Woori Financial Group Inc. — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019; filed April 29, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and reported in Korean won. Woori Financial Group was established in January 2019; comparative periods reflect Woori Bank and its subsidiaries under common-control, pooling-of-interests accounting, with certain subsequent acquisitions affecting 2019 results.
Key financial and operating metrics
| Metric | FY2019 / Dec. 31, 2019 | Prior comparable period |
|---|---|---|
| Total revenue, as defined in the filing | ₩12,532 billion | ₩11,752 billion in 2018; up 6.6% |
| Net interest income | ₩5,894 billion | ₩5,651 billion; up 4.3% |
| Net fees and commissions income | ₩1,103 billion | ₩1,070 billion; up 3.1% |
| Operating income | ₩2,800 billion | ₩2,759 billion; up 1.5% |
| Net income | ₩2,038 billion consolidated; ₩1,872 billion attributable to owners | ₩2,052 billion consolidated; ₩2,033 billion attributable to owners |
| Operating cash flow | ₩1,870 billion | ₩9,160 billion in 2018 |
| Cash and cash equivalents | ₩6,393 billion | ₩6,748 billion |
| Total assets / liabilities / equity | ₩361,981 billion / ₩336,488 billion / ₩25,492 billion | Assets up 6.3%; liabilities up 5.6%; equity up 16.1% |
| Loans, net of allowance and related adjustments | ₩271,032 billion | ₩260,820 billion; up 3.9% |
| Customer deposits | ₩264,686 billion | ₩248,691 billion; up 6.4% |
| Borrowings and debentures | ₩18,999 billion and ₩30,858 billion | ₩16,203 billion and ₩28,736 billion |
| Net interest margin / spread | 1.74% / 1.66% | 1.80% / 1.74% |
| Cost-to-income ratio | 59.56% | 59.98% |
| Asset quality | NPL ratio 0.43%; allowance for credit losses ₩1,575 billion | NPL ratio 0.51%; allowance ₩1,778 billion |
| Capital adequacy, consolidated group | CET1 8.39%; Tier 1 9.86%; total capital 11.89% | CET1 11.15%; Tier 1 13.18%; total capital 15.65% |
Customer deposits supplied about 83% of total funding; approximately 96.8% of deposits were payable on demand or had maturities of one year or less. Woori Bank’s 30-day liquidity coverage ratio was 107.21% at year-end, above the 100% regulatory minimum. Cash flow figures reflect banking balance-sheet movements and should not be read like those of a non-financial company.
Material changes versus 2018
- Revenue and net interest income increased, supported by loan growth and higher interest income. Interest expense rose faster than interest income, however, and net interest margin fell by 6 basis points to 1.74% as funding costs increased.
- Net income attributable to owners declined about 7.9%, to ₩1,872 billion. Consolidated net income declined slightly, to ₩2,038 billion.
- Credit impairment losses increased 13.3%, to ₩374 billion. Provisions on loans and other financial assets fell, but the large 2018 reversal of guarantee provisions did not recur.
- Non-performing loans continued to decline, but consumer and credit-card exposures grew. Credit-card net charge-offs rose to ₩221 billion from ₩185 billion.
- Capital ratios fell materially at the holding-company level. The filing attributes the group’s newly established holding-company status and use of the standardized approach to risk-weighted assets as relevant factors; reported ratios remained above applicable minimums.
- 2019 acquisitions and reorganizations expanded the non-bank businesses, including asset management, asset trust, credit card and investment banking. The filing’s “other” segment result included substantial dividends from Woori Bank, so segment growth is not solely a measure of external operating growth.
Outlook, risks and unusual items
- Outlook: No quantified 2020 earnings or revenue guidance is provided. Management described the Korean and global economic outlook as uncertain and said COVID-19 had negatively affected first-quarter 2020 results; the duration and full impact were not predictable at filing.
- Credit and economic risks: SMEs represented 31.4% of loans, and consumer loans 45.6%. COVID-19, weaker economic conditions, borrower distress, property-price changes and government-directed lending or repayment-relief programs could increase delinquencies, provisions and charge-offs. The largest 20 corporate exposures represented 12.0% of total exposures.
- Funding and market risks: Reliance on short-term deposits exposes the group to withdrawals and higher replacement funding costs. Interest-rate, foreign-exchange and securities-price movements may affect margins, investment values and borrowers’ ability to repay. The filing also identifies LIBOR transition risk.
- COVID-19 response and lending support: The bank offered loan-term extensions and interest-rate relief and participated in government support programs. Woori Bank had provided ₩261 billion of special low-rate loans to affected small merchants as of April 23, 2020. The filing says participation had not materially affected results to date, but future effects were uncertain.
- Derivative-linked product sales: In March 2020, regulators fined Woori Bank ₩19.7 billion and imposed a six-month ban on new private-equity fund sales in connection with sales of derivative-linked products; the CEO received a reprimand. By March 31, 2020, the bank had reimbursed 601 of 661 affected customers. A court temporarily suspended the CEO reprimand while an appeal proceeded. The filing does not clearly state the specific DLF provision amount; total other provisions at year-end were ₩172 billion.
- Other investigations and contingencies: A February 2020 investigation into Lime Asset Management-related funds was ongoing; no provision had been recognized at December 31, 2019. Woori Bank was also cooperating with a U.S. investigation into transactions involving sanctioned countries, including Iran; the outcome could not be predicted. Off-balance-sheet guarantees were ₩12,619 billion and loan commitments ₩103,652 billion at year-end.
- Accounting and unusual items: IFRS 16 adoption added lease liabilities and right-of-use assets and increased depreciation and amortization; this affected expense presentation. A 2019 increase in other non-operating expenses included provisions relating to estimated reimbursements and other payments for derivative-linked products. IFRS 9 expected-credit-loss accounting began in 2018, and 2017 comparisons were not restated.
- Shareholder returns: The 2019 dividend was ₩700 per common share, compared with ₩650 for 2018. The KDIC held 17.25% and expected to sell its remaining shares by 2022, creating potential ownership, market and tax implications.
Important facts for investors to verify
- Reconcile the 2019 cash-flow statement and the sharp fall in operating cash flow against deposit, loan and securities movements.
- Track post-filing COVID-19 effects on credit quality, expected-credit-loss assumptions, SME and consumer borrowers, and liquidity.
- Confirm the eventual cost, customer claims, regulatory consequences and any additional provisions related to derivative-linked products; separately monitor Lime-related claims and investigations.
- Review capital ratios and buffers on both the holding-company and Woori Bank bases, including the effect of risk-weighted assets and any planned acquisitions.
- Assess whether deposit funding costs continue to outpace asset yields and pressure net interest margin.
- Monitor the KDIC’s planned share sales, dividend capacity at subsidiaries and any resulting Korean tax consequences for investors.