Woori Financial Group Inc.

Good afternoon, ladies and gentlemen. I am Han Woong-sung, head of IR here at Woorie Financial Group. I would like to sincerely thank all of you for taking the time to participate in Woorie Financial Group's earnings conference call, despite your busy schedules. On today's call, we have Group CFO, Lee Sung-wook, Group CDO, Oh Il-jin, and Group CRO, Park Jang-geun. Today's earnings announcement will be conducted in the following sequence. First, a presentation of the group's financial performance by Mr. Lee Sung-wook, our group CFO, followed by a presentation on key measures to enhance corporate value announced today. And lastly, we will proceed with the Q&A session. We would also like to inform our international investors that simultaneous interpretation service will be available for your convenience. Let's now start with our financial group's business results for the first half of 2024. Good afternoon. I am Lee Sung Wook, CFO of Woody Financial Group. I would like to highlight that today is very important. We will be sharing with you the first half of performance, and we have also announced our value of plans of our group. I would like to make sure that I share with you as transparent as possible all the information we have available for you. Now, without further ado, I would like to present the financial performance for the first half of 2023. Please refer to page three of the financial performance materials available on our website. Let me start with Foodie Financial Group's net income. In the first half of 2024, the group recorded a net income of $1.7554 trillion, up 14.1% compared to the same period last year. Despite additional credit cost provisions for real estate PF, net income for Q2 was $931.4 billion, significantly surpassing market consensus and achieving the highest quarterly performance ever. With improved profit generation and stable cost management, the group's ROE rose to 10.8%. Notably, as a result of ongoing efforts in cost optimization, the CI ratio recorded 39.9%, falling below 40% for the first time since the establishment of the holding company. Additionally, today, Woody Financial Group's Board of Directors confirmed and announced a quarterly dividend of $181 per share as in the previous quarter. Next is the group's net operating revenue. Net operating Revenue in the first half of 2024 recorded 5.28 trillion won, up 5.1% year on year. And net operating revenue in Q2 recorded 2.7317 trillion won, up 7.2% in QOQ. This top buying growth is attributed to strong interest income driven by asset growth that centered on prime corporate loans and margin improvements. as well as significant increase in non-interest income, primarily from core fees across both banking and non-banking subsidiaries. Next is on credit cost. For the first half of 2024, the group's credit cost was $775.7 billion, down 5.2% YOY. On a quarterly basis, it increased by 11.6% from the previous quarter, reaching $409.1 billion. The credit cost ratio stood at 0.42%. This quarter saw one of factors such as additional provisioning due to the revaluation of real estate PF. Nevertheless, even with these considerations, our credit cost remains stable and well managed within our financial plan. In addition, the provisions accumulated conservatively over the past two or three years have ensured that our loss absorption capacity remains robust. Next, let me address capital adequacy including the capital ratio. is the end of June 2024, the group's CET1 ratio is expected to be 12.04%. Despite a 42-1 increase in the $1 exchange rate last quarter, our CET1 ratio improved by nine basis points from the previous quarter, driven by solid profit generation, prudent asset growth, and proactive risk-weighted asset management. We remain committed to further enhancing our capital ratio to support growth and shareholder returns. Next, I will elaborate on group's business results in more detail. Please refer to page four of your materials. First, let me explain the net operating revenue and NIM, or N-I-M. For the first half of 2024, the group's net operating revenue increased 5.1% year-on-year, reaching 5.28 trillion won. while interest income remained stable at 4.395 trillion won compared to the same period last year. Meanwhile, the bank's NIM for Q2 was 1.47% down three basis points from the previous quarter, while the group NIM, including Woody Carr, remained unchanged at 1.74%. For Woody Bank's team, while the decline in market interest rates and intensified competition in corporate loans squeezed the lending margins, proactive management of time deposit maturities and funding costs helped limit the decrease. With the Bank of Korea likely to cut rates in the second half, we will actively counter margin decline by achieving appropriate growth in line with our initial targets and through group-wide efforts to increase core deposits and strengthen ALM. Next, I will discuss asset growth and loan status. As of the end of June 2024, total bank loans amounted to $324 trillion, marking a 2.5% increase from March. Corporate loans grew by 4.3% to $183 trillion compared to March, driven by strong demand from large corporations and steady growth from SMEs. Meanwhile, although the decline in credit loans continued, retail loans grew by 0.6% to $137 trillion compared to March, driven by increased demand for housing-related loans and policy mortgages. In the second half of the year, we will maintain growth focused on corporate finance while considering capital ratios, aiming for solid growth aligned with our annual plan and considering our ORWA. Next is an update on deposits. As of the end of June 2024, the total Korean won deposits at Woody Bank were 310 trillion won, which represents a 1.6% increase from the end of March. In the second half of the year, ahead of the anticipated interest rate cuts, we plan to build core deposits through proactive collaboration across the group to defend margins and also ensure stable funding sources. The bank will focus on sales and marketing targets, targeting customers with high core deposit contributions, while non-bank subsidiaries will work to increase the use of Woody Bank for customer payment accounts, escrow accounts, and other services. The group as a whole is committed to maximizing core deposit growth. As of June 30, 2024, the bank's loan-to-deposit ratio is 97.8%, reflecting a comfortably sufficient level. Next, I will move on to non-interest income and costs. Please refer to page 5. First is the group's non-interest income. For the first half of the year, the group's non-interest income amounted to $885.4 billion, marking a significant increase of 45.1% compared to the same period last year. In particular, thanks to the expansion of group refinance and global IB activities by the bank and proactive sales by subsidiaries like Woody Carter and Refinancial Capital, fee income increased by 25.6% YOY and 10.4% QOQ, driving the rise in non-interest income. Excluding market volatility impacts, Woody Financial Group's core fee income stands at approximately 500 billion won per quarter, significantly contributing to stable revenue generation. With the launch of Woody Investment and Securities in early August, synergies among the affiliates are expected to intensify, leading to further growth in the group's non-interest income. Moving on to the group's SG&A expense. For the first half of 2024, the group's SG&A expense amounted to $2.1 trillion, inching up slightly by 2.1% from the previous year and remaining well-managed. The CI ratio came in at 39.9%, falling below 40% for the first time since the group's inception. Despite continued cost pressures from high FX rates and oil prices, our group-wide cost optimization initiatives seem to have paid off. We will continue to enhance group-wide cost management efforts through channel optimization, advanced IT operations, and a reduction of unnecessary operating expenses.

Next is credit costs. Credit costs for the first half of 2024 was $775.7 billion, and the credit cost ratio was 0.42%. The group's credit cost in Q2 stood at $409.1 billion, which is an 11.6% QOQ increase. However, this figure reflects a provision of approximately $80 billion in relation to the revaluation of real estate PFs. Ordinary credit cost ratio, considering additional provisions against PFs, was 0.40%, and it's being stably managed at 40 basis points level. The group and the bank's NPL ratio slightly increased to 0.56% and 0.23% respectively as the delinquency of non-bank subsidiaries rose, but still is the lowest in the industry. In the second half, RE Financial Group will work to soft-land high-risk assets such as real estate PF and overseas CRE and strengthen risk management of vulnerable areas to increase the loss absorption capacity of the group. We will now move on to capital adequacy and shareholder return policy. Please refer to page six. As of June 2024, the group's CT1 ratio was 12.04%, which is a nine basis points increase from the previous quarter. The rise was mainly driven by efforts to boost capital adequacy, such as achieving an appropriate level of growth Considering RORWA, despite the continued rapid depreciation of the Korean won and the robust growth of non-interest income, which does not contribute to RWA, as interest rates and excess rates are predicted to continue to show high volatility and the financial authorities are expected to introduce stronger capital regulations in the second half, REIT Financial Group will manage growth in a flexible manner to enhance capital ratios. We also make utmost effort to manage RWA by improving the RWA calculation process and diligently managing high-risk assets such as PI and equity investments. Meanwhile, today, the board of URI Financial Group declared quarterly dividends of 181 per share, considering the company's quarterly dividend policy and market expectations. I will go into more detail on shareholder return a little bit later. Thank you. This concludes the presentation on the earnings of the first half of 2024. We will move on to the next section. Today, Rui Financial Group announced the Corporate Value-Up Plan and made disclosure on Carex as disclosed in prior notification of disclosure in June. Lee Seong Ok, CFO and Vice President of the Group, will go over the highlights of the Group's Corporate Value-Up Plan. Today, Reeve Financial Group announced its corporate value-up plan, the first among bank financial groups in Korea, as noted in the disclosure last month. The value-up program has been developed based on various discussions within the group and is being communicated to the market today after reporting the plan to the board in June and receiving and reflecting feedback. The areas that required thorough consideration were increasing shareholder return and establishing a portfolio strategy to secure new growth opportunities. I will now go over the highlights of ORE financial growth value-up plan with the material that has been disclosed and circulated today. Please refer to page seven of the value-up slides. ROE is a key indicator of corporate value. It is a criteria for corporate decision-making and the basis for enhancing shareholder return. The group aims to achieve 9% ROE in 2024 and reach a sustainable and stable double-digit ROE in the mid-long term. This year, to generate stable ROE growth, the group will work to outperform market expectations in terms of financial performance by strengthening core competency and generating group synergy. In the mid-long term, we plan to maintain ROE at 10% or above by delivering RORWA-based growth, achieving group-wide cost optimization, and implementing preemptive risk management. Next, I will go over the capital ratios and our shareholder return policy. Please refer to page 8. The target for CET1 ratio is to achieve 12.5% early by 2025 and 12.2% by the end of this year. The target considers the FX rate and M&A. we will be seeking diverse options to achieve the target, including realizing appropriate level of asset growth and strict RWA management. Also, if the recent strong dollar and weak Korean won stabilizes in the future at more balanced levels, additional CET1 ratio improvement may be possible. Regarding shareholder return expansion, the mid-long-term TSR target has been set at 50%, the shareholder return policy based on CET1 ratio has been refined and elaborated. Compared to the previous policy, the CET1 ratio segmentation has become more detailed, and an intermediate target of 12.5% has been set. While securing visibility, it has become possible to deliver a shareholder return of 40% if the CET1 ratio exceeds 12.5%. Up to TSR of 40%, cash dividend will be 30%, and the remaining full amount will be used to buy back and cancel stock. If TSR exceeds 40%, both cash dividend and share buyback policy will be increased in a balanced manner. If we progressively increase the TSR on top of the current industry top-level dividend yield of our group, the shareholder value of the group will be enhanced to levels above peers. Next, I will go over the group's business portfolio strategy. Please refer to page 9. Expanding the non-bank portfolio via M&A is essential to strengthen the group's operational capacity and improve income stability. Since inception in 2019, RE Financial Group has consistently expanded the business portfolio by adding RE Financial Capital, Asset Trust, and F&I. Reinvestment Securities is set to launch in August this year. We will be reentering the securities market in 10 years. And while not finalized yet, we are working to add an insurance arm under our umbrella. I'd like to clearly state that we will not be overpaying for acquisitions. Also, regarding investor concerns on our current interest in insurance, we are not considering a paid-in capital increase at all. The imminent launch of the Merge Securities Company does not have a sizable asset base, therefore will not have material impact to the capital ratio. The new company will focus on organic growth as a securities firm anchored in digital and IB. In insurance, as mentioned last time, according to the BIS calculation method, within CT1 ratio 10% of the group, 250% of the investment amount is categorized as RWA, which means that even if there is an acquisition, the impact on the capital ratios will be limited. We are aware that it is not easy to pursue inorganic growth and shareholder return expansion at the same time with limited capital. The group will pursue M&A opportunities that can boost ROE by generating group synergy. Also, we will faithfully implement the value-up plan announced today to enhance shareholder return. In line with the value-up plan, we will be working to strengthen communication with investors. As the ownership of foreign and retail investors is on the rise, we will be diversifying IR channels to cater to various investors. We'll also be interactively communicating with the market with a variety of IR content, including ESG and governance on top of financial performance. While the market may view today's announcement as somewhat insufficient, the group will assess the progress every year and continue to make value-up disclosures with improved strategies and measures as part of our efforts to strengthen communication with investors. The Korean government has launched the Value of Index and announced tax benefits in relation to the Value of program, evidencing commitment to invigorate the Korean capital market. In line with such government policy, RE Financial Group has developed the Corporate Value of Plan with the mindset to contribute to the fundamental improvement of Korea's capital markets. The group will make utmost effort to ensure that this Value of Plan contributes to enhancing corporate value grounded in respect for shareholder value over mid-long term rather than a mere short-term stock price boosting measure. Thank you.