Business Context and Reporting Period
This Form 6-K, filed on April 1, 2019, by Woori Financial Group Inc., summarizes the 2018 Business Report of Woori Bank. The filing details the bank's transition to a financial holding company structure. On January 11, 2019, Woori Financial Group Inc. was established, making Woori Bank and several other entities its wholly owned subsidiaries. Consequently, Woori Bank shares were delisted from the Korea Stock Exchange and NYSE, replaced by the listing of Woori Financial Group Inc. shares.
Key Financial Metrics (Fiscal Year 2018)
Financial data is presented in millions of Won (KRW) unless otherwise noted, based on K-IFRS consolidated statements.
- Net Income: 2,051,649 (attributable to owners: 2,033,182)
- Operating Income: 2,759,301
- Total Assets: 340,447,183
- Total Deposits: 248,690,939
- Total Loans: 229,252,587 (Separate basis); 282,448,315 (Consolidated loans and other financial assets at amortized cost)
- Capital Adequacy Ratio (BIS): 15.65%
- Liquidity Coverage Ratio: 103.40%
- Sub-standard and Below Loan Ratio: 0.51%
- Earnings Per Share (Basic): 2,796 Won
- Dividend Payout Ratio: 21.52% (Cash dividend per share: 650 Won)
Material Changes vs. Prior Period
Compared to 2017, Woori Bank demonstrated significant growth in profitability and asset quality:
- Profitability: Net income increased by approximately 34% (from 1,530,088 in 2017 to 2,051,649 in 2018). Operating income rose by 28%.
- Asset Quality: The sub-standard and below loan ratio improved significantly, dropping from 0.83% in 2017 to 0.51% in 2018. Impairment losses due to credit loss decreased substantially from 785,133 in 2017 to 329,574 in 2018.
- Balance Sheet: Total assets grew by 7.6% to 340.4 trillion Won. Total deposits increased by 6.0% to 248.7 trillion Won.
- Corporate Structure: The most material change was the establishment of the Woori Financial Group Inc. holding company in January 2019, altering the corporate governance and listing status.
Outlook, Risks, and Management Commentary
Management Commentary: The filing highlights the successful implementation of the new core banking system "WINI" in May 2018 and the expansion of the global network to 410 locations. The bank received the "2018 Bank of the Year in Korea" award from The Banker.
Risks and Contingencies:
- Accounting Standards: Financial information is prepared under Korean IFRS, which differs in certain respects from U.S. GAAP.
- Regulatory Compliance: The bank maintains liquidity coverage ratios above regulatory minimums (103.40% vs. 100% minimum).
- Related Party Transactions: Significant credit extensions exist to major shareholders, including the Korea Deposit Insurance Corporation (KDIC), with outstanding loans totaling 750,000 million Won as of December 31, 2018.
Unusual Items: The filing notes a significant reduction in impairment losses, contributing to the rise in net income. Additionally, the restructuring into a holding company involved a comprehensive stock transfer plan where KDIC's ownership in Woori Bank was transferred to the new holding company.
Investor Verification Checklist
- Verify the impact of the transition to the Woori Financial Group Inc. holding company structure on future dividend policies and capital allocation.
- Confirm the sustainability of the improved asset quality metrics (0.51% sub-standard loan ratio) in the context of the Korean economic environment.
- Review the specific terms and risk exposure related to the 750 billion Won in loans extended to the Korea Deposit Insurance Corporation (KDIC).
- Assess the implications of the new core banking system "WINI" on operational efficiency and future cost structures.
- Monitor the liquidity coverage ratio trends, noting the foreign currency liquidity coverage ratio was 106.42% in December 2018.