Shinhan Financial (SHG) 6-K Separate Financial Statements

Exhibit 99.2

Independent Auditor’s Report (Consolidated Financial Statements) of Shinhan Bank as of December 31, 2020

SHINHAN BANK AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2020 and 2019

(With Independent Auditors’ Report Thereon)

1

Contents

	Page
Independent Auditors’ Report	3
Consolidated Statements of Financial Position	6
Consolidated Statements of Comprehensive Income	7
Consolidated Statements of Changes in Equity	9
Consolidated Statements of Cash Flows	11
Notes to the Consolidated Financial Statements	13

2

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Shareholder and Board of Directors of Shinhan Bank

(A wholly owned subsidiary of Shinhan Financial Group Inc.)

Opinion

We have audited the accompanying consolidated financial statements of Shinhan Bank and its subsidiaries (collectively referred to as the "Group") which comprise the consolidated statement of financial position as at December 31, 2020, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Shinhan Bank and its subsidiaries as at December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion

We conducted our audit in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 2 of the financial statements. As explained in Note 2, the rapid spread of the COVID-19 epidemic has had a negative impact on the global economy, which can result in an increase in expected credit losses, potential impairment of assets, and negatively affecting the Group's ability to generate revenue.

Other Matters

The consolidated financial statements of the Group for the year ended December 31, 2019, were audited by Samjong KPMG auditor who expressed an unqualified opinion on those statements on March 4, 2020.

3

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

4

/s/ Samil PricewaterhouseCoopers

March 3, 2021

Seoul, Korea

This report is effective as of March 3, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

5

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2020 and 2019

(In millions of won)	Notes		2020	2019
Assets
Cash and due from banks	3,6,9,39,40	W	27,575,748	24,049,832
Securities at fair value through profit or loss	3,7,40,42		21,819,280	18,716,147
Derivative assets	3,8,40,42		4,575,560	2,101,993
Loans at amortized cost	3,9,18,40,42		297,904,732	268,172,264
Loans at fair value through profit or loss	3,9		844,469	868,991
Securities at fair value through other comprehensive income	3,10,18,42		39,359,666	40,655,905
Securities at amortized cost	3,10,18,42		20,178,443	20,251,888
Property and equipment	5,11,12,17,18		2,449,865	2,465,289
Intangible assets	5,13		539,841	656,349
Investments in associates	14		123,234	128,179
Investment properties	5,15		610,239	635,520
Defined benefit assets	23		7,844	-
Current tax assets	36		15,605	31,312
Deferred tax assets	36		248,237	243,104
Other assets	3,9,16,40,43		11,381,257	13,734,418
Non-current assets held for sale	17		41,083	11,853
Total assets		W	427,675,103	392,723,044
Liabilities
Deposits	3,19,40	W	317,555,592	287,615,269
Financial liabilities at fair value through profit or loss	3,20		539,564	508,081
Derivative liabilities	3,8,40,42		4,194,694	1,893,832
Borrowings	3,21,39,40		20,554,982	17,325,884
Debt securities issued	3,22,39		34,516,305	38,029,868
Defined benefit liabilities	23		-	56,168
Provisions	24,38,40		346,295	269,065
Current tax liabilities	36		255,286	398,629
Deferred tax liabilities	36		18,876	30,069
Other liabilities	3,12,25,40,43		22,027,995	20,503,064
Total liabilities			400,009,589	366,629,929
Equity
Capital stock	26		7,928,078	7,928,078
Hybrid bonds	26		1,586,662	997,987
Capital surplus	26		403,164	403,164
Capital adjustments	26,36		4,198	(2,480)
Accumulated other comprehensive loss	26,36		(541,411)	(403,031)
Retained earnings	26,27		18,278,434	17,162,995
(Reserve for loan loss)			(2,242,861)	(2,015,891)
(Required amount of loan loss transfer)			(99,209)	(226,970)
(Expected amount of loan loss transfer)			(99,209)	(226,970)
Total equity attributable to equity holder of Shinhan Bank			27,659,125	26,086,713
Non-controlling interests	26		6,389	6,402
Total equity			27,665,514	26,093,115
Total liabilities and equity		W	427,675,103	392,723,044

See accompanying notes to the consolidated financial statements.

6

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2020 and 2019

(In millions of won)	Notes		2020		2019
Interest income		W	9,615,782		10,654,732
Financial assets at fair value through profit or loss			264,448		306,528
Financial assets at fair value through other comprehensive income and amortized cost			9,351,334		10,348,204
Interest expense			3,688,249		4,782,945
Net interest income	3,5,28,40,42		5,927,533		5,871,787
Fees and commission income			1,264,981		1,367,547
Fees and commission expense			277,410		250,155
Net fees and commission income	3,5,29,40,42		987,571		1,117,392
Dividend income	30,42		17,877		14,955
Net gain on financial assets at fair value through profit or loss	31		168,581		233,897
Net foreign currencies transaction gain			391,903		317,965
Net gain on disposal of financial asset at fair value through other comprehensive income	10		207,955		107,633
Provision for credit loss allowance	3,9,40		677,404		376,868
General and administrative expenses	32,40		3,202,946		3,142,406
Net other operating expenses	5,34,40		(907,424)		(881,052)
Operating income			2,913,646		3,263,303
Net non-operating expenses	5,35		129,394		185,630
Share of loss of associates	5,14		811		763
Profit before income tax	5		2,783,441		3,076,910
Income tax expense	5,36		705,209		747,642
Profit for the year	5,27		2,078,232		2,329,268
(Adjusted profit after reflection of reserve for loan loss
For the year ended December 31, 2020:
1,979,023 million won
For the year ended December 31, 2019:
2,102,298 million won

7

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Continued)

For the years ended December 31, 2020 and 2019

(In millions of won, except for earnings per share)	Notes		2020	2019
Other comprehensive income (loss) for the year: Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences for foreign operations			(135,000)	97,600
Unrealized net change in fair value of financial assets at fair value through other comprehensive income			(41,715)	117,219
Share of other comprehensive income (loss) of associates			(3,043)	3,305
			(179,758)	218,124
Items that will not be reclassified subsequently to profit or loss
Remeasurements of defined benefit plans			15,125	(27,712)
Unrealized net change in fair value of financial assets at fair value through other comprehensive income			(2,024)	7,985
			13,101	(19,727)
Other comprehensive income for the year, net of income tax	3,26,36		(166,657)	198,397
Total comprehensive income for the year		W	1,911,575	2,527,665
Profit attributable to:	5
Equity holder of Shinhan Bank		W	2,077,793	2,329,192
Non-controlling interests			439	76
Profit for the year		W	2,078,232	2,329,268
Total comprehensive income attributable to:
Equity holder of Shinhan Bank		W	1,911,588	2,527,200
Non-controlling interests			(13)	465
Total comprehensive income for the year		W	1,911,575	2,527,665
Earnings per share:	37
Basic and diluted earnings per share in won		W	1,282	1,448

See accompanying notes to the consolidated financial statements.

8

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the year ended December 31, 2019

		Attributable to equity holder of Shinhan Bank
(In millions of won)		Capital stock	Hybrid bonds	Capital surplus	Capital adjustments	Accumulated other comprehensive income (loss)	Retained earnings	Sub-total	Non-controlling  interests	Total
Balance at January 1, 2019	W	7,928,078	698,660	403,164	646	(606,697)	15,762,751	24,186,602	5,937	24,192,539
Total comprehensive income (loss), net of income tax
Profit for the year		-	-	-	-	-	2,329,192	2,329,192	76	2,329,268
Foreign currency translation differences for foreign operations		-	-	-	-	97,223	-	97,223	377	97,600
Unrealized net changes in fair values of financial assets at fair value through other comprehensive income		-	-	-	-	130,851	(5,658)	125,193	11	125,204
Share of other comprehensive income of associates		-	-	-	-	3,305	-	3,305	-	3,305
Remeasurements of defined benefit plans		-	-	-	-	(27,713)	-	(27,713)	1	(27,712)
Total comprehensive income for the year		-	-	-	-	203,666	2,323,534	2,527,200	465	2,527,665
Transactions with owners, recognized directly in equity
Annual dividends to equity holder		-	-	-	-	-	(890,000)	(890,000)	-	(890,000)
Dividends to hybrid bond holders		-	-	-	-	-	(33,115)	(33,115)	-	(33,115)
Issuance of hybrid bonds		-	299,327	-	-	-	-	299,327	-	299,327
Share-based payment transactions		-	-	-	(3,301)	-	-	(3,301)	-	(3,301)
Capital investment in subsidiaries		-	-	-	175	-	(175)	-	-	-
Total transactions with owners		-	299,327	-	(3,126)	-	(923,290)	(627,089)	-	(627,089)
Balance at December 31, 2019	W	7,928,078	997,987	403,164	(2,480)	(403,031)	17,162,995	26,086,713	6,402	26,093,115

See accompanying notes to the consolidated financial statements.

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Changes in Equity (Continued)

For the year ended December 31, 2020

		Attributable to equity holder of Shinhan Bank
(In millions of won)		Capital stock	Hybrid bonds	Capital surplus	Capital adjustments	Accumulated other comprehensive income (loss)	Retained earnings	Sub-total	Non-controlling  interests	Total
Balance at January 1, 2020	W	7,928,078	997,987	403,164	(2,480)	(403,031)	17,162,995	26,086,713	6,402	26,093,115
Total comprehensive income (loss), net of income tax
Profit for the year		-	-	-	-	-	2,077,793	2,077,793	439	2,078,232
Foreign currency translation differences for foreign operations		-	-	-	-	(134,529)	-	(134,529)	(471)	(135,000)
Unrealized net changes in fair values of financial assets at fair value through other comprehensive income		-	-	-	-	(15,935)	(27,825)	(43,760)	21	(43,739)
Share of other comprehensive income of associates		-	-	-	-	(3,043)	-	(3,043)	-	(3,043)
Remeasurements of defined benefit plans		-	-	-	-	15,127	-	15,127	(2)	15,125
Total comprehensive income for the year		-	-	-	-	(138,380)	2,049,968	1,911,588	(13)	1,911,575
Transactions with owners, recognized directly in equity
Annual dividends to equity holder		-	-	-	-	-	(890,000)	(890,000)	-	(890,000)
Dividends to hybrid bond holders		-	-	-	-	-	(44,529)	(44,529)	-	(44,529)
Issuance of hybrid bonds		-	588,675	-	-	-	-	588,675	-	588,675
Share-based payment transactions		-	-	-	6,678	-	-	6,678	-	6,678
Total transactions with owners		-	588,675	-	6,678	-	(934,529)	(339,176)	-	(339,176)
Balance at December 31, 2020	W	7,928,078	1,586,662	403,164	4,198	(541,411)	18,278,434	27,659,125	6,389	27,665,514

See accompanying notes to the consolidated financial statements.

SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

(In millions of won)		2020	2019
Cash flows from operating activities
Profit before income tax	W	2,783,441	3,076,910
Adjustments for:
Interest income		(9,615,782)	(10,654,732)
Interest expense		3,688,249	4,782,945
Dividend income		(17,877)	(14,955)
Net gain on financial assets at fair value through profit or loss		(42,721)	(74,768)
Net non-cash foreign currencies transaction gain		(134,015)	(3,797)
Net gain on sale of financial assets at fair value through other comprehensive income		(207,955)	(107,633)
Provision for credit loss allowance		677,404	376,868
Non-cash employee benefits		145,135	139,701
Depreciation and amortization		411,017	403,861
Net non-cash other operating expenses		129,788	198,757
Share of loss of associates		811	763
Net non-cash non-operating expenses (income)		118	143,390
		(4,965,828)	(4,809,600)
Changes in assets and liabilities:
Due from banks		(4,241,460)	(10,344,562)
Securities at fair value through profit or loss		(1,982,043)	(2,398,378)
Derivative assets		1,801,573	1,474,605
Loans at amortized cost		(31,263,920)	(16,870,906)
Loans at fair value through profit or loss		29,435	(222,565)
Other assets		2,191,452	836,198
Deposits		31,528,184	29,305,622
Financial liabilities at fair value through profit or loss		(45,874)	(60,255)
Derivative liabilities		(1,771,697)	(1,529,554)
Defined benefit liabilities		(181,802)	(181,499)
Provisions		58,826	(6,995)
Other liabilities		2,393,349	4,057,698
		(1,483,977)	4,059,409
Income tax paid		(839,462)	(767,539)
Interest received		9,996,007	10,705,948
Interest paid		(4,090,937)	(4,673,694)
Dividends received		20,834	15,330
Net cash inflow from operating activities		1,422,278	7,606,764

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SHINHAN BANK AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the years ended December 31, 2020 and 2019

(In millions of won)		2020	2019
Cash flows from investing activities
Net cash flows of derivative instruments for hedging	W	(20,921)	-
Proceeds from sale of securities at fair value through profit or loss		1,289,230	756,399
Acquisition of securities at fair value through profit or loss		(2,257,474)	(1,391,004)
Proceeds from sale of securities at fair value through other comprehensive income		43,305,845	30,323,375
Acquisition of securities at fair value through other comprehensive income		(42,860,357)	(38,987,337)
Proceeds from sale of securities at amortized cost		5,641,002	6,394,739
Acquisition of securities at amortized cost		(5,743,726)	(9,692,417)
Proceeds from sale of property and equipment		34,072	13,110
Acquisition of property and equipment		(168,078)	(189,710)
Proceeds from sale of intangible assets		139	10,518
Acquisition of intangible assets		(239,485)	(222,006)
Proceeds from sale of investments in associates		16,322	5,082
Acquisition of investments in associates		(10,600)	(15,253)
Proceeds from sale of investment properties		148	-
Acquisition of investment properties		(4,262)	(2,771)
Proceeds from sale of non-current assets held for sale		2,048	137
Proceeds from sale of other assets		705,459	793,935
Acquisition of other assets		(670,875)	(787,462)
Net cash outflow from investing activities		(981,513)	(12,990,665)
Cash flows from financing activities
Net cash flows of derivative instruments for hedging		359	-
Proceeds from borrowings, net		3,206,675	943,540
Proceeds from issuance of debt securities		9,900,931	17,697,533
Repayment of debt securities		(13,477,808)	(12,047,639)
Dividends paid		(934,529)	(925,712)
Issuance of hybrid bonds		588,675	299,327
Acquisition of other liabilities		727,330	142,536
Proceeds from sale of other liabilities		(969,081)	(348,417)
Net cash inflow (outflow) from financing activities		(957,448)	5,761,168
Effect of exchange rate fluctuations on cash and cash equivalents held		41,780	28,297
Net increase (decrease) in cash and cash equivalents		(474,903)	405,564
Cash and cash equivalents at beginning of the year (Note 39)		7,110,517	6,704,953
Cash and cash equivalents at end of the year (Note 39)	W	6,635,614	7,110,517

See accompanying notes to the consolidated financial statements.

12

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity

(a) Overview

Shinhan Bank Co., Ltd., the controlling company (hereinafter referred to as the “Bank”) has its headquarters at 20 Sejong-daero 9-gil, Jung-gu, Seoul. The consolidated financial statements for the reporting period ended on December 31, 2020 consist of shares in the Bank and its subsidiaries (hereinafter collectively referred to as the “Group”), and its associates and joint ventures.

The Bank is established with a new merger (October 1, 1943, bank named Choheung Bank Co., Ltd.) of Hansung Bank established on February 19, 1897 and Dongil Bank established on August 8, 1906.

The Bank acquired Chungbuk Bank and Kangwon Bank in 1999 and the former Shinhan Bank on April 1, 2006, and subsequently changed its name to Shinhan Bank. As of December 31, 2020, the Bank has 1,585,615,506 outstanding common shares with par value of W7,928,078 million which is 100% owned by Shinhan Financial Group Co., Ltd. (“Shinhan Financial Group”). As of December 31, 2020, the Bank operates through 723 domestic branches, 136 depository offices, 29 premises and 14 overseas branches.

(b) Subsidiaries included in consolidation (structured entities excluded)

Details of ownerships in subsidiaries as of December 31, 2020 and 2019 are as follows:

					Ownership (%)
Controlling company	Name of subsidiary	Location	Closing month	Sectors	December 31, 2020	December 31, 2019
Shinhan Bank	Shinhan Asia (*)	Hong Kong	December 31	Bank	-	99.99
	Shinhan America	U.S.A	December 31	Bank	100.00	100.00
	Shinhan Europe	Germany	December 31	Bank	100.00	100.00
	Shinhan Cambodia	Cambodia	December 31	Bank	97.50	97.50
	Shinhan Kazakhstan	Kazakhstan	December 31	Bank	100.00	100.00
	Shinhan Canada	Canada	December 31	Bank	100.00	100.00
	Shinhan China	China	December 31	Bank	100.00	100.00
	Shinhan Japan	Japan	March 31	Bank	100.00	100.00
	Shinhan Vietnam	Vietnam	December 31	Bank	100.00	100.00
	Shinhan Mexico	Mexico	December 31	Bank	99.99	99.99
	Shinhan Indonesia	Indonesia	December 31	Bank	99.00	99.00
Shinhan Bank Japan	SBJ DNX	Japan	March 31	Service	100.00	-

(*) As of December 31, 2020, liquidation procedures have been completed.

i) Shinhan Asia Ltd.

Shinhan Bank America (“Shinhan America”) is established through the merger of Chohung Bank of New York and California Chohung Bank. Shinhan America’s capital stock amounted to USD 173 million as of December 31, 2020.

ii) Shinhan Bank Europe GmbH

Shinhan Bank Europe GmbH (“Shinhan Europe”) is established in 1994. As of December 31, 2020, Shinhan Europe’s capital stock amounted to EUR 63 million through a capital increase without consideration during the year ended December 31, 2020.

iii) Shinhan Bank Cambodia

Shinhan Bank Cambodia was renamed from Shinhan Khmer Bank PLC during the year ended December 31, 2018. Shinhan Cambodia’s capital stock amounted to USD 75 million as of December 31, 2020.

13

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity (continued)

(b) Subsidiaries included in consolidation (structured entities excluded) (continued)

iv) Shinhan Bank Kazakhstan Limited

Shinhan Bank Kazakhstan Limited (“Shinhan Kazakhstan”) is established on December 16, 2008. As of December 31, 2020, Shinhan Kazakhstan’s capital stock amounted to KZT 10,029 million.

v) Shinhan Bank Canada

Shinhan Bank Canada (“Shinhan Canada”) is established on March 9, 2009. As of December 31, 2020, Shinhan Canada’s capital stock amounted to CAD 80 million.

vi) Shinhan Bank China Limited

Shinhan Bank China Limited (“Shinhan China”) is established on May 12, 2008. As of December 31, 2020, Shinhan China’s capital stock amounted to CNY 2,000 million.

vii) Shinhan Bank Japan

Shinhan Bank Japan (“Shinhan Japan”) is established on September 14, 2009. Shinhan Japan’s capital stock amounted to JPY 17,500 million as of December 31, 2020.

iix) Shinhan Bank Vietnam Ltd.

Shinhan Bank Vietnam Ltd. (“Shinhan Vietnam”) is established on November 16, 2009 and merged with Shinhan Vina Bank on November 28, 2011. On December 17, 2017, Shinhan Vietnam acquired the retail business of ANZ Vietnam. As of December 31, 2020, Shinhan Vietnam’s capital stock amounted to VND 5,709,900 million through a capital increase with consideration during the year ended December 31, 2020.

ix) Banco Shinhan de Mexico

Banco Shinhan de Mexico (“Shinhan Mexico”) is established on October 12, 2015 for obtaining the authorization of banking business. As of December 31, 2020, Shinhan Mexico’s capital stock amounted to MXN 1,583 million.

x) PT Bank Shinhan Indonesia

On November 30, 2015, the Bank obtained the control of PT Bank Metro Express, which is established on September 8, 1967 and is engaged in the banking business.  PT Bank Metro Express is renamed as PT Bank Shinhan Indonesia (“Shinhan Indonesia”) in 2016 and merged PT Centratama Nasional Bank, a former subsidiary of the Bank, on December 6, 2016. As of December 31, 2020, Shinhan Indonesia’s s capital stock amounted to IDR 944,278 million.

xi) SBJ DNX

It is established on April 1, 2020 for the purpose of operating the computer service business, and as of December 31, 2020, and SBJ DNX’s capital stock amounted to JPY 50 million.

14

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity (continued)

(c) Structured entities included in consolidation (continued)

In addition, structured entities included in consolidation as of December 31, 2020 are as follows:

Structured entities	Location	Closing month	Sectors
MPC Yulchon Green 1st	Korea	3/6/9/12	Other financial business
MPC Yulchon 2nd	Korea	3/6/9/12	Other financial business
MPC Yulchon 1st	Korea	3/6/9/12	Other financial business
Shinhan-S-Russell Co., Ltd.	Korea	3/6/9/12	Other financial business
Sunny More 5th Co., Ltd.	Korea	2/5/8/11	Other financial business
Shinhan-Daesung Contents Fund	Korea	12	Others
Tiger Eyes 3rd Co., Ltd.	Korea	12	Other financial business
Sunny Smart 5th Co., Ltd.	Korea	2/5/8/11	Other financial business
Tiger Eyes 1st Co., Ltd.	Korea	1/4/7/10	Other financial business
S-solution 2nd Co., Ltd.	Korea	2/5/8/11	Other financial business
SH inno 1st Co., Ltd.	Korea	3/6/9/12	Other financial business
Sunny solution 2nd Co., Ltd.	Korea	11	Other financial business
Sunny solution 3rd Co., Ltd.	Korea	1/4/7/10	Other financial business
Shinhan Display 2nd Co., Ltd.	Korea	1/4/7/10	Other financial business
Sunny solution 4th Co., Ltd	Korea	3/6/9/12	Other financial business
Redefine Unjung Co., Ltd.	Korea	1/4/7/10	Other financial business
Sunny solution 10th Co., Ltd	Korea	3/6/9/12	Other financial business
GIB portfolio a 1st Co., Ltd.	Korea	1/4/7/10	Other financial business
GIB portfolio a 3rd Co., Ltd.	Korea	1/4/7/10	Other financial business
GIB portfolio a 4th Co., Ltd.	Korea	1/4/7/10	Other financial business
S-redefine 3rd Co., Ltd.	Korea	7	Other financial business
S-Tiger 2nd Co., Ltd.	Korea	1/4/7/10	Other financial business
Maestro werye Co., Ltd.	Korea	3/6/9/12	Other financial business
Rich gate 1st Co., Ltd.	Korea	3/6/9/12	Other financial business
Grand bene Co., Ltd.	Korea	3/6/9/12	Other financial business
G.I.B.han 1st corp.	Korea	3/6/9/12	Other financial business
Richgate 9th corp.	Korea	3/6/9/12	Other financial business
Richgate 11th corp.	Korea	3/6/9/12	Other financial business
Sunny Financial 10th Co., Ltd.	Korea	1/4/7/10	Other financial business
GIB sol 1st corp.	Korea	2/5/8/11	Other financial business
Rich gate 8th corp.	Korea	3/6/9/12	Other financial business
Rich gate 12th corp.	Korea	1/4/7/10	Other financial business
Rich gate 13th corp.	Korea	2/5/8/11	Other financial business
Maestro ER Co., Ltd.	Korea	3/6/9/12	Other financial business
GIB CSI Co., Ltd.	Korea	3/6/9/12	Other financial business
GIB DM Co., Ltd.	Korea	3/6/9/12	Other financial business
Rich gate 14th corp.	Korea	3/6/9/12	Other financial business
Maestro mirae Co., Ltd.	Korea	3/6/9/12	Other financial business
MAESTROST CO.,LTD	Korea	12	Other financial business
GIB time 1st	Korea	1/4/7/10	Other financial business
AR plus 1st	Korea	3/6/9/12	Other financial business
MAESTROSP CO.,LTD	Korea	1/4/7/10	Other financial business
MAESTRO BIZON CO.,LTD	Korea	2/5/8/11	Other financial business
GIB AIR CO.,LTD	Korea	2/5/8/11	Other financial business
S-Tiger 5th Co., Ltd.	Korea	2/5/8/11	Other financial business

15

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity (continued)

(c) Structured entities included in consolidation (continued)

Structured entities	Location	Closing month	Sectors
MAESTRO S.I CO.,LTD	Korea	2/5/8/11	Other financial business
S-redefine 10th Co., Ltd.	Korea	1/4/7/10	Other financial business
S-Tiger 6th Co., Ltd.	Korea	3/6/9/12	Other financial business
Maestrogongdeok Co.,LTD	Korea	3/6/9/12	Other financial business
MaestroLEC Co.,LTD	Korea	3/6/9/12	Other financial business
GIB Palace 1st CO.,LTD	Korea	3/6/9/12	Other financial business
GIBDAEMYUNG 1st co.ltd	Korea	1/4/7/10	Other financial business
S-Tiger 8th Co., Ltd.	Korea	1/4/7/10	Other financial business
MAESTRO S.A co.ltd	Korea	1/4/7/10	Other financial business
GIBYOUNGSAN 1st CO.,LTD	Korea	3/6/9/12	Other financial business
GIBYOUNGSAN 2nd CO.,LTD	Korea	3/6/9/12	Other financial business
GIB hoban 1st	Korea	12	Other financial business
GIBLAB 2nd CO.,LTD	Korea	9	Other financial business
Hana micron 2nd Co.LTD	Korea	1/4/7/10	Other financial business
GIB Palace 2nd CO.,LTD	Korea	3/6/9/12	Other financial business
SHINHAN DISPLAY 3RD CO.,LTD	Korea	1/4/7/11	Other financial business
MAESTRO H CO.,LTD	Korea	1/4/7/10	Other financial business
RICHGATE YEONSEUNG Co.,Ltd.	Korea	3/6/9/12	Other financial business
MaestroDcube Co.,Ltd.	Korea	2/5/8/11	Other financial business
GIB Porter 1st Co., Ltd.	Korea	3/6/9/12	Other financial business
MAESTRO byeolnae CO.,LTD	Korea	1/4/7/10	Other financial business
SH ROAD No.1 CO.,LTD	Korea	1/4/7/10	Other financial business
MAESTRO landmark CO.,LTD	Korea	2/5/8/11	Other financial business
MAESTRO DS CO.,LTD	Korea	3/6/9/12	Other financial business
GIB ST CO.,LTD	Korea	3/6/9/12	Other financial business
MAESTRO H No.2 CO.,LTD	Korea	3/6/9/12	Other financial business
GIB Gaps CO.,LTD	Korea	1/4/7/10	Other financial business
GIB EF CO.,LTD	Korea	1/4/7/10	Other financial business
S-Tiger 10th Co., Ltd.	Korea	3/6/9/12	Other financial business
Rich gate 3rd corp.	Korea	2/5/8/11	Other financial business
GIB JDT CO.,LTD	Korea	2/5/8/11	Other financial business
GIB Mobility 1st Co., Ltd.	Korea	2/5/8/11	Other financial business
S-Force 1st Co., Ltd.	Korea	3/6/9/12	Other financial business
GIB Mighty 1st Co., Ltd.	Korea	2/5/8/11	Other financial business
Rich gate Songpa corp.	Korea	3/6/9/12	Other financial business
Shinhan Airforce	Korea	3/6/9/12	Other financial business
GIB YB CO.,LTD	Korea	3/6/9/12	Other financial business
Development Trust	Korea	12	Trust
Non-specified Money Trust	Korea	12	Trust
Old-age Living Pension Trust	Korea	12	Trust
New-Personal Pension Trust	Korea	12	Trust
Personal Pension Trust	Korea	12	Trust
Retirement Trust	Korea	12	Trust
New Old-age Living Pension Trust	Korea	12	Trust
Pension Trust	Korea	12	Trust
Household Money Trust (Shinhan)	Korea	12	Trust
Corporation Money Trust (Shinhan)	Korea	12	Trust
Shinhan BNPP Private Corporate 25th	Korea	1	Beneficiary certificates

The Group consolidates a structured entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to most significantly affect those returns through its power over the structured entity based on the terms in the agreement relating to the establishment of the structured entity. For consolidated structured entities, the Group recognizes non-controlling interests related to the structured entity as liabilities in the consolidated statement of financial position.

As of December 31, 2020, the Group provides credit guarantees (ABCP purchase agreement, etc.) amounting to W3,962,689 million to the structured entities described above.

16

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity (continued)

(d) Changes in subsidiaries

Subsidiaries newly included or excluded during the year ended December 31, 2020 are as follows:

	Subsidiaries
Newly included subsidiaries
during the year ended December 31, 2020	SBJ DNX
	Hana micron 2nd Co.LTD
	GIB Palace 2nd CO.,LTD
	SHINHAN DISPLAY 3RD CO.,LTD
	MAESTRO H CO.,LTD
	RICHGATE YEONSEUNG Co.,Ltd.
	MaestroDcube Co.,Ltd.
	GIB Porter 1st Co., Ltd.
	MAESTRO byeolnae CO.,LTD
	SH ROAD No.1 CO.,LTD
	MAESTRO landmark CO.,LTD
	MAESTRO DS CO.,LTD
	GIB ST CO.,LTD
	MAESTRO H No.2 CO.,LTD
	GIB Gaps CO.,LTD
	GIB EF CO.,LTD
	S-Tiger 10th Co., Ltd.
	Rich gate 3rd corp.
	GIB JET CO.,LTD
	GIB Mobility 1st Co., Ltd.
	S-Force 1st Co., Ltd.
	GIB Mighty 1st Co., Ltd.
	Rich gate Songpa corp.
	Shinhan S-Force
	GIB YB CO.,LTD

17

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

1. Reporting entity (continued)

(d) Changes in subsidiaries (continued)

Subsidiaries newly included or excluded during the year ended December 31, 2020 are as follows (continued):

	Subsidiaries
Excluded subsidiaries
during the year ended December 31, 2020	Shinhan Asia
	Sunny Russell 1st Co., Ltd.
	Sunny Russell 4th Co., L.L.C
	Sunny Russell 5th L.L.C
	S-smart 9th Co., Ltd.
	Sunny Smart 2nd Co., Ltd.
	Sunny solution 9th Co., Ltd
	Sunny Dream 7th Co., Ltd.
	S-Solution 3rd Co., Ltd.
	Shinhan Display 1st Co., Ltd.
	GIB harim Co., Ltd.
	S-redefine 4th Co., Ltd.
	Sunny Russell 8th Co., Ltd.
	S-solution 9th Co., Ltd.
	Sunny Dream 1st Co., Ltd.
	S-redefine 7th Co., Ltd.

18

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies

The significant accounting policies applied by the Group are as follows :

(a) Basis of financial statements preparation

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS), which prescribed in the Act on External Audit of Stock Companies. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.

The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statements of financial position:

- derivative financial instruments are measured at fair value

- financial instruments at fair value through profit or loss (“FVTPL”) are measured at fair value

- financial instruments at fair value through other comprehensive income (“FVOCI”) are measured at fair value

- share-based payment arrangements are initially measured at fair value on grant date

- changes in fair value attributable to the risk being hedged for financial instruments designated as hedged items in qualifying fair value hedge relationships are recognized in profit or loss

- liabilities for defined benefit plans are recognized as 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 operation. These consolidated financial statements are presented in Korean won, which is the Bank’s functional currency and the currency of the primary economic environment in which the Group operates. Subsidiaries whose functional currency is not Korean won are as follows:

Functional currency	Subsidiaries
USD	Shinhan America, Shinhan Cambodia
EUR	Shinhan Europe
KZT	Shinhan Kazakhstan
CAD	Shinhan Canada
CNY	Shinhan China
JPY	Shinhan Japan, SBJ DNX
VND	Shinhan Vietnam
MXN	Shinhan Mexico
IDR	Shinhan Indonesia

19

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(d) Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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 significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the significant effect on the amount recognized in the consolidated financial statements is described in Note 4.

The Group recognizes credit loss allowance for expected credit losses on debt instruments, loans and receivables that are measured at amortized cost or at FVOCI, loan commitments and financial guarantee contracts upon adoption of K-IFRS No.1109, ‘Financial Instruments’. The measurement of such allowance is determined by techniques, assumptions and input variables used by the Group to measure expected future cash flows of individual financial instruments and to measure expected credit losses in a collective manner. The details of techniques, assumptions and input variables used to measure the credit loss allowance for expected credit losses as of December 31, 2020 are described in Note 3.

The rapid spread of the COVID-19 epidemic is having a negative impact on the global economy. The Group uses forward-looking information to estimate expected credit loss in accordance with K-IFRS No. 1109 'Financial Instruments'. For the year ended December 31, 2020, there have been significant changes on the forward-looking information due to the spread of the COVID-19. Accordingly, the economic recession is expected to be more severe than the previous forecast, and the default rate forecast as of December 31, 2020 is re-estimated using the updated forward-looking information on the economic growth rate, private consumption growth rate, and KOSPI, and facility investment growth rate, which are major macroeconomic variables for calculating the default rate forecast. The Group will continue to monitor the economic effects of the COVID-19.

(e) Changes in accounting policies

The Group has applied the following new accounting standards and interpretations for the first time for their annual reporting period commencing January 1, 2020.

i) Amendments to K-IFRS No.1001 ‘Presentation of financial statements’ and K-IFRS No.1008 ‘Accounting policies, changes in accounting estimates and errors’ – Definition of materiality

The 'definition of materiality' has been clarified, and the Group amended the financial statements according to the clarified definition of K-IFRS No.1001 and K-IFRS No.1008. In the determination of the materiality, the Group decided to consider the characteristics of the information users when deciding the information to be disclosed and the effect of the non-material information as well as the omission or distortion of material information. The amendments do not have a significant impact on the financial statements.

20

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(e) Changes in accounting policies (continued)

ii) Amendments to K-IFRS No. 1103 'Business combination' – Definition of business

In the amended business definition, in order to determine the set of acquired activities and assets as a business, it is necessary to include inputs and practical processes with the ability to significantly contribute to the creation of outputs, excluding economic benefits due to cost reduction. In addition, if the fair value of most of the total assets acquired is concentrated on a single identifiable asset or set of assets, an optional test has been added in which the acquired activity and set of assets can be determined as an asset or set of assets rather than as a business. The amendments do not have a significant impact on the financial statements.

iii) Amendment to K-IFRS No. 1116 'Lease'-A practical simplified method for exemption, discount, and suspension of rent related to COVID-19

As a practical simplified method, the lessee may not evaluate whether the rent concession, such as the rent discount directly resulting from COVID-19, constitutes a change in the lease. The lessee who makes this choice must account for changes in lease payments due to rental discount, etc., consistent with the method prescribed by this Standard, unless such changes are lease changes. The Group changed its accounting policies in accordance with the amendment of K-IFRS No.1116. The revised accounting policy is retroactively applied in accordance with the transitional provisions of K-IFRS No.1116. Due to the retrospective application of the accounting policy, there is no cumulative effect from the initial application to be reflected in the initial retained earnings on January 1, 2020, and the comparative financial statements for the previous period have not been restated. The effect of the amendment to the lease Standard is illustrated in Note 12.

The following new accounting standards and interpretations have been published that are not mandatory for December 31, 2020 reporting periods and have not been early adopted by the Group.

i) K-IFRS No.1109, ‘Financial Instruments’ and K-IFRS No.1039, ‘Financial Instruments: Recognition and Measurement’ and K-IFRS No.1107, ‘Financial Instruments: Disclosures’ Revision’ and K-IFRS No.1104, ‘Insurance Contracts’ K-IFRS No.1116, ‘Leases’ amended – Interest rate indicator reform

The effective interest rate, not the carrying amount, 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. This amendments will take effect for annual periods beginning after January 1, 2021 and are permitted for early application. The Group is determining whether there will be any impacts on the financial statements due to the amendments.

21

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(f) Approval of consolidated financial statements

The consolidated financial statements are approved for issue by the Board of Directors on February 4, 2021, which will be submitted for approval to the shareholders’ meeting on March 24, 2021.

(g) 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.

There is no non-controlling interest in structured entities because the ownership interests in structured entities are shown as liabilities of the Group.

ii) 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. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

iii) 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 allocation reduces the non-controlling interests balance below zero.

22

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(h) 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 and liability is measured at its acquisition-date fair value except for below:

- Leases and insurance contracts are required to be classified on the basis of 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 K-IFRS No.1012, ‘Income Taxes’

- Employee benefit arrangements are recognized and measured in accordance with K-IFRS No.1019, ‘Employee Benefits’

- Indemnification assets are recognized and measured on the same basis as the indemnified liability or asset

- 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 K-IFRS No.1102, ‘Share-based Payment’

- Non-current assets held for sale are measured at fair value less costs to sell in accordance with K-IFRS No.1105, ‘Non-current Assets Held for Sale and Discontinued Operations’

As of the acquisition date, non-controlling interests in the acquiree are measured as the non-controlling interests' proportionate share of the acquiree's identifiable net assets.

The consideration transferred 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 acquiree 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 acquiree's employee that is included in consideration transferred 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 finder'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 K-IFRS No.1032, ‘Financial Instruments: Presentation’ and K-IFRS No.1109, ‘Financial Instruments’, are expensed in the periods in which the costs are incurred and the services are received.

23

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(h) Business combination (continued)

ii) Goodwill

The Group measures goodwill at the acquisition date as:

the fair value of the consideration transferred; plus

the recognized amount of any non-controlling interests in the acquiree; plus

if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

When the Group additionally acquires non-controlling interest, the Group does not recognize goodwill since the transaction is regarded as equity transaction.

As part of its transition to K-IFRS, the Group elected to restate only those business combinations which occurred on or after January 1, 2010 in accordance with K-IFRS. In respect of acquisitions prior to January 1, 2010, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous Generally Accepted Accounting Principles (“GAAP”).

(i) Investments in associates

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 amount 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 in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

If an associate or a joint venture uses accounting policies different from those of the Group for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil and 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.

24

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(j) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the chief operating decision maker to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.

The segment reporting to a chief executive officer includes items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly general expenses and income tax assets and liabilities. The Group considers the Chief Executive Officer (“CEO”) of the Bank as the chief operating decision maker.

(k) Foreign currencies

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. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss and translation differences on non-monetary assets such as equities held at fair value through other comprehensive income are recognized in other comprehensive income.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedging instrument of the net investment in a foreign operation or a qualifying cash flow hedge, which are recognized in other comprehensive income Translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss and translation differences on non-monetary assets such as equities held at fair value through other comprehensive income are recognized in other comprehensive income.

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 end of the reporting period. 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 amounts 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 end of the reporting period.

25

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2.  Significant accounting policies (continued)

(k) Foreign currencies (continued)

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

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.

(l) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Equity instruments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date. However, the Group’s account overdraft is included in borrowings.

(m) Non-derivative financial assets

Financial assets are recognized when the Group becomes a party to the contractual provisions of the instrument. In addition, a regular way 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 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.

26

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(m) Non-derivative financial assets (continued)

ii) Equity instruments

For the equity instruments that are not held for 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 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 derecognition. 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 as 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.

a. 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. Impairment losses, and gains or losses on derecognition of the financial assets at amortized cost are recognized in profit or loss.  Interest income on the effective interest method is included in the ‘Interest income’ in the consolidated statement of comprehensive income.

b. 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, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Other than impairment losses, interest income amortized using effective interest method and foreign exchange differences, gains or losses of the financial assets at FVOCI are recognized as other comprehensive income in equity. On derecognition, 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 ‘Impairment loss on financial assets’ in the consolidated statement of comprehensive income, respectively.

c. 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 on financial assets at fair value through profit or loss’ in the consolidated statement of comprehensive income.

27

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(m) Non-derivative financial assets (continued)

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. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

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.

28

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(n) Expected credit loss on financial assets

As for financial assets at amortized cost and financial assets at FVOCI, the expected credit loss is evaluated at the end of each period and recognized as loss allowances.

Since initial recognition, a loss allowance shall be measured by the three stages in the table below depending on the extent of significant increase in credit risk.

Stage	Category	Description
Stage 1	Credit risk has not increased significantly since initial recognition	12 month expected credit losses: Expected credit loss resulting from potential default of financial instruments occurring over 12 months from the end of reporting period
Stage 2	Credit risk has increased significantly since initial recognition	Lifetime expected credit losses: Expected credit loss resulting from all potential default of financial instruments occurring over the expected life
Stage 3	Credit-impaired financial assets

However, as for the financial assets whose credit is impaired at the initial recognition, only the cumulative change in the lifetime expected credit loss is recognized as the loss allowance.

The ‘lifetime’ refers to the expected life to the contractual maturity of the financial asset.

i) Forward looking information

The Group determines a material increase on credit risk and estimates the expected credit loss on a forward looking basis.

The measuring factors of the expected credit loss are assumed to have certain relationship with the economic cycle.  Through relationship analysis between the macroeconomic variables and the credit risk measuring factors, the forward looking information is reflected in the expected credit loss estimation.

ii) Financial assets at amortized cost

The expected credit loss on the financial assets at amortized cost is recognized as the difference between the present value of the contractual cash flow and the present value of the expected cash flow.  The expected cash flow is estimated separately for the individually material financial assets.

For the financial assets which are not individually material, they are included in a group of assets with a similar credit risk and expected credit loss is estimated collectively.

The expected credit losses of financial assets measured as amortized cost are presented net of loss allowance, and the allowance is derecognized together with the asset when it is determined to be unrecoverable. When the loan previously written-off is subsequently collected, it is recognized as an increase in loss allowance. At the end of the reporting period, the Group recognizes in profit or loss the amount of the change in lifetime expected credit losses.

iii) Financial assets at FVOCI

The expected credit loss on the financial assets at FVOCI is calculated using the same method as that on the financial assets at amortized cost, however the changes in loss allowance are recognized as other comprehensive income. As for disposal and repayment, the loss allowance is reclassified from other comprehensive income to profit or loss.

29

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(o) Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of every reporting period, and changes therein are accounted for as described below.

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), and foreign currency risk of net investment in foreign operation (net investment hedges).

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, together with the methods that will be used to assess the effectiveness of the hedging relationship.

ii) Fair value hedges

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 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 consolidated 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 for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

30

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(o) Derivative financial instruments (continued)

iii) Cash flow hedges

When a derivative is designated as the hedging instrument in a hedge of 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 and presented in the hedging reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the consolidated statements of comprehensive income as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

Once hedge accounting is discontinued, any cumulative gain or loss existing in equity at that time and is recognized over the period the forecast transaction occurs as profit or loss. However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss recognized in equity is immediately recognized in the 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 previously recognized in other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.  In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.

iv) Hedge of net investment

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in profit or loss. When the hedged part of a net investment is disposed of, the relevant amount in the accumulated other comprehensive income is transferred to profit or loss as part of the profit or loss on disposal in accordance with K-IFRS No.1021, ‘The Effects of Changes in Foreign Exchange Rates’.

v) Embedded derivatives

If a hybrid contract contains a host that is not an financial asset, embedded derivatives are separated from the host contract and accounted for separately only if the economic characteristics and risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not designated at FVTPL. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

vi) Derivative financial instruments held for trading

Changes in the fair value of derivative financial instruments not designated as a hedging instrument are recognized immediately in profit or loss.

31

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(o) Derivative financial instruments (continued)

vii) Day one profit or loss

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there may be a difference between the transaction price and the amount determined using that valuation technique. As for these circumstances, the difference between the fair value at the initial recognition and the transaction price is not recognized as profit or loss but deferred. The deferred difference is amortized by using straight line method over the life of the financial instruments.

(p) 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.

Property and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.  Certain land and buildings are measured at fair value at the date of transition to K-IFRS, which is deemed cost, in accordance with K-IFRS No.1101, ‘First-time Adoption of K-IFRS’. Dividend from relevant revaluation surplus is prohibited in accordance with the resolution of the board of directors.

The Group recognizes in the carrying amount 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 amount 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. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives.  The estimated useful lives for the current and comparative periods are as follows:

Descriptions	Useful lives
Buildings	40 years
Other properties	4~5 years

The gain or loss arising from the derecognition of an item of property and equipment, which is included in profit or loss, is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Depreciationmethods, useful lives and residual values are reassessed at each fiscal year-end and any adjustment is accounted for as a change in accounting estimate.

32

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(q) 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 below from the date that they are available for use. The residual value of intangible assets is zero.  However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

Descriptions	Useful lives
Software and capitalized development cost	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.

(r) 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	Depreciation method	Useful lives
Buildings	Straight-line	40 years

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items 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 amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted, if appropriate. The change is accounted for as changes in accounting estimates.

33

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(s) Leases

The Group leases various tangible assets, such as real estate and vehicles, and the terms of the lease are negotiated individually and include a variety of terms and conditions. There are no other restrictions imposed by the lease contracts, except that the lease assets cannot be provided as collaterals for borrowings.

At the commencement date of the lease, the Group recognizes a right-of-use asset and a lease liability.  The payment of each lease is allocated to the repayment of the liability and finance cost.  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 finance costs.

Right-of-use assets are depreciated using a straight-line method from the inception of the lease over the lease term of the right-of-use assets.

Lease liabilities are measured at present value of the lease payments that are not paid at the commencement date of the lease agreement, and included in other liabilities.  Lease payments included in the measurement of the lease liabilities consist of the following:

- Fixed lease payments (including in-substance fixed payments, less any lease incentives receivable)

- Variable lease payments depending on an index or a rate

- Amounts expected to be paid by the lessee under a residual value guarantee

- The exercise price under a purchase option that the lessee is reasonably certain to exercise

extended lease payments in an optional renewal period if the lessee is reasonably certain to that they will exercise the extension option

- Payments of penalties for early terminating a lease unless the lessee is reasonably certain not to terminate early

If the implicit interest rate in the lease can be readily determined, the lease payments shall be discounted using that rate, and if that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate.

The right-of-use asset is initially at cost, which comprises:

- 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

The Group includes right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they are owned. Any right-of-use asset that meets the definition of investment property is presented as investment property. Lease payments associated with short-term leases or leases of low-value assets are recognized as an expense on a straight line basis over the lease term.

Additional considerations for the Group's accounting as a lessee include:

- Extension options and termination options are generally included in multiple real estate lease contracts.

- When estimating the lease term, the Bank considers all relevant facts and circumstances that create an economic incentive to exercise the option to extend the lease, or not to exercise the option to terminate the lease.

- Period covered by an extension option (or period covered by termination option) is included in lease term only if the lessee is reasonably certain to exercise (or not to exercise) the option.

- If the lessee and the lessor have the right to terminate without the consent of the other parties, the termination period shall be determined in consideration of the economic disadvantages incurred in terminating the contract.

- When significant events occur or there are significant changes in circumstances that have affected the lessee's control and the lease term before, the parties reassess whether they are quite certain to exercise the option of extension (or not).

34

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(t) Non-current assets held for sale

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 assets held for sale are measured at the lower of their carrying amount 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).

(u) Impairment of non-financial assets

The carrying amounts 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 amount.

The Group estimates the recoverable amount of an individual asset, 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”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. 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 amount 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 amount of the other assets in the CGU on a pro rata basis.  Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.  

35

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(v) 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, debentures 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, cancelled or expires).

(w) 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.

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.

iii) Non-controlling interests

Non-controlling interests, which represent the equity in a subsidiary not attributable, directly or indirectly, to a parent’s ownership interests, consist of the amount of those non-controlling interests at the date of the original combination calculated in accordance

36

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

with K-IFRS No.1103, ‘Business Combinations’ and the non-controlling interests share of changes in equity since the date of the combination.

37

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(x) 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.

iii) Retirement benefits: defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated by estimating 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.  The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the end of the reporting period on high-quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes service cost and net interest on the net defined benefit liability (asset) in profit or loss and remeasurements of the net defined benefit liability (asset) in other comprehensive income.

iv) 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.

v) Termination benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring. If benefits are not expected to be wholly settled within 12 months of the end of the reporting period, then they are discounted.

38

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(y) Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. 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 the end of the each reporting period and at settlement date.  Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.

The Group has granted share-based payment based on Shinhan Financial Group’s share to the employees. In accordance with a repayment arrangement with Shinhan Financial Group, the Group is required to pay Shinhan Financial Group for the provision of the share-based payments. The Group recognizes the costs as expenses and accrued expenses in liabilities for the service period. When vesting conditions are not satisfied because of death, retirement or dismissal of employees during the specified service period, no amount is recognized for goods or services received on a cumulative basis. Share-based payment arrangements are accounted for as equity-settled share-based payment transactions, regardless of the repayment arrangement with Shinhan Financial Group. The share-based compensation agreement that the Group has given to its executives and employees is measured in cash-settled.

(z) 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.

39

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(aa) 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. The financial guarantee liability is subsequently measured at the higher of the amount of the best estimate of the expenditure required to settle the present obligation at the end of reporting period; and the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period. Financial guarantee liabilities are included within guaranteed payment liabilities.

After initial recognition, financial guarantee contracts are measured at the higher of:

- Loss allowance in accordance with K-IFRS No.1109, ‘Financial Instruments’

- The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of K-IFRS No.1115, ‘Revenue from Contracts with Customers’

(ab) Recognition of revenues and expenses

The Group’s revenues are recognized using five-step revenue recognition model as follows: (1) ‘Identifying the contract’ → (2) ‘Identifying performance obligations’ → (3) ‘Determining the transaction price’ → (4) ‘Allocating the transaction price to performance obligations’ → (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 through the expected life of the financial asset or liability or, where appropriate, a shorter period to the net carrying amount 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.

40

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(ab) Recognition of revenues and expenses (continued)

a. Feesthat 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.

b. Fees earned as services are provided

Fees and commission income, including investment management fees, sales commission, and account servicing fees, are recognized as revenue when the related service as a performance obligation is provided.

c. 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 as a performance obligation has been completed.

iii) Dividends

Dividends income is recognized when the shareholder’s right to receive payment is established.  Usually this is the ex-dividend date for equity securities.

(ac) 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.

Shinhan Financial Group, the parent company, files its national income tax return with the Korean tax authorities under the consolidated corporate tax system, which allows it to make national income tax payments based on the consolidated profits or losses of the Shinhan Financial Group and its wholly owned domestic subsidiaries including the Bank. Deferred taxes are measured based on the future tax benefits expected to be realized in consideration of the expected profits or losses of eligible companies in accordance with the consolidated corporate tax system.  Consolidated corporate tax amounts, once determined, are allocated to each of the subsidiaries and are used as a basis for the income taxes to be recorded in their stand-alone financial statements.

The Group recognizes deferred tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

41

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

2. Significant accounting policies (continued)

(ac) Income tax (continued)

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 amount of its assets and liabilities.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduced the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

If any additional income tax expense exists by payment of dividends, the Group recognizes it when the liability relating to the payment is recognized.

Because of the tax positions taken by the Group, tax uncertainties arise from the complexity of transactions and differences in tax law interpretation. Also, uncertainty arises from a tax refund suit, tax investigation, or a refund suit against the tax authorities' assessed tax amount. For the tax amount paid to the tax authorities, in accordance with K-IFRS No.2123, it will be recognized as the corporate tax assets if a refund in the future is probable. In addition, the amount expected to be paid as a result of the tax investigation is recognized as the tax liability.

(ad) Accounting for trust accounts

The Group accounts for trust accounts separately from its bank accounts under the Financial Investment Services and Capital Markets Act and thus the trust accounts are not included in the accompanying consolidated financial statements.  Borrowings from trust accounts are included in other liabilities. Trust fees and commissions in relation to the service provided to trust accounts by the Group are recognized as fees and commission income.

(ae) 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 Bank 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.

42

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management

3-1. Credit risk

Credit risk is the risk of financial loss of the Group if a customer or counterparty fails to meet its contractual obligation. Credit risk is classified as the most important risk to be managed in the Group's business activities, and management carefully manages the maximum credit risk exposure. Credit exposure arises principally from due from banks, the lending process related to loans, investment activities in debt securities and off balance sheet items including loan commitments, etc.

(a) Credit risk management

The Group's basic policy on credit risk management is determined by the Risk Policy Committee. The Risk Policy Committee consists of the Chief Risk Officer(CRO) as the chairman, 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 the CCO is composed of the chairman, 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 soundness of the loan and profitability of operation.

The risk management of the asset is primarily carried out by all operating units that hold and manage the asset subject to credit risk, and the credit risk management department, such as the risk management department and the credit risk management department, is in charge of the credit risk management of the bank as a whole. The risk management department and the risk engineering department manage credit portfolio management by managing credit risk limits set by the Risk Policy Committee and credit maximum exposure limits for the same parties, affiliates, industries, and countries. The Group also measures and manages risk components such as Probability of Default (PD), LGD (Loss Given Default), and EAD (Exposure at Default) through the operation of the credit rating system and collateral management system. As an organization for supporting and checking loan decisions, the Credit Planning Department manages the credit policy and system of the entire bank, and the Credit Review Department conducts independent credit rating and loan decision making. Also, the Credit Supervision Department conducts individual credit supervision on large loans.

Each of the Group’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 account the borrower’s individual information, past dealings with the Group and external credit rating information. 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 others. The credit rating, once assigned, serves as the fundamental instrument in the Group’s credit risk management, and is applied in a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing and computation of allowance for credit loss.

The Group's credit rating system reflects the requirements of Basel III, ACE (Automatic Credit Evaluation), retail SOHO credit rating system with a maximum exposure of 500 million or less, and Advanced Internal Rating System (AIRS).

The credit decision for companies is based on a collective decision-making system, making objective and prudent decisions. In the case of a general credit, the credit is approved by agreement between the branch's RM (Relationship Manager) and each business division's headquarter. In the case of a large or important credit, the credit is approved by a screening body. In particular, the credit deliberation committee, which is the highest decision-making body of loans, examines important loans, such as large loans that exceed the limit. The individual credit is evaluated by the individual credit evaluation system based on objective statistical methods and an automated credit scoring system (CSS) based on the Bank's credit policy.

43

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(a) Credit risk management (continued)

The Bank operates a regular monitoring system for the regular management of individual loans. The review team and RM are required to conduct Loan Rviews by automatically searching for non-performing companies among the corporate loan clients, and the credit supervision department, which is independent from the business group, determines the adequacy of Loan Review results and requests credit rating adjustment for the relevant company as necessary. In accordance with these procedures, a company is classified as an early warning company, an observer company, and a normal company, and discriminatory management is carried out in accordance with the management guidelines for each risk stage to prevent the insolvency of the loans 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.

(b) Risk management and risk mitigation policy

In order to control the credit risk of the Group at an appropriate level, the following risk management system is established and operated.

- Credit risk limits are set and managed by business sector, customer, product, industry, etc. based on credit VaR (Value at Risk) and maximum exposure amount.

- The risk department establishes and manages limits for credit VaR, and maximum exposure limits.  The credit planning department and the credit assessment department conduct maximum exposure limits.

- The risk engineering department and risk engineering department establishes a credit risk limit operation plan for the entire bank at least once a year, and commits it to the risk policy committee.

- Each business unit monitors and adheres to credit risk limits assigned to each business unit.

- Specify and manage limits for identified credit risk by individual, corporate customers, industry and nationality.

- Establishes acceptable risk limits for individual borrowers or groups of borrowers and geographical sectors.

- The risk is assessed on an annual basis or reassessed within a period when it is deemed necessary, and the limits of risks by product, industry and country are approved by the Board of Directors on a quarterly basis.

- The maximum exposure for each borrower, including institutions, is managed by low level limits that are individually set for accounts in the consolidated financial statements and off-balance sheet accounts, and risk limits for daily transactions related to commodity trading including foreign currency forward trading, are also determined.  

- Actual maximum exposure limits is managed on a daily basis.

- Maximum credit risk exposure is managed in the process of analyzing the interest and principal repayment ability of the borrower, and if necessary, changes the loan limit in the process.

Other risk management measures are as follows.

i) Collateral

The Group has adopted policies and procedures to mitigate credit risk.  In connection with credit risk, collateral bond is generally used, and the Group has adopted a policy for pledging certain types of assets. The main types of collateral are as follows:

- Mortgage

- Real estate, inventories, accounts receivable, etc.

- Financial instruments such as debt securities and equity securities

44

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(b) Risk management and risk mitigation policy (continued)

Long-term loans are generally collateralized. On the other hand, revolving personal loans are generally unsecured. In addition, in order to minimize losses due to credit risk, the Group establishes additional collateral for the counterparty in the event of an indication of impairment of the asset.

Collateral for financial assets other than loans is subject to the nature of the products. Except for special cases such as Asset Backed Securities (ABS), unsecured securities are common in the case of debt securities.

ii) Derivative financial instruments

The Group maintains a credit limit on the amount and duration of derivative financial instruments that are in between the disposal agreements after purchase.

iii) Collective offsetting contracts

The Group limits its maximum exposure to credit losses by engaging in collective offsetting contracts with counterparties in executing significant number of transactions.

Collective offsetting contracts generally do not result from offsetting assets and liabilities in the consolidated financial statements, as transactions are usually set at a gross amount basis. However, when all amounts to the counterparty are set on a net basis, the credit risk associated with a favorable contract is reduced by collective offsetting contracts if losses are incurred.

The Group's overall maximum exposure to credit risk that is part of a collective offsetting contract can vary substantially within a short period of time because it is affected by each transaction.

iv) Credit related contracts

Warranties and credit guarantees have credit risks similar to credit. Credit (which guarantees credit on behalf of the customer by issuing a note to a third party for the amount requested under specific terms and conditions) is secured by the underlying commodities associated with them, it involves less risk. The credit enhancement arrangements represent the unused amount of the credit limit in the form of a credit, guarantee or letter of credit. In relation to the credit risk of a credit enhancement arrangement, the Group is potentially exposed to the same amount as the total unused arrangements. Long-term contracts generally have a greater degree of credit risk than short-term, and the Group monitors the maturity of credit arrangements.

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model)

i) 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 that assessment, the Group compares the risk of a default occurring on the financial instrument at the end of the reporting period with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition. The supportable information also includes historical default data held by the Group and the analysis by internal credit risk rating specialists.

45

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

a. 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.

The internal credit risk rating based on the borrower’s information related to each individual exposures on initial recognition, may change depending on the results of continuing monitoring and reviews.

b. Measuring term structure of probability 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 analyses.

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.

c. 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
Significant change in credit ratings	Significant change in credit ratings
Continued past due more than 30 days	Continued past due more than 30 days
Loan classification of precautionary and below	Loan classification of precautionary and below
Borrower with early warning signals	Borrower with early warning signals
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

46

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued):

The Group considers the credit risk of financial instrument has been significantly increased since initial recognition if a specific exposure is past due more than 30 days. The Group counts the number of days past due from the earliest date on which the Group has not received the contractual payments in full from the borrower and does not consider 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.

- As a result of applying the judgment criteria, financial instruments shall not be to move too frequently between the 12-months expected credit losses measurement and the lifetime expected credit losses measurement.

ii) Modified financial assets

If the contractual cash flows on a financial asset have been renegotiated or modified and the financial asset is not derecognized, the Group assesses whether there has been a significant increase in the credit risk 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 end of the reporting period 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-months expected credit losses for that exposure again.

47

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued) :

iii) 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 more than 90 days past due on its contractual payments

- 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 contract 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 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 incurred and the extent thereof may vary.

iv) 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.

48

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

iv) Reflection of forward-looking information (continued)

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 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.

(1) Upside scenario

Major variables(*1)	Correlation	2020.4Q(*2)(*3)	2021
			1Q	2Q	3Q	4Q
GDP growth rate (YoY %)	(-)	(2.8)	-	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	2020.4Q(*2)(*3)	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

49

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

iv) Reflection of forward-looking information (continued)

(3) Downside scenario

Major variables(*1)	Correlation	2020.4Q(*2)(*3)	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) As a result of reviewing the correlation of each variable, the private consumption index and facility investment growth rate were applied among the major variables to reflect the final forward-looking information. The Group additionally selected the KOSPI forecast in addition to the table above.

(*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.

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 2020 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 interest and installment payment holiday that is one of the financial relief programs into Stage2 to reflect the impact of potential insolvency.

As of December 31, 2020, exposures of borrowers in interest and installment payment holiday, and the effect of increasing credit losses caused by the classification of those into Stage2 is as follows:

	Exposure	Provision before change	Provision after change	Amount of increasing
Moratorium of interest payments	242,794	18,824	18,874	50
Moratorium of repayment in installments	1,067,502	19,262	20,660	1,398
Moratorium of interest payments and moratorium of repayment in installments	80,581	2,123	2,166	43
	1,390,877	40,209	41,700	1,491

50

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

iv) Reflection of forward-looking information (continued)

The Group has considered multiple economic scenarios in applying forward-looking information to measure expected credit losses. The sensitivity analysis of the impact on the Group's expected credit loss allowance if the weights of the upside or downside scenarios is assumed to be 100% while holding all other assumptions constant is as follows:

Scenario	Assumption for 100%	Differ from carrying amount
UPSIDE	1,903,663	(3,332)
DOWNSIDE	1,933,502	26,507

v) 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 that grades would be adjusted, and the PD by grade is estimated by considering contract expiration of the exposure.

51

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

v) Measurement of expected credit losses (continued)

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 amount 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.

When measuring expected credit losses on financial assets, the Group reflects a period of expected credit loss measurement based on a contractual maturity. The Group takes into consideration of 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 (LTV)

- Industry that the borrower belongs to

- Location of the borrower or collateral

- Days of delinquency

The criteria for classification of groups are 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.

vi) 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.

52

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(d) Maximum exposure to credit risk

The Group’s maximum exposure to credit risk without taking account of any collateral held or other credit enhancements as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Due from banks (*1)(*2):
Banks	W	3,922,409	4,892,412
Governments		21,912,759	16,629,285
		25,835,168	21,521,697
Loans at amortized cost (*1)(*2):
Banks		7,689,486	4,029,431
Retail
Mortgage lending		51,364,425	52,175,895
Others		102,842,272	86,156,152
		154,206,697	138,332,047
Governments		2,437,962	2,425,213
Corporate
Large enterprises		32,708,031	32,198,948
Small and medium-sized enterprises		92,232,815	83,960,258
Special finance		8,468,976	7,075,974
Others		810	473
		133,410,632	123,235,653
Credit cards		159,955	149,920
		297,904,732	268,172,264
Loans at FVTPL:
Banks		29,997	-
Corporate
Large enterprises		699,827	714,946
Small and medium-sized enterprises		114,645	154,045
		814,472	868,991
		844,469	868,991
Securities at FVTPL:
Debt securities		21,468,195	18,491,116
Gold/silver deposits		188,338	111,715
		21,656,533	18,602,831
Securities at FVOCI (*1)		38,726,496	40,060,734
Securities at amortized cost (*1)		20,178,443	20,251,888
Derivative assets		4,575,560	2,101,993
Other financial assets (*1)(*3)		11,153,167	13,518,528
Off-balance sheet items:
Financial guarantee contracts		4,354,052	4,676,823
Loan commitments and other liabilities for credit		101,649,789	97,161,128
		106,003,841	101,837,951
	W	526,878,409	486,936,877

(*1) The maximum exposure amounts for due from banks, loans, securities and other financial assets are measured as the amount net of allowances.

(*2) Due from banks and loans are classified as similar credit risk group to be with consistent calculating capital adequacy ratio under New Basel Capital Accord (Basel III).

53

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

(*3) Other financial assets comprise accounts receivable, accrued income, guarantee deposits, domestic exchange settlements receivables, suspense receivables, etc.

54

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(e) Credit risk exposure by credit risk grade

i) The maximum exposure of financial instruments to credit risk by credit risk grade as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		12-month expected loss				Lifetime expected loss						Total		Allowances		Net		Mitigation of credit risk due to collateral
		Grade 1		Grade 2		Grade 1		Grade 2		Impaired
Due from banks:
Banks	W	3,533,069		395,246		-		404		-		3,928,719		(6,310)		3,922,409		-
Governments		21,327,060		587,371		-		1,748		-		21,916,179		(3,420)		21,912,759		-
		24,860,129		982,617		-		2,152		-		25,844,898		(9,730)		25,835,168		-
Loans at amortized cost:
Banks		5,998,449		1,601,292		87,084		9,623		-		7,696,448		(6,962)		7,689,486		29,994
Retail		139,299,745		5,538,574		5,897,285		3,407,902		441,035		154,584,541		(377,844)		154,206,697		83,169,264
Residential real estate mortgage loan		48,290,904		313,134		1,807,030		877,066		97,030		51,385,164		(20,739)		51,364,425		45,644,141
Etc		91,008,841		5,225,440		4,090,255		2,530,836		344,005		103,199,377		(357,105)		102,842,272		37,525,123
Governments		2,191,017		247,542		-		-		-		2,438,559		(597)		2,437,962		-
Corporate		81,667,029		29,170,182		10,646,531		12,502,624		722,610		134,708,976		(1,298,344)		133,410,632		76,800,810
Major company		19,777,406		7,888,565		2,352,102		2,869,460		175,610		33,063,143		(355,112)		32,708,031		7,822,253
Small business		58,915,174		15,859,348		8,292,443		9,529,852		547,000		93,143,817		(911,002)		92,232,815		68,257,562
Special finance		2,974,449		5,421,558		1,986		103,172		-		8,501,165		(32,189)		8,468,976		720,995
Etc		-		711		-		140		-		851		(41)		810		-
Credit cards		19		158,619		2		2,913		3,219		164,772		(4,817)		159,955		1,115
		229,156,259		36,716,209		16,630,902		15,923,062		1,166,864		299,593,296		(1,688,564)		297,904,732		160,001,183
Securities at FVOCI(*)		30,251,345		8,208,016		-		267,135		-		38,726,496		-		38,726,496		-
Securities at amortized cost		18,780,103		1,404,340		-		-		-		20,184,443		(6,000)		20,178,443		-
	W	303,047,836		47,311,182		16,630,902		16,192,349		1,166,864		384,349,133		(1,704,294)		382,644,839		160,001,183

(*) Credit loss allowance recognized in other comprehensive income on securities at FVOCI default is W 16,977 million.

55

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(e) Credit risk exposure by credit risk grade (continued)

i) The maximum exposure of financial instruments to credit risk by credit risk grade as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		12-month expected loss		Lifetime expected loss			Total	Allowances	Net	Mitigation of credit risk due to collateral
		Grade 1	Grade 2	Grade 1	Grade 2	Impaired
Due from banks:
Banks	W	4,895,933	-	3,905	-	-	4,899,838	(7,426)	4,892,412	6,599
Governments		16,633,139	-	563	-	-	16,633,702	(4,417)	16,629,285	-
		21,529,072	-	4,468	-	-	21,533,540	(11,843)	21,521,697	6,599
Loans at amortized cost:
Banks		2,778,937	1,179,294	73,770	1,804	-	4,033,805	(4,374)	4,029,431	44,332
Retail		124,571,539	4,882,715	5,519,094	3,335,828	382,889	138,692,065	(360,018)	138,332,047	79,289,750
Residential real estate mortgage loan		49,248,588	535,894	1,291,788	1,033,363	86,648	52,196,281	(20,386)	52,175,895	46,606,733
Etc		75,322,951	4,346,821	4,227,306	2,302,465	296,241	86,495,784	(339,632)	86,156,152	32,683,017
Governments		2,314,523	111,987	-	-	-	2,426,510	(1,297)	2,425,213	-
Corporate		73,865,617	27,335,455	9,650,012	12,687,832	854,700	124,393,616	(1,157,963)	123,235,653	70,113,899
Major company		19,246,752	8,110,792	2,057,625	2,831,326	302,711	32,549,206	(350,258)	32,198,948	7,870,920
Small business		52,051,685	14,783,054	7,591,575	9,761,531	551,989	84,739,834	(779,576)	83,960,258	61,370,470
Special finance		2,567,180	4,441,238	812	94,837	-	7,104,067	(28,093)	7,075,974	872,509
Etc		-	371	-	138	-	509	(36)	473	-
Credit cards		23	148,484	6	3,418	1,505	153,436	(3,516)	149,920	967
		203,530,639	33,657,935	15,242,882	16,028,882	1,239,094	269,699,432	(1,527,168)	268,172,264	149,448,948
Securities at FVOCI (*)		31,174,144	8,647,496	-	239,094	-	40,060,734	-	40,060,734	-
Securities at amortized cost		18,962,245	1,271,681	23,273	-	-	20,257,199	(5,311)	20,251,888	-
	W	275,196,100	43,577,112	15,270,623	16,267,976	1,239,094	351,550,905	(1,544,322)	350,006,583	149,455,547

(*) Credit loss allowance recognized in other comprehensive income on securities at FVOCI default is W21,126 million.

56

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(e) Credit risk exposure by credit risk grade (continued)

ii) Credit risk exposure per credit grade of off-balance sheet items as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		12-month expected credit loss	Lifetime expected credit loss	Impaired	Total
Financial guarantee:
Grade 1	W	2,764,531	302,565	-	3,067,096
Grade 2		1,110,481	176,317	-	1,286,798
Impaired		-	-	158	158
		3,875,012	478,882	158	4,354,052
Loan commitment and other credit line
Grade 1		78,980,557	3,187,592	-	82,168,149
Grade 2		17,870,207	1,611,433	-	19,481,640
Impaired		-	-	-	-
		96,850,764	4,799,025	-	101,649,789
	W	100,725,776	5,277,907	158	106,003,841

57

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(e) Credit risk exposure by credit risk grade (continued)

ii) Credit risk exposure per credit grade of off-balance sheet items as of December 31, 2020 and 2019 is as follows (continued):

		December 31, 2019
		12-month expected credit loss	Lifetime expected credit loss	Impaired	Total
Financial guarantee:
Grade 1	W	2,789,973	246,814	-	3,036,787
Grade 2		1,494,534	144,691	-	1,639,225
Impaired		-	-	811	811
		4,284,507	391,505	811	4,676,823
Loan commitment and other credit line
Grade 1		73,264,970	4,463,089	-	77,728,059
Grade 2		17,818,559	1,613,799	-	19,432,358
Impaired		-	-	711	711
		91,083,529	6,076,888	711	97,161,128
	W	95,368,036	6,468,393	1,522	101,837,951

iii) Credit risk exposure per collateral of financial instruments as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		12-month expected credit loss	Lifetime expected credit loss	Impaired	Total
Guarantees	W	35,411,506	5,877,251	172,647	41,461,404
Deposits and savings		933,379	282,426	368	1,216,173
Property and equipment		1,284,976	317,218	12,341	1,614,535
Real estate		103,335,607	13,000,974	262,595	116,599,176
	W	140,965,468	19,477,869	447,951	160,891,288

		December 31, 2019
		12-month expected credit loss	Lifetime expected credit loss	Impaired	Total
Guarantees	W	11,523,372	3,694,329	52,199	15,269,900
Deposits and savings		729,250	237,633	1,029	967,912
Property and equipment		1,004,903	307,109	12,511	1,324,523
Real estate		122,283,975	14,287,456	336,493	136,907,924
	W	135,541,500	18,526,527	402,232	154,470,259

58

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(e) Credit risk exposure by credit risk grade (continued)

iv) Credit risk exposure per LTV of mortgage loans as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		40% or less	Above 40% ~ 60%	Above 60% ~ 80%	Above 80% ~ 100%	Other	Total
Loans at amortized cost	W	16,891,845	13,917,409	15,744,963	3,050,326	1,780,621	51,385,164
Less: allowance		(589)	(1,642)	(10,706)	(4,017)	(3,785)	(20,739)
	W	16,891,256	13,915,767	15,734,257	3,046,309	1,776,836	51,364,425

		December 31, 2019
		40% or less	Above 40% ~ 60%	Above 60% ~ 80%	Above 80% ~ 100%	Other	Total
Loans at amortized cost	W	17,977,438	15,304,948	14,449,806	3,370,661	1,093,427	52,196,280
Less: allowance		(1,193)	(2,247)	(6,481)	(6,615)	(3,850)	(20,386)
	W	17,976,245	15,302,701	14,443,325	3,364,046	1,089,577	52,175,894

v) Credit qualities are classified based on the internal credit rating as follows:

Type of Borrower	Grade 1	Grade 2
Retail	Pool of retail loans with probability of default of less than 2.25%	Pool of retail loans with probability of default of 2.25% or more
Governments	OECD sovereign credit rating of 6 or above	OECD sovereign credit rating of below 6
Banks and Corporations	Internal credit rating of BBB+ or above	Internal credit rating of below BBB+

(f) Nature and effect of modification in contractual cash flows

i) For the financial assets for which the loss allowances have been measured at amounts equal to the lifetime credit losses, and the contractual cash flows are modified for the years ended December 31, 2020 and 2019, the amortized costs before modification amounted to W39,562 million and W51,227 million, respectively, and the net losses resulting from the modification amounted to W8,289 million and W8,875 million, respectively.

ii) As of December 31, 2020 and 2019, the book value of financial asset, for which contractual cash flows have been modified while the loss allowance is measured at an amount equal to lifetime expected credit losses at initial recognition, and the loss allowance reverted to being measured at an amount equal to 12-month expected credit losses for the years ended December 31, 2020 and 2019 are W600 million and W3,782 million.

(g) The contractual amounts outstanding on financial assets that are written-off but are still subject to enforcement activity as of December 31, 2020 and 2019, are W6,343,950 million and W6,177,901million, respectively.

(h) As of December 31, 2020 and 2019, there are no assets acquired by the execution of collateral.

59

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(g) Concentration by geographic location

An analysis of concentration by geographic location for financial instruments excluding equity securities, net of allowance, as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
Division(*)		Korea	U.S.A	U.K	Japan	Germany	Vietnam	China	Other	Total
Due from banks:
Banks	W	282,653	621,144	107,136	534,868	253,297	201,009	1,404,189	518,113	3,922,409
Governments		18,380,443	952,215	-	1,418,805	121,663	209,395	441,863	388,375	21,912,759
		18,663,096	1,573,359	107,136	1,953,673	374,960	410,404	1,846,052	906,488	25,835,168
Loans at amortized cost:
Banks		2,277,529	-	-	249,670	62,997	824,022	1,343,452	2,931,816	7,689,486
Retail		145,814,211	389,962	6,627	4,124,659	2,386	1,448,430	1,322,340	1,098,082	154,206,697
Residential real estate mortgage loan		44,718,121	277,807	4,249	4,084,949	1,015	431,020	1,027,101	820,163	51,364,425
Etc		101,096,090	112,155	2,378	39,710	1,371	1,017,410	295,239	277,919	102,842,272
Governments		2,190,585	-	-	-	-	-	-	247,377	2,437,962
Corporate		115,401,335	2,992,056	103,197	3,784,158	103,483	2,228,822	3,038,360	5,759,221	133,410,632
Major company		26,119,572	1,501,629	38,028	631,230	33,737	881,051	1,155,694	2,347,090	32,708,031
Small business		83,343,950	784,652	41,500	2,428,883	69,746	1,187,265	1,882,666	2,494,153	92,232,815
Special finance		5,937,250	705,764	23,669	724,045	-	160,506	-	917,742	8,468,976
Etc		563	11	-	-	-	-	-	236	810
Credit cards		6,767	1,010	84	40	14	151,045	61	934	159,955
		265,690,427	3,383,028	109,908	8,158,527	168,880	4,652,319	5,704,213	10,037,430	297,904,732
Loans at FVTPL		844,469	-	-	-	-	-	-	-	844,469
Banks		29,997	-	-	-	-	-	-	-	29,997
Corporate		814,472	-	-	-	-	-	-	-	814,472
Major company		699,827	-	-	-	-	-	-	-	699,827
Small business		114,645	-	-	-	-	-	-	-	114,645
Securities at FVTPL		20,861,279	202,000	193,454	19,040	4,486	-	151,988	224,288	21,656,535
Debt securities		20,861,279	202,000	5,115	19,040	4,486	-	151,988	224,288	21,468,196
Gold/silver deposits		-	-	188,339	-	-	-	-	-	188,339
Securities at FVOCI		35,832,061	857,980	51,422	221,917	36,412	172,904	834,119	719,681	38,726,496
Securities at amortized cost		18,858,335	5,996	-	243,591	-	710,106	45,121	315,294	20,178,443
	W	360,749,667	6,022,363	461,920	10,596,748	584,738	5,945,733	8,581,493	12,203,181	405,145,843

(*) Geographical breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

60

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-1. Credit risk (continued)

(g) Concentration by geographic location (continued)

An analysis of concentration by geographic location for financial instruments excluding equity securities, as of December 31, 2020 and 2019 is as follows (continued):

		December 31, 2019
Division(*)		Korea	U.S.A	U.K	Japan	Germany	Vietnam	China	Other	Total
Due from banks:
Banks	W	207,825	1,188,903	376,785	226,145	151,213	235,046	1,971,924	534,571	4,892,412
Governments		14,084,796	529,096	-	1,080,381	-	140,960	445,526	348,526	16,629,285
		14,292,621	1,717,999	376,785	1,306,526	151,213	376,006	2,417,450	883,097	21,521,697
Loans at amortized cost:
Banks		1,146,073	-	11,565	63,088	51,953	801,096	844,396	1,111,260	4,029,431
Retail		130,646,542	370,303	5,443	3,888,924	1,531	1,301,979	1,206,531	910,794	138,332,047
Residential real estate mortgage loan		46,051,191	267,305	3,957	3,842,164	119	439,328	921,052	650,779	52,175,895
Etc		84,595,351	102,998	1,486	46,760	1,412	862,651	285,479	260,015	86,156,152
Governments		2,313,311	-	-	-	-	-	-	111,902	2,425,213
Corporate		106,038,123	2,892,333	42,803	3,353,511	98,980	2,140,520	2,758,146	5,911,237	123,235,653
Major company		25,576,971	1,595,737	1,128	826,545	21,570	821,181	899,049	2,456,767	32,198,948
Small business		75,576,379	647,440	27,588	1,960,089	77,410	1,175,818	1,859,097	2,636,437	83,960,258
Special finance		4,884,428	649,155	14,087	566,877	-	143,521	-	817,906	7,075,974
Etc		345	1	-	-	-	-	-	127	473
Credit cards		6,370	1,415	88	56	30	140,915	40	1,006	149,920
		240,150,419	3,264,051	59,899	7,305,579	152,494	4,384,510	4,809,113	8,046,199	268,172,264
Loans at FVTPL		868,991	-	-	-	-	-	-	-	868,991
Major company		714,946	-	-	-	-	-	-	-	714,946
Small business		154,045	-	-	-	-	-	-	-	154,045
Securities at FVTPL		17,874,472	163,598	125,499	18,732	5,064	111	187,773	227,582	18,602,831
Debt securities		17,874,472	163,598	13,784	18,732	5,064	111	187,773	227,582	18,491,116
Gold/silver deposits		-	-	111,715	-	-	-	-	-	111,715
Securities at FVOCI		36,297,061	1,520,146	97,710	195,165	93,769	294,095	723,736	839,052	40,060,734
Securities at amortized cost		19,060,306	31,822	-	163,112	-	604,019	40,741	351,888	20,251,888
	W	328,543,870	6,697,616	659,893	8,989,114	402,540	5,658,741	8,178,813	10,347,818	369,478,405

(*) Geographical breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

61

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-1. Credit risk (continued)

(h) Concentration by industry sector

		December 31, 2020
Division(*)		Finance and insurance	Manu- facturing	Retail and wholesale	Real estate and service	Construction	Lodging and Restaurant	Others	Retail customers	Total
Due from banks:
Banks	W	3,922,409	-	-	-	-	-	-	-	3,922,409
Governments		21,912,759	-	-	-	-	-	-	-	21,912,759
		25,835,168	-	-	-	-	-	-	-	25,835,168
Loans at amortized cost:
Banks		7,329,252	-	-	-	-	-	360,234	-	7,689,486
Retail		-	-	-	-	-	-	-	154,206,697	154,206,697
Residential real estate mortgage loan		-	-	-	-	-	-	-	51,364,425	51,364,425
Etc		-	-	-	-	-	-	-	102,842,272	102,842,272
Governments		2,437,962	-	-	-	-	-	-	-	2,437,962
Corporate		5,756,122	47,242,200	17,184,831	29,882,707	2,660,711	5,750,820	24,933,241	-	133,410,632
Major company		2,459,364	16,608,368	3,319,317	2,400,429	634,151	435,017	6,851,385	-	32,708,031
Small business		1,010,848	30,604,767	13,826,277	24,383,764	1,664,917	5,165,249	15,576,993	-	92,232,815
Special finance		2,285,910	28,956	38,930	3,098,512	361,643	150,554	2,504,471	-	8,468,976
Etc		-	109	307	2	-	-	392	-	810
Credit cards		-	-	-	-	-	-	-	159,955	159,955
		15,523,336	47,242,200	17,184,831	29,882,707	2,660,711	5,750,820	25,293,475	154,366,652	297,904,732
Loans at FVTPL		29,921	629,418	19,210	31,997	3,000	-	130,923	-	844,469
Banks		-	-	-	29,997	-	-	-	-	29,997
Corporate		29,921	629,418	19,210	2,000	3,000	-	130,923	-	814,472
Major company		29,921	558,463	3,500	-	2,000	-	105,943	-	699,827
Small business		-	70,955	15,710	2,000	1,000	-	24,980	-	114,645
Securities at FVTPL		13,886,838	1,721,830	1,017,087	274,993	158,220	45,169	4,552,398	-	21,656,535
Debt securities		13,698,499	1,721,830	1,017,087	274,993	158,220	45,169	4,552,398	-	21,468,196
Gold/silver deposits		188,339	-	-	-	-	-	-	-	188,339
Securities at FVOCI		21,669,300	2,026,619	289,113	506,999	640,130	2,611	13,591,724	-	38,726,496
Securities at amortized cost		7,011,794	21,750	-	134,772	120,284	-	12,889,843	-	20,178,443
	W	83,956,357	51,641,817	18,510,241	30,831,468	3,582,345	5,798,600	56,458,363	154,366,652	405,145,843

(*) Industrial breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

62

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-1. Credit risk (continued)

(h) Concentration by industry sector (continued)

i) An analysis of concentration by industry sector for financial assets excluding equity securities, net of allowance, as of December 31, 2020 and 2019 is as follows (continued):

		December 31, 2019
Division(*)		Finance and insurance	Manu -facturing	Retail and wholesale	Real estate and service	Construction service	Lodging and Restaurant	Other	Retail customers	Total
Due from banks:
Banks	W	4,892,412	-	-	-	-	-	-	-	4,892,412
Government		16,629,285	-	-	-	-	-	-	-	16,629,285
		21,521,697	-	-	-	-	-	-	-	21,521,697
Loans at amortized cost:
Banks		3,540,249	-	-	-	-	-	489,182	-	4,029,431
Retail		-	-	-	-	-	-	-	138,332,047	138,332,047
Residential real estate mortgage loan		-	-	-	-	-	-	-	52,175,895	52,175,895
Etc		-	-	-	-	-	-	-	86,156,152	86,156,152
Governments		2,425,213	-	-	-	-	-	-	-	2,425,213
Corporate		4,890,090	43,322,353	15,657,794	25,529,632	2,788,758	5,289,617	25,757,409	-	123,235,653
Major company		2,321,296	15,833,250	3,433,882	2,027,928	922,431	247,274	7,412,887	-	32,198,948
Small business		568,981	27,456,798	12,153,628	21,715,418	1,466,140	4,912,972	15,686,321	-	83,960,258
Special finance		1,999,813	32,124	70,256	1,786,285	400,187	129,371	2,657,938	-	7,075,974
Etc		-	181	28	1	-	-	263	-	473
Credit cards		-	-	-	-	-	-	-	149,920	149,920
		10,855,552	43,322,353	15,657,794	25,529,632	2,788,758	5,289,617	26,246,591	138,481,967	268,172,264
Loans at FVTPL		130,129	478,130	120,432	-	3,500	900	135,900	-	868,991
Major company		130,129	375,875	103,522	-	2,000	-	103,420	-	714,946
Small business		-	102,255	16,910	-	1,500	900	32,480	-	154,045
Securities at FVTPL		12,197,372	1,445,115	859,395	180,444	179,604	55,096	3,685,805	-	18,602,831
Debt securities		12,085,657	1,445,115	859,395	180,444	179,604	55,096	3,685,805	-	18,491,116
Gold/silver deposits		111,715	-	-	-	-	-	-	-	111,715
Securities at FVOCI		23,143,896	2,172,089	319,380	572,971	707,837	2,779	13,141,782	-	40,060,734
Securities at amortized cost		7,099,533	49,876	-	108,112	120,492	-	12,873,875	-	20,251,888
	W	74,948,179	47,467,563	16,957,001	26,391,159	3,800,191	5,348,392	56,083,953	138,481,967	369,478,405

63

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

(*) Industrial breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

64

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-1. Credit risk (continued)

(h) Concentration by industry sector (continued)

ii) As of December 31, 2020, the concentration by industry sector for corporate loans that could be affected by the spread of COVID-19 among the financial instruments is as follows, and the industries that will be affected by the future economic conditions may change significantly:

		December 31, 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 FVTPL		-	-	3,088	-	-	3,060	-	6,148
Securities at FVOCI		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

iii) In the case of borrowers classified as Grade 2 and impaired among individual loans subject to lifetime expected credit losses as disclosed in Note 3-1. (e), the effect of COVID-19 may be relatively large. The impact is subject to change, depending on the future economic situation.

65

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-2. Market risk

Market risk is the risk that changes in market price such as interest rates, equity prices, and foreign exchange rates, etc. will affect the Group’s income. Trading position is exposed to the risk such as interest rates, equity prices, foreign exchange rates, etc., and non-trading position is mainly exposed to interest rates. The Group separates and manages its exposure to market risk between trading and non-trading position.

The Group carries out decision-making functions such as policy establishment and setting limits on market risk management by the Risk Policy Committee, and the Risk Engineering Department provides comprehensive market risk management, market risk system management, and Middle Office functions for all operating departments and desks.

The basis of market risk management is limit management to keep the maximum possible loss due to market risk within a certain level. The Risk Policy Committee sets and operates the VaR limit, loss limit, sensitivity limit, investment limit and position limit, and stress loss limit for each operating department and desk. The Risk Engineering department monitors the operation status independently from the operating department. The Group regularly reports to the Risk Policy Committee and Risk Management Committee. In addition, the Fair Value Assurance Council and the Risk Engineering Department conduct a review of the fair value evaluation method and risk assessment before new products (or transactions) in each business unit are conducted, and the risk review of derivatives and structured products is reviewed for risk factors. In addition, the Group supports rational decision-making, such as reviewing investment limits, so that objective analysis and review of risk factors can be conducted in advance.

(a) Market risk management of trading positions

Trading data for foreign exchange, stocks, bonds, and derivatives, which are subject to the measurement of market risks of trading positions, are managed by entering transactions in the front system, and are automatically interfaced with the market risk management system (Risk Watch) to perform daily risk measurement and limit management. Statistical analysis that complements the above risk management process and stress testing is performed regularly in order to manage the impact and loss of rapid economic changes.

i) Measurement method on market risk arising from trading positions

The Group applies historical simulation VaR methodology to each market risk, such as interest rates, stock prices, and exchange rates exposed to trading positions to calculate market risk in a 99% confidence level. VaR is based on a statistical assessment of potential losses to current positions from an adverse market movement. This represents the maximum amount of losses that can be incurred at the level of 99% confidence. Therefore, there is a statistical probability (1.0%) that the actual loss may be greater than the VaR measurement.

The VaR model measures expected losses assuming that the daily position at the measurement point remains and that market movements for the past 10 days from each measurement point will continue in the future.

Limits for each type of market risk are the limits set on market risk within the Bank's total risk limit. It is calculated by multiplying the average 10 days VaR and Stressed VaR for the previous 60 days by the regulatory multiplier and used as a market risk management tool. The Group's VaR limit is set annually by the Risk Management Committee or the Risk Policy Committee, and compliance of each type of limit is monitored on a daily basis. In addition, when the set limit is exceeded, the manager of the operation department reports the excess details, reasons for the excess, and solutions to the group head in charge, and manages the set limit to be reduced to the limit within the next business day.

The quality of the VaR model is continuously monitored by post verification of VaR results, and all post verification results are reported to the Board of Directors.

66

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

.3. Financial risk management (continued)

3-2. Market risk (continued)

(a) Market risk management of trading positions (continued)

ii) VaR of trading positions

The Group manages VaR for trading portfolio based on financial statements. The minimum, maximum, average VaR and the VaR for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Average	Maximum	Minimum	Year-end
Interest rate risk	W	41,165	56,950	28,322	42,867
Equity risk		27,077	66,254	7,545	7,893
Foreign currency risk (*)		65,309	83,335	27,668	69,024
Volatility risk		305	1,073	114	138
Commodity risk		13	170	-	1
Covariance		(27,839)	(53,295)	(14,163)	(25,310)
	W	106,030	154,487	49,486	94,613

(*) The Group measured foreign currency risk arising from trading positions and non-trading positions.

		December 31, 2019
		Average	Maximum	Minimum	Year-end
Interest rate risk	W	21,208	32,430	12,709	28,313
Equity risk		18,136	49,424	8,171	15,386
Foreign currency risk (*)		24,727	29,085	22,259	25,910
Volatility risk		161	325	60	212
Commodity risk		15	104	-	10
Covariance		(16,322)	(29,815)	(11,717)	(21,879)
	W	47,925	81,553	31,482	47,952

(*) The Group measured foreign currency risk arising from trading positions and non-trading positions.

67

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-2. Market risk (continued)

(b) Market risk management of non-trading positions

The most critical market risk that arises from non-trading position is the interest rate risk. Accordingly, the Group measures and manages market risk for non-trading position by taking into account effects of interest rate changes on both its net asset value and income.  

The Group carries out decision-making functions such as establishing policies and setting detailed limits on interest rate risk management by the Risk Policy Committee, and within these principles and limits, management departments by account, such as overseas branches, subsidiaries, and finance departments, trust headquarters, and general finance departments, primarily recognize and manage interest rate risk. The Risk Management Department and the Risk Engineering Department support the Risk Policy Committee's decision on interest rate risk, monitor whether the interest rate risk limit is exceeded, and evaluate and manage the overall interest rate risk.

The Group measures and manages interest rate risk using various analysis methods such as interest rate gap, duration gap, and scenario-based NII (Net Interest Income) simulation through the Asset Liability Management (ALM) system. Interest rate VaR and interest rate EaR (Earnings at Risk) and interest rate gap ratios are set and monitored monthly. In addition, stress testing evaluates the impact on interest rate risk in various crisis situations.

i) Measurement method on market risk arising from non-trading positions

The Group calculates and manages the amount of change in economic value of equity (interest rate VaR) and the maximum expected interest loss (interest rate EaR) over the next year on the application of the IRRBB Standard Method interest rate scenario provided by the Bank for International Settlements (“BIS”). It also manages the risk of interest rate market risk by reflecting the customer behavior ratio based on IRRBB standard method.

In order to calculate the interest rate risk, the Group uses the six scenarios defined by the Basel Committee, 1) Parallel shock increases, 2) Parallel shock decreases, 3) Shock stiffener, 4) Shock plattner, 5) short-term interest rate increases, and 6) short-term interest rate decreases. Based on the six scenarios, the changes in economic value of equity are measured to calculate the maximum loss (VaR: Value at Risk) and the changes in net interest income are measured to calculate the maximum expected changes of profit or loss (EaR: Earning at Risk) based on the two scenarios (parallel shock increases and decreases).

ii) Interest rate VaR and EaR for non-trading positions

Interest rate VaR (maximum expected loss among △EVE) and EaR (maximum expected changes in profit of loss among △ NII) for non-trading positions which are measured by the IRRBB standard methodology provided by BIS as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Interest rate VaR	W	468,327	369,944
Interest rate EaR		115,221	161,385

68

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-2. Market risk (continued)

(c) Foreign exchange risk

The Group manages foreign currency risk based on general positions which includes all spot and future foreign currency positions, etc. The Risk Policy Committee oversees the Group’s foreign exchange exposure for both trading and non-trading activities by establishing limits for the net foreign currencies open position. The Group’s foreign exchange position is centralized at the FX & Derivatives Department. Dealers in the FX & Derivatives Department manage the Group’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps. The Group’s foreign exchange transactions are mainly conducted in the U.S. dollar (USD), Japanese yen (JPY), Euro (EUR) and Chinese yuan (CNY). Other foreign currencies are limitedly traded.

Assets and liabilities denominated in foreign currencies as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		USD	JPY	EUR	CNY	Others	Total
Assets
Cash and due from banks	W	3,170,604	1,925,186	219,847	775,135	2,599,958	8,690,730
Securities at FVTPL		751,502	-	145,273	-	240,169	1,136,944
Derivative assets		378,296	4	6,406	1,034	60,792	446,532
Loans at amortized cost		20,342,621	9,073,866	1,296,284	4,130,855	8,458,104	43,301,730
Securities at FVOCI		3,080,206	149,718	-	460,681	665,891	4,356,496
Securities at amortized cost		124,989	240,619	-	45,151	993,581	1,404,340
Other financial assets		1,719,878	284,695	137,576	336,325	517,407	2,995,881
		29,568,096	11,674,088	1,805,386	5,749,181	13,535,902	62,332,653
Liabilities
Deposits		16,772,364	10,124,013	981,873	4,631,563	8,409,825	40,919,638
Financial liabilities at FVTPL		-	-	-	-	539,564	539,564
Derivative liabilities		230,488	564	7,673	821	6,100	245,646
Borrowings		6,110,718	806,285	306,829	163,454	537,067	7,924,353
Debt securities issued		4,770,687	87,504	669,120	-	1,205,976	6,733,287
Other financial liabilities		2,873,697	123,510	250,428	564,623	819,290	4,631,548
		30,757,954	11,141,876	2,215,923	5,360,461	11,517,822	60,994,036
Net assets (liabilities)		(1,189,858)	532,212	(410,537)	388,720	2,018,080	1,338,617
Off balance sheet items
Derivative exposures		1,257,770	(90,712)	417,055	30,032	(204,516)	1,409,629
Net position	W	67,912	441,500	6,518	418,752	1,813,564	2,748,246

69

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-2. Market risk (continued)

(c) Foreign exchange risk (continued)

Assets and liabilities denominated in foreign currencies as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		USD	JPY	EUR	CNY	Others	Total
Assets
Cash and due from banks	W	3,396,827	1,486,422	291,647	1,701,072	1,585,448	8,461,416
Securities at FVTPL		910,503	14,205	115,969	-	231,441	1,272,118
Derivative assets		189,134	132	5,947	391	43,596	239,200
Loans at amortized cost		17,137,433	8,253,896	955,836	3,350,557	7,960,677	37,658,399
Securities at FVOCI		4,029,326	83,713	49,447	436,236	730,769	5,329,491
Securities at amortized cost		143,338	183,133	-	40,769	927,713	1,294,953
Other financial assets		2,643,932	136,419	169,709	380,955	436,219	3,767,234
		28,450,493	10,157,920	1,588,555	5,909,980	11,915,863	58,022,811
Liabilities
Deposits		14,252,401	9,047,067	817,015	4,415,865	6,890,787	35,423,135
Financial liabilities at FVTPL		-	-	-	-	467,761	467,761
Derivative liabilities		147,097	574	10,272	1,158	4,923	164,024
Borrowings		7,689,213	343,308	190,366	407,767	139,658	8,770,312
Debt securities issued		4,918,347	319,041	704,504	-	895,196	6,837,088
Other financial liabilities		3,818,303	154,863	123,547	567,860	964,483	5,629,056
		30,825,361	9,864,853	1,845,704	5,392,650	9,362,808	57,291,376
Net assets (liabilities)		(2,374,868)	293,067	(257,149)	517,330	2,553,055	731,435
Off balance sheet items
Derivative exposures		2,366,831	(17,970)	370,460	(113,087)	(651,093)	1,955,141
Net position	W	(8,037)	275,097	113,311	404,243	1,901,962	2,686,576

(d) Interest rate risk management

The Group closely is monitoring the output and market of various industrial working groups that manage the transition to new interest rate indicators. It includes announcements made by IBOR regulators.

Regulators have made it clear that they will not persuade or force banks to submit IBOR by the end of 2021. In response to this announcement, the Group has established an IBOR-related response plan consisting of job flows such as risk management, accounting, tax, law, computerization, and customer management. The plan is dedicated to the Chief Financial Officer (CFO) and important matters are reported to the Board of Directors. The purpose of the plan is to identify the impact and risks associated with reforming interest rate indicators within the business, and prepare and implement action plans to facilitate the transition to alternative indicator interest rates. The Group aims to close its response plan by 2021.

70

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-3. Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Risk Policy Committee is responsible for establishing policies and setting the limits related to liquidity risk management. The Risk Management Department evaluates and manages the Group’s overall liquidity risk and monitors compliance of all operating subsidiaries and foreign branches with limits on a daily basis.

The Group applies the following basic principles for liquidity risk management:

-raise funding in sufficient amounts at the optimal time and 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 as to 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 and risks in determining the price of products and services, employee performance evaluations and approval of launching new products and services.

The Group uses various analysis methods such as liquidity gap, liquidity ratio, loan-deposit ratio, and real liquidity gap reflecting the customer behavior model through the ALM system, while managing its liquidity risks on won and foreign currency through various indices including risk limits, early warning index, and monitoring index. Demand deposits, in analysing the maturity structures of assets and liabilities, can be classified as short-term because they can be withdrawn whenever a customer requests; however, considering customers’ behaviors that usually maintain an average balance of a certain percentage, non-core deposits are classified to be short-term.

71

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-3. Liquidity risk (continued)

(a) Contractual maturities for financial instruments

Contractual maturities for financial assets and financial liabilities as of December 31, 2020 and 2019 are as follows:

		December 31, 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
Assets
Cash and due from banks	W	26,422,852	648,748	439,019	79,497	-	-	27,590,116
Securities at FVTPL		20,438,780	854,609	40,079	489,995	-	-	21,823,463
Derivative assets		4,257,624	21,546	27,666	44,331	223,557	104,837	4,679,561
Loans at amortized cost		18,764,297	29,494,594	43,946,379	72,715,076	99,190,870	63,180,615	327,291,831
Loans at FVTPL		30,172	679,683	9,113	44,836	86,158	-	849,962
Securities at FVOCI		36,417,376	-	-	-	-	3,040,211	39,457,587
Securities at amortized cost		359,594	1,939,294	1,067,916	1,697,558	15,845,944	747,736	21,658,042
Other financial assets		7,363,443	-	-	118,145	-	1,174,877	8,656,465
	W	114,054,138	33,638,474	45,530,172	75,189,438	115,346,529	68,248,276	452,007,027
Liabilities
Deposits	W	182,662,437	27,381,301	35,646,330	58,227,019	14,195,311	2,317,691	320,430,089
Financial liabilities at FVTPL		510,074	794	7,042	2,785	18,870	-	539,565
Derivative liabilities		4,063,760	375	556	1,155	5,737	3,734	4,075,317
Borrowings		7,449,384	2,686,413	1,876,456	3,506,230	4,134,062	1,101,088	20,753,633
Debt securities issued		2,805,235	4,532,264	2,378,669	7,201,949	16,115,914	3,123,820	36,157,851
Other financial liabilities		17,836,543	32,080	43,413	166,531	220,827	41,163	18,340,557
	W	215,327,433	34,633,227	39,952,466	69,105,669	34,690,721	6,587,496	400,297,012

These amounts include cash flows of principal and interest on financial assets and financial liabilities. The undiscounted cash flows are classified based on the earliest dates for obligated repayment. Financial instruments at FVTPL that can be disposed of immediately and financial assets at FVOCI except for assets restricted for sale for certain periods are included in 1 month or less.

72

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-3. Liquidity risk (continued)

(a) Contractual maturities for financial instruments (continued)

Contractual maturities for financial assets and financial liabilities as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		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
Assets
Cash and due from banks	W	22,806,554	921,391	274,169	64,955	10,654	-	24,077,723
Securities at FVTPL		16,851,906	1,572,807	55,050	217,286	20,113	-	18,717,162
Derivative assets		1,973,064	48,668	62,652	108,511	605,246	468,125	3,266,266
Loans at amortized cost		17,115,192	28,494,229	39,319,088	66,690,540	84,350,527	63,847,488	299,817,064
Loans at FVTPL		238	659,252	9,758	55,527	156,642	-	881,417
Securities at FVOCI		38,857,291	-	-	-	-	1,906,785	40,764,076
Securities at amortized cost		1,124,894	1,886,432	1,504,340	1,845,395	14,741,435	732,876	21,835,372
Other financial assets		10,535,390	-	1,168	120,583	7,155	2,905,342	13,569,638
	W	109,264,529	33,582,779	41,226,225	69,102,797	99,891,772	69,860,616	422,928,718
Liabilities
Deposits	W	146,595,234	30,679,366	37,192,422	60,082,721	14,138,283	3,550,638	292,238,664
Financial liabilities at  FVTPL		437,324	1,096	12,095	10,455	48,609	-	509,579
Derivative liabilities		1,887,965	35,095	45,477	84,498	485,866	321,736	2,860,637
Borrowings		3,882,923	2,850,525	2,430,488	3,395,460	3,836,280	1,214,468	17,610,144
Debt securities issued		2,360,218	3,310,200	3,844,562	6,420,144	20,403,191	3,903,125	40,241,440
Other financial liabilities		17,833,873	32,069	44,942	177,227	21,228	2,539,730	20,649,069
	W	172,997,537	36,908,351	43,569,986	70,170,505	38,933,457	11,529,697	374,109,533

These amounts include cash flows of principal and interest on financial assets and financial liabilities. The undiscounted cash flows are classified based on the earliest dates for obligated repayment. Financial instruments at FVTPL that can be disposed of immediately and financial assets at FVOCI except for assets restricted for sale for certain periods are included in 1 month or less.

(b) Contractual maturities for off balance sheet items

Financial guarantees such as financial guarantee contracts, loan commitments and others provided by the Group are classified based on the earliest date at which the Group should fulfill the obligation under the guarantee when the counterparty requests for the payment.

Off-balance sheet items as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Financial guarantee contracts	W	4,354,052	4,676,823
Loan commitments and others		101,649,789	97,161,128
	W	106,003,841	101,837,951

73

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value

The fair value which the Group primarily uses for measurement of financial instruments are the published price quotations in an active market which are based on the market prices or the dealer price quotations of financial instruments traded in an active market where available, which is the best evidence of fair value.

If the market for a financial instrument is not active, fair value is established either by using a valuation technique or independent third-party valuation service. The Group uses diverse valuation techniques under reasonable assumptions which are based on the inputs observable in markets at the end of each reporting period.

Valuation techniques include using the recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.  For example, the fair value for interest swaps is the present value of estimated future cash flows, and fair value for foreign exchange forwards contracts is measured by using the published forward exchange rate at the end of each reporting period.

The Group classifies and discloses fair value of the financial instruments into the following three-level hierarchy:

(i)  Level 1: Financial instruments measured at quoted prices from active markets are classified as level 1.

(ii)Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

(iii) 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.

74

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value

i) The table below analyses financial instruments measured at the fair value as of December 31, 2020 and 2019 by the level in the fair value hierarchy into which the fair value measurement is categorized:

		December 31, 2020
		Level 1	Level 2	Level 3	Total
Financial assets
Loans at FVTPL:
Loans	W	-	708,111	136,358	844,469
Securities at FVTPL:
Debt securities		1,039,518	18,015,613	2,413,065	21,468,196
Equity securities		58,404	-	104,342	162,746
Gold/silver deposits		188,338	-	-	188,338
		1,286,260	18,015,613	2,517,407	21,819,280
Derivative assets:
Trading		5	4,242,853	2,228	4,245,086
Hedging		-	329,680	794	330,474
		5	4,572,533	3,022	4,575,560
Securities at FVOCI:
Debt securities		9,145,290	29,581,206	-	38,726,496
Equity securities		171,614	-	461,556	633,170
		9,316,904	29,581,206	461,556	39,359,666
	W	10,603,169	52,877,463	3,118,343	66,598,975
Financial liabilities
Financial liabilities at FVTPL:
Gold/silver deposits	W	539,564	-	-	539,564
Derivative liabilities:
Trading		-	4,059,438	4,087	4,063,525
Hedging		-	28,350	102,819	131,169
		-	4,087,788	106,906	4,194,694
	W	539,564	4,087,788	106,906	4,734,258

75

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

i) The table below analyses financial instruments measured at the fair value as of December 31, 2020 and 2019 by the level in the fair value hierarchy into which the fair value measurement is categorized (continued):

		December 31, 2019
		Level 1	Level 2	Level 3	Total
Financial assets
Loans at FVTPL:
Loans	W	-	686,446	182,545	868,991
Securities at FVTPL:
Debt securities		1,525,682	15,005,677	1,959,757	18,491,116
Equity securities		62,349	-	50,967	113,316
Gold/silver deposits		111,715	-	-	111,715
		1,699,746	15,005,677	2,010,724	18,716,147
Derivative assets:
Trading		-	1,941,199	4,457	1,945,656
Hedging		-	153,561	2,776	156,337
		-	2,094,760	7,233	2,101,993
Securities at FVOCI:
Debt securities		9,431,530	30,629,204	-	40,060,734
Equity securities		183,078	-	412,093	595,171
		9,614,608	30,629,204	412,093	40,655,905
	W	11,314,354	48,416,087	2,612,595	62,343,036
Financial liabilities
Financial liabilities at FVTPL:
Securities sold	W	40,320	-	-	40,320
Gold/silver deposits		467,761	-	-	467,761
		508,081	-	-	508,081
Derivative liabilities:
Trading		197	1,679,316	4,240	1,683,753
Hedging		-	20,329	189,750	210,079
		197	1,699,645	193,990	1,893,832
	W	508,278	1,699,645	193,990	2,401,913

76

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

ii) There is no transfer between level 1 and level 2 for the years ended December 31, 2020 and 2019.

iii) Changes in level 3 of the fair value hierarchy

Changes in level 3 of the fair value hierarchy for the years ended December 31, 2020 and 2019 are as follows:

			December 31, 2020
		Loans at FVTPL		Securities at FVTPL	Securities at FVOCI	Net derivative instruments	Total
Beginning balance	W	182,545		2,010,724	412,093	(186,757)	2,418,606
Total gain or loss:
Recognized in profit or loss (*1)		2,303		92,107	-	82,201	176,611
Recognized in other comprehensive loss		-		-	(11,061)	-	(11,061)
Purchases/issues		-		1,070,064	60,538	(68)	1,130,534
Settlements		(48,490)		(655,489)	(14)	94	(703,899)
Others (*2)		-		-	-	-	-
Transfers into level 3 (*3)		-		-	-	625	625
Transfers from level 3 (*3)		-		-	-	21	21
Ending balance	W	136,358		2,517,407	461,556	(103,884)	3,011,437

			December 31, 2019
		Loans at FVTPL		Securities at FVTPL	Securities at FVOCI	Net derivative instruments	Total
Beginning balance	W	237,241		1,317,833	306,987	(356,517)	1,505,544
Total gain or loss:
Recognized in profit or loss (*1)		38		29,026	-	106,279	135,343
Recognized in other comprehensive loss		-		-	19,531	-	19,531
Purchases/issues		96,171		1,272,266	92,861	(561)	1,460,737
Settlements		(150,905)		(617,047)	-	63,828	(704,124)
Others (*2)		-		-	(7,286)	-	(7,286)
Transfers into level 3 (*3)		-		11,906	-	248	12,154
Transfers from level 3 (*3)		-		(3,260)	-	(34)	(3,294)
Ending balance	W	182,545		2,010,724	412,093	(186,757)	2,418,605

77

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

(*1) Gains or losses among the changes in level 3 of the fair value hierarchy and gains or losses related to financial instruments that the Group held as of December 31, 2020 and 2019 are presented in the statements of comprehensive income as follows:

		December 31, 2020			December 31, 2019
		Gains or losses recognized in profit or loss	Gains or losses recognized in profit or loss for financial instrument held at the end of the period		Gains or losses recognized in profit or loss	Gains or losses recognized in profit or loss for financial instrument held at the end of the year
Net gain on financial assets at FVTPL	W	91,662	91,863		29,532	28,840
Net other operating revenue		84,949	19,065		105,811	105,811
	W	176,611	110,928		135,343	134,651

(*2) Reclassified to investment in associates.

(*3) These financial instruments are transferred into or out of level 3 as the availability of observable market data has changed. The Group recognized transfers between levels of the fair value hierarchy at the end of the reporting period during which the event or the change in circumstances that caused the transfer has occurred.

78

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments

a. Valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Type of financial instruments		Book value	Valuation techniques	Inputs
Financial assets
Loans at FVTPL		W	708,111	Discounted cash flow	Discount rate
Securities at FVTPL	Debt securities		18,015,613	Discounted cash flow Net asset value	Discount rate, price of underlying assets; such as securities and bonds
Derivative assets	Trading		4,242,853	Option model, Discounted cash flow	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
	Hedging		329,680
			4,572,533
Securities at FVOCI	Debt securities		29,581,206	Discounted cash flow	Discount rate
		W	52,877,463
Financial liabilities
Derivative liabilities	Trading	W	4,059,438	Option model, Discounted cash flow	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
	Hedging		28,350
		W	4,087,788

79

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments

a. Valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 as of December 31, 2020 and 2019 are as follows (continued):

	December 31, 2019
	Type of financial instruments		Book value	Valuation techniques	Inputs
Financial assets
Loans at FVTPL		W	686,446	Discounted cash flow	Discount rate
Securities at FVTPL	Debt securities		15,005,677	Discounted cash flow, Net asset value	Discount rate, price of underlying assets; such as securities and bonds
Derivative assets	Trading		1,941,199	Option model Discounted cash flow	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
	Hedging		153,561
			2,094,760
Securities at FVOCI	Debt securities		30,629,204	Discounted cash flow	Discount rate
		W	48,416,087
Financial liabilities
Derivative liabilities	Trading	W	1,679,316	Option model, Discounted cash flow	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
	Hedging		20,329
		W	1,699,645

80

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments (continued)

b. The Group uses the valuation values of external independent and qualified evaluators or internal evaluation models to determine the fair value of group assets at the end of each reporting period. As of December 31, 2020 and 2019, the valuation technique and significant but not observable input variables used to measure the fair value of financial instruments classified as fair value level 3 are as follows:

December 31, 2020
	Valuation technique	Type of financial instrument		Book value	Input	Significant unobservable input	Range of input	Relationship of unobservable inputs to fair value
Financial assets
Loans at FVTPL	Option model (*1)	Loans	W	136,358	Volatility of underlying assets, Discount rate	Volatility of underlying assets	17.61%~45.68%	The higher the volatility, the higher the fair value
Securities at FVTPL	Net asset value method, option model (*1), similar companies comparison method	Debt securities		2,413,065	Volatility of underlying assets, Discount rate, Correlation coefficient	Volatility of underlying assets, Correlation coefficient	18.99%~27.54% 13.84%~100.00%	The higher the volatility, the higher the fair value, The effects of trading instruments and market conditions increase or decrease fair value with changes in regression and correlation coefficients
	Discounted cash flow	Equity securities		104,342	Discount rate, Terminal growth rate, Stock price	Discount rate, Terminal growth rate	5.83%~16.87% 1.00%	Fair value increases as discount rate decreases, Fair value increases as growth rate increases
				2,517,407
Derivative assets	Option model (*2)	Equity and foreign exchanged related		1,144	Volatility of underlying assets, exchange rate	Volatility of underlying assets	4.30%~8.46%	The higher the volatility, the higher the fair value
	Option model (*2)	Interest rates related		1,878	Volatility of underlying assets Regression coefficient, Correlation coefficient, Interest rate	Volatility of underlying assets Regression coefficient, Correlation coefficient	0.47%~0.62% 0.30%~0.58% 47.82%~90.34%	The higher the volatility, the higher the fair value, The effects of trading instruments and market conditions increase or decrease fair value with changes in regression and correlation coefficients
				3,022
Securities at FVOCI	Net asset value method, discounted cash flow, option model (*1), similar companies comparison method	Equity securities		461,556	Volatility of underlying assets, Discount rate Terminal growth rate, Stock price	Volatility of underlying assets, Discount rate, Terminal growth rate	22.11% 8.94%~19.05% 1.00%	The higher the volatility, the higher the fair value, Fair value increases as discount rate decreases, Fair value increases as growth rate increases
			W	3,118,343

3. Financial risk management (continued)

81

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments (continued)

b. The Group uses the valuation values of external independent and qualified evaluators or internal evaluation models to determine the fair value of group assets at the end of each reporting period. As of December 31, 2020 and 2019, the valuation technique and significant but not observable input variables used to measure the fair value of financial instruments classified as fair value level 3 are as follows (continued):

December 31, 2020
	Valuation technique	Type of financial instrument		Book value	Input	Significant unobservable input	Range of input	Relationship of unobservable inputs to fair value
Financial liabilities
Derivative assets	Option model (*2)	Equity and foreign exchanged related	W	4,087	Volatility of underlying assets, exchange rate	Volatility of underlying assets	4.30%~29.32%	The higher the volatility, the higher the fair value
	Option model (*2)	Interest rates related		102,819	Volatility of underlying assets Regression coefficient, Correlation Coefficient, Interest rate	Volatility of underlying assets Regression coefficient, Correlation Coefficient	0.47%~0.62% 0.30%~0.63% 20.13%~90.34%	The higher the volatility, the higher the fair value, The effects of trading instruments and market conditions increase or decrease fair value with changes in regression and correlation coefficients
			W	106,906

(*1) The Group uses binomial tree option model.

(*2) Option models that the Group uses in derivative valuation include Black-Scholes model, Hull-White model, Monte Carlo simulation, etc.

82

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments (continued)

b. The Group uses the valuation values of external independent and qualified evaluators or internal evaluation models to determine the fair value of group assets at the end of each reporting period. As of December 31, 2020 and 2019, the valuation technique and significant but not observable input variables used to measure the fair value of financial instruments classified as fair value level 3 are as follows (continued):

December 31, 2019
	Valuation technique	Type of financial instrument		Book value	Input	Significant unobservable input	Range of input	Relationship of unobservable inputs to fair value
Financial assets
Loans at FVTPL	Option model (*1)	Loans	W	182,545	Volatility of underlying assets, Discount rate	Volatility of underlying assets	13.21%~46.36%	The higher the volatility, the higher the fair value
Securities at FVTPL	Net asset value method	Debt securities		1,959,757	Volatility of underlying assets, Discount rate	Volatility of underlying assets	19.99%~23.41%	The higher the volatility, the higher the fair value
	Discounted cash flow, similar companies comparison method	Equity securities		50,967	Discount rate, Terminal growth rate, Stock price	Discount rate, Terminal growth rate	5.06%~15.42% 0.00%	Fair value increases as discount rate decreases, Fair value increases as growth rate increases
				2,010,724
Derivative assets	Option model (*2)	Equity and foreign exchange related		2,844	Volatility of underlying assets, Price of underlying assets, Exchange rate	Volatility of underlying assets	1.51%~22.24%	The higher the volatility, the higher the fair value
	Option model (*2)	Interest rates related		4,389	Volatility of underlying assets, Regression, coefficient, Correlation coefficient, Interest rate	Volatility of underlying assets Regression coefficient, Correlation coefficient	0.50%~0.67% 1.30%~1.57% 59.53%	The higher the volatility, the higher the fair value, The effects of trading instruments and market conditions increase or decrease fair value with changes in regression and correlation coefficients
				7,233
Securities at FVOCI	Net asset value method, Discounted cash flow	Equity securities		412,093	Discount rate, Terminal growth rate	Discount rate, Terminal growth rate	7.78%~19.21% 0.00%	Fair value increases as discount rate decreases, Fair value increases as growth rate increases
			W	2,612,595

83

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments (continued)

b. The Group uses the valuation values of external independent and qualified evaluators or internal evaluation models to determine the fair value of group assets at the end of each reporting period. As of December 31, 2020 and 2019, the valuation technique and significant but not observable input variables used to measure the fair value of financial instruments classified as fair value level 3 are as follows (continued):

December 31, 2019
	Valuation technique	Type of financial instrument		Book value	Input	Significant unobservable input	Range of input	Relationship of unobservable inputs to fair value
Financial liabilities
Derivative assets	Option model (*2)	Equity and foreign exchanged related	W	3,141	Volatility of underlying assets, Price of underlying assets, Exchange rate	Volatility of underlying assets	1.51%~22.24%	The higher the volatility, the higher the fair value
	Option model (*2)	Interest rates related		190,849	Volatility of underlying assets Regression coefficient, Correlation Coefficient, Interest rate	Volatility of underlying assets Regression coefficient, Correlation Coefficient	0.50%~0.67% 1.30%~2.77% 45.06%~90.34%	The higher the volatility, the higher the fair value, The effects of trading instruments and market conditions increase or decrease fair value with changes in regression and correlation coefficients
			W	193,990

(*1) The Group uses binomial tree option model.

(*2) Option models that the Group uses in derivative valuation include Black-Scholes model, Hull-White model, Monte Carlo simulation, etc.

84

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(a) Financial instruments measured at fair value (continued)

v) Sensitivity to changes 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 effect on profit (loss), and other comprehensive income (loss) as of December 31, 2020 and 2019 are as follows:

				December 31, 2020
Type of financial instrument (*1)			Profit (loss) for the year			Other comprehensive income (loss) for the year
			Favorable change		Unfavorable change	Favorable change	Unfavorable change
Loans at FVTPL (*1)		W	3,567		(2,764)	-	-
Securities at FVTPL	Debt securities (*2)		836		(948)	-	-
	Equity securities (*3)		5,717		(3,991)	-	-
Derivative assets (*2)	Equity and foreign exchange related		78		(75)	-	-
	Interest rates related		18		(33)	-	-
Securities at FVOCI (*3)	Equity securities		-		-	11,043	(7,460)
		W	10,216		(7,811)	11,043	(7,460)
Derivative liabilities (*2)	Equity and foreign exchange related	W	75		(78)	-	-
	Interest rates related		3,841		(5,163)	-	-
		W	3,916		(5,241)	-	-

(*1) W2,612,171 million of financial instruments classified as level 3 are excluded from sensitivity analysis since calculation of sensitivity according to the fluctuation of input variables is impracticable.

(*2) Based on 10% of increase or decrease in volatility of underlying assets or correlation coefficient

(*3) Based on changes in growth rate (0%~1%) and discount rate (-1%p~1%p).

				December 31, 2019
Type of financial instrument (*1)			Profit (loss) for the year			Other comprehensive income (loss) for the year
			Favorable change		Unfavorable change	Favorable change	Unfavorable change
Loans at FVTPL (*2)		W	9,925		(3,431)	-	-
Securities at FVTPL	Debt securities (*2)		790		(534)	-	-
	Equity securities (*3)		10,096		(2,485)	-	-
Derivative assets (*2)	Equity and foreign exchange related		9		(9)	-	-
	Interest rates related		543		(1,151)	-	-
Securities at FVOCI (*3)	Equity securities		-		-	16,228	(7,943)

85

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

		W	21,363	(7,610)	16,228	(7,943)
Derivative liabilities (*2)	Equity and foreign exchange related	W	16	(21)	-	-
	Interest rates related		7,119	(10,597)	-	-
		W	7,135	(10,618)	-	-

(*1) W1,959,757 million of financial instruments classified as level 3 are excluded from sensitivity analysis since calculation of sensitivity according to the fluctuation of input variables is impracticable.

(*2) Based on 10% of increase or decrease in volatility of underlying assets or correlation coefficient.

(*3) Based on changes in growth rate (0%~1%) and discount rate (-1%p~1%p).

86

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) Financial instruments measured at amortized cost

Type	Measurement methods of fair value
Cash and due from banks	The book 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.  Therefore, the book value for deposits approximates fair value.
Loans at amortized cost	The fair value of loans at amortized cost is measured by discounting the expected cash flows anticipated to be received at the market interest rate, credit risk of a borrower, etc.
Securities at amortized cost	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 book amount and the fair value for demand deposits, cash management account deposits, call money and bonds sold under repurchase agreements as short-term instruments are identical. The fair value of others is measured by discounting the contractual cash flows at the market interest rate that takes into account the residual risk.
Debt securities issued	An external professional evaluation agency is used to calculate the valuation amount using the market information, and the fair value is calculated using DCF model.
Other financial assets and financial liabilities	The book value is used as a fair value for short-term and transitional accounts such as spot exchange, unpaid/uncollected domestic exchange settlements, and the fair value, the present value of the contractual cash flow discounted at the market interest rate taking the residual risk into account, is calculated for the rest of other financial assets and liabilities.

i) The method of measuring the fair value of financial instruments measured at amortized cost is as follows:

87

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) Financial instruments measured at amortized cost (continued)

ii) The book value and the fair value of financial instruments measured at amortized cost as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Book value
		Balance		Unamortized balance		Allowance		Total		Fair value
Assets
Cash and due from banks:
Cash	W	1,740,580		-		-		1,740,580		1,740,580
Due from banks		25,844,898		-		(9,730)		25,835,168		25,835,168
Loans at amortized cost:
Household loans		134,280,139		405,357		(305,481)		134,380,015		135,122,473
Corporate loans		155,510,472		92,855		(1,350,814)		154,252,513		155,360,036
Public and other loans		3,594,089		2,179		(22,458)		3,573,810		3,599,911
Loans to bank		5,543,433		-		(5,002)		5,538,431		5,546,519
Credit card receivables		164,772		-		(4,809)		159,963		164,450
Securities at amortized cost:
Government bonds		12,666,798		-		(1,061)		12,665,737		12,982,255
Financial institutions bonds		2,497,053		-		(2,471)		2,494,582		2,506,088
Corporate bonds and others		4,786,029		-		(2,468)		4,783,561		4,844,584
Others		234,563		-		-		234,563		234,563
Other financial assets		11,200,134		(24,493)		(22,474)		11,153,167		11,170,755
	W	358,062,960		475,898		(1,726,768)		356,812,090		359,107,382
Liabilities
Deposits:
Demand deposits	W	148,121,849		-		-		148,121,849		148,121,849
Time deposits		153,239,413		-		-		153,239,413		153,320,673
Negotiable certificates of deposits		5,942,309		-		-		5,942,309		5,960,735
Note discount deposits		6,226,937		-		-		6,226,937		6,226,855
CMA		4,006,319		-		-		4,006,319		4,006,319
Others		18,765		-		-		18,765		18,765
Borrowings:
Call money		1,655,042		-		-		1,655,042		1,655,042
Bill sold		10,706		-		-		10,706		10,696
Bonds sold under repurchase agreements		159,432		-		-		159,432		159,432
Borrowings		18,730,207		(405)		-		18,729,802		18,776,971
Debt securities issued:
Debt securities issued in Korean won		27,826,563		(14,599)		-		27,811,964		28,064,172
Debt securities issued in foreign currencies		6,733,287		(28,946)		-		6,704,341		6,812,328
Other financial liabilities		21,794,843		(13,919)		-		21,780,924		21,781,875
	W	394,465,672		(57,869)		-		394,407,803		394,915,712

88

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) Financial instruments measured at amortized cost (continued)

ii) The book value and the fair value of financial instruments measured at amortized cost as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		Book value
		Balance	Unamortized balance	Allowance	Total	Fair value
Assets
Cash and due from banks:
Cash	W	2,528,135	-	-	2,528,135	2,528,135
Due from banks		21,533,540	-	(11,843)	21,521,697	21,521,697
Loans at amortized cost:
Household loans		123,219,603	414,301	(294,413)	123,339,491	124,412,436
Corporate loans		139,966,542	81,659	(1,212,105)	138,836,096	139,933,865
Public and other loans		3,189,535	1,843	(13,991)	3,177,387	3,195,896
Loans to bank		2,672,514	-	(3,156)	2,669,358	2,683,959
Credit card receivables		153,436	-	(3,504)	149,932	153,221
Securities at amortized cost:
Government bonds		12,570,196	-	(1,297)	12,568,899	12,818,958
Financial institutions bonds		3,378,630	-	(1,766)	3,376,864	3,385,515
Corporate bonds and others		4,141,357	-	(2,248)	4,139,109	4,193,185
Others		167,016	-	-	167,016	167,016
Other financial assets		13,569,639	(33,431)	(17,679)	13,518,529	13,533,577
	W	327,090,143	464,372	(1,562,002)	325,992,513	328,527,460
Liabilities
Deposits:
Demand deposits	W	115,216,336	-	-	115,216,336	115,216,336
Time deposits		153,948,680	-	-	153,948,680	153,983,773
Negotiable certificates of deposits		9,694,816	-	-	9,694,816	9,701,825
Note discount deposits		4,747,587	-	-	4,747,587	4,747,425
CMA		3,987,372	-	-	3,987,372	3,987,372
Others		20,478	-	-	20,478	20,477
Borrowings:
Call money		538,247	-	-	538,247	538,247
Bill sold		19,070	-	-	19,070	19,035
Bonds sold under repurchase agreements		103,489	-	-	103,489	103,489
Borrowings		16,666,089	(1,011)	-	16,665,078	16,797,478
Debt securities issued:
Debt securities issued in Korean won		31,267,846	(40,736)	-	31,227,110	31,516,933
Debt securities issued in foreign currencies		6,837,089	(34,331)	-	6,802,758	6,900,373
Other financial liabilities		20,658,284	(25,109)	-	20,633,175	20,643,591
	W	363,705,383	(101,187)	-	363,604,196	364,176,354

89

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) The financial instruments measured at amortized cost (continued)

iii) The fair value hierarchy of financial instruments which are not measured at fair value in the consolidated statement of financial position as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Level 1		Level 2		Level 3		Total
Assets
Cash and due from banks:
Cash	W	1,740,580		-		-		1,740,580
Due from banks		-		25,835,168		-		25,835,168
Loans at amortized cost:
Household loans		-		-		135,122,473		135,122,473
Corporate loans		-		-		155,360,036		155,360,036
Public and other loans		-		-		3,599,911		3,599,911
Loans to bank		-		2,238,553		3,307,966		5,546,519
Credit card receivables		-		-		164,450		164,450
Securities at amortized cost:
Government bonds		1,794,939		11,187,316		-		12,982,255
Financial institutions bonds		1,070,220		1,435,868		-		2,506,088
Corporate bonds and others		-		4,844,584		-		4,844,584
Others				234,563				234,563
Other financial assets		-		8,444,766		2,725,989		11,170,755
	W	4,605,739		54,220,818		300,280,825		359,107,382
Liabilities
Deposits:
Demand deposits	W	-		148,121,849		-		148,121,849
Time deposits		-		-		153,320,673		153,320,673
Negotiable certificates of deposits		-		-		5,960,735		5,960,735
Note discount deposits		-		-		6,226,855		6,226,855
CMA		-		4,006,319		-		4,006,319
Others		-		-		18,765		18,765
Borrowings:
Call money		-		1,655,042		-		1,655,042
Bill sold		-		-		10,696		10,696
Bonds sold under repurchase agreements		-		-		159,432		159,432
Borrowings		-		-		18,776,971		18,776,971
Debt securities issued:
Debt securities issued in Korean won		-		26,518,290		1,545,882		28,064,172
Debt securities issued in foreign currencies		-		6,812,328		-		6,812,328
Other financial liabilities		-		10,128,593		11,653,282		21,781,875
	W	-		197,242,421		197,673,291		394,915,712

90

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) The financial instruments measured at amortized cost (continued)

iii) The fair value hierarchy of financial instruments which are not measured at fair value in the consolidated statement of financial position as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		Level 1	Level 2	Level 3	Total
Assets
Cash and due from banks:
Cash	W	2,528,135	-	-	2,528,135
Due from banks		-	21,521,697	-	21,521,697
Loans at amortized cost:
Household loans		-	-	124,412,436	124,412,436
Corporate loans		-	-	139,933,865	139,933,865
Public and other loans		-	-	3,195,896	3,195,896
Loans to bank		-	1,011,760	1,672,199	2,683,959
Credit card receivables		-	-	153,221	153,221
Securities at amortized cost:
Government bonds		1,234,229	11,584,729	-	12,818,958
Financial institutions bonds		2,252,484	1,133,031	-	3,385,515
Corporate bonds and others		-	4,193,185	-	4,193,185
Others		-	167,016	-	167,016
Other financial assets		-	10,813,821	2,719,756	13,533,577
	W	6,014,848	50,425,239	272,087,373	328,527,460
Liabilities
Deposits:
Demand deposits	W	-	115,216,336	-	115,216,336
Time deposits		-	-	153,983,773	153,983,773
Negotiable certificates of deposits		-	-	9,701,825	9,701,825
Note discount deposits		-	-	4,747,425	4,747,425
CMA		-	3,987,372	-	3,987,372
Others		-	-	20,477	20,477
Borrowings:
Call money		-	538,247	-	538,247
Bill sold		-	-	19,035	19,035
Bonds sold under repurchase agreements		-	-	103,489	103,489
Borrowings		-	-	16,797,478	16,797,478
Debt securities issued:
Debt securities issued in Korean won		-	29,459,639	2,057,294	31,516,933
Debt securities issued in foreign currencies		-	6,900,373	-	6,900,373
Other financial liabilities		-	7,932,723	12,710,868	20,643,591
	W	-	164,034,690	200,141,664	364,176,354

91

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(b) Financial instruments measured at amortized cost (continued)

iv) Valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 or level 3 as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
Level	Type of financial instrument		Fair value (*)	Valuation technique	Inputs
Level 2	Securities at amortized cost	W	17,702,332	Discounted cash flow	Discount rate
Level 3	Loans at amortized cost		297,554,838		Discount rate, Credit spread, Prepayment rate
	Other financial assets		2,725,989		Discount rate
		W	317,983,159
Level 2	Debt securities issued	W	33,330,618	Discounted cash flow	Discount rate
Level 3	Deposits(*)		163,707,718		Discount rate
	Borrowings(*)		11,151,198		Discount rate
	Debt securities issued		1,545,882		Discount rate, Regression coefficient, Correlation coefficient
	Other financial liabilities		11,653,282		Discount rate
		W	221,388,698

(*) The amounts, which are not evaluated by the valuation technique, are not included and disclosed because the carrying amount is the reasonable approximation of fair value.

	December 31, 2019
Level	Type of financial instrument		Fair value (*)	Valuation technique	Inputs
Level 2	Securities at amortized cost	W	17,077,961	Discounted cash flow	Discount rate
Level 3	Loans at amortized cost		269,367,617		Discount rate, Credit spread, Prepayment rate
	Other financial assets		2,719,756		Discount rate
		W	289,165,334
Level 2	Debt securities issued	W	36,360,012	Discounted cash flow	Discount rate
Level 3	Deposits(*)		167,085,475		Discount rate
	Borrowings(*)		11,797,989		Discount rate
	Debt securities issued		2,057,294		Discount rate, Regression coefficient, Correlation coefficient
	Other financial liabilities		12,710,868		Discount rate
		W	230,011,638

(*) The amounts, which are not evaluated by the valuation technique, are not included and disclosed because the carrying amount is the reasonable approximation of fair value.

92

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(c) Deferred day one gain or loss for the years ended December 31, 2020 and 2019 is as follows:

		December 31, 2020
		Beginning balance	New transaction	Profit and loss recognition	Ending balance
Loans at FVTPL	W	(5,753)	-	3,500	(2,253)
Equity options		88	-	(52)	36
		(5,665)	-	3,448	(2,217)

		December 31, 2019
		Beginning balance	New transaction	Profit and loss recognition	Ending balance
Loans at FVTPL	W	(4,510)	(3,825)	2,582	(5,753)
Securities at FVTPL		4	2	(6)	-
Equity options		-	101	(13)	88
		(4,506)	(3,722)	2,563	(5,665)

93

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-4. Measurement of fair value (continued)

(d) Classification by category of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of each category of financial instruments as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Financial assets at FVTPL	Financial assets at FVOCI	Financial assets designated at FVOCI	Financial assets at amortized cost	Derivatives held for hedging	Total
Assets
Due from banks	W	-	-	-	25,835,167	-	25,835,167
Securities at FVTPL		21,819,280	-	-	-	-	21,819,280
Derivative assets		4,245,086	-	-	-	330,474	4,575,560
Loans at FVTPL		844,469	-	-	-	-	844,469
Loans at amortized cost		-	-	-	297,904,732	-	297,904,732
Securities at FVOCI		-	38,726,496	633,170	-	-	39,359,666
Securities at amortized cost		-	-	-	20,178,443	-	20,178,443
Other financial assets		-	-	-	11,153,167	-	11,153,167
	W	26,908,835	38,726,496	633,170	355,071,509	330,474	421,670,484

		Financial liabilities at  FVTPL	Financial liabilities at amortized cost	Derivatives held for hedging	Total
Liabilities
Deposits	W	-	317,555,592	-	317,555,592
Financial liabilities at FVTPL		539,564	-	-	539,564
Derivative liabilities		4,063,525	-	131,169	4,194,694
Borrowings		-	20,554,982	-	20,554,982
Debt securities issued		-	34,516,305	-	34,516,305
Other financial liabilities		-	21,780,923	-	21,780,923
	W	4,603,089	394,407,802	131,169	399,142,060

94

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-4. Measurement of fair value (continued)

(d) Classification by category of financial instruments (continued)

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of each category of financial instruments as of December 31, 2020 and 2019 are as follows (continued):

			December 31, 2019
		Financial assets at FVTPL		Financial assets at FVOCI	Financial assets designated at FVOCI	Financial assets at amortized cost	Derivatives held for hedging	Total
Assets
Due from banks	W	-		-	-	21,521,697	-	21,521,697
Securities at FVTPL		18,716,147		-	-	-	-	18,716,147
Derivative assets		1,945,656		-	-	-	156,337	2,101,993
Loans at FVTPL		868,991		-	-	-	-	868,991
Loans at amortized cost		-		-	-	268,172,264	-	268,172,264
Securities at FVOCI		-		40,060,734	595,171	-	-	40,655,905
Securities at amortized cost		-		-	-	20,251,888	-	20,251,888
Other financial assets		-		-	-	13,518,528	-	13,518,528
	W	21,530,794		40,060,734	595,171	323,464,377	156,337	385,807,413

		Financial liabilities at  FVTPL	Financial liabilities at amortized cost	Derivatives held for hedging	Total
Liabilities
Deposits	W	-	287,615,269	-	287,615,269
Financial liabilities at FVTPL		508,081	-	-	508,081
Derivative liabilities		1,683,753	-	210,079	1,893,832
Borrowings		-	17,325,884	-	17,325,884
Debt securities issued		-	38,029,868	-	38,029,868
Other financial liabilities		-	20,633,175	-	20,633,175
	W	2,191,834	363,604,196	210,079	366,006,109

There are no financial assets and financial liabilities that are reclassified between financial instruments as of December 31, 2020 and December 31, 2019.

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Financial risk management (continued)

3-4. Measurement of fair value (continued)

(e) Financial instruments income and costs

Financial instruments income and costs by category for the years ended December 31, 2020 and 2019 are as follows:

		December 31,2020
		Interest income (expense)	Fees and commission income (expense)	Reversal of (provision for) credit loss allowance	Others	Total	Other comprehensive income (loss)
Deposits	W	64,502	-	1,620	-	66,122	-
Securities at FVTPL		255,008	7,630	-	156,069	418,707	-
Securities at FVOCI		597,123	-	(4,667)	244,270	836,726	(15,854)
Securities at amortized cost		452,107	-	(1,050)	-	451,057	-
Loans at FVTPL		9,440	-	-	14,027	23,467	-
Loans at amortized cost		8,184,292	96,538	(643,974)	(2,316)	7,634,540	-
Other financial assets		53,310	125,675	54	-	179,039	-
Financial liabilities at FVTPL		-	523	-	-	523	-
Financial liabilities at amortized cost		(3,688,249)	(86)	-	(248,248)	(3,936,583)	53,056
Net derivatives held for hedging		-	-	-	230,875	230,875	(858)
Allowance for off-balance sheet items		-	-	(29,387)	-	(29,387)	-
	W	5,927,533	230,280	(677,404)	394,677	5,875,086	36,344

		December 31,2019
		Interest income (expense)	Fees and commission income (expense)	Reversal of (provision for) credit loss allowance	Others	Total	Other comprehensive income (loss)
Deposits	W	124,922	-	3,463	-	128,385	-
Securities at FVTPL		290,274	10,327	-	223,630	524,231	-
Securities at FVOCI		716,463	-	(4,113)	129,410	841,760	157,663
Securities at amortized cost		466,706	-	(578)	-	466,128	-
Loans at FVTPL		16,254	-	-	13,213	29,467	-
Loans at amortized cost		8,972,855	80,341	(371,432)	(13,750)	8,668,014	-
Other financial assets		67,258	150,372	(1,556)	-	216,074	-
Financial liabilities at FVTPL		-	(52)	-	-	(52)	-
Financial liabilities at amortized cost		(4,782,945)	(76)	-	(380,429)	(5,163,450)	(47,755)
Net derivatives held for hedging		-	-	-	374,794	374,794	(1,708)
Allowance for off-balance    sheet items		-	-	(2,652)	-	(2,652)	-
	W	5,871,787	240,912	(376,868)	346,868	6,082,699	108,200

96

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3. Financial risk management (continued)

3-5. Capital risk management

In response to the increased risk of financial institutions following financial deregulation in the 1980s, Capital regulations applicable to banks are adopted in 1988, which focused primarily on capital adequacy and asset soundness as a measure of risk. Building upon the initial Basel Capital Accord of 1988, capital regulations are developed to reflect additional risks as well.  For the purpose of improving risk management and increasing capital adequacy of banks, capital adequacy standards based on the new Basel Capital Accord (Basel III) is implemented by the Financial Services Commission regulations beginning on December 1, 2013. Under these regulations, all domestic banks including the Group are required to maintain a capital adequacy ratio and report whether the Group meet the capital adequacy ratio to the Financial Services Commission according to ‘Banking-related Legislation’.

Under the Banking Act, the capital of a bank is divided into two categories.

(a) Tier 1 capital (Common equity Tier 1 capital + Additional Tier 1 capital)

i) Common equity Tier 1 capital: Common equity Tier 1 capital consists of capital stock, capital surplus, retained earnings (excluding regulatory reserve for loan loss), accumulated other comprehensive income, other disclosed reserves, and non-controlling interests that meet certain criteria.

ii) Additional Tier 1 capital: Additional Tier 1 capital consists of equity instrument that meet certain criteria for perpetual nature of the equity instrument, any related capital surplus, instruments issued by consolidated subsidiaries of the Bank and held by third parties that meet certain criteria.  

(b) Tier 2 capital (Supplementary capital)

The Group includes capital securities that meet the recognition requirements to compensate for the Group's losses upon liquidation. This includes some of the associated capital surplus and the amount of external investors' holdings of supplementary capital issued by subsidiaries. Also, it includes the provisions that meet Basel III requirements.

The Group calculates the ratio of equity capital by dividing the equity capital (the amount deducted from the sum of the above basic capital and supplementary capital) into risk-weighted assets. Risk weighted assets are calculated by applying higher weights to reflect the actual risk of the Group. It comprises the sum of credit risk weighted assets, operational risk weighted assets, market risk weighted assets and additional risk assets.

The Group evaluates and manages the capital adequacy ratio pursuant to internally developed standards. It means that the Group assesses whether the level on ratio of available capital to economic capital is sufficient, or not. The Group manages the economic adequacy by the amount of each risk type including credit, market, operation, interest rate, liquidity, concentration, and foreign currency settlement risk, as well as the total amounts of all of those risk types.

97

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-5. Capital risk management (continued)

Details of capital categories and the capital adequacy ratio of the Group as of December 31, 2020 and 2019 are as follows:

Category		December 31, 2020		December 31, 2019
Capital:
Common equity Tier 1 capital	W	24,662,421	23,159,278
Additional Tier 1 capital		1,586,662	997,987
Tier 1 capital		26,249,083	24,157,265
Tier 2 capital		4,275,688	4,747,850
	W	30,524,771	28,905,115
Risk-weighted assets: (*)
Credit risk-weighted assets	W	144,789,436	163,937,574
Market risk-weighted assets		10,216,942	7,663,130
Operating risk-weighted assets		10,257,610	10,036,197
	W	165,263,988	181,636,901
Capital adequacy ratio:
Common equity Tier 1 capital ratio		14.92%	12.75%
Tier 1 capital ratio		15.88%	13.30%
Tier 2 capital ratio		2.59%	2.61%
Total capital ratio		18.47%	15.91%

(*) The additional risk weighted assets resulting from the insufficient capital under capital floor is included in credit risk-weighted assets.

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 required to be observed by 2019 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, the capital conservation capital and D-SIB capital will be raised by 25% each year by applying the transitional criteria by 2019, and economic response capital can be charged up to 2.5%p during credit expansion period. As of December 31, 2020, 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).

98

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

3.  Financial risk management (continued)

3-6. Transaction as a transfer of financial instrument

(a) Transfers financial assets that are not derecognized

i) Bonds sold under repurchase agreements at a fixed price as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Transferred assets:
Securities at FVOCI	W	98,873	124,801
Securities at amortized cost		205,639	126,144
	W	304,512	250,945
Associated liabilities:
Bonds sold under repurchase agreements	W	159,432	103,489

ii) When the Group's securities are transferred, the Group transfers the ownership of the securities, but upon the termination, the Group will have to return the securities.  As a result, securities loaned as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019	Lender
Securities at FVOCI:
Government bonds	W	518,592	1,115,115	Korea Securities Finance Corp., Korea Securities Depository
Financial institutions bonds		220,324	349,987	Korea Securities Finance Corp., Korea Securities Depository
Securities at amortized cost:
Government bonds		158,601	114,969	Korea Securities Finance Corp., Korea Securities Depository
Financial institutions bonds		-	110,065	Korea Securities Finance Corp., Korea Securities Depository
	W	897,517	1,690,136

(b) Financial instruments that are qualified for derecognition but under continuing involvement.

There are no financial instrument that meets the conditions of derecognition and in which the Group has continuing involvement as of December 31, 2020 and 2019.

99

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-7. Offsetting financial assets and financial liabilities

Details of financial assets and financial liabilities subject to offsetting, enforceable master netting agreements and similar agreements as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Gross amounts of recognized financial assets and liabilities		Gross amounts of recognized financial assets and liabilities set off in the statement of financial position		Net amounts of financial assets and liabilities presented in the statement of financial position		Related amounts not set off in the statement of financial position
								Financial instruments		Cash collateral received		Net amount
Financial assets
Derivative assets (*1)	W	4,407,070		-		4,407,070		4,056,648		66,997		5,137,243
Other financial assets (*1)		4,853,818		-		4,853,818
Bonds sold under repurchase agreements related collateral of securities (*2)		304,512		-		304,512		159,432		-		145,080
Bonds purchased under resale agreement (Loans) (*2)		2,647,298		-		2,647,298		2,647,298		-		-
Securities lent (*2)		897,518		-		897,518		897,518		-		-
Domestic exchange   settlements receivables (*3)		29,621,752		25,651,994		3,969,758		-		-		3,969,758
Receivable from disposal of securities, etc. (*4)		29,341		3,140		26,201		-		-		26,201
	W	42,761,309		25,655,134		17,106,175		7,760,896		66,997		9,278,282
Financial liabilities
Derivative liabilities (*1)	W	3,948,412		-		3,948,412		3,921,244		-		4,126,250
Other financial liabilities (*1)		4,099,082		-		4,099,082
Bonds sold under repurchase agreements (Borrowings) (*2)		159,432		-		159,432		159,432		-		-
Domestic exchange settlement payables (*3)		31,326,683		25,651,994		5,674,689		4,024,777		-		1,649,912
Payable from purchase of securities, etc. (*4)		3,148		3,140		8		8		-		-
	W	39,536,757		25,655,134		13,881,623		8,105,461		-		5,776,162

(*1) The Group has certain derivative transactions subject to the ISDA (International Swaps and Derivatives Association) agreement.  According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, the net amount after offsetting the amounts obligated by each party is settled.

(*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.  Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the consolidated statements of financial position.

(*4) Receivables and payables related to settlement of purchase and disposition of enlisted securities are offset and the net amount is presented in the consolidated statement of financial position because the Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis. The effect of offsetting due to the establishment of ‘Central Counter Party (“CCP”)’ system is included in the amount.

100

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

3.  Financial risk management (continued)

3-7. Offsetting financial assets and financial liabilities (continued)

Details of financial assets and financial liabilities subject to offsetting, enforceable master netting agreements and similar agreements as of December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		Gross amounts of recognized financial assets and liabilities	Gross amounts of recognized financial assets and liabilities set off in the statement of financial position	Net amounts of financial assets and liabilities presented in the statement of financial position	Related amounts not set off in the statement of financial position
					Financial instruments	Cash collateral received	Net amount
Financial assets
Derivative assets (*1)	W	2,092,001	-	2,092,001	7,857,555	11,252	1,358,251
Other financial assets (*1)		7,135,057	-	7,135,057
Bonds sold under repurchase agreements related collateral of securities (*2)		250,945	-	250,945	103,489	-	147,456
Bonds purchased under resale agreement (Loans) (*2)		1,771,033	-	1,771,033	1,770,855	-	178
Securities lent (*2)		1,690,136	-	1,690,136	1,690,136	-	-
Domestic exchange   settlements receivables (*3)		31,027,416	26,820,045	4,207,371	-	-	4,207,371
Receivable from disposal of securities, etc. (*4)		25,807	1,133	24,674	-	-	24,674
	W	43,992,395	26,821,178	17,171,217	11,422,035	11,252	5,737,930
Financial liabilities
Derivative liabilities (*1)	W	1,846,579	-	1,846,579	7,630,938	-	341,924
Other financial liabilities (*1)		6,126,283	-	6,126,283
Bonds sold under repurchase agreements (Borrowings) (*2)		103,489	-	103,489	103,489	-	-
Securities sold		40,321	-	40,321	40,321	-	-
Domestic exchange settlement payables (*3)		28,150,544	26,820,045	1,330,499	1,330,499	-	-
Payable from purchase of securities, etc. (*4)		1,606	1,133	473	473		-
	W	36,268,822	26,821,178	9,447,644	9,105,720	-	341,924

(*1) The Group has certain derivative transactions subject to the ISDA (International Swaps and Derivatives Association) agreement.  According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, the net amount after offsetting the amounts obligated by each party is settled.

(*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.  Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the consolidated statements of financial position.

(*4) Receivables and payables related to settlement of purchase and disposition of enlisted securities are offset and the net amount is presented in the consolidated statement of financial position because the Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis.  The effect of offsetting due to the establishment of ‘Central Counter Party (“CCP”)’ system is included in the amount.

101

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

4. Significant estimates and judgments

The preparation of consolidated financial statements requires the application of certain critical estimates and judgments relative to the future. Management’s estimated outcomes may differ from actual outcomes. The change in an accounting estimate is recognized prospectively in profit or loss in the period of the change, if the change affects that period only, or the period of the change and future periods, if the change affects both.

(a) 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 amount 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.

(b) Fair value of financial instruments

The fair values of financial instruments 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.

(c) Allowances for loan losses, 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 for credit losses is 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.  

(d) Defined benefit obligation

The present value of a defined benefit obligation that is measured by actuarial valuation methods uses various assumptions which can change according to various elements. The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses including experience adjustments and the effects of changes in actuarial assumptions are recognized in other comprehensive income. Other significant assumptions related to defined benefit obligations are based on current market situations.

102

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

5. Operating segments

(a) The general descriptions of the Group’s operating segments

The Group has four reportable segments which are strategic business units. Each of these segments is providing different services and managed separately.

Description	Area of business
Retail banking	Loans to or deposits from individual customers, wealth management customers, and institutions such as hospitals, airports and schools.
Corporate banking	Loans to or deposits from corporations, including small or medium sized companies and businesses related to investment banking.
International group	Supervision of overseas subsidiaries and branch operations and other international businesses.
Others	Treasury management, trading of securities and derivatives, administration of bank operations and merchant banking account.

(b) The following table provides information of financial performance of each reportable segment for the years ended December 31, 2020 and 2019.

		December 31, 2020
		Retail banking	Corporate banking	International group	Others	Consolidation adjustments	Total
Categories
Net interest income	W	2,318,552	2,294,518	772,945	538,112	3,406	5,927,533
Net fees and commission income(expense)		412,759	476,983	99,120	5,108	(6,399)	987,571
Net other income(expense) (*)		(2,066,686)	(781,586)	(444,907)	(702,187)	(6,092)	(4,001,458)
Operating income(expense)		664,625	1,989,915	427,158	(158,967)	(9,085)	2,913,646
Net non-operating income (expense)		(36,592)	(15,935)	3,926	(111,149)	30,356	(129,394)
Share of gain(loss) of associates		-	-	-	-	(811)	(811)
Profit before income tax		628,033	1,973,980	431,084	(270,116)	20,460	2,783,441
Income tax income (expense)		(162,087)	(509,550)	(107,621)	68,791	5,258	(705,209)
Profit for the year	W	465,946	1,464,430	323,463	(201,325)	25,718	2,078,232
Attributable to:
Equity holder of the Bank	W	465,946	1,464,430	323,463	(201,325)	25,279	2,077,793
Non-controlling interests		-	-	-	-	439	439

(*) Profit or loss effect of hedging on net investments in foreign operations is included.

103

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

5. Operating segments (continued)

(b) The following table provides information of financial performance of each reportable segment for the years ended December 31, 2020 and 2019 (continued) :

		December 31,2019
		Retail banking	Corporate banking	International group	Others	Consolidation adjustments	Total
Categories
Net interest income	W	2,501,567	2,353,385	746,410	266,808	3,617	5,871,787
Net fees and commission income(expense)		446,629	495,103	102,046	80,285	(6,671)	1,117,392
Net other income(expense) (*2)		(1,773,404)	(774,315)	(375,411)	(801,276)	(1,470)	(3,725,876)
Operating income(expense)		1,174,792	2,074,173	473,045	(454,183)	(4,524)	3,263,303
Net non-operating income (expense) (*3)		(203,064)	(19,215)	(3,368)	41,470	(1,453)	(185,630)
Share of gain(loss) of associates		-	-	-	-	(763)	(763)
Profit before income tax		971,728	2,054,958	469,677	(412,713)	(6,740)	3,076,910
Income tax income(expense)		(239,654)	(506,920)	(104,240)	100,605	2,567	(747,642)
Profit for the year	W	732,074	1,548,038	365,437	(312,108)	(4,173)	2,329,268
Attributable to:
Equity holder of the Bank	W	732,074	1,548,038	365,437	(312,108)	(4,249)	2,329,192
Non-controlling interests		-	-	-	-	76	76

(*1) For the year end December 31, 2018, SOHO has been changed from retail sector to corporate sector.

(*2) Profit or loss effect of hedging on net investments in foreign operations is included.

(*3) For the year end December 31, 2019, non-operating gains and losses in the retail sector include an impairment loss of W 151,523 million of the intangible asset recognized in connection with the contribution to the municipal treasury.

104

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

5. Operating segments (continued)

(c) The following table provides information of net interest income of each reportable operating segment from external consumers and net interest income (expenses) between operating segments for the years ended December 31, 2020 and 2019.

		December 31,2020
Categories		Retail banking	Corporate banking	International group	Others	Consolidation adjustments	Total
Net interest income(expense) from:	W
External customers		2,013,164	2,688,154	812,944	413,271	-	5,927,533
Internal transactions		305,388	(393,636)	(39,999)	124,841	3,406	-
	W	2,318,552	2,294,518	772,945	538,112	3,406	5,927,533

		December 31,2019
Categories		Retail banking	Corporate banking	International group	Others	Consolidation adjustments	Total
Net interest income(expense) from:	W
External customers		2,176,265	2,778,207	802,205	115,110	-	5,871,787
Internal transactions		325,302	(424,822)	(55,795)	151,698	3,617	-
	W	2,501,567	2,353,385	746,410	266,808	3,617	5,871,787

(*) For the year end December 31, 2019, SOHO has been changed from retail sector to corporate sector.

(d) Financial information of geographical area

i) The following table provides information of operating income from external consumers by geographical area for the years ended December 31, 2020 and 2019.

		Operating revenue		Operating expenses		Operating income
		December 31,2020	December 31,2019	December 31,2020	December 31,2019	December 31,2020	December 31,2019
Domestic	W	23,130,261	21,133,315	20,691,857	18,537,923	2,438,404	2,595,392
Overseas		1,919,131	2,012,161	1,443,889	1,344,250	475,242	667,911
	W	25,049,392	23,145,476	22,135,746	19,882,173	2,913,646	3,263,303

ii) The following table provides information of non-current assets by geographical area as of December 31, 2020 and 2019.

Categories(*)		December 31, 2020	December 31, 2019
Domestic	W	3,264,870	3,459,556
Overseas		335,075	297,602
	W	3,599,945	3,757,158

(*) Non-current assets include property and equipment, intangible assets and investment properties.

105

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

6.  Cash and due from banks

(a) Cash and due from banks as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Cash	W	1,740,580	2,528,135
Deposits in Korean won:
Reserve deposits		16,711,286	13,555,978
Others		893,246	38,454
		17,604,532	13,594,432
Deposits in foreign currencies:
Deposits		5,564,218	5,607,614
Time deposits		2,492,287	2,214,820
Others		183,861	116,674
		8,240,366	7,939,108
Allowance for impairment		(9,730)	(11,843)
	W	27,575,748	24,049,832

(b) Restricted due from banks as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019	The laws of evidence, etc.
Deposits in Korean won:
Reserve deposits	W	16,711,286	13,555,978	Article 55 of the Bank of Korea Act
Others		880,250	250	Articles 28 and 70 of the Bank of Korea Act
		17,591,536	13,556,228
Deposits in foreign currencies:
Deposits		1,810,542	1,138,029	Bank of Korea Act, etc.
Time deposits		43,308	34,329	New York State Banking Law, etc
Others		20,427	8,989	Derivative contract
		1,874,277	1,181,347
	W	19,465,813	14,737,575

106

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

7. Securities at fair value through profit or loss

Securities at FVTPL as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Debt securities:
Government bonds	W	1,086,995		1,083,634
Financial institution bonds		4,147,505		3,992,007
Corporate bonds		2,516,146		2,718,286
Bills bought		4,922,241		3,121,398
CMA		2,806,485		3,723,401
Beneficiary certificates		4,834,466		2,701,285
Others		1,154,357		1,151,105
		21,468,195		18,491,116
Equity securities:
Stocks		162,746		113,316
Other:
Gold/silver deposits		188,339		111,715
	W	21,819,280		18,716,147

107

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives

(a) The notional amounts of derivatives

The notional amounts of derivatives as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Foreign currency related
Over the counter:
Currency forwards	W	106,801,048	119,660,724
Currency swaps		31,823,846	38,592,870
Currency options		2,498,719	2,743,171
Exchange traded:
Currency futures		32,640	34,734
		141,156,253	161,031,499
Interest rates related
Over the counter:
Interest rate swaps		31,631,499	34,119,636
Interest rate options		132,238	80,000
Exchange traded:
Interest rate futures		279,209	292,063
Interest rate swaps (*)		36,336,900	41,330,340
		68,379,846	75,822,039
Equity related
Over the counter:
Equity options		223,472	276,441
Exchange traded:
Equity futures		55,012	14,926
Equity options		8,625	58,863
		287,109	350,230
Commodity related
Over the counter:
Commodity swap and forwards		-	175,453
Hedge
Fair value hedge:
Interest rate swaps		6,965,492	9,371,632
Net investment hedge:
Currency forwards		217,600	231,560
		7,183,092	9,603,192
	W	217,006,300	246,982,413

(*) The notional amount of derivatives which is settled in the ‘Central Counter Party (“CCP”)’ system.

108

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(b) Fair values of derivative instruments

Fair values of derivative instruments as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
		Assets	Liabilities	Assets	Liabilities
Foreign currency related
Over the counter:
Currency forwards	W	2,811,407	2,818,528	1,231,611	949,731
Currency swaps		1,126,980	928,469	467,172	516,580
Currency options		33,248	31,864	8,870	9,430
		3,971,635	3,778,861	1,707,653	1,475,741
Interest rates related
Over the counter:
Interest rate swaps		271,330	280,579	229,277	202,311
Interest rate options		1,012	-	835	-
		272,342	280,579	230,112	202,311
Equity related
Over the counter:
Equity options		1,104	3,756	2,804	5,504
Exchange traded:
Equity options		5	329	-	197
		1,109	4,085	2,804	5,701
Commodity related
Over the counter:
Commodity forwards		-	-	5,089	-
Hedge
Fair value hedge:
Interest rate swaps		319,293	120,728	154,585	210,079
Net investment hedge:
Currency forwards		11,181	10,441	1,750	-
		330,474	131,169	156,335	210,079
	W	4,575,560	4,194,694	2,101,993	1,893,832

109

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(c) Gain or loss on valuation of derivatives

Gain or loss on valuation of derivatives for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
		Gain	Loss	Gain	Loss
Foreign currency related
Over the counter:
Currency forwards	W	2,702,601	2,926,636	1,111,857	957,739
Currency swaps		1,156,145	927,775	475,909	499,295
Currency options		33,402	28,570	9,409	5,529
		3,892,148	3,882,981	1,597,175	1,462,563
Interest rates related
Over the counter:
Interest rate swaps		125,447	153,067	146,274	161,983
Interest rate options		43	166	299	-
Exchange traded:
Interest rate futures		-	-	550	-
		125,490	153,233	147,123	161,983
Equity related
Over the counter:
Equity options		1,337	1,445	3,001	2,919
Exchange traded:
Equity options		-	375	313	-
		1,337	1,820	3,314	2,919
Commodity related
Over the counter:
Commodity forwards		-	-	5,089	-
Hedge
Fair value hedge:
Interest rate swaps		214,270	33,119	338,168	23,402
Net investment hedge:
Currency forwards		4,711	5,958	-	1,649
		218,981	39,077	338,168	25,051
	W	4,237,956	4,077,111	2,090,869	1,652,516

110

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(d) Hedges

i) Hedge purpose and strategy

The Group trades derivative financial instruments to hedge the interest rate risk and foreign exchange risk arising from the group's assets and liabilities. The Group applies fair value risk hedge accounting using interest rate swaps to avoid the risk of changes in fair value due to changes in market interest rates on structured bonds in won, foreign currency issued financial bonds, structured deposits in won, foreign currency structured deposits, and foreign currency investment bonds. In addition, in order to avoid the risk of foreign currency exchange rate fluctuations at foreign operations, the Group applies net investment risk hedge accounting for foreign operations that utilize currency forwards and non-derivative financial instruments.

ii) Nominal amounts and average hedge ratios for hedging instruments as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		1 year or less	1 year ~ 2 years or less	2 years ~ 3 years or less	3 years ~ 4 years or less	4 years ~ 5 years or less	More than 5 years	Total
Fair value hedges
Interest rate swaps	W	657,656	590,992	558,688	286,688	247,244	4,624,224	6,965,492
Average price conditions (*1)		1.12%	0.80%	0.89%	0.98%	0.67%	0.38%	0.56%
Average hedge ratio		100%	100%	100%	100%	100%	100%	100%
Hedge of net investments in foreign operations (*2)
Currency forwards		217,600	-	-	-	-	-	217,600
Borrowings in foreign currencies		252,611	52,713	-	-	-	-	305,324
Debt securities issued in foreign currencies		33,462	525,870	267,360	64,235	-	-	890,927
	W	503,673	578,583	267,360	64,235	-	-	1,413,851
Average hedge ratio		100%	100%	100%	100%	-	-	100%

(*1) Interest rate swaps consist of 3M CD, 3M USD Libor and 3M AUD Bond.

(*2) The average exchange rates of net investment hedge instruments are USD/KRW 1,143.63, EUR/KRW 1,298.11, JPY/KRW 10.61, CAD/KRW 895.95, CNY/KRW 168.84, AUD/KRW 829.45.

		December 31, 2019
		1 year or less	1 year ~ 2 years or less	2 years ~ 3 years or less	3 years ~ 4 years or less	4 years ~ 5 years or less	More than 5 years	Total
Fair value hedges
Interest rate swaps	W	700,469	704,985	667,948	608,424	575,481	6,114,325	9,371,632
Average price conditions (*1)		0.81%	0.93%	0.76%	0.99%	0.86%	0.52%	0.64%
Average hedge ratio		100%	100%	100%	100%	100%	100%	100%
Hedge of net investments in foreign operations (*2)
Currency forwards		231,560	-	-	-	-	-	231,560
Borrowings in foreign currencies		21,269	-	-	-	-	-	21,269
Debt securities issued in foreign currencies		230,773	32,414	554,757	281,345	62,277	-	1,161,566
	W	483,602	32,414	554,757	281,345	62,277	-	1,414,395
Average hedge ratio		100%	100%	100%	100%	100%	-	100%

(*1) Interest rate swaps consist of 3M CD, 3M USD Libor, 3M Euribor, 6M Euribor, and 3M AUD Bond.

(*2) The average exchange rates of net investment hedge instruments are USD/KRW 1,110.37, EUR/KRW 1,298.11, JPY/KRW 10.15, CAD/KRW 856.15, CNY/KRW 170.47, AUD/KRW 829.45.

111

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(e) Impact of hedge accounting on the consolidated financial statements

i) Impact of hedging instruments in the consolidated statement of financial position as of December 31, 2020 and 2019, and consolidated statement of comprehensive income and consolidated statement of changes in equity for the for the year then ended are as follows:

			December 31, 2020
			Notional amounts	Consolidated statement of financial position				Consolidated statement of comprehensive income		Changes in fair value for the period
				Derivative assets	Derivative liabilities	Borrowings	Debt securities issued		Other comprehensive income (loss) for the period
Fair value hedges
Interest rate risk	Interest rate swaps	W	6,965,492	319,293	120,728	-	-		-	181,151
Hedge of net investments in foreign operations:
Foreign exchange risk	Currency forwards		217,600	11,181	10,441	-	-		(858)	(2,992)
	Borrowings in foreign currencies		305,324	-	-	305,324	-		(1,414)	(1,414)
	Debt securities issued in foreign currencies		890,927	-	-	-	887,945		46,321	46,321
		W	8,379,343	330,474	131,169	305,324	887,945		44,049	223,066

			December 31, 2019
			Notional amounts	Consolidated statement of financial position				Consolidated statement of comprehensive income		Changes in fair value for the year
				Derivative assets	Derivative liabilities	Borrowings	Debt securities issued		Other comprehensive income (loss) for the year
Fair value hedges
Interest rate risk	Interest rate swaps	W	9,371,632	154,585	210,079	-	-		-	314,766
Hedge of net investments in foreign operations:
Foreign exchange risk	Currency forwards		231,560	1,751	-	-	-		(1,709)	(4,036)
	Borrowings in foreign currencies		21,269	-	-	21,269	-		(5,725)	(5,725)
	Debt securities issued in foreign currencies		1,161,566	-	-	-	1,156,628		(42,029)	(42,029)
		W	10,786,027	156,336	210,079	21,269	1,156,628		(49,463)	262,976

112

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(e) Impact of hedge accounting on the consolidated financial statements (continued)

ii) Impact of hedged items in the consolidated statement of financial position as of December 31, 2020 and 2019, and consolidated statement of comprehensive income and consolidated statement of changes in equity for the years ended are as follows:

	December 31, 2020
	Hedging instruments		Consolidated statement of financial position			Consolidated statement of comprehensive income		Changes in fair value for the period	Reserve of exchange differences on translation
			Securities at FVOCI	Deposits	Debt securities issued	Other comprehensive income for the period	Fair value hedges Adjusted accumulated amount
Fair value hedges:
Interest rate risk	Debt securities issued	W	-	-	5,816,989	-	240,393	(165,416)	-
	Investment bonds		143,496	-	-	-	6,563	3,894	-
	Time deposits		-	933,940	-	-	(46,940)	(13,848)	-
Hedge of net investments in foreign operations:
Foreign exchange risk	Net investments in foreign operations		-	-	-	(44,049)	-	(44,049)	(141,151)
		W	143,496	933,940	5,816,989	(44,049)	200,016	(219,419)	(141,151)

	December 31, 2019
	Hedging instruments		Consolidated statement of financial position			Consolidated statement of comprehensive income	Fair value hedges Adjusted accumulated amount	Changes in fair value for the year	Reserve of exchange differences on translation
			Securities at FVOCI	Deposits	Debt securities issued	Other comprehensive income for the year
Fair value hedges:
Interest rate risk	Debt securities issued	W	-	-	7,072,596	-	46,201	(250,446)	-
	Investment bonds		432,172	-	-	-	6,745	1,399	-
	Time deposits		-	1,786,425	-	-	(102,493)	(59,416)	-
Hedge of net investments in foreign operations:
Foreign exchange risk	Net investments in foreign operations		-	-	-	49,463	-	49,463	(88,953)
		W	432,172	1,786,425	7,072,596	49,463	(49,547)	(259,000)	(88,953)

113

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(e) Impact of hedge accounting on the consolidated financial statements (continued)

iii) Gains (losses) on fair value hedged items and hedging instruments attributable to the hedged risk for the tear ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Gains (losses) on fair value hedges (hedged items)	Gains (losses) on fair value hedges (hedging instruments)	Hedge ineffectiveness recognized in profit or loss (*)	Reclassified as profit or loss from foreign currency translation reserve recognized in other operating income
Fair value hedges
Interest rate swaps	W	(228,266)	233,008	4,742	-
Hedge of net investments in foreign operations
Foreign exchange risk		(44,049)	41,915	(2,134)	(8,149)
	W	(272,315)	274,923	2,608	(8,149)

(*) Recognized hedge ineffectiveness is included in other operating income and expenses in the consolidated  statement of comprehensive income.

		December 31, 2019
		Gains (losses) on fair value hedges (hedged items)	Gains (losses) on fair value hedges (hedging instruments)	Hedge ineffectiveness recognized in profit or loss (*)
Fair value hedges:
Interest rate swaps	W	(370,787)	377,121	6,334
Hedge of net investments in foreign operations:
Foreign exchange risk		49,463	(51,790)	(2,327)
	W	(321,324)	325,331	4,007

(*) Recognized hedge ineffectiveness is included in other operating income and expenses in the consolidated statement of comprehensive income.

(f) The effects of quantifying the credit risk of derivatives mitigated by collateral held as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Deposits, securities, and etc	W	1,389,763	900,282

114

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

8. Derivatives (continued)

(g) Hedge relationships affected by an interest rate index reform

The revised Standard requires that exceptions be applied when analyzing future information in relation to the application of risk hedge accounting, while uncertainties arising from the interest rate indicator reform movement exist. 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.

As of December 31, 2020, the nominal amounts of risk aversion measures related to interest rate indicators that have been exposed to risk aversion by interest rate indicator reform are as follows:

From 2022, the USD LIBOR interest rate will be replaced by a Secured Overnight Financing Rate (SOFR) based on actual transactions. The Group has assumed that in this hedging relationship, the spread changed on the basis of SOFR in 2022 would be similar to the spread included in the interest rate swap and interest rate lead used as the hedging instrument. The Group does not assume any changes in other conditions.

Interest rate index	Nominal amount of hedging instruments (*)	Carrying amount of hedged assets	Carrying amount of hedged liabilities
KRW 3M CD	2,550,000	-	2,440,000
USD 3M LIBOR	3,030,080	136,000	2,894,080
EUR 3M LIBOR	267,648	-	267,648

(*)It is included a nominal amount before the end of 2022 when LIBOR interest rate calculation is discontinued.

115

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans

(a) Details of loans as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
		Loans at amortized cost	Loans at FVTPL	Loans at amortized cost	Loans at FVTPL
Household loans	W	134,280,139	-	123,219,603	-
Corporate loans		155,510,472	844,469	139,966,542	868,991
Public and other loans		3,594,089	-	3,189,534	-
Loans to banks		5,543,433	-	2,672,514	-
Credit card receivables		164,772	-	153,436	-
		299,092,905	844,469	269,201,629	868,991
Deferred loan origination costs and fees		500,391	-	497,804	-
		299,593,296	844,469	269,699,433	868,991
Less: Allowance for impairment		(1,688,564)	-	(1,527,169)	-
	W	297,904,732	844,469	268,172,264	868,991

116

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans (continued)

(b) Changes in allowance for impairment and book value

i) Changes in allowance for impairment for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Due from banks			Loans at amortized cost									Other assets			Total
					Household			Corporate			Others
		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses
			Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired
Beginning balance	W	11,241	602	-	90,637	74,615	129,161	345,920	475,108	391,076	9,120	8,209	3,323	14,362	1,656	1,661	1,556,691
Transfer to 12 month expected credit losses		63	(63)	-	18,477	(18,046)	(431)	62,732	(62,181)	(551)	210	(208)	(2)	182	(177)	(5)	-
Transfer to lifetime expected credit losses		(1)	1	-	(8,069)	17,467	(9,398)	(38,365)	43,244	(4,879)	(283)	284	(1)	(109)	114	(5)	-
Transfer to credit- impaired financial assets		-	-	-	(2,150)	(7,513)	9,663	(1,395)	(19,517)	20,912	(156)	(79)	235	(18)	(142)	160	-
Provision for (reversal of) allowance (*1)		(1,691)	71	-	(3,405)	3,590	167,615	98,558	143,363	219,492	4,495	2,008	8,259	(2,116)	1,252	809	642,300
Write-offs		-	-	-	-	-	(212,742)	-	-	(271,082)	-	-	(2,531)	-	-	(213)	(486,568)
Effect of discounting		-	-	-	-	-	(5,235)	-	-	(13,935)	-	-	-	-	-	-	(19,170)
Allowance related to loans transferred		-	-	-	-	(8)	(5,594)	-	-	(24,473)	-	-	(182)	-	-	(32)	(30,289)
Recoveries		-	-	-	-	-	68,445	-	-	44,886	-	-	134	-	-	534	113,999
Others (*2)		(459)	(34)	-	(949)	(144)	(505)	(7,294)	(9,358)	(41,447)	(295)	(39)	(232)	4,561	-	-	(56,195)
Ending balance	W	9,153	577	-	94,541	69,961	140,979	460,156	570,659	319,999	13,091	10,175	9,003	16,862	2,703	2,909	1,720,768

(*1) Additional provision for credit loan allowance is recognized for the year ended December 31, 2020 to cope with the economic recession caused by the spread of the COVID-19. As of December 31, 2020, the Group has set aside an additional provision of W 154,407million (including provisions for debt securities, provisions for off-balance accounts, etc.) through the re-estimation of the default rate forecast that reflected the updated forward-looking information, and an additional provision of W 130,173 million through the additional selection and adjustment of cash flows for loans subject to individual assessment. In addition, additional provision of W 1,491 million is recognized by adding Stage2 indicators.

(*2) Other changes are due to debt restructuring, debt-equity swap and foreign exchange rate, etc.

117

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans (continued)

(b) Changes in allowance for impairment and book value (continued)

i) Changes in allowance for impairment for the years ended December 31, 2020 and 2019 are as follows: (continued)

		December 31, 2019
		Due from banks			Loans at amortized cost									Other assets			Total
					Household			Corporate			Others
		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses
			Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired
Beginning balance	W	14,445	340	-	94,194	79,954	131,141	371,157	523,180	444,837	14,162	6,348	10,739	22,656	2,175	781	1,716,109
Transfer to 12 month expected credit losses		241	(241)	-	16,830	(16,499)	(331)	44,905	(43,205)	(1,700)	805	(802)	(3)	160	(158)	(2)	-
Transfer to lifetime expected credit losses		(19)	19	-	(8,516)	16,266	(7,750)	(32,494)	114,871	(82,377)	(202)	332	(130)	(98)	103	(5)	-
Transfer to credit- impaired financial assets		-	-	-	(137)	(2,740)	2,877	(399)	(6,814)	7,213	(71)	(19)	90	(2)	(94)	96	-
Provision for (reversal of) allowance		(3,941)	478	-	(12,373)	(2,236)	186,704	(41,486)	(28,830)	273,232	(6,012)	2,174	259	1,517	(370)	409	369,525
Write-offs		-	-	-	-	-	(226,348)	-	-	(226,161)	-	-	(8,718)	-	-	(133)	(461,360)
Effect of discounting		-	-	-	-	-	-	-	-	(17,560)	-	-	-	-	-	-	(17,560)
Allowance related to loans transferred		-	-	-	-	(241)	(16,070)	-	(245)	(30,429)	-	-	(820)	-	-	-	(47,805)
Recoveries		-	-	-	-	-	58,620	-	-	43,357	-	-	1,876	-	-	515	104,368
Others (*)		515	6	-	639	111	318	4,237	(83,849)	(19,336)	438	176	30	(9,871)	-	-	(106,586)
Ending balance	W	11,241	602	-	90,637	74,615	129,161	345,920	475,108	391,076	9,120	8,209	3,323	14,362	1,656	1,661	1,556,691

(*) Other changes are due to debt restructuring, debt-equity swap and foreign exchange rate.

118

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans (continued)

(b) Changes in allowance for impairment and book value (continued)

ii) Changes in book value of due from banks, loans at amortized cost and other assets for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Due from banks			Loans at amortized cost									Other assets			Total
					Household			Corporate			Others
		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses
			Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired
Beginning balance	W	21,529,072	4,468	-	115,236,704	7,640,395	342,504	116,142,571	22,947,743	876,228	5,366,352	631,528	17,604	13,474,712	58,018	3,477	304,271,376
Transfer to 12 month expected credit losses		712	(712)	-	2,815,880	(2,811,531)	(4,349)	5,682,794	(5,680,285)	(2,509)	16,216	(16,213)	(3)	13,820	(13,811)	(9)	-
Transfer to lifetime expected credit losses		(64)	64	-	(3,773,902)	3,800,101	(26,199)	(7,856,875)	7,866,616	(9,741)	(86,522)	86,523	(1)	(18,029)	18,038	(9)	-
Transfer to credit- impaired financial assets		-	-	-	(121,108)	(140,228)	261,336	(160,397)	(247,823)	408,220	(7,115)	(168)	7,283	(664)	(1,190)	1,854	-
Origination, recoveries, and others		4,313,026	(1,668)	-	11,804,252	(541,737)	83,554	17,042,231	(997,713)	35,407	3,325,177	(34,746)	819	(2,354,263)	(6,209)	1,028	32,669,158
Write-offs		-	-	-	-	-	(212,742)	-	-	(271,082)	-	-	(2,531)	-	-	(213)	(486,568)
Disposal of loans		-	-	-	-	(897)	(71,894)	-	-	(264,913)	-	-	(1,909)	-	-	(909)	(340,522)
Ending balance	W	25,842,746	2,152	-	125,961,826	7,946,103	372,210	130,850,324	23,888,538	771,610	8,614,108	666,924	21,262	11,115,576	54,846	5,219	336,113,444

119

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans (continued)

(b) Changes in allowance for impairment and book value (continued)

ii) Changes in book value of due from banks, loans at amortized cost and other assets for the years ended December 31, 2020 and 2019 are as follows: (continued)

		December 31, 2019
		Due from banks			Loans at amortized cost									Other assets			Total
					Household			Corporate			Others
		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses		12-month expected credit losses	Lifetime expected credit losses
			Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired		Not impaired	Impaired
Beginning balance	W	10,592,333	3,816	-	105,672,489	6,625,354	296,597	111,937,650	20,662,405	799,513	5,796,137	606,449	16,661	14,169,589	54,975	1,847	277,235,815
Transfer to 12 month expected credit losses		1,016	(1,016)	-	2,560,765	(2,556,951)	(3,814)	3,893,993	(3,889,945)	(4,048)	37,520	(37,516)	(4)	11,068	(11,061)	(7)	-
Transfer to lifetime expected credit losses		(204,668)	204,668	-	(5,252,557)	5,271,857	(19,300)	(15,705,942)	15,818,112	(112,170)	(212,057)	212,229	(172)	(41,560)	41,581	(21)	-
Transfer to credit- impaired financial assets		-	-	-	(581,119)	(32,739)	613,858	(1,062,808)	(49,122)	1,111,930	(41,110)	(39)	41,149	(2,590)	(496)	3,086	-
Origination		33,659,684	-	-	38,795,298	-	-	67,277,060	-	-	5,618,369	-	-	8,228,699	-	-	153,579,110
Recoveries		(22,790,213)	(203,040)	-	(26,216,222)	(1,662,438)	(217,490)	(50,921,800)	(9,544,705)	(359,777)	(5,975,266)	(150,563)	(12,952)	(8,890,494)	(26,978)	(234)	(126,972,172)
Write-offs		-	-	-	-	-	(226,348)	-	-	(226,161)	-	-	(8,718)	-	-	(133)	(461,360)
Disposal of loans		-	-	-	-	(5,122)	(101,765)	-	(3,806)	(283,726)	-	-	(18,398)	-	(3)	(1,061)	(413,881)
Others (*)		270,920	40	-	258,050	434	766	724,418	(45,196)	(49,333)	142,759	968	38	-	-	-	1,303,864
Ending balance	W	21,529,072	4,468	-	115,236,704	7,640,395	342,504	116,142,571	22,947,743	876,228	5,366,352	631,528	17,604	13,474,712	58,018	3,477	304,271,376

(*) Other changes are due to debt restructuring, debt-equity swap and foreign exchange rate, etc.

120

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans (continued)

(c) Changes in deferred loan origination costs for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Beginning balance	W	497,804	496,263
Loan origination		286,837	242,257
Amortization		(284,250)	(240,716)
Ending balance	W	500,391	497,804

10. 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 2019 are as follows:

		December 31, 2020	December 31, 2019
Securities at FVOCI:
Debt securities:
Government bonds	W	11,342,224	10,481,889
Financial institutions bonds		17,371,098	18,267,439
Corporate bonds		10,013,174	11,311,406
		38,726,496	40,060,734
Equity securities:
Stocks		564,148	520,230
Equity investments		3,072	3,983
Others		65,950	70,958
		633,170	595,171
	W	39,359,666	40,655,905
Securities at amortized cost:
Debt securities:
Government bonds	W	12,666,798	12,570,196
Financial institutions bonds		2,497,053	3,378,630
Corporate bonds		4,786,029	4,141,357
Others		234,563	167,016
		20,184,443	20,257,199
Allowance for impairment		(6,000)	(5,311)
	W	20,178,443	20,251,888

121

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Securities at fair value through other comprehensive income and Securities at amortized cost (continued)

(a) Details of securities at FVOCI and securities at amortized cost (continued)

Details of equity instruments designated at FVOCI as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Marketable securities	W	171,959	183,445
Non-marketable securities		392,189	336,785
Others		69,022	74,941
	W	633,170	595,171

Above equity securities are equity securities designated as FVOCI, and for the retention required by the policy, the option of measuring FVOCI is exercised.

Cumulative net losses reclassified in equity upon disposition of equity securities for the years ended December 31, 2020 and 2019 are (-)W38,379 million and (-)W10,563 million, respectively, and cumulated net gains replaced by the reclassification of the account for the year ended December 31, 2019 were W2,759 million.

(b)  Gains and losses on sale of securities at FVOCI

Gains and losses on sale of securities at FVOCI for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Gain on sale of securities at FVOCI	W	219,013	110,793
Loss on sale of securities at FVOCI		(11,058)	(3,160)
	W	207,955	107,633

The Group disposed equity instruments that are measured at FVOCI for debt-equity swap. At the time of disposal, fair value of equity instruments for the years ended December 31, 2020 and 2019 are W69,968 million and W39,273 million, and cumulative net losses for the years ended December 31, 2020 and 2019 are W(-)38,379 million and W(-)10,563 million, respectively.

(c) Gains and losses on sale of securities at amortized cost

There is no disposal of securities at amortized cost for year ended December 31, 2020 and 2019.

122

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Securities at fair value through other comprehensive income and Securities at amortized cost (continued)

(d) Changes in allowance for credit loss and total carrying amount of securities at FVOCI and securities at amortized cost

i) Changes in allowance for credit loss of securities at FVOCI and securities at amortized cost for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Securities at FVOCI					Securities at amortized cost
		12-month expected credit losses	Lifetime expected credit losses		Total	12-month expected credit losses		Lifetime expected credit losses		Total
			Credit unimpaired financial asset	Credit-impaired financial asset				Credit unimpaired financial  asset	Credit-impaired financial asset
Beginning balance	W	20,471	655	-	21,126	5,299		12	-	5,311
Transfer to 12-month expected credit losses		22	(22)	-	-	-		-	-	-
Transfer to lifetime expected credit losses		(193)	193	-	-	-		-	-	-
Transfer to impaired financial assets		-	-	-	-	-		-	-	-
Provision (reversal)		4,318	348	-	4,666	1,063		(12)	-	1,051
Disposals		(8,940)	(487)	-	(9,427)	-		-	-	-
Others (*)		622	(10)	-	612	(362)		-	-	(362)
Ending balance	W	16,300	677	-	16,977	6,000		-	-	6,000

(*) Other changes are due to foreign exchange rate changes, etc.

		December 31, 2019
		Securities at FVOCI				Securities at amortized cost
		12-month expected credit losses	Lifetime expected credit losses		Total	12-month expected credit losses	Lifetime expected credit losses		Total
			Credit unimpaired financial asset	Credit-impaired financial asset			Credit unimpaired financial asset	Credit-impaired financial asset
Beginning balance	W	20,202	362	-	20,564	4,746	18	-	4,764
Transfer to 12-month expected credit losses		33	(33)	-	-	4,301	(4,301)	-	-
Transfer to lifetime expected credit losses		(60)	60	-	-	-	-	-	-
Transfer to impaired financial assets		-	-	-	-	-	-	-	-
Provision (reversal)		6,729	(2,616)	-	4,113	(3,717)	4,295	-	578
Disposals		(5,256)	(258)	-	(5,514)	-	-	-	-
Others (*)		(1,177)	3,140	-	1,963	(31)	-	-	(31)
Ending balance	W	20,471	655	-	21,126	5,299	12	-	5,311

(*) Other changes are due to foreign exchange rate changes, etc.

123

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Securities at fair value through other comprehensive income and Securities at amortized cost (continued)

(d) Changes in allowance for credit loss and total carrying amount of securities at FVOCI and securities at amortized cost (continued)

(ii) Changes in carrying value of securities at FVOCI and securities at amortized cost for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Securities at FVOCI				Securities at amortized cost
		12-month expected credit losses	Lifetime expected credit losses		Total	12-month expected credit losses	Lifetime expected credit losses		Total
			Credit unimpaired financial asset	Credit-impaired financial asset			Credit unimpaired financial  asset	Credit-impaired financial asset
Beginning balance	W	39,821,640	239,094	-	40,060,734	20,233,925	23,274	-	20,257,199
Transfer to 12-month expected credit losses		30,233	(30,233)	-	-	-	-	-	-
Transfer to lifetime expected credit losses		(83,132)	83,132	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-	-
Acquisitions		42,732,748	19,675	-	42,752,423	5,743,726	-	-	5,743,726
Disposals		(28,304,298)	(21,247)	-	(28,325,545)	-	-	-	-
Redemption		(14,766,262)	(12)	-	(14,766,274)	(5,617,729)	(23,274)	-	(5,641,003)
Others (*)		(971,568)	(23,274)	-	(994,842)	(175,479)	-	-	(175,479)
Ending balance	W	38,459,361	267,135	-	38,726,496	20,184,443	-	-	20,184,443

(*) Other changes are due to foreign exchange rate changes, etc.

		December 31, 2019
		Securities at FVOCI				Securities at amortized cost
		12-month expected credit losses	Lifetime expected credit losses		Total	12-month expected credit losses	Lifetime expected credit losses		Total
			Credit unimpaired financial asset	Credit-impaired financial asset			Credit unimpaired financial  asset	Credit-impaired financial asset
Beginning balance	W	31,329,716	105,830	-	31,435,546	16,806,690	22,474	-	16,829,164
Transfer to 12-month expected credit losses		34,555	(34,555)	-	-	20,198	(20,198)	-	-
Transfer to lifetime expected credit losses		(64,928)	64,928	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-	-
Acquisitions		38,854,287	61,410	-	38,915,697	9,692,417	-	-	9,692,417
Disposals		(11,089,848)	(10,222)	-	(11,100,070)	-	-	-	-
Redemption		(19,184,084)	-	-	(19,184,084)	(6,394,739)	-	-	(6,394,739)
Others (*)		(58,058)	51,703	-	(6,355)	109,359	20,998	-	130,357
Ending balance	W	39,821,640	239,094	-	40,060,734	20,233,925	23,274	-	20,257,199

(*) Other changes are due to foreign exchange rate changes, etc.

124

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Property and equipment

(a) Details of property and equipment as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Acquisition cost	Accumulated depreciation	Book value
Land	W	1,301,446	-	1,301,446
Buildings (*)		880,477	(374,551)	505,926
Right-of-use asset		789,038	(344,226)	444,812
Others		1,399,918	(1,202,237)	197,681
	W	4,370,879	(1,921,014)	2,449,865

(*) W341 million of government subsidy is deducted from book value.

		December 31, 2019
		Acquisition cost	Accumulated depreciation	Book value
Land	W	1,247,774	-	1,247,774
Buildings (*)		864,864	(329,734)	535,130
Right-of-use assets		658,330	(182,024)	476,306
Others		1,359,287	(1,153,208)	206,079
	W	4,130,255	(1,664,966)	2,465,289

(*) W572 million of government subsidy is deducted from book value.

(b) Changes in property and equipment for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Land	Buildings	Right-of-use assets	Others	Total
Beginning balance	W	1,247,774	535,129	476,306	206,080	2,465,289
Acquisitions (*1)(*2)		58,231	38,789	209,730	70,694	377,444
Disposals and write-offs (*3)		(6,075)	(1,536)	(3,549)	(714)	(11,874)
Depreciation		-	(49,743)	(232,285)	(76,358)	(358,386)
Amounts transferred to investment properties		33,444	(16,296)	-	-	17,148
Amounts transferred to non-current assets held for sale		(31,622)	(11)	-	-	(31,633)
Effects of foreign currency movements		(306)	(406)	(5,390)	(2,021)	(8,123)
Ending balance	W	1,301,446	505,926	444,812	197,681	2,449,865

(*1) W56,575 million transferred from construction-in progress is included.

(*2) W1,371 million of provision for the asset retirement related to newly acquired assets is included.

(*3) W474 million of write-off is included.

125

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Property and equipment (continued)

(b) Changes in property and equipment for the years ended December 31, 2020 and 2019 are as follows: (continued):

		December 31, 2019
		Land	Buildings	Right-of-use assets	Others	Total
Beginning balance (*1)	W	1,251,039	572,380	502,364	184,184	2,509,967
Acquisitions (*2)(*3)		69,046	14,347	209,864	108,597	401,854
Disposals and write-offs (*4)		(32)	(769)	(2,934)	(19,451)	(23,186)
Depreciation		-	(49,490)	(235,785)	(74,294)	(359,569)
Amounts transferred to investment properties		(72,173)	(2,693)	-	-	(74,866)
Amounts transferred to non-current assets held for sale		(410)	(45)	-	-	(455)
Effects of foreign currency movements		304	1,400	2,797	7,043	11,544
Ending balance	W	1,247,774	535,130	476,306	206,079	2,465,289

(*1) It has been restated as of K-IFRS No.1116.

(*1) W76,004 million transferred from construction-in progress is included.

(*2) W2,280 million of provision for the asset retirement related to newly acquired assets is included.

(*4) W9,001 million of write-off is included.

(c) Insured assets and liability insurances as of December 31, 2020 are follows:

Type of insurance	Insured assets		Amount covered	Insurance company
Comprehensive insurance for financial institutions	Cash & securities	W	20,000	Samsung Fire & Marine Insurance Co., Ltd. and 4 other insurance companies
Property insurance	Real estate & movable properties for business purpose		825,800	Samsung Fire & Marine Insurance Co., Ltd., etc. and 4 other insurance companies
Burglary insurance	Cash & securities		60,000	Samsung Fire & Marine Insurance Co., Ltd., etc and 3 other insurance companies
Compensation liability insurance for officers	-		50,000	Meritz Fire & Marine Insurance Co., Ltd., etc. and 6 other insurance companies
Compensation liability insurance for gas accident	Real estate		500	Meritz Fire & Marine Insurance Co., Ltd.
Compensation liability insurance for personal information protection	-		10,000	DB Insurance Co., Ltd.
Compensation liability insurance for electronic financial transaction	-		2,000	Lotte Insurance Co., Ltd., etc.
Compensation liability insurance for casualty	Real estate		1,000	Samsung Fire & Marine Insurance Co., Ltd.
Compaensation liability insurance for elevator accidents	-		80	Samsung Fire & Marine Insurance Co., Ltd.
		W	969,380

Besides the insurances listed above, the Group also has automobile liability insurance, medical insurance for employees, and casualty insurance for protecting property and employees.

126

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

12. Leases

(a) The details of the right-of-use assets for each type of underlying asset of the lessee as of December 31, 2020 and 2019 follows:

		December 31, 2020
		Acquisition cost	Accumulated depreciation	Book value
Real property	W	730,517	(313,857)	416,660
Vehicle		33,033	(17,684)	15,349
Others		25,488	(12,685)	12,803
	W	789,038	(344,226)	444,812

		December 31, 2019
		Acquisition cost	Accumulated depreciation	Book value
Real property	W	611,619	(166,487)	445,132
Vehicle		27,628	(8,557)	19,071
Others		19,083	(6,980)	12,103
	W	658,330	(182,024)	476,306

(b) Changes in right-of-use assets for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Real property	Vehicle	Others	Total
Beginning balance	W	445,132	19,071	12,103	476,306
Acquisitions		195,864	7,445	6,421	209,730
Disposals and write-offs		(3,234)	(300)	(15)	(3,549)
Depreciation		(215,718)	(10,861)	(5,706)	(232,285)
Effects of foreign currency movements		(5,384)	(6)	-	(5,390)
Ending balance	W	416,660	15,349	12,803	444,812

		December 31, 2019
		Real property	Vehicle	Others	Total
Beginning balance	W	472,397	17,810	12,157	502,364
Acquisitions		191,195	11,645	7,024	209,864
Disposals and write-offs		(2,530)	(309)	(95)	(2,934)
Depreciation		(218,637)	(10,165)	(6,983)	(235,785)
Effects of foreign currency movements		2,707	90	-	2,797
Ending balance	W	445,132	19,071	12,103	476,306

127

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

12. Leases (continued)

(c) The details of the maturity of the lease lability as of December 31, 2020 and 2019 are as follows:

		December 31, 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 property	W	18,386	29,675	40,254	72,183	203,820	41,162	405,480
Vehicle		4,759	1,633	2,004	3,686	8,095	-	20,177
Others		503	772	1,155	1,937	8,912	1	13,280
	W	23,648	32,080	43,413	77,806	220,827	41,163	438,937

		December 31, 2019
		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 property	W	18,024	29,523	40,264	71,705	252,168	15,238	426,922
Vehicle		2,160	1,622	2,337	4,460	10,625	-	21,204
Others		924	925	1,183	1,986	7,794	-	12,812
	W	21,108	32,070	43,784	78,151	270,587	15,238	460,938

The abovementioned amounts have been classified as the earliest due dates on which the Group’s payment obligation arises based on undiscounted cash flows.

(d) For the years ended December 31, 2020 and 2019, the lease payment for low value assets is W 4,011 million and W 3,201 million, respectively.

(e) The Group applied a practical simplified method that does not evaluate whether it is a lease change for real estate rental fee discounts that have occurred as a direct result of the COVID-19. For the year ended December 31, 2020, the amount recognized in profit or loss to reflect changes in lease payments arising from the rent discount is W 24,921 million.

128

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

13.  Intangible assets

(a) Details of intangible assets as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Goddwill	W	59,139	73,374
Software		90,082	79,268
Development cost		60,000	43,963
Memberships		48,240	48,317
Others		282,380	411,427
	W	539,841	656,349

(b) Changes in intangible assets for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Goodwill	Software	Development cost	Membership	Other	Total
Beginning balance	W	73,374	79,268	43,963	48,317	411,427	656,349
Acquisitions(*1)		-	39,850	36,226	13	25,947	102,036
Disposal		-	-	-	(17)	-	(17)
Impairment(*2)		(14,235)	-	-	(57)	(27,133)	(41,425)
Amortization(*3)		-	(27,886)	(20,189)	-	(127,185)	(175,260)
Effects of foreign currency movements		-	(1,150)	-	(16)	(676)	(1,842)
Ending balance(*4)	W	59,139	90,082	60,000	48,240	282,380	539,841

(*1) Included intangible assets related to the rights to be the depository bank of municipal and provincial governments.

(*2) The Group assessed the recoverable value of intangible assets related to the rights to be the depository bank of municipal and provincial governments due to the performance below forecast and future prospects. As a result of the assessment, the Group recognized impairment loss amounting to W27,133 million for the year ended December 31, 2020. The impairment loss is included in the financial performance of the retail banking segment, and included in non-operating expenses in the consolidated statement of comprehensive income.

(*3) W122,629 million among amortization cost of other intangible assets is included in other operating expenses.

(*4) W298,901 million of other intangible assets is accounted for as account payables.

		December 31, 2019
		Goodwill	Software	Development cost	Membership	Other	Total
Beginning balance	W	73,374	63,264	46,499	48,597	84,495	316,229
Acquisitions(*1)		-	37,797	19,381	93	650,824	708,095
Disposal		-	(1,042)	(3,695)	(413)	(26)	(5,176)
Impairment(*2)		-	-	-	-	(151,523)	(151,523)
Amortization(*3)		-	(21,599)	(18,222)	-	(173,206)	(213,027)
Effects of foreign currency movements		-	848	-	40	863	1,751
Ending balance(*4)	W	73,374	79,268	43,963	48,317	411,427	656,349

(*1) Included intangible assets related to the rights to be the depository bank of municipal and provincial governments.

(*2) The Group assessed the recoverable value of intangible assets related to the rights to be the depository bank of municipal and provincial governments due to the performance below forecast and future prospects. As a result of the assessment, the Group recognized impairment loss amounted to W151,523 million for the year ended December 31, 2019. The impairment loss is included in the financial performance of the retail banking segment, and included in non-operating expenses in the consolidated statement of comprehensive income.

(*3) W168,736 million among amortization cost of other intangible assets is included in other operating expenses.

(*4) W436,376 million of other intangible assets is accounted for as account payables.

129

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

13. Intangible assets (continued)

(c) Goodwill

i) Details of goodwill

The carrying amounts of goodwill allocated to each Cash-Generating Unit (“CGU”) as of December 31, 2020 and 2019 are as follows:

CGU		December 31, 2020	December 31, 2019
PT Bank Shinhan Indonesia(*)	W	30,940	45,175
Shinhan Bank Vietnam Co., Ltd.		28,199	28,199
	W	59,139	73,374

(*)It occurred during the acquisition of PT Bank Metro Express and PT Centratama National Bank. The Group conducted an evaluation of the recoverable value of goodwill and recognized impairment loss of goodwill according to the test.

ii) Impairment test

The recoverable amount of all cash-generating units required for impairment testing is based on value in use. The recoverable amounts of CGUs are determined on the basis of value-in-use calculations using discounted cash flow (DCF) model.

a. Measurement date and projection period

The recoverable amounts are measured as of June 30, 2020. The projection period used in value-in-use calculations is 5.5 years (July 2020 through December 2025) considering synergy effect of business combinations and the value-in-use after projection period is estimated on the assumption that the future cash flows will increase by perpetual growth rate for every year.

b. Significant assumptions

The expected future cash flows from the cash-generating unit are based on the CPI growth rate, market size and the market share of the Group. Major unobservable assumptions applied during the forecast period are as follows:

(Unit: %)
Cash-generating units	Net interest income growth rate	Net commission income growth rate	General administrative expenses growth rate	Growth rate
PT Bank Shinhan Indonesia	21.56	10.43	7.37	54.98
Shinhan Bank Vietnam Co., Ltd.	5.25	7.10	5.18	5.45

The cost of equity capital is calculated by taking into account the systematic risk of the entity in the market risk premium paid in return for risk free rate. Permanent growth rate is estimated based on inflation and did not exceed the projected long-term average growth rate of the relevant industry report.

(Unit: %)
Cash-generating units	Discount rate	Permanent growth rate
PT Bank Shinhan Indonesia	12.40	2.00
Shinhan Bank Vietnam Co., Ltd.	13.10	2.00

130

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

13. Intangible assets (continued)

(c) Goodwill (continued)

ii) Impairment test (continued)

c. Significant assumptions

The carrying amounts and recoverable amounts of the CGUs to which goodwill has been allocated as of valuation date are as follows:

		PT Bank Shinhan Indonesia	Shinhan Bank Vietnam Co., Ltd.
Recoverable amount	W	409,968	1,103,312
Carrying amount(*)		424,347	929,088
Recoverable amount in excess of carrying amount amount	W	(14,379)	174,224

(*)The carrying amount includes goodwill for external subsidiary shares.

As a result of the impairment test of goodwill, the carrying amount exceeding the recoverable amount of PT Bank Shinhan Indonesia’s cash-generating unit is W 14,379 million, and W 14,235 million, which is the excess amount of 99% of the Bank's shares, is recognized as an impairment loss.

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. It decreased by W 48,793 million compared to the end of the 2019.

Also, the carrying amount of Shinhan Bank Vietnam’s cash-generating unit does not exceed the recoverable amount.

131

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Investments in associates

(a) Investments in associates as of December 31, 2020 and 2019 are as follows:

					Ownership (%)
Investees	Location		Closing month	Industry sector	December 31, 2020	December 31, 2019
BNP Paribas Cardif Life Insurance Co., Ltd.(*1)(*2)	Korea		September 30	Insurance	14.99	14.99
KOREA FINANCE SECURITY (*1)(*5)	Korea		September 30	Other	14.91	14.91
DAEGY Electrical Construction Co., Ltd. (*3)(*4)	Korea		December 31	Construction	27.45	27.45
DOODOO LOGITECH (*3)(*4)	Korea		December 31	Other	27.96	27.96
One Shinhan Future's Fund 1 (*1)(*6)	Korea		September 30	Investment	27.78	-
KST-Shinhan Fund 1 (*1)(*6)	Korea		September 30	Investment	20.00	-
One Shinhan Future's Fund 2 (*1)(*6)	Korea		September 30	Investment	29.70	-
Neoplux Technology Valuation Investment Fund (*1)	Korea		September 30	Investment	33.33	33.33
Partners 4th Growth Investment Fund (*1)	Korea		September 30	Investment	25.00	25.00
KTB Newlake Global Healthcare PEF (*1)	Korea		September 30	Investment	20.00	20.00
DAEKWANG SEMICON DUCTOR Co., Ltd. (*1)(*3)	Korea		September 30	Manufacturing	20.94	20.94
Songrim Co., Ltd. (*3)(*4)	Korea	��	December 31	Retail	35.34	35.34
Multimedia Tech Co., Ltd. (*3)(*4)	Korea		December 31	Other	21.06	21.06
Hyungje art printing (*3)(*4)	Korea		December 31	Other	31.54	31.54
MIEL Co., Ltd. (*3)(*4)	Korea		December 31	Other	28.77	28.77
COSPEC BIM tech			December 31	Other	40.92	-
WON JIN HOME PLAN CO.,LTD(*3)(*4)	Korea		December 31	Other	31.69	31.69
IL GU FARM CO.,LTD (*7)	Korea		-	Other	-	28.47
Korea Credit Bureau (*1)(*5)	Korea		September 30	Credit information	4.50	4.50
Goduck Gangil1 PFV Co., Ltd (*1)(*5)	Korea		September 30	Real estate	1.04	1.04
Goduck Gangil10 PFV Co., Ltd (*1)(*5)(*6)	Korea		September 30	Real estate	14.00	-
SBC PFV Co., Ltd (*1)(*5)(*8)	Korea		September 30	Real estate	12.50	12.50
GMG Development Co,. Ltd (*7)	Korea		-	Real estate service	-	5.00
ICSF (The Korea’s Information Center for Savings & Finance) (*4)	Korea		December 31	Service	32.26	32.26
Shinhan-Albatross Technology Investment Fund	Korea		December 31	Investment	33.33	33.33
Miraeequity-Incus Venture Business Fund No.4 (*7)	Korea		-	Investment	-	23.53
Shinhan-Neoplux Energy Newbiz Fund (*1)	Korea		September 30	Investment	23.33	23.33
Stassets-DA Value Healthcare Fund I (*1)	Korea		September 30	Investment	24.10	24.10

(*1)Financial statements as of September 30, 2020 are used for the equity method accounting since the financial statements as of December 31, 2020 are not available. Significant trades and events occurred within the period are properly reflected.

(*2)The Group used equity method accounting as the Group has significant influence over the investee through significant operating transactions.

(*3)The shares of the investees are acquired by debt-equity swap. The Group reclassified financial assets at fair value through other comprehensive income to investments in associates as the reorganization procedures are completed and now the Group can normally exercise its voting rights to the investees.

(*4)The latest financial statements available are used for the equity method accounting since the financial statements as of December 31, 2020 are not available. Significant trades and events occurred within the period are properly reflected.

(*5)Although it holds less than 20% of shares, the equity method is applied for evaluation since it has significant impact on the investee, such as participation in their decision making.

(*6)It is newly acquired or newly incorporated as investments in associates for the year ended December 31, 2020.

(*7) Excluded from associates because of disposal for the year ended December 31, 2020.

(*8) The percentage of voting rights held is 4.65%.

132

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14.  Investments in associates (continued)

(b) Changes in investments in associates for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
Associates		Acqui-sition cost	Beginn-ing balance	Acqui-sition (redemp-tion)	Gain from disposal	Share of profit (loss) of associates	Share of other comprehe-nsive income (loss) of associates	Dividends received		Others		Ending balance
BNP Paribas Cardif Life Insurance Co., Ltd.	W	42,204	52,600	-	-	(936)	(1,058)	-		-		50,606
KOREA FINANCE SECURITY		3,448	3,235	-	-	(180)	-	-		-		3,055
DAEGY Electrical Construction Co., Ltd.		-	109	-	-	(40)	-	-		-		69
DOODOO LOGITECH		-	7	-	-	(6)	-	-		-		1
One Shinhan Future's Fund 1(*1)		3,000	-	-	-	(79)	-	-		3,000		2,921
KST-Shinhan Fund 1(*1)		1,000	-	500	-	(80)	-	-		500		920
One Shinhan Future's Fund 2(*1)		1,800	-	1,200	-	(17)	-	-		600		1,783
Neoplux Technology Valuation Investment Fund		10,102	16,384	(7,304)	-	3	-	-		-		9,083
Partners 4th Growth Investment Fund		13,554	14,917	(1,925)	-	1,516	-	(2,550)		-		11,958
KTB Newlake Global Healthcare PEF		6,770	7,521	(1,266)	-	48	-	(34)		-		6,269
DAEKWANG SEMICON DUCTOR Co., Ltd.		-	3,387	-	-	244	-	-		-		3,631
Songrim Co., Ltd.(*2)		-	-	-	-	-	-	-		-		-
Multimedia Tech Co., Ltd. (*2)		-	19	-	-	(19)	-	-		-		-
Hyungje art printing (*2)		-	-	-	-	-	-	-		-		-
MIEL Co., Ltd.(*2)		-	-	-	-	-	-	-		-		-
COSPEC BIM tech (*2)		-	-	-	-	(81)	-	-		176		95
WON JIN HOME PLAN CO.,LTD		-	183	-	-	6	-	-		-		189
Korea Credit Bureau		2,250	3,406	-	-	127	-	(45)		-		3,488
Goduck Gangil1 PFV Co., Ltd (*2)		50	48	-	-	(48)	-	-		-		-
Goduck Gangil10 PFV Co., Ltd		700	-	700	-	(677)	-	-		-		23
SBC PFV Co., Ltd		10,000	10,000	-	-	(896)	-	-		-		9,104
GMG Development Co,. Ltd		-	3	(3)	-	-	-	-		-		-
ICSF (The Korea’s Information Center for Savings & Finance)		300	148	-	-	11	-	-		-		159
Shinhan-Albatross Technology Investment Fund		9,100	5,833	3,100	-	(161)	-	-		-		8,772
Miraeequity-Incus Venture Business Fund No.4		-	1,916	(2,914)	998	-	-	-		-		-
Shinhan-Neoplux Energy Newbiz Fund		10,590	7,880	2,190	-	285	-	-		-		10,355
Stassets-DA Value Healthcare Fund I		615	584	-	-	169	-	-		-		753
	W	115,483	128,180	(5,722)	998	(811)	(1,058)	(2,629)		4,276		123,234

(*1) No cash flow is involved as acquired from another account as reclassification.

(*2) This item has a book value of zero due to cumulative unrealized losses since its initial acquisition.

133

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14.  Investments in associates (continued)

(b) Changes in investments in associates for the years ended December 31, 2020 and 2019 are as follows(continued):

		December 31, 2019
Associates		Acqui-sition cost	Beginning balance	Acqui-sition (redemp-tion)	Gain (loss) from disposal	Share of profit (loss) of associates	Share of other comprehe-nsive income (loss) of associates	Dividends received	Ending balance
BNP Paribas Cardif Life Insurance Co., Ltd.	W	42,204	49,841	-	-	(526)	3,660	(375)	52,600
KOREA FINANCE SECURITY (*1)		3,448	-	3,448	-	(213)	-	-	3,235
Daewontos Co., Ltd. (*2)		-	-	-	-	-	-	-	-
DAEGY Electrical Construction Co., Ltd.		-	109	-	-	-	-	-	109
YEONWOONG SYSTEM		-	76	(76)	-	-	-	-	-
DOODOO LOGITECH		-	44	-	-	(37)	-	-	7
Neoplux Technology Valuation Investment Fund		17,406	18,738	(1,662)	-	(692)	-	-	16,384
Partners 4th Growth Investment Fund		15,478	16,612	(1,219)	-	(476)	-	-	14,917
KTB Newlake Global   Healthcare PEF		8,036	6,590	1,000	-	(69)	-	-	7,521
JAEYANG INDUSTRY		-	-	-	-	-	-	-	-
Tigris-Aurum Fund 1		1,500	1,391	(1,500)	425	-	-	(316)	-
DAEKWANG SEMICON DUCTOR Co., Ltd.		-	3,334	-	-	51	2	-	3,387
Songrim Partners (*2)		-	-	-	-	-	-	-	-
Taihan Industrial System Co., Ltd. (*2)		-	-	-	-	-	-	-	-
Multimedia Tech Co., Ltd.		-	-	-	-	19	-	-	19
Hyungje art printing (*2)		-	-	-	-	-	-	-	-
MIEL Co., Ltd. (*3)		-	-	-	-	-	-	-	-
WON JIN HOME PLAN CO.,LTD		-	-	-	-	183	-	-	183
IL GU FARM CO.,LTD		-	-	-	-	-	-	-	-
Korea Credit Bureau (*1)		2,250	-	2,250	-	1,156	-	-	3,406
Goduck Gangil1 PFV Co., Ltd.		50	-	50	-	(2)	-	-	48
SBC PFV Co., Ltd.		10,000	-	10,000	-	-	-	-	10,000
GMG Development Co,. Ltd.		3	-	3	-	-	-	-	3
ICSF (The Korea’s Information Center for Savings & Finance)		156	149	-	-	(1)	-	-	148
Shinhan-Albatross Technology Investment Fund		6,000	5,942	-	-	196	(306)	-	5,832
Miraeequity-Incus Venture Business Fund No.4		2,000	1,957	-	-	(41)	-	-	1,916
Shinhan-Neoplux Energy Newbiz Fund		8,400	3,974	4,200	-	(294)	-	-	7,880
Stassets-DA Value Healthcare Fund I		615	985	(384)	-	(17)	-	-	584
	W	117,546	109,742	16,110	425	(763)	3,356	(691)	128,179

(*1) No cash flow is involved as acquired from another account as reclassification.

(*2) This item has a book value of zero due to cumulative unrealized losses since its initial acquisition.

(*3) For the year ended December 31, 2018, no gains or losses on the equity method have occurred since the acquisition of the investment conversion.

134

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14.  Investments in associates (continued)

(c) Condensed financial statements of associates as of December 31, 2020 and 2019 are as follows:

Associates		December 31, 2020
		Assets		Liabilities		Operating revenue		Profit (loss) for the year		Other comprehensive income (loss)		Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance Co., Ltd.	W	3,526,148		3,188,562		38,669		(6,555)		(7,052)		(13,607)
KOREA FINANCE SECURITY		37,522		17,032		118,906		(1,174)		-		(1,174)
DAEGY Electrical Construction Co., Ltd.		280		28		-		(145)		-		(145)
DOODOO LOGITECH		5		-		115		(21)		-		(21)
One Shinhan Future's Fund 1		10,516		-		14		(284)		-		(284)
KST-Shinhan Fund 1		4,598		-		-		(402)		-		(402)
One Shinhan Future's Fund 2		6,003		-		-		(57)		-		(57)
Neoplux Technology Valuation Investment Fund		27,905		656		3,118		9		-		9
Partners 4th Growth Investment Fund		48,678		846		7,231		6,059		-		6,059
KTB Newlake Global Healthcare PEF		31,005		225		598		244		-		244
DAEKWANG SEMICON DUCTOR Co., Ltd.		23,682		6,339		3,836		1,163		-		1,163
Songrim Co., Ltd.		1,003		1,065		548		-		-		-
Multimedia Tech Co., Ltd.		593		662		555		(158)		-		(158)
Hyungje art printing		866		1,130		253		-		-		-
MIEL Co., Ltd.		474		559		585		(169)		-		(169)
COSPEC BIM tech		1,802		1,373		663		(196)		-		(196)
WON JIN HOME PLAN CO.,LTD		4,230		3,633		2,334		21		262		283
Korea Credit Bureau		114,571		37,062		93,275		3,992		-		3,992
Goduck Gangil1 PFV Co., Ltd		334,349		348,276		-		(10,065)		-		(10,065)
Goduck Gangil10 PFV Co., Ltd		247,130		246,966		-		(4,837)		-		(4,837)
SBC PFV Co., Ltd		119,994		7,199		-		(7,169)		-		(7,169)
ICSF (The Korea’s Information Center for Savings & Finance)		491		1		102		33		-		33
Shinhan-Albatross Technology Investment Fund		26,753		437		12		(430)		-		(430)
Shinhan-Neoplux Energy Newbiz Fund		44,696		315		2,522		1,223		-		1,223
Stassets-DA Value Healthcare Fund I		3,135		11		715		701		-		701
	W	4,616,429		3,862,377		274,051		(18,217)		(6,790)		(25,007)

135

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Investments in associates (continued)

(c) Condensed financial statements of associates as of December 31, 2020 and 2019 are as follows: (continued)

Associates		December 31, 2019
		Assets	Liabilities	Operating revenue	Profit (loss) for the year	Other comprehensive income (loss)	Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance Co., Ltd.	W	3,896,875	3,545,682	37,067	(3,919)	24,402	20,483
KOREA FINANCE SECURITY		32,079	10,386	64,964	(1,297)	-	(1,297)
DAEGY Electrical Construction Co., Ltd.		590	193	-	-	-	-
DOODOO LOGITECH		37	12	115	(133)	-	(133)
Neoplux Technology Valuation Investment Fund		49,890	738	3,953	(2,078)	-	(2,078)
Partners 4th Growth Investment Fund		60,775	1,106	14	(1,904)	-	(1,904)
KTB Newlake Global Healthcare PEF		37,187	151	387	(349)	-	(349)
DAEKWANG SEMICON DUCTOR Co., Ltd.		23,507	7,358	1,248	248	-	248
Songrim Co., Ltd.		1,003	1,065	548	(39)	-	(39)
Multimedia Tech Co., Ltd.		-	-	-	-	-	-
Hyungje art printing		866	1,130	253	(144)		(144)
MIEL Co., Ltd.		-	-	-	-	-	-
WON JIN HOME PLAN Co., Ltd.		3,845	3,268	2,945	592	262	854
IL GU FARM Co., Ltd.		565	881	14,954	77	-	77
Korea Credit Bureau		95,764	20,075	66,314	10,604	-	10,604
Goduck Gangil1 PFV Co., Ltd.		351,518	346,896	-	(179)	-	(179)
SBC PFV Co., Ltd.		120,000	40,000	-	-	-	-
GMG Development Co., Ltd.		300	240	-	-	-	-
ICSF (The Korea’s Information Center for Savings & Finance)		461	4	100	(4)	-	(4)
Shinhan-Albatross Technology Investment Fund		17,681	182	1,263	551	(917)	(366)
Miraeequity-Incus Venture Business Fund No.4		8,143	-	3	(172)	-	(172)
Shinhan-Neoplux Energy Newbiz Fund		33,791	18	26	(1,259)	-	(1,259)
Stassets-DA Value Healthcare Fund I		2,423	1	1	(66)	-	(66)
	W	4,737,300	3,979,386	194,155	529	23,747	24,276

136

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Investments in associates (continued)

(d) Reconciliation of associates’ financial information presented to the carrying amount of the Group’s interest in the associates as of December 31, 2020 and 2019 are as follows:

Associates	December 31, 2020
	Net assets (A)		Proportion of ownership interest (B)		Equity amount of net asset (A) x (B)		Unrealized income and expenses		Other adjustments		Carrying amount
BNP Paribas Cardif Life Insurance Co., Ltd.	337,586		14.99%		50,638		(32)		-		50,606
KOREA FINANCE SECURITY	20,490		14.91%		3,055		-		-		3,055
DAEGY Electrical Construction Co., Ltd.	252		27.45%		69		-		-		69
DOODOO LOGITECH	4		27.96%		1		-		-		1
One Shinhan Future's Fund 1	10,516		27.78%		2,921		-		-		2,921
KST-Shinhan Fund 1	4,598		20.00%		920		-		-		920
One Shinhan Future's Fund 2	6,003		29.70%		1,783		-		-		1,783
Neoplux Technology Valuation Investment Fund	27,249		33.33%		9,083		-		-		9,083
Partners 4th Growth Investment Fund	47,832		25.00%		11,958		-		-		11,958
KTB Newlake Global Healthcare PEF(*1)	30,780		20.00%		6,156		-		113		6,269
DAEKWANG SEMICON DUCTOR Co., Ltd.	17,343		20.94%		3,631		-		-		3,631
Songrim Co., Ltd.(*2)	(62)		35.34%		(22)		-		22		-
Multimedia Tech Co., Ltd.(*2)	(69)		21.06%		(15)		-		15		-
Hyungje art printing(*2)	(264)		31.54%		(83)		-		83		-
MIEL Co., Ltd.(*2)	(86)		28.77%		(25)		-		25		-
COSPEC BIM tech	233		40.92%		95		-		-		95
WON JIN HOME PLAN CO.,LTD	597		31.69%		189		-		-		189
Korea Credit Bureau	77,509		4.50%		3,488		-		-		3,488
Goduck Gangil1 PFV Co., Ltd(*2)	(13,927)		1.04%		(145)		-		145		-
Goduck Gangil10 PFV Co., Ltd	163		14.00%		23		-		-		23
SBC PFV Co., Ltd(*3)	112,794		12.50%		14,099		-		(4,995)		9,104
ICSF (The Korea’s Information Center for Savings & Finance)	490		32.26%		159		-		-		159
Shinhan-Albatross Technology Investment Fund	26,316		33.33%		8,772		-		-		8,772
Shinhan-Neoplux Energy Newbiz Fund	44,381		23.33%		10,355		-		-		10,355
Stassets-DA Value Healthcare Fund I	3,135		24.10%		753		-		-		753
	753,863				127,858		(32)		(4,592)		123,234

(*1) Other is the fair value adjustment amount incurred during acquisition.

(*2) Other adjustments represent the unrecognized share of accumulated losses resulting from the Group’s discontinuing the use of equity method since its interest is reduced to zero by the accumulated losses of the investee.

(*3) It is the amount of adjustment that does not use of the equity method for preferred shares without voting rights issued by the investee.

137

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Investments in associates (continued)

(d) Reconciliation of associates’ financial information presented to the carrying amount of the Group’s interest in the associates as of December 31, 2020 and 2019 are as follows: (continued)

Associates		December 31, 2019
		Net assets (A)	Proportion of ownership interest (B)	Equity amount of net asset (A) x (B)	Unrealized income and expenses	Other adjustments	Carrying amount
BNP Paribas Cardif Life Insurance Co., Ltd.	W	351,193	14.99%	52,679	(79)	-	52,600
KOREA FINANCE SECURITY		21,693	14.91%	3,235	-	-	3,235
DAEGY Electrical Construction Co., Ltd.		397	27.45%	109	-	-	109
DOODOO LOGITECH		25	27.96%	7	-	-	7
Neoplux Technology Valuation Investment Fund		49,152	33.33%	16,384	-	-	16,384
Partners 4th Growth Investment Fund		59,669	25.00%	14,917	-	-	14,917
KTB Newlake Global Healthcare PEF (*1)		37,036	20.00%	7,408	-	113	7,521
DAEKWANG SEMICON DUCTOR Co., Ltd.		16,179	20.94%	3,387	-	-	3,387
Songrim Co., Ltd. (*2)		(62)	35.34%	(22)	-	22	-
Multimedia Tech Co., Ltd.		89	21.06%	19	-	-	19
Hyungje art printing (*2)		(264)	31.54%	(83)	-	83	-
MIEL Co., Ltd. (*2)		(119)	28.77%	(34)	-	34	-
WON JIN HOME PLAN Co., Ltd.		576	31.69%	183	-	-	183
IL GU FARM Co., Ltd. (*2)		(316)	28.47%	(90)	-	90	-
Korea Credit Bureau		75,689	4.50%	3,406	-	-	3,406
Goduck Gangil1 PFV Co., Ltd.		4,622	1.04%	48	-	-	48
SBC PFV Co., Ltd.		80,000	12.50%	10,000	-	-	10,000
GMG Development Co., Ltd.		60	5.00%	3	-	-	3
ICSF (The Korea’s Information Center for Savings & Finance)		457	32.26%	148	-	-	148
Shinhan-Albatross Technology Investment Fund		17,499	33.33%	5,832	-	-	5,832
Miraeequity-Incus Venture Business Fund No.4		8,143	23.53%	1,916	-	-	1,916
Shinhan-Neoplux Energy Newbiz Fund		33,773	23.33%	7,880	-	-	7,880
Stassets-DA Value Healthcare Fund I		2,423	24.10%	584	-	-	584
	W	757,914		127,916	(79)	342	128,179

(*1) Other is the fair value adjustment amount incurred during acquisition.

(*2) Other adjustments represent the unrecognized share of accumulated losses resulting from the Group’s discontinuing the use of equity method since its interest is reduced to zero by the accumulated losses of the investee.

138

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Investments in associates (continued)

(e) The unrecognized equity method losses and accumulated unrecognized equity losses for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Unrecognized equity method loss	Accumulated unrecognized equity method loss
Songrim Co., Ltd.	W	-	(22)
Multimedia Tech Co., Ltd		(15)	(15)
Hyungje Art Printing		-	(83)
MIEL Co., Ltd.		(25)	(25)
Goduck Gangil1 PFV Co., Ltd		(145)	(145)
	W	(185)	(290)

		December 31, 2019
		Unrecognized equity method loss	Accumulated unrecognized equity method loss
Songrim Co., Ltd.	W	(14)	(22)
Hyungje Art Printing		(45)	(83)
MIEL Co., Ltd.		(34)	(34)
IL GUFARM Co., Ltd.		(90)	(90)
	W	(183)	(229)

139

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

15.  Investment properties

(a) Investment properties as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Acquisition cost	Accumulated depreciation	Book value
Land	W	454,486	-	454,486
Buildings		247,290	(91,537)	155,753
	W	701,776	(91,537)	610,239

		December 31, 2019
		Acquisition cost	Accumulated depreciation	Book value
Land	W	488,845	-	488,845
Buildings		226,519	(79,844)	146,675
	W	715,364	(79,844)	635,520

(b) Fair value of investment properties as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Investment properties (*)	W	659,314	635,406

(*) Fair value of investment properties is estimated based on the recent market transactions and certain significant unobservable inputs. Accordingly, fair value of investment properties is classified as level 3.

(c) Income and expenses on investment properties for the years ended December 31, 2020 and 2019 are as follows

		December 31, 2020	December 31, 2019
Rental income	W	27,472	27,859
Direct operating expenses for investment properties that generate rental income		5,026	5,604

140

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

16. Other assets

Other assets as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Unsettled trades and accounts receivable	W	4,732,147		6,826,245
Domestic exchange settlement receivables		3,969,758		4,207,371
Guarantee deposits		976,391		1,010,755
Accrued income		1,323,380		1,436,563
Prepaid expense		90,338		93,458
Suspense payments		180,082		67,526
Sundry assets		140,615		138,853
Others		15,513		4,757
Present value discount		(24,493)		(33,431)
Allowance for impairment		(22,474)		(17,679)
	W	11,381,257		13,734,418

17. Non-current assets held for sale

(a) Non-current assets held for sale as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Property and equipment	W	41,083	11,853

The Group has classified property and equipment which are highly expected to be sold within one year from December 31, 2020, as non-current assets held for sale.

(b) The cumulative income or loss recognized in other comprehensive income

There are no cumulative income or loss recognized in other comprehensive income relating to non-current assets held for sale as of December 31, 2020 and 2019.

141

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

18. Pledged assets

(a) Assets pledged as collateral as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019	Reasons for collateral
Loans:
Loans at amortized cost	W	-		128,163	Borrowings
Securities (*1):
Securities at FVOCI		2,294,273		364,490	Borrowings, Settlement security for Bank of Korea, Borrowing securities, etc
Securities at amortized cost		14,344,590		12,598,566	Borrowings, Settlement security for Bank of Korea, Customer RP, etc
		16,638,863		12,963,056
Property and equipment (*2)		4,041		5,030	Set for near mortgage, etc
	W	16,642,904		13,096,249

(*1) The carrying amounts of assets pledged as collateral that the transferees had the right to sell or repledge regardless of the Group’s default as of December 31, 2020 and 2019 are W 703,124 million and W 455,865 million, respectively.

(*2) The amounts are based on the notification amount of pledge.

(b) The fair value of collateral held that the Group has the right to sell or repledge regardless of pledger’s default as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
		Collateral held	Collateral sold or repledged	Collateral held	Collateral sold or repledged
Securities	W	2,871,910	-	2,007,036	-

142

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

19. Deposits

Deposits as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Demand deposits:
Korean won	W	131,215,165	101,691,275
Foreign currencies		16,906,684	13,525,062
		148,121,849	115,216,337
Time deposits:
Korean won		133,090,296	135,445,356
Foreign currencies		20,196,057	18,605,817
Gain on fair value hedge		(46,940)	(102,493)
		153,239,413	153,948,680
Negotiable certificates of deposits		5,942,309	9,694,816
Note discount deposits		6,226,937	4,747,587
CMA		4,006,319	3,987,372
Others		18,765	20,477
	W	317,555,592	287,615,269

20. Financial liabilities at fair value through profit or loss

(a) Financial liabilities at FVTPL as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
	Interest rate (%)		Amount	Interest rate (%)		Amount
Securities sold:
Debt securities	-	W	-	1.25	W	39,909
Equity securities	-		-	-		411
Gold/silver deposits	-		539,564	-		467,761
		W	539,564		W	508,081

(b) Net gain (loss) on financial liabilities at FVTPL for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Securities sold:
Gain on sale	W	470	285
Loss on sale		(119)	(202)
Loss on valuation		-	(77)
		351	6
Gold/silver deposits:
Gain on sale		10,700	4,644
Loss on sale		(2,389)	(475)
Loss on valuation		(83,316)	(91,025)
		(75,005)	(86,856)
	W	(74,654)	(86,850)

143

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

21. Borrowings

Borrowings as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
	Interest rate (%)		Amount	Interest rate (%)		Amount
Call money:
Korean won	0.35~0.45	W	620,000	0.00	W	-
Foreign currencies	0.00~0.55		1,035,042	0.00~5.25		538,247
			1,655,042			538,247
Bill sold	0.00~1.10		10,706	0.80~1.60		19,070
Bonds sold under repurchase agreements:
Korean won	0.00~0.57		552	1.31		958
Foreign currencies	0.59~5.15		158,880	2.28~5.40		102,531
			159,432			103,489
Borrowings in Korean won:
Borrowings from Bank of Korea	0.25		5,207,892	0.50~0.75		2,386,939
Others	0.00~4.25		6,791,884	0.00~4.30		6,149,615
			11,999,776			8,536,554
Borrowings in foreign currencies:
Overdraft due to banks	0.00		71,309	0.00		86,791
Borrowings from banks	0.00~7.50		5,288,021	0.00~7.50		6,456,429
Sub-lease	0.00		8,976	0.00		9,856
Others	0.00~9.85		1,362,125	1.94~7.35		1,576,459
			6,730,431			8,129,535
Deferred origination costs			(405)			(1,011)
		W	20,554,982		W	17,325,884

144

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Debt securities issued

Debt securities issued as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
	Interest rate (%)		Amount	Interest rate (%)		Amount
Debt securities issued in Korean won:
Debt securities issued	0.67~8.00	W	24,690,090	0.71~8.00	W	28,155,393
Subordinated debt securities issued	2.20~4.60		3,200,125	2.20~4.60		3,200,145
Gain on fair value hedges			(63,652)			(87,692)
Discount on debt securities issued			(14,599)			(40,736)
			27,811,964			31,227,110
Debt securities issued in foreign currencies:
Debt securities issued	0.25~3.88		3,749,583	0.01~4.01		3,882,419
Subordinated debt securities issued	3.75~5.00		2,673,824	3.75~5.00		2,813,406
Gain on fair value hedges			309,880			141,264
Discount on debt securities issued			(28,946)			(34,331)
			6,704,341			6,802,758
		W	34,516,305		W	38,029,868

145

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

23. Defined benefit liabilities (assets)

(a) Defined benefit plan assets and liabilities

The Group operates a defined benefit pension system based on employees’ length of service. The Group also trusts plan assets in trust companies, fund companies and other similar companies.

Defined benefit plan assets and liabilities as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Present value of defined benefit obligations	W	1,583,133	1,502,153
Fair value of plan assets		(1,590,977)	(1,445,985)
Net defined benefit liabilities	W	(7,844)	56,168

(b) Changes in the present value of defined benefit obligations for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Beginning balance	W	1,502,153		1,370,151
Current service cost		129,297		127,273
Interest expense		42,241		42,507
Remeasurements (*1)(*2)		(36,560)		21,637
Effects of foreign currency movements		(508)		423
Benefits paid by the plan		(68,020)		(61,050)
Others		5,279		1,212
Past service cost		9,251		-
Ending balance	W	1,583,133		1,502,153

(*1) Remeasurements for year ended December 31, 2020 consist of W39,038 million of actuarial gain arising from changes in financial assumptions, W2,478 million of actuarial loss arising from changes in experience adjustments.

(*2) Remeasurements for the year ended December 31, 2019 consist of W16,048million of actuarial gain arising from changes in demographic assumptions, W40,882 million of actuarial loss arising from changes in financial assumptions and W3,197million of actuarial gain arising from changes in experience adjustments, respectively.

(c) Changes in the fair value of plan assets

Changes in the fair value of plan assets for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Beginning balance	W	1,445,985	1,299,502
Interest income		41,769	41,324
Remeasurements		(15,611)	(16,618)
Contributions paid into the plan		179,000	180,000
Benefits paid by the plan		(60,166)	(58,223)
Ending balance	W	1,590,977	1,445,985

146

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

23. Defined benefit liabilities (assets) (continued)

(d) The amount of major categories of the fair value of plan assets as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Deposits	W	1,527,464		1,406,932
Others		63,513		39,053
	W	1,590,977		1,445,985

(e) Actuarial assumptions as of December 31, 2020 and 2019 are as follows:

	December 31, 2020	December 31, 2019	Descriptions
Discount rate	2.98%	2.92%		AA0 Corporate bond yields
Future salary increasing rate	2.21% + Promotion rate	2.33% + Promotion rate		Average for last 5 years

(f) Sensitivity analysis

Sensitivity analysis of the present value fluctuations of defined benefit obligations as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Change in present value when the factor rises by 100 basis points	Change in present value when the factor falls by 100 basis points
Discount rate	W	(152,648)	178,067
Future salary increasing rate		177,629	(155,105)

		December 31, 2019
		Change in present value when the factor rises by 100 basis points	Change in present value when the factor falls by 100 basis points
Discount rate	W	(149,945)	175,555
Future salary increasing rate		174,804	(151,611)

(g) The maturity analysis of undiscounted retirement benefit payments for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		1 year or less	1 year~ 2 years or less	2 years~ 5 years or less	5 years~ 10 years or less	More than 10 years	Total
Salary payment amount	W	35,673	62,323	247,007	481,324	1,403,079	2,229,406

		December 31, 2019
		1 year or less	1 year~ 2 years or less	2 years~ 5 years or less	5 years~ 10 years or less	More than 10 years	Total
Salary payment amount	W	32,759	62,556	207,240	428,824	1,391,820	2,123,199

(h) The weighted average durations of defined benefit obligations as of December 31, 2020 and 2019 are 10.7 years and 11.1 years, respectively.

147

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

(i) The Group's estimated contribution will be W 188,055 million as of December 31, 2021

148

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Provisions

(a) Changes in provision for unused credit commitments and financial guarantee contracts issued for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Loan commitments and other liabilities for credit			Financial guarantee contracts			Total
			Lifetime expected credit losses			Lifetime expected credit losses
		12-month expected credit losses	Credit unimpaired financial asset	Credit-impaired financial asset	12-month expected credit losses	Credit unimpaired financial asset	Credit-impaired financial asset
Beginning balance	W	65,836	20,872	6	59,133	5,555	811	152,213
Transfer to 12-month expected credit losses		5,177	(5,177)	-	2,059	(2,059)	-	-
Transfer to lifetime expected credit losses		(2,546)	2,546	-	(3,913)	3,913	-	-
Transfer to impaired financial asset		(56)	(104)	160	-	-	-	-
Provision (reversal)		16,508	4,073	(166)	7,950	1,844	(822)	29,387
Foreign exchange movements		(1,193)	(352)	-	(1,335)	(223)	(49)	(3,152)
Others (*)		-	-	-	(13,519)	(1,748)	69	(15,198)
Ending balance	W	83,726	21,858	-	50,375	7,282	9	163,250

(*) These include the new occurrence of financial guarantee contracts, which are evaluated at the initial fair value, and the effects of changes due to the arrival of maturity and changes in discount rates.

149

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Provisions (continued)

(a) Changes in provision for unused credit commitments and financial guarantee contracts issued for the years ended December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		Loan commitments and other liabilities for credit				Financial guarantee contracts			Total
			Lifetime expected credit losses				Lifetime expected credit losses
		12-month expected credit losses		Credit-unimpaired financial asset	Credit-impaired financial asset	12-month expected credit losses	Credit-unimpaired financial asset	Credit-impaired financial asset
Beginning balance	W	66,807		16,322	-	54,428	5,887	1,757	145,201
Transfer to 12-month expected credit losses		2,246		(2,246)	-	2,629	(2,629)	-	-
Transfer to lifetime expected credit losses		(2,319)		2,319	-	(1,245)	1,245	-	-
Transfer to impaired financial asset		(2)		-	2	(12)	-	12	-
Provision (reversal)		(1,808)		4,356	4	947	96	(943)	2,652
Foreign exchange movements		912		121	-	1,303	323	102	2,761
Others (*)		-		-	-	1,083	633	(117)	1,599
Ending balance	W	65,836		20,872	6	59,133	5,555	811	152,213

(*) These include the new occurrence of financial guarantee contracts, which are evaluated at the initial fair value, and the effects of changes due to the arrival of maturity and changes in discount rates.

150

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Provisions (continued)

(b) Changes in other provisions for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Asset retirement	Litigation	Non-financial guarantee contracts	Others	Total
Beginning balance	W	39,089	5,895	25,586	46,282	116,852
Provision (reversal)		1,344	3,046	(2,709)	69,173	70,854
Provision used		(920)	(49)	-	(6,765)	(7,734)
Foreign exchange movements		-	-	(1,030)	697	(333)
Others (*)		1,371	-	111	1,924	3,406
Ending balance	W	40,884	8,892	21,958	111,311	183,045

(*) This is the effect of changing the discount rate.

		December 31, 2019
		Asset retirement	Litigation	Non-financial guarantee contracts	Others	Total
Beginning balance	W	36,770	5,773	43,471	53,501	139,515
Provision (reversal)		777	122	(19,329)	(2,417)	(20,847)
Provision used		(739)	-	-	(7,679)	(8,418)
Foreign exchange movements		-	-	1,420	382	1,802
Others (*)		2,281	-	24	2,495	4,800
Ending balance	W	39,089	5,895	25,586	46,282	116,852

(*) This is the effect of changing the discount rate.

(c) Asset retirement obligation liabilities

Asset retirement obligation liabilities represent the estimated cost to restore the existing leased properties which are 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 the lease contract. Such costs are reasonably estimated using the average lease period and the average restoration expenses. The average lease period 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.

151

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

25. Other liabilities

Other liabilities as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Account payables	W	5,132,357	7,312,827
Borrowing from trust account		5,082,658	5,343,259
Accrued expenses		2,298,435	2,766,333
Liability incurred by agency relationship		1,239,226	1,609,675
Domestic exchange settlement payable		5,674,689	1,330,499
Lease liabilities (*)		438,937	460,938
Agency business income		780,635	733,345
Guarantee deposits received		669,388	384,552
Foreign exchange settlement payables		258,931	242,643
Suspense payable		88,040	58,788
Unearned income		80,918	95,900
Withholding value-added tax and other taxes		127,915	123,640
Sundry liabilities		169,785	65,774
Present value discount		(13,919)	(25,109)
	W	22,027,995	20,503,064

(*) For the year ended December 31, 2020, expenses for the variable lease payments that are not included in the measurement of lease liabilities amount to W 114 million, the cash outflows from lease liabilities amount to W 211,695 million, and interest expense on lease liabilities amount to W 6,224 million. Expenses for variable lease payments not included in the measurement of lease liabilities for the year ended December 31, 2019 amount to W 189 million, cash outflows from lease liabilities amount to W 208,436 million, and interest expense on lease liability amounts to W 7,845 million.

152

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

26. Equity

(a) Equity as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Capital stock:
Common stock	W	7,928,078		7,928,078
Other equity instruments:
Hybrid bonds		1,586,662		997,987
Capital surplus:
Share premium		398,080		398,080
Others		5,084		5,084
		403,164		403,164
Capital adjustments:
Stock options		7,745		789
Others		(3,547)		(3,269)
		4,198		(2,480)
Accumulated other comprehensive income (loss):
Net change in fair value of financial instruments at FVOCI		93,798		109,734
Share of other comprehensive income of associates		5,120		8,163
Foreign currency translation differences for foreign operations		(350,309)		(215,780)
Remeasurements of defined benefit plans		(290,020)		(305,148)
		(541,411)		(403,031)
Retained earnings:
Legal reserve (*1)		2,254,638		2,047,515
Voluntary reserve (*2)		12,738,659		11,815,146
Other reserve (*3)		135,023		123,197
Unappropriated retained earnings (*4)		3,150,114		3,177,137
		18,278,434		17,162,995
Non-controlling interests		6,389		6,402
	W	27,665,514		26,093,115

(*1) According to the Article 40 of the Banking Act, the Bank is required to appropriate an amount equal to a minimum of 10% of cash dividends paid for each accounting period as a legal reserve, until such reserve equals 100% of issued capital. The legal reserve is only available to reduce accumulated deficit or transfer to capital stock.

(*2) The amounts include regulatory reserve for loan loss based on separate financial statements of W 2,195,634 million and W 1,961,499 million as of December 31, 2020 and 2019, respectively. The amounts also include asset revaluation surplus of W 355,898 million as of December 31, 2020 and 2019.

(*3) Other reserve is established according to the laws applicable to some oversea branches and it may be used only to reduce their deficit.

(*4) As of December 31, 2020, the difference between the expected provision for regulatory reserve of loan loss based on the separate financial statements and consolidated financial statements is W 18,631 million, and this includes the expected provision for regulatory reserve of loan loss based on consolidated statements amounting W 99,209 million. As of December 31, 2019, the difference between the expected provision for regulatory reserve of loan loss based on the separate financial statements and consolidated financial statements is W 7,165 million, and this includes  the expected provision for regulatory reserve of loan loss based on consolidated statements amounting W 226,970 million.

153

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

26. Equity (continued)

(b) Capital stock as of December 31, 2020 and 2019 are as follows:

	December 31, 2020	December 31, 2019
Number of authorized shares	2,000,000,000 shares	2,000,000,000 shares
Par value per share in won	W5,000	W5,000
Number of issued shares outstanding	1,585,615,506 shares	1,585,615,506 shares

(c) Hybrid bonds

Hybrid bonds as of December 31, 2020 and 2019 are as follows:

			Book value
Date of issuance	Date of maturity		December 31, 2020	December 31, 2019		Interest rate (%)
Hybrid bonds issued in Korean won:
June 7, 2013	June 7, 2043	W	299,568	299,568		4.63
June 29, 2017	Perpetual bond		129,701	129,701		3.33
June 29, 2017	Perpetual bond		69,844	69,844		3.81
October 15, 2018	Perpetual bond		199,547	199,547		3.70
February 25, 2019	Perpetual bond		299,327	299,327		3.30
February 25, 2020	Perpetual bond		239,459	-		2.88
February 25, 2020	Perpetual bond		49,888	-		3.08
November 5, 2020	Perpetual bond		299,328	-		2.87
		W	1,586,662	997,987
Dividends on hybrid bond holders		W	44,529	33,115
Weighted average interest rate (%)			3.44	3.73

The above hybrid bonds are subject to early redemption option after five years or ten years from the date of issuance, and the maturity can be extended under the same condition at the maturity date.  

154

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

26. Equity (continued)

(d) Changes in accumulated other comprehensive income (loss)

Changes in accumulated other comprehensive income (loss) including reclassification adjustment for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Items that are or may be reclassified to profit or loss			Items that will not be reclassified to profit or loss
		Net change in fair value of financial assets at FVOCI	Share of other comprehensive income (loss) of associates, net	Foreign currency translation differences for foreign operations	Net change in fair value of financial assets at FVOCI	Share of other comprehensive income (loss) of associates, net	Remeasurements of the defined benefit plans	Total
Beginning balance	W	141,962	8,163	(215,780)	(32,228)	-	(305,148)	(403,031)
Change due to fair value measurement		23,338	-	-	(3,514)	-	-	19,824
Change due to equity method measurement		-	(1,057)	-	-	-	-	(1,057)
Change due to impairment		(4,148)	-	-	-	-	-	(4,148)
Change due to disposal		(66,238)	-	5,858	-	-	-	(60,380)
Effect of hedge accounting		(4,394)	-	44,049	-	-	-	39,655
Effect of foreign currency movements		-	-	(187,887)	723	-	-	(187,164)
Remeasurements of defined benefit plans		-	-	-	-	-	20,949	20,949
Amounts transferred to retained earnings Effect of tax		-	-	-	38,379	-	-	38,379
		9,706	(1,987)	3,452	(9,787)	-	(5,822)	(4,438)
Ending balance	W	100,226	5,119	(350,308)	(6,427)	-	(290,021)	(541,411)

155

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

26. Equity (continued)

(d) Changes in accumulated other comprehensive income (loss) (continued)

Changes in accumulated other comprehensive income (loss) including reclassification adjustment for the years ended December 31, 2020 and 2019 are as follows (continued):

		December 31, 2019
		Items that are or may be reclassified to profit or loss			Items that will not be reclassified to profit or loss
		Net change in fair value of financial assets at FVOCI	Share of other comprehensive income (loss) of associates, net	Foreign currency translation differences for foreign operations	Net change in fair value of financial assets at FVOCI	Share of other comprehensive income (loss) of associates, net	Remeasurements of the defined benefit plans	Total
Beginning balance	W	24,966	4,859	(313,003)	(46,084)	-	(277,435)	(606,697)
Change due to fair value measurement		157,276	-	-	26,622	-	-	183,898
Change due to equity method measurement			3,357					3,357
Change due to impairment		560	-	-	-	-	-	560
Change due to disposal		(18,553)	-	-	-	-	-	(18,553)
Effect of hedge accounting		(731)	-	(49,463)	-	-	-	(50,194)
Effect of foreign currency movements		-	-	140,002	293	-	-	140,295
Remeasurements of defined benefit plans		-	-	-	-	-	(38,255)	(38,255)
Amounts transferred to retained earnings Effect of tax		-	-	-	(7,804)	-	-	(7,804)
		(21,558)	(52)	6,684	(5,254)	-	10,542	(9,638)
Ending balance	W	141,960	8,164	(215,780)	(32,227)	-	(305,148)	(403,031)

156

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won, except for par value per share and dividend per share)

26. Equity (continued)

(e) The appropriation of retained earnings for the year ended December 31, 2020, is expected to be appropriated at the shareholders’ meeting on Marcher 24, 2021. The appropriation date for the year ended December 31, 2019, was Marcher 25, 2020.

Statements of appropriation of retained earnings for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Unappropriated retained earnings:
Balance at beginning of year	W	-		-
Transfer from other comprehensive income through the sale of securities at FVOCI		(27,826)		(5,658)
Interest on hybrid bond		(44,529)		(33,115)
Profit for the year		1,826,170		2,071,235
		1,753,815		2,032,462
Transfer from reserves:
Voluntary reserve		9,908,273		9,218,897
		11,662,088		11,251,359
Appropriation of retained earnings:
Legal reserve		182,617		207,124
Regulatory reserve for loan loss		80,578		234,135
Other reserve		21,304		11,827
Voluntary reserves		10,607,589		9,908,273
Loss on redemption of hybrid bond				-
Dividends on common stock		770,000		890,000
(Dividend per share in won: 2020   W485.62 (9.71%) 2019   W561.30 (11.23%)
		11,662,088		11,251,359
Unappropriated retained earnings to be carried over to subsequent year	W	-		-

These statements of appropriation of retained earnings are based on the separate financial statements of the Bank.

(f) Dividends

Dividends of common stock for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Number of issued shares outstanding		1,585,615,506	1,585,615,506
Par value per share in won	W	5,000	5,000
Dividend rate per share		9.71%	11.23%
Dividend per share in won	W	485.62	561.30

.

157

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won, except for earnings per share)

26. Equity (continued)

(g) Dividends payout ratio

Dividends payout ratio for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Dividends	W	770,000	890,000
Profit for the year (*)		2,077,793	2,329,192
Dividends payout ratio to profit for the year		37.06%	38.21%
Profit for the year adjusted for regulatory reserve (*)		1,978,584	2,102,222
Dividends payout ratio to profit for the year adjusted for regulatory reserve for loan loss		38.92%	42.34%

(*) Profit for the year and profit for the year adjusted for regulatory reserve for loan loss are the amount attributable to equity holder of the Bank.

27. Regulatory reserve for loan loss

The Group should calculate and disclose regulatory reserve for loan loss, in accordance with the Article 29-1 and 29-2 of Regulation on Supervision of Banking Business.

(a) The regulatory reserve for loan loss as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Regulatory reserve for loan loss	W	2,242,861	2,015,891
Provision for regulatory reserve for loan loss		99,209	226,970
	W	2,342,070	2,242,861

(b) Provision for regulatory reserve for loan loss and adjusted profit after reflecting regulatory reserve for loan loss

Provision for regulatory reserve for loan loss and adjusted profit after reflecting regulatory reserve for loan loss for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Provision for regulatory reserve for loan loss	W	99,209	226,970
Adjusted profit after reflecting regulatory reserve for loan loss(*)		1,979,023	2,102,298
Adjusted earnings per share after reflecting regulatory reserve for loan loss in won		1,220	1,305

(*) The adjusted reserve which reflects abovementioned loan loss is not based on K-IFRS and is calculated by assuming that the provisions of loan loss before income tax effects are reflected in profit for the year.  

158

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(In millions of won)

28. Net interest income

(a) Net interest income for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Interest income:
Cash and due from banks	W	64,502	124,921
Securities at FVTPL		255,008	290,274
Securities at FVOCI		597,123	716,464
Securities at amortized cost		452,107	466,706
Loans		8,193,732	8,989,109
Others		53,310	67,258
		9,615,782	10,654,732
Interest income from impaired financial assets		19,170	17,560
Interest expense: (*)
Deposits		2,752,438	3,542,038
Borrowings		203,999	301,998
Debt securities issued		691,242	852,328
Others		40,570	86,581
		3,688,249	4,782,945
Net interest income	W	5,927,533	5,871,787

(*1) Included interest income from loans at FVTPL of W 9,440 million and W 16,254 million, respectively for the years ended December 31, 2020 and 2019.  

159

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(In millions of won)

29. Net fees and commission income

Net fees and commission income for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Fees and commission income:
Credit placement fees	W	83,462		60,131
Commission received as electronic charge receipt		143,219		151,196
Brokerage fees		88,534		109,307
Commission received as agency		297,382		305,712
Investment banking fees		92,331		107,370
Commission received in foreign exchange activities		184,550		196,302
Asset management fees from trust accounts		166,960		238,246
Guarantee fees		81,460		78,642
Others		127,083		120,641
		1,264,981		1,367,547
Fees and commission expense:
Credit-related fees		44,554		39,011
Brand-related fees		42,279		35,530
Service-related fees		45,683		33,105
Trading and brokerage fees		8,340		9,640
Commission paid in foreign exchange activities		42,048		46,618
Others		94,506		86,251
		277,410		250,155
Net fees and commission income	W	987,571		1,117,392

30. Dividend income

Dividend income for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Securities at FVTPL	W	1,545	2,820
Securities at FVOCI		16,332	12,135
	W	17,877	14,955

(*) Dividend income for stocks disposed for the year ended December 31, 2020 is W 1,529 million

160

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

31.  Gain and loss on financial instruments at fair value through profit or loss

Gain and loss on financial instruments at FVTPL for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Financial instruments at FVTPL
Debt:
Gain on valuation of debt securities	W	151,668	81,904
Gain on sale of debt securities		85,721	83,398
Loss on valuation of debt securities		(39,254)	(54,147)
Loss on sale of debt securities		(67,246)	(47,017)
Others		96,118	100,005
		227,007	164,143
Equity:
Gain on valuation of equity securities		4,159	5,054
Gain on sale of equity securities		6,715	7,963
Loss on valuation of equity securities		(6,335)	(10,837)
Loss on sale of equity securities		(9,800)	(1,809)
		(5,261)	371
Gold/silver:
Gain on valuation of gold/silver deposits		22,690	28,803
Gain on sale of gold/silver deposits		10,701	4,644
Loss on valuation of gold/silver deposits		(83,316)	(91,025)
Loss on sale of gold/silver deposits		(2,389)	(475)
		(52,314)	(58,053)
Loans at FVTPL:
Gain on valuation of loans		7,818	4,046
Gain on sale of loans		11,792	14,508
Loss on valuation of loans		(2,905)	(2,856)
Loss on sale of loans		(2,678)	(2,484)
		14,027	13,214
		183,459	119,675
Derivatives
Foreigncurrency related:
Gain on valuation and transaction		10,254,901	7,823,821
Loss on valuation and transaction		(10,195,077)	(7,712,868)
		59,824	110,953
Interest rates related:
Gain on valuation and transaction		521,537	524,405
Loss on valuation and transaction		(606,300)	(545,101)
		(84,763)	(20,696)
Equity related:
Gain on valuation and transaction		25,046	15,692
Loss on valuation and transaction		(36,206)	(14,724)
		(11,160)	968
Commodity related:
Gain on valuation and transaction		27,864	34,557
Loss on valuation and transaction		(6,643)	(11,560)
		21,221	22,997
		(14,878)	114,222
Net gain on financial instruments at FVTPL	W	168,581	233,897

161

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

32. General and administrative expenses

General and administrative expenses for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Employee benefits:
Short and long term employee benefits	W	1,837,096	1,774,859
Post-employee defined benefits		139,058	128,455
Post-employee defined contributions		425	418
Termination benefits		77,716	93,712
		2,054,295	1,997,444
Amortization:
Depreciation		126,101	123,784
Amortization of intangible assets		52,631	44,292
Depreciation of right-of-use assets		232,285	235,785
		411,017	403,861
Other general and administrative expenses:
Rent		55,147	53,586
Service contract expenses		264,403	256,347
Taxes and dues		96,293	100,603
Advertising		80,765	81,193
Electronic data processing expenses		58,122	53,449
Others		182,904	195,923
		737,634	741,101
	W	3,202,946	3,142,406

162

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won, except for fair value and share data)

33. Share-based payments

(a) Stock options granted as of December 31, 2020 are as follows:

	6th grant	7th grant
Grant date	March 20, 2007	March 19, 2008
Exercise price in won	W54,560	W49,053
Number of shares granted	715,500	332,850
Contractual exercise Period	2017.05.18 ~ 2020.08.19	2017.05.18 ~ 2021.05.17   2017.09.18 ~ 2021.09.17
Changes in number of shares granted:
Outstanding at December 31, 2019	50,513	21,474
Exercised	50,513	-
Outstanding at December 31, 2020	-	21,474
Fair value in won	-	Expiration date 2021.05.17 :W 14 Expiration date 2021.09.17 : W 49

(*) As of December 31, 2020, the granted shares are fully vested, and the weighted-average exercise price of 21,747 outstanding options is W49,053.

(b) Equity-settled share-based payments

i) Equity-settled share-based payments as of December 31, 2020 are as follows:

	Contents
Type	Equity-settled share-based payment
Service period	Upon appointment and promotion since January 1, 2014 (Within 1 year from grant date)
Performance conditions	Linked to relative stock price (20.0%) and management index for 4 years (80.0%)

(*) The Group granted shares of Shinhan Financial Group. According to the commitment, the amount that the Group  pays to the Shinhan Financial Group is recognized as liabilities, and the difference between the amount recognized as liabilities and the compensation cost based on equity-settled share-based payments is recognized in equity.

163

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won, except for fair value and share data)

33. Share-based payments (continued)

(b) Equity-settled share-based payments (continued)

ii) Granted shares and the fair value of grant date as of December 31, 2020 are as follows:

Grant date	Grant shares		Fair value (*1) (in won)		Estimated shares (*2)
March 18, 2015	16,800		42,650		13,300
May 22, 2015	5,300		42,800		3,251
January 1, 2016	206,300		39,000		25,600
January 1, 2017	217,300		45,300		187,912
January 23, 2017	2,700		45,600		2,494
March 7, 2017	17,400		46,950		14,026
March 24, 2017	8,100		49,000		6,150
June 1, 2017	2,700		49,250		1,543
July 5, 2017	2,700		49,550		1,294
July 6, 2017	4,500		49,200		2,100
January 1, 2018	225,070		49,400		211,141
January 24, 2018	1,275		52,700		1,064
January 1, 2019	296,226		39,600		251,882
March 26, 2019	23,410		42,750		16,514
April 1, 2019	3,696		43,750		2,550
June 1, 2019	2,839		44,450		1,514
July 4, 2019	7,392		44,450		3,360
July 8, 2019	3,696		43,650		1,643
	1,047,403				747,338

(*1) The fair value per share is evaluated based on the closing price of Shinhan Financial Group at each grant date.  As of December 31, 2020, the fair value per share data evaluated by Shinhan Financial Group amounted to W32,050.

(*2) Grant shares at grant date were adjusted pursuant to increase rate of stock price(20.0%) and achievement of target ROE(80.0%) based on standard quantity applicable to the days of service among specified period of service, which allows the determination of acquired quantity at the end of the operation period.

164

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

33. Share-based payments (continued)

(c) Details of performance-based stock compensation as of December 31, 2020 are as follows:

	Expired	Not expired
Type	Cash-settled share-based payment
Performance conditions	Relative stock price linked (20.0%), management index (60.0%), and prudential index (20.0%)
Exercising period	4 years from the commencement date of the year to which the grant date belongs
Grant shares	260,777
Estimated number of shares vested at December 31, 2020	-	220,574
Fair value per share in Korean won	32,050

(*) 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.

(d) Stock compensation costs calculated for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Compensation costs recorded for the year	W	6,077		11,245

(e) Accrued expenses of the stock compensation costs and residual compensation costs as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Accrued expenses	W	40,171		39,747

165

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

34. Net other operating expenses

Net other operating expenses for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Other operating income
Gain on sale of assets:
Loans at amortized cost	W	4,347	11,916
Written-off loans		11,920	1,430
		16,267	13,346
Others:
Gain on hedge activity from hedged items		50,805	29,722
Gain on hedge activity from hedging instruments		289,111	410,131
Reversal of allowance for acceptances and guarantee		2,709	19,329
Reversal of other allowance		-	1,518
Others		39,103	6,757
		381,728	467,457
		397,995	480,803
Other operating expense
Loss on sale of assets:
Loans at amortized cost		18,584	(27,096)
Others:
Loss on hedge activity from hedged items		279,071	(400,509)
Loss on hedge activity from hedging instruments		58,236	(35,337)
Provision for other allowance		11,252	-
Contribution to fund		359,071	(302,994)
Deposit insurance fee		342,730	(299,159)
Others		236,475	(296,760)
		1,286,835	(1,334,759)
		1,305,419	(1,361,855)
Net other operating expenses	W	(907,424)	(881,052)

166

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

35. Net non-operating income

Net non-operating income for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Non-operating income
Gain on sale of assets:
Property and equipment	W	30,429	1,602
Intangible assets		122	5,347
Non-current assets held for sale		1,147	57
Assets not used for business purpose		24	-
		31,722	7,006
Investments in associates:
Gain from dividends		4,453	-
Gain from disposal		1,304	1,124
		5,757	1,124
Others:
Rental income on investment property		27,472	27,859
Others		29,803	50,173
		57,275	78,032
		94,754	86,162
Non-operating expenses
Loss on sale of assets:
Property and equipment		(4,669)	(130)
Intangible assets		-	(5)
Non-current assets held for sale		(134)	-
		(4,803)	(135)
Investments in associates:
Loss on disposal		-	(2,277)
Loss from disposal		(244)	-
		(244)	(2,277)
`Others:
Investment properties depreciation		(11,554)	(11,004)
Donations		(65,384)	(71,859)
Impairment loss on intangible assets		(27,190)	(151,523)
Others		(114,973)	(34,994)
		(219,101)	(269,380)
		(224,148)	(271,792)
Net non-operating expenses	W	(129,394)	(185,630)

167

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

36. Income tax expense

(a) The components of income tax expense of the Group for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Current income tax expense	W	730,571	767,958
Deferred taxes arising from changes in temporary differences		(52,105)	(57,852)
Deferred taxes arising from utilization of expired unused tax losses		33,819	45,633
Tax adjustment charged or credited directly to equity		(7,076)	(8,097)
Income tax expense	W	705,209	747,642

(b) The income tax expense calculated by applying statutory tax rates to the Group’s taxable income differs from the actual tax expense in the consolidated statements of income for the years ended December 31, 2020 and 2019 for the following reasons:

		December 31, 2020		December 31, 2019
Profit before income tax	W	2,783,441		3,076,910
Statutory tax rate		27.50%		27.50%
Income tax expense at statutory tax rates		755,084		835,787
Adjustments:
Non-taxable income		(579)		(2,889)
Non-deductible expense		7,603		7,093
Decrease resulting from consolidated corporate tax system		(46,567)		(62,401)
Income tax paid (refund)		(1,284)		(17,763)
Others (impact of tax rate change, etc.)		(9,048)		(12,185)
Income tax expense	W	705,209		747,642
Effective tax rate		25.34%		24.30%

168

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

36. Income tax expense (continued)

(c) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Beginning Balance		Decreases		Increases		Ending balance		Deferred tax assets (liabilities) (*1)
Accrued income	W	(651,553)		(651,553)		(651,363)		(651,363)		(179,125)
Accounts receivable		(96,013)		(96,013)		(106,028)		(106,028)		(29,158)
Securities at FVTPL		529,209		169,866		144,288		503,631		138,498
Investments in associates and subsidiaries		(710,889)		7,397		(127,060)		(845,346)		(232,470)
Deferred loan origination costs  and fees		(498,779)		(500,535)		(502,147)		(500,391)		(137,608)
Revaluation and depreciation on property and equipment		(404,677)		20,720		14,350		(411,047)		(113,002)
Derivative liabilities		(245,346)		(243,086)		(97,389)		(99,649)		(27,404)
Deposits		111,424		94,249		83,306		100,481		27,632
Accrued expenses		265,345		266,890		257,420		255,875		70,366
Defined benefit obligations		1,380,358		60,166		143,304		1,463,496		402,461
Plan assets		(1,430,221)		(60,166)		(192,121)		(1,562,176)		(429,598)
Other provisions		177,983		146,543		235,231		266,671		73,334
Allowance for guarantees  and acceptance		91,083		147,973		136,514		79,624		21,897
Allowance for advanced  depreciation		(177,137)		-		2		(177,135)		(48,712)
Allowance for expensing depreciation		(1,459)		(232)		-		(1,227)		(337)
Net change in fair value of securities at FVOCI		136,323		142,276		(114,514)		(120,467)		(33,129)
Donation payables		133,494		133,495		60,227		60,226		16,562
Allowance and bad debt		101,559		107,221		704,477		698,815		196,628
Compensation expenses associated with stock option		109		31		1		79		22
Fictitious dividends		4,426		77		54,443		58,792		16,168
Others		169,680		2,133,083		1,902,771		(60,632)		(16,673)
	W	(1,115,081)		1,878,402		1,945,712		(1,047,771)		(283,648)
Expired unused tax losses
Appropriation by extinctive prescription of deposit	W	1,089,836		122,978		-		966,858		265,886
Temporary differences not qualified for deferred tax assets or liabilities:
Investments in associates and Subsidiaries (*2)		(777,135)		-		(121,489)		(898,625)		(247,121)
	W	751,890		2,001,380		2,067,201		817,712		229,361

(*1) Deferred tax assets of overseas subsidiaries have increased by W1,960 million due to foreign currency exchange rate changes.

(*2) The effect of income taxes by the valuation of equity method is reasonably estimated based on the both plausibility and the applicable amount of deferred income tax belonging to each associate investee.

169

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

36. Income tax expense (continued)

(c) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2020 and 2019 are as follows: (continued)

		December 31, 2019
		Beginning Balance	Decreases		Increases	Ending balance	Deferred tax assets (liabilities) (*1)
Accrued income	W	(644,318)	(644,318)		(651,553)	(651,553)	(179,177)
Accounts receivable		(88,065)	(88,065)		(96,013)	(96,013)	(26,404)
Securities at FVTPL		93,830	72,059		74,382	96,153	26,442
Securities at FVOCI		278,317	(22,541)		132,198	433,056	119,090
Investments in associates and subsidiaries(*2)		(612,345)	(612,345)		(710,889)	(710,889)	(195,494)
Deferred loan origination costs and fees		(497,515)	(497,515)		(498,779)	(498,779)	(137,164)
Revaluation and depreciation on property and equipment		(439,598)	(15,030)		19,891	(404,677)	(111,250)
Derivative liabilities		(179,207)	(174,721)		(240,860)	(245,346)	(67,470)
Deposits		101,951	53,077	��	62,550	111,424	30,641
Accrued expenses		283,697	293,116		274,764	265,345	72,970
Defined benefit obligations		1,249,457	58,223		189,124	1,380,358	379,599
Plan assets		(1,267,932)	(58,223)		(220,512)	(1,430,221)	(393,310)
Other provisions		177,823	148,900		149,060	177,983	48,945
Allowance for guarantees and acceptance		105,542	141,434		126,975	91,083	25,048
Allowance for advanced depreciation		(177,137)	-		-	(177,137)	(48,713)
Allowance for expensing depreciation		(1,691)	(232)		-	(1,459)	(401)
Net change in fair value of securities at FVOCI		21,341	(245,501)		(130,519)	136,323	37,489
Donation payables		78,750	133,915		188,659	133,494	36,711
Allowance and bad debt		162,884	126,646		65,321	101,559	34,158
Compensation expenses associated with stock option		178	61		(8)	109	30
Fictitious dividends		4,060	-		366	4,426	1,217
Others		148,386	713,414		734,708	169,680	46,663
		(1,201,592)	(617,646)		(531,135)	(1,115,081)	(300,380)
Expired unused tax losses
Appropriation by extinctive prescription of deposit		1,255,777	165,941		-	1,089,836	299,706
Temporary differences not qualified for deferred tax assets or liabilities:
Investments in associates and Subsidiaries (*2)		(685,456)	-		(91,679)	(777,135)	(213,709)
	W	739,641	(451,705)		(439,456)	751,890	213,035

(*1) Deferred tax assets of overseas subsidiaries have increased by W1,530 million due to foreign currency exchange rate changes.

(*2) The effect of income taxes by the valuation of equity method is reasonably estimated based on the both plausibility and the applicable amount of deferred income tax belonging to each associate investee.

170

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

36. Income tax expense (continued)

(d) Changes in tax effects that are directly charged or credited to equity for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
		Amount before tax	Tax effects	Amount before tax	Tax effects	Changes in tax effects
Net change in fair value of securities at FVOCI	W	120,468	(26,670)	136,322	(26,589)	(81)
Share of other comprehensive income (loss) of associates		7,222	(2,102)	8,281	(117)	(1,985)
Foreign currency translation differences for foreign operations		(483,974)	(6,246)	(206,083)	(9,697)	3,451
Remeasurements of defined benefit plans		(400,081)	110,060	(421,030)	115,882	(5,822)
Other (stock option)		10,683	(2,934)	1,088	(295)	(2,639)
	W	(745,682)	72,108	(481,422)	79,184	(7,076)

		December 31, 2019		December 31, 2018
		Amount before tax	Tax effects	Amount before tax	Tax effects	Changes in tax effects
Net change in fair value of available-for-sale financial assets	W	136,322	(26,589)	(21,341)	223	(26,812)
Share of other comprehensive income (loss) of associates		8,281	(117)	4,923	(64)	(53)
Foreign currency translation differences for foreign operations		(206,083)	(9,697)	(296,622)	(16,381)	6,684
Remeasurements of defined benefit plans		(421,030)	115,882	(382,774)	105,339	10,543
Other (stock option)		1,088	(295)	6,690	(1,836)	1,541
	W	(481,422)	79,184	(689,124)	87,281	(8,097)

(e) The current tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Current tax assets:
Prepaid income taxes	W	15,605	31,312
Current tax liabilities:
Payable due to consolidated tax system	W	216,423	353,674
Income taxes payables		38,863	44,955
	W	255,286	398,629

171

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(In millions of won, except for earnings per share)

36. Income tax expense (continued)

(f) The deferred tax assets (liabilities) and current tax assets (liabilities) presented on a gross basis prior to any offsetting as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Deferred tax assets	W	2,586,848	1,904,536
Deferred tax liabilities		2,357,487	1,691,501
Current tax assets		377,624	400,753
Current tax liabilities		617,305	768,070

As of December 31, 2020, the Group has filed a dispute against the tax authorities and the courts for the refund of the corporate tax on two cases (claim amount: W 7,429 million). If the likelihood of winning a lawsuit increases, the Group will recognize the related assets.

37. Earnings per share

(a) Earnings per share for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Profit for the year	W	2,077,793		2,329,192
Less: dividends on hybrid bonds		(44,529)		(33,115)
Profit available for common stock	W	2,033,264		2,296,077
Weighted average number of common shares outstanding		1,585,615,506 shares		1,585,615,506 shares
Basic and diluted earnings per share in won	W	1,282		1,448

Considering that the Group had no dilutive potential common shares and that stock options are not included in the calculation of diluted earnings per share because they are anti-dilutive for the reporting periods presented, diluted earnings per share equal to basic earnings per share for the years ended December 31, 2020 and 2019.

(b) Weighted average number of common shares outstanding as of December 31, 2020 and 2019 are as follows:

	December 31, 2020	December 31, 2019
Number of common shares outstanding	1,585,615,506 shares	1,585,615,506 shares
Weight	366/366	365/365
Weighted average number of common shares outstanding	1,585,615,506 shares	1,585,615,506 shares

172

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

38. Commitments and contingencies

(a) Guarantees, acceptances and credit commitments as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Guarantees:
Guarantee outstanding	W	10,231,521	9,298,134
Contingent guarantees		3,405,270	3,579,892
		13,636,791	12,878,026
Commitments to extend credit:
Loan commitments in Korean won		79,271,528	72,114,261
Loan commitments in foreign currencies		19,407,713	22,470,583
ABS and ABCP purchase commitments		1,515,004	2,003,354
Others		2,970,548	2,574,184
		103,164,793	99,162,382
Endorsed bills:
Secured endorsed bills		1,650	11,287
Unsecured endorsed bills		7,324,559	6,737,097
		7,326,209	6,748,384
Loans sold with repurchase agreement		-	2,099
	W	124,127,793	118,790,891

(b) Provision for acceptances and guarantees

Allowance for acceptances and guarantees, as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Guarantees outstanding	W	10,231,521	9,298,134
Contingent guarantees		3,405,270	3,579,892
ABS and ABCP purchase commitments		1,515,004	2,003,354
Secured endorsed bills		1,650	11,287
	W	15,153,445	14,892,667
Allowance for acceptances and guarantees	W	79,624	91,083
Ratio (%)		0.53%	0.61

173

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

38. Commitments and contingencies (continued)

(c) Legal contingencies

Pending litigations in which the Group is involved as a defendant as of December 31, 2020 are as follows:

Case	Number of claim		Claim amount	Description	Status
Deposit return	1	W	4,606	The plaintiff alleges that the Group has canceled the money received in his account without his consent, and requested the Group to pay the deposit equivalent to the amount.	The Group won the first and second order and the third order is ongoing as of December 31, 2020.
Claim for the payment to execute the assignment order	1		7,099	For the deposits at the Group owned by one of the debtor, the plaintiff has received a provisional seizure order, bond seizure and an assignment order that assigned the Group as a third party debtor. Accordingly, the plaintiff filed a claim against the Group for the debt payment to execute the assignment order.	In progress for the first order.
Others	162		84,550	It includes various cases, such as compensation for loss claim.
	164	W	96,255

As of December 31, 2020, the Group recorded a provision of W 8,892 million for litigation for certain of the above lawsuits. Additional losses may be incurred from these legal actions besides the current provision established by the Group, but the amount of loss is not expected to have a material adverse effect on the Group’s consolidated financial statements.

(d) Others

Regarding the currency option contracts, the Group has received the dispute arbitration request from the Financial Dispute Arbitration Committee on December 19, 2019; It is expected to be processed through a deliberation by the Board of Directors after consultation through the banking council to discuss future countermeasures.The Group's management anticipates that the result of the arbitration will not have a significant impact on the Group's financial position.

In addition, some of the private equity funds sold by the Group and managed by Lime Asset management are being inspected by the supervisory authority for whether any mis-selling has been involved. The Group decided to supply liquidity of W 135.6 billion out of the total sales of the repurchase deferral fund of Lime Asset Management, W 271.3 billion and executed W 128.8 billion as of December 31, 2020.

174

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

39. Statements of cash flows

(a) Cash and cash equivalents reported in the accompanying consolidated statements of cash flows as of December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Cash	W	1,740,580		2,528,135
Reserve deposits		16,711,286		13,555,978
Other deposits		9,123,882		7,965,719
Cash and due from banks		27,575,748		24,049,832
Less: Restricted due from banks		(19,463,821)		(14,725,735)
Less: Due with original maturities of more than three months		(1,476,313)		(2,213,580)
	W	6,635,614		7,110,517

(b) Significant non-cash activities for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Debt-equity swap	W	58,528	224,093
Accounts payable for purchase of property and equipment		2,258	-
Accounts payable for purchase of intangible assets		(137,475)	424,039
Recognition of right-of-use assets		209,730	712,228
Recognition of lease liabilities		195,747	665,146

(c) Changes in liabilities resulting from financing activities for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Derivative assets	Borrowings	Debentures	Lease liabilities	Total
Beginning balance	W	(54,234)	17,325,884	38,029,868	460,937	55,762,455
Changes in cash flows		359	3,206,675	(3,576,877)	(207,168)	(577,011)
Amortization		-	589	31,522	6,224	38,335
Net foreign currencies transaction loss		-	21,834	(160,884)	(7,030)	(146,080)
Changes in fair value of hedged items		-	-	192,676	-	192,676
Others		(198,312)	-	-	185,973	(12,339)
Ending balance	W	(252,187)	20,554,982	34,516,305	438,936	55,258,036

		December 31, 2019
		Borrowings	Debt securities issued	Total
Beginning balance	W	16,154,821	31,899,266	48,054,087
Changes in cash flows		943,540	5,649,894	6,593,434
Amortization		848	(47,968)	(47,120)
Net foreign currencies transaction gain		226,675	215,766	442,441
Changes in fair value of hedged items		-	312,910	312,910
Ending balance	W	17,325,884	38,029,868	55,355,752

175

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions

(a) Significant balances with the related parties as of December 31, 2020 and 2019 are as follows:

Related party		Account		December 31, 2020		December 31, 2019
The parent company
Shinhan Financial Group	Current tax assets	W	81		59
	Deposits		3		167
	Current tax liabilities		216,423		353,674
	Other liabilities		42,339		52,595
Entities under common control
Shinhan Card Co., Ltd.	Derivative assets		28,901		12,066
	Loans		99,581		103,018
	Allowance for loan loss		(744)		(629)
	Other assets (*)		6,359		13,575
	Deposits		84,743		35,260
	Derivative liabilities		-		516
	Provisions		123		63
	Other liabilities		25,029		31,891
Shinhan Investment Corp.	Cash and cash equivalents		14,967		6,202
	Derivative assets		12,267		11,814
	Loans		56,386		5
	Allowance for loan loss		(12)		(5)
	Other assets (*)		24,437		19,473
	Deposits		847,450		565,972
	Borrowings		11,450		11,100
	Derivative liabilities		1,799		6,749
	Provisions		536		532
	Other liabilities		44,137		42,312
Shinhan Life Insurance	Derivative assets		12,177		20,542
	Other assets		6		9
	Deposits		157,150		14,724
	Derivative liabilities		31,288		12,771
	Provisions		10		5
	Other liabilities		10,618		11,940
Shinhan Capital Co., Ltd.	Deposits		1,997		904
	Borrowings		-		1,000
	Provisions		23		26
	Other liabilities		13,575		13,575
Jeju Bank	Loans		8,894		4,573
	Allowance for loan loss		(6)		(3)
	Other assets		1		2
	Deposits		3,219		1,881
	Other liabilities		2,139		2,139
Shinhan Credit Information	Deposits		5,510		4,842
Co., Ltd.	Other liabilities		2,267		2,195

176

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(a) Significant balances with the related parties as of December 31, 2020 and 2019 are as follows: (continued)

Related party	Account		December 31, 2020		December 31, 2019
Entities under common control (continued)
Shinhan Alternative Investment	Deposits	W	6,853		8,288
Management Inc.	Other liabilities		-		9
Shinhan BNP Paribas AMC	Deposits		89,087		57,986
	Other liabilities		766		642
Shinhan DS	Loans		6		8
	Other assets		9,028		1,443
	Deposits		1,572		4,961
	Other liabilities		9,998		9,069
Shinhan Savings Bank	Other liabilities		8,987		8,987
Shinhan Aitas	Deposits		31,131		24,079
	Other liabilities		11		20
Shinhan AI	Deposits		160		1
	Other liabilities		1,992		1,929
Shinhan REITs Management	Deposits		301		-
Orange Life Insurance Co., Ltd.	Derivative assets		505		-
	Deposits		6,033		2,402
	Derivative liabilities		4,483		446
	Other liabilities		161		-
Asia Trust Co., Ltd.	Loans		1,929		-
	Deposits		184,260		-
	Other liabilities		148		-
Investments in associates and associates of entities under common control
BNP Paribas Cardif Life Insurance Co., Ltd.	Deposits		13,941		402
BNP Paribas Cardif General Insurance	Deposits		41		17
Dream High Fund III	Deposits		4		5
Partners 4th Growth Investment Fund	Deposits		2,802		1,443
Credian Health Care Private Equity Fund II	Deposits		2		4
Snowball Venture Fund II	Deposits		1,739		233
YIUM The 3rd Private Investment Joint Stock Company	Deposits		20		353
ICSF (The Korea’s Information Center for Savings & Finance)	Deposits		7		6
Multimedia Tech Co., Ltd.	Deposits		-		3
KOREA FINANCE SECURITY	Deposits		568		362
Hermes Private Investment Equity Fund	Deposits		352		275
Korea Credit Bureau	Deposits		2,088		80
Goduck Gangil1 PFV Co., Ltd	Loans		24,000		24,000
	Allowance for loan loss		(71)		(78)
SBC PFV Co., Ltd	Deposits		8,011		5,142

177

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(a) Significant balances with the related parties as of December 31, 2020 and 2019 are as follows: (continued)

Related party	Account	December 31, 2020	December 31, 2019
Sprott Global Renewable Private   Equity Fund I	Deposits	258	342
IMM Global Private Equity Fund	Loans	800	800
	Allowance for loan loss	(2)	(3)
	Deposits	10,820	7,598
Goduck Gangil10 PFV Co., Ltd	Loans	9,400	-
	Allowance for loan loss	(19)	-
	Deposits	2,718	-
Shinhan Global Healthcare Fund 1I	Deposits	1	-
COSPEC BIM tech	Loans	151	-
	Provision for allowance	(95)	-
	Deposits	1	-
IMM Special Situation Private Equity Fund(the number two of one)	Deposits	117	-
NV Station Private Equity Fund	Deposits	100	-
Key management personnel
	Loans	5,146	4,426
	Allowance for loan loss	(2)	(3)
	Provisions	1	1

(*) Included right-of-use assets of leases.

178

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(b) Significant transactions with the related parties for year ended December 31, 2020 and 2019 are as follows:

Related party	Account		December 31, 2020	December 31, 2019
The parent company
Shinhan Financial Group	Other operating income	W	1,244	1,259
	Interest expense		(194)	(258)
	Fees and commission expense		(38,435)	(32,300)
Entities under common control
Shinhan Card Co., Ltd.	Interest income		7,323	4,621
	Fees and commission income		181,160	182,787
	Gain related to derivatives		28,712	15,598
	Other operating income		5,711	1,841
	Interest expense		(329)	(701)
	Fees and commission expense		(303)	(441)
	Loss related to derivatives		(5,547)	(4,066)
	Provision for allowance		(115)	(427)
	Other operating expense		(2,157)	(2,584)
Shinhan Investment Corp.	Interest income		1,442	1,612
	Fees and commission income		5,383	5,984
	Gain related to derivatives		58,282	38,807
	Other operating income		8,524	2,621
	Interest expense		(2,685)	(2,234)
	Loss related to derivatives		(35,128)	(34,770)
	Provision for allowance		(7)	146
	Other operating expense		(1,300)	(157)
Shinhan Life Insurance	Interest income		53	49
	Fees and commission income		8,105	10,295
	Gain related to derivatives		50,423	62,337
	Other operating income		2,297	650
	Interest expense		(189)	(244)
	Fees and commission expense		-	(269)
	Loss related to derivatives		(31,776)	(11,301)
	Other operating expense		(5)	(399)
Shinhan Capital Co., Ltd.	Interest income		-	1
	Other operating income		918	320
	Interest expense		(219)	(765)
	Other operating expense		-	(12)
Jeju Bank	Interest income		6	6
	Other operating income		598	227
	Interest expense		(30)	(41)
	Provision for allowance		(6)	(3)
Shinhan Credit Information Co.,	Fees and commission income		3	4
Ltd.	Other operating income		315	53
	Interest expense		(60)	(77)
	Fees and commission expense		(6,739)	(6,332)
Shinhan Alternative Investment	Other operating income		2	-
Management Inc.	Interest expense		-	(74)

179

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(b) Significant transactions with the related parties for year ended December 31, 2020 and 2019 are as follows:

(continued)

Related party	Account		December 31, 2020		December 31, 2019
Entities under common control
Shinhan BNP Paribas AMC	Fees and commission income	W	47		38
	Other operating income		143		68
	Interest expense		(689)		(1,220)
	Fees and commission expense		(2,087)		(2,099)
Shinhan DS	Other operating income		858		201
	Interest expense		(178)		(199)
	Other operating expense		(46,521)		(44,548)
Shinhan Savings Bank	Fees and commission income		1,048		966
	Other operating income		706		215
	Interest expense		(116)		(163)
Shinhan Aitas	Fees and commission income		33		45
	Other operating income		167		56
	Interest expense		(175)		(36)
	Fees and commission expense		-		(29)
Shinhan AI	Other operating income		106		5,953
	Fees and commission expense		(6,462)		(1,929)
Orange Life Insurance Co., Ltd	Fees and commission income		2,607		1,576
	Gain related to derivatives		3,692		604
	Other operating income		151		-
	Interest expense		(66)		(37)
	Fees and commission expense		(626)		-
	Loss related to derivatives		(4,695)		(446)
Asia Trust Co., Ltd.	Interest income		(454)		-
	Fees and commission income		6		-
	Other operating income		-		14
	Interest expense		(368)		-
	Fees and commission expense		(198)		-
Shinhan BNPP Investment Trust No. 1 in Special Private Equity Investment for Future Energy	Fees and commission income		2		-

180

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(b) Significant transactions with the related parties for year ended December 31, 2020 and 2019 are as follows:

(continued)

Related party	Account		December 31, 2020		December 31, 2019
Investments in associates and associates of entities under common control
BNP Paribas Cardif Life Insurance Co., Ltd.	Fees and commission income	W	2,359		3,028
	Interest expense		(5)		-
	Other operating expense		-		(1)
BNP Paribas Cardif General Insurance	Fees and commission income		8		9
Snowball Venture Fund No.2	Interest expense		(2)		-
Partners 4th Growth Investment Fund	Interest expense		(4)		(7)
KOREA FINANCE SECURITY	Fees and commission income		10		10
	Interest expense		(1)		-
Korea Credit Bureau	Fees and commission income		13		13
	Interest expense		(12)		(5)
Goduck Gangil1 PFV Co., Ltd	Interest income		915		328
	Fees and commission income		-		1,120
	Provision for allowance		7		(78)
SBC PFV Co., Ltd	Fees and commission income		732		-
	Interest expense		(5)		(3)
IMM Global Private Equity Fund	Interest income		25		28
	Interest expense		(13)		(25)
	Provision for allowance		-		(3)
Goduck Gangil10 PFV Co., Ltd	Interest income		299		-
	Fees and commission income		643		-
	Interest expense		(4)		-
	Provision for allowance		(19)		-
COSPEC BIM tech	Provision for allowance		(95)		-
Credian T&F 2020 Recovery Private Equity Fund(*)	Interest expense		(1)		-
Shinhan Western T&D Consignment Management Real Estate Investment Co., Ltd(*)	Fees and commission income		300		-
Key management personnel
	Interest income	W	126		161

(*) Excluded from associates under common control for the year ended December 31, 2020

181

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(c) Details of transactions with key management for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020		December 31, 2019
Short and long term employee benefits	W	10,194		10,506
Post-employment benefits		287		355
Share-based payment transactions		3,204		5,167
	W	13,685		16,028

(d) Payment guarantees of related parties

i) The guarantees provided between the related parties as of December 31,2020 and  2019 are as follows:

		Amount of guarantees
Guaranteed parties		December 31, 2020	December 31, 2019		Account
Shinhan Investment Corp.	W	19,000	-		Purchase note agreement
		230,970	258,901		Unused credit
Shinhan Card Co., Ltd.		539,021	575,912		Unused credit
		13,600	14,473		Financial guarantee (letter of credit method)
Shinhan Life Insurance Co., Ltd.		50,000	50,000		Unused credit
Shinhan Capital Co., Ltd.		70,000	70,000		Unused credit
BNP Paribas Cardif Life Insurance Co., Ltd		10,000	10,000		Unused credit
Shinhan DS		9	7		Unused credit
		13	-		Payment guarantee
Structured entities		241,998	184,329		Securities acquisition agreement (*)
	W	1,174,611	1,163,622

(*) The amount is for subsidiaries and associates, which are structured entities, under common control.

ii) As of December 31, 2020, the Group has received a purchase guarantee (VND 200,000 million) of private equity bonds issued by Vietnam Electrical Equipment JSC from Shinhan Financial Investment.

182

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(e) Collaterals provided to the related parties

i) Details of collaterals provided to the related parties as of December 31, 2020 and 2019 are as follows:

	Related party	Pledged assets		December 31, 2020		December 31, 2019
				Carrying amounts	Amounts collateralized	Carrying amounts	Amounts collateralized
Entities under common control	Shinhan Life Insurance Co., Ltd.	Securities	W	10,146	10,146	10,189	10,189
	Orange Life Insurance Co., Ltd.	Securities		39,791	3,208	10,243	516
			W	49,937	13,354	20,432	10,705

ii) Details of collaterals provided by the related parties as of December 31, 2020 and 2019 are as follows:

	Related party	Pledged assets		December 31, 2020	December 31, 2019
Entities under	Shinhan Investment Corp.	Deposits	W	135,700	135,700
common control		Real estate		151,974	91,974
	Jeju Bank	Government bonds		20,000	20,000
	Shinhan Life Insurance Co., Ltd.	Government bonds		6,000	6,000
	Shinhan Credit Information Co., Ltd.	Deposits		180	180
Investments in associates	BNP Paribas Cardif Life Insurance Co., Ltd.	Government bonds		12,000	12,000
	Hyungje art printing	Machinery		120	120
	Goduck Gangil1 PFV Co., Ltd	Trust		28,800	28,800
	Goduck Gangil10 PFV Co., Ltd	Trust		13,000	-
			W	367,774	294,774

183

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(f) Transaction with related parties

i) Loan transactions with related parties for the years ended December 31, 2020 and 2019 are as follows:

			December 31, 2020
	Related party		Beginning(*1)	Loans(*2)	Collections(*2)	Ending(*1)
Entities under common control	Shinhan DS	W	8	5	(7)	6
	Shinhan Card Co., Ltd.		103,018	105,058	(108,495)	99,581
	Jeju Bank		4,573	18,553	(14,232)	8,894
	Shinhan Investment Corp. (*3)		5	37,393	18,988	56,386
Investments in associates and associates of entities under common control	Goduck Gangil1 PFV Co., Ltd		24,000	-	-	24,000
	IMM Global Private Equity Fund		800	-	-	800
	Goduck Gangil10 PFV Co., Ltd		-	28,200	(18,800)	9,400
	COSPEC BIM tech   (*4)		-	-	151	151
		W	132,404	189,209	(122,395)	199,218

(*1) The amount is before deducting allowance.

(*2) Some of the limit loans are shown in net amount.

(*3) The balance of loans (W 50,000 million) as of December 31, 2020 of the entity that is newly incorporated as a subsidiary of Shinhan Investment Corp. for the year ended December 31, 2020 is indicated in collections, etc.

(*4) The entity is incorporated as a related party for the year ended December 31, 2020, and the balance of loans as of December 31, 2020 is indicated on the collection, etc.

			December 31, 2019
	Related party		Beginning(*1)	Loans(*2)	Collections(*2)	Ending(*1)
Entities under common control	Shinhan Investment   Corp.	W	22,917	26,311	(49,223)	5
	Shinhan Card Co., Ltd.		33,732	86,410	(17,124)	103,018
	Jeju Bank		1,621	9,189	(6,237)	4,573
	Shinhan DS		2	9	(3)	8
Investments in associates and associates of entities under common control	Goduck Gangil1 PFV Co., Ltd		-	24,000	-	24,000
	IMM Global Private Equity Fund		-	800	-	800
		W	58,272	146,719	(72,587)	132,404

(*1) The amount is before deducting provision for allowance.

(*2) Some of the limit loans are shown in net amount.

184

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(f) Transaction with related parties (continued)

(ii) Borrowing transactions with related parties for the years ended December 31, 2020 and 2019 are as follows:

				December 31, 2020
	Related party	Account		Beginning	Loans	Collections (*2)	Ending
Entities under common control	Shinhan Investment Corp.(*2)	Debenture	W	11,100	109,450	(109,100)	11,450
	Shinhan Capital Co., Ltd.	Borrowing		1,000	-	(1,000)	-
	Shinhan Investment Corp.	Deposit (*)		54,523	132,649	(46,759)	140,413
	Shinhan Credit Information Co., Ltd.	Deposit (*)		2,390	-	-	2,390
	Shinhan Card Co., Ltd.	Deposit (*)		7,400	2,311	(7,854)	1,857
	Shinhan Capital Co., Ltd.	Deposit (*)		-	1,031	(1,031)	-
	Shinhan Alternative Investment Management, Inc.	Deposit (*)		1,800	-	(1,800)	-
	Shinhan BNP Paribas AMC	Deposit (*)		44,197	44,029	(17,853)	70,373
	Shinhan Aitas	Deposit (*)		10,000	-	-	10,000
	Shinhan DS	Deposit (*)		-	1,484	(749)	735
	Asia Trust Co., Ltd.	Deposit (*)		-	150,000	-	150,000
			W	132,410	440,954	(186,146)	387,218

(*1) The details of settlements among related parties, depository liabilities that can be deposited and withdrawn on demand, are excluded.

(*2) It includes private equity bonds of general investors that Shinhan Investment Corp. brokered and sold.

				December 31, 2019
	Related party	Account		Beginning	Loans	Collections	Ending
Entities under common control	Shinhan Investment Corp.	Debenture	W	11,100	-	-	11,100
	Shinhan Capital Co., Ltd.	Borrowing		12,000	-	(11,000)	1,000
	Shinhan Investment Corp.	Deposit (*)		53,927	10,864	(10,268)	54,523
	Shinhan Credit Information Co., Ltd.	Deposit (*)		2,390	-	-	2,390
	Shinhan Card Co., Ltd.	Deposit (*)		398	7,002	-	7,400
	Shinhan Alternative Investment Management, Inc.	Deposit (*)		4,600	1,000	(3,800)	1,800
	Shinhan BNP Paribas AMC	Deposit (*)		105,713	15,143	(76,659)	44,197
	Shinhan Aitas	Deposit (*)		4,000	10,000	(4,000)	10,000
	Shinhan DS	Deposit (*)		513	-	(513)	-
Associates of entities under common control	Midas Dong-A Snowball   Venture Fund	Deposit (*)		158	-	(158)	-
			W	194,799	44,009	(106,398)	132,410

(*) The details of settlements among related parties, depository liabilities that can be deposited and withdrawn on demand, are excluded.

185

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(g) Major commitments related to derivatives

As of December 31, 2020 and 2019, the significant commitments related to derivative assets and liabilities with related parties are as follows:

	Related party		December 31, 2020	December 31, 2019
Entities under common control	Shinhan Life Insurance Co., Ltd.	W	666,972	1,089,724
	Shinhan Card Co., Ltd.		1,413,720	1,241,478
	Shinhan Investment Corp.		880,218	1,894,975
	Orange Life Insurance Co., Ltd.		69,511	25,949
		W	3,030,421	4,252,126

(h) Major investment and collection transactions

Major investments and collection transactions with related parties for the year ended December 31, 2020 are as follows:

	Related party		Investment		Collection
Investments in associates	Shinhan-Albatross Technology Investment Fund	W	4,000		900
	Shinhan-Neoplux Energy Newbiz Fund		4,200		2,010
	Goduck Gangil10 PFV Co., Ltd		700		-
	KTB Newlake Global Healthcare PEF		-		1,266
	Neoplux Technology Valuation Investment Fund		-		7,304
	One Shinhan Global Fund 2		1,200		-
	KST-SH Laboratory Investment Fund No.1		500		-
	Partners 4th Growth Investment Fund		-		1,925
Entities under common control	SHBNPP Konkuk University Dormitory Private Speical  Asset Fund 1		-		1,574
and investments in associates under	SHBNPP Corporate Professional Investment Type Private Security Investment Trust No.3		10,000		-
common control	SHBNPP Future Energy Professional Investment Type Private  Special Asset Investment Trust No.1		-		368
	SHBNPP Mokpo New Port Professional Investment Type Private Special Asset Investment Trust		-		933
	SHBNPP Real Estate Loan Professional Investment Type  Private Real Estate Investment Trust No.1		7,500		3,128
	SHBNPP Venture Professional Investment Type Private Investment Trust No.1		12,000		-
	Shinhan AIM Social Enterprise Investment Fund I		600		-
	SHINHAN NPS RENEWABLE FUND NO.1		4,717		441
	One Shinhan Future's Fund 1		4,000		2,983
	SHBNPP Venture Professional Investment Type Private Investment Trust No.2		28,000		-
	SHBNPP Korea Equity Long-Short Professional Investment Type Private Mixed Asset Investment Trust No.1		-		2,000
	SHBNPP Lifetime Income TIF Mixed Asset Investment  Trust[FoFs]		-		1,003
	Shinhan AIM Social Enterprise Investment Fund II		2,312		-
	Truston Global Infra Qualified Investment Type Private  Investment Trust III		2,486		-
	Shinhan BNPP Global NextG EMP Securities Investment Trust		870,400		-

186

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(h) Major investment and collection transactions (continued)

Major investments and collection transactions with related parties for the year ended December 31, 2020 are as follows (continued):

	Related party		Investment		Collection
Entities under common control	SHBNPP WTE(Iste To Energy) Professional Investment Type Private Special Asset Investment Trust No.1	W	8,677		-
and investments in associates under	Shinhan AIM FoF Fund 6		8		-
common control	SHBNPP Venture Professional Investment Type Private Investment Trust No.3		21,000		-
	SHBNPP Ongoing Peace TDF 2030 Security Investment  Trust(H)[Equity Balanced-FoF]		2,000		-
	SHBNPP Ongoing Peace TDF 2035 Security Investment  Trust(H)[Equity Balanced-FoF]		2,000		-
	SHBNPP Ongoing Peace TDF 2040 Security Investment Trust(H)[Equity Balanced-FoF]		2,000		-
	GVA KONEX High Yield IPO-I Professional Investors Private Placement Investment Trust		5,000		-
	SHBNPP Corporate Professional Investment Type Private  Security Investment Trust No.13		50,000		-
	SH BNPP Startup Venture Alpha Specialized Investment Private Equity Mixed Asset Trust No.1		1,575		-
	Shinhan AIM Investment Finance Specialized Investment Trust No. 1		880		-
	Soo Delivery Platform Gross Investment Association		-		2,671
	GX Shinhan Intervest 1st Private Equity Fund		-		4,661
	Aone Mezzanine Opportunity Professional Private		5,000		-
	Gyeonggi-Neoflux Superman Investment Association		680		58
	Axis Global Growth New Technology Investment Association		-		1,276
	Soo Commerce Platform Gross Investment Association		-		1,769
	Genesis No.1 Private Equity Fund		226		-
	SHBNPP MAIN Professional Investment Type Private Mixed Asset Investment Trust No.3		8,350		15,993
	DB Epic Convertiblebond Private Trust No.2		200		-
	SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.3		25,760		17,418
	SHBNPP Senior Loan Professional Investment Type Private Mixed Asset Investment Trust No.2		-		20,353
	DS Solid.II Specialized Private Investment Trust C-I		-		2,876
	KIWOOM PRIVATE EQUITY GIANT PRIVATE EQUITY FUND		-		24
	Hana Semiconductor New Technology Investment Association		-		586
	Macquarie Korea Opportunities Joint Investment & Private Investment Corporation No. 1		28,000		-
	SHBNPP Japan Photovoltaic Private Special Asset  Investment Trust No.1 [Loan-Derivative]		403		-
	SHBNPP Sangju YC Expressway Professional Investment Type Private Special Asset Investment Trust		9		-

187

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

40. Related party transactions (continued)

(h) Major investment and collection transactions (continued)

Major investments and collection transactions with related parties for the year ended December 31, 2020 are as follows (continued):

	Related party		Investment		Collection
Entities under common control	SHBNPP Jigae Namsan BTO professional Investment Type  Private Special Asset Investment Trust [Infra business]	W	8,155		-
and investments in associates under	SHBNPP Japan Photovoltaic Private Special Asset  Investment Trust No.2 [Loan-Derivative]		1,357		-
common control	Shinhan BNPP Global Infrastructure Private Investment Trust		-		3,276
	Mastern Opportunity Seeking Real Estate Fund II		9,762		-
	T&F2020SS Start-up Venture Specialized Private Equity Investment Corporation		2,250		-
	CSQUARE SNIPER PROFESSIONAL PRIVATE 10		1,875		-
	Igis G.L. IP Specialized Investment & Investment Trust No. 1-1		4		-
	Igis G.L. IP Specialized Investment & Investment Trust No. 1-2		4		-
	Shinhan-Neo Component Equipment Investment Association		580		-
	Simone Mezzanine Specialized Private Investment Trust No. 3		2,000		-
	Kiwoom Private Equity Ant-Man Startup Venture Specialized Private Equity Fund		1,000		-
		W	2,011,770		96,796

(i) For the years ended December 31, 2020 and 2019, the Group purchased bonds through Shinhan Investment Corp. at W 5,855,568 million and W 6,639,051 million, respectively, while the amount sold is W 6,964,384 million and W 3,336,406 million, respectively.

(j) As of December 31, 2020, the plan assets deposited in the DB type retirement pension managed by Shinhan Life Insurance are W 138,811 million.

(k) As of December 31, 2020, the deposit of credit card use provided by Shinhan Card, a related party, is W 68,438 million.

188

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

41. Summary of subsidiaries’ financial statements

(a) Condensed statements of financial positions for the Bank (separate) and its subsidiaries as of December 31, 2020 and 2019 are as follows:

		December 31, 2020			December 31, 2019
		Total assets	Total liabilities	Total equity	Total assets	Total liabilities	Total equity
Shinhan Bank	W	396,716,710	370,191,664	26,525,046	364,744,341	339,669,735	25,074,606
Shinhan Bank America		1,970,522	1,743,210	227,312	1,896,516	1,659,844	236,672
Shinhan Bank Canada		812,912	739,429	73,483	730,808	655,879	74,929
Shinhan Bank Europe GmbH		751,038	666,913	84,125	637,943	555,205	82,738
Shinhan Bank China Limited		5,491,400	5,012,602	478,798	5,451,603	4,987,520	464,083
Shinhan Asia(*1)		-	-	-	118,907	-	118,907
Shinhan Kazakhstan Bank Limited		159,746	120,263	39,483	162,564	119,381	43,183
Shinhan Bank Cambodia		654,562	519,791	134,771	520,994	393,170	127,824
Shinhan Bank Japan		10,712,929	9,966,831	746,098	9,430,155	8,747,927	682,228
Shinhan Bank Vietnam Ltd(*2)		6,333,760	5,434,352	899,408	5,257,696	4,411,350	846,346
Shinhan Bank Mexico		210,347	128,986	81,361	198,402	106,747	91,655
Shinhan Bank Indonesia(*2)		1,288,024	935,320	352,704	1,339,525	965,242	374,283
Structured entities		8,826,735	8,839,605	(12,870)	8,764,132	8,771,900	(7,768)

(*1) Liquidation procedures have completed as of December 31, 2020.

(*2) Fair value adjustments at the time of business combination have reflected.

.

189

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

41. Summary of subsidiaries’ financial statements (continued)

(b) Condensed statements of comprehensive income for the Bank (separate) and its subsidiaries for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020			December 31, 2019
		Operating income	Profit (loss) for the period	Total comprehensive income (loss) for the period	Operating income	Profit (loss) for the year	Total Comprehensive income (loss) for the year
Shinhan Bank	W	23,806,167	1,826,170	1,789,616	21,909,875	2,071,235	2,130,313
Shinhan Bank America		79,988	5,192	(9,360)	82,560	1,020	9,848
Shinhan Bank Canada		22,922	1,408	(1,445)	29,502	3,480	8,846
Shinhan Bank Europe GmbH		11,341	(1,222)	1,387	17,123	421	1,578
Shinhan Bank China Limited		213,844	16,211	14,716	226,877	35,250	47,132
Shinhan Asia(*1)		-	-	-	-	(548)	3,548
Shinhan Kazakhstan Bank Limited		12,906	2,872	(3,701)	11,093	2,073	3,688
Shinhan Bank Cambodia		41,288	15,899	6,947	27,466	8,345	12,389
Shinhan Bank Japan		232,961	73,139	63,871	221,414	75,392	103,759
Shinhan Bank Vietnam Ltd(*2)		437,321	120,603	53,061	380,267	124,336	175,380
Shinhan Bank Mexico		10,893	(696)	(10,294)	11,121	1,815	8,088
Shinhan Bank Indonesia(*2)		79,783	877	(21,904)	84,319	(13,685)	15,512
Structured entities		225,265	(3,572)	(3,578)	260,398	(4,787)	(5,674)

(*1) Liquidation procedures have completed as of December 31, 2020.

(*2) Fair value adjustments at the time of business combination have reflected.

190

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

42. Interests in unconsolidated structured entities

(a) The nature and extent of interests in unconsolidated structured entities

The Group is involved in structured entities through investments in asset-backed securities, structured finance, and investment funds. The main characteristics of the 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 able to do so) 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 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 is a type of financial instrument where investment funds raise funds from the general public to invest in a group of assets such as stocks or bonds and distribute their income and capital gains to their investors The Group manages  assets on behalf of other investors, such as investing in equity in investment funds, collective investment companies, and business members.

191

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Interests in unconsolidated structured entities (continued)

(a) The nature and extent of interests in unconsolidated structured entities (continued)

The size of unconsolidated structured entities as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		Assets-backed securitization	Structured financing	Investment fund	Total
Total assets	W	94,980,971	171,615,120	89,955,772	356,551,863

		December 31, 2019
		Assets-backed securitization	Structured financing	Investment fund	Total
Total assets	W	81,014,871	110,511,866	86,166,205	277,692,942

(b) Nature of risk associated with interests in unconsolidated structured entities

i) The carrying amounts of the assets and liabilities recognized relating to its interests in unconsolidated structured entities as of December 31, 2020 and 2019 are as follows:

		December 31, 2020
		Assets-backed securitization	Structured financing		Investment fund		Total
Assets:
Loans at amortized cost	W	116,131	5,563,198		80,166		5,759,495
Loans at FVTPL		-	249,937		-		249,937
Securities at FVTPL		4,347,322	103,068		2,133,117		6,583,507
Derivative assets		10,353	1,050		-		11,403
Securities at FVOCI		1,710,430	123,632		-		1,834,062
Securities at amortized cost		4,037,126	-		-		4,037,126
Others		-	61,519		-		61,519
	W	10,221,362	6,102,404		2,213,283		18,537,049
Liabilities:
Derivative liabilities	W	582	-	-		582

		December 31, 2019
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets:
Loans at amortized cost	W	196,522	5,695,134	79,287	5,970,943
Securities at FVTPL		3,400,040	17,016	3,095,708	6,512,764
Derivative assets		21,494	1,028	-	22,522
Securities at FVOCI		1,711,025	186,562	-	1,897,587
Securities at amortized cost		3,106,869	-	-	3,106,869
Others		-	10,050	57,935	67,985
	W	8,435,950	5,909,790	3,232,930	17,578,670

192

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Interests in unconsolidated structured entities (continued)

(b) Nature of risk associated with interests in unconsolidated structured entities (continued)

ii) Exposure to risk relating to interests in unconsolidated structured entities as of December 31, 2020 and 2019 is as follows:

		December 31, 2020
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets owned	W	10,221,362	6,102,403	2,213,283	18,537,048
Purchase commitments		842,159	-	979	843,138
Providing unused credit		617,977	207,923	12,200	838,100
Others		-	-	5,887	5,887
	W	11,681,498	6,310,326	2,232,349	20,224,173

		December 31, 2019
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets owned	W	8,435,950	5,909,790	3,232,930	17,578,670
Purchase commitments		1,095,707	-	-	1,095,707
Providing unused credit		829,192	123,835	20,100	973,127
	W	10,360,849	6,033,625	3,253,030	19,647,504

193

SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

(In millions of won)

43. Information of trust business

(a) Total assets with trust business as of December 31, 2020 and 2019 and operating revenue for the years ended December 31, 2020 and 2019 are as follows:

		Total assets		Operating revenue
		December 31, 2020	December 31, 2019	December 31, 2020	December 31, 2019
Consolidated	W	4,580,986	4,602,965	119,765	150,825
Unconsolidated		91,688,453	88,524,148	1,243,126	1,584,508
	W	96,269,439	93,127,113	1,362,891	1,735,333

(b) Significant balances with trust business as of December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Borrowings from trust accounts	W	5,082,658	5,343,259
Deposits		18,543	46,331
Accrued revenues from asset management fee from trust accounts		34,796	34,796
Accrued interest expenses		1,342	1,342

(c) Significant transactions with trust business for the years ended December 31, 2020 and 2019 are as follows:

		December 31, 2020	December 31, 2019
Asset management fee from trust accounts	W	166,960	238,246
Termination fee		7,135	7,824
Interest expenses on deposits		470	6,275
Interest on borrowings from trust accounts		22,650	60,834

194