Net Income: KRW2,659.1 billion, a 9.1% YoY increase; Q3 net income at KRW903.6 billion. Return on Equity (ROE): 10.82%. Cost to Income Ratio: Below 40% for two consecutive quarters; Q3 at 39.6%. Net Operating Revenue: KRW7,992.7 billion, a 6.6% YoY increase; Q3 at KRW2,712.2 billion. Credit Costs: KRW1,254.6 billion, a 6.3% YoY increase; Q3 credit cost at KRW479.1 billion. NPL Ratio: 0.55% for the Group; 0.21% for the bank. NPL Coverage Ratio: 152% for the Group; 270% for the bank. CET1 Ratio: Expected to be around 12% as of September 2024. Net Interest Margin (NIM): 1.40% for the bank; 1.67% for the Group including card business. Total Loans: KRW340 trillion, a 5% increase from June 2024. Total Deposits: KRW327 trillion, a 5.5% increase from June 2024. Non-Interest Income: KRW1,378.1 billion, a 53.2% YoY increase. SG&A Expenses: KRW3,158.1 billion, a 3.4% YoY increase; Q3 SG&A at KRW1,057.1 billion. Dividend: Cash dividend of KRW181 per share approved.

Warning! GuruFocus has detected 7 Warning Signs with WF.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Woori Financial Group Inc (NYSE:WF) reported a 9.1% year-on-year increase in cumulative net income for the third quarter of 2024, reaching KRW2,659.1 billion. The Group's return on equity (ROE) was 10.82%, indicating strong profitability. The cost-to-income ratio remained below 40% for the second consecutive quarter, demonstrating effective cost management. Noninterest income increased by 53.2% year-on-year, driven by favorable market conditions and significant profit growth from marketable securities. The Group's CET1 ratio is expected to be around 12%, maintaining stability despite currency fluctuations.

Negative Points

Net income for Q3 2024 was KRW903.6 billion, a slight decrease compared to the previous quarter. The net interest margin (NIM) declined by seven basis points in Q3, reflecting margin compression due to market interest rate changes. Credit costs increased by 6.3% year-on-year, with a 17.1% quarter-on-quarter rise in Q3 due to high interest rates and real estate market restructuring. The growth of core deposits was weak, impacted by high demand for time deposits amid expected rate cuts. The Group faces uncertainties from geopolitical risks and potential economic slowdowns, which could impact future performance.

Q & A Highlights

Q: Can you explain why the CET1 ratio remained flat this quarter and if the year-end target of 12.2% is still feasible given the appreciation of the Korean won? A: The CET1 ratio remained at 12% due to the appreciation of the Korean won, which improved the capital ratio. Asset growth increased risk-weighted assets, maintaining the ratio at June-end levels. The Group aims to achieve the 12.2% target by focusing on asset management and pricing adjustments in corporate and household loans. The goal is to reach a CET1 ratio of 12.5% by the end of 2025.

Story Continues

Q: What is the outlook for NIM in Q4 and the dividend distribution plan for 2025? A: The NIM declined by 7 basis points in Q3 due to higher interest rates for time deposits. In Q4, active asset and capital management should stabilize NIM. For 2025, if rates decrease by 75 basis points, NIM might decline by 4 to 5 basis points. Regarding dividends, the Group plans to discuss equal distribution across quarters with the Board and communicate decisions by February 2025.

Q: What is the schedule for launching new services and applications for Woori Investment & Securities? A: The MTS service is planned to launch by year-end, with an integrated super app expected in the first quarter of next year. The integration of IT systems for a comprehensive MTS is targeted for the second half of next year.

Q: What are the projections for credit costs towards year-end and early next year? A: Current credit costs are at 42 basis points due to high interest rates and delinquency rates. If the real estate PF market restructuring completes and rates decrease, credit costs could improve to below 40 basis points next year.

Q: What are the targets and strategies for increasing core deposits given the challenging market conditions? A: The Group aims to increase core deposits to mitigate NIM downside. Measures include bank-wide initiatives to attract corporate and household clients. The current core deposit level is KRW92 trillion, with a target of reaching KRW100 trillion. The Group expects faster improvements in core deposits next year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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