Woori Financial Group Inc. (A316140) Earnings Call Transcript & Summary

Good afternoon. My name is Hong Sung Han, Head of IR at Woori Financial Group. Thank you for joining today for Q3 2026 Financial Group's earnings results. And we will begin with the presentation delivered by our Group CFO, Kwak Seong-Min, followed by a Q&A session. And also be advised that for today's call, we are providing simultaneous interpretation for overseas investors. With that, let us begin Woori Financial Group's Q3 2026 Earnings Presentation.

Good afternoon. I am Kwak Seong-Min, Woori Financial Group's CFO. I will go over the group's earnings results for Q3 2026. Please refer to Page 2 of the earnings presentation documents available on our website. First, our net income. For Q3 2026, Woori Financial Group recorded net income of KRW 1,049.2 billion, up 4.4% Q-o-Q, exceeding KRW 1 trillion for the second consecutive quarter. So the group's quarterly earnings capacity has stabilized around KRW 1 trillion. And as a result, YTD net income through Q3 reached KRW 2,658.1 billion. This is an improvement from the same period last year when we recognized about KRW 550 billion in bargain purchase gains from the acquisitions of Tongyang Life and ABL Life. Excluding this one-off factor, it's an increase of 19% Y-o-Y. And supported by this enhanced earnings capacity, the group's common equity ROE stood at 9.9%, continuing its clear improvement. This reflects our progress over the past several years through disciplined management of RWAs and strategic capital initiatives, including asset reevaluation, we have strengthened our capital position and deployed this into productive finance and high-growth nonbanking subsidiaries, laying the foundation for the group's medium- to long-term earnings growth. As a result, both interest income and noninterest income reached record highs with noninterest income accounting for nearly 20% of total income. At the same time, group-wide cost efficiency initiatives helped stabilize cost-to-income ratio and credit cost ratio at progressively lower levels. With revenue growth and cost stabilization, YTD operating profit increased by nearly KRW 570 billion Y-o-Y, further enhancing our sustainable earnings generation capacity. Next, capital adequacy and shareholder returns. As of September end 2026, our preliminary CET1 ratio stood at 13.8%, maintaining the industry-leading position. This is a meaningful improvement, nearly 90 bps this year alone and 170 bps over the past 2 years. And this year, as part of productive finance, we significantly expanded corporate lending, guarantees and capital markets investments. However, our capital capacity against external uncertainties has strengthened further, supported by solid fundamentals, disciplined asset balancing and the impact of a decline in exchange rates. Based on this, our BOD today approved a Q3 dividend of KRW 221 per share, fully nontaxable. The record date is November 10, and the payment is scheduled for November 30. With this, our quarterly dividends for the year have been completed, leaving only the year-end dividend. And for us, the year-end dividend accounts for more than 50% of the total annual dividend. The current dividend yield stands at about 2.2%, but given our dividend structure and the nontaxable benefits, shareholders' effective annual dividend yield for 2026 should be significantly higher. With the additional KRW 150 billion share buyback approved in July for the second half, we are confident that our total shareholder return for 2026 will be significantly higher than last year. And in addition, the Board resolved to cancel 57,269 shares we acquired and held for specific purposes, including comprehensive share exchanges in accordance with the amended Commercial Act. Now let me go over the group's financial performance by business segment in Page 3. First, net operating revenue and NIM. YTD net operating revenue through Q3 came in at a record KRW 8,680.3 billion, up 6.2% Y-o-Y on the back of balanced growth in both interest and noninterest income. YTD interest income reached KRW 7,035.9 billion, up 4.5% Y-o-Y, maintaining solid growth. The main drivers were 25% increase YTD in large corporate lending as well as the improvements in group's NIM compared with the same period last year. However, the bank's NIM for Q3 stood at 1.43%, down 7 bps Q-o-Q. Market rates increased more sharply than lending rates and our proactive efforts to secure funding ahead of additional rate hikes placed pressure on funding costs, but we expect NIM to recover as asset and liability reprice over time and the impact of higher funding costs gradually subsides. We will work to accelerate margin improvement by expanding high-quality new customer base, attracting low-cost deposits and maintaining a profitability-focused loan book. Next, let me discuss the bank's loan portfolio. As of September end 2026, the bank's total KRW loans stood at KRW [ 313 ] trillion, up 1.52% from the end of June. Corporate loans increased by 1.42% Q-o-Q to KRW 156 trillion due to the acceleration of productive finance. In particular, lending under the productive finance reached roughly KRW 27 trillion, 1.5x our full year target, which we achieved ahead of schedule. Retail loans stood at KRW 154 trillion, up 1.4% Q-o-Q following the government's easing of household lending limits in August. Building on our strong competitive position in corporate banking, we will continue to pursue loan growth focused on high-quality assets. And we will further enhance risk management by integrating AI across the entire lending process from credit assessment to post monitoring. By doing so, we will create a foundation for sustainable growth without compromising asset quality. Let me now turn to the group's noninterest income. Noninterest income for the first 9 months reached a record KRW 1.6444 trillion. Core fee income rose 18.8% Y-o-Y to KRW 1.898 trillion, driving earnings growth. Our nonbank subsidiaries increased their earnings contributions by strengthening group synergies and enhancing the competitiveness of their core businesses. In particular, our securities subsidiary has expanded its IB business since its capital increase in May. Collaboration with the bank has also continued to grow with the 2 jointly arranging deals. As a result, underwriting and advisory fees for the first 9 months rose to 2.4x the level recorded a year earlier, reaching KRW 151.4 billion. The securities subsidiary accounted for half of this total. Our insurance subsidiaries also contributed significantly to noninterest income growth with insurance earnings increasing by approximately KRW 100 billion Y-o-Y. Stronger synergies with the bank helped increase the group's bancassurance earnings by approximately 10% from a year earlier. As a result, the nonbank share of noninterest income rose from 45% a year earlier to approximately 60% this year. Meanwhile, the group's third quarter noninterest income declined 7.6% Q-o-Q to KRW 581.4 billion. This reflected higher securities valuation losses amid rising interest rates and stock market volatility, together with a sharp decline in capital market fees. However, higher foreign exchange earnings as exchange rates stabilize along a recovery in insurance earnings to first quarter levels helped contain the decline. Looking ahead, Woori Financial Group will continue to pursue business opportunities by harnessing synergies across its banking, securities, insurance and capital market subsidiaries by steadily increasing the contribution from noninterest businesses will move towards a more balanced earnings mix. We will turn to costs. Please refer to Page 4. This shows the group's SG&A expenses. Group SG&A expenses for the first 9 months totaled KRW 3.8575 trillion. Q3 expenses stood at KRW 1.2246 trillion, broadly unchanged from the previous quarter. The group's cost-to-income ratio remained stable at 42.3%, in line with our full year target. Looking ahead, we will proactively make essential investments to strengthen the group's future competitiveness, including expanding infrastructure for our insurance and securities businesses and upgrading IT security systems to guard against cyber attacks. At the same time, we will continue to improve cost efficiency across the group by optimizing our distribution channels and workforce and using AI to streamline operations. Next, credit costs and asset quality. Credit costs for the first 9 months of 2026 totaled KRW 1.28 trillion, down sharply by 15.7% Y-o-Y. Q3 credit cost stood at KRW 314 billion, a substantial decline of 28.5% Q-o-Q. The quality of our loan portfolio has improved as we have expanded lending to high-quality corporate borrowers and steadily rebalanced our assets over the past 2 years. As a result, our credit cost ratio for the first 9 months declined to 42 basis points. Woori Financial Group will remain focused through year-end on achieving our full year targets of reducing credit cost by 15% and bringing the credit cost ratio to the low 40 basis point range. Our asset quality indicators also remain sound as of end of Q3. As of end September, high-quality loans continue to account for around 85% of the corporate loan portfolio. The NPL ratio also edged down Q-o-Q, supported by a decline in new NPL formation, reflecting our rigorous asset quality management. To prepare for rising interest rates and macroeconomic volatility, we will further strengthen monitoring of vulnerable borrowers and proactively pursue NPL sales and write-offs to maintain sound asset quality across the group. In closing, the key transformation underway at Woori Financial Group is this having strengthened our capital position. We're now entering a new phase of growth using that solid capital base to secure future growth opportunities, strengthen our earnings capacity and increase shareholder returns. Our bank is reinforcing its earnings base by strengthening core businesses, including corporate banking and wealth management while improving cost efficiency. Following the acquisition of full ownership of Tongyang Life in August, we're now moving forward with the integration of our 2 life insurers. Once completed, this integration will deliver cost synergies and economies of scale. Our securities subsidiary is steadily building its track record in IB. Obtaining the derivatives license currently being pursued will further strengthen the foundation for earnings growth. Our credit card, capital finance, asset management and key subsidiaries are also increasing their earnings contributions by enhancing their competitiveness and group synergies. By delivering KRW 1 trillion in quarterly net profit for 2 consecutive quarters, we have demonstrated that the group's earnings capacity has reached a new level. Looking ahead, we will further strengthen the group's fundamentals through sustainable improvements in ROE and share the benefits with shareholders through differentiated capital returns, reinforcing our competitiveness as a comprehensive financial group. This concludes Woori Financial Group's Q3 2026 earnings presentation. Thank you.

Now we are going to begin our Q&A session. [Operator Instructions] So we are going to wait until the question comes. So the first question comes from [ ID Securities ], Seol Yong Jin.

I have 2 questions. So first of all, for the margin side, there was a slight significant decline this quarter. So what was the impact on the asset management as well as the funding side? And also, we have -- starting from January -- starting from July, we have some impact reflect in some extent related to fixed margin payout. And the second question is for the Tongyang Life. I understand that you run it quite strongly. Was the purpose of your merger to secure liquidity? Or did you think that it was more profitable than the authorities were concerned about? And I would like to ask you what you did it possible at the time of a return rate to reach 10%. I would appreciate if you could explain what level of the hedging you are using.

Yes, we got the 2 questions. Could you repeat your second question again?

So I have a question about the Tongyang Life. So in September, it looks like you did a 700 release quite strongly. Was it because to obtain the liquidity? Or did you think that it was okay for your profitability? And also the 100% reversal timing, when do you expect that, that will be?

So please give us a moment as we prepare our response.

So my name is Kwak Seong-Min, CFO. For the first question, it was about our margin. So YTD basis, the margin is about 1.3 bps. So it's quite high Y-o-Y. I think what you're asking is based on Q-o-Q basis because on this quarter, there is a decline of about the 7 bps, and you probably want to know why. So I'd like to further explain about that. So I think that I covered this before once, but Q3 this year, I think that there was a burden with the funding cost for all banks. And that was the same for us as well. There was an increase in the funding cost because of the increasing funding rate. But for Woori Bank, we have a CD-linked loan, which accounts for 70%, which is quite high. So for Woori Bank compared to our competitors, we had to endure the increase in funding rate, but we also had a bigger gap between long and short term. So to further explain on that, as you know, the market rate, the CD rate as well as the funding rate. So the CD rate, it went up about 41 bps by end of September. For 1 year, the funding, the bond, it actually increased about 132 bps. So there was a difference between long and short-term interest rate. And because of that spread, we had an impact on our Q3 earnings. So -- and from September and early October, the long-term rate actually increased more sharply than the short term. So there is the gap between long and short interest rates. That had impact on our bank because the CD-linked loan that accounts for 70% of our total loans. So that has impact in Q3. So by early next year, the BOK, we have an expectation that the BOK will continue to increase the rate. So we do think that the rate might decrease afterwards. So I think that over time, this risk or this factor will actually start to fade. And to be more specific, there was a decline in core deposits, which actually led to 2 bps impact. And loan and short interest rate spread that I just covered, that actually had about 5 bps impact. So in Q2, we had a decline about 7 bps -- for this quarter, we had a decline of about 7 bps. But if you look at just the Q3 only, there's a decline of 7 bps, as I covered. So that may look like a significant drop. But if you look at the first half of this year, compared to the end of last year, during the first half of this year, Woori Bank had a YTD of 1.46%. And first quarter, the second quarter, it was 1.51%, respectively. So YTD compared to the end of last year, it's an increase of 5 bps for NIM. So you can compare the figures yourself. But it was a slightly increase in NIMs compared to our competitors for the first half of this year. So I think that you could also consider that fact. And as you know, we will also cover the loan growth later. But the Korean won loan increased about KRW 12 trillion YTD. The KRW 8 trillion came from the corporate lending, and we also covered this in IRC. So corporate lending growth is supported by our principle or the strategy, which is all in margin. So we actually focused on the productive finance, and we increased the large corporation -- corporate lending. So we not only looked at the rate, but we also try to increase the noninterest income from those transactions. So as we increase the corporate lending, we also tried to increase the fee or the FX-related fee income. The IB fee income went up significantly because of that. And as you know, the IB, we mostly focus on large corporations. And in this process, we have an opportunity to source the IB deal, which could increase the IB-related fee income. So under that strategy, we try to capture not just the interest income, but also the noninterest income. So that was our all-in margin strategy. However, there was a slight burden on the NIM for this quarter. Overall, we increased the corporate lending to increase both interest and noninterest income, and that was part of our strategy. Starting from Q4, I believe that this downward trend will no longer be there. And Q4, we will at least remain or have a slight increase. And starting from 2027, we are going to start asset refreshing, which will improve the NIM. So that's the answer for the first question about the NIM. So for the second question, insurance-related question, you mentioned Tongyang Life. But I think that it covers both Tongyang Life and IBL Life because we ended that insurance as of September, I'm not sure if I am able to share the reason why here. But as I know from the regulators, we were told to stop to sell this life insurance. And I think that it only -- not only applies to us, but it only -- it also applies to other insurers as well. So the whole life insurance that we stopped selling, it was more from the ABL Life rather than the Tongyang Life. So there could be an impact for ABL Life. So we -- this started back in September. So we had an internal meeting with our insurers. But this is coming from the regulator. So we need to obviously comply with this. But we decided to create an alternative product, which can replace this, and we will try to launch this as soon as possible within October. So for us, it's a product mostly sold by ABL Life. So not so much impact for the Tongyang Life, but bigger impact for ABL Life. So the alternative products or other solutions, we are currently working on it to make sure that we do not lose the profit.

Okay. From NH, we have Jung Jun-Sup who has the next question.

My name is Jung Jun-Sup from NH Securities. I will ask 2 questions. First, about the CET1 ratio, of course, it went up, but not dramatically. So maybe because of the previous reason, and I do not know how to interpret this figure. So why did it go down? You talked about the bond and also the interest rate. Were those the sole causes or also because of securities? And also going forward, if interest rate hike continues and if the market continues to slow down, what is your expectations in terms of the outlook? Do you have a long-term plan? So that is my question as well. And also number 2, now I have a question about the insurance. Now it was delisted, so it will be consolidated and perhaps more contribution is underway. So what would be the next plan? Do you have anything in mind? And also, if we were to do this by next year, do you have any plans for further increase of capital or contribution?

Yes. Thank you very much. We will now prepare for your question and entertain your question.

Thank you very much for that question. The first one was about CET1 ratio change? And number 2 was about the insurance integration plan and anything that we have in mind in terms of contribution. So about the CET1 ratio, now as you can find it from the IR document, it was 12-ish to 13. So about 8 bp went up. And as you can see from the material, now we wanted to improve the operations risk. So 13 bp went up as the expenses went down by about KRW 202 billion. So you may think that actually the increase is not that high. So with that in context, I will give you my answer. So it was KRW 12.6 trillion. And the group, when it comes to recurring asset growth, it's about KRW 8 trillion in terms of the growth. And as you know, we have FX and [ KRW 183 ] went down in Q2. So KRW 7.4 trillion declined. So we had the FX impact as well as the asset impact as well. So in terms of asset -- net asset growth, it was about KRW 0.6 trillion, and that is equivalent to a decline of 3 bps. But as I've mentioned, now we want to increase the risk of operation and 13 bp went up. So we had, in total, 10 bps impact. So we can see that as a contribution. And then we have 7 bp and then 4 bp in dividends and so on. And then we also had the FX effects. So FX fluctuation also had an impact. It actually had an impact on RWE as well as the assets. And now the RWE impact is also factored in. But then now when it comes to other bond loss, well, for us, unlike other companies, the impact is not that high. So based on what I've mentioned, when RWE was concluded on track, it would be about 13.9%. But then now we have 15 bp difference because of a specific reason. So I cannot specify this company's name, but you have to look at the semiconductor. We have some vendors that we work with. And then end of September is the month of corporate tax submission or payment. And this is quite technical, but it actually had an impact on RWE in the payment process. So it's about KRW 0.9 trillion. So it was not cash. So corporate tax actually increased the amount by KRW 4 trillion, but then RWE-wise, it was only KRW 0.9 trillion, but this is temporary. And the asset grew because of that corporate tax issue. So we plan to resolve that in October. So this was temporary once again. And then about overseas, we have some businesses without control they actually took out some loan, and we had that loan in end of September and early October, it was repaid, and then this was something unexpected. So as of end of September, so about KRW 0.6 trillion was the amount. So as of end of September, we had some temporary factors. We had some transactions with businesses and RWE actually went up by KRW 1 trillion, and then it impacted 15 bp. So as of end of September, it's down 15 bp. But if you look at the effective number, we have almost resolved the issue as of October. So end of September, it's about 13.95% and as we sustain this and maintain this by Q4, well, 50% will be the year-end dividend out of all dividends, and we plan to use the capital ratio that will go up in that manner. So about CET1, that's my answer to your question. And also about your second question about the integration of the insurers and also any concerns about additional contribution. So this is my answer to you. So as I've been saying, the integration of the 2 companies have been officially announced and we are now on track. And the integration of the 2 insurers requires a lot of tasks and works, not just finance consolidation, but HR and IT integration. So 3 tracks mainly. So in terms of IT integration, we need more than that. We need to integrate the financial system and also HR at the end of the day. So we have the schedule in place, and we are now on track. So we believe that October 1 is the deadline for integration. And so far, we are progressing on track. We are on schedule. And as I've mentioned, now the life insurance, well, in that community, we plan to become #5. And then as of integration period, we are focusing on cost synergy. And we wanted to maximize cost synergy towards that destination. And now the integrated entity, we want it to be financially most effective, and that is how we are working on this. So how are we going to maximize CSM? And also [indiscernible], how are we going to work on that number is something that we are looking at. So we are working to maximize the numbers. So to talk about the technical ideas, it's about how we are going to work with the subsidiaries or the underseeing companies. And based on that, we want to integrate and relieve your concerns. So what we can say for now is that after integration, well we do not want the holding company to actually inject capital to this insurance because of financial issues. That's something that we want to refrain from. So we have not only legal integration, but also HR integration that we have in mind, and we will do our best to stay on track. And with the integration, the IT investment shift for the insurers, well, that also includes investment for AI. So be it sales or the entire business process, especially underwriting, so end-to-end value chain will be monitored. We plan to embed AI to the legacy system, and that is what we are doing right now as we work for IT integration. And once we complete the process, we will be efficient and the entity, the integrated entity will be effective. So no further capital injection.