To be the best -...

Business Review 2006

Winning Management...

To be the best

Winning Management ...for Growth

Winning Management ... for GrowthShinhan Bank is dedicated to growing in harmony andproviding ultimate values to its customers, shareholders,employees, partners and communities through successfulintegration.

ContentsWinning Management ...for Growth 02

Winning Management ...for Technology 12

Winning Management ...for Networking 18

Winning Management ...for Performance 28

Management Discussion & Analysis 47

Successful IntegrationShinhan Bank successfully pulled off a legal integration of the former Shinhan Bank

and Chohung Bank into one large bank with total assets amounting to KRW 163.0

trillion in April 2006. Since then, we managed to inspire early emotional and chemical

integration, dispelling any controversies from the initial stage, by consistently

implementing fair and transparent personnel principles and uniting the staff of the

two banks into a single team. To boot, we made wonderful progress with continuing

reforms and profitability-oriented management even amid the chaotic period of

integration. As such, we marked a new era in the history of Korea’s financial industry,

while preparing foundations for growth through stable earnings generation.

Shinhan Bank Business Review 200604


Profile

Shinhan Bank started as a small enterprise with a capital stock of KRW 25.0 billion, 279 employees, andthree branches on July 7, 1982. Today, it has transformed itself into a large, super-quality bank, boastingtotal assets of KRW 176.9 trillion, equity capital of KRW 9.7 trillion, 10,741 employees, and 1,026 branchesas of 2006. Total deposits and net income amounted to KRW 105.3 trillion and KRW 1.4 trillion,respectively.

To add, the bank has been consistently recognized as “the most convenient bank,” “a one-step aheadbank” and “a reliable bank” by a myriad of sources. Our laurels include winning grand prize at the 2006Great Workplace Awards Korea, Korea Service Grand Prix, Reliable Company Awards, Global StandardManagement System Awards in the social responsibility management category, and the First BrandAwards. We have also been praised as the best bank for reliability in “Korea’s Most RespectedCompanies”; per-capita productivity; excellent talent management; least customer grievances by theFinancial Supervisory Service for four consecutive years; and Internet banking for four quarters in a row.

A pioneer in the Korean financial industry, Shinhan Bank is poised to roll out “a wider and more solidfinancial network” with a view to providing new-dimensional customer satisfaction, following itsintegration in April 2006.

Shinhan Bank Business Review 2006 05

Financial Highlights

In billions of Korean won In millions of U.S. dollars 2)

FY2006 FY2005 1) FY2006 FY2005 1)

Bank AccountFor the Year

Operating Revenues* 12,933.4 13,474.6 13,912.9 13,301.7 Operating Expenses* 11,544.0 11,890.4 12,418.2 11,737.8 Operating Income* 1,389.5 1,584.2 1,494.7 1,563.9 Ordinary Income* 1,942.9 1,762.1 2,090.0 1,739.5 Net Income for the Year* 1,431.1 1,530.9 1,539.5 1,511.3

At Year-EndTotal Assets 154,207.1 142,251.5 165,885.4 140,426.0 Total Loans 112,715.3 99,839.3 121,251.4 98,558.1 Total Securities 23,660.2 23,934.0 25,452.0 23,626.8 Total Deposits 94,048.6 87,307.0 101,171.0 86,186.6 Total Stockholders' Equity 9,667.4 8,425.7 10,399.5 8,317.5

Trust AccountAt Year-End

Total Assets 23,750.1 21,673.5 16,549.4 21,395.4 Total Loans 391.0 377.0 313.0 372.2 Total Securities 10,130.2 8,877.6 5,832.8 8,763.7 Total Money Trusts 6,768.1 9,837.2 6,643.0 9,711.0

Financial RatiosReturn on Average Assets* 0.96 1.09Return on Average Equity* 16.01 20.72Substandard & Below 0.75 1.05NPL Ratio by FSS 0.62 0.87Net Interest Margin 2.22 2.80 BIS Capital Adequacy Ratio 12.01 11.64

( Tier 1 Capital Ratio ) 7.81 7.40 ( Tier 2 Capital Ratio ) 4.20 4.24

Note1) Financial figures for the year 2005 are on a pro forma basis

* Due to merger between heritage Shinhan Bank and Chohung Bank, Income Statement figures exclude 1Q. 2006 of heritage ShinhanBank.

Note2) Translated into U.S. dollars at the rates of KRW 929.60/USD 1.0 and KRW 1,013.0/USD 1.0, respectively those prevailing onDecember 31, 2006 and December 31, 2005.

Total Asset**(In billions of Korean won)

200,000

160,000

120,000

80,000

40,000

02005 2006

Net Income**(In billions of Korean won)

** Bank accounts only

2,000

1,600

1,200

800

400

02005

1,530.9

2006

1,431.1142,251.5

154,207.1

Total Stockholders’ Equity**(In billions of Korean won)

10,000

8,000

6,000

4,000

2,000

02005 2006

8,425.79,667.4



Year 2006 at a Glance

Inaugurated the new, integrated Shinhan Bank As the second largest bank in Korea, the new Shinhan Bank (SHB) was launchedwith assets of KRW 163.0 trillion, 11,400 employees, and 964 branches (includingoutlets). Presenting a vision of “the finest bank of pride,” the bank kicked off itsmission to fulfill its responsibilities to its customers, shareholders, employees, andsociety under the slogan of “THE Bank Shinhan, the pride of Korean finance,” and itsgoal of building “ a golden path with lofty dreams.”

Launched “Shinhan Bank Star League 2006” The bank launched “Shinhan Bank Star League 2006,” attesting to its contributionto the e-sports culture by expanding the volume of money prizes and participationby pro-gamers. It is aimed at the continuous pursuit of e-sports marketing,targeting prospective future customers.

Received Grand Prize at the “2006 Global Standard Management SystemAwards”The bank was the only financial institution to receive grand prize at the “2006Global Standard Management System Awards” in the social responsibilitymanagement category, organized by the Global Standards ManagementCommittee and conducted by the KMA Registrations & Associations and Society ofKorea Industrial and Systems Engineering. The bank has consistently pushed forcustomer satisfaction management since its founding, basing the standards for alldecision-making on customers.

Received Grand Prize at the “2006 Trust Company Awards,” entering the“Gold Class” category The “2006 Trust Company Awards,” jointly organized by the Korean Consumers’Forum and the Korea Economic Daily. The bank was awarded the highest scoresin the banking industry in recognition of its commitment to faithful management,value creation for customer satisfaction, and social responsibilities.

Selected “Best Domestic Bank in Korea” by Asiamoney for threeconsecutive yearsThe bank was named the "2006 Best Domestic Commercial Bank in Korea" byAsiamoney for three consecutive years since 2004. The award is based on thepreceding year's results and opinions of industry experts on each bank. The bankreceived the highest scores in soundness, profitability, and efficiency.

Received “Korea Service Grand Prix 2006” from Korea StandardsAssociationThe bank received grand prize in the banking category at the “Korea ServiceGrand Prix 2006,” supported by the Ministry of Commerce, Industry, andEnergy, and organized by the KSA (Korea Standards Association). To note, thebank was awarded grand prize for three consecutive years from 2004.

Moody’s upgraded long-term and short-term SHB credit ratings Moody’s upgraded the bank’s credit ratings to “A3” and “P-1,” respectively, from“Baa1” and “P-2.”

April 1, 2006

April 12, 2006

May 11, 2006

May 25,2006

June 15, 2006

June 29, 2006

August 10,2006

April 1, 2006

April 12, 2006

May 11, 2006

May 25, 2006

June 29, 2006

June 15, 2006


Ranked first in the Service Quality Index (KS-SQI) survey for five years in a row The bank ranked first in the KS-SQI survey by the KSA for five consecutive yearsfrom 2002 (in the banking category), solidifying its profile further in customersatisfaction.

Named “Best Bank in Korea” by Global Finance for four consecutive years The bank was selected as the "Best Emerging Market Bank in Korea 2006" by theGlobal Finance magazine for four years in a row since 2003. The award selects topbanking performers in emerging markets, following an exclusive andcomprehensive survey of growth in assets, profitability, strategic relationships,customer service, competitive pricing, and innovative products. The bank earnedthe highest scores in all criteria including profitability and efficiency.

Received grand prize at the “2006 Korea Social Contribution Awards” in thenational welfare categoryThe bank received grand prize in the national welfare category at the “2006 KoreaSocial Contribution Awards,” organized by the Korea Journalists’ Forum andsupported by the Ministry of Health and Welfare, Ministry of Commerce, Industryand Energy, Ministry of Gender Equality and Family, and Ministry of Labor.

Began operation of integrated IT systemThe bank completed the integration of former Shinhan Bank and Chohung Bank,succeeding in a “IT revolution” through the creation of the NBS (New BankingSystem). The system was created through a “big bang method,” scrapping the twobanks’ pre-existing systems while instantly applying a third system.

Received Distinguished Service Award at the “2006 Mecenat Awards” The bank received the “distinguished service award” at the “2006 MecenatAwards” in recognition of its contribution to cultivating and supporting Korea’sculture and arts.

Purchased “Cheonsang Yeolcha Bunya Jido” and donated it to the NationalPalace Museum of Korea The bank has carried out cultural properties recovery campaigns on a group-widelevel. The purpose of these campaigns is to fulfill its social responsibilities,heighten brand value, and practice social service programs through theestablishment of a new donation culture.

Selected as “The Asset Triple A Best Domestic Bank” for 2006 by AssetMagazineThe bank was chosen as “The Asset Triple A Best Domestic Bank” for 2006 byAsset magazine. Asset magazine cited the bank’s expanded market positionthrough successful mergers, solid capital structure, superior key indicatorsincluding operational efficiency, profitability and asset soundness, and outstandingdifferentiated strategies and sales growth in SME and retail banking sectors.

September 5,2006

September 18,2006

October 2,2006

October 9,2006

December 5,2006

December 13,2006

January 17,2007

October 2, 2006

October 9, 2006

December 5, 2006

December 13, 2006

January 17, 2007

September 5, 2006

September 18, 2006

President & Chief Executive OfficerShin, Sang-Hoon


CEO’s Message

Financial Environment and Trends in 2006The Korean economy grew moderately in 2006, backed by two-digit growth of exports for the last fourconsecutive years and despite an overall shrinkage in consumer and investor sentiment due toaggravating uncertainties at home and overseas and sluggish domestic demand and income.

The banking industry also enjoyed upturns in revenues across the board, but the importance ofearnings generation capabilities were highlighted once again amid the continued underlying changesin the financial environment, including changes in interest and exchange rates. Particularly, with a viewto survival and progress, each bank had to seek new growth engines and work hard to securefoundations for sustainable growth.

Management Results in 2006 In this climate, Shinhan Bank pushed for a series of internal overhauls while confronting intensifyingcompetition, in addition to a wave of attacks from other players, since its full-fledged integration onApril 1, 2006.

Above all, we successfully wrapped up three imperatives for integration of the former Shinhan Bankand Chohung Bank, including incorporations, IT and operating systems, adding to our reputation forefficiency.

Together, we dispelled worries over customer attrition through a preemptive customer segmentationstrategy and reaped substantial results in earnings and profitability despite fierce competition,confirming again that “we can succeed!”

At the end of 2006, our pre-provisioning income amounted to approximately 2.5 trillion won, while netincome and ROE (Return on Equity) stood at 1.4 trillion won and 16.01%, respectively. Our substandard& below loans and delinquency ratios were 0.75% and 0.65%, respectively, retaining the industry’s top-notch asset quality.

These accomplishments in 2006 reflected the high expectations of our customers and shareholders,who demand “THE Bank”-in other words, the finest and the best in banking services-and they shouldbe a powerful starting point for the newly integrated Shinhan Bank, which aims for “a top position inglobal finance.”

Management Prospects for 2007Rather than resting on our laurels, we believe our true future lies in our goal of becoming “THE Bank,Shinhan-the pride of Korean finance,” to compete as an equal with global leaders in the world financialmarkets.

To this end, we plan to upgrade our software, including corporate ethos and working methods, whilematerializing synergies from early integration. Additionally, we will actively break new ground for thefuture by exploiting new revenue drivers.



The economic outlook for 2007 is predicted to be somewhat gloomy, heralding the possibility ofunfavorable conditions.

We particularly anticipate more challenges than opportunities, such as the ever-expanding,intensifying competition among financial sectors, primarily led by the Capital Market Consolidation Act(to be introduced in 2008) and the FTA (Free Trade Agreement) between Korea and the USA. Anotherfactor is the growing need to manage potential risks, including real estate and foreign exchange rates,amid the continuing deterioration in economic recoveries.

Consequently, we plan to meet these challenges head-on by developing new models for the Koreanfinancial industry in order to solve any issues that may arise during the year.

Management Plans for 2007That said, we are resolutely determined to attain our strategic goal for 2007. We intend to strengthenour profile via the creation of customer values, while wisely coping with the predicted financial climatein 2007 as described above.

To this end, we will first secure our identity as a dynamic bank bursting with health and vitality in anintegrated Shinhan culture.

We will be even more devoted to creating a great workplace where all Shinhan family members canconcentrate on their work and grow together with Shinhan Bank; in other words, to establish a balancefor employees where their work and personal life can be perfectly harmonized.

Our vision of becoming a world-class bank should be premised on the development of capabilities andhappy living for each employee. Accordingly, we will continue to promote a corporate culture where thespirit of challenge and creativity spring forth through a broad spectrum of practical management andsupport initiatives, such as the CoP (Community of Practice) activities.

Specifically, we will establish a culture of incentive and compensation, recognizing and rewardingShinhan people who genuinely devote themselves to their organization. We will also establish a fairpersonnel system, ensuring that the right people are posted to the right positions, based oncompetence and contribution levels.

Secondly, we will work to expand corporate growth as hard as we can by reinforcing our groundworkfor sustainable growth. We will advance our functions all the more as a financial group channel that isthe strength and key to Shinhan’s growth. At the same time, we will secure momentums for future


growth, such as differentiated markets and wider customer bases, with an unwavering spirit ofchallenge and no fear of “creative destructions”and failures.

We will do our best to show the market our unlimited powers and possibilities to capture opportunitiesfor growth and turn them into results, on the back of our proven accomplishments and confidence.

Likewise, we will decisively remove any barriers and obstacles to change, challenges, and harmony, soas to welcome new ideas and suggestions from anyone anywhere, in keeping with the “blue ocean”strategy.

Still, we will not neglect our endeavors to improve and bolster our capabilities, stability and harmonyby means of preemptive risk management, seeking balance in growth and profits and eliminatinguncertainties.

Thirdly, we will endlessly evolve through the creation of customer values. Because changes arecoming faster and wider, the contemporary world is not only no longer accepting yesterday’s formulasfor success, but the consumer-centered financial business environment is also rapidly intensifying.

Therefore, from this point on, we will be committed to creating new paradigms for CS (CustomerSatisfaction) via milestone innovations. We have enthusiastically spearheaded reforms in tellerservices, earning recognition for the highest level of customer satisfaction so far. But, we will pullthese levels up further and develop new CS models to touch the hearts of customers, as well as toinduce their active and voluntary words of mouth for Shinhan.

Further, we will consolidate our corporate constitution to brace against any future difficulties on thestrength of customer trust and loyalty, while fulfilling our social responsibilities and leading ethicalmanagement to be a model company.

By rolling out our core strategies for 2007 without interruption, we pledge to deliver the ultimate invalue to our customers, shareholders and employees, becoming both a world-class bank and “THEBank, Shinhan-the pride of Korean finance.”

Thank you.

President & Chief Executive OfficerShin, Sang-Hoon

We will consolidate our corporate constitution to brace against anyfuture difficulties on the strength of customer trust and loyalty, whilefulfilling our social responsibilities and leading ethical management tobe a model company.

Winning Management ... for TechnologyShinhan Bank is creating new customer values throughthree major innovative initiatives Blue Ocean Strategy, SixSigma, and Knowledge Management while working toattain qualitative growth at the same time.


Shinhan Bank’s Vision Set

The Finest Bank in Korea-THE Bank of PrideOur vision of becoming “The finest bank in Korea -THE Bank of Pride” reflects our desire to realize ourideals and become the pride of Korean finance. That is to say, we aim to present dignity and hope to allparties concerned, providing value and meeting the expectations of a diversity of people includingcustomers, shareholders, employees and society.

Shinhan Bank strives to evolve into a world-class bank that all other companies wish to measure up to,leading the financial market through “All Together” Management, Basic Management, and CreativeManagement, while becoming known as the bank of pride for Korean finance.

The pride of Korean finance, “THE Bank Shinhan” is now taking powerful steps towards becoming aleader in Korean finance and beyond.

Vision Set

THE Bank of PrideVisionStatement

Shinhan-the Pride of Korean Finance

For Customers/ For Shareholders/For Society/ For Employees

“ABC” Management (“All Together” Management/

Basic Management/Creative Management)

Slogan

Mission

Strategy


Winning Management ...for Technology

Six Sigma Management innovations

- Innovative working methods- Innovative thinking methods- Problem-solving methodology

Knowledge Management and CoP (Community of Practice) the source for

organizational competitiveness

- Acquire and generate knowledge- Create new values by utilizing knowledge

Blue Ocean Strategy to create new markets and business opportunities

- Concentrate competencies on new business areas- Develop new growth engines

Three Innovations

Blue Ocean Strategy to create new marketsand business opportunities

Six Sigma Managementinnovations

ThreeInnovations

KM&

CoP

Knowledge Management and CoP (Community of Practice)the source for organizational competitiveness


Six Sigma

Shinhan Bank incorporated “Six Sigma” into its entire management system, a first among domesticbanks, in order to establish innovative systems and cultures and double synergy effects from theintegration of former Shinhan Bank and Chohung Bank in April 2006.

We started building an innovation-oriented culture by waging the “Slim & Simple Work InnovationCampaign” to aid employee understanding and induce participation. Spadework was completed byJune 2006, and this campaign will be fully realized by 2008.

In order to actively pursue the full-scale introduction of Six Sigma, we designated an organization to bein exclusive charge of this task inside the Change Management Group. Other plans for its effectiveintroduction and establishment include a variety of campaigns, education, formulation of slogans, andthe publication of educational materials and journals.

Consolidate Six Sigma culture Secure independent project execution capabilities

Complete 121 BB* projectsExpand management innovation activities companywide * BB (Black Belt): Six Sigma improvement team coaches or actual leaders

Complete 53 projects

Officially introduce and build infrastructure2006Preparation

2006~2007Introduction

1st Wave, 2nd Wave

2007Expansion3rd Wave, 4th Wave

After 2008Establishment

Six Sigma Introduction Plan


Winning Management ...for Technology

Knowledge Management

Shinhan Bank inaugurated a knowledge management team in April 2006. Its goal is to heightenproductivity and ultimately pull up the quality of products and services by continuously creating newknowledge in order to maintain our competitive edge in a rapidly changing financial environment. Wealso plan to build EKP (Enterprise Knowledge Portal), an IT infrastructure that will become a basis forknowledge management activities by the end of March 2007.

Core Elements of Shinhan Bank’s Knowledge ManagementCoP (Community of Practice)

CoP will eliminate barriers among departments and positions, and share knowledge amongemployees, thereby contributing to the development of individual capabilities, as well as theadvancement of communications and the induction of results and accomplishments.

BP (Best Practice) Management

BP Management will design company-wide BP development and advancement systems andprocesses so that the bank’s experiences and know-how can be accumulated as intellectualproperties, while bolstering the utilization of BP.

K-Map (Knowledge Map)

The K-Map will enable the staff to easily find desired data and information and utilize them for theiroperations, classifying and integrating scattered knowledge by function, job, and target customerbased on knowledge type.

Knowledge Experts

Knowledge experts are selected from among heads of operations and in-house and outside expertsto control the quality of knowledge and resolve problems. The aim is to share their knowledge,experiences and know-how.

Suggestion System

Inviting suggestions from employees mainly for management improvement, IT, products, andoperational risks, the goal is to expand sales opportunities and diminish risks by seeking outinnovative ideas and targeting internal risk factors.

Knowledge Management Process

An all-round management process from the generation to the retirement of knowledge andinformation, this procedure evaluates, utilizes, and refines knowledge within the EKP (EnterpriseKnowledge Portal)based on a defined life cycle, thereby enabling real-time sharing, accumulation,and upgrades of valuable knowledge.

Core Knowledge Management

Most core knowledge and information are created and managed to secure future growth enginesand provide the finest differentiated services.


Blue Ocean Strategy

Korea’s banking industry has been marked by increasingly intensifying competition among mega-sizebanks and between domestic and foreign-invested players since the market opening in 2005. In orderto surmount this acceleration in competition and secure new growth engines, Shinhan Bank beganpreparing a “blue ocean” strategy from the second half of 2005. Currently, we are primed to apply thisstrategy to all of our management activities, redefining our markets and customers and encompassingproducts, organizations, and processes.

Taking the “blue ocean” strategy as the core innovation strategy for our integrated bank andestablishing it as an all-time value innovation program through companywide implementation, we arecreating new markets and growth engines with a focus on customer values.

Processes and Plans UnderwayFollowing the introduction and dissemination of the “blue ocean” strategy by June 2006, Shinhan Bankhas created a roadmap that will serve as our organizational ethos for 2007. During the introductorystage, we selected departments to take exclusive charge of planning, research, and expansion ofstrategy. We also concentrated on “blue ocean” strategy and communicated with our staff members,using other companies as benchmarks and holding lectures by outside specialists. During theexpansion stage, we prepared a “Strategy Canvas” along with companywide education, with an aim toexpand this to all of our operations, including financial products, structures, and processes. We arealso redefining existing markets and customers. In addition, we are pushing for strategic tasks bygroup and encouraging employees to draw up a “Strategy Canvas” when reviewing new businesses.

In 2007, we will establish the “blue ocean” strategy as an all-time value innovation process in the bank.Further, we plan to extend it to the entire Shinhan Financial Group and share our examples with ourgroup companies as forms of best practice.

Winning Management ... for NetworkingShinhan Bank strives to be a model company, winningsteadfast trust from customers and taking the lead in socialobligations and ethical management.


Customer Satisfaction

Shinhan Bank is devoted to supporting customer success from the beginning to the end.We aim to become “the most convenient bank,” heightening the quality of financialservices in Korea by way of improving processes and introducing advanced financialtechniques for customers.

Our efforts to proactively meet the needs of customers are ongoing; they include operation ofthe “Customer Satisfaction Center” (a first among domestic banks) and self-service outletswith automated teller machines since 1993, e-commerce using the Internet and onlinebanking from 1999 (another industry first), construction of an independent computerizationcenter in 1999, and implementation of the cash management solution (CMS 2000), anindustry first, in 2000.

Customized Financial Services Shinhan Bank operations are divided into the Retail Banking Group, Corporate Banking Group, PrivateBanking Group, Treasury & Global Banking Group, Investment Banking Group, SOHO (Small-Office-Home-Office) Group, and Trust Group to provide customized financial services by customer. We striveto attain the ultimate in customer satisfaction, analyzing each customer by group. Specifically, we haveindividualized our customer service by analyzing trends in financial services and financial lifestylesamong our customers in order to mirror their tendencies and characteristics in the services weprovide. This enables us to present optimal, detail-oriented products and services by customer type.Based on our progress thus far, we will continue enhancing customized services to our customers.

Operation of Customer Communication Channels A variety of channels are in operation to understand the needs and demands of customers in a timelymanner, becoming the source for the improvement of management and the development of services. Wehave also unified the customer opinion survey channels so that their views and feedback can be promptlyanalyzed and reflected in our policy making, while systematically collecting and managing survey data.

Voice of Customers We listen to the VOC (Voice of Customers) at all times. Solicited through multifarious channelsincluding customer satisfaction level surveys, toll-free-number calls, and the Internet, the VOC is usedto improve our systems and structures, and is deeply reflected in our management policies. Detailsare specifically shared by all employees through the VOC system to prevent recurrence. As fortransactions, priority is given to those that need to be immediately included in our systems andorganizations, while those that require inter-division discussion and consultation are processed by theCustomer Satisfaction Committee.


Winning Management ... for Networking

Social Contribution

With the integration of former Shinhan Bank’s dynamism and former Chohung Bank’stradition, the new Shinhan Bank is carrying out a broad array of social responsibilitymanagement programs. By doing so, we aim to: pursue fundamental, integral, andprincipled management; create customer satisfaction value by augmenting customerconvenience and wealth; and grow into a model service company in Korea by fulfilling ourresponsibilities and roles as a corporate citizen.

Shinhan Bank Voluntary Service Group We launched the Shinhan Bank Voluntary Service Group in July 2004, a first in the banking industry, tocontinuously and systematically roll out social service activities. Led by the president andencompassing all employees, the group provides a venue through which we can voluntarily engage insocial service activities by division and employee.

Preservation of the Environment Shinhan Bank has continuously staged environmental preservation campaigns with a view to fulfillingits corporate social responsibilities. They include: attaching labels to trees in 18 national parks acrossthe country to instill awareness in visitors of the importance of protecting nature, and holding anannual nationwide environmental photography contest to publicize the preciousness of the naturalenvironment and the importance of environmental preservation. Sponsored by the Ministry of theEnvironment, this contest addresses the beauty of natural scenery, harmony between people andnature, and damage to the natural environment.


In addition, we are actively taking part in campaigns to protect natural monuments (animals andplants) while developing environmental products (such as the Green Compound Interest Trust andbankbooks to save Nakdong River) and giving donations through matching grant programs.

Support of Scholarship and Arts and Culture ActivitiesShinhan Bank has established and operated a scholarship foundation and the Museum of Finance, afirst among commercial banks. Established to contribute to the cultivation of talent, the promotion oflearning, and progress in the arts and culture, the Shinhan Bank Hope Foundation awardsscholarships to 130 juvenile family heads and differently-challenged students on an annual basis. Thefoundation also provides scholarships to the children of Korean residents in Kajakhstan, Uzbekistan,and China every year.

Other Social Welfare Activities Shinhan Bank runs public interest-linked programs, such as education on sharing and support for thelow-income and under-privileged by enhancing partnerships with NPO’s (Non-profit Organizations),including the Beautiful Foundation and the Social Solidarity Bank.

Our unsparing interest in and support for social welfare is evidenced by such activities as economicsclasses for children, special invitation programs for children living on islands and in remote areas,travel abroad programs for teachers, promotion of sports, and campaigns for the one-on-oneprotection of cultural properties.

We have also contributed to the spread of corporate social responsibility by developing and marketingpublic interest products. These include social responsibility management loans, small businessstartup loans, the Beautiful Fund, term deposits to support philanthropists, plus the “Love Pledge”deposits and installment savings plan.



Ethical Management

Shinhan Bank continues its efforts to establish an ethical corporate culture, steadilyoverhauling internal regulations and providing a variety of programs to enact our code ofconduct.

Ethical Management Systems Our goals and strategies for the management of social responsibility and relevant long and short-termmandates have been manifested by the publication of “Report on Social Responsibilities” for the firsttime in the Korean financial landscape during 2005. In addition, we provide ethical platforms,behavioral guidelines for employees, and guides for the observance of ethics to ensure the activepractice of ethical management in all sectors of the economy, society and environment.

Tools for Ethical Management We maintain an ethical canon and ethical management programs to tackle a variety of ethicalsituations and problems generated during corporate activities, under the supervision of ourCompliance Department. Conducting efficient education and training programs, we are committed tobuilding a clean and transparent bank that encourages proper performance by employees on the job.

Ethical Management ProgramsIn addition to the publication of a systematic report on banks' social responsibility activities, we overseediverse programs and institutions to practice ethical management. These include clean contracts tosecure the transparency and fairness of contracts, detailed reports on securities trading to prohibitunfair trading and seek healthy asset management, and self ethics and compliance checkups foremployees to examine their daily job activities. Others include systematic management of operationalconfidentials (which are intangible assets of the bank), pledges for the practice of ethics andcompliance by all employees, and working rules for financial transactions with stipulated principles.

Internal Controls To Prevent Money Laundering Shinhan Bank has implemented the Currency Transaction Report and Customer Due Diligence sinceJanuary 2006. These plans are designed to effectively cut off illegal transactions and ensuretransparency, following the revision of laws and regulations related to money laundering. For theirsmooth execution, we have streamlined internal guidelines for business transactions while buildingand operating diverse IT systems to prevent money laundering.


Also in operation are a wide spectrum of educational programs and regular training sessions for theprevention of money laundering, such as group training and cyber training, which target all employees.We will continue to supplement our internal control and IT systems related to the prevention of moneylaundering, faithfully observe relevant laws and regulations in Korea, and actively participate inrelevant worldwide efforts such as the blockage of terrorist funds.

Specifications of Key Systems

Suspicious Transaction Report Financial transactions that are suspected as illegal funds or moneylaundering schemes must be reported to the KOFIU (Korea Financial Intelligence Unit) of the Ministryof Finance and Economy (enforced since November 2001).

Currency Transaction Report Large-amount cash transactions of more than KRW 50.0 million by thesame person within the same financial institution on the same day should be reported to the KOFIU bythe relevant financial institution.

Customer Due Diligence This requires financial institutions to prove the identity of their customersincluding names, resident registration numbers, addresses, and contact numbers at the time of newaccount openings or one-time financial transactions of more than KRW 20.0 million (USD 0.1 million inforeign currencies), to prevent their services from being abused for illegal acts such as moneylaundering.

Awards Received for Social Responsibility Management - Presidential accolade at the “2005 Volunteer Service Competition”

- Grand Prix at the “Ethical Management Awards” from the New Industry Management Academy

- Grand Prize for ethical management at the “2005 Social Responsibility Management Awards”

- Grand Prize at the “2006 Global Standard Management Awards” in the social responsibilitymanagement category

- Grand Prize at the “Korea Service Grand Prix 2006” from the Korea Standards Association

- Grand Prize at the “2006 Trust Company Awards” from Korean Consumers’ Forum

- “Korea’s Most Respected Company Award” from KMA Consultants in the banking category

- Grand Prize at the “2006 First Brand Awards” from Korean Consumers' forum

- Grand Prize at the “2006 Korea Social Contribution Awards” in the national welfare category



Board of Directors

Composition of the Board of DirectorsThe BOD (Board of Directors) consists of eight directors, including six outside directors. Over thecourse of fifteen meetings in 2005 and nine in the first half of 2006, the BOD discussed and approvedthe integration of former Shinhan Bank and Chohung Bank, matters related to the IntegrationCommittee, management plans and risk-related matters, and matters on the reorganization ofstructures and systems.

In regards to professional operations, the BOD includes the Auditor Recommendation Committee,Outside Director Recommendation Committee, Audit Committee, and Risk Management Committee.The board is also equipped with systems that enable fair deliberation and judgment on allmanagement strategic decision matters. Given the increasingly high responsibility for risks, the BODrecommends the bank hold appropriate capital for all potential risks and maintain excellent riskmanagement techniques.

Shin, Sang-HoonPresident & Chief Executive Officer

Cho, Jae-Ho Director & Standing Auditor

Outside Directors

Director

Executive Director

Executive Officers

Lee, In-HoDirector President & CEO of Shinhan Financial Group

Seo, Sang-RokDirectorEx-dean of Incheon City College

Lee, Jae-WooDirector Managing Director & COO ofShinhan Financial Group

Park, Jae-HaDirector Researcher of Korea Institute ofFinance

Park, Kyung-Suh DirectorProfessor of Korea University

Jeong, Kap-YoungDirectorProfessor of Yonsei University

Chae, Hong-Hee Deputy President & Head ofManagement Support Group

Moon, Chang-SeongDeputy President & Head ofInstitutional Banking Group

Kim, Eun-SikDeputy President & Head ofIT Group

Kong, Yun-Seok Deputy President & Head ofCorporate Banking Group

Gweon, Jeum-JooExecutive Vice President &Head ofSOHO Banking Group

Lee, Baek-Soon Deputy President & Head ofRetail Banking Group

Lee, Hyu-Won Deputy President & Head ofInvestment Banking Group

Choi, Won-SukDeputy President &Head of Trust Group

Lee, NamDeputy President & Head ofPrivate Banking Group

Oh, Sang-YoungDeputy President & Head ofRisk Management Group

Choi, Sang-WoonDeputy President & Head ofManagement Planning Group

Kang, Shin-SeongDeputy President & Head ofTreasury & Global Banking Group

Hur, Chang-Ki Deputy President & Head of Credit Analysis & Assessment Group


Organization Chart

President & Chief Executive Officer

General Meeting of Shareholders

Board of Directors

Risk Management Committee

Retail Banking DepartmentRetail Credit Analysis &Assessment DepartmentBPR DepartmentDirect Banking Center

Audit Committee

Secretariat OfficeCustomer Services Center

Retail Banking Group

Trust DepartmentTrustee & Custody OfficeFund Administration OfficeGeneral Affairs DepartmentSecurity Control Office

Trust Group

Strategy Planning DepartmentFinancial Planning Departmente- Business DepartmentFuture Strategy & BusinessDevelopment Research Institute

Management Planning Group

IT Planning DepartmentIT General ManagementDepartmentIT Development DepartmentIT Service DepartmentIT Operation Department

IT Group

Risk Management DepartmentCredit Collection DepartmentCorporate Credit CollectionDepartmentRetail Credit Collection DepartmentPublic Relations Department

Risk Management Group

Credit Planning DepartmentCredit Analysis & AssessmentDepartment

Credit Analysis &Assessment Group

Human Resources DepartmentPersonal Training OfficeEmployee Services Center

Management Support Group

Compliance Department

Audit Department

Compliance Officer

IB Business DepartmentInvestment Banking DepartmentProject Banking DepartmentFinancial Engineering Center

Investment Banking Group

Treasury DepartmentSettlement OfficeGlobal Business DepartmentInternational Trade BusinessDepartment

Treasury &Global Banking Group

SOHO Banking Department

SOHO Banking Group

Private Banking Department

Private Banking Group

Institutional Banking DepartmentInstitutional Marketing Department

Institutional Banking Group

Corporate Banking DepartmentConglomerate MarketingDepartment

Merchant Banking Department

Corporate Banking Group

Value Innovation Division

Marketing Strategy DivisionMarketing Strategy DepartmentProduct Engineering Office

Synergy Promotion Division

Banking Group Support DivisionBanking Group Support DepartmentBranch Development Department



Global Network

Head Office

Overseas OfficeTOKYO BRANCH9th Fl., Shiroyama Trust Tower, 3-1Toranomon 4-chome, Minato-ku,Tokyo, JapanTel. 81-3-3578-9321Fax. 81-3-3578-9355SWIFT: SHBKJPJXTOKGeneral Manager Lee, Shin-Kee

OSAKA BRANCH3rd Fl., Resona Semba Bldg. 4-21, Minami-Semba, 4-Chome,Chuo-ku, Osaka, JapanTel. 81-6-6243-2341Fax. 81-6-6243-2346SWIFT: SHBKJPJXGeneral Manager Lim, Young-Jin

FUKUOKA BRANCH8th Fl., Tenjin Mitsui Bldg. 14-13,Tenjin 2-chome, Chuo-ku,Fukuoka, JapanTel. 81-92-724-7004Fax. 81-92-724-7003SWIFT: SHBKJPJXFUKGeneral Manager Kim, Jae-Woo

NEW YORK BRANCH32nd Fl., 800 3rd Ave, New York,NY10022, USATel. 1-212-371-8000Fax. 1-212-371-8875SWIFT: SHBKUS33General Manager Cho, Yong-Byoung

LONDON BRANCH3rd Fl., 51-55 Gresham St., LondonEC2V 7HB, UKTel. 44-207-600-0606Fax. 44-207-600-1826SWIFT: SHBKGB2LGeneral Manager Lee, Han-Eung

SINGAPORE BRANCH50 Raffles Place #40-02/03,Singapore Land Tower, Singapore048623Tel. 65-6536-1144Fax. 65-6533-1244SWIFT: SHBKSGSGGeneral Manager Suh, Dae-Won

MUMBAI BRANCH42, Jolly Maker Chambers II, 4th Fl., 225, Nariman Point,Mumbai, 400-021, IndiaTel. 91-22-2282-2200Fax. 91-22-2288-4277SWIFT: SHBKINBBGeneral Manager Kuk, Seong-Ho

NEW DELHI BRANCHUpper Ground Floor, Mercantile House, 15, Kasturba Gandhi Marg, New Delhi-110001, IndiaTel. 91-11-2370-6040Fax. 91-11-2370-6044SWIFT: SHBKINBBGeneral Manager Heo, Young-Taeg

HO CHI MINH CITY BRANCH7th Fl., Yoco Bldg., 41, Nguyen Thi Minh Khai St., District 1, Ho Chi Minh City,VietnamTel. 84-8-823-0012Fax. 84-8-829-9386SWIFT: SHBKVNVXGeneral Manager Park, In-Ho

TIANJIN BRANCHRoom 1901/6, Tianjin International Building,75 Nanjing Road, Tianjin, ChinaTel. 86-22-2339-4070Fax. 86-22-2339-4043SWIFT: SHBKCNBTGeneral Manager Park, Sung-Geun

Tianjin Binhai Sub-branch3-B 11th Fl., Binhai FinancialService Zone Western Zone, TianjinEconomic & TechnologicalDevelopment Area No. 3 Street #51, Tianjin, ChinaTel. 86-22-6628-1234Fax. 86-22-6628-1235SWIFT: SHBKCNBTTANGeneral Manager Kong, Jong-Min

SHANGHAI BRANCH22nd Fl., HSBC Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai, ChinaTel. 86-21-6841-2100Fax. 86-21-6841-2108SWIFT: SHBKCNSHGeneral Manager Kim, Hae-Soo

QINGDAO BRANCH4th Fl., CITIC WT Securities Co.,Ltd, Bldg., No.28 Donghai West Road,Qingdao 266071, ChinaTel. 86-532-8502-5500Fax. 86-532-8502-5566SWIFT: SHBKCNBQGeneral Manager Kim, Joon-Hee

HONGKONG BRANCHRoom 3401, Gloucester Tower,The Landmark, 15 Queen’s Road,Central, Hong KongTel. 852-2877-3121Fax. 852-2877-2460SWIFT: SHBKHKHXGeneral Manager Jo, Yee-Yong

120, 2-ga, Taepyeong-no, Jung-gu, Seoul, 100-724, Korea Mailing Address: C.P.O. Box 6999, Seoul, 100-669, Koreaemail: [email protected] Homepage: www.shinhan.com


SHINHAN ASIA LIMITEDSuites 3507-3508, 35th Fl., Two Exchange Square, 8 Connaught Place, Central,Hong KongTel. 852-2523-6143Fax. 852-2810-1426SWIFT: SHBKHKHHManaging Director Yu, Kwang-Ho

SHINHAN BANK EUROPE GmbHNeue Mainzer Strasse 75, 60311 Frankfurt am Main, GermanyTel. 49-69-975-7130Fax. 49-69-741-0506SWIFT: SHBKDEFF Managing Director Park, Yo-Sub

SHINHAN BANK AMERICA[Head Office/ NY Regional Office]330 5th Avenue 4th Fl., New York, NY 10001, USATel. 1-646-843-7300Fax. 1-212-447-7477SWIFT: SHBKUS6LNYXPresident & CEO Lee, Jeffrey J.

Manhattan Branch313 5th Avenue,New York, NY 10016, USATel. 1-646-843-7333Fax. 1-212-447-9169SWIFT: SHBKUS6LNYXBranch Manager Woo, Chong-Won

Flushing Branch136-68, Roosevelt Ave,Flushing, NY 11354, USATel. 1-718-939-9595Fax. 1-718-939-3229SWIFT: SHBKUS6LNYXBranch Manager Lee, Sun-Kyung

Northern 150 Branch150-29 Northern Blvd.Flushing, NY 11354, USATel. 1-718-799-7100Fax. 1-718-888-9696SWIFT: SHBKUS6LNYXBranch Manager Megala, Jung-Mi

Bayside Branch211-11 Northern Blvd.Bayside, NY 11354, USATel. 1-718-799-7090Fax. 1-718-224-5764SWIFT: SHBKUS6LNYXBranch Manager Moh, Myoung-Suk

Fort Lee Branch222 Main Street, Fort Lee, NJ07024 USATel. 1-202-363-9009Fax. 1-201-363-9049SWIFT: SHBKUS6LNYXBranch Manager Kim, Kwang-Ki

[CA Regional Office]3000 West Olympic Blvd.Los Angeles, CA 90006, USATel. 1-213-380-8300Fax. 1-213-386-7208SWIFT: SHBKUS6LCAXRegional Manager Song, Gu-Seon

Olympic Branch3000 West Olympic Blvd.Los Angeles, CA 90006, USATel. 1-213-380-8300Fax. 1-213-386-2170SWIFT: SHBKUS6LCAXBranch Manager Kim, Kyong-Ik

Buena Park Branch6771 Beach Blvd.Buena Park, CA 90621, USATel. 1-714-443-6400Fax. 1-714-443-5960SWIFT: SHBKUS6LCAX Branch Manager Yoon, Susan

Downtown Branch738 East Pico Blvd.Los Angeles, CA 90021, USATel. 1-213-251-3090Fax. 1-213-748-9422SWIFT: SHBKUS6LCAXBranch Manager Lee, Abraham

SHINHANVINA BANK (Head Office)3-5 Ho Tung Mau Str., Dist. 1,Ho Chi Minh City, VietnamTel: 84-8-829-1581Fax: 84-8-914-2635SWIFT: SHBKVNVNGeneral Director Noh, Sung-Ho

Hanoi Branch2nd Fl., Daeha Business Center,360 Kim Ma, Ngoc Khanh,Hanoi, VietnamTel: 84-4-831-5130Fax: 84-4-831-5134SWIFT: SHBKVNVNHANGeneral Manager Ngo Quoc Ky

Binh Duong BranchNo.1, Truong Son Highway,An Binh Commune Di An District,Binh Duong Province, VietnamTel: 84-8-724-2791Fax: 84-8-724-2795SWIFT: SHBKVNVNGeneral Manager Kim, Jae-Joon

Winning Management ... for PerformanceShinhan Bank accomplished complete integration of formerShinhan Bank and Chohung Bank during the fiscal year2006. We also successfully integrated their corporations, ITsystems, and other structures through a series of internaloverhauls and lineups, yielding substantial results inearnings and profitability.


Treasury & Global Banking Group

Treasury

Shinhan Bank aimed to position itself as thefinest bank through "successful integration andqualitative growth" during 2006. With this firmgoal in mind, we were committed to thesuccessful provision and management of stableand efficient liquidity by beefing up our marketdominance as a leading bank and executingupgraded ALM (Asset and Liability Management)strategies with best practices.

Treasury Department particularly supported theaccomplishment of stable liquidity andprofitability through the upgraded integration ofinternal interest rate systems and efficient ALMoperations.

Currently, we are pursuing an ALM systemupgrade. The purpose of this project is tomanage risks and earnings simultaneously, byreinforcing the ALM system's estimation andsimulation functions and bringing out promptand flexible results by the end of June 2007. Wefurther expect to materialize global-standardALM in a couple of years, by developingstrategies and strengthening feedbacks that willenable the bank to immediately accommodatechanges in its management environment.

As for foreign currency operations, we floatedUSD 300.0 million in fixed-rate foreign currency-denominated subordinated bonds, JPY 35.0billion in syndicated loans, and USD 350.0million in foreign-currency hybrid bonds in 2006,offering the lowest interest rates in Korea

backed by trust from overseas investors.Noteworthy was that these issuances wereattributed to the expansion of new investorbases and the diversification of borrowingscurrencies.

In 2007, we plan to focus on the stable andefficient management of liquidity. To this end,we will diversify our financing sources, reinforceour financial market leadership in Korea,augment our operating profits from investmentbonds, and improve our earnings structurethrough the advanced ALM system.

International Trade Business

Following the integration in April 2006 andsubsequent reorganizations, Shinhan Bankcreated the Corporate Trade Marketing Team.The purpose of the team was to strengthen ourprofile as a specialist in import and exportbusinesses by actively marketing to differentiatedtargets and strategically subdividing corporatetrade markets to seek out target customers ineach market.

Together, we significantly expanded our saleschannels and customer bases through strategicalliances with leading enterprises in trade-related sectors.

Based on these, we upgraded our brand valueas an expert in trade, recording USD 94.7 billionin exports/imports, USD 3.0 billion in currencyexchange, and USD 26.4 billion in invisible traderemittance.


Winning Management ...for Performance

In 2007, we will "build a stepping stone to rise asa leading, world-class bank in the tradebusiness market." With this in mind, we plan topursue three core strategies.

First, we will continue to build foundations andinfrastructure for growth potential andprofitability to match our leadership in the tradebusiness.

Second, we will strengthen our footing for thetrade business to consolidate mid and long-term growth foundations, while continuouslyheightening our trade business brand value byspurring the development of new, differentiatedproducts and services.

Last, we will map out new marketing strategiesbased on customer values and needs. These willbe followed by the execution of detailed tasks,which will include the attraction of corecustomers to use Shinhan Bank as their mainbank and the expansion of our customernetworks.

By doing so, we will prepare a pivotal frameworkto stretch ourselves into a domestic leader andfurther into a true world-class bank that cancompete globally.

Global BusinessShinhank Bank's global banking business islargely focused on the expansion of its globalnetwork, operational support for overseasbranches and offices, and FI (Financial Instition)marketing.

Lately, the bank has been actively advancingoverseas to seek out "Blue Oceans" with newmarkets and customers, while avoiding theheated competition in the limited domesticmarket. In the long term, we aim to establish aregional presence. Our key agendas for 2007 areto consolidate our capabilities so as to secure a

top position in terms of overseas margins andcarry forward global businesses from diversifiedaspects (Jump for Global Biz).

Our core strategies are to (1) expand ouroverseas network through diverse vehicles suchas M&A's, equity investments, and theestablishment of local subsidiaries andbranches, (2) diversify our earnings structure inthe overseas business sector, (3) strengthenlocal operations, (4) nurture global talents, and(5) revamp FI marketing.

Our overseas branches and offices can bedivided into five overall types: (1) those ininternational financial centers, including NewYork, London, Tokyo, Hong Kong, Singapore, andGermany, (2) those in growing marketsincluding Shanghai, Tianjin, Chingdao, Vietnam,and Mumbai where many Korean companieshave advanced, (3) those targeting overseasKoreans living in Osaka, Fukuoka, and otherplaces, (4) those seeking localization based onretail banking such as subsidiaries in theAmericas and Vietnam, and (5) Hong Kongsubsidiary focused on IB businesses. In 2007, weplan to bolster overseas operations primarilyleveraging differentiated marketing support byregion. We will also be dedicated to extendingearnings bases and securing businesscompetencies by utilizing new networks. Inaddition, we will strengthen our FI functions.

From this year, we will continue to expandearnings bases by promoting the trade financebusiness and targeting emerging markets, whilebolstering relationships with correspondentbanks with a focus on marketing activities.

As such, we will solidify our leadership in globalbanking by pushing for overseas expansion as anew future growth engine.


Retail Banking Group

The retail banking market faced difficulties in2006, triggered by intensifying cut-throatcompetition among leading banks to strengthenmarket dominance, tightening governmentregulations on real estate policies, andslowdowns in domestic demand and businessconditions. In this climate, Shinhan Bank had toovercome a number of internal agendas,including legal integration of the formerShinhan Bank and Chohung Bank, plusintegration of IT systems into a new bankingsystem.

The Retail Banking Group concentrated on thefollowing imperatives in order to fortify itspreemptive, internal and external riskmanagement and acquire market leadership:

1. Execute new customer relationship managementstructures following the redefinition of customervalues

2. Prevent customer attrition and bolster cross-selling

3. Improve customer deposit systems andincrease quality loans to facilitate long-termstable growth

4. Heighten product competitiveness andupgrade employee capabilities

5. Beef up customer bases for long-termsustainable growth

6. Stabilize integrated networks early andstrengthen risk management

Specifically, we obtained satisfactory results inasset growth and increased number ofcustomers through active pursuit of growthstrategies, focusing on the expansion ofcustomer bases and strategic products. To note,during the first half of 2006, we strove to secureprofitability, centering on the extension ofplatform customers, mainly by use of asystematic roadmap and streamlining toprevent customer attrition following integration.From the second half of the year, we alsoenacted active asset growth strategies.

Observing major accomplishments by sector,we endeavored to magnify the numbers oftransaction customers by 1 million and activecustomers by 0.2 million to expand ourcustomer base since the first half. As a result,they climbed to about 1.2 million and 239,378,respectively. This was an increase of 120% and119% from the preceding year.

We also implemented customer values andneeds-based systems for the CRP (CustomerRediscovery Program) strategy. In addition, wesought out financially healthy prospectivecustomers, built long-term growth foundationsthrough suggested values, and pushed for



construction of profitable deposit bases and theenhancement of synergy businesses. Wespecifically aimed for a rise in low-cost depositswith a focus on earnings by increasing thenumber of actual customers, and animprovement in deposit maturity structures. Wealso worked to raise the percentage of individualhousehold-type deposits to total deposits andinstallment-type savings (funds).

As a result, total deposits grew by KRW 10.3trillion, and low-cost deposits by KRW 1.3trillion, over the year. In addition, reflecting ourefforts to widen household-type deposits amongdeferred/marketable deposits, household-typedeposits expanded by 8.1% year-on-year, whilesales of beneficiary certificates grew by KRW 4.7trillion, thanks to the activation of synergybusinesses.

In 2007, competition in market initiatives willlikely be further heated. However, we intend toattain the “Triple Crown” in terms of assetgrowth, customer base expansion,andprofitability growth. To this end, we willconcentrate our energies on ranking the highestgrowth in strategic products, extending activecustomers, and reinforcing cross-selling.

drastic upgrades of our support system (MIDAS)to analyze target customers and strengthenactive solution selling.

As for performance, despite intensifyingcompetition to expand quality assets amongbanks, household loans jumped 17.9%, or KRW6.8 trillion, year-on-year, backed by mortgageloans and group loans.

Credit loans advanced 9.85%, led by a 26% risein quality credit loans including Elite Loans. EliteLoans in particular ballooned by 36%, in spite ofcompetition among banks to secure financiallyhealthy customers.

Meanwhile, we maintained sound assets withretail banking delinquencies amounting to KRW72.4 billion and the delinquency ratio standing at0.12%. This was mainly attributable to our early,exhaustive management of loan delinquenciesand reinforced risk management.

With regard to funding, we concentrated onimproving our financing portfolios through the


Private Banking Group

Shinhan Bank became the first domestic bankto introduce PB (Private Baking) services for itsmember customers with transactions of morethan KRW 1.0 billion (USD 1.0 million) in 2002.After repeating noteworthy growth in PB sincethen, we inaugurated an independent PB groupin April 1, 2006.

Shinhan PB Group aims for high-quality,upscale services beyond simple assetmanagement. To this end, we offer a plethora ofservices including comprehensive assetmanagement, tax/legal advisories, real estateconsulting and management, and optimalportfolio management. We also provide a varietyof investment information and data.

In 2006, we focused on solidifying our PBinfrastructure through expanded channels,thereby attaining net new asset growth of morethan KRW 1.0 trillion, and preparing a footholdfor qualitative growth.

First, we secured a nationwide network,completing a 12 channel system across thecountry by adding five more PB centers. Second,as part of our asset growth strategies, weconverted into new sales-centered operations tosecure growth engines for the independent PBbusiness group. Formerly, assets had beentransferred from the Retail Banking Group. Thisled a rise in net new assets by more than KRW1.0 trillion. Third, we provided a framework forqualitative growth, pursuing deposit-orientedcustomer asset management with a focus oninvestment products, and improving thestructure of low-margin products.

As a consequence, total assets continued toincrease, reaching KRW 7.8 trillion at the end of2006, from KRW 4.8 trillion in 2005 and KRW 3.3trillion in 2004. Net increase in new assetsamounted to approximately KRW 1.0 trillion,from KRW 0.4 trillion in 2004 and KRW 0.5trillion in 2005. Operating income jumped toKRW 59.3 billion, from KRW 16.9 billion in 2004and KRW 32.8 trillion in 2005.

In 2007, the PB Group plans to induce newassets of KRW 1.0 trillion, and record totalassets of KRW 10.0 trillion and double operatingmargins. To do so, we will provide more unique,original strategies and services. To begin, we willexpand new channels to operate differentiatedchannels, and set up an organization dedicatedto attracting new high-end customers withtransactions exceeding KRW 5.0 billion. Inaddition, we will firmly secure our domesticmarket leadership, winning customer trust andselection through various activities such as theglobal asset management service, customizedone-on-one customer asset managementanalysis, the Biz-care service and tax servicesfor business takeovers and investmentexpositions.

Together, we will develop and operate wealthmanagement support systems to step up ourinternal capabilities, expand the pool ofprofessional human resources for assetmanagement, and strengthen customer trust bynurturing the expertise and know-how of PBteam leaders.



Corporate Banking Group

The corporate banking market in Koreawitnessed a focus shift to SME (Small andMedium-size Enterprise) loans, due to sluggishdemand for loans by large companies. It wasalso influenced by the government’s policy ofcontrolling household loans, centering onmortgage loans.

Meanwhile, the entire market volume surged by22.7%year-on-year to reach about KRW 392.4trillion at the end of 2006, in light of a favorableturn in business conditions. This represented asubstantial rise of KRW 73.0 trillion (includingKRW 37.0 trillion in a market for companieswhose financial statements are not examined byindependent auditors, and KRW 26.0 trillion in amarket for companies whose financialstatements are audited by certified publicaccountants).

However, competition among banks becamefiercer than ever amidst worries over theworsening payability of companies, to the extentthat some began “poaching” quality customersfrom other banks by offering attractive interestrates and utilizing a variety of marketingactivities targeting the limited number offinancially healthy companies became standardoperating practice.

Under such unfavorable market conditions, theCorporate Banking Group concentrated on assetgrowth and securing stable revenue drivers in2006. We also endeavored to improve earningsstructures and create new markets through thedifferentiation of innovative products. Further,we were dedicated to the development of newgrowth engines, ensuring synergies from earlyintegration by heightening marketing competenciesand the development of competitive edgesoutside of pricing. Accordingly, we retained ourlargest market share for companies withsatisfactory asset growth and those whosefinancial statements are examined byindependent auditors. We were also able tomaximize synergies from integration viaprocesses and IT integration and prepare abasis for long-term transactions for futuregrowth.

As a result, sales of the Corporate BankingGroup (total loans + usable total deposits)including SME’s and large corporationsamounted to KRW 75.52 trillion. Total loansgrew 19.5% over the year to reach KRW 45.8trillion (SME loans: KRW 31.99 trillion, largecorporate loans: KRW 13.81 trillion), recordingan 11.5% market share.

This was led by upturns in SME loans, whilelarge corporate loans were comparativelystagnant. Demand for loans by large companiesdecreased, due to the supply of fund throughalternative financing such as abundant internalfunds and the issuance of limited offerings forconvertible bonds. Demand for SME loans rose,principally resulting from (1) diminishinguncertainties behind the improvement ofbusiness conditions, (2) more relaxed loanpolicies by banks given their competition inmarket share and (3) expanding demand foroperating funds mainly by quality SMEs.


In 2007, the economy is forecasted to slow downfurther with its growth rate falling to 4%. Priorto the enforcement of the capital marketintegration law and the revised Basel II, themarket will likely be affected by a broadenedvariety of variables. They include expandinguncertainties over internal and externalconditions, given the upcoming presidentialelection, possibility of an economic hard landing,rough going in the Korea-US FTA negotiations, asluggish construction market due to real estateregulations, and the possibility of a contractionin consumer sentiment following a rise in taxburdens. All these should intensify competition,boiling down to a battle for industry leadershipwith major players and advances into overseasmarkets.

Accordingly, we expect declines in margins andprofitability due to intensifying marketcompetition. Based on our 2006results,however, we plan to pursue four key strategiesthat are designed to successfully attain ourstrategic goal: “perfect a representative brandin corporate banking by building long-termgrowth foundations and retaining customers.”

First, we will secure market leadership throughthe CRP (Customer Rediscovery Program). Onthis note, we will push for large companies andcooperative business associates marketing byforming customer packages, develop productsto support cooperation companies and targetcompanies, and strengthen marketing forelectronic settlement products targetingsuppliers.

Second, we will construct long-term growthfoundations to create earnings sources byincreasing the number of customers, activatingoperations led by branch heads, and inducinglong-term transactions utilizing cash managementservices.

Third, we will proactively establish futureearnings sources. To this end, we will developproject plant exports for major overseas oilcompanies, pursue strategic cooperation (withsuch companies as the Korea Export InsuranceCorporation, LG Card and government-investedresearch institutes), and seek out new “blueocean” markets through comprehensivesupport for new industrial complexes.

Fourth, we will streamline internal processesfrom Six Sigma’s innovative perspective, by runningRM (Relationship Manager) education/trainingteams to strengthen the capabilities of RM andredesigning RM internal processes at branches.

We will develop more customer-centeredproducts and services via customer retention,on the back of qualitative and quantitativecompetitive advantages through synergiesgenerated from integrating large corporatebanking and SME banking sectors, andaccumulated know-how in corporate bankingoperations. As such, we aim to solidify ourmarket leadership in corporate banking all themore.


SOHO Banking Group

The SOHO (Small-Office-Home-Office) Group istasked with providing differentiated values toquality small business customers (includinghospitals, manufacturers, and real estateleasers). We aim to deliver the finest productsand services by understanding the needs andvalues of each customer segment.

Equipped with compatible professionals andexperts, the group also offers all kinds ofoperational tools, education, and support tomeet this objective.

The group’s key strategies for 2006 were aimedat securing stable footing, augmenting qualityassets, strengthening asset soundness, andexpanding business foundations.

By carrying forward these strategies, the grouprecorded total assets of KRW 13.6 trillion at theend of 2006. This was a growth of 16%, or KRW1.9 trillion, from its inception in March 2006.Delinquency ratios dropped to 0.17%, down0.28% from 0.45%, improving asset quality. Thenumber of SOHO customers also increased by4.8%, or 3,266, to 70,705.

Meanwhile, we secured a nationwide channelnetwork to be in exclusive charge of SOHO’s (atotal of 867 channels including 102 SBM’s(Senior Business Manager) and 361 (J)BM’s(Junior Business Manager). We also newlyopened a SOHO financial center in the Hub &Spoke concept, to operate effective joint salesand marketing and prepare a framework for theimprovement of actual sales skills. In addition,we were dedicated to developing and offeringnew products and CRM systems, exclusivelytargeting SOHO’s.

In 2007, we will seek balanced growth in assetsand earnings while building foundations for thegrowth of SOHO’s, with the aim of becoming atop player in the financial industry’s SOHOmarket.

Specifically, the group will be committed toattaining growth in quality assets. This will beled by prime customer target marketing, theSOHO VIP customer system, support ofdifferentiated products by customer, and thepursuit of specialized marketing by region.

At the same time, we will pull up our overallprofitability, improving earnings structures viathe calculation of appropriate interest rates andbolstering cross-selling. In addition, we plan tomaintain asset soundness by way of preemptiverisk management.

We will also beef up the core competencies ofour employees for SOHO operations, throughsystematic education/training and theimprovement of on-the-job sales skills.Additionally, we will expand more systematicSOHO business foundations by improving theCSS (SOHO-Credit Scoring System) and theSOHO CRM (Customer Relationship Management)system, so as to deliver the ultimate incustomer satisfaction.

In 2007, we believe the loan market in thefinancial industry will be contracted due togovernment restrictions on loans. Keencompetition will arise due to attempts to breakthis market shrinkage problem by preoccupyingthe SOHO market. However, we are primed totake the lead and attain dominance in the qualitySOHO market with advanced system developmentand systematic risk management, therebyfurther solidifying our position as the top playerin the SOHO sector.



Investment Banking Group

Shinhan Bank is a one-stop financial solutionprovider and a partner in corporate expansion andgrowth. We specialize in the investment bankingsector, including real estate financing, overseas realestate PF (Project Financing), large developmentproject financing, infrastructure financing, structuredfinancing, equity investments/venture investments,M&A consulting, securitization,derivatives, includingsecurities and derivative products and foreignexchange trading.

We opened the Hong Kong IB center in October2006 to arrange financing and offer consulting toKorean companies that have expanded overseaswhile pursuing IB businesses, targeting Chinaand Southeast Asian countries on a full-scale.

Likewise, we plan to exploit emerging marketsin 2007, through strategic alliances with globalIB leaders, and fortify global businessesincluding overseas development projects.

As for the IB Group’s performance (IB andDerivatives), we recorded satisfactory results,realizing qualitative as well as quantitativegrowth, while diversifying earnings sources in2006. Preprovisioning income, in particular,displayed a sharp upturn to KRW 447.9 billionfrom KRW 387.2 billion in 2005.

In 2007, the group aims to secure IB leadershipthrough the construction of an advanced IBplatform. To this end, we will establish Korean-style IB business models by confrontingchanges in the IB markets at home and abroadwith initiatives, while carrying forward strategicprojects on a full scale, such as overseas PF andfund businesses.

Observing conditions by major sector, we arecreating a one-stop financial service system forall domestic PF process and real estatedevelopment projects, from the initial stages tothe realization of earnings in the PF sector.

We are also expanding financial support forlarge-scale development projects into whichoverseas PF and domestic foreign capital areinjected. In addition, we are poised to play apioneering role in Korea’s SOC market withmultifarious structured financing, developedthrough organic business cooperations withSMFA (Shinhan Macquarie Financial Advisory)and Macquarie Shinhan Infrastructure AssetManagement, which are joint venturesestablished with Macquarie Bank Limited, anAustralian based investment bank renownedglobally in the SOC (Social Overhead Capital)and real estate investment areas.

In the investment banking area, we aim for theultimate in customer satisfaction through abroad array of IB operations that will satisfy thefinancial needs of customers, includingstructured finance, equity and ventureinvestments as a strategic and financialinvestor, M&A consulting, and corporaterestructuring advisory.


In 2007, we aim to grow in new territories,ranging from NPL (Non-Performing Loan)investments in turn-around companies to M&Afinancial advisory, overseas NPL investments,and the activation of fund businesses. Otherplans include participation in SOC projects-related securitization and overseas projects,active focus on CMBS (Commercial MortgageBacked Securities), and expansion of the wonand foreign-currency syndicated loans.

In the financial engineering sector, we will retainour top position in the won-dollar tradingvolume (based on two domestic trade brokeragehouses); reinforce our dominance in currencyoptions, IRS, and CRS markets; and expand theissuance of structured bonds backed byaccumulated structuring capabilities.Particularly in the corporate dealing segment,

we will put together the largest domestic teamso as to contribute to earnings generation andrisk hedging by customers via professionalconsulting and a variety of products that meetthe needs of customers.

Ultimately, the IB Group will be devoted toleading global IB businesses with an increasingfocus on customers and professionalism. Wewill lead the market through strengthenedmarketing strategies, which will become afuture growth engine for the bank, and buildinginternational IB brand power.



Institutional Banking Group

The Institutional Banking Group providesfinancial services mainly to governmentorganizations (including courts, publicprosecutor’s offices, and military institutions),local governments, public organizations (suchas universities, hospitals, and educationalinstitutions), casinos and airports, plus theiremployees and business partners, and retailcustomers who deal with organizations.

Leveraging our unmatched experience for thepast 49 years from 1958, we are reinforcing ourposition as the top-notch specialist in courtbusinesses. We have also secured the largestairport network providing money exchange andother financial services at four major domesticairports (Incheon, Gimpo, Gimhae, and Jeju).

Meanwhile, we have secured university andhospital networks by placing our branches andoutlets at key universities and general hospitalsacross the nation. In 2006, we further widenedour reach into the local government market,advancing into military-related organizations,and administering a depository in of Incheon Cityand the National Pension service.

Further, we are providing a variety of financialservices to institutions and their employeesthrough a total of 150 channels (71 branchesand 79 offices and outlets, as of January 2007).

The group’s core competitiveness is rooted in itsmultitude of highly loyal, quality institutionalcustomers, including courts, colleges, municipaland provincial depositories, and airports. This isdue to the high entry barriers establishedthrough accumulated know-how in theinstitutional banking market, and the deep trustthat stems from having a long-term customerbase. We also have a strong source for futurequality customers among the employees ofmajor institutions as our customers and officesin major colleges.

Secondly, we boast a solid earnings structure,centering on money exchange and low-costdeposits. We have a large number of customerswith low-cost deposit accounts,such asuniversities and hospitals, in addition to courtdeposits. To note, currency exchange outlets atdomestic airports account for about half of thebank’s total gains on currency exchange.

As a result, the Institutional Banking Group’spre-tax income amounted to KRW 263.0 billionat the end of 2006, exceeding its original goal by118.7%. The group also surpassed its managementgoals in all index descriptions, including 123.6% inits BSC (Balanced Scorecard).

Other noteworthy accomplishments made asthe bank’s core business group include thecreation of a depository in Incheon City andspecial accounts for Wonju and Cheonan cities,thereby securing quality assets of about KRW1.5 trillion on an annual basis.


Our strategic goal for 2007 is to strengthen theprofile of “THE Bank, Shinhan” in theinstitutional banking market. Under this goal,the group will remain a core contributor tosecuring foundations for the bank’s sustainablegrowth and creation of new growth engines.

On this note, we formulated four strategicdirections: (1) fortify dominant power in themarket, (2) secure dynamic forces for growth byseeking out new customers, (3) expand stableearnings bases, and (4) step up operationalcapabilities and improve processes.

In order to fortify our market dominance, we willretain and broaden our market share for courts,schools, hospitals, and airports, while pursuingsolid lock-in strategies by completely upgradingour existing systems.

With regard to securing dynamic forces forgrowth by seeking out new customers, we willactively create depositories for cities andprovinces whose contracts are scheduled toexpire during the year. We will also activatetransactions in new markets that we attracted in2006 such as the Incheon City and the MilitaryMutual Aid Association. In addition, we willcontinue to expand foundations for relevantorganizations and cooperatives that are dealingwith special organizations, and strengthenmarketing efforts toward college students inorder to secure future customers.

With a view to expanding stable earnings bases,we will continue increasing low-cost depositsthat are our major earnings sources andstrengthening money change businesses. At thesame time, we will actively participate inorganizations-related, revenue generatingbusinesses in linkage with the InstitutionalMarketing Department that has beenincorporated into the group in 2007. In addition,we will boost IB synergy operations throughlinked businesses with Shinhan Group companies.

The banking industry’s asset growth will likelyslow down, following the government’s recentstrengthening of regulations on mortgage loans.Net interest margins should also back off due tocontinuing price competition. There are alsocontroversies over real estate bubbles andworries over an increase in potential NPL’s,following estimated economic downturns. Whilethe business environment surrounding thebanking industry is being aggravated, competitionin the institutional banking market, which hasquality assets including financially stronginstitutional customers and low-cost deposits,will likely intensify more than ever.

As to market penetration efforts by other banks,we will counter with our know-how, relevant ITinfrastructure, and high-caliber humanresources boasting rich experiences ininstitutional customers-related operations. Wewill also proactively enter public organizationsincluding local governments. Forging ahead, thegroup will be ultimately committed to fortifyingthe bank’s position in the institutional bankingmarket.



Trust Group

Shinhan Bank secured a leading position in thetrust sector as well, ranking number one amongdomestic banks in terms of trust sales volume,following integration on April 1, 2006.

In 2006, the Trust Group concentrated oncontinuously strengthening marketing activitiesin order to increase AuM (Assets underManagement) in pension trusts, special moneytrusts, and retirement trusts amid an unfavorablefinancial environment. As a result, AuM in moneytrusts increased by approximately KRW 2.3trillion over the year. We also recorded thebanking industry’s largest gain in asset trusts.This resulted from our steady efforts to vitalizenew business areas including real estate trustsand money receivables trust.

Particularly, we established a retirementannuities customer support center to seek firstmover’s advantages and secure a leadingposition in the pension annuities market. Wealso placed retirement annuities consultants atour call centers. As a consequence of suchactive marketing efforts to meet the needs ofcustomers, we garnered the largest marketshare among commercial banks as ofDecember 2006.

Another objective for 2007 is to expand earningsbases in the trust sector through the reinforcementof products/services competitiveness andmarketing.

In the retirement annuities field, we will beef upgrowth foundations further to solidify our marketleadership. On this note, we will break downcustomer segments to roll out differentiatedmarketing and strengthen consulting to providebetter customer services. At the same time, weplan to improve competitiveness in our retirementannuities IT system, so as to consolidateeducation and the provision of information forpension holders.

In the money trusts sector, we will diversifyinvestment assets and enhance joint marketingwith relevant departments to increase volumewhile improving our performance by seeking outhigh-end assets and reorganizing portfolios.

We will also expand trusts in overseas investmentfunds and strengthen joint marketing with salesand management organizations within the groupto expand market dominance and increaseearnings. In addition, we will set up an optimal ITsystem, additionally developing managementsupport systems to provide qualitatively andquantitatively advanced services.

Together, we will continue expanding trustbusiness foundations by broadening operationsfor asset trusts and supplementary businessesand steadily exploiting new business areasincluding wealth management trusts.


IT Group

Following integration between former ShinhanBank and Chohung Bank, Shinhan Banksuccessfully integrated the two banks’ ITsystems in October 2006 to launch full-scalesynergy management.

We launched the IT integration from November2004 and wrapped up the project in about 23months. Accordingly, we now boast aninfrastructure that enables us to offer the finestfinancial services, based on our widened branchnetwork and sharply upgraded IT systems.

This unprecedented large-scale integration of ITsystems between commercial banks, withaccompanying total upgrades, was a so-called“big bang-style” system development. Manybanks have pushed ahead with the developmentof next-generation IT systems for the last fewyears. Still, our IT integration project shouldoutdo any other examples in terms of volume,range, and method.

We united the systems of two different mega-size banks into a single system, while sharplyupgrading their functions and performances. Atthe same time, we developed a comprehensivesystem to cover all areas of banking operations,ranging from account operations includingdeposits, loans, and trade to as many as 68types of information and data-relatedoperations.

Together, we markedly increased the processingspeed of banking operations, capable of over2,000 transactions per second. Its flexibleconfiguration also enables the bank to promptlytackle the diversifying needs of customers andsudden changes in the financial environment.

Based on this, our core IT strategies for 2007are “creation of new, IT-led business models,”“optimization of current business models,”“smart IT investments,” and “creative innovationin support of IT culture.” We will also strive tocreate business values by securing world-classIT capabilities.

Above all, the IT Group will elevate its profilefrom information provider to “Value Creator” or“New Market Developer” to accommodate thefinancial needs and demands of consumers. Bydong so, we will demonstrate our corecompetencies, leading the bank’s managementstrategies with the initiative to become theworld-class IT system and business leader by2010.



Shinhan Bank manages risk to ensure stableoperations and maximize shareholder value.Key targets are credit, market, ALM, andoperational risks. Risk management and controlbegins with the BOD (Board of Directors), whoset such basic guidelines as total risk limits thatthe bank can bear. The Risk ManagementCommittee, which is supervised by the BOD,determines asset allocation and risk limits bybusiness group and assists management informulating basic operational guidelines for allbanking operations.

According to such basic policies and guidelines,the ALM Committee and the Credit PolicyCommittee, whose members include both high-level managers and group heads, overseecredit, market, and liquidity risks. The RiskManagement Department which is independentof the bank’s other business units identifies,evaluates, and controls all risks, whilesupporting the Risk Management Committee.

Credit Risk ManagementCredit risk is classified into “expected loss” and“unexpected loss” for measurement andmanagement purposes. Expected loss iscalculated on the basis of bankruptcy andrecovery ratios by credit rating and in light ofpast experience with corporate loans. As forretail loans, expected loss is calculated on thebasis of bankruptcy and recovery ratios in thepast by loan pool. The amount of the bank’s loanloss provision is derived from these anticipatedlosses. Shinhan Bank earmarks loan lossprovisions based on its conservative policy,adopting the higher guidelines between the FSSguidelines and its independently calculated ones.

Unexpected loss refers to when loan-relatedlosses exceed loan loss reserves, such asduring the financial crisis in 1997. Unexpectedloss is measured and managed based on themaximum potential amount of loss goingforward. To measure unexpected loss, ShinhanBank uses VaR, based on historical simulations.

The bank is currently developing a riskmeasurement system using the Monte Carlosimulation methods, scheduled for completionby the end of June 2007. It also plans to furtherelaborate its credit risk limit managementsystem, so as to more systematically managerisks.

Specifically in preparation for the operation ofthe New Basel Capital Accord, from the end of2007, we organized an independent task forceteam in February 2004 and completed gapanalysis and fundamental design work inFebruary 2005. The second stage of preparationsfrom March 2005 till February 2006 included theconstruction of diverse calculation, classification,and verification systems, including LGD and EADcalculation systems. Meanwhile, a new loansystem was also put into operation fromFebruary 2006, reflecting new Basel II requirementsin overall loan processes from the calculation ofinterest rates and collateral management tolimit and portfolio management.

Risk Management Group


To measure market risk, Shinhan Bank usesVaR, which is a statistical system for calculatingmaximum potential losses that could occur dueto market fluctuation. The bank calculatesmarket risk within a 99% confidence level,applying the Monte Carlo simulation methods. Inaddition, the bank conducts a stress test tocomplement risk measurement and to managelosses that can result from rapid changes in theeconomic environment. The bank also usesDuration, BPV (Basis Point Value), Delta,Gamma, Vega, and other systems for thepurpose of sensitivity limit managementaccording to the characteristics of products.

The bank’s mark risk management systemperforms the measurement of daily risks andthe management of limits on a regular basis,using transaction data on trading stocks, bondsand derivatives, that are market riskmeasurement target assets.

Interest Rate Risk ManagementInterest rate risk refers to the possibility oflosses (declines in net asset values or netinterest income) generated by unfavorablemovement of interest risk on the bank’sfinancial conditions.

Shinhan Bank’s interest rate risk managementis designed to measure, monitor, and controlrisk through the ALM system.

In particular, we measure and manage themaximum amount of expected losses in netinterest revenues through the interest rate gapand the NII (Net Interest Income) simulations.


Market Risk ManagementMarket risk refers to risks generated byfluctuations in market prices, such as interestrates, share prices, exchange rates, and productprices.

Market risk management basically aims tomanage the maximum amount of possible lossto maintain the amount at risk within certainlevels. To this end, Shinhan Bank allocates andoperates VaR (value-at-risk limits), investmentlimits, position limits, transaction limits, losslimits, and stop-loss selling limits fromportfolios to individual desks and dealers.Monitoring adherence to these limits is theresponsibility of Risk Management Department,and limits are established or adjusted throughthe ALM committee when necessary.

In addition, new products (or transactions) ateach business group are evaluated for relatedrisks by the Risk Management Departmentsthrough objective analysis and examination.


The maximum amount of possible losses in netasset values are measured and managedthrough diverse methods including DurationGap and Value at Risk Analyses.

Interest rate gap limits and interest rate VaRlimits are established by the interest rate RiskManagement Departments, and their managementconditions are regularly reported to the ALMCommittee. In addition, the bank conducts aquarterly stress test to measure and managelosses that can result from rapid changes in theeconomic environment for the purpose ofportfolio management.

Liquidity Risk ManagementLiquidity risk refers to the potential inability tofulfill contractual payment obligations on time,or being forced to raise capital at higher-than-market prices, or maintaining operational fundsat lower-than-market rates. Shinhan Bankobserves liquidity-related guidelines (includingliquidity ratios) set by relevant supervisoryorganizations, and also establishes contingencyplans against an unexpected shortage ofavailable cash that could occur with suddenchanges in capital markets or monetarypolicies.

Shinhan Bank also manages the maturities ofboth financing and operating funds at the sametime, so as to grasp daily and monthly maturitiesof all funds and seek countermeasures whennecessary. In addition, we diversify the maturitiesof financing products to mitigate the possibility ofliquidity risk generation while striving to securestable financing bases.

Meanwhile, liquidity ratios and gaps and othermeasurement indexes are calculated andmanaged on a monthly basis. In order tomaintain a stable liquidity gap structure,liquidity stress tests are conducted by riskscenario every quarter.

Particularly, to prepare against a rise inrefinancing expenses when customers withdrawfunds exceeding normal levels, we haveintroduced liquidity CaR while distributing andmanaging risk capital.

Operational Risk ManagementOperational risk refers to risk resulting fromdirect and/or indirect losses caused byincomplete or incorrect internal processes,employee fraud or misconduct, system errors,or external factors.

Shinhan Bank has operated its Basel IIoperational risk management system sinceFebruary 2006.

Shinhan Bank’s operational risk managementstructure involves three major lines, in additionto the BOD and management. They include (1)business organizations, taking charge ofprimary responsibilities and roles, (2) RiskManagement Department and other Internalcontrol-related departments that are committedto the construction and efficient operation ofoperational risk management systems based onexpertise, and (3) Audit Department dedicated toconducting thorough and efficient inspections.


We also built an operational risk managementsystem that consists of six modules. Theyinclude: RCSA (Risk and Control Self-Assessment), KRI (Key Risk Indicator), LDC(Loss Data Collection), Scenario Analysis, andOperational Risk Culture. Utilizing thesesystems, we will meet the quantitative andqualitative requirements of the InternationalConvergence of Capital Measurement andCapital Standards (commonly known as BaselII), and the FSS (Financial Supervisory Service)while raising our management levels.

Preparations for the Operation ofBasel II Shinhan Bank has prepared for the operation ofthe New Basel Capital Accord by organizing anindependent Basel II Team in February 2004 tomeet industry requirements.

The team completed an initial project by the endof 2004, analyzing the Basel II requirements andestablishing detailed plans to meet them. Basedon the outcome of this project, the teamestablished specific systems such as credit risk,operational risk, and capital adequacyevaluations, from 2005. The creation of thesesystems was wrapped up at the end of 2006,enabling the bank to continue pilot systemoperations and verifications to satisfy the BaselII requirements and utilize these for itsmanagement and operational decision makingfrom 2007.

We will continue our efforts to meet the Basel IIrequirements for overall management andbusiness processes while advancing our riskmanagement capabilities and expanding riskmanagement culture. To this end, we willreconstruct (1) consistent and transparentcredit processes and (2) credit rating systems,given the borrowers' default risk and the natureof transaction exposure. We will also apply profitand loss evaluations, considering estimatedlosses and the extended RAPM's (Risk AdjustedPerformance Measures).

In summary, we aim to use the AIRB (AdvancedInternal Rating Based) for credit risk, and theAMA (Advanced Measurement Approach) foroperational risk. These are the most developedamong several risk measuring methodssuggested by the Basel II. However, we plan toalso employ the FIRB (Foundation InternalRating Based) for credit risk and the StandardApproach for operational risk during thetransition period, allowing for the Basel II data,preliminary operational requirements, andintroduction schedule in Korea.


Management Discussion and Analysis



Financial Highlights

OverviewShinhan Bank attained substantial results overall, expanding quality assets through active and effectiveoperations despite intensifying competition, while concentrating on internal overhaul for the integrationof corporations and IT systems during 2006.

Operating income decreased by 12.29% year-on-year (YoY), amounting to KRW 1. 4 trillion at the end of2006. This followed the spin-off of former Chohung Bank's credit card division in April 2006, andexcluded income statement figures of former Shinhan Bank during the first quarter of 2006. Net incomecontracted by 6.5% to KRW 1.4 trillion.

In billions of Korean won In millions of U.S. dollars 2)

FY2006 FY20051) FY2006 FY20051)

Bank AccountFor the Year

Operating Revenues* 12,933.4 13,474.6 13,912.9 13,301.7 Operating Expenses* 11,544.0 11,890.4 12,418.2 11,737.8 Operating Income* 1,389.5 1,584.2 1,494.7 1,563.9 Ordinary Income* 1,942.9 1,762.1 2,090.0 1,739.5 Net Income for the Year* 1,431.1 1,530.9 1,539.5 1,511.3

At Year-EndTotal Assets 154,207.1 142,251.5 165,885.4 140,426.0 Total Loans 112,715.3 99,839.3 121,251.4 98,558.1 Total Securities 23,660.2 23,934.0 25,452.0 23,626.8 Total Deposits 94,048.6 87,307.0 101,171.0 86,186.6 Total Stockholders' Equity 9,667.4 8,425.7 10,399.5 8,317.5

Trust AccountAt Year-End

Total Assets 23,750.1 21,673.5 16,549.4 21,395.4 Total Loans 391.0 377.0 313.0 372.2 Total Securities 10,130.2 8,877.6 5,832.8 8,763.7 Total Money Trusts 6,768.1 9,837.2 6,643.0 9,711.0

Financial RatiosReturn on Average Assets* 0.96 1.09Return on Average Equity* 16.01 20.72Substandard & Below 0.75 1.05NPL Ratio by FSS 0.62 0.87Net Interest Margin 2.22 2.80 BIS Capital Adequacy Ratio 12.01 11.64

( Tier 1 Capital Ratio ) 7.81 7.40 ( Tier 2 Capital Ratio ) 4.20 4.24

Note 1) Financial figures for the year 2005 are on a pro forma basis

* Due to merger between heritage Shinhan Bank and Chohung Bank, income statement figures exclude 1Q. 2006 of heritage ShinhanBank.

Note 2) Translated into U.S. dollars at the rates of KRW 929.60/USD 1.0 and KRW 1,013.0/USD 1.0, respectively those prevailing onDecember 31, 2006 and December 31, 2005.

* Bank accounts only


Total assets increased 7.8% over the year, led by loan assets, to KRW 154.2 trillion (bank accountsonly). Deposits advanced 7.7% to KRW 94.0 trillion. This was backed by a recovery in customerdeposits, following rises in market interest rates and successful expansion in the low-cost depositbase.

Reflecting a decline in net income, ROA (Return on Assets) edged down 0.13% over the year to 0.96%,while ROE (Return on Equity) fell 4.71% to 16.01%.

The ratios of substandard-and-below loans and non-performing loans to total loans stood at 0.75%and 0.62%, respectively, recording the highest asset quality indices among domestic banks. This wasattributed to the bank's continued efforts to manage asset soundness by applying the advanced riskmanagement systems of former Shinhan Bank with the low-cost deposits of former Chohung Bank.

The bank's BIS capital adequacy ratio improved by 0.37%p to 12.01%, presenting satisfactory capitaladequacy levels. This resulted from timely issuance of capital-related securities includingsubordinated bonds and Hybrid Tier 1 securities.

Interest income fell 5.1% from the previous year's figure, due to a contraction in margins triggered bykeen price competition among commercial banks. Non-interest income also declined. Accordingly,operating revenues narrowed by 4.0% over the year.

Note) Former Chohung Bank was chosen to be the integrated bank's legal entity. Therefore, former Shinhan Bank's net income of KRW228.1 billion for the first quarter of 2006 was reflected in capital stock. When including this amount, the bank's actual net income forthe first quarter of 2006 would have increased 8.4%.


Net Income Summary(In billions of Korean won)

FY2004 FY2005 FY2006 YoY

Operating Revenues 12,700.5 13,474.6 12,933.4 -4.0%Interest Income 7,308.4 7,158.5 6,792.3 -5.1%Commission Income 630.7 795.1 719.4 -9.5%Other Operating Income 4,761.4 5,521.0 5,421.7 -1.8%

Operating Expenses 11,450.3 11,890.4 11,544.0 -2.9%Interest Expenses 3,728.8 3,591.9 3,764.8 4.8%Commission Income 173.1 196.4 146.4 -25.5%Other Operating Expenses 5,858.0 6,228.6 5,737.9 -7.9%(Provision for Credit Losses) 1,232.1 726.1 455.3 -37.3%Selling and Administrative Expenses 1,690.4 1,873.5 1,894.9 1.1%

Operating Income 1,250.2 1,584.2 1,389.5 -12.3%

Non-Operating Income 569.3 642.5 942.7 46.7%

Non-Operating Expenses 349.9 464.6 389.3 -16.2%

Ordinary Income 1,469.6 1,762.1 1,942.9 10.3%

Extraordinary Gains 0.0 0.0

Income Before Income Taxes Expense 1,469.6 1,762.1 1,942.9 10.3%

Income Tax Expenses 360.3 231.2 511.7 121.4%

Net Income for the Year 1,109.3 1,530.9 1,431.1 -6.5%


Operating expenses edged back 2.9% year-on-year. This was mainly due to a sharp downturn in baddebt expenses by 37.3% thanks to the bank’s excellent asset quality management, despite rises ininterest expenses and one-time S&A (Selling and Administrative) expenses for the integration.

Non-operating income swelled sharply by 46.7% over the year, due to the generation of special gainsincluding gains on the sale of investment stocks and the reversal of loan loss provisions.

As a result, net income backed off 6.5% over the year to KRW 1.4 trillion.

Total interest-earning assets grew by 4.7% YoY, while related interest income declined by 5.9%following a drop in loan interest.

Interest expenses, however, increased by 3.2%. This was due to upturns in interest on borrowings anddebentures despite a downturn in deposit interest following a rise in low-cost deposits.

Net interest income pared down by 15%, and the NIM (Net Interest Margin) sharply deteriorated by0.58%p due to the aforementioned spin-off of the credit card division.


Net Interest Income and Margin(In billions of Korean won, %)

FY2004 FY2005 FY2006 Increase YoY

Interest IncomeInterest on Due from Banks 19.8 53.3 39.6 -13.7 -25.7 Interest on Securities 1,057.1 854.8 859.1 4.3 0.5 Interest on Loans 5,736.4 6,091.2 5,682.1 -409.1 -6.7 Other 28.4 34.1 39.1 5.0 14.7 Total 6,841.8 7,033.4 6,619.9 -413.5 -5.9

Interest ExpensesInterest on Deposits 2,338.2 2,168.3 2,103.3 -65.0 -3.0 Interest on Borrowings 456.9 465.7 498.9 33.2 7.1 Interest on Debentures 819.7 844.2 973.8 129.6 15.4 Other 52.5 42.2 58.4 16.2 38.3 Total 3,667.4 3,520.5 3,634.4 114.0 3.2

Net Interest Income 3,174.4 3,512.9 2,985.5 -527.4 -15.0



Net Interest Margin(In billions of Korean won, %)

FY 2005 FY 2006Volume Yield Volume Yield

Interest Earning Assets 115,124.4 5.96 120,580.8 5.32

IEA in KRW 101,208.2 6.26 106,679.0 5.49

Due From Banks 1,157.0 3.91 680.4 4.30

Securities 16,428.0 4.62 17,136.4 4.35

Loans 83,384.1 6.59 88,783.3 5.68

Loans in KRW 78,759.2 5.98 85,729.3 5.51

Corporates 37,944.1 5.96 39,792.5 5.35

Households 38,657.6 6.09 44,080.0 5.70

Loan Loss Reserves( ) 1,544.1 0.00 1,458.6 0.00

IEA in Foreign Currency 13,916.1 3.78 13,901.7 4.03

Due From Banks 543.9 1.48 421.0 2.45

Securities 853.2 4.12 861.9 4.89

Loans 12,519.0 3.86 12,618.8 4.02

Loans in Foreign Currency 6,252.4 4.71 7,022.4 4.15

Bills Bought in Foreign Currency 6,491.1 2.89 5,723.5 3.77

Loan Loss Reserves( ) 224.5 0.00 127.1 0.00

Interest Bearing Liabilities 110,766.6 3.28 114,561.1 3.26

IBL in KRW 97,191.4 3.40 101,694.5 3.30

Deposits 71,886.6 3.10 71,773.6 2.96

Borrowings 9,120.7 3.15 9,229.7 3.44

Finance Deventures 15,364.5 4.87 19,774.7 4.32

Others 819.6 4.88 916.5 6.02

IBL in Foreign Currency 13,575.2 2.40 12,866.6 3.01

Deposits 3,250.9 1.73 3,150.9 2.73

Borrowings 7,869.1 2.18 7,184.2 2.52

Finance Debentures 2,110.4 4.31 2,344.7 5.11

Others 344.8 1.91 186.8 0.00

Net Interest Spread in KRW 3.48 2.72

Net Interest Margin 2.80 2.22

KRW 2.99 2.35

Foreign Currency 1.44 1.24


Non-interest income came down 1.2% YoY. This was primarily led by overall downturns in fees on trustaccounts, derivatives-related gains, and won-currency commission revenues, although gains onforeign exchange transaction increased.

S&A expenses edged up 1.13% to KRW 1.9 trillion. This was due to sharp rises in personnel andemployee welfare expenses, mainly resulting from expansions in one-time expenses behind theintegration, branches, and new employment. Accordingly, cost efficiency indicators moved up in 2006,with the ratio of total expenses to total assets and the cost-income ratio standing at 1.27% and 58.23%,respectively. This rise in S&A expenses reflected the bank's integration. This should be translated asan advance investment, aimed at doubling the bank's earnings in the future. Moving forward, the bankexpects to maintain stable cost efficiencies through an increase in operating revenues.


Selling and Administrative Expenses(In billions of Korean won, %)


Salaries 660.4 762.3 671.5 -90.8 -11.92

Retirement Allowance 77.4 90.1 90.5 0.4 0.42

Other Employee Benefits 274.3 355.0 440.5 85.5 24.08

Rent 67.0 77.8 93.0 15.2 19.48

Entertainment 7.2 13.7 10.1 -3.6 -26.24

Depreciation 165.6 162.9 165.3 2.5 1.52

Taxes and Dues 67.2 62.2 62.1 0.0 -0.04

Advertising 47.7 48.9 47.7 -1.2 -2.54

Other Expenses 323.3 300.1 313.5 13.3 4.44

Total 1,690.1 1,873.0 1,894.1 21.1 1.13

Non-interest Income(In billions of Korean won, %)


Fees & Commissions 814.0 586.3 567.7 -18.6 -3.2

( Credit Card ) (29.8 ) (-39.5 ) (11.5 ) 50.9 -129.0

Fees on Trust Accounts 120.1 110.6 74.8 -35.8 -32.4

Securities-related Income 128.7 25.6 28.3 2.7 10.7 Gain on Foreign CurrencyTransaction 154.2 49.9 106.6 56.7 113.5

Gain Related to Derivatives 108.3 175.5 168.0 -7.5 -4.3

Other Income -221.3 -206.6 -213.1 -6.5 3.1

Total 1,104.0 741.3 732.3 -9.0 -1.2


Balance Summary

Loans in the bank account increased by 12.1% YoY to reach KRW 109.2 trillion, despite a YoY decline incredit card receivables (by KRW 2.3 trillion) following the spin-off of the credit card division.

Won-currency loans expanded by 12.8%, while foreign-currency loans surged by 44.5%, caused by arise in demand for low interest rates. However, bills bought in foreign currencies declined by 9.6%,mainly due to the strong Korean won. Won-currency loans significantly expanded, up 16.6% YoY led bymortgage loans. SME (Small and Medium-sized Enterprise) loans also presented a favorable upturn(11.8%), triggered by a slight recovery in capital demand mainly from SME's.


Total Loans(In billions of Korean won, %)


Loans in KRW

Retails 36,338.6 41,124.2 47,943.0 6818.8 16.6

Mortgage 21,790.6 25,126.1 30,452.0 5325.9 21.2

Others 14,548.0 15,998.1 17,491.0 1492.9 9.3

SME’s 30,548.6 31,054.9 34,731.2 3676.2 11.8

Large Corp. 5,705.6 6,155.6 5,292.0 -863.6 -14.0

Public & Others 824.1 1,133.1 1,636.9 503.7 44.5

Total 73,417.0 79,467.8 89,603.0 10135.2 12.8

Loans in Foreign Currency 4,640.1 4,699.4 6,855.9 2156.5 45.9

Credit Card Accounts 2,702.0 2,282.3 0.0 -2282.3 -100.0

Bills Bought in Foreign Currency 3,710.1 3,568.4 3,224.4 -344.0 -9.6

Call Loans, RP’s 1,496.2 1,313.6 1,051.3 -262.2 -20.0

Others 6,557.0 7,591.6 10,135.6 2544.0 33.5

(Loan Loss Allowance) (1,735.9 ) (1,556.9 ) (1,681.2 ) (124.3 ) (8.0 )

(Present Value Discount) (0.0 ) (0.0 ) (37.0 ) (37.0 )

Total 90,786.5 97,366.3 109,152.2 11,785.9 12.1

Banks accounts only

Total Securities(In billions of Korean won, %)


Stocks 2,386.5 3,987.6 4,521.5 533.9 13.4

Government Bonds 5,106.0 3,511.2 2,444.2 -1,067.0 -30.4

Finance Debentures 6,229.3 6,726.0 10,875.1 4,149.1 61.7

Corporate Bonds 8,241.6 6,226.7 2,219.6 -4,007.1 -64.4

Beneficiary Certificates 0.0 2,401.3 2,306.0 -95.3 -4.0

Securities Denominated in ForeignCurrencies 874.9 840.1 1,001.8 161.7 19.3

Others 367.6 241.1 291.9 50.8 21.1

Total 23,206.0 23,934.0 23,660.2 -273.8 -1.1

Banks accounts only


Securities marginally decreased to KRW 23.7 trillion, down by 1.1% from a year earlier. The percentageof securities to assets edged down by 1.5%p to 15.3%. Stocks and financial debentures increased,while government, public, and corporate bonds decreased.

Deposits in the bank account increased 7.7% YoY to KRW 94.1 trillion at year-end. This was principallyinfluenced by capital flows into the banking industry in the wake of interest rate hikes during thesecond half of the year. Won-currency deposits grew by 7.3%, while foreign-currency depositsexpanded by 19.1%. In addition, installment-type deposits decreased, while CD's, RP's, and timedeposits increased, in line with a change in customer preference. Low-cost deposits of the formerChohung Bank that had been incorporated with the integration also climbed by 8.5%.


Total Deposits(In billions of Korean won, %)


Low Cost Deposits 30,259.8 34,022.3 37,289.9 3,267.6 9.6

Demand 9,576.5 11,160.7 12,481.4 1,320.7 11.8

Low Cost Saving 20,683.3 22,861.6 24,808.5 1,946.9 8.5

Time Deposits 35,247.3 33,837.1 34,477.2 640.1 1.9

Installment Deposits 2,363.5 1,571.5 828.0 -743.5 -47.3

CDs 8,019.0 10,662.0 12,966.9 2,304.9 21.6

RP’s, Bills Sold 4,031.3 4,130.4 4,813.4 683.0 16.5

Deposits in KRW 79,920.9 84,223.3 90,375.3 6,152.1 7.3

Deposits in Foreign Currency 4,324.2 3,083.7 3,673.3 589.5 19.1

Total 84,245.1 87,307.0 94,048.6 6,741.6 7.7

Banks accounts only

Asset Quality(In billions of Korean won)


Normal 91,304.6 99,503.5 115,253.4 15,749.9 15.8%

Precautionary 2,223.2 2,030.0 1,415.7 -614.3 -30.3%

Substandard 866.9 663.4 471.2 -192.2 -29.0%

Doubtful 354.1 157.9 126.2 -31.8 -20.1%

Estimated Loss 335.7 261.1 285.3 24.1 9.2%

Total 95,084.4 102,616.0 117,551.7 14,935.7 14.6%

Doubtful & Below Ratio 0.73% 0.41% 0.35% -0.06%p -14.3%

Substandard & Below Ratio 1.64% 1.05% 0.75% -0.30%p -28.8%

Precautionary & Below Ratio 3.98% 3.03% 1.96% -1.08%p -35.5%

Provisions1) 1,812.9 1,624.4 1,759.6 135.2 8.3%

Coverage Ratio Against

Doubtful & Below 262.8% 387.6% 427.7% 40.1%p

Substandard & Below 116.5% 150.1% 199.4% 49.3%p

Precautionary & Below 48.0% 52.2% 76.6% 24.4%p

1) Balance, combining loan loss provisions in the bank account and allowances for acceptances and guarantees losses (excluding otherprovisions).


Loans classified as substandard-and-below and precautionary-and-below decreased by 0.30%p and1.08%p, respectively, to 0.75% and 1.96% at the end of 2006. The bank continued to maintain theindustry's highest level of asset soundness. This can be attributed to its continuous asset qualitymanagement by employing the advanced risk management systems of the former Shinhan Bank to theformer Chohung Bank's assets.

The table below provides a visual accounting of additional loan loss provisions set aside during theyear, as well as the balance of loan loss provisions at year-end in the bank and trust accounts.

Provisions set aside during 2006 fell by 24.6% YoY to KRW 438.2 billion, thanks to strengthened assetquality management and substantial improvements in the credit ratings of companies.

The balance of loan loss provisions rose by 8.4% YoY to KRW 1.8 trillion, due to a KRW 18 billion declinein the amount of depreciation over the year. The coverage ratio for substandard-and-below loanssurged by 35.69%p to 184.24%. The balance of loan loss provisions in the trust account remained thesame as the previous year's figure (KRW 15.4 billion).


Provisions(In billions of Korean won)


Bank Accounts1)

LLR at the Start of the Period 2,582.7 1,787.1 1,609.0 -178.1 -10.0%

Provisions During Period 1,133.4 581.2 438.2 -143.0 -24.6%

Write-off 1,568.5 679.5 160.6 -518.9 -76.4%

Other Adjustments -360.5 -79.7 -142.4 -62.7 78.7%

LLR at the End of Period 1,787.1 1,609.0 1,744.2 135.2 8.4%

Trust AccountsLLR at the Start of the Period 63.3 25.8 15.4 -10.4 -40.3%

Provisions During Period -19.7 0.4 -5.3 -5.7 -

Write-off 3.7 1.1 0.2 -0.9 -78.4%

Other Adjustments -14.0 -9.7 5.6 15.3 -

LLR at the End of Period 25.8 15.4 15.4 0.0 -

TotalLLR at the Start of the Period 2,646.0 1,812.9 1,624.4 -188.4 -10.4%

Provisions During Period 1,113.7 581.6 432.9 -148.7 -25.6%

Write-off 1,572.2 680.6 160.8 -519.8 -76.4%

Other Adjustments -374.6 -89.4 -136.8 -47.4 53.1%

LLR at the End of Period 1,812.9 1,624.4 1,759.6 135.2 8.3%

1) Bank account provisions refer to the combined balance of loan loss provisions and allowances for acceptances and guarantees losses(excluding other provisions).


Shinhan Bank enjoyed the highest asset quality of all domestic banks, with its delinquency ratiostanding at 0.65% at the end of 2006. Delinquency ratios for corporate loans and household loansplummeted to 0.98% and 0.61%, respectively, from a year earlier. In the future, the bank will continueto retain the industry's finest asset soundness through continuous management.

The bank's BIS capital adequacy ratio increased by 0.37%p to 12.01%, while its Tier 1 capital ratio grewby 0.41%p to 7.81%.

Total capital rose by 18.1%, mainly as the result of increased retained earnings and the issuance ofhybrid securities and subordinated bonds. Risk-weighted assets expanded by 14.4% only, leading to anupturn in the BIS capital adequacy ratio. Tier 1 capital totaled KRW 8.9 trillion at year-end, while Tier 2capital amounted to KRW 4.8 trillion.


Delinquency Ratios(In billions of Korean won)

Dec-2004 Dec-2005 Dec-2006Total Overdue Ratio Total Overdue Ratio Total Overdue Ratio

Overall 92,667.8 1,273.4 1.37% 100,222.6 920.8 0.92% 113,652.7 733.8 0.65%

Corporate 36,842.2 626.4 1.70% 37,261.1 481.7 1.29% 40,044.9 390.5 0.98%

Consumer 36,534.4 414.9 1.14% 41,375.8 316.6 0.77% 48,287.4 292.2 0.61%

Capital Adequacy(In billions of Korean won)

FY2004 FY2005 FY2006 Increase YoYTotal Capital 9,617.2 11,551.8 13,639.7 2,087.8 18.1%

Risk-weighted Assets 89,159.5 99,255.3 113,557.5 14,302.2 14.4%

Credit Risk-weighted Assets 88,316.3 98,267.2 111,471.9 13,204.7 13.4%

Market Risk-weighted Assets 843.2 988.1 2,085.6 1,097.5 111.1%

BIS Capital Adequacy Ratio 10.79% 11.64% 12.01% 0.37%p

Tier 1 Capital Ratio 6.33% 7.40% 7.81% 0.41%p

Tier 2 Capital Ratio 4.46% 4.23% 4.20% -0.03%p


Trust Account

Assets in the trust account expanded by 9.6% to reach KRW 23.8 trillion. Monies in trust surged by23.9%, while properties in trust decreased by 2.4%.


Income(In billions of Korean won)


Fees and Commissions from T/A 120.1 110.5 74.8 -35.7 -32.3%

Subsidy for T/A - - - - 0.0%

Net Income from T/A 120.1 110.5 74.8 -35.7 -32.3%

Outstanding(In billions of Korean won)


Total Assets 18,733.3 21,673.5 23,750.1 2,076.6 9.6%

Money in Trust 9,412.7 9,837.2 12,191.5 2,354.3 23.9%

Property in Trust 8,924.7 11,490.3 11,210.3 -280.0 -2.4%


Date of Establishment :

Major Shareholder:

Business Network :

Number of Employees:

Members of Shinhan Financial Group:

Shinhan Bank (est. 1982) and Chohung Bank (est. 1897)merged to the new Shinhan Bank on April 1, 2006

Shinhan Financial Group (100%)

Domestic: 1,007 branches and offices Overseas: 19 branches and subsidiaries

10,741

Shinhan Bank (100%)Jeju Bank (62.4%) Good Morning Shinhan Securities (100%) Shinhan Life Insurance (100%) Shinhan Card (100%) Shinhan Capital (100%) Shinhan BNP Paribas ITMC (50%) Shinhan Macquarie Financial Advisory (51%) Shinhan Credit Information (100%) SH&C Life Insurance (50%) Shinhan Private Equity (100%)

( ) shows Shinhan Financial Group’s holdings in its subsidiaries.

Corporate Data (As of December 31, 2006)

120, 2-ga, Taepyeong-no, Jung-gu,Seoul, 100-724, KoreaTel: 82-2-756-0505Fax: 82-2-774-7013http://www.shinhan.com

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