Hana Financial Group (086790.KS) Q1 2026: Net Profit Rises 7.3% to ₩1.21T as NPL Coverage Plunges 8.4pp
Core banking fundamentals held firm, but 41% of operating profit growth came from a 22.6% drop in credit provisions even as non-performing loans accelerated — raising hard questions about the quality of earnings.
Source: Quarterly Report (22nd FY, Q1) — Filed May 15, 2026 with DART | Consolidated Financial Statements | Unit: ₩ billions
Hana Financial Group reported Q1 2026 consolidated quarterly net income of ₩1,230.7 billion, up 8.1% year-on-year, with net income attributable to controlling shareholders of ₩1,210.0 billion (+7.3%). Net interest income grew 10.2% and net fee income surged 19.2%, signaling that the core franchise remains intact. However, approximately 41% of the ₩164.7 billion increase in operating profit is mechanically attributable to a 22.6% decline in credit loss provisions — a composition that warrants scrutiny when non-performing loan (NPL) coverage simultaneously collapsed from 126.5% to 118.1% in a single quarter, and from 139.2% over fifteen months. The group's BIS ratio fell 39bp quarter-on-quarter to 15.22%, while ₩7.4 trillion in capital surplus was transferred into retained earnings — mirroring the playbook executed by KB Financial and Shinhan Financial — to pre-fund future buybacks, cancellations, and dividends.
Balance Sheet
Asset Composition Shifts Toward Trading Book
A banking holding company's asset base moves along three axes: amortized-cost loan receivables (the lending franchise), financial assets measured at fair value through profit or loss (FVTPL) or other comprehensive income (FVOCI) (the bond and equity book), and short-term liquid assets (cash and deposits with banks). In Q1 2026, the lending book contracted at quarter-end while bond and derivative positions expanded — pulling the asset mix toward trading exposures.
| Item | Prior period-end (₩ trillion) | Current period-end (₩ trillion) | Change | Share (current) |
|---|---|---|---|---|
| Cash and deposits | 43.34 | 45.94 | +6.0% | 6.7% |
| FVTPL financial assets | 73.10 | 77.39 | +5.9% | 11.3% |
| FVOCI financial assets | 50.54 | 51.35 | +1.6% | 7.5% |
| Amortized-cost securities | 30.86 | 30.44 | -1.3% | 4.4% |
| Amortized-cost loans | 434.22 | 424.29 | -2.3% | 61.9% |
| Investments in associates and joint ventures | 4.86 | 5.14 | +5.8% | 0.8% |
| Property and equipment | 7.93 | 7.92 | -0.1% | 1.2% |
| Intangible assets | 1.07 | 1.09 | +1.3% | 0.2% |
| Other assets | 27.25 | 40.10 | +47.1% | 5.9% |
| Total assets | 674.59 | 685.37 | +1.6% | 100.0% |
The ₩10.78 trillion expansion in total assets hinges on two moving parts. First, the amortized-cost loan book shrank by ₩9.93 trillion to ₩424.29 trillion. On a quarterly average basis, however, loans rose from ₩410.5 trillion to ₩429.3 trillion — an increase of ₩18.7 trillion — implying that the period-end contraction reflects transient effects such as corporate loan settlements or FX translation rather than a structural pullback. Second, "other assets" jumped 47.1% from ₩27.25 trillion to ₩40.10 trillion, while "other liabilities" rose in tandem from ₩63.17 trillion to ₩76.77 trillion (+21.5%) — a paired expansion that points to elevated unsettled trades and FX settlement balances, consistent with intensified trading and currency activity.
On a standalone basis, Hana Bank manages average won-denominated deposits of ₩303 trillion, average won-denominated loans of ₩319.5 trillion, average foreign-currency loans of ₩27.9 trillion, and trust accounts averaging ₩135.7 trillion — preserving a top-tier commercial banking footprint. Securities investments stand at ₩91 trillion.
Debt Structure — Deposit Base Slips as Trading Liabilities Expand
| Item | Prior period-end (₩ trillion) | Current period-end (₩ trillion) | Change |
|---|---|---|---|
| FVTPL financial liabilities | 32.63 | 36.69 | +12.4% |
| Deposit liabilities | 409.39 | 401.63 | -1.9% |
| Borrowings | 50.46 | 50.49 | +0.1% |
| Debentures | 72.81 | 72.66 | -0.2% |
| Other liabilities | 63.17 | 76.77 | +21.5% |
| Total liabilities | 628.95 | 638.93 | +1.6% |
The primary funding source — deposit liabilities — fell by ₩7.76 trillion (-1.9%), in contrast to KB Financial's +1.4% deposit growth over the same period. Quarterly average deposits actually rose from ₩375.4 trillion to ₩391.1 trillion, suggesting the period-end shortfall reflects maturity concentration or temporary corporate cash withdrawals rather than a structural deposit outflow. Debentures of ₩72.66 trillion reflect ₩9.13 trillion of issuance and ₩10.15 trillion of redemption during the quarter — a net repayment of ₩1.02 trillion. The 12.4% rise in FVTPL liabilities reflects expanded derivative and short positions.
On pricing, the group's average debenture coupon on a standalone basis has drifted upward to 3.00%, from 2.97% a year earlier and 2.90% the year before. With market rates having peaked and the funding curve still rolling forward at higher coupons than maturing paper, refinancing costs will continue to creep up for several more quarters before the trend reverses.
Capital Structure — The ₩7.4 Trillion Capital-Surplus Transfer
| Item | Prior period-end (₩ trillion) | Current period-end (₩ trillion) | Change (₩ trillion) |
|---|---|---|---|
| Capital stock | 1.501 | 1.501 | — |
| Hybrid capital securities | 4.270 | 4.270 | — |
| Capital surplus | 10.576 | 3.176 | -7.400 |
| Capital adjustments (incl. treasury stock) | (0.549) | (0.645) | -0.097 |
| Accumulated OCI | (0.909) | (0.830) | +0.080 |
| Retained earnings | 29.691 | 37.889 | +8.198 |
| Equity attributable to controlling interests | 44.580 | 45.361 | +0.781 |
| Non-controlling interests | 1.066 | 1.081 | +0.016 |
| Total equity | 45.646 | 46.442 | +0.797 |
The pivotal capital action of the quarter was an accounting reclassification: ₩7.4 trillion was transferred from capital surplus to retained earnings under Article 461-2 of the Commercial Act (reduction of capital reserves followed by transfer to retained earnings). Capital surplus contracted 70.0% while retained earnings expanded 27.6%. Total equity was unaffected, but distributable income — the legal pool from which buybacks, cancellations, and dividends can be funded — was pre-emptively replenished. KB Financial executed an identical ₩7.5 trillion transfer in March 2026 and Shinhan Financial moved ₩6.0 trillion in January 2026, making this a synchronized policy signal across Korea's four major banking holding companies: shareholder return capacity is being staged ahead of execution.
Decomposing the retained earnings movement confirms the mechanics: quarterly net income of +₩1,210.0 billion, annual dividend payments of -₩368.9 billion, hybrid capital securities dividends of -₩43.3 billion, and the capital surplus transfer of +₩7,400.0 billion — summing to approximately +₩8,197.8 billion against the reported +₩8,198.1 billion. Treasury stock holdings rose from ₩533.6 billion to ₩630.5 billion as the group repurchased an additional 951,669 shares, with no cancellations executed during the quarter. The implication is straightforward: the freshly enlarged distributable earnings pool stands ready to be converted into cancellation fuel in subsequent quarters.
Income Statement
Core Revenue Drivers
| Item | 21st FY Q1 (₩ billion) | 22nd FY Q1 (₩ billion) | Change |
|---|---|---|---|
| Net interest income | 2,272.8 | 2,505.3 | +10.2% |
| Net fee income | 646.8 | 771.2 | +19.2% |
| Net gain/loss on FVTPL financial instruments | 425.4 | 30.1 | -92.9% |
| Net gain/loss on FVOCI financial assets | 106.9 | 63.2 | -40.9% |
| FX trading gain/loss | (76.8) | 174.3 | Swing to profit |
| Net insurance income | 16.2 | 12.2 | -24.5% |
| Total operating income | 3,410.1 | 3,578.3 | +4.9% |
| Credit loss provisions | (297.2) | (230.1) | -22.6% |
| Net operating income | 3,112.9 | 3,348.3 | +7.6% |
| General and administrative expenses | (1,143.0) | (1,198.4) | +4.8% |
| Other operating income/loss (net) | (481.1) | (496.3) | +3.2% |
| Operating profit | 1,488.9 | 1,653.6 | +11.1% |
| Non-operating income | 46.5 | 57.4 | +23.4% |
| Pre-tax income | 1,535.4 | 1,711.0 | +11.4% |
| Income tax expense | (397.0) | (480.3) | +21.0% |
| Consolidated quarterly net income | 1,138.4 | 1,230.7 | +8.1% |
| Controlling shareholders' share | 1,127.7 | 1,210.0 | +7.3% |
| Basic EPS (₩) | 3,879 | 4,322 | +11.4% |
The 11.1% rise in operating profit breaks down into three engines. Net interest income growth (+10.2%, +₩232.6 billion) dominated. Interest income actually declined 1.9% from ₩5,716.7 billion to ₩5,605.1 billion, but interest expense fell faster — down 10.0% from ₩3,443.9 billion to ₩3,099.7 billion. With the Bank of Korea in an easing cycle, funding costs re-priced ahead of asset yields, producing a transient liability-sensitive tailwind to net interest margin. This effect is not permanent; once the deposit base fully reflects lower policy rates and the loan book reprices into the new regime, the margin spread will compress unless mix shift or repricing dynamics intervene.
Net fee income jumped 19.2% (+₩124.4 billion). Gross fee revenue rose 20.1% from ₩933.7 billion to ₩1,121.7 billion, propelled by capital markets activity and a strong contribution from investment banking and wealth management. Hana Securities reported Q1 standalone net income of ₩103.3 billion, with both WM and IB lines posting revenue expansion.
Credit loss provisions declined 22.6% (-₩67.1 billion) — accounting for roughly 41% of the operating profit increase of ₩164.7 billion. This figure must be read alongside the deterioration in NPL coverage discussed in the asset quality section: provisions were trimmed in a quarter when non-performing loans rose, not fell.
Trading-related lines, by contrast, were hit hard. The net gain on FVTPL financial instruments collapsed 92.9% from ₩425.4 billion to ₩30.1 billion. Foreign exchange trading swung from a loss of ₩76.8 billion to a gain of ₩174.3 billion, partially offsetting the trading-book damage. Combined, however, the two lines still fell from ₩348.6 billion to ₩204.4 billion — a ₩144.2 billion (-41.4%) deterioration. Management cited "unexpected equity market volatility" as the principal driver of the S&T weakness.
Cost Structure — Discipline Held
| Item | 21st FY Q1 (₩ billion) | 22nd FY Q1 (₩ billion) | Change |
|---|---|---|---|
| General and administrative expenses | 1,143.0 | 1,198.4 | +4.8% |
| G&A / total operating income (CIR) | 33.5% | 33.5% | 0.0pp |
| Interest expense / interest income | 60.2% | 55.3% | -4.9pp |
G&A expenses rose 4.8%, but kept pace with total operating income growth (+4.9%), holding the cost-to-income ratio (CIR) flat at 33.5% — a competitive level relative to peers. The interest expense ratio compression of 4.9 percentage points is the cleanest single illustration of the liability-sensitive dynamic at work in the quarter.
Cash Flow
| Item | Q1 2025 (₩ trillion) | Q1 2026 (₩ trillion) | Change |
|---|---|---|---|
| Operating cash flow | 5.048 | 3.558 | -29.5% |
| Investing cash flow | 1.268 | 0.144 | -88.7% |
| Financing cash flow | 1.638 | (2.010) | Swing to outflow |
| FX translation effect | 0.173 | 0.498 | +188% |
| Net change in cash | 8.127 | 2.190 | -73.1% |
| Period-end cash and equivalents | 40.893 | 38.755 | -5.2% |
Operating cash flow contracted 29.5% from ₩5.05 trillion to ₩3.56 trillion despite the 8.1% rise in quarterly net income. Working capital pressures were the offset: short-term trading asset purchases consumed ₩3.95 trillion, and deposit liabilities shrank by ₩10.77 trillion. The cash-based interest spread — interest received less interest paid — widened from ₩2.17 trillion to ₩2.67 trillion, confirming that the underlying interest cash flow improved even as accounting cash flow weakened.
A bank holding company cannot be evaluated on the classic FCF = OCF - CapEx framework that suits manufacturers. After subtracting intangible and tangible asset acquisitions (₩391.5 billion) and adding back tangible asset disposals (₩83.4 billion), available cash approximates ₩3,166.5 billion, which corresponds well to the group's internally calculated distributable cash.
The ₩2,010 billion financing outflow decomposes as follows: (1) net debenture repayment of ₩1,020.6 billion, (2) borrowings reduction of ₩823.2 billion, (3) treasury stock repurchases of ₩96.9 billion, (4) annual dividends of ₩368.9 billion, (5) hybrid capital securities dividends of ₩43.3 billion, and (6) lease liability repayments of ₩71.2 billion. The direct shareholder return figure — treasury repurchases plus common dividends plus hybrid dividends — totals ₩509.1 billion, equating to approximately 42% of quarterly net income.
Key Findings
Capital Adequacy — BIS Ratio Down 39bp
| Metric | 2024.12 | 2025.12 | 2026.03 | Trend |
|---|---|---|---|---|
| Capital (₩ trillion) | 43.56 | 45.10 | 45.80 | Expanding |
| Risk-weighted assets (₩ trillion) | 279.40 | 288.94 | 300.83 | Rapid increase |
| Group BIS ratio | 15.59% | 15.61% | 15.22% | -39bp QoQ |
| Hana Bank BIS ratio | 17.39% | 17.62% | 17.35% | -27bp QoQ |
| Hana Card adjusted capital ratio | 19.73% | 20.74% | 21.36% | +62bp QoQ |
| Hana Capital adjusted capital ratio | 13.82% | 15.65% | 15.92% | +27bp QoQ |
| Hana Life K-ICS ratio | 180.81% | 174.39% | 154.86% | -19.5pp QoQ |
| Hana Insurance K-ICS ratio | 154.94% | 155.45% | 146.07% | -9.4pp QoQ |
The 39bp drop in the group BIS ratio reflects an arithmetic that flatters neither growth nor risk discipline: capital rose by ₩700.7 billion (+1.6%), but risk-weighted assets expanded by ₩11.89 trillion (+4.1%) — substantially faster. The ₩18.7 trillion increase in average loan balances and the trading book expansion are the primary RWA drivers. The K-ICS deterioration at the insurance subsidiaries is more pronounced: Hana Life slipped from 174.39% to 154.86% — a 19.5-percentage-point fall in a single quarter — reflecting early provisioning against the 2027 insurance basic-capital regulations. Both insurance subsidiaries remain at or above the supervisory recommendation of 150%, but the trajectory is the salient point.
Asset Quality — NPLs Rising, Coverage Falling Simultaneously
| Metric | 2024.12 | 2025.12 | 2026.03 |
|---|---|---|---|
| Total credit exposure (₩ trillion) | 409.25 | 430.26 | 449.38 |
| Substandard and below (₩ trillion) | 2.248 | 2.538 | 2.789 |
| Substandard and below ratio | 0.55% | 0.59% | 0.62% |
| Non-accrual loan ratio | 0.54% | 0.54% | 0.55% |
| Loan loss reserves (₩ trillion) | 3.129 | 3.211 | 3.292 |
| NPL coverage ratio | 139.2% | 126.5% | 118.1% |
| Hana Bank NPL ratio | 0.29% | 0.35% | 0.37% |
| Hana Bank coverage ratio | 165.32% | 136.33% | 123.48% |
Over fifteen months, the group's substandard-and-below balance rose from ₩2.25 trillion to ₩2.79 trillion — an increase of ₩541.0 billion, or 24.1%. Loan loss reserves grew only 5.2% (₩3.13 trillion to ₩3.29 trillion) in the same period, leaving reserve build well behind impairment build. The coverage ratio fell from 139.2% to 118.1%, a 21.1-percentage-point cumulative drop, including an 8.4-percentage-point decline in the most recent quarter. Hana Bank's standalone coverage fell even more sharply, from 165.32% to 123.48% — a 41.84-percentage-point collapse.
Two readings of this divergence sit in tension. Management characterizes the current period as one of "stable credit cost management." The arithmetic, however, is that provisions were reduced 22.6% in the same quarter that NPLs rose — meaning future quarters will face provision normalization against an enlarged residual stock of impaired loans, with attendant earnings volatility. Among the subsidiaries, Hana Life Insurance's NPL ratio escalated from 1.46% to 3.44% to 5.15% across the three reference dates, and Hana Savings Bank's NPL ratio remains in double-digits at 10.45% — down from 11.65% but still elevated.
Subsidiary Earnings — 91% from Banking, 9% from Non-Bank
The distribution of the ₩1,210.0 billion in controlling shareholders' net income is shown below. These are standalone disclosures from each subsidiary, before intercompany adjustments and ownership-stake scaling, so they do not aggregate exactly to the group figure.
| Subsidiary | Q1 2026 net income (₩ billion) | Notes |
|---|---|---|
| Hana Bank (consolidated, controlling) | 1,104.2 | Group core; ~91% |
| Hana Securities (consolidated) | 103.3 | WM/IB strong; S&T weak |
| Hana Card (consolidated) | 57.5 | Card assets avg. ₩11.4T |
| Hana Capital (consolidated) | 53.5 | Total assets avg. ₩18.1T |
| Hana F&I (consolidated) | 10.1 | NPL investment management |
| Hana Life (consolidated) | 7.9 | K-ICS 154.86% |
| Hana Asset Trust (standalone) | 6.7 | Real estate trust |
| Hana Alternative Asset Management (consolidated) | 5.8 | AUM ₩12.5T |
| Hana Fund Services (standalone) | 3.4 | Top-tier fund administration |
| Hana Savings Bank (standalone) | 1.6 | NPL ratio 10.45% |
| Hana Ventures (consolidated) | 1.3 | AUM ₩1.04T |
| Hana Financial TI (consolidated) | 0.9 | Group IT |
| Hana Insurance (consolidated) | (7.9) | Loss continues |
Bank dependence remains close to 90%, the highest among the four major financial holding companies. Within non-banking, the securities (₩103.3 billion), card (₩57.5 billion), and capital (₩53.5 billion) subsidiaries deliver meaningful contributions, but Hana Insurance — acquired in 2020 — has again pushed back its profitability target, with management stating it is now "concentrating all capabilities on building the foundation for a turnaround in 2026."
Contingencies and Litigation — Aggregate Down, Regulatory Tail Persists
Pending litigation against consolidated entities rose to 2,202 cases (from 1,605 at the prior period-end), but principal claim amounts compressed from ₩1,882.3 billion to ₩551.2 billion — a 70.7% reduction. Separately, Hana Bank remains subject to an ongoing Korea Fair Trade Commission investigation into alleged anti-competitive coordination in government bond yields, with outcomes characterized as unpredictable. Exposure related to the Russia-KEB Hana Bank affiliate under the Ukraine conflict remains classified as not reliably estimable.
Liquidity — Hana Bank LCR at 106.69%
Hana Bank's liquidity coverage ratio (LCR) of 106.69% (versus 105.51% at prior year-end and 104.23% the year before) sits comfortably above the 100% regulatory floor. The foreign-currency LCR is similarly reported as satisfactory. The holding company's own won-denominated liquidity ratio improved to 191.07% from 167.67% — a meaningful buffer relative to regulatory thresholds.
Outlook
The Q1 2026 result demonstrates that Hana's core franchise is generating durable earnings: net interest income growth of 10.2% is being driven by the liability-sensitive repricing dynamic typical of an easing cycle, and the 19.2% expansion in net fee income captures the group's leverage to active capital markets through securities, wealth management, and investment banking subsidiaries. Standalone capital ratios across the group's regulated entities — Hana Bank's BIS of 17.35%, Hana Card and Hana Capital's adjusted capital ratios in the high teens and mid-teens — remain at comfortable absolute levels, and the LCR continues to overshoot the regulatory minimum.
The risks are not in the headline numbers but in the composition. The simultaneous rise in non-performing loans and decline in coverage — with the substandard-and-below ratio at 0.62% and coverage now at 118.1% versus 139.2% fifteen months earlier — sits uneasily alongside the 22.6% decline in provisions that drove roughly 41% of operating profit growth. If credit recognition accelerates in subsequent quarters and provisioning normalizes, the same arithmetic that supported Q1 will work in reverse. Trading-book performance is the second material variable: the 92.9% collapse in FVTPL gains was only partially offset by the FX swing, and S&T volatility will remain a swing factor through 2026. Third, capital efficiency is tightening: risk-weighted assets are expanding faster than capital, and the insurance subsidiaries' K-ICS ratios have fallen by double-digit percentage points in a single quarter ahead of the 2027 basic-capital regime.
On capital allocation, the ₩7.4 trillion transfer from capital surplus to retained earnings produces no immediate increase in equity but enlarges the legal reservoir for shareholder returns. Q1 2026 saw ₩96.9 billion in treasury share repurchases (951,669 shares) and no cancellations, but the staged distributable earnings pool now stands ready to convert into cancellation and dividend payouts in subsequent quarters. Total direct shareholder returns for the quarter — treasury stock plus common and hybrid dividends — reached ₩509.1 billion, or approximately 42% of quarterly net income.
Management has framed the quarter as one of "strengthening the group's fundamentals through core competitiveness." The external backdrop will be shaped by a continuation of the favorable NIM cycle, intensifying competition in corporate lending alongside rising credit risk, the persistence of capital markets activity, and the staged introduction of IFRS 17 and the insurance basic-capital regime by 2027. The further trajectory of NPL coverage and the stabilization of insurance subsidiary solvency ratios will be the central monitoring points for the next quarterly checkpoint.
Disclaimer
This report is prepared for informational purposes based on the quarterly report (22nd fiscal year, first quarter) of Hana Financial Group Inc., filed with DART on May 15, 2026. It does not constitute investment advice or a solicitation to trade. Source: DART Quarterly Report, 2026.05.15.
