Exhibit 99.2

SHINHAN FINANCIAL GROUP CO., LTD.

AND SUBSIDIARIES

June 30, 2017

(Unaudited)

(With Independent Auditors’ Review Report Thereon)

Contents

	Page
Independent Auditors’ Review Report		1
Consolidated Interim Statements of Financial Position		3
Consolidated Interim Statements of Comprehensive Income		4
Consolidated Interim Statements of Changes in Equity		6
Consolidated Interim Statements of Cash Flows		8
Notes to the Condensed Consolidated Interim Financial Statements		10

Independent Auditors’ Review Report

Based on a report originally issued in Korean

The Board of Directors and Stockholders

Shinhan Financial Group Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed consolidated interim financial statements of Shinhan Financial Group Co., Ltd. and its subsidiaries (collectively the “Group”), which comprise the consolidated interim statement of financial position as of June 30, 2017, the consolidated interim statements of comprehensive income for the three-month and six-month periods ended June 30, 2017 and 2016, the consolidated interim statements of changes in equity and cash flows for the six-month periods ended June 30, 2017 and 2016 and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ review responsibility

Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No.1034 Interim Financial Reporting.

1

Other matters

The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries.

The consolidated statement of financial position of the Group as of December 31, 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated March 8, 2017, expressed an unqualified opinion. The accompanying consolidated statement of financial position of the Group as of December 31, 2016, presented for comparative purposes, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

KPMG Samjong Accounting Corp.

Seoul, Korea

August 14, 2017

This report is effective as of August 14, 2017, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

2

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Financial Position

As of June 30, 2017 and December 31, 2016

(In millions of won)	Note		2017 (Unaudited)			2016
Assets
Cash and due from banks		4,7	W	20,424,044			19,181,165
Trading assets		4,8		31,389,614			26,695,953
Financial assets designated at fair value through profit or loss		4,9		3,594,760			3,416,102
Derivative assets		4,10		1,670,477			3,002,859
Loans		4,11		262,448,970			259,010,575
Available-for-sale financial assets		4,12		40,287,582			37,662,691
Held-to-maturity financial assets		4,12		21,928,681			19,805,084
Property and equipment				3,005,687			3,145,613
Intangible assets				4,238,392			4,226,512
Investments in associates		13		619,540			353,600
Current tax receivable				13,442			12,587
Deferred tax assets				485,093			641,061
Investment property				449,925			353,175
Other assets		4		23,306,592			18,168,408
Assets held for sale				48,072			4,939
Total assets			W	413,910,871			395,680,324
Liabilities
Deposits		4	W	238,010,007			235,137,958
Trading liabilities		4,14		2,353,756			1,976,760
Financial liabilities designated at fair value through profit or loss		4,15		9,145,279			9,233,642
Derivative liabilities		4,10		1,887,602			3,528,244
Borrowings		4		28,755,963			25,294,241
Debt securities issued		4,16		47,714,024			44,326,785
Liabilities for defined benefit obligations		17		150,553			130,879
Provisions		18		437,703			728,888
Current tax payable				334,219			272,728
Deferred tax liabilities				10,309			10,638
Liabilities under insurance contracts		19		23,468,447			22,377,434
Other liabilities		4		28,954,027			20,917,147
Total liabilities				381,221,889			363,935,344
Equity		20
Capital stock				2,645,053			2,645,053
Hybrid bonds				199,455			498,316
Capital surplus				9,887,335			9,887,335
Capital adjustments				(397,056	)		(458,461	)
Accumulated other comprehensive loss				(252,980	)		(102,583	)
Retained earnings				19,769,446			18,640,038
Total equity attributable to equity holders of Shinhan Financial Group Co., Ltd.				31,851,253			31,109,698
Non-controlling interests				837,729			635,282
Total equity				32,688,982			31,744,980
Total liabilities and equity			W	413,910,871			395,680,324

See accompanying notes to the consolidated interim financial statements.

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income

For the three-month and six-month periods ended June 30, 2017 and 2016

(Unaudited)

(In millions of won)	Note		2017						2016
			Three- month period			Six- month period			Three- month period			Six- month period
Interest income			W	2,879,228			5,698,367			2,792,612			5,561,059
Interest expense				(964,533	)		(1,914,461	)		(1,020,579	)		(2,074,351	)
Net interest income		21		1,914,695			3,783,906			1,772,033			3,486,708
Fees and commission income				1,020,103			1,985,178			955,413			1,864,333
Fees and commission expense				(583,016	)		(1,160,501	)		(540,194	)		(1,076,201	)
Net fees and commission income		22		437,087			824,677			415,219			788,132
Insurance income				1,145,238			2,317,362			1,136,652			2,274,053
Insurance expenses				(1,259,335	)		(2,539,744	)		(1,250,385	)		(2,486,458	)
Net insurance loss		19		(114,097	)		(222,382	)		(113,733	)		(212,405	)
Dividend income				73,234			150,450			53,590			136,591
Net trading income (loss)				96,889			458,404			(54,575	)		(43,375	)
Net foreign currency transaction gain				93,353			210,998			82,285			178,580
Net gain (loss) on financial instruments designated at fair value through profit or loss				(116,782	)		(537,949	)		7,484			40,984
Net gain on disposal of available-for-sale financial assets		12		197,208			250,931			302,596			354,572
Impairment losses on financial assets		23		(159,637	)		(248,783	)		(332,550	)		(660,719	)
General and administrative expenses		24		(1,078,364	)		(2,143,167	)		(1,089,167	)		(2,161,401	)
Other operating expenses, net				(188,050	)		(73,289	)		(152,999	)		(362,058	)
Operating income				1,155,536			2,453,796			890,183			1,545,609
Equity method income		13		14,044			13,649			1,196			3,760
Other non-operating income, net				19,937			27,787			14,070			39,187
Profit before income taxes				1,189,517			2,495,232			905,449			1,588,556
Income tax expense		26		287,615			586,076			205,021			100,436
Profit for the period			W	901,902			1,909,156			700,428			1,488,120

See accompanying notes to the consolidated interim financial statements.

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income (Continued)

For the three-month and six-month periods ended June 30, 2017 and 2016

(Unaudited)

(In millions of won, except earnings per share data)	Note		2017						2016
			Three- month period			Six- month period			Three- month period			Six- month period
Other comprehensive income (loss) for the period, net of income tax		20
Items that are or may be reclassified to profit or loss:
Foreign currency translation adjustments for foreign operations			W	43,133			(66,461	)		14,955			14,394
Net change in unrealized fair value of available-for-sale financial assets				(79,842	)		(79,097	)		(130,970	)		21,932
Equity in other comprehensive loss of associates				979			(11,425	)		(473	)		(1,255	)
Net change in unrealized fair value of cash flow hedges				995			2,437			(6,789	)		(12,848	)
Other comprehensive income of separate account				(704	)		(291	)		3,313			5,927
				(35,439	)		(154,837	)		(119,964	)		28,150
Items that will never be reclassified to profit or loss:
Remeasurements of the defined benefit liability				4,148			3,117			(79,553	)		(79,893	)
Equity in other comprehensive income (loss) of associates				(5	)		158			11			10
				4,143			3,275			(79,542	)		(79,883	)
Total other comprehensive loss, net of income tax				(31,296	)		(151,562	)		(199,506	)		(51,733	)
Total comprehensive income for the period			W	870,606			1,757,594			500,922			1,436,387
Profit attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.		20	W	892,032			1,889,130			683,467			1,454,791
Non-controlling interests				9,870			20,026			16,961			33,329
			W	901,902			1,909,156			700,428			1,488,120
Total comprehensive income attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.			W	861,327			1,738,733			485,467			1,404,057
Non-controlling interests				9,279			18,861			15,455			32,330
			W	870,606			1,757,594			500,922			1,436,387
Earnings per share:		27
Basic and diluted earnings per share in won			W	1,871			3,961			1,413			2,987

See accompanying notes to the consolidated interim financial statements.

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity

For the six-month period ended June 30, 2017

(Unaudited)

	Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.																		Non- controlling interests			Total
(In millions of won)	Capital stock		Hybrid bonds		Capital surplus		Capital adjustments			Accumulated other compre- hensive income			Retained earnings			Sub-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			973,401			31,813,056
Total comprehensive income for the period
Profit for the period		—		—		—		—			—			1,454,791			1,454,791			33,329			1,488,120
Other comprehensive income (loss), net of income tax:
Foreign currency translation adjustments		—		—		—		—			14,486			—			14,486			(92	)		14,394
Net change in unrealized fair value of available-for-sale financial assets		—		—		—		—			21,231			—			21,231			701			21,932
Equity in other comprehensive loss of associates		—		—		—		—			(1,245	)		—			(1,245	)		—			(1,245	)
Net change in unrealized fair value of cash flow hedges		—		—		—		—			(12,848	)		—			(12,848	)		—			(12,848	)
Other comprehensive income of separate account		—		—		—		—			5,927			—			5,927			—			5,927
Remeasurements of defined benefit plans		—		—		—		—			(78,285	)		—			(78,285	)		(1,608	)		(79,893	)
Total other comprehensive loss		—		—		—		—			(50,374	)		—			(50,374	)		(999	)		(51,733	)
Total comprehensive income (loss)		—		—		—		—			(50,374	)		1,454,791			1,404,417			32,330			1,436,387
Other changes in equity
Dividends		—		—		—		—			—			(630,978	)		(630,978	)		—			(630,978	)
Dividends to hybrid bonds		—		—		—		—			—			(19,314	)		(19,314	)		—			(19,314	)
Change in other capital adjustments		—		—		—		30,537			362			(30,899	)		—			—			—
Redemption of preferred stock		—		—		—		—			—			(1,125,906	)		(1,125,906	)		—			(1,125,906	)
Change in other non-controlling interests		—		—		—		—			—			—			—			(35,017	)		(35,017	)
		—		—		—		30,537			362			(1,807,097	)		(1,776,198	)		(35,017	)		(1,811,215	)
Balance at June 30, 2016	W	2,645,053		736,898		9,887,335		(392,999	)		254,399			17,336,828			30,467,514			970,714			31,438,228

See accompanying notes to the consolidated interim financial statements.

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SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity (Continued)

For the six-month period ended June 30, 2017

(Unaudited)

	Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.																			Non- controlling interests			Total
(In millions of won)	Capital stock		Hybrid bonds			Capital surplus		Capital adjustments			Accumulated other compre- hensive income			Retained earnings			Sub-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		—		—			—		—			—			1,889,130			1,889,130			20,026			1,909,156
Other comprehensive income (loss), net of income tax:
Foreign currency translation adjustments		—		—			—		—			(66,034	)		—			(66,034	)		(427	)		(66,461	)
Net change in unrealized fair value of available-for-sale financial assets		—		—			—		—			(79,070	)		—			(79,070	)		(27	)		(79,097	)
Equity in other comprehensive loss of associates		—		—			—		—			(11,267	)		—			(11,267	)		—			(11,267	)
Net change in unrealized fair value of cash flow hedges		—		—			—		—			2,437			—			2,437			—			2,437
Other comprehensive income of separate account		—		—			—		—			(291	)		—			(291	)		—			(291	)
Remeasurements of defined benefit plans		—		—			—		—			3,828			—			3,828			(711	)		3,117
Total other comprehensive loss		—		—			—		—			(150,397	)		—			(150,397	)		(1,165	)		(151,562	)
Total comprehensive income (loss)		—		—			—		—			(150,397	)		1,889,130			1,738,733			18,861			1,757,594
Other changes in equity
Dividends (note 20)		—		—			—		—			—			(687,589	)		(687,589	)		—			(687,589	)
Dividends to hybrid bonds		—		—			—		—			—			(10,621	)		(10,621	)		—			(10,621	)
Redemption of hybrid bond		—		(298,861	)		—		(1,139	)		—			—			(300,000	)		—			(300,000	)
Change in other capital adjustments		—		—			—		62,544			—			(61,512	)		1,032			—			1,032
Change in other non-controlling interests		—		—			—		—			—			—			—			183,586			183,586
		—		(298,861	)		—		61,405			—			(759,722	)		(997,178	)		183,586			(813,592	)
Balance at June 30, 2017	W	2,645,053		199,455			9,887,335		(397,056	)		(252,980	)		19,769,446			31,851,253			837,729			32,688,982

See accompanying notes to the consolidated interim financial statements.

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows

For the six-month periods ended June 30, 2017 and 2016

(Unaudited)

(In millions of won)	Note		2017			2016
Cash flows from operating activities
Profit before income taxes			W	2,495,232			1,588,556
Adjustments for:
Interest income		21		(5,698,367	)		(5,561,059	)
Interest expense		21		1,914,461			2,074,351
Dividend income				(150,450	)		(136,591	)
Net fees and commission expense				83,705			77,749
Net insurance loss				1,313,734			1,369,590
Net trading loss (gain)				(312,281	)		231,379
Net foreign currency translation loss				43,557			72,865
Net loss (gain) on financial instruments designated at fair value through profit or loss				312,966			(170,986	)
Net gain on disposal of available-for-sale financial assets		12		(250,931	)		(354,572	)
Provision for credit losses		11		229,799			593,639
Impairment losses on other financial assets		23		18,984			67,080
Employee costs				95,392			102,524
Depreciation and amortization		24		126,854			134,201
Other operating income				(574,731	)		(84,897	)
Equity method income, net		13		(13,649	)		(3,760	)
Other non-operating expense (income), net				1,597			(2,961	)
				(2,859,360	)		(1,591,448	)
Changes in assets and liabilities:
Due from banks				(1,240,397	)		647,884
Trading assets and liabilities				(4,030,032	)		(5,004,620	)
Financial instruments designated at fair value through profit or loss				(549,987	)		426,945
Derivative instruments				(195,164	)		(241,518	)
Loans				(3,626,374	)		(2,500,004	)
Other assets				(6,108,925	)		(9,933,809	)
Deposits				3,437,097			8,712,324
Liabilities for defined benefit obligations				(63,492	)		(152,015	)
Provisions				(40,004	)		(138,050	)
Other liabilities				8,407,148			6,277,205
				(4,010,130	)		(1,905,658	)
Income taxes paid				(370,237	)		(194,231	)
Interest received				5,566,410			5,505,952
Interest paid				(2,214,018	)		(2,014,929	)
Dividends received				156,568			164,997
Net cash provided by (used in) operating activities				(1,235,535	)		1,553,239

See accompanying notes to the consolidated interim financial statements.

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flow (Continued)

For the six-month periods ended June 30, 2017 and 2016

(Unaudited) )

(In millions of won)	Note		2017			2016
Cash flows from investing activities
Proceeds from disposal of available-for-sale financial assets			W	17,686,334			9,614,368
Acquisition of available-for-sale financial assets				(20,527,205	)		(10,964,630	)
Proceeds from maturity of held-to-maturity financial assets				376,680			6,663,584
Acquisition of held-to-maturity financial assets				(2,509,425	)		(7,306,770	)
Proceeds from disposal of property and equipment				7,007			1,800
Acquisition of property and equipment				(59,832	)		(175,760	)
Proceeds from disposal of intangible assets				5,736			6,289
Acquisition of intangible assets				(46,266	)		(30,090	)
Proceeds from disposal of investments in associates				15,028			53,117
Acquisition of investments in associates				(265,397	)		(26,868	)
Proceeds from disposal of investment property				—			14,214
Acquisition of investment property				(644	)		(94,666	)
Proceeds from disposal of assets held for sale				3,146			13,202
Proceeds from settlement of hedging derivative financial instruments for available-for-sale financial assets				57,648			1,929
Settlement of hedging derivative financial instruments for available-for-sale financial assets				(12,358	)		(48,784	)
Other, net				15,810			65,806
Net cash used in investing activities				(5,253,738	)		(2,213,259	)
Cash flows from financing activities
Net increase in borrowings				3,732,584			2,340,504
Proceeds from debt securities issued				10,288,590			6,756,775
Repayments of debt securities issued				(6,488,341	)		(5,633,918	)
Dividends paid				(699,846	)		(649,598	)
Proceeds from settlement of hedging derivative financial instruments for debt securities issued				25,700			10,269
Settlement of hedging derivative financial instruments for debt securities issued				—			(971	)
Redemption of hybrid bond				(300,000	)		—
Redemption of preferred stock				—			(1,125,906	)
Increase (decrease) in non-controlling interests				181,779			(21,556	)
Other, net				4,136			(28,945	)
Net cash provided by financing activities				6,744,602			1,646,654
Effect of exchange rate fluctuations on cash and cash equivalents held				(26,340	)		18,636
Increase in cash and cash equivalents				228,989			1,005,270
Cash and cash equivalents at beginning of period		29		5,632,536			4,607,251
Cash and cash equivalents at end of period		29	W	5,861,525			5,612,521

See accompanying notes to the consolidated interim financial statements.

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

1. Reporting entity

Shinhan Financial Group Co., Ltd., the controlling company, and its subsidiaries included in consolidation (collectively the “Group”) are summarized as follows:

(a) Controlling company

Shinhan Financial Group Co., Ltd. (the “Shinhan Financial Group” or the “Company”) 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 major consolidated subsidiaries as of June 30, 2017 and December 31, 2016 are as follows:

			Date of financial information	Ownership (%)
Investor	Investee (*1)	Location		2017	2016
Shinhan Financial Group Co., Ltd.	Shinhan Bank Co., Ltd.	Korea	June 30	100.0	100.0
”	Shinhan Card Co., Ltd.	”	”	100.0	100.0
”	Shinhan Investment Corp.	”	”	100.0	100.0
”	Shinhan Life Insurance Co., Ltd.	”	”	100.0	100.0
”	Shinhan Capital Co., Ltd.	”	”	100.0	100.0
”	Jeju Bank	”	”	68.9	68.9
”	Shinhan Credit Information Co., Ltd.	”	”	100.0	100.0
”	Shinhan Private Equity Inc.	”	”	100.0	100.0
”	Shinhan BNP Paribas Asset Management Co., Ltd.	”	”	65.0	65.0
”	SHC Management Co., Ltd.	”	”	100.0	100.0
”	Shinhan Data System	”	”	100.0	100.0
”	Shinhan Savings Bank	”	”	100.0	100.0
”	Shinhan AITAS Co., Ltd.	”	”	99.8	99.8
Shinhan Bank Co., Ltd.	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	”	94.34	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 (*3)	Indonesia	”	99.00	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 Interim Financial Statements

June 30, 2017

(Unaudited)

1. Reporting entity (continued)

			Date of financial information	Ownership (%)
Investor	Investee (*1)	Location		2017	2016
Shinhan Investment Corp.	Shinhan Securities Vietnam Co., Ltd.	Vietnam	June 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 was changed. Shinhan Savings Bank’s interest of 1.37% in Shinhan Khmer Bank PLC is not included.

(*3) As a result of unequal capital increase, 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 75 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 56 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.

11

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

1. Reporting entity (continued)

(d) Summarized financial information of the subsidiaries

i) Condensed financial position for the Group’s subsidiaries as of June 30, 2017 and December 31, 2016 are as follows:

	2017						2016
	Total assets		Total liabilities		Total equities		Total assets		Total liabilities		Total equities
Shinhan Financial Group (Separate)	W	27,656,403		7,591,437		20,064,966		27,195,607		6,977,746		20,217,861
Shinhan Bank Co., Ltd.		314,375,647		292,168,675		22,206,972		302,854,623		281,387,650		21,466,973
Shinhan Card Co., Ltd.		25,549,163		19,496,233		6,052,930		24,419,886		18,537,340		5,882,546
Shinhan Investment Corp.		28,414,856		25,265,638		3,149,218		25,554,489		22,478,057		3,076,432
Shinhan Life Insurance Co., Ltd.		28,735,531		26,996,579		1,738,952		27,499,836		25,814,288		1,685,548
Shinhan Capital Co., Ltd.		4,950,746		4,269,058		681,688		4,506,750		3,862,388		644,362
Jeju Bank		5,411,382		5,064,828		346,554		5,184,831		4,849,180		335,651
Shinhan Credit Information Co., Ltd.		22,423		8,425		13,998		23,077		8,897		14,180
Shinhan Private Equity Inc.		104,273		92,784		11,489		114,853		103,358		11,495
Shinhan BNP Paribas Asset Management Co., Ltd.		157,885		11,497		146,388		161,161		13,354		147,807
SHC Management Co., Ltd.		8,486		187		8,299		8,474		262		8,212
Shinhan Data System		34,302		19,457		14,845		34,403		21,565		12,838
Shinhan Savings Bank		1,112,290		973,451		138,839		970,146		839,328		130,818
Shinhan AITAS Co., Ltd.		58,151		9,109		49,042		53,886		8,434		45,452

(*1) Condensed financial information of the subsidiaries is based on the subsidiaries’ consolidated financial information, if applicable.

(*2) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

12

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

1. Reporting entity (continued)

ii) Condensed comprehensive income statement for the Group’s subsidiaries for the six-month periods ended June 30, 2017 and 2016 were as follows:

	2017								2016
	Operating income		Net income (loss)			Total comprehensive income (loss)			Operating income		Net income (loss)		Total comprehensive income (loss)
Shinhan Financial Group (separate)	W	968,498		845,610			845,315			1,699,364		1,559,094		1,557,254
Shinhan Bank Co., Ltd.		10,697,142		1,104,402			1,030,151			7,858,144		1,026,633		968,930
Shinhan Card Co., Ltd.		2,703,426		629,706			570,362			2,270,110		355,167		270,514
Shinhan Investment Corp.		3,080,879		93,782			92,688			2,271,102		50,552		58,633
Shinhan Life Insurance Co., Ltd.		3,059,401		75,701			53,298			2,767,464		87,584		174,919
Shinhan Capital Co., Ltd.		169,320		46,144			58,393			146,339		20,302		23,830
Jeju Bank		100,879		15,541			13,109			91,976		13,437		10,188
Shinhan Credit Information Co., Ltd.		14,045		(91	)		(188	)		12,299		29		(66	)
Shinhan Private Equity Inc.		11,725		(63	)		(5	)		12,310		852		1,142
Shinhan BNP Paribas Asset Management Co., Ltd.		36,714		9,956			9,960			34,927		6,801		6,798
SHC Management Co., Ltd.		126		87			87			62		406		406
Shinhan Data System		37,267		427			1,996			38,575		1,308		1,100
Shinhan Savings Bank.		36,465		8,218			8,000			31,902		7,183		5,784
Shinhan AITAS Co., Ltd.		20,112		3,575			3,575			18,094		3,845		3,845

(*1) Condensed financial information of the subsidiaries is based on the subsidiaries’ consolidated financial information, if applicable.

(*2) Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

13

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

2. Basis of preparation

(a) Statement of compliance

The condensed consolidated interim 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.

These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting as part of the period covered by the Group’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as of and for the year ended December 31, 2016. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

(b) Use of estimates and judgments

The preparation of the condensed consolidated interim 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.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2016, except for the changes below.

The credit card segment of consolidated entities has accumulated sufficient experience to properly calculate probability of default, loss given default and credit conversion factors by considering the characteristics of borrowers, or its homogeneous borrowing groups, with credit evaluation system and risk evaluation system based on BASEL II; and based on this newly accumulated experience, the calculation methodology of loan losses has been changed from roll rate analysis model to internal model approach. As the result of changes in accounting estimates described above, allowances for loan losses and provision for unused credit lines decreased by W80,383 million and W296,630 million, respectively. The effects of the changes in accounting estimates were recognized prospectively.

14

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

3. Significant accounting policies

Except for the amendments to K-IFRS No. 1007, Cash flow statement, which are applied from January 1, 2017, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2016. The impact of the amendments on the Group’s consolidated financial statements is not significant.

(a) 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, 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. K-IFRS No. 1109 permits the use of either retrospective or cumulative effect transition method and the Group will use cumulative effect transition method.

The main characteristics of K-IFRS No. 1109 are the 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 requirement of hedged items, expansion of the types of qualifying 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.

15

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

3. Significant accounting policies (continued)

The following table presents the measurement methods for credit losses according to K-IFRS No. 1109.

Category	Description
	12-month expected credit loss :
Credit risk has not increased significantly since the initial recognition	Expected credit loss from possible default of financial products for 12 months after reporting date
Credit risk has increased significantly since the initial recognition	Lifetime expected credit loss : Expected credit loss from possible default of
Credit-impaired financial assets	financial products for the expected life of the financial products

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 June 30, 2017. The Group plans to complete 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 and stabilization 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.

16

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

4. Financial risk management

(a) Overview

As a financial services provider, the Group is exposed to various risks relating to lending, credit card, insurance, securities investment, trading and leasing businesses, its deposit taking and borrowing activities in addition to the operating environment.

The principal risks to which the Group is exposed are credit risk, market risk, interest rate risk, liquidity risk and operational risk. These risks are recognized, measured, controlled and reported in accordance with risk management guidelines established at the company level and at the subsidiary level.

i) Risk management organization

The Group risk management system is organized along with the following hierarchy: from the top and at the Company level, the Group Risk Management Committee, the Group Risk Management Council, the Chief Risk Officer and the Group Risk Management Team, and at the subsidiary level, the Risk Management Committees and the Risk Management Team of the relevant subsidiary.

The Group Risk Management Committee, which is under the supervision of the controlling company’s Board of Directors, sets the basic group wide risk management policies and strategies. The controlling company’s Chief Risk Officer reports to the Group Risk Management Committee, and the Group Risk Management Council, whose members consist of the controlling company’s Chief Risk Officer and the risk management team heads of each of subsidiaries, coordinates the risk management policies and strategies at the group level as well as at the subsidiary level among each of subsidiaries.

Each of subsidiaries also has a separate Risk Management Committee, Risk Management Working Committee and Risk Management Team, whose tasks are to implement the group wide risk management policies and strategies at the subsidiary level as well as to set risk management policies and strategies specific to such subsidiary in line with the group wide guidelines. The Group also has the Group Risk Management Team, which supports the controlling company’s Chief Risk Officer in his or her risk management and supervisory role.

In order to maintain the group wide risk at an appropriate level, the Group use a hierarchical risk limit system under which the Group Risk Management Committee assigns reasonable risk limits for the entire group and each of subsidiaries, and the Risk Management Committee and the Risk Management Council of each of subsidiaries manage the subsidiary-specific risks by establishing and managing risk limits in more details by type of risk and type of product for each department and division within such subsidiary.

17

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

4. Financial risk management (continued)

ii) Risk management framework

The Group takes the following steps to implement the foregoing risk management principles:

• Risk capital management – Risk capital refers to capital necessary to compensate for losses in case of a potential risk being realized, and risk capital management refers to the process of asset management based on considerations of risk exposure and risk appetite among total assets so that the Group can maintain an appropriate level of risk capital. As part of the Group’s risk capital management, the Group has adopted and maintains various risk planning processes and reflects such risk planning in the Group’s business and financial planning. The Group also has adopted and maintains a risk limit management system to ensure that risks in the Group’s business do not exceed prescribed limits.

• Risk monitoring – The Group proactively, preemptively and periodically review risks that may impact our overall operations, including through a multidimensional risk monitoring system. Currently, each of subsidiaries is required to report to the controlling company any factors that could have a material impact on the group wide risk management, and the controlling company reports to the Group’s Chief Risk Officer and other members of the Group’s senior management the results of risk monitoring on a weekly, monthly and continual basis. In addition, the Group performs preemptive risk management through a “risk dashboard system” under which the Group closely monitors any increase in asset size, risk levels and sensitivity to external factors with respect to the major asset portfolios of each of subsidiaries, and to the extent such monitoring yields any warning signals, the Group promptly analyze the causes and, if necessary, formulates and implements actions in response to these warning signals.

• Risk review – Prior to entering any new business, offering any new products or changing any major policies, the Group reviews any relevant risk factors based on a prescribed risk management checklist and, in the case of changes for which assessment of risk factors is difficult, promotes reasonable decision-making in order to avoid taking any unduly risky action. The risk management departments of all subsidiaries are required to review all new businesses, products and services prior to their launch and closely monitor the development of any related risks following their launch, and in the case of any action that involves more than one subsidiary, the relevant risk management departments are required to consult with the risk management team at the controlling company level prior to making any independent risk reviews.

• Risk management – The Group maintain a group wide risk management system to detect the signals of any risk crisis and, in the event of a crisis actually happening, to respond on a timely, efficient and flexible basis so as to ensure the Group’s survival as a going concern. Each subsidiary maintains crisis planning for three levels of contingencies, namely, “alert”, “imminent crisis” and “crisis”, determination of which is made based on quantitative and qualitative monitoring and consequence analysis, and upon the happening of any such contingency, is required to respond according to a prescribed contingency plan. At the controlling company level, the Group maintains and installs crisis detection and response system which is applied consistently group wide, and upon the happening of any contingency at two or more subsidiary level, the Group directly takes charge of the situation so that the Group manages it on a concerted group wide basis.

18

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(b) Credit risk

Credit risk is the risk of potential economic loss that may be caused if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and the largest risk which the Group is facing. The Group’s credit risk management encompasses all areas of credit that may result in potential economic loss, including not just transactions that are recorded on balance sheets, but also off-balance-sheet transactions such as guarantees, loan commitments and derivative transactions.

i) Maximum exposure to credit risk

The Group’s maximum exposure to credit risk without taking account of any collateral held or other credit enhancements as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Due from banks and loans (*1)(*3):
Banks	W	13,354,418		13,922,969
Retail		117,342,813		115,972,280
Government		13,321,745		11,776,346
Corporations		117,390,311		116,001,132
Card receivable		19,062,123		18,704,516
		280,471,410		276,377,243
Trading assets		24,418,111		22,638,409
Financial assets designated at FVTPL (*4)		2,329,472		2,228,186
AFS financial assets (*5)		35,316,353		32,822,071
HTM financial assets (*6)		21,928,681		19,805,084
Derivative assets		1,670,477		3,002,859
Other financial assets (*1)(*2)		18,527,988		13,975,889
Financial guarantee contracts		3,032,450		3,424,022
Loan commitments and other credit liabilities		74,254,279		76,055,306
	W	461,949,221		450,329,069

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

(*2) The credit quality of other financial assets are not included in the details of our main credit quality disclosures as other financial assets mainly comprise brokerage, securities and spot transaction related receivables, accrued interest receivables, secured key money deposits and domestic exchange settlement debit settled in a day.

(*3) Due from banks and loans were classified as similar credit risk group when calculating the BIS ratio under new Basel Capital Accord (Basel III).

(*4) FVTPL : fair value through profit or loss

(*5) AFS : available-for-sale

(*6) HTM : held-to-maturity

19

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

ii) Due from banks and loans by past due or impairment

• Due from banks and loans as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Banks			Retail			Government			Corporations			Card			Total
Neither past due nor impaired	W	13,368,929			116,973,286			13,324,891			117,314,215			18,895,614			279,876,935
Past due but not impaired		—			429,592			—			230,289			398,448			1,058,329
Impaired		—			324,239			—			1,013,726			422,140			1,760,105
		13,368,929			117,727,117			13,324,891			118,558,230			19,716,202			282,695,369
Less : allowance		(14,511	)		(384,304	)		(3,146	)		(1,167,919	)		(654,079	)		(2,223,959	)
	W	13,354,418			117,342,813			13,321,745			117,390,311			19,062,123			280,471,410

	2016
	Banks			Retail			Government			Corporations			Card			Total
Neither past due nor impaired	W	13,946,898			115,668,247			11,778,472			115,911,309			18,590,689			275,895,615
Past due but not impaired		—			392,002			270			264,354			397,417			1,054,043
Impaired		—			285,929			—			1,098,081			420,079			1,804,089
		13,946,898			116,346,178			11,778,742			117,273,744			19,408,185			278,753,747
Less : allowance		(23,929	)		(373,898	)		(2,396	)		(1,272,612	)		(703,669	)		(2,376,504	)
	W	13,922,969			115,972,280			11,776,346			116,001,132			18,704,516			276,377,243

• Credit quality of due from banks and loans that are neither past due nor impaired as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Banks			Retail			Government			Corporations			Card			Total
Grade 1 (*1)	W	13,368,929			109,724,286			13,324,891			81,482,633			15,590,047			233,490,786
Grade 2 (*1)		—			7,249,000			—			35,831,582			3,305,567			46,386,149
		13,368,929			116,973,286			13,324,891			117,314,215			18,895,614			279,876,935
Less : allowance (collective)		(14,511	)		(194,516	)		(3,146	)		(678,193	)		(270,076	)		(1,160,442	)
	W	13,354,418			116,778,770			13,321,745			116,636,022			18,625,538			278,716,493
Mitigation of credit risk due to collateral (*2)	W	210			73,508,884			—			59,716,779			5,782			133,231,655

	2016
	Banks			Retail			Government			Corporations			Card			Total
Grade 1 (*1)	W	13,946,898			108,798,683			11,778,472			78,556,918			15,156,750			228,237,721
Grade 2 (*1)		—			6,869,564			—			37,354,391			3,433,939			47,657,894
		13,946,898			115,668,247			11,778,472			115,911,309			18,590,689			275,895,615
Less : allowance (collective)		(23,929	)		(205,135	)		(2,395	)		(740,349	)		(374,708	)		(1,346,516	)
	W	13,922,969			115,463,112			11,776,077			115,170,960			18,215,981			274,549,099
Mitigation of credit risk due to collateral (*2)	W	35,581			76,943,059			—			59,271,190			6,200			136,256,030

20

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(*1) Credit quality of due from banks and loans was classified based on the internal credit rating as follows:

Type of Borrower	Grade 1	Grade 2
Banks and governments (*)	OECD sovereign credit rating of 6 or above (as applied to the nationality of the banks and governments)	OECD sovereign credit rating of below 6 (as applied to the nationality of the banks and governments)
Retail	Pool of retail loans with probability of default of less than 2.25%	Pool of retail loans with probability of default of 2.25% or more
Corporations	Internal credit rating of BBB+ or above	Internal credit rating of below BBB+ (Probability of default for loans with internal credit rating of BBB is 2.25%)
Credit cards	For individual card holders, score of 7 or higher in Shinhan Card’s internal behavior scoring system For corporate cardholders, same as corporate loans	For individual card holders, score of below 7 in Shinhan Card’s internal behavior scoring system For corporate cardholders, same as corporate loans

(*) In the case of loans to banks and governments that are neither past due nor impaired, Shinhan Bank classified loans with a sovereign rating of 6 or above as Grade 1 and those with a sovereign rating of below 6 as Grade 2. Under the guidelines set forth by the Financial Supervisory Commission of Korea, all major commercial banks in Korea, including Shinhan Bank, follow the standardized approach under Basel III for purposes of computing Bank of International Settlement (BIS) ratios for risk classifications of loans to banks and governments. Under this standardized approach under Basel III, risk classification for loans to banks and governments are determined on the basis of sovereign credit ratings, and not internal credit ratings assigned by the lending bank that are specific to the individual banks and governments. More specifically, this approach involves classifying loans to banks and governments in a given jurisdiction as either Grade 1 or Grade 2 based on the sovereign credit ratings for the government of such jurisdiction as determined by the Organization for Economic Co-operation and Development (“OECD”). As for our subsidiaries other than Shinhan Bank, risk classification of loans to banks and governments is made based on their respective internal credit ratings as these subsidiaries are not subject to the aforesaid guidelines of the Financial Supervisory Commission relating to Basel III risk classification.

(*2) The Group holds collateral against due from banks and loans to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of quantification of the extent to which collateral mitigate credit risk are based on the fair value of collateral.

21

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• Aging analyses of due from banks and loans that are past due but not impaired as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Banks		Retail			Government		Corporations			Card			Total
Less than 30 days	W	—		322,616			—		131,944			311,784			766,344
31~60 days		—		56,781			—		54,337			52,504			163,622
61~90 days		—		36,113			—		35,407			33,870			105,390
More than 90 days		—		14,082			—		8,601			290			22,973
		—		429,592			—		230,289			398,448			1,058,329
Less : allowance (collective)		—		(43,211	)		—		(12,654	)		(74,388	)		(130,253	)
	W	—		386,381			—		217,635			324,060			928,076
Mitigation of credit risk due to collateral (*)	W	—		268,857			—		98,983			29			367,869

	2016
	Banks		Retail			Government			Corporations			Card			Total
Less than 30 days	W	—		297,889			270			190,133			321,913			810,205
31~60 days		—		49,582			—			50,881			53,379			153,842
61~90 days		—		31,072			—			20,305			21,899			73,276
More than 90 days		—		13,459			—			3,035			226			16,720
		—		392,002			270			264,354			397,417			1,054,043
Less : allowance (collective)		—		(35,627	)		(1	)		(12,377	)		(66,413	)		(114,418	)
	W	—		356,375			269			251,977			331,004			939,625
Mitigation of credit risk due to collateral (*)	W	—		249,309			—			101,334			112			350,755

• Due from banks and loans that are impaired as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Banks		Retail			Government		Corporations			Card			Total
Impaired	W	—		324,239			—		1,013,726			422,140			1,760,105
Less : allowance		—		(146,577	)		—		(477,072	)		(309,615	)		(933,264	)
	W	—		177,662			—		536,654			112,525			826,841
Mitigation of credit risk due to collateral (*)	W	—		119,532			—		437,848			24			557,404

	2016
	Banks		Retail			Government		Corporations			Card			Total
Impaired	W	—		285,929			—		1,098,081			420,079			1,804,089
Less : allowance		—		(133,136	)		—		(519,886	)		(262,548	)		(915,570	)
	W	—		152,793			—		578,195			157,531			888,519
Mitigation of credit risk due to collateral (*)	W	—		101,730			—		437,891			3			539,624

(*) The Group holds collateral against due from banks and loans to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of quantification of the extent to which collateral mitigate credit risk are based on the fair value of collateral.

22

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iii) Credit rating

• Credit ratings of debt securities as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Trading assets		Financial assets designated at FVTPL		Available-for- sale financial assets		Held-to- maturity financial assets		Total
AAA	W	10,351,319		789,541		22,513,232		17,372,604		51,026,696
AA- to AA+		4,092,393		443,969		5,502,290		3,567,484		13,606,136
A- to A+		5,907,039		805,485		4,068,933		451,506		11,232,963
BBB- to BBB+		1,581,076		204,670		1,295,490		168,755		3,249,991
Lower than BBB-		250,806		—		434,563		164,508		849,877
Unrated		2,044,959		85,807		1,501,845		203,824		3,836,435
		W  24,227,592		2,329,472		35,316,353		21,928,681		83,802,098
	2016
	Trading assets		Financial assets designated at FVTPL		Available-for- sale financial assets		Held-to- maturity financial assets		Total
AAA	W	9,777,845		535,684		19,781,580		16,188,459		46,283,568
AA- to AA+		4,075,181		402,946		5,561,165		2,584,304		12,623,596
A- to A+		5,310,796		1,097,395		4,257,161		535,889		11,201,241
BBB- to BBB+		1,441,783		192,161		1,348,073		137,240		3,119,257
Lower than BBB-		144,612		—		469,615		148,894		763,121
Unrated		1,640,347		—		1,404,477		210,298		3,255,122
		W  22,390,564		2,228,186		32,822,071		19,805,084		77,245,905

• The credit quality of securities (debt securities) according to the credit ratings by external rating agencies is as follows:

Internal credit ratings	KIS (*1)	KR (*2)	S&P	Fitch	Moody’s
AAA	—	—	AAA	AAA	Aaa
AA- to AA+	AAA	AAA	AA- to AA+	AA- to AA+	Aa3 to Aa1
A- to A+	AA- to AA+	AA- to AA+	A- to A+	A- to A+	A3 to A1
BBB- to BBB+	BBB- to A	BBB- to A	BBB- to BBB+	BBB- to BBB+	Baa3 to Baa1
Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than Baa3
Unrated	Unrated	Unrated	Unrated	Unrated	Unrated

(*1) KIS : Korea Investors Service

(*2) KR : Korea Ratings

• Credit status of debt securities as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Neither past due nor impaired	W	83,799,875		77,244,537
Impaired		2,223		1,368
	W	83,802,098		77,245,905

The Group has no collaterals for the debt securities.

23

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iv) Concentration by industry sector

An analysis of concentration by industry sector of due from banks and loans, net of allowance, as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Finance and insurance		Manu- facturing		Retail and wholesale		Real estate and service		Other		Retail customers		Total
Due from banks and loans:
Banks	W	10,851,556		53		11,097		11,097		2,491,712		—		13,354,418
Retail		—		—		—		—		—		117,342,813		117,342,813
Government		12,428,211		1,314		—		—		892,220		—		13,321,745
Corporations		4,797,497		40,862,614		20,890,231		20,890,231		34,756,928		—		117,390,311
Card		38,545		268,708		30,741		30,741		416,089		18,185,738		19,062,123
		28,115,809		41,132,689		20,932,069		20,932,069		38,556,949		135,528,551		280,471,410
Trading assets		16,855,941		1,372,847		1,033,523		373,914		4,781,886		—		24,418,111
Financial assets designated at FVTPL		1,210,827		179,577		36,620		50,797		851,651		—		2,329,472
AFS financial assets		22,603,938		1,163,152		239,262		684,341		10,625,660		—		35,316,353
HTM financial assets		5,485,223		52,260		—		775,942		15,615,256		—		21,928,681
	W	74,271,738		43,900,525		17,514,748		22,817,063		70,431,402		135,528,551		364,464,027

	2016
	Finance and insurance		Manu- facturing		Retail and wholesale		Real estate and service		Other		Retail customers		Total
Due from banks and loans:
Banks	W	10,875,077		68		—		110,443		2,937,381		—		13,922,969
Retail		—		—		—		—		—		115,972,280		115,972,280
Government		10,906,097		3,991		—		3,315		862,943		—		11,776,346
Corporations		5,094,455		40,544,250		15,560,280		20,460,662		34,341,485		—		116,001,132
Card		38,574		194,630		131,956		37,495		371,497		17,930,364		18,704,516
		26,914,203		40,742,939		15,692,236		20,611,915		38,513,306		133,902,644		276,377,243
Trading assets		14,783,780		1,262,042		1,079,631		307,115		5,205,841		—		22,638,409
Financial assets designated at FVTPL		1,450,512		144,019		26,385		20,000		587,270		—		2,228,186
AFS financial assets		22,615,359		1,009,045		129,261		613,265		8,455,141		—		32,822,071
HTM financial assets		5,261,874		44,915		—		786,345		13,711,950		—		19,805,084
	W	71,025,728		43,202,960		16,927,513		22,338,640		66,473,508		133,902,644		353,870,993

24

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(c) Market risk

Market risk from trading positions is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments.

Interest rate risk from non-trading positions is the risk of loss resulting from interest rate fluctuations that adversely affect the financial condition and results of operations of the Group and affects the earnings and the economic value of net assets of the Group.

Foreign exchange risk arises from the Group’s assets and liabilities which are denominated in currencies other than Korean won.

i) Market risk management from trading positions

Trading activities are to realize short-term trading profits in debt and stock markets and foreign exchange markets based on short-term forecast of changes in market situation and profits from arbitrage transactions in derivatives such as swap, forward, futures and option transactions. The Group manages market risk related to its trading positions using VaR and market value-based tool.

An analysis of market risk for trading positions of the major subsidiaries as of and for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

i-1) Shinhan Bank

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Bank as of and for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017
	Average		Maximum		Minimum		June 30
Interest rate	W	46,014		52,547		39,804		45,858
Stock price		4,212		4,945		3,446		3,447
Foreign exchange (*)		43,893		49,917		39,608		49,917
Option volatility		73		151		25		109
Commodity		27		84		1		20
Portfolio diversification								(47,401	)
	W	48,828		53,542		44,531		51,950
	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	33,246		48,851		18,764		44,447
Stock price		5,161		5,787		4,815		5,484
Foreign exchange (*)		56,089		61,389		53,678		60,088
Option volatility		149		256		101		221
Commodity		13		35		—		21
Portfolio diversification								(49,278	)
	W	55,981		61,648		53,086		60,983

(*) Both trading and non-trading accounts are included since Shinhan Bank manages foreign exchange risk on a total position basis.

25

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

i-2) Shinhan Card

The analyses of Shinhan Card’s requisite capital in light of the market risk for trading positions as of and for the six-month period ended June 30, 2017 and the year ended December 31, 2016, based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, are as follows:

	2017
	Average		Maximum		Minimum		June 30
Interest rate	W	1,650		2,450		1,050		2,450
Foreign exchange		16,831		19,368		9,670		9,670
	W	18,481		21,818		10,720		12,120
	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	875		1,700		550		1,700
Foreign exchange		27,738		34,909		17,062		17,062
	W	28,613		36,609		17,612		18,762

Shinhan Card fully hedges all the cash flows from foreign currency liabilities by swap transactions and is narrowly exposed to foreign exchange risk relating to foreign currency equity securities held for non-trading purposes.

i-3) Shinhan Investment

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Investment as of and for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017
	Average		Maximum		Minimum		June 30
Interest rate	W	13,613		18,111		9,852		13,713
Stock price		11,485		19,850		6,647		12,768
Foreign exchange		8,512		16,576		4,911		7,710
Option volatility		6,248		13,669		2,150		7,007
Portfolio diversification								(19,643	)
	W	22,946		34,384		16,050		21,555
	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	9,040		18,149		5,380		15,491
Stock price		13,339		24,276		6,413		7,403
Foreign exchange		6,849		19,976		1,017		7,001
Option volatility		6,564		18,680		1,477		7,799
Portfolio diversification								(14,569	)
	W	24,393		34,546		16,679		23,125

26

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

i-4) Shinhan Life Insurance

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Life Insurance as of and for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017
	Average		Maximum		Minimum		June 30
Interest rate	W	6,150		16,598		85		6,512
Stock price		1,724		3,368		111		1,668
Foreign exchange		1,132		3,568		4		1,592
Option volatility		4,800		7,041		3,158		7,041
	W	13,806		30,575		3,358		16,813
	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	483		1,114		213		800
Stock price		231		1,585		—		130
Foreign exchange		1,278		2,238		54		1,221
Option volatility		1,115		3,044		71		3,044
	W	3,107		7,981		338		5,195

ii) Interest rate risk management from non-trading positions

Principal market risk from non-trading activities of the Group is interest rate risk, which affects the Group’s earnings and the economic value of the Group’s net assets:

• Earnings: interest rate fluctuations have an effect on the Group’s net interest income by affecting its interest-sensitive operating income and expenses and EaR (Earnings at Risk) is a commonly used risk management technique.

• Economic value of net assets: interest rate fluctuations influence the Group’s net worth by affecting the present value of cash flows from the assets, liabilities and other transactions of the Group and VaR is a commonly used risk management technique.

Interest rate VaR represents the maximum anticipated loss in a net present value calculation, whereas interest rate EaR represents the maximum anticipated loss in a net earnings calculation for the immediately following one-year period, in each case, as a result of negative movements in interest rates.

Accordingly, the Group measures and manages interest rate risk for non-trading activities by taking into account effects of interest rate changes on both its income and net asset value.

27

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

Non-trading positions for interest rate VaR and EaR as of June 30, 2017 and December 31, 2016 are as follows:

ii-1) Shinhan Bank

	2017		2016
VaR (*1)	W	174,630		231,133
EaR (*2)		142,527		58,091

ii-2) Shinhan Card

	2017		2016
VaR (*1)	W	112,698		89,348
EaR (*2)		10,501		11,905

ii-3) Shinhan Investment

	2017		2016
VaR (*1)	W	44,475		27,822
EaR (*2)		96,400		104,423

ii-4) Shinhan Life Insurance

	2017		2016
VaR (*1)	W	264,757		287,912
EaR (*2)		76,026		58,062

(*1) The interest rate VaR represents the maximum anticipated loss in a net asset value in one year under confidence level of 99.9% and is measured by the internal model with one year look-back period.

(*2) The interest rate EaR was calculated by the Financial Supervisory Service regulations based on the “middle of time band” and interest shocks by 200 basis points for each time bucket as recommended under the Basel Accord.

iii) Foreign exchange risk

Exposure to foreign exchange risk can be defined as the difference (net position) between assets and liabilities presented in foreign currency, including derivative financial instruments linked to foreign exchange rate. Foreign exchange risk is a factor that causes market risk of the trading position and is managed by the Group under the market risk management system.

The management of Shinhan Bank’s foreign exchange position is centralized at the FX & Derivatives Department. Dealers in the FX & Derivatives Department manage Shinhan Bank’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps. Shinhan Bank sets a limit for net open positions by currency and the limits for currencies other than the U.S. dollars, Japanese yen, Euros and Chinese yuan are set in order to minimize exposures from the other foreign exchange trading.

28

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(d) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Each subsidiary seeks to minimize liquidity risk through early detection of risk factors related to the sourcing and managing of funding that may cause volatility in liquidity and by ensuring that it maintains an appropriate level of liquidity through systematic management. At the group level, the Group manages liquidity risk by conducting monthly stress tests that compare liquidity requirements under normal situations against those under three types of stress situations, namely, the group-specific internal crisis, crisis in the external market and a combination of internal and external crisis.

Contractual maturities for financial instruments including cash flows of principal and interest and off balance as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Less than 1 month			1~3 months			3~6 months			6 months ~ 1 year			1~5 years			More than 5 years			Total
Non-derivative financial instruments:
Liabilities:
Deposits (*2)	W	126,682,640			25,967,194			31,082,297			42,211,576			14,285,056			2,379,853			242,608,616
Trading liabilities		2,353,756			—			—			—			—			—			2,353,756
Financial liabilities designated at fair value through profit or loss		15,891,492			2,687,710			2,647,374			2,122,788			3,551,705			2,145,076			29,046,145
Borrowings		1,767,231			3,143,050			3,333,516			7,736,691			30,350,865			4,856,888			51,188,241
Debt securities issued		457,397			313,565			880,042			2,207,625			4,203,788			1,082,865			9,145,282
Other financial liabilities		23,453,195			138,408			158,162			174,023			374,686			60,071			24,358,545
	W	170,605,711			32,249,927			38,101,391			54,452,703			52,766,100			10,524,753			358,700,585
Off balance (*3):
Financial guarantee contracts	W	3,032,450			—			—			—			—			—			3,032,450
Loan commitments and other		74,452,228			—			—			—			—			—			74,452,228
	W	77,484,678			—			—			—			—			—			77,484,678
Derivatives (*4):
Cash inflows	W	1,929,033			1,188,004			1,078,672			1,143,568			2,724,535			88,410			8,152,222
Cash outflows		(1,771,406	)		(970,595	)		(1,000,249	)		(984,878	)		(2,554,121	)		(28,289	)		(7,309,538	)
	W	157,627			217,409			78,423			158,690			170,414			60,121			842,684

29

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

	2016
	Less than 1 month			1~3 months			3~6 months			6 months ~ 1 year			1~5 years			More than 5 years			Total
Non-derivative financial instruments:
Liabilities:
Deposits (*2)	W	121,707,981			22,583,391			29,620,700			49,624,644			14,144,690			3,032,191			240,713,597
Trading liabilities		1,976,760			—			—			—			—			—			1,976,760
Financial liabilities designated at fair value through profit or loss		429,578			452,306			475,221			1,380,011			5,412,373			1,084,419			9,233,908
Borrowings		13,697,990			1,914,573			1,293,030			2,715,323			4,191,730			1,692,283			25,504,929
Debt securities issued		1,394,163			2,435,353			4,597,809			7,371,729			26,138,646			5,492,930			47,430,630
Other financial liabilities		15,926,502			42,045			307,056			126,355			367,888			59,365			16,829,211
	W	155,132,974			27,427,668			36,293,816			61,218,062			50,255,327			11,361,188			341,689,035
Off balance (*3):
Financial guarantee contracts	W	3,424,022			—			—			—			—			—			3,424,022
Loan commitments and other		76,173,506			—			—			—			—			—			76,173,506
	W	79,597,528			—			—			—			—			—			79,597,528
Derivatives (*4):
Cash inflows	W	2,952,185			514,990			819,654			1,979,609			1,361,541			117,374			7,745,353
Cash outflows		(3,161,870	)		(513,356	)		(798,321	)		(1,884,914	)		(1,128,730	)		(26,054	)		(7,513,245	)
	W	(209,685	)		1,634			21,333			94,695			232,811			91,320			232,108

(*1) These amounts include cash flows of principal and interest on financial assets and financial liabilities.

(*2) Demand deposits amounting to W99,268,674 million and W93,639,192 million as of June 30, 2017 and December 31, 2016 are included in the ‘Less than 1 month’ category, respectively.

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

(*4) Derivatives held for trading are presented as less than one month because contractual maturities are not essential for an understanding of the timing of the cash flows. Derivatives entered into for the purpose of hedging are presented by maturity.

30

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(e) Capital risk management

The controlling company, banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act, is required to maintain a minimum consolidated equity capital ratio of 8.0%.

“Consolidated equity capital ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on Bank of International Settlement standards. “Equity capital”, as applicable to bank holding companies, is defined as the sum of Common Equity Tier 1 capital (including common stock, share premium resulting from the issue of instruments classified as common equity Tier 1, retained earnings, etc.), Additional Tier 1 capital (with the minimum set of criteria for an instrument issued by the Group to meet, i.e. ‘perpetual’) and Tier 2 capital (to provide loss absorption on a gone-concern basis) less any deductible items (including goodwill, income tax assets, etc.), each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

The capital adequacy ratio as of June 30, 2017 was 15.15% (unreviewed).

(f) Measurement of fair value

The fair values of financial instruments being traded in an active market are determined by the published market prices of each period end. The published market prices of financial instruments being held by the Group are based on the trading agencies’ notifications. If the market for a financial instrument is not active, such as OTC (Over The Counter market) derivatives, fair value is determined either by using a valuation technique or independent third-party valuation service.

The Group uses various valuation techniques and is setting rational assumptions based on the present market situations. Such valuation techniques may include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

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

• Level 1: Financial instruments measured at quoted prices from active markets are classified as fair value level 1.

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

• Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

31

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

i) Financial instruments measured at fair value

• The fair value hierarchy of financial assets presented at their fair values in the statements of financial position as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Level 1		Level 2		Level 3		Total
Financial assets:
Trading assets	W	9,829,754		21,422,338		137,522		31,389,614
Financial assets designated at fair value through profit or loss		613,865		2,393,352		587,543		3,594,760
Derivative assets		40,830		1,480,833		148,814		1,670,477
Available-for-sale financial assets		10,469,890		25,674,202		4,143,490		40,287,582
	W	20,954,339		50,970,725		5,017,369		76,942,433
Financial liabilities:
Trading liabilities	W	2,353,756		—		—		2,353,756
Financial liabilities designated at fair value through profit or loss		43,592		1,167,397		7,934,290		9,145,279
Derivative liabilities		44,231		1,501,336		342,035		1,887,602
	W	2,441,579		2,668,733		8,276,325		13,386,637

	2016
	Level 1		Level 2		Level 3		Total
Financial assets:
Trading assets	W	10,257,241		16,356,235		82,477		26,695,953
Financial assets designated at fair value through profit or loss		397,617		2,404,446		614,039		3,416,102
Derivative assets		17,316		2,873,194		112,349		3,002,859
Available-for-sale financial assets		9,024,940		24,754,310		3,883,441		37,662,691
	W	19,697,114		46,388,185		4,692,306		70,777,605
Financial liabilities:
Trading liabilities	W	1,976,760		—		—		1,976,760
Financial liabilities designated at fair value through profit or loss		10,134		1,649,181		7,574,327		9,233,642
Derivative liabilities		14,130		2,909,629		604,485		3,528,244
	W	2,001,024		4,558,810		8,178,812		14,738,646

32

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• Changes in carrying values of financial instruments classified as Level 3 for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017
	Trading assets			Financial assets designated at FVTPL			Available-for- sale financial assets			Derivative assets and liabilities, net			Financial liabilities designated at FVTPL
Beginning balance	W	82,477			614,039			3,883,441			(492,136	)		(7,574,327	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		240			3,039			(13,214	)		420,399			(514,214	)
Recognized in other comprehensive income (loss) for the year		—			—			(20,041	)		—			—
		240			3,039			(33,255	)		420,399			(514,214	)
Purchase		90,000			145,825			530,017			15,961			—
Issue		—			—			—			2,980			(3,795,822	)
Settlement		(35,195	)		(175,360	)		(239,701	)		(140,420	)		3,950,073
Transfer in (*2)		—			—			2,988			—			—
Transfer out (*2)		—			—			—			(5	)		—
Ending balance	W	137,522			587,543			4,143,490			(193,221	)		(7,934,290	)

	2016
	Trading assets			Financial assets designated at FVTPL			Available-for- sale financial assets			Derivative assets and liabilities, net			Financial liabilities designated at FVTPL
Beginning balance	W	201,603			451,124			2,979,058			(703,841	)		(6,444,621	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		5,026			6,020			28,645			141,080			(508,916	)
Recognized in other comprehensive income (loss) for the year		—			—			(81,812	)		—			—
		5,026			6,020			(53,167	)		141,080			(508,916	)
Purchase		76,810			337,012			1,308,840			10,226			—
Issue		—			—			—			—			(5,402,714	)
Settlement		(200,962	)		(180,117	)		(359,694	)		40,710			4,781,924
Transfer in (*2)		—			—			20,382			19,689			—
Transfer out (*2)		—			—			(11,978	)		—			—
Ending balance	W	82,477			614,039			3,883,441			(492,136	)		(7,574,327	)

33

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(*1) Recognized profit or loss of the changes in carrying value of financial instruments classified as Level 3 for the six-month period ended June 30, 2017 and the year ended December 31, 2016, are included in the accounts of the statements of comprehensive income, of which the amounts and the related accounts are as follows:

	2017						2016
	Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of June 30			Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of December 31
Trading income	W	437,217			233,202			332,400			37,466
Loss on financial instruments designated at FVTPL		(511,175	)		(291,130	)		(502,896	)		(169,424	)
Gain on disposal of available-for-sale financial assets		9,337			703			25,546			354
Impairment losses on financial assets		(6,516	)		(6,232	)		(6,685	)		(5,964	)
Other operating expenses		(32,613	)		(36,428	)		(176,510	)		(176,359	)
	W	(103,750	)		(99,885	)		(328,145	)		(313,927	)

(*2) Changes in levels for the financial instruments occurred due to the change in the availability of observable market data. The Group reviews the levels of financial instruments as of the end of the reporting period considering the related events and circumstances in the reporting period.

34

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• Valuation techniques and inputs used in measuring the fair value of financial instruments classified as level 2 as of June 30, 2017 are as follows:

Type of financial instrument	Valuation technique	Carrying value		Significant inputs
Assets
Trading assets:
Debt securities	DCF(*1)	W	15,926,848	Discount rate
Equity securities	NAV(*2)		5,495,490	Discount rate, Price of underlying assets
			21,422,338
Financial assets designated at fair value through profit or loss:
Debt securities	DCF(*1)		1,445,294	Discount rate
Equity securities	NAV(*2)		948,059	Discount rate, Price of underlying assets
			2,393,353
Derivative assets:
Trading	Option model, DCF(*1)		1,388,147	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
Hedging			92,686
			1,480,833
Available-for-sale financial assets:
Debt securities	DCF(*1)		25,171,908	Discount rate, growth rate
Equity securities	NAV(*2)		502,294	Price of underlying assets
			25,674,202
		W	50,970,726
Liabilities
Financial liabilities designated at fair value through profit or loss:
Borrowings	DCF(*1)	W	1,167,397	Discount rate
Derivative liabilities:
Trading	Option model, DCF(*1)		1,347,619	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
Hedging			153,717
			1,501,336
		W	2,668,733

(*1) DCF : Discounted cash flow

(*2) NAV : Net asset value

35

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• Valuation techniques and significant inputs, but not observable, used in measuring the fair value of financial instruments classified as level 3 as of June 30, 2017 are as follows:

Type of financial instrument	Valuation technique	Carrying value (*2)		Significant unobservable inputs	Range
Financial assets
Financial assets designated at fair value through profit or loss:
Debt securities and other securities	DCF		587,543	The volatility of the underlying asset Correlations	0.75%~45.73% 0.00%~89.36%
Derivative assets:
Equity and foreign exchange related	Option model (*1)		119,851	The volatility of the underlying asset Correlations	1.48%~45.73% (0.10)%~82.15%
Interest rates related	Option model (*1)		23,306	The volatility of the underlying asset Regression coefficient Correlations	0.51%~8.65% 0.02%~2.05% 0.00%~90.81%
Credit and commodity related	Option model (*1)		5,657	The volatility of the underlying asset Correlations	17.25%~26.78% (49.26)%~52.24%
			148,814
Available-for-sale financial assets:
Debt securities	DCF		425,176	Discount rate	1.73%~24.78%
Equity securities	NAV		3,718,314	Discount rate, growth rate	0.00%~2.00%
			4,143,490
		W	4,879,847

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

(*2) Valuation techniques and inputs are not disclosed when the carrying amount is a reasonable approximation of fair value.

36

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

Type of financial instrument	Valuation technique	Carrying value (*2)		Significant unobservable inputs	Range
Financial liabilities
Financial liabilities designated at fair value through profit or loss:
Equity related	Option model (*1)	W	7,934,290	The volatility of the underlying asset Correlations	11.96%~14.49% 20.17%~49.87%
Derivative liabilities:
Equity and foreign exchange related	Option model (*1)		40,971	The volatility of the underlying asset Correlations	1.48%~62.96% (0.10)%~82.52%
Interest rates related	Option model (*1)		271,401	The volatility of the underlying asset Regression coefficient Correlations	00.51%~0.88% 0.02%~2.05% 34.19%~90.81%
Credit and commodity related	Option model (*1)		29,663	The volatility of the underlying asset Correlations	9.95%~36.35% (21.55)%~100%
			342,035
			W8,276,325

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

(*2) Valuation techniques and inputs are not disclosed when the carrying amount is a reasonable approximation of fair value.

37

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• Sensitivity analysis for fair value measurements in Level 3

Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value.

For level 3 fair value measurement, changing one or more of the unobservable inputs used to reasonably possible alternative assumptions would have the following effects on profit or loss, or other comprehensive income as of June 30, 2017 and December 31, 2016.

	2017
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1):
Financial assets designated at fair value through profit or loss	W	1,935		(2,160	)
Derivative assets		18,115		(18,445	)
		20,050		(20,605	)
Effects on other comprehensive income for the period:
Available-for-sale financial assets (*2)		57,926		(33,267	)
	W	77,976		(53,872	)
Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	79,848		(67,679	)
Derivative liabilities		52,747		(52,206	)
	W	132,595		(119,885	)
	2016
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1):
Financial assets designated at fair value through profit or loss	W	2,737		(3,260	)
Derivative assets		38,746		(17,927	)
		41,483		(21,187	)
Effects on other comprehensive income for the period:
Available-for-sale financial assets (*2)		59,782		(34,830	)
	W	101,265		(56,017	)
Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	80,057		(108,955	)
Derivative liabilities		80,589		(49,740	)
	W	160,646		(158,695	)

(*1) Fair value changes are calculated by increasing or decreasing the volatility of the underlying asset (-10~10%) or correlations (-10~10%).

(*2) Fair value changes are calculated by increasing or decreasing discount rate (-1~1%) or growth rate (0~1%).

38

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

ii) Financial instruments measured at amortized cost

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

Type	Measurement methods of fair value
Cash and due from banks	The carrying amount and the fair value for cash are identical and most of deposits are floating interest rate deposits or next day deposits of a short-term instrument. For this reason, the carrying value approximates fair value.
Loans	The fair value of the loans is measured by discounting the expected cash flow at the market interest rate and credit risk.
Held-to-maturity financial assets	The fair value of held-to-maturity financial assets is based on the published price quotations in an active market. In case there is no observable market price, it is measured by discounting the contractual cash flows at the market interest rate that takes into account the residual risk.
Deposits and borrowings	The carrying amount and the fair value for demand deposits, cash management account deposits, call money as short-term instrument are identical. The fair value of others is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.
Debt securities issued	Where available, the fair value of deposits and borrowings is based on the published price quotations in an active market. In case there is no data for an active market price, it is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.

• The carrying value and the fair value of financial instruments measured at amortized cost as of June 30, 2017 and December 31, 2016 are as follows:

	2017				2016
	Carrying value		Fair value		Carrying value		Fair value
Assets:
Loans	W	262,448,970		264,113,631		259,010,575		260,900,185
Held-to-maturity financial assets		21,928,681		22,711,563		19,805,084		20,732,400
Other financial assets		18,527,988		18,551,738		13,975,889		13,994,180
	W	302,905,639		305,376,932		292,791,548		295,626,765
Liabilities:
Deposits	W	238,010,007		237,983,253		235,137,958		235,175,778
Borrowings		28,755,963		28,781,690		25,294,241		25,340,042
Debt securities issued		47,714,024		47,934,353		44,326,785		44,651,811
Other financial liabilities		24,408,071		24,385,514		16,848,941		16,813,145
	W	338,888,065		339,084,810		321,607,925		321,980,776

39

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

• The fair value hierarchy of financial assets and liabilities which are not measured at their fair values in the statements of financial position but with their fair value disclosed as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Level 1		Level 2		Level 3		Total
Assets:
Loans	W	10,974		2,491,740		261,610,917		264,113,631
Held-to-maturity financial assets		7,748,207		14,963,356		—		22,711,563
Other financial assets		338,693		13,020,166		5,192,879		18,551,738
	W	8,097,874		30,475,262		266,803,796		305,376,932
Liabilities:
Deposits	W	2,756,823		101,797,506		133,428,924		237,983,253
Borrowings		6,271,978		844,391		21,665,321		28,781,690
Debt securities issued in won		—		31,244,509		16,689,844		47,934,353
Other financial liabilities		346,174		10,117,642		13,921,698		24,385,514
	W	9,374,975		144,004,048		185,705,787		339,084,810

	2016
	Level 1		Level 2		Level 3		Total
Assets:
Loans	W	11,236		2,019,178		258,869,771		260,900,185
Held-to-maturity financial assets		7,658,696		13,073,704		—		20,732,400
Other financial assets		32,952		9,882,610		4,078,618		13,994,180
	W	7,702,884		24,975,492		262,948,389		295,626,765
Liabilities:
Deposits	W	2,584,682		95,123,504		137,467,592		235,175,778
Borrowings		6,116,774		812,184		18,411,084		25,340,042
Debt securities issued in won		—		28,927,528		15,724,283		44,651,811
Other financial liabilities		37,061		4,741,882		12,034,202		16,813,145
	W	8,738,517		129,605,098		183,637,161		321,980,776

40

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(g) Classification by categories of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The financial instruments measured at fair value or amortized costs are measured in accordance with the Group’s valuation methodologies, which are described in Note 4.(f) Measurement of fair value.

The carrying amounts of each category of financial assets and financial liabilities as June 30, 2017 and December 31, 2016 are as follows:

	2017
	Trading assets		FVTPL assets		AFS		HTM		Loans and receivable		Derivatives held for hedging		Total
Assets:
Cash and due from banks	W	—		—		—		—		20,424,044		—		20,424,044
Trading assets		31,389,614		—		—		—		—		—		31,389,614
Financial assets designated at FVTPL		—		3,594,760		—		—		—		—		3,594,760
Derivatives		1,573,472		—		—		—		—		97,005		1,670,477
Loans		—		—		—		—		262,448,970		—		262,448,970
AFS financial assets		—		—		40,287,582		—		—		—		40,287,582
HTM financial assets		—		—		—		21,928,681		—		—		21,928,681
Other		—		—		—		—		18,527,988		—		18,527,988
	W	32,963,086		3,594,760		40,287,582		21,928,681		301,401,002		97,005		400,272,116

	2017
	Trading liabilities		FVTPL liabilities		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	—		—		238,010,007		—		238,010,007
Trading liabilities		2,353,756		—		—		—		2,353,756
Financial liabilities designated at FVTPL		—		9,145,279		—		—		9,145,279
Derivatives		1,464,772		—		—		422,830		1,887,602
Borrowings		—		—		28,755,963		—		28,755,963
Debt securities issued		—		—		47,714,024		—		47,714,024
Other		—		—		24,408,071		—		24,408,071
	W	3,818,528		9,145,279		338,888,065		422,830		352,274,702

41

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

	2016
	Trading assets		FVTPL assets		AFS		HTM		Loans and receivable		Derivatives held for hedging		Total
Assets:
Cash and due from banks	W	—		—		—		—		19,181,165		—		19,181,165
Trading assets		26,695,953		—		—		—		—		—		26,695,953
Financial assets designated at FVTPL		—		3,416,102		—		—		—		—		3,416,102
Derivatives		2,826,642		—		—		—		—		176,217		3,002,859
Loans		—		—		—		—		259,010,575		—		259,010,575
AFS financial assets		—		—		37,662,691		—		—		—		37,662,691
HTM financial assets		—		—		—		19,805,084		—		—		19,805,084
Other		—		—		—		—		13,975,889		—		13,975,889
	W	29,522,595		3,416,102		37,662,691		19,805,084		292,167,629		176,217		382,750,318

	2016
	Trading liabilities		FVTPL liabilities		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	—		—		235,137,958		—		235,137,958
Trading liabilities		1,976,760		—		—		—		1,976,760
Financial liabilities designated at FVTPL		—		9,233,642		—		—		9,233,642
Derivatives		3,074,814		—		—		453,430		3,528,244
Borrowings		—		—		25,294,241		—		25,294,241
Debt securities issued		—		—		44,326,785		—		44,326,785
Other		—		—		16,848,941		—		16,848,941
	W	5,051,574		9,233,642		321,607,925		453,430		336,346,571

42

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

5. Change in subsidiaries

(a) Change in consolidated subsidiaries for the year ended December 31, 2016 are as follows:

	Company	Description
Included	Shinhan Microfinance Co., Ltd.	Newly established subsidiary
”	PT Shinhan Sekuritas Indonesia	Acquisition
Excluded	PT Centratama Nasional Bank	Business combination under common control
”	HKC&T Co., Ltd.	Liquidation

There were no changes in 2017. Subsidiaries such as trust, beneficiary certificate, corporate restructuring fund and private equity fund which are not actually operating their own business are excluded.

6. Operating segments

(a) Segment information

The general descriptions by operating segments as of June 30, 2017 are as follows:

Segment	Description
Banking	The banking segment offers commercial banking services such as lending to and receiving deposits from corporations and individuals and also includes securities investing and trading and derivatives trading primarily through domestic and overseas bank branches and subsidiaries.
Credit card	The credit card segment primarily consists of the credit card business of Shinhan Card, including its installment finance and automobile leasing businesses.
Securities	Securities segment comprise securities trading, underwriting and brokerage services.
Life insurance	Life insurance segment consists of life insurance services provided by Shinhan Life Insurance.
Others	Leasing, assets management and other businesses

43

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

6. Operating segments (continued)

(b) The following tables provide information of income and expense for each operating segment for the six-month periods ended June 30, 2017 and 2016.

	2017
	Banking			Credit card			Securities			Life insurance			Others			Consolidation adjustment			Total
Net interest income	W	2,437,596			739,379			224,126			353,819			25,904			3,082			3,783,906
Net fees and commission income		388,851			187,551			137,978			23,098			87,252			(53	)		824,677
Impairment losses on financial assets		(134,539	)		(103,947	)		(2,637	)		(943	)		(10,856	)		4,139			(248,783	)
General and administrative expenses		(1,373,684	)		(364,791	)		(217,836	)		(108,515	)		(109,239	)		30,898			(2,143,167	)
Other income (expense), net		19,595			438,127			(31,420	)		(168,448	)		33,050			(53,741	)		237,163
Operating income		1,337,819			896,319			110,211			99,011			26,111			(15,675	)		2,453,796
Equity method income (loss)		2,816			—			5,858			(477	)		5,337			115			13,649
Income tax expense		304,606			211,087			28,628			21,513			17,713			2,529			586,076
Profit for the period	W	1,064,340			685,309			93,782			75,701			14,926			(24,902	)		1,909,156
Controlling interest	W	1,064,260			686,781			93,776			75,701			14,926			(46,314	)		1,889,130
Non-controlling interests		80			(1,472	)		6			—			—			21,412			20,026

	2016
	Banking			Credit card			Securities			Life insurance			Others			Consolidation adjustment			Total
Net interest income (loss)	W	2,211,426			729,093			194,207			352,344			(3,909	)		3,547			3,486,708
Net fees and commission income		343,343			221,281			128,104			10,554			83,937			913			788,132
Impairment losses on financial assets		(467,936	)		(152,799	)		(3,699	)		(4,620	)		(31,033	)		(632	)		(660,719	)
General and administrative expenses		(1,358,616	)		(402,480	)		(212,813	)		(111,689	)		(103,942	)		28,139			(2,161,401	)
Other income (expense), net		199,233			117,342			(45,593	)		(170,441	)		24,033			(31,685	)		92,889
Operating income		927,450			512,437			60,206			76,148			(30,914	)		282			1,545,609
Equity method income (loss)		2,670			—			(205	)		(604	)		2,360			(461	)		3,760
Income tax expense (benefit)		(26,059	)		115,889			12,972			(11,517	)		7,701			1,450			100,436
Profit (loss) for the period	W	994,795			400,442			50,552			87,584			(37,011	)		(8,242	)		1,488,120
Controlling interest	W	994,852			400,460			50,552			87,584			(37,011	)		(41,646	)		1,454,791
Non-controlling interests		(57	)		(18	)		—			—			—			33,404			33,329

44

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

6. Operating segments (continued)

(c) The following tables provide information of net interest income (expense) of each operating segment for the six-month periods ended June 30, 2017 and 2016.

	2017
	Banking			Credit card			Securities			Life insurance		Others			Consolidation adjustment		Total
Net interest income from:
External customers	W	2,440,426			748,211			221,821			353,634		19,814			—		3,783,906
Internal transactions		(2,830	)		(8,832	)		2,305			185		6,090			3,082		—
	W	2,437,596			739,379			224,126			353,819		25,904			3,082		3,783,906
	2016
	Banking			Credit card			Securities			Life insurance		Others			Consolidation adjustment		Total
Net interest income from:
External customers	W	2,214,746			741,964			196,938			352,141		(19,081	)		—		3,486,708
Internal transactions		(3,320	)		(12,871	)		(2,731	)		203		15,172			3,547		—
	W	2,211,426			729,093			194,207			352,344		(3,909	)		3,547		3,486,708

(d) The following tables provide information of net fees and commission income of each operating segment for the six-month periods ended June 30, 2017 and 2016.

	2017
	Banking			Credit card			Securities			Life insurance			Others		Consolidation adjustment			Total
Net fees and commission income from:
External customers	W	417,810			181,419			142,066			26,688			56,694		—			824,677
Internal transactions		(28,959	)		6,132			(4,088	)		(3,590	)		30,558		(53	)		—
	W	388,851			187,551			137,978			23,098			87,252		(53	)		824,677
	2016
	Banking			Credit card			Securities			Life insurance			Others		Consolidation adjustment			Total
Net fees and commission income from:
External customers	W	356,450			230,845			131,795			14,349			54,693		—			788,132
Internal transactions		(13,107	)		(9,564	)		(3,691	)		(3,795	)		29,244		913			—
	W	343,343			221,281			128,104			10,554			83,937		913			788,132

45

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

7. Restricted due from banks

(a) Restricted due from banks as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Deposits denominated in won:
Reserve deposits	W	6,382,344		2,857,672
Other (*)		3,120,635		4,868,867
		9,502,979		7,726,539
Deposits denominated in foreign currency		1,043,456		1,379,514
	W	10,546,435		9,106,053

(*) Pursuant to the Regulation on Financial Investment Business, the Group is required to deposit certain portions of customers’ deposits with the Korean Securities Finance Corporation (“KSFC”) or banks to ensure repayment of customer deposits and the deposits may not be pledged as collateral.

8. Trading assets

Trading assets as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Debt securities:
Governments	W	4,232,838		4,337,224
Financial institutions		7,436,061		7,461,375
Corporations		5,406,476		4,342,496
Commercial papers		4,312,834		4,350,252
CMA (*)		2,430,063		1,793,312
Others		409,320		105,905
		24,227,592		22,390,564
Equity securities:
Stocks		973,448		703,467
Equity investments		24,449		—
Beneficiary certificates		5,852,465		3,233,937
Others		121,141		120,140
		6,971,503		4,057,544
Other
Gold deposits		190,519		247,845
	W	31,389,614		26,695,953

(*) CMA : Cash management account deposits

46

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

9. Financial asset designated at fair value through profit or loss

Financial asset designated at fair value through profit or loss as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016		Reason for designation
Debt securities	W	2,118,420		1,908,342		Evaluation and management on a fair value basis, accounting mismatch
Equity securities (*)		1,265,288		1,187,916		Evaluation and management on a fair value basis, accounting mismatch
Others		211,052		319,844		Combined instrument
	W	3,594,760		3,416,102

(*) Restricted reserve for claims of customers’ deposits (trusts) as of June 30, 2017 and December 31, 2016 are W958,077 million and W862,837 million, respectively.

47

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives

(a) The notional amounts of derivatives as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Foreign currency related:
Over the counter:
Currency forwards	W	94,094,220		92,309,997
Currency swaps		29,013,199		27,460,485
Currency options		942,446		1,210,658
		124,049,865		120,981,140
Exchange traded:
Currency futures		904,095		739,186
		124,953,960		121,720,326
Interest rates related:
Over the counter:
Interest rate swaps		32,486,452		53,104,809
Interest rate options		700,000		1,014,000
		33,186,452		54,118,809
Exchange traded:
Interest rate futures		1,617,872		2,099,017
Interest rate swaps (*)		47,207,688		27,658,703
		48,825,560		29,757,720
		82,012,012		83,876,529
Credit related:
Over the counter:
Credit swaps		1,588,051		1,244,502
Equity related:
Over the counter:
Equity swaps and forwards		4,708,758		12,187,176
Equity options		1,389,490		1,228,114
		6,098,248		13,415,290
Exchange traded:
Equity futures		594,639		492,562
Equity options		4,907,268		2,213,162
		5,501,907		2,705,724
		11,600,155		16,121,014
Commodity related:
Over the counter:
Commodity swaps and forwards		1,207,683		892,003
Commodity options		84		11,876
		1,207,767		903,879
Exchange traded:
Commodity futures		425,960		114,927
		1,633,727		1,018,806

48

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives (continued)

(a) The notional amounts of derivatives as of June 30, 2017 and December 31, 2016 are as follows (continued):

	2017		2016
Hedge:
Currency forwards	W	2,175,978		2,036,187
Currency swaps		3,528,205		2,765,653
Interest rate swaps		8,396,258		7,631,505
		14,100,441		12,433,345
	W	235,888,346		236,414,522

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

49

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives (continued)

(b) Fair values of derivative instruments as of June 30, 2017 and December 31, 2016 are as follows:

	2017				2016
	Assets		Liabilities		Assets		Liabilities
Foreign currency related:
Over the counter:
Currency forwards	W	766,220		679,788		1,722,096		1,623,325
Currency swaps		377,414		387,978		698,220		766,252
Currency options		3,082		6,707		12,347		9,422
		1,146,716		1,074,473		2,432,663		2,398,999
Exchange traded:
Currency futures		1,201		1,706		—		4
		1,147,917		1,076,179		2,432,663		2,399,003
Interest rates related:
Over the counter:
Interest rate swaps		229,022		243,358		290,074		340,409
Interest rate options		1,129		2,710		7,807		8,367
		230,151		246,068		297,881		348,776
Exchange traded:
Interest rate futures		1,000		427		1,439		212
		231,151		246,495		299,320		348,988
Credit related:
Over the counter:
Credit swaps		14,580		4,867		13,365		6,095
Equity related:
Over the counter:
Equity swaps and forwards		66,458		57,665		25,378		250,879
Equity options		73,101		8,103		38,156		6,212
		139,559		65,768		63,534		257,091
Exchange traded:
Equity futures		1,619		49		683		57
Equity options		32,298		40,730		13,084		12,215
		33,917		40,779		13,767		12,272
		173,476		106,547		77,301		269,363
Commodity related:
Over the counter:
Commodity swaps and forwards		1,636		29,366		1,778		49,702
Commodity options		—		—		105		22
		1,636		29,366		1,883		49,724
Exchange traded:
Commodity futures		4,712		1,318		2,110		1,641
		6,348		30,684		3,993		51,365

50

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives (continued)

(b) Fair values of derivative instruments as of June 30, 2017 and December 31, 2016 are as follows (continued):

	2017				2016
	Assets		Liabilities		Assets		Liabilities
Hedge:
Currency forwards	W	15,921		19,327		5,646		81,829
Currency swaps		67,227		77,601		155,386		36,077
Interest rate swaps		13,857		325,902		15,185		335,524
		97,005		422,830		176,217		453,430
	W	1,670,477		1,887,602		3,002,859		3,528,244

51

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives (continued)

(c) Gain or loss on valuation of derivatives for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Foreign currency related:
Over the counter:
Currency forwards	W	(60,396	)		49,462			4,370			24,386
Currency swaps		10,033			(1,120	)		(7,335	)		24,806
Currency options		11,794			(225	)		1,371			(1,740	)
		(38,569	)		48,117			(1,594	)		47,452
Exchange traded:
Currency futures		(325	)		(505	)		54			(38	)
		(38,894	)		47,612			(1,540	)		47,414
Interest rates related:
Over the counter:
Interest rate swaps		(64,061	)		871			(19,052	)		(22,294	)
Interest rate options		(241	)		851			(749	)		(1,667	)
		(64,302	)		1,722			(19,801	)		(23,961	)
Exchange traded:
Interest rate futures		1,963			2,758			(3,622	)		(3,850	)
		(62,339	)		4,480			(23,423	)		(27,811	)
Credit related:
Over the counter:
Credit swaps		(8,192	)		(808	)		9,570			10,345
Equity related:
Over the counter:
Equity swap and forwards		7,968			208,046			(139,235	)		(306,623	)
Equity options		14,226			24,962			5,397			4,290
		22,194			233,008			(133,838	)		(302,333	)
Exchange traded:
Equity futures		1,437			1,554			(2,327	)		1,159
Equity options		4,883			2,984			52			(2,983	)
		6,320			4,538			(2,275	)		(1,824	)
		28,514			237,546			(136,113	)		(304,157	)
Commodity related:
Over the counter:
Commodity swaps and forwards		(13,396	)		(3,015	)		2,668			17,441
Commodity options		—			(11	)		6			(76	)
		(13,396	)		(3,026	)		2,674			17,365
Exchange traded:
Commodity futures		(53	)		3,392			2,083			(42	)
Commodity options		2			—			—			—
		(51	)		3,392			2,083			(42	)
		(13,447	)		366			4,757			17,323

52

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

10. Derivatives (continued)

(c) Gain or loss on valuation of derivatives for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows (continued):

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Hedge:
Currency forwards	W	(69,211	)		52,948			(11,351	)		6,141
Currency swaps		12,025			(132,634	)		9,652			(39,391	)
Interest rate swaps		(3,428	)		(9,503	)		4,960			63,808
		(60,614	)		(89,189	)		3,261			30,558
	W	(154,972	)		200,007			(143,488	)		(226,328	)

53

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

11. Loans

(a) Loans as of June 30, 2017 and December 31, 2016 are as follows:

	2017			2016
Household loans	W	105,093,833			104,184,270
Corporate loans		131,592,329			130,485,094
Public and other		2,106,138			2,153,888
Loans to banks		5,874,441			4,729,836
Card receivables		19,661,448			19,450,421
		264,328,189			261,003,509
Discount		(40,442	)		(27,533	)
Deferred loan origination costs and fees		374,206			395,394
		264,661,953			261,371,370
Allowance for credit losses		(2,212,983	)		(2,360,795	)
	W	262,448,970			259,010,575

(b) Changes in the allowance for credit losses for the six-month period ended June 30, 2017 and the year ended December 31, 2016 were as follows:

	2017									2016
	Loans			Other (*2)			Total			Loans			Other (*2)			Total
Beginning balance	W	2,360,795			66,896			2,427,691			2,318,416			79,839			2,398,255
Provision for allowance		225,418			4,381			229,799			1,102,781			4,851			1,107,632
Write-offs		(424,551	)		(8,440	)		(432,991	)		(1,290,831	)		(16,204	)		(1,307,035	)
Effect of discounting (*1)		(8,062	)		—			(8,062	)		(24,150	)		—			(24,150	)
Disposal		(45,128	)		—			(45,128	)		(78,268	)		—			(78,268	)
Recoveries		151,747			552			152,299			336,665			2,227			338,892
Others (*3)		(47,236	)		(5	)		(47,241	)		(3,818	)		(3,817	)		(7,635	)
Ending balance	W	2,212,983			63,384			2,276,367			2,360,795			66,896			2,427,691

(*1) Interest income from impaired financial assets

(*2) Included allowance for due from banks and other assets

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

54

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

12. Available-for-sale financial assets and held-to-maturity financial assets

(a) Available-for-sale financial assets and held-to-maturity financial assets as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Available-for-sale financial assets:
Debt securities:
Government bonds	W	7,179,350		5,308,247
Financial institution bonds		16,851,511		17,224,603
Corporate bonds and others		11,285,492		10,289,221
		35,316,353		32,822,071
Equity securities (*1):
Stocks		1,376,625		1,663,951
Equity investments		698,500		625,632
Beneficiary certificates		2,853,982		2,470,555
Others		42,122		80,482
		4,971,229		4,840,620
		40,287,582		37,662,691
Held-to-maturity financial assets:
Debt securities:
Government bonds		12,710,710		11,514,671
Financial institutions bonds		2,370,093		2,092,476
Corporate bonds		6,847,878		6,197,937
		21,928,681		19,805,084
	W	62,216,263		57,467,775

(*1) Equity securities with no quoted market prices in active markets and for which the fair value cannot be measured reliably are recorded at cost were W118,543 million and W131,143 million as of June 30, 2017 and December 31, 2016, respectively.

(b) Gain or loss on sale of available-for-sale financial assets for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Gain on sale of available-for-sale financial assets	W	201,074			267,834			309,882			386,432
Loss on sale of available-for-sale financial assets		(3,866	)		(16,903	)		(7,286	)		(31,860	)
	W	197,208			250,931			302,596			354,572

55

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates

(a) Investments in associates as of June 30, 2017 and December 31, 2016 are as follows:

Investees	Country	Reporting date	Ownership (%)
			2017		2016
BNP Paribas Cardif Life Insurance (*1)(*3)	Korea	March 31		14.99		14.99
Aju Capital Co., Ltd. (*9)	”	—		—		12.85
Pohang TechnoPark 2PFV (*2)	”	June 30		14.90		14.90
Daewontos Co., Ltd. (*1)(*4)	”	March 31		36.33		36.33
Inhee Co., Ltd. (*1)(*4)	”	”		15.36		15.36
DAEGY Electrical Construction Co., LTD. (*1)(*4)	”	”		27.45		27.45
YEONWOONG SYSTEM (*1)(*4)	”	”		21.77		21.77
DOODOO LOGITECH (*1)(*4)	”	”		27.96		27.96
Neoplux Technology Valuation Investment Fund (*1)	”	”		33.33		33.33
EQP Global Energy Infrastructure Private Equity Fund (*9)	”	—		—		22.64
JAEYOUNG SOLUTEC CO., LTD. (*1)(*4)(*5)	”	March 31		9.61		10.45
Partners 4th Growth Investment Fund (*1)	”	”		25.00		25.00
PSA 1st Fintech Private Equity Fund (*1)	”	”		25.00		25.00
KTB Newlake Global Healthcare PEF (*1)	”	”		30.00		30.00
JAEYANG INDUSTRY (*1)(*4)	”	”		25.90		25.90
Tigris-Aurum Fund I (*1)	”	”		27.27		27.27
Treenkid (*10)	”	—		—		23.72
Chungyoung INC (*1)(*4)	”	March 31		18.94		18.94
Semantic (*10)	”	—		—		19.25
DAEKWANG SEMICONDUCTOR CO., LTD. (*1)(*4)	”	March 31		20.94		20.94
Branbuil CO., LTD. (*4)(*11)	”	December 31		15.53		15.53
Songrim Co., Ltd. (*1)(*4)	”	March 31		35.34		—
Shinhan-Albatross Technology Investment Fund	”	June 30		50.00		—
Loggia (*6)(*11)	”	December 31		16.29		—
SHC-IMM New Growth Fund (*7)	”	June 30		64.52		64.52
QCP New Technology Fund 20th	”	”		47.17		47.17
STI-New Growth Engines Investment Partnership	”	”		50.00		50.00
Shinhan K2 Secondary Fund (*9)	”	—		—		10.75
TS2013-6 M&A Investment Fund	”	June 30		25.00		25.00
Dream High Fund III (*7)	”	”		54.55		54.55
SP New Technology Business investment Fund I	”	”		23.26		23.26
Albatross Growth Fund	”	”		36.36		36.36
Asia Pacific No.39 Ship Investment Co., Ltd.	”	”		50.00		50.00
Midas Dong-A Snowball Venture Fund (*7)	”	”		53.33		53.33
IBKS-Shinhan Creative Economy New Technology Fund (*6)	”	”		5.00		5.00
SM New Technology Business Investment Fund I	”	”		36.36		36.36
SHC-Aju 4th	”	”		21.98		21.98
KCLAVIS Meister Fund No.4	”	”		20.00		20.00
KCLAVIS Meister Fund No.5	”	”		23.26		23.26
KCLAVIS Meister Fund No.2	”	”		38.83		38.83
Midas Dong-A Snowball Venture Fund 2	”	”		25.00		25.00
EN-Tigris Fund 1	”	”		47.62		47.62
IBKS-Shinhan Creative Economy New Technology Fund II (*6)	”	”		4.55		4.55

56

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2017		2016
KCLAVIS Meister Fund No.10	Korea	June 30		21.28		21.28
KCLAVIS Meister Fund No.9	”	”		34.48		34.48
KCLAVIS Meister Fund No.14	”	”		33.33		33.33
KCLAVIS Meister Fund No.17	”	”		26.09		26.09
Richmond Private Yong in Retail Facility Real Estate Fund No.1	”	”		42.00		—
House Eco Private Placement Special Asset Fund No.1	”	”		26.67		—
KTB Confidence Private Placement	”	”		25.08		—
JBUS Fintech Income Professional Private Trust No.2	”	”		20.00		—
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund	”	”		23.89		—
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund	”	”		20.16		—
Korea Alternative Source Professional Private Investment Trust No.6	”	”		20.00		—
Hyundai Season Mezzanine Professional Private Investment Trust No.4	”	”		29.60		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 9	”	”		49.84		—
Brain Professional Private Trust No.6	”	”		21.05		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 15 (*7)	”	”		97.94		—
Korea Investment Mezzanine Professional Private Investment Trust No.1	”	”		50.00		—
Brain Professional Private Trust No.12	”	”		48.19		—
Hyundai Invest BMC Professional Private Trust No.18	”	”		20.00		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 8	”	”		22.85		—
Hana UBS Professional Private Trust	”	”		43.63		—
SG No.9 Corporate Recovery Private Equity Fund	”	”		26.49		26.49
Plutus-SG Private Equity Fund	”	”		26.67		26.67
SG ARGES Private Equity Fund No.1	”	”		24.06		24.06
OST Progress- 2 Fund	”	”		27.62		27.62
Eum Private Equity Fund No.3	”	”		20.76		20.76
Smart 2nd Private Equity Fund	”	”		20.00		—
APC Fund	Cayman Islands	”		25.18		25.18
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd	Korea	”		50.00		50.00
Shinhan Praxis K-Growth Global Private Equity Fund (*6)	”	”		18.87		18.87
Credian Healthcare Private Equity Fund II	”	”		34.07		34.07
Kiwoom Milestone Professional Private Real Estate Trust 19	”	”		50.00		50.00
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3	”	”		21.28		21.28
Brain Professional Private Trust No.4	”	”		27.50		27.49
Hanhwa US Equity Strategy Private Real Estate Fund No.1	”	”		44.84		44.84
Brain KS Qualified Privately Placed Fund No.6	”	”		30.00		50.00
M360 CRE Income Fund(*7)	USA	May 31		81.64		42.83

57

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

Investees	Country	Reporting date	Ownership (%)
			2017		2016
Shinhan Ninetree Fund 1	Korea	June 30		21.81		—
JB POWER Fund 6 (*7)	”	”		55.45		—
Shinhan Global Healthcare Fund 1 (*6)	”	”		10.83		—
Brain Asset Management PN Private Investment Trust Fund 13	”	”		41.10		—
Orion Mezzanine Private Investment Trust 4	”	”		41.67		—
JB Power TL Investment Type Private Placement Special Asset Fund 7	”	”		33.33		—
Bros Investment O Hedge Fund 1 (*7)	”	”		94.34		—
BNP Paribas Cardif General Insurance (*1)(*2)	”	March 31		10.00		10.00
SHBNPP Private Korea Equity Long-Short Professional Feeder	”	June 30		26.15		15.88
SHBNPP Private Multi Strategy Professional Feeder No.1 (*9)	”	—		—		29.55
Shinhan-Stonebridge Petro PEF (*6)	”	June 30		1.82		1.82
Lodestone 1st Private Equity Fund (*8)	”	—		26.06		—
Axis Global Growth New Technology Investment Association	”	June 30		31.85		—
Quantum-Nvestor Fund No.1	”	”		25.00		—

(*1) Financial statements as of March 31, 2017 were used for the equity method since the financial statements as of June 30, 2017 were not available. Significant trades and events occurred within the period were properly reflected.

(*2) The Group applies the equity method accounting as the Group has significant influence on the financial and operating policies of the investee through the ability to elect investees’ board members and representation in decision making bodies of the investee.

(*3) The Group has a significant influence on the investees through important business transactions.

(*4) The shares of the investees were acquired by debt-equity swap. The Group reclassified available-for-sale financial assets to investments in associates as the reorganization procedures were completed and now the Group can normally exercise its voting rights to the investees.

(*5) Although the ownership interests in JAEYOUNG SOLUTEC CO., LTD. were less than 15%, the Group used the equity method as the investee should consult with the Group when the investee decides major management decision such as dividend, business planning or business transfer.

(*6) As a managing partner, the Group has a significant influence over the investees.

(*7) As a limited partner, the Group does not have an ability to participate in policy-making processes to obtain economic benefit from the investees that would allow the Group to control the entity.

(*8) The acquisition amount were used for the equity method since the financial statements as of June 30, 2017 were not available.

(*9) The associates were disposed or reclassified.

(*10) The associate was excluded from the equity method accounting due to bankruptcy proceedings.

(*11) The latest financial statements were used for the equity method since the financial statements as of March 31, 2017 were not available. Significant trades and events occurred within the period were properly reflected.

58

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

(b) Changes in investments in associates for the six-month period ended June 30, 2017 and December 31, 2016 were as follows:

	2017
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss		Transfer out			Ending balance
BNP Paribas Cardif Life Insurance	W	60,213		(254	)		2,366			(8,334	)		—		—			53,991
Aju Capital Co., Ltd.		40,836		(1,849	)		437			158			—		(39,582	)		—
Pohang TechnoPark 2PFV		1,975		—			—			—			—		—			1,975
Daewontos Co., Ltd. (*2)		—		—			—			—			—		—			—
Inhee Co., Ltd.		215		—			60			—			—		—			275
DAEGY Electrical Construction Co., LTD.		128		—			(9	)		—			—		—			119
YEONWOONG SYSTEM		77		—			—			—			—		—			77
DOODOO LOGITECH		247		—			(66	)		—			—		—			181
Neoplux Technology Valuation Investment Fund		7,526		1,890			1,747			—			—		—			11,163
EQP Global Energy Infrastructure Private Equity Fund		—		—			—			—			—		—			—
JAEYOUNG SOLUTEC CO., LTD. (*1)		5,736		—			(188	)		269			—		—			5,817
Partners 4th Growth Investment Fund		4,555		4,240			(209	)		—			—		—			8,586
PSA 1st Fintech Private Equity Fund		2,456		—			(25	)		—			—		—			2,431
KTB Newlake Global Healthcare PEF		1,168		—			(129	)		—			—		—			1,039
JAEYANG INDUSTRY (*2)		—		—			—			—			—		—			—
Tigris-Aurum Fund I		1,481		—			(22	)		—			—		—			1,459
Treenkid		79		—			—			(79	)		—		—			—
Chungyoung INC (*2)		—		—			—			—			—		—			—
Semantic		249		—			(462	)		213			—		—			—
DAEKWANG SEMICONDUCTOR CO., LTD.		4,776		—			(679	)		—			—		—			4,097
Branbuil CO., LTD. (*2)		—		—			—			—			—		—			—
Songrim Co., Ltd.		—		11			57			—			—		—			68
Shinhan-Albatross Technology Investment Fund		—		3,000			(153	)		—			—		—			2,847
Loggia		—		37			—			—			—		—			37
SHC-IMM New Growth Fund		2,295		(115	)		64			—			—		—			2,244
QCP New Technology Fund 20th		2		—			—			—			—		—			2
STI-New Growth Engines Investment Partnership		1,973		—			(43	)		—			—		—			1,930
Shinhan K2 Secondary Fund		938		(727	)		(211	)		—			—		—			—
TS2013-6 M&A Investment Fund		1,874		(3,560	)		1,686			—			—		—			—
Dream High Fund III		3,144		—			(100	)		(711	)		—		—			2,333

59

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss		Transfer out		Ending balance
SP New Technology Business investment Fund I	W	1,954		—			(11	)		—			—		—		1,943
Albatross Growth Fund		1,572		(1,381	)		574			(765	)		—		—		—
Asia Pacific No.39 Ship Investment Co., Ltd.		5,176		(405	)		149			8			—		—		4,928
Midas Dong-A Snowball Venture Fund		1,258		(83	)		(7	)		—			—		—		1,168
IBKS-Shinhan Creative Economy New Technology Fund		259		—			—			—			—		—		259
SM New Technology Business Investment Fund I		1,846		—			3			—			—		—		1,849
SHC-Aju 4th		2,085		(320	)		103			22			—		—		1,890
KCLAVIS Meister Fund No.4		511		—			6			—			—		—		517
KCLAVIS Meister Fund No.5		494		—			(4	)		—			—		—		490
KCLAVIS Meister Fund No.2		1,984		—			(10	)		—			—		—		1,974
Midas Dong-A Snowball Venture Fund 2		1,787		—			(26	)		—			—		—		1,761
EN-Tigris Fund 1		1,971		—			502			—			—		—		2,473
IBKS-Shinhan Creative Economy New Technology Fund II		90		—			(1	)		—			—		—		89
KCLAVIS Meister Fund No.10		995		(584	)		66			—			—		—		477
KCLAVIS Meister Fund No.9		468		—			11			—			—		—		479
KCLAVIS Meister Fund No.14		499		(522	)		23			—			—		—		—
KCLAVIS Meister Fund No.17		2,989		—			(29	)		—			—		—		2,960
Richmond Private Yong in Retail Facility Real Estate Fund No.1		—		7,514			445			—			—		—		7,959
House Eco Private Placement Special Asset Fund No.1		—		1,086			155			—			—		—		1,241
KTB Confidence Private Placement		—		5,093			207			—			—		—		5,300
JBUS Fintech Income Professional Private Trust No.2		—		1,934			71			—			—		—		2,005
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		—		7,278			153			—			—		—		7,431
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		—		8,189			202			—			—		—		8,391
Korea Alternative Source Professional Private Investment Trust No.6		—		550			50			—			—		—		600
Hyundai Season Mezzanine Professional Private Investment Trust No.4		—		2,000			(1	)		—			—		—		1,999

60

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss		Transfer out		Ending balance
Pine Asia Unsecured Individual Rehabilitation Bond Fund 9	W	—		1,920			194			—			—		—		2,114
Brain Professional Private Trust No.6		—		2,000			61			—			—		—		2,061
Pine Asia Unsecured Individual Rehabilitation Bond Fund 15		—		2,318			71			—			—		—		2,389
Korea Investment Mezzanine Professional Private Investment Trust No.1		—		4,802			73			—			—		—		4,875
Brain Professional Private Trust No.12		—		2,000			—			—			—		—		2,000
Hyundai Invest BMC Professional Private Trust No.18		—		2,930			18			—			—		—		2,948
Pine Asia Unsecured Individual Rehabilitation Bond Fund 8		—		5,973			25			—			—		—		5,998
Hana UBS Professional Private Trust		—		5,000			182			—			—		—		5,182
SG No.9 Corporate Recovery Private Equity Fund		3,982		(44	)		39			—			—		—		3,977
Plutus-SG Private Equity Fund		4,299		(66	)		28			—			—		—		4,261
SG ARGES Private Equity Fund No.1		8,976		(144	)		94			—			—		—		8,926
OST Progress- 2 Fund		1,460		1,500			(32	)		—			—		—		2,928
Eum Private Equity Fund No.3		5,933		(254	)		297			—			—		—		5,976
Smart 2nd Private Equity Fund		—		3,000			(47	)		—			—		—		2,953
APC Fund		11,579		160			(199	)		(742	)		28		—		10,826
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		464		(1	)		1			—			—		—		464
Shinhan Praxis K-Growth Global Private Equity Fund		13,533		3,774			(315	)		331			—		—		17,323
Credian Healthcare Private Equity Fund II		4,087		—			4			(70	)		—		—		4,021
Kiwoom Milestone Professional Private Real Estate Trust 19		10,761		(55	)		(216	)		—			—		—		10,490
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		21,237		(575	)		1,157			(272	)		—		—		21,547
Brain Professional Private Trust No.4		5,316		—			131			2			—		—		5,449
Hanhwa US Equity Strategy Private Real Estate Fund No.1		25,764		(857	)		1,090			(496	)		—		—		25,501

61

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss		Transfer out			Ending balance
Brain KS Qualified Privately Placed Fund No.6	W	4,896		(2,000	)		(11	)		25			—		—			2,910
M360 CRE Income Fund		23,167		130,208			2,677			(1,635	)		—		—			154,417
Shinhan Ninetree Fund 1		—		10,141			34			—			—		—			10,175
JB POWER Fund 6		—		62,237			381			—			—		—			62,618
Shinhan Global Healthcare Fund 1		—		2,940			—			—			—		—			2,940
Brain Asset Management PN Private Investment Trust Fund 13		—		1,500			54			—			—		—			1,554
Orion Mezzanine Private Investment Trust 4		—		1,500			6			—			—		—			1,506
JB Power TL Investment Type Private Placement Special Asset Fund 7		—		18,762			21			—			—		—			18,783
Bros Investment O Hedge Fund 1		—		5,000			(6	)		—			—		—			4,994
BNP Paribas Cardif General Insurance		2,584		2,770			(477	)		9			—		—			4,886
SHBNPP Private Korea Equity Long-Short Professional Feeder		14,180		—			1,082			—			—		—			15,262
SHBNPP Private Multi Strategy Professional Feeder No.1		5,014		(5,049	)		35			—			—		—			—
Shinhan-Stonebridge Petro PEF		18,487		—			523			—			—		—			19,010
Lodestone 1st Private Equity Fund		—		3,000			—			—			—		—			3,000
Axis Global Growth New Technology Investment Association		—		5,000			(75	)		—			—		—			4,925
Quantum-Nvestor Fund No.1		—		1,500			(3	)		—			—		—			1,497
	W	353,600		303,912			13,649			(12,067	)		28		(39,582	)		619,540

(*1) The market value of the investment is W10,618 million as of June 30, 2017 based on the quoted market price.

(*2) The Group has stopped recognizing its equity method income or loss due to the investees’ cumulative loss.

62

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Beginning balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss		Ending balance
BNP Paribas Cardif Life Insurance	W	57,280		—			(2,495	)		5,428			—		60,213
Aju Capital Co., Ltd. (*1)		34,444		(2,588	)		9,038			(58	)		—		40,836
UAMCO., Ltd.		125,822		(128,827	)		2,882			123			—		—
Pohang TechnoPark 2PFV		1,976		—			(1	)		—			—		1,975
Daewontos Co., Ltd. (*3)		—		—			—			—			—		—
Inhee Co., Ltd.		254		—			(39	)		—			—		215
DAEGY Electrical Construction Co., LTD.		149		—			(21	)		—			—		128
Kukdong Engineering & Construction Co., LTD		—		3,478			—			(3,478	)		—		—
YEONWOONG SYSTEM		106		—			(29	)		—			—		77
DOODOO LOGITECH		384		—			(137	)		—			—		247
Neoplux Technology Valuation Investment Fund		1,993		4,768			765			—			—		7,526
EQP Global Energy Infrastructure Private Equity Fund (*3)		—		105			(105	)		—			—		—
JAEYOUNG SOLUTEC CO., LTD. (*2)		6,238		—			(504	)		2			—		5,736
Partners 4th Growth Investment Fund		1,800		3,080			(325	)		—			—		4,555
PSA 1st Fintech Private Equity Fund		2,000		500			(44	)		—			—		2,456
KTB Newlake Global Healthcare PEF		—		1,383			(215	)		—			—		1,168
JAEYANG INDUSTRY (*3)		—		—			—			—			—		—
Tigris-Aurum Fund I		—		1,500			(19	)		—			—		1,481
Treenkid		—		92			(13	)		—			—		79
Chungyoung INC		—		—			—			—			—		—
Semantic		—		249			—			—			—		249
DAEKWANG SEMICONDUCTOR CO., LTD.		—		4,776			—			—			—		4,776
Branbuil CO., LTD.		—		183			(183	)		—			—		—
SHC-IMM New Growth Fund		3,175		(1,189	)		309			—			—		2,295
QCP New Technology Fund 20th		2		—			—			—			—		2
STI-New Growth Engines Investment Partnership		2,763		(1,100	)		643			(333	)		—		1,973
Shinhan K2 Secondary Fund		2,576		(2,063	)		863			(438	)		—		938
TS2013-6 M&A Investment Fund		2,116		(213	)		(29	)		—			—		1,874
Dream High Fund III		1,556		—			171			1,417			—		3,144
OCEAN SUCCESS SHIPPING LIMITED		1,228		(1,592	)		443			(79	)		—		—
SHC-EN Fund		4,312		(4,942	)		630			—			—		—
SP New Technology Business investment Fund I		1,974		—			(20	)		—			—		1,954
Albatross Growth Fund		3,341		(727	)		347			(1,389	)		—		1,572
Asia Pacific No.39 Ship Investment Co., Ltd.		5,085		(837	)		342			586			—		5,176

63

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Beginning Balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss			Ending balance
Midas Dong-A Snowball Venture Fund	W	1,202		—			56			—			—			1,258
IBKS-Shinhan Creative Economy New Technology Fund		148		74			37			—			—			259
SH RENTAL SERVICE		61		(62	)		1			—			—			—
SM New Technology Business Investment Fund I		1,931		(50	)		(35	)		—			—			1,846
SHC-Aju 4th		2,000		(920	)		322			683			—			2,085
KCLAVIS Meister Fund No.4		—		500			11			—			—			511
KCLAVIS Meister Fund No.5		—		500			(6	)		—			—			494
KCLAVIS Meister Fund No.2		—		2,000			(16	)		—			—			1,984
Midas Dong-A Snowball Venture Fund 2		—		1,825			(38	)		—			—			1,787
EN-Tigris Fund 1		—		2,000			(29	)		—			—			1,971
IBKS-Shinhan Creative Economy New Technology Fund II		—		90			—			—			—			90
KCLAVIS Meister Fund No.11		—		(16	)		16			—			—			—
KCLAVIS Meister Fund No.10		—		1,000			(5	)		—			—			995
KCLAVIS Meister Fund No.9		—		500			(32	)		—			—			468
KCLAVIS Meister Fund No.14		—		500			(1	)		—			—			499
KCLAVIS Meister Fund No.17		—		3,000			(11	)		—			—			2,989
SG No.9 Corporate Recovery Private Equity Fund		—		3,886			96			—			—			3,982
Plutus-SG Private Equity Fund		—		4,338			(39	)		—			—			4,299
SG ARGES Private Equity Fund No.1		—		8,955			21			—			—			8,976
OST Progress- 2 Fund		—		1,500			(40	)		—			—			1,460
Eum Private Equity Fund No.3		—		5,982			(49	)		—			—			5,933
APC Fund		33,715		(4,419	)		(7,506	)		(2,872	)		(7,339	)		11,579
BNH-CJ Bio Healthcare Fund		9,095		(12,892	)		3,797			—			—			—
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		28,010		(28,631	)		1,085			—			—			464
Shinhan Praxis K-Growth Global Private Equity Fund		8,614		4,624			(205	)		500			—			13,533
Credian Healthcare Private Equity Fund II		—		4,148			(61	)		—			—			4,087
Kiwoom Milestone Professional Private Real Estate Trust 19		—		10,944			(183	)		—			—			10,761
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		—		19,144			461			1,632			—			21,237
Brain Professional Private Trust No.4		—		5,000			316			—			—			5,316
Hanhwa US Equity Strategy Private Real Estate Fund No.1		—		25,000			747			17			—			25,764
Brain KS Qualified Privately Placed Fund No.6		—		5,001			(13	)		(92	)		—			4,896
M360 CRE Income Fund		—		22,992			—			175			—			23,167

64

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Beginning Balance		Investment and dividend			Equity method income (loss)			Change in other comprehensive income			Impairment loss			Ending balance
BNP Paribas Cardif General Insurance	W	1,739		2,045			(1,189	)		(11	)		—			2,584
SHBNPP Private Korea Equity Long-Short Professional Feeder		28,076		(13,467	)		(429	)		—			—			14,180
SHBNPP Private Multi Strategy Professional Feeder No.1		—		5,000			14			—			—			5,014
Shinhan-Stonebridge Petro PEF		17,841		(2	)		648			—			—			18,487
	W	393,006		(43,875	)		9,995			1,813			(7,339	)		353,600

(*1) The market value of the investment is W51,543 million as of December 31, 2016 based on the quoted market price.

(*2) The market value of the investment is W10,466 million as of December 31, 2016 based on the quoted market price.

(*3) The Group has stopped recognizing its equity method income or loss due to the investees’ cumulative loss.

65

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

(c) Condensed statement of financial position information of associates as of June 30, 2017 and December 31, 2016 are as follows:

	2017				2016
Investees	Asset		Liability		Asset		Liability
BNP Paribas Cardif Life Insurance	W	4,198,043		3,836,790		4,182,208		3,779,257
Aju Capital Co., Ltd.		—		—		6,543,737		5,744,415
Pohang TechnoPark 2PFV		14,658		1,401		14,660		1,401
Daewontos Co., Ltd.		400		2,492		399		2,492
Inhee Co., Ltd.		10,234		8,443		10,713		9,310
DAEGY Electrical Construction Co., LTD.		570		134		659		191
YEONWOONG SYSTEM		498		147		497		146
DOODOO LOGITECH		742		95		891		6
Neoplux Technology Valuation Investment Fund		33,488		—		22,577		—
EQP Global Energy Infrastructure Private Equity Fund		—		—		1		1,376
JAEYOUNG SOLUTEC CO., LTD.		152,723		113,657		155,368		120,184
Partners 4th Growth Investment Fund		34,723		379		18,478		257
PSA 1st Fintech Private Equity Fund		9,770		46		9,825		—
KTB Newlake Global Healthcare PEF		3,158		260		3,805		478
JAEYANG INDUSTRY		2,146		4,717		2,146		4,717
Tigris-Aurum Fund I		5,349		—		5,431		—
Treenkid		—		—		1,193		859
Chungyoung INC		1,637		6,705		2,341		6,753
Semantic		—		—		3,098		1,804
DAEKWANG SEMICONDUCTOR CO., LTD.		30,413		10,845		35,204		12,392
Branbuil CO., LTD.		1,944		2,451		2,177		2,870
Songrim Co., Ltd.		1,782		1,590		—		—
Shinhan-Albatross Technology Investment Fund		5,875		180		—		—
Loggia		1,390		1,160		—		—
SHC-IMM New Growth Fund		3,478		—		3,675		117
QCP New Technology Fund 20th		5		—		5		—
STI-New Growth Engines Investment Partnership		3,905		46		3,945		—
Shinhan K2 Secondary Fund		—		—		8,894		172
TS2013-6 M&A Investment Fund		1,080		1,076		7,651		151
Dream High Fund III		4,282		4		5,765		—
SP New Technology Business investment Fund I		8,355		2		8,418		20
Albatross Growth Fund		—		—		5,237		915
Asia Pacific No.39 Ship Investment Co., Ltd.		9,912		57		10,379		28
Midas Dong-A Snowball Venture Fund		2,192		—		2,379		19
IBKS-Shinhan Creative Economy New Technology Fund		5,184		—		5,201		13
SM New Technology Business Investment Fund I		5,089		—		5,083		3
SHC-Aju 4th		8,621		18		9,508		18
KCLAVIS Meister Fund No.4		2,592		11		2,583		30
KCLAVIS Meister Fund No.5		2,117		10		2,150		26
KCLAVIS Meister Fund No.2		5,098		16		5,150		42
Midas Dong-A Snowball Venture Fund 2		7,046		—		7,199		50
EN-Tigris Fund 1		5,194		—		4,140		1
IBKS-Shinhan Creative Economy New Technology Fund II		1,959		—		1,979		8
KCLAVIS Meister Fund No.10		2,247		1		4,714		37
KCLAVIS Meister Fund No.9		1,400		13		1,362		6
KCLAVIS Meister Fund No.14		—		—		1,507		9
KCLAVIS Meister Fund No.17		11,503		156		11,500		42

66

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017				2016
Investees	Asset		Liability		Asset		Liability
Richmond Private Yong in Retail Facility Real Estate Fund No.1	W	47,571		28,622		—		—
House Eco Private Placement Special Asset Fund No.1		4,659		5		—		—
KTB Confidence Private Placement		42,182		21,052		—		—
JBUS Fintech Income Professional Private Trust No.2		10,023		—		—		—
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		31,106		2		—		—
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,623		2		—		—
Korea Alternative Source Professional Private Investment Trust No.6		3,005		5		—		—
Hyundai Season Mezzanine Professional Private Investment Trust No.4		6,792		40		—		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 9		4,241		1		—		—
Brain Professional Private Trust No.6		9,793		—		—		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 15		2,440		1		—		—
Korea Investment Mezzanine Professional Private Investment Trust No.1		9,749		—		—		—
Brain Professional Private Trust No.12		4,156		6		—		—
Hyundai Invest BMC Professional Private Trust No.18		14,747		5		—		—
Pine Asia Unsecured Individual Rehabilitation Bond Fund 8		26,264		13		—		—
Hana UBS Professional Private Trust		11,958		83		—		—
SG No.9 Corporate Recovery Private Equity Fund		15,050		37		15,069		38
Plutus-SG Private Equity Fund		16,044		68		16,188		68
SG ARGES Private Equity Fund No.1		37,184		90		37,392		91
OST Progress- 2 Fund		10,875		273		5,437		150
Eum Private Equity Fund No.3		28,793		4		28,584		4
Smart 2nd Private Equity Fund		14,814		51		—		—
APC Fund		43,052		60		46,043		65
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		927		—		928		1
Shinhan Praxis K-Growth Global Private Equity Fund		92,181		372		72,075		350
Credian Healthcare Private Equity Fund II		11,845		47		12,040		47
Kiwoom Milestone Professional Private Real Estate Trust 19		57,315		36,336		57,692		36,169
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		101,332		85		99,794		3
Brain Professional Private Trust No.4		20,973		1,159		19,384		46
Hanhwa US Equity Strategy Private Real Estate Fund No.1		57,946		1,077		59,781		2,327
Brain KS Qualified Privately Placed Fund No.6		9,702		—		9,794		1
M360 CRE Income Fund		189,382		67		60,261		6,167
Shinhan Ninetree Fund 1		144,303		97,646		—		—
JB POWER Fund 6		116,232		3,309		—		—
Hanhwa US Equity Strategy Private Real Estate Fund No.1		57,946		1,077		59,781		2,327
Shinhan Global Healthcare Fund 1		27,144		—		—		—
Brain Asset Management PN Private Investment Trust Fund 13		3,786		4		—		—
Orion Mezzanine Private Investment Trust 4		3,615		—		—		—
JB Power TL Investment Type Private Placement Special Asset Fund 7		169,274		112,924		—		—

67

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017				2016
Investees	Asset		Liability		Asset		Liability
Bros Investment O Hedge Fund 1	W	6,261		967		—		—
BNP Paribas Cardif General Insurance		36,534		15,378		40,581		14,742
SHBNPP Private Korea Equity Long-Short Professional Feeder		67,507		9,164		105,775		16,519
SHBNPP Private Multi Strategy Professional Feeder No.1		—		—		20,325		3,340
Shinhan-Stonebridge Petro PEF		1,044,321		1,127		1,015,299		804
Lodestone 1st Private Equity Fund		—		—		—		—
Axis Global Growth New Technology Investment Association		15,464		—		—		—
Quantum-Nvestor Fund No.1		5,987		—		—		—
	W	7,276,900		4,324,061		12,856,274		9,771,547

68

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

Condensed income statement information for the six-month period ended June 30, 2017 and the year ended December 31, 2016 were as follows:

	2017
Investees	Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance	W	48,974		15,564			(55,563	)		(39,999	)
Pohang TechnoPark 2PFV		—		(2	)		—			(2	)
Daewontos Co., Ltd.		—		—			—			—
Inhee Co., Ltd.		2,442		(9	)		—			(9	)
DAEGY Electrical Construction Co., LTD.		17		(32	)		—			(32	)
YEONWOONG SYSTEM		38		1			—			1
DOODOO LOGITECH		145		(209	)		—			(209	)
Neoplux Technology Valuation Investment Fund		5,863		5,241			—			5,241
JAEYOUNG SOLUTEC CO., LTD.		70,700		(3,801	)		2,872			(929	)
Partners 4th Growth Investment Fund		51		(837	)		—			(837	)
PSA 1st Fintech Private Equity Fund		2		(101	)		—			(101	)
KTB Newlake Global Healthcare PEF		—		(429	)		—			(429	)
JAEYANG INDUSTRY		—		—			—			—
Tigris-Aurum Fund I		—		(82	)		—			(82	)
Chungyoung INC		3,760		(657	)		—			(657	)
DAEKWANG SEMICONDUCTOR CO., LTD.		10,571		(3,244	)		—			(3,244	)
Branbuil CO., LTD.		—		—			—			—
Songrim Co., Ltd.		2,469		162			—			162
Shinhan-Albatross Technology Investment Fund		22		(305	)		—			(305	)
Loggia		—		—			—			—
SHC-IMM New Growth Fund		103		98			—			98
QCP New Technology Fund 20th		—		—			—			—
STI-New Growth Engines Investment Partnership		—		(85	)		—			(85	)
TS2013-6 M&A Investment Fund		6,720		6,741			—			6,741
Dream High Fund III		14		(183	)		(1,303	)		(1,486	)
SP New Technology Business investment Fund I		—		(45	)		—			(45	)
Albatross Growth Fund		1,938		1,578			(2,104	)		(526	)
Asia Pacific No.39 Ship Investment Co., Ltd.		338		298			32			330
Midas Dong-A Snowball Venture Fund		24		(13	)		—			(13	)
IBKS-Shinhan Creative Economy New Technology Fund		20		(4	)		—			(4	)
SM New Technology Business Investment Fund I		70		9			—			9
SHC-Aju 4th		505		467			102			569
KCLAVIS Meister Fund No.4		48		27			—			27
KCLAVIS Meister Fund No.5		—		(17	)		—			(17	)
KCLAVIS Meister Fund No.2		—		(26	)		—			(26	)
Midas Dong-A Snowball Venture Fund 2		—		(103	)		—			(103	)
EN-Tigris Fund 1		1,098		1,054			—			1,054
IBKS-Shinhan Creative Economy New Technology Fund II		5		(11	)		—			(11	)
KCLAVIS Meister Fund No.10		339		310			—			310
KCLAVIS Meister Fund No.9		39		31			—			31
KCLAVIS Meister Fund No.14		80		68			—			68
KCLAVIS Meister Fund No.17		4		(111	)		—			(111	)
Richmond Private Yong in Retail Facility Real Estate Fund No.1		1,059		1,059			—			1,059

69

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Operating revenue			Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
House Eco Private Placement Special Asset Fund No.1	W	583			582			—			582
KTB Confidence Private Placement		825			824			—			824
JBUS Fintech Income Professional Private Trust No.2		353			353			—			353
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		641			640			—			640
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		1,000			999			—			999
Korea Alternative Source Professional Private Investment Trust No.6		251			251			—			251
Hyundai Season Mezzanine Professional Private Investment Trust No.4		(5	)		(4	)		—			(4	)
Pine Asia Unsecured Individual Rehabilitation Bond Fund 9		389			388			—			388
Brain Professional Private Trust No.6		292			291			—			291
Pine Asia Unsecured Individual Rehabilitation Bond Fund 15		73			72			—			72
Korea Investment Mezzanine Professional Private Investment Trust No.1		145			145			—			145
Brain Professional Private Trust No.12		—			—			—			—
Hyundai Invest BMC Professional Private Trust No.18		91			90			—			90
Pine Asia Unsecured Individual Rehabilitation Bond Fund 8		112			111			—			111
Hana UBS Professional Private Trust		416			416			—			416
SG No.9 Corporate Recovery Private Equity Fund		—			148			—			148
Plutus-SG Private Equity Fund		—			105			—			105
SG ARGES Private Equity Fund No.1		—			392			—			392
OST Progress- 2 Fund		97			(114	)		—			(114	)
Eum Private Equity Fund No.3		1,656			1,406			—			1,406
Smart 2nd Private Equity Fund		1			(237	)		—			(237	)
APC Fund		—			(687	)		—			(687	)
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		2			1			—			1
Shinhan Praxis K-Growth Global Private Equity Fund		227			(1,668	)		1,752			84
Credian Healthcare Private Equity Fund II		105			10			(205	)		(195	)
Kiwoom Milestone Professional Private Real Estate Trust 19		998			(432	)		—			(432	)
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		6,218			5,437			(1,280	)		4,157
Brain Professional Private Trust No.4		1,103			475			—			475
Hanhwa US Equity Strategy Private Real Estate Fund No.1		5,698			2,432			(1,107	)		1,325
Brain KS Qualified Privately Placed Fund No.6		2			(54	)		(37	)		(91	)
M360 CRE Income Fund		5			4,197			—			4,197
Shinhan Ninetree Fund 1		1,485			158			—			158
JB POWER Fund 6		4,779			686			—			686
Shinhan Global Healthcare Fund 1		—			—			—			—
Brain Asset Management PN Private Investment Trust Fund 13		136			131			—			131

70

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
Orion Mezzanine Private Investment Trust 4	W	15		15			—			15
JB Power TL Investment Type Private Placement Special Asset Fund 7		608		64			—			64
Bros Investment O Hedge Fund 1		9		(6	)		—			(6	)
BNP Paribas Cardif General Insurance		3,121		(1,586	)		—			(1,586	)
SHBNPP Private Korea Equity Long-Short Professional Feeder		19,058		5,514			—			5,514
Shinhan-Stonebridge Petro PEF		3		(1,646	)		—			(1,646	)
Lodestone 1st Private Equity Fund		—		—			—			—
Axis Global Growth New Technology Investment Association		—		(236	)		—			(236	)
Quantum-Nvestor Fund No.1		1		(13	)		—			(13	)
	W	207,951		42,052			(56,841	)		(14,789	)

71

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
BNP Paribas Cardif Life Insurance	W	144,583		(16,706	)		36,189			19,483
Aju Capital Co., Ltd.		757,345		70,598			(458	)		70,140
Pohang TechnoPark 2PFV		—		(4	)		—			(4	)
Daewontos Co., Ltd.		517		(624	)		—			(624	)
Inhee Co., Ltd.		3,135		(253	)		—			(253	)
DAEGY Electrical Construction Co., LTD.		—		(76	)		—			(76	)
YEONWOONG SYSTEM		25		(135	)		—			(135	)
DOODOO LOGITECH		213		(609	)		—			(609	)
Neoplux Technology Valuation Investment Fund		3,441		2,295			—			2,295
EQP Global Energy Infrastructure Private Equity Fund		—		(1,842	)		—			(1,842	)
JAEYOUNG SOLUTEC CO., LTD.		137,920		(7,095	)		(614	)		(7,709	)
Partners 4th Growth Investment Fund		113		(1,300	)		—			(1,300	)
PSA 1st Fintech Private Equity Fund		—		(175	)		—			(175	)
KTB Newlake Global Healthcare PEF		—		(716	)		—			(716	)
JAEYANG INDUSTRY		212		(69	)		—			(69	)
Tigris-Aurum Fund I		—		(69	)		—			(69	)
Treenkid		325		(54	)		—			(54	)
Chungyoung INC (*2)		—		—			—			—
Semantic		—		—			—			—
DAEKWANG SEMICONDUCTOR CO., LTD.		—		—			—			—
Branbuil CO., LTD. (*2)		—		—			—			—
SHC-IMM New Growth Fund		855		479			—			479
QCP New Technology Fund 20th		—		—			—			—
STI-New Growth Engines Investment Partnership		—		1,285			(667	)		618
Shinhan K2 Secondary Fund		15,284		8,019			(4,072	)		3,947
TS2013-6 M&A Investment Fund		237		(115	)		—			(115	)
Dream High Fund III		535		313			2,597			2,910
SP New Technology Business investment Fund I		—		(87	)		—			(87	)
Albatross Growth Fund		1,024		957			(3,821	)		(2,864	)
Asia Pacific No.39 Ship Investment Co., Ltd.		730		681			1,172			1,853
Midas Dong-A Snowball Venture Fund		183		105			—			105
IBKS-Shinhan Creative Economy New Technology Fund		798		746			—			746
SM New Technology Business Investment Fund I		24		(95	)		—			(95	)
SHC-Aju 4th		1,565		1,466			3,111			4,577
KCLAVIS Meister Fund No.4		85		53			—			53
KCLAVIS Meister Fund No.5		—		(26	)		—			(26	)
KCLAVIS Meister Fund No.2		—		(42	)		—			(42	)
Midas Dong-A Snowball Venture Fund 2		1		(151	)		—			(151	)
EN-Tigris Fund 1		—		(61	)		—			(61	)
IBKS-Shinhan Creative Economy New Technology Fund II		13		(9	)		—			(9	)

72

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Operating revenue		Net profit (loss)			Other comprehensive income (loss)			Total comprehensive income (loss)
KCLAVIS Meister Fund No.10	W	20		(23	)		—			(23	)
KCLAVIS Meister Fund No.9		34		(95	)		—			(95	)
KCLAVIS Meister Fund No.14		7		(2	)		—			(2	)
KCLAVIS Meister Fund No.17		—		(42	)		—			(42	)
SG No.9 Corporate Recovery Private Equity Fund		—		428			—			428
Plutus-SG Private Equity Fund		5		(148	)		—			(148	)
SG ARGES Private Equity Fund No.1		—		87			—			87
OST Progress- 2 Fund		34		(143	)		—			(143	)
Eum Private Equity Fund No.3		85		(235	)		—			(235	)
APC Fund		—		(29,768	)		(13,407	)		(43,175	)
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		2,170		2,170			—			2,170
Shinhan Praxis K-Growth Global Private Equity Fund		513		(1,084	)		2,656			1,572
Credian Healthcare Private Equity Fund II		190		(180	)		—			(180	)
Kiwoom Milestone Professional Private Real Estate Trust 19		924		(367	)		—			(367	)
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		10,321		2,210			7,669			9,879
Brain Professional Private Trust No.4		2,158		1,148			—			1,148
Hanhwa US Equity Strategy Private Real Estate Fund No.1		5,199		1,667			37			1,704
Brain KS Qualified Privately Placed Fund No.6		1		(26	)		(182	)		(208	)
M360 CRE Income Fund		—		—			—			—
BNP Paribas Cardif General Insurance		7,913		(9,432	)		(39	)		(9,471	)
SHBNPP Private Korea Equity Long-Short Professional Feeder		25,736		(396	)		—			(396	)
SHBNPP Private Multi Strategy Professional Feeder No.1		4,510		70			—			70
Shinhan-Stonebridge Petro PEF		38,898		35,559			—			35,559
	W	1,167,881		58,082			30,171			88,253

73

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying values of its interests in the associates as of June 30, 2017 and December 31, 2016 are as follows:

	2017
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions			Other		Carrying value
BNP Paribas Cardif Life Insurance	W	361,253			14.99		54,188			(197	)		—		53,991
Pohang TechnoPark 2PFV		13,257			14.90		1,975			—			—		1,975
Daewontos Co., Ltd. (*1)		(2,092	)		36.33		(760	)		—			760		—
Inhee Co., Ltd.		1,791			15.36		275			—			—		275
DAEGY Electrical Construction Co., LTD.		436			27.45		119			—			—		119
YEONWOONG SYSTEM		351			21.77		77			—			—		77
DOODOO LOGITECH		647			27.96		181			—			—		181
Neoplux Technology Valuation Investment Fund		33,488			33.33		11,163			—			—		11,163
JAEYOUNG SOLUTEC CO., LTD. (*2)		37,968			9.61		3,648			—			2,169		5,817
Partners 4th Growth Investment Fund		34,344			25.00		8,586			—			—		8,586
PSA 1st Fintech Private Equity Fund		9,724			25.00		2,431			—			—		2,431
KTB Newlake Global Healthcare PEF (*3)		2,898			30.00		869			—			170		1,039
JAEYANG INDUSTRY (*4)		(2,571	)		25.90		(666	)		—			666		—
Tigris-Aurum Fund I		5,349			27.27		1,459			—			—		1,459
Chungyoung INC (*4)		(5,068	)		18.94		(961	)		—			961		—
DAEKWANG SEMICONDUCTOR CO., LTD.		19,568			20.94		4,097			—			—		4,097
Branbuil CO., LTD. (*3)		(507	)		15.53		(79	)		—			79		—
Songrim Co., Ltd.		192			35.34		68			—			—		68
Shinhan-Albatross Technology Investment Fund		5,695			50.00		2,847			—			—		2,847
Loggia		230			16.29		37			—			—		37
SHC-IMM New Growth Fund		3,478			64.52		2,244			—			—		2,244
QCP New Technology Fund 20th		5			47.17		2			—			—		2
STI-New Growth Engines Investment Partnership		3,859			50.00		1,930			—			—		1,930
TS2013-6 M&A Investment Fund		4			25.00		—			—			—		—
Dream High Fund III		4,278			54.55		2,333			—			—		2,333
SP New Technology Business investment Fund I		8,353			23.26		1,943			—			—		1,943
Albatross Growth Fund		—			36.36		—			—			—		—
Asia Pacific No.39 Ship Investment Co., Ltd.		9,855			50.00		4,928			—			—		4,928
Midas Dong-A Snowball Venture Fund		2,192			53.33		1,168			—			—		1,168
IBKS-Shinhan Creative Economy New Technology Fund		5,184			5.00		259			—			—		259
SM New Technology Business Investment Fund I		5,089			36.36		1,849			—			—		1,849
SHC-Aju 4th		8,603			21.98		1,890			—			—		1,890
KCLAVIS Meister Fund No.4		2,581			20.00		517			—			—		517
KCLAVIS Meister Fund No.5		2,107			23.26		490			—			—		490

74

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions		Other		Carrying value
KCLAVIS Meister Fund No.2	W	5,082		38.83		1,974		—		—		1,974
Midas Dong-A Snowball Venture Fund 2		7,046		25.00		1,761		—		—		1,761
EN-Tigris Fund 1		5,194		47.62		2,473		—		—		2,473
IBKS-Shinhan Creative Economy New Technology Fund II		1,959		4.55		89		—		—		89
KCLAVIS Meister Fund No.10		2,246		21.28		477		—		—		477
KCLAVIS Meister Fund No.9		1,387		34.48		479		—		—		479
KCLAVIS Meister Fund No.14		—		33.33		—		—		—		—
KCLAVIS Meister Fund No.17		11,347		26.09		2,960		—		—		2,960
Richmond Private Yong in Retail Facility Real Estate Fund No.1		18,949		42.00		7,959		—		—		7,959
House Eco Private Placement Special Asset Fund No.1		4,654		26.67		1,241		—		—		1,241
KTB Confidence Private Placement		21,130		25.08		5,300		—		—		5,300
JBUS Fintech Income Professional Private Trust No.2		10,023		20.00		2,005		—		—		2,005
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		31,104		23.89		7,431		—		—		7,431
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,621		20.16		8,391		—		—		8,391
Korea Alternative Source Professional Private Investment Trust No.6		3,000		20.00		600		—		—		600
Hyundai Season Mezzanine Professional Private Investment Trust No.4		6,752		29.60		1,999		—		—		1,999
Pine Asia Unsecured Individual Rehabilitation Bond Fund 9		4,240		49.84		2,114		—		—		2,114
Brain Professional Private Trust No.6		9,793		21.05		2,061		—		—		2,061
Pine Asia Unsecured Individual Rehabilitation Bond Fund 15		2,439		97.94		2,389		—		—		2,389
Korea Investment Mezzanine Professional Private Investment Trust No.1		9,749		50.00		4,875		—		—		4,875
Brain Professional Private Trust No.12		4,150		48.19		2,000		—		—		2,000
Hyundai Invest BMC Professional Private Trust No.18		14,742		20.00		2,948		—		—		2,948
Pine Asia Unsecured Individual Rehabilitation Bond Fund 8		26,251		22.85		5,998		—		—		5,998
Hana UBS Professional Private Trust		11,875		43.63		5,182		—		—		5,182
SG No.9 Corporate Recovery Private Equity Fund		15,013		26.49		3,977		—		—		3,977
Plutus-SG Private Equity Fund		15,976		26.67		4,261		—		—		4,261
SG ARGES Private Equity Fund No.1		37,094		24.06		8,926		—		—		8,926
OST Progress- 2 Fund		10,602		27.62		2,928		—		—		2,928
Eum Private Equity Fund No.3		28,789		20.76		5,976		—		—		5,976
Smart 2nd Private Equity Fund		14,763		20.00		2,953		—		—		2,953

75

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2017
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions			Other		Carrying value
APC Fund	W	42,992		25.18		10,826		—			—		10,826
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		927		50.00		464		—			—		464
Shinhan Praxis K-Growth Global Private Equity Fund		91,809		18.87		17,323		—			—		17,323
Credian Healthcare Private Equity Fund II		11,798		34.07		4,021		—			—		4,021
Kiwoom Milestone Professional Private Real Estate Trust 19		20,979		50.00		10,490		—			—		10,490
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		101,247		21.28		21,547		—			—		21,547
Brain Professional Private Trust No.4		19,814		27.50		5,449		—			—		5,449
Hanhwa US Equity Strategy Private Real Estate Fund No.1		56,869		44.84		25,501		—			—		25,501
Brain KS Qualified Privately Placed Fund No.6		9,702		30.00		2,910		—			—		2,910
M360 CRE Income Fund		189,315		81.64		154,417		—			—		154,417
Shinhan Ninetree Fund 1		46,657		21.81		10,175		—			—		10,175
JB POWER Fund 6		112,923		55.45		62,618		—			—		62,618
Shinhan Global Healthcare Fund 1		27,144		10.83		2,940		—			—		2,940
Brain Asset Management PN Private Investment Trust Fund 13		3,782		41.10		1,554		—			—		1,554
Orion Mezzanine Private Investment Trust 4		3,615		41.67		1,506		—			—		1,506
JB Power TL Investment Type Private Placement Special Asset Fund 7		56,350		33.33		18,783		—			—		18,783
Bros Investment O Hedge Fund 1		5,294		94.34		4,994		—			—		4,994
BNP Paribas Cardif General Insurance (*5)		21,156		10.00		2,116		—			2,770		4,886
SHBNPP Private Korea Equity Long-Short Professional Feeder		58,343		26.15		15,262		—			—		15,262
Shinhan-Stonebridge Petro PEF		1,043,194		1.82		19,010		—			—		19,010
Lodestone 1st Private Equity Fund (*5)		—		26.06		—		—			3,000		3,000
Axis Global Growth New Technology Investment Association		15,464		31.85		4,925		—			—		4,925
Quantum-Nvestor Fund No.1		5,987		25.00		1,497		—			—		1,497
	W	2,894,872				609,162		(197	)		10,575		619,540

76

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

(*1) Other adjustments represent the unrecognized equity method losses because the Group has stopped recognizing its equity method losses as the balance of the investment has been reduced to zero.

(*2) Net assets do not include non-controlling interests and other adjustments represent the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date.

(*3) Other adjustments represent the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date.

(*4) Other adjustments represent the unrecognized equity method losses because the Group has stopped recognizing its equity method losses as the balance of the investment has been reduced to zero and the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date.

(*5) Other adjustments represent additional investments, for which the financial statements as of June 30, 2017 were not available.

77

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Net assets (a)			Ownership (%) (b)		Interests in the net assets (a)*(b)			Intra-group transactions			Other			Carrying Value
BNP Paribas Cardif Life Insurance	W	402,951			14.99		60,443			(230	)		—			60,213
Aju Capital Co., Ltd. (*1)		749,882			12.85		96,365			—			(55,529	)		40,836
Pohang TechnoPark 2PFV		13,259			14.90		1,975			—			—			1,975
Daewontos Co., Ltd. (*2)		(2,093	)		36.33		(760	)		—			760			—
Inhee Co., Ltd.		1,403			15.36		215			—			—			215
DAEGY Electrical Construction Co., LTD.		468			27.45		128			—			—			128
YEONWOONG SYSTEM		351			21.77		77			—			—			77
DOODOO LOGITECH		885			27.96		247			—			—			247
Neoplux Technology Valuation Investment Fund		22,577			33.33		7,526			—			—			7,526
EQP Global Energy Infrastructure Private Equity Fund (*2)		(1,375	)		22.64		(311	)		—			311			—
JAEYOUNG SOLUTEC CO., LTD. (*3)		34,147			10.45		3,567			—			2,169			5,736
Partners 4th Growth Investment Fund		18,221			25.00		4,555			—			—			4,555
PSA 1st Fintech Private Equity Fund		9,825			25.00		2,456			—			—			2,456
KTB Newlake Global Healthcare PEF (*4)		3,327			30.00		998			—			170			1,168
JAEYANG INDUSTRY (*5)		(2,571	)		25.90		(666	)		—			666			—
Tigris-Aurum Fund I		5,431			27.27		1,481			—			—			1,481
Treenkid		334			23.72		79			—			—			79
Chungyoung INC (*4)		(4,412	)		18.94		(836	)		—			836			—
Semantic		1,294			19.25		249			—			—			249
DAEKWANG SEMICONDUCTOR CO., LTD.		22,812			20.94		4,776			—			—			4,776
Branbuil CO., LTD. (*4)		(693	)		15.53		(108	)		—			108			—
SHC-IMM New Growth Fund		3,559			64.52		2,295			—			—			2,295
QCP New Technology Fund 20th		5			47.17		2			—			—			2
STI-New Growth Engines Investment Partnership		3,945			50.00		1,973			—			—			1,973
Shinhan K2 Secondary Fund		8,722			10.75		938			—			—			938
TS2013-6 M&A Investment Fund		7,500			25.00		1,874			—			—			1,874
Dream High Fund III		5,765			54.55		3,144			—			—			3,144
SP New Technology Business investment Fund I		8,398			23.26		1,954			—			—			1,954
Albatross Growth Fund		4,322			36.36		1,572			—			—			1,572
Asia Pacific No.39 Ship Investment Co., Ltd.		10,351			50.00		5,176			—			—			5,176
Midas Dong-A Snowball Venture Fund		2,360			53.33		1,258			—			—			1,258
IBKS-Shinhan Creative Economy New Technology Fund		5,188			5.00		259			—			—			259
SM New Technology Business Investment Fund I		5,080			36.36		1,846			—			—			1,846

78

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

	2016
Investees	Net assets (a)		Ownership (%) (b)		Interests in the net assets (a)*(b)		Intra-group transactions			Other			Carrying value
SHC-Aju 4th	W	9,490		21.98		2,085		—			—			2,085
KCLAVIS Meister Fund No.4		2,553		20.00		511		—			—			511
KCLAVIS Meister Fund No.5		2,124		23.26		494		—			—			494
KCLAVIS Meister Fund No.2		5,108		38.83		1,984		—			—			1,984
Midas Dong-A Snowball Venture Fund 2		7,149		25.00		1,787		—			—			1,787
EN-Tigris Fund 1		4,139		47.62		1,971		—			—			1,971
SM New Technology Business Investment Fund II		1,971		4.55		90		—			—			90
KCLAVIS Meister Fund No.10		4,677		21.28		995		—			—			995
KCLAVIS Meister Fund No.9		1,356		34.48		468		—			—			468
KCLAVIS Meister Fund No.14		1,498		33.33		499		—			—			499
KCLAVIS Meister Fund No.17		11,458		26.09		2,989		—			—			2,989
SG No.9 Corporate Recovery Private Equity Fund		15,031		26.49		3,982		—			—			3,982
Plutus-SG Private Equity Fund		16,120		26.67		4,299		—			—			4,299
SG ARGES Private Equity Fund No.1		37,301		24.06		8,976		—			—			8,976
OST Progress- 2 Fund		5,287		27.62		1,460		—			—			1,460
Eum Private Equity Fund No.3		28,580		20.76		5,933		—			—			5,933
APC Fund		45,978		25.18		11,579		—			—			11,579
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		927		50.00		464		—			—			464
Shinhan Praxis K-Growth Global Private Equity Fund		71,725		18.87		13,533		—			—			13,533
Credian Healthcare Private Equity Fund II		11,993		34.07		4,087		—			—			4,087
Kiwoom Milestone Professional Private Real Estate Trust 19		21,523		50.00		10,761		—			—			10,761
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		99,791		21.28		21,237		—			—			21,237
Brain Professional Private Trust No.4		19,338		27.49		5,316		—			—			5,316
Hanhwa US Equity Strategy Private Real Estate Fund No.1		57,454		44.84		25,764		—			—			25,764
Brain KS Qualified Privately Placed Fund No.6		9,793		50.00		4,896		—			—			4,896
M360 CRE Income Fund		54,094		42.83		23,167		—			—			23,167
BNP Paribas Cardif General Insurance		25,839		10.00		2,584		—			—			2,584
SHBNPP Private Korea Equity Long-Short Professional Feeder		89,256		15.88		14,180		—			—			14,180
SHBNPP Private Multi Strategy Professional Feeder No.1		16,985		29.55		5,014		—			—			5,014
Shinhan-Stonebridge Petro PEF		1,014,495		1.82		18,487		—			—			18,487
	W	3,034,251				404,339		(230	)		(50,509	)		353,600

79

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

13. Investments in associates (continued)

(*1) Net assets do not include non-controlling interests and other adjustments represent the cumulative impairment.

(*2) Other adjustments represent the unrecognized equity method losses because the Group has stopped recognizing its equity method losses as the balance of the investment has been reduced to zero.

(*3) Net assets do not include non-controlling interests; and other adjustments represent the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date and the cumulative impairment.

(*4) Other adjustments represent the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date.

(*5) Other adjustments represent the unrecognized equity method losses because the Group has stopped recognizing its equity method losses as the balance of the investment has been reduced to zero and the difference between the cost of the investment and the Group’s interests in the net carrying value of the investee’s assets and liabilities at the investment date.

(e) The unrecognized equity method losses for the six-month period ended June 30, 2017 and the cumulative unrecognized equity method losses as of June 30, 2017 are as follows:

	2017
Investees	Unrecognized equity method losses			Cumulative unrecognized equity method losses
Daewontos Co., Ltd.	W	—			(760	)
JAEYANG INDUSTRY		—			(18	)
Chungyoung INC		(124	)		(124	)
	W	(124	)		(902	)

80

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

14. Trading liabilities

Trading liabilities as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Securities sold	W	1,868,117		1,490,765
Gold deposits		485,639		485,995
	W	2,353,756		1,976,760

15. Financial liabilities designated at fair value through profit or loss

Financial liabilities designated at fair value through profit or loss as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016		Reason for designation
Deposits	W	84		6,282	Combined instrument
Equity-linked securities sold		6,593,104		7,024,194	Combined instrument
Securities sold with embedded derivatives		2,508,499		2,193,032	Combined instrument
Securities sold		43,592		10,134	Evaluation and management on a fair value basis
	W	9,145,279		9,233,642

16. Debt securities issued

Debt securities issued as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Interest rate (%)		Amount
Debt securities issued in won:
Debt securities issued		0.00~8.00	W	36,862,731
Subordinated debt securities issued		1.78~4.60		3,500,480
Gain and loss on fair value hedges				(148,796	)
Bond issuance cost				(44,455	)
				40,169,960
Debt securities issued in foreign currencies:
Debt securities issued		0.02~4.38		6,423,625
Subordinated debt securities issued		3.88		1,130,872
Gain and loss on fair value hedges				19,418
Bond issuance cost				(29,851	)
				7,544,064
			W	47,714,024

81

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

16. Debt securities issued (continued)

	2016
	Interest rate (%)		Amount
Debt securities issued in won:
Debt securities issued		0.00~8.00	W	33,838,495
Subordinated debt securities issued		2.20~4.69		3,991,056
Loss on fair value hedges				(147,208	)
Bond issuance cost				(38,178	)
				37,644,165
Debt securities issued in foreign currencies:
Debt securities issued		0.03~4.38		5,526,809
Subordinated debt securities issued		3.88		1,189,067
Loss on fair value hedges				(9,977	)
Bond issuance cost				(23,279	)
				6,682,620
			W	44,326,785

17. Defined benefit liabilities

(a) Defined benefit obligations and plan assets

Defined benefit obligations and plan assets as of June 30, 2017 and December 31, 2016 are as follows:

	2017			2016
Present value of defined benefit obligations	W	1,729,865			1,689,980
Fair value of plan assets		(1,579,312	)		(1,559,101	)
Recognized liabilities for defined benefit obligations	W	150,553			130,879

(b) Expenses recognized in profit or loss for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017				2016
	Three-month period		Six-month period		Three-month period		Six-month period
Current service costs	W	42,752		86,024		44,776		90,576
Net interest expense on the net defined benefit liabilities		713		1,524		1,415		3,252
	W	43,465		87,548		46,191		93,828

82

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Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

18. Provisions

Provisions as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Asset retirement obligations	W	50,052		50,738
Expected loss related to litigation (*)		33,792		34,471
Unused credit commitments		167,562		450,997
Bonus card point reward program		25,011		25,425
Financial guarantee contracts issued		77,983		79,238
Others		83,303		88,019
	W	437,703		728,888

(*) Refer to the note 28. Commitments and contingencies.

19. Liabilities under insurance contracts

(a) Insurance liabilities as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Policy reserve	W	23,461,489		22,366,865
Policyholder’s equity adjustment		6,958		10,569
	W	23,468,447		22,377,434

(b) Income or expenses on insurance contracts for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Insurance income:
Premium income	W	1,135,631			2,291,659			1,131,507			2,262,813
Reinsurance income		1,079			2,177			790			1,762
Reversal of policy reserves		1,677			2,698			—			—
Separate account income		6,851			20,828			4,355			9,478
		1,145,238			2,317,362			1,136,652			2,274,053
Insurance expenses:
Claims paid		(536,170	)		(1,081,663	)		(517,420	)		(1,005,881	)
Reinsurance premium expenses		(3,417	)		(6,262	)		(1,615	)		(3,189	)
Provision for policy reserves		(545,794	)		(1,097,322	)		(563,169	)		(1,148,115	)
Separate account expenses		(6,849	)		(20,827	)		(4,354	)		(9,478	)
Discount charge		(162	)		(315	)		(137	)		(265	)
Acquisition costs		(139,393	)		(283,046	)		(142,902	)		(285,170	)
Collection expenses		(3,934	)		(7,816	)		(3,826	)		(7,580	)
Deferred acquisition costs		83,604			173,919			93,776			194,695
Amortization of deferred acquisition costs		(107,220	)		(216,412	)		(110,738	)		(221,475	)
		(1,259,335	)		(2,539,744	)		(1,250,385	)		(2,486,458	)
Net loss on insurance	W	(114,097	)		(222,382	)		(113,733	)		(212,405	)

83

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

20. Equity

(a) Equity as of June 30, 2017 and December 31, 2016 are as follows:

	2017			2016
Capital stock:
Common stock	W	2,370,998			2,370,998
Preferred stock		274,055			274,055
		2,645,053			2,645,053
Hybrid bond		199,455			498,316
Capital surplus:
Share premium		9,494,769			9,494,769
Others		392,566			392,566
		9,887,335			9,887,335
Capital adjustments		(397,056	)		(458,461	)
Accumulated other comprehensive income, net of tax:
Valuation gain on available-for-sale financial assets		315,112			394,183
Equity in other comprehensive income of associates		9,991			21,258
Foreign currency translation adjustments for foreign operations		(217,760	)		(151,726	)
Net loss from cash flow hedges		(11,027	)		(13,464	)
Other comprehensive income of separate account		4,175			4,466
Actuarial losses		(353,471	)		(357,300	)
		(252,980	)		(102,583	)
Retained earnings		19,769,446			18,640,038
Non-controlling interest		837,729			635,282
	W	32,688,982			31,744,980

(b) Hybrid bonds

Hybrid bonds classified as other equity instruments as of June 30, 2017 and December 31, 2016 are as follows:

Issue date	Maturity date	Interest rate (%)		2017		2016
May 22, 2012	May 22, 2042		5.34	W	—		298,861
June 25, 2015	June 25, 2045		4.38		199,455		199,455
				W	199,455		498,316

The hybrid bonds above can be repaid early at value after 5 or 10 years from the date of issuance, and the Group has an unconditional right to extend the maturity under the same condition. In addition, if no dividend is to be paid for common shares, the agreed interest is also not paid. On May 22, 2017, the Group exercised the early redemption right and redeemed all the hybrid bonds issued on May 22, 2012.

84

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

20. Equity (continued)

(c) Accumulated other comprehensive income

Changes in accumulated other comprehensive income for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017
	Unrealized gain (loss) on available-for-sale financial assets			Equity in other comprehensive income of associates			Foreign currency translation adjustments for foreign operations			Net loss from cash flow hedges			Other comprehensive income of separate account			Remeasurements of the defined benefit plans			Total
Beginning balance	W	394,182			21,258			(151,725	)		(13,464	)		4,466			(357,300	)		(102,583	)
Change due to fair value		58,756			(12,205	)		—			—			—			—			46,551
Reclassification:
Change due to impairment or disposal		(139,706	)		—			—			—			—			—			(139,706	)
Effect of hedge accounting		—			—			—			107,662			—			—			107,662
Hedging		(898	)		—			40,174			(104,447	)		—			—			(65,171	)
Effects from exchange rate fluctuations		(18,990	)		—			(101,098	)		—			—			—			(120,088	)
Remeasurements of the defined benefit plans		—			—			—			—			—			5,093			5,093
Deferred income taxes		21,741			938			(5,538	)		(778	)		(291	)		(1,975	)		14,097
Non-controlling interests		27			—			427			—			—			711			1,165
Ending balance	W	315,112			9,991			(217,760	)		(11,027	)		4,175			(353,471	)		(252,980	)

85

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

20. Equity (continued)

	2016
	Unrealized gain (loss) on available-for-sale financial assets			Equity in other comprehensive income of associates		Foreign currency translation adjustments for foreign operations			Net loss from cash flow hedges			Other comprehensive income of separate account			Remeasurements of the defined benefit plans			Total
Beginning balance	W	826,712			18,569		(163,737	)		(12,202	)		8,795			(373,366	)		304,771
Change due to fair value		(123,415	)		1,813		—			—			(5,712	)		—			(127,314	)
Reclassification:
Change due to impairment or disposal		(445,040	)		—		—			—			—			—			(445,040	)
Effect of hedge accounting		—			—		—			(44,348	)		—			—			(44,348	)
Hedging		2,289			—		(54,393	)		42,683			—			—			(9,421	)
Effects from exchange rate fluctuations		(1,395	)		—		52,936			—			—			—			51,541
Remeasurements of the defined benefit plans		—			—		—			—			—			20,513			20,513
Deferred income taxes		133,904			876		13,560			403			1,383			(4,845	)		145,281
Non-controlling interests		1,127			—		(91	)		—			—			398			1,434
Ending balance	W	394,182			21,258		(151,725	)		(13,464	)		4,466			(357,300	)		(102,583	)

86

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won, except per share data)

20. Equity (continued)

(d) Regulatory reserve for loan losses

In accordance with Regulations for the Supervision of Financial Institutions, the Group reserves the difference between allowance for credit losses by K-IFRS and that as required by the Regulations at the account of regulatory reserve for loan losses in retained earnings.

i) Changes in regulatory reserve for loan losses including non-controlling interests for the six-month period ended June 30, 2017 and the year ended December 31, 2016 are as follows:

	2017		2016
Beginning balance	W	2,252,771		2,192,635
Planned regulatory reversal of loan losses		488,783		60,136
Ending balance	W	2,741,554		2,252,771

ii) Profit for the period and earnings per share after adjusted for regulatory reserve for loan losses for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Profit attributable to equity holders of Shinhan Financial Group	W	892,032			1,889,130			683,467			1,454,791
Provision for (reversal of) regulatory reserve for loan losses		(101,480	)		(486,727	)		(75,266	)		(144,617	)
Profit attributable to equity holders of Shinhan Financial Group adjusted for regulatory reserve	W	790,552			1,402,403			608,201			1,310,174
Basic and diluted earnings per share adjusted for regulatory reserve in won (*)	W	1,658			2,935			1,255			2,682

(*) Dividends for preferred stocks and hybrid bonds are deducted.

(e) Details of dividends paid by the Group in accordance with the resolutions of the general meeting of shareholders for the six months ended June 30, 2017 are as follows:

	2017
Common stock (W1,450 per share)	W	687,589

87

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

21. Net interest income

Net interest income for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Interest income:
Cash and due from banks	W	42,249			84,039			46,013			98,947
Trading assets		123,267			250,557			121,152			228,090
Financial assets designated at fair value through profit or loss		16,429			29,489			10,190			23,555
Available-for-sale financial assets		159,215			317,990			156,323			312,978
Held-to-maturity financial assets		158,350			309,487			138,590			276,140
Loans		2,358,592			4,663,203			2,293,646			4,567,321
Others		21,126			43,602			26,698			54,028
		2,879,228			5,698,367			2,792,612			5,561,059
Interest expense:
Deposits		(602,592	)		(1,208,130	)		(650,489	)		(1,326,345	)
Borrowings		(86,244	)		(162,293	)		(75,414	)		(148,093	)
Debt securities issued		(266,342	)		(521,418	)		(272,050	)		(553,043	)
Others		(9,355	)		(22,620	)		(22,626	)		(46,870	)
		(964,533	)		(1,914,461	)		(1,020,579	)		(2,074,351	)
Net interest income	W	1,914,695			3,783,906			1,772,033			3,486,708

88

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

22. Net fees and commission income

Net fees and commission income for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Fees and commission income:
Credit placement fees	W	13,524			28,350			15,060			30,668
Commission received as electronic charge receipt		35,898			70,756			34,525			67,961
Brokerage fees		93,686			178,694			88,604			169,956
Commission received as agency		48,449			84,028			30,919			64,094
Investment banking fees		11,468			21,670			20,477			32,665
Commission received in foreign exchange activities		49,708			97,154			45,827			91,293
Asset management fees		45,659			83,652			26,678			50,144
Credit card fees		596,922			1,176,933			585,063			1,146,563
Others		124,789			243,941			108,260			210,989
		1,020,103			1,985,178			955,413			1,864,333
Fees and commission expense:
Credit-related fee		(8,268	)		(13,685	)		(8,570	)		(15,299	)
Credit card fees		(499,488	)		(995,632	)		(454,840	)		(907,880	)
Others		(75,260	)		(151,184	)		(76,784	)		(153,022	)
		(583,016	)		(1,160,501	)		(540,194	)		(1,076,201	)
Net fees and commission income	W	437,087			824,677			415,219			788,132

89

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

23. Net impairment loss on financial assets

Net impairment loss on financial assets for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017						2016
	Three-month period			Six-month period			Three-month period			Six-month period
Impairment losses on:
Loans	W	(138,937	)		(225,418	)		(291,578	)		(578,505	)
Available-for-sale financial assets		(13,636	)		(21,528	)		(37,052	)		(72,552	)
Other financial assets		(8,753	)		(4,381	)		(9,392	)		(15,134	)
		(161,326	)		(251,327	)		(338,022	)		(666,191	)
Reversal of impairment losses on:
Available-for-sale financial assets		1,689			2,544			5,472			5,472
	W	(159,637	)		(248,783	)		(332,550	)		(660,719	)

24. General and administrative expenses

General and administrative expenses for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017				2016
	Three-month period		Six-month period		Three-month period		Six-month period
Employee benefits:
Salaries	W	626,937		1,261,905		610,999		1,235,914
Severance benefits:
Defined contribution		4,753		10,308		5,178		10,940
Defined benefit		42,387		85,403		45,102		91,642
Termination benefits		—		1,853		—		2,339
		674,077		1,359,469		661,279		1,340,835
Rent		83,148		164,779		86,207		166,742
Entertainment		5,766		12,521		6,950		14,260
Depreciation		42,540		89,144		45,140		91,218
Amortization		16,602		33,470		19,377		38,547
Taxes and dues		46,952		88,084		45,889		90,454
Advertising		55,546		105,590		74,830		133,937
Research		3,358		7,005		3,474		7,070
Others		150,375		283,105		146,021		278,338
	W	1,078,364		2,143,167		1,089,167		2,161,401

90

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won, except per share data)

25. Share-based payments

(a) Stock options granted as of June 30, 2017 are as follows:

	4th grant(*1)		5th grant(*1)		6th grant(*1)		7th grant(*1)(*2)
Grant date		March 30, 2005		March 21, 2006		March 20, 2007		March 19, 2008
Exercise price in won	W	28,006	W	38,829	W	54,560	W	49,053
Number of shares granted		2,695,200		3,296,200		1,301,050		808,700
Options expiry dates		August 30, 2018		August 21, 2019		August 19, 2020		May 17, 2021
Changes in number of shares granted:
Balance at January 1, 2017		102,389		108,356		58,764		45,628
Exercised		80,000		—		—		—
Balance at June 30, 2017		22,389		108,356		58,764		45,628
Fair value per share in won	W	21,294	W	10,471	W	3,665	W	5,875

(*1) The weighted average exercise price for 235,137 stock options outstanding at June 30, 2017 is W43,714.

(*2) As of June 30, 2017, the exercise of 38,604 options of the 7^th grant are temporarily suspended.

91

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won, except per share data)

25. Share-based payments (continued)

(b) Performance shares granted as of June 30, 2017 are as follows:

	Expired		Not expired
Type		Cash-settled share-based payment
Performance conditions		Increase rate of the stock price and achievement of target ROE
Operating period (*)		4 or 5 years
Estimated number of shares vested at June 30, 2017		17,184		1,266,449
Fair value per share in won	W	45,926	W	49,300

(*) Four-year period is applied from the beginning of the year that the grant date belongs while five-year period for the shares with deferred payment.

The amount of cash payment for the Group’s cash-settled share-based payment arrangements with performance conditions is determined at the fourth anniversary date from the grant date based on the share price which is an arithmetic mean of weighted average share prices of the past two-months, past one-month and past one-week. As such, the fair value of number of shares expired is estimated using the arithmetic mean of weighted average share prices at the day after expiration date and the fair value of number of shares non-expired is estimated using the closing share price at the end of reporting year.

92

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

25. Share-based payments (continued)

(c) Share-based compensation costs for the six-month periods ended June 30, 2017 and 2016 were as follows:

	2017
	Employees of
	The controlling company		The subsidiaries		Total
Stock options granted:
4th	W	36		375		411
5th		26		413		439
6th		30		185		215
7th		5		46		51
Performance share		1,043		8,318		9,361
	W	1,140		9,337		10,477

	2016
	Employees of
	The controlling company			The subsidiaries			Total
Stock options granted:
4th	W	(14	)		(145	)		(159	)
5th		(5	)		(73	)		(78	)
6th		—			—			—
7th		—			—			—
Performance share		839			7,281			8,120
	W	820			7,063			7,883

93

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

25. Share-based payments (continued)

(d) Accrued expenses and the intrinsic value as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Employees of
	The controlling company		The subsidiaries		Total
Stock options granted:
4th	W	191		286		477
5th		67		1,068		1,135
6th		30		185		215
7th		5		46		51
Performance share		7,856		55,369		63,225
	W	8,149		56,954		65,103

The intrinsic value of share-based payments is W64,848 million as of June 30, 2017. For calculating, the quoted market price W49,300 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

	2016
	Employees of
	The controlling company		The subsidiaries		Total
Stock options granted:
4th	W	155		1,611		1,766
5th		41		655		696
6th		—		—		—
7th		—		—		—
Performance share		7,433		57,638		65,071
	W	7,629		59,904		67,533

The intrinsic value of share-based payments is W67,533 million as of December 31, 2016. For calculating, the quoted market price W45,250 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

94

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won, except per share data)

26. Income tax expense

Income tax expense for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017				2016
	Three-month period		Six-month period		Three-month period			Six-month period
Current income tax expense	W	232,692		415,081		224,687			311,451
Origination and reversal of temporary differences (*)		31,694		156,820		(96,399	)		(247,503	)
Income tax recognized in other comprehensive income		23,229		14,175		76,733			36,488
Income tax expenses	W	287,615		586,076		205,021			100,436
Effective tax rate		%24.18		23.49		22.64			6.32

(*) The Group had not previously recognized the deferred tax asset relating to the expired unused tax losses as the utilization of the expired unused tax losses had been assessed remote. In prior year, based on the new tax interpretation issued by Korea National Tax Service which allows utilization of expired unused tax losses against extinguishment of deposit and insurance liabilities and the relating recent tax refund, the Group recognized the deferred tax asset after factoring in future taxable profits and the expected future extinguishment of deposit and insurance liabilities.

27. Earnings per share

Basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

	2017				2016
	Three-month period		Six-month period		Three-month period		Six-month period
Profit attributable to equity holders of Shinhan Financial Group	W	892,032		1,889,130		683,467		1,454,791
Less:
Dividends on preferred stock		—		—		3,563		18,836
Dividends to hybrid bond		4,461		10,621		9,657		19,314
		4,461		10,621		13,220		38,150
Net profit available for common stock	W	887,571		1,878,509		670,247		1,416,641
Weighted average number of common shares outstanding		474,199,587		474,199,587		474,199,587		474,199,587
Basic and diluted earnings per share in won	W	1,871		3,961		1,413		2,987

95

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

28. Commitments and contingencies

(a) Guarantees, acceptances and credit commitments as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Guarantees:
Guarantees outstanding	W	7,730,322		9,324,734
Contingent guarantees		2,927,123		2,997,553
		10,657,445		12,322,287
Commitments to extend credit:
Loan commitments in won		53,633,407		54,077,528
Loan commitments in foreign currency		19,228,089		20,464,242
ABS and ABCP commitments		2,024,467		2,060,089
Others		1,259,857		1,362,433
		76,145,820		77,964,292
Endorsed bills:
Secured endorsed bills		59,465		32,187
Unsecured endorsed bills		9,033,095		8,822,654
		9,092,560		8,854,841
Loans sold with recourse		2,099		2,099
	W	95,897,924		99,143,519

(b) Legal contingencies

As of June 30, 2017, the Group was involved in 209 pending lawsuits as a defendant (total claim amount: W289,426 million) and recorded a provision of W33,792 million and a reserve (liabilities under insurance contracts) of W1,386 million, respectively, with respect to these lawsuits. Additional losses might be incurred from these legal actions, but the result of such the lawsuits cannot be predicted. The management believes that the result of the lawsuits would not have significant impact on the financial position.

29. Statement of cash flows

Cash and cash equivalents in the consolidated statements of cash flows as of June 30, 2017 and December 31, 2016 are as follows:

	2017			2016
Cash and due from banks	W	20,435,020			19,165,875
Adjustments:
Due from financial institutions with a maturity over three months from date of acquisition		(4,027,060	)		(4,458,286	)
Restricted due from banks		(10,546,435	)		(9,106,053	)
	W	5,861,525			5,632,536

96

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

30. Related parties

Intra-group balances, and income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

(a) Balances with the related parties as of June 30, 2017 and December 31, 2016 are as follows:

Related party	Account		2017			2016
Investments in associates:
Aju Capital Co., Ltd.		Trading assets	W	50,000			49,990
”		Loans		160,000			210,000
”		Credit card loans		2,519			1,922
”		Allowances		(489	)		(627	)
”		Deposits		1,100			692
”		Provisions		127			73
Pohang TechnoPark2PFV		Deposits		—			14,658
BNP Paribas Cardif Life Insurance		Credit card loans		142			127
”		Other assets		108			112
”		Allowances		(1	)		(1	)
”		Accrued expenses		—			29
”		Deposits		—			353
”		Provisions		—			1
JAEYOUNG SOLUTEC CO., LTD.		Loans		14,356			14,356
”		Allowances		(113	)		(70	)
”		Credit card loans		41			42
”		Deposits		9,500			7,638
”		Provisions		11			7
Partners 4th Growth Investment Fund		Deposits		6,052			2,160
BNP Paribas Cardif General Insurance		Credit card loans		42			44
”		Allowances		—			(1	)
”		Deposits		6			13
Shinhan Praxis K-Growth Global Private Equity Fund		Other assets		172			175
Dream High Fund III		Deposits		—			1
Midas Dong-A Snowball Venture Fund		Deposits		240			427
IBKS-Shinhan Creative Economy New Technology Fund		Accounts receivable		—			12
”		Deposits		1,982			1,751
EQP Global Energy Infrastructure Private Equity Fund		Deposits		—			1
Albatross Growth Fund		Accounts receivable		—			326
Credian Healthcare Private Equity Fund II		Deposits		69			7
Midas Dong-A Snowball Venture Fund 2		Deposits		89			242
IBKS-Shinhan Creative Economy New Technology Fund II		Accounts receivable		—			8
”		Deposits		157			179
PSA 1st Fintech Private Equity Fund		Deposits		428			525
Eum Private Equity Fund No.3		Deposits		71			80
Semantic		Credit card loans		—			1
Branbuil CO., LTD.		Loans		—			15
”		Credit card loans		3			3
”		Allowances		—			(1	)
”		Deposits		136			28

97

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

30. Related parties (continued)

Related party	Account	2017		2016
SHBNPP Private Korea Equity Long-Short Professional Feeder	Other assets	W	114		175
SHBNPP Private Multi Strategy Professional Feeder No.1	Other assets		—		43
Shinhan-Albatross Technology Investment Fund	Deposits		4,975		—
Key management personnel and their immediate relatives:	Loans		2,217		1,877
	Assets	W	229,111		278,527
	Liabilities		24,943		28,865

98

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

30. Related parties (continued)

(b) Transactions with the related parties for the three-month and six-month periods ended June 30, 2017 and 2016 were as follows:

Related party	Account		2017						2016
			Three-month period			Six-month period			Three-month period			Six-month period
Investments in associates
Aju Capital Co., Ltd		Interest income	W	1,867			3,840			1,980			3,866
”		Fees and commission income		54			110			66			139
”		Interest expense		(1	)		(1	)		(1	)		(1	)
”		Fees and commission expense		—			—			(115	)		(238	)
”		Other operating expenses		(29	)		(55	)		—			—
”		Provision for credit losses		(24	)		137			(15	)		(6	)
Pohang TechnoPark2PFV		Interest expense		—			—			(3	)		(7	)
BNP Paribas Cardif Life Insurance		Fees and commission income		350			693			460			980
”		Provision for credit losses		(1	)		—			—			(1	)
”		General and administrative expenses		(2	)		(4	)		(1	)		(3	)
Shinhan Praxis K-Growth Global Private Equity Fund		Fees and commission income		172			342			170			344
Shinhan K2 Secondary Fund		Fees and commission income		1			922			—			170
BNP Paribas Cardif General Insurance		Fees and commission income		1			2			1			2
”		Provision for credit losses		1			—			—			(1	)
Korea Investment Gong-pyeong Office Real Estate Investment Trust 2nd		Fees and commission income		—			—			50			55
Midas Dong-A Snowball Venture Fund		Fees and commission income		9			28			9			19
”		Interest expense		(1	)		(2	)		(1	)		(2	)
SHC-EN Fund		Fees and commission income		—			—			5			15
SP New Technology Business investment Fund I		Fees and commission income		10			30			18			36
IBKS-Shinhan Creative Economy New Technology Fund		Fees and commission income		24			24			—			12
”		Interest expense		(1	)		(1	)		(1	)		(1	)
IBKS-Shinhan Creative Economy New Technology Fund II		Fees and commission income		16			16			5			5
SM New Technology Business Investment Fund I		Fees and commission income		16			55			—			—
APC Fund		Fees and commission income		42			86			89			89
JAEYOUNG SOLUTEC CO., LTD.		Interest income		161			321			164			332
”		Fees and commission income		1			1			1			1
”		Other operating income		—			—			12			12
”		Reversal of credit losses		—			—			76			75
”		Interest expense		(1	)		(2	)		(24	)		(57	)
”		Provision for credit losses		(46	)		(45	)		—			—
”		Other operating expenses		(3	)		(3	)		—			—

99

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

30. Related parties (continued)

Related party	Account	2017						2016
		Three-month period			Six-month period			Three-month period			Six-month period
Partners 4th Growth Investment Fund	Interest expense	W	(2	)		(3	)		—			(1	)
Albatross Growth Fund	Interest expense		—			—			(5	)		(5	)
PSA 1st Fintech Private Equity Fund	Interest expense		(1	)		(2	)		(2	)		(2	)
SHBNPP Private Korea Equity Long-Short Professional Feeder	Fees and commission income		139			312			209			431
SHBNPP Private Multi Strategy Professional Feeder No.1	Fees and commission income		7			48			74			74
Branbuil CO., LTD.	Fees and commission income		1			1			—			—
Shinhan-Albatross Technology Investment Fund	Fees and commission income		43			43			—			—
”	Interest expense		(11	)		(22	)		—			—
STI-New Growth Engines Investment Partnership	Fees and commission income		—			29			—			—
Key management personnel and their immediate relatives	Interest income		12			28			15			34
		W	2,804			6,928			3,236			6,366

(c) Key management personnel compensation

Key management personnel compensation for the six-month periods ended June 30, 2017 and 2016 were as follows:

	2017		2016
Short-term employee benefits	W	10,430		9,989
Severance benefits		198		207
Share-based payment transactions		3,381		2,904
	W	14,009		13,100

100

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

30. Related parties (continued)

(d) The guarantees provided between the related parties as of June 30, 2017 and December 31, 2016 were as follows:

			Amount of guarantees
Guarantor	Guaranteed Parties		2017		2016		Account
Shinhan Bank		Aju Capital Co., Ltd.	W	50,000		50,000		Unused credit line
		BNP Paribas Cardif Life Insurance		10,000		10,000		Unused credit line
		Neoplux Technology Valuation Investment Fund		8,000		12,000		Security underwriting commitment
		JAEYOUNG SOLUTEC CO., LTD.		600		600		Unused credit
		”		456		483		Import letter of credit
			W	69,056		73,083

(e) Details of collaterals provided by the related parties as of June 30, 2017 and December 31, 2016 were as follows:

Provided to	Provided by		Pledged assets		2017		2016
Shinhan Bank		Aju Capital Co., Ltd.		Beneficiary certificate	W	160,000		160,000
		BNP Paribas Cardif Life Insurance		Government bonds		13,627		13,699
		Treenkid		Properties		—		200
		JAEYOUNG SOLUTEC CO., LTD.		Properties		20,814		20,814
		”		Guarantee insurance policy		7,037		7,037
					W	201,478		201,750

101

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

31. Interests in unconsolidated structured entities

(a) The nature and extent of interests in unconsolidated structured entities

The Group involved in assets-backed securitization, structured financing, beneficiary certificates (primarily investment funds) and other structured entities and characteristics of these structured entities are as follows:

	Description
Assets-backed securitization	Securitization vehicles are established to buy assets from originators and issue asset-backed securities in order to facilitate the originators’ funding activities and enhance their financial soundness. The Group is involved in the securitization vehicles by purchasing (or committing to purchase) the asset-backed securities issued and/or providing other forms of credit enhancement. The Group does not consolidate a securitization vehicle if (i) the Group is unable to make or approve decisions as to the modification of the terms and conditions of the securities issued by such vehicle or disposal of such vehicles’ assets, (ii) (even if the Group is so able) if the Group does not have the exclusive or primary power to do so, or (iii) if the Group does not have exposure, or right, to a significant amount of variable returns from such entity due to the purchase (or commitment to purchase) of asset-backed securities so issued or subordinated obligations or by providing other forms of credit support.
Structured financing	Structured entities for project financing are established to raise funds and invest in a specific project such as M&A (mergers and acquisitions), BTL (build-transfer-lease), shipping finance, etc. The Group is involved in the structured entities by originating loans, investing in equity, or providing credit enhancement.
Investment fund	Investment fund means an investment trust, a PEF (private equity fund) or a partnership which invests in a group of assets such as stocks or bonds by issuing a type of beneficiary certificates to raise funds from the general public, and distributes its income and capital gains to their investors. The Group manages assets by investing in shares of investment fund or playing a role of an operator or a GP (general partner) of investment fund, on behalf of other investors.

The size of unconsolidated structured entities as of June 30, 2017 and December 31, 2016 are as follows:

	2017		2016
Total assets:
Asset-backed securitization	W	127,985,705		108,649,039
Structured financing		71,194,301		66,759,795
Investment fund		38,733,654		33,891,120
	W	237,913,660		209,299,954

102

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

31. Interests in unconsolidated structured entities (continued)

(b) Nature of risks

i) The carrying amounts of the assets and liabilities relating to its interests in unconsolidated structured entities as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets:
Loans	W	1,115,431		5,530,140		91,048		6,736,619
Trading assets		2,588,065		59,392		171,302		2,818,759
Derivative assets		16,824		—		—		16,824
Available-for-sale financial assets		2,019,356		598,337		2,955,899		5,573,592
Held-to-maturity financial assets		2,916,304		—		—		2,916,304
Other assets		914		44,215		233		45,362
	W	8,656,894		6,232,084		3,218,482		18,107,460
Liabilities:
Derivative liabilities	W	243		—		—		243
Other		1,099		739		1,748		3,586
	W	1,342		739		1,748		3,829

	2016
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets:
Loans	W	380,961		5,791,745		106,234		6,278,940
Trading assets		2,082,684		30,266		31,791		2,144,741
Derivative assets		19,144		—		—		19,144
Available-for-sale financial assets		2,648,304		559,990		2,711,666		5,919,960
Held-to-maturity financial assets		2,612,564		—		—		2,612,564
Other assets		13,253		21,705		170		35,128
	W	7,756,910		6,403,706		2,849,861		17,010,477
Liabilities:
Derivative liabilities	W	137		—		—		137
Borrowings		—		1,318		—		1,318
Other		1,006		264		—		1,270
	W	1,143		1,582		—		2,725

103

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2017

(Unaudited)

(In millions of won)

31. Interests in unconsolidated structured entities (continued)

ii) Exposure to risk relating to its interests in unconsolidated structured entities as of June 30, 2017 and December 31, 2016 are as follows:

	2017
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets held	W	8,656,894		6,232,084		3,218,482		18,107,460
ABS and ABCP commitments		1,281,419		46,000		—		1,327,419
Loan commitments		744,758		689,627		7,487		1,441,872
Guarantees		83,000		14,157		—		97,157
Others		3,200		—		—		3,200
	W	10,769,271		6,981,868		3,225,969		20,977,108

	2016
	Assets-backed securitization		Structured financing		Investment fund		Total
Assets held	W	7,756,910		6,403,706		2,849,861		17,010,477
ABS and ABCP commitments		1,108,282		30,000		—		1,138,282
Loan commitments		977,383		328,236		47,246		1,352,865
Guarantees		83,000		28,060		—		111,060
Others		61,400		—		—		61,400
	W	9,986,975		6,790,002		2,897,107		19,674,084

104