Woori Financial Group Inc (WF) 2022 Q2 法說會逐字稿

Good afternoon. I am Yi Jung Su, head of IR at Woori Financial Group. I would like to express my sincere gratitude to you all for joining Woori Financial Group's earnings call despite your busy schedules today.

On today's conference call, we have with us Chairman Son Tae-Seung; President, Chun Sang-Wook, responsible for the group's IR; group's CFO, Lee Sung-Wook; group's CRO, Jung Seok-Yong; and group CDO, Oak Il-Jin; and also, personnel in charge of ESG.

At today's earnings call, Chairman Son Tae-Seung will deliver IR message, which will be followed by a presentation of the group's financial performance and Q&A. In addition, we would like to inform you that the simultaneous interpretation is being provided for our overseas investors. Let us now begin with the IR message by Chairman's Son Tae-Seung and the earnings presentation of the first half of 2022.

Good afternoon. I am Son Tae-Seung, Chairman of Woori Financial Group. Following the annual earnings presentation in February, I am here to deliver my greetings at the first half of the year earnings call. Before going into the earnings presentation, I would like to express my deepest gratitude to everyone for joining Woori Financial Group's first half of 2022 earnings call.

Let me now elaborate on the business performance for the first half and the management direction for the second half of 2022.

Woori Financial Group's net income for the first half of 2022 increased 24% year on year to KRW1,761.4 billion. This is the highest half year performance of the group. Quarterly performance also rose 9.9% from the previous quarter's record high performance to KRW922 billion.

Despite the uncertain financial environment, both home and abroad, robust operations and the head office, including the IB business continued, which further upgraded the profit-generating capabilities of the group. While the profits of the group's core subsidiary, Woori Bank continued to rise, non-bank subsidiaries also continued to sustain substantial growth in their core businesses.

As a result, the non-bank earnings contribution ratio, which stood at 10% at the beginning of the establishment of the holding company, rose to 18.5% as of the first half of 2022. In particular, synergies between subsidiaries and the group's non-interest income began to emerge in earnest, which led to demonstrating unwavering stable profit generation capabilities despite economic fluctuations. Thanks to the Woori Financial's risk-focused business culture for the past several years, credit costs remain at the lowest level in the industry.

Nevertheless, the group set aside approximately KRW130 billion in additional provisions in the second quarter to pre-emptively prepare for future uncertainties. Today, the Woori Financial Group's Board of Directors confirmed and announced an interim dividend of KRW151 per share. The interim dividend was decided by comprehensively considering the financial performance of the first half, the group's mid- to long-term plans, as well as the recent internal and external financial environment.

In order to enhance shareholder value and within the scope of maintaining capital adequacy. Woori Financial Group will review various shareholder return policies and continue to promote win-win management activities by sufficiently taking into account the views and opinions in the market.

Next, let me go into the business direction we have set forth for the second half of the year. First, in preparation for the possibility of a complex economic crisis, we plan to thoroughly manage risk and liquidity as well as continue our efforts to improve profitability. On July 13, the Bank of Korea took its first-ever big step in raising interest rates and the scope of rate hikes in the US is expected to expand further.

As the macroenvironment is rapidly changing, preventing potential credit and liquidity risks from spreading into a major crisis is key. And thus, we plan to engage in rigorous risk management in the second half of the year.

Second, we plan to continue on with digital innovation and strengthen ESG management. The convenience of digital channels we offer such as WON Banking has been highly assessed and an ESG management system is rapidly being established, but we will go further to produce results that can be felt as groundbreaking in the market.

Third, in the second half of the year, we will continue our efforts to strengthen the competitiveness of our subsidiaries, core businesses, and enhance group synergies. We are well aware that the market has high expectations for the growth of the non-banks of Woori Financial Group. To support each subsidiary to enhance its core competitiveness and take the next leap forward in their respective businesses, we will spare no effort at the group level, and we will sustain our drive to expand our non-banking domain.

Recently, we have been seeing the internal and external economic environment changing very rapidly. In times like these, we want to seek more opportunities to communicate with the market and engage in IR events more often.

This concludes the presentation of the business performance for the first half and the management direction for the second half.

Shortly, details on the financial performance will be delivered by President Chun Sang-Wook, who oversees the group's IR. Thank you very much.

Good afternoon. I am President Chun Sang-Wook, in charge of Woori Financial Group's IR. I would like to express my deepest gratitude to everyone joining Woori Financial Group's first half of 2022 earnings call. Let me now begin the presentation on Woori Financial Group's first half of 2022 business performance. Please refer to page 3 of the business performance material available on our website.

Let me first start off with the group's net income. Woori Financial Group's net income for the first half of 2022 is KRW1,761.4 billion. Despite growing uncertainties, both home and abroad, the group's performance grew 24% year over year, recording the highest performance for the first half of any given year. Such performance is the result of improved revenue generation capabilities of our subsidiaries and active group-wide cost management efforts.

Meanwhile, the group's net income for the second quarter of 2022 was KRW922 billion, a record high on a quarterly basis.

Despite the provisioning and in preparation for economic uncertainties, net income further improved 9.9% from the previous quarter's record-high performance.

Next is net operating revenue. In the first half of 2022, group net operating revenue recorded KRW4.886 trillion, rising 20.8% on year. Net interest income and non-interest income posted KRW4.103 trillion and KRW783 billion, respectively.

Group interest income displayed a sustained growth in the first half, backed by modest asset growth and profit structure improvements of key affiliates. Non-interest income also saw a level up on income generation, thanks to the synergies created amongst key affiliates and expanded revenue in the IB business based on the strength CIB business.

Top line continued to improve. And group second-quarter net operating revenue in particular posted a record high quarterly result of KRW2.515 trillion. Thanks to portfolio diversification efforts. So far, the group non-banking revenue accounted for 18.5%. Going forward, the share is expected to grow further as we expand in non-banking business.

Next is on SG&A expense and credit costs. In the first half, group SG&A expense edged up 5.4% year on year to record KRW1.957 trillion. But cost-to-income ratio in the second quarter came in at 40.1%, an improvement of 5.8 percentage points year on year. In the face of heightened economic uncertainties, Woori Financial Group plans to double down on group-wide cost optimization efforts.

Meanwhile, group credit costs in the first half recorded KRW497 billion, rising 142.4% year on year. This includes one-off items and credit costs for the quarter would be around KRW160 billion without them. Second-quarter credit cost ratio is around 0.29 bp, but exclusive of the one-off factors, it is still remains at a stable level of 19 bp.

Next, I will walk you through group business results in more detail. Please refer to page 4 of your materials.

First is group interest income and NIM or NIM. Group net interest income in the first half of 2022 rose 23.5% year on year and posted KRW4.103 trillion. Bank net interest margin or NIM in second quarter climbed 9 bp quarter on quarter to record 1.58%. While group NIM, including Woori Card increased 10 bp quarter on quarter to post 1.83%.

Such an improvement was possible, thanks to group-wide efforts to improve revenue structure, including sustained focus on growing assets via increasing corporate lending and low-cost deposits. We're committed to continuing the path to further enhance them.

Next is asset growth and lending. As of the end of June 2022, bank lending stood at KRW296 trillion, up 4.4% or around KRW8 trillion compared to the end of last year. Corporate loans increased 6.8% compared to the end of the previous year to a record KRW157 trillion as both large corporations and SME lending continued to post a modest growth.

Meanwhile, retail lending declined 1.6% compared to the end of last year and recorded around KRW137 trillion as unsecured lending dropped despite an increase in loans for rent deposits and other more speculative borrowings. Macroeconomic uncertainties have fund capital market volatility. Therefore, Woori Financial Group will focus on managing capital adequacy and asset quality and pace of speed of asset growth in the latter half of this year.

And next is group non-interest income. Group non-interest income in the first half stood at KRW783 billion, up 8.6% year on year. Group's subsidiaries, including Woori Bank, Card, Financial Capital, Annuity Asset Trust, improved business pushed up fees and commissions, a core part comprising the non-interest income. Also, strengthened group CIB business, sent up group income, including IB related fees, despite a highly volatile market in Q2.

A group-wide non-interest income is expected to increase as Woori Financial Group has concentrated its resources and generating synergies amongst its affiliates this year.

Next, I will walk you through costs and capital adequacy. Please turn to page 5.

First, the group SG&A expense. In the first half, our group SG&A expenses stood at KRW1.957 trillion, up 5.4% year on year. Nevertheless, our Q2 cost-to-income ratio recorded 40.1% managed deeply within the year. Within the year, the group target of 50%.

Woori Financial Group has put in place a group-wide measures such as enhancing business channel efficiency to keep the CI ratio under control. We plan to make proactive investments into digital and IT segments to further propel future growth. In the face of surging prices, we will also continue with our cost optimization efforts, so as to further improve the CI ratio.

Next is credit cost. Group credit cost recorded KRW497 billion in the first half, up 142.4% year on year. This reflects an additional provision of around KRW130 billion certified against economic downturn projections Without this one-time additional provisioning, Q2 group credit cost is managed at a stable level of around KRW160 billion.

Q2 credit cost ratio stood at 0.29%, up 10 bp quarter on quarter. But without the one-off item, the figure would be around 0.19%. We understand that there is a growing market interest in asset quality management due to soaring Central Bank's benchmark interest rates.

As of the end of June, Woori Financial Group has a prime asset ratio of 89.6% on corporate lending. And we have a total loan loss provision of around KRW435 billion, including a Q2 provision against COVID-19 related loans, which will end September.

Woori Financial Group has a proven track record of industry's best risk management capabilities via improving asset portfolio and improved introducing risk-centric business culture. Amid rising uncertainties at home and abroad, we are committed to double our efforts to ensure asset quality in the second half.

Next is on capital adequacy and dividend. As of the end of June, group CET1 ratio recorded 11%. There is a rising importance of capital adequacy to respond to contingencies in the face of heightened global uncertainties. In the slide, Woori Financial Group plans to implement proactive measures to manage risk-weighted assets at a stable level while expanding income.

As was mentioned by Mr. Chairman, the group BOD has resolved and disclosed to pay out KRW151 per share as dividend. Woori Financial Group will continue its endeavors to enhance shareholders' value.

This concludes our presentation of Woori Financial Group's first-half business results. Thank you for your attention.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.