Multinational Corporation And Finance - Shinhan Financial Group.pdf

Shinhan Financial Group ranks No.1 Market Capitalization in SouthKorea based financial group and also listed in New York Stock Exchange.. Shinhan Financial Group SFG is a leading financi

HO CHI MINH CITY UNIVERSITY OF ECONOMIC AND FINANCE

FACULTY OF FINANCE AND ACCOUNTING

MULTINATIONAL CORPORATION AND FINANCE

Tran Phan Thanh Hieu - 195081832Nguyen Nguyen Dinh Khai – 205082771

Le Tran Thanh Mai - 195082045

TABLE OF CONTENTS

TABLE OF CONTENTS 2

LIST OF FIGURES 3

1 Company information: 4

2 The company structure 5

2.1 International structure 5

2.2 Financial structure 7

2.3 Capital structure 9

2.3.1 Equity capitalization 9

2.3.2 Debt capitalization 10

2.3.3 Common and Perfered stock 11

3 Analyzing how its subsidiaries’ cash flows affect the parent company's cash flow 12

3.1 Factors that affect to the process of remitting subsidiary earnings to the parent 12

3.2 Case study of Shinhan Bank Vietnam 12

3.2.1 Overview of Claris 12

3.2.2 The remittance of Shinhan Bank Vietnam to Shinhan Group 13

4 Interest rate, inflation, exchange rate, political risks, international business environment affect the corporation' cash flow 14

4.1 Interest rate 15

4.2 Inflation 16

4.3 Exchange rate 17

4.4 Country risks 18

4.5 International business environment 19

5 Conclusion and Recommedation 20

REFERENCE 22

LIST OF FIGURES

Figure 1: International structure 6

Figure 2: Shinhan organization today 7

Figure 3: Key financial 8

Figure 4: Shareholders 8

Figure 5: Market cap history of Shinhan financial group 9

Figure 6: End of year market cap 10

Figure 7: Total debt 11

Figure 8: Total debt by year 11

Figure 9: Remitting Subsidiary Earnings to the Parent 12

Figure 10: Exchange rate 14

Figure 11: Shinhan Bank Net Income, Loans and Deposits 16

Figure 12: Shinhan Bank Deliquency Ratio by Sector 17

Figure 13: Vietnam political risk 19

1 Company information:

a bankheadquartered in Seoul, South Korea Historically it was the first bank in Korea,established under the name Hanseong Bank in 1897 The bank was reestablished in 1982 It ispart of the Shinhan Financial Group, along with Jeju Bank Chohung Bank merged withShinhan Bank on April 1, 2006

Shinhan Bank started as a small enterprise with a capital stock of KRW 25.0 billion, 279employees, and three branches on July 7, 1982 Today, it has transformed itself into a largebank, boasting total assets of KRW 176.9 trillion, equity capital of KRW 9.7 trillion, 10,741employees, and 1,026 branches as of 2006 As of June 30, 2016, Shinhan Bank had totalassets of ₩298.945 trillion (equivalent to ₩304.658 trillion or US$269.507 billion in 2017) ,total deposits of ₩221.047 trillion (equivalent to ₩225.271 trillion or US$199.28 billion in2017) and loans of ₩212.228 trillion (equivalent to ₩216.283 trillion or US$191.329 billion

in 2017) Shinhan Bank is the main subsidiary of Shinhan Financial Group (SFG)

Abstract:

Shinhan Bank is the descendant of Hanseong Bank, the first modern bank in Korea It wasestablished by Kim Jong-Han in 1897, but began operating around 1900 It was originallylocated in a small house with only two rooms One room was for the president, Yi Jae-Won,and the other room was for the staff The bank operated by borrowing money from Japanesebanks at low interest rates and then loaning it out for twice the rate to the Korean market TheBank was successful because despite lending out money at twice the rate it borrowed it at, thebank's interest rates were still far lower than what could be obtained elsewhere in Korea atthat time

In an anecdotal story the bank's first property to use as collateral on a loan happened to be adonkey The bank staff were challenged to feed and care for their collateral as the loan wasout

In March 2013, the Financial Services Commission of South Korea said that Shinhan Bankreported that its Internet banking servers had been temporarily blocked The South Koreangovernment asserted a North Korean link in the March cyberattacks, which has been denied

by Pyongyang

Company Profile:

Shinhan Bank, is a bank headquartered in Seoul, South Korea Historically it was the firstbank in Korea, established in 1897 Shinhan Bank has been leading financial industry alongwith 180 networks in 20 countries, including India, United States, Japan, China, Indonesia,Singapore, and Vietnam Shinhan Financial Group ranks No.1 Market Capitalization in SouthKorea based financial group and also listed in New York Stock Exchange Shinhan Banksustains financial soundness with attaining the high rate of Aa3 by Moody's, A+ by S&P, and

A by Fitch Belonging to Shinhan Financial Group, Shinhan Bank Korea is considered theflagship of the group with headquarters in 20 countries Shinhan Bank Korea was honored byGlobal Finance Magazine in the Top 50 World's Largest Banks in Emerging Markets (2018)and Top 50 Safest Commercial Banks in the World (2019)

Along with a worldwide network of operations, Shinhan Bank Korea's products and servicesare classified into seven main groups (Retail, Private Banking, Wealth Management, Smalland Medium Enterprises, Institutions, etc.) , Investment Banking), in order to meet thediversified financial needs of customers

Shinhan Financial Group (SFG) is a leading financial group in Korea, founded on thefoundation of Shinhan Bank of Korea, Shinhan Investment Fund and Shinhan InvestmentManagement Company

With a network in 21 countries and over 26,000 employees, SFG offers a wide range offinancial products and services covering a wide range of industries including Banking,Personal Finance, Insurance, Wealth Management and portfolios other investments SFG islisted on the Korea Stock Exchange (KRX) and the New York Stock Exchange (NYSE)

2 The company structure

SFG is a global brand, ranked 44th in the Top 500 World's Largest Banking Brands,according to The Banker's 2016 statistics In addition, SFG has always strived to become aFinancial Group Korea leads the way with a global presence through 213 branches in 20countries, in which the focus of investment is the Indonesian market with many affiliatedcompanies Therefore, the management structure of shinha financial group is very tight

Figure 1: International structure

Source: shinhangroup.com

Shinhan’s organization today

The following section provides information on Shinhan Financial Group Co Ltd’s seniormanagement, executives, CEO and key decision makers and their roles in the organization

Mr Jin Ok-dong, the chairman of shinhanan finance group, who has just taken office in 2022.The people who work under him as well as help him in running the company are Mr YongByoung Cho (Chief Executive Officer, Director), Mr Lee Taekyung has been the DeputyPresident and Chief Financial Officer of the company since 2022 Prior to this, he served asthe Chief Executive Officer of Shinhan Bank Vietnam during 2021 to 2022 Previously he

served as the Chief Executive Officer of Shinhan Bank Cambodia from 2019 to 2021, Mr.Lee Een-Kyoon has been the Chief Operating Officer and Deputy President of the groupsince 2019 Previously, he served as Head of Management Support Team of the group from

2017 to 2019, Mr Wang Ho-Min has been the Chief Compliance Officer and DeputyPresident of the group since 2019 Previously, he served as General Manager of Jamsil-namBranch at Shinnan Bank from 2017 to 2019

Figure 2: Shinhan organization today

Source: shinhangroup.com

An optimal capital structure is the best combination of debt and equity financing thatincreases a company's market value while reducing its cost of capital Reduce the weightedaverage cost of capital as one way to maximize for the lowest cost mix of financing

In the past 3 years from 2019 to 2021, the group's financial statement parameters havecontinuously increased such as the key index net income of 4,019 (KRW billion) in 2021 aswell as group assets of 648.2 (trillion KRW) in the same year

Figure 3: Key financial

2.3 Capital structure

An optimal capital structure is the best combination of debt and equity financing thatincreases a company's market value while reducing its cost of capital Reduce the weightedaverage cost of capital as one way to maximize for the lowest cost mix of financing

The market capitalization sometimes referred as Marketcap, is the value of a publicly listedcompany In most cases it can be easily calculated by multiplying the share price with theamount of outstanding shares

As of December 2021, Shinhan’s total equity was 49,538,422 won This include 2,969,641won of capital stock, total equity attributable to equity holders of SFG was 47,291,150 wonand some more (Total Equity)

As of March 2023 Shinhan Financial Group has a market cap of $13.67 Billion This makes Shinhan Financial Group the world's 1140th most valuable company by market cap

according to our data The market capitalization, commonly called market cap, is the totalmarket value of a publicly traded company's outstanding shares and is commonly used tomeasure how much a company is worth (market cap)

Figure 5: Market cap history of Shinhan financial group

Source: companiesmarketcap.com

Figure 6: End of year market cap

Source: companiesmarketcap.com

Shinhan Financial Group Co long term debt from 2010 to 2022 Long term debt can be defined as the sum of all long term debt fields

 Shinhan Financial Group Co long term debt for the quarter ending September 30,

2022 was $58.777B, a 5.21% decline year-over-year.

 Shinhan Financial Group Co long term debt for 2021 was $72.134B, a 20.01%

According to Shinhan Financial Group's latest financial reports the company's total debt

is $88.88 B A company’s total debt is the sum of all current and non-current debts.

The highest total debt in this company was in December 31th, 2020, it about $97.56B and thelowest within 5 years from 2018 to 2022 is 2018 its about $86.03B Despite continuouslyincreasing total debt over the years, by the end of 2021, total debt has shown signs ofdecreasing -2,54% compared to 2020

Figure 7: Total debt

Source: companiesmarketcap.com

Figure 8: Total debt by year

Source: companiesmarketcap.com

Shinhan Financial Group Co annual/quarterly total common and preferred stock dividendspaid history and growth rate from 2010 to 2022 Total common and preferred stock dividendspaid can be defined as the cash outflow for all company dividends paid out to preferred andcommon shareholders

 Shinhan Financial Group Co total common and preferred stock dividends paid for the

quarter ending September 30, 2022 were $-0.903B, a 7.3% increase year-over-year.

 Shinhan Financial Group Co total common and preferred stock dividends paid for the

twelve months ending September 30, 2022 were $-2.870B, a 18.04% increase

year-over-year

 Shinhan Financial Group Co annual total common and preferred stock dividends paid

for 2021 were $-1.097B, a 41.52% increase from 2020.

 Shinhan Financial Group Co annual total common and preferred stock dividends paid

for 2019 were $-0.665B, a 2.19% increase from 2018.

3 Analyzing how its subsidiaries’ cash flows affect the parent company's cash flow

parent

The process from the subsidiary making a profit to the parent company receiving the remittedfunds is shown in Figure 10, and the amount of the final money transfer to the parentcompany may vary from year to year depending on the circumstances In particular,corporation taxes paid to the host country initially reduce the income of the subsidiary Thefranchisee then retains a portion of the profits (at its discretion or in accordance with hostgovernment rule) and pays the remainder The host government may impose a withholdingtax on funds transferred The money is then converted into the parents' currency and given tothem

Figure 9: Remitting Subsidiary Earnings to the Parent

Source: Madura Jeff International Financial Management, 2020

3.2.1 Overview of Claris

Shinhan Bank Vietnam One Member Limited is a bank under Shinhan Bank of Korea - amember of Shinhan Financial Group Since 1993, Shinhan Bank Vietnam has had acommercial representative in Vietnam in the form of the first representative office in Ho ChiMinh City Ho Chi Minh With 30 years of establishment and development, Shinhan BankVietnam has expanded its network of operations throughout the North, Central and South.Today, we provide a diverse portfolio of products and superior financial solutions to bothindividual and corporate clients.Shinhan Bank Vietnam was awarded by InternationalBusiness Magazine the Best Foreign Retail Bank in Vietnam (2020) and the Best ForeignBank in Vietnam (2021 and 2022) and the Bank was also honored to receive the award Bestplace to work in Asia for three consecutive years (2020 to 2022), awarded by HR Asiamagazine

Tax laws

Businesses operating in Vietnam must pay corporate tax on any profits accrued Accordingly,the tax rate of 17% will be applied to people's credit funds and microfinance institutions,microfinance institutions licensed by the State Bank to be established before January 1, 2014

in accordance with regulations of the State Bank of Vietnam Law on Credit Institutions No.47/2010/QH12 but are not eligible to apply corporate income tax incentives under thecategory of newly established enterprises from investment projects in geographical areas withfavorable economic conditions - especially difficult society according to the provisions ofDecree No 124/2008/ND-CP dated December 11, 2008 detailing and guiding theimplementation of a number of articles of the Law on Corporate Income Tax.The Circularstipulates that the corporate income tax rate of 20% throughout the operation period shall beapplied to the income derived from the implementation of microfinance activities FromJanuary 1, 2016, the corporate income tax rate specified in this Clause will be changed to17%

Remitted fund

Regarding the percentage of net cash flow paid by Shinhan Vietnam to the parent companyand since there is no data or information about it Therefore, the team expects that Shinhan

Non-resident companies in particular are generally subject to a withholding tax of 5%without any deductions (Gov.vn, 2013) As a result, Shinhan Vietnam is subject to a 5% taxlevied by the Vietnamese government on all funds sent to Shinhan Group in Korea.

Exchange rate

Figure 10: Exchange rate

Source: student research

The increase or decrease in cash flow from subsidiary to parent company is partly due to thefact that tax rates and regulations vary widely from country to country, even in different parts

of the same country Therefore, the countries in which the subsidiaries operate are also animportant factor in the parent company's cash flow as income tax or withholding tax isregulated differently by the government in each country For example, in this case, ShinhanBank operates in Vietnam, so the corporate income tax is 17%, which is considered theaverage corporate income tax However, if the company operates in Indonesia where thecorporate tax rate is 22%, the parent company filing will change Because of this, the amountreceived from the parent company will be affected by the current exchange rate and wouldnot be recoverable from the parent company if the currency of the subsidiary were todepreciate significantly over time

4 Interest rate, inflation, exchange rate, political risks, international business environment affect the corporation' cash flow

Along with a worldwide network of operations, Shinhan Bank products and services areclassified into seven main groups (Retail, Private Banking, Wealth Management, Small andMedium Enterprises, Institutions, etc, Investment Banking), in order to meet the diversifiedfinancial needs of customers