Prepared remarks
Good afternoon. I am Hong Sung Han, Head of IR at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings conference call for Woori Financial Group. On today's call, we have the group CFO, Sung-Wook Lee; Group CDO, Il-Jin Oak, and Group CRO, Jang-Geun Park as participants. On today's call, the group CFO, Sung-Wook Lee, will give a presentation on the earnings performance, after which we will have a Q&A session. Please note that the earnings call is being conducted with simultaneous interpretation for our overseas investors. Now let us start our presentation on Woori Financial Group's earnings for the first half of 2025.
Good afternoon. This is Sung-Wook Lee, the CFO of Woori Financial Group. I will discuss our performance for the first half of 2025. Please refer to Page 3 of the presentation material available on our website. First, let’s look at net income. For the first half of 2025, Woori Financial Group reported a net income of KRW 1,551.3 billion, which is an 11.6% decrease compared to the previous year. When we exclude one-off expenses related to the early retirement program at the start of the year and preemptive provisions for a completion guarantee of the Trust company, net income remains comparable to last year. In the first half, our conservative approach to loan loss management due to the economic slowdown and increased SG&A to expand our nonbank portfolio resulted in higher costs. However, our net operating revenue, which reflects our profit-generating capacity, showed steady growth despite a challenging business environment.
Improved bottom line growth from asset rebalancing and better margins due to funding optimization in a declining market rate led to stable interest income. Additionally, core fee income from the Wealth Management sector, along with increased noninterest income from capital market activities, contributed positively to our performance. Specifically, our net income in the second quarter reached KRW 934.6 billion, which is KRW 300 billion higher than in the first quarter, yet it did not meet market forecasts. Next, let's talk about our capital ratio target. As of June 2025, our preliminary CET1 ratio stands at 12.76%, an increase of about 60 basis points from the end of last year, marking the first time we have exceeded 12.5%. Despite an uncertain financial landscape, we successfully generated profits, built an optimal portfolio with prudently managed assets sensitive to FX rates, and conducted performance assessments focused on RoRWA.
These initiatives significantly improved our capital ratio. The exchange rate contributed to this, but even without this factor, our CET1 ratio remains well over 12.5%. As we have stated previously, we have identified 2025 as a year for improving our capital ratio and are concentrating all efforts on reaching our CET1 ratio target. Based on our current ratio of 12.76%, we aim to exceed the year-end target of 12.5% and will work to reach the market expectation of 13%. Now, let’s discuss our efforts to expand our business portfolio. It has been one year since we signed the SPA for Tongyang Life and ABL Life in August last year. As of July 1, these companies are now affiliates of Woori Financial Group. We are currently reevaluating their assets and liabilities at fair value, and once complete, we will finalize the financial impacts of these acquisitions. We acknowledge market concerns regarding capital adequacy and the outlook for the insurance sector, but we plan to maintain a K-ICS ratio that exceeds regulatory guidelines and focus on profitable management to ensure stable fundamentals for both companies and a smooth integration within the group.
As for our securities arm, we are enhancing our competitiveness by securing final approval for the investment trading business and launching the MTS platform. Additionally, we will leverage our merchant bank license and corporate customer network to drive full-fledged marketing efforts. With these acquisitions, Woori Financial has established itself as a comprehensive financial services group. We will enhance core competencies in each subsidiary and create synergies throughout the group to strengthen our fundamentals and meet market expectations. Next, I will provide details on earnings by area. Please refer to Page 4. Our net operating revenue for the first half of 2025 was KRW 5,400.1 billion, an increase of 2.3% year-on-year. In the first quarter, it was KRW 2,789.2 billion, up 6.8% from the previous quarter. Despite facing challenges such as trade tariffs and economic slowdown concerns both domestically and internationally, we continued to achieve profitable growth while defending our margins, resulting in solid interest income and improved noninterest income primarily from core fee income.
The bank's second quarter NIM was 1.45%, while the group’s NIM, including the credit card business, was 1.71%, representing a one basis point increase from the prior quarter. Even amid falling interest rates and active funding cost management, we succeeded in improving our loan yield, resulting in a total increase in NIM of 5 basis points over the first half. We anticipate continued interest rate declines but will work hard to grow our core deposits and mitigate downward pressure on NIM. Now, let’s move on to our loan portfolio. At the end of June 2025, our bank loans totaled KRW 329 trillion, consistent with the end of March. Demand from large corporations for corporate loans remains strong, followed by portfolio enhancements focusing on prime SME loans, bringing the total to KRW 179 trillion. Retail loans have increased by approximately KRW 3.7 trillion since the end of March, reaching KRW 148 trillion.
Moving forward, aligned with the government's policy on household debt management, Woori Financial Group will focus on managing household loan volumes while strengthening financial support for future growth sectors to ensure market funds are directed toward productive uses, fulfilling our core role as a financial institution. We will pursue sustainable qualitative growth based on asset rebalancing efforts that began last year, considering ongoing uncertainties. Next, let’s discuss the group’s noninterest income. For the first half of the year, noninterest income totaled KRW 886.3 billion, remaining stable year-on-year. Quarterly, however, it surged approximately 47% from the previous quarter, reaching KRW 527.3 billion. Notably, core fee income growth within the Wealth Management segment was strong, benefiting from balanced growth between both bank and nonbank segments, leading to a stable quarterly level of around KRW 500 billion, resulting in a cumulative first half exceeding KRW 1 trillion.
Favorable market conditions, like falling interest and exchange rates, significantly increased gains from securities and FX valuations, although this was partially offset by reduced gains from loan receivable sales due to NPL market weaknesses. Looking ahead, we aim to identify new business opportunities for expanding noninterest income in a context of anticipated interest rate cuts and revitalization of capital markets. Additionally, with the recent completion of the insurance company acquisition and a newly diversified nonbank portfolio, we will work to maximize synergies within the group and continue growing noninterest income. Next, I will address expenses, please refer to Page 5. Regarding SG&A expenses, the group reported KRW 2,479.1 billion for the first half of 2025, an 18% increase year-on-year, resulting in a cost-to-income ratio of 42.8%. This increase stems from one-off expenses such as early retirement costs, investments to enhance our recently launched securities business, finalized wage settlements, and ongoing group-wide investments in digital and IT capabilities.
Moving forward, we will continue to invest in digital and IT enhancements to support future growth while pursuing cost efficiency through workforce and channel optimization, process improvements with IT, and cutting unnecessary recurring expenses. Next, let’s discuss credit costs and asset quality. In the first half of 2025, credit costs for the group amounted to KRW 944.5 billion. The second quarter saw credit costs of KRW 509 billion, reflecting a 16.9% increase from the previous quarter, primarily due to preemptive provisions of KRW 86 billion related to completion guarantee projects. During the first half, we identified some one-off credit costs, including preemptive provisions for completion guaranteed trust projects and additional provisions for borrowers facing market scrutiny. Excluding these one-time factors, our credit cost ratio remains around 0.42%. Despite a downward trend in interest rates since last year, concerns around economic slowdowns due to both domestic and global uncertainties persist, causing increased delinquency and NPL ratios, particularly in vulnerable industries.
Woori Financial Group is actively managing high-risk assets and closely monitoring at-risk sectors and borrowers. Our proactive risk management strategies are maintaining the proportion of prime corporate loans at around 85%, and our loan loss reserves and regulatory reserves are at a stable level of 1.6%, allowing for reliable potential loss absorption. Additionally, with the government’s strong focus on economic stimulus reflected in active supplementary budgets, and the expectation of continued low interest rates, we anticipate a gradual stabilization of credit costs starting in the third quarter. Now, let’s address capital adequacy and our shareholder return policy. Please look at Page 6 of the materials. As of June 2025, our common equity Tier 1 ratio is a preliminary 12.76%, which is a notable improvement of approximately 60 basis points from year-end. This result is a combination of favorable external conditions like a weakened exchange rate and our ongoing efforts to manage risk-weighted assets effectively alongside solid earnings growth.
Considering the potential volatility in interest and exchange rates in the second half of the year, as well as possible changes in regulatory capital requirements, we will remain vigilant in our efforts to ensure a stable CET1 ratio above 12.5% for 2025 and aim for the market’s target of 13%. As part of our strategy to enhance our capital position, we are committed to expanding shareholder returns based on our strengthened CET1 ratio. In line with our dividend policy to distribute 50% of last year's annual dividend evenly on a quarterly basis, the Board of Directors has approved a quarterly dividend of KRW 200 per share, with a record date of August 10. In the first half of 2025, despite increased domestic and global uncertainties, Woori Financial Group showed robust profit generation and effective cost controls. The significant improvement in our capital ratio has strengthened confidence in our capacity to meet CET1 targets and enhance shareholder returns, thereby bolstering market trust.
With the successful acquisition of the insurance company, our portfolio is now fully established, and we will take actionable steps toward becoming an integrated financial services provider by pursuing balanced growth between our banking and nonbanking operations and maximizing synergies within the group. Furthermore, we will keep increasing financial support for productive sectors and actively promote inclusive finance for small business owners and financially vulnerable communities. This concludes our earnings presentation for Woori Financial Group for the first half of 2025. Thank you.
Questions and answers
The first question today will be from NH Securities, Jun-Sup Jung.
I am Jun-Sup Jung from NH Securities. So there are two questions that I would like to ask you. The first question is related to what you have talked about before, which would be the acquisition of the insurance arm. So in terms of your direction going forward and strategy, this is something that I am very curious about. So it might not be an urgent issue, but you have acquired two companies. And there is some interest about whether you will merge the two entities or maybe delist the listed entity. So with regards to these issues, have you made any decisions? Or are there any considerations or options that you are reviewing? In addition to that, if there are any capital gains from the acquisition, how much do you believe that would represent in terms of value? The second question that I would like to ask you is in terms of your capital ratio and also TSR. So your CET1 ratio has improved a lot, and also with regards to what you have said, you have also indicated that you were trying to achieve 13% as early as possible. So does this mean that the year-end target would be 13%? Because according to what level the CET1 ratio sits at, then the TSR could differ. So if you achieved 13% at the end of the year, then is there any possibility that we could look forward to additional TSR measures such as purchasing treasury shares?
So for the two questions that you have asked, thank you very much. Maybe we can prepare a second and then address your questions. Yes. Thank you for the question. So I think that regarding the acquisition of the insurance arm, I do think that it's a very comprehensive question touching upon a lot of different issues. So maybe I can give you a brief response. I do think that this is a topic of interest for many. So maybe we can share what we're thinking about right now and also in terms of the direction going forward. So I do think that it might be a lengthy answer. So that being said, with regards to the insurance acquisition right now, in August of last year, we did sign the FDA. And then in May this year from the FFC, we did receive the approval to include it as a subsidiary. So as of July 1, we have completed the inclusion. So, regarding the strategy going forward for the insurance arm, I think that basically what we can say is that we are going to focus on sound capital management to ensure that we are able to have stable marketing fundamentals to ensure that we can have sustainable growth.
So in the short term, we're currently doing a business assessment. After this is completed, we will be looking at the K-ICS ratio and the improvements that would be necessary for the capital adequacy and also the key agenda items to strengthen the fundamental competitiveness of the arms. So this is something that we are going to do to fundamentally improve the business. So right now, in terms of the K-ICS ratio and also in terms of securing the capabilities, that would be the short term. Over the longer term, we're looking at the customer channels, also asset management and operations to generate more profit generation and also with regards to the K-ICS ratio and the new CSM, to improve the competitive edge so that we can have group synergies in new business areas. So during the business assessment, we will look at how much K-ICS ratio improvement is necessary and also examine where our business expansion efforts will need to be made.
In addition to that, if we look at the overall impact on the capital ratio, so July 1 was the date on which we included it. And right now, we're in the purchase price allocation process. So as of now, it is difficult to estimate what the impact would be because there are various variables that are related to this issue. So as of the end of June, once we do have a definitive PPA, then we can talk about what the impact would be. I do think that this would be something that would be available when we do our Q3 earnings conference call. So I do think that it is something that we would be able to announce there. If you look at the CET1 ratio as of the end of June, it's 12.7%. We do think that there will be some impact from the acquisition of the insurance business. So taking this into consideration, we will try to make sure that it's managed at an appropriate level. In addition to that, I think that whether we would merge it or have it as a fully-owned subsidiary; so in the news recently, there has been some discussion about this.
As of July 1, we did include Tongyang and ABL as subsidiaries of the group. Since then, I do think that, as mentioned before, we're initially doing the business assessment first. So regarding the merger of the two entities within the group right now, we haven't decided anything yet or have made any reviews of such a situation. I think that going forward, whether it will be merged or whether we will have 100%-owned subsidiaries, these are all options that we will be looking at in the future. As we decide, we will make sure to communicate with the market. So regarding the insurance side, I think that I've covered all of the topics. Around the target of 13%, in the second half of the year, I do think that there are a lot of volatility. If we look at what areas there could be, there could be FX volatility and also with regards to government regulations, there could be some changes. In the end of 2025, if you look at the CET1 ratio, stably managing at 12.5% would be the target.
What we mean by stably managing 12.5% is that we do want to exceed this target. So that's how you should interpret it. Initially, when we talked about 13%, by 2027 this was the target that we had mentioned before. I think that after we acquired the insurance arm, this was something that was known. We are currently doing a lot of asset rebalancing and we're also looking at all of our risk-rated assets. As of the current situation, because there are FX volatilities and other issues, so versus our initial plans, we do think that there may be a possibility that we could achieve it earlier than expected. We're trying to look at the measures that would enable us to do so. If we do so in the second half, taking into consideration the changes, we do think that at the end of 2025, during the conference call that we do in February, we do think we can take a comprehensive assessment and then talk about the way going forward in terms of more details in the areas that you would have interest in. Thank you very much.
Next question is from Yong Jin Seol of SK Securities.
I would like to hear about the MTS service and get some updates on your brokerage business. I know that there is strong competition in that sector, so I'm interested in understanding your performance achievements and your future plans regarding scaling or entering specific markets.
I'm Il-Jin Oak, the CTO. With regard to the MTS, it was launched at the end of June, or rather it was the end of March. And for three months, we've opened 20 new accounts. We are opening the services one by one. In April, we had OTC funds and 1 RP and Universal Banking in June. Within one banking, we have the MTS banking, so for Wealth Management or AI-based investment insights, or user-based interfaces are some of the differentiators that we do offer. In September, we have a new integrated MTS and an ATS market to open. In December, within Universal Banking, the overseas stocks trading service will also be embedded into the system. Within Universal Banking, MTS has been seeing some new clients coming in, so I can say that it is effective in attracting clients. Also regarding Woori Investment Securities, if I may share with you the strategy that we have for our brokerage arm. We have IB and digital capabilities, and we're actually focusing on enhancing our competitiveness.
We're putting together the system, and we have human resources right now, continuing to complement the systems and the facilities and expanding on our sales organization. We are, of course, actively managing risk assets. With regard to securities, especially when it comes to risk assets, I do want to mention that we are actually engaging in a very aggressive allocation of assets, and we're trying to actively engage in deal structuring and referrals, moving on from corporate finance to asset management, basically providing a one-stop financial service is what we want to offer. Compared to the first quarter, in the second quarter, in terms of operating income, overall performance, of course, we're seeing SG&A go in. However, we're seeing the ratio improving going forward. We are scaling and in the future, Woori Investment Securities, especially in the nonbanking business, we think that's going to play a pivotal role. We consider the IT systems and so forth. Next year, we believe it's going to be a different story going forward with more contributions coming from Woori Investment Securities.
The next question will come from KS, Doosan Baek.
This is Doosan Baek from KIS. So I would like to ask you a question about stable coins. In July, or June, there was the framework act on digital assets. I believe that there will be additional proposals that will be submitted next week. So in terms of the legalization, it does seem to be that it is gaining speed. So with regards to stable coins, what is your approach? How are you going to address this opportunity?
Thank you very much, and let us address your question. This is the CTO. For stable coins, I think that as of now in terms of the legal framework, it is something that is still in process. So we're looking at what the overall trends are. In terms of the qualifications for issuers, it's still a bit uncertain. We're monitoring very closely. At the bank level, we are looking at the OBDIA, considering a joint issuance with OBDIA members. Regarding our business model, infrastructure, and establishing our business model is something that we are currently looking at. Thank you.
Next question from Do Ha Kim from Hanwa Investment & Securities.
I have a question regarding the loan portfolio and margins. Could you provide us with the guidance regarding the targets that you have for the second half? And the next question has to do with insurance. As was already mentioned, I can see that you're currently reviewing the current status, and I know that it's a bit hasty to provide us with a detailed response. However, if we look at the insurance, there are, of course, concerns regarding the capital ratio of the company. We would like to understand and rest assured that we don't have to go to the point of a capital increase. If you look at the total capital ratio, there is the basic ratio, and there are regulations. Given the stricter regulations on the basic capital ratio, we would like to understand if you can maybe lay out some measures that you have that you can actually cover that without a capital increase. It could be a very rough plan, but if you can share that with us, I think we would rest assured.
Yes, to start with margins, the net interest margin for the second quarter was 1.4%, which showed an increase of 1 basis point. Despite market rates and loan interest rates declining, we managed to achieve this increase in margin through asset rebalancing and a rise in core fee income, primarily driven by our asset growth. As for the management of risk-weighted assets this year, we stayed focused on maintaining asset quality. We anticipate that the net interest margin will remain around 1.4% in the second half. While we expect further rate reductions, we believe it won't drop below 1.4%. In terms of loans, we project that they will also hover around the early end of 1.4% in the latter part of the year, at mid to low levels. We will continue to manage our assets and emphasize asset growth, with some nominal growth observed, particularly in retail loans connected to households, influenced by active government policies.
For corporate loans and risk assets, we aim to rebalance to better support small business owners and emerging growth industries. Regarding your question on the insurance firm and potential for a capital increase, as per our understanding, the K-ICS ratio at the end of June did not indicate any issues, and we have surpassed the 150% guidance. In the future, maintaining the K-ICS ratio will be essential as we manage both companies and focus on capital adequacy. At this moment, we do not foresee the need for a capital increase, and in the mid to long term, we intend to take measures to minimize any burden on the group. We will conduct a thorough management assessment that may take about two to three months, and we do not plan on pursuing a capital increase at this time.
The next question will be from Daishin Securities, Hye-jin Park.
I would like to ask about credit costs. If we look at the credit cost trend in the first half, it continues to be a weight on the operations. While there were some one-off issues like the completion guarantee trust, in terms of the normalized level, it seems there is an increase. For the full year, how would the CCR guidance look? What would the expected level be for our future expectations? If you could share that number, I would appreciate it.
So this is the CRO, Jang-Geun Park. If we look at the second quarter, it was 49 basis points. It was a three basis point increase at the group level. If we exclude the KRW 86 billion in one-off preliminary provisions for the credit guarantee trust, it's actually at 42 basis points. That’s a very stable level. However, in terms of the normal level of credit cost, it is trending up. Going forward, there are ongoing asset rebalancing efforts focused on lower risk prime assets. The portfolio transitions we have made will come into effect in the second half. From June, we have an asset quality TFT operating at the bank level, and if those measures are put in place, we think there will be improvements that we will be able to see. For our 2025 CCR, at the beginning of the year, we said it was around low to mid-40%, and we do think that we will be able to manage it at that level for the full year.
Currently, we do not have a queue right now. We have received questions in advance via our website. So let us cover these questions. Before the earnings presentation, we have been receiving questions via our website. With regard to frequently asked questions during the conference call, we did announce that we would address them if and when possible. With regard to shareholder return, the insurance acquisition, and for the first time, there are also questions that came up on the stable coin. Most of the questions have been covered. But one question also had to do with the scheduling of the treasury share cancellation. So we would like to ask the CFO to respond to this question.
Yes, I am Sung-Wook Lee. With regard to the scheduling of the share cancellation, in 2023, ever since we became a holding company, we've engaged in a cancellation of KRW 100 billion, KRW 136.7 billion, and KRW 150 billion. Each year, we have canceled shares for three years. We have engaged in share buyback and now on September 11, the trust contract is to be concluded. After that, we will be canceling the entire shares. Regarding share buyback; after the KRW 150 billion cancellation, we will take into consideration the CET1 ratio as well as the financial environment and conditions to decide how we will go ahead with it. Thank you.
Yes. There does not seem to be any more questions. We would like to wrap up the Q&A here. If you do have any questions, please do not hesitate to contact the IR team. We will make sure to answer any questions you may have. With this, we would like to wrap up the Q&A session and also the first half 2025 Earnings Conference Call for Woori Financial Group. Thank you for your attention.