Business Context and Reporting Period
Company: Woori Financial Group Inc. (Woori Bank)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2015
Accounting Standards: International Financial Reporting Standards (IFRS)
Ownership: The Korean government, via the Korea Deposit Insurance Corporation (KDIC), owns 51.06% of outstanding common stock. The company is in the process of privatization.
Corporate Structure Changes: In November 2014, Woori Finance Holdings merged into Woori Bank. Several former subsidiaries (including Kwangju Bank, Kyongnam Bank, and Woori Investment & Securities) were spun off or sold in 2014 and are classified as discontinued operations. Consequently, 2015 results are not directly comparable to pre-2014 periods without adjustment.
Key Financial Metrics (2015)
| Metric | Amount (Won Billions) | Amount (US$ Millions) |
|---|---|---|
| Total Assets | 291,859 | 249,603 |
| Total Liabilities | 272,549 | 233,088 |
| Total Equity | 19,310 | 16,515 |
| Net Interest Income | 4,762 | 4,072 |
| Net Fees and Commissions Income | 976 | 835 |
| Impairment Losses (Credit) | (966) | (826) |
| Net Income (Continuing Ops) | 1,075 | 920 |
| Net Income Attributable to Owners | 1,059 | 906 |
| EPS (Basic & Diluted) | ₩1,301 | $1.52 |
Profitability and Efficiency Ratios
- Return on Average Assets (ROA): 0.37%
- Return on Average Equity (ROE): 5.62%
- Net Interest Margin: 1.74%
- Cost-to-Income Ratio: 66.22%
- Capital Adequacy Ratio (Total): 13.66% (Tier 1: 10.43%)
Asset Quality
- Total Loans: ₩227,169 billion
- Non-Performing Loans (NPLs): ₩2,909 billion (1.28% of total loans)
- Allowance for Credit Losses: ₩2,051 billion (0.90% of total loans)
- Net Charge-offs: ₩1,457 billion (0.7% of average loans)
Material Changes vs. Prior Period (2014)
- Net Income: Net income from continuing operations increased to ₩1,075 billion in 2015 from ₩546 billion in 2014, driven by lower impairment losses and improved operating efficiency.
- Asset Growth: Total assets increased by approximately 8% to ₩291.9 trillion, primarily due to loan growth.
- Asset Quality Improvement: The NPL ratio improved significantly to 1.28% in 2015 from 1.84% in 2014. Total NPLs decreased by ₩909 billion.
- Interest Income: Total interest income declined to ₩8,698 billion (from ₩9,211 billion in 2014) due to lower interest rates in Korea, though this was partially offset by volume growth.
- Discontinued Operations: Unlike 2014, 2015 results contain no income or loss from discontinued operations, as the major spin-offs and sales were completed in 2014.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management aims to diversify revenue through fee-based services (bancassurance, investment banking) to reduce reliance on net interest income. The company is expanding its fintech capabilities (e.g., WiBee Bank) and international presence (e.g., Philippines, Myanmar). A new one-year business normalization plan with the KDIC was entered into in March 2016, setting targets for capital adequacy, ROA, ROE, and NPL ratios.
Key Risks and Contingencies
- Privatization Uncertainty: The sale of the KDIC's remaining 51.06% stake could lead to changes in management, strategy, or labor unrest.
- Iran Sanctions: The bank maintains limited accounts for the Central Bank of Iran (CBI) and provides trade financing. While the bank believes these activities comply with current sanctions relief (JCPOA), there is a risk of U.S. or international sanctions if activities are deemed non-compliant. The bank is cooperating with a U.S. DOJ investigation regarding these accounts.
- Geopolitical Risk: Escalating tensions with North Korea (nuclear tests, missile launches) pose a significant risk to the Korean economy and the bank's operations.
- Interest Rate Risk: A sustained increase in interest rates could reduce the value of the debt securities portfolio and increase funding costs.
- Concentration Risk: Significant exposure to small- and medium-sized enterprises (SMEs) and large conglomerates (chaebols), particularly in the construction and shipbuilding sectors.
Investor Verification Checklist
- Verify Privatization Timeline: Confirm the status of the KDIC's plan to sell its remaining stake and potential impact on corporate governance.
- Assess Iran Exposure: Review the outcome of the U.S. DOJ investigation regarding CBI accounts and the potential for sanctions or reputational damage.
- Monitor NPL Trends: Track the sustainability of the NPL ratio improvement, specifically regarding exposure to the shipbuilding and construction sectors.
- Check Capital Adequacy: Ensure the bank maintains capital ratios above the KDIC's targets and Basel III requirements amidst potential future capital calls.
- Review Fee Income Growth: Validate the success of the strategy to increase non-interest income to offset declining net interest margins.