Woori Financial Group Inc (WF) 2025 Q2 法說會逐字稿

Good afternoon. I am Hong Seong Han, Head of IR at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings conference call for Woori Financial Group. On today's call, we have the group CFO, Sung-Wook Lee; Group CDO, Il-Jin Oak; and Group CRO, Jang-Geun Park as participants. On today's call, the group CFO, Sung-Wook Lee will give a presentation on the earnings performance, after which we will have a Q&A session. Please note that the earnings call is being conducted with simultaneous interpretation for our overseas investors.

Now let us start our presentation on Woori financial group's earnings for the first half of 2025.

Good afternoon. This is Sung-Wook Lee, the CFO of Woori Financial Group. Let me go over the first half performance for 2025. Please turn to page 3 of the presentation material that has been disclosed on our website.

First, let me discuss net income. For the first half of 2025, Woori Financial Group's net income was KRW1,551.3 billion, representing a Y-o-Y decrease of 11.6%. When excluding the one-off expenses related to the early retirement program conducted at the beginning of the year and preemptive provisions for a completion guarantee of Trust company, net income is similar to last year.

In the first half, conservative loan loss management to address the slowdown in the economy and SG&A to expand the nonbank portfolio of the group did increase costs, but the net operating revenue, which shows the profit generation capability of the group, still maintain steady growth amid a challenging business environment.

Bottom line growth based on asset rebalancing and better margins driven by funding optimization amid a falling market rate resulted in stable interest income while core fee income from the Wealth Management business and an increase in noninterest income, derived on capital market activities generated the top line performance.

Second quarter net income was KRW934.6 billion, which is KRW300 billion higher than the first quarter. That did not beat market expectations. Next, let me discuss how we achieve the group's capital target -- capital ratio target. As of June 2025, the group's preliminary CET1 ratio is 12.76%, showing around 60 basis points increase from the end of last year and exceeding 12.5% for the first time in the history of the group. Amid a uncertain financial backdrop, the group was able to generate total profits, build an optimal portfolio based on RWA prudently managed asset sensitive to the FX rate and conduct performance assessments focused on RoRWA. These company-wide initiatives to improve the capital ratio has led to the significant improvement. The exchange rate also contributed. But even when excluding this factor, the CET1 ratio is still well above 12.5%.

As we have mentioned many times before, Woori Financial Group has earmarked 2025 as the year of capital ratio improvement and has been focusing all group efforts to achieve the CET1 ratio target. Based on the [C2] ratio of 12.76% this quarter, the group is planning to outperform the year-end target of achieving a CET1 ratio of 12.5% and will be accelerating efforts to achieve the market expectation of 13%.

Next, let me discuss our efforts to expand our business portfolio. One year after the group signed the SPA for Tongyang Life and ABL Life in August last year. As of July 1, we have included the two companies as affiliates of the Woori Financial Group. We are currently in the process of reevaluating all assets and liabilities held by the two companies at fair value. Once this is completed, we will finalize the financial impact of the acquisitions.

Against a rate cycle environment, we understand the market is concerned about the capital adequacy and Insurance business outlook. However, we are planning to focus on sound capital adequacy management by maintaining a (inaudible) ratio that comfortably exceeds the regulatory guideline and on profitable management focusing on financial stability to put priority on securing stable business fundamentals for both companies and ensuring the soft land as part of the group.

For the securities arm, we continue to strengthen our competitiveness by acquiring the final approval for the investment trading business and launching the MTS platform. In addition, we will be fully utilizing the merchant bank license and bank corporate customer network to engage our full-fledged marketing activities.

Woori Financial, with the acquisition of the Insurance and Securities businesses have completed its lineup as a comprehensive financial services group. We will strengthen the core competencies of each subsidiary and generate full synergies across the group to upgrade the fundamentals and actively satisfy the expectations of the market.

Next, let me delve into more detail about earnings by area. Please turn to page 4. First, let me go over the operating revenue and NIM. The group first half 2025 net operating revenue was KRW5,400.1 billion, up by 2.3% Y-o-Y. In the first quarter, it was KRW2,789.2 billion, up by 6.8% quarter-over-quarter.

The group faced affects in Korea and abroad, including (inaudible) tariffs and a challenging business environment due to concerns about a slowdown in the economy. But it is still able to achieve profitable growth and defend its margin to generate sound interest income and improved noninterest income mostly core fee income to achieve stable top line growth.

The bank's second quarter NIM was 1.45% and the group's NIM including the credit card business was 1.71%, which represents an increase of 1 basis point, respectively, quarter-over-quarter. In the first quarter, as there was a cut in the interest rates and even a amidst the falling interest environment due to active funding cost management and asset rebalancing, we were able to improve the loan yield.

And as a result of that, for the second consecutive quarter had an increase in NIM, reaching 5 basis points for the first half in total. Although we do believe that the interest rates will continue to fall, we will continue to put in efforts to expand our core deposits and also defend the downward pressure on NIM.

Let me now move on to our Loan portfolio. As of the end of June 2025, bank loans totaled KRW329 trillion, remaining at a similar level to the end of March. In terms of corporate loans, while demand from large corporations remained solid, portfolio improvements centered on prime SME loans, brought the total to KRW179 trillion.

Retail loans increased by approximately KRW3.7 trillion from the end of March, reaching KRW148 trillion. Going forward, in line with the government's policy direction on household debt management, Woori Financial Group will continue to focus on managing volume of household loans. At the same time, we will strengthen financial support for future growth industries to ensure that market funds flow into more productive sectors thereby fulfilling our core role as a financial institution.

In preparation for continued internal and external uncertainties, we will pursue sound and sustainable qualitative growth based on the asset rebalancing efforts that have been underway since last year. Next is on the group's noninterest income. The group's noninterest income for the first half of the year came in at KRW886.3 billion, maintaining a similar level year-on-year.

On a quarterly basis, however, it rose sharply by approximately 47% from the previous quarter, reaching KRW527.3 million. As for core fee income growth in the Wealth Management segment was particularly notable, thanks to balanced growth between the bank and nonbank segments, the group achieved a stable quarterly level of around KRW500 billion, resulting in cumulative first half performance exceeding KRW1 trillion.

Amid favorable market conditions such as falling interest rates and exchange rates, gains related to securities and FX valuation increased significantly. However, this was partially offset by a decline in gains from sale of loan receivables due to weakness in the NPL market. Looking ahead in an environment where interest rate cuts in capital market revitalization are expected, Woori Financial Group will work to uncover new business opportunities to expand related noninterest income.

Also, as of early July, the group completed the insurance company acquisition and with a now diversified nonbank portfolio, we will aim to maximize synergies within the group and continue the growth of noninterest income.

Next, I will speak about expenses and please refer to page 5. Moving on to the group's SG&A expense. For the first half of 2025, the group's SG&A expense was KRW2,479.1 billion, representing an 18% increase Y-o-Y. The resulting cost-to-income ratio stands at 42.8%. This increase was mainly due to one-off factors such as early retirement costs at the bank earlier this year, investments to enhance the last year's newly launched securities business, expenses related to ordinary wage settlements finalized at the end of last year and expanded group-wide investment in digital and IT capabilities.

Going forward, while we will continue investing in areas such as digital and IT competitiveness and enhancing the group's brand value for future growth, we will also actively pursue cost efficiency through workforce and channel optimization, process enhancement using IT and the reduction of unnecessary recurring expenses.

Let's now move on to credit costs and asset quality. Credit costs for the group in the first half of 2025 stood at KRW944.5 billion. In the second quarter, credit cost was KRW509 billion, up 16.9% from the previous quarter, and this increase reflects a preemptive provision of KRW86 billion related to the completion guarantee projects.

During the first half, we recognized some one-off credit costs, including preemptive provisioning for completion guaranteed trust projects and additional provisions for borrowers such as [home plus], which have recently drawn market attention. Excluding these onetime factors, the group's credit cost ratio is being maintained at around 0.42%.

Despite the downward trend in interest rates since second half of last year, concerns of an economic slowdown due to ongoing domestic and global uncertainties persist. As a result, delinquency and NPL ratios, especially in vulnerable industries continue to rise, Woori Financial Group is working to ensure a self-lending for high-risk assets and is thoroughly managing sectors of concerned and vulnerable borrowers.

Through these more proactive risk management efforts than ever before, it is maintaining the proportion of prime corporate loans at around 85% and the proportion of loan loss reserves and regulatory reserves to total credit is also being managed at an elevated level of 1.6%, ensuring the group's ability to absorb potential losses in a stable manner.

Furthermore, considering the government's strong commitment to economic stimulus, reflected in active supplementary budget planning and the likelihood that the low interest rate trend will continue for the time being, we expect credit cost to gradually stabilize from the third quarter onwards.

Next is on capital adequacy and shareholder return policy. Please refer to page 6 of the materials. As of the end of June 2025, the group's common equity Tier 1 ratio stood at as mentioned, at a preliminary 12.76%, showing a significant improvement of approximately 60 basis points from last year-end. This result reflects not only favorable external conditions such as weaker exchange rate, but also the group's continued group-wide efforts to rebalance assets and proactively manage risk-weighted assets along with solid earnings growth.

Given the continued potential for volatility in interest and exchange rates in the second half and the possibility of changes in regulatory capital requirements, the group will not be complacent and will do its utmost to achieve a stable CET1 ratio of over 12.5% for 2025 and reach the market expected level of 13% as early as possible.

Through this enhancement and capital ratio, we aim to enhance our ability to absorb losses while also expanding shareholder returns based on the strengthened CET1 ratio. In line with our dividend policy to distribute 50% of the previous year's annual dividend evenly on a quarterly basis, the Board of Directors today approved a quarterly dividend of KRW200 per share. As previously announced, the record date will be August 10.

In the first half of 2025, despite rising domestic and global uncertainties, Woori Financial Group demonstrated strong profit generation and solid cost control capabilities. Notably, the significant improvement in our capital ratio boosted confidence in our ability to meet CET1 targets and expand shareholder returns, thereby strengthening market trust.

With the completion of the insurance company acquisition, the group's portfolio is fully established, we will now take concrete steps toward becoming an integrated financial services company by pursuing balanced growth between banking and nonbanking businesses and maximizing synergies across affiliates. Furthermore, the group will continue to increase financial support for productive setters and actively promote inclusive finance for small business owners and financially vulnerable groups.

This concludes with Woori Financial Group's earnings for the first half of 2025. Thank you.

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.