Woori Financial Group Inc (WF) 2026 Q2 法說會逐字稿

Good afternoon. This is Han Hong Sung, Head of IR at Woori Financial Group. Thank you for attending today's earnings call for Woori Financial Group despite your busy schedules. Joining us today on the call are Group CFO, Kwak Seong-Min; Group CTO, Oak Il-Jin; Group CRO, Park Jang-Geun; and Head of Business Growth Support (inaudible)

We will begin with the group CFO's presentation, which will be followed by a Q&A session. Please note that the session is being simultaneously interpreted for the benefit of overseas investors. With that, we will now hear from the CFO, the earnings result presentation of Woori Financial Group's First Half 2026.

Good afternoon. This is Kwak Seong-Min, Woori Financial Group CFO. Let me go over the group's earnings result for first half 2026. Please refer to page 2 of our earnings results material available on the website. First, the group's net income. Woori Financial Group's net income for Q2 2026 outperformed market expectations coming in at KRW1,004.6 billion up 66% QoQ.

It has thus regained the quarterly net income of KRW1 trillion level. This brings the half year net income YTD KRW1,609 billion up 3.7% YoY. Our common equity ROE was 9.0%, excluding one-off items, including the impact of changes in actuarial assumptions at our insurance subsidiaries ROE was 10.3%.

Our Q2 results demonstrate that the group has the foundation to take its recurring earnings capacity to the next level, potentially generating quarterly earnings of more than KRW1 trillion. This was driven by our strengthened capital position, which improved by 80 bps year-to-date, enabling us to focus on asset growth and productive finance, strengthening the core competitiveness of our subsidiaries, enhancing cost efficiency and risk management.

The group posted record high net operating revenue in the first half, while the CIO ratio and credit cost ratio stabilized at lower levels, leading to the group's profitability improvement. During the first half, the benefits of our long-standing efforts to diversify the group's earnings structure began to materialize.

Despite a challenging operating environment with the sharp rise in exchange rates and market interest rates as well as the impact of changes in material assumptions and insurance group's noninterest income increased by 20% YoY driven by stronger capital market performance becoming the primary driver of earnings growth.

Fee income exceeded KRW700 billion for the first time on a quarterly basis, supported by solid growth in core fee businesses such as Wealth Management and CIB. In the first half, the nonbank's contribution to group net income more than tripled to YoY from 6.9% to 22.3%, indicating the start of tangible results with the setup of a comprehensive financial group.

Looking ahead, we expect our nonbank businesses to become a new growth engine, further strengthening the group's earnings generation capacity. Now shareholder returns. Today the BOD approved an additional KRW150 billion share buyback and cancellation for the second half of the year, first, since the establishment of the holding company.

The total amount of share buybacks and cancellations for 2026 will reach KRW350 billion, representing the largest program in our history and more than twice the KRW150 billion when executed last year. This reflects the form determination behind cost and shareholder return policy as well as to minimize shareholder dilution due to the acquisition of full ownership of Tongyang Life and protect shareholder value.

Woori Financial Group approved the second quarter cash dividend of KRW21 per share, all non-taxable further reinforcing our position as a leading dividend paying financial stock. Just as we have consistently delivered on the commitments we have made, we'll continue to faithfully execute our corporate value program and strengthen investor confidence.

A more detailed review on the group's financial performance by business segment on page 3. First, I will discuss net operating revenue and NIM the first half of 2026, the group's net operating revenue increased 6.0 YoY to a record KRW5,722.7 billion. This was driven by balanced growth in both interest and noninterest income each reaching an all-time high, demonstrating that the group's stable earnings generation capability has reached a new level.

Q2 net operating revenue also increased 7.5% QoQ to KRW2,965 billion. The group maintained a solid growth in interest income in the first half up 3.2% YoY. This was supported by the full-scale expansion of productive finance with corporate finance growing at a high 4% as well as continued optimization of ALM, which listed the bank's NIM by 7 bps YoY.

Second quarter NIM remained at the same level from the previous quarter at 1.51%. Although funding cost pressures increased amid higher market interest rates minimize the downward pressure on NIM by expanding our core deposit base and continuing disciplined asset rebalancing.

Going forward, as we enter a period of rising interest rates, Woori will continue to broaden its customer base further expand core deposits to strategic partnerships and improve margins through profitability-focused loan portfolio management. Next, let me discuss the bank's loan book.

As of June 2026, the bank's total loans grew 1.9% Q2 KRW344 trillion. The growth is mainly due to corporate loans growing 2.8% QoQ primarily driven by large corporates and high-quality SMEs, supported by expanded productive finance for a strategic industries. To prepare for ongoing domestic and global uncertainties, we'll continue rebalancing low-margin and negative spread assets. In line with the government's household debt management policy, household loans will continue to be managed within our target range.

Meanwhile, in June, the group expanded its commitment to productive and inclusive finance by additional KRW10 trillion, increasing the size of future shared growth project to a total of KRW90 trillion over the next five years. The initiatives will broaden our support beyond strategic industries to include industry leaders, exporters, innovative companies and startups, thereby strengthening the flow of capital into productive sectors while establishing a more resilient foundation for the group's long-term growth.

Next, let me move on to group's noninterest income. The group's noninterest income amounted to KRW1,063 billion for the first half and KRW620.9 billion for the second quarter, marking record high results on both half and quarterly basis.

Accordingly, the proportion of noninterest income to total net operating revenue increased to 18.6%, supported by greater group synergies and stronger business performance across both the banking business and the nonbank businesses, including insurance, securities and investment banking, asset management, delivered balance growth offsetting factors that reduced earnings, including trading and valuation losses resulting from the high exchange rate high interest rates as well as changes in actuarial assumptions in the insurance business.

In particular, the group's fees and commissions amounted to KRW1,278.8 billion, supported by the bank's WM business and growth in the securities and investment banking on back on the back of strong capital market conditions increasing 23.7% YoY.

Second quarter fee income amounted to KRW702 billion, up 22% from the previous quarter surpassing KRW700 billion for the first time on a quarterly basis, and this also reflects our strategic efforts over the past several years to expand fee-based earnings.

Meanwhile, to drive growth in the group's nonbank business so that each subsidiary can strengthen its core competitiveness and take the next step forward in this business, the group completed a KRW1 trillion capital injection into our security subsidiary as May and today, the making of Tongyang Life wholly-owned subsidiary has also been approved.

Going forward, leveraging our diversified group portfolio. We will continue to increase the earnings contribution from our nonbank businesses, thereby further improving quality of the group's earnings mix. And I will now move on to the group's expenses. Please refer to page 4.

I will now move on to the group's SG&A expenses in the first half of 2026. The group's SG&A expenses amounted to KRW2,632.8 billion, and the cost-to-income ratio was 42.8%. This year despite structural cost increases, including the consolidation of the insurance business, the build-out of our security subsidiaries, infrastructure and the higher education tax rate, we maintained the cost-to-income ratio at the same level as the same period of the previous year through company-wide cost efficiency efforts.

Meanwhile, SG&A for the second quarter amounted to KRW1,210 billion, down 15% from the previous quarter. Even excluding one-off voluntary retirement expenses, SG&A expenses declined 2.4% from the previous quarter continued on a downward trend. Going forward, while continuing to invest in future growth, including AI transformation and the build-out of our security subsidiaries infrastructure will further enhance productivity in our core operations the transformation to an AI-driven management system and optimize our workforce and channel operations through these cost efficiency efforts, we will do our utmost to achieve our medium- to long-term CI ratio target of the low 40% range.

Next, I will cover the credit cost. Group credit costs for the first half of 2026 amounted to KRW966 billion, up slightly year-over-year. However, in the second quarter, credit costs amounted to KRW439.2 billion, down 16.7% QoQ, continuing on a downward trend. In addition, excluding a large one-off factors in the first half, the group's recurring credit cost ratio was 39 bps and has been managed deeply at a level lower than last year.

By maintaining this trend, we will achieve our full year target announced at the beginning of the year of reducing credit costs by 15% and bringing the credit quality ratio to the low 40 bps range. Meanwhile, despite strong loan growth this year through a selective asset origination strategy focused on asset quality, the proportion of prime corporate loans remained at around 85% as of the end of June.

In addition, the ratio of loan loss reserves and regulatory reserves to total loans also remained at around 1.5%, providing sufficient loss absorbing capacity against potential credit losses. However, as the importance of risk management has increased further following the July policy rate hike, we will further strengthen the monitoring of alterable borrowers and focus on proactive risk management to further strengthen the group's asset quality. Next, let me move on to capital adequacy and shareholder return.

Please refer to page 5. As of the end of June 2026, the growth preliminary CET1 ratio stood at 13.1%, up 11 bps from the previous quarter. Despite the continued 1,501 plus exchange rate during the second quarter and continued loan growth in support of productive finance, we achieved one of the highest CET1 ratios in the industry support by our disciplined capital allocation and risk-weighted asset management capabilities.

Based on our strengthened capital position to date, the Board of Directors of the group approved the second quarter dividend of KRW221 per share, which is fully nontaxable. The record date is August 10, and the payment date is scheduled for August 31.

And in addition, for the first time since the establishment of the holding company, we approved an additional KRW150 billion share buyback and cancellation for the second half of the year, increasing the year's total share buyback to KRW350 billion across two rounds. As a result, we have fulfilled those commitments we made through our corporate value plan announced last February 1 additionally consider share repurchasing calculation in the second half once our CET1 ratio exceeds 13%; and the second, to increase our shares to more than 10% within a short period of time.

Going forward, we will also consider making share buyback and cancellation of regular semiannual program and continue to faithfully execute our corporate value enhancement plan while consistently delivering on our commitments to the market. Finally, today, the Board of Directors of Woori Financial Group approved the comprehensive share exchange to make Tongyang Life a wholly owned subsidiary.

Once the share exchange process is completed in August, we expect to further accelerate our efforts to strengthen the competitiveness of our insurance business through enhanced operating efficiency, improved capital adequacy and greater group-wide synergies.

In the second half, we will also accelerate our efforts to drive and improve sustainable group ROE. In the banking business, we will strengthen our core business drivers [indiscernible] deposits, corporate banking and wealth management while enhancing cost competitiveness to build a stable earnings base.

In the [indiscernible] business, we will further strengthen the core competitiveness and market position of each subsidiary, thereby transforming our earnings structure from one centered on the banking business to a more balanced earnings portfolio. Through these efforts, will gradually strengthen the group's earnings power to more than KRW1 trillion per quarter while further strengthening the group's stable [indiscernible] space. In addition, we will place even greater focus on expanding productive finance and inclusive finance.

As you know, Woori Financial Group has a long-standing legacy in corporate banking, which remains one of our core strengths and a key source of competitive advantage. As we have already committed to provide an additional KRW10 trillion through the future growth project including KRW9.4 trillion for productive finance and [KRW200 billion] for inclusive finance, we will execute these ones more swiftly, thereby supporting the real economy, fulfilling the fundamental role of finance by growing together with the market and steadily carrying the group's future growth drivers. This concludes Woori Group Financial Group's 2026 first half earnings presentation. Thank you very much.