Woori Financial posts over 1 trillion won in net profit for 2nd straight quarter, continues tax-free dividends

Woori Financial Group recorded net profit exceeding 1 trillion won in the third quarter of this year, marking the first time since its establishment that it has posted "trillion-won-scale net profits" for two consecutive quarters.

Profits increased from the previous quarter as interest income rose and credit loss costs decreased. The group decided to set the dividend per share at 220 won, a 10% increase year-on-year, and will continue its tax-exempt dividends, which are unique among domestic bank holding companies.

Woori Financial said Friday through an earnings announcement that net profit attributable to owners of the parent for the third quarter of this year was 1.0492 trillion won, a 4.4% increase from the previous quarter.

Cumulative net profit for the first three quarters stood at 2.6581 trillion won, down 4.9% from 2.7959 trillion won in the same period last year. Woori Financial explained that if acquisition effects such as bargain purchase gains related to insurance company acquisitions reflected last year are excluded, cumulative net profit increased by 18.7% compared to the same period last year (2.2400 trillion won).

On a cumulative basis, both interest and non-interest income grew. Interest income was 7.0359 trillion won, and non-interest income was 1.6444 trillion won, up 4.5% and 13.9%, respectively, from the previous year.

Loan growth centered on corporate finance drove the increase in interest income, while the rise in non-interest income was influenced by the inclusion of insurance companies and increased investment banking (IB) fees due to expanded collaboration between the bank and securities divisions. Consequently, cumulative net operating revenue for the third quarter reached 8.6803 trillion won, a 6.2% year-on-year increase, setting an all-time high.

However, looking at the third quarter alone, trends in interest and non-interest income diverged. Third-quarter interest income was 2.3762 trillion won, up 7.2% from the same period last year and 1.7% from the previous quarter. In contrast, non-interest income decreased by 7.6% from the previous quarter to approximately 581 billion won.

Rising funding costs weighed on the net interest margin (NIM). Woori Bank’s NIM in the third quarter was 1.434%, down 0.072 percentage points (p) from 1.506% in the previous quarter. It also fell below 1.48% in the third quarter of last year. However, the bank’s won-denominated loans increased by 1.5% from the previous quarter, supporting the group’s growth in interest income.

The decrease in credit loss costs played a significant role in the increase in net profit compared to the previous quarter. The group’s credit loss costs in the third quarter were 314 billion won, down 28.5% from the previous quarter. Cumulative credit loss costs also decreased by 15.7% year-on-year to 1.2800 trillion won. The cumulative credit loss ratio was 0.42%, down 0.10%p from the same period last year. This was due to continuous asset rebalancing and portfolio restructuring.

Soundness indicators deteriorated. The group’s non-performing loan (NPL) ratio was 0.72%, down 0.01%p from the previous quarter but up 0.02%p from the same period last year. Woori Bank’s delinquency rate rose to 0.46% from 0.43% in the previous quarter and 0.36% in the same period last year.

By subsidiary, Woori Bank posted a third-quarter net profit of 1.0276 trillion won, recording its highest quarterly performance ever. The increase from the previous quarter was approximately 22%. Cumulative net profit rose by 4.7% year-on-year to 2.4006 trillion won.

Among non-bank subsidiaries, Woori Card’s cumulative net profit was 133.7 billion won, a 26.4% increase from the same period last year, while Woori Investment & Securities increased by 27.3% to 28.2 billion won. Woori Financial Capital maintained a level similar to the same period last year at 114.6 billion won. Dongyang Life’s cumulative net profit was 121.6 billion won.

The group’s Common Equity Tier 1 (CET1) ratio provisionally stood at 13.80% as of the end of September, up 0.08%p from 13.72% in the previous quarter. CET1 is the ratio of common equity to risk-weighted assets, indicating a financial institution’s loss-absorbing capacity and capital headroom available for dividends and share buybacks.

Woori Financial’s board of directors decided on the same day to set the third-quarter dividend per share at 220 won, a 10% increase from the same period last year. It will also continue the tax-exempt dividends introduced starting with last year’s final settlement dividend. Currently, Woori Financial is the only domestic bank holding company implementing tax-exempt dividends.

Tax-exempt dividends require different conditions regarding funding sources compared to ordinary dividends. Ordinary dividends typically use retained earnings accumulated from business activities as their source. In contrast, Woori Financial’s tax-exempt dividends are funded by reducing capital reserves accumulated through capital transactions, such as share premium, and converting them into dividend funds. Unlike ordinary dividends, which distribute profits earned by the company, these have the nature of returning a portion of the capital contributed by shareholders, thus qualifying for tax benefits.

While ordinary cash dividends are subject to a 15.4% withholding tax (combining dividend income tax and local income tax) when paid to domestic individual shareholders, tax-exempt dividends are not subject to this tax. If 220 won per share is paid as an ordinary dividend, the amount received after withholding would be approximately 186 won, but with a tax-exempt dividend, shareholders receive the full 220 won.

Woori Financial is also proceeding with purchases worth 150 billion won in the second half of the year, in line with its plan for a total share buyback and cancellation program of 350 billion won this year.

A Woori Financial official stated, "As a result of pursuing solid growth centered on high-quality assets, we have achieved net profits exceeding 1 trillion won for two consecutive quarters," adding, "We will continue to expand shareholder returns by improving return on equity (ROE) going forward."