Shinhan Financial Group Co., Ltd.

A055550

KR7055550008

Banks

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Shinhan Financial : Independent Auditors’ Review Report (Separate Financial Statements) of Shinhan Financial Group as of June 30, 2021 (Form 6-K)

August 19, 2021 at 09:54 am EDT

Independent Auditors' Review Report (Separate Financial Statements) of Shinhan Financial Group as of June 30, 2021

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Financial Statements

June 30, 2021 and 2020

(Unaudited)

Contents


		Page

Report on Review of Interim Financial Statements		1

Separate Interim Statements of Financial Position		3

Separate Interim Statements of Comprehensive Income		4

Separate Interim Statements of Changes in Equity		5

Separate Interim Statements of Cash Flows		6

Notes to the Separate Interim Financial Statements		8

Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

Shinhan Financial Group Co.,Ltd.

Reviewed Financial Statements

We have reviewed the accompanying separate interim financial statements of Shinhan Financial Group Co., Ltd.(the Company). These financial statements consist of the separate interim statement of financial position of the Company as at June 30, 2021, and the related separate interim statements of comprehensive income for the three-month and six-month periods ended June 30, 2021 and 2020, and consolidated interim statements of changes in equity and cash flows for the six-month periods ended June 30, 2021 and 2020, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to issue a report on these separate interim financial statements based on our review.

We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe the accompanying separate interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting.


Emphasis of Matter

Without qualifying our conclusion, we draw attention to Note 26 of the financial statements. As explained in Note 26, the rapid spread of the COVID-19 has had a negative impact on the global economy, which can result in an increase in expected credit losses, potential impairment of assets, and negatively affecting the Company's ability to generate revenue.

Other Matters

We have audited the separate statement of financial position of the Company as at December 31, 2020, and the related separate statements of comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 3, 2021. The separate statement of financial position as at December 31, 2020, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, 2020.

Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries.

/s/ Samil PricewaterhouseCoopers

August 17, 2021

Seoul, Korea

This report is effective as of August 17, 2021, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Financial Position

As of June 30, 2021 and December 31, 2020

(In millions of won)	Note		June 30, 2021 (Unaudited)	December 31, 2020

Assets
Due from banks at amortized cost	4, 5, 24	W	44	3
Financial assets at fair value through profit or loss	4, 6, 24		2,313,768	1,810,867
Derivative assets	4, 7		39,392	39,392
Financial assets at amortized cost	4, 8, 24		3,721,393	3,218,455
Property and equipment	24		4,788	4,755
Intangible assets			5,376	5,605
Investments in subsidiaries	9		30,335,041	29,955,184
Assets held for sale			15,385	15,385
Other assets	4, 8, 24		789,702	434,268
Total assets		W	37,224,889	35,483,914

Liabilities
Derivative liabilities	4, 7	W	22,133	22,133
Debt securities issued	4, 10, 24		9,724,312	9,920,059
Defined benefit liabilities	11		4,341	3,137
Deferred tax liabilities			4,187	1,777
Other liabilities	4, 24		627,840	479,711
Total liabilities			10,382,813	10,426,817

Equity	12
Capital stock			2,969,641	2,969,641
Hybrid bonds			3,334,531	2,179,934
Capital surplus			11,350,819	11,351,424
Capital adjustments			(45,797)	(45,718)
Accumulated other comprehensive loss			(6,818)	(6,971)
Retained earnings			9,239,700	8,608,787
Total equity			26,842,076	25,057,097
Total liabilities and equity		W	37,224,889	35,483,914

The above separate interim statements of financial position should be read in conjunction with the accompanying notes.

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Comprehensive Income

For the three-month and six-month periods ended June 30, 2021 and 2020


(In millions of Korean won, except earnings per share data)		Note		June 30, 2021 (Unaudited)		June 30, 2020 (Unaudited)
				Three-month		Six- month		Three-month		Six- month
Interest income		21, 24	W
Financial assets at amortized cost				18,515		35,484		17,515		30,866
Interest expense		24		(52,814)		(106,094)		(59,513)		(114,325)
Net interest expense		13		(34,299)		(70,610)		(41,998)		(83,459)

Fees and commission income		21, 24		15,266		30,522		19,022		31,465
Fees and commission expense		24		(2,008)		(2,105)		(148)		(241)
Net fees and commission income		14		13,258		28,417		18,874		31,224

Dividend income		15, 21, 24		200,973		1,571,216		685		1,385,748
Net gain on financial assets at fair value through profit		21		2,181		4,718		4,868		32,852
Net foreign currency transaction gain(loss)		21		5,109		9,259		(2,316)		4,983
Provision for credit loss allowance		16		(133)		(495)		(130)		(773)
General and administrative expenses		17, 24		(27,430)		(53,477)		(24,423)		(46,994)

Operating income(loss)				159,659		1,489,028		(44,440)		1,323,581

Non-operating expense				(587)		(643)		(103)		(403)

Profit (loss) before income tax				159,072		1,488,385		(44,543)		1,323,178

Income tax expense (benefit)		19		1,083		2,347		(1,689)		1,055
Profit (loss) for the period				157,989		1,486,038		(42,854)		1,322,123

Other comprehensive income(loss) for the period, net of income tax
Items that will not be classified to profit or loss Re-measurements of the defined benefit liability				153		153		(92)		(92)

Total comprehensive income (loss) for the period			W	158,142		1,486,191		(42,946)		1,322,031

Basic and diluted earnings (loss) per share in Korean won	20	W	259		2,686		(110)		2,587

The above separate interim statements of financial position should be read in conjunction with the accompanying notes.

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Changes in Equity

For the six-month periods ended June 30, 2021 and 2020

		Capital stock	Hybrid bonds	Capital surplus	Capital adjust-ments	Accumulated other comprehe-nsive loss	Retained earnings	Total
Balance at January 1, 2020	W	2,732,463	1,731,235	10,155,223	(600,000)	(7,420)	8,453,925	22,465,426
Total comprehensive income for the period:
Profit for the period		-	-	-	-	-	1,322,123	1,322,123
Other comprehensive loss		-	-	-	-	(92)	-	(92)
		-	-	-	-	(92)	1,322,123	1,322,031
Transactions with owners:
Dividends		-	-	-	-	-	(883,929)	(883,929)
Paid-in capital increase		41,164	-	286,498	-	-	-	327,662
Dividend to hybrid bonds		-	-	-	-	-	(40,894)	(40,894)
Acquisition of treasury stock		-	-	-	(150,448)	-	-	(150,448)
Disposition of treasury stock			-		557,364	-	-	557,364
Retirement of treasury stock		-	-	-	150,300	-	(150,325)	(25)
Changes in capital adjustments		-	-	(73)	73	-	-	-
		41,164	-	286,425	557,289	-	(1,075,148)	(190,270)
Balance at June 30, 2020 (Unaudited)	W	2,773,627	1,731,235	10,441,648	(42,711)	(7,512)	8,700,900	23,597,187
Balance at January 1, 2021	W	2,969,641	2,179,934	11,351,424	(45,718)	(6,971)	8,608,787	25,057,097
Total comprehensive income for the period:
Profit for the period		-	-	-	-	-	1,486,038	1,486,038
Other comprehensive income		-	-	-	-	153	-	153
		-	-	-	-	153	1,486,038	1,486,191
Transactions with owners:
Dividends		-	-	-	-	-	(803,838)	(803,838)
Dividend to hybrid bonds		-	-	-	-	-	(51,287)	(51,287)
Issuance of hybrid bonds		-	1,154,597	-	-	-	-	1,154,597
Acquisition of treasury stock		-	-	-	(79)	-	-	(79)
Others		-	-	(605)	-	-	-	(605)
		-	1,154,597	(605)	(79)	-	(855,125)	298,788
Balance at June 30, 2021 (Unaudited)	W	2,969,641	3,334,531	11,350,819	(45,797)	(6,818)	9,239,700	26,842,076

The above separate interim statements of financial position should be read in conjunction with the accompanying notes.

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Cash Flows

For the six-month periods ended June 30, 2021 and 2020

			Six-month periods ended June 30
(In millions of won)	Note		2021 (Unaudited)	2020 (Unaudited)

Cash flows from operating activities
Profit before income tax		W	1,488,385	1,323,178
Adjustments for:
Interest income	13		(35,484)	(30,866)
Interest expense	13		106,094	114,325
Dividend income	15		(1,571,216)	(1,385,748)
Net gain on financial instruments at fair value through profit or loss			(1,385)	(2,588)
Net gain on derivative instruments			-	(26,538)
Provision for credit loss allowance	16		495	773
Employee expenses			4,546	(465)
Depreciation and amortization	17		1,494	1,407
Net foreign currency translation loss(gain)			(8,887)	3,371
Non-operating expense			643	4
			(1,503,700)	(1,326,325)
Changes in assets and liabilities:
Financial instruments at fair value through profit or loss			(193,833)	(497,689)
Other assets			(201,437)	2
Defined benefit liabilities			1,325	(1,321)
Other liabilities			(6,184)	956
			(400,129)	(498,052)

Interest received			34,890	30,095
Interest paid			(105,126)	(115,745)
Dividend received			1,568,798	1,385,063
Income tax paid			(269)	-
Net cash inflow from operating activities			1,082,849	798,214

Cash flows from investing activities
Acquisition of financial instruments at fair value through profit or loss			(300,024)	(100,000)
Lending of loans at amortized cost			(822,384)	(808,000)
Collection of loans at amortized cost			362,000	130,000
Acquisition of property and equipment			(1,419)	(483)
Proceeds from disposal of property and equipment			45	-
Proceeds from disposal of intangible assets			200	-
Increase in other assets			(315)	-
Acquisition of investments in subsidiaries			(379,858)	-
Net cash outflow from investing activities			(1,141,755)	(778,483)

SHINHAN FINANCIAL GROUP CO., LTD.

Separate Interim Statements of Cash Flows (Continued)

For the six-month periods ended June 30, 2021 and 2020

			Six-month periods ended June 30
(In millions of won)	Note		2021 (Unaudited)	2020 (Unaudited)

Cash flows from financing activities
Issuance of hybrid bonds		W	1,154,597	-
Issuance of debt securities			884,000	1,159,000
Repayments of debt securities issued			(1,122,000)	(489,000)
Debt securities issuance costs paid			(1,413)	(1,711)
Stock issuance costs paid			(605)	(2,490)
Net increase in borrowings			-	390,000
Dividends paid			(854,703)	(924,383)
Acquisition of treasury stock			(79)	(150,473)
Repayments of leased liabilities			(850)	(834)
Net cash inflow(outflow) from financing activities			58,947	(19,891)

Net increase(decrease) in cash and cash equivalents			41	(160)

Cash and cash equivalents at the beginning of the period	23		-	164

Cash and cash equivalents at the end of the period	23	W	41	4

The above separate interim statements of financial position should be read in conjunction with the accompanying notes.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

1. Reporting entity

Shinhan Financial Group Co., Ltd. (hereinafter referred to as 'the Company') was established on September 1, 2001 for the main business purposes such as control and management of companies operating in the financial industry, and financial support for subsidiaries. In addition, the stocks were listed on the Korea Exchange on September 10, 2001, and the Company was registered with the Securities and Exchange Commission (SEC) on September 16, 2003, and on the same date, ADS (American Depositary Shares) was listed on the New York Stock Exchange (NYSE).

2. Basis of preparation

(a)

Statement of compliance

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (K-IFRS). The accompanying separate financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company's financial position, financial performance or cash flows, is not presented in the accompanying separate financial statements.

These separate interim financial statements of the Company are prepared as part of the period covered by the Company's K-IFRS annual financial statements. They are prepared under K-IFRS No.1034, 'Interim Financial Reporting', do not include all of the disclosures required for full annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the last annual separate financial statements as of and for the year ended December 31, 2020.

The separate interim financial statements of the Company are separate financial statements prepared in accordance with K-IFRS No. 1027 'Separate Financial Statements' in which presented on the basis of direct equity investments, not on that the controlling company, equity interests in associates and joint ventures does not base the investment on the investee's reported performance and net assets.

(b) Use of estimates and judgments

The preparation of the condensed separate interim financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. When estimates and assumptions based on management's judgment as of the end of the interim reporting period differ from the actual, actual results may differ from these estimates.

Estimates and underlying assumptions about estimates are continually reviewed, and changes in accounting estimates are recognized for the period in which the estimates are changed and the period to be affected in the future. Income tax expense in the interim period is measured by applying the expected annual income tax rate, i.e. the estimated average annual effective income tax rate.

In preparing these condensed separate interim financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are, except for the method of estimation used to determine the income tax expense for the interim period, the same as those that applied to the separate financial statements as of and for the year ended December 31, 2020.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant accounting policies

The Company applies the same accounting policies applied as when preparing the annual separate financial statements for the year ended December 31, 2020, except for the following amendments that has been applied for the first time since January 1, 2021 and as described in Note 2. (b).

(a) K-IFRS No.1109, 'Financial Instruments' and K-IFRS No.1039, 'Financial Instruments: Recognition and Measurement' and K-IFRS No.1107, 'Financial Instruments: Disclosures' Revision' and K-IFRS No.1104, 'Insurance Contracts' K-IFRS No.1116, 'Leases' amended - Interest rate benchmark reform

The effective interest rate, not the carrying amount, is adjusted when replacing the interest rate index of a financial instrument measured at amortized cost in relation to the reform of the interest rate index. It includes exceptions, such as allowing hedge accounting to continue uninterrupted even if an interest rate indicator replacement occurs in a hedging relationship. The Company is determining whether there will be any impacts on the financial statements due to the amendments.

(b) Amendments to K-IFRS No.1116 'Lease' - The practical expedient for the exemption, discount or deferral of rent related to COVID-19

The International Accounting Standards Board amended this Standard in March 2021. According to the amendment, the International Accounting Standards Board has extended the application of the practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification, by one year. A lessee shall apply the practical expedient consistently to eligible contracts with similar characteristics and in similar circumstances, irrespective of whether the contract became eligible for the practical expedient as a result of the lessee applying the practical expedient. However, no practical expedient under these amendments is provided to lessors. The practical expedient under this amendment applies only to rent concessions that meet all of the following conditions:

- The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

- Any reduction in lease payments affects only payments originally due on or before June 30, 2022; and

- There is no substantive change to other terms and conditions of the lease.

The Company has applied that a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification.

4. Financial risk management

(a) Overview

As a financial services provider, Shinhan Financial Group Co., Ltd. and its subsidiaries (hereinafter referred to as the 'Group') are exposed to various risks that may occur in each business area, and the main risks are credit risk, market risk, interest rate risk and liquidity risk. These risks are recognized, measured, controlled and reported in accordance with the basic risk management policies established by the controlling company and each subsidiary.

i) Risk management organization

The Group's basic policies and strategies for risk management are established by the Risk Management Committee (hereinafter referred to as the 'Group Risk Management Committee') within the board of directors of the parent company. The Group's Chief Risk Management Officer (CRO) assists the Group Risk Management Committee and discusses risk policies and strategies of the group and each subsidiary through the Group Risk Council, which consists of each subsidiary's Chief Risk Management Officer. Subsidiaries implement the group's risk policies and strategies through risk management committees, risk-related working committees, and risk management organizations for each company, and consistently establish and implement detailed risk policies and strategies for subsidiaries. The risk management team of the parent company performs the risk management and supervision work by assisting the group's chief risk manager.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

Shinhan Financial Group has a hierarchical limit system to manage the group's risks at an appropriate level. The Group Risk Management Committee sets the risk limits that can be borne by the group and each subsidiary, and the risk management committees and management level risk groups of each subsidiary establish and manage detailed risk limits by risk type, department, desk, and product.

ii) Risk management framework

ii-1) Risk Capital Management

Risk capital refers to capital necessary to compensate for losses in case of a potential risk being realized, and risk capital management refers to the process of asset management based on considerations of risk exposure and risk appetite, which is a datum point on the level of risk burden compared to available capital. As part of the Group's risk capital management, the Group has adopted and maintains various risk planning processes and reflects such risk planning in the Group's business and financial planning. The Group also has adopted and maintains a risk limit management system to ensure that risks in the Group's business do not exceed prescribed limits.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

4. Financial risk management (continued)

(a) Overview (continued)

ii) Risk management framework (continued)

ii-2) Risk monitoring

The Group proactively, preemptively and periodically review risks that may impact our overall operations, through a multidimensional risk monitoring system. Currently, each of subsidiaries is required to report to the Company any factors that could have a material impact on the group-wide risk management, and the Company reports to the Group's Chief Risk Officer and other members of the Group's senior management the results of risk monitoring on a weekly, monthly and on an ad hoc basis as needed.

In addition, the Group performs preemptive risk management through a 'risk dashboard system' under which the Group closely monitors any increase in asset size, risk levels and sensitivity to external factors with respect to the major asset portfolios of each of subsidiaries, and to the extent such monitoring yields any warning signals, the Group promptly analyze the causes and, if necessary, formulates and implements actions in response to these warning signals.

ii-3) Risk review

The risk management departments of all subsidiaries are required to review in advance on matters relating to the adoption of new financial transactions, relating to the entry into new business concerning investment and capital increase, and relating to setting and changing limits. Through these reviews, risk factors are reviewed in advance, reckless promotion of business that may not easily detect risk factors are barred, and reasonable decision-making is supported.

The risk management departments of all subsidiaries are required to review all new businesses, products and services prior to their launch and closely monitor the development of any related risks following their launch, and in the case of any action that involves more than one subsidiary, the relevant risk management departments are required to consult with the risk management team at the controlling company level prior to making any independent risk reviews.

ii-4) Crisis management

The Group maintains a group wide risk management system to detect the signals of any risk crisis and, in the event of a crisis actually happening, to respond on a timely, efficient and flexible basis so as to ensure the Group's survival as a going concern. Each subsidiary maintains crisis planning for three levels of contingencies, namely, 'alert', 'imminent crisis' and 'crisis', determination of which is made based on quantitative and qualitative monitoring and consequence analysis, and upon the happening of any such contingency, is required to respond according to a prescribed contingency plan. At the controlling company level, the Company maintains and installs crisis detection and response system which is applied consistently group-wide, and upon the happening of any contingency at two or more subsidiary level, the Company directly takes charge of the situation so that the Company manages it on a concerted group wide basis.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

4. Financial risk management (continued)

(b) Credit risk

i) Credit risk management

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investment securities. The Company's credit risk management encompasses all areas of credit that may result in potential economic loss, including not just transactions that are recorded on balance sheets, but also off-balance-sheet transactions such as guarantees, loan commitments and derivative transactions.

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

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

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

i-1-1) Measuring the risk of default

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

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

Internal credit rate is a key input variable for determining term structure of probability of default. The Company accumulates information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower and results of internal credit risk assessment. For some portfolios, the Company uses information obtained from external credit rating agencies when performing these analyses. The Company applies statistical techniques to estimate the probability of default for the remaining life of the exposure from the accumulated data and to estimate changes in the estimated probability of default over time.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

4. Financial risk management (continued)

(b) Credit risk (continued)

i) Credit risk management (continued)

i-1-3) Significant increases in credit risk

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

i-2) Risk of default

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

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

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

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

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

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

- internal data and external data

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

i-3) Reflection of forward-looking information

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

The Company identified the key macroeconomic variables needed to forecast credit risk and credit losses for each portfolio as follows by analyzing past experience data and drew correlations across credit risk for each variable. After that, the Company has reflected the forward-looking information through regression estimation.

Key macroeconomic variables		Correlation with credit risk
KOSPI		Negative
Private consumption index		Negative
Facility investment growth rate		Negative

The predicted correlations between the macroeconomic variables and the risk of default, used by the Company, are derived based on data from the past ten years.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

4. Financial risk management (continued)

(b) Credit risk (continued)

i) Credit risk management (continued)

i-4) Measurement of expected credit losses

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

- Probability of default ('PD')

- Loss given default ('LGD')

- Exposure at default ('EAD')

These variables have been estimated from historical experience data by using the statistical techniques developed internally by the Shinhan 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 and considering the distribution of ratings so that the counterparty or exposure is not concentrated on a specific rating.

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

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

In measuring expected credit losses on financial assets, the Company uses the contractual maturity as the period subject to expected credit loss measurement. The contractual maturity is computed taking into account the extension right held by the borrower.

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

- Type of products

- Internal credit risk rating

- Type of collateral

- Loan to value ('LTV')

- Industry that the borrower belongs to

- Location of the borrower or collateral

- Days of delinquency

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

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(b) Credit risk (continued)

i) Credit risk management (continued)

i-5) Write-off of financial assets

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

ii) The Company's maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements as of June 30, 2021 and December 31, 2020 are as follows:

			June 30, 2021		December 31, 2020
Due from banks and loans at amortized cost(*1):	Banks	W	44		3
Corporations		3,721,393		3,218,455
		3,721,437		3,218,458
Financial assets at fair value through profit or loss		1,908,894		1,709,421
Derivative assets		39,392		39,392
Other financial assets at amortized cost(1)(2)		789,098		434,067
		W	6,458,821		5,401,338

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

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

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(b) Credit risk (continued)

iii) Information of financial assets by credit risk

Financial assets by credit risk as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021
		12-months ECL	Lifetime ECL	Gross amount	Allowance	Total, net
Due from banks and loans at amortized cost(*):
Banks	W	44	-	44	-	44
Corporations		3,724,211	-	3,724,211	(2,818)	3,721,393
		3,724,255	-	3,724,255	(2,818)	3,721,437
Other financial assets at amortized cost		789,433	-	789,433	(335)	789,098
	W	4,513,688	-	4,513,688	(3,153)	4,510,535

		December 31, 2020
		12 months ECL	Lifetime ECL	Gross amount	Allowance	Total, net
Due from banks and loans at amortized cost(*):
Banks	W	3	-	3	-	3
Corporations		3,220,856	-	3,220,856	(2,401)	3,218,455
		3,220,859	-	3,220,859	(2,401)	3,218,458
Other financial assets at amortized cost		434,324	-	434,324	(257)	434,067
	W	3,655,183	-	3,655,183	(2,658)	3,652,525

(*) Credit quality of due from banks and loans is divided into Prime and Normal. Credit quality of due from banks and loans as of June 30, 2021 and December 31, 2020 was classified as Prime. The distinction between prime grade and normal grade is as follows:

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

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

Liquidity risk refers to the risk of unexpected losses (such as the disposal of assets abnormal pricing, the procurement of high interest rates, etc.) or insolvency due to inconsistency in funding periods between assets and liabilities or a sudden outflow of funds.

According to the Financial Holding Companies Act, the Company manages liquidity so that the total amount of assets with a residual maturity of less than one month exceeds the total amount of liabilities with a residual maturity of less than one month as of the end of each month.

Contractual maturities for financial instruments as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021
		Less than 1 month	1 ~ 3 months	3 ~ 6 months	6 months ~ 1 year	1 ~ 5 years	More than 5 years	Total
Non-derivatives
Liabilities:
Debt securities issued	W	25,962	338,860	493,036	1,202,037	5,891,754	2,523,184	10,474,833
Other financial liabilities		24,773	11,262	4,785	23,544	62,324	-	126,688
	W	50,735	350,122	497,821	1,225,581	5,954,078	2,523,184	10,601,521
Derivatives
Net and total settlement (*)		-	-	-	178,304	-	-	178,304

(*) This is an option contract for the acquisition of the remaining stake in the Asia Trust Co., Ltd.

		December 31, 2020
		Less than 1 month	1 ~ 3 months	3 ~ 6 months	6 months ~ 1 year	1 ~ 5 years	More than 5 years	Total
Non-derivatives
Liabilities:
Debt securities issued	W	226,981	437,485	543,898	843,681	6,036,095	2,616,181	10,704,321
Other financial liabilities		26,007	19,171	19,232	590	51,698	-	116,698
	W	252,988	456,656	563,130	844,271	6,087,793	2,616,181	10,821,019
Derivatives
Net and total settlement (*)		199,500	-	-	-	178,304	-	377,804

(*) This is an option contract for the acquisition of the remaining stake in the Asia Trust Co., Ltd. and Shinhan Asset Management Co., Ltd.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(d) Measurement for the fair value of financial instruments

The fair values of financial instruments being traded in an active market are determined by the published market prices of each period end. The published market prices of financial instruments being held by the Company are based on the trading agencies' notifications. If the market for a financial instrument is not active, such as OTC (Over The Counter market) derivatives, fair value is determined either by using a valuation technique or independent third-party valuation service.

The Company uses its judgement to select a variety of methods and make rational assumptions that are mainly based on market conditions existing at the end of each reporting period. The fair value of financial instruments is determined using valuation techniques; such as, a method of using recent transactions between independent parties with reasonable judgement and willingness to trade, a method of referring to the current fair value of other financial instruments that are substantially identical, discounted cash flow model and option pricing models.

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

●

Level 1: Financial instruments measured at quoted prices from active markets are classified as fair value level 1.

●

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

●

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

i) Financial instruments measured at fair value

i-1) The fair value hierarchy of financial assets which are presented at their fair value in the statements of financial position as of June 30, 2021 and December 31, 2020 are as follows:


		June 30, 2021
		Level 1	Level 2	Level 3	Total
Assets
Financial assets measured at fair value through profit or loss	W	-	1,908,894	404,874	2,313,768
Derivative assets		-	-	39,392	39,392
		-	1,908,894	444,266	2,353,160
Liabilities
Derivative liabilities		-	-	22,133	22,133


		December 31, 2020
		Level 1	Level 2	Level 3	Total
Assets
Financial assets measured at fair value through profit or loss	W	-	1,709,421	101,446	1,810,867
Derivative assets		-	-	39,392	39,392
		-	1,709,421	140,838	1,850,259
Liabilities
Derivative liabilities		-	-	22,133	22,133

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(d) Measurement for the fair value of financial instruments (continued)

i) Financial instruments measured at fair value (continued)

i-2) Changes in level 3 of the fair value hierarchy

- Changes in level 3 of the fair value hierarchy for the six-month periods ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021
		Financial assets measured at FVTPL	Net derivative instruments
Beginning balance	W	101,446	17,259
Recognized in profit or loss		3,404	-
Purchases/issues		300,024	-
Ending balance	W	404,874	17,259

		December 31, 2020
		Financial assets measured at FVTPL	Net derivative instruments
Beginning balance	W	-	6,665
Recognized in profit or loss		1,446	10,594
Purchases/issues		100,000	-
Ending balance	W	101,446	17,259

i-3) Valuation techniques and input variables unobservable in markets

i-3-1) The valuation techniques and the fair value measurement input variables of financial instruments classified as level 2 as of June 30, 2021 and December 31, 2020 are as follows:

	Classification	Valuation techniques	Type	Inputs
2021	Financial assets measured at FVTPL	Net asset valuation approach	Beneficiary certificates	Price of underlying assets such as stocks, bonds, etc. and exchange rate.
2020	Financial assets measured at FVTPL	Net asset valuation approach	Beneficiary certificates	Price of underlying assets such as stocks, bonds, etc. and exchange rate.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(d) Measurement for the fair value of financial instruments (continued)

i-3-2) Information about valuation techniques and significant unobservable inputs in measuring financial instruments categorized as level 3 as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Valuation technique	Type of financial instrument			Book value	Significant unobservable input	Range of estimates for unobservable input


Financial assets
Financial assets measured at FVTPL	Option model(*)	Hybrid bonds		W	404,874	Volatility of interest rate	21.86%~86.25%
Derivative assets	Binomial model	Equity securities			39,392	Volatility of underlying assets	29.32%
			444,266
Financial liabilities
Derivative liabilities	Binomial model	Equity securities		W	22,133	Volatility of underlying assets	29.32%

(*) It is calculated by applying the Hull-White model method.

	December 31, 2020
	Valuation technique	Type of financial instrument			Book value	Significant unobservable input	Range of estimates for unobservable input


Financial assets
Financial assets measured at FVTPL	Option model(*)	Hybrid bonds		W	101,446	Volatility of interest rate	27.26%~41.76%
Derivative assets	Binomial model	Equity securities			39,392	Volatility of underlying assets	29.32%
			140,838
Financial liabilities
Derivative liabilities	Binomial model	Equity securities		W	22,133	Volatility of underlying assets	29.32%

(*) It is calculated by applying the Hull-White model method.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(d) Measurement for the fair value of financial instruments (continued)

i) Financial instruments measured at fair value (continued)

i-4) 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 June 30, 2021 and December 31, 2020 are as follows:


			June 30, 2021
Type of financial instrument		Profit (loss) for the year
	Favorable change		Unfavorable change
Financial assets measured at FVTPL(*)	Financial assets measured at FVTPL	W	-		-
Derivative assets		16,411		(14,738)
			16,411		(14,738)
Financial assets measured at FVTPL(*)	Derivative liabilities		8,342		(10,012)


			December 31, 2020
Type of financial instrument		Profit (loss) for the year
	Favorable change		Unfavorable change
Financial assets measured at FVTPL(*)	Financial assets measured at FVTPL	W	-		-
Derivative assets		16,411		(14,738)
			16,411		(14,738)
Financial assets measured at FVTPL(*)	Derivative liabilities		8,342		(10,012)

(*) Based on 10% of increase or decrease in volatility of underlying assets, and volatility of interest rate, which are major unobservable inputs.

ii) The financial instruments measured at amortized cost

ii-1) The methods of measuring the fair value of financial instruments measured at amortized cost are as follows:

Type		Measurement methods of fair value
Due from banks at amortized cost		The carrying amount and the fair value for cash are identical and the most of deposits are floating interest rate deposit or the next day deposit of a short-term instrument. For this reason, the carrying value approximates fair value.
Loans at amortized cost		The fair value of the loans is measured by discounting the expected cash flow at the market interest rate and credit risk of the borrower, etc.
Borrowings and debt securities issued		The fair value of borrowings and debt securities issued is based on the published price quotations in an active market. In case there is no data for an active market price, it is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(d) Measurement for the fair value of financial instruments (continued)

ii) The financial instruments measured at amortized cost (continued)

ii-2) The carrying value and fair value of the financial instruments measured at amortized cost as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
		Carrying value	Fair value	Carrying value	Fair value
Assets:
Due from banks at amortized cost	W	44	44	3	3
Loans at amortized cost		3,721,393	3,704,649	3,218,455	3,312,944
Other financial assets		789,098	789,098	434,067	434,067
	W	4,510,535	4,493,791	3,652,525	3,747,014
Liabilities:
Debt securities issued	W	9,724,312	9,810,830	9,920,059	10,150,023
Other financial liabilities		163,745	163,745	154,215	154,215
	W	9,888,057	9,974,575	10,074,274	10,304,238

ii-3) The fair value hierarchy of financial assets and liabilities which are not measured at their fair values in the statements of financial position but disclosed with their fair values as of June 30, 2021 and December 31, 2020 are as follows:


		June 30, 2021
		Level 1	Level 2	Level 3	Total
Assets:
Due from banks at amortized cost	W	-	-	44	44
Loans at amortized cost		-	-	3,704,649	3,704,649
Other financial assets		-	-	789,098	789,098
	W	-	-	4,493,791	4,493,791
Liabilities:
Debt securities issued	W	-	9,810,830	-	9,810,830
Other financial liabilities		-	-	163,745	163,745
	W	-	9,810,830	163,745	9,974,575


		December 31, 2020
		Level 1	Level 2	Level 3	Total
Assets:
Due from banks at amortized cost	W	-	-	3	3
Loans at amortized cost		-	-	3,312,944	3,312,944
Other financial assets		-	-	434,067	434,067
	W	-	-	3,747,014	3,747,014
Liabilities:
Debt securities issued	W	-	10,150,023	-	10,150,023
Other financial liabilities		-	-	154,215	154,215
	W	-	10,150,023	154,215	10,304,238

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

4. Financial risk management (continued)

(e) Classification by categories of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of each category of financial assets and financial liabilities as of June 30, 2021 and December 31, 2020 are as follows:


		June 30, 2021
		Financial assets measured at fair value through profit or loss	Financial assets measured at amortized cost	Financial liabilities measured at fair value through profit or loss	Financial liabilities measured at amortized cost
Assets:
Cash and due from banks at amortized cost	W	-	44	-	-
Financial assets at fair value through profit or loss		2,313,768	-	-	-
Derivative assets		39,392	-	-	-
Loans at amortized cost		-	3,721,393	-	-
Other financial assets at amortized cost		-	789,098	-	-
	W	2,353,160	4,510,535	-	-
Liabilities:
Derivative liabilities	W	-	-	22,133	-
Debt securities issued		-	-	-	9,724,312
Other financial liabilities		-	-	-	163,745
	W	-	-	22,133	9,888,057


		December 31, 2020
		Financial assets measured at fair value through profit or loss	Financial assets measured at amortized cost	Financial liabilities measured at fair value through profit or loss	Financial liabilities measured at amortized cost
Assets:
Cash and due from banks at amortized cost	W	-	3	-	-
Financial assets at fair value through profit or loss		1,810,867	-	-	-
Derivative assets		39,392	-	-	-
Loans at amortized cost		-	3,218,455	-	-
Other financial assets at amortized cost		-	434,067	-	-
	W	1,850,259	3,652,525	-	-
Liabilities:
Derivative liabilities	W	-	-	22,133	-
Debt securities issued		-	-	-	9,920,059
Other financial liabilities		-	-	-	154,215
	W	-	-	22,133	10,074,274

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

5.Restricted due from banks

Restricted guaranteed deposits on bank accounts as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021		December 31, 2020
Other financial institution deposits	W	3		3

6. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Beneficiary certificates
Beneficiary certificates in Korean won	W	1,795,610	1,602,028
Beneficiary certificates in foreign currency		113,284	107,393
		1,908,894	1,709,421
Hybrid Bonds
Hybrid Bonds in Korean won		101,423	101,446
Hybrid Bonds in foreign currency		303,451	-
		404,874	101,446
	W	2,313,768	1,810,867

7. Derivatives

(a) Details of the outstanding contract amount of derivatives held as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Equity related:
Over the counter:
Equity options	W	178,304	178,304
Equity forward		-	199,500

(b) The notional amounts and fair values of derivatives as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
		Assets	Liabilities	Assets	Liabilities

Equity related:
Over the counter:
Equity options	W	39,392	22,133	39,392	22,133

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

8. Loans at amortized cost

(a) Loans at amortized cost as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Corporate loans	W	3,724,211	3,220,856
Less: allowance		(2,818)	(2,401)
	W	3,721,393	3,218,455

(b) Changes in financial assets at amortized cost and other assets for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021
		Loans at amortized cost	Other assets(*1)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total

Beginning balance	W	3,220,856	-	-	434,327	-	-	3,655,183
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Origination		822,384	-	-	-	-	-	822,384
Collection		(362,000)	-	-	-	-	-	(362,000)
Disposal		-	-	-	-	-	-	-
Others (*2)		42,971	-	-	355,150	-	-	398,121
Ending balance	W	3,724,211	-	-	789,477	-	-	4,513,688

(*1) Includes total carrying amount of due from banks and other financial assets at amortized cost.

(*2) Amounts due to changes in dividend receivables of subsidiaries, changes in consolidated tax receivables, increase in accrued income, exchange rate fluctuations and etc.

		December 31, 2020
		Loans at amortized cost	Other assets(*1)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total

Beginning balance	W	2,221,322	-	-	580,696	-	-	2,802,018
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Origination		2,065,603	-	-	-	-	-	2,065,603
Collection		(985,000)	-	-	-	-	-	(985,000)
Others (*2)		(81,069)	-	-	(146,369)	-	-	(227,438)
Ending balance	W	3,220,856	-	-	434,327	-	-	3,655,183

(*1) Includes total carrying amount of due from banks and other financial assets at amortized cost.

(*2) Amounts due to changes in dividend receivables of subsidiaries, changes in consolidated tax receivables, increase in accrued income, exchange rate fluctuations and etc.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

8. Loans at amortized cost (continued)

(c) Changes in allowances for financial assets at amortized cost and other assets for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021
		Loans at amortized cost	Other assets(*)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total

Beginning allowance	W	2,401	-	-	257	-	-	2,658
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Provision		417	-	-	78	-	-	495
Ending balance	W	2,818	-	-	335	-	-	3,153

(*) Includes the allowances for due from banks and other financial assets at amortized cost.

		December 31, 2020
		Loans at amortized cost	Other assets(*)
		12 month expected credit loss	Life time expected credit loss	Impaired financial asset	12 month expected credit loss	Life time expected credit loss	Impaired financial asset	Total

Beginning allowance	W	1,624	-	-	333	-	-	1,957
Transfer to 12 month expected credit loss		-	-	-	-	-	-	-
Transfer to life time expected credit loss		-	-	-	-	-	-	-
Transfer to impaired financial asset		-	-	-	-	-	-	-
Provision(Reversed)		777	-	-	(76)	-	-	701
Ending allowance	W	2,401	-	-	257	-	-	2,658

(*) Includes the allowances for due from banks and other financial assets at amortized cost.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

9. Investments in subsidiaries

Investments in subsidiaries as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Name of entity	Ownership percentage (%)		Carrying value	Ownership percentage (%)		Carrying value
Shinhan Bank	100.0	W	13,617,579	100.0	W	13,617,579
Shinhan Card Co., Ltd	100.0		7,919,672	100.0		7,919,672
Shinhan Investment Corp	100.0		3,001,420	100.0		3,001,420
Shinhan Life Insurance Co., Ltd(*1)	100.0		982,775	100.0		982,775
Orange Life Insurance Co., Ltd(*1)	100.0		3,221,769	100.0		3,221,769
Shinhan Capital Co., Ltd	100.0		558,921	100.0		408,922
Jeju Bank	75.3		179,643	75.3		179,643
Shinhan Asset Management Co., Ltd(*2)	100.0		291,419	65.0		91,565
Shinhan Alternative Investment Management Inc	100.0		34,787	100.0		14,783
Shinhan Credit Information Co., Ltd(*3)	100.0		-	100.0		-
SHC Management Co., Ltd	100.0		8,655	100.0		8,655
Shinhan DS	100.0		23,026	100.0		13,026
Shinhan Savings Bank	100.0		107,065	100.0		107,065
Shinhan AITAS Co., Ltd	99.8		50,092	99.8		50,092
Shinhan REITs Management Co., Ltd	100.0		30,000	100.0		30,000
Asia Trust Co. Ltd	60.0		190,378	60.0		190,378
Shinhan AI Co., Ltd	100.0		42,000	100.0		42,000
Shinhan Venture Investment Co, Ltd	100.0		75,840	100.0		75,840
		W	30,335,041		W	29,955,184

(*1) Shinhan Life Insurance Co., Ltd. and Orange Life Insurance Co., Ltd. were merged on July 1, 2021. After the merger, the name is Shinhan Life Insurance Co., Ltd.

(*2) For the six-month period ended June 30, 2021, the Company acquired the remaining stocks of Shinhan Asset Management Co., Ltd. and Shinhan Asset Management Co., Ltd. became a wholly owned subsidiary.

(*3) For the year ended December 31, 2020, the Company has classified W15,385 million into assets held for sale.(Note 22)

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

10. Debt securities issued

Debt securities issued as of June 30, 2021 and December 31, 2020 are as follows:


	June 30, 2021		December 31, 2020
	Interest rate (%)		Amount	Interest rate (%)		Amount
Debt securities issued in won:
Debt securities issued	0.79 ~ 3.33	W	8,257,000	0.97 ~ 3.33	W	8,495,000
Subordinated debt securities issued	3.44		350,000	3.44		350,000
Discount			(7,391)			(7,454)
			8,599,609			8,837,546

Debt securities issued in foreign currency :
Debt securities issued	1.37		565,000	1.37		544,000
Subordinated debt securities issued	3.34		565,000	3.34		544,000
Discount			(5,297)			(5,487)
			1,124,703			1,082,513
		W	9,724,312		W	9,920,059

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Defined benefit liabilities

(a) Defined benefit obligations and plan assets

Defined benefit obligations and plan assets as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Present value of defined benefit obligations	W	21,252	20,382
Fair value of plan assets		(16,911)	(17,245)
Recognized liabilities for defined benefit obligations	W	4,341	3,137

(b) Net income(loss) relating to the defined benefit liabilities

Net income(loss) relating to defined benefit liabilities for the three-month and six-month periods ended June 30, 2021 and 2020 is as follows:

		June 30, 2021	June 30, 2020
		Three-month	Six- month	Three-month	Six- month
Current service costs	W	536	1,101	647	1,130
Net interest expense on the net defined benefit liabilities		11	45	42	68
	W	547	1,146	689	1,198

(*) Profit or loss arising from defined benefit plan is included in general and administrative expenses.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

12. Equity

(a) Equity as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Capital stock
Common stock	W	2,608,176	2,608,176
Preferred stock		361,465	361,465
		2,969,641	2,969,641

Hybrid bonds		3,334,531	2,179,934

Capital surplus
Share premium		11,350,819	11,351,424
Other		-	-
		11,350,819	11,351,424

Capital adjustments		(45,797)	(45,718)

Accumulated other comprehensive loss		(6,818)	(6,971)
Retained earnings
Legal reserve(*)		2,432,039	2,304,595
Regulatory reserve for loan losses		15,552	11,988
Other legal reserves		2,000	2,000
Unappropriated retained earnings		6,790,109	6,290,204
		9,239,700	8,608,787
	W	26,842,076	25,057,097

(*) Legal reserve is restricted for the dividend to stockholders by law or legislation. According to the article 53 of the Financial Holding Companies Act, the Company is required to appropriate a legal reserve in an amount equal to at least 10% of cash dividends for each accounting period until the reserve equals 100% of stated capital. The legal reserve may only be used to reduce a deficit or to transfer capital.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

12. Equity (continued)

(b) The details of preferred stock are as follows:

The number of shares

Contracted dividend rate

Conversion request period(*)

Convertible preferred stock

17,482,000

4.0% per year based on issue price

(non-cumulative, participating)

2020.05.01~2023.04.30

(*) Preferred stocks that have not been converted for 4 years from the issuance date and until the expiration date of the period of existence are automatically converted to common stocks at the expiration date of the period of existence.

Hybrid bonds classified as other equity instruments as of June 30, 2021 and December 31, 2020 are as follows:

	Issue date		Maturity date		Interest rate (%)		June 30, 2021		December 31, 2020
Hybrid bonds in KRW	June 25, 2015		June 25, 2045		4.38	W	199,455		199,455
September 15, 2017		-		3.77		134,683		134,683
September 15, 2017		-		4.25		89,783		89,783
April 13, 2018		-		4.08		134,678		134,678
April 13, 2018		-		4.56		14,955		14,955
August 29, 2018		-		4.15		398,679		398,679
June 28, 2019		-		3.27		199,476		199,476
September 17, 2020		-		3.12		448,699		448,699
March 16, 2021		-		2.94		429,009		-
March 16, 2021		-		3.30		169,581		-
Hybrid bonds in USD	August 13, 2018		-		5.88		559,526		559,526
May 12, 2021		-		2.88		556,007		-
						W	3,334,531		2,179,934

(*) For the six-month period ended June 30, 2021, the deduction for capital related to hybrid bond issued is W4,953 million.

The Company can make early redemption for the above bonds, after 5 or 10 years from the issue date; and has the rights to extend the maturity under the same condition. In addition, if it is decided not to pay out dividends, the interest for the above bonds may also not be paid.

(d) Capital adjustments

Changes in accumulated capital adjustments for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Beginning balance	W	(45,718)	(600,000)
Acquisition of treasury stock		(79)	(150,448)
Disposition of treasury stock		-	554,430
Retirement of treasury stock		-	150,300
Ending balance	W	(45,797)	(45,718)

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

12. Equity (continued)

(e) Changes in accumulated other comprehensive loss for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021	December 31, 2020
Beginning balance	W	(6,971)	(7,420)
Remeasurement of the defined benefit liabilities		211	619
Tax effect		(58)	(170)
Ending balance	W	(6,818)	(6,971)

(f) Regulatory reserve for loan losses

In accordance with Supervisory Regulations on Financial Holding Companies (the 'Regulations'), the Company reserves the difference between allowance for credit losses under K-IFRS and that as required by the Regulations at the account of regulatory reserve for loan losses.

i) Changes in regulatory reserve for loan losses as of June 30, 2021 and December 31, 2020 are as follows

		June 30, 2021	December 31, 2020
Beginning balance	W	15,552	11,988
Planned regulatory reserve for loan losses		3,796	3,564
Ending balance	W	19,348	15,552

ii) Profit for the period and earnings per share after adjusted for regulatory reserve for the six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021	June 30, 2020
Profit for the period	W	1,486,038	1,322,123
Provision for regulatory reserve for loan losses		(3,796)	(1,598)
Profit for the period adjusted for regulatory reserve	W	1,482,242	1,320,525
Basic and diluted earnings per share in won factoring in regulatory reserve(*)	W	2,679	2,584

(*) Dividends for hybrid bonds are deducted.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won, except per share data)

12. Equity (continued)

(g) Treasury stock

The change in treasury stock for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 are as follows:

		June 30, 2021
		Beginning balance	Acquisition (*)	Disposal	Retirement	Ending balance
The number of shares		3,926	2,424	-	-	6,350
Carrying value	W	148	79	-	-	227

(*) The Company reacquired the shares that occurred during the stock exchange with Shinhan Venture Investment Co., Ltd.

		December 31, 2020
		Beginning balance	Acquisition (*)	Disposal (*)	Retirement	Ending balance
The number of shares		13,882,062	5,039,584	13,882,062	5,035,658	3,926
Carrying value	W	600,000	150,448	600,000	150,300	148

(*) The Company disposed of treasury stocks when exchanging shares with Orange Life Insurance Co., Ltd. and re-acquired the shares that occurred during the exchange of shares.

(h) The details of dividends paid by the resolution of the 20th annual shareholders' meeting are as follows:

		Amount
Common stock (W1,500 per share)	W	773,839
Convertible preferred stock (W1,716 per share)		29,999
	W	803,838

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

13. Net interest expense

Net interest income for the three-month and six-month periods ended June 30, 2021 and 2020 is as follows:

		June 30, 2021	June 30, 2020
Interest income:		Three-month	Six-month	Three-month	Six-month
Due from banks at amortized cost	W	8	30	16	64
Loans at amortized cost		18,478	35,394	17,448	30,701
Others		29	60	51	101
		18,515	35,484	17,515	30,866
Interest expense:
Borrowings		-	-	(3,482)	(3,746)
Debt securities issued		(52,807)	(106,080)	(56,022)	(110,560)
Others		(7)	(14)	(9)	(19)
		(52,814)	(106,094)	(59,513)	(114,325)
Net interest expense	W	(34,299)	(70,610)	(41,998)	(83,459)

14. Net fees and commission income

Net fees and commission income for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021	June 30, 2020
		Three-month	Six- month	Three-month	Six- month
Fees and commission income:
Royalty	W	15,262	30,517	19,018	31,457
Other		4	5	4	8
		15,266	30,522	19,022	31,465
Fees and commission expense:
Others		(2,008)	(2,105)	(148)	(241)
Net fees and commission income	W	13,258	28,417	18,874	31,224

15. Dividend income

Dividends income for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021	June 30, 2020
		Three-month	Six-month	Three-month	Six- month
Dividend from subsidiaries	W	200,080	1,569,438	-	1,385,063
Interest income from hybrid bond		893	1,778	685	685
	W	200,973	1,571,216	685	1,385,748

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

16. Provision for credit losses allowance

Provision for credit losses allowance for the three-month and six-month periods ended June 30, 2021 and 2020 is as follows:

June 30, 2021

June 30, 2020

Three-month

Six-month

Three-month

Six-

month

Provision for credit losses allowance

133

495

130

773

17. General and administrative expenses

General and administrative expenses for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021	June 30, 2020
		Three-month	Six-month	Three-month	Six-month
Salaries:
Salary expenses and bonuses	W	10,011	20,270	7,906	14,852
Severance benefits		547	1,146	689	1,198
Rent		227	466	218	480
Lease		45	785	54	110
Entertainment		507	1,018	464	952
Depreciation		743	1,465	693	1,378
Amortization		14	28	15	29
Taxes and dues		224	475	120	367
Advertising		9,719	17,499	9,210	15,675
Others		5,393	10,325	5,054	11,953
	W	27,430	53,477	24,423	46,994

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

18. Share-based payments

(a) Stock options granted as of June 30, 2021 are as follows:

		7th grant (*)

Type		Cash payment

Grant date		March 19, 2008

Exercise price in Korean won		W49,053

Number of shares granted		808,700

Contractual exercise period		September 17, 2021

Changes in number of shares granted:
Balance at January 1, 2021		36,162
Exercised		7,024
Balance at June 30, 2021		29,138

Fair value per option in Korean won		W29 (Expiration of contractual exercise period : Sep 17, 2021)

(*) The equity instruments granted are fully vested as of June 30, 2021 and the weighted average exercise price in won for 29,138 stock options outstanding at June 30, 2021 is W49,053.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

18. Share-based payments (continued)

(b) Performance shares granted as of June 30, 2021 are as follows:

	Expired	Not expired
Type	Cash-settled share-based payment

Performance conditions(*1)	Relative stock price linked (20.0%), management index (80.0%)

Exercising period	4 years from the commencement date of the year to which the grant date belongs

Estimated number of shares vested at June 30, 2021	129,120	1,980,208

Fair value per share in Korean won (*2)	W40,580, W44,222 and W33,122 for the expiration of exercising period from 2018 to 2020	W 40,600

(* 1) Starting with the shares provided since 2020, Shinhan Financial Group and subsidiaries related to banking segment will apply relative stock price linked (20.0%), management index linked(60.0%), and prudential index linked(20.0%).

(*2) Based on performance-based stock compensation, the reference stock price (the arithmetic average of the weighted average share price of transaction volume for the past two month, the previous one month, and the past one week) of four years (In the case of deferred quantity for after five years) after the commencement of the grant year is paid in cash, and the fair value of the reference stock to be paid in the future is assessed as the closing price of the reporting date.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

18. Share-based payments (continued)

Based on the share-based payment arrangements held by the Company, the share-based compensation costs for the six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021
		Employees of
		Shinhan Financial Group	Subsidiaries	Total
Stock options granted:
7th	W	-	(1)	(1)
Performance shares		3,416	25,929	29,345
	W	3,416	25,928	29,344

		June 30, 2020
		Employees of
		Shinhan Financial Group	Subsidiaries	Total
Stock options granted:
6th	W	(1)	(4)	(5)
7th		(7)	(10)	(17)
Performance shares		(1,655)	(14,453)	(16,108)
	W	(1,663)	(14,467)	(16,130)

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

18. Share-based payments (continued)

(d) In accordance with the stock-based compensation agreements by the Company, the share-based payments as of June 30, 2021 and December 31, 2020 are as follows.

		June 30, 2021
		Accrued expense (*1)
		Shinhan Financial Group	Subsidiaries(*2)	Total
Stock options granted:
7th	W	1	-	1
Performance shares		9,728	75,528	85,256
	W	9,729	75,528	85,257

(*1) The intrinsic value of share-based payments is W85,256 million as of June 30, 2021. For calculating, the quoted market price of W40,600 per share was used for stock options and the fair value was considered as intrinsic value for performance shares, respectively.

(*2) The Company has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Company requires the subsidiaries to reimburse the compensation costs for their employees. As of June 30, 2021, the Company recognized the corresponding accounts receivable from the subsidiaries in the amount of W75,528 million.

		December 31, 2020
		Accrued expense (*1)
		Shinhan Financial Group	Subsidiaries (*2)	Total
Stock options granted:
7th	W	1	1	2
Performance shares		7,201	60,241	67,442
	W	7,202	60,242	67,444

(*1) The intrinsic value of share-based payments is W 67,442 million as of December 31, 2020. For calculating, the quoted market price of W 32,050 per share is used for stock options and the fair value is considered as intrinsic value for performance shares, respectively.

(*2) The Company has granted the above share-based payment arrangements to its employees and those of its subsidiaries and the Company requires the subsidiaries to reimburse the compensation costs for their employees. As of December 31, 2020, the Company recognized the corresponding accounts receivable from the subsidiaries in the amount of W 60,242 million.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

19. Income tax

Income tax expense(income) for thethree-month and six-month periods ended June 30, 2021 and 2020 is as follows:

		June 30, 2021	June 30, 2020
		Three- month	Six- month	Three- month	Six- month
Current income tax expense	W	(114)	(6)	-	-
Temporary differences		1,255	2,411	(1,724)	1,020
Income tax recognized directly in equity		(58)	(58)	35	35
Income tax expense(income)	W	1,083	2,347	(1,689)	1,055

20. Earnings per share

Basic and diluted earnings(losses) per share for the three-month and six-month periods ended June 30, 2021 and 2020 is as follows:

		June 30, 2021	June 30, 2020
		Three- month	Six- month	Three- month	Six- month
Net profit (loss) for the period	W	157,989	1,486,038	(42,854)	1,322,123
Less:
Dividends to hybrid bonds		19,825	51,287	11,750	40,894
Net profit (loss) available for common stock	W	138,164	1,434,751	(54,604)	1,281,229

Weighted average number of common stocks outstanding (*)		534,075,204	534,075,525	497,074,649	495,212,399
Basic and diluted earnings (loss) per share in Korean won	W	259	2,686	(110)	2,587

(*) The number of common stocks issued is 516,599,554, and the above weighted average number of stocks are calculated by reflecting the changes in treasury stocks for the six-month period ended June 30, 2021 and 17,482,000 convertible preferred shares issued on May 1, 2019.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

21. Operating revenue

Revenue for the three-month and six-month periods ended June 30, 2021 and 2020 is as follows:

		June 30, 2021	June 30, 2020
		Three- month	Six- month	Three- month	Six- month
Dividend income	W	200,973	1,571,216	685	1,385,748
Fees and commission income		15,266	30,522	19,022	31,465
Interest income		18,515	35,484	17,515	30,866
Gain on financial assets at fair value through profit or loss		3,669	6,391	4,478	6,314
Gain on financial derivatives		-	-	-	26,538
Gain on foreign currency transaction		7,577	57,386	(10,109)	31,032
	W	246,000	1,700,999	31,591	1,511,963

22. Commitments and contingencies

(a) Commitments

The Company entered into the share purchase agreement with the shareholder of Asia Trust Co., Ltd. to buy 60% stake of Asia Trust Co., Ltd., which also includes the right of the Company to buy additional 40% stake of Asia Trust Co., Ltd. and the right of the shareholder of Asia Trust Co., Ltd. to sell the additional 40% stake of Asia Trust Co., Ltd. Under the terms of the agreement, the Company reserves the right to purchase shares held by shareholders of Asian Trust Co., Ltd., and in response, shareholders of Asia Trust Co., Ltd. reserve the right to request that the Company purchase.

As of June 30, 2021, derivative assets and liabilities are recognized at W39,392 million and W22,133 million, respectively, according to the agreement. (Note 7)

(b) As of June 30, 2021, the Company has a borrowing limit agreement for W 100 billion with the Korea Development Bank, and there is no amount executed.

The Company classified investments in subsidiaries to assets held for sale, where the sale is expected to occur in short period of time, for W 15,385 million as of the June 30, 2021.

(d) Contingencies

As of June 30, 2021, there is one lawsuit (481 million won in litigation) pending as a defendant. The results of the lawsuit are not expected to have a significant impact on the financial statements, but additional losses may occur.

23. Statement of cash flows

(a) Cash and cash equivalents in the separate statements of cash flows as of June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021

December 31, 2020

Due from financial institutions with a maturity less

than three months from date of acquisition

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

23. Statement of cash flows (continued)

(c) Changes in liabilities arising from financing activities for the six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021
		Borrowings	Debentures	Lease liabilities	Total
Balance at January 1, 2021	W	-	9,920,059	1,665	9,921,724
Changes from cash flows		-	(239,413)	(850)	(240,263)
Changes from non-cash flows:
Amortization of discount on debentures		-	1,863	14	1,877
Foreign currency difference		-	41,803	-	41,803
Changes from others:		-	-	928	928
Balance at June 30, 2021	W	-	9,724,312	1,757	9,726,069

		June 30, 2020
		Borrowings	Debentures	Lease liabilities	Total
Balance at January 1, 2020	W	-	9,147,640	2,256	9,149,896
Changes from cash flows		390,000	668,289	(834)	1,057,455
Changes from non-cash flows:
Amortization of discount on debentures		-	1,617	19	1,636
Foreign currency difference		-	21,332	-	21,332
Changes from others:		-	-	154	154
Balance at June 30, 2020	W	390,000	9,838,878	1,595	10,230,473

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions

The Company defines subsidiaries, key managements, and their families as a range of related parties in accordance with K-IFRS No.1024, and discloses the amount of transactions between the Company and related parties and the balance of receivables and payables. For details of subsidiaries, refer to 'Note 9'.

(a) Significant transactions with the related parties for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

Related party	Account		June 30, 2021	June 30, 2020
			Three- month	Six- month	Three- month	Six- month
Revenue:
Shinhan Bank	Interest income	W	33	59	49	97
〃	Fees and commission income		9,609	19,218	11,143	19,218
〃	Dividend income		-	770,000	-	890,000
〃	Reversal of credit losses		5	5	104	104
Shinhan Card Co., Ltd.	Interest income		9,719	19,520	8,712	17,357
〃	Fees and commission income		3,063	6,127	4,058	6,127
〃	Dividend income		-	394,287	-	330,724
Shinhan Investment Corp.	Interest income		4,285	8,475	4,259	5,383
〃	Fees and commission income		1,118	2,237	1,084	2,237
〃	Dividend income		-	7,391	-	7,391
Shinhan Life Insurance Co., Ltd.	Fees and commission income		598	1,195	592	1,195
〃	Dividend income		-	50,000	-	50,000
〃	Reversal of credit losses		-	-	-	2
Shinhan Capital Co., Ltd.	Interest income		3,006	5,002	3,683	6,578
〃	Fees and commission income		301	603	347	604
〃	Dividend income		892	25,836	684	19,583
Jeju Bank	Fees and commission income		54	108	(54)	108
〃	Dividend income		-	2,420	-	2,420
〃	Reversal of credit losses		-	-	-	1
Shinhan Credit Information Co., Ltd.	Fees and commission income		1	1	(4)	2

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(a) Significant transactions with the related parties for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows: (continued):

Related party		Account		June 30, 2021		June 30, 2020
				Three-month		Six- month		Three-month		Six- month
Revenue(continued):
Shinhan Alternative Investment Management Inc..		Interest income	W	133		277		133		156
〃		Fees and commission income		7		15		12		15
〃		Reversal of credit losses		-		10		-		-
Shinhan Asset Management Co., Ltd.		Fees and commission income		70		134		43		70
〃		Dividend income		-		-		-		13,585
〃		Reversal of credit losses		-		-		(1)		-
Shinhan DS		Interest income		129		258		128		258
〃		Fees and commission income		5		9		-		8
〃		Reversal of credit losses		90		90		(1)		-
Shinhan AITAS Co., Ltd.		Fees and commission income		25		50		30		50
〃		Dividend income		-		4,682		-		3,994
Shinhan Savings Bank		Interest income		899		1,570		549		1,033
〃		Fees and commission income		75		150		103		152
〃		Dividend income		-		5,000		-		5,000
Shinhan REITs Management Co., Ltd		Fees and commission income		19		38		27		39
〃		Reversal of credit losses		1		1		2		2
Orange Life Insurance Co., Ltd		Fees and commission income		248		497		1,373		1,373
		Dividend income		200,080		311,600		-		63,050
Asian Trust Co., Ltd		Fees and commission income		68		136		266		266
Shinhan Venture Investment Co., Ltd.		Interest income		14		22		-		-
	Fees and commission income		3		3		-		-
			W	234,550		1,637,026		37,321		1,448,182

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(a) Significant transactions with the related parties for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows: (continued):

Related party	Account		June 30, 2021	June 30, 2020
			Three-month	Six- month	Three-month	Six- month
Expense:
Shinhan Bank	Interest expenses	W	2	5	3	7
〃	General and administrative expenses		266	533	248	611
	Provision for credit losses		(40)	-	(11)	-
Shinhan Card Co., Ltd.	Interest expenses		-	1	-	1
〃	General and administrative expenses		17	35	15	26
〃	Provision for credit losses		39	65	(16)	5
Shinhan Investment Corp.	Interest expenses		40	95	56	112
	Fee expenses (*)		-	-	1,800	1,800
〃	General and administrative expenses		-	-	7	13
〃	Provision for credit losses		(30)	53	(105)	292
Shinhan Life Insurance Co., Ltd.	Interest expenses		-	-	1	3
〃	General and administrative expenses		-	-	124	225
〃	Provision for credit losses		(2)	-	-	-
Shinhan Capital Co., Ltd.	Provision for credit losses		129	239	142	149
Shinhan Credit Information Co., Ltd.	Provision for credit losses		1	1	-	-
Shinhan Alternative Investment Management Inc.	Provision for credit losses		-	-	70	281
Shinhan DS	General and administrative expenses		377	855	962	2,028
〃	Provision for credit losses		(8)	-	-	-
Shinhan Savings Bank	Provision for credit losses		139	145	155	155
Shinhan REITs Management Co., Ltd.	Provision for credit losses		(1)	-	(1)	-
Orange Life Insurance, Ltd.	Interest expenses		334	665	358	715
〃	Provision for credit losses		-	6	-	-
Shinhan AI Co., Ltd.	General and administrative expenses		34	69	-	-
〃	Provision for credit losses		1	2	1	1
Shinhan Venture Investment Co., Ltd.	Provision for credit losses		-	89	-	-
		W	1,298	2,858	3,809	6,424

(*) Capital transaction costs are deducted directly from equity.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(b) Significant balances with the related parties as of June 30, 2021 and December 31, 2020 are as follows:

Creditor	Debtor	Account		June 30, 2021	December 31, 2020
Assets:
Shinhan Financial Group Co., Ltd.	Shinhan Bank	Due from banks	W	43	3
〃	〃	Property and equipment		517	1,035
〃	〃	Other assets		248,380	258,536
〃	Shinhan Card Co.,Ltd.	Loans		1,985,900	1,935,200
〃	〃	Reserve for loan losses		(890)	(867)
〃	〃	Property and equipment		116	149
〃	〃	Other assets		146,424	48,001
	Shinhan Investment Cop.	Financial assets at fair value through profit or loss (*)		303,451	-
	〃	Loans		663,310	638,656
〃	〃	Reserve for loan losses		(435)	(418)
〃	〃	Other assets		115,145	59,664
〃	Shinhan Life Insurance Co., Ltd.	Other assets		6,554	5,714
〃	Orange Life Insurance Co., Ltd	Other assets		214,090	5
〃	Shinhan Capital Co.,Ltd.	Financial assets at fair value through profit or loss (*)		101423	101,446
〃	〃	Loans		806,000	430,000
〃	〃	Reserve for loan losses		(528)	(282)
〃	〃	Other assets		35,120	45,743
〃	Shinhan Asset Management Co., Ltd.	Other assets		1,852	1,369
〃	Jeju Bank	Other assets		2,230	1,806
〃	Shinhan Credit Information Co., Ltd.	Other assets		1,050	458
〃	Shinhan Alternative Investment Management Inc.	Loans		38,000	43,000
〃	〃	Reserve for loan losses		(77)	(87)
〃	〃	Other assets		700	659
〃	Shinhan DS	Loans		24,000	24,000
〃	〃	Reserve for loan losses		(206)	(301)
〃	〃	Property and equipment		536	548
	〃	Other assets		3,017	1,740
〃	Shinhan AITAS Co., Ltd.	Other assets		814	626
〃
〃

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(b) Significant balances with the related parties as of June 30, 2021 and December 31, 2020 are as follows (continued):

Creditor	Debtor	Account		June 30, 2021	December 31, 2020
Assets:
〃	Shinhan Savings Bank	Loans		200,000	150,000
	〃	Reserve for loan losses		(593)	(445)
	〃	Other assets		6,470	7,645
〃	Asia Trust Co., Ltd.	Other assets		319	117
〃	Shinhan REITS management	Other assets		1,009	1,541
〃	Shinhan AI Co., Ltd.	Other assets		293	179
〃	Shinhan Venture Investment Co, Ltd	Loans		7000	-
〃	〃	Reserve for loan losses		(88)	-
〃	〃	Other assets		569	12
			W	4,911,515	3,755,452
Liabilities:
Shinhan Bank.	Shinhan Financial Group Co., Ltd.	Other liabilities	W	10,337	987
Shinhan Card Co., Ltd.	〃	Other liabilities		1,137	430
Shinhan Investment Corp.	〃	Other liabilities		2,898	-
Shinhan Life Insurance Co., Ltd.	〃	Other liabilities		12,155	18,917
Shinhan Capital Co., Ltd.	〃	Other liabilities		47	62
Shinhan Savings Bank	〃	Other liabilities		345	-
Shinhan DS	〃	Other liabilities		11	436
Orange Life Insurance Co., Ltd.	〃	Loans		50,000	50,000
〃	〃	Other liabilities		246	246
Shinhan AI Co., Ltd.	〃	Other liabilities		5	-
			W	77,181	71,078

(*) It is the carrying amount for the purchase of hybrid bond.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(c) Right-of-use assets and lease liabilities recognised through lease transactions with related parties as of June 30, 2021 and December 31, 2020 are as follows:

Related parties		June 30, 2021	December 31, 2020
Right-of-use assets
Shinhan Bank.	W	517	1,035
Shinhan Card Co., Ltd.		116	149
	W	633	1,184

Lease liabilities
Shinhan Bank.	W	455	906
Shinhan Card Co., Ltd.		121	154
	W	576	1,060

(d) Fund transaction

Major fund transactions with related parties for the six-month periods ended the June 30, 2021 and 2020 are as follows:

		June 30, 2021
		Beginning balance	Lending	Purchase	Collection	Others(*)	Ending balance
Shinhan Card Co., Ltd.	W	1,935,200	333,684	-	300,000	17,016	1,985,900
Shinhan Investment Corp.		638,656	-	300,024	-	28,081	966,761
Shinhan Capital Co., Ltd.		531,446	374,700	-	-	1,277	907,423
Shinhan Alternative Investment Management Inc.		43,000	-	-	5,000	-	38,000
Shinhan Savings Bank		150,000	100,000	-	50,000	-	200,000
Shinhan DS		24,000	-	-	-	-	24,000
Shinhan Venture Investment Co., Ltd.		-	14,000	-	7,000	-	7,000
	W	3,322,302	822,384	300,024	362,000	46,374	4,129,084

		June 30, 2020
		Beginning balance	Lending	Purchase	Collection	Others(*)	Ending balance
Shinhan Card Co., Ltd.	W	1,463,120	-	-	-	17,160	1,480,280
Shinhan Investment Corp.		104,202	520,000	-	130,000	3,861	498,063
Shinhan Capital Co., Ltd.		530,000	200,000	100,000	-	846	830,846
Shinhan Alternative Investment Management Inc.		-	38,000	-	-	-	38,000
Shinhan Savings Bank		100,000	50,000	-	-	-	150,000
Shinhan DS		24,000	-	-	-	-	24,000
	W	2,221,322	808,000	100,000	130,000	21,867	3,021,189

(*) Other transactions are the amount due to financial asset evaluation and foreign currency conversion.

SHINHAN FINANCIAL GROUP CO., LTD.

Notes to the Separate Interim Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Related party transactions (continued)

(e) Compensation of key management personnel (executives) for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

		June 30, 2021	June 30, 2020
		Three-month	Six- month	Three-month	Six-month
Salaries	W	1,450	3,085	551	1,572
Severance benefits		23	45	13	25
Share-based payment expenses(*)		1,195	2,245	233	(569)
	W	2,668	5,375	797	1,028

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

(f) Shinhan Investment Corp., the subsidiary, acquired bonds of W 315,000 million and W 40,000 million issued by the Company for the six-month periods ended June 30, 2020 and 2021 respectively.

(g) As of the June 30, 2021, the credit commitment amount provided by Shinhan Card Co., Ltd., a subsidiary company, is W 4,000 million.

25. Events after the reporting period

On August 13, 2021, the Company decided to pay W 300 won per share on common stock and convertible preferred stock for quarterly dividend by resolutions of the Board of Directors. Therefore, the total dividend to be paid is W 160,223 million.

26. Uncertainty due to changes in domestic and global economic conditions

The rapid spread of the COVID-19 is negatively affecting the global economy. The Company uses forward-looking information to estimate expected credit losses in accordance with Korean IFRS No.1109 'Financial Instruments' and there have been significant changes in forward-looking information due to the spread of the COVID-19 virus for the year ended December 31, 2020. As of December 31, 2020, the forecast default rate is re-estimated using changed forward-looking information on KOSPI, private consumption index and facility investment growth rate which are major variables for calculating the default rate.

As of June 30, 2021, the economic has remained uncertain. Expected credit losses may change depending on the end of the COVID-19 and the pace of economic recovery. The Company will continue to monitor the impact of the COVID-19 on the economy.

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Shinhan Financial Group Co. Ltd. published this content on 19 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 August 2021 13:53:02 UTC.

Latest news about Shinhan Financial Group Co., Ltd.

Asian Equities Traded in the US as American Depositary Receipts Open Week Higher	Apr. 22	MT
Morgan Stanley Adjusts Shinhan Financial Group’s Price Target to KRW54,000 From KRW56,000, Keeps at Overweight	Apr. 17	MT
Shinhan Bank Raises $500 Million via Bond Sale	Apr. 10	MT
Tech, Auto Stocks Lead Asian Equities Traded in the US as American Depositary Receipts Higher in Tuesday Trading	Apr. 09	MT
Asian Equities Traded in the US as American Depositary Receipts Open Week Higher in Monday Trading	Apr. 01	MT
Asian Equities Traded in the US as American Depositary Receipts Flat in Tuesday Trading	Mar. 26	MT
Shinhan Financial Group Co., Ltd. Approves Cash Dividend for the Fiscal Year of 2023	Mar. 26	CI
Shinhan Financial Group Co., Ltd. Approves Board Elections	Mar. 26	CI
Tranche Update on Shinhan Financial Group Co., Ltd.'s Equity Buyback Plan announced on February 8, 2024.	Mar. 22	CI
Shinhan Financial Group Co., Ltd.'s Equity Buyback announced on February 8, 2024, has closed with 3,366,257 shares, representing 0.66% for KRW 150,000.06 million.	Mar. 19	CI
Asian Equities Traded in the US as American Depositary Receipts Lower in Thursday Trading	Mar. 14	MT
Asian Equities Traded in the US as American Depositary Receipts Edge Lower in Monday Trading	Feb. 26	MT
The biggest deals in credit card sector globally	Feb. 20	RE
Shinhan Financial Group's Net Income Plunges in Q4	Feb. 09	MT
Shinhan Financial Group Co., Ltd. Announces Year End Cash Dividend for Fiscal Year 2023 , Payable on April 5, 2024	Feb. 08	CI
Transcript : Shinhan Financial Group Co., Ltd., Q4 2023 Earnings Call, Feb 08, 2024	Feb. 08
Shinhan Financial Group Co., Ltd. announces an Equity Buyback for 3,500,583 shares.	Feb. 07	CI
Shinhan Financial Group Co., Ltd. authorizes a Buyback Plan.	Feb. 07	CI
Asian Equities Traded in the US as American Depositary Receipts Nudge Higher in Monday Trading	Feb. 05	MT
Asian Equities Traded in the US as American Depositary Receipts Move Lower in Friday Trading; End Week Down 1%	Feb. 02	MT
Shinhan Financial Unit Files for Singapore Listing of 500 Million Euros Bonds Due 2027	Jan. 29	MT
Shinhan Financial Group Co., Ltd. Reports Earnings Results for the Fourth Quarter Ended December 31, 2023	Jan. 14	CI
Shinhan Financial Group Co., Ltd. Reports Earnings Results for the Full Year Ended December 31, 2023	Jan. 14	CI
Tranche Update on Shinhan Financial Group Co., Ltd.'s Equity Buyback Plan announced on October 25, 2023.	Dec. 26	CI
Shinhan Financial Group Co., Ltd.'s Equity Buyback announced on October 25, 2023, has expired with 2,744,718 shares, representing 0.53% for KRW 100,000.04 million.	Dec. 21	CI

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Company Profile

Shinhan Financial Group Co Ltd is a Korea-based company principally engaged in the bank business. The Company operates its business through five segments. The Bank segment offers commercial bank services. The Credit Card segment provides credit card services. The Financial Investment segment involves in the trading and consignment trading of securities. The Life Insurance segment is engaged in the life insurance business. The Other segment is involved in the asset management, facilities rental and rental business, savings banks, financial information technology (IT) services, fund general office management, debts collection and credit investigation, private equities investment, real estate investment and operation.

Sector

Banks

Calendar

2024-04-25 - Q1 2024 Earnings Release

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Analysts' Consensus

Sell

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Mean consensus

BUY

Number of Analysts

Last Close Price

43,500 KRW

Average target price

52,756 KRW

Spread / Average Target

+21.28%

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Sector Other Banks

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SHINHAN FINANCIAL GROUP CO., LTD.	+8.34%	16.03B
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WELLS FARGO & COMPANY	+22.18%	212B
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ROYAL BANK OF CANADA	-0.31%	137B
COMMONWEALTH BANK OF AUSTRALIA	+2.86%	125B

Other Banks

Shinhan Financial Group Co., Ltd.

Equities

A055550

KR7055550008

Banks

Shinhan Financial : Independent Auditors’ Review Report (Separate Financial Statements) of Shinhan Financial Group as of June 30, 2021 (Form 6-K)

EPS Revisions