Shinhan Financial Group Co., Ltd. (NYSE:SHG) Q2 2023 Earnings Conference Call July 27, 2023 1:00 AM ET
Company Participants
Park Cheol Woo – Head, Investor Relations
Lee Taekyung – Chief Financial Officer
Kim Myoung Hee – Chief Development Officer
Bang Dong Kwon – Chief Risk Officer
Ko Seok-Hon – CSSO
Kim Kihoon – Shinhan Bank, CFO
Kim Nam-Jun – Shinhan Card, CFO
Park Kyoung Won – Shinhan Life, CFO
Conference Call Participants
Shane Mathews – WhiteOak Capital
Won Jae-woong – HSBC
Park Cheol Woo
Good afternoon. I am Park Cheol Woo, Head of IR. Thank you or participating to the Shinhan Financial Group’s Earnings Presentation for Q2, 2023. Before moving on to their earnings presentation, allow me to make some housekeeping announcements. The earnings presentation of Shinhan Financial Group is taking place through the Group’s digital platform namely the Shinhan Financial Group IR YouTube channel and Zoom App. The YouTube live channel is only available in Korean and Q&A is not available. Therefore, if you wish to have an English view or participate in the Q&A, please join via Zoom. Please refer to our website, www.shinhangroup.com for detailed information on access.
From now on we will start the earnings presentation of Shinhan Financial Group for Q2 2023. For today’s earnings release, the Group’s CFO, Taekyung Lee; CRO, Bang Dong-Kwon; Group CDO, Myoung Hee Kim will be the main presenters. In addition, we are also joined by Shinhan Bank’s CFO, Kihoon Kim; Shinhan Card CFO, Nam-Jun Kim; Shinhan Investment and Securities CFO, Hee-Dong Lee; and Shinhan Life CFO, Kyoung Won Park.
In today’s earnings release there will first be a presentation on the overall business results for Q2 2023, followed by a Q&A session.
Now I will hand it over to the Group CFO Taekyung Lee for the presentation on business results for Q2, 2023.
Lee Taekyung
Hello. As introduced I am Taekyung Lee, CFO of the Shinhan Financial Group. First I would like to extend my sincere appreciation to you for taking part in today’s earnings conference call for Q2, 2023 despite your busy schedules.
Now I will walk you through the key highlights from Page 5 of the IR presentation. Please refer to Page 5. In Q2 of 2023, despite an increase in operating income, net income declined due to conservative provisioning, realizing a net income of KRW1.2383 trillion.
Non-interest income recorded KRW1.33 trillion, up again after increase in Q1. This was due to balance growth, a fee income deposit despite the decline in securities related income. The Group’s cost income ratio in the first half of the year stood at 38.3%, maintaining a stable level despite the upward inflationary pressure and increase in digital and ICT related expenses through a solid trend of operating profit.
The Group’s credit cost ratio recorded 53 bps increased by 22 bps Y-o-Y, due to the increased and counter-cyclical provisions in light of the bank’s credit review season and conservative accumulation of additional provisions with master scale PD adjustments.
Lastly, at today’s BoD meeting, we passed a resolution to set the quarterly dividend payout for Q2 at KRW 525 and execute an additional round of share buyback and cancellation amounting to KRW100 billion in Q3. Moving forward, we will continue to implement a sustainable capital policy by securing sufficient capital capacity.
Next, on Page 6, you can find the main highlights of the Group Q2 financials and on Page 7, the Group’s net income and other profitability indicators are available.
Now turning to Page 8, I will provide an explanation on the detail earnings of the Group. Page 8 shows the Group’s interest income. In Q2 of 2023 the Group’s interest income stood at KRW2.69 trillion a 4.7% Q-o-Q. This is attributable to an increase in interest bearing assets, an increase in bank margins, and a decrease in funding costs of non-bank subsidiaries. During Q2 there was an increase in the interest rate for loans and securities following the rise in market interest rates and the high interest term deposits funded in Q4 of last year reached maturity. As a result, the bank’s NIM recorded 1.64%, up 5 bps Q-o-Q.
Growth of bank loans, which slowed down to 0.1% in the first quarter, recovered in Q2, increasing by 0.6%. Due to weaker demand following higher interest rates and tighter DSR regulations and the asset securitization on mortgage loans, retail lending decreased by 1.8% Y-t-D. However, backed by continued demand from large corporations and well-established SMEs, corporate lending grew by 2.8% Y-t-D. Please refer to Page 34 of the presentation for more detailed information.
Next on Page 9, detailed information on Shinhan Bank’s loan growth, deposit and margin trends are available for your reference.
Next on Page 10, the Group’s non-interest income. Despite the drop in securities related income, fee income and insurance related income, which are the core sources of non-interest income recovered, resulting in 3.4% increase of the Group’s non-interest income Q-o-Q. On a Y-o-Y basis due to the base effect of the low trading gains due to the sharp rise in interest rates in the previous year and higher securities related income reflecting market rate decrease in the first half of this year, non-interest income improved by 21.5%. Due to an increased decrease in accident insurance payments with a drop in insurance claim flying links [ph], insurance related income increase by 10.1% Q-o-Q.
Now I will move on to fee income. With balanced growth in all sectors covering credit card fees, brokerage fees, and IB commissions, fee income increase by 7.6% Q-o-Q. With increased volume in credit card purchases, credit card fee income increased by 26.9% Q-o-Q and brokerage fees also increased by 17.9% Q-o-Q reflecting increased trading volume.
IB commissions recorded an increase due to commissions from acquisition financing recording an increase of 29.3% Q-o-Q. Nonetheless, fee income overall decrease by 8.1% Y-o-Y due to a decline in credit card fees. On Page 11, additional information on the group’s non-interest income trend and details are available for your reference.
Next on Page 12, I’ll walk you through the group’s G&A expenses and credit costs. Despite the one-offs of Shinhan Life’s ERP costs fully absorbed in the previous quarter due to tax deductions and higher advertising and service expenses, G&A costs increased by 6.4% Q-o-Q. On a Y-o-Y basis due to bigger depreciation following increased investments in digital and ICT and an increase in general cost levels due to inflation G&A cost increased 9.0%. However, if the ERP cost of Shinhan Life from Q1 is excluded, the rate of increase stands at 7.6%.
The group’s CIR recorded 38.3%, a slight increase of 3.8% on a Y-o-Y basis, but excluding the impact from ERP action on Life in Q1, it decreased by 0.1%. Despite the following credit card provisions following the stabilization of the two months delinquency roll rate for credit cards, due to the increase in countercyclical provisions in light of the Bank’s credit review season and the conservative accumulation of additional provisions set aside through mask or scale PD adjustments, the growth provision for credit losses increased by 19% Q-o-Q.
Looking at the delinquency rate, which is a leading indicator of credit costs in the case of banks following the rate hikes and economic slowdown, it is trending upward. However, when compared against the pre-COVID levels, the absolute level is still low. Through active write-offs Shinhan Bank’s delinquency rate remains flat Q-o-Q at 0.27%.
Delinquency rate for Shinhan Card recorded 1.43%, up 6 bps Q-o-Q. However, the two months delinquency roll rate, which is a leading indicator of the delinquency rate, has been stabilizing downward since February. To be prepared for internal and external uncertainties the group is making efforts to secure sufficient loss absorption capacity through front loading provisioning, and is continuously striving to mitigate systemic risk by expanding support for vulnerable borrowers through exports to include and expand more win-win finance.
On Page 13, additional information on the group’s G&A expenses and provisioning are available for your reference.
From Page 14, I will hand it over to the Group CRO, Dong-Kwon Bang to explain the Group’s outlook on asset quality and provisioning.
Bang Dong Kwon
Good afternoon, I am Dong Kwon Bang, CRO of SFG. I will go over the asset quality and loss absorption capacity of the Group. High interest rates and real estate issues have led to concerns on asset quality. So today I would like to provide an overview on the Group’s asset quality, real estate financing management and loss absorption of capacity.
First, in terms of asset quality, for vulnerable segments that are being managed as potential risk factors since latter half of last year, the credit card company has led efforts to preemptively strengthen credit management. In result, the portion of exposure to vulnerable segments has remained stable.
Fortunately, the Group’s non-bank delinquency ratio has been showing somewhat stabilizing trends since Q1. In order to manage asset quality, each affiliate is newly establishing or strengthening the related teams and the Group is operating a joint asset quality management system. We will continue to rigorously manage asset quality with our preemptive management system to prepare for any additional market deterioration.
Next is real estate. Including bridge loans total PF exposure amounted KRW8.9 trillion as of June, which is approximately 2% of the Group’s total loans. By region and by underlying assets, Seoul and greater metropolitan area takes up 73%, residential 61, and senior loans 73%. It is largely comprised of high quality assets.
Given the concerns on real estate financing from both home and abroad, the Group internally conducted a stress test, assuming the level of unsold presale apartments during the 2008 financial crisis, which concluded that additional credit cost of KRW200 billion may be necessary. We will stably manage risk assets with close monitoring and increasing the frequency of reviewing countermeasures, while also actively discussing normalization of projects with other lenders.
Last is the strengthening of loss absorption. Since latter half of last year, high interest rates and a sluggish real estate market led to deterioration of market environment. Against this backdrop, the Group has consistently implemented preemptive and conservative provisioning policies. Consequently, the Group’s provisioning rate against total loans and total assets is 0.96% and 0.55% respectively, showing steady upward trend. SFG has one of the highest loss absorption capacity in the Korean financial sector. We will continue the conservative provisioning and make effort to ensure sufficient loss absorption capacity.
Lee Taekyung
Thank you, Mr. Bang. Next we will move on to Page 17 to look at the P&L of each affiliate. The Bank’s interest income increased thanks to margin improvement, but conservative provisioning, higher G&A and base effect from marketable securities profits led to a decline in net income Q-o-Q. For non-bank subsidiaries credit card showed even growth of operating income across credit sales and loans. However, net income decreased Q-o-Q as gains generated by sale of securities in the previous quarter was removed.
For securities, despite higher provisioning against CFD receivables, increase in brokerage fees supported by high transaction volume and growth of underwriting and arrangement fees from the IB business led to slightly higher income Q-o-Q. For Life ERP was fully expensed in the previous quarter. Also, insurance and financial income grew evenly to post higher net income Q-o-Q. For capital, despite reduction of securities related income, the effect of real estate provisioning of the previous quarter was removed, leading to higher net income than the previous quarter. On Page 18, we have the P&L affiliates and Page 19 shows the Group’s global business.
Now let’s move on to Page 20, capital management and profitability. As of June, CET 1 ratio is expected to improve by 27 bps Q-o-Q to 12.95%. This was mainly driven by a robust growth of net income, the conversion of CPS to common shares in May, and an appropriate level of RWA growth. In February we mentioned that the Group’s mid and long-term target was CET 1 ratio 12%.
However, since the authorities have announced that they will levy the countercyclical buffer and introduce the stress capital buffer. We don’t know the exact amount yet, but we feel that an additional one percentage point of CET 1 ratio is appropriate. Given the sustained economic uncertainty at both home and abroad, we plan to raise the CET 1 ratio by 1% to 13% earlier than originally planned. Meanwhile, the capital policies that we announced earlier this year are being consistently implemented.
On the next page, we have provided information on our shareholder return efforts and policies for your reference. The digital strategy on Page 22 will be presented by the CDO of Ms. Kim Myoung Hee.
Kim Myoung Hee
Good afternoon. I am Myoung Hee Kim, CDO of SFG. SFG is working to leverage digital capabilities to strengthen Shinhan’s fundamental financial competitiveness and boost social value in line with the Group’s vision, which is we believe finance should be more friendly, more secure, and more creative. I will go over the achievements of our digital efforts in three segments; platform innovation, social responsibility, and financial contribution.
First are the achievements in more friendly, driven by platform innovation. The Group’s platform is pursuing both volume and quality growth, so that more customers can use our digital services more frequently. The gross MAU across finance and non-finance platforms reached 24.57 million, which is a 24% growth Y-o-Y. Also user-friendly UI/UX improvements and a stronger financial product and service portfolio drove the monthly visitors on our finance platform to surpass 20 million.
The non-finance platform is increasing contact points in the daily lives of customers and recorded a MAU of over 4 million, which is a 59% growth Y-o-Y. In terms of quality growth, data-based activities to enhance customer engagement generated a DAU of over 5 million on our finance platform, leading to the growth of quality users.
Next is the Group’s social responsibility under more secure. Early this year we installed UAD equipped ATMs nationwide to prevent more than 9,200 financial accidents. The AI detection function that analyzes unusual activities and patterns is being continuously upgraded to provide stronger security for our customer’s financial transactions. We have also been developing services and content for senior customers. The senior MAU on our finance platform increased by 15% YTT [ph] as a result.
AI will be more widely applied to protect customers, enhance accessibility to digital finance and boost literacy so that we can fulfill our social responsibility.
Last is the financial contribution under more creative. The Group has been leveraging digital technology to strengthen business innovation and has been implementing company-wide process innovation to boost cost efficiency. As of first half of this year, we have been using AICC and RPA to save KRW200 billion in costs, which is a 10% improvement Y-o-Y.
We are also expanding the business scope of the Life platform while the new digital businesses based on data-based growth is continuously generating operating profit. The first time of this year, operating profit recorded more than KRW200 billion. So the growth of the data business, 28% Y-o-Y is particularly notable. SFG will make the most effort to strengthen digital capabilities to boost fundamental financial competitiveness and create value for customers to fulfill our social responsibility. Thank you.
Lee Taekyung
Thank you, Ms. Kim. On Page 23, the Group’s ESG initiatives, detailed information of subsidiaries and major business performance indicators are provided for your reference.
This will conclude the presentation for the 2023 Q2 earnings. We now move on to Q&A. Thank you.
Question-and-Answer Session
Operator
From now on we will be taking questions. [Operator Instructions] The first question we have White Oak Capital, Shane Mathews. Please ask your question.
Shane Mathews
Thank you for the opportunity and congrats on the results. I want to, I have three questions from my end. The first question is on the OCI trajectory. So if you look on a tenure basis from maybe a 512 to 522, you can see that OCI has actually been negative for the bank over the past 10 years. So wanted to understand the OCI trajectory, which you’re seeing both the — and largely the losses which are coming through OCI is from the securities book. So the duration of this book, how you are actually thinking about this component of the OCI part? That’s the first question.
Second is on your CET 1 and buyback plans. So you raised the CET 1, let’s say target to 13%. So do you think this is going to affect the buyback plans you have proposed?
The third question is on the credit card delinquency falling down. So just wanted to get a better sense of how you’re seeing the overall environment and how your business is operating in the current macro scenario? Thank you
Park Cheol Woo
Thank you for your question. Please allow us some time to prepare answers to your question. There were three questions in total. So the first was the OCI securities projections and the CET 1 and buyback and the card delinquency rate. The card delinquency rate, we will first have the answer provided to you by CFO, Nam-Jun Kim.
Kim Nam-Jun
Thank you for the good question. So if we take a look at the delinquency rate for a credit card, the delinquency two-month rule rate reached its peak in February and it has been trending downward since in Korea compared to pre-COVID levels. We think that we will be able to return to that level near the year end. So the delinquency rate that increased dramatically in Q1 that led us to additional provisioning will stabilize in the second half. If we look at the delinquency role rate, we think that it’s also at a manageable level at 0.33%. So in terms of delinquency rate, we will be very active in taking a management stance.
Park Cheol Woo
And then regarding the profit outlook on our securities book, so as you know this can be quite volatile depending on interest rates and I think interest rate is the biggest contributor to the volatility. Recently interest rate has been going up and it has booked as valuation loss and the trend is changing from first half and the second half. In the second half we believe that the overall, I think the amount that I can give you is that interest rate outlook. It can change as the market conditions change, but Fed raised it once and be okay.
We’re not sure whether they’re going to raise it or not, probably not. So I think high interest rates will be maintained for the time being and from next year onwards the interest rates I think will start to come down. Based on this assumption, the overall securities book and valuations and OCI, the valuation loss should reduce and valuation gate should increase and there will be repricing of the securities and the return has been on uptrend. And this can have impact on NIM, a positive impact on NIM.
Regarding the CET 1 ratio and the buyback plans and cancellation plans, so like you mentioned, we raised our outlook from 12% to 13%, so as of June it was already 12.95%. So it’s just 5 bps more that we need. It’s not very difficult. And as for the buyback plans, we will be reviewing them on a quarterly basis. So we have been canceling shares on a quarterly basis as well.
The TSR I think will be around 30% to 40%, but we have to consider the authorities regulations, market conditions and the needs of the Group. So considering all these factors I think we will be able to maintain the policies that we announced earlier this year for the shareholders.
Operator
The next question. We will just allow some time for the next question to come in. The next question will be from White Oak Capital, [indiscernible]. Please ask your question.
Unidentified Analyst
Hi, thanks for taking my question. I have two. One, if you could comment on your strategy of expansion outside Korea, how much capital we should expect you to allocate outside Korea over the next three years, that would be very helpful? And what businesses, which countries should we expect this capital allocation to go to? And the second question is more at a system level. We know recently there has been high household debt to GDP levels in Korea. To what level should this ratio fall for us to expect loan growth again comfortably? Thank you.
Park Cheol Woo
Thank you for the question. Please allow some time for the question to be answered. Yes, I think there were two questions. There was first question on the global business and the shareholder return on asset growth. I would like to provide an overall answer. And then for the detailed asset growth on the Bank side, the Bank CFO will answer.
For the global business, there’s the advanced markets and we have the emerging markets. For the advanced markets as our companies are making inroads and through those markets, we’re trying to support them in our policies as well. For large corporations and in in cooperation with many companies in Korea, we’re continuing to pursue those initiatives. For emerging markets in order to increase our income we are looking at opportunities to seek and we’re trying to expand our footprint there as well. As we well know, in Vietnam, we are seeing good growth. I think it’s the same for Korea and other countries as well.
Recently there has been re rate hikes and also in an economic slowdown. So all countries are looking at delinquency rate increasing and of course in emerging markets we’re observing the same situation, but we have the risk management experience in the past that we could refer to. So we will be looking at that for preemptive risk management. Under that, we are looking at how we can just expand our footprint physically, but also looking at how we could grow further in the areas that we have already established our businesses. Even if we are going to make additional expansions, we are going to look at how we cannot rather do organic growth, but if there are high growth potential areas, we may be looking at options to make equity investments. But until now we haven’t had any specific targets.
And in terms of our asset growth for total shareholder return in the earliest start of the year for shareholder return for asset growth, we said that we were trying to support that. And under that asset growth policy, we’re trying to grow our assets accordingly. For retail loans and the bank asset book, the Bank CFO will take the answer.
Kim Kihoon
So I’m the CFO of the bank. My name is Kihoon and I will go over the household loan growth. If you look at the first half asset growth, first of all the market experienced negative growth, our numbers were minus 2.4%. In the corporate loans there was net growth of around KRW3.5 trillion in the corporate loan sector and earlier this year we said that we were going to consider a certain economic situations, we’re going to focus on high quality loans and we are going to be conservative. And in that respect, we believe that in the corporate loan sector we have been in line with that.
For the households in the second half there can be some mortgages and tons related demand and I think therefore, we will be able to offset the negative growth of the first half. We’ll be able to record negative — positive growth. And if we do that and if we maintain the corporate loan trends, we’ll be able to achieve our annual targets. And just to add to that for the retail loan sector, there is the government concern on high household debt levels, but if you look at the exposure of Shinhan Group in the retail segment, it’s actually very high quality. And of course we are supporting the vulnerable borrowers, but overall we have very high quality portfolio and we’ll be appropriately managing and we will be growing the household sector in that respect.
Operator
Thank you for the answers. We’ll move on to the next question. Next question is from HSBC from Mr. Won Jae-woong. Please go ahead.
Won Jae-woong
Thank you for the good results. Congratulations for the good results. Despite challenging market environment the NIM increased in Q2 for Shinhan Group. I would like to know your outlook for the second half NIM? And second, the credit cost ratio, it went up by 0.5%. In this scenario, you said you did a scenario, a stress test based on 2008 financial crisis. You said additional credit costs will be around KRW200 billion. That’s not as much as I initially expected. And so does that mean that credit cost overall for the year can show downward stabilizing trend?
And lastly, cancellation, I think the share cancellation is smaller than what we originally expected. Is this because you have raised the CET 1 ratio target, is that correct? And if this is the case, I understood that you have plans to focus on cancellation and buyback rather than dividend payout. What is your shareholder return policy and what are your plans for buyback and cancellation for the remainder of the year? Should we focus more on the dividend payout?
Park Cheol Woo
Please wait one moment while we prepare the answer. There were three questions. The NIM will be answered by Bank CFO and the remaining two, I will answer them. First NIM and it will be from the CFO of the bank.
Kim Kihoon
Thank you for the questions. My name is Kihoon and I am the CFO of the Bank. As you mentioned, Q2 NIM improved around 5 bps 2Q and I mentioned in Q1 earnings call, but NIM in Q1 one has been affected by Q4 because funding costs rise quite significantly and the funding cost is showing downward stabilization as we enter Q2. So that has helped our NIM. In the second half household and the corporate loan segment, I think there will be quite intense competition in terms of pricing in the market. And from the deposit side, the time deposits are maturing so they will be repriced. And so given these factors, I think there is room for improvement. So second half NIM should be slightly higher than Q2 or should remain stable. Full year NIM should be similar to last year.
Park Cheol Woo
And second question, given global financial crisis, given the current economic recesssion, we mentioned that there can be KRW200 billion additional credit costs according to our stress test. And so, even if we set that aside, it won’t be set aside all at once. It will be distributed across different quarters. And I would like to highlight that the asset — given the asset quality we have sufficient provisioning. We are just preparing ourselves for uncertainty in the economy and we are going to maintain our conservative provisioning policy. So in the second half our credit cost was around 53 bps. It was quite high. In the second half it’s going to come down, but maybe I think it will be around 4 bps. And so like you’ve mentioned, we are increasing the target of CET 1 or 12% to 13% and this has impacted the size of our cancellation. As we move up the CET 1 ratio, if we maintain 13%, we’ll be able to continue. Even if we maintain at 13%, we’ll be able to continue the initial capital return policy that we announced earlier this year.
Operator
The next question will be by [indiscernible].
Unidentified Analyst
Thank you for the opportunity to ask the question. There’s one question from my side. So for the overseas commercial real estates, there have been continuous issues raised. I would like to get color on your exposure.
Park Cheol Woo
Thank you for your question. Please give us some time to prepare for our answers. So yes, for our commercial real estate exposure, our Group CRO will take the question.
Bang Dong Kwon
So yes, I’m Dong Kwon Bang, the Group CRO. Thank you for the good question. If we look at our overseas real estate investment, it’s around KRW4 trillion, but to just add a little bit of explanation to that, there is about KRW1 trillion substandard and mostly in hotels around KRW100 billion and America KRW2.5 trillion and KRW800 billion in Europe and others are in Asia.
We did a full scale investigation into the current status and the additional loss that’s expected. We are going to carry out proactive monitoring and because of COVID until now, due diligence onsite was quite difficult, but now things have changed. So onsite due diligence activities are possible. So we are looking at the plans of how we could do so on site at the group level.
If we take a look at the exposure, it’s around KRW4 trillion Korean one as explained. Thank you.
Operator
So we are waiting for the questions to come in. So while we wait for the questions, please bear with us for one moment. The next question is from [indiscernible] from Hana Securities.
Unidentified Analyst
[Indiscernible]
Park Cheol Woo
Yes, we cannot hear you. Yes, we can hear you now.
Unidentified Analyst
I was on mute, I’m sorry for that. In the second half I was already assuming 150 billion cancellation of stock. It has gone down to 100 billion. And I think given the changes, the number of shares the subject for dividends can actually increase from last year. So regarding the stress capital buffer, there can be some announcement by government in the second half of this year. The target you mentioned was 12% and I think all the minimum regulatory requirement adds up to 10.5%. If the stress capital buffer is around 2% to 3%, then do you still have room to buy back and cancel shares? So what are your expectations for the stress capital? And you know, what are your plans regarding this? And can you still maintain 100 billion to 150 billion cancellation every quarter even with the changes in the minimum regulatory requirement? And so I would like to add for some more details here.
Park Cheol Woo
Yes, thank you for the question and please give us one moment. Yes, so we keep getting questions regarding the buyback and cancellation and was actually very detailed question, so thank you for that. So earlier this year we said that we were going to review all this on a quarterly basis.
I don’t think we committed to 150 billion every quarter, but I think largely you expected 150 billion every quarter. So the TSR that we are aiming is around 30% to 40%. And so we gave you some references, given economic uncertainty and regulatory changes, stress tests and so on so economic uncertainty continuing and importantly, the financial authorities are introducing new regulation.
The stress capital buffer we are not sure the exact amounts. I think the tariff is coming to an end, end of October and it should be introduced next year. If we refer to U.S. and Europe, if you look at their situation, the stress capital buffer. So if loss is 1.5%, the minimum is 2.5%. And if we look at the government, Korean Government it was around 1.5%. If we assume U.S., then we need to assume 2.5%.
If you look at European banks, the stress capital requirements, they have a requirement and they have a guidance. If you add both of them together, on average they are different countries, but on average it’s around 2.4%. So this means that the requirement is basically going up by 2.4% for the banks. So currently requirement for us is 8%. If the counter cyclical buffer is 1%, that’s 9% and then it’s not confirmed. And we don’t know the exact number yet, but if we refer to U.S. and Europe, they should be 2.5% additional as the stress capital. So then it goes up to 11.5%.
So we add 1.5% offer and that’s how we came up with this 13% number. So we have to still see the stress capital buffer, how that’s going to play out. But that was our logic behind 13%. And we have, and I think you are going through various scenarios, but like we mentioned earlier, I think we’ll be able to largely be in line with what we mentioned early or this year. I’m not sure if this will completely answer your question, but please understand that at this point it’s very difficult to give you more detailed answers.
Unidentified Analyst
Thank you for your answer.
Operator
We’ll wait for the next question. I think we have another question from WhiteOak Capital, Shane Mathews. Please ask a question.
Shane Mathews
Yes, thank you again for the opportunity. So two questions from my end. The first, this is a follow up on the first one. So can you just tell the duration of your investment portfolio? The second question is with respect to your non-banking subsidiaries, total around 2017, the card operation was contributed around 30% of net income, but that has fallen off a bit in the past five years. We wanted to understand the competitive landscape you’re seeing in the Shinhan Card operating segments. And also with respect to the other non-banking subsidiaries, what areas are you targeting more to make more sustainable revenue sources? Thank you.
Park Cheol Woo
Thank you. Please allow some time for us to prepare to answer your question. Okay. I think you asked for the duration of our investment portfolio. And the second question was on the credit card the contribution to the Group’s income. I think the first question, I’ll take the answer and the second question, I’ll refer back to our Card CFO.
For the duration of our marketable securities, in terms of short-term, if we look at our fixed income portfolio, the outstanding balance is KRW33 trillion and [indiscernible] 0.47. And the FCOM is KRW75 trillion and 5.9 years and in AC maturity to hold is KRW32 trillion 3.95 years. And now for the second question…
Kim Nam-Jun
I think it would be a question on the overall growth potential for our credit card. I think I’ll give an overall explanation. I think the payment and the settlement and the overall landscape in this segment is quite difficult. It’s very challenging, intense competition. If we look at the credit card company’s activities, it’s not only credit card payments but also different business areas as well, non-banking areas and also data businesses. We’re looking for new revenue sources to diversify our portfolio.
And if we look at our revenue generation, it’s not only coming from credit card purchases, but additional revenue sources are continuously being identified. So credit card income, about KRW600 billion as we see in our current level, we expect that that will continue on in the future as well. Thank you.
Park Cheol Woo
And, and to add on top of that, for the other credit card companies and the other non-bank subsidiaries had a brief off of my mic, I apologize for that. So we have the bank and the non-banking sector. So for I think that you know that we are making continuous efforts to grow our non-banking business as well. So if we take a look at our income, so with the interest rate hikes, there has been a hike in interest rates and as a result you might see, I think that the contribution coming from the non-bank subsidiaries is lower, but securities, insurance, also asset management capital, all of such subsidiaries are growing quite steadily.
The Korean economy, if it continues to grow not only the banks but the non-banking subsidiaries, we expect that the capital markets will grow in these segments as well. So we think that these will continue to be our growth drivers and from our Group’s perspective, we will make continuous efforts to grow them. Thank you.
Operator
We don’t have any immediate questions coming in. We will wait just one moment.
Park Cheol Woo
If there are no more questions, we will conclude the 2023 Q2 earnings call of Shinhan Financial Group. I would like to thank you all for attending the earnings call. The content of today’s earnings call will be uploaded on the YouTube channel of Shinhan Financial Group’s IR team. There are other videos introducing the company and giving you more information on the company. So please take your time.
