In the first quarter of 2024, the company reported a robust financial performance, with a net income of KRW1.3215 trillion. This result was buoyed by a 9.4% year-over-year (YoY) growth in interest income and a slight increase in noninterest income. The company also announced a dividend per share of KRW540 for Q1, alongside a share buyback and cancellation strategy worth KRW300 billion over the next six months.
The bank's loan assets showed healthy growth, particularly in the corporate sector, and the net interest margin (NIM) saw a marginal rise. Despite a challenging macroeconomic environment, the company is committed to maintaining solid performance and financial stability, with a focus on profitability and asset quality.
Key Takeaways
- Net income reached KRW1.3215 trillion in Q1 2024.
- Interest income and noninterest income grew by 9.4% and 0.3% YoY, respectively.
- Dividend per share announced at KRW540 for Q1.
- Share buyback and cancellation of KRW300 billion planned for the next 6 months.
- Retail and corporate loan assets grew by 1.2% and 3.9%, respectively.
- Net interest margin (NIM) increased slightly to 1.64%.
- Credit cost ratio improved, dropping 10 basis points YoY to 38 bp.
- Provisional CET1 ratio stood at 13.09% at the end of March.
- Company expects a delay in asset quality improvement and anticipates rising credit costs.
- Focus for the second half of the year will be on profitability and asset quality over loan growth.
Company Outlook
- Loan growth strategy will prioritize profitability and asset quality.
- A slight decrease in NIM is expected in the second half of the year due to anticipated rate cuts and market conditions.
- The company remains dedicated to social responsibilities and aims to achieve financial stability.
Bearish Highlights
- Potential delay in asset quality improvement and rising credit costs due to macroeconomic factors.
- Expected slight fall in NIM in the second half of the year.
Bullish Highlights
- Solid increase in net income and growth in interest and noninterest income.
- Improved credit cost ratio and stable CET1 ratio.
- Growth in loan assets, especially in the corporate sector.
Misses
- Total exposure to real estate trust companies and PF sites was not disclosed.
Q&A Highlights
- In the first half of the year, the company focused on expanding its customer base; the second half will see a shift towards profitability and asset quality.
- NIM is expected to remain relatively flat year-on-year in the first half and experience a slight fall in the second half.
- The company has set a long-term shareholder return target of 50%, with an initial target of 40% for this year.
- Credit cost expectations for the full year are around 45 basis points or under.
- If the CET1 ratio exceeds 13%, larger shareholder buybacks and cancellations may be considered in the fourth quarter.
The company's financial results for Q1 2024 reflect a strategic balance between growth and stability. With a focus on shareholder value, the company has outlined a clear plan for capital distribution, aiming for a long-term shareholder return target of 50%, and setting an initial target of 40% for the current year. The company's conservative strategy has led to a scaled-back performance in some areas but is underpinned by a commitment to stability, especially in the proprietary trading business. The company's proactive approach to provisioning for real estate trust exposure and its anticipation of potential increases in credit costs due to macroeconomic factors demonstrate a cautious yet strategic financial management approach. The CFO's remarks on potential larger shareholder buybacks and cancellations in the fourth quarter, should the CET1 ratio exceed the target, further underscore the company's focus on enhancing shareholder value while maintaining a strong capital position.
InvestingPro Insights
The company's recent financial report highlights a strategic approach that balances growth with financial prudence. InvestingPro's real-time data and analytics provide further insight into the company's performance and market position.
InvestingPro Data shows a compelling P/E Ratio for the company at 5.83, and an even more attractive adjusted P/E Ratio of 5.62 for the last twelve months as of Q1 2024. These figures suggest that the company is trading at a low earnings multiple, which may indicate an undervalued stock in the eyes of investors looking for earnings-driven investments.
Furthermore, the company's market capitalization stands at a robust 17.23 billion USD, confirming its significant presence in the banking sector. This aligns with one of the InvestingPro Tips that identifies the company as a prominent player in the Banks industry.
The company's dividend yield is also noteworthy, recorded at 3.52% for the year 2024. This demonstrates the company's ability to maintain a steady flow of income to its shareholders, which is further supported by its history of maintaining dividend payments for 16 consecutive years—an aspect that conservative investors often find appealing.
Investors interested in a deeper analysis can find additional InvestingPro Tips on https://www.investing.com/pro/SHG. These tips provide a comprehensive look at the company's share buyback strategy, gross profit margins, and profitability predictions. For those looking to upgrade their experience with more in-depth analytics, InvestingPro offers a range of tips that can be accessed with a yearly or biyearly Pro and Pro+ subscription. Use the coupon code PRONEWS24 to get an additional 10% off your subscription, and discover the full suite of 9 additional InvestingPro Tips that can empower you to make more informed investment decisions.
Full transcript - Shinhan Financial Group Co Ltd (NYSE:SHG) Q1 2024:
Sang-Hyuk Jung: Good afternoon. Let me first thank everyone for participating at our Q1 2024 Earnings Conference Call despite your busy schedule. I will first go through our business highlights from Page 5 of the slides. In Q1 2024, we achieved KRW1.3215 trillion in net income, despite recognition of large nonoperating expense, thanks to the company's strong fundamentals based on top line growth. Interest income grew 9.4% Y-o-Y, thanks to proactive loan asset growth strategy and efficient margin management. Noninterest income for the group grew 0.3% as we defended the decline in securities-related income with a diversified portfolio. G&A was kept at 1.2% increase, despite the general inflationary factors, thanks to the group's ongoing effort and cost efficiency. With G&A well under control, the cost to income ratio stood at 35.9%, improved by 2 percentage points Y-o-Y, thanks to sound growth in operating income. Credit cost ratio in Q1 was 38 bp, down by 10 bp Y-o-Y. But the recurring CCR, excluding the additional provisioning that was preemptively recognized, was 30 bp, up 1 bp Y-o-Y. Next is capital ratio and shareholder return policy. The provisional CET1 ratio as of the end of March was 13.09%. The BOD today decided on the dividend per share at KRW540 per Q1 and further resolved on KRW300 billion in share buyback and cancellation for the next 6 months. Looking ahead, the company will continue with sustainable profitability management and active shareholder return policy as we try to secure capital adequacy in response to changes in capital-related regulations based on our strong financial soundness. Page 6 is on the group's major income indicators provided for your information. Moving on to Page 7 on the group's income breakdown. The group's interest income in Q1 2024 was KRW2.8159 trillion, up 9.4% Q-o-Q. Interest-bearing assets increased 3.6% Y-on-Y on the back of growth in the bank's loan in won and the group's margin also rose by 6 bp. The bank's loan asset in won grew 2.7% in the quarter. Retail loan grew 1.2%, mostly for Jeonse and housing mortgage. Corporate loan grew 3.9% in response to demand by large companies and quality SMEs. We will keep selectively growing our assets by balancing the different factors like efficient RWA management, profitability and market demand. In Q1, bank's NIM was 1.64%, up 2 bp Q-o-Q. The funding cost improved significantly, although the growth in loan assets affected yield. There was more inflow of low expense core deposits linked to loans and high interest policy products came to maturity. We will keep actively managing the margins through flexible interest policy and effective ALM management. Next, Page 8. The Group's noninterest income grew 16.6% Y-o-Y as fee income saw generally even growth across business areas like credit card securities, fund, Bancassurance and IB. Insurance income grew 21.4% from the increase in CSM write-offs. Credit card fee rose 28.4%. Although credit card transaction volume rose 3.8% Y-o-Y, we improved operational efficiency, for example, reducing high-cost promotions. Brokerage fee was up 25.8% on the back of stock trading increasing by KRW4.3 trillion Y-o-Y. Securities-related income fell 19.4% Y-o-Y despite the growth in recurring income. There was a preemptive recognition of loss from overseas real estate, among others. The Group's credit cost fell Y-o-Y in both nominal provisioning and CCR with reduction in the additional provisions recognized early in 2023. The bank's recurring provision for credit losses remains flat Y-o-Y, while preemptive provisioning was done in Shinhan Capital and Shinhan Asset Trust to prepare against real estate market downturn and further worsening of financial soundness. Looking ahead, we will actively reinforce loss absorption capabilities through preemptive provisioning for real estate finance in and outside of Korea. Now on to Page 9, please. Group-wide asset soundness indicators have seen a delay in improvement in a protracted high interest rate conditions. Related to pre-COVID levels and considering our improved loss absorption capacity, we believe they remain within manageable levels. This trend of weakening asset quality is expected to continue for some time. And we, of course, will remain vigilant in maintaining a conservative stance in managing our asset soundness. As of the end of Q1 2024, our CET1 ratio is down 8 basis points Q-on-Q, recording a tentative 13%. When considering adoption of Basel III transitional measures, rising FX rates, an increase in operational RWA, overall, we believe that overall soundness is being managed appropriately. Now on to shareholder return policy such as cancellation of treasury shares, let me move on and explain in greater detail. We have [indiscernible] upon the cancellation of treasury shares, as mentioned, reflecting our solid top line growth, credit costs and other expenses as well as our BIS capital adequacy ratio. Based on this resolution, the size of cancellations this year will, thereby, bring us closer to last year's full year level of KRW480 billion. At present, with many risks still outstanding, we will need to continue ongoing control and management. However, as long as we continue to deliver solid financial performance as we did in the first quarter, we are on track to execute on the shareholder return policies that we committed to you at the beginning of the new year without set back. Next, Page 10. Credit card earnings, together with an increase in transaction volume as well as efficiency gains in marketing expense and product pricing, resulted in 1% Y-o-Y increase in earnings. Securities -- as the equity market became active, our brokerage fee income increase. However, our prop trading income went down, resulting in a 36.6% Y-o-Y decrease in earnings. Capital and Asset Trust business was impacted by preemptive provisioning which resulted in a Y-o-Y decline in earnings. For our global business, alongside, strategically driven to top line expansion and our efficient ALM strategy, both contributed to improved operating; profit, driven mostly by interest income. More of our efforts to recover on NPL assets allowed us to write back provisioning, resulting in a 35.4% Y-o-Y increase in earnings. Our group-wide real estate PS exposure is KRW8.9 trillion, down slightly from end of last year and we recorded a provisioning ration of 3.61%. The next section from Page 11 to 13, covers issues related to an index-linked ELT products and also our measures to enforce stronger internal controls and customer protection. Also, net line of our digital and sustainability activities are also attached for your reference. Lastly, let me briefly comment on the recent macro environment and also today's changing business conditions as well as our response and future outlook. With the start of this year, thanks to the corporate value program, we have seen greater interest in Korean financial stocks than ever before. At the same time, with widening geopolitical risk, we're seeing elevated volatility across various macro indicators such as FX rates and inflation. At our last conference in February, we commented on conservative expectations for one benchmark rate-cut in the second half of the year. Given the rising inflationary pressure fueled by the risk in the Middle East, it appears that this outlook still remains valid and intact. Many economic players will likely see delayed improvement in their financial soundness, with continued deterioration of asset quality and a rise in credit costs expected to continue for the time being. We, however, as you have seen in our Q1 results, continue to deliver solid top line results. And through preemptive efforts to enhance our loss absorption capacity and efficient capital management, have been focusing on proactively addressing new market demand, while focusing on minimizing sensitivity externalities to achieve greater financial stability. If the outcome of these efforts become materialized, we expect to maintain a sufficient capital buffer while sustaining stable financial performance. However, we, until very recently, understand that regarding stock prices, there were some concerns in the market with regards to shares held by our major strategic investors. Further most, most of these trades were completed in the first quarter and we believe that any concern over oversupply will gradually improve. We remain strongly committed to our social responsibilities. And based on our customer support and trust, we'll strive to achieve solid performance and financial stability and outstanding shareholder return policies to enhance our corporate value. Thank you very much.
Operator: And now we will take your questions. [Operator Instructions] And for questions in English, please be informed that there will be a consecutive interpretation. Thank you. And now we will take your questions. And we will receive the first question, Mr. Park Hye-jin from Daishin Securities.
Park Hye-jin: This is Mr. Park Hye-jin from Daishin Securities. I have 2 questions. Now first is about the ELS compensation. So I wonder how much of that was reflected. And the second is about the refinancing platform. So especially in January, that was expanded for Jeonse and mortgage but then I understand that the volume is larger than other companies. I wonder whether it will have an impact on the margin? If yes, how much?
Unidentified Company Representative: Yes. Thank you for your questions. I believe there were 2. So please bear with us as we prepare to answer your questions. So regarding ELT recognition and also the refinancing platform, I believe there were 2 questions. I think the CFO of the bank can cover both.
Sang-Hyuk Jung: Yes. Thank you very much for your question. So let me address both. First of all, regarding the ELS loss. The ELS compensation, well, total sales amount is KRW2.6 trillion. So as of the end of March, based on [indiscernible], about KRW274 billion in nonoperating expense was recognized. Considering the level of the current index, we don't think that it will have an impact on our closing balance. Refinancing the origination amount is larger than peers. What is the impact on our margin? That was the second question. Credit loans, mortgage loans, Jeonse, housing rental loans. Well, in the first half of the year, our origination actually was larger than the others. It happens that in the first half, customer -- we wanted to build out the customer base, especially in household loans and it's a consequence of this focused initiative, that is why. But in terms of the overall loan growth, this, as a percentage, is not that sizable. So it was more in the interest of expanding our customer base. So any impact to our margin was not material. And NIM, in the first quarter, actually consequently rose and improved by 2 basis points.
Operator: [Operator Instructions] Next question is by Mr. Jung Jun-Sup from NH Securities.
Jung Jun-Sup: Yes. I am Jung Jun-Sup from NH Investment Securities. Now in the first quarter, the lending growth was not slow. And then now for the year then, what does the company believe is going to be the loan growth rate? So what is your strategy for the loan growth? And the second question is, it was also mentioned earlier, so about the expected rate hike in second half but then now -- in the rate cut in the second half. But then now for the NIM, then will there be an impact on the NIM? And what is expected NIM for the year?
Unidentified Company Representative: Thank you very much for the 2 questions. So then I ask for your patience as we prepare our response. Thank you very much for your questions. Now then for the year, in terms of the loan growth projection and strategy and then related to that, the annual NIM was the question. So now let us go to the bank CFO to respond to these questions.
Sang-Hyuk Jung: Thank you very much for the questions. Now first, about the loan growth. Now this year, the loan asset growth strategy, so under this strategy, then in the first half, as was mentioned earlier, in order to grow the customer base, we have been focusing on increasing the customer base at speed. So we have made some achievements on that target. So as we can see in the first half, as you have focused more on growing the customer base and then now as we move into the second half, then we will be focusing more on profitability and the asset quality. And then in terms of the overall growth, then, of course, this is going to be within the capital management level inside the Group. And then the second question about the margin. Now in the first quarter, the NIM rose by 2 basis points and that is also related to the increase in the core deposit and then also about the policy, high interest products coming to maturity. So as a result, there has been improvement in the margin. And then now for the rate projection or the -- so in relation to the rate projection and also about the NIM. Now in the first half, because of the -- also in the second quarter, considering the loan competitiveness, then we believe that compared to the first quarter, it is going to fall slightly. But then now in the first half, it is going to be relatively flat Y-o-Y. And then now in the second half, now at the expected rate cut and also the expected general rate decline in the market, we believe that there is also going to be a slight fall in the second half but then we will be managing the NIM overall. Thank you very much.
Operator: Next question from Hanwha Investment Securities, Do Ha Kim [ph].
Unidentified Analyst: I have 2 questions. I think this time, one-offs, nonrecurring factors, maybe it's me but I don't think they were there. I may have missed them. But can you comment? And after the general elections are over, real estate trust companies, a lot of the PF sites, I think there are some discussions about the arrangements where the developers actually committed to be responsible. So not direct loans but for the overall exposure beyond direct loans, what is the total amount? And what is the provisioning amount as well?
Unidentified Company Representative: So yes, thank you for those 2 questions. We will also prepare. Just one moment.
Sang-Hyuk Jung: Thank you. In the first quarter, you asked about what one-offs actually were affected and also a question about real estate trust business. In terms of the one-offs, it's not about provisioning but ELT-related costs are on the nonoperating expense line under noninterest, so that may be one-off. And then our real estate PF and overseas commercial real estate investments, actually, we did about KRW140 billion [ph] in preemptive provisioning against that kind of exposure. So I think those are our one-offs. Now regarding Shinhan Asset Trust, there was a lot of media reports recently regarding the real estate PF issue, responsible completion of construction. This is a type of real estate trust. And so for companies with lots of exposure, there is now emphasis on a lot of the risks that are attached. We were actually mindful of this in advance of starting [indiscernible] in the first quarter this year. We started -- we have started to set up our provision preemptively. For Shinhan Asset Trust. So the outstanding balance is about KRW310 billion and the provision amount is about KRW87.1 billion. So against -- balance is about provisioning rate of 8% against the exposure. So regarding Asset Trust, in the first quarter, we have set aside some preemptive provisioning already but we will continue to do that. In the second quarter, through a full Scope survey to identify whether additional provisioning may be required to fully absorb any possible loss. Given our recurring fundamentals, I think any impact to the Group will not be sizable. But for any expected loans, we will continue to provision against that kind of prospective loss.
Operator: [Operator Instructions] And also, please be informed that for English questions, there will be consecutive interpretation. [Operator Instructions] From SK Securities, we have Mr. Seol Yong Jin.
Seol Yong Jin: Now it is about the global business profitability. So compared to -- so on a Y-o-Y basis, I can see that the global income has gone up. So specifically from which business areas has the company seen growth in the income from the global business?
Unidentified Company Representative: Yes. Thank you very much. Please, I ask for patience as we prepare our response.
Sang-Hyuk Jung: Thank you. So now then, regarding the global business profitability. Now as you would be aware, now in terms of the global business, Shinhan has long history and I would say that we are ahead in many ways. In terms of our global business then, there has been much growth coming from interest income, then also from our provisioning. So there has also been a reversal in the provisioning, thanks to some exposed management. And so for the overseas subsidiaries, then we also have the recurring income, then also especially from London and then also what we call the NMC branches, like Hong Kong and New York, there has been reversal in provisions going up by 35.4% Y-o-Y.
Operator: Yes. So Doosan Baek from Korea Investment Securities.
Doosan Baek: Yes, this is Baek Doosan. I also have 2 questions. Regarding Shinhan investment securities, short-term trading results actually appear a little bit disappointing. Is it because of impairment loss from overseas investments? Or is there any particular reason behind the poor performance? First quarter results and given your forecast for full year performance, how strong do you think the underlying earnings fundamentals are? Second, you said share buyback will be done in the form of the trust contract [ph] over the next 6 months, I believe. Now going forward on a quarterly basis or maybe on a semi yearly basis, that could be possible. So in terms of the timing and also the value amount allocated to each timing period [ph], could you provide further details?
Unidentified Company Representative: So yes, we will prepare to answer your questions, first, on the stock trading business and share buyback.
Unidentified Company Representative: Yes. Thank you for the 2 questions. Regarding Shinhan investment securities, you asked about business performance and outlook. And also, the second question regarding share buyback, maybe I can address that first and I'll pass the mic to the CFO of securities for the first question. Now regarding overall share buyback, let me address the overall detail. So as we were presenting the annual business results and regarding the TSR, then about the quarterly even payout and then also the share buyback and cancellations. So through these measures, we announced that we will be continuing to enhance shareholder value. So the shareholder buyback and cancellation that we announced this time, so this is in line with the overall direction. But then in the past, it was done on a quarterly basis but now this time, it is on a biannual basis and that is because we wanted to secure more flexibility in the share buyback. And also, as you have seen in the business results of the first quarter, you have strong fundamentals. And also in terms of the capital ratios, despite the special circumstances in the first quarter, we were able to manage the capital ratios quite stably. So we are confident and we are also committed to improving shareholder value on a continuous basis. So then for the share buyback and cancellation for the next 6 months, meaning that it will continue until the third quarter of this year, meaning that the volume is going to be similar to last year's. And then now in the fourth quarter, we will also be looking into additional share buyback. And as you can see from the first quarter results, based on our judgment, the recurring revenue for the company on a quarterly basis would be about KRW1.5 trillion. So then based on this fundamentals as well as our capital management capabilities, so based on this trend, then I do believe that in the fourth quarter, we could look into another round of sizable shareholder buyback and cancellation. But then this -- in that case, then because this time, it was quarterly then biannual. So in the fourth quarter, if we have another share cancellation, then it is likely to be on a quarterly basis. But of course, all of this would have to be determined at the BOD but then that would be the guidance for now.
Sang-Hyuk Jung: Now regarding the security side. So in the first quarter, prop trading results actually were quite sluggish. So it's -- actually, I think it can be explained in 3 ways. First, it's a reverse base effect; second, conservative response; and third, preemptive response. So I mentioned the reverse base effect because last year first quarter, our prop trading results actually were very good. So if you recall, interest rates at the time had fallen abruptly and the market conditions were quite favorable. And so we opened our bond position and actually we're quite aggressive moving in. So at the company level, we actually saw a very high record results from prop trading. So if you compare first quarter '24 against that high base, it does appear that we are seeing a significant year-on-year decrease. That's the first reason why. And then in the sense of being conservative in our response. As you know, in terms of the timing of the rate cut from the U.S., it is being postponed and deferred. And the number of cuts actually -- expectations are changing as well. Oil prices from -- regarding the Middle East and price inflation is also growing in terms of uncertainty. So our trading desk actually is, now, formulating a very conservative strategy to address the business and the conservative strategy has had the result of scaling back some of our performance. And then third, I mentioned preemptive response. In the first quarter, in terms of acquisition financing, we actually were a bit preempt, given the ongoing uncertainty, in terms of the business and economic outlook. If we are able to reduce exposure in certain asset categories, we try to do that quickly to recognize loss quickly, to scale back exposure. And so that was our view. And so for some of our acquisition advisory assets, we did sell off and dispose of quickly. So it's because of a combination of these 3 factors that we have lower performance year-on-year. In terms of future outlook, I think there are still remaining uncertainties out there. Rather than focusing on driving profits, we want to focus more on stability in terms of our prop trading business.
Operator: [Operator Instructions] From Goldman Sachs, Park Sinyoung.
Sinyoung Park: Now in the past quarter's results then about the capital distribution plan then, there was growth, 6% and then 40% for shareholder return, then is there any long-term target for the shareholder return? And then also for AD [ph], they also mentioned about how they're going to prefer shareholder buyback. So I wonder -- for the time being, then I wonder what is the plan for SFG?
Unidentified Company Representative: Thank you very much for the question and I ask for your patience as we prepare our response.
Unidentified Company Representative: Thank you very much for the question. Now regarding the capital allocation and valuation which were the questions. So now first of all, the capital allocation, then as was mentioned earlier, yes, growth, 60%; and then shareholder return, 40%. So that remains the same. Now out of the capital allocation then, of course, in terms of the Basel III, so there are some special considerations to be made. But again, overall, it is going to be 60/40. And then about devaluation and the share buyback and cancellation as well as the shareholder return. So I would say that ours is also similar. In other words, the company valuation, then in terms of the -- so compared to the peer groups in other countries and I would say that it is, let's say, on a lower end. So when we think about the appropriate valuation then, the ROE and also our capital ratios, then let's say, even if our permanent growth rate is 0, then looking at our recurring ROE, then, at least -- so you talked about KB at 0.8x but then we believe that it has to be higher for SFG. And -- but for the short term, at this time, so we believe that the target should be at least 0.6x. And also under the PBR 1 level then -- rather than dividend, share cancellation is going to have a higher benefit in terms of the shareholder return. But then again, in principle at PBR 1 level, then yes, it is going to be share cancellation. But if we go near PBR 1, then on an appropriate level, we would also be more actively allocating for growth as well as shareholder return. Then also for the shareholder-earned target, so this also has been reiterated several times and we believe that for the longer term, we should reach 50%. But then our initial target would be 40%. And whether we will be able to meet that target within this year or not, there are a lot of factors that would affect this. But then again, our principle is to keep increasing the DSR and that is going to remain our direction. Thank you.
Operator: I think there is one final question from [indiscernible].
Unidentified Analyst: Congratulations on the results. Just one question for my end. [Indiscernible] so this quarter saw a decline Y-o-Y and some 30 bps is the credit cost. So is this the recurring credit cost we should see over the coming quarters as well? Or do you anticipate further reductions in the additional preemptive provisioning [ph]?
Unidentified Company Representative: Yes. Thank you for the question. Please wait just one moment as we're prepared to answer your question.
Sang-Hyuk Jung: Yes. Thank you. Regarding credit cost, as of the first quarter, our nominal credit cost is 38 basis points and [indiscernible] over additional provisioning, our recurring credit cost is about 30 basis points. Relative to first quarter last year, there were nonrecurring items last year. So nominal level credit cost was about 29 basis points last year. So this year, first quarter, relative to last year, we are slightly higher than last year. Now in the slides I mentioned, given the various macro factors right now, we may see potential deterioration for the time being, in terms of the asset quality. In terms of the percentage or credit cost, we do expect it to perhaps increase some. But last year, our full year credit cost was about 57 basis points and recurring credit cost was about 38 basis points. So given our loss absorption capacity that is currently available, our expectation for full year this year is somewhere around 45 basis points or under. We believe cautiously that we should be able to manage it under that level at a recurring level. So that is our internal expectation and internal target, if you will. Going forward, we will be very vigilant against any further deterioration of credit loss. So we will be preemptive in setting aside more provisioning to further bolster our loss absorption capacity.
Operator: Thank you very much for the response. At this time, we see no further questions. So let us wait until we have the next question. We will take the next question. Mr. Shim Jongmin from CLS Securities.
Shim Jongmin: This is Shim Jongmin from CLS. I have one question. So by the end of the year, the CET1 target, what would be the target for that? And then also, how can this be connected to the shareholder return policies? So as the CFO has explained earlier, in the fourth quarter, there may be more and larger shareholder buyback and cancellation then in terms of the CET1. Then and if it goes above a certain threshold, then -- you mentioned that you would go with the option of shareholder buyback and cancellation. So the question is, overall, about the CET1 relation and also relation with the shareholder return policy.
Unidentified Company Representative: All right. Thank you very much for the questions. So I ask for your patience as we prepare our response.
Sang-Hyuk Jung: Thank you very much for the question. So at the CET1 ratio target and then also how this can be related to our share cancellation. Now to put it simply, as was mentioned last time, the target CET1 ratio is 13%. So 13% is extra short. Now of course, when we say 13% threshold and if we consider the various offers, then it's not just 13%, it could be 13.1%, et cetera, meaning that there has to be some buffer. But again, in principle, it is 13%. If it goes over, then we will consider shareholder return. So then additional share cancellation or shareholder returns. So taking them into consideration, I believe that in the fourth quarter, I believe that, that would also be the consideration.
Unidentified Company Representative: So there have been a number of questions asked and responses provided and we see that there are no further questions in queue. And I do believe that there has been sufficient discussion for now. And with that, we will conclude the 2024 first quarter earnings conference call by SFG. We will strive to enhance understanding of investors, shareholders and stakeholders in the SFG through our earnings release conferences. And the information that was shared today can also be found in our website and the SFG IR YouTube channel. I ask for your interest and attention. Once again, thank you very much for your participation.
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