Woori Financial Group Inc. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; filed April 30, 2021. This is an annual report, not a standalone fourth-quarter report. Financial statements are consolidated and prepared under IFRS as issued by the IASB. Amounts below are in billions of Korean won unless stated otherwise.
Business context
Woori is a Korea-based financial holding company whose principal business is banking through Woori Bank, alongside credit cards, investment banking, asset management and other financial services. The group was established in 2019, and historical consolidated results before then principally reflect Woori Bank and its subsidiaries. In 2020, Woori Financial Capital became a consolidated subsidiary from October 20, affecting year-over-year comparability.
Financial performance and key metrics
| Metric | FY2020 | FY2019 | Change or context |
|---|---|---|---|
| Interest income | 9,524 | 10,577 | Down 10.0% |
| Interest expense | 3,526 | 4,683 | Down 24.7% |
| Net interest income | 5,999 | 5,894 | Up 1.8% |
| Net fees and commissions income | 1,014 | 1,103 | Down 8.1% |
| Operating income | 2,080 | 2,800 | Down 25.7% |
| Impairment losses due to credit loss | 784 | 374 | Up 109.6% |
| General and administrative expenses | 3,956 | 3,766 | Up 5.0% |
| Net income | 1,515 | 2,038 | Down 25.6% |
| Net income attributable to owners | 1,307 | 1,872 | Down 30.2% |
| Basic and diluted earnings per share | ₩1,742 | ₩2,727 | Down from prior year |
| Net interest margin | 1.65% | 1.74% | Down 9 basis points |
| Return on average assets / equity | 0.40% / 5.79% | 0.57% / 8.37% | Both declined |
| Efficiency ratio | 58.01% | 54.27% | Higher ratio indicates weaker cost efficiency |
| Cash dividends per common share | ₩360 | ₩700 | FY2020 dividend approved in March 2021 |
Lower interest rates reduced asset yields, but lower funding costs more than offset the decline in interest income, supporting modest net interest income growth. The net interest margin nevertheless narrowed. The filing does not present a single consolidated “revenue” measure comparable to a non-financial company; net interest income and net fees and commissions are key banking income measures.
Balance sheet, cash flow, debt and liquidity
- Scale and growth: Total assets were ₩399,081 billion, up 10.2% from 2019. Total loans were ₩303,965 billion, up 11.8% on the regulatory presentation; the IFRS balance-sheet loans line was ₩302,794 billion after applicable accounting adjustments.
- Funding and liabilities: Customer deposits were ₩291,477 billion, up 10.1%, and represented about 82.2% of total funding. Borrowings were ₩20,745 billion and debentures ₩37,479 billion. Total liabilities were ₩372,356 billion; total equity was ₩26,726 billion.
- Cash and cash flow: Cash and cash equivalents ended the year at ₩9,991 billion, versus ₩6,393 billion. Net cash from operating activities was ₩3,606 billion, investing cash outflow ₩1,456 billion and financing cash inflow ₩2,367 billion. Cash increased ₩4,517 billion before a ₩918 billion negative effect from exchange-rate changes.
- Liquidity: Management said the group complied with applicable liquidity requirements. Woori Bank’s 30-day liquidity coverage ratio was 91.41% at year-end, above the temporary 85% regulatory threshold then in effect; temporary COVID-related relief was scheduled to end in September 2021, subject to change. About 96.2% of customer deposits had maturities of one year or less or were payable on demand.
- Capital: Group common equity Tier 1, Tier 1 and total capital ratios were 10.00%, 11.78% and 13.84%, respectively, above stated minimums of 8.0%, 9.5% and 11.5%. Woori Bank’s corresponding ratios were 13.14%, 15.03% and 17.34%.
- Asset quality: The non-performing loan ratio improved to 0.41% from 0.43%, although NPL balances increased to ₩1,236 billion from ₩1,157 billion as the loan book expanded. Loan allowance for credit losses rose to ₩1,909 billion from ₩1,575 billion; the broader allowance for loans and other financial assets at amortized cost was ₩1,996 billion.
Material changes versus FY2019
- Net income fell as credit-loss impairment more than doubled, other net operating expenses rose to ₩820 billion from ₩303 billion, and operating income declined. Management attributed higher loan-loss provisions primarily to anticipated COVID-19-related deterioration in credit quality.
- Interest income fell 10.0% as the average yield on interest-earning assets declined to 2.62% from 3.11%; average interest-earning assets grew 6.9%. Lower rates also reduced the average cost of interest-bearing liabilities to 1.02% from 1.45%.
- Net gains on financial instruments rose to ₩490 billion from ₩139 billion, chiefly due to currency-derivative gains. This was partly offset by substantial foreign-exchange transaction losses, and results remain sensitive to market volatility.
- Woori Financial Capital’s consolidation added assets, income and expenses from October 20, 2020. The acquisition also generated a ₩67 billion bargain-purchase gain; the acquired subsidiary recorded a net loss for its post-consolidation period.
- Common dividends fell to ₩360 per share from ₩700. The reported dividend payout ratio was 19.89%, versus 27.03% in 2019.
Outlook, management commentary, risks and unusual items
Management described the outlook for Korea and global markets in 2021 and beyond as uncertain. The filing provides no numerical earnings or margin guidance. Stated priorities include improving asset quality and risk management, expanding fee-based and non-bank businesses, digital innovation, cross-selling and selective overseas growth and acquisitions.
- COVID-19 and credit: COVID-19 disrupted business activity and drove support programs, including loan-term extensions and payment deferrals. At year-end, ₩1,820 billion of loans and payment guarantees were subject to the relevant SME and small-merchant support program. The company recognized additional expected credit losses, including ₩219 billion associated with deferred loans at Woori Bank. The timing and extent of borrower recovery remain uncertain.
- Portfolio exposure: SMEs represented 32.1% of total loans. Hotel, leisure and transportation industry loans totaled ₩9,150 billion, or 3.0% of total loans. The 20 largest corporate exposures totaled ₩55,650 billion, or 11.5% of total exposures. Further deterioration could require additional provisions.
- Funding and market risks: Reliance on short-term deposits exposes the group to withdrawals or higher funding costs. Interest-rate, foreign-exchange and securities-market volatility can affect margins, borrower repayment capacity and investment valuations. The LIBOR transition also creates contractual, operational and legal risks.
- Customer remediation and contingencies: Woori Bank had reimbursed most customers who accepted recommendations relating to derivative-linked fund sales; the bank was fined ₩19.7 billion and received a six-month ban on new private-equity fund sales. It challenged the fine. In the Lime Asset Management matter, the bank refunded ₩64.7 billion to 288 trade-finance-fund customers and had reimbursed ₩119 billion to 1,088 customers for other Lime-related products by year-end; further reimbursement recommendations and investigations remained possible. Provisions included estimates related to these matters.
- Other legal and regulatory matters: The Korea Financial Intelligence Unit imposed a ₩16.5 billion penalty for currency-transaction reporting failures; Woori Bank appealed. OFAC closed its sanctions investigation with a cautionary letter in December 2020, while investigations by other U.S. authorities had not been formally concluded at filing. The group also disclosed potential exposure from Woori Asset Trust construction-completion obligations on 44 projects; the associated PF loan amount was ₩1,389 billion, and no provision was recorded because losses were assessed as unlikely and not reliably estimable.
- Other unusual items: Fourth-quarter 2020 early-retirement costs contributed to higher termination benefits. Other non-operating expenses included provisions for estimated reimbursements and payments related to Lime funds and derivative-linked products. The acquisition of Woori Financial Capital and its bargain-purchase gain also affected comparability.
Most important facts for investors to verify
- Whether the sharp increase in credit-loss provisions adequately reflects COVID-19-related risk, deferred-payment borrowers and sector concentrations.
- Whether net interest margin stabilizes as asset yields and funding costs adjust, and whether fee income can recover from its FY2020 decline.
- Woori Bank’s liquidity coverage ratio and the effect of any expiration or revision of temporary regulatory relief, given the short maturity profile of deposits.
- The final costs, penalties and customer reimbursements arising from DLF, Lime funds and the Korea Financial Intelligence Unit matter, plus the status of outstanding investigations and appeals.
- The integration, profitability and capital implications of Woori Financial Capital, including the post-year-end transfer of Woori Savings Bank and the April 2021 increase in the group’s stake in Woori Financial Capital.
- Cash-flow and dividend sustainability: FY2020 cash increased, but the reported cash-flow statement reflects material lending and funding movements; the dividend per share was reduced.
- Capital-ratio headroom, including the effects of risk-weighted assets, regulatory buffers and future credit losses.
Audit note: The 2020 financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The auditor excluded Woori Financial Capital and Woori Savings Bank from its internal-control audit because they were recently acquired; those entities represented approximately 2.2% of consolidated assets.