Woori Finance Holdings Co., Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Net Income and ROE: Cumulative net income increased 9.1% year-on-year, ROE was 10.82%, and the cost-to-income ratio remained below 40% for two consecutive quarters.
• Revenue Generation: Net operating revenue grew 6.6% year-on-year, supported by robust interest income from asset growth and significant non-interest income growth.
• Credit Risk Management: Credit costs increased due to the non-bank sector, but bank NPLs were stably managed with a coverage ratio of 270%.
• Capital Focus: The Group aimed to improve its CET1 ratio, targeting 12.5% early in 2025, with focus on asset management in Q4.
• Segment-Specific Initiatives: Addressed NIM decline due to rate cuts, managed loan growth and deposit trends, highlighted non-interest income growth, controlled SG&A, and continued efforts to improve core deposits and ALM management. Operational initiatives included merging Woori Investment Bank and F&I Securities, signing an FPA with Toon Yang and ABL Insurance, and focusing on diversifying revenue streams.

Segment Performance

• Net Income: Cumulative net income for Q3 2024 increased 9.1% year-on-year to KRW2.6591 trillion, with Q3 net income at KRW903.6 billion. ROE was 10.82%, and the cost-to-income ratio remained below 40% for the second consecutive quarter.
• Net Operating Revenue: Cumulative net operating revenue grew 6.6% year-on-year to KRW7.9927 trillion in the first three quarters of 2024, with Q3 at KRW2.7122 trillion. This was supported by asset growth and significant non-interest income.
• Credit Costs: Cumulative credit costs totaled KRW1.2546 trillion with a credit cost ratio of 0.44%. The NPL ratio was 0.55% for the group, and 0.21% for the bank, with a coverage ratio of 152% for the group and 270% for the bank.
• Capital Adequacy: The Group CET1 ratio was expected to be around 12% as of September 2024.
• Segment-Specific Details: Bank NIM in Q3 was 1.40%, and Group NIM (including card) was 1.67%, both down 7 basis points. Total loans of the bank stood at KRW340 trillion, up 5% from June, with corporate loans at KRW191 trillion (+4.3%) and household mortgages at KRW145 trillion (+6.2% in Q3). Deposits totaled KRW327 trillion, up 5.5% from June, but core deposits growth was weak. Non-interest income was KRW1.3781 trillion, up 53.2% year-on-year. SG&A cumulative was KRW3.1581 trillion, up 3.4% year-on-year, with Q3 at KRW1.0571 trillion, down 1.1% quarter-on-quarter. Credit costs were up 6.3% year-on-year in cumulative terms and 17.1% quarter-on-quarter in Q3, driven by higher delinquency in the non-bank sector.

Guidance

• CET1 Ratio: The Group aimed to achieve a CET1 ratio of 12.5% early in 2025, focusing on asset management in Q4 and developing a 2025 finance plan to improve the CET1 ratio.
• NIM Outlook: Projected NIM to be around high 1.3% in 2025, with RWA growth targeted within 4% to help defend NIM. Anticipated 25 basis point rate cuts could lead to a 3 basis point NIM decline, but efforts to reprice assets and increase low-cost deposits were planned.
• Dividends: A cash dividend of KRW181 per share was declared. Consideration of equal quarterly dividend distribution in future quarters was mentioned, with discussions to occur with the Board of Directors in February 2025.

Risks

• Market Uncertainty: U.S. Presidential elections, Middle East geopolitical risks, and potential economic slowdowns both domestically and internationally posed uncertainties.
• Credit Cost Pressures: Slow domestic demand, prolonged high interest rates, and restructuring in the real estate PF market led to higher credit costs in the non-bank sector.
• Margin Contraction: Impact of interest rate cuts on NIM, with margin compression due to falling market interest rates and funding cost pressures.
• Capital Management Volatility: Volatility in financial markets, regulatory changes, and progress of M&A activities could affect capital adequacy and CET1 ratio targets.

Question and Answer

Q: About CET1 ratio, which was flat from the previous quarter, the feasibility of the 12.2% target, and RWA related plan.

A: The CET1 ratio was around 12% as of September 2024, similar to June-end due to Forex appreciation. The Group would focus on asset management in Q4 to achieve the 12.2% target, with efforts to manage weighted assets and improve capital ratio.

Q: NIM outlook for Q4 and 2025, and dividend distribution.

A: NIM was expected to be at least at Q3 levels in Q4, with 2025 NIM projected around high 1.3%. Dividend distribution would be discussed with the Board of Directors, and equal quarterly distribution would be considered in future quarters.

Q: Schedule for investment securities services and app development.

A: MTS was planned to launch by year-end, an integrated super app by the first quarter of next year, and integrated IT systems by the second half of next year.

Q: Credit card credit cost projection.

A: Ordinary credit costs were around 42 basis points before interest rate cuts, expected to improve to below 40 basis points next year as PF restructuring completes and rates start to decline.

Q: Core deposits target and measures to increase them.

A: Over 30 measures were in place to increase core deposits, with positive impact seen from second half measures, and expected faster improvement in the future though no specific target was set.

Q: RWA growth and impact on margin, and acquisition of insurance firms.

A: RWA growth was targeted within 4% to manage margin, with acquisition of insurance firms to be managed considering capital implications and measures to minimize impact on the Group.

Q: C/I ratio target, and acquisition of insurance firms and capital ratios.

A: The C/I ratio was expected to be around 40% next year, with long-term goals to be below 40% from 2026. Acquisition of insurance firms would be managed with capital considerations to minimize impact on the Group's capital ratios.