On today's call, we have Group CFO Lee Sung-Wook, Group CDO Oak Il-Jin, and Group CRO Park Jang-Geun. Today's earnings announcement will be conducted in the following sequence. First, a presentation on the group's financial performance by Mr. Lee Sung-Wook, our Group CFO, followed by a presentation on group risk management status by Mr. Park Jang-Geun, our Group CRO. Lastly, we will proceed with a Q&A session. We would like to also inform our international investors that simultaneous interpretation will be available for your convenience. Let's start with Woori Financial Group's business results for the first half of 2023.
Good afternoon. I am Lee Sung-Wook, CFO of Woori Financial Group. I will now present the financial results for the first half of 2023. Please refer to page three of the financial performance material available on our website. Let me start with Woori Financial Group's net income. For the first half of 2023, the group recorded a net income of KRW 1,538.6 billion, which represents a 12.7% decrease compared to the same period last year. The decline in net income is mainly attributed to one-off factors, such as provisions made in the second quarter.
Major institutions, including the Bank of Korea, have revised down Korea's economic growth rate and uncertainties surrounding macroeconomic indicators, such as exchange rate, continue to persist. In response, Woori Financial Group has conducted comprehensive risk assessments across its loan assets and product offerings to identify potential risk factors. As a result, we have proactively set aside an additional loan loss provision of KRW 263 billion for enhancing the group's loss absorption capacity and allocated around KRW 54 billion as a general provision for deferred redemption of certain private equity funds.
It is important to note that this additional provision is a preemptive measure aimed at strengthening the group's loan absorption capacity, and it is not due to asset deterioration. Meanwhile, the group recorded a net income of KRW 675 billion in the second quarter. However, taking into account the one-time factors mentioned earlier, a solid profit generation of approximately KRW 800 billion level is being maintained. Next, let me move on to expenses such as SG&A and credit cost. In the first half of 2023, the group's SG&A expenses amounted to KRW 2,057.9 billion, representing a 5.2% increase compared to the same period last year, and the C/I ratio stood at 40.8%. Despite the pressure from rising expenses, primarily related to goods service, the C/I ratio is being managed at a stable level, thanks to the ongoing efforts for cost efficiency throughout the organization.
Meanwhile, in the first half of 2023, the group's credit cost amounted to KRW 817.8 billion with a credit cost ratio of 0.48%. Without the one-time factors mentioned earlier, the credit cost ratio stands at around 0.35%. While key indicators related to asset quality, such as delinquency rates, have deteriorated, they are still within a manageable range, similar to those of our peers. Next, I would like to move on and talk about capital ratio and quarterly dividend. As of June 2023, the group's common equity tier 1 capital ratio is expected to be around 12%. Despite the limited profit growth in Q2, proactive risk-weighted asset management and also efficient capital utilization are expected to help maintain the ratio at the 12% level, similar to the previous quarter.
Meanwhile, on July 21st, the board of directors at Woori Financial Group confirmed and announced the quarterly dividend of KRW 181 per share, equivalent to a dividend yield of 1.5%. This is the first quarterly dividend payout since the establishment of the holding company and is part of the shareholder return policy announced early this year. We will continue our efforts to enhance shareholder value going forward. Next, I will elaborate on group business results in more detail. Please refer to page four of your material. First, let me explain the interest income and NIM part. For the first half of 2023, the group's interest income was KRW 4,413 billion, representing a 7.6% increase year-on-year. However, on a quarterly basis, it dipped slightly quarter-on-quarter and recorded KRW 2.194 trillion.
The NIM for Woori Bank in Q2 was 1.59%, and for the group, including Woori Card, it was 1.85%, representing a 6 basis points decrease compared to the previous quarter. Despite the rise in the market interest rates in Q2, limited asset repricing effect and increased funding costs resulted in margin decline. However, as the cycle of interest rate hikes is nearing its end and the downward trend of low-cost deposits is slowing down, it is expected that the margin decline due to rising funding costs will be limited in the second half of this year. Despite the uncertainties in the direction of interest rates, Woori Financial Group will strengthen its efforts to further improve the profit structure. Next, I will discuss the asset growth and loan status.
As of the end of June 2023, the total bank loans amounted to KRW 296 trillion, up 0.7% compared to the end of March. Corporate loans continue to exhibit a steady growth trend, reaching KRW 161 trillion, a 1.2% increase from the end of March. On the other hand, household loans, which have been experiencing a contraction recently, recorded a 0.5% increase from the end of March, reaching KRW 132 trillion. This growth was driven by an increase in demand for housing-related loans and a slowdown in the decline of credit loans. We will actively explore the loan demand with a focus on corporate finance in the second half of the year. We plan to exercise flexibility in managing asset growth, taking into consideration asset quality in accordance with the economic situation. Next is the net interest income of the group.
In the first half of the year, the group's non-interest income amounted to KRW 610.7 billion, showing a 22.0% decrease year-on-year. This is attributed to losses or gains from securities and foreign exchange derivatives following fixed rate and interest rate rebounds, as well as reduced non-banking IB real estate-related income due to economic slowdown. When excluding the impact of market volatility, the core fee income exceeded KRW 400 billion per quarter, indicating a robust profit generation. Going forward, we will continue to expand our non-banking businesses and maximize synergy among our group subsidiaries to enhance revenue generation with a focus on core fee income. Next, I will walk you through costs and capital adequacy. Please turn to page five. First is group SG&A. For the first half of 2023, group SG&A amounted to KRW 2 trillion 57.9 billion, representing a 5.2% increase year-on-year.
The C/I ratio stood at 40.8%, being managed at a stable level within the group's annual target of 45% or lower. Amid limited top-line growth, the significance of cost management has never been more pronounced. Therefore, Woori Financial Group is actively pursuing cost management efforts at the group level, with the exception of digital IT segment and also sales promotion for future growth. Going forward, we aim to strengthen our ongoing group-wide cost optimization initiatives to achieve greater cost efficiency. Next is credit cost. The group's first half credit cost was 817.8 billion KRW, and the credit cost ratio was 0.48%. If we look at the group's credit cost in the second quarter, it was 556 billion KRW, which includes preemptive provisioning of KRW 226 billion . This additional provisioning has further strengthened the group's loss absorption capabilities.
The rise in delinquency rate in the second quarter has moderated, but market concerns about real estate project financing still exists. So we are planning to thoroughly review vulnerable risk areas and focus on enhancing the asset quality management capabilities of the group. Next, let me talk about our dividend policy and capital adequacy indicators. According to the group's capital management plan, we announced a KRW 100 billion share buyback and cancellation plan last April and disclosed our decision to pay quarterly dividends from the second quarter. To enhance the predictability of our quarterly dividend, we will be paying dividends of equal amounts in each quarter, while year-end dividends will be determined on a wide range of factors, including profits and capital ratios. Moreover, the dividend policy and share buyback and cancellation will be part of our overall shareholder return policy, targeting a total shareholder return of 30%.
In addition, as of the end of June, the group's CET1 ratio has been managed stably at 12% level. However, as uncertainties about the economy continue, the importance of our loss absorption capabilities to address crises is increasing. In the second half, the group will focus on sound financial performance and tight risk management to further improve our capital position. Next, before going over the final part of our presentation, I would like to talk about some comments about certain private equity funds. At the Woori Bank BOD on July 21st, in relation to a Hong Kong real estate-related private equity fund that was recently reported in the news, the board made a resolution to execute a voluntary mediation to eliminate related uncertainties and regain customer trust.
With the decision for a voluntary mediation of the bank has set aside a provision of around KRW 54 billion or 70% of the funds hold. Thus, we believe that this will realistically lead to the end of this issue and the possibility of incurring additional cost is very limited. In addition, as the chairman said in the previous conference call, for Woori Financial Group, we are focusing our capacity on the early detection of a wide range of risks and upgrading the risk management framework. In line with these efforts, we have revisited the group's vulnerabilities and have taken preemptive measures to increase our ability to address trust risks. Our second quarter net income decrease has come because of these measures, but it is just temporary. Amid weakening margins and slower road growth, the group is still generating solid profits.
As we have provisioned in advance, we have a stronger position to deal with possible cuts in the future. We do believe that from the third quarter versus the second quarter, we would be able to achieve higher level of profits. In addition, I have communicated to the market before, we will continue to implement shareholder return policies to strengthen shareholder value. With this, I would like to end my presentation on Woori Financial Group's first half 2023 performance. Thank you.
Next, the Group CRO will talk about and give an overview of the Group's risk management status.
Good afternoon. I am Park Jang-Geun, the Chief Risk Officer at Woori Financial Group. Let me walk you through an overview on our risk management. First, if we look at our overall second quarter risk indicators in terms of our NPL coverage ratio, this has continuously been over 200%. If we look at the overall total loans to provisions, it is 0.75%. In addition, if we look at the NPL ratio, it has deteriorated since the end of last year, but we still believe it is at a measurable level.
In the second quarter, if we look at the overall outlook of the economy, we have set aside KRW 263 billion of additional bad loans in the second quarter, and we are continuously focusing on stably managing our asset quality management indicators. We will continue to go on in this effort. In addition, if we look at the overall loan breakdown, as you can see with regards to the quality office, we are focused on high prime assets and also our loan securitized assets. In terms of our corporate loans, around 85.9% are securitized and also SOHO loans, 89.5%. In addition, if we look at the portion of loans, more than 90% are secured by some form of asset.
If we look at the overview for our real estate PF, if you look at the total, it accounts for KRW 3.3 trillion, of which are backed by various public guarantees would be KRW 1.3 trillion. So in actuality, if we look at the external amount, the net amount would be KRW 2 trillion. In the case of bridge loans, which are deemed to be higher risk, it is only KRW 0.5 trillion. So if we look at the absolute size and also the contents, it would be very limited. Right now, in terms of the overall origination for real estate project financing, right now there are actively voluntary agreements that are in place, and we are actually taking active measures to manage the overall sites to ensure that there is exposed management that is in case.
If we talk about the risk management direction for the future, there was a 25 basis points increase in the benchmark rate announced by the U.S., but we do believe that there will continue to be uncertainties in a high-risk environment. As a result of that, we are focused on asset quality and capital adequacy as top priority. At the same time, if we look at our origination standards, we continue to include efforts by being focused on high-quality SMEs and being selective in various industries. In addition to that, we will continue to manage NPL in terms of our possible distress and also strengthen our PF and PI assets. That would be my presentation. Thank you very much.
Yes, thank you very much. Now we will start the Q&A session. Now for those of you who have a question, please press star and one. In the case that you want to cancel your questions, please press star and two. The first question is going to be asked by Mr. Kim Do-ha from Hanwha Investment Securities. You have the floor.
Yes, thank you very much. I do have two questions. You talked about funding costs and how starting from Q3, you mentioned how the net income is going to rebound. With regard to NIM, if you can share with us more information, please do so. Also quarterly dividend. This is the first time, and so I would like to ask more questions. What is the ratio between the year-end dividend and also quarterly dividend?
Yes, thank you very much for that question. Please bear with us so that we can prepare our answers.
Yes, thank you very much for that question. With regard to NIM, I would like to address the question first. In 2022 Q4, it was about 0.68%, high market risk, market rates came down, and also funding cost increased, and competition also increased, and so the NIM is on a downward trend. It is currently at 1.59%, and also it represents a decline of 6 basis points. Regular savings, combined, there was an increase of 10 basis points, and so that was the primary reason for the decline in NIM. The market interest rate is on a decline, and although the deposit funding cost has increased. There is a competition amongst the banks for deposits and loans, and therefore, I think that NIM is going to further decrease.
But we are going to make measures in order to prevent the decline in NIM. I think that it's going to be about 1.6%, and Q4 it will be down. However, I think that it's going to be somewhere in the range of 1.5%. Next, I would like to address your second question, which was related to dividend. Woori Financial Group, back in 2021 and 2022, for two consecutive years, has gave out interim dividends. Also for March, we have revised our [AOA] to provide interim dividend. For quarterly dividend, we will be paying out KRW 181 per share. Also for quarterly dividend, the size, if you look at last year, we are going to design it so that it's about 50% of the dividend that we paid out last year.
March, June, and September, we will be paying out our quarterly dividends in the same amount. Given the market conditions, we will be determining the amount. If there are no drastic financial changes or changes in the environment, then we will be paying out that quarterly dividend, and we will communicate constantly with the market.
Yes. Thank you. The next question will be from HSBC. It would be by Wan Jaewoong . Please go ahead with your question.
Yes, thank you for the opportunity to ask questions. There are two questions that I would like to ask you. The first question is, right now if you look at the non-bank side right now, this is an area in which you are trying to grow rapidly.
As far as I understand right now, in terms of the priorities that you have, I think that the security side would be number one, and then there would be other business areas that would come thereafter. If you look at the recent developments in various news reports, it does seem that there is discussion about other areas. I do think that nothing has been determined yet, and of course, it's just a possibility that you may review. But in terms of your priority, in terms of the areas, could there be a change in your priority in terms of business areas that you want to expand into? That's the first question.
Second, in terms of the stress test buffer, I don't know when the results will be available, but once it's available after October, then in terms of the minimum amount of targets that we would have to have in terms of the CET1 ratio, would there be a change to that CET1 ratio in light of the stress buffer that would be required? Well, thank you for your question, and if you could just give us a few minutes to prepare the answers. Thank you.
Yes, this is the CFO, Lee Sung-Wook. First, in terms of our M&A priorities, if I elaborate about that first. Recently, according to the overall economic situation, there is some possibility that brokerage firms will be available as targets, but right now there's no available assets in the market. As a result of that, on the security side for M&A possibilities, this is more of a long-term horizon situation for us, and we do want to make sure that we look at a very good asset in terms of potential for the future. In terms of our priority, as mentioned before, securities would be first, and then after that, if necessary, then we also think that maybe a high-quality insurance company would also be something that we would be interested in.
If we look at the areas, we are looking at a security firm that would have synergies with us and also insurance companies that would also be able to generate synergies. In the areas, we would actually think if there are other assets that are available that would not be synergistic, then we would not look at those. That would be excluded from the areas that we look at. In light of the stress test in itself and the stress test buffer, and also in terms of our risk-weighted assets and ratio of that, if that is what is all available, I think that over the mid to long term, the CET1 ratio target is 12%.
In terms of this, of course, it would be maintained. However, that has been said for the stress buffer that is required. If that is increased to a significant level, then over the net short term, then I do think that maybe we might need to increase our target to the 12.5% level. However, in terms of these plans within this year, I do think that our mid to long-term plans are something that we are developing right now. Once that is available, then I do think that we would be able to share with you what our mid to long-term target was and in terms of specific numbers. Thank you.
Next question is from SK Securities. We have Seol Yong- jin. You have the floor.
Yes, thank you very much for the opportunity to ask questions. With regard to capital soundness, I have a few questions. First of all, bank NPL is about 5%. I think that is higher compared to the peers. I would like to understand the reason behind this. We talked about reserves for losses. I would like to understand your prospects for the second half and [Hana]. When do you think that it is going to become concrete?
Yes. Thank you very much for those questions. Please bear with us as we prepare answers.
Yes, I would like to offer my answers. With regard to Hanwha Ocean, Hanwha Ocean was acquired by Hanwha Group, and the credit ratings were done again and from cautionary, it became high ranking. So in the case of Woori, we would do reassessment. Because of the increase in the ratings, we were able to write back the provisions. With regard to loan loss reserves, I think that we briefly touched upon during our presentation, but in Q2, KRW 263 billion worth of additional provisioning was done. Thereby, we were able to grow our loss absorption capacity. That is the case for the first half. In the case of second half, we believe that there are some future uncertainties, and the delinquency rate is gradually increasing as well.
We are going to wait and see how the future looks like so that we can have some conservative loan loss provisions within the company. With regard to loaned reserves or lost reserve, I think that we are trying to be preemptive. For the second half, I don't think that it's going to have any significant impact. However, we are going to wait and see how the future turns out. NPL ratio of 0.36%, it's 5 basis points higher compared to last year. Again, this has to do with delinquency rate, which is increasing gradually. Because of those, the NPL increased, nothing special. We believe that such a ratio or such a raise is something that we can manage. Thank you.
Yes, thank you. The next question will be by Korea Investment & Securities, Baek Du-san. Please go ahead.
Yes, hi. This is Baek Du-san from Korea Investment & Securities. Next, I would like to talk about asset growth and non-bank subsidiaries that you have. First, if we look at the first half of the year, I do think that the loan growth was more lackluster than you had expected. I think that from the second quarter, if we look at the overall market, it does seem to be that there is a recovery in place. But both on the corporate side, on the retail side, if we were to break it down in the second half, how much growth do you think would be achievable? That would be my first question. The second is on the non-bank side.
Right now, their credit cost has been increasing, and as a result of that, I do think that for the key subsidiaries that you have, I think that the performance a bit lackluster. For this year or next year on the non-bank side, for performance, what would be your outlook in terms of the expectations? In addition to that, versus the original plans, if there are any changes on the non-bank side, for example, for any capital increases or any types of capital allocation. If you have any plans on that side, that is something that we would also be interested in.
Yes, I will try to prepare the answers and then get back to you. Please wait for a second.
Yes, this is the CFO, Lee Sung-Wook. First in terms of asset growth, to address your question there. As of the end of June, as you have just mentioned, if we look at the growth, it is on a YOY flat, and it is because on the retail side, there has been a decline. However, on the corporate side, KRW 3.2 trillion has increased. As a result of that, we actually see that there has been a 2.2 increase in retail in the second quarter.
When we actually built the business plan for this year, we actually had revised that this would be the situation. Last year when we looked at this year, we actually believed that there would be a 4%-5% growth, of which in the first half, because we wanted way more focused on risk management, there would be growth of only 1%. Right now we are on track in terms of our asset growth plans.
Towards the second half of the year, initially, as we have planned, we do think that the growth will be a bit more rapid, and that is what we're going to pursue. In the second half of the whole, we are planning to grow at around 4%. On the corporate side, it would be around 5% growth. On the retail side, it would be a recovery from the decline of last year is what we're aiming for, and that would be our second-half direction. Again, in summary, in the first half of the year, we do think that it was on track in terms of the business plan that we had for this year.
We are more focused on risk management, whereas in the second half of the year, we're trying to pursue more active growth and therefore to try to reach the target that we have had for the full year. Talking about the non-bank subsidiaries in terms of the performance, it is a bit lackluster there. However, if we look at the non-bank subsidiaries that we have, the biggest would be the credit card business, the capital business, the investment banking business. They actually are a lot of loan-related or credit-related products. Because of that, during the first half of the year, there was provisioning requirements that we had had. As a result of that, in terms of asset quality, we are very active in trying to manage the situation. We have done a lot of write-offs and also asset sales.
As a result of that, for this year, rather than increasing our overall profits, we would be more focused on cleaning our assets, and tight asset management is what we are trying to do. For this year, trying to have a high-quality asset base in itself or clean assets is what we want to do so that we will have a foundation for growth next year. For this year, I think that versus last year, on the non-bank side, you will see lower growth take place, lower performance. However, that have been said internally, in terms of the capital side, we do not think that there will be any shortfall that we will see.
For our subsidiaries on the credit card level, credit card business, the leverage ratio is a bit high, but I do think that this is something that we are continuously thinking about in terms of how to address. For example, how to be in line with the average of others. For example, a multiple of six would be the level that other companies are showing. How to get down to that ratio is what we are looking at.
Thank you very much. Next question is from Yuanta Securities. We have Mr. Jeong Tae-joon. Mr. Jeong, you have the floor.
Hello, I am from Yuanta Securities. My name is Jeong. Thank you very much for the opportunity. I do have one question. As you take into consideration the fund losses, I think that is going to affect the EPS and also DPS. Any plans to defend the DPS going forward?
Yes. We will prepare the answer for that question, so please bear with us.
Yes, I would like to answer your question. On 21st, we decided on the quarterly dividend, and we also c ancelled about 400. We also announced to cancel 400 worth of treasury stocks. Taking into consideration interim dividend in total, we are going to be paying out the dividend. DPS back in last year, including interim dividend, it was KRW 1,131. Currently the net income is slightly down compared to last year. Therefore, KRW 1,130 of last year is not something that we can realize this year. However, the dividend payout ratio was 26%. When eventually, we will have to talk with FSS, but we will try so that we can meet the level of last year. Thank you.
Yes, thank you very much. For the next question. The next question will be by an English participant. As a result from White Oak Capital, it will be a question. Please go ahead with your question. White Oak Capital, please go ahead.
Hello. Hi. Thank you for the opportunity. I wanted to inquire about the liquidity in the system and at Woori Financial Group. We saw that in the last year, second quarter and third quarter , and especially in FY 2020, liquidity was below 100% LCR ratios. There were some difficulties in local government entities paying back debt last year. How is the liquidity situation evolving today? I see we are at around 104% right now. What are the challenges you are facing, let us say, in taking this up to maybe 115%, 120%? Is that a target for you? What is the target liquidity you are attempting for in the medium term? Thank you.
Thank you for your question. If you could just bear with us for a few minutes while we prepare our answers.
Yes, thank you for your question. Maybe I can address your question. First of all, if you look at the LCR ratio right now, at the group level, I do believe that the LCR ratio is not actually a regulatory requirement. It is only for the bank in which the LCR would be a regulatory ratio. Maybe we can talk about it at the bank level. If you look at the Korean won LCR ratio, it needs to be 100% or above. However, because of COVID, this overall regulation has been relaxed to 92.5%. By the end of the year, there has been a deterrent of that overall standard.
At the bank level right now, if you look at the original situation by the end of the year, we are on a plan to go back to 100%. This is the plan that we have, and we do want to meet the 100% requirement on the Korean won side, and we had prepared to that. However, because that plan has been deferred at the standard levels because this liquidity ratio is something that we want to mention, we do want to ensure that we want to maintain a sufficient liquidity. But since liquidity is also required, and costs are incurred related to that. We think that having maybe a 5% versus the requirement is what we want to maintain in terms of buffer. As a result of that, where the guidelines sit would determine where we sit.
In the case of foreign currency, right now the regulatory requirement is 80% in terms of LCR. However, on that side, we try to be more conservative in terms of our stance. As a result of that, on the foreign currency side, we want to maintain it above 100% in all situations. Right now it is currently standing at 120%, where is where we are managing it. In addition, if we look at the LCR ratio, whether it be Korean won or foreign currency, if we look at the LCR ratio in itself, at the bank level right now, there is not any large challenge in managing it, but it is more determined upon if we have too high a liquidity ratio, then of course that would be costly for us.
We are trying to strike a balance between the cost and the amount of liquidity to be held. We want to have a reasonable balance between the two. In terms of the liquidity at the non-bank subsidiaries that we have, because of the recent issues regarding the CCCs or the Community Credit Cooperatives, there has been an increase in the overall funding spread. However, in terms of our funding requirements, there have not been any issues there. For our non-bank finance subsidiaries, they do have been able to secure sufficient liquidity, and we continue to monitor the situation very closely. On the consumer credit side, right now, even if there are some companies that are not able to tap the market, we will be able to survive for 2 months, and we do make sure that we have enough liquidity on hand.
In addition to that, even though we do have sufficient liquidity, if there is a situation in which would require support, then at the group level, we do have a contingency plan. According to that contingency plan, actions would be taken to swiftly provide support as necessary. That would be our answer.
Thank you very much. I see that there are no further questions. We would like to close the Q&A session with this. If you have any additional questions later on, please let us know at our IR department. We will be more than happy to address them. With that, I would like to conclude the business results conference call. Thank you