EX-99.1 2 shg-ex991_6.htm EX-99.1 AUDIT REPORT (SEPARATE FINANCIAL STATEMENTS) OF SHINHAN BANK shg-ex991_6.htm

 

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHINHAN BANK

 

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

 

6

 

 

 

Separate Statements of Cash Flows

 

8

 

 

 

Notes to the Separate Financial Statements

 

10

 

Independent Auditors’ Review Report on Internal Accounting Control System

 

164

Report on the Operations of Internal Accounting Control System

 

 

165

 

 

 

 

 

 

 

 


 

 

 

Independent Auditors’ Report

(Based on a report originally issued in Korean)

 

 

To the Board of Directors and Stockholder of

Shinhan Bank:

 

Opinion

We have audited the separate financial statements of Shinhan Bank (“the Bank”), which comprise the separate statements of financial position as 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 and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Bank 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 Bank 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 Separate 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 separate financial statements, management is responsible for assessing the Bank’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 Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’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 consolidated financial statements, whether due to fraud or error,

 

1


 

 

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 Bank’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 Bank’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 Bank 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPMG Samjong Accounting Corp.

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 BANK

Separate Statements of Financial Position

As of December 31, 2018 and 2017

 

(In millions of won)

 

Notes

 

December 31,

2018 (*1)

 

December 31, 2017 (*1)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

4,6,9,40,41

W

9,405,839

 

14,712,506

Securities at fair value through profit or loss

 

4,7,41

 

12,811,266

 

-

Trading assets

 

4,7,41

 

-

 

8,834,871

Derivative assets

 

4,8,41

 

1,488,548

 

2,602,689

Loans at amortized cost

 

4,9,41

 

233,246,276

 

-

Loans at fair value through profit or loss

 

4,9

 

645,237

 

-

Loans

 

4,9,41

 

-

 

216,985,347

Securities at fair value through other comprehensive

income

 

4,10,17

 

30,731,281

 

-

Available-for-sale financial assets

 

4,10,17

 

-

 

31,126,397

Securities at amortized cost

 

4,10,17

 

16,230,964

 

-

Held-to-maturity financial assets

 

4,10,17

 

-

 

14,358,584

Property and equipment

 

11,16,17

 

1,942,867

 

1,988,437

Intangible assets

 

12

 

204,308

 

186,757

Investments in subsidiaries and associates

 

13

 

2,351,986

 

2,246,214

Investment properties

 

14

 

571,130

 

598,125

Defined benefit assets

 

23

 

-

 

34,120

Current tax assets

 

37

 

1,872

 

3,527

Deferred tax assets

 

37

 

174,574

 

361,913

Other assets

 

4,9,15,41,42

 

14,069,306

 

8,892,567

Non-current assets held for sale

 

16

 

79

 

4,498

Total assets

 

 

W

323,875,533

 

302,936,552

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits

 

4,19,41

W

237,451,779

 

223,975,037

Financial liabilities at fair value through profit or loss

 

4,20

 

479,559

 

-

Trading liabilities

 

4,20

 

-

 

434,586

Derivative liabilities

 

4,8,41

 

1,771,313

 

2,996,958

Borrowings

 

4,21,40,41

 

15,876,442

 

14,471,720

Debt securities issued

 

4,22,40

 

29,294,584

 

23,929,723

Defined benefit liabilities

 

23

 

65,472

 

-

Provisions

 

24,39,41

 

289,311

 

274,762

Current tax liabilities

 

37

 

276,388

 

183,673

Other liabilities

 

4,25,41,42

 

14,799,302

 

14,481,589

Total liabilities

 

 

W

300,304,150

 

280,748,048

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Capital stock

 

26

 

7,928,078

 

7,928,078

Hybrid bonds

 

26

 

698,660

 

668,938

Capital surplus

 

26

 

398,080

 

398,080

Capital adjustments

 

26,37

 

4,596

 

643

Accumulated other comprehensive loss

 

26,37

 

(334,064)

 

(225,695)

Retained earnings

 

26,27

 

14,876,033

 

13,418,460

Total equity

 

 

 

23,571,383

 

22,188,504

Total liabilities and equity

 

 

W

323,875,533

 

302,936,552

 

(*1) The separate statement of financial position as of December 31, 2018 was prepared in accordance with K- IFRS No.1109 and K-IFRS No.1115.  However, the comparative separate statement of financial position as of December 31, 2017 was not retrospectively restated.

3


SHINHAN BANK

Separate Statements of Financial Position

As of December 31, 2018 and 2017

 

 

See accompanying notes to the separate financial statements.

 

3


SHINHAN BANK

Separate Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

 

(In millions of won)

 

Notes

 

2018 (*1)

 

2017 (*1)

 

 

 

 

 

 

 

 

 

Interest income

 

36

W

8,725,960

 

7,449,277

 

Financial assets at fair value through profit or loss

 

 

 

185,180

 

-

 

Trading assets

 

 

 

-

 

140,216

 

Financial assets at fair value through other comprehensive income and amortized cost

 

 

 

8,540,780

 

-

 

Loans and receivables and investment securities

 

 

 

-

 

7,309,061

 

Interest expense

 

 

 

(3,695,812)

 

(2,928,039)

 

Net interest income

 

4,28,41

 

5,030,148

 

4,521,238

 

 

 

 

 

 

 

 

 

Fees and commission income

 

36

 

1,197,938

 

1,126,425

 

Fees and commission expense

 

 

 

(192,008)

 

(169,417)

 

Net fees and commission income

 

4,29,41

 

1,005,930

 

957,008

 

 

 

 

 

 

 

 

 

Dividend income

 

30,36

 

10,230

 

114,100

 

Net gain on financial instruments at fair value through profit or loss

 

31,36

 

343,614

 

-

 

Net trading gain (loss)

 

31,36

 

-

 

(125,798)

 

Net foreign currencies transaction gain

 

36

 

87,037

 

501,511

 

Net loss on financial instruments designated at fair value through profit or loss

 

18,36

 

-

 

(43)

 

Net gain on disposal of financial asset at fair value through other comprehensive income

 

10,36

 

9,826

 

-

 

Net gain on sale of available-for-sale financial assets

 

10,36

 

-

 

186,711

 

Provision for credit loss allowance

 

4,9,41

 

(225,894)

 

-

 

Impairment loss on financial assets

 

4,9,41

 

-

 

(660,359)

 

General and administrative expenses

 

32,41

 

(2,758,591)

 

(2,867,479)

 

Net other operating expenses

 

34,36,41

 

(667,467)

 

(582,294)

 

Operating income

 

 

 

2,834,833

 

2,044,595

 

 

 

 

 

 

 

 

 

Net non-operating income (expense)

 

35

 

55,663

 

(41,707)

 

 

 

 

 

 

 

 

 

Profit before income tax

 

 

 

2,890,496

 

2,002,888

 

 

 

 

 

 

 

 

 

Income tax expense

 

37

 

(773,890)

 

(395,127)

 

Profit for the period

 

27

 

2,116,606

 

1,607,761

 


4


SHINHAN BANK

Separate Statements of Comprehensive Income (Continued)

For the years ended December 31, 2018 and 2017

 

 

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

Notes

 

2018 (*1)

 

2017 (*1)

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) for the period:

Items that are or may be reclassified subsequently to profit or loss

 

4,26,37

 

 

 

 

 

 

 

Foreign currency translation differences for foreign operations

 

 

W

(2,074)

 

(21,045)

 

Unrealized net change in fair value of financial assets at fair value through other comprehensive income

 

 

 

117,780

 

-

 

Unrealized net change in fair value of available-for-sale financial assets

 

 

 

-

 

(123,676)

 

 

 

 

W

115,706

 

(144,721)

 

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

 

Remeasurements of defined benefit plans

 

 

W

(70,330)

 

73,817

 

Unrealized net change in fair value of financial assets at fair

value through other comprehensive income

 

 

 

17,670

 

-

 

 

 

 

W

(52,660)

 

73,817

 

Other comprehensive income (loss) for the year, net of income tax

 

 

 

63,046

 

(70,904)

 

Total comprehensive income for the period

 

 

W

2,179,652

 

1,536,857

 

 

 

 

 

 

 

 

 

Earnings per share:

 

38

 

 

 

 

 

Basic and diluted earnings per share in won

 

 

W

1,319

 

995

 

 

(*1) The separate statement of comprehensive income for the year ended December 31, 2018 was prepared in accordance with K-IFRS No.1109 and K-IFRS No.1115.  However, the comparative separate statement of comprehensive income for the year ended December 31, 2017 was not retrospectively restated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the separate financial statements.

 

5


SHINHAN BANK

Separate Statements of Changes in Equity (Continued)

For the year ended December 31, 2018

(In millions of won)

 

Capital stock

 

Hybrid

bonds

 

Capital

surplus

 

Capital

adjustments

 

Accumulated other comprehensive income (loss)

 

Retained

earnings

 

Total

Balance at January 1, 2017

W

7,928,078

 

469,393

 

398,080

 

(60,664)

 

(154,791)

 

12,380,650

 

20,960,746

Total comprehensive income (loss), net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

-

 

-

 

-

 

-

 

-

 

1,607,761

 

1,607,761

Foreign currency translation differences for foreign operations

 

-

 

-

 

-

 

-

 

(21,045)

 

-

 

(21,045)

Unrealized net changes in fair values of available-for-sale financial assets

 

-

 

-

 

-

 

-

 

(123,676)

 

-

 

(123,676)

Remeasurements of defined benefit plans

 

-

 

-

 

-

 

-

 

73,817

 

-

 

73,817

Total comprehensive income (loss) for the year

 

-

 

-

 

-

 

-

 

(70,904)

 

1,607,761

 

1,536,857

Transactions with owners, recognized directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual dividends to equity holder

 

-

 

-

 

-

 

-

 

-

 

(480,000)

 

(480,000)

Dividends to hybrid bond holders

 

-

 

-

 

-

 

-

 

-

 

(29,857)

 

(29,857)

Redemption of hybrid bonds

 

-

 

199,545

 

-

 

-

 

-

 

-

 

199,545

Share-based payment transactions

 

-

 

-

 

-

 

1,213

 

-

 

-

 

1,213

Disposal of other capital adjustments

 

-

 

-

 

-

 

60,094

 

-

 

(60,094)

 

-

Total transactions with owners

 

-

 

199,545

 

-

 

61,307

 

-

 

(569,951)

 

(309,099)

Balance at December 31, 2017

W

7,928,078

 

668,938

 

398,080

 

643

 

(225,695)

 

13,418,460

 

22,188,504

 

 

 

 

 

 

 

 

See accompanying notes to the separate financial statements.

7

 


SHINHAN BANK

Separate Interim Statements of Changes in Equity (Continued)

For the nine-month period ended September 30, 2018

(Unaudited)

 

(In millions of won)

 

Capital stock

 

Hybrid

bonds

 

Capital

surplus

 

Capital

adjustments

 

Accumulated other comprehensive income (loss) (*1)

 

Retained

earnings (*1)

 

Total (*1)

Balance at January 1, 2018

W

7,928,078

 

668,938

 

398,080

 

643

 

(225,695)

 

13,418,460

 

22,188,504

Adjustments on initial application of

K-IFRS No.1109 and K-IFRS No.1115,

net of income tax (Note 43)

 

-

 

-

 

-

 

-

 

(174,604)

 

(90,616)

 

(265,220)

Balance at January 1, 2018 (adjusted)

 

7,928,078

 

668,938

 

398,080

 

643

 

(400,299)

 

13,327,844

 

21,923,284

Total comprehensive income (loss), net of

income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

2,116,606

 

2,116,606

Foreign currency translation differences for foreign operations

 

-

 

-

 

-

 

-

 

(2,074)

 

-

 

(2,074)

Unrealized net changes in fair values of financial assets at fair value through other comprehensive income

 

-

 

-

 

-

 

-

 

138,639

 

(3,189)

 

135,450

Remeasurements of defined benefit plans

 

-

 

-

 

-

 

-

 

(70,330)

 

-

 

(70,330)

Total comprehensive income for the

period

 

-

 

-

 

-

 

-

 

66,235

 

2,113,417

 

2,179,652

Transactions with owners, recognized

directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual dividends to equity holder

 

-

 

-

 

-

 

-

 

-

 

(540,000)

 

(540,000)

Dividends to hybrid bond holders

 

-

 

-

 

-

 

-

 

-

 

(25,228)

 

(25,228)

Issuance of hybrid bonds

 

-

 

199,547

 

-

 

-

 

-

 

-

 

199,547

Redemption of hybrid bonds

 

-

 

(169,825)

 

-

 

(175)

 

-

 

-

 

(170,000)

Share-based payment transactions

 

-

 

-

 

-

 

4,128

 

-

 

-

 

4,128

Total transactions with owners

 

-

 

29,722

 

-

 

3,953

 

-

 

(565,228)

 

(531,553)

Balance at December 31, 2018

W

7,928,078

 

698,660

 

398,080

 

4,596

 

(334,064)

 

14,876,033

 

23,571,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(*1) The separate statement of changes in equity for the year ended December 31, 2018 was prepared in accordance with K- IFRS No.1109 and K-IFRS No.1115.  However, the comparative separate statement of changes in equity for the year ended December 31, 2017 was not retrospectively restated.

7

 


SHINHAN BANK

Separate Interim Statements of Changes in Equity (Continued)

For the nine-month period ended September 30, 2018

(Unaudited)

 

 

See accompanying notes to the separate financial statements.

7

 


SHINHAN BANK

Separate Statements of Cash Flows

For the years ended December 31, 2018 and 2017

 

(In millions of won)

 

2018 (*1)

 

2017 (*1)

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Profit before income tax

W

2,890,496

 

2,002,888

Adjustments for:

 

 

 

 

Net interest income

 

(5,030,148)

 

(4,521,238)

Dividend income

 

(10,230)

 

(117,852)

Net gain on financial assets at fair value through profit or loss

 

(271,115)

 

-

Net non-cash trading gain

 

-

 

(52,660)

Net non-cash foreign currencies transaction loss (gain)

 

154,783

 

(263,125)

Net gain on sale of financial assets at fair value through other comprehensive income

 

(9,826)

 

-

Net gain on sale of available-for-sale financial assets

 

-

 

(186,711)

Provision for credit loss allowance

 

241,402

 

-

Net impairment loss on financial assets at fair value through other comprehensive income

 

-

 

482,131

Net impairment loss on available-for-sale financial assets

 

-

 

178,228

Non-cash employee benefits

 

107,448

 

139,128

Depreciation and amortization

 

177,524

 

144,713

Net non-cash other operating income

 

(29,373)

 

(24,091)

Net non-cash non-operating income

 

(80,948)

 

(24,379)

 

 

(4,750,483)

 

(4,245,856)

Changes in assets and liabilities:

 

 

 

 

Due from banks

 

6,326,862

 

(4,129,350)

Securities at fair value through profit or loss

 

(1,612,173)

 

-

Trading assets

 

-

 

443,142

Derivative assets

 

2,759,373

 

3,008,890

Loans at amortized cost

 

(18,503,793)

 

-

Loans at fair value through profit or loss

 

(34,732)

 

-

Loans

 

-

 

(11,853,249)

Other assets

 

(4,933,310)

 

3,248,311

Financial liabilities designated at fair value through profit or loss

 

-

 

(6,282)

Deposits

 

13,943,933

 

13,485,577

Financial liabilities at fair value through profit or loss

 

28,844

 

-

Trading liabilities

 

-

 

(52,803)

Derivative liabilities

 

(2,688,290)

 

(2,976,855)

Defined benefit liabilities

 

(93,646)

 

(125,139)

Provisions

 

102

 

(22,537)

Other liabilities

 

540,004

 

2,061,741

 

 

(4,285,826)

 

3,081,446

 

 

 

 

 

Income tax paid

 

(418,247)

 

(279,327)

Interest received

 

8,764,416

 

7,346,398

Interest paid

 

(3,787,461)

 

(2,706,045)

Dividends received

 

131,622

 

117,852

Net cash provided by (used in) operating activities

 

(1,455,483)

 

5,317,356

 

 

8


SHINHAN BANK

Separate Statements of Cash Flows (Continued)

For the years ended December 31, 2018 and 2017

 

(In millions of won)

 

2018 (*1)

 

2017 (*1)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds from sale of securities at fair value through profit or loss

W

925,774

 

-

Acquisition of securities at fair value through profit or loss

 

(925,116)

 

-

Proceeds from sale of securities at fair value through other

comprehensive income

 

22,785,691

 

-

Acquisition of securities at fair value through other comprehensive income

 

(23,600,909)

 

-

Proceeds from sale of available-for-sale financial assets

 

-

 

23,304,969

Acquisition of available-for-sale financial assets

 

-

 

(28,274,563)

Proceeds from sale of securities at amortized cost

 

1,792,087

 

-

Acquisition of securities at amortized cost

 

(3,567,093)

 

-

Proceeds from redemption of held-to-maturity financial assets

 

-

 

1,380,375

Acquisition of held-to-maturity financial assets

 

-

 

(4,664,112)

Proceeds from sale of property and equipment

 

31,223

 

10,564

Acquisition of property and equipment

 

(77,401)

 

(76,920)

Proceeds from sale of intangible assets

 

2,648

 

4,757

Acquisition of intangible assets

 

(88,986)

 

(70,910)

Proceeds from sale of investments in associates

 

13,712

 

69,257

Acquisition of investments in associates

 

(162,196)

 

(282,278)

Proceeds from sale of investment properties

 

15,274

 

3,507

Acquisition of investment properties

 

(1,132)

 

(2,120)

Proceeds from sale of non-current assets held for sale

 

3,175

 

10,466

Proceeds from sale of other assets

 

945,794

 

930,097

Acquisition of other assets

 

(944,870)

 

(914,571)

Net cash used in investing activities

 

(2,852,325)

 

(8,571,482)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from borrowings, net

 

1,167,078

 

999,425

Proceeds from issuance of debt securities

 

13,238,301

 

9,895,857

Repayment of debt securities

 

(8,427,449)

 

(6,303,167)

Dividends paid

 

(563,999)

 

(509,798)

Issuance of hybrid bonds

 

199,547

 

199,545

Redemption of hybrid bonds

 

(170,000)

 

-

Acquisition of other liabilities

 

95,417

 

140,454

Proceeds from sale of other liabilities

 

(94,621)

 

(132,265)

Net cash provided by financing activities

 

5,444,274

 

4,290,051

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents held

 

(6,688)

 

(8,411)

Net increase in cash and cash equivalents

 

1,129,778

 

1,027,514

 

 

 

 

 

Cash and cash equivalents at beginning of the period (Note 40)

 

3,332,539

 

2,305,025

Cash and cash equivalents at end of the period (Note 40)

W

4,462,317

 

3,332,539

 

 

 

 

 

 

(*1) The separate statement of cash flows for the year ended December 31, 2018 was prepared in accordance with K- IFRS No.1109 and K-IFRS No.1115.  However, the comparative separate statement of cash flows for the year ended December 31, 2017 was not retrospectively restated.

 

 

 

 

See accompanying notes to the separate financial statements.

9


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

1.Reporting entity

 

Shinhan Bank (the “Bank”) was established on October 1, 1943 under the name of Chohung Bank, through the merger of Hanseung Bank and Dongil Bank, which were established on February 19, 1897 and August 8, 1906, respectively, to engage in commercial banking and trust operations.  The Bank is headquartered at 20, Sejong-daero9-gil, Jung-gu, Seoul, Republic of Korea.

 

The Bank acquired Chungbuk Bank and Kangwon Bank in 1999, and the former Shinhan Bank on April 1, 2006, and subsequently changed its name to Shinhan Bank.  As of December 31, 2018, the Bank has 1,585,615,506 outstanding common shares with par value of W7,928,078 million which Shinhan Financial Group Co., Ltd. (“Shinhan Financial Group”) owns 100% of those.  As of December 31, 2018, the Bank operates through 741 domestic branches, 135 depositary offices, 30 premises and 14 overseas branches.

 

 

2.Basis of preparation

 

(a)

Statement of compliance

 

 

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

 

This is the first set of the Bank’s annual separate financial statements where K-IFRS No.1109 and K-IFRS No.1115 have been applied.

 

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost.

 

The Bank’s separate financial statements have been prepared in accordance with the accounting policies stated below.

 

(b)

Basis of measurement

 

 

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

 

 

derivative financial instruments are measured at fair value

 

 

financial instruments at fair value through profit or loss (“FVTPL”) are measured at fair value

 

 

financial instruments at fair value through other comprehensive income (“FVOCI”) are measured at fair value

 

 

share-based payment arrangements are initially measured at fair value on grant date

 

 

changes in fair value attributable to the risk being hedged for financial instruments designated as hedged items in qualifying fair value hedge relationships are recognized in profit or loss

 

 

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

 

 

(c)

Functional and presentation currency

 

 

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

10

 


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

2.Basis of preparation (continued)

 

(d)

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.

 

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the significant effect on the amount recognized in the separate financial statements is described in Note 5.

 

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

 

 

3.Significant accounting policies

 

In preparing these separate financial statements, the Bank has consistently applied the accounting policies as listed below with those applied by the Bank in its separate financial statements as of and for the year ended December 31, 2017, except for the changes in accounting policies as explained in (a), which are effective for annual periods beginning on January 1, 2018.

 

(a) Changes in accounting policies

 

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

 

The Bank has applied K-IFRS No.1109 ‘Financial Instruments’, which was published on September 25, 2015, from the year beginning on January 1, 2018.  K-IFRS No.1109 replaced K-IFRS No.1039, ‘Financial Instruments: Recognition and Measurement’. The accounting policies related to K-IFRS No.1039 are presented in Note 3 (y).

 

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

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

 


11


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(a) Changes in accounting policies (continued)

 

The Bank’s separate financial statements as of and for the year ended December 31, 2018 have been prepared in accordance with K-IFRS No.1109, and the accompanying comparative separate financial statements as of and for the year ended December 31, 2017 have not been retrospectively adjusted.

 

Details on the adjustments to the carrying amounts of financial assets and financial liabilities, the adjustments to credit loss allowance, and the effects on equity as a result of initial application of K-IFRS No.1109 are presented in Note 43.

 

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

 

The Bank has applied K-IFRS No.1115, ‘Revenue from Contracts with Customers’, which was published on November 6, 2015, from the year starting on January 1, 2018.  K-IFRS No.1115 replaces existing revenue recognition guidance, including K-IFRS No.1018, ‘Revenue’, K-IFRS No.1011, ‘Construction Contracts’, K-IFRS No.2031, ‘Revenue-Barter Transactions Involving Advertising Services’, K-IFRS No.2113, ‘Customer Loyalty Programmes’, K-IFRS No.2115, ‘Agreement for the Construction of Real Estate’, and K-IFRS No.2118, ‘Transfers of Assets from Customers.’

According to K-IFRS No.1115, all types of contracts recognize revenue through five-step revenue recognition model ( ‘Identifying the contract’ → ‘Identifying performance obligations’ → ‘Determining the transaction price’ → ‘Allocating the transaction price to performance obligations’ → ‘Recognizing the revenue by satisfying performance obligations’).

 

The Bank elected to retrospectively apply K-IFRS No.1115 and reflected the cumulative financial effect of the initial application of K-IFRS No.1115 at the date of initial recognition, in accordance with the transitional provision of K-IFRS No.1115.  The accompanying comparative separate financial statements as of and for the year ended December 31, 2017 have not been retrospectively adjusted.  Effects on equity as a result of initial application of K-IFRS No.1115 are presented in Note 43.

 

iii) Amendments to K-IFRS No.1040, 'Investment Property'

 

The Bank has applied the amendments on K-IFRS No.1040, ‘Investment Property' from the year beginning on January 1, 2018.  The amendments clarify that an entity shall transfer a property to, or from, investment property when, and only when, there is a change in use.  A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use.  And it is clarified that the provisions on the transfers of investment property is applied to the properties that are being constructed or developed.  The amendments did not have a significant impact on the Bank’s separate financial statements.

 

iv) Amendments to K-IFRS No.1102, 'Share-based Payment'

 

The Bank has applied the amendments on K-IFRS No.1102, ‘Share-based Payment' from the year beginning on January 1, 2018.

Amendments to K-IFRS No.1102 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.  The amendments also clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award.  The amendments did not have a significant impact on the Bank’s separate financial statements.

 

v) Approval of separate financial statements

 

The separate financial statements were authorized for issue by the Board of Directors on February 11, 2019.

 

12


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(b) Investments in subsidiaries and associates

 

The accompanying separate financial statements have been prepared on a stand-alone basis in accordance with K-IFRS No.1027, ‘Separate Financial Statements’. The Bank’s investments in subsidiaries and associates are recorded at cost in accordance with K-IFRS No.1027.  However, the investments in subsidiaries and associates subject to K-IFRS No.1101, ‘First-time Adoption of K-IFRS’ are recorded at previous GAAP carrying amount at the date of transition to K-IFRS. Dividend received from its subsidiaries and associates is recognized in profit or loss when the Bank is entitled to receive the dividend.

 

(c) Foreign currencies

 

i) Foreign currency transactions

 

Transactions in foreign currencies are translated to the respective functional currencies of the Bank 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 using the reporting date’s exchange rate.  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 was determined.

 

Foreign currency differences arising on retranslation 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 hedging instrument of the net investment in a foreign operation, or 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 Bank 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 are treated as assets and liabilities of the foreign operation and are translated using the exchange rate at the reporting date.

 

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.

 

iii) Net investment in a foreign operation

 

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, then foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognized in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

13


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(d) Cash and cash equivalents

 

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments.  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.  However, the Bank’s account overdraft is included in borrowings.

 

(e) Non-derivative financial assets

 

Financial assets are recognized when the Bank becomes a party to the contractual provisions of the instrument. In addition, a regular way purchase or sale (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market concerned) is recognized on the trade date.

 

A financial asset is measured initially at its fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition of the financial asset.  Transaction costs on the financial assets at FVTPL that are directly attributable to the acquisition are recognized in profit or loss as incurred.

 

i) Financial assets designated at FVTPL

 

Financial assets can be irrevocably designated as measured at FVTPL despite of classification standards stated below, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases.

 

ii) Equity instruments

 

For the equity instruments that are not held for trading, at initial recognition, the Bank may make an irrevocable election to present subsequent changes in fair value in other comprehensive income.  Equity instruments that are not classified as financial assets at FVOCI are classified as financial assets at FVTPL.

 

The Bank subsequently measures all equity investments at fair value.  Valuation gains or losses of the equity instruments that are classified as financial assets at FVOCI previously recognized as other comprehensive income is not reclassified as profit or loss on derecognition.  The Bank recognizes dividends in profit or loss when the Bank’s right to receive payments of the dividend is established.

 

Valuation gains or losses due to changes in fair value of the financial assets at FVTPL are recognized as gains or losses on financial assets at FVTPL.  Impairment loss (reversal) on equity instruments at FVOCI is not recognized separately.

 

iii) Debt instruments

 

Subsequent measurement of debt instruments depends on the Bank’s business model in which the asset is managed and the contractual cash flow characteristics of the asset.  Debt instruments are classified as financial assets at amortized cost, at FVOCI, or at FVTPL. Debt instruments are reclassified only when the Bank’s business model changes.

 


14


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(e) Non-derivative financial assets (continued)

 

Financial assets at amortized cost

  

Assets that are held within a business model whose objective is to hold assets to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost.  Impairment losses, and gains or losses on derecognition of the financial assets at amortized cost are recognized in profit or loss.  Interest income on the effective interest method is included in the ‘Interest income’ in the separate statement of comprehensive income.

 

Financial assets at FVOCI

  

Assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI.  Other than impairment losses, interest income amortized using effective interest method and foreign exchange differences, gains or losses of the financial assets at FVOCI are recognized as other comprehensive income in equity.  On derecognition, gains or losses accumulated in other comprehensive income are reclassified to profit or loss.  The interest income on the effective interest method is included in the ‘Interest income’ in the separate statement of comprehensive income.  Foreign exchange differences and impairment losses are included in the ‘Net foreign currency transaction gain’ and ‘Impairment loss on financial assets’ in the separate statement of comprehensive income, respectively.

 

Financial assets at FVTPL

 

Debt securities other than financial assets at amortized costs or FVOCI are classified at FVTPL.  Unless hedge accounting is applied, gains or losses from financial assets at FVTPL are recognized as profit or loss and are included in ‘Net gain on financial assets at fair value through profit or loss’ in the separate statement of comprehensive income.

 

iv) Embedded derivatives

 

Financial assets with embedded derivatives are classified regarding the entire hybrid contract, and the embedded derivatives are not separately recognized.  The entire hybrid contract is considered when it is determined whether the contractual cash flows represent solely payments of principal and interest.

 

v) Derecognition of financial assets

 

The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.  Any interest in transferred financial assets that is created or retained by the Bank is recognized as a separate asset or liability.

 

If the Bank retains substantially all the risks and rewards of ownership of the transferred financial assets, the Bank continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

 

vi) Offsetting

 

Financial assets and financial liabilities are offset and the net amount is presented in the separate statement of financial position only when the Bank currently has a legally enforceable right to set off the recognized amounts, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

 


15


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(f) Expected credit loss on financial assets

 

As for financial assets at amortized cost and financial assets at FVOCI, the expected credit loss is evaluated at the end of each period and recognized as loss allowances.

 

Since initial recognition, a loss allowance shall be measured by the three stages in the table below depending on the extent of significant increase in credit risk.

 

Stage

 

Category

 

Description

Stage 1

 

Credit risk has not increased significantly since initial recognition

 

12 month expected credit losses:

Expected credit loss resulting from

potential default of financial instruments

occurring over 12 months from the end

of reporting period

 

Stage 2

 

Credit risk has increased significantly since initial recognition

 

 

Lifetime expected credit losses:

Expected credit loss resulting from all

potential default of financial instruments

occurring over the expected life

 

Stage 3

 

Credit-impaired financial assets

 

However, as for the financial assets whose credit is impaired at the initial recognition, only the cumulative change in the lifetime expected credit loss is recognized as the loss allowance.

 

The ‘lifetime’ refers to the expected life to the contractual maturity of the financial asset.

 

i) Forward looking information


The Bank determines a material increase on credit risk and estimates the expected credit loss on a forward looking basis.


The measuring factors of the expected credit loss are assumed to have certain relationship with the economic cycle. Through relationship analysis between the macroeconomic variables and the credit risk measuring factors, the forward looking information is reflected in the expected credit loss estimation.

 

ii) Financial assets at amortized cost

 

The expected credit loss on the financial assets at amortized cost is recognized as the difference between the present value of the contractual cash flow and the present value of the expected cash flow.  The expected cash flow is estimated separately for the individually material financial assets.

 

For the financial assets which are not individually material, they are included in a group of assets with a similar credit risk and expected credit loss is estimated collectively.


16


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(f) Expected credit loss on financial assets (continued)

 

The expected credit losses of financial assets measured as amortized cost are presented net of loss allowance, and the allowance is derecognized together with the asset when it is determined to be unrecoverable.  When the loan previously written-off is subsequently collected, it is recognized as an increase in loss allowance.  At each reporting date, the Bank recognizes in profit or loss the amount of the change in lifetime expected credit losses.

 

iii) Financial assets at FVOCI

 

The expected credit loss on the financial assets at FVOCI is calculated using the same method as that on the financial assets at amortized cost, however the changes in loss allowance are recognized as other comprehensive income.  As for disposal and repayment, the loss allowance is reclassified from other comprehensive income to profit or loss.

 

(g) Derivative financial instruments

 

Derivatives are initially recognized at fair value.  Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

 

i) Hedge accounting

 

The Bank holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk.  The Bank designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge), and foreign currency risk of net investment in foreign operation (net investment hedges).

 

On initial designation of the hedge, the Bank formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

 

ii) Fair value hedges

 

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss.  The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the separate statement of comprehensive income.

 

The Bank discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting.  Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.


17


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(g) Derivative financial instruments (continued)

 

iii) Cash flow hedges

 

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity.  The amount recognized in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the separate statements of comprehensive income as the hedged item.  Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

 

Once hedge accounting is discontinued, any cumulative gain or loss existing in equity at that time and is recognized over the period the forecast transaction occurs as profit or loss.  However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss recognized in equity is immediately recognized in the profit or loss.

 

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively.  The cumulative gain or loss previously recognized in other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction affects profit or loss.  When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized.  If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.  In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.

 

iv) Hedge of net investment

 

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective.  To the extent that the hedge is ineffective, such differences are recognized in profit or loss.  When the hedged part of a net investment is disposed of, the relevant amount in the accumulated other comprehensive income is transferred to profit or loss as part of the profit or loss on disposal in accordance with K-IFRS No.1021, ‘The Effects of Changes in Foreign Exchange Rates’.

 

v) Embedded derivatives

 

Embedded derivatives are separated from the host contract and accounted for separately only if the economic characteristics and risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not designated at FVTPL.  Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

 

vi) Derivative financial instruments held for trading

 

Changes in the fair value of derivative financial instruments not designated as a hedging instrument are recognized immediately in profit or loss.


18


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(g) Derivative financial instruments (continued)

 

vii) Day one profit or loss

 

If the Bank uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there may be a difference between the transaction price and the amount determined using that valuation technique.  As for these circumstances, the difference between the fair value at the initial recognition and the transaction price is not recognized as profit or loss but deferred.  The deferred difference is amortized by using straight line method over the life of the financial instruments.

 

(h) Property and equipment

 

Property and equipment are initially measured at cost and after initial recognition.  The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

 

Property and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.  Certain land and buildings are measured at fair value at the date of transition to K-IFRS, which is deemed cost, in accordance with K-IFRS No.1101, ‘First-time Adoption of K-IFRS’.  Dividend from relevant revaluation surplus is prohibited in accordance with the resolution of the board of directors.

 

The Bank recognizes in the carrying amount of an item of property and equipment the cost of replacing part of property and equipment when that cost is incurred if it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably.  The carrying amount of those parts that are replaced 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.  Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives.  The estimated useful lives for the current and comparative periods are as follows:

 

Descriptions

 

Useful lives

Buildings

 

40 years

Other properties

 

4~5 years

 

The gain or loss arising from the derecognition of an item of property and equipment, which is included in profit or loss, is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

 

Depreciation methods, useful lives and residual values are reassessed at each fiscal year-end and any adjustment is accounted for as a change in accounting estimate.


19


SHINHAN BANK

Notes to the Separate 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, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

 

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets as below 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

Software and capitalized development cost

 

5 years

Other intangible assets

 

5 years or contract periods, whichever the shorter

 

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period.  The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets.  Changes are accounted for as changes in accounting estimates.

 

Expenditures on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, are recognized in profit or loss as incurred.  Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Bank 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) Investment properties

 

Investment property is property held either to earn rental income or for capital appreciation or both.  An investment property is initially recognized at cost including any directly attributable expenditure.  Subsequent to initial recognition, the asset is measured at cost less accumulated depreciation and accumulated impairment losses, if any.

 

The depreciation method and the estimated useful lives for the current and comparative periods were as follows:

 

Descriptions

 

Depreciation method

 

Useful lives

Buildings

 

Straight-line

 

40 years

 

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably.  The carrying amount of the replaced part is derecognized.  The costs of the day-to-day servicing are recognized in profit or loss as incurred.

 

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate.  The change is accounted for as changes in accounting estimates.

 


20


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(k) Leases

 

The Bank classifies and accounts for leases as either a finance or operating lease, depending on the terms.  Leases where the Bank assumes substantially all of the risks and rewards of ownership are classified as finance leases.  All other leases are classified as operating leases.

 

i) Finance leases

 

At the commencement of the lease term, the Bank recognizes as finance assets and finance liabilities in its separate statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease.  Any initial direct costs are added to the amount recognized as an asset.

 

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.  The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.  Contingent rents are charged as expenses in the periods in which they are incurred.

 

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned.  If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.  The Bank reviews to determine whether the leased asset may be impaired.

 

ii) Operating leases

 

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the period of the lease.

 

(l) Non-current assets held for sale

 

Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale.  In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable.  The assets or disposal group that are classified as assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

 

The Bank recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

 

An asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

 


21


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(m) Impairment of non-financial assets

 

The carrying amounts of the Bank’s non-financial assets, other than assets arising from employee benefits, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment.  If any such indication exists, then the asset’s recoverable amount is estimated.  Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

 

The Bank estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Bank estimates the recoverable amount of cash-generating unit (“CGU”).  A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets.  The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.  The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or the CGU.

 

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount.  Impairment losses are recognized in profit or loss.

 

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired.  Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis.  Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.  An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

(n) Non-derivative financial liabilities

 

The Bank recognizes financial liabilities in the separate statement of financial position when the Bank becomes a party to the contractual provisions of the financial liability in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

 

Transaction costs on the financial liabilities at FVTPL are recognized in profit or loss as incurred.

 

i) Financial liabilities designated at FVTPL

 

Financial liabilities can be irrevocably designated as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases, or a group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.  The amount of change in the fair value of the financial liabilities designated at FVTPL that is attributable to changes in the credit risk of that liabilities shall be presented in other comprehensive income.

 


22


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(n) Non-derivative financial liabilities (continued)

 

ii) Financial liabilities at FVTPL

 

Since initial recognition, financial liabilities at FVTPL is measured at fair value, and changes in the fair value are recognized as profit or loss.

 

iii) Other financial liabilities

 

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities.  At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition.  Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

 

The Bank derecognizes a financial liability from the separate statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

 

(o) Equity capital

 

i) Capital stock

 

Capital stock is classified as equity.  Incremental costs directly attributable to the transaction of stock are deducted from equity, net of any tax effects.

 

ii) Hybrid bonds

 

The Bank classifies an issued financial instrument, or its component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument.  Hybrid bonds where the Bank has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation are classified as an equity instrument and presented in equity.

 

(p) Employee benefits

 

i) Short-term employee benefits

 

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service.  When an employee has rendered service to the Bank during an accounting period, the Bank recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

 

ii) Other long-term employee benefits

 

The Bank’s net obligation in respect of other long-term employee benefits that are not expected to be settled wholly before 12 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.


23


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(p) Employee benefits (continued)

 

iii) Retirement benefits: defined benefit plans

 

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.  The Bank’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.

 

The discount rate is the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of the Bank’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.  The Bank 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.

 

iv) Retirement benefits: defined contribution plans

 

The Bank recognizes the contribution expense as an account of severance payments in profit or loss in the period according to the defined contribution plans.

 

ⅴ) Termination benefits

 

Termination benefits are expensed at the earlier of when the Bank can no longer withdraw the offer of those benefits and when the Bank recognizes costs for a restructuring.  If benefits are not expected to be wholly settled within 12 months of the reporting date, then they are discounted.

 

(q) Share-based payment transactions

 

The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.  The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.  For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

 

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment.  The liability is remeasured at each reporting date and at settlement date.  Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.

 

The Bank has granted share-based payment based on Shinhan Financial Group’s share to the employees.  In accordance with a repayment arrangement with Shinhan Financial Group, the Bank is required to pay Shinhan Financial Group for the provision of the share-based payments.  The Bank 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 Bank 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.

 

 

24


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(r) Provisions

 

Provisions are recognized when the Bank has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision.  Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

  

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

 

Provisions shall be used only for expenditures for which the provisions are originally recognized.

 

(s) Financial guarantee contract

 

A financial guarantee contract is a contract that requires the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.  Financial guarantee contracts are recognized initially at their fair value, and the initial fair value is amortized over the life of the financial guarantee contract.  The financial guarantee liability is subsequently measured at the higher of the amount of the best estimate of the expenditure required to settle the present obligation at the end of reporting period; and the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period.  Financial guarantee liabilities are included within other liabilities.

 

From January 1, 2018, after initial recognition, financial guarantee contracts are measured at the higher of:

- Loss allowance in accordance with K-IFRS No.1109, ‘Financial Instruments

- The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of K-IFRS No.1115, ‘Revenue from Contracts with Customers’

 

(t) Recognition of revenues and expenses

 

Other than those under the scope of K-IFRS No.1017, ‘Leases’, K-IFRS No.1109, ‘Financial Instruments’, K-IFRS No.1110, ‘Consolidated Financial Statements’, and K-IFRS No.1111, ‘Joint Arrangements’, the Bank’s revenues are recognized using five-step revenue recognition model as follows: ‘Identifying the contract’ → ‘Identifying performance obligations’ → ‘Determining the transaction price’ → ‘Allocating the transaction price to performance obligations’ → ‘Recognizing the revenue by satisfying performance obligations’.

 


25


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(t) Recognition of revenues and expenses (continued)

 

i) Interest income and expense

 

Interest income and expense are in the scope of K-IFRS No.1109 and recognized in profit or loss using the effective interest method.  The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability or, where appropriate, a shorter period to the net carrying amount of the financial asset or liability.  When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument, but does not consider future credit losses.  The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, and all other premiums or discounts.  When it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Bank uses the contractual cash flows over the full contractual term of the financial instrument.

 

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is thereafter recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

 

ii) Fees and commission

 

The recognition of revenue for financial service fees depends on the purposes for which the fees are assessed and the basis of accounting for any associated financial instrument.

 

Fees that are an integral part of the effective interest rate of a financial instrument.

Such fees are generally treated as an adjustment to the effective interest rate.  Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, preparing and processing documents, closing the transaction and the origination fees received on issuing financial liabilities.  However, when the financial instrument is measured at fair value with the change in fair value recognized in profit or loss, the fees are recognized as revenue when the instrument is initially recognized.

 

Fees earned as services are provided

Fees and commission income, including investment management fees, sales commission, and account servicing fees, are recognized as the related services are provided.

 

Fees that are earned on the execution of a significant act

The fees that are earned on the execution of a significant act including commission on the allotment of shares or other securities to a client, placement fee for arranging a loan between a borrower and an investor and sales commission, are recognized as revenue when the significant act has been completed.

 

iii) Dividends

 

Dividends income is recognized when the shareholder’s right to receive payment is established.  Usually this is the ex-dividend date for equity securities.

 


26


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(u) Income tax

 

Income tax expense comprises current and deferred tax.  Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

 

Shinhan Financial Group, the parent company, files its national income tax return with the Korean tax authorities under the consolidated corporate tax system, which allows it to make national income tax payments based on the consolidated profits or losses of the Shinhan Financial Group and its wholly owned domestic subsidiaries including the Bank.  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 Bank recognizes deferred tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Bank 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 Bank recognizes deferred tax assets for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.  The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Bank expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

 

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduced the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

 

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

 

If any additional income tax expense exists by payment of dividends, the Bank recognizes it when the liability relating to the payment is recognized

 

(v) Accounting for trust accounts

 

The Bank accounts for trust accounts separately from its bank accounts under the Financial Investment Services and Capital Markets Act and thus the trust accounts are not included in the accompanying separate financial statements.  Borrowings from trust accounts are included in other liabilities.  Trust fees and commissions in relation to the service provided to trust accounts by the Bank are recognized as fees and commission income.


27


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(w) Earnings per share

 

The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares.  Basic EPS is calculated by dividing the profit or loss attributable to the ordinary shareholder of the Bank by the weighted average number of common shares outstanding during the period, adjusted for own shares held.  Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

 

(x) New standards and interpretations not yet adopted

 

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

 

The Bank is currently evaluating the effects from the application of these new standards on the separate financial statements.

 

i) K-IFRS No.1116, ‘Leases’

 

K-IFRS No.1116, published on May 22, 2017, replaces existing standards including K-IFRS No.1017, ‘Leases’, K-IFRS No.2104, ‘Determining whether an Arrangement contains a Lease’, K-IFRS No.2015, ‘Operating Leases - Incentives’ and K-IFRS No.2027, ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.

 

At inception of a contract, an entity shall assess whether the contract is, or contains, a lease.  However, as a practical expedient, for the contracts previously identified as leases or not, an entity is not required to reassess whether the contract is, or contains, a lease at the date of initial application.

 

For a contract that is, or contains, a lease, a lessee or a lessor shall account for each lease component within the contract as a lease separately from non-lease components of the contract.

 

A lessee shall recognize a right-of-use asset, which indicates an asset that represents a lessee’s right to use an underlying asset for the lease term, and a lease liability, which indicates obligation to make lease payments.  However, a lessee may elect not to apply the requirements to short-term leases and leases for which the underlying asset is of low value.  Also, as a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

 

There has not been a material change in the accounting treatments for a lessor from the existing standard K-IFRS No.1017.  K-IFRS No.1116 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted.


28


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(x) New standards and interpretations not yet adopted (continued)

 

Transition method of K-IFRS No.1116, ‘Lease’

The lessee is required to apply either retrospective application (full retrospective approach) to each past reporting period presented in accordance with K-IFRS No.1008, ‘Accounting Policies, Changes in Accounting Estimates and Errors’ or recognize the cumulative effect of the initial application at the date of initial application (cumulative effect of batch reconciliation action).

 

The Bank plans to apply K-IFRS No.1116 for the first time by applying cumulative effect of the initial application as of January 1, 2019. Accordingly, the cumulative effect of applying K-IFRS No.1116 is adjusted in the retained earnings (or, where appropriate, other components of equity) at the date of initial application and the comparative financial statements are not going to be restated.

 

Financial effect of K-IFRS No.1116, ‘Lease’

 

The Bank assessed the impact on the separate financial statements based on the situation and available information as of December 31, 2018, in order to assess the financial impact of the initial adoption of K-IFRS No.1116.

 

As of December 31, 2018, the aggregate amount of the minimum lease payments prior to the present value discount for the assets currently used as operating leases is approximately W417 billion and the discounted amount is approximately W404 billion if discounted by the incremental borrowing rate of the lessee. However, the Bank will account for each lease element and associated non-lease element as a single lease element, using the simplified method of accounting for contracts that include all or part of the lease.

 

As a result of a detailed analysis of the effect on the financial statements, the Bank expects the right-to-use assets and lease liabilities as of December 31, 2018 to increase by approximately W408 billion and approximately W367 billion, respectively.

 

ii) Amendment of K-IFRS No.1109, ‘Financial instruments’

 

Financial assets that are redeemable with reimbursable financial assets are remeasured to be measured at amortized cost. When the financial liabilities measured at amortized cost are changed but not eliminated, the effect of the change should be recognized in profit or loss. These amendments will be effective from the fiscal year beginning on or after January 1, 2019 and are subject to early adoption.

 

iii) Amendment of K-IFRS No.1019, ‘Employee benefits’

 

If the change in the defined benefit plan results in the revision, reduction or settlement of the plan, the assumptions used in remeasurement of the net defined benefit obligation (asset) to estimate the current service cost and net interest for the remaining period of the period after the adjustments in the plan. In addition, the decrease in excess of the amount of unrecognized actuarial gain or loss is reflected in profit or loss as a part of past service cost or settlement profit or loss. The amendments are applied prospectively to the amendment, reduction, and settlement of systems that have occurred since the fiscal year beginning on or after January 1, 2019.

 

iv) Amendment of K-IFRS No.1028, ‘Investment in associates and joint ventures’

 

The clarification has been conducted that other financial instruments (financial instruments that do not apply the equity method) to the related companies or joint ventures are subject to K-IFRS No.1109, and that the long-term investment interests that form part of the net investment in the related companies or joint ventures was revised accordingly with the K-IFRS No.1109. These amendments will be effective from the fiscal year beginning on or after January 1, 2019 and are subject to early adoption. In addition, the first-time adoption of this standard does not require reclassification of comparative information by

29


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

applying the transitional provisions of K-IFRS No.1109, and the effect of retroactive application is reflected in the beginning retained earnings (or other appropriate capital elements) at the date of initial application.

 

3.Significant accounting policies (continued)

 

(x) New standards and interpretations not yet adopted (continued)

 

v) Establishment of K-IFRS No.2123, ‘Uncertainty over income tax treatments’

 

The interpretation is applied to the recognition and measurement of deferred tax and deferred income tax if there is uncertainty about whether or not the tax treatment applied by the entity will be recognized by the taxing authority.  Guidance on accounting units of uncertainty in taxation and circumstances requiring reevaluation Includes. The interpretation is effective from January 1, 2019, and it can choose between retroactively reclassifying comparative financial statements or reflect the effect of the change on the basis of the first year of adoption.

 

vi) Annual amendments through year 2015 – 2017

 

vi-i) K-IFRS No.1103, ‘Business combination’

 

The business combination that is held in stages to acquire control over the joint business (meeting the definition of the business) while retaining the rights and liabilities for the assets related to the joint business. Therefore, Remeasurement should be conducted for all underlying assets and liabilities. The amendments are effective for annual periods beginning on or after January 1, 2019, or reflect the effect of the change on the basis of the first year of adoption.

 

vi-ii) K-IFRS No.1012, ‘Income taxes’

 

The provisions of paragraph 57A of K-IFRS No.1012 (defining the timing and recognition of dividend tax effects) apply to all income tax effects of dividends and are recognized in profit or loss, other comprehensive income or capital. This amendment is effective for fiscal years beginning on or after January 1, 2019, but may be applied early.

 

(y) Accounting policies in accordance with K-IFRS No.1039

 

The following accounting policies are applied to the comparative separate statements of financial position as of December 31, 2017, and the separate statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes.

 

i) Non-derivative financial assets

 

Financial assets are classified into financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets and held-to-maturity financial assets.  Financial assets are recognized when the Bank becomes a party to the contractual provisions of the instrument.  In addition, a regular way purchase or sale (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market concerned) is recognized on the trade date.

 

A financial asset is measured initially at its fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition of the financial asset.

 

Financial assets at fair value through profit or loss

 

A financial asset is classified as at fair value through profit or loss if it is held for trading or is designated at fair value through profit or loss.  Upon initial recognition, transaction costs are recognized in profit or loss when incurred.  Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

30


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(y) Accounting policies in accordance with K-IFRS No.1039 (continued)

 

Held-to-maturity financial assets

 

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Bank has the positive intention and ability to hold to maturity, is classified as held-to-maturity investments.  Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.

 

Loans and receivables

 

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.  Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method.

 

Available-for-sale financial assets

 

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables.  Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity.  Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives those are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.

 

ii) Impairment of financial assets

 

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired.  A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.  However, losses expected as a result of future events, regardless of likelihood, are not recognized.

 

If any objective evidence of impairment exists, impairment losses should be measured by the following categories of financial assets and recognized in profit or loss.

 

Loans

 

The Bank first assesses whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for financial assets that are not individually significant.  If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.  Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

 

If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition).


31


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(y) Accounting policies in accordance with K-IFRS No.1039 (continued)

 

If the interest rate of loans is a floating rate, the discount rate used to evaluate impairment is the current effective interest rate defined in the agreement.  The present value of estimated future cash flows of secured financial assets is calculated by including cash flows from collateral after deducting costs to acquire and sell the collateral, regardless of probability of realization of such collateral.

 

In assessing collective impairment, the Bank classifies loans, based on credit risk assessment or a credit rating assessment process that takes into account asset type, industry, regional location, collateral type, delinquency and other relative factors.

 

Future cash flows of loans subject to collective impairment assessment are estimated by using statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of losses incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the impairment losses are likely to be greater or less than suggested by historical modelling.  In adjusting the future cash flows by historical modelling, the result has to be in line with changes and trends of observable data (e.g., impairment losses of collective assets and unemployment rates, asset prices, commodity prices, payment status and other variables representing the size of impairment losses).  Methodologies and assumptions used to estimate future cash flow are reviewed on a regular basis in order to reduce discrepancy between estimated impairment losses and actual loss.

 

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

 

Available-for-sale financial assets

 

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

 

Held-to-maturity financial assets

 

An impairment loss in respect of held-to-maturity financial assets measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is recognized in profit or loss.  Interest on the impaired asset continues to be recognized through the unwinding of the discount.  When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.


32


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(y) Accounting policies in accordance with K-IFRS No.1039 (continued)

 

iii) Derivative financial instruments

 

Derivatives are initially recognized at fair value.  Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

 

Hedge Accounting

 

The Bank holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk.  The Bank designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge), and foreign currency risk of net investment in foreign operation (net investment hedges).

 

On initial designation of the hedge, the Bank formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

 

Fair value hedges

 

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss.  The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the separate statement of comprehensive income.

 

The Bank discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting.  Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

 

Cash flow hedges

 

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity.  The amount recognized in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the separate statements of comprehensive income as the hedged item.  Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

 

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively.  The cumulative gain or loss previously recognized in other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction affects profit or loss.  When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized.  If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.  In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.


33


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

3.Significant accounting policies (continued)

 

(y) Accounting policies in accordance with K-IFRS No.1039 (continued)

 

iii) Derivative financial instruments (continued)

 

Hedge of net investment

 

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective.  To the extent that the hedge is ineffective, such differences are recognized in profit or loss.  When the hedged part of a net investment is disposed of, the relevant amount in the accumulated other comprehensive income is transferred to profit or loss as part of the profit or loss on disposal in accordance with K-IFRS No.1021, ‘The Effects of Changes in Foreign Exchange Rates’.

 

Embedded derivatives

 

Embedded derivatives are separated from the host contract and accounted for separately only if the economic characteristics and risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not measured at fair value through profit or loss.  Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

 

Other derivative financial instruments

 

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

 

 


34


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

4.Financial risk management

 

4-1.Credit risk

 

Credit risk is the risk of financial loss of the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligation, and arises principally from due from banks, the lending process related to loans, investment activities in debt securities and off balance sheet items including loan commitments, etc.  Credit risk management is critical to the Bank’s business activities; thus, the Bank carefully manages the credit risk exposure.

 

(a) Credit risk management

 

 

Major policies of the credit risk management are determined by the Risk Policy Committee, which is the Bank’s executive decision-making body for credit risk management.  The Risk Policy Committee is led by the Bank’s Deputy President and Head of Risk Management Group.  The Risk Policy Committee also consists of chief officers from eight different business units.  The Credit Review Committee performs credit review evaluations and operates separately from the Risk Policy Committee.

 

Each business unit is required to implement the Bank’s risk management policies and procedures.  Risk Management Department reviews compliance of business units with agreed exposure limits established by the Risk Policy Committee, including those for selected industries, country risk and product types.

 

The Bank established the authorization structure for the approval and renewal of credit facilities.  Authorization limits are allocated to the business unit credit officer.  Larger facilities require approval by the Credit Committee.  The Bank assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned.  Renewals and review of facilities are subject to the same review process.

 

The Bank is responsible for limiting concentrations of exposures to counterparties, geographies and industries, and by issuers, credit rating band, market liquidity and country.

 

The Bank develops and maintains the risk grading system in order to categorize exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks.  The risk grading system is used in determining credit approvals, credit renewals, credit pricing, credit limits, or where impairment provisions may be required against specific credit exposures for existing loans.

 

Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolio, including those subject to central approval.  In addition to periodic loan reviews by credit officers, the Bank also utilizes an automated monitoring tool which conducts searches for companies with high probability of default.  Regular reports on the credit quality of local portfolios are provided to the Credit Administration Department who may require appropriate corrective action to be taken.

 

 


 

35


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(b) Risk management and risk mitigation policy

 

In order to control the credit risk of the Bank at an appropriate level, the following risk management system is established and operated.

 

- Credit risk limits are set and managed by business sector, customer, product, industry, etc. based on credit VaR (Value at Risk) and maximum exposure amount.

- The risk department establishes and manages limits for credit VaR, and maximum exposure limits. The credit planning department and the credit assessment department conduct maximum exposure limits.

- The risk engineering department and risk engineering department establishes a credit risk limit operation plan for the entire bank at least once a year, and commits it to the risk policy committee.

- Each business unit monitors and adheres to credit risk limits assigned to each business unit.

- Identify and manage by individual and corporate customers, industry and nationality for identified credit risk.

- Set limits on acceptable risks for individual borrowers or borrowers, and by geographical sectors.

- The risk is reviewed on an annual basis or within a period when it is deemed necessary, and the limits of risks by product, industry and country are approved by the Board on a quarterly basis.

- The maximum amount of exposure by the borrower, including the institution, is managed separately by the lower level limit for the accounts in the consolidated financial statements and the other accounts, and the limit of the risk is also determined for daily transactions related to commodity transactions such as foreign currency forward transactions.

- Actual maximum exposure limits is managed on a daily basis.

- Maximum credit risk exposure is managed in the process of analyzing the interest and principal repayment ability of the borrower, and if necessary, changes the loan limit in the process.

 

Other risk management measures are as follows.

 

i) Collateral

 

The Bank has adopted policies and procedures to mitigate credit risk. In connection with credit risk, collateral is generally used, and the Bank has adopted a policy for pledging certain types of assets. The main types of collateral are as follows:

- Mortgage

- Real estate, inventories, accounts receivable, etc.

- Financial instruments such as debt securities and equity securities

 

Long-term loans are generally collateralized. On the other hand, revolving personal loans are generally unsecured. In addition, in order to minimize losses due to credit risk, the Bank establishes additional collateral for the counterparty in the event of an indication of impairment of the asset.

 

Collateral for financial assets other than loans is subject to the nature of the products. Except for special cases such as Asset Backed Securities (ABS), unsecured securities are common in the case of debt securities.

 

ii) Derivative financial instruments

 

The Bank maintains a credit limit on the amount and duration of derivative financial instruments that are in between the disposal agreements after purchase.

 


36


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

iii) Collective offsetting contract

 

The Bank limits its maximum exposure to credit losses by engaging in collective offsetting contracts with counterparties in performing significant number of transactions.

 

Collective offsetting contracts generally do not result from offsetting assets and liabilities in the consolidated financial statements, as transactions are usually set at a gross amount basis. However, when all amounts to the counterparty are set on a net basis, the credit risk associated with a favorable contract is reduced by collective offsetting contracts if losses are incurred.

 

The Bank's overall maximum exposure to credit risk that is part of a collective offsetting contract can vary substantially within a short period of time because it is affected by each transaction.

 

iv) Credit related contracts

 

Warranties and credit guarantees have credit risks similar to credit. Credit (which guarantees credit on behalf of the customer by issuing a note to a third party for the amount requested under specific terms and conditions) is secured by the underlying commodities associated with them, it involves less risk. The credit enhancement arrangements represent the unused portion of the credit limit in the form of a credit, guarantee or letter of credit. In relation to the credit risk of a credit enhancement arrangement, the Bank is potentially exposed to the same amount as the total unused arrangements. Long-term contracts generally have a greater degree of credit risk than short-term, and the Bank monitors the maturity of credit arrangements.

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model)

 

i) Determining significant increases in credit risk since initial recognition

 

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

 

Measuring the risk of default

 

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

 

The internal credit risk rating based on the borrower’s information related to each individual exposures on initial recognition, may change depending on the results of continuing monitoring and reviews.

 

 

 

37


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

 

Measuring term structure of probability of default

 

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

 

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

 

Significant increases in credit risk

 

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


38


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

 

Corporate exposures

 

Retail exposures

 

 

 

Significant change in credit ratings

 

Significant change in credit ratings

Continued past due more than 30 days

 

Continued past due more than 30 days

Loan classification of precautionary and below

 

Loan classification of precautionary and below

Borrower with early warning signals

 

Borrower with early warning signals

Negative net assets

 

Specific pool segment

Adverse audit opinion or disclaimer of opinion

 

Collective loans for housing for which the constructors are insolvent

Interest coverage ratios of below 1 for consecutive

three years

 

 

Negative cash flows from operating activities for

consecutive two years

 

 

 

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

 

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

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

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

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

ii) Modified financial assets

 

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

 

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

 

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

39


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

 

iii) Risk of default

 

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

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

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

 

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

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

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

- internal data and external data

 

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

 

iv) Reflection of forward-looking information

 

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

 

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

 

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

 

 

Key macroeconomic variables

 

Correlation with credit risk

 

 

 

Economic growth

 

Negative

Consumer price change rates

 

Positive

Benchmark rate

 

Positive

3-year Korea Treasury Bond

 

Positive

3-year Corporate Bond

 

Positive

KOSPI

 

Negative

 

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

 


40


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

 

v) Measurement of expected credit losses

 

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

 

- Probability of default (PD)

- Loss given default (LGD)

- Exposure at default (EAD)

 

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

 

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

 

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

 

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

 

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

 

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

- Type of products

- Internal credit risk rating

- Type of collateral

- Loan to value (LTV)

- Industry that the borrower belongs to

- Location of the borrower or collateral

- Days of delinquency

 

41


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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


42


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

 

vi) Write-off of financial assets

 

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

 


43


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(d) Maximum exposure to credit risk

 

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

 

 

 

December 31, 2018

Due from banks (*1)(*2):

 

 

Banks

W

3,247,581

Governments

 

3,691,184

 

 

6,938,765

Loans at amortized cost (*1)(*2):

 

 

Banks

 

8,651,580

Retail

 

 

Mortgage lending

 

44,366,805

Others

 

74,916,473

 

 

119,283,278

Governments

 

690,658

Corporate

 

 

Large enterprises

 

25,970,091

Small and medium-sized enterprises

 

74,418,254

Special finance

 

4,231,473

Others

 

942

 

 

104,620,760

 

 

233,246,276

Loans at FVTPL:

 

 

Banks

 

 

Corporate

 

20,004

Large enterprises

 

319,918

Small and medium-sized enterprises

 

305,315

 

 

625,233

 

 

645,237

Securities at FVTPL:

 

 

Debt securities

 

12,607,677

Gold/silver deposits

 

154,881

 

 

12,762,558

Securities at FVOCI (*1)

 

30,293,475

Securities at amortized cost (*1)

 

16,230,964

Derivative assets

 

1,488,548

Other financial assets (*1)(*3)

 

13,931,897

Off balance sheet items:

 

 

Financial guarantee contracts

 

8,334,092

Loan commitments and other liabilities for credit

 

87,175,322

 

 

95,509,414

 

W

411,047,134

 

 

(*1)

The maximum exposure amounts for due from banks and loans and other financial assets are measured as the amount net of allowances.

(*2) Due from banks and loans were classified as similar credit risk group to be with consistent calculating capital adequacy ratio under New Basel Capital Accord (Basel III).

44


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

(*3) Other financial assets comprise accounts receivable, accrued income, guarantee deposits, domestic exchange settlements receivables, suspense receivables, etc.

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(d) Maximum exposure to credit risk (continued)

 

 

 

December 31, 2017

Due from banks and loans (*1)(*2):

 

 

Banks

W

8,097,495

Retail

 

 

Mortgage lending

 

45,041,694

Others

64,766,924

 

 

109,808,618

Governments

 

12,676,706

Corporate

 

 

Large enterprises

 

26,373,770

Small and medium-sized enterprises

 

69,394,851

Special finance

 

3,687,709

Others

 

465

 

 

99,456,795

 

 

230,039,614

Trading assets:

 

 

Debt securities

 

8,341,580

Gold/silver deposits

 

189,297

 

 

8,530,877

 

 

 

Derivative assets

 

2,602,689

Available-for-sale financial assets:

 

 

Debt securities

 

28,423,684

Held-to-maturity financial assets:

 

 

Debt securities

 

14,358,584

Other financial assets (*1)(*3)

 

8,764,314

Off balance sheet items:

 

 

Financial guarantee contracts

 

6,452,931

Loan commitments and other liabilities for credit

 

70,271,358

 

 

76,724,289

 

W

369,444,051

 

 

(*1)

The maximum exposure amounts for due from banks and loans and other financial assets are measured as the amount net of allowances.

(*2) Due from banks and loans were classified as similar credit risk group to be with consistent calculating capital adequacy ratio under New Basel Capital Accord (Basel III).

(*3) Other financial assets comprise accounts receivable, accrued income, guarantee deposits, domestic exchange settlements receivables, suspense receivables, etc.

 

 


45


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(e) Credit risk exposure by credit risk grade

 

 

i) The maximum exposure of financial instruments to credit risk by credit risk grade as of December 31, 2018 was as follows:

 

 

12-month expected loss

 

Life time expected loss

 

Total

 

Allowances

 

Net

 

Mitigation of credit risk due to collateral

Grade 1 (*2)

 

Grade 2 (*2)

Grade 1 (*2)

 

Grade 2 (*2)

 

Impaired

Due from banks:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

W

3,250,553

 

-

 

2,060

 

-

 

-

 

3,252,613

 

(5,032)

 

3,247,581

 

-

Governments

 

3,693,500

 

-

 

-

 

-

 

-

 

3,693,500

 

(2,316)

 

3,691,184

 

-

 

 

6,944,053

 

-

 

2,060

 

-

 

-

 

6,946,113

 

(7,348)

 

6,938,765

 

-

Loans at amortized cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

 

7,320,003

 

1,221,132

 

91,050

 

36,650

 

-

 

8,668,835

 

(17,255)

 

8,651,580

 

52,699

Retail

 

107,433,391

 

4,136,924

 

4,816,542

 

2,897,068

 

339,582

 

119,623,507

 

(340,229)

 

119,283,278

 

70,422,264

Governments

 

688,758

 

2,399

 

-

 

-

 

-

 

691,157

 

(499)

 

690,658

 

-

Corporate

 

70,283,143

 

16,834,444

 

9,028,895

 

8,939,500

 

667,266

 

105,753,248

 

(1,132,488)

 

104,620,760

 

64,752,435

 

 

185,725,295

 

22,194,899

 

13,936,487

 

11,873,218

 

1,006,848

 

234,736,747

 

(1,490,471)

 

233,246,276

 

135,227,399

Securities at FVOCI (*1)

 

26,035,479

 

4,155,354

 

-

 

102,642

 

-

 

30,293,475

 

-

 

30,293,475

 

-

Securities at amortized cost

 

15,957,707

 

276,857

 

-

 

-

 

-

 

16,234,564

 

(3,600)

 

16,230,964

 

-

 

W

234,662,534

 

26,627,110

 

13,938,547

 

11,975,860

 

1,006,848

 

288,210,899

 

(1,501,419)

 

286,709,480

 

135,227,399

 

(*1) Provision for credit loss allowance recognized in other comprehensive income on securities at FVOCI is W18,228 million.

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

 

Type of Borrower

 

Grade 1

 

Grade 2

Governments

 

OECD sovereign credit rating of 6 or above (as applied to the nationality of the governments)

 

OECD sovereign credit rating of below 6 (as applied to the nationality of the governments)

 

Retail

 

Pool of retail loans with probability of default of less than 2.25%

 

 

Pool of retail loans with probability of default of 2.25% or more

Banks and Corporations

 

Internal credit rating of BBB+ or above

 

 

Internal credit rating of below BBB+

(Probability of default for loans with internal credit rating of BBB is 2.25%)

 

 


46


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(e) Credit risk exposure by credit risk grade (continued)

 

ii) Credit risk exposure per credit grade of off-balance sheet items as of December 31, 2018 was as follows:

 

 

 

December 31, 2018

 

 

12-month expected

credit loss

 

Life time expected

credit loss

 

Impaired

 

Total

Financial guarantee:

 

 

 

 

 

 

 

 

Grade 1

W

3,467,118

 

237,277

 

-

 

3,704,395

Grade 2

 

4,512,789

 

114,001

 

-

 

4,626,790

Impaired

 

-

 

-

 

2,907

 

2,907

 

 

7,979,907

 

351,278

 

2,907

 

8,334,092

Loan commitment and
other credit line

 

 

 

 

 

 

 

 

Grade 1

 

69,013,564

 

2,942,543

 

-

 

71,956,107

Grade 2

 

14,308,173

 

911,042

 

-

 

15,219,215

Impaired

 

-

 

-

 

-

 

-

 

 

83,321,737

 

3,853,585

 

-

 

87,175,322

 

W

91,301,644

 

4,204,863

 

2,907

 

95,509,414

 

 


47


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(e) Credit risk exposure by credit risk grade (continued)

 

iii) Credit risk exposure per collateral of financial instruments as of December 31, 2018 was as follows:

 

 

 

December 31, 2018

 

 

12-month expected

credit loss

 

Life time expected

credit loss

 

Impaired

 

Total

Guarantees

W

11,938,869

 

3,776,603

 

50,050

 

15,765,522

Deposits and savings

 

482,588

 

168,852

 

677

 

652,117

Property and equipment

 

1,057,611

 

244,824

 

18,766

 

1,321,201

Real estate

 

108,171,262

 

13,232,976

 

242,851

 

121,647,089

 

W

121,650,330

 

17,423,255

 

312,344

 

139,385,929

 

 

iv) Credit risk exposure per LTV of mortgage loans as of December 31, 2018 was as follows:

 

 

 

December 31, 2018

 

Total

 

 

40% or less

 

Above 40% ~ 60%

 

Above 60% ~ 80%

 

Above 80% ~ 100%

 

Other

 

Loans at amortized cost

W

16,673,201

 

14,676,043

 

12,155,973

 

437,967

 

432,378

 

44,375,562

Less: allowance

 

(1,049)

 

(1,947)

 

(4,699)

 

(728)

 

(334)

 

(8,757)

 

W

16,672,152

 

14,674,096

 

12,151,274

 

437,239

 

432,044

 

44,366,805

 

 

v) Due from banks and loans as of December 31, 2017 was as follows:

 

 

 

December 31, 2017

 

 

Banks

 

Retail

 

Governments

 

Corporate

 

Total

Neither past due nor impaired

W

8,105,667

 

109,455,034

 

12,678,684

 

99,444,170

 

229,683,555

Past due but not impaired

 

-

 

402,755

 

-

 

126,385

 

529,140

Impaired

 

-

 

305,237

 

-

 

848,178

 

1,153,415

 

 

8,105,667

 

110,163,026

 

12,678,684

 

100,418,733

 

231,366,110

Less: allowance

 

(8,172)

 

(354,408)

 

(1,978)

 

(961,938)

 

(1,326,496)

 

W

8,097,495

 

109,808,618

 

12,676,706

 

99,456,795

 

230,039,614

 


48


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(e) Credit risk exposure by credit risk grade (continued)

 

 

vi)

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

 

 

 

 

December 31, 2017

 

 

Banks

 

Retail

 

Governments

 

Corporate

 

Total

Grade 1

W

8,100,310

 

103,412,359

 

12,678,684

 

74,167,105

 

198,358,458

Grade 2

 

5,357

 

6,042,675

 

-

 

25,277,065

 

31,325,097

 

 

8,105,667

 

109,455,034

 

12,678,684

 

99,444,170

 

229,683,555

Less: allowance

 

(8,172)

 

(173,564)

 

(1,978)

 

(463,242)

 

(646,956)

 

W

8,097,495

 

109,281,470

 

12,676,706

 

98,980,928

 

229,036,599

Mitigation of credit

risk due to collateral

W

96,660

 

71,056,560

 

-

 

55,353,502

 

126,506,722

 

vii) Aging analysis of due from banks and loans that were past due but not impaired as of December 31, 2017 was as follows:

 

 

December 31, 2017

 

 

Retail

 

Corporate

 

Total

Less than 30 days

W

300,567

 

83,575

 

384,142

30 days ~ less than 60 days

 

50,390

 

27,397

 

77,787

60 days ~ less than 90 days

 

36,402

 

15,268

 

51,670

90 days or more

 

15,396

 

145

 

15,541

 

 

402,755

 

126,385

 

529,140

Less: allowance

 

(41,594)

 

(6,648)

 

(48,242)

 

W

361,161

 

119,737

 

480,898

Mitigation of credit risk due to collateral

W

295,663

 

79,790

 

375,453

 

 


49


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(e) Credit risk exposure by credit risk grade (continued)

 

viii) Mitigation of credit risk due to the collateral of impaired due from banks and loans, net of allowance, as of December 31, 2017 was as follows:

 

 

December 31, 2017

 

 

Retail

 

Corporate

 

Total

Impaired

W

305,237

 

848,178

 

1,153,415

Less: allowance

 

(139,250)

 

(492,048)

 

(631,298)

 

W

165,987

 

356,130

 

522,117

Mitigation of credit risk due to collateral

W

117,008

 

325,415

 

442,423

 

 

ix) Credit ratings of debt securities as of December 31, 2017 was as follows:

 

 

December 31, 2017

 

 

Trading assets

 

Available-for-sale financial assets

 

Held-to-maturity financial assets

 

Total

AAA

W

1,526,987

 

21,647,229

 

13,789,641

 

36,963,857

AA- to AA+

 

297,378

 

2,849,486

 

241,138

 

3,388,002

A- to A+

 

2,578,469

 

2,003,773

 

130,293

 

4,712,535

BBB- to BBB+

 

660,258

 

1,146,510

 

152,212

 

1,958,980

Lower than BBB-

 

37,979

 

99,848

 

-

 

137,827

Unrated

 

3,240,509

 

676,838

 

45,300

 

3,962,647

 

W

8,341,580

 

28,423,684

 

14,358,584

 

51,123,848

 

x) The credit quality of debt securities according to the credit ratings by external rating agencies as of December 31, 2017 was as follows:

 

 

 

KIS (*1)

 

KR (*2)

 

S&P

 

Fitch

 

Moody's

AAA

 

-

 

-

 

AAA

 

AAA

 

Aaa

AA- to AA+

 

AAA

 

AAA

 

AA- to AA+

 

AA- to AA+

 

Aa3 to Aa1

A- to A+

 

AA- to AA+

 

AA- to AA+

 

A- to A+

 

A- to A+

 

A3 to A1

BBB- to BBB+

 

BBB- to A

 

BBB- to A

 

BBB- to BBB+

 

BBB- to BBB+

 

Baa3 to Baa1

Lower than BBB-

 

Lower than BBB-

 

Lower than BBB-

 

Lower than BBB-

 

Lower than BBB-

 

Lower than Baa3

Unrated

 

Unrated

 

Unrated

 

Unrated

 

Unrated

 

Unrated

 

(*1) KIS: Korea Investors Service

(*2) KR: Korea Ratings

 

xi) Information related to impairment for debt securities as of December 31, 2017 was as follows:

 

 

December 31, 2017

 

Neither past due nor impaired

W

51,123,848

 

 


50


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(f) Nature and effect of modification in contractual cash flows

 

i) For the financial assets for which the loss allowances have been measured at amounts equal to the lifetime credit losses, and the contractual cash flows were modified during the year ended December 31, 2018, the amortized costs before modification amounted to W45,178 million and the net losses resulting from the modification amounted to W14,953 million.

 

ii) As of December 31, 2018, the book value of financial asset, for which contractual cash flows have been modified while the loss allowance was measured at an amount equal to lifetime expected credit losses at initial recognition, and the loss allowance reverted to being measured at an amount equal to 12-month expected credit losses during the year ended December 31, 2018, is W1,159 million.

 

(g) The contractual amounts outstanding on financial assets that were written-off but were still subject to enforcement activity as of December 31, 2018, were W5,826,359 million.

 

(h) As of December 31, 2018 and 2017, there were no assets acquired by the execution of collateral.

 

(i) Concentration by geographic location

 

An analysis of concentration by geographic location for financial assets excluding equity securities, net of allowance, as of December 31, 2018 and 2017 was as follows:

 

 

 

December 31, 2018

 

 

Korea

 

U.S.A

 

Japan

 

Vietnam

 

China

 

Other

 

Total

Due from banks: (*1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

W

21,987

 

1,371,202

 

403,993

 

200

 

995,133

 

455,066

 

3,247,581

Governments

 

3,165,755

 

406,066

 

-

 

-

 

-

 

119,363

 

3,691,184

 

 

3,187,742

 

1,777,268

 

403,993

 

200

 

995,133

 

574,429

 

6,938,765

Loans at amortized cost:

 

 

 

 

 

 

 

 

 

 

 

-

 

 

Banks

 

4,745,630

 

-

 

330,246

 

616,566

 

770,744

 

2,188,394

 

8,651,580

Retail

 

118,292,044

 

200,879

 

10,314

 

2,440

 

505,280

 

272,321

 

119,283,278

Governments

 

688,261

 

-

 

-

 

-

 

-

 

2,397

 

690,658

Corporate

 

98,435,820

 

1,335,026

 

28,599

 

744,997

 

426,835

 

3,649,483

 

104,620,760

 

 

222,161,755

 

1,535,905

 

369,159

 

1,364,003

 

1,702,859

 

6,112,594

 

233,246,276

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

Loans at FVTPL

 

645,237

 

-

 

-

 

-

 

-

 

-

 

645,237

Securities at FVTPL

 

12,385,509

 

53,863

 

27,064

 

-

 

38,992

 

257,140

 

12,762,558

Securities at FVOCI

 

28,819,245

 

594,247

 

131,092

 

-

 

258,461

 

490,430

 

30,293,475

Securities at amortized cost

 

16,037,112

 

2,233

 

-

 

-

 

-

 

191,619

 

16,230,964

 

W

283,236,600

 

3,963,516

 

931,308

 

1,364,203

 

2,995,445

 

7,626,203

 

300,117,275

 

 

 

December 31, 2017

 

 

Korea

 

U.S.A

 

Japan

 

Vietnam

 

China

 

Other

 

Total

Due from banks and loans:

(*1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

W

2,645,432

 

900,005

 

394,473

 

186,427

 

2,058,805

 

1,912,353

 

8,097,495

Retail

 

109,126,084

 

191,600

 

9,275

 

1,149

 

297,004

 

183,506

 

109,808,618

Governments

 

12,481,972

 

75,194

 

-

 

-

 

-

 

119,540

 

12,676,706

Corporate

 

94,146,599

 

1,081,928

 

250

 

542,682

 

421,512

 

3,263,824

 

99,456,795

 

 

218,400,087

 

2,248,727

 

403,998

 

730,258

 

2,777,321

 

5,479,223

 

230,039,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading assets

 

8,341,580

 

-

 

-

 

-

 

-

 

189,297

 

8,530,877

Available-for-sale financial assets

 

27,458,550

 

391,046

 

96,087

 

-

 

110,167

 

367,834

 

28,423,684

Held-to-maturity financial assets

 

14,188,930

 

10,544

 

-

 

-

 

-

 

159,110

 

14,358,584

 

W

268,389,147

 

2,650,317

 

500,085

 

730,258

 

2,887,488

 

6,195,464

 

281,352,759

(*1) Geographical breakdown is the net book value, net of unrecognized balances and allowance for doubtful accounts.

51


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-1.Credit risk (continued)

 

(j) Concentration by industry sector

 

An analysis of concentration by industry sector for financial instruments excluding equity securities, net of allowance, as of December 31, 2018 and 2017 was as follows:

 

 

 

December 31, 2018

 

 

Finance and insurance

 

Manu-

facturing

 

Retail and wholesale

 

Real estate and service

 

Others

 

Retail customers

 

Total

Due from banks: (*1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

W

3,247,581

 

-

 

-

 

-

 

-

 

-

 

3,247,581

Governments

 

3,691,184

 

-

 

-

 

-

 

-

 

-

 

3,691,184

 

 

6,938,765

 

-

 

-

 

-

 

-

 

-

 

6,938,765

Loans at amortized cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

 

8,372,012

 

-

 

-

 

300

 

279,268

 

-

 

8,651,580

Retail

 

-

 

-

 

-

 

-

 

-

 

119,283,278

 

119,283,278

Governments

 

690,658

 

-

 

-

 

-

 

-

 

-

 

690,658

Corporate

 

3,643,353

 

39,668,341

 

14,949,785

 

21,294,789

 

25,064,492

 

-

 

104,620,760

 

 

12,706,023

 

39,668,341

 

14,949,785

 

21,295,089

 

25,343,760

 

119,283,278

 

233,246,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans at FVTPL

 

62,005

 

178,827

 

208,633

 

20,004

 

175,768

 

-

 

645,237

Securities at FVTPL

 

8,911,044

 

723,917

 

992,374

 

47,772

 

2,087,451

 

-

 

12,762,558

Securities at FVOCI

 

18,870,104

 

1,414,471

 

242,857

 

331,204

 

9,434,839

 

-

 

30,293,475

Securities at amortized cost

 

4,451,530

 

36,519

 

-

 

61,275

 

11,681,640

 

-

 

16,230,964

 

W

51,939,471

 

42,022,075

 

16,393,649

 

21,755,344

 

48,723,458

 

119,283,278

 

300,117,275

 

(*1) Industrial breakdown is the net book value, net of unrecognized balances and allowance for doubtful accounts.

 

 

 

December 31, 2017

 

 

Finance and insurance

 

Manu-

facturing

 

Retail and wholesale

 

Real estate and service

 

Others

 

Retail customers

 

Total

Due from banks and loans: (*1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banks

W

7,424,094

 

-

 

-

 

56,744

 

616,657

 

-

 

8,097,495

Retail

 

-

 

-

 

-

 

-

 

-

 

109,808,618

 

109,808,618

Governments

 

12,620,413

 

1,314

 

-

 

-

 

54,979

 

-

 

12,676,706

Corporate

 

2,551,472

 

36,852,811

 

14,080,441

 

18,543,513

 

27,428,558

 

-

 

99,456,795

 

 

22,595,979

 

36,854,125

 

14,080,441

 

18,600,257

 

28,100,194

 

109,808,618

 

230,039,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading assets

 

6,090,029

 

512,950

 

1,018,560

 

4,989

 

904,349

 

-

 

8,530,877

Available-for-sale financial assets

 

19,570,667

 

873,498

 

125,235

 

441,137

 

7,413,147

 

-

 

28,423,684

Held-to-maturity financial assets

 

4,424,674

 

29,999

 

-

 

62,129

 

9,841,782

 

-

 

14,358,584

 

W

52,681,349

 

38,270,572

 

15,224,236

 

19,108,512

 

46,259,472

 

109,808,618

 

281,352,759

 

(*1) Industrial breakdown is the net book value, net of unrecognized balances and allowance for doubtful accounts.

 


52


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-2.Market risk

 

Market risk is the risk that changes in market price such as interest rates, equity prices, and foreign exchange rates, etc. will affect the Bank’s income.  Trading position is exposed to the risk such as interest rates, equity prices, foreign exchange rates, etc. and non-trading position is mainly exposed to interest rates. The Bank separates and manages its exposure to market risk between trading and non-trading position.

 

Overall authority for market risk is vested in the Risk Policy Committee.   The Risk Management Department is responsible for the development of detailed risk management policies which are subject to review and approval by the Risk Policy Committee and for the day-to-day review of their implementation.  The Risk Policy Committee also sets Value at Risk (VaR) limit, damage limit, sensitivity limit, investment limits, position limits, and stress damage limits of each department and desk.  The Risk Management Department monitors operation departments and reports regularly to the Risk Policy Committee and the Risk Management Committee.

 

Before launching a new product from each business unit, the Bank is required to perform an objective analysis of the risk evaluation and examination of fair value measurement method from the Risk Management Department or Fair Value Evaluation Committee.  The Derivative and Structured Product Risk Review Committee reviews the related risk exposure and investment limit.

 

(a) Market risk management of trading positions

 

Trading position includes securities, foreign exchange position, and derivatives which are traded for profits.

 

Trading data of foreign exchange, stocks, bonds and derivatives from trading positions are tracked and daily risk limits are systematically monitored based on the Bank’s risk management parameters.  Statistical analysis that complements the above risk management process and stress testing is performed regularly in order to manage the impact and loss of rapid economic changes.  These risk management processes enable the Bank to manage the scale of potential losses within a certain range when a crisis occurs.

 

i) Measurement method on market risk arising from trading positions

 

The principal tool used to measure and control market risk exposure within the Bank’s trading positions is VaR.  The VaR of a trading position is the estimated loss that will arise on the portfolio over a specified period of time (ten days holding period) from an adverse market movement with a specified probability (confidence level).  The Bank measures market risk based on 99.9% confidence level by using the VaR model based on historical simulation.

 

VaR is a commonly used market risk management technique.  However, VaR estimates possible losses over a certain period at a particular confidence level using the historical market movement data.  The use of historical market movement data as a basis for determining the possible range of future outcome may not always cover all possible scenarios, especially those of an exceptional nature.  VaR models assume that a holding period of generally one to ten days is sufficient prior to liquidating the underlying positions, but this may not be the case for certain highly illiquid assets or in situations in which there is severe general market illiquidity.

 

53


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-2.Market risk (continued)

 

(a) Market risk management of trading positions (continued)

 

The Bank directly applies the historical changes in interest rates, equity prices, and foreign exchange rates to current position.  The actual outputs are regularly monitored by testing the effectiveness of assumptions, measurements and parameter.  The application of this method does not prevent loss from larger market movement that exceeds the acceptable parameter.

 

VaR limit related to the operation of trading and non-trading portfolio is determined by management annually.  VaR is measured at least daily. The quality of VaR model is monitored consistently by examining the VaR results related to trading book.

 

ii) VaR of trading positions

 

An analysis of trading position VaR for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

 

Average

 

Maximum

 

Minimum

 

Year-end

Interest rate risk

W

22,559

 

29,748

 

16,194

 

18,797

Equity risk

 

12,118

 

25,701

 

1,976

 

22,212

Foreign currency risk (*1)

 

39,282

 

45,738

 

34,162

 

34,294

Volatility risk

 

131

 

511

 

30

 

261

Commodity risk

 

17

 

61

 

-

 

24

Covariance

 

(30,150)

 

(44,297)

 

(14,337)

 

(21,298)

 

W

43,957

 

57,462

 

38,025

 

54,290

 

 

 

2017

 

 

Average

 

Maximum

 

Minimum

 

Year-end

Interest rate risk

W

38,370

 

50,206

 

22,226

 

25,071

Equity risk

 

4,051

 

5,622

 

3,040

 

4,675

Foreign currency risk (*1)

 

43,827

 

46,108

 

41,562

 

41,947

Volatility risk

 

70

 

124

 

43

 

66

Commodity risk

 

22

 

46

 

-

 

14

Covariance

 

(36,397)

 

(46,003)

 

(24,840)

 

(26,367)

 

W

49,943

 

56,103

 

42,031

 

45,406

 

(*1) The Bank measured foreign currency risk arising from trading positions and non-trading positions.

 


54


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-2.Market risk (continued)

 

(b) Market risk management of non-trading positions

 

The most critical market risk that arises from non-trading position is the interest rate risk.  Accordingly, the Bank measures and manages market risk for non-trading position by taking into account effects of interest rate changes on both its net asset value and income.  Interest rate risk is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates.

 

Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The Risk Policy Committee is the monitoring body for compliance with these limits including establishing policies and setting the limits and is assisted by the Risk Management Department in its day-to-day monitoring activities.

 

The Bank measures and manages interest rate risk by using various analyses such as interest rate gap, duration gap, and NII (Net Interest Income) simulation of each scenario through the ALM system (OFSA).  The Bank also monitors interest rate VaR, earnings at risk (“EaR”), and gap rate of interest rate by setting the limits on a monthly basis.

 

i) Measurement method on market risk arising from non-trading positions

 

The Bank measures interest rate VaR by using standard modified duration and interest rate volatility, and interest rate EaR by using impact period by maturity period and interest rate volatility based on a standard methodology provided by the Bank for International Settlements (“BIS”).

 

ii) Interest rate VaR and EaR for non-trading positions

 

Interest rate VaR and EaR for non-trading positions which were measured by the standard methodology provided by BIS as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Interest rate VaR

W

431,264

 

363,599

Interest rate EaR

 

372,397

 

131,135

 

 

 


55


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-2.Market risk (continued)

 

(c) Foreign exchange risk

 

The Bank manages foreign currency risk based on general positions which includes all spot and future foreign currency positions, etc.  The Risk Policy Committee oversees the Bank’s foreign exchange exposure for both trading and non-trading activities by establishing limits for the net foreign currencies open position.  The Bank’s foreign exchange position is centralized at the FX & Derivatives Department. Dealers in the FX & Derivatives Department manage the Bank’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps.  The Bank’s foreign exchange transactions are mainly conducted in the U.S. dollar (USD), Japanese yen (JPY), euro (EUR) and Chinese yuan (CNY). Other foreign currencies are limitedly traded.

 

Foreign currency denominated assets and liabilities as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

USD

 

JPY

 

EUR

 

CNY

 

Others

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

W

3,813,307

 

199,950

 

89,456

 

79,699

 

450,632

 

4,633,044

Securities at FVTPL

 

410,497

 

-

 

37,184

 

-

 

169,810

 

617,491

Derivative assets

 

111,036

 

4

 

2,299

 

-

 

11,144

 

124,483

Loans at amortized cost

 

14,929,193

 

516,165

 

926,207

 

35,795

 

2,417,269

 

18,824,629

Securities at FVOCI

 

2,579,836

 

-

 

-

 

-

 

223,255

 

2,803,091

Securities at amortized

cost

 

116,333

 

-

 

-

 

-

 

186,515

 

302,848

Other financial assets

 

2,899,688

 

64,003

 

69,637

 

339,312

 

221,079

 

3,593,719

 

 

24,859,890

 

780,122

 

1,124,783

 

454,806

 

3,679,704

 

30,899,305

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

11,615,783

 

605,718

 

483,610

 

196,598

 

1,334,209

 

14,235,918

Financial liabilities

at FVTPL

 

-

 

-

 

-

 

-

 

458,934

 

458,934

Derivative liabilities

 

165,761

 

-

 

1,914

 

-

 

4,575

 

172,250

Borrowings

 

6,618,578

 

85,470

 

112,683

 

6,798

 

106,321

 

6,929,850

Debt securities issued

 

4,110,789

 

317,125

 

40,933

 

-

 

1,103,732

 

5,572,579

Other financial liabilities

 

2,620,311

 

99,791

 

123,927

 

332,121

 

380,061

 

3,556,211

 

 

25,131,222

 

1,108,104

 

763,067

 

535,517

 

3,387,832

 

30,925,742

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets (liabilities)

 

(271,332)

 

(327,982)

 

361,716

 

(80,711)

 

291,872

 

(26,437)

 

 

 

 

 

 

 

 

 

 

 

 

 

Off balance sheet items

 

 

 

 

 

 

 

 

 

 

 

 

Derivative exposures

 

316,006

 

(58,495)

 

(388,554)

 

(32,425)

 

(88,916)

 

(252,384)

Net position

W

44,674

 

(386,477)

 

(26,838)

 

(113,136)

 

202,956

 

(278,821)

 

 

 

 


56


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-2.Market risk (continued)

 

(c) Foreign exchange risk (continued)

 

 

 

December 31, 2017

 

 

USD

 

JPY

 

EUR

 

CNY

 

Others

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

W

2,274,988

 

299,583

 

126,202

 

47,628

 

309,374

 

3,057,775

Trading assets

 

5,273

 

-

 

-

 

-

 

189,297

 

194,570

Derivative assets

 

59,391

 

4

 

766

 

-

 

1,084

 

61,245

Loans

 

13,748,731

 

621,085

 

869,759

 

10,593

 

2,374,413

 

17,624,581

Available-for-sale financial assets

 

1,481,426

 

9,557

 

52,583

 

-

 

163,365

 

1,706,931

Held-to-maturity financial assets

 

78,972

 

-

 

-

 

-

 

161,806

 

240,778

Other financial assets

 

1,579,952

 

249,845

 

154,491

 

322,573

 

126,381

 

2,433,242

 

 

19,228,733

 

1,180,074

 

1,203,801

 

380,794

 

3,325,720

 

25,319,122

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

10,660,116

 

904,411

 

475,537

 

99,904

 

1,364,916

 

13,504,884

Trading liabilities

 

-

 

-

 

-

 

-

 

434,586

 

434,586

Derivative liabilities

 

101,520

 

-

 

631

 

-

 

713

 

102,864

Borrowings

 

5,453,451

 

154,195

 

118,975

 

6,313

 

120,046

 

5,852,980

Debt securities issued

 

3,027,696

 

249,616

 

31,981

 

196,380

 

419,781

 

3,925,454

Other financial liabilities

 

2,542,251

 

134,056

 

208,206

 

280,558

 

121,373

 

3,286,444

 

 

21,785,034

 

1,442,278

 

835,330

 

583,155

 

2,461,415

 

27,107,212

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets (liabilities)

 

(2,556,301)

 

(262,204)

 

368,471

 

(202,361)

 

864,305

 

(1,788,090)

 

 

 

 

 

 

 

 

 

 

 

 

 

Off balance sheet items

 

 

 

 

 

 

 

 

 

 

 

 

Derivative exposures

 

2,142,131

 

9,635

 

(433,642)

 

86,857

 

(632,971)

 

1,172,010

Net position

W

(414,170)

 

(252,569)

 

(65,171)

 

(115,504)

 

231,334

 

(616,080)

 

 

57


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

4.Financial risk management (continued)

 

4-3.Liquidity risk

 

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.  The Risk Policy Committee is responsible for establishing policies and setting the limits related to liquidity risk management.  The Risk Management Department evaluates and manages the Bank’s overall liquidity risk and monitors compliance of all operating subsidiaries and foreign branches with limits on a daily basis.

 

The Bank applies the following basic principles for liquidity risk management:

 

 

raise funding in sufficient amounts at the optimal time and reasonable costs;

 

maintain risk at appropriate levels and preemptively manage them through a prescribed risk limit system and an early warning signal detection system;

 

secure stable sources of revenue and minimize actual losses by implementing an effective asset-liability management system based on diversified sources of funding with varying maturities;

 

monitor and manage daily and intra-daily liquidity positions and risk exposures as to timely payment and settlement of financial obligations due under both normal and crisis situations;

 

conduct periodic contingency analysis in anticipation of any potential liquidity crisis and establish and implement emergency plans in case of a crisis actually happening; and

 

consider liquidity-related costs, benefits and risks in determining the price of products and services, employee performance evaluations and approval of launching new products and services.

 

The Bank manages its liquidity risk within the limits set on won and foreign currency by using various analysis methods such as liquidity gap, real liquidity gap and loan-deposit ratio through the ALM system and various indices including risk limits, early warning index, and monitoring index.

 

The following table presents the Bank’s cash flows of financial assets and financial liabilities.  The amounts disclosed in the table are the contractual undiscounted cash flows.  Since the effect of the discount is insignificant for the balance with the maturities of less than 12 months, the amount is the same as the book value.

 

 

58


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-3.Liquidity risk (continued)

 

(a)

Contractual maturities for financial instruments

 

 

Contractual maturities for financial assets and financial liabilities as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

1 month

or less

 

1 month ~

3 months

or less

 

3 months ~

6 months

or less

 

6 months ~

1 year

or less

 

1 year ~

5 years

or less

 

More than 5 years

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

W

8,785,105

 

317,148

 

314,468

 

5,829

 

58

 

-

 

9,422,608

Securities at FVTPL

 

12,811,266

 

-

 

-

 

-

 

-

 

-

 

12,811,266

Derivative assets

 

1,482,088

 

50,498

 

66,815

 

106,966

 

495,274

 

262,007

 

2,463,648

Loans at amortized cost

 

20,720,192

 

25,235,452

 

36,677,628

 

57,845,689

 

66,805,654

 

53,581,600

 

260,866,215

Loans at FVTPL

 

28,221

 

386,353

 

39,154

 

102,394

 

101,725

 

-

 

657,847

Securities at FVOCI

 

30,317,505

 

-

 

-

 

-

 

-

 

409,913

 

30,731,281

Securities at amortized cost

 

455,145

 

1,275,361

 

331,535

 

2,006,604

 

13,256,153

 

409,604

 

17,734,402

Other financial assets

 

12,914,228

 

-

 

-

 

-

 

-

 

1,080,846

 

13,995,074

 

W

87,517,612

 

27,264,812

 

37,429,600

 

60,067,482

 

80,658,864

 

56,305,795

 

348,682,340

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

W

116,368,459

 

22,381,235

 

31,253,344

 

51,166,194

 

18,820,979

 

501,790

 

240,492,001

Financial liabilities at FVTPL

 

459,336

 

193

 

53

 

10,403

 

10,124

 

-

 

480,109

Derivative liabilities

 

1,676,522

 

40,891

 

56,711

 

102,831

 

523,026

 

272,663

 

2,672,644

Borrowings

 

3,553,602

 

2,794,953

 

1,999,265

 

2,747,962

 

3,993,928

 

1,103,572

 

16,193,282

Debt securities issued

 

1,062,901

 

3,120,247

 

3,710,736

 

6,612,276

 

13,497,283

 

3,399,603

 

31,403,046

Other financial liabilities

 

14,842,223

 

-

 

-

 

-

 

130,122

 

-

 

14,972,345

 

W

137,963,043

 

28,337,519

 

37,020,109

 

60,639,666

 

36,975,462

 

5,277,628

 

306,213,427

 

These amounts include cash flows of principal and interest on financial assets and financial liabilities.  The undiscounted cash flows were classified based on the earliest dates for obligated repayment.  Financial assets at FVTPL and financial assets at FVOCI except for assets restricted for sale for certain periods were included in 1 month or less.


59


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-3.Liquidity risk (continued)

 

(a)

Contractual maturities for financial instruments (continued)

 

 

 

 

December 31, 2017

 

 

1 month

or less

 

1 month ~

3 months

or less

 

3 months ~

6 months

or less

 

6 months ~

1 year

or less

 

1 year ~

5 years

or less

 

More than 5 years

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

W

14,631,494

 

64,901

 

2,213

 

20,439

 

282

 

-

 

14,719,329

Trading assets

 

8,834,871

 

-

 

-

 

-

 

-

 

-

 

8,834,871

Derivative assets

 

2,716,053

 

285,632

 

78,501

 

121,845

 

346,065

 

143,032

 

3,691,128

Loans

 

18,930,546

 

25,949,870

 

34,101,846

 

54,276,387

 

58,603,682

 

49,578,608

 

241,440,939

Available-for-sale financial assets

 

30,384,824

 

-

 

-

 

-

 

-

 

741,572

 

31,126,396

Held-to-maturity financial assets

 

69,896

 

111,827

 

191,826

 

1,364,781

 

13,332,844

 

658,766

 

15,729,940

Other financial assets

 

7,758,245

 

-

 

-

 

-

 

1,074,378

 

-

 

8,832,623

 

W

83,325,929

 

26,412,230

 

34,374,386

 

55,783,452

 

73,357,251

 

51,121,978

 

324,375,226

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

W

120,297,023

 

19,400,865

 

29,262,899

 

47,998,026

 

10,906,379

 

542,095

 

228,407,287

Trading liabilities

 

434,586

 

-

 

-

 

-

 

-

 

-

 

434,586

Derivative liabilities

 

2,490,191

 

38,289

 

30,028

 

46,915

 

164,442

 

60,717

 

2,830,582

Borrowings

 

5,153,920

 

2,662,692

 

1,345,695

 

2,216,950

 

2,688,860

 

627,208

 

14,695,325

Debt securities issued

 

610,653

 

1,944,975

 

2,016,407

 

6,307,767

 

12,213,940

 

2,940,935

 

26,034,677

Other financial liabilities

 

14,344,285

 

-

 

-

 

1,367

 

129,329

 

-

 

14,474,981

 

W

143,330,658

 

24,046,821

 

32,655,029

 

56,571,025

 

26,102,950

 

4,170,955

 

286,877,438

 

These amounts include cash flows of principal and interest on financial assets and financial liabilities.  The undiscounted cash flows were classified based on the earliest dates for obligated repayment.  Trading assets and available-for-sale financial assets except for assets restricted for sale for certain periods were included in the less than 1 month.

 

(b)

Contractual maturities for off balance sheet items

 

 

Financial guarantees such as financial guarantee contracts, loan commitments and others provided by the Bank are classified based on the earliest date at which the Bank should fulfill the obligation under the guarantee when the counterparty requests for the payment.

 

Off-balance sheet items as of December 31, 2018 and 2017 were as follows:

  

 

 

December 31, 2018

 

December 31, 2017

Financial guarantee contracts

W

8,334,092

 

6,452,931

Loan commitments and others

 

87,175,322

 

70,271,358

 

W

95,509,414

 

76,724,289

 

 

60


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value

 

The fair value which the Bank primarily uses for measurement of financial instruments are the published price quotations in an active market which are based on the market prices or the dealer price quotations of financial instruments traded in an active market where available, which is the best evidence of fair value.

 

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 Bank uses diverse valuation techniques under reasonable assumptions which are based on the inputs observable 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.  For example, the fair value for interest swaps is the present value of estimated future cash flows, and fair value for foreign exchange forwards contracts is measured by using the published forward exchange rate at the end of each reporting period.

 

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

 

(i) Level 1: Financial instruments measured at quoted prices from active markets are classified as level 1.

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

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

 


61


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(a)

Financial instruments measured at fair value

 

 

i) The table below analyzes financial instruments measured at the fair value as of December 31, 2018 and 2017 by the level in the fair value hierarchy into which the fair value measurement is categorized:

 

 

 

December 31, 2018

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets

 

 

 

 

 

 

 

 

Loans at FVTPL:

 

 

 

 

 

 

 

 

Loans

W

-

 

407,996

 

237,241

 

645,237

Securities at FVTPL:

 

 

 

 

 

 

 

 

Debt securities

 

520,089

 

11,007,914

 

1,079,674

 

12,607,677

Equity securities

 

4,953

 

-

 

43,755

 

48,708

Gold/silver deposits

 

154,881

 

-

 

-

 

154,881

 

 

679,923

 

11,007,914

 

1,123,429

 

12,811,266

Derivative assets:

 

 

 

 

 

 

 

 

Trading

 

-

 

1,450,779

 

2,675

 

1,453,454

Hedging

 

-

 

30,508

 

4,586

 

35,094

 

 

-

 

1,481,287

 

7,261

 

1,488,548

Securities at FVOCI:

 

 

 

 

 

 

 

 

Debt securities

 

9,164,543

 

21,128,932

 

-

 

30,293,475

Equity securities

 

135,815

 

-

 

301,991

 

437,806

 

 

9,300,358

 

21,128,932

 

301,991

 

30,731,281

 

W

9,980,281

 

34,026,129

 

1,669,922

 

45,676,332

Financial liabilities

 

 

 

 

 

 

 

 

Financial liabilities at FVTPL:

 

 

 

 

 

 

 

 

Securities sold

W

20,625

 

-

 

-

 

20,625

Gold/silver deposits

 

458,934

 

-

 

-

 

458,934

 

 

479,559

 

-

 

-

 

479,559

Derivative liabilities:

 

 

 

 

 

 

 

 

Trading

 

954

 

1,300,320

 

2,658

 

1,303,932

Hedging

 

-

 

106,261

 

361,120

 

467,381

 

 

954

 

1,406,581

 

363,778

 

1,771,313

 

W

480,513

 

1,406,581

 

363,778

 

2,250, 872


62


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(a)

Financial instruments measured at fair value (continued)

 

 

 

 

December 31, 2017

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets

 

 

 

 

 

 

 

 

Trading assets:

 

 

 

 

 

 

 

 

Debt securities

W

656,806

 

7,684,774

 

-

 

8,341,580

Equity securities

 

2,220

 

301,774

 

-

 

303,994

Gold/silver deposits

 

189,297

 

-

 

-

 

189,297

 

 

848,323

 

7,986,548

 

-

 

8,834,871

Derivative assets:

 

 

 

 

 

 

 

 

Trading

 

33

 

2,585,881

 

8,343

 

2,594,257

Hedging

 

-

 

6,633

 

1,799

 

8,432

 

 

33

 

2,592,514

 

10,142

 

2,602,689

Available-for-sale financial assets:

 

 

 

 

 

 

 

 

Debt securities

 

8,777,666

 

19,646,018

 

-

 

28,423,684

Equity securities

 

348,685

 

1,253,593

 

1,100,435

 

2,702,713

 

 

9,126,351

 

20,899,611

 

1,100,435

 

31,126,397

 

W

9,974,707

 

31,478,673

 

1,110,577

 

42,563,957

Financial liabilities

 

 

 

 

 

 

 

 

Trading liabilities:

 

 

 

 

 

 

 

 

Gold/silver deposits

W

434,586

 

-

 

-

 

434,586

Derivative liabilities:

 

 

 

 

 

 

 

 

Trading

 

55

 

2,474,381

 

3,574

 

2,478,010

Hedging

 

-

 

93,786

 

425,162

 

518,948

 

 

55

 

2,568,167

 

428,736

 

2,996,958

 

W

434,641

 

2,568,167

 

428,736

 

3,431,544

 

 

 

 

 

 


63


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(a)

Financial instruments measured at fair value (continued)

 

 

ii) There was no transfer between level 1 and level 2 for the years ended December 31, 2018 and 2017.

 

iii) Changes in level 3 of the fair value hierarchy

 

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

 

 

 

December 31, 2018

 

 

Loans at FVTPL

 

Securities at

FVTPL

 

Securities at

FVOCI

 

Net derivative

instruments

 

Total

Beginning balance (*1)

W

113,168

 

826,251

 

277,464

 

(418,594)

 

798,289

Total gain or loss:

 

 

 

 

 

 

 

 

 

 

Recognized in profit or

loss (*2)

 

3,012

 

88,392

 

-

 

56,362

 

147,766

Recognized in other comprehensive income

 

-

 

-

 

24,583

 

-

 

24,583

Purchases/issues

 

187,474

 

291,769

 

-

 

(779)

 

478,464

Settlements

 

(66,413)

 

(82,983)

 

(56)

 

6,487

 

(142,965)

Transfers into level 3 (*3)

 

-

 

-

 

-

 

6

 

6

Ending balance

W

237,241

 

1,123,429

 

301,991

 

(356,518)

 

1,306,143

 

(*1) The beginning balance was restated in accordance with K-IFRS No.1109.

 

 

 

December 31, 2017

 

 

Available-for-sale financial assets

 

Net derivative

instruments

 

Financial liabilities

designated at fair

value through

profit or loss

 

Total

Beginning balance

W

1,104,428

 

(229,895)

 

(2,005)

 

872,528

Total gain or loss:

 

 

 

 

 

 

 

 

Recognized in profit or

loss (*2)

 

(149,742)

 

(191,909)

 

4

 

(341,647)

Recognized in other comprehensive income

 

20,071

 

-

 

-

 

20,071

Purchases/issues

 

215,344

 

2,441

 

-

 

217,785

Settlements

 

(93,096)

 

741

 

2,001

 

(90,354)

Transfers into level 3 (*3)

 

3,430

 

28

 

-

 

3,458

Ending balance

W

1,100,435

 

(418,594)

 

-

 

681,841

 

 


64


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(a)

Financial instruments measured at fair value (continued)

 

 

(*2) Gains or losses among the changes in level 3 of the fair value hierarchy and gains or losses related to financial instruments that the Bank held as of December 31, 2018 and 2017 were presented in the statements of comprehensive income as follows:

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Gains or losses

recognized in

profit or loss

 

Gains or losses

recognized in

profit or loss

for financial instrument

held at the end

of the year

 

Gains or losses

recognized in

profit or loss

 

Gains or losses

recognized in

profit or loss

for financial instrument

held at the end

of the year

Net gain on financial assets at FVTPL

W

92,194

 

87,501

 

-

 

-

Net trading loss

 

-

 

-

 

(2,996)

 

(2,996)

Net gain on financial instruments designated at fair value through profit or loss

 

-

 

-

 

4

 

-

Net gain on sale of available-for-sale financial assets

 

-

 

-

 

1,232

 

989

Impairment loss on financial assets

 

-

 

-

 

(150,974)

 

(150,974)

Net other operating income (expenses)

 

55,572

 

55,572

 

(188,913)

 

(188,913)

 

W

147,766

 

143,073

 

(341,647)

 

(341,894)

 

(*3) These financial instruments were transferred into or out of level 3 as the availability of observable market data has changed.  The Bank recognized transfers between levels of the fair value hierarchy at the end of the reporting period during which the event or the change in circumstances that caused the transfer has occurred.

65


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(a)

Financial instruments measured at fair value (continued)

 

 

iv) Valuation techniques and inputs used in measuring fair value of financial instruments

 

Valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Type of financial instruments

 

 

Book value

 

Valuation

techniques

 

Inputs

Financial assets

Loans at FVTPL

 

W

407,996

 

Discounted cash flow

 

 

Discount rate

 

Securities at FVTPL

 

Debt securities

 

 

11,007,914

 

Discounted cash flow

Net asset value

 

 

Discount rate

 

Price of underlying assets

Derivative assets

 

Trading

 

 

1,450,779

 

Option model,

Discounted cash flow

 

Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.

 

Hedging

 

 

30,508

 

 

 

 

 

 

1,481,287

 

 

 

 

Securities at FVOCI

 

Debt securities

 

 

21,128,932

 

Discounted cash flow

 

Discount rate

 

 

 

 

W

34,026,129

 

 

 

 

Financial liabilities

Derivative

  liabilities

 

Trading

 

W

1,330,320

 

Option model,

Discounted cash flow

 

Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.

 

Hedging

 

 

106,261

 

 

 

 

 

W

1,406,581

 

 

 

 

 

 

 


66


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(a) Financial instruments measured at fair value (continued)

 

 

 

 

December 31, 2017

 

 

Type of financial instruments

 

 

Book value

 

Valuation

techniques

 

Inputs

Financial assets

Trading assets

 

Debt securities

 

W

7,684,774

 

Discounted cash flow

 

Discount rate

 

Equity securities

 

 

301,774

 

Net asset value

 

Price of underlying assets

 

 

 

 

7,986,548

 

 

 

 

Derivative assets

 

Trading

 

 

2,585,881

 

Option model,

Discounted cash flow

 

Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.

 

Hedging

 

 

6,633

 

 

 

 

 

 

2,592,514

 

 

 

 

Available-for-sale financial assets

 

Debt securities

 

 

19,646,018

 

Discounted cash flow

 

Discount rate

 

Equity securities

 

 

1,253,593

 

Net asset value

 

Price of underlying assets

 

 

 

 

20,899,611

 

 

 

 

 

 

 

 

W

31,478,673

 

 

 

 

Financial liabilities

Derivative

  liabilities

 

Trading

 

W

2,474,381

 

Option model,

Discounted cash flow

 

Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.

 

Hedging

 

 

93,786

 

 

 

 

 

W

2,568,167

 

 

 

 

 


67


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(a) Financial instruments measured at fair value (continued)

 

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

 

 

 

December 31, 2018

 

 

Valuation

technique

 

Type of financial instrument

 

 

Book value

 

Significant

unobservable

input

 

Range of estimates for unobservable input

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

Loans at FVTPL

 

Option model (*1)

 

Loans

 

W

237,241

 

Volatility of

underlying assets

 

16.39%~42.56%

Securities at FVTPL

 

Net asset

value method

 

Debt securities

 

 

1,079,674

 

Price of

underlying assets

 

-

 

Discounted

cash flow

 

Equity securities

 

 

43,755

 

Discount rate

Terminal growth rate

 

5.80%~17.00%

0.00%

 

 

 

 

 

 

 

1,123,429

 

 

 

 

Derivative assets

 

Option model (*2)

 

Equity and foreign exchange related

 

 

145

 

Volatility of

underlying assets

 

2.20%~25.96%

 

 

 

 

 

 

 

 

 

 

 

 

Option model (*2)

 

Interest rates related

 

 

7,116

 

Volatility of

underlying assets

 

0.42%~0.78%

 

 

 

 

 

 

Regression coefficient

 

0.42%~1.65%

 

 

 

 

 

 

Correlations

 

44.93%~90.34%

 

7,261

 

 

Securities at FVOCI

 

Discounted

cash flow

 

 

Equity securities

 

 

301,991

 

Discount rate

 

8.43%~17.40%

 

 

 

 

 

Terminal growth rate

 

0.00%

 

 

 

 

 

 

W

1,669,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

Derivative

liabilities

 

Option model (*2)

 

Equity and foreign exchange related

 

W

256

 

Volatility of

underlying assets

 

2.20%~25.96%

 

 

 

 

 

 

 

 

 

 

 

Option model (*2)

 

Interest rates related

 

 

363,522

 

Volatility of

underlying assets

 

0.47%~0.78%

 

 

 

 

 

 

Regression coefficient

 

0.42%~2.77%

 

 

 

 

 

 

Correlations

 

28.15%~90.34%

 

 

 

 

 

 

W

363,778

 

 

 

 

 

(*1) The Bank uses binominal tree option model when measuring the fair value for loans at FVTPL.

(*2) Option models that the Bank uses in derivative valuation include Black-Scholes model, Hull-White model, Monte Carlo simulation, etc.


68


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(a) Financial instruments measured at fair value (continued)

 

 

 

December 31, 2017

 

 

Valuation

technique

 

Type of financial instrument

 

 

Book value

 

Significant

unobservable

input

 

Range of estimates for unobservable input

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

Derivative assets

 

Option model (*1)

 

Equity and foreign exchange related

 

W

4,846

 

Volatility of

underlying assets

 

1.32%~29.53%

 

 

 

 

 

 

 

Correlations

 

0.14%

 

 

Option model (*1)

 

Interest rates related

 

 

5,296

 

Volatility of

underlying assets

 

0.42%~0.70%

 

 

 

 

 

 

Regression coefficient

 

0.42%~1.65%

 

 

 

 

 

 

Correlations

 

42.20%~90.33%

 

10,142

 

 

Available-for-sale financial assets

 

Discounted

cash flow

Comparable company analysis

Net asset value

 

Equity securities

 

 

1,100,435

 

Discount rate

 

1.98%~20.51%

 

 

 

 

 

Terminal growth rate

 

0.00%

 

 

 

 

 

 

W

1,110,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

Derivative

liabilities

 

Option model (*1)

 

Equity and foreign exchange related

 

W

80

 

Volatility of

underlying assets

 

1.32%~26.30%

 

 

 

 

 

 

Correlations

 

0.14%

 

 

Option model (*1)

 

Interest rates related

 

 

428,656

 

Volatility of

underlying assets

 

0.50%~0.70%

 

 

 

 

 

 

Regression coefficient

 

1.65%~2.77%

 

 

 

 

 

 

Correlations

 

32.63%~90.33%

 

 

 

 

 

 

W

428,736

 

 

 

 

 

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

69


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(a) Financial instruments measured at fair value (continued)

 

v) Sensitivity to changes in unobservable inputs

 

For level 3 fair value measurement, changing one or more of the unobservable inputs used to reasonably possible alternative assumptions would have the following effect on profit (loss), and other comprehensive income (loss) as of December 31, 2018 and 2017 were as follows:

 

 

 

 

December 31, 2018

Type of financial instrument

 

Profit (loss) for the year

 

Other comprehensive

income (loss) for the year

 

Favorable

change

 

Unfavorable

change

 

Favorable

change

 

Unfavorable

change

Loans at FVTPL (*1)

W

8,858

 

(7,233)

 

-

 

-

 

Derivative assets (*1)

Equity and foreign exchange related

 

57

 

(38)

 

-

 

-

Interest rates related

 

461

 

(701)

 

-

 

-

Securities at FVTPL (*2)

Debt securities (*3)

 

1,176

 

(807)

 

-

 

-

Equity securities

 

3,256

 

(1,754)

 

-

 

-

Securities at FVOCI (*2)

Equity securities

 

-

 

-

 

8,596

 

(4,843)

 

 

W

13,808

 

(10,533)

 

8,596

 

(4,843)

Derivative liabilities (*1)

Equity and foreign exchange related

W

854

 

(912)

 

-

 

-

 

 

Interest rates related

 

10,186

 

(10,362)

 

-

 

-

 

W

11,040

 

(11,274)

 

-

 

-

 

(*1) Based on 10% of increase or decrease in volatility of underlying assets or correlations.

(*2) Based on changes in growth rate (0%~1%) and discount rate (-1%p~1%p).

(*3) W1,033,938 million of Securities at FVTPL classified as level 3 are excluded from sensitivity analysis since calculation of sensitivity according to the fluctuation of input variables is impracticable.

 

 


70


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(a) Financial instruments measured at fair value (continued)

 

 

 

 

December 31, 2017

Type of financial instrument

 

Profit (loss) for the year

 

Other comprehensive

income (loss) for the year

 

Favorable

change

 

Unfavorable

change

 

Favorable

change

 

Unfavorable

change

Derivative assets (*1)

Equity and foreign exchange related

W

1,238

 

(846)

 

-

 

-

Interest rates related

 

278

 

(326)

 

-

 

-

Available-for-sale  financial assets (*2)

Equity securities (*3)

 

-

 

-

 

16,435

 

(8,229)

 

 

W

1,516

 

(1,172)

 

16,435

 

(8,229)

Derivative liabilities (*1)

Equity and foreign exchange related

W

10

 

(13)

 

-

 

-

 

 

Interest rates related

 

13,820

 

(13,280)

 

-

 

-

 

W

13,830

 

(13,293)

 

-

 

-

 

(*1) Based on 10% of increase or decrease in volatility of underlying assets or correlations.

(*2) Based on changes in growth rate (0%~1%) and discount rate (-1%p~1%p).

(*3) W756,662 million of available-for-sale financial assets classified as level 3 are excluded from sensitivity analysis since calculation of sensitivity according to the fluctuation of input variables is impracticable.

 


71


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost

 

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

 

Type

 

Measurement methods of fair value

Cash and due from banks

 

 

 

The book value and the fair value for cash are identical and most of deposits are floating interest rate deposits or next day deposits of a short-term instrument.  Therefore, the book value for deposits approximates fair value.

 

Loans at amortized cost

 

The fair value of loans at amortized cost is measured by discounting the expected cash flows at the market interest rate, credit risk, etc.

 

Securities at amortized cost

 

The fair value of securities at amortized cost is determined by applying the lesser of two quoted bond prices provided by two bond pricing agencies as of the latest trading date.

 

Deposits and borrowings

 

 

The book amount and the fair value for demand deposits, cash management account deposits, call money and bonds sold under repurchase agreements as short-term instruments are identical.  The fair value of others is measured by discounting the contractual cash flows at the market interest rate that takes into account the residual risk.

 

Debt securities issued

 

The fair value of deposits and borrowings is based on the published price quotations in an active market.  In case there is no observable market price, it is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.

 

 

 

72


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

ii) The book value and the fair value of financial instruments measured at amortized cost as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Book value

 

 

 

 

Balance

 

Unamortized balance

 

Allowance

 

Total

 

Fair value

Assets

 

 

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

 

 

 

 

 

Cash

W

2,467,074

 

-

 

-

 

2,467,074

 

2,467,074

Due from banks

 

6,946,113

 

-

 

(7,348)

 

6,938,765

 

6,938,765

Loans at amortized cost:

 

 

 

 

 

 

 

 

 

 

Household loans

 

106,401,688

 

419,075

 

(280,464)

 

106,540,299

 

106,965,158

Corporate loans

 

121,277,311

 

76,877

 

(1,179,830)

 

120,174,358

 

121,156,246

Public and other loans

 

2,729,075

 

1,562

 

(20,055)

 

2,710,582

 

2,733,532

Loans to bank

 

3,831,159

 

-

 

(10,122)

 

3,821,037

 

3,828,572

Securities at amortized cost:

 

 

 

 

 

 

 

 

 

 

Government bonds

 

11,426,126

 

-

 

(652)

 

11,425,474

 

11,524,046

Financial institutions bonds

 

776,808

 

-

 

(41)

 

776,767

 

778,209

Corporate bonds and others

 

4,031,630

 

-

 

(2,907)

 

4,028,723

 

4,068,341

Other financial assets

 

13,995,074

 

(38,157)

 

(25,020)

 

13,931,897

 

13,951,377

 

W

273,882,058

 

459,357

 

(1,526,439)

 

272,814,976

 

274,411,320

Liabilities

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Demand deposits

W

100,259,735

 

-

 

-

 

100,259,735

 

100,259,735

Time deposits

 

120,395,290

 

-

 

-

 

120,395,290

 

120,287,631

Negotiable certificates of

deposits

 

8,602,552

 

-

 

-

 

8,602,552

 

8,654,003

Note discount deposits

 

4,087,530

 

-

 

-

 

4,087,530

 

4,087,338

CMA (*1)

 

4,084,709

 

-

 

-

 

4,084,709

 

4,084,709

Others

 

21,963

 

-

 

-

 

21,963

 

21,962

Borrowings:

 

 

 

 

 

 

 

 

 

 

Call money

 

831,593

 

-

 

-

 

831,593

 

831,593

Bill sold

 

14,536

 

-

 

-

 

14,536

 

14,506

Bonds sold under repurchase agreements

 

46,316

 

-

 

-

 

46,316

 

46,316

Borrowings

 

14,985,702

 

(1,705)

 

-

 

14,983,997

 

15,023,941

Debt securities issued:

 

 

 

 

 

 

 

 

 

 

Debt securities issued in Korean won

 

23,814,050

 

(62,944)

 

-

 

23,751,106

 

24,020,973

Debt securities issued in foreign currencies

 

5,572,580

 

(29,102)

 

-

 

5,543,478

 

5,345,938

Other financial liabilities

 

14,928,888

 

(2,118)

 

-

 

14,926,770

 

14,904,658

 

W

297,645,444

 

(95,869)

 

-

 

297,549,575

 

297,583,303

 

(*1) CMA: Cash management account deposits


73


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4. Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

 

 

December 31, 2017

 

 

Book value

 

 

 

 

Balance

 

Unamortized balance

 

Allowance

 

Total

 

Fair value

Assets

 

 

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

 

 

 

 

 

Cash

W

1,658,239

 

-

 

-

 

1,658,239

 

1,658,239

Due from banks

 

13,057,347

 

-

 

(3,080)

 

13,054,267

 

13,054,267

Loans:

 

 

 

 

 

 

 

 

 

 

Household loans

 

98,890,625

 

362,349

 

(297,121)

 

98,955,853

 

98,630,107

Corporate loans

 

112,981,422

 

63,989

 

(1,011,466)

 

112,033,945

 

112,535,482

Public and other loans

 

2,203,307

 

1,149

 

(10,135)

 

2,194,321

 

2,202,338

Loans to bank

 

3,805,922

 

-

 

(4,694)

 

3,801,228

 

3,794,103

Held-to-maturity financial assets:

 

 

 

 

 

 

 

 

 

 

Government bonds

 

9,595,227

 

-

 

-

 

9,595,227

 

9,599,761

Financial institutions bonds

 

1,105,280

 

-

 

-

 

1,105,280

 

1,103,804

Corporate bonds and others

 

3,658,077

 

-

 

-

 

3,658,077

 

3,654,443

Other financial assets

 

8,832,623

 

(44,116)

 

(24,193)

 

8,764,314

 

8,787,940

 

W

255,788,069

 

383,371

 

(1,350,689)

 

254,820,751

 

255,020,484

Liabilities

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Demand deposits

W

97,507,785

 

-

 

-

 

97,507,785

 

97,507,785

Time deposits

 

111,849,093

 

-

 

-

 

111,849,093

 

111,691,554

Negotiable certificates of

deposits

 

6,973,204

 

-

 

-

 

6,973,204

 

7,013,548

Note discount deposits

 

3,423,459

 

-

 

-

 

3,423,459

 

3,423,320

CMA

 

4,197,146

 

-

 

-

 

4,197,146

 

4,197,146

Others

 

24,350

 

-

 

-

 

24,350

 

24,349

Borrowings:

 

 

 

 

 

 

 

 

 

 

Call money

 

433,281

 

-

 

-

 

433,281

 

433,281

Bill sold

 

13,605

 

-

 

-

 

13,605

 

13,580

Bonds sold under repurchase agreements

 

225,265

 

-

 

-

 

225,265

 

225,265

Borrowings

 

13,799,569

 

-

 

-

 

13,799,569

 

13,779,335

Debt securities issued:

 

 

 

 

 

 

 

 

 

 

Debt securities issued in Korean won

 

20,057,244

 

(29,698)

 

-

 

20,027,546

 

19,886,840

Debt securities issued in foreign currencies

 

3,925,454

 

(23,277)

 

-

 

3,902,177

 

3,918,403

Other financial liabilities

 

14,557,598

 

(2,915)

 

-

 

14,554,683

 

14,528,020

 

W

276,987,053

 

(55,890)

 

-

 

276,931,163

 

276,642,426


74


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

iii) The fair value hierarchy of financial instruments which are not measured at fair value in the separate statements of financial position as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

 

 

 

Cash

W

2,467,074

 

-

 

-

 

2,467,074

Due from banks

 

-

 

6,938,765

 

-

 

6,938,765

Loans at amortized cost:

 

 

 

 

 

 

 

 

Household loans

 

-

 

-

 

106,965,158

 

106,965,158

Corporate loans

 

-

 

-

 

121,156,246

 

121,156,246

Public and other loans

 

-

 

-

 

2,733,532

 

2,733,532

Loans to bank

 

-

 

1,733,194

 

2,095,378

 

3,828,572

Securities at amortized cost:

 

 

 

 

 

 

 

 

Government bonds

 

768,812

 

10,755,234

 

-

 

11,524,046

Financial institutions bonds

 

719,925

 

58,284

 

-

 

778,209

Corporate bonds and others

 

-

 

4,068,341

 

-

 

4,068,341

Other financial assets

 

-

 

11,450,836

 

2,500,541

 

13,951,377

 

W

3,955,811

 

35,004,654

 

235,450,855

 

274,411,320

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Demand deposits

W

-

 

100,259,735

 

-

 

100,259,735

Time deposits

 

-

 

-

 

120,287,631

 

120,287,631

Negotiable certificates of

deposits

 

-

 

-

 

8,654,003

 

8,654,003

Note discount deposits

 

-

 

-

 

4,087,338

 

4,087,338

CMA

 

-

 

4,084,709

 

-

 

4,084,709

Others

 

-

 

-

 

21,962

 

21,962

Borrowings:

 

 

 

 

 

 

 

 

Call money

 

-

 

831,593

 

-

 

831,593

Bill sold

 

-

 

-

 

14,506

 

14,506

Bonds sold under repurchase

agreements

 

-

 

-

 

46,316

 

46,316

Borrowings

 

-

 

-

 

15,023,941

 

15,023,941

Debt securities issued:

 

 

 

 

 

 

 

 

Debt securities issued

in Korean won

 

-

 

21,152,035

 

2,868,938

 

24,020,973

Debt securities issued

in foreign currencies

 

-

 

5,345,938

 

-

 

5,345,938

Other financial liabilities

 

-

 

6,478,858

 

8,425,800

 

14,904,658

 

W

-

 

138,152,868

 

159,430,435

 

297,583,303

 


75


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

 

 

December 31, 2017

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

 

 

 

Cash

W

1,658,239

 

-

 

-

 

1,658,239

Due from banks

 

-

 

13,054,267

 

-

 

13,054,267

Loans:

 

 

 

 

 

 

 

 

Household loans

 

-

 

-

 

98,630,107

 

98,630,107

Corporate loans

 

-

 

-

 

112,535,482

 

112,535,482

Public and other loans

 

-

 

-

 

2,202,338

 

2,202,338

Loans to bank

 

-

 

748,348

 

3,045,755

 

3,794,103

Held-to-maturity financial assets:

 

 

 

 

 

 

 

 

Government bonds

 

1,411,506

 

8,188,255

 

-

 

9,599,761

Financial institutions bonds

 

936,067

 

167,737

 

-

 

1,103,804

Corporate bonds and others

 

-

 

3,654,443

 

-

 

3,654,443

Other financial assets

 

-

 

6,641,439

 

2,146,501

 

8,787,940

 

W

4,005,812

 

32,454,489

 

218,560,183

 

255,020,484

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Demand deposits

W

-

 

97,507,785

 

-

 

97,507,785

Time deposits

 

-

 

-

 

111,691,554

 

111,691,554

Negotiable certificates of

deposits

 

-

 

-

 

7,013,548

 

7,013,548

Note discount deposits

 

-

 

-

 

3,423,320

 

3,423,320

CMA

 

-

 

4,197,146

 

-

 

4,197,146

Others

 

-

 

-

 

24,349

 

24,349

Borrowings:

 

 

 

 

 

 

 

 

Call money

 

-

 

433,281

 

-

 

433,281

Bill sold

 

-

 

-

 

13,580

 

13,580

Bonds sold under repurchase

agreements

 

-

 

-

 

225,265

 

225,265

Borrowings

 

-

 

-

 

13,779,335

 

13,779,335

Debt securities issued:

 

 

 

 

 

 

 

 

Debt securities issued

in Korean won

 

-

 

17,346,923

 

2,539,917

 

19,886,840

Debt securities issued

in foreign currencies

 

-

 

3,918,403

 

-

 

3,918,403

Other financial liabilities

 

-

 

5,454,293

 

9,073,727

 

14,528,020

 

W

-

 

128,857,831

 

147,784,595

 

276,642,426

 

 

 


76


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

iv) For financial instruments not measured at fair value in the statement of financial position but for which the fair value is disclosed, valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 or level 3 as of December 31, 2018 and 2017 were as follows:

 

 

 

 

December 31, 2018

Level

 

Type of financial instrument

 

Fair value (*1)

 

Valuation

technique

 

Inputs

Level 2

 

Securities at amortized cost

W

14,881,859

 

Discounted cash flow

 

Discount rate

Level 3

 

Loans at amortized cost

 

232,950,314

 

 

Discount rate, Credit spread,

Prepayment rate

 

Other financial assets

 

2,500,541

 

 

Discount rate

 

 

 

W

250,332,714

 

 

 

 

Level 2

 

Debt securities issued

W

26,497,973

 

Discounted cash flow

 

Discount rate

Level 3

 

Deposits

 

132,989,491

 

 

Discount rate

 

Borrowings

 

10,259,243

 

 

Discount rate

 

Debt securities issued

 

2,868,938

 

 

Discount rate,

Regression coefficient, Correlation coefficient

 

Other financial liabilities

 

8,425,800

 

 

Discount rate

 

 

 

W

181,041,445

 

 

 

 

 

(*1) The amounts, which were not evaluated by the valuation technique, are not included and disclosed because the carrying amount is the reasonable approximation of fair value.


77


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4. Measurement of fair value (continued)

 

(b) Financial instruments measured at amortized cost (continued)

 

 

 

December 31, 2017

Level

 

Type of financial instrument

 

Fair value (*1)

 

Valuation

technique

 

Inputs

Level 2

 

Held-to-maturity financial assets

W

12,010,435

 

Discounted cash flow

 

Discount rate

Level 3

 

Loans

 

216,413,682

 

 

Discount rate, Credit spread,

Prepayment rate

 

Other financial assets

 

2,146,501

 

 

Discount rate

 

 

 

W

230,570,618

 

 

 

 

Level 2

 

Debt securities issued

W

21,265,326

 

Discounted cash flow

 

Discount rate

Level 3

 

Deposits

 

122,107,524

 

 

Discount rate

 

Borrowings

 

8,918,817

 

 

Discount rate

 

Debt securities issued

 

2,539,917

 

 

Discount rate,

Regression coefficient, Correlation coefficient

 

Other financial liabilities

 

9,073,727

 

 

Discount rate

 

 

 

W

163,905,311

 

 

 

 

 

(*1) The amounts, which were not evaluated by the valuation technique, are not included and disclosed because the carrying amount is the reasonable approximation of fair value.

 

(c) Deferred day one profit or loss for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Beginning balance

 

Deferred

 

Amortization

 

Ending balance

Loans at FVTPL

W

(4,929)

 

(2,506)

 

2,925

 

(4,510)

Securities at FVTPL

 

-

 

4

 

-

 

4

 

 

 

December 31, 2017

 

 

Beginning balance

 

Deferred

 

Amortization

 

Ending balance

Financial liabilities designated at

fair value through profit or loss

W

(12)

 

-

 

12

 

-

Equity swap liabilities

 

12

 

-

 

(12)

 

-

 

 


78


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(d) Classification by category of financial instruments

 

Financial assets and liabilities were measured at fair value or amortized cost.  Financial instruments measured at fair value or amortized costs were measured in accordance with the Bank’s valuation methodologies, which were described in Note 3.

 

The carrying amounts of each category of financial instruments as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Financial assets at FVTPL

 

Financial assets at FVOCI

 

Financial assets at amortized cost

 

Derivatives held

for hedging

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

Due from banks

W

-

 

-

 

6,938,765

 

-

 

6,938,765

Securities

at FVTPL

 

12,811,266

 

-

 

-

 

-

 

12,811,266

Derivative assets

 

1,453,455

 

-

 

-

 

35,093

 

1,488,548

Loans

at FVTPL

 

645,237

 

-

 

-

 

-

 

645,237

Loans at amortized cost

 

-

 

-

 

233,246,276

 

-

 

233,246,276

Securities at FVOCI

 

-

 

30,731,281

 

-

 

-

 

30,731,281

Securities at amortized cost

 

-

 

-

 

16,230,964

 

-

 

16,230,964

Other financial assets

 

-

 

-

 

13,931,897

 

-

 

13,931,897

 

W

14,909,958

 

30,731,281

 

270,347,902

 

35,093

 

316,024,234

 

 

 

Financial liabilities at FVTPL

 

Financial liabilities at amortized cost

 

Derivatives held

for hedging

 

Total

Liabilities

 

 

 

 

 

 

 

 

Deposits

W

-

 

237,451,779

 

-

 

237,451,779

Financial liabilities

at FVTPL

 

479,559

 

-

 

-

 

479,559

Derivative liabilities

 

1,303,932

 

-

 

467,381

 

1,771,313

Borrowings

 

-

 

15,876,442

 

-

 

15,876,442

Debt securities issued

 

-

 

29,294,584

 

-

 

29,294,584

Other financial liabilities

 

-

 

14,926,770

 

-

 

14,926,770

 

W

1,783,491

 

297,549,575

 

467,381

 

299,800,447

 


79


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(d) Classification by category of financial instruments (continued)

 

 

 

December 31, 2017

 

 

Financial assets at fair value through profit or loss

 

Available-for-sale financial assets

 

Held-to-maturity financial assets

 

Loans and receivables

 

Derivatives held

for hedging

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Due from banks

W

-

 

-

 

-

 

13,054,267

 

-

 

13,054,267

Trading assets

 

8,834,871

 

-

 

-

 

-

 

-

 

8,834,871

Derivative assets

 

2,594,256

 

-

 

-

 

-

 

8,433

 

2,602,689

Loans

 

-

 

-

 

-

 

216,985,347

 

-

 

216,985,347

Available-for-sale

financial assets

 

-

 

31,126,397

 

-

 

-

 

-

 

31,126,397

Held-to-maturity financial assets

 

-

 

-

 

14,358,584

 

-

 

-

 

14,358,584

Other financial assets

 

-

 

-

 

-

 

8,764,314

 

-

 

8,764,314

 

W

11,429,127

 

31,126,397

 

14,358,584

 

238,803,928

 

8,433

 

295,726,469

 

 

 

Trading liabilities

 

Financial liabilities measured at amortized cost

 

Derivatives held

for hedging

 

Total

Liabilities

 

 

 

 

 

 

 

 

Deposits

W

-

 

223,975,037

 

-

 

223,975,037

Trading liabilities

 

434,586

 

-

 

-

 

434,586

Derivative liabilities

 

2,478,010

 

-

 

518,948

 

2,996,958

Borrowings

 

-

 

14,471,720

 

-

 

14,471,720

Debt securities issued

 

-

 

23,929,723

 

-

 

23,929,723

Other financial liabilities

 

-

 

14,554,683

 

-

 

14,554,683

 

W

2,912,596

 

276,931,163

 

518,948

 

280,362,707

 

 

There are no financial assets and financial liabilities that are reclassified between financial instruments during the year.

80


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-4.Measurement of fair value (continued)

 

(e) Financial instruments income and costs by category for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

 

Interest

income

(expense)

 

Fees and commission income

(expense)

 

Reversal of

(provision for) credit loss allowance

 

Others

 

Total

 

Other

comprehensive income (loss)

Securities at FVTPL

W

172,718

 

10,403

 

-

 

331,284

 

514,405

 

-

Securities at FVOCI

 

543,442

 

-

 

(10,474)

 

17,679

 

550,647

 

191,226

Securities at amortized cost

 

376,934

 

-

 

(1,988)

 

-

 

374,946

 

-

Loans at FVTPL

 

12,462

 

-

 

-

 

13,827

 

26,289

 

-

Loans at amortized cost

 

7,497,188

 

56,426

 

(234,420)

 

25,260

 

7,344,454

 

-

Other financial assets

 

123,216

 

101,303

 

239

 

-

 

224,759

 

-

Financial liabilities at FVTPL

 

-

 

(18)

 

-

 

-

 

(18)

 

-

Financial liabilities measured at amortized cost

 

(3,695,812)

 

(126)

 

-

 

(75,693)

 

(3,771,631)

 

(2,633)

Net derivatives held for hedging

 

-

 

-

 

-

 

79,635

 

79,635

 

-

Allowance for off balance sheet items

 

-

 

-

 

20,749

 

-

 

20,749

 

-

 

W

5,030,148

 

167,988

 

(225,894)

 

391,992

 

5,364,235

 

188,593

 

 

 

 

2017

 

 

Interest

income

(expense)

 

Fees and commission income

(expense)

 

Impairment loss

 

Others

 

Total

 

Other

comprehensive

income (loss)

Trading assets

W

140,217

 

8,794

 

-

 

(99,505)

 

49,506

 

-

Available-for-sale

financial assets

 

428,647

 

-

 

(178,228)

 

273,049

 

523,468

 

(160,937)

Held-to-maturity

financial assets

 

334,009

 

-

 

-

 

-

 

334,009

 

-

Loans and receivables

 

6,546,404

 

132,501

3

(482,131)

 

36,869

 

6,233,643

 

-

Trading liabilities

 

-

 

(96)

 

-

 

-

 

(96)

 

-

Financial liabilities

designated at fair

value through profit

or loss

 

-

 

-

 

-

 

(43)

 

(43)

 

-

Financial liabilities

measured at

amortized cost

 

(2,928,039)

 

(58)

 

-

 

194,559

 

(2,733,538)

 

17,595

Net derivatives held

for hedging

 

-

 

-

 

-

 

(194,559)

 

(194,434)

 

-

 

W

4,521,238

 

141,141

 

(660,359)

 

210,495

 

4,212,515

 

(143,342)

 

 

81


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

 

4.Financial risk management (continued)

 

4-5.Capital risk management

 

Capital regulations applicable to banks were adopted in 1988, which focused primarily on capital adequacy and asset soundness as a measure of risk.  Building upon the initial Basel Capital Accord of 1988, capital regulations were developed to reflect additional risks as well.  For the purpose of improving risk management and increasing capital adequacy of banks, capital adequacy standards based on the new Basel Capital Accord (Basel III) was implemented by the Financial Services Commission regulations beginning on December 1, 2013.  Under these regulations, all domestic banks including the Bank are required to maintain a capital adequacy ratio of 8% or above and report whether the Bank meet the capital adequacy ratio to the Financial Services Commission.

 

Under the Banking Act, the capital of a bank is divided into two categories.

 

(a) Tier 1 capital (Common equity Tier 1 capital + Additional Tier 1 capital)

i) Common equity Tier 1 capital: Common equity Tier 1 capital consists of capital stock, capital surplus, retained earnings (excluding regulatory reserve for loan loss), accumulated other comprehensive income, other disclosed reserves, and non-controlling interests that meet certain criteria.

ii) Additional Tier 1 capital: Additional Tier 1 capital consists of equity instrument that meet certain criteria for perpetual nature of the equity instrument, any related capital surplus, instruments issued by consolidated subsidiaries of the Bank and held by third parties that meet certain criteria.

 

(b) Tier 2 capital (Supplementary capital)

Tier 2 capital consists of instruments that meet certain criteria for loss absorption in case of liquidation, any related capital surplus, and instruments issued by consolidated subsidiaries of the Bank and held by third parties that meet certain criteria.

 

The capital adequacy ratio of the Bank is calculated by ratios of Tier 1 and Tier 2 capital (less any capital deductions) to risk-weighted assets.  Pursuant to Basel III, operational risk, such as inadequate procedures, loss risk by employees, internal systems, occurrence of unexpected events, as well as credit risk, market risk and additional risk are taken into account in calculating the risk-weighted assets.

 

The Bank evaluates and manages the capital adequacy ratio pursuant to internally developed standards.  It means that the Bank assesses whether the level on ratio of available capital to economic capital is sufficient, or not.  The Bank manages the economic adequacy by the amount of each risk type including credit, market, operation, interest rate, liquidity, concentration, and foreign currency settlement risk, as well as the total amounts of all of those risk types.


82


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-5.Capital risk management (continued)

 

Details of capital categories and the capital adequacy ratio of the Bank as of December 31, 2018 and 2017 were as follows:

 

Category

 

December 31, 2018

 

December 31, 2017

Capital:

 

 

 

 

Common equity Tier 1 capital

W

22,113,697

 

20,891,478

Additional Tier 1 capital

 

698,660

 

669,927

Tier 1 capital

 

22,812,357

 

21,561,405

Tier 2 capital

 

4,687,083

 

3,829,348

 

W

27,499,440

 

25,390,753

 

 

 

 

 

Risk-weighted assets

 

 

 

 

Credit risk-weighted assets (*1)

W

154,994,030

 

146,784,021

Market risk-weighted assets

 

7,227,874

 

6,802,866

Operating risk-weighted assets

 

9,371,300

 

9,287,919

 

W

171,593,204

 

162,874,806

 

 

 

 

 

Capital adequacy ratio:

 

 

 

 

Common equity Tier 1 capital ratio

 

12.89%

 

12.83%

Tier 1 capital ratio

 

13.29%

 

13.24%

Tier 2 capital ratio

 

2.73%

 

2.35%

Total capital ratio

 

16.03%

 

15.59%

 

(*1) Insufficient capital under capital floor is included in credit risk-weighted assets.

 

Pursuant to related regulations, the Bank shall maintain the total capital ratio at 8.0% or above, Tier 1 capital ratio at 6.0% or above and common equity capital ratio at 4.5% or above.  In 2016, the minimum regulatory BIS capital requirement to be met by 2019 was raised to 14% due to the enforcement of Basel III capital regulations.  This is due to the additions of capital conservation buffer (2.5%p), additional capital buffer for Domestic Systemically Important Bank (“D-SIB”) (1.0%p) and countercyclical capital buffer (2.5%p) to the existing minimum capital ratio.  Capital conservation buffer and additional capital buffer for D-SIB will be adjusted upwards by 25% per year through 2019 based on transitional arrangements.  The addition of countercyclical capital buffer can be used up to a maximum of the buffer rate of 2.5%p in a period of excess aggregate credit growth.  The minimum regulatory BIS capital ratio to be complied with as of the end of 2018 is 10.625%, which is due to the increases of 1.875%p for capital conservation buffer, 0.75%p for additional capital buffer for D-SIB, and 0%p for countercyclical capital buffer, respectively.

 

83


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-6.Transaction as a transfer of financial instrument

 

(a) Transfers financial assets that were not derecognized

 

i) Bonds sold under repurchase agreements at a fixed price as of December 31, 2018 and 2017 were as follows:

 

 

December 31, 2018

 

December 31, 2017

Transferred assets:

 

 

 

 

Securities at FVOCI

W

50,289

 

-

   Securities at amortized cost

 

121,716

 

-

Available-for-sale financial assets

 

-

 

70,920

Held-to-maturity financial assets

 

-

 

287,069

 

W

172,005

 

357,989

Associated liabilities:

 

 

 

 

   Bonds sold under repurchase agreements

W

46,316

 

225,265

 

 

 

ii) When the Group's securities are transferred, the Group transfers the ownership of the securities, but upon the termination, the Group will have to return the securities. As a result, securities loaned as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

 

Lender

Available-for-sale financial assets

 

 

 

 

 

 

Government bonds

W

-

 

278,956

 

Korea Securities Finance Corp.,

Korea Securities Depository

Financial institutions bonds

 

-

 

319,580

 

Korea Securities Finance Corp.,

Korea Securities Depository

Securities at FVOCI:

 

 

 

 

 

 

Government bonds

 

595,149

 

-

 

Korea Securities Finance Corp.,

Korea Securities Depository

Financial institutions bonds

 

319,770

 

-

 

Korea Securities Finance Corp.,

Korea Securities Depository

Securities at amortized cost:

 

 

 

 

 

 

Government bonds

 

40,149

 

-

 

Korea Securities Finance Corp.,

Korea Securities Depository

Financial institutions bonds

 

90,060

 

-

 

Korea Securities Finance Corp.,

Korea Securities Depository

 

W

1,045,128

 

598,536

 

 

 

(b) Financial instruments that were qualified for derecognition but under continuing involvement.

 

There are no financial instruments that meets the conditions of derecognition and in which the Bank has continuing involvement as of December 31, 2018 and 2017.

 

84


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-7.Offsetting financial assets and financial liabilities

 

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

 

 

 

December 31, 2018

 

 

Gross amounts of recognized financial assets and liabilities

 

Gross amounts of recognized financial assets and liabilities set off in the statement of financial position

 

Net amounts of financial assets and liabilities presented in the statement of financial position

 

Related amounts not set off in the statement of financial position

 

 

 

 

 

 

Financial instruments

 

Cash collateral received

 

Net

amount

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets (*1)

W

1,487,280

 

-

 

1,487,280

 

6,594,662

 

7,396

 

962,878

Other financial assets (*1)

 

6,077,656

 

-

 

6,077,656

 

 

 

Bonds sold under repurchase agreements related collateral of securities (*2)

 

172,006

 

-

 

172,006

 

46,316

 

-

 

125,690

Bonds purchased under resale agreement (Loans) (*2)

 

4,720,281

 

-

 

4,720,281

 

4,720,281

 

-

 

-

Securities lent (*2)

 

1,045,128

 

-

 

1,045,128

 

1,045,128

 

-

 

-

Domestic exchange settlements receivables (*3)

 

32,337,320

 

26,344,937

 

5,992,383

 

-

 

-

 

5,992,383

Receivable from disposal of securities, etc. (*4)

 

22,906

 

519

 

22,387

 

-

 

-

 

22,387

 

W

45,862,577

 

26,345,456

 

19,517,121

 

12,406,387

 

7,396

 

7,103,338

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (*1)

W

1,759,166

 

-

 

1,759,166

 

6,795,260

 

-

 

282,044

Other financial liabilities (*1)

 

5,318,138

 

-

 

5,318,138

 

 

 

Bonds sold under repurchase agreements (Borrowings) (*2)

 

46,316

 

-

 

46,316

 

46,316

 

-

 

-

Securities sold

 

20,625

 

-

 

20,625

 

20,625

 

-

 

-

Domestic exchange settlement payables (*3)

 

27,363,173

 

26,344,937

 

1,018,236

 

1,018,236

 

-

 

-

Payable from purchase of securities, etc. (*4)

 

552

 

519

 

33

 

33

 

-

 

-

 

W

34,507,970

 

26,345,456

 

8,162,514

 

7,880,470

 

-

 

282,044

 

(*1) The Bank has certain derivative transactions subject to the ISDA (International Swaps and Derivatives Association) agreement.  According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, the net amount after offsetting the amounts obligated by each party is settled.

(*2) Resale and repurchase agreement, securities borrowing and lending agreement are also similar to ISDA agreement with respect to enforceable netting agreements.

(*3) The Bank has legally enforceable right to set off and settles financial assets and liabilities on a net basis.  Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the separate statements of financial position.

(*4) Receivables and payables related to settlement of purchase and disposition of enlisted securities are offset and the net amount is presented in the separate statement of financial position because the Bank currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis.  The effect of offsetting due to the establishment of ‘Central Counter Party (“CCP”)’ system is included in the amount.

 

85


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

4.Financial risk management (continued)

 

4-7.Offsetting financial assets and financial liabilities (continued)

 

 

 

December 31, 2017

 

 

Gross amounts of recognized financial assets and liabilities

 

Gross amounts of recognized financial assets and liabilities set off in the statement of financial position

 

Net amounts of financial assets and liabilities presented in the statement of financial position

 

Related amounts not set off in the statement of financial position

 

 

 

 

 

 

Financial instruments

 

Cash collateral received

 

Net

amount

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets (*1)

W

2,598,278

 

-

 

2,598,278

 

5,488,818

 

271,805

 

1,055,059

Other financial assets (*1)

 

4,217,404

 

-

 

4,217,404

 

 

 

Bonds sold under repurchase agreements related collateral of securities (*2)

 

357,989

 

-

 

357,989

 

225,265

 

-

 

132,724

Bonds purchased under resale agreement (Loans) (*2)

 

3,351,784

 

-

 

3,351,784

 

3,351,784

 

-

 

-

Securities lent (*2)

 

598,536

 

-

 

598,536

 

598,536

 

-

 

-

Domestic exchange settlements receivables (*3)

 

33,071,878

 

30,199,944

 

2,871,934

 

-

 

-

 

2,871,934

Receivable from disposal of securities, etc. (*4)

 

15,567

 

1,152

 

14,415

 

-

 

-

 

14,415

 

W

44,211,436

 

30,201,096

 

14,010,340

 

9,664,403

 

271,805

 

4,074,132

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (*1)

W

2,964,371

 

-

 

2,964,371

 

5,553,780

 

-

 

1,070,236

Other financial liabilities (*1)

 

3,659,645

 

-

 

3,659,645

 

 

 

Bonds sold under repurchase agreements (Borrowings) (*2)

 

225,265

 

-

 

225,265

 

225,265

 

-

 

-

Domestic exchange settlement payables (*3)

 

31,885,249

 

30,199,944

 

1,685,305

 

1,685,305

 

-

 

-

Payable from purchase of securities, etc. (*4)

 

1,519

 

1,152

 

367

 

326

 

-

 

41

 

W

38,736,049

 

30,201,096

 

8,534,953

 

7,464,676

 

-

 

1,070,277

 

(*1) The Bank has certain derivative transactions subject to the ISDA (International Swaps and Derivatives Association) agreement.  According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, the net amount after offsetting the amounts obligated by each party is settled.

(*2) Resale and repurchase agreement, securities borrowing and lending agreement are also similar to ISDA agreement with respect to enforceable netting agreements.

(*3) The Bank has legally enforceable right to set off and settles financial assets and liabilities on a net basis.  Therefore, domestic exchanges settlement receivables (payables) are recorded on a net basis in the separate statements of financial position.

(*4) Receivables and payables related to settlement of purchase and disposition of enlisted securities are offset and the net amount is presented in the separate statement of financial position because the Bank currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis.  The effect of offsetting due to the establishment of ‘Central Counter Party (“CCP”)’ system is included in the amount.


86


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

5.Significant estimates and judgments

 

The preparation of separate financial statements requires the application of certain critical estimates and judgments relative to the future.  Management’s estimated outcomes may differ from actual outcomes.  The change in an accounting estimate is recognized prospectively in profit or loss in the period of the change, if the change affects that period only, or the period of the change and future periods, if the change affects both.

 

(a) Income taxes

 

The Bank is subject to tax laws from various countries.  In the normal course of business, there are various types of transactions and different accounting methods that may add uncertainties to the decision of the final income taxes.  The Bank has recognized current and deferred taxes that reflect tax consequences based on the best estimates in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.  However, actual income taxes in the future may not be identical to the recognized deferred tax assets and liabilities, and this difference can affect current and deferred tax at the period when the final tax effect is determined.

 

(b) Fair value of financial instruments

 

The fair values of financial instruments which are not actively traded in the market are determined by using valuation techniques.  The Bank determines valuation techniques 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 generic valuation techniques to internally developed valuation models that incorporate various types of assumptions and variables.

 

(c) Allowances for loan losses, guarantees and unused loan commitments

 

The Bank determines and recognizes allowances for losses on debt securities, loans and other receivables measured at amortized cost or FVOCI, and recognizes provisions for guarantees and unused loan commitments through impairment testing.  The accuracy of allowances for credit losses is determined by the methodology and assumptions used for expected cash flows for individually assessed allowances and collectively assessed allowances for groups of loans, guarantees and unused loan commitments.

 

(d) Defined benefit obligation

 

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.  Other significant assumptions related to defined benefit obligations are based on current market situations.

 

 

87


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

6.

Cash and due from banks

 

 

(a) Cash and due from banks as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Cash

W

2,467,074

 

1,658,239

Deposits in won:

 

 

 

 

  Reserve deposits

 

2,094,612

 

8,503,968

  Others

 

620,663

 

1,841,884

  

 

2,715,275

 

10,345,852

Deposits in foreign currencies:

 

 

 

 

  Deposits

 

2,884,812

 

2,232,467

  Time deposits

 

1,308,401

 

367,857

  Others

 

37,625

 

111,171

  

 

4,230,838

 

2,711,495

Allowance for impairment

 

(7,348)

 

(3,080)

 

W

9,405,839

 

14,712,506

 

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

 

 

 

December 31, 2018

 

December 31, 2017

Deposits in won:

 

 

 

 

  Reserve deposits

W

2,094,612

 

8,503,968

  Others

 

620,308

 

1,841,602

 

 

2,714,920

 

10,345,570

Deposits in foreign currencies:

 

 

 

 

  Deposits

 

921,268

 

665,589

  Time deposits

 

22,362

 

21,428

  Others

 

6,282

 

4,031

 

 

949,912

 

691,048

 

W

3,664,832

 

11,036,618

 

 

 

 


88


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

7.

Securities at fair value through profit or loss

 

 

Securities at FVTPL as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Debt securities:

 

 

 

 

Government bonds

W

292,556

 

227,885

Financial institution bonds

 

920,163

 

741,484

Corporate bonds

 

510,926

 

242,780

Bills bought

 

4,788,877

 

3,164,088

CMA

 

3,154,456

 

3,965,343

Beneficiary certificates

 

2,436,152

 

-

Others

 

504,547

 

-

 

 

12,607,677

 

8,341,580

Equity securities:

 

 

 

 

  Stocks

 

48,708

 

192

  Beneficiary certificates

 

-

 

303,802

 

 

48,708

 

303,994

Other:

 

 

 

 

  Gold/silver deposits

 

154,881

 

189,297

 

W

12,811,266

 

8,834,871

 

 

 

 

 


89


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

8.

Derivatives

 

 

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

 

 

 

December 31, 2018

 

December 31, 2017

Foreign currency related

 

 

 

 

  Over the counter:

 

 

 

 

    Currency forwards

W

125,826,485

 

86,704,681

    Currency swaps

 

31,103,735

 

29,689,979

    Currency options

 

1,942,878

 

1,156,619

 

 

158,873,098

 

117,551,279

Exchange traded:

 

 

 

 

Currency futures

 

33,543

 

48,213

 

 

158,906,641

 

117,599,492

Interest rates related

 

 

 

 

  Over the counter:

 

 

 

 

    Interest rate swaps

 

30,793,177

 

28,205,968

 

 

30,793,177

 

28,205,968

Exchange traded:

 

 

 

 

Interest rate futures

 

294,777

 

400,159

Interest rate swaps (*1)

 

35,183,073

 

30,158,662

 

 

35,477,850

 

30,558,821

 

 

66,271,027

 

58,764,789

Equity related

 

 

 

 

Over the counter:

 

 

 

 

    Equity options

 

344,550

 

426,915

 

 

344,550

 

426,915

Exchange traded:

 

 

 

 

    Equity futures

 

29,514

 

5,871

Equity options

 

52,063

 

27,815

 

 

81,577

 

33,686

 

 

426,127

 

460,601

Commodity related

 

 

 

 

Over the counter:

 

 

 

 

Commodity forwards

 

157,416

 

128,955

 

 

157,416

 

128,955

Hedge

 

 

 

 

  Fair value hedge:

 

 

 

 

Interest rate swaps

 

9,377,731

 

7,948,422

 

W

235,138,942

 

184,902,259

 

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


90


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

8.

Derivatives (continued)

 

 

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

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Assets

 

Liabilities

 

Assets

 

Liabilities

Foreign currency related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

Currency forwards

W

852,352

 

781,096

 

1,599,006

 

1,429,251

   Currency swaps

 

394,428

 

373,512

 

830,658

 

864,623

   Currency options

 

7,651

 

12,273

 

11,601

 

12,070

 

 

1,254,431

 

1,166,881

 

2,441,265

 

2,305,944

Interest rates related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

   Interest rate swaps

 

196,853

 

135,589

 

147,857

 

170,466

 

 

196,853

 

135,589

 

147,857

 

170,466

Equity related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

Equity options

 

145

 

509

 

4,444

 

1,545

 

 

145

 

509

 

4,444

 

1,545

Exchange traded:

 

 

 

 

 

 

 

 

Equity options

 

-

 

953

 

33

 

55

 

 

145

 

1,462

 

4,477

 

1,600

Commodity related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

Commodity forwards

 

2,026

 

-

 

657

 

-

 

Hedge

 

 

 

 

 

 

 

 

Fair value hedge:

 

 

 

 

 

 

 

 

Interest rate swaps

 

35,093

 

467,381

 

8,433

 

518,948

 

W

1,488,548

 

1,771,313

 

2,602,689

 

2,996,958

 

 

 

 

 

 

 

 

 

 


91


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

8.

Derivatives (continued)

 

 

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

 

 

 

2018

 

2017

 

 

Gain

 

Loss

 

Gain

 

Loss

Foreign currency related

 

 

 

 

 

 

 

 

  Over the counter:

 

 

 

 

 

 

 

 

    Currency forwards

W

883,491

 

816,241

 

1,569,840

 

1,577,284

    Currency swaps

 

454,604

 

490,414

 

1,289,012

 

1,214,965

    Currency options

 

10,999

 

2,760

 

12,574

 

6,906

 

 

1,349,094

 

1,309,415

 

2,871,426

 

2,799,155

Interest rates related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

    Interest rate swaps

 

151,442

 

62,413

 

123,110

 

145,662

 

 

151,442

 

62,413

 

123,110

 

145,662

Equity related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

Equity options

 

6,234

 

4,056

 

2,026

 

1,426

 

 

6,234

 

4,056

 

2,026

 

1,426

Exchange traded:

 

 

 

 

 

 

 

 

Equity options

 

24

 

152

 

65

 

5

 

 

6,258

 

4,208

 

2,091

 

1,431

Commodity related

 

 

 

 

 

 

 

 

Over the counter:

 

 

 

 

 

 

 

 

Commodity forwards

 

2,026

 

-

 

657

 

-

 

 

2,026

 

-

 

657

 

-

Hedge

 

 

 

 

 

 

 

 

Fair value hedge:

 

 

 

 

 

 

 

 

Interest rate swaps

 

142,154

 

86,909

 

38,958

 

246,661

 

W

1,650,974

 

1,462,945

 

3,036,242

 

3,192,909

 

 

 


92


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

8.

Derivatives (continued)

 

 

(d) Hedge accounting

 

i) Purpose of risk hedge and strategy

 

The Bank transacts with derivative financial instruments to hedge its interest rate risk and currency risk arising from the assets and liabilities of the Bank. The Bank applies fair value hedge accounting that uses interest rate swaps to hedge fair value movements risk arising from changes in the market interest rates of the Korean won structured notes, foreign currency issued financial debentures, structured deposits in foreign currencies, foreign currency structured deposits and foreign currency investment receivables. In order to hedge the foreign exchange risk of the net investment from the overseas, the Bank applies the net investment hedge accounting for foreign operations using non-derivative financial instruments.

 

ii) Nominal amounts and average hedge ratios for hedging instruments as of December 31, 2018 were as follows:

 

 

 

1 year

or less

 

1 year ~

2 years

or less

 

2 years ~

3 years

or less

 

3 years ~

4 years

or less

 

4 years ~

5 years

or less

 

More than

5 years

 

Total

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

W

110,000

 

687,632

 

723,177

 

657,254

 

715,584

 

6,484,084

 

9,377,731

Average hedge ratio

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge of net investments

in foreign operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities issued

in foreign currencies

W

-

 

-

 

31,512

 

145,353

 

159,888

 

-

 

336,753

Average hedge ratio

 

-

 

-

 

100%

 

100%

 

100%

 

-

 

100%

 

 

(e) Impact of hedge accounting on the separate financial statements

 

i) Impact on hedging instruments in the separate statement of financial position as of December 31, 2018 and separate statement of comprehensive income and changes in equity for the year then ended was as follows:

 

 

Notional

amounts

 

Separate statement of

financial position

 

 

Separate statement of comprehensive income

 

Derivative assets

 

Derivative liabilities

 

Debt securities issued

 

 

Net other operating expenses

 

Other comprehensive income (loss) for the

year

 

Changes in

fair value for the year

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

rate risk

Interest

rate swaps

W

9,377,731

 

35,093

 

467,381

 

-

 

 

79,635

 

-

 

55,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge of net

investments in

foreign operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

exchange

risk

Borrowings

in foreign

currencies

 

-

 

-

 

-

 

-

 

 

-

 

260

 

260

Debt securities issued

in foreign

currencies

 

336,754

 

-

 

-

 

334,301

 

 

-

 

(2,893)

 

(2,893)

 

W

9,714,485

 

35,093

 

467,381

 

334,301

 

 

79,635

 

(2,633)

 

52,612


93


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

 

8.

Derivatives (continued)

 

 

(e) Impact of hedge accounting on the separate financial statements (continued)

 

ii) Impact on hedged items in the separate statement of financial position as of December 31, 2018 and separate statement of comprehensive income and separate statement of changes in equity for the year then ended was as follows:

 

 

 

Hedging

instruments

 

Separate statement of

financial position

 

Separate statement of comprehensive income

 

Changes

in fair value for the year

 

Reserve of exchange differences on translation

Securities at

FVOCI

 

Deposits

 

Debt

securities

issued

Other comprehensive income for the year

 

Net other operating expenses

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate risk

 

Debt securities issued

W

-

 

-

 

7,058,950

 

(357,232)

 

-

 

(47,772)

 

-

 

Investment bonds

 

293,215

 

-

 

-

 

(2,832)

 

-

 

800

 

-

 

Time deposits

 

-

 

1,814,109

 

-

 

(167,226)

 

-

 

(9,490)

 

-

Hedge of net investments in foreign operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange risk

 

Net investments

in foreign operations

 

-

 

-

 

-

 

-

 

2,633

 

(2,633)

 

1,117

 

 

 

W

293,215

 

1,814,109

 

7,058,950

 

(527,290)

 

2,633

 

(59,095)

 

1,117

 

iii) Gains (losses) on fair value hedged items and hedging instruments attributable to the hedged risk for the year ended December 31, 2018 were as follows:

 

 

 

Gains on

fair value hedges

(hedged items)

 

Losses on

fair value hedges

(hedging instruments)

 

Hedge ineffectiveness recognized in profit

or loss (*1)

Fair value hedges:

 

 

 

 

 

 

Interest rate swaps

W

(76,573)

 

79,635

 

3,062

 

 

 

 

 

 

 

Hedge of net investments

in foreign operations:

 

 

 

 

 

 

Foreign exchange risk

 

2,633

 

(2,633)

 

-

 

W

(73,940)

 

77,002

 

3,062

 

(*1) Recognized hedge ineffectiveness is included in other operating income and expenses in the separate statement of comprehensive income.

 


94


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

9.

Loans

 

 

(a) Details of loans as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Loans at amortized cost

 

Loans at FVOCI

Household loans

W

106,401,688

 

-

Corporate loans

 

121,277,311

 

645,237

Public and other loans

 

2,729,075

 

-

Loans to banks

 

3,831,158

 

-

 

 

234,239,232

 

645,237

Deferred loan origination costs and fees                              

 

497,515

 

-

 

 

234,736,747

 

645,237

Less: Allowance for impairment

 

(1,490,471)

 

-

 

W

233,246,276

 

645,237

 

 

 

 

December 31, 2017

Household loans

W

98,890,625

Corporate loans

 

112,981,422

Public and other loans

 

2,203,307

Loans to banks

 

3,805,922

 

 

217,881,276

Deferred loan origination costs and fees                              

 

427,487

 

 

218,308,763

Less: Allowance for impairment

 

(1,323,416)

 

W

216,985,347

 


95


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

9.

Loans (continued)

 

 

(b) Changes in allowance for impairment and book value

 

i) Changes in allowance for impairment for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Due from banks

 

Loans

 

Other assets

 

Total

 

 

 

 

Household

 

Corporate

 

Others

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Beginning balance (*1)

W

2,931

 

149

 

-

 

52,295

 

117,521

 

133,341

 

354,661

 

498,650

 

512,364

 

10,097

 

2,709

 

3,893

 

21,997

 

2,157

 

1,020

 

1,713,785

Transfer to 12 month expected credit losses

 

110

 

(110)

 

-

 

44,603

 

(44,247)

 

(356)

 

40,943

 

(40,793)

 

(150)

 

433

 

(433)

 

-

 

242

 

(242)

 

-

 

-

Transfer to lifetime expected credit losses

 

(5)

 

5

 

-

 

(5,289)

 

10,822

 

(5,533)

 

(33,368)

 

67,178

 

(33,810)

 

(221)

 

221

 

-

 

(106)

 

116

 

(10)

 

-

Transfer to credit- impaired financial assets

 

-

 

-

 

-

 

(97)

 

(2,110)

 

2,207

 

(574)

 

(9,440)

 

10,014

 

(5)

 

(140)

 

145

 

(3)

 

(69)

 

72

 

-

Provision for (reversal of) allowance

 

3,934

 

197

 

-

 

(12,831)

 

(4,413)

 

149,003

 

(67,597)

 

(54,660)

 

202,444

 

(511)

 

8,058

 

10,798

 

(2,083)

 

44

 

1,800

 

234,183

Write-offs

 

-

 

-

 

-

 

-

 

-

 

(200,024)

 

-

 

-

 

(264,334)

 

-

 

-

 

(2,567)

 

-

 

-

 

(65)

 

(466,990)

Effect of discounting

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(15,086)

 

-

 

-

 

-

 

-

 

-

 

-

 

(15,086)

Allowance related to loans transferred

 

-

 

-

 

-

 

-

 

(17)

 

(2,216)

 

-

 

(357)

 

(52,094)

 

-

 

-

 

(2,454)

 

-

 

(7)

 

(2,736)

 

(59,881)

Recoveries

 

-

 

-

 

-

 

-

 

-

 

47,813

 

-

 

-

 

61,832

 

-

 

-

 

91

 

-

 

-

 

547

 

110,283

Others (*2)

 

134

 

3

 

-

 

(9)

 

-

 

-

 

1,174

 

5,007

 

(2,174)

 

63

 

1

 

-

 

2,346

 

-

 

-

 

6,545

Ending balance

W

7,104

 

244

 

-

 

78,672

 

77,556

 

124,235

 

295,239

 

465,585

 

419,006

 

9,856

 

10,416

 

9,906

 

22,393

 

1,999

 

628

 

1,522,839

 

(*1) The beginning balance was restated in accordance with K-IFRS No.1109.

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

96


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

9.

Loans (continued)

 

 

(b) Changes in allowance for impairment and book value (continued)

 

i) Changes in allowance for impairment for the years ended December 31, 2018 and 2017 were as follows: (continued)

 

 

 

December 31, 2017

 

 

Due from

banks

 

Loans

 

Other assets

 

Total

Household

 

Corporate

 

Others

Beginning balance

W

1,311

 

254,408

 

996,410

 

13,144

 

25,360

 

1,290,633

Provision for (reversal of) allowance

 

1,769

 

131,810

 

346,885

 

2,617

 

(951)

 

482,130

Write-offs

 

-

 

(126,679)

 

(242,739)

 

(565)

 

(388)

 

(370,371)

Effect of discounting

 

-

 

-

 

(17,483)

 

-

 

-

 

(17,483)

Allowance related to loans transferred

 

-

 

(2,042)

 

(58,132)

 

(402)

 

-

 

(60,576)

Recoveries

 

-

 

39,624

 

67,953

 

35

 

493

 

108,105

Others (*1)

 

-

 

-

 

(81,428)

 

-

 

(321)

 

(81,749)

Ending balance

W

3,080

 

297,121

 

1,011,466

 

14,829

 

24,193

 

1,350,689

 

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


97


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

9.

Loans (continued)

 

 

(b) Changes in allowance for impairment and book value (continued)

 

ii) Changes in book value of due from banks, loans and other assets for the year ended December 31, 2018 were as follows:

 

 

 

December 31, 2018

 

 

Due from banks

 

Loans

 

Other assets

 

Total

 

 

 

Household

 

Corporate

 

Others

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 1

 

Stage 2

 

Stage 3

 

Beginning balance

W

13,052,184

 

5,164

 

-

 

91,474,258

 

7,162,513

 

253,854

 

96,203,951

 

15,292,928

 

878,750

 

5,550,172

 

445,996

 

13,061

 

8,738,983

 

47,929

 

1,595

 

239,121,338

Transfer to 12 month expected credit losses

 

4,383

 

(4,383)

 

-

 

3,344,013

 

(3,340,423)

 

(3,590)

 

3,138,166

 

(3,137,672)

 

(494)

 

71,267

 

(71,267)

 

-

 

13,507

 

(13,506)

 

(1)

 

-

Transfer to lifetime expected credit losses

 

(1,842)

 

1,842

 

-

 

(4,816,122)

 

4,831,162

 

(15,040)

 

(13,171,352)

 

13,207,301

 

(35,949)

 

(364,544)

 

364,544

 

-

 

(45,197)

 

45,208

 

(11)

 

-

Transfer to credit-impaired financial assets

 

-

 

-

 

-

 

(479,083)

 

(26,689)

 

505,772

 

(1,311,451)

 

(34,445)

 

1,345,896

 

(23,964)

 

(8,557)

 

32,521

 

(15,102)

 

(239)

 

15,341

 

-

Origination

 

2,621,692

 

-

 

-

 

33,386,195

 

-

 

-

 

61,924,062

 

-

 

-

 

4,101,145

 

-

 

-

 

10,754,991

 

-

 

-

 

112,788,085

Recoveries

 

(8,818,037)

 

(591)

 

-

 

(23,397,185)

 

(2,007,789)

 

(193,118)

 

(45,106,896)

 

(6,891,737)

 

(638,247)

 

(3,487,809)

 

(129,933)

 

(12,868)

 

(5,540,854)

 

(29,853)

 

(889)

 

(96,255,806)

Write-offs

 

-

 

-

 

-

 

-

 

-

 

(200,024)

 

-

 

-

 

(264,334)

 

-

 

-

 

(2,567)

 

-

 

-

 

(65)

 

(466,990)

Allowance related

to loans transferred

 

-

 

-

 

-

 

-

 

(3,059)

 

(72,721)

 

-

 

(15,997)

 

(491,107)

 

-

 

-

 

(14,554)

 

-

 

(498)

 

(14,422)

 

(612,358)

Others (*1)

 

85,673

 

28

 

-

 

(1,238)

 

-

 

-

 

347,604

 

62,597

 

(24,263)

 

96,151

 

1,441

 

-

 

-

 

-

 

-

 

567,993

Ending balance

W

6,944,053

 

2,060

 

-

 

99,510,838

 

6,615,715

 

275,133

 

102,024,084

 

18,482,975

 

770,252

 

5,942,418

 

602,224

 

15,593

 

13,906,328

 

49,041

 

1,548

 

255,142,262

 

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

98


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

9.Loans (continued)

 

(b) Changes in allowance for impairment and book value (continued)

 

iii) Changes in allowance for impairment for the year ended December 31, 2017 were as follows: (continued)

 

 

 

2017

 

 

Due from

banks

 

Loans

 

 

 

 

 

 

 

Household

 

Corporate

 

Others

 

Other assets

 

Total

Beginning balance

W

1,311

 

254,408

 

996,410

 

13,144

 

25,360

 

1,290,633

Provision for (reversal of) allowance

 

1,769

 

131,810

 

346,885

 

2,617

 

(951)

 

482,130

Write-offs

 

-

 

(126,679)

 

(242,739)

 

(565)

 

(388)

 

(370,371)

Effect of discounting

 

-

 

-

 

(17,483)

 

-

 

-

 

(17,483)

Allowance related to
loans transferred

 

-

 

(2,042)

 

(58,132)

 

(402)

 

-

 

(60,576)

Recoveries

 

-

 

39,624

 

67,953

 

35

 

493

 

108,105

Others (*1)

 

-

 

-

 

(81,428)

 

-

 

(379)

 

(81,749)

Ending balance

W

3,080

 

297,121

 

1,011,466

 

14,829

 

24,193

 

1,350,689

 

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

 

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

 

 

 

December 31, 2018

 

December 31, 2017

Beginning balance (*1)

W

427,915

 

377,974

Loan originations

 

269,789

 

214,994

Amortization

 

(200,189)

 

(165,481)

Ending balance

W

497,515

 

427,487

 

(*1) The beginning balance for 2018 was restated in accordance with K-IFRS No.1109.

 


99


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

10.Securities at fair value through other comprehensive income and Securities at amortized cost

 

 

(a)

Details of securities at FVOCI and securities at amortized cost as of December 31, 2018 and available-for-sale financial assets and held-to-maturity financial assets as of December 31, 2017 were as follows:

 

 

 

December 31, 2018

Securities at FVOCI:

 

 

Debt securities:

 

 

   Government bonds

W

7,156,748

   Financial institutions bonds

 

14,920,775

   Corporate bonds

 

8,215,952

 

 

30,293,475

Equity securities:

 

 

   Stocks

 

436,685

   Equity investments

 

1,121

 

 

437,806

 

W

30,731,281

Securities at amortized cost:

 

 

Debt securities:

 

 

   Government bonds

W

11,426,126

   Financial institutions bonds

 

776,808

   Corporate bonds

 

4,031,630

 

 

16,234,564

Allowance for impairment

 

(3,600)

  

W

16,230,964


100


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

10.Securities at fair value through other comprehensive income and securities at amortized cost (continued)

 

(a)

Details of securities at FVOCI and securities at amortized cost as of December 31, 2018 and available-for-sale financial assets and held-to-maturity financial assets as of December 31, 2017 were as follows: (continued)

 

 

 

December 31, 2017

Available-for-sale financial assets:

 

 

Debt securities:

 

 

   Government bonds

W

5,505,989

   Financial institutions bonds

 

15,197,997

   Corporate bonds

 

7,719,698

 

 

28,423,684

Equity securities (*1):

 

 

   Stocks

 

541,071

   Equity investments

 

261,531

   Beneficiary certificates

 

1,900,111

 

 

2,702,713

 

W

31,126,397

Held-to-maturity financial assets:

 

 

Debt securities:

 

 

   Government bonds

W

9,595,227

   Financial institutions bonds

 

1,105,280

   Corporate bonds

 

3,658,077

  

W

14,358,584

 

(*1) Equity securities with no quoted market prices in active markets and of which the fair value cannot be measured reliably was recorded at cost of W23,591 million as of December 31, 2017.

 

Details of equity instruments designated at FVOCI as of December 31, 2018 were as follows:

 

 

 

December 31, 2018

Marketable securities

W

135,815

Non-marketable securities

 

300,870

Others

 

1,121

 

W

437,806

 

The Bank designated the above equity instruments at FVOCI, in accordance with the Bank’s policy.

Cumulative net losses reclassified in equity upon disposition of equity securities for the year ended December 31, 2018 were W4,399 million.


101


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

10.Securities at fair value through other comprehensive income and securities at amortized cost (continued)

 

(b)

Gains and losses on sale of securities at FVOCI for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

 

Gain on sale of securities at FVOCI

W

10,124

 

-

 

Loss on sale of securities at FVOCI

 

(298)

 

-

 

Gain on sale of available-for-sale financial assets

 

-

 

199,490

 

Loss on sale of available-for-sale financial assets

 

- 

 

(12,779)

 

 

W

9,826

 

186,711

 

 

The Bank disposed equity instruments that are measured at FVOCI for debt-equity swap.  At the time of disposal, fair value of equity instruments and cumulative net losses were W2,379 million and W4,399 million, respectively.

 

(c)

There were no gains and losses on sale of securities at amortized cost for year ended December 31, 2018.

 

(d)

Changes in allowance for credit loss of securities at FVOCI and securities at amortized cost

 

i) Changes in allowance for credit loss of securities at FVOCI and securities at amortized cost for the year ended December 31, 2018 were as follows:

 

 

 

Securities at FVOCI

Securities at amortized cost

 

 

12-month expected credit losses

 

Lifetime expected credit losses

 

Credit-impaired financial assets

 

Total

 

12-month expected credit losses

 

Lifetime expected credit losses

 

Credit-impaired financial assets

 

Total

Beginning balance (*1)

W

7,972

 

-

 

-

 

7,972

 

1,367

 

-

 

-

 

1,367

Transfer to 12-month expected credit losses

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Transfer to lifetime expected credit losses

 

(161)

 

161

 

-

 

-

 

-

 

-

 

-

 

-

Transfer to impaired financial assets

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Provision (reversal)

 

10,386

 

89

 

-

 

10,475

 

1,988

 

-

 

-

 

1,988

Disposals

 

(1,280)

 

(156)

 

-

 

(1,436)

 

-

 

-

 

-

 

-

Others (*2)

 

1,214

 

2

 

-

 

1,216

 

245

 

-

 

-

 

245

Ending balance

W

18,131

 

96

 

-

 

18,227

 

3,600

 

-

 

-

 

3,600

 

(*1) The beginning balance was restated in accordance with K-IFRS No.1109.

(*2) Other changes were due to foreign exchange rate changes, etc.

 

The Bank recognized impairment loss on available-for-sale financial assets amounted to W178,228 million for the year ended December 31, 2017.

102


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

10.Securities at fair value through other comprehensive income and securities at amortized cost (continued)

 

ii) Changes in book value of securities at FVOCI and securities at amortized cost for the year ended December 31, 2018 were as follows:

 

 

 

Securities at FVOCI

 

Securities at amortized cost

 

 

12-month expected credit losses

 

Lifetime expected credit losses

 

Credit-impaired financial assets

 

 

Total

 

12-month expected credit losses

 

Lifetime expected credit losses

 

Credit-impaired financial assets

 

Total

Beginning balance  

W

28,423,684

 

-

 

-

 

28,423,684

 

14,358,584

 

-

 

-

 

14,358,584

Transfer to 12-month expected credit losses

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Transfer to lifetime expected credit losses

 

(15,506)

 

15,506

 

-

 

-

 

-

 

-

 

-

 

-

Transfer to impaired financial asset

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Acquisitions

 

23,600,909

 

98,778

 

-

 

23,699,687

 

3,567,093

 

-

 

-

 

3,567,093

Disposals

 

(4,575,625)

 

(8,006)

 

-

 

(4,583,631)

 

-

 

-

 

-

 

-

Redemption

 

(18,199,108)

 

-

 

-

 

(18,199,108)

 

(1,792,087)

 

-

 

-

 

(1,792,087)

Others (*1)

 

956,479

 

(3,636)

 

-

 

952,843

 

100,974

 

-

 

-

 

100,974

Ending balance

W

30,190,833

 

102,642

 

-

 

30,293,475

 

16,234,564

 

-

 

-

 

16,234,564

 

(*1) Other changes were due to foreign exchange rate changes, etc.

 

11.Property and equipment

 

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

 

 

 

December 31, 2018

 

 

Acquisition cost

 

Accumulated depreciation

 

Book value

Land

W

1,229,200

 

-

 

1,229,200

Buildings (*1)

 

832,908

 

(275,690)

 

557,218

Others

 

1,235,144

 

(1,078,695)

 

156,449

 

W

3,297,252

 

(1,354,385)

 

1,942,867

 

(*1) W494 million of government subsidy was deducted from book value.

 

 

 

December 31, 2017

 

 

Acquisition cost

 

Accumulated depreciation

 

Book value

Land

W

1,239,966

 

-

 

1,239,966

Buildings (*1)

 

829,035

 

(237,002)

 

592,033

Others

 

1,219,544

 

(1,063,106)

 

156,438

 

W

3,288,545

 

(1,300,108)

 

1,988,437

 

(*1) W666 million of government subsidy was deducted from book value.

 


103


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

11.Property and equipment (continued)

 

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

 

 

 

December 31, 2018

 

 

Land

 

Buildings

 

Others

 

Total

Beginning balance

W

1,239,966

 

592,033

 

156,438

 

1,988,437

Acquisitions (*1)(*2)(*3)

 

-

 

9,637

 

70,472

 

80,109

Disposals and write-offs (*4)

 

(17,262)

 

(1,744)

 

(3,018)

 

(22,024)

Depreciation

 

-

 

(40,348)

 

(67,227)

 

(107,575)

Amounts transferred from (to)

investment property

 

6,529

 

(2,314)

 

-

 

4,215

Amounts transferred to non-current assets held for sale

 

(33)

 

(46)

 

-

 

(79)

Effects of foreign currency movements

 

-

 

-

 

(217)

 

(217)

Ending balance

W

1,229,200

 

557,218

 

156,449

 

1,942,867

 

(*1) W6,319 million transferred from construction-in progress was included.

(*2) W1,810 million of provision for the asset retirement related to newly acquired assets was included.

(*3) W897 million among acquisition cost of others was accounted for as accounts payable.

(*4) W932 million of loss on write-off was included.

 

 

 

December 31, 2017

 

 

Land

 

Buildings

 

Others

 

Total

Beginning balance

W

1,183,352

 

618,092

 

174,762

 

1,976,206

Acquisitions (*1)(*2)

 

1,460

 

20,951

 

56,270

 

78,681

Disposals and write-offs (*3)

 

(5,487)

 

(356)

 

(2,129)

 

(7,972)

Depreciation

 

-

 

(37,741)

 

(72,552)

 

(110,293)

Amounts transferred from (to) investment property

 

62,456

 

(5,392)

 

-

 

57,064

Amounts transferred to non-current assets held for sale

 

(1,815)

 

(3,521)

 

-

 

(5,336)

Effects of foreign currency movements

 

-

 

-

 

87

 

87

Ending balance

W

1,239,966

 

592,033

 

156,438

 

1,988,437

 

(*1) W14,285 million transferred from construction-in progress was included.

(*2) W1,761 million of provision for the asset retirement related to newly acquired assets was included.

(*3) W831 million of loss on write-off was included.

 


104


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

11.Property and equipment (continued)

 

(c) Insured assets and liability insurances as of December 31, 2018 were as follows:

 

Type of insurance

 

Insured assets

 

Amount covered

 

Insurance company

Comprehensive insurance for financial institutions

 

Cash & securities

W

20,000

 

Samsung Fire & Marine

Insurance Co., Ltd.

Property insurance

 

Real estate & movable properties for business purpose

 

893.955

 

Samsung Fire & Marine

Insurance Co., Ltd., etc.

Burglary insurance

 

Cash & securities

 

60,000

 

Samsung Fire & Marine

Insurance Co., Ltd., etc.

Compensation liability insurance for officers

 

-

 

50,000

 

Meritz Fire & Marine

Insurance Co., Ltd., etc.

Compensation liability insurance for gas accident

 

Real estate

 

500

 

Meritz Fire & Marine

Insurance Co., Ltd.

Compensation liability insurance for personal information protection

 

-

 

10,000

 

Samsung Fire & Marine

Insurance Co., Ltd.

Compensation liability

insurance for electronic

financial transaction

 

-

 

2,000

 

DB Insurance Co., Ltd., etc.

Compensation liability insurance for casualty

 

Real estate

 

1,000

 

Samsung Fire & Marine

Insurance Co., Ltd.

 

 

 

W

1,037,455

 

 

 

Besides the insurances listed above, the Bank also has automobile liability insurance, medical insurance for employees, and casualty insurance for protecting property and employees.

 

 


105


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

12.Intangible assets

 

Changes in intangible assets for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Software

 

Development cost

 

Memberships

 

Others

 

Total

Beginning balance

W

37,005

 

43,417

 

45,723

 

60,612

 

186,757

Acquisitions (*1)

 

32,572

 

18,020

 

4,284

 

35,157

 

90,033

Disposals

 

-

 

-

 

(2,619)

 

-

 

(2,619)

Amortization (*2)

 

(21,016)

 

(14,937)

 

-

 

(33,996)

 

(69,949)

Effects of foreign currency movements

 

2

 

-

 

88

 

(4)

 

86

Ending balance

W

48,563

 

46,500

 

47,476

 

61,769

 

204,308

 

(*1) W1,047 million among acquisition cost of other intangible assets was accounted for as accounts payable.

(*2) W33,573 million among amortization cost of other intangible assets was included in other operating expenses.

 

 

 

December 31, 2017

 

 

Software

 

Development cost

 

Memberships

 

Others

 

Total

Beginning balance

W

50,864

 

32,162

 

45,558

 

63,323

 

191,907

Acquisitions (*1)

 

8,364

 

22,904

 

4,977

 

39,726

 

75,971

Disposals

 

-

 

-

 

(4,788)

 

(245)

 

(5,033)

Amortization (*2)

 

(22,222)

 

(11,649)

 

-

 

(42,119)

 

(75,990)

Effects of foreign currency movements

 

(1)

 

-

 

(24)

 

(73)

 

(98)

Ending balance

W

37,005

 

43,417

 

45,723

 

60,612

 

186,757

 

(*1) W5,061 million among acquisition cost of other intangible assets was accounted for as accounts payable.

(*2) W41,570 million among amortization cost of other intangible assets was included in other operating expenses.


106


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

13.Investments in subsidiaries and associates

 

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

 

Investees

 

Location

 

Industry sector

Shinhan Asia Ltd.

 

Hong Kong

 

Merchant Banking

Shinhan Bank America

 

U.S.A

 

Banking

Shinhan Bank Europe GmbH

 

Germany

 

Banking

Shinhan Bank Cambodia

 

Cambodia

 

Banking

Shinhan Kazakhstan Bank Limited

 

Kazakhstan

 

Banking

Shinhan Bank Canada

 

Canada

 

Banking

Shinhan Bank China Limited

 

China

 

Banking

Shinhan Bank Japan

 

Japan

 

Banking

Shinhan Bank Vietnam Ltd.

 

Vietnam

 

Banking

Shinhan Bank Mexico

 

Mexico

 

Banking

PT Bank Shinhan Indonesia

 

Indonesia

 

Banking

Shinhan-Daesung Contents Fund

 

Korea

 

Other

BNP Paribas Cardif Life Insurance Co., Ltd. (*1)

 

Korea

 

Insurance

Daewontos Co., Ltd. (*2)

 

Korea

 

Other

Inhee Co., Ltd.

 

Korea

 

Wholesale

Daegy Electrical Construction Co., Ltd. (*2)

 

Korea

 

Construction

YEONWOONG SYSTEM (*2)

 

Korea

 

Other

DOODOO LOGITECH (*2)

 

Korea

 

Other

Neoplux Technology Valuation Investment Fund

 

Korea

 

Investment

JAEYOUNG SOLUTEC CO., LTD. (*3)

 

Korea

 

Other

Partners 4th Growth Investment Fund

 

Korea

 

Investment

KTB Newlake Global Healthcare PEF

 

Korea

 

Investment

Jaeyang Industry (*2)

 

Korea

 

Other

Tigris-Aurum Fund 1

 

Korea

 

Investment

Chungyoung INC.

 

Korea

 

Other

DAEKWANG SEMICONDUCTOR Co., Ltd. (*2)

 

Korea

 

Manufacturing

Branbuil Co., Ltd.

 

Korea

 

Manufacturing

Songrim Co., Ltd. (*2)

 

Korea

 

Wholesale

Taihan Industrial System Co., Ltd. (*2)

 

Korea

 

Wholesale

Hyungje Art Printing (*2)

 

Korea

 

Other

ICSF (The Korea’s Information Center for Savings & Finance)

 

Korea

 

Service

Shinhan-Albatross Technology Investment Fund

 

Korea

 

Investment

Loggia

 

Korea

 

Manufacturing

Quantum-Nvestor Fund No.1 (*3)

 

Korea

 

Finance

Lodestone 1st Private Equity Fund

 

Korea

 

Finance

Miraeequity-Incus Venture Business Fund No.4

 

Korea

 

Finance

LB Technology Fund 1

 

Korea

 

Finance

Shinhan-Neoplux Energy Newbiz Fund

 

Korea

 

Finance

Stassets-DA Value Healthcare Fund I

 

Korea

 

Finance

 


107


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

13.

Investments in subsidiaries and associates (continued)

 

 

(b) Ownership percentage and book value of investments in subsidiaries and associates as of December 31, 2018 and 2017 were as follows:

 

 

 

Ownership (%)

 

Book value

Investees

 

December

31, 2018

 

December

31, 2017

 

December

31, 2018

 

December

31, 2017

Shinhan Asia Ltd.

 

99.99

 

99.99

W

114,185

 

161,293

Shinhan Bank America

 

100.00

 

100.00

 

193,049

 

136,419

Shinhan Bank Europe GmbH

 

100.00

 

100.00

 

78,606

 

78,606

Shinhan Bank Cambodia

 

97.50

 

97.50

 

84,351

 

55,705

Shinhan Kazakhstan Bank Limited

 

100.00

 

100.00

 

77,913

 

77,913

Shinhan Bank Canada

 

100.00

 

100.00

 

79,695

 

79,695

Shinhan Bank China Limited

 

100.00

 

100.00

 

355,443

 

355,443

Shinhan Bank Japan

 

100.00

 

100.00

 

410,485

 

359,745

Shinhan Bank Vietnam Ltd.

 

100.00

 

100.00

 

330,654

 

330,654

Shinhan Bank Mexico

 

99.99

 

99.99

 

97,467

 

97,467

PT Bank Shinhan Indonesia

 

99.00

 

99.00

 

425,277

 

425,277

Shinhan-Daesung Contents Fund

 

71.43

 

71.43

 

5,000

 

3,500

BNP Paribas Cardif Life Insurance Co., Ltd. (*1)

 

14.99

 

14.99

 

42,204

 

42,203

Daewontos Co., Ltd. (*2)

 

36.33

 

36.33

 

-

 

-

Inhee Co., Ltd.

 

-

 

15.36

 

-

 

-

Daegy Electrical Construction Co., Ltd. (*2)

 

27.45

 

27.45

 

-

 

-

YEONWOONG SYSTEM (*2)

 

21.77

 

21.77

 

-

 

-

DOODOO LOGITECH (*2)

 

27.96

 

27.96

 

-

 

-

Neoplux Technology Valuation Investment Fund

 

33.33

 

33.33

 

19,068

 

13,068

JAEYOUNG SOLUTEC CO., LTD. (*3)

 

-

 

9.61

 

-

 

2,014

Partners 4th Growth Investment Fund

 

25.00

 

25.00

 

16,697

 

14,100

KTB Newlake Global Healthcare PEF

 

20.00

 

20.00

 

7,036

 

2,056

Jaeyang Industry (*2)

 

25.90

 

25.90

 

-

 

-

Tigris-Aurum Fund 1 

 

27.27

 

27.27

 

1,500

 

1,500

Chungyoung INC.

 

-

 

18.94

 

-

 

-

DAEKWANG SEMICONDUCTOR Co., Ltd. (*2)

 

20.94

 

20.94

 

-

 

-

Branbuil Co., Ltd.

 

-

 

15.53

 

-

 

-

Songrim Co., Ltd. (*2)

 

35.34

 

35.34

 

-

 

-

Taihan Industrial System Co., Ltd. (*2)

 

28.29

 

28.29

 

-

 

-

Hyungje Art Printing (*2)

 

31.54

 

-

 

-

 

-

ICSF (The Korea’s Information Center for Savings & Finance)

 

32.26

 

32.26

 

156

 

156

Shinhan-Albatross Technology Investment Fund

 

33.33

 

33.33

 

6,000

 

2,000

Loggia

 

-

 

16.29

 

-

 

-

Quantum-Nvestor Fund No.1 (*3)

 

-

 

16.67

 

-

 

1,000

Lodestone 1st Private Equity Fund

 

-

 

17.38

 

-

 

2,000

Miraeequity-Incus Venture Business Fund No.4

 

23.53

 

23.53

 

2,000

 

2,000

LB Technology Fund 1

 

-

 

18.52

 

-

 

1,000

Shinhan-Neoplux Energy Newbiz Fund

 

23.33

 

23.33

 

4,200

 

1,400

Stassets-DA Value Healthcare Fund I (*4)

 

24.10

 

-

 

1,000

 

-

 

 

 

 

 

W

2,351,986

 

2,246,214

 


108


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

13.

Investments in subsidiaries and associates (continued)

 

 

(b) Ownership percentage and book value of investments in subsidiaries and associates as of December 31, 2018 and 2017 were as follows: (continued)

 

(*1) Although the ownership interest in BNP Paribas Cardif Life Insurance Co., Ltd. was less than 15%, the Bank used the equity method accounting as the Bank has significant influence over the investee through significant operating transactions.

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

(*3)

These investees were sold and excluded from associates during the year ended December 31, 2018.

(*4) The Bank newly acquired the associates during the year ended December 31, 2018.

 

 

14.

Investment properties

 

 

(a)

Investment properties as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Acquisition cost

 

Accumulated depreciation

 

Book value

Land

W

417,994

 

-

 

417,994

Buildings

 

222,549

 

(69,413)

 

153,136

 

W

640,543

 

(69,413)

 

571,130

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

Acquisition cost

 

Accumulated depreciation

 

Book value

Land

W

435,722

 

-

 

435,722

Buildings

 

222,914

 

(60,511)

 

162,403

 

W

658,636

 

(60,511)

 

598,125

 

 

(b) Fair value of investment properties as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Investment properties (*1)

W

605,107

 

686,811

 

(*1) Fair value of investment properties is estimated based on the recent market transactions and certain significant unobservable inputs. Accordingly fair value of investment properties is classified as level 3.

 

(c) Income and expenses on investment properties for the years ended December 31, 2018 and 2017 were as follows:

    

 

 

2018

 

2017

Rental income

W

27,545

 

25,156

Direct operating expenses for investment

properties that generate rental income

 

5,736

 

 

5,600

 

 


109


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

15.

Other assets

 

 

Other assets as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Unsettled trades and accounts receivable

W

5,735,317

 

3,944,994

Domestic exchange settlement receivables

 

5,992,383

 

2,871,934

Guarantee deposits

 

1,008,256

 

1,010,267

Accrued income

 

1,183,220

 

941,393

Prepaid expense

 

82,904

 

74,048

Suspense payments

 

53,604

 

43,975

Sundry assets

 

74,028

 

72,246

Others

 

2,771

 

2,019

Present value discount

 

(38,157)

 

(44,116)

Allowance for impairment

 

(25,020)

 

(24,193)

 

W

14,069,306

 

8,892,567

 

 

16.

Non-current assets held for sale

 

 

(a) Non-current assets held for sale as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Property and equipment

W

79

 

4,498

 

The Bank classified property and equipment which are highly expected to be sold within one year from December 31, 2018, as non-current assets held for sale.

 

(b) The cumulative income or loss recognized in other comprehensive income

 

There were no cumulative income or loss recognized in other comprehensive income relating to non-current assets held for sale as of December 31, 2018 and 2017.

110


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

17.

Pledged assets

 

 

(a) Assets pledged as collateral as of December 31, 2018 and 2017 were as follows:

 

 

 

 

December 31, 2018

 

December 31, 2017

Securities (*1):

 

 

 

 

  Securities at FVOCI

W

409,913

 

-

Securities at amortized cost

 

10,680,863

 

-

Available-for-sale financial assets

 

-

 

517,042

  Held-to-maturity financial assets

 

-

 

10,496,418

 

 

11,090,776

 

11,013,460

Property and equipment (*2)

 

5,784

 

5,592

 

W

11,096,560

 

11,019,052

 

(*1) The carrying amounts of assets pledged as collateral that the transferees had the right to sell or repledge regardless of the Bank’s default as of December 31, 2018 and 2017 were W649,663 million and W832,554 million, respectively.

(*2) The amounts were based on the notification amount of pledge

 

(b) The fair value of collateral held that the Bank has the right to sell or repledge regardless of pledger’s default as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Collateral held

 

Collateral sold

or repledged

 

Collateral held

 

Collateral sold

or repledged

Securities

W

5,190,387

 

-

 

3,749,516

 

-

 

 

18.

Financial liabilities designated at fair value through profit or loss

 

 

(a) There were no financial liabilities designated at FVTPL as of December 31, 2018 and 2017.

 

(b) There was no net gain or loss on financial liabilities designated at FVTPL for the year ended December 31, 2018.  Net losses on financial liabilities designated at FVTPL for the year ended December 31, 2017 were as follows:

 

 

 

 

 

2017

Deposits:

 

 

Loss on transaction

W

(43)

 


111


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

19.

Deposits

 

 

Deposits as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Demand deposits:

 

 

 

 

Korean won

W

92,950,163

 

89,461,654

   Foreign currencies

 

7,309,572

 

8,046,131

 

 

100,259,735

 

97,507,785

Time deposits:

 

 

 

 

Korean won

 

115,517,599

 

108,034,413

Foreign currencies

 

5,044,918

 

3,993,733

Gain on fair value hedge

 

(167,226)

 

(179,053)

 

 

120,395,291

 

111,849,093

Negotiable certificates of deposits

 

8,602,552

 

6,973,204

Note discount deposits

 

4,087,529

 

3,423,459

CMA

 

4,084,709

 

4,197,146

Others

 

21,963

 

24,350

 

W

237,451,779

 

223,975,037

 

 

21.

Financial liabilities at fair value through profit or loss

 

 

(a) Financial liabilities at FVTPL as of December 31, 2018 and trading liabilities as of December 31, 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Interest

rate (%)

 

Amount

 

Interest

rate (%)

 

Amount

Securities sold

 

2.75

W

20,625

 

-

W

-

Gold/silver deposits

 

-

 

458,934

 

-

 

434,586

 

 

 

W

479,559

 

 

W

434,586

 

(b) Net gain (loss) on financial liabilities at FVTPL for the year ended December 31, 2018 and net gain (loss) on trading liabilities for the year ended December 31, 2017 were as follows:

 

 

 

2018

 

2017

Securities sold:

 

 

 

 

Gain on sale

W

231

 

691

Loss on sale

 

(384)

 

(1,277)

Gain on valuation

 

27

 

-

Loss on valuation

 

(28)

 

-

 

 

(154)

 

(586)

Gold/silver deposits:

 

 

 

 

Gain on sale

 

1,611

 

2,834

Loss on sale

 

(217)

 

(395)

Gain on valuation

 

293

 

436

Loss on valuation

 

(15,185)

 

(176)

 

 

(13,498)

 

2,699

 

W

(13,652)

 

2,113

 

 

 


112


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

21.

Borrowings

 

 

Borrowings as of December 31, 2018 and 2017 were as follows:

 

 

December 31, 2018

 

December 31, 2017

 

Interest  

rate (%)

 

  Amount

 

Interest  

rate (%)

 

Amount

Call money:

 

 

 

 

 

 

 

Korean won

1.73

W

120,000

 

0.00

W

-

Foreign currencies

0.00~6.85

 

711,593

 

0.00~6.20

 

433,281

 

 

 

831,593

 

 

 

433,281

Bill sold

0.75~1.70

 

14,536

 

0.65~1.63

 

13,605

Bonds sold under repurchase

agreements:

 

 

 

 

 

 

 

Korean won

1.82

 

1,027

 

0.00

 

903

Foreign currencies

2.63~6.50

 

45,289

 

1.69~6.00

 

224,362

 

 

 

46,316

 

 

 

225,265

Borrowings in Korean won:

 

 

 

 

 

 

 

Borrowings from Bank of Korea

0.50~0.75

 

2,288,991

 

0.50~0.75

 

2,873,706

Others

0.00~4.25

 

6,523,743

 

0.00~4.25

 

5,730,527

 

 

 

8,812,734

 

 

 

8,604,233

Borrowings in foreign currencies:

 

 

 

 

 

 

 

Overdraft due to banks

0.00

 

77,543

 

0.00

 

128,809

Borrowings from banks

0.00~9.20

 

4,318,752

 

0.24~9.25

 

3,650,498

Sub-lease

0.00~3.34

 

84,017

 

0.00~2.15

 

240,380

Others

2.60~3.18

 

1,692,656

 

1.45~1.70

 

1,175,649

 

 

 

6,172,968

 

 

 

5,195,336

Deferred origination fees

 

 

(1,705)

 

 

 

-

 

 

W

15,876,442

 

 

W

14,471,720

 

 

 


113


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

22.

Debt securities issued

 

 

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

 

 

December 31, 2018

 

December 31, 2017

 

Interest
rate (%)

 

Amount

 

Interest
rate (%)

 

Amount

Debt securities issued in Korean won:

 

 

 

 

 

 

 

Debt securities issued

0.00~8.00

W

20,820,890

 

0.00~8.00

W

17,330,890

Subordinated debt securities issued

2.20~4.60

 

3,200,145

 

2.20~4.60

 

3,000,400

Gain on fair value hedges

 

 

(206,985)

 

 

 

(274,046)

Discount on debt securities issued

 

 

(62,944)

 

 

 

(29,698)

 

 

 

23,751,106

 

 

 

20,027,546

Debt securities issued in foreign currencies: Currency:

 

 

 

 

 

 

 

Debt securities issued

0.02~4.01

 

3,356,032

 

0.00~4.20

 

2,504,859

Subordinated debt securities issued

3.75~5.00

 

2,271,799

 

3.75~3.88

 

1,446,390

Gain on fair value hedges

 

 

(55,251)

 

 

 

(25,795)

Discount on debt securities issued

 

 

(29,102)

 

 

 

(23,277)

 

 

 

5,543,478

 

 

 

3,902,177

 

 

W

29,294,584

 

 

W

23,929,723

 


114


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

23.

Defined benefit liabilities (assets)

 

 

 

(a) Defined benefit plan assets and liabilities

 

The Bank provides a defined benefit plan for qualified employees.  Plan assets are managed by trust companies, funds, and other similar companies that are subject to local regulations and each country’s business environment.

 

Defined benefit plan assets and liabilities as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Present value of defined benefit obligations

W

1,364,974

 

1,259,893

Fair value of plan assets

 

(1,299,502)

 

(1,294,013)

Defined benefit liabilities (assets)

W

65,472

 

(34,120)

 

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

 

 

 

2018

 

2017

Beginning balance

W

1,259,893

 

1,255,783

Current service cost

 

103,098

 

126,388

Interest expense

 

43,859

 

40,456

Remeasurements (*1)(*2)

 

65,436

 

(106,119)

Benefits paid by the plan

 

(106,995)

 

(64,787)

Others

 

(317)

 

5,362

Past service cost

 

-

 

2,810

Ending balance

W

1,364,974

 

1,259,893

 

(*1) Remeasurements for the years ended December 31, 2018 consist of W18,380 million of actuarial loss arising from changes in demographic assumptions, W54,875 million of actuarial loss arising from changes in financial assumptions and W7,819 million of actuarial gain arising from changes in experience adjustments, respectively.

(*2) Remeasurements for the years ended December 31, 2017 consist of W4,929 million of actuarial loss arising from changes in demographic assumptions, W77,881 million of actuarial gain arising from changes in financial assumptions and W33,167 million of actuarial gain arising from changes in experience adjustments, respectively.

 

(c) Changes in the fair value of plan assets for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Beginning balance

W

1,294,013

 

1,208,370

Interest income

 

50,725

 

41,085

Remeasurements

 

(31,570)

 

(21,188)

Contributions paid into the plan

 

92,000

 

120,000

Benefits paid by the plan

 

(105,666)

 

(54,254)

Ending balance

W

1,299,502

 

1,294,013

 


115


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

23.

Defined benefit liabilities (assets) (continued)

 

 

(d) The amount of major categories of the fair value of plan assets as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Deposits

W

1,281,069

 

1,275,313

Others

 

18,433

 

18,700

 

W

1,299,502

 

1,294,013

 

(e) Actuarial assumptions as of December 31, 2018 and 2017 were as follows:

 

 

December 31, 2018

 

December 31, 2017

 

Descriptions

Discount rate

3.18%

 

3.92%

 

AA0 Corporate bond yields

Future salary increasing rate

2.33% + Upgrade rate

 

2.63% + Upgrade rate

 

Average for 5 years

 

(f) Sensitivity analysis

 

Sensitivity analysis of the present value of defined benefit obligation as of December 31, 2018 and 2017 were as follows:

 

 

December 31, 2018

 

 

Change in present value when the factor rises by

100 basis points

 

Change in present value when the factor falls by

100 basis points

Discount rate

W

(121,458)

 

140,202

Future salary increasing rate

 

137,397

 

(120,101)

 

 

December 31, 2017

 

 

Change in present value when the factor rises by

100 basis points

 

Change in present value when the factor falls by

100 basis points

Discount rate

W

(109,226)

 

125,770

Future salary increasing rate

 

126,331

 

(111,638)

 

(g) The maturity analysis of undiscounted retirement benefit payments as of the end of the current term is as follows

 

 

 

1 year

or less

 

1 year~

2 years

or less

 

2 years~

5 years

or less

 

5 years~

10 years

or less

 

More than 5 years

 

Total

Salary payment amount

W

58,231

 

80,625

 

277,853

 

395,171

 

1,087,326

 

1,899,206

 

(h) The weighted-average duration of defined benefit obligations applied as of December 31, 2018 and 2017 were 9.90 years and 9.33 years, respectively.

 


116


SHINHAN BANK

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 unused credit commitments and financial guarantee contracts issued for the year ended December 31, 2018 were as follows:  

 

 

 

December 31, 2018

 

 

Loan commitments and other liabilities for credit

 

Financial guarantee contracts

 

Total

 

 

12-month expected credit losses

 

Lifetime expected credit losses

 

12-month expected credit losses

 

Lifetime expected credit losses

 

 

 

 

Credit-unimpaired financial asset

 

Credit-impaired financial asset

 

 

Credit-unimpaired financial asset

 

Credit-impaired financial asset

 

Beginning balance (*1)

W

51,647

 

12,587

 

-

 

63,031

 

9,876

 

8,658

 

145,799

Transfer to 12-month expected credit losses

 

2,530

 

(2,530)

 

-

 

671

 

(671)

 

-

 

-

Transfer to lifetime expected credit losses

 

(2,004)

 

2,004

 

-

 

(989)

 

989

 

-

 

-

Transfer to impaired financial asset

 

-

 

-

 

-

 

(13)

 

-

 

13

 

-

Provision (reversal)

 

(5,557)

 

(528)

 

-

 

(1,128)

 

(7,770)

 

(5,764)

 

(20,747)

Foreign exchange movements

 

555

 

(9)

 

-

 

607

 

403

 

448

 

2,004

Others (*2)

 

-

 

-

 

-

 

25,491

 

1,306

 

(479)

 

26,318

Ending balance

W

47,171

 

11,524

 

-

 

87,670

 

4,133

 

2,876

 

153,374

 

   (*1) The beginning balance was restated in accordance with K-IFRS No.1109.

   (*2) Other changes were mainly due to newly issued financial guarantee contracts recognized at their fair values, termination, effect of discount rate changes, etc.

 

(b) Changes in other provisions for the year ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Asset

retirement

 

Litigation

 

Non-financial guarantee contracts

 

Others

 

Total

Beginning balance

W

30,874

 

11,850

 

45,070

 

42,539

 

130,333

Provision (reversal)

 

6,474

 

(971)

 

(3,698)

 

1,353

 

3,158

Provision used

 

(2,388)

 

(5,492)

 

-

 

(5,049)

 

(12,929)

Foreign exchange movements

 

-

 

386

 

1,652

 

(570)

 

1,468

Others (*1)

 

1,810

 

-

 

(1,728)

 

13,825

 

13,907

Ending balance

W

36,770

 

5,773

 

41,296

 

52,098

 

135,937

 

(*1) Other changes were mainly due to newly issued financial guarantee contracts recognized at their fair values, termination, effect of discount rate changes, etc.

 


117


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

24.Provisions (continued)

 

(b) Changes in other provisions for year ended December 31, 2018 and 2017 were as follows: (continued)

 

 

 

December 31, 2017

 

 

Asset

retirement

 

Litigation

 

Unused credit

 

Guarantee

 

Others

 

Total

Beginning balance

W

36,098

 

12,044

 

75,036

 

113,059

 

84,405

 

320,642

Provision (reversal)

 

(4,853)

 

423

 

(7,331)

 

(4,329)

 

(20,559)

 

(36,649)

Provision used

 

(2,132)

 

-

 

-

 

-

 

(21,220)

 

(23,352)

Foreign exchange movements

 

-

 

(617)

 

(1,965)

 

(4,533)

 

(87)

 

(7,202)

Others (*1)

 

1,761

 

-

 

-

 

19,562

 

-

 

21,323

Ending balance

W

30,874

 

11,850

 

65,740

 

123,759

 

42,539

 

274,762

 

(*1) Other changes were mainly due to newly issued financial guarantee contracts recognized at their fair values, termination, effect of discount rate changes, etc.

 

(c) Asset retirement obligation liabilities represent the estimated cost to restore the existing leased properties which were discounted to the present value using the appropriate discount rate at the end of the reporting period. Disbursements of such costs were expected to incur at the end of the lease contract.  Such costs were reasonably estimated using the average lease period and the average restoration expenses.  The average lease period was calculated based on the past ten-year historical data of the expired leases.  The average restoration expense was calculated based on the actual costs incurred for the past three years using the three-year average inflation rate.

 

 

25.

Other liabilities

 

 

Other liabilities as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Accounts payable

W

5,670,859

 

3,974,906

Borrowing from trust account

 

3,224,946

 

4,297,314

Accrued expenses

 

2,124,902

 

1,974,718

Liability incurred by agency relationship

 

1,306,075

 

935,016

Domestic exchange settlement payables

 

1,018,237

 

1,685,305

Account for agency business of other institutions

 

720,076

 

600,749

Guarantee deposits received

 

241,207

 

554,433

Foreign exchange settlement payables

 

225,720

 

222,195

Suspense payable

 

48,406

 

42,570

Unearned income

 

69,937

 

59,733

Withholding value-added tax and other taxes

 

114,567

 

84,491

Dividend payable

 

2,597

 

1,367

Sundry liabilities

 

33,890

 

51,705

Present value discount

 

(2,117)

 

(2,913)

 

W

14,799,302

 

14,481,589

 

 

 


 

118


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

26.

Equity

 

 

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

 

 

 

December 31, 2018

 

December 31, 2017

Capital stock:

 

 

 

 

Common stock

W

7,928,078

 

7,928,078

Other equity instruments:

 

 

 

 

Hybrid bonds

 

698,660

 

668,938

Capital surplus:

 

 

 

 

Share premium

 

398,080

 

398,080

Capital adjustments:

 

 

 

 

Stock options

 

4,850

 

782

Others

 

(254)

 

(139)

 

 

4,596

 

643

Accumulated other comprehensive income (loss):

 

 

 

 

Net change in fair value of financial assets at FVOCI

 

6

 

-

Net change in fair value of available-for-sale financial assets

 

-

 

37,034

Foreign currency translation differences for foreign operations

 

(56,356)

 

(55,344)

Remeasurements of defined benefit plans

 

(277,714)

 

(207,385)

 

 

(334,064)

 

(225,695)

Retained earnings:

 

 

 

 

Legal reserve (*1)

 

1,835,854

 

1,675,077

Voluntary reserve (*2)

 

10,930,547

 

10,065,795

Other reserve (*3)

 

112,058

 

99,681

Unappropriated retained earnings (*4)

 

1,997,574

 

1,577,907

 

 

14,876,033

 

13,418,460

 

W

23,571,383

 

22,188,504

 

(*1) According to the Article 40 of the Banking Act, the Bank is required to appropriate an amount equal to a minimum of 10% of cash dividends paid for each accounting period as a legal reserve, until such reserve equals 100% of issued capital.  The legal reserve is only available to reduce accumulated deficit or transfer to capital stock.

(*2) The amounts include a regulatory reserve for loan loss of W1,842,655 million and W1,754,773 million as of December 31, 2018 and 2017 respectively.  The amounts also include asset revaluation surplus of W355,898 million as of December 31, 2018 and 2017.

(*3) Other reserve was established according to the laws applicable to some oversea branches and it may be used only to reduce their deficit.

(*4) The amounts include reversal of the regulatory reserve for loan loss of W118,844 million and provision for the regulatory reserve for loan loss of W87,882 million as of December 31, 2018 and 2017 respectively.

 

 

 


 

119


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won, except for share data)

 

26.

Equity (continued)

 

 

(b) Capital stock

 

Capital stock of the Bank as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Number of authorized shares

 

2,000,000,000 shares

 

2,000,000,000 shares

Par value per share in won

 

W5,000

 

W5,000

Number of issued shares outstanding

 

1,585,615,506 shares

 

1,585,615,506 shares

 

(c) Hybrid bonds

 

Hybrid bonds as of December 31, 2018 and 2017 were as follows:

 

 

 

 

 

Book value

 

 

Date of issuance

 

Date of maturity

 

December 31

2018

 

December 31,

2017

 

Interest

rate (%)

Hybrid bonds issued

in Korean won:

 

 

 

 

 

 

March 21, 2008

 

March 21, 2038

W

-

 

119,878

 

7.30

March 25, 2008

 

March 25, 2038

 

-

 

49,947

 

7.30

June 7, 2013

 

June 7, 2043

 

299,568

 

299,568

 

4.63

June 29, 2017

 

Perpetual bond

 

129,701

 

129,701

 

3.33

June 29, 2017

 

Perpetual bond

 

69,844

 

69,844

 

3.81

October 15, 2018

 

Perpetual bond

 

199,547

 

-

 

3.70

 

 

 

W

698,660

 

668,938

 

 

Dividends on hybrid bond holders

W

25,228

 

29,857

 

 

Weighted average interest rate (%)

 

4.36

 

5.23

 

 

 

The above hybrid bonds are subject to early redemption option after five years or ten years from the date of issuance, and the maturity can be extended under the same condition at the maturity date.  In addition, if no dividend is paid for common shares, the agreed interest is also not paid.

 

During the year ended December 31, 2018, W169,825 million of hybrid bonds issued in March 2008 were repaid early.

 

120


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

26.

Equity (continued)

 

 

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

 

 

2018

 

 

Items that are or may be reclassified to profit or loss

 

Items that will not be reclassified to profit or loss

 

 

 

Net change in fair value of financial assets at FVOCI

 

Foreign currency translation

differences for

foreign operations

 

Net change in fair value of financial assets at FVOCI

 

Remeasur-ements of

the defined benefit

plans

 

Total

Beginning balance (*1)

W

(97,666)

 

(54,281)

 

(40,967)

 

(207,385)

 

(400,299)

Change due to fair value

 

153,680

 

-

 

21,721

 

-

 

175,401

Change due to impairment

 

10,257

 

-

 

-

 

-

 

10,257

Change due to disposal

 

11,910

 

-

 

-

 

-

 

11,910

Effect of hedge accounting

 

(2,365)

 

(2,633)

 

-

 

-

 

(4,998)

Effect of foreign currency

movements

 

-

 

(229)

 

423

 

-

 

194

Remeasurements of defined benefit plans

 

-

 

-

 

-

 

(97,006)

 

(97,006)

Amounts transferred to retained earnings

 

-

 

-

 

(4,399)

 

-

 

(4,399)

Effect of tax

 

(47,708)

 

787

 

(4,880)

 

26,677

 

(25,124)

Ending balance

W

28,108

 

(56,356)

 

(28,102)

 

(277,714)

 

(334,064)

 

(*1) The beginning balance was restated in accordance with K-IFRS No.1109.

 

 

 

 

2017

 

 

Net change in fair value

of available-for-sale

financial assets

 

Foreign currency translation

differences for

foreign operations

 

Remeasurements of defined benefit plans

 

Total

Beginning balance

W

160,710

 

(34,299)

 

(281,202)

 

(154,791)

Change due to fair value

 

(74,100)

 

-

 

-

 

(74,100)

Change due to impairment

 

38,383

 

-

 

-

 

38,383

Change due to disposal

 

(119,348)

 

-

 

-

 

(119,348)

Effect of hedge accounting

 

1,241

 

17,595

 

-

 

18,836

Effect of foreign currency

movements

 

(7,113)

 

(48,682)

 

-

 

(55,795)

Remeasurements of defined benefit plans

 

-

 

-

 

84,931

 

84,931

Effect of tax

 

37,261

 

10,042

 

(11,114)

 

36,189

Ending balance

W

37,034

 

(55,344)

 

(207,385)

 

(225,695)

 

 

 


121


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won, except for par value per share and dividend per share)

 

26.

Equity (continued)

 

 

(e) Separate statements of appropriation of retained earnings for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

 

 

Expected date of approval: March 21, 2018

 

Date of approval:

March 22, 2018

Unappropriated retained earnings:

 

 

 

 

Balance at beginning of year

W

-

 

-

Net effect on change due to accounting policy

 

(90,616)

 

-

Transfer from other comprehensive income through the sale of securities at FVOCI

 

(3,189)

 

-

Interest on hybrid bond

 

(25,228)

 

(29,857)

Profit for the year

 

2,116,606

 

1,607,761

 

 

1,997,573

 

1,577,904

Transfer from reserves:

 

 

 

 

Voluntary reserve

 

8,453,145

 

7,676,276

 

 

10,450,718

 

9,254,180

Appropriation of retained earnings:

 

 

 

 

Legal reserve

 

211,661

 

160,776

Regulatory reserve for loan loss

 

118,844

 

87,882

Other reserve

 

11,139

 

12,377

Voluntary reserves

 

9,218,899

 

8,453,145

Loss on redemption of hybrid bond

 

175

 

-

Dividends on common stock

 

890,000

 

540,000

(Dividend per share in won:

2018: W561.30 (11.23%)

2017: W340.56 (6.81%)

 

 

 

 

 

 

10,450,718

 

9,254,180

Unappropriated retained earnings to be

carried over to subsequent year

W

-

 

-

 

 

(f) Dividends

 

Dividends of common stock for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Number of issued shares outstanding

 

1,585,615,506

 

1,585,615,506

Par value per share in won

W

5,000

 

5,000

Dividend rate per share

 

11.23%

 

6.81%

Dividend per share in won

W

561.30

 

340.56

 


 

122


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

26.

Equity (continued)

 

 

(g) Dividends payout ratio

 

Dividends payout ratio for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Dividends

W

890,000

 

540,000

Profit for the year

 

2,116,606

 

1,607,761

Dividends payout ratio to profit for the year

 

42.05%

 

33.59%

Profit for the year adjusted for regulatory reserve for loan loss

 

1,785,305

 

1,519,879

Dividends payout ratio to profit for the year adjusted for regulatory reserve for loan loss

 

49.85%

 

35.53%

 

 

27.

Regulatory reserve for loan loss

 

 

The Bank should calculate and disclose regulatory reserve for loan loss, in accordance with the Article 29-1 and 29-2 of Regulation on Supervision of Banking Business.

 

(a)

The regulatory reserve for loan loss as of December 31, 2018 and 2017 were as follows:

 

 

 

 

December 31,

2018

 

December 31,

2017

Regulatory reserve for loan loss

W

1,842,655

 

1,754,773

Provision for regulatory reserve for

  loan loss

 

118,844

 

87,882

 

W

1,961,499

 

1,842,655

 

(b)

Profit for the year adjusted for regulatory reserve for loan loss and earnings per share adjusted for regulatory reserve for loan loss for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

 

2018

 

2017

Provision for regulatory reserve for loan loss (*1)

W

331,301

 

87,882

Profit for the year adjusted for

regulatory reserve for loan loss

 

1,785,305

 

1,519,879

Earnings per share adjusted

for regulatory reserve in won

 

1,110

 

940

 

  (*1) The amount calculated based on the reserve for loan losses that retroactively reflects the effect of adoption of K-IFRS No. 1109


123


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

28.

Net interest income

 

 

(a) Net interest income for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

Interest income:

 

 

  Cash and due from banks

W

65,290

Loans (*1)

 

7,509,650

  Others

 

57,926

Securities at FVTPL

 

172,718

Securities at FVOCI

 

543,442

Securities at amortized cost

 

376,934

 

 

8,725,960

Interest expense: (*2)

 

 

  Deposits

 

(2,761,558)

  Borrowings

 

(278,283)

  Debt securities issued

 

(601,560)

  Others

 

(54,411)

 

 

(3,695,812)

Net interest income

W

5,030,148

 

 

 

 

 

2017

Interest income:

 

 

Cash and due from banks

W

43,583

Trading assets

 

140,216

Available-for-sale financial assets

 

428,647

Held-to-maturity financial assets

 

334,008

Loans

 

6,443,680

Others

 

59,143

 

 

7,449,277

Interest expense: (*2)

 

 

Deposits

 

(2,211,012)

Borrowings

 

(194,359)

Debt securities issued

 

(479,117)

Others

 

(43,551)

 

 

(2,928,039)

Net interest income

W

4,521,238

 

(*1) The amounts include an interest income from loans at FVTPL of W12,462 million for the year ended December 31, 2018.

(*2) There were no interest expense from financial liabilities at FVTPL for the years ended December 31, 2018 and 2017.

 

 

(b) Interest income recognized on impaired financial assets year ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Interest income

W

15,086

 

16,371


124


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

29.

Net fees and commission income

 

 

Net fees and commission income for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Fees and commission income:

 

 

 

 

Credit placement fees

W

54,672

 

55,124

Commission received as electronic

charge receipt

 

145,706

 

141,487

Brokerage fees

 

97,928

 

107,773

Commission received as agency

 

324,930

 

325,310

Investment banking fees

 

84,758

 

65,769

Commission received in foreign

exchange activities

 

111,847

 

99,950

Asset management fees from trust accounts

 

212,537

 

185,040

Guarantee fees

 

65,246

 

58,220

Others

 

100,314

 

87,752

 

 

1,197,938

 

1,126,425

Fees and commission expense:

 

 

 

 

Credit-related fees

 

(34,245)

 

(33,520)

Brand-related fees

 

(34,769)

 

(32,757)

Service-related fees

 

(25,586)

 

(17,439)

Trading and brokerage fees

 

(9,360)

 

(7,966)

Commission paid in foreign

exchange activities

 

(23,686)

 

(20,279)

Others

 

(64,362)

 

(57,456)

 

 

(192,008)

 

(169,417)

Net fees and commission income

W

1,005,930

 

957,008

 

 

30.

Dividend income

 

 

Dividend income for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Securities at FVTPL

W

1,498

 

-

Securities at FVOCI

 

8,732

 

-

Trading assets

 

-

 

26,293

Available-for-sale financial assets

 

-

 

87,807

 

W

10,230

 

114,100

 


125


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

31.

Gain and loss on financial instruments at fair value through profit or loss

 

 

Gain and loss on financial instruments at FVTPL for the year ended December 31, 2018 and net trading loss for the year ended December 31, 2017 were as follows:

 

 

 

2018

Financial instruments at FVTPL

 

 

Debt:

 

 

Gain on valuation of debt securities

W

62,850

Gain on sale of debt securities

 

39,610

Loss on valuation of debt securities

 

(26,170)

Loss on sale of debt securities

 

(34,922)

Others

 

76,451

  

 

117,819

Equity:

 

 

Gain on valuation of equity securities

 

23,616

Gain on sale of equity securities

 

20,196

Loss on valuation of equity securities

 

(375)

Loss on sale of equity securities

 

(10,083)

 

 

33,354

Gold/silver:

 

 

Gain on valuation of gold/silver deposits

 

19,667

Gain on sale of gold/silver deposits

 

1,611

Loss on valuation of gold/silver deposits

 

(15,473)

Loss on sale of gold/silver deposits

 

(217)

 

 

5,588

Loans at FVTPL

 

 

Gain on valuation of loans

 

5,292

Gain on sale of loans

 

12,181

Loss on valuation of loans

 

(1,225)

Loss on sale of loans

 

(2,420)

 

 

13,828

 

 

170,589

 

 

 

Derivatives

 

 

Foreign currency related:

 

 

Gain on valuation and transaction

 

5,839,322

Loss on valuation and transaction

 

(5,677,617)

 

 

161,705

Interest rates related:

 

 

Gain on valuation and transaction

 

468,823

Loss on valuation and transaction

 

(452,234)

 

 

16,589

Equity related:

 

 

Gain on valuation and transaction

 

20,203

Loss on valuation and transaction

 

(10,863)

 

 

9,340

Commodity related:

 

 

Gain on valuation and transaction

 

5,532

Loss on valuation and transaction

 

(20,141)

 

 

(14,609)

 

 

173,025

Net gain on financial instruments at FVTPL

W

343,614

126


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

31. Gain and loss on financial instruments at fair value through profit or loss (continued)

 

Gain and loss on financial instruments at FVTPL for the year ended December 31, 2018 and net trading loss for the year ended December 31, 2017 were as follows: (continued)

 

 

 

2017

Trading assets and trading liabilities

 

 

Debt:

 

 

Gain on valuation of debt securities

W

474

Gain on sale of debt securities

 

7,120

Loss on valuation of debt securities

 

(3,910)

Loss on sale of debt securities

 

(15,124)

 

 

(11,440)

Equity:

 

 

Gain on valuation of equity securities

 

230

Gain on sale of equity securities

 

17,327

Loss on valuation of equity securities

 

(1,211)

Loss on sale of equity securities

 

(13,046)

 

 

3,300

Gold/silver:

 

 

Gain on valuation of gold/silver deposits

 

6,735

Gain on sale of gold/silver deposits

 

2,834

Loss on valuation of gold/silver deposits

 

(693)

Loss on sale of gold/silver deposits

 

(395)

 

 

8,481

 

 

341

Derivatives

 

 

Foreign currency related:

 

 

Gain on valuation and transaction

 

7,436,112

Loss on valuation and transaction

 

(7,604,693)

 

 

(168,581)

Interest rates related:

 

 

Gain on valuation and transaction

 

488,449

Loss on valuation and transaction

 

(465,079)

 

 

23,370

Equity related:

 

 

Gain on valuation and transaction

 

7,326

Loss on valuation and transaction

 

(8,722)

 

 

(1,396)

Commodity related:

 

 

Gain on valuation and transaction

 

24,855

Loss on valuation and transaction

 

(4,387)

 

 

20,468

 

 

(126,139)

Net trading loss

W

(125,798)

 

 

 

 


127


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

32.

General and administrative expenses

 

 

General and administrative expenses for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Employee benefits:

 

 

 

 

Short and long term employee benefits

W

1,634,292

 

1,618,366

Post-employee defined benefits

 

96,232

 

128,569

Post-employee defined contributions

 

53

 

46

Termination benefits

 

90,484

 

224,033

 

 

1,821,061

 

1,971,014

Amortization:

 

 

 

 

Depreciation

 

107,575

 

110,293

Amortization of intangible assets

 

36,376

 

34,420

 

 

143,951

 

144,713

Other general and administrative expenses:

 

 

 

 

Rent

 

243,398

 

221,478

Service contract expenses

 

218,465

 

211,708

Taxes and dues

 

74,624

 

69,538

Advertising

 

70,336

 

56,408

Electronic data processing expenses

 

49,093

 

51,575

Others

 

137,663

 

141,045

 

 

793,579

 

751,752

 

W

2,758,591

 

2,867,479

 


 

128


SHINHAN BANK AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won, except for exercise price and fair value)

 

33.

Share-based payments

 

 

(a) Stock options granted as of December 31, 2018 were as follows:

 

 

 

4th grant

 

5th grant

 

6th grant

 

7th grant

Grant date

 

March 30, 2005

 

March 21, 2006

 

March 20, 2007

 

March 19, 2008

Exercise price in won (*1)

 

W28,006

 

W38,829

 

W54,560

 

W49,053

Number of shares granted

 

1,903,200

 

2,157,600

 

715,500

 

332,850

Contractual exercise

period

 

2017.05.18

~ 2018.08.30

 

2017.05.18

~ 2019.08.21

 

2017.05.18

~ 2020.08.19

 

  2017.5.18 ~ 2021.5.17

  2017.9.18 ~ 2021.9.17

Changes in number of

shares granted:

 

 

 

 

 

 

 

 

Outstanding at

December 31, 2017

 

93,426

 

101,963

 

50,513

 

 

26,233

Exercised

 

93,426

 

99,463

 

-

 

-

Outstanding at

December 31, 2018 (*2)

 

-

 

2,500

 

50,513

 

26,233

 

 

 

 

 

 

 

 

 

Fair value in won (*3)

 

-

 

2,874

 

397

 

Expiration date 2021.5.17 : 1,441

Expiration date 2021.9.17 : 1,610

 

(*1) As of December 31, 2018, the granted shares are fully vested, and the weighted-average exercise price of 79,246 options outstanding was W52,241.

(*2) As of December 31, 2018, 4,759 rights of exercise for 7th grant are suspended.

(*3) As of December 31, 2018, suspended grants are evaluated based on the intrinsic value, which is the difference between the closing price of Shinhan Financial Group and the exercise price.

 

(b) Equity-settled share-based payments

 

   i) Equity-settled share-based payments as of December 31, 2018 were as follows:

 

 

 

Contents

Grant year

 

2010 ~ 2013

 

2014~

Type (*1)

 

Equity-settled share-based payment

 

Equity-settled share-based payment

Service period

 

Upon appointment and promotion

since April 1, 2010

(Within 3 years from grant date)

 

  Upon appointment and promotion since January 1, 2014

(Within 1 year from grant date)

Performance conditions (*2)

 

Increase rate of stock price and

achievement of target ROE

 

Increase rate of stock price and

achievement of target ROE

 

(*1) The Bank granted shares of Shinhan Financial Group.  According to the commitment, the amount that the Bank must pay to the Shinhan Financial Group was recognized in liabilities, and the difference between the amount recognized in liabilities and the compensation cost based on equity-settled share-based payments was recognized in equity.

 

(*2) ROE: Return on Equity

129


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

33.

Share-based payments (continued)

 

 

(b) Equity-settled share-based payments (continued)

 

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

 

Grant date

 

Grant shares

 

Fair value (*1)

(in won)

 

Estimated shares (*2)

April 1, 2010

 

306,400

 

45,150

 

10,471

January 1, 2014

 

109,800

 

47,300

 

2,364

January 1, 2015

 

159,000

 

44,500

 

148,882

March 18, 2015

 

16,800

 

42,650

 

12,610

April 10, 2015

 

2,300

 

40,350

 

1,591

May 1, 2015

 

2,300

 

46,000

 

1,466

May 22, 2015

 

5,300

 

42,800

 

3,097

May 27, 2015

 

2,300

 

40,200

 

1,314

August 1, 2015

 

2,300

 

41,900

 

958

August 24, 2015

 

2,300

 

40,250

 

785

January 1, 2016

 

221,900

 

39,000

 

212,366

January 1, 2017

 

221,300

 

45,300

 

187,467

January 23, 2017

 

2,700

 

45,600

 

2,421

March 7, 2017

 

17,400

 

46,950

 

13,600

March 24, 2017

 

8,100

 

49,000

 

5,961

June 1, 2017

 

2,700

 

49,250

 

1,493

July 5, 2017

 

2,700

 

49,550

 

1,251

July 6, 2017

 

2,700

 

49,200

 

1,244

January 1, 2018

 

227,500

 

49,400

 

207,228

 

 

1,315,800

 

 

 

816,569

 

(*1) The fair value per share was evaluated based on the closing price of Shinhan Financial Group at each grant date.  As of December 31, 2018, the fair value per share data evaluated by Shinhan Financial Group amounted to W39,600.

(*2) Grant shares at grant date were adjusted pursuant to increase rate of stock price (33.4% to 2013, 20.0% after 2014) and achievement of target ROE (66.6% to 2013, 80.0% after 2014) 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.

 

(c) Stock compensation costs calculated for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Compensation costs recorded for the year

W

11,209

 

10,748

 

(d) Accrued expenses of the stock compensation costs and residual compensation costs as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Accrued expenses

W

36,446

 

30,773

 


130


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

34.

Net other operating income (expenses)

 

 

Net other operating expenses for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Other operating income

 

 

 

 

Gain on sale of assets:

 

 

 

 

Loans at amortized cost

W

26,133

 

45,117

Written-off loans

 

13,119

 

116

 

 

39,252

 

45,233

Others:

 

 

 

 

Gain on hedge activity from hedged

items

 

112,579

 

249,223

Gain on hedge activity from hedging instruments

 

167,048

 

57,010

Reversal of allowance for

acceptances and guarantee

 

3,698

 

4,328

Reversal of other allowance

 

-

 

32,322

Others

 

27,558

 

12,884

 

 

310,883

 

355,767

 

 

350,135

 

401,000

Other operating expense

 

 

 

 

Loss on sale of assets:

 

 

 

 

Loans at amortized cost

 

(13,991)

 

(8,365)

Others:

 

 

 

 

Loss on hedge activity from hedged

items

 

(189,152)

 

(56,133)

Loss on hedge activity from hedging instruments

 

(87,413)

 

(251,444)

Provision for other allowance

 

(6,856)

 

-

Contribution to fund

 

(275,099)

 

(244,189)

Deposit insurance fee

 

(293,910)

 

(280,588)

Others

 

(151,181)

 

(142,575)

 

 

(1,003,611)

 

(974,929)

 

 

(1,017,602)

 

(983,294)

Net other operating expenses

W

(667,467)

 

(582,294)

 

131


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

35.

Net non-operating income (expenses)

 

 

Net non-operating income (expenses) for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Non-operating income

 

 

 

 

Gain on sale of assets:

 

 

 

 

Property and equipment

W

11,109

 

4,293

Intangible assets

 

50

 

514

Investment properties

 

4,707

 

154

Non-current assets held for sale

 

80

 

32,879

 

 

15,946

 

37,840

Investments in associates:

 

 

 

 

  Dividend income

 

121,391

 

3,752

Gain from disposition

 

7,361

 

1,586

 

 

128,752

 

5,338

Others:

 

 

 

 

  Rental income on investment property

 

27,545

 

25,156

  Others

 

25,609

 

45,911

 

 

53,154

 

71,067

 

 

197,852

 

114,245

Non-operating expenses

 

 

 

 

Loss on sale of assets:

 

 

 

 

  Property and equipment

 

(976)

 

(870)

Intangible assets

 

(20)

 

(790)

Investment properties

 

(1,623)

 

-

Non-current assets held for sale

 

(1,403)

 

(1,674)

 

 

(4,022)

 

(3,334)

Investments in associates:

 

 

 

 

Impairment loss

 

(47,108)

 

(144)

Others:

 

 

 

 

  Investment properties depreciation

 

(10,370)

 

(10,514)

Donations

 

(59,611)

 

(121,352)

Others

 

(21,078)

 

(20,608)

 

 

(91,059)

 

(152,474)

 

 

(142,189)

 

(155,952)

Net non-operating income (expenses)

W

55,663

 

(41,707)

 


132


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

36.

Operating revenue

 

 

Operating revenue for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Interest income

W

8,725,960

 

7,449,277

Fees and commission income

 

1,197,938

 

1,126,425

Dividend income

 

10,230

 

114,100

Net gain on financial instruments at FVTPL

 

6,595,352

 

-

Trading income

 

-

 

7,991,461

Foreign currencies transaction gain

 

1,700,742

 

3,099,210

Net gain on financial instruments at FVOCI

 

10,124

 

-

Gain on sale of available-for- sale financial assets

 

-

 

199,490

Reversal of provisions for acceptances and guarantees

 

14,662

 

-

Reversal of provisions for unused credit limit

 

6,085

 

-

Other operating income

 

350,135

 

401,000

 

W

18,611,228

 

20,380,963

 

 

37.

Income tax expense

 

 

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

 

 

 

2018

 

2017

Current income tax expense

W

512,615

 

337,551

Deferred taxes arising from changes in temporary

differences

 

280,994

 

37,785

Deferred taxes arising from utilization of expired unused tax losses

 

6,947

 

(15,818)

Tax adjustment charged or credited directly to equity

 

(26,666)

 

35,609

Income tax expense

W

773,890

 

395,127

 


133


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

37.

Income tax expense (continued)

 

 

(b) The income tax expense calculated by applying statutory tax rates to the Bank’s taxable income differs from the actual tax expense in the separate statements of income for the years ended December 31, 2018 and 2017 for the following reasons:

 

 

 

2018

 

2017

Profit before income tax

W

2,890,496

 

2,002,888

Statutory tax rate

 

27.50%

 

24.20%

Income tax expense at statutory tax rates

 

784,525

 

484,237

Adjustments:

 

 

 

 

   Non-taxable income

 

(30,738)

 

(8,143)

   Non-deductible expense

 

9,620

 

10,425

Decrease resulting from consolidated corporate tax system

 

(34,176)

 

(25,756)

Income tax paid

 

39,986

 

(27,235)

Impact of tax rate change

 

-

 

(43,430)

Others

 

4,673

 

5,029

Income tax expense

W

773,890

 

395,127

Effective tax rate

 

26.77%

 

19.73%

 


134


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

37.

Income tax expense (continued)

 

 

(c) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Beginning

balance

 

Decreases

 

Increases

 

Ending

balance

 

Deferred tax assets (liabilities)

 

 

 

 

 

 

 

 

 

 

 

Accrued income

W

(429,624)

 

(436,855)

 

(596,918)

 

(589,687)

 

(162,164)

Accounts receivable

 

(60,062)

 

(60,062)

 

(88,065)

 

(88,065)

 

(24,218)

Securities at FVTPL

 

(49,853)

 

(106,774)

 

41,374

 

98,295

 

27,031

Securities at FVOCI

 

852,817

 

424,587

 

(165,569)

 

262,661

 

72,232

Investments in subsidiaries and associates

 

51,734

 

(5,755)

 

47,108

 

104,597

 

28,764

Deferred loan origination costs and fees

 

(427,937)

 

(427,937)

 

(497,515)

 

(497,515)

 

(136,817)

Revaluation and depreciation on property and equipment

 

(432,522)

 

(4,043)

 

5,691

 

(422,788)

 

(116,267)

Derivative liabilities

 

(125,588)

 

(142,108)

 

(193,916)

 

(177,396)

 

(48,784)

Deposits

 

101,467

 

15,498

 

15,981

 

101,950

 

28,036

Accrued expenses

 

379,320

 

379,320

 

226,076

 

226,076

 

62,171

Defined benefit obligations

 

1,142,678

 

105,666

 

212,447

 

1,249,459

 

343,601

Plan assets

 

(1,180,248)

 

(88,189)

 

(175,872)

 

(1,267,931)

 

(348,681)

Other provisions

 

149,497

 

147,991

 

151,829

 

153,335

 

42,167

Allowance for guarantees and acceptance

 

126,634

 

129,510

 

138,852

 

135,976

 

37,394

Allowance for advanced depreciation

 

(179,393)

 

(2,256)

 

-

 

(177,137)

 

(48,713)

Allowance for expensing depreciation

 

(1,923)

 

(232)

 

-

 

(1,691)

 

(465)

Deemed dividends

 

19,171

 

19,171

 

-

 

-

 

-

Net change in fair value of securities at FVOCI

 

15,982

 

15,982

 

16,297

 

16,297

 

4,482

Donation payables

 

39,429

 

39,429

 

78,750

 

78,750

 

21,656

Allowance and bad debt

 

377,060

 

695,946

 

363,097

 

44,211

 

12,158

Compensation expenses associated with stock option

 

437

 

359

 

100

 

178

 

49

Fictitious dividends

 

4,060

 

1

 

-

 

4,059

 

1,116

Others

 

70,349

 

440,768

 

473,660

 

103,241

 

28,377

 

 

443,485

 

1,140,017

 

53,407

 

(643,125)

 

(176,875)

Expired unused tax losses

Appropriation by extinctive

prescription of deposit

 

1,281,039

 

25,262

 

-

 

1,255,777

 

345,339

 

 

 

 

 

 

 

 

 

 

 

Temporary differences not qualified for deferred tax assets or liabilities

Investments in subsidiaries

and associates

 

(22,219)

 

-

 

-

 

(22,219)

 

(6,110)

 

W

1,746,743

 

1,165,279

 

53,407

 

634,871

 

174,574

 

 


135


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

37.

Income tax expense (continued)

 

 

(c) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2018 and 2017 were as follows: (continued)

 

 

 

December 31, 2017

 

 

Beginning

balance

 

Decreases

 

Increases

 

Ending

balance

 

Deferred tax assets (liabilities)

 

 

 

 

 

 

 

 

 

 

 

Accrued income

W

(306,255)

 

(308,304)

 

(431,673)

 

(429,624)

 

(118,147)

Accounts receivable

 

(36,089)

 

(36,089)

 

(60,062)

 

(60,062)

 

(16,517)

Trading assets

 

(56,271)

 

(59,469)

 

(53,051)

 

(49,853)

 

(13,710)

Available-for-sale financial assets

 

780,467

 

454,602

 

526,952

 

852,817

 

234,525

Investments in subsidiaries and associates

 

60,636

 

8,902

 

-

 

51,734

 

14,227

Deferred loan origination costs and fees

 

(378,933)

 

(378,933)

 

(427,937)

 

(427,937)

 

(117,683)

Revaluation and depreciation on property and equipment

 

(441,979)

 

(5,718)

 

3,739

 

(432,522)

 

(118,944)

Derivative liabilities

 

(137,101)

 

(148,094)

 

(136,581)

 

(125,588)

 

(34,537)

Deposits

 

75,052

 

17,940

 

44,355

 

101,467

 

27,904

Accrued expenses

 

262,174

 

263,525

 

380,671

 

379,320

 

104,313

Defined benefit obligations

 

1,133,301

 

54,253

 

63,630

 

1,142,678

 

314,236

Plan assets

 

(988,598)

 

(54,254)

 

(245,904)

 

(1,180,248)

 

(324,568)

Other provisions

 

207,583

 

207,583

 

151,002

 

151,002

 

41,526

Allowance for guarantees

and acceptance

 

113,059

 

113,059

 

123,759

 

123,759

 

34,034

Allowance for advanced depreciation

 

(179,438)

 

(45)

 

-

 

(179,393)

 

(49,333)

Allowance for expensing depreciation

 

(2,154)

 

(231)

 

-

 

(1,923)

 

(529)

Deemed dividends

 

5,513

 

-

 

13,658

 

19,171

 

5,272

Net change in fair value of available-for-sale financial assets

 

(212,018)

 

(212,018)

 

(50,247)

 

(50,247)

 

(13,818)

Donation payables

 

35,717

 

35,717

 

39,429

 

39,429

 

10,843

Allowance and bad debt

 

202,050

 

167,335

 

(20,751)

 

13,964

 

3,840

Compensation expenses associated with stock option

 

2,344

 

2,266

 

359

 

437

 

120

Fictitious dividends

 

4,026

 

19

 

53

 

4,060

 

1,117

Others

 

41,190

 

65,926

 

95,085

 

70,349

 

19,346

 

 

184,276

 

187,972

 

16,486

 

12,790

 

3,517

Expired unused tax losses

Appropriation by extinctive

prescription of deposit

 

1,390,362

 

109,323

 

-

 

1,281,039

 

352,286

 

 

 

 

 

 

 

 

 

 

 

Temporary differences not qualified for deferred tax assets or liabilities

Investments in subsidiaries

and associates

 

(22,219)

 

-

 

-

 

(22,219)

 

(6,110)

 

W

1,596,857

 

297,295

 

16,486

 

1,316,048

 

361,913

 


136


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

37.

Income tax expense (continued)

 

 

(d)

Changes in tax effects that were directly charged or credited to equity for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017 (*1)

 

Changes in tax effects

 

 

Amount

before tax

 

Tax effects

 

Amount

before tax

 

Tax effects

 

Net change in fair value of securities at FVOCI

W

8

 

(2)

 

(189,752)

 

52,182

 

(52,184)

Foreign currency translation differences for foreign operations

 

(77,732)

 

21,376

 

(76,335)

 

20,992

 

384

Remeasurements of defined benefit plans

 

(383,053)

 

105,339

 

(286,046)

 

78,661

 

26,678

Other (stock option)

 

6,690

 

(1,840)

 

1,078

 

(296)

 

(1,544)

 

W

(454,087)

 

124,873

 

(551,055)

 

151,539

 

(26,666)

 

    (*1) The balances ware restated in accordance with K-IFRS No.1109 and K-IFRS No.1115

 

 

 

December 31, 2017

 

December 31, 2016

 

Changes in tax effects

 

 

Amount

before tax

 

Tax effects

 

Amount

before tax

 

Tax effects

 

Net change in fair value of available-for-sale financial assets

W

51,081

 

(14,047)

 

212,018

 

(51,308)

 

37,261

Foreign currency translation differences for foreign operations

 

(76,335)

 

20,992

 

(45,248)

 

10,950

 

10,042

Remeasurements of defined benefit plans

 

(286,046)

 

78,661

 

(370,977)

 

89,775

 

(11,114)

Other (stock option)

 

1,078

 

(296)

 

(1,170)

 

284

 

(580)

 

W

(310,222)

 

85,310

 

(205,377)

 

49,701

 

35,609

 

 

 

 

 

 

 

 


137


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

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

 

37.

Income tax expense (continued)

 

 

(e)

The current tax assets and liabilities as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Current tax assets:

 

 

 

 

Income taxes paid

W

1,872

 

3,527

 

 

 

 

 

Current tax liabilities:

 

 

 

 

Payable due to consolidated tax system

 

265,789

 

179,364

Income taxes payables

 

10,599

 

4,309

 

W

276,388

 

183,673

 

(f) The deferred tax assets / liabilities and current tax assets / liabilities presented on a gross basis prior to any offsetting as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Deferred tax assets

W

1,665,075

 

2,092,570

Deferred tax liabilities

 

1,490,501

 

1,730,657

Current tax assets

 

194,862

 

219,671

Current tax liabilities

 

469,378

 

399,817

 

 

38.

Earnings per share

 

 

(a) Earnings per share for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Profit for the year

W

2,116,606

 

1,607,761

Less: dividends on hybrid bonds

 

(25,228)

 

(29,857)

Profit available for common stock

W

2,091,378

 

1,577,904

Weighted average number of common shares

outstanding

 

1,585,615,506

 

1,585,615,506

Basic and diluted earnings per share in won

W

1,319

 

995

 

Considering that the Bank had no dilutive potential common shares and that stock options were not included in the calculation of diluted earnings per share because they were anti-dilutive for the reporting periods presented, diluted earnings per share equal to basic earnings per share for the years ended December 31, 2018 and 2017.

 

 

(b) Weighted average number of common shares outstanding as of December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Number of common shares outstanding

 

1,585,615,506 shares

 

1,585,615,506 shares

Weight

 

365/365

 

365/365

Weighted average number of common shares outstanding

 

1,585,615,506 shares

 

1,585,615,506 shares

 

138


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

39.Commitments and contingencies

 

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

 

 

 

December 31, 2018

 

December 31, 2017

Guarantees:

 

 

 

 

Guarantee outstanding

W

9,728,578

 

8,060,660

Contingent guarantees

 

3,892,028

 

3,152,593

 

W

13,620,606

 

11,213,253

Commitments to extend credit:

 

 

 

 

Loan commitments in Korean won

W

68,946,886

 

53,160,964

Loan commitments in foreign currencies

 

16,319,618

 

15,671,070

ABS and ABCP purchase commitments

 

5,511,932

 

4,609,072

Others

 

1,907,431

 

1,437,936

 

W

92,685,867

 

74,879,042

Endorsed bills:

 

 

 

 

  Secured endorsed bills

W

37,667

 

85,456

  Unsecured endorsed bills

 

7,758,242

 

7,810,788

 

W

7,795,909

 

7,896,244

Loans sold with repurchase agreement

W

1,387

 

1,387

 

(b) Provision for acceptances and guarantees

 

Allowance for acceptances and guarantees, as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Guarantees outstanding

W

9,728,578

 

8,060,660

Contingent guarantees

 

3,892,028

 

3,152,593

ABS and ABCP purchase commitments

 

5,511,932

 

4,609,072

Secured endorsed bills

 

37,667

 

85,456

 

W

19,170,205

 

15,907,781

Allowance for acceptances and guarantees

W

135,975

 

123,759

Ratio (%)

 

0.71

 

0.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

39.Commitments and contingencies (continued)

 

(c) Legal contingencies

 

Pending litigations in which the Bank was involved as a defendant as of December 31, 2018 were as follows:

 

Case

 

Number of claim

 

Claim amount

 

Description

 

Damage claim

 

1

W

6,893

 

According to the asset custody contract, the plaintiff is liable for damages caused by a fire in the property of the real estate investment company in which the Bank is holding assets.

In 2015 and 2017, the plaintiffs prevailed, but the first and second decisions were different and in progress of third order.

Deposit return

 

1

 

4,606

 

The plaintiff alleges that the plaintiff has canceled the money received in his account without his consent, and requested the plaintiff to pay the deposit equivalent to the amount.

Since 2017, the Bank won the first and second trial and the third trial was ongoing as of December 31, 2018.

Indemnification cost

 

1

 

4,112

 

According to the asset custody contract, the plaintiffs filed a lawsuit against the Bank, claiming for a fire damage occurred on a property of the real estate investment company for which the Bank provides the custodian service.

In 2017, the Bank has lost on the first order and in progress for second order.

Others

 

100

 

49,924

 

It includes various cases, such as compensation for loss claim.

 

 

 

 

103

W

65,535

 

 

 

As of December 31, 2018, the Bank recorded a provision of W5,773 million for litigation for certain of the above lawsuits.  Additional losses may be incurred from these legal actions besides the current provision established by the Bank, but the amount of loss is not expected to have a material adverse effect on the Bank’s separate financial statements.

140


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

39. Commitments and contingencies (continued)

 

(d) Principal guaranteed trusts or principal and interest guaranteed trusts

 

Book value of trusts with guarantee commitments of payments of principal or principal and interest as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Principal guarantee commitments:

 

 

 

 

Market evaluation form

W

2,793,689

 

2,692,322

Book value evaluation form

 

1,615,699

 

1,659,439

 

 

4,409,388

 

4,351,761

Principal and interest guarantee commitments:

 

 

 

 

Book value evaluation form

 

1,711

 

1,698

 

W

4,411,099

 

4,353,459

Principal in the money trusts

W

4,019,806

 

3,979,776

Accrued trust income

 

391,293

 

373,683

 

There may occur additional losses depending on the operating results of trust agreements.  As of December 31, 2018 and 2017, no additional payments were required as per the operating results of trust agreements.

 

 

(e) Maturity structure of minimum lease payments

 

The future minimum lease payments under non-cancellable operating leases were payable as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Within

1 year

 

1~5 years

 

Over

5 years

 

Total

Minimum lease payments

W

143,178

 

262,430

 

11,471

 

417,079

 

 

 

December 31, 2017

 

 

Within

1 year

 

1~5 years

 

Over

5 years

 

Total

Minimum lease payments

W

210,972

 

278,689

 

29,087

 

518,748

 

 

 


141


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

40.

Statements of cash flows

 

 

(a) Cash and cash equivalents reported in the accompanying separate statements of cash flows as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31,

2018

 

December 31,

2017

Cash

W

2,467,074

 

1,658,239

Reserve deposits

 

2,094,612

 

8,503,968

Other deposits

 

4,844,153

 

4,550,299

Cash and due from banks

 

9,405,839

 

14,712,506

Less: Restricted due from banks

 

(3,657,482)

 

(11,033,538)

Less: Due with original maturities of more than three months

 

(1,286,040)

 

(346,429)

 

W

4,462,317

 

3,332,539

 

(b) Significant non-cash activities for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Dividend payable of hybrid bonds

W

2,597

 

1,367

Debt-equity swap

 

28,759

 

32,530

Accounts payable for purchase of property and equipment

 

827

 

-

Accounts payable for purchase of intangible assets

 

1,047

 

5,061

Transfer from investment in subsidiaries and associates to non-current asset held for sale

 

6,126

 

-

 

(c) Changes in liabilities resulting from financing activities for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

 

Borrowings

 

 

Debt securities issued

 

Total

Beginning balance

W

14,471,720

 

 

23,929,723

 

38,401,443

Changes in cash flows

 

1,094,393

 

 

5,345,483

 

6,439,876

Amortization

 

(1,705)

 

 

(100,307)

 

(102,012)

Net foreign currencies transaction loss (gain)

 

(374,911)

 

 

82,081

 

(292,830)

Changes in fair value of hedged items

 

686,945

 

 

37,604

 

724,549

Ending balance

W

15,876,442

 

 

29,294,584

 

45,171,026

 

 

 

December 31, 2017

 

 

Borrowings

 

 

Debt securities issued

 

Total

Beginning balance

W

13,944,878

 

 

20,923,326

 

34,868,204

Changes in cash flows

 

999,425

 

 

3,592,690

 

4,592,115

Amortization

 

802

 

 

3,196

 

3,998

Net foreign currencies transaction loss (gain)

 

(473,385)

 

 

(446,833)

 

(920,218)

Changes in fair value of hedged items

 

-

 

 

(142,656)

 

(142,656)

Ending balance

W

14,471,720

 

 

23,929,723

 

38,401,443

 


142


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.

Related party transactions

 

 

(a) Significant balances with the related parties as of December 31, 2018 and 2017 were as follows:

 

Related party

 

Account

 

December 31,

2018

 

December 31,

2017

Subsidiaries

 

 

 

 

 

 

Shinhan Asia Ltd.

 

Cash and due from banks

W

-

 

324

 

 

Loans

 

-

 

326,749

 

 

Allowance for loan loss

 

-

 

(61)

 

 

Other assets

 

-

 

614

 

 

Deposits

 

115,409

 

512

Shinhan Bank Europe GmbH

 

Cash and due from banks

 

1,615

 

3,012

 

 

Loans

 

310,947

 

240,155

 

 

Allowance for loan loss

 

(899)

 

(708)

 

 

Other assets

 

703

 

352

 

 

Deposits

 

19

 

18

 

 

Borrowings

 

129,914

 

56,210

Shinhan Bank Cambodia

 

Cash and due from banks

 

61

 

185

 

 

Loans

 

71,558

 

57,856

 

 

Allowance for loan loss

 

(145)

 

(79)

 

 

Other assets

 

423

 

309

 

 

Provisions

 

1

 

1

Shinhan Kazakhstan Bank

 

Cash and due from banks

 

990

 

588

Limited

 

Loans

 

3,354

 

-

 

 

Allowance for loan loss

 

(9)

 

(1)

 

 

Other assets

 

1

 

-

 

 

Deposits

 

-

 

6

 

 

Provisions

 

300

 

368

Shinhan Bank Canada

 

Cash and due from banks

 

-

 

542

 

 

Loans

 

117,827

 

117,300

 

 

Allowance for loan loss

 

(337)

 

(344)

 

 

Other assets

 

970

 

394

 

 

Deposits

 

389

 

287

 

 

Borrowings

 

10,866

 

11,191

Shinhan Bank China Limited

 

Cash and due from banks

 

26,220

 

6,081

 

 

Loans

 

226,943

 

185,369

 

 

Allowance for loan loss

 

(513)

 

(262)

 

 

Other assets

 

1,630

 

804

 

 

Deposits

 

1,449

 

2,065

 

 

Borrowings

 

7,441

 

4,493

 

 

Provisions

 

131

 

89


143


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41. Related party transactions (continued)

 

(a) Significant balances with the related parties as of December 31, 2018 and 2017 were as follows: (continued)

 

Related party

 

Account

 

December 31,

2018

 

December 31,

2017

Subsidiaries (continued)

Shinhan Bank Japan

 

Cash and due from banks

W

18,602

 

25,620

 

 

Loans

 

167,715

 

214,280

 

 

Allowance for loan loss

 

(268)

 

(179)

 

 

Other assets

 

1,492

 

1,244

 

 

Deposits

 

13,255

 

156

 

 

Borrowings

 

52,954

 

124,212

 

 

Provisions

 

29

 

14

 

 

Other liabilities

 

500

 

702

Shinhan Bank Vietnam Ltd.

 

Cash and due from banks

 

201

 

5,036

 

 

Loans

 

66,474

 

32,784

 

 

Allowance for loan loss

 

(16)

 

(9)

 

 

Deposits

 

56,040

 

7,450

 

 

Borrowings

 

72,677

 

-

 

 

Provisions

 

445

 

324

PT Bank Shinhan Indonesia

 

Cash and due from banks

 

343

 

187

 

 

Loans

 

272,816

 

110,890

 

 

Allowance for loan loss

 

(781)

 

(324)

 

 

Other assets

 

2,101

 

254

Shinhan Bank America

 

Cash and due from banks

 

11,257

 

17,908

 

 

Allowance for loan loss

 

(32)

 

(52)

Shinhan Bank Mexico

 

Loans

 

25,157

 

-

 

 

Allowance for loan loss

 

(4,544)

 

-

 

 

Other assets

 

124

 

-

Trust accounts

 

Other assets

 

306

 

584

 

 

Other liabilities

 

230,148

 

244,706

Structured entities

 

Securities at fair value

through profit or loss

 

715,762

 

1,294,317

 

 

Derivative assets

 

5,602

 

121

 

 

Loans

 

13,692

 

15,878

 

 

Allowance for loan loss

 

(50)

 

(44)

 

 

Other assets

 

30,192

 

27,698

 

 

Deposits

 

7,251

 

9,529

 

 

Derivative liabilities

 

1,988

 

9,722

 

 

Provisions

 

31,300

 

29,213

 

 

Other liabilities

 

-

 

1

 


144


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41. Related party transactions (continued)

 

(a) Significant balances with the related parties as of December 31, 2018 and 2017 were as follows: (continued)

 

Related party

 

Account

 

December 31,

2018

 

December 31,

2017

The parent company

 

 

 

 

 

 

Shinhan Financial Group

 

Other assets

W

-

 

934

 

 

Deposits

 

24

 

3

 

 

Other liabilities

 

309,355

 

222,867

Entities under common control

 

 

 

 

 

 

Shinhan Card Co., Ltd.

 

Derivative assets

 

5,100

 

785

  

 

Other assets

 

1,338

 

2,248

  

 

Deposits

 

23,522

 

7,263

 

 

Derivative liabilities

 

269

 

2,539

 

 

Provisions

 

180

 

47

  

 

Other liabilities

 

22,702

 

23,106

Shinhan Investment Corp.

 

Cash and due from banks

 

6,281

 

3,461

 

 

Derivative assets

 

13,095

 

3,954

 

 

Loans

 

22,914

 

14,984

 

 

Allowance for loan loss

 

(19)

 

(4)

  

 

Other assets

 

19,972

 

18,240

 

 

Deposits

 

202,561

 

272,064

 

 

Derivative liabilities

 

1,981

 

39,302

 

 

Provisions

 

67

 

34

 

 

Other liabilities

 

40,338

 

39,010

Shinhan Life Insurance

 

Derivative assets

 

17,302

 

1,558

  

 

Other assets

 

3

 

11

 

 

Deposits

 

14,335

 

6,379

  

 

Derivative liabilities

 

7,771

 

44,928

 

 

Provisions

 

16

 

4

  

 

Other liabilities

 

14,674

 

15,184

Shinhan Capital Co., Ltd.

 

Deposits

 

1,504

 

754

 

 

Provisions

 

14

 

14

  

 

Other liabilities

 

13,611

 

12,799

Jeju Bank

 

Loans

 

1,621

 

2,658

 

 

Allowance for loan loss

 

(2)

 

(1)

 

 

Other assets

 

1

 

1

  

 

Deposits

 

11,045

 

22,376

 

 

Other liabilities

 

2,446

 

2,475

Shinhan Credit Information

 

Deposits

 

3,793

 

6,059

Co., Ltd.

 

Other liabilities

 

1,599

 

1,719

Shinhan Alternative Investment

 

Deposits

 

5,405

 

168

Management Inc.

 

Other liabilities

 

23

 

-


145


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

(a) Significant balances with the related parties as of December 31, 2018 and 2017 were as follows:

   (continued)

 

Related party

 

Account

 

December 31,

2018

 

December 31,

2017

Entities under common control (continued)

 

 

Shinhan BNP Paribas AMC

 

Deposits

W

121,976

 

117,149

 

 

Other liabilities

 

1,673

 

1,512

Shinhan DS

 

Deposits

 

815

 

11,135

  

 

Other liabilities

 

6,567

 

6,544

Shinhan Savings Bank

 

Other liabilities

 

8,987

 

8,987

Shinhan Aitas

 

Deposits

 

14,604

 

9,381

 

 

Other liabilities

 

60

 

41

Shinhan REITs Management

 

Deposits

 

79

 

71

Investments in associates and associates of entities under common control

BNP Paribas Cardif Life

Insurance Co., Ltd.

 

Other assets

 

-

 

9,760

 

Deposits

 

444

 

446

 

 

Provisions

 

-

 

2

BNP Paribas Cardif

General Insurance

 

Deposits

 

157

 

221

Dream High Fund III

 

Deposits

 

4

 

3

Midas Dong-A Snowball

Venture Fund

 

Deposits

 

159

 

220

IBKS-Shinhan Creative

Economy New Technology

Fund

 

Deposits

 

-

 

78

JAEYOUNG SOLUTEC

Co., Ltd. (*1)

 

Loans

 

-

 

14,847

 

Allowance for loan loss

 

-

 

(123)

 

 

Deposits

 

-

 

2,659

 

 

Provisions

 

-

 

4

Partners 4th Growth

Investment Fund

 

Deposits

 

1,855

 

2,076

Credian Health Care

Private Equity Fund II

 

Deposits

 

45

 

26

Snowball Venture Fund II

 

Deposits

 

354

 

239

IBKS-Shinhan Creative

Economy New Technology

Fund II

 

Deposits

 

672

 

76

YIUM The 3rd Private

Investment Joint

Stock Company

 

Deposits

 

49

 

65

Branbuil Co., Ltd

 

Deposits

 

-

 

55

KTB Newlake Global

Healthcare PEF

 

Loans

 

151

 

-

 

Allowance for loan loss

 

(1)

 

-

 

Deposits

 

-

 

465

 

Provisions

 

-

 

13

 

146


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

(a) Significant balances with the related parties as of December 31, 2018 and 2017 were as follows:

   (continued)

 

Related party

 

Account

 

December 31,

2018

 

December 31,

2017

Investments in associates and associates of entities under common control (continued)

Taihan Industrial System Co., Ltd

 

Deposits

W

85

 

100

ICSF (The Korea’s Information

Center for Savings & Finance)

 

Deposits

 

4

 

4

Key management personnel

 

 

 

 

 

 

 

 

Loans

 

2,783

 

2,828

 

 

Allowance for loan loss

 

(1)

 

(3)

 

 

Provisions

 

1

 

1

 

(*1) This investee was sold and excluded from associates during the year ended December 31, 2018.

147


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

Related party

 

Account

 

2018

 

2017

Subsidiaries

 

 

 

 

 

 

Shinhan Asia Ltd.

 

Interest income

W

8,873

 

3,108

 

 

Dividend income

 

118,619

 

-

 

 

Reversal of (provision for) allowance

 

61

 

(17)

Shinhan Bank

 

Interest income

 

3,930

 

2,424

Europe GmbH

 

Fees and commission income

 

81

 

58

 

 

Provision for allowance

 

(182)

 

(189)

 

 

Interest expense

 

(1,744)

 

-

Shinhan Bank Cambodia

 

Interest income

 

1,549

 

725

 

 

Fees and commission income

 

47

 

49

 

 

Provision for allowance

 

(66)

 

(20)

 

 

Other operating expense

 

(1)

 

(1)

Shinhan Kazakhstan

 

Interest income

 

1

 

-

Bank Limited

 

Fees and commission income

 

76

 

87

 

 

Other operating income

 

68

 

-

 

 

Reversal of (provision for) allowance

 

(8)

 

9

 

 

Interest expense

 

-

 

(13)

 

 

Other operating expense

 

-

 

(368)

Shinhan Bank Canada

 

Interest income

 

2,592

 

2,006

 

 

Fees and commission income

 

89

 

101

 

 

Provision for allowance

 

5

 

(68)

Shinhan Bank China Limited

 

Interest income

 

6,351

 

4,174

 

 

Fees and commission income

 

339

 

252

 

 

Other operating income

 

-

 

5

 

 

Reversal of (provision for) allowance

 

(252)

 

143

 

 

Other operating expense

 

(42)

 

-

Shinhan Bank Japan

 

Interest income

 

4,680

 

4,585

 

 

Fees and commission

income

 

533

 

618

 

 

Other operating income

 

-

 

84

 

 

Reversal of (provision for) allowance

 

(90)

 

45

 

 

Interest expense

 

(885)

 

-

 

 

Other operating expense

 

(15)

 

-

Shinhan Bank Vietnam Ltd.

 

Interest income

 

-

 

380

 

 

Fees and commission income

 

879

 

1,503

 

 

Other operating income

 

-

 

194

 

 

Reversal of allowance

 

(7)

 

8

 

 

Interest expense

 

(842)

 

-

 

 

Other operating expense

 

(121)

 

-

 


148


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

Related party

 

Account

 

2018

 

2017

Subsidiaries (continued)

 

 

 

 

 

 

PT Bank Shinhan Indonesia

 

Interest income

W

4,729

 

786

 

 

Fees and commission income

 

385

 

1

 

 

Provision for allowance

 

(458)

 

(322)

 

 

Other operating expense

 

-

 

(3)

Shinhan Bank America

 

Fees and commission income

 

127

 

136

 

 

Reversal of (provision for) allowance

 

20

 

(52)

Shinhan Bank Mexico

 

Interest income

 

130

 

-

 

 

Provision for allowance

 

(4,544)

 

-

Trust Accounts

 

Fees and commission income

 

20,115

 

18,851

 

 

Interest expense

 

(4,786)

 

(2,849)

Structured entities

 

Interest income

 

18,295

 

26,950

 

 

Fees and commission income

 

15,466

 

13,181

 

 

Gain related to derivatives

 

14,319

 

3,546

 

 

Other operating income

 

55

 

368

 

 

Interest expense

 

(54)

 

(50)

 

 

Loss related to derivatives

 

(1,289)

 

(10,499)

 

 

Reversal of (provision for) allowance

 

(5)

 

28

 

 

Other operating expense

 

(2,087)

 

-

The parent company

 

 

 

 

 

 

Shinhan Financial Group

 

Other operating income

 

1,392

 

2,228

 

 

Interest expense

 

(268)

 

(228)

 

 

Fees and commission expense

 

(31,608)

 

(29,779)

 

 

 

 

 

 

 

Entities under common control

 

 

 

 

Shinhan Card Co., Ltd.

 

Interest income

 

3,302

 

1,868

 

 

Fees and commission income

 

198,589

 

187,385

 

 

Gain related to derivatives

 

8,975

 

2,694

 

 

Other operating income

 

1,815

 

2,092

 

 

Interest expense

 

(256)

 

(528)

 

 

Fees and commission expense

 

(180)

 

(177)

 

 

Loss related to derivatives

 

(371)

 

(5,111)

 

 

Other operating expense

 

(3,561)

 

(3,064)

 

 


149


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

Related party

 

Account

 

2018

 

2017

Entities under common control (continued)

 

 

 

 

Shinhan Investment

 

Interest income

W

950

 

466

Corp.

 

Fees and commission income

 

7,362

 

5,167

 

 

Gain related to derivatives

 

45,592

 

10,037

 

 

Other operating income

 

4,484

 

4,637

 

 

Interest expense

 

(2,247)

 

(1,499)

 

 

Loss related to derivatives

 

(14,150)

 

(98,769)

 

 

Reversal of (provision for) allowance

 

(15)

 

(3)

 

 

Other operating expense

 

(286)

 

(785)

Shinhan Life Insurance

 

Interest income

 

49

 

47

 

 

Fees and commission income

 

11,286

 

7,513

 

 

Gain related to derivatives

 

51,311

 

7,117

 

 

Other operating income

 

695

 

1,470

 

 

Interest expense

 

(278)

 

(264)

 

 

Loss related to derivatives

 

(8,272)

 

(109,882)

 

 

Other operating expense

 

(641)

 

(843)

  Shinhan Capital

 

Other operating income

 

972

 

314

   Co., Ltd.

 

Interest expense

 

(229)

 

(241)

 

 

Fees and commission expense

 

-

 

(10)

 

 

Other operating expense

 

-

 

(4)

Jeju Bank

 

Interest income

 

25

 

3

 

 

Other operating income

 

52

 

44

 

 

Interest expense

 

(79)

 

(45)

 

 

Provision for allowance

 

(1)

 

-

Shinhan Credit

 

Fees and commission income

 

3

 

3

Information Co., Ltd.

 

Other operating income

 

83

 

76

 

 

Interest expense

 

(84)

 

(94)

 

 

Fees and commission expense

 

(5,095)

 

(4,645)

Shinhan Alternative Investment Management Inc.

 

Interest expense

 

(37)

 

-

Shinhan BNP Paribas

 

Fees and commission income

 

44

 

-

AMC

 

Other operating income

 

9

 

52

 

 

Interest expense

 

(2,157)

 

(1,187)

 

 

Reversal of allowance

 

-

 

16

 

 

Fees and commission expense

 

(2,158)

 

(2,250)

 


150


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

Related party

 

Account

 

2018

 

2017

Entities under common control (continued)

 

 

 

 

Shinhan DS

 

Other operating income

W

175

 

134

 

 

Interest expense

 

(146)

 

(168)

 

 

Other operating expense

 

(41,096)

 

(34,629)

Shinhan Savings Bank

 

Fees and commission income

 

869

 

796

 

 

Other operating income

 

205

 

175

 

 

Interest expense

 

(152)

 

(120)

Shinhan Aitas

 

Fees and commission income

 

31

 

31

 

 

Other operating income

 

6

 

5

 

 

Interest expense

 

(70)

 

(71)

Shinhan BNPP Global

Multi Asset Security Trust

 

Fees and commission income

 

-

 

5

Shinhan REITs

Management

 

Interest expense

 

(132)

 

-

Investments in associates and entities under common control

 

 

BNP Paribas Cardif Life

Insurance Co., Ltd.

 

Fees and commission income

 

2,418

 

3,246

 

 

Other operating income

 

-

 

(1)

BNP Paribas Cardif General

Insurance

 

Fees and commission income

 

5

 

2

IBKS-Shinhan Creative

Economy New Technology Fund

 

Interest expense

 

-

 

(2)

Midas Dong-A Snowball

 

 

 

 

 

 

Venture Fund

 

Interest expense

 

(2)

 

(3)

JAEYOUNG SOLUTEC

 

Interest income

 

347

 

654

CO., LTD. (*1)

 

Fees and commission income

 

1

 

1

 

 

Other operating income

 

3

 

3

 

 

Reversal of (provision for) allowance

 

(2)

 

(55)

 

 

Interest expense

 

(1)

 

(4)


151


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

Related party

 

Account

 

2018

 

2017

Investments in associates and entities under common control (continued)

 

 

Partners 4th Growth

Investment Fund

 

Interest expense

W

(19)

 

(16)

Shinhan-Albatross Technology  

Investment Fund

 

Interest expense

 

-

 

(21)

KTB Newlake Global

Healthcare PEF

 

Interest income

 

2

 

10

Snowball Venture Fund II

 

Interest expense

 

(2)

 

-

Branbuil Co., Ltd.

 

Fees and commission income

 

-

 

2

Taihan Industrial System Co., Ltd.

 

Fees and commission income

 

1

 

2

Hyungje Art Printing

 

Interest income

 

13

 

-

 

 

Fees and commission income

 

1

 

-

 

 

 

 

 

 

 

Key management personnel

 

 

 

 

Interest income

 

94

 

51

 

(*1) These investee was sold and excluded from associates during the year ended December 31, 2018.

.


152


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

(c) Details of transactions with key management for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Short and long term employee benefits

W

14,175

 

8,916

Post-employment benefits

 

305

 

298

Share-based payment transactions

 

2,393

 

4,655

 

W

16,873

 

13,869

 

 

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

 

 

 

 

Amount of guarantees

 

 

 

Guaranteed party

 

December 31,

2018

 

December 31,

2017

 

Account

 

Shinhan Bank China Limited

W

65,056

 

65,599

 

Financial guarantee

 

Shinhan Bank Cambodia

 

559

 

536

 

Financial guarantee

 

Shinhan Kazakhstan Bank

Limited

 

22,362

 

21,428

 

Financial guarantee

 

Shinhan Bank Vietnam Ltd.

 

255,528

 

205,822

 

Financial guarantee

 

 

 

3,765

 

32

 

Performance guarantees

 

Shinhan Bank Japan

 

20,264

 

18,982

 

Financial guarantee

 

Structured entities (*1)

 

2,601,495

 

1,840,403

 

ABCP purchase commitments

 

 

 

679,345

 

278,266

 

Unused credit limit

 

Shinhan Investment Corp.

 

214,955

 

218,166

 

Unused credit limit

 

Shinhan Card Co., Ltd.

 

500,000

 

500,000

 

Unused credit limit

 

Shinhan Life Insurance

 

50,000

 

50,000

 

Unused credit limit

 

Shinhan Capital Co., Ltd.

 

70,000

 

70,000

 

Unused credit limit

 

Shinhan BNP Paribas AMC

 

228,216

 

53,484

 

Security underwriting commitment

 

BNP Paribas

Cardif Life Insurance

Co., Ltd.

 

10,000

 

10,000

 

Unused credit limit

 

Shinhan Alternative Investment Management Inc.

 

3,600

 

-

 

Security underwriting commitment

 

Neoplux Technology Valuation Investment Fund

 

-

 

6,000

 

Security underwriting commitment

 

JAEYOUNG SOLUTEC

 

-

 

109

 

Unused credit limit

 

CO., LTD. (*2)

 

-

 

429

 

Import letter of credit

 

KTB Newlake Global

Healthcare PEF

 

849

 

700

 

Unused credit limit

 

Shinhan Private Equity Inc.

 

3,600

 

-

 

Security underwriting commitment

 

 

W

4,725,994

 

3,339,956

 

 

 

(*1) The amount was recognized after deducting the balance of current ABCP.

(*2) This investee was sold and excluded from associates during the year ended December 31, 2018.


153


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

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

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Related party

 

Pledged assets

 

Book

value

 

Collateral

value

 

Book

value

 

Collateral

value

Subsidiary

 

Shinhan Bank Japan

 

Securities

W

149,934

 

149,934

 

                            149,811

 

                            149,811

Entity under

common

control

 

Shinhan Life Insurance

 

Securities

 

                             10,230

 

10,230

 

                             10,271

 

                             10,271

 

 

 

 

 

W

160,164

 

160,164

 

160,082

 

160,082

 

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

 

 

 

Related party

 

Pledged assets

 

December

31, 2018

 

December

31, 2017

Subsidiaries

 

S-redefine 4th Co., Ltd.

 

Trust

W

318,000

 

-

 

 

Tiger Eyes 1st Co., Ltd

 

Real estate

 

60,000

 

60,000

 

 

Sunny Financial 9th Co., Ltd.

 

Trust

 

36,000

 

36,000

 

 

Sunny Smart 8th Co., Ltd.

 

Trust

 

24,000

 

24,000

 

 

Sunny more 1st Co., Ltd.

 

Other movables

 

24,000

 

24,000

 

 

S-solution 9th Co., Ltd.

 

Real estate

 

18,000

 

18,000

 

 

S-smart 3rd Co., Ltd.

 

Trust

 

16,680

 

16,680

 

 

Sunny Russell 4th L.L.C

 

Other movables

 

12,000

 

12,000

 

 

Redefine Unjung Co., Ltd.

 

Real estate

 

66,000

 

-

 

 

GIB dochuk Co., Ltd.

 

Trust

 

39,000

 

-

Entities under

 

Shinhan Investment Corp.

 

Deposits

 

135,700

 

135,700

common control

 

 

 

Real estate

 

91,974

 

91,974

 

 

Jeju Bank

 

Government bonds

 

20,000

 

20,000

 

 

Shinhan Life Insurance

 

Government bonds

 

6,000

 

7,170

 

 

Shinhan Credit Information

Co., Ltd.

 

Deposits

 

180

 

180

Investments in

associates

 

BNP Paribas Cardif Life Insurance Co., Ltd.

 

Government bonds

 

12,000

 

11,666

 

 

JAEYOUNG SOLUTEC

 

Real estate

 

-

 

20,814

 

 

CO., LTD. (*1)

 

Korea Trade Insurance

  Corporation guarantee

 

-

 

7,037

 

 

 

 

 

W

879,534

 

485,221

 

(*1) This investee was sold and excluded from associates during the year ended December 31, 2018.

 


154


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

41.  Related party transactions (continued)

 

(g) Details of significant lease and collection of related parties as of December 31, 2018 are as follows:

 

 

 

Related party

 

 

Beginning

balance (*1)

 

Rental

 

Recovery (*2)

 

Ending

balance (*1)

Subsidiaries

 

Structured entities

 

W

15,878

 

32,787

 

(34,973)

 

13,692

 

 

Shinhan Asia Ltd.

 

 

326,749

 

1,116,665

 

(1,443,414)

 

-

 

 

Shinhan Bank Vietnam Ltd.

 

 

32,784

 

122,169

 

(88,479)

 

66,474

 

 

Shinhan Bank Canada

 

 

117,300

 

132,477

 

(131,950)

 

117,827

 

 

Shinhan Bank Cambodia

 

 

57,856

 

133,428

 

(119,726)

 

71,558

 

 

Shinhan Bank China

Limited

 

 

185,369

 

241,672

 

(200,098)

 

226,943

 

 

Shinhan Bank Japan

 

 

214,280

 

384,753

 

(431,318)

 

167,715

 

 

PT Bank Shinhan

Indonesia

 

 

110,890

 

538,766

 

(376,840)

 

272,816

 

 

Shinhan Bank Europe

GmbH

 

 

240,155

 

512,696

 

(441,904)

 

310,947

 

 

Shinhan Bank Mexico

 

 

-

 

26,048

 

(891)

 

25,157

 

 

Shinhan Kazakhstan

Bank Limited

 

 

-

 

3,354

 

-

 

3,354

Entities under

common

control

 

Jeju Bank

 

 

2,658

 

3,223

 

(4,260)

 

1,621

 

Shinhan Investment

Corp.

 

 

14,984

 

39,307

 

(31,377)

 

22,914

Investment in

associates

 

KTB Newlake Global

Healthcare PEF

 

 

-

 

151

 

-

 

151

 

(*1) The amount is before deducting allowance for bad debts.

(*2) It includes gains and losses of foreign exchange regarding overseas subsidiaries.

 

 

(h) Details of significant redemption of borrowings of related parties as of December 31, 2018 are as follows:

 

 

 

Related party

 

 

Beginning

 

Rental

 

Recovery (*1)

 

Ending

Subsidiaries

 

Shinhan Bank Europe

GmbH

 

W

56,210

 

227,067

 

(153,363)

 

129,914

 

 

Shinhan Bank Japan

 

 

124,212

 

171,539

 

(242,797)

 

52,954

 

 

Shinhan Bank Canada

 

 

11,191

 

23,012

 

(23,337)

 

10,866

 

 

Shinhan Bank China

Limited

 

 

4,493

 

16,963

 

(14,015)

 

7,441

 

 

Shinhan Asia Ltd.

 

 

-

 

38,123

 

(38,123)

 

-

 

 

Shinhan Bank Cambodia

 

 

-

 

23,106

 

(23,106)

 

-

 

 

Shinhan Bank Vietnam Ltd.

 

 

-

 

72,677

 

-

 

72,677

 

(*1) It includes gains and losses of foreign exchange regarding overseas subsidiaries.

 


155


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

42.  Information of trust business

 

(a) Total assets with trust business as of December 31, 2018 and 2017 and operating revenue for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

Total assets

 

Operating revenue

 

 

December 31,

2018

 

December 31, 2017

 

2018

 

2017

Consolidated

W

4,521,280

 

4,471,457

 

128,577

 

112,528

Unconsolidated

 

71,639,988

 

46,014,514

 

996,465

 

929,899

 

W

76,161,268

 

50,485,971

 

1,125,042

 

1,042,427

 

(b) Significant balances with trust business as of December 31, 2018 and 2017 were as follows:

 

 

 

December 31, 2018

 

December 31, 2017

Borrowings from trust accounts

W

3,224,946

 

4,297,314

Accrued revenues from asset management fee

from trust accounts

 

34,286

 

29,379

Accrued interest expenses

 

1,325

 

824

 

(c) Significant transactions with trust business for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

2018

 

2017

Asset management fee from trust accounts

W

212,537

 

185,040

Termination fee

 

6,840

 

3,415

Interest on borrowings from trust accounts

 

49,940

 

40,717

 

 


156


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

43.  Transition effects arising from changes in accounting policies

 

As described in Note 2, the Bank has changed its accounting policies upon adoption of K-IFRS No.1109, Financial Instruments, and K-IFRS No.1115, Revenue from Contracts with Customers.  With respect to classification, measurement and impairment of financial instruments, the separate financial statements as of and for the year ended December 31, 2017 have not been restated in accordance with the exemption not to restate comparative financial statements.

 

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

 

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

 

 

 

157


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

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

 

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

 

 

 

Amounts

Retained earnings at January 1, 2018 before changes

W

13,418,460

Adjustments of retained earnings due to the application of K-IFRS No.1109:

 

 

Reclassification from financial assets at amortized cost to financial assets at FVTPL

 

2,456

Reclassification from available-for-sale financial assets to financial assets at FVTPL

 

49,931

Reclassification from available-for-sale financial assets to financial assets at FVOCI

 

200,339

Increase in loss allowance for financial assets at amortized cost

 

(364,464)

Increase in loss allowance for loan commitments and financial guarantee contracts

 

528

Increase in loss allowance for debt instruments at FVOCI

 

(7,972)

Others (*1)

 

(3,253)

 

 

(122,435)

Adjustments of retained earnings due to the application of K-IFRS No.1115 (*2)

 

(2,554)

Tax effects (*3)

 

34,373

Retained earnings at January 1, 2018 after changes

W

13,327,844

 

 

 

Amounts

Accumulated other comprehensive loss at January 1, 2018 before changes

W

(225,695)

Adjustments of accumulated other comprehensive income due to the application of     K-IFRS No.1109:

 

 

Reclassification from available-for-sale financial assets to financial assets at FVTPL

 

(49,931)

Reclassification from available-for-sale financial assets to financial assets at FVOCI

 

(200,339)

Increase in loss allowance for debt instruments at FVOCI

 

7,972

Others (*1)

 

1,465

 

 

(240,833)

Tax effects (*3)

 

66,229

Accumulated other comprehensive loss at January 1, 2018 after changes

W

(400,299)

 

(*1)

Others represent translation difference of foreign currencies, etc.

(*2)

Adjustments were resulting from deferred fee income on management of trust accounts under K-IFRS No.1115, which was previously recognized as profit or loss at a point in time.

(*3)

Tax effects due to the application of K-IFRS No.1109 were separately shown.

 

 

 


158


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

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

 

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

 

 

Classification under K-IFRS No.1039

 

Classification under

K-IFRS No.1109

 

Amounts under
K-IFRS No.1039 (*1)

 

Amounts under
K-IFRS No.1109 (*1)

 

Difference

Financial assets:

 

 

 

 

 

 

 

 

 

Due from banks

Loans and receivables

 

Amortized cost

W

13,057,347

 

13,057,347

 

-

Loans

Loans and receivables

 

Financial assets

at FVTPL

 

605,367

 

606,439

 

1,072

Loans and receivables

 

Amortized cost

 

217,703,397

 

217,703,397

 

-

Other financial assets

Loans and receivables

 

Amortized cost

 

8,788,507

 

8,788,507

 

-

Trading assets
(debt securities)

 

Trading assets

 

Financial assets

at FVTPL

 

8,341,580

 

8,341,580

 

-

Trading assets
(equity securities)

 

Trading assets

 

Financial assets

at FVTPL

 

303,993

 

303,993

 

-

Trading assets

(gold/silver deposits)

 

Trading assets

 

Financial assets

at FVTPL

 

189,297

 

189,297

 

-

Derivatives

Trading assets

 

Financial assets

at FVTPL

 

2,602,690

 

2,598,327

 

(4,363)

Available-for-sale financial assets (debt securities)

Available-for-sale financial assets

 

Financial assets

at FVTPL

 

28,423,684

 

28,423,684

 

-

Available-for-sale financial assets (equity securities)

Available-for-sale financial assets

 

Financial assets

at FVTPL

 

2,298,554

 

2,301,835

 

3,281

 

Available-for-sale financial assets

 

Financial assets

at FVOCI

 

404,159

 

404,159

 

-

Held-to-maturity financial assets (debt securities)

Held-to-maturity financial assets

 

Amortized cost

 

14,358,584

 

14,358,584

 

-

 

 

 

 

W

297,077,158

 

297,077,149

 

(9)

Financial Liabilities:

 

 

 

 

 

Deposits

Financial liability

at amortized cost

 

Financial liabilities

at amortized cost

W

223,975,037

 

223,975,037

 

-

Trading liabilities

Trading liabilities

 

 

Financial liabilities
at FVTPL

 

434,586

 

434,586

 

-

Derivatives

Trading liabilities

 

 

Financial liabilities

at FVTPL

 

2,996,958

 

2,996,958

 

-

Borrowings

Financial liabilities

at amortized cost

 

Financial liabilities

at amortized cost

 

14,471,720

 

14,471,720

 

-

Debt securities issued

Financial liabilities

at amortized cost

 

Financial liabilities

at amortized cost

 

23,929,723

 

23,929,723

 

-

Others

Financial liabilities

at amortized cost

 

Financial liabilities

at amortized cost

 

14,474,096

 

14,474,096

 

-

 

 

 

 

W

280,282,120

 

280,282,120

 

-

 

(*1) Represents gross carrying amounts before deferred loan origination costs and fees, allowance for loan loss and credit loss allowance.

159


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

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

 

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

 

Classification
under

K-IFRS No.1039

 

Classification
under

K-IFRS No.1109

 

Loss allowance

under
K-IFRS No.1039

 

Loss allowance

under
K-IFRS No.1109

 

Difference

Loans and receivables

 

 

 

 

 

 

 

 

Due from banks

 

Financial assets

at amortized cost

W

3,080

 

3,081

 

1

Loans and receivables

 

Financial assets

at amortized cost

 

1,320,101

 

1,685,531

 

365,430

 

 

Financial assets

at FVTPL

 

3,315

 

-

 

(3,315)

Other financial assets

 

Financial assets

at amortized cost

 

24,193

 

25,174

 

981

Available-for-sale financial assets

 

 

 

 

 

 

 

 

Debt securities

 

Financial assets

at FVOCI

 

-

 

7,972

 

7,972

Held-to-maturity financial assets

 

 

 

 

 

 

 

 

Debt securities

 

Financial assets

at amortized cost

 

-

 

1,367

 

1,367

 

 

 

 

1,350,689

 

1,723,125

 

372,436

Financial guarantee

 

Financial guarantee

 

80,587

 

81,565

 

978

Unused credit line and

other credit commitment

 

Unused credit line and

other credit commitment

 

65,740

 

64,234

 

(1,506)

 

 

 

W

146,327

 

145,799

 

(528)

 


160


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

(iv) Details in reclassification of financial instruments from application of K-IFRS No.1109

 

For the financial assets and liabilities as of January 1, 2018, the date of the initial application of K-IFRS No.1109, details of reclassifications and remeasurements in the Bank’s financial assets and liabilities from application of K-IFRS No.1109 were as follows:

1) Effects on gross carrying amounts

 

 

 

Amounts under K-IFRS No.1039 (*1)

 

Amounts reclassified

 

Amounts
remeasured

 

Amounts under K-IFRS No.1109 (*1)

 

Changes in retained earnings

 

Changes in other comprehensive income

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Due from banks

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

W

13,057,347

 

-

 

-

 

13,057,347

 

-

 

-

Loans

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

218,308,764

 

-

 

-

 

218,308,764

 

-

 

-

Reclassification to financial assets at FVTPL (*2)

 

-

 

(605,367)

 

-

 

(605,367)

 

-

 

-

 

 

218,308,764

 

(605,367)

 

-

 

217,703,397

 

-

 

-

Other financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

8,788,507

 

-

 

-

 

8,788,507

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading assets (debt securities) (*4)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

8,341,580

 

-

 

-

 

8,341,580

 

-

 

-

Reclassification to financial assets at FVTPL

 

-

 

(8,341,580)

 

-

 

(8,341,580)

 

-

 

-

 

 

8,341,580

 

(8,341,580)

 

-

-

-

 

-

 

-

Trading assets (equity securities)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

303,993

 

-

 

-

 

303,993

 

-

 

-

Reclassification to financial assets at FVTPL

 

-

 

(303,993)

 

-

 

(303,993)

 

-

 

-

 

 

303,993

 

(303,993)

 

-

 

-

 

-

 

-

Trading assets (gold deposits)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

189,297

 

-

 

-

 

189,297

 

-

 

-

Reclassification to financial assets at FVTPL

 

-

 

(189,297)

 

-

 

(189,297)

 

-

 

-

 

 

189,297

 

(189,297)

 

-

 

-

 

-

 

-

Derivative assets (*1)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

2,602,690

 

-

 

-

 

2,602,690

 

-

 

-

Reclassification to financial assets at FVTPL

 

-

 

(4,363)

 

-

 

(4,363)

 

-

 

-

 

 

2,602,690

 

(4,363)

 

-

 

2,598,327

 

-

 

-

Available-for-sale financial assets (debt securities)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

28,423,684

 

-

 

-

 

28,423,684

 

-

 

-

Reclassification to financial assets at FVOCI

 

-

 

(28,423,684)

 

-

 

(28,423,684)

 

-

 

-

 

 

28,423,684

 

(28,423,684)

 

-

 

-

 

-

 

-

 

(*1) Represents gross carrying amounts before deferred loan origination costs and fees, allowance for loan loss and credit loss allowance.

 

 

 

 

 

161


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

(iv) Details in reclassification of financial instruments from application of K-IFRS No.1109 (continued)

 

 

 

Amounts under K-IFRS No.1039 (*1)

 

Amounts reclassified

 

Amounts
remeasured

 

Amounts under K-IFRS No.1109 (*1)

 

Changes in retained earnings

 

Changes in other comprehensive income

Available-for-sale financial assets (equity securities)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

W

2,702,713

 

-

 

-

 

2,702,713

 

-

 

-

Reclassification to financial assets at FVTPL (*3)

 

-

 

(2,298,554)

 

-

 

(2,298,554)

 

-

 

-

Reclassification to financial assets at FVOCI

 

-

 

(404,159)

 

-

 

(404,159)

 

-

 

-

 

 

2,702,713

 

(2,702,713)

 

-

 

-

 

-

 

-

Held-to-maturity financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

14,358,584

 

-

 

-

 

14,358,584

 

-

 

-

Reclassification to financial assets

at amortized cost

 

-

 

(14,358,584)

 

-

 

(14,358,584)

 

-

 

-

 

 

14,358,584

 

(14,358,584)

 

-

 

-

 

-

 

-

Financial assets at FVTPL

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

-

 

-

 

-

 

-

 

-

 

-

Transfer from loans and receivables

 

-

 

605,367

 

2,456

 

607,823

 

2,456

 

-

Transfer from trading assets

 

-

 

8,834,870

 

-

 

8,834,870

 

-

 

-

Transfer from available-for-sale financial assets

 

-

 

2,298,554

 

-

 

2,298,554

 

49,931

 

(49,931)

Transfer from derivative assets

 

-

 

4,363

 

109

 

4,472

 

109

 

-

Others

 

-

 

(2,575)

 

-

 

(2,575)

 

-

 

-

 

 

-

 

11,740,579

 

2,565

 

11,743,144

 

52,496

 

(49,931)

Financial assets at FVOCI (*5)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

-

 

-

 

-

 

-

 

-

 

-

Transfer from available-for-sale financial assets

 

-

 

28,827,843

 

-

 

28,827,843

 

200,339

 

(200,339)

 

 

-

 

28,827,843

 

-

 

28,827,843

 

200,339

 

(200,339)

Financial assets at amortized cost (*5)

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

-

 

-

 

-

 

-

 

-

 

-

Transfer from held-to-maturity financial assets

 

-

 

14,358,584

 

-

 

14,358,584

 

-

 

-

 

 

-

 

14,358,584

 

-

 

14,358,584

 

-

 

-

 

W

297,077,159

 

(2,575)

 

2,565

 

297,077,149

 

252,835

 

(250,270)

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

W

223,975,037

 

-

 

-

 

223,975,037

 

-

 

-

Trading liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

434,586

 

-

 

-

 

434,586

 

-

 

-

Reclassification to financial liabilities at FVTPL

 

-

 

(434,586)

 

-

 

(434,586)

 

-

 

-

 

 

434,586

 

(434,586)

 

-

 

-

 

-

 

-

Financial liabilities at FVTPL

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

-

 

-

 

-

 

-

 

-

 

-

Transfer from trading liabilities

 

-

 

434,586

 

-

 

434,586

 

-

 

-

 

 

 

-

 

434,586

 

-

 

434,586

 

-

 

-

 

(*1) Represents gross carrying amounts before deferred loan origination costs and fees, allowance for loan loss and credit loss allowance.

 

162


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

(iv) Details in reclassification of financial instruments from application of K-IFRS No.1109 (continued)

 

 

 

Amounts under

K-IFRS No.1039 (*1)

 

Amounts reclassified

 

Amounts
remeasured

 

Amounts under K-IFRS No.1109 (*1)

 

Changes in retained earnings

 

Changes in other comprehensive income

Derivative liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

W

2,996,958

 

-

 

-

 

2,996,958

 

-

 

-

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

14,471,720

 

-

 

-

 

14,471,720

 

-

 

-

 

Debt securities issued

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

23,929,723

 

-

 

-

 

23,929,723

 

-

 

-

 

Other financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts under K-IFRS No.1039 as of January 1, 2018

 

14,474,096

 

-

 

-

 

14,474,096

 

-

 

-

 

W

280,282,120

 

-

 

-

 

280,282,120

 

-

 

-

 

(*1) Represents gross carrying amounts before deferred loan origination costs and fees, allowance for loan loss and credit loss allowance.

(*2) Loans and receivables amounted to W605,367 million under K-IFRS No.1039 have been reclassified to financial assets at FVTPL from application of K-IFRS No.1109.  The reasons for reclassification were as follows:

 

Classification

 

Amounts

 

 

 

Reclassification by business model for financial asset management

W

495,700

Financial assets not qualifying characteristics of contractual cash flows that are solely payments of principal and interest

 

109,667

 

W

605,367

 

(*3) Equity securities amounted to W2,298,554 million under K-IFRS No.1039, which were classified as available- for-sale financial assets, have been reclassified to financial assets at FVTPL from application of K-IFRS No.1109.  The reasons for reclassification were as follows:

 

Classification

 

Amounts

 

 

 

Financial asset not qualifying characteristics of contractual cash flows that are solely payments of principal and interest of puttable financial instruments

W

2,204,045

No designation of financial assets at FVOCI

 

94,509

 

W

2,298,554

 

(*4) With respect to financial assets and financial liabilities reclassified from financial assets at FVTPL, effective interest rates calculated on the initial application date of K-IFRS No.1109 and interest income or expense recognized shall be disclosed.  Such reclassification has not occurred from the application of K-IFRS No.1109.

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


163


SHINHAN BANK

Notes to the Separate Financial Statements

For the years ended December 31, 2018 and 2017

(In millions of won)

 

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

 

(iv) Details in reclassification of financial instruments from application of K-IFRS No.1109 (continued)

 

2) Credit loss allowance

 

 

 

Amounts under K-IFRS No.1039 (*1)

 

Amounts reclassified

 

Amounts
remeasured

 

Amounts under K-IFRS No.1109 (*1)

 

Changes in retained earnings

 

Changes in other comprehensive income

Credit loss allowance for

 

 

 

 

 

 

 

 

 

 

 

 

Due from banks

W

3,080

 

-

 

1

 

3,081

 

(1)

 

-

Loans and receivables

 

1,323,416

 

(3,315)

 

365,430

 

1,685,531

 

(362,115)

 

-

Financial guarantee

 

80,587

 

-

 

978

 

81,565

 

(978)

 

-

Unused credit line and other credit commitment

 

65,740

 

-

 

(1,506)

 

64,234

 

1,506

 

-

Debt securities at FVOCI

 

-

 

-

 

7,972

 

7,972

 

(7,972)

 

7,972

Debt securities at amortized cost

 

-

 

-

 

1,367

 

1,367

 

(1,367)

 

-

Other financial assets

 

24,193

 

-

 

981

 

25,174

 

(981)

 

-

 

W

1,497,016

 

(3,315)

 

375,223

 

1,868,924

 

(371,908)

 

7,972

 

(*1) Represents gross carrying amounts before deferred loan origination costs and fees, allowance for loan loss and credit loss allowance.

 

(v) Hedge accounting

 

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

 

Hedge accounting can be applied to certain transactions that fail to qualify for hedge accounting requirements under K-IFRS No.1039 when applying K-IFRS No.1109, and thus alleviates profit or loss volatility.

 

The Bank applied the requirements for hedge accounting under K-IFRS No.1109 as much as possible to the risk management activities that meet the requirements for hedge accounting.  As of December 31, 2018, there were no transactions that failed to qualify for hedge accounting requirements under K-IFRS No.1039 but for which hedge accounting was applied under K-IFRS No.1109.

 

 

164


 

 

Independent Auditors’ Review Report on Internal Accounting Control System

 

English translation of a Report Originally Issued in Korean

 

 

To the President of

 

Shinhan Bank:

 

 

We have reviewed the accompanying Report on the Operational Status of Internal Accounting Control System (“IACS”) of Shinhan Bank (the “Bank”) as of December 31, 2018. The Bank'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 Bank’s management stated: “Based on the assessment of the operational status of the IACS, 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 Operational Status of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Bank’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 Operational Status of Internal Accounting Control System as of December 31, 2018 is not prepared, in all material respects, in accordance with the IACS Framework issued by the Internal Accounting Control System Operation Committee.

 

This report applies to the Bank’s IACS in existence as of December 31, 2018. We did not review the Bank’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.

 

 

 

 

 

 

 

KPMG Samjong Accounting Corp.

Seoul, Korea

March 11, 2019

 

 

 

Notice to Readers

This report is annexed in relation to the audit of the separate financial statements as of December 31, 2018.

165


 

 

166


 

167