6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16

Under the Securities Exchange Act of 1934

For the Month of May 2018

SHINHAN FINANCIAL GROUP CO., LTD.

(Translation of registrant's name into English)

20, Sejong-daero 9-gil, Jung-gu, Seoul 04513, Korea

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will

file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  √    Form 40-F      

Indicate by check mark if the registrant is submitting the Form 6-K in

paper as permitted by Regulation S-T Rule 101(b)(1): _______

Indicate by check mark if the registrant is submitting the Form 6-K in

paper as permitted by Regulation S-T Rule 101(b)(7): _______

Indicate by check mark whether the registrant by furnishing the

information contained in this form is also thereby furnishing the

information to the Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.

Yes        No___√___

If "Yes" is marked, indicate below the file number assigned to the

registrant in connection with Rule 12g3-2(b): 82-  n/a  .

Summary ofFY2018 1QBusiness Report

On May 15, 2018, Shinhan Financial Group (“SFG”) filed its FY2018 1Q Business Report (the “Business Report”) with the Financial Services Commission of Korea and the Korea Exchange pursuant to the Financial Investment Services and Capital Market Act of Korea. This is the summary of the Business Report translated into English. Non-material or previously disclosed information are omitted or abridged.

The financial information in this report has been prepared in accordance with Korean International Financial Reporting Standards.

Table of Contents

1. Introduction of the Group

2. Business Results

3. Independent Auditor

4. Major Shareholder and Market Price Information of our Common Shares and ADRs

5. Directors, Executive Officers and Employees

6. Related Party Transactions

2

1. Introduction of the Group

Company History in 2010 through 2018

▪ Jan. 2010 : Shinhan Data System became a direct subsidiary of SFG

▪ Aug. 2010 : Shinhan Macquarie Financial Advisory was disaffiliated from SFG

▪ Feb. 2011 : Shinhan BNP Paribas Asset Management (Hong Kong) Limited became an indirect subsidiary of SFG

▪ Nov. 2011 : Shinhan Bank Vietnam was merged with Shinhan Vina Bank

▪ Dec. 2011 : Shinhan Savings Bank became a direct subsidiary of SFG

▪ Nov. 2012 : Shinhan AITAS Co., Ltd. joined SFG as a direct subsidiary

▪ Jan. 2013 : Yehanbyoul Savings Bank joined SFG as a direct subsidiary

▪ Apr. 2013 : Shinhan Savings Bank merged with Yehanbyoul Savings Bank. As a result of the integration, Shinhan Savings Bank has been liquidated and Yehanbyoul Savings Bank now exists under the name of “Shinhan Savings Bank” as an existing legal entity

▪ Nov. 2014 : LLP MFO Shinhan Finance (Kazakhstan) became an indirect subsidiary of SFG

▪ Jul. 2015 : Shinhan Securities Vietnam Co., Ltd became an indirect subsidiary of SFG

▪ Oct. 2015 : Banco Shinhan de Mexico became an indirect subsidiary of SFG

▪ Nov. 2015 : PT Bank Shinhan Indonesia became an indirect subsidiary of SFG

▪ Dec. 2015 : PT. Shinhan Indo Finance became an indirect subsidiary of SFG

▪ Dec. 2015 : PT Centratama Nasional Bank became an indirect subsidiary of SFG

▪ Mar. 2016 : Shinhan Microfinance Co., Ltd. became an indirect subsidiary of SFG

▪ Jul. 2016 : PT Shinhan Securities Indonesia became an indirect subsidiary of SFG

▪ Dec. 2016 : Launched new integrated PT Bank Shinhan Indonesia

▪ Oct. 2017 : Established Shinhan REITs(Real Estate Investment Trusts) Management Co.,Ltd. as SFG subsidiary

▪ Dec. 2017 : Shinhan K REITs became an indirect subsidiary of SFG

3

Principal Subsidiaries under Korean Law (as of Mar. 31, 2018)

Direct Subsidiaries

Subsidiaries	Ownership by SFG
Shinhan Bank	100.0%
Shinhan Card	100.0%
Shinhan Investment Corp.	100.0%
Shinhan Life Insurance	100.0%
Shinhan BNP Paribas Asset Management	65.0%
Shinhan Capital	100.0%
Jeju Bank 1)	68.9%
Shinhan Savings Bank 2)	100.0%
Shinhan Data System	100.0%
Shinhan AITAS 3)	99.8%
Shinhan Credit Information	100.0%
Shinhan Alternative Investment Management	100.0%
Shinhan REITs Management	100.0%
SHC Management 4)	100.0%

1) Jeju Bank is currently listed on the Korea Exchange.

2) On January 30, 2013, Yehanbyoul Savings Bank joined SFG as a direct subsidiary.

On April 1, 2013, Shinhan Savings Bank merged with Yehanbyoul Savings Bank, both of which were

direct subsidiaries of Shinhan Financial Group. As a result of the integration of the two savings banks,

the previous Shinhan Savings Bank has been liquidated and is thus no longer a subsidiary of Shinhan

Financial Group and instead, Yehanbyoul Savings Bank now exists under the name of “Shinhan Savings

Bank” as an existing legal entity constituting a member of Shinhan Financial Group.

3) On November 30, 2012, Shinhan AITAS Co., Ltd. joined SFG as a direct subsidiary. Prior to November 30, 2012, Shinhan AITAS was an indirect subsidiary of SFG under Shinhan Bank, a wholly-owned bank subsidiary of SFG.

4) Currently in liquidation proceedings

4

Indirect subsidiaries held through direct subsidiaries(as ofMar. 31, 2018)

Direct Subsidiaries	Indirect Subsidiaries	Ownership by the Parent
Shinhan Bank	Shinhan Asia Limited	100.0%
	Shinhan Bank America	100.0%
	Shinhan Bank Japan	100.0%
	Shinhan Bank Europe	100.0%
	Shinhan Bank Cambodia	97.5%
	Shinhan Bank Kazakhstan	100.0%
	Shinhan Bank China Limited	100.0%
	Shinhan Bank Canada	100.0%
	Shinhan Bank Vietnam	100.0%
	Banco Shinhan de Mexico	100.0%
	PT Bank Shinhan Indonesia	99.0%
Shinhan Card	LLP MFO Shinhan Finance	100.0%
	PT. Shinhan Indo Finance	50.0%
	Shinhan Microfinance Co., Ltd.	100.00%
Shinhan Investment Corp.	Shinhan Investment Corp. USA Inc.	100.0%
	Shinhan Investment Corp. Asia Inc.	100.0%
	Shinhan Securities Vietnam Co., Ltd	100.0%
	PT Shinhan Sekuritas Indonesia	99.0%
	KOFC Shinhan Frontier Champ 2010-4 PEF1)	8.5%
	Shinhan Praxis K-Growth Global Private Equity Fund 2)	14.1%
Shinhan BNP Paribas Asset Management	Shinhan BNP Paribas Asset Management (Hong Kong) Limited	100.0%
Shinhan Alternative Investment Management	Shinhan NPS Private Equity Fund 1st 3)	5.0%
	Shinhan Private Equity Fund 2nd 4)	2.2%
	Shinhan-Stonebridge Petro Private Equity Fund 5)	0.6%
Shinhan REITs Management	Shinhan Alpha REIT Co., Ltd.	100.0%

1) Shinhan Financial Group and its subsidiaries currently own 34.6% of KOFC Shinhan Frontier Champ 2010-4
PEF Investment Corp.

2) Shinhan Financial Group and its subsidiaries currently own 18.9% of Shinhan Praxis K-Growth Global Private
Equity Fund.

3) Shinhan Financial Group and its subsidiaries currently own 36.7% of Shinhan NPS Private Equity Fund 1st.

4) Shinhan Financial Group and its subsidiaries currently own 32.6% of Shinhan Private Equity Fund 2nd.

5) Shinhan Financial Group and its subsidiaries currently own 1.8% of Shinhan-Stonebridge Petro Private Equity Fund.

Number of Shares (as of Mar. 31, 2018)

Types of Shares	Number of Shares
Common Shares	474,199,587
Total	474,199,587

5

2. Business Results

Operation Results(KRW billion)

	2018 1Q (Jan. 1 ~ Mar. 31)	2017 1Q (Jan. 1 ~ Mar. 31)	FY2017 (Jan. 1 ~ Dec. 31)	FY2016 (Jan. 1 ~ Dec. 31)
Operating income	1,175.8	1,298.3	3,828.7	3,108.6
Equity method income	13.6	-0.4	20.4	10.0
Other non-operating income	4.6	7.9	-52.8	51.8
Profit before income taxes	1,194.0	1,305.7	3,796.3	3,170.5
Income tax expense	325.0	298.5	848.1	345.6
Consolidated net income	869.0	1,007.3	2,948.1	2,824.9
Net income attributable to equity holders of the Group	857.5	997.1	2,917.7	2,774.8
Net income attributable to non-controlling interest	11.5	10.2	30.4	50.1

Notes :

▪ Some of the totals may not sum due to rounding.

6

Source and Use of Funds

Consolidated Basis (KRW billion, %)		2018 1Q				FY2017				FY2016
		Jan. 1 ~ Mar. 31				Jan. 1 ~ Dec. 31				Jan. 1 ~ Dec. 31
		Average Balance1)	Proportions (%)	Interest Paid	Interest Rate (%)	Average Balance1)	Proportions (%)	Interest Paid	Interest Rate (%)	Average Balance1)	Proportions (%)	Interest Paid	Interest Rate (%)
Source	Deposits	250,622.7	58.3	695.6	1.13	241,523.7	58.3	2,482.5	1.03	226,966.8	58.7	2,586.7	1.14
	Borrowings	18,142.9	4.2	65.6	1.47	17,479.8	4.2	217.3	1.24	15,047.2	3.9	176.4	1.17
	Debt Securities Issued	51,833.3	12.1	290.3	2.27	47,594.6	11.5	1,085.4	2.28	42,790.8	11.1	1,085.8	2.54
	Other Liabilities	75,808.0	17.7	-	-	74,788.5	18.1	-	-	70,504.9	18.2	-	-
	Total Liabilities	396,406.9	92.3	-	-	381,386.6	92.1	-	-	355,309.7	91.9	-	-
	Total Stockholder's Equity	33,162.4	7.7	-	-	32,750.5	7.9	-	-	31,499.5	8.1	-	-
	Total Liabilities & SE	429,569.3	100.0	-	-	414,137.1	100.0	-	-	386,809.3	100.0	-	-
Use	Cash & Due from Banks	20,876.6	4.9	41.3	0.80	21,609.4	5.2	167.8	0.78	20,933.1	5.4	185.5	0.89
	Loans	276,901.7	64.5	2,604.3	3.81	266,195.4	64.3	9,681.4	3.64	252,132.2	65.2	9,244.0	3.67
	Loans in KRW	217,067.3	50.5	1,837.8	3.43	207,439.9	50.1	6,828.2	3.29	197,841.4	51.2	6,541.9	3.31
	Loans in Foreign Currency	18,125.4	4.2	172.2	3.85	16,841.6	4.1	583.2	3.46	14,936.7	3.9	482.2	3.23
	Credit Card Accounts	20,768.8	4.8	428.9	8.37	19,952.8	4.8	1,680.9	8.42	18,804.3	4.9	1,708.5	9.09
	Others	20,940.2	5.0	165.5	3.21	21,961.1	5.3	589.1	2.68	20,549.8	5.3	511.4	2.49
	AFS Financial Assets	36,089.5	8.4	175.9	1.98	34,272.9	8.3	645.3	1.88	30,308.9	7.8	612.1	2.02
	HTM Financial Assets	24,645.0	5.7	171.5	2.82	22,199.6	5.4	651.1	2.93	17,409.7	4.5	561.8	3.23
	Other Assets	71,056.5	16.5	-	-	69,859.8	16.8	-	-	66,025.3	17.1	-	-
	Total Assets	429,569.3	100.0	-	-	414,137.1	100.0	-	-	386,809.3	100.0	-	-

1) The “Average Balance” is the arithmetic mean of the ending balance of each quarter.

7

Other Financial Information

※ The main serial financial figures and indices for Mar. 31, 2018 listed herein may be subject to change.

1) Capital Adequacy

Consolidated BIS Ratio (Shinhan Financial Group)             (KRW billion)

	Mar. 31, 2018(e)	Dec. 31, 2017	Dec. 31, 2016
Aggregate Amount of Equity Capital (A)	31,261.3	30,713.5	29,786.5
Risk-Weighted Assets (B)	210,816.7	207,768.6	198,642.6
BIS Ratio (A/B)	14.83%	14.78%	15.00%

Note) based on Basel III

Capital Adequacy Ratios (Subsidiaries)                 (%)

Subsidiary	Capital Adequacy Ratio	Mar. 31, 2018(e)	Dec. 31, 2017	Dec. 31, 2016
Shinhan Bank	BIS Capital Adequacy Ratio	16.3	15.6	15.7
Shinhan Card	Adjusted Equity Capital Ratio	22.6	24.5	26.2
Shinhan Investment Corp.	Net Capital Ratio	518.6	706.4	892.0
Shinhan Life Insurance	Risk Based Capital Ratio	173.7	175.4	178.3
Shinhan BNP Paribas Asset Management	Equity Capital (KRW billion)	145.4	156.0	148.6
	Minimum Capital Requirement (KRW billion)	25.2	23.5	24.0
Shinhan Capital	Adjusted Equity Capital Ratio	13.3	14.0	14.9
Jeju Bank	BIS Capital Adequacy Ratio	14.6	14.7	12.8
Shinhan Savings Bank	BIS Capital Adequacy Ratio	14.6	14.3	14.9

Notes :

▪ The BIS Capital Adequacy Ratio is computed in accordance with the guidelines issued by the FSS for commercial banks. Under these guidelines, commercial banks are required to maintain a minimum capital adequacy ratio of 8%.

▪ Basel III FIRB was applied in calculating Shinhan Bank’s BIS Capital Adequacy Ratio.

▪ Basel III TSA was applied in calculating Jeju Bank’s BIS Capital Adequacy Ratio.

▪ Basel I was applied in calculating Shinhan Savings Bank’s BIS Capital Adequacy Ratio.

▪ The Adjusted Equity Capital Ratio represents the ratio of total adjusted shareholder’s equity to total adjusted assets and is computed in accordance with the guidelines issued by FSS. Under these guidelines, Shinhan Card and Shinhan Capital are required to maintain a minimum adjusted equity capital ratio of 8%.

▪ Net Capital Ratio is computed in accordance with the guidelines issued by the FSS. Under these guidelines, Shinhan Investment Corporation is required to maintain a minimum net capital ratio of 100%.

▪ Under the guidelines issued by the FSS, Shinhan Life Insurance is required to maintain a minimum RBC ratio of 100%.

▪ Under the guidelines issued by the FSS, Shinhan BNP Paribas Asset Management is required to hold Equity Capital that exceeds the Minimum Capital Requirement.

8

2) Liquidity

Won Liquidity Ratio    (KRW billion, %)

Company	Mar. 31, 2018			Dec. 31, 2017			Dec. 31, 2016
	Won Assets	Won Liabilities	Won Liquidity Ratio(%)	Won Assets	Won Liabilities	Won Liquidity Ratio(%)	Won Assets	Won Liabilities	Won Liquidity Ratio(%)
Shinhan Financial Group	1,886.0	940.4	200.5	309.8	131.6	235.3	198.8	134.8	147.5
Shinhan Card	15,363.5	4,530.0	339.0	15,768.6	4,236.0	372.3	14,722.9	4,069.1	361.8
Shinhan Investment Corp.	12,672.8	8,040.4	157.6	12,873.9	9,320.8	138.1	12,472.3	8,227.4	151.6
Shinhan Life Insurance	931.1	581.5	160.1	917.5	553.3	165.8	915.8	502.0	182.4
Shinhan Capital	913.9	574.1	159.2	768.9	560.4	137.2	684.5	521.2	131.3
Shinhan Savings Bank	349.2	194.0	180.0	308.0	213.3	144.4	169.8	138.7	122.4

Notes :

▪ Shinhan Financial Group: Due within 1 month

▪ Shinhan Life Insurance: (Won assets due within 3 months /3 months average of Claim payments )*100

▪ Shinhan Card, Shinhan Investment Corp., Shinhan Capital, and Shinhan Savings Bank : Due within 3 months

▪ Liquidity Ratio for Shinhan Bank and Jeju Bank have been replaced by Liquidity Coverage Ratio from Mar 31, 2015

to reflect the recent amendments to detailed regulations on supervision of banking business.

Liquidity Coverage Ratio    (KRW billion, %)

Company	Mar. 31, 2018			Dec. 31, 2017			Dec. 31, 2016
	High Quality Liquid Assets	Net Cash Outflows	Liquidity Coverage Ratio(%)*	High Quality Liquid Assets	Net Cash Outflows	Liquidity Coverage Ratio(%)	High Quality Liquid Assets	Net Cash Outflows	Liquidity Coverage Ratio(%)
Shinhan Bank	47,657.7	46,321.9	102.9	46,813.9	49,493.3	94.7	35,961.9	37,257.5	96.7
Jeju Bank	557.0	453.3	123.3	560.3	476.0	117.9	563.2	401.9	142.6

* The “High quality liquid assets” and “Net cash outflows” are the arithmetic mean of the ending balance of every day.

9

Foreign Currency(FC) Liquidity Ratio                   (USD millions, %)

Company	Mar. 31, 2018			Dec. 31, 2017			Dec. 31, 2016
	FC Assets	FC Liabilities	FC Liquidity Ratio(%)	FC Assets	FC Liabilities	FC Liquidity Ratio(%)	FC Assets	FC Liabilities	FC Liquidity Ratio(%)
Shinhan Financial Group	-	-	-	-	-	-	-	-	-
Shinhan Bank	-	-	-	49,850.7	46,790.4	106.5	39,631.1	35,968.5	110.2
Shinhan Investment Corp.	6,831.3	6,125.1	111.5	7,577.9	7,913.3	95.8	5,635.3	5,073.4	111.1
Shinhan Capital	110.5	0.4	28,206.0	99.8	0.3	29,325.2	80.3	1.1	7,333.0
Jeju Bank	51.6	43.5	118.5	43.2	37.9	114.1	13.3	10.7	124.7

Notes :

▪ Foreign currency liquidity ratios are computed with assets and liabilities due within 3 months.

▪ Shinhan Bank’s foreign currency liquidity ratio reflected securitization weight with the guidelines issued by the FSS.

▪ Shinhan Financial Group figures are based on the separate basis.

Foreign Currency (FC) Liquidity Coverage Ratio                                 (USD millions, %)

Company	2018 1Q	2017 4Q	2017 3Q	2017 2Q	2017 1Q
	Jan. 1 ~ Mar. 31	Oct. 1 ~ Dec. 31	Jul. 1 ~ Sep. 30	Apr. 1 ~ Jun. 30	Jan. 1 ~ Mar. 31
Shinhan Bank	107.3	107.3	89.0	115.7	111.0

Notes :

▪ Under the guidelines issued by the FSS, Shinhan Bank is required to hold a minimum requirement of foreign exchange debt in high-quality liquidity assets to withstand a 30-day net cash outflow in systemic risks. The minimum requirement of the foreign currency liquidity coverage ratio was set at 60% in 2017, 70% in 2018 and will be increased gradually to 80% in 2019.

10

3) Asset Quality

SFG Consolidated Basis                                                          (KRW billion)

	Mar. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Total Loans	277,785.5	274,719.1	259,772.6
Substandard & Below	1,804.8	1,734.1	1,927.6
Substandard & Below Ratio	0.65%	0.63%	0.74%
Non-Performing Loans	1,554.5	1,467.1	1,595.8
NPL Ratio	0.56%	0.53%	0.61%
Substandard & Below Coverage Ratio	163.60%	135.15%	125.99%
Loan Loss Allowance	2,952.5	2,343.6	2,428.7
Substandard & Below Loans	1,804.8	1,734.1	1,927.6

Separate Basis                                                                         (%)

	Mar. 31, 2018			Dec. 31, 2017			Dec. 31, 2016
	Substandard & Below Ratio	NPL Ratio	Substandard & Below Coverage Ratio	Substandard & Below Ratio	NPL Ratio	Substandard & Below Coverage Ratio	Substandard & Below Ratio	NPL Ratio	Substandard & Below Coverage Ratio 1)
Shinhan Financial Group	-	-	-	-	-	-	-	-	-
Shinhan Bank	0.57	0.52	140	0.55	0.49	114	0.65	0.56	96
Shinhan Card	1.16	0.68	272	1.06	0.61	238	1.16	0.76	271
Shinhan Investment Corp.	0.08	0.08	769	0.08	0.08	497	0.10	0.10	413
Shinhan Life Insurance	0.09	0.09	399	0.09	0.07	274	0.09	0.08	335
Shinhan Capital	1.25	1.55	161	1.33	1.60	129	2.61	2.93	94
Jeju Bank	0.98	0.98	56	1.09	0.80	41	1.24	0.93	35
Shinhan Savings Bank	3.68	3.17	79	3.86	2.98	62	5.42	3.45	53

4) Debt to Equity Ratios

Shinhan Financial Group (Separate Basis)                (KRW billion)

	Mar. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Debt	8,385.6	7,447.7	6,977.7
Equity	20,864.9	20,192.1	20,217.9
Debt to Equity Ratio	40.19%	36.88%	34.51%

11

Twenty Largest Exposures by Borrower

                         (KRW billion)

As of Mar. 31, 2018 Consolidated basis	Loans in Won	Loans in Foreign Currency	Securities	Guarantees and Acceptances	Others	Total Exposures
Ministry of Strategy & Finance	0.0	-	15,080.3	-	-	15,080.3
Bank of Korea	1,200.0	-	6,729.9	0.1	-	7,929.9
Korea Housing Finance Corporation	0.0	-	5,787.4	-	-	5,787.4
Korea Development Bank	13.4	-	5,028.1	-	-	5,041.5
Industrial Bank of Korea	647.2	117.3	2,323.7	-	-	3,088.3
Export-Import Bank of Korea	-	-	2,366.1	53.3	-	2,419.4
Korea Securities Finance Corporation	355.8	-	1,091.0	-	-	1,446.7
Korea Deposit Insurance Corporation	-	-	1,373.6	-	-	1,373.6
Kookmin Bank	520.5	74.7	719.3	0.1	-	1,314.6
Korea Investment & Securities Co.,Ltd.	1,245.3	-	40.0	-	-	1,285.3
Korea Land & Housing Corporation	0.0	-	1,199.0	-	-	1,199.0
NongHyup Bank	526.3	10.3	636.0	17.9	-	1,190.5
KEB Hana Bank	127.8	237.1	579.5	1.8	-	946.2
Small & medium Business Corporation	0.0	-	921.4	-	-	921.4
Woori Bank	59.9	13.6	843.6	-	-	917.1
Samsung Electronics Co., Ltd.	-	869.4	18.9	-	0.0	888.3
KB Securities Co., Ltd.	750.0	-	129.7	-	-	879.7
LG Electronics Inc.	89.9	62.6	223.4	420.1	-	796.0
Samsung Asset Management	-	-	633.4	-	-	633.4
Korea Electric Power Corporation	0.4	-	616.9	6.5	-	623.8
Total	5,536.6	1,384.9	46,341.1	499.7	0.0	53,762.3

Note) Some of the totals may not sum due to rounding

12

Exposure to ten Main Debtor Groups

                                                                      (KRW billion)

As of Mar. 31, 2018 Consolidated basis	Loans in Won	Loans in Foreign Currency	Securities	Guarantees and Acceptances	Others	Total Exposures
Samsung	624.6	1,369.3	1,300.0	835.0	0.0	4,128.9
Hyundai Motors	981.8	1,637.1	850.8	340.6	0.2	3,810.5
Lotte	182.8	726.9	965.1	410.2	0.1	2,285.1
LG	455.3	162.3	455.9	629.8	0.0	1,703.3
SK	334.0	300.5	515.4	403.2	0.0	1,553.2
Hyundai Heavy Industries	192.5	118.5	124.0	1,035.0	-	1,470.1
Hanwha	405.7	227.1	386.6	325.2	0.1	1,344.7
LS	110.7	422.1	167.6	476.7	-	1,177.0
GS	345.9	128.3	278.4	198.0	0.0	950.6
Hyosung	155.1	391.5	79.6	150.0	0.0	776.1
Total	3,788.4	5,483.6	5,123.4	4,803.8	0.4	19,199.7

Note) Some of the totals may not sum due to rounding

Loans, Due from banks and Securities Concentration by Industry

              (KRW billion)

As of Mar. 31, 2018 Consolidated basis	Total Exposures
	Amount	Weight (%)
Finance and Insurance	83,922.6	21.4%
Manufacturing	45,876.4	11.7%
Retail and Wholesale	18,522.9	4.7%
Real Estate, Leasing and Service	26,703.1	6.8%
Construction	4,306.0	1.1%
Hotel and Restaurant	5,625.1	1.4%
Others	80,631.0	20.5%
Retail customers	126,970.4	32.3%
Total	392,557.6	100.0%

Note) Some of the totals may not sum due to rounding

13

Top Twenty Non-Performing Loans

(KRW billion)

Borrower	Industry	Gross Principal Outstanding	Substandard & Below	Allowance for Loan Losses
A	Manufacture of Cold Rolled, Drawn and Extruded Iron or Steel Products	109.0	109.0	94.7
B	Manufacture of Distilling Machinery, Heat exchange unit and Gas Generators	81.0	81.0	54.3
C	Manufacture of Plastic Products for Fabricating of Machine	49.0	49.0	36.0
D	Manufacture of Sections for Ships	42.0	39.7	26.6
E	Other Civil Engineering Construction	29.4	29.4	18.6
F	Building of Steel Ships	25.6	25.6	21.8
G	Building of Steel Ships	23.4	23.4	5.8
H	Manufacture of Sections for Ships	24.5	23.0	1.4
I	Building of Steel Ships	21.3	21.3	0.7
J	Construction of Highways, Streets and Roads	17.2	17.2	14.3
K	Apartment Building Construction	17.1	17.1	1.4
L	Apartment Building Construction	16.8	15.9	14.5
M	Manufacture of Tires and Tubes	15.7	15.7	15.6
N	Golf Course Operation	14.0	14.0	8.3
O	Wholesale of Non-Specialized Goods	12.4	12.4	12.4
P	Manufacture of Sections for Ships	11.4	11.4	5.7
Q	Golf Course Operation	11.4	11.4	0.0
R	Knitted and Crocheted Apparel	15.0	11.3	10.7
S	Development and Subdividing of Other Real Estate	8.2	8.2	0.0
T	Manufacture of Other Smelting, Refining and Alloys of Non-ferrous Metals	7.8	7.8	4.5
Total		552.4	543.9	347.3

Notes :

▪ Consolidated basis as of Mar. 31, 2018.

▪ Some of the totals may not sum due to rounding.

14

3. Independent Auditor

Audit Opinion for the last 3 years

	2018 1Q	FY2017	FY2016
Audit Opinion	-	Unqualified	Unqualified

* For the first quarter of 2018, the independent accountant conducted a review for our financial statements instead of auditing them.

Compensation to the Independent Auditor for Audit and Review Services

The following is a description of the fees for audit and review services performed by our independent auditor for the last three years in connection with our financial statements preparation.

Year	Auditor	Payment 1) (KRW mil.)	Details	Working hours
FY2018	KPMG Samjong Accounting Corp.	715 (annualized basis)	Review/Audit of Financial Statements	1,251 Hours
	KPMG Samjong Accounting Corp.	94 (annualized basis)	K-IFRS Report Package Audit for Shinhan Savings Bank	160 Hours
FY2017	KPMG Samjong Accounting Corp.	626 (annualized basis)	Review/Audit of Financial Statements	7,641 Hours
	KPMG Samjong Accounting Corp.	78 (annualized basis)	K-IFRS Report Package Audit for Shinhan Savings Bank	896 Hours
	KPMG Samjong Accounting Corp.	261 (annualized basis)	Non-statutory audit for  IFRS 9 adoption	2,896 Hours
FY2016	KPMG Samjong Accounting Corp.	581 (annualized basis)	Review/Audit of Financial Statements	7,512 Hours
	KPMG Samjong Accounting Corp.	73 (annualized basis)	K-IFRS Report Package Audit for Shinhan Savings Bank	807 Hours

1) Excluding value-added taxes.

* In addition to above mentioned description of fees for audit and review services, KPMG Samjong Accounting Corp. also provided services related to US listing and ICOFR audit in accordance with the standards of the PCAOB which we agreed to pay KRW1,582 million(excluding value-added taxes) for FY2018.

15

4. Major Shareholder and Market Price Information of our Common Shares and ADRs

Major Shareholders¹⁾ of Shinhan Financial Group as of Mar. 31, 2018

Name	No. of Common Shares owned2)	Ownership%
National Pension Service	45,285,762	9.55%
BlackRock Fund Advisors3)	24,320,723	5.13%

1) Shareholders who own beneficial ownership of 5% or more(common share basis).

2) Based on the results of shareholder registry closing as of December 31, 2017

3) Based on the large equity ownership discloser by BlackRock Fund Advisors with the Financial Supervisory Service on Oct. 20, 2016.

Share ownership of Employee Stock Ownership Association                         (Number of shares, %)

Share ownership	Beginning Balance (Jan. 1, 2018)	Increase	Decrease	Ending Balance (Mar. 31, 2018)	Ownership% (Mar. 31, 2018)
Employee Stock Ownership	22,211,786	1,696,509	2,067,756	21,840,539	-
ESOA account	112,241	9,531	-	121,772	-
Total	22,324,027	1,706,040	2,067,756	21,962,311	4.63%

Common Share Traded on the Korea Exchange(KRW, number of shares)

		Oct. 2017	Nov. 2017	Dec. 2017	Jan. 2018	Feb. 2018	Mar. 2018
Price per share	High	51,700	51,000	50,900	53,400	52,800	46,450
	Low	49,400	47,000	47,100	49,400	46,950	44,550
	Avg.	50,528	48,627	49,216	51,975	48,961	45,240
Trading Volume		13,809,751	25,517,108	20,070,809	20,854,613	19,046,534	22,990,451
Highest Daily Trading Volume		1,912,102	4,601,509	2,608,925	1,482,202	1,810,742	1,676,704
Lowest Daily Trading Volume		436,899	490,260	662,896	517,193	699,030	509,055

American Depositary Receipts traded on the New York Stock Exchange(USD, number of shares)

		Oct. 2017	Nov. 2017	Dec. 2017	Jan. 2018	Feb. 2018	Mar. 2018
Price per share	High	45.98	45.64	46.80	50.35	48.90	43.14
	Low	43.60	43.12	43.58	46.80	42.79	40.55
	Avg.	44.83	44.40	45.33	48.81	45.22	42.11
Trading Volume		1,586,103	1,915,151	1,320,204	2,156,133	1,768,605	2,057,739
Highest Daily Trading Volume		170,509	152,899	123,973	335,202	171,647	189,031
Lowest Daily Trading Volume		35,925	29,466	25,062	36,361	55,428	45,247

Note) 1 ADR = 1 Common Shares

16

5. Directors, Executive Officers and Employees

Directors and Executive Officers

1) Executive Director                                             (As of Mar. 31, 2018)

Name	Month and Year of Birth	Position	Service Term
Cho Yong-byoung	June 1957	- Chairman of Shinhan Financial Group - Board Steering Committee Chair - Corporate Governance & CEO Recommendation Committee member -Outside Director Recommendation Committee member -Corporate Social Responsibility Committee member	3 years starting from March 23, 2017

17

2) Non-Executive Directors

Currently, 11 non-executive directors are in office, 10 of which outside directors who are nominated by our Outside Director Recommendation Committee and appointed pursuant to the approval of general shareholders’ meeting.

8 outside directors were appointed as board of directors at the 17th Annual General Meeting of Shareholders on March 22, 2018, of which 5 directors renewed their terms and 3 directors were newly appointed.

Our non-executive directors are as follows:                                     (As of Mar. 31, 2018)

Name	Month and Year of Birth	Outside Director	Sub-Committees	Service Term
Park Cheul	April 1946	O	Chairman of Board of Directors Outside Director Recommendation Committee Chair Corporate Governance & CEO Recommendation Committee member Remuneration Committee member Risk Management Committee member	4 years starting from March 25, 2015
Lee Manwoo	November 1954	O	Audit Committee Chair Corporate Social Responsibility Committee member Board Steering Committee member	5 years starting from March 26, 2014
Yuki Hirakawa	October 1960	O	Corporate Governance & CEO Recommendation Committee member Corporate Social Responsibility Committee member	4 years starting from March 25, 2015
Philippe Avril	April 1960	O	Risk Management Committee member Corporate Governance & CEO Recommendation Committee member	4 years starting from March 25, 2015
Lee Steven Sung-ryang	August 1955	O	Corporate Social Responsibility Committee Chair Audit Committee member Board Steering Committee member	3 years starting from March 24, 2016
Park Ansoon	January 1945	O	Outside Director Recommendation Committee member Corporate Social Responsibility Committee member Board Steering Committee member	2 years starting from March 23, 2017
Joo Jaeseong	January 1956	O	Risk Management Committee Chair Audit Committee member Remuneration Committee member	2 years starting from March 23, 2017
Kim Hwa-nam	December 1945	O	Corporate Governance & CEO Recommendation Committee member	2 years starting from March 22, 2018
Park Byoung-dae	September 1957	O	Corporate Governance & CEO Recommendation Committee Chair Remuneration Committee Chair Outside Director Recommendation Committee member Audit Committee member	2 years starting from March 22, 2018
Choi Kyong-rok	May 1966	O	Outside Director Recommendation Committee member Risk Management Committee member Board Steering Committee member	2 years starting from March 22, 2018
Wi Sung-ho	June 1958	X	-	2 years starting from March 23, 2017

* Audit Committee Member Recommendation Committee consists of all the outside directors.

18

3) Executive Officers

In addition to the executive directors, we currently have the following executive officers:

(As of Mar 31, 2018)

Name	Month and Year of Birth	Position	In charge of
Lee Dong-hwan	September 1959	Deputy President	- Group & Global Investment Banking Business Department
Woo Young-woong	March 1960	Deputy President & Chief Strategy Officer	- Strategic Planning Team - Investor Relations Team - Future Strategy Research Institute - Digital Strategy Team - One Shinhan Strategy Team - Platform Marketing Team
Jin Okdong	February 1961	Deputy President	- Brand Strategy Team - Management Support Team - Human Resource Team - Shinhan Culture & Leadership Center - CSR Team
Kim Byeong-cheol	January 1962	Deputy President	- Global Markets & Securities Planning Office
Heo Young-taeg	August 1961	Deputy President	- Global Business Planning Office
Lee Chang-goo	January 1961	Deputy President	- Wealth Management Planning Office
Jang Dong-ki	January 1964	Executive Vice President	- Finance Management Team - Accounting Team - Global Business & Capital Market Team
Kim Im-geun	July 1963	Executive Director & Chief Risk Officer	- Risk Management Team - Risk Model Validation Team - Credit Review Team
Lee Soonwoo	October 1962	Executive Director & Compliance Officer	- Compliance Team

Compensation to Directors

1) Total Amount Approved at the Meeting of Shareholders

(As of Mar. 31, 2018)

	Total number of persons	Total amount approved at shareholders’ meeting (KRW millions)	Notes
Directors (Outside directors)	12(10)	3,500	-

Note) Represents the aggregate amount for all directors(including outside directors). Excludes long-term incentives.

19

2) Total Amount Paid

(As of Mar. 31, 2018)

	Total number of Persons	Total Compensation (KRW millions)	Average Compensation per person (KRW millions)	Notes
Registered Directors	2	548	274	Excluding outside directors
Outside Directors	6	123	18	Excluding Audit committee members
Audit committee members or internal auditor	4	65	21
Total	12	736	61

Notes :

▪ Represents the total number of applicable persons as of Mar. 31, 2018.

▪ Under the Financial Supervisory Service’s standards for preparing corporate disclosure forms, which standards were amended in November 2013, we are required to disclose in our Business Report the individual annual compensation paid by us to our directors and auditors if such individual annual compensation is W500 million or greater.

Stock Options

(As of Mar. 31, 2018)

	No. of Granted Options (A)	No. of Exercised Options (B)	No. of Cancelled Options (C)	No. of Exercisable Options (D = A – B – C)	Exercise Price (KRW)
Granted in 2005	102,389	99,889	-	2,500	28,006
Granted in 2006	108,356	105,856	-	2,500	38,829
Granted in 2007	58,764	-	-	58,764	54,560
Granted in 2008	60,753	-	15,125	45,628	49,053
Total	330,262	205,745	15,125	109,392	-

Notes :

▪ The weighted-average exercise price of outstanding exercisable options as of Mar. 31, 2018 is KRW 51,297.

▪ The closing price of our common stock was KRW 45,700 on Mar. 31, 2018.

▪ As of Mar. 31, 2018, the exercise of 9,466 options granted in 2008 is temporarily suspended.

Employees                                                                (As of Mar. 31, 2018)

Gender	Number of Employees	Average length of Service	Total Salaries and wages paid in 2018 (KRW million)	Average Payment per person (KRW million)
Male	123	2 yrs 4 mths (13 yrs 3 mths) 1)	5,132	41
Female	26	4 yrs 4 mths (10 yrs 5 mths) 1)	644	24
Total	149	2 yrs 8 mths (13 yrs 2 mths) 1)	5,777	38

1) Average length of service including service within group subsidiaries

20

6. Related Party Transactions

Loans to Subsidiaries                               (KRW billion)

Subsidiary	Loan Type	Origination Date	Maturity Date	Lending Rate	Beginning Balance (Jan. 1, 2018)	Decrease	Increase	Ending Balance (Mar. 31, 2018)
Shinhan Card	Loans in KRW	2016-01-26	2021-01-26	1.98%	150	-	-	150
	Loans in KRW	2016-02-24	2021-02-24	1.84%	150	-	-	150
	Loans in KRW	2017-03-22	2022-03-22	2.22%	150	-	-	150
	Loans in KRW	2017-04-20	2022-04-20	2.21%	100	-	-	100
	Loans in KRW	2017-05-12	2022-05-12	2.35%	50	-	-	50
	Loans in KRW	2018-02-22	2023-02-22	2.90%	-	-	100	100
Shinhan Capital	Loans in KRW	2013-01-18	2018-01-18	3.18%	50	50	-	-
	Loans in KRW	2013-09-05	2018-09-05	3.61%	80	-	-	80
	Loans in KRW	2014-01-27	2019-01-27	3.60%	50	-	-	50
	Loans in KRW	2016-03-16	2021-03-16	1.90%	50	-	-	50
	Loans in KRW	2016-04-27	2019-04-27	1.63%	100	-	-	100
	Loans in KRW	2017-03-22	2022-03-22	2.22%	50	-	-	50
	Loans in KRW	2017-04-20	2022-04-20	2.21%	50	-	-	50
	Loans in KRW	2017-05-12	2022-05-12	2.35%	50	-	-	50
	Loans in KRW	2017-08-24	2022-08-24	2.37%	50	-	-	50
	Loans in KRW	2018-01-22	2023-01-22	2.75%	-	-	50	50
Shinhan Alternative Investment Management	Loans in KRW	2017-11-22	2018-11-21	2.24%	5	-	-	5
Shinhan Savings Bank	Loans in KRW	2016-06-17	2021-06-17	1.61%	50	-	-	50
	Loans in KRW	2017-06-23	2022-06-23	2.27%	50	-	-	50
Total					1,235	50	150	1,335

21

EXHIBIT INDEX

Exhibit No.	Description
99.1	Independent Auditors’ Review Report (Separate Financial Statements) of Shinhan Financial Group as of March 31, 2018
99.2	Independent Auditors’ Review Report (Consolidated Financial Statements) of Shinhan Financial Group as of March 31, 2018

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SHINHAN FINANCIAL GROUP CO., LTD.

Date: May 15, 2018

By: /s/ Woo Young-woong

Name: Woo Young-woong

Title: Chief Strategy Officer

23

EX-99.1

Exhibit 99.1

SHINHAN FINANCIAL GROUP CO., LTD.

March 31, 2018

(Unaudited)

(With Independent Auditors’ Review Report Thereon)

Contents

	Page
Independent Auditors’ Review Report	1
Separate Interim Statements of Financial Position	3
Separate Interim Statements of Comprehensive Income	4
Separate Interim Statements of Changes in Equity	5
Separate Interim Statements of Cash Flows	6
Notes to the Condensed Separate Interim Financial Statements	7

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 separate interim financial statements of Shinhan Financial Group Co., Ltd. (the “Company”), which comprise the separate interim statement of financial position as of March 31, 2018, the separate interim statements of comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2018 and 2017 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 separate 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 separate 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 statements 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 separate 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 separate interim financial statements may differ from those generally accepted and applied in other countries.  

The separate statement of financial position of the Company as of December 31, 2017, and the related separate 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, datedMarch 8, 2018, expressed an unqualified opinion.  The accompanying separate statement of financial position of the Company as of December 31, 2017, presented for comparative purposes, is consistent, in all material respects, with the audited separate financial statements from which it has been derived.

KPMG Samjong Accounting Corp.

Seoul, Korea

May 15, 2018

This report is effective as of May 15, 2018, 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 separate 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.

Separate Interim Statements of Financial Position

As of March 31, 2018 and December 31, 2017

(In millions of won)	Note		2018 (Unaudited)	2017
Assets
Due from banks at amortized cost	4, 5, 25	W	3	-
Due from banks	4, 5, 25		-	3
Financial assets at fair value through profit or loss	4, 6		1,741,030	-
Trading assets	4, 7		-	255,086
Loans at amortized cost	4, 8, 25		1,334,484	-
Loans	4, 9, 25		-	1,234,527
Property and equipment			1,622	1,669
Intangible assets			5,488	5,511
Investments in subsidiaries	10		25,733,159	25,733,159
Deferred tax assets			2,864	3,776
Other assets	4, 25		431,888	406,052
Total assets		W	29,250,538	27,639,783
Liabilities
Borrowings	4	W	5,000	5,000
Debt securities issued	4, 11		7,253,299	7,003,622
Liabilities for defined benefit obligations	12		4,055	2,748
Other liabilities	4, 25		1,123,251	436,335
Total liabilities			8,385,605	7,447,705
Equity	13
Capital stock			2,645,053	2,645,053
Hybrid bonds			423,921	423,921
Capital surplus			9,494,842	9,494,842
Capital adjustments			-	(1,139)
Accumulated other comprehensive loss			(4,610)	(4,610)
Retained earnings			8,305,727	7,634,011
Total equity			20,864,933	20,192,078
Total liabilities and equity		W	29,250,538	27,639,783

See accompanying notes to the separate interim financial statements.

3

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Comprehensive Income

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won, except earnings per share data)	Note		2018	2017
Interest income	23, 25	W
Financial assets at amortized cost			7,338	-
Loans and receivables			-	6,124
			7,338	6,124
Interest expense	25		(44,750)	(44,095)
Net interest expense	14		(37,412)	(37,971)
Fees and commission income	23, 25		11,681	11,680
Fees and commission expense			(8)	(8)
Net fees and commission income	15		11,673	11,672
Dividend income	16, 23, 25		1,407,674	930,112
Net gain on financial assets at fair value through profit or loss	23		1,555	-
Net trading income	23		-	1,016
Provision for credit loss allowance	17		(32)	-
Impairment losses on financial assets	18		-	(34)
General and administrative expenses	19, 25		(17,468)	(15,859)
Operating income			1,365,990	888,936
Non-operating income (expense)			(196)	80
Profit before income taxes			1,365,794	889,016
Income tax expense	21		921	369
Profit for the period			1,364,873	888,647
Other comprehensive income for the period, net of income tax			-	-
Total comprehensive income for the period		W	1,364,873	888,647
Basic and diluted earnings per share in won	22	W	2,869	1,861

See accompanying notes to the separate interim financial statements.

4

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Changes in Equity

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won)		Capital stock	Hybrid bonds	Capital surplus	Capital adjust-ments	Accumulated other comprehe-nsive loss	Retained earnings	Total equity
Balance at January 1, 2017	W	2,645,053	498,316	9,494,842	(1,418)	(4,901)	7,585,969	20,217,861
Total comprehensive income for the period:
Profit for the period		-	-	-	-	-	888,647	888,647
		-	-	-	-	-	888,647	888,647
Transactions with owners:
Dividends		-	-	-	-	-	(687,589)	(687,589)
Dividend to hybrid bonds		-	-	-	-	-	(6,160)	(6,160)
Redemption of preferred stock		-	-	-	1,418	-	(1,418)	-
		-	-	-	1,418	-	(695,167)	(693,749)
Balance at March 31, 2017	W	2,645,053	498,316	9,494,842	-	(4,901)	7,779,449	20,412,759
		Capital stock	Hybrid bonds	Capital surplus	Capital adjust-ments	Accumulated other comprehe-nsive loss	Retained earnings	Total equity
Balance at January 1, 2018	W	2,645,053	423,921	9,494,842	(1,139)	(4,610)	7,634,011	20,192,078
Adoption of K-IFRS 1109 (Note 26)		-	-	-	-	-	(23)	(23)
Balance at January 1, 2018		2,645,053	423,921	9,494,842	(1,139)	(4,610)	7,633,988	20,192,055
Total comprehensive income for the period:
Profit for the period		-	-	-	-	-	1,364,873	1,364,873
		-	-	-	-	-	1,364,873	1,364,873
Transactions with owners:
Dividends		-	-	-	-	-	(687,589)	(687,589)
Dividend to hybrid bonds		-	-	-	-	-	(4,406)	(4,406)
Change in capital adjustments		-	-	-	1,139	-	(1,139)	-
		-	-	-	1,139	-	(693,134)	(691,995)
Balance at March 31, 2018	W	2,645,053	423,921	9,494,842	-	(4,610)	8,305,727	20,864,933

See accompanying notes to the separate interim financial statements.

5

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Cash Flows

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millionsof won)	Note		2018	2017
Cash flows from operating activities
Profit before income taxes		W	1,365,794	889,016
Adjustments for:
Interest income			(7,338)	(6,124)
Interest expense			44,750	44,095
Dividend income			(1,407,674)	(930,112)
Net gain on financial assets at fair value through profit or loss			(862)	-
Net trading income			-	(799)
Provision for credit loss allowance (K-IFRS 1109)			32	-
Provision for credit losses			-	34
Employee costs			666	1,041
Depreciation and amortization			150	106
			(1,370,276)	(891,759)
Changes in assets and liabilities:
Financial assets at fair value through profit or loss			(1,485,082)	-
Trading assets			-	(935,946)
Other assets			(448)	(88)
Liability for defined benefit obligations			224	(561)
Other liabilities			(1,900)	(1,440)
			(1,487,206)	(938,035)
Interest received			7,030	6,361
Interest paid			(43,376)	(43,765)
Dividend received			1,406,150	921,178
Net cash used in operating activities			(121,884)	(57,004)
Cash flows from investing activities
Lending of loans at amortized cost			(150,000)	-
Collection of loans at amortized cost			50,000	-
Lending of loans			-	(200,000)
Collection of loans			-	200,000
Acquisition of property and equipment			(82)	(12)
Increase in other assets			(6)	-
Net cash used in investing activities			(100,088)	(12)

Cash flows from financing activities
Issuance of debt securities			550,000	400,000
Repayments of debt securities issued			(300,000)	(300,000)
Debenture issuance costs paid			(959)	(705)
Dividends paid			(27,069)	(42,318)
Net cash provided by financing activities			221,972	56,977
Net decrease in cash and cash equivalents			-	(39)
Cash and cash equivalents at beginning of period	24		-	39
Cash and cash equivalents at end of period	24	W	-	-

See accompanying notes to the separate interim financial statements.

6

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

1.Reporting entity

Shinhan Financial Group Co., Ltd. (the “Company”) was incorporated on September 1, 2001 through a business combination involving the exchange of the Company’s common stock with the former shareholders of Shinhan Bank, Shinhan Investment Corp., Shinhan Capital Co., Ltd. and Shinhan BNP Paribas Investment Trust Management Co., Ltd.  The Company’s shares were listed on the Korea Exchange on September 10, 2001 and the Company’s American depository shares were listed on the New York Stock Exchange on September 16, 2003.

2. Basis of preparation

(a) Statement of compliance

The condensed separate 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 in the Republic of Korea.

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting as part of the period covered by the Company’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 Company since the last annual separate financial statements as of and for the year ended December 31, 2017.  These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

These condensed interim financial statements are separate interim financial statements prepared in accordance with K-IFRS No.1027, Separate Financial Statements and the investments of the company in an associate or a venturer are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

(b) Use of estimates and judgments

The preparation of the condensed separate 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 separate interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty are the same as those that applied to the separate financial statements as of and for the year ended December 31, 2017 except for the followings.

7

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

2. Basis of preparation (Continued)

- Credit loss allowance

The Company recognizes credit loss allowance for expected credit losses on debt instruments, loans and receivables that are measured at amortized cost, loan commitments and financial guarantee contracts in accordance with K-IFRS No. 1109 ‘Financial Instruments.’ The accuracy of such allowance is determined by techniques, assumptions and input variables used by the Company to measure expected future cash flows of individual financial instruments and to measure expected credit losses in a collective manner. The details of techniques, assumptions and input variables used to measure the loss allowance for expected credit losses as of March 31, 2018 are described in Note 4.

8

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

3. Significant accounting policies

Except for the new standards and the amendment to the following standard, which are applied from January 1, 2018, the accounting policies applied by the Company in these condensed separate interim financial statements are the same as those applied by the Company in its separate financial statements as of and for the year ended December 31, 2017.  

a) K-IFRS No. 1115, ‘Revenue from Contracts with Customers’

The Company has applied K-IFRS No. 1115, ‘Revenue from Contracts with Customers’, which replaces existing revenue recognition guidance, including K-IFRS No. 1018, ‘Revenue’, K-IFRS No. 1011, ‘Construction Contracts’, K-IFRS No. 2031, ‘Revenue-Barter Transactions Involving Advertising Services’,K-IFRS No. 2113, ‘Customer Loyalty Programmes’, K-IFRS No. 2115, ‘Agreement for the Construction of Real Estate’, and K-IFRS No. 2118, ‘Transfers of Assets from Customers.’

K-IFRS No. 1018 and other standards outlined revenue recognition for different types of transactions such as sales of goods and services, interest income, loyalty programs, dividend income and construction contracts; however, according to K-IFRS No.1115, all types of contracts recognize revenue through five-step revenue recognition model (① ‘Identifying the contract’ → ② ‘Identifying performance obligations’ → ③ ‘Determining the transaction price’ → ④ ‘Allocating the transaction price to performance obligations’ → ⑤ ‘Recognizing the revenue by satisfying performance obligations’).

The Company has applied a new standard retrospectively in accordance with K-IFRS No. 1115 and has no cumulative effect of initial application as of January 1, 2018.  As permitted by the transition requirements of K-IFRS 1115, comparative periods have not been restated.

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

The Standard has been amended to clarify that measurement of cash-settled share-based payment transactions shall reflect both vesting conditions and non-vesting conditions with the same approach as equity-settled share-based payment transactions, and to clarify classification of share-based payment transactions with a net settlement feature for withholding tax obligations.

c) K-IFRS No. 1109, ‘Financial Instruments’

The Company has applied K-IFRS No. 1109 ‘Financial Instruments’, which was published on September 25, 2015, from the year starting on January 1, 2018. K-IFRS No. 1109 replaced K-IFRS No. 1039, ‘Financial Instruments: Recognition and Measurement.’

The main characteristics of K-IFRS No. 1109 are: classification and measurement of financial instruments based on characteristics of contractual cash flows and business model, impairment model based on expected credit losses, the expansion of the types of qualifying hedging instruments and hedged items, and changes in hedge effectiveness tests, etc.

In principle, K-IFRS No. 1109 should be applied retrospectively.  However, there are clauses exempting to restate the comparative information with respect to classification, measurement of financial instruments, and impairment.  In addition, for hedge accounting, the new standard will be applied prospectively except for certain cases such as accounting for the time value of options.

9

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

3.Significant accounting policies (Continued)

i) Classification and measurement of financial assets

The Company classifies financial assets as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss on the basis of both the business model for managing the financial assets and the contractual cash flow characteristics of the financial asset as shown in the following table. If a hybrid contract contains a host that is a financial asset, the entire hybrid contract is classified as a financial asset without separating an embedded derivative.

Business Model	Contractual cash flow characteristics
	Solely payments of principal and interest	Others
For the collection of the contractual cash flows	Measured at amortized cost(*1)	Measured at fair value through profit or loss(*2)
For both the collection of the contractual cash flows and selling financial assets	Measured at fair value through other comprehensive income(*1)	Same as above
For selling financial assets and others	Measured at fair value through profit or loss	Same as above

(*1) A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable).

(*2) A designation at fair value through other comprehensive income is allowed only if the financial instrument is the equity investment that is not held for trading (irrevocable).  Upon disposal, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to retained earnings.

10

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

3.Significant accounting policies (continued)

ii) Classification and measurement of financial liabilities

Where a financial liability is designated at fair value through profit or loss, the fair value change of the financial liability attributable to the changes of the credit risk of the financial liability shall be presented in other comprehensive income; such other comprehensive income shall not be subsequently reclassified to profit or loss. However, the Company may present the fair value change as profit or loss if the aforementioned accounting treatment would cause or enlarge an accounting mismatch.

iii) Impairment: Financial assets and contract assets

The Company recognize provision for credit loss allowance for debt instruments measured at amortized cost and fair value through other comprehensive income, lease receivable, loan commitments and financial guarantee contracts using the expected credit loss impairment model. Financial assets migrate through the following three stages based on the change in credit risk since initial recognition and loss allowances for the financial assets are measured at the 12-month expected credit losses (“ECL”) or the lifetime ECL, depending on the stage.

Category		Provision for credit loss allowance
STAGE 1	When credit risk has not increased significantly since the initial recognition	12-months ECL: the ECL associated with the probability of default events occurring within the next 12 months
STAGE 2	When credit risk has increased significantly since the initial recognition	Lifetime ECL: a lifetime ECL associated with the probability of default events occurring over the remaining lifetime
STAGE 3	When assets are impaired	Same as above

The Company, meanwhile, only recognizes the cumulative changes in lifetime expected credit losses since the initial recognition as a loss allowance for purchased or originated credit-impaired financial assets.

iv) Hedge accounting

K-IFRS No. 1109 maintains the mechanics of hedge accounting (i.e. fair value hedge, cash flow hedge, hedge of a net investment in a foreign operation) as defined in K-IFRS 1039, whereas a principle-based hedge accounting requirements that focuses on an entity’s risk replaced the complex and rule-based hedge accounting requirements of K-IFRS No. 1039. Additionally, qualifying hedged items and qualifying hedging instruments have been expanded and hedge accounting requirements have been eased by eliminating a subsequent hedge effectiveness assessment and a quantitative test (80~125%).

The Company’s separate interim statements of financial position, comprehensive income, changes in equity, cash flows, and notes to the condensed separate financial statements as of and for the three-month period ended March 31, 2018 have been prepared in accordance with K-IFRS No. 1109, and the accompanying comparative separate financial statements as of December 31, 2017 and for the three-month period ended March 31, 2017 have not been retrospectively restated.

Details on the adjustments to the carrying amounts of financial assets and financial liabilities, the adjustments to the loss allowance, and the effects on equity as a result of initial application of K-IFRS No. 1109 are presented in Note 26.

11

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

4.Financial risk management

(a) Overview

As a financial services provider, Shinhan Financial Group Co., Ltd. and its subsidiaries (collectively the “Group”) are exposed to various risks relating to lending, credit card, insurance, securities investment, and 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 and reported in accordance with risk management guidelines established at the Company level and implemented at the subsidiary level through a carefully stratified checks-and-balances system.

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 Company’s Board of Directors, sets the basic group wide risk management policies and strategies.  The Company’s Chief Risk Officer reports to the Group Risk Management Committee, and the Group Risk Management Council, whose members consist of the 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 Company also has the Group Risk Management Team, which supports the 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 uses 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.

The Group Risk Management Committee consists of directors of the Company.  The Group Risk Management Committee convenes at least once every quarter and may also convene on an ad hoc basis as needed.  Specifically, the Group Risk Management Committee does the following: (i) establish the overall risk management policies consistent with management strategies, (ii) set reasonable risk limits for the entire group and each of subsidiaries, (iii) approve appropriate investment limits or allowed loss limits, (iv) enact and amend risk management regulations, and (v) decide other risk management-related issues the Board of Directors or the Group Risk Management Committee sees fit to discuss.  The results of the Group Risk Management Committee meetings are reported to the Board of Directors of the controlling company.  The Group Risk Management Committee makes decisions through affirmative votes by a majority of the committee members.

12

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

4.Financial risk management (continued)

The Group Risk Management Council is comprised of the Company’s Chief Risk Officer, head of risk management team, and risk officers from each subsidiary.  The Group Risk Management Council holds meetings for risk management executives from each subsidiary to discuss the Group’s group wide risk management guidelines and strategy in order to maintain consistency in the group wide risk policies and strategies.

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 on an ad hoc basis as needed. 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 relevant risk factors based on a prescribed risk management checklist and, in the case of changes for which assessment of risk factors is difficult, supports 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.

13

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

4.Financial risk management (continued)

(b) Credit risk

i) Credit risk management

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities.  The Company’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.

< Techniques, assumptions and input variables used to measure impairment>

i-1) Determining significant increases in credit risk since initial recognition

At each reporting date, the Company assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Company uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.

i-1-1) Measuring the risk of default

The Company assigns an internal credit risk rating to each individual exposure based on observable data and historical experiences that have been found to have a reasonable correlation with the risk of default. The internal credit risk rating is determined by considering both qualitative and quantitative factors that indicate the risk of default, which may vary depending on the nature of the exposure and the type of borrower.

i-1-2) Measuring term structure of probability of default

The Company accumulates information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower and results of internal credit risk assessment. For some portfolios, the Company uses information obtained from external credit rating agencies when performing these analyses.

The Company applies statistical techniques to estimate the probability of default for the remaining life of the exposure from the accumulated data and to estimate changes in the estimated probability of default over time.

14

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-1-3) Significant increases in credit risk

The Company uses the indicators defined as per portfolio to determine the significant increase in credit risk and such indicators generally consist of changes in the risk of default estimated from changes in the internal credit risk rating, qualitative factors, days of delinquency, and others.

i-2) Risk of default

The Company considers a financial asset to be in default if it meets one or more of the following conditions:

- if a borrower is overdue 90 days or more from the contractual payment date,

- if the Company judges that it is not possible to recover principal and interest without enforcing the collateral on a financial asset

The Company uses the following indicators when determining whether a borrower is in default:

- qualitative factors (e.g. breach of contract terms),

- quantitative factors (e.g. if the same borrower does not perform more than one payment obligations to the Company, the number of days past due per payment obligation. However, in the case of a specific portfolio, the Company uses the number of days past due for each financial instrument)

- internal data and external data

The definition of default applied by the Company generally conforms to the definition of default defined for regulatory capital management purposes; however, depending on the situations, the information used to determine whether a default has incurred and the extent thereof may vary.

i-3) Reflection of forward-looking information

The Company reflects forward-looking information presented by internal experts based on a variety of information when measuring expected credit losses. For the purpose of estimating these forward-looking information, the Company utilizes the economic outlook published by domestic and overseas research institutes or government and public agencies.

The Company reflects future macroeconomic conditions anticipated from a neutral standpoint that is free from bias in measuring expected credit losses. Expected credit losses in this respect reflect conditions that are most likely to occur and are based on the same assumptions that the Company used in its business plan and management strategy.

15

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-4) Measurement of expected credit losses

Key variables used in measuring expected credit losses are as follows:

- Probability of default (PD)

- Loss given default (LGD)

- Exposure at default (EAD)

These variables have been estimated from historical experience data by using the statistical techniques developed internally by the Company and have been adjusted to reflect forward-looking information.

Estimates of PD over a specified period are estimated by reflecting characteristics of counterparties and their exposure, based on a statistical model at a specific point of time. The Company uses its own information to develop a statistical credit assessment model used for the estimation, and additional information observed in the market is considered for some portfolios such as a group of large corporates. When a counterparty or exposure is concentrated in specific grades, the method of measuring PD for that grades would be adjusted, and the PD by grade is estimated by considering contract expiration of the exposure.

LGD refers to the expected loss if a borrower defaults. The Company calculates LGD based on the experience recovery rate measured from past default exposures. The model for measuring LGD is developed to reflect type of collateral, seniority of collateral, type of borrower, and cost of recovery. In particular, LGD for retail loan products uses loan to value (LTV) as a key variable. The recovery rate reflected in the LGD calculation is based on the present value of recovery amount, discounted at the effective interest rate.

EAD refers to the expected exposure at the time of default. The Company derives EAD reflecting a rate at which the current exposure is expected to be used additionally up to the point of default within the contractual limit. EAD of financial assets is equal to the total carrying amount of the asset, and EAD of loan commitments or financial guarantee contracts is calculated as the sum of the amount expected to be used in the future.

When measuring expected credit losses on financial assets, the Company reflects a period of expected credit loss measurement based on a contractual maturity. The Company takes into consideration of the extension rights held by a borrower when deciding the contractual maturity.

Risk factors of PD, LGD and EAD are collectively estimated according to the following criteria:

- Type of products

- Internal credit risk rating

- Type of collateral

- Loan to value (LTV)

- Industry that the borrower belongs to

- Location of the borrower or collateral

- Days of delinquency

The criteria classifying groups is periodically reviewed to maintain homogeneity of the group and adjusted if necessary. The Company uses external benchmark information to supplement internal information for a particular portfolio that did not have sufficient internal data accumulated from the past experience.

16

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

i-5) Write-off of financial assets

The Company writes off a portion of or entire loan or debt security that is not expected to receive its principal and interest. In general, the Company conducts write-off when it is deemed that the borrower has no sufficient resources or income to repay the principal and interest. Such determination on write-off is carried out in accordance with the internal rules of the Company and is carried out with the approval of an external institution, if necessary. Apart from write-off, the Company may continue to exercise its right of collection under its own recovery policy even after the write-off of financial assets.

ii) The Company’s maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements as of March 31, 2018 and December 31, 2017 are as follows:

			2018	2017
Due from banks and loans at amortized cost(*1):	Banks	W	3	-
	Corporations		1,334,484	-
			1,334,487	-
Due from banks and loans(*1):	Banks		-	3
	Corporations		-	1,234,527
			-	1,234,530
Other financial assets at amortized cost(*1)(*2)			430,524	-
Other financial assets(*1)(*2)			-	405,431
		W	1,765,011	1,639,961

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

(*2) Comprise accounts receivable, accrued income, and guarantee deposits.

17

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iii) Information of financial assets by credit risk

Financial assets by credit risk as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		12-months ECL	Lifetime ECL	Gross amount	Allowance	Total, net
Due from banks and loans at amortized cost(*1):
Banks	W	3	-	3	-	3
Corporations		1,335,000	-	1,335,000	(516)	1,334,484
Other financial assets at amortized cost		430,634	-	430,634	(110)	430,524
	W	1,765,637	-	1,765,637	(626)	1,765,011

		2017
		Banks	Corporations	Total
Due from banks and loans not impaired nor overdue(*1)	W	3	1,235,000	1,235,003
Less: allowance		-	(473)	(473)
	W	3	1,234,527	1,234,530

(*1) Credit quality of due from banks and loans is divided into Prime and Normal. Credit quality of due from banks and loans as of March 31, 2018 and December 31, 2017 was classified as Prime. The distinction between prime grade and normal grade is as follows:

Type of Borrower	Corporations and banks
Grade: 1. Prime	Internal credit rating of BBB+ or above
Grade: 2. Normal	Internal credit rating of below BBB+

18

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(c) Market risk

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

Interest rate risk is the risk of loss resulting from interest rate fluctuations that adversely affect the financial condition and results of operations of the Company.

(d) Liquidity risk

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

The Company maintains the liquidity position of the balance of assets exceeding the balance of liabilities based on the remaining maturities at 30 days at each month-end financial position in accordance with the Financial Holding Company Act.

Contractual maturities for financial instruments as of March 31, 2018 and December 31, 2017 are as follows:

			2018
		Less than 1 month		1 ~ 3 months	3 ~ 6 months	6 months ~ 1 year	1 ~ 5 years	More than 5 years	Total
Non-derivatives
Liabilities:
Borrowings	W	-		-	-	5,000	-	-	5,000
Debt securities issued		120,915		124,615	764,030	745,380	4,883,834	1,224,329	7,863,103
Other financial liabilities		683,461		10,407	-	16,900	72,929	-	783,697
	W	804,376		135,022	764,030	767,280	4,956,763	1,224,329	8,651,800

		2017
		Less than 1 month	1 ~ 3 months	3 ~ 6 months	6 months ~ 1 year	1 ~ 5 years	More than 5 years	Total
Non-derivatives
Liabilities:
Borrowings	W	-	-	-	5,000	-	-	5,000
Debt securities issued		120,279	223,097	241,571	1,165,481	4,907,399	873,422	7,531,249
Other financial liabilities		12,256	17,102	18,334	-	57,577	-	105,269
	W	132,535	240,199	259,905	1,170,481	4,964,976	873,422	7,641,518

These amounts include cash flows of principal and interests on financial instruments.

19

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(e) Measurement for the fair value of financial instruments

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 Company 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 Company 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 Company 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.

i) Financial instruments measured at fair value

- The fair value hierarchy of financial assets which are presented at their fair value in the statements of financial position as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Level 1	Level 2	Level 3	Total
Financial assets measured at fair value through profit or loss	W	-	1,741,030	-	1,741,030

		2017
		Level 1	Level 2	Level 3	Total
Trading assets	W	-	255,086	-	255,086

- The valuation techniques and the fair value measurement input variables of financial instruments classified as level 2 as of March 31, 2018 and December 31, 2017 are as follows:

	Classification	Valuation techniques	Type	Inputs
2018	Financial assets measured at FVTPL	Net asset valuation approach	Beneficiary certificates	Prices of underlying assets
2017	Trading assets	Net asset valuation approach	Beneficiary certificates	Prices of underlying assets

20

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4.Financial risk management (continued)

ii) The financial instruments measured at amortized cost

- The methods of measuring the fair value of financial instruments measured at amortized cost are 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 the most of deposits are floating interest rate deposit or the next day deposit 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, etc.
Borrowings and debt securities issued	The fair value of borrowings and debt securities issued 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 fair value of the financial instruments measured at amortized cost as of March 31, 2018 and December 31, 2017 are as follows:

		2018		2017
		Carrying value	Fair value	Carrying value	Fair value
Assets:
Due from banks at amortized cost	W	3	3	-	-
Due from banks		-	-	3	3
Loans at amortized cost		1,334,484	1,301,827	-	-
Loans		-	-	1,234,527	1,203,918
Other financial assets		430,524	430,524	405,431	405,431
	W	1,765,011	1,732,354	1,639,961	1,609,352
Liabilities:
Borrowings	W	5,000	4,941	5,000	4,905
Debt securities issued in won		7,253,299	7,230,126	7,003,622	6,990,238
	W	7,258,299	7,235,067	7,008,622	6,995,143

21

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(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 disclosed with their fair values as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Level 1	Level 2	Level 3	Total
Assets:
Due from banks at amortized cost	W	-	-	3	3
Loans at amortized cost		-	-	1,301,827	1,301,827
Other financial assets		-	-	430,524	430,524
	W	-	-	1,732,354	1,732,354
Liabilities:
Borrowings	W	-	4,941	-	4,941
Debt securities issued in won		-	7,230,126	-	7,230,126
	W	-	7,235,067	-	7,235,067

		2017
		Level 1	Level 2	Level 3	Total
Assets:
Due from banks	W	-	-	3	3
Loans		-	-	1,203,918	1,203,918
Other financial assets		-	-	405,431	405,431
	W	-	-	1,609,352	1,609,352
Liabilities:
Borrowings	W	-	4,905	-	4,905
Debt securities issued in won		-	6,990,238	-	6,990,238
	W	-	6,995,143	-	6,995,143

22

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4.Financial risk management (continued)

(f) Classification by categories of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of each category of financial assets and financial liabilities as of March 31, 2018 and December 31,2017 are as follows:

		2018
		Financial assets measured at fair value through profit or loss	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost
Assets:
Cash and due from banks at amortized cost	W	-	3	-
Financial assets at fair value through profit or loss		1,741,030	-	-
Loans at amortized cost		-	1,334,484	-
Other financial assets at amortized cost		-	430,524	-
	W	1,741,030	1,765,011	-
Liabilities:
Borrowings	W	-	-	5,000
Debt securities issued		-	-	7,253,299
Other		-	-	807,580
	W	-	-	8,065,879

		2017
		Financial assets at fair value through profit or loss	Loans and receivable	Financial liabilities measured at amortized cost
		Trading assets
Assets:
Cash and due from banks	W	-	3	-
Trading assets		255,086	-	-
Loans		-	1,234,527	-
Other		-	405,431	-
	W	255,086	1,639,961	-
Liabilities:
Borrowings	W	-	-	5,000
Debt securities issued		-	-	7,003,622
Other		-	-	128,441
	W	-	-	7,137,063

23

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

5.Restricted due from banks

Restricted guaranteed deposits on bank accounts as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Other financial institution deposits	W	3	3

6. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss as of March 31, 2018 are as follows:

		2018
Beneficiary certificates	W	1,741,030

7. Trading assets

Trading assets as of December 31, 2017 are as follows:

		2017
Beneficiary certificates	W	255,086

8. Loans at amortized cost

(a) Loans at amortized cost as of March 31, 2018 are as follows:

		2018
Loans	W	1,335,000
Less: allowance		(516)
	W	1,334,484

24

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

8.Loans at amortized cost (continued)

(b) Changes in loans at amortized cost and other assets for the three-month period ended March 31, 2018 are as follows:

		Loans at amortized cost			Other assets(*1)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total
Beginning balance	W	1,235,000	-	-	405,523	-	-	1,640,523
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Origination		150,000	-	-	-	-	-	150,000
Collection		(50,000)	-	-	-	-	-	(50,000)
Others (*2)		-	-	-	25,114	-	-	25,114
Ending balance	W	1,335,000	-	-	430,637	-	-	1,765,637

(*1) Include gross carrying value for due from banks at amortized cost and other assets.

(*2) Include the change in dividends receivables, consolidation tax receivables, accrued income, etc.

25

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

8. Loans at amortized cost (continued)

(c) Changes in allowances for loans at amortized cost and other assets for the three-month period ended March 31, 2018 are as follows:

		Loans at amortized cost			Other assets(*1)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total
Beginning allowance	W	495	-	-	99	-	-	594
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Provided		21	-	-	11	-	-	32
Ending balance	W	516	-	-	110	-	-	626

(*1) Include allowance for due from banks and other assets.

9. Loans

(a) Loans as of December 31, 2017 comprise the following:

		2017
Loans (corporate)	W	1,235,000
Less: allowance		(473)
	W	1,234,527

(b) Changes in allowance for credit losses for year ended December 31, 2017 are as follows:

		2017
		Loans	Others(*1)	Total
Beginning balance	W	336	73	409
Provision for credit losses		137	16	153
Ending balance	W	473	89	562

(*1) Include allowance for due from banks and other assets.

26

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

10.Investments in subsidiaries

Investments in subsidiaries as of March 31, 2018 and December 31, 2017 are as follows:

Investees	Location	Reporting date
Shinhan Bank Co., Ltd.	Korea	December 31
Shinhan Card Co., Ltd.	〃	〃
Shinhan Investment Corp.	〃	〃
Shinhan Life Insurance Co., Ltd.	〃	〃
Shinhan Capital Co., Ltd.	〃	〃
Jeju Bank	〃	〃
Shinhan BNP Paribas Asset Management Co., Ltd.	〃	〃
Shinhan Alternative Investment Management Inc.	〃	〃
Shinhan Credit Information Co., Ltd.	〃	〃
SHC Management Co., Ltd.	〃	〃
Shinhan Data System	〃	〃
Shinhan Savings Bank	〃	〃
Shinhan AITAS Co., Ltd.	〃	〃
Shinhan REITs Management Co., Ltd	〃	〃

	2018			2017
Investees	Ownership percentage (%)		Carrying value	Ownership percentage (%)		Carrying value
Shinhan Bank Co., Ltd.	100.0	W	13,617,579	100.0	W	13,617,579
Shinhan Card Co., Ltd.	100.0		7,919,672	100.0		7,919,672
Shinhan Investment Corp.	100.0		2,341,420	100.0		2,341,420
Shinhan Life Insurance Co., Ltd.	100.0		982,775	100.0		982,775
Shinhan Capital Co., Ltd.	100.0		408,922	100.0		408,922
Jeju Bank	68.9		135,220	68.9		135,220
Shinhan BNP Paribas Asset Management Co., Ltd.	65.0		91,565	65.0		91,565
Shinhan Alternative Investment Management Inc.	100.0		14,783	100.0		14,783
Shinhan Credit Information Co., Ltd.	100.0		15,385	100.0		15,385
SHC Management Co., Ltd.	100.0		8,655	100.0		8,655
Shinhan Data System	100.0		10,026	100.0		10,026
Shinhan Savings Bank	100.0		107,065	100.0		107,065
Shinhan AITAS Co., Ltd.	99.8		50,092	99.8		50,092
Shinhan REITs Management Co., Ltd	100.0		30,000	100.0		30,000
		W	25,733,159		W	25,733,159

27

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

11.Debt securities issued

Debt securities issued as of March 31, 2018 and December 31, 2017 are as follows:

	2018			2017
	Interest rate (%)		Amount	Interest rate (%)		Amount
Debt securities issued in won	1.44 ~ 3.72	W	7,260,000	1.44 ~ 3.72	W	7,010,000
Discount			(6,701)			(6,378)
		W	7,253,299		W	7,003,622

12. Employee benefits

(a) Defined benefit obligations and plan assets

Defined benefit obligations and plan assets as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Present value of defined benefit obligations	W	17,565	17,090
Fair value of plan assets		(13,510)	(14,342)
Recognized liabilities for defined benefit obligations	W	4,055	2,748

(b) Expenses recognized in profit or loss for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Current service costs	W	442	472
Net interest expense on the net defined benefit liabilities		10	27
	W	452	499

Profit or loss arising from defined benefit plans is included in general and administrative expenses.

28

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13.Equity

(a) Equity as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Capital stock
Common stock	W	2,370,998	2,370,998
Preferred stock		274,055	274,055
		2,645,053	2,645,053
Hybrid bonds		423,921	423,921
Capital surplus
Share premium		9,494,769	9,494,769
Other		73	73
		9,494,842	9,494,842
Capital adjustments		-	(1,139)
Accumulated other comprehensive loss		(4,610)	(4,610)
Retained earnings
Legal reserve(*1)		2,068,189	1,992,716
Regulatory reserve for loan losses		7,541	5,953
Other legal reserves		2,000	2,000
Unappropriated retained earnings		6,227,997	5,633,342
		8,305,727	7,634,011
	W	20,864,933	20,192,078

(*1) Legal reserve was restricted for the dividend to stockholders by law or legislation.  According to the article 53 of the Financial Holding Companies Act, the controlling company is required to appropriate a legal reserve in an amount equal to at least 10% of cash dividends for each accounting period until the reserve equals 100% of stated capital.  The legal reserve may be used to reduce a deficit or may be transferred to common stocks in connection with a free issue of shares.

(b) Hybrid bonds

Hybrid bonds classified as other equity instruments as of March 31, 2018 and December 31, 2017 are as follows:

Issue date	Maturity date	Interest rate (%)		2018	2017
June 25, 2015	June 25, 2045	4.38		199,455	199,455
September 15, 2017	-	3.77		134,683	134,683
September 15, 2017	-	4.25		89,783	89,783
			W	423,921	423,921

The hybrid bonds above can be early terminated at par value after 5 years or 10 years from the issuance date, and the Company has an unconditional right to extend the maturity under the same condition.  In addition, if no dividend was to be paid for common shares, the agreed interest was also not paid.

29

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

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

13.Equity (continued)

(c) Capital adjustments

Changes in accumulated capital adjustments for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018	2017
Beginning balance	W	(1,139)	(1,418)
Loss on redemption of hybrid bonds		1,139	1,418
Redemption of hybrid bonds		-	(1,139)
Ending balance	W	-	(1,139)

(d) Changes in accumulated other comprehensive loss for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows:

		2018	2017
Beginning balance	W	(4,610)	(4,901)
Remeasurement of the defined benefit liabilities		-	107
Tax effect		-	184
Ending balance	W	(4,610)	(4,610)

(e) Regulatory reserve for loan losses

In accordance with Supervisory Regulations on Financial Holding Companies (the “Regulations”), the Company reserves the difference between allowance for credit losses under 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 for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows:

		2018	2017
Beginning balance	W	7,572	5,953
Adoption of K-IFRS 1109		(31)	-
Planned regulatory reserve for (reversal of) loan losses		593	1,619
Ending balance	W	8,134	7,572

ii) Profit for the period and earnings per share after adjusted for regulatory reserve for loan losses for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Profit for the period	W	1,364,873	888,647
Provision for regulatory reserve for loan losses		(593)	(872)
Profit for the period adjusted for regulatory reserve	W	1,364,280	887,775
Basic and diluted earnings per share in won factoring in   regulatory reserve(*1)	W	2,868	1,859

(*1) Dividends for hybrid bonds were deducted.

30

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13.Equity (continued)

(f) Dividends declared and paid by the Company for the three-month period ended March 31, 2018 are as follows:

		2018
Common stock (W1,450 per share)	W	687,589

14. Net interest expense

Net interest expense for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Interest income:
Due from banks at amortized cost	W	72	-
Due from banks		-	34
Loans at amortized cost		7,201	-
Loans		-	6,034
Others		65	56
		7,338	6,124
Interest expense:
Borrowings in won		(27)	(23)
Debt securities issued in won		(44,723)	(44,072)
		(44,750)	(44,095)
Net interest expense	W	(37,412)	(37,971)

15. Net fees and commission income

Net fees and commission income for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Fees and commission income:
Royalty	W	11,678	11,678
Other		3	2
		11,681	11,680
Fees and commission expense:
Others		(8)	(8)
Net fees and commission income	W	11,673	11,672

16. Dividend income

Dividends income for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Dividend from subsidiaries	W	1,407,674	930,112

31

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

17.Provision for credit losses (K-IFRS 1109)

Provision for credit losses for the three-month period ended March 31, 2018 are as follows:

		2018
Provision for credit losses on loans	W	32

18. Provision for credit losses (K-IFRS 1039)

Provision for credit losses for the three-month period ended March 31, 2017 are as follows:

		2017
Provision for credit losses on loans	W	34

19. General and administrative expenses

General and administrative expenses for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Salaries:
Salary expenses and bonuses	W	8,026	7,274
Severance benefits		452	499
		8,478	7,773
Rent		513	472
Entertainment		405	327
Depreciation		127	95
Amortization		23	11
Taxes and dues		231	224
Advertising		4,445	4,306
Others		3,246	2,651
	W	17,468	15,859

32

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

20.Share-based payments

(a) Stock options granted as of March 31, 2018 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		W28,006		W38,829	W54,560	W49,053
Number of shares granted		2,695,200		3,296,200	1,301,050	808,700
Contractual exercise period		August 30, 2018		August 21, 2019	August 19, 2020	May 17, 2021 /September 17, 2021
Changes in number of shares granted:
Balance at January 1, 2018		2,500		2,500	58,764	45,628
Exercised		-		-	-	-
Balance at March 31, 2018		2,500		2,500	58,764	45,628
Fair value per share in won			W17,694	W7,487	W1,724	W3,850 (Expiration of contractual exercise period : May 17, 2021) W3,942 (Expiration of contractual exercise period : Sep 17, 2021)

(*1) The equity instruments granted are fully vested as of March 31, 2018.  The weighted average exercise price in won for 109,392 stock options outstanding at March 31, 2018 is W51,297.

(*2) As of March 31, 2018, the exercise of the remaining for 9,466 stock options (7th grant) was temporarily suspended.

33

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

20. Share-based payments (continued)

(b) Performance shares granted as of March 31, 2018 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 March 31, 2018	14,866	1,307,030
Fair value per share in won	W45,926, W47,376, W40,889, W45,766, and W49,405	W45,700

The amount of cash payment for the Company’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.  Share price to be paid in the future is evaluated using the share price as of the end of the reporting period. For share-based payment transactions among the Company and its subsidiaries, the Company and its subsidiaries receiving the services shall measure the services received as a cash-settled and an equity-settled share-based payment transaction, respectively.

34

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

20. Share-based payments (continued)

(c) Share-based compensation costs

Share-based compensation costs for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018
		Employees of
		Shinhan Financial Group	Subsidiaries	Total
Stock options granted:
4th	W	-	(9)	(9)
5th		-	(8)	(8)
6th		(12)	(72)	(84)
7th		(25)	(36)	(61)
Performance share		250	1,876	2,126
	W	213	1,751	1,964

		2017
		Employees of
		Shinhan Financial Group	Subsidiaries	Total
Stock options granted:
4th	W	12	126	138
5th		9	138	147
6th		-	-	-
7th		-	-	-
Performance share		569	4,260	4,829
	W	590	4,524	5,114

35

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

20.Share-based payments (continued)

(d) Accrued expenses and the intrinsic value as of March 31, 2018 and December 2017 are as follows:

		2018
		Employees of
		Shinhan Financial Group	Subsidiaries(*1)	Total
Stock options granted:
4th	W	-	44	44
5th		-	19	19
6th		14	87	101
7th		58	84	142
Performance share		6,424	54,005	60,429
	W	6,496	54,239	60,735

The intrinsic value of share-based payments is W60,491 million as of March 31, 2018.  For calculating, the quoted market price of W45,700 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

(*1) The Company has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Company require the subsidiaries to reimburse the compensation costs for their employees.  As of March 31, 2018, the Company recognized the corresponding accounts receivable from the subsidiaries in the amount of W54,239 million.

		2017
		Employees of
		Shinhan Financial Group	Subsidiaries(*1)	Total
Stock options granted:
4th	W	-	54	54
5th		-	26	26
6th		26	159	185
7th		83	120	203
Performance share		8,286	62,769	71,055
	W	8,395	63,128	71,523

The intrinsic value of share-based payments is W71,151 million as of December 31, 2017.  For calculating, the quoted market price of W49,400 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

(*1) The Company has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Company require the subsidiaries to reimburse the compensation costs for their employees.  As of December 31, 2017, the Company recognized the corresponding accounts receivable from the subsidiaries in the amount of W63,128 million.

36

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won except per share data)

21.Income taxes

Income tax expense for thethree-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Current income tax expense	W	-	-
Temporary differences		912	369
Income tax recognized directly in equity (*)		9	-
Income tax expense	W	921	369

(*1) The income tax effect of adoption of K-IFRS No. 1109 is directly reflected in retained earnings (Note 26).

22. Earnings per share

Basic and diluted earnings per share for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Net profit for the period	W	1,364,873	888,647
Less:
Dividends to hybrid bonds		4,406	6,160
		4,406	6,160
Net profit available for common stock	W	1,360,467	882,487
Weighted average number of common shares outstanding		474,199,587	474,199,587
Basic and diluted earnings per share in won	W	2,869	1,861

37

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

23. Operating revenue

Operating revenue for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Dividend income	W	1,407,674	930,112
Fees and commission income		11,681	11,680
Interest income		7,338	6,124
Gain on financial assets at fair value through profit of loss		1,555	-
Gains on financial assets held for trading		-	1,016
	W	1,428,248	948,932

24. Statement of cash flows

Changes in liabilities arising from financing activities for the three-month period ended March 31, 2018 are as follows:

		Borrowings	Debentures		Total
Balance at January 1, 2018	W	5,000	7,003,622		7,008,622
Changes from cash flows		-	249,041		249,041
Changes from non-cash flows:
Amortization of discount on debentures		-	636		636
Balance at March 31, 2018	W	5,000	7,253,299		7,258,299

38

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

25.Related party transactions

(a) Significant transactions with the related parties for the three-month periods ended March 31, 2018 and 2017 were as follows:

Related party	Account		2018	2017
Revenue:
Shinhan Bank Co., Ltd.	Interest income	W	65	56
〃	Fees and commission income		7,419	7,446
〃	Dividend income		540,000	480,000
Shinhan Card Co., Ltd.	Interest income		3,409	2,751
〃	Fees and commission income		2,108	2,096
〃	Dividend income		600,018	400,054
Shinhan Investment Corp.	Interest income		72	34
〃	Fees and commission income		1,090	1,094
〃	Dividend income		145,000	20,000
Shinhan Life Insurance Co., Ltd.	Fees and commission income		582	601
〃	Dividend income		58,000	-
	Reversal of credit losses		1	-
Shinhan Capital Co., Ltd.	Interest income		3,281	3,059
〃	Fees and commission income		237	228
〃	Dividend income		50,342	21,124
Jeju Bank	Fees and commission income		135	119
〃	Dividend income		1,524	1,524
Shinhan Credit Information Co., Ltd.	Fees and commission income		5	5
Shinhan Private Equity Inc.	Interest income		28	24
〃	Fees and commission income		3	3
Shinhan BNP Paribas Asset Management Co., Ltd.	Fees and commission income		26	27
〃	Dividend income		10,790	7,410
Shinhan Data System	Fees and commission income		5	5
Shinhan AITAS Co., Ltd.	Fees and commission income		18	16
	Dividend income		2,000	-
Shinhan Savings Bank	Interest income		483	200
〃	Fees and commission income		43	40
Shinhan REITS management	Fees and commission income		10	-
		W	1,426,694	947,916
Expense:
Shinhan Bank Co., Ltd.	General and administrative expenses	W	381	691
〃	Provision for credit losses		1	23
Shinhan Card Co., Ltd.	General and administrative expenses		10	11
〃	Provision for credit losses		22	8
Shinhan Investment Corp.	Interest expenses		60	75
〃	General and administrative expenses		5	16
〃	Provision for credit losses		10	-
Shinhan Capital Co., Ltd.	Provision for credit losses		-	3
Shinhan Data System	General and administrative expenses		185	197
		W	674	1,024

39

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

25.Related party transactions (continued)

(b) Significant balances with the related parties as of March 31, 2018 and December 31, 2017 are as follows:

Creditor	Debtor	Account		2018	2017
Assets:
Shinhan Financial Group Co.,Ltd.	Shinhan Bank	Due from banks	W	3	3
〃	〃	Other assets		228,565	222,828
〃	Shinhan Card Co.,Ltd.	Loans		699,848	599,888
〃	〃	Other assets		132,789	134,598
〃	Shinhan Investment Cop.	Other assets		30,917	7,837
〃	Shinhan Life Insurance Co.,Ltd.	Other assets		8,279	10,846
〃	Shinhan Capital Co.,Ltd.	Loans		529,785	529,782
〃	〃	Other assets		21,783	20,911
〃	Shinhan BNP Paribas Asset Management Co.,Ltd	Other assets		1,099	1,139
〃	Jeju Bank	Other assets		3,103	1,860
〃	Shinhan Credit Information Co.,Ltd.	Other assets		556	479
〃	Shinhan Alternative Investment Management Inc.	Loans		4,993	4,993
		Other assets		4	-
〃	Shinhan Data System	Other assets		1,481	1,467
〃	Shinhan AITAS Co.,Ltd.	Other assets		413	388
〃	Shinhan Savings Bank	Loans		99,858	99,864
〃	〃	Other assets		1,738	1,593
			W	1,765,214	1,638,476
Liabilities:
Shinhan Bank.	Shinhan Financial Group Co.,Ltd	Other liabilities	W	22,623	934
Shinhan Card Co.,Ltd.	〃	Other liabilities		409	344
Shinhan Investment Corp.	〃	Other liabilities		18,436	16,577
Shinhan Life Insurance Co.,Ltd.	〃	Other liabilities		5,776	2
Shinhan Capital Co.,Ltd.	〃	Other liabilities		-	768
Shinhan Credit Information Co.,Ltd.	〃	Other liabilities		13	13
Shinhan Alternative Investment Management Inc.	〃	Other liabilities		73	101
Shinhan Data System	〃	Other liabilities		-	101
Shinhan REITS management	〃	Other liabilities		24	-
			W	47,354	18,840

40

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

25. Related party transactions (continued)

(c) Compensation of key management personnel for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Salaries	W	1,029	919
Severance benefits		14	14
Share-based payment expenses(*)		280	370
	W	1,323	1,303

(*) Expenses recognized during the vesting period under the agreement on share-based payments.

26. Transition effects from K-IFRS 1109 adoption

As discussed at note 3, the Company adopted K-IFRS 1109 ‘Financial instruments’.  The accompanying comparative financial statements as of December 31, 2017 and for the three-month ended March 31, 2017 have not been retrospectively restated.

K-IFRS No. 1109 ‘Financial Instruments’ replaces K-IFRS No. 1039, ‘Financial Instruments: Recognition and Measurement, regarding the recognition of financial instruments, classification and measurement, impairment of financial instruments and hedge accounting.

(a) Effects on retained earnings at adoption date are as follows:

		Retained Earnings
Retained earnings at December 31, 2017	W	7,634,011
K-IFRS 1109 adoption:
Increase of allowance for credit loss on financial asset at amortized cost		(32)
Tax effects		9
Retained earnings at Janaury 1, 2018	W	7,633,988

41

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

26. Transition effects from K-IFRS 1109 adoption (continued)

(b) Effects on financial assets or liabilities at adoption date are as follows:

K-IFRS 1039 classification	K-IFRS 1109 classification		Carrying value K-IFRS 1039	Carrying value K-IFRS 1109	Diff.
Due from Banks:
Loan and receivables	Financial assets at amortized cost	W	3	3	-
Loans:
Loan and receivables	Financial assets at amortized cost		1,235,000	1,235,000	-
Other assets:
Loan and receivables	Financial assets at amortized cost		405,520	405,520	-
Trading asset:
FVPTL	Financial assets at fair value through profit or loss		255,086	255,086	-
		W	1,895,609	1,895,609	-

(c) Effects on allowances for credit loss at adoption date are as follows:

K-IFRS 1039 classification	K-IFRS 1109 classification		K-IFRS 1039 allowance	K-IFRS 1109 allowance
Loans and receivables:
Due from banks	Financial assets at amortized cost	W	-	-
Loans	Financial assets at amortized cost		473	495
Other assets	Financial assets at amortized cost		89	99
		W	562	594

42

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

26. Transition effects from K-IFRS 1109 adoption (continued)

(d) Classification and measurement of financial assets at the adoption date are as follows:

K-IFRS 1039 classification		Carrying value K-IFRS 1039	Reclassification	Remeasurement	Carrying value K-IFRS 1109	Effects on retained earnings
Due from Banks:
Carrying value K-IFRS 1039	W	3	-	-	-	-
Classified to due from banks at amortized cost		-	(3)	-	-	-
Carrying value K-IFRS 1109		-	-	-	-	-
Due from banks at amortized cost:
Carrying value K-IFRS 1039		-	-	-	-	-
Classified from due from banks		-	3	-	-	-
Carrying value K-IFRS 1109		-	-	-	3	-
Loans:
Carrying value K-IFRS 1039		1,234,527	-	-	-	-
Classified to loans at amortized cost		-	(1,234,527)	-	-	-
Carrying value K-IFRS 1109		-	-	-	-	-
Loans at amortized cost:
Carrying value K-IFRS 1039		-	-	-	-	-
Classified from loans		-	1,234,527	-	-	-
Measurement of credit loss		-	-	(22)	-	(22)
Carrying value K-IFRS 1109		-	-	-	1,234,505	-
Other assets:
Carrying value K-IFRS 1039		405,431	-	-	-	-
Measurement of credit loss		-	-	(10)	-	(10)
Carrying value K-IFRS 1109		-	-	-	405,421	-

43

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

26. Transition effects from K-IFRS 1109 adoption (continued)

(d) Classification and measurement of financial assets at the adoption date are as follows (continued):

K-IFRS 1039 classification	Carrying value K-IFRS 1039	Reclassification	Remeasurement	Carrying value K-IFRS 1109	Effects on retained earnings
Trading assets:
Carrying value K-IFRS 1039	255,086	-	-	-	-
Classified to financial assets at fair value through profit or loss	-	(255,086)	-	-	-
Carrying value K-IFRS 1109	-	-	-	-	-
Financial assets at fair value through profit or loss:
Carrying value K-IFRS 1039	-	-	-	-	-
Classified from trading assets	-	255,086	-	-	-
Carrying value K-IFRS 1109	-	-	-	255,086	-

44

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

26. Transition effects from K-IFRS 1109 adoption (continued)

(e) As adoption of K-IFRS 1109, expected credit loss are measured on the related financial assets. The effects on allowances for credit loss at the adoption date of K-IFRS 1109 are as follows:

		K-IFRS 1039 allowance	Remeasurement	K-IFRS 1109 allowance	Effect on retained earnings(*1)
Allowances:
Expected credit loss on loans	W	473	22	495	(22)
Expected credit loss on other assets		89	10	99	(10)
	W	562	32	594	(32)

(*1) Effect on retained earnings are offset by W9 million of tax effect.

45

EX-99.2

Exhibit 99.2

SHINHAN FINANCIAL GROUP CO., LTD.

AND SUBSIDIARIES

Consolidated Interim Financial Statements

March 31, 2018

(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	5
Consolidated Interim Statements of Changes in Equity	7
Consolidated Interim Statements of Cash Flows	9
Notes to the Condensed Consolidated Interim Financial Statements	12

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 March 31, 2018, the consolidated interim statements of comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2018 and 2017 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.

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, 2017, 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 7, 2018, expressed an unqualified opinion.  The accompanying consolidated statement of financial position of the Group as of December 31, 2017, 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

May 15, 2018

This report is effective as of May 15, 2018, 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 March 31, 2018 and December 31, 2017

(Unaudited)

(In millions of won)	Note		2018	2017
Assets
Cash and due from banks at amortized cost	4,7,41	W	18,013,498	-
Cash and due from banks	4,8,41		-	22,668,598
Financial assets at fair value through profit or loss	4,9,41		40,658,156	-
Trading assets	4,10,41		-	28,464,296
Financial assets designated at fair value through profit or loss (K-IFRS 1109)	4,11,41		151,566	-
Financial assets designated at fair value through profit or loss (K-IFRS 1039)	4,12,41		-	3,579,057
Derivative assets	4,13,41		2,417,935	3,400,178
Securities at fair value through other comprehensive income	4,14,41		36,458,781	-
Available-for-sale financial assets	4,15,41		-	42,116,937
Securities at amortized cost	4,14,41		24,857,390	-
Held-to-maturity financial assets	4,15,41		-	24,990,680
Loans at amortized cost	4,16,41		277,838,015	-
Loans	4,17,41		-	275,565,766
Property and equipment			2,980,697	3,021,772
Intangible assets	40		4,290,102	4,273,321
Investments in associates	18		621,690	631,294
Current tax receivable			26,985	25,015
Deferred tax assets			589,654	592,283
Investment property			419,823	418,303
Other assets	4,41		24,343,912	16,551,958
Assets held for sale			19,888	7,550
Total assets		W	433,688,092	426,307,008
Liabilities
Deposits	4,41	W	250,965,418	249,419,224
Financial liabilities at fair value through profit or loss	4,19,41		2,286,835	-
Trading liabilities	4,20,41		-	1,848,490
Financial liabilities designated at fair value through profit or loss (K-IFRS 1109)	4,21,41		8,364,279	-
Financial liabilities designated at fair value through profit or loss (K-IFRS 1039)	4,22,41		-	8,297,609
Derivative liabilities	4,13,41		3,044,579	3,487,661
Borrowings	4,41		26,842,146	27,586,610
Debt securities issued	4,23,41		52,325,800	51,340,821
Liabilities for defined benefit obligations	24		47,295	7,144
Provisions	25		475,763	428,958
Current tax payable			360,371	348,830
Deferred tax liabilities	40		18,855	9,982

3

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Financial Position (Continued)

As of March 31, 2018 and December 31, 2017

(Unaudited)

(In millions of won)	Note		2018	2017
Liabilities under insurance contracts	26	W	24,952,054	24,515,288
Other liabilities	4,41		30,850,367	25,312,773
Total liabilities			400,533,762	392,603,390
Equity	27
Capital stock			2,645,053	2,645,053
Hybrid bonds			423,921	423,921
Capital surplus			9,887,335	9,887,335
Capital adjustments			(397,007)	(398,035)
Accumulated other comprehensive loss	41		(815,547)	(529,734)
Retained earnings	40,41		20,704,546	20,791,681
Total equity attributable to equity holders of Shinhan Financial Group Co., Ltd.			32,448,301	32,820,221
Non-controlling interests			706,029	883,397
Total equity			33,154,330	33,703,618
Total liabilities and equity		W	433,688,092	426,307,008

See accompanying notes to the consolidated interim financial statements.

4

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

	Note		2018	2017
(In millions of won)
Interest income
Financial assets at fair value through other comprehensive income and at amortized cost		W	2,998,690	-
Financial assets at fair value through profit or loss			162,021	-
Loans and receivables and investment securities			-	2,678,789
Short-term trading securities			-	140,350
			3,160,711	2,819,139
Interest expense			(1,102,414)	(949,928)
Net interest income	28		2,058,297	1,869,211
Fees and commission income			1,071,033	965,075
Fees and commission expense			(587,412)	(577,485)
Net fees and commission income	29		483,621	387,590
Insurance income			1,131,096	1,172,124
Insurance expenses			(1,260,827)	(1,280,409)
Net insurance loss	26		(129,731)	(108,285)
Dividend income			17,908	77,216
Net gain on financial assets at fair value through profit or loss			16,125	-
Net gain on financial assets at fair value through profit or loss (overlay approach)			50,630	-
Net trading income			-	361,515
Net gain on financial assets designated at fair value through profit or loss			53,152	-
Net loss on financial instruments designated at fair value through profit or loss			-	(421,167)
Net foreign currency transaction gain			60,617	117,645
Net gain on disposal of financial asset at fair value through other comprehensive income	14		5,544	-
Net gain on disposal of available-for-sale financial assets	15		-	53,723
Net loss on disposal of securities at amortized cost	14		(3)	-
Provision for credit loss allowance	30		(179,527)	-
Impairment losses on financial assets	31		-	(89,146)
General and administrative expenses	32		(1,087,021)	(1,064,803)
Other operating income (expenses), net			(173,773)	114,761
Operating income			1,175,839	1,298,260
Equity method income (loss)	18		13,574	(395)
Other non-operating income, net			4,631	7,850
Profit before income taxes			1,194,044	1,305,715
Income tax expense	34		325,008	298,461
Profit for the period			869,036	1,007,254

See accompanying notes to the consolidated interim financial statements.

5

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income (Continued)

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won, except earnings per share)	Note		2018	2017
Other comprehensive income (loss) for the period, net of income tax	27
Items that are or may be reclassified to profit or loss:
Gain on financial asset at fair value through other comprehensive income		W	15,757	-
Loss on financial asset at fair value through profit or loss (overlay approach)			(36,707)	-
Net change in unrealized fair value of available-for-sale financial assets			-	745
Equity in other comprehensive loss of associates			(4,332)	(12,404)
Foreign currency translation adjustments for foreign operations			13,755	(109,594)
Net change in unrealized fair value of cash flow hedges			(6,365)	1,442
Other comprehensive income of separate account			(2,580)	413
			(20,472)	(119,398)
Items that will never be reclassified to profit or loss:
Remeasurements of the defined benefit liability			(900)	(1,031)
Equity in other comprehensive income of associates			25	163
Valuation gain on financial asset at fair value through other comprehensive income			11,747	-
Loss on disposal of financial asset at fair value through other comprehensive income			(1,739)	-
Changes in own credit risk on financial liabilities designated at fair value through profit of loss			(24)	-
			9,109	(868)
Total other comprehensive income (loss), net of income tax			(11,363)	(120,266)
Total comprehensive income for the period		W	857,673	886,988
Profit for the period attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.		W	857,549	997,098
Non-controlling interests			11,487	10,156
		W	869,036	1,007,254
Total comprehensive income attributable to:
Equity holders of Shinhan Financial Group Co., Ltd.		W	847,000	877,406
Non-controlling interests			10,673	9,582
		W	857,673	886,988
Earnings per share:	35
Basic and diluted earnings per share in won		W	1,799	2,090

See accompanying notes to the consolidated interim financial statements.

6

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity

For the three-month period ended March 31, 2017

(Unaudited)

(In millions of won)		Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
		Capital stock	Hybrid bonds	Capital surplus	Capital adjustments	Accumulated other compre-hensive income	Retained earnings	Sub-total	Non-controlling  interests	Total
Balance at January 1, 2017	W	2,645,053	498,316	9,887,335	(458,461)	(102,583)	18,640,038	31,109,698	635,282	31,744,980
Total comprehensive income for the period
Profit for the period		-	-	-	-	-	997,098	997,098	10,156	1,007,254
Other comprehensive income (loss), net of income tax:
Net change in unrealized fair value of available-for-sale financial assets		-	-	-	-	856	-	856	(111)	745
Equity in other comprehensive loss of associates		-	-	-	-	(12,241)	-	(12,241)	-	(12,241)
Foreign currency translation adjustments		-	-	-	-	(109,136)	-	(109,136)	(458)	(109,594)
Net change in unrealized fair value of cash flow hedges		-	-	-	-	1,442	-	1,442	-	1,442
Other comprehensive income of separate account		-	-	-	-	413	-	413	-	413
Remeasurements of defined benefit plans		-	-	-	-	(1,026)	-	(1,026)	(5)	(1,031)
Total other comprehensive loss		-	-	-	-	(119,692)	-	(119,692)	(574)	(120,266)
Total comprehensive income (loss)		-	-	-	-	(119,692)	997,098	877,406	9,582	886,988
Other changes in equity
Dividends		-	-	-	-	-	(687,589)	(687,589)	-	(687,589)
Dividends to hybrid bonds		-	-	-	-	-	(6,160)	(6,160)	-	(6,160)
Change in other capital adjustments		-	-	-	62,545	-	(61,512)	1,033	-	1,033
Change in other non-controlling interests		-	-	-	-	-	-	-	(11,114)	(11,114)
		-	-	-	62,545	-	(755,261)	(692,716)	(11,114)	(703,830)
Balance at March 31, 2017	W	2,645,053	498,316	9,887,335	(395,916)	(222,275)	18,881,875	31,294,388	633,750	31,928,138

See accompanying notes to the consolidated interim financial statements.

7

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity (Continued)

For the three-month period ended March 31, 2018

(Unaudited)

(In millions of won)		Equity attributable to equity holders of Shinhan Financial Group Co., Ltd.
		Capital stock	Hybrid bonds	Capital surplus	Capital adjustments	Accumulated other compre-hensive income	Retained earnings	Sub-total	Non-controlling  interests	Total
Balance at December 31, 2017	W	2,645,053	423,921	9,887,335	(398,035)	(529,734)	20,790,599	32,819,139	883,397	33,702,536
Measurement period adjustments for business combination (Note 40)		-	-	-	-	-	1,082	1,082	-	1,082
Adoption effect of K-IFRS 1109, net of tax (Note 41)		-	-	-	-	(277,011)	(251,855)	(528,866)	(3,155)	(532,021)
Balance at January 1, 2018 (adjusted)		2,645,053	423,921	9,887,335	(398,035)	(806,745)	20,539,826	32,291,355	880,242	33,171,597
Total comprehensive income for the period
Profit for the period		-	-	-	-	-	857,549	857,549	11,487	869,036
Other comprehensive income (loss), net of income tax:
Gain on financial asset at fair value through other comprehensive income		-	-	-	-	25,765	-	25,765	-	25,765
Loss on financial asset at fair value through profit or loss (overlay approach)		-	-	-	-	(36,707)	-	(36,707)	-	(36,707)
Equity in other comprehensive loss of associates		-	-	-	-	(4,307)		(4,307)	-	(4,307)
Foreign currency translation adjustments		-	-	-	-	14,569	-	14,569	(814)	13,755
Net change in unrealized fair value of cash flow hedges		-	-	-	-	(6,365)	-	(6,365)	-	(6,365)
Other comprehensive income of separate account		-	-	-	-	(2,580)	-	(2,580)	-	(2,580)
Remeasurements of defined benefit plans		-	-	-	-	(900)	-	(900)	-	(900)
Changes in own credit risk on financial liabilities designated at fair value through profit or loss		-	-	-	-	(24)	-	(24)	-	(24)
Total other comprehensive loss		-	-	-	-	(10,549)	-	(10,549)	(814)	(11,363)
Total comprehensive income (loss)		-	-	-	-	(10,549)	857,549	847,000	10,673	857,673
Other changes in equity
Dividends		-	-	-	-	-	(687,589)	(687,589)	-	(687,589)
Dividends to hybrid bonds		-	-	-	-	-	(4,406)	(4,406)	-	(4,406)
Change in other capital adjustments		-	-	-	1,028	-	913	1,941	-	1,941
Change in other non-controlling interests		-	-	-	-	-	-	-	(184,886)	(184,886)
		-	-	-	1,028	-	(691,082)	(690,054)	(184,886)	(874,940)
Other		-	-	-	-	1,747	(1,747)	-	-	-
Balance at March 31, 2018	W	2,645,053	423,921	9,887,335	(397,007)	(815,547)	20,704,546	32,448,301	706,029	33,154,330

See accompanying notes to the consolidated interim financial statements.

8

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won)	Note		2018	2017
Cash flows from operating activities
Profit before income taxes		W	1,194,044	1,305,715
Adjustments for:
Interest income			(3,160,711)	(2,819,139)
Interest expense			1,102,414	949,928
Dividend income			(17,908)	(77,216)
Net fees and commission expense			42,870	42,962
Net insurance loss			540,828	660,720
Net loss on financial assets at fair value through profit or loss			53,117	-
Net gain on financial assets at fair value through profit or loss (overlay approach)			(50,630)	-
Net trading gain			-	(355,792)
Net foreign currency translation loss (gain)			51,132	(49,691)
Net gain on financial assets designated at fair value through profit or loss			(134,166)	-
Net loss on financial instruments designated at fair value through profit or loss			-	280,896
Net gain on disposal of financial asset at fair value through other comprehensive income			(5,544)	-
Net gain on disposal of available-for-sale financial assets			-	(53,723)
Net loss on disposal of securities at amortized cost			3	-
Provision for credit loss allowance			179,527	-
Provision for credit losses			-	82,109
Impairment losses on other financial assets			-	7,037
Employee costs			56,859	48,071
Depreciation and amortization			68,835	65,490
Other operating expenses (income)			176,071	(614,229)
Equity method loss (income), net			(13,574)	395
Other non-operating expense, net			267	829
			(1,110,610)	(1,831,353)
Changes in assets and liabilities:
Cash and due from banks at amortized cost			4,177,394	-
Due from banks			-	(3,041,023)
Financial assets at fair value through profit or loss			(1,198,991)	-
Due from banks at fair value			(34,781)	-
Loans at fair value			(150,607)	-
Trading assets and liabilities			-	(2,071,412)
Financial asset designated at fair value through profit or loss (K-IFRS 1109)			238,335	-
Financial instruments designated at fair value through profit or loss (K-IFRS 1039)			-	(494,262)
Derivative instruments			327,207	46,248
Loans at amortized cost			(5,090,102)	-
Loans			-	(1,043,199)
Other assets			(8,450,407)	(2,904,936)

See accompanying notes to the consolidated interim financial statements.

9

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows (Continued)

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won)	Note		2018	2017
Deposits		W	2,667,017	199,299
Liabilities for defined benefit obligations			(130)	(31,473)
Provisions			(18,425)	(16,990)
Other liabilities			5,352,562	8,782,547
			(2,180,928)	(575,201)
Income taxes paid			(103,047)	(6,119)
Interest received			3,100,517	2,620,721
Interest paid			(1,327,358)	(979,591)
Dividends received			29,962	66,210
Net cash provided by (used in) operating activities			(397,420)	600,382
Cash flows from investing activities
Proceeds from disposal of financial assets at fair value through other comprehensive income			5,677,556	-
Acquisition of financial assets at fair value through other comprehensive income			(4,698,055)	-
Proceeds from disposal of available-for-sale financial assets			-	6,443,798
Acquisition of available-for-sale financial assets			-	(7,242,175)
Proceeds from disposal of financial assets at amortized cost			201,797	-
Acquisition of financial assets at amortized cost			(611,448)	-
Proceeds from maturity of held-to-maturity financial assets			-	271,157
Acquisition of held-to-maturity financial assets			-	(1,087,514)
Proceeds from disposal of property and equipment			1,525	349
Acquisition of property and equipment			(23,747)	(19,530)
Proceeds from disposal of intangible assets			363	4,198
Acquisition of intangible assets			(32,564)	(20,330)
Proceeds from disposal of investments in associates			26,521	2,110
Acquisition of investments in associates			(9,602)	(181,822)
Proceeds from disposal of investment property			446	-
Acquisition of investment property			(108)	(79)
Proceeds from disposal of assets held for sale			1,632	3,146
Other, net			(2,891)	(20,645)
Proceeds from settlement of hedging derivative financial instruments for available-for-sale financial assets			43,952	21,842
Settlement of hedging derivative financial instruments for available-for-sale financial assets			(227)	(7,078)
Net cash provided by (used in) investing activities			575,150	(1,832,573)

See accompanying notes to the consolidated interim financial statements.

10

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows (Continued)

For the three-month periods ended March 31, 2018 and 2017

(Unaudited)

(In millions of won)	Note		2018	2017
Cash flows from financing activities
Net increase (decrease) in borrowings		W	(306,472)	626,910
Proceeds from debt securities issued			4,088,703	3,590,178
Repayments of debt securities issued			(3,069,616)	(2,396,164)
Other liabilities			396	3,666
Dividends paid			(27,069)	(42,318)
Proceeds from settlement of hedging derivative financial instruments for debt securities issued			5,892	9,459
Settlement of hedging derivative financial instruments for debt securities issued			(476)	-
Decrease in non-controlling interests			(184,806)	(6,547)
Net cash provided by financing activities			506,552	1,785,184
Effect of exchange rate fluctuations on cash and cash equivalents held			(27,143)	(22,700)
Increase in cash and cash equivalents			657,139	530,293
Cash and cash equivalents at beginning of period	37		6,236,650	5,632,536
Cash and cash equivalents at end of period	37	W	6,893,789	6,162,829

See accompanying notes to the consolidated interim financial statements.

11

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 and December 31, 2017 are as follows:

			Date of financial information	Ownership (%)
Investor	Investee(*1)	Location		2018	2017
Shinhan Financial Group Co., Ltd.	Shinhan Bank	Korea	March 31	100.0	100.0
〃	Shinhan Card Co., Ltd.	〃	〃	100.0	100.0
〃	Shinhan Investment Corp.	〃	〃	100.0	100.0
〃	Shinhan Life Insurance Co., Ltd.	〃	〃	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 Alternative Investment Management 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 REITs Management Co., Ltd.	〃	〃	100.0	100.0
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 Bank Cambodia(*2)	Cambodia	〃	97.5	97.5
〃	Shinhan Bank Kazakhstan Limited	Kazakhstan	〃	100.0	100.0
〃	Shinhan Bank Canada	Canada	〃	100.0	100.0
〃	Shinhan Bank (China) Limited	China	〃	100.0	100.0
〃	Shinhan Bank Japan	Japan	〃	100.0	100.0
〃	Shinhan Bank Vietnam Ltd.	Vietnam	〃	100.0	100.0
〃	Banco Shinhan de Mexico	Mexico	〃	99.9	99.9
〃	PT Bank Shinhan Indonesia	Indonesia	〃	99.0	99.0
Shinhan 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

12

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

1.Reporting entity(continued)

			Date of financial information	Ownership (%)
Investor	Investee(*1)	Location		2018	2017
Shinhan Investment Corp.	SHINHAN SECURITIES VIETNAM CO., LTD.	Vietnam	March 31	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) Shinhan Khmer Bank PLC changed its name into Shinhan Bank Cambodia for the period ended March 31, 2018.

13

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

1.Reporting entity(continued)

(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 90 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 60 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.

14

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 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 March 31, 2018 and December 31, 2017 are as follows:

		2018			2017
		Total assets	Total liabilities	Total equities	Total assets	Total liabilities	Total equities
Shinhan Financial Group (Separate)	W	29,250,538	8,385,605	20,864,933	27,639,783	7,447,705	20,192,078
Shinhan Bank		330,366,037	308,030,508	22,335,529	324,314,242	301,660,298	22,653,944
Shinhan Card Co., Ltd.		26,377,528	20,728,639	5,648,889	26,367,562	20,092,443	6,275,119
Shinhan Investment Corp.		28,371,198	25,175,102	3,196,096	28,644,288	25,391,599	3,252,689
Shinhan Life Insurance Co., Ltd.		29,843,147	28,275,673	1,567,474	29,719,359	27,987,427	1,731,932
Shinhan Capital Co., Ltd.		5,469,991	4,797,256	672,735	5,315,366	4,603,786	711,580
Jeju Bank		5,699,654	5,298,887	400,767	5,562,924	5,158,123	404,801
Shinhan Credit Information Co., Ltd.		22,833	7,538	15,295	22,726	8,144	14,582
Shinhan Alternative Investment Management Inc.		86,836	76,087	10,749	86,902	76,250	10,652
Shinhan BNP Paribas Asset Management Co., Ltd.		171,222	25,775	145,447	174,839	18,286	156,553
SHC Management Co., Ltd.		9,454	201	9,253	9,438	190	9,248
Shinhan Data System		38,030	23,174	14,856	39,799	24,446	15,353
Shinhan Savings Bank		1,281,697	1,133,438	148,259	1,287,170	1,139,533	147,637
Shinhan AITAS Co., Ltd.		57,854	6,621	51,233	58,158	6,209	51,949
Shinhan REITs Management Co., Ltd		28,914	142	28,772	29,319	71	29,248

(*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.

15

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2017

(Unaudited)

(In millions of won)

1.Reporting entity(continued)

ii) Condensed comprehensive income statement for the Group’s subsidiaries for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018			2017
		Operating income	Net income (loss)	Total com-prehensive income (loss)	Operating income	Net income (loss)	Total com-prehensive income (loss)
Shinhan Financial Group (separate)	W	1,428,248	1,364,873	1,364,873	948,932	888,647	888,647
Shinhan Bank		4,280,076	600,596	661,905	8,529,152	534,578	420,181
Shinhan Card Co., Ltd.		1,158,076	138,254	129,218	1,542,468	401,388	410,552
Shinhan Investment Corp.		1,990,565	96,971	93,999	1,998,769	45,956	38,088
Shinhan Life Insurance Co., Ltd.		1,419,558	33,827	(26,003)	1,680,248	30,770	27,883
Shinhan Capital Co., Ltd.		80,238	25,793	24,961	93,775	18,583	16,443
Jeju Bank		53,387	5,448	6,130	49,856	8,342	7,937
Shinhan Credit Information Co., Ltd.		9,311	690	690	6,005	(266)	(266)
Shinhan Alternative Investment Management Inc.		1,059	96	185	517	(73)	(73)
Shinhan BNP Paribas Asset Management Co., Ltd.		19,917	5,644	5,418	17,084	3,991	3,951
SHC Management Co., Ltd.		27	5	5	102	80	80
Shinhan Data System		21,126	(536)	(536)	18,049	117	117
Shinhan Savings Bank.		21,513	4,037	4,021	17,377	1,990	1,910
Shinhan AITAS Co., Ltd.		10,594	1,420	1,420	9,897	1,735	1,735
Shinhan REITs Management Co., Ltd		(600)	(477)	(477)	-	-	-

(*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.

16

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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, 2017.  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, 2017, except for the details described in Note 3.

- Credit loss allowance

The Group recognizes credit loss allowance for expected credit losses on debt instruments, loans and receivables that are measured at amortized cost, loan commitments and financial guarantee contracts in accordance with K-IFRS No. 1109 ‘Financial Instruments.’  The accuracy of such allowance is determined by techniques, assumptions and input variables used by the Group to measure expected future cash flows of individual financial instruments and to measure expected credit losses in a collective manner.  The details of techniques, assumptions and input variables used to measure the credit loss allowance for expected credit losses as of March 31, 2018 are described in Note 4.

17

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

3. Significant accounting policies

Except for the new standards and the amendment to the following standard, which are applied from January 1, 2018, the accounting policies applied by the Group in these condensed separate interim financial statements are the same as those applied by the Group in its separate financial statements as of and for the year ended December 31, 2017.

(a) K-IFRS No. 1109, ‘Financial Instruments’

The Group has applied K-IFRS No. 1109 ‘Financial Instruments’, which was published on September 25, 2015, from the year starting on January 1, 2018.  K-IFRS No. 1109 replaced K-IFRS No. 1039, ‘Financial Instruments: Recognition and Measurement.’

The main characteristics of K-IFRS No. 1109 are: classification and measurement of financial instruments based on characteristics of contractual cash flows and business model, impairment model based on expected credit losses, the expansion of the types of qualifying hedging instruments and hedged items, and changes in hedge effectiveness tests, etc.

In principle, K-IFRS No. 1109 should be applied retrospectively.  However, there are clauses exempting to restate the comparative information with respect to classification, measurement of financial instruments, and impairment.  In addition, for hedge accounting, the new standard will be applied prospectively except for certain cases such as accounting for the time value of options.

i) Classification and measurement of financial assets

The Group classifies financial assets as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss on the basis of both the business model for managing the financial assets and the contractual cash flow characteristics of the financial asset as shown in the following table.  If a hybrid contract contains a host that is a financial asset, the entire hybrid contract is classified as a financial asset without separating an embedded derivative.

Business Model	Contractual cash flow characteristics
	Solely payments of principal and interest	Others
For the collection of the contractual cash flows	Measured at amortized cost(*1)	Measured at fair value through profit or loss(*2)
For both the collection of the contractual cash flows and selling financial assets	Measured at fair value through other comprehensive income(*1)	Same as above
For selling financial assets and others	Measured at fair value through profit or loss	Same as above

(*1) A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable).

(*2) A designation at fair value through other comprehensive income is allowed only if the financial instrument is the equity investment that is not held for trading (irrevocable).  Upon disposal, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to retained earnings.

18

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

3.Significant accounting policies (continued)

The Group applies the overlay approach to designated financial assets related to insurance contracts in accordance with K-IFRS No. 1104. The Group reclassifies the amount reported in profit or loss for the designated financial assets applying K-IFRS No. 1109 to the amount that would have been reported in profit or loss for the designated financial assets if the Group had applied K-IFRS No. 1039.

ii) Classification and measurement of financial liabilities

Where a financial liability is designated at fair value through profit or loss, the fair value change of the financial liability attributable to the changes of the credit risk of the financial liability shall be presented in other comprehensive income; such other comprehensive income shall not be subsequently reclassified to profit or loss. However, the Group may present the fair value change as profit or loss if the aforementioned accounting treatment would cause or enlarge an accounting mismatch.

iii) Impairment: Financial assets and contract assets

The Group recognize provision for credit loss allowance for debt instruments measured at amortized cost and fair value through other comprehensive income, lease receivable, loan commitments and financial guarantee contracts using the expected credit loss impairment model.  Financial assets migrate through the following three stages based on the change in credit risk since initial recognition and loss allowances for the financial assets are measured at the 12-month expected credit losses (“ECL”) or the lifetime ECL, depending on the stage.

Category		Provision for credit loss allowance
STAGE 1	When credit risk has not increased significantly since the initial recognition	12-months ECL: the ECL associated with the probability of default events occurring within the next 12 months
STAGE 2	When credit risk has increased significantly since the initial recognition	Lifetime ECL: a lifetime ECL associated with the probability of default events occurring over the remaining lifetime
STAGE 3	When asses are impaired	Same as above

The Group, meanwhile, only recognizes the cumulative changes in lifetime expected credit losses since the initial recognition as a loss allowance for purchased or originated credit-impaired financial assets.

19

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

3.Significant accounting policies (continued)

iv) Hedge accounting

K-IFRS No. 1109 maintains the mechanics of hedge accounting (i.e. fair value hedge, cash flow hedge, hedge of a net investment in a foreign operation) as defined in K-IFRS 1039, whereas a principle-based hedge accounting requirements that focuses on an entity’s risk replaced the complex and rule-based hedge accounting requirements of K-IFRS No. 1039.  Additionally, qualifying hedged items and qualifying hedging instruments have been expanded and hedge accounting requirements have been eased by eliminating a subsequent hedge effectiveness assessment and a quantitative test (80~125%).

The Group’s consolidated interim statements of financial position, comprehensive income, changes in equity and cash flows, and notes to the condensed consolidated financial statements as of and for the three-month period ended March 31, 2018 have been prepared in accordance with K-IFRS No. 1109, and the accompanying comparative consolidated financial statements as of December 31, 2017 and for the three-month period ended March 31, 2017 have not been retrospectively restated.

Details on the adjustments to the carrying amounts of financial assets and financial liabilities, the adjustments to the loss allowance, and the effects on equity as a result of initial application of K-IFRS No. 1109 are presented in Note 41.

(b) K-IFRS No. 1115, ‘Revenue from Contracts with Customers’

The Group has applied K-IFRS No. 1115, ‘Revenue from Contracts with Customers’, which replaces existing revenue recognition guidance, including K-IFRS No. 1018, ‘Revenue’, K-IFRS No. 1011, ‘Construction Contracts’, K-IFRS No. 2031, ‘Revenue-Barter Transactions Involving Advertising Services’,K-IFRS No. 2113, ‘Customer Loyalty Programmes’, K-IFRS No. 2115, ‘Agreement for the Construction of Real Estate’, and K-IFRS No. 2118, ‘Transfers of Assets from Customers.’

K-IFRS No. 1018 and other standards outlined revenue recognition for different types of transactions such as sales of goods and services, interest income, loyalty programs, dividend income and construction contracts; however, according to K-IFRS No.1115, all types of contracts recognize revenue through five-step revenue recognition model (① ‘Identifying the contract’ → ② ‘Identifying performance obligations’ → ③ ‘Determining the transaction price’ → ④ ‘Allocating the transaction price to performance obligations’ → ⑤ ‘Recognizing the revenue by satisfying performance obligations’).

Effects on equity as a result of initial application of K-IFRS No. 1115 are included in Note 41.

20

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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.

21

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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.

•

22

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

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) Techniques, assumptions and input variables used to measure impairment

i-1) Determining significant increases in credit risk since initial recognition

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.

i-1-1) Measuring the risk of default

The Group assigns an internal credit risk rating to each individual exposure based on observable data and historical experiences that have been found to have a reasonable correlation with the risk of default. The internal credit risk rating is determined by considering both qualitative and quantitative factors that indicate the risk of default, which may vary depending on the nature of the exposure and the type of borrower.

i-1-2) Measuring term structure of probability of default

The Group accumulates information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower and results of internal credit risk assessment. For some portfolios, the Group uses information obtained from external credit rating agencies when performing these analyses.

The Group applies statistical techniques to estimate the probability of default for the remaining life of the exposure from the accumulated data and to estimate changes in the estimated probability of default over time.

23

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-1-3) Significant increases in credit risk

The Group uses the indicators defined as per portfolio to determine the significant increase in credit risk and such indicators generally consist of changes in the risk of default estimated from changes in the internal credit risk rating, qualitative factors, days of delinquency, and others. The method used to determine whether credit risk of financial instruments has significantly increased after the initial recognitions is summarized as follows:

Corporate exposures	Retail exposures	Card exposures
Significant change in credit ratings	Significant change in credit ratings	Significant change in credit ratings
Continued past due more than 30 days	Continued past due more than 30 days	Continued past due more than 7 days(personal card)
Loan classification of and below precautionary	Loan classification of and below precautionary	Loan classification of and below precautionary
Borrower with early warning signals	Borrower with early warning signals	Specific pool segment
Negative net assets	Specific pool segment
Adverse audit opinion or disclaimer of opinion	Loans relating to constructor whose collective loans are insolvent
Interest coverage ratios of below 1 for consecutive three years
Negative cash flows from operating activities for consecutive two years

The Group considers the credit risk of financial instrument has been significantly increased since initial recognition if a specific exposure is past due more than 30 days (however, for a specific portfolio if it is past due more than 7 days). The Group counts the number of days past due from the earliest date on which the Group has not fully received the contractual payments from the borrower and does not consider the grace period granted to the borrower.

The Group regularly reviews the criteria for determining if there have been significant increases in credit risk from the following perspective.

- A significant increase in credit risk shall be identified prior to the occurrence of default.

- The criteria established to judge the significant increase in credit risk shall have a more predictive power than the criteria for days of delinquency.

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

24

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-2) Modified financial assets

If the contractual cash flows on a financial asset have been renegotiated or modified and the financial asset was not derecognised, the Group assesses whether there has been a significant increase in the credit risk of the financial instrument by comparing the risk of a default occurring at initial recognition based on the original, unmodified contractual terms and the risk of a default occurring at the reporting date based on the modified contractual terms.

The Group may adjust the contractual cash flows of loans to customers who are in financial difficulties in order to manage the risk of default and enhance the collectability (hereinafter referred to as ‘debt restructuring’). These adjustments generally involve extension of maturity, changes in interest payment schedule, and changes in other contractual terms.

Debt restructuring is a qualitative indicator of a significant increase in credit risk and the Group recognizes lifetime expected credit losses for the exposure expected to be the subject of such adjustments. If a borrower faithfully makes payments of contractual cash flows that were modified in accordance with the debt restructuring or if the borrower's internal credit rating has recovered to the level prior to the recognition of the lifetime expected credit losses, the Group recognizes the 12-months expected credit losses for that exposure again.

i-3) Risk of default

The Group considers a financial asset to be in default if it meets one or more of the following conditions:

- if a borrower is overdue 90 days or more from the contractual payment date,

- if the Group judges that it is not possible to recover principal and interest without enforcing the collateral on a financial asset

The Group uses the following indicators when determining whether a borrower is in default:

- qualitative factors (e.g. breach of contract terms),

- quantitative factors (e.g. if the same borrower does not perform more than one payment obligations to the Group, the number of days past due per payment obligation. However, in the case of a specific portfolio, the Group uses the number of days past due for each financial instrument)

- internal data and external data

The definition of default applied by the Group generally conforms to the definition of default defined for regulatory capital management purposes; however, depending on the situations, the information used to determine whether a default has incurred and the extent thereof may vary.

25

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-4) Reflection of forward-looking information

The Group reflects forward-looking information presented by internal experts based on a variety of information when measuring expected credit losses.  For the purpose of estimating these forward-looking information, the Group utilizes the economic outlook published by domestic and overseas research institutes or government and public agencies.

The Group reflects future macroeconomic conditions anticipated from a neutral standpoint that is free from bias in measuring expected credit losses.  Expected credit losses in this respect reflect conditions that are most likely to occur and are based on the same assumptions that the Group used in its business plan and management strategy.

The Group identified the key macroeconomic variables needed to forecast credit risk and credit losses for each portfolio as follows by analyzing past experience data and drew correlations across credit risk for each variable.

Key macroeconomic variables	Correlation with credit risk
Economic growth	Negative
Consumer price index	Negative
Benchmark rate	Positive
10-year Korea Treasury Bond	Positive
3-year Corporate Bond	Positive
KOSPI	Negative

The predicted correlations between the macroeconomic variables and the risk of default, used by the Group, were derived based on data from the past nine years.

26

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

i-5) Measurement of expected credit losses

Key variables used in measuring expected credit losses are as follows:

- Probability of default (PD)

- Loss given default (LGD)

- Exposure at default (EAD)

These variables have been estimated from historical experience data by using the statistical techniques developed internally by the Group and have been adjusted to reflect forward-looking information.

Estimates of PD over a specified period are estimated by reflecting characteristics of counterparties and their exposure, based on a statistical model at a specific point of time.  The Group uses its own information to develop a statistical credit assessment model used for the estimation, and additional information observed in the market is considered for some portfolios such as a group of large corporates. When a counterparty or exposure is concentrated in specific grades, the method of measuring PD for that grades would be adjusted, and the PD by grade is estimated by considering contract expiration of the exposure.

LGD refers to the expected loss if a borrower defaults. The Group calculates LGD based on the experience recovery rate measured from past default exposures.  The model for measuring LGD is developed to reflect type of collateral, seniority of collateral, type of borrower, and cost of recovery. In particular, LGD for retail loan products uses loan to value (LTV) as a key variable. The recovery rate reflected in the LGD calculation is based on the present value of recovery amount, discounted at the effective interest rate.

EAD refers to the expected exposure at the time of default.  The Group derives EAD reflecting a rate at which the current exposure is expected to be used additionally up to the point of default within the contractual limit.  EAD of financial assets is equal to the total carrying amount of the asset, and EAD of loan commitments or financial guarantee contracts is calculated as the sum of the amount expected to be used in the future.

When measuring expected credit losses on financial assets, the Group reflects a period of expected credit loss measurement based on a contractual maturity.  The Group takes into consideration of the extension rights held by a borrower when deciding the contractual maturity.

Risk factors of PD, LGD and EAD are collectively estimated according to the following criteria:

- Type of products

- Internal credit risk rating

- Type of collateral

- Loan to value (LTV)

- Industry that the borrower belongs to

- Location of the borrower or collateral

- Days of delinquency

The criteria classifying groups is periodically reviewed to maintain homogeneity of the group and adjusted if necessary.  The Group uses external benchmark information to supplement internal information for a particular portfolio that did not have sufficient internal data accumulated from the past experience.

27

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

i-6) Write-off of financial assets

The Group writes off a portion of or entire loan or debt security that is not expected to receive its principal and interest.  In general, the Group conducts write-off when it is deemed that the borrower has no sufficient resources or income to repay the principal and interest.  Such determination on write-off is carried out in accordance with the internal rules of the Group and is carried out with the approval of an external institution, if necessary.  Apart from write-off, the Group may continue to exercise its right of collection under its own recovery policy even after the write-off of financial assets.

ii) Maximum exposure to credit risk

Exposure to credit risk is the exposure related to due from banks, loans, investments in debt securities, derivative transactions, off-balance sheet accounts such as loan commitment.  The exposures of due from banks and loans were classified into government, bank, corporation, retail based on the exposure classification criteria of BASEL III credit risk weights.

The Group’s maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements as of March 31, 2018 and December 31, 2017 are as follows:

		2018
Due from banks and loans at amortized cost (*1)(*3):
Banks	W	13,935,408
Retail		126,889,677
Government		10,544,650
Corporations		122,333,019
Card receivable		20,077,904
		293,780,658
Financial asset at fair value through profit or loss		37,994,406
Financial asset designated at fair value through profit or loss		79,763
Securities at fair value through other comprehensive income		35,845,395
Securities at amortized cost		24,857,390
Derivative assets		2,417,935
Other financial assets(*1)(*2)		19,749,066
Financial guarantee contracts		3,431,645
Loan commitments and other credit liabilities		156,843,606
	W	574,999,864

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

(*2) 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)

28

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

ii) Maximum exposure to credit risk (continued)

		2017
Due from banks and loans(*1)(*3):
Banks	W	13,373,140
Retail		124,868,554
Government		14,442,747
Corporations		123,637,882
Card receivable		20,119,514
		296,441,837
Trading assets		23,829,943
Financial assets designated at FVTPL		2,344,701
AFS financial assets		37,186,552
HTM financial assets		24,990,680
Derivative assets		3,400,178
Other financial assets(*1)(*2)		12,041,304
Financial guarantee contracts		3,267,707
Loan commitments and other credit liabilities		139,264,031
	W	542,766,933

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

(*2) 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).

29

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iii) Impairment information by credit risk of financial assets

-  Credit loss allowances of financial assets as of March 31, 2018 are as follows:

		12-month expected loss		Life time expected loss			Total	Allowances	Net	Mitigation of credit risk   due to collateral
		Grade 1(*1)	Grade 2(*1)	Grade 1(*1)	Grade 2(*1)	Impaired
Due from banks and loans at amortized cost:
Banks	W	12,645,656	680,715	593,047	31,988	-	13,951,406	(15,998)	13,935,408	106,941
Retail		113,431,840	5,270,145	5,092,113	3,175,130	364,344	127,333,572	(443,895)	126,889,677	76,997,514
Government		6,350,613	-	4,198,848	-	-	10,549,461	(4,811)	10,544,650	-
Corporations		79,418,417	26,375,522	8,312,792	8,860,697	1,048,593	124,016,021	(1,683,002)	122,333,019	64,345,907
Card receivable		15,021,288	1,844,826	1,650,885	1,926,190	403,864	20,847,053	(769,149)	20,077,904	6,657
		226,867,814	34,171,208	19,847,685	13,994,005	1,816,801	296,697,513	(2,916,855)	293,780,658	141,457,019
Securities at fair value through other comprehensive income(*2)		30,131,573	5,698,013	-	15,809	-	35,845,395	-	35,845,395	-
Securities at amortized cost		24,194,051	649,763	18,186	3,140	-	24,865,140	(7,750)	24,857,390	-
Ending balance	W	281,193,438	40,518,984	19,865,871	14,012,954	1,816,801	357,408,048	(2,924,605)	354,483,443	141,457,019

30

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

4. Financial risk management (continued)

iii) Impairment information by credit risk of financial assets (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

(*2) Provision for credit loss allowance for securities at fair value through other comprehensive income amounted to W16,398 million.

31

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iii) Impairment information by credit risk of financial assets (continued)

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

		2017
		Banks	Retail	Government	Corporations	Card	Total
Grade 1(*2)	W	13,382,414	116,304,917	14,447,016	86,831,895	16,314,189	247,280,431
Grade 2(*2)		7,857	8,056,563	-	36,835,347	3,473,826	48,373,593
		13,390,271	124,361,480	14,447,016	123,667,242	19,788,015	295,654,024
Less : allowance (collective)		(17,131)	(212,502)	(4,269)	(647,694)	(288,362)	(1,169,958)
	W	13,373,140	124,148,978	14,442,747	123,019,548	19,499,653	294,484,066
Mitigation of credit risk   due to collateral(*1)	W	96,835	80,354,889	-	64,018,607	6,358	144,476,689

(*1) 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.

(*2) 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

32

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iii) Impairment information by credit risk of financial assets (continued)

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

		2017
		Banks	Retail	Government	Corporations	Card	Total
Less than 30 days	W	-	458,968	-	131,624	446,658	1,037,250
30 days ~ less than 60 days		-	65,152	-	33,749	58,283	157,184
60 days ~ less than 90 days		-	42,427	-	16,972	37,972	97,371
90 days or more		-	15,430	-	11,787	390	27,607
		-	581,977	-	194,132	543,303	1,319,412
Less : allowance		-	(56,774)	-	(8,898)	(81,990)	(147,662)
	W	-	525,203	-	185,234	461,313	1,171,750
Mitigation of credit risk   due to collateral	W	-	325,631	-	94,388	90	420,109

-  Due from banks and loans that are impaired as of December 31, 2017 are as follows:

		2017
		Banks	Retail	Government	Corporations	Card	Total
Impaired	W	-	362,707	-	1,010,036	420,316	1,793,059
Less : allowance		-	(168,334)	-	(576,936)	(261,768)	(1,007,038)
	W	-	194,373	-	433,100	158,548	786,021
Mitigation of credit risk   due to collateral	W	-	128,906	-	384,815	12	513,733

33

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

iv) Credit risk exposures per credit grade of off-balance items

-  Credit risk exposures per credit grade of off-balance items as of March 31, 2018 are as follows:

		2018
		Grade 1(*1)	Grade 2(*1)	Impaired	Total
Financial guarantee:
12-month expected credit loss	W	2,504,287	680,544	-	3,184,831
Life time expected credit loss		85,146	154,644	-	239,790
Impaired		-	-	7,024	7,024
		2,589,433	835,188	7,024	3,431,645
Loan commitment and other credit line
12-month expected credit loss		131,509,862	18,004,549	-	149,514,411
Life time expected credit loss		5,387,604	1,934,954	-	7,322,558
Impaired		-	-	6,637	6,637
		136,897,466	19,939,503	6,637	156,843,606
	W	139,486,899	20,774,691	13,661	160,275,251

(*1) Grade 1: BBB+ or above per internal credit rating

Grade 2: BBB+ less per internal credit rating

34

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

v) Credit ratings of debt securities

-  Credit ratings of debt securities as of December 31, 2017 are as follows:

		2017
		Trading assets	Financial assets designated at FVTPL	Available–for- sale financial assets	Held-to-maturity financial assets	Total
AAA	W	8,837,093	630,247	23,949,843	20,057,480	53,474,663
AA- to AA+		5,193,659	589,193	5,582,125	3,956,290	15,321,267
A- to A+		5,442,892	792,715	4,300,764	444,711	10,981,082
BBB- to BBB+		1,614,012	252,258	1,508,224	166,906	3,541,400
Lower than BBB-		275,200	-	435,651	177,840	888,691
Unrated		2,277,790	80,288	1,409,945	187,453	3,955,476
	W	23,640,646	2,344,701	37,186,552	24,990,680	88,162,579

-  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 December 31, 2017 are as follows:

		2017
Neither past due nor impaired	W	88,160,626
Impaired		1,953
	W	88,162,579

35

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

vi) Concentration by industry sector

An analysis of concentration by industry sector of financial instrument, net of allowance, as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Finance and insurance	Manu- facturing	Retail and wholesale	Real estate and service	Other	Retail customers	Total
Due from banks and loans at amortized cost:
Banks	W	13,382,826	3,776	-	6,461	542,345	-	13,935,408
Retail		-	-	-	-	-	126,889,677	126,889,677
Government		10,424,487	-	-	-	120,163	-	10,544,650
Corporations		5,949,033	42,705,274	16,681,063	24,992,480	32,004,198	971	122,333,019
Card receivable		39,045	193,013	150,287	40,049	19,575,718	79,792	20,077,904
		29,795,391	42,902,063	16,831,350	25,038,990	52,242,424	126,970,440	293,780,658
Financial asset at fair value through profit or loss		25,571,817	1,353,627	1,445,288	342,059	9,281,615	-	37,994,406
Financial asset designated at fair value through profit or loss		-	79,763	-	-	-	-	79,763
Securities at fair value through other comprehensive income		22,640,037	1,447,489	246,243	537,028	10,974,598	-	35,845,395
Securities at amortized cost		5,915,376	93,477	-	785,048	18,063,489	-	24,857,390
	W	83,922,621	45,876,419	18,522,881	26,703,125	90,562,126	126,970,440	392,557,612

		2017
		Finance and insurance	Manu- facturing	Retail and wholesale	Real estate and service	Other	Retail customers	Total
Due from banks and loans:
Banks	W	11,094,855	1,592	-	56,744	2,219,949	-	13,373,140
Retail		-	-	-	-	-	124,868,554	124,868,554
Government		13,381,461	1,314	-	-	1,059,972	-	14,442,747
Corporations		5,474,353	40,364,768	16,563,849	23,005,675	38,229,237	-	123,637,882
Card receivable		41,825	295,290	140,117	37,801	445,982	19,158,499	20,119,514
		29,992,494	40,662,964	16,703,966	23,100,220	41,955,140	144,027,053	296,441,837
Trading assets		17,183,669	1,139,609	1,206,133	176,273	4,124,259	-	23,829,943
Financial assets designated at FVTPL		1,201,464	202,906	36,112	45,178	859,041	-	2,344,701
AFS financial assets		23,384,608	1,409,017	227,289	632,410	11,533,228	-	37,186,552
HTM financial assets		5,975,448	48,981	-	785,859	18,180,392	-	24,990,680
	W	77,737,683	43,463,477	18,173,500	24,739,940	76,652,060	144,027,053	384,793,713

36

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 three-month period ended March 31, 2018 and the year ended December 31, 2017 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 three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018
		Average	Maximum	Minimum	March 31
Interest rate	W	25,015	29,748	21,116	22,163
Stock price		7,959	13,323	1,976	10,914
Foreign exchange(*)		40,747	44,470	37,756	38,544
Option volatility		75	152	30	90
Commodity		14	54	-	3
Portfolio diversification					(29,351)
	W	45,149	51,408	40,953	42,363

		2017
		Average	Maximum	Minimum	December 31
Interest rate	W	38,370	50,206	22,226	25,071
Stock price		4,051	5,622	3,040	4,675
Foreign exchange(*)		43,827	46,108	41,562	41,947
Option volatility		70	124	43	66
Commodity		22	46	-	14
Portfolio diversification					(26,367)
	W	49,943	56,103	42,031	45,406

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

37

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 three-month period ended March 31, 2018 and the year ended December 31, 2017, based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, are as follows:

		2018
		Average	Maximum	Minimum	March 31
Interest rate	W	1,563	1,972	1,200	1,972

		2017
		Average	Maximum	Minimum	December 31
Interest rate	W	1,809	2,550	1,050	1,800

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 three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018
		Average	Maximum	Minimum	March 31
Interest rate	W	7,029	10,219	3,656	3,779
Stock price		41,091	94,682	6,202	72,175
Foreign exchange		9,187	13,798	4,266	10,402
Option volatility		3,896	6,500	2,195	5,705
Portfolio diversification					(17,657)
	W	45,644	98,602	11,173	74,404

		2017
		Average	Maximum	Minimum	December 31
Interest rate	W	9,939	18,090	7,329	11,232
Stock price		12,015	22,496	7,068	10,830
Foreign exchange		7,140	12,604	2,760	5,506
Option volatility		3,404	4,536	2,710	3,216
Portfolio diversification					(9,583)
	W	22,221	34,564	12,980	21,201

38

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018
		Average	Maximum	Minimum	March 31
Interest rate	W	4,069	6,410	385	1,101
Stock price		3,603	4,383	3,175	3,819
Foreign exchange		966	1,944	378	645
Option volatility		2,286	4,916	507	705
	W	10,924	17,653	4,445	6,270

		2017
		Average	Maximum	Minimum	December 31
Interest rate	W	3,838	16,598	85	3,848
Stock price		1,195	3,368	-	3,178
Foreign exchange		1,213	3,569	3	1,924
Option volatility		5,083	7,423	2,777	3,809
	W	11,329	30,958	2,865	12,759

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.

39

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

Non-trading positions for interest rate VaR and EaR as of March 31, 2018 and December 31, 2017 are as follows:

ii-1) Shinhan Bank

		2018	2017
VaR(*1)	W	251,069	293,355
EaR(*2)		236,813	131,135

ii-2) Shinhan Card

		2018	2017
VaR(*1)	W	150,751	147,932
EaR(*2)		20,975	32,081

ii-3) Shinhan Investment

		2018	2017
VaR(*1)	W	52,318	44,505
EaR(*2)		64,316	108,866

ii-4) Shinhan Life Insurance

		2018	2017
VaR(*1)	W	473,619	319,689
EaR(*2)		70,402	70,434

(*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.

40

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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.

To manage liquidity risk preemptively and collectively, various liquidity risk indicators such as limit management indicators, early warning indicators and monitoring indicators were measured and managed.

Contractual maturities for financial instruments including cash flows of principal and interest and off balance as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		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	133,821,468	27,002,467	28,662,686	48,806,634	16,283,782	2,057,509	256,634,546
Financial liabilities at fair value through profit or loss		2,286,835	-	-	-	-	-	2,286,835
Financial liabilities designated at fair value through profit or loss		335,053	389,275	134,459	1,436,820	4,932,378	1,136,294	8,364,279
Borrowings		13,345,983	3,257,552	2,023,194	2,465,889	4,055,118	2,042,941	27,190,677
Debt securities issued		3,003,111	3,183,772	5,428,547	9,326,548	29,726,299	5,444,361	56,112,638
Other financial liabilities		24,990,640	35,249	126,213	134,134	401,604	65,532	25,753,372
	W	177,783,090	33,868,315	36,375,099	62,170,025	55,399,181	10,746,637	376,342,347
Off balance(*3):
Finance guarantee contracts	W	3,431,645	-	-	-	-	-	3,431,645
Loan commitments and other		158,168,616	-	-	-	-	-	158,168,616
	W	161,600,251	-	-	-	-	-	161,600,251
Derivatives:
Cash inflows	W	3,193,436	849,224	726,999	1,298,601	4,529,117	5,924,142	16,521,519
Cash outflows		3,193,436	849,224	726,999	1,298,601	4,529,117	5,924,142	16,521,519
	W	14,709	(2,500)	8,167	(101,151)	(278,588)	(125,604)	(484,967)

41

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

		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	130,916,019	21,725,284	31,482,983	52,440,287	16,137,734	1,940,194	254,642,501
Trading liabilities		1,848,490	-	-	-	-	-	1,848,490
Financial liabilities designated at fair value through profit or loss		303,065	324,807	548,868	916,388	5,106,209	1,098,518	8,297,855
Borrowings		15,286,424	2,543,847	1,655,662	2,823,721	3,658,670	1,844,417	27,812,741
Debt securities issued		2,261,028	3,717,185	3,651,503	10,565,098	30,391,156	4,224,471	54,810,441
Other financial liabilities		19,387,718	42,948	137,810	335,104	363,245	59,188	20,326,013
	W	170,002,744	28,354,071	37,476,826	67,080,598	55,657,014	9,166,788	367,738,041
Off balance(*3):
Finance guarantee contracts	W	3,267,707	-	-	-	-	-	3,267,707
Loan commitments and other		140,675,467	-	-	-	-	-	140,675,467
	W	143,943,174	-	-	-	-	-	143,943,174
Derivatives:
Cash inflows	W	3,735,274	790,313	829,659	1,411,010	2,684,189	143,032	9,593,477
Cash outflows		(3,324,459)	(498,396)	(727,887)	(1,321,939)	(2,594,372)	(60,717)	(8,527,770)
	W	410,815	291,917	101,772	89,071	89,817	82,315	1,065,707

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

(*2) Demand deposits amounting to W104,025,264 million and W102,928,642 million as of March 31, 2018 and December 31, 2017 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.

42

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 was 14.83%(unaudited and 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.

43

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 and December 31, 2017 are as follows:

		2018
		Level 1	Level 2	Level 3	Total
Financial assets:
Financial asset at fair value through profit or loss	W	6,932,006	27,699,663	6,026,487	40,658,156
Financial asset designated at fair value through profit or loss		-	-	151,566	151,566
Derivatives		33,252	2,244,245	140,438	2,417,935
Securities at fair value through other comprehensive income		11,062,454	24,756,907	639,420	36,458,781
	W	18,027,712	54,700,815	6,957,911	79,686,438
Financial liabilities:
Financial liabilities at fair value through profit or loss	W	2,286,835	-	-	2,286,835
Financial liabilities designated at fair value through profit or loss		-	1,397,183	6,967,096	8,364,279
Derivatives liabilities		72,877	2,370,565	601,137	3,044,579
	W	2,359,712	3,767,748	7,568,233	13,695,693

		2017
		Level 1	Level 2	Level 3	Total
Financial assets:
Trading assets	W	7,438,083	20,351,470	674,743	28,464,296
Financial assets designated at fair value through profit or loss		572,734	2,457,728	548,595	3,579,057
Derivative assets		31,858	3,072,980	295,340	3,400,178
Available-for-sale financial assets		10,920,710	26,899,791	4,296,436	42,116,937
	W	18,963,385	52,781,969	5,815,114	77,560,468
Financial liabilities:
Trading liabilities	W	1,848,490	-	-	1,848,490
Financial liabilities designated at fair value through profit or loss		36,973	986,882	7,273,754	8,297,609
Derivative liabilities		20,738	2,963,914	503,009	3,487,661
	W	1,906,201	3,950,796	7,776,763	13,633,760

44

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

- Changes in carrying values of financial instruments classified as Level 3 for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018
		Financial asset at fair value through profit or loss	Financial asset designated at fair value through profit or loss	Securities at fair value through other comprehensi-ve profit or loss	Derivative assets and liabilities, net	Financial liabilities at fair value through profit or loss	Financial liabilities designated at fair value through profit or loss
Beginning balance	W	5,831,369	152,091	621,207	(250,662)	-	(7,273,754)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year(*1)		(27,096)	(525)	(698)	(115,391)	-	63,843
Recognized in other comprehensive income (loss) for the year		(233)	-	16,911	-	-	(34)
		(27,329)	(525)	16,213	(115,391)	-	63,809
Purchase		602,027	-	2,000	965	-	-
Issue		-	-	-	-	-	(2,634,212)
Settlement		(378,595)	-	-	(95,583)	-	2,877,061
Transfer in(*2)		-	-	-	-	-	-
Transfer out(*2)		(985)	-	-	(28)	-	-
Ending balance	W	6,026,487	151,566	639,420	(460,699)	-	(6,967,096)

45

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

- Changes in carrying values of financial instruments classified as Level 3 for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows (continued):

		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)		41,127	(9,202)	(200,701)	634,438	(913,760)
Recognized in other comprehensive income (loss) for the year		-	-	(3,149)	-	-
		41,127	(9,202)	(203,850)	634,438	(913,760)
Purchase		589,144	210,856	1,150,904	29,333	-
Issue		-	-	-	4,541	(8,710,656)
Settlement		(139,562)	(267,098)	(565,146)	(383,873)	9,924,989
Transfer in(*2)		101,557	-	31,087	28	-
Transfer out(*2)		-	-	-	-	-
Ending balance	W	674,743	548,595	4,296,436	(207,669)	(7,273,754)

(*1) Recognized profit or loss of the changes in carrying value of financial instruments classified as Level 3 for the three-month periods ended March 31, 2018 and the year ended December 31, 2017, are included in the accounts of the statements of comprehensive income, of which the amounts and the related accounts are as follows:

		2018
		Amounts recognized in profit or loss	Recognized profit or loss from the financial instruments held as of March 31
Net gain (loss) on financial assets at fair value through profit or loss	W	(99,717)	(129,745)
Net gain (loss) on financial assets designated at fair value through profit or loss		63,318	139,048
Net gain (loss) on securities at fair value through other comprehensive income		(698)	(698)
Other operating expenses		(42,770)	(38,549)
	W	(79,867)	(29,944)

46

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

- Changes in carrying values of financial instruments classified as Level 3 for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows (continued):

(*1) Recognized profit or loss of the changes in carrying value of financial instruments classified as Level 3 for the three-month periods ended March 31, 2018 and the year ended December 31, 2017, are included in the accounts of the statements of comprehensive income, of which the amounts and the related accounts are as follows (continued):

		2017
		Amounts recognized in profit or loss	Recognized profit or loss from the financial instruments held as of December 31
Trading income	W	843,657	121,643
Loss on financial instruments designated at FVTPL		(922,962)	(129,654)
Gain on disposal of available-for-sale financial assets		17,193	977
Impairment losses on financial assets		(180,206)	(180,206)
Other operating expenses		(205,780)	(216,135)
	W	(448,098)	(403,375)

(*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.

47

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 are as follows:

Type of financial instrument	Valuation technique		Carrying value	Significant inputs
Assets
Financial asset at fair value through profit or loss	DCF(*1), NAV(*2)	W	27,699,663	Discount rate, Price of underlying assets
Derivative assets	Option model, DCF(*1)		2,244,245	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
Securities at fair value through other comprehensive income	DCF(*1), NAV(*2)		24,756,907	Discount rate, growth rate, Price of underlying assets
		W	54,700,815
Liabilities
Financial liabilities designated at fair value through profit or loss	DCF(*1)	W	1,397,183	Discount rate
Derivative liabilities	Option model, DCF(*1)		2,370,565	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
		W	3,767,748

(*1) DCF : Discounted cash flow

(*2) NAV : Net asset value

48

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 are as follows:

Type of financial instrument	Valuation technique	Type		Carrying value	Significant unobservable inputs	Range
Financial assets
Financial asset at fair value through profit or loss	DCF, Option model(*1), NAV	Debt securities and Equity securities	W	6,026,487	The volatility of the underlying asset Correlations Discount rate Growth rate	1.98%~33.00% 0.00% 1.00%~43.00% 0.00%~90.00%
Financial assets designated at fair value through profit or loss	DCF	Debt securities and Equity securities		151,566	The volatility of the underlying asset Correlations	7.68% 0.00%
Derivative assets	Option model(*1)	Equity and foreign exchange related		59,391	The volatility of the underlying asset Correlations	1.72%~43.00% (22.17%)~81.99%
	Option model(*1)	Interest rates related		30,695	The volatility of the underlying asset Regression coefficient Correlations	0.50%~61.00% 0.42%~1.65% 0.00%~90.9%
	Option model(*1)	Credit and commodity related		50,352	The volatility of the underlying asset Correlations	17.00%~35.00% (0.18%)~92.91%
				140,438
Securities at fair value through other comprehensive income	DCF, NAV	Debt securities and Equity securities		639,420	Discount rate Growth rate	3.19%~20.51% 0.00%~3.00%
			W	6,957,911

49

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 are as follows (continued):

Type of financial instrument	Valuation technique	Type		Carrying value	Significant unobservable inputs	Range
Financial liabilities
Financial liabilities designated at fair value through profit or loss	Option model(*1)	Equity related	W	6,967,096	The volatility of the underlying asset Correlations	0.00%~95.69% (21.14%)~100%
Derivative liabilities	Option model(*1)	Equity and foreign exchange related		55,678	The volatility of the underlying asset Correlations	1.72%~44.4% (22.17%)~81.92%
	Option model(*1)	Interest rates related		499,824	The volatility of the underlying asset Regression coefficient Correlations	0.50%~0.85% 0.42%~2.77% 31.53%~90.99%
	Option model(*1)	Credit and commodity related		45,635	The volatility of the underlying asset Correlations	9.65%~35.93% (21.39%)~100%
				601,137
			W	7,568,233

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

50

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 and December 31, 2017.

		2018
		Favorable changes	Unfavorable changes
Financial assets:
Effects on profit or loss for the period(*1):
Financial asset at fair value through profit or loss	W	23,845	(18,629)
Derivative assets		24,962	(23,924)
		48,807	(42,553)
Effects on other comprehensive income for the period:
Securities at fair value through other comprehensive income(*2)		20,815	(12,024)
	W	69,622	(54,577)
Financial liabilities:
Effects on profit or loss for the period(*1):
Financial liabilities designated at fair value through profit or loss	W	90,405	(87,188)
Derivative liabilities		64,514	(53,328)
	W	154,919	(140,516)

		2017
		Favorable changes	Unfavorable changes
Financial assets:
Effects on profit or loss for the period(*1):
Trading assets	W	2,792	(2,742)
Financial assets designated at fair value through profit or loss		1,843	(1,941)
Derivative assets		29,059	(28,077)
		33,694	(32,760)
Effects on other comprehensive income for the period:
Available-for-sale financial assets(*2)		39,460	(25,505)
	W	73,154	(58,265)
Financial liabilities:
Effects on profit or loss for the period(*1):
Financial liabilities designated at fair value through profit or loss	W	72,063	(56,754)
Derivative liabilities		32,770	(33,343)
	W	104,833	(90,097)

(*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%).

51

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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.

52

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

ii) Financial instruments measured at amortized cost (continued)

- The carrying value and the fair value of financial instruments measured at amortized cost as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Carrying value	Fair value
Assets:
Loans	W	277,838,015	278,544,963
Held-to-maturity financial assets		24,857,390	25,041,877
Other financial assets		19,749,066	19,323,326
	W	322,444,471	322,910,166
Liabilities:
Deposits	W	250,965,418	250,648,360
Borrowings		26,842,146	26,835,658
Debt securities issued		52,325,800	52,186,498
Other financial liabilities		25,453,027	25,402,751
	W	355,586,391	355,073,267

		2017
		Carrying value	Fair value
Assets:
Loans	W	275,565,766	275,988,557
Held-to-maturity financial assets		24,990,680	25,390,335
Other financial assets		12,041,304	12,038,310
	W	312,597,750	313,417,202
Liabilities:
Deposits	W	249,419,224	249,333,154
Borrowings		27,586,610	27,596,841
Debt securities issued		51,340,821	51,277,693
Other financial liabilities		20,205,312	20,179,542
	W	348,551,967	348,387,230

53

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 and December 31, 2017 are as follows:

		2018
		Level 1	Level 2	Level 3	Total
Assets:
Loans	W	4,902	2,195,070	276,344,991	278,544,963
Securities		7,922,625	17,119,252	-	25,041,877
Other financial assets		566,494	13,485,841	5,270,991	19,323,326
	W	8,494,021	32,800,163	281,615,982	322,910,166
Liabilities:
Deposits	W	2,998,000	107,166,361	140,483,999	250,648,360
Borrowings		5,812,553	1,349,599	19,673,506	26,835,658
Debt securities issued in won		-	33,323,273	18,863,225	52,186,498
Other financial liabilities		566,498	10,766,418	14,069,835	25,402,751
	W	9,377,051	152,605,651	193,090,565	355,073,267

		2017
		Level 1	Level 2	Level 3	Total
Assets:
Loans	W	3,065	845,567	275,139,925	275,988,557
Held-to-maturity financial assets		7,851,134	17,539,201	-	25,390,335
Other financial assets		79,889	6,832,567	5,125,854	12,038,310
	W	7,934,088	25,217,335	280,265,779	313,417,202
Liabilities:
Deposits	W	2,922,841	105,939,876	140,470,437	249,333,154
Borrowings		5,958,846	566,718	21,071,277	27,596,841
Debt securities issued in won		-	33,622,407	17,655,286	51,277,693
Other financial liabilities		84,665	5,642,143	14,452,734	20,179,542
	W	8,966,352	145,771,144	193,649,734	348,387,230

54

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 March 31, 2018 and December 31, 2017 are as follows:

		2018
		FVTPL	FVTPL designated	FVOCI	Amortized cost	Derivatives held for hedging	Total
Assets:
Cash and due from banks at amortized cost	W	-	-	-	18,013,498	-	18,013,498
Due from banks at fair value through profit or loss		805,211	-	-	-	-	805,211
Securities at fair value through profit or loss		38,920,613	-	-	-	-	38,920,613
Loans at fair value through profit or loss		932,332	-	-	-	-	932,332
Financial asset designated at fair value through profit or loss		-	151,566	-	-	-	151,566
Derivatives		2,315,556	-	-	-	102,379	2,417,935
Securities at fair value through other comprehensive income		-	-	36,458,781	-	-	36,458,781
Securities at amortized cost		-	-	-	24,857,390	-	24,857,390
Loans at amortized cost		-	-	-	277,838,015	-	277,838,015
Other		-	-	-	19,749,066	-	19,749,066
	W	42,973,712	151,566	36,458,781	340,457,969	102,379	420,144,407

55

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(g) Classification by categories of financial instruments (continued)

The carrying amounts of each category of financial assets and financial liabilities as March 31, 2018 and December 31, 2017 are as follows:

		2018
		FVTPL	FVTPL liabilities designated	Financial liabilities measured at amortized cost	Derivatives held for hedging	Total
Liabilities:
Deposits	W	-	-	250,965,418	-	250,965,418
Financial liabilities at fair value through profit or loss		2,286,835	-	-	-	2,286,835
Financial liabilities designated at FVTPL		-	8,364,279	-	-	8,364,279
Derivatives		2,255,484	-	-	789,095	3,044,579
Borrowings		-	-	26,842,146	-	26,842,146
Debt securities issued		-	-	52,325,800	-	52,325,800
Other		-	-	25,453,027	-	25,453,027
	W	4,542,319	8,364,279	355,586,391	789,095	369,282,084

56

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

4. Financial risk management (continued)

(g) Classification by categories of financial instruments (continued)

The carrying amounts of each category of financial assets and financial liabilities as March 31, 2018 and December 31, 2017 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	-	-	-	-	22,668,598	-	22,668,598
Trading assets		28,464,296	-	-	-	-	-	28,464,296
Financial assets designated at FVTPL		-	3,579,057	-	-	-	-	3,579,057
Derivatives		3,280,775	-	-	-	-	119,403	3,400,178
Loans		-	-	-	-	275,565,766	-	275,565,766
AFS financial assets		-	-	42,116,937	-	-	-	42,116,937
HTM financial assets		-	-	-	24,990,680	-	-	24,990,680
Other		-	-	-	-	12,041,304	-	12,041,304
	W	31,745,071	3,579,057	42,116,937	24,990,680	310,275,668	119,403	412,826,816

		2017
		Trading liabilities	FVTPL liabilities	Financial liabilities measured at amortized cost	Derivatives held for hedging	Total
Liabilities:
Deposits	W	-	-	249,419,224	-	249,419,224
Trading liabilities		1,848,490	-	-	-	1,848,490
Financial liabilities designated at FVTPL		-	8,297,609	-	-	8,297,609
Derivatives		2,804,834	-	-	682,827	3,487,661
Borrowings		-	-	27,586,610	-	27,586,610
Debt securities issued		-	-	51,340,821	-	51,340,821
Other		-	-	20,205,312	-	20,205,312
	W	4,653,324	8,297,609	348,551,967	682,827	362,185,727

57

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

5. Change in subsidiaries

(a) Change in consolidated subsidiaries for the year ended December 31, 2017 are as follows:

	Company	Description
Included(2017)	Shinhan REITs Management	Newly invested subsidiary

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 March 31, 2018 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

58

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 three-month periods ended March 31, 2018 and 2017.

		2018
		Banking	Credit card	Securities		Life insurance		Others		Consolidation adjustment		Total
Net interest income	W	1,364,193	383,364	103,668		187,309		19,151		612		2,058,297
Net fees and commission income		217,962	79,548	109,910		29,587		46,930		(316)		483,621
Allowance reversed (provided) for credit loss on financial assets		(88,660)	(90,844)	339		(1,579)		1,244		(27)		(179,527)
General and administrative expenses		(681,838)	(183,681)	(125,968)		(54,615)		(60,620)		19,701		(1,087,021)
Other income (expense), net		(25,414)	38,043	25,594		(119,524)		18,932		(37,162)		(99,531)
Operating income		786,243	226,430	113,543		41,178		25,637		(17,192)		1,175,839
Equity method income (loss)		(1,363)	-	8,151		(229)		833		6,182		13,574
Income tax expense		205,138	61,761	28,385		11,187		13,467		5,070		325,008
Profit (loss) for the period	W	583,109	161,190	96,971		33,828		12,993		(19,055)		869,036
Controlling interest	W	583,032	162,041	96,970		33,828		12,993		(31,315)		857,549
Non-controlling interests		77	(851)	1		-		-		12,260		11,487

		2017
		Banking	Credit card	Securities		Life insurance		Others		Consolidation adjustment		Total
Net interest income (loss)	W	1,196,883	370,601	114,608		175,367		10,615		1,137		1,869,211
Net fees and commission income		189,816	79,764	64,341		10,335		42,413		921		387,590
Impairment losses on financial assets		(70,652)	(11,294)	(480)		(324)		(6,316)		(80)		(89,146)
General and administrative expenses		(679,343)	(185,508)	(104,230)		(54,862)		(53,473)		12,613		(1,064,803)
Other income (expense), net		1,071	309,086	(18,470)		(87,647)		14,628		(23,260)		195,408
Operating income		637,775	562,649	55,769		42,869		7,867		(8,669)		1,298,260
Equity method income (loss)		(1,857)	-	2,321		(319)		193		(733)		(395)
Income tax expense (benefit)		131,358	133,599	15,185		8,696		7,641		1,982		298,461
Profit (loss) for the period	W	516,564	427,745	45,956		30,770		1,341		(15,122)		1,007,254
Controlling interest	W	516,541	428,149	45,952		30,770		1,343		(25,657)		997,098
Non-controlling interests		23	(404)	4		-		(2)		10,535		10,156

59

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(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 three-month periods ended March 31, 2018 and 2017.

		2018
		Banking	Credit card	Securities		Life insurance		Others	Consolidation adjustment	Total
Net interest income from:
External customers	W	1,365,751	387,995	102,039		187,164		15,348	-	2,058,297
Internal transactions		(1,558)	(4,631)	1,629		145		3,803	612	-
	W	1,364,193	383,364	103,668		187,309		19,151	612	2,058,297

		2017
		Banking	Credit card	Securities		Life insurance		Others	Consolidation adjustment	Total
Net interest income from:
External customers	W	1,198,104	375,000	113,380		175,184		7,543	-	1,869,211
Internal transactions		(1,221)	(4,399)	1,228		183		3,072	1,137	-
	W	1,196,883	370,601	114,608		175,367		10,615	1,137	1,869,211

(d) The following tables provide information of net fees and commission income (expense) of each operating segment for the three-month periods ended March 31, 2018 and 2017.

		2018
		Banking	Credit card	Securities		Life insurance		Others	Consolidation adjustment	Total
Net fees and commission income from:
External customers	W	218,046	92,045	112,716		31,391		29,423	-	483,621
Internal transactions		(84)	(12,497)	(2,806)		(1,804)		17,507	(316)	-
	W	217,962	79,548	109,910		29,587		46,930	(316)	483,621

		2017
		Banking	Credit card	Securities		Life insurance		Others	Consolidation adjustment	Total
Net fees and commission income from:
External customers	W	195,000	84,846	66,440		12,066		29,238	-	387,590
Internal transactions		(5,184)	(5,082)	(2,099)		(1,731)		13,175	921	-
	W	189,816	79,764	64,341		10,335		42,413	921	387,590

60

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

7. Restricted due from banks at amortized cost

(a) Restricted due from banks at amortized cost as of March 31, 2018 are as follows:

		2018
Deposits denominated in won:
Reserve deposits	W	3,407,977
Other		4,111,476
		7,519,453
Deposits denominated in foreign currency		1,656,640
	W	9,176,093

8. Restricted due from banks

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

		2017
Deposits denominated in won:
Reserve deposits	W	8,689,515
Other		3,628,419
		12,317,934
Deposits denominated in foreign currency		1,117,597
	W	13,435,531

61

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

9. Financial assets at fair value through profit or loss

(a) Financial assets at fair value through profit or loss as of March 31, 2018 are as follows:

		2018
Debt instruments:
Governments	W	3,226,443
Financial institutions		8,854,142
Corporations		5,729,949
Stocks with put option		278,135
Equity investment with put option		856,492
Beneficiary certificates		9,099,101
Commercial papers		4,195,649
CMA(*1)		3,102,674
Others		768,411
		36,110,996
Equity instruments:		1,481,670
Stocks		63,062
Equity investment		1,119,018
Others(*2)		2,663,750
		38,774,746
Other:
Loans at fair value		932,332
Due from banks at fair value		805,211
Gold deposits		145,867
	W	40,658,156

(*1) CMA: Cash management account deposits

(*2) Restricted reserve for claims of customers’ deposits (trusts) as of March 31, 2018 are W980,953million.

62

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

9. Financial assets at fair value through profit or loss (continued)

(b) Financial assets to which overlay approach were applied in accordance with K-IFRS No. 1109 ‘Financial Instruments’ and K-IFRS No. 1104 ‘Insurance Contracts’ as of March 31, 2018 are as follows.

		2018
Due from banks at fair value through profit or loss	W	805,211
Securities at fair value through profit or loss		2,963,405
	W	3,768,616

A financial asset is eligible for designation for the overlay approach, if it is measured at fair value through profit or loss applying K-IFRS 1109 but would not have been measured at fair value through profit or loss in its entirety applying K-IFRS 1039; and it is not held in respect of an activity that is unconnected with contracts within the scope of K-IFRS 1104.

The reclassified amounts between profit or loss and other comprehensive income due to the overlay approach are as follows:

		Profit or loss		Other comprehensive income
		By K-IFRS 1109	By K-IFRS 1039	Amount	Tax effect
Due from banks at fair value through profit or loss	W	2,710	3,408	(697)	192
Securities at fair value through profit or loss		(49,080)	853	(49,933)	13,731
	W	(46,370)	4,261	(50,630)	13,923

10. Trading assets

Trading assets as of December 31, 2017 are as follows:

		2017
Debt securities:
Governments	W	3,254,587
Financial institutions		8,014,128
Corporations		5,097,200
Commercial papers		3,625,436
CMA(*)		3,157,475
Others		491,820
		23,640,646
Equity securities:
Stocks		738,666
Beneficiary certificates		3,728,027
Others		167,660
		4,634,353
Other
Gold deposits		189,297
	W	28,464,296

(*) CMA: Cash management account deposits

63

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

11. Financial asset designated at fair value through profit or loss (K-IFRS 1109)

Financial asset designated at fair value through profit or loss as of March 31, 2018 are as follows:

		2018	Reason for designation
Debt instruments	W	79,763	Accounting mismatch
Equity instruments		71,803	Accounting mismatch
	W	151,566

Maximum exposure of credit risk of financial asset designated at fair value through profit or loss W79,763 million as of March 31, 2018.

12. Financial asset designated at fair value through profit or loss (K-IFRS 1039)

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

		2017	Reason for designation
Debt securities	W	2,110,809	Evaluation and management on a fair value basis, accounting mismatch
Equity securities(*)		1,234,356	Evaluation and management on a fair value basis, accounting mismatch
Others		233,892	Combined instrument
	W	3,579,057

(*) Restricted reserve for claims of customers’ deposits (trusts) as of December 31, 2017 are W958,236million.

64

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13. Derivatives

(a) The notional amounts of derivatives as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Foreign currency related:
Over the counter:
Currency forwards	W	108,085,256	100,806,648
Currency swaps		30,644,784	30,269,510
Currency options		949,349	1,178,047
		139,679,389	132,254,205
Exchange traded:
Currency futures		822,926	1,179,986
		140,502,315	133,434,191
Interest rates related:
Over the counter:
Interest rate swaps		30,115,928	30,269,249
Interest rate options		390,000	310,000
		30,505,928	30,579,249
Exchange traded:
Interest rate futures		1,900,789	1,545,905
Interest rate swaps(*)		59,158,044	53,625,962
		61,058,833	55,171,867
		91,564,761	85,751,116
Credit related:
Over the counter:
Credit swaps		2,614,111	2,443,609
Equity related:
Over the counter:
Equity swaps and forwards		4,234,031	4,223,096
Equity options		608,910	1,230,635
		4,842,941	5,453,731
Exchange traded:
Equity futures		896,556	526,913
Equity options		4,295,256	3,238,049
		5,191,812	3,764,962
		10,034,753	9,218,693
Commodity related:
Over the counter:
Commodity swaps and forwards		911,578	931,644
Commodity options		4,880	4,880
		916,458	936,524
Exchange traded:
Commodity futures		142,167	122,394
		1,058,625	1,058,918

65

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13. Derivatives (continued)

(a) The notional amounts of derivatives as of March 31, 2018 and December 31, 2017 are as follows (continued) :

		2018	2017
Hedge:
Currency forwards	W	1,291,437	1,227,354
Currency swaps		4,049,514	3,866,015
Interest rate swaps		8,638,776	8,088,422
		13,979,727	13,181,791
	W	259,754,292	245,088,318

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

66

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13. Derivatives (continued)

(b) Fair values of derivative instruments as of March 31, 2018 and December 31, 2017 are as follows:

		2018		2017
		Assets	Liabilities	Assets	Liabilities
Foreign currency related:
Over the counter:
Currency forwards	W	1,092,547	999,560	1,895,225	1,636,715
Currency swaps		819,598	840,771	854,892	865,551
Currency options		8,391	10,831	12,023	12,070
		1,920,536	1,851,162	2,762,140	2,514,336
Exchange traded:
Currency futures		989	1,223	415	553
		1,921,525	1,852,385	2,762,555	2,514,889
Interest rates related:
Over the counter:
Interest rate swaps		228,373	210,953	204,449	208,901
Interest rate options		-	4,406	-	1,893
		228,373	215,359	204,449	210,794
Exchange traded:
Interest rate futures		1,320	2,167	1,771	544
		229,693	217,526	206,220	211,338
Credit related:
Over the counter:
Credit swaps		56,679	13,014	63,359	10,617
Equity related:
Over the counter:
Equity swap and forwards		57,223	53,996	112,282	13,502
Equity options		11,268	7,993	91,040	12,177
		68,491	61,989	203,322	25,679
Exchange traded:
Equity futures		961	1,606	72	805
Equity options		29,369	66,510	23,562	18,521
		30,330	68,116	23,634	19,326
		98,821	130,105	226,956	45,005
Commodity related:
Over the counter:
Commodity swaps and forwards		8,171	41,024	15,576	22,593
Commodity options		55	59	72	77
		8,226	41,083	15,648	22,670
Exchange traded:
Commodity futures		612	1,371	6,037	315
		8,838	42,454	21,685	22,985

67

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13.  Derivatives (continued)

(b) Fair values of derivative instruments as of March 31, 2018 and December 31, 2017 are as follows (continued) :

		2018		2017
		Assets	Liabilities	Assets	Liabilities
Hedge:
Currency forwards	W	31,015	7,018	50,492	1,567
Currency swaps		57,852	168,744	59,399	161,896
Interest rate swaps		13,512	613,333	9,512	519,364
		102,379	789,095	119,403	682,827
	W	2,417,935	3,044,579	3,400,178	3,487,661

68

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13. Derivatives (continued)

(c) Gain or loss on valuation of derivatives for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Foreign currency related:
Over the counter:
Currency forwards	W	47,428	109,858
Currency swaps		(1,162)	(11,153)
Currency options		1,493	(12,019)
		47,759	86,686
Exchange traded:
Currency futures		812	(180)
		48,571	86,506
Interest rates related:
Over the counter:
Interest rate swaps		22,719	64,932
Interest rate options		(912)	1,092
		21,807	66,024
Exchange traded:
Interest rate futures		(1,492)	795
		20,315	66,819
Credit related:
Over the counter:
Credit swaps		(6,576)	7,384
Equity related:
Over the counter:
Equity swap and forwards		(56,707)	200,078
Equity options		650	10,736
		(56,057)	210,814
Exchange traded:
Equity futures		(645)	117
Equity options		(5,874)	(1,899)
		(6,519)	(1,782)
		(62,576)	209,032
Commodity related:
Over the counter:
Commodity swaps and forwards		(37,455)	10,381
Commodity options		1	(11)
		(37,454)	10,370
Exchange traded:
Commodity futures		(758)	3,445
Commodity options		-	(2)
		(758)	3,443
		(38,212)	13,813
Hedge	W	(83,421)	(28,575)
	W	(121,899)	354,979

69

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

13. Derivatives (continued)

(d) Nominal values and average hedge ratio for derivatives as of March 31, 2018 are as follows:

	2018
	Less than 1 year	1~2 years	2~3 years	3~4 years	4~5 years	More than 5 years	Total
Interest risk:
Nominal values:	413,275	160,000	842,212	1,149,825	149,323	5,924,141	8,638,776
Average hedge ratio:	100%	100%	100%	100%	100%	100%	100%
Exchange risk:
Nominal values:	2,758,298	597,040	1,248,918	690,063	6,721	39,911	5,340,951
Average hedge ratio:	100%	100%	100%	100%	100%	100%	100%

70

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

14. Securities at fair valuethrough other comprehensive incomeand securities at amortized cost

(a) Securities at fair value through other comprehensive income and securities at amortized cost as of March 31, 2018 are as follows:

		2018
Securities at fair value through other comprehensive income
Debt instruments:
Governments	W	7,669,176
Financial institutions		17,741,355
Corporations and others		10,434,864
		35,845,395
Equity instruments(*):
Stocks		608,299
Equity investments		5,087
		613,386
		36,458,781
Securities at amortized cost
Debt instruments:
Governments		15,628,432
Financial institutions		2,133,145
Corporations and others		7,095,813
		24,857,390
	W	61,316,171

(*) The equity securities were designated as measured at fair value through other comprehensive income for the strategic purpose of holding the securities.

71

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

14. Securities at fair valuethrough other comprehensive income and securities at amortized cost (continued)

(b) Changes in carrying value of securities at fair value through other comprehensive income and securities at amortized cost for the three-month period ended March 31, 2018 are as follows:

		Securities at fair value through other comprehensive income			Securities at amortized cost
		12 month expected credit loss	Life time expected credit loss	Total	12 month expected credit loss	Life time expected credit loss	Total
Beginning balance	W	36,641,928	15,879	36,657,807	24,403,423	21,444	24,424,867
Transfer to 12 month expected credit loss		-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-
Acquisition		4,688,809	-	4,688,809	611,448	-	611,448
Disposal		(1,448,578)	(70)	(1,448,648)	-	-	-
Repayment		(4,037,404)	-	(4,037,404)	(201,682)	(118)	201,800
Others(*1)		(15,169)	-	(15,169)	30,625	-	30,625
Ending balance	W	35,829,586	15,809	35,845,395	24,843,814	21,326	24,865,140

(*1) Included restructuring, debt equity swaps and foreign exchange movements.

72

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

14. Securities at fair valuethrough other comprehensive income and securities at amortized cost (continued)

(c) Changes in allowance for credit loss of securities at fair value through other comprehensive income and securities at amortized cost for the three-month period ended March 31, 2018 are as follows:

		Securities at fair value through other comprehensive income			Securities at amortized cost
		12 month expected credit loss	Life time expected credit loss	Total	12 month expected credit loss	Life time expected credit loss	Total
Beginning allowance	W	17,038	1,938	18,976	6,327	2,232	8,559
Transfer to 12 month expected credit loss		-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-
Provided (reversed)		53	(1,381)	(1,328)	(1,222)	12	(1,210)
Disposal		(1,043)	-	(1,043)	-	-	-
Others(*1)		(207)	-	(207)	1	400	401
Ending balance	W	15,841	557	16,398	5,106	2,644	7,750

(*1) Included restructuring, debt equity swaps and foreign exchange movements.

73

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

14. Securities at fair valuethrough other comprehensive income and securities at amortized cost (continued)

(d) Gain or loss on disposal of securities at fair value through other comprehensive income and securities at amortized cost for the three-month period ended March 31, 2018 are as follows:

		2018
Other comprehensive income:
Gain on disposal of securities at fair value	W	7,534
Loss on disposal of securities at fair value		(1,990)
Loss on disposal of securities at amortized cost(*)		(3)
	W	5,541

(*) The disposal of securities at amortized cost was due to the exercise of the redemption option of the issuer.

(e) Income or loss on equity securities at fair value through other comprehensive income.

As of March 31, 2018, the Company recognizes dividends amounting to W8,296 million related to equity securities at fair value through other comprehensive income.

In addition, the disposition of equity securities at fair value through other comprehensive income is as follows

		2018
Fair value at the date of disposal	W	728
Cumulative net profit at the time of disposal		(2,401)

74

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

15. 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 December 31, 2017 are as follows:

		2017
Available-for-sale financial assets:
Debt securities:
Government bonds	W	7,570,104
Financial institution bonds		17,649,694
Corporate bonds and others		11,966,754
		37,186,552
Equity securities(*1):
Stocks		1,026,666
Equity investments		749,818
Beneficiary certificates		3,126,851
Others		27,050
		4,930,385
		42,116,937
Held-to-maturity financial assets:
Debt securities:
Government bonds		15,164,133
Financial institutions bonds		2,708,148
Corporate bonds		7,118,399
		24,990,680
	W	67,107,617

(*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 W126,220million as of December 31, 2017.

(b) Gain or loss on sale of available-for-sale financial assets for the three-month period ended March 31, 2017 are as follows:

		2017
Gain on sale of available-for-sale financial assets	W	66,760
Loss on sale of available-for-sale financial assets		(13,037)
	W	53,723

75

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

16.  Loans at amortized cost

(a) Loans at amortized cost as of March 31, 2018 are as follows:

		2018
Household loans	W	113,235,022
Corporate loans		139,673,371
Public and other		2,341,381
Loans to banks		4,178,521
Card receivables		20,897,361
		280,325,656
Discount		(23,225)
Deferred loan origination costs or fees		439,648
		280,742,079
Allowance for credit losses		(2,904,064)
	W	277,838,015

76

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

16.  Loans at amortized cost (continued)

(b) Changes in loans at amortized cost and other assets for the three month period ended March 31, 2018 are as follows:

		Loans at amortized cost			Other assets (*1)				Total
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset
Beginning allowance	W	244,810,048	30,042,783	2,273,198	31,463,279	593,046	22,659		309,205,013
Transfer to 12 month expected credit loss		3,198,873	(3,196,304)	(2,569)	5,448	(2,834)	(2,614)		-
Transfer to life time expected credit loss		(3,729,629)	3,740,879	(11,250)	(8,195)	5,549	2,646		-
Transfer to impaired financial asset		(77,544)	(272,326)	349,870	(608)	(5,680)	6,288		-
Origination		58,207,484	121,395	-	8,326,434	10,089	-		66,665,402
Collection		(45,763,502)	(4,965,660)	(535,143)	(4,246,821)	(256,426)	(6,980)		(55,774,532)
Charge off(*3)		(684)	(9,749)	(193,887)	-	-	(1,547)		(205,867)
Disposal		(103,000)	(870)	(72,832)	-	(495)	(13,082)		(190,279)
Others (*2)		(2,701,334)	(375,582)	9,414	(531,252)	(19,540)	663		(3,617,631)
Ending balance	W	253,840,712	25,084,566	1,816,801	35,008,285	323,709	8,033		316,082,106

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

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

(*3) W 9,228,013 million uncollected principal and interest on charge off loans. Collection is in process.

77

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

16.  Loans at amortized cost (continued)

(c) Changes in allowances for credit loss of loans at amortized cost and other assets for the three month period ended March 31, 2018 are as follows:

		Loans at amortized cost			Other assets (*1)			Total
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset
Beginning allowance	W	730,554	1,088,256	1,053,176	39,014	7,757	20,109	2,938,866
Transfer to 12 month expected credit loss		57,791	(57,252)	(539)	93	(92)	(1)	-
Transfer to life time expected credit loss		(34,367)	37,453	(3,086)	(60)	64	(4)	-
Transfer to impaired financial asset		(2,240)	(68,012)	70,252	(5)	(174)	179	-
Provided (reversed)		(5,064)	92,952	96,984	(2,162)	1,014	6,577	190,301
Charge off		-	-	(193,403)	-	-	(4,589)	(197,992)
Discount		(327)	(418)	(4,267)	-	-	-	(5,012)
Disposal		-	(15)	(18,690)	-	(7)	(2,681)	(21,393)
Collection		-	62	74,128	-	-	255	74,445
Others (*2)		(12,144)	(27,956)	30,236	(1,401)	243	663	(10,359)
Ending balance	W	734,203	1,065,070	1,104,791	35,479	8,805	20,508	2,968,856

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

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

78

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

17.  Loans

(a) Loans as of December 31, 2017 are as follows:

		2017
Household loans	W	111,590,777
Corporate loans		139,989,642
Public and other		2,297,631
Loans to banks		2,969,784
Card receivables		20,640,857
		277,488,691
Discount		(44,936)
Deferred loan origination costs and fees		432,615
		277,876,370
Allowance for credit losses		(2,310,604)
	W	275,565,766

(b) Changes in the allowance for credit losses for the year ended December 31, 2017 are as follows:

		2017
		Loans	Other(*2)	Total
Beginning balance	W	2,360,795	66,896	2,427,691
Provision for (reversal of) allowance		800,928	15,672	816,600
Write-offs		(973,943)	(20,063)	(994,006)
Effect of discounting(*1)		(23,316)	-	(23,316)
Disposal		(63,091)	16	(63,075)
Recoveries		311,042	1,591	312,633
Others(*3)		(101,811)	(379)	(102,190)
Ending balance	W	2,310,604	63,733	2,374,337

(*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.

79

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.Investments in associates

(a) Investments in associates as of March 31, 2018 and December 31, 2017 are as follows:

Investees	Country	Reporting date		Ownership (%)
				2018	2017
BNP Paribas Cardif Life Insurance(*1),(*3)	Korea	December 31		14.99	14.99
Daewontos Co., Ltd.(*4),(*9)	“	“		36.33	36.33
Neoplux Technology Valuation Investment Fund(*1)	“	“		33.33	33.33
JAEYOUNG SOLUTEC CO., LTD.(*1),(*4),(*5)	“	“		7.61	9.61
Partners 4th Growth Investment Fund(*1)	“	“		25.00	25.00
JAEYANG INDUSTRY(*4),(*9)	“	March 31		25.90	25.90
Chungyoung INC(*1),(*4)	“	December 31		18.94	18.94
DAEKWANG SEMICONDUCTOR CO., LTD.(*1),(*4)	“	“		20.94	20.94
Shinhan-Albatross tech investment Fund	“	March 31		50.00	50.00
Asia Pacific No.39 Ship Investment Co., Ltd.	“	“		50.00	50.00
KCLAVIS Meister Fund No.17	“	“		26.09	26.09
SG No.9 Corporate Recovery Private Equity Fund	“	“		26.49	26.49
Plutus-SG Private Equity Fund(*1)	“	December 31		26.67	26.67
SG ARGES Private Equity Fund No.1	“	March 31		24.06	24.06
OST Progress- 2 Fund(*8)	“	-		-	27.62
Eum Private Equity Fund No.3	“	March 31		20.76	20.76
Richmond Private Yong in Retail Facility Real Estate Fund No.1	“	“		41.80	41.80
KTB Confidence Private Placement	“	“		30.29	30.29
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund	“	“		23.86	23.89
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund	“	“		20.16	20.16
Pine Asia Unsecured Individual Rehabilitation Bond Fund 18(*8)	“	-		-	22.86
Platform Partners brick save Private Investment trust(*7)	“	March 31		98.77	98.77
Synergy-Shinhan Mezzanine New Technology Investment Fund	“	“		47.62	47.62
The Asia Pacific Capital Fund II L.P.	Cayman Islands	“		25.18	25.18
Shinhan Praxis K-Growth Global Private Equity Fund(*6)	Korea	“		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	“	“		27.49	27.49
Brain KS Qualified Privately Placed Fund No.6	“	“		50.00	50.00
Hanhwa US Equity Strategy Private Real Estate Fund No.1	“	“		44.84	44.84
M360 CRE Income Fund(*7)	U.S.A	“		48.81	57.87

80

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(a) Investments in associates as of March 31, 2018 and December 31, 2017 are as follows (continued):

Investees	Country	Reporting date	Ownership (%)
			2018	2017
Shinhan Global Healthcare Fund 1(*6)	Korea	March 31	4.41	4.41
JB Power TL Investment Type Private Placement Special Asset Fund 7	“	“	33.33	33.33
IBK AONE convertable 1	“	“	47.25	47.25
Rico synergy collabo Multi-Mezzanine 3(*7)	“	“	50.00	50.00
KB NA Hickory Private Speical Asset Fund	“	“	37.50	37.50
GB Professional Private Investment Trust 6(*7)	“	“	94.51	94.51
Koramco Europe Core Private Placement Real Estate Fund No.2-2	“	“	25.84	48.49
SHBNPP Private Korea Equity Long-Short Professional Feeder(*10)	“	“	9.90	9.85
Shinhan-Stonebridge Petro PEF(*6)	“	“	1.82	1.82
BNP Paribas Cardif General Insurance(*1),(*2)	“	December 31	10.00	10.00
Axis Global Growth New Technology Investment Association	“	March 31	31.85	31.85
Polaris No7 Start up and Venture Private Equity Fund	“	“	28.57	28.57
Hermes Private Investment Equity Fund	“	“	29.17	29.17

(*1) Financial statements as of December 31, 2017 were used for the equity method since the financial statements as of March 31, 2018 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) In 2018, 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 decided 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 associates were disposed or reclassified.

(*9) The latest financial statements were used for the equity method since the financial statements as of March 31, 2018 were not available. Significant trades and events occurred within the period were properly reflected.

(*10) Although the ownership interests in SHBNPP Private Korea Equity Long-Short Professional Feeder were less than 20%, the Group has significant influence on the entity as the investment manager.

81

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(b) Changes in investments in associates for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows:

		2018
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	52,616	(2,043)	375	(2,223)	-	48,725
Daewontos Co., Ltd.(*2)		-	-	-	-	-	-
Neoplux Technology Valuation Investment Fund		13,470	2,000	27	(491)	-	15,006
JAEYOUNG SOLUTEC CO., LTD.(*1)		3,849	(774)	(836)	172	-	2,411
Partners 4th Growth Investment Fund		13,390	1,240	(75)	-	-	14,555
JAEYANG INDUSTRY(*2)		-	-	-	-	-	-
Chungyoung INC(*2)		-	-	-	-	-	-
DAEKWANG SEMICONDUCTOR CO., LTD.		3,824	-	(493)	-	-	3,331
Shinhan-Albatross tech investment Fund		2,672	3,000	(48)	-	-	5,624
Asia Pacific No.39 Ship Investment Co., Ltd.		4,682	(196)	68	7	-	4,561
KCLAVIS Meister Fund No.17		3,039	-	(14)	-	-	3,025
SG No.9 Corporate Recovery Private Equity Fund		3,963	(18)	8	-	-	3,953
Plutus-SG Private Equity Fund		4,251	(66)	-	-	-	4,185
SG ARGES Private Equity Fund No.1		6,422	(2,205)	154	-	-	4,371
OST Progress- 2 Fund		4,895	(4,895)	-	-	-	-
Eum Private Equity Fund No.3		4,925	(10)	(17)	-	-	4,898
Richmond Private Yong in Retail Facility Real Estate Fund No.1		8,101	(196)	201	-	-	8,106
KTB Confidence Private Placement		6,403	-	101	(1,099)	-	5,405
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		6,757	(383)	223	(466)	-	6,131
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		8,387	(82)	253	(185)	-	8,373
Pine Asia Unsecured Individual Rehabilitation Bond Fund 18		6,012	(6,035)	23	-	-	-
Platform Partners brick save Private Investment trust		8,069	(124)	120	-	-	8,065
Synergy-Shinhan Mezzanine New Technology Investment Fund		4,999	-	(8)	-	-	4,991
The Asia Pacific Capital Fund II L.P.		7,307	-	(326)	(32)	-	6,949
Shinhan Praxis K-Growth Global Private Equity Fund		18,954	-	3,729	-	-	22,683
Credian Healthcare Private Equity Fund II		3,813	-	1	-	-	3,814
Kiwoom Milestone Professional Private Real Estate Trust 19		10,408	(83)	98	-	-	10,423

82

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(b) Changes in investments in associates for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows (continued):

		2018
Investees		Beginning balance	Investment and dividend	Equity method income (loss)	Change in other comprehensive income	Impairment loss	Ending balance
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3	W	20,460	-	103	-	-	20,563
Brain Professional Private Trust No.4		5,847	-	259	-	-	6,106
Brain KS Qualified Privately Placed Fund No.6		4,805	-	351	148	-	5,304
Hanhwa US Equity Strategy Private Real Estate Fund No.1		25,479	(1,000)	996	-	-	25,475
M360 CRE Income Fund		153,905	-	2,975	(720)	-	156,160
Shinhan Global Healthcare Fund 1		3,407	-	(14)	-	-	3,393
JB Power TL Investment Type Private Placement Special Asset Fund 7		18,690	(1,499)	253	-	-	17,444
IBK AONE convertable 1		5,122	-	375	-	-	5,497
Rico synergy collabo Multi-Mezzanine 3		5,026	-	10	-	-	5,036
KB NA Hickory Private Speical Asset Fund		34,091	(411)	857	-	-	34,537
GB PROFESSIONAL PRIVATE INVESTMENT TRUST 6		8,600	-	(3)	-	-	8,597
Koramco Europe Core Private Real Estate Trust No.2-2		20,760	(9,593)	248	-	-	11,415
SHBNPP Private Korea Equity Long-Short Professional Feeder		4,861	(588)	141	-	-	4,414
Shinhan-Stonebridge Petro PEF		19,201	-	(15)	-	-	19,186
BNP Paribas Cardif General Insurance		4,429	-	(229)	(1)	-	4,199
Axis Global Growth New Technology Investment Association		4,953	-	(20)	-	-	4,933
Polaris No.7 Entrepreneur Private Equity Fund		4,359	-	15	-	-	4,374
Hermes Private Investment Equity Fund		17,497	-	3,767	-	-	21,264
Others		58,594	5,670	(59)	3	-	64,208
	W	631,294	(18,291)	13,574	(4,887)	-	621,690

(*1) The market value of the investment is W9,523million as of March 31, 2018 based on the quoted market price.

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

83

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(b) Changes in investments in associates for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows (continued):

		2017
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	60,213		(255)		3,682		(11,024)		-		52,616
Aju Capital Co., Ltd.		40,836		(42,022)		438		748		-		-
Daewontos Co., Ltd.(*2)		-		-		-		-		-		-
Neoplux Technology Valuation Investment Fund		7,526		3,890		1,564		490		-		13,470
JAEYOUNG SOLUTEC CO., LTD.(*1)		5,736		-		(2,009)		122		-		3,849
Partners 4th Growth Investment Fund		4,555		9,220		(385)		-		-		13,390
JAEYANG INDUSTRY(*2)		-		-		-		-		-		-
Chungyoung INC(*2)		-		-		-		-		-		-
DAEKWANG SEMICONDUCTOR CO., LTD.		4,776		-		(952)		-		-		3,824
Dream High Fund Ⅲ		3,144		-		(109)		(830)		-		2,205
Asia Pacific No.39 Ship Investment Co., Ltd.		5,176		(802)		300		8		-		4,682
KCLAVIS Meister Fund No.17		2,989		-		50		-		-		3,039
SG No.9 Corporate Recovery Private Equity Fund		3,982		(192)		173		-		-		3,963
Plutus-SG Private Equity Fund		4,299		(132)		84		-		-		4,251
SG ARGES Private Equity Fund No.1		8,976		(2,754)		200		-		-		6,422
OST Progress- 2 Fund		1,460		3,500		(65)		-		-		4,895
Eum Private Equity Fund No.3		5,933		(1,362)		354		-		-		4,925
Richmond Private Yong in Retail Facility Real Estate Fund No.1		-		7,223		878		-		-		8,101
KTB Confidence Private Placement		-		4,927		377		1,099		-		6,403
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		-		6,504		457		(204)		-		6,757
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		-		8,012		628		(253)		-		8,387
Pine Asia Unsecured Individual Rehabilitation Bond Fund 18		-		5,867		145		-		-		6,012
Platform Partners brick save Private Investment trust		-		7,877		192		-		-		8,069
Synergy-Shinhan Mezzanine New Technology Investment Fund		-		5,000		(1)		-		-		4,999
The Asia Pacific Capital Fund II L.P.		11,579		454		(901)		(3,825)		-		7,307
Shinhan Praxis K-Growth Global Private Equity Fund		13,533		6,415		(1,590)		596		-		18,954
Credian Healthcare Private Equity Fund II		4,087		-		7		(281)		-		3,813
Kiwoom Milestone Professional Private Real Estate Trust 19		10,761		(222)		(131)		-		-		10,408

84

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(b) Changes in investments in associates for the three-month period ended March 31, 2018 and for the year ended December 31, 2017 were as follows (continued):

		2017
Investees		Beginning balance		Investment and dividend		Equity method income (loss)		Change in other comprehensive income		Impairment loss		Ending balance
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3	W	21,237		(841)		641		(577)		-		20,460
Brain Professional Private Trust No.4		5,316		-		529		2		-		5,847
Hanhwa US Equity Strategy Private Real Estate Fund No.1		25,764		(1,859)		1,591		(17)		-		25,479
Brain KS Qualified Privately Placed Fund No.6		4,896		-		(78)		(13)		-		4,805
M360 CRE Income Fund		23,167		132,768		9,270		(11,300)		-		153,905
Shinhan Global Healthcare Fund 1		-		3,440		(33)		-		-		3,407
JB Power TL Investment Type Private Placement Special Asset Fund 7		-		18,268		422		-		-		18,690
IBK AONE convertable 1		-		5,000		122		-		-		5,122
Rico synergy collabo Multi-Mezzanine 3		-		5,001		25		-		-		5,026
KB NA Hickory Private Speical Asset Fund		-		33,362		729		-		-		34,091
GB PROFESSIONAL PRIVATE INVESTMENT TRUST 6		-		8,600		-		-		-		8,600
Koramco Europe Core Private Real Estate Trust No.2-2		-		21,408		(648)		-		-		20,760
SHBNPP Private Korea Equity Long-Short Professional Feeder		14,180		(9,972)		653		-		-		4,861
SHBNPP Private Multi Strategy Professional Feeder No.1		5,014		(5,049)		35		-		-		-
Shinhan-Stonebridge Petro PEF		18,487		-		714		-		-		19,201
BNP Paribas Cardif General Insurance		2,584		2,750		(910)		5		-		4,429
Axis Global Growth New Technology Investment Association		-		5,000		(47)		-		-		4,953
Polaris No.7 Entrepreneur Private Equity Fund		-		4,400		(41)		-		-		4,359
Hermes Private Investment Equity Fund		-		17,500		(3)		-		-		17,497
Others		33,394		21,820		4,036		(45)		(144)		59,061
	W	353,600		282,744		20,393		(25,299)		(144)		631,294

(*1) The market value of the investment is W6,826million as of December 31, 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

85

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(c) Condensed statement of financial information as of and for the three-month period ended March 31, 2018 and as of and for the year ended December 31, 2017 were as follows:

		2018
Investees		Asset	Liability	Operating revenue	Net profit (loss)	Other comprehen- sive income (loss)	Total comprehen- sive income (loss)
BNP Paribas Cardif Life Insurance	W	4,085,496	3,759,553	17,327	2,393	(14,825)	(12,432)
Daewontos Co., Ltd.		400	2,492	-	-	-	-
Neoplux Technology Valuation Investment Fund		45,300	283	359	81	(1,473)	(1,392)
JAEYOUNG SOLUTEC CO., LTD.		145,860	136,213	31,184	(10,987)	2,591	(8,396)
Partners 4th Growth Investment Fund		58,570	350	68	(300)	-	(300)
JAEYANG INDUSTRY		2,146	4,717	-	-	-	-
Chungyoung INC		1,304	6,605	4,173	(196)	-	(196)
DAEKWANG SEMICONDUCTOR CO., LTD.		25,607	9,699	8,435	(2,355)	-	(2,355)
Shinhan-Albatross tech investment Fund		11,361	182	17	(166)	-	(166)
Asia Pacific No.39 Ship Investment Co., Ltd.		9,168	47	154	136	-	136
KCLAVIS Meister Fund No.17		11,695	99	1	(55)	-	(55)
SG No.9 Corporate Recovery Private Equity Fund		15,036	114	-	32	-	32
Plutus-SG Private Equity Fund		15,761	69	-	-	-	-
SG ARGES Private Equity Fund No.1		18,230	65	-	640	-	640
Eum Private Equity Fund No.3		23,663	72	37	(87)	-	(87)
Richmond Private Yong in Retail Facility Real Estate Fund No.1		48,012	28,619	605	480	-	480
KTB Confidence Private Placement		38,914	21,068	1,344	334	-	334
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		25,701	1	1,588	937	-	937
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,529	2	1,265	1,255	-	1,255
Platform Partners brick save Private Investment trust		8,432	267	336	121	-	121
Synergy-Shinhan Mezzanine New Technology Investment Fund		10,500	19	(17)	(17)	-	(17)
The Asia Pacific Capital Fund II L.P.		27,684	87	-	(1,292)	-	(1,292)
Shinhan Praxis K-Growth Global Private Equity Fund		120,557	340	20,514	19,765	-	19,765

86

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18. Investments in associates (continued)

(c) Condensed statement of financial information as of and for the three-month period ended March 31, 2018 and as of and for the year ended December 31, 2017 were as follows (continued):

		2018
Investees		Asset	Liability	Operating revenue	Net profit (loss)	Other comprehen- sive income (loss)	Total comprehen- sive income (loss)
Credian Healthcare Private Equity Fund II	W	11,242	50	53	3	-	3
Kiwoom Milestone Professional Private Real Estate Trust 19		57,474	36,629	862	196	-	196
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		99,224	2,602	3,446	485	-	485
Brain Professional Private Trust No.4		22,712	508	1,641	940	-	940
Brain KS Qualified Privately Placed Fund No.6		10,617	1	1,252	1,005	-	1,005
Hanhwa US Equity Strategy Private Real Estate Fund No.1		56,849	38	2,647	2,221	-	2,221
M360 CRE Income Fund		337,967	18,036	6,433	6,168	-	6,168
Shinhan Global Healthcare Fund 1		76,865	-	2	(301)	-	(301)
JB Power TL Investment Type Private Placement Special Asset Fund 7		52,413	78	8,464	760	-	760
IBK AONE convertable 1		11,634	-	816	794	-	794
Rico synergy collabo Multi-Mezzanine 3		10,075	3	76	21	-	21
KB NA Hickory Private Special Asset Fund		92,164	65	2,363	2,284	-	2,284
GB PROFESSIONAL PRIVATE INVESTMENT TRUST 6		9,101	4	-	(3)	-	(3)
Koramco Europe Core Private Placement Real Estate Fund No.2-2		44,193	23	2,342	1,359	-	1,359
SHBNPP Private Korea Equity Long-Short Professional Feeder		51,355	7,028	5,932	203	-	203
Shinhan-Stonebridge Petro PEF		1,056,399	3,554	-	(816)	-	(816)
BNP Paribas Cardif General Insurance		57,683	15,682	3,020	(2,285)	(8)	(2,293)
Axis Global Growth New Technology Investment Association		15,489	-	-	(64)	-	(64)
Polaris No7 Start up and Venture Private Equity Fund		15,312	-	-	54	-	54
Hermes Private Investment Equity Fund		72,914	10	13,668	12,914	-	12,914
	W	6,952,608	4,055,274	140,407	36,657	(13,715)	22,942

87

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(c) Condensed statement of financial information as of and for the three-month period ended March 31, 2018 and as of and for the year ended December 31, 2017 were as follows (continued):

		2017
Investees		Asset	Liability	Operating revenue		Net profit (loss)		Other comprehen- sive income (loss)		Total comprehen- sive income (loss)
BNP Paribas Cardif Life Insurance	W	4,133,674	3,781,688	78,010		24,230		(73,495)		(49,265)
Daewontos Co., Ltd.		400	2,492	-		-		-		-
Neoplux Technology Valuation Investment Fund		40,692	283	5,895		4,691		1,471		6,162
JAEYOUNG SOLUTEC CO., LTD.		157,009	137,916	142,228		(22,756)		2,764		(19,992)
Partners 4th Growth Investment Fund		53,944	383	137		(1,540)		-		(1,540)
JAEYANG INDUSTRY		2,146	4,717	-		-		-		-
Chungyoung INC		3,292	8,392	5,568		(693)		-		(693)
DAEKWANG SEMICONDUCTOR CO., LTD.		29,069	10,806	13,929		(4,549)		-		(4,549)
Dream High Fund Ⅲ		4,076	34	27		(200)		(1,522)		(1,722)
Asia Pacific No.39 Ship Investment Co., Ltd.		9,389	27	666		616		32		648
KCLAVIS Meister Fund No.17		11,694	42	425		194		-		194
SG No.9 Corporate Recovery Private Equity Fund		15,035	76	(157)		652		-		652
Plutus-SG Private Equity Fund		16,009	69	317		316		-		316
SG ARGES Private Equity Fund No.1		26,758	69	(351)		832		-		832
OST Progress- 2 Fund		17,829	107	(234)		(234)		-		(234)
Eum Private Equity Fund No.3		23,725	5	1,614		1,649		-		1,649
Richmond Private Yong in Retail Facility Real Estate Fund No.1		48,006	28,624	2,265		2,100		-		2,100
KTB Confidence Private Placement		42,230	21,090	1,604		1,242		3,629		4,871
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		28,286	1	1,914		1,913		(856)		1,057
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,599	1	3,117		3,116		(1,257)		1,859
Pine Asia Unsecured Individual Rehabilitation Bond Fund 18		26,316	14	648		634		-		634
Platform Partners brick save Private Investment trust		8,441	271	207		194		-		194
Synergy-Shinhan Mezzanine New Technology Investment Fund		10,500	3	-		(3)		-		(3)
The Asia Pacific Capital Fund II L.P.		29,103	88	-		(3,582)		(10,269)		(13,851)
Shinhan Praxis K-Growth Global Private Equity Fund		100,805	353	7,273		(8,428)		3,156		(5,272)
Credian Healthcare Private Equity Fund II		11,236	47	211		19		(823)		(804)
Kiwoom Milestone Professional Private Real Estate Trust 19		57,405	36,589	2,742		(262)		-		(262)
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		97,203	1,066	5,851		3,012		(2,713)		299
Brain Professional Private Trust No.4		21,369	105	2,942		1,925		-		1,925
Hanhwa US Equity Strategy Private Real Estate Fund No.1		56,898	78	11,562		3,549		(37)		3,512
Brain KS Qualified Privately Placed Fund No.6		9,639	28	3		(110)		(72)		(182)
M360 CRE Income Fund		265,945	-	7		14,179		-		14,179
Shinhan Global Healthcare Fund 1		77,166	-	3		(757)		-		(757)
JB Power TL Investment Type Private Placement Special Asset Fund 7		56,125	53	7,115		1,267		-		1,267
IBK AONE convertable 1		10,840	-	279		258		-		258
Rico synergy collabo Multi-Mezzanine 3		10,054	3	371		50		-		50

88

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(c) Condensed statement of financial information as of and for the three-month period ended March 31, 2018 and as of and for the year ended December 31, 2017 were as follows (continued):

		2017
Investees		Asset	Liability	Operating revenue	Net profit (loss)	Other comprehen- sive income (loss)	Total comprehen- sive income (loss)
KB NA Hickory Private Special Asset Fund	W	90,978	67	11,092	1,945	-	1,945
GB PROFESSIONAL PRIVATE INVESTMENT TRUST 6		9,101	1	1	-	-	-
Koramco Europe Core Private Placement Real Estate Fund No.2-2		44,886	2,074	2,503	(1,337)	-	(1,337)
SHBNPP Private Korea Equity Long-Short Professional Feeder		54,029	4,733	28,956	9,356	-	9,356
Shinhan-Stonebridge Petro PEF		1,056,401	2,740	39,170	39,170	-	39,170
BNP Paribas Cardif General Insurance		59,699	15,405	10,093	(9,294)	94	(9,200)
Axis Global Growth New Technology Investment Association		15,553	-	(147)	(147)	-	(147)
Polaris No7 Start up and Venture Private Equity Fund		15,280	22	(142)	(142)	-	(142)
Hermes Private Investment Equity Fund		60,000	10	(10)	(10)	-	(10)
	W	6,959,834	4,060,572	387,704	63,065	(79,898)	(16,833)

89

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying values of its interests in the associates as of March 31, 2018 and December 31, 2017 are as follows:

	2018
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	325,943	14.99	48,858	(133)	-	48,725
Daewontos Co., Ltd(*1)		(2,092)	36.33	(760)	-	760	-
Neoplux Technology Valuation Investment Fund		45,017	33.33	15,006	-	-	15,006
JAEYOUNG SOLUTEC CO., LTD (*2)		9,087	7.61	693	-	1,718	2,411
Partners 4th Growth Investment Fund		58,220	25.00	14,555	-	-	14,555
JAEYANG INDUSTRY(*3)		(2,571)	25.90	(666)	-	666	-
Chungyoung INC(*3)		(5,301)	18.94	(1,004)	-	1,004	-
DAEKWANG SEMICONDUCTOR CO., LTD.		15,908	20.94	3,331	-	-	3,331
Shinhan-Albatross tech investment Fund		11,179	50.00	5,624	-	-	5,624
Asia Pacific No.39 Ship Investment Co., Ltd.		9,121	50.00	4,561	-	-	4,561
KCLAVIS Meister Fund No.17		11,596	26.09	3,025	-	-	3,025
SG No.9 Corporate Recovery Private Equity Fund		14,922	26.49	3,953	-	-	3,953
Plutus-SG Private Equity Fund		15,692	26.67	4,185	-	-	4,185
SG ARGES Private Equity Fund No.1		18,165	24.06	4,371	-	-	4,371
Eum Private Equity Fund No.3		23,591	20.76	4,898	-	-	4,898
Richmond Private Yong in Retail Facility Real Estate Fund No.1		19,393	41.80	8,106	-	-	8,106
KTB Confidence Private Placement		17,846	30.29	5,405	-	-	5,405
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		25,700	23.86	6,131	-	-	6,131
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,527	20.16	8,373	-	-	8,373
Platform Partners brick save Private Investment trust		8,165	98.77	8,065	-	-	8,065
Synergy-Shinhan Mezzanine New Technology Investment Fund		10,481	47.62	4,991	-	-	4,991
The Asia Pacific Capital Fund II L.P.		27,597	25.18	6,949	-	-	6,949
Shinhan Praxis K-Growth Global Private Equity Fund		120,217	18.87	22,683	-	-	22,683
Credian Healthcare Private Equity Fund II		11,192	34.07	3,814	-	-	3,814
Kiwoom Milestone Professional Private Real Estate Trust 19		20,845	50.00	10,423	-	-	10,423
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		96,622	21.28	20,563	-	-	20,563
Brain Professional Private Trust No.4		22,204	27.49	6,106	-	-	6,106

90

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying values of its interests in the associates as of March 31, 2018 and December 31, 2017 are as follows (continued):

	2018
Investees		Net assets (a)	Ownership (%)(b)	Interests in the net assets (a)*(b)	Intra-group transactions	Other	Carrying Value
Brain KS Qualified Privately Placed Fund No.6	W	10,616	50.00	5,304	-	-	5,304
Hanhwa US Equity Strategy Private Real Estate Fund No.1		56,811	44.84	25,475	-	-	25,475
M360 CRE Income Fund		319,931	48.81	156,160	-	-	156,160
Shinhan Global Healthcare Fund 1		76,865	4.41	3,393	-	-	3,393
JB Power TL Investment Type Private Placement Special Asset Fund 7		52,335	33.33	17,444	-	-	17,444
IBK AONE convertable 1		11,634	47.25	5,497	-	-	5,497
Rico synergy collabo Multi-Mezzanine 3		10,072	50.00	5,036	-	-	5,036
KB NA Hickory Private Speical Asset Fund		92,099	37.50	34,537	-	-	34,537
GB Professional Private Investment Trust 6		9,097	94.51	8,597	-	-	8,597
Koramco Europe Core Private Placement Real Estate Fund No.2-2		44,170	25.84	11,415	-	-	11,415
SHBNPP Private Korea Equity Long-Short Professional Feeder		44,327	9.90	4,414	-	-	4,414
Shinhan-Stonebridge Petro PEF		1,052,845	1.82	19,186	-	-	19,186
BNP Paribas Cardif General Insurance		42,001	10.00	4,199	-	-	4,199
Axis Global Growth New Technology Investment Association		15,489	31.85	4,933	-	-	4,933
Polaris No7 Start up and Venture Private Equity Fund		15,312	28.57	4,374	-	-	4,374
Hermes Private Investment Equity Fund		72,904	29.17	21,264	-	-	21,264
	W	2,896,774		553,467	(133)	4,148	557,482

(*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 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.

91

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying values of its interests in the associates as of March 31, 2018 and December 31, 2017 are as follows (continued):

	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	351,986		14.99		52,763		(147)		-		52,616
Daewontos Co., Ltd(*1)		(2,092)		36.33		(760)		-		760		-
Neoplux Technology Valuation Investment Fund		40,409		33.33		13,470		-		-		13,470
JAEYOUNG SOLUTEC CO., LTD(*2)		17,484		9.61		1,680		-		2,169		3,849
Partners 4th Growth Investment Fund		53,561		25.00		13,390		-		-		13,390
JAEYANG INDUSTRY(*3)		(2,571)		25.90		(666)		-		666		-
Chungyoung INC(*3)		(5,100)		18.94		(966)		-		966		-
DAEKWANG SEMICONDUCTOR CO., LTD.		18,263		20.94		3,824		-		-		3,824
Dream High Fund Ⅲ		4,042		54.55		2,205		-		-		2,205
Asia Pacific No.39 Ship Investment Co., Ltd.		9,362		50.00		4,682		-		-		4,682
KCLAVIS Meister Fund No.17		11,652		26.09		3,039		-		-		3,039
SG No.9 Corporate Recovery Private Equity Fund		14,959		26.49		3,963		-		-		3,963
Plutus-SG Private Equity Fund		15,940		26.67		4,251		-		-		4,251
SG ARGES Private Equity Fund No.1		26,689		24.06		6,422		-		-		6,422
OST Progress- 2 Fund		17,722		27.62		4,895		-		-		4,895
Eum Private Equity Fund No.3		23,720		20.76		4,925		-		-		4,925
Richmond Private Yong in Retail Facility Real Estate Fund No.1		19,382		41.80		8,101		-		-		8,101
KTB Confidence Private Placement		21,140		30.29		6,403		-		-		6,403
Meritz AI-SingA330-A Investment Type Private Placement Special Asset Fund		28,285		23.89		6,757		-		-		6,757
Meritz AI-SingA330-B Investment Type Private Placement Special Asset Fund		41,598		20.16		8,387		-		-		8,387
Pine Asia Unsecured Individual Rehabilitation Bond Fund 18		26,302		22.86		6,012		-		-		6,012
Platform Partners brick save Private Investment trust		8,170		98.77		8,069		-		-		8,069
Synergy-Shinhan Mezzanine New Technology Investment Fund		10,497		47.62		4,999		-		-		4,999
The Asia Pacific Capital Fund II L.P.		29,015		25.18		7,307		-		-		7,307
Shinhan Praxis K-Growth Global Private Equity Fund		100,452		18.87		18,954		-		-		18,954
Credian Healthcare Private Equity Fund II		11,189		34.07		3,813		-		-		3,813
Kiwoom Milestone Professional Private Real Estate Trust 19		20,816		50.00		10,408		-		-		10,408
FG EURO GREEN PRIVATE REAL ESTATE TRUST No.3		96,137		21.28		20,460		-		-		20,460
Brain Professional Private Trust No.4		21,264		27.49		5,847		-		-		5,847

92

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(d) Reconciliation of the financial information to the carrying values of its interests in the associates as of March 31, 2018 and December 31, 2017 are as follows (continued):

	2017
Investees		Net assets (a)		Ownership (%)(b)		Interests in the net assets (a)*(b)		Intra-group transactions		Other		Carrying Value
Hanhwa US Equity Strategy Private Real Estate Fund No.1	W	56,820		44.84		25,479		-		-		25,479
Brain KS Qualified Privately Placed Fund No.6		9,611		50.00		4,805		-		-		4,805
M360 CRE Income Fund		265,945		57.87		153,905		-		-		153,905
Shinhan Global Healthcare Fund 1		77,166		4.41		3,407		-		-		3,407
JB Power TL Investment Type Private Placement Special Asset Fund 7		56,072		33.33		18,690		-		-		18,690
IBK AONE convertable 1		10,840		47.25		5,122		-		-		5,122
Rico synergy collabo Multi-Mezzanine 3		10,051		50.00		5,026		-		-		5,026
KB NA Hickory Private Speical Asset Fund		90,911		37.50		34,091		-		-		34,091
GB Professional Private Investment Trust 6		9,100		94.51		8,600		-		-		8,600
Koramco Europe Core Private Placement Real Estate Fund No.2-2		42,812		48.49		20,760		-		-		20,760
SHBNPP Private Korea Equity Long-Short Professional Feeder		49,296		9.85		4,861		-		-		4,861
Shinhan-Stonebridge Petro PEF		1,053,661		1.82		19,201		-		-		19,201
BNP Paribas Cardif General Insurance		44,294		10.00		4,429		-		-		4,429
Axis Global Growth New Technology Investment Association		15,553		31.85		4,953		-		-		4,953
Polaris No7 Start up and Venture Private Equity Fund		15,258		28.57		4,359		-		-		4,359
Hermes Private Investment Equity Fund		59,990		29.17		17,497		-		-		17,497
Others		218,647		-		58,362		-		699		59,061
	W	3,116,300				626,181		(147)		5,260		631,294

(*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 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.

93

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

18.  Investments in associates (continued)

(e) The unrecognized equity method losses as of and for the three-month period ended March 31, 2018 and as of and for the year ended December 31, 2017 are as follows:

		2018
Investees		Unrecognized equity method losses	Cumulative unrecognized equity method losses
Daewontos Co., Ltd.	W	-	(760)
JAEYANG INDUSTRY		-	(18)
Chungyoung INC		(37)	(167)
	W	(37)	(945)

		2017
Investees		Unrecognized equity method losses	Cumulative unrecognized equity method losses
Daewontos Co., Ltd.	W	-	(760)
JAEYANG INDUSTRY		-	(18)
Chungyoung INC		(130)	(130)
	W	(130)	(908)

94

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

19. Financial liabilities at fair value through profit or loss

Trading liabilities as ofMarch 31, 2018 are as follows:

		2018
Securities sold:
Stocks	W	818,300
Government bonds		981,914
Others		60,486
		1,860,700
Gold deposits		426,135
	W	2,286,835

20. Trading liabilities

Trading liabilities as ofDecember 31, 2017 are as follows:

		2017
Securities sold:
Stocks	W	495,019
Government bonds		871,884
Others		47,001
		1,413,904
Gold deposits		434,586
	W	1,848,490

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

Financial liabilities designated at fair value through profit or loss as of March 31, 2018 are as follows:

		Book value(a)	Reason for designation
Equity-linked securities sold	W	6,108,813	Combined instrument
Securities sold with embedded derivatives		2,255,466	Combined instrument
	W	8,364,279

(*) The Group designated those financial liabilities as measured at fair value at acquisition date or subsequently in accordance with K-IFRS 1109 par.6.7.1

Maximum exposure of credit risk of financial liabilities designated at fair value through profit or loss W8,364,278 million as of March 31, 2018. Changes in values of financial liabilities designated at fair value through profit or loss from such risk are W34 million for the three-month period ended March 31, 2018 and accumulated changes are W2,175 million as of March 31, 2018.

95

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

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

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

		2017	Reason for designation
Equity-linked securities sold	W	5,865,990	Combined instrument
Securities sold with embedded derivatives		2,394,646	Combined instrument
Securities sold		36,973	Evaluation and management on a fair value basis
	W	8,297,609

23. Debt securities issued

Debt securities issued as of March 31, 2018 and December 31, 2017 are as follows:

	2018
	Interest rate (%)		Amount
Debt securities issued in won:
Debt securities issued	0.00~8.00	W	41,921,745
Subordinated debt securities issued	2.20~4.60		3,700,400
Gain and loss on fair value hedges			(294,708)
Bond issuance cost			(49,277)
			45,278,160
Debt securities issued in foreign currencies:
Debt securities issued	0.00~4.20		5,281,127
Subordinated debt securities issued	3.75~4.50		1,866,375
Gain and loss on fair value hedges			(66,172)
Bond issuance cost			(33,690)
			7,047,640
		W	52,325,800

96

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

23. Debt securities issued (continued)

	2017
	Interest rate (%)		Amount
Debt securities issued in won:
Debt securities issued	0.00~8.00	W	41,781,486
Subordinated debt securities issued	2.20~4.60		3,500,401
Loss on fair value hedges			(274,047)
Bond issuance cost			(45,969)
			44,961,871
Debt securities issued in foreign currencies:
Debt securities issued	0.00~4.20		4,989,904
Subordinated debt securities issued	3.75~3.88		1,446,390
Loss on fair value hedges			(25,794)
Bond issuance cost			(31,550)
			6,378,950
		W	51,340,821

24. Employee benefits

(a) Defined benefit obligations and plan assets

Defined benefit obligations and plan assets as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Present value of defined benefit obligations	W	1,630,820	1,695,191
Fair value of plan assets		(1,583,525)	(1,688,047)
Recognized liabilities for defined benefit obligations	W	47,295	7,144

(b) Expenses recognized in profit or loss for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Current service costs	W	39,382	43,272
Net interest expense		622	811
	W	40,004	44,083

97

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

25. Provisions

(a) Provisions as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Asset retirement obligations	W	43,495	45,495
Expected loss related to litigation		32,094	32,650
Unused credit commitments		218,858	168,006
Bonus card point reward program		26,151	26,434
Financial guarantee contracts issued		82,024	80,861
Others		73,141	75,512
	W	475,763	428,958

(b) Changes in provision for unused credit commitments and financial guarantee contracts issued for the three-month period ended March 31, 2018 are as follows:.

		Unused credit commitments			Financial guarantee contracts issued			Total
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset
Beginning allowance	W	195,884	26,445	169	31,456	3,368	2,464	259,786
Transfer to 12 month expected credit loss		4,073	(4,073)	-	196	(196)	-	-
Transfer to life time expected credit loss		(3,060)	3,060	-	(53)	53	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Provided(reversed)		(1,394)	(2,463)	4	(356)	(1,048)	(217)	(5,474)
Used		(262)	(412)	(17)	(47)	-	-	(738)
FX change		721	(508)	-	(2,068)	(1,439)	(896)	(4,190)
Others (*1)		691	-	-	2,517	1,343	889	5,440
Ending balance	W	196,653	22,049	156	31,645	2,081	2,240	254,824

(*1) New financial guarantee contracts issued measured at fair value and discount unwinding effect as matured.

98

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

26.Liabilities under insurance contracts

(a) Insurance liabilities as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Policy reserve	W	24,953,630	24,515,364
Policyholder’s equity adjustment		(1,576)	(76)
	W	24,952,054	24,515,288

(b) Income or expenses on insurance contracts for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018		2017
Insurance income
Premium income	W	1,120,507		1,156,028
Reinsurance income		2,213		1,098
Reversal of policy reserves		-		1,021
Separate account income		8,376		13,977
		1,131,096		1,172,124
Insurance expenses
Claims paid		(658,094)		(545,493)
Reinsurance premium expenses		(4,689)		(2,845)
Provision for policy reserves		(438,267)		(551,528)
Separate account expenses		(8,376)		(13,978)
Discount charge		(167)		(153)
Acquisition costs		(124,083)		(143,653)
Collection expenses		(4,943)		(3,882)
Deferred acquisition costs		80,353		90,315
Amortization of deferred acquisition costs		(102,561)		(109,192)
		(1,260,827)		(1,280,409)
Net loss on insurance	W	(129,731)		(108,285)

99

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

27. Equity

(a)Equity as of March 31, 2018 and December 31, 2017 areas follows:

		2018	2017
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		423,921	423,921
Capital surplus:
Share premium		9,494,769	9,494,769
Others		392,566	392,566
		9,887,335	9,887,335
Capital adjustments		(397,007)	(398,035)
Accumulated other comprehensive income, net of tax:
Loss on financial assets at fair value through other comprehensive income		(151,967)	-
Valuation gain on available-for-sale financial assets		-	72,126
Loss on financial assets at fair value through pofit or loss (overlay approach)		(61,432)	-
Equity in other comprehensive income of associates		(6,860)	(294)
Foreign currency translation adjustments for foreign operations		(327,749)	(345,199)
Net loss from cash flow hedges		(3,924)	2,440
Other comprehensive loss of separate account		(7,144)	(4,812)
Actuarial losses		(254,894)	(253,995)
Changes in own credit risk on financial liabilities designated under fair value option		(1,577)	-
		(815,547)	(529,734)
Retained earnings		20,704,546	20,791,681
Non-controlling interest		706,029	883,397
	W	33,154,330	33,703,618

100

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

27. Equity

(b) Hybrid bonds

Hybrid bonds classified as other equity instruments as of March 31, 2018 and December 31, 2017 are as follows:

Issue date	Maturity date	Interest rate (%)		2018	2017
June 25, 2015	June 25, 2045	4.38	W	199,455	199,455
September 15, 2017	-	3.77		134,683	134,683
September 15, 2017	-	4.25		89,783	89,783
			W	423,921	423,921

The hybrid bonds above can be repaid early 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.

101

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

27. Equity (continued)

(c) Accumulated other comprehensive income

Changes in accumulated other comprehensive income for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018
			Items that are or may be reclassified to profit or loss					Items that will never be reclassified to profit or loss				Total
		Gain(loss) on financial asset at fair value through other comprehensive income	Gain(loss) on financial asset at fair value through profit or loss (overlay approach)	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	Equity in other comprehensive income of associates	Gain (loss) on financial asset at fair value through other comprehe-nsive income	Changes in own credit risk on financial liabilities designated under fair value option
Beginning balance	W	(211,003)	(24,724)	(2,534)	(342,318)	2,441	(4,564)	(253,995)	(28)	31,533	(1,553)	(806,745)
Change due to fair value		20,863	(50,631)	(4,920)	-	(3,016)	(3,559)	(1,155)	25	13,735	(33)	(28,691)
Reclassification:
Change due to impairment or disposal		(3,940)	-	-	-	(621)	-	-	-	-	-	(4,561)
Effect of hedge accounting		-	-	-	-	132	-	-	-	-	-	132
Hedging		2,311	-	-	(15,026)	(5,910)	-	-	-	177	-	(18,448)
Effects from exchange rate fluctuations		-	-	-	22,569	-	-	-	-	-	-	22,569
Remeasurements of the defined benefit plans		-	-	-	-	-	-	(66)	-	-	-	(66)
Deferred income taxes		(3,478)	13,923	598	6,212	3,050	979	322	(9)	(3,904)	9	17,702
Transfer to other account		-	-	-	-	-	-	-	8	1,739	-	1,747
Non-controlling interests		-	-	-	814	-	-	-	-	-	-	814
	W	(195,247)	(61,432)	(6,856)	(327,749)	(3,924)	(7,144)	(254,894)	(4)	43,280	(1,577)	(815,547)

102

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

27. Equity (continued)

(c) Accumulated other comprehensive income (continued)

Changes in accumulated other comprehensive income for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows (continued):

		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		(60,397)	(24,886)	-	-	(12,529)	-	(97,812)
Reclassification:
Change due to impairment or disposal		(346,126)	-	-	-	-	-	(346,126)
Effect of hedge accounting		-	-	-	250,875	-	-	250,875
Hedging		1,241	-	97,353	(229,747)	-	-	(131,153)
Effects from exchange rate fluctuations		(28,553)	-	(276,285)	-	-	-	(304,838)
Remeasurements of the defined benefit plans		-	-	-	-	-	121,735	121,735
Transfer to other account		-	(414)	-	-	-	-	(414)
Deferred income taxes		110,708	3,748	(15,240)	(5,224)	3,251	(18,210)	79,033
Non-controlling interests		1,071	-	698	-	-	(220)	1,549
Ending balance	W	72,126	(294)	(345,199)	2,440	(4,812)	(253,995)	(529,734)

103

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

27. 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 three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:

		2018	2017
Beginning balance	W	2,885,018	2,252,771
IFRS 9 adoption		(388,551)	-
Planned regulatory reversal of loan losses		6,908	632,247
Ending balance	W	2,503,375	2,885,018

ii) Profit for the period and earnings per share after adjusted for regulatory reserve for loan losses for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Profit attributable to equity holders of Shinhan Financial Group	W	857,549	997,098
Provision for regulatory reserve for loan losses(*1)		(6,138)	(385,247)
Profit attributable to equity holders of Shinhan Financial Group adjusted for regulatory reserve	W	851,411	611,851
Basic and diluted earnings per share adjusted for regulatory reserve in won(*2)	W	1,786	1,277

(*1) The provision for regulatory reserve for loan losses due to the adoption of K-IFRS 1109 were excluded.

(*2) Dividends for hybrid bonds are deducted.

(e) Dividends declared and paid by the Group for the three-month period ended March 31, 2018 were as follows:

		2018
Common stock (W1,450 per share)	W	687,589

104

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

28. Net interest income

Net interest income for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018
Interest income:
Cash and due from banks at amortized cost	W	32,734
Due from banks at fair value through profit or loss		8,522
Securities at fair value through profit or loss		146,659
Securities at fair value through other comprehensive income		177,691
Securities at amortized cost		171,495
Loans at amortized cost		2,595,689
Loans at fair value through profit or loss		6,840
Others		21,081
		3,160,711
Interest expense:
Deposits		(695,612)
Borrowings		(102,241)
Debt securities issued		(290,272)
Others		(14,289)
		(1,102,414)
Net interest income	W	2,058,297

		2017
Interest income:
Cash and due from banks	W	41,790
Trading assets		127,290
Financial assets designated at fair value through profit or loss		13,060
Available-for-sale financial assets		158,775
Held-to-maturity financial assets		151,137
Loans		2,304,611
Others		22,476
		2,819,139
Interest expense:
Deposits		(605,538)
Borrowings		(76,049)
Debt securities issued		(255,076)
Others		(13,265)
		(949,928)
Net interest income	W	1,869,211

105

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

29. Net fees and commission income

Net fees and commission income for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Fees and commission income:
Credit placement fees	W	16,173	14,826
Commission received as electronic charge receipt		36,145	34,858
Brokerage fees		125,283	85,008
Commission received as agency		22,861	35,579
Investment banking fees		14,868	10,202
Commission received in foreign exchange activities		49,302	47,446
Asset management fees		60,863	37,993
Credit card fees		581,237	580,011
Others		164,301	119,152
		1,071,033	965,075
Fees and commission expense:
Credit-related fee		(8,955)	(5,417)
Credit card fees		(504,767)	(496,144)
Others		(73,690)	(75,924)
		(587,412)	(577,485)
Net fees and commission income	W	483,621	387,590

106

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

30. Allowance provided (reversed) for credit loss on financial assets

Allowance provided (reversed) for credit loss on financial assets for the three-month period ended March 31, 2018 are as follows:

		2018
Loans at amortized cost	W	(184,872)
Other financial assets at amortized cost		(2,667)
		(187,539)
Securities at fair value through other comprehensive income		1,328
Securities at amortized cost		1,210
Others (unused credit line and financial guarantee, etc)		5,474
		8,012
	W	(179,527)

31.  Net impairment loss on financial assets

Net impairment loss on financial assets for the three-month period ended March 31, 2017 are as follows:

		2017
Impairment losses on:
Loans	W	(86,481)
Available-for-sale financial assets		(7,892)
		(94,373)
Reversal of impairment losses on:
Available-for-sale financial assets		855
Other financial assets		4,372
		5,227
	W	(89,146)

107

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

32. General and administrative expenses

General and administrative expenses for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Employee benefits:
Salaries	W	652,827	634,968
Severance benefits:
Defined contribution		5,817	5,555
Defined benefit		37,391	43,016
Termination benefits		1,270	1,853
		697,305	685,392
Rent		86,199	81,631
Entertainment		6,643	6,755
Depreciation		42,849	46,604
Amortization		17,520	16,868
Taxes and dues		41,181	41,132
Advertising		52,382	50,044
Research		3,396	3,647
Others		139,546	132,730
	W	1,087,021	1,064,803

108

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

33.Share-based payments

(a) Stock options granted as of March 31, 2018 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		W28,006			W38,829		W54,560		W49,053
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/ September 17,2021
Changes in number of shares granted:
Balance at January 1, 2018		2,500			2,500		58,764		45,628
Exercised		-			-		-		-
Balance at March 31, 2018		2,500			2,500		58,764		45,628
Fair value per share in won			W17,694		W7,487		W1,724		W3,850 (Expiration of contractual exercise period : May 17, 2021) W3,942 (Expiration of contractual exercise period : Sep 17, 2021)

(*1) The weighted average exercise price for 109,392 stock options outstanding at March 31, 2018 is W51,297.

(*2) As of March 31, 2018, the exercise of 9,466 options of the 7^th grant is temporarily suspended.

.

109

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

33.Share-based payments (continued)

(b) Performance shares granted as of March 31, 2018 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 March 31, 2018	14,866	1,307,030
Fair value per share in won	W45,926, W47,376, W40,889, W45,766, W49,405 for the expiration of operating period from 2013 to 2017	W45,700

(*) 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.

110

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

33.Share-based payments (continued)

(c) Share-based compensation costs for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018
		Employees of
		The controlling company	The subsidiaries	Total
Stock options granted:
4th	W	-	(9)	(9)
5th		-	(8)	(8)
6th		(12)	(72)	(84)
7th		(25)	(36)	(61)
Performance share		250	1,876	2,126
	W	213	1,751	1,964

		2017
		Employees of
		The controlling company	The subsidiaries	Total
Stock options granted:
4th	W	12	126	138
5th		9	138	147
6th		-	-	-
7th		-	-	-
Performance share		569	4,260	4,829
	W	590	4,524	5,114

111

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

33.Share-based payments (continued)

(d) Accrued expenses and the intrinsic value as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Employees of
		The controlling company	The subsidiaries(*)	Total
Stock options granted:
4th	W	-	44	44
5th		-	19	19
6th		14	87	101
7th		58	84	142
Performance share		6,424	54,005	60,429
	W	6,496	54,239	60,735

The intrinsic value of share-based payments is W60,491 million as of March 31, 2018.  For calculating, the quoted market price W45,700 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

(*) The Group has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Group require the subsidiaries to reimburse the compensation costs for their employees.  As of March 31, 2018, the Group recognized the corresponding accounts receivable from the subsidiaries in the amount of W54,239 million.

		2017
		Employees of
		The controlling company	The subsidiaries(*)	Total
Stock options granted:
4th	W	-	54	54
5th		-	26	26
6th		26	159	185
7th		83	120	203
Performance share		8,286	62,769	71,055
	W	8,395	63,128	71,523

The intrinsic value of share-based payments is W71,151 million as of December 31, 2017. For calculating, the quoted market price W49,400 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

(*) The Group has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Group require the subsidiaries to reimburse the compensation costs for their employees.  As of December 31, 2017, the Group recognized the corresponding accounts receivable from the subsidiaries in the amount of W63,128 million.

112

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won, except per share data)

34. Income tax expense

Income tax expense for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Current income tax expense	W	90,681	182,389
Origination and reversal of temporary differences		217,050	125,125
Income tax recognized in other comprehensive income		17,277	(9,053)
Income tax expenses	W	325,008	298,461
Effective tax rate	%	27.22	22.86

35. Earnings per share

Basic and diluted earnings per share for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Profit attributable to equity holders of Shinhan Financial Group	W	857,549	997,098
Less:
Dividends to hybrid bond		(4,406)	(6,160)
Net profit available for common stock	W	853,143	990,938
Weighted average number of common shares outstanding		474,199,587	474,199,587
Basic and diluted earnings per share in won	W	1,799	2,090

113

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

36. Commitments and contingencies

(a) Guarantees, acceptances and credit commitments as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Guarantees:
Guarantees outstanding	W	7,704,402	7,611,211
Contingent guarantees		2,986,946	3,259,613
		10,691,348	10,870,824
Commitments to extend credit:
Loan commitments in won		68,448,202	54,827,918
Loan commitments in foreign currency		20,395,168	18,992,984
ABS and ABCP commitments		1,840,221	2,035,543
Others		68,198,157	66,767,465
		158,881,748	142,623,910
Endorsed bills:
Secured endorsed bills		70,191	85,456
Unsecured endorsed bills		9,842,706	7,810,788
		9,912,897	7,896,244
Loans sold with recourse		2,099	2,099
	W	179,488,092	161,393,077

(b) Legal contingencies

As of March 31, 2018, the Group was involved in 169 pending lawsuits as a defendant (total claim amount: W113,148 million) and recorded a provision of W32,094 million and a reserve (liabilities under insurance contracts) of W1,191 million, respectively, with respect to these lawsuits.  Additional losses might be incurred from these legal actions, but the result of such lawsuits cannot be predicted.  The management believes that the result of the lawsuits would not have significant impact on the financial position.

37. Statement of cash flows

Cash and cash equivalents in the consolidated statements of cash flows as of March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Cash and due from banks	W	18,026,289	22,682,652
Adjustments:
Due from financial institutions with a maturity over   three months from date of acquisition		(1,956,407)	(3,010,471)
Restricted due from banks		(9,176,093)	(13,435,531)
	W	6,893,789	6,236,650

114

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

38. 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 March 31, 2018 and December 31, 2017 are as follows:

Related party	Account		2018	2017
Investments in associates:
BNP Paribas Cardif Life Insurance	Other assets	W	9,866	9,868
〃	Credit card loans		142	191
〃	Allowances		(1)	(4)
〃	Deposits		431	446
〃	Provisions		-	2
JAEYOUNG SOLUTEC CO., LTD.	Loans		14,575	14,847
〃	Allowances		(132)	(123)
〃	Credit card loans		54	33
〃	Deposits		2,712	2,659
〃	Provisions		2	4
Partners 4th Growth Investment Fund	Deposits		1,913	2,076
BNP Paribas Cardif General Insurance	Credit card loans		41	29
〃	Allowances		(1)	-
〃	Deposits		8	221
〃	Provisions		1	-
Shinhan Praxis K-Growth Global Private Equity Fund	Other assets		170	174
Dream High Fund Ⅲ	Deposits		5	3
Midas Dong-A Snowball Venture Fund	Deposits		202	220
IBKS-Shinhan Creative Economy New Technology Fund	Deposits		2,163	78
Credian Healthcare Private Equity Fund II	Deposits		31	26
Midas Dong-A Snowball Venture Fund 2	Deposits		188	239
IBKS-Shinhan Creative Economy New Technology Fund Ⅱ	Deposits		210	76
Eum Private Equity Fund No.3	Deposits		60	65
Branbuil CO., LTD.	Credit card loans		3	-
〃	Allowances		(1)	-
〃	Deposits		23	55
SHBNPP Private Korea Equity Long-Short Professional Feeder	Other assets		83	97
Shinhan Global Healthcare Fund 1	Unearned revenue		207	409
Shinhan Fintech New Technology Fund No.1	Unearned revenue		85	123
KTB Newlake Global Healthcare PEF	Deposits		327	465
〃	Provisions		12	13
Taihan Industrial System Co., Ltd.	Deposits		87	100
Incorporated association Finance Saving Information Center	Credit card loans		2	-
	Deposits		8	4
	Allowances		(1)	-
Lodestone Startup Venture Specialized Private Equity Fund	Deposits		537	-
Lodestone 1st Private Equity Fund	Deposits		768	-
Loggia	Deposits		1	-
Key management personnel and their immediate relatives:	Loans		3,194	3,247
	Assets	W	27,994	28,359
	Liabilities		9,981	7,284

115

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

38. Related parties (continued)

(b) Transactions with the related parties for the three-month periods ended March 31, 2018 and 2017 were as follows:

Related party	Account		2018	2017
Investments in associates
Aju Capital Co., Ltd(*)	Interest income	W	-	1,973
〃	Fees and commission income		-	56
〃	Reversal of credit losses		-	161
〃	Other operating expenses		-	(26)
BNP Paribas Cardif Life Insurance	Fees and commission income		879	342
〃	Non-operating income		2	1
〃	Reversal of credit losses		4	1
〃	Non-operating expenses		-	(2)
〃	General and administrative expenses		(4)	-
Shinhan Praxis K-Growth Global Private Equity Fund	Fees and commission income		170	170
Shinhan K2 Secondary Fund	Fees and commission income		-	921
BNP Paribas Cardif General Insurance	Fees and commission income		2	1
〃	Provision for credit losses		-	(1)
〃	Reversal of credit losses		1	-
Midas Dong-A Snowball Venture Fund	Fees and commission income		9	19
〃	Interest expense		(1)	(1)
SP New Technology Business investment FundⅠ	Fees and commission income		10	20
IBKS-Shinhan Creative Economy New Technology Fund I	Fees and commission income		10	-
IBKS-Shinhan Creative Economy New Technology Fund Ⅱ	Fees and commission income		6	-
SM New Technology Business Investment Fund I	Fees and commission income		-	39
The Asia Pacific Capital Fund II L.P.	Fees and commission income		-	44
JAEYOUNG SOLUTEC CO., LTD.	Interest income		172	160
〃	Fees and commission income		1	-
〃	Other income		3	-
〃	Reversal of credit losses		-	1
〃	Interest expense		-	(1)
〃	Provision for credit losses		(10)	-
Partners 4th Growth Investment Fund	Interest expense		(4)	(1)
PSA 1st Fintech Private Equity Fund	Interest expense		-	(1)
SHBNPP Private Korea Equity Long-Short Professional Feeder	Fees and commission income		662	173
SHBNPP Private Multi Strategy Professional Feeder No.1(*)	Fees and commission income		-	41
Shinhan-Albatross Technology Investment Fund	Fees and commission income		54	-
〃	Interest expense		-	(11)
STI-New Growth Engines Investment Partnership	Fees and commission income		12	29
KTB New lake medical Global Investment	Interest income		1	-

116

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

38. Related parties (continued)

(b) Transactions with the related parties for the three-month periods ended March 31, 2018 and 2017 were as follows (continued) :

Related party	Account		2018	2017
Shinhan Global health care Investment No.1 Co,LTD	Fees and commission income	W	202	-
Shinhan Fintech New Technology Fund No.1	Fees and commission income		38	-
Shinhan-Midas Dong-A Secondary Venture Fund	Fees and commission income		9	-
Incorporated association Finance Saving Information Center	Reversal of credit losses		1	-
Key management personnel and their immediate relatives
Interest income			3	16
		W	2,232	4,124

(*) Excluded from related parties due to the disposal.

(c) Key management personnel compensation

Key management personnel compensation for the three-month periods ended March 31, 2018 and 2017 were as follows:

		2018	2017
Short-term employee benefits	W	7,982	7,308
Severance benefits		111	121
Share-based payment transactions		1,222	1,758
	W	9,315	9,187

117

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

38. Related parties (continued)

(d) The guarantees provided between the related parties as of March 31, 2018 and December 31, 2017 were as follows:

			Amount of guarantees
Guarantor	Guaranteed Parties		2018	2017		Account
Shinhan Bank	New lake alliance	W	700	700		Unused credit line
	BNP Paribas Cardif Life Insurance		10,000	10,000		Unused credit line
	Neoplux Technology Valuation Investment Fund		-	6,000		Security underwriting commitment
	JAEYOUNG SOLUTEC CO., LTD.		104	109		Unused credit
	〃		-	429		Import letter of credit
		W	10,804	17,238

(e) Details of collaterals provided by the related parties as of March 31, 2018 and December 31, 2017 were as follows:

Provided to	Provided by	Pledged assets		2018	2017
Shinhan Bank	BNP Paribas Cardif Life Insurance	Government bonds	W	11,668	11,666
	JAEYOUNG SOLUTEC CO., LTD.	Properties		20,814	20,814
	〃	Guarantee insurance policy		7,037	7,037
			W	39,519	39,517

118

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

39. 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 March 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Total assets:
Asset-backed securitization	W	173,439,239	175,953,075
Structured financing		115,700,569	84,719,599
Investment fund		69,381,987	69,736,443
	W	358,521,795	330,409,117

119

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

39. 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 March 31, 2018 and December 31, 2017 are as follows:

		2018
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets:
Loans measured at fair value through profit or loss	W	-	10,066	-	10,066
Loan at amortized cost		271,706	6,345,798	63,473	6,680,977
Securities at fair value through profit or loss		4,121,052	254,927	4,207,780	8,583,759
Derivatives		10,650	-	-	10,650
Securities at fair value through other comprehensive in come		1,772,757	86,641	1	1,859,399
Securities at amortized cost		3,370,708	-	-	3,370,708
Other assets		866	3,282	38,179	42,327
	W	9,547,739	6,700,714	4,309,433	20,557,886
Liabilities:
Derivative liabilities	W	4,562	-	-	4,562
Other		1,099	3,559	173	4,831
	W	5,661	3,559	173	9,393

120

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

39. Interests in unconsolidated structured entities (continued)

(b) Nature of risks (continued)

		2017
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets:
Loans	W	329,776	6,189,042	91,078	6,609,896
Trading assets		3,201,400	958	351,290	3,553,648
Derivative assets		14,218	-	-	14,218
Available-for-sale financial assets		2,200,974	400,283	3,525,538	6,126,795
Held-to-maturity financial assets		3,259,451	-	-	3,259,451
Other assets		729	2,576	1,150	4,455
	W	9,006,548	6,592,859	3,969,056	19,568,463
Liabilities:
Derivative liabilities	W	4,448	-	-	4,448
Other		557	1,050	9	1,616
	W	5,005	1,050	9	6,064

ii) Exposure to risk relating to its interests in unconsolidated structured entities as of March 31, 2018 and December 31, 2017 are as follows:

		2018
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets held	W	9,547,739	6,700,714	4,309,433	20,557,886
ABS and ABCP commitments		1,385,727	57,300	12,588	1,455,615
Loan commitments		431,537	547,825	-	979,362
Guarantees		50,000	15,200	-	65,200
Others		37,400	58,961	-	96,361
	W	11,452,403	7,380,000	4,322,021	23,154,424

		2017
		Assets-backed securitization	Structured financing	Investment fund	Total
Assets held	W	9,006,548	6,592,859	3,969,056	19,568,463
ABS and ABCP commitments		1,391,035	57,300	452,311	1,900,646
Loan commitments		529,566	719,650	31,987	1,281,203
Guarantees		74,300	15,200	-	89,500
Others		4,200	45,634	-	49,834
	W	11,005,649	7,430,643	4,453,354	22,889,646

121

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

40. Measurement period adjustments for business combination

(a) Overview

The Group has acquired ANZ Retail Business in Vietnam on December 17, 2017, which was a local entity operating banking business in Vietnam, to strengthen business competitiveness and synergies through the acquisition of related businesses. The Group could not complete the initial accounting for the business acquisition until the end of the reporting period in which the acquisition incurred, since the valuation data of the acquired business has not been obtained, and the goodwill value was disclosed at a provisional amount. The Group has finished the business acquisition accounting in this period, reflecting the valuation result on the acquired net assets, and retrospectively adjusted the provisional value of net assets recognized at the acquisition date.

(b) Retroactive adjustment of fair value of assets and liabilities

The retroactive adjustment of fair value of assets acquired and liabilities assumed by acquisition of ANZ as of acquisition date is as follows:

		Amount	Adjustments	Adjusted Amount
Assets:
Cash and due from banks	W	8,151	-	8,151
Loans(*1)		301,766	(1,352)	300,414
Property and equipment		538	-	538
Intangible assets(*2)		-	15,256	15,256
Other assets		9,269	-	9,269
		319,724	13,904	333,628
Liabilities:
Deposits		(436,285)	-	(436,285)
Other liabilities		(1,022)	-	(1,022)
		(437,307)	-	(437,307)
The fair value of the identifiable assets acquired and liabilities assumed	W	(117,583)	13,904	(103,679)

(*1) Adjustments are mainly due to the loan loss estimation.

(*2) The intangible assets mainly comprise the present value of the saved borrowing costs due to the deposits amounting to W4,454 million and the future economic benefits generated due to the relationship with the customers amounting to W10,802 million.

122

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

40. Measurement period adjustments for business combination (continued)

(c) Adjustments of goodwill

The retrospective adjustments of goodwill due to the measurement period adjustment for business combination are as follows:

		Amount	Adjustments	Adjusted Amount
Consideration received (cash)	W	75,480	-	75,480
Fair value of identifiable net assets		(117,583)	13,904	(103,679)
Goodwill	W	42,103	(13,904)	28,199

(d) Adjustments of the prior year end balances.

		Amount	Adjustments	Adjusted Amount
Intangible assets	W	4,271,969	1,352	4,273,321
Deferred tax liabilities		9,712	270	9,982
Retained earnings	W	20,790,599	1,082	20,791,681

123

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies

As described in Note 3, the Group has changed its accounting policies as applying K-IFRS No. 1109, Financial Instruments, and K-IFRS No. 1115, Revenue from Contracts with Customers. With respect to classification, measurement and impairment of financial instruments, the financial statements as of and for the year ended December 31, 2017 have not been restated in accordance with the clause waiving the requirement to restate comparative financial statements.

K-IFRS No. 1109 replaces K-IFRS No. 1039, Financial Instruments: Recognition and Measurement, relating to recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. Additionally, K-IFRS No. 1109 have made amendments to other standards relating to financial instruments such as K-IFRS No. 1107, Financial Instruments: Disclosures.

(i) Changes in equity due to application of K-IFRS No.1109 and 1115

Changes in equity as of January 1, 2018 due to the initial application date of K-IFRS No. 1109 and 1115 are as follows:

		Amounts
Retained earnings at January 1, 2018 before changes	W	20,791,681
Adjustments of retained earnings due to the application of K-IFRS No. 1109 :
Reclassification from financial assets at amortized cost to financial assets measured at fair value through profit or loss		(74,061)
Reclassification from available-for-sale financial assets to financial assets measured at fair value through profit or loss		178,518
Reclassification from available-for-sale financial assets to financial assets measured at fair value through other comprehensive income(*1)		204,457
Increase in loss allowance for financial assets measured at amortized cost		(573,088)
Increase in loss allowance forloan commitments and financial guarantee contracts		(55,274)
Increase in loss allowance fordebt instruments measured at fair value through other comprehensive income		(18,976)
Effect of overlay approach application		34,102
Others(*2)		(40,063)
		(344,385)
Adjustments of retained earnings due to the application of K-IFRS No. 1115(*3)		(2,896)
Tax effects(*4)		95,426
Retained earnings at January 1, 2018 after changes	W	20,539,826

(*1)	With the application of K-IFRS No. 1109, the effect of retained earnings of the recognized impairment from equity securities has reclassified to other comprehensive income.
(*2)	Include translation of foreign currencies, etc.
(*3)	The Group has divided the trust fees into trust sales fees and trust managing fees and recognition of trust managing fees are deferred.
(*4)	Tax effects due to the application of K-IFRS No. 1109 are separately shown.

124

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(i) Changes in equity due to application of K-IFRS No. 1109 and 1115 (continued)

		Amounts
Accumulated other comprehensive income at January 1, 2018 before changes	W	(529,734)
Adjustments of accumulated other comprehensive income due to the application of K-IFRS No. 1109:
Reclassification from available-for-sale financial assets to financial assets measured at fair value through profit or loss		(178,518)
Reclassification from available-for-sale financial assets to financial assets measured at fair value through other comprehensive income(*1)		(204,457)
Increase in loss allowance fordebt instruments measured at fair value through other comprehensive income		18,976
Effect of overlay approach application		(34,102)
Others(*2)		11,039
		(387,062)
Tax effects(*3)		110,051
Accumulated other comprehensive income at January 1, 2018 after changes	W	(806,745)

(*1) The effect on retained earnings arising from the recognition of impairment losses related to equity securities in the prior periods was transferred to other comprehensive income upon the application of K-IFRS 1109.

(*2) Other adjustments include foreign currency translation and changes in non-controlling interests, resulting from the adoption of K-IFRS No. 1109.

(*3) Tax effects due to the application of K-IFRS No. 1109 are separately shown.

125

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(ii) Reclassification of financial instruments upon adoption of K-IFRS No. 1109

Details of reclassification of financial instruments as of January 1, 2018, the initial application date of K-IFRS No. 1109, are as follows:

K-IFRS No. 1039		K-IFRS No. 1109		Carrying value under K-IFRS No. 1039(*1)	Carrying value under K-IFRS No. 1109(*1)	Difference
Financial assets:
Due from banks	Loans and receivables	Financial assets measured at FVTPL	W	902,124	833,942	(68,182)
	Loans and receivables	Amortized cost		19,988,001	19,988,001	-
Loan receivables	Loans and receivables	Financial assets measured at FVTPL		750,342	778,985	28,643
	Loans and receivables	Amortized cost		277,126,029	277,126,029	-
Other financial assets	Loans and receivables	Amortized cost		12,090,983	12,090,983	-
Trading assets (debt securities)	Financial assets at FVTPL	Financial assets measured at FVTPL		23,640,646	23,640,646	-
Trading assets (equity securities)	Financial assets at FVTPL	Financial assets measured at FVTPL		4,634,353	4,634,353	-
Trading assets (deposit in gold and silver)	Financial assets at FVTPL	Financial assets measured at FVTPL		189,297	189,297	-
Financial assets designated as at FVTPL (debt securities)	Financial assets at FVTPL	Financial assets measured at FVTPL		2,030,522	2,030,522	-
	Financial assets at FVTPL	Financial assets designated as at FVTPL		80,288	80,288	-
Financial assets designated as at FVTPL (equity securities)	Financial assets at FVTPL	Financial assets measured at FVTPL		1,162,553	1,162,553	-
	Financial assets at FVTPL	Financial assets designated as at FVTPL		71,803	71,803	-
Financial assets designated as at FVTPL (other securities - compound financial instruments)	Financial assets at FVTPL	Financial assets measured at FVTPL		233,892	233,892	-
Derivatives	Financial assets at FVTPL	Financial assets measured at FVTPL		3,400,178	3,348,803	(51,375)
AFS financial assets (debt securities)	AFS financial assets	Financial assets measured at FVTPL		528,745	533,452	4,707
	AFS financial assets	Financial assets measured at FVOCI		36,657,807	36,657,807	-
AFS financial assets (equity securities)	AFS financial assets	Financial assets measured at FVTPL		4,339,979	4,350,969	10,990
	AFS financial assets	Financial assets measured at FVOCI		590,405	590,405	-
HTM financial assets (debt securities)	HTM financial assets	Financial assets measured at FVTPL		565,813	529,906	(35,907)
	HTM financial assets	Amortized cost		24,424,867	24,424,867	-
			W	413,408,627	413,297,503	(111,124)

126

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(ii) Reclassification of financial instruments upon adoption of K-IFRS No. 1109 (continued)

K-IFRS No. 1039		K-IFRS No. 1109		Carrying value under K-IFRS No. 1039(*1)	Carrying value under K-IFRS No. 1109(*1)	Difference
Financial Liabilities:
Deposits	Financial liability measured at amortized cost	Financial liabilities measured at amortized cost	W	249,419,224	249,419,224	-
Trading liabilities	Financial liabilities at FVTPL	Financial liabilities measured at FVTPL		1,848,490	1,848,490	-
Financial liabilities designated as at FVTPL	Financial liabilities at FVTPL	Financial liabilities designated as at FVTPL		8,260,636	8,260,636	-
	Financial liabilities at FVTPL	Financial liabilities measured at FVTPL		36,973	36,973	-
Derivatives	Financial liabilities at FVTPL	Financial liabilities measured at FVTPL		3,487,661	3,483,642	(4,019)
Borrowings	Financial liabilities measured at amortized cost	Financial liabilities measured at amortized cost		27,586,610	27,586,313	(297)
Debt securities issued	Financial liabilities measured at amortized cost	Financial liabilities measured at amortized cost		51,340,821	51,340,821	-
Others	Financial liabilities measured at amortized cost	Financial liabilities measured at amortized cost		20,124,451	20,124,432	(19)
			W	362,104,866	362,100,531	(4,335)

(*1) Gross carrying amounts that are before netting allowance for loan losses or credit loss allowance.

(*)  FVTPL : fair value through profit or loss

FVOCI : fair value through other comprehensive income

AFS : available-for-sale

HTM : held-to-maturity

127

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(iii) Impairment of financial assets upon adoption of K-IFRS No. 1109

Changes of credit loss allowance as of January 1, 2018, the initial application date of K-IFRS No. 1109, are as follows:

Classification based on K-IFRS No. 1039	Classification based on K-IFRS No. 1109		Loss allowance based on K-IFRS No. 1039	Loss allowance based on K-IFRS No. 1109
Loans and receivables
Due from banks	Financial assets at amortized cost	W	14,054	15,062
Loan receivables	Financial assets at amortized cost		2,307,275	2,871,986
	Financial assets measured at FVTPL		3,329	-
Other financial assets	Financial assets at amortized cost		49,679	51,818
AFS financial assets
debt securities	Financial assets measured at FVOCI		-	18,976
HTM financial assets
debt securities	Financial assets at amortized cost		-	8,559
			2,374,337	2,966,401
Financial guarantee	Financial guarantee		36,506	37,289
Unused credit line and other credit commitment	Unused credit line and other credit commitment		168,006	222,498
		W	204,512	259,787

128

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(iv) The reclassification applying business model

For the financial assets as of January 1, 2018, the date of the initial application of K-IFRS No. 1109, the management of the Group has assessed business model of those, and classified those applying the K-IFRS.  

The effect of reclassification is as follows:1)Gross carrying amounts

		Carrying value based on the current standard	Amount reclassified	Amount remeasured	Carrying value based on the new standard	Changes in retained earnings (*3)	Changes in other comprehensive income(*3)
Financial assets :
Due from banks
Carrying value under K-IFRS 1039 as of January 1, 2018	W	20,890,125	-	-	20,890,125	-	-
Reclassification to financial assets measured at FVTPL		-	(902,124)	-	(902,124)	-	-
		20,890,125	(902,124)	-	19,988,001	-	-
Loans
Carrying value under K-IFRS 1039 as of January 1, 2018		277,876,371	-	-	277,876,371	-	-
Reclassification to financial assets measured at FVTPL		-	(750,342)	-	(750,342)	-	-
		277,876,371	(750,342)	-	277,126,029	-	-
Other financial assets
Carrying value under K-IFRS 1039 as of January 1, 2018		12,090,983	-	-	12,090,983	-	-
Trading (debt instruments)(*1)
Carrying value under K-IFRS 1039 as of January 1, 2018		23,640,646	-	-	23,640,646	-	-
Reclassification to financial assets measured at FVTPL		-	(23,640,646)	-	(23,640,646)	-	-
		23,640,646	(23,640,646)	-	-	-	-
Trading (equity instruments)
Carrying value under K-IFRS 1039 as of January 1, 2018		4,634,353	-	-	4,634,353	-	-
Reclassification to financial assets measured at FVTPL		-	(4,634,353)	-	(4,634,353)	-	-
		4,634,353	(4,634,353)	-	-	-	-
Trading (gold deposit)(*1)
Carrying value under K-IFRS 1039 as of January 1, 2018		189,297	-	-	189,297	-	-
Reclassification to financial assets measured at FVTPL		-	(189,297)	-	(189,297)	-	-
		189,297	(189,297)	-	-	-	-
Derivatives(*1)
Carrying value under K-IFRS 1039 as of January 1, 2018		3,400,178	-	-	3,400,178	-	-
Reclassification to financial assets measured at FVTPL		-	(51,375)	-	(51,375)	-	-
		3,400,178	(51,375)	-	3,348,803	-	-
Financial assets designated at FVTPL(*1)
Carrying value under K-IFRS 1039 as of January 1, 2018		3,579,057	-	-	3,579,057	-	-
Reclassification to financial assets measured at FVTPL		-	(3,426,966)	-	(3,426,966)	-	-
Reclassification to financial assets designated at FVTPL		-	(152,091)	-	(152,091)	-	-
		3,579,057	(3,579,057)	-	-	-	-

129

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(iv) The reclassification applying business model (continued)

		Carrying value based on the current standard	Amount reclassified	Amount remeasured	Carrying value based on the new standard	Changes in retained earnings (*3)	Changes in other comprehensive income(*3)
AFS (debt instruments)
Carrying value under K-IFRS 1039 as of January 1, 2018	W	37,186,552	-	-	37,186,552	-	-
Reclassification to financial assets measured at FVTPL		-	(528,745)	-	(528,745)	-	-
Reclassification to financial assets measured at FVOCI		-	(36,657,807)	-	(36,657,807)	-	-
		37,186,552	(37,186,552)	-	-	-	-
AFS (equity instruments)
Carrying value under K-IFRS 1039 as of January 1, 2018		4,930,385	-	-	4,930,385	-	-
Reclassification to financial assets measured at FVTPL		-	(4,339,979)	-	(4,339,979)	-	-
Reclassification to financial assets measured at FVOCI		-	(590,405)	-	(590,405)	-	-
		4,930,385	(4,930,385)	-	-	-	-
HTM
Carrying value under K-IFRS 1039 as of January 1, 2018		24,990,680	-	-	24,990,680	-	-
Reclassification to financial assets measured at FVTPL		-	(565,813)	-	(565,813)	-	-
Reclassification to financial assets measured at amortized cost		-	(24,424,867)	-	(24,424,867)	-	-
		24,990,680	(24,990,680)	-	-	-	-
Financial assets as measured at FVTPL
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from due from banks		-	902,124	(68,182)	833,942	-	(68,182)
Transfer from loans and other receivables		-	750,342	30,027	780,369	30,027	-
Transfer from trading		-	28,464,296	-	28,464,296	-	-
Transfer from assets designated at FVTPL		-	3,426,967	-	3,426,967	-	-
Transfer from AFS		-	4,868,724	7,708	4,876,432	180,532	(180,532)
Transfer from HTM		-	565,813	(35,907)	529,906	-	(35,907)
Transfer from derivative assets		-	51,375	(42,195)	9,180	-	-
		-	-	(2,575)	(2,575)	-	-
		-	39,029,641	(111,124)	38,918,517	138,559	(212,620)
Financial assets designated at FVTPL(K-IFRS 1109)
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from financial assets designated at FVTPL(K-IFRS 1039)		-	152,091	-	152,091	-	-
		-	152,091	-	152,091	-	-
Financial assets measured at FVOCI(*2)
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from AFS		-	37,248,212	-	37,248,212	204,457	(204,457)
		-	37,248,212	-	37,248,212	204,457	(204,457)
Financial assets measured at amortized cost(*2)
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from HTM		-	24,424,867	-	24,424,867	-	-
		-	24,424,867	-	24,424,867	-	-
	W	413,408,627	-	(111,124)	413,297,503	343,016	(417,077)

130

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(iv) The reclassification applying business model (continued)

		Carrying value based on the current standard	Amount reclassified	Amount remeasured	Carrying value based on the new standard	Changes in retained earnings	Changes in other comprehensive income
Deposits
Carrying value under K-IFRS 1039 as of January 1, 2018	W	249,419,224	-	-	249,419,224	-	-
		249,419,224	-	-	249,419,224	-	-
Trading liabilities(*1)
Carrying value under K-IFRS 1039 as of January 1, 2018		1,848,490	-	-	1,848,490	-	-
Reclassification to financial liabilities measured at FVPL		-	(1,848,490)	-	(1,848,490)	-	-
		1,848,490	(1,848,490)	-	-	-	-
Financial liabilities designated at FVPL
Carrying value under K-IFRS 1039 as of January 1, 2018		8,297,609	-	-	8,297,609	-	-
Reclassification to financial liabilities designated at FVPL		-	(8,260,636)	-	(8,260,636)	-	-
Reclassification to financial liabilities measured at FVPL		-	(36,973)	-	(36,973)	-	-
		8,297,609	(8,297,609)	-	-	-	-
Financial liabilities measured at FVPL
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from trading liabilities		-	1,848,490	-	1,848,490	-	-
Transfer from financial liabilities designated at FVPL		-	36,973	-	36,973	-	-
		-	1,885,463	-	1,885,463	-	-
Financial liabilities designated at FVPL
Carrying value under K-IFRS 1039 as of January 1, 2018		-	-	-	-	-	-
Transfer from financial liabilities designated at FVPL		-	8,260,636	-	8,260,636	-	-
		-	8,260,636	-	8,260,636	-	-
Derivative liabilities
Carrying value under K-IFRS 1039 as of January 1, 2018		3,487,661	-	-	3,487,661	-	-
Other		-	-	(4,019)	(4,019)	-	-
		3,487,661	-	(4,019)	3,483,642	-	-
Borrowings
Carrying value under K-IFRS 1039 as of January 1, 2018		27,586,610	-	-	27,586,610	-	-
Other		-	-	(297)	(297)	-	-
		27,586,610	-	(297)	27,586,313	-	-
Debt securities issued
Carrying value under K-IFRS 1039 as of January 1, 2018		51,340,821	-	-	51,340,821	-	-
Other financial liabilities
Carrying value under K-IFRS 1039 as of January 1, 2018		20,124,451	-	-	20,124,451	-	-
Other		-	-	(19)	(19)	-	-
		20,124,451	-	(19)	20,124,432	-	-
	W	362,104,866	-	(4,335)	362,100,531	-	-

131

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

41. Transition effects arising from changes in accounting policies (continued)

(iv) The reclassification applying business model (continued)

(*1) With respect to financial assets and financial liabilities reclassified from the category of fair value through profit or loss, effective interest rates calculated on the initial application date of K-IFRS No. 1109 and interest income or expense recognized shall be disclosed. Such reclassification has not occurred as a result of the K-IFRS No. 1109 adoption.

(*2) With respect to financial assets and financial liabilities reclassified to financial instruments measured at amortized cost, and financial assets measured at fair value through profit or loss reclassified to the category of fair value through other comprehensive income, the gain or loss on fair value measurement that would otherwise have been recognized in profit or loss or other comprehensive income in the reporting period, and the fair value of the financial assets or financial liabilities, shall be disclosed. Such reclassification has not occurred as a result of the K-IFRS No. 1109 adoption.

132

SHINHAN FINANCIAL GROUP CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

March 31, 2018

(Unaudited)

(In millions of won)

41. Transition effects arising from changes in accounting policies (continued)

(iv) The reclassification applying business model (continued)

2)Credit loss allowance

		Carrying value based on the current standard	Amount reclassified	Amount remeasured	Carrying value based on the new standard	Changes in retained earnings (*3)	Changes in other comprehensive income(*3)
Credit loss allowance for
Due from banks	W	14,054	-	1,008	15,062	(1,008)	-
Loans		2,310,604	(3,328)	564,710	2,871,986	(561,382)	-
Financial asset measured at FVOCI (Debt instruments)		-	-	18,976	18,976	(18,976)	18,976
Financial asset measured at amortized cost (Debt instruments)		-	-	8,559	8,559	(8,559)	-
Other assets		49,679	-	2,139	51,818	(2,139)	-
Financial guarantee		36,506	-	783	37,289	(783)	-
Unused credit line and other credit commitment		168,006	-	54,492	222,498	(54,492)	-
	W	2,578,849	(3,328)	650,667	3,226,188	(647,339)	18,976

(v) Hedge accounting

K-IFRS No. 1109 maintains the mechanics of hedge accounting (i.e. fair value hedge, cash flow hedge, hedge of a net investment in a foreign operation) as defined in K-IFRS 1039, whereas a principle-based hedge accounting requirements that focuses on an entity’s risk replaced complex and rule-based hedge accounting requirements in K-IFRS No. 1039.  Additionally, qualifying hedged items and qualifying hedging instruments have been expanded and hedge accounting requirements have been eased by eliminating a subsequent hedge effectiveness assessment and a quantitative test (80~125%). Hedge accounting can be applied to certain transactions that fail to qualify for hedge accounting requirements under K-IFRS No. 1039 when applying K-IFRS No. 1109, and thus alleviates profit or loss volatility.

The Group plans to apply the requirements for hedge accounting under K-IFRS No. 1109 if the new standard is applied, and apply the hedge accounting as much as possible to the risk management activities that meet the requirements for hedge accounting.

133