Good afternoon, ladies and gentlemen. I am Han Hong Sung, Head of IR here at Woori Financial Group. I would like to sincerely thank all of you for taking the time to participate in Woori Financial Group's earnings conference call despite your busy schedules. On today's call, we have Group CFO Lee Sung-Wook, Group CDO Oh Iljin, and Group CRO Park Jang- Geun. Today's earnings announcement will be conducted in the following sequence. First, a presentation of the group's financial performance by Mr. Lee Sung-Wook, our Group CFO, followed by a presentation on key measures to enhance corporate value announced today. Lastly, we will proceed with the Q and A session. We would also like to inform our international investors that simultaneous interpretation service will be available for your convenience. Let's now start with Woori Financial Group's business results for the first half of 2024 .
Good afternoon. I am Lee Sung-Wook, CFO of Woori Financial Group. I would like to highlight that today is very important. We will be sharing with you the first half performance, and we have also announced our valuable plans of our group. I would like to make sure that I share with you as transparent as possible all the information we have available for you. Without further ado, I would like to present the financial performance for the first half of 2023. Please refer to page three of the financial performance materials available on our website. Let me start with Woori Financial Group's net income. In the first half of 2024, the group recorded a net income of KRW 1.7554 trillion , up 14.1% compared to the same period last year.
Despite additional credit cost provisions for real estate PF, net income for Q2 was KRW 931.4 billion, significantly surpassing market consensus and achieving the highest quarterly performance ever. With improved profit generation and stable cost management, the group's ROE rose to 10.8%. Notably, as a result of ongoing efforts in cost optimization, the C/I ratio recorded 39.9%, falling below 40% for the first time since the establishment of the holding company. Additionally, today, Woori Financial Group's Board of Directors confirmed and announced a quarterly dividend of KRW 180 per share as in the previous quarter. Next is the group's net operating revenue. Net operating revenue in the first half of 2024 recorded KRW 5.28 trillion , up 5.1% year-on-year, and net operating revenue in Q2 recorded KRW 2.7317 trillion , up 7.2% QoQ.
This top line growth is attributed to strong interest income driven by asset growth as centered on prime corporate loans and margin improvements, as well as significant increase in non-interest income, primarily from core fees across both banking and non-banking subsidiaries. Next is on credit cost. For the first half of 2024, the group's credit cost was KRW 775.7 billion , down 5.2% YoY. On a quarterly basis, that increased by 11.6% from the previous quarter, reaching KRW 409.1 billion. The credit cost ratio stood at 0.42%. This quarter saw one of factors, such as additional provisioning due to the revaluation of real estate PF. Nevertheless, even with these considerations, our credit cost remains stable and well managed within our financial plan. In addition, the provisions accumulated conservatively over the past two or three years have ensured that our loss absorption capacity remains robust.
Next, let me address capital adequacy, including the capital ratio. As of the end of June 2024, the group's CET1 ratio is expected to be 12.04%. Despite a KRW 42 increase in the won-dollar exchange rate last quarter, our CET1 ratio improved by 9 basis points from the previous quarter, driven by solid profit generation, prudent asset growth, and proactive risk-weighted asset management. We remain committed to further enhancing our capital ratio to support growth and shareholder returns. Next, I will elaborate on group business results in more detail. Please refer to page four of your materials. First, let me explain the net operating revenue and NIM, or N-I-M. For the first half of 2024, the group's net operating revenue increased 5.1% YoY, reaching KRW 5.28 trillion, while interest income remained stable at KRW 4.395 trillion compared to the same period last year.
Meanwhile, the bank's NIM for Q2 was 1.47%, down 3 basis points from the previous quarter, while the group NIM, including Woori Card, remained unchanged at 1.74%. For Woori Bank's NIM, while the decline in market interest rates and intensified competition in corporate loans squeezed the lending margins, proactive management of time deposit maturities and funding costs helped limit the decrease. With the Bank of Korea likely to cut rates in the second half, we will actively counter margin decline by achieving appropriate growth in line with our initial targets and through group-wide efforts to increase core deposits and strengthen ALM. Next, I will discuss asset growth and loan status. As of the end of June 2024, total bank loans amounted to KRW 324 trillion, marking a 2.5% increase from March.
Corporate loans grew by 4.3% to KRW 183 trillion compared to March, driven by strong demand from large corporations and steady growth from SMEs. Meanwhile, although the decline in credit loans continued, retail loans grew by 0.6% to KRW 137 trillion compared to March, driven by increased demand for housing-related loans and policy mortgages. In the second half of the year, we will maintain the growth focused on corporate finance while considering capital ratios, aiming for solid growth aligned with our annual plan and considering our RORWA. Next is an update on deposits. As of the end of June 2024, the total Korean won deposits at Woori Bank were KRW 310 trillion, which represents a 1.6% increase from the end of March.
In the second half of the year, ahead of the anticipated interest rate cuts, we plan to build core deposits through proactive collaboration across the group to defend margins and also ensure stable funding sources. The bank will focus on sales and marketing targeting customers with high core deposit contributions, while non-bank subsidiaries will work to increase the use of Woori Bank for customer payment accounts, escrow accounts, and other services. The group as a whole is committed to maximizing core deposit growth. As of June 30th, 2024, the bank's loan-to-deposit ratio is 97.8%, reflecting a comfortably sufficient level. Next, I will move on to non-interest income and costs. Please refer to page five. First is the group's non-interest income. For the first half of the year, the group's non-interest income amounted to KRW 885.4 billion, marking a significant increase of 45.1% compared to the same period last year.
In particular, thanks to the expansion of corporate finance and global IB activities by the bank and proactive sales by subsidiaries like Woori Card and Woori Financial Capital, fee income increased by 25.6% YoY and 10.4% QoQ, driving the rise in non-interest income. Excluding market volatility impacts, Woori Financial Group's core fee income stands at approximately KRW 500 billion per quarter, significantly contributing to stable revenue generation. With the launch of Woori Investment & Securities in early August, synergies among the affiliates are expected to intensify, leading to further growth in the group's non-interest income. Moving on to the group's SG&A expense. For the first half of 2024, the group's SG&A expense amounted to KRW 2.1 trillion, inching up slightly by 2.1% from the previous year and remaining well managed. The C/I ratio came in at 39.9%, falling below 40% for the first time since the group's inception.
Despite continued cost pressures from high FX rates and oil prices, our group-wide cost optimization initiatives seem to have paid off. We will continue to enhance group-wide cost management efforts through channel optimization, advanced IT operations, and a reduction of unnecessary operating expenses. Next is credit cost. Credit cost for the first half of 2024 was KRW 775.7 billion and the credit cost ratio was 0.42%. The group's credit cost in Q2 stood at KRW 409.1 billion, which is 11.6% QoQ increase. However, this figure reflects a provision of approximately KRW 80 billion in relation to the revaluation of real estate PF. Ordinary c redit cost ratio, considering additional provisions against PF, was 0.40% and is being stably managed at 40 basis points level.
The group and the bank's NPL ratio slightly increased to 0.56% and 0.23% respectively as the delinquency of non-bank subsidiaries rose, but still is the lowest in the industry. In the second half, Woori Financial Group will work to soft land high-risk assets such as real estate PF and overseas CRE, and strengthen risk management of vulnerable areas to increase the loss absorption capacity of the group. We will now move on to capital adequacy and shareholder return policy. Please refer to page six. As of June 2024, the group's CET1 ratio was 12.04%, which is a 9 basis points increase from the previous quarter. The rise was mainly driven by efforts to boost capital adequacy, such as achieving an appropriate level of growth considering RORWA, despite the continued rapid depreciation of the Korean won and the robust growth of non-interest income, which does not contribute to RWA.
As interest rates and FX rates are projected to continue to show high volatility and the financial authorities are expected to introduce stronger capital regulations in the second half, Woori Financial Group will manage growth in a flexible manner to enhance capital ratios. We will also make utmost effort to manage RWA by improving the RWA calculation process and diligently managing high-risk assets such as PI and equity investments. Meanwhile, today, the Board of Woori Financial Group declared quarterly dividends of KRW 181 per share, considering the company's quarterly dividend policy and market expectations. I will go into more detail on shareholder return a little bit later. Thank you.
This concludes the presentation on the earnings of the first half of 2024. We will move on to the next section.
Today, Woori Financial Group announced the Corporate Value-Up Plan and made disclosure on CARAX as disclosed in prior notification of disclosure in June. Lee Sung-Wook, CFO and Vice President of the group, will go over the highlights of the group's Corporate Value-Up Plan.
Today, Woori Financial Group announced its Corporate Value-Up Plan, the first among bank financial groups in Korea, as noted in the disclosure last month. The Value-Up Program has been developed based on various discussions within the group and is being communicated to the market today after reporting the plan to the board in June and receiving and reflecting feedback. The areas that required thorough consideration were increasing shareholder return and establishing a portfolio strategy to secure new growth opportunities. I will now go over the highlights of Woori Financial Group's Value-Up Plan with the material that has been disclosed and circulated today.
Please refer to page seven of the Value-Up slides. ROE is a key indicator of corporate value. It is a criteria for corporate decision-making and the basis for enhancing shareholder return. The group aims to achieve 9% ROE in 2024 and reach a sustainable and stable double-digit ROE in the mid, long term. This year, to generate stable ROE growth, the group will work to outperform market expectations in terms of financial performance by strengthening core competency and generating group synergy. In the mid, long term, we plan to maintain ROE at 10% or above by delivering RORWA-based growth, achieving group-wide cost optimization, and implementing preemptive risk management. Next, I will go over the capital ratios and our shareholder return policy. Please refer to page eight. The target for CET1 ratio is to achieve 12.5% early by 2025 and 12.2% by the end of this year.
The target considers the FX rate and M&A. We will be seeking diverse options to achieve the target, including realizing appropriate level of asset growth and strict RWA management. Also, if the recent strong dollar and weak Korean won stabilizes in the future at more balanced levels, additional CET1 ratio improvement may be possible. Regarding shareholder return expansion, the mid, long-term TSR target has been set at 50%. The shareholder return policy based on CET1 ratio has been refined and elaborated. Compared to the previous policy, the CET1 ratio segmentation has become more detailed, and an intermediate target of 12.5% has been set. While securing visibility, it has become possible to deliver a shareholder return of 40% if the CET1 ratio exceeds 12.5%. Up to TSR of 40%, cash dividend will be 30%, and the remaining full amount will be used to buyback and cancel stock.
If TSR exceeds 40%, both cash dividend and share buyback policy will be increased in a balanced manner. If we progressively increase the TSR on top of the current industry top-level dividend yield of our group, the shareholder value of the group will be enhanced to levels above peers. Next, I will go over the group's business portfolio strategy. Please refer to page nine. Expanding the non-bank portfolio via M&A is essential to strengthen the group's operational capacity and improve income stability. Since inception in 2019, Woori Financial Group has consistently expanded the business portfolio by adding Woori Financial Capital, Asset Trust, and F&I. Woori Investment Securities is set to launch in August this year. We will be re-entering the securities market in 10 years. While not finalized yet, we are working to add an insurance arm under our umbrella.
I'd like to clearly state that we will not be overpaying for acquisitions. Also, regarding investor concerns on our current interest in Insurance, we are not considering a paid-in capital increase at all. The imminent launch of the merged securities company does not have a sizable asset base, therefore, will not have material impact to the capital ratio. The new company will focus on organic growth as a securities firm anchored in digital and IB. In Insurance, as mentioned last time, according to the BIS calculation method, within CET1 ratio, 10% of the group, 250% of the investment amount is categorized as RWA, which means that even if there is an acquisition, the impact on the capital ratios will be limited. We are aware that it is not easy to pursue inorganic growth and shareholder return expansion at the same time with limited capital.
The group will pursue M&A opportunities that can boost ROE by generating group synergy. Also, we will faithfully implement the Value-Up plan announced today to enhance shareholder return. In line with the Value-Up plan, we will be working to strengthen communication with investors. As the ownership of foreign and retail investors is on the rise, we will be diversifying IR channels to cater to various investors.
We'll also be interactively communicating with the market with a variety of IR content, including ESG and governance on top of financial performance. While the market may view today's announcement as somewhat insufficient, the group will assess the progress every year and continue to make Value-Up disclosures with improved strategies and measures as part of our efforts to strengthen communication with investors. The Korean government has launched the Korea Value-Up Index and announced tax benefits in relation to the Corporate Value-Up Program, evidencing commitment to invigorate the Korean capital market. In line with such government policy, Woori Financial Group has developed the corporate Value-Up plan with the mindset to contribute to the fundamental improvement of Korea's capital markets.
The group will make utmost effort to ensure that this Value-Up plan contributes to enhancing corporate value grounded in respect for shareholder value over mid long term, rather than a mere short-term stock price boosting measure. Thank you.
Thank you very much. As well as explained in the beginning, we will now open up the floor for Q and A. If you have any questions, please press star followed by one. If you wish to cancel your questions, please press star followed by number two. We will now give you time as you prepare your questions. We have first question. The first question is from Mr. Chung from NH Investment & Securities. You have the floor.
Yes, thank you very much. I am from NH Investment & Securities. Thank you very much for the performance. I do have two questions.
First of all, I understand that you are trying to acquire an insurance company. Once that acquisition is made, if there is bargain purchase gain, would that be used for the group? How will the benefit be actually realized? Is it going to be reflected as a treasury stock? Second point, you talked about your mid to long-term ROE of 10%. You have different industries, for example, bank, non-bank, and also insurance. Can you share with us the individual industry ROE target?
Please bear with us as we prepare answers to your questions.
Yes, I would like to take your question. As you have mentioned, with regard to insurance acquisition, we believe that there will be some bargain purchase gain that we can enjoy.
However, that gain could contribute to CET1 ratio or capital ratio, and we have about KRW 1.9 trillion as our investment limit, and that will be deducted from the capital. I think that we have to make a clear distinction, and this is not yet decided, but towards the end of the year, I think that we will be able to see some clear understanding. We will take into consideration many different factors, for example, dividend payout ratios and also shareholder return, before we decide. As to your second question, which was related to ROE banking, ROE is over 10%, but we originally mentioned 9% because I believe the bonus ratio for non-banking is quite significant, and there are some losses in that area.
Towards the end of last year, we had about KRW 200 billion as a loans provision, and in the first half of this year, we had KRW 80 billion for PF. For non-banking, we believe that we will be able to clean up in the non-banking sector. If that is the case, then overall, I think that for both banking and non-banking, we will have our ROE of about 10%. For securities company, I think that we are just beginning, just launching. The initial ROE of 10% is going to be quite challenging because there was a paid-in capital increase of about KRW 500 billion. I think that for a securities company, the ROE of 10% is going to be difficult for some time.
For insurance, I did mention earlier in my presentation that we are trying to acquire this insurance company without paid-in capital increase, and I think that that will contribute significantly to group's ROE. The capital is going to stay same, and the numerator will increase, and therefore, I think that ROE 10% or more is going to be easily attained. Overall, for Banking and Insurance, 10% is quite achievable. For securities company, it is going to be quite challenging. But overall, I think that if you take into consideration the offset between the two by the end of this year, we will have overall ROE of about 10%.
We will move on to the next question. Our next question is from Mr. Seo from SK Securities. Please go ahead.
Thank you for the opportunity today. I have two questions. The first is about page eight in the Value-Up Program. You have the CET1 ratio and you have stress buffer max 2.5% bottom left of the chart. Has this been confirmed? If this is 2.5% or below 2.5%, what would be the CET1 ratio considering the stress buffer? The second question, by 2025, you have target of 12.5% CET1 ratio. I would like to know in a little bit more detail, what are the strategies and plans you have to achieve this target? You are considering M&A and other activities, and you said that it will not have huge impact on the capital ratios, but I would like to know a little bit more on this topic.
Yes, please bear with us for just one moment while we prepare the answers.
Yes, thank you for the question. Your first question was about stress buffer, and it is maximum 2.5% currently. The financial authorities are conducting simulations, and I think it will be much lower than 2.5%. The maximum can go up to 2.5%. The number has not been finalized yet, but we believe it will be much lower. Second question was 12.1% CET1 ratio, how we can achieve this. 12.04% was as of June this year. We included in the Value-Up plan that by 2024 year-end, it will be above 12.2%, and so we need to get to 12.2% first, and we are making multifaceted efforts first. We are improving the RWA computation process, and we are managing PI and equity investments and other high-risk assets. Then we have the business plan, and we are overachieving the business plan.
We are also in the process of developing other options. As you all know, if we acquire insurance company, this is still based on assumptions because it has not been finalized yet, but if we acquire insurance company, there can be other options that we can take as well. If the exchange rate stabilizes, there can be additional improvements to the capital ratios. In particular, in Q3 and year-end performance, I think we will be able to share more visible improvements in the capital ratios later half of this year. Our RWA improvement asset growth, we are looking into multifaceted ways to get to 12.5% before the year end of 2025. Like I mentioned earlier, if the exchange rates go down, we will be able to achieve this target earlier than scheduled. 10.1% is around three bits.
If you look at the exchange rates sensitivity of the capital ratios, depending on the movement of the exchange rate, we can maybe even achieve close to 13% CET1 ratio.
Moving on to the next question. This question is going to be asked by Mr. Kim from Kyobo Securities.
Thank you very much. I am Kim Ji-Young from Kyobo Securities. I would like to first thank you for giving me the opportunity to ask questions. I would also like to appreciate your detailed explanation on the Value-Up Program. I have a question about your non-banking subsidiaries. As was briefly explained, the Woori Investment & Securities will be launched coming August. If you think about it, I think that you will be honoring your commitments in a way throughout this year. You have capital and assets, and if you take those into consideration with regard to securities and investment company, do you plan to do additional M&As? My second question has to do with the comment you made during your presentation.
You did mention, however, you are working to acquire an insurance company. You mentioned how a paid-in capital increase is not going to be considered. If that is the case, how do you plan to procure funds?
Thank you very much for the question. Give us time so that we can prepare answers.
First of all, I would like to take your question on the securities company. Korea Foss Securities and Woori Investment company merging is our primary focus, and additional M&A, especially securities company, is not something that we are considering at the moment. We do see that SK Securities is out in the market. However, that is not something that we are considering at the moment as our acquisition target. Securities and also license are both held by this securities company, and we believe that it has full competency. We will primarily focus on
Providing all the support necessary so that Woori Investment Securities can have competitiveness. Yesterday, we got the final regulator's approval. We are planning to launch the securities company coming August. Also, MGS, the corporate culture. We are currently working on the organizational culture. In order to create synergies amongst the subsidiaries, mid to long term, yes, we can consider additional M&A. Again, I would like to mention that our primary focus at this point in time is growing the competitiveness of this Woori Investment Securities company. With regard to insurance companies, I think that you will remember, but we did consider acquiring a life insurance company. As was disclosed, we decided not to acquire. Of course, depending on how the deal goes on, it could differ. We are currently reviewing or having due diligence on a target.
Depending on the result, I believe that we will have to wait and see, but we do not plan to do any life insurance acquisitions for the time being. We believe that Group ROE can be improved, and shareholder return can enhance with the M&As that we have ongoing at the moment. As for your second question regarding paid-in capital increase, Woori Financial Group's stock price is significantly undervalued compared to our peers. We believe that the reasons are as follows: there are uncertainties related to M&A, capital ratio decline concerns, and paid-in capital increase possibility. For these reasons, we believe that we are undervalued. We are fully cognizant of these concerns. If you think about the securities company that we are currently considering, the asset base is quite small, so it has barely any impact on our capital ratio.
The insurance company, the material investment, is based on BIS, considered as a material investment. So within 10% of the total capital, 250% of the amount of the investment is considered to be RWA. We believe that the bargain purchase gain can be achieved, and if that is the case, the impact on our capital ratio will be minimal. We can do the M&A without capital paid-in capital increase. Again, after the due diligence, the purchasing price will be decided. Again, we will not be overpaying. That could burden our capital ratio. Thank you.
We will move on to the next question. It will be from Mr. Baek from KIS. Please go ahead with your question.
Good afternoon. Thank you for the opportunity today. You issued dollar A Tier 1, quite sizable amount, $500 million. I would like to know the UOP for this, and does this have any impact on your P&L or capital ratios? That is my first question. Then I have a second question. According to the Value-Up Program, you talked about ROE target. You also mentioned the expansion of global business. You want to increase this contribution up to around 25%. Can you talk about your global business strategy to this end? Thank you.
Regarding your second question, I heard about the second question. Can you repeat the first question?
The first question, Woori Bank issued A Tier 1 this month, $550 million. I would like to know the background and the UOP, and what is the impact of this on P&L and capital ratios?
Thank you for the questions. Please give us just one minute.
Woori Bank issued $550 million in A Tier 1 bonds, so we issued hybrid bonds, so we have maturity coming due in October, so it was mainly for refinancing. So the impact on the capital ratio of the bank will be around 25 basis points-30 basis points and for the group it will be around 14 basis points-15 basis points. So around half of the bank's issued amount is recognized by the group. So $550 million has been issued, and there will be FX rate impact and we are trying to minimize the impact of the FX rate to our balance sheet.
Second, you talked about the global business. The global business contribution decreased compared to last year. When we announced last time, we said we wanted to increase contribution to around 25%, and we will be focusing on Southeast Asia. We will be reducing and withdrawing from markets that show low margins. Overall global business will be unfolding in a way that will not have significant impact to our capital ratios. We are being very selective and concentrating in markets that can have high growth potential. For low margin markets, we are planning to boldly withdraw. There are three main entities in Southeast Asia. We are focusing on internet banks and also the core competency of the banks. $200 million in Vietnam and also India and Cambodia as well. A total of $500 million has been invested there.
The Korea defense industry is growing very quickly, so we are planning to enter into Poland. We will be the first Korean bank to open a branch in Poland. We have received the relevant approvals. In the U.S. and Europe, we will be focusing on the Korean companies that are operating in that area. For low margin markets and low growth markets, we will be reducing our exposure and even withdrawing from some of those markets. Over mid long term, we plan to increase the contribution of global business to up to 25%.
Moving on to the next question. From Hanwha Investment & Securities, we have Researcher Kim Doha. You have the floor.
Yes, thank you very much for the opportunity. I do have some questions about the coverage or the provisions. If you refer to page five of the material, you talk about how in blue and gray, you have provisions for weaknesses. Here it is KRW 86 billion. Also if you look at C/C ratio, if you take that KRW 86 billion out, then the ratio would be significantly lower. Here you have preemptive provisions and also PF. If you can provide a breakdown, it will be appreciated. Also if you can provide some details about the additional provisions and to which subsidiary that was injected to, that would be appreciated.
If it is not for the savings bank, if you can share with us where the provisions went to, that would be great. I think that APL, NPL, if you can provide some detailed numbers with regard to it, that would be great.
Thank you very much for those questions. Please bear with us as we prepare our answers.
Yes, 0.42% of C/C ratio. With regard to PF, we have about KRW 80 billion. Per subsidiary, for the investment company, we have KRW 43 billion, for savings, about KRW 20 billion. For the trust, we have KRW 17 billion. You can see that overall, the subsidiaries have the provisions. About 0.2% has to do with Taeyoung Construction Company. We had to do some additional provisioning for Taeyoung Construction. For future economic outlook, we did have some additional provisions. Altogether, we have about KRW 26 billion in the provisions. For the savings bank, as I mentioned earlier, we do have some provisions for the PF related, but I think that this is relevant for the other companies in the industry, but I think that there are some credit loan losses.
We started making some provisions in the earlier year, and this is how we came up with this provision. Thank you.
Yes, I am CRO responsible for risk. You talked about the substandard and below for NPL on real estate PF revaluation was done. Also real estate trust, completion guarantee, and delinquency ratio increase. These are the primary reasons why there was an increase. With regard to PF, the exact number related to that has to do with KRW 180 trillion. Completion guarantee, KRW 43 billion were classified as NPL. In the second half of this year, I believe that there won't be any additional NPL increase related to PF. Also we are doing preemptive risk management for these assets. Going forward, I believe that we will be able to keep the NPL level at a stable or safer level.
We do not have any questions.
We do not see any more questions. I think we have quite a few questions already today. If there are no further questions, we will be concluding the Q and A session here. I think there were several questions regarding M&A and capital ratios. If you have additional questions, please contact our IR team so that we can get back to you as quickly as possible.