Woori Financial Group Inc.

Good afternoon. I am Hanong Sung, head of IR at Woorie Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings call for Woorie Financial Group. On today's call, we have Group CFO Lee Sung Wook, Group CDO Oh Gil Jin, and Group CRO Park Chang Geun. On today's call, the Group CFO, Lee Seong-wook, 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 URI Financial Group's earnings for the first quarter of 2025. Good afternoon. This is Lee Sungwook, the CFO of Uri Financial Group. Let me go over the first quarter performance for 2025. Please turn to page three of the presentation material that has been disclosed on our website. First, let me talk about net income. In the first quarter of 2025, Uri Financial Group's net income was 615.6 billion won. Amid uncertainties in Korea and abroad, leading to volatility in the financial markets, we were still able to prove our solid revenue-generating capabilities on the top line. However, on the cost side, due to conservative provisionings, due to concerns about future downturns in the economy, and non-regular items such as costs related to the ERP conducted at the beginning of the year, and investments for future growth resulted in net income coming in below market expectations. When excluding these one-off costs, the group's fundamentals are still solid and the group's ROE is 9.5%. Next, let me discuss the group's net operating revenue. First quarter net operating revenue increased 2.4% YOY and 6.6% quarter-over-quarter to $2,609.5 billion. To optimize our portfolio, the group has been rebalancing assets and engaging in efforts to improving profitability from last year, which has resulted in solid interest income. Efforts to strengthen non-interest businesses and diversify revenue sources across all bank and non-bank affiliates within the group resulted in stable growth in non-interest income driven by core fee income. Next, let me go over the credit cost. Credit cost was 435.5 billion won, representing a YOY increase of 18.8%. Issues such as U.S. reciprocal tariffs and uncertainties about the Korean economy created a challenging internal-external business environment, which has led to higher delinquency and NPL ratios. However, we are monitoring the market more closely and have been taking preemptive measures, such as actively managing high-risk and potential distressed assets to manage credit costs at a stable level. The credit cost ratio was 0.46%, but when excluding one of the additional provisions of $63 billion, the normal credit cost ratio is 0.39%. Next, let me discuss the capital ratios and also quarterly dividends. As of the March end, the group's preliminary CET1 ratio is 12.42%, which is a 30 basis point increase from the end of last year. Amid an unfavorable business environment such as a week one, our company-wide efforts from last year to rebalance assets to actively manage our risk-rated assets has improved our capital ratio. This is an example of the strong commitment that the group has to achieve a 12.5% CET1 ratio within the year, and we are focusing all group capabilities to achieve this goal. In addition, at the BOD today, the Board decided on a Q1 dividend of $201 per share, which represents an 11% increase on a YOY basis. In addition, the dividend record date will be May 10th, as notified during the group's quarterly dividend procedures adopted in the General Shareholders Meeting. Next, let me delve into more detail about our earnings by area. Please turn to page four. First, let me go over our net operating revenue and NIM. The group's Q1 net operating revenue was $2,609.5 billion, up by 6.6% quarter over quarter. Interest income was similar to that of the previous quarter at $200,552.1 billion. The bank's quarter one NIM was 1.44%, and the group's NIM, including the credit card business, was 1.70%, which represents an increase of four basis points from the previous quarter. The BOK cut rates last February and market rates fed, leading to a decrease in funding costs as costs on time deposits stabilized and core deposits grew. This improved our margins. In addition, we also believe that the U.S. reciprocity tariffs are expected to create trade disputes and a downturn in the economy, and we believe the current cut rate cycle will continue, and we are trying to have more stability management put out in efforts to grow our core deposits to actively defend any downward pressure on them. Next, let me discuss the bank's loan portfolio. As of March end, Woorie Bank's total $330 trillion won, showing a slight 1% decrease versus the end of the year. For corporate loans, large corporates continue to have strong demand for credit, and the portfolio improved, focused on high-quality SMEs, resulting in a book of 183%. On the retail loans, the government's household debt management policy continued, and retail loans totaled $144 trillion, similar to the end of last year. Going forward, in line with the economic developments, We will diligently fulfill its role and focus on new growth industries and secured loans backed by guaranteed certificates. In addition, for retail loans, we will focus on real demand with the scope within our business plan and achieve growth within nominal GDP growth. Recognizing uncertainties in Korea and abroad, we will put top priority on asset soundness and capital adequacy to achieve profitable growth. Next is the net interest income. Net interest income in first quarter was 357.5 billion won, an increase of 2% YOY. In particular, core fee income posted 511.4 billion won, driven by the growth of the bank's wealth management efforts and efforts to diversify. Core fee income surpassed 500 billion won mark, again showing stable trends. As we expect volatility in the markets to continue, We will continue efforts to increase our non-interest income by diversifying our non-bank business and maximizing synergies between banks and non-bank operations. Next, let us move on to expenses. Please look at page 5. This is the group's SG&A. In the first quarter, the SG&A was $1,306.2 billion, which was an increase of 26.6% YOY, and the cost-income ratio was 43.6%. The increase was driven by one-off factors, including Uri Bank's early retirement program cost of $169.1 billion, which took place at the beginning of the year, and costs related to increasing the sales capabilities of the securities arm launched last year and investments in digital and IT, such as U1 Banking and Uri Securities mobile trading system. Going forward, the group will continue to actively support investments for future growth, such as strengthening digital and IT competitiveness, and enhancing the brand value of the group. But at the same time, it will cut back on general expenses that are not related to sales and achieve cost efficiencies across the organization, such as optimizing resources and channels.

Next is credit costs and asset quality. In the first quarter of 2025, the group's credit costs amounted to $435.5 billion, down 5.8% QOQ, and up 18.8% year-on-year. This quarter... The group completed provisioning for the full exposure to issues currently in the spotlight, including those to debtors who have recently filed for corporate rehabilitation by allocating approximately $39.1 billion in additional provisions, and we also booked preemptive provisions of $24.1 billion during the review of completion guarantee trust projects, resulting in approximately $63.1 billion in one-off credit costs. Excluding these one-off factors, the group's credit cost ratio is being stably managed at around 0.39%. Although market interest rates are on a downward trend, concerns over economic recession are intensifying due to various internal and external issues, so asset quality concerns are expected to persist for some time. Woody Financial Group is maintaining a strong ratio of prime corporate loan assets at 86% through enhanced risk management capabilities. Furthermore, the ratio of loan loss and regulatory reserves to total loans is also being managed at an elevated 1.6% level, ensuring sufficient loss absorption capacity. As for real estate PF exposure, it has decreased by approximately $200 billion from the previous quarter to $3.3 trillion. Excluding HUD guarantees, it stands at approximately $2 trillion, which is 0.5% of total loans. And thanks to our preemptive management efforts, the additional provision burden remains limited. Woody Financial Group will remain fully prepared for potential impacts from prolonged high exchange rates and U.S. reciprocal tariff policies. We will proactively inspect risk factors across the group, focusing on managing vulnerable areas and closely monitor key market variables like interest rates and exchange rates responding actively to changes. Moving on, I will elaborate on the capital adequacy and shareholder return policies. Please refer to page six of the materials. As of the end of March 2025, the group's preliminary CET1 ratio stands at 12.42%, improved by approximately 30 basis points from 12.13% at the end of the previous year. Despite the challenging financial environment, the group significantly improved its capital ratio through comprehensive measures, including solid profit growth, optimal portfolio composition, taking into account risk-weighted assets, and thorough management of exchange rate-sensitive assets, such as foreign currency holdings and currency derivatives. With this, Woody Financial Group is approaching its goal of achieving a 12.5% CET1 ratio ahead of schedule in 2025, making progress not only in enhancing the group's loss absorption capacity, but also in establishing a stable foundation for shareholder returns. Meanwhile, today, Woody Financial Group's Board of Directors resolved a quarterly dividend of $201 per share in line with the company's quarterly dividend policy of paying out 50% of the previous year's annual dividend evenly across each quarter, and the record date under our enhanced quarterly dividend procedure is set for May 10th. The group also announced at the beginning of the year a share buyback and cancellation program totaling 150 billion won, an increase of 10% compared to the previous year, and is currently in the process of executing the buyback. Going forward, the group will continue to faithfully implement its shareholder return policy based on the CET1 ratio and do its utmost to fulfill its commitments to the market. Let's move on to page 7. To prepare for the large-scale and prolonged impact of macroeconomic uncertainty and market volatility arising from recent developments, such as the imposition of reciprocal tariffs by the U.S., Woody Financial Group has formed a group-wide TF team. Through this task force, we aim to respond swiftly to market conditions and ensure thorough risk management. Please refer to the materials on page 7. Woody Financial Group. We'll conduct in-depth analysis of tariff impacts by industry and sector, as well as overall market conditions, and based on this, we'll continue to carry out asset rebalancing in response to changes in the financial environment. We will restructure our portfolio to focus on high-quality assets and emerging growth industries while reducing low-margin or potentially distressed loans to improve both profitability and asset soundness. In addition, the group is operating a group-level reciprocal tariff impact support TFT program providing customized support to companies affected by tariffs, and preparing support measures for small businesses vulnerable to high exchange rates and economic downturns. By stabilizing the financial market and protecting customers, we aim to minimize the shocks from reciprocal tariffs. With the possibility of prolonged high exchange rates and market volatility in mind, we will strengthen our foreign currency liquidity management and enhance credit risk controls for affected industries and high-risk assets to actively respond to economic downturns. We will especially maintain constant monitoring of risk by country where the group operates to prevent overseas shocks from spilling over into domestic markets. Regarding capital ratios, we will focus on improving RWA vulnerabilities through asset rebalancing and strengthen our management of exchange-free sensitive assets by reducing exposure to currency derivatives and overseas FRNs. Alongside asset rebalancing and risk management to maintain a solid financial structure, Woody Financial Group also places great importance on business diversification to provide profit growth and improve stability. Woody Investment Securities obtained its official brokerage license in March and launched its MTS platform, completing preparations for full-scale operations. Furthermore, the relocation of all IB units within the group to Yeouido will further boost synergy. In terms of entering the insurance business, which has drawn significant investor attention. We submitted an application for a subsidiary acquisition approval this past January, and it is currently under review by the Financial Services Commission. Upon completion of the acquisition, although the final financial impact may vary, we expect minimal effect on the group's capital ratio and anticipate annual profit increases of 300 to 400 billion won and approximately a one percentage point improvement in ROE. Through these comprehensive response plans, Woody Financial Group will faithfully fulfill its core financial role, thereby contributing to market stabilization and ensuring strong customer protection. We will also continue to enhance our CET1 ratio to further strengthen the group's loss absorption capacity and establish a solid foundation for stable shareholder returns. This quarter, despite internal and external uncertainties, Woody Financial Group has demonstrated solid earnings capacity and stable risk management capabilities. We will actively respond to the challenging financial environment, including interest rates, exchange rates, and the real economy by further focusing on managing our capital ratio and enhancing long-term corporate value. And in addition, we will take the lead in supporting struggling businesses, fulfilling our social responsibility as a financial group. And this concludes Woody Financial Group's 2025 Q1 earnings presentation. Thank you.