Agenda Item No. 1 Approval of Financial Statements
Agenda Item No. 2 Appointment of Directors
Agenda Item No. 2-1 Outside Director Candidate : Mr. Kim Hwa-nam
Agenda Item No. 2-2 Outside Director Candidate : Mr. Park Byoung-dae
Agenda Item No. 2-3 Outside Director Candidate : Mr. Park Cheul
Agenda Item No. 2-4 Outside Director Candidate : Mr. Lee Steven Sung-ryang
Agenda Item No. 2-5 Outside Director Candidate : Mr. Choi Kyong-rok
Agenda Item No. 2-6 Outside Director Candidate : Mr. Philippe Avril
Agenda Item No. 2-7 Outside Director Candidate : Mr. Yuki Hirakawa
Agenda Item No. 3 Appointment of Outside Director who will serve as Audit Committee Member
- Outside Director Candidate : Mr. Lee Manwoo
Agenda Item No. 4 Appointment of Audit Committee Member(3 members)
Agenda Item No. 4-1 Audit Committee Member Candidate : Mr. Park Byoung-dae
Agenda Item No. 4-2 Audit Committee Member Candidate : Mr. Lee Steven Sung-ryang
Agenda Item No. 4-3 Audit Committee Member Candidate : Mr. Joo Jaeseong
Agenda Item No. 5 Approval of the Maximum Limit on Director Remuneration
Thank you for your continued investment in Shinhan Financial Group. On behalf of our Board of Directors, I would like to invite you to attend our upcoming Annual General Meeting (“AGM”) on
Thursday March 22nd Auditorium, 20th floor, Shinhan Bank, 20, Sejong-daero 9-gil, Jung-gu, Seoul 04513, Korea.
The AGM offers a valuable opportunity for you to meet the members of our Board and senior management and to ask questions on the operation, management and other issues relating to the Group. Your participation is highly valued by our Board and management, and your exercising the right to vote is important to our Company.
The items of business to be considered at the AGM are described in detail in the notice of the AGM which follows this letter.
Your participation at the AGM is very important and you can exercise your right to vote whether you choose to attend the meeting or not.
The Board believes sound corporate governance is crucial to our development in the long term and aspires to a high standard of governance. The Company adopts a transparent and robust nomination process, that allows us to evaluate directors per a set of qualitative and quantitative factors so as to select a Board of Directors to the greatest benefit of our shareholders. Through this process, we have identified Messrs. Kim Hwa-nam, Park Byoung-dae and Choi Kyong-rok as outside director nominees who will replace Messrs. Lee Sang-kyung, Lee Jung-il and Lee Heun-ya as directors. Details on the background of these directors as well as other directors standing for reelection can be found in this circular. Additionally,
we have provided in this circular background information to all the other, resolutions to be proposed at the AGM including explanatory statement for relevant proposals, and information on voting and other issues relating to the AGM
, so that shareholders have a better understanding of their rights and can make an informed decision.
The Board considers that all resolutions proposed for consideration and approval by the shareholders at the AGM are in the best interests of the Company and its shareholders as a whole.
Accordingly, the Board recommends the shareholders to vote in favour of the proposed resolutions.
Notice is hereby given that the 17th Annual General Meeting of Shareholders of Shinhan Financial Group will be held as described hereunder and your attendance is cordially requested.
- Outside Director Candidate : Mr. Lee Manwoo
4-1) Audit Committee Member Candidate : Mr. Park Byoung-dae
4-2) Audit Committee Member Candidate : Mr. Lee Steven Sung-ryang
4-3) Audit Committee Member Candidate : Mr. Joo Jaeseong
Agenda Item No. 1
Approval of Financial Statements
(Separate Financial Statements & Consolidated Financial Statements for fiscal year 2017 (January 1, 2017 ~ December 31, 2017), Including Statements of Appropriation of Retained Earnings)
Pursuant to Article 449 of the Commercial Act, we seek shareholders’ approval during the Annual General Meeting of Shareholders on the Company’s separate financial statements and consolidated financial statements for fiscal year 2017.
Shinhan Financial Group is a financial holding company established in accordance with the Financial Holding Company Acts and engages in the primary business of 1) controlling or managing companies that either provide financial services or are closely related to financial business through ownership of shares, 2) investing in or providing financial support to subsidiaries and to raise capital necessary for financial support, and 3) supporting the business of subsidiaries for joint development, marketing of new products and joint utilization of facilities and ICT systems and etc.
As of December 31, 2017, Shinhan Financial Group consists of 14 direct subsidiaries that include Shinhan Bank, Shinhan Card, Shinhan Investment Corp., Shinhan Life Insurance and Shinhan BNP Paribas Asset Management, and 25 indirect subsidiaries.
During the fiscal year of 2017, Shinhan Financial Group received annual dividend for FY 2016 from its subsidiaries that amounts KRW 930.1 billion in total. In addition, as the owner of ‘Shinhan’ brand trademark, Shinhan Financial Group received brand fees from users of our brand and recognized brand fee income of total KRW 46.7 billion in 2017.
For the fiscal year 2017, Shinhan Financial Group recorded KRW 2,917.7 billion of consolidated net income attributable to equity shareholders.
Group net income increased by 5.2% year-on-year attributed to increase in earnings from non-bank subsidiaries includes Shinhan Card, Shinhan Investment Corp. and Shinhan Capital.
Interest income increased by 8.8% year-on-year attributed to resilient loan growth coupled with continuing margin improvement. Non-interest income decreased by 14.9% year-on-year due to decreased non-recurring sales gains from securities disposal and absence of one-off derivative gains in 1H16. However general fee income increased by 9.3% year-on-year.
Group’s accumulated provision for credit losses decreased by 53.3% year-on-year to KRW 544.3 billion, mainly due to write-backs from Shinhan Card. However, even after excluding one-offs, Group recurring credit costs has consistently enter into improving trajectory attributed to consistent credit risk management and disciplined credit appetite.
- Please refer to Appendix A for the separate financial statements and Consolidate financial statements of Shinhan Financial Group. For more detailed information of notes to financial statements, please refer to the audit report through a 6-K filing disclosure provisionally scheduled to be released on 7 March, 2018, allowing shareholders to view the financial statements at least two weeks to review prior to the Annual General Meeting.
Pursuant to Article 382 of the Commercial Act and Article 37 of the Company’s Articles of Incorporation, we seek shareholders’ approval during the Annual General Meeting of Shareholders on the appointment of directors.
The Board of Directors is currently composed of 12 directors, 1 executive director and 1 non-executive director and 10 outside directors. The terms of 7 outside directors (Messrs. Park Cheul, Lee Sang-kyung, Lee Steven Sung-ryang, Lee Jung-il, Lee Heun-ya, Philippe Avril and Yuki Hirakawa) will be completed in March 2018 on the date of the Annual General Meeting of Shareholders.
In keeping with best practice the Company has established the Corporate Governance and CEO Recommendation committee, the Board Steering Committee and the Outside Director Recommendations committee under the Board of Directors who recommend, executive directors, non-executive directors and outside directors for the company respectively. In particular, the Outside Director Recommendations Committee is a committee under the Board of Directors and assesses the independence and ability of potential candidates for outside directors and recommends relevant candidates to the Board of Directors.
The Outside Director Recommendation Committee under the Board of Directors recommended 7 outside directors, of which 7 directors, Messrs. Park Cheul, Lee Steven Sung-ryang, Philippe Avril and Yuki Hirakawa are to renew their terms.
Messrs. Lee Sang-kyung and Lee Jung-il are completing their term limit of six years, which is stated in "Article 6, Act on Corporate Governance of Financial Companies," and Mr. Lee Heun-ya revealed his intention not to renew his directorship upon the completion of his term. Messrs. Kim Hwa-nam, Park Byoung-dae and Choi Kyong-rok have been newly nominated and recommended as outside directors. On February 21, 2017, the Board of Directors endorsed the nominees selected by the Outside Director Recommendation Committee.
When considering independence, the committee calculates the length of service of an Outside Director by reference to the date of his or her election by shareholders following their appointment. The committee has determined that there are no relationships or circumstances which are likely to affect an Outside Director’s judgement and any relationships or circumstances which could appear to do so are not considered to be material. Each of the Directors standing for election or re-election has confirmed that they have no material relationship with another Director, member of senior management or any substantial or controlling shareholder of the Company. The committee, both prior to appointment and when nominating for re-election, enquires, and obtains assurance, that each Director is, or will be capable of, contributing the time both expected of them and unanticipated, should additional demands be placed on them. The committee has considered carefully the number of directorships held by Directors and has applied the same standard of enquiry for each of them. It is satisfied that all Directors, including Directors holding a greater number of appointments, have sufficient capacity to meet their commitments to the Company. Individual performance evaluations and assessment of contributions to Board discussion have confirmed that all of the Directors are performing effectively and demonstrate commitment to their roles. It is therefore the belief of the committee and the board that each of the Outside Directors is fully able to discharge his or her duties.
In addition to reviewing the candidates and their background individually, the committee also reviews the candidates in the context of the skills, expertise and background represented by other members of the Board of Directors. As such, the committee believes that collectively, the Board of Directors (including the outside director nominees) bring complimentary expertise and skills that are well aligned with requirements based on Company growth aspirations and strategy.
Accordingly, the Board of Directors recommends a vote “FOR” the election of the aforementioned candidates;
Please refer to the “Additional information” section provided at the end of this document for information on the a) Members of the Board of Directors after the 17th Annual General Meeting of Shareholders’ and b) Committees of Board of Directors.
Mr. Kim is an experienced entrepreneur and obtained extensive knowledge in many areas of business management in his more than 22 years as CEO. Along with his professional experiences, he has contributed to Korean-Japanese business community and inspired many young entrepreneurs by actively taking part in various business organizations such as Korea Investment Association. His business insights across the board coupled with hands-on experience through management of business administration will definitely be a positive addition to Shinhan. He also served as an outside director at Shinhan Life Insurance(2006-2010) and Shinhan Investment Corp.(1999-2002). During his term, his commitments and profound understanding in Shinhan were highly acknowledged. Mr. Kim received B.A. in Economics from Rikkyo University. The committee newly nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Mr. Park is a seasoned legal expert who honorably served as the Minister of the National Court Administration and Justice of the Supreme Court. He has endeavored to make transparent and open communicating court. In pursuit of such effort, he greatly contributed to the Korean judicial system by promoting and introducing advanced legal systems, such as citizens’ participation (2008), civil conciliation proceedings (2009), and court-centered trial system. Mr. Park received B.A. in law from Seoul National University and Master of Laws from Cornell Law School. He is currently fostering younger scholars by teaching and sharing his vast experiences and best practices he amassed as a legal expert. The committee newly nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Mr. Park is an expert in finance with a career as a Member of National Economy Advisory Council and served as a Senior Deputy Governor at Bank of Korea. The committee nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Mr. Lee is an economic expert with a career as a professor at Dongguk University and director of Research Institute of Social Science of Dongguk University. The committee recommends Mr. Lee based on his renowned capacity and expertise as he is expected to contribute to the development of the Company.
Mr. Choi is an experienced ICT professional who has developed capacities in the areas of network, software, and cyber security – an area that is increasingly important as the Banking industry transitions into the digital age. Apart from his expertise in Information and Communications Technology, Mr. Choi also gained rich managerial experience while serving as CEO at CYS Corporation. In addition, he served as an outside director at Shinhan Life Insurance(2010-2015) where his commitments and insights were widely acknowledged. Especially his profound understanding in Shinhan and valuable work ethics he showed during his term were priceless. Mr. Choi received M.S. in Computational Science from Keio University. The committee newly nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Mr. Avril is an expert in finance joining the industry as a derivatives trader in Paris in 1985. He has worked as a specialist of financial derivatives and as a member of general management at Banque Indosuez, Deutsche Bank, Dai-Ichi Kangyo Bank, Commerzbank and the Royal Bank of Scotland in offices including Paris, Tokyo, New York, Frankfurt and Hong Kong. The committee nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Mr. Hirakawa is a successful Korean-Japanese entrepreneur and expected to share his various experience and seasoned expertise as a businessman with approximately 30 years’ experience in the field. The experience he has gained in his role as a CEO of Hirakawa Industry Development enables him to provide an important perspective to the Board’s discussions on International business. Mr. Hirakawa received B.A. from Osaka University. The committee nominated and recommended him as an outside director as he is expected to further contribute to the activities of the Board of Directors, and in turn, the development of the Company.
Pursuant to Article 382 of the Commercial Act, Article 19 of the Act on Corporate Governance of Financial Companies and Article 37 of the Company’s Articles of Incorporation, we seek shareholders’ approval during the Annual General Meeting of Shareholders on the appointment of directors.
At the 17th Annual General Meeting of Shareholders 1 outside director who will serve as audit committee member will seek the approval of appointment from shareholders.
We have separated the agenda to reflect Article 19 of the Act on Corporate Governance of Financial Companies entered into force on Aug. 1, 2016. Article 19, Paragraph 1, Subparagraph 5 of the Act on Corporate Governance of Financial Companies define as follow
“Every Financial company shall appoint at least one outside director who will serve as an audit committee member separately, apart from other directors.”
Under the Korean Commercial Act, Mr. Lee Manwoo is considered the financial expert within this fully independent audit committee.
The Outside Director Recommendation Committee under the Board of Directors recommended Mr. Lee Manwoo to renew his term as an outside director. At the same time the Audit Committee Member Recommendation Committee under the Board of Directors recommended Mr. Lee Manwoo as an Audit Committee Member.
The Outside Director Recommendation Committee is a committee under the Board of Directors and assesses the independence and ability of potential candidates for outside directors and recommends relevant candidates to the Board of Directors. On February 21, 2018, the Board of Directors endorsed the nominee selected by the Outside Director Recommendation Committee and the Audit Committee Member Recommendation Committee.
The Board of Directors recommends a vote “FOR” the election of the aforementioned candidate;
Please refer to the “Additional information” section provided at the end of this document for information on the a) Members of the Board of Directors after the 17th Annual General Meeting of Shareholders’ and b) Committees of Board of Directors.
Mr. Lee is an expert in accounting and business administration, with a strong academic background as well as practical experience in various fields such as role as the president of Korea Accounting Association and President of Korea Academic Society of Taxation. Mr. Lee has given valuable insights and perspectives at his governmental advisory roles, including member as National Advisory Council, National Tax Administrative Commission, National Economic Council and as supervisory member of Financial Service Commission. And as a renowned professor, he shares important perspectives with the Board on accounting and business administration. The Board recommended him as an outside director who will serve as audit committee member.
Pursuant to Article 542.12 of the Commercial Act, Article 19 of the Act on Corporate Governance of Financial Companies and Article 38 of the Company’s Articles of Incorporation, we seek shareholders’ approval during the Annual General Meeting of Shareholders on the appointment of the Audit Committee Members.
Among the existing outside director candidates, Messrs. Park Byoung-dae, Lee Steven Sung-ryang and Joo Jaeseong were recommended as candidates of the Audit Committee Members for fiscal year 2018 through the resolution of the Audit Committee Member Recommendation Committee.
The Board of Directors recommends a vote “FOR” the election of each of the following nominee;
Mr. Park is a seasoned legal expert who honorably served as the Minister of the National Court Administration and Justice of the Supreme Court. He has endeavored to make transparent and open communicating court. In pursuit of such effort, he greatly contributed to the Korean judicial system by promoting and introducing advanced legal systems, such as citizens’ participation (2008), civil conciliation proceedings (2009), and court-centered trial system. Mr. Park received B.A. in law from Seoul National University and Master of Laws from Cornell Law School. He is currently fostering younger scholars by teaching and sharing his vast experiences and best practices he amassed as a legal expert. The committee newly nominated and recommended him as an outside director as he is expected to further contribute to best practices of Audit Committee, and in turn, the development of the Company.
Mr. Lee is an economic expert with a career as a professor at Dongguk University and director of Research Institute of Social Science of Dongguk University. The committee recommends Mr. Lee based on his renowned capacity and expertise as he is expected to contribute to the development of the Company.
Mr. Joo is a senior advisor at the law firm Kim & Chang. He practices primarily in the area of banking industry and banking supervision. He has extensive experience in banking and non-banking supervision such as savings bank, credit card company, finance company and etc., Especially he had a very important role in overcoming various financial crisis including Korean liquidity(1998), Global Financial Crisis after Lehman Brothers Collapse(2008) and Korean Saving Company Failure(2011). In addition, he is an expert in international banking provision area so that he worked at the bank restructuring department in the World Bank(2001-2004) and had been actively involved the establishment of Basel II and Basel III accord as the member of Basel Committee in BIS. The committee newly nominated and recommended him as an outside director as he is expected to further contribute to best practices of Audit Committee, and in turn, the development of the Company.
Pursuant to Article 388 of the Commercial Act and Article 49 of the Company’s Articles of Incorporation, we hereby request that the shareholders approve the following:
KRW 3.5 billion is proposed as the maximum amount of aggregate remuneration that may be disbursed to the 12 directors, including 10 outside directors, of the Company for fiscal year 2018. For your reference the limitation for fiscal year 2017 for 12 directors, including 10 outside directors, was KRW 3.5 billion.
* the maximum number of performance shares to be granted to the directors of the board of the Company in respect of fiscal year 2018 be set as 18,200 shares, provided that payments accrued in relation thereto shall be made in fiscal year 2022. The number of performance shares will range from 0% to 100% of 18,200 shares and depend on the performance for the four-year performance period January 1, 2018 through December 31, 2021. The performance measures include the increase in share price relative to the comparison group, the achievement level of net operating income and Return on Equity relative to a pre-established target.
It should be noted, however, that in addition to such limit, additional compensation in the form of performance shares may be made in fiscal year 2018 to the extent that the total number of such shares falls within the limit approved at previous shareholders’ meetings held.
The Compensation Committee and the board of directors decide the reward system for internal directors. A variable amount of compensation is determined by reflecting the group’s annual performance as well as long-term outcome. The board of directors determines compensation for external directors, and the amount of compensation varies according to the degree of participation in the board of directors and subcommittees. The annual limit for directors’ compensation is approved at the shareholders’ meeting every year, and the board of directors makes decisions on the details within the limit. For internal directors, a Compensation Committee solely consisting of external directors makes additional assessment on the details of the system for compensating the group’s management board, including internal directors.
The record date for exercising voting rights at the Annual General Meeting of Shareholders is December 31, 2017. As of the record date, there are 474,199,587 shares outstanding, all of which are valid shares for voting.
Pursuant to the provisions of the Commercial Act, Agenda Items shall be passed a majority of the votes cast by the shareholders present at the meeting and at least one-fourth of the total shares that are entitled to vote.
* Outside Directors is defined by the Financial Holding Companies Act and the Securities and Exchange Act as a director who does not engage in the regular affairs of the financial holding company, and who is elected at a shareholders meeting, after having been nominated by the outside director nominating committee. None of the largest shareholder, those persons "specially related" to the largest shareholder of such company, persons who during the past two years have served as an officer or employee of such company, the spouses and immediate family members of an officer of such company, and certain other persons specified by law may qualify as an outside director of such company.
** Mr. Park Cheul was the Chairman of the Board of Directors for Shinhan Financial Group.
***The new Chairman of the Board of Directors will be elected on the following meeting of Board of Directors after the AGM.
† indicates outside directors whose tenure expired and who seeks shareholders’ approval to renew their terms.
In order to promote long-term development of the group, and to protect the profits of stakeholders such as shareholders and financial consumers, Shinhan Financial Group strives to acquire transparency, integrity, and stability and to possess a governance structure, which reflects the group’s history of growth and organizational culture. As a result, Shinhan Financial Group was the only company out of 852 domestic listed companies to receive an integrated assessment grade of A+ for 3 consecutive years at ‘2017 Award on Companies with Outstanding Governance Structure’ conducted by the Korea Corporate Governance Service. Korea Corporate Governance Service revealed that the reasons for the award was the group’s high ratio of external directors, improvement in transparency of corporate governance structure by operating various expert committees, and detailed disclosure of information related to governance structure. The company’s principles and policies on governance structure are as follows.
Every year, the company discloses its annual report on governance structure on the company website. The annual report on governance structure includes all internal regulations, such as the articles of association and regulations for the board of directors and its subcommittees, as well as all activities by the board of directors and the subcommittees. The company practices a concentrated voting policy for protecting the rights of minority shareholders and policy on exercising voting rights through writing, for protecting the voting rights of active shareholders. Also, it provides real-time videos of shareholders’ meetings in order to provide impartial and timely information.
The company operates its board of directors with autonomy and professionalism, and is sincerely adhering to external regulations such as commercial laws and the Financial Holding Companies Act as well as internal regulations such as articles of association, internal norm on governance structure, and regulations on the board of directors. The company also incorporates and performs all matters recommended by the model norm on financial company governance structure and the model norm on corporate governance structure.
In order to ensure stable governance structure through checks and balances between members, powers of making decisions and executing tasks have been delegated to the board of directors and the management board, respectively, and the management board is to report the status of executing tasks to the board of directors. Also, the ratio of external directors in the board of directors is 83%, which is much higher than the legal requirement of 50%, ensuring that the board of directors can check the powers of the management board. Also, more than 50% of members in all subcommittees consist of external directors, actively promoting activities of external directors in the board of directors. While regulating the board chairman to be appointed from external directors, most subcommittee chairmen, including the External Director Recommendation Committee, are appointed from external directors.
The internal norm on governance structure stipulates the ‘diversity principle’ in composing the board of directors, which ensures that the board of directors will not have common backgrounds or represent a certain interest, promoting diversity and professionalism in the governance structure. Indeed, members of the board of directors evenly specialize in finance, economy, business, accounting, law, consumer protect and information technology -the seven fields presented as conditions for expertise by the model norm - so that the board of directors will not incline to certain backgrounds or occupations. Furthermore, the ratio of female candidates are consistently increasing while selecting the candidates for external directors, and the candidates come from a wide range of financial background, reflecting the efforts to comply with the principle of diversity in composing the board of directors.
Governance Structure which Reflects the Growth History and Organizational Culture of the Group
The company originates from Shinhan Bank, which was founded in July 1982 with ‘Korea’s first pure private capital’, with the patriotic love of 341 Korean minority shareholders in Japan(100% capital investment amounting to KRW 25.9 billion). Shinhan Financial Group, which started in 2001 as ‘Korea’s first financial holding company of private capital’, prepared the foundation for a new leap forward through the strategic alliance with BNP Paribas, a global financial group. In order to reflect the group’s history of growth and organizational culture on governance structure, external directors composing of Korean business experts in Japan who represent the spirit of foundation, and financial experts recommended by BNP Paribas, our strategic alliance company, are working as members in the board of directors.
External directors are appointed from shareholders’ meetings under the recommendation of the Recommendation Committee on External Director Candidates. The company tries to ensure that external directors with conditions for autonomy set by relevant legislation and with financial history and expertise from various fields will be included in candidates recommended by the External Director Recommendation Committee. Conditions for appointing external directors with professionalism and insight include:
Article 4 Clause 1 No. 6 of the internal norm grants ‘monitoring activities regarding conflict of interest between the company and dominant shareholders, employees, etc.’ under the authority of the board of directors. Article 10 Clause 1 No. 7 of the board of directors’ regulation stipulates ‘approval on transactions between directors and the company’ as a matter to be decided by the board of directors. In the current board of directors, the President and CEO of Shinhan Bank resides as a non-executive director. Consequently, a transaction occurring between Shinhan Financial Group and Shinhan Bank implies that a transaction is occurring between a director of Shinhan Financial Group and Shinhan Bank. In order to monitor such activities regarding conflict of interest, the voting right of the President and CEO of Shinhan Bank, the non-executive director, is restricted for the relevant case, and the decision is made through a special resolution, which requires approval by over 2/3 of present directors.
The Board of Directors is responsible for the oversight of the management and the stewardship of the business on behalf of our shareholders.
The Board and its committees meet throughout the year to: (i) review and, where appropriate, approve strategy, business and financial planning and performance, risk, control and financial reporting and audit matters, compensation and management development, corporate culture and public responsibility matters; and (ii) provide oversight and guidance to, and regularly assess the performance of, the Chief Executive Officer. After the election, our Board will be comprised of 10 independent outside directors, and led by the CEO. The Board’s structure is designed to strike a balance between Board effectiveness and independent judgment absent any vested interest. The Board formally reviews its leadership structure on an annual basis as part of its self-assessment scheme.
Each committee member is appointed by the Board of Directors, except for members of the Audit Committee, who are elected at the general meeting of shareholders.
The following table lists the members of each committee as of February 21, 2018. Each committee members for FY 2017, except for the members of the Audit Committee, will be appointed by the new Board of Directors after the 17
th
Annual General Meeting of Shareholders;
† indicates committees with a majority of outside directors as committee members
According to the Article 45-2, 45-3 of Financial Holding Companies Act, we announced matters regarding the credit grants to the major shareholders and we also disclosure the acquisition of the stocks issued by the major shareholders of the company on our website on a quarterly basis.
There are no credit grants to the National Pension Service or no acquisition of the stocks issued by the NPS, which is the largest shareholder of our company as of Dec. 31, 2017.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
Shinhan Financial Group Co., Ltd. (the “Company”) was incorporated on September 1, 2001 through a business combination involving the exchange of the Company’s common stock with the former shareholders of Shinhan Bank, Shinhan Investment Corp., Shinhan Capital Co., Ltd. and Shinhan BNP Paribas Investment Trust Management Co., Ltd. The Company’s shares were listed on the Korea Exchange on September 10, 2001 and the Company’s American depository shares were listed on the New York Stock Exchange on September 16, 2003.
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(a)
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Statement of compliance
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The accompanying separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in
the Act on External Audits of Corporations in the Republic of Korea.
These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027
Separate Financial Statements
and the investments of the Company in an associate or a venturer are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.
(b)
Basis of measurement
The separate financial statements have been prepared on the historical cost basis except for the following material items in the separate statement of financial position.
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Financial instruments at fair value through profit or loss are measured at fair value
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Liabilities for cash-settled share-based payment arrangements are measured at fair value
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Liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets
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(c)
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Functional and presentation currency
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These separate financial statements are presented in Korean won which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.
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(d)
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Use of estimates and judgments
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The preparation of the separate 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.
10
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
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2.
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Basis of preparation (continued)
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(e)
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Approval
of separate financial statements
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These separate financial statements were approved by the Board of Directors on February 7, 2018, which will be submitted for approval to shareholder’s meeting.
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3.
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Significant accounting policies
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The significant accounting policies applied by the Company in preparation of its separate financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements.
(a) Investments in subsidiaries
The accompanying separate financial statements have been prepared on a stand-alone basis in accordance with K-IFRS No.1027
Separate Financial Statements
. The Company’s investments in subsidiaries are recorded at cost in accordance with K-IFRS No.1027. The Company applied K-IFRS No.1101
First-time Adoption of K-IFRS
, and considered the amount reported previously in separate financial statements prepared in accordance with previous K-GAAP as deemed cost at the date of transition. Dividends received from its subsidiaries are recognized in profit or loss when the Company is entitled to receive the dividend.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and are used by the Company in management of its short-term commitments. Generally equity investments are excluded from cash and cash equivalents
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(c) Non-derivative financial assets
The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.
Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.
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i)
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Financial assets at fair value through profit or loss
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A financial asset is classified as at fair value through profit or loss if it is held for trading or is designated at fair value through profit or loss. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
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ii)
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Held-to-maturity investments
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A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments.
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SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.
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iii)
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Loans and receivables
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Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method.
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iv)
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Available-for-sale financial assets
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Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.
12
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
|
3.
|
Significant accounting policies
(continued)
|
|
|
|
v)
|
Derecognition of financial assets
|
|
The Company 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 Company is recognized as a separate asset or liability.
If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.
Financial assets and financial liabilities are offset and the net amount is presented in the separate statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
(d) Derivative financial instruments
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
i) Hedge accounting
Fair value hedge
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the separate statement of comprehensive income.
The Company 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.
Cash flow hedge
When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
13
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Sig
nificant accounting policies (continued)
ii) Other derivative financial instruments
Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
(e) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.
The Company first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
(f) Property and equipment
Property and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. 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.
The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced cost is derecognized. The cost of the day to day servicing of property and equipment are recognized in profit or loss as incurred.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of 5 years, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
Depreciation methods, useful lives and residual value are reassessed at each fiscal year-end and any adjustment is accounted for as a change in accounting estimate.
14
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(g) Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses, if any.
Amortization of intangible assets is calculated on a straight-line basis over the estimated useful lives of 5 years 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.
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.
(h) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, other than assets arising from employee benefits and deferred tax assets, 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. 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 Company estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Company 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 groups of assets. The recoverable amount of an asset or 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 reflect current market assessments of the time value of money and the risks specific to the asset or 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 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.
15
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(i) Non-derivative financial liabilities
The Company initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
Depending on commitments in a contract and definition of financial liabilities, the non-derivative financial liabilities are categorized as either at fair value through profit or loss or other financial liabilities.
i) Financial liabilities at fair value through profit or loss
The financial liabilities at fair value through profit or loss include a financial liability held for trading or designated at fair value through profit or loss upon initial recognition. These financial liabilities are measured at fair value after initial recognition and changes in the fair value are recognized through profit or loss of the period. Costs attributable to the issuance or acquisition are immediately expensed in the period.
ii) Other financial liabilities
The financial liabilities not classified as at fair value through profit or loss are classified into other financial liabilities. The liabilities are measured at a fair value minus cost relating to issuance upon initial recognition. Then, they are carried at amortized cost, using the effective interest rate method.
Only when financial liabilities become extinct, or obligations in a contract are cancelled or terminated, they are derecognized form the Company’s separate statement of financial position.
(j) Foreign currency translation
Transactions in foreign currencies are translated to the respective functional currencies of the Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognized in profit or loss.
16
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(k) Capital stock
i) Capital stock
Capital stock is classified as equity. Incremental costs directly attributable to the transaction of stock are deducted, net of tax, from the equity.
ii) Hybrid bond
The Company classifies 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 bond where the Company 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.
(l) Employee benefits
i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
ii) Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’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.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in personnel expenses in profit or loss.
The discount rate is the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company 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.
17
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
The discount rate is the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company 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
When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the total of cumulative unrecognized past service cost and the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
Past service costs which are the change in the present value of the defined benefits obligation for employee service in prior periods, resulting in the current period from the introduction of, or change to post-employment benefits, are recognized as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately following the introduction of, or changes to, a defined benefit plan, the Company recognizes the past service cost immediately.
iii) Other long-term employee benefits
The Company’s net obligation in respect of long-term employee benefits other than pension plans 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, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.
(m) 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 each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.
18
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(n) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle 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.
Provision shall be used only for expenditures for which the provision was originally recognized.
(o) Financial income and expense
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 year) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.
The calculation of the effective interest rate includes all fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.
ii) Fees and commissions
Fees and commission income are recognized as the related services are performed.
Fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
iii) Dividend income
Dividend income is recognized when the right to receive income is authorized.
19
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(p) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The 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 combined profits or losses of the Company and its wholly owned domestic subsidiaries. Deferred taxes are measured based on the future tax benefits expected to be realized in consideration of the expected combined 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 separate financial statements.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
20
SHINHAN FINANCIAL GROUP CO., LTD.
Notes to the Separate Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(q) Earnings per share
The Company 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 ordinary shareholders of the Company by the weighted average number of ordinary 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 convertible notes and share options granted to employees.
21
SHINHAN FINANCIAL GROUP CO., LTD.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2017 and 2016
Contents
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|
|
|
|
|
|
Page
|
|
|
|
|
|
Consolidated Statements of Financial Position
|
|
1
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
|
|
2
|
|
|
|
|
|
Consolidated Statements of Changes in Equity
|
|
4
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
6
|
|
|
|
|
|
Notes to the Consolidated Financial Statements
|
|
8
|
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position
For the years ended December 31, 2017 and 2016
|
(In millions of won)
|
|
Note
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
4,8,20
|
W
|
22,668,598
|
|
19,181,165
|
|
Trading assets
|
|
4,9,20
|
|
28,464,296
|
|
26,695,953
|
|
Financial assets designated at fair value through profit or loss
|
|
4,10,20
|
|
3,579,057
|
|
3,416,102
|
|
Derivative assets
|
|
4,11
|
|
3,400,178
|
|
3,002,859
|
|
Loans
|
|
4,12,20
|
|
275,565,766
|
|
259,010,575
|
|
Available-for-sale financial assets
|
|
4,13,20
|
|
42,116,937
|
|
37,662,691
|
|
Held-to-maturity financial assets
|
|
4,13,20
|
|
24,990,680
|
|
19,805,084
|
|
Property and equipment
|
|
14,20,50
|
|
3,021,772
|
|
3,145,613
|
|
Intangible assets
|
|
15,50
|
|
4,271,969
|
|
4,226,512
|
|
Investments in associates
|
|
16
|
|
631,294
|
|
353,600
|
|
Current tax receivable
|
|
|
|
25,015
|
|
12,587
|
|
Deferred tax assets
|
|
42
|
|
592,283
|
|
641,061
|
|
Investment property
|
|
17
|
|
418,303
|
|
353,175
|
|
Other assets
|
|
4,18,20
|
|
16,551,958
|
|
18,168,408
|
|
Assets held for sale
|
|
|
|
7,550
|
|
4,939
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
W
|
426,305,656
|
|
395,680,324
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deposits
|
|
4,21
|
W
|
249,419,224
|
|
235,137,958
|
|
Trading liabilities
|
|
4,22
|
|
1,848,490
|
|
1,976,760
|
|
Financial liabilities designated at fair value through profit or loss
|
|
4,23
|
|
8,297,609
|
|
9,233,642
|
|
Derivative liabilities
|
|
4,11
|
|
3,487,661
|
|
3,528,244
|
|
Borrowings
|
|
4,24
|
|
27,586,610
|
|
25,294,241
|
|
Debt securities issued
|
|
4,25
|
|
51,340,821
|
|
44,326,785
|
|
Liabilities for defined benefit obligations
|
|
26
|
|
7,144
|
|
130,879
|
|
Provisions
|
|
27
|
|
428,958
|
|
728,888
|
|
Current tax payable
|
|
|
|
348,830
|
|
272,728
|
|
Deferred tax liabilities
|
|
42,50
|
|
9,712
|
|
10,638
|
|
Liabilities under insurance contracts
|
|
28
|
|
24,515,288
|
|
22,377,434
|
|
Other liabilities
|
|
4,29
|
|
25,312,773
|
|
20,917,147
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
392,603,120
|
|
363,935,344
|
|
|
|
|
|
|
|
|
|
Equity
|
|
30
|
|
|
|
|
|
Capital stock
|
|
|
|
2,645,053
|
|
2,645,053
|
|
Hybrid bonds
|
|
|
|
423,921
|
|
498,316
|
|
Capital surplus
|
|
|
|
9,887,335
|
|
9,887,335
|
|
Capital adjustments
|
|
|
|
(398,035)
|
|
(458,461)
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
(529,734)
|
|
(102,583)
|
|
Retained earnings
|
|
|
|
20,790,599
|
|
18,640,038
|
|
Total equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
|
|
|
|
32,819,139
|
|
31,109,698
|
|
Non-controlling interests
|
|
50
|
|
883,397
|
|
635,282
|
|
Total equity
|
|
|
|
33,702,536
|
|
31,744,980
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
W
|
426,305,656
|
|
395,680,324
|
See accompanying notes to the consolidated financial statements.
3
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won)
|
|
Notes
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
W
|
11,798,654
|
|
11,236,302
|
|
Interest expense
|
|
|
|
(3,955,701)
|
|
(4,030,936)
|
|
Net interest income
|
|
32
|
|
7,842,953
|
|
7,205,366
|
|
|
|
|
|
|
|
|
|
Fees and commission income
|
|
|
|
4,044,955
|
|
3,803,596
|
|
Fees and commission expense
|
|
|
|
(2,334,001)
|
|
(2,238,057)
|
|
Net fees and commission income
|
|
33
|
|
1,710,954
|
|
1,565,539
|
|
|
|
|
|
|
|
|
|
Insurance income
|
|
|
|
4,599,808
|
|
4,586,098
|
|
Insurance expenses
|
|
|
|
(5,059,847)
|
|
(5,004,602)
|
|
Net insurance loss
|
|
28
|
|
(460,039)
|
|
(418,504)
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
34
|
|
257,306
|
|
281,623
|
|
Net trading income
|
|
35
|
|
963,223
|
|
369,510
|
|
Net foreign currency transaction gain
|
|
|
|
364,006
|
|
461,671
|
|
Net loss on financial instruments designated at fair value through profit or loss
|
|
36
|
|
(1,059,826)
|
|
(501,955)
|
|
Net gain on disposal of available-for-sale financial assets
|
|
13
|
|
499,187
|
|
647,541
|
|
Impairment losses on financial assets
|
|
37
|
|
(1,014,899)
|
|
(1,195,663)
|
|
General and administrative expenses
|
|
38
|
|
(4,811,198)
|
|
(4,508,575)
|
|
Other operating expenses, net
|
|
40
|
|
(462,992)
|
|
(797,911)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
3,828,675
|
|
3,108,642
|
|
|
|
|
|
|
|
|
|
Equity method income
|
|
16
|
|
20,393
|
|
9,995
|
|
Other non-operating income (loss), net
|
|
41
|
|
(52,811)
|
|
51,835
|
|
Profit before income taxes
|
|
|
|
3,796,257
|
|
3,170,472
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
42
|
|
848,133
|
|
345,553
|
|
Profit for the year
|
|
|
W
|
2,948,124
|
|
2,824,919
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
4
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won, except earnings per share)
|
|
Notes
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) for the year, net of income tax
|
|
|
|
|
|
|
|
Items that are or may be reclassified to profit or loss:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments for foreign operations
|
|
|
W
|
(194,172)
|
|
12,103
|
|
Net change in unrealized fair value of available-for-sale financial assets
|
|
|
|
(323,127)
|
|
(433,657)
|
|
Equity in other comprehensive income of associates
|
|
|
|
(22,813)
|
|
2,691
|
|
Net change in unrealized fair value of cash flow hedges
|
|
|
|
15,904
|
|
(1,262)
|
|
Other comprehensive loss of separate account
|
|
|
|
(9,278)
|
|
(4,330)
|
|
|
|
|
|
(533,486)
|
|
(424,455)
|
|
Items that will never be reclassified to profit or loss:
|
|
|
|
|
|
|
|
Remeasurements of the defined benefit liability
|
|
|
|
103,525
|
|
15,307
|
|
Equity in other comprehensive income (loss) of associates
|
|
|
|
847
|
|
(2)
|
|
|
|
|
|
104,372
|
|
15,305
|
|
Total other comprehensive loss, net of income tax
|
|
30
|
|
(429,114)
|
|
(409,150)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
|
W
|
2,519,010
|
|
2,415,769
|
|
|
|
|
|
|
|
|
|
Profit for the year attributable to:
|
|
|
|
|
|
|
|
Equity holders of Shinhan Financial Group Co., Ltd.
|
|
30,43
|
W
|
2,917,735
|
|
2,774,778
|
|
Non-controlling interest
|
|
|
|
30,389
|
|
50,141
|
|
|
|
|
W
|
2,948,124
|
|
2,824,919
|
|
Total comprehensive income attributable to:
|
|
|
|
|
|
|
|
Equity holders of Shinhan Financial Group Co., Ltd.
|
|
|
W
|
2,490,170
|
|
2,367,062
|
|
Non-controlling interest
|
|
|
|
28,840
|
|
48,707
|
|
|
|
|
W
|
2,519,010
|
|
2,415,769
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
30,43
|
|
|
|
|
|
Basic and diluted earnings per share in won
|
|
|
W
|
6,116
|
|
5,736
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
5
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions of won)
|
|
Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
|
|
|
|
|
|
|
|
Capital
stock
|
|
Hybrid
bonds
|
|
Capital
surplus
|
|
Capital
adjustments
|
|
Accumulated
other compre-hensive income
|
|
Retained earnings
|
|
Sub-total
|
|
Non-controlling interests
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
W
|
2,645,053
|
|
736,898
|
|
9,887,335
|
|
(423,536)
|
|
304,771
|
|
17,689,134
|
|
30,839,655
|
|
969,981
|
|
31,809,636
|
|
Retrospective adjustment for a business combination (note 50)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,420
|
|
3,420
|
|
Balance at January 1, 2016
(adjusted)
|
|
2,645,053
|
|
736,898
|
|
9,887,335
|
|
(423,536)
|
|
304,771
|
|
17,689,134
|
|
30,839,655
|
|
973,401
|
|
31,813,056
|
|
Total comprehensive income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,774,778
|
|
2,774,778
|
|
50,141
|
|
2,824,919
|
|
Other comprehensive income (loss),
net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
12,012
|
|
-
|
|
12,012
|
|
91
|
|
12,103
|
|
Net change in unrealized fair value of
available-for-sale financial assets
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(432,530)
|
|
-
|
|
(432,530)
|
|
(1,127)
|
|
(433,657)
|
|
Equity in other comprehensive income of associates
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,689
|
|
-
|
|
2,689
|
|
-
|
|
2,689
|
|
Net change in unrealized fair value of cash flow hedges
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,262)
|
|
-
|
|
(1,262)
|
|
-
|
|
(1,262)
|
|
Other comprehensive income of separate account
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,330)
|
|
-
|
|
(4,330)
|
|
-
|
|
(4,330)
|
|
Remeasurements of defined benefit plans
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,705
|
|
-
|
|
15,705
|
|
(398)
|
|
15,307
|
|
Total other comprehensive income (loss)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(407,716)
|
|
-
|
|
(407,716)
|
|
(1,434)
|
|
(409,150)
|
|
Total comprehensive income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(407,716)
|
|
2,774,778
|
|
2,367,062
|
|
48,707
|
|
2,415,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(630,978)
|
|
(630,978)
|
|
-
|
|
(630,978)
|
|
Dividends to hybrid bonds
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(36,091)
|
|
(36,091)
|
|
-
|
|
(36,091)
|
|
Redemption of
hybrid bonds
|
|
-
|
|
(238,582)
|
|
-
|
|
(1,418)
|
|
-
|
|
-
|
|
(240,000)
|
|
-
|
|
(240,000)
|
|
Redemption of preferred stock
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,125,906)
|
|
(1,125,906)
|
|
-
|
|
(1,125,906)
|
|
Change in other capital adjustments
|
|
-
|
|
-
|
|
-
|
|
(33,507)
|
|
362
|
|
(30,899)
|
|
(64,044)
|
|
-
|
|
(64,044)
|
|
Redemption of subsidiary’s hybrid bond and other change in non-controlling interests
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(386,826)
|
|
(386,826)
|
|
|
|
-
|
|
(238,582)
|
|
-
|
|
(34,925)
|
|
362
|
|
(1,823,874)
|
|
(2,097,019)
|
|
(386,826)
|
|
(2,483,845)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
W
|
2,645,053
|
|
498,316
|
|
9,887,335
|
|
(458,461)
|
|
(102,583)
|
|
18,640,038
|
|
31,109,698
|
|
635,282
|
|
31,744,980
|
See accompanying notes to the consolidated financial statements
6
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of
won)
|
|
Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
|
|
|
|
|
|
|
|
Capital
stock
|
|
Hybrid
bonds
|
|
Capital
surplus
|
|
Capital
adjustments
|
|
Accumulated
other compre-hensive income
|
|
Retained earnings
|
|
Sub-total
|
|
Non-controlling interests
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017
|
W
|
2,645,053
|
|
498,316
|
|
9,887,335
|
|
(458,461)
|
|
(102,583)
|
|
18,640,038
|
|
31,109,698
|
|
635,282
|
|
31,744,980
|
|
Total comprehensive income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,917,735
|
|
2,917,735
|
|
30,389
|
|
2,948,124
|
|
Other comprehensive income (loss),
net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(193,474)
|
|
-
|
|
(193,474)
|
|
(698)
|
|
(194,172)
|
|
Net change in unrealized fair value of
available-for-sale financial assets
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(322,056)
|
|
-
|
|
(322,056)
|
|
(1,071)
|
|
(323,127)
|
|
Equity in other comprehensive loss of associates
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(21,552)
|
|
(414)
|
|
(21,966)
|
|
-
|
|
(21,966)
|
|
Net change in unrealized fair value of cash flow hedges
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,904
|
|
-
|
|
15,904
|
|
-
|
|
15,904
|
|
Other comprehensive income of separate account
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(9,278)
|
|
-
|
|
(9,278)
|
|
-
|
|
(9,278)
|
|
Remeasurements of defined benefit plans
|
|
-
|
|
-
|
|
-
|
|
-
|
|
103,305
|
|
-
|
|
103,305
|
|
220
|
|
103,525
|
|
Total other comprehensive income (loss)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(427,151)
|
|
(414)
|
|
(427,565)
|
|
(1,549)
|
|
(429,114)
|
|
Total comprehensive income (loss)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(427,151)
|
|
2,917,321
|
|
2,490,170
|
|
28,840
|
|
2,519,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends (note 20)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(687,589)
|
|
(687,589)
|
|
-
|
|
(687,589)
|
|
Dividends to hybrid bonds
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(17,678)
|
|
(17,678)
|
|
-
|
|
(17,678)
|
|
Issuance of hybrid bonds
|
|
-
|
|
224,466
|
|
-
|
|
-
|
|
-
|
|
-
|
|
224,466
|
|
-
|
|
224,466
|
|
Redemption of
hybrid bond
|
|
-
|
|
(298,861)
|
|
-
|
|
(1,139)
|
|
-
|
|
-
|
|
(300,000)
|
|
-
|
|
(300,000)
|
|
Change in other capital adjustments
|
|
-
|
|
-
|
|
-
|
|
61,565
|
|
-
|
|
(61,493)
|
|
72
|
|
-
|
|
72
|
|
Change in other non-controlling interests
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
219,275
|
|
219,275
|
|
|
|
|
-
|
|
(74,395)
|
|
-
|
|
60,426
|
|
-
|
|
(766,760)
|
|
(780,729)
|
|
219,275
|
|
(561,454)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
W
|
2,645,053
|
|
423,921
|
|
9,887,335
|
|
(398,035)
|
|
(529,734)
|
|
20,790,599
|
|
32,819,139
|
|
883,397
|
|
33,702,536
|
See accompanying notes to the consolidated financial statements.
7
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won)
|
|
Notes
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Profit before income taxes
|
|
|
W
|
3,796,257
|
|
3,170,472
|
|
Adjustments for:
|
|
|
|
|
|
|
|
Interest income
|
|
32
|
|
(11,798,654)
|
|
(11,236,302)
|
|
Interest expense
|
|
32
|
|
3,955,701
|
|
4,030,936
|
|
Dividend income
|
|
34
|
|
(257,306)
|
|
(281,623)
|
|
Net fees and commission expense
|
|
|
|
169,640
|
|
166,216
|
|
Net insurance loss
|
|
|
|
2,571,094
|
|
2,779,710
|
|
Net trading loss (gain)
|
|
35
|
|
(334,133)
|
|
48,363
|
|
Net foreign currency translation loss (gain)
|
|
|
|
(90,562)
|
|
(248,844)
|
|
Net loss on financial instruments designated at fair value through profit or loss
|
|
36
|
|
231,772
|
|
147,813
|
|
Net gain on disposal of available-for-sale financial assets
|
|
13
|
|
(499,187)
|
|
(647,541)
|
|
Provision for credit losses
|
|
37
|
|
816,600
|
|
1,107,633
|
|
Impairment losses on other financial assets
|
|
37
|
|
198,299
|
|
88,030
|
|
Employee costs
|
|
|
|
233,718
|
|
203,639
|
|
Depreciation and amortization
|
|
38
|
|
253,344
|
|
259,941
|
|
Other operating expense
|
|
|
|
604,975
|
|
70,236
|
|
Equity method income, net
|
|
16
|
|
(20,393)
|
|
(9,995)
|
|
Other non-operating expense (income), net
|
|
|
|
(29,141)
|
|
598
|
|
|
|
|
|
(3,994,233)
|
|
(3,521,190)
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Due from banks
|
|
|
|
(3,092,814)
|
|
3,937,005
|
|
Trading assets and liabilities
|
|
|
|
(1,689,616)
|
|
(4,343,206)
|
|
Financial instruments designated at fair value through profit or loss
|
|
|
|
(1,300,760)
|
|
(2,439)
|
|
Derivative instruments
|
|
|
|
(489,760)
|
|
(340,831)
|
|
Loans
|
|
|
|
(18,154,807)
|
|
(11,351,121)
|
|
Other assets
|
|
|
|
(25,510)
|
|
(4,627,748)
|
|
Deposits
|
|
|
|
15,103,634
|
|
16,771,470
|
|
Liabilities for defined benefit obligations
|
|
|
|
(178,113)
|
|
(261,550)
|
|
Provisions
|
|
|
|
(72,048)
|
|
(77,514)
|
|
Other liabilities
|
|
|
|
4,820,070
|
|
(2,333,634)
|
|
|
|
|
|
(5,079,724)
|
|
(2,629,568)
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
|
(640,017)
|
|
(561,604)
|
|
Interest received
|
|
|
|
11,417,466
|
|
11,109,313
|
|
Interest paid
|
|
|
|
(3,655,057)
|
|
(4,080,122)
|
|
Dividends received
|
|
|
|
265,887
|
|
309,876
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
W
|
2,110,579
|
|
3,797,177
|
See accompanying notes to the consolidated financial statements.
8
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won)
|
|
Notes
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Proceeds from disposal of available-for-sale financial assets
|
|
|
W
|
29,387,966
|
|
29,242,921
|
|
Acquisition of available-for-sale financial assets
|
|
|
|
(34,258,308)
|
|
(32,844,558)
|
|
Proceeds from
disposal
of held-to-maturity financial assets
|
|
|
|
1,770,889
|
|
1,839,275
|
|
Acquisition of held-to-maturity financial assets
|
|
|
|
(7,033,275)
|
|
(5,277,451)
|
|
Proceeds from disposal of property and equipment
|
|
14,41
|
|
11,535
|
|
5,793
|
|
Acquisition of property and equipment
|
|
14
|
|
(154,885)
|
|
(252,084)
|
|
Proceeds from disposal of intangible assets
|
|
15,41
|
|
9,282
|
|
8,268
|
|
Acquisition of intangible assets
|
|
15
|
|
(150,160)
|
|
(88,876)
|
|
Proceeds from disposal of investments in associates
|
|
|
|
163,711
|
|
67,082
|
|
Acquisition of investments in associates
|
|
|
|
(380,069)
|
|
(145,119)
|
|
Proceeds from disposal of investment property
|
|
17,41
|
|
4,869
|
|
22,900
|
|
Acquisition of investment property
|
|
17
|
|
(2,125)
|
|
(176,204)
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
10,466
|
|
2,213
|
|
Proceeds from settlement of hedging derivative financial
instruments for available-for-sale financial assets
|
|
|
|
85,616
|
|
27,265
|
|
Payment for settlement of hedging derivative financial instruments for available-for-sale financial assets
|
|
|
|
(27,629)
|
|
(69,175)
|
|
Business combination, net of cash used
|
|
45
|
|
-
|
|
(4,280)
|
|
Other, net
|
|
|
|
(263,070)
|
|
48,156
|
|
Net cash used in investing activities
|
|
|
|
(10,825,187)
|
|
(7,593,874)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Issuance of hybrid bonds
|
|
|
|
224,420
|
|
-
|
|
Redemption of
hybrid bonds
|
|
|
|
(300,000)
|
|
(240,000)
|
|
Net increase in borrowings
|
|
|
|
2,083,322
|
|
3,389,832
|
|
Proceeds from debt securities issued
|
|
|
|
20,007,028
|
|
15,916,866
|
|
Repayments of debt securities issued
|
|
|
|
(12,222,745)
|
|
(11,988,965)
|
|
Dividends paid
|
|
|
|
(706,565)
|
|
(669,103)
|
|
Proceeds from settlement of hedging derivative financial instruments for debt securities issued
|
|
|
|
65,220
|
|
15,414
|
|
Payment for settlement of hedging derivative financial instruments for debt securities issued
|
|
|
|
(6,509)
|
|
(1,486)
|
|
Redemption of preferred stock
|
|
|
|
-
|
|
(1,125,906)
|
|
Increase (Decrease) in non-controlling interests
|
|
|
|
215,403
|
|
(451,208)
|
|
Other, net
|
|
|
|
4,732
|
|
(824)
|
|
Net cash provided by financing activities
|
|
|
|
9,364,306
|
|
4,844,620
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents held
|
|
|
|
(45,584)
|
|
(22,638)
|
|
Increase in cash and cash equivalents
|
|
|
|
604,114
|
|
1,025,285
|
|
Cash and cash equivalents at beginning of period
|
|
45
|
|
5,632,536
|
|
4,607,251
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
45
|
W
|
6,236,650
|
|
5,632,536
|
See accompanying notes to the consolidated financial statements.
9
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
Shinhan Financial Group Co., Ltd., the controlling company, and its subsidiaries included in consolidation (collectively the “Group”) are summarized as follows:
(a) Controlling company
Shinhan Financial Group Co., Ltd. (the “Shinhan Financial Group”) was incorporated on September 1, 2001. Shinhan Financial Group’s shares has been listed on the Korea Exchange since September 10, 2001 and Shinhan Financial Group’s American Depository Shares were listed on the New York Stock Exchange since September 16, 2003.
(b) Ownership of Shinhan Financial Group and its material consolidated subsidiaries as of December 31, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of financial information
|
|
Ownership (%)
|
|
Investor
|
|
Investee(*1)
|
|
Location
|
|
|
2017
|
|
2016
|
|
Shinhan Financial Group Co., Ltd.
|
|
Shinhan Bank
|
|
Korea
|
|
December 30
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Card Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Investment Corp.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Life Insurance Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Capital Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Jeju Bank
|
|
〃
|
|
〃
|
|
68.9
|
|
68.9
|
|
〃
|
|
Shinhan Credit Information Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Alternative Investment Management Inc
.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan BNP Paribas Asset Management Co., Ltd.
|
|
〃
|
|
〃
|
|
65.0
|
|
65.0
|
|
〃
|
|
SHC Management Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Data System
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan Savings Bank
|
|
〃
|
|
〃
|
|
100
|
|
100.0
|
|
〃
|
|
Shinhan AITAS Co., Ltd.
|
|
〃
|
|
〃
|
|
99.8
|
|
99.8
|
|
〃
|
|
Shinhan REITs Management Co., Ltd.
|
|
〃
|
|
〃
|
|
100
|
|
-
|
|
Shinhan Bank
|
|
Shinhan Asia Limited
|
|
Hong Kong
|
|
〃
|
|
99.9
|
|
99.9
|
|
〃
|
|
Shinhan Bank America
|
|
USA
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Bank Europe GmbH
|
|
Germany
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Khmer Bank PLC(*2)
|
|
Cambodia
|
|
〃
|
|
97.5
|
|
90.0
|
|
〃
|
|
Shinhan Bank Kazakhstan Limited
|
|
Kazakhstan
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Bank Canada
|
|
Canada
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Bank (China) Limited
|
|
China
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Bank Japan
|
|
Japan
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Bank Vietnam Ltd.
|
|
Vietnam
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Banco Shinhan de Mexico
|
|
Mexico
|
|
〃
|
|
99.9
|
|
99.9
|
|
〃
|
|
PT Bank Shinhan Indonesia(*2)
|
|
Indonesia
|
|
〃
|
|
99.0
|
|
98.98
|
|
Shinhan Card Co., Ltd.
|
|
LLP MFO Shinhan Finance
|
|
Kazakhstan
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
PT. Shinhan Indo Finance
|
|
Indonesia
|
|
〃
|
|
50.0
|
|
50.0
|
|
〃
|
|
Shinhan Microfinance Co., Ltd.
|
|
Myanmar
|
|
〃
|
|
100.0
|
|
100.0
|
|
Shinhan Investment Corp.
|
|
Shinhan Investment Corp. USA Inc.
|
|
USA
|
|
〃
|
|
100.0
|
|
100.0
|
|
〃
|
|
Shinhan Investment Corp. Asia Ltd.
|
|
Hong Kong
|
|
〃
|
|
100.0
|
|
100.0
|
10
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
|
1.
|
Reporting entity (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of financial information
|
|
Ownership (%)
|
|
Investor
|
|
Investee(*1)
|
|
Location
|
|
|
2017
|
|
2016
|
|
Shinhan Investment Corp.
|
|
Shinhan Securities Vietnam Co., Ltd.
|
|
Vietnam
|
|
September 30
|
|
100.0
|
|
100.0
|
|
〃
|
|
PT. Shinhan Sekuritas Indonesia
|
|
Indonesia
|
|
〃
|
|
99.0
|
|
99.0
|
|
Shinhan BNP Paribas Asset Management Co., Ltd.
|
|
Shinhan BNP Paribas Asset Management (Hong Kong) Limited
|
|
Hong Kong
|
|
〃
|
|
100.0
|
|
100.0
|
(*1) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.
(*2) As a result of unequal capital increase, the equity interest in Shinhan Khmer Bank PLC and the equity interest in PT Bank Shinhan Indonesia was changed.
(c) Consolidated structured entities
Consolidated structured entities are as follows:
|
|
|
|
|
|
|
Category
|
|
Consolidated structured entities
|
|
Description
|
|
|
|
|
|
|
|
Trust
|
|
18 trusts managed by Shinhan Bank including development trust
|
|
A trust is consolidated when the Group as a trustee is exposed to variable returns, for example, if principle or interest amounts of the entrusted properties falls below guaranteed amount, the Group should compensate it; and the Group has the ability to affect those returns.
|
|
Asset-Backed Securitization
|
|
MPC Yulchon Green I and 82 others
|
|
An entity for asset backed securitization is consolidated when the Group has the ability to dispose assets or change the conditions of the assets, is exposed to variable returns and has the ability to affect the variable returns providing credit enhancement and purchases of subordinated securities.
|
|
Structured Financing
|
|
SHPE Holdings One Co., Ltd. and 2 others
|
|
An entity established for structured financing relating to real estate, shipping, or mergers and acquisitions is consolidated, when the Group has granted credit to the entity, has sole decision-making authority of these entities due to the entities default, and is exposed to, or has rights to related variable returns.
|
|
Investment Fund
|
|
KoFC Shinhan Frontier Champ 2010-4 PEF and 61 others
|
|
An investment fund is consolidated, when the Group manages or invests assets of the investment funds on behalf of other investors, or has the ability to dismiss the manager of the investment funds, and is exposed to, or has rights to, the variable returns.
|
The Group provides credit enhancement for the consolidated structured entities providing ABCP purchase commitment
amounting to
W
1,481,719 million for the purpose of credit enhancement of the structure entities.
2.
Basis of preparation
|
(f)
|
Statement of compliance
|
|
The consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in
The Act on External Audit of Stock Companies in the Republic of Korea.
The consolidated financial statements were authorized for issue by the Board of Directors on
February
8,
2017,
which will be submitted for approval to the shareholders’ meeting.
11
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
The consolidated financial statements have been prepare
d on the historical cost basis except for the following material items in the statement of financial position.
|
|
-
|
derivative financial instruments are measured at fair value
|
|
|
-
|
financial instruments at fair value through profit or loss are measured at fair value
|
|
|
-
|
available-for-sale financial assets are measured at fair value
|
|
|
-
|
liabilities for cash-settled share-based payment arrangements are measured at fair value
|
|
|
-
|
financial liabilities designated as hedged items in a fair value hedge accounting of which changes in fair value attributable to the hedged risk are recognized in profit or loss
|
|
|
-
|
liabilities for defined benefit plans that are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets
|
|
(h)
|
Functional and presentation currency
|
|
The financial statements of the parent and each subsidiary are prepared in functional currency of the respective operation. These consolidated financial statements are presented in Korean won, which is the Parent Company’s functional currency and the currency of the primary economic environment in which the Group operates.
|
(i)
|
Use of estimates and judgments
|
|
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 evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.
12
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies
The significant accounting policies applied by the Group in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(a) 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. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The Group’s reportable segments consist of banking, credit card, securities, life insurance, and others.
(b) Basis of consolidation
i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
If a member of the Group uses accounting policies other than those adopted in the consolidated financial statements for the same transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.
ii) Structured entity
The Group establishes or invests in various structured entities. A structured entity is an entity designed so that its activities are not governed by way of voting rights. When assessing control of a structured entity, the Group considers factors such as the purpose and the design of the investee; its practical ability to direct the relevant activities of the investee; the nature of its relationship with the investee; and the size of its exposure to the variability of returns of the investee. The Group does not recognize any non-controlling interests in the consolidated statements of financial position since the Group’s interests in these entities are recognized as liabilities of the Group.
13
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
iii) Intra-group transactions
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.
ⅳ
) Non-controlling interests
Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero.
(c) Business combinations
i) Business combinations
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.
Each identifiable asset and liability is measured at its acquisition-date fair value except for below:
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Leases and insurance contracts are required to be classified on the basis of the contractual terms and other factors
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Only those contingent liabilities assumed in a business combination that are a present obligation and can be measured reliably are recognized
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Deferred tax assets or liabilities are recognized and measured in accordance with K-IFRS No.1012
Income Taxes
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Employee benefit arrangements are recognized and measured in accordance with K-IFRS No.1019
Employee Benefits
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Indemnification assets are recognized and measured on the same basis as the indemnified liability or asset
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Reacquired rights are measured on the basis of the remaining contractual terms of the related contract
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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
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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
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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 employees that are included in consideration transferred in the business combination shall be measured in accordance with the method described above rather than at fair value.
14
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
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, are expensed in the periods in which the costs are incurred and the services are received. The costs to issue debt or equity securities are recognized in accordance with K-IFRS No.1032
Financial Instruments: Presentation
and K-IFRS No.1039
Financial Instruments: Recognition and Measurement.
ii) Goodwill
The Group measures goodwill at the acquisition date as:
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the fair value of the consideration transferred; plus
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the recognized amount of any non-controlling interests in the acquiree; plus
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if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less
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the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
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When the excess is negative, 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.
(d) Investments in associates and joint ventures
An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity or when another entity is classified as a subsidiary by the Banking Act since the Group holds more than 15% 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.
15
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
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.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and demand deposits with 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.
(f) Non-derivative financial assets
The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.
i) Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is held for trading or is designated at fair value through profit or loss. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:
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such designation eliminates or significantly reduces a recognition or measurement inconsistency that would otherwise arise; or
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the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
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it forms part of a contract containing one or more embedded derivatives that would be required to be separated from the host contract.
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ii) Held-to-maturity financial assets
A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.
16
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
iii) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method.
iv) Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.
v) De-recognition 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 between financial assets and financial liabilities
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 offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
17
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(g) Derivative financial instruments including hedge accounting
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
i) Hedge accounting
The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
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Fair value hedge
– Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the 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.
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•
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Cash flow hedge
–
When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
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•
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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’.
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18
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies
(continued)
ii) Separable embedded derivatives
Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.
iii) Other derivative financial instruments
Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
ⅳ
) Unobservable valuation differences at initial recognition
Any difference between the fair value of over the counter derivatives at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognized in profit or loss but is recognized on a straight-line basis over the life of the instrument or immediately when the fair value becomes observable.
(h) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.
Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the holder of the asset about the following loss events:
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significant financial difficulty of the issuer or obligor
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a breach of contract, such as a default or delinquency in interest or principal payments;
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the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider
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it becoming probable that the borrower will enter bankruptcy or other financial reorganization
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the disappearance of an active market for that financial asset because of financial difficulties
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observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.
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19
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
i) Loans and receivables
The Group first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition).
If the interest rate of a loan or receivable is a floating rate, the discount rate used to evaluate impairment loss is the current effective interest rate defined in the loan agreement. The present value of estimated future cash flows of secured financial assets is calculated by including cash flows from collateral after deducting costs to acquire and sell the collateral.
In assessing collective impairment, the Group rates and classifies financial assets, based on credit risk assessment or credit rating assessment process that takes into account asset type, industry, regional location, collateral type, delinquency and other relative factors.
Future cash flow of financial assets applicable to collective impairment assessment is estimated by using statistical modeling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the impairment losses are likely to be greater or less than suggested by historical modeling. In adjusting the future cash flow by historical modeling, the result has to be in line with changes and trends of observable data. Methodologies and assumptions used to estimate future cash flow are evaluated on a regular basis in order to reduce any discrepancy between impairment loss estimation and actual loss.
Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and receivables. When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss of the year.
20
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Signific
ant accounting policies (continued)
ii) Available-for-sale financial assets
When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss is recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.
iii) Held-to-maturity financial assets
An impairment loss in respect of held-to-maturity financial assets measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is recognized in profit or loss. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
21
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(i) Property and equipment
Property and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. 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.
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced cost is derecognized. The cost of the day to day servicing of property and equipment are recognized in profit or loss as incurred.
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 lease are depreciated over the shorter of the lease term and their useful lives.
The estimated useful lives for the current and comparative years are as follows:
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Descriptions
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Depreciation method
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Useful lives
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Buildings
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Straight-line
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40 years
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Other properties
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Straight-line
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4~5 years
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Depreciation methods, useful lives and residual value are reassessed at each fiscal year-end and any adjustment is accounted for as a change in accounting estimate.
22
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(j) Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets 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.
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Descriptions
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Useful lives
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Software, capitalized development cost
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5 years
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Other intangible assets
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5 years or contract periods
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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.
i) Research and development
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.
ii) Subsequent expenditures
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
(k) Investment property
Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.
The estimated useful lives for the current and comparative years are as follows:
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Descriptions
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Depreciation method
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Useful lives
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Buildings
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Straight-line
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40 years
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23
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(l) Leased assets
i) Classification of a lease
The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the lessee assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.
ii) Lessee
Under a finance lease, the lessee recognizes the leased asset and a liability for future lease payments. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Under an operating lease, the lessee recognizes the lease payments as expense over the lease term and does not recognize the leased asset in its statement of financial position.
iii) Lessor
Under a finance lease, the lessor recognizes a finance lease receivable. Over the lease term the lessor accrues interest income on the net investment. The receipts under the lease are allocated between reducing the net investment and recognizing finance income, so as to produce a constant rate of return on the net investment.
Under an operating lease, the lessor recognizes the lease payments as income over the lease term and the leased asset in its statement of financial position.
(m) Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying 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 in accordance with K-IFRS No. 1036
Impairment of Assets
.
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).
24
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies
(continued)
(n) 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 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 groups of assets. The recoverable amount of an asset or 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 reflect current market assessments of the time value of money and the risks specific to the asset or 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 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.
25
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(o) Non-derivative financial liabilities
The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of 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.
i) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.
The criteria for designation of financial liabilities at FVTPL upon initial recognition are the same as those of financial assets at FVTPL.
ii) Other financial liabilities
Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. 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).
(p) Foreign currency
i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. 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. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value is determined.
Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the translation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation (see iii) below), or in a qualifying cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
26
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
ii) Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.
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. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.
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 to occur in the foreseeable future, then foreign currency difference arising on the item which in substance is considered to form part of the net investment in the foreign operation, are recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the investment.
27
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(q) Equity
i) Capital stock
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Group’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Group’s shareholders.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.
ii) Hybrid bonds
The Group classifies issued financial instruments, or their component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instruments. 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 equity instruments and presented in equity.
iii) Capital adjustments
Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions in capital adjustments.
(r) Employee benefits
i) Short-term employee benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
ii) Other long-term employee benefits
Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. The present value is determined by discounting the expected future cash flows using the interest rate of 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. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.
28
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
iii) Retirement benefits: defined contribution plans
When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
iv) 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.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in personnel expenses in profit or loss.
The discount rate is the yield at the reporting date 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 remeasurement of the net defined benefit liability (asset) in other comprehensive income.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
29
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
v) Termination benefits
Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.
(s) Share-based payment transactions
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 each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.
(t) Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle 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.
Provision shall be used only for expenditures for which the provision was originally recognized.
30
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(u) Financial guarantee contract
A financial guarantee contract is a contract that requires the issuer (the Group) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument.
Financial guarantee contracts are initially measured at their fair values and, if not designated as at fair value through profit or loss, are subsequently measured at the higher of:
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-
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The amount determined in accordance with K-IFRS No.1037
Provisions, Contingent Liabilities and Contingent Assets
and
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-
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The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with K-IFRS No.1018.
Revenue
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(v) Insurance contracts
Insurance contracts are defined as “a contract under which one party (the insurer) accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Such a contract that does not contain significant insurance risk is classified as an investment contract and is within the scope of K-IFRS No.1039,
Financial Instruments
,
Recognition and Measurement
to the extent that it gives rise to a financial asset or financial liability, except if the investment contract contains a Discretionary Participation Features (“DPF”). If the contract has a DPF, the contract is subject to K-IFRS No.1104,
Insurance Contracts
.
i) Reserves for insurance contracts
The Group accounts for insurance contracts based on the Insurance Business Law and other related Insurance Supervisory Regulation. These insurance contracts are calculated based on insurance terms, premium and policy reserves approved by the Financial Supervisory Commission, as follows:
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•
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Premium reserve
- Premium reserve is a liability to prepare for the future claims on the valid contracts. Premium reserve is calculated by deducting discounted net premium from the discounted claims expected to be paid in the future period.
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•
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Unearned premium reserve -
Unearned premium reserve represents the portion of premiums written which is applicable to the unexpired portion of policies in force.
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•
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Guarantee reserve -
At the end of reporting period, the Group is required to make reserve on the outstanding insurance contracts to guarantee a certain level of benefit payments for the amount equal to the average amount of net losses of the worst 30% of cases forecasted by scenarios or the standard reserve amount, as defined by Financial Supervisory Service, by insurance type and the lowest insured amount, whichever is greater.
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•
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Reserve for outstanding claims -
Reserve for outstanding claims is an estimate of loss for insured events that have occurred prior to the date of the statement of financial position but for which a fixed value cannot be determined, which includes the following:
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31
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
- Estimated amount: The expenses to be incurred in the course of settlement of the insured event, such as lawsuit or arbitration (if partial amount is settled, the remainder is recognized)
- Reserve for ineffective contracts: Reserve for ineffective contracts due to default in premium payment (Partial amount of surrender value)
- Unpaid claims: The amount of claims, surrender value and dividend to be paid is determined but not paid yet
- IBNR (Incurred But Not Reported): Estimated amount using a statistical method considering the company’s experience rate
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•
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Reserve for participating policyholder’s dividend -
In accordance with regulations and policy terms, reserves for participating policyholder’s dividend are provided for dividend to be paid to the policyholders and comprise the current reserve for policyholder’s dividend and the future reserve for policyholder’s dividend. The current reserve for policyholder’s dividend is the fixed payable dividend amount declared but not paid at the end of the reporting period and the future reserve for policyholder’s dividend is the calculated policyholder’s dividend amount factoring in estimated policy termination rates for the valid insurance policy as at the end of the reporting period.
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ii) Policyholders' equity adjustment
At year end, unrealized holding gains and losses on available-for-sale securities are allocated to policyholders' equity adjustment by the ratio of the average policy reserve of the participating and non-participating contracts or the ratio of the investment source at the new acquisition year based on the date of acquisition.
iii) Liability adequacy test (the “LAT”)
Liability adequacy tests are performed by the Group in order to ensure the adequacy of the contract liabilities, net of related deferred acquisition costs and deferred policyholders’ participation liability or asset.
iv) Reinsurance contracts
According to K-IFRS No. 1104, “Insurance Contracts”, the Group does not offset:
1) reinsurance assets against the related insurance liabilities; or
2) income or expense from reinsurance contracts against the expense or income from the related insurance contracts.
If reinsurance assets are determined to be impaired, impairment loss is recognized in the profit and loss for the current period.
v) Deferred acquisition costs (the “DAC”)
Policy acquisition costs, which include commissions, certain direct and incremental underwriting and agency expenses associated with acquiring insurance policies, are deferred and amortized using the straight-line method over the contract year, up to seven years. Actual acquisition costs incurred in excess of estimated acquisition costs are expensed.
32
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies
(continued)
(w) Financial income and expense
i) Interest
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 year) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.
The calculation of the effective interest rate includes all fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.
Once an impairment loss has been recognized on a loan, although the accrual of interest in accordance with the contractual terms of the instrument is discontinued, interest income is recognized at the rate of interest that was used to discount estimated future cash flows for the purpose of measuring the impairment loss.
ii) Fees and commission
Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.
Fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, the related loan commitment fees are recognized on a straight-line basis over the commitment period.
Fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
iii) Insurance Income
The Group recognizes insurance income for the insurance premium paid of which the payment date arrived by the premium payment methods of the insurance contract; and recognizes advance receipts for the insurance premium paid of which the payment date has not arrived at the end of the reporting period.
iv) Dividends
Dividend income is recognized when the right to receive income is established.
33
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies
(continued)
(x) Customer loyalty program
For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between award credits (“points”) and other components of the fee and commission income. The Group provides awards, in the form of price discounts and by offering a variety of gifts. The fair value allocated to the points is estimated by reference to the fair value of the monetary and/or non-monetary benefits for which they could be redeemed. The fair value of the benefits is estimated taking into account the expected redemption rate and the timing of such expected redemptions. Such amount is deferred and recognized as unearned revenue. Unearned revenue is recognized only when the points are redeemed and the Group has fulfilled its obligations to provide the benefits. The amount of revenue recognized in those circumstances is based on the number of points that have been redeemed in exchange for benefits, relative to the total number of points that are expected to be redeemed.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from customer loyalty programmes are lower than the unavoidable cost of meeting its obligations under the programmes.
34
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(y) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
i) Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.
ii) Deferred tax
Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.
The Group 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 combined profits or losses of the Controlling Company and its wholly owned domestic subsidiaries. Deferred taxes are measured based on the future tax benefits expected to be realized in consideration of the expected combined 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 separate financial statements.
The Group recognizes a deferred tax liability 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 a deferred tax asset 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.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces 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.
35
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (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.
Deferred tax assets and liabilities are offset only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: the same taxable entity; or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
(z) Accounting for trust accounts
The Group accounts for trust accounts separately from its group accounts under the Financial Investment Services and Capital Markets Act and thus the trust accounts are not included in the consolidated financial statements except Guaranteed Fixed Rate Money Trusts controlled by the Group, based on an evaluation of the substance of its relationship with the Group and the SPE’s risks and rewards. Funds transferred between Group account and trust accounts are recognized as borrowings from trust accounts in other liabilities with fees for managing the accounts recognized as non-interest income by the Group.
(aa) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary 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 convertible notes and share options granted to employees.
36
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
3.
Significant accounting policies (continued)
(ab) New standards and interpretations not yet adopted
The following new standards and amendments to existing standards have been published and are mandatory for the Group to adopt for annual periods beginning on or after January 1, 2017 or 2018, and the Group has not early adopted them.
i) K-IFRS No. 1109, ‘Financial Instruments’
K-IFRS No. 1109,
Financial Instruments
which was published on September 25, 2015, is effective for periods beginning on or after January 1, 2018, with early adoption permitted. K-IFRS No. 1109 will replace the current K-IFRS No. 1039,
Financial Instruments: recognition and measurement
. The Group plans to adopt K-IFRS No. 1109 for the year starting on January 1, 2018.
In principle, the new K-IFRS No. 1109 should be applied retrospectively. However, there are clauses that exempt restating comparable information with respect to classification, measurement and impairment of financial instruments. For hedge accounting, the new standard will be applied prospectively except for certain cases such as accounting for the time value of options.
Main characteristics of K-IFRS No. 1109 are followings; classification and measurement of financial instruments based on characteristics of contractual cash flows and business model for financial instrument management, impairment model based on expected credit losses, changes in qualification req
uirement of hedged items, enlargement of hedging instruments and changes in hedge effectiveness tests.
As there are additional requirements for a financial asset to be classified as measured at amortized costs or at fair value through other comprehensive income under k-IFRS No. 1109 compared to the existing guidance in K-IFRS No. 1039, the adoption of K-IFRS No. 1109 would potentially increase the proportion of financial assets that are measured at fair value through profit or loss, increasing volatility in the Group’s profit or loss.
The fair value change attributable to changes in the credit risk of the liability which was recognized in profit or loss under the existing standard, K-IFRS No. 1039, will be presented in other comprehensive income under k-IFRS No. 1109.
Under K-IFRS No. 1109, credit losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in K-IFRS No. 1039 as loss allowances will be measured on either of the 12-month or lifetime expected credit losses based on the extent of credit risks as shown in the below table.
The following table presents the measurement methods for credit losses according to K-IFRS No. 1109.
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Category
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Description
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Credit risk has not increased significantly since the initial recognition
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12-month expected credit loss :
Expected credit loss from possible default of financial products for 12 months after reporting date
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Credit risk has increased significantly since the initial recognition
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Lifetime expected credit loss :
Expected credit loss from possible default of financial products for the expected life of the financial products
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Credit-impaired financial assets
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3.
Significant accounting policies (continued)
37
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
When applying hedge accounting under K-IFRS No. 1109, the hedge accounting can be applied
to certain transactions that do not meet the requirements for hedge accounting under K-IFRS No. 1039 and volatility of the profit or loss can be decreased.
For smooth implementation of K-IFRS No. 1109, financial impact analysis, accounting policy development, accounting system development and the system test are necessary. Starting from November 2015, the Group has performed financial impact analysis and established accounting policies, and is developing accounting systems as of December 31, 2016. The Group plans to test the system in 2017.
The actual impact of adopting K-IFRS No. 1109 on the financial statements in 2018 is being assessed and can be subject to change because it will be dependent on the financial instruments that the Group will hold and economic conditions at the time as well as accounting policy election and judgments that it will be make in the future. The Group plans to analyze financial impact once the system development process is completed by no later than the end of 2017.
ii) K-
IFRS No. 1115, ‘Revenue from Contracts with Customers’
K-IFRS No. 1115, published in January 2016, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS No. 1018, Revenue, K-IFRS No. 1011, Construction Contracts and K-IFRS No. 2113, Customer Loyalty Programmes. K-IFRS No. 1115 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. The Group will adopt K-IFRS No. 1115 from January 1, 2018. K-IFRS No. 1115 permits the use of either retrospective or cumulative effect transition method and the Group has not yet selected a transition method. The Group is in the process of evaluating the impact of K-IFRS No. 1115 on the Group’s consolidated financial statements, if any.
38
SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
39