Shinhan Financial Group Co Ltd

KRX:055550

Earnings Call Analysis

Shinhan Financial Group Faces Challenges but Maintains Stable Outlook

In Q3 2024, Shinhan Financial Group reported a 13.1% decrease in net income to KRW 1.2386 trillion, driven largely by KRW 135.7 billion in derivative trading losses. Interest income grew 1.2% quarter-on-quarter, led by a 1.2% increase in bank loans. The group's CET1 ratio is stable at 13.13%, down slightly due to increased operational risks. Looking ahead, the company targets a 5% growth in loans for 2025, emphasizing qualitative over quantitative growth. A dividend of KRW 540 per share was approved, alongside a KRW 400 billion share buyback to enhance shareholder returns.

A Turbulent Quarter: Derivative Losses and Internal Controls

In the third quarter of 2024, Shinhan Financial Group faced significant challenges, primarily due to substantial losses in derivatives trading at Shinhan Securities. The group reported a loss of KRW 135.7 billion connected to a trading incident involving KOSPI 200 futures, an issue unrelated to its liquidity provision or hedging activities. This loss had a noticeable impact on the group's CET1 ratio, which declined by 6 basis points due to increased operational risk weighted assets (RWA). In response, the board has taken proactive measures, including enhancing internal controls and cooperating with regulatory investigations, reiterating their commitment to restoring shareholder trust.

Financial Performance: Mixed Results Amid Challenges

Despite the unfavorable derivative trading impacts, the group's Q3 net income stood at KRW 1.2386 trillion, reflecting a decrease of 13.1% quarter-on-quarter. While interest income showed modest growth of 1.2%, driven by a continued increase in the bank's loan book, non-interest income sharply fell by 25.6%. This decline was primarily attributed to the previously mentioned derivative losses and conservative recognition of impairments on overseas investments, exacerbating the overall profitability decline. The bank's total loans increased by 3.5% during the quarter, showcasing the demand mainly from household loans (6.3% increase) amidst moderating corporate loan growth.

Strategic Focus: Prioritizing Profitability and Asset Quality

Looking ahead, the management intends to restrain loan growth to align with their risk-weighted asset (RWA) budget, targeting a loan growth rate of approximately 5% for 2025. They aim to enhance profitability while ensuring asset quality remains stable, further emphasizing their objective of shifting from quantitative to qualitative growth, bolstered by a 13% target for return on equity (ROE). Furthermore, the group plans to minimize overall asset growth in Q4 to enhance profitability, taking a more conservative stance amid uncertain market conditions.

Shareholder Returns: Commitment and Future Plans

In terms of shareholder returns, the management announced a quarterly dividend of KRW 540 per share and an ambitious buyback and cancellation program totaling KRW 400 billion, including plans to continue these initiatives into 2025. With a goal of achieving a total shareholder return (TSR) of 50% by 2027, the group is poised for gradual expansion in share buyback, which is anticipated to positively impact market confidence. This strategic approach will enable Shinhan to reinforce its value enhancement program while balancing capital ratios, projected to remain above 13%.

Outlook and Risk Management

The outlook for net interest margin (NIM) remains cautious as it declined to 1.56%, and the trend is expected to continue into 2025, reflecting benchmark rate cuts. The board emphasizes careful management of funding rates to secure NIM stability amid increasing competition in the funding market. In terms of asset quality, the group has taken steps to uphold conservative provisioning against potential risks, particularly in the real estate sector, which accounts for about 2.2% of their total loan book. They remain vigilant amidst ongoing industry restructuring, projecting a gradual improvement in asset health by early next year.

Earnings Call Transcript 2024-Q3

[Unknown Executive]

Good afternoon. I am [indiscernible] from the IR Group -- IR team of Shinhan Financial Group. Thank you for taking the time out of your busy schedule to attend Shinhan Financial Group's Q3 2024 earnings presentation. I will be moderating today's earnings presentation today.

We have with us today the group CFO, Jung Sang-Hyuk; Group CSO, Go Suk-Hyun; Group CRO, Bang Dong-Kwon; Bank's CFO, Kim Tae-Youn; Shinhan Card CFO [indiscernible], Shinhan Securities CFO, Lee Hee-dong and from Shinhan Life CFO, Park Kyoung-Won. We will first start with a presentation on our overall Q3 results, followed by a Q&A session.

Now I would like to turn it over to CFO, Jung Sang-Hyuk, for a presentation on our business performance. .

[Sang-Hyuk Jung, executive]

Good afternoon, everyone. Thank you for joining us for our Q3 2024 earnings presentation. Before going through the overall business, I'd like to discuss the recent losses on derivatives trading at Shinhan securities. As we shared in our disclosures and in a letter last week from the Chairman of the Financial Group's Board of Directors and the CEO, Department of Shinhan Securities that provides liquidity to exchange-traded funds and performs hedging operations incurred large losses due to a trade in KOSPI 200 Futures unrelated to the LP hedge. We recognized a loss of KRW 135.7 billion in the third quarter financial statements, as a result of this incident and do not expect any further losses.

In addition to the capital reduction due to the losses, the impact on the group CET1 ratio from this event, including the impact of increase in operational risk RWA is minus 6 basis points. We sincerely regret that this incident occurred while we are working to strengthen our internal control system across the group.

Given the seriousness of the situation, the Group's Board of Directors and the management have committed to informing our shareholders as soon as possible of this incident and sharing updates. Currently, Shinhan Securities is cooperating with the regulator's investigation and has launched its own contingency respond force to diagnose the root cause. Together with the Shinhan Financial Group, they are reviewing the deficiencies in the internal control system and taking steps to improve it.

We will examine our internal control system from the ground up and fix it, bearing in mind once again that customer trust and strong internal controls are the essence of our business. We're also committed to ensuring that this incident does not impact the enterprise value enhancement plans that we have been communicating.

So from now on, we'll move on to our Q3 results. Please refer to Page 5, financial highlights. In Q3 of 2024, despite the removal of one-off factors such as credit costs related to real estate PF, large losses were incurred in the noninterest income segment with net income posting KRW 1.2386 trillion, down 13.1% Q-o-Q. Interest income driven by growth in the bank's loan book, which continues from the first half of the year, increased through efficient ALM, up 1.2% Q-o-Q.

Noninterest income decreased by 25.6% Q-o-Q due to the aforementioned losses on securities derivative transactions as well as the conservatively recognized valuation impairments on overseas alternative investments. SG&A expenses were managed fairly, increasing only 1.2% Q-o-Q despite the impact of depreciation. The group's cumulative CIR for the [ first ] quarter improved by 1.2 percentage point Y-o-Y to post 37.9%, driven by higher operating profit before expenses, along with well-managed SG&A expenses.

The group's cumulative credit cost ratio for the third quarter decreased by 4 basis points compared to first half of the year, posting 44 bps, primarily due to the baseline effect of additional provisions recognized in the prior quarter related to real estate PFs and asset trust. Next is capital ratio and the shareholder return policies. The CET1 ratio at the end of September 2024 is estimated to come to 13.13%. In addition, the Board of Directors today approved a third quarter dividend of KRW 540 per share and resolved to undertake share buyback and cancellation totaling KRW 400 billion, which includes the amount for 2025 as well.

Let me explain further about the treasury stock. To accelerate our shareholder return policy, which we announced in July with our enterprise value enhancement plan, following share buyback of KRW 250 billion in the fourth quarter of 2024 through buying back another KRW 150 billion of treasury shares in early 2025, we intend to fulfill a policy of year-round share buyback. We have been engaged in share buyback and cancellation on a regular basis throughout the year and the amount to be undertaken for the first quarter of 2025 will be announced in our annual earnings release next February, along with the quarterly dividend per share, subject to Board approval.

Going forward, we will strive to flexibly respond to capital-related regulatory changes based on our strong financial stability, while efficiently managing our capital ratios so that we can fulfill the shareholder return policy we promised through our corporate value plan. On Page 6, we present the group's key profit metrics. Please refer to them at your leisure.

Yes, on to Page 7 for further detailed performance for the group. In the third quarter, despite overall deterioration in profitability from the decline in market interest rates, the group's interest income was supported by an increase in interest-bearing assets, centered around the bank won loans recording a total of KRW 2.855 trillion, up 1.2% Q-on-Q. Next, Bank won loans increased by 3.5% during the quarter or annual growth of 10.2% as the key driver of interest income growth.

Household loans increased by 6.3% Q-on-Q, driven by real estate purchasing demand and increased our policy loans for the vulnerable borrowers. Corporate loans increased by 1.4% in the third quarter, centered around blue-chip corporate borrowers, as we moderated from the rapid pace of growth we saw throughout the first half. We intend to minimize loan growth in the fourth quarter relative to our group RWA budget, as we focus on enhancing profitability and asset soundness. In the second quarter, Shinhan Bank's NIM, despite negative impact from lower market rates, recorded 1.56%, down 4 basis points versus the prior quarter, thanks to our nimble ALM strategy.

Our -- we defended the decline in yield on interest-bearing assets to 5 basis points despite the decline in loan asset yields through strategic management of our securities investments. In terms of our liability funding cost, it was improved by 1 basis point Q-on-Q, as we issue long-dated bank debentures as preemptive debt funding, as we expect more intense competition in the funding market in the fourth quarter. We will maintain flexible interest rate policy as well as effective ALM to manage our margins proactively.

The group's noninterest income recorded KRW 827.8 billion, down 25.6% Q-on-Q due to poor earnings from Securities and Derivatives. Securities and Derivatives earnings were down 47.1% Q-on-Q from KRW 135.7 billion in derivative trading loss by Shinhan Securities as well as KRW 71.2 billion in valuation loss from overseas alternative investments, which we recognized preemptively this quarter. Fee income declined by 3.5% Q-on-Q due to poor fee income from Shinhan Card despite the increase in IP earnings from the bank and securities business.

SG&A is stable, increasing by 1.2% Q-on-Q or 0.9% Y-o-Y. Our group CIR improved by 1.2 percentage points year-on-year, as operating profit before expense increased 4.2%. Cumulative credit cost as of the third quarter was 44 basis points, improving by 4 basis points versus the first half, as the impact of additional provisioning against real estate PF and asset trust exposure dissipated and also from asset growth.

Cumulative credit cost, when normalized to remove the effect of additional provisioning, was 32 basis points, similar to end of June levels. In the future, we'll continue to consistently implement the government-led measures to normalize real estate PF loans. We will also maintain well-calibrated management of asset quality and enforce tight management of recurring credit cost. On to asset soundness, they are stable as we've been performing write-offs and sales of NPL. Bank delinquency has remained stable after improving by 5 basis points in the second quarter.

Card delinquency saw additional improvement this quarter as well, while the 2-month delinquency migration rate, which is a leading indicator for delinquencies has remained flat. This stable trend in asset soundness is due in large part to proactive write-downs and sales, as part of our artificial management. And despite the one rate policy cut that we have seen recently, interest rates still remain high, amid a slow recovery in the real economy. So it's hard to say that asset quality is seeing trend growth or improvement.

Consequently, we will stay vigilant and maintain conservative stance in terms of asset quality. Please refer to the slides for a breakdown of net profit by affiliate. And moving on, as of the third quarter 2024, on a tentative basis, the CET1 ratio was measured at 13.13%, which is an improvement of 7 basis points Q-on-Q. Although risk-weighted assets increased by KRW 4.1 trillion from the bank's asset growth, the effect of reduced FX rates and stable earnings performance resulted in a Q-on-Q increase of 1.8% in common stock equity.

In the fourth quarter, similarly, we intend to minimize asset growth while delivering stable financial performance to manage our CET1 at 13% or above. And I've already commented on our shareholder return policy, and we will move on Pages 11 to 12, offer details on our digital and sustainable management initiatives so please refer to the slides.

On Page 14, as we promised when we announced our Value Up program in July, here are the results from our implementation review across 6 core indicators up to the third quarter. It is still quite early on, but moving ahead, led by our Board of Directors, we will continue to closely monitor implementation of our Value Up plan and proactively communicate our findings with the market to keep you updated. According to our current time line, we are planning to provide a review of our execution results when we announce our full year performance next year, while also updating you on our implementation plan in greater, more concrete terms. We look forward to your interest as we proceed. This concludes our overall earnings presentation. Thank you very much.

[Unknown Executive]

We will now proceed to a Q&A session. [Operator Instructions] Won Jaewoong from HSBC, will ask the first question.

[Jaewoong Won, analyst]

Can you hear me well?

[Unknown Executive]

Yes, we can hear you well.

[Jaewoong Won, analyst]

In a very difficult environment, thank you very much for the good performance that you have delivered. I have 2 questions. The first question has to do with the shareholder return rate. So up until 2027, 50% TSR has been announced, but the share buyback, if we base our calculations on those numbers, last year was 36. It's going to go up 2% from that, so by 2027, if you're going to reach that target of 50%.

So this year, it was [ 2 point ] and going forward, you have to raise it by 4% every year. So Shinhan Financial Group, we do believe you will keep your promise, and we do believe you have the capability to keep your promise. But from the 2% point increase, if we are to raise that to 4% going forward every year, what kind of trigger do you need CET1 growth or earnings growth based on? What do you think we can raise the TSR rate increase from 2% to 4% going forward from next year?

And my second question has to do with NIM -- the NIM outlook. So interest rate has been cut. And so the NIM is also declining in the fourth quarter and also for next year, what is your outlook for NIM?

[Unknown Executive]

Thank you, Mr. Won, for your questions. While we are preparing the answers, please hold.

[Unknown Executive]

Thank you very much for the question. With regards to the TSR rate and then the second question was on NIM, so I'll take the first question. And the second question will be answered by the CFO.

In the case of the shareholder return paid based on the share cancellation up until 2027, we announced that the 50% target. And in the course of carrying out that promise, as you have mentioned, the image that we have in mind, a gradual increase, that is our basic assumption going forward. So as you can see from today's plan of share cancellation, this year, we have done KRW 700 billion in 2027, the TSR. And we have said that KRW 450 million of share cancellation will be done.

So I think based on those announcements, we can anticipate the amounts of this year. KRW 400 billion was announced and KRW 150 billion for next year, January and February was included as well. So that means that we will expand the shareholder returns going forward. And also, if the share buyback and cancellation amount grows, this can have an impact on the market, and we want to distribute that impact throughout the year.

And what your question was, in order to carry out our promise, what kind of trigger is necessary. So we have just started. And what we can say at this point is that confidently, including shareholder -- share buyback and cancellation, the shareholder return related very specific targets were announced and the action plans for that has been announced as well. So we do think we can keep that promise. And also CET1 ratio is not going to go up. Continuously, we're going to manage it at 13%. So -- and the share cancellation and shareholder return, if the current earnings growth is underpinning these plans, I think that promise can be kept going forward.

[Sang-Hyuk Jung, executive]

Thank you very much for your good question. I'm the CFO. So NIM in the third quarter, the market declines and also the benchmark rate impact was reflected -- it was 1.56%, down 4 bps. In the fourth quarter, the interest rate cut impact will continue and the NIM decline trend will continue. With regards to our funding, we will continue to manage the funding rate in order to manage the NIM. And this year, the NIM, as we have continuously announced compared to last year, it will go down slightly.

That is how we're going to manage it. And you asked about the outlook for next year. And next year, additional cuts of benchmark rate is expected and LCR-related response is necessary. So the NIM decline trend, we expect, to continue and the profitability based growth of assets and also funding rate will continuously be managed in order to defend the NIM.

[Unknown Executive]

So I hope and believe that, that was a sufficient answer to your questions. It does not seem that there are any -- there is anybody lining up to ask a question so we will wait until the next question.

So we have a question from Do Ha Kim from Hanwha Investment & Securities.

[Do Ha Kim, analyst]

Yes, I have a very simple question. In terms of next year targets, what is your target in terms of loan growth? And what about RWA growth? What is your assumption? And RORWA, if you have an assumption on that, I would appreciate some color on that.

[Unknown Executive]

Yes, please bear with us and wait just a moment as we prepare to answer. So for next year, our targets in terms of asset growth, well, when we announced our Value Up program, one of the key messages then was that up to now, we have been focused on quantitative growth, but we want to more -- go more toward qualitative growth and change the paradigm to be more focused on capital efficiency as measured by ROE.

So in line with the Value Up program, our ROCE target, well, we want to manage it at a group-wide level, internalize that as a key metric. So in terms of asset growth, we're planning -- of course, we're in the process of writing out our business plan. But based on RWA, our target loan growth is about 5%. And then -- so loan asset growth -- so RWA growth of 5%, loan asset growth will be in line with that.

Regarding RORWA, we are using ROCE as it is more intuitive. So our target ROCE would be about 13%. So I think you can calculate the RORWA, the equivalent figure. Perhaps I can share with you further details on the RORWA at a later opportunity, if required.

[Unknown Executive]

I hope that provided a sufficient answer to your question, and we will receive the next question. Next question is from NH Securities, Jung Jun-Sup.

[Jun-Sup Jung, analyst]

I'm Jung Jun-Sup from NH Securities. I have 2 questions as well. So the first question is on the larger-than-expected share buyback program that is very positively viewed. But going forward, this size of share buyback and cancellation every quarter, can we expect that it will be continued? So I think you are speeding up given the level of stock price increase.

But going forward, if the current stock price level is maintained and then before 2027, the share reduction level that you target, I think that can be achieved before 2027. So then going forward, PBR onetime, would that be the basis? Or would the priority be on reducing the number of shares? Can you provide guidance on this? And my second question is on, going forward, the outlook for the provisioning?

[Unknown Executive]

Thank you very much for those questions. While we are preparing the answers, please hold.

[Unknown Executive]

You have asked 2 questions with regards to share cancellation. So -- as we have mentioned, the targeted level is, by 2027, KRW 450 million is the target. The number of share reduction that a specific target has been given. By 2027, the number of shares -- the cancellation of shares, we would like to accelerate that first. That is our top priority. And we have announced this in our corporate value program, PBR below 1x, 0.8, we think that cancellation is lower at that rate.

So we're going to place priority on cancellation of shares. And also in terms of the speed for every year, as I've said, a gradual increase is our basic assumption going forward. But every year, the P&L and the CET1 ratio, depending on these factors, it may vary. And second, the outlook for provisioning. CCR outlook, I think, should be provided to you. As of the end of September, 44 bps and ordinary CCR is 32 bps. And in June, we have answered this question. In our view, by the year-end, the credit cost ratio is about -- around 45 bps.

The benchmark rate is declining. However, still, we have higher interest rate regime prevailing. And so in the short term, we don't think that the asset quality will improve significantly. But early this year -- after the year-end and early next year, we think the situation will improve. And from a conservative point of view, we have set aside sufficient provisioning. So even if ordinary provision increase by the year-end, we think that the credit cost ratio will be around 45 bps at the year-end.

[Unknown Executive]

Yes. So I believe that should have been a sufficient answer to your question. And there is no one on queue yet so we will wait for the next question.

We have no one queuing to ask a question yet so let us wait another moment.

Yes, from JPMorgan Securities, Jihyun Cho.

[Jihyun Cho, analyst]

I would like to ask more about your PF exposure. I understand that it has been reduced, and you commented that provisioning is lower. So I would like to ask that as we move more towards the end of the year, the PF market restructuring led by the government authorities, altogether seems to be accelerating. So in the end of the year or next year in terms of asset trust or any burden from that side or additional provisioning burden, how much should we expect overall?

Is the situation improving in your view? Some banks are seeing some reversal of provisioning even. And as interest rates are being cut, we're seeing restructuring take place. So it does appear that maybe the conditions are improving more than had been expected. So if you could take us through the current status of your PF exposure, what's the situation in terms of provisioning or perhaps reversal at the affiliate level? What kind of impact there is? And cycle-wise, by early next year, do you think that it will overall be resolved? What are your expectations?

[Unknown Executive]

Yes. Thank you for the question. Please wait just one moment as we prepare to answer your question.

[Dong-kwon Bang, executive]

Yes. Thank you for the good question. I am, Bang Dong-kwon, the CRO. So as you have said, interest rates, we're seeing a downward cycle. And so the market has some expectations blooming of recovering the PF market. However, that being said, as you mentioned, led by the government, there are efforts to normalize PF loans. And I think that likely it will proceed quite speedily until the start of next year.

There may be some pricing adjustments across project sites. So for the nonbanking sector, there might be still ongoing source of concern for additional NPL or loss. For our group, in terms of the situation for us, if I could comment, we have KRW 9.4 trillion in overall PF loan exposure, which is about 2.2% of our total loan book. As you know, the regulatory authorities every quarter is doing an economic viability assessment.

So for all of our assets, we have already completed our viability review, and we have distinguished all of the assets into 4 categories. For anything cautious, we are proceeding by setting up restructuring and other plans. So KRW 210 billion are actually -- were in plan -- were under plan in the second quarter. Also in the third quarter, we have done a full scope review, and we will submit to the government our plans for further restructuring.

So overall, KRW 440 billion is the restructuring amount. We have set aside significant provisioning already against that exposure amount. So we think any risk of distress is very limited. That being said, the overall situation up to early next year is quite fluid. There are many moving parts, and it may be very variable. So we do believe that there still are risks that are outstanding so we will respond as we see the developments unfold.

[Unknown Executive]

So right now, the CRO mentioned that -- well, in terms of the overall real estate market, our exposure and how we are managing our exposure, he mentioned. Let me just elaborate a little bit more on our provisioning. As we have said, as of the end of June, in terms of capital or asset trust or real estate, financing affiliates, we have done a full scope review already, and we set aside provisioning at the end of June.

Of course, afterwards, in the third quarter, there are some deteriorations on a recurring basis. And so we have been adding on provisioning. And as the analyst said, we have been doing refinancing or write-downs and sales of certain NPL, which has resulted in reversal of some of those provisions as well. We think that -- at the end of this year and past the start of next year, we think that we may see a gradual improvement. But as provisioning is concerned, there will be no large-scale provision as we did in the first half.

But on a recurring normalized basis, there may be a smaller provisioning that is required. But relative to fundamentals, it will not be a meaningful scale. In terms of asset trust, the issue right now is about the completion guarantee exposure. Up to the first half of 2022, that was the peak of the -- those contracts, so for those projects, they tended to be smaller in scale. So usually, the time period was 2 to 3 years. So for the completion guarantee project sites, I think the peak period will be perhaps the second half of 2024, where we will have to mobilize lending or their lending to the banking accounts.

But as we go, I think that banking account lending balance should diminish. But there can -- of course, there can be additional losses leading to increased lending to the banking account, but we do not expect any large provisioning that we saw in the first half of this year. We don't think that, that is likely as well. But for loss absorption purposes, we will continue with incremental provisioning as we go.

[Unknown Executive]

I hope that provided sufficient answer to the question. We have another question from [ Yimi-San ] from Citi Securities.

[Unknown Analyst]

I'm [ Yimi-San ] from Citi Securities. RWA, a lot of external factors impact this. However, going forward, the RWA predictability -- in order to enlarge the scope of analysis of RWA, the data related to RWA, can you disclose more segmentized data about this? What kind of segmentized data about RWA going forward?

[Unknown Executive]

Thank you very much for that question. While we are preparing to answer, please hold.

[Unknown Executive]

So I'm not in a position to provide many specific details. But in implementing our share corporate value program, and we have given the focus on qualitative growth and so managing RWA is all the more important. So going forward, with regards to RWA, very specific targets will be provided and penalties for exceeding that target will be considered. And so we're going to have more detailed management of RWA going forward.

And what you just said, the data about RWA, you want us to share more data about that. So specifically, I'm not really sure what level of data you are asking. If you can provide more feedback -- if we are in a position to provide those data, we will be willing to do so.

[Unknown Executive]

And our CRO will add to that.

[Dong-kwon Bang, executive]

I'm, Bang Dong-kwon, the CRO. So in the third quarter -- let me give you some data. So KRW 337 trillion of RWA, it has been increased by KRW 4.1 trillion in credit RWA, the bank's asset growth and card asset growth. And then the FX effect was a large. And so there wasn't any increase from the credit side. KRW 1.7 trillion was increased from the operations side. That was the ETF-related losses from National Securities. In the case of the market, one-off ELS, new issuance, was occurred. So there was an increase of KRW 1.5 trillion from that.

As the CFO said, going forward, we're going to strengthen the RWA budget system and data alignment and data integrity is very important and also simulation function. This analysis function will be strengthened. And going forward, starting from next year, based on all of these, RWA-based portfolio management will be undertaken.

I hope that provided a sufficient answer to your question, detailed data about RWA according to the disclosures that are made based on the Financial Group Disclosure Act. We have sufficient details contained in those documents, and you can ask further questions to our IR team.

[Unknown Executive]

And next from [indiscernible] from Hanwha Investment & Securities, please.

[Unknown Analyst]

I would like to ask more about asset growth. In the third quarter, compared to other companies, you saw more rapid growth in household mortgage loans. If you look at comments from the authorities, this year for banks with a big increase in household loans and establishing business plan so there were some comment on constraining that rate of growth and to take measures like that.

So if mortgage growth decreases last -- or next year compared to this year, what will be the drivers of asset growth within banking, like this -- the first half of this year, will you focus on corporate loans or high ROC affiliates, will they drive up more asset growth? So in terms of asset growth, what are the key drivers? And how will that growth be allocated across the different affiliates, not just banking.

[Unknown Executive]

So please wait as we prepare to answer that question.

[Unknown Executive]

So you asked about growth, so for the bank loan side, the bank CFO will answer. And in terms of asset or resource allocation for next year, I think I will add on after he is finished.

[Unknown Executive]

Yes, for our bank asset growth, originally, in the first half of the year, we had seen asset growth -- front-loading of asset growth. In the second half, we wanted to focus more on qualitative growth. But in the first half, there was a lot of excess demand for household mortgage loans, like you said. And in the fourth quarter, it is overall on a full year basis. We will maintain total household loan growth within our target level.

So for next year, household loan growth -- well, this year, the size was not that big. And so next year, we think overall, as we tightened management, the pace of household loan growth will either be similar to this year or otherwise moderate. So as the CFO continues to say, we want to focus on RWA-based ROE-driven growth at the bank.

[Unknown Executive]

So in terms of allocation of growth, so this is not definitive at the moment. The financial business plan is currently being compiled. And so between the group companies and the holding company, we have been engaged in close discussions. The theme of those discussions recently has been for each of the different business domains. We want to assess the ROC and then examine potential -- future potential and areas of improvement. So that is where we are in terms of our discussions.

Overall, in terms of RWA growth for next year, I said 5% or so. So it would be difficult to have any large-sized growth like we saw this year. But for household or corporate loans, risk weights are very low. So household loans, even if it's growing lower, there will be sizable potential to grow at the corporate lending side, but we will focus on ROC or RWA-based profitability to guide our asset allocation or resource allocation, and that will be reflected into our business plan for next year.

[Unknown Executive]

Yes. I imagine that has been a full answer to your question, so we will move on.

We don't have any further questions in the queue. We will wait for further questions.

Yes, we have a question. We have Park Sinyoung from Goldman Sachs Securities.

[Sinyoung Park, analyst]

I'm Park Sinyoung from Goldman Sachs. I do have one question. So in last quarter, the target ROE was 10% that you have shared with us. In order to achieve that, the nonbanking subsidiaries and the noninterest income, I think earnings has to be increased. So in relation to this, what kind of direction or what kind of detailed plans can you share with us?

[Unknown Executive]

Thank you for the question. While we are preparing the answer, please hold.

[Unknown Executive]

Thank you very much for those questions. In our Corporate Value Up program, we have 2 pillars. First, based on ROE, improving profitability and also accelerate shareholder returns. In the beginning, with regard to shareholder returns, how we're going to implement our commitment, there was a question about that. Internally, share cancellation and increasing shareholder returns, we are internally confident about this matter.

However, ROE is something that we're giving a lot of thought to how to enhance profitability based on this. And -- let me share with you several points. First of all, the beginning, the starting point should be not quantity-based growth, but qualitative growth. We need to have this awareness shared throughout the group and also qualitative growth. We need to set targets for this and also evaluation and the resource allocation, it should all be aligned.

And so in relation to that, when we set the plan for this year and next year, the overall group's ROE and the ROCE of the subsidiaries must be aligned and internalized. That is being embedded in our plans. And we're going to strengthen those aspects going forward from next year. And as we have said, for each area, rather than the bank, especially this year in the capital market side, we were sluggish, the performance was. And there were provisioning -- large provisioning set aside.

So if you look at the group subsidiaries, in order to enhance the competitiveness in the capital market, I think that is our top priority. Like the incident in the Shinhan Securities has shown, we need to focus on strengthening our internal controls. But I think the priority is really on enhancing the competitiveness in the capital market side. And also, we have RWA burden, but our competitiveness, we think, lies in the global business side.

And also IB-related WM asset management, we intend to strengthen our competitiveness in these areas as well. So resource allocation and planning is being discussed. As we have mentioned during our presentation, once it is all set up and next year's plan is formulated when we provide updates on our Corporate Value Up program, more details about this matter, ROE will be shared.

[Unknown Executive]

I hope this provides a sufficient answer to your question.

Yes, nobody is in line just yet. So we will wait for the next question.

From Citi Securities analyst, [indiscernible].

[Unknown Analyst]

May I ask just one additional question? CET1, can you share the FX rate sensitivity with us for your CET1?

[Unknown Executive]

Yes. Please wait as we prepare to answer.

[Unknown Executive]

So for CET1 FX sensitivity, it's 0.8 bp for KRW 10 and about KRW 8 billion sensitivity to net income from a KRW 10 increase in the FX rate.

[Unknown Executive]

Yes. I think it has been 40 minutes up to now. I believe that, that has been enough to have discussions on many topics. So with that, we will now conclude the third quarter 2024 earnings call for Shinhan Financial Group. Going forward, we will continue to engage in close communications with the market to keep you updated. Please come to our homepage or the Shinhan Financial Group YouTube IR channel. So we look forward to your interest. And thank you again for attending today's earnings call.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]