Ladies and gentlemen, I am [ Lee Jung Su ], Head of IR at Woori Financial Group. I would like to express my sincere gratitude to you all for joining Woori Financial Group's earnings call despite your busy schedules today. At today's earnings call, we will start off with the business performance presentation by the group's CFO, Lee Sung-Wook, and we will have a Q&A session. In addition, we are offering simultaneous interpretation for our overseas investors. Let us now begin Woori Financial Group's First Quarter of 2022 earnings presentation.

Good afternoon. I am Lee Sung-Wook, CFO and Head of the Financial division at Woori Financial Group. I would like to extend my deepest gratitude to everyone participating in our first quarter 2022 earnings call. Furthermore, I would like to take this opportunity to express my sincere gratitude to the shareholders and market participants for their unswerving encouragement and trust in Woori Financial Group. Let me now begin the first quarter of 2022 business performance presentation of Woori Financial Group. Please refer to Page 3 of the material available on our website. First, let me elaborate on the group net income. Woori Financial Group's net income for the first quarter of 2022 was KRW 884 billion, which is up 32.5% year-over-year, which is the highest performance ever recorded on a quarterly basis. Such performance is attributable to the impact coming from newly incorporated subsidiaries resulting in a diversification of revenue sources and the significant increase in top line performance due to the efforts to improve the profit structure after the conversion into a holding company. Next is the group's net operating revenue. In 2022, the group's net operating revenue is KRW 2,371 billion, an increase of 19.3% year-over-year. Zooming in, the group's interest income stands at KRW 1,988 billion, up 22.7% year-over-year. For the past 2 years, loans centered on SMEs increased and efforts to reduce funding costs, improved the profit structure resulting in such performance. Meanwhile, the group's noninterest income recorded KRW 383 billion up by 4.4% year-over-year. The main reasons behind this increase include the impact from the new incorporation of subsidiaries into the group and the steady improvement in core fee income, along with support coming from the robust head office business, including foreign exchange and derivatives. Meanwhile, as a result of efforts to diversify the portfolio,…

Thank you. As was briefed before we proceed to the Q&A session, I would like to invite our CEO, Il-Jin Ouk Managing Director overseeing the digital unit of the group to present on group's digitalization plans. Please refer to Page 17 of your materials.

Good afternoon. I'm Il-Jin Ouk. In the market, we see closer integration of finance and digital platforms and financial institutions value is now being determined based on quantity and quality of digital platforms. In order to position itself as a digital platform company, Woori Financial Group is committed to expanding customer base on its digital, more specifically mobile platforms so as to ensure sufficient users comparable to that of top-tier financial platforms. Our priority will be increasing the use of our platforms, namely Woori ONE Banking and Woori ONE Card. We will seek to transition existing customers to digital platforms and also attract new customers by developing differentiated digital products and services, strengthening digital marketing and forming partnerships with other digital platforms. To offer innovative customer experience on our platforms, we are also working on providing database hyperpersonalized marketing and services. Furthermore, we will endeavor to be the first mover and lead market trends in high-tech based new business fields. We will incorporate transformative technologies such as hyperscale, AI, metaverse and blockchain and explore new business models and opportunities ahead of our peers.

Thank you very much for the presentation. We will now begin the Q&A session.

[Operator Instructions] The first question is from Kim Do Ha of Hanwha Investment & Securities.

I'm Kim Do Ha from Hanwha Investment & Securities. I have 2 questions. First has to do with the margin and the second, I would like to understand the strategy or the forecast. I can see that in the case of the retail loans, we are seeing a dampening of demand. And we believe that as we move into the second half with regard to the credit interest rates compared to last year, there may be less of the first alpha effect. And we also believe that compared to the previous quarter in terms of the margins from the loans. All in all, in the industry, we're seeing peers of competition, which may leave us pressed for margin. And I can see that this will impact both assets and liabilities. So I'd like to understand what your forecast would be on the margin of the second half? And the second question, in the case of another company, I can see that in terms of returning back to the shareholders, they decided to regularize treasury buyback. So there was a comment on such by a different financial institution. So I do know that you're engaging in M&A and you're looking into securities firm. So you may have a different direction. However, in terms of the midterm capital readiness strategy, would you give us some more information on that so that we can understand if you do have any plans of a treasury buyback?

Thank you very much, Kim Do Ha, for your question. And let me now recap your question. The first question has to do with the margin management forecast for the second half. And with regard to the background, it had to do with the dampening of retail loans. And in terms of the plus alpha rates, would that lead to a pressure on the plus alpha rates, wouldn't that have an impact on loan growth. And not only that in terms of deposits, you've mentioned about how we're going to manage the margin. And the second question had to do with the total shareholder return. So with regard to that, what kind of strategy that we have in place? Please bear with us for just a moment as we prepare to answer your questions.

I am Lee Sung-Wook, in charge of the Finance division. So with regard to the prospects for NIM, the first quarter NIM was 1.49%, which was an increase by 0.7 points. But if we look at on a monthly basis in March, it was 1.5%, slightly over 1.5%. And considering that, as was mentioned, you're seeing a reduction of retailer demand as well. And also, we are seeing a narrowing of the spread. And in the case of the LCR, it's going to get stricter and we believe that this will have an impact. But the base rate in April went up, and we believe that in the second quarter, this will start to be reflected. And in the case of the core deposits, we are seeing a steep growth in core deposits. Typically, when base rates go up, it's true that core deposits may go down. However, we are actually seeing an upward trend for core deposits. Therefore, we believe that on an annual basis, a mid-1.5% range would probably be possible. And then meaning that in the second half, it would be in the later -- the latter range of 1.7%. So in other words, it means that it would be up by 0.1% from current levels. And with regard to the bank, if you look at the loan structure, the short rates, if you looked at [ core more ] or the call rates, it's much higher than other financial institutions on a 3-month basis. So we believe that we are impacted with the base rate hike, and we believe that the effect itself would also be quite significant on our side. And the second question has to do with the shareholder return as well as the treasury buyback related strategy or policy that we have. Last…

Next is from HSBC Securities, Mr. Won Jaewoong.

Yes, I do have a question. When it comes to Woori Financial Group, I think that nonbanking is important. And compared to other holding companies, M&A has been undertaken very actively. And perhaps you are also reviewing at that moment. And I would like to talk about MG non-life that you brought up earlier. And you mentioned how the buyback is also possible. So is your priority on securities companies? And then are you considering insurance companies? I understand that is the case. However, when you look at the insurance companies, there are some insurance companies that are under challenges. So I would like to understand whether your priority order is still intact? And are you not considering MG Non-Life anymore -- to acquire MG Non-Life anymore?

Yes, Mr. Won, thank you very much. So he talked about Woori Financial Group's nonbanking sectors. So as we prepare to answer your question, please bear with us.

Yes, I am Lee Sung-Wook. I will take your question. And if I may share with you acquiring securities companies and insurance companies that is a policy of ours, still is intact and did not change. We believe that securities companies can bring about the biggest synergies for our group. And therefore, we are looking at securities companies for our M&A target and venture capitalist, I believe, can also help us to enhance our competitiveness. And therefore, we are also looking at some possibilities as well. Now when it comes to insurance, because of IFRS 17, we believe that there can be some recapitalization going on. So we would have to take that into consideration. And when it comes to MG Non-Life, the FSC -- under the guidance of FSC, we are trying to sell the company. And therefore, we are monitoring, but the -- at this point in time, we have not made our decision on acquiring MG Non-Life. Thank you.

Next question is from Baek Doosan from Korea Investment & Securities.

I'm Baek Doosan from Korea Investment & Securities. My question has to do with card capital. Of course, with the rates going up, margins will improve, and it is a positive for the group. However, recently, you can see that the rate hike is quite excessive, which may lead to certain side effects. And what I think would have to do with the impact on card capital with the increase of funding rates? And also in terms of the provisioning costs, it may also go up or the increase of credit cost. So I would like to understand, is there a way to offset this or to complement this in your sales and financial strategy?

Thank you very much for the question. If I may recap it was, as we witnessed rates hike, what kind of impact that would have on the card and the capital subsidiary? What kind of risk factors exist and the impact on profitability as well as a forecast? So please bear with us as we prepare to respond to your questions.

I am Lee Sung-Wook, CFO. So with regard to the card and capital business, as mentioned, card and capital, it funds from the market. So we're seeing the new funding rates going up. We believe that it's about an increase of 1% in terms of the funding rates right now in the market. And in the case of the card and capital business, because the funding rates going up by 1%, the interest margin may be narrowed because if you look at the loans, you can see that the pace versus the funding rate is not as quick because there -- first is, if you look at the card and capital because there's also the guarantees that we would have to look into. But if you think of a card and the assets, the total asset stands at KRW 13 trillion, in capital KRW 8 trillion. And if we combine the 2, it is KRW 21 trillion. And at Woori Bank, we have KRW 350 trillion in terms of interest-based assets. So in the case of card and capital with the funding rate increase, the margin will decrease slightly. However, in terms of the interest income early in the year, card and capital actually seen an increase by KRW 0.9 trillion to KRW 1 trillion. So in the case of the interest income itself would be comparable to last year levels or even more than that. And if you look at the bank, the assets are close to KRW 350 trillion. So with the rate hike, the impact it will have on the card and capital would be minimal. And with regard to asset soundness or asset quality, the card and capital business in terms of the credit ratings versus the bank, it's true that we see lower credit rating consumers coming in. So there may be an issue with quality. However, what we do and what we are doing is preemptively preparing for -- to manage the asset quality and last year-end for the capital business, we've actually been taking on a very conservative approach to engage in hefty provisioning. Therefore, the impact it will have on the group will be minimal. Thank you.

Next question is from Morgan Stanley, Mr. Seok Joon Sun.

I would like to talk about digital banks and we see a lot of digital banks during the market. And Q2, Q3 you see that housing loans and also other loans are increasing. So in terms of competition, how do you foresee the outlook in terms of pricing and also lending increase, what sort of impact you expect from these digital lenders?

Yes, please bear with us as we prepare the answer.

With regard to digital bank and with regard to capital increase for capital growth, we did see an increase in corporate lending. However, retail lending did decrease. So the reasons were why is because of interest rate hikes and also depressed housing market, and therefore, reduced demand for housing lending. It's not just us, but other financial institutions are also being impacted. However, we see Kakao Bank and other digital channels are increasing their lending. So going forward, the government will be introducing new housing policies. And I believe that the lending market could improve depending on the government policy. And when it comes to SMEs, we have manufacturing and also new businesses that are trying to improve. And when it comes to retail lending, I believe that can be offset by increasing SME lending. When it comes to retail lending, we believe that it will return to normal level with the inception of the -- for the introduction of the new government. When it comes to interest rates, we believe that there won't be any significant impact. And when it comes to asset growth because of recent interest rate hikes, and because of financial support related to COVID-19 dwindle towards the end of this year, I believe that there will be some increased risks. So going forward, instead of increasing assets aggressively, I think that we have to look at the market and respond accordingly mid- to long term. So as to ensure asset quality and also fend off new potential risks. I think that will help our asset soundness. So we plan to do so going forward. And when it comes to retail lending, we will be nimble and watch the market response. And with regard to digital policy, I would like to invite Il-Jin

Yes, with regard to digital channels and profits, Woori Financial Group is seeing a significant increase in growth. Every year, we see double-digit growth rate. And Woori Financial Group compared to Internet-only banks is vastly know-how and knowledge in risk management and corporate lending and global services. And in other areas, we're also seeking digitalization and expand our digital coverage. And one thing I'd like to add is that digital platform customer base, this is something that we need to improve upon, and we're going to focus our energy and resources so that we can grow the digital customer base. Thank you.

[Operator Instructions] The next question is [ Tu Yong- Soo ] from Kim Securities.

I do have a question with regard to funding. I can see that the data is in the slides. But in the first quarter, I see low-cost deposits, core deposits. And compared to -- well, Q-o-Q, I can see that the balance actually decreased. Was this the average -- the balance average? Or I think you've mentioned that there's an inflow of low-cost deposits, but I would like to understand on an average basis, are we seeing the balance going down or up? And with regard to this, can you see that we've been seeing Toss Bank actually proposing a 2% of interest rates, which has actually led to an asset inflow of KRW 17 trillion in just a couple of months. And I believe that these low-cost deposits, we're seeing this moving on to different channels. So I would like to understand, are you mindful of this. And then this would probably lead to a fiercer competition over interest rates. So how are you trying to respond to such competition?

Thank you very much for your question. So if I may recap your question in our fact book, which has to do with the low-cost deposits and the trend on that. And with regard to Toss Bank, a lot of the money is actually going into Toss Bank, as you've mentioned. So in this funding market, what would be the prospects for Woori Bank and what strategy we have going forward was the question. And as we prepare to answer your questions, please bear with us for just a moment.

Yes, I am Lee Sung-Wook, CFO, and let me answer your question. So the material that you've seen is probably the end balance. And if you look at the average monthly balance in November 2021, it was KRW 109.8 trillion. So excluding corporate MMDA, this is the core low-cost deposits. So we believe that in March, we've actually seen an increase by KRW 3.8 trillion from KRW 110 trillion of December. And as far as I know in April, we've seen it increase by KRW 1 trillion to KRW 2 trillion. So if you look at the low-cost deposits, it's not the imbalance that's critical, it's the monthly average. So KRW 1.9 trillion from retail and KRW 1.5 trillion from corporate, we've seen an increase, respectively. And we are seeing this growth trend right now. But going forward, if we see an increase in rates, the low-cost deposits, I believe, the growth there would dampen and that may be a concern. So in the branches, we've mentioned that the MAU should be increased to KRW 10 million. So in order to really focus on the growth of core deposits, we've been engaging in various activities and also to strengthen our deposit foundation, we're putting in a lot of efforts so that were not impacted. Thank you very much.

Now I'd like to take the final question from DB Finance and Investment Securities, we have [ Mr. Lee ].

Yes, I am from DB Investment. My name is [ Lee ]. With regard to MG Non-Life, I understand that you have KRW 44 billion remaining at the moment. And is it true that you have conservatively set aside and rolled off all that? And with regard to acquiring Lotte Card compared to securities companies, is it a possibility for you to acquire Lotte Card?

Yes. Please bear with us as we prepare to answer your question.

Hello, I am CRO, Jung Seok-Young. With regard to MG Non-Life, so I understand the question. With regard to equity investment and also loans, we have around KRW 40 billion outstanding, and we have rolled off about 80%, not 100%. And for the remainder in line with the schedule to sell off MG Non-Life, we can add additional provisioning where if the selloff is done within this year, we could do write-backs. Thank you.

With regard to Lotte Card, I am CFO, Lee Sung-Wook, I would like to take your question on Lotte Card At the moment, officially, we have not actually proposed a bid, and it's not available in the market yet. We're going to look at the effect by adding Lotte Card to the group, and we will do further analysis if the sale is available. However, as of now, we have not done our total review yet.

Yes. Thank you very much for your questions. With that, I would like to conclude Q1 business performance presentation of Woori Financial Group. I'll see you next quarter. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]