Woori Financial Puts Emphasis on Corporate Lending in 'Productive Finance' Push; Delinquency Rate Edges Up Slightly

Large corporate loans rise by KRW 8.4 trillion, while SME loans fall by KRW 894 billion
“All-in margin” strategy to generate foreign exchange and IB fees
Bank NIM falls 7.2 basis points in Q3; delinquency rate rises to 0.46%

Woori Bank’s loans to large corporations have increased by more than KRW 8 trillion since the beginning of this year, while loans to small and medium-sized enterprises (SMEs) have declined, mainly due to a drop in lending to sole proprietors. This means that lending to large corporations has taken priority in the push for “productive finance” through corporate lending growth. Although the overall loan portfolio has expanded, the bank’s net interest margin (NIM) has fallen, and its delinquency rate has edged up.

An analysis of Woori Financial Group’s third-quarter earnings materials and earnings conference call on October 29 found that Woori Bank’s outstanding loans to large corporations totaled KRW 63.734 trillion at the end of September, up KRW 8.411 trillion, or 15.2%, from KRW 55.323 trillion at the end of last year.

By contrast, loans to SMEs fell by KRW 894 billion, or 0.7%, over the same period, from KRW 125.122 trillion to KRW 124.228 trillion. The decline was largely driven by loans to sole proprietors (SOHO), which are included in SME lending: these fell by KRW 1.703 trillion, or 3.9%, from KRW 43.44 trillion to KRW 41.737 trillion. SME corporate loans increased by KRW 809 billion, or 1.0%, but this was not enough to offset the drop in lending to sole proprietors.

Total corporate loans to large corporations and SMEs rose by KRW 7.517 trillion, from KRW 180.445 trillion at the end of last year to KRW 187.962 trillion at the end of September this year. In other words, the increase in loans to large corporations exceeded the net increase in total corporate loans. Large corporations’ share of total corporate lending also rose by 3.2 percentage points, from 30.7% at the end of last year to 33.9% at the end of September. However, loans to large corporations declined by 0.4% compared with KRW 63.994 trillion at the end of the previous quarter.

Despite the growth in lending, the NIM, which indicates the profitability of the interest-earning business, declined. The NIM is calculated by dividing net interest income—the difference between interest income and interest expenses—by average interest-earning assets. Woori Bank’s won-denominated loans totaled KRW 313 trillion at the end of September, up 4.1% from the end of last year. However, its third-quarter NIM was 1.434%, down 0.072 percentage points, or 7.2 basis points, from 1.506% in the previous quarter.

At the earnings conference call on October 23, Woori Financial Group Chief Financial Officer (CFO) Kwak Seong-min cited a decline in the share of low-cost core deposits and higher funding costs resulting from a widening gap between short- and long-term interest rates as factors behind the fall in the NIM.

About 70% of Woori Bank’s loans are linked to the certificate of deposit (CD) rate. This means that margins come under pressure when funding rates, such as rates on bank bonds, rise faster than the CD rate. In fact, the interest rate on won-denominated deposits rose 16 basis points, from 2.06% in the second quarter to 2.22% in the third quarter, while the interest rate on won-denominated loans increased by just 8 basis points, from 3.91% to 3.99%.

Woori Financial Group held its October Advanced Strategic Industry Finance Council at its headquarters in Jung-gu, Seoul, on the 20th, chaired by Chairman Lim Jongryong. Photo provided by Woori Financial Group.

Alongside expanding loans to large corporations, Woori Financial Group is pursuing a strategy to generate fee income from its foreign exchange and investment banking (IB) businesses. During the conference call, CFO Kwak said the group was taking an “all-in margin” approach that considers both interest and non-interest income as it expands lending centered on productive finance, even as the share of loans to large corporations grows. The aim is to identify IB opportunities and secure related business, such as foreign exchange transactions, while establishing lending relationships with large corporations, thereby increasing profitability across the overall relationship.

Competition among banks to attract highly creditworthy large corporations is intense, which can limit the margins available from lending rates alone. Woori Financial Group plans to address this by linking loans with capital market services. In the first nine months of the year, the group’s fees from underwriting, advisory and arranging services rose 143.5% year over year.

Meanwhile, Woori Bank’s delinquency rate stood at 0.46% at the end of September, up 0.03 percentage points from 0.43% at the end of the previous quarter. Compared with 0.34% at the end of last year, it was higher by 0.12 percentage points. Woori Card’s delinquency rate also rose by 0.14 percentage points, from 1.81% at the end of the previous quarter to 1.95%. Woori Financial Group said the increase reflected a decline in the volume of non-performing loans sold or written off in its card business compared with the previous quarter. In the fourth quarter, it plans to stabilize the delinquency rate and the ratio of substandard-or-below loans through measures including the sale and write-off of non-performing loans.

This content was produced with the assistance of AI translation services.