security Investment Trust No.7		111,426			45.96		51,210			0		0		51,210
SHBNPP BNCT Professional Investment Type Private Special Asset Investment Trust		395,815			72.39		286,531			0		0		286,531
PSA EMP Private Equity Fund		33,856			28.99		9,814			0		0		9,814
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		56,242			52.28		29,401			0		0		29,401
BRAIN DO PROFESSIONALE PRIVATE No. 27		11,815			29.13		3,441			0		0		3,441
UI Venture Fund 7th		13,445			24.39		3,279			0		0		3,279
Sparklabs-Shinhan Opportunity Fund 1		9,760			49.50		4,832			0		0		4,832
BNW Tech-Innovation Private Equity Fund		19,906			29.85		5,942			0		0		5,942
IGIS Real-estate Private Investment Trust No.33		34,507			40.86		14,099			0		0		14,099
Findvalue PreIPO 6th Professional Investment Type Private Investment Trust.		9,505			31.58		3,002			0		0		3,002
WWG Global Real Estate Investment Trust no.4		60,071			29.55		17,752			0		0		17,752
Fidelis Global Private Real Estate Trust No.2		24,899			78.26		19,485			0		0		19,485
IGIS PRIVATE REAL ESTATE TRUST NO.331		12,238			30.77		3,765			0		0		3,765
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		172,755			28.70		48,344			0		0		48,344
Pebblestone CGV Private Real Estate Trust No.1		27,502			48.53		13,346			0		0		13,346
Shinhan AIM Real Estate Fund No.2		74,880			30.00		22,464			0		0		22,464
Shinhan AIM Real Estate Fund No.1		223,443			21.01		46,945			0		0		46,945
SHBNPP Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust		149,611			22.02		32,944			0		0		32,944
SHBNPP Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		71,605			29.19		20,902			0		0		20,902

F-17

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions		Other		Carrying value
SHBNPP Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2	W	9,368		71.43		6,692		0		0		6,692
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No. 1		16,150		30.00		4,845		0		0		4,845
Korea Omega-Shinhan Project Fund I		11,861		50.00		5,931		0		0		5,931
New Green Shinhan Mezzanine Fund		12,537		39.22		4,916		0		0		4,916
KORAMKO-Daum Professional Private Investment Trust No.12		22,583		33.33		7,528		0		0		7,528
Samsung SRA Real Estate Professional Private 45		42,665		25.00		10,666		0		0		10,666
IBK Global New Renewable Energy Special Asset Professional Private2		111,605		28.98		32,349		0		0		32,349
VS Cornerstone Fund		8,413		41.18		3,464		0		0		3,464
Aone Mezzanine Opportunity Professional Private		14,490		66.12		9,580		0		0		9,580
KiwoomUnicorn3New Technology Business Investment Fund		20,132		21.28		4,283		0		0		4,283
Multi Asset The United States Thortons Professional Private1		165,760		25.00		41,440		0		0		41,440
Kiwoom Milestone US Real Estate Professional Private20		68,434		75.27		51,512		0		0		51,512
NH-Amundi US Infrastructure Private Fund2		98,161		25.91		25,430		0		0		25,430
KB Distribution Private Real Estate1		49,513		62.00		30,698		0		0		30,698
SHBNPP Jigae Namsan BTO professional Investment Type Private Special Asset Investment Trust		71,593		28.93		20,712		0		0		20,712
SHBNPP Japan Photovoltaic Private Special Asset Investment Trust No.2		97,164		30.00		29,149		0		0		29,149
Kakao-Shinhan 1st TNYT Fund		11,683		48.62		5,681		0		0		5,681
IMM Special Situation 1-2 PRIVATE EQUITY FUND		54,295		20.02		10,870		0		0		10,870
Pacific Private Placement Real Estate Fund No.40		47,094		24.73		11,647		0		0		11,647
Mastern Private Real Estate Loan Fund No.2		16,955		33.57		5,692		0		0		5,692
LB Scotland Amazon Fulfillment Center Fund 29		44,455		70.14		31,182		0		0		31,182
JR AMC Hungary Budapest Office Fund 16		37,469		32.57		12,204		0		0		12,204
IGIS 372 Real Estate Professional Private		200,192		28.39		56,835		0		0		56,835
KoFC-Neoplux R&D-Biz Creation 2013-1 Venture Capital Fund		15,636		19.00		3,830		0		0		3,830
Future-Creation Neoplux Venture Capital Fund		23,134		16.25		3,796		0		0		3,796
Gyeonggi-Neoplux Superman Fund		31,712		21.76		6,399		0		0		6,399
NewWave 6th Fund		20,501		30.00		6,150		0		0		6,150
Neoplux No.3 Private Equity Fund		102,956		10.00		10,295		0		0		10,295

F-1

80

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2020
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions			Other		Carrying value
PCC Amberstone Private Equity Fund I	W	103,736		21.67		22,480		0			0		22,480
KIAMCO POWERLOAN TRUST 4TH		92,794		47.37		43,955		0			0		43,955
Mastern Opportunity Seeking Real Estate Fund II		98,994		20.00		19,799		0			0		19,799
AION ELFIS PROFESSIONAL PRIVATE 1		27,642		20.00		5,528		0			0		5,528
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business		15,001		29.68		4,453		0			0		4,453
Neoplux Market-Frontier Secondary Fund		54,727		19.74		11,545		0			0		11,545
Synergy Green New Deal 1st New Technology Business Investment Fund		35,527		28.17		10,008		0			0		10,008
KAIM Real-estate Private Investment Trust 20		13,254		38.46		5,098		0			0		5,098
KIAMCO Vietnam Solar Special Asset Private Investment Trust		15,896		50.00		7,948		0			0		7,948
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		5,000		62.50		3,125		0			0		3,125
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		45,573		97.85		44,594		0			0		44,594
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		45,573		97.85		44,594		0			0		44,594
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45		48,475		25.00		15,855		0			0		15,855
IGIS Professional Investors Private Investment Real Estate Investment LLC No.395		50,394		58.82		29,644		0			0		29,644
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		70,473		30.00		21,142		0			0		21,142
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		20,134		25.00		5,034		0			0		5,034
Kiwoom Hero No.4 Private Equity Fund		22,358		21.05		4,707		0			0		4,707
Vogo Canister Professional Trust Private Fund I		119,892		36.68		43,975		0			0		43,975
Others		519,091				139,164		0			0		139,164
	W	8,101,037				2,657,250		(32	)		550		2,657,768

(*1) Other represents the adjustments of fair value when acquired.

(*2) The adjustments for others are the unrecognized equity method for preferred stocks without voting rights issued by the invested company.

F-1

81

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions			Other		Carrying value
BNP Paribas Cardif Life Insurance	W	293,634			14.99		44,039			(17	)		0		44,022
Songrim Partners (*1)		(62	)		35.34		(22	)		0			22		0
Partners 4th Growth Investment Fund		52,134			25.00		13,033			0			0		13,033
KTB Newlake Global Healthcare PEF (*1)		30,808			30.00		9,299			0			113		9,412
Shinhan-Neoplux Energy Newbiz Fund		65,211			31.66		16,032			0			0		16,032
Shinhan-Albatross tech investment Fund		20,213			50.00		10,389			0			0		10,389
VOGO Debt Strategy Qualified IV Private		35,896			20.00		7,179			0			0		7,179
Shinhan-Midas Donga Secondary Fund		7,902			50.00		3,951			0			0		3,951
ShinHan – Soo Young Entrepreneur Investment Fund No.1		17,608			24.00		4,226			0			0		4,226
Shinhan Praxis K-Growth Global Private Equity Fund		41,133			18.87		7,761			0			0		7,761
Kiwoom Milestone Professional Private Real Estate Trust 19		10,505			50.00		5,253			0			0		5,253
AIP EURO Green Private Real Estate Trust No.3		139,576			21.28		29,703			0			0		29,703
Shinhan Global Healthcare Fund 1 (*1)		(3,464	)		4.41		(153	)		0			153		0
KB NA Hickory Private Special Asset Fund		91,668			37.50		34,376			0			0		34,376
Koramco Europe Core Private Placement Real Estate Fund No.2-2		44,275			44.02		19,492			0			0		19,492
BNP Paribas Cardif General Insurance		61,431			5.46		3,354			0			0		3,354
Hermes Private Investment Equity Fund		33,537			29.17		9,782			0			0		9,782
Shinhan-Nvestor Liquidity Solution Fund		21,420			24.92		5,338			0			0		5,338
Shinhan AIM FoF Fund 1a		36,623			25.00		9,156			0			0		9,156
IGIS Global Credit Fund 150-1		21,609			25.00		5,402			0			0		5,402
Partner One Value up I Private Equity Fund		28,273			27.91		7,891			0			0		7,891
Genesis No.1 Private Equity Fund		243,534			22.80		55,533			0			0		55,533
Korea Omega Project Fund III		18,234			23.53		4,290			0			0		4,290
Soo Delivery Platform Growth Fund		19,578			30.00		5,873			0			0		5,873
Genesis North America Power Company No.1 PEF		34,310			40.03		13,736			0			0		13,736
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		178,069			23.33		41,549			0			0		41,549
Korea Finance Security		20,078			14.91		2,994			0			0		2,994
MIEL CO.,LTD. (*1)		(141	)		28.77		(41	)		0			41		0
AIP Transportation Specialized Privately Placed Fund Trust #1		97,097			35.73		34,688			0			0		34,688
E&Healthcare Investment Fund No.6		32,615			21.05		6,866			0			0		6,866
One Shinhan Global Fund 1		15,758			20.56		3,773			0			0		3,773
Kiwoom-Shinhan Innovation Fund I		23,462			50.00		11,731			0			0		11,731
Daishin-K&T New Technology Investment Fund		25,571			31.25		7,991			0			0		7,991

F-18

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions		Other			Carrying value
Midas Asset Global CRE Debt Private Fund No.6	W	117,347			41.16		48,305			0		0			48,305
Samchully Midstream Private Placement Special Asset Fund 5-4		65,931			42.92		27,471			0		0			27,471
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		126,020			20.00		25,204			0		0			25,204
NH-Amundi Global Infrastructure Trust 14		61,004			30.00		18,301			0		0			18,301
Jarvis Memorial Private Investment Trust 1		10,210			99.01		10,109			0		0			10,109
Vestas Qualified Investors Private Real Estate Fund Investment Trust No.37		55,254			60.00		33,153			0		0			33,153
Milestone Private Real Estate Fund 3		57,842			32.06		18,544			0		0			18,544
Nomura-Rifa Private Real Estate Investment Trust 31		25,108			31.31		7,902			0		0			7,902
SH Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		48,124			21.27		10,236			0		0			10,236
Cape IT Fund No.3		30,599			32.89		10,065			0		0			10,065
FuturePlay-Shinhan TechInnovation Fund 1		14,297			50.00		7,149			0		0			7,149
Stonebridge Corporate 1st Fund		6,718			44.12		2,964			0		0			2,964
Vogo Realty Partners Private Real Estate Fund V		49,760			21.64		10,766			0		0			10,766
Korea Credit Bureau		85,497			9.00		7,695			0		0			7,695
Goduck Gangil1 PFV Co., Ltd (*1)		(15,763	)		1.04		(164	)		0		164			0
SBC PFV Co., Ltd. (*2)		158,286			25.00		34,581			0		(4,995	)		29,586
NH-amundi global infra private fund 16		104,016			50.00		52,008			0		0			52,008
IMM Global Private Equity Fund		359,415			33.00		118,615			0		0			118,615
HANA Alternative Estate Professional Private122		39,840			74.02		29,489			0		0			29,489
SH Corporate Professional Investment Type Private Security Investment Trust No.7		100,098			45.96		49,899			0		0			49,899
SH BNCT Professional Investment Type Private Special Asset Investment Trust		389,240			72.50		282,199			0		0			282,199
Deutsche Global Professional Investment Type Private Real Estate Investment Trust No. 24		54,158			52.28		28,312			0		0			28,312
BRAIN DO PROFESSIONALE PRIVATE No. 27		3,351			29.13		976			0		0			976
Sparklabs-Shinhan Opportunity Fund 1		9,372			49.50		4,640			0		0			4,640
BNW Tech-Innovation Private Equity Fund		19,702			29.85		5,881			0		0			5,881

F-18

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions		Other		Carrying value
IGIS Real-estate Private Investment Trust No.33	W	33,982			40.86		13,884			0		0		13,884
WWG Global Real Estate Investment Trust no.4		36,019			29.55		10,644			0		0		10,644
Goduck Gangil10 PFV Co., Ltd (*1)		(8,362	)		19.90		(1,664	)		0		1,664		0
Fidelis Global Private Real Estate Trust No.2		25,265			78.26		19,773			0		0		19,773
AIP EURO PRIVATE REAL ESTATE TRUST No. 12		171,489			28.70		49,217			0		0		49,217
Shinhan Healthcare Fund 2 (*1)		(103	)		13.68		(14	)		0		14		0
Pebblestone CGV Private Real Estate Trust No.1		28,252			48.53		13,710			0		0		13,710
Shinhan AIM Real Estate Fund No.2		77,582			30.00		23,275			0		0		23,275
Shinhan AIM Real Estate Fund No.1		210,908			21.01		44,312			0		0		44,312
SH Daegu Green Power Cogeneration System Professional Investment Type Private Special Asset Investment Trust		149,627			22.02		32,948			0		0		32,948
SH Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		70,401			29.19		20,550			0		0		20,550
SH Global Infrastructure Professional Investment Type Private Special Asset Investment Trust No.7-2(USD)		26,396			71.43		18,855			0		0		18,855
Korea Omega-Shinhan Project Fund I		14,488			50.00		7,244			0		0		7,244
ST-Bonanja Food tech		8,650			38.83		3,359			0		0		3,359
Samsung SRA Real Estate Professional Private 45		51,519			25.00		12,880			0		0		12,880
IBK Global New Renewable Energy Special Asset Professional Private2		110,012			28.98		31,887			0		0		31,887
VS Cornerstone Fund		8,281			41.18		3,410			0		0		3,410
Aone Mezzanine Opportunity Professional Private		14,447			66.09		9,540			0		0		9,540
NH-Amundi US Infrastructure Private Fund2		104,313			25.91		27,024			0		0		27,024
KB Distribution Private Real Estate1		49,506			62.00		30,694			0		0		30,694
SH Japan Photovoltaic Private Special Asset Investment Trust No.2		43,385			30.00		13,016			0		0		13,016
Kakao-Shinhan 1st TNYT Fund		29,815			48.62		14,497			0		0		14,497
IMM Special Situation 1-2 PRIVATE EQUITY FUND		57,962			20.00		11,593			0		0		11,593

F-18

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions		Other		Carrying value
Pacific Private Placement Real Estate Fund No.40	W	46,898			24.73		11,598			0		0		11,598
Mastern Private Real Estate Loan Fund No.2		22,314			33.57		7,491			0		0		7,491
LB Scotland Amazon Fulfillment Center Fund 29		44,577			70.14		31,268			0		0		31,268
JR AMC Hungary Budapest Office Fund 16		37,274			32.57		12,140			0		0		12,140
EDNCENTRAL Co.,Ltd. (*1)		(2,487	)		19.87		(494	)		0		494		0
Future-Creation Neoplux Venture Capital Fund		18,569			16.25		3,017			0		0		3,017
Gyeonggi-Neoplux Superman Fund		36,195			21.76		7,878			0		0		7,878
NewWave 6th Fund		48,185			30.00		14,455			0		0		14,455
KTC-NP Growth Champ 2011-2 Private Equity Fund		71,829			5.56		3,990			0		0		3,990
Neoplux No.3 Private Equity Fund		226,008			10.00		22,601			0		0		22,601
PCC Amberstone Private Equity Fund I		105,169			21.67		22,790			0		0		22,790
KIAMCO POWERLOAN TRUST 4TH		95,634			47.37		45,301			0		0		45,301
Mastern Opportunity Seeking Real Estate Fund II		106,584			20.00		21,317			0		0		21,317
AION ELFIS PROFESSIONAL PRIVATE 1		22,112			20.00		4,422			0		0		4,422
T&F 2020 SS Private Equity Fund Specializing in Start-up and Venture Business		14,688			29.68		4,360			0		0		4,360
Neoplux Market-Frontier Secondary Fund		57,319			19.74		11,313			0		0		11,313
Harvest Private Equity Fund II		15,780			22.06		3,481			0		0		3,481
Synergy Green New Deal 1st New Technology Business Investment Fund		34,379			28.17		9,684			0		0		9,684
KAIM Real-estate Private Investment Trust 20		13,125			38.46		5,048			0		0		5,048
KIAMCO Vietnam Solar Special Asset Private Investment Trust		15,053			50.00		7,527			0		0		7,527
Daishin New Technology Investment Fund 5th		18,940			23.44		4,439			0		0		4,439
CSQUARE SNIPER PROFESSIONAL PRIVATE 10		5,194			62.50		3,247			0		0		3,247
Acurus Hyundai Investment Partners New Technology		17,600			26.79		4,714			0		0		4,714
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-1		60,681			97.10		63,944			0		0		63,944
IGIS GLIP Professional Investment Private Real Estate Investment Trust No. 1-2		60,681			97.10		63,944			0		0		63,944

F-18

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions		Other		Carrying value
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45	W	40,385		25.00		14,778		0		0		14,778
SHINHAN-NEO Core Industrial Technology Fund		11,439		49.75		5,691		0		0		5,691
SHBNPP Green New Deal Energy Professional Investment Type Private Special Asset Investment Trust No.2		90,810		30.00		27,243		0		0		27,243
SIMONE Mezzanine Fund No.3		10,395		29.38		3,054		0		0		3,054
Eum Private Equity Fund No.7		37,495		21.00		7,873		0		0		7,873
Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		30,375		25.00		7,594		0		0		7,594
Kiwoom Hero No.4 Private Equity Fund		20,449		21.05		4,305		0		0		4,305
Vogo Canister Professional Trust Private Fund I		112,433		36.53		41,072		0		0		41,072
SW-S Fund		22,191		30.30		6,724		0		0		6,724
CL Buyout 1st PEF		64,359		21.43		13,791		0		0		13,791
Timefolio The Venture-V second		22,060		20.73		4,572		0		0		4,572
Newlake Growth Capital Partners2 PEF		43,187		29.91		12,921		0		0		12,921
Shinhan Smilegate Global PEF I		23,469		14.21		3,336		0		0		3,336
Fount Professional Investors Private Investment Trust No.3		10,399		49.98		5,197		0		0		5,197
Genesis Eco No.1 PEF		38,365		29.01		11,130		0		0		11,130	��
SHINHAN-NEO Market-Frontier 2nd Fund		57,625		42.70		24,606		0		0		24,606
NH-Synergy Core Industrial New Technology Fund		17,430		36.93		6,437		0		0		6,437
J& Moorim Jade Investment Fund		22,259		24.89		5,540		0		0		5,540
Ulmus SHC innovation investment fund		21,601		24.04		5,192		0		0		5,192
Mirae Asset Partners X Private Equity Fund		22,002		35.71		7,858		0		0		7,858
T Core Industrial Technology 1st Venture PEF		14,413		31.47		4,535		0		0		4,535
Curious Finale Corporate Recovery Private Equity Fund		13,285		27.78		3,690		0		0		3,690
TI First Property Private Investment Trust 1		7,637		40.00		3,055		0		0		3,055
MPLUS Professional Private Real Estate Fund 25		7,896		41.67		3,290		0		0		3,290
IBKC Global Contents Investment Fund		20,265		24.39		4,943		0		0		4,943
Nautic Smart No.6 Private Equity Fund		10,533		37.74		3,974		0		0		3,974
Premier Luminous Private Equity Fund		25,167		27.78		6,991		0		0		6,991
Hanyang-Meritz 1 Fund		15,423		22.58		3,483		0		0		3,483
KNT 2ND PRIVATE EQUITY FUND		19,124		21.74		4,157		0		0		4,157
Maple Mobility Fund		43,023		20.18		8,683		0		0		8,683

F-18

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

	2021
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions			Other		Carrying value
AVES 1st Corporate Recovery Private Equity Fund	W	6,215		76.19		4,736		0			0		4,736
JS Shinhan Private Equity Fund		130,966		3.85		5,037		0			0		5,037
Daishin Newgen New Technology Investment Fund 1 st		24,048		50.60		12,169		0			0		12,169
META ESG Private Equity Fund I		21,722		27.40		5,677		0			0		5,677
SWFV FUND-1		23,965		40.25		9,646		0			0		9,646
PHAROS DK FUND		16,289		24.24		3,949		0			0		3,949
Shinhan VC tomorrow venture fund 1		22,603		39.62		9,042		0			0		9,042
Highland 2021-8 Fund		14,998		32.67		4,899		0			0		4,899
Medicii 2021-3 Fund		39,202		24.81		9,728		0			0		9,728
Tres-Yujin Trust		19,989		50.00		9,995		0			0		9,995
Shinhan-Time mezzanine blind Fund		29,885		50.00		14,942		0			—		14,942
Capstone REITs No.26		8,790		50.00		4,395		0			0		4,395
JB Incheon-Bucheon REITS No.54		12,716		39.31		4,999		0			0		4,999
Hankook Smart Real Asset Investment Trust No.3		13,026		33.33		4,342		0			0		4,342
JB Hwaseong-Hadong REITs No.53		16,111		31.03		4,999		0			0		4,999
KB Oaktree Trust No.3		9,475		33.33		3,159		0			0		3,159
Daehan No.36 Office Asset Management Company (*1)		37,891		48.05		18,206		0			3,294		21,500
Rhinos Premier Mezzanine Private Investment Fund No.1		10,759		27.93		3,005		0			0		3,005
SH Real Estate Loan Investment Type Private Real Estate Investment Trust No.2		66,947		29.73		19,903		0			0		19,903
Shinhan JigaeNamsan Road Private Special Asset Investment Trust		161,390		24.85		40,105		0			0		40,105
SKS-Yozma Fund No.1		19,915		29.85		5,945		0			0		5,945
Others		666,941				367,840		0			1,492		369,332
	W	8,508,993				2,911,306		(17	)		2,456		2,913,745

(*1) Other represents the adjustments of fair value when acquired.

(*2) The adjustments for others are the unrecognized equity method for preferred stocks without voting rights issued by the invested company.

F-18

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

15. Investments in associates (continued)

(e) The unrecognized equity method losses as of and for the years ended December 31, 2020 and 2021 are as follows:

	2020
Investees	Unrecognized equity method losses			Cumulative unrecognized equity method losses
Songrim Partners.	W	0			(22	)
Multimedia Tech Co. Ltd		(15	)		(15	)
Hyungje art printing		(83	)		(83	)
MIEL CO., LTD		(25	)		(25	)
Goduck Gangil1 PFV Co., Ltd		(145	)		(145	)
	W	(268	)		(290	)

	2021
Investees	Unrecognized equity method losses			Cumulative unrecognized equity method losses
Songrim Partners.	W	0			(22	)
MIEL CO., LTD		(16	)		(41	)
Goduck Gangil1 PFV Co., Ltd		(19	)		(164	)
Goduck Gangil10 PFV Co., Ltd		(1,664	)		(1,664	)
Shinhan Global Healthcare Fund 1		(153	)		(153	)
Shinhan Global Healthcare Fund 2		(14	)		(14	)
EDNCENTRAL Co., Ltd.		(494	)		(494	)
	W	(2,360	)		(2,552	)

16. Investment properties

(a) Investment properties as of December 31, 2020 and 2021 are as follows:

	2020			2021
Acquisition cost	W	767,118			852,458
Accumulated depreciation		(151,883	)		(177,067	)
Carrying value	W	615,235			675,391

(b) Changes in investment properties for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance	W	488,610			615,235
Acquisition		244,100			8,292
Disposal		(92,337	)		(2,279	)
Depreciation		(20,165	)		(21,616	)
Amounts transferred from (to) property and equipment		(4,064	)		73,773
Amounts transferred from (to) assets held for sale(*)		(910	)		2,238
Foreign currency adjustment		1			(252	)
Ending balance	W	615,235			675,391

(*) Comprise land and buildings, etc.

F-18

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

16. Investment properties (continued)

(c) Income and expenses on investment property for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019		2020		2021
Rental income	W	43,777		23,890		35,887
Direct operating expenses for investment properties that generated rental income		12,107		11,951		12,033

(d) The fair value of investment property as of December 31, 2020 and 2021 is as follows:

	2020		2021
Land and buildings (*)	W	1,254,149		1,374,389

(*) Fair value of investment properties is estimated based in the recent market transaction conditions with an independent third party and certain significant unobservable inputs. Accordingly, fair value of investment properties is classified as level 3.

17. Other assets

(a) Other assets as of December 31, 2020 and 2021 are as follows:

	2020			2021
Accounts receivable	W	12,511,880			12,754,436
Domestic exchange settlement debit		4,055,744			6,700,373
Guarantee deposits		1,145,045			1,077,644
Accrued income		2,535,847			2,655,894
Prepaid expense		202,218			491,950
Provisional payments		183,935			295,149
Sundry assets		106,341			88,797
Separate account assets		9,267,722			9,501,135
Advance payments		203,023			207,128
Unamortized deferred acquisition cost		979,942			954,949
Leased assets		1,016,013			1,395,334
Others		102,913			125,815
Discounted present value		(33,062	)		(30,614	)
Allowances for credit loss of other assets		(82,895	)		(244,236	)
	W 32,194,666			35,973,754

F-18

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

17. Other assets (continued)

(b) Changes in unamortized deferred acquisition cost by insurance type for the year ended December 31, 2020 and 2021 are as follows:

		2020
		Beginning balance		Acquisition cost incurred							Amortization			Ending balance
				Cost		Expensed			Deferral
Individual insurance
Pure endowment insurance		W	67,856		11,602		(6,450	)		5,152		(35,504	)		37,504
Death insurance			834,415		771,973		(298,355	)		473,618		(375,111	)		932,922
Endowment insurance			4,764		19,024		(11,001	)		8,023		(3,862	)		8,925
			907,035		802,599		(315,806	)		486,793		(414,477	)		979,351
Group insurance
Pure protection	��		833		343		(164	)		179		(421	)		591
		W	907,868		802,942		(315,970	)		486,972		(414,898	)		979,942

	2021
	Beginning balance		Acquisition cost incurred							Amortization			Ending balance
			Cost		Expensed			Deferral
Individual insurance
Pure endowment insurance	W	37,504		12,386		(3,680	)		8,706		(23,468	)		22,742
Death insurance		932,922		655,210		(278,147	)		377,063		(393,942	)		916,043
Endowment insurance		8,925		19,703		(8,382	)		11,321		(4,477	)		15,769
		979,351		687,299		(290,209	)		397,090		(421,887	)		954,554
Group insurance
Pure protection		591		170		(64	)		106		(302	)		395
	W	979,942		687,469		(290,273	)		397,196		(422,189	)		954,949

18. Leases

(a) Gross investment and present value of minimum lease payment of finance lease as of December 31, 2020 and 2021 are as follows:

	2020
	Gross investment		Unrealized interest income		Present value of minimum lease payment
Not later than 1 year	W	678,790		73,230		605,560
1 ~ 2 years		527,757		43,701		484,056
2 ~ 3 years		391,447		21,169		370,278
3 ~ 4 years		219,040		6,089		212,951
4 ~ 5 years		93,975		432		93,543
Later than 5 years		6,320		53		6,267
	W	1,917,329		144,674		1,772,655

(*) Interest income on finance lease receivables recognized for the year ended December 31, 2020 is W 76,742 million.

F-1

90

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

18. Leases (continued)

	2021
	Gross investment		Unrealized interest income		Present value of minimum lease payment
Not later than 1 year	W	635,826		65,349		570,477
1 ~ 2 years		470,800		39,631		431,169
2 ~ 3 years		308,999		18,738		290,261
3 ~ 4 years		191,257		6,606		184,651
4 ~ 5 years		113,638		4,417		109,221
Later than 5 years		5,170		32		5,138
	W	1,725,690		134,773		1,590,917

(*) Interest income on finance lease receivables recognized for the year ended December 31, 2021 is W 60,475 million.

(b) Minimum lease payment receivable schedule for lease contracts of the Group as lessor as of December 31, 2020 and 2021 are as follows:

i) Finance lease

	2020
	Minimum lease   payment		Present value     adjustment		Present value of minimum lease payment
Not later than 1 year	W	678,790		73,230		605,560
1 ~ 2 years		527,757		43,701		484,056
2 ~ 3 years		391,447		21,169		370,278
3 ~ 4 years		219,040		6,089		212,951
4 ~ 5 years		93,975		432		93,543
Later than 5 years		6,320		53		6,267
	W	1,917,329		144,674		1,772,655

	2021
	Minimum lease   payment		Present value     adjustment		Present value of minimum lease payment
Not later than 1 year	W	635,826		65,349		570,477
1 ~ 2 years		470,800		39,631		431,169
2 ~ 3 years		308,999		18,738		290,261
3 ~ 4 years		191,257		6,606		184,651
4 ~ 5 years		113,638		4,417		109,221
Later than 5 years		5,170		32		5,138
	W	1,725,690		134,773		1,590,917

F-1

91

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

18. Leases (continued)

ii) Operating lease

	Minimum lease payment
	2020		2021
Not later than 1 year	W	276,590		371,521
1 ~ 2 years		233,443		320,603
2 ~ 3 years		182,261		251,720
3 ~ 4 years		124,556		147,134
4 ~ 5 years		52,997		53,879
Later than 5 years		95,414		94,143
	W	965,261		1,239,000

(c) Changes in operating lease assets for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance	W	549,741			1,014,300
Acquisition		681,607			691,192
Disposal		(54,042	)		(54,721	)
Depreciation		(163,006	)		(257,033	)
Ending balance	W	1,014,300			1,393,738

(d) The details of the right-of-use assets by the lessee’s underlying asset type as of December 31, 2020 and 2021 are as follows:

	2020
	Acquisition cost		Accumulated depreciation			Carrying value
Real estate	W	953,135		(396,716	)		556,419
Vehicle		36,680		(16,059	)		20,621
Others		26,368		(12,991	)		13,377
	W	1,016,183		(425,766	)		590,417

	2021
	Acquisition cost		Accumulated depreciation			Carrying value
Real estate	W	1,153,021		(578,980	)		574,041
Vehicle		45,670		(23,821	)		21,849
Others		30,478		(18,241	)		12,237
	W	1,229,169		(621,042	)		608,127

F-19

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

18. Leases (continued)

(e) The details of the changes in the right-of-use assets for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Real estate			Vehicle			Others			Total
Beginning balance	W	1,077,803			21,994			12,999			1,112,796
Acquisition		286,981			12,556			6,421			305,958
Disposal		(21,763	)		(2,394	)		(16	)		(24,173	)
Depreciation (*)		(268,376	)		(11,625	)		(6,027	)		(286,028	)
Substitution		(513,437	)		0			0			(513,437	)
Effects of foreign currency movements		(5,375	)		(5	)		0			(5,380	)
Business combination (Note 47)		586			95			0			681
Ending balance	W	556,419			20,621			13,377			590,417

	2021
	Real estate			Vehicle			Others			Total
Beginning balance	W	556,419			20,621			13,377			590,417
Acquisition		295,228			17,524			4,173			316,925
Disposal		(22,829	)		(4,070	)		(31	)		(26,930	)
Depreciation (*)		(271,895	)		(12,408	)		(5,282	)		(289,585	)
Effects of foreign currency movements		17,118			182			0			17,300
Ending balance	W	574,041			21,849			12,237			608,127

(*) Included in general administrative expense and other operating income(expense) of the consolidated statements of comprehensive income.

(f) The details of the maturity of the lease liability as of December 31, 2020 and 2021 are as follows:

	2020
	1 month or less		1 month ~ 3 months or less		3 months ~ 6 months or less		6 months ~ 1 year or less		1 year ~ 5 years or less		More than 5 years		Total
Real estate	W	22,560		36,746		49,746		90,057		287,932		69,083		556,124
Vehicle		3,404		1,840		2,490		4,765		11,632		0		24,131
Others		520		806		1,203		2,031		9,345		1		13,906
	W	26,484		39,392		53,439		96,853		308,909		69,084		594,161

	2021
	1 month or less		1 month ~ 3 months or less		3 months ~ 6 months or less		6 months ~ 1 year or less		1 year ~ 5 years or less		More than 5 years		Total
Real estate	W	22,890		33,950		46,532		82,467		266,299		121,360		573,498
Vehicle		4,496		1,935		2,536		4,718		12,298		513		26,496
Others		465		650		1,124		2,205		8,226		26		12,696
	W	27,851		36,535		50,192		89,390		286,823		121,899		612,690

(*) The above amounts are based on undiscounted cash flows, and have been classified at the earliest maturity that the Group has the obligation to pay.

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SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

18. Leases (continued)

(g) The lease payments for low-value assets and short-term leases for the years ended December 31, 2020 and 2021 are as follows:

	2020		2021
Low-value assets	W	6,181		5,885
Short-term lease (*)		836		766
Total	W	7,017		6,651

(*) The payments for leases with terms less than 1 month are included.

19. Pledged assets

(a) Assets pledged as collateral as of December 31, 2020 and 2021 are as follows:

	2020		2021		Reasons for collateral
Securities:
Securities at FVTPL	W	15,328,573		14,944,525	Customer RP, etc
Securities at FVOCI		4,058,033		3,244,232	Borrowings, Settlement security for Bank of Korea, Borrowing securities, etc
Securities at amortized cost		14,516,567		16,284,795	Borrowings, Settlement security for Bank of Korea, Customer RP, etc
		33,903,173		34,473,552
Deposits at amortized cost		784,626		958,206	Borrowings, etc
Property and Equipment (real estate)		301,098		300,352	Establishing the right to collateral security, etc
Other financial assets		355		0	Performance guarantee, etc
	W	34,989,252		35,732,110

(*) The carrying values of assets pledged that the pledgees have the right to sell or re-pledge regardless of the Group’s default as of December 31, 2020 and 2021 are W 11,190,218 million and W 11,017,362 million, respectively.

(b) The fair value of collateral held that the Group has the right to sell or re-pledge regardless of the pledger’s default as of December 31, 2020 and 2021 are as follows:

	2020				2021
	Assets received as collateral		The fair value of collateral sold or re-provided as collateral		Assets received as collateral		The fair value of collateral sold or re-provided as collateral
Securities	W	2,871,910		0		2,163,744		0

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4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

20. Deposits

Deposits as of December 31, 2020 and 2021 are as follows:

	2020		2021
Demand deposits:
Korean won	W	132,444,929		151,787,483
Foreign currencies		16,280,268		20,320,241
		148,725,197		172,107,724
Time deposits:
Korean won		137,719,464		140,651,250
Foreign currencies		20,114,427		20,847,651
		157,833,891		161,498,901
Certificates of deposits		5,946,704		16,576,536
Discount note deposits		6,226,937		5,818,001
CMA		4,006,319		5,246,478
Others		3,677,820		3,649,035
	W	326,416,868		364,896,675

21. Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss as of December 31, 2020 and 2021 are as follows:

	2020		2021
Securities sold:
Stocks	W	387,857		275,451
Bonds		503,920		505,202
Others		5,352		7,114
		897,129		787,767
Gold/silver deposits		539,565		581,458
	W	1,436,694		1,369,225

22. Financial liabilities designated at fair value through profit or loss

(a) Financial liabilities designated at fair value through profit or loss as of December 31, 2020 and 2021 are as follows:

	2020		2021		Reason for designation
Equity-linked securities sold	W	6,556,288		5,795,071		Compound financial instrument
Securities sold with embedded derivatives		1,899,436		2,228,799		”
	W	8,455,724		8,023,870

(*) The Group designated the financial liabilities at the initial recognition (or subsequently) in accordance with paragraph 6.7.1 of IFRS 9 as financial liabilities at fair value through profit or loss.

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5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

22. Financial liabilities designated at fair value through profit or loss (continued)

Maximum credit risk exposure of the financial liabilities designated at fair value through profit or loss amounts to

W

8,023,870 million as of December 31, 2021. Decrease in values of the liability due to credit risk changes is

W

1,526 million for the year ended December 31, 2021 and the accumulated changes in values are

W

(-)2,506 million as of December 31, 2021.

(b) The difference between the carrying value of financial liabilities designated at fair value through profit or loss and the amount required to be paid at contractual maturity as of December 31, 2020 and 2021 are as follows:

	2020			2021
Expiration payment	W	7,568,498			7,325,678
Carrying value		8,455,724			8,023,870
Difference from carrying value	W	(887,226	)		(698,192	)

23. Borrowings

Borrowings as of December 31, 2020 and 2021 are as follows:

	2020					2021
	Interest rate (%)		Amount			Interest rate (%)		Amount
Borrowings denominated in Korean won:
Borrowings from Bank of Korea		0.25	W	5,351,110			0.25	W	5,278,331
Others		0.00~6.20		16,375,272			0.00~3.93		18,412,343
				21,726,382					23,690,674
Borrowings denominated in foreign currencies:
Overdraft due from banks		0.00		71,309			0.00~0.30		42,434
Borrowings from banks		0.00~8.00		5,423,571			(0.49)~12.29		5,292,872
Others		0.00~12.45		1,538,021			0.00~11.25		1,890,291
				7,032,901					7,225,597
Call money		0.35~0.55		1,760,042			(0.30)~1.52		1,534,611
Bill of sale		0.00~1.10		10,706			0.00~1.47		9,032
Bonds sold under repurchase agreements:		0.00~5.15		11,065,584			0.00~6.25		10,709,115
Deferred origination costs				(1,551	)				(1,964	)
			W	41,594,064				W	43,167,065

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6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

24. Debt securities issued

Debt securities issued as of December 31, 2020 and 2021 are as follows:

	2020				2021
	Interest rate (%)	Amount			Interest rate (%)		Amount
Debt securities issued in Korean won:
Debt securities issued	0.67~8.00	W	59,816,756			0.79~8.00	W	64,419,771
Subordinated debt securities issued	2.20~4.60		4,370,125			2.20~4.60		5,030,125
Gain on fair value hedges	—		(63,652	)		—		(122,069	)
Discount on debt securities issued	—		(39,309	)		—		(38,845	)
			64,083,920					69,288,982
Debt securities issued in foreign currencies:
Debt securities issued	0.25~7.59		7,182,619			0.25~7.59		7,462,087
Subordinated debt securities issued	3.34~5.10		3,598,624			3.34~5.10		3,307,306
Loss on fair value hedges	—		309,880			—		130,392
Discount on debt securities issued	—		(40,649	)		—		(39,404	)
			11,050,474					10,860,381
		W	75,134,394				W	80,149,363

25. Defined benefit plans

(a) Defined benefit plan assets and obligations

The Group has operated a defined benefit plan and calculates defined benefit obligations based on the employee’s pension compensation benefits and service period.

Defined benefit obligations and plan assets as of December 31, 2020 and 2021 are as follows:

	2020			2021
Present value of defined benefit obligations	W	2,182,464			2,205,869
Fair value of plan assets		(2,138,324	)		(2,296,685	)
Recognized liability (asset) for defined benefit obligations (*)	W	44,140			(90,816	)

(*) The liability for defined benefit obligation of W 44,140 million as of December 31, 2020 is the net defined benefit liabilities of W 62,514 million less the net defined assets of W 18,374 million. In addition, the asset for defined benefit obligation of W 90,816 million as of December 31, 2021 is the net defined benefit assets of W 142,020 million less the net defined liabilities of W 51,204 million.

F-19

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

25. Defined benefit plans (continued)

(b) Changes in the present value of defined benefit obligation and plan assets for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Defined benefit obligation			Plan assets			Net defined benefit liability (asset)
Beginning balance	W	2,063,102			(1,943,644	)		119,458
Included in profit or loss:
Current service cost		179,390			—			179,390
Past service cost		9,069			—			9,069
Interest expense (income)		57,674			(55,466	)		2,208
Settlement expense		(306	)		—			(306	)
		245,827			(55,466	)		190,361
Included in other comprehensive income:
Remeasurement loss (gain):
- Actuarial gains (losses) arising from :
Demographic assumptions		18			—			18
Financial assumptions		(44,424	)		—			(44,424	)
Experience adjustment		2,957			—			2,957
- Return on plan assets excluding interest income		—			20,027			20,027
		(41,449	)		20,027			(21,422	)
Other:
Benefits paid by the plan		(83,614	)		77,567			(6,047	)
Contributions paid into the plan		(268	)		(239,570	)		(239,838	)
Settlement gain or loss		(2,695	)		4,053			1,358
Business combination (Note 47)		2,139			(1,291	)		848
Effect of changes in foreign exchange rates		(578	)		—			(578	)
		(85,016	)		(159,241	)		(244,257	)
Ending balance	W	2,182,464			(2,138,324	)		44,140

(*) Profit and loss related to defined benefit plans are all included in the general administrative expense.

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8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

25. Defined benefit plans (continued)

	2021
	Defined benefit obligation			Plan assets			Net defined benefit liability (asset)
Beginning balance	W	2,182,464			(2,138,324	)		44,140
Included in profit or loss:
Current service cost		179,751			0			179,751
Past service cost		2,570			0			2,570
Interest expense (income)		64,729			(64,759	)		(30	)
Settlement income		(4,844	)		0			(4,844	)
		242,206			(64,759	)		177,447
Included in other comprehensive income:
Remeasurement loss (gain):
- Actuarial gains (losses) arising from :
Demographic assumptions		(1,642	)		0			(1,642	)
Financial assumptions		(87,406	)		2,421			(84,985	)
Experience adjustment		(5,450	)		0			(5,450	)
- Return on plan assets excluding interest income		0			32,720			32,720
		(94,498	)		35,141			(59,357	)
Other:
Benefits paid by the plan		(127,493	)		120,347			(7,146	)
Succession through related party transactions		5,135			0			5,135
Contributions paid into the plan		(10	)		(249,099	)		(249,109	)
Settlement gain or loss		(2,231	)		9			(2,222	)
Effect of changes in foreign exchange rates		296			0			296
		(124,303	)		(128,743	)		(253,046	)
Ending balance	W	2,205,869			(2,296,685	)		(90,816	)

(*) Profit and loss related to defined benefit plans are all included in the general administrative expense.

(c) The composition of plan assets as of December 31, 2020 and 2021 are as follows:

	2020		2021
Plan assets comprise:
Equity securities	W	74,631		0
Debt securities		23,713		43,607
Due from banks		1,900,963		1,915,361
Others		139,017		337,717
	W	2,138,324		2,296,685

F-1

99

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

25. Defined benefit plans (continued)

(d) Actuarial assumptions as of December 31, 2020 and 2021 are as follows:

	2020	2021	Description
Discount rate	2.68%~3.30%	3.19%~3.77%	AA0 corporate bond yields
Future salary increase rate	1.90%~4.00% + Upgrade rate	1.98%~5.00% + Upgrade rate	Average for 5 years
Weighted average maturity	7.6 years~ 15.4 years	7.4 years~ 14.8 years

(e) Sensitivity analysis

As of December 31, 2020 and 2021, reasonably possible changes in one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

	2020
	Defined benefit obligation
	Increase			Decrease
Discount rate (1%p movement)	W	(207,093	)		233,570
Future salary increase rate (1%p movement)		232,892			(210,305	)

	2021
	Defined benefit obligation
	Increase			Decrease
Discount rate (1%p movement)	W	(197,174	)		216,226
Future salary increase rate (1%p movement)		216,450			(200,843	)

(f) The Group’s estimated contribution is W 182,632 million as of December 31, 2022.

26. Provisions

(a) Provisions as of December 31, 2020 and 2021 are as follows:

	2020		2021
Asset retirement obligations	W	65,659		82,123
Expected loss related to litigation		12,468		9,693
Unused credit commitments		305,719		300,008
Guarantee contracts issued		83,851		81,922
Financial guarantee contracts issued		61,895		55,344
Non-financial guarantee contracts issued		21,956		26,578
Others (*)		337,039		693,110
	W	804,736		1,166,856

(*) As of December 31, 2020 and 2021, the Group recognizes a provision of  W 211,365 million and  W 518,955 million, respectively, an estimated amount which is highly probable to be paid for customer losses expected due to delays in redemption of Lime CI funds.

F-

200

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

26. Provisions (continued)

(b) Changes in provision for unused credit commitments and financial guarantee contracts issued for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Unused credit commitments									Financial guarantee contracts issued									Total
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset
Beginning balance	W	132,028			119,839			11,885			68,467			5,569			811			338,599
Transfer (from)to 12 months expected credit loss		63,818			(55,295	)		(8,523	)		2,059			(2,059	)		0			0
Transfer (from)to life time expected credit loss		(9,883	)		11,365			(1,482	)		(3,951	)		3,951			0			0
Transfer (from)to impaired financial asset		(244	)		(875	)		1,119			0			0			0			0
Provided (reversed)		(20,377	)		65,455			(1,564	)		8,258			1,845			(822	)		52,795
Change in foreign exchange rate		(1,195	)		(352	)		0			(1,335	)		(223	)		(49	)		(3,154	)
Others (*)		0			0			0			(18,948	)		(1,748	)		70			(20,626	)
Ending balance	W	164,147			140,137			1,435			54,550			7,335			10			367,614

(*) Others include effects of the provision from the new financial guarantee contracts measured at fair value, and the expired contracts, and the change of discount rate.

	2021
	Unused credit commitments									Financial guarantee contracts issued								Total
	12 months expected credit loss			Life time expected credit loss			Impaired financial asset			12 months expected credit loss			Life time expected credit loss			Impaired financial asset
Beginning balance	W	164,147			140,137			1,435			54,550			7,335			10		367,614
Transfer (from)to 12 months expected credit loss		63,335			(63,249	)		(86	)		2,931			(2,931	)		0		0
Transfer (from)to life time expected credit loss		(11,889	)		11,917			(28	)		(3,621	)		3,621			0		0
Transfer (from)to impaired financial asset		(274	)		(939	)		1,213			0			0			0		0
Provided (reversed)		(66,373	)		58,188			(610	)		(581	)		(178	)		5		(9,549	)
Change in foreign exchange rate		1,964			1,077			0			1,910			534			0		5,485
Others (*)		(337	)		380			0			(6,582	)		(1,672	)		13		(8,198	)
Ending balance	W	150,573			147,511			1,924			48,607			6,709			28		355,352

(*) Others include effects of the provision from the new financial guarantee contracts measured at fair value, and the expired contracts, and the change of discount rate.

F-

201

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

26. Provisions (continued)

(c) Changes in provisions for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Asset retirement			Litigation			Guarantee			Other			Total
Beginning balance	W	64,922			8,789			25,583			119,131			218,425
Provision(reversal)		898			4,317			(2,709	)		261,983			264,489
Provision used		(2,463	)		(638	)		0			(46,654	)		(49,755	)
Change in foreign exchange rate		(3	)		0			(1,030	)		570			(463	)
Others (*)		2,305			0			112			1,814			4,231
Business combination (Note 47)		0			0			0			195			195
Ending balance	W	65,659			12,468			21,956			337,039			437,122

(*) Others include increase in provisions based on the present value and the effect of changes in discount rate over the period.

	2021
	Asset retirement			Litigation			Guarantee			Others			Total
Beginning balance	W	65,659			12,468			21,956			337,039			437,122
Provision(reversal)		8,185			2,552			3,457			350,090			364,284
Provision used		(3,793	)		(5,327	)		0			(37,604	)		(46,724	)
Change in foreign exchange rate		4			0			1,265			(1,314	)		(45	)
Others (*)		12,068			0			(100	)		44,899			56,867
Ending balance	W	82,123			9,693			26,578			693,110			811,504

(*) Others include increase in provisions based on the present value and the effect of changes in discount rate over the period.

(d) Asset retirement obligation liabilities represent the estimated cost to restore the existing leased properties which is discounted to the present value using the appropriate discount rate at the end of the reporting period. Disbursements of such costs are expected to incur at the end of lease contract. Such costs are reasonably estimated using the average lease year and the average restoration expenses. The average lease year is calculated based on the past ten-year historical data of the expired leases. The average restoration expense is calculated based on the actual costs incurred for the past three years using the three-year average inflation rate.

(e) Allowance for guarantees and acceptances as of December 31, 2020 and 2021 are as follows:

	2020		2021
Outstanding guarantees and acceptances	W	10,249,827		10,540,968
Contingent guarantees and acceptances		3,433,953		4,670,771
ABS and ABCP purchase commitments		1,604,958		1,525,768
Endorsed bill		1,650		8,199
	W	15,290,388		16,745,706
Allowance for loss on guarantees and acceptances	W	83,851		81,922
Ratio		%0.55		0.49

F-20

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts

(a) Overview of the insurance risk

i) Insurance risk and reinsurance

Insurance risk is the possibility of insured events to occur, and it refers to an uncertainty of the amount and the timing of claims that incurred as an occurrence of the insured event. The main risks faced by insurance contracts include the risk of actual claims or benefits exceeding insurance liability. These risks may arise due to following reasons:

① Frequency risk

The risk of actual number of claims being different from the number of claims anticipated by the insurer.

② Depth risk

The risk of an actual amount of claims being different from the expected amount of claims anticipated by the insurer.

As there are more numbers of insurance contracts that are empirically similar or are diversified, it is less likely to have abnormal effects from some of the contracts. The Group is trying to form a sufficiently diversified group of contracts considering these points when acquiring a contract. Insurance risk includes a lack of risk diversification and is related to geographical area, the characteristics of policyholders as well as diversification of the form or the size of the risk.

If the insurance covers death, the frequency, or the death rates are mostly affected by natural causes, while other causes may include eating habits, smoking and exercise habits etc. If the insurance provides lifetime coverage, the survival rates may rise due to developments of medical technology or enhancements in social conditions. Insured events of life insurance include not only death of the policyholder (the insured person), but also survival, disability and hospitalization.

The Group basically divides the entity’s insurance products into individual and group insurance depending on the characteristics of the policyholder. Group insurance refers to a contract in which the insured person belongs to an organization of a certain or a larger size, and he/she is the representative of that organization. Group insurance can largely be divided into pure protection and savings insurance. Pure protection insurance refers to insurance in which the amount of claim paid for survival does not exceed the premiums paid, and savings insurance is defined as insurance in which the amount of claim paid for survival exceeds the premium paid. Individual insurance can largely be divided into death insurance which considers death of a policyholder as an insured event, pure endowment insurance which considers a survival of a certain period of time as an insured event, and endowment insurance which is a combination of pure endowment and death insurance.

Life insurance products can also be divided into fixed rate insurance which guarantees fixed interest rates, a floating rate insurance which is accreted at variable interest rates, and a dividend-paying insurance based on interest rate application scheme.

For fixed rate products, interest rates expected at the beginning of the insurance contract do not vary till the end of the contract. Hence, if the return on assets or market rates are lower than the expected rates, the entity will bear the interest rate risk. On the other hand, for floating rate products, net premium is divided into guarantees and reserves portion. For guarantees portion, fixed interest rate is applied while for reserves portion, floating interest rates are applied to the reserves based on return on assets. As a result, though

F-20

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

hedging may be possible for some interest rate risks, as the minimum guaranteed rate is fixed for reserves, interest rate risks will be borne in accordance with the changes in return on assets.

To manage the uncertainty of the amount and timing of the claims arising due to occurrences of insured events, that is, an insurance risk, the Group uses an acquisition and a reinsurance strategy.

① Acquisition strategy

Acquisition strategy is a strategy to diversify the types of risks or the level of claims. For example, an entity can manage each mortality risk and survival risk in a balanced manner. In addition, the policyholder’s choice of a regular

check-up

is one of the main acquisition strategies.

② Reinsurance strategy

The Group’s reinsurer risk is based on the insurance contracts acquired and may be the amount of risks per contract or the total amount of risks based on number of contracts or insured person. In principle, reinsurance is applied in excess of risk insurance premiums, but other methods can be used to the extent recognized by relevant laws and regulations, where necessary. The limit of holding reinsurance is determined by considering the assets, types of contracts, risk level, contract selecting technology of the Group.

Insurance risk can also be affected by the policyholder’s right to reduce premiums or not paying in premiums in full by terminating the contract or exercising a conversion of pension rights. As a result, insurance risk is likely to be affected by the actions and decisions of the policyholders. The insurance risk of the Group may be estimated under the assumption that the policyholder makes reasonable decisions. For instance, people with bad health will have lower intentions to terminate the contract which provides insurance over death, rather than those with good health. These factors are also reflected in the assumptions of evaluating the insurance liability of the Group.

ii) Discretionary participation features

The discretionary participation feature is a contractual right to receive additional benefits with the following characteristics in addition to the benefits that policyholders or investors have unconditional rights and meets all the three criteria below. The premiums for investment contracts without discretionary participation features are recognized as deposits, and premiums for investment contracts with discretionary participation features are recognized as profits or losses, like insurance contracts.

① they are expected to be a significant portion of the total contractual benefits;

② the timing or amount of which are contractually at the discretion of the issuer; and

③ they are contractually based on:

i) the returns on a specified pool of contracts or a specified type of contract; or

ii) realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or

iii) the profit or loss of the entity or fund that issues the contract.

The investment contracts held by the Group meets all the above criteria, hence they do include discretionary participation features.

F-20

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

If the expected base rate of interest and the actual base rate of interest match, income and expenses are balanced through insurance contracts, so that premiums are not excessively insufficient. However, when calculating premiums, the expected mortality rate, interest rate, and operating expense ratios change due to changes in risk rates or economic conditions, which will result to differences with the actual premiums. These differences constitute the profits and losses of the Group and will consist of profit or loss from the differences in risk rate, interest rate and operating expense depending on the source of occurrence.

In case of contracts with discretionary participation features, it reduces risk as participation features are shared among the policyholder and the Group for the below sources of profit or loss.

① Profit or loss due to differences in mortality rates

It occurs due to the difference between the expected and the actual mortality rate. For death insurance, if the actual mortality rate is lower than the expected mortality rate, profits occur, and for the opposite case, losses occur.

② Profit or loss due to differences in interest rates

It occurs due to the difference between the expected and the actual interest rate. If the actual operating return on assets is higher than the expected interest rate, profits occur, and for the opposite case, losses occur.

③ Profit or loss due to differences in operating expenses

It is caused by the difference between the expected and the actual operating expenses ratio. If the actual operating expenses are lower than the expected operating expenses, profits occur, and for the opposite case, losses occur.

As seen above, the source of the profits being generated when the expected base rate used by the Group in calculating the insurance premiums is different from the actual rate is within the premium which has been roughly calculated, hence the profits must be returned to the policyholder. This type of amount being distributed is called the policyholder dividend and is distinguished from the shareholder dividend.

At the end of each reporting period, the Group adds to existing policy reserve and divides the remaining amount into dividend or

non-dividend

insurance gains and losses, and capital gains and losses.

Non-dividend

insurance gains and losses and capital gains and losses are treated as shareholders’ interest, shareholders’ interest in dividend insurance profits are less than 10/100, and the remaining portion is treated as policyholder’s interest. Policyholders’ interest may not be used or accumulated for any purpose other than financial resources for policyholder dividends and the purpose of accumulating reserves for loss from participating insurance.

Policyholder dividends are divided into interest dividends, long-term duration dividends, mortality dividends, and expense dividends, and reserves for policyholder dividends are divided into reserve for participating policyholder’s dividends and excess participating policyholder dividend reserve. Excess participating policyholder dividend reserve is the total amount accumulated to be used as future policyholder dividend funds if there is any surplus left after accumulating reserves for loss from participating insurance and reserves for participating policyholder’s dividends from the policyholder’s stake in the relevant business year.

F-20

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

Reserve for participating policyholder’s dividends are fixed dividend reserves in which the amount to be allocated is confirmed for each policyholder, while excess participating policyholder dividend reserves are not a confirmed amount to be paid to the policyholders. The Group shall first use the total amount of excess participating policyholder dividend reserves accumulated prior to the current financial year as reserves for participating policyholder’s dividends, and the accumulated excess participating policyholder dividend reserves shall be used as a resource of policyholder dividends within five years from the end of the current year.

Reserves for loss from participating insurance are accumulated for the purpose of compensating for losses in dividend insurance contracts under laws, etc., and shall take precedence over reserves for participating policyholder’s dividends and excess participating policyholder dividend reserves.

Reserves for loss from participating insurance are accumulated within 30/100 of the policyholder’s stake, and are compensated for losses incurred in dividend insurance contracts within five years of accumulation, and the remaining amount after preservation is used as a resource of policyholder dividends.

(b) Insurance risk management policy

Unlike other financial products, life insurance products have the nature of long-term duration, which can lead to a significant increase in actual claims in comparison to the risk rates set at product development stage, and the entities may be exposed to differences in interest rates and maturity of insurance liability and the financial asset.

The purpose of the Group’s risk management is to reflect these uncertain financial environments and the characteristics of life insurance products with long-term duration to prevent and systematically manage various risks in the course of management activities.

In order to achieve this, risk management strategy of the Group is to measure the required capital of the Risk-Based Capital (RBC) and to manage it within an acceptable range. To achieve this, the Group has established and implemented basic principles for risk management and has established regulations and management systems aiming for the implementation to be successful. Also, the Risk Management Committee and the Risk Management TF are in place to support various risk-related decisions and prepare risk management procedures to identify and manage risks in a timely manner.

In general, risk management procedures are to recognize exposed risks, measure their scale, set acceptable limits, monitor them regularly and report them to management, and control them efficiently to prevent the case of risks exceeding the limits.

The risk management methods of different types of risks are as follows.

① Insurance risk management

From the product development stage, profitability guidelines are set to secure appropriate level of profitability, acquisition standards are set and operated to prevent reverse selection, and payment review standards are operated to ensure fairness upon payments of claims.

F-20

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

② Interest risk management

Determination of the official interest rate and the estimated interest rate within the scope of the guideline in consideration of the market interest rate and the rate of return on operating assets. In addition, asset management strategies are established in consideration of the interest rate and maturity structure of liabilities, long-term target portfolios are established and annually viable portfolios are set as guidelines to allocate and operate assets based on the risk level and return on assets after analyzing the long-term insurance liability.

③ Liquidity risk management

Inspection and management of insurance payments and current assets on a

day-to-day

basis.

(c) Statutory reserves

Policy reserves are liabilities related to policyholders, and the fidelity of accumulating reserves based on profit or loss is being strictly regulated by the regulators as they are directly related to maintaining the quality of the business and protecting the interests of policyholders. Accordingly, the supervisory authorities are reinforcing the statutory reserves system in relation to the method of accumulating and calculating each policy reserve.

The current method, which uses the basic reserve rates as equivalent to the basic rate of premium calculation, may threaten the financial quality of the Group by causing insolvency of reserves when insurance prices are liberally set. The system is designed to prevent insolvency of the financial structure that can lead to liberalization of premium and protect the rights and interests of policyholders by introducing a statutory reserves system to use objective and conservative basic rates when accumulating reserves.

In other words, statutory reserve is an institutional framework that dualizes the base rate of contracts by evaluating the fidelity of reserves by setting the risk rate or interest rate applied to calculate policy reserves more conservatively than the risk rate or interest rate applied when calculating the premiums. For an insurer to calculate its policy reserves, it needs expected base rates of the future such as interest base rates and expected risk rates, and the estimated valuation of the liability based on these expected base rates is the policy reserve. As simply leaving these policy reserves entirely to the insurance entity’s self-determination after the liberalization of policy reserves framework is not the main purpose of the liberalization, the government needs to establish a certain level of reserve framework to protect policyholders, strengthen financial solvency of the insurance entities, and prevent insurance entities from being insolvent due to price competition such as insurance dumping.

According to the regulations on supervision of insurance business, premium reserves are calculated by applying the base rate of interest and base risk rate set by the Financial Supervisory Service. In this case, the base rate is the base rate of interest for the year of entering into an insurance contract over the entire coverage period. However, the highest interest rate among the accreted interest rate set in the premiums and policy reserves calculation method is applied for the reserves of interest-sensitive insurance. As a result, if the premium reserves calculated at the base rate applied in calculation of the premiums and the premium reserves calculated at the base rate of interest and base risk rates are different, a large amount should be set aside as the premium reserves to protect the policyholder by accumulating reserves above a certain level.

Current policy reserves are calculated by the year of issuance evaluation. In other words, the base rate of valuation of policy reserves are applied equally to the interest rate and risk rate applied at the time of

F-20

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

entering an insurance contract until the end of the contract. This method is suitable for stable circumstances in which the financial environment at the sale of insurance products and the financial environment during the policy period barely change, so liability can be accumulated stably, but it cannot be dealt flexibly with in the event of changes in market interest rates and expected risk upon the sale of a contract. Therefore, there is a possibility that the policy reserves will not properly reflect the fair value of the contract. To compensate for the shortcomings that do not reflect these market changes, the Liability Adequacy Test was introduced.

(d) Financial risks related to insurance contracts

i) Forms of risk exposure and the different types of risks

Investment contracts with insurance contracts and discretionary participation features may be exposed to insurance liability or financial risks, and the form of exposure is as follows.

① Credit risk

Credit risk refers to the risk of loss caused by the counterparty’s default in provision of funds or entering a contract agreed to exchange at a predetermined price at a certain point in the future. The Group’s reinsurance assets and reinsurance receivables are exposed to losses in case of default by the reinsurer upon collection of premiums and receivables from the reinsurer in the future.

② Interest rate risk

Interest rate risk refers to the risk that occurs when the financial position of the Group is affected by the adverse interest rate movements on assets and liabilities.

③ Liquidity risk

Liquidity risk refers to a risk caused by inconsistency in the maturity of assets and liabilities or failure to respond to unexpected capital outflows. Therefore, future cash outflows from investment contracts with insurance liability and discretionary participation features which takes the most proportion of the Group’s liabilities, will determine the level of risk related to the liquidity of the Group.

④ Market risk

Market risk refers to the risk of losses being incurred when the entity’s financial position is affected by the adverse price movements such as stock prices and exchange rates. The prices of investment contracts with insurance liability and discretionary participation features, does not change due to movements in stock prices and exchange rates, hence there is no effect on profit or loss and capital from movements in the amount of each liability.

ii) The degree to which discretionary participation features mitigate or increase the risk.

For contracts with discretionary participation features, policyholders will receive relatively high premiums by calculating the expected base rate relatively conservative compared to contracts without discretionary participation features, and future payments of premiums will be refunded to the policyholders through policyholder dividends. However, for contracts without discretionary participation features, an optimal expected base rate which is unlikely to be conservative will be set when setting the initial expected base rate and policyholders will receive a relatively low premium. Furthermore, if the expected and the actual base rates are different, the Group will bear the resulting profit or loss. Therefore, a contract with discretionary participation features has a structure in which a conservative base rate of interest is set, and risks related to

F-20

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

the contract are shared with the policyholder. In the case of a contract without discretionary participation features, the entity alone bears the risk of the initial base rate of interest.

iii) Risks associated with guarantees

Guarantee options inherent in insurance contracts include Guaranteed Minimum Death Benefit (GMDB), Guaranteed Minimum Pension (GMP), and guaranteed minimum interest rate, which can increase cash outflows where market prices and interest rates fall below a certain level.

(e) Insurance liabilities as of December 31, 2020 and 2021 are as follows:

	2020		2021
Policy reserve	W	53,391,401		54,330,046
Policyholder’s equity adjustment		68,829		3,452
	W	53,460,230		54,333,498

(f) Policy reserve as of December 31, 2020 and 2021 are as follows:

	2020		2021
Variable interest rate	W	29,977,303		29,399,446
Fixed interest rate		23,414,098		24,930,600
	W	53,391,401		54,330,046

F-20

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

(g) The details of policy reserves for insurance risk classification as of December 31, 2020 and 2021 are as follows:

	2020
	Individual insurance								Group insurance
	Pure endowment		Death		Endowment		Subtotal		Pure protection		Savings		Subtotal		Total
Premium reserve	W	14,597,735		26,634,537		9,981,880		51,214,152		18,430		62		18,492		51,232,644
Guarantee reserve		28,168		267,154		762		296,084		0		0		0		296,084
Unearned premium reserve		1		1,640		0		1,641		13		0		13		1,654
Reserve for outstanding claims		240,324		1,111,052		363,688		1,715,064		15,384		0		15,384		1,730,448
Interest rate difference guarantee reserve		1,937		141		9		2,087		0		0		0		2,087
Mortality gains reserve		7,865		37,553		124		45,542		1		0		1		45,543
Interest gains reserve		23,651		256		14		23,921		0		0		0		23,921
Expense gains reserve		6,606		8,336		0		14,942		0		0		0		14,942
Long term duration dividend reserve		28,737		13,775		12		42,524		0		0		0		42,524
Reserve for policyholder’s profit dividend		1,080		0		0		1,080		0		0		0		1,080
Reserve for losses on dividend insurance contract		474		0		0		474		0		0		0		474
	W	14,936,578		28,074,444		10,346,489		53,357,511		33,828		62		33,890		53,391,401

F-2

10

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

	2021
	Individual insurance								Group insurance
	Pure endowment		Death		Endowment		Subtotal		Pure protection		Savings		Subtotal		Total
Premium reserve	W	14,515,676		28,443,718		9,078,015		52,037,409		15,609		64		15,673		52,053,082
Guarantee reserve		24,717		284,474		871		310,062		0		0		0		310,062
Unearned premium reserve		1		1,660		0		1,661		8		0		8		1,669
Reserve for outstanding claims		266,157		1,137,858		424,897		1,828,912		14,376		0		14,376		1,843,288
Interest rate difference guarantee reserve		1,734		130		7		1,871		0		0		0		1,871
Mortality gains reserve		6,894		34,085		88		41,067		2		0		2		41,069
Interest gains reserve		23,031		242		12		23,285		0		0		0		23,285
Expense gains reserve		6,068		7,595		0		13,663		0		0		0		13,663
Long term duration dividend reserve		26,799		12,663		7		39,469		0		0		0		39,469
Reserve for policyholder’s profit dividend		1,635		0		0		1,635		0		0		0		1,635
Reserve for losses on dividend insurance contract		953		0		0		953		0		0		0		953
	W	14,873,665		29,922,425		9,503,897		54,299,987		29,995		64		30,059		54,330,046

F-2

11

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

(h) Changes in policy reserves

Changes in policy reserves for the year ended December 31, 2020 and 2021 are as follows:

	2020
	Insurance contracts with fixed-interest		Insurance contracts with variable-interest			Total
Beginning balance	W	22,028,112		30,058,020			52,086,132
Reserve (*)		1,385,986		(80,717	)		1,305,269
Ending balance	W	23,414,098		29,977,303			53,391,401

(*) This is the amount of provision for insurance contract liabilities less changes in reinsurance assets.

	2021
	Insurance contracts with fixed-interest		Insurance contracts with variable-interest			Total
Beginning balance	W	23,414,098		29,977,303			53,391,401
Reserve (*)		1,516,502		(577,857	)		938,645
Ending balance	W	24,930,600		29,399,446			54,330,046

(*) This is the amount of provision for insurance contract liabilities less changes in reinsurance assets.

(i) Changes in policy reserves by insurance risk classification

Changes in policy reserves by insurance risk classification for the year ended December 31, 2020 and 2021 are as follows:

	2020
	Individual insurance										Group insurance
	Pure endowment			Death		Endowment			Sub total		Pure protection			Savings		Sub total			Total
Beginning balance	W	14,986,916			26,382,609		10,677,484			52,047,009		39,063			60		39,123			52,086,132
Reserve (reversal) (*)		(50,338	)		1,691,835		(330,995	)		1,310,502		(5,235	)		2		(5,233	)		1,305,269
Ending balance	W	14,936,578			28,074,444		10,346,489			53,357,511		33,828			62		33,890			53,391,401

(*) This is the amount of provision for insurance contract liabilities less changes in reinsurance assets.

F-21

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

	2021
	Individual insurance										Group insurance
	Pure endowment			Death		Endowment			Sub total		Pure protection			Savings		Sub total			Total
Beginning balance	W	14,936,578			28,074,444		10,346,489			53,357,511		33,828			62		33,890			53,391,401
Reserve (reversal) (*)		(62,913	)		1,847,981		(842,592	)		942,476		(3,833	)		2		(3,831	)		938,645
Ending balance	W	14,873,665			29,922,425		9,503,897			54,299,987		29,995			64		30,059			54,330,046

(*) This is the amount of provision for insurance contract liabilities less changes in reinsurance assets.

(j) Reinsurance credit risk as of December 31, 2020 and 2021 are as follows:

	2020				2021
	Reinsurance assets		Reinsurance account receivable		Reinsurance assets		Reinsurance account receivable
AAA	W	10,611		47,690		0		0
AA- to AA+		29,294		23,348		15,310		23,472
A- to A+		2,375		4,018		31,740		46,615
	W	42,280		75,056		47,050		70,087

(k) Income or expenses on insurance for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Insurance income:
Premium income	W	7,386,854			7,037,308			6,255,872
Reinsurance income		146,564			152,892			153,534
Separate account income		36,007			57,553			75,117
		7,569,425			7,247,753			6,484,523
Insurance expenses:
Claims paid		5,436,069			5,564,875			5,346,364
Reinsurance premium expenses		165,979			167,215			175,282
Provision for policy reserves (*)		1,724,816			1,311,252			933,875
Separate account expenses		36,007			57,553			75,116
Acquisition costs		805,508			802,942			687,469
Collection expenses and discount fee		19,706			19,922			16,810
Deferred acquisition costs		(495,534	)		(486,972	)		(397,196	)
Amortization of deferred acquisition costs		373,800			414,898			422,189
		8,066,351			7,851,685			7,259,909
Net loss on insurance	W	(496,926	)		(603,932	)		(775,386	)

(*) Interest expenses on savings insurance contracts are included.

F-21

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

(l) Maturity of premium reserve as of December 31, 2020 and 2021 are as follows:

	2020
	Less than or equal to 1 year		1 ~ 3 years		3 ~ 7 years		7 ~ 10 years		10 ~ 20 years		More than 20 years		Total
Variable interest rate	W	929,268		1,944,710		1,819,554		820,964		2,056,906		19,729,536		27,300,938
Fixed interest rate		164,890		418,574		983,635		594,667		2,090,669		19,679,271		23,931,706
Ending balance	W	1,094,158		2,363,284		2,803,189		1,415,631		4,147,575		39,408,807		51,232,644

	2021
	Less than or equal to 1 year		1 ~ 3 years		3 ~ 7 years		7 ~ 10 years		10 ~ 20 years		More than 20 years		Total
Variable interest rate	W	906,017		1,492,275		1,420,942		653,388		2,001,348		20,082,744		26,556,714
Fixed interest rate		99,289		471,909		772,549		687,077		2,072,122		21,393,422		25,496,368
Ending balance	W	1,005,306		1,964,184		2,193,491		1,340,465		4,073,470		41,476,166		52,053,082

(m) Liability adequacy test, LAT – Shinhan Life Insurance Co., Ltd.

i) Scope

Liability adequacy tests are performed on the premium reserve, unearned premium reserve and guarantee reserve for the contracts held at December 31, 2021. The premium reserve considered the amount net level premium reserve less, where appropriate, deferred acquisition cost in accordance with the article

6-3

of Regulation on Supervision of Insurance Business Act.

ii) Output overview

In the debt appraisal system, the insurance premium surplus method is applied to calculate premium deficits.

Premium deficiency refers to deficiency when the amount of accumulated reserve is insufficient due to a decrease in the interest rate after the sale of the product or an increase in the risk rate compared with the expected basic rate at the time of product development.

The insurance premium standard inspection method is a method of calculating the reserve amount based on the present value of total income reflecting the interest rate, the risk rate, the business ratio, the cancelation rate, etc. and the present value of the total expenditure, that is, interest rate(discount rate), business ratio, risk rate, and cancelation rate calculated based on the Group’s own experience, which reflects company-specific characteristics, and does not reflect subjective factors such as management’s willingness to improve management.

iii) Assumptions and basis of calculation applied

The assumptions and basis of calculation applied to calculate the estimates of future cash flows when performing liability adequacy test for the year ended December 31, 2021 and 2020 are as follows. The criteria of Insurance contract liability adequacy test were changed during the period, and the Group has applied the change in the accounting policy as it provides more reliable and relevant information on the estimate of future cash flows, and the comparative figures with the prior period disclosed in the notes have been rewritten.

F-21

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

	Assumptions
	January 1, 2020	December 31, 2020	December 31, 2021	Assumption applied and calculation method
Discount rate	Shinhan Life Insurance Co., Ltd. -2.861% ~ 16.336% Orange Life Insurance Co., Ltd. -2.861% ~ 16.336%	Shinhan Life Insurance Co., Ltd. -3.623% ~ 23.477% Orange Life Insurance Co., Ltd. -3.623% ~ 23.477%	-3.39% ~ 19.541%	The interest rate scenario calculated and presented by the Financial Supervisory Service as a scenario in which a liquidity premium is added to the risk-free rate of return scenario.
Mortality rate	Shinhan Life Insurance Co., Ltd. 11.36% ~ 497.99% Orange Life Insurance Co., Ltd. 20% ~ 255%	Shinhan Life Insurance Co., Ltd. 10.38% ~ 585.90% Orange Life Insurance Co., Ltd. 15% ~ 255%	16% ~ 751%	(Shinhan Life Insurance) • Death due to other causes: Based on the statistics illustrating the past five-year experience, the ratio of premiums to on-level risk premiums by risk collateral and time elapsed. • Death due to natural causes: The ratio of actual mortality to the latest expected mortality (Orange Life Insurance) Based on the statistics illustrating the past five-year experience or more, it is calculated by reflecting the trend in the ratio of claims paid to expected claims by collateral, gender, product group, and time elapsed.
Surrender ratio	Shinhan Life Insurance Co., Ltd. 0.76% ~ 33.03% Orange Life Insurance Co., Ltd. 0% ~ 50%	Shinhan Life Insurance Co., Ltd. 0.53% ~ 29.83% Orange Life Insurance Co., Ltd. 0% ~ 61%	0% ~ 84%	Lapse rate by sales channel, product, and time elapsed for the past five years.

F-21

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

iv) The result of liability adequacy test as of January 1, 2020 and December 31, 2020 and 2021 are as follows:

< Shinhan Life Insurance>

	January 1, 2020
	Provisions for test		LAT base			Premium surplus (loss)
Participating:
Fixed interest	W	595,317		1,367,648			(772,331	)
Variable interest		900,378		1,082,341			(181,963	)
Non- Participating:
Fixed interest		6,608,221		4,199,666			2,408,555
Variable interest		14,481,696		13,770,288			711,408
Variable type		81,369		(28,011	)		109,380
	W	22,666,981		20,391,932			2,275,049

	December 31, 2020
	Provisions for test		LAT base		Premium surplus (loss)
Participating:
Fixed interest	W	598,793		1,371,496		(772,703	)
Variable interest		915,382		1,062,384		(147,002	)
Non- Participating:
Fixed interest		7,230,482		4,222,670		3,007,812
Variable interest		14,456,394		13,753,963		702,431
Variable type		165,259		61,212		104,047
	W	23,366,310		20,471,725		2,894,585

	December 31, 2021
	Provisions for test		LAT base			Premium surplus (loss)
Participating:
Fixed interest	W	1,371,625		2,098,387			(726,762	)
Variable interest		2,099,040		3,024,911			(925,871	)
Non- Participating:
Fixed interest		18,749,426		8,155,797			10,593,629
Variable interest		23,059,035		21,378,217			1,680,818
Variable type		109,753		(1,437,388	)		1,547,141
	W	45,388,879		33,219,924			12,168,955

F-21

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

27. Liability under insurance contracts (continued)

<Orange Life Insurance>

	January 1, 2020
	Provisions for test			LAT base			Premium surplus (loss)
Participating:
Fixed interest	W	716,607			762,204			(45,597	)
Variable interest		1,134,245			1,651,134			(516,889	)
Non-Participating:
Fixed interest		9,296,542			5,795,590			3,500,952
Variable interest		9,236,731			9,142,918			93,813
Variable type		(268,818	)		(1,877,845	)		1,609,027
	W	20,115,307			15,474,001			4,641,306

	December 31, 2020
	Provisions for test			LAT base			Premium surplus (loss)
Participating:
Fixed interest	W	745,614			793,719			(48,105	)
Variable interest		1,174,807			1,698,984			(524,177	)
Non-Participating:
Fixed interest		10,061,004			5,850,160			4,210,844
Variable interest		9,190,507			8,998,793			191,714
Variable type		(15,032	)		(1,548,878	)		1,533,846
	W	21,156,900			15,792,778			5,364,122

F-21

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

28. Other liabilities

Other liabilities as of December 31, 2020 and 2021 are as follows:

	2020			2021
Lease liabilities (*)	W	594,161			612,690
Accounts payable		14,568,962			14,041,740
Accrued expenses		3,054,247			3,273,939
Dividend payable		32,508			32,275
Advance received		164,885			177,121
Unearned income		317,283			397,010
Withholding value-added tax and other taxes		692,719			673,294
Securities deposit received		2,198,722			1,985,269
Foreign exchange settlement pending		259,138			221,521
Domestic exchange settlement pending		5,745,338			1,890,408
Payable from trust account		5,086,459			5,191,901
Due to agencies		790,486			887,400
Deposits for subscription		148,506			133,550
Separate account liabilities		10,120,258			9,834,895
Sundry liabilities		1,617,449			1,563,832
Others		185,027			126,455
Present value discount		(49,935	)		(52,464	)
	W 45,526,213			40,990,836

(*) As of December 31, 2021, the Group accounts for the lease liabilities as other liabilities. For the year ended December 31, 2021, the amount of variable lease payments that are not included in the measurement of lease liabilities is W 79 million, cash outflows from leases are W 283,470 million, and interest expense on lease liabilities is W 10,873 million.

F-21

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity

(a) Equity as of December 31, 2020 and 2021 are as follows:

	2020			2021
Capital stock:
Common stock (*1)	W	2,608,176			2,608,176
Preferred stock		361,465			361,465
		2,969,641			2,969,641
Hybrid bond		2,179,934			3,334,531
Capital surplus:
Share premium		11,352,924			11,352,819
Others		882,015			742,224
		12,234,939			12,095,043
Capital adjustments		(687,935	)		(664,429	)
Accumulated other comprehensive income, net of tax:
Gain(loss) on financial assets at fair value through other comprehensive income		226,811			(614,872	)
Gain on financial assets at fair value through profit or loss (Overlay approach)		161,919			141,821
Equity in other comprehensive income of associates		4,849			7,595
Foreign currency translation adjustments for foreign operations		(377,061	)		(125,219	)
Net loss from cash flow hedges		(48,171	)		(26,471	)
Other comprehensive income(loss) of separate account		18,423			(22,850	)
Remeasurement of defined benefit obligation		(385,780	)		(343,124	)
Changes in own credit risk on financial liabilities designated under fair value option		(5,171	)		(1,816	)
		(404,181	)		(984,936	)
Retained earnings (*2),(*3),(*4)		27,777,169			30,541,300
Non-controlling interest (*5),(*6),(*7)		2,287,291			2,247,272
	W	46,356,858			49,538,422

(*1) For the year ended December 31, 2020, it increased due to common stock and third-party allocation paid-in capital increase issued when the Group acquired residual shares of Orange Life Insurance Co., Ltd and Shinhan Venture Investment Co., Ltd. The cost deducted from the issuing capital is W 13,300 million. Affinity Equity Partners and Baring Private Equity Asia who have participated in third-party allocation-based capital increase have a right to practically appoint one director, respectively.

(*2) As of December 31, 2020 and 2021, profits reserved by the Group as of Article 53 of the Financial Holding Companies Act amounted to W 2,304,595 million and W 2,432,039 million, respectively.

(*3) As of December 31, 2020 and 2021, the regulatory reserves for loan losses the Group appropriated in retained earnings are W 11,988 million and W 15,552 million, respectively.

F-21

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

(*4) As of December 31, 2021, profit dividends within retained earnings of subsidiaries of the Group restricted in accordance with laws, etc. are amounted to W 7,364,759 million.

(*5) As of December 31, 2020 and 2021, the total amounts of hybrid bonds that Shinhan Bank, Jeju Bank, Shinhan Capital Co,.Ltd. and Shinhan Life Insurance Co., Ltd. have recognized as non-controlling interests are W 2,035,762 million and W 2,035,762 million, respectively. And, for the years ended December 31, 2020 and 2021, the amounts of dividends paid for the hybrid bonds by Shinhan Bank, Jeju Bank, Shinhan Capital Co,.Ltd. and Shinhan Life Insurance Co., Ltd. W 54,619 million and W 71,746 million, respectively, are allocated to profit attributed to non-controlling interest.

(*6) The non-controlling interests of W 59,709 million decreased for the year ended December 31, 2021 due to the acquisition of the remaining shares of Shinhan Asset Management Co., Ltd.

(*7) The non-controlling interests of W 1,330,337 million decreased for the year ended December 31, 2020 due to the acquisition of the remaining shares of Orange Life Insurance Co., Ltd.

(b) Capital stock

Capital stock of the Group as of December 31, 2020 and 2021 are as follows:

Number of authorized shares		1,000,000,000
Par value per share in won	W	5,000
Number of issued common stocks as of December 31, 2020		516,599,554
Number of issued common stocks as of December 31, 2021		516,599,554
Number of issued preferred stocks as of December 31, 2020 and 2021		17,482,000

The details of changes in the number of common shares outstanding as of December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance		460,317,525			515,894,758
Increase		60,626,827			700,870
Decrease		(5,049,594	)		(2,426	)
Ending balance		515,894,758			516,593,202

(c) The details of preferred stock are as follows:

	The number of shares		Contracted dividend rate	Conversion request period(*)
Convertible preferred stock		17,482,000	4.0% per year based on issue price (non-cumulative participating)		2020.05.01~2023.04.30

(*) Preferred stocks that have not been converted for 4 years from the issuance date and until the expiration date of the period of existence are automatically converted to common stocks at the expiration date of the period of existence.

F-2

20

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

(d) Hybrid bonds

Hybrid bonds classified as other equity instruments as of December 31, 2020 and 2021 are as follows:

	Issue date	Maturity date		Interest rate (%)		2020		2021
KRW	June 25, 2015		June 25, 2045		4.38	W	199,455		199,455
	September 15, 2017		—		3.77		134,683		134,683
	September 15, 2017		—		4.25		89,783		89,783
	April 13, 2018		—		4.08		134,678		134,678
	April 13, 2018		—		4.56		14,955		14,955
	August 29, 2018		—		4.15		398,679		398,679
	June 28, 2019		—		3.27		199,476		199,476
	September 17, 2020		—		3.12		448,699		448,699
	March 16, 2021		—		2.94		—		429,009
	March 16, 2021		—		3.30		—		169,581
USD	August 13, 2018		—		5.88		559,526		559,526
	May 12, 2021		—		2.88		—		556,007
						W	2,179,934		3,334,531

(*) For the year ended December 31, 2021, the deduction for capital related to hybrid bonds issued is W 4,953 million.

The hybrid bonds above can be repaid early after 5 or 10 years from the date of issuance, and the controlling company has an unconditional right to extend the maturity under the same condition. In addition, if no dividend is to be paid for common stocks, the agreed interest is also not paid.

(e) Capital adjustments

Changes in capital adjustments for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Beginning balance	W	(1,116,770	)		(687,935	)
Acquisition of treasury stocks		(150,467	)		(79	)
Disposal and retirement of treasury stocks		601,809			23,589
The acquisition commitment amount for subsidiaries’ remaining shares		(22,019	)		0
Other transactions with owners		(488	)		(4	)
Ending balance	W	(687,935	)		(664,429	)
				��

F-2

21

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

(f) Accumulated other comprehensive income

Changes in accumulated other comprehensive income for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Items that are or may be reclassified to profit or loss																		Items that will never be reclassified to profit or loss												Total
	Gain (loss) on securities at fair value through other comprehensive income			Gain (loss) on valuation of financial asset measured at FVTPL (overlay approach)			Equity in other comprehensive income (loss) of associates			Foreign currency translation adjustments for foreign operations			Net gain (loss) from cash flow hedges			Other comprehen- sive income (loss) of separate account			Remeasure -ments of the defined benefit plans			Equity in other comprehensive income (expense) of associates			Gain (loss) on securities at fair value through other comprehensive income			Gain (loss) on financial l iabilities measured at FVTPL attributable to changes in credit risk
Beginning balance	W	233,328			71,621			8,193			(217,465	)		(33,711	)		14,539			(401,532	)		(16	)		73,142			(8,255	)		(260,156	)
Change due to fair value		(3,601	)		125,298			(1,080	)		—			—			5,358			—			(15	)		(19,133	)		(9,689	)		97,138
Reclassification:
Change due to impairment or disposal		(105,274	)		—			—			5,858			—			—			—			—			—			13,942			(85,474	)
Effect of hedge accounting		—			—			—			—			144,750			—			—			—			—			—			144,750
Hedging		(4,395	)		—			—			45,083			(164,708	)		—			—			—			—			—			(124,020	)
Effects from changes in foreign exchange rate		—			74			(355	)		(219,306	)		—			—			—			—			721			—			(218,866	)
Remeasurements of the defined benefit plans		—			—			—			—			—			—			21,422			—			—			—			21,422
Deferred income taxes		26,486			(35,074	)		(1,883	)		7,000			5,498			(1,474	)		(5,610	)		5			(2,573	)		(1,169	)		(8,794	)
Transfer to other account		—			—			—			—			—			—			—			—			27,825			—			27,825
Non-controlling interests		285			—			—			1,769			—			—			(60	)		—			—			—			1,994
Ending balance	W	146,829			161,919			4,875			(377,061	)		(48,171	)		18,423			(385,780	)		(26	)		79,982			(5,171	)		(404,181	)

F-22

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

	2021
	Items that are or may be reclassified to profit or loss																		Items that will never be reclassified to profit or loss												Total
	Gain (loss) on securities at fair value through other comprehensive income			Gain (loss) on valuation of financial asset measured at FVTPL (overlay approach)			Equity in other comprehensive income (loss) of associates			Foreign currency translation adjustments for foreign operations			Net gain (loss) from cash flow hedges			Other comprehen- sive income (loss) of separate account			Remeasure -ments of the defined benefit plans			Equity in other comprehensive income (expense) of associates			Gain (loss) on securities at fair value through other comprehensive income			Gain (loss) on financial l iabilities measured at FVTPL attributable to changes in credit risk
Beginning balance	W	146,829			161,919			4,875			(377,061	)		(48,171	)		18,423			(385,780	)		(26	)		79,982			(5,171	)		(404,181	)
Change due to fair value		(1,110,290	)		(31,924	)		6,517			0			0			(56,484	)		0			(3	)		21,408			(1,526	)		(1,172,302	)
Reclassification:
Change due to impairment or disposal		(114,399	)		0			0			0			0			0			0			0			0			0			(114,399	)
Effect of hedge accounting		0			0			0			0			(209,869	)		0			0			0			0			0			(209,869	)
Hedging		10,627			0			0			(74,525	)		239,800			0			0			0			0			0			175,902
Effects from changes in foreign exchange rate		0			0			0			333,059			0			0			0			0			673			0			333,732
Remeasurements of the defined benefit plans		0			0			0			0			0			0			59,441			0			0			0			59,441
Deferred income taxes		334,391			11,826			(3,769	)		(6,226	)		(8,231	)		15,211			(16,164	)		1			(16,061	)		(1,272	)		309,706
Transfer to other account		0			0			0			0			0			0			0			0			29,421			6,153			35,574
Non-controlling interests		2,547			0			0			(466	)		0			0			(621	)		0			0			0			1,460
Ending balance	W	(730,295	)		141,821			7,623			(125,219	)		(26,471	)		(22,850	)		(343,124	)		(28	)		115,423			(1,816	)		(984,936	)

F-22

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

(g) Appropriation of retained earnings

The appropriation of retained earnings for the years ended December 31, 2020 and 2021 are as follows: 

	2020			2021
Date of appropriation:	March 25, 2021			March 24, 2022
Unappropriated retained earnings:
Balance at beginning of year	W	5,251,413			5,355,358
Retirement of treasury stock		(150,325	)		0
Dividend to hybrid bonds		(85,327	)		(116,388	)
Interim dividends		—			(299,082	)
Net income		1,274,443			1,413,956
		6,290,204			6,353,844
Appropriation of retained earnings:
Legal reserve		(127,444	)		(141,396	)
Dividends
Dividends on common stocks paid		(773,839	)		(723,230	)
Dividends on preferred stocks paid		(29,999	)		(24,475	)
Regulatory reserve for loan losses		(3,564	)		(2,972	)
		(934,846	)		(892,073	)
Unappropriated retained earnings to be carried over to subsequent year	W	5,355,358			5,461,771

(*) These statements of appropriation of retained earnings are based on the separate financial statements of Shinhan Financ i al  Group.

(h) Regulatory reserve for loan losses

In accordance with Regulations for the Supervision of Financial Institutions, the Group reserves the difference between allowance for credit losses by IFRS and that as required by the Regulations at the account of regulatory reserve for loan losses in retained earnings.

i) Changes in regulatory reserve for loan losses including

non-controlling

interests as of December 31, 2020 and 2021 are as follows:

	2020		2021
Beginning balance	W	3,161,170		3,329,899
Planned regulatory reversal of loan losses		168,729		369,416
Ending balance	W	3,329,899		3,699,315

(*) After the Board of Directors’ approval of financial statements (February 9, 2022), on March 15, 2022, the Board of Directors decided to set an additional reserve for loan losses of W 99,673 million to enhance loss absorbing capacity based on measures to extend COVID-19 financial support.

F-22

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

29. Equity (continued)

ii) Profit attributable to equity holders of Shinhan Financial Group and earnings per share after factoring in regulatory reserve for loan losses for the years ended December 31, 2020 and 2021 are as follows:

	2020			2021
Profit attributable to equity holders of Shinhan Financial Group	W	3,414,595			4,019,254
Provision for regulatory reserve for loan losses (*1)		(177,620	)		(364,882	)
Profit attributable to equity holders of Shinhan Financial Group adjusted for regulatory reserve	W	3,236,975			3,654,372
Basic and diluted earnings per share adjusted for regulatory reserve in won (*2)		6,299			6,625

(*1) After the Board of Directors’ approval of financial statements (February 9, 2022), on March 15, 2022, the Board of Directors decided to set an additional reserve for loan losses of W 99,673 million to enhance loss absorbing capacity based on measures to extend COVID-19 financial support. Among the additional adjustments to the reserve for loan losses, the amount deducted from the non-controlling interests is W  95,797 million.

(*2) Dividends for hybrid bonds are deducted.

(i) Treasury stock

The acquisitions of treasury stock for the years ended December 31, 2020 and 2021 are as follows:

	2020 (*)					2021
	The number of share		Carrying value			The number of share		Carrying value
Beginning balance		13,882,062	W	600,000			704,796	W	28,215
Acquisition		5,049,594		150,467			2,426		79
Disposal		13,191,202		(572,252	)		700,870		(28,067	)
Retirement		5,035,658		(150,000	)		0		0
Ending balance		704,796	W	28,215			6,352	W	227

(*) Changes in equity shares due to the exchange of shares with Orange Life Insurance Co., Ltd. and Shinhan Venture Investment Co., Ltd. are included in the acquisition and disposal for treasury stock. Shares of Shinhan Financial Group Co., Ltd. is owned by Orange Life Insurance Co., Ltd. and Shinhan Venture Investment Co., Ltd. are included in its own shares.

30. Dividends

(a) For the year ended December 31, 2021, the interim dividends paid are as follows:

Dividend base date		Amount
2 ND Quarter	Common stock ( W 300 per share)	W	154,978
	Convertible preferred stock ( W 300 per share)		5,245
		W	160,223

F-22

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

30. Dividends (continued)

Dividend base date		Amount
3 rd Quarter	Common stock ( W 260 per share)	W	134,314
	Convertible preferred stock ( W 260 per share)		4,545
		W	138,859

(*) The Group has amended the articles of association by resolution of the general meeting of stockholders on March 25, 2021 and the Group has been offering interim dividends since June 30, 2021.

(b) Details of dividends recognized as distributions to stockholders for the years ended December 31, 2020 and 2021 are as follows:

	2020		2021(*)
Common Stock:
Total number of shares issued and outstanding		516,599,554		516,599,554
Par value per share in won		5,000		5,000
Dividend per share in won		1,500		1,400
Dividends (*2)	W	773,839		723,230
Dividend rate per share	%	30.0		28.0
Preferred Stock:
Total number of shares issued and outstanding		17,482,000		17,482,000
Par value per share in won		5,000		5,000
Dividend per share in won		1,716		1,400
Dividends	W	29,999		24,475
Dividend rate per share	%	34.3		28.0

(*1) The current dividend (plan) was decided on March 24, 2022. The amount of dividends was not recognized as a distribution to the owner during the period.

(*2) Dividends on own shares held by the Group are excluded.

(c) The details of dividends paid by the Group related to the preferred stock issued for the year ended December 31, 2021 are as follows:

Number of shares		Dividend per share (in won)		Total dividend paid		Issue price per share (in won)		Dividend rate per issue price (%)
	17,482,000		1,960		34,265		42,900		4.57

(d) Dividends for hybrid bond is calculated as follows for the years ended December 31, 2020 and 2021:

	2020		2021
Amount of hybrid bond	W	2,188,150		3,347,700
Interest rate (%)		3.12 ~ 5.88		2.88 ~ 5.88
Dividends	W	85,327		116,388

F-22

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

31. Net interest income

Net interest income for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Interest income:
Cash and deposits at amortized cost	W	210,415			128,023			85,846
Deposits at FVTPL		31,506			13,888			1,298
Securities at FVTPL		740,378			742,958			659,927
Securities at FVOCI		1,077,995			957,817			896,027
Securities at amortized cost		1,061,262			1,076,849			1,091,974
Loans at amortized cost		12,435,302			11,697,775			11,889,767
Loans at FVTPL		56,961			73,991			35,587
Others		93,543			82,695			63,804
		15,707,362			14,773,996			14,724,230
Interest expense:
Deposits		(3,644,632	)		(2,842,625	)		(2,173,804	)
Borrowings		(551,416	)		(426,607	)		(330,548	)
Debt securities issued		(1,666,257	)		(1,554,544	)		(1,390,230	)
Others		(107,093	)		(67,520	)		(60,323	)
		(5,969,398	)		(4,891,296	)		(3,954,905	)
Net interest income	W	9,737,964			9,882,700			10,769,325

32. Net fees and commission income

Net fees and commission income for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Fees and commission income:
Credit placement fees	W	66,666			94,836			71,480
Commission received as electronic charge receipt		151,584			143,449			148,626
Brokerage fees		353,382			546,236			577,238
Commission received as agency		140,484			145,162			146,662
Investment banking fees		151,031			161,439			188,644
Commission received in foreign exchange activities		244,325			239,467			271,808
Trust management fees		307,167			255,043			310,376
Credit card fees		1,234,239			1,170,078			1,175,084
Operating lease fees (*)		142,025			245,173			365,447
Others		766,110			813,591			884,520
		3,557,013			3,814,474			4,139,885
Fees and commission expense:
Credit-related fee		(42,023	)		(46,456	)		(38,668	)
Credit card fees		(915,521	)		(849,256	)		(836,990	)
Others		(458,950	)		(535,829	)		(589,230	)
		(1,416,494	)		(1,431,541	)		(1,464,888	)
Net fees and commission income	W	2,140,519			2,382,933			2,674,997

(*) Among operating lease fees recognized for the years ended December 31, 2020 and 2021, there is 0 variable lease fee income which does not vary by index or rate.

F-22

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

33. Dividend income

Dividend income for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019		2020		2021
Securities at FVTPL	W	65,572		76,453		100,315
Securities at FVOCI		16,586		21,503		24,216
	W	82,158		97,956		124,531

34. Net gain (loss) on financial instruments measured at fair value through profit or loss

Net gain(loss) on financial instruments measured at fair value through profit or loss for the ended December 31, 2019 2020 and 2021 are as follows:

	2019			2020			2021
Net gain (loss) on deposits measured at FVTPL
Gain (loss) on valuation	W	87,374			1,267			(296	)
Gain (loss) on sale		13,400			28,461			(1,479	)
		100,774			29,728			(1,775	)
Net gain (loss) on loans measured at FVTPL loss on valuation		(248,032	)		(204,702	)		(78,416	)
Gain on sale		10,395			17,516			15,312
		(237,637	)		(187,186	)		(63,104	)
Net gain (loss) on securities measured at FVTPL
Debt securities
Gain on valuation		137,181			41,208			97,281
Gain (loss) on sale		125,431			72,338			(92,230	)
Other gains		297,024			331,837			506,980
		559,636			445,383			512,031
Equity securities
Gain on valuation		141,246			134,922			180,363
Gain on sale		183,969			283,265			199,702
		325,215			418,187			380,065
Other
Gain on valuation		28,803			22,690			9,316
		913,654			886,260			901,412

F-22

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

34. Net gain (loss) on financial instruments measured at fair value through profit or loss (continued)

	2019			2020			2021
Net gain (loss) on financial liabilities measured at FVTPL
Debt securities
Loss on valuation		(16,810	)		(48,261	)		(7,745	)
Gain (loss) on disposal		(35,710	)		82,724			(67,522	)
		(52,520	)		34,463			(75,267	)
Other
Loss on valuation		(91,025	)		(83,316	)		(26,224	)
Gain on disposal		4,169			8,313			3,489
		(86,856	)		(75,003	)		(22,735	)
		(139,376	)		(40,540	)		(98,002	)
Derivatives:
Gain (loss) on valuation		388,880			245,681			(64,128	)
Gain (loss) on transaction		359,187			(661,113	)		429,228
		748,067			(415,432	)		365,100
	W	1,385,482			272,830			1,103,631

35. Net gain (loss) on financial instruments designated at fair value through profit or loss

Net gain (loss) on financial instruments designated at fair value through profit or loss for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Financial liabilities designated at fair value through profit or loss:
Compound financial instruments
Gain (loss) on valuation	W	(33,871	)		241,066			423,914
Loss on sale and redemption		(812,175	)		(42,827	)		(512,215	)
	W	(846,046	)		198,239			(88,301	)

F-22

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

36. Reversal of (provision for) credit loss allowance

Reversal of (provision for) credit loss allowance on financial assets for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Allowance provided:
Loans at amortized cost	W	(910,898	)		(1,290,695	)		(907,070	)
Other financial assets at amortized cost		(33,945	)		(33,785	)		(52,162	)
Securities at fair value through other comprehensive income		(5,787	)		(3,829	)		(19,697	)
Unused credit line and financial guarantee		(29,519	)		(52,795	)		0
Securities at amortized cost		(543	)		(1,075	)		(5,305	)
		(980,692	)		(1,382,179	)		(984,234	)
Allowance reversed:
Unused credit commitment and financial guarantee		0			0			9,549
	W	(980,692	)		(1,382,179	)		(974,685	)

37. General and administrative expenses

General and administrative expenses for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019		2020		2021
Employee benefits:
Salaries	W	2,918,065		3,034,543		3,283,436
Severance benefits:
Defined contribution		35,972		36,660		38,577
Defined benefit		168,732		184,753		192,614
Termination benefits		122,732		94,723		268,089
		3,245,501		3,350,679		3,782,716
Entertainment		36,931		34,963		38,552
Depreciation		479,657		475,506		490,457
Amortization		99,208		129,976		155,202
Taxes and utility bills		197,691		197,996		187,432
Advertising		265,739		204,308		280,780
Research		17,742		20,271		25,320
Others		792,205		798,774		782,629
	W	5,134,674		5,212,473		5,743,088

F-2

30

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

38. Share-based payments

(a) Stock options granted as of December 31, 2021 are as follows:

	7th grant (*)
Type		Cash payment
Grant date		March 19, 2008
Exercise price in Korean won		W 49,053
Number of shares granted		808,700
Options’ expiry dates		May 17, 2021 / September 17, 2021
Changes in number of shares granted:
Balance at January 1, 2021		36,162
Exercised		36,162
Balance at December 31, 2021		0

(b) Performance shares granted as of December 31, 2021 are as follows:

	Expired	Not expired
Type	Cash-settled share-based payment
Performance conditions (*1)	Relative stock price linked (20.0%), management index (80.0%)
Exercising period	4 years from the commencement date of the year to which the grant date belongs
Estimated number of shares vested at December 31, 2021	578,201	1,941,484
Fair value per share in Korean won (*2)	W 40,580,  W 44,222, W 33,122 and W 37,387 for the expiration of exercising period from 2018 to 2021	W 36,800

(*1) Starting with the shares provided from 2020, Shinhan Financial Group and Shinhan Bank apply relative stock price linked (20.0%), management index (60.0%), and prudential index (20.0%).

(*2) Based on performance-based stock compensation, the reference stock price (the arithmetic average of the weighted average share price of transaction volume for the past two month, the previous one month, and the past one week) of four years after the commencement of the grant year is paid in cash, and the fair value of the reference stock to be paid in the future is assessed as the closing price of the settlement.

F-2

31

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

38. Share-based payments (continued)

(c) Share-based compensation costs for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019
	Employees of
	The controlling company			The subsidiaries			Total
Stock options granted:
5th	W	—			9			9
6th		(3	)		(15	)		(18	)
7th		(5	)		(6	)		(11	)
Performance share		4,678			32,646			37,324
	W	4,670			32,634			37,304

	2020
	Employees of
	The controlling company			The subsidiaries			Total
Stock options granted:
6th	W	(1	)		(4	)		(5	)
7th		(18	)		(26	)		(44	)
Performance shares		(257	)		(3,902	)		(4,159	)
	W	(276	)		(3,932	)		(4,208	)

	2021
	Employees of
	The controlling company			The subsidiaries			Total
Stock options granted:
7th	W	(1	)		(1	)		(2	)
Performance shares		4,286			32,899			37,185
	W	4,285			32,898			37,183

(d) Accrued expenses and the intrinsic value as of December 31, 2020 and 2021 are as follows:

	2020
	Accrued expense (*)
	The controlling company		The subsidiaries		Total
Stock options granted:
7th	W	1		1		2
Performance shares		7,201		60,241		67,442
	W	7,202		60,242		67,444

(*) The intrinsic value of share-based payments is W 67,442 million as of December 31, 2020. For the calculation, the quoted market price of W 32,050 per share is used for stock options and the fair value is considered as intrinsic value for performance shares, respectively.

F-23

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

38. Share-based payments (continued)

	2021
	Accrued expense (*)
	The controlling company		The subsidiaries		Total
Stock options granted:
Performance shares	W	10,598		82,498		93,096

(*) As of December 31, 2021, all stock options have expired, and the fair value is considered as intrinsic value for performance shares, respectively.

39. Net other operating expense

Other operating income and other operating expense for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Other operating income
Gain on disposal of assets:
Loans at amortized cost	W	18,298			21,348			18,843
Others:
Gain on hedged items		564,438			536,768			501,676
Reversal of allowance for guarantees and acceptances		19,329			2,709			0
Gain on other trust accounts		27			0			44,238
Reversal of other allowance		11,194			850			8,886
Others		97,777			164,999			356,611
		692,765			705,326			911,411
		711,063			726,674			930,254
Other operating expense
Loss on disposal of assets:
Loans at amortized cost		(27,291	)		(18,675	)		(347	)
Others:
Loss on hedged items		(596,533	)		(605,808	)		(518,891	)
Fund contribution		(311,336	)		(367,993	)		(397,884	)
Provision for guarantees and acceptances		0			0			(3,457	)
Provision for other debt allowances		(6,939	)		(16,862	)		(52,123	)
Depreciation of operating lease assets		(98,288	)		(163,006	)		(257,033	)
Others		(857,918	)		(924,796	)		(1,190,546	)
		(1,871,014	)		(2,078,465	)		(2,419,934	)
		(1,898,305	)		(2,097,140	)		(2,420,281	)
Net other operating expenses	W	(1,187,242	)		(1,370,466	)		(1,490,027	)

F-23

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

40. Net other non-operating income

Other

non-operating

income and other

non-operating

expense for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Other non-operating income
Gain on disposal of assets:
Property and equipment (*1)	W	1,452			64,427			1,836
Investment property (*1)		12,640			20,701			108
Assets held for sale		0			1,147			16,976
Lease assets		1,681			2,712			247
Right-of-use assets		1,112			3,415			2,986
Others		407			24			0
		17,292			92,426			22,153
Gain on disposal of Investments in associates		3,461			11,325			39,593
Others:
Rental income on investment property		43,777			23,890			35,887
Reversal of impairment losses on intangible asset		438			119			372
Gain from assets contributed		86			4			20
Others		82,879			66,268			64,272
		127,180			90,281			100,551
		147,933			194,032			162,297
Other non-operating expense
Loss on disposal of assets:
Property and equipment (*1)		(870	)		(5,884	)		(2,027	)
Investment property		0			0			(2,111	)
Lease assets		(3,221	)		(5,538	)		0
Right-of-use assets		(306	)		(1,195	)		(2,920	)
Others		0			(64	)		(1,186	)
		(4,397	)		(12,681	)		(8,244	)
Loss on disposal of investments in associates		(3,974	)		(5,754	)		(11,002	)
Impairment loss on investments in associates		0			(9,407	)		(10,719	)
		(3,974	)		(15,161	)		(21,721	)
Others:
Donations		(94,937	)		(86,608	)		(64,098	)
Depreciation of investment properties		(17,565	)		(20,165	)		(21,616	)
Impairment loss on property and equipment		0			0			(7,594	)
Impairment loss on intangible assets		(152,081	)		(41,429	)		(34,916	)
Write-off of intangible assets		(9,221	)		(474	)		(1,346	)
Expenses on collection of special bonds		(7,322	)		(7,978	)		(11,275	)
Others (*2)		(46,465	)		(344,934	)		(518,519	)
		(327,591	)		(501,588	)		(659,364	)
		(335,962	)		(529,430	)		(689,329	)
Net other non-operating loss	W	(188,029	)		(335,398	)		(527,032	)

F-23

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

40. Net other non-operating income (continued)

(*1) Gain and loss on disposal of sale-and-leaseback are included in gain and loss on disposal of property, plant, and equipment and gain on disposal of investment property, respectively. Gain on disposal of sale-and-leaseback for the year ended December 31, 2020 is W 9,761 million.

(*2) It includes W 284,176 million and W 466,775 million, respectively, for the years ended December 31, 2020 and 2021 of estimated claim for damages that are highly probable to be paid in case of customer losses expected due to redemption delays of Lime CI funds.

41. Income tax expense

(a) Income tax expense for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Current income tax expense	W	1,115,724			1,131,254			1,498,819
Temporary differences		296,244			131,862			(322,279	)
Income tax recognized in other comprehensive income		(142,844	)		(7,321	)		294,496
Income tax expenses	W	1,269,124			1,255,795			1,471,036

(b) Income tax expense calculated by multiplying net income before tax with the tax rate for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Profit before income taxes	W	4,911,508			4,753,871			5,583,664
Income taxes at statutory tax rates		1,345,187			1,301,836			1,530,030
Adjustments:
Non-taxable income		8,500			(4,932	)		(8,417	)
Non-deductible expense		18,461			14,529			15,975
Tax credit		(2,289	)		(88	)		(159	)
Other		(100,735	)		(55,550	)		(66,393	)
Income tax expense	W	1,269,124			1,255,795			1,471,036
Effective tax rate		%25.84			26.42			26.35

F-23

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

41. Income tax expense (continued)

(c) Deferred tax expenses by origination and reversal of deferred assets and liabilities and temporary differences for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Beginning Balance			Business combination		Profit or loss			Other comprehensive income(loss)			Ending Balance (*)
Unearned income	W	(331,679	)		0		3,401			0			(328,278	)
Account receivable		(26,324	)		0		(2,754	)		0			(29,078	)
Financial assets measured at fair value		(101,577	)		1,750		(28,950	)		(13,308	)		(142,085	)
Investment in associates and etc.		18,758			0		144,390			(1,878	)		161,270
Valuation and depreciation of property and equipment		(151,046	)		7		253			0			(150,786	)
Derivative asset (liability)		21,005			0		(80,357	)		3,762			(55,590	)
Deposits		30,641			0		(3,009	)		0			27,632
Accrued expenses		145,494			441		(5,071	)		0			140,864
Defined benefit obligation		506,132			209		39,072			(6,759	)		538,654
Plan assets		(507,140	)		0		(47,934	)		1,167			(553,907	)
Other provisions		213,055			0		99,223			0			312,278
Allowance for acceptances and guarantees		80,014			0		8,036			0			88,050
Allowance related to asset revaluation		(49,713	)		0		0			0			(49,713	)
Allowance for expensing depreciation		(401	)		0		64			0			(337	)
Deemed dividend		0			0		0			0			0
Accrued contributions		36,818			0		(20,200	)		0			16,618
Financial assets (liabilities) designated at fair value through profit of loss		42,817			0		(71,043	)		0			(28,226	)
Allowances		38,068			0		185,583			0			223,651
Constructive dividend		1,341			0		14,950			0			16,291
Liability under insurance contracts		24,147			0		(22,408	)		0			1,739
Deficit carried over		0			0		311			0			311
Others		(543,770	)		451		(304,112	)		9,695			(837,736	)
		(553,360	)		2,858		(90,555	)		(7,321	)		(648,378	)
Expired unused tax losses:
Extinguishment of deposit and insurance liabilities		320,011			0		(35,944	)		0			284,067
	W	(233,349	)		2,858		(126,499	)		(7,321	)		(364,311	)

(*) Deferred tax assets from overseas subsidiaries are increased by W 1,960 million due to foreign exchange rate movements.

F-23

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

41. Income tax expense (continued)

	2021
	Beginning Balance			Business combination		Profit or loss			Other comprehensive income(loss)			Ending Balance (*)
Unearned income	W	(328,278	)		0		(12,714	)		0			(340,992	)
Account receivable		(29,078	)		0		2,498			0			(26,580	)
Financial assets measured at fair value		(142,085	)		0		83,716			325,327			266,958
Investment in associates and etc.		161,270			0		22,616			(5,624	)		178,262
Valuation and depreciation of property and equipment		(150,786	)		0		14,616			0			(136,170	)
Derivative asset (liability)		(55,590	)		0		86,234			(8,995	)		21,649
Deposits		27,632			0		(3,202	)		0			24,430
Accrued expenses		140,864			0		13,852			0			154,716
Defined benefit obligation		538,654			0		26,411			(15,115	)		549,950
Plan assets		(553,907	)		0		(47,067	)		(870	)		(601,844	)
Other provisions		312,278			0		77,268			0			389,546
Allowance for acceptances and guarantees		88,050			0		(55,588	)		0			32,462
Allowance related to asset revaluation		(49,713	)		0		0			0			(49,713	)
Allowance for expensing depreciation		(337	)		0		63			0			(274	)
Accrued contributions		16,618			0		19,496			0			36,114
Financial assets(liabilities) designated at fair value through profit of loss		(28,226	)		0		(46,429	)		0			(74,655	)
Allowances		223,651			0		(91,412	)		0			132,239
Constructive dividend		16,291			0		446			0			16,737
Liability under insurance contracts		1,739			0		132			0			1,871
Deficit carried over		311			0		(311	)		0			0
Others		(837,736	)		0		(44,441	)		(227	)		(882,404	)
		(648,378	)		0		46,184			294,496			(307,698	)
Expired unused tax losses:
Extinguishment of deposit and insurance liabilities		284,067			0		(17,462	)		0			266,605
	W	(364,311	)		0		28,722			294,496			(41,093	)

(*) Deferred tax assets from overseas subsidiaries are increased by W 939 million due to foreign exchange rate movements.

F-23

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

41. Income tax expense (continued)

(d) Deferred tax assets and liabilities that are directly charged or credited to equity for the years ended December 31, 2020 and 2021 are as follows:

	January 1, 2020						Changes						December 31, 2020
	OCI			Tax effect			OCI			Tax effect			OCI			Tax effect
Gain (loss) on valuation of financial assets measured at FVOCI	W	439,370			(132,901	)		(103,570	)		23,912			335,800			(108,989	)
Gain (loss) on financial liabilities measured at FVTPL attributable to changes in credit risk		(11,386	)		3,131			4,253			(1,170	)		(7,133	)		1,961
Foreign currency translation adjustments for foreign operations		(208,348	)		(9,117	)		(166,596	)		7,000			(374,944	)		(2,117	)
Gain (loss) on cash flow hedge		(47,977	)		14,266			(19,958	)		5,498			(67,935	)		19,764
Equity in other comprehensive income(loss) of associates		8,300			(122	)		(1,450	)		(1,878	)		6,850			(2,000	)
The accumulated other comprehensive income(loss) in separate account (*)		20,054			(5,515	)		5,358			(1,473	)		25,412			(6,988	)
Remeasurements of the defined benefit liability		(553,538	)		152,006			21,362			(5,610	)		(532,176	)		146,396
Gain (loss) on valuation of financial asset measured at FVTPL (Overlay approach)		98,678			(27,057	)		125,371			(35,073	)		224,049			(62,130	)
	W	(254,847	)		(5,309	)		(135,230	)		(8,794	)		(390,077	)		(14,103	)

	January 1, 2021						Changes						December 31, 2021
	OCI			Tax effect			OCI			Tax effect			OCI			Tax effect
Gain (loss) on valuation of financial assets measured at FVOCI	W	335,800			(108,989	)		(1,160,013	)		318,331			(824,213	)		209,342
Gain (loss) on financial liabilities measured at FVTPL attributable to changes in credit risk		(7,133	)		1,961			4,627			(1,272	)		(2,506	)		689
Foreign currency translation adjustments for foreign operations		(374,944	)		(2,117	)		258,068			(6,226	)		(116,876	)		(8,343	)
Gain (loss) on cash flow hedge		(67,935	)		19,764			29,931			(8,232	)		(38,004	)		11,532
Equity in other comprehensive income(loss) of associates		6,850			(2,000	)		6,512			(3,766	)		13,362			(5,766	)
The accumulated other comprehensive income(loss) in separate account(*)		25,412			(6,988	)		(56,484	)		15,211			(31,072	)		8,223
Remeasurements of the defined benefit liability		(532,176	)		146,396			58,820			(16,164	)		(473,356	)		130,232
Gain (loss) on valuation of financial asset measured at FVTPL (Overlay approach)		224,049			(62,130	)		(31,924	)		11,826			192,125			(50,304	)
	W	(390,077	)		(14,103	)		(890,463	)		309,708			(1,280,540	)		295,605

(*) Deferred tax effects, which are originated from the accumulated other comprehensive income in separate account, are included in the other liabilities of principle and interest guaranteed separate account’s financial statement.

F-23

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

41. Income tax expense (continued)

(e) There is no the amount of deductible temporary differences, that are not recognized as deferred tax assets as of December 31, 2020 and 2021.

(f) The amount of temporary difference regarding investment in subsidiaries that are not recognized as deferred tax liabilities as of December 31, 2020 and 2021 are as follows:

	2020			2021
Investment in associates	W	(897,110	)		(1,304,370	)

(g) The Group set off a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities. Deferred tax assets and liabilities presented on a gross basis prior to any offsetting as of December 31, 2020 and 2021 are as follows:

	2020			2021
Deferred tax assets	W	440,430			593,852
Deferred tax liabilities		(804,741	)		(634,945	)

42. Earnings per share

(a) Basic and diluted earnings per share for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Profit attributable to equity holders of Shinhan Financial Group	W	3,403,497			3,414,595			4,019,254
Less:
Dividends to hybrid bond		(61,993	)		(85,327	)		(116,388	)
Net profit available for common stock	W	3,341,504			3,329,268			3,902,866
Weighted average number of common shares outstanding (*1),(*2)		477,346,731			500,343,324			534,049,948
Basic and diluted earnings per share in won	W	7,000			6,654			7,308

(*1) The number of basic ordinary shares outstanding is 516,599,554 shares and the above weighted-average stocks are calculated by reflecting treasury stocks issued and 17,482,000 shares of convertible preferred shares issued on May 1, 2019.

(*2) Treasury stock has retired on June 1, 2020.

F-23

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

42. Earnings per share (continued)

(b) The calculation details of the weighted average number of ordinary shares for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Number of shares			Number of days
Number of common shares issued		516,599,554			178,880,869,852
Shares of convertible preferred stock		17,482,000			6,398,412,000
Shares of treasury stock		(704,796	)		(2,153,625,403	)
Average number of ordinary shares		533,376,758			183,125,656,449
Days					366 days
Weighted average number of ordinary shares					500,343,324

	2021
	Number of shares			Number of days
Number of common shares issued		516,599,554			188,558,837,210
Shares of convertible preferred stock		17,482,000			6,380,930,000
Shares of treasury stock		(6,352	)		(11,536,338	)
Average number of ordinary shares		534,075,202			194,928,230,872
Days					365 days
Weighted average number of ordinary shares					534,049,948

43. Commitments and contingencies

(a) Guarantees, acceptances and credit commitments as of December 31, 2020 and 2021 are as follows:

	2020		2021
Guarantees and purchase agreements:
Outstanding guarantees	W	10,249,827		10,540,968
Contingent guarantees		3,433,953		4,670,771
ABS and ABCP purchase agreements		1,604,958		1,525,768
		15,288,738		16,737,507
Commitments to extend credit:
Loan commitments in won		80,598,639		81,707,963
Loan commitments in foreign currency		19,319,903		19,807,686
Other agreements (*)		87,718,227		92,338,217
		187,636,769		193,853,866
Endorsed bills:
Secured endorsed bills		1,650		8,199
Unsecured endorsed bills		7,324,559		7,683,165
		7,326,209		7,691,364
	W	210,251,716		218,282,737

(*) Unused credit commitments provided to the card customers are included, the amounts are W  82,991,589 million for the year ended December 31, 2020 and W 86,979,545 million for the year ended December 31, 2021.

F-2

40

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

43. Commitments and contingencies (continued)

(b) Pending litigations

The Group’s pending lawsuits as a defendant as of December 31, 2021 are as follows:

Case	Number of claim	Claim amount		Description	Status
Return of unjust earning	1	W	33,096	The Plaintiff believes that the group of lenders including the Group unfairly sold two oil drilling vessels that are the core assets for borrowers and it caused losses to other bankrupt creditors of the borrower. Therefore, the Plaintiff filed a lawsuit for damages.	The first order is ongoing as of December 31, 2021.
Request for return of trust and etc.	1		10,997	Claims for payment of principal of trust and trust profits upon termination of a specific trust.	It was filed on December 13, 2021
Loans lawsuit	1		10,654	Loans lawsuit	The Group won the first order and second order is ongoing as of December 31, 2021.
Return of down payment for Ulsan Innovative City	1		12,045	The Plaintiffs, the distributors, had received the properties from the Group in accordance with the Act of Industrial Integration, but Ulsan City refused to approve the move-in under the Act of Innovative City, claiming that if the Act of Innovative City is applied, they will suffer from significant losses in future re-transfer.	The Group won the first order and second order is ongoing as of December 31, 2021.
Others(*)	583		337,417	It includes various cases, such as compensation for loss claim.
	587	W	404,209

(*) In January 2022, two lawsuits were filed, claiming damages (lawsuit value of W 101,183 million) for joint and several liabilities.

F-2

41

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

43. Commitments and contingencies (continued)

As of the December 31, 2021, the Group has recorded

W

9,693 million and

W

3,828 million, respectively, as provisions and insurance contract liabilities (reserve for claims) for litigations, etc., which have been decided to lose at the first trial. The outcome of the remaining litigations other than those accounted for provisions, etc. are not expected to have a material impact on the consolidated financial statements, but additional losses may result from future litigation.

(c) The Group entered into an agreement between shareholders with Asia Trust Co., Ltd. (60% of its total shares) to acquire remaining stake. In accordance with the agreement, the Group has the right to purchase shares held by the shareholders of Asia Trust Co., Ltd. In response, the shareholders of Asia Trust Co., Ltd. have the right to demand to purchase the shares to the Group.

(d) As a Prime Brokerage Service operator, the Group entered into a total return swap agreement (TRS, derivatives that exchange profits and losses from underlying assets such as stocks, bonds and funds) with a fund operated by Lime Asset Management (“Lime Fund”). Through TRS with the Group, the Lime Fund invested approximately $200 million in IIG Global Trade Finance Fund, IIG Trade Finance Fund, and IIG Trade Finance Fund-FX Hedged (“IIG Fund”) from May 2017 to September 2017. The Group invested the IIG Fund in LAM Enhanced Finance III L.P. (“LAM III Fund”) in kind and acquired the LAM III Fund’s beneficiary certificates in accordance with the management instructions of Lime Asset Management in 2019. The recoverable value of the LAM III Fund beneficiary certificates is affected by the recoverable value of the IIG Fund invested in kind.

Meanwhile, IIG Fund received cancelation of registration and asset freeze from the US Securities and Exchange Commission in November 2019. The Financial Supervisory Service (FSS) announced in its interim inspection of Lime Fund in February 2020 that the Group is charged of being involved in poor concealment and fraud of Lime Fund while operating TRSs with Lime Fund, and a related prosecution investigation has been under way since then.

Institutional sanctions (Shinhan Investment Corp. has been banned from the sale of new private equity funds and etc. for six months) against the Group was finalized by the Financial Services Commission on November 12, 2021.

In addition, the prosecution arrested and indicted the former director of Prime Brokerage Services for fraud charges and violation of the Capital Market and Financial Investment Services Act. Finally, the former director of Prime Brokerage Services was found guilty.

The prosecution indicted the Group and the former director of Prime Brokerage Services on January 22, 2021 for violating ‘Financial Investment Services and Capital Markets Act’. It is expected that the criminal trial will determine whether the Group is legally responsible or not. The Group has determined the present obligation that the Group may liable for the charge of involvement in the fraud is not significant.

As of December 31, 2021, there is a dispute between companies over some beneficiary certificates acquired under the management order of Lime Asset Management.

Considering the board resolutions and the results of the Financial Supervisory Service’s dispute settlement committee, the Group has been completed or will be carried out the compensation and liquidity supply for some of the Lime Fund sales in the future.

(e) The Group sold approximately W 390.7 billion of German Heritage DLS trust products from May 2017 to December 2018. As of December 31, 2021, the repayment of W 379.9 billion has been delayed. Accordingly, the supervisory authorities were conducting an inspection on the incomplete sale of trust

F-24

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

43. Commitments and contingencies (continued)

products. The institutional sanctions (Shinhan Investment Corp. has been banned from the sale of new private equity funds and etc. for six months) against the Group was partially finalized by the Financial Services Commission on November 12, 2021.

(f) The Group has sold Gen2 related trust instruments from May 2014 to November 2019. As of December 31, 2021, approximately W 373.8 billion, expired amount, of W 420.0 billion, outstanding balance, is suspended from redemption and delayed in repayment. In accordance with a resolution of the Board of Directors on September 28, 2021, the Group has decided to pay 40% of the investment principal to the customers who have agreed to the suspension of redemption and settle the amount upon investment recovery.

(g) The Group is responsible for the completion of construction when the contractor fails to fulfill its responsibilities. In case the Group fails to fulfill its responsibility, it is in the process of a responsible-for-completion land trust project (122 cases other than the new construction project of accommodation facilities in Sutaek-dong, Guri-si, Gyeonggi-do (excluding completed workplaces)) to compensate for damages incurred to the financial institutions, and for the year ended December 31, 2021, the total PF loans amounted to W 4,344.9 billion. The amount of claim for damages of the Group is determined after identifying whether it is a damage caused by the Group’s failure to fulfill its responsibilities. As of December 31, 2021, the risk of the Group to bear the responsibility to complete the project is low, and the loss cannot be reliably measured, hence this was not reflected in the financial statements for the year ended December 31, 2021. Meanwhile, the process of each business sites will be continuously monitored.

44. Statement of cash flows

(a) Cash and cash equivalents in the consolidated statements of cash flows as of December 31, 2019, 2020 and 2021 are as follows:

	2019			2020			2021
Cash and due from banks at amortized cost	W	28,435,818			33,420,549			28,471,127
Adjustments:
Due from financial institutions with a maturity over three months from date of acquisition		(3,349,719	)		(2,488,156	)		(1,490,600	)
Restricted due from banks		(16,506,925	)		(21,969,411	)		(13,896,642	)
	W	8,579,174			8,962,982			13,083,885

F-24

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

44. Statement of cash flows (continued)

(b) Significant non-cash activities for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019		2020		2021
Investment conversion	W	224,093		58,528		32,239
Transfers from construction-in-progress to property and equipment		76,004		56,575		18,748
Transfers between property and equipment and investment property		104,573		4,064		73,773
Transfers between assets held for sale and property and equipment		455		31,633		1,022
Transfers between investment property and assets held for sale		15,795		910		2,238
Accounts payable for purchase of intangible assets, etc.		472,798		137,476		137,058
Transaction for right-of-use assets		1,376,764		281,785		289,995
Exchange of shares related to acquisition of subsidiaries		0		629,449		0
Exchange of shares related to disposal of treasury stocks		0		287,669		0

(c) Changes in assets and liabilities arising from financing activities for the years ended December 31, 2020 and 2021 are as follows:

	2020
	Net Derivative liabilities			Borrowings			Debt securities issued			Lease liabilities			Total
Beginning balance	W	(5,822	)		34,863,156			75,363,364			1,104,259			111,324,957
Changes from cash flows		43,676			7,465,106			(28,372	)		(781,867	)		6,698,543
Changes from non-cash flows
Amortization of discount on borrowings and debentures		0			22,836			437,627			14,504			474,967
Changes in foreign currency		0			271,179			(417,151	)		0			(145,972	)
Other non-financial change		(126,638	)		(1,037,213	)		(221,074	)		256,426			(1,128,499	)
Business combination(Note47)		0			9,000			0			839			9,839
Ending balance	W	(88,784	)		41,594,064			75,134,394			594,161			117,233,835

F-24

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

44. Statement of cash flows (continued)

	2021
	Net Derivative liabilities			Borrowings			Debt securities issued			Lease liabilities			Total
Beginning balance	W	(88,784	)		41,594,064			75,134,394			594,161			117,233,835
Changes from cash flows		12,667			849,212			4,417,830			(275,273	)		5,004,436
Changes from non-cash flows
Amortization of discount on borrowings and debentures		0			(71,390	)		9,257			10,873			(51,260	)
Changes in foreign currency		0			193,892			779,919			0			973,811
Other non-financial change		(5,290	)		601,287			(192,037	)		282,929			686,889
Ending balance	W	(81,407	)		43,167,065			80,149,363			612,690			123,847,711

45. Related parties

Intra-group balances, and income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. In accordance with IAS 24, the Group defines the retirement benefit plans of the associates, key management and their families, the consolidation group and related parties as the scope of related parties. The amount of profit and loss, bond and debt balance between the Group and the related parties are disclosed. For details of the subsidiaries and associates, refer to ‘Note 15’.

(a) Balances with the related parties as of December 31, 2020 and 2021 are as follows:

Related party	Account	2020		2021
Investments in associates:
BNP Paribas Cardif Life Insurance	Other assets	W	76		61
”	Credit card loans		81		87
”	Deposits		13,941		14,870
Partners 4th Growth Investment Fund	Deposits		2,802		10,096
BNP Paribas Cardif General Insurance	Credit card loans		21		24
”	ACL		0		(2	)
”	Other provisions		0		4
”	Deposits		41		1,455
Dream High Fund III	Deposits		4		4
Credian Healthcare Private Equity Fund II (*)	Deposits		2		0
Midas Dong-A Snowball Venture Fund 2	Deposits		1,739		350
Eum Private Equity Fund No.3 (*)	Deposits		20		0
Incorporated association Finance Saving Information Center	Deposits		7		16
Nomura investment property trust No.19	Loans		11,976		11,880
”	Other assets		44		0
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3	Other assets		1,160		345

F-24

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2020			2021
Investments in associates (continued):
Korea Finance Security	Deposits	W	568			457
SHINHAN-CORE TREND GLOBAL FUND 1	Unearned revenue		16			17
Hermes Private Investment Equity Fund	Deposits		352			246
Korea Credit Bureau	Deposits		2,088			1,394
Goduck Gangil1 PFV Co., Ltd	Loans		24,000			12,000
”	ACL		(71	)		(52	)
SBC PFV Co., Ltd	Deposits		8,011			33,278
Sprott Global Renewable Private Equity Fund I	Deposits		258			176
IMM Global Private Equity Fund	Loans		800			800
”	ACL		(2	)		(3	)
”	Deposits		10,820			21,543
Goduck Gangil10 PFV Co., Ltd	Loans		9,400			7,600
”	ACL		(19	)		(24	)
”	Deposits		2,718			72,740
Shinhan Global Healthcare Fund 2	Deposits		1			1
One Shinhan Global Fund 1	Unearned revenue		122			104
IGIS PRIVATE REAL ESTATE TRUST NO.331 (*)	Loans		9,919			0
”	Accrued income		121			0
”	Unearned revenue		22			0
COSPEC BIM tech (*)	Loans		151			0
”	ACL		(95	)		0
”	Deposits		1			0
IMM Special Situation 1-2 PRIVATE EQUITY FUND	Deposits		117			23
EDNCENTRAL Co.,Ltd.	Loans		19,450			19,739
”	Accrued income		9			9
”	Deposits		0			1
”	Unearned revenue		578			40
KoFC-Neoplux R&D-Biz Creation 2013-1 Investment (*)	Account receivables		2,823			0
Future-Creation Neoplux Venture Capital Fund	Account receivables		4,137			3,919
Neoplux Market-Frontier Secondary Fund	Account receivables		1,630			954
Gyeonggi-Neoplux Superman Fund	Account receivables		186			620
Shinhan-Neoplux Energy Newbiz Fund	Account receivables		25			1,002
SHINHAN-NEO Core Industrial Technology Fund	Account receivables		3			0
KTC-NP Growth Champ 2011-2 Private Equity Fund	Account receivables		4,528			4,512

F-24

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2020		2021
Investments in associates (continued):
Neoplux No.3 Private Equity Fund	Account receivables	W	748		662
NV Station Private Equity Fund	Deposits		100		41
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45	Unearned revenue		76		0
IGIS Private Real Estate Investment Trust 286 (*)	Other loans		436		0
Genesis North America Power Company No.1 PEF	Other loans		2,171		0
Korea Digital Asset Custody	Deposits		0		526
SW-N Fund	Deposits		0		115
Shinhan Smilegate Global PEF I	Unearned revenue		0		49
WaveTechnology co.Ltd	Deposits		0		99
SHINHAN-NEO Market-Frontier 2nd Fund	Account receivables		0		513
iPIXEL Co.,Ltd.	Loans		0		55
”	Deposits		0		651
CJL No.1 Private Equity Fund	Deposits		0		779
Nova New Technology Investment Fund No.1	Deposits		0		357
Key management personnel and their immediate relatives:	Loans		5,144		6,149
	Assets		98,852		70,850
	Liabilities	W	44,404		159,432

(*) Excluded from the associates due to disposal and liquidation for the year ended December 31, 2021.

(b) Transactions with the related parties for the years ended December 31, 2019, 2020 and 2021 are as follows:

Related party	Account	2019			2020			2021
Investments in associates
BNP Paribas Cardif Life Insurance	Fees and commission income	W	4,230			3,390			3,023
“	Reversal of credit losses		3			0			0
“	Interest expense		(1	)		(5	)		(13	)
“	General and administrative expenses		(9	)		(4	)		(2	)
Shinhan Praxis K-Growth Global Private Equity Fund	Fees and commission income		448			361			323

F-24

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2019			2020			2021
Investments in associates (continued):
BNP Paribas Cardif General Insurance	Fees and commission income	W	11			10			10
“	Reversal for credit loss		0			0			6
“	Other operating income		468			333			0
“	Interest expense		0			0			(1	)
Midas Dong-A Snowball Venture Fund (*1)	Fees and commission income		119			0			0
“	Interest expense		(1	)		0			0
IBKS-Shinhan Creative Economy New Technology Fund 2 (*1)	Fees and commission income		8			0			0
SM New Technology Business Investment Fund I (*3)	Fees and commission income		14			0			187
Partners 4th Growth Investment Fund	Interest expense		(7	)		(4	)		(11	)
Shinhan-Albatross Technology Investment Fund	Fees and commission income		216			54			129
SH Private Korea Equity Long-Short Professional Feeder (*1)	Fees and commission income		363			0			0
KDBC Midas Dong-A Snowball Venture Fund No.2	Interest expense		0			(2	)		0
Shinhan Fintech New Technology Fund No.1 (*1)	Fees and commission income		38			0			0
Shinhan Global Healthcare Fund 1	Fees and commission income		360			0			0
Shinhan capital-Cape FN Fund No.1 (*1)	Fees and commission income		101			0			0
SHC-K2 Global Material Fund (*2)	Fees and commission income		19			19			0
Synergy-Shinhan Mezzanine New Technology Investment Fund (*2)	Fees and commission income		94			50			0
Shinhan-Midas Dong-A Secondary Venture Fund	Fees and commission income		187			63			115
GX Shinhan interest 1st Private Equity Fund (*2)	Fees and commission income		545			454			0
Shinhan-Nvestor Liquidity Solution Fund	Fees and commission income		361			361			271
SHC ULMUS Fund No.1 (*2)	Fees and commission income		76			39			0
Shinhan-PS Investment Fund No.1	Fees and commission income		20			20			20
Nomura investment property trust No.19	Interest income		519			525			530
“	Other operating income		7			3			0

F-24

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2019			2020			2021
Investments in associates (continued):
SH MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3	Fees and commission income	W	2,694			2,501			974
Shinhan-Stonebridge Petro Private Equity Fund (*2)	Fees and commission income		1,762			0			0
KOREA FINANCE SECURITY	Fees and commission income		10			10			8
“	Interest expense		0			(1	)		(1	)
ShinHan – Soo Young Entrepreneur Investment Fund	Fees and commission income		275			206			1,028
Shinhan-Rhinos 1 Fund	Fees and commission income		64			64			47
SHINHAN-CORE TREND GLOBAL FUND1	Fees and commission income		45			100			106
Kiwoom-Shinhan Innovation Fund I	Fees and commission income		67			240			240
One Shinhan Global Fund1	Fees and commission income		151			399			208
Open-Shinhan Portfolio Investment Association No. 1	Fees and commission income		59			59			59
FuturePlay-Shinhan TechInnovation Fund 1	Fees and commission income		7			218			241
WON JIN HOME PLAN CO.,LTD (*3)	Interest income		186			0			0
Korea Credit Bureau	Fees and commission income		13			13			14
“	Interest expense		(5	)		(12	)		(9	)
Goduck Gangil1 PFV Co., Ltd	Interest income		328			915			754
“	Fees and commission income		1,120			0			0
“	Reversal (provision) for credit loss		(78	)		7			20
SBC PFV Co., Ltd	Fees and commission income		0			732			776
“	Interest expense		(3	)		(5	)		(14	)
IMM Global Private Equity Fund	Interest income		28			25			23
“	Interest expense		(25	)		(13	)		(49	)
“	Provision for credit loss		(3	)		0			(1	)
Goduck Gangil10 PFV Co., Ltd	Interest income		0			299			283
“	Fees and commission income		0			793			0
��	Interest expense		0			(4	)		(78	)
“	Provision for credit loss		0			(19	)		(4	)
IGIS PRIVATE REAL ESTATE TRUST NO.331 (*3)	Interest income		0			731			0
“	Other operating expense		0			(67	)		0
“	Fees and commission income		0			478			0
COSPEC BIM tech (*3)	Interest income		0			0			41
“	Reversal ( provision) for credit loss		0			(95	)		95

F-24

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2019		2020			2021
Investments in associates (continued):
Korea Omega Project Fund I	Fees and commission income	W	0		131			180
New Green Shinhan Mezzanine Fund (*3)	Fees and commission income		0		42			334
Sparklabs-Shinhan Opportunity Fund 1	Fees and commission income		0		174			202
EDNCENTRAL Co.,Ltd.	Interest income		0		649			1,140
“	Fees and commission income		0		578			714
“	Other operating expense		0		(121	)		0
Shinhan Western T&D Consignment Management Real Estate Investment Co., Ltd (*2)	Fees and commission income		0		300			0
Kakao-Shinhan 1st TNYT Fund	Fees and commission income		0		165			386
KoFC-Neoplux R&D-Biz Creation 2013-1 Investment (*3)	Interest income		0		9			1
“	Fees and commission income		0		44			5,474
Future-Creation Neoplux Venture Capital Fund	Interest income		0		14			31
“	Fees and commission income		0		116			308
Neoplux Market-Frontier Secondary Fund	Fees and commission income		0		416			954
Gyeonggi-Neoplux Superman Fund	Fees and commission income		0		149			621
Shinhan-Neoplux Energy Newbiz Fund	Fees and commission income		0		308			1,002
NewWave 6th Fund	Fees and commission income		0		303			1,210
SHINHAN-NEO Core Industrial Technology Fund	Fees and commission income		0		3			498
KTC-NP Growth Champ 2011-2 Private Equity Fund	Interest income		0		5			26
“	Fees and commission income		0		86			0
Neoplux No.3 Private Equity Fund	Fees and commission income		0		748			2,433
Pacific Sunny Professional Investors Private Placement Real Estate Investment Company No.45	Fees and commission income		0		1,412			83
CREDIAN T&F 2020 CORPORATE FINANCIAL STABILITY PRIVATE EQUITY FUND (*2)	Interest expense		0		(1	)		0
Shinhan Smilegate Global PEF I	Fees and commission income		0		0			189

F-2

50

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

Related party	Account	2019		2020		2021
Investments in associates (continued):
SHINHAN-NEO Market-Frontier 2nd Fund	Fees and commission income	W	0		0		2,026
Korea Digital Asset Custody	Interest expense		0		0		(2	)
SWK-Shinhan New Technology Investment Fund 1st	Fees and commission income		0		0		41
Ulmus SHC innovation investment fund	Fees and commission income		0		0		63
iPIXEL Co.,Ltd.	Interest income		0		0		2
CJL No.1 Private Equity Fund	Interest expense		0		0		(2	)
Reverent-Shinhan Vista Fund	Fees and commission income		0		0		90
Hermes Private Investment Equity Fund	Interest expense		0		0		(1	)
Kiwoom-Shinhan Innovation Fund 2	Fees and commission income		0		0		115
ETRI Holdings-Shinhan 1st Unicorn Fund	Fees and commission income		0		0		32
Shinhan-Time mezzanine blind Fund	Fees and commission income		0		0		300
Shinhan VC tomorrow venture fund 1	Fees and commission income		0		0		419
JS Shinhan Private Equity Fund	Fees and commission income		0		0		250
Key management personnel and their immediate relatives
Interest income			161		126		122
		W	15,045		18,897		28,589

(*1) Excluded from the associates due to disposal and liquidation for the year ended December 31, 2019.

(*2) Excluded from the associates due to disposal and liquidation for the year ended December 31, 2020.

(*3) Excluded from the associates due to disposal and liquidation for the year ended December 31, 2021.

(c) Key management personnel compensation

Key management personnel compensation for the years ended December 31, 2019, 2020 and 2021 are as follows:

	2019		2020		2021
Short-term employee benefits	W	21,237		23,468		23,972
Severance benefits		731		651		686
Share-based payment transactions (*)		12,343		2,628		13,886
	W	34,311		26,747		38,544

(*) The expenses of share-based payment transactions are the renumeration expenses during the vesting period.

F-2

51

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

(d) The guarantees provided between the related parties as of December 31, 2020 and 2021 are as follows:

		Amount of guarantees
Guarantor	Guaranteed Parties	2020		2021		Account
Shinhan Bank	BNP Paribas Cardif Life Insurance	W	10,000		10,000	Unused loan limit
Shinhan Card	BNP Paribas Cardif Life Insurance		919		913	Unused credit line
“	BNP Paribas Cardif General Insurance		229		226	Unused credit line
The Group	Structured entities		135,459		207,078	Purchase agreement
		W 146,607		218,217

(e) Details of collaterals provided by the related parties as of December 31, 2020 and 2021 are as follows:

			Amount of assets pledged
Provided to	Provided by	Pledged assets	2020		2021
Shinhan Bank	BNP Paribas Cardif Life Insurance	Government bonds	W	12,000		12,000
	Hyungje art printing	Properties		120		0
	Goduck Gangil1 PFV Co., Ltd	Guarantee insurance policy		28,800		0
	Goduck Gangil10 PFV Co., Ltd	Guarantee insurance policy		13,000		0
	iPIXEL Co.,Ltd.	Electronic credit guarantee		0		190
			W	53,920		12,190

F-25

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

45. Related parties (continued)

(f) Details of significant loan transactions with related parties as of December 31, 2020 and 2021 are as follows:

		2020
Classification	Company	Beginning		Loan		Recover			Others (*1)			Ending
Investments in associates	Nomura investment property trust No.19	W	11,973		0		0			0			11,973
	IGIS PRIVATE REAL ESTATE TRUST NO.331		0		10,000		0			(312	)		9,688
	EDNCENTRAL Co.,Ltd.		0		20,000		0			(619	)		19,381
	Goduck Gangil1 PFV Co., Ltd		24,000		0		0			0			24,000
	Goduck Gangil10 PFV Co., Ltd		0		28,200		(18,800	)		0			9,400
	IMM Global Private Equity Fund		800		0		0			0			800
	COSPEC BIM tech (*2)		0		0		0			151			151
	Total	W	36,773		58,200		(18,800	)		(780	)		75,393

(*1) The effect on changes in allowance for credit loss is included.

(*2) For the year ended December 31, 2020, it is incorporated as a related party, and has marked the balance as of December 31, 2020.

		2021
Classification	Company	Beginning		Loan		Recover			Others (*)			Ending
Investments in associates	Nomura investment property trust No.19	W	11,973		0		0			(93	)		11,880
	IGIS PRIVATE REAL ESTATE TRUST NO.331		9,688		0		(9,769	)		81			0
	EDNCENTRAL Co.,Ltd.		19,381		0		0			358			19,739
	Goduck Gangil1 PFV Co., Ltd.		24,000		0		(12,000	)		0			12,000
	Goduck Gangil10 PFV Co., Ltd.		9,400		600		(2,400	)		—			7,600
	IMM Global Private Equity Fund		800		0		0			0			800
	COSPEC BIM tech		151		0		0			(151	)		0
	iPIXEL Co.,Ltd.		0		71		0			(16	)		55
	Total	W	75,393		671		(24,169	)		179			52,074

(*) The effect on changes in allowance for credit loss is included.

F-25

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

46. Interests in unconsolidated structured entities

(a) The nature and extent of interests in unconsolidated structured entities

The Group involved in assets-backed securitization, structured financing, beneficiary certificates (primarily investment funds) and other structured entities and characteristics of these structured entities are as follows:

	Description
Assets-backed securitization	Securitization vehicles are established to buy assets from originators and issue asset-backed securities in order to facilitate the originators’ funding activities and enhance their financial soundness. The Group is involved in the securitization vehicles by purchasing (or committing to purchase) the asset-backed securities issued and/or providing other forms of credit enhancement. The Group does not consolidate a securitization vehicle if (i) the Group is unable to make or approve decisions as to the modification of the terms and conditions of the securities issued by such vehicle or disposal of such vehicles’ assets, (ii) (even if the Group is so able) if the Group does not have the exclusive or primary power to do so, or (iii) if the Group does not have exposure, or right, to a significant amount of variable returns from such entity due to the purchase (or commitment to purchase) of asset-backed securities so issued or subordinated obligations or by providing other forms of credit support.
Structured financing	Structured entities for project financing are established to raise funds and invest in a specific project such as M&A (mergers and acquisitions), BTL (build-transfer-lease), shipping finance, etc. The Group is involved in the structured entities by originating loans, investing in equity, or providing credit enhancement.
Investment fund	Investment fund means an investment trust, a PEF (private equity fund) or a partnership which invests in a group of assets such as stocks or bonds by issuing a type of beneficiary certificates to raise funds from the general public, and distributes its income and capital gains to their investors. The Group manages assets by investing in shares of investment fund or playing a role of an operator or a GP (general partner) of investment fund, on behalf of other investors.

The size of unconsolidated structured entities as of December 31, 2020 and 2021 are as follows:

	2020		2021
Total assets:
Asset-backed securitization	W	253,958,036		248,200,446
Structured financing		257,475,395		255,854,384
Investment fund		203,863,889		301,241,508
	W	715,297,320		805,296,338

F-25

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

46. Interests in unconsolidated structured entities (continued)

(b) Nature of risks

i) The carrying values of the assets and liabilities relating to its interests in unconsolidated structured entities as of December 31, 2020 and 2021 are as follows:

	2020
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets under consolidated financial statements:
Loans measured at fair value through profit or loss	W	10,007		396,006		0		406,013
Loan at amortized cost		882,708		11,631,322		80,166		12,594,196
Securities at fair value through profit or loss		4,703,527		200,966		9,403,611		14,308,104
Derivate assets		10,353		1,050		0		11,403
Securities at fair value through other comprehensive income		2,105,239		122,664		0		2,227,903
Securities at amortized cost		6,294,228		0		0		6,294,228
Other assets		2,019		59,980		4,936		66,935
	W	14,008,081		12,411,988		9,488,713		35,908,782
Liabilities under consolidated financial statements:
Derivate liabilities	W	582		0		0		582
Other liabilities		2,610		21,421		0		24,031
	W	3,192		21,421		0		24,613

	2021
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets under consolidated financial statements:
Loans measured at fair value through profit or loss	W	16,352		156,630		42,231		215,213
Loan at amortized cost		731,184		13,548,490		155,572		14,435,246
Securities at fair value through profit or loss		3,752,394		235,238		14,014,493		18,002,125
Derivate assets		4,343		16,560		0		20,903
Securities at fair value through other comprehensive income		2,510,057		215,237		0		2,725,294
Securities at amortized cost		6,493,106		0		0		6,493,106
Other assets		138		17,280		177		17,595
	W	13,507,574		14,189,435		14,212,473		41,909,482
Liabilities under consolidated financial statements:
Derivate liabilities	W	3,817		48		0		3,865
Other liabilities		103		21,683		0		21,786
	W	3,920		21,731		0		25,651

F-25

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

46. Interests in unconsolidated structured entities (continued)

ii) The maximum risk exposure of the Group relating to its interests in unconsolidated structured entities as of December 31, 2020 and 2021 are as follows:

	2020
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets held	W	14,008,081		12,411,988		9,488,713		35,908,782
ABS and ABCP purchase agreements		932,113		2,300		1,923,035		2,857,448
Loan commitments		618,030		707,860		—		1,325,890
Guarantees		87,293		—		—		87,293
Others		—		123,210		5,887		129,097
	W	15,645,517		13,245,358		11,417,635		40,308,510

	2021
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets held	W	13,507,574		14,189,435		14,212,473		41,909,482
ABS and ABCP purchase agreements		895,273		2,210		2,703,353		3,600,836
Loan commitments		439,843		984,082		6,900		1,430,825
Guarantees		21,200		105,550		—		126,750
Others		—		150,579		—		150,579
	W	14,863,890		15,431,856		16,922,726		47,218,472

47. Business combination

(a) Shinhan Venture Investment Co., Ltd.

i) General information

As of September 29, 2020, the Group gained control of Neoplux Co., Ltd. as a subsidiary by acquiring a 96.77% (97.08% stake of voting rights) stake and reporting to the Financial Services Commission about the transfer of subsidiary. As of December 30, 2020, the Group acquired the remaining shares, and Neoplux Co., Ltd. became a wholly owned subsidiary of the Group. Also, the name was changed from Neoplux Co., Ltd. to Shinhan Venture Investment Co., Ltd. The main reason for business combination is to promote investment financing and secure new business opportunities in the investment banking sector.

F-25

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

47. Business combination (continued)

ii) Identifiable net assets

Fair values of assets acquired and liabilities assumed as of acquisition date are as follows:

	Amount (*1)
Assets:
Cash and due from banks at amortized cost	W	179
Investment assets in the long-term		463
Venture capital investment assets		38,800
Private equity investment company investment assets		12,230
Property and equipment		835
Intangible assets (*2)		1,254
Other assets (*3)		18,911
		72,672
Liabilities:
Borrowings		9,000
Other liabilities		4,804
		13,804
Fair value of the identifiable net assets	W	58,868

(*1) The accounting for the acquisition of Shinhan Venture Investment Co., Ltd. was determined using the identifiable assets and liabilities recognized by Shinhan Venture Investment Co., Ltd. at the time of business combination.

(*2) The contract balance recognized as a business combination includes W 793 million. The contract balance that Shinhan Venture Investment Co., Ltd. had was considered an important asset that can generate additional revenue in the future. Therefore, it was assessed at fair value through the Multi-period Excess Earning Method.

(*3) During the business combination, the Group acquired receivables that were fair value of W  15,803 million, and the total contract amount was W 15,803 million. There is no contractual cash flow that is not expected to be recovered from the receivables.

iii) Goodwill

Goodwill recognized as a result of business combination is as follows:

	Amount
Consideration paid in cash	W	71,128
Fair value of identifiable net assets		(58,868	)
Non-controlling interests (*)		1,718
Goodwill	W	13,978

(*) For the year ended December 31, 2020, the non-controlling interests for Shinhan Venture Investment Co., Ltd. were measured at proportionate shares of non-controlling interests in the acquiree’s identifiable net assets for Shinhan Venture Investment Co., Ltd. At the business combination, the

F-25

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

47. Business combination (continued)

goodwill is generated because the transfer price includes the premium of corporate control paid to acquire Shinhan Venture Investment Co., Ltd. The transfer price for the business combination includes expected synergies, future market growth, and the amount related to human resources. These benefits are not recognized separately from goodwill because it does not meet the recognition requirements for identifiable intangible assets.

(b) Business Acquisition of Leaders Financial Sales Co., Ltd.

According to the resolutions of the Board of Directors on November 25, 2020 and December 23, 2020, The Group has acquired its GF and IMGA business department of Leaders Financial Sales Co., Ltd on May 31, 2021. The acquired assets and liabilities were recognized as fair value at the time of acquisition, and the difference between the fair value and the amount paid in consideration for the transfer was recognized as goodwill.

	Amount
Consideration paid in cash
Cash	W	8,183
Contingent consideration arrangement		2,600
		10,783
Fair value of assets and liabilities
Cash and cash equivalents		200
Trade payable and other payable		(200	)
Accounts payable		(3,068	)
Fair value of identifiable net assets		(3,068	)
Goodwill	W	13,851

(c) The merger of Shinhan Life Insurance Co., Ltd. and Orange Life Insurance Co., Ltd.

Shinhan Life Insurance Co., Ltd. and Orange Life Insurance Co., Ltd. have merged on July 1, 2021 to form a holding company named Shinhan Life Insurance Co., Ltd. As a result of the merger, the common shareholders as of immediately prior to the merger of Orange Life Insurance Co., Ltd. (the extinct corporation) are entitled to receive 0.9226202 share of Shinhan Life Insurance Co., Ltd (the surviving corporation)’s common share (

W

5,000 per share) per common share of Orange Life Insurance Co., Ltd. There is no further transfer of any such shares except in accordance with the exchange ratio agreed upon by both parties under the merger agreement addressed above.

(d) Subsidiary investment shares

On October 29, 2021, the Group signed a Share Purchase Agreement with BNP Paribas Group Co., Ltd. for a 94.54% (7,230,174 shares of common stock) stake in BNP Paribas Cardif Life Insurance Co., Ltd. At the end of the reporting period, the Financial Services Commission has yet approved the incorporation of subsidiary.

F-25

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

48. Events after reporting period

Subsidiaries of the Company, Shinhan Alternative Investment Management Inc. and Shinhan Asset Management Co., Ltd. has merged on January 5, 2022. After the merger, it has changed its name to Shinhan Asset Management Co., Ltd.

49. Uncertainty due to changes in domestic and global economic conditions

The rapid spread of the

COVID-19

is negatively affecting the global economy. The Group uses forward-looking information to estimate expected credit losses in accordance with IFRS 9

‘Financial Instruments’

and the default rate at the end of 2021 was

re-estimated

and reflected in the measurement of expected credit loss allowance using the changed forward-looking information on GDP growth and private consumption growth, which are major variables for calculating the default rate. As of December 31, 2021, the economic environment has remained uncertain. Expected credit losses may change depending on the end of the

COVID-19

and the pace of economic recovery. The Group will continue to monitor the impact of the

COVID-19

on the economy.

Risk exposures by major consolidated subsidiaries due to

COVID-19

are as follows, figures may significantly vary for industries that are highly affected by future economic conditions:

(a) Shinhan Bank

	2020
	Airlift passenger		Lodging		Oil/ petroleum refinery		Art-related		Movie theater		Clothing manufacturing		Travel		Total
Loans at amortized cost	W	120,854		3,445,269		685,336		244,036		95,240		1,763,741		112,647		6,467,123
Securities at fair value through profit or loss		—		—		3,088		—		—		3,060		—		6,148
Securities at fair value through other comprehensive income		52,878		2,611		224,894		—		6,539		9,797		—		296,719
Off-balance accounts		404,767		289,948		3,058,516		9,630		111,266		938,705		60,171		4,873,003
	W	578,499		3,737,828		3,971,834		253,666		213,045		2,715,303		172,818		11,642,993

	2021
	Airlift passenger		Lodging		Oil/ petroleum refinery		Art-related		Movie theater		Clothing manufacturing		Travel		Total
Loans at amortized cost	W	164,904		3,314,684		937,385		219,859		86,241		2,082,545		92,152		6,897,770
Securities at fair value through profit or loss		—		—		29,911		—		—		—		2,737		32,648
Securities at fair value through other comprehensive income		114,158		18,142		264,343		—		7,123		10,678		—		414,444
Off-balance accounts		364,351		323,638		2,650,311		20,196		91,622		982,026		37,941		4,470,085
	W	643,413		3,656,464		3,881,950		240,055		184,986		3,075,249		132,830		11,814,947

F-25

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

49. Uncertainty due to changes in domestic and global economic conditions (continued)

(b) Shinhan Card Co., Ltd.

	2020
	Retails
	Credit sales		Short term card loan		Long term card loan		Total
Loans at amortized cost	W	357,589		142,252		283,150		782,991
Total Exposure		702,124				—		702,124

	2021
	Retails
	Credit sales		Short term card loan		Long term card loan		Total
Loans at amortized cost	W	371,197		152,838		387,318		911,353
Total Exposure		814,598				—		814,598

(c) Jeju Bank

	2020
	Lodging		Manufacturing		Retail		Construction industry		Leisure related service industry		Transportation business		Etc		Total
Loans at amortized cost	W	599,875		30,095		517,843		85,640		57,677		29,679		92,373		1,413,182
Off-balance accounts		20,658		563		18,691		7,100		1,053		2,103		3,082		53,250
	W	620,533		30,658		536,534		92,740		58,730		31,782		95,455		1,466,432

	2021
	Airlift passenger		Lodging		Art-related		Movie theater		Leisure related service industry		Bus business		Bath business		Youth training facilities business		Total
Loans at amortized cost	W	0		295,664		4,161		596		25,432		7,535		17,089		5,466		355,943
Off-balance accounts		4		5,439		161		4		991		197		538		6		7,340
	W	4		301,103		4,322		600		26,423		7,732		17,627		5,472		363,283

As of December 31, 2020 and 2021, the exposures of the loans applied for moratorium of interest payments and moratorium of repayment in installments by Shinhan Bank and Jeju Bank are as follows:

F-2

60

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

49. Uncertainty due to changes in domestic and global economic conditions (continued)

(a) Shinhan Bank

	2020		2021
Moratorium of interest payments	W	242,794		224,449
Moratorium of repayment in installments		1,067,502		1,342,366
Moratorium of interest payments and moratorium of repayment in installments		80,581		65,773
	W	1,390,877		1,632,588

(b) Jeju Bank

	2020		2021
Moratorium of interest payments	W	629		348
Moratorium of repayment in installments		328,055		276,193
	W	328,684		276,541

50. Transition effects arising from changes in accounting policies

Upon adoption of IFRS 16 ‘Leases’, the Group recognized lease liabilities in relation to leases that had previously been classified as operating leases in accordance with IAS 17. These liabilities were measured at the present value of the future lease payments at the lessee’s incremental borrowing rate on January 1, 2019. The lessee’s incremental borrowing rates applied to the lease liabilities are between 2.06% and 8.96% on January 1, 2019. The difference between the amount of operating lease agreements disclosed as of December 31, 2018 discounted at the Group’s incremental borrowing rate and the lease liabilities recognized at the date of initial application is as follows:

	Amount
Operating lease agreement commitment disclosed as of December 31, 2018	W	610,080
Amount discounted using the Group’s incremental borrowing rate		591,725
Less:
Low-value leases recognized as current expenses through the straight-line method		(3,454	)
Value-added Tax		(51,429	)
Lease liabilities recognized at the beginning of 2019	W	536,842

Right-of-use

assets were measured by adjusting the amount of prepaid or unpaid lease payments in relation to leases recognized in the consolidated statement of financial position at the same amount as the lease liability. As a result, property, plant and equipment increased by

W

573,823 million at the beginning of 2019, and prepaid expense, unearned revenue and accrued expenses decreased by

W

42,196 million,

W

5,197 million and

W

17 million, respectively.

F-2

61

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

51. Condensed Shinhan Financial Group (Parent Company only) Financial Statements

STATEMENTS OF FINANCIAL POSITION

	2020		2021
Assets
Deposits
Banking subsidiaries	W	3		3,913
Other		—		41,000
Receivables from subsidiaries:
Non-banking subsidiaries		3,218,455		3,976,059
Investment (at equity) in subsidiaries:
Banking subsidiaries		13,797,222		13,797,222
Non-banking subsidiaries		16,157,962		16,537,819
Financial assets at FVTPL		1,810,867		1,617,734
Derivative assets		39,392		17,933
Property, equipment and intangible assets, net		10,360		10,597
Other assets
Banking subsidiaries		260,342		326,216
Non-banking subsidiaries		173,473		468,150
Other		15,838		19,250
Total assets	W	35,483,914		36,815,893
Liabilities and equity
Debt securities issued	W	9,920,059		9,559,553
Derivative liabilities		22,133		6,263
Accrued expenses & other liabilities		484,625		844,701
Total liabilities		10,426,817		10,410,517
Equity		25,057,097		26,405,376
Total liabilities and equity	W	35,483,914		36,815,893

F-26

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

51. Condensed Shinhan Financial Group (Parent Company only) Financial Statements (continued)

CONDENSED STATEMENTS OF INCOME

	2019			2020			2021
Income
Dividends from banking subsidiaries	W	892,310			892,420			772,420
Dividends from non-banking subsidiaries		428,634			495,110			807,803
Interest income from banking subsidiaries		263			194			173
Interest income from non-banking subsidiaries		38,968			68,914			75,013
Other income		125,324			268,784			235,746
Total income		1,485,499			1,725,422			1,891,155
Expenses
Interest expense		(206,815	)		(231,205	)		(210,535	)
Other expense		(147,589	)		(216,708	)		(259,188	)
Total expenses		(354,404	)		(447,913	)		(469,723	)
Profit before income tax expense		1,131,095			1,277,509			1,421,432
Income tax expense		1,922			3,066			7,476
Profit for the year	W	1,129,173			1,274,443			1,413,956

F-26

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(In millions of won)

51. Condensed Shinhan Financial Group (Parent Company only) Financial Statements (continued)

CONDENSED STATEMENTS OF CASH FLOWS

	2019			2020			2021
Cash flows from operating activities
Profit before income taxes	W	1,131,095			1,277,509			1,421,432
Non-cash items included in profit before tax		(1,164,022	)		(1,313,967	)		(1,456,374	)
Changes in operating assets and liabilities		1,475,702			(1,272,738	)		605,089
Net interest paid		(154,765	)		(165,570	)		(134,269	)
Dividend received from subsidiaries		1,320,944			1,386,843			1,578,920
Income tax paid		(194	)		—			(1,102	)
Net cash provided by (used in) operating activities		2,608,760			(87,923	)		2,013,696
Cash flows from investing activities
Net loan origination to non-banking subsidiaries		(575,936	)		(1,073,657	)		(649,384	)
Acquisition of subsidiary		(2,977,196	)		(73,335	)		(379,857	)
Other, net		(660	)		(100,875	)		(452,672	)
Net cash used in investing activities		(3,553,792	)		(1,247,867	)		(1,481,913	)
Cash flows from financing activities
Issuance of common stocks		—			1,154,347			0
Issuance of convertible preferred shares		747,791			—			0
Issuance of hybrid bonds		199,476			448,699			1,154,597
Net changes in borrowings		(125,000	)		—			0
Issuance of debt securities issued		3,194,764			2,240,581			1,428,704
Repayments of debt securities issued		(1,844,000	)		(1,384,000	)		(1,890,000	)
Dividend paid		(830,772	)		(968,847	)		(1,218,761	)
Acquisition of treasury stock		(444,077	)		(150,448	)		(79	)
Disposition of and incineration cost of treasury stock		—			(3,033	)		0
Payment of stock issuance costs		—			—			(605	)
Redemption of lease liabilities		(1,614	)		(1,673	)		(1,701	)
Net cash provided by (used in) financing activities		896,568			1,335,626			(527,845	)
Effect of exchange rate changes on cash and cash equivalents held		—			—			23
Net increase (decrease) in cash and cash equivalents		(48,464	)		(164	)		3,961
Cash and cash equivalents at beginning of year		48,628			164			0
Cash and cash equivalents at end of year	W	164			—			3,961

F-264