Woori Bank Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2025

Key Takeaways

  • Positive Sentiment: Third-quarter net income rose 5.1% year over year to KRW 1.244 trillion, supported by improving net interest margins, record fee income and the contribution from the newly acquired insurance businesses.
  • Positive Sentiment: Woori Bank’s NIM improved for the third consecutive quarter to 1.48%, while management expects to maintain roughly a 1.5% level for 2025 through core-deposit growth, funding-cost savings and ALM management.
  • Positive Sentiment: Preliminary CET1 increased to 12.92%, up 80 basis points from year-end 2024 and above the 2025 target of 12.5%; management accelerated its goal of reaching a 13% CET1 ratio from 2027 to 2026, supporting potential shareholder returns.
  • Positive Sentiment: The insurance acquisition generated approximately KRW 556 billion in bargain-purchase gains with only about a 5-basis-point CET1 impact, and management expects the insurance subsidiaries to make a more meaningful recurring contribution from 2026 after strengthening their capital positions.
  • Negative Sentiment: Third-quarter credit costs rose 13.1% quarter over quarter to KRW 574.3 billion, including approximately KRW 150 billion of one-off provisions; although completion-guarantee provisioning is largely resolved, management expects normalized credit costs to remain elevated amid economic and construction-sector weakness.
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Earnings Conference Call
Woori Bank Q3 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good afternoon. I am Han Hong-sung, head of IR 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 the group CFO, Lee Sung-wook, group CDO, Ouk Il-jin, and the group's risk management division, Senior General Manager Park Yeon-ho on the call. On today's call, the group CFO, Lee Sung-wook, 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 third quarter of 2025. Good afternoon. This is Lee Sung-wook, the CFO of Woori Financial Group. Let me go over the third quarter performance for 2025.

Speaker 1

I do have a cold, so please understand if my voice is a bit rough. Please turn to page 3 of the presentation material that has been disclosed on our website. First, let me discuss net income. Woori Financial Group's year-to-date net income as of the third quarter end was up by 5.1% to KRW 2 trillion 796.4 billion, which was a YoY increase, as mentioned before, of 5.1%. Net income in the third quarter alone was KRW 1 trillion 244.4 billion, representing a significant increase of KRW 300 billion QoQ. Amid uncertain internal and external conditions, including the exchange rate and outcome of tariff negotiations, this net income was the result of balanced growth between our interest and non-interest income, and the contribution from the insurance acquisition.

Speaker 1

In particular, due to continuous efforts to rebalance assets and optimize funding and investments, our NIM improved for the third consecutive quarter. Stronger marketing capabilities from key subsidiaries such as the credit card and capital business, led to fee income for the quarter to reach an all-time high. In addition, the newly acquired insurance business contributed, which further diversified the group's profit structure. In the third quarter, we completed the revaluation of the fair value of Tongyang Life and ABL Life's assets and liabilities and included this in the group's performance. The bargain purchase price and adjustments from consideration together is around KRW 550 billion, while the decline in the CET1 ratio was only approximately 5 basis points, which enabled us to reconfirm that from a financial standpoint, it was an optimal M&A with almost no negative impact to our capital ratio.

Speaker 1

Moreover, in addition to the continuous asset rebalancing and active capital ratio management efforts that we have been making, we are now focusing on strengthening the stability of our financial structure by preemptively provisioning reserves for the vulnerable portions of our non-bank business. Based on these stable fundamentals, the group is planning to expand productive financing to support future sustainable growth. Next, let me discuss the group's capital ratios. As of September 2025, the group's preliminary CET1 ratio is 12.92%, showing a 12 basis point increase QoQ, an 80 basis point increase from the end of last year, far surpassing the 2025 year-end target of 12.5%. In addition to the insurance acquisition, the weaker won against the US dollar led to a 7 basis point decline in the CET1 ratio, but the capital ratio actually increased, proving the sound capital management capabilities of the group.

Speaker 1

This is the result of concerted efforts to manage risk-weighted assets across all business areas of the group, such as being selective in asset growth and continuously decreasing exchange rate sensitive assets. Going forward, the group will continue this capital management stance and swiftly execute value-up plans based on its CET1 ratio. For Woori Financial Group, we relaunched our securities arm last year and also completed the insurance acquisition this year, completing the creation of a comprehensive financial services group. Thus, focusing on the three main pillars of the bank, brokerage, and insurance business, we are planning to maximize group synergies. For example, between the bank and securities business, after acquiring the securities license, the group was able to do a KRW 3.9 trillion deal through CIB joint underwriting.

Speaker 1

In wealth management, in just three months of acquiring the insurance business, Tongyang Life and ABL Life's percentage of sales from the bank insurance channel has grown from 9.8% to 22.5%. Moving forward, by balancing growth between bank and non-bank business lines and linking up synergies across group companies, Woori Financial Group will further strengthen its competitiveness as a comprehensive financial services group and create a basis for sustainable growth. Next, let me delve into more details about earnings by business area, and please turn to page 4. First, let me go over the net operating revenue and NIM. The group's third quarter year-to-date net operating revenue totaled KRW 8 trillion, 173.4 billion, up by 2.3% YoY. In the third quarter alone, it was KRW 2 trillion, 773.3 billion, which is similar to the previous quarter.

Speaker 1

As financial market volatility and other internal and external uncertainties continue, margin improvements and selective growth led to solid interest income. In addition, the contributions from the insurance business led to better non-interest income, which has further solidified the group's revenue base. In addition, if we look at Woori Bank's third quarter NIM, it was 1.48%, which is 3 basis points higher QoQ and 8 basis points more than the end of last year. It is the third consecutive quarterly improvement this year. This is the result of active funding cost savings and asset rebalancing efforts, which consistently improved our profitability. In the fourth quarter, even if the base rate is cut further, the bank is planning to expand its core deposit base and systematically manage ALM to continue stable NIM trends and maintain a level of 1.5% for the year. Next, let me go over the loan book.

Speaker 1

As of the third quarter end, the bank's loans totaled KRW 331 trillion, slightly increasing versus the end of June. On the corporate loan side, growth strategies focused on new growth areas and high-quality corporates, which led to the loan book to remain flat quarter over quarter at KRW 178 trillion. On the retail loan side, in light of the government's policy to control total loan growth, the bank was more selective in loan origination, which resulted in loans growing 150% quarter over quarter to KRW 1.5 trillion. Looking ahead, Woori Financial Group, in line with the government's policy direction, will manage total household loan growth within the target level, while also utilizing its corporate finance competitiveness via the Future Co-Growth Project, increasing the flow of capital to more productive areas within the economy.

Speaker 1

In particular, we will join in efforts by the financial authorities to make capital regulation more reasonable and continue efforts by the group to rebalance assets to secure more capacity on capital ratios. In addition, risk management across all processes from underwriting to loan management will be strengthened to ensure future growth can continue with any impact on capital ratios and asset quality. Next is on the group's non-interest income. As of the third quarter, the group's cumulative non-interest income amounted to KRW 1 trillion, 441.5 billion, up 4.6% year-over-year, and on a quarterly basis, it rose 5.3% from the previous quarter to KRW 555.2 billion. Despite a decline in foreign exchange rate gains due to the rise in exchange rates, the group continued to post solid growth in non-interest income, supported by robust fee income and the inclusion of the insurance subsidiary's performance starting this quarter.

Speaker 1

In particular, core fee income, driven by improvements across all business lines of both the banking and non-banking segments, including the wealth management business, credit card, and lease, was up 7.9% versus the previous quarter to KRW 563.7 billion, reaching a record quarterly high. Going forward, Woori Financial Group, through expanding the retail customer base centered on the insurance business and strengthening collaboration between the bank and securities IB segments, will actively pursue new business opportunities to enhance the group's proportion of non-interest income and to achieve balanced growth between banking and non-banking operations. Next, I will elaborate on expense. Please refer to page 5. Turning to the group's SG&A expense.

Speaker 1

As of the third quarter of 2025, the group's cumulative SG&A expense amounted to KRW 3 trillion, 690.3 billion, while third quarter SG&A expense stood at KRW 1 trillion, 211.2 billion, a slight increase of 3.2% from the previous quarter. Accordingly, the group's cost-to-income ratio is 43.1%. Looking ahead, while we will continue to invest in the group's DX initiatives, enhancing digital competitiveness and strengthening brand value, we will also maintain disciplined cost management at the group level through reducing recurring operating expenses, optimizing channels and workforce, and leveraging AI to improve operational efficiency. Next, I will discuss the group's credit cost and asset quality. As of the third quarter of 2025, the group's cumulative credit cost amounted to KRW 1 trillion, 517.6 billion. Third quarter credit cost totaled KRW 574.3 billion, an increase of 13.1% from the previous quarter.

Speaker 1

This amount, including KRW 98 billion in provisions associated with completion guarantee projects booked as part of the group's proactive risk management efforts from the previous quarter, incorporates approximately KRW 150 billion in one-off items. With this, most of the provisioning issues related to completion guarantee projects appear to have been largely resolved. Excluding these one-off factors, credit costs remain at a similar level to the previous quarter, and the group's credit cost ratio is well managed within the target range at 0.42%.

Speaker 1

Amid continued uncertainties such as exchange rate volatility, trade negotiations, and concerns over a slowdown in the real economy, the group, through active NPL sales and write-offs and proactive risk management in the non-banking sector, is conducting more thorough risk management than ever before, maintaining the proportion of prime corporate loans at around 84% and managing the ratio of loan loss reserves and regulatory reserves to total credit at 1.6%, thereby securing a stable loss absorption capacity. This year, Woori Financial Group will conduct a comprehensive review of the group's risk factors, and after securing sufficient risk management capabilities, will pursue sustainable growth grounded in solid asset quality. I will now move on to capital adequacy and shareholder return policy. Please refer to page 6.

Speaker 1

As mentioned earlier, as of the end of September 2025, the group's CET1 ratio is expected to be 12.92% on a preliminary basis. Despite factors such as the insurance subsidiary acquisition and the impact of a stronger exchange rate, the group's CET1 ratio improved significantly by approximately 80 basis points versus last year-end, demonstrating the group's strong capital management capability. Woori Financial Group will not remain complacent with this achievement and aims not only to stably exceed a CET1 ratio of 12.5% by the end of 2025, but despite ongoing uncertainties home and abroad, such as exchange rate volatility and potential regulatory fines, will also pursue swift and proactive capital management with the goal of achieving a 13% CET1 ratio ahead of schedule in 2026.

Speaker 1

Meanwhile, the board of directors of Woori Financial Group, at its meeting held on October 24th, approved a quarterly cash dividend of KRW 200 per share, with the record date set for November 10th, as previously announced.

Speaker 1

In this quarter, Woori Financial Group successfully completed the acquisition of an insurance subsidiary, a process that has been underway for over a year. Through this acquisition, we have faithfully upheld our commitment to the market to minimize any negative impact on our capital ratio and to avoid overpaying for the transaction. Now with a diversified business portfolio and enhanced group synergy, we will begin in earnest our transition toward becoming a comprehensive financial services group. Furthermore, in connection with the Future Co-Growth Project announced last September, we intend to leverage our corporate finance expertise to support the real economy, focusing on new growth and advanced strategic industries. Through this, we will not only fulfill the essential role of finance, but also establish a sustainable foundation for the group's long-term growth.

Speaker 1

Since the announcement of our corporate value of initiative, Woori Financial Group has faithfully implemented most of the plans presented to the market. Discussions and deliberations led by the board of directors on how to enhance corporate value are ongoing and will continue in the future. Through these efforts, we will focus the group's capabilities on enhancing long-term shareholder value. This concludes Woori Financial Group's third quarter of 2025 earnings presentation. Thank you.

Operator

Yes. Thank you for the presentation. Now, before starting the Q&A session for this year, because there were some factors related to the presentation, including the insurance acquisition, there will be some additional comments related to the performance by the CFO. Yes, if we look at the third quarter of this year, if you look at our performance, as you can see, there has been a lot of volatility. Overall, there were some one-off factors, and maybe I did believe that maybe touching upon these first would be appropriate. Of course, there was the inclusion of the insurance business, but also with regards to the preemptive provisioning, there were also some one-off factors there. In the third quarter in total, if we look at the insurance business, of course, the profits increases there.

Speaker 1

But in terms of risk management, there were a lot of efforts that we have made. Please take that into consideration and listen to what I have to say. First, on the insurance acquisition side, because of the bargain acquisition gains, after we included the insurance business from July 1st, we did the PPA, and as a result of that, there was a KRW 580 billion gain that we had recognized. Of course, for the next one year, because of the accounting for that, there could be some adjustments to this. However, with regards to the adjustments for consolidation, there was a negative KRW 25 billion that was recognized. At the end of the day, the bargain gains in total was around KRW 556 billion. In addition to that, there was also a KRW 33 billion negative impact that was also in reflect.

Speaker 1

In the third quarter, for the completion guarantee trust, there was also KRW 98 billion that we have recognized in terms of provisioning. As a result of that, in total for this year, there was around KRW 200 billion that we have recognized. On the bank side, there are some areas in which there were collateral value decreases. In light of that, there was some preemptive provisioning that we had did that was around KRW 54 billion. Recently, there were some press reports about the situation. But with regards to KIKO, there was a litigation in 2028, and the final results have came out, and there were some areas in which we lost. There was a KRW 32 billion additional provision that we have set aside for that purpose.

Speaker 1

In addition, on the non-operating side, related to the completion guarantee trust, there was a significant provision that we have set aside. Therefore, for the goodwill, there were some impairment losses that we have also recognized of around KRW 39 billion. In total, if you look at the overall impact of this, if you look at the bargain gains that we have enjoyed, and everything above that was on the operating basis, and others was on a non-operating basis. If we look at it the net income basis, at the end of the day, there was one-off factors of around KRW 360 billion in total. With regards to the completion guarantee trust impact, there may be some small changes going forward, but we don't believe that there will be any significant provisioning that will be required.

Operator

I did believe that this is probably a question that you were very curious about, so I thought that it would be good to talk about this first before we went to the Q&A. Yes. Thank you very much. Now we will start the Q&A session. For anyone who has a question, please press * and one. If you would like to cancel, please press * and two. We will wait for questions. Yes. The first question will be from NH Investment & Securities. It will be Chung Jun Sop. Please go ahead with your question.

Speaker 2

Yes. Thank you for the opportunity to ask a question. There are two questions that I would like to ask you. First would be that in the third quarter, because you did the insurance acquisition was completed, and I would like to know what the next phase is. In terms of more efficient capital management, rather than being two separate entities, I would believe that having it together and then also making sure that it would be a full subsidy of the group as a whole. With regards to the information that you can share with us, any more details that you could share would be appreciated. Second is that after the acquisition, if you look at the capital ratios, it still looks like their capital ratios are very sound.

Speaker 2

Even if it's not in the immediate future, but going forward, are there any M&A opportunities that you would be looking at in terms of interest areas? Maybe not in the immediate future, but even down the road, are there any areas that you would be interested in in terms of M&A opportunities? Thank you for your questions, and maybe we can answer your questions.

Speaker 1

This is the CFO, Lee Sung-wook. First, in terms of the insurance, in terms of the merger and also the follow-up after the acquisition, I do think that this is an area that a lot of the investors are interested in. Also in terms of the Woori Life shareholders, they are also very interested in that also. As of now, we did and completed the acquisition as of July 1st for Woori and ABL Life. Since then, for the mid to long-term direction, this is something that we are doing a diagnosis about in terms of the overall business operations. For Woori Life, making it 100% subsidiary or merging the two entities, this is something that we are still reviewing, but we have not made any decisions yet.

Speaker 1

In addition, we do believe that it will require a bit more time for us to come to a conclusion. In addition to that, whether we should make a 100% subsidiary or whether we will merge the two, if there are any major decisions that are made, of course, we will make sure to disclose to you and share to you. In addition to that, we will look at the laws and regulations to make sure that everything is done according to the due process. Secondly, about your question about the M&A side, I think that this is something that we continue to talk about, but after the brokerage company, insurance company being added on, in terms of our business portfolio, we think that it has been completed.

Speaker 1

Over the mid to long term, I think that if you look in terms of focusing on strengthening the competitiveness of the companies that we have and also maybe expanding our presence, M&As could be an option. But right now on the security side and insurance side, because we have been newly added, and we do believe that our overall business portfolio is complete right now, if there are any M&As that require capital, I think that rather than being interested in that, I think that we are more interested in strengthening our market competitiveness, in the areas in which we are doing business already, particularly on the non-interest income side. With regards to the non-bank businesses of securities and insurance companies, we want to strengthen that further. That would be one of the main focus.

Speaker 1

In addition to that, we will also continue to conduct our value program and also manage our risk-weighted assets and also conduct and successfully complete our Future Co-Growth Projects. In the middle, I did talk about this during the presentation, but achieving the CET1 ratio of 13%, the target year was 2027, but we have accelerated that to 2026. This is something that we are discussing with our directions. By doing this and putting against our best efforts, we think that we can efficiently manage our capital and still also achieve the best outcome for the business. Thank you.

Operator

The next question is by Baek Du-san from Korea Investment & Securities. Please go ahead with your question. Yes, I am Baek Du-san from Korea Investment & Securities. I also have two questions. The very first question has to do with the completion guarantee project. I can see that it has been largely resolved, but in addition to that, I can see that there were still quite hefty preemptive provisioning. Taking that into consideration, I would like to understand if there is any guidance in terms of the improvement going forward in terms of credit cost. Second, the Future Co-Growth Project that was launched, and with regard to the funding, the plans that you have for key industries.

Speaker 3

This project in itself is a massive project, and therefore, in terms of capital ratio or non-interest income or corporate loans, I think that it will have an impact on all of these numbers. I would like to understand what are the plans, what is the forecast you have going forward? Thank you. Yes. Thank you very much for the question. Please bear with us for just a moment as we get ready to answer your question. I am Park Yeon-ho, Senior General Manager from the Risk Management Division. First, let me talk about credit cost. The third quarter credit cost increased by 3 basis points to 32 basis points, and that was already mentioned. In second quarter, KRW 86 billion for the trust, and this quarter, KRW 98 billion, that was the provisioning in terms of managing our assets.

Speaker 4

Due to the sluggish economy and the sluggish construction sector, with regard to collateral loans at the banking sector, that was a total of KRW 54 billion of provisioning, and one-off items amounted to KRW 152 billion. Therefore, the coverage rate also increased to 130%. If we exclude these one-off items, the credit cost ratio is 42 BP. However, considering that there has been a delay in the rate cuts, we believe that the normalized credit cost will still be quite high. As mentioned, the completion guarantee projects has been mostly resolved, so therefore, there would not be any significant provisioning to follow going forward. With regard to prime assets, especially in the banks, if we look at the corporate loans, we have been seeing a downturn in terms of new defaults in terms of corporate loans.

Speaker 4

Ever since 2024, we believe that the impact of rate cuts is something that we are continuously monitoring at the risk management division. In the future, with the economic boost stimulus package with the government and with regard to the rate policy going forward, we believe that in the fourth quarter, credit costs will stabilize. That is all for me. Thank you.

Speaker 1

Yes, this is the CFO, Lee Sung-wook. With regards to the Future Co-Growth Project, since this is a very big project, I do think that with regards to capital and also in terms of the capital ratios, there may be some concern about such a situation. With regards to this, maybe just elaborating a bit will help you out. From us, we do want to transfer into providing more productive financing. As of the end of September, we announced our Future Co-Growth Project. Across the group, for the next 5 years, there will be around KRW 80 trillion that we will be supplying and supporting. According to this project right now, in terms of the asset growth, and the impact of this was all taken into consideration before we made the announcement to the market.

Speaker 1

For the KRW 80 trillion across the 5 years, if you look at the impact on our risk-weighted assets, it will be around half. On this, of course, how we can offset it against the capital ratio is probably an issue that you will be focusing on. This year, if you look at the overall asset rebalancing efforts that we have made for the next 5 years, due to that, this is an effort that we will continue for the next 5 years. In addition to that, because regulations are being eased at the financial authority side, and in addition to that, we also have a CET1 ratio target of 13%. The trends that we see in our capital ratio was all taken into consideration before we formulated this plan.

Speaker 1

In addition to that, on the corporate loan side, during the financial crisis, we have accumulated a loss. There's very strong underwriting standards in place. As a result of that, we do think that we can manage our capital ratio properly and still continue growth in this area. Within the year, I think that if you look at the capital ratio trends that we have seen, there has been an 8 basis point increase versus the end of last year. This is even after the acquisition of the insurance arm. We do think that we do have a credible trend that we are creating, and this is something that we have fully discussed with the BOD, and we will come up with our business plan accordingly.

Speaker 1

In addition, going forward, we will continue to also manage our loan balance through asset rebalancing and also manage the retail balancing side. We're also planning to make other efforts. For the shareholder value programs, this is something that we will continue to implement without issue and continue to provide better total shareholder return.

Operator

The next question will be by Kim Duwa from Hanwha Investment & Securities. Please go ahead.

Speaker 5

Yes.

Speaker 5

Thank you very much for the opportunity. I have a question with regard to the acquisition. When we had the acquisition ahead of us, you talked about the bargain purchase gains. Are these going to be utilized for total shareholder return? I believe that within a limit of 10%, if it is within that, I have heard that the gains would be utilized for shareholder returns. Right now we have around KRW 580 billion or so of gains, and I would like to understand, would this be included in the shareholder return plan of this year? I understand that the TSR will be maintained as such, because rather than providing a dividend at year-end after November, it could be in the Treasury stock-related plans that you may have, or would it be something that we would be utilizing next year?

Speaker 1

If you can give us some more information on that would be great. The second question is, around the world these days, we have been witnessing security issues, hacking issues. With regard to that, are there any investments being made right now to prevent or any cybersecurity related prevention methods or plans that you have in place? Yes, thank you very much for those questions. Please wait before we answer your question. Yes. With regard to the bargain purchase gains, it is a total of KRW 580 billion, and it is included in the net income. In the first half IR last year, based on our corporate value plan, in terms of our TSR, we have mentioned that we are putting our best efforts to have that included. With regard to the insurance acquisition, the impact it has on the capital ratio, it was quite limited and minimized.

Speaker 1

With regard to TSR year-end, we will just see the CET1 and the overall financial volatility, and the TSR will be decided as such. In the market, there are expectations, and we will try to cater to the expectations as much as possible, and we will do our best to make sure that we can cater to those expectations. Thank you. I am Ouk Il-jin, CDO. Recently there were major security-related issues at telcos and financial firms, and that is why there was a comprehensive review across all subsidiaries, and there were no issues identified. Recently, there was, let us say, multi-authentication and security patches, terminal-related security issues. These were the shortcomings that we were able to understand that we were following all of the internal policy when it comes to security.

Speaker 6

In addition to that, with regard to personal information and IT security, let's say accidents, to prevent all this, what we've done was in August till year-end with security firm and the company, we will make sure to understand whether there are any loopholes. For the recent 3 years, the government's investment into security is 11% when it comes to total IT investments, and it's 8.8% for financial firms and insurance firms. In the case of U.S., it's 10.5%, and it's higher than that at 11%. So with regard to information security investments, we will continue on to increase that portion in our investments. Thank you.

Operator

Yes, the next question is from HSBC, Wan Jae Hong. Please go ahead with your question. Yes. Amidst a challenging environment, thank you for your strong performance. There are 2 questions that I would like to ask you. The first question is with regards to early retirement. If we look at last year, we actually reflected it into the first quarter of this year. So for this year's early retirement, would it be fourth quarter or would it be first quarter of next year? If there are any plans, if you could share that with us, that would be appreciated. In terms of the CET1 assumptions or in terms of the overall profitability, it would be easier to assume or make the estimates. If you could share the plans on this, that would be appreciated.

Speaker 7

Second, with regards to portfolio diversification, you have successfully acquired 2 insurance companies, and I do believe that you will properly manage this business going forward. As far as I understand, the 2 insurance companies, after being acquired, next year, in terms of the profit contribution, it will be 1% of the ROE. That means that the overall contribution would be about KRW 300 billion. But up until the third quarter, if you look at the net income, right now it has been around KRW 150 billion. For ABL, I don't know what the third quarter numbers is, so I'm not 100% accurate, but I do think that it would be around this level. Do you think that it could be larger next year? In terms of the bargain gains, this year it was around KRW 550 billion.

Speaker 1

For next year, in terms of these gains, how much contribution do you think will actually be made on the net income line? Your thoughts on this topic would be appreciated. Yes, thank you for your question. Maybe if you give us a few minutes, we'll answer your question. First, in terms of early retirement, in the case of last year, we actually did it in the first quarter of this year, and the reason why we did it that way is because it's based upon the agreement with the labor union. Therefore, there could be some difference of opinions, and as a result of that is why it took place in the first quarter.

Speaker 1

Right now, if you look at the discussions with the labor union that are ongoing right now, I think that it is something that we will have to see in terms of how it happens going forward. It could be in December, it could be in January, but I think that because it needs an agreement, we will have to wait and see how it actually plays out. With regards to insurance acquisition, as you have just mentioned, in 2025, if you look at most of the companies, their profits were very large. This year also, there are some that are showing strong performance. But in terms of the K-ICS ratio or other product structures, I do think that with regards to the assumptions, there are some changes that are taking place.

Speaker 1

This year, as we have continuously talked and mentioned, after the acquisition of the insurance business, the first thing that we have actually done is that we are doing a business investigation to look at how we can fundamentally change the competitiveness of the business in itself and make changes accordingly. In 2026, we do think that, of course, there will be some profit contribution from the insurance side. But in terms of the K-ICS ratio, but on the capital side, beefing that up and strengthening that up will be our top priority to make sure that the burden on the group from that would be minimal, as small as possible. Also, we want to stabilize the organization. In 2024, if you look at right now, there was around KRW 400 billion.

Speaker 1

In terms of the percentage, it would be around KRW 300 billion in contribution that we would have seen. But for next year, we think that it would be difficult to reach that level in the net income side. Right now, in terms of priority, it will be to beef up the K-ICS ratio and the other sides. Thereafter, I think that we could actually look at how we can expand our business going forward. That have been said, the ROE 1% is something that was based upon 2024. Though it will not go to that ratio, we do think that there will be a contribution that we will be able to see in full-fledged manner from next year. Thank you.

Operator

Next question will be by Jung Taejun of Mirae Asset Securities. Please go ahead.

Speaker 8

Yes, I am Jung Taejun from Mirae Asset. Thank you very much for the opportunity. I also have a question with regard to the insurance arm. With regard to the profitability and as well as the interest costs and the securities, I can see that this has been reflected all separately in separate items. But in terms of net income and profitability, I would like to understand what was the contribution in total this quarter. It is similar to the previous question, where the bargain purchase gain was quite significant, more than expected. Then based on consolidation, it means that it is not as high based on consolidation, and that in terms of the contribution, it may be a bit difficult to book in its significant absolute terms.

Speaker 8

But of course, I do know that the management diagnosis is still underway, but I think that if you can at least give us a ballpark figure, it would help us better our understanding. Thank you. Yes, thank you for the question. Please wait. We will soon answer your question. Yes. With regard to the income from the insurance arm,

Speaker 1

we have investment income and insurance income. All in all, if we combine the two companies, it is around KRW 70 billion to KRW 80 billion. In terms of net income, it is around KRW 50 billion in terms of the contribution from these two firms. In the future, with regard to adjustments from consolidation, that is how it would be booked. In terms of insurance accounting, as was already mentioned, after the acquisition, within the insurance, there is an accounting that would follow, and there is also an accounting for the holding company, because we went through the PPA process. Based on PPA, it will be a dual accounting, a dual booking.

Speaker 1

In the future, we are going to run a simulation, and based on that, of course, it will all differ by year, but we believe that it will be around KRW 30 billion to KRW 40 billion annually, a positive, a plus of KRW 30 billion to KRW 40 billion. So there could be some volatility or variances throughout the years, but based on our long-term simulation, we believe that there will be a plus KRW 30 billion to KRW 40 billion of contribution that can be booked. Thank you.

Operator

Yes, next question. The next question will be from Daishin Securities, Park Hae-jin. Please go ahead with your question. Yes, thank you for the question. The question that I would like to ask you is that with regards to the bargain gains, I do think that there cannot help but be a lot of questions. So with regards to the preliminary announcement of the PPA, you said that for the next one year, there could be adjustments. So related to that, in terms of the adjustments that could take place, what would that actually be? If there is an adjustment to that, I would like to understand what it would be in more detail. The second would be with regards to the margin. Because of the asset rebalancing, I do think that the margins are being well-defended.

Speaker 9

But with regards to the joint growth, you did say that you would continue such a situation. So for next year, in terms of margin, what is the outlook? Lastly, for the securities side also, I do think that there is probably some capital gains that you would have to actually conduct. So for those capital increases, what would be the outlook of that? Yes, thank you very much. There are three questions that you have provided, and maybe we can answer your questions. Yes. With regards to the bargain gains, I do think that this is an accounting issue. So during the next one year, there is the room for adjustments to take place. So right now, for the first three years, there will be some refining, and then after that will be done. We do not think that there will be a lot of fluctuation.

Speaker 1

But if there is any, then the main area is probably going to be, and what we estimate it would be with regards to some of the fines. So for example, that could be one of the items. But this accounting to the accounting standards, there is some that we have already reflected, because we have made some assumptions there. So if that realizes, then we do think that that would lead to some changes. But we do not think that there will be any big changes in itself. Secondly, with regards to the securities arm, this year, after being included into the group on August 1, and what we had actually invested into was manpower and also IT. As a result of that, the SG&A had actually increased by KRW 50 billion.

Speaker 1

So in actuality, if you look at the net income as a result of that on a YoY basis, there was a slight increase, but not very significant. So this year, we do think that when we talk about productive financing, of course, we do think that the securities arm will have a big role to play. From next year, in terms of the net income contribution also, we think that it will significantly contribute at a much higher level. So right now, setting our targets, but we do think that on a YoY basis, it will be at a much higher level than what it is contributing this year. So from next year, we do think that the overall growth level that we will be enjoying will be much larger.

Speaker 1

On the NIM, I think that for this year, there was a 3 basis point increase this year. The biggest influence there was the asset rebalancing that we have done. The asset growth was more prudent. In addition to that, the CET1 ratio was another area that we put a lot of attention to. As a result of that, on the funding side, I think that we have a more favorable funding structure. The funding cost also has gone down, which has led to the improvement in our net interest margin. Going forward, if you look at the NIM outlook, I think that, of course, we do believe that the benchmark rate will fall going forward. But for the NIM, if you look at the long-term rates, it's already something that is already priced into the market.

Speaker 1

In the fourth quarter or whatever happens thereafter, even if rates are further cut, we don't think that that will further decline the long-term rates. But this year was 1.45%, and then 2026, even if there are further rate cuts, we don't believe that the impact will be very large. In general, we do believe that around 1.4% is something that we can maintain for our NIM for the time being.

Operator

Yes. Thank you. I believe that there are no more questions. So let us now respond to the questions that were posted on the website this quarter. From the 13th to the 24th of October, we received questions via our website. In addition to our performance, AI, TSR, there were many questions across a number of domains. We will exclude the redundant questions, and two questions that were not addressed as of yet. One had to do with the total return on the dividend-related policy, and also with regard to AI services. So with regard to the non-taxable dividends, the CFO will respond, and the CDO will respond to the second question. Yes. So first, with regard to the non-taxable dividend, during the AGM in March, we've talked about the KRW 3 trillion that has been written back.

Speaker 1

From the 25 dividends or retained earnings, that's when we will start to provide the dividends. Based on our corporate value-up plan, we will engage in buyback cancellations and actively engage in shareholder return. So in 2025, improving the CET1 by 80 basis points to improve the TSR was the planned action taken. We have continued on to engage in buyback and cancellation of treasury stock, and we have put in our best efforts to enhance shareholder return. Going forward, we will continue on to improve the CET1 and to engage in our corporate value-up plan and put in our best efforts to maximize shareholder return. Thank you. I'm Oger Jin, CDO.

Speaker 6

With regard to the AI services, Woori Financial Group for our customer and for our employees, for the first time, we've launched many services. Already based on Gen AI, we've actually launched our deposit-related products. Right now we do have mortgage loans. We will be expanding our AI advisory when it comes to real estate-related plans and loans. At last year end, we launched Woori GPT, and we actually see an accuracy rate of 90% plus for even complex jobs and work. Starting from the second half of this year, our focus particularly would be on AI agent. We want to enhance the productivity of our employees by utilizing the AI agent internally when it comes to corporate loans and RM support, especially five domains that we have pinpointed in order to introduce the AI agent. It has already been laid out.

Speaker 6

Starting from early next year, and in the first half of next year, we are going to particularly engage in phase 1 for work that can apply this immediately. Moving forward, we're going to engage in a number of innovative product launches when it comes to Gen AI, especially for productive finance, especially for corporate loans, especially auto underwriting. In terms of reducing defaults amongst, let's say, high default rate borrowers, we are going to make sure that we can provide accurate and timely due diligence and underwriting utilizing AI. Basically it's about utilizing AI agents to enhance productivity, and we're going to re-engineer our work process so that we can make full use of this technology. Thank you. Yes, I am the CFO, and with regard to the overall earnings, I would like to share with you the prospects, especially for 2026.

Speaker 1

Before that, in 2025, what we've done in terms of our business portfolio is the workforce IT system for the securities arm, acquisition of the insurance arm to complete our portfolio. In terms of overall completeness of our business, we do have the non-banking, including asset trust, where it was about focusing on preemptive provisioning, completing all that. Also we have been able to significantly improve CET1 in 2025. With regard to future growth and to enhance corporate value, I believe that this was a pivotal year in terms of making sure of putting in place the foundation. We'll make sure to manage our asset quality in the remainder of the year. In terms of 2026, in the case of the non-banking sector, as was already mentioned, the insurance acquisition impact will kick in earnest.

Speaker 1

In terms of the security side, we'll be seeing increased sales from that side. In the case of the existing non-banking, it would be about preemptive risk management, which will lead to better performance and earnings. In terms of the non-banking operations, we will and we expect significant improvement in performance. In terms of banking sector this year, we've been engaging in aggressive asset rebalancing and a preemptive risk management foundation has been in place, which will enable a stable revenue. In terms of the productive finance, we'll be expanding upon that to actively grow upon that. When it comes to capital ratio as well as asset quality ratio, we're going to make sure that we maintain this stably so that we achieve the ratio numbers.

Operator

With regard to our value-up plan and our shareholder return plan, we will do our best to make sure that we implement the plans that have been laid out. Thank you very much. Yes, thank you. This brings us to the end of Woori Financial Group's third quarter of 2025 earnings presentation. If you do have any further questions, please call the IR department, and we will make sure to entertain your questions. Thank you very much.

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