📈 Fireside chat with CEO Ham Young-joo: Hana Financial Group's Value Up 📈

Thank you for having me. I am Young Joo Ham, CEO of Hana Financial Group. Having met many investors in Korea and abroad, I've seen a high level of interest in Value Up. That is why I want to take this opportunity to explain it in person today.

It's hard to believe that 10 years have passed—time truly flies. Looking back, in 2015, the Group's net income was approximately 900 billion won. Our return on equity (ROE) was around 4%. However, by 2024, net income had grown nearly fourfold to 3.7 trillion won, and ROE more than doubled to 9%. In terms of profitability, we achieved the fastest growth among Korean financial groups. And our financial indicators have consistently improved over the past decade. This remarkable progress has been possible thanks to the dedication of our employees and the support of our customers and shareholders. I would like to take this opportunity to express my deepest gratitude to all of them.

Over the last three years, our primary focus has been corporate value enhancement—in other words, Value Up. As I mentioned, Hana Financial Group has built strong profitability and solid fundamentals over the past decade. Leveraging this foundation, we have enhanced shareholder returns, steadily improved profitability, and made great efforts to achieve Value Up. Thanks to these efforts, while our stock price is still undervalued, it rose approximately 31%—from 43,400 won at the end of 2023 to 56,800 won at the end of 2024, outperforming the market.

Priorities… To enhance shareholder value, we recognized the need to shift from quantitative growth to qualitative growth. More importantly, we didn't want Value Up to be just a set of short-term goals or a one-time initiative. Instead, we focused on building a system that ensures its long-term sustainability. With that in mind, our priority was to establish and internalize practical, actionable implementation measures.

Of course. As we previously announced, our first primary goal is to increase our shareholder return ratio to 50% by 2027. The shareholder return ratio is a key indicator of how much of a company's annual net income is returned to shareholders. Globally, banks in markets such as the U.S., Japan, and Singapore have shareholder return ratios ranging from 50% to nearly 100%. In contrast, Korean banks still operate at around 40%, which is relatively low. This lower return ratio is one of the main reasons our Group has been undervalued in the market, and we plan to increase it over time gradually.

There are multiple ways to deliver shareholder returns. There is cash dividend, and there also is share buyback and cancellation. Historically, Korean banks have focused heavily on cash dividends. Moving forward, we plan to increase the proportion of buybacks and cancellations, aligning more with global banking practices and further enhancing shareholder returns. Share buybacks and cancellations help support and boost stock prices. Also, as the total number of outstanding shares decreases, the value per share naturally increases.

Yes, that's a critical point. Simply making a statement isn't enough. It must be backed by strong profitability. As you know, banks must maintain capital ratios above a certain level. A key metric is the Common Equity Tier 1 (CET1) ratio. The CET1 ratio is a critical indicator of a bank's capacity to absorb losses. It's calculated by dividing common equity capital by risk-weighted assets (RWA). Common equity capital includes a bank's core capital, such as paid-in capital and retained earnings. When a bank generates profits, it increases; when shareholder returns are distributed, it decreases. Therefore, the key to a sustainable shareholder return strategy is to generate strong earnings and accumulate common equity capital. To maintain a certain level of CET1 ratio, not only the numerator, common equity capital, but also the denominator, RWA needs to be efficiently managed. To ensure stability, we have set a target to manage RWA growth in line with domestic nominal GDP growth. Through these efforts, we aim to maintain a CET1 ratio in the 13–13.5% range to expand shareholder returns steadily.

Despite external uncertainties, we have been executing our Value Up Plan smoothly and on schedule, which I believe is our most significant accomplishment. During 2024, we carried out 400 billion won of share buyback and cancellation, which was the largest in our Group's history on an annual basis. Additionally, with a 200-won increase in dividend per share (DPS), we achieved a shareholder return ratio of 38% in 2024. Our shareholder return ratio was 27% in 2022 and 33% in 2023. Considering this, we recorded a very sharp upward trend over the past three years. Also, you may recall that foreign exchange rates surged late last year. When FX rates rise, the value of foreign currency assets increases, causing RWA to grow rapidly. This leads to a decline in the CET1 ratio. However, through rigorous group-wide RWA management, we successfully maintained our CET1 ratio above 13%, which I consider is the greatest achievement.

With growing uncertainties in the market, I believe the assessment of stocks in the financial market will be differentiated based on their actual Value Up performance. That's why maintaining steady progress on Value Up is more important than ever. First, we announced a 400-billion-won share buyback and cancellation in early February. It was the largest since the Group was established. Additionally, assuming cash dividends remain at the 2024 level, we will begin this year with over 1.4 trillion won in total shareholder returns. This decision reflects Hana Financial Group's solid fundamentals and the strong commitment of both management and the Board of Directors to Value Up. And we're not stopping there. In the second half of this year, we will carry out additional share buybacks and cancellations, aiming for a higher shareholder return ratio than last year. Through these measures, I firmly believe we are on track to achieving our goal of raising our total shareholder return ratio to 50% by 2027. I want to instill confidence in our investors that this goal is well within reach.

To increase predictability, we plan to fix the total cash dividend amount starting this year at a certain level. We also plan to distribute dividends evenly every quarter. As we continue to buy back and cancel shares, the total number of outstanding shares will decrease, which will, in turn, increase DPS. This will allow us to provide a stable cash flow to our shareholders each quarter. There is another advantage of fixing the cash dividend amount. The proportion of share buyback and cancellation will increase over time. As number of shares decreases, key per-share metrics, such as EPS and BPS, are expected to improve at a faster rate. We currently have the smallest number of outstanding shares among major financial groups. This means that our share count will decrease at a higher rate when executing a share buyback and cancellation with the same dollar amount. Accordingly, a shareholder return policy focused on share buyback and cancellation will create tangible benefits for our shareholders. In addition, it will accelerate the recovery of Hana Financial Group's corporate value. As a result, I believe it's only a matter of time before the Group's PBR reaches 1.0.

That's a fundamental question. Anyone can talk about Value Up. However, what truly matters is the ability to efficiently allocate limited capital and, ultimately, establish a sustainable profit structure. Shareholder returns are one way to enhance capital efficiency. Ultimately, improving group ROE is very, very important. That's why I will strongly focus on strengthening our non-banking business portfolio. For this strategy to succeed, each of our non-banking subsidiaries must build competitiveness, and the Group should maximize synergies through enhanced collaboration. Through this, if we can elevate the profit contribution of the non-banking portfolio, which has been relatively weak recently, to around 30%, I believe reaching an ROE of 11–12% for Hana Financial Group is entirely realistic.

Thank you for this great conversation.