SHINHAN FINANCIAL GROUP CO LTD | CIK:0001263043 |

Filed: 4/30/2018

Entity registrant name: SHINHAN FINANCIAL GROUP CO LTD (CIK: 0001263043)

Generator: Fujitsu

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ifrs-full:DisclosureOfFinancialRiskManagementExplanatory

4.	Financial risk management

(a)

Overview

As a financial services provider, the Group is exposed to various risks relating to lending, credit card, insurance, securities investment, trading and leasing businesses, its deposit taking and borrowing activities in addition to the operating environment.

The principal risks to which the Group is exposed are credit risk, market risk, interest rate risk, liquidity risk and operational risk. These risks are recognized, measured and reported in accordance with risk management guidelines established at the controlling company level and implemented at the subsidiary level through a carefully stratified checks-and-balances system.

i) Risk management principles

The Group risk management is guided by the following core principles:

•

identifying and managing all inherent risks;

•

standardizing risk management process and methodology;

•

ensuring supervision and control of risk management independent of business activities;

•

continuously assessing risk preference;

•

preventing risk concentration;

•

operating a precise and comprehensive risk management system including statistical models; and

•

balancing profitability and risk management through risk-adjusted profit management.

ii) Risk management organization

The Group risk management system is organized along the following hierarchy: from the top and at the controlling company level, the Group Risk Management Committee, the Group Risk Management Council, the Chief Risk Officer and the Group Risk Management Team, and at the subsidiary level, the Risk Management Committees and the Risk Management Team of the relevant subsidiary. The Group Risk Management Committee, which is under the supervision of the controlling company’s board of directors, sets the basic group wide risk management policies and strategies. The controlling company’s Chief Risk Officer reports to the Group Risk Management Committee, and the Group Risk Management Council, whose members consist of the controlling company’s Chief Risk Officer and the risk management team heads of each of subsidiaries, coordinates the risk management policies and strategies at the group level as well as at the subsidiary level among each of subsidiaries. Each of subsidiaries also has a separate Risk Management Committee, Risk Management Working Committee and Risk Management Team, whose tasks are to implement the group wide risk management policies and strategies at the subsidiary level as well as to set risk management policies and strategies specific to such subsidiary in line with the Group wide guidelines. The Group also has the Group Risk Management Team, which supports the controlling company’s Chief Risk Officer in his or her risk management and supervisory role.

In order to maintain the group wide risk at an appropriate level, the Group use a hierarchical risk limit system under which the Group Risk Management Committee assigns reasonable risk limits for the entire group and each subsidiary, and the Risk Management Committee and the Management Council of each subsidiary manage the subsidiary-specific risks by establishing and managing risk limits in more detail by type of risk and type of product for each department and division within such subsidiary.

The Group Risk Management Committee consists of directors of the controlling company. The Group Risk Management Committee convenes at least once every quarter and may also convene on an ad hoc basis as needed. Specifically, the Group Risk Management Committee does the following: (i) establish the overall risk management policies consistent with management strategies, (ii) set reasonable risk limits for the entire group and each of subsidiaries, (iii) approve appropriate investment limits or allowed loss limits, (iv) enact and amend risk management regulations, and (v) decide on other risk management-related issues the Board of Directors or the Group Risk Management Committee sees fit to discuss. The results of the Group Risk Management Committee meetings are reported to the Board of Directors of the controlling company. The Group Risk Management Committee makes decisions through affirmative votes by a majority of the committee members.

The Group Risk Management Council is comprised of the controlling company’s chief risk officer, head of risk management team, and risk officers from each subsidiary. The Group Risk Management Council holds meetings for risk management executives from each subsidiary to discuss the Group’s group wide risk management guidelines and strategy in order to maintain consistency in the group wide risk policies and strategies.

iii) Risk management framework

The Group takes the following steps to implement the foregoing risk management principles:

•

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 among total assets so that the Group can maintain an appropriate level of risk capital. As part of the Group’s risk capital management, the Group has adopted and maintains various risk planning processes and reflect 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.

•

Risk monitoring – The Group proactively, preemptively and periodically review risks that may impact its overall operations, including through a multidimensional risk monitoring system. Currently, each of subsidiaries is required to report to the controlling company any factors that could have a material impact on the group-wide risk management, and the controlling 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 perform preemptive risk management through a “risk dashboard system” under which the Group closely monitor 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, formulate and implement actions in response to these warning signals.

•

Risk review – Prior to entering any new business, offering any new products or changing any major policies, the Group reviews relevant risk factors based on a prescribed risk management checklist and, in the case of changes for which assessment of risk factors is difficult, supports reasonable decision-making in order to avoid taking any unduly risky action. 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.

•

Risk management – The Group maintain 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 Group 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 Group directly takes charge of the situation so that the Group manages it on a concerted group wide basis.

(b)

Credit risk

i) Credit risk management

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

•

Credit Risk Management of Shinhan Bank

Major policies for Shinhan Bank’s credit risk management, including Shinhan Bank’s overall credit risk management plan and credit policy guidelines, are determined by the Risk Policy Committee of Shinhan Bank, the executive decision-making body for management of credit risk. The Risk Policy Committee is headed by the Chief Risk Officer, and also comprises of the Chief Credit Officer, the heads of each business unit and the head of the Risk Management Department. In order to separate the loan approval functions from credit policy decision-making, Shinhan Bank has a Credit Review Committee that performs credit review evaluations, which focus on improving the asset quality and profitability from the loans being made, and operates separately from the Risk Policy Committee.

Shinhan Bank complies with credit risk management procedures pursuant to internal guidelines and regulations and continually monitors and improves these guidelines and regulations. Its credit risk management procedures include:

•

credit evaluation and approval;

•

credit review and monitoring; and

•

credit risk assessment and control

Each of Shinhan Bank’s borrowers is assigned a credit rating, which is based on a comprehensive internal credit evaluation system that considers a variety of criteria. For retail borrowers, the credit rating takes into account the borrower’s past dealings with Shinhan Bank and external credit rating information, among others. For corporate borrowers, the credit rating takes into account financial indicators as well as non-financialindicators such as industry risk, operational risk and management risk, among others. The credit rating, once assigned, serves as the fundamental instrument in Shinhan Bank’s credit risk management, and is applied in a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing and computation of allowance for loan losses. Shinhan Bank has separate credit evaluation systems for retail customers, SOHO customers and corporate customers, which are further segmented and refined to meet Basel III requirements.

Loans are generally approved after evaluations and approvals by the manager at the branch level as well as the committee of the applicable business unit at Shinhan Bank. The approval limit for retail loans is made based on Shinhan Bank’s automated credit scoring system. In the case of large corporate loans, approval limits are also reviewed and approved by a Credit Officer at the headquarter level. Depending on the size and the importance of the loan, the approval process is further reviewed by the Credit Officer Committee or the Master Credit Officer Committee. If the loan is considered, further evaluation is made by the Credit Review Committee, which is Shinhan Bank’s highest decision-making body in relation to credit approval.

Pursuant to the foregoing credit review and monitoring procedures and in order to promptly prevent deterioration of loan qualities, Shinhan Bank classifies potentially problematic borrowers into (i) borrowers that show early warning signals, (ii) borrowers that require close monitoring and (iii) normal borrowers, and treats them differentially accordingly.

In order to maintain portfolio-level credit risk at an appropriate level, Shinhan Bank manages its loans using value-at-risk (“VaR”) limits for the entire bank as well as for each of its business units. In order to prevent concentration of risk in a particular borrower or borrower class, Shinhan Bank also manages credit risk by borrower, industry, country and other detailed categories.

•

Credit Risk Management of Shinhan Card

Major policies for Shinhan Card’s credit risk management are determined by Shinhan Card’s Risk Management Council and Shinhan Card’s Risk Management Committee is responsible for approving them. Shinhan Card’s Risk Management Council is headed by the Chief Risk Officer, and also comprises of the heads of each business unit, supporting unit and relevant department at Shinhan Card. In order to separate credit policy decision-making from credit evaluation functions, Shinhan Card also has a Risk Management Committee, which evaluates applications for corporate loans exceeding a certain amount and other loans deemed important. Shinhan Card uses an automated credit scoring system to approve credit card applications or credit card authorizations. The credit scoring system is divided into two sub-systems: the application scoring system and the behavior scoring system. The behavior scoring system is based largely on the credit history, and the application scoring system is based largely on personal information of the applicant. For credit card applicants with whom the Shinhan Card has an existing relationship, Shinhan Card’s credit scoring system considers internally gathered information such as repayment ability, total assets, the length of the existing relationship and the applicant’s contribution to profitability. The credit scoring system also automatically conducts credit checks on all credit card applicants.

If a credit score awarded to an applicant is above a minimum threshold, the application is approved unless overridden based on other considerations such as delinquencies with other credit card companies.

Shinhan Card continually monitors all accountholders and accounts using a behavior scoring system. The behavior scoring system predicts a cardholder’s payment pattern by evaluating the cardholder’s credit history, card usage and amounts, payment status and other relevant data. The behavior score is recalculated each month and is used to manage the accounts and approval of additional loans and other products to the cardholder. Shinhan Card also uses the scoring system to monitor its overall risk exposure and to modify its credit risk management strategy.

ii) Maximum exposure to credit risk

The Group’s maximum exposure to credit risk without taking account of any collateral held or other credit enhancements as of December 31, 2016 and 2017 are as follows:


	2016		2017
Due from banks and loans (1)(3):
Banks	W	13,922,969		13,373,140
Retail		115,972,280		124,868,554
Government		11,776,346		14,442,747
Corporations		116,001,132		123,637,882
Card receivable		18,704,516		20,119,514

		276,377,243		296,441,837

Trading assets		22,638,409		23,829,943
Financial assets designated at FVTPL (*5)		2,228,186		2,344,701
AFS financial assets (*6)		32,822,071		37,186,552
HTM financial assets (*7)		19,805,084		24,990,680
Derivative assets		3,002,859		3,400,178
Other financial assets (1)(2)		13,975,889		12,041,304
Financial guarantee contracts		3,424,022		3,267,707
Loan commitments and other credit liabilities		76,055,306		75,518,079

	W	450,329,069		479,020,981

(*1)

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

(*2)

The credit quality of other financial assets are not included in the details of the Group’s main credit quality disclosures as other financial assets mainly comprise brokerage, securities and spot transaction related receivables, accrued interest receivables, secured key money deposits and domestic exchange settlement debit settled in a day.

(*3)

Due from banks and loans were classified as similar credit risk group when calculating the BIS ratio under new Basel Capital Accord (Basel III).

(*4)

As of December 31, 2016 and 2017, the maximum exposure to credit risk caused by unused credit commitments amounted to W61,184,914 million, W63,745,952 million , respectively.

(*5)

FVTPL: fair value through profit or loss

(*6)

AFS : available-for-sale

(*7)

HTM : held-to-maturity

iii) Due from banks and loans by past due or impairment

•

Due from banks and loans as of December 31, 2016 and 2017 are as follows:


	2016
	Banks			Retail			Government			Corporations			Card			Total
Neither past due nor impaired	W	13,946,898			115,668,247			11,778,472			115,911,309			18,590,689			275,895,615
Past due but not impaired		—			392,002			270			264,354			397,417			1,054,043
Impaired		—			285,929			—			1,098,081			420,079			1,804,089

		13,946,898			116,346,178			11,778,742			117,273,744			19,408,185			278,753,747
Less : allowance		(23,929	)		(373,898	)		(2,396	)		(1,272,612	)		(703,669	)		(2,376,504	)

	W	13,922,969			115,972,280			11,776,346			116,001,132			18,704,516			276,377,243


	2017
	Banks			Retail			Government			Corporations			Card			Total
Neither past due nor impaired	W	13,390,271			124,361,480			14,447,016			123,667,242			19,788,015			295,654,024
Past due but not impaired		—			581,977			—			194,132			543,303			1,319,412
Impaired		—			362,707			—			1,010,036			420,316			1,793,059

		13,390,271			125,306,164			14,447,016			124,871,410			20,751,634			298,766,495
Less : allowance		(17,131	)		(437,610	)		(4,269	)		(1,233,528	)		(632,120	)		(2,324,658	)

	W	13,373,140			124,868,554			14,442,747			123,637,882			20,119,514			296,441,837

•

Credit quality of due from banks and loans that are neither past due nor impaired as of December 31, 2016 and 2017 are as follows:


	2016
	Banks			Retail			Government			Corporations			Card			Total
Grade 1 (*1)	W	13,946,898			108,798,683			11,778,472			78,556,918			15,156,750			228,237,721
Grade 2 (*1)		—			6,869,564			—			37,354,391			3,433,939			47,657,894

		13,946,898			115,668,247			11,778,472			115,911,309			18,590,689			275,895,615
Less : allowance		(23,929	)		(205,135	)		(2,395	)		(740,349	)		(374,708	)		(1,346,516	)

	W	13,922,969			115,463,112			11,776,077			115,170,960			18,215,981			274,549,099

Mitigation of credit risk due to collateral (*2)	W	35,581			76,943,059			—			59,271,190			6,200			136,256,030


	2017
	Banks			Retail			Government			Corporations			Card			Total
Grade 1 (*1)	W	13,382,414			116,304,917			14,447,016			86,831,895			16,314,189			247,280,431
Grade 2 (*1)		7,857			8,056,563			—			36,835,347			3,473,826			48,373,593

		13,390,271			124,361,480			14,447,016			123,667,242			19,788,015			295,654,024
Less : allowance		(17,131	)		(212,502	)		(4,269	)		(647,694	)		(288,362	)		(1,169,958	)

	W	13,373,140			124,148,978			14,442,747			123,019,548			19,499,653			294,484,066

Mitigation of credit risk due to collateral (*2)	W	96,835			80,354,889			—			64,018,607			6,358			144,476,689

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


Type of Borrower	Grade 1	Grade 2
Banks and governments (*)	OECD sovereign credit rating of 6 or above (as applied to the nationality of the banks and governments)	OECD sovereign credit rating of below 6 (as applied to the nationality of the banks and governments)

Retail	Pool of retail loans with probability of default of less than 2.25%	Pool of retail loans with probability of default of 2.25% or more

Corporations	Internal credit rating of BBB+ or above	Internal credit rating of below BBB+ (Probability of default for loans with internal credit rating of BBB is 2.25%)

Credit cards	For individual card holders, score of 7 or higher in Shinhan Card’s internal behavior scoring system For corporate cardholders, same as corporate loans	For individual card holders, score of below 7 in Shinhan Card’s internal behavior scoring system For corporate cardholders, same as corporate loans

(*)

In the case of loans to banks and governments that are neither past due nor impaired, Shinhan Bank classified loans with a sovereign rating of 6 or above as Grade 1 and those with a sovereign rating of below 6 as Grade 2. Under the guidelines set forth by the Financial Supervisory Commission of Korea, all major commercial banks in Korea, including Shinhan Bank, follow the standardized approach under Basel III for purposes of computing Bank of International Settlement (BIS) ratios for risk classifications of loans to banks and governments. Under this standardized approach under Basel III, risk classification for loans to banks and governments are determined on the basis of sovereign credit ratings, and not internal credit ratings assigned by the lending bank that are specific to the individual banks and governments. More specifically, this approach involves classifying loans to banks and governments in a given jurisdiction as either Grade 1 or Grade 2 based on the sovereign credit ratings for the government of such jurisdiction as determined by the Organization for Economic Co-operation and Development (“OECD”). As for our subsidiaries other than Shinhan Bank, risk classification of loans to banks and governments is made based on their respective internal credit ratings as these subsidiaries are not subject to the aforesaid guidelines of the Financial Supervisory Commission relating to Basel III risk classification.

(*2)

The Group holds collateral against due from banks and loans to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of quantification of the extent to which collateral mitigate credit risk are based on the fair value of collateral.

•

Aging analyses of due from banks and loans that are past due but not impaired as of December 31, 2016 and 2017 are as follows:


	2016
	Banks		Retail			Government			Corporations			Card			Total
Less than 30 days	W	—		297,889			270			190,133			321,913			810,205
30 days ~ less than 60 days		—		49,582			—			50,881			53,379			153,842
60 days ~ less than 90 days		—		31,072			—			20,305			21,899			73,276
90 days or more		—		13,459			—			3,035			226			16,720

		—		392,002			270			264,354			397,417			1,054,043
Less : allowance (collective)		—		(35,627	)		(1	)		(12,377	)		(66,413	)		(114,418	)

	W	—		356,375			269			251,977			331,004			939,625

Mitigation of credit risk due to collateral (*)	W	—		249,309			—			101,334			112			350,755


	2017
	Banks		Retail			Government		Corporations			Card			Total
Less than 30 days	W	—		458,968			—		131,624			446,658			1,037,250
30 days ~ less than 60 days		—		65,152			—		33,749			58,283			157,184
60 days ~ less than 90 days		—		42,427			—		16,972			37,972			97,371
90 days or more		—		15,430			—		11,787			390			27,607

		—		581,977			—		194,132			543,303			1,319,412
Less : allowance (collective)		—		(56,774	)		—		(8,898	)		(81,990	)		(147,662	)

	W	—		525,203			—		185,234			461,313			1,171,750

Mitigation of credit risk due to collateral (*)	W	—		325,631			—		94,388			90			420,109

•

Due from banks and loans that are impaired as of December 31, 2016 and 2017 are as follows:


	2016
	Banks		Retail			Government		Corporations			Card			Total
Impaired	W	—		285,929			—		1,098,081			420,079			1,804,089
Less : allowance		—		(133,136	)		—		(519,886	)		(262,548	)		(915,570	)

	W	—		152,793			—		578,195			157,531			888,519

Mitigation of credit risk due to collateral (*)	W	—		101,730			—		437,891			3			539,624


	2017
	Banks		Retail			Government		Corporations			Card			Total
Impaired	W	—		362,707			—		1,010,036			420,316			1,793,059
Less : allowance		—		(168,334	)		—		(576,936	)		(261,768	)		(1,007,038	)

	W	—		194,373			—		433,100			158,548			786,021

Mitigation of credit risk due to collateral (*)	W	—		128,906			—		384,815			12			513,733

(*)

iv) Credit rating

•

Credit ratings of debt securities as of December 31, 2016 and 2017 are as follows:


	2016
	Trading assets		Financial assets designated at FVTPL		Available–for- sale financial assets		Held-to-maturity financial assets		Total
AAA	W	9,777,845		535,684		19,781,580		16,188,459		46,283,568
AA- to AA+		4,075,181		402,946		5,561,165		2,584,304		12,623,596
A- to A+		5,310,796		1,097,395		4,257,161		535,889		11,201,241
BBB- to BBB+		1,441,783		192,161		1,348,073		137,240		3,119,257
Lower than BBB-		144,612		—		469,615		148,894		763,121
Unrated		1,640,347		—		1,404,477		210,298		3,255,122

	W	22,390,564		2,228,186		32,822,071		19,805,084		77,245,905


	2017
	Trading assets		Financial assets designated at FVTPL		Available–for- sale financial assets		Held-to-maturity financial assets		Total
AAA	W	8,837,093		630,247		23,949,843		20,057,480		53,474,663
AA- to AA+		5,193,659		589,193		5,582,125		3,956,290		15,321,267
A- to A+		5,442,892		792,715		4,300,764		444,711		10,981,082
BBB- to BBB+		1,614,012		252,258		1,508,224		166,906		3,541,400
Lower than BBB-		275,200		—		435,651		177,840		888,691
Unrated		2,277,790		80,288		1,409,945		187,453		3,955,476

	W	23,640,646		2,344,701		37,186,552		24,990,680		88,162,579

•

The credit quality of securities (debt securities) according to the credit ratings by external rating agencies is as follows:


Internal credit ratings	*KIS (1)**	*KR (2)**	S&P	Fitch	Moody’s
AAA	—	—	AAA	AAA	Aaa
AA- to AA+	AAA	AAA	AA- to AA+	AA- to AA+	Aa3 to Aa1
A- to A+	AA- to AA+	AA- to AA+	A- to A+	A- to A+	A3 to A1
BBB- to BBB+	BBB- to A	BBB- to A	BBB- to BBB+	BBB- to BBB+	Baa3 to Baa1
Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than BBB-	Lower than Baa3
Unrated	Unrated	Unrated	Unrated	Unrated	Unrated

(*1)	KIS : Korea Investors Service

(*2)	KR : Korea Ratings

•

Credit status of debt securities as of December 31, 2016 and 2017 are as follows:


	2016		2017
Neither past due nor impaired	W	77,244,537		88,160,626
Impaired		1,368		1,953

	W	77,245,905		88,162,579

•

Credit quality of derivative assets as of December 31, 2016 and 2017 are as follows:


	2016		2017
Grade 1 (1)(2)	W	2,944,814		3,290,638
Grade 2 (1)(2)		58,045		109,540

	W	3,002,859		3,400,178

(*1)	Credit qualities of derivative assets were classified based on the internal credit ratings of counterparties.

(*2)	Grade 1: Internal credit rating of BBB+ or above, Grade 2: Internal credit rating of below BBB+

v) Assets acquired through foreclosures amounting to W658 million are classified as assets held for sale (non-business purpose property) as of December 31, 2016.

vi) Concentration by geographic location

An analysis of concentration by geographic location for financial instrument, net of allowance, as of December 31, 2016 and 2017 are as follows:


	2016
	Korea		USA		Japan		Vietnam		China		Other		Total
Due from banks and loans:
Banks	W	5,681,266		1,675,781		328,700		465,998		3,982,074		1,789,150		13,922,969
Retail		112,391,835		337,751		2,270,133		294,777		277,447		400,337		115,972,280
Government		9,799,087		321,516		717,922		109,943		696,051		131,827		11,776,346
Corporations		103,409,204		2,254,649		2,083,445		1,630,829		2,272,447		4,350,558		116,001,132
Card		18,660,696		7,116		2,114		13,213		10,684		10,693		18,704,516

		249,942,088		4,596,813		5,402,314		2,514,760		7,238,703		6,682,565		276,377,243

Trading assets		22,220,290		130,576		1,072		5,417		32,490		248,564		22,638,409
Financial assets designated at FVTPL(*1)		2,144,830		—		—		—		60,201		23,155		2,228,186
AFS financial assets(*2)		29,739,647		1,363,047		112,381		484,002		588,334		534,660		32,822,071
HTM financial assets(*3)		17,871,709		1,410,721		56,196		155,916		166,560		143,982		19,805,084

	W	321,918,564		7,501,157		5,571,963		3,160,095		8,086,288		7,632,926		353,870,993


	2017
	Korea		USA		Japan		Vietnam		China		Other		Total
Due from banks and loans:
Banks	W	6,315,655		1,186,576		268,533		583,094		3,420,223		1,599,059		13,373,140
Retail		119,993,323		346,746		2,695,890		745,725		615,079		471,791		124,868,554
Government		12,887,534		130,553		388,142		35,786		664,030		336,702		14,442,747
Corporations		110,025,699		2,371,400		2,169,445		1,613,022		2,530,507		4,927,809		123,637,882
Card		20,002,457		7,434		2,208		76,608		16,806		14,001		20,119,514

		269,224,668		4,042,709		5,524,218		3,054,235		7,246,645		7,349,362		296,441,837

Trading assets		23,294,062		235,474		985		5,074		60,037		234,311		23,829,943
Financial assets designated at FVTPL(*1)		2,262,222		82,479		—		—		—		—		2,344,701
AFS financial assets(*2)		34,323,438		1,242,570		163,652		474,134		510,678		472,080		37,186,552
HTM financial assets(*3)		22,458,896		1,466,037		34,487		237,641		37,096		756,523		24,990,680

	W	351,563,286		7,069,269		5,723,342		3,771,084		7,854,456		8,812,276		384,793,713

(*1)	FVTPL : fair value through profit or loss

(*2)	AFS : available-for-sale

(*3)	HTM : held-to-maturity

vii) Concentration by industry sector

An analysis of concentration by industry sector of financial instrument, as of December 31, 2016 and 2017 are as follows:


	2016
	Finance and insurance		Manu- facturing		Retail and wholesale		Real estate and service		Other		Retail customers		Total
Due from banks and loans:
Banks	W	10,875,077		68		—		110,443		2,937,381		—		13,922,969
Retail		—		—		—		—		—		115,972,280		115,972,280
Government		10,906,097		3,991		—		3,315		862,943		—		11,776,346
Corporations		5,094,455		40,544,250		15,560,280		20,460,662		34,341,485		—		116,001,132
Card		38,574		194,630		131,956		37,495		371,497		17,930,364		18,704,516

		26,914,203		40,742,939		15,692,236		20,611,915		38,513,306		133,902,644		276,377,243

Trading assets		14,783,780		1,262,042		1,079,631		307,115		5,205,841		—		22,638,409
Financial assets designated at FVTPL(*1)		1,450,512		144,019		26,385		20,000		587,270		—		2,228,186
AFS financial assets(*2)		22,615,359		1,009,045		129,261		613,265		8,455,141		—		32,822,071
HTM financial assets(*3)		5,261,874		44,915		—		786,345		13,711,950		—		19,805,084

	W	71,025,728		43,202,960		16,927,513		22,338,640		66,473,508		133,902,644		353,870,993


	2017
	Finance and insurance		Manu- facturing		Retail and wholesale		Real estate and service		Other		Retail customers		Total
Due from banks and loans:
Banks	W	11,094,855		1,592		—		56,744		2,219,949		—		13,373,140
Retail		—		—		—		—		—		124,868,554		124,868,554
Government		13,381,461		1,314		—		—		1,059,972		—		14,442,747
Corporations		5,474,353		40,364,768		16,563,849		23,005,675		38,229,237		—		123,637,882
Card		41,825		295,290		140,117		37,801		445,982		19,158,499		20,119,514

		29,992,494		40,662,964		16,703,966		23,100,220		41,955,140		144,027,053		296,441,837

Trading assets		17,183,669		1,139,609		1,206,133		176,273		4,124,259		—		23,829,943
Financial assets designated at FVTPL(*1)		1,201,464		202,906		36,112		45,178		859,041		—		2,344,701
AFS financial assets(*2)		23,384,608		1,409,017		227,289		632,410		11,533,228		—		37,186,552
HTM financial assets(*3)		5,975,448		48,981		—		785,859		18,180,392		—		24,990,680

	W	77,737,683		43,463,477		18,173,500		24,739,940		76,652,060		144,027,053		384,793,713

(*1)	FVTPL : fair value through profit or loss

(*2)	AFS : available-for-sale

(*3)	HTM : held-to-maturity

(c)

Market risk

Market risk from trading positions is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments.

Interest rate risk from non- trading positions is the risk of loss resulting from interest rate fluctuations that adversely affect the financial condition and results of operations of the Group and affects the earnings and the economic value of net assets of the Group.

Foreign exchange risk arises from the Group’s assets and liabilities which are denominated in currencies other than Korean won.

The Group’s market risks arise primarily from Shinhan Bank, and to a lesser extent, Shinhan Investment, which incurs market risk relating to its trading activities.

Shinhan Bank’s Risk Policy Committee acts as the executive decision making body in relation to market risks setting the risk management policies and risk limits and controlling market risks arising from trading and non-trading activities. In addition, Shinhan Bank’s Risk Management Department comprehensively manages market risks on an independent basis from Shinhan Bank’s operating departments, and functions as the middle office of Shinhan Bank.

Shinhan Investment’s Risk Management Working Committee is the executive decision-making body for managing market risks related to Shinhan Investment, and determines, among other things, Shinhan Investment’s overall market risk management policies and strategies, and assesses and approves trading activities and limits. In addition, Shinhan Investment’s Risk Management Department manages various market risk limits and monitors operating conditions on an independent basis from Shinhan Investment’s operating departments.

i) Market risk management from trading positions

Trading activities are to realize short-term trading profits in debt and stock markets and foreign exchange markets based on short-term forecast of changes in market situation and profits from arbitrage transactions in derivatives such as swap, forward, futures and option transactions. The Group manages market risk related to its trading positions using VaR, market value-based tool.

Shinhan Bank currently uses ten-day 99.9% confidence level-based VaR for purposes of calculating its “economic” capital used for internal management purposes, which is a concept used in determining the amount of Shinhan Bank’s requisite capital in light of the market risk. Shinhan Bank manages VaR measurements and limits on a daily basis based on an automatic interfacing of its trading positions into its market risk measurement system. In addition, Shinhan Bank establishes pre-set loss, sensitivity, investment and stress limits for its trading departments and desks and monitors such limits daily.

Shinhan Investment currently uses the ten-day 99.9% confidence level-based historical VaR for purposes of calculating its “economic” capital used for internal management purposes. When computing the VaR, Shinhan Investment does not assume any particular probability distribution and calculates it through a simulation of the “full valuation” method based on changes of market variables such as stock prices, interest rates, and foreign exchange rates in the past one year. In addition, Shinhan Investment applies this VaR as a risk limit for the entire company as well as individual departments and products, and the adequacy of such VaR is reviewed by way of daily back-testing.

Value-at-risk is a commonly used market risk management technique. However, VaR models have the following shortcomings:

•

VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a reliable indicator of future events, particularly those that are extreme in nature;

•

VaR may underestimate the probability of extreme market movements;

•

Shinhan Bank’s VaR models assume that a holding period of generally one to ten days is sufficient prior to liquidating the underlying positions, but such assumption regarding the length of the holding period may prove to be inadequate;

•

The 99.9% confidence level does not take into account or provide indication of any losses that might occur beyond this confidence level; and

•

VaR does not capture all complex effects of various risk factors on the value of positions and portfolios and could underestimate potential losses

In order to streamline such differences and use a consistent VaR among operating subsidiaries, the Group has adopted starting in 2013 a unified group-wide market risk measurement methodology, which uses the ten-day 99.9% confidence level for calculating the VaR.

An analysis of the Group’s requisite capital in light of the market risk for trading positions as of and for the years ended December 31, 2016 and 2017 based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, was as follows:


	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	376,486		422,592		348,686		422,592
Stock price		159,555		191,957		134,595		134,595
Foreign exchange		132,802		139,694		124,046		132,225
Option volatility		6,078		9,214		2,707		9,215

	W	674,921		763,457		610,034		698,627


	2017
	Average		Maximum		Minimum		December 31
Interest rate	W	431,065		463,340		414,689		415,139
Stock price		186,652		225,553		157,730		199,041
Foreign exchange		113,208		121,041		105,823		121,041
Option volatility		10,405		12,599		7,809		12,599

	W	741,330		822,533		686,051		747,820

Shinhan Life Insurance was excluded when the Group estimated the market risk, because insurance company was not included in the Group’s subsidiaries for the consolidated BIS capital ratio.

An analysis of market risk for trading positions of the major subsidiaries as of and for the years ended December 31, 2016 and 2017 are as follows:

i-1) Shinhan Bank

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Bank as of and for the years ended December 31, 2016 and 2017 are as follows:


	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	33,246		48,851		18,764		44,447
Stock price		5,161		5,787		4,815		5,484
Foreign exchange(*)		56,089		61,389		53,678		60,088
Option volatility		149		256		101		221
Commodity		13		35		—		21
Portfolio diversification								(49,278	)

	W	55,981		61,648		53,086		60,983


	2017
	Average		Maximum		Minimum		December 31
Interest rate	W	38,370		50,206		22,226		25,071
Stock price		4,051		5,622		3,040		4,675
Foreign exchange(*)		43,827		46,108		41,562		41,947
Option volatility		70		124		43		66
Commodity		22		46		—		14
Portfolio diversification								(26,367	)

	W	49,943		56,103		42,031		45,406

(*)

Both trading and non-trading accounts are included since Shinhan Bank manages foreign exchange risk on a total position basis.

i-2)

Shinhan Card

The analyses of Shinhan Card’s requisite capital in light of the market risk for trading positions as of and for the years ended December 31, 2016 and 2017, based on the standard guidelines for risk management promulgated by the Financial Supervisory Service, are as follows:

2016

Average

Maximum

Minimum

December 31

Interest rate

875

1,700

550

1,700

2017

Average

Maximum

Minimum

December 31

Interest rate

1,809

2,550

1,050

1,800

Shinhan Card fully hedges all the cash flows from foreign currency liabilities by swap transactions and is narrowly exposed to foreign exchange risk relating to foreign currency equity securities held for non-trading purposes.

i-3)

Shinhan Investment

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Investment as of and for the years ended December 31, 2016 and 2017 are as follows:


	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	9,040		18,149		5,380		15,491
Stock price		13,339		24,276		6,413		7,403
Foreign exchange		6,849		19,976		1,017		7,001
Option volatility		6,564		18,680		1,477		7,799
Portfolio diversification								(14,569	)

	W	24,393		34,546		16,679		23,125


	2017
	Average		Maximum		Minimum		December 31
Interest rate	W	9,939		18,090		7,329		11,232
Stock price		12,015		22,496		7,068		10,830
Foreign exchange		7,140		12,604		2,760		5,506
Option volatility		3,404		4,536		2,710		3,216
Portfolio diversification								(9,583	)

	W	22,221		34,564		12,980		21,201

i-4)

Shinhan Life Insurance

The analyses of the ten-day 99.9% confidence level-based VaR for managing market risk for trading positions of Shinhan Life Insurance as of and for the years ended December 31, 2016 and 2017 are as follows:


	2016
	Average		Maximum		Minimum		December 31
Interest rate	W	483		1,114		213		800
Stock price		231		1,585		—		130
Foreign exchange		1,278		2,238		54		1,221
Option volatility		1,115		3,044		71		3,044

	W	3,107		7,981		338		5,195


	2017
	Average		Maximum		Minimum		December 31
Interest rate	W	3,838		16,598		85		3,848
Stock price		1,195		3,368		—		3,178
Foreign exchange		1,213		3,569		3		1,924
Option volatility		5,083		7,423		2,777		3,809

	W	11,329		30,958		2,865		12,759

ii) Interest rate risk management from non-trading positions

Principal market risk from non-trading activities of the Group is interest rate risk, which affects the Group’s earnings and the economic value of the Group’s net assets:

•

Earnings: interest rate fluctuations have an effect on the Group’s net interest income by affecting its interest-sensitive operating income and expenses and EaR (Earnings at Risk) is a commonly used risk management technique.

•

Economic value of net assets: interest rate fluctuations influence the Group’s net worth by affecting the present value of cash flows from the assets, liabilities and other transactions of the Group and VaR is a commonly used risk management technique.

Interest rate VaR represents the maximum anticipated loss in a net present value calculation, whereas interest rate EaR represents the maximum anticipated loss in a net earnings calculation for the immediately following one-year period, in each case, as a result of negative movements in interest rates.

Accordingly, the Group measures and manages interest rate risk for non-trading activities by taking into account effects of interest rate changes on both its income and net asset value.

The principal objectives of Shinhan Bank’s interest rate risk management are to generate stable net interest income and to protect Shinhan Bank’s net asset value against interest rate fluctuations. Through its asset and liability management system, Shinhan Bank measures and manages its interest rate risk based on various analytical measures such as interest rate gap, duration gap and net present value and net interest income simulations, and monitors on a monthly basis its interest rate VaR limits, interest rate earnings at risk (“EaR”) limits and interest rate gap ratio limits. Shinhan Bank measures its interest rate VaR and interest rate EaR based on a simulated estimation of the maximum decrease in net asset value and net interest income in a one-year period based on various scenario analyses of historical interest rates.

Shinhan Card and Shinhan Life Insurance also monitors and manages its interest rate risk limits for all its interest-bearing assets and liabilities (including off-balance sheet items) in terms of impact on its earnings and net asset value from changes in interest rates. The interest rate VaR analysis used by Shinhan Card and Shinhan Life Insurance principally focuses on the maximum impact on its net asset value from adverse movement in interest rates.

Non-trading positions for interest rate VaR and EaR as of December 31, 2016 and 2017 are as follows:

ii-1) Shinhan Bank


	2016		2017
VaR (*1)	W	231,133		293,355
EaR (*2)		58,091		131,135

ii-2) Shinhan Card


	2016		2017
VaR (*1)	W	89,348		147,932
EaR (*2)		11,905		32,081

ii-3) Shinhan Investment


	2016		2017
VaR (*1)	W	27,822		44,505
EaR (*2)		104,423		108,866

ii-4) Shinhan Life Insurance


	2016		2017
VaR (*1)	W	287,912		319,689
EaR (*2)		58,062		70,434

(*1)

The interest rate VaR represents the maximum anticipated loss in a net asset value in one year under confidence level of 99.9% and is measured by the internal model with one year look-back period.

(*2)

The interest rate EaR was calculated by the Financial Supervisory Service regulations based on the “middle of time band of interest rate changes” and standard interest rate shocks by 200 basis points for each time bucket as recommended under the Basel Accord.

iii) Foreign exchange risk

Foreign exchange risk arises because of the Group’s net foreign currency open position, which is the difference between its foreign currency assets and liabilities, including derivatives.

The Group manages foreign exchange risk on an overall position basis, including its overseas branches, by covering all of its foreign exchange spot and forward positions in both trading and non-trading accounts.

The Risk Policy Committee oversees Shinhan Bank’s foreign exchange exposure for both trading and non-trading activities by establishing limits for the net foreign currency open position, loss limits and VaR limits.

The management of Shinhan Bank’s foreign exchange position is centralized at the FX & Derivatives Department. Dealers in the FX & Derivatives Department manage Shinhan Bank’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps.

Foreign currency denominated assets and liabilities as of December 31, 2016 and 2017 are as follows:


	2016
	USD		JPY			EUR			CNY		Other			Total
Assets:
Cash and due from banks	W	2,880,095		1,160,173			255,718			2,705,235		1,174,199			8,175,420
Trading assets		666,578		1,072			49,476			182		364,033			1,081,341
Financial assets designated at FVTPL (*1)		802,596		—			—			—		29			802,625
Derivative assets		212,583		515			47			4,088		400			217,633
Loans		15,640,280		5,524,003			1,270,320			2,566,910		4,101,549			29,103,062
AFS financial assets (*2)		2,713,442		68,920			4,178			427,871		669,899			3,884,310
HTM financial assets (*3)		1,403,860		187,039			—			166,560		306,729			2,064,188
Other financial assets		1,756,890		396,927			117,139			376,208		164,631			2,811,795

	W	26,076,324		7,338,649			1,696,878			6,247,054		6,781,469			48,140,374

Liabilities:
Deposits	W	11,019,450		6,002,935			619,086			4,427,939		4,023,859			26,093,269
Trading liabilities		1,155		—			—			—		485,995			487,150
Financial liabilities designated at FVTPL (*1)		669,064		2,631			—			—		—			671,695
Derivative liabilities		110,863		3,171			100			2,061		295			116,490
Borrowings		5,196,005		527,120			318,600			812,980		228,969			7,083,674
Debt securities issued		6,207,756		103,681			152,112			207,912		34,438			6,705,899
Other financial liabilities		2,020,655		493,288			181,810			558,932		209,265			3,463,950

	W	25,224,948		7,132,826			1,271,708			6,009,824		4,982,821			44,622,127

Net assets	W	851,376		205,823			425,170			237,230		1,798,648			3,518,247
Off-balance derivative exposure		359,812		(44,696	)		(351,267	)		64,432		(775,111	)		(746,830	)

Net position	W	1,211,188		161,127			73,903			301,662		1,023,537			2,771,417

(*1)	FVTPL : fair value through profit or loss

(*2)	AFS : available-for-sale

(*3)	HTM : held-to-maturity


	2017
	USD		JPY		EUR			CNY		Other			Total
Assets:
Cash and due from banks	W	3,589,642		983,260		324,246			1,940,542		1,652,631			8,490,321
Trading assets		1,911,537		6,314		181,023			—		233,924			2,332,798
Financial assets designated at FVTPL (*1)		884,946		—		—			—		197			885,143
Derivative assets		74,083		4		766			203		1,455			76,511
Loans		14,967,502		5,741,854		1,196,346			2,774,264		5,059,707			29,739,673
AFS financial assets (*2)		2,725,039		113,239		52,583			395,150		666,486			3,952,497
HTM financial assets (*3)		1,513,025		137,100		—			37,096		1,000,064			2,687,285
Other financial assets		1,646,688		288,243		154,853			458,166		289,715			2,837,665

	W	27,312,462		7,270,014		1,909,817			5,605,421		8,904,179			51,001,893

Liabilities:
Deposits	W	12,367,273		6,307,142		759,380			4,289,224		4,930,479			28,653,498
Trading liabilities		2,602		—		—			—		434,586			437,188
Financial liabilities designated at FVTPL (*1)		983,382		—		—			—		—			983,382
Derivative liabilities		105,141		195		631			4,734		713			111,414
Borrowings		5,385,706		294,000		231,539			407,678		68,988			6,387,911
Debt securities issued		4,913,896		249,616		31,981			196,380		1,018,628			6,410,501
Other financial liabilities		2,612,191		208,516		208,665			472,207		278,181			3,779,760

	W	26,370,191		7,059,469		1,232,196			5,370,223		6,731,575			46,763,654

Net assets	W	942,271		210,545		677,621			235,198		2,172,604			4,238,239
Off-balance derivative exposure		130,976		6,094		(586,904	)		80,183		(623,648	)		(993,299	)

Net position	W	1,073,247		216,639		90,717			315,381		1,548,956			3,244,940

(*1)	FVTPL : fair value through profit or loss

(*2)	AFS : available-for-sale

(*3)	HTM : held-to-maturity

(d)

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Each subsidiary seeks to minimize liquidity risk through early detection of risk factors related to the sourcing and managing of funding that may cause volatility in liquidity and by ensuring that it maintains an appropriate level of liquidity through systematic management. At the group level, the Group manages liquidity risk by conducting monthly stress tests that compare liquidity requirements under normal situations against those under three types of stress situations, namely, the group-specific internal crisis, crisis in the external market and a combination of internal and external crisis. In addition, in order to preemptively and comprehensively manage liquidity risk, the Group measure and monitor liquidity risk management using various indices, including the “limit management index”, “early warning index” and “monitoring index”.

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

•

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

•

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

•

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

•

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

•

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

•

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

As for any potential liquidity shortage at or near the end of each month, Shinhan Card maintains liquidity at a level sufficient to withstand credit shortage for three months. In addition, Shinhan Card manages liquidity risk by defining and managing various indicators of liquidity risk, such as the actual liquidity gap ratio (in relation to the different maturities for assets as compared to liabilities), the liquidity buffer ratio, the maturity repayment ratio, the ratio of actual funding compared to budgeted funding and the ratio of asset-backed securities to total borrowings, at different risk levels of “caution”, “unstable” and “at risk”, and the Group also has contingency plans in place in case of any emergency or crisis.

Contractual maturities for financial instruments including cash flows of principal and interest and off balance as of December 31, 2016 and 2017 are as follows:


	2016
	Less than 1 month			1~3 months			3~6 months			6 months ~ 1 year			1~5 years			More than 5 years			Total
Non-derivative financial instruments:
Assets:
Cash and due from banks	W	15,619,847			1,282,950			1,065,296			1,219,959			37,590			38,481			19,264,123
Trading assets (*2)		26,496,604			30,052			42,351			70,706			36,226			20,014			26,695,953
Financial assets designated at fair value through profit or loss		2,481,122			1,029			21,342			—			606,257			306,534			3,416,284
Loans		30,017,816			32,259,593			40,491,876			57,580,253			72,248,194			53,783,871			286,381,603
Available-for-sale financial assets (*2)		31,847,430			1,286,987			—			1,515,705			68,025			2,956,893			37,675,040
Held-to-maturity financial assets		185,988			260,512			180,403			1,513,782			10,755,027			12,824,191			25,719,903
Other financial assets		12,434,933			15,915			17,036			359,283			1,159,021			92,494			14,078,682

	W	119,083,740			35,137,038			41,818,304			62,259,688			84,910,340			70,022,478			413,231,588

Liabilities:
Deposits (*3)	W	121,707,981			22,583,391			29,620,700			49,624,644			14,144,690			3,032,191			240,713,597
Trading liabilities		1,976,760			—			—			—			—			—			1,976,760
Financial liabilities designated at fair value through profit or loss		429,578			452,306			475,221			1,380,011			5,412,373			1,084,419			9,233,908
Borrowings		13,697,990			1,914,573			1,293,030			2,715,323			4,191,730			1,692,283			25,504,929
Debt securities issued		1,394,163			2,435,353			4,597,809			7,371,729			26,138,646			5,492,930			47,430,630
Other financial liabilities		15,926,502			42,045			307,056			126,355			367,888			59,365			16,829,211

	W	155,132,974			27,427,668			36,293,816			61,218,062			50,255,327			11,361,188			341,689,035

Off balance (*4):
Finance guarantee contracts	W	3,424,022			—			—			—			—			—			3,424,022
Loan commitments and other		76,173,506			—			—			—			—			—			76,173,506

	W	79,597,528			—			—			—			—			—			79,597,528

*Derivatives (5):**
Cash inflows	W	2,952,185			514,990			819,654			1,979,609			1,361,541			117,374			7,745,353
Cash outflows		(3,161,870	)		(513,356	)		(798,321	)		(1,884,914	)		(1,128,730	)		(26,054	)		(7,513,245	)

	W	(209,685	)		1,634			21,333			94,695			232,811			91,320			232,108


	2017
	Less than 1 month			1~3 months			3~6 months			6 months ~ 1 year			1~5 years			More than 5 years			Total
Non-derivative financial instruments:
Assets:
Cash and due from banks	W	19,576,010			868,907			945,027			1,290,451			8,320			49,767			22,738,482
Trading assets (*2)		27,327,076			627,936			247,905			54,631			183,577			31,862			28,472,987
Financial assets designated at fair value through profit or loss		2,819,112			35,001			91,487			20,097			364,898			248,609			3,579,204
Loans		29,831,671			34,176,546			43,120,328			63,496,597			76,247,244			59,983,675			306,856,061
Available-for-sale financial assets (*2)		37,273,740			352,098			20,013			2,472,184			408,106			1,598,529			42,124,670
Held-to-maturity financial assets		153,833			178,514			309,115			1,672,095			15,018,937			14,954,247			32,286,741
Other financial assets		10,457,000			13,915			22,999			401,431			1,151,508			104,097			12,150,950

	W	127,438,442			36,252,917			44,756,874			69,407,486			93,382,590			76,970,786			448,209,095

Liabilities:
Deposits (*3)	W	130,916,019			21,725,284			31,482,983			52,440,287			16,137,734			1,940,194			254,642,501
Trading liabilities		1,848,490			—			—			—			—			—			1,848,490
Financial liabilities designated at fair value through profit or loss		303,065			324,807			548,868			916,388			5,106,209			1,098,518			8,297,855
Borrowings		15,286,424			2,543,847			1,655,662			2,823,721			3,658,670			1,844,417			27,812,741
Debt securities issued		2,261,028			3,717,185			3,651,503			10,565,098			30,391,156			4,224,471			54,810,441
Other financial liabilities		19,387,718			42,948			137,810			335,104			363,245			59,188			20,326,013

	W	170,002,744			28,354,071			37,476,826			67,080,598			55,657,014			9,166,788			367,738,041

Off balance (*4):
Finance guarantee contracts	W	3,267,707			—			—			—			—			—			3,267,707
Loan commitments and other		76,929,515			—			—			—			—			—			76,929,515

	W	80,197,222			—			—			—			—			—			80,197,222

*Derivatives (5):**
Cash inflows	W	3,735,274			790,313			829,659			1,411,010			2,684,189			143,032			9,593,477
Cash outflows		(3,324,459	)		(498,396	)		(727,887	)		(1,321,939	)		(2,594,372	)		(60,717	)		(8,527,770	)

	W	410,815			291,917			101,772			89,071			89,817			82,315			1,065,707

(*1)	These amounts include cash flows of principal and interest on financial assets and financial liabilities.

(*2)

Available-for-sale financial assets and trading assets which are not restricted for sale and measured at market prices were included in the ‘Less than 1 month’ category; and the other available-for-sale financial assets and trading assets are classified by the earliest maturities available for sale.

(*3)	Demand deposits amounting to W93,639,192 million and W102,928,642 million as of December 31, 2016 and 2017 are included in the ‘Less than 1 month’ category, respectively.

(*4)	Financial guarantees such as financial guarantee contracts and loan commitments and others provided by the Group are classified based on the earliest date at which the Group should fulfill the obligation under the guarantee when the counterparty requests payment.

(*5)	Derivatives held for trading are presented as less than one month because contractual maturities are not essential for an understanding of the timing of the cash flows. Derivatives entered into for the purpose of hedging are presented by maturity.

(*6)	As of December 31, 2016 and 2017, unused credit commitments that the Group should fulfill the obligation immediately when the credit card members request payments amounted to W61,184,194 million and W63,745,952 million, respectively.

(e)

Measurement of fair value

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 Group 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 Group uses various valuation techniques and is setting rational assumptions based on the present market situations. Such valuation techniques may include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Group 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

•

The fair value hierarchy of financial assets presented at their fair values in the statements of financial position as of December 31, 2016 and 2017 are as follows:


	2016
	Level 1		Level 2		Level 3		Total
Financial assets
Trading assets:
Debt securities	W	8,633,933		13,721,703		34,928		22,390,564
Equity securities		1,375,463		2,634,532		47,549		4,057,544
Gold deposits		247,845		—		—		247,845
Financial assets designated at fair value through profit or loss:
Debt securities and others		393,749		1,541,608		292,829		2,228,186
Equity securities		3,868		862,838		321,210		1,187,916
Derivative assets:
Trading		17,316		2,704,643		104,683		2,826,642
Hedging		—		168,551		7,666		176,217
Available-for-sale financial assets:
Debt securities		8,127,404		24,365,862		328,805		32,822,071
Equity securities		897,536		388,448		3,554,636		4,840,620

	W	19,697,114		46,388,185		4,692,306		70,777,605

Financial liabilities:
Trading liabilities:
Securities sold	W	1,490,765		—		—		1,490,765
Gold deposits		485,995		—		—		485,995
Financial liabilities designated at fair value through profit or loss:
Deposits		—		4,277		2,005		6,282
Securities sold		10,134		—		—		10,134
Derivatives-combined securities		—		1,644,904		7,572,322		9,217,226
Derivative liabilities:
Trading		14,130		2,715,327		345,357		3,074,814
Hedging		—		194,302		259,128		453,430

	W	2,001,024		4,558,810		8,178,812		14,738,646


	2017
	Level 1		Level 2		Level 3		Total
Financial assets
Trading assets:
Debt securities	W	5,897,898		17,479,033		263,715		23,640,646
Equity securities		1,350,888		2,872,437		411,028		4,634,353
Gold deposits		189,297		—		—		189,297
Financial assets designated at fair value through profit or loss:
Debt securities and others		569,259		1,509,023		266,419		2,344,701
Equity securities		3,475		948,705		282,176		1,234,356
Derivative assets:
Trading		31,858		2,955,377		293,540		3,280,775
Hedging		—		117,603		1,800		119,403
Available-for-sale financial assets:
Debt securities		10,493,483		26,286,175		406,894		37,186,552
Equity securities		427,227		613,616		3,889,542		4,930,385

	W	18,963,385		52,781,969		5,815,114		77,560,468

Financial liabilities:
Trading liabilities:
Securities sold	W	1,413,904		—		—		1,413,904
Gold deposits		434,586		—		—		434,586
Financial liabilities designated at fair value through profit or loss:
Securities sold		36,973		—		—		36,973
Derivatives-combined securities		—		986,882		7,273,754		8,260,636
Derivative liabilities:
Trading		20,738		2,706,249		77,847		2,804,834
Hedging		—		257,665		425,162		682,827

	W	1,906,201		3,950,796		7,776,763		13,633,760

•

There was no transfer between level 1 and level 2 for the years ended December 31, 2016 and 2017.

•

Changes in carrying values of financial instruments classified as Level 3 for the years ended December 31, 2016 and 2017 are as follows:


	2016
	Trading assets			Financial assets designated at FVTPL			Available-for- sale financial assets			Derivative assets and liabilities, net			Financial liabilities designated at FVTPL
Beginning balance	W	201,603			451,124			2,979,058			(703,841	)		(6,444,621	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		5,026			6,020			28,645			141,080			(508,916	)
Recognized in other comprehensive income (loss) for the year		—			—			(81,812	)		—			—

		5,026			6,020			(53,167	)		141,080			(508,916	)
Purchase		76,810			337,012			1,308,840			10,226			—
Issue		—			—			—			—			(5,402,714	)
Settlement		(200,962	)		(180,117	)		(359,694	)		40,710			4,781,924
Transfer in (*2)		—			—			20,382			19,689			—
Transfer out (*2)		—			—			(11,978	)		—			—

Ending balance	W	82,477			614,039			3,883,441			(492,136	)		(7,574,327	)


	2017
	Trading assets			Financial assets designated at FVTPL			Available-for- sale financial assets			Derivative assets and liabilities, net			Financial liabilities designated at FVTPL
Beginning balance	W	82,477			614,039			3,883,441			(492,136	)		(7,574,327	)
Recognized in total comprehensive income for the year:
Recognized in profit (loss) for the year (*1)		41,127			(9,202	)		(200,701	)		634,438			(913,760	)
Recognized in other comprehensive income (loss) for the year		—			—			(3,149	)		—			—

		41,127			(9,202	)		(203,850	)		634,438			(913,760	)
Purchase		589,144			210,856			1,150,904			29,333			—
Issue		—			—			—			4,541			(8,710,656	)
Settlement		(139,562	)		(267,098	)		(565,146	)		(383,873	)		9,924,989
Transfer in (*2)		101,557			—			31,087			28			—
Transfer out (*2)		—			—			—			—			—

Ending balance	W	674,743			548,595			4,296,436			(207,669	)		(7,273,754	)

(*1)	Recognized profit or loss of the changes in carrying value of financial instruments classified as Level 3 for the years ended December 31, 2016 and 2017, are included in the accounts of the statements of comprehensive income, of which the amounts and the related accounts are as follows:


	2016						2017
	Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of December 31			Amounts recognized in profit or loss			Recognized profit or loss from the financial instruments held as of December 31
Trading income	W	332,400			37,466			843,657			121,643
Gain (loss) on financial instruments designated at FVTPL		(502,896	)		(169,424	)		(922,962	)		(129,654	)
Gain (loss) on disposal of available-for-sale financial assets		25,546			354			17,193			977
Impairment losses on financial assets		(6,685	)		(5,964	)		(180,206	)		(180,206	)
Other operating income (expenses)		(176,510	)		(176,359	)		(205,780	)		(216,135	)

	W	(328,145	)		(313,927	)		(448,098	)		(403,375	)

(*2)	Changes in levels for the financial instruments occurred due to the change in the availability of observable market data. The Group reviews the levels of financial instruments as of the end of the reporting period considering the related events and circumstances in the reporting period.

•

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


Type of financial instrument	Valuation technique		Carrying value		Significant inputs
Assets
Trading assets:
Debt securities		DCF (*1)	W	17,479,033	Discount rate
Equity securities		NAV (*2)		2,872,437	Discount rate, Price of underlying assets

				20,351,470

Financial assets designated at fair value through profit or loss:
Debt securities		DCF (*1)		1,509,023	Discount rate
Equity securities		NAV (*2)		948,705	Discount rate, Price of underlying assets

				2,457,728

Derivative assets:
Trading		Option model, DCF (*1)		2,955,377	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
Hedging		Option model, DCF (*1)		117,603

				3,072,980

Available-for-sale financial assets:
Debt securities		DCF (*1)		26,286,175	Discount rate, growth rate, Price of underlying assets
Equity securities		NAV (*2)		613,616	Discount rate, growth rate, Price of underlying assets

				26,899,791

			W	52,781,969

Liabilities
Financial liabilities designated at fair value through profit or loss:
Others		DCF (*1)	W	986,882	Discount rate
Derivative liabilities:
Trading		Option model, DCF (*1)		2,706,249	Discount rate, foreign exchange rate, volatility, stock price, commodity index, etc.
Hedging		Option model, DCF (*1)		257,665

				2,963,914

			W	3,950,796

(*1)	DCF : Discounted cash flow

(*2)	NAV : Net asset value

•

Valuation techniques and significant inputs, but not observable, used in measuring the fair value of financial instruments classified as level 3 as of December 31, 2017 are as follows:

Type of financial instrument

Valuation
technique

Carrying
value (*2)

Significant unobservable

inputs

Range

Financial assets

Trading assets:

Debt securities

DCF

Option
model (*1)

263,715

The volatility of the underlying asset

3.16%~7.51%

Equity securities

NAV

411,028

674,743

Financial assets designated at fair value through profit or loss:

Debt securities and other securities

DCF

548,595

The volatility of the underlying asset Correlations

0.66%~44.4%

0.00%~89.54%

Derivative assets:

Equity and foreign exchange related

Option
model (*1)

203,028

The volatility of the underlying asset Correlations

1.32%~44.40%

0.00%~81.99%

Interest rates related

Option
model (*1)

35,795

The volatility of the underlying asset Regression coefficient

Correlations

0.42%~62.19%

0.42%~1.65%

0.00%~90.9%

Credit and commodity related

Option
model (*1)

56,517

The volatility of the underlying asset Correlations

35.8%~35.92%

0.00%~92.91%

295,340

Available-for-sale financial assets:

Debt securities

DCF

406,894

Discount rate

Growth rate

1.98%~20.51%

0.00%~3.00%

Equity securities

NAV

3,889,542

4,296,436

5,815,114

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

(*2)	Valuation techniques and inputs are not disclosed when the carrying amount is a reasonable approximation of fair value.

Type of financial instrument

Valuation
technique

Carrying
value (*2)

Significant unobservable inputs

Range

Financial liabilities

Financial liabilities designated at fair value through profit or loss:

Equity related

Option
model (*1)

W7,273,754

The volatility of the underlying asset Correlations

0.00%~95.69%

21.14%~100.0%

Derivative liabilities:

Equity and foreign exchange related

Option
model (*1)

23,482

The volatility of the underlying asset Correlations

1.32%~44.40%

0.00%~81.92%

Interest rates related

Option
model (*1)

451,034

The volatility of the underlying asset Regression coefficient

Correlations

0.50%~0.85%

1.65%~2.77%

31.53%~90.99%

Credit and commodity related

Option
model (*1)

28,493

The volatility of the underlying asset Correlations

9.65%~35.92%

21.14%~100%

503,009

W7,776,763

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

(*2)	Valuation techniques and inputs are not disclosed when the carrying amount is a reasonable approximation of fair value.

•

Sensitivity analysis for fair value measurements in Level 3

Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value.

For level 3 fair value measurement, changing one or more of the unobservable inputs used to reasonably possible alternative assumptions would have the following effects on profit or loss, or other comprehensive income as of December 31, 2016 and 2017.


	2016
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1):
Financial assets designated at fair value through profit or loss	W	2,737		(3,260	)
Derivative assets		38,746		(17,927	)

		41,483		(21,187	)
Effects on other comprehensive income for the period:
Available-for-sale financial assets (*2)		59,782		(34,830	)

	W	101,265		(56,017	)

Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	80,057		(108,955	)
Derivative liabilities		80,589		(49,740	)

	W	160,646		(158,695	)


	2017
	Favorable changes		Unfavorable changes
Financial assets:
Effects on profit or loss for the period (*1):
Trading assets	W	2,792		(2,742	)
Financial assets designated at fair value through profit or loss		1,843		(1,941	)
Derivative assets		29,059		(28,077	)

		33,694		(32,760	)
Effects on other comprehensive income for the period:
Available-for-sale financial assets (*2)		39,460		(25,505	)

	W	73,154		(58,265	)

Financial liabilities:
Effects on profit or loss for the period (*1):
Financial liabilities designated at fair value through profit or loss	W	72,063		(56,754	)
Derivative liabilities		32,770		(33,343	)

	W	104,833		(90,097	)

(*1)

Fair value changes are calculated by increasing or decreasing the volatility of the underlying asset (-10~10%) or correlations (-10~10%).

(*2)

Fair value changes are calculated by increasing or decreasing discount rate (-1~1%) or growth rate (0~1%).

ii) Financial instruments measured at amortized cost

•

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


Type		Measurement methods of fair value
Cash and due from banks		The carrying amount and the fair value for cash are identical and most of deposits are floating interest rate deposits or next day deposits of a short-term instrument. For this reason, the carrying value approximates fair value.

Loans		The fair value of the loans is measured by discounting the expected cash flow at the market interest rate and credit risk.

Held-to-maturity financial assets		The fair value of held-to-maturity financial assets is based on the published price quotations in an active market. In case there is no observable market price, it is measured by discounting the contractual cash flows at the market interest rate that takes into account the residual risk.

Deposits and borrowings		The carrying amount and the fair value for demand deposits, cash management account deposits, call money as short-term instrument are identical. The fair value of others is measured by discounting the contractual cash flow at the market interest rate that takes into account the residual risk.

Debt securities issued		Where available, the fair value of deposits and borrowings 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.

•

The carrying value and the fair value of financial instruments measured at amortized cost as of December 31, 2016 and 2017 are as follows:


	2016				2017
	Carrying value		Fair value		Carrying value		Fair value
Assets:
Loans	W	259,010,575		260,900,185		275,565,766		275,988,557
Held-to-maturity financial assets		19,805,084		20,732,400		24,990,680		25,390,335
Other financial assets		13,975,889		13,994,180		12,041,304		12,038,310

	W	292,791,548		295,626,765		312,597,750		313,417,202

Liabilities:
Deposits	W	235,137,958		235,175,778		249,419,224		249,333,154
Borrowings		25,294,241		25,340,042		27,586,610		27,596,841
Debt securities issued		44,326,785		44,651,811		51,340,821		51,277,693
Other financial liabilities		16,848,941		16,813,145		20,205,312		20,179,542

	W	321,607,925		321,980,776		348,551,967		348,387,230

•

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 value as of December 31, 2016 and 2017 are as follows:


	2016
	Level 1		Level 2		Level 3		Total
Assets:
Loans	W	11,236		2,019,178		258,869,771		260,900,185
Held-to-maturity financial assets		7,658,696		13,073,704		—		20,732,400
Other financial assets		32,952		9,882,610		4,078,618		13,994,180

	W	7,702,884		24,975,492		262,948,389		295,626,765

Liabilities:
Deposits	W	2,584,682		95,123,504		137,467,592		235,175,778
Borrowings		6,116,774		812,184		18,411,084		25,340,042
Debt securities issued in won		—		28,927,528		15,724,283		44,651,811
Other financial liabilities		37,061		4,741,882		12,034,202		16,813,145

	W	8,738,517		129,605,098		183,637,161		321,980,776


	2017
	Level 1		Level 2		Level 3		Total
Assets:
Loans	W	3,065		845,567		275,139,925		275,988,557
Held-to-maturity financial assets		7,851,134		17,539,201		—		25,390,335
Other financial assets		79,889		6,832,567		5,125,854		12,038,310

	W	7,934,088		25,217,335		280,265,779		313,417,202

Liabilities:
Deposits	W	2,922,841		105,939,876		140,470,437		249,333,154
Borrowings		5,958,846		566,718		21,071,277		27,596,841
Debt securities issued in won		—		33,622,407		17,655,286		51,277,693
Other financial liabilities		84,665		5,642,143		14,452,734		20,179,542

	W	8,966,352		145,771,144		193,649,734		348,387,230

•

For financial instruments not measured at fair value in the statement of financial position but for which the fair value is disclosed, information on valuation technique and inputs used in measuring fair value of financial instruments classified as level 2 or level 3 at December 31, 2016 and 2017 are as follows:


	2016
	Fair value (*2)		Valuation technique	Inputs
	Fair value (*2)		Valuation technique	Inputs
Financial instruments classified as level 2 :
Assets
Loans	W	2,019,178	DCF (*1)	Discount rate, credit spread, prepayment rate
Held-to-maturity financial assets		13,073,704	DCF (*1)	Discount rate
Other financial assets		9,882,609	DCF (*1)	Discount rate

		24,975,491

Liabilities
Deposits		95,123,504	DCF (*1)	Discount rate
Borrowings		812,184	DCF (*1)	Discount rate
Debt securities issued		27,838,862	DCF (*1)	Discount rate
Other financial liabilities		4,741,881	DCF (*1)	Discount rate

	W	128,516,431

Financial instruments classified as level 3 :
Assets
Loans	W	258,869,771	DCF (*1)	Discount rate, credit spread, prepayment rate
Other financial assets		4,078,168	DCF (*1)	Discount rate

		262,947,939

Liabilities
Deposits		137,467,592	DCF (*1)	Discount rate
Borrowings		18,351,084	DCF (*1)	Discount rate
Debt securities issued		15,724,283	DCF (*1)	Discount rate, regression coefficient, correlation coefficient
Other financial liabilities		12,033,429	DCF (*1)	Discount rate

	W	183,576,388


	2017
	Fair value (*2)		Valuation technique	Inputs
	Fair value (*2)		Valuation technique	Inputs
Financial instruments classified as level 2 :
Assets
Loans	W	845,567	DCF (*1)	Discount rate, credit spread, prepayment rate
Held-to-maturity financial assets		17,539,201	DCF (*1)	Discount rate
Other financial assets		6,832,567	DCF (*1)	Discount rate

		25,217,335

Liabilities
Deposits		105,939,876	DCF (*1)	Discount rate
Borrowings		566,718	DCF (*1)	Discount rate
Debt securities issued		33,622,407	DCF (*1)	Discount rate
Other financial liabilities		5,642,143	DCF (*1)	Discount rate

	W	145,771,144

Financial instruments classified as level 3 :
Assets
Loans	W	275,139,925	DCF (*1)	Discount rate, credit spread, prepayment rate
Other financial assets		5,125,854	DCF (*1)	Discount rate

		280,265,779

Liabilities
Deposits		140,470,437	DCF (*1)	Discount rate
Borrowings		21,071,277	DCF (*1)	Discount rate
Debt securities issued		17,655,286	DCF (*1)	Discount rate, regression coefficient, correlation coefficient
Other financial liabilities		14,452,734	DCF (*1)	Discount rate

	W	193,649,734

(*1)	DCF : discounted cash flow

(*2)	Valuation techniques and inputs are not disclosed when the carrying amount is a reasonable approximation of fair value

iii) Changes in the difference between the fair value at initial recognition (the transaction price) and the value using models with unobservable inputs for the years ended December 31, 2016 and 2017


	2016			2017
Beginning balance	W	(102,016	)		(89,695	)
Deferral on new transactions		(70,948	)		(108,832	)
Recognized in profit for the year		83,269			66,063

Ending balance	W	(89,695	)		(132,464	)

(f)

Classification by categories of financial instruments

Financial assets and liabilities are measured at fair value or amortized cost. The financial instruments measured at fair value or amortized cost are measured in accordance with the Group’s valuation methodologies, which are described in Note 4.(e) Measurement of fair value.

The carrying amounts of each category of financial assets and financial liabilities as of December 31, 2016 and 2017 are as follows:


	2016
	Trading assets		FVTPL assets		AFS		HTM		Loans and receivable		Derivatives held for hedging		Total
Assets:
Cash and due from banks	W	—		—		—		—		19,181,165		—		19,181,165
Trading assets		26,695,953		—		—		—		—		—		26,695,953
Financial assets designated at FVTPL		—		3,416,102		—		—		—		—		3,416,102
Derivatives		2,826,642		—		—		—		—		176,217		3,002,859
Loans		—		—		—		—		259,010,575		—		259,010,575
AFS financial assets		—		—		37,662,691		—		—		—		37,662,691
HTM financial assets		—		—		—		19,805,084		—		—		19,805,084
Other		—		—		—		—		13,975,889		—		13,975,889

	W	29,522,595		3,416,102		37,662,691		19,805,084		292,167,629		176,217		382,750,318


	2016
	Trading liabilities		FVTPL liabilities		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	—		—		235,137,958		—		235,137,958
Trading liabilities		1,976,760		—		—		—		1,976,760
Financial liabilities designated at FVTPL		—		9,233,642		—		—		9,233,642
Derivatives		3,074,814		—		—		453,430		3,528,244
Borrowings		—		—		25,294,241		—		25,294,241
Debt securities issued		—		—		44,326,785		—		44,326,785
Other		—		—		16,848,941		—		16,848,941

	W	5,051,574		9,233,642		321,607,925		453,430		336,346,571


	2017
	Trading assets		FVTPL assets		AFS		HTM		Loans and receivable		Derivatives held for hedging		Total
Assets:
Cash and due from banks	W	—		—		—		—		22,668,598		—		22,668,598
Trading assets		28,464,296		—		—		—		—		—		28,464,296
Financial assets designated at FVTPL		—		3,579,057		—		—		—		—		3,579,057
Derivatives		3,280,775		—		—		—		—		119,403		3,400,178
Loans		—		—		—		—		275,565,766		—		275,565,766
AFS financial assets		—		—		42,116,937		—		—		—		42,116,937
HTM financial assets		—		—		—		24,990,680		—		—		24,990,680
Other		—		—		—		—		12,041,304		—		12,041,304

	W	31,745,071		3,579,057		42,116,937		24,990,680		310,275,668		119,403		412,826,816


	2017
	Trading liabilities		FVTPL liabilities		Financial liabilities measured at amortized cost		Derivatives held for hedging		Total
Liabilities:
Deposits	W	—		—		249,419,224		—		249,419,224
Trading liabilities		1,848,490		—		—		—		1,848,490
Financial liabilities designated at FVTPL		—		8,297,609		—		—		8,297,609
Derivatives		2,804,834		—		—		682,827		3,487,661
Borrowings		—		—		27,586,610		—		27,586,610
Debt securities issued		—		—		51,340,821		—		51,340,821
Other		—		—		20,205,312		—		20,205,312

	W	4,653,324		8,297,609		348,551,967		682,827		362,185,727

(g)

Transfer of financial instruments

i) Transfers that do not qualify for derecognition

•

Bonds sold under repurchase agreements as of December 31, 2016 and 2017 are as follows:


	2016		2017
Transferred asset:
Financial assets at fair value through profit or loss	W	7,011,684		7,688,025
Available-for-sale financial assets		1,104,923		1,240,063
Held-to-maturity financial assets		489,204		615,352
Loans		200		51,900

	W	8,606,011		9,595,340

Associated liabilities:
Bonds sold under repurchase agreements	W	8,082,626		9,057,138

•

Securities loaned as of December 31, 2016 and 2017 are as follows:


	2016		2017		Borrowers
Government bonds	W	414,745		530,607	Korea Securities Finance Corp., Korea Securities Depository and others
Financial institutions bonds		260,014		319,581	Korea Securities Finance Corp., Korea Securities Depository
Equity securities		10,333		—	JP MORGAN SECURITIES

	W	685,092		850,188

ii) Financial instruments qualified for derecognition and continued involvement

There was no financial instruments which qualify for derecognition and in which the Group has continuing involvements as of December 31, 2016 and 2017.

(h)

Offsetting financial assets and financial liabilities

Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2016 and 2017 are as follows:


	2016
	Gross amounts of recognized financial assets/ liabilities		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amount
	Gross amounts of recognized financial assets/ liabilities						Financial instruments		Cash collateral received		Net amount
Assets:
Derivatives (*1)	W	2,980,805		—		2,980,805		5,049,847		296,155		1,922,783
Other financial instruments (*1)		4,904,754		616,774		4,287,980		5,049,847		296,155		1,922,783
Bonds purchased under repurchase agreements (*2)		12,005,767		—		12,005,767		11,491,811		—		513,956
Securities loaned (*2)		685,091		—		685,091		338,947		—		346,144
Domestic exchange settlement debit (*3)		30,589,675		24,486,360		6,103,315		27,156		—		6,076,159
Receivables from disposal of securities (*4)		1,891		495		1,396		—		—		1,396
Insurance receivables		4,069		—		4,069		2,450		—		1,619

		51,172,052		25,103,629		26,068,423		16,910,211		296,155		8,862,057

Liabilities:
Derivatives (*1)		4,438,363		—		4,438,363		5,058,660		467,195		2,661,326
Other financial instruments (*1)		4,365,592		616,774		3,748,818		5,058,660		467,195		2,661,326
Bonds purchased under repurchase agreements (*2)		8,082,626		—		8,082,626		8,082,626		—		—
Securities borrowed (*2)		1,490,765		—		1,490,765		1,490,765		—		—
Domestic exchange settlement pending (*3)		25,448,312		24,486,360		961,952		957,406		—		4,546
Payable from purchase of securities (*4)		500		495		5		5		—		—
Insurance payables		2,450		—		2,450		2,450		—		—

	W	43,828,608		25,103,629		18,724,979		15,591,912		467,195		2,665,872


	2017
	Gross amounts of recognized financial assets/ liabilities		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amount
	Gross amounts of recognized financial assets/ liabilities						Financial instruments		Cash collateral received		Net amount
Assets:
Derivatives (*1)	W	3,219,982		—		3,219,982		5,626,795		318,813		1,650,337
Other financial instruments (*1)		5,911,577		1,535,614		4,375,963		5,626,795		318,813		1,650,337
Bonds purchased under repurchase agreements (*2)		12,861,514		—		12,861,514		12,312,131		—		549,383
Securities loaned (*2)		850,188		—		850,188		633,407		—		216,781
Domestic exchange settlement debit (*3)		33,367,006		30,367,425		2,999,581		79,882		—		2,919,699
Receivables from disposal of securities (*4)		15,568		1,152		14,416		—		—		14,416
Insurance receivables		6,807		—		6,807		3,376		—		3,431

		56,232,642		31,904,191		24,328,451		18,655,591		318,813		5,354,047

Liabilities:
Derivatives (*1)		12,625,941		—		12,625,941		6,378,052		—		9,907,535
Other financial instruments (*1)		5,195,260		1,535,614		3,659,646		6,378,052		—		9,907,535
Bonds purchased under repurchase agreements (*2)		9,057,138		—		9,057,138		9,057,138		—		—
Securities borrowed (*2)		1,450,877		—		1,450,877		1,450,877		—		—
Domestic exchange settlement pending (*3)		32,202,236		30,367,425		1,834,811		1,763,331		—		71,480
Payable from purchase of securities (*4)		1,519		1,152		367		326		—		41
Insurance payables		3,376		—		3,376		3,376		—		—

	W	60,536,347		31,904,191		28,632,156		18,653,100		—		9,979,056

(*1)	The Group has certain derivative transactions subject to the ISDA (International Derivatives Swaps and Dealers Association) agreement. According to the ISDA agreement, when credit events (e.g. default) of counterparties occur, all derivative agreements are terminated and set off.

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

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

(*4)

Receivables and payables related to settlement of purchase and disposition of enlisted securities are offset and the net amount is presented in the consolidated statement of financial position because the Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis.

(i)

Capital risk management

The controlling company, banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act, is required to maintain a minimum consolidated equity capital ratio of 8.0%.

“Consolidated equity capital ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on Bank of International Settlement standards. “Equity capital”, as applicable to bank holding companies, is defined as the sum of Common Equity Tier 1 capital (including common stock, share premium resulting from the issue of instruments classified as common equity Tier 1, retained earnings, etc.), Additional Tier 1 capital (with the minimum set of criteria for an instrument issued by the Group to meet, i.e. ‘perpetual’) and Tier 2 capital (to provide loss absorption on a gone-concern basis) less any deductible items (including goodwill, income tax assets, etc.), each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

The capital adequacy ratio of the Group as of December 31, 2016 and 2017 are as follows:


	2016			2017
Capital :
Tier I common equity capital	W	25,325,054			26,756,509
Additional tier 1 capital		885,366			916,383

Tier I capital		26,210,420			27,672,892
Tier II capital		3,576,095			3,040,572

Total capital (A)	W	29,786,515			30,713,464

Total risk-weighted assets (B)	W	198,642,643			207,768,636

Capital adequacy ratio (A/B)		15.00	%		14.78	%
Tier I capital adequacy ratio		13.19	%		13.32	%
Common equity capital adequacy ratio		12.75	%		12.88	%

As of December 31, 2016 and 2017, the Group met the regulatory capital ratio above 8%.

Shinhan Life Insurance measures and manages RBC (risk based capital) ratio according to the Regulation on Supervision of Insurance Business to maintain required capital for the solvency margin.

As of December 31, 2016 and 2017, the Group’s BIS capital ratio and Shinhan Life Insurance’s RBC ratio exceed the regulatory minimum ratios.