Woori Financial Group Inc.

Good day, everyone. I'm Han Hong-sung, head of investor relations at Woody Financial Group. I would like to express my sincere gratitude to all of you for taking the time out of your busy schedule to participate in today's Woody Financial Group's earnings call. Joining us on the call today are Mr. Lee Sung-woo, the group's CFO, Mr. Oh Gil-jin, the group's CDO, and Mr. Park Jang-geun, the group's CRO. Today's call will begin with a presentation on our business performance by the Group's CFO, Mr. Lee Seong-woo, followed by a Q&A session. Please note that simultaneous interpretation is available for our international investors. With that, let us begin the presentation on Woody Financial Group's earnings for the third quarter of 2024. Good afternoon. I'm Lee Sung Wook, CFO at Toody Financial Group, overseeing the group's financial operations. Let me now walk you through our business performance for the third quarter of 2024. Please refer to page three of the earnings report posted on our website. First, let me elaborate on the group's net income. As of Third quarter of 2024, Woody Financial Group's cumulative net income increased by 9.1% year-on-year, reaching $2,659.1 billion, surpassing last year's total annual performance by approximately $150 billion in just three quarters. The group's net income for Q3 stood at $903.6 billion, which represents a slight decrease versus previous quarter. However, it remained above the $900 billion level for two consecutive quarters, exceeding market expectations. Thanks to our strong revenue generation capabilities and stable cost management, the group's ROE came in at 10.82%. Also, the group's cost-to-income ratio remained below 40% for the second consecutive quarter, demonstrating the group's ability to control costs. The Board of Directors on the 18th approved a cash dividend of $181 per share, which has been publicly disclosed. Let me now turn to the group's net operating revenue. As of Q3 2024, the group's cumulative net operating revenue grew 6.6% year-on-year to $7,992.7 billion, and on a quarterly basis to $2,712.2 billion, in line with the previous quarter. the stable top-line performance was achieved despite margin contraction due to falling market interest rates, supported by robust interest income coming from strong asset growth across all segments, as well as significant increase in non-interest income primarily driven by fees and commissions across all domains. In other words, our ongoing efforts to diversify revenue streams have started to bear fruit. Let me now move on to credit costs. As of third quarter, the group's cumulative revenue Credit costs amounted to $1,254.6 billion, with a credit cost ratio of 0.44%. Sluggish domestic demand and the prolonged impact of high interest rates led to a rise in current credit costs with the NPL ratio, an indicator of asset quality, standing at 0.55% for the group and 0.21% for the bank. Our NPL coverage ratio, a measure of our loss absorption capacity, is 152% for the group and 270% for the group, which is among the healthiest in the industry. Let me now go into capital ratio and capital adequacy. As of the end of September 2024, the group CET1 ratio is expected to be around 12%. Despite the appreciation of the Korean won in the quarter, strong asset growth kept the CET1 ratio at a similar level to the previous quarter. Looking ahead to the fourth quarter, and 2025, the group will prioritize improving its capital ratio, which serves as the foundation for both growth and shareholder return. Now, let's take a more detailed look at the group's business performance by segment. Please refer to page 4 of the materials. First, let me address the group's net operating revenue and NIM. For the first three quarters of 2024, the group's cumulative net operating revenue was $7,992.7 billion, up 6.6% year-on-year, while quarterly results were in line with the previous quarter at $2,712.2 billion. Meanwhile, the bank's NIM for Q3 was 1.40%, and the group's NIM, including the card business, was 1.67%, both declining by seven basis points versus previous quarter. Regarding margin compression, the recent decline in market interest rates was reflected in asset repricing, but in terms of funding, increased demand for time deposits ahead of anticipated base rate cuts and increased funding needs due to the overall rise in lending within the banking sector led to sustained cost pressures, which has narrowed the loan-to-deposit interest rate spread. In October, the Bank of Korea's Monetary Policy Board, citing weak domestic demand and slowing inflation, lowered the base rate cuts by 25 basis points for the first time in three years. As for concerns about future margin contraction following the interest rate pivot, we believe the impact has already been largely reflected in lower market interest rates. In periods of falling interest rates, the group will focus on increasing core deposits, engage in proactive ALM management, and reduce funding costs at our non-bank subsidiaries to actively prepare for any downward pressure on NIM or NIM. Meanwhile, the group's cumulative interest income for the third quarter amounted to $6,614.6 billion, maintaining the same level as the previous year, despite narrowing margins as asset growth offset such impact.

Next, I will give an overview on asset growth and loans. Total loans of the bank stood at $340 trillion as of September 2024, which is a 5% increase from end of June. Corporate loans increased by 4.3% from June to $191 trillion thanks to balanced growth of large corporates and SME loans. For households, demand for mortgages, including policy mortgages, grew considerably, recording a 6.2% growth in Q3 to reach $145 trillion. In Q3, property transaction volume increased, driven by the greater Seoul area, and with the DSR Phase 2 set to come in in September 2021, temporary demand for mortgages was strong. However, household loan growth peaked in August and has significantly slowed down in September, implying downward stabilization in Q4. While the financial markets, including interest rates and FEDS rates, are overall stabilizing, the U.S. presidential elections, geopolitical risk in the Middle East, and possibility of economic slowdown are causing uncertainty at both home and abroad, Against this backdrop, the bank and the group will consider asset wellness and capital adequacy as top priority to ensure quality asset growth. Next is deposits. As of September 2024, total Korean won deposits stood at 327 trillion won, which is a 5.5% increase from June. However, the growth of core deposits was weak given high demand for time deposits as the Bank of Korea was expected to cut rates. Keeping the rate cut cycle in mind, in order to defend margin and secure a stable funding base, close cooperation within the group will continue to increase core deposits. Meanwhile, as of September 2024, the bank's LTD was 98.8% and is maintaining a stable buffer above regulatory requirements. Next, I will go over non-interest income and cost. Please refer to page 5. I will go over the group's non-interest income. The group's non-interest income up to Q3 was $1,378.1 billion, which is a 53.2% YOY increase, driving top-line growth. Favorable market conditions generated significant profit growth from marketable securities, and fee income was above 500 billion won for three consecutive quarters, evidencing that there has been level up across all bank and non-bank subsidiaries. Once downward rate movement becomes more evident, the business environment of financial investment and IB businesses will improve, and demand for asset management services is expected to grow. Against this backdrop, we will continue to expand sales efforts to boost non-interest income. Meanwhile, Uri Financial Group is concentrating efforts to strengthen the competitiveness of its non-bank businesses. In August, we merged Uri Investment Bank and FOSS Securities to relaunch Uri Investment Securities. The group also signed an SPA with Tongyang and ABL Insurance to lay the foundation to enter the insurance industry. The group is making multifaceted efforts to diversify sources of non-interest income and maximize synergy. Next is SG&A. Cumulative SG&A up to Q3 2024 was $3,158.1 billion won, which is a 3.4% YY increase. However, SG&A in Q3 alone was $1,057.1 billion won, which is a slight decrease of 1.1% from the previous quarter. Group-wide efforts to minimize current expense and to optimize channel and workforce to boost cost efficiency having enabled the CIR to stay below 40% for two consecutive quarters. In Q3, the group's CIR was 39.6%. While maintaining investment for the future, such as in boosting brand value and digital NIT systems, we'll work to reduce unnecessary current expense as part of group-wide efforts to continuously reduce cost. Next is credit cost. The group's cumulative credit cost up to Q3 was $1,254.6 billion won, which is a 6.3% YY increase. Credit cost in Q3 alone was $479.1 billion, which is a 17.1% QOQ increase. Slowdown of the real economy and restructuring of the real estate PF market resulted in higher delinquency rates of the non-bank sector, pushing up credit costs. However, the delinquency of the bank was stably managed. The NPL ratio was 0.21%, and the coverage ratio was 270%, showing robust asset quality. REIT Financial Group is strengthening monitoring of market environment and actively selling and writing off BAF debt to prudently manage the group's risk factors. As central banks around the world cut rates, concerns on market soundness are decreasing. However, the group will continue conservative and preemptive risk management to strengthen loss absorption capacity. Now I will go over capital adequacy and the shareholder return policy. Please refer to page 6. As of September 2024, the CET1 ratio of the group is expected to be 12%, which is similar to the previous quarter. Given the declining FX rate in Q3, the CET1 ratio is being managed at stable levels. and the capital ratio was mainly the result of loan growth, which was in line with market demand. The board of RE financial group recognizes the importance of diligent capital management to boost corporate value. To achieve CET1 ratio of 12.5% early in 2025, the group will actively manage asset growth in Q4, while prioritizing improvement of the CET1 ratio in the 2025 finance plan, which is currently being developed. Also, the board has considered the group's quarterly dividend policy and market expectations to declare a cash dividend of 181 per share. Meanwhile, during the earnings call held on July 25th, we were the first in the banking industry to announce the corporate value-up plan. The diverse value-up measures announced at the time are currently being implemented via various methods at respective speeds. We will continuously communicate with the market to review, assess, and update its progress. For the CET1 ratio, we will consider the volatility of financial markets, regulatory changes, and the progress of M&A activities comprehensively to actively control growth and diligently manage RWA to make utmost effort to reach a CET1 ratio of 12.5% in 2025 early. Since announcing the value-add plan, the group has been receiving heightened interest from overseas investors. The ownership of foreigners has risen significantly, and the group has been included in the Korea Value-Up Index. Our value-up efforts are being recognized by various means, and to meet heightened market expectations, the group is committed to its core business as a financial group, while working to enhance shareholder value to grow together with our shareholders. This will conclude the earnings results for 2024 Q3 of Refinancial Group. Thank you.

Yes, thank you very much. We would now like to engage in the Q&A session. For those of you to have any questions, please press star and number one. And to cancel your question, please press star and number two. Yes, the first question is from DS Investment Securities, Mr. Naminook. Please proceed with your question. Good afternoon. I am from DS Investment Securities. I'm Nami Nook. Thank you very much for the opportunity. I do have a question with regard to CT1 ratio. So for this quarter, the CT1 versus previous quarter was flat. So I would like to understand some of the reasons behind that. And then, additionally, in the previous earnings call, you have mentioned that the guidance is 12.2% for year-end for CT1. But with the appreciation of the 1, I would like to understand whether this is still feasible. And with regard to the CT1 sensitivity to Forex and also with regard to the RWA-related plan going forward, can you also share that with us? Thank you. Yes, thank you very much for the question. Please bear with us for just a moment as we prepare to answer your question. Yes, I believe that this is an area of key interest. So with regard to the CET1 ratio, let me give you some more specific information. So from 12% from year end of June and now September, it's similar to year end of June right now at 12%, and the reason has to do with Forex. We've been seeing the appreciation, and with that, there will be improvement in the capital ratio. And based on our company standards, it will be three bips per 10-1. And in the presentation, as was mentioned, if you look at the market demand and future growth and future profitability within third quarter, we have increased our assets, which has led to increased weighted assets. And that's why we are now maintaining this at levels of June end. In the fourth quarter, the group will be focusing on its priorities on asset management to improve capital ratio. There are various ways that we're looking into so that we can achieve the 12.2% target. And to give you some more specifics, in terms of corporate loans, it's about pricing and pricing adjustments that would help us defend any drop in rates. And then in terms of household loans, It's about responding and reacting to the national policy. And in September, there were risk assets that slightly ticked up. And this, we will make sure to bring this down as quickly as possible. And there are also other ways and measures that we are looking into. And the group will prioritize all efforts so that we can achieve the targets set forth for CET1. And also, I think there could be some more questions. So if I may continue on to respond, in the case of CET1, As mentioned, whether we can achieve 12.5% by year end of 2025, as was already mentioned. In 2025, 12.5%. In order to achieve that from fourth quarter of this year till the end of 2025, we will continue on to prioritize improvements in capital ratios. So this was already discussed at the BOD meeting, and there will be specific plans put together. And as was mentioned, Recently, the forex rates went up, exchange rates went up, so it makes it very difficult, but we will put in our best efforts to make it happen. And until 2025, about improving ROE and in terms of differentiating in ROIWA, what we want to do is enable 4% for nominal economic rates. Less than 4% is what we'll be doing in terms of managing our asset growth. And this has been already discussed with the BOD. There could be some slightly tweaks on the measures going forward, but I do want to mention that the guidance would be around 4% by year end, so that's what was discussed. And if we do see a growth of 4%, what this implies is that if we look at the overall structure, the ROE, if it's 10%, It means that we'd be a growth of 7% to 8%, which will help us maintain the capital ratio as of last year. So then with 4% growth, and if we also make sure to find ways to manage the ROA, we believe that there will be an upward, an uptick of 40 to 50 bps. So once again, by next year end, achieving 12.5% as quickly as possible would be our key focus. Thank you.