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.

Thank you for the question and we'll move on to the next question. Next, we have Mr. from NH Investment Securities. Please go ahead. Good afternoon. Thank you for the opportunity today. I have two questions. First, you just mentioned, but in Q3, the NIM declined significantly. What is your outlook for Q4? And second question is about the quarterly dividends. So the dividend went up in Q4 compared to Q123. So for 2025, I am wondering if we're going to equally distribute the dividends across quarters like other financial groups. Thank you for those questions. Please give us just one minute to prepare the answer. Yes, the NIM of Q3 was around 1.40. That's seven bps decline from previous quarter. This is because of the Korean won spread reduction and preemptive asset growth, which means that we paid higher interest rates for the time deposits. So this resulted in about seven bits decline. But from Q4 onwards, we will be actively managing the assets and also the capital. So we're going to be managing capital and NIM together simultaneously. So according to our projections in Q4, thanks to those active management measures, it should be at least around Q3. And next year, structurally, If there's 25 bps cut, NIM goes down by around 3 bps throughout the year. So in 2025, if the rates go down by 75 bps, theoretically it will be 9 bps downward. But I think we can manage this within 4 to 5 bps decline. So around 1.3%. Especially recently, the treasury rate went down to around 2%. and the low-cost deposit we plan to increase, and we plan to reprice our assets to defend the NIM. As we just mentioned, next year, asset growth, the RWA growth should be within 4%. Next year, that should also contribute to defending the NIM. So overall, in 2025, NIM should be around high 1.3%. And then regarding your second question, the equal distribution of dividends across quarters, I understand that some financial groups equally pay the dividends across the quarters. So for us, when we announced the dividends this year, we said it will be around 50%, and we said we were going to equally distribute around March, June, and September. And we're going to consider all of the different elements before declaring the dividends for each respective quarter. So the real dividends increased this year. And like we announced today, according to the current dividend policy, we made the dividend decisions. But regarding your question in 2025, we will be discussing that topic with the board of directors, and I think we will be able to communicate that to the shareholders and investors in February 2025.

Yes, the next question is from HANA Investment and Securities, Kim Do-hwa. Please proceed with your question. Yes, I'm Kim Do-hwa from HANA Investment and Securities. So with regard to the investment in securities that was recently launched, so it's true that we had the fund supermarket, the application. That's probably one business that we have heard. But I would like to understand the schedule for any other services. And I do know that you're also looking into an integrated on-app. So in terms of the application's development schedule, what's that like for the investment in securities? Thank you very much for that question. Yes, I'm in charge of the digital business. In the case of MTS, by year end, we will be launching the service. So that's the plan right now. And then until first quarter of next year, an integrated super app, something that's pursued by the bank, an integrated banking app would have these services. And then we would be integrating the IT systems where it would be an integrated MTS, and that would be by the second half of next year.

Yes, thank you very much. We'll move on to the next question. The next question is from SK Investment Securities. Mr. So. Thank you for the opportunity today. I have a question regarding credit costs. I don't see any large-scale PEF credit costs these days, but I think ordinary credit costs is an upward trend. So towards year-end and early next year, what would be the amount of credit costs that you are projecting? Thank you for the question. My name is Park Jung-gyu, and I'm the CRO. Excluding one-off, looking at the ordinary credit costs, it's 42 BIPs. Before interest rate cuts, because of the high interest rate environment and higher delinquency rates resulting from that and the restructuring of the real estate PF market, Credit costs this year should remain at current levels. I think it will be similar. Next year, if the PF restructuring is completed and rates start to go down, I think it will show gradual improvement. So I think it can go down to below 40 pips. Thank you.

Thank you for the answer. Next, from Korea Investment and Securities, Mr. Paektu-san. Yes, please proceed with your question. Yes, I'm from Korean Investment and Securities, Paektu-san. I do have a question with regard to your core deposit. So I believe that this is an area of your focus. However, we have to take into consideration the challenging market conditions, and I believe that in terms of the improvement, it seems a bit delayed. or subdued, but as mentioned in terms of the time deposit-related policy, rate cuts, with that we believe that going forward there will be some faster improvements. So in the future, with regard to core deposits, the average balance or the end balance, the target that you have, what would that be? Or if you do have any targets, please let us know. And then also with regard to core deposits, in order to achieve that target, is there maybe specific deposits that you'll be targeting going forward? anything that was discussed amongst the management. Yes, thank you very much for that question. Please bear with us for just a moment. Yes, next year or this year, it would be the same, but increasing core deposits, it helps us actually deal with the downside of NIMS. So for us in the second half, at the bank segment, increasing core deposits, let's say until maybe about 30 measures are in place, basically. So we have a bank-wide type of measure when it comes to term, corporate household, many ways to increase the client segment. So there are more than 30 means or measures to do that. And also in the non-bank segment, Well, it's true that there are many areas that they benefit from the bank segment, but of course we have clients in the non-bank segment, and we believe that really having them buy these core deposits is also something that we want to pursue as a group. So starting from July or the second half of this year, we've been seeing some positive impact from those measures, and in the future we believe that it will increase and it will get better, especially soon. because we launched these measures in the second half of this year. Next time or next year, we do believe that we will be seeing some faster-paced improvements. And there could be many measures or many conditions, but with the rate cuts, if we look at our core deposits, it's around $92 trillion as of September. So next year, the prospects or target has not been set forth, but my personal take is that it would be a target of three digits or $100 trillion. And for that to be possible, there will be many measures that we will be devising. So thank you.

We'll move on to the next question. From Park Hae-jin of Daejin Securities. Please go ahead. Good afternoon. You mentioned RWA growth within 4%. That was your target. but you have the launch of the investment securities. I don't think the insurance company will be a big issue, but asset growth will definitely be a priority for the investment securities arm. So is it possible to keep asset growth within 4%? And the card margin is improving. The non-bank subsidiary's funding cost, I think, is going down. What would be the reason for that? Thank you for the questions. Please give us just one minute to prepare the answers. Good afternoon. I am and you just mentioned the securities firm. So reinvestment securities, I think you are referring to RWA of reinvestment securities, which is around $5 trillion at the moment. And so I understand where you're coming from. The bank has RWA of above $200 trillion. So investment securities, Of course, we need to double the asset growth of the securities firm. It's very small at the moment. So even if it records high asset growth, it does not have strong impact to the overall group because the RWA size of the bank is so big. So we will be trying to control the RWA asset growth of the bank and some of the other non-bank subsidiaries. So the target will be to manage the overall group's RWA asset growth. And that should be within 4%. And you talked about the credit card margin improvement. Recently, the credit card loans increased. And that has been written in the press recently. And those credit card loans tend to have higher interest rates than some of the other assets and products. Revenue is also on increasing trend. All of those factors combined, The Q3 profit increase has been more evident compared to the first half. Thank you.

Yes, we have from HSBC Securities. Please proceed. Yes, despite challenging times, thank you very much for that good performance. I have two questions. The first question, has to do with the CRR ratio, which has been quite interesting. So it's been dropping. So is there a specific CIR ratio that you're looking into? Any targets? Please share. And the second question, with regard to acquisition of insurance firms, I think that there could be some upside with regard to increasing net income. But according to what was covered by the press, I believe that the KICS ratio of ABL has dropped to about 140%. And also due to the liability discount ratio, we believe that the KICS ratio will drop further. So then, with regard to that, would there be a possibility or concerns of a capital injection that would be necessary? Yes, thank you very much for that question. Let us prepare the response. Just a moment, please. Yes, let me respond to that question. In the run-up to third quarter, it was 39.6%, the CIR. So then, in the fourth quarter, it's true that our expenses have been focused there, so it would be around 42%, 43% in terms of the CIR. And then next year, the target, as of current, there are, of course, IT investment. Well, this will be ongoing, but in terms of improving the brand, and I'm sure that was covered by the press, where we are engaging in integrating the branches, finding a way to rationalize personnel management. So this will continue on. So we believe that there were about 23 less branches by the end of September. So in terms of the CIR ratio, we will continue on to work on that. So next year, according to plan, it would be early 40%. or that would be 25, and then in 26 and onwards, it would be less than 40% from 2026 and onwards. So that would be the long-term plan. So next year, the target would probably be around 40% levels, and we will have to discuss this with the BOD, the Board of Directors, but that would be basically the guidance. And then with regard to the acquisition of the insurance firm and also the KICS and the capital ratio, as was mentioned, The rate cuts are anticipated. Therefore, KICS would be something that we would have to manage. And then there is CSM and additional margin-related requirements, something that we would have to look into. But then if you think about the capital ratio of the group, that would be the focus, and that would be how we would be dealing with capital management. And in June, ever since the policy, the ABL, for ABL it's 145%, but in September... There was about $300 billion from Dongyang from the junior loans and then $200 billion from ABL. In the case of Dongyang, it would be 180%. And for ABL, as of June end, we don't have the numbers for September, it would be 165% due to the subordinated loans. So in the future, we will have to look into measures that would not impact the group, And if so, we would be increasing the capital if necessary. So there will be various measures that we would be taking into account so that any impact on the group would be minimized. Thank you.

I don't believe we have any questions pending. And I think we touched a lot of different topics today, so I would like to conclude the Q&A session here. If you have any further questions, please contact us, and we will try to get back to you as quickly as possible. This will conclude the Q&A session, and this will also conclude the 2024 Q3 earnings call. Thank you for your attendance today.