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, 2014
Accounting Standards: International Financial Reporting Standards (IFRS)
The reporting period was defined by a major corporate restructuring. On November 1, 2014, Woori Finance Holdings merged with and into Woori Bank, making Woori Bank the surviving entity. Consequently, the consolidated financial statements reflect the operations of Woori Bank and its subsidiaries post-merger, and Woori Finance Holdings and its subsidiaries pre-merger. The Korean government, via the Korea Deposit Insurance Corporation (KDIC), remains the controlling shareholder with a 51.04% stake, though a privatization plan is ongoing.
Significant portions of the former group's operations (including Kwangju Bank, Kyongnam Bank, Woori Investment & Securities, and others) were classified as discontinued operations in 2014 following their sale or spin-off as part of the privatization plan.
Key Financial Metrics (2014)
| Metric | Amount (KRW Billions) | Amount (USD Millions) |
|---|---|---|
| Total Assets | 270,157 | 247,646 |
| Total Liabilities | 252,064 | 231,060 |
| Total Equity | 18,093 | 16,586 |
| Net Interest Income | 4,493 | 4,119 |
| Total Revenue | 11,027 | 10,109 |
| Net Income (Continuing Ops) | 546 | 501 |
| Net Income (Total) | 1,208 | 1,107 |
| Net Income Attributable to Owners | 1,214 | 1,113 |
| Impairment Losses on Credit Loss | (1,097) | (1,006) |
| Non-Performing Loans (NPL) | 3,818 | 3,499 |
| NPL Ratio | 1.84% | - |
| Return on Average Assets (ROA) | 0.47% | - |
| Return on Average Equity (ROE) | 6.74% | - |
| Cost-to-Income Ratio | 68.38% | - |
| Capital Adequacy Ratio (Total) | 14.25% | - |
Material Changes vs. Prior Period
- Revenue and Profitability: Total revenue decreased slightly to KRW 11,027 billion from KRW 11,185 billion in 2013. Net income from continuing operations increased significantly to KRW 546 billion from KRW 253 billion in 2013, driven largely by a reduction in impairment losses on credit loss (KRW 1,097 billion in 2014 vs. KRW 2,277 billion in 2013).
- Asset Quality: The non-performing loan ratio improved to 1.84% in 2014, down from 2.58% in 2013. Total NPLs decreased to KRW 3,818 billion from KRW 4,996 billion.
- Balance Sheet: Total assets decreased to KRW 270,157 billion from KRW 340,690 billion in 2013. This decline is primarily attributable to the classification of significant subsidiaries (Kwangju Bank, Kyongnam Bank, etc.) as discontinued operations and their subsequent sale or spin-off.
- Cost Efficiency: The cost-to-income ratio deteriorated to 68.38% in 2014 from 59.30% in 2013, reflecting higher operating expenses relative to revenue.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Management aims to build a leading universal banking platform, focusing on revenue diversification through fee-based services (bancassurance, investment banking) to reduce reliance on interest income. The bank is actively managing asset quality and strengthening risk management systems. A new one-year business normalization plan with the KDIC was entered into in March 2015, setting targets for 2015 including a capital adequacy ratio of 10.0%, ROA of 0.32%, and an NPL ratio of 1.3%.
Key Risks and Contingencies:
- Privatization Plan: The ongoing sale of the KDIC's remaining stake could lead to changes in management, strategy, and potential labor unrest. The loss of government backing may impact credit ratings.
- Credit Risk (SMEs and Chaebols): Significant exposure to small- and medium-sized enterprises (SMEs) and large conglomerates (chaebols). Financial difficulties in these sectors, particularly in construction and shipbuilding (e.g., STX Group), could lead to increased provisions.
- Consumer Debt: Rapid growth in consumer debt and credit card delinquencies poses a risk to asset quality.
- Regulatory and Sanctions: The bank faces risks related to U.S. sanctions regarding limited activities with Iran (specifically maintaining accounts for the Central Bank of Iran). While the bank believes these activities are exempt, any determination of violation could severely impact access to the U.S. financial system.
- Interest Rate Risk: Fluctuations in interest rates could affect the value of the debt securities portfolio and funding costs.
Investor Verification Checklist
- Discontinued Operations: Verify the exact scope of assets and liabilities excluded from continuing operations due to the privatization spin-offs to ensure accurate year-over-year comparisons.
- Iran Sanctions Exposure: Review the specific details of the bank's dealings with the Central Bank of Iran and the status of U.S. regulatory determinations regarding the "significant reduction" exemption.
- Asset Quality Trends: Monitor the NPL ratio and allowance coverage ratios, specifically for the construction and shipbuilding sectors, given the historical volatility in these industries.
- Privatization Timeline: Track the progress of the KDIC's divestiture plan and any potential changes in corporate governance or strategic direction resulting from a change in controlling shareholder.
- Cost-to-Income Ratio: Assess the sustainability of the rising cost-to-income ratio (68.38%) and management's ability to control operating expenses in a competitive market.