U.S. Markets closed

Edited Transcript of 086790.KS earnings conference call or presentation 26-Jul-19 7:00am GMT

Q2 2019 Hana Financial Group Inc Earnings Call

Seoul Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Hana Financial Group Inc earnings conference call or presentation Friday, July 26, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Hyosang Hwang

Hana Financial Group Inc. - Group Chief Risk Management Officer, CRO & Deputy President

* Junghoon Lee

Hana Financial Group Inc. - Head of IR Team

* Seung-Iyuk Lee

Hana Financial Group Inc. - Group CFO & VP

================================================================================

Conference Call Participants

================================================================================

* In Kim

Eugene Investment & Securities Co Ltd., Research Division - Research Analyst

* Jin-Sang Kim

HMC Investment Securities Co., Ltd., Research Division - Analyst

* Seungchang Yoo

KB Securities Co., Ltd., Research Division - Senior Research Analyst

* Sinyoung Park

Goldman Sachs Group Inc., Research Division - Equity Analyst

* SooHyun Kim

Shinhan Investment Corp., Research Division - Research Analyst

* Yafei Tian

Citigroup Inc, Research Division - Assistant VP and Analyst

* Yong Hoon Sung

Hanwha Investment & Securities Co., Ltd., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [1]

--------------------------------------------------------------------------------

Good afternoon, everyone. I am Junghoon Lee, Head of the IR team of Hana Financial Group. I'd like to thank all the shareholders, analysts and other market participants for taking part in today's event through phone or via the internet. Let me now begin the 2019 first half earnings presentation.

So first let me introduce the members of the senior management here with us today. From Hana Financial Group, CFO, Seung-Iyuk Lee; and CRO, Hyosang Hwang are here with us. Next are from KEB Hana Bank, Hu-Seung Lee, Senior Executive VP, in charge of Planning Management Group; and Sang-Hun Lee, Executive President in charge of Business Planning Group from Hana Financial Investment are here with us. Finally, from Hana Card, Division Head, Kwon Tae-Gyun, from the Management Support Division is with us today.

Today, we will first hear the earnings presentation from our CFO, Seung-Iyuk Lee, and then proceed to your Q&A session through the telephone. We will now invite CFO, Seung-Iyuk Lee, to present the 2019 first half Hana Financial Group business results.

--------------------------------------------------------------------------------

Seung-Iyuk Lee, Hana Financial Group Inc. - Group CFO & VP [2]

--------------------------------------------------------------------------------

Good afternoon. I am Seung-Iyuk Lee, the CFO of Hana Financial Group. Now on -- let me walk you through the group's business results for the first half of 2019. First highlights of the group, please turn to Page 3 of the presentation material. Net income of Hana Financial Group in 2019 Q2 is up 20.6% Q-o-Q and up 3.8% Y-o-Y to post KRW 658.4 billion on the back of sound growth of the core income, which combines interest income and fee income. The group's net income in the first half is KRW 1204.5 trillion, down 7.5% Y-o-Y. This however, is due to large one-off costs, including wage peak ERP expenses. And when such one-off expense is excluded, the actual first half income has increased Y-o-Y, showing sustained improvements in the group's fundamentals.

Let me provide more details of the first half performance. First, as I said, the core income in the group's top line shows marked improvement. The group's NIM in Q2 was managed stably, which led to an increase of 1 bps Q-o-Q. The interest income is also up Q-o-Q, owing to the healthy growth of the bank's loan assets. In the case of fee income as well, asset management fees lending and FX-related fees have led to strong fee income growth over the previous quarter.

As such, the core income in Q2, close to KRW 2.50 trillion, the largest core income since the establishment of the holding company, and is up 2.2% Y-o-Y, the highest growth yet in record during the first half.

Meanwhile, cost items were efficiently managed at the bottom line, underpinning the group's improvement in performance. The SG&A in Q2 fell significantly, given the removal of large one-off, severance benefits cost. The group's cost-to-income ratio posted 46.2% in Q2, normalizing quickly.

In addition, loan loss provisions in Q2 of 2019 improved considerably Q-o-Q on the back of (inaudible) provisions from the loan to a few large companies. As a result, the cumulative credit-cost ratio at the end of the first half posted 19 bps, down 6 bps Q-o-Q. Also when the major one-off factors in the first half are excluded, the credit cost ratio is maintained at the 21 bps level. As such, based on the group-wide effort to manage risk, the ordinary loan loss provisioning has been maintained stably.

If you look at the lower right-hand side, the group's 2019 and the first half, ROE and ROA is 9.02% and 0.62%, respectively. On a cumulative basis in the first half, the cost-to-income ratio posted 50.1%. And when the first half wage peak ERP expense is removed, the ratio is at the 46.9% level.

Next, please refer to Page 4. KEB Hana Bank and Hana Card included, the group's 2019 Q2 NIM is 1.81%. KEB Hana Bank's NIM impacted by the plunge in market rate, despite internal efforts at portfolio improvement, fell 1 bp Q-o-Q. But because of the reduction in interest fee and installment purchase assets, the card company's profit margin has been improved to a certain extent, thus resulting in 1 bps rise in the group's NIM Q-o-Q. The BOK has undertaken a preemptive interest rate cut. And next week, the fed is likely to engage in rate cuts as well. We will continue to make the portfolio rebalancing efforts, focusing on profitability to minimize margin reduction in an unfavorable business environment.

Fee interest income in Q2 is up 2.3% Q-o-Q, owing to the increase in loan assets and is up 4.1% Y-o-Y. As such, in the first half, 5.3% of SOHO group was posted Y-o-Y. The fee income in Q2 is down 3.2% Y-o-Y, due to the sustained impact from the merchant fee cuts implemented last February. But on a Q-o-Q basis, on the back of increasing asset management fees due to strong ELT sales, it is up 8.3%, continuing to improve for 4 straight quarters. On the lower right-hand side graph, it shows the Korean won loans at the bank as of the end of the first half, which is up 3% QTD and up 4.1% YTD to post KRW 210.9 trillion.

Next on Page 5. The group's NPL ratio as of the end of Q2 of 2019 is down 6 bps QTD, throughput 0.56%. The delinquency ratio is 0.36% and is down 6 bps QTD as well. The group's cumulative credit cost ratio is down 6 bps QTD to post 19 bps. This has been achieved despite the provisioning for a few parts manufacturing companies because the current provisions have been stably managed and also because of the occurrence of large [sums] write back of large company provisions. Through the risk management efforts at the group level, the asset quality indicators have been stabilized, but the recent global trade disputes and a slowdown of domestic economic growth rate continues to fuel uncertainties at home and abroad. So in consideration of this, we intend to further strengthen our asset quality management going forward. The group's end of Q2, CET1 ratio is down 27 bps QTD, and is expected to post 12.61%. This is because -- along with the fall in CET1 ratio by 8 bps, due to the payout of interim dividend, asset growth at the bank and securities company had led to a growth of the risk-weighted assets.

As we engage in those -- the preemptive profit based expansion and shareholder return policy, the capital ratio fell, but it is still well above the 2003 standards. And in the second half, we will continue to make efforts to ensure that the capital ratio is stably managed and capital efficiency is enhanced.

Next, let me go over the group's business results item by item. So first on Page 7, please refer to the group's consolidated income statements. Among the group's general operating income in the first half of 2019, interest income posted KRW 2.8866 trillion and is up 5.3% Y-o-Y.

The fee income in the first half is KRW 1.1349 trillion and is down 4.7% Y-o-Y, but then this owes itself largely to the base effect related to the variable annuity initial fee account change, as has been the case in the first quarter. If this is excluded, the group's first half fee income is slightly up Y-o-Y.

Meanwhile, gains on valuation in this position has seen nonmonetary FX losses of KRW 74.8 billion approximately due to rises in the foreign exchange rate. But based on improved management performance of marketable securities, it is up 62.4% Y-o-Y to post KRW 256.3 billion.

Finally, the group's SG&A in the first half of 2019 is up 10.2% Y-o-Y to post KRW 2.17 trillion. This is due to the fact that approximately KRW 126 billion in wage peak ERP expense was paid in Q1. And starting from this year, some of the labor cost items are spread out across the year and recognized on a monthly basis. If such special factors are considered, the first half SG&A is up 2% Y-o-Y and is being managed appropriately within the annual business plan target range.

And now moving on to Page 8, business results for the subsidiaries. KEB Hana Bank's net income for first half 2019 recorded KRW 133.8 trillion, 13.3% down Y-o-Y due to the large one-off such as the salary peak ERP in Q1. The bank's net income for Q2 has increased 15.4% Q-o-Q to KRW 554 billion.

Hana Financial Investments, net income in the first half on a consolidated basis was up 43.5% Y-o-Y to KRW 152.8 billion, due to reduced stock transaction volumes, stock brokerage fee decreased. However, with the 34.8% increase in ID underwriting fees and advisory fees coupled with the huge dividend gain, we achieved a robust performance improvement.

The Q2 net income has also increased 44.6% Q-o-Q to KRW 90.3 billion on the back of larger fee income and less labor cost, maintaining a very sound momentum. And KEB Hana Card's net income for the first half has decreased 34.7% Y-o-Y to KRW 33.7 billion due to the lowering of merchant fees that went into effect in February. And please refer to the table for the other subsidiaries performance. And please refer to Pages 9 to 11, further details about NIM, noninterest income and SG&A explained earlier.

And now moving on to Page 13. The group's total assets, liabilities and equity. The group's total assets in the first half is 405.6 billion -- sorry, KRW 405.6 trillion, and KRW 520.8 trillion, when including the group's trust asset of KRW 115.2 trillion. Of these assets, KEB Hana Bank's total assets, inclusive of trust assets is KRW 421.9 trillion. The group's total liabilities are KRW 377 trillion, and total equity KRW 28.6 trillion.

Page 14, KEB Hana Bank's loan and deposit in Korean won. As of Q2 end 2019, the bank's loans in won stood at KRW 210.9 trillion, up 3.0% Q-o-Q and up 4.1% YTD.

The asset growth is broken down as follows. Corporate loans increased 5.7% YTD to KRW 101.7 trillion. Large corporate loans increased 3% YTD to KRW 15 trillion. SME loans grew 4.2% in the second quarter, recording KRW 84.8 trillion, up 6.5% YTD.

Continuing from the first quarter, the prime SME loans led to the growth into the second quarter, achieving profitability-oriented sound asset growth.

Household loans grew 2.7% YTD to KRW 109.2 trillion as Tranche A loans and preregistration loans continue to increase, and as the amount of collective loans due at maturity decreased.

In the first half 2019, the deposit in won stood at KRW 218.3 trillion, up 3.1% YTD. As the growth rate of low-cost deposit and MMDA balance exceeded that of the time deposit balance, the share of the low-cost deposit increased YTD, improving the funding structure. For your reference, the graph on the bottom right shows the LDR in the first half to be 97.3%.

Page 16, group's asset quality. In the first half, the group's total credit grew 4.9% YTD to KRW 276.7 trillion, and NPL decreased 1% YTD to KRW 1.5 trillion, bringing down the NPL ratio to 0.56%. This was a 3 bp decrease YTD and a 6 bp decrease Q-o-Q, stabilizing the NPL ratio at a lower grade.

The top right shows the group's new NPL formation in Q2 was KRW 282.3 billion. The amount that was recognized as other subsidiaries NPL has decreased. But because of some one-off provisioning, KEB Hana Bank's new default volume increased and the group's new NPL formation was at a similar level to Q1. Let me elaborate on the bank's asset quality on Page 17. KEB Hana Bank's total credit in the first half has grown 4.1% YTD to KRW 241.5 trillion, and NPL decreased by 6.1% to KRW 1.1 trillion. NPL ratio fell by 7 bp Q-o-Q to 0.47%, and the NPL-coverage ratio in the first half has increased 5.2 percentage point to 94.5%.

KEB Hana Bank's delinquency ratio at the end of Q2 was 0.25%, a 4 bp drop Q-o-Q.

Household loan delinquency decreased and also SOHO loan delinquencies fell sharply as well with the repayment of a large sum of delinquent loans, bringing down the overall delinquency ratio.

Page 18 shows the group's credit cost to be 0.19% in the first half, and the bank's, 0.06%.

And lastly, capital adequacy on Page 19. We expect the group's BIS ratio and Tier 1 ratio to be 14.69% and 13.36%, respectively. At the end of the quarter, CET1 ratio is expected to be 12.61%.

We'd also like to inform you that in line with our active shareholder return policy or its results today that interim dividend of KRW 501 per share will be paid out. By increasing core profit and controlling cost, we grew the group's recurring income and continuing from last year, we are able to increase the interim dividend by KRW 101 per share again this year. Going forward, we will do our best to maintain the group's capital adequacy at a stable level, including the CET1 ratio based on improved business results. We will reinforce our shareholder return policy so that shareholder value will continue to increase.

Please refer to the appendix for a detailed information and business indicators of other subsidiaries. This concludes the earnings presentation for Hana Financial Group for first half 2019. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [1]

--------------------------------------------------------------------------------

Thank you very much. We will now proceed with the Q&A. (Operator Instructions) We'll take the first question.

We received the first question from Eugene Investment Securities, so Mr. In Kim.

--------------------------------------------------------------------------------

In Kim, Eugene Investment & Securities Co Ltd., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

First of all, you had acquired the 10% stake in BIDV in Vietnam, I'd like to ask more elaboration. And by 30%, you will increase the contribution by nonbanking subsidiaries by 2025, are there additional plans for M&As? Or other plans to achieve this goal? And secondly, with regards to the sales of the headquarters of the KEB Hana Bank, how is it progressing? And finally -- and with regards to operating income, there's a loss of KRW 63 billion, can you explain about this?

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [3]

--------------------------------------------------------------------------------

Thank you very much for those questions. So please wait while we prepare the answers.

--------------------------------------------------------------------------------

Seung-Iyuk Lee, Hana Financial Group Inc. - Group CFO & VP [4]

--------------------------------------------------------------------------------

Yes. I'm Seung-Iyuk Lee, the CFO. With regard to the headquarters in Yeongdeung, the sale is proceeding smoothly. And at August or early September, when the sales amount comes in, it will be completed. With regards to the operating income losses and based on equity method in the global business, profit has contracted somewhat. But starting from the third quarter, it will be back in normal levels. And 2025, [is there a] target of non-bank subsidiaries, additional M&A plans. Recently, BIDV with the acquisition of that stake and in the (inaudible) the global business. And going forward, we do believe that profit will be enlarged. And last year, in -- the KRW 2 trillion that was done. And because of that, this year, profit has expanded significantly. And with regards to additional M&A going forward, there is no specific plan that we are reviewing at this point. And when does its plan do come up, of course, we will make it known to our shareholders.

With regard to BIDV acquisition, (inaudible) our VP will explain further.

--------------------------------------------------------------------------------

Unidentified Company Representative, [5]

--------------------------------------------------------------------------------

I'm (inaudible), in charge of Global Business. As you are well aware, Vietnam, at present -- it is actually a country that can play a very a big role in solving a lot of the economic challenges faced by Korea. The population size, the middle class, the rate of its income increases and the quality of the labor market, it has a very high potential. So in consideration of all this, this is a country with great potential. And that's the reason why we have made a strategic choice for this country. And average GDP growth rate of around 6%, that is expected of this country and creating companies recently. With regards to Vietnam, they are making further entries into this market. And it is actually one of the 5 key strategic pillars of the group. China, Indonesia, India, Vietnam and Philippine, these are 5 countries in terms of population, in terms of the economic size, in terms of further growth potential. In consideration of this, we have selected these 5 countries. And by 2025, we have set a target to enhance the contribution made by the global business (inaudible). With regards to the BIDV acquisition, as you're well aware, this is the #1 commercial bank in terms of asset size in Vietnam. At present, its business transferred and the employees and securities, insurance and leasing subsidiaries in this group, if we connect all that, BIDV's growth expansion and Hana grew -- is considering synergies to be made in other sectors of Vietnamese market in connection with BIDV.

And so the Board of Directors of both then have entered into a contract and we have submitted for the approval of the authorities. Going forward, (inaudible) to 5 strategic countries, not only the banking sector. Nonbanking subsidiaries to increase their share to 30% in the nonbanking sectors. If there are viable opportunities, we are going to look for them. That is all.

--------------------------------------------------------------------------------

Unidentified Analyst, [6]

--------------------------------------------------------------------------------

My name is (inaudible). With regard to the nonbanking subsidiaries, according to our review, at the first half of 2019, Hana is 35%, KEB, 33% and Hana 22%. That is the state. BIDV acquisition investment, it is a direct investment by the bank. So this is unconnected with the double leverage rate. The double leverage rate is 102.7. There is sufficient room for investment. And Hana by 2025, the nonbanking subsidiary will raise the contribution to profit by 30%. And so in order to achieve this target, we have to look at the ability to contribute to the synergies, contribute to profit and also the ability to enhance the return to shareholders. So we're going to open ourselves to all the possibilities going forward. This was -- especially in order to secure future growth engines, we are centering around digital and global areas. And so we will look at viable acquisition targets in order to achieve our targets. Thank you.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [7]

--------------------------------------------------------------------------------

I hope that answers your question. We will take the next question from Hyundai Motor Securities, Mr. Jin-Sang Kim.

--------------------------------------------------------------------------------

Jin-Sang Kim, HMC Investment Securities Co., Ltd., Research Division - Analyst [8]

--------------------------------------------------------------------------------

Congratulations on a good quarter. Two questions. In Q2, you are able to defend your NIM. The base rate was cut, and there's going to be downward pressure on the margin in the second half. So what do you think the NIM trend is going to be in the second half and the following year? And what will your response be? And the loan growth looked very good on the outer appearance. So you have the size and maybe you could care more about the margin in the second half. So is that true or do you have another strategy?

And looking at the cost/income ratio, it looks very good. And how do -- what do you think is the sustainable CIR? And when do you plan to achieve the sustainable CIR? And with banking going more online, you will be having to think more about business efficiency. And I don't think it will be very easy for the bank to restructure, considering the labor market issues. And what will your mid- to long-term policy be?

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [9]

--------------------------------------------------------------------------------

Please stand by as we prepare for the answer.

--------------------------------------------------------------------------------

Seung-Iyuk Lee, Hana Financial Group Inc. - Group CFO & VP [10]

--------------------------------------------------------------------------------

Yes. I am Seung-Iyuk Lee. The NIM forecast for the second half and 2020, I think the analysts would know better than me. The market rate is going down, and the base rate has gone down. And we don't know how many rate cuts there will be. The market rate is expected to go down. In the second half, we believe that the NIM will be lower than now. By how many bps, we cannot forecast precisely. We think there is going to be a significant drop, and we believe, if the interest rate downward trend continues to last next year, we believe, there will be downward pressure on NIM.

And the sustainable CIR is 46% in the second half -- in Q2. We believe we'll be able to maintain the CIR under 50%. And we want to prove to the market that we're capable of maintaining such a good CIR.

And as for the human resources and branches, we are doing a lot of digital projects. And we have plans to use our resources efficiently, and we have to have more efficient manpower management. And for the branch management, in the long run, we are having more and more people who use mobile banking. And the number of physical branches, I think we have reduced the most number of branches in the industry, and we will continue with that trend. We will try to make the branch management more efficient. Thank you.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [11]

--------------------------------------------------------------------------------

Thank you very much. We will invite the next question from Goldman Sachs Securities, Mr. Sinyoung Park.

--------------------------------------------------------------------------------

Sinyoung Park, Goldman Sachs Group Inc., Research Division - Equity Analyst [12]

--------------------------------------------------------------------------------

I'm Sinyoung Park from Goldman Sachs. I have additional questions about the investment in BIDV. 15% gives you a minority stake, but I understand this is a strategic investment, given a Board seat, participating in management. Are these all included in the contract? Can you give me more details to understand that this is a strategic investment, not just a financial investment?

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [13]

--------------------------------------------------------------------------------

Thank you very much for the question. Please stand by while we prepare the answers.

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

I'm [Hyun-jae Gong]. Given the role of Vietnam strategic investor, stake is 15%, and at a maximum, 20% stake can be obtained, given the approval of the Central Bank. And the foreign stake can be up to 30%. In the case of KEB Hana Bank with BIDV, the strategic investment, stake acquisition, 15% has been made. And as a strategic investor, to play this role, the participation of the management, as you have said, participating in the Board, participating in the management. Based on consultation with BIDV, there are 6 areas which requires further development. These 6 areas have been designated and the development plan will continue to be discussed going forward. And the specific action plans will be approved and implemented. Thank you very much.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [15]

--------------------------------------------------------------------------------

Thank you very much. We will take the next question, SooHyun Kim from Shinhan Financial Investment.

--------------------------------------------------------------------------------

SooHyun Kim, Shinhan Investment Corp., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

I also have 2 questions. I think it was mentioned earlier, the loss was KRW 45 billion according to equity method for group and for bank. And I was wondering what this loss according to equity method was.

And the NIM for the group and the bank was a bit different. And you talked about how there was -- there was some change in the card business about the installment assets, noninterest-bearing. And I was wondering about interest-bearing assets and revolving asset increase.

--------------------------------------------------------------------------------

Unidentified Company Representative, [17]

--------------------------------------------------------------------------------

I'd like to first answer the question about the loss according to equity method. As was mentioned by the CFO, a lot is coming from the gain and loss from overseas according to the equity method, so dating back to 2017. And we cannot go into details because it is too complex, so please contact the group team and they will be able to answer this question individually. And we will answer your second question.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [18]

--------------------------------------------------------------------------------

Yes. Shinhan card will be ready with an answer -- Hana Card will answer.

--------------------------------------------------------------------------------

Unidentified Company Representative, [19]

--------------------------------------------------------------------------------

As for interest-bearing as of May, it was KRW 436 billion, and it went up to KRW 760 billion. And as for noninterest-bearing, it was KRW 1.8 trillion, and then it was down to KRW 642 billion.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [20]

--------------------------------------------------------------------------------

Thank you very much. We'll invite the next question from KB Securities, Mr. Yoo Seungchang.

--------------------------------------------------------------------------------

Seungchang Yoo, KB Securities Co., Ltd., Research Division - Senior Research Analyst [21]

--------------------------------------------------------------------------------

I'm Yoo Seungchang from KB Securities. I have 2 questions. First of all, as for the earlier part of the year, 4.1% increase of Korean won loans, have increased. Given our initial expectations, this is faster growth. Your loan policy guideline for the second half of the year, any loan growth targets perhaps?

And second question is with regards to the interim dividend payment. It was better than we expected. The year-end dividend payout ratio or dividend policy is my question. Last year, the industry -- the dividend payout ratio was higher than compared to your peers. But what kind of policy do you have this year regarding the dividends?

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [22]

--------------------------------------------------------------------------------

Thank you very much for those questions. Please stand by as we prepare the answers.

--------------------------------------------------------------------------------

Seung-Iyuk Lee, Hana Financial Group Inc. - Group CFO & VP [23]

--------------------------------------------------------------------------------

Yes. I'm Seung-Iyuk Lee, the CFO. In the first half, the loan growth was a little over 4% going into the second half. Compared to the present stage, the loan growth rate, we believe, will be lower. That is our policy going forward. Of course, we will continue to engage in sales and operations, and high-quality assets will be replacing lesser quality assets. So the size of the loan growth will be reduced compared to the first half.

With regards to the annual dividend payout ratio, the interim dividend was KRW 500 won share. And the period end dividend, depending on the results at the end of third quarter, internally, we will engage in some reviews and then make a decision and disclose it to you.

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

Let me add to that. With regards to dividend payout ratio, the dividend payout ratio starting from several years ago continuously -- to maximize shareholder return, every year, as much as is possible, we're trying to grow it. However, we have to judge it on recurring levels, and this was included in your question. During Q3, we have one-off factors. As -- excluding one-off factors based on recurring factors, every year, based on maximizing shareholder returns, we are trying to increase the dividends every year. As the CFO said, at year-end, our income levels and -- level of income that can be paid out as dividends will be considered in order to decide the level of dividends.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [25]

--------------------------------------------------------------------------------

We will invite the next question. Yes, Ms. Tian from Citi.

--------------------------------------------------------------------------------

Yafei Tian, Citigroup Inc, Research Division - Assistant VP and Analyst [26]

--------------------------------------------------------------------------------

This is Yafei from Citi. Mainly questions around asset quality. So as you can see, if there's a big recovery or reversal this quarter, is it possible to quantify what is the amount in terms of the reversal and I also wanted to see that -- how sustainable is the reversal trend. We have seen that, in the past few quarters, it looks like Hana has been -- keep on benefiting from asset quality reversals. So how much can we expect this to continue? So that's the first question.

And then the next question is really around your expectation of the recent announcement that there would be some migration by retail customers from their floating-rate mortgages to fixed-rate mortgages. So what would you expect? What percentage of your customers would be doing that conversion? And what would be the potential net interest income impact from that new legislation?

--------------------------------------------------------------------------------

Hyosang Hwang, Hana Financial Group Inc. - Group Chief Risk Management Officer, CRO & Deputy President [27]

--------------------------------------------------------------------------------

Yes. I'm the CRO. Yes. Let me answer the question about the asset quality first. In the second -- in the first half, there was the write-back from Hanjin heavy industry. It was about KRW 71 billion. And we had additionally provisioned about the same for the same company. So there was write-back of KRW 62 billion. In the second half, we will also have these write-backs or reversals. And in most of the banks, we have exposure to some of these companies that are going through workouts, but all of these procedures have been completed. So starting next year, we won't be seeing such write-backs. But as for the normal provisioning, the provisioning level will have been lowered, and that lower provisioning level will continue throughout next year.

--------------------------------------------------------------------------------

Unidentified Company Representative, [28]

--------------------------------------------------------------------------------

Yes. I'd like to talk about the migration from floating to fixed rate. We are still discussing the situation with the authority. There will be about KRW 20 trillion. About 15% or KRW 3 trillion will be converted to the fixed rate. And as to how that will affect the NIM, that will not affect the NIM much. The details have not been confirmed, so that is all that I can say at the moment.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [29]

--------------------------------------------------------------------------------

Thank you. We'll take the next question from Hanwha Investment & Securities, Mr. Sung Yong Hoon.

--------------------------------------------------------------------------------

Yong Hoon Sung, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [30]

--------------------------------------------------------------------------------

I'm Sung Yong Hoon from Hanwha. This may be a side question perhaps. SOHO delinquency rate has fallen, and the corporate delinquency rate has fallen as well. The asset growth, this may have been a factor. In other words, maybe a dilution factor is in place. And the existing asset quality, they have improved. Is this something you can explain? Is this something you can elaborate on this aspect?

Second question is related to Hana Card. Relatively speaking, the card company size is smaller, and so the merchant fee cut is -- has been a significant impact on profit, raising the leverage ratio or maybe it's using more capital. So SG&A is fixed, so maybe asset size can be grown in order to increase profit or income. These may be some of the options. Because of the merchant fee cuts, your earnings have taken a hit. Do you have any plans to recover your earnings level?

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [31]

--------------------------------------------------------------------------------

Thank you very much. Please stand by while we come up with the answers.

--------------------------------------------------------------------------------

Hyosang Hwang, Hana Financial Group Inc. - Group Chief Risk Management Officer, CRO & Deputy President [32]

--------------------------------------------------------------------------------

I'm Hyosang, the CRO. With regard to delinquency -- falling delinquency rate of the corporate loans, as we have just said, realistically, the corporate loans delinquency, in terms of net increase, on a Y-o-Y basis, if you compare, it has increased actually. Delinquency can be decreased because most of our assets are secured. And sold in the market and these assets can be sold actually quite easily in the market. And so the delinquencies can be resolved quite adequately, and the delinquency decline can be maintained for the time being.

--------------------------------------------------------------------------------

Unidentified Company Representative, [33]

--------------------------------------------------------------------------------

With regard to second question, I'm [Geun Song] from Hana Card. So the impact from the merchant fee cuts, yes, there are several options that are considered. In 2019, we're going to stop selling loss-making products, and we're going to also innovate based on digital technology in order to enhance the profit. And rather than the domestic market in terms of growth and profit potential, we're going to enter more aggressively into the overseas market. In terms of the annual fees for insurance, the members related benefits will be strengthened in order to increase our income base.

--------------------------------------------------------------------------------

Junghoon Lee, Hana Financial Group Inc. - Head of IR Team [34]

--------------------------------------------------------------------------------

Thank you very much. In the interest of time, that will be all for the Q&A. With this, this concludes the earnings presentation for Hana Financial Group 2019 first half.

You may listen to the webcast on the website, and we'll be uploading the IR data book as well. Please contact the IR team for any additional questions. Thank you once again for your participation.