Woori Financial Group Inc.

Good afternoon. I am Han Ong Sung, head of IR at Woorie Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings conference call for Woorie Financial Group. On today's call, we have the group CFO, Lee Seong Wook, group CDO, Ok Il Jin, and group CRO, Park Jang Geun, as participants. 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 half of 2025. Good afternoon. This is Lee Sung Wook, the CFO of Uri Financial Group. Let me go over the first half performance for 2025. Please turn to page three of the presentation material that has been disclosed on our website. First, let me discuss net income. For the first half of 2025, RE financial groups net income was $1,551.3 billion, representing a wire wide decrease of 11.6%. When excluding the one-off expenses related to the early retirement program conducted at the beginning of the year and preemptive provisions for completion guarantee of trust company, net income is similar to last year. In the first half, conservative loan loss management to address the slowdown in the economy and SG&A to expand the non-bank portfolio of the group did increase costs, but the net operating revenue, which shows the profit generation capability of the group, still maintains steady growth amid a challenging business environment. Bottom line growth based on asset rebalancing and better margins driven by funding optimization amid a falling market rate resulted in stable interest income, while core fee income from the wealth management business and an increase in non-interest income derived from capital market activities generated the top line performance. Second quarter net income was $934.6 billion. which is $300 billion, one higher than the first quarter. That did not meet market expectations. Next, let me discuss how we achieved the group's capital ratio target. As of June 2025, the group's preliminary CET1 ratio is 12.76%, showing an around 60 basis points increase from the end of last year and exceeding 12.5% for the first time in the history of the group. Amid a uncertain financial backdrop, the group was able to generate subtle profits, build an optimal portfolio based on RWA, prudently manage assets sensitive to the FX rate, and conduct performance assessments focused on RORWA. These company-wide initiatives to improve the capital ratio have led to the significant improvement. The exchange rate also contributed, but even when excluding this factor, the CTO ratio is still well above 12.5%. As we have mentioned many times before, Refinancial Group has earmarked 2025 as the year of capital ratio improvement and has been focusing all group efforts to achieve the CET1 ratio target. Based on the CET1 ratio of 12.76% this quarter, the group is planning to outperform the year-end target of achieving a CET1 ratio of 12.5% and will be accelerating efforts to achieve the market expectation of 13%. Next, let me discuss our efforts to expand our business portfolio. One year after the group signed the SPA for Tongyang Life and ABL Life in August last year, as of July 1st, we have included the two companies as affiliates of the URI financial group. We are currently in the process of revaluing all assets and liabilities held by the two companies at fair value. Once this is completed, we will finalize the financial impact of the acquisitions. Against a rate cycle environment, we understand the market is concerned about the capital adequacy and insurance business outlook. However, we are planning to focus on sound capital adequacy management by maintaining a kicks ratio that comfortably exceeds the regulatory guideline and on profitable management focusing on financial stability to put priority on securing stable business fundamentals for both companies and ensuring they soft land as part of the group. For the securities arm, we continue to strengthen our competitiveness by acquiring the final approval for the investment trading business and launching the MTS platform. In addition, we will be fully utilizing the merchant bank license and bank corporate customer network to engage on full-fledged marketing activities. ReFinancial, with the acquisition of the insurance and securities businesses, has completed its lineup as a comprehensive financial services group. We will strengthen the core competencies of each subsidiary and generate full synergies across the group to upgrade the fundamentals and actively satisfy the expectations of the market. Next, let me delve into more detail about earnings by area. Please turn to page four. First, let me go over the net operating revenue and NIM. The group first half 2025 net operating revenue was $5,400,000. up by 2.3% YOY. In the first quarter, it was $2,789.2 billion, up by 6.8% quarter over quarter. The group faced uncertainties in Korea and abroad, including reciprocal tariffs and a challenging business environment due to concerns about a slowdown in the economy. But it is still able to achieve profitable growth and defend its margin to generate sound interest income and improve non-interest income mostly core fee income to achieve stable top line growth. The bank's second quarter NIM was 1.45% and the group's NIM, including the credit card business, was 1.71%, which represents an increase of one basis point, respectively, quarter over quarter. In the first quarter, as there was a cut in the interest rates and even amongst self-advocates, Due to active funding cost management and asset rebalancing, we were able to improve the loan yield. And as a result of that, for the second consecutive quarter, had an increase in NIM, reaching five basis points for the first half in total. Though we do believe that the interest rates will continue to fall, we will continue to put in efforts to expand our core deposits and also defend the downward pressure and NIM.

Let me now move on to our loan portfolio. As of the end of June 2025, bank loans totaled 329 trillion Korean won, remaining at a similar level to the end of March. In terms of corporate loans, while demand from large corporations remained solid, portfolio improvements centered on prime SME loans brought the total to 179 trillion won. Retail loans increased by approximately 3.7 trillion won from the end of March, reaching 148 trillion won. Going forward, in line with the government's policy direction on household debt management, Woody Financial Group will continue to focus on managing the total volume of household loans. At the same time, we will strengthen financial support for future growth industries to ensure that market funds flow into more productive sectors, thereby fulfilling our core role as a financial institution. In preparation for continued internal and external uncertainties, we will pursue sound and sustainable qualitative growth based on the asset rebalancing efforts that have been underway since last year. Next is on the group's non-interest income. The group's non-interest income for the first half of the year came in at $886.3 billion, maintaining a similar level year-on-year. On a quarterly basis, however, it rose sharply by approximately 47% from the previous quarter, reaching $527.3 billion. As for core fee income, growth in the wealth management segment was particularly notable. Thanks to balanced growth between the bank and non-bank segments, the group achieved a stable quarterly level of around 500 billion won, resulting in cumulative first-half performance exceeding 1 trillion won. Amid favorable market conditions such as falling interest rates and exchange rates, gains related to securities and FX valuation increased significantly. However, this was partially offset by a decline in gains from sale of loan receivables due to weakness in the NPL market. Looking ahead in an environment where interest rate cuts and capital market revitalization are expected, Woody Financial Group will work to uncover new business opportunities to expand related non-interest income. Also, as of early July, the group completed the insurance company acquisition, and with a now diversified non-bank portfolio, we will aim to maximize synergies within the group and continue the growth of non-interest income. Next, I will speak about expenses, and please refer to page 5. Moving on to the group's SG&A expense. For the first half of 2025, the group's SG&A expense was $2,479.1 billion, representing an 18% increase YOY. The resulting cost-to-income ratio stands at 42.8%. This increase was mainly due to one-off factors such as early retirement costs at the bank earlier this year, investments to enhance the last year's newly launched securities business, expenses related to ordinary wage settlements, finalized at the end of last year, and expanded group-wide investment in digital and IT capabilities. Going forward, while we will continue investing in areas such as digital and IT competitiveness and enhancing the group's brand value for future growth, we will also actively pursue cost efficiency through workforce and channel optimization, process enhancement using IT, and the reduction of unnecessary recurring expenses. Let's now move on to credit cost and asset quality. Credit costs for the group in the first half of 2025 stood at $944.5 billion. In the second quarter, credit costs was $509 billion, up 16.9% from the previous quarter, and this increase reflects a preemptive provision of $86 billion related to the completion guarantee projects. During the first half, we recognized some one-off credit costs, including preemptive provisioning for completion guaranteed trust projects and additional provisions for borrowers, such as Home Plus, which have recently drawn market attention. Excluding these one-time factors, the group's credit cost ratio is being maintained at around 0.42%. Despite the downward trend in interest rates since the second half of last year, concerns of an economic slowdown due to ongoing domestic and global uncertainties persist. As a result, delinquency and NPL ratios, especially in vulnerable industries, continue to rise. Woody Financial Group is working to ensure a soft landing for high-risk assets and is thoroughly managing sectors of concern and vulnerable borrowers. Through these more proactive risk management efforts than ever before, it is maintaining the proportion of prime corporate loans at around 85%, And the proportion of loan loss reserves and regulatory reserves to total credit is also being managed at an elevated level of 1.6%, ensuring the group's ability to absorb potential losses in a stable manner. Furthermore, considering the government's strong commitment to economic stimulus reflected in active supplementary budget planning and the likelihood that the low interest rate trend will continue for the time being, we expect credit costs to gradually stabilize from the third quarter onward. Next is non-capital adequacy and shareholder return policy. Please refer to page six of the material. As of the end of June 2025, the group's common equity tier one ratios stood at, as mentioned, at a preliminary 12.76%, showing a significant improvement of approximately 60 basis points from last year end. This result reflects not only favorable external conditions such as weaker exchange rate, but also the group's continued group-wide efforts to rebalance assets and proactively manage risk-weighted assets along with solid earnings growth. Given the continued potential for volatility in interest and exchange rates in the second half and the possibility of changes in regulatory capital requirements, the group will not be complacent and will do its utmost to achieve a stable CT1 ratio of over 12.5% for 2025 and reach the market expected level of 13% as early as possible. Through this enhancement in capital ratio, we aim to enhance our ability to absorb losses while also expanding shareholder returns based on the strengthened CET1 ratio. In line with our dividend policy to distribute 50% of the previous year's annual dividend evenly on a quarterly basis, the Board of Directors today approved a quarterly dividend of $201 per share. As previously announced, the record date will be August 10th. In the first half of 2025, despite rising domestic and global uncertainties, Woody Financial Group demonstrated strong profit generation and solid cost control capabilities. Notably, the significant improvement in our capital ratio boosted confidence in our ability to meet CET1 targets and expand shareholder returns, thereby strengthening market trust. With the completion of the insurance company acquisition, the group's portfolio is fully established. We will now take concrete steps toward becoming an integrated financial services company by pursuing balanced growth between banking and non-banking businesses and maximizing synergies across affiliates. Furthermore, the group will continue to increase financial support for productive sectors and actively promote inclusive finance for small business owners and financially vulnerable groups. This concludes WD Financial Group's earnings presentation for the first half of 2025. Thank you.

Yes, now we will start the Q&A session. For those of you that have questions, please press star and 1 on your phone. And if you would like to cancel your question, then please press star and 2. Hello? We will wait a few minutes for questions. Yes, so the first question today will be from NH Securities, So please go ahead with your question. Yes, I am from NH Securities. Thank you for the opportunity to ask a question. So there are two questions that I would like to ask you. The first question, is related to what you have talked about before, which would be the acquisition of the insurance arm. So in terms of your direction going forward and strategy, this is something that I am very curious about. So it might not be an urgent issue, but you have acquired two companies, and there are some interest about whether you will merge the two entities or maybe delist the listed entity. So with regards to these issues, have you made any decisions, or are there any consideration or options that you're reviewing? In addition to that, if there are any capital gains from the acquisition, how much do you believe that that would represent in terms of value? The second question that I would like to ask you is in terms of your capital ratio and also TSR. So your CET1 ratio has improved a lot. And also with regards to what you have said, you all have also said that you were trying to achieve 13% as early as possible. So does this mean that the year-end target would be 13%? According to what level the CET1 ratio sits at, then the TSR could differ. So if you achieve 13% at the end of the year, then is there any possibility that we could look forward to additional TSR measures such as purchasing treasury shares? So for the two questions that you have asked, thank you very much. Maybe we can prepare a second and then address your questions. Yes, thank you for the question. So I think that with regards to the acquisition of the insurance arm, I do think that it's a very comprehensive question touching upon a lot of different issues. So maybe I can give you a brief question. I do think that this is a topic of interest for many, so maybe we can share what we're thinking about right now and also in terms of the direction going forward. So I do think that it might be a lengthy answer. So that having said, with regards to the insurance acquisition right now, In August of last year, we did sign the SPA, and then of May this year from the FSC, we did receive the approval to include it as a subsidiary. So as of July 1st, we have completed the inclusion. So with regards to the strategy going forward for the insurance arm, I think that basically what we can say is that we are going to focus on sound capital management to ensure that we are able to have a stable marketing fundamentals to ensure that we can have sustainable growth. So in the short term, we're currently doing a business assessment. And after this is completed, we will be actually looking at the KICS ratio and also the improvements that would be necessary for the capital adequacy and also the key agenda items to strengthen the fundamental competitiveness of the arms. So this is something that we are going to do to fundamentally improve the business. So right now in terms of the KICS ratio and also in terms of securing the capabilities, that would be the short term. Over the longer term, we're looking at the customer channels, also asset management and operations to generate more profit generation and also with regards to the KICS ratio and the new CSM to improve the competitive edge so that we can have group synergies in new business areas. So doing a business assessment, we are going to look at how much KICS ratio improvement is necessary and also looking at where business expansion efforts would need to be made. In addition to that, if we look at the impact on the overall capital ratio, so July 1st was the date in which we included it, and right now we're in the purchase price allocation process. So right now the PPA process is in place. So as of now, it is difficult to estimate what the impact would be because there are various variables that are related to this issue. So as of the end of July, rather, once we do have a definitive PPA, then we can talk about what the impact would be. And I do think that this would be something that would be available when we do our Q3 earnings conference call. So I do think that it is something that we would be able to announce there. So if you look at CET1 ratio as of the end of June, it's 12.7%. And of course, we do think that there will be some impact from the acquisition of the insurance business. So taking this into consideration, we will try to make sure that it's managed at an appropriate And in addition to that, I think that whether we would merge it or have it as a full subsidiary. So in the news recently, I do think that there has been some discussion about this. And July 1st, we did include Dongyang and ABL as subsidiaries of the group. And since then, I do think that, as mentioned before, we're initially doing the business assessment first. So with regards to the merger of the two entities within the group right now, We haven't decided anything yet or have made any reviews of such a situation. So I think that going forward, whether it will be merged or whether we will have 100% owned subsidiaries, these are all options that we will be looking at in the future. And as we decide, we will make sure to communicate with the market. So with regards to the insurance side, I think that I've covered all of the topics. And then around the target of 13% in the second half of the year, I do think that there are a lot of volatility. If we look at what areas there could be, there could be the FX volatility, and also with regards to government regulations, there could be some changes. So in the end of 2025, if you look at the CET1 ratio, stably managing at 12.5% would be the target. So what we mean by stably managing 12.5% is meaning that we do want to overachieve this target, so that's how you should interpret it. And in the beginning, when we talked about 13%, what this is is that by 2027, this was the target that we had. And this is something that we mentioned before. I think that after we acquired the insurance arm, this was something that was known. And we are currently doing a lot of asset rebalancing. And we're also looking at all of our risk-rated assets. So as of the current situation, because there are FX volatilities and other issues, So versus our initial plans, we do think that there may be a possibility that we could achieve it earlier than expected. So we're trying to look at the measures that would enable us to do so. And if we do do so in the second half, take into consideration the changes. We do think that at the end of 2025, during the conference call that we do in February, I do think that we can take a comprehensive assessment and then talk about the way going forward in terms of the more details. to the areas that you would have interest in. Thank you very much.

Thank you very much for the response. Next question is by Seo Ryong Jin of SPS Securities. Please go ahead with your question. Thank you for the opportunity. So I do want to understand the MTS service of some updates from your brokerage business. I know that we have fierce competition in that domain. So I'd like to understand what were the performance achievements and also what's the future time schedule as to are you looking into scaling or making inroads into specific markets? Yes. Let us now respond to your question. Please bear with us for just a moment. I'm as a CDO. With regard to the MTS, it launched at the end of June. Or rather, it was the end of March. And for three months, we've opened 20 new accounts. And we are opening the services one by one. And in April, we had OTC bonds and one RP. and Universal Banking in June. Within OneBanking, we do have the MTS on OneBanking, so for wealth management or AI-based investment insights or user-based interfaces are some of the differentiators that we do offer. And in September, we do have a new integrated MTS and an ATS market to open. And in December, within Universal Banking, there's also for overseas stocks trading opportunities service that would also be embedded into the system. And within Universal Banking, MTS has been seeing some new clients coming in, so I can say that it is effective in terms of attracting clients. Thank you. And also with regard to Woody Investment Securities, if I may share with you the strategy that we have for our brokerage arm. So we have IB and digital capabilities, and we're actually focusing on enhancing our competitiveness. So we're putting together the system, and we do have the human resources right now, and we're continuing on to complement the systems and the facilities, and we are continuing on to expand on our sales organization. And we are, of course, actively managing risk assets, but with regard to securities, and especially when it comes to risk assets, I do want to mention that we are actually engaging in a very aggressive allocation of assets, and we're trying to actively engage in joint deal structuring and referrals and moving on from corporate finance to asset management, basically providing a one-stop financial service is what we do want to offer. So compared to the first quarter, in the second quarter, in terms of operating income and in terms of overall performance, Of course, we're seeing SG&A going in. However, we're seeing the ratio improving going forward. So we are scaling, and in the future, Woody Investment Securities, especially in the non-banking business, we think that's going to play a pivotal role. And if we consider the IT systems and so forth, next year is going to be completely different. We do believe that it's going to be a different story going forward with more contributions coming from Woody Investment Securities. Thank you.

Just let us take the next question. So if you look at the situation right now, the next question will come from KIS, , so please go ahead with your question. Yes, hello. This is from KIS. So I would like to ask you a question about stable coins. So in July or June, there was the Framework Act on Digital Assets, and I do think that there will be additional proposals that will be submitted next week So in terms of the legalization, it do seem to be that it is gaining speed. So with regards to stable coins, what is your approach? What would be, how are you going to address this opportunity? Yes, thank you very much. And let us address your question. So this is the CDO. So for a stable coin, I do think that as of now in terms of the legal framework, It is something that is still in process, so we're looking at what the overall trends are. So in terms of the qualifications for issuers, it's still a bit uncertain, so we're still something that we're monitoring very closely. And as of now, at the bank level, of course, we are looking at the OBGIA. So we are looking at a joint issuance with the OBGIA other members. And relating to that in terms of our business model and infrastructure establishing and also our business model is something that we are currently looking at. Thank you.

Thank you. Next up question from Kim Do Ah from Hanwha Investment and Securities. Please go ahead with your question. Thank you for the opportunity. I have a question with regard to loan portfolio margins and could you provide us with the guidance with regard to the targets that you have for the second half? And the next question has to do with insurance. As was already mentioned, I can see that you're currently reviewing the current status, and I know that it's a bit hasty to provide us with a detailed response. However, if we look at the insurance, there are, of course, concerns with regard to the capital ratio of the company. And so we would like to understand and rest assured that we don't have to go to the point of capital increase. So if you look at the total capital ratio, there is the basic ratio. And there are regulations with regard to that, and we're seeing some stricter regulations on the basic capital ratio. So we would like to understand if you can maybe lay out some of the measures that you have that you can actually cover for that without a capital increase. So it could be a very rough plan, but if you can share that with us, I think that we would rest assured. So with regard to this, is there anything that you can add, please? Yes, thank you very much. Please wait just a moment. Yes, first on margin. The NIM of the second quarter was 1.4, and it was increased by one BIP. And as mentioned, the market rates did go down, and the loan interest rates went down. However, with asset rebalancing as well as, well, increase of corporate income, we were able to see an increase of one BIP. in terms of NIM, but this really has to do with our asset growth. And I will be giving you some more information on this, but this year it was on managing risk assets, risk-weighted assets, and it was about managing this at below nominal GDP, and we were very much focused on asset quality. So in the second half, it will be similar, more or less the same at 1.4. Of course, there will be further reduction of rates, but We don't think that it's going to be higher than the 1.4%, so it would be more or less in the early end of 1.4% in the second half as well, mid to low level. And then in the case of assets, in terms of RWA, we've been actively managing the risk assets, and especially in the second half. There are tariffs. There's also FX fluctuations. And at the end of June, it was dipping down, and it's been slightly going up. So there are a lot of volatility right now. So with regard to assets, we're going to continue on to manage this. So we will be focusing on asset growth. But once again, we do have nominal growth. In the case of retail loans or household debt, it's true that there is active government policy in place. So we're going to take that in mind in terms of our active management in terms of corporate loans. In terms of risk assets, that's how we will manage, how we will be engaging in asset rebalancing so that we can focus on small business owners as well as future growth industries. And with regard to your very last question, it has to do with the insurance firm on the possibility of a capital increase. So if you look at the kicks ratio at the end of June, there are no disclosures with regard to the insurers. But based on what we know, there's 150% guidance, and it has already exceeded this guidance of 150%. And in the future, in terms of understanding the management status and also in putting together our mid- to long-term plan, the premise and the critical factor would be on maintaining the KICS ratio. So in the second half, in the KPI for both companies, The basic KICS ratio and capital adequacy would be a key agenda item going forward to manage. So in many aspects, right now in the current state, the KICS ratio and if we look into other, well, indicators, we do assess that a capital increase would not be required and we would have to engage in mid to long-term assessment and we have to plan out going forward. But at this point in time, we do believe that a capital increase is not required. And in the future, in the mid to long run, in order to minimize any burden on the group, that will be the focus in terms of how we do manage the subsidiaries. And once again, we will have to engage in an accurate management assessment. And it's going to take around two to three months. So in the mid to long run, in terms of what kind of impact it will have on the group, we will, of course, make sure that it is well minimized going forward. Thank you.

Yes, the next question will be from Tahitian Securities, . So please go ahead with your question. Yes, hello. I would like to ask about credit costs. If we look at the credit cost trend in the first half, it continues to be a weight on the operations. So of course, there were some one-off issues like the completion guarantee trust. But in terms of the normalized level, it does seem to be that there seems to be an increase So for the full year for the CCR guidance, what would the level be for our expectations? If you could share that number, that would be appreciated. Yes, thank you for your question, and maybe we can answer your question. So this is the CRO, . So if we look at the second quarter, it was 49 basis points. So it was a three basis point increase at the group level. And of course, if we There was $86 billion in one-off preliminary provisions for the Christchurch Guarantee Trust. If we exclude that amount, it's actually at 42 basis points, so it's a very stable level. However, in terms of the normal level of credit cost, it is trending up. And going forward, right now there are ongoing asset rebalancing. We're focusing on the lower risk prime assets. So right now, the portfolio transitions that we have made will come into effect in the second half. And also from June, we have an asset quality TFT that we are operating at the bank level. And if all of those measures are put in place, then from the second half of the year, we do think that there will be improvements that we will be able to see. So as a result, for 2025, if we get the CCR, at the beginning of the year, we said it was around low to mid 40%. And we do think that we will be able to manage it at that level for the full year.

Thank you. Currently, we do not have a queue right now. So we have received questions in advance via our website. So let us cover these questions. So before the earnings presentation, we have been receiving questions via our website. And with regard to frequently asked questions during the conference call, we did announce that we will be addressing them when possible. With regard to, well, shareholder return and the insurer acquisition, and for the first time, there are also questions that came in on the stable coin. And most of the questions have been covered, but one question also had to do with the scheduling of the treasury share cancellation. So we would like to ask the CFO to respond to this question. Yes, I am. Lee Sung Wook. So with regard to the scheduling of the share cancellation, in 2023, ever since we became a holding company, we've engaged in cancellation of $100 billion and $136.7 billion and $150 billion. So every year we have engaged in cancellation for the three years. So we have engaged in the share buyback, and now in September 11th, the trust contract is to be concluded, and then after that, we will be canceling the entire shares. And then with regard to share buyback and cancellation, after the $150 billion cancellation, we will take into consideration C2-1 ratio as well as the financial environment and conditions, and then decide on how we will go ahead with this. Thank you.

Yes, there does not seem to be any more questions, so we would like to wrap up the Q&A here. So if you do have any questions, please do not hesitate to contact the IR team. We will make sure to answer any questions you may have. So with this, we would like to wrap up the Q&A session and also the first half 2025 earnings conference call for URI Financial Group. Thank you for your attention.