Hello, good afternoon. I am Han Hong Sung, head of the IR department at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings call for Woori Financial Group. On today's call, we have Group CFO, Lee Sung-Wook, Group CTO, Ouk Il-Jin, and Group CRO, Park Jang-geun, participating. For today's call, the CFO, Lee Sung-Wook, will present the earnings performance for the group, and after that, we will have a Q&A session. In addition, please note that today's call is being interpreted simultaneously for our overseas investors. Now, let us start with the presentation on Woori Financial Group's 2024 Q1 business performance.
Good afternoon. I am Lee Sung-Wook, CFO of Woori Financial Group. Let me dive into the 2024 Q1 performance of our group.
Please turn to page three of the presentation, which is available on our website. First, let me touch upon the net income of the group. In the first quarter of 2024, Woori Financial Group's net income was KRW 824.5 billion. Amid a higher-for-longer interest rate environment and high inflation, the group utilized its strong profit generation capabilities and stable cost management to achieve a group ROE of 10.3%, which is better than the end of last year. In addition, the group's net operating revenue increased 9% QoQ to KRW 2.5488 Trillion . Against continuous uncertainties in Korea and abroad, this performance was the result of a balanced growth in interest income generated from the growth in high-quality corporate loans, and also non-interest income focused on core fees. Next, let me move on to expenses such as SG&A and credit cost.
The Q1 group SG&A was KRW 1.032 Trillion , a decline of 0.5% year-over-year. The cost-income ratio was 40.6%, and it is being maintained at a stable level. In addition, if we look at the Q1 group credit cost, it was KRW 357.6 billion, and as local and global uncertainties continue, credit cost is being managed within the range set in the group's financial plan. Next, let me discuss our capital ratios and quarterly dividends. As of the end of March 2024, the group's CET1 ratio is expected to be around 12%. Even though the Korean won weakened significantly during the quarter, the group was able to maintain its CET1 ratio at the same level as last year due to solid performance and active risk-weighted asset management. In addition, today, the group's BOD decided to pay quarterly dividends of KRW 181 per share for the first quarter.
Moreover, at the end of March, the group acquired the stake that the KDIC held of 1.29% of the group, and all the shares were canceled. Going forward, the group, to address uncertainties in the financial market, is planning to continuously improve its capital adequacy and also expand its shareholder return policy. Next, let me delve into the performance of each area in more detail. Please refer to page four of the presentation. First, let me go over our net operating revenue and net interest margin. Q1 net operating revenue was up by 9% quarter-over-quarter at KRW 2.5488 trillion . In addition, the bank's Q1 NIM was 1.5%, which is three basis points higher QoQ, while group NIM, including the credit card business, was 1.74%, or up by two basis points QoQ.
In contrast to the fourth quarter of last year, the time deposit cost ratio stabilized and core deposits increased, resulting in the increase in NIM. Recently, the political instability in the Middle East and concerns about inflation have weakened expectations about a policy rate cut, which is expected to extend the stable trend in NIM in the second quarter. Woori Financial Group will continue to increase the proportion of core deposits and optimize its asset liability structure to prepare for a full-fledged rate cut cycle in the future and actively to prepare to adjust downward pressure on NIM. Now, let me move on to our assets. The total loans of Woori Bank as of the end of March totaled KRW 316 trillion, which is a 1.7% increase versus the end of last year.
On the corporate loan side, large corporate loan demand is still strong and high-quality SME loans growth also solid. This led to corporate loans posting KRW 175 trillion, or up by 2.9% versus the end of last year. To take a look at retail loans, the continuation of the government's household debt management policy and impact of a slower recovery on the real property market led to retail loans decreasing 0.2% versus the end of 2023 to total KRW 136 trillion. The group is planning to focus on the corporate loan side, but we will expand the portfolio with a focus on high-quality assets in consideration of the return on RWA to achieve profitable growth. In addition, the bank was to continue to maintain its percentage of high-quality assets in the corporate loan book, which currently stands at 86.7%. Next, let me talk about deposits.
As of March, Woori Bank's total Korean won deposits totaled KRW 305 trillion. The growth in time deposits has moderated, but Korean won deposits, which showed a decline last year, turned around this quarter.
In addition, in particular, to secure a stable funding base and expand margins, the bank is actively planning to increase core deposits to focus on NIM management. In addition, as of the end of March, the bank's loan-to-deposit ratio is 97.2%, representing a sufficient room. Next, let me go over non-interest income and expenses, and please refer to page five of the presentation. Let me go into the group's non-interest income. The group's non-interest income for the first quarter was KRW 350.6 billion, up 5.7% year-on-year. In the first quarter, in particular, fee income grew 13.6% quarter-on-quarter and 20.3% year-on-year, driving the growth in non-interest income. In addition to the solid growth in branch sales, such as wealth management and foreign exchange trading, HQ sales such as IB and trading also showed robust growth, leading to significant growth in non-interest income.
In the case of Hong Kong H-index ELS, which has been in the news recently, the group's customer-centric product launch strategy and systemized sales process have reduced our exposure and financial impact to a very minimal level. In the future, Woori Financial Group plans to further actively promote sales in the wealth management segment based on a full and robust sales process of investment products and enhanced wealth management capabilities, as well as continue to expand growth in non-interest income segments that do not involve risky assets. Let me move on to the group's SG&A expenses. In the first quarter of 2024, the group's SG&A expenses decreased by 0.5% year-on-year to KRW 1.032 trillion , and the cost to income ratio remains stable at 40.6%.
As inflation uncertainty triggered by geopolitical risks is expected to continue for the time being, Woori Financial Group plans to sustain core investments for future growth, such as in digital and IT, while continuing to pursue cost efficiency centered on recurring expenses. Next is credit cost. In the first quarter of 2024, the group's credit cost recorded KRW 367.6 billion. Due to the prolonged high interest rate environment and rising delinquency rates centered on non-bank subsidiaries, credit costs have been increasing year-on-year. In addition, there are concerns that asset quality may further deteriorate depending on the future PF market environment as the cleanup of distressed real estate PF businesses is in full swing. However, since last year, Woori Financial Group, based on its risk-oriented corporate culture, has been focusing its capabilities on asset quality management and improving loss absorption capacity.
As a result, the group and the bank's asset quality related indicators, including the NPL ratio, which stands at 0.44% and 0.2%, and NPL coverage ratio recording 191% and 294% respectively, is managed at a good level. Furthermore, in the case of real estate PF loans, which have recently become a growing concern in the market, the combined amount of PF loans and bridge loans is approximately KRW 3.7 trillion. Of this amount, KRW 1.7 trillion is secured by public guarantees such as HUG, and if this amount is excluded, the loan volume will be KRW 2 trillion. In the case of bridge loans, which are considered relatively high risk, capital and investment bank subsidiaries hold approximately KRW 0.4 trillion, which is a slight decrease compared to last year-end.
Going forward, Woori Financial will continue to systematically focus its management on high-risk assets such as PF and overseas commercial real estate, as well as the vulnerable pockets of each subsidiary, and closely monitor changes in major risk factors such as interest rates and exchange rates to actively respond to market conditions. Next, allow me to go into the group's capital adequacy and shareholder return policy. Please refer to page 6 of the materials. As of the end of March 2024, the group's common stock ratio is 12%, which is expected to be similar to previous year-end. Despite the recent surge in exchange rates, selective asset growth and solid profit growth enabled us to maintain our capital adequacy and going forward, through active risk-weighted asset management that takes into account economic conditions such as interest rates and exchange rates, we plan to continue to improve our capital ratio.
Meanwhile, today, Woori Financial Group, considering the company's quarterly dividend policy and market expectations, decided on a quarterly dividend of KRW 181 per share. Also, in March, Woori Financial purchased the remaining 1.24% stake in the company held by Korea Deposit Insurance Corporation for KRW 136.6 billion and completed cancellation of the shares, which is an increase of approximately 37% compared to last year. This year, Woori Financial Group's shareholder return program will be even stronger than last year. In response to the government's recent Corporate Value-Up Program to eliminate the Korean discount, we will communicate with the market with more active corporate value enhancement measures and shareholder return policies. We believe that Woori Financial Group this quarter, despite a challenging internal and external environment, demonstrated solid profit generation and stable risk management capabilities.
In response to the challenging financial environment, including interest rates, exchange rates, and the real economy, we will continue to actively manage our capital ratio and enhance long-term corporate value, and also strengthen communication with investors. This concludes Woori Financial Group's first quarter of 2024 earnings presentation. Thank you.
Yes, now we will start the Q&A session. For those of you with a question, please press star and one on your phone. If you want to cancel your request, then please press star and two. Now we will wait a bit for questions. The first question will come from Hyundai Motor Securities, Mr. Lee Hong Jae. Please go ahead with your question.
Yes. Thank you very much. Thank you for the opportunity to ask questions. If you look at the situation recently, I would like to ask you about some news reports.
For Lotte Insurance, there is some mention about the possible acquisition, and so I do understand that it is still probably in a stage of where you are looking at the opportunity, but even in a broad sense, what I would like to know is that even if I look at various standards in terms of the purchase price, how much RWA increase would you actually experience by the different ranges? For example, for every KRW 500 billion, how much risk-weighted assets increase would that represent? If you have any sensitivity about that would be appreciated. Secondly, based upon the P&L business in itself, for insurance, if you continue to expand into, is there any separate budget that you have for M&As, even on a theoretical basis? If so, how much would that represent? If you could give us a broad picture about that would be appreciated. Thank you.
Yes. Thank you for your question. As we prepare the answer, if you could just wait a bit, we would appreciate that. Thank you.
Yes, this is the CFO, Lee Sung-Wook. In the news recently, there have been reports about a possible Lotte Insurance acquisition. Maybe I can address that first question. At the group level, because we do want to strengthen our non-bank competitiveness, we also believe that there is a need to review the possibility of entering into areas in which we do not have a presence, such as insurance. As a result of that, we are looking at the Lotte Insurance opportunity right now, but nothing has been decided yet.
Even if we were to pursue an opportunity, the basic principle is that we will not pay an excessive price. As the market may be concerned in terms of the price issue, the overall burden on our capital adequacy ratio is something that we are well aware of. As a result of that, in terms of the prices that are being into the news reports right now are not something that we are considering. We do not believe that the market should be concerned about such a situation. In addition, in terms of every KRW 500 billion, what the risk-weighted asset impact would be. If you look at that in detail, I would have to say that for an insurance company, the way that you measure the capital adequacy is different from a bank.
According to Basel III, under insurance, if you look at the CET1, in actuality around 10% of that would have a 250% risk weight. If it goes above 10% in terms of the overall Tier 1 ratio, then you actually exceed the whole situation. In terms of risk, it goes to 250% up until 10%. As a result of that, as of now, we have around a room of KRW 1.8 trillion. In terms of our capital adequacy ratio, we believe that at the end of the day, for the price that we would pay, there would be a 250% risk weight. If it were to be around KRW 500 billion, that would mean that the overall risk assets would be increased by KRW 1.2 trillion.
As a result of that, we do not believe that that will lead to a significant decrease in our overall capital ratio. In addition, in terms of our M&A general strategy and principle to address that, for M&As that the company has, what I would have to say is that, we do not believe that there is any big change in our stance. It would be that within the overall range of capital adequacy that we want to maintain, we will try to maximize shareholder value and improve our ROE, and also create more synergies amongst the group of affiliates. As a result of that, right now, we are open to various possibilities in terms of group synergy and also increase of competitiveness, and that is from where we are actually looking at the Lotte Insurance opportunity. Thank you.
Yes. Thank you very much. The next question is from Jung Jun-sup of NH Investment & Securities. Please go ahead with your question.
Yes, good day. I am Jung Jun-sup from NH Investment & Securities. Thank you very much for the opportunity. I have two questions. The first question is a follow-up to the first question. As far as we know, we know that the securities candidate would probably be more of a preferred target for you in the M&A. I would like to understand whether there is a change in your strategy. Also, with regard to the acquisition of Korea Plus securities, I know that this is underway, so I would like to understand what is the progress rate of this deal, and can you give us an update on that? The second question that I have has to do with dividend. As already mentioned, the quarterly dividend of KRW 181 has been decided, but I want to understand the logic behind the quarterly dividends.
As far as I know, it seems a bit higher than what I have anticipated in terms of the calculations. I would like to understand, is there a change in the calculation or any changes in the guidelines? During the earnings call in June, I do recall the TSR, and I would like to understand whether there were any changes to the total shareholder return that you have indicated in the previous earnings call.
Yes, thank you very much for the question. Please bear with us for just a moment as we prepare to answer your question.
Yes. First, with regard to Korea Plus Securities, in order to increase our profitability in the non-bank sector, we have been looking into utilizing Woori Investment Bank and forging into the securities field.
At year-end, we have actually added a KRW 500 billion capital increase in investment bank to increase the assets to KRW 1 trillion. Woori Investment Bank is also to be relocated to Yeouido. As mentioned, in terms of Korea Plus Securities, it is underway. I do want to say that it would be a bit difficult to flesh out the details at this current time. In terms of our M&A direction, I did mention in my response, but in terms of the priority when it comes to securities firms and insurance firms, there is no change in our priority. In the market, because we do have a weak non-bank portfolio, if there are any candidates out in the market or targets out in the market, of course, we would be reviewing.
There was also a Sangsangin Savings Bank that we have looked into, where we decided to give up on that option year-end. That is how we would be approaching the M&A going forward. Also with regard to dividend and the logic behind this, last time around, we did indicate our principle behind the quarterly dividends, and there are no changes since then. In the case of based on last year's dividend, it will be 50%, and it would be an equal dividend payoff, equal pay for every quarter, for March, June, and September. We will be taking into consideration the policy as well as market conditions. The quarterly dividend is currently set at KRW 181. Of course, it has to go through board resolution, but our plan is to provide an equal quarterly dividend.
In terms of TSR, it was something that was indicated early out in the year. If we may give you some more information on that. Recently, there was the Corporate Value-Up Program that was launched by the government, so let me go into how it is in line with that. In early 2023, if we look at the shareholder return ratio by CET1 bracket has been modified. With regard to the Corporate Value-Up Program, there will be various methods that we would be reviewing for to increase total shareholder return. This February, what we have identified was for the 13% bracket, it would be of a CET1 of 12%, but our current CET1 ratio is at 12%, and you can see that there is a significant gap. Therefore, we are thinking of further segmenting the brackets.
Once we decide on the segments, for that particular segment, we will make sure to achieve this early on so that we can engage in a pragmatic TSR and a Corporate Value-Up type of scheme. Once the current policy has been finalized and when our value up process is decided, we will make sure to communicate that with the market. Thank you.
Yes, thank you. I think that the next question will be from SK Securities. It will be Seol Yong-jin. Please go ahead with your question.
Yes. Thank you for the opportunity to ask questions. I would like to ask a question about your credit cost. The credit cost has been around 0.4%, which is higher. If last year, if you look at the overall situation, taking into consideration that there were additional provisionals, do we have to see that the current level is the recurring or normalized ratio, or do you think that there are factors that we need to take into consideration? For full year, at what level do you want to manage your credit cost? Thank you.
Yes, thank you for your question.
Yes. My name is Park Jang-geun, and I am the CRO. In terms of credit cost situation, right now it is around 40 basis points. If we look at Q1, there were actually no one-off factors. However, that having been said, we did actually have a couple of very large size delinquencies that had arisen, and though these loans are blocked by collateral, in actuality, we do not think that it will be a drag on our overall credit costs. In addition to that, going forward, we do not expect there to be any one-off factors. So on a quarterly basis and for the full year, we actually believe that we can manage it at 40 basis points or under. Thank you.
Yes. We would now like to receive the following question. We have Mr. Baek Doo-sa n from Korea Investment & Securities. Please go ahead with your question.
Good day. I am Baek Doo-san from Korea Investment & Securities. I do have a question with regard to the digital business. I know that it is a bit early on, but early in the year, I know that there was some reform in the IT governance scheme. So I would like to understand how you assess the achievement from that. I do know that soon enough we will be seeing the launch of the New WON Banking. So in terms of the MAU or sales strategy, surrounding that app, there may be a specific strategy. C ould you elaborate on that, please? Thank you.
Yes, thank you very much for that question. Please wait while we prepare to answer your question. Thank you.
Yes, I am Ouk Il-Jin, CTO. Yes. With regard to the IT governance reform, it took place for about three months. We are into this in three months, and based on our internal survey, there are about 10 departments where we have put together IT and business together. In the case of these platform departments, we can see that there were improvements in the pace of development and also the satisfaction of IT that is felt by the units. The satisfaction of our in-house personnel was about 70% positive. Of course, in various areas, when it comes to quality management, we are continuing on to have full grip on the situation. So within this year, we believe that there will be some visible results that are to come from this reform.
With regard to New WON, it is to open at end of November, so it is proceeding as planned. What we want to do is utilize this as a universal banking app for the group. Therefore, once it is open, the overall traffic of the group will be focused and concentrated via the New WON app. The group companies and the banks will be able to provide seamless connected services for our customers. In addition to that, AI Banker and my data-based services and products are items that we want to have it loaded on the platform. In the case of the price-affordable phone, this also would be linked to the New WON platform. Thank you.
The next question will be by DB Securities. It will be Jeong Kwang-myeong. Please go ahead with your question.
Yes, hello. I am Jeong Kwang-myeong from DB Securities, and I have one question that I would like to ask you. If you look at the CET1 ratio, it is actually flat on a quarter-on-quarter basis. If we look at the FX impact or any one-off impacts, that would have an impact on the CET1. In terms of the CET1 target for the end of the year, if you could share that with us, that would be appreciated.
Yes, thank you for your question. Maybe we can address your question.
Yes, this is the CFO, Lee Sung-Wook. If we look at the end of the Q1, it is 12% flat to that of the end of last year. If we look at asset growth, again, as you can see, in terms of capital adequacy management, in terms of the risk-weighted assets, this is something that we have been very active on. Therefore, if we look at the factors that drove it in the first quarter, Q1 overall net income was 0.8%, so that is around 40 basis points. In terms of the share buyback and cancellation, which also took place, there is also the dividends, and that would be around a negative 10 basis points. The FX rate went up by 61. As a result of that, at the group level, that was around 20 basis points deflating our capital adequacy.
There are other factors, the growth in the KRW loans or also the risk-weighted assets increased. So there was around a 10 basis points negative impact. As a result of that, it ended up to be flat. If there was no FX impact, then in actuality it could reach 12.2%. So that is a bit unfortunate. At the end of this year, in terms of the CET1 target, based upon the current FX rate, we do think that in terms of asset growth or if we look at the risk-weighted assets, this is something that we also are going to actively manage. As of the end of June, we do think that we will exceed 12%. At the end of the year, of course, we will have to see what the year-end dividends are like.
Taking that into consideration, we do believe that we can be well above 12%. Thank you very much.
We will now move on to the next question from HSBC Securities, Mr. Won Jae-woong. Please go ahead with your question.
Thank you very much for the opportunity. Yes, the TSR based on the capital ratio, it was concerning, but thank you very much for the planned adjustments. The question, you are focusing on expanding the non-bank business. In the case of, let us say, overseas, we have not been seeing any press coverage on any contacting, let us say, overseas candidates. I do know that you are interested in overseas markets as well. However, I do want to understand whether you do have specific candidates in mind abroad. You may not be able to go into specifics, but if there are specific countries that you are interested in, please do.
The second question is because if there isn't the right candidate in Korea, it's very difficult to pursue the M&A strategy. Do you have maybe plans to expand out the boundary to maybe invest in fintech, for instance, to find a way to diversify the non-bank business? Or is it the case that you're actually pursuing these routes as well? Thank you.
Yes, thank you very much for the question. Please wait as we prepare to answer your question.
Yes, I'm CFO