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 March 2019

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  .

Submission of Audit Report (Shinhan Card)

On March 11, 2019, Shinhan Card, our wholly-owned credit card subsidiary, filed its audit report with the Financial Supervisory Service and the Korea Exchange of the Republic of Korea pursuant to the Act of External Audit of Stock Companies and KOSPI Market Disclosure Regulation.

Please refer to Exhibit 99.1 and 99.2 for Independent Audit Reports with separate and consolidated financial statements.

EXHIBIT INDEX

Exhibit No.	Description
99.1	Independent Auditor’s Report (Separate Financial Statements) of Shinhan Card as of December 31, 2018
99.2	Independent Auditor’s Report (Consolidated Financial Statements) of Shinhan Card as of December 31, 2018

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.

By: /s/ Yu Sung-hun

Name: Yu Sung-hun

Title: Chief Financial Officer

Date: March 11, 2019

EX-99.1

Exhibit 99.1

SHINHAN CARD CO., LTD.

Separate Financial Statements

December 31, 2018 and 2017

(With Independent Auditors’ Report Thereon)

Contents

	Page
Independent Auditors’ Report	1
Separate Statements of Financial Position	3
Separate Statements of Comprehensive Income	4
Separate Statements of Changes in Equity	5
Separate Statements of Cash Flows	6
Notes to the Separate Financial Statements	8
Independent Accountants’ Review Report on Internal Accounting Control System	117
Report on the Operations of Internal Accounting Control System	118

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Stockholder

Shinhan Card Co., Ltd.:

Opinion

We have audited the separate financial statements of Shinhan Card Co., Ltd. (“the Company”), which comprise the separate statements of financial positionas of December 31, 2018 and 2017, the separate statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising significant accounting policies.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2018 and 2017, and its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (KSAs).  Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matter

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

Responsibilities of Management and Those Charged with Governance for the SeparateFinancial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

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

Auditors’ Responsibilities for the Audit of the Separate Financial Statements

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

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

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

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

• Evaluate the appropriateness of accounting policies used in the preparation of the separate financial statements and the reasonableness of accounting estimates and related disclosures made by management.

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

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

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

Seoul, Korea

March 11, 2019

This report is effective as of March 11, 2019, the audit report date.  Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

2

SHINHAN CARD CO., LTD.

Separate Statements of Financial Position

As of December 31, 2018 and 2017

(In millions of won, except share data)	Note		2018	2017
Assets
Cash and due from banks	9,41	W	341,217	291,547
Trading financial assets	10		-	803,252
Financial assets at fair value through profit or loss	11		953,943	-
Derivative assets	12		310	3,680
Loans and receivables, net	13		-	23,838,893
Credit card assets at amortized cost, etc.	13		26,213,517	-
Lease assets	14		365,581	103,620
Available-for-sale financial assets	15		-	34,585
Financial assets at fair value through other comprehensive income	16		34,519	-
Property and equipment, net	17		87,649	80,944
Intangible assets	18		44,967	39,519
Investments in associates	19		34,060	34,713
Deferred tax assets	40		218,911	208,219
Other assets	20		1,055,391	858,233
Total assets		W	29,350,065	26,297,205
Liabilities
Derivative liabilities	12	W	23,293	7,960
Borrowings	21		4,910,631	4,115,795
Debentures, net	22		14,143,288	11,846,926
Liability for defined benefit obligations	23		17,935	2,357
Current tax liabilities	40		89,623	123,722
Provisions	24		182,477	137,349
Other liabilities	25		3,944,127	3,760,051
Total liabilities			23,311,374	19,994,160
Equity
Common stock of W5,000 par value	27		626,847	626,847
Authorized - 2,000,000,000 shares Issued and outstanding -125,369,403 shares in 2018 and 2017
Capital surplus	27		860,592	860,592
Capital adjustments	27		1,234	10
Accumulated other comprehensive income (loss)	27		(29,378)	(4,337)
Retained earnings	27,28		4,579,396	4,819,933
Total equity			6,038,691	6,303,045
Total liabilities and equity		W	29,350,065	26,297,205

See accompanying notes to the separate financial statements.

3

SHINHAN CARD CO., LTD.

Separate Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(In millions of won,except earnings per share)	Note		2018	2017
Interest income		W	1,987,231	1,858,123
Financial assets at amortized cost			1,987,231	-
Loans and receivables			-	1,858,123
Interest expense			(421,943)	(370,842)
Net interest income	32		1,565,288	1,487,281
Fee and commission income			1,484,645	2,433,487
Fee and commission income before K-IFRS No.1115			2,620,085
Consideration paid to customers			(1,135,440)
Fee and commission expense			(1,252,098)	(2,264,217)
Fee and commission expense before K-IFRS No.1115			(2,387,538)
Consideration paid to customers			1,135,440
Net fee and commission income	33		232,547	169,270
Dividend income	34		1,393	12,400
Net income on trading financial assets	10		-	11,167
Net income on financial assets at fair value through profit or loss	11		55,567	-
Net income (loss) on derivatives	12		4,670	(13,846)
Net income on foreign currency transactions	7		31,050	47,865
Net gain on sales of available-for-sale financial assets	15		-	250,572
Net impairment loss on financial assets	35		-	(276,857)
Provision for credit loss allowance	13,36		(469,362)	-
General administrative expenses	37		(692,153)	(778,622)
Other operating income (loss), net	38		(515)	278,320
Operating income			728,485	1,187,550
Non-operating expense, net	39		(25,252)	(14,960)
Impairment loss on investments in associates			(4,593)	(2,503)
Profit before income tax			698,640	1,170,087
Income tax expense	40		(183,227)	(244,112)
Profit for the year		W	515,413	925,975
Other comprehensive income (loss) :
Items that will never be reclassified to profit or loss
Remeasurement of the net defined benefit obligations	23,27	W	(10,481)	21,872
Net changes in the unrealized fair value of financial assets at fair value through other comprehensive income	7,27		2,385	-
Items that are or may be reclassified subsequently to profit or loss
Net changes in the unrealized fair value of available-for-sale financial assets	7,27		-	(150,392)
Net changes in the unrealized fair value of cash flow hedges	12,27		(16,945)	6,124
Total comprehensive income for the year		W	490,372	803,579
Earnings per share Basic and diluted earnings per share (in won)	30	W	4,111	7,386

See accompanying notes to the separate financial statements.

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SHINHAN CARD CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

		2017
(In millions of won)		Common stock	Capital surplus	Capital adjustments	Accumulated other comprehensive income (loss)	Retained earnings	Total equity
Balance at January 1, 2017	W	626,847	860,592	(370)	118,059	4,294,012	5,899,140
Dividends		-	-	-	-	(400,054)	(400,054)
Share-based payment transactions		-	-	380	-	-	380
Retained earnings after appropriation:
Profit for the year		-	-	-	-	925,975	925,975
Remeasurements of the net defined benefit obligations		-	-	-	21,872	-	21,872
Net changes in the unrealized fair value of available-for-sale financial assets		-	-	-	(150,392)	-	(150,392)
Net changes in the unrealized fair value of cash flow hedges		-	-	-	6,124	-	6,124
Balance at December 31, 2017	W	626,847	860,592	10	(4,337)	4,819,933	6,303,045

		2018
(In millions of won)		Common stock	Capital surplus	Capital adjustments	Accumulated other comprehensive income (loss)	Retained earnings	Total equity
Balance at January 1, 2018	W	626,847	860,592	10	(4,337)	4,819,933	6,303,045
Effect of changes in accounting policies						(155,932)	(155,932)
Dividends		-	-	-	-	(600,018)	(600,018)
Share-based payment transactions		-	-	1,224	-	-	1,224
Retained earnings after appropriation:
Profit for the year		-	-	-	-	515,413	515,413
Remeasurements of the net defined benefit obligations		-	-	-	(10,481)	-	(10,481)

See accompanying notes to the separate financial statements.

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SHINHAN CARD CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

Net changes in the unrealized fair value of financial assets at fair value through other comprehensive income		-	-	-	2,385	-	2,385
Net changes in the unrealized fair value of cash flow hedges		-	-	-	(16,945)	-	(16,945)
Balance at December 31, 2018	W	626,847	860,592	1,234	(29,378)	4,579,396	6,038,691

See accompanying notes to the separate financial statements.

6

SHINHAN CARD CO., LTD.

Separate Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(In millions of won)		2018	2017
Cash flows from operating activities
Profit before income tax	W	698,640	1,170,087
Adjustments for:
Interest income		(1,987,231)	(1,858,123)
Interest expense		421,943	370,842
Dividend income		(1,393)	(12,400)
Fee and commission income before K-IFRS No.1115		-	(323,919)
Consideration paid to customers		176,178	-
Fee and commission expense		745	169,632
Net gain on valuation of trading financial assets		-	(252)
Net gain on sales of financial assets at fair value through profit or loss		(6,413)	-
Net loss on valuation of financial assets at fair value through profit or loss		223	-
Net loss (gain) on valuation and transaction of derivatives		(4,670)	13,846
Net loss (gain) on foreign currency transaction		4,670	(7,784)
Net gain on sales of available-for-sale financial assets		-	(250,572)
Bad debt expenses		-	280,648
Reversal of allowance for unused loan commitments		-	(281,512)
Provision for credit loss allowance		469,362	-
Net impairment loss (gain) on financial assets		-	(3,791)
General administrative expenses		48,525	53,915
Other operating expenses, net		51,249	34,216
Non-operating expenses, net		795	164
Impairment loss on investments in Associates		4,593	2,503
		(821,424)	(1,812,587)
Changes in assets and liabilities:
Trading financial assets		-	(212,899)
Financial assets at fair value through profit or loss		(146,748)	-
Loans and receivables, net		-	(2,054,975)
Credit card assets at amortized cost, etc.		(2,945,647)
Lease assets		(313,210)	(109,288)
Other assets		(185,649)	(136,564)
Liability for defined benefit obligations		(15,171)	(25,595)
Provisions		(3,126)	(51,272)
Other liabilities		93,155	480,798
		(3,516,396)	(2,109,795)
Income taxes paid		(159,625)	(221,157)
Interest received		1,832,758	1,719,686
Interest paid		(420,582)	(365,761)
Dividend received		1,393	12,400
Net cash used in operating activities	W	(2,385,236)	(1,607,127)

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SHINHAN CARD CO., LTD.

Separate Statements of Cash Flows (continued)

For the years ended December 31, 2018 and 2017

(In millions of won)	Note		2018		2017
Cash flows from investing activities
Decrease in restricted due from banks		W	340	-
Proceeds from disposal of financial assets at fair value through profit and loss			6,413	-
Acquisition of financial assets at fair value through profit and loss			(710)	-
Proceeds from disposal of available-for-sale financial assets			-	266,483
Acquisition of available-for-sale financial assets			-	(2,000)
Proceeds from disposal of financial assets at fair value through other comprehensive income			200	-
Acquisition of financial assets at fair value through other comprehensive income			(300)	-
Acquisition of investments in associates			(3,940)	(7,713)
Proceeds from disposal of property and equipment			345	89
Acquisition of property and equipment			(21,404)	(23,626)
Proceeds from disposal of intangible assets			93	914
Acquisition of intangible assets			(20,670)	(13,695)
Decrease in guarantee deposits			48,941	51,099
Increase in guarantee deposits			(53,162)	(60,718)
Net cash provided by (used in) investing activities			(43,854)	210,833
Cash flows from financing activities
Proceeds from borrowings			2,608,414		2,408,400
Repayment of borrowings			(1,817,949)		(1,378,766)
Proceeds from debentures			4,955,308		3,491,624
Repayment of debentures			(2,666,655)		(2,696,313)
Cash outflows from cash flow hedges			-		(3,376)
Dividends paid			(600,018)		(400,054)
Net cash provided by financing activities			2,479,100		1,421,515
Net increase in cash and cash equivalents			50,010		25,221
Cash and cash equivalents at the beginning of year			291,126		265,905
Cash and cash equivalents at the end of year	41	W	341,136		291,126

See accompanying notes to the separate financial statements.

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SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

1. Reporting Entity

Shinhan Card Co., Ltd. (the “Company”) was incorporated on December 17, 1985.  The address of the Company’s registered office is Eulji-Ro 100, Building A, Jung-Gu, Seoul (Pine Avenue Eulji-Ro 2Ga).  The Company provides credit card services, factoring, installment financing and lease financing under the Specialized Credit Financial Business Act.

As of December 31, 2018 the Company has approximately 12.50 million personal credit card holders (21.16 million including check card holders), 1.82 million merchants in its network and 24 branch offices (including head office).  The Company is a wholly owned subsidiary of Shinhan Financial Group Co., Ltd. (“Shinhan Financial Group”).

2.Basis of Preparation

The separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed the Act on External Audits of Stock Companies, Etc. in the Republic of Korea.

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027 Separate Financial Statements presented by a parent, an investor in an associate or a venture in a jointly controlled entity, in which the investments 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.

The separate financial statements were authorized for issue by the Board of Directors on February 12, 2019, which will be submitted for approval to the shareholder’s meeting to be held on March 26, 2019.

The separate financial statements have been prepared by initially applying K-IFRS No.1115 Revenue from contracts with customers and K-IFRS No.1109 Financial instruments. This change is explained in note 2. (d).

(a) Basis of measurement

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

● derivative financial instruments are measured at fair value;

● financial instruments at fair value through profit or loss are measured at fair value;

● financial instruments at fair value through other comprehensive income are measured at fair value;

● liabilities for share-based payment arrangements are measured at fair value; and

● liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(b) Functional and presentation currency

These separate financial statements are presented in Korean won, which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.

(c) Use of estimates and judgements

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

Estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

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SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

2.Basis of Preparation, continued

(c) Use of estimates and judgements, continued

Information about critical judgements in applying accounting policies that have a significant effect on the amounts recognized in the separate financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are described in note 5.

(d)Changes in Accounting Policies

The Company has initially adopted K-IFRS No.1115 Revenue from Contracts with Customers and K-IFRS No.1109 Financial Instruments from January 1, 2018. Other new standards applied from January 1, 2018 do not significantly affect on the Company’s financial statements.

(i) K-IFRS No.1115 Revenue from Contracts with Customers

K-IFRS No.1115 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS No.1018 Revenue, K-IFRS No.1011 Construction Contracts, K-IFRS No.2031 Revenue- Barter transactions involving advertising services, K-IFRS No.2113 Customer Loyalty Programs, K-IFRS No.2115 Agreements for the construction of real estate, K-IFRS No.2118 Transfers of assets from customers.

Under K-IFRS 1115, revenue is recognized when a customer controls goods or services. Control is transferred over a point or period and judgment is required.

The Company has recognized the cumulative effect of applying the initially adoption of K-IFRS No.1115 as of the initially application date, January 1, 2018, retroactively applying K-IFRS No.1115 without applying the practical expedients. Accordingly, the Company has not restated the information disclosed in 2017, which applies K-IFRS No.1011, K-IFRS No.1018 and related interpretations. In addition, the disclosure requirements of K-IFRS No.1115 have not generally been applied to comparative information.

The amount allocated to the credit card points from customer loyalty program was deferred and recognized as unearned revenue or recognized as a provision under onerous contract. However such amount is recognized as a consideration payable to a customer under K-IFRS No. 1115.  As the impact of transition to K-IFRS No.1115, the Company has reclassified provision for customer loyalty programmes amounting to W26,097 million, unearned revenue W196,677 million, and accounts payable W62,496 million as other liabilities (point liability) amounting to W285,270 million on January 1, 2018.

There is no effect of changes in retained earnings from the adoption of K-IFRS No.1115.

The effect of applying K-IFRS No.1115 in the separate statements of financial position and separate comprehensive income as of and for the year ended December 31, 2018 is as follows. The effect on the separate statements of cash flows for the year then ended of the Company is not significant.

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SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(i) K-IFRS No.1115 Revenue from Contracts with Customers, continued

The effect on the separate statement of financial position as of December 31, 2018 is as follows:

		Amount after K-IFRS No.1115	Adjustments	Amount before K-IFRS No.1115
Liabilities (*1)
Provision
Provision for customer loyalty programmes	W	-	24,682	24,682
Other liabilities
Account payable		2,500,282	41,758	2,542,040
Unearned revenue		105,386	209,133	314,519
Others		282,279	(275,573)	6,706

The effect on the separate statement of comprehensive income for the year ended December 31, 2018 is as follows:

		Amount after K-IFRS No.1115	Adjustments	Amount before K-IFRS No.1115
Net Fee and Commission Income (*1) (*2)
Fee and commission income
credit card assets	W	1,356,921	1,135,440	2,492,361
Fee and commission expense
credit card assets		(1,144,217)	(1,135,440)	(2,279,657)

(*1) Before adopting K-IFRS No. 1115, the Company defers and recognizes the amount allocated to the credit card points as unearned revenue and revenue is recognized only when the points are redeemed and the Company has fulfilled its obligation to provide the benefits. In addition, a provision for onerous contracts is recognized when the expected benefits to be derived by the Company from customer loyalty program are lower than the unavoidable cost of meeting its obligations under the programmes. However under K-IFRS No.1115, the amount allocated to the credit card points is regarded as consideration payable to the customers and recognized as a reduction of fee and commission income, estimated as fair value of the monetary benefits taking into account the expected redemption rate.

(*2) The Company has changed the recognition of card holder service fee paid to a customer recognized as fee and commission expense before adopting K-IFRS No.1115, to reduction of fee and commission income under K-IFRS No.1115.

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SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments

K-IFRS No.1109 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.  This standard replaces existing guidance in K-IFRS No.1039 Financial Instruments: Recognition and Measurement.

The following table summarizes the impact, net of tax, of transition to K-IFRS No.1109 on the opening balance of retained earnings as of January 1, 2018.

(In millions of won)		Amount
Retained earnings
Recognition of expected credit losses under K-IFRS No.1109	W	215,080
Related tax		(59,148)
Impact at January 1, 2018	W	155,932

The details of K-IFRS No.1109 and the nature and effect of the changes to previous accounting policies are set out below.

ⓐ Classification and measurement of financial assets and financial liabilities

K-IFRS No.1109 largely retains the existing requirements in K-IFRS No.1039 for the classification and measurement of financial liabilities.  However, it eliminates the previous K-IFRS No.1039 categories for financial assets of held to maturity, loans and receivables and available for sale.

The adoption of K-IFRS No.1109 has not had a significant effect on the Company’s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments, see (ⓒ) below).  The impact of K-IFRS No.1109 on the classification and measurement of financial assets is set out below.

On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or fair value through profit or loss (“FVTPL”).  The classification of financial assets under K-IFRS No.1109 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.  Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated.  Instead, the hybrid financial instrument as a whole is assessed for classification.

The effect of adopting K-IFRS No.1109 on the carrying amounts of financial assets at January 1, 2018 relates solely to the new impairment requirements, as described further below.

12

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓐ Classification and measurement of financial assets and financial liabilities, continued

The following table and the accompanying notes below explain the original measurement categories under K-IFRS No.1039 and the new measurement categories under K-IFRS No.1109 for each class of the Company’s financial assets as at January 1, 2018.

	Classification under K-IFRS No.1039	Classification under K-IFRS No.1109		Amounts under K-IFRS No.1039	Amounts under K-IFRS No.1109
Due from banks	Loans and receivables(*1)	Amortized cost	W	291,547	291,547
Loans	Loans and receivables(*1)	Amortized cost		24,464,512	24,464,512
Other financial assets	Loans and receivables(*1)	Amortized cost		682,691	682,691
Trading assets (beneficiary certificates)	Fair value through profit or loss	Financial assets at FVTPL		803,252	803,252
Available-for-sale financial assets (debt securities)	Available-for-sale financial assets(*2)	Financial assets at FVTPL		1,953	1,953
Available-for-sale financial assets (equity securities)	Available-for-sale financial assets(*3)	Financial assets at FVTPL		1,503	1,503
	Available-for-sale financial assets(*4)	Financial assets at FVOCI		31,129	31,129
			W	26,276,587	26,276,587

(*1)Loans and other receivables that were classified as loans and receivables under K-IFRS No.1039 are now classified at amortized cost.  An increase of W155,612 million in the loss allowance over these receivables was recognized in opening retained earnings at January 1, 2018 on transition to K-IFRS No.1109.

(*2) The corporate debt securities categorised as available-for-sale under K-IFRS No.1039 are held by the Company in a separate portfolio to provide interest income, but may be sold to meet liquidity requirements arising in the normal course of business.  The Company considers that these securities are held within a business model whose objective is not achieved both by collecting contractual cash flows and by selling securities.  These assets have therefore been classified as financial assets at FVTPL under K-IFRS No.1109.

(*3)Under K-IFRS No.1039 these equity securities were designated as at available-for-sale financial assets, but in principle, these equity securities have been classified as measured at FVTPL under K-IFRS No.1109.

(*4)These equity securities represent investments that the Company intends to hold for the long term for strategic purposes.  As permitted by K-IFRS No.1109, the Company has designated these investments at the date of initial application as measured at FVOCI.

13

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓑ Impairment of financial assets

K-IFRS No.1109 replaces the ‘incurred loss’ model in K-IFRS No.1039 with an expected credit loss (“ECL”) model.  The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.  Under K-IFRS No.1109, credit losses are recognized earlier than under K-IFRS No.1039.

The financial assets at amortized cost consist of credit card assets, cash and due from banks, accounts receivable and accrued income, etc..

Under K-IFRS No.1109, loss allowances are measured on either of the following bases:

- 12 month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and

- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

For assets in the scope of the K-IFRS No.1109 impairment model, impairment losses are generally expected to increase and become more volatile.  As a result of the application of K-IFRS No.1109’s impairment requirements at January 1, 2018, the Company incurred additional loss allowances as follows.

Classification Under K-IFRS No.1039	Classification under K-IFRS No.1109		Loss allowances under K-IFRS No.1039	Loss allowances under K-IFRS No.1109	Differences
Loans	Amortized cost	W	625,619	780,051	154,432
Other financial assets	Amortized cost		8,688	9,868	1,180
			634,307	789,919	155,612
Allowance for unused credit commitments	Allowance for unused credit commitments		72,793	132,261	59,468
		W	707,100	922,180	215,080

14

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓒ Hedge accounting

The Company has elected to adopt the new general hedge accounting model in K-IFRS No.1109.  This requires the Company to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.

The Company uses swap contracts to hedge the variability in cash flows arising from changes in interest rates and foreign exchange rates relating to borrowings and debentures.

The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity.

There was no effect of adjustments arising from application of K-IFRS No.1109 hedge accounting requirements on the amounts presented as of January 1, 2018.

ⓓ Transition

Changes in accounting policies resulting from the adoption of K-IFRS No.1109 have been applied retrospectively, except as described below.

The Company has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements.  Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of K-IFRS No.1109 are recognized in retained earnings and reserves as at January 1, 2018.  Accordingly, the information presented for 2017 does not generally reflect the requirements of K-IFRS No.1109 but rather those of K-IFRS No.1039.

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

- The determination of the business model within which a financial asset is held.

- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.

- The designation of certain investments in equity instruments not held for trading as at FVOCI.

All hedging relationships designated under K-IFRS No.1039 at December 31, 2017 met the criteria for hedge accounting under K-IFRS No.1109 at January 1, 2018 and are therefore regarded as continuing hedging relationships.

15

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate financial statements are included below.  The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements, except for those as disclosed in note 2.(4).

(a) Investments in associates and subsidiaries in the separate financial statements

These separate financial statements are prepared and presented in accordance with K-IFRS No.1027, Separate Financial Statements.  The Company applied the cost method to investments in associates and subsidiaries, at cost.

Dividend from investments in associates and subsidiaries is recognized when the right to receive the dividend is authorized.

(b) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.  Equity instruments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.

(c) Non-derivative financial assets

(i) Recognition and initial measurement

Issued debentures are initially recognized at the time of issue. Other financial instruments and financial liabilities are recognized only when the Company becomes a party to the contract for the financial instrument. At initial recognition, financial assets or financial liabilities are measured at fair value, and transaction costs directly related to the acquisition of the financial assets or the issue of the financial liabilities are added to fair value unless they are measured at fair value through profit or loss.

(ii) Classification and subsequent measurement

Financial asset - accounting policies adopted from January 1, 2018

On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or fair value through profit or loss (“FVTPL”). When, and only when, the Company changes its business model for managing financial assets, it shall reclassify all affected financial assets at the first day of the Company’s next reporting period.  

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

- It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

- It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

16

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(c) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income.  This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL.  This includes all derivative financial assets (refer to note 7).  On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model - accounting policies adopted from January 1, 2018

The Company assesses the objective of the business model held at the portfolio level of financial assets because it best reflects the way the business is managed and information is provided to management. Such information takes into account the following:

- The accounting policies and objectives specified for the portfolio and the actual operation of these policies. This includes management's strategy focused on obtaining contractual interest revenue, maintaining the level of interest revenue, and financing the debt financing and matching the duration of the financial asset's duration and on the outflow or realization of expected cash flows through the sale of the asset;

- Assessing the performance of financial assets held in a business model and reporting the assessment to key management personnel;

- The risks affecting the performance of the business model (and the financial assets held in the business model) and how they are managed;

- Compensation for management (e.g., compensation based on the fair value of the managed asset or on the contractual cash flows received);

- The frequency, amount, timing, reasons and expectations of future sales activities of financial assets in prior periods.

For this purpose, transfers of financial assets from transactions that do not meet the derecognition requirements to third parties are not considered sales.

A portfolio of financial assets that meets the definition of trading or whose performance is valued on a fair value basis is measured at fair value through profit or loss.

17

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(c) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

Contractual cash flows are solely payments of principal and interest on the principal amount outstanding - accounting policies adopted from January 1, 2018

The principal amount is defined as the fair value at initial recognition of the financial asset.  Interest consists of profit as well as consideration for the time value of money, consideration for the credit risk associated with the principal balance in a particular period, and consideration for other basic loan risks and costs (such as liquidity risk and operating costs).

In assessing whether contractual cash flows consist solely of principal and interest payments, the Company considers the terms and conditions of the instrument.  If a financial asset contains a contractual term that changes the timing or amount of contractual cash flows, the entity must determine whether the contractual cash flows that may arise over the life of the financial instrument are solely payments of principal and interest.

To assess this, the Company considers the following:

- Contractual terms that change the timing or amount of contractual cash flows;

- Terms that adjusts the contractual interest rate, including variable interest rate features;

- Prepayment features and extension features;

- Terms and conditions that limit our claims on cash flows arising from specific assets. (e.g., non-recourse features)

If the prepayment amount represents interest on substantially outstanding principal and remaining principal and includes reasonable additional compensation for early termination of the contract, the early repayment characteristics are consistent with the terms of paying principal and interest on a specified date.

In addition, for financial assets acquired by significantly discounting or premiuming the contractual par amount, the prepayment amount effectively represents the contractual par amount and the contractual interest accrual (but unpaid) and the prepayment feature meets this condition when the fair value of the feature is insignificant at initial recognition of the financial asset.

18

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(c) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

Subsequent measurement and profit or loss - accounting policies adopted from January 1, 2018

The following accounting policies apply to the subsequent measurement of financial assets.

Category of financial instruments	Accounting policies
Financial assets at FVTPL	These assets are subsequently measured at fair value.  Net gains and losses, including any interest or dividend income, are recognized in profit or loss.  However, please refer to note 3.(d) for derivative financial assets designated as the hedging instruments.
Financial assets at amortized cost	These assets are subsequently measured at amortized cost using the effective interest method.  The amortized cost is reduced by impairment losses.  Interest income, foreign exchange gains and losses, impairment and any gain or loss on derecognition are recognized in profit or loss.
Debt investments at FVOCI	These assets are subsequently measured at fair value.  Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss.  Other net gains and losses are recognized in other comprehensive income.  On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI	These assets are subsequently measured at fair value.  Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.  Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

19

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(c) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

Financial asset - accounting policies applied before January 1, 2018

Financial assets are classified into financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets, and derivative financial assets.

Subsequent measurement and profit or loss - accounting policies applied before January 1, 2018

The following accounting policies apply to the subsequent measurement of financial assets.

Category of financial instruments	Accounting policies
Financial assets at fair value through profit or loss	These assets are subsequently measured at fair value.  Net gains and losses, including any interest or dividend income, are recognized in profit or loss.  However, please refer to note 3.(d) for derivative financial assets designated as the hedging instruments.
Held-to-maturity investments	Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Loans and receivables	Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Available-for-sale financial assets	Subsequent to initial recognition, they are measured at fair value.  However, investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(iii) Derecognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.

When the Company transfers a right on cash flow of a financial asset, but, retains substantially all of the risk and rewards of ownership relating the transferred asset, the transferred assets are continuously recognized, and the proceeds from the transfer are recognized as a liability.

(iv) Offsetting

Financial assets and liabilities are offset only when the Company has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

20

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Derivative financial assets

(i) Derivatives and Hedge Accounting - accounting policies adopted from January 1, 2018

The Company holds derivative financial instruments to hedge foreign exchange and interest rate exposures.  If the host contract is not a financial asset and meets certain requirements, the embedded derivative is accounted for separately and separated from the host contract.

Derivatives are measured at fair value on initial recognition and subsequently measured at fair value and changes are generally recognized in profit or loss.

The Company designates specific derivatives and non-derivative financial liabilities as hedging instruments to hedge the variability of cash flows associated with future forecast transactions that are likely to arise from changes in exchange rates and interest rates, as the purpose of hedging exchange risk against net investments in foreign operations.

At the inception of the hedge, the Company documents the purpose and strategy of risk management to perform the hedge.  The Company documents the economic relationship between the hedged item and the hedging instrument, including whether changes in the cash flows of the hedged item and the hedging instrument are expected to offset each other.

21

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Derivative financial assets, continued

(ii) Cash flow hedge - accounting policies adopted from January 1, 2018

When a derivative is designated as a cash flow hedge, an effective part of the change in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedge reserve. Effective portions of the change in the fair value of the derivative recognized in other comprehensive income limit the cumulative change in the fair value of the hedged item determined on the basis of present value from the inception of the hedge. Ineffectiveness of changes in the fair value of the derivative is recognized immediately in profit or loss.

If a hedged item that is a forecast transaction is subsequently recognized in a non-financial asset, the cumulative hedge reserve and the cost of the hedge are included directly in the initial cost of the non-financial asset when the non-financial asset is recognized.

For other hedged items that are forecast transactions, the accumulated hedge reserve and the cost of the hedge are reclassified to profit or loss in the same period or in the period during which the expected hedged future cash flows affect profit or loss.

If the hedge no longer meets the hedge accounting requirements or the hedging instrument is sold, decimated, terminated or exercised, the hedge accounting is discontinued prospectively.

If a non-financial item is a recognized hedge transaction, the cumulative amount of the hedge reserve and the cost of the hedge are left in the equity item until the non-financial item is initially recognized and the amount is included in the cost of the non-financial item. In the case of cash flow hedges that are not the case, the amount is reclassified to profit or loss as a reclassification adjustment for the period in which the hedged expected cash flows affect profit or loss.

If future cash flows of hedged items are no longer expected, the accumulated cash flow hedge reserve and the costs of hedging are reclassified to profit or loss immediately.

22

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Derivative financial assets, continued

(iii) Net-investment hedge - accounting policies adopted from January 1, 2018

If a derivative or non-derivative financial liability is designated as a hedging instrument for a net investment in a foreign operation, an effective portion of the change in the fair value of the hedging instrument is recognized in other comprehensive income in the case of a non-derivative instrument and presented as a transaction reserve in equity. Ineffectiveness is recognized immediately in profit or loss.

The amounts recognized in other comprehensive income are reclassified to profit or loss as reclassification adjustments at the disposal of the foreign operation.

(iv) Derivatives and Hedge Accounting - accounting policies applied before January 1, 2018

The accounting polices applied in the comparative financial statements in 2017 are similar with those applied in 2018.

(e) Fair value of financial instruments

Fair value is the amount for which an asset could be exchanged, or a liability settled, could be exchanged, between knowledgeable, willing parties in an arm's length transaction.

For financial instruments traded in active markets, the fair value of financial instruments is measured at quoted prices.  A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis.

If the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique.  Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties, if available, reference to the current fair value of other instruments that are substantially the same.  Fair value is estimated on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs.  Periodically, the Company calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument or based on any available and observable market data.

The fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received.  However, if part of the consideration given or received is for something other than the financial instrument, the fair value of the financial instrument is estimated, using a valuation technique.  Any additional amount lent is an expense or a reduction of income unless it qualifies for recognition as some other type of asset.

The fair value of interest-free installment purchases (which is offered for marketing purpose to expand credit sales) is measured by using the discount rate considering the credit rating of the Company and the credit risk of customers.  As the source of the yield and the purpose of customers using interest-free installment purchases are different from those of installment purchases with interest, the discount rate is calculated in that way.

23

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(f) Impairment of financial assets

(i) Impairment of financial assets - accounting policies adopted from January 1, 2018

The Company recognizes a loss allowance for expected credit losses on the following assets:

- Financial assets measured at amortized cost.

The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured as 12 month ECLs:

- Financial instrument that are determined to have low credit risk at the reporting date; and

- Financial instrument for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information.

The Company assumes that the credit risk on a financial asset has increased significantly when:

- Asset credit quality is cautionary or less

- Significant changes in credit rating

- Specified overdue pool segment (Personal card assets past due over seven days, etc.)

The Company considers a financial asset to be in default when:

- The financial asset is more than 90 days past due.

When estimating ECLs, The maximum period is the maximum contractual period over which the Company is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses.  Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive).  ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets carried at amortized cost are credit-impaired.  A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

24

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(f) Impairment of financial assets, continued

(i) Impairment of financial assets - accounting policies adopted from January 1, 2018, continued

Evidence that financial assets impaired includes the following observable information.

● Significant financial difficulty of the borrower or issuer

● Default or delinquency in interest or principal payments

● Restructuring of a loan or a concession granted by the Company, which the Company would not otherwise consider

● Indications that a borrower or issuer will enter bankruptcy or other financial reorganization

● The disappearance of an active market for a security

● Observable data that there is a measurable decrease in the estimated future cash flows from a group of financial assets, since the initial recognition of those assets, although individual cash flows cannot be discriminated

Presentation of impairment

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

Write-off

If there is no reasonable expectation for the recovery of all or some of the contractual cash flows of the financial asset, remove the asset. For individual customers, based on past experience in recovering similar assets, the Company deducts the carrying amount if a financial asset is more than 180 days overdue and evaluate whether there is reasonable expectation of recovery for corporate customers to evaluate the timing and amount separately. The Company does not expect to significantly recover the amounts. However, each financial asset may be subject to recovery activities in accordance with the Company's procedures for the recovery of the expired amounts.

(ii) Impairment of financial assets - accounting policies applied before January 1, 2018

The Company assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets, except for financial assets at fair value through profit or loss, is impaired.  A financial asset is impaired if objective evidence indicates that loss events have occurred after the initial recognition of the asset, and that they had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.  However, a financial asset is not impaired by the expected future loss event.  

Objective evidence that financial assets are impaired includes the following loss events:

● Significant financial difficulty of the borrower or issuer

● Default or delinquency in interest or principal payments

● Restructuring of a loan or a concession granted by the Company, which the Company would not otherwise consider

● Indications that a borrower or issuer will enter bankruptcy or other financial reorganization

● The disappearance of an active market for a security

● Observable data that there is a measurable decrease in the estimated future cash flows from a group of financial assets, since the initial recognition of those assets, although individual cash flows cannot be discriminated

In addition to the types of events above, objective evidence of impairment for an equity instrument classified as available-for-sale financial assets includes a significant or prolonged decline in the fair value of an equity instrument below its cost.  If there is objective evidence of impairment, the impairment losses measured by the following financial asset categories are recognized in profit or loss.

25

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(f) Impairment of financial assets, continued

(ii) Impairment of financial assets - accounting policies applied before January 1, 2018

Loans and receivables

The Company first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for financial assets that are not individually significant.  If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

The impairment loss of loans and receivables measured at amortized cost which is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows.

Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and receivables.  When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss of the period.

Financial assets carried at cost

The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.  Such impairment losses shall not be reversed.

Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized.  Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss.  If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

Held-to-maturity financial assets

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flowsdiscounted at the asset’s original effective interest rate.  The impairment losses of held-to-maturity financial assets and available-for-sale financial assets are recognized by reducing the carrying amount directly.  When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss of the period.  The reversal does not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.  The impairment losses on held-to-maturity financial assets are reduced from the carrying amount directly.

26

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(g) Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.  Cost includes expenditures that are directly attributable to the acquisition of the asset.  The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located.  The Company elected to measure land and buildings at fair value at the date of transition and use those fair values as their deemed costs.  After first recognition, property and equipment are recognized as book value, which is the amount of taking accumulated depreciation and accumulated impairment losses off acquisition cost.

The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably.  The carrying amount of the replaced cost is derecognized.  The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.  

Land is not depreciated.  Other property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items of property and equipment.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment are recognized in other operating income.

The estimated useful lives and depreciation methods are as follows.

Descriptions	Useful lives	Depreciation method
Buildings	40 years	Straight-line method
Vehicles	5 years	Straight-line method
Other tangible assets	4 years	Straight-line method

Depreciation methods, useful lives and residual values are reviewed at each fiscal year-end and adjusted if appropriate. The change is accounted for as a change in an accounting estimate.

27

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(h) Intangible assets

Intangible assets are measured initially at cost and after initial recognition are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use.  The residual value of intangible assets is zero.  However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

Descriptions	Useful lives
Membership	Indefinite
Development cost	4 years
Software	4 years
Other intangible assets	5 years or less

Amortization methods, useful lives and residual values are reviewed at each fiscal year-end and adjusted if appropriate.  The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets.  The change is accounted for as a change in an accounting estimate.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.  Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.  Other development expenditures are recognized in profit or loss as incurred.

(i) Leases

Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases.  All other leases are classified as operating leases.

Finance lease

A finance lease receivable is the net investment in the lease asset representing the aggregate future minimum lease payments including unguaranteed residual value, if any.  The difference between the finance lease receivable and the book value of the underlying asset is recorded as gain (loss) on disposal of lease asset.  Additionally, the lease payments received are recognized as collection of finance lease receivable and interest income, determined using the effective interest rate.  The Company also recognizes initial direct costs incurred in negotiating and arranging a finance lease, included as part of net investment, and those costs are expensed as an adjustment to revenue over the lease term.

Operating lease

For an operating lease, revenue is recognized evenly throughout the lease period, and the operating lease assets are depreciated using the same depreciation method and estimated useful lives used for similar assets held by the Company.  The Company also recognizes initial direct costs incurred in negotiating and arranging an operating lease, as a separated asset.  The depreciation for leased assets is consistent with the Company’s depreciation for similar assets.

28

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(j) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets related to employee benefit and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment.  If any such indication exists, then the asset’s recoverable amount is estimated.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).  The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount.  Impairment losses are recognized in profit or loss.

(k) Non-derivative financial liabilities

Financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of a financial liability.  Financial liabilities are recognized in the separate financial statements when the Company becomes a party to the contractual provisions of the instrument.

Financial liabilities at fair value through profit or loss

A financial liability is classified at fair value through profit or loss if it is classified as held for trading or designated as such upon initial recognition.  Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.  Attributable transaction costs are recognized in profit or loss as incurred.

Other financial liabilities

The financial liabilities that are not classified as at fair value through profit or loss are classified into other financial liabilities.  The liabilities are measured at fair value less transaction costs that are directly attributable to the issuance upon initial recognition.  Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.

Derecognition of financial liabilities

The Company removes a financial liability from its separate statement of financial position only when it is extinguished – i.e. when its contractual obligations are discharged, cancelled or expired.

29

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(l) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service.  Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

(ii)Other long-term employee benefits

The Company’s net obligation in respect of other long-term employee benefits that are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, is the amount of future benefit that employees have earned in return for their service in the current and prior periods.  That benefit is discounted to determine its present value.  Remeasurements are recognized in profit or loss in the period in which they arise.

(iii) Post-employment benefit plan

The Company has introduced both a defined benefit pension plan and defined contribution pension plan.      Employees have a right to choose one of those pension plans.

Defined contribution plans

The Company has no further payment obligations once the contributions have been paid, which are classified as a defined contribution plan.  The contributions are recognized as an expense, unless included in the cost of an asset.  If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund.

Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.                     The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value.  The fair value of plan assets is deducted.  The calculation is performed annually by an independent actuary using the projected unit credit method.  

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding Interest), are recognized immediately in other comprehensive income.  The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments.  Net interest expense and other expenses related to defined benefit plans are recognized in personnel expenses in profit or loss.

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

30

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(l) Employee benefits, continued

(iv) Termination benefits

Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.  If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(m)Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.  

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision.  If the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation.  The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.  If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

The Company recognized provisions with regard to litigation and unused credit commitments for credit purchases and cash advances.  Allowance for unused credit commitments is estimated using valuation model by credit conversion factor, probability of default and loss given default.  In addition, in accordance with rental contracts that require restoration at the end of the contract period, present values of the expected restoration costs are recognized as allowance for asset retirement obligation.

31

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(n) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Company at exchange rates at the dates of the transactions.  Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.  Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.  Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.  Foreign currency differences arising on the settlement of monetary items and on translating monetary items are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income.  When gains or losses on non-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income.  Conversely, when gains or losses on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

(o) Share capital

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

(p) Share-based payment transactions

For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably.  If the Company cannot estimate reliably the fair value of the goods or services received, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.  The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

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

32

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(q) Revenue from contracts with customers

The Company recognizes fee income from cardholders and merchants on an accrual basis applying the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation).  However, the Company recognizes service charges from delinquent cardholders on cash basis.  Certain fees associated with lending activities which meet specified criteria, are deferred and amortized over the life of the loan as an adjustment to the carrying amount of the loan.  The amortization of deferred fee is recognized as operating revenue or expense by the effective interest rate method.

The fair value of the consideration received or receivable in respect of the initial sale is allocated between award credits (“points”) and other components of the fee and commission income.  The Company provides awards, in the form of price discounts or by offering a variety of gifts.  The amount allocated to the points is estimated by reference to the fair value of the monetary and non-monetary benefits for which they could be redeemed, since the fair value of the points themselves is not directly observable.  The fair value of the benefits is estimated taking into account the expected redemption rate and the timing of such expected redemptions. The amount allocated to the points is regarded as consideration payable to the customer and recognized as a reduction of fee and commission income.

(s) Finance income and finance costs

The Company’s Finance income and finance costs consist of:

- Interest income

- Interest expense

- Dividend income

- Net income or loss on financial assets measured at fair value through profit or loss

- Net income or loss on foreign currency transactions

- Net impairment losses or reversals of impairment losses on financial assets measured at amortized cost

- Remeaseurement gains on acquirer’s previously held equity interest in the acquiree at its acquisition-date fair value.

- Loss of changes in fair value of contingent consideration classified as a financial liability

- Hedge ineffectiveness recognized in profit or loss

- Net reclassified profit or loss on cash flow hedges of interest rate risk and exchange rate risk of borrowings previously recognized in other comprehensive income

Interest income or expense was recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

When calculating interest income or interest expense, the effective interest rate is applied to the gross carrying amount of the asset (if the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that subsequently have been credit-impaired since initial recognition, interest revenue is calculated by applying an effective interest rate to the amortised cost of the financial asset. The Company calculates the interest revenue by applying the effective interest rate to the gross carrying amount if the financial asset is no longer credit-impaired.

33

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(t) Income taxes

Income tax on the income or loss for the year comprises current and deferred tax.  Income tax is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

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

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.  The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that, and only to the extent that it is probable that the temporary difference will reverse in the foreseeable future; and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted by the end of reporting period.  The measurement of deferred tax liabilities and deferred tax assets reflect the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

(u)Earnings per share

The Company presents basic earnings per share (EPS) data for its ordinary shares.  Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

34

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(v) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are not mandatory for the Company for an annual period beginning after January 1, 2018, and the Company has not early adopted them.

(i) K-IFRS No.1116 Leases

K-IFRS No.1116 Leases, issued on May 22, 2017, shall be applied for annual periods beginning on or after January 1, 2019, but may be applied earlier. This Standard will replace the current K-IFRS No.1017 Leases , K-IFRS No.2104 Determining whether an Arrangement contains a Lease, K-IFRS No.2015 Operating Leases-Incentives K-IFRS No.2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract the Company determines whether the contract is, or contains, a lease, and at the date of initial application, identifies whether the contract is, or contains, a lease. The lessee and the lessor shall account for each lease component of the contract as a lease, separately from the non-lease component in a contract that is, or contains, a lease.

The lessee shall recognize a right-of-use asset that represents the right to use and a lease liability that represents an obligation to pay the lease fee. However, for short-term lease payments and payments for leases of low-value assets, exceptions to this Standard may be selected. In addition, the lessee may use the practical expedient for each lease component and its associated lease component as a single lease component, rather than separating it from separating it from the lease component.

Lessor accounting has not changed significantly from the current K-IFRS No.1017.

35

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(v) New standards and interpretations not yet adopted, continued

(i) K-IFRS No.1116 Leases, continued

ⓐ Lessee accounting

Application of K-IFRS No.1116 Leases

The lessee may apply either retrospectively to each prior reporting period presented applying K-IFRS No.1008 Accounting Policies, Changes in Accounting Estimates and Errors (full retrospective approach) or retrospectively with the cumulative effect of initially applying the Standard recognized at the date of initial application (‘cumulative catch-up’ transition method).

As of 1 January 2019, the Company plans to apply the cumulative catch-up transition method for initial application of K-IFRS No.1116.  Consequently, the cumulative effect of applying K-IFRS No.1116 is adjusted for retained earnings at the date of initial application and the comparative financial statements will not be restated.

Financial impact of K-IFRS No.1116 Leases

In order to assess the financial impact of the initial application of K-IFRS No.1116, the Company evaluated the effect on its financial statements in 2019 on the basis of the circumstances and available information as of January 1, 2019.

The total amount of the minimum lease payments before discounting of the assets currently used as operating leases is W59,072 million, and if discounted at the lessee's incremental borrowing interest rate, it is W56,682 million. However, the Company will apply practical expedients to all (or part) contracts that are, or contain, leases to account for each lease component and associated non-lease component as a single lease component.

As a result of a detailed analysis of the impact on the financial statements, the Company expects that the right-of-use assets and lease liabilities will increase by W49,569 million and W50,934 million, respectively, as of January 1, 2019.  However, the financial impact assessment may change depending on the additional information available in the future.

36

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(v) New standards and interpretations not yet adopted, continued

(i) K-IFRS No.1116 Leases, continued

ⓑ Lessor accounting

Application and financial impact of K-IFRS No.1116 Leases

As a lessor, the Company specifically assessed the effect on the financial statements of significant changes in the accounting for the identification of lease contracts and the separation of lease components in accordance with K-IFRS No.1116.

Interest income for the year ended December 31, 2019 are not expected to be affected by financing lease receivables as of January 1, 2019. However, this may change depending on the additional information available in the future.

If the Company is an intermediate lessor, the Company reassesses the classification of operating leases or financing leases in accordance with K-IFRS No.1116 for subleases classified as operating leases before the date of initial application and maintained at the date of initial application. If the lease is classified as a financing lease as a result of the reassessment, it is accounted for as a new financing lease entered at the date of initial application.

Based on the situation and information available as of January 1, 2019, the Company evaluated the specific financial effects with a new financing lease and is expected to have no impact on the lease payments receivable as of January 1, 2019 and the interest revenue for the year ended December 31, 2019. However, this may change depending on the additional information available in the future.

(ii) The following amendments are expected not to have a material effect on the Company.

-K-IFRS No.2123 Uncertainty over Income Tax Treatments

-Amendments to K-IFRS No.1109 Financial Instruments: Prepayment Features with Negative Compensation

-Amendments to K-IFRS No.1028 Investments in Associates and Joint Ventures: Long-term Interests in Associates and Joint Venture

-Amendments to K-IFRS No.1019 Employee Benefits: Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan

-Annual improvements to K-IFRS 2015-2017 Cycle

-Amendments to the Conceptual Framework for Financial Reporting

-K-IFRS No.1117 Insurance Contracts

37

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management

(a) General information of risk management

The Company has exposure to the following risks from its use of financial instruments:

● Credit risk

● Liquidity risk

● Market risk    

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.  Further quantitative disclosures are included throughout these separate financial statements.

(i)Organization for risk management

Major decisions relating to risk management are made by the Risk Management Committee under the Board of Directors. To effectively implement the Risk Management Committee's determination and deliberation, the Company runs the Risk Management Council which includes the CRO (Chief Risk Officer) as chairman and consists of heads of relevant units and divisions. In order to assist the two committees, there is an independent risk management team which is fully in charge of tasks related to risk management.

In addition, the Company established a Credit Review Committee that separately from the Risk Management Council to conduct credit evaluations of corporate customers with outstanding loans over a certain amount and other significant credit matters.  The Credit Review Committee is led by the CRO and consists of heads of relevant divisions.

(ii) Risk management process

The Company measures credit risk, liquidity risk, market risk and interest rate risk. The Company presents an acceptable level of risks before the establishment of an annual financial plan, and sets the upper growth limit as a guideline, which considers available capital and risk capital.  On the basis of organized financial plans in accordance with established guidelines, the Company organizes risk plans and sets risk limits and risk tolerance, which encompasses the Company’s entire risk appetite.

Risk limits are set on the basis of the risk capital in principle or set by the regulatory capital in case of absence of a risk capital calculation system.  The Company manages total risk limits, risk limits for each type of risk and risk limits by product. If exceeds 95% of relevant risk limits, in case of total limits, the Company immediately reports the risk limits to the CRO of Shinhan Financial Group and to the Group Risk Management Committee.  In case of risk limits for each type of risk, after consultation with the Shinhan Financial Group, it is adjustable by resolution of the Risk Management Committee within the range of total risk limits. In case of risk limits by product, after prepared countermeasures, it is adjustable by resolution of the Risk Management Council.

38

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(a) General information of risk management, continued

(iii)Risk monitoring

Risk Monitoring is performed by Shinhan Financial Group’s risk dashboard for early detection of risk, regular risk measurement and monitoring systems by the Risk Management Council and Risk Management Committee, and the Enterprise Risk Management System.  The Company performs weekly monitoring on short-term credit quality indicators and leading economic indicators.

Risk dashboard

The risk dashboard is a risk monitoring system to provide early detection and proactive response to portfolio risks and abnormal symptoms, and key monitoring targets of portfolios by business line and members (low CB grade).  It performs the pre-detection function on the risk factors such as increases in assets, and risks by each monitoring target.  With regard to quantitative indicators such as increases in assets and increases in risks, the Company defines the determination level of risk detection by the statistical significance level.  By regular monitoring, the risk management team together with relevant teams analyzes the cause, and prepares and implement a countermeasure.

Risk measurement and monitoring reporting

The Company regularly reports the overall results of risk measurements and monitoring to the Risk Management Council and Risk Management Committee.  Regular monitoring items consist of operational status of risk limits (total / type / product), portfolio guidelines, levels of enterprise crisis, economic / market trends, detailed indicators of credit quality, and financing and liquidity risks.

(iv)Enterprise crisis management system

Enterprise crisis management consists of items such as quantitative crisis recognition, determination of crisis stage, developing action items, and debriefing.

Internal and external crisis indicators for each of credit risk and liquidity risk are divided into core indicators and leading indicators and the stage of crisis is determined quantitatively.  Risk management working-level committee performs analysis of qualitative information and risk management council, consisting heads of departments decides whether to perform entity-wide impact analysis.

39

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(a) General information of risk management, continued

(iv)Enterprise crisis management system, continued

Enterprise crisis stages consist of Normal 1, Normal 2, Cautionary 1, Cautionary 2, Crisis Impending, and Crisis, which are determined by a scoring system based on internal and external indicators.

Based on the assessment of crisis stage, appropriate action items for each crisis stage are set up and implemented.  For the purpose of efficient operation of the Enterprise Crisis Management System, detailed roles and responsibilities for each organization are predefined.  Crisis management organizations consist of a Risk management working-level committee which performs daily monitoring, risk management council, consisting heads of departments which is convened when the crisis stage is assessed as above the Cautionary 2 two times in succession.  In addition, the Company has Risk Management Council and Crisis Management Council headed by the CEO, and Group Crisis Management Council headed by the CEO of the Shinhan Financial Group.  These organizations and their detailed roles and responsibilities enable the Company to cope with crisis systemically.

(v)Evaluation process

The Company sets and operates the standards on credit card issuances pursuant to the standard of review for payment ability prescribed by the Regulation on Supervision of Specialized Credit Finance Business.  If the basic qualification standards are not met, the issuance of a credit card is prohibited. When standards are met, the issuance of a credit card is possible only if the AS (Application Score) credit rating is above a certain degree, which is based on the Company’s internal information, external information from Credit Bureaus, and personal information in the application form.  The Company prohibits higher-risk customers from being issued a credit card by using supplementary information such as overdue history and Credit Bureaus’ credit ratings.

The Company utilizes customer transaction records with Shinhan Financial Group’s subsidiaries, internal or external credit information, and characteristics of each customer group to improve its assessment functions on credit card issuance to new customers.  The Company performs various kinds of simulations to cope with the changes in surroundings such as market conditions and economic trends so that the Company is able to predict the potential risks of certain customer groups and establish the management policy for higher-risk groups.  

The Company determines an optimized credit limit for new credit card holders according to their payment ability by reflecting occupation, income, property, debt, and transaction records with Shinhan Financial Group’s subsidiaries.  The Company operates a management system which enables the Company to monitor the changes in risks and prevent higher-risk groups from being credit card holders by monitoring monthly indicators.

(vi)Credit Scoring System

The Company’s Credit Scoring System consists of ASS (Application Scoring System) and BSS (Behavioural Scoring System). BS (Behavioural Score) evaluates the credit card holder’s credit quality regularly. Credit card AS evaluates potential credit card holder’s credit quality when they apply for credit card. Card loan AS and installment AS evaluate potential customers’ credit quality.  The Company utilizes the Credit Scoring System in order to monitor its customers’ and portfolios’ risk exposures.

40

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(b) Credit risk

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 complies with credit risk management procedures pursuant to internal guidelines and regulations and continually monitors and improves these guidelines and regulations.  Application of credit risk management includes not only all the transactions in these separate financial statements but also off balance items such as guarantees, loan agreements and derivatives transactions that could possibly generate economic loss.  The Company assesses credit risks of those transactions and sets a limit on expected credit risks in advance.

The Company estimates credit risks of financial instruments using PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default) utilizing the risk estimation methodology of Basel II.  The Company applies the Basel basis conservatively to reflect the credit card crisis of 2003 and the nature of the credit card business. Credit risks of derivatives, due from banks and securities are assessed using the modified standard methodology of Basel.  Credit risks are divided into respective business segments and merchandise segments, and the Company sets limits for each segment, which are monitored by the risk control process, and established an action plan in case that credit risks get close to, or exceed limits.

41

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(i) Exposure to credit risk

The carrying amount of financial instruments represents the Company’s maximum exposure to credit risk.  Exposure to credit risk of the Company as of December 31, 2018 and 2017 is as follows.  Cash held by the Company is excluded.

		2018	2017
Due from banks and credit card assets at amortized cost, etc. (*1),(*2)
Banks	W	647,733	450,295
Household		23,651,502	22,014,676
Credit sales		12,627,203	11,570,580
Cash advances		1,848,767	1,844,254
Card loans		5,782,694	5,478,557
Installment finance and others		3,392,838	3,121,285
Government/Public institution/ The Bank of Korea		21,375	19,114
Corporate		2,234,123	1,646,355
		26,554,733	24,130,440
Financial assets at FVTPL
Debt securities		1,579	-
Beneficiary certificates		950,153	-
Available-for-sale financial assets   Debt securities		-	1,953
		27,506,465	24,132,393
Derivative financial assets		310	3,680
Other assets (*1)
Other financial assets		658,052	674,003
	W	28,164,827	24,810,076

(*1) The maximum exposure to credit risk is measured as net of allowance for doubtful accounts, deferred loan origination costs, and present value discount amount.

(*2) The carrying amount of financial instruments as of December 31, 2017 is classified as loans and receivables under the measurement categories of K-IFRS No.1039.

As of December 31, 2018 and 2017, the maximum exposure to credit risk caused by unused credit commitments amounted to W71,896,628 million, W63,745,952 million, respectively.  

42

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(ii) Credit risk exposure by measurement method

Under the measurement method of loss allowance, the amounts of due from banks and credit card assets at amortized cost, etc. by internal credit rating as of December 31, 2018 is as follows:

		2018
		12 month ECLs measurement		Lifetime ECLs measurement		Impaired assets	Subtotal	Allowance for doubtful accounts	Total
		Prime	Normal	Prime	Normal	Impaired
Banks	W	647,618	114	-	-	44	647,776	(43)	647,733
Household
Credit sales		10,495,592	489,901	1,026,112	789,335	61,182	12,862,122	(234,919)	12,627,203
Cash advances		924,041	313,328	207,682	504,706	36,464	1,986,221	(137,454)	1,848,767
Card loans		3,943,961	790,977	550,799	683,270	67,597	6,036,604	(253,910)	5,782,694
Installment finance and others		2,452,384	615,923	116,537	136,296	262,173	3,583,313	(190,475)	3,392,838
		17,815,978	2,210,129	1,901,130	2,113,607	427,416	24,468,260	(816,758)	23,651,502
Government/Public institution/ The Bank of Korea		21,375	-	-	-	-	21,375	-	21,375
Corporate		970,573	1,177,484	10,344	89,797	7,274	2,255,472	(21,349)	2,234,123
	W	19,455,544	3,387,727	1,911,474	2,203,404	434,734	27,392,883	(838,150)	26,554,733

43

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(ii) Credit risk exposure by measurement method, continued

Under the measurement method of loss allowance, the amounts of off-balance item by internal credit rating as of December 31, 2018 is as follows:

		2018
		Loan commitments and other credit-related liabilities
		12 month ECLs measurement	Lifetime ECLs measurement	Impaired assets	Total
Prime	W	66,104,634	3,625,590	-	69,730,224
Normal		1,646,082	510,083	-	2,156,165
Impairment		-	-	10,239	10,239
	W	67,750,716	4,135,673	10,239	71,896,628

In the case of individual members, based on the internal credit rating, the Company manages the members with lower credit loss ratio compared to the profit ratio before impairment with prime, while others are classified as normal.  In case of corporate members, AAA ~ BBB+ rating and non-rating of government/public institutions/central banks are classified as prime, while others are classified as normal.

(iii) Analysis of past due and impaired amounts

Set out below is an analysis of past due and impaired amounts of due from banks, loans and receivables and debt securities as of December 31, 2017.

		2017
		Neither past due nor impaired	Past due but not impaired	Impaired	Total
Banks	W	450,296	-	-	450,296
Household
Credit sales		11,448,503	204,951	48,392	11,701,846
Cash advances		1,818,544	73,912	28,224	1,920,680
Card loans		5,505,138	132,285	56,497	5,693,920
Installment finance and others		2,961,449	83,488	263,754	3,308,691
		21,733,634	494,636	396,867	22,626,137
Government/Public institution/ The Bank of Korea		18,063	1,050	1	19,114
Corporate		1,531,073	119,913	12,479	1,663,465
		23,733,066	615,599	409,347	24,758,012
Allowance for doubtful accounts		(270,083)	(86,672)	(268,864)	(625,619)
	W	23,462,983	528,927	140,483	24,132,393

44

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(iv) Information about the credit quality of due from banks and loans and receivables that are neither past due nor impaired as of December 31, 2017 is as follows:

		2017
		Outstanding	Normal	Total(*)
Banks	W	450,145	150	450,295
Household
Credit sales		10,297,657	1,077,162	11,374,819
Cash advances		1,067,739	705,833	1,773,572
Card loans		4,171,608	1,202,669	5,374,277
Installment finance and others		2,403,017	548,511	2,951,528
		17,938,714	3,534,175	21,474,196
Government/Public institution/ The Bank of Korea		18,063	-	18,063
Corporate		571,400	949,029	1,520,429
	W	18,979,629	4,483,354	23,462,983

(*) The amounts are measured as net of allowance for doubtful accounts, deferred loan origination                               costs, and present value discount account.

(v) Analysis of the age of loans and receivables that are past due but not impaired

Management of the Company considers accounts that are past due for less than 90 days as not impaired, unless other information can demonstrated that this is not the case.  Analysis of the aging of loans and receivables that are past due but not impaired as of December 31, 2017 is as follows:

		2017
		Less than 30 days	After 30 days through 60 days	After 60 days through 90 days	Total (*)
Banks	W	-	-	-	-
Household
Credit sales		161,782	11,688	5,637	179,107
Cash advances		50,993	6,463	3,328	60,784
Card loans		79,790	6,773	4,122	90,685
Installment finance and others		72,994	3,999	1,674	78,667
		365,559	28,923	14,761	409,243
Government/Public institution/The Bank of Korea		1,050	-	-	1,050
Corporate		109,973	6,415	2,246	118,634
	W	476,582	35,338	17,007	528,927

(*) The amounts are measured as net of allowance for doubtful accounts, deferred loan origination costs, and present value discount account.

45

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(vi) Analysis of financial assets that are individually and collectively determined to be impaired.

Financial assets that are individually and collectively determined to be impaired as of December 31, 2017 are as follows:

			2017
Financial assets that are individually determined to be impaired(*)	Debt securities	W	1,953
Financial assets that are collectively determined to be impaired(*)	Loans and receivables		138,530
		W	140,483

(*) The amounts are measured as net of allowance for doubtful accounts.

46

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) 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.  Liquidity risk could be caused by maturity mismatch of financial assets and liabilities, or temporary insolvency by unexpected cash outflows.  It includes economic losses that the Company will incur in the process of financing high interest rates, or disposing of invested assets in order to meet its obligations.  The Company manages liquidity risk by considering all liquidity variation factors that can cause cash inflows and cash outflows.

The Company sets the goal of “month-end liquidity” as the liquidity level at which the Company could pay its obligations in the next three months.  Real liquidity gap ratio of maturity of financial assets and liabilities, liquidity buffer ratio, and ABS to borrowings ratio are major indices of liquidity risks monitored by the Company, defined as cautious, apprehensive, and risky.  The Company has prepared contingency plans for various liquidity crises.

(i)Non-derivatives

A maturity analysis for non-derivative financial assets and liabilities as of December 31, 2018 and 2017 is as follows.  Such undiscounted contractual cash flows differ from the discounted amount included in the separate statement of financial position, as they include estimated interest payments.

The Company expects that there would be no significant changes in the timing of cash flows.

		2018
		Less than 1 month	1~3 months	3~6 months	6 months ~ 1 year	1~5 years	Over 5 years	Total
Assets:
Cash and due from banks	W	341,217	-	-	-	-	-	341,217
Credit card assets at amortized cost, etc.		9,874,876	5,725,393	3,379,009	3,703,051	5,521,849	231,073	28,435,251
Financial assets at FVTPL		953,943	-	-	-	-	-	953,943
Financial assets at FVOCI		-	-	-	-	-	34,519	34,519
Other financial assets		590,173	63	417	-	-	81,338	671,991
	W	11,760,209	5,725,456	3,379,426	3,703,051	5,521,849	346,930	30,436,921
Liabilities:
Borrowings	W	262,650	328,212	92,156	186,343	4,194,755	-	5,064,116
Debentures		154,936	577,349	1,042,465	1,861,810	11,156,293	208,318	15,001,171
Other financial liabilities		2,837,645	15,155	22,505	41,151	208,763	42,296	3,167,515
	W	3,255,231	920,716	1,157,126	2,089,304	15,559,811	250,614	23,232,802
Off-balance item(*):
Guarantee	W	63,468	-	-	-	-	-	63,468
Unused credit commitments		71,896,628	-	-	-	-	-	71,896,628
	W	71,960,096	-	-	-	-	-	71,960,096

47

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

(*) Guaranteeandunused credit commitments are classified into the earliest possible period because the payment must be executed immediately if the counterparty requests payment.

48

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) Liquidity risk, continued

(i)Non-derivatives, continued

			2017
		Less than 1 month		1~3 months	3~6 months	6 months ~ 1 year	1~5 years	Over 5 years	Total
Assets:
Cash and due from banks	W	291,547		-	-	-	-	-	291,547
Loans and receivables		9,143,377		5,163,695	3,077,541	3,333,517	4,810,130	211,295	25,739,555
Trading financial assets		803,252		-	-	-	-	-	803,252
Available-for-sale financial assets		-		-	-	-	-	34,585	34,585
Other financial assets		607,762		23	726	-	-	77,117	685,628
	W	10,845,938		5,163,718	3,078,267	3,333,517	4,810,130	322,997	27,554,567
Liabilities:
Borrowings	W	402,833		28,675	234,481	478,994	3,093,933	-	4,238,916
Debentures		156,579		429,712	860,437	1,462,413	9,319,378	234,504	12,463,023
Other financial liabilities		2,969,702		17,574	25,569	102,338	182,145	41,614	3,338,942
	W	3,529,114		475,961	1,120,487	2,043,745	12,595,456	276,118	20,040,881
Off-balance item(*)
Guarantee	W	23,700		-	-	-	-	-	23,700
Unused credit commitments		63,745,952		-	-	-	-	-	63,745,952
	W	63,769,652		-	-	-	-	-	63,769,652

(*) Guarantee and unused credit commitments are classified into the earliest possible period because the payment must be executed immediately if the counterparty requests payment.

49

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) Liquidity risk, continued

(ii)Derivatives

A maturity analysis including the remaining contractual maturities for the derivatives as of December 31, 2018 and 2017 is as follows.

The amounts shown in the table were calculated based on the information below.

- Gross settlement: gross amount of cash received or paid.

- Net settlement: net amount of cash received or paid.

		2018
		Less than 1 month	1~3 months	3~6 months	6 months ~ 1 year	1~5 years	Total
Net settlement cash outflow	W	(271)	(793)	(1,093)	(2,543)	(17,177)	(21,877)
Gross settlement cash inflow		892	-	1,004	112,784	-	114,680
Gross settlement cash outflow		(522)	-	(522)	(114,972)	-	(116,016)
	W	99	(793)	(611)	(4,731)	(17,177)	(23,213)

		2017
		Less than 1 month	1~3 months	3~6 months	6 months ~ 1 year	1~5 years	Total
Net settlement cash inflow (outflow)	W	(311)	(679)	(398)	(224)	4,021	2,409
Gross settlement cash inflow		589	-	667	1,416	109,478	112,150
Gross settlement cash outflow		(545)	-	(522)	(1,044)	(116,017)	(118,128)
	W	(267)	(679)	(253)	148	(2,518)	(3,569)

50

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) 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 Company’s income or the value of its holdings of financial instruments.  The Company is exposed to interest rate risk of financial assets and liabilities in the case of non-trading assets and interest rate risk of MMF(Money Market Fund) and MMT(Money Market Trust) in the case of trading assets and only foreign exchange rate risk of foreign currency equity securities and foreign currency deposits because the Company hedges all cash flows of foreign currency liabilities with currency rate swaps.  The Company is exposed to only equity price risk of foreign currency equity securities.

The Company assesses risks of expected transactions and sets up limits to control market risks to the extent that the Company can handle.  The Company assessed market risks on the basis of the Basel standard methodology and the Historical VaR(Value at Risk) method, established risk limits respectively, monitored, and established an action plan in case that market risks get close to, or exceed limits.

(i)Market risk management from trading positions

The Company assessed market risk from trading positions using the standard methodology of Financial Supervisory Service.  The following represents the Company’s assessment of its potential loss in financial assets at fair value through profit or loss as of December 31, 2018 and trading financial assets as of December 31, 2017 that are exposed to the respective risks:

		2018
		Average	High	Low	At December 31
Interest rate risk	W	3,949	6,079	2,618	4,770

		2017
		Average	High	Low	At December 31
Interest rate risk	W	4,825	7,036	2,765	4,016

51

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) Market risk, continued

(ii)VaR and EaR management from non-trading positions

Interest rate risk from non-trading positions

The principal market risk from non-trading activities of the Company is interest rate risk.  The Company makes an effort to minimize variations of net assets and profit by assessing and controlling interest rate risk of non-trading positions.  Interest rate VaR and EaR to which real interest rate variations of assets and liabilities are applied are used to assess interest rate risk.

Interest rate VaR estimates, at a 99.9% confidence level, the expected maximum loss assuming a one-year holding period.  The Company calculates the interest rate VaR using an internal model which has been designed to apply historical interest rate scenarios provided by accompanying net asset value simulations due to interest rate changes.

Interest rate EaR (Earning at Risk) is the maximum expected loss of net interest income within the next year due to negative variations of interest rates.  Interest rates EaR is assessed considering interest rate repricing gap, differences between expected interest rate variation timing and target period (one year), and expected interest rate variation.  Applied interest rate variation timing for each maturity level and interest rate shock (200bp) were suggested by Basel.  Financial assets of low sensitivity were excluded.

Interest rate VaR and EaR of non-trading positions as of December 31, 2018 and 2017 are as follows:

		2018	2017
Interest rate VaR	W	163,804	147,932
Interest rate EaR		19,453	28,766

Equity price risk and foreign exchange rate risk from non-trading positions

The Company assessed equity price risk and foreign exchange rate risk from foreign currency equity securities and foreign currency deposits of non-trading positions using the Historical VaR method.  Assuming that asset returns are possible in case of crisis, historical VaR of the equity price and foreign currency rate is calculated at bottom 99% of 10 day holding period volatility for one year (250 trading days) in reporting date.  Total VaR is calculated assuming that equity price risk and foreign exchange rate risk occur at the same time.  Variance effect is calculated based on the difference between the total VaR and the sum of price risk and foreign exchange rate risk.

The Company does not have any non-trading positions that are exposed to equity risk and foreign exchange rate risk.

52

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) Market risk, continued

(iii)Foreign exchange risk

The Company has been exposed to foreign exchange risk of financial assets and financial liabilities denominated in a foreign currency other than the functional currency, Korean won.  Cash outflows of liabilities denominated by foreign currency were hedged by currency rate swap. Exposures to foreign exchange risk of foreign currency denominated assets and liabilities as of December 31, 2018 and 2017 are as follows:

(In millions of U.S. dollars, millions of Indonesia Rupiah, millions of Kazakhstan Tenge, and millions of won)
	2018
	Foreign currency				Won equivalent
	USD	IDR	KZT
Deposit	1	-	-	W	18
Debentures	(100)	-	-		(111,810)
On-balance exposure	(99)	-	-		(111,792)
Derivatives	100	-	-		111,810
Guarantee	(7)	(7,000,000)	(1,000)		(63,468)
Off-balance exposure	93	(7,000,000)	(1,000)		48,342
Net position	(6)	(7,000,000)	(1,000)	W	(63,450)

(In millions of U.S. dollars and millions of won)
	2017
	Foreign currency (USD)		Won equivalent
Deposit	1	W	31
Debentures	(100)		(107,140)
On-balance exposure	(99)		(107,109)
Derivatives	100		107,140
Off-balance exposure	100		107,140
Net position	1	W	31

(e) Capital risk management

The Company has exposure to credit risk, liquidity risk, and market risk.  By maintaining an optimal capital structure, the Company’s objective is to control its financial risks, enhance its safety and soundness, stabilize the financial system, and advance the Company’s credit standing.

The Company operates the credit card business under the Specialized Credit Finance Business Act.  Accordingly, the Company should obey the Regulations on Supervision of Specialized Credit Finance Business.  The regulations require the Company to maintain an adjusted equity capital ratio of more than 8%.  Adjusted total assets and adjusted equity capital for the ratio are based on the separate statements of financial position and adjusted by the regulation that considered standards of the Bank for International Settlements and the nature of credit card business. The Company observes ratios of adjusted equity capital requirements regulated by the Specialized Credit Finance Business and as of December 31, 2018, the Company complied with the regulatory requirement for the adjusted equity capital ratio.

53

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

5.SignificantEstimates and Judgments

The preparation of separate financial statements requires the application of certain critical estimates and judgments relative to the future. These critical estimates and judgments are assessed continually based on the elements like historic experiences and reasonably predictable future events under current conditions.  Management’s estimated outcomes may differ from actual outcomes.  

Information about judgments on accounting assumptions and estimates, including significant risk that may result in a material adjustment in the reported amounts of assets and liabilities within the financial year are included in the following notes.

(a) Valuation of financial instruments

The fair values of financial instruments which are not actively traded in the market are determined by using valuation techniques.  The Company determines valuation methods and assumptions based on significant market conditions at the end of each reporting period.  Diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted valuation models in the market to internally developed valuation model that incorporates various types of assumptions and variables.

(b) Allowance for doubtful accounts

(i)Individually assessed loan impairment

In assessing individual impairment, it is based on the best estimation of the Company’s management about the present value of estimated future cash flows of secured financial assets.  The present value is calculated by including cash flows from collateral after deducting costs to acquire and sell the collateral, regardless of probability of realization of such collateral.

(ii)Collectively assessed loan impairment

In assessing collective impairment, future cash flow of financial assets applicable to collective impairment assessment is estimated by using statistical method of historical trends of the probability of default, and the loss rate at default, adjusted for management’s judgment as to whether current economic and credit conditions are such that the impairment losses are likely to be greater or less than suggested by historical method.  In adjusting the future cash flow by historical method, the result has to be in line with changes and trends of observable data (e.g. loan and borrower type, credit rating, EAD by periods, significant changes in credit rating, recovery period and other variables).  Methodologies and assumptions used to estimate future cash flow are reviewed on regular basis in order to narrow down discrepancy between impairment loss estimation and actual loss.

(c) Qualifying hedge relationships

In designating financial instruments in qualifying hedge relationships, the Company has determined that it expects the hedges to be highly effective over the period of the hedging relationship.  In accounting for derivatives as cash flow hedges, the Company has determined that the hedged cash flow exposure relates to highly probable future cash flows.

54

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

5.Significant Estimates and Judgments, continued

(d) Liability for defined benefit obligations

The present value of a defined benefit obligation that is measured by actuarial valuation methods uses various assumptions which can change according to various elements.

The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds.  The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations.  Actuarial gains and losses including experience adjustments and the effects of changes in actuarial assumptions are recognized in other comprehensive income.

(e) Income taxes

Within the normal business process, there are various types of transactions and different accounting methods that may add uncertainties to the reliability of tax assets.  The Company has recognized current and deferred taxes that reflect tax consequences that would follow from the manner in which the entity expects, at the end of the reporting year, to recover or settle the carrying amount of its assets and liabilities.  However, actual income tax in the future may not be identical to the recognized deferred tax assets and liabilities, and this difference can affect current and deferred taxes at the year when the final tax effect is conformed.

6.Fair Value Measurement of Financial Instruments

The Company primarily uses the published price quotations in an active market for measurement of the fair value of financial instruments.  If the market for a financial instrument is not active, fair value is established either by using a valuation technique or independent third-party valuation service.

The Company uses diverse valuation techniques under reasonable assumptions which are based on the observable inputs in markets at the end of each reporting period.

Valuation techniques include using the recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

- Quoted market price (unadjusted) in an active market for an identical instrument (Level 1)

- Valuation techniques based on observable inputs, either directly or indirectly (Level 2)

- Valuation techniques using significant unobservable inputs (Level 3)

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.  For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.  If a fair value measurement uses observable inputs that require significant adjustments based on unobservable inputs, that measurement is a Level 3 measurement.  Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

55

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value

(i) Fair value measurement methods of financial instruments that are measured at fair value are as follows:

	Fair value measurement methods
Financial assets at fair value through profit or loss	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  The fair value of investments in money market funds, etc. is determined by the sum of acquisition cost and accrued interest.  Fair value of debt securities which are not quoted in an active market are determined at the amount which is present value of the future cash flow estimated reasonably discounted by the rate considering the counterparty’s credit risk. Equity instruments that do not have a quoted market price in an active market and whose fair value are not reliably measurable are measured at cost as an estimate of fair value.
Derivative assets Derivative liabilities	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  If the market is not active, fair value is determined at the amount which is present value of the future cash flow reasonably estimated considering the counterparty’s credit risk and discounted by the appropriate rate such as a risk free rate. If observable market data for the valuation is not available enough, the valuation result of the qualified external institutes is used as fair value.
Financial assets at fair value through other comprehensive income	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  Fair value of equity securities which are not quoted in an active market are measured by the valuation model of independent and professional institutes using reliable data. Equity instruments that do not have a quoted market price in an active market and whose fair value are not reliably measurable are measured at cost as an estimate of fair value.

56

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(ii) The fair value measurements classified by fair value hierarchy as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Level 1	Level 2	Level 3	Total
Financial assets
Beneficiary certificates at FVTPL	W	-	950,153	-	950,153
Debt securities at FVTPL		-	-	1,579	1,579
Equity securities at FVTPL		-	-	2,211	2,211
Derivative financial assets for hedging		-	310	-	310
Equity securities at FVOCI		-	-	34,519	34,519
	W	-	950,463	38,309	988,722
Financial liabilities
Derivative financial liabilities for hedging	W	-	23,293	-	23,293

		2017
		Level 1	Level 2	Level 3	Total
Financial assets
Beneficiary certificates held for trading	W	-	803,252	-	803,252
Derivative financial assets for hedging		-	3,680	-	3,680
Available-for-sale debt securities		-	-	1,953	1,953
Available-for-sale equity securities		-	-	32,632	32,632
	W	-	806,932	34,585	841,517
Financial liabilities
Derivative financial liabilities for hedging	W	-	7,960	-	7,960

57

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(iii) Changes in level 3 of the fair value hierarchy

Changes of fair value measurement in level 3 for the years ended December 31, 2018 and 2017 are as follows:  

		2018
		Debt securities at FVTPL	Equity securities at FVTPL	Equity securities at FVOCI	Available-for-sale debt securities	Available-for-sale equity securities	Total
Balance at January 1, 2018	W	-	-	-	1,953	32,632	34,585
Effect of changes in accounting policies		1,955	1,501	31,129	(1,953)	(32,632)	-
Net loss on valuation of financial assets at FVTPL		(376)	-	-	-	-	(376)
Net changes in the unrealized fair value of FVOCI		-	-	3,290	-	-	3,290
Acquisition		-	710	300	-	-	1,010
Disposal		-	-	(200)	-	-	(200)
Balance at December 31, 2018	W	1,579	2,211	34,519	-	-	38,309

		2017
		Available-for-sale debt securities	Available-for-sale equity securities	Total
Balance at January 1, 2017	W	1,368	27,482	28,850
Reversal of impairment loss		3,791	-	3,791
Other comprehensive income		-	3,150	3,150
Acquisition		-	2,000	2,000
Disposal		(3,206)	-	(3,206)
Balance at December 31, 2017	W	1,953	32,632	34,585

58

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(iv) Valuation techniques and inputs related to level 2

Information about valuation techniques and inputs in measuring financial instruments categorized as level 2 as of December 31, 2018 and 2017 is as follows:

	2018
	Valuation techniques	Type of financial instruments		Book value	Significant inputs
Financial assets at FVTPL:
	Sum of acquisition cost and accrued interest	Beneficiary certificates	W	950,153	Interest rate
Derivative assets:
	Discounted cash flow	Interest rate swap Currency swap		310	Discount rate Exchange rate Volatility, etc.
			W	950,463
Derivative liabilities:
	Discounted cash flow	Interest rate swap Currency swap	W	23,293	Discount rate Exchange rate Volatility, etc.

	2017
	Valuation techniques	Type of financial instruments		Book value	Significant inputs
Trading financial assets :
	Sum of acquisition cost and accrued interest	Beneficiary certificates	W	803,252	Interest rate
Derivative assets:
	Discounted cash flow	Interest rate swap Currency swap		3,680	Discount rate Exchange rate Volatility, etc.
			W	806,932
Derivative liabilities:
	Discounted cash flow	Interest rate swap Currency swap	W	7,960	Discount rate Exchange rate Volatility, etc.

59

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(v) Valuation techniques and unobservable inputs in markets related to level 3

Information about valuation techniques and significant unobservable inputs in measuring financial instruments categorized as level 3 as of December 31, 2018 and 2017 is as follows:

	2018
	Valuation techniques	Type of financial instruments		Book value	Significant unobservable inputs	Range of estimates for unobservable inputs
Financial assets at FVTPL:
	Net asset value , etc.	Debt and equity securities	W	3,790	Asset value		-
Financial assets at FVOCI:
	Discounted cash flow, etc.	Equity securities		34,519	Discount rate Growth rate		8.43% ~ 14.14% 0.00%
			W	38,309

	2017
	Valuation techniques	Type of financial instruments		Book value	Significant unobservable inputs	Range of estimates for unobservable inputs
Available-for-sale financial assets:
	Net asset value	Debt securities	W	1,953	-		-
	Discounted  cash flow, etc.	Equity securities		28,318	Discount rate Growth rate		11.56% ~ 13.31% 0.00%
	Cost method	Equity securities		4,314	-		-
			W	34,585

60

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(vi) Sensitivity to changes on unobservable inputs

For level 3 fair value measurement, a reasonably possible change in one or more of the unobservable inputs used to determine the fair value would have the following effect on profit or loss, or other comprehensive income:

			2018
Type of financial instrument		Favorable change		Unfavorable change
Financial assets at FVOCI (*)	W	4,049		(1,685)

(*) Changes in fair value have been assessed by increasing or decreasing unobservable input such as growth rate (0%~1%) and discount rate (-1%~1%).

61

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost

(i) The methods of measuring the fair value of financial instruments measured at amortized cost are as follows:

	Fair value measurement methods
Cash and due from banks	Carrying amount of cash is the same as fair value.  Carrying amount (matured within three months at acquisition date) is used as approximation of fair value for cash equivalents.  Fair value of other due from banks is present value of expected cash flows discounted by the rate considering market interest rate and spread.
Credit card assets at amortized cost, etc.	Fair value of credit card assets at amortized cost, etc. is present value of expected cash flows discounted by the rate considering market interest rate and counterparty’s credit ratings.  However, carrying amount is used as approximation of fair value for credit card assets for lump-sum purchase and cash advances which contractual credit period granted is less than three months.
Other financial assets	Fair value of other financial assets is present value of expected cash flows discounted by the rate considering market interest rate and counterparty’s credit ratings.  However, carrying amount is used as approximation of fair value for other financial assets when reliable expected cash flow is not available.
Borrowings	Carrying amount is used as approximation of fair value for short-term borrowings including call money.  Fair value of the other borrowings is present value of expected cash flows discounted by the rate considering market interest rate and the Company’s credit ratings.
Debentures	Where the market of a financial instrument is active, fair value is established at the quoted price.  Fair value of debentures which quoted market price is not available is determined to be the present value of contractual cash flows discounted by the rate considering market interest rate and the Company’s credit ratings.
Other financial liabilities	Fair value of other financial liabilities is determined to be the present value of contractual cash flows discounted by the rate considering market interest rate and the Company’s credit ratings. Carrying amount is used as approximation of fair value of liabilities when reliable expected cash flows are not available.

62

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost, continued

(ii) The carrying amount and the fair value of financial instruments measured at amortized cost as of December 31, 2018 and 2017 are as follows:

		2018
		Carrying amount				Fair value
		Balance	Deferred loan origination costs and others	Allowance for doubtful accounts	Total
Financial assets
Cash	W	1	-	-	1	1
Deposits		341,216	-	-	341,216	341,216
Credit card assets		22,273,905	(50,389)	(793,258)	21,430,258	21,758,167
Loans		990,055	463	(16,567)	973,951	988,500
Installment assets		2,637,422	31,322	(18,694)	2,650,050	2,661,155
Lease assets		1,169,555	(666)	(9,631)	1,159,258	1,167,164
Other assets		671,991	(2,862)	(11,077)	658,052	658,181
	W	28,084,145	(22,132)	(849,227)	27,212,786	27,574,384
Financial liabilities
Borrowings	W	4,910,631	-	-	4,910,631	4,888,358
Debentures in won		14,040,000	(8,487)	-	14,031,513	14,093,377
Debentures in foreign currency		111,810	(35)	-	111,775	112,977
Other liabilities		3,167,515	(14,964)	-	3,152,551	3,153,721
	W	22,229,956	(23,486)	-	22,206,470	22,248,433

		2017
		Carrying amount				Fair value
		Balance	Deferred loan origination costs and others	Allowance for doubtful accounts	Total
Financial assets
Deposits	W	291,547	-	-	291,547	291,547
Credit card assets		20,481,270	(45,828)	(595,431)	19,840,011	20,058,137
Loans		754,023	586	(10,603)	744,006	752,827
Installment assets		2,247,625	29,623	(12,611)	2,264,637	2,287,780
Lease assets		997,570	(357)	(6,974)	990,239	990,435
Other assets		685,628	(2,937)	(8,688)	674,003	673,570
	W	25,457,663	(18,913)	(634,307)	24,804,443	25,054,296
Financial liabilities
Borrowings	W	4,115,795	-	-	4,115,795	3,978,362
Debentures in won		11,747,000	(7,119)	-	11,739,881	11,683,595
Debentures in foreign currency		107,140	(95)	-	107,045	107,693

63

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

Other liabilities		3,284,174	(11,558)	-	3,272,616	3,271,395
	W	19,254,109	(18,772)	-	19,235,337	19,041,045

64

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost, continued

(iii) The fair value hierarchy of financial instruments which are measured at amortized cost in the separate statement of financial position as of December 31, 2018 and 2017 is as follows:

			2018
			Level 1	Level 2		Level 3		Total
Financial assets
Cash	W	1		-	-		1
Deposits		341,166		50	-		341,216
Credit card assets		-		-	21,758,167		21,758,167
Loans		-		-	988,500		988,500
Installment assets		-		-	2,661,155		2,661,155
Lease assets		-		-	1,167,164		1,167,164
Other assets		-		-	658,181		658,181
	W	341,167		50	27,233,167		27,574,384
Financial liabilities:
Borrowings	W	-		-	4,888,358		4,888,358
Debentures in won		-		-	14,093,377		14,093,377
Debentures in foreign currency		-		-	112,977		112,977
Other liabilities		-		-	3,153,721		3,153,721
	W	-		-	22,248,433		22,248,433

			2017
			Level 1	Level 2		Level 3	Total
Financial assets
Deposits	W	291,159		388	-		291,547
Credit card assets		-		-	20,058,137		20,058,137
Loans		-		-	752,827		752,827
Installment assets		-		-	2,287,780		2,287,780
Lease assets		-		-	990,435		990,435
Other assets		-		-	673,570		673,570
	W	291,159		388	24,762,749		25,054,296
Financial liabilities:
Borrowings	W	-		-	3,978,362		3,978,362
Debentures in won		-		-	11,683,595		11,683,595
Debentures in foreign currency		-		-	107,693		107,693
Other liabilities		-		-	3,271,395		3,271,395
	W	-		-	19,041,045		19,041,045

65

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instruments

(a) The carrying amounts of the categories of financial assets as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Financial assets at FVTPL	Financial assets at amortized cost	Financial assets at FVOCI	Derivative for hedge	Total
Cash and due from banks	W	-	341,217	-	-	341,217
Financial assets at FVTPL		953,943	-	-	-	953,943
Derivative assets		-	-	-	310	310
Credit card assets at amortized cost, etc.		-	26,213,517	-	-	26,213,517
Financial assets at FVOCI		-	-	34,519	-	34,519
Other assets		-	658,052	-	-	658,052
	W	953,943	27,212,786	34,519	310	28,201,558

		2017
		Financial assets at fair value through profit or loss	Loans and receivables	Available-for-sale financial assets	Derivative for hedge	Total
Cash and due from banks	W	-	291,547	-	-	291,547
Trading financial assets		803,252	-	-	-	803,252
Derivative assets		-	-	-	3,680	3,680
Loans and receivables		-	23,838,893	-	-	23,838,893
Available-for-sale financial assets		-	-	34,585	-	34,585
Other assets		-	674,003	-	-	674,003
	W	803,252	24,804,443	34,585	3,680	25,645,960

66

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(b) The carrying amounts of the categories of financial liabilities as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Financial liabilities measured at amortized cost	Derivative for hedge	Total
Derivative liabilities	W	-	23,293	23,293
Borrowings		4,910,631	-	4,910,631
Debentures		14,143,288	-	14,143,288
Other liabilities		3,152,551	-	3,152,551
	W	22,206,470	23,293	22,229,763

		2017
		Financial liabilities measured at amortized cost	Derivative for hedge	Total
Derivative liabilities	W	-	7,960	7,960
Borrowings		4,115,795	-	4,115,795
Debentures		11,846,926	-	11,846,926
Other liabilities		3,272,616	-	3,272,616
	W	19,235,337	7,960	19,243,297

67

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(c) Net gains (losses) of categories of financial instruments for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Interest income	Interest expense	Fee and commission income	Fee and commission expense	Dividend income	Provision for credit loss allowance	Other operating income, net	Net income (loss)	Other comprehensive income (loss)
Financial assets:
Financial assets at FVTPL	W	-	-	-	-	20	-	55,567	55,587	-
Financial assets at amortized cost		1,987,231	-	1,484,645	(1,252,098)	-	(454,577)	46,807	1,821,008	-
Financial assets at FVOCI		-	-	-	-	1,373	-	-	1,373	2,385
Derivative for hedge		-	-	-	-	-	-	-	-	(1,764)
		1,987,231	-	1,484,645	(1,252,098)	1,393	(454,577)	102,374	1,868,968	621
Financial liabilities:
Financial liabilities at amortized cost		-	(421,943)	-	-	-	-	(5,141)	(427,084)	-
Derivative for hedge		-	-	-	-	-	-	4,670	4,670	(15,181)
		-	(421,943)	-	-	-	-	(471)	(422,414)	(15,181)
	W	1,987,231	(421,943)	1,484,645	(1,252,098)	1,393	(454,577)	101,903	1,446,554	(14,560)

		2017
		Interest income	Interest expense	Fee and commission income	Fee and commission expense	Dividend income	Impairment Reversal (loss)	Other operating income, net	Net income (loss)	Other comprehensive income (loss)
Financial assets:
Trading financial assets	W	-	-	-	-	-	-	11,167	11,167	-
Loans and receivables		1,858,123	-	2,433,487	(2,264,217)	-	(280,648)	34,330	1,781,075	-
Available-for-sale financial assets		-	-	-	-	12,400	3,791	250,572	266,763	(150,392)
Derivative for hedge		-	-	-	-	-	-	(6,056)	(6,056)	2,739
		1,858,123	-	2,433,487	(2,264,217)	12,400	(276,857)	290,013	2,052,949	(147,653)
Financial liabilities:
Financial liabilities at amortized cost		-	(370,842)	-	-	-	-	13,535	(357,307)	-
Derivative for hedge		-	-	-	-	-	-	(7,790)	(7,790)	3,385
		-	(370,842)	-	-	-	-	5,745	(365,097)	3,385
	W	1,858,123	(370,842)	2,433,487	(2,264,217)	12,400	(276,857)	295,758	1,687,852	(144,268)

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SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(d) The amounts of foreign exchange differences recognized in profit or loss for each category of financial instruments for the years ended December 31, 2018 and 2017 are summarized as follows:

		2018			2017
		Gain on foreign currency transaction	Loss on foreign currency transaction	Net amount	Gain on foreign currency transaction	Loss on foreign currency transaction	Net amount
Loans and receivables	W	-	-	-	39,187	(4,857)	34,330
Financial assets at amortized cost		41,820	(5,629)	36,191	-	-	-
Financial liabilities  at amortized cost		349	(5,490)	(5,141)	14,204	(669)	13,535
	W	42,169	(11,119)	31,050	53,391	(5,526)	47,865

8.  Offsetting Financial Assets and Financial Liabilities

Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2018 and 2017 are as follows:

		2018
		Gross amounts recognized	Gross amounts recognized for offsetting	Net amounts of financial instruments	Amounts not subject to offsetting		Net amount
					Financial instruments	Cash collateral received
Financial assets:
Derivatives	W	310	-	310	310	-	-
Financial liabilities:
Derivatives		23,293	-	23,293	310	-	22,983

		2017
		Gross amounts recognized	Gross amounts recognized for offsetting	Net amounts of financial instruments	Amounts not subject to offsetting		Net amount
					Financial instruments	Cash collateral received
Financial assets:
Derivatives	W	3,680	-	3,680	969	-	2,711
Financial liabilities:
Derivatives		7,960	-	7,960	969	-	6,991

69

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

9.Cash and Due from Banks

(a) Details of cash and due from banks as of December 31, 2018 and 2017 are as follows:

		2018	2017
Cash	W	1	-
Deposits in won:
Deposits on demand		320,517	288,422
Current deposits		17,745	1,475
Foreign currency deposits		18	31
Time deposits		50	388
Deposit for checking accounts		31	33
Others		2,855	1,198
	W	341,217	291,547

(b) Restricted due from banks as of December 31, 2018 and 2017 are as follows:

		2018	2017	Restrictions
Time deposits
Shinhan Bank	W	50	50	Pledged as collateral for cash advances
Korea Post		-	338	Pledged as collateral for a lease
		50	388
Other deposits
Woori Bank and others		30	33	Deposit for checking accounts
	W	81	421

70

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

10.Trading Financial Assets

(a) Details of trading financial assets as of December 31, 2017are as follows:

		2017
MMF, etc.	W	803,252

(b) Net income on trading financial assets for the year ended December 31, 2017 is as follow is as follows:

		2017
Gain on valuation of trading financial assets	W	252
Gain on sale of trading financial assets		10,915
	W	11,167

11.Financial assets at FVTPL

(a) Details of financial assets at FVTPL as of December 31, 2018 are as follows and no financial assets are designated as at FVTPL.

		2018
Beneficiary certificates	W	950,153
Debt securities		1,579
Equity securities		2,211
	W	953,943

(b) Net income on financial assets at FVTPL for the year ended December 31, 2018 is as follows:

		2018
Gain on valuation	W	153
Loss on valuation		(376)
Gain on sale		16,920
Other income		38,870
	W	55,567

(c) Dividend income on financial assets at FVTPL is W20 million for the year ended December 31, 2018.

71

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

12.Derivatives

(a) Derivative assets and liabilities

The notional amounts and fair values of derivative assets and liabilities as of December 31, 2018 and 2017 are as follows:

		2018				2017
			Notional amounts	Fair value		Notional amounts	Fair value
				Assets	Liabilities		Assets	Liabilities
Currency swap	W		111,810	-	2,508	107,140	-	6,991
Interest rate swap			1,540,000	310	20,785	730,000	3,680	969
	W		1,651,810	310	23,293	837,140	3,680	7,960

(b) Gain (loss) on derivatives

Gain (loss) on valuation of derivatives for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Gain on valuation of derivatives	W	4,670	-
Loss on valuation of derivatives		-	(7,310)
Loss on derivatives transactions		-	(6,536)
Gain (loss) on derivatives	W	4,670	(13,846)

(c) Hedge accounting

(i) Risk management strategy

The Company deals with derivative financial instruments to avoid interest rate risk and exchange risk. The Company applies cash flow hedge accounting that utilizes interest rate swap and currency swap to avoid the risk of cash flow variability from borrowings in won, debentures in won and debentures in foreign currency due to market interest rate and foreign exchange rate.

72

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

12.Derivatives, continued

(c) Hedge accounting, continued

(ii) The timing of the nominal amount of the hedging instrument and the average rate as of December 31, 2018 are as follows.

		2018
		Within 1 year	Over 1 year ~ 2 years	Over 2 years ~ 3 years	Over 3 year ~ 4 years	Over 4 year ~ 5 years	Total
Cash flow hedge
Currency swap	W	111,810	-	-	-	-	111,810
Interest rate swap		150,000	265,000	230,000	235,000	660,000	1,540,000
	W	261,810	265,000	230,000	235,000	660,000	1,651,810
Average hedging ratio		100%	100%	100%	100%	100%	100%

(iii) The effect that hedge accounting has had on the separate statement of financial position and separate statement of comprehensive income

ⓐ The effect that hedge instruments have had on the separate statement of financial position and separate statement of comprehensive income as of and for the year ended December 31, 2018 is as follows.

		2018
		Nominal amount	Derivative assets	Derivative liabilities	Gain on derivatives	Other comprehensive income (loss)	Changes in fair value
Cash flow hedge
Exchange risk
Currency swap	W	111,810	-	2,508	4,670	(135)	(186)
Interest rate risk
Interest rate swap		1,540,000	310	20,785	-	(16,810)	(23,187)
	W	1,651,810	310	23,293	4,670	(16,945)	(23,373)

73

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

12.Derivatives, continued

(c) Hedge accounting, continued

(iii) The effect that hedge accounting has had on the statement of financial position and statement of comprehensive income, continued

ⓑThe effect that hedged items have had on the separate statement of financial position and separate statement of comprehensive income as of and for the year ended December 31, 2018 are as follows.

		2018
		Borrowings	Debentures	Interest expense	Gain (Loss) on foreign currency transactions	Cash flow hedge reserve
Cash flow hedge
Currency swap
Debentures in foreign currency	W	-	111,775	(2,106)	(4,670)	96
Interest rate swap
Debentures in won		-	1,339,005	(28,026)	-	(14,785)
Borrowings in won		200,000	-	(2,036)	-	(59)
	W	200,000	1,450,780	(32,168)	(4,670)	(14,748)

(iv) Cash flow hedge activity

For cash flow hedges, the amount that was recognized in other comprehensive income and the amount that was reclassified from equity to profit or loss for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Recognized in other comprehensive income	W	(18,702)	(5,635)
Reclassified from equity to profit or loss		(4,670)	13,846
Deferred tax effect		6,427	(2,087)
Changes in accumulated other comprehensive income, net	W	(16,945)	6,124

74

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13.Credit card assets measured at amortized cost, etc.

(a) Details of credit card assets measured at amortized cost, etc. as of December 31, 2018 and 2017 are as follows:

		2018	2017 (*)
Credit card assets:
Lump-sum purchases	W	5,896,229	5,448,088
Installment purchases		6,511,323	5,807,934
Cash advances		1,845,487	1,768,222
Revolving cash advances		140,738	150,581
Revolving purchases		1,603,675	1,361,988
Card loans		6,036,604	5,693,920
Restructured loans		238,998	249,627
Purchasing card		851	910
Less : Allowance for doubtful accounts		(793,258)	(595,431)
Present value discount account		(20,161)	(18,836)
Deferred loan origination fees		(30,228)	(26,992)
		21,430,258	19,840,011
Loans:
General loans		545,238	327,607
Factoring receivables		147,095	276,848
Commercial paper		297,145	148,802
Other		577	766
Less : Allowance for doubtful accounts		(16,567)	(10,603)
Add : Deferred loan origination costs		463	586
		973,951	744,006
Installment financing assets:
Installment for cars		2,623,967	2,245,384
Installment for others		13,455	2,241
Less : Allowance for doubtful accounts		(18,694)	(12,611)
Add : Deferred loan origination costs		31,322	29,623
		2,650,050	2,264,637
Lease assets:
Financing lease receivables		1,169,419	997,475
Cancelled financing lease receivables		136	95
Less : Allowance for doubtful accounts		(9,631)	(6,974)
Deferred loan origination fees		(666)	(357)
		1,159,258	990,239
	W	26,213,517	23,838,893

(*) The carrying amount of credit card assets at amortized cost, etc. as of December 31, 2017 was classified as loans and receivables under the measurement categories of K-IFRS No.1039.

75

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13. Credit card assets measured at amortized cost etc., continued

(b)Changes in the gross carrying amount of credit card assets at amortized cost, etc. for the year ended December 31, 2018 are as follows:

		2018
		12 month expected credit losses	Lifetime expected credit losses	Credit-impaired financial assets	Total
Beginning balance	W	20,069,523	3,998,634	396,355	24,464,512
12 month expected credit losses substitution		405,911	(405,506)	(405)	-
Lifetime expected credit losses substitution		(718,324)	718,907	(583)	-
Credit-impaired financial assets substitution		(49,116)	(34,306)	83,422	-
Execution		2,915,591	124,970	280,296	3,320,857
Recoveries		-	(112,889)	-	(112,889)
Write-offs		(78,866)	(174,932)	(324,351)	(578,149)
Disposal of loans		(42,665)	-	-	(42,665)
Ending balance		22,502,054	4,114,878	434,734	27,051,666
Allowance for doubtful accounts		(186,377)	(362,389)	(289,384)	(838,150)
Net carrying amount	W	22,315,677	3,752,489	145,350	26,213,516

(c) Changes in allowance for credit card assets at amortized cost, etc. for the years ended December 31, 2018 and 2017 are as follows:

		2018
		12 month expected credit losses	Lifetime expected credit losses	Credit-impaired financial assets	Total
Beginning balance (*)	W	171,160	342,379	266,512	780,051
12 month expected credit losses substitution		21,233	(20,958)	(275)	-
Lifetime expected credit losses substitution		(12,724)	13,092	(368)	-
Credit-impaired financial assets substitution		(1,025)	(2,892)	3,917	-
Provision for credit loss allowance		86,602	205,700	141,421	433,723
Write-offs		(78,866)	(174,932)	(324,351)	(578,149)
Unwinding effect		-	-	(2,871)	(2,871)
Disposal of loans		(302)	-	(83)	(385)
Recoveries		-	-	189,515	189,515
Others		299	-	15,967	16,266
Ending balance	W	186,377	362,389	289,384	838,150

(*) The balance of allowance for doubtful accounts in accordance with K-IFRS No.1109.

76

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13.Credit card assets at amortized cost, etc., continued

(c)  Changes in allowance for credit card assets at amortized cost, etc. for the years ended December 31, 2018 and 2017 are as follows, continued:

		2017
Beginning balance	W	723,588
Provision for allowance		265,217
Write-offs		(551,441)
Unwinding effect		(1,631)
Allowance related to disposal of loans		(1,928)
Recoveries		188,580
Others		3,234
Ending balance	W	625,619

(d)  Financing lease assets

Total investments in financing leases and the present value of minimum lease payments for each of the following periods as of December 31, 2018 and 2017 are as follows:

		2018
		Total investment	Unrealized interest income	Present value of minimum lease payment
Less than one year	W	316,425	59,327	257,098
One year to five years		988,140	82,158	905,982
Over five years		6,505	30	6,475
	W	1,311,070	141,515	1,169,555

		2017
		Total investment	Unrealized interest income	Present value of minimum lease payment
Less than one year	W	347,413	42,671	304,742
One year to five years		742,374	54,526	687,848
Over five years		5,004	24	4,980
	W	1,094,791	97,221	997,570

(e)  Changes in deferred loan origination costs (fees)

Changes in deferred loan origination costs (fees) for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	2,860	9,272
Increase		(28,880)	(31,317)
Decrease		26,911	24,905

77

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

Ending balance W 891 2,860

78

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

14.Lease assets

(a) Details of lease assets as of December 31, 2018 and 2017 are as follows:

		2018			2017
		Operating lease assets	Cancelled financing lease assets	Total	Operating lease assets	Cancelled financing lease assets	Prepaid lease assets	Total
Acquisition cost	W	418,671	663	419,334	108,625	206	284	109,115
Accumulated depreciation		(53,683)	(70)	(53,753)	(5,488)	(7)	-	(5,495)
Book value	W	364,988	593	365,581	103,137	199	284	103,620

(b) Lease transactions as a lessee

Future minimum lease payments as lessee under non-cancellable lease assets as of December 31, 2018 is as follows:

		2018
Less than one year	W	16,754
One year to five years		42,318
Over five years		-
	W	59,072

(c) Lease transactions as a lessor

Future minimum lease payments as lessor under non-cancellable lease assets as of December 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Less than one year	W	82,878	24,214
One year to five years		165,311	59,687
Over five years		10	12
	W	248,199	83,913

79

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

15.Available-For-Sale Financial Assets

(a) Details of available-for-sale financial assets as of December 31, 2017 are as follows:

		2017
Debt securities
Corporate bonds	W	1,953
Equity securities (*)
Stock		32,630
Equity investments		2
		32,632
	W	34,585

(*) Equity securities with no quoted market prices in active markets and for which the fair value cannot be measured reliably are recorded at their acquisition cost.  The carrying amounts of those investments are W4,314 million as of December 31, 2017.

(b) Changes in available-for-sale financial assets for the years ended December 31, 2018 and 2017 are as follows:

	2018				2017
		Debt securities	Equity securities	Total		Debt securities	Equity securities	Total
Beginning balance	W	1,953	32,632	34,585		1,368	240,788	242,156
Effect of changes in accounting policies		(1,953)	(32,632)	(34,585)		-	-	-
Acquisition		-	-	-		-	2,000	2,000
Disposal		-	-	-		(3,206)	(248,697)	(251,903)
Changes in fair value of available-for-sale financial assets		-	-	-		-	53,778	53,778
Exchange rate differences		-	-	-		-	(15,237)	(15,237)
Reversal of impairment loss		-	-	-		3,791	-	3,791
Ending balance	W	-	-	-		1,953	32,632	34,585

(c) Gain on sale of available-for-sale financial assets for the year ended December 31, 2017 are as follows:

		2017
Gain on sale of available-for-sale financial assets	W	250,572

80

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

16.Financial assets at FVOCI

(a)Details of financial assets at FVOCI as of December 31, 2018 are as follows:

		2018
Equity instruments designated as FVOCI	W	34,519

(b) The fair value of an equity instruments designated as FVOCI investing in equity instruments as ofDecember 31, 2018 is as follows:

		2018
Equity securities (*)	W	34,519

(*) The equity securities were exercised at the FVOCI option for the purpose of holding long term for the Company strategic purposes.

(c) Details of dividend income of financial assets at FVOCI for the year ended December 31, 2018 are as follows:

		2018
Dividend income recognized in assets held at the end of the reporting period
Equity securities	W	1,373

(d) Changes of financial assets at FVOCI for the year ended December 31, 2018 are as follows:

		2018
Equity securities
Beginning balance	W	-
Effect of changes in accounting policies		31,129
Acquisition		300
Disposal		(200)
Changes in fair value		3,290
Ending balance	W	34,519

(e) There are no gains or losses on sales of financial assets at FVOCI for the year ended December 31, 2018.

81

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

17.Property and Equipment

(a) Details of property and equipment as of December 31, 2018 and 2017 are as follows:

		2018
		Land	Buildings	Others	Total
Acquisition cost	W	31,176	7,280	367,861	406,317
Accumulated depreciation		-	(2,270)	(316,398)	(318,668)
Ending balance	W	31,176	5,010	51,463	87,649

		2017
		Land	Buildings	Others	Total
Acquisition cost	W	31,176	7,280	359,696	398,152
Accumulated depreciation		-	(2,018)	(315,190)	(317,208)
Ending balance	W	31,176	5,262	44,506	80,944

(b) Changes in property and equipment for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Land	Buildings	Others	Total
Beginning balance	W	31,176	5,262	44,506	80,944
Acquisition		-	-	21,404	21,404
Disposal		-	-	(510)	(510)
Depreciation		-	(252)	(19,526)	(19,778)
Others		-	-	5,589	5,589
Ending balance	W	31,176	5,010	51,463	87,649

		2017
		Land	Buildings	Others	Total
Beginning balance	W	31,176	5,515	37,667	74,358
Acquisition		-	-	23,626	23,626
Disposal		-	-	(372)	(372)
Depreciation		-	(253)	(18,707)	(18,960)
Others		-	-	2,292	2,292
Ending balance	W	31,176	5,262	44,506	80,944

82

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

17.Property and Equipment, continued

(c) Insured assets:

   Details of insured assets as of December 31, 2018 are as follows:

Type of insurance	Assets covered	Insurance company		Amount covered
Property all risks policy	Buildings, etc.	Samsung Fire & Marine Insurance, Ltd.	W	59,307

In addition, the Company maintains transportation theft insurance, custody theft insurance for cash and securities and liability insurance, full insurance for vehicles.

18.Intangible Assets

(a) Details of intangible assets as of December 31, 2018 and 2017 are as follows:

		2018
		Club memberships	Development cost	Others	Total
Acquisition cost	W	15,613	38,170	22,562	76,345
Accumulated amortization		-	(19,999)	(10,139)	(30,138)
Impairment losses		(904)	(336)	-	(1,240)
Ending balance	W	14,709	17,835	12,423	44,967

		2017
		Club memberships	Development cost	Others	Total
Acquisition cost	W	15,594	32,644	12,354	60,592
Accumulated amortization		-	(13,644)	(6,490)	(20,134)
Impairment losses		(939)	-	-	(939)
Ending balance	W	14,655	19,000	5,864	39,519

83

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

18.Intangible Assets, continued

(b) Changes in intangible assets for the year ended December 31, 2018 and 2017 are as follows, and amortization is included in general administrative expenses.

		2018
		Club memberships	Development cost	Others	Total
Beginning balance	W	14,655	19,000	5,864	39,519
Acquisition		19	11,776	8,875	20,670
Reclassification		-	(5,787)	1,333	(4,454)
Disposal		-	(93)	-	(93)
Amortization		-	(6,355)	(3,649)	(10,004)
Impairment loss (*)		-	(336)	-	(336)
Reversal of impairment loss (*)		35	-	-	35
Discard		-	(370)	-	(370)
Ending balance	W	14,709	17,835	12,423	44,967

		2017
		Club memberships	Development cost	Others	Total
Beginning balance	W	15,297	17,967	5,356	38,620
Acquisition		376	10,988	2,331	13,695
Reclassification		-	(3,497)	673	(2,824)
Disposal		(1,063)	-	-	(1,063)
Amortization		-	(6,458)	(2,496)	(8,954)
Reversal of impairment loss (*)		45	-	-	45
Ending balance	W	14,655	19,000	5,864	39,519

(*) Impairment loss and reversal of impairment loss are recognized as non-operating income and expenses. Recoverable amount of club memberships is determined as the higher of its fair value less costs of disposal and fair value less costs to sell or value in use. Club memberships are tested for impairment by comparing its carrying amount with its recoverable amount.

84

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

19.Investments in Associates

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

			2018			2017
Investee	Country	Fiscal year-end	Ownership		Book value (*)	Ownership		Book value (*)
Shinhan Finance LLC	Kazakhstan	December 31,	100%	W	10,279	100%	W	10,279
Shinhan Indo Finance	Indonesia	December 31,	50% + 1 of the shares		16,865	50% + 1 of the shares		17,518
Shinhan Microfinance Co., Ltd.	Myanmar	December 31,	100%		6.916	100%		6,916
				W	34,060		W	34,713

(*) Investments in associates are measured at acquisition cost.

(b) Changes in investments in associates for the years ended December 31, 2018 and 2017 are as follows:

		2018
Investee		Beginning balance	Acquisition	Impairment loss	Ending balance
Shinhan Finance LLC	W	10,279	-	-	10,279
Shinhan Indo Finance		17,518	3,940	(4,593)	16,865
Shinhan Microfinance Co., Ltd.		6,916	-	-	6,916
	W	34,713	3,940	(4,593)	34,060

		2017
Investee		Beginning balance	Acquisition	Impairment loss	Ending balance
Shinhan Finance LLC	W	10,279	-	-	10,279
Shinhan Indo Finance		15,730	4,290	(2,502)	17,518
Shinhan Microfinance Co., Ltd.		3,493	3,423	-	6,916
	W	29,502	7,713	(2,502)	34,713

85

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

19.Investments in Associates, continued

(c) Condensed financial statements of Investee as of December 31, 2018 and 2017 are as follows:

		2018
		Assets	Liabilities	Equity	Operating revenue	Operating expenses	Profit (loss) for the year
Shinhan Finance LLC	W	13,832	3,375	10,457	2,518	(1,276)	964
Shinhan Indo Finance		80,656	89,944	(9,288)	13,667	(17,032)	(3,371)
Shinhan Microfinance   Co., Ltd		8,816	2,822	5,994	2,221	(2,085)	162
	W	103,304	96,141	7,163	18,406	(20,393)	(2,245)

		2017
		Assets	Liabilities	Equity	Operating revenue	Operating expenses	Profit (loss) for the year
Shinhan Finance LLC	W	10,664	295	10,369	1,845	(1,114)	575
Shinhan Indo Finance		88,610	101,461	(12,851)	11,707	(36,667)	(30,135)
Shinhan Microfinance Co., Ltd.		7,605	1,389	6,216	871	(1,065)	(194)
	W	106,879	103,145	3,734	14,423	(38,846)	(29,754)

86

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

20.Other Assets

(a) Details of other assets as of December 31, 2018 and 2017 are as follows:

		2018	2017
Guarantee deposits	W	81,338	77,117
Present value discount account		(2,862)	(2,937)
Accounts receivable		469,343	495,218
Allowance for doubtful accounts		(1,045)	(1,316)
Accrued income		119,766	112,031
Allowance for doubtful accounts		(10,032)	(7,372)
Advance payments		324,035	134,945
Prepaid expenses		69,326	46,250
Others		5,522	4,297
	W	1,055,391	858,233

(b) Changes in allowance for other assets for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	8,688	11,771
Effect of changes in accounting policies		1,180	-
Provision for credit loss allowance		20,854	15,431
Write-offs		(20,622)	(19,326)
Recoveries		977	812
Ending balance	W	11,077	8,688

87

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

21.Borrowings

Details of borrowings as of December 31, 2018 and 2017 are s follows:

	Interest rate (%)		2018	2017
Borrowings in won:
Commercial paper	1.91 ~ 2.58	W	1,625,000	1,090,000
General borrowings	-		-	96,300
Borrowings from Shinhan Financial Group Co., Ltd.	1.84 ~ 2.90		700,000	600,000
Bank overdrafts	-		-	78,878
SPC borrowings	1.85 ~ 2.36		2,585,631	2,250,617
		W	4,910,631	4,115,795

22.Debentures

Details of debentures as of December 31, 2018 and 2017 are as follows:

	Maturity	Interest rate (%)		2018	2017
Debentures in won	2019.01.14~2025.12.26	1.47 ~ 3.56	W	14,040,000	11,747,000
Less: discount				(8,487)	(7,119)
				14,031,513	11,739,881
Debentures in foreign currency	2019.07.05	1.83		111,810	107,140
Less: discount				(35)	(95)
				111,775	107,045
			W	14,143,288	11,846,926

88

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits

(a)  Defined benefit plan assets and liabilities as of December 31, 2018 and 2017 are as follows:

		2018	2017
Present value of defined benefit obligations	W	247,077	233,788
Fair value of plan assets		(229,142)	(231,431)
Recognized liabilities for defined benefit obligations	W	17,935	2,357

(b)  Changes in the present value of defined benefit obligations and plan assets for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Defined benefit obligation	Plan assets	Net defined Benefit obligations
Beginning balance	W	233,788	(231,431)	2,357
Recognized in profit or loss as incurred:
Current service cost		17,306	-	17,306
Interest expense (income)		8,111	(9,124)	(1,013)
		25,417	(9,124)	16,293
Recognized in other comprehensive income:
Remeasurement loss (gain)
-Actuarial losses (gains)
Demographic assumptions		-	-	-
Financial assumptions		13,846	-	13,846
Experience adjustments.		(4,780)	-	(4,780)
- Return on plan assets		-	5,390	5,390
		9,066	5,390	14,456
Others:
Contributions paid into the plan		-	(15,131)	(15,131)
Benefits paid by the plan		(21,482)	21,154	(328)
Others (*)		288	-	288
		(21,194)	6,023	(15,171)
Ending balance	W	247,077	(229,142)	17,935

(*) Transfer from/to related parties

89

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits, continued

(b)  Changes in the present value of defined benefit obligations and plan assets for the years ended December 31, 2018 and 2017 are as follows, continued:

		2017
		Defined benefit obligations	Plan assets	Net defined benefit obligations
Beginning balance	W	241,396	(207,371)	34,025
Recognized in profit or loss as incurred:
Current service cost		20,327	-	20,327
Interest expense (income)		7,763	(6,656)	1,107
		28,090	(6,656)	21,434
Recognized in other comprehensive income:
Remeasurement loss (gain)
-Actuarial losses (gains)
Demographic assumptions		(639)	-	(639)
Financial assumptions		(7,247)	-	(7,247)
Experience adjustments.		(23,067)	-	(23,067)
- Return on plan assets		-	3,445	3,445
		(30,953)	3,445	(27,508)
Others:
Contributions paid into the plan		-	(25,255)	(25,255)
Benefits paid by the plan		(5,242)	4,406	(836)
Others (*)		497	-	497
		(4,745)	(20,849)	(25,594)
Ending balance	W	233,788	(231,431)	2,357

(*) Transfer from/to related parties

(c) Details of the amounts included in the fair value of plan assets for each category of financial instruments as of December 31, 2018 and 2017 are as follows:

		2018			2017
		Amounts	Ratio	Amounts		Ratio
Cash and due from banks	W	40	0.0%	40		0.0%
Securities		228,571	99.8%	230,762		99.7%
Others		531	0.2%	629		0.3%
Fair value of plan assets	W	229,142	100.0%	231,431		100.0%

90

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits, continued

(d) Actuarial assumptions as of December 31, 2018 and 2017 are as follows:

	2018	2017
Discount rate (AA0)	3.02%	Permanent workers : 3.74% Operating workers : 3.92% Temporary workers : 2.44%
Future salary increasing rate	1.80% + upgrade rate	1.80% + upgrade rate
Average expected remaining years of service	9.3 years	Permanent workers : 8.88 years Operating workers : 12.08 years Temporary workers : 1.17 years

(e) Sensitivity analysis

This analysis is based on actuarial assumptions variances that the Company considered to be reasonably possible at the reporting date.

		Changes in the amount of defined benefit obligations
Discount rate (1%p decrease)	W	21,099
Discount rate (1%p increase)		(18,748)
Future salary increasing rate (1%p decrease)		(19,148)
Future salary increasing rate (1%p increase)		21,164

Sensitivity analysis does not consider the variance of all cash flows expected to occur in the plan, but provides approximation of the sensitivity to the assumptions.

(f) The amounts recognized as expenses for defined contribution plans are W2,018 million and W2,087 million for the years ended December 31, 2018 and 2017, respectively.

91

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

24.Provisions

(a) Changes in provisions for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Allowance for litigation	Provision for customer loyalty programmes	Allowance for unused credit commitments	Asset retirement	Other	Total
Beginning balance	W	746	26,097	72,793	7,410	30,303	137,349
Effect of changes in accounting policies		-	(26,097)	59,468	-	-	33,371
Provision (reversal)		(41)	-	14,785	(1,741)	745	13,748
Payment		(676)	-	-	(316)	(999)	(1,991)
Ending balance	W	29	-	147,046	5,353	30,049	182,477

		2017
		Allowance for litigation	Provision for customer loyalty programmes	Allowance for unused credit commitments	Asset retirement	Other	Total
Beginning balance	W	1,002	25,095	354,305	7,351	1,920	389,673
Provision (reversal)		(223)	51,286	(281,512)	17	29,338	(201,094)
Payment		(33)	(50,284)	-	-	(955)	(51,272)
Others		-	-	-	42	-	42
Ending balance	W	746	26,097	72,793	7,410	30,303	137,349

(b) Details of allowance for unused credit commitments as of December 31, 2018 and 2017 are as follows:

		2018	2017
Unused credit commitments	W	71,896,628	63,745,952
Allowance		147,046	72,793
Ratio (%)		0.20%	0.11%

92

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

24.Provisions, continued

(c) Changes in unused credit commitments for the year ended December 31, 2018 are as follows:

		2018
		12 month expected credit losses	Lifetime expected credit losses	Credit-impaired financial assets	Total
Beginning balance (*)	W	52,759	77,525	1,977	132,261
12 month expected credit losses substitution		39,525	(39,068)	(457)	-
Lifetime expected credit losses substitution		(6,238)	6,313	(75)	-
Credit-impaired financial assets substitution		(211)	(800)	1,011	-
Provision (reversal)		(27,450)	39,649	2,586	14,785
Ending balance	W	58,385	83,619	5,042	147,046

(*) The balance of allowance for doubtful accounts in accordance with K-IFRS No.1109.

25.Other Liabilities

Details of other liabilities as of December 31, 2018 and 2017 are as follows:

		2018	2017
Accounts payable	W	2,500,282	2,581,605
Accrued expenses		241,957	256,274
Advances from customers		115,193	96,284
Unearned revenue		105,386	295,926
Withholdings		378,341	213,676
Guarantee deposits		305,297	292,220
Present value discount account		(14,964)	(11,558)
Advances of gift card and others		30,356	30,374
Others (*)		282,279	5,250
	W	3,944,127	3,760,051

(*) Includes point liabilities of W275,573 million classified under the application of K-IFRS No.1115.

93

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

26.Deferred Revenue of Customer Loyalty Programmes

Changes in deferred revenue of customer loyalty programmes for the years ended 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	196,677	189,830
Effect of changes in accounting policies (*)		(196,677)
Deferred		-	330,766
Recognition as revenue		-	(323,919)
Ending balance	W	-	196,677

(*) Classified as point liabilities in accordance with K-IFRS No.1115.

27.Equity

(a) Details of equity as of December 31, 2018 and 2017 are as follows:

	2012	2018	2017
Common stock	W	626,847	626,847
Capital surplus
Gains on capital reduction		852,646	852,646
Gains on sale of treasury stock		2	2
Other additional capital		7,944	7,944
		860,592	860,592
Capital adjustments
Stock options		1,234	10
Accumulated other comprehensive income
Unrealized gain on valuation of available-for-sale securities		-	15,904
Unrealized gain on valuation of financial assets at FVOCI		18,289	-
Effective portion of valuation gain (loss) on cash flow hedges		(14,748)	2,197
Remeasurements of the net defined benefit obligations		(32,919)	(22,438)
		(29,378)	(4,337)
Retained earnings
Legal reserve		313,424	313,424
Reserve for credit losses (refer to Note 28)		891,598	388,352
Voluntary reserve		11,216	11,216
Retained earnings(*)		3,363,158	4,106,941
		4,579,396	4,819,933
	W	6,038,691	6,303,045

(*) W168,299 million of reserve for credit losses plans to reverse to retained earnings for the year ended December 31, 2018 and W503,246 million of retained earning reserved for credit losses for the year ended December 31, 2017.

94

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

27.Equity, continued

(b) Capital stock and capital surplus

As of December 31, 2018 and 2017, par value of common stock is W5,000 and the Company authorized 2,000,000,000 shares and issued outstanding shares amounted to 125,369,403 shares.

(c) Changes in accumulated other comprehensive income for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Valuation of financial assets at FVOCI	Valuation of available-for-sale financial assets	Valuation of cash flow hedges	Remeasurements of defined benefit obligations	Total
Balance at January 1, 2018	W	-	15,904	2,197	(22,438)	(4,337)
Effect of changes in accounting policies		15,904	(15,904)	-	-	-
Changes in fair value		3,290	-	-	(14,456)	(11,166)
Changes in fair value of cash flow hedges		-	-	(18,702)		(18,702)
Reclassification to profit or loss		-	-	(4,670)		(4,670)
Deferred tax effect		(905)	-	6,427	3,975	9,497
Balance at December 31, 2018	W	18,289	-	(14,748)	(32,919)	(29,378)

		2017
		Valuation of available-for-sale financial assets	Valuation of cash flow hedges	Remeasurements of defined benefit obligations	Total
Balance at January 1, 2017	W	166,296	(3,927)	(44,310)	118,059
Changes in fair value		53,778	-	27,508	81,286
Exchange rate differences		(15,237)	-	-	(15,237)
Changes in fair value of cash flow hedges		-	(5,635)	-	(5,635)
Reclassification to profit or loss		(235,992)	13,846	-	(222,146)
Deferred tax effect		47,059	(2,087)	(5,636)	39,336
Balance at December 31, 2017	W	15,904	2,197	(22,438)	(4,337)

(d) Earned surplus reserves

The Korean Commercial Act requires the Company to accumulate, as its earned surplus reserve, at least 10% of cash dividend in each period for the settlement of accounts until its reserve reaches half of the Company’s capital.  No reserve shall be disposed of, except in recovery from deficit in capital or capitalizing its reserve as approved in the shareholder’s meeting.

95

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

27.Equity, continued

(e) Voluntary reserve

The Company elected to measure an item of land and buildings at the date of transition to K-IFRSs at its fair value and use that fair value as its deemed cost at that date.  Revaluation surplus as a result of revaluation was classified as dividend restriction by the board of directors. Also, in accordance with amended Credit Information Use and Protection Act, the Company is liable to compensate the owners of credit information for inflicted damage and reserved voluntary reserve for fulfillment by the Act.

Details of voluntary reserve as of December 31, 2018 and 2017 are as follows:

		2018	2017
Revaluation surplus of property and equipment	W	10,216	10,216
Claim reserves for on-line transactions		1,000	1,000
	W	11,216	11,216

(f) Statements of appropriation of retained earnings for the years ended December 31, 2018 and 2017 are as follows:

Expected date of Appropriation for 2018: March 26, 2019

Date of Appropriation for 2017: March 21, 2018

(In millions of won, except dividends per share)		2018	2017
Unappropriated retained earnings
Balance at beginning of year	W	3,003,677	3,180,966
Effect of changes in accounting policies		(155,932)	-
Profit for the year		515,413	925,975
		3,363,158	4,106,941
Reversal of reserve for credit losses		168,299	-
Balance at end of year before appropriation		3,531,457	4,106,941
Appropriation of retained earnings
Transfer to reserve for credit losses		-	503,246
Cash dividends		337,745	600,018
Dividends per share (dividend as a percentage of par value): W2,694 (53.88%) for 2018 W4,786 (95.72%) for 2017
		337,745	1,103,264
Unappropriated retained earnings to be carried over to subsequent year	W	3,193,712	3,003,677

96

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

28.Reserve for Credit Losses

In accordance with Regulations on Supervision of Specialized Credit Finance Business, the Company reserves the difference between expected credit loss allowances recognized under K-IFRS and Regulations on Supervision of Specialized Credit Finance Business in the account of reserve for legal reserve for credit losses.

(a) Reserve for credit losses as of December 31, 2018 and 2017 are summarized as follows:

		2018	2017
Accumulated reserve for credit losses	W	891,598	388,352
Reserve for (reverse of) credit losses, scheduled		(168,299)	503,246
Effect of changes in accounting polices		(173,792)	-
Changes in 2018 and 2017		5,493	503,246
Ending balance of reserve for credit losses	W	723,299	891,598

(b) Details of profit for the year after adjusting for reversal of credit losses and provision for reserve for credit losses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Profit for the year	W	515,413	925,975
Reserve for credit losses, scheduled		(5,493)	(503,246)
Profit for the year after adjusting for reserve for credit losses	W	509,920	422,729
Earnings per share after adjusting credit losses (in won)	W	4,067	3,372

97

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

29.Operating Revenue

(i) Details of operating revenues

Details of operating revenues for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Revenue from contracts with customers
Fee and commission income
Credit card assets	W	2,492,361	2,363,872
Consideration paid to a customer		(1,135,440)	-
Revenue from others
Interest income		1,987,231	1,858,123
Fee and commission income
Loans		488	805
Installment loans		6,170	5,323
Leases		77,163	20,034
Other		43,903	43,453
Dividend income		1,393	12,400
Gain on valuation and disposal of trading financial assets		-	11,167
Net income on financial assets at FVTPL		55,943	-
Gains related to derivatives		4,670	-
Gains on foreign currency transactions		42,169	53,391
Gains on disposal of available-for-sale financial assets		-	250,572
Reversal of impairment losses on financial assets		-	3,791
Other operating income		52,582	313,816
	W	3,628,633	4,936,747

(ii) Classification of revenue from contracts with Customers

Classification of revenue from contracts with customers for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Revenue from contracts with customers
Credit sales commission, etc.	W	1,171,218	2,223,030
Insurance agency fee		65,106	56,319
Others		120,597	84,523
		1,356,921	2,363,872
Timing of revenue recognition
Transferred at a point in time		1,190,093	2,206,620
Transferred over time		166,828	157,252
	W	1,356,921	2,363,872

98

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

30.Earnings Per Share

Earnings per share for the years ended December 31, 2018 and 2017 are as follows:

(In millions of won, except shares outstanding and earnings per share)
		2018	2017
Net income	W	515,413	925,975
Weighted average number of common stocks outstanding		125,369,403	125,369,403
Earnings per share (in won)	W	4,111	7,386

The Company had no dilutive potential ordinary shares in the calculation of diluted earnings per share for the reporting periods.  Accordingly, diluted earnings per share equals basic earnings per share for the years ended December 31, 2018 and 2017.

99

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

31.Share-Based Payment

Share-based payment as of December 31, 2018 is summarized as follows:  

(a) Share-based payment arrangements with performance conditions

(i) Performance share granted as of December 31, 2018 are as follows:

	Granted in 2014	Granted in 2015	Granted in 2016	Granted in 2017	Granted in 2018
Type	Equity-settled type	Equity-settled type	Equity-settled type	Equity-settled type	Equity-settled type
Vesting period	2014 ~ 2016	2015 ~ 2017	2016 ~ 2018	2017 ~ 2019	2018 ~ 2020
Performance condition	Based on relative stock price (20.0%) Based on 4 year management index (80.0%)
Estimated number of shares granted	29,258 shares	53,141 shares	64,846 shares	62,401 shares	55,108 shares

(ii) Granted shares and the fair value of grant date as of December 31, 2018 are as follows:

       (In won, except shares)

Grant date	Grant shares	Exercised shared	Fair value (*1)	Estimated shares (*2)
January 1, 2014	23,600	18,275	47,300	18,275
February 10, 2014	9,400	6,448	42,800	6,448
March 31, 2014	4,700	2,689	47,000	2,689
July 24, 2014	1,600	541	46,550	541
August 22, 2014	4,700	1,305	51,800	1,305
January 1, 2015	50,700	-	44,500	44,750
February 4, 2015	4,500	-	45,700	3,718
August 24, 2015	4,500	-	40,250	1,453
August 27, 2015	10,200	-	39,600	3,220
January 1, 2016	74,200	-	39,000	48,227
February 4, 2016	15,400	-	38,150	12,648
June 3, 2016	5,200	-	38,800	2,781
August 1, 2016	1,900	-	40,650	705
October 31, 2016	3,100	-	43,850	485
January 1, 2017	70,200	-	45,300	54,661
March 7, 2017	10,600	-	46,950	7,740
January 1, 2018	59,900		49,400	55,108
	354,400	29,258		264,754

(*1) The fair value per share was evaluated based on the closing price of Shinhan Financial Group at each grant date.

(*2) Grant shares at grant date were adjusted pursuant to relative increase ratio of stock price and achievement of target management index based on standard quantity applicable to the days of service among specified period of service, which allows for the determination of acquired quantity at the end of the operation period.

100

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

31.Share-Based Payment, continued

(b) Share-based compensation expense for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Share-based payment arrangements with performance conditions	W	2,170	2,895

(c) Details of accrued expenses and the intrinsic value as of December 31, 2018 are as follows:

		Accrued expense related to compensation expenses associated with share based payments	Intrinsic values (*1)
Share-based payment arrangements with performance conditions (*2)	W	8,474	8,474

(*1) The fair value of share-based arrangements with performance conditions is considered as intrinsic value.

(*2) Payments according to arrangements with Shinhan Financial Group are calculated on the basis of the closing price on December 31, 2018, and have been recognized as liabilities.

101

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

32.Net Interest Income

Details of net interest income for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Interest incomes
Cash and due from banks	W	2,303	1,829
Credit card assets (*)		1,783,362	1,686,272
Loans (*)		58,893	32,843
Installment loans (*)		95,862	93,604
Financing leases (*)		44,790	41,920
Others		2,021	1,655
		1,987,231	1,858,123
Interest expenses
Borrowings		(99,347)	(81,292)
Debentures		(316,562)	(283,839)
Others		(6,034)	(5,711)
		(421,943)	(370,842)
Net interest income	W	1,565,288	1,487,281

(*) The carrying amount of interest incomes for the year ended December 31, 2017 was from financial assets classified as loans and receivables under the measurement categories of K-IFRS No.1039.

Interest income on impaired financial assets for the years ended December 31, 2018 and 2017 are W10,031 million and W9,628 million, respectively.

102

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

33.Net Fee and Commission Income

Details of net fee and commission income for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Fee and commission income
Credit card assets	W	1,356,921	2,363,872
Loans		488	805
Installment loans		6,170	5,323
Leases		77,163	20,034
Other (*)		43,903	43,453
		1,484,645	2,433,487
Fee and commission expense
Credit card assets		(1,144,217)	(2,193,424)
Installment loans		(20,980)	(21,209)
Leases		(456)	(404)
Other (*)		(86,445)	(49,180)
		(1,252,098)	(2,264,217)
Net fee and commission income	W	232,547	169,270

(*) Other fee and commission income or expense includes profit or loss associated with Shinhan Credit Service (Debt exemption and debt suspension) given to credit card members.  For the years ended December 31, 2018 and 2017, the amount of income related to debt exemption and debt suspension are W43,898 million and W43,446 million, respectively, and the amount of expense are W7,498 million and W7,657 million, respectively.

103

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

34.Dividend Income

Details of dividend income for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Available-for-sale financial assets in Korean currency	W	-	11,100
Available-for-sale financial assets in foreign currency		-	1,300
Financial assets at FVTPL in Korean currency		20	-
Financial assets at FVOCI in Korean currency		1,373	-
	W	1,393	12,400

35. Impairment Loss and Reversal on Financial Assets

Details of impairment loss and reversal on financial assets for the year ended December 31, 2017 are as follows:

		2017
Impairment loss
Loans and receivables	W	(265,217)
Other assets		(15,431)
		(280,648)
Reversal
Available-for-sale financial assets		3,791
Net impairment loss on financial assets	W	(276,857)

36.Provision for Credit Loss Allowance

Details of provision for credit loss allowance for the year ended December 31, 2018 are as follows:

		2018
Provision for credit loss allowance
Changes in credit card assets at amortized cost, etc.	W	(433,723)
Other assets		(20,854)
Allowance for unused credit commitments		(14,785)
Provision for credit loss allowance	W	(469,362)

104

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

37.General Administrative Expenses

Details of general administrative expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Relate to employees
Salaries and wages	W	162,818	167,322
Bonus		42,733	65,911
Incentive of result		27,319	17,836
Share-based compensation expense		2,170	2,895
Employee benefits		80,401	76,408
Travel		5,772	7,259
Defined benefit		16,293	21,434
Defined contribution		2,018	2,087
Honorary retirement allowance		-	56,283
		339,524	417,435
Depreciation and amortization
Depreciation		19,778	18,960
Amortization		10,004	8,954
		29,782	27,914
Other general administrative expenses
Communication		47,782	49,958
Utility		20,530	18,795
Vehicles maintenance		2,926	3,122
Supplies		10,590	12,814
Rent		23,265	24,082
Insurance		11,565	7,447
Repairs		145	165
Entertainment		1,668	2,012
Advertising		23,783	34,591
Sales promotion		144,887	140,833
Training		2,019	2,908
Publication		444	442
Freight		599	880
Provision for (reversal of) asset retirement obligation		(1,741)	17
Taxes and dues		34,385	35,207
		322,847	333,273
	W	692,153	778,622

105

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

38.Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Other operating income
Gains on recovery of bad debt	W	10,559	10,759
Reversal of allowance for unused loan commitments		-	281,512
Gains on sale of loans		9	-
Others		42,014	21,545
		52,582	313,816
Other operating expenses
Provision for allowance for unused loan commitments		-	-
Losses on repayment of debentures		-	(85)
Losses on repayment of leases		(51,249)	(5,668)
Others		(1,848)	(29,743)
		(53,097)	(35,496)
	W	(515)	278,320

39.Non-Operating Income and Expenses

Details of non-operating income and expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Non-operating income
Gains on disposal of property and equipment	W	57	92
Reversal of impairment losses on intangible assets		35	45
Reversal of allowance for litigation		41	223
Others		1,465	958
		1,598	1,318
Non-operating expenses
Donations		(23,758)	(13,294)
Losses on disposal of property and equipment		(222)	(375)
Impairment loss of intangible assets		(336)	-
Losses on disposal of intangible assets		-	(149)
Others		(2,534)	(2,460)
		(26,850)	(16,278)
	W	(25,252)	(14,960)

106

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes

(a) The components of income tax expense for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Current income taxes payable	W	126,670	233,594
Adjustments to the income tax expense for prior period		41	1,722
Changes in deferred tax due to changes in temporary differences		(10,692)	(11,646)
Income tax expense associated with items recorded in equity		9,499	39,336
Others		57,709	(18,894)
Income tax expense	W	183,227	244,112

(b) The relationship between income tax expense and profit before income taxes for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Profit before income taxes (A)	W	698,640	1,170,087
Income taxes at applicable tax rate		192,126	283,161
Adjustments:
Non-taxable income		(380)	(177)
Non-deductible expense		901	848
Tax deductions		-	(195)
Consolidated tax return effect and others		(9,420)	(13,926)
Changes in deferred tax due to change in tax rate		-	(25,599)
Income tax expense (B)	W	183,227	244,112
Effective tax rate (B/A)		26.23%	20.86%

107

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes, continued

(c) Changes in significant accumulated temporary differences and tax effects for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Beginning deferred tax assets (liabilities)	Effect of changes in accounting policies	Changes in profit or loss	Change in other comprehensive income	Ending deferred tax assets (liabilities)
Accounts receivable	W	79	-	-	-	79
Available-for-sale financial assets		84,619	(84,619)	-	-	-
Financial assets at FVOCI		-	84,619	-	-	84,619
Valuation on available-for-sale financial assets		(6,032)	6,032	-	-	-
Valuation on financial assets at FVOCI		-	(6,032)	-	(905)	(6,937)
Valuation on property and equipment, depreciation and others		(2,297)	-	177	-	(2,120)
Deferred loan origination costs		(8,387)	-	(514)	-	(8,901)
Derivative assets (liabilities)		(833)	-	-	6,427	5,594
Accrued expenses		14,828	-	3,729	-	18,557
Liability for defined benefit obligations		45,834	-	(468)	2,493	47,859
Plan assets		(51,217)	-	12	1,484	(49,721)
Other provisions		118,112	16,353	(1,165)	-	133,300
Others		13,513	42,795	(59,726)	-	(3,418)
	W	208,219	59,148	(57,955)	9,499	218,911

		2017
		Beginning deferred tax assets (liabilities)	Change in profit or loss	Change in other comprehensive income	Ending deferred tax assets (liabilities)
Accounts receivable	W	70	9	-	79
Available-for-sale financial assets		76,967	7,652	-	84,619
Valuation on available-for-sale financial assets		(53,091)	-	47,059	(6,032)
Valuation on property and equipment, depreciation and others		(2,016)	(281)	-	(2,297)
Deferred loan origination costs		(8,614)	227	-	(8,387)
Derivative assets (liabilities)		1,254	-	(2,087)	(833)
Accrued expenses		16,720	(1,892)	-	14,828
Liability for defined benefit obligations		64,013	(11,060)	(7,119)	45,834
Plan assets		(46,706)	(5,994)	1,483	(51,217)
Other provisions		151,436	(33,324)	-	118,112
Others		(3,460)	16,973	-	13,513
	W	196,573	(27,690)	39,336	208,219

108

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes, continued

(d) Deferred income tax expense associated with items, which are not recognized as profit (loss) for the years ended December 31, 2018 and 2017 are as follows.

		2018
		December 31, 2018		January 1, 2018		Changes in tax effect
		Amount	Tax effect	Amount	Tax effect
Changes in fair value of available-for-sale financial assets	W	-	-	15,904	(6,032)	6,032
Changes in fair value of financial assets at FVOCI		18,289	(6,937)	-	-	(6,937)
Effective portion of valuation gain or loss on cash flow hedges		(14,748)	5,594	2,197	(833)	6,427
Remeasurements of defined benefit obligations		(32,919)	12,485	(22,438)	8,510	3,975
	W	(29,378)	11,142	(4,337)	1,645	9,497

		2017
		December 31, 2017		January 1, 2017		Changes in tax effect
		Amount	Tax effect	Amount	Tax effect
Changes in fair value of available-for-sale financial assets	W	15,904	(6,032)	166,296	(53,091)	47,059
Effective portion of valuation gain or loss on cash flow hedges		2,197	(833)	(3,927)	1,254	(2,087)
Remeasurements of defined benefit obligations		(22,438)	8,510	(44,310)	14,146	(5,636)
	W	(4,337)	1,645	118,059	(37,691)	39,336

(e) The Company offsets a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.  Deferred tax assets and liabilities before offsetting as of December 31, 2018 and 2017 are as follows:

		2018	2017
Deferred tax assets	W	290,008	276,985
Deferred tax liabilities		(71,097)	(68,766)
	W	218,911	208,219

(f) Deferred tax assets have been recognized as the Company has determined it is probable that future profits will be available against which the Company can utilize the related benefit.

(g) As of December 31, 2018 and 2017, current tax liabilities are W89,623 million and W123,722 million respectively. For consolidated tax return, the amount is paid to the taxation authorities through the controlling company of the Company.

109

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

41.Statements of Cash Flows

(a) Details of cash and cash equivalents as of December 31, 2018 and 2017 are as follows:

		2018	2017
Cash	W	1	-
Available deposits from banks
Deposits on demand		320,517	288,422
Current deposits		17,745	1,475
Foreign currency deposits		18	31
Others		2,855	1,198
		341,135	291,126
Cash and cash equivalents	W	341,136	291,126

(b) The Company presents the cash inflows and outflows of bank overdrafts and call money as net amounts, because the turnover of transactions is quick, the amounts are large, and the maturities are short.

(c) Reconciliations of the amounts of cash and cash equivalents in the statement of cash flows with the equivalent items reported in the statement of financial position as of December 31, 2018 and 2017 are as follows:

		2018	2017
Cash and cash equivalents in the statements of financial position	W	341,217	291,547
Adjustment:
Restricted due from banks		(81)	(421)
Cash and cash equivalents in the statements of cash flows	W	341,136	291,126

(d) The Company presents statements of cash flows using the indirect method and significant non-cash transactions for the years ended December 31, 2018 and 2017 are as summarized follows:

		2018	2017
Valuation of available-for-sale financial assets	W	-	38,541
Valuation of financial assets at FVOCI		3,290	-
Valuation of derivatives		23,373	8,211

110

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

41.Statements of Cash Flows, continued

(e) Changes in assets and liabilities arising from financing activities for the years ended December 31, 2018 and 2017 are as summarized follows:

		2018
		Assets	Liabilities
		Derivative assets	Derivative         liabilities	Borrowings	Debentures	Total
Balance at January 1, 2018	W	3,680	(7,960)	(4,115,795)	(11,846,926)	(15,970,681)
Changes from financing cash flows		-	-	(790,466)	(2,288,654)	(3,079,120)
Changes from operating cash flows		-	-	17,550	(12,876)	4,674
Changes in foreign currency exchange rate		-	-	-	(4,671)	(4,671)
Net income on derivatives and interest expense		-	4,670	-	-	4,670
Changes in fair value		(3,370)	(20,003)	-	-	(20,003)
Others		-	-	(21,920)	9,839	(12,081)
Balance at December 31, 2018	W	310	(23,293)	(4,910,631)	(14,143,288)	(19,077,212)
		2017
		Assets	Liabilities
		Derivative assets	Derivative         liabilities	Borrowings	Debentures	Total
Balance at January 1, 2017	W	3,168	(5,189)	(3,080,611)	(11,056,578)	(14,142,378)
Changes from financing cash flows		2,896	480	(1,029,634)	(795,311)	(1,824,465)
Changes from operating cash flows		-	-	87,613	278,148	365,761
Changes in foreign currency exchange rate		-	-	-	7,784	7,784
Net loss on derivatives and interest expense		(6,056)	(7,790)	-	-	(7,790)
Changes in fair value		3,672	4,539	-	-	4,539
Others		-	-	(93,163)	(280,969)	(374,132)
Balance at December 31, 2017	W	3,680	(7,960)	(4,115,795)	(11,846,926)	(15,970,681)

111

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

42.Contingent Liabilities and Commitments

(a) Contingent liabilities

The Company has eight pending lawsuits as a defendant as of December 31, 2018 for a total claim amount of W489 million.  A legal provision of W29 million is recognized in the accompanying separate financial statements.  Additional losses may be incurred from these legal actions, but the result of such the lawsuits cannot be predicted.  The management believes that the result of the lawsuits would not have significant impact on the financial statements.

(b) ABS commitments

In trust-type asset securitizations, trust company can demand the Controlling Company to transfer additional assets if the transferred assets are below the agreed minimum amount.  As prescribed by the respective asset transfer agreements and other contracts, the Company has an obligation to early redeem the asset-backed securities in certain cases, such as when outstanding balance of securitized assets falls below the agreed amount at each settlement period or when portfolio profitability ratio is less than primary cost ratio for three consecutive settlement periods.  Investor Interest based on transferred assets is provided as collateral for asset-backed securities.  As of December 31, 2018, the Company has no additional obligation for the asset-backed securities.

The Company has entered into an agreement with the trust company to provide asset management services for the transferred assets.  Under the agreement, the Company provides various services such as billing, collection, and management of delinquencies, and receives service fees from the Trust company recorded as asset securitization income.

(c) Other commitments

The Company has decided to provide the total VND 4.5 trillion (KRW 216,900 million) of the lines of credit for the Vietnam-based consumer banking firm Prudential Vietnam Finance Company Limited, which is scheduled to be acquired.  As of December 31, 2018, the providing lines of credit has not been signed.

The providing lines of credit above will be provided for new borrowing and full refund of the funds deposited by Prudential Vietnam Assurance Private Limited, an affiliate of the seller, in accordance with the terms of the trading agreement.  A period of providing lines of credit is up to seven years from the end of the acquisition.

112

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

43.Transfer of Financial Instruments

The Company has transferred some of its financial instruments to Trust company pursuant to the Asset-Backed Securitization Act.  However, the Company retains the risks and rewards of ownership of financial assets and continues to recognize the asset and the relevant liability.

(a) The initial transfer price of the credit card assets sold by Asset-Backed Securitization Act as of December 31, 2018 and 2017 are summarized as follows:

	Initial transfer date		2018	2017
Shinhan Card 2017-1	2017.02.08	W	-	894,379
Shinhan Card 2017-2	2017.04.26		-	841,643
Shinhan Card 2017-3	2017.09.12		-	566,521
Shinhan Card 2018-1	2018.03.12		698,758	-
Shinhan Card 2018-2	2018.08.30		940,935	-
		W	1,639,693	2,302,543

(b) The financial assets that have not been qualified for derecognition and the liabilities relevant to such assets as of December 31, 2018 and 2017 are summarized as follows:

		2018	2017
Loan and receivables	W	-	3,712,131
Credit card assets measured at amortized cost etc.		4,291,328	-
Borrowings		2,585,631	2,250,618

113

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions

(a) As of December 31, 2018, related parties of the Company are summarized as follows:

Name of company	Control relationship
Shinhan Financial Group Co., Ltd.	Parent company
Shinhan Finance LLC	Subsidiaries
Shinhan Indo Finance	Subsidiaries
Shinhan Microfinance Co., Ltd.	Subsidiaries
Shinhan Bank	Other related parties
Shinhan Credit Information Co., Ltd.	Other related parties
Shinhan Life Insurance Co., Ltd.	Other related parties
Shinhan Data System Co., Ltd.	Other related parties
Shinhan Investment Corp.	Other related parties
Jeju Bank	Other related parties
BNP Paribas Cardif Life Insurance	Other related parties
Shinhan Savings Bank	Other related parties
Shinhan Aitas Co., Ltd.	Other related parties
Shinhan Capital Co., Ltd.	Other related parties
Shinhan Private Equity Investment Management	Other related parties
Shinhan BNP Paribas ITMC Co., Ltd.	Other related parties
SHC Management Co., Ltd.	Other related parties
BNP Paribas Cardif General Insurance	Other related parties
Shinhan REITs Management Co., Ltd.	Other related parties
Branbil Co., Ltd.	Other related parties
Financial Savings Information Center Co., Ltd. (*)	Other related parties

(*) As Financial Savings Information Center Co., Ltd. became an affiliated company of Shinhan Financial Group Co., Ltd. which is the controlling company of the Company, it is included in the scope of other related parties for the year ended December 31, 2018.

114

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(b) Significant transactions with related parties for the years ended December 31, 2018 and 2017 are as follows:

		2018		2017
Related party / Account		Revenue	Expense	Revenue	Expense
Shinhan Financial Group Co., Ltd.
Interest expense	W	-	14,953	-	11,861
Fee and commission income		15	-	12	-
Fee and commission expense		-	8,979	-	8,381
Reversal of allowance for doubtful accounts		-	-	2	-
Shinhan Indo Finance
Fee and commission income		118	-	145	-
Shinhan Bank
Interest income		177	-	105	-
Interest expense		-	63	-	101
Fee and commission income		1,701	-	1,367	-
Fee and commission expense		-	198,770	-	187,548
Reversal of allowance for doubtful accounts		-	-	43	-
Other general and administrative expense		-	1,761	-	1,720
Other operating income		43	-	43	-
Shinhan Credit Information Co., Ltd.
Fee and commission income		9	-	8	-
Fee and commission expense		-	23,224	-	17,793
Reversal of allowance for doubtful accounts		-	-	1	-
Shinhan Life Insurance Co., Ltd.
Fee and commission income		16,535	-	14,158	-
Fee and commission expense		-	524	-	576
Reversal of allowance for doubtful accounts		-	-	21	-
Employee benefits		-	67	-	165
Other general and administrative expense		-	45	-	100
Shinhan Data System Co., Ltd.
Fee and commission income		16	-	15	-
Fee and commission expense		-	19,052	-	17,628
Reversal of allowance for doubtful accounts		-	-	2	-
Depreciation expenses		-	1,605	-	1,281
Other general and administrative expense		-	12	-	4
Shinhan Investment Corp.
Interest income		126	-	131	-
Interest expense		-	26	-	35
Fee and commission income		201	-	209	-
Fee and commission expense		-	400	-	388
Reversal of allowance for doubtful accounts		-	-	25	-
Other general and administrative expense		-	5	-	4

115

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(b) Significant transactions with related parties for the years ended December 31, 2018 and 2017 are as follows, continued:

	2018		2017
Related party / Account	Revenue	Expense	Revenue	Expense
Jeju Bank
Interest income	-	- -- --	1	- -----
Fee and commission income	37	-	27	-
Fee and commission expense	-	9 -	-	8 -
BNP Paribas Cardif Life Insurance
Fee and commission income	82	-	93	-
Bad debt expenses	-	-	-	3
Reversal of allowance for doubtful accounts	4	-	-	-
Shinhan Savings Bank
Fee and commission income	860	-	-	-
Fee and commission expense	-	48	-	-
Other general and administrative expense	-	8	-	-
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan Aitas Co., Ltd.
Reversal of allowance for doubtful accounts	-	-	2	-
Shinhan Capital Co., Ltd.
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan Private Equity Investment Management
Fee and commission expense	- -	1	-	-
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan BNP Paribas ITMC Co., Ltd.
Fee and commission income	-	-	1	-
Fee and commission expense	-	2	-	3
Reversal of allowance for doubtful accounts	-	-	1	-
SHC Management Co., Ltd.
Other operating income	55	-	55	-
BNP Paribas Cardif General Insurance
Fee and commission income	4 1	-	2	-
Bad debt expenses	-	1	-	-
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan REITs Management Co., Ltd.
Fee and commission income	5	-	1	-
Jaeyoung Solutec Co., Ltd. (*)
Reversal of allowance for doubtful accounts	-	-	1	-

(*)  Jaeyoung Solutec Co., Ltd. was excluded from the scope of related parties for the year ended December 31, 2018.

116

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

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

		2018		2017
Related party / Account		Assets	Liabilities	Assets	Liabilities
Shinhan Financial Group Co., Ltd.
Credit card assets	W	314	-	305	-
Financing lease assets		116	-	218	-
Consolidated tax accounts		15	-	39	-
Borrowings		-	700,000	-	600,000
Current tax liabilities		-	89,623	-	123,722
Accrued expenses		-	10,307	-	10,901
Shinhan Bank
Cash and due from banks		23,049	-	5,406	-
Derivative assets		272	-	2,601	-
Credit card assets		8,780	-	9,183	-
Financing lease assets		9,529	-	14,766	-
Prepaid expenses		95	-	274	-
Accrued income		1	-	1	-
Guarantee deposits		13,921	-	13,921	-
Derivative liabilities		-	4,932	-	554
Allowance for asset retirement obligation		-	545	-	655
Accounts payable		-	21	-	7
Accrued expenses		-	1,171	-	1,667
Shinhan Credit Information Co., Ltd.
Credit card assets		150	-	161	-
Financing lease assets		64	-	116	-
Accounts payable		-	1,177	-	2,080
Shinhan Life Insurance Co., Ltd.
Credit card assets		1,968	-	2,552	-
Accounts payable		-	63	-	45
Accrued expenses		-	29	-	43
Allowance for asset retirement obligation		-	25	-	-
Shinhan Data System Co., Ltd.
Credit card assets		322	-	211	-
Financing lease assets		85	-	137	-

117

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(c) Significant balances with the related parties as of December 31, 2018 and 2017 are summarized as follows, continued:

	2018		2017
Related party / Account	Assets	Liabilities	Assets	Liabilities
Shinhan Investment Corp.
Cash and due from banks	598	-	485	-
Credit card assets	1,597	-	1,581	-
Prepaid expenses	4	-	4	-
Guarantee deposits	300	-	300	-
Allowance for asset retirement obligation	-	33	-	66
Jeju Bank
Cash and due from banks	79	-	86	-
Financing lease assets	165	-	194	-
Accounts payable	-	6	-	8
BNP Paribas Cardif Life Insurance
Credit card assets	116	-	191	-
Allowance for doubtful accounts	-	-	-	4
Shinhan Savings Bank
Credit card assets	63	-	68	-
Shinhan Aitas Co., Ltd.
Credit card assets	158	-	191	-
Shinhan Capital Co., Ltd.
Credit card assets	150	-	136	-
Shinhan Private Equity Investment Management, Inc.
Credit card assets	63	-	44	-
Shinhan BNP Paribas ITMC Co., Ltd.
Credit card assets	156	-	146	-
BNP Paribas Cardif General Insurance
Credit card assets	29	-	29	-
Allowance for doubtful accounts	-	2	-	1

118

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(c) Significant balances with the related parties as of December 31, 2018 and 2017 are summarized as follows, continued:

	2018		2017
Related party / Account	Assets	Liabilities	Assets	Liabilities
Shinhan REITs Management Co., Ltd.
Credit card assets	21	-	-	-
Financing lease assets	49	-	55	-
Jaeyoung Solutec Co., Ltd. (*1)
Credit card assets	-	-	33	-
Allowance for doubtful accounts	-	-	-	1
Financial Savings Information Center Co., Ltd. (*2)
Credit card assets	3	-	-	-

(*1)  Jaeyoung Solutec Co., Ltd. was excluded from the scope of related parties for the year ended December 31, 2018.

(*2)  As Financial Savings Information Center Co., Ltd. became an affiliated company of Shinhan Financial Group Co., Ltd. which is the controlling company of the Company, it is included in the scope of other related parties for the year ended December 31, 2018.

(d) Financing transactions between the related parties for the years ended December 31, 2018 and 2017 are summarized as follows:

			2018			2017
Control relationship	Related party		Borrowing		Repayment	Borrowing		Repayment
Parent Company	Shinhan Financial Group Co., Ltd.	W	100,000		-	300,000		(150,000)

(e) Key management personnel compensations for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Salaries and wages	W	2,284	2,743
Post-employment benefits		30	64
Share-based compensation expense		626	1,407
	W	2,940	4,214

(f) The guarantee provided between the related parties as of December 31, 2018 and 2017 is as follows:

			Amount of guarantee
Guarantor	Guaranteed Party		2018	2017		Account
Shinhan Card	Shinhan Indo Finance	W	60,558	23,700		Borrowing guarantee
Shinhan Card	Shinhan Finance Co. Ltd	W	2,910	-		Borrowing guarantee

119

SHINHAN CARD CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

45.Events after the Reporting Period

On January 23, 2018, the Company entered into a contract to acquire 100% shares in Prudential Vietnam Finance Company Limited, a local consumer finance company in Vietnam, for USD 151 million and on January 17, 2019, the acquisition was approved by State Bank of Vietnam.

120

121

Independent Auditors’ Review Report on Internal Accounting Control System

English translation of a Report Originally Issued in Korean

To the Chief Executive Officer of

Shinhan Card Co., Ltd.:

We have reviewed the accompanying Report on the Operations of Internal Accounting Control System (“IACS”) of Shinhan Card Co., Ltd. (the “Company”) as of December 31, 2018.  The Company's management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS.  Our responsibility is to review management's assessment and issue a report based on our review.  In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment of the operational status of the IACS as of December 31, 2018, no material weaknesses are identified as of December 31, 2018, in all material respects, in accordance with the IACS Framework issued by the Internal Accounting Control System Operation Committee.”

We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants.  Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether the Report on the Operations of Internal Accounting Control System is free of material misstatement.  Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances.  We have not performed an audit and, accordingly, we do not express an audit opinion.

A Company's IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Korean International Financial Reporting Standards.  Because of its inherent limitations, however, IACS may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that the Report on the Operations of Internal Accounting Control System as of December 31, 2018 is not prepared, in all material respects, in accordance with IACS Framework issued by the Internal Accounting Control System Operation Committee.

This report applies to the Company’s IACS in existence as of December 31, 2018.  We did not review the Company’s IACS subsequent to December 31, 2018.  This report has been prepared for Korean regulatory purposes, pursuant to the Act on External Audit of Stock Companies, Etc., and may not be appropriate for other purposes or for other users.

Seoul, Korea

March 11, 2019

Notice to Readers

This report is annexed in relation to the audit of the financial statements as of December 31, 2018 and the review of internal accounting control system pursuant to Article 8-7 of the Act on External Audit of Stock Companies, Etc. of the Republic of Korea.

122

Report on the Operations of Internal Accounting Control System

English translation of a Report Originally Issued in Korean

To the shareholders, Board of Directors and Audit Committee of

Shinhan Card Co., Ltd.:

We, as the Chief Executive Officer (“CEO”) and the Internal Accounting Control Officer (“IACO”) of Shinhan Card Co., Ltd. (the “Company”), have assessed the status of the design and operations of the Company’s Internal Accounting Control System (“IACS”) for the year ending December 31, 2018.

The Company’s management, including the CEO and the IACO, is responsible for the design and operations of its IACS.  We, as the CEO and the IACO, have assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial statement preparation and presentation for external uses.

We, as the CEO and the IACO, applied the IACS Standards established by the IACS Operations Committee for the assessment of design and operations of the IACS.

Based on the assessment of the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2018, in all material respects, in accordance with the IACS Standards issued by the IACS Operations Committee.

We, as the CEO and the IACO, have confirmed that the report was not described or displayed as false, and that the report was not omitted what should be described or displayed. In addition, We, as the CEO and the IACO, have confirmed that the report was not described or displayed any material misleading, and reviewed the report details directly with sufficient care.

By /s/ Lim Young Jin, Chief Executive Officer

By /s/ Moon Dong Kwon, Internal Accounting Control Officer

January 28, 2019

123

EX-99.2

Exhibit 99.2

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2018 and 2017

(With Independent Auditors’ Report Thereon)

Contents

	Page
Independent Auditors’ Report	1
Consolidated Statements of Financial Position	3
Consolidated Statements of Comprehensive Income	4
Consolidated Statements of Changes in Equity	6
Consolidated Statements of Cash Flows	7
Notes to the Consolidated Financial Statements	9

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Stockholder

Shinhan Card Co., Ltd.:

Opinion

We have audited the accompanying consolidated financial statements of Shinhan Card Co., Ltd. and its subsidiaries (“the Group”), which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

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

Other Matter

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

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with K-IFRS and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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

• Evaluate the appropriateness of accounting policies used in the preparation of the consolidated financial statements and the reasonableness of accounting estimates and related disclosures made by management.

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

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

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

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

Seoul, Korea

March 11, 2019

This report is effective as of March 11, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

2

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2018 and 2017

(In millions of won, except share data)	Note		2018	2017
Assets
Cash and due from banks	10,41	W	637,990	566,970
Trading financial assets	11		-	360,064
Financial assets at fair value through profit or loss	12		253,854	-
Derivative assets	13		7,477	3,966
Loans and receivables, net	14		-	24,284,494
Credit card assets at amortized cost, etc.	14		26,902,687	-
Lease assets	15		365,581	103,620
Available-for-sale financial assets	16		-	34,585
Financial assets at fair value through other comprehensive income	17		34,519	-
Property and equipment, net	18		88,601	82,358
Intangible assets	19		49,184	45,936
Deferred tax assets	40		224,856	208,032
Other assets	20		864,706	677,537
Total assets		W	29,429,455	26,367,562
Liabilities
Derivative liabilities	13	W	80,928	140,732
Borrowings	21		2,415,507	1,964,344
Debentures, net	22		16,691,757	13,959,909
Liability for defined benefit obligations	23		18,670	3,015
Current tax liabilities	40		89,906	123,904
Provisions	24		182,477	137,356
Other liabilities	25,26		3,948,743	3,763,183
Total liabilities			23,427,988	20,092,443
Equity
Common stock	27		626,847	626,847
Capital surplus	27		860,592	860,592
Capital adjustments	27		1,234	10
Accumulated other comprehensive loss	27		(43,687)	(3,534)
Retained earnings	27,28		4,561,125	4,797,629
Equity attributable to owners of the Group			6,006,111	6,281,544
Non-controlling interests	27		(4,644)	(6,425)
Total equity			6,001,467	6,275,119
Total liabilities and equity		W	29,429,455	26,367,562

See accompanying notes to the consolidated financial statements.

3

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(In millions of won,except earnings per share)	Note		2018	2017
Interest income		W	2,013,810	1,880,908
Financial assets at amortized cost			2,013,810	-
Loans and receivables			-	1,880,908
Interest expense			(430,710)	(379,854)
Net interest income	32		1,583,100	1,501,054
Fee and commission income			1,485,749	2,434,001
Fee and commission income before K-IFRS No.1115			2,621,264
Consideration paid to customers			(1,135,515)
Fee and commission expense			(1,253,393)	(2,265,803)
Fee and commission expense before K-IFRS No.1115			(2,388,908)
Consideration paid to customers			1,135,515
Net fee and commission income	33		232,356	168,198
Dividend income	34		1,393	12,400
Net income on trading financial assets	11		-	2,040
Net income on financial assets at fair value through profit or loss	12		46,111	-
Net income (loss) on derivatives	13		98,475	(246,175)
Net income (loss) on foreign currency transactions			(62,516)	279,726
Net gain on sales of available-for-sale financial assets	16		-	250,572
Net impairment loss on financial assets	35		-	(291,694)
Provision for credit loss allowance	14,36		(466,447)	-
General administrative expenses	37		(703,005)	(791,163)
Other operating income (loss), net	38		(2,969)	278,168
Operating income			726,498	1,163,126
Non-operating expense, net	39		(25,211)	(14,956)
Profit before income tax			701,287	1,148,170
Income tax expense	40		(183,526)	(249,447)
Profit for the year		W	517,761	898,723
Other comprehensive income (loss) :
Items that will never be reclassified to profit or loss
Remeasurement of the net defined benefit obligations	23,27	W	(10,481)	21,873
Net changes in the unrealized fair value of financial assets at fair value through other comprehensive income	17,27		2,385	-
Items that are or may be reclassified subsequently to profit or loss
Net changes in the unrealized fair value of available-for-sale financial assets	16,27		-	(150,392)
Net changes in the unrealized fair value of cash flow hedges	13,27		(30,324)	19,030
Foreign currency translation adjustments for foreign operations	27		(2,206)	(1,278)
Other comprehensive loss for the year, net of tax			(40,626)	(110,767)
Total comprehensive income for the year		W	477,135	787,956

4

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (continued)

For the years ended December 31, 2018 and 2017

(In millions of won,except earnings per share)	Note		2018		2017
Profit attributable to:
Owners of the Company	30	W	519,446		913,791
Non-controlling interests			(1,685)		(15,068)
Profit		W	517,761		898,723
Total comprehensive income (loss) attributable to:
Owners of the Company		W	479,293	802,986
Non-controlling interests			(2,158)	(15,030)
Total comprehensive income		W	477,135	787,956
Earnings per share Basic and diluted earnings per share (in won)	30	W	4,143	7,289

See accompanying notes to the consolidated financial statements.

5

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

		2017
(In millions of won)		Common stock		Capital surplus		Capital adjustments		Accumulated other comprehensive income (loss)		Retained earnings		Sub total		Non-controlling interests		Total equity
Balance at January 1, 2017	W	626,847		860,592		(370)		107,271		4,283,892		5,878,232		4,314		5,882,546
Dividends		-		-		-		-		(400,054)		(400,054)		-		(400,054)
Share-based payment transactions		-		-		380		-		-		380		-		380
Changes in non-controlling interests		-		-		-		-		-		-		4,291		4,291
Retained earnings after appropriation:
Profit for the year		-		-		-		-		913,791		913,791		(15,068)		898,723
Remeasurement of the net defined benefit obligations		-		-		-		21,873		-		21,873		-		21,873
Net changes in the unrealized fair value of available-for-sale financial assets		-		-		-		(150,392)		-		(150,392)		-		(150,392)
Net changes in the unrealized fair value of cash flow hedges		-		-		-		19,030		-		19,030		-		19,030
Foreign currency translation adjustments for foreign operations		-		-		-		(1,316)		-		(1,316)		38		(1,278)
Balance at December 31, 2017	W	626,847		860,592		10		(3,534)		4,797,629		6,281,544		(6,425)		6,275,119

		2018
(In millions of won)		Common stock	Capital surplus	Capital adjustments	Accumulated other comprehensive income (loss)	Retained earnings	Sub total	Non-controlling interests	Total equity
Balance at January 1, 2018	W	626,847	860,592	10	(3,534)	4,797,629	6,281,544	(6,425)	6,275,119
Effect of changes in accounting policies		-	-	-	-	(155,932)	(155,932)		(155,932)

See accompanying notes to the consolidated financial statements.

6

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

Dividends		-	-	-	-	(600,018)	(600,018)	-	(600,018)
Share-based payment transactions		-	-	1,224	-	-	1,224	-	1,224
Changes in non-controlling interests		-	-	-	-	-	-	3,939	3,939
Retained earnings after appropriation:
Profit for the year		-	-	-	-	519,446	519,446	(1,685)	517,761
Remeasurement of the net defined benefit obligations		-	-	-	(10,481)	-	(10,481)	-	(10,481)
Net changes in the unrealized fair value of financial assets at fair value through other comprehensive income		-	-	-	2,385	-	2,385	-	2,385
Net changes in the unrealized fair value of cash flow hedges		-	-	-	(30,324)	-	(30,324)	-	(30,324)
Foreign currency translation adjustments for foreign operations		-	-	-	(1,733)	-	(1,733)	(473)	(2,206)
Balance at December 31, 2018	W	626,847	860,592	1,234	(43,687)	4,561,125	6,006,111	(4,644)	6,001,467

See accompanying notes to the consolidated financial statements.

7

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(In millions of won)		2018	2017
Cash flows from operating activities
Profit before income tax	W	701,287	1,148,170
Adjustment for:
Interest income		(2,013,810)	(1,880,908)
Interest expense		430,710	379,854
Dividend income		(1,393)	(12,400)
Fee and commission income before K-IFRS No.1115		-	(323,919)
Consideration paid to customers		176,188	-
Fee and commission expense		745	169,640
Net gain on valuation of trading financial assets		-	(64)
Net gain on sales of financial assets at fair value through profit or loss		(6,413)	-
Net loss on valuation of financial assets at fair value through profit or loss		312	-
Net loss (gain) on valuation and transaction of derivatives		(98,475)	246,175
Net loss (gain) on foreign currency transaction		76,952	(173,610)
Net gain on sales of available-for-sale financial assets		-	(250,572)
Net impairment loss on financial assets		-	10,182
Provision for credit loss allowance		466,447	-
General administrative expenses		51,822	58,358
Other operating expenses		51,622	34,330
Non-operating expenses, net		799	146
		(864,494)	(1,742,788)
Changes in assets and liabilities:
Trading financial assets		-	(19,916)
Financial assets at fair value through profit and loss		110,064	-
Loans and receivables, net		-	(2,299,004)
Credit card assets at amortized cost, etc.		(3,191,263)	-
Lease assets		(313,210)	(109,402)
Other assets		(175,989)	(38,364)
Liability for defined benefit obligations		(15,171)	(25,595)
Provisions		(3,126)	(51,273)
Other liabilities		93,655	481,464
		(3,495,040)	(2,062,090)
Income taxes paid		(159,625)	(221,157)
Interest received		1,859,324	1,742,429
Interest paid		(429,421)	(374,415)
Dividend received		1,393	12,400
Net cash used in operating activities		(2,386,576)	(1,497,451)

8

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 2018 and 2017

(In millions of won)	Note		2018	2017
Cash flows from investing activities
Increase in restricted due from banks		W	(8,663)	(100,132)
Proceeds from disposal of financial assets at fair value through profit or loss			6,413	-
Acquisition of financial assets at fair value through profit or loss			(710)	-
Proceeds from disposal of available-for-sale financial assets			-	266,483
Acquisition of available-for-sale financial assets			-	(2,000)
Proceeds from disposal of financial assets at fair value through other comprehensive income			200	-
Acquisition of financial assets at fair value through other comprehensive income			(300)	-
Proceeds from disposal of property and equipment			342	117
Acquisition of property and equipment			(21,805)	(25,569)
Proceeds from disposal of intangible assets			93	914
Acquisition of intangible assets			(20,669)	(13,706)
Decrease in guarantee deposits			48,937	51,099
Increase in guarantee deposits			(53,162)	(60,679)
Net cash provided by (used in) investing activities			(49,324)	116,527
Cash flows from financing activities
Proceeds from borrowings			1,738,119	1,212,293
Repayment of borrowings			(1,284,393)	(628,387)
Proceeds from debentures			5,831,259	4,703,013
Repayment of debentures			(3,183,963)	(3,562,204)
Cash inflows from cash flow hedges			10,166	65,220
Cash outflows from cash flow hedges			(16,832)	(6,490)
Paid in capital from non-controlling interests			3,939	4,291
Dividends paid			(600,018)	(400,054)
Net cash provided by financing activities			2,498,277	1,387,682
Effect of exchange rate fluctuations on cash and cash equivalents held			(20)	(199)
Net increase in cash and cash equivalents			62,357	6,559
Cash and cash equivalents at the beginning of year			380,874	374,315
Cash and cash equivalents at the end of year	41	W	443,231	380,874

See accompanying notes to the consolidated financial statements.

9

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

1.Reporting Entity

General information of Shinhan Card Co., Ltd. (the “Company” or the “Controlling Company”) and its subsidiaries (together referred to as the “Group”) is as follows.

(a) Controlling Company

The Controlling Company was incorporated on December 17, 1985.  The address of the Company’s registered office is Eulji-Ro 100, Building A, Jung-Gu, Seoul (Pine Avenue Eulji-Ro 2Ga).  The Company provides credit card services, factoring, installment financing and lease financing under the Specialized Credit Finance Business Act.

As of December 31, 2018, the Company has approximately 12.50 million personal credit card holders (21.16 million including check card holders), 1.82 million merchants in its network and 24 branch offices (including head office).   The Company is a wholly owned subsidiary of Shinhan Financial Group Co., Ltd. ("Shinhan Financial Group").

(b) Subsidiaries

As of December 31, 2018 and 2017 consolidated subsidiaries are summarized below.

				2018		2017
Subsidiaries	Location	Fiscal year-end	Operating activities	Controlling interest	Non-controlling interest	Controlling interest	Non-controlling interest
Shinhan Card 2014-1 (*1),(*2)	Republic of Korea	December 31	ABS	-	-	0.5%	99.5%
Shinhan Card 2014-2 (*1),(*2)	"	"	"	-	-	"	"
Shinhan Card 2015-1 (*1),(*2)	"	"	"	0.5%	99.5%	"	"
Shinhan Card 2016-1 (*1),(*2)	"	"	"	"	"	"	"
Shinhan Card 2017-1 (*1),(*2)	"	"	"	"	"	"	"
Shinhan Card 2017-2 (*1),(*2)	"	"	"	"	"	"	"
Shinhan Card 2017-3 (*1),(*2)	"	"	"	"	"	"	"
Shinhan Card 2018-1 (*1),(*2)	"	"	"	"	"	-	-
Shinhan Card 2018-2 (*1),(*2)	"	"	"	"	"	-	-
Shinhan Finance LLC	Kazakhstan	"	Installment, credit loan	100.0%	-	100.0%	-
Shinhan Indo Finance	Indonesia	"	Installment, credit card and lease financing	50%+1 of the shares	50%-1 of the shares	50%+1 of the shares	50%-1 of the shares
Shinhan Microfinance Co., Ltd.	Myanmar	"	Credit loan	100.0%	-	100.0%	-
Specified money in trusts (*1)	Republic of Korea	"	Trust asset management	100.0%	-	100.0%	-

(*1) The above subsidiaries are structured entities and voting rights or similar rights are not major factors when determining control.

10

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

1.Reporting Entity, continued

(b) Subsidiaries, continued

(*2) Although the Controlling Company’s ownership percentage of shares for structured entities is less than 50%, structured entities are operated according to necessity for the Controlling Company’s specific business and the Controlling Company holds a majority of the benefits in the structured entities’ operations.  For this reason, the Controlling Company is considered to have power to control the structured entities.  The Controlling Company can transfer additional credit card assets if these subsidiaries are unable to repay securitized debentures connected to the entities’ underlying assets.

(c) Change in subsidiaries

(i) Subsidiaries newly included in consolidated financial statements during the year ended December 31, 2018 are as follows;

Subsidiary	Reason
Shinhan Card 2018-1	New Investment
Shinhan Card 2018-2	New Investment

(ii) Subsidiary excluded from consolidated financial statements during the year ended December 31, 2018 is as follows;

Subsidiary	Reason
Shinhan Card 2014-1	Liquidation
Shinhan Card 2014-2	Liquidation

11

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

1.Reporting Entity, continued

(d) Condensed financial information for the Group’s subsidiaries as of and for the years ended December 31, 2018 and 2017 is as follows:

		2018
Subsidiaries		Total assets	Total liabilities	Total equity	Profit (loss) for the year	Total comprehensive income (loss)
Shinhan Card 2014-2	W	-	-	-	476	510
Shinhan Card 2015-1		358,681	361,247	(2,566)	(868)	(877)
Shinhan Card 2016-1		606,119	611,850	(5,731)	(3,634)	(3,478)
Shinhan Card 2017-1		798,306	806,467	(8,161)	(7,123)	(9,459)
Shinhan Card 2017-2		765,804	774,427	(8,623)	(6,763)	(9,074)
Shinhan Card 2017-3		508,787	515,850	(7,063)	(5,495)	(8,246)
Shinhan Card 2018-1		625,107	632,942	(7,835)	(4,860)	(7,835)
Shinhan Card 2018-2		790,741	796,755	(6,014)	(2,825)	(6,014)
Shinhan Finance LLC		13,832	3,375	10,458	964	89
Shinhan Indo Finance		80,656	89,944	(9,288)	(3,371)	(4,317)
Shinhan Microfinance Co., Ltd.		8,816	2,822	5,994	162	(222)
Specified money in trusts		700,000	-	700,000	89	89

		2017
Subsidiaries		Total assets	Total liabilities	Total equity	Profit (loss) for the year	Total comprehensive income (loss)
Shinhan Card 2013-1	W	-	-	-	(3)	(3)
Shinhan Card 2014-1		-	-	-	6,266	7,735
Shinhan Card 2014-2		349,399	349,910	(511)	9,002	11,579
Shinhan Card 2015-1		702,737	704,426	(1,689)	4,891	7,249
Shinhan Card 2016-1		747,370	749,623	(2,253)	5,462	8,211
Shinhan Card 2017-1		798,525	797,227	1,298	(539)	1,298
Shinhan Card 2017-2		773,590	773,139	451	(495)	451
Shinhan Card 2017-3		512,615	511,431	1,184	213	1,184
Shinhan Finance LLC		10,664	295	10,369	575	(342)
Shinhan Indo Finance		88,610	101,461	(12,851)	(30,135)	(30,059)
Shinhan Microfinance Co., Ltd.		7,605	1,389	6,216	(194)	(631)
Specified money in trusts		443,000	-	443,000	187	187

12

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

2.Basis of Preparation

The consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed the Act on External Audits of Stock Companies in the Republic of Korea.

The consolidated financial statements were authorized for issue by the Board of Directors on February 12, 2019, which will be submitted for approval to the stockholder’s meeting to be held on March 26, 2019.

The consolidated financial statements have been prepared by initially applying K-IFRS No.1115 Revenue from contracts with customers and K-IFRS No.1109 Financial instruments.  This change is explained in note 2. (d).

(a) Basis of measurement

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

● derivative financial instruments are measured at fair value;

● financial instruments at fair value through profit or loss are measured at fair value;

● financial instruments at fair value through other comprehensive income are measured at fair value;

● liabilities for share-based payment arrangements are measured at fair value; and

● liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(b) Functional and presentation currency

These consolidated financial statements are presented in Korean won, which is the Controlling Company’s functional currency and the currency of the primary economic environment in which the Group operates.

(c) Use of estimates and judgements

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

Estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.  

Information about critical judgements in applying accounting policies that have a significant effect on the amounts recognized in the consolidated financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are described in note 5.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d) Changes in Accounting Policies

The Group has initially adopted K-IFRS No.1115 Revenue from Contracts with Customers and K-IFRS No.1109 Financial Instruments from January 1, 2018. Other new standards that applied from January 1, 2018 do not significantly affect on the Group’s financial statements.

(i) K-IFRS No.1115 Revenue from Contracts with Customers

K-IFRS No.1115 establishes a comprehensive framework for determining whether, how much and when revenue is recognized.  It replaces existing revenue recognition guidance, including K-IFRS No.1018 Revenue, K-IFRS No.1011 Construction Contracts, K-IFRS No.2031 Revenue- Barter transactions involving advertising services, K-IFRS No.2113 Customer Loyalty Programs, K-IFRS No.2115 Agreements for the construction of real estate, K-IFRS No.2118 Transfers of assets from customers.

Under K-IFRS 1115, revenue is recognized when a customer controls goods or services.  Control is transferred over a point or period and judgment is required.

The Group has recognized the cumulative effect of applying the initially adoption of K-IFRS No.1115 as of the initially application date, January 1, 2018, retroactively applying K-IFRS No.1115 without applying the practical expedients.  Accordingly, the Group has not restated the information disclosed in 2017, which applies K-IFRS No.1011, K-IFRS No.1018 and related interpretations.  In addition, the disclosure requirements of K-IFRS No.1115 have not generally been applied to comparative information.

The amount allocated to the credit card points from customer loyalty program was deferred and recognized as unearned revenue or recognized as a provision under onerous contract. However such amount is recognized as a consideration payable to a customer under K-IFRS No. 1115.  As the impact of transition to K-IFRS No.1115, the Group has reclassified provision for customer loyalty programmes amounting to W26,104 million, unearned revenue W196,721 million, and accounts payable W62,496 million as other liabilities (point liability) amounting to W285,321 million on January 1, 2018.

There is no effect of changes in retained earnings and non-controlling interest from the adoption of K-IFRS No.1115.

The effect of applying K-IFRS No.1115 in the statements of financial position and statement of comprehensive income as of and for the year ended December 31, 2018 of the Group is as follows.  The effect on the statements of cash flows for the year then ended of the Group is not significant.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d) Changes in Accounting Policies, continued

(i) K-IFRS No.1115 Revenue from Contracts with Customers, continued

The effect on the consolidated statement of financial position as of December 31, 2018 is as follows:

		Amount after K-IFRS No.1115	Adjustments	Amount before K-IFRS No.1115
Liabilities(*1)
Provision
Provision for customer loyalty programmes	W	-	24,700	24,700
Other liabilities
Account payable		2,500,661	41,758	2,542,419
Unearned revenue		106,845	209,240	316,085
Others		283,550	(275,698)	7,852

The effect on the consolidated statement of comprehensive income for the year ended December 31, 2018 is as follows:

		Amount after K-IFRS No.1115	Adjustments	Amount before K-IFRS No.1115
Net Fee and Commission Income (*1)(*2)
Fee and commission income
credit card assets	W	1,357,236	1,135,515	2,492,751
Fee and commission expense
credit card assets		(1,144,771)	(1,135,515)	(2,280,286)

(*1) Before adopting K-IFRS No. 1115, the Group defers and recognizes the amount allocated to the credit card points as unearned revenue and revenue is recognized only when the points are redeemed and the Group has fulfilled its obligation to provide the benefits. In addition, a provision for onerous contracts is recognized when the expected benefits to be derived by the Group from customer loyalty program are lower than the unavoidable cost of meeting its obligations under the programmes. However under K-IFRS No.1115, the amount allocated to the credit card points is regarded as consideration payable to the customers and recognized as a reduction of fee and commission income, estimated as fair value of the monetary benefits taking into account the expected redemption rate.

(*2) The Group has changed the recognition of card holder service fee paid to a customer recognized as fee and commission expense before adopting K-IFRS No.1115, to reduction of fee and commission income under K-IFRS No.1115.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d) Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments

K-IFRS No.1109 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.  This standard replaces existing guidance in K-IFRS No.1039 Financial Instruments: Recognition and Measurement.

The following table summarizes the impact, net of tax, of transition to K-IFRS No.1109 on the opening balance of retained earnings as of January 1, 2018.

		Amount
Retained earnings
Recognition of expected credit losses under K-IFRS No.1109	W	215,080
Related tax		(59,148)
Impact at January 1, 2018	W	155,932

The details of K-IFRS No.1109 and the nature and effect of the changes to previous accounting policies are set out below.

ⓐ Classification and measurement of financial assets and financial liabilities

K-IFRS No.1109 largely retains the existing requirements in K-IFRS No.1039 for the classification and measurement of financial liabilities.  However, it eliminates the previous K-IFRS No.1039 categories for financial assets of held to maturity, loans and receivables and available for sale.

The adoption of K-IFRS No.1109 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments, see (ⓒ) below).  The impact of K-IFRS No.1109 on the classification and measurement of financial assets is set out below.

On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or fair value through profit or loss (“FVTPL”).  The classification of financial assets under K-IFRS No.1109 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.  Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated.  Instead, the hybrid financial instrument as a whole is assessed for classification.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓐ Classification and measurement of financial assets and financial liabilities, continued

The effect of adopting K-IFRS No.1109 on the carrying amounts of financial assets at January 1, 2018 relates solely to the new impairment requirements, as described further below.

The following table and the accompanying notes below explain the original measurement categories under K-IFRS No.1039 and the new measurement categories under K-IFRS No.1109 for each class of the Group’s financial assets as at January 1, 2018.

	Classification under K-IFRS No.1039	Classification under K-IFRS No.1109		Amounts under K-IFRS No.1039	Amounts under K-IFRS No.1109
Due from banks	Loans and receivables(*1)	Amortized cost	W	566,917	566,917
Loans	Loans and receivables(*1)	Amortized cost		24,937,001	24,937,001
Other financial assets	Loans and receivables(*1)	Amortized cost		498,492	498,492
Trading assets (beneficiary certificates)	Fair value through profit or loss	Financial assets at FVTPL		360,064	360,064
Available-for-sale financial assets (debt securities)	Available-for-sale financial assets(*2)	Financial assets at FVTPL		1,953	1,953
Available-for-sale financial assets (equity securities)	Available-for-sale financial assets(*3)	Financial assets at FVTPL		1,503	1,503
	Available-for-sale financial assets(*4)	Financial assets at FVOCI		31,129	31,129
			W	26,397,059	26,397,059

(*1)Loans and other receivables that were classified as loans and receivables under K-IFRS No.1039 are now classified at amortized cost.  An increase of W155,612 million in the loss allowance over these receivables was recognized in opening retained earnings at January 1, 2018 on transition to K-IFRS No.1109.

(*2) The corporate debt securities categorised as available-for-sale under K-IFRS No.1039 are held by the Group in a separate portfolio to provide interest income, but may be sold to meet liquidity requirements arising in the normal course of business.  The Group considers that these securities are held within a business model whose objective is not achieved both by collecting contractual cash flows and by selling securities.  These assets have therefore been classified as financial assets at FVTPL under K-IFRS No.1109.

(*3)Under K-IFRS No.1039 these equity securities were designated as at available-for-sale financial assets, but in principle, these equity securities have been classified as measured at FVTPL under K-IFRS No.1109.

(*4)These equity securities represent investments that the Group intends to hold for the long term for strategic purposes.  As permitted by K-IFRS No.1109, the Group has designated these investments at the date of initial application as measured at FVOCI.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓑ Impairment of financial assets

K-IFRS No.1109 replaces the ‘incurred loss’ model in K-IFRS No.1039 with an expected credit loss (“ECL”) model.  The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.  Under K-IFRS No.1109, credit losses are recognized earlier than under K-IFRS No.1039.

The financial assets at amortized cost consist of credit card assets, cash and due from banks, accounts receivable and accrued income, etc..

Under K-IFRS No.1109, loss allowances are measured on either of the following bases:

- 12 month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and

- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

For assets in the scope of the K-IFRS No.1109 impairment model, impairment losses are generally expected to increase and become more volatile.  As a result of the application of K-IFRS No.1109’s impairment requirements at January 1, 2018, the Group incurred an additional loss allowance as follows.

Classification under K-IFRS No.1039	Classification under K-IFRS No.1109		Loss allowances under K-IFRS No.1039	Loss allowances under K-IFRS No.1109	Differences
Loans	Amortized cost	W	652,507	806,939	154,432
Other financial assets	Amortized cost		8,688	9,868	1,180
			661,195	816,807	155,612
Allowance for unused credit commitments	Allowance for unused credit commitments		72,793	132,261	59,468
		W	733,988	949,068	215,080

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

2.Basis of Preparation, continued

(d)Changes in Accounting Policies, continued

(ii) K-IFRS No.1109 Financial Instruments, continued

ⓒ Hedge accounting

The Group has elected to adopt the new general hedge accounting model in K-IFRS No.1109.  This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.

The Group uses swap contracts to hedge the variability in cash flows arising from changes in interest rates and foreign exchange rates relating to borrowings and debentures.

The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity.

There was no effect of adjustments arising from application of K-IFRS No.1109 hedge accounting requirements on the amounts presented as of January 1, 2018.

ⓓ Transition

Changes in accounting policies resulting from the adoption of K-IFRS No.1109 have been applied retrospectively, except as described below.

The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements.  Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of K-IFRS No.1109 are recognized in retained earnings and reserves as at January 1, 2018.  Accordingly, the information presented for 2017 does not generally reflect the requirements of K-IFRS No.1109 but rather those of K-IFRS No.1039.

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

- The determination of the business model within which a financial asset is held.

- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.

- The designation of certain investments in equity instruments not held for trading as at FVOCI.

All hedging relationships designated under K-IFRS No.1039 at December 31, 2017 met the criteria for hedge accounting under K-IFRS No.1109 at January 1, 2018 and are therefore regarded as continuing hedging relationships.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements are included below.  The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for those as disclosed in note 2 (4).

(a) Operating segment

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Group has a single reportable segment. Accordingly, information about segment assets, liabilities and profit or loss is not disclosed.

(b) Basis of consolidation

(i) Subsidiaries

Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

If a member of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.

(ii) Structured entity

The Group has established a number of structured entity by way of the transfer of credit card assets and others. Structured entity is consolidated if, based on an evaluation of the substance of its relationship with the Group and the Structured entity’s risks and rewards, the Group concludes that it controls the Structured entity.

(iii) Elimination of intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

(iv) Non-controlling interests

Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(c) Cash and cash equivalents

Cash and cash equivalents comprise balances with cash in hand, deposits held at call with banks and other short-term highly liquid investments with insignificant risk of changes in their fair value. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.

(d) Non-derivative financial assets

(i) Recognition and initial measurement

Issued debentures are initially recognized at the time of issue.  Other financial instruments and financial liabilities are recognized only when the Group becomes a party to the contract for the financial instrument. At initial recognition, financial assets or financial liabilities are measured at fair value, and transaction costs directly related to the acquisition of the financial assets or the issue of the financial liabilities are added to fair value unless they are measured at fair value through profit or loss.

(ii) Classification and subsequent measurement

Financial asset - accounting policies adopted from January 1, 2018

On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or fair value through profit or loss (“FVTPL”). Unless the Group changes its business model for managing financial assets, after first recognition, the financial assets cannot be reclassified.  When, and only when, the Group changes its business model for managing financial assets, it shall reclassify all affected financial assets at the first day of the Group’s next reporting period.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

- It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

- It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income.  This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL.  This includes all derivative financial assets (refer to Note 7).  On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model - accounting policies adopted from January 1, 2018

The Group assesses the objective of the business model held at the portfolio level of financial assets because it best reflects the way the business is managed and information is provided to management.  Such information takes into account the following:

- The accounting policies and objectives specified for the portfolio and the actual operation of these policies.  This includes management's strategy focused on obtaining contractual interest revenue, maintaining the level of interest revenue, and financing the debt financing and matching the duration of the financial asset's duration and on the outflow or realization of expected cash flows through the sale of the asset;

- Assessing the performance of financial assets held in a business model and reporting the assessment to key management personnel;

- The risks affecting the performance of the business model (and the financial assets held in the business model) and how they are managed;

- Compensation for management (e.g., compensation based on the fair value of the managed asset or on the contractual cash flows received);

- The frequency, amount, timing, reasons and expectations of future sales activities of financial assets in prior periods.

For this purpose, transfers of financial assets from transactions that do not meet the derecognition requirements to third parties are not considered sales.

A portfolio of financial assets that meets the definition of trading or whose performance is valued on a fair value basis is measured at fair value through profit or loss.

Contractual cash flows are solely payments of principal and interest on the principal amount outstanding - accounting policies adopted from January 1, 2018

The principal amount is defined as the fair value at initial recognition of the financial asset.  Interest consists of profit as well as consideration for the time value of money, consideration for the credit risk associated with the principal balance in a particular period, and consideration for other basic loan risks and costs (such as liquidity risk and operating costs).

In assessing whether contractual cash flows consist solely of principal and interest payments, the Group considers the terms and conditions of the instrument.  If a financial asset contains a contractual term that changes the timing or amount of contractual cash flows, the entity must determine whether the contractual cash flows that may arise over the life of the financial instrument are solely payments of principal and interest.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

To assess this, the Group considers the following:

- Contractual terms that change the timing or amount of contractual cash flows;

- Terms that adjusts the contractual interest rate, including variable interest rate features;

- Prepayment features and extension features;

- Terms and conditions that limit our claims on cash flows arising from specific assets. (e.g., non-recourse features)

If the prepayment amount represents interest on substantially outstanding principal and remaining principal and includes reasonable additional compensation for early termination of the contract, the early repayment characteristics are consistent with the terms of paying principal and interest on a specified date.

In addition, for financial assets acquired by significantly discounting or premiuming the contractual par amount, the prepayment amount effectively represents the contractual par amount and the contractual interest accrual (but unpaid) and the prepayment feature meets this condition when the fair value of the feature is insignificant at initial recognition of the financial asset.

Subsequent measurement and profit or loss - accounting policies adopted from January 1, 2018

The following accounting policies apply to the subsequent measurement of financial assets.

Category of financial instruments	Accounting policies
Financial assets at FVTPL	These assets are subsequently measured at fair value.  Net gains and losses, including any interest or dividend income, are recognized in profit or loss.  But please refer to note 3.(e) for derivative financial assets designated as the hedging instruments.
Financial assets at amortized cost	These assets are subsequently measured at amortized cost using the effective interest method.  The amortized cost is reduced by impairment losses.  Interest income, foreign exchange gains and losses, impairment and any gain or loss on derecognition are recognized in profit or loss.
Debt investments at FVOCI	These assets are subsequently measured at fair value.  Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss.  Other net gains and losses are recognized in other comprehensive income. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI	These assets are subsequently measured at fair value.  Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.  Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(d) Non-derivative financial assets, continued

(ii) Classification and subsequent measurement, continued

Financial asset - accounting policies applied before January 1, 2018

Financial assets are classified into financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets, and derivative financial assets.

Subsequent measurement and profit or loss - accounting policies applied before January 1, 2018

The following accounting policies apply to the subsequent measurement of financial assets.

Category of financial instruments	Accounting policies
Financial assets at fair value through profit or loss	These assets are subsequently measured at fair value.  Net gains and losses, including any interest or dividend income, are recognized in profit or loss.  However, please refer to note 3.(e) for derivative financial assets designated as the hedging instruments.
Held-to-maturity investments	Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Loans and receivables	Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Available-for-sale financial assets	Subsequent to initial recognition, they are measured at fair value.  However, investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(iii) Derecognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.

When the Group transfers a right on cash flow of a financial asset, but, retains substantially all of the risk and rewards of ownership relating the transferred asset, the transferred assets are continuously recognized, and the proceeds from the transfer are recognized as a liability.

(iv) Offsetting

Financial assets and liabilities are offset only when the Group has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(e) Derivative financial assets

(i) Derivatives and Hedge Accounting - accounting policies adopted from January 1, 2018

The Group holds derivative financial instruments to hedge foreign exchange and interest rate exposures.  If the host contract is not a financial asset and meets certain requirements, the embedded derivative is accounted for separately and separated from the host contract.

Derivatives are measured at fair value on initial recognition and subsequently measured at fair value and changes are generally recognized in profit or loss.

The Group designate specific derivatives and non-derivative financial liabilities as hedging instruments to hedge the variability of cash flows associated with future forecast transactions that are likely to arise from changes in exchange rates and interest rates, as the purpose of hedging exchange risk against net investments in foreign operations.

At the inception of the hedge, the Group documents the purpose and strategy of risk management to perform the hedge.  The Group documents the economic relationship between the hedged item and the hedging instrument, including whether changes in the cash flows of the hedged item and the hedging instrument are expected to offset each other.

(ii) Cash flow hedge - accounting policies adopted from January 1, 2018

When a derivative is designated as a cash flow hedge, an effective part of the change in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedge reserve. Effective portions of the change in the fair value of the derivative recognized in other comprehensive income limit the cumulative change in the fair value of the hedged item determined on the basis of present value from the inception of the hedge.  Ineffectiveness of changes in the fair value of the derivative is recognized immediately in profit or loss.

If a hedged item that is a forecast transaction is subsequently recognized in a non-financial asset, the cumulative hedge reserve and the cost of the hedge are included directly in the initial cost of the non-financial asset when the non-financial asset is recognized.

For other hedged items that are forecast transactions, the accumulated hedge reserve and the cost of the hedge are reclassified to profit or loss in the same period or in the period during which the expected hedged future cash flows affect profit or loss.

If the hedge no longer meets the hedge accounting requirements or the hedging instrument is sold, decimated, terminated or exercised, the hedge accounting is discontinued prospectively.

If a non-financial item is a recognized hedge transaction, the cumulative amount of the hedge reserve and the cost of the hedge are left in the equity item until the non-financial item is initially recognized and the amount is included in the cost of the non-financial item. In the case of cash flow hedges that are not the case, the amount is reclassified to profit or loss as a reclassification adjustment for the period in which the hedged expected cash flows affect profit or loss.

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SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(e) Derivative financial assets, continued

(ii) Cash flow hedge - accounting policies adopted from January 1, 2018, continued

If future cash flows of hedged items are no longer expected, the accumulated cash flow hedge reserve and the costs of hedging are reclassified to profit or loss immediately.

(iii) Net-investment hedge - accounting policies adopted from January 1, 2018

If a derivative or non-derivative financial liability is designated as a hedging instrument for a net investment in a foreign operation, an effective portion of the change in the fair value of the hedging instrument is recognized in other comprehensive income in the case of a non-derivative instrument and presented as a transaction reserve in equity.  Ineffectiveness is recognized immediately in profit or loss.

The amounts recognized in other comprehensive income are reclassified to profit or loss as reclassification adjustments at the disposal of the foreign operation.

(iv) Derivatives and Hedge Accounting - accounting policies applied before January 1, 2018

The accounting polices applied in the comparative financial statements in 2017 are similar with those applied in 2018.

(f) Fair value of financial instruments

Fair value is the amount for which an asset could be exchanged, or a liability settled, could be exchanged, between knowledgeable, willing parties in an arm's length transaction.  

For financial instruments traded in active markets, the fair value of financial instruments is measured at quoted prices. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis.

If the market for a financial instrument is not active, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties, if available, reference to the current fair value of other instruments that are substantially the same. Fair value is estimated on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument or based on any available and observable market data.

The fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. However, if part of the consideration given or received is for something other than the financial instrument, the fair value of the financial instrument is estimated, using a valuation technique.  Any additional amount lent is an expense or a reduction of income unless it qualifies for recognition as some other type of asset.

The fair value of interest-free installment purchases (which is offered for marketing purpose to expand credit sales) is measured by using the discount rate considering the credit rating of the Group and the credit risk of customers. As the source of the yield and the purpose of customers using interest-free installment purchases are different from those of installment purchases with interest, the discount rate is calculated in that way.

26

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(g) Impairment of financial assets

(i) Impairment of financial assets - accounting policies adopted from January 1, 2018

The Group recognizes a loss allowance for expected credit losses on the following assets:

- Financial assets measured at amortized cost.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured as 12 month ECLs:

- Financial instrument that are determined to have low credit risk at the reporting date; and

- Financial instrument for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort.  This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly when:

- Asset credit quality is cautionary or less

- Significant changes in credit rating

- Specified overdue pool segment (Personal card assets past due over seven days, etc.)

The Group considers a financial asset to be in default when:

- The financial asset is more than 90 days past due.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses.  Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).  ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired.  A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

27

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(g) Impairment of financial assets, continued

(i) Impairment of financial assets - accounting policies adopted from January 1, 2018, continued

Evidence that financial assets are impaired includes observable information.

● Significant financial difficulty of the borrower or issuer

● Default or delinquency in interest or principal payments

● Restructuring of a loan or a concession granted by the Group, which the Group would not otherwise consider

● Indications that a borrower or issuer will enter bankruptcy or other financial reorganization

● The disappearance of an active market for a security

● Observable data that there is a measurable decrease in the estimated future cash flows from a group of financial assets, since the initial recognition of those assets, although individual cash flows cannot be discriminated

Presentation of impairment

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

Write-off

If there is no reasonable expectation for the recovery of all or some of the contractual cash flows of the financial asset, remove the asset.  For individual customers, based on past experience in recovering similar assets, the Group deducts the carrying amount if a financial asset is more than 180 days overdue and evaluate whether there is reasonable expectation of recovery for corporate customers to evaluate the timing and amount separately.  The Group does not expect to significantly recover the amounts.  However, each financial asset may be subject to recovery activities in accordance with the Group's procedures for the recovery of the expired amounts.

(ii) Impairment of financial assets - accounting policies applied before January 1, 2018

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets, except for financial assets at fair value through profit or loss, is impaired.  A financial asset is impaired if objective evidence indicates that loss events have occurred after the initial recognition of the asset, and that they had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.  However, a financial asset is not impaired by the expected future loss event.  

Objective evidence that financial assets are impaired includes the following loss events:

● Significant financial difficulty of the borrower or issuer

● Default or delinquency in interest or principal payments

● Restructuring of a loan or a concession granted by the Group, which the Group would not otherwise consider

● Indications that a borrower or issuer will enter bankruptcy or other financial reorganization

● The disappearance of an active market for a security

● Observable data that there is a measurable decrease in the estimated future cash flows from a group of financial assets, since the initial recognition of those assets, although individual cash flows cannot be discriminated

28

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(g) Impairment of financial assets, continued

(ii) Impairment of financial assets - accounting policies applied before January 1, 2018, continued

In addition to the types of events above, objective evidence of impairment for an equity instrument classified as available-for-sale financial assets includes a significant or prolonged decline in the fair value of an equity instrument below its cost.  If there are the objective evidences of impairment, the impairment losses measured by the following financial asset categories are recognized in profit or loss.

Loans and receivables

The Group first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for financial assets that are not individually significant.  If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

The impairment loss of loans and receivables measured at amortized cost which is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows.  

Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and receivables.  When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss of the period.

Financial assets carried at cost

The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.  Such impairment losses shall not be reversed.

Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized.   Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss.  If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

Held-to-maturity financial assets

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.  The impairment losses of held-to-maturity financial assets and available-for-sale financial assets are recognized by reducing the carrying amount directly.  When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss of the period.  The reversal does not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.  The impairment losses on held-to-maturity financial assets are reduced from the carrying amount directly.

29

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3. Significant Accounting Policies, continued

(h) Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.  Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located. The Group elected to measure land and buildings at fair value at the date of transition and use those fair values as their deemed costs. After first recognition, property and equipment are recognized as book value, which is the amount of taking accumulated depreciation and accumulated impairment losses off acquisition cost.

The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably.  The carrying amount of the replaced cost is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.  

Land is not depreciated. Other property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items of property and equipment.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment are recognized in other operating income.

The estimated useful lives and depreciation methods are as follows:

Descriptions	Useful lives	Depreciation method
Buildings	40 years	Straight-line method
Vehicles	5 years	Straight-line method
Other tangible assets	4 years	Straight-line method

Depreciation methods, useful lives and residual values are reviewed at each fiscal year-end and adjusted if appropriate. The change is accounted for as a change in an accounting estimate.

30

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(i) Intangible assets

Intangible assets are measured initially at cost and after initial recognition are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero.  However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

Descriptions	Useful lives
Membership	Indefinite
Development cost	4 years
Software	4 years
Other intangible assets	5 years or less

Amortization methods, useful lives and residual values are reviewed at each fiscal year-end and adjusted if appropriate. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets.  The change is accounted for as a change in an accounting estimate.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset.  Other development expenditures are recognized in profit or loss as incurred.

(j) Leases

Leases where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

Finance lease

A finance lease receivable is the net investment in the lease asset representing the aggregate future minimum lease payments including unguaranteed residual value, if any. The difference between the finance lease receivable and the book value of the underlying asset is recorded as gain (loss) on disposal of lease asset. Additionally, the lease payments received are recognized as collection of finance lease receivable and interest income, determined using the effective interest rate. The Group also recognizes initial direct costs incurred in negotiating and arranging a finance lease, included as part of net investment, and those costs are expensed as an adjustment to revenue over the lease term.

Operating lease

For an operating lease, revenue is recognized evenly throughout the lease period, and the operating lease assets are depreciated using the same depreciation method and estimated useful lives used for similar assets held by the Group. The Group also recognizes initial direct costs incurred in negotiating and arranging an operating lease, as a separated asset. The depreciation for leased assets is consistent with the Group’s depreciation for similar assets.

31

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(k)Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets related to employee benefit and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.  

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).  The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.

(l) Non-derivative financial liabilities

Financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of a financial liability. Financial liabilities are recognized in the consolidated financial statements when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities at fair value through profit or loss

A financial liability is classified at fair value through profit or loss if it is classified as held for trading or designated as such upon initial recognition. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Attributable transaction costs are recognized in profit or loss as incurred.

Other financial liabilities

The financial liabilities that are not classified as at fair value through profit or loss are classified into other financial liabilities. The liabilities are measured at fair value less transaction costs that are directly attributable to the issuance upon initial recognition. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.

Derecognition of financial liabilities

The Group removes a financial liability from its consolidated statement of financial position only when it is extinguished – i.e. when its contractual obligations are discharged, cancelled or expired.

32

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(m) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

(ii)Other long-term employee benefits

The Group’s net obligation in respect of other long-term employee benefits that are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, is the amount of future benefit that employees have earned in return for their service in the current and prior periods.  That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

(iii) Post-employment benefit plan

The Group has introduced both a defined benefit pension plan and defined contribution pension plan.      Employees have a right to choose one of those pension plans.

Defined contribution plans

The Group has no further payment obligations once the contributions have been paid, which are classified as a defined contribution plan. The contributions are recognized as an expense, unless included in the cost of an asset. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund.

Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.                     The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.  

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding Interest), are recognized immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in personnel expenses in profit or loss.

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

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

33

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(m) Employee benefits, continued

(iv) Termination benefits

Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(n) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. If the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation.  The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

The Group recognized provisions with regard to litigation and unused credit commitments for credit purchases and cash advances. Allowance for unused credit commitments is estimated using valuation model by credit conversion factor, probability of default and loss given default.  In addition, in accordance with rental contracts that require restoration at the end of the contract period, present values of the expected restoration costs are recognized as allowance for asset retirement obligation.

34

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(o) Foreign currency

(i) Foreign currency transactions.

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value is determined.

Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the translation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation (see (iii) below), or in a qualifying cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii) Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(iii) Translation of the net investment in foreign operations

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

35

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(p) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

(q) Share-based payment transactions

For equity-settled share-based payment transactions, the Group measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Group cannot estimate reliably the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.  The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

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

(r) Revenue from Contracts with Customers

The Group recognizes fee income from cardholders and merchants on an accrual basis applying the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation).  However, the Group recognizes service charges from delinquent cardholders on cash basis.  Certain fees associated with lending activities which meet specified criteria, are deferred and amortized over the life of the loan as an adjustment to the carrying amount of the loan.  The amortization of deferred fee is recognized as operating revenue or expense by the effective interest rate method.

The fair value of the consideration received or receivable in respect of the initial sale is allocated between award credits (“points”) and other components of the fee and commission income. The Group provides awards, in the form of price discounts or by offering a variety of gifts. The amount allocated to the points is estimated by reference to the fair value of the monetary and non-monetary benefits for which they could be redeemed, since the fair value of the points themselves is not directly observable. The fair value of the benefits is estimated taking into account the expected redemption rate and the timing of such expected redemptions. The amount allocated to the points is regarded as consideration payable to the customer and recognized as a reduction of fee and commission income.

36

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(s) Finance income and finance costs

The Group’s Finance income and finance costs consist of:

- Interest income

- Interest expense

- Dividend income

- Net income or loss on financial assets measured at fair value through profit or loss

- Net income or loss on foreign currency transactions

- Net impairment losses or reversals of impairment losses on financial assets measured at amorized cost

- Remeaseurement gains on acquirer’s previously held equity interest in the acquiree at its acquisition-date fair value.

- Loss of changes in fair value of contingent consideration classfied as a financial liability

- Hedge ineffectiveness recognized in profit or loss

- Net reclassified profit or loss on cash flow hedges of interest rate risk and exchange rate risk of borrowings previously recognized in other comprehensive income

Interest income or expense was recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

When calculating interest income or interest expense, the effective interest rate applies to the gross carrying amount of the asset (if the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that are not purchased or originated credit-impaired financial assets but subsequently have become credit-impaired financial assets, the Group applies the effective interest rate to the amortised cost of the financial asset.

for financial assets that subsequently have been credit-impaired since initial recognition, interest revenue is calculated by applying an effective interest rate to the amortised cost of the financial asset. If the asset is no longer considered credit-impaired, the entity calculates interest revenue by applying an effective interest rate to the gross carrying amount. The Group calculates the interest revenue by applying the effective interest rate to the gross carrying amount if the financial asset is no longer credit-impaired.

37

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(t) Income taxes

Income tax on the income or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

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

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that, and only to the extent that it is probable that the temporary difference will reverse in the foreseeable future; and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted by the end of reporting period.  The measurement of deferred tax liabilities and deferred tax assets reflect the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

(u) Earnings per share

The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

38

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(v) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are not mandatory for the Group for annual periods beginning after January 1, 2018, and the Group has not early adopted them.

(i) K-IFRS No.1116 Leases

K-IFRS No.1116 Leases, issued on May 22, 2017, shall be applied for annual periods beginning on or after January 1, 2019, but may be applied earlier.  This Standard will replace the current K-IFRS No.1017 Leases, K-IFRS No.2104 Determining whether an Arrangement contains a Lease, K-IFRS No.2015 Operating Leases-Incentives, K-IFRS No.2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract the Group determines whether the contract is, or contains, a lease, and at the date of initial application, identifies whether the contract is, or contains, a lease.  The lessee and the lessor shall account for each lease component of the contract as a lease, separately from the non-lease component in a contract that is, or contains, a lease.

The lessee shall recognize a right-of-use asset that represents the right to use and a lease liability that represents an obligation to pay the lease fee.  However, for short-term lease payments and payments for leases of low-value assets, exceptions to this Standard may be selected.  In addition, the lessee may use the practical expedient for each lease component and its associated lease component as a single lease component, rather than separating it from separating it from the lease component.

Lessor accounting has not changed significantly from the current K-IFRS No.1017.

39

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(w) New standards and interpretations not yet adopted, continued

(i) K-IFRS No.1116 Leases, continued

ⓐ Lessee accounting

Application of K-IFRS No.1116 Leases

The lessee may apply either retrospectively to each prior reporting period presented applying K-IFRS No.1008 Accounting Policies, Changes in Accounting Estimates and Errors (full retrospective approach) or retrospectively with the cumulative effect of initially applying the Standard recognized at the date of initial application (‘cumulative catch-up’ transition method).

As of 1 January 2019, the Group plans to apply the cumulative catch-up transition method for initial application of K-IFRS No.1116.  Consequently, the cumulative effect of applying K-IFRS No.1116 is adjusted for retained earnings at the date of initial application and the comparative financial statements will not be restated.

Financial impact of K-IFRS No.1116 Leases

In order to assess the financial impact of the initial application of K-IFRS No.1116, the Group evaluated the effect on its financial statements in 2019 on the basis of the circumstances and available information as of January 1, 2019.

The total amount of the minimum lease payments before discounting of the assets currently used as operating leases is W59,072 million, and if discounted at the lessee's incremental borrowing interest rate, it is W56,682 million.  However, the Group will apply practical expedients to all (or part) contracts that are, or contain, leases to account for each lease component and associated non-lease component as a single lease component.

As a result of a detailed analysis of the impact on the financial statements, the Group expects that the right-of-use assets and lease liabilities will increase by W49,569 million and W50,934 million, respectively, as of January 1, 2019. However, the financial impact assessment may change depending on the additional information available in the future and overseas subsidiaries were excluded from the calculation because the effect is expected to be insignificant.

40

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

3.Significant Accounting Policies, continued

(w) New standards and interpretations not yet adopted, continued

(i) K-IFRS No.1116 Leases, continued

ⓑ Lessor accounting

Application and financial impact of K-IFRS No.1116 Leases

As a lessor, the Group specifically assessed the effect on the financial statements of significant changes in the accounting for the identification of lease contracts and the separation of lease components in accordance with K-IFRS No.1116.

Interest income for the year ended December 31, 2019 are not expected to be affected by financing lease receivable as of January 1, 2019.  However, this may change depending on the additional information available in the future.

If the Group is an intermediate lessor, the Group reassesses the classification of operating leases or financing leases in accordance with K-IFRS No.1116 for subleases classified as operating leases before the date of initial application and maintained at the date of initial application.  If the lease is classified as a financing lease as a result of the reassessment, it is accounted for as a new financing lease entered at the date of initial application.

Based on the situation and information available as of January 1, 2019, the Group evaluated the specific financial effects with a new financing lease and is expected to have no impact on the lease payments receivable as of January 1, 2019 and the interest revenue for the year ended December 31, 2019.  However, this may change depending on the additional information available in the future.

(ii) The following amendments are expected not to have a material effect on the Group.

- K-IFRS No.2123 Uncertainty over Income Tax Treatments

- Amendments to K-IFRS No.1109 Financial Instruments: Prepayment Features with Negative Compensation

- Amendments to K-IFRS No.1028 Investments in Associates and Joint Ventures: Long-term Interests in

Associates and Joint Venture

- Amendments to K-IFRS No.1019 Employee Benefits: Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan

- Annual improvements to K-IFRS 2015-2017 Cycle

- Amendments to the Conceptual Framework for Financial Reporting

- K-IFRS No.1117 Insurance Contracts

41

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management

(a) General information of risk management

The Group has exposure to the following risks from its use of financial instruments:

●Credit risk

●Liquidity risk

●Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.  Further quantitative disclosures are included throughout these consolidated financial statements.

(i) Organization for risk management

Major decisions relating to risk management are made by the Risk Management Committee under the Board of Directors.  To effectively implement the Risk Management Committee's determination and deliberation, the Group runs the Risk Management Council which includes the CRO (Chief Risk Officer) as chairman and consists of heads of relevant units and divisions. In order to assist the two committees, there is an independent risk management team which is fully in charge of tasks related to risk management.

In addition, the Group established a Credit Review Committee separately from the Risk Management Council to conduct credit evaluations of corporate customers with outstanding loans over a certain amount and other significant credit matters. The Credit Review Committee is led by the CRO and consists of heads of relevant divisions.  

(ii) Risk management process

The Group measures credit risk, liquidity risk, market risk, and interest rate risk. The Group presents an acceptable level of risks before the establishment of an annual financial plan, and sets the upper growth limit as a guideline, which considers available capital and risk capital. On the basis of organized financial plans in accordance with established guidelines, the Group organizes risk plans and sets risk limits, which encompass the Group’s entire risk appetite.

Risk limits are set on the basis of the risk capital in principle or set by the regulatory capital in case of absence of a risk capital calculation system. The Group manages total risk limits, risk limits for each type of risk and risk limits by product. If total risk exceeds 95% of its limit, the Group immediately reports the risk limits to the CRO of Shinhan Financial Group and to the Group Risk Management Committee.  In case of risk limits for each type of risk, after consultation with the Shinhan Financial Group, it is adjustable by resolution of the Risk Management Committee within the range of total risk limits. In case of risk limits by product, after prepared countermeasures, it is adjustable by resolution of the Risk Management Council.

42

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(a)  General information of risk management, continued

(iii)Risk monitoring

Risk Monitoring is performed by Shinhan Financial Group’s risk dashboard for early detection of risk, regular risk measurement and monitoring systems by the Risk Management Council and Risk Management Committee, and the Enterprise Risk Management System.  The Group performs weekly monitoring on short-term credit quality indicators and leading economic indicators.

Risk dashboard

The risk dashboard is a risk monitoring system to support early detection and proactive responses to portfolio risks and abnormal symptoms, and key monitoring targets of portfolios by business line and credit quality of members (credit ratings).  It performs the pre-detection function on the risk factors such as increases in assets and risks by each monitoring target. With regard to quantitative indicators such as increases in assets and increases in risks, the Group defines the determination level of risk detection by the statistical significance level.  By regular monitoring, the risk management team together with relevant teams analyzes the cause, and prepares and implement a countermeasure.

Risk measurement and monitoring reporting

The Group regularly reports the overall results of risk measurement and monitoring to the Risk Management Council and Risk Management Committee.  Regular monitoring items consist of operational status of risk limits (total / type / product), portfolio guidelines, levels of enterprise crisis, economic / market trends, detailed indicators of credit quality, and financing and liquidity risks.

(iv) Enterprise crisis management system

Enterprise crisis management consists of items such as quantitative crisis recognition, determination of crisis stage, developing action items, and debriefing.

Internal and external crisis indicators for each of credit risk and liquidity risk are divided into core indicators and leading indicators and the stage of crisis is determined quantitatively. Risk management working-level committee performs analysis of qualitative information and risk management council, consisting heads of departments decides whether to perform entity-wide impact analysis.

43

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(a)  General information of risk management, continued

(iv)Enterprise crisis management system, continued

Enterprise crisis stages consist of Normal 1, Normal 2, Cautionary 1, Cautionary 2, Crisis Impending, and Crisis, which are determined by a scoring system based on internal and external indicators.

Based on the assessment of crisis stage, appropriate action items for each crisis stage are set up and implemented. For the purpose of efficient operation of the Enterprise Crisis Management System, detailed roles and responsibilities for each organization are predefined.  Crisis management organizations consist of a Risk management working-level committee which performs daily monitoring, risk management council, consisting heads of departments which is convened when the crisis stage is assessed as above the Cautionary 2 two times in succession.  In addition, the Group has Risk Management Council and Crisis Management Council headed by the CEO, and Group Crisis Management Council headed by the CEO of the Shinhan Financial Group.  These organizations and their detailed roles and responsibilities enable the Group to cope with crisis systematically.

(v)Evaluation process

The Group sets and operates the standards on credit card issuance pursuant to the standard of review for payment ability prescribed by the Regulation on Supervision of Specialized Credit Finance Business.  If the basic qualification standards are not met, credit card issuance is prohibited. When standards are met, credit card issuance is possible only if the AS (Application Score) credit rating is above a certain degree, which is based on the Group’s internal information, external information from Credit Bureaus, and personal information in the application form.  The Group prevents higher-risk customers from being issued a credit card by using supplementary information such as overdue history and Credit Bureaus’ credit ratings.

The Group utilizes customer transaction records with Shinhan Financial Group’s subsidiaries, internal or external credit information, and characteristics of each customer group to improve its assessment functions on credit card issuance for new customers.  The Group performs various kinds of simulations to cope with the changes in surroundings such as market conditions and economic trends so that the Group is able to predict the potential risk of certain customer groups and establish the management policy for higher-risk groups.

The Group determines an optimized credit limit for new credit card holders according to their payment ability by considering occupation, income, property, debt, and transaction records with Shinhan Financial Group’s subsidiaries. The Group operates a management system which enables the Group to monitor the changes in risk and prevent high-risk groups from being credit card holders by monitoring monthly indicators.

(vi)Credit Scoring System

The Group’s Credit Scoring System consists of ASS (Application Scoring System) and BSS (Behavioural Scoring System). BS (Behavioural Score) evaluates the credit card holder’s credit quality regularly. Credit card AS evaluates potential credit card holder’s credit quality when they apply for credit card issuance. Card loan AS and installment AS evaluate potential customers’ credit quality. The Group utilizes the Credit Scoring System in order to monitor its customers’ and portfolios’ risk exposures.

44

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.  The Group complies with credit risk management procedures pursuant to internal guidelines and regulations and continually monitors and improves these guidelines and regulations. Application of credit risk management includes not only all the transactions in these consolidated financial statements but also off balance items such as guarantees, loan agreements and derivatives transactions that could possibly generate economic loss.  The Group assesses credit risks of those transactions and sets a limit on expected credit risks in advance.

The Group estimates credit risks of financial instruments using PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default) utilizing the risk estimation methodology of Basel II.  The Group applies the Basel basis conservatively to reflect the credit card crisis of 2003 and the nature of the credit card business. Credit risks of derivatives, due from banks and securities are assessed using the modified standard methodology of Basel. Credit risks are divided into respective business segments and merchandise segments, and the Group sets limits for each segment, which are monitored by the risk control process, and established an action plan in case that credit risks get close to, or exceed limits.

45

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(i)  Exposure to credit risk

The carrying amount of financial instruments represents the Group’s maximum exposure to credit risk.  Exposure to credit risk of the Group as of December 31, 2018 and 2017 is as follows.  Cash held by the Group is excluded.

		2018	2017
Due from banks and credit card assets at  amortized cost, etc. (*1),(*2)
Banks	W	1,543,308	1,081,864
Household
Credit sales		12,627,203	11,570,580
Cash advances		1,848,767	1,844,254
Card loans		5,782,694	5,478,557
Installment finance and others		3,392,838	3,121,724
Government/Public institution/ The Bank of Korea		21,375	19,114
Corporate		2,324,473	1,735,318
		27,540,658	24,851,411
Financial assets at FVTPL
Debt securities		1,579	-
Beneficiary certificates		250,064	-
Available-for-sale financial assets
Debt securities		-	1,953
		27,792,301	24,853,364
Derivative financial assets		7,477	3,966
Other assets (*1)
Other financial assets		464,790	489,804
	W	28,264,568	25,347,134

(*1) The maximum exposure to credit risk is measured as net of allowance for doubtful accounts, deferred loan origination costs, and present value discount amount.

(*2) The carrying amount of financial instruments as of December 31, 2017 is classified as loans and receivables under the measurement categories of K-IFRS No.1039.

As of December 31, 2018 and 2017, the maximum exposure to credit risk caused by unused credit commitments amounted to W71,896,628 million, and W63,745,952 million, respectively.

46

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(ii) Analysis of past due and impaired amounts

Under the measurement method of loss allowance, the amounts of due from banks and credit card assets at amortized cost, etc. by internal credit rating as of December 31, 2018 is as follows:

		2018
		12-month ECLs measurement		Lifetime ECLs measurement		Impaired assets	Subtotal	Allowance for doubtful accounts	Total
		Prime	Normal	Prime	Normal	Impaired
Banks	W	1,543,194	114	-	-	43	1,543,351	(43)	1,543,308
Household		17,815,978	2,210,129	1,901,130	2,113,607	427,416	24,468,260	(816,758)	23,651,502
Credit sales		10,495,592	489,901	1,026,112	789,335	61,182	12,862,122	(234,919)	12,627,203
Cash advances		924,041	313,328	207,682	504,706	36,464	1,986,221	(137,454)	1,848,767
Card loans		3,943,961	790,977	550,799	683,270	67,597	6,036,604	(253,910)	5,782,694
Installment finance and others		2,452,384	615,923	116,537	136,296	262,173	3,583,313	(190,475)	3,392,838
Government /Public institut-  ion/ The Bank of Korea		21,375	-	-	-	-	21,375	-	21,375
Corporate		1,058,917	1,177,484	12,861	89,797	30,173	2,369,232	(44,759)	2,324,47
	W	20,439,464	3,387,727	1,913,991	2,203,404	457,632	28,402,218	(861,560)	27,540,658

47

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(ii) Credit risk exposure by measurement method, continued

Under the measurement method of loss allowance, the amounts of off-balance item by internal credit rating as of December 31, 2018 is as follows:

		2018
		Loan commitments and other credit-related liabilities
		12-month ECLs measurement	Lifetime ECLs measurement	Impaired assets	Total
Prime	W	66,104,634	3,625,590	-	69,730,224
Normal		1,646,082	510,083	-	2,156,165
Impairment		-	-	10,239	10,239
	W	67,750,716	4,135,673	10,239	71,896,628

In the case of individual members, based on the internal credit rating, the Group manages the members with lower credit loss ratio compared to the profit ratio before impairment with prime, while others are classified as normal.  In case of corporate members, AAA ~ BBB+ rating and non-rating of government/public institutions/central banks are classified as prime, while others are classified as normal.

(iii) Analysis of past due and impaired amounts

Set out below is an analysis of past due and impaired amounts of due from banks, loans and receivables, and debt securities as of December 31, 2017.

		2017
		Neither past due nor impaired	Past due but not impaired	Impaired	Total
Banks	W	1,081,865	-	-	1,081,865
Household
Credit sales		11,448,503	204,951	48,392	11,701,846
Cash advances		1,818,544	73,912	28,224	1,920,680
Card loans		5,505,138	132,285	56,497	5,693,920
Installment finance and others		2,961,888	83,488	263,754	3,309,130
		21,734,073	494,636	396,867	22,625,576
Government/Public institution/   The Bank of Korea		18,063	1,050	1	19,114
Corporate		1,609,040	130,694	39,582	1,779,316
		24,443,041	626,380	436,450	25,505,871
Allowance for doubtful accounts		(296,971)	(86,672)	(268,864)	(652,507)
	W	24,146,070	539,708	167,586	24,853,364

48

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(iv) Information about the credit quality of due from banks and loans and receivables that are neither past due nor impaired

The Group classifies due from banks and loans and receivables within several risk categories.  In case of individual customers, on the basis of internal credit rating, when the bad debt expense ratio is less than earnings before bad debt expense ratio, the loans and receivables are determined to be “outstanding” category and the others are determined to be “normal” category.  In case of corporate customers, internal credit ratings that have AAA ~ BBB+ level and unrated ratings of Government/Public institution/The Bank of Korea are determined to be "outstanding” and that of the others is determined to be "normal".  Information about the credit quality of due from banks, and loans and receivables that are neither past due nor impaired as of December 31, 2017 is as follows:

		2017
		Outstanding	Normal	Total (*)
Banks	W	1,081,714	150	1,081,864
Household
Credit sales		10,297,657	1,077,162	11,374,819
Cash advances		1,067,739	705,833	1,773,572
Card loans		4,171,608	1,202,669	5,374,277
Installment finance and others		2,403,456	548,511	2,951,967
		17,940,460	3,534,175	21,474,635
Government/Public institution/  The Bank of Korea		18,063	-	18,063
Corporate		622,479	949,029	1,571,508
	W	19,662,716	4,483,354	24,146,070

(*) The amounts are measured as net of allowance for doubtful accounts, deferred loan origination costs, and present value discount account.

49

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(b) Credit risk, continued

(v)Analysis of the age of loans and receivables that are past due but not impaired

Management of the Group considers accounts that are past due for less than 90 days as not impaired, unless other information can demonstrate that this is not the case.  Analysis of the aging of loans and receivables that are past due but not impaired as of December 31, 2017 is as follows:

		2017
		Less than 30 days	After 30 days through 60 days	After 60 days through 90 days	Total(*)
Banks	W	-	-	-	-
Household
Credit sales		161,782	11,688	5,637	179,107
Cash advances		50,993	6,463	3,328	60,784
Card loans		79,790	6,773	4,122	90,685
Installment finance and others		72,994	3,999	1,674	78,667
		365,559	28,923	14,761	409,243
Government/Public institution/ The Bank of Korea		1,050	-	-	1,050
Corporate		117,767	7,908	3,740	129,415
	W	484,376	36,831	18,501	539,708

(*) The amounts are measured as net of allowance for doubtful accounts, deferred loan origination costs, and present value discount account.

(vi) Analysis of financial assets that are individually and collectively determined to be impaired

Financial assets that are individually and collectively determined to be impaired as of December 31, 2017 are as follows:

			2017	2016
Financial assets that are individually determined to be impaired(*)	Debt securities	W	1,953	1,368
Financial assets that are collectively determined to be impaired(*)	Loans and receivables		165,633	159,323
		W	167,586	160,691

(*) The amounts are measured as net of allowance for doubtful accounts.

50

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) 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. Liquidity risk could be caused by maturity mismatch of financial assets and liabilities, or temporary insolvency by unexpected cash outflows. It includes economic losses that the Group will incur in the process of financing high interest rates, or disposing of invested assets in order to meet its obligations.  The Group manages liquidity risk by considering all liquidity variation factors that can cause cash inflows and cash outflows.

The Group sets the goal of “month-end liquidity” as the liquidity level at which the Group could pay its obligations in the next three months.  Real liquidity gap ratio of maturity of financial assets and liabilities, liquidity buffer ratio and ABS to borrowings ratio are major indices of liquidity risks monitored by the Group, defined as cautious, apprehensive, and risky.  The Group has prepared contingency plans for various liquidity crises.

(i)Non-derivatives

A maturity analysis for non-derivative financial assets and liabilities as of December 31, 2018 and 2017 is as follows. Such undiscounted contractual cash flows differ from the discounted amount included in the consolidated statement of financial position, as they include estimated interest payments.

The Group expects that there would be no significant changes in the timing of cash flows.

		2018
		Less than 1 month		1~3 months		3~6 months		6 months ~ 1 year		1~5 years		Over 5 years		Total
Assets:
Cash and due from banks	W	637,990		-		-		-		-		-		637,990
Credit card assets at amortized cost, etc.		10,521,005		5,730,700		3,386,670		3,717,392		5,556,111		237,047		29,148,925
Financial assets at FVTPL		253,854		-		-		-		-		-		253,854
Financial assets at FVOCI		-		-		-		-		-		34,519		34,519
Other financial assets		396,880		63		417		-		-		81,338		478,698
	W	11,809,729		5,730,763		3,387,087		3,717,392		5,556,111		352,904		30,553,986
Liabilities:
Borrowings	W	118,371		105,496		21,314		32,272		2,185,995		-		2,463,448
Debentures		309,403		810,595		1,129,919		2,038,724		13,165,891		208,318		17,662,850
Other financial liabilities		2,839,114		15,155		22,506		41,151		208,763		42,350		3,169,039
	W	3,266,888		931,246		1,173,739		2,112,147		15,560,649		250,668		23,295,337
Off-balance item(*):
Unused credit commitments	W	71,896,628		-		-		-		-		-		71,896,628

(*) Unused credit commitments are classified into the earliest possible period because the payment must be executed immediately if the counterparty requests payment.

51

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) Liquidity risk, continued

(i)Non-derivatives, continued

		2017
		Less than 1 month		1~3 months		3~6 months		6 months ~ 1 year		1~5 years		Over 5 years		Total
Assets:
Cash and due from banks	W	566,970		-		-		-		-		-		566,970
Loans and receivables		9,532,322		5,168,875		3,085,357		3,349,865		4,857,087		220,257		26,213,763
Trading financial assets		360,064		-		-		-		-		-		360,064
Available-for-sale financial assets		-		-		-		-		-		34,585		34,585
Other financial assets		423,149		23		726		-		-		77,531		501,429
	W	10,882,505		5,168,898		3,086,083		3,349,865		4,857,087		332,373		27,676,811
Liabilities:
Borrowings	W	310,961		34,555		241,082		30,985		1,393,926		-		2,011,509
Debentures		249,411		436,081		870,339		1,908,981		10,959,528		234,504		14,658,844
Other financial liabilities		2,970,558		17,574		25,569		47,568		182,145		41,523		3,284,937
	W	3,530,930		488,210		1,136,990		1,987,534		12,535,599		276,027		19,955,290
Off-balance item(*):
Unused credit commitments	W	63,745,952		-		-		-		-		-		63,745,952

(*) Unused credit commitments are classified into the earliest possible period because the payment must be executed immediately if the counterparty requests payment.

52

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(c) Liquidity risk, continued

(ii)Derivatives

A maturity analysis including the remaining contractual maturities for the derivatives as of December 31, 2018 and 2017 is as follows.

The amounts shown in the table were calculated based on the information below.

- Gross settlement: gross amount of cash received or paid.

- Net settlement: net amount of cash received or paid.

			2018
		Less than 1 month		1~3 months	3~6 months	6 months ~ 1 year	1~5 years	Total
Net settlement cash outflow	W	(271)		(793)	(1,093)	(2,543)	(17,177)	(21,877)
Gross settlement cash inflow		155,375		234,410	89,356	291,128	2,007,559	2,777,828
Gross settlement cash outflow		(160,868)		(244,971)	(91,111)	(289,010)	(2,004,856)	(2,790,816)
	W	(5,764)		(11,354)	(2,848)	(425)	(14,474)	(34,865)

		2017
			Less than 1 month	1~3 months	3~6 months	6 months ~ 1 year	1~5 Years	Total
Net settlement cash inflow (outflow)	W		(311)	(679)	(398)	(224)	4,021	2,409
Gross settlement cash inflow			93,571	7,059	11,757	452,076	1,757,186	2,321,649
Gross settlement cash outflow			(92,779)	(5,822)	(9,601)	(482,104)	(1,854,446)	(2,444,752)
	W		481	558	1,758	(30,252)	(93,239)	(120,694)

53

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) 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. The Group is exposed to interest rate risk of financial assets and liabilities in the case of non-trading assets and interest rate risk of MMF (Money Market Fund) in the case of trading assets and only foreign exchange rate risk of foreign currency equity securities and foreign currency deposits because the Group hedges all cash flows of foreign currency liabilities with currency rate swaps. The Group is exposed to only equity price risk of foreign currency equity securities. The Group assesses risks of expected transactions and sets up limits to control market risks to the extent that the Group can handle. The Group assessed market risks on the basis of the Basel standard methodology and the Historical VaR (Value at Risk) method, established risk limits respectively, monitored, and established an action plan in case that market risks get close to, or exceed limits.

(i)Market risk management from trading positions

The Group assessed market risk from trading positions using the standard methodology of Financial Supervisory Service. The following represents the Group’s assessment of its potential loss in financial assets at fair value through profit or loss as of December 31, 2018 and trading financial assets as of December 31, 2017 that are exposed to the respective risks.:

		2018
		Average	High	Low	At December 31
Interest rate risk	W	1,257	1,972	768	1,269

		2017
		Average	High	Low	At December 31
Interest rate risk	W	1,809	2,550	1,050	1,800

Overseas subsidiaries were excluded from the calculation.

54

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) Market risk, continued

(ii)VaR and EaR management from non-trading positions

Interest rate risk from non-trading positions

The principal market risk from non-trading activities of the Group is interest rate risk.  The Group makes an effort to minimize variations of net assets and profit by assessing and controlling interest rate risk of non-trading positions.  Interest rate VaR and EaR, to which real interest rate variations of assets and liabilities are applied, are used to assess interest rate risk.

Interest rate VaR estimates, at a 99.9% confidence level, the expected maximum loss assuming a one-year holding period.  The Group calculates the Interest rate VaR using an internal model which has been designed to apply historical interest rate scenarios provided by accompanying net asset value simulations due to interest rate changes.

Interest rate EaR (Earning at Risk) is the maximum expected loss of net interest income within the next year due to negative variations of interest rates.  Interest rate EaR is assessed considering interest rate repricing gap, differences between expected interest rate variation timing and target period (one year), and expected interest rate variation. Applied interest rate variation timing for each maturity level and interest rate shock (200bp) were suggested by Basel. Financial assets of low sensitivity were excluded.

Interest rate VaR and EaR of non-trading positions as of December 31, 2018 and 2017 are as follows:

		2018	2017
Interest rate VaR	W	163,804	147,932
Interest rate EaR		28,267	32,081

Overseas subsidiaries were excluded from the calculation.

Equity price risk and foreign exchange rate risk from non-trading positions

The Group assessed equity price risk and foreign exchange rate risk from foreign currency equity securities of non-trading positions using the Historical VaR method. Assuming that asset returns are possible in case of crisis, historical VaR of the equity price and foreign currency rate is calculated at bottom 99% of 10 day holding period volatility for one year (250 trading days) in reporting date. Total VaR is calculated assuming that equity price risk and foreign exchange rate risk occur at the same time. Variance effect is calculated based on the difference between the total VaR and the sum of price risk and foreign exchange rate risk.

The Group does not have any non-trading positions that are exposed to equity risk and foreign exchange rate risk.

55

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

4.Financial Risk Management, continued

(d) Market risk, continued

(iii)Foreign exchange risk

The Group has been exposed to foreign exchange risk of financial assets and financial liabilities denominated in a foreign currency other than the functional currency, Korean won. Cash outflows of liabilities denominated by foreign currency were hedged by currency rate swap. Exposures to foreign exchange risk of foreign currency denominated assets and liabilities as of December 31, 2018 and 2017 are as follows:

(In millions of U.S. dollars, millions of Singapore dollars, millions of Euro, millions of Indonesia Rupiah, millions of Kazakhstan Tenge, millions of Myanmar Kyat, and millions of won)

	2018
	Foreign currency										Won Equivalent
	USD	SGD	EUR		KZT		IDR		MMK
Deposit	1	-	-		10		7,800		333	W	934
Loans	-	-	-		4,466		1,225,750		10,364		114,815
Other financial assets	-	-	-		51		13,470		152		1,296
Debentures	(1,613)	(748)	(198)		-		-		-		(2,667,946)
Borrowings	-	-	-		(1,000)		(1,111,854)		(2,750)		(90,506)
Other financial liabilities	-	-	-		(82)		(10,490)		(195)		(1,188)
On-balance exposure	(1,612)	(748)	(198)		3,445		124,676		7,904		(2,642,595)
Off-balance derivative exposure	1,613	748	198		-		-		-		2,667,946
Net position	1	-	-		3,445		124,676		7,904	W	25,351

(In millions of U.S. dollars, millions of Singapore dollars, millions of euro, millions of Indonesia Rupiah, millions of Kazakhstan Tenge, millions of Myanmar Kyat, and millions of won)

	2017
	Foreign currency						Won Equivalent
	USD	SGD	KZT	IDR	MMK
Deposit	-	-	424	13,562	569	W	2,978
Loans	-	-	2,701	1,304,222	7,911		118,009
Other financial assets	-	-	28	14,162	100		1,288
Debentures	(1,521)	(748)	-	-	-		(2,227,910)
Borrowings	-	-	-	(1,243,821)	(1,150)		(99,167)
Other financial liabilities	-	-	(48)	(4,616)	(52)		(562)
On-balance exposure	(1,520)	(748)	3,105	83,509	7,378		(2,205,364)
Off-balance derivative exposure	1,521	748	-	-	-		2,227,910
Net position	-	-	3,105	83,509	7,378	W	22,546

56

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

4.Financial Risk Management, continued

(e) Capital risk management

The Group has exposure to credit risk, liquidity risk, and market risk. By maintaining an optimal capital structure, the Group’s objective is to control its financial risks, enhance its safety and soundness, stabilize the financial system, and advance the Group’s credit standing.

The Group operates the credit card business under the Specialized Credit Finance Business Act.  Accordingly, the Group should obey the Regulations on Supervision of Specialized Credit Finance Business. The regulations require the Group to maintain an adjusted equity capital ratio of more than 8%.  Adjusted total assets and adjusted equity capital for the ratio are based on the consolidated statements of financial position and adjusted by the regulation that considered standards of the Bank for International Settlements and the nature of credit card business. The Group observes ratios of adjusted equity capital requirements regulated by the Specialized Credit Finance Business and as of December 31, 2017, the Group complied with the regulatory requirement for the adjusted equity capital ratio.

5.Significant Estimates and Judgments

The preparation of consolidated financial statements requires the application of certain critical estimates and judgments relative to the future.  These critical estimates and judgments are assessed continually based on the elements like historic experiences and reasonably predictable future events under current conditions.  Management’s estimated outcomes may differ from actual outcomes.

Information about judgments on accounting assumptions and estimates, including significant risk that may result in a material adjustment in the reported amounts of assets and liabilities within the financial year are included in the following notes.

(a) Valuation of financial instruments

The fair values of financial instruments which are not actively traded in the market are determined by using valuation techniques.  The Group determines valuation methods and assumptions based on significant market conditions at the end of each reporting period.  Diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted valuation models in the market to internally developed valuation model that incorporates various types of assumptions and variables.

57

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

5.Significant Estimates and Judgments, continued

(b) Allowance for doubtful accounts

(i)Individually assessed loan impairment

In assessing individual impairment, it is based on the best estimation of the Group’s management about the present value of estimated future cash flows of secured financial assets.  The present value is calculated by including cash flows from collateral after deducting costs to acquire and sell the collateral, regardless of probability of realization of such collateral.

(ii)Collectively assessed loan impairment

In assessing collective impairment, future cash flow of financial assets applicable to collective impairment assessment is estimated by using statistical methods of historical trends of the probability of default, and the loss rate at default, adjusted for management’s judgment as to whether current economic and credit conditions are such that the impairment losses are likely to be greater or less than suggested by historical methods. In adjusting the future cash flow by historical methods, the result has to be in line with changes and trends of observable data (e.g. loan and borrower type, credit rating, EAD by periods, significant changes in credit rating, recovery period and other variables). Methodologies and assumptions used to estimate future cash flow are reviewed on regular basis in order to narrow down discrepancy between impairment loss estimation and actual loss.

(c) Qualifying hedge relationships

In designating financial instruments in qualifying hedge relationships, the Group has determined that it expects the hedges to be highly effective over the period of the hedging relationship.  In accounting for derivatives as cash flow hedges, the Group has determined that the hedged cash flow exposure relates to highly probable future cash flows.

(d) Liability for defined benefit obligations

The present value of a defined benefit obligation that is measured by actuarial valuation methods uses various assumptions which can change according to various elements.

The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses including experience adjustments and the effects of changes in actuarial assumptions are recognized in other comprehensive income.

(e) Income taxes

Within the normal business process, there are various types of transactions and different accounting methods that may add uncertainties to the realizability of tax assets. The Group has recognized current and deferred taxes that reflect tax consequences that would follow from the manner in which the entity expects, at the end of the reporting year, to recover or settle the carrying amount of its assets and liabilities. However, actual income tax in the future may not be identical to the recognized deferred tax assets and liabilities, and this difference can affect current and deferred taxes at the year when the final tax effect is conformed.

58

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

6.Fair Value Measurement of Financial Instruments

The Group primarily uses the published price quotations in an active market for measurement of the fair value of financial instruments. If the market for a financial instrument is not active, fair value is established either by using a valuation technique or independent third-party valuation service.

The Group uses diverse valuation techniques under reasonable assumptions which are based on the observable inputs in markets at the end of each reporting period.

Valuation techniques include using the recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

- Quoted market price (unadjusted) in an active market for an identical instrument (Level 1)

- Valuation techniques based on observable inputs, either directly or indirectly (Level 2)

- Valuation techniques using significant unobservable inputs (Level 3)

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.  For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.  If a fair value measurement uses observable inputs that require significant adjustments based on unobservable inputs, that measurement is a Level 3 measurement.  Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

59

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value

(i) Fair value measurement methods of financial instruments that are measured at fair value are as follows:

	Fair value measurement methods
Financial assets at FVTPL	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  The fair value of investments in money market funds is determined by the sum of acquisition cost and accrued interest.  Fair value of debt securities which are not quoted in an active market are determined at the amount which is present value of the future cash flow estimated reasonably discounted by the rate considering the counterparty’s credit risk.  Equity instruments that do not have a quoted market price in an active market and whose fair value are not reliably measurable are measured at cost as an estimate of fair value.
Derivative assets Derivative liabilities	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  If the market is not active, fair value is determined at the amount which is present value of the future cash flow reasonably estimated considering the counterparty’s credit risk and discounted by the appropriate rate such as a risk free rate.  If observable market data for the valuation is not available enough, the valuation result of the qualified external institutes is used as fair value.
Financial assets at FVOCI	In case that the market of a financial instrument is active, fair value is established at the closing quoted price as of the last day for the reporting period.  Fair value of equity securities which are not quoted in an active market are measured by the valuation model of independent and professional institutes using reliable data.  Equity instruments that do not have a quoted market price in an active market and whose fair value are not reliably measurable are measured at cost as an estimate of fair value.

60

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(ii) The fair value measurements classified by fair value hierarchy as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Level 1	Level 2	Level 3	Total
Financial assets
Beneficiary certificates at FVTPL	W	-	250,064	-	250,064
Debt securities at FVTPL		-	-	1,579	1,579
Equity securities at FVTPL		-	-	2,211	2,211
Derivative financial assets for hedging		-	7,477	-	7,477
Equity securities at FVOCI		-	-	34,519	34,519
	W	-	257,541	38,309	295,850
Financial liabilities
Derivative financial liabilities for hedging	W	-	80,928	-	80,928

		2017
		Level 1	Level 2	Level 3	Total
Financial assets
Beneficiary certificates held for trading	W	-	360,064	-	360,064
Derivative financial assets for hedging		-	3,966	-	3,966
Available-for-sale debt securities		-	-	1,953	1,953
Available-for-sale equity securities		-	-	32,632	32,632
	W	-	364,030	34,585	398,615
Financial liabilities
Derivative financial liabilities for hedging	W	-	140,732	-	140,732

61

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(iii) Changes in level 3 of the fair value hierarchy

Changes of fair value measurement in level 3 for the years ended December 31, 2018 and 2017 are as follows:  

		2018
		Debt securities at FVTPL	Equity securities at FVTPL	Equity securities at FVOCI	Available-for-sale debt securities	Available-for-sale equity securities	Total
Balance at January 1, 2018	W	-	-	-	1,953	32,632	34,585
Effect of changes in accounting policies		1,955	1,501	31,129	(1,953)	(32,632)	-
Net gain on valuation of financial assets at FVTPL		(376)	-	-	-	-	(376)
Net changes in the unrealized fair value of FVOCI		-	-	3,290	-	-	3,290
Acquisition		-	710	300	-	-	1,010
Disposal				(200)			(200)
Balance at December 31, 2018	W	1,579	2,211	34,519	-	-	38,309

		2017
		Available-for-sale debt securities	Available-for-sale equity securities	Total
Balance at January 1, 2017	W	1,368	27,482	28,850
Reversal of impairment loss		3,791	-	3,791
Other comprehensive income		-	3,150	3,150
Acquisition		-	2,000	2,000
Disposal		(3,206)	-	(3,206)
Balance at December 31, 2017	W	1,953	32,632	34,585

62

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(iv) Valuation techniques and inputs related to level 2

Information about valuation techniques and inputs in measuring financial instruments categorized as level 2 as of December 31, 2018 and 2017 is as follows:

	2018
	Valuation techniques	Type of financial instruments		Book value	Significant inputs
Financial assets at FVTPL:
	Sum of acquisition cost and accrued interest	Beneficiary certificates	W	250,064	Interest rate
Derivative assets:
	Discounted cash flow	Interest rate swap Currency swap		7,477	Discount rate Exchange rate Volatility, etc.
			W	257,541
Derivative liabilities:
	Discounted cash flow	Interest rate swap Currency swap	W	80,928	Discount rate Exchange rate Volatility, etc.

	2017
	Valuation Techniques	Type of financial instruments		Book value	Significant inputs
Trading financial assets :
	Sum of acquisition cost and accrued interest	Beneficiary certificates	W	360,064	Interest rate
Derivative assets:
	Discounted cash flow	Interest rate swap Currency swap		3,966	Discount rate Exchange rate Volatility, etc.
			W	364,030
Derivative liabilities:
	Discounted cash flow	Interest rate swap Currency swap	W	140,732	Discount rate Exchange rate Volatility, etc.

63

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(v) Valuation techniques and inputs related to level 3

Information about valuation techniques and inputs in measuring financial instruments categorized as level 3 as of December 31, 2018 and 2017 is as follows:

	2018
	Valuation techniques	Type of financial instruments		Book value	Significant unobservable inputs	Range of estimates for unobservable inputs
Financial assets at FVTPL:
	Net asset value, etc.	Debt and equity securities	W	3,790	Asset value		-
Financial assets at FVOCI:
	Discounted cash flow, etc.	Equity securities		34,519	Discount rate Growth rate		8.43% ~ 14.14% 0.00%
			W	38,309

	2017
	Valuation techniques	Type of financial instruments		Book value	Significant unobservable inputs	Range of estimates for unobservable inputs
Available-for-sale financial assets:
	Net asset value	Debt securities	W	1,953	-		-
	Discounted  cash flow, etc.	Equity securities		28,318	Discount rate Growth rate		11.56% ~ 13.31% 0.00%
	Cost method	Equity securities		4,314	-		-
			W	34,585

64

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(a) Financial instruments measured at fair value, continued

(vi) Sensitivity to changes on unobservable inputs

For level 3 fair value measurement, a reasonably possible change in one or more of the unobservable inputs used to determine the fair value would have the following effect on profit or loss, or other comprehensive income:

		2018
Type of financial instrument		Favorable change	Unfavorable change
Financial assets at FVOCI (*)	W	4,049	(1,685)

(*) Changes in fair value have been assessed by increasing or decreasing unobservable inputs such as growth rate (0%~1%) and discount rate (-1%~1%).

65

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost

(i) The methods of measuring the fair value of financial instruments measured at amortized cost are as follows:

	Fair value measurement methods
Cash and due from banks	Carrying amount of cash is the same as fair value. Carrying amount (matured within three months at acquisition date) is used as approximation of fair value for cash equivalents. Fair value of other due from banks is present value of expected cash flows discounted by the rate considering market interest rate and spread.
Credit card assets at amortized cost, etc.	Fair value of credit card assets at amortized cost, etc. is the present value of expected cash flows discounted by the rate considering market interest rate and counterparty’s credit ratings. However, carrying amount is used as approximation of fair value for credit card assets for lump-sum purchase and cash advances which contractual credit period granted is less than three months.
Other financial assets	Fair value of other financial assets is the present value of expected cash flows discounted by the rate considering market interest rate and counterparty’s credit ratings. However, carrying amount is used as approximation of fair value for other financial assets when reliable expected cash flow is not available.
Borrowings	Carrying amount is used as approximation of fair value for short-term borrowings including call money.  Fair value of the other borrowings is the present value of expected cash flows discounted by the rate considering market interest rate and the Group’s credit ratings.
Debentures	Where the market of a financial instrument is active, fair value is established at the quoted price. Fair value of debentures which quoted market price is not available is determined to be the present value of contractual cash flows discounted by the rate considering market interest rate and the Group’s credit ratings.
Other financial liabilities	Fair value of other financial liabilities is determined to be the present value of contractual cash flows discounted by the rate considering market interest rate and the Group’s credit ratings. Carrying amount is used as approximation of fair value of liabilities when reliable expected cash flows are not available.

66

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost, continued

(ii) The carrying amount and the fair value of financial instruments measured at amortized cost as of December 31,

2018 and 2017 are as follows:

		2018
		Carrying amount				Fair value
		Balance	Deferred loan origination costs and others	Allowance for doubtful accounts	Total
Financial assets
Cash	W	19	-	-	19	19
Deposits		637,971	-	-	637,971	637,971
Credit card assets		22,277,386	(50,389)	(793,471)	21,433,526	21,761,435
Loans		1,597,140	463	(16,688)	1,580,915	1,595,464
Installment assets		2,670,522	31,029	(19,733)	2,681,818	2,692,924
Lease assets		1,239,562	(1,466)	(31,668)	1,206,428	1,214,333
Other assets		478,698	(2,862)	(11,046)	464,790	464,918
	W	28,901,298	(23,225)	(872,606)	28,005,467	28,367,064
Financial liabilities
Borrowings	W	2,415,507	-	-	2,415,507	2,426,520
Debentures in won		14,040,000	(8,487)	-	14,031,513	14,093,377
Debentures in   foreign currency		2,667,946	(7,702)	-	2,660,244	2,665,321
Other liabilities		3,168,756	(14,964)	-	3,153,792	3,154,962
	W	22,292,209	(31,153)	-	22,261,056	22,340,180

		2017
		Carrying amount				Fair value
		Balance	Deferred loan origination costs and others	Allowance for doubtful accounts	Total
Financial assets
Cash	W	53	-	-	53	53
Deposits		566,917	-	-	566,917	565,867
Credit card assets		20,484,409	(45,828)	(595,634)	19,842,947	20,061,276
Loans		1,117,058	586	(10,717)	1,106,927	1,115,861
Installment assets		2,269,942	29,395	(13,758)	2,285,579	2,310,097
Lease assets		1,083,287	(1,848)	(32,398)	1,049,041	1,048,972
Other assets		501,429	(2,937)	(8,688)	489,804	489,341
	W	26,023,095	(20,632)	(661,195)	25,341,268	25,591,467
Financial liabilities
Borrowings	W	1,964,344	-	-	1,964,344	1,954,310
Debentures in won		11,747,000	(7,119)	-	11,739,881	11,683,595
Debentures in   foreign currency		2,227,910	(7,882)	-	2,220,028	2,230,912
Other liabilities		3,284,755	(11,558)	-	3,273,197	3,271,976
	W	19,224,009	(26,559)	-	19,197,450	19,140,793

67

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

6.Fair Value Measurement of Financial Instruments, continued

(b) Financial instruments measured at amortized cost, continued

(iii) The fair value hierarchy of financial instruments which are measured at amortized cost in the consolidated statement of financial position as of December 31, 2018 and 2017 is as follows:

		2018
		Level 1	Level 2	Level 3	Total
Financial assets
Cash	W	19	-	-	19
Deposits		637,921	50	-	637,971
Credit card assets		-	-	21,761,435	21,761,435
Loans		-	-	1,595,464	1,595,464
Installment assets		-	-	2,692,924	2,692,924
Lease assets		-	-	1,214,333	1,214,333
Other assets		-	-	464,918	464,918
	W	637,940	50	27,729,074	28,367,064
Financial liabilities:
Borrowings	W	-	-	2,426,520	2,426,520
Debentures in won		-	-	14,093,377	14,093,377
Debentures in   foreign currency		-	-	2,665,321	2,665,321
Other liabilities		-	-	3,154,962	3,154,962
	W	-	-	22,340,180	22,340,180

		2017
		Level 1	Level 2	Level 3		Total
Financial assets
Cash	W	53	-	-		53
Deposits		565,479	388	-		565,867
Credit card assets		-	-	20,061,276		20,061,276
Loans		-	-	1,115,861		1,115,861
Installment assets		-	-	2,310,097		2,310,097
Lease assets		-	-	1,048,972		1,048,972
Other assets		-	-	489,341		489,341
	W	565,532	388	25,025,547		25,591,467
Financial liabilities:
Borrowings	W	-	-		1,954,310	1,954,310
Debentures in won		-	-		11,683,595	11,683,595
Debentures in   foreign currency		-	-		2,230,912	2,230,912
Other liabilities		-	-		3,271,976	3,271,976
	W	-	-		19,140,793	19,140,793

68

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instruments

(a) The carrying amounts of the categories of financial assets as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Financial assets at FVTPL	Financial assets at amortized cost	Financial assets at FVOCI	Derivative for hedge	Total
Cash and due from banks	W	-	637,990	-	-	637,990
Financial assets at FVTPL		253,854	-	-	-	253,854
Derivative assets		-	-	-	7,477	7,477
Credit card assets at amortized cost, etc.		-	26,902,687	-	-	26,902,687
Financial assets at FVOCI		-	-	34,519	-	34,519
Other assets		-	464,790	-	-	464,790
	W	253,854	28,005,467	34,519	7,477	28,301,317

		2017
		Financial assets at fair value through profit or loss	Loans and receivables	Available-for-sale financial assets	Derivative for hedge	Total
Cash and due from banks	W	-	566,970	-	-	566,970
Trading financial assets		360,064	-	-	-	360,064
Derivative assets		-	-	-	3,966	3,966
Loans and receivables		-	24,284,494	-	-	24,284,494
Available-for-sale financial assets		-	-	34,585	-	34,585
Other assets		-	489,804	-	-	489,804
	W	360,064	25,341,268	34,585	3,966	25,739,883

69

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(b) The carrying amounts of the categories of financial liabilities as of December 31, 2018 and 2017 are summarized as follows:

		2018
		Financial liabilities measured at amortized cost	Derivative for hedge	Total
Derivative liabilities	W	-	80,928	80,928
Borrowings		2,415,507	-	2,415,507
Debentures		16,691,757	-	16,691,757
Other liabilities		3,153,792	-	3,153,792
	W	22,261,056	80,928	22,341,984

		2017
		Financial liabilities measured at amortized cost	Derivative for hedge	Total
Derivative liabilities	W	-	140,732	140,732
Borrowings		1,964,344	-	1,964,344
Debentures		13,959,909	-	13,959,909
Other liabilities		3,273,197	-	3,273,197
	W	19,197,450	140,732	19,338,182

70

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(c) Net gains (losses) of categories of financial instruments for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Interest income	Interest expense	Fee and commission income	Fee and commission expense	Dividend income	Provision for credit loss allowance	Other operating income, net	Net income (loss)	Other comprehensive income (loss)
Financial assets
Financial assets at FVTPL	W	-	-	-	-	20	-	46,111	46,131	-
Financial assets at amortized cost		2,013,810	-	1,485,749	(1,253,393)	-	(451,662)	46,861	1,841,365	-
financial assets at FVOCI		-	-	-	-	1,373	-	-	1,373	2,385
Derivative for hedge		-	-	-	-	-	-	(810)	(810)	(4,739)
		2,013,810	-	1,485,749	(1,253,393)	1,393	(451,662)	92,162	1,888,059	(2,354)
Financial liabilities
Financial liabilities at amortized cost		-	(430,710)	-	-	-	-	(98,755)	(529,465)	-
Derivative for hedge		-	-	-	-	-	-	99,285	99,285	(25,585)
		-	(430,710)	-	-	-	-	530	(430,180)	(25,585)
	W	2,013,810	(430,710)	1,485,749	(1,253,393)	1,393	(451,662)	92,692	1,457,879	(27,939)

71

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

		2017
		Interest income	Interest expense	Fee and commission income	Fee and commission expense	Dividend income	Impairment reversal (loss)	Other operating income, net	Net income (loss)	Other comprehensive income (loss)
Financial assets
Trading financial assets	W	-	-	-	-	-	-	2,040	2,040	-
Loans and receivables		1,880,908	-	2,434,001	(2,265,803)	-	(295,485)	34,342	1,787,963	-
Available-for-sale financial assets		-	-	-	-	12,400	3,791	250,572	266,763	(150,392)
Derivative for hedge		-	-	-	-	-	-	(83,526)	(83,526)	9,006
		1,880,908	-	2,434,001	(2,265,803)	12,400	(291,694)	203,428	1,973,240	(141,386)
Financial liabilities
Financial liabilities measured at amortized cost		-	(379,854)	-	-	-	-	245,384	(134,470)	-
Derivative for hedge		-	-	-	-	-	-	(162,649)	(162,649)	10,024
		-	(379,854)	-	-	-	-	82,735	(297,119)	10,024
	W	1,880,908	(379,854)	2,434,001	(2,265,803)	12,400	(291,694)	286,163	1,676,121	(131,362)

72

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

7.Categories of Financial Instrument, continued

(d) The amounts of foreign exchange differences recognized in profit or loss for each category of financial instruments for the years ended December 31, 2018 and 2017 are as follows:

		2018						2017
		Gain on foreign currency transaction		Loss on foreign currency transaction		Net amount		Gain on foreign currency transaction		Loss on foreign currency transaction		Net amount
Loans and receivables	W	-		-		-		39,244		(4,902)		34,342
Financial assets at amortized cos		41,907		(5,668)		36,239		-		-		-
Financial liabilities at amortized cost		5,091		(103,846)		(98,755)		246,533		(1,149)		245,384
	W	46,998		(109,514)		(62,516)		285,777		(6,051)		279,726

73

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

8.  Offsetting Financial Assets and Financial Liabilities

Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2018 and 2017 are as follows:

		2018
		Gross amounts recognized	Gross amounts recognized for offsetting	Net amounts of financial instruments	Amounts not subject to offsetting		Net amount
					Financial instruments	Cash collateral received
Financial assets:
Derivatives	W	7,477	-	7,477	310	-	7,167
Repurchase agreements (*)		460,000	-	460,000	460,000	-	-
Financial liabilities:
Derivatives		80,928	-	80,928	310	-	80,618

(*) The amounts not subject to offsetting are securities that are received as collateral for repurchase agreements.

		2017
		Gross amounts recognized	Gross amounts recognized for offsetting	Net amounts of financial instruments	Amounts not subject to offsetting		Net amount
					Financial instruments	Cash collateral received
Financial assets:
Derivatives	W	3,966	-	3,966	1,104	-	2,862
Repurchase agreements (*)		173,000	-	173,000	173,000	-	-
Financial liabilities:
Derivatives		140,732	-	140,732	1,104	-	139,628

(*) The amounts not subject to offsetting are securities that are received as collateral for repurchase agreements.

74

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

9. Operating Segments

The Group has a single reportable segment.

(a) Details of revenues by financial service type for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Credit card	Installment finance	Lease	Others	Total
Interest incomes	W	1,784,020	101,593	53,183	75,014	2,013,810
Fee and commission income		1,401,134	6,925	77,197	493	1,485,749
Other operating income		7,983	226	34	244,430	252,673
	W	3,193,137	108,744	130,414	319,937	3,752,232

		2017
		Credit card	Installment finance	Lease	Others	Total
Interest incomes	W	1,686,499	96,078	51,581	46,750	1,880,908
Fee and commission income		2,407,480	5,622	20,087	812	2,434,001
Other operating income		7,956	235	38	874,042	882,271
	W	4,101,935	101,935	71,706	921,604	5,197,180

(b) Over 99% of revenues from external customers for the years ended December 31, 2018 and 2017 are all attributed to the Republic of Korea, the Company’s country of domicile.

(c) There is no single external customer with whom revenues amount to 10 percent or more of the Group’s revenues for the years ended December 31, 2018 and 2017.

75

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

10.Cash and Due from Banks

(a) Details of cash and due from banks as of December 31, 2018 and 2017 are as follows:

		2018	2017
Cash	W	19	53
Deposits in won:
Deposits on demand		320,517	288,422
Current deposits		17,745	1,475
Foreign currency deposits		915	2,925
Time deposits		50	388
Deposit for checking accounts		31	33
Deposits on demand of SPC		194,678	185,675
Others		104,035	87,999
	W	637,990	566,970

(b) Restricted due from banks as of December 31, 2018 and 2017 are as follows:

		2018	2017	Restrictions
Time deposits
Shinhan Bank	W	50	50	Pledged as collateral for cash advances
Korea Post		-	338	Pledged as collateral for a lease
		50	388
Other deposits
Woori Bank and others		31	33	Deposit for checking accounts
		194,678	185,675	Deposits on demand of SPC
		194,709	185,708
	W	194,759	186,096

76

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

11.Trading Financial Assets

(a) Details of trading financial assets as of December 31, 2017 are as follows:

		2017
MMF	W	360,064

(b) Net income on trading financial assets for the year ended December 31, 2017 is as follows:

		2017
Gain on valuation of trading financial assets	W		64
Gain on sale of trading financial assets			1,976
	W		2,040

12. Financial assets at FVTPL

(a) Details of financial assets at FVTPL as of December 31, 2018 are as follows and no financial assets are designated as at FVTPL.

		2018
Beneficiary certificates	W	250,064
Debt securities		1,579
Equity securities		2,211
	W	253,854

(b) Net income on financial assets at FVTPL for the year period ended December 31, 2018 is as follows:

		2018
Gain on valuation	W	64
Loss on valuation		(376)
Gain on sale		7,553
Other income		38,870
	W	46,111

(c) Dividend income on financial assets at FVTPL is W20 million for the year ended December 31, 2018.

77

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13.Derivatives

(a) Derivative assets and liabilities

The notional amounts and fair values of derivative assets and liabilities as of December 31, 2018 and 2017 are as follows:

		2018			2017
		Notional amounts	Fair value		Notional amounts	Fair value
			Assets	Liabilities		Assets	Liabilities
Currency rate swap	W	2,667,945	7,167	60,143	2,227,910	286	139,763
Interest rate swap		1,540,000	310	20,785	730,000	3,680	969
	W	4,207,945	7,477	80,928	2,957,910	3,966	140,732

(b) Gain (loss) on derivatives

Gain (loss) on derivatives for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Gain on valuation of derivatives	W	72,931	-
Gain on derivatives transactions		32,308	13,825
Loss on valuation of derivatives		(3,253)	(184,326)
Loss on derivatives transactions		(3,511)	(75,674)
Gain (loss) on derivatives	W	98,475	(246,175)

(c) Hedge accounting

(i) Risk management strategy

The Group deals with derivative financial instruments to avoid interest rate risk and exchange risk.  The Group applies cash flow hedge accounting that utilizes interest rate swap and currency swap to avoid the risk of cash flow variability from borrowings in won, debentures in won and debentures in foreign currency due to market interest rate and foreign exchange rate.

78

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13.Derivatives, continued

(c) Hedge accounting, continued

(ii) The timing of the nominal amount of the hedging instrument and the average rate as of December 31, 2018 are as follows.

		2018
		Within 1 year		Over 1 year ~ 2 years		Over 2 years ~ 3 years		Over 3 year ~ 4 years		Over 4 year ~ 5 years		Total
Cash flow hedge
Currency swap	W	559,795		907,375		696,428		504,347		-		2,667,945
Interest rate swap		150,000		265,000		230,000		235,000		660,000		1,540,000
	W	709,795		1,172,375		926,428		739,347		660,000		4,207,945
Average hedging ratio		100%		100%		100%		100%		100%		100%

(iii) The effect that hedge accounting has had on the statement of financial position and statement of comprehensive income

ⓐThe effect that hedge instruments have had on the statement of financial position and statement of comprehensive income as of December 31, 2018 is as follows.

		2018
		Nominal amount		Derivative assets		Derivative liabilities		Gain on derivatives		Other comprehensive income		Changes in fair value
Cash flow hedge
Exchange risk
Currency swap	W	2,667,945		7,167		60,143		98,475		(13,514)		(18,642)
Interest rate risk
Interest rate swap		1,540,000		310		20,785		-		(16,810)		(23,184)
	W	4,207,945		7,477		80,928		98,475		(30,324)		(41,826)

79

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

13.Derivatives, continued

(c) Hedge accounting, continued

(iii) The effect that hedge accounting has had on the statement of financial position and statement of comprehensive income, continued

ⓑThe effect that hedged items have had on the statement of financial position and statement of comprehensive income as of and for the year December 31, 2018 are as follows.

		2018
		Borrowings	Debentures		Interest expense	loss on foreign currency transactions	Cash flow hedge reserve
Cash flow hedge
Currency swap
Debentures in foreign currency	W	-	111,775		(2,106)	(4,670)	96
Securitized debentures		-	2,548,468		(49,703)	(72,282)	(9,647)
Interest rate swap
Debentures in won		-	1,339,005		(28,026)	-	(14,784)
Borrowings in won		200,000	-		(2,036)	-	(59)
	W	200,000	3,999,248		(81,871	(76,952)	(24,394)

(iv) Cash flow hedge activity

For cash flow hedges, the amount that was recognized in other comprehensive income and the amount that was reclassified from equity to profit or loss for the years ended December 31, 2018 and 2017 are as follows:

		2018		2017
Recognized in other comprehensive income (loss)	W	49,183		(220,713)
Reclassified from equity to profit or loss		(91,011)		246,175
Deferred tax effect		11,504		(6,432)
Changes in accumulated other comprehensive income, net	W	(30,324)		19,030

80

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

14.Credit card assets at amortized cost, etc.

(a) Details of credit card assets at amortized cost, etc. as of December 31, 2018 and 2017 are as follows:

			2018		2017 (*)
Credit card assets:
Lump-sum purchases	W	5,896,229		5,448,088
Installment purchases		6,511,566		5,808,476
Cash advances		1,845,487		1,768,221
Revolving cash advances		140,905		150,775
Revolving purchases		1,606,746		1,364,392
Card loans		6,036,604		5,693,920
Restructured loans		238,998		249,627
Purchasing card		851		910
Less : Allowance for doubtful accounts		(793,471)		(595,634)
Present value discount account		(20,161)		(18,836)
Deferred loan origination fees		(30,228)		(26,992)
		21,433,526		19,842,947
Loans:
General loans		553,464		334,401
Bonds purchased under resale agreements		460,000		173,000
Factoring receivables		147,095		276,848
Commercial paper		435,965		332,002
Others		616		807
Less : Allowance for doubtful accounts		(16,688)		(10,717)
Add : Deferred loan origination costs		463		586
		1,580,915		1,106,927
Installment financing assets:
Installment for cars		2,657,068		2,267,701
Installment for others		13,454		2,241
Less : Allowance for doubtful accounts		(19,733)		(13,758)
Add : Deferred loan origination costs		31,029		29,395
		2,681,818		2,285,579
Lease assets:
Financing lease receivables		1,239,425		1,083,193
Cancelled financing lease receivables		137		94
Less : Allowance for doubtful accounts		(31,668)		(32,398)
Deferred loan origination fees		(1,466)		(1,848)
		1,206,428		1,049,041
	W	26,902,687		24,284,494

(*) The carrying amount of credit card assets at amortized cost, etc. as of December 31, 2017 was classified as loans and receivables under the measurement categories of K-IFRS No.1039.

81

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

14. Credit card assets at amortized cost, etc., continued

(b) Changes in the gross carrying amount of credit card assets at amortized cost, etc. for the year ended December 31,

2018 is as follows:

		2018
		12 month expected credit losses		Lifetime expected credit losses		Credit-impaired financial assets		Total
Beginning balance	W	20,512,687		3,998,634		425,680		24,937,001
12 month expected credit losses substitution		405,911		(405,506)		(405)		-
Lifetime expected credit losses substitution		(718,324)		718,907		(583)		-
Credit-impaired financial assets substitution		(49,116)		(34,306)		83,422		-
Execution		3,159,593		127,487		302,664		3,589,744
Recoveries		-		(112,889)		(26,810)		(139,699)
Write-offs		(78,866)		(174,932)		(326,336)		(580,134)
Disposal of loans		(42,665)		-		-		(42,665)
Ending balance		23,189,220		4,117,395		457,632		27,764,247
Allowance for doubtful accounts		(186,377)		(362,389)		(312,794)		(861,560)
Net carrying amount	W	23,002,843		3,755,006		144,838		26,902,687

(c) Changes in allowance for credit card assets at amortized cost, etc. for the years ended December 31, 2018 and 2017 are as follows:

		2018
		12 month expected credit losses		Lifetime expected credit losses		Credit-impaired financial assets		Total
Beginning balance (*)	W	171,160		342,379		293,400		806,939
12 month expected credit losses substitution		21,233		(20,958)		(275)		-
Lifetime expected credit losses substitution		(12,724)		13,092		(368)		-
Credit-impaired financial assets substitution		(1,025)		(2,892)		3,917		-
Provision for loss allowance		86,602		205,700		138,497		430,799
Write-offs		(78,866)		(174,932)		(326,336)		(580,134)
Unwinding effect		-		-		(2,871)		(2,871)
Disposal of loans		(302)		-		(83)		(385)
Recoveries		-		-		189,815		189,815
Others		299		-		17,098		17,397
Ending balance	W	186,377		362,389		312,794		861,560

(*) The balance of allowance for doubtful accounts in accordance with K-IFRS No.1109.

82

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

14. Credit card assets at amortized cost, etc., continued

(c) Changes in allowance for credit card assets at amortized cost, etc. for the years ended December 31, 2018 and 2017 are as follows, continued:

		2017
Beginning balance	W	739,694
Provision for loss allowance		280,054
Write-offs		(552,940)
Unwinding effect		(1,631)
Allowance related to disposal of loans		(1,928)
Recoveries		188,852
Others		406
Ending balance	W	652,507

(d) Financing lease assets

Total investments in financing leases and the present value of minimum lease payments for each of the following periods as of December 31, 2018 and 2017 are as follows:

		2018
		Total investment	Unrealized interest income	Present value of minimum lease payment
Less than one year	W	352,917	66,772	286,145
One year to five years		1,035,949	89,264	946,685
Over five years		6,769	37	6,732
	W	1,395,635	156,073	1,239,562

		2017
		Total investment	Unrealized interest income	Present value of minimum lease payment
Less than one year	W	385,568	52,211	333,357
One year to five years		810,291	65,887	744,404
Over five years		6,110	584	5,526
	W	1,201,969	118,682	1,083,287

(e) Changes in deferred loan origination costs (fees)

Changes in deferred loan origination costs (fees) for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	1,141	8,472
Increase		(28,254)	(32,237)
Decrease		26,911	24,906
Ending balance	W	(202)	1,141

83

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

15.Lease assets

(a) Details of lease assets as of December 31, 2018 and December 31, 2017 are as follows:

		2018			2017
		Operating lease assets	Cancelled financing lease assets	Total	Operating lease assets	Cancelled financing lease assets	Prepaid lease assets	Total
Acquisition cost	W	418,671	663	419,334	108,625	206	284	109,115
Accumulated depreciation		(53,683)	(70)	(53,753)	(5,488)	(7)	-	(5,495)
Book value	W	364,988	593	365,581	103,137	199	284	103,620

(b) Lease transactions as a lessee

Future minimum lease payments as lessee under non-cancellable lease assets as of December 31, 2018 is as follows:

		2018
Less than one year	W	16,754
One year to five years		42,318
Over five years		-
	W	59,072

(c) Lease transactions as a lessor

Future minimum lease payments as lessor under non-cancellable lease assets as of December 31, 2018 and December 31, 2017 are as follows:

		2018	2017
Less than one year	W	82,878	24,214
One year to five years		165,311	59,687
Over five years		10	12
	W	248,199	83,913

84

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

16.Available-for-Sale Financial Assets

(a)  Details of available-for-sale financial assets as of December 31, 2017 are as follows:

		2017
Debt securities
Corporate bonds	W	1,953
Equity securities (*)
Stock		32,630
Equity investments		2
		32,632
	W	34,585

(*) Equity securities with no quoted market prices in active markets and for which the fair value cannot be measured reliably are recorded at their acquisition cost.  The carrying amounts of those investments are W4,314 million as of December 31, 2017.

(b) Changes in available-for-sale financial assets for the years ended December 31, 2018 and 2017 are as follows:

		2018			2017
		Debt securities	Equity securities	Total	Debt securities	Equity securities	Total
Beginning balance	W	1,953	32,632	34,585	1,368	240,788	242,156
Effect of changes in accounting policies		(1,953)	(32,632)	(34,585)	-	-	-
Acquisition		-	-	-	-	2,000	2,000
Disposal		-	-	-	(3,206)	(248,697)	(251,903)
Changes in fair value of available-for-sale financial assets		-	-	-	-	53,778	53,778
Exchange rate differences		-	-	-	-	(15,237)	(15,237)
Reversal of impairment loss		-	-	-	3,791	-	3,791
Ending balance	W	-	-	-	1,953	32,632	34,585

(c)  Gain on sale of available-for-sale financial assets for the year ended December 31, 2017 are as follows:

		2017
Gain on sale of available-for-sale financial assets	W		250,572

85

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

17.Financial assets at FVOCI

(a)Details of financial assets at FVOCI as of December 31, 2018 are as follows:

		2018
Equity instruments designated as FVOCI	W	34,519

(b) The fair value of an equity instruments designated as FVOCI investing in equity instruments as ofDecember 31, 2018 is as follows:

		2018
Equity securities (*)	W	34,519

(*) The equity securities were exercised at the FVOCI option for the purpose of holding long term for the Group strategic purposes.

(c)Details of dividend income of financial assets at FVOCI for the year ended December 31, 2018 are as follows:

		2018
Dividend income recognized in assets held at the end of the reporting period
Equity securities	W		1,373

(d) Changes of financial assets at FVOCI for the year ended December 31, 2018 are as follows:

		2018
Equity securities
Beginning balance	W	-
Effect of changes in accounting policies		31,129
Acquisition		300
Discard		(200)
Changes in fair value		3,290
Ending balance	W	34,519

(e) There are no gains or losses on sales of financial assets at FVOCI for the year ended December 31, 2018.

86

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

18.Property and Equipment

(a) Details of Property and equipment as of December 31, 2018 and 2017 are as follows:

		2018
		Land	Buildings	Others	Total
Acquisition cost	W	31,400	7,618	371,033	410,051
Accumulated depreciation		-	(2,480)	(318,970)	(321,450)
Ending balance	W	31,400	5,138	52,063	88,601

		2017
		Land	Buildings	Others	Total
Acquisition cost	W	32,352	8,885	362,839	404,076
Accumulated depreciation		-	(2,216)	(317,298)	(319,514)
Impairment losses		(946)	(1,258)	-	(2,204)
Ending balance	W	31,406	5,411	45,541	82,358

(b) Changes in property and equipment for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Land	Buildings	Others	Total
Beginning balance	W	31,406	5,411	45,541	82,358
Acquisition		-	-	21,805	21,805
Disposal		-	-	(510)	(510)
Depreciation		-	(269)	(20,123)	(20,392)
Others		(6)	(4)	5,350	5,340
Ending balance	W	31,400	5,138	52,063	88,601

		2017
		Land	Buildings	Others	Total
Beginning balance	W	31,438	5,680	39,599	76,717
Acquisition		-	21	25,548	25,569
Disposal		-	-	(382)	(382)
Depreciation		-	(270)	(20,289)	(20,559)
Others		(32)	(20)	1,065	1,013
Ending balance	W	31,406	5,411	45,541	82,358

87

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

18.Property and Equipment, continued

(c) Insured assets

   Details of insured assets as of December 31, 2018 are as follows:

Type of insurance	Assets covered	Insurance company		Amount covered
Property all risks policy	Buildings, etc.	Samsung Fire & Marine Insurance, Ltd.	W	59,307

In addition, the Group maintains transportation theft insurance, custody theft insurance for cash and securities and liability insurance, full insurance for vehicles.

19.Intangible Assets

(a) Details of Intangible assets as of December 31, 2018 and 2017 are as follows:

		2018
		Club memberships		Development cost		Others		Total
Acquisition cost	W	15,613		38,170		31,334		85,117
Accumulated amortization		-		(20,000)		(14,693)		(34,693)
Impairment losses		(904)		(336)		-		(1,240)
Ending balance	W	14,709		17,834		16,641		49,184

		2017
		Club memberships	Development cost	Others	Total
Acquisition cost	W	15,594	32,644	21,139	69,377
Accumulated amortization		-	(13,644)	(8,858)	(22,502)
Impairment losses		(939)	-	-	(939)
Ending balance	W	14,655	19,000	12,281	45,936

88

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

19.Intangible Assets, continued

(b) Changes in intangible assets for the years ended December 31, 2018 and 2017 are as follows, and amortization is included in general administrative expenses.

		2018
		Club memberships		Development cost		Others		Total
Beginning balance	W	14,655		19,000		12,281		45,936
Acquisition		19		11,775		8,875		20,669
Reclassification		-		(5,787)		1,333		(4,454)
Disposal		-		(93)		-		(93)
Amortization		-		(6,355)		(5,835)		(12,190)
Impairment loss (*)		-		(336)		-		(336)
Reversal of impairment loss (*)		35		-		-		35
Discard		-		(370)		-		(370)
Others		-		-		(13)		(13)
Ending balance	W	14,709		17,834		16,641		49,184

		2017
		Club memberships	Development cost	Others	Total
Beginning balance	W	15,297	17,967	13,962	47,226
Acquisition		376	10,988	2,342	13,706
Reclassification		-	(3,497)	673	(2,824)
Disposal		(1,063)	-	-	(1,063)
Amortization		-	(6,458)	(4,682)	(11,140)
Reversal of impairment loss (*)		45	-	-	45
Others		-	-	(14)	(14)
Ending balance	W	14,655	19,000	12,281	45,936

(*)Impairment loss and reversal of impairment loss are recognized as non-operating income and expenses.  Recoverable amount of club memberships is determined as the higher of its fair value less costs of disposal and fair value less costs to sell or value in use.  Club memberships are tested for impairment by comparing its carrying amount with its recoverable amount.

89

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

20.Other Assets

(a)  Details of other assets as of December 31, 2018 and 2017 are as follows:

		2018	2017
Guarantee deposits	W	81,755	77,530
Present value discount account		(2,862)	(2,936)
Accounts receivable		274,780	309,647
Allowance for doubtful accounts		(1,045)	(1,316)
Accrued income		120,618	112,989
Allowance for doubtful accounts		(10,001)	(7,372)
Advance payments		324,129	135,077
Prepaid expenses		71,727	48,155
Others		5,605	5,763
	W	864,706	677,537

(b)  Changes in allowance for other assets for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	8,688	11,771
Effect of change in accounting policies		1,180	-
Provision for credit loss allowance		20,863	15,431
Write-offs		(20,622)	(19,326)
Recoveries		977	812
Others		(40)	-
Ending balance	W	11,046	8,688

90

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

21.Borrowings

Details of borrowings as of December 31, 2018 and 2017 are as follows:

	Interest rate (%)		2018	2017
Borrowings in won:
Commercial paper	1.91 ~ 2.58	W	1,625,000	1,090,000
General borrowings	-		-	96,300
Borrowings from Shinhan Financial Group Co., Ltd.	1.84 ~ 2.90		700,000	600,000
Bank overdrafts	-		-	78,878
			2,325,000	1,865,178
Borrowings in foreign currency:
General borrowings	8.40 ~ 12.00		90,507	99,166
		W	2,415,507	1,964,344

22.Debentures

Details of debentures as of December 31, 2018 and 2017 are as follows:

	Maturity	Interest rate (%)		2018	2017
Debentures in won	2019.01.14 ~ 2025.12.26	1.47 ~ 3.56	W	14,040,000	11,747,000
Less: discount				(8,487)	(7,119)
				14,031,513	11,739,881
Debentures in foreign currency	2019.02.25 ~ 2022.05.25	1.83 ~ 2.36		2,667,946	2,227,910
Less: discount				(7,702)	(7,882)
				2,660,244	2,220,028
			W	16,691,757	13,959,909

91

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits

(a) Defined benefit plan assets and liabilities as of December 31, 2018 and 2017 are as follows:

		2018	2017
Present value of defined benefit obligations	W	247,812	234,446
Fair value of plan assets		(229,142)	(231,431)
Recognized liabilities for defined benefit obligations	W	18,670	3,015

(b) Changes in the present value of defined benefit obligations and plan assets for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Defined benefit obligations	Plan assets	Net defined benefit obligations
Beginning balance	W	234,446	(231,431)	3,015
Recognized in profit or loss as incurred:
Current service cost		17,803	-	17,803
Interest expense (income)		8,111	(9,125)	(1,014)
		25,914	(9,125)	16,789
Recognized in other comprehensive income:
Remeasurement loss (gain)
- Actuarial losses (gains)
Demographic assumptions		-	-	-
Financial assumptions		13,846	-	13,846
Experience adjustments		(4,779)	-	(4,779)
- Return on plan assets		-	5,390	5,390
		9,067	5,390	14,457
Others:
Contributions paid into the plan		-	(15,131)	(15,131)
Benefits paid by the plan		(21,484)	21,155	(329)
Others (*)		288	-	288
Exchange rate differences		(419)	-	(419)
		(21,615)	6,024	(15,591)
Ending balance	W	247,812	(229,142)	18,670

(*) Transfer from/to related parties

92

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits, continued

(b) Changes in the present value of defined benefit obligations and plan assets for the years ended December 31, 2018 and 2017 are as follows, continued:

		2017
		Defined benefit obligations	Plan assets	Net defined benefit obligations
Beginning balance	W	241,652	(207,371)	34,281
Recognized in profit or loss as incurred:
Current service cost		20,984	-	20,984
Interest expense (income)		7,763	(6,656)	1,107
		28,747	(6,656)	22,091
Recognized in other comprehensive income:
Remeasurement loss (gain)
- Actuarial losses (gains)
Demographic assumptions		(639)	-	(639)
Financial assumptions		(7,248)	-	(7,248)
Experience adjustments.		(23,067)	-	(23,067)
- Return on plan assets		-	3,445	3,445
		(30,954)	3,445	(27,509)
Others:
Contributions paid into the plan		-	(25,255)	(25,255)
Benefits paid by the plan		(5,242)	4,406	(836)
Others (*)		497	-	497
Acquisition of subsidiary		(254)	-	(254)
		(4,999)	(20,849)	(25,848)
Ending balance	W	234,446	(231,431)	3,015

(*) Transfer from/to related parties

(c) Details of the amounts included in the fair value of plan assets for each category of financial instruments as of December 31, 2018 and 2017 are as follows:

		2018		2017
		Amounts	Ratio	Amounts	Ratio
Cash and due from banks	W	40	0.0%	40	0.0%
Securities		228,571	99.8%	230,762	99.7%
Others		531	0.2%	629	0.3%
Fair value of plan assets	W	229,142	100.0%	231,431	100.0%

93

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

23.Employee Benefits, continued

(d) Actuarial assumptions as of December 31, 2018 and 2017 are as follows:

	2018	2017
Discount rate (AA0)	3.02%	Permanent workers : 3.74% Operating workers : 3.92% Temporary workers : 2.44%
Future salary increasing rate	1.80% + upgrade rate	1.80% + upgrade rate
Average expected remaining years of service	9.3 years	Permanent workers : 8.88 years Operating workers : 12.08 years Temporary workers : 1.17 years

(e) Sensitivity analysis

This analysis is based on actuarial assumptions variances that the Group considered to be reasonably possible at the reporting date.

		Changes in the amount of defined benefit obligations
Discount rate (1%p decrease)	W	21,099
Discount rate (1%p increase)		(18,748)
Future salary increasing rate (1%p decrease)		(19,148)
Future salary increasing rate (1%p increase)		21,164

Sensitivity analysis does not consider the variance of all cash flows expected to occur in the plan, but provides approximation of the sensitivity to the assumptions.

(f) The amounts recognized as expenses for defined contribution plans are W2,018 million and W2,087 million for the years ended December 31, 2018 and 2017, respectively.

94

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

24.Provisions

(a) Changes in provisions for the years ended December 31, 2018 and 2017 are as follows:

		2018
		Allowance for litigation	Provision for customer loyalty programmes	Allowance for unused credit commitments	Asset retirement	Others	Total
Beginning balance	W	746	26,104	72,793	7,410	30,303	137,356
Effect of changes in accounting polices		-	(26,104)	59,468	-	-	33,364
Provision (reversal)		(41)	-	14,785	(1,741)	745	13,748
Payment		(676)	-	-	(316)	(999)	(1,991)
Ending balance	W	29	-	147,046	5,353	30,049	182,477

		2017
		Allowance for litigation	Provision for customer loyalty programmes	Allowance for unused credit commitments	Asset retirement	Others	Total
Beginning balance	W	1,002	25,095	354,305	7,351	1,920	389,673
Provision		(223)	51,294	(281,512)	17	29,338	(201,086)
Payment		(33)	(50,285)	-	-	(955)	(51,273)
Others		-	-	-	42	-	42
Ending balance	W	746	26,104	72,793	7,410	30,303	137,356

(b) Details of allowance for unused credit commitments as of December 31, 2018 and 2017 are as follows:

		2018	2017
Unused credit commitments	W	71,896,628	63,745,952
Allowance		147,046	72,793
Ratio (%)		0.20%	0.11%

95

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

24.Provisions, continued

(c) Changes in unused credit commitments for the year ended December 31, 2018 are as follows:

		2018
		12 month expected credit losses	Lifetime expected credit losses	Credit-impaired financial assets	Total
Beginning balance (*)	W	52,759	77,525	1,977	132,261
12 month expected credit losses substitution		39,525	(39,068)	(457)	-
Lifetime expected credit losses substitution		(6,238)	6,313	(75)	-
Credit-impaired financial assets substitution		(211)	(800)	1,011	-
Provision (reversal)		(27,450)	39,649	2,586	14,785
Ending balance	W	58,385	83,619	5,042	147,046

(*) The balance of allowance for doubtful accounts in accordance with K-IFRS No.1109.

25.Other Liabilities

Details of other liabilities as of December 31, 2018 and 2017 are as follows:

		2018	2017
Accounts payable	W	2,500,661	2,581,672
Accrued expenses		242,765	256,770
Advances from customers		116,031	96,920
Unearned revenue		106,845	296,948
Withholdings		378,148	213,419
Guarantee deposits		305,351	292,239
Present value discount account		(14,964)	(11,558)
Advances of gift card and others		30,356	30,374
Others (*)		283,550	6,399
	W	3,948,743	3,763,183

(*) Includes point liabilities of ₩ 275,698 million classified under the application of K-IFRS No.1115.

96

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

26.Deferred Revenue of Customer Loyalty Programmes

Changes in deferred revenue of customer loyalty programmes for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Beginning balance	W	196,721	189,830
Effect of changes in accounting policies (*)		(196,721)	-
Deferred		-	330,810
Recognition as revenue		-	(323,919)
Ending balance	W	-	196,721

(*) Classified as point liabilities in accordance with K-IFRS No.1115.

27.Equity

(a) Details of equity as of December 31, 2018 and 2017 are as follows:

		2018	2017
Common stock	W	626,847	626,847
Capital surplus
Gains on capital reduction		852,646	852,646
Gains on sale of treasury stock		2	2
Other additional capital		7,944	7,944
		860,592	860,592
Capital adjustments
Stock options		1,234	10
Accumulated other comprehensive income
Unrealized gain on valuation of available-for-sale securities		-	15,904
Unrealized gain on valuation of financial assets at FVOCI		18,289	-
Effective portion of valuation gain (loss) on cash flow hedges		(24,394)	5,930
Remeasurements of the net defined benefit obligations		(32,918)	(22,437)
Foreign currency translation adjustments for foreign operations		(4,664)	(2,931)
		(43,687)	(3,534)
Retained earnings
Legal reserve		313,424	313,424
Reserve for credit losses (refer to Note 28)		891,598	388,351
Voluntary reserve		11,216	11,216
Retained earnings (*)		3,344,887	4,084,638
		4,561,125	4,797,629
Non-controlling interests		(4,644)	(6,425)
	W	6,001,467	6,275,119

(*) W168,299 million of reserve for credit losses plans to reverse to retained earnings for the year ended December 31, 2018 and W503,246 million of retained earning reserved for credit losses for the year ended December 31, 2017.

97

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

27.Equity, continued

(b) Capital stock and capital surplus

As of December 31, 2018 and 2017, par value of common stock is W5,000 and the Group authorized 2,000,000,000 shares and issued outstanding shares amounted to 125,369,403 shares.

(c) Changes in accumulated other comprehensive income for the years ended December 31, 2018 and 2017 are as follows:

	2018
		Valuation of financial assets at FVOCI	Valuation of available-for-sale financial assets	Valuation of cash flow hedges	Remeasurements of defined benefit obligations	Foreign currency translation adjustments for foreign      operations	Total
Balance at January 1, 2018	W	-	15,904	5,930	(22,437)	(2,931)	(3,534)
Effect of changes in accounting policies		15,904	(15,904)	-	-	-	-
Changes in fair value		3,290	-	-	(14,456)	-	(11,166)
Exchange rate differences		-	-	-	-	(2,389)	(2,389)
Changes in fair value of cash flow hedges		-	-	49,183	-	-	49,183
Reclassification to profit or loss		-	-	(91,011)	-	-	(91,011)
Deferred tax effect		(905)	-	11,504	3,975	656	15,230
Balance at December 31, 2018	W	18,289	-	(24,394)	(32,918)	(4,664)	(43,687)

		2017
		Valuation of available-for-sale financial assets	Valuation of cash flow hedges	Remeasurements of defined benefit obligations	Foreign currency translation adjustments for foreign operations	Total
Balance at January 1, 2017	W	166,296	(13,100)	(44,310)	(1,615)	107,271
Changes in fair value		53,778	-	27,509	-	81,287
Exchange rate differences		(15,237)	-	-	(2,085)	(17,322)
Changes in fair value of cash flow hedges		-	(220,713)	-	-	(220,713)
Reclassification to profit or loss		(235,992)	246,175	-	-	10,183
Deferred tax effect		47,059	(6,432)	(5,636)	769	35,760
Balance at December 31, 2017	W	15,904	5,930	(22,437)	(2,931)	(3,534)

(d) Earned surplus reserves

The Korean Commercial Act requires the Company to accumulate, as its earned surplus reserve, at least 10% of cash dividend in each period for the settlement of accounts until its reserve reaches half of the Company’s capital.  No reserve shall be disposed of, except in recovery from deficit in capital or capitalizing its reserve as approved in the shareholder’s meeting.

98

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

27.Equity, continued

(e) Voluntary reserve

The Group elected to measure an item of land and buildings at the date of transition to K-IFRSs at its fair value and use that fair value as its deemed cost at that date.  Revaluation surplus as a result of revaluation was classified as dividend restriction by the board of directors.  Also, in accordance with amended Credit Information Use and Protection Act, the Group is liable to compensate the owners of credit information for inflicted damage and reserved voluntary reserve for fulfillment by the Act.

Details of discretionary reserve as of December 31, 2018 and 2017 are as follows:

		2018	2017
Revaluation surplus of property and equipment	W	10,216	10,216
Claim reserves for on-line transactions		1,000	1,000
	W	11,216	11,216

(f) Statements of appropriation of retained earnings for the years ended December 31, 2018 and 2017 based on separate financial statements of the Company are as follows:

Expected date of Appropriation for 2018: March 26, 2019

Date of Appropriation for 2017: March 21, 2018

(In millions of won, except dividends per share)		2018	2017
Unappropriated retained earnings
Balance at beginning of year	W	3,003,677	3,180,966
Effect of changes in accounting policies		(155,932)	-
Profit for the year		515,413	925,975
		3,363,158	4,106,941
Reversal of Reserve for credit losses		168,299	-
Balance at end of year before appropriation		3,531,457	4,106,941
Appropriation of retained earnings
Transfer to reserve for credit losses reserve for bad loan		-	503,246
Cash dividends		337,745	600,018
Dividends per share (dividend as a percentage of par value): W2,694 (53.88%) for 2018 W4,786 (95.72%) for 2017
		337,745	1,103,264
Unappropriated retained earnings to be carried over to subsequent year	W	3,193,712	3,003,677

99

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

28.Reserve for Credit Losses

In accordance with Regulations on Supervision of Specialized Credit Finance Business, the Group reserves the difference between expected credit loss allowances recognized under K-IFRS and Regulations on Supervision of Specialized Credit Finance Business in the account of reserve for legal reserve for credit losses.

(a) Reserve for credit losses as of December 31, 2018 and 2017 are summarized as follows:

		2018	2017
Accumulated reserve for credit losses	W	891,598	388,352
Reserve for (reverse of) credit losses, scheduled		(168,299)	503,246
- Effect of changes in accounting policies		(173,793)	-
- Changes in 2018 and 2017		5,494	503,246
Ending balance of reserve for credit losses	W	723,299	891,598

(b) Details of profit for the year attributable to owners of the Company after adjusting for reversal of credit losses and provision for reserve for credit losses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Profit for the year attributable to owners of the Company	W	519,446	913,791
Reserve for credit losses, scheduled		(5,494)	(503,246)
Profit for the year attributable to owners of the Company after adjusting for reserve for credit losses	W	513,952	410,545
Earnings per share after adjusting credit losses (in won)	W	4,100	3,275

100

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

29.Operating Revenue

(a) Details of operating revenues for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Revenue from contracts with customers
Fee and commission income
Credit card assets	W	2,492,751	2,364,034
Consideration paid to customers		(1,135,515)	-
Revenue from others
Interest income		2,013,810	1,880,908
Fee and commission income
Loans		488	805
Installment loans		6,925	5,622
Leases		77,197	20,087
Other		43,903	43,453
Dividend income		1,393	12,400
Gain on valuation and disposal of trading financial assets		-	2,040
Net income on financial assets at FVTPL		46,487	-
Gains related to derivatives		105,239	13,825
Gains on foreign currency transactions		46,998	285,777
Gains on disposal of available-for-sale financial assets		-	250,572
Reversal of impairment losses on financial assets		-	3,791
Other operating income		52.556	313,866
	W	3,752,232	5,197,180

(b) Classification of revenue from contracts with Customers for the years ended December 31, 2018 and 2017 are as

follows:

		2018	2017
Revenue from contracts with customers
Credit sales commission, etc.	W	1,171,465	2,223,172
Insurance agency fee		65,106	56,319
Others		120,665	84,543
		1,357,236	2,364,034
Timing of revenue recognition
Transferred at a point in time		1,190,373	2,206,782
Transferred over time		166,863	157,252
	W	1,357,236	2,364,034

101

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

30.Earnings Per Share

Earnings per share for the years ended December 31, 2018 and 2017 are as follows:

(In millions of won, except shares outstanding and earnings per share)
		2018	2017
Profit for the year attributable to owners of the Company	W	519,446	913,791
Weighted average number of common stocks outstanding		125,369,403	125,369,403
Earnings per share (in won)	W	4,143	7,289

The Group had no dilutive potential ordinary shares in the calculation of diluted earnings per share for the reporting periods.  Accordingly, diluted earnings per share equals basic earnings per share for the years ended December 31, 2018 and 2017.

31.Share-Based Payment

Share-based payment as of December 31, 2018 is summarized as follows:

(a) Share-based payment arrangements with performance conditions

(i) Performance share granted as of December 31, 2018 are as follows:

	Granted in 2014	Granted in 2015	Granted in 2016	Granted in 2017	Granted in 2018
Type	Equity-settled type	Equity-settled type	Equity-settled type	Equity-settled type	Equity-settled type
Vesting period	2014 ~ 2016	2015 ~ 2017	2016 ~ 2018	2017 ~ 2019	2018 ~ 2020
Performance condition	Based on relative stock price (20.0%) Based on 4 year management index (80.0%)
Estimated number of shares granted	29,258 shares	53,141 shares	64,846 shares	62,401 shares	55,108 shares

102

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

31.Share-Based Payment, continued

(a)  Share-based payment arrangements with performance conditions, continued

(ii) Granted shares and the fair value of grant date as of December 31, 2018 are as follows:

       (In won, except shares)

Grant date	Grant shares	Exercised shares	Fair value (*1)	Estimated shares (*2)
January 1, 2014	23,600	18,275	47,300	18,275
February 10, 2014	9,400	6,448	42,800	6,448
March 31, 2014	4,700	2,689	47,000	2,689
July 24, 2014	1,600	541	46,550	541
August 22, 2014	4,700	1,305	51,800	1,305
January 1, 2015	50,700	-	44,500	44,750
February 4, 2015	4,500	-	45,700	3,718
August 24, 2015	4,500	-	40,250	1,453
August 27, 2015	10,200	-	39,600	3,220
January 1, 2016	74,200	-	39,000	48,227
February 4, 2016	15,400	-	38,150	12,648
June 3, 2016	5,200	-	38,800	2,781
August 1, 2016	1,900	-	40,650	705
October 31, 2016	3,100	-	43,850	485
January 1, 2017	70,200	-	45,300	54,661
March 7, 2017	10,600	-	46,950	7,740
January 1, 2018	59,900		49,400	55,108
	354,400	29,258		264,754

(*1) The fair value per share was evaluated based on the closing price of Shinhan Financial Group at each grant date.

(*2) Grant shares at grant date were adjusted pursuant to relative increase ratio of stock price and achievement of management index based on standard quantity applicable to the days of service among specified period of service, which allows for the determination of acquired quantity at the end of the operation period.

(b)  Share-based compensation expense for the years ended December 31, 2018 and 2017 are as follows:

		2018		2017
Share-based payment arrangements with performance conditions	W	2,170		2,895

103

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

31.Share-Based Payment, continued

(c)  Details of accrued expenses and the intrinsic value as of December 31, 2018 are as follows:

		Accrued expense related to compensation expenses associated with share based payments	Intrinsic values (*1)
Share-based payment arrangements with performance conditions (*2)	W	8,474	8,474

(*1) The fair value of share-based arrangements with performance conditions is considered as intrinsic value.

(*2) Payments according to arrangements with Shinhan Financial Group are calculated on the basis of the closing price on December 31, 2018, and have been recognized as liabilities.

32.Net Interest Income

Details of net interest income for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Interest income
Cash and due from banks	W	6,152	6,612
Credit card assets		1,784,019	1,686,499
Loans		66,842	38,483
Installment loans		101,593	96,078
leases		53,183	51,581
Others		2,021	1,655
		2,013,810	1,880,908
Interest expense
Borrowings		(58,411)	(42,384)
Debentures		(316,562)	(283,839)
Securitized debentures		(49,703)	(47,920)
Others		(6,034)	(5,711)
		(430,710)	(379,854)
Net interest income	W	1,583,100	1,501,054

Interest income on impaired financial assets for the years ended December 31, 2018 and 2017 are W10,031 million and W9,628 million, respectively.

104

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

33.Net Fee and commission Income

Details of net fee and commission income for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Fee and commission income
Credit card assets	W	1,357,236	2,364,034
Loans		488	805
Installment loans		6,925	5,622
Leases		77,197	20,087
Others (*)		43,903	43,453
		1,485,749	2,434,001
Fee and commission expense
Credit card assets		(1,144,771)	(2,193,993)
Installment loans		(21,157)	(21,255)
Leases		(456)	(404)
Others (*)		(87,009)	(50,151)
		(1,253,393)	(2,265,803)
Net fee and commission income	W	232,356	168,198

(*) Other fee and commission income or expense includes profit or loss associated with Shinhan Credit Service (Debt exemption and debt suspension) given to credit card members.  For the years ended December 31, 2018 and 2017, the amount of income related to debt exemption and debt suspension are W43,898 million and W43,446 million, respectively, and the amount of expense are W7,498 million and W7,657 million, respectively.

105

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

34.Dividend Income

Details of dividend income for the years ended December 31, 2018 and 2017 are as follows:

		2018		2017
Available-for-sale financial assets in Korean currency	W	-	11,100
Available-for-sale financial assets in foreign currency		-	1,300
Financial assets at FVTPL in Korean currency		20	-
Financial assets at FVOCI in Korean currency		1,373	-
	W	1,393	12,400

35.Impairment Loss and Reversal on Financial Assets

Details of impairment loss and reversal on financial assets for the years ended December 31, 2017 are as follows:

		2017
Impairment loss
Loans and receivables	W	(280,054)
Other assets		(15,431)
		(295,485)
Reversal
Available-for-sale financial assets		3,791
Net impairment loss on financial assets	W	(291,694)

36.Provision for Credit Loss Allowance

Details of provision for credit loss allowance for the years ended December 31, 2018 are as follows:

		2018
Provision for credit loss allowance
Changes in credit card assets at amortized cost, etc.	W	(430,799)
Other assets		(20,863)
Allowance for unused loan commitments		(14,785)
	W	(466,447)

106

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

37.General Administrative Expenses

Details of general administrative expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Relate to employees
Salaries and wages	W	166,921	171,624
Bonus		42,733	65,911
Incentive of results		27,319	17,836
Share-based compensation expense		2,170	2,895
Employee benefits		80,767	76,651
Travel		6,301	7,941
Defined benefit		16,789	22,091
Defined contribution		2,018	2,087
Honorary retirement allowance		-	56,283
		345,018	423,319
Depreciation and amortization
Depreciation		20,392	20,559
Amortization		12,190	11,140
		32,582	31,699
Other general administrative expenses
Communication		47,837	50,066
Utility		20,872	19,012
Vehicles maintenance		2,926	3,122
Supplies		10,646	12,917
Rent		23,891	25,128
Insurance		11,618	7,516
Repairs		195	218
Entertainment		1,700	2,139
Advertising		23,784	34,889
Sales promotion		145,680	141,067
Training		2,026	2,941
Publication		445	445
Freight		619	889
Provision for (reversal of) asset retirement obligation		(1,741)	17
Taxes and dues		34,907	35,779
		325,405	336,145
	W	703,005	791,163

107

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

38.Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Other operating income
Gains on recovery of bad debt	W	10,613	10,853
Reversal of allowance for unused loan commitments		-	281,512
Gains on sale of loans		9	-
Others		41,934	21,501
		52,556	313,866
Other operating expenses
Provision for allowance for unused loan commitments		-	-
Losses on repayment of debentures		-	(85)
Depreciation of lease assets		(51,249)	(5,668)
Depreciation of other assets		(373)	(114)
Others		(3,903)	(29,831)
		(55,525)	(35,698)
	W	(2,969)	278,168

39.Non-Operating Income and Expenses

Details of non-operating income and expenses for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Non-operating income
Gains on disposal of property and equipment	W	57	110
Reversal of impairment losses on intangible assets		35	45
Reversal of allowance for litigation		41	223
Others		1,530	974
		1,663	1,352
Non-operating expenses
Donations		(23,779)	(13,324)
Losses on disposal of property and equipment		(225)	(375)
Losses on disposal of intangible assets		-	(149)
Impairment losses on intangible assets		(336)	-
Others		(2,534)	(2,460)
		(26,874)	(16,308)
	W	(25,211)	(14,956)

108

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes

(a) The components of income tax expense for the years ended December 31, 2018 and 2017 are as follows:

		2018	2017
Current income taxes payable	W	126,670	233,594
Adjustments to the income tax expense for prior period		41	1,722
Changes in deferred tax due to changes in temporary differences		(16,824)	(2,338)
Income tax expense associated with items recorded in equity		15,074	35,209
Others		58,565	(18,740)
Income tax expense	W	183,526	249,447

(b) The relationship between income tax expense and profit before income taxes for the years ended December 31, 2018 and 2017 is as follows:

		2018	2017
Profit before income taxes (A)	W	701,287	1,148,170
Income taxes at applicable tax rate		192,854	277,857
Adjustments:
Non-taxable income		(380)	(177)
Non-deductible expense		901	848
Tax deductions		-	(195)
Consolidated tax return effect and others		(9,849)	(3,287)
Changes in deferred tax due to change in tax rate		-	(25,599)
Income tax expense (B)	W	183,526	249,447
Effective tax rate (B/A)		26.17%	21.73%

109

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes, continued

(c) Changes in significant accumulated temporary differences and tax effects for the years ended December 31, 2018 and 2017 are as follows:

				2018
		Beginning deferred tax assets (liabilities)	Effect of changes in accounting policies	Changes in profit or loss	Change in other comprehensive income	Ending deferred tax assets (liabilities)
Accounts receivable	W	79	-	-	-	79
Available-for-sale financial assets		84,619	(84,619)	-	-	-
Financial assets at FVOCI		-	84,619	-	-	84,619
Valuation on available-for-sale financial assets		(6,033)	6,033	-	-	-
Valuation on financial assets at FVOCI		-	(6,033)	-	(904)	(6,937)
Valuation on property and equipment, depreciation and others		(2,297)	-	177	-	(2,120)
Deferred loan origination costs		(8,387)	-	(514)	-	(8,901)
Derivative assets (liabilities)		(2,249)	-	-	11,502	9,253
Accrued expenses		14,828	-	3,729	-	18,557
Liability for defined benefit obligations		45,834	-	(468)	2,493	47,859
Plan assets		(51,216)	-	12	1,482	(49,722)
Other provisions		118,111	16,353	(107)	-	134,357
Others		14,743	42,795	(60,227)	501	(2,188)
	W	208,032	59,148	(57,398)	15,074	224,856

		2017
		Beginning deferred tax assets (liabilities)	Change in profit or loss	Change in other comprehensive income	Ending deferred tax assets (liabilities)
Accounts receivable	W	70	9	-	79
Available-for-sale financial assets		76,967	7,652	-	84,619
Valuation on available-for-sale financial assets		(53,092)	-	47,059	(6,033)
Valuation on property and equipment, depreciation and others		(2,016)	(281)	-	(2,297)
Deferred loan origination costs		(8,614)	227	-	(8,387)
Derivative assets (liabilities)		4,183	-	(6,432)	(2,249)
Accrued expenses		12,004	2,824	-	14,828
Liability for defined benefit obligations		64,013	(11,060)	(7,119)	45,834
Plan assets		(46,706)	(5,994)	1,484	(51,216)
Other provisions		157,623	(39,512)	-	118,111
Others		1,262	13,264	217	14,743
	W	205,694	(32,871)	35,209	208,032

110

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes, continued

(d) Deferred income taxes associated with items, which are not recognized as profit (loss) for the years ended December 31, 2018 and 2017 are as follows:

		2018
		December 31, 2018		January 1, 2018		Changes in tax effect
		Amount	Tax effect	Amount	Tax effect
Changes in fair value of available-for-sale financial assets	W	-	-	15,904	(6,033)	6,033
Changes in fair value of financial assets at FVOCI		18,289	(6,937)	-	-	(6,937)
Effective portion of valuation gain or loss on cash flow hedges		(24,395)	9,253	5,930	(2,249)	11,502
Overseas operations translation credit (debit)		(4,663)	1,270	(2,931)	769	501
Remeasurements of defined benefit obligations		(32,918)	12,486	(22,437)	8,511	3,975
	W	(43,687)	16,072	(3,534)	998	15,074

		2017
		December 31, 2017		January 1, 2017		Changes in tax effect
		Amount	Tax effect	Amount	Tax effect
Changes in fair value of available-for-sale financial assets	W	15,904	(6,033)	166,296	(53,092)	47,059
Effective portion of valuation gain or loss on cash flow hedges		5,930	(2,249)	(13,100)	4,183	(6,432)
Overseas operations translation credit (debit)		(2,931)	769	(1,615)	552	217
Remeasurements of defined benefit obligations		(22,437)	8,511	(44,310)	14,146	(5,635)
	W	(3,534)	998	107,271	(34,211)	35,209

111

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

40.Income Taxes, continued

(e) The Group offsets a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the Group has a legally enforceable right to set off current tax assets against current tax liabilities.  Deferred tax assets and liabilities before offsetting as of December 31, 2018 and 2017 are as follows:

		2018	2017
Deferred tax assets	W	294,724	278,214
Deferred tax liabilities		(69,868)	(70,182)
	W	224,856	208,032

(f) Deferred tax assets have been recognized as the Group has determined it is probable that future profits will be available against which the Group can utilize the related benefit.

(g) As of December 31, 2018 and 2017 current tax liabilities are W89,906 million and W123,722 million, respectively.  For consolidated tax return, the amount is paid to the taxation authorities through the controlling company of the Group.

41.Statements of Cash Flows

(a) Details of cash and cash equivalents as of December 31, 2018 and 2017 are summarized as follows:

		2018	2017
Cash	W	19	53
Available deposits from banks
Deposits on demand		320,517	288,422
Current deposits		17,745	1,475
Foreign currency deposits		915	2,925
Others		104,035	87,999
		443,212	380,821
Cash and cash equivalents	W	443,231	380,874

(b) The Group presents the cash inflows and outflows of bank overdrafts and call money as net amounts, because the turnover of transactions is quick, the amounts are large, and the maturities are short.    

(c) Reconciliations of the amounts of cash and cash equivalents in the statement of cash flows with the equivalent items reported in the statement of financial position as of December 31, 2018 and 2017 are as follows:

		2018	2017
Cash and cash equivalents in the statements of financial position	W	637,990	566,970
Adjustment:
Restricted due from banks		(194,759)	(186,096)
Cash and cash equivalents in the statements of cash flows	W	443,231	380,874

112

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

41.Statements of Cash Flows, continued

(d) The Group presents statements of cash flows using the indirect method and significant non-cash transactions for the years ended December 31, 2018 and 2017 are summarized as follows:

		2018	2017
Valuation of available-for-sale financial assets	W	-	38,541
Valuation of financial assets at FVOCI		3,290	-
Valuation of derivatives		41,826	25,461

(e) Changes in assets and liabilities arising from financing activities for the year ended December 31, 2018 and 2017 are as follows:

		2018
		Assets	Liabilities
		Derivative assets	Derivative         liabilities	Borrowings	Debentures	Total
Balance at January 1, 2018	W	3,966	(140,732)	(1,964,344)	(13,959,909)	(16,064,985)
Changes from financing cash flows		(5,846)	12,512	(453,725)	(2,647,297)	(3,088,510)
Changes from operating cash flows		-	-	22,293	(17,548)	4,745
Changes in foreign currency exchange rate		-	-	-	(76,953)	(76,953)
Net income on derivatives and interest expense		17,115	81,360	-	-	81,360
Changes in fair value		(7,758)	(34,068)	-	-	(34,068)
Others		-	-	(19,731)	9,950	(9,781)
Balance at December 31, 2018	W	7,477	(80,928)	(2,415,507)	(16,691,757)	(19,188,192)

		2017
		Assets	Liabilities
		Derivative assets	Derivative         liabilities	Borrowings	Debentures	Total
Balance at January 1, 2017	W	153,343	(10,665)	(1,390,180)	(12,984,819)	(14,385,664)
Changes from financing cash flows		(48,499)	(10,230)	(583,907)	(1,140,810)	(1,734,947)
Changes from operating cash flows		-	-	53,567	320,848	374,415
Changes in foreign currency exchange rate		-	-	-	173,610	173,610
Net loss on derivatives and interest expense		(112,927)	(133,249)	(42,384)	(331,758)	(507,391)
Changes in fair value		12,049	13,412	-	-	13,412
Others		-	-	(1,440)	3,020	1,580
Balance at December 31, 2017	W	3,966	(140,732)	(1,964,344)	(13,959,909)	(16,064,985)

113

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

42.Contingent Liabilities and Commitments

(a) Contingent liabilities

The Group has eight pending lawsuits as a defendant as of December 31, 2018 for a total claim amount of W489 million.  A legal provision of W29 million is recognized in the accompanying consolidated financial statements.Additional losses may be incurred from these legal actions, but the result of such the lawsuits cannot be predicted.  The management believes that the result of the lawsuits would not have significant impact on the financial statements.

(b) ABS commitments

In trust-type asset securitizations, trust company can demand the Controlling Company to transfer additional assets if the transferred assets are below the agreed minimum amount.  As prescribed by the respective asset transfer agreements and other contracts, the Controlling Company has an obligation to early redeem the asset-backed securities in certain cases, such as when outstanding balance of securitized assets falls below the agreed amount at each settlement period or when portfolio profitability ratio is less than primary cost ratio for three consecutive settlement periods.  Investor Interest based on transferred assets is provided as collateral for asset-backed securities.  As of December 31, 2018, the Group has no additional obligation for the asset-backed securities.

The Controlling Company has entered into an agreement with the trust company to provide asset management services for the transferred assets.  Under the agreement, the Controlling Company provides various services such as billing, collection, and management of delinquencies, and receives service fees from the Trust company recorded as asset securitization income.

(c) Other commitments

The Group has decided to provide the total VND 4.5 trillion (KRW 216,900 million) of the lines of credit for the Vietnam-based consumer banking firm Prudential Vietnam Finance Company Limited, which is scheduled to be acquired.  As of December 31, 2018, the providing lines of credit has not been signed.

The providing lines of credit above will be provided for new borrowing and full refund of the funds deposited by Prudential Vietnam Assurance Private Limited, an affiliate of the seller, in accordance with the terms of the trading agreement.  A period of providing lines of credit is up to seven years from the end of the acquisition.

114

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

43.Asset Backed Securitization (ABS)

(a) The initial transfer price of the credit card assets sold by Asset-Backed Securitization Act as of December 31, 2018 and 2017 is as summarized as follows:

	Initial transfer date		2018	2017
Shinhan Card 2017-1	2017.02.08	W	-	894,379
Shinhan Card 2017-2	2017.04.26		-	841,643
Shinhan Card 2017-3	2017.09.12		-	566,521
Shinhan Card 2018-1 Shinhan Card 2018-2	2018.03.12 2018.08.30		698,758 940,935	- -
		W	1,639,693	2,302,543

Book value of financial liability associated with asset backed securities, which are transferred, as of December 31, 2018 and 2017 are W2,548,468 million, W2,112,983 million, respectively.

(b) The uncollected details among transfer assets, which were sold by act on ABS, as of December 31, 2018 and 2017 are summarized as follows:

	List of disposal asset	Initial transfer date		2018	2017
Shinhan Card 2014-2	Credit card assets	2014.10.29		-	255,514
Shinhan Card 2015-1	Credit card assets	2015.11.12		281,434	654,779
Shinhan Card 2016-1	Credit card assets	2016.02.02		525,139	725,903
Shinhan Card 2017-1	Credit card assets	2017.02.08		800,706	795,302
Shinhan Card 2017-2	Credit card assets	2017.04.26		767,801	770,298
Shinhan Card 2017-3	Credit card assets	2017.09.12		510,486	510,335
Shinhan Card 2018-1	Credit card assets	2018.03.12		616,937	-
Shinhan Card 2018-2	Credit card assets	2018.08.30		788,825	-
			W	4,291,328	3,712,131

115

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions

(a) As of December 31, 2018, related parties of the Group are summarized as follows:

Name of company	Control relationship
Shinhan Financial Group Co., Ltd.	Parent company
Shinhan Bank	Other related parties
Shinhan Credit Information Co., Ltd.	Other related parties
Shinhan Life Insurance Co., Ltd.	Other related parties
Shinhan Data System Co., Ltd.	Other related parties
Shinhan Investment Corp.	Other related parties
Jeju Bank	Other related parties
BNP Paribas Cardif Life Insurance	Other related parties
Shinhan Savings Bank	Other related parties
Shinhan Aitas Co., Ltd.	Other related parties
Shinhan Capital Co., Ltd.	Other related parties
Shinhan Private Equity Investment Management	Other related parties
Shinhan BNP Paribas ITMC Co., Ltd.	Other related parties
SHC Management Co., Ltd.	Other related parties
BNP Paribas Cardif General Insurance	Other related parties
Shinhan REITs Management Co., Ltd.	Other related parties
Branbil Co., Ltd.	Other related parties
Financial Savings Information Center Co., Ltd. (*)	Other related parties

   (*) As Financial Savings Information Center Co., Ltd. became an affiliated company of Shinhan Financial Group Co., Ltd. which is the controlling company of the Group, it is included in the scope of other related parties for the year ended December 31, 2018.

116

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(b) Significant transactions with the related parties for the years ended December 31, 2018 and 2017 are as follows:

			2018		2017
Related party / Account			Revenue	Expense	Revenue	Expense
Shinhan Financial Group Co., Ltd.
Interest expense	W		-	14,953	-	11,861
Fee and commission income			15	-	12	-
Fee and commission expense			-	8,979	-	8,381
Reversal of allowance for doubtful accounts			-	-	2	-
Shinhan Bank
Interest income			177	-	410	-
Interest expense			-	3,302	-	1,873
Fee and commission income			1,701	-	1,367	-
Fee and commission expense			-	198,770	-	187,548
Reversal of allowance for doubtful accounts			-	-	43	-
Other general and administrative expense			-	1,761	-	1,720
Other operating income			43	-	43	-
Shinhan Credit Information Co., Ltd.
Fee and commission income		9		-	8	-
Fee and commission expense		-		23,224	-	17,793
Reversal of allowance for doubtful accounts		-		-	1	-
Shinhan Life Insurance Co., Ltd.
Fee and commission income		16,535		-	14,158	-
Fee and commission expense		-		524	-	576
Reversal of allowance for doubtful accounts		-		-	21	-
Employee benefits		-		67	-	165
Other general and administrative expense		-		45	-	100
Shinhan Data System Co., Ltd.
Fee and commission income		16		-	15	-
Fee and commission expense		-		19,052	-	17,628
Reversal of allowance for doubtful accounts		-		-	2	-
Depreciation expenses		-		1,605	-	1,281
Other general and administrative expense		-		12	-	4
Shinhan Investment Corp.
Interest income		126		-	131	-
Interest expenses		-		26	-	35
Fee and commission income		201		-	209	-
Fee and commission expense		-		400	-	388
Reversal of allowance for doubtful accounts		-		-	25	-
Other general and administrative expense		-		5	-	4

117

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(b) Significant transactions with the related parties for the years ended December 31, 2018 and 2017 are as follows, continued:

	2018		2017
Related party / Account	Revenue	Expense	Revenue	Expense
Jeju Bank
Interest income	-	-	1	-
Fee and commission income	37	-	27	-
Fee and commission expense	-	9	-	8
BNP Paribas Cardif Life Insurance
Fee and commission income	82	-	93	-
Bad debt expenses	-	-	-	3
Reversal of allowance for doubtful accounts	4	-	-	-
Shinhan Savings Bank
Fee and commission income	860	-	-	-
Fee and commission expense	-	48	-	-
Other general and administrative expense	-	8	-	-
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan Aitas Co., Ltd.
Reversal of allowance for doubtful accounts	-	-	2	-
Shinhan Capital Co., Ltd.
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan Private Equity Investment Management
Reversal of allowance for doubtful accounts	-	-	1	-
Fee and commission expense	-	1	-	-
Shinhan BNP Paribas ITMC Co., Ltd.
Fee and commission income	-	-	1	-
Fee and commission expense	-	2	-	3
Reversal of allowance for doubtful accounts	-	-	1	-
SHC Management Co., Ltd.
Other operating income	55	-	55	-
BNP Paribas Cardif General Insurance
Fee and commission income	4	-	2	-
Bad debt expenses	-	1	-	-
Reversal of allowance for doubtful accounts	-	-	1	-
Shinhan REITs Management Co., Ltd.
Fee and commission income	5	-	1	-
Jaeyoung Solutec Co., Ltd. (*)
Reversal of allowance for doubtful accounts	-	-	1	-

(*)  Jaeyoung Solutec Co., Ltd. was excluded from the scope of related parties for the year ended December 31, 2018.

118

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related party transactions, continued

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

		2018		2017
Related party / Account		Assets	Liabilities	Assets	Liabilities
Shinhan Financial Group Co., Ltd.
Credit card assets	W	314	-	305	-
Financing lease assets		116	-	218	-
Consolidated tax accounts		15	-	39	-
Borrowings		-	700,000	-	600,000
Current tax liabilities		-	89,623	-	123,722
Accrued expenses		-	10,307	-	10,901
Shinhan Bank
Cash and due from banks		23,522	-	6,946	-
Derivative assets		272	-	2,601	-
Credit card assets		8,780	-	9,183	-
Financing lease assets		9,529	-	14,766	-
Prepaid expenses		95	-	274	-
Accrued income		1	-	2	-
Guarantee deposits		13,921	-	13,921	-
Derivative liabilities		-	4,932	-	554
Borrowings		-	33,732	-	39,519
Allowance for asset retirement obligation		-	545	-	655
Accounts payable		-	21	-	7
Accrued expenses		-	1,316	-	1,835
Shinhan Credit Information Co., Ltd.
Credit card assets		150	-	161	-
Financing lease assets		64	-	116	-
Accounts payable		-	1,177	-	2,080
Shinhan Life Insurance Co., Ltd.
Credit card assets		1.968	-	2,552	-
Accounts payable		-	63	-	45
Accrued expenses		-	29	-	43
Allowance for asset retirement obligation		-	25	-	-
Shinhan Data System Co., Ltd.
Credit card assets		322	-	211	-
Financing lease assets		85	-	137	-

119

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(c) Significant balances with the related parties as of December 31, 2018 and 2017 are summarized as follows, continued:

	2018		2017
Related party / Account	Assets	Liabilities	Assets	Liabilities
Shinhan Investment Corp.
Cash and due from bank	598	-	485	-
Credit card assets	1,597	-	1,581	-
Prepaid expenses	4	-	4	-
Guarantee deposits	300	-	300	-
Allowance for asset retirement obligation	-	33	-	66
Jeju Bank
Cash and due from bank	79	-	86	-
Financing lease assets	165	-	194	-
Accounts payable	-	6	-	8
BNP Paribas Cardif Life Insurance
Credit card assets	116	-	191	-
Allowance for doubtful accounts	-	-	-	4
Shinhan Savings Bank
Credit card assets	63	-	68	-
Shinhan Aitas Co., Ltd.
Credit card assets	158	-	191	-
Shinhan Capital Co., Ltd.
Credit card assets	150	-	136	-
Shinhan Private Equity Investment Management, Inc.
Credit card assets	63	-	44	-
Shinhan BNP Paribas ITMC Co., Ltd.
Credit card assets	156	-	146	-
BNP Paribas Cardif General Insurance
Credit card assets	29	-	29	-
Allowance for doubtful accounts	-	2	-	1
Shinhan REITs Management Co., Ltd.
Credit card assets	21	-	-	-
Financing lease assets	49	-	55	-

120

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

44.Related Party Transactions, continued

(c) Significant balances with the related parties as of December 31, 2018 and 2017 are summarized as follows, continued:

	2018		2017
Related party / Account	Assets	Liabilities	Assets	Liabilities
Jaeyoung Solutec Co., Ltd. (*1)
Credit card assets	-	-	33	-
Allowance for doubtful accounts	-	-	-	1
Financial Savings Information Center Co., Ltd. (*2)
Credit card assets	3	-	-	-

(*1)  Jaeyoung Solutec Co., Ltd. was excluded from the scope of related parties for the year ended December 31, 2018.

(*2)  As Financial Savings Information Center Co., Ltd. became an affiliated company of Shinhan Financial Group Co., Ltd. which is the controlling company of the Group, it is included in the scope of other related parties for the year ended December 31, 2018.

(d) Financing transactions between the related parties for the years ended December 31, 2018 and 2017 are summarized as follows:

Control relationship	Related party		2018		2017
			Borrowing	Repayment	Borrowing	Repayment
Parent Company	Shinhan Financial Group Co., Ltd.	W	100,000	-	300,000	(150,000)
Other related parties	Shinhan Bank		16,950	(22,737)	39,519	(8,011)

(e) Key management personnel compensations for the years ended December 31, 2018 and 2017 are as follows:    

		2018	2017
Salaries and wages	W	2,284	2,743
Post-employment benefits		30	64
Share-based compensation expense		626	1,407
	W	2,940	4,214

121

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

45.Interests in Unconsolidated Structured Entities

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

The Group involved in assets-backed securitization, beneficiary certificates and characteristics of these structured entities are as follows:

	Description
Assets-backed securitization	Securitization vehicles are established to buy the assets from the originators and issue the asset-backed securities in order to facilitate the originators’ funding activities and enhance their financial soundness.  The Group is involved in the securitization vehicles as the asset manager.
Beneficiary certificates	Beneficiary certificate is a type of financial instrument where investment funds raise funds from the general public to invest in a group of assets such as stocks or bonds and distribute their income and capital gains to their investors.  The Group is involved in beneficiary certificates by investing in investment funds.

(i) The size of unconsolidated structured entities as of December 31, 2018 and 2017 is as follows:

		Asset-backed securitization
		2018	2017
Total assets	W	863,432	314,160

122

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

45.Interests in Unconsolidated Structured Entities, continued

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

(ii) Revenues and expenses recognized relating to the Group’s interests in unconsolidated structured entities for the year ended December 31, 2018 and 2017 are as follows:

		Asset-backed securitization
		2018	2017
Revenues
Fee and commission income	W	56	596
Dividend income		-	9,800
Other operating income		40,445	4,147
	W	40,501	14,543
Expenses	W	(376)	(270)

(iii) The carrying amounts of the assets transferred to unconsolidated structured entities as of December 31, 2018 and 2017 are as follows:

		Asset-backed securitization
		2018	2017
Loans	W	895,652	122,281

(b) Nature of risks

(i) The carrying amounts of the assets and liabilities recognized relating to the Group’s interests in unconsolidated structured entities as of December 31, 2018 and 2017 are as follows:

		Asset-backed securitization
		2018	2017
Assets:
Available-for-sale financial assets	W	-	1,955
Financial assets at FVTPL		1,578	-
Other assets		1	23
	W	1,579	1,978

(ii) Maximum exposure to risk relating to the Group’s interests in unconsolidated structured entities as of December 31, 2018 and 2017 is as follows:

		Asset-backed securitization
		2018	2017
Assets held	W	1,579	1,978

123

SHINHAN CARD CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

46.Events after the Reporting Period

On January 23, 2018, the Group entered into a contract to acquire 100% shares in Prudential Vietnam Finance Company Limited, a local consumer finance company in Vietnam, for USD 151 million and on January 17, 2019, the acquisition was approved by State Bank of Vietnam.

124