Woori Financial Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Net Income and Performance: Net income saw a Y-o-Y increase of 5.1%; NIM improved for the third consecutive quarter; noninterest income grew; the insurance acquisition contributed to diversifying the profit structure.
• Capital Management: CET ratio improved; efforts to manage risk-weighted assets; plan to achieve 13% CET1 ratio ahead of schedule in 2026.
• Business Synergies: Relaunched the securities arm; completed the insurance acquisition; synergies between bank, brokerage, and insurance; Bancassurance sales growth for Tongyang Life and ABL.
• Loan and Asset Management: Focus on new growth areas and high-quality corporates; selective loan origination in retail; risk management strengthened; Future Co-Growth Project to support the real economy.
• Noninterest Income Drivers: Robust fee income; inclusion of insurance subsidiaries' performance; core fee income at a record high.
• Expense Management: Continued investment in AX initiatives; disciplined cost management; optimizing channels and workforce.

Segment Performance

• Net Income: Year-to-date net income as of third quarter end was KRW 2,796.4 billion, up 5.1% Y-o-Y. Third quarter net income was KRW 1,244.4 billion, a significant Q-o-Q increase of KRW 300 billion.
• Net Operating Revenue: Group's year-to-date net operating revenue totaled KRW 8,173.4 billion, up 2.3% Y-o-Y. Third quarter alone was KRW 2,773.3 billion.
• NIM: Woori Bank's third quarter NIM was 1.48%, up 3 bps Q-o-Q and 8 bps Y-o-Y, marking the third consecutive quarterly improvement.
• Loan Book: Bank's loans totaled KRW 331 trillion as of third quarter end. Corporate loans remained flat at KRW 178 trillion; retail loans grew 1.5% Q-o-Q to KRW 150 trillion.
• Noninterest Income: Cumulative noninterest income amounted to KRW 1,441.5 billion, up 4.6% Y-o-Y. Quarterly noninterest income was KRW 555.2 billion, up 5.3% Q-o-Q. Core fee income reached a record high of KRW 563.7 billion.
• SG&A Expense: Cumulative SG&A expense was KRW 3,690.3 billion; third quarter SG&A was KRW 1,211.2 billion, up 3.2% Q-o-Q. Cost-to-income ratio stood at 43.1%.
• Credit Cost and Asset Quality: Cumulative credit cost was KRW 1,517.6 billion; third quarter credit costs were KRW 574.3 billion, up 13.1% Q-o-Q. Provisions made for completion-guarantee projects, collateral value decreases, etc. Prime corporate loans at around 84%; loan loss reserves to total credit at 1.6%.
• Capital Ratios: Preliminary CET ratio was 12.92% as of September 2025, up 12 bps Q-o-Q and 80 bps Y-o-Y, surpassing the 2025 year-end target of 12.5%.

Guidance

• CET1 Ratio: Aim to achieve 13% CET1 ratio ahead of schedule in 2026.
• Dividend: Board approved a quarterly cash dividend of KRW 200 per share.
• Future Co-Growth Project: Plan to supply KRW 80 trillion over 5 years to support new growth and advanced strategic industries.
• NIM Outlook: Expect to maintain NIM around 1.4% in 2026.

Risks

• Uncertain External Conditions: Exchange rate fluctuations, tariff negotiations, and regulatory changes pose uncertainties.
• Asset Quality Risks: Potential impact on capital ratios and asset quality from economic slowdown and default risks.
• M&A Integration Risks: Uncertainties in integrating acquired insurance subsidiaries, including accounting adjustments and business consolidation.
• Cybersecurity Risks: Potential security issues and hacking threats, requiring continuous investment in IT security.

Question and Answer

Q: There are 2 questions that I would like to ask you. So first would be that in the third quarter, because you did the insurance acquisition was completed, and I would like to know what the next phase is. So in terms of more efficient capital management, rather than being 2 separate entities, we believe that having it together and then also making sure that it would be a full subsidiary of the group as a whole. So with regards to the information that you can share with us, any more details that you could share would be appreciated. Second is that after the acquisition, if you look at the capital ratios, it still looks like their capital ratios are very sound. So even if it's not in the immediate future, but going forward, are there any M&A opportunities that you would be looking at in terms of interest areas? So maybe not in the immediate future, but even down the road, are there any areas that you would be interested in, in terms of M&A opportunities?

A: So thank you for your questions and maybe we can answer your questions. Yes. This is the CFO, Lee Sung-Wook. So first, in terms of the insurance, in terms of the merger and also the follow-up after the acquisition, I do think that this is an area that a lot of the investors are interested in. And also in terms of the Tongyang Life shareholders, they're also very interested in that also. So as of now, we did the -- and completed the acquisition as of July 1 for Tongyang and ABL Life. And since then, for the mid- to long-term direction, this is something that we're doing a diagnosis about in terms of the overall business operations. So for Tongyang Life, making it a 100% subsidiary or merging the 2 entities, this is something that we are still reviewing, but we have not made any decisions yet. And in addition, we do believe that it will require a bit more time for us to come to a conclusion. And in addition to that, whether we should make a 100% subsidiary or whether we will merge the 2, if there's any major decisions that are made, of course, we will make sure to disclose to and share to you. And in addition to that, we will look at the laws and regulations to make sure that everything is done according to the due process. Secondly, about your question about the M&A side. I think that this is something that we continue to talk about. But after the brokerage company, insurance company being added on, in terms of our business portfolio, we think that it has been completed. So over the mid to long term, I think that if you look in terms of focusing on strengthening the competitiveness of the companies that we have and also maybe expanding our presence, M&A could be an option. But right now, on the security side and insurance side, because we have been newly added, and we do believe that our overall business portfolio is complete. Right now, if there are any M&As that require capital, I think that being interested in -- rather than being interested in that, I think that we're more interested in strengthening our market competitiveness in the areas in which we're doing business already, particularly on the noninterest income side. So with regards to the nonbank businesses of securities and insurance companies, we want to strengthen that further. So that would be one of the main focus. And in addition to that, we will also continue to conduct our value program and also manage our risk-weighted asset and also conduct and successfully complete our Future Co-Growth Projects. So in the middle, I did talk about this during the presentation, but achieving the CET1 ratio of 13%, this was -- the target year was 2027, but we have accelerated that to 2026. So this is something that we are discussing with our directors. So by doing this and doing -- putting against our best efforts, we think that we can efficiently manage our capital and still also achieve the best outcome for the business. Thank you.

Q: There are 2 questions that I would like to ask you. The very first question has to do with the completion-guarantee project. I can see that it has been largely resolved. But in addition to that, I can see that there were still quite hefty preemptive provisioning. So taking that into consideration, I'd like to understand if there's any guidance in terms of the improvement going forward in terms of credit cost? And second, the Future Co-Growth Project that was launched and with regard to the funding, the plans that you have for key industries, this project in itself is a massive project. And therefore, in terms of capital ratio or noninterest income or corporate loans, I think that it will have an impact on all of these numbers. So we'd like to understand what are the plans? What's the forecast you have going forward?

A: I am Park Jang-Geun, Senior General Manager from the Risk Management division. First, let me talk about credit cost. The third quarter credit cost increased by 3 bps to 52 bps. And that was already mentioned. In second quarter, KRW 86 billion for the trust and this quarter, KRW 98 billion, that was the provisioning in terms of managing our assets. And due to the sluggish economy in the sluggish construction sector, with regard to collateral loans at the banking sector, that was a total of KRW 54 billion of provisioning and one-off items amounted to KRW 152 billion. And therefore, the coverage rate also increased to 130%. So if we exclude these one-off items, the credit cost ratio is 42 bp. However, considering that there has been a delay in the rates -- the rate cuts, we believe that the cost -- the normalized credit cost will still be quite high. But we -- as mentioned, the completion-guarantee projects has been mostly resolved. So therefore, there wouldn't be any significant provisioning to follow going forward. And with regard to prime assets, especially in the banks, if we look at the corporate loans, we've been seeing a downturn in terms of new defaults in terms of corporate loans. Ever since 2024, we believe that there will be -- the impact of rate cuts is something that we are continuously monitoring at the Risk Management division. And in the future, with the economic boost, stimulus package with the government and with regards to the rate policy going forward, we believe that in the fourth quarter, credit costs will stabilize. So that is all for me. Yes, this is the CFO, Lee Sung-Wook. And so with regards to the Future Co-Growth Projects, this is a very big project. I do think that with regards to capital and also in terms of the capital ratios, there may be some concern about such a situation. But with regards to this, maybe just elaborating a bit will help you out. So from us, we do want to transfer into providing more productive financing. So as of the end of September, we announced our future core growth project, and across the group for the next 5 years, there will be around KRW 80 trillion that we will be supplying and supporting. And so according to this project right now, in terms of the asset growth and the impact of this, this was all taken into consideration before we made the announcement to the market. So for the KRW 80 trillion across the 5 years, if you look at the impact on our risk-weighted assets, it will be around half. And on this, of course, how we can offset it against the capital ratio is probably an issue that you will be focusing on. And this year, if you look at the overall asset rebalancing efforts that we have made for the next 5 years, due to that, this is an effort that we will continue for the next 5 years. And in addition to that, because regulations are being eased at the financial authority side. And in addition to that, we also have a CET1 ratio target of 13%. So the trends that we see in our capital ratio was all taken into consideration before we formulated this plan. In addition to that, on the corporate loan side, we -- during the financial crisis, we have accumulated a loss. There's a very strong underwriting standards and price. So as a result of that, we do think that we can manage our capital ratio properly and still continue growth in this area. So within the year, I think that if you look at the capital ratio trends that we have seen, there has been an 80 basis point increase versus the end of last year. And this is even after the acquisition of the insurance arm. So we do think that we do have a credible trend that we are creating, and this is something that we have fully discussed with the BOD, and we will come up with our business plan accordingly. In addition, going forward, we will continue to also manage our loan balance through asset rebalancing and also manage the retail balancing side. So we're also planning to make other efforts. So for the shareholder value programs, this is something that we will continue to implement without issue and continue to provide total -- better total shareholder return.