RAROC profile and corporate credit pricing model derived from Pillar 3 disclosures.
Shinhan Financial Group is a South Korea-based bank with approximately EUR 230.0tn of corporate credit exposure (EAD) under the A-IRB approach to credit risk capital. The numbers below come directly from Shinhan Financial Group's most recent Pillar 3 CR6 regulatory filings and are used to model how this bank prices corporate credit facilities.
Shinhan Financial Group is one of the five largest corporate credit books in the dataset (2nd by EAD). Its cost-to-income ratio of 41.5% is exceptionally lean (-8.3pp vs the 59-bank cross-section average of 49.8%). The corporate portfolio is mixed-grade, with an EAD-weighted average PD of 1.6% against a cross-bank average of 2.1%.
Because the bank runs the advanced IRB approach, its own LGD and credit-conversion models drive capital requirements, which on our comparable sample deal typically produces tighter minimum spreads than foundation-IRB peers with identical obligor risk. Unsecured LGD disclosed at 38.0% is +1.2pp against the 36.8% cross-bank average, in line with the peer median.
On the standardised BBB+ EUR 25M 5-year term loan used across every bank profile, Shinhan Financial Group lands in the lower half of the pricing ranking (#45 of 59), with a RAROC of 6.89% and a minimum spread of 265bp to reach the 12% hurdle. Within South Korea specifically, the bank ranks #1 of 2 on this same calculation.
| Parameter | Value | What it means |
|---|---|---|
| IRB approach | A-IRB | How the bank computes risk-weighted assets |
| Cost-to-income ratio | 41.5% | Operating cost share of net revenue |
| Effective tax rate | 27.5% | Applied to RAROC numerator after EL and funding |
| Average corporate PD | 1.60% | EAD-weighted probability of default |
| Avg LGD (unsecured) | 38.0% | Loss share if borrower defaults, no collateral |
| Avg LGD (secured) | 20.0% | Loss share with eligible collateral |
| Funding spread | 17bp | Bank's wholesale funding cost above risk-free |
| Corporate EAD | EUR 230.0tn | Total exposure at default to corporates |
On a representative BBB+ rated, 5-year term loan of EUR 25M at 150bp spread with a 20bp commitment fee, Shinhan Financial Group would generate an estimated RAROC of 6.89% against a typical 12% bank hurdle rate. To hit that hurdle on this exact deal, the bank would need a minimum spread of 265bp. This deal is significantly below target — the bank would either reprice it or decline.
| Component | Value |
|---|---|
| Annual revenue (spread + fees) | EUR 385,000 |
| Operating cost | EUR 154,000 |
| Expected loss (PD × LGD × EAD) | EUR 28,750 |
| Capital required (FPE) | EUR 2,451,320 |
| RAROC (after tax) | 6.89% |
| Min spread to hit 12% RAROC | 265bp |
Out of 59 banks in the OpenRAROC dataset, Shinhan Financial Group ranks #45 by RAROC on this sample deal.
| Rank | Bank | Country | RAROC | Min spread |
|---|---|---|---|---|
| 1 | Qatar National Bank | Qatar | 9.00% | 203bp |
| 2 | DBS Group | Singapore | 8.18% | 224bp |
| 3 | JP Morgan | United States | 8.12% | 231bp |
| 4 | ICBC | China | 8.06% | 233bp |
| 5 | China Construction Bank | China | 8.06% | 233bp |
| 44 | National Australia Bank | Australia | 6.98% | 267bp |
| 45 | Shinhan Financial Group | South Korea | 6.89% | 265bp |
| 46 | Westpac | Australia | 6.88% | 271bp |
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