WF

Woori Financial Group Inc. (Woori Bank) - Form 6-K Summary

Business Context and Reporting Period

This Form 6-K, filed on August 16, 2016, summarizes the First Half (1H) 2016 business and financial results of Woori Bank (the "Bank"). The Bank is a major financial institution in the Republic of Korea, operating under Korean IFRS. As of June 30, 2016, the Bank's largest shareholder is the Korea Deposit Insurance Corporation (KDIC), holding 51.06% of the outstanding shares. The Bank operates a diverse portfolio including deposit services, loans, securities investment, and trust business, with significant international presence including subsidiaries in China, Indonesia, Russia, and Brazil.

Key Financial Metrics (1H 2016)

Material Changes vs. Prior Period

• Profitability Surge: Net income for 1H 2016 was KRW 757.8 billion, a significant increase of approximately 43% compared to KRW 528.8 billion in 1H 2015. This growth was driven by higher operating income (up 66% to KRW 949.1 billion) and a substantial reduction in impairment losses due to credit loss (down from KRW 691.1 billion in 1H 2015 to KRW 430.7 billion in 1H 2016).
• Asset Growth: Total assets increased by 5.8% year-over-year to KRW 308.8 trillion. Total loans grew by 3.2% to KRW 209.6 trillion, while deposits rose by 4.5% to KRW 218.5 trillion.
• Asset Quality Improvement: The sub-standard and below loan ratio improved to 1.22% in 1H 2016, down from 1.47% in 2015. The delinquency ratio (seasonally adjusted) also decreased to 0.57% from 0.82% in the prior year.
• Capital Strength: The Capital Adequacy Ratio remained stable at 13.67%, slightly up from 13.66% in 2015, maintaining compliance with Basel III standards.

Outlook, Risks, and Management Commentary

Management Commentary: The Bank highlighted the successful integration following the 2014 merger with Woori Finance Holdings. Recent developments include the launch of offshore Won-Yuan clearing services and the expansion of mobile banking through "WiBee Bank." The Bank continues to focus on asset quality management and cost efficiency.

Risks and Contingencies:

• Credit Risk: While asset quality has improved, the Bank maintains provisions for potential credit losses, particularly in the corporate sector. The filing notes that the sub-standard loan ratio excluding four major shipbuilders and Sambu Construction is lower (1.06%), indicating concentration risk in specific sectors.
• Liquidity Risk: The Bank maintains a Liquidity Coverage Ratio of 108.98%, exceeding regulatory requirements, but remains exposed to fluctuations in foreign currency funding costs.
• Regulatory Environment: The Bank operates under Korean IFRS and is subject to regulations by the Financial Supervisory Service (FSS) and the Bank of Korea.

Unusual Items: The filing does not disclose any material unusual items or discontinued operations for the 1H 2016 period. The significant improvement in net income is primarily attributed to reduced credit impairment charges rather than one-time gains.

Key Facts for Investor Verification

• Shareholder Structure: Verify the continued majority ownership (51.06%) by the Korea Deposit Insurance Corporation (KDIC) and its implications for corporate governance and privatization efforts.
• Credit Quality Concentration: Confirm the exposure to the shipbuilding sector and Sambu Construction, as their exclusion significantly improves the reported sub-standard loan ratio.
• Dividend Policy: Note that no cash dividends were declared for 1H 2016; investors should monitor the upcoming annual general meeting for full-year dividend announcements.
• Accounting Standards: Ensure financial comparisons are made using Korean IFRS, which may differ from US GAAP in specific areas such as impairment recognition and fair value measurements.
• International Exposure: Assess the performance and risk profile of overseas subsidiaries, particularly in China and Indonesia, given the Bank's strategic focus on Asian markets.