# EDGAR Filing Document

**Accession Number:** 0001263043
**File Stem:** 0000950170-23-006090
**Filing Date:** 2023-3
**Character Count:** 193457
**Document Hash:** fa8716ad0ba63966ad7c9a5cc07004de
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-006090.hdr.sgml**: 20230306

**ACCESSION NUMBER**: 0000950170-23-006090

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 5

**CONFORMED PERIOD OF REPORT**: 20230306

**FILED AS OF DATE**: 20230306

**DATE AS OF CHANGE**: 20230306

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SHINHAN FINANCIAL GROUP CO LTD
- **CENTRAL INDEX KEY:** 0001263043
- **STANDARD INDUSTRIAL CLASSIFICATION:** NATIONAL COMMERCIAL BANKS [6021]
- **IRS NUMBER:** 000000000

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-31798
- **FILM NUMBER:** 23707458

**BUSINESS ADDRESS:**
- **STREET 1:** 120 2-GA TAEPYUNG RO JUNG GU
- **CITY:** SEOUL100-102
- **STATE:** M5
- **ZIP:** 00000
- **BUSINESS PHONE:** 82263603000

**MAIL ADDRESS:**
- **STREET 1:** 120 2-GA TAEPYUNG RO JUNG GU
- **STREET 2:** SEOUL 100-102
- **CITY:** SEOUL
- **STATE:** M5
- **ZIP:** 00000

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

**FORM 6-K**

**REPORT OF FOREIGN PRIVATE ISSUER**

**Pursuant to Rule 13a-16 or 15d-16**

**Under the Securities Exchange Act of 1934**

**For the Month of March 2023**

**SHINHAN FINANCIAL GROUP CO., LTD.**

**(Translation of registrant's name into English)**

**20, Sejong-daero 9-gil, Jung-gu, Seoul 04513, Korea <br>(Address of principal executive offices)**

Indicate by check mark whether the registrant files or will

file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F √ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in

paper as permitted by Regulation S-T Rule 101(b)(1): _______

Indicate by check mark if the registrant is submitting the Form 6-K in

paper as permitted by Regulation S-T Rule 101(b)(7): _______

Indicate by check mark whether the registrant by furnishing the

information contained in this form is also thereby furnishing the

information to the Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.

Yes No___√___

If "Yes" is marked, indicate below the file number assigned to the

registrant in connection with Rule 12g3-2(b): 82- <u>n/a</u> .

------

Please refer to Exhibit 99.1 and 99.2

------

**EXHIBIT INDEX**

---

| | |
|:---|:---|
| &nbsp;&nbsp;**Exhibit No.** | &nbsp;&nbsp;**Description** |
| &nbsp;&nbsp;99.1 | &nbsp;&nbsp;Independent Auditor's Report (Separate Financial Statements) of Shinhan Bank as of December 31, 2022 |
| &nbsp;&nbsp;99.2  | &nbsp;&nbsp;Independent Auditor's Report (Consolidated Financial Statements) of Shinhan Bank as of December 31, 2022 |

---

------

**SIGNATURES** 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | Shinhan Financial Group Co., Ltd. | Shinhan Financial Group Co., Ltd. |
|  | (Registrant) | (Registrant) |
| &nbsp;&nbsp;&nbsp;&nbsp;Date: March 6, 2023 | By: | /s/ Lee TaeKyung |
|  | Name: Lee TaeKyung | Name: Lee TaeKyung |
|  | Title: Chief Financial Officer | Title: Chief Financial Officer |

---

------

## Ex-99

**Exhibit 99.1<br>Independent Auditor's Report (Separate Financial Statements) of Shinhan Bank as of December 31, 2022**

On March 6, 2023, Shinhan Bank, our wholly-owned bank subsidiary, filed its audit report with the Financial Supervisory Service and the Korea Exchange of the Republic of Korea pursuant to the Act of External Audit of Stock Companies and KOSPI Market Disclosure Regulation.

**Please refer to the attached PDF file to see more details of Audit Reports with separate financial statements.**

------

## Ex-99

**Exhibit 99.2<br>Independent Auditor's Report (Consolidated Financial Statements) of Shinhan Bank as of December 31, 2022**

On March 6, 2023, Shinhan Bank, our wholly-owned bank subsidiary, filed its audit report with the Financial Supervisory Service and the Korea Exchange of the Republic of Korea pursuant to the Act of External Audit of Stock Companies and KOSPI Market Disclosure Regulation.

**Please refer to the attached PDF file to see more details of Audit Reports with consolidated financial statements.**

------

### Attached PDF Documents

**Attachment 1:** `ck0001263043-ex99_1.pdf`

## **SHINHAN BANK**

Separate Financial Statements

December 31, 2022 and 2021

(With Independent Auditor’s Report Thereon)

# Contents

|  | Page |
| --- | --- |
| Independent Auditor's Report | 1 |
| Separate Statements of Financial Position | 3 |
| Separate Statements of Comprehensive Income | 4 |
| Separate Statements of Changes in Equity | 6 |
| Separate Statements of Cash Flows | 8 |
| Notes to the Separate Financial Statements | 10 |
| Report of Independent Auditor's Review of Internal Control over Financial Reporting | 184 |
| Report on the Effectiveness of the Internal Control over Financial Reporting | 185 |

![img-0.jpeg](img-0.jpeg)

# Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of Shinhan Bank

## Opinion

We have audited the accompanying separate financial statements of Shinhan Bank (the “Bank”), which comprise the separate statements of financial position as at December 31, 2022 and 2021, and the separate statements of comprehensive income, separate statements of changes in equity and separate statements of cash flows for the years then ended, and notes to the separate financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Bank as at December 31, 2022 and 2021, and its separate financial performance and its separate cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (K-IFRS).

## Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the *Auditor’s Responsibilities for the Audit of the Separate Financial Statements* section of our report. We are independent of the Bank in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the separate financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

## Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

## Auditor’s Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

Samil PricewaterhouseCoopers, 100 Hangang-daero, Yongsan-gu, Seoul 04386, Korea, www.samil.com

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

- Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

/s/ Samil PricewaterhouseCoopers

March 6, 2023
Seoul, Korea

This report is effective as of March 6, 2023, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

# **SHINHAN BANK**  
 **Separate Statements of Financial Position**  
 As of December 31, 2022 and 2021

*(In millions of Korean won)*

|  | Notes | 2022 | 2021 |
| --- | --- | --- | --- |
| Assets |  |  |  |
| Cash and due from banks | 3,5,8,40,41 W | 16,402,829 | 17,506,073 |
| Securities at fair value through profit or loss | 3,6,41 | 20,645,384 | 22,173,110 |
| Derivative assets | 3,7,41 | 4,904,187 | 2,999,159 |
| Loans at amortized cost | 3,8,41 | 315,234,621 | 299,559,783 |
| Loans at fair value through profit or loss | 3,8 | 950,519 | 859,745 |
| Securities at fair value through other comprehensive income | 3,9,17 | 47,778,295 | 47,245,324 |
| Securities at amortized cost | 3,9,17 | 27,081,299 | 19,996,310 |
| Property and equipment | 10,11,16,17 | 2,354,811 | 2,297,381 |
| Intangible assets | 12 | 564,569 | 479,744 |
| Investments in subsidiaries and associates | 13 | 2,330,159 | 2,281,634 |
| Investment properties | 14 | 597,402 | 602,835 |
| Defined benefit assets | 23 | 530,174 | 118,334 |
| Current tax assets | 37 | 6,039 | 8,641 |
| Deferred tax assets | 37 | 329,421 | 171,150 |
| Other assets | 3,8,15,41 | 15,132,789 | 16,216,672 |
| Total assets | W | 454,842,498 | 432,515,895 |
| Liabilities |  |  |  |
| Financial liabilities designated at fair value through profit or loss | 18 | 47,327 | - |
| Deposits | 3,19,41 | 342,202,963 | 326,016,200 |
| Financial liabilities at fair value through profit or loss | 3,20 | 424,964 | 583,662 |
| Derivative liabilities | 3,7,41 | 5,817,237 | 2,857,887 |
| Borrowings | 3,21,40,41 | 23,670,126 | 20,345,021 |
| Debt securities issued | 3,22,40 | 30,935,213 | 34,956,862 |
| Provisions | 24,39,41 | 381,345 | 424,846 |
| Current tax liabilities | 37 | 441,602 | 285,122 |
| Other liabilities | 3,11,25,41,42 | 21,782,981 | 19,472,632 |
| Total liabilities | W | 425,703,758 | 404,942,232 |
| Equity |  |  |  |
| Capital stock | 26 | 7,928,078 | 7,928,078 |
| Hybrid bonds | 26 | 2,088,542 | 1,586,662 |
| Capital surplus | 26 | 398,080 | 398,080 |
| Capital adjustments | 26,37 | 6,465 | 6,692 |
| Accumulated other comprehensive loss | 26,37 | (1,128,983) | (522,669) |
| Retained earnings | 26,27 | 19,846,558 | 18,176,820 |
| (Reserve for loan loss) |  | (2,559,855) | (2,276,212) |
| (Required amount of loan loss (gain)) |  | ((141,679)) | (283,643) |
| (Expected amount of loan loss (gain)) |  | ((141,679)) | (283,643) |
| Total equity |  | 29,138,740 | 27,573,663 |
| Total liabilities and equity | W | 454,842,498 | 432,515,895 |

*See accompanying notes to the separate financial statements.*

*(In millions of Korean won, except earnings per share data)*

|  | Notes | 2022 | 2021 |
| --- | --- | --- | --- |

3

# **SHINHAN BANK**  
 **Separate Statements of Comprehensive Income**  
 For the years ended December 31, 2022 and 2021

| Interest income |  |  |  |
| --- | --- | --- | --- |
| financial instruments at fair value through profit or loss |  | ₩ 389,222 | 171,871 |
| financial instruments at fair value through other comprehensive income and amortized cost |  | 12,354,759 | 8,215,109 |
| Interest expense |  | 5,505,835 | 2,549,137 |
| Net interest income | 3,28,36,41 | 7,238,146 | 5,837,843 |
| Fees and commission income |  | 1,175,314 | 1,209,108 |
| Fees and commission expense |  | 280,591 | 258,086 |
| Net fees and commission income | 3,29,36,41 | 894,723 | 951,022 |
| Dividend income | 30,36 | 18,545 | 16,992 |
| Net gain on financial instruments at fair value through profit or loss | 31,36,41 | 160,286 | 365,797 |
| Net foreign currencies transaction gain | 36 | 320,984 | 133,972 |
| Net gain on financial instruments designated at fair value through profit or loss | 18 | 2,673 | - |
| Net gain (loss) on disposal of securities at fair value through other comprehensive income | 9,36 | (2,640) | 65,675 |
| Net loss on disposal of securities at amortized cost | 9 | (60) | (310) |
| Provision for credit loss allowance | 3,8,41 | 544,876 | 241,100 |
| General and administrative expenses | 32,41 | 3,287,936 | 3,006,115 |
| Net other operating expenses | 34,36,41 | (1,148,647) | (950,956) |
| Operating income |  | 3,651,198 | 3,172,820 |
| Net non-operating expense | 35 | (83,722) | (266,692) |
| Profit before income taxes |  | 3,567,476 | 2,906,128 |
| Income tax expense | 37 | 935,603 | 753,194 |
| Profit for the year | 27 | 2,631,873 | 2,152,934 |
| (Adjusted profit after reflection of reserve for loan loss |  |  |  |
| For the year ended December 31, 2022: |  |  |  |
| 2,773,552 million won |  |  |  |
| For the year ended December 31, 2021: |  |  |  |
| 1,869,292 million won) |  |  |  |
| Other comprehensive income for the year, net of income tax |  |  |  |
| Items that may be reclassified |  |  |  |
| subsequently to profit or loss: |  |  |  |
| Foreign currency translation differences for foreign operations |  | (5,206) | 24,923 |
| Unrealized net change in fair value of financial assets at fair value through other comprehensive income |  | (763,895) | (353,809) |

4

# SHINHAN BANK

# **Separate Statements of Comprehensive Income (continued)**

For the years ended December 31, 2022 and 2021

*(In millions of Korean won, except earnings per share data)*

**Items that will not be reclassified to**

**profit or loss:**

Remeasurements of defined benefit plans

Unrealized net change in fair value of
financial assets at fair value through other
comprehensive income

**Other comprehensive loss for the year, net of income tax**

**Total comprehensive income for the year**

Basic and diluted earnings per share in won

|  | Notes | 2022 | 2021 |
| --- | --- | --- | --- |
|  |  | ₩ 192,935 | 33,996 |
|  |  | (28,014) | 17,277 |
|  | 3,26,37 | ₩ (604,180) | (277,613) |
|  |  | ₩ 2,027,693 | 1,875,321 |
|  | 38 | 1,619 | 1,323 |

See accompanying notes to the separate financial statements.

5

# SHINHAN BANK  
 **Separate Statements of Changes in Equity**  
 For the year ended December 31, 2021

*(In millions of Korean won)*

|  | Capital stock | Hybrid bonds | Capital surplus | Capital adjustments | Accumulated other comprehensive income (loss) | Retained earnings | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at January 1, 2021 | ₩ 7,928,078 | 1,586,662 | 398,080 | 8,148 | (278,057) | 16,882,135 | 26,525,046 |
| Total comprehensive income (loss), net of income tax |  |  |  |  |  |  |  |
| Profit for the year | - | - | - | - | - | 2,152,934 | 2,152,934 |
| Other comprehensive loss for the year | - | - | - | - | (244,612) | (33,001) | (277,613) |
| Foreign currency translation differences for foreign operations | - | - | - | - | 24,923 | - | 24,923 |
| Unrealized net changes in fair values of financial assets at fair value through other comprehensive loss | - | - | - | - | (303,531) | (33,001) | (336,532) |
| Remeasurements of defined benefit plans | - | - | - | - | 33,996 | - | 33,996 |
| Total comprehensive income (loss) for the year | - | - | - | - | (244,612) | 2,119,933 | 1,875,321 |
| Transactions with owners in their capacity as owners |  |  |  |  |  |  |  |
| Annual dividends to equity holder | - | - | - | - | - | (770,000) | (770,000) |
| Dividends to hybrid bond holders | - | - | - | - | - | (55,248) | (55,248) |
| Share-based payment transactions | - | - | - | (1,456) | - | - | (1,456) |
| Total transactions with owners in their capacity as owners | - | - | - | (1,456) | - | (825,248) | (826,704) |
| Balance at December 31, 2021 | ₩ 7,928,078 | 1,586,662 | 398,080 | 6,692 | (522,669) | 18,176,820 | 27,573,663 |

*See accompanying notes to the separate financial statements.*

6

# SHINHAN BANK  
 **Separate Statements of Changes in Equity(continued)**  
 For the year ended December 31, 2022

*(In millions of Korean won)*

|  | Capital stock | Hybrid bonds | Capital surplus | Capital Adjustments | Accumulated other comprehensive income (loss) | Retained earnings | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at January 1, 2022 | ₩ 7,928,078 | 1,586,662 | 398,080 | 6,692 | (522,669) | 18,176,820 | 27,573,663 |
| Total comprehensive income (loss), net of income tax |  |  |  |  |  |  |  |
| Profit for the year | - | - | - | - | - | 2,631,873 | 2,631,873 |
| Other comprehensive income (loss) for the year | - | - | - | - | (606,314) | 2,134 | (604,180) |
| Foreign currency translation differences for foreign operations | - | - | - | - | (5,206) | - | (5,206) |
| Unrealized net changes in fair values of financial assets at fair value through other comprehensive income (loss) | - | - | - | - | (794,043) | 2,134 | (791,909) |
| Remeasurements of defined benefit plans | - | - | - | - | 192,935 | - | 192,935 |
| Total comprehensive income (loss) for the year | - | - | - | - | (606,314) | 2,634,007 | 2,027,693 |
| Transactions with owners in their capacity as owners |  |  |  |  |  |  |  |
| Annual dividends to equity holder | - | - | - | - | - | (900,000) | (900,000) |
| Dividends to hybrid bond holders | - | - | - | - | - | (64,269) | (64,269) |
| Issuance of hybrid bonds | - | 631,581 | - | - | - | - | 631,581 |
| Repayment of hybrid bonds | - | (129,701) | - | (299) | - | - | (130,000) |
| Share-based payment transactions | - | - | - | 72 | - | - | 72 |
| Total transactions with owners in their capacity as owners | - | 501,880 | - | (227) | - | (964,269) | (462,616) |
| Balance at December 31, 2022 | ₩ 7,928,078 | 2,088,542 | 398,080 | 6,465 | (1,128,983) | 19,846,558 | 29,138,740 |

*See accompanying notes to the separate financial statements.*

7

# SHINHAN BANK  
 **Separate Statements of Cash Flows**  
 For the years ended December 31, 2022 and 2021

*(In millions of Korean won)*

|  | 2022 | 2021 |
| --- | --- | --- |
| Cash flows from operating activities |  |  |
| Profit before income tax | ₩ 3,567,476 | 2,906,128 |
| Adjustments for: |  |  |
| Interest income | (12,743,981) | (8,386,980) |
| Interest expense | 5,505,835 | 2,549,137 |
| Dividend income | (18,545) | (16,992) |
|  | (7,256,691) | (5,854,835) |
| Income and expense items without cash inflow/outflow: |  |  |
| Net (gain) loss on financial instruments at fair value through profit or loss | 200,157 | (38,507) |
| Net non-cash foreign currencies transaction (gain) loss | (129,624) | 125,625 |
| Net gain on financial instruments designated at fair value through profit or loss | (2,673) | - |
| Net (gain) loss on disposal of financial assets at fair value through other comprehensive income | 2,640 | (65,675) |
| Net loss on disposal of securities at amortized cost | 60 | 310 |
| Provision for credit loss allowance | 544,876 | 241,100 |
| Non-cash employee benefits | 128,390 | 137,135 |
| Depreciation and amortization | 370,895 | 346,425 |
| Net non-cash other operating expenses | 142,488 | 113,268 |
| Non-operating (income) expense | 35,173 | 208,305 |
|  | 1,292,382 | 1,067,986 |
| Changes in assets and liabilities: |  |  |
| Deposits at amortized cost | 560,658 | 1,911,069 |
| Securities at fair value through profit or loss | 1,675,242 | (1,763,383) |
| Derivative assets | 2,365,700 | 4,853,829 |
| Loans at amortized cost | (15,699,351) | (24,318,778) |
| Loans at fair value through profit or loss | (90,747) | (15,704) |
| Other assets | 1,254,722 | (5,253,851) |
| Deposits due to customers | 16,008,843 | 34,595,472 |
| Financial liabilities at fair value through profit or loss | (196,589) | 21,038 |
| Derivative liabilities | (2,238,570) | (4,931,284) |
| Defined benefit liabilities | (261,526) | (180,636) |
| Provisions | (10,449) | (12,904) |
| Other liabilities | 1,388,521 | (1,627,192) |
|  | 4,756,454 | 3,277,676 |
| Income tax paid | (707,756) | (602,305) |
| Interest received | 12,502,525 | 8,527,589 |
| Interest paid | (4,556,579) | (2,594,270) |
| Dividends received | 20,418 | 32,500 |
| Net cash inflow from operating activities | 9,618,229 | 6,760,469 |

8

# SHINHAN BANK

# Separate Statements of Cash Flows(continued)

For the years ended December 31, 2022 and 2021

(In millions of Korean won)

|  | 2022 | 2021 |
| --- | --- | --- |
| Cash flows from investing activities |  |  |
| Net cash flow of derivative financial instruments for hedges | ₩ 4,022 | (1,206) |
| Proceeds from decrease of securities at fair value through profit or loss | 1,839,509 | 1,866,642 |
| Acquisition of securities at fair value through profit or loss | (1,944,891) | (2,419,739) |
| Proceeds from decrease of securities at fair value through other comprehensive income | 16,679,279 | 22,891,054 |
| Acquisition of securities at fair value through other comprehensive income | (18,034,340) | (32,113,930) |
| Proceeds from decrease of securities at amortized cost | 4,864,231 | 4,235,693 |
| Acquisition of securities at amortized cost | (11,856,814) | (5,117,419) |
| Proceeds from disposal of property and equipment | 9 | 25 |
| Acquisition of property and equipment | (220,752) | (169,828) |
| Proceeds from disposal of intangible assets | 3,481 | 16 |
| Acquisition of intangible assets | (380,396) | (330,764) |
| Proceeds from disposal of investments in associates | 17,932 | 20,842 |
| Acquisition of investments in associates | (72,739) | (100,840) |
| Proceeds from disposal of investment properties | - | 12 |
| Acquisition of investment properties | (5,995) | (2,739) |
| Proceeds from sale of non-current assets held for sale | 9,991 | 47,792 |
| Decrease in other assets | 645,080 | 627,525 |
| Increase in other assets | (534,297) | (566,510) |
| Net cash outflow from investing activities | (8,986,690) | (11,133,374) |
| Cash flows from financing activities |  |  |
| Net cash flow of derivative financial instruments for hedges | 56 | 1,652 |
| Increase in financial liabilities designated at fair value through profit or loss | 49,993 | - |
| Net increase (decrease) in borrowings | 2,948,269 | (649,850) |
| Proceeds from issuance of debt securities | 15,731,442 | 15,225,073 |
| Repayment of debt securities | (19,381,515) | (12,683,555) |
| Dividends paid | (963,305) | (825,248) |
| Issuance of hybrid bonds | 631,581 | - |
| Repayment of hybrid bonds | (130,000) | - |
| Increase in other liabilities | 101,315 | 122,556 |
| Decrease in other liabilities | (250,370) | (306,783) |
| Net cash outflow from financing activities | (1,262,534) | 883,845 |
| Effect of exchange rate fluctuations on cash and cash equivalents held | 16,447 | 17,690 |
| Net decrease in cash and cash equivalents | (614,548) | (3,471,370) |
| Cash and cash equivalents at the beginning of the year (Note 40) | 16,714,298 | 20,185,668 |
| Cash and cash equivalents at the end of the year (Note 40) | ₩ 16,099,750 | 16,714,298 |

See accompanying notes to the separate financial statements.

9

# **SHINHAN BANK**
**Notes to the Separate Financial Statements**
December 31, 2022 and 2021

# **1. Reporting entity**

Shinhan Bank (the “Bank”) is established on October 1, 1943 under the name of Chohung Bank, through the merger of Hansung Bank and Dongil Bank, which are established on February 19, 1897 and August 8, 1906, respectively, to engage in commercial banking and trust operations. The Bank has its headquarters at 20, Sejong-daero 9-gil, Jung-gu, Seoul, Republic of Korea.

The Bank acquired Chungbuk Bank and Kangwon Bank in 1999 and the former Shinhan Bank on April 1, 2006, and subsequently changed its name to Shinhan Bank. As of December 31, 2022, the Bank has 1,585,615,506 outstanding common shares with par value of ₩7,928,078 million which Shinhan Financial Group Co., Ltd. (“Shinhan Financial Group”) owns 100% of those. As of December 31, 2022, the Bank operates through 603 domestic branches, 118 depository offices, 27 premises and 14 overseas branches.

# **2. Significant accounting policies**

The significant accounting policies adopted by the Bank are as follows.

(a) Basis of preparation

The separate financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“K-IFRS”), as prescribed in the Act on External Audit of Stock Companies.

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

The Bank’s separate financial statements have been prepared in accordance with the accounting policies stated below.

(b) Basis of measurement

The separate financial statements have been prepared on the historical cost basis except for the following material items in the separate statements of financial position:

- derivative financial instruments are measured at fair value
- financial instruments at fair value through profit or loss (“FVTPL”) are measured at fair value
- financial instruments at fair value through other comprehensive income (“FVTOCI”) are measured at fair value
- share-based payment arrangements are initially measured at fair value on grant date
- changes in fair value attributable to the risk being hedged for financial instruments designated as hedged items in qualifying fair value hedge relationships are recognized in profit or loss
- liabilities for defined benefit plans are recognized as net of the total present value of defined benefit obligations less the fair value of plan assets

10

# SHINHAN BANK  
**Notes to the Separate Financial Statements(continued)**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (c) Functional and presentation currency

The separate financial statements of the Bank are prepared in functional currency of the respective operation. These separate financial statements are presented in Korean won, which is the Bank's functional currency and the currency of the primary economic environment in which the Bank operates.

# (d) Use of estimates and judgements

In preparation of the financial statements according to K-IFRS, the use of estimates and assumptions is required for the application of accounting policies or matters affecting the reporting amounts of assets, liabilities and revenues and expenses as of December 31, 2022. When estimates and assumptions based on management's judgment as of December 31, 2022 differ from the actual, actual results may differ from these estimates. Estimates and underlying assumptions are continually reviewed, and changes in accounting estimates are recognized during the period in which the estimate is changed and the future period in which it will be affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the significant effect on the amount recognized in the separate financial statements is described in Note 4.

The Bank recognizes credit loss allowance for expected credit losses on debt instruments, loans and receivables that are measured at amortized cost or at FVTOCI, loan commitments and financial guarantee contracts upon adoption of K-IFRS No.1109, *Financial Instruments*. The measurement of such allowance is determined by techniques, assumptions and input variables used by the Bank to measure expected future cash flows of individual financial instruments and to measure expected credit losses in a collective manner. The details of techniques, assumptions and input variables used to measure the credit loss allowance for expected credit losses as of December 31, 2022 are described in Note 3.

The prolonged COVID-19 is negatively affecting the global economy. The Bank uses forward-looking information to estimate expected credit losses in accordance with K-IFRS No.1109 'Financial Instruments'. Due to the prolonged COVID-19, there have been significant changes in forward-looking information and the Internal and external economic uncertainty such as inflation and rising market interest rates. As of December 31, 2022, the forecast default rate is re-estimated using changed forward-looking information on the GDP growth rate, consumer price index growth rate, unemployment rate, etc. which are major variables for calculating the default rate. The Bank will continue to monitor the impact of the Internal and external economic uncertainty and the COVID-19 on the economy.

11

# SHINHAN BANK

# Notes to the Separate Financial Statements(continued)

December 31, 2022 and 2021

(In millions of Korean won)

# 2. Significant accounting policies (continued)

(e) New and amended standards and interpretations adopted by the Bank

From the accounting period beginning on January 1, 2022, the Bank has newly applied the following standards and interpretations.

i) K-IFRS No. 1103 'Business combination' - Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to be recognized in a business combination in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of K-IFRS 1037 'Provisions, Contingent Liabilities and Contingent Assets', and K-IFRS 2121 'Levies'. The amendments also clarify that contingent assets should not be recognized at the acquisition date. The amendments do not have a significant impact on the consolidated financial statements.

ii) K-IFRS No. 1037, 'Provisions, Contingent Liabilities and Contingent Assets' - Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments do not have a significant impact on the consolidated financial statements.

iii) Annual Improvements to K-IFRSs 2018-2020 Cycle

For Annual Improvements to K-IFRSs 2018-2020 Cycle, the amendments will take effect for annual periods beginning after January 1, 2022 and are permitted for early application. The amendments do not have a significant impact on the consolidated financial statements.

- K-IFRS No.1101, 'First-time Adoption of K-IFRS'-First-time adopter subsidiaries
- K-IFRS No.1109, 'Financial Instruments' -10% test-related fee for financial liabilities removal
- K-IFRS No.1041, 'Agriculture' - Fair value measurement

iv) K-IFRS No. 1007 'Statements of Cash Flows' - Cash and cash equivalents

The Bank did not classify deposits with restrictions under related regulations, such as reserve deposits, as cash and cash equivalents. However, in accordance with the agenda decision on 'Demand deposit with restrictions of use arising from a contract with a third party' by the IFRS Interpretation Committee and K-IFRS agenda decision on 'Reserve deposit in Bank of Korea' by Korea Accounting Standards Board, reserve deposits, etc. corresponding to demand deposits were classified as cash and cash equivalents and it was also applied retroactively.

The impact of this change in accounting policy is as follows:

a Impact on the statements of cash flows

|  |  | 2022 | 2021 |
| --- | --- | --- | --- |
| Net cash inflow (outflow) from operating activities | ₩ | (921,621) | (6,901,589) |
| Effect of exchange rate fluctuations on cash and cash equivalents denominated in foreign currency |  | 3,221 | 4,707 |
| Net increase of cash and cash equivalents at the beginning of the year |  | 10,542,701 | 17,439,583 |
| Net increase of cash and cash equivalents at the end of the year |  | 9,624,301 | 10,542,701 |

b Impact on the notes to the financial statements

|  |  | 2022 | 2021 |
| --- | --- | --- | --- |
| Net decrease of restricted deposits | ₩ | 9,624,301 | 10,542,701 |

12

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (e) New and amended standards and interpretations adopted by the Bank (continued)

The following new accounting standards and interpretations have been published that are not mandatory for December 31, 2022 reporting periods and have not been early adopted by the Bank.

# *i) K-IFRS No. 1001 'Presentation of Financial Statements' - Classification of Liabilities as Current or Non-current*

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management. Also, the settlement of liability includes the transfer of the entity’s own equity instruments, however, it would be excluded if an option to settle them by the entity’s own equity instruments if compound financial instruments is met the definition of equity instruments and recognized separately from the liability. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank expects that the amendments will not have a significant impact on the consolidated financial statements.

# *ii) K-IFRS No. 1001 'Presentation of Financial Statements' - Disclosure of Accounting Policies*

The amendments require an entity to define and to disclose its material information about accounting policies. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank expects that the amendments will not have a significant impact on the consolidated financial statements.

# *iii) K-IFRS No. 1008 'Accounting Policies, Changes in Accounting Estimates and Errors' amended - Definition of Accounting Estimates*

The amendments clarify the definition of accounting estimates and how distinguish it from a change in accounting policies. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank expects that the amendments will not have a significant impact on the consolidated financial statements.

# *iv) K-IFRS No. 1012 'Income Taxes' - Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction*

Under the amendments, an entity does not apply the initial recognition exemption for transactions which involve the recognition of both an asset and liability - which in turn leads to equal taxable and deductible temporary differences. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank expects that the amendments will not have a significant impact on the consolidated financial statements.

# *v) K-IFRS No. 1001 'Presentation of Financial Statements' - Classification of Debt with Covenants as Current or Non-current*

The amendments require disclosure of the carrying amount of the financial liability and its related gains or losses if, all or part of a financial instrument subject to adjustment of the exercise price according to changes in the issuer's stock price. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank expects that the amendments will not have a significant impact on the consolidated financial statements.

# (f) Approval date of the financial statements

The separate financial statements of the Bank were authorized for issue by the Board of Directors on February 7, 2023, and the separate financial statements were submitted for approval to the stockholder’s meeting held on March 22, 2023.

13

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (g) Investments in subsidiaries and associates

The accompanying separate financial statements have been prepared on a stand-alone basis in accordance with K-IFRS No.1027, *Separate Financial Statements*. The Bank’s investments in subsidiaries and associates are recorded at cost in accordance with K-IFRS No.1027. However, the investments in subsidiaries and associates subject to K-IFRS No.1101, *First-time Adoption of K-IFRS* are recorded at previous GAAP carrying amount at the date of transition to K-IFRS. Dividend received from its subsidiaries and associates is recognized in profit or loss when the Bank is entitled to receive the dividend.

# (h) Foreign currency translation

# *i) Foreign currency transactions*

Transactions in foreign currencies are translated to the respective functional currencies of the Bank at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency using the exchange rate at the end of the reporting period. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value is determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedging instrument of the net investment in a foreign operation, or a qualifying cash flow hedge, which are recognized in other comprehensive income. Translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss and translation differences on non-monetary assets such as equities held at fair value through other comprehensive income are recognized in other comprehensive income.

# *ii) Foreign operations*

If the presentation currency of the Bank is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the end of the reporting period. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation and are translated using the exchange rate at the end of the reporting period.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal.

14

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (h) Foreign currencies (continued)

# *iii) Net investment in a foreign operation*

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, then foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognized in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

# (i) Cash and cash equivalents

The Bank classifies cash balances, call deposits and highly liquid investment assets with original maturities of three months or less from the acquisition date that are easily converted into a fixed amount of cash and are subject to an insignificant risk of changes in their fair value as cash and cash equivalents. Equity instruments are excluded from cash equivalents unless they are, in substance, cash equivalents, like in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.

# (j) Non-derivative financial assets

Financial assets are recognized when the Bank becomes a party to the contractual provisions of the instrument. In addition, a regular way purchase or sale (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market concerned) is recognized on the trade date. A financial asset is measured initially at its fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition of the financial asset. Transaction costs on the financial assets at FVTPL that are directly attributable to the acquisition are recognized in profit or loss as incurred.

# *i) Financial assets designated at FVTPL*

Financial assets can be irrevocably designated as measured at FVTPL despite of classification standards stated below, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases. However, once the financial assets are designated at FVTPL, it is irrevocable.

# *ii) Equity instruments*

For the equity instruments that are not held for trading, at initial recognition, the Bank may make an irrevocable election to present subsequent changes in fair value in other comprehensive income. Equity instruments that are not classified as financial assets at FVTOCI are classified as financial assets at FVTPL. The Bank subsequently measures all equity investments at fair value. Valuation gains or losses of the equity instruments that are classified as financial assets at FVTOCI previously recognized as other comprehensive income is not reclassified as profit or loss on derecognition. The Bank recognizes dividends in profit or loss when the Bank’s right to receive payments of the dividend is established. Valuation gains or losses due to changes in fair value of the financial assets at FVTPL are recognized as gains or losses on financial assets at FVTPL. Impairment loss (reversal) on equity instruments at FVTOCI is not recognized separately.

# *iii) Debt instruments*

Subsequent measurement of debt instruments depends on the Bank’s business model in which the asset is managed and the contractual cash flow characteristics of the asset. Debt instruments are classified as financial assets at amortized cost, at FVTOCI, or at FVTPL. Debt instruments are reclassified only when the Bank’s business model changes.

15

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

(j) Non-derivative financial assets (continued)

iii) *Debt instruments (continued)*

a) Financial assets at amortized cost

Assets that are held within a business model whose objective is to hold assets to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Impairment losses, and gains or losses on derecognition of the financial assets at amortized cost are recognized in profit or loss. Interest income on the effective interest method is included in the 'Interest income' in the separate statement of comprehensive income.

b) Financial assets at FVTOCI

Assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, where the assets' cash flows represent solely payments of principal and interest, are measured at FVTOCI. Other than impairment losses, interest income amortized using effective interest method and foreign exchange differences, gains or losses of the financial assets at FVTOCI are recognized as other comprehensive income in equity. On derecognition, gains or losses accumulated in other comprehensive income are reclassified to profit or loss. The interest income on the effective interest method is included in the 'Interest income' in the separate statement of comprehensive income. Foreign exchange differences and impairment losses are included in the 'Net foreign currency transaction gain' and 'Provision for credit loss allowance' in the separate statement of comprehensive income, respectively.

c) Financial assets at FVTPL

Debt securities other than financial assets at amortized costs or FVTOCI are classified at FVTPL. Unless hedge accounting is applied, gains or losses from financial assets at FVTPL are recognized as profit or loss and are included in 'Net gain on financial assets at fair value through profit or loss' in the separate statement of comprehensive income.

iv) *Embedded derivatives*

Financial assets with embedded derivatives are classified regarding the entire hybrid contract, and the embedded derivatives are not separately recognized. The entire hybrid contract is considered when it is determined whether the contractual cash flows represent solely payments of principal and interest.

v) *Derecognition of financial assets*

The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Bank does not have or transfer most of the risks and rewards of ownership of the financial asset, the Bank shall remove the financial asset if it does not control the financial asset. If the Bank continues to control the financial asset, it continues to recognize the transferred asset to the extent that it is continuously involved and recognizes the related liability together.

If the Bank transfers the right to cash flows of a financial asset but holds most of the risks and rewards of ownership of the financial asset, the Bank shall continue to recognize the asset. Also, the amount of disposal received is recognized as a liability.

vi) *Offsetting*

Financial assets and financial liabilities are offset and the net amount is presented in the separate statement of financial position only when the Bank currently has a legally enforceable right to set off the recognized amounts, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

16

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (k) Expected credit losses on financial assets

As for financial assets at amortized cost and financial assets at FVTOCI, the expected credit loss is evaluated at the end of each period and recognized as loss allowances.

Since initial recognition, a loss allowance shall be measured by the three stages in the table below depending on the extent of significant increase in credit risk.

| Stage | Category | Description |
| --- | --- | --- |
| Stage 1 | Credit risk has not increased significantly since initial recognition | 12 month expected credit losses: Expected credit loss resulting from potential default of financial instruments occurring over 12 months from the end of reporting period |
| Stage 2 | Credit risk has increased significantly since initial recognition | Lifetime expected credit losses: Expected credit loss resulting from all potential default of financial instruments occurring over the expected life |
| Stage 3 | Credit-impaired financial assets |  |

However, as for the financial assets whose credit is impaired at the initial recognition, only the cumulative change in the lifetime expected credit loss is recognized as the loss allowance.

The ‘lifetime’ refers to the expected life to the contractual maturity of the financial asset.

# *i) Forward looking information*

The Bank determines a material increase in credit risk and estimates the expected credit loss on a forward-looking basis.

The measuring factors of the expected credit loss are assumed to have certain relationship with the economic cycle. Through relationship analysis between the macroeconomic variables and the credit risk measuring factors, the forward-looking information is reflected in the expected credit loss estimation.

# *ii) Financial assets at amortized cost*

The expected credit loss on the financial assets at amortized cost is recognized as the difference between the present value of the contractual cash flow and the present value of the expected cash flow. The expected cash flow is estimated separately for the individually material financial assets.

For the financial assets which are not individually material, they are included in a group of assets with a similar credit risk and expected credit loss is estimated collectively.

17

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (k) Expected credit losses on financial assets (continued)

The expected credit losses of financial assets measured as amortized cost are presented net of loss allowance, and the allowance is derecognized together with the asset when it is determined to be unrecoverable. When the loan previously written-off is subsequently collected, it is recognized as an increase in loss allowance. At the end of the reporting period, the Bank recognizes in profit or loss the amount of the change in loss allowance.

# *iii) Financial assets at FVTOCI*

The expected credit loss on the financial assets at FVTOCI is calculated using the same method as that on the financial assets at amortized cost, however the changes in loss allowance are recognized as other comprehensive income. As for disposal and repayment, the loss allowance is reclassified from other comprehensive income to profit or loss.

# (l) Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of every reporting period, and changes therein are accounted for as described below.

# *i) Hedge accounting*

The Bank holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Bank designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge), and foreign currency risk of net investment in foreign operation (net investment hedges).

On initial designation of the hedge, the Bank formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

# (ii) Fair value hedges

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the separate statement of comprehensive income.

The Bank discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

18

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (i) Derivative financial instruments (continued)

# (ii) Cash flow hedges

When a derivative that meet the application requirements of cash flow hedges is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the separate statements of comprehensive income as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

Once hedge accounting is discontinued, any cumulative gain or loss existing in equity at that time and is recognized over the period the forecast transaction occurs as profit or loss. However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss recognized in equity is immediately recognized in the profit or loss.

# (iii) Hedge of net investment

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in profit or loss. When the hedged part of a net investment is disposed of, the relevant amount in the accumulated other comprehensive income is transferred to profit or loss as part of the profit or loss on disposal in accordance with K-IFRS No.1021, *The Effects of Changes in Foreign Exchange Rates*.

# (ii) *Embedded derivatives*

If a hybrid contract contains a host that is not a financial asset, embedded derivatives are separated from the host contract and accounted for separately only if the economic characteristics and risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not designated at FVTPL. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

# (iii) *Derivative financial instruments held for trading*

Changes in the fair value of derivative financial instruments not designated as a hedging instrument are recognized immediately in profit or loss.

19

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (l) Derivative financial instruments (continued)

# *iv) Day one profit or loss*

If the Bank uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there may be a difference between the transaction price and the amount determined using that valuation technique. As for these circumstances, the difference between the fair value at the initial recognition and the transaction price is not recognized as profit or loss but deferred. The deferred difference is amortized by using straight line method over the life of the financial instruments.

# (m) Property and equipment

Property and equipment are initially measured at cost and after initial recognition. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Property and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Certain land and buildings are measured at fair value at the date of transition to K-IFRS, which is deemed cost, in accordance with K-IFRS No.1101, *First-time Adoption of K-IFRS*. Dividend from relevant revaluation surplus is prohibited in accordance with the resolution of the board of directors.

The Bank recognizes in the carrying amount of an item of property and equipment the cost of replacing part of property and equipment when that cost is incurred if it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of those parts that are replaced is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.

Land is not depreciated. Other property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset:

The estimated useful lives for the years ended December 31, 2022 and 2021 are as follows:

| Descriptions | Useful lives |
| --- | --- |
| Buildings | 40 years |
| Other properties | 4-5 years |

The gain or loss arising from the derecognition of an item of property and equipment, which is included in profit or loss, is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

At the end of each reporting period, the Bank reviews the residual value, useful life, and depreciation method of the asset and treats it as a change in accounting estimate if it is appropriate to change it.

20

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (n) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill and membership rights is calculated on a straight-line basis over the estimated useful lives of intangible assets as below from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

| Descriptions | Useful lives |
| --- | --- |
| Software | 5 years |
| Capitalized development cost | 5 years |
| Other intangible assets | 5 years or contract periods |

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Bank intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

# (o) Investment properties

Investment property is property held either to earn rental income or for capital appreciation or both. An investment property is initially recognized at cost including any directly attributable expenditure. Subsequent to initial recognition, the asset is measured at cost less accumulated depreciation and accumulated impairment losses, if any.

The depreciation method and the estimated useful lives for the current and comparative periods are as follows:

| Descriptions | Depreciation method | Useful lives |
| --- | --- | --- |
| Buildings | Straight-line | 40 years |

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted, if appropriate. The change is accounted for as changes in accounting estimates.

21

# **SHINHAN BANK**
**Notes to the Separate Financial Statements**
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (p) Leases

The Bank leases various tangible assets, such as real estate and vehicles, and the terms of the leases are negotiated individually and include a variety of terms and conditions. There are no other restrictions imposed by the lease contracts, except that the lease assets cannot be provided as collaterals for borrowings. At the commencement date of the lease, the Bank recognizes a right-of-use asset and a lease liability. The payment of each lease is allocated to the repayment of the liability and finance costs. The Bank recognizes in profit or loss the amount calculated to produce a constant periodic rate of interest on the lease liability balance for each period as finance costs. Right-of-use assets are depreciated using a straight-line method from the inception of the lease over the lease term of the right-of-use assets. Lease liabilities are measured at present value of the lease payments that are not paid at the commencement date of the lease agreement and included in other liabilities. Lease payments included in the measurement of the lease liabilities consist of the following:

- Fixed lease payments (including in-substance fixed payments, less any lease incentives receivable)
- Variable lease payments depending on an index or a rate
- Amounts expected to be paid by the lessee under a residual value guarantee
- The exercise price under a purchase option that the lessee is reasonably certain to exercise
- Payments of penalties for early terminating a lease unless the lessee is reasonably certain not to terminate early

If the implicit interest rate in the lease can be readily determined, the lease payments shall be discounted using that rate, and if that rate cannot be readily determined, the lessee shall use the lessee's incremental borrowing rate.

The right-of-use asset is initially at cost, which comprises:

- The amount of the initial measurement of the lease liability
- Any lease payments made at or before the commencement date, less any lease incentives received
- Any initial direct costs incurred by the lessee
- An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease

The Bank includes right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they are owned.

Any right-of-use asset that meets the definition of investment property is presented as investment property.

Lease payments associated with short-term leases or leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.

Additional considerations for the Bank's accounting as a lessee include:

- Extension options and termination options are generally included in multiple real estate lease contracts.
- When estimating the lease term, the Bank considers all relevant facts and circumstances that create an economic incentive to exercise the option to extend the lease, or not to exercise the option to terminate the lease.
- Period covered by an extension option (or period covered by termination option) is included in lease term only if the lessee is reasonably certain to exercise (or not to exercise) the option.
- If the lessee and the lessor have the right to terminate without the consent of the other parties, the termination period shall be determined in consideration of the economic disadvantages incurred in terminating the contract.
- When significant events occur or there are significant changes in circumstances that have affected the lessee's control and the lease term before, the parties reassess whether they are quite certain to exercise the option of extension (or not).

22

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (q) Non-current assets held for sale

Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

The Bank recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

An asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

# (r) Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets, other than assets arising from employee benefits, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Bank estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Bank estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or the CGU.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

23

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (s) Non-derivative financial liabilities

The Bank recognizes financial liabilities in the separate statement of financial position when the Bank becomes a party to the contractual provisions of the financial liability in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

Transaction costs on the financial liabilities at FVTPL are recognized in profit or loss as incurred.

# *i) Financial liabilities designated at FVTPL*

Financial liabilities can be irrevocably designated as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases, or a group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. However, once the financial assets are designated at FVTPL, it is irrevocable. The amount of change in the fair value of the financial liabilities designated at FVTPL that is attributable to changes in the credit risk of that liabilities shall be presented in other comprehensive income.

# *ii) Financial liabilities at FVTPL*

Since initial recognition, financial liabilities at FVTPL is measured at fair value, and changes in the fair value are recognized as profit or loss.

# *iii) Other financial liabilities*

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities and other financial liabilities include deposit, borrowing, debentures, etc. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Bank derecognizes a financial liability from the separate statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

# (t) Paid-in capital

# *i) Equity instruments*

Capital stock is classified as equity. Incremental costs directly attributable to the transaction of stock are deducted from equity, net of any tax effects.

24

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (t) Paid-in capital (continued)

# *ii) Hybrid bonds*

The Bank classifies an issued financial instrument, or its component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. Hybrid bonds where the Bank has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation are classified as an equity instrument and presented in equity.

# (u) Employee benefits

# *i) Short-term employee benefits*

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Bank during an accounting period, the Bank recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

# *ii) Other long-term employee benefits*

The Bank’s net obligation in respect of other long-term employee benefits that are not expected to be settled wholly before 12 months after the end of the annual reporting period, in which the employees render the related service, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

# *iii) Retirement benefits: defined benefit plans*

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Bank’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the end of the reporting period on high-quality corporate bonds that have maturity dates approximating the terms of the Bank’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Bank recognizes service cost and net interest on the net defined benefit liability (asset) in profit or loss and remeasurements of the net defined benefit liability (asset) in other comprehensive income.

# *iv) Retirement benefits: defined contribution plans*

The Bank recognizes the contribution expense as an account of severance payments in profit or loss in the period according to the defined contribution plans.

# *v) Termination benefits*

Termination benefits are expensed at the earlier of when the Bank can no longer withdraw the offer of those benefits and when the Bank recognizes costs for a restructuring. If benefits are not expected to be wholly settled within 12 months of the end of the reporting period, then they are discounted.

25

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (v) Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The liability is remeasured at the end of each reporting period and at settlement date. Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.

The Bank has granted share-based payment based on Shinhan Financial Group’s share to the employees. In accordance with a repayment arrangement with Shinhan Financial Group, the Bank is required to pay Shinhan Financial Group for the provision of the share-based payments. The Bank recognizes the costs as expenses and accrued expenses in liabilities for the service period. When vesting conditions are not satisfied because of death, retirement or dismissal of employees during the specified service period, no amount is recognized for goods or services received on a cumulative basis. Share-based payment arrangements are accounted for as equity-settled share-based payment transactions, regardless of the repayment arrangement with Shinhan Financial Group. The share-based compensation agreement that the Bank has given to its executives and employees is measured in cash-settled.

# (w) Provisions

Provisions are recognized when the Bank has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

Provisions shall be used only for expenditures for which the provisions are originally recognized.

26

# SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

2. Significant accounting policies (continued)

(x) Financial guarantee contract

A financial guarantee contract is a contract that requires the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are recognized initially at their fair value, and the initial fair value is amortized over the life of the financial guarantee contract.

After initial recognition, financial guarantee contracts are measured at the higher of:

- Loss allowance in accordance with K-IFRS No.1109, 'Financial Instruments'
- The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of K-IFRS No.1115, 'Revenue from Contracts with Customers'

(y) Recognition of revenues and expenses

The Bank's revenues are recognized using five-step revenue recognition model as follows: 1 'Identifying the contract' → 2 'Identifying performance obligations' → 3 'Determining the transaction price' → 4 'Allocating the transaction price to performance obligations' → 5 'Recognizing the revenue by satisfying performance obligations'.

i) Interest income and expense

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability or, where appropriate, a shorter period to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, and all other premiums or discounts. When it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Bank uses the contractual cash flows over the full contractual term of the financial instrument.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is thereafter recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

ii) Fees and commission

The recognition of revenue for financial service fees depends on the purposes for which the fees are assessed and the basis of accounting for any associated financial instrument.

27

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (y) Recognition of revenues and expenses (continued)

a Fees that are an integral part of the effective interest rate of a financial instrument.

Such fees are generally treated as an adjustment to the effective interest rate. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, preparing and processing documents, closing the transaction and the origination fees received on issuing financial liabilities. However, when the financial instrument is measured at fair value with the change in fair value recognized in profit or loss, the fees are recognized as revenue when the instrument is initially recognized.

b Fees earned as services are provided

Fees and commission income, including investment management fees, sales commission, and account servicing fees, are recognized as revenue when the related service as a performance obligation is provided.

c Fees that are earned on the execution of a significant act

The fees that are earned on the execution of a significant act including commission on the allotment of shares or other securities to a client, placement fee for arranging a loan between a borrower and an investor and sales commission, are recognized as revenue when the significant act as a performance obligation has been completed.

# *iii) Dividend income*

Dividend income is recognized when the shareholder’s right to receive payment is established. Usually this is the ex-dividend date for equity securities.

# (z) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Shinhan Financial Group, the parent company, files its national income tax return with the Korean tax authorities under the consolidated corporate tax system, which allows it to make national income tax payments based on the consolidated profits or losses of the Shinhan Financial Group and its wholly owned domestic subsidiaries including the Bank. Deferred taxes are measured based on the future tax benefits expected to be realized in consideration of the expected profits or losses of eligible companies in accordance with the consolidated corporate tax system. Consolidated corporate tax amounts, once determined, are allocated to each of the subsidiaries and are used as a basis for the income taxes to be recorded in their stand-alone financial statements.

The Bank recognizes deferred tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Bank is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Bank recognizes deferred tax assets for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Bank expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

28

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **2. Significant accounting policies (continued)**

# (z) Income tax (continued)

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduced the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

If any additional income tax expense exists by payment of dividends, the Bank recognizes it when the liability relating to the payment is recognized.

Because of the tax positions taken by the Bank, tax uncertainties arise from the complexity of transactions and differences in tax law interpretation. Also, uncertainty arises from a tax refund suit, tax investigation, or a refund suit against the tax authorities' assessed tax amount. For the tax amount paid to the tax authorities, in accordance with K-IFRS No.2123, it will be recognized as the corporate tax assets if a refund in the future is probable. In addition, the amount expected to be paid as a result of the tax investigation is recognized as the tax liability.

# (aa) Accounting for trust accounts

The Bank accounts for trust accounts separately from its bank accounts under the Financial Investment Services and Capital Markets Act and thus the trust accounts are not included in the accompanying separate financial statements. Borrowings from trust accounts are included in other liabilities. Trust fees and commissions in relation to the service provided to trust accounts by the Bank are recognized as fees and commission income.

# (ab) Earnings per share

The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to the ordinary shareholder of the Bank by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

29

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **3. Financial risk management**

# **3-1. Credit risk**

Credit risk is the risk of financial loss of the Bank if a customer or counterparty fails to meet its contractual obligation. Credit risk is classified as the most important risk to be managed for the Bank's business activities, and management carefully manages the maximum credit risk exposure. Credit exposure arises principally from due from banks, the lending process related to loans, investment activities in debt securities, drafts in the Group's asset portfolio and off balance sheet items including loan commitments, etc.

# (a) Credit risk management

Bank's basic policy on credit risk management is determined by the Risk Policy Committee. The Risk Policy Committee consists of the Chief Risk Officer (CRO) as the chairman, the Chief Credit Officer (CCO), the head of the business group, and the head of the risk management department, and decides the credit risk management plan and the direction of the loan policy for the entire bank. Apart from the Risk Policy Committee, the Credit Review Committee is established to separate credit monitoring, such as large loans and limit approval, and the CCO is composed of chairman, CRO and the head of the group in charge of the credit-related business group, the head of the credit planning department, and the senior examination team to enhance the credit quality of the loan and profitability of operation.

The risk management of the asset is primarily carried out by all operating units that hold and manage the asset subject to credit risk, and the credit risk management department, such as the risk management department and the credit planning department, is in charge of the credit risk management of the Bank as a whole. The risk management department and the risk engineering department manage the credit portfolio by managing credit risk limits set by the Risk Policy Committee and credit maximum exposure limits for the same parties, affiliates, industries, and countries. The Bank also measures and manages risk components such as PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default) through the operation of the credit rating system and collateral management system. As an organization for supporting and checking loan decisions, the Credit Planning Department manages the credit policy and system of the entire bank, and the Credit Review Department conducts independent credit rating and loan decision making. Also, the Credit Supervision Department conducts individual credit supervision on large loans.

Each of the Bank's borrowers (retail borrowers and companies) is assigned with 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 individual information, past dealings with the Bank and external credit rating information. For corporate borrowers, the credit rating takes into account financial indicators as well as non-financial indicators such as industry risk, operational risk and management risk, among others. The credit rating, once assigned, serves as the fundamental instrument in the 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 credit loss.

The Bank's credit rating system reflects the requirements of Basel III, ACE (Automatic Credit Evaluation), retail SOHO credit rating system with a maximum exposure of ₩500 million or less, and Advanced Internal Rating System (AIRS).

The credit decision for companies is based on a collective decision-making system, making objective and prudent decisions. In the case of a general credit, the credit is approved by agreement between the branch's RM (Relationship Manager) and headquarters of each business divisions. In the case of a large or important credit, the credit is approved by a screening body. In particular, the Credit review Committee, which is the highest decision-making body of loans, examines important loans, such as large loans that exceed the limit. The individual credit is evaluated by the individual credit evaluation system based on objective statistical methods and an automated credit scoring system (CSS) based on the Bank's credit policy.

30

# **SHINHAN BANK**
**Notes to the Separate Financial Statements**
December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(a) Credit risk management (continued)

The Bank operates a regular monitoring system for the regular management of individual loans. The review team and RM are required to conduct Loan Reviews by automatically searching for non-performing companies among the corporate loan clients, and the credit supervision department, which is independent of the business group, determines the adequacy of Loan Review results and requests credit rating adjustment of the company as necessary. In accordance with these procedures, a company is classified as an early warning company, an observer company, and a normal company, and discriminatory management is carried out in accordance with the management guidelines for each risk stage to prevent the insolvency of the loans at an early stage. The financial analysis support system affiliated with a professional credit rating agency supports credit screening and management, and the credit planning department calculates and manages industrial grades and analyzes and provides industry trends and company information.

(b) Risk management and risk mitigation policy

To control the credit risk of the Bank at an appropriate level, the following risk management system is established and operated.

- Credit risk limits are set and managed by business sector, customer, product, industry, etc. based on credit VaR (Value at Risk) and maximum exposure amount.
- The Risk Management Department establishes and manages limits for credit VaR, and maximum exposure limits. The Credit Planning Department and the credit assessment department conduct maximum exposure limits.
- The Risk Management Department and Risk Engineering Department establishes a credit risk limit operation plan for the entire bank at least once a year and commits it to the risk policy committee.
- Each business unit monitors and adheres to credit risk limits assigned to each business unit
- The risk is re-assessed on an annual basis within a period when it is deemed necessary, and the limits of risks are specified and managed by individual, industry and country.
- The maximum exposure for each borrower, including institutions, is managed by low level limits that are individually set for accounts in the financial statements and off-balance sheet accounts, and risk limits for daily transactions related to commodity trading including foreign currency forward trading, are also determined.
- Actual maximum exposure limits are managed daily.
- Maximum credit risk exposure is managed in the process of analyzing the interest and principal repayment ability of the borrower, and if necessary, changes the loan limit in the process.

Other risk management measures are as follows:

i) Collateral

The Bank has adopted policies and procedures to mitigate credit risk. In connection with credit risk, collateral is generally used, and the Bank has adopted a policy for pledging certain types of assets. The main types of collateral are as follows:

- Mortgage
- Real estate, inventories, accounts receivable, etc.
- Financial instruments such as debt securities and equity securities

31

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(b) Risk management and risk mitigation policy (continued)

i) Collateral (continued)

Long-term loans are generally collateralized. On the other hand, revolving personal loans are generally unsecured. In addition, to minimize losses due to credit risk, the Bank establishes additional collateral for the counterparty in the event of an indication of impairment of the asset.

Collateral for financial assets other than loans is subject to the nature of the products. Except for special cases such as Asset Backed Securities (ABS), unsecured securities are common in the case of debt securities.

ii) Derivative financial instruments

The Bank maintains a credit limit on the amount and duration of derivative financial instruments that are in between the disposal agreements after purchase.

iii) Master netting arrangements

The Bank limits its maximum exposure to credit losses by entering into master netting arrangements counterparties in performing significant number of transactions.

Master netting arrangements generally do not result from offsetting assets and liabilities in the separate financial statements, as transactions are usually set at a gross amount basis. However, the right to offset, which is legally enforceable and affects the realization of individual financial assets and the settlement of financial liabilities, may arise under master netting arrangements. The credit risk of financial assets associated with this is reduced by master netting arrangements within the scope of financial liabilities.

The Bank's overall maximum exposure to credit risk that is part of a collective offsetting contract can vary substantially within a short period of time because it is affected by each transaction.

iv) Credit related contracts

Guarantees and credit enhancements have credit risks similar to credit. Credit (which guarantees credit on behalf of the customer by issuing a note to a third party for the amount requested under specific terms and conditions) is secured by the underlying commodities associated with them, it involves less risk. The credit enhancement arrangements represent the unused portion of the credit limit in the form of a credit, guarantee or letter of credit. In relation to the credit risk of a credit enhancement arrangement, the Bank is potentially exposed to the same amount as the total unused arrangements. Long-term contracts generally have a greater degree of credit risk than short-term, and the Bank monitors the maturity of credit arrangements.

32

# **SHINHAN BANK**  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions, and input variables used to measure impairment (Expected credit loss model)

i) Determining significant increases in credit risk since initial recognition

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

a) Measuring the risk of default

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

The internal credit risk rating based on the borrower’s information related to each individual exposure on initial recognition, may change depending on the results of continuing monitoring and reviews.

b) Measuring term structure of probability of default

The Bank accumulates information after analyzing the information regarding exposure to credit risk and default information by the type of product and borrower and results of internal credit risk assessment. For some portfolios, the Bank uses information obtained from external credit rating agencies when performing these analyses.

The Bank applies statistical techniques to estimate the probability of default for the remaining life of the exposure from the accumulated data and to estimate changes in the estimated probability of default over time.

c) Significant increases in credit risk

The Bank uses the indicators defined as per portfolio to determine the significant increase in credit risk and such indicators generally consist of changes in the risk of default estimated from changes in the internal credit risk rating, qualitative factors, days of delinquency, and others. The method used to determine whether credit risk of financial instruments has significantly increased after the initial recognitions is summarized as follows:

33

# SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

3. Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

C Significant increases in credit risk (continued)

| Corporate exposures | Retail exposures |
| --- | --- |
| Significant change in credit ratings | Significant change in credit ratings |
| Continued past due more than 30 days | Continued past due more than 30 days |
| Loan classification of precautionary and below | Loan classification of precautionary and below |
| Borrower with early warning signals | Borrower with early warning signals |
| Negative net assets | Specific pool segment |
| Adverse audit opinion or disclaimer of opinion | Collective loans for housing for which the constructors are insolvent |
| Interest coverage ratio below 1 for a consecutive period of three years or negative cash flows from operating activities for a consecutive period of two years | Loans with identified indicators for significant increases in other credit risk |
| Loans with identified indicators for significant increases in other credit risk |  |

The Bank considers the credit risk of financial instrument has been significantly increased since initial recognition if a specific exposure is past due more than 30 days. The Bank counts the number of days past due from the earliest date on which the Bank has not received the contractual payments in full of the borrower and does not consider the grace period granted to the borrower.

The Bank regularly reviews the criteria for determining if there have been significant increases in credit risk from the following perspective.

- A significant increase in credit risk shall be identified prior to the occurrence of default.
- The criteria established to judge the significant increase in credit risk shall represent proactive prediction than the days of delinquency criteria.
- As a result of applying the judgment criteria, financial instruments shall not be to move too frequently between the 12-months expected credit losses measurement and the lifetime expected credit losses measurement

34

SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

3. Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

ii) Modified financial assets

If the contractual cash flows on a financial asset have been renegotiated or modified and the financial asset is not derecognized, the Bank assesses whether there has been a significant increase in the credit risk of the financial instrument by comparing the risk of a default occurring at initial recognition based on the original, unmodified contractual terms and the risk of a default occurring at the end of the reporting period based on the modified contractual terms.

The Bank may adjust the contractual cash flows of loans to customers who are in financial difficulties in order to manage the risk of default and enhance the collectability (hereinafter referred to as 'debt restructuring'). These adjustments generally involve extension of maturity, changes in interest payment schedule, and changes in other contractual terms.

Debt restructuring is a qualitative indicator of a significant increase in credit risk and the Bank recognizes lifetime expected credit losses for the exposure expected to be the subject of such adjustments. If a borrower faithfully makes payments of contractual cash flows that are modified in accordance with the debt restructuring or if the borrower's internal credit rating has recovered to the level prior to the recognition of the lifetime expected credit losses, the Bank recognizes the 12-months expected credit losses for that exposure again.

iii) Risk of default

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

- if a borrower is more than 90 days past due on its contractual payments,
- if the Bank judges that it is not possible to recover principal and interest without enforcing the collateral on a financial asset

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

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

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

iv) Reflection of forward-looking information

The bank reflects forward-looking information presented by a group of internal experts based on various information when measuring expected credit losses. The Bank utilizes economic forecasts disclosed by domestic and foreign research institutes, governments, and public institutions to forecast forward-looking information.

35

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions, and input variables used to measure impairment (Expected credit loss model) (continued)

# *iv) Reflection of forward-looking information (continued)*

The Bank reflects future macroeconomic conditions anticipated from a neutral standpoint that is free from bias in measuring expected credit losses. Expected credit losses in this respect reflect conditions that are most likely to occur and are based on the same assumptions that the Bank used in its business plan and management strategy.

The Bank analyzed the data experienced in the past and scenario data, derived correlations between major macroeconomic variables and credit risks required for predicting credit risk and credit loss for each portfolio, and then reflected future forecast information through regression estimation. To reflect the prolonged COVID-19 and the internal and external economic uncertainty, the Bank reflected final forward-looking information by considering 4 scenarios: upside, central, downside and worst.

The economic variables considered by the Bank for the years ended December 31, 2022 and 2021 are as follows for each scenario;

# 1 Upside scenario

| Major variables(*1)(*2)(*3) | Correlation | 2022.4Q | 2023 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 1.4 | 1.6 | 1.7 | 2.5 | 3.9 |
| Private consumption index (YoY %) | (-) | 3.6 | 4.9 | 2.8 | 2.1 | 3.6 |
| Facility investment growth rate (YoY %) | (-) | 6.6 | 1.5 | 2.0 | (4.2) | 5.3 |
| Consumer price index growth rate (%) | (+) | 5.3 | 5.0 | 4.0 | 3.4 | 3.0 |
| Balance on current account (100 million dollars) | (-) | 15.0 | 30.0 | 40.0 | 80.0 | 100.0 |
| Government bond 3y yields (%) | - | 3.91 | 3.70 | 4.00 | 4.00 | 4.00 |

# 2 Central scenario

| Major variables(*1)(*2)(*3) | Correlation | 2022.4Q | 2023 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 1.4 | 0.4 | 0.5 | 1.2 | 3.7 |
| Private consumption index (YoY %) | (-) | 3.6 | 3.8 | 1.5 | 0.6 | 2.8 |
| Facility investment growth rate (YoY %) | (-) | 6.6 | 0.8 | 1.0 | (5.3) | 4.6 |
| Consumer price index growth rate (%) | (+) | 5.3 | 5.3 | 4.4 | 3.8 | 3.4 |
| Balance on current account (100 million dollars) | (-) | 15.0 | 20.0 | 30.0 | 60.0 | 80.0 |
| Government bond 3y yields (%) | - | 3.91 | 4.00 | 4.20 | 4.20 | 4.20 |

36

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

*iv) Reflection of forward-looking information (continued)*

# 3 Downside scenario

| Major variables(*1)(*2)(*3) | Correlation | 2022.4Q | 2023 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 1.4 | (0.4) | (0.5) | (0.1) | 2.9 |
| Private consumption index (YoY %) | (-) | 3.6 | 2.9 | 0.3 | (0.8) | 1.9 |
| Facility investment growth rate (YoY %) | (-) | 6.6 | 0.2 | 0.3 | (6.4) | 3.4 |
| Consumer price index growth rate (%) | (+) | 5.3 | 5.7 | 4.8 | 4.4 | 3.8 |
| Balance on current account (100 million dollars) | (-) | 15.0 | 10.0 | 20.0 | 40.0 | 60.0 |
| Government bond 3y yields (%) | - | 3.91 | 4.30 | 4.60 | 4.60 | 4.60 |

# 4 Worst scenario

| Major variables(*1)(*2)(*4) | Correlation | 1 year of crisis situations |
| --- | --- | --- |
| GDP growth rate (YoY %) | (-) | (5.1) |
| Private consumption index (YoY %) | (-) | (11.9) |
| Facility investment growth rate (YoY %) | (-) | (38.6) |
| Consumer price index growth rate (%) | (+) | 7.5 |
| Balance on current account (100 million dollars) | (-) | 401.1 |
| Government bond 3y yields (%) | - | 4.39 |

(*1) As a result of reviewing the correlation of each variable, the GDP growth rates and consumer price index growth rate were applied among the major variables to reflect the final forward-looking information. The Bank additionally selected the unemployment rate in addition to the table above.

(*2) Considering the forecast period of the company's bankruptcy, the Bank reflected the forward-looking information.

(*3) The macroeconomic outlook figures are estimated by the Bank for the purpose of calculating expected credit losses based on information from domestic and foreign research institutes. Therefore, it could be different from other institutions' estimates.

(*4) It was reflected in consideration of the period of the foreign exchange crisis in Korea.

37

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

*iv) Reflection of forward-looking information (continued)*

# 1 Upside scenario

| Major variables(*1)(*2)(*3) | Correlation | 2021.4Q | 2022 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 4.1 | 3.0 | 3.1 | 3.8 | 3.7 |
| Private consumption index (YoY %) | (-) | 6.3 | 5.1 | 2.5 | 3.7 | 3.8 |
| Facility investment growth rate (YoY %) | (-) | 4.1 | 0.5 | 1.2 | 5.0 | 5.1 |
| Consumer price index growth rate (%) | (-) | 3.6 | 2.6 | 2.4 | 2.0 | 2.0 |
| Balance on current account (100 million dollars) | (-) | 202.0 | 230.0 | 200.0 | 220.0 | 230.0 |
| Government bond 3y yields (%) | - | 1.87 | 1.90 | 1.90 | 2.00 | 2.00 |

# 2 Central scenario

| Major variables(*1)(*2)(*3) | Correlation | 2021.4Q | 2022 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 4.1 | 2.3 | 2.4 | 3.0 | 3.4 |
| Private consumption index (YoY %) | (-) | 6.3 | 4.4 | 1.8 | 2.9 | 3.5 |
| Facility investment growth rate (YoY %) | (-) | 4.1 | 0.2 | 0.8 | 4.5 | 4.9 |
| Consumer price index growth rate (%) | (-) | 3.6 | 2.7 | 2.5 | 2.2 | 2.0 |
| Balance on current account (100 million dollars) | (-) | 202.0 | 220.0 | 180.0 | 200.0 | 220.0 |
| Government bond 3y yields (%) | - | 1.87 | 1.80 | 1.80 | 1.90 | 1.90 |

38

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

*iv) Reflection of forward-looking information (continued)*

3 Downside scenario

| Major variables(*1)(*2)(*3) | Correlation | 2021.4Q | 2022 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 1Q | 2Q | 3Q | 4Q |
| GDP growth rate (YoY %) | (-) | 4.1 | 1.3 | 1.3 | 1.8 | 3.1 |
| Private consumption index (YoY %) | (-) | 6.3 | 3.4 | 0.7 | 1.8 | 3.1 |
| Facility investment growth rate (YoY %) | (-) | 4.1 | (0.5) | 0.3 | 4.3 | 4.5 |
| Consumer price index growth rate (%) | (-) | 3.6 | 3.2 | 3.0 | 3.0 | 2.8 |
| Balance on current account (100 million dollars) | (-) | 202.0 | 200.0 | 170.0 | 180.0 | 200.0 |
| Government bond 3y yields (%) | - | 1.87 | 2.00 | 2.00 | 2.20 | 2.40 |

(*1) As a result of reviewing the correlation of each variable, GDP growth rates and private consumption index were applied among the major variables to reflect the final forward-looking information. The Bank additionally selected the KOSPI forecast in addition to the table above.

(*2) Considering the forecast period of the company's bankruptcy, the Bank reflected the future economic outlook.

(*3) The macroeconomic outlook figures are estimated by the Bank for the purpose of calculating expected credit losses based on information from domestic and foreign research institutes. Therefore, it could be different from other institutions' estimates.

39

# SHINHAN BANK  
 **Notes to the Separate Financial Statements(continued)**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

# *iv) Reflection of forward-looking information (continued)*

The predicted correlations between the macroeconomic variables and the risk of default, used by the Bank, are derived based on long-term data over the past ten years.

The recent historical default rate is an important reference when estimating the default rate in consideration of the future economic outlook. Although the economy has slowed down by COVID-19 since 2020, the actual default rate of the Bank has remained stable because of various government support in response to the COVID-19. The Bank operates the financial relief programs such as moratorium of interest payments and repayment in installments, and the Group manages credit risk from the loan from such moratorium by classifying the loans to Stage 2 and performing additional expected loss assessment in order to reflect the potential insolvency. In addition, the Bank manages credit risk through additional expected loss assessments for estimated loss loans. As of December 31, 2022, the exposure of the maturity-extended financial loan corresponding to the financial relief program is ₩ 7,528,585 million, and the provision is ₩ 116,447 million.

As of December 31, 2022 and 2021, the exposure and provisions for the borrowers who applied for moratorium of interest payments and moratorium of repayment in installments is as follows:

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Exposure | Provision | Exposure | Provision |
| Moratorium of interest payments | ₩ 165,442 | 26,582 | 224,449 | 27,460 |
| Moratorium of repayment in installments | 1,105,481 | 123,735 | 1,342,366 | 106,899 |
| Moratorium of interest payments and moratorium of repayment in installments | 66,218 | 9,814 | 65,773 | 8,459 |
|  | ₩ 1,337,141 | 160,131 | 1,632,588 | 142,818 |

To reflect the COVID-19 economic situation, the Bank has additionally applied the scenario of worst to three macroeconomic variable scenarios: upside, central, and downside as of December 31, 2022. The probability weight of each scenario is determined by considering the probability distribution of the economic growth rate (GDP) estimated based on the economic growth rate forecast for each scenario that reflected future forecast information presented by the internal expert group.

If the probability weights for each scenario are assumed to be 100% and the other assumptions are the same, the sensitivity analysis of the Bank's expected credit loss provisions and their impact on provisions is as follows:

| Scenarios | Probability weight | Hypothesis | Difference from book value |
| --- | --- | --- | --- |
| Upside | 25% | ₩ 1,815,342 | (247,607) |
| Central | 30% | 1,839,000 | (223,949) |
| Downside | 25% | 1,875,792 | (187,157) |
| Worst | 20% | 3,255,970 | 1,193,021 |

40

# SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

3. Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions, and input variables used to measure impairment (Expected credit loss model) (continued)

v) Measurement of expected credit losses

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

- Probability of default (PD)
- Loss given default (LGD)
- Exposure at default (EAD)

These variables have been estimated from historical experience data by using the statistical techniques developed internally by the Bank and have been adjusted to reflect forward-looking information.

Estimates of PD over a specified period are estimated by reflecting characteristics of counterparties and their exposure, based on a statistical model at a specific point of time. The Bank uses its own information to develop a statistical credit assessment model used for the estimation, and additional information observed in the market is considered for some portfolios such as a group of large corporates. When a counterparty or exposure is concentrated in specific grades, the method of measuring PD for those grades would be adjusted, and the PD by grade is estimated by considering contract expiration of the exposure.

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

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

41

SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

3. Financial risk management (continued)

3-1. Credit risk (continued)

(c) Techniques, assumptions and input variables used to measure impairment (Expected credit loss model) (continued)

v) Measurement of expected credit losses (continued)

When measuring expected credit losses on financial assets, the Bank reflects a period of expected credit loss measurement based on a contractual maturity. The Bank takes into consideration of the extension rights held by a borrower when deciding the contractual maturity.

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

- Type of products
- Internal credit risk rating
- Type of collateral
- Loan to value (LTV)
- Industry that the borrower belongs to
- Location of the borrower or collateral
- Days of delinquency

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

vi) Write-off of financial assets

The Bank writes off a portion of or entire loan or debt security that is not expected to receive its principal and interest. In general, the Bank conducts write-off when it is deemed that the borrower has no sufficient resources or income to repay the principal and interest. Such determination on write-off is carried out in accordance with the internal rules of the Bank. Apart from write-off, the Bank may continue to exercise its right of collection under its own recovery policy even after the write-off of financial assets.

42

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(d) Maximum exposure to credit risk

The Bank’s maximum exposure to credit risk of the financial instruments held as of December 31, 2022 and 2021, are as follows:

|  | 2022 | 2021 |
| --- | --- | --- |
| Due from banks (*1)(*2): |  |  |
| Banks | ₩ 3,837,741 | 2,259,640 |
| Government/Public sector/Central bank/Etc. | 10,442,799 | 11,214,268 |
|  | 14,280,540 | 13,473,908 |
| Loans at amortized cost (*1)(*2): |  |  |
| Banks | 9,060,782 | 6,017,764 |
| Retail: |  |  |
| Mortgage lending | 49,279,868 | 48,357,552 |
| Others | 105,714,541 | 111,039,011 |
|  | 154,994,409 | 159,396,563 |
| Government/Public sector/Central bank/Etc. | 672,908 | 380,747 |
| Corporate: |  |  |
| Large enterprises | 38,148,354 | 29,917,928 |
| Small and medium-sized enterprises | 104,073,131 | 96,411,026 |
| Special finance | 8,284,934 | 7,435,493 |
| Others | 103 | 262 |
|  | 150,506,522 | 133,764,709 |
|  | 315,234,621 | 299,559,783 |
| Loans at FVTPL (*2): |  |  |
| Banks | 109,099 | - |
| Corporate: |  |  |
| Large enterprises | 841,420 | 796,191 |
| Small and medium-sized enterprises | - | 63,554 |
|  | 841,420 | 859,745 |
|  | 950,519 | 859,745 |
| Securities at FVTPL: |  |  |
| Debt securities | 20,384,064 | 21,944,948 |
| Gold/Silver deposits | 75,969 | 83,691 |
|  | 20,460,033 | 22,028,639 |
| Securities at FVTOCI (*1) | 46,568,165 | 46,533,961 |
| Securities at amortized cost (*1) | 27,081,299 | 19,996,310 |
| Derivative assets | 4,904,187 | 2,999,159 |
| Other financial assets (*1)(*3) | 14,873,152 | 16,067,141 |
| Off-balance accounts: |  |  |
| Guarantee contracts | 22,956,154 | 21,237,032 |
| Loan commitments and other credit related liabilities | 106,344,167 | 99,176,075 |
|  | 129,300,321 | 120,413,107 |
|  | ₩ 573,652,837 | 541,931,753 |

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

(*2) Due from banks and loans are classified as similar credit risk group to be with consistent calculating capital adequacy ratio under New Basel Capital Accord (Basel III).

(*3) Other financial assets comprise accounts receivable, accrued income, guarantee deposits, domestic exchange settlement receivables, suspense payments, etc.

43

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(e) Credit risk exposure by credit risk grade

*i) The maximum exposure of financial instruments to credit risk by credit risk grade as of December 31, 2022 and 2021 are as follows:*

|  | December 31, 2022 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 12-month expected loss |  | Life-time expected loss |  |  | Total | Allowances | Net | Mitigation of credit risk due to collateral |
|  | Grade 1 | Grade 2 | Grade 1 | Grade 2 | Impaired |  |  |  |  |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | ₩ 2,932,741 | 903,624 | - | 5,777 | - | 3,842,142 | (4,401) | 3,837,741 | - |
| Government/Public sector/Central bank/Etc. | 10,280,551 | 164,107 | - | 295 | - | 10,444,953 | (2,154) | 10,442,799 | - |
|  | 13,213,292 | 1,067,731 | - | 6,072 | - | 14,287,095 | (6,555) | 14,280,540 | - |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 5,738,195 | 3,223,948 | 111,593 | - | - | 9,073,736 | (12,954) | 9,060,782 | 40,251 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage loan | 46,324,747 | 228,730 | 1,959,107 | 716,564 | 61,663 | 49,290,811 | (10,943) | 49,279,868 | 46,601,611 |
| Etc. | 95,004,177 | 3,136,778 | 6,340,616 | 1,295,696 | 386,498 | 106,163,765 | (449,224) | 105,714,541 | 65,555,139 |
| Government/Public sector/Central bank/Etc. | 658,638 | 2,864 | 12,055 | - | - | 673,557 | (649) | 672,908 | - |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 27,854,230 | 6,569,223 | 2,030,041 | 1,901,017 | 66,915 | 38,421,426 | (273,072) | 38,148,354 | 9,800,807 |
| Small and medium-sized enterprises | 66,706,388 | 18,408,615 | 8,104,620 | 11,273,758 | 403,588 | 104,896,969 | (823,838) | 104,073,131 | 77,154,482 |
| Special finance | 2,013,909 | 6,181,568 | 26,997 | 83,401 | - | 8,305,875 | (20,941) | 8,284,934 | 4,606,199 |
| Others | - | 43 | - | 86 | - | 129 | (26) | 103 | - |
|  | 244,300,284 | 37,751,769 | 18,585,029 | 15,270,522 | 918,664 | 316,826,268 | (1,591,647) | 315,234,621 | 203,758,489 |
| Securities at FVTOCI (*) | 38,391,288 | 8,109,792 | - | 67,085 | - | 46,568,165 | - | 46,568,165 | - |
| Securities at amortized cost | 26,739,285 | 349,004 | - | - | - | 27,088,289 | (6,990) | 27,081,299 | - |
|  | ₩ 322,644,149 | 47,278,296 | 18,585,029 | 15,343,679 | 918,664 | 404,769,817 | (1,605,192) | 403,164,625 | 203,758,489 |

(*) Credit loss allowance recognized in other comprehensive income on securities at FVTOCI is ₩23,341 million.

44

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(e) Credit risk exposure by credit risk grade (continued)

*i) The maximum exposure of financial assets to credit risk by credit risk grade as of December 31, 2022 and 2021, are as follows (continued):*

|  | December 31, 2021 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 12-month expected loss |  | Life-time expected loss |  |  | Total | Allowances | Net | Mitigation of credit risk due to collateral |
|  | Grade 1 | Grade 2 | Grade 1 | Grade 2 | Impaired |  |  |  |  |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | W 2,134,442 | 127,299 | - | 927 | - | 2,262,668 | (3,028) | 2,259,640 | - |
| Government/Public sector/Central bank/Etc. | 11,025,047 | 192,992 | - | - | - | 11,218,039 | (3,771) | 11,214,268 | - |
|  | 13,159,489 | 320,291 | - | 927 | - | 13,480,707 | (6,799) | 13,473,908 | - |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 3,016,602 | 2,894,519 | 112,254 | 4,149 | - | 6,027,524 | (9,760) | 6,017,764 | 133,618 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage loan | 45,691,426 | 254,012 | 1,723,343 | 632,584 | 62,714 | 48,364,079 | (6,527) | 48,357,552 | 45,191,358 |
| Etc. | 100,308,167 | 3,507,886 | 5,972,455 | 1,239,316 | 312,198 | 111,340,022 | (301,011) | 111,039,011 | 65,116,939 |
| Government/Public sector/Central bank/Etc. | 364,960 | 16,112 | - | - | - | 381,072 | (325) | 380,747 | - |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 20,984,112 | 4,957,456 | 2,162,190 | 2,022,702 | 44,598 | 30,171,058 | (253,130) | 29,917,928 | 8,442,183 |
| Small and medium-sized enterprises | 61,100,517 | 18,231,991 | 6,827,506 | 10,544,625 | 454,658 | 97,159,297 | (748,271) | 96,411,026 | 69,638,603 |
| Special finance | 2,343,147 | 5,014,808 | 22,524 | 72,558 | - | 7,453,037 | (17,544) | 7,435,493 | 4,024,391 |
| Others | - | 150 | - | 139 | - | 289 | (27) | 262 | - |
|  | 233,808,931 | 34,876,934 | 16,820,272 | 14,516,073 | 874,168 | 300,896,378 | (1,336,595) | 299,559,783 | 192,547,092 |
| Securities at FVTOCI (*) | 39,899,435 | 6,481,889 | - | 152,637 | - | 46,533,961 | - | 46,533,961 | - |
| Securities at amortized cost | 19,696,698 | 305,050 | - | - | - | 20,001,748 | (5,438) | 19,996,310 | - |
|  | W 306,564,553 | 41,984,164 | 16,820,272 | 14,669,637 | 874,168 | 380,912,794 | (1,348,832) | 379,563,962 | 192,547,092 |

(*) Credit loss allowance recognized in other comprehensive income on securities at FVTOCI is ₩27,044 million.

45

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(e) Credit risk exposure by credit risk grade (continued)

ii) Credit risk exposure per credit grade of off-balance accounts as of December 31, 2022 and 2021, are as follows:

|  |  | December 31, 2022 |  |  | Total |
| --- | --- | --- | --- | --- | --- |
|  |  | 12-month expected credit loss | Lifetime expected credit loss |  |  |
|  |  |  | Not impaired | Impaired |  |
| Guarantee contracts: |  |  |  |  |  |
| Grade 1 | ₩ | 14,727,821 | 489,130 | - | 15,216,951 |
| Grade 2 |  | 7,454,098 | 187,161 | - | 7,641,259 |
| Impaired |  | - | - | 97,944 | 97,944 |
|  |  | 22,181,919 | 676,291 | 97,944 | 22,956,154 |
| Loan commitment and other credit related liabilities: |  |  |  |  |  |
| Grade 1 |  | 88,031,487 | 4,178,074 | - | 92,209,561 |
| Grade 2 |  | 12,703,740 | 1,430,866 | - | 14,134,606 |
| Impaired |  | - | - | - | - |
|  |  | 100,735,227 | 5,608,940 | - | 106,344,167 |
|  | ₩ | 122,917,146 | 6,285,231 | 97,944 | 129,300,321 |

|  |  | December 31, 2021 |  |  | Total |
| --- | --- | --- | --- | --- | --- |
|  |  | 12-month expected credit loss | Lifetime expected credit loss |  |  |
|  |  |  | Not impaired | Impaired |  |
| Guarantee contracts: |  |  |  |  |  |
| Grade 1 | ₩ | 15,103,235 | 946,274 | - | 16,049,509 |
| Grade 2 |  | 4,872,548 | 222,951 | - | 5,095,499 |
| Impaired |  | - | - | 92,024 | 92,024 |
|  |  | 19,975,783 | 1,169,225 | 92,024 | 21,237,032 |
| Loan commitment and other credit related liabilities: |  |  |  |  |  |
| Grade 1 |  | 80,546,417 | 3,457,333 | - | 84,003,750 |
| Grade 2 |  | 14,454,119 | 718,206 | - | 15,172,325 |
| Impaired |  | - | - | - | - |
|  |  | 95,000,536 | 4,175,539 | - | 99,176,075 |
|  | ₩ | 114,976,319 | 5,344,764 | 92,024 | 120,413,107 |

46

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(e) Credit risk exposure by credit risk grade (continued)

iii) Credit risk exposure per collateral of financial instruments as of December 31, 2022 and 2021, are as follows:

|  |  | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | 12-month expected credit loss | Lifetime expected credit loss |  | Total |
|  |  |  | Not impaired | Impaired |  |
| Guarantees | ₩ | 60,184,010 | 8,440,825 | 226,585 | 68,851,420 |
| Deposits and savings |  | 1,401,295 | 185,583 | 1,894 | 1,588,772 |
| Property and equipment |  | 1,546,097 | 392,319 | 11,523 | 1,949,939 |
| Real estate |  | 118,968,759 | 14,873,094 | 221,262 | 134,063,115 |
|  | ₩ | 182,100,161 | 23,891,821 | 461,264 | 206,453,246 |

|  |  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | 12-month expected credit loss | Lifetime expected credit loss |  | Total |
|  |  |  | Not impaired | Impaired |  |
| Guarantees | ₩ | 60,333,317 | 8,273,844 | 192,946 | 68,800,107 |
| Deposits and savings |  | 1,268,932 | 184,133 | 1,048 | 1,454,113 |
| Property and equipment |  | 1,576,192 | 403,953 | 20,162 | 2,000,307 |
| Real estate |  | 111,831,401 | 12,632,188 | 207,834 | 124,671,423 |
|  | ₩ | 175,009,842 | 21,494,118 | 421,990 | 196,925,950 |

iv) Credit risk exposure per LTV of mortgage loans as of December 31, 2022 and 2021, are as follows:

|  |  | December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | LTV of mortgage loans |  |  |  |  |  |
|  |  | 40% or less | Above 40% ~ 60% | Above 60% ~ 80% | Above 80% ~ 100% | Other | Total |
| Loans at amortized cost | ₩ | 20,098,063 | 14,653,155 | 11,013,168 | 1,398,701 | 2,127,724 | 49,290,811 |
| Less: allowance |  | (921) | (1,934) | (5,928) | (1,188) | (972) | (10,943) |
|  | ₩ | 20,097,142 | 14,651,221 | 11,007,240 | 1,397,513 | 2,126,752 | 49,279,868 |

|  |  | December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | LTV of mortgage loans |  |  |  |  |  |
|  |  | 40% or less | Above 40% ~ 60% | Above 60% ~ 80% | Above 80% ~ 100% | Other | Total |
| Loans at amortized cost | ₩ | 18,854,425 | 14,533,616 | 12,152,193 | 1,584,852 | 1,238,993 | 48,364,079 |
| Less: allowance |  | (501) | (1,014) | (3,608) | (1,032) | (372) | (6,527) |
|  | ₩ | 18,853,924 | 14,532,602 | 12,148,585 | 1,583,820 | 1,238,621 | 48,357,552 |

47

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

(e) Credit risk exposure by credit risk grade (continued)

v) Credit qualities are classified based on the internal credit rating as follows:

| Type of Borrower | Grade 1 | Grade 2 |
| --- | --- | --- |
| 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 |
| Governments, Public sector, Central bank | OECD sovereign credit rating of 6 or above | OECD sovereign credit rating of below 6 |
| Banks and Corporations | Internal credit rating of BBB+ or above | Internal credit rating of below BBB+ |

(f) Nature and effect of modification in contractual cash flows

i) For the financial assets for which the loss allowances have been measured at amounts equal to the lifetime expected credit losses, and the contractual cash flows are modified for the years ended December 31, 2022 and 2021, the amortized costs before modification amounted to ₩50,916 million and ₩16,192 million, respectively, and the net losses resulting from the modification amounted to ₩16,297 million and ₩2,908 million, respectively

ii) As of December 31, 2022 and 2021, the book value of financial asset, for which contractual cash flows have been modified while the loss allowance is measured at an amount equal to lifetime expected credit losses at initial recognition, and the loss allowance reverted to being measured at an amount equal to 12-month expected credit losses for the years ended December 31, 2022 and 2021 are ₩5,686 million and ₩54,904 million, respectively.

(g) The contractual amounts outstanding on financial assets that are written-off but are still subject to enforcement activity as of December 31, 2022 and 2021, are ₩5,319,394 million and ₩6,085,461 million, respectively.

(h) As of December 31, 2022 and 2021, there are no assets acquired by the execution of collateral, respectively.

48

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

# (i) Concentration by geographic location

An analysis of concentration by geographic location for financial instruments excluding equity securities as of December 31, 2022 and 2021, is as follows:

| Division(*) | December 31, 2022 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Korea | U.S.A | U.K | Japan | Germany | Vietnam | China | Others | Total |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | ₩ 530,550 | 1,402,279 | 519,736 | 319,656 | 399,409 | 2,369 | 346,148 | 317,594 | 3,837,741 |
| Government/ Public sector/Central bank/Etc | 9,665,222 | 641,433 | - | - | - | - | - | 136,144 | 10,442,799 |
|  | 10,195,772 | 2,043,712 | 519,736 | 319,656 | 399,409 | 2,369 | 346,148 | 453,738 | 14,280,540 |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 1,269,463 | 4,762 | 25,270 | 519,389 | 496,138 | 881,846 | 1,875,557 | 3,988,357 | 9,060,782 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage loan | 48,430,053 | 80,874 | 2,351 | 2,430 | 803 | 2,847 | 437,297 | 323,213 | 49,279,868 |
| Etc | 105,238,847 | 105,550 | 3,415 | 4,778 | 2,035 | 3,426 | 234,333 | 122,157 | 105,714,541 |
| Government/ Public sector/Central bank/Etc | 670,050 | - | - | - | - | - | - | 2,858 | 672,908 |
| Corporate Large enterprises | 35,969,313 | 251,206 | 51,119 | - | - | 369,515 | 92,419 | 1,414,782 | 38,148,354 |
| Small and medium- sized enterprises | 100,876,692 | 816,096 | 95,019 | 4,841 | - | 666,482 | 142,431 | 1,471,570 | 104,073,131 |
| Special finance | 6,293,885 | 803,632 | 197,345 | 5,241 | 8,408 | 80,187 | - | 896,236 | 8,284,934 |
| Others | 75 | 12 | - | - | - | - | - | 16 | 103 |
|  | 298,748,378 | 2,062,132 | 374,519 | 536,679 | 507,384 | 2,004,303 | 2,782,037 | 8,219,189 | 315,234,621 |
| Loans at FVTPL |  |  |  |  |  |  |  |  |  |
| Banks | 109,099 | - | - | - | - | - | - | - | 109,099 |
| Corporate Large enterprises | 841,420 | - | - | - | - | - | - | - | 841,420 |
|  | 950,519 | - | - | - | - | - | - | - | 950,519 |
| Securities at FVTPL |  |  |  |  |  |  |  |  |  |
| Debt securities | 19,737,537 | 129,986 | 4,817 | 32,171 | 21,649 | - | 2,713 | 455,191 | 20,384,064 |
| Gold/Silver Deposits | - | - | 75,969 | - | - | - | - | - | 75,969 |
|  | 19,737,537 | 129,986 | 80,786 | 32,171 | 21,649 | - | 2,713 | 455,191 | 20,460,033 |
| Securities at FVTOCI | 42,241,578 | 2,603,072 | 157,951 | 194,855 | 34,065 | - | 189,718 | 1,146,926 | 46,568,165 |
| Securities at amortized cost | 26,781,018 | - | - | - | - | - | - | 300,281 | 27,081,299 |
| Off-balance accounts |  |  |  |  |  |  |  |  |  |
| Guarantee contracts | 21,741,395 | 88,371 | 23,481 | 860 | 35,488 | 500,127 | 123,985 | 442,447 | 22,956,154 |
| Loan Commitments and other credit related liabilities | 101,042,206 | 540,162 | 314,302 | 346,083 | 11,878 | 47,638 | 234,493 | 3,807,405 | 106,344,167 |
|  | ₩ 521,438,403 | 7,467,435 | 1,470,775 | 1,430,304 | 1,009,873 | 2,554,437 | 3,679,094 | 14,825,177 | 553,875,498 |

(*) Geographical breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

49

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

# (i) Concentration by geographic location (continued)

An analysis of concentration by geographic location for financial instruments excluding equity securities, net of allowance, as of December 31, 2022 and 2021 is as follows (continued):

| Division(*) | December 31, 2021 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Korea | U.S.A | U.K | Japan | Germany | Vietnam | China | Others | Total |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | ₩ 92,177 | 929,454 | 25,563 | 227,479 | 279,348 | 5,750 | 428,577 | 271,292 | 2,259,640 |
| Government/ Public sector/Central bank/Etc | 10,569,824 | 469,171 | - | - | - | - | - | 175,273 | 11,214,268 |
|  | 10,662,001 | 1,398,625 | 25,563 | 227,479 | 279,348 | 5,750 | 428,577 | 446,565 | 13,473,908 |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 1,129,921 | 4,950 | 11,735 | 147,936 | 284,329 | 1,078,627 | 867,848 | 2,492,418 | 6,017,764 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage |  |  |  |  |  |  |  |  |  |
| loan | 47,515,208 | 83,872 | 2,287 | 2,695 | 1,122 | 1,820 | 473,116 | 277,432 | 48,357,552 |
| Etc | 110,532,691 | 109,690 | 2,962 | 4,908 | 1,715 | 3,530 | 249,913 | 133,602 | 111,039,011 |
| Government/ Public sector/Central bank/Etc | 364,655 | - | - | - | - | - | - | 16,092 | 380,747 |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 27,339,606 | 477,069 | 84,477 | - | 11,333 | 468,177 | 218,685 | 1,318,581 | 29,917,928 |
| Small and medium-sized enterprises | 93,377,539 | 650,862 | 44,270 | 1,595 | - | 455,636 | 257,948 | 1,623,176 | 96,411,026 |
| Special finance | 5,594,272 | 787,296 | 83,208 | - | - | 104,761 | - | 865,956 | 7,435,493 |
| Others | 145 | 7 | - | - | - | - | - | 110 | 262 |
|  | 285,854,037 | 2,113,746 | 228,939 | 157,134 | 298,499 | 2,112,551 | 2,067,510 | 6,727,367 | 299,559,783 |
| Loans at FVTPL |  |  |  |  |  |  |  |  |  |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 796,191 | - | - | - | - | - | - | - | 796,191 |
| Small and medium-sized enterprises | 63,554 | - | - | - | - | - | - | - | 63,554 |
|  | 859,745 | - | - | - | - | - | - | - | 859,745 |
| Securities at FVTPL |  |  |  |  |  |  |  |  |  |
| Debt securities | 21,148,366 | 326,107 | 8,396 | 50,503 | 19,048 | - | 9,041 | 383,487 | 21,944,948 |
| Gold/Silver deposits | - | - | 83,691 | - | - | - | - | - | 83,691 |
|  | 21,148,366 | 326,107 | 92,087 | 50,503 | 19,048 | - | 9,041 | 383,487 | 22,028,639 |
| Securities at FVTOCI | 43,945,878 | 1,326,804 | 120,851 | 120,134 | 52,199 | - | 282,517 | 685,578 | 46,533,961 |
| Securities at amortized cost | 19,740,332 | - | - | - | - | - | - | 255,978 | 19,996,310 |
| Off-balance accounts |  |  |  |  |  |  |  |  |  |
| Guarantee contracts | 20,290,609 | 116,954 | 4,690 | - | 2,954 | 444,911 | 94,342 | 282,572 | 21,237,032 |
| Loan Commitments and other credit related liabilities | 97,155,315 | 144,078 | 237,450 | 369,354 | 3,698 | 463 | 246,034 | 1,019,683 | 99,176,075 |
|  | ₩ 499,656,283 | 5,426,314 | 709,580 | 924,604 | 655,746 | 2,563,675 | 3,128,021 | 9,801,230 | 522,865,453 |

(*) Geographical breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

50

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

# (j) Concentration by industry sector

i) An analysis of concentration by industry sector for financial assets excluding equity securities as of December 31, 2022 and 2021, is as follows:

| Division(*) | December 31, 2022 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Finance and insurance | Manufacturing | Retail and wholesale | Real estate and service | Construction | Lodging and Restaurant | Others | Retail customers | Total |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | 3,837,741 | - | - | - | - | - | - | - | 3,837,741 |
| Government/Public sector/Central bank/Etc | 10,442,799 | - | - | - | - | - | - | - | 10,442,799 |
|  | 14,280,540 | - | - | - | - | - | - | - | 14,280,540 |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 8,434,415 | - | - | - | 29,979 | - | 596,388 | - | 9,060,782 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage loan | - | - | - | - | - | - | - | 49,279,868 | 49,279,868 |
| Etc | - | - | - | - | - | - | - | 105,714,541 | 105,714,541 |
| Government/Public sector/Central bank/Etc | 661,030 | - | - | - | - | - | 11,878 | - | 672,908 |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 5,852,276 | 19,782,526 | 4,010,626 | 1,624,201 | 676,354 | 361,756 | 5,840,615 | - | 38,148,354 |
| Small and medium-sized enterprises | 1,164,813 | 33,475,941 | 16,657,403 | 28,252,026 | 2,092,414 | 5,100,102 | 17,330,432 | - | 104,073,131 |
| Special finance | 2,078,996 | 9,299 | 19,657 | 3,206,604 | 283,678 | 87,079 | 2,599,621 | - | 8,284,934 |
| Others | - | - | 26 | 2 | - | - | 75 | - | 103 |
|  | 18,191,530 | 53,267,766 | 20,687,712 | 33,082,833 | 3,082,425 | 5,548,937 | 26,379,009 | 154,994,409 | 315,234,621 |
| Loans at FVTPL |  |  |  |  |  |  |  |  |  |
| Bank | - | - | - | 69,533 | - | - | 39,566 | - | 109,099 |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 247,197 | 504,572 | 89,651 | - | - | - | - | - | 841,420 |
|  | 247,197 | 504,572 | 89,651 | 69,533 | - | - | 39,566 | - | 950,519 |
| Securities at FVTPL |  |  |  |  |  |  |  |  |  |
| Debt securities | 11,354,129 | 1,593,010 | 988,310 | 740,083 | 78,632 | 59,459 | 5,570,441 | - | 20,384,064 |
| Gold/Silver deposits | 75,969 | - | - | - | - | - | - | - | 75,969 |
| Securities at FVTOCI | 20,895,501 | 1,962,036 | 417,514 | 547,578 | 562,659 | 28,371 | 22,154,506 | - | 46,568,165 |
| Securities at amortized cost | 9,583,886 | 9,931 | - | 131,534 | 218,861 | - | 17,137,087 | - | 27,081,299 |
| Off-balance accounts |  |  |  |  |  |  |  |  |  |
| Guarantee contracts | 7,737,119 | 9,192,708 | 3,285,811 | 141,467 | 207,900 | 89,527 | 1,935,351 | 366,271 | 22,956,154 |
| Loan commitments and other credit related liabilities | 18,160,200 | 26,152,698 | 9,382,258 | 2,724,488 | 1,749,009 | 300,671 | 11,058,686 | 36,816,157 | 106,344,167 |
|  | 100,526,071 | 92,682,721 | 34,851,256 | 37,437,516 | 5,899,486 | 6,026,965 | 84,274,646 | 192,176,837 | 553,875,498 |

(*) Industrial breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

51

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

# (j) Concentration by industry sector (continued)

i) An analysis of concentration by industry sector for financial assets excluding equity securities as of December 31, 2022 and 2021, is as follows (continued):

| Division(*) | December 31, 2021 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Finance and insurance | Manufacturing | Retail and wholesale | Real estate and service | Construction | Lodging and Restaurant | Others | Retail customers | Total |
| Due from banks: |  |  |  |  |  |  |  |  |  |
| Banks | 2,259,640 | - | - | - | - | - | - | - | 2,259,640 |
| Government/Public sector/Central bank/Etc | 11,214,268 | - | - | - | - | - | - | - | 11,214,268 |
|  | 13,473,908 | - | - | - | - | - | - | - | 13,473,908 |
| Loans at amortized cost: |  |  |  |  |  |  |  |  |  |
| Banks | 5,373,574 | - | - | - | - | - | 644,190 | - | 6,017,764 |
| Retail |  |  |  |  |  |  |  |  |  |
| Residential real estate mortgage loan | - | - | - | - | - | - | - | 48,357,552 | 48,357,552 |
| Etc | - | - | - | - | - | - | - | 111,039,011 | 111,039,011 |
| Government/Public sector/Central bank/Etc | 374,415 | - | - | - | - | - | 6,332 | - | 380,747 |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 3,376,873 | 16,665,592 | 3,318,802 | 1,580,878 | 570,074 | 162,880 | 4,242,829 | - | 29,917,928 |
| Small and medium-sized enterprises | 1,298,767 | 31,754,858 | 15,378,005 | 25,459,543 | 1,880,595 | 5,165,838 | 15,473,420 | - | 96,411,026 |
| Special finance | 1,959,337 | 15,721 | 21,084 | 2,738,689 | 151,690 | 88,551 | 2,460,421 | - | 7,435,493 |
| Others | - | 48 | 24 | 1 | - | 3 | 186 | - | 262 |
|  | 12,382,966 | 48,436,219 | 18,717,915 | 29,779,111 | 2,602,359 | 5,417,272 | 22,827,378 | 159,396,563 | 299,559,783 |
| Loans at FVTPL |  |  |  |  |  |  |  |  |  |
| Corporate |  |  |  |  |  |  |  |  |  |
| Large enterprises | 368,872 | 425,281 | - | - | 2,037 | - | 1 | - | 796,191 |
| Small and medium-sized enterprises | - | 36,470 | 9,516 | 2,002 | 500 | - | 15,066 | - | 63,554 |
|  | 368,872 | 461,751 | 9,516 | 2,002 | 2,537 | - | 15,067 | - | 859,745 |
| Securities at FVTPL |  |  |  |  |  |  |  |  |  |
| Debt securities | 13,315,465 | 1,644,338 | 876,013 | 237,597 | 80,644 | 62,437 | 5,728,454 | - | 21,944,948 |
| Gold/Silver deposits | 83,691 | - | - | - | - | - | - | - | 83,691 |
| Securities at FVTOCI | 22,882,007 | 2,217,547 | 345,180 | 439,424 | 758,642 | 18,142 | 19,873,019 | - | 46,533,961 |
| Securities at amortized cost | 5,806,542 | - | - | 115,136 | 140,163 | - | 13,934,469 | - | 19,996,310 |
| Off-balance accounts |  |  |  |  |  |  |  |  |  |
| Guarantee contracts | 6,219,402 | 8,232,786 | 3,622,124 | 647,065 | 165,934 | 211,103 | 2,127,728 | 10,890 | 21,237,032 |
| Loan commitments and other credit related Liabilities | 17,202,742 | 16,964,949 | 6,211,814 | 2,568,069 | 1,722,392 | 326,313 | 15,628,053 | 38,551,743 | 99,176,075 |
|  | 91,735,595 | 77,957,590 | 29,782,562 | 33,788,404 | 5,472,671 | 6,035,267 | 80,134,168 | 197,959,196 | 522,865,453 |

(*) Industrial breakdown is the book value, net of unamortized balances and allowance for doubtful accounts.

52

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-1. Credit risk (continued)**

# (j) Concentration by industry sector (continued)

ii) As of December 31, 2022 and 2021, the concentration by industry sector for corporate loans that could be affected by the prolonged COVID-19 among the financial instruments is as follows, and the industries that will be affected by the future economic conditions may change significantly:

|  | December 31, 2022 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Airlift passenger | Lodging | Oil/petroleum refinery | Art-related | Movie theater | Clothing manufacturing | Travel | Total |
| Loans at amortized |  |  |  |  |  |  |  |  |
| Cost | ₩ 129,467 | 3,010,180 | 1,193,391 | 198,752 | 71,912 | 1,898,834 | 49,500 | 6,552,036 |
| Securities at FVTOCI | 123,875 | 18,416 | 211,000 | - | - | 14,776 | - | 368,067 |
| Securities at amortized |  |  |  |  |  |  |  |  |
| Cost | 59,997 | - | - | - | - | - | - | 59,997 |
| Off-balance accounts | 434,150 | 247,228 | 2,719,276 | 7,474 | 76,817 | 858,832 | 35,464 | 4,379,241 |
|  | ₩ 747,489 | 3,275,824 | 4,123,667 | 206,226 | 148,729 | 2,772,442 | 84,964 | 11,359,341 |

|  | December 31, 2021 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Airlift passenger | Lodging | Oil/petroleum refinery | Art-related | Movie theater | Clothing manufacturing | Travel | Total |
| Loans at amortized |  |  |  |  |  |  |  |  |
| Cost | ₩ 139,614 | 2,996,759 | 919,090 | 207,408 | 81,499 | 1,747,453 | 52,924 | 6,144,747 |
| Securities at FVTPL | - | - | 29,911 | - | - | - | 2,737 | 32,648 |
| Securities at FVTOCI | 109,006 | 18,142 | 264,343 | - | 7,123 | 10,678 | - | 409,292 |
| Off-balance accounts | 363,362 | 316,113 | 2,646,739 | 14,775 | 91,622 | 778,608 | 36,331 | 4,247,550 |
|  | ₩ 611,982 | 3,331,014 | 3,860,083 | 222,183 | 180,244 | 2,536,739 | 91,992 | 10,834,237 |

iii) In the case of borrowers classified as normal and impaired among individual loans subject to lifetime expected credit losses as disclosed in Note 3-1. (e), the effect of COVID-19 may be relatively large. The impact is subject to change, depending on the future economic situation.

53

# SHINHAN BANK  
**Notes to the Separate Financial Statements**  
December 31, 2022 and 2021

# **3. Financial risk management (continued)**

# **3-2. Market risk**

Market risk is the risk that changes in market price such as interest rates, equity prices, and foreign exchange rates, etc. will affect the Bank's income. Trading position is exposed to the risk such as interest rates, equity prices, foreign exchange rates, etc., and non-trading position is mainly exposed to interest rates. The Bank separates and manages its exposure to market risk between trading and non-trading position.

The Bank carries out decision-making functions such as policy establishment and setting limits on market risk management by the Risk Policy Committee, and the Risk Engineering Department provides comprehensive market risk management, market risk system management, and Middle Office functions for all operating departments and desks.

The basis of market risk management is limit management to keep the maximum possible loss due to market risk within a certain level. The Risk Policy Committee sets and operates the VaR limit, loss limit, sensitivity limit, investment limit and position limit, and stress loss limit for each operating department and desk. The Risk Engineering department monitors the operation status independently from the operating department. The Bank regularly reports to the Risk Policy Committee and Risk Management Committee. In addition, the Fair Value Assurance Council and the Risk Engineering Department conduct a review of the fair value evaluation method and risk assessment before the launch (or transactions) of new products in each business unit. The Risk Review Council for derivatives and structured products supports rational decision-making such as checking risk factors and reviewing investment limits, so that objective analysis and review of risk factors can be conducted in advance.

# (a) Market risk management of trading positions

Trading data for foreign exchange, stocks, bonds, and derivatives, which are subject to the measurement of market risks of trading positions, are managed by entering transactions in the front system, and are automatically interfaced with the market risk management system (Risk Watch) to perform daily risk measurement and limit management. In addition, in order to supplement the risk measurement by statistical method and to manage the impact and loss scale of rapid changes in the economic environment, stress testing is regularly conducted in parallel, and through this, the loss extent is managed within a certain range in case of crisis of the Bank.

# *i) Measurement method on market risk arising from trading positions*

The Bank applies historical simulation VaR methodology to each market risk, such as interest rates, stock prices, and exchange rates exposed to trading positions to calculate market risk in a 99% confidence level. VaR is based on a statistical assessment of potential losses to current positions from an adverse market movement. This represents the maximum amount of losses that can be incurred at the level of 99% confidence. Therefore, there is a statistical probability (1.0%) that the actual loss may be greater than the VaR measurement.

The VaR model measures expected losses assuming that the daily position at the measurement point remains and that market movements for the past 10 days from each measurement point will continue in the future.

Limits for each type of market risk are the limits set on market risk within the Bank's total risk limit. It is calculated by multiplying the average 10 days VaR and Stressed VaR for the previous 60 days by the regulatory multiplier and used as a market risk management tool. The Bank's VaR limit is set annually by the Risk Management Committee or the Risk Policy Committee, and compliance of each type of limit is monitored on a daily basis. In addition, when the set limit is exceeded, the manager of the operation department reports the excess details, reasons for the excess, and solutions to the group head in charge, and manages the set limit to be reduced to the limit within the next business day.

The quality of the VaR model is continuously monitored by post verification of VaR results, and all post verification results are reported to the Board of Directors.

54

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

(a) Market risk management of trading positions (continued)

# *ii) VaR of trading positions*

The Bank manages VaR for trading portfolio based on financial statements. The minimum, maximum, average VaR and the VaR the years ended December 31, 2022 and 2021 are as follows:

|  | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Average | Maximum | Minimum | Year-end |
| Interest rate risk | ₩ 44,719 | 64,628 | 24,322 | 53,777 |
| Equity risk | 20,303 | 24,879 | 13,443 | 21,659 |
| Foreign currency risk (*) | 191,013 | 262,319 | 161,760 | 252,453 |
| Volatility risk | 84 | 211 | 25 | 110 |
| Commodity risk | 13 | 193 | - | 27 |
| Covariance | (33,760) | (77,335) | (10,872) | (62,957) |
|  | ₩ 222,372 | 274,895 | 188,678 | 265,069 |

(*) The Bank measured foreign currency risk arising from trading positions and non-trading positions.

|  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Average | Maximum | Minimum | Year-end |
| Interest rate risk | ₩ 28,749 | 55,773 | 17,537 | 28,030 |
| Equity risk | 11,583 | 21,340 | 3,850 | 19,618 |
| Foreign currency risk (*) | 159,165 | 185,514 | 136,936 | 161,978 |
| Volatility risk | 162 | 368 | 29 | 60 |
| Commodity risk | 11 | 151 | - | 8 |
| Covariance | (25,023) | (52,611) | (13,207) | (17,470) |
|  | ₩ 174,646 | 210,534 | 145,147 | 192,222 |

(*) The Bank measured foreign currency risk arising from trading positions and non-trading positions.

55

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

# (b) Market risk management of non-trading positions

The most critical market risk that arises from non-trading position is the interest rate risk. Accordingly, the Bank measures and manages market risk for non-trading position by taking into account effects of interest rate changes on both its net asset value and income.

The Bank carries out decision-making functions such as establishing policies and setting detailed limits on interest rate risk management by the Risk Policy Committee, and within these principles and limits, management departments by account, such as overseas branches, subsidiaries, and finance departments, trust headquarters, and general finance departments, primarily recognize and manage interest rate risk. The Risk Management Department and the Risk Engineering Department support the Risk Policy Committee's decision on interest rate risk, monitor whether the interest rate risk limit is exceeded, and evaluate and manage the overall interest rate risk.

The Bank measures and manages interest rate risk using various analysis methods such as interest rate gap, duration gap, and scenario based NII (Net Interest Income) simulation through the Asset Liability Management (ALM) system. Interest rate VaR and interest rate EaR (Earnings at Risk) and interest rate gap ratios are set and monitored monthly. In addition, stress testing evaluates the impact on interest rate risk in various crisis situations.

# *i) Measurement method on market risk arising from non-trading positions*

The Bank calculates and manages the amount of change in economic value of equity (interest rate VaR) and the maximum expected interest loss (interest rate EaR) over the next year on the application of the IRRBB Standard Method interest rate scenario provided by the Bank for International Settlements ('BIS'). It also manages the risk of interest rate market risk by reflecting the customer behaviour ratio based on IRRBB standard method.

In order to calculate the interest rate risk, the Bank uses the six scenarios defined by the Basel Committee, 1) Parallel shock increases, 2) Parallel shock decreases, 3) Shock stiffener, 4) Shock plattner, 5) short-term interest rate increases, and 6) short-term interest rate decreases. Based on the six scenarios, the changes in economic value of equity are measured to calculate the maximum loss (VaR: Value at Risk) and the changes in net interest income are measured to calculate the maximum expected changes of profit or loss (EaR: Earning at Risk) based on the two scenarios (parallel shock increases and decreases).

# *ii) Interest rate VaR and EaR for non-trading positions*

Interest rate VaR (maximum expected loss among △EVE) and EaR (maximum expected changes in profit or loss among △ NII) for non-trading positions which were measured by the IRRBB standard methodology provided by BIS as of December 31, 2022 and 2021, are as follows:

|  |  | December 31, 2022 | December 31, 2021 |
| --- | --- | --- | --- |
| Interest rate VaR | ₩ | 744,505 | 858,113 |
| Interest rate EaR |  | 487,930 | 146,582 |

56

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

# (c) Foreign exchange risk

The Bank manages foreign currency risk based on general positions which includes all spot and future foreign currency positions, etc. The Risk Policy Committee oversees the Bank’s foreign exchange exposure for both trading and non-trading activities by establishing limits for the net foreign currencies open position. The Bank’s foreign exchange position is centralized at the S&T Center. Dealers in S&T Center manage the Bank’s overall position within the set limits through spot trading, forward contracts, currency options, futures and swaps and foreign exchange swaps. The Bank’s foreign exchange transactions are mainly conducted in the U.S. dollar (USD), Japanese yen (JPY), Euro (EUR) and Chinese yuan (CNY). Other foreign currencies are limitedly traded.

Foreign currency denominated assets and liabilities as of December 31, 2022 and 2021, are as follows:

|  | December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | USD | JPY | EUR | CNY | Others | Total |
| Assets |  |  |  |  |  |  |
| Cash and due from banks ₩ | 5,177,653 | 281,015 | 96,737 | 117,928 | 420,019 | 6,093,352 |
| Securities at FVTPL | 1,114,580 | - | 249,734 | - | 217,562 | 1,581,876 |
| Derivative assets | 589,057 | - | 6,632 | - | 1,675 | 597,364 |
| Loans at amortized cost | 27,630,573 | 461,718 | 790,477 | 80,881 | 2,649,319 | 31,612,968 |
| Securities at FVTOCI | 5,255,322 | - | 3,236 | - | 743,161 | 6,001,719 |
| Securities at amortized cost | 64,338 | - | - | - | 288,468 | 352,806 |
| Other financial assets | 2,834,131 | 517,926 | 554,925 | 278,352 | 997,631 | 5,182,965 |
|  | 42,665,654 | 1,260,659 | 1,701,741 | 477,161 | 5,317,835 | 51,423,050 |
| Liabilities |  |  |  |  |  |  |
| Deposits | 22,848,469 | 1,561,570 | 938,970 | 136,269 | 2,235,135 | 27,720,413 |
| Financial liabilities at FVTPL | 2,958 | - | - | - | 422,006 | 424,964 |
| Derivative liabilities | 698,616 | - | 27,933 | - | 44,348 | 770,897 |
| Borrowings | 10,096,821 | 256,837 | 56,131 | 16,809 | 151,793 | 10,578,391 |
| Debt securities issued | 6,187,754 | 352,677 | 675,600 | 108,864 | 1,030,092 | 8,354,987 |
| Other financial liabilities | 3,644,958 | 195,025 | 618,771 | 298,103 | 742,954 | 5,499,811 |
|  | 43,479,576 | 2,366,109 | 2,317,405 | 560,045 | 4,626,328 | 53,349,463 |
| Net assets (liabilities) | (813,922) | (1,105,450) | (615,664) | (82,884) | 691,507 | (1,926,413) |
| Off-balance sheet items |  |  |  |  |  |  |
| Derivative exposures | 1,370,460 | 798,652 | 308,088 | (50,025) | (748,646) | 1,678,529 |
| Net position | 556,538 | (306,798) | (307,576) | (132,909) | (57,139) | (247,884) |

57

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

# (c) Foreign exchange risk (continued)

Foreign currency denominated assets and liabilities as of December 31, 2022 and 2021, are as follows: (continued)

|  | December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | USD | JPY | EUR | CNY | Others | Total |
| Assets |  |  |  |  |  |  |
| Cash and due from banks ₩ | 3,408,568 | 236,656 | 100,615 | 70,409 | 352,531 | 4,168,779 |
| Securities at FVTPL | 1,261,781 | 13,108 | 245,151 | - | 100,632 | 1,620,672 |
| Derivative assets | 244,888 | 1 | 3,861 | - | 23,235 | 271,985 |
| Loans at amortized cost | 22,647,204 | 506,397 | 561,925 | 77,170 | 3,415,722 | 27,208,418 |
| Securities at FVTOCI | 3,667,519 | - | 25,094 | - | 392,781 | 4,085,394 |
| Securities at amortized cost | 63,685 | - | - | - | 244,922 | 308,607 |
| Other financial assets | 3,759,217 | 161,714 | 321,752 | 18,558 | 572,847 | 4,834,088 |
|  | 35,052,862 | 917,876 | 1,258,398 | 166,137 | 5,102,670 | 42,497,943 |
| Liabilities |  |  |  |  |  |  |
| Deposits | 16,996,254 | 805,570 | 846,294 | 167,274 | 1,894,864 | 20,710,256 |
| Financial liabilities at FVTPL | - | - | - | - | 581,458 | 581,458 |
| Derivative liabilities | 142,701 | - | 6,825 | - | 8,348 | 157,874 |
| Borrowings | 7,330,370 | 264,864 | 88,892 | 14,168 | 146,320 | 7,844,614 |
| Debt securities issued | 5,084,597 | 137,022 | 671,170 | - | 687,112 | 6,579,901 |
| Other financial liabilities | 3,174,790 | 61,993 | 194,096 | 26,259 | 728,499 | 4,185,637 |
|  | 32,728,712 | 1,269,449 | 1,807,277 | 207,701 | 4,046,601 | 40,059,740 |
| Net assets (liabilities) | 2,324,150 | (351,573) | (548,879) | (41,564) | 1,056,069 | 2,438,203 |
| Off-balance sheet items |  |  |  |  |  |  |
| Derivative exposures | (2,217,398) | 22,190 | 548,262 | (93,821) | (1,034,217) | (2,774,984) |
| Net position ₩ | 106,752 | (329,383) | (617) | (135,385) | 21,852 | (336,781) |

# (d) Interest rate risk management

The Bank is closely monitoring the output and market of various industrial working groups that manage the transition to new interest rate indicators. It includes announcements made by LIBOR regulators.

Regulators have made it clear that they will not persuade or force banks to submit LIBOR by the end of 2021. In response to this announcement, the Bank has established a LIBOR-related response plan consisting of job flows such as risk management, accounting, tax, law, computerization, and customer management. The plan is dedicated to the Chief Financial Officer (CFO) and important matters are reported to the Board of Directors. The purpose of the plan is to identify the impact and risks associated with reforming interest rate indicators within the business and prepare and implement action plans to facilitate the transition to alternative benchmark rates. The Bank aims to close its response plan in accordance with the guidelines of the regulators.

58

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

(d) Interest rate risk management (continued)

The financial instruments that have not been converted to alternative benchmark rates among the LIBOR interest rates as of December 31, 2022 are as follows:

# *i) Non-derivative financial assets*

| Division(*1) | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Book value to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*2) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Due from banks and loans at amortized cost: |  |  |  |  |
| Loans | ₩ 2,158,647 | - | - | - |
| Securities at fair value through other comprehensive income: |  |  |  |  |
| Financial institution bonds | 189,047 | - | - | - |
| Corporate bonds and others | 229,030 | - | - | - |
|  | ₩ 418,077 | - | - | - |
| Loan commitments and guarantee contracts | ₩ 213,463 | - | - | - |

(*1) The assets are book value and the loan commitments and guarantee contracts are in nominal amount.

(*2) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

| Division(*1) | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Book value to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*2) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Due from banks and loans at amortized cost: |  |  |  |  |
| Loans | ₩ 2,379,219 | 69,500 | 25,608 | 122,104 |
| Securities at fair value through other comprehensive income: |  |  |  |  |
| Financial institution bonds | 167,167 | - | - | - |
| Corporate bonds and others | 281,949 | - | - | - |
|  | 449,116 | - | - | - |
| Loan commitments and guarantee contracts | ₩ 189,538 | - | - | 13,853 |

(*1) The assets are book value and the loan commitments and guarantee contracts are in nominal amount.

(*2) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

# *ii) Non-derivative financial liabilities*

| Division | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Book value to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Financial liabilities at amortized cost: |  |  |  |  |
| Deposits | ₩ 200,000 | - | - | - |
| Borrowings | 50,692 | - | - | - |
| Debt securities issued | 1,097,132 | - | - | - |
|  | ₩ 1,347,824 | - | - | - |

(*) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

59

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-2. Market risk (continued)**

(d) Interest rate risk management (continued)

ii) Non-derivative financial liabilities (continued)

| Division | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Book value to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Financial liabilities at amortized cost: |  |  |  |  |
| Deposits | ₩ 200,000 | - | - | - |
| Borrowings | 347,420 | 833 | - | - |
| Debt securities issued | 745,680 | - | - | - |
|  | ₩ 1,293,100 | 833 | - | - |

(*) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

iii) Derivatives

| Division | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Open interest to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Trading: |  |  |  |  |
| Interest rates related | ₩ 9,936,940 | - | - | - |
| Foreign currency related | 11,589,415 | - | - | - |
|  | 21,526,355 | - | - | - |
| Hedge: |  |  |  |  |
| Interest rates related | ₩ 4,196,714 | - | - | - |

(*) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

| Division | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Open interest to be converted to alternative benchmark rates |  |  |  |
|  | USD LIBOR(*) | JPY LIBOR | EUR LIBOR | Other LIBORs |
| Trading: |  |  |  |  |
| Interest rates related | ₩ 9,335,656 | - | - | - |
| Foreign currency related | 10,744,788 | - | - | - |
|  | 20,080,444 | - | - | - |
| Hedge: |  |  |  |  |
| Interest rates related | ₩ 4,150,155 | - | - | - |

(*) The instruments that will be matured before the end of June 30, 2023 are excluded in terms of USD LIBOR.

60

# SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

# 3. Financial risk management (continued)

# 3-3. Liquidity risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Risk Policy Committee is responsible for establishing policies and setting the limits related to liquidity risk management. The Risk Management Department evaluates and manages the Bank's overall liquidity risk and monitors compliance of all operating subsidiaries and foreign branches with limits on a daily basis.

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

-raise funding in sufficient amounts at the optimal time and 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 as to 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 in actual; and
-consider liquidity-related costs, benefits, and risks in determining the price of products and services, employee performance evaluations and approval of launching new products and services.

The Bank uses various analysis methods such as liquidity gap, liquidity ratio, loan-deposit ratio, and real liquidity gap reflecting the customer behaviour model through the ALM system, while managing its liquidity risks on won and foreign currency through various indices including risk limits, early warning index, and monitoring index. Demand deposits, in analysing the maturity structures of assets and liabilities, can be classified as short-term because they can be withdrawn whenever a customer requests; however, considering customers' behaviours that usually maintain an average balance of a certain percentage, non-core deposits are classified to be short-term.

61

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-3. Liquidity risk (continued)**

# (a) Contractual maturities for financial instruments

Contractual maturities for financial assets and financial liabilities as of December 31, 2022 and 2021, are as follows:

|  | December 31, 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 1 month or less | 1 month ~ 3 months or less | 3 months ~ 6 months or less | 6 months ~ 1 year or less | 1 year ~ 5 years or less | More than 5 years | Total |
| Assets |  |  |  |  |  |  |  |
| Cash and due from banks | ₩ 16,162,231 | 118,425 | 53,299 | 82,955 | - | - | 16,416,910 |
| Securities at FVTPL | 18,014,762 | 3,131 | 21,263 | 29,584 | 411,482 | 2,165,162 | 20,645,384 |
| Derivative assets | 4,827,637 | 2,336 | 3,466 | 7,204 | 50,984 | 24,583 | 4,916,210 |
| Loans at amortized cost | 23,036,535 | 37,191,907 | 50,235,899 | 79,605,828 | 101,719,988 | 67,518,829 | 359,308,986 |
| Loans at FVTPL | 139,540 | 781,525 | 29,454 | - | - | - | 950,519 |
| Securities at FVTOCI | 40,396,149 | 215,000 | 496,625 | 950,714 | 5,149,929 | 569,878 | 47,778,295 |
| Securities at amortized cost | 387,716 | 1,780,190 | 1,033,586 | 3,183,836 | 20,581,328 | 2,130,358 | 29,097,014 |
| Other financial assets | 12,433,139 | - | - | 124,179 | - | 1,168,763 | 13,726,081 |
|  | ₩ 115,397,709 | 40,092,514 | 51,873,592 | 83,984,300 | 127,913,711 | 73,577,573 | 492,839,399 |
| Liabilities |  |  |  |  |  |  |  |
| Deposits | ₩ 192,770,158 | 40,141,924 | 37,566,136 | 63,873,950 | 13,069,511 | 483,340 | 347,905,019 |
| Financial liabilities at FVTPL | 424,964 | - | - | - | - | - | 424,964 |
| Derivative liabilities | 4,935,194 | 25,005 | 36,447 | 62,289 | 269,131 | 52,538 | 5,380,604 |
| Borrowings | 6,481,498 | 3,517,531 | 3,812,202 | 4,718,181 | 4,457,620 | 1,311,701 | 24,298,733 |
| Debt securities issued | 1,044,582 | 4,466,416 | 5,983,247 | 9,078,536 | 9,230,776 | 2,999,187 | 32,802,744 |
| Financial liabilities designated at FVTPL | - | - | 2,090 | - | 54,180 | - | 56,270 |
| Other financial liabilities | 19,015,932 | 18,617 | 24,518 | 114,905 | 133,792 | 20,562 | 19,328,326 |
|  | ₩ 224,672,328 | 48,169,493 | 47,424,640 | 77,847,861 | 27,215,010 | 4,867,328 | 430,196,660 |

These amounts include cash flows of principal and interest on financial assets and financial liabilities. The undiscounted cash flows were classified based on the earliest dates for obligated repayment. Financial instruments at FVTPL that can be disposed of immediately and financial instruments at FVTOCI except for assets restricted for sale for certain periods were included in 1 month or less.

62

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-3. Liquidity risk (continued)**

# (a) Contractual maturities for financial instruments (continued)

Contractual maturities for financial assets and financial liabilities as of December 31, 2022 and 2021, are as follows: (continued)

|  | December 31, 2021 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 1 month or less | 1 month ~ 3 months or less | 3 months ~ 6 months or less | 6 months ~ 1 year or less | 1 year ~ 5 years or less | More than 5 years | Total |
| Assets |  |  |  |  |  |  |  |
| Cash and due from banks | ₩ 17,255,001 | 234,382 | 23,747 | - | - | - | 17,513,130 |
| Securities at FVTPL | 22,173,110 | - | - | - | - | - | 22,173,110 |
| Derivative assets | 2,853,149 | 20,039 | 24,489 | 40,424 | 236,954 | 68,034 | 3,243,089 |
| Loans at amortized cost | 17,526,000 | 34,174,437 | 46,224,480 | 74,580,499 | 96,270,150 | 59,969,280 | 328,744,846 |
| Loans at FVTPL | 170,018 | 626,620 | 56,104 | 4,936 | 3,162 | - | 860,840 |
| Securities at FVTOCI | 44,641,205 | 152,534 | 91,467 | 629,642 | 1,235,778 | 568,274 | 47,318,900 |
| Securities at amortized cost | 400,674 | 2,346,561 | 1,525,663 | 2,375,654 | 13,029,048 | 1,631,632 | 21,309,232 |
| Other financial assets | 14,018,918 | - | - | 129,815 | - | 1,182,308 | 15,331,041 |
|  | ₩ 119,038,075 | 37,554,573 | 47,945,950 | 77,760,970 | 110,775,092 | 63,419,528 | 456,494,188 |
| Liabilities |  |  |  |  |  |  |  |
| Deposits | ₩ 195,118,833 | 33,243,610 | 37,171,703 | 52,829,767 | 9,270,251 | 420,750 | 328,054,914 |
| Financial liabilities at FVTPL | 583,662 | - | - | - | - | - | 583,662 |
| Derivative liabilities | 2,621,710 | 1,112 | 1,634 | 3,263 | 24,263 | 15,456 | 2,667,438 |
| Borrowings | 6,643,980 | 2,872,296 | 2,432,832 | 3,463,052 | 4,016,978 | 1,095,175 | 20,524,313 |
| Debt securities issued | 437,731 | 3,903,853 | 4,555,188 | 11,813,258 | 12,846,610 | 2,992,528 | 36,549,168 |
| Other financial liabilities | 17,682,178 | 24,076 | 31,999 | 116,816 | 145,726 | 15,133 | 18,015,928 |
|  | ₩ 223,088,094 | 40,044,947 | 44,193,356 | 68,226,156 | 26,303,828 | 4,539,042 | 406,395,423 |

These amounts include cash flows of principal and interest on financial assets and financial liabilities. The undiscounted cash flows were classified based on the earliest dates for obligated repayment. Financial instruments at FVTPL that can be disposed of immediately and financial instruments at FVTOCI except for assets restricted for sale for certain periods were included in 1 month or less.

# (b) Contractual maturities for off-balance sheet items

Financial guarantees such as guarantee contracts, loan commitments and others provided by the Bank are classified based on the earliest date at which the Bank should fulfill the obligation under the guarantee when the counterparty requests for the payment.

Off-balance accounts as of December 31, 2022 and 2021, are as follows:

|  | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Guarantee contracts | ₩ 22,956,154 | 21,237,032 |
| Loan commitments and others | 106,344,167 | 99,176,075 |
|  | ₩ 129,300,321 | 120,413,107 |

63

SHINHAN BANK
Notes to the Separate Financial Statements
December 31, 2022 and 2021

3. Financial risk management (continued)

3-4. Measurement of fair value

The fair value which the Bank primarily uses for measurement of financial instruments are the published price quotations in an active market which are based on the dealer price quotations of financial assets traded in an active market where available, which is the best evidence of fair value.

If the market for a financial instrument is not active, such as OTC (Over The Counter market) derivatives, fair value is established either by using a valuation technique or an independent third-party valuation agency.

The Bank uses diverse valuation techniques under reasonable assumptions which are based on the inputs observable in markets at the end of each reporting period.

Valuation techniques include using the 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. For example, the fair value for interest swaps is the present value of estimated future cash flows, and fair value for foreign exchange forwards contracts is measured by using the published forward exchange rate at the end of each reporting period.

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

(i) Level 1: Financial instruments measured at quoted prices from active markets are classified as level 1.
(ii) Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.
(iii) 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.

64

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-4. Measurement of fair value (continued)**

(a) Financial instruments measured at fair value

i) The table below analyzes financial instruments measured at the fair value as of December 31, 2022 and 2021, by the level in the fair value hierarchy into which the fair value measurement is categorized:

|  | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Level 1 | Level 2 | Level 3 | Total |
| Financial assets |  |  |  |  |
| Loans at FVTPL: |  |  |  |  |
| Loans | ₩ - | 950,519 | - | 950,519 |
| Securities at FVTPL: |  |  |  |  |
| Debt securities | 244,846 | 16,318,784 | 3,820,434 | 20,384,064 |
| Equity securities | 18,645 | - | 166,706 | 185,351 |
| Gold/Silver deposits | 75,969 | - | - | 75,969 |
|  | 339,460 | 16,318,784 | 3,987,140 | 20,645,384 |
| Derivative assets: |  |  |  |  |
| Trading | 233 | 4,824,897 | 1,300 | 4,826,430 |
| Hedging | - | 77,757 | - | 77,757 |
|  | 233 | 4,902,654 | 1,300 | 4,904,187 |
| Securities at FVTOCI: |  |  |  |  |
| Debt securities | 18,027,749 | 28,540,416 | - | 46,568,165 |
| Equity securities | 691,227 | - | 518,903 | 1,210,130 |
|  | 18,718,976 | 28,540,416 | 518,903 | 47,778,295 |
|  | ₩ 19,058,669 | 50,712,373 | 4,507,343 | 74,278,385 |
| Financial liabilities |  |  |  |  |
| Financial liabilities designated at FVTPL: Debt securities issued | ₩ - | 47,327 | - | 47,327 |
| Financial liabilities at FVTPL: |  |  |  |  |
| Securities sold | ₩ 2,958 | - | - | 2,958 |
| Gold/Silver deposits | 422,006 | - | - | 422,006 |
|  | 424,964 | - | - | 424,964 |
| Derivative liabilities: |  |  |  |  |
| Trading | 2 | 4,922,121 | 110 | 4,922,233 |
| Hedging | - | 551,246 | 343,758 | 895,004 |
|  | 2 | 5,473,367 | 343,868 | 5,817,237 |
|  | ₩ 424,966 | 5,520,694 | 343,868 | 6,289,528 |

65

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-4. Measurement of fair value (continued)**

(a) Financial instruments measured at fair value (continued)

i) The table below analyzes financial instruments measured at the fair value as of December 31, 2022 and 2021, by the level in the fair value hierarchy into which the fair value measurement is categorized (continued):

|  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Level 1 | Level 2 | Level 3 | Total |
| Financial assets |  |  |  |  |
| Loans at FVTPL: |  |  |  |  |
| Loans | ₩ - | 787,163 | 72,582 | 859,745 |
| Securities at FVTPL: |  |  |  |  |
| Debt securities | 420,433 | 18,484,324 | 3,040,191 | 21,944,948 |
| Equity securities | 21,652 | - | 122,819 | 144,471 |
| Gold/Silver deposits | 83,691 | - | - | 83,691 |
|  | 525,776 | 18,484,324 | 3,163,010 | 22,173,110 |
| Derivative assets: |  |  |  |  |
| Trading | 164 | 2,841,425 | 860 | 2,842,449 |
| Hedging | - | 156,710 | - | 156,710 |
|  | 164 | 2,998,135 | 860 | 2,999,159 |
| Securities at FVTOCI: |  |  |  |  |
| Debt securities | 17,001,888 | 29,532,073 | - | 46,533,961 |
| Equity securities | 257,915 | - | 453,448 | 711,363 |
|  | 17,259,803 | 29,532,073 | 453,448 | 47,245,324 |
|  | ₩ 17,785,743 | 51,801,695 | 3,689,900 | 73,277,338 |
| Financial liabilities |  |  |  |  |
| Financial liabilities at FVTPL: |  |  |  |  |
| Securities sold | ₩ 2,203 | - | - | 2,203 |
| Gold/Silver deposits | 581,459 | - | - | 581,459 |
|  | 583,662 | - | - | 583,662 |
| Derivative liabilities: |  |  |  |  |
| Trading | 650 | 2,619,631 | 849 | 2,621,130 |
| Hedging | - | 54,009 | 182,748 | 236,757 |
|  | 650 | 2,673,640 | 183,597 | 2,857,887 |
|  | ₩ 584,312 | 2,673,640 | 183,597 | 3,441,549 |

66

# **SHINHAN BANK**  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-4. Measurement of fair value (continued)**

(a) Financial instruments measured at fair value (continued)

ii) There were no transfers between level 1 and level 2 financial assets measured at fair value the years ended December 31, 2022 and 2021.

iii) Changes in level 3 of the fair value hierarchy

Changes in level 3 of the fair value hierarchy the years ended December 31, 2022 and 2021 are as follows:

|  | December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loans at FVTPL | Securities at FVTPL | Securities at FVTOCI | Derivative assets | Derivative liabilities | Total |
| Beginning balance ₩ | 72,582 | 3,163,010 | 453,448 | 860 | (183,597) | 3,506,303 |
| Total gain or loss: |  |  |  |  |  |  |
| Recognized in profit or loss (*1) | (3,662) | 37,504 | - | 793 | (160,439) | (125,804) |
| Recognized in other comprehensive income | - | - | (8,897) | - | - | (8,897) |
| Purchases/issues | - | 1,072,545 | 85,262 | - | (298) | 1,157,509 |
| Settlements | (68,920) | (332,725) | (10,910) | (428) | 466 | (412,517) |
| Transfers into level 3 (*2) | - | 68,083 | - | - | - | 68,083 |
| Transfers from level 3 (*2) | - | (21,277) | - | 75 | - | (21,202) |
| Ending balance ₩ | - | 3,987,140 | 518,903 | 1,300 | (343,868) | 4,163,475 |

|  | December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loans at FVTPL | Securities at FVTPL | Securities at FVTOCI | Derivative assets | Derivative liabilities | Total |
| Beginning balance ₩ | 136,358 | 2,286,874 | 457,996 | 3,022 | (106,906) | 2,777,344 |
| Total gain or loss: |  |  |  |  |  |  |
| Recognized in profit or loss (*1) | (3,051) | 134,081 | - | (1,448) | (79,562) | 50,020 |
| Recognized in other comprehensive income | - | - | (5,706) | - | - | (5,706) |
| Purchases/issues | - | 888,102 | 1,398 | 400 | (597) | 889,303 |
| Settlements | (60,725) | (284,198) | (240) | (1,070) | 3,457 | (342,776) |
| Transfers into level 3 (*2) | - | 139,467 | - | 33 | - | 139,500 |
| Transfers from level 3 (*2) | - | (1,316) | - | (77) | 11 | (1,382) |
| Ending balance ₩ | 72,582 | 3,163,010 | 453,448 | 860 | (183,597) | 3,506,303 |

67

# SHINHAN BANK  
 **Notes to the Separate Financial Statements**  
 December 31, 2022 and 2021  
 (In millions of Korean won)

# **3. Financial risk management (continued)**

# **3-4. Measurement of fair value (continued)**

# (a) Financial instruments measured at fair value (continued)

(*1) Gains or losses among the changes in level 3 of the fair value hierarchy and gains or losses related to financial assets that the Bank held as of December 31, 2022 and 2021, are presented in the statements of comprehensive income as follows:

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Gains or losses recognized in profit or loss |  | Gains or losses recognized in profit or loss |  |
|  | Gains or losses recognized in profit or loss | for financial instrument held at the end of the year | Gains or losses recognized in profit or loss | for financial instrument held at the end of the year |
| Net gain on financial assets at FVTPL | ₩ 35,206 | 26,255 | 130,744 | 123,163 |
| Net other operating expenses | (161,010) | (161,010) | (80,724) | (83,669) |
|  | ₩ (125,804) | (134,755) | 50,020 | 39,494 |

(*2) Changes in the availability of observable market data for the financial assets have resulted in transfers between levels. The Bank has recognized changes in levels at the end of the reporting period when events or situations that cause transfers between levels occur.

68

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