Good afternoon. I am [ Lee Dong Su ], Head of IR at Woori Financial Group. Let me first begin by thanking everyone for participating on this earnings conference call today. So on today's call, we have the group CFO, Lee Sung-wook; Group CRO; Jung Seok-Young; Group CFO, Park Jong-il; and Group CEO, Hwang Weon Cheol.
As COVID continues, we see fewer opportunities to meet with investors in person. So today, we have prepared a special event before going into the earnings presentation. Woori Financial Group Chairman, Son Tae-Seung is on the call today to extend his greetings and to address our investors.
Now please look at the presentation material on the screen. Now I will hand it over to the Chairman, Son Tae-Seung, for his remarks. Please go ahead.
Good afternoon. I am Son Tae-Seung, Chairman of Woori Financial Group. As COVID continues, it is unfortunate that there are less opportunities to directly communicate with the market. So I wanted to use this earnings call as an opportunity to thank our investors and also briefly discuss the main achievements of 2021, and management direction for 2022.
Last year, 2021 was an extremely meaningful year at the Woori Financial Group. First, from a financial standpoint, we were able to replace our record each and every quarter which led to net profit growing around 98% Y-o-Y to KRW 2,587.9 billion. This is the highest net profit or net income in our history, and in addition, in all areas across profitability, asset soundness and cost management, we were able to step up our performance, creating a solid foundation for future profit generation. In addition, last September, we received final approval for our IRB approach, which will provide momentum to move to the next stage. In the digital and ESG space, we have laid the groundwork and have been able to outperform market expectations.
In recognition of our stronger financial performance and also differentiated growth potential, the group was able to achieve full privatization on December 9 of last year. We thank you for this. During the privatization process, we were able to confirm strong investor interest in Woori Financial Group as well as gain confidence about the expectations for stronger growth going forward and the removal of discount vectors.
Today, as we have disclosed, the Woori Financial Group Board has reviewed the 2021 financial performance and also took into consideration the mid- to long-term business plan for the group and confirmed 2021 dividend to be KRW 900 per share, including the KRW 151 interim dividends already paid. The dividend per share is the highest amount in our history, and the dividend payout ratio is also recovered to pre-COVID levels. In order to enhance shareholder value and within the scope that keeps our capital adequacy ratio intact, Woori Financial Group is planning to review a wide variety of shareholder return options once COVID-19 stabilizes.
Next, let me discuss the future business direction of the group. Woori Financial group in -- for 2024 has a strategic road map to take the lead as a top global financial group with strong digital capabilities. And under this road map, we have a business strategy for 2022 to become a digitally focused, comprehensive and financial services provider. Aligned with this overall strategy, we do have various initiatives in place. And to talk about them one by one. The first would be to broaden the growth and revenue base. The second would be to drive digital super innovation. The third is to promote core growth businesses. The fourth is strengthening preemptive risk management. The fifth is to enhance our corporate culture, brand and ESG efforts. And the last is to improve group synergies and business efficiency.
This year, the Woori Financial Group will further accelerate efforts to expand our nonbank portfolio and solidify our foundation for sustainable growth by building unique digital capabilities and fostering key growth drivers, such as the CIB and global business. Building upon the major achievements in ESG last year, we will adopt environment-friendly management more broadly and also create social value. In addition, we will tightly manage not only the various risks stemming from COVID-19, but also the potential risks that may emerge in a rising interest rate environment. Moreover, using the fresh momentum created from full privatization, we will focus on enhancing the group's competitiveness and corporate value. This year, 2022 is the year of the tiger and I hope it will be a safe and healthy year for all of you who have shown support and interest in Woori Financial Group.
Furthermore, I hope this year, I will be able to have many opportunities to see you face-to-face. For the details of our performance, the group CFO, Lee Sung-wook, will walk you through the presentation briefly. Thank you.
Yes. Thank you. Next, -- we will have the group CFO, Lee Sung-wook, go into the full presentation. Thank you.
Good afternoon. I am Lee Sung-wook, the Group CFO at Woori Financial Group. I would like to thank everyone for participating on this call for the 2020 year full year performance of our group. Let me jump into the 2021 performance and walk you through. So please refer to the Page 3 of the presentation material that is available on our website. First, let me start with net income. As the Chairman has just mentioned, Woori Financial Group recorded a net income of KRW 2,587.9 billion in 2021, reaching a record high. Against the backdrop of uncertainties in Korea and abroad, this net income represents an increase of 98% Y-o-Y. It is the result of our stronger profit generation capabilities, stable asset quality and tight cost management. In particular, the contribution of the nonbank business, which was 10% when we first created the holding company, has grown to 17.2% as of 2021 and broadening the profit base of the group. Moreover, the group's fourth quarter 2021 net income was up by 133.5% Y-o-Y at KRW 390 billion. Though one-off factors such as the support for job transitions and additional provisions related to COVID uncertainties, we have been -- have been included. We continue to extend the performance turnaround trend each quarter.
Next is the group's net operating revenue. In 2021, the group's net operating revenue was KRW 8,344 billion, an increase of 22.3% to Y-o-Y. Solid asset growth centered on SME loans, along with active margin management efforts for fruit, enabling the group to post KRW 6,986 billion in interest income for 2021. The group's noninterest income also reached KRW 1,350 billion, a significant increase of 65.2% year-over-year, driving the improvement in performance. Such performance was possible due to the efforts aimed at breaking away from the interest income center profit structure and expanding the business portfolio of the nonbanking business.
Next, let me elaborate on the group's business performance by division in more detail. Please refer to Page 4 of the material. First, let me go over interest income and NIM or NIM. In 2021, the group's net interest income increased by 16.5% year-over-year to KRW 6.986 trillion. The bank's annual cumulative NIM was 1.37%, up 0.04 percentage points year-over-year the group's NIM, including the credit card business also increased by 0.05 percentage point year-over-year to 1.62%.
Meanwhile, the group's fourth quarter net interest income increased by 7.4% Q-on-Q to KRW 1.897 trillion, and a fourth quarter bank NIM improved 0.06 percentage points Q-o-Q to record 1.42%. While loan growth centered on SME loans continues, active efforts to improve the profit structure such as increasing low-cost deposits enabled such performance and considering the domestic and overseas macro environment, margin improvement is expected to continue for the time being.
Next, let me move on to asset growth and loan portfolio. Bank loans as of the end of 2021 totaled KRW 288 trillion, up 8.9% and or KRW 24 trillion compared to previous year end. Corporate loans stood at KRW 147 trillion, up 11.5% versus previous year-end. In particular, as demand for SME loans continue throughout the year, SME loans increased by 15.2% versus previous year-end to KRW 110 trillion, leading asset growth.
Despite the significant increase in SME loans, the group is preparing for any economic uncertainty by preemptively managing the prime asset ratio and consistently exceeding the firm's management target of 85%, recording 89.4%. Meanwhile, household loans amounted to KRW 139 trillion and increase of 6.4% versus last year and centered on real demand loans such as canceled loans.
Next is on the group's noninterest income. In 2021, the group's noninterest income was KRW 1.358 trillion, staging a significant growth of 65.2% year-over-year, leading the turnaround in earnings. Going into the details, we witnessed an even growth in all sectors, including not only the head office business such as foreign exchange derivatives and securities, but also in core fees and commissions. In particular, as a result of M&A efforts, noninterest income in the capital and real estate trust business increased and synergies between group companies are gradually increasing in earnest, resulting in group-wide growth in noninterest income.
Let me now move on to expense and capital adequacy. Please refer to Page 5. This is on SG&A expenses. In 2021, the group's SG&A expenses amounted to KRW 4.147 trillion, up 4.8% year-over-year. This is due to the impact from the newly incorporated subsidiary such as the capital and Savings Bank business. And when excluding this impact, the increase was limited to approximately 2.7% year-on-year. Thanks to the Woori Financial Group's efforts to manage the cost to income ratio, the group's General and admin costs only increased by 1.8% Y-o-Y. And in particular, general and admin costs of our core subsidiary, Woori Bank, recorded a slight decrease year-over-year. The group's cost-to-income ratio when excluding the fourth quarter early retirement costs stands at 47.5%, stably being managed well within the group's annual target of 50% as stated at the beginning of the year.
Let me now move on to credit costs. In 2021, the group's credit cost stood at KRW 537 billion, a 31.5% decrease year-over-year. Credit cost ratio improved, recording 0.17% and down 0.11 percentage points year-over-year. In order to preemptively prepare for COVID-related uncertainties, the group has additionally accumulated approximately KRW 80 billion in provisions for COVID-related loans during the fourth quarter. Even if COVID-related additional provisioning costs are reflected, the group's fourth quarter credit cost stands at KRW 225 billion, still well managed at a stable level.
Due to the termination of COVID-related loan repayment deferrals, I understand that there are some concerns in the market regarding asset quality management. As of the end of 2021, the outstanding balance of our COVID-related deferred principal loan is KRW 1.4 trillion, and the balance of deferred interest loans is KRW 171 billion. Including fourth quarter's additional provisioning, we have already accumulated a total of KRW 301 billion in COVID-related provisions and with the collateral ratio of forbearance loans exceeding 85%, the group has sufficient capacity to respond to insolvent assets. In 2022, we plan to continue to drive asset growth centers on prime assets and put further focus on asset quality management in preparation for a full-fledged interest rate hike.
Next, allow me to elaborate on capital adequacy and dividend policy. As of the end of 2021, the group's expected common stock ratio or our CET1 ratio is 11.3%, which is an increase by 1.3 percentage points compared to last year end. Despite the large increase in SME loans, strong profit growth and active risk-weighted asset management enabled such results. Furthermore, at the end of September, we received final approval from the financial authority regarding additional application of the internal ratings-based approach. The final approval of the internal ratings-based approach resulted in an increase of 1.3 percentage points in common stock ratio. The group has already informed several times about its mid- to long-term dividend policy. Taking into account the stability of the macro environment against COVID-19 and within the scope of maintaining the company's capital adequacy, we plan to continuously raise the dividend payout ratio to 30% in the mid- to long run.
Before concluding the earnings presentation, let me inform you on our key financial initiatives for 2022. First, we plan to continue to set a new record high in our performance in 2022 as well. We will continue to promote asset growth centered on prime assets and improve margins and further strengthen our competitiveness in noninterest income to exceed our 2021 performance. Second, we plan to continue pursuing intensive cost efficiency measures from the previous year. In 2022, through efficient operation of our channels and personnel, we plan to minimize the increase in general and admin costs. However, we will be aggressively expanding the allocation into the group's future growth budget, including the digital business aimed at strengthening the group's future competitiveness.
In 2022, we plan to stably manage the group's cost-to-income ratio at 50% or less. Third, we plan to focus on preemptive risk management. In 2022, rising market interest rates and the termination of COVID-related support are expected to add to the sustained uncertainty in the external environment. Through our upgraded risk management capabilities, we will concentrate on managing credit costs and asset quality. In my earnings presentation last year, I elaborated on the 3 key financial initiatives for 2021, which were first realizing a profit turnaround through strengthen sales capabilities; second, actively managing cost to income ratio; and third, improving the capital ratio.
Thanks to the significant support from our customers and the hard work of all of our employees, we were able to outperform all of our original goals. Going forward as well, Woori Financial Group will strive to deliver on its core initiatives and promise to the market. This concludes the presentation of Woori Financial Group's annual business performance. Thank you.
Yes. Thank you very much. Now we will start the Q&A session. So before going into the Q&A, I would like to make a couple of announcements. For the questions and answers, of course, we will have the executives that we have mentioned before. And in this Q&A, the Chairman will not be directly participating. So please take that into consideration. [Operator Instructions] So the first question will be coming from Hyundai Motor Securities, Jin-Sang Kim.
Yes. And this year, for the major metrics that you have, if there is any guidance that you can provide, that would be helpful. So in more detail, for example, for the credit cost that you have and also the asset growth on a Y-o-Y basis? How do you see that evolving? And in addition to that, the cost income ratio or the CIR for those key items, if you could give us some guidance. So in particular, for the credit cost last year, there were some provisions that you actually said and the actual incurrence that you have is very low. So this year, I do think it's inevitable that there will be an increase. So in actuality, how much credit cost increase do you actually believe will take place? And if you could elaborate a bit about that, that would be appreciated.
Yes. Kim Jin-Sang gave the question. And if we summarize the question, it would be that for 2022 for the Woori Financial Group, the key metrics on the financial side. Any guidance that you can provide and in particular, with the credit card because it was a historic low last year. If it's inevitable for it to increase then for this year, how much increase do you actually foresee -- that was actually the question. So for this, if you could just give us a few seconds, then we will answer your questions.
Yes. This is the group CFO, Lee Sung-wook, maybe I can take your question. In the case of 2022 across the board, maybe if I could just give you a broad overview in terms of our growth target. For the Korean won loans, it would be around 6% to 7%. And as you are aware, on the household loan side, there is a government overall in place, so that would be around 40%. And then on the SME side, it would be 8% to 9%. And in addition to that, we do want to maintain a CET1 ratio that would be flat to what we have at the end of last year. In addition to that, for Woori Financial Group, one of the things that we can focus on would be the interest income. So for example, in the last year, the NIM was 1.37%. And if we look at the overall 1.24% in the fourth quarter of last year because the base rate did -- was hiked in January, and we do believe that it will continue to increase going forward. Taking that into consideration, we do believe that there can be a growth of a Y-o-Y of 15%. So the NIM can actually go up to as far as 1.5%.
In addition to that, if we look at the SG&A, as we mentioned before, in general, we do think that for the digital areas, there are investments that we will be making aggressively. However, in terms of the branches and the HR side and in terms of head counts, and other general and administrative costs, we do want to keep it at last year's level. So on the cost side, we do compared to the current side is something that we want to continue to decrease. So to talk about the credit cost in itself for this year, if COVID-19 does end, then we do think that on a Y-o-Y basis, that there are credit overall credit costs will inevitably have to go up. So as a result of that, we do think that there will be around a 15 to 16 basis points increase as a result of that. And in the business plan that we have formulated for this year, this was fully reflected. It was discussed at the BOD and confirmed.
However, if we look at it comprehensively in terms of the increase in the interest income, as mentioned before, we do think that there will be a significant growth of around 15%. So any increase in the credit cost side that we have, we still believe that we will be able to break our records again in terms of our performance and show 1 of the best years that we have had in our history. Thank you.
The next question is from Hanwha Investment & Securities, Kim Do Ha.
So with regard to the additional provisioning of KRW 84 billion from the second quarter of 2020, I can see that you've been engaging in provisioning. And of course, there is a difference in the subsidiary structure. But compared to other large commercial banks, you can see that the provision is not that significant. So I would like to understand with regard to provisioning were there specific assumptions behind your provisioning? And in 2021, on an annual basis. I would like to understand where there is some additional provisioning break backs against COVID-19. And I'm not sure whether I've understood correctly, but when you were mentioning about the guidance, you mentioned that the target margin is more than 1.5%, which seems quite high. So in the fourth quarter, it was 1.42%. So I'd like to understand what was the margin in January end? And how do you see the trend or the pace of NIM throughout the quarter?
Yes. Thank you very much for the question. Mr. Kim Do Ha asked about our additional provisioning, what the basic assumptions we have with regard to our additional provisioning and also with regard to the existing provisioning in 2021, whether there were any write-backs with regard to COVID-related provisioning. And also with regard to the NIM guidance that was mentioned she asked about the margin trend of January. And also what -- how we foresee the trend going forward. So please bear with us for just a moment as we prepare to respond to your question.
I am Jung Seok-Young, CRO of the group. First, with regard to additional provisioning. So with regard to the COVID-19 provisioning in the fourth quarter, there was KRW 84 billion that was accumulated or provisioned as mentioned by CFO Lee Sung-wook. In 2020 end, we had about KRW 200 billion COVID-related provisioning, and at year-end this year, we've added KRW 84 billion. So it's approximately KRW 300 billion, where there was provisioning with regard to COVID. And any write-backs with regard to COVID provisioning? So there were some slight fluctuations. However, there wasn't a significant move in the provisioning. However, if you compare with other financial groups, if you look at the provisioning itself, you mentioned that it's not that significant. And what we do is to have a KRW 100 billion provision guideline based on our performance. And in terms of the economic forecast going forward, we do have a pessimistic view. So we believe that paid KRW 100 billion of write-backs would not take place. So then if we consider all that, there would be an effect of adding KRW 100 billion of provisioning considering that the write-back will not take place, thank you.
And with regard to the NIM question, I am Lee Sung-wook, the CFO, and let me respond to that question. So with regard to the NIM, 1.5%, isn't that too high of a guidance.
Last year, in the fourth quarter, NIM was 1.42%. And in December, the NIM was mid 1.4%. And this January, NIM stood at 1.46%. This is the expected figure for January. So all in all, this year, with the rate hike of January has not been reflected as of yet, but once that is reflected and if there's another rate hike in the second half of this year, based on our simulation, we believe that the NIM can reach 1.5%. And particularly recently, corporate loans and household loans, the returns from these loans are rapidly increasing, and our core deposits are still showing some sustained growth. So considering all this, we believe that NIM can reach 1.5%. Thank you.
Yes. Thank you. We will take the next question, which is from BNP. It will be [ Kim Eun from BNP ]
Do you hear me well?
If you could speak up a bit, that would be helpful. .
So do you hear me very well?
Yes, I think that it's okay now. .
There is 1 question that I would like to ask you, which is about your [ assets owned ]. I think that it's at historical levels. And from the market, I think that one of the concerns that we do have is that because right now, we're -- we do see the second year of COVID passing. And in terms of the risk side, I do think that there is some concern. So for example, also, we do see that the interest rate is rising. So that also is leading to some concern. So there are risks that have been highlighted. But if you actually look at the numbers, the numbers do not reflect that. It still looks like a very sound situation. So taking that into consideration for this year, if margins do increase then on the risk side, I think that there should be more focus on that. And when you do your calls. I do think that you did discuss this. But on the risk management side, is there anything plan that you have? And if so, if you could elaborate a bit about that, that would be appreciated. .
Yes. For the question that has just been mentioned, I think that scope continues. And going forward, since the interest rate is also rising, these can actually represent risk, which is being managed very well now, but there is a lot of attention about it. So I think that the market is interested on this topic. So I think that there's a question about risk management. So again, if you could give us a second, then we would appreciate that.
Yes. Hello. I am the Group CRO, Jung Seok-Young, and maybe I can answer your question. So as you are well aware, -- it's not just us, but I think that for all of the financial holding groups right now in terms of the NPL or in terms of the delinquency ratios right now are at historic low. Of course, amongst them, we also have a very noticeable performance taking place. And the main reason behind that is because during the past 3 years or 4 years or so, I think that on a continuous effort, there has been an increase in the prime assets that we have. We have tried to contribute more to that. And I think that that's taking effect now. And at the end of -- this year, as we have mentioned by the CFO, we do think that the overall delinquency and in terms of the overall asset ones, we do think that there will be a slight worsening versus the end of last year, but we don't actually believe it will be significant. If we do look at the overall group subsidiaries, of course, if we continue to manage our loans, we think that compared to the global financial crisis or an Asia financial crisis, if we don't have that level of shop, we do think that we will be able to maintain the current levels. So that would be the view that we hold.
Thank you very much for the response. So then I can see that just before that, we do, we'll receive the last question.
Next question is from Daishin Securities, from Park Hye-jin. Please go ahead with your questions.
I'm Park Hye-jin from Daishin Securities. I have 2 questions. So first, the 900 of dividends, but there was also interim dividend payout that took place. So I would like to understand, is there a possibility of providing this dividend payout on a quarterly basis going forward? And I believe that Woori is to launch this F&I business. So I would like to understand the current progress meeting that you can share with us regard to that business. And as far as I know, and other subsidiaries may be established in the process. So I would like to understand, do you have any plans to establish new subsidiaries under the Financial Group.
Yes. Thank you very much for the question. Ms. Park Hye-jin from Daishin Securities has asked about our dividend payout. The interval and our future plans and also on the Woori F&I the progress on the Woori F&I and whether we do have any plans to add subsidiaries or VCs to the group. Please bear with us for just a moment as we get ready to answer your question.
I'm Lee Sung-wook, CFO. Let me respond to your question first on the dividends. So based on the advisory from the financial authority, for the first time, we have conducted a dividend payout of 151%, we established a financial group, and we're putting a lot thought into this. And with regard to interim dividends last year, it wasn't a clear cut so this time around the payout -- interim dividend payout date or the cutoff date is something that we want to clarify going forward. And with regard to the dividend, as you've asked in your question, we will make sure to communicate sufficiently with the market. And with regard to the dividend payout ratio, we are thinking of reaching 30% plus in the mid- to long run. And then also on the F&I launch.
With both privatization, we aspire to create a full financial portfolio. And therefore, we are focusing on putting in place a P&I portfolio and this -- early this year, we officially and successfully launched our F&I business. Woori Financial Group for the 14 years side experience in running NPL loans. So we believe that we will be able to lay route as quickly as possible, and we are already up and running our F&I business. And right now, we are looking into an acquisition of securities firms or PCs, and we're also thinking of insurance business. We believe that the securities business will create the greatest synergy with us. So we're thinking of subordinated debt, considering the capital situation. So what we want to do going forward is to focus on enhancing our corporate value and looking into various candidates, and we will efficiently and sufficiently communicate with the market when making our decisions.
So we want to continue on to build up our P&I business so that we can accelerate our corporate growth going forward.
Yes, thank you for the answer. And with this, I think that we can wrap up the Q&A session here. And although this was not a question. I do believe that the CTO, Hwang Weon Cheol would like an opportunity to briefly talk about our digital direction going forward. And with that -- after that, we will actually wrap up our conference call.
So as introduced, I am the Group CTO, Hwang Weon Cheol. And I had thought that you might ask about this, but since there is no question, maybe just to briefly go over 2022, our overall digital strategy and I think that, that may be helpful. So maybe if I could briefly discuss that. So for all of the participants on the call today, I do think that traditionally speaking, a financial services company tends to be more focused on the face-to-face channel. So on the non face-to-face channel, we're taking it from just a channel to now a platform, and I think that this transition and the need for that is not questionable. So at the group level, as a platform, pursuing a digital strategy is something that we do want to do. So maybe elaborating a bit in more detail about that, it is the financial authorities and also whether it be banking, investment and also payments, I think that for retail investors, all of the financial needs that customers need to be able to satisfy that through 1 platform is what we're trying to do. So as a result of that, by providing various services off of 1 platform, we do think that, that would represent a comprehensive financial services provider, and we do believe that this is a very important idea for us and it's actually a turning point for us.
So as of the current time, if you look at Woori Financial Group, we have the credit card business and the bank business, which is the main focus on maybe elaborating a bit about that. If you look at the MAU right now, it's around 8 80 billion. So we do think that, that can actually grow to at around 10 million go from 8 million to 10 million and they're not too far future in terms of the monthly active users. And in addition to that, for the digital business in itself and pursuing that, not only the -- we do believe that the traditional management methods or approaches does not give us the insight about what's actually happening on the ground. So we do want to change the overall approach innovatively, where we're looking at the overall management structure and oversight structure. And at the end of this year or the beginning of 2023 for our business units, we do have a clear way through which we want to reflect the digital impact or the digital overall approach. In addition to that, we do have skills management and skills training that are taking place at the same time. Thank you very much.
Yes. Thank you very much. With this, we would like to conclude the 2021 Annual Business performance earnings call. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
