Company Quick10K Filing
Woori Bank
20-F 2019-12-31 Filed 2020-04-29
20-F 2018-12-31 Filed 2019-04-30
20-F 2017-12-31 Filed 2018-04-30
20-F 2016-12-31 Filed 2017-04-27
20-F 2015-12-31 Filed 2016-04-29
20-F 2014-12-31 Filed 2015-04-30
20-F 2013-12-31 Filed 2014-04-30
20-F 2012-12-31 Filed 2013-04-30
20-F 2011-12-31 Filed 2012-04-30
20-F 2010-12-31 Filed 2011-06-27
20-F 2009-12-31 Filed 2010-06-25

WF 20F Annual Report

Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 3.A. Selected Financial Data
Item 3.B. Capitalization and Indebtedness
Item 3.C. Reasons for The Offer and Use of Proceeds
Item 3.D. Risk Factors
Item 4. Information on The Company
Item 4.A. History and Development of The Company
Item 4.B. Business Overview
Item 4.C. Organizational Structure
Item 4.D. Property, Plants and Equipment
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 5.A. Operating Results
Item 5.B. Liquidity and Capital Resources
Item 5.C. Research and Development, Patents and Licenses, Etc.
Item 5.D. Trend Information
Item 5.E. Off - Balance Sheet Arrangements
Item 5.F. Tabular Disclosure of Contractual Obligations
Item 5.G. Safe Harbor
Item 6. Directors, Senior Management and Employees
Item 6.A. Directors and Senior Management
Item 6.B. Compensation
Item 6.C. Board Practices
Item 6.D. Employees
Item 6.E. Share Ownership
Item 7. Major Shareholders and Related Party Transactions
Item 7.A. Major Shareholders
Item 7.B. Related Party Transactions
Item 7.C. Interest of Experts and Counsel
Item 8. Financial Information
Item 8.A. Consolidated Statements and Other Financial Information
Item 8.B. Significant Changes
Item 9. The Offer and Listing
Item 9.A. Offering and Listing Details
Item 9.B. Plan of Distribution
Item 9.C. Markets
Item 9.D. Selling Shareholders
Item 9.E. Dilution
Item 9.F. Expenses of The Issuer
Item 10. Additional Information
Item 10.A. Share Capital
Item 10.B. Memorandum and Articles of Association
Item 10.C. Material Contracts
Item 10.D. Exchange Controls
Item 10.E. Taxation
Item 10.F. Dividends and Paying Agents
Item 10.G. Statements By Experts
Item 10.H. Documents on Display
Item 10.I. Subsidiary Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchase of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.1 d873607dex11.htm
EX-2.4 d873607dex24.htm
EX-4.1 d873607dex41.htm
EX-12.1 d873607dex121.htm
EX-13.1 d873607dex131.htm
EX-15.1 d873607dex151.htm

Woori Bank Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 d873607d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on April 29, 2020

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20-F

 

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

Commission file number 001-31811

 

 

Woori Financial Group Inc.

(Exact name of Registrant as specified in its charter)

 

 

Woori Financial Group Inc.

(Translation of Registrant’s name into English)

 

 

The Republic of Korea

(Jurisdiction of incorporation or organization)

51, Sogong-ro, Jung-gu, Seoul 04632, Korea

(Address of principal executive offices)

 

Jeong Soo Lee

51, Sogong-ro, Jung-gu, Seoul 04632, Korea

Telephone No.: +82-2-2125-2050

Facsimile No.: +82-0505001-0451

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class   Trading symbol   Name of each exchange on which registered

American Depositary Shares, each representing three shares of Common Stock

 

WF

  New York Stock Exchange

Common Stock, par value 5,000 per share

 

WF

  New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

722,267,681 shares of Common Stock, par value 5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

☒     Large accelerated filer

  

☐    Accelerated Filer

  

☐    Non-accelerated filer

  

☐    Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☒  Yes    ☐  No

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

☐    U.S. GAAP

  

☒    International Financial Reporting Standards as issued

by the International Accounting Standards Board

  

☐    Other

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     ☐  Item 17    ☐  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐  Yes    ☐  No

* Not for trading, but only in connection with the registration of the American Depositary Shares.

 

 


Table of Contents

TABLE OF CONTENTS

 

              Page  

Presentation of Financial and Other Information

     1  

Forward-Looking Statements

     2  

Item 1.

 

Identity of Directors, Senior Management and Advisers

     3  

Item 2.

 

Offer Statistics and Expected Timetable

     3  

Item 3.

 

Key Information

     3  
 

Item 3.A.

  

Selected Financial Data

     3  
 

Item 3.B.

  

Capitalization and Indebtedness

     10  
 

Item 3.C.

  

Reasons for the Offer and Use of Proceeds

     10  
 

Item 3.D.

  

Risk Factors

     10  

Item 4.

 

Information on the Company

     37  
 

Item 4.A.

  

History and Development of the Company

     37  
 

Item 4.B.

  

Business Overview

     44  
 

Item 4.C.

  

Organizational Structure

     119  
 

Item 4.D.

  

Property, Plants and Equipment

     120  

Item 4A.

 

Unresolved Staff Comments

     120  

Item 5.

 

Operating and Financial Review and Prospects

     120  
 

Item 5.A.

  

Operating Results

     120  
 

Item 5.B.

  

Liquidity and Capital Resources

     149  
 

Item 5.C.

  

Research and Development, Patents and Licenses, etc.

     155  
 

Item 5.D.

  

Trend Information

     155  
 

Item 5.E.

  

Off-Balance Sheet Arrangements

     155  
 

Item 5.F.

  

Tabular Disclosure of Contractual Obligations

     156  
 

Item 5.G.

  

Safe Harbor

     156  

Item 6.

 

Directors, Senior Management and Employees

     156  
 

Item 6.A.

  

Directors and Senior Management

     156  
 

Item 6.B.

  

Compensation

     160  
 

Item 6.C.

  

Board Practices

     160  
 

Item 6.D.

  

Employees

     162  
 

Item 6.E.

  

Share Ownership

     163  

Item 7.

 

Major Shareholders and Related Party Transactions

     164  
 

Item 7.A.

  

Major Shareholders

     164  
 

Item 7.B.

  

Related Party Transactions

     165  
 

Item 7.C.

  

Interest of Experts and Counsel

     165  

Item 8.

 

Financial Information

     165  
 

Item 8.A.

  

Consolidated Statements and Other Financial Information

     165  
 

Item 8.B.

  

Significant Changes

     167  

Item 9.

 

The Offer and Listing

     167  
 

Item 9.A.

  

Offering and Listing Details

     167  
 

Item 9.B.

  

Plan of Distribution

     170  
 

Item 9.C.

  

Markets

     170  
 

Item 9.D.

  

Selling Shareholders

     170  
 

Item 9.E.

  

Dilution

     170  
 

Item 9.F.

  

Expenses of the Issuer

     170  

Item 10.

 

Additional Information

     171  
 

Item 10.A.

  

Share Capital

     171  
 

Item 10.B.

  

Memorandum and Articles of Association

     171  
 

Item 10.C.

  

Material Contracts

     177  
 

Item 10.D.

  

Exchange Controls

     177  
 

Item 10.E.

  

Taxation

     178  

 

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Table of Contents
              Page  
 

Item 10.F.

  

Dividends and Paying Agents

     184  
 

Item 10.G.

  

Statements by Experts

     184  
 

Item 10.H.

  

Documents on Display

     184  
 

Item 10.I.

  

Subsidiary Information

     184  

Item 11.

 

Quantitative and Qualitative Disclosures about Market Risk

     185  

Item 12.

 

Description of Securities Other Than Equity Securities

     207  

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

     208  

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

     208  

Item 15.

 

Controls and Procedures

     208  

Item 16.

 

Reserved

     209  

Item 16A.

 

Audit Committee Financial Expert

     209  

Item 16B.

 

Code of Ethics

     210  

Item 16C.

 

Principal Accountant Fees and Services

     210  

Item 16D.

 

Exemptions from the Listing Standards for Audit Committees

     210  

Item 16E.

 

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     211  

Item 16F.

 

Change in Registrant’s Certifying Accountant

     211  

Item 16G.

 

Corporate Governance

     212  

Item 16H.

 

Mine Safety Disclosure

     213  

Item 17.

 

Financial Statements

     213  

Item 18.

 

Financial Statements

     213  

Item 19.

 

Exhibits

     213  

 

ii


Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

We were established on January 11, 2019 pursuant to a “comprehensive stock transfer” under Korean law, whereby holders of the common stock of Woori Bank and certain of its subsidiaries transferred all of their shares to us, a new financial holding company, and in return received shares of our common stock. As a result of the stock transfer, Woori Bank and certain of its former wholly-owned subsidiaries, Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Services Co., Ltd. and Woori Private Equity Asset Management Co., Ltd., became our direct and wholly-owned subsidiaries. Accordingly, our overall business and operations after the stock transfer, on a consolidated basis, are identical to those of Woori Bank on a consolidated basis immediately prior to the stock transfer. See “Item 4.A. History and Development of the Company—Establishment of Woori Financial Group.”

The stock transfer constituted a succession for purposes of Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such that our common stock was deemed registered under Section 12(b) of the Exchange Act by operation of Rule 12g-3(a). Following the stock transfer, we file reports under the Exchange Act as the successor issuer to Woori Bank.

In our consolidated financial statements for financial reporting periods beginning on or after January 1, 2019, the stock transfer is accounted for as a transaction among entities under common control applying the pooling of interests method of accounting. We initially recognized the transferred assets and liabilities at their book value as of the date of the stock transfer in such consolidated financial statements, and no goodwill was recognized in connection with the transaction.

The consolidated financial statements included in this annual report as of dates and for periods prior to the date of our establishment in January 2019 pursuant to the stock transfer were prepared based on the consolidated financial statements for Woori Bank and its subsidiaries, except that Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Services Co., Ltd. and Woori Private Equity Asset Management Co., Ltd. were consolidated on a line-by-line basis instead of being presented as assets and liabilities held for distribution. Unless expressly stated otherwise, historical financial data included in this annual report as of dates and for periods prior to our establishment are for Woori Bank and its subsidiaries, on a consolidated basis, with the foregoing modification. For further information regarding the accounting treatment of the stock transfer, see Note 42 of the notes to our consolidated financial statements included elsewhere in this annual report.

Unless otherwise indicated or required by the context, “we,” “us,” “our” and similar terms used in this annual report refer to Woori Financial Group and its subsidiaries (including Woori Bank) and, for periods prior to our establishment, refer to Woori Bank and its subsidiaries.

In this annual report:

 

   

references to “Korea” are to the Republic of Korea;

 

   

references to the “government” are to the government of the Republic of Korea;

 

   

references to “Won” or “₩” are to the currency of Korea;

 

   

references to “U.S. dollars,” “$” or “US$” are to the currency of the United States; and

 

   

references to “Euros” or “EUR” are to the currency of the European Economic and Monetary Union.

Discrepancies between totals and the sums of the amounts contained in any table may be a result of rounding.

For your convenience, this annual report contains conversions of Won amounts into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2019, which was ₩1,155.5 = US$1.00.

 

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Table of Contents

FORWARD-LOOKING STATEMENTS

The U.S. Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report contains forward-looking statements.

Words and phrases such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “future,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “predict,” “project,” “risk,” “seek to,” “shall,” “should,” “will likely result,” “will pursue” and words and terms of similar substance used in connection with any discussion of future operating or financial performance or our expectations, plans, projections or business prospects identify forward-looking statements. In particular, the statements under the headings “Item 3.D. Risk Factors,” “Item 4.B. Business Overview” and “Item 5. Operating and Financial Review and Prospects” regarding our financial condition and other future events or prospects are forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

In addition to the risks related to our business discussed under “Item 3.D. Risk Factors,” other factors could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to:

 

   

a change or delay in, or cancellation of, the Korean government’s privatization plan with respect to us;

 

   

our ability to successfully implement our strategy;

 

   

future levels of non-performing loans;

 

   

our growth and expansion;

 

   

the adequacy of allowances for credit and other losses;

 

   

technological changes;

 

   

interest rates;

 

   

investment income;

 

   

availability of funding and liquidity;

 

   

our exposure to market risks; and

 

   

adverse market and regulatory conditions.

By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on our income or results of operations could materially differ from those that have been estimated. For example, revenues could decrease, costs could increase, capital costs could increase, capital investment could be delayed and anticipated improvements in performance might not be fully realized.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report could include, but are not limited to:

 

   

general economic and political conditions in Korea or other countries that have an impact on our business activities or investments;

 

   

the monetary and interest rate policies of Korea;

 

   

inflation or deflation;

 

   

unanticipated volatility in interest rates;

 

   

foreign exchange rates;

 

2


Table of Contents
   

prices and yields of equity and debt securities;

 

   

the performance of the financial markets in Korea and globally;

 

   

changes in domestic and foreign laws, regulations and taxes;

 

   

changes in competition and the pricing environment in Korea; and

 

   

regional or general changes in asset valuations.

For further discussion of the factors that could cause actual results to differ, see the discussion under “Item 3.D. Risk Factors” contained in this annual report. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this annual report.

 

Item 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable

 

Item 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable

 

Item 3.

KEY INFORMATION

 

Item 3.A.

Selected Financial Data

The selected consolidated financial and operating data set forth below as of and for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements as of and for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 have been audited by Deloitte Anjin LLC, an independent registered public accounting firm.

IFRS 9 Financial Instruments, or IFRS 9, is effective for annual periods beginning on or after January 1, 2018 and replaces International Accounting Standard 39 Financial Instruments: Recognition and Measurement, or IAS 39. We have applied IFRS 9 in our consolidated financial statements as of and for the years ended December 31, 2018 and 2019 included elsewhere in this annual report. As permitted by the transition rules of IFRS 9, our consolidated financial statements as of and for the year ended December 31, 2017 included elsewhere in this annual report have not been restated to retroactively apply IFRS 9. For information regarding the impact of the application of IFRS 9 to our consolidated financial statements, see Note 2-(1)-3)-a) of the notes to our consolidated financial statements included elsewhere in this annual report.

You should read the following data together with the more detailed information contained in “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report. Historical results do not necessarily predict future results.

 

3


Table of Contents

Consolidated Statement of Comprehensive Income Data

 

    Year ended December 31,  
    2015     2016     2017     2018     2019     2019(1)  
    (in billions of Won except per share data)     (in millions of
US$ except per
share data)
 

Interest income

  8,698     8,512     8,551     9,684     10,577     US$ 9,153  

Interest expense

    (3,936     (3,492     (3,330     (4,033     (4,683     (4,053
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    4,762       5,020       5,221       5,651       5,894       5,100  

Fees and commissions income

    1,757       1,865       2,069       1,681       1,709       1,479  

Fees and commissions expense

    (781     (928     (999     (611     (606     (525
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions income

    976       937       1,070       1,070       1,103       954  

Dividend income

    103       185       125       91       108       93  

Net gain on financial instruments at fair value through profit or loss (IFRS 9)

                      214       25       22  

Net gain (loss) on financial instruments at fair value through profit or loss (IAS 39)

    240       114       (105                  

Net gain on financial assets at fair value through other comprehensive income

                      2       11       10  

Net gain (loss) on available-for-sale financial assets

    (3     (1     193                    

Net gain arising on financial assets at amortized cost

                      80       102       88  

Impairment losses due to credit loss

    (966     (834     (785     (330     (374     (324

General and administrative expenses

    (3,151     (3,479     (3,531     (3,624     (3,766     (3,259

Other net operating expenses(2)

    (610     (368     (31     (395     (303     (261
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    1,351       1,574       2,157       2,759       2,800       2,423  

Share of gain (loss) of joint ventures and associates

    (70     (20     (101     3       84       73  

Other net non-operating income (expense)

    171       (1     (106     43       (161     (139
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (loss)

    101       (21     (207     46       (77     (66

Net income before income tax expense

    1,452       1,553       1,950       2,805       2,723       2,357  

Income tax expense

    (377     (276     (420     (753     (685     (593
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    1,075       1,277       1,530       2,052       2,038       1,764  

Net income (loss) from discontinued operations

                                   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  1,075     1,277     1,530     2,052     2,038     US$ 1,764  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss on valuation of equity securities at fair value through other comprehensive income

                      (31     (58     (50

Items out of change in equity method securities due to change in equity of investee that will not be reclassified to profit or loss

                (3                  

Remeasurement gain (loss) related to defined benefit plan

    (78     34       10       (85     (35     (30
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss

    (78     34       7       (116     (93     (80

Net gain on valuation of debt securities at fair value through other comprehensive income

                      33       44       38  

Gain (loss) on available-for-sale financial assets

    72       13       (85                  

Share of other comprehensive income (loss) of joint ventures and associates

    3       (8     4       3       1       1  

Gain (loss) on foreign currency translation of foreign operations

    34       29       (208     (4     102       88  

Gain (loss) on valuation of cash flow hedge

          10       1       (5     (2     (2

Other comprehensive income (loss) on valuation of assets held for sale

                4       (4            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified to profit or loss

    109       44       (284     23       145       125  

Other comprehensive income (loss), net of tax

    31       78       (277     (93     52       45  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

  1,106     1,355     1,253     1,959     2,090     US$ 1,809  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to owners

  1,059     1,261     1,512     2,033     1,872     US$ 1,620  

Income from continuing operations

    1,059       1,261       1,512       2,033       1,872       1,620  

Income (loss) from discontinued operations

                                   

Net income attributable to non-controlling interests

  16     16     18     19     166     US$ 144  

Income from continuing operations

    16       16       18       19       166       144  

Loss from discontinued operations

                                   

Comprehensive income attributable to owners

    1,095       1,332       1,249       1,944       1,914       1,658  

Comprehensive income attributable to non-controlling interests

    11       23       4       15       176       151  

Basic and diluted earnings from continuing and discontinued operations per share

  1,301     1,567     1,999     2,796     2,727     US$ 2.360  

Basic and diluted earnings from continuing operations per share

    1,301       1,567       1,999       2,796       2,727       2.360  

Per common share data:

           

Net income per share—basic

  1,301     1,567     1,999     2,796     2,727     US$ 2.360  

Weighted average common shares outstanding—basic (in thousands)

    673,271       673,271       673,271       673,271       685,489       685,489  

Net income per share—diluted

  1,301     1,567     1,999     2,796     2,727     US$ 2.360  

Weighted average common shares outstanding—diluted (in thousands)

    673,271       673,271       673,271       673,271       685,489       685,489  

Cash dividends paid per share

  500     400     500     650     700     US$ 0.61  

 

(1)

Won amounts are expressed in U.S. dollars at the rate of ₩1,155.5 to US$1.00, the noon buying rate in effect on December 31, 2019 as quoted by the Federal Reserve Bank of New York in the United States.

(2)

For a description of “Other net operating expenses,” see Note 36 of the notes to our consolidated financial statements.

 

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Table of Contents

Consolidated Statement of Financial Position Data

 

    As of December 31,  
    2015     2016     2017     2018     2019     2019(1)  
    (in billions of Won)    

(in millions

of US$)

 

Assets

           

Cash and cash equivalents

  6,644     7,591     6,908     6,748     6,393     US$ 5,532  

Financial assets at fair value through profit or loss (IFRS 9)

                      6,126       8,069       6,983  

Financial assets at fair value through profit or loss (IAS 39)

    5,133       5,651       5,843                    

Financial assets at fair value through other comprehensive income

                      18,063       27,731       23,999  

Available-for-sale financial assets

    17,171       20,818       15,353                    

Securities at amortized cost

                      22,933       20,321       17,586  

Held-to-maturity financial assets

    13,622       13,910       16,749                    

Loans and other financial assets at amortized cost

                      282,458       293,718       254,191  

Loans and receivables

    244,842       258,393       267,106                    

Investments in joint ventures and associates

    644       439       417       362       806       698  

Investment properties

    351       358       371       378       280       243  

Premises and equipment

    2,471       2,458       2,478       2,450       3,365       2,912  

Intangible assets and goodwill

    420       484       519       598       844       731  

Assets held for sale

    18       2       49       18       11       9  

Net defined benefit assets

                            3       2  

Current tax assets

    7       6       5       21       47       41  

Deferred tax assets

    210       232       280       59       39       34  

Derivative assets (designated for hedging)

    183       141       59       36       121       105  

Other assets(2)

    143       200       158       197       233       202  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  291,859     310,683     316,295     340,447     361,981     US$ 313,268  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Financial liabilities at fair value through profit or loss (IFRS 9)

              2,283     2,958     US$ 2,560  

Financial liabilities at fair value through profit or loss (IAS 39)

    3,461       3,803       3,428                    

Deposits due to customers

    209,142       221,020       234,695       248,691       264,686       229,066  

Borrowings

    20,034       18,770       14,785       16,203       18,999       16,442  

Debentures

    21,899       23,566       27,869       28,736       30,858       26,705  

Provisions

    517       429       410       391       444       384  

Net defined benefit liability

    99       65       43       173       92       80  

Current tax liabilities

    109       171       233       159       183       158  

Deferred tax liabilities

    19       22       23       18       134       116  

Derivative liabilities (designated for hedging)

          7       68       51       7       6  

Other financial liabilities(3)

    16,964       21,985       13,892       21,443       17,707       15,324  

Other liabilities(4)

    305       299       284       346       420       365  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  272,549     290,137     295,730     318,494     336,488     US$ 291,206  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity

           

Owners’ equity

           

Capital stock

  3,381     3,381     3,381     3,381     3,611     US$ 3,125  

Hybrid securities

    3,334       3,575       3,018       3,162       998       863  

Capital surplus

    294       286       286       286       626       542  

Other equity(5)

    (1,547     (1,468     (1,939     (2,214     (2,249     (1,947

Retained earnings

    13,726       14,612       15,620       17,125       18,525       16,032  

Non-controlling interests

    122       160       199       213       3,982       3,447  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

  19,310     20,546     20,565     21,953     25,493     US$ 22,062  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  291,859     310,683     316,295     340,447     361,981     US$ 313,268  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Won amounts are expressed in U.S. dollars at the rate of ₩1,155.5 to US$1.00, the noon buying rate in effect on December 31, 2019 as quoted by the Federal Reserve Bank of New York in the United States.

(2)

For a description of “other assets,” see Note 19 of the notes to our consolidated financial statements.

(3)

For a description of “other financial liabilities,” see Note 25 of the notes to our consolidated financial statements.

(4)

For a description of “other liabilities,” see Note 25 of the notes to our consolidated financial statements.

(5)

For a description of “other equity,” see Note 28-(1) of the notes to our consolidated financial statements.

 

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Table of Contents

Profitability Ratios and Other Data

 

     Year ended December 31,  
     2015     2016     2017     2018     2019  
     (in billions of Won except percentages)  

Return on average assets(1)

     0.37     0.41     0.49     0.62     0.53

Return on average equity(2)

     5.62       6.26       7.25       9.36       9.00  

Net interest spread(3)

     1.67       1.65       1.69       1.74       1.66  

Net interest margin(4)

     1.74       1.71       1.74       1.80       1.74  

Cost-to-income ratio(5)

     66.22       66.48       60.79       59.98       59.56  

Average owners’ equity as a percentage of average total assets

     6.63       6.60       6.71       6.67       6.86  

Total revenue(6)

   10,795     10,675     10,833     11,752     12,532  

Operating expense(7)

     8,478       8,267       7,891       8,663       9,358  

Operating margin(8)

     2,317       2,408       2,942       3,089       3,174  

Operating margin as a percentage of total revenue

     21.46     22.56     27.16     26.28     25.33

 

(1)

Represents net income attributable to owners as a percentage of average total assets. Average balances are based on daily balances for Woori Bank and on quarterly balances for all of our other subsidiaries and our structured companies.

(2)

Represents net income attributable to owners as a percentage of average owners’ equity. Average balances are based on daily balances for Woori Bank and on quarterly balances for all of our subsidiaries and our structured companies.

(3)

Represents the difference between the yield on average interest-earning assets and cost of average interest-bearing liabilities.

(4)

Represents the ratio of net interest income to average interest-earning assets.

(5)

Represents the ratio of non-interest expense (excluding impairment losses due to credit loss) to the sum of net interest income and non-interest income.

(6)

Represents the sum of interest income, dividend income, fees and commissions income, net gain (loss) on financial instruments at fair value through profit or loss, net gain on financial assets at fair value through other comprehensive income and net gain arising on financial assets at amortized cost (or net gain (loss) on available-for-sale financial assets).

The following table shows how total revenue is calculated:

 

     Year ended December 31,  
     2015     2016     2017     2018      2019  
     (in billions of Won)  

Interest income

   8,698     8,512     8,551     9,684      10,577  

Fees and commissions income

     1,757       1,865       2,069       1,681        1,709  

Dividend income

     103       185       125       91        108  

Net gain on financial instruments at fair value through profit or loss (IFRS 9)

                       214        25  

Net gain (loss) on financial instruments at fair value through profit or loss (IAS 39)

     240       114       (105             

Net gain on financial assets at fair value through other comprehensive income

                       2        11  

Net gain (loss) on available-for-sale financial assets

     (3     (1     193               

Net gain arising on financial assets at amortized cost

                       80        102  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total revenue

   10,795     10,675     10,833     11,752      12,532  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(7)

Represents interest expense, fees and commissions expense, general and administrative expense and other net operating expense, excluding impairment losses due to credit loss of ₩966 billion, ₩834 billion, ₩785 billion, ₩330 billion and ₩374 billion for 2015, 2016, 2017, 2018 and 2019, respectively.

 

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Table of Contents

The following table shows how operating expense is calculated:

 

     Year ended December 31,  
     2015      2016      2017      2018      2019  
     (in billions of Won)  

Interest expense

   3,936      3,492      3,330      4,033      4,683  

Fees and commissions expense

     781        928        999        611        606  

General and administrative expense

     3,151        3,479        3,531        3,624        3,766  

Other net operating expenses

     610        368        31        395        303  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating expense

   8,478      8,267      7,891      8,663      9,358  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(8)

Represents total revenue less operating expense.

Asset Quality Data

 

     As of December 31,  
     2015     2016     2017     2018     2019  
     (in billions of Won, except percentages)  

Total loans(1)

   227,169     236,801     252,793     262,034     271,993  

Total non-performing loans(2)

     2,909       2,080       1,853       1,329       1,157  

Other impaired loans not included in non-performing loans

     339       335       374       292       229  

Total non-performing loans and other impaired loans

     3,248       2,415       2,227       1,621       1,386  

Total allowance for credit losses

     2,051       1,851       1,770       1,778       1,575  

Non-performing loans as a percentage of total loans

     1.28     0.88     0.73     0.51     0.43

Non-performing loans as a percentage of total assets

     1.00       0.67       0.59       0.39       0.32  

Total non-performing loans and other impaired loans as a percentage of total loans

     1.43       1.02       0.88       0.62       0.51  

Allowance for credit losses as a percentage of total loans

     0.90       0.78       0.70       0.68       0.58  

 

(1)

Not including due from banks and other financial assets (or other receivables), and prior to deducting allowance for credit losses and present value discount or reflecting deferred origination costs.

(2)

Defined as those loans that are past due by 90 days or more or classified as substandard or below based on the Financial Services Commission’s asset classification criteria. See “Item 4.B. Business Overview—Assets and Liabilities—Asset Quality of Loans—Loan Classifications.”

 

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Table of Contents

Selected Financial Information

Average Balances and Related Interest

The following tables show our average balances and interest rates for the past three years:

 

    Year ended December 31,  
    2017     2018     2019  
    Average
Balance(1)
    Interest
Income(2)
    Average
Yield
    Average
Balance(1)
    Interest
Income(2)
    Average
Yield
    Average
Balance(1)
    Interest
Income(2)
    Average
Yield
 
    (in billions of Won, except percentages)  

Assets

                 

Interest-earning assets

                 

Due from banks

  15,594     83       0.53   16,027     113       0.71   16,045     141       0.88

Loans(3)

                 

Commercial and industrial

    95,349       3,141       3.29       104,269       3,437       3.30       110,291       3,604       3.27  

Trade financing

    12,155       240       1.97       11,916       315       2.64       11,112       295       2.65  

Lease financing(4)

    35       1       3.73       111       4       3.52       191       2       3.92  

Other commercial

    9,064       211       2.33       11,038       270       2.45       9,460       243       2.57  

General purpose household(5)

    66,420       2,287       3.44       67,042       2,647       3.95       71,413       2,928       4.10  

Mortgage

    47,545       1,405       2.96       48,445       1,559       3.22       53,296       1,717       3.22  

Credit cards(2)

    6,772       551       8.14       7,445       600       8.06       7,358       655       8.90  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total loans

    237,340       7,836       3.30       250,266       8,832       3.53       263,121       9,444       3.59  

Securities

                 

Trading(6)

    2,712       53       1.95       3,955       54       1.37       4,091       51       1.25  

Investment(7)

    32,881       548       1.67       32,404       657       2.03       43,568       911       2.09  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total securities

    35,593       601       1.69       36,359       711       1.96       47,659       962       2.02  

Other

    11,164       31       0.28       11,990       28       0.23       12,809       30       0.23  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average interest earning assets

    299,691       8,551       2.85       314,642       9,684       3.08       339,634       10,577       3.11  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average non-interest earning assets

    11,104                   11,144                   15,428              
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average assets

  310,795     8,551       2.75   325,786     9,684       2.97   355,062     10,577       2.98
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

    Year ended December 31,  
    2017     2018     2019  
    Average
Balance(1)
    Interest
Expense
    Average
Cost
    Average
Balance(1)
    Interest
Expense
    Average
Cost
    Average
Balance(1)
    Interest
Expense
    Average
Cost
 
    (in billions of Won, except percentages)  

Liabilities

                 

Interest-bearing liabilities

                 

Deposits due to customers

                 

Demand deposits

  8,319     52       0.63   8,512     51       0.60   8,213     35       0.43

Time and savings deposits

    186,277       2,008       1.08       196,806       2,418       1.23       211,732       2,814       1.33  

Certificates of deposit

    4,553       78       1.71       5,091       104       2.04       4,760       105       2.21  

Other deposits

    24,444       242       0.99       26,254       344       1.31       28,930       471       1.63  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total deposits

    223,593       2,380       1.06       236,663       2,917       1.23       253,635       3,425       1.35  

Borrowings

    17,669       238       1.35       15,752       307       1.95       19,258       383       1.99  

Debentures

    25,865       639       2.47       27,613       720       2.61       29,536       777       2.63  

Other

    19,037       73       0.38       20,146       89       0.44       21,426       98       0.46  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average interest-bearing liabilities

    286,164       3,330       1.16       300,174       4,033       1.34       323,855       4,683       1.45  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average non-interest-bearing liabilities

    3,767                   3,896                   6,855              
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average liabilities

    289,931       3,330       1.15       304,070       4,033       1.33       330,710       4,683       1.42  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average equity

    20,864                   21,716                   24,352              
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total average liabilities and equity

  310,795     3,330       1.07   325,786     4,033       1.24   355,062     4,683       1.32
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)

Average balances are based on daily balances for Woori Bank and on quarterly balances for all of our other subsidiaries and our structured companies.

 

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(2)

Interest income from credit cards is derived from interest on credit card loans and credit card installment purchases.

(3)

Not including other financial assets (or other receivables), and prior to deducting allowance for credit losses and present value discount or reflecting deferred origination costs.

(4)

Includes automobile lease financing to consumer borrowers.

(5)

Includes home equity loans.

(6)

Includes financial assets at fair value through profit or loss.

(7)

Includes financial assets at fair value through other comprehensive income and securities at amortized cost (or available-for-sale financial assets and held-to-maturity financial assets).

Analysis of Changes in Net Interest Income—Volume and Rate Analysis

The following table provides an analysis of changes in interest income, interest expense and net interest income based on changes in volume and changes in rate for 2018 compared to 2017 and 2019 compared to 2018. Information is provided with respect to: (1) effects attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects attributable to changes in rate (changes in rate multiplied by prior volume). Changes attributable to the combined impact of changes in rate and volume have been allocated proportionately to the changes due to volume changes and changes due to rate changes.

 

     2018 vs. 2017
Increase/(decrease)
due to changes in
    2019 vs. 2018
Increase/(decrease)
due to changes in
 
     Volume     Rate     Total     Volume     Rate     Total  
     (in billions of Won)  

Interest-earning assets

  

Due from banks

   2     28     30         28     28  

Loans(1)

            

Commercial and industrial

     293       3       296       199       (32     167  

Trade financing

     (5     80       75       (21     1       (20

Lease financing(2)

     3             3       3       (5     (2

Other commercial

     46       13       59       (39     12       (27

General purpose household(3)

     21       339       360       173       108       281  

Mortgage

     27       127       154       156       2       158  

Credit cards

     55       (6     49       (7     62       55  

Securities

            

Trading(4)

     24       (23     1       2       (5     (3

Investment(5)

     (8     117       109       227       27       254  

Other

     2       (5     (3     2             2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

   460     673     1,133     695     198     893  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities

            

Deposits due to customers

            

Demand deposits

   1     (2   (1   (2   (14   (16

Time and savings deposits

     114       296       410       184       212       396  

Certificates of deposit

     9       17       26       (7     8       1  

Other deposits

     18       84       102       35       92       127  

Borrowings

     (26     95       69       68       8       76  

Debentures

     43       38       81       50       7       57  

Other

     4       12       16       6       3       9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

   163     540     703     334     316     650  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

   297     133     430     361     (118   243  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Not including other financial assets (or other receivables) and prior to deducting allowance for credit losses and present value discount or reflecting deferred origination costs.

(2)

Includes automobile lease financing to consumer borrowers.

(3)

Includes home equity loans.

 

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(4)

Includes financial assets at fair value through profit or loss.

(5)

Includes financial assets at fair value through other comprehensive income and securities at amortized cost (or available-for-sale financial assets and held-to-maturity financial assets).

 

Item 3.B.

Capitalization and Indebtedness

Not Applicable

 

Item 3.C.

Reasons for the Offer and Use of Proceeds

Not Applicable

 

Item 3.D.

Risk Factors

Risks relating to our corporate credit portfolio

The largest portion of our exposure is to small- and medium-sized enterprises, and financial difficulties experienced by companies in this segment may result in a deterioration of our asset quality and have an adverse impact on us.

Our loans to small- and medium-sized enterprises amounted to ₩74,906 billion, or 29.6% of our total loans, as of December 31, 2017, ₩79,371 billion, or 30.3 % of our total loans, as of December 31, 2018 and ₩85,367 billion, or 31.4% of our total loans, as of December 31, 2019. As of December 31, 2019, Won-denominated loans to small- and medium-sized enterprises that were classified as substandard or below were ₩409 billion, representing 0.5% of such loans to those enterprises. See “Item 4.B. Business Overview—Corporate Banking—Small and Medium-Sized Enterprise Banking.” We recorded charge-offs of ₩185 billion in respect of our Won-denominated loans to small- and medium-sized enterprises in 2019, compared to charge-offs of ₩199 billion in 2018 and ₩325 billion in 2017. According to data compiled by the Financial Supervisory Service, the industry-wide delinquency ratios for Won-denominated loans to small- and medium-sized enterprises increased in 2018 but decreased in 2019. The delinquency ratio for small- and medium-sized enterprises is calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest payments are overdue by one month or more to (2) the aggregate outstanding balance of such loans. Our delinquency ratio for such loans denominated in Won was 0.5% as of December 31, 2017, 0.5% as of December 31, 2018 and 0.4% as of December 31, 2019. Our delinquency ratio may increase in 2020 as a result of, among other things, adverse changes in economic conditions in Korea and globally. See “—Other risks relating to our business—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.” Accordingly, we may be required to take measures to decrease our exposures to these customers.

In light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea as a result of the global financial crisis commencing in the second half of 2008, the Korean government introduced measures intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise borrowers. For example, the Korean government requested Korean banks, including Woori Bank, to establish a “fast track” program to provide liquidity assistance to small- and medium-sized enterprises on an expedited basis. Under the “fast track” program established by Woori Bank, liquidity assistance is provided to small- and medium-sized enterprise borrowers applying for such assistance, in the form of new short-term loans or maturity extensions or interest rate adjustments with respect to existing loans, after expedited credit review and approval. The overall prospects for the Korean economy in 2020 and beyond remain uncertain, especially in light of the COVID-19 pandemic affecting many countries worldwide, including Korea, and the Korean government may extend or renew existing or past policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide financial support to small- and medium-sized enterprises. For example, the Financial Services Commission requested 14 Korean banks, including Woori Bank, to extend special low-rate loans to small merchants affected by the COVID-19 pandemic beginning in April 2020. The aggregate amount of such loans extended by the Korean banks is expected to be ₩3.5 trillion, of which ₩261 billion was provided by Woori Bank as of April 23, 2020. In addition, Korean financial regulatory authorities, including the Financial Services Commission and the Financial Supervisory Service, adopted guidelines for

 

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Korean banks to extend loan terms and defer interest payments with respect to small- and medium sized enterprises and small merchants affected by the COVID-19 pandemic starting from April 2020. We believe that, to date, our participation in such government-led initiatives has not caused us to extend a material amount of credit that we would not have otherwise extended nor materially impacted our results of operations and financial condition in general. The aggregate amount of outstanding small- and medium-sized enterprise loans made by us under the “fast track” program was ₩103.4 billion as of December 31, 2019, which represented 0.13% of our total small- and medium-sized enterprise loan portfolio as of such date. Furthermore, loans made by us under the “fast track” program are partially guaranteed by the Korean government’s public financial institutions, including the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation. However, there can be no assurance that our future participation in such government-led initiatives would not lead us to extend credit to small- and medium-sized enterprise borrowers that we would not otherwise extend, or offer terms for such credit that we would not otherwise offer, in the absence of such initiatives. Furthermore, there is no guarantee that the financial condition and liquidity position of our small- and medium-sized enterprise borrowers benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis, or at all. Accordingly, increases in our exposure to small- and medium-sized enterprises resulting from such government-led initiatives may have a material adverse effect on our results of operations and financial condition.

Many small- and medium-sized enterprises represent sole proprietorships or very small businesses dependent on a relatively limited number of suppliers or customers and tend to be affected by fluctuations in the Korean and global economy to a greater extent than large corporate borrowers. In addition, small- and medium-sized enterprises often maintain less sophisticated financial records than large corporate borrowers. Therefore, it is generally more difficult for us to judge the level of risk inherent in lending to these enterprises, as compared to large corporations. However, in light of the COVID-19 pandemic, the Bank of Korea announced the early implementation of Basel III standards relating to lowering the risk weight of loans extended to small- and medium-sized enterprises with no credit rating from 100% to 85% starting from April 2020 in an effort to boost such lending.

In addition, many small- and medium-sized enterprises have close business relationships with large corporations in Korea, primarily as suppliers. Any difficulties encountered by those large corporations would likely hurt the liquidity and financial condition of related small- and medium-sized enterprises, including those to which we have exposure, also resulting in an impairment of their ability to repay loans.

Financial difficulties experienced by small- and medium-sized enterprises as a result of, among other things, adverse changes in domestic and global economic conditions, could have an adverse impact on the ability of small- and medium-sized enterprises to make payments on their loans. For example, the ongoing COVID-19 pandemic has had a significant adverse impact on the Korean and global economy, including disruptions in the supply chains, declines in the sales and deterioration in the financial conditions of small- and medium-sized enterprises. See “—Other risks relating to our business—The recent global outbreak of COVID-19 may adversely affect our business, financial condition or results of operations.” In addition, aggressive marketing and competition among banks to lend to this segment may lead to a deterioration in the asset quality of our loans to this segment in the future. Any such deterioration would result in increased charge-offs, higher provisioning and reduced interest and fee income from this segment, which would have an adverse impact on our financial condition and results of operations.

We have exposure to Korean construction, shipbuilding and shipping companies, and financial difficulties of these companies may adversely impact us.

As of December 31, 2019, the total amount of loans provided by us to construction, shipbuilding and shipping companies in Korea amounted to ₩4,051 billion, ₩420 billion and ₩413 billion, or 1.5%, 0.2% and 0.2% of our total loans, respectively. We also have other exposures to Korean construction, shipbuilding and shipping companies, including in the form of guarantees extended for the benefit of such companies and debt and equity securities of such companies held by us. In the case of construction companies, we have potential exposure in the form of guarantees provided to us by general contractors with respect to financing extended by us for residential and commercial real estate development projects, as well as commitments to purchase asset-

 

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backed securities secured by the assets of companies in the construction industry and other commitments we enter into relating to project financing for such real estate projects which may effectively function as guarantees. In the case of shipbuilding companies, such exposures include refund guarantees extended by us on behalf of shipbuilding companies to cover their obligation to return a portion of the ship order contract amount to customers in the event of performance delays or defaults under shipbuilding contracts.

Although the construction industry in Korea has shown signs of recovery since 2015, excessive investment in residential property development projects, the recent strengthening of mortgage lending regulations by the Korean government, stagnation of real property prices and reduced demand for residential property in areas outside of Seoul, are expected to continue to negatively impact the construction industry. The shipbuilding industry in Korea has experienced a severe downturn in recent years reflecting a significant decrease in ship orders, primarily due to adverse conditions in the global economy and the resulting slowdown in global trade. In the case of shipping companies in Korea, reduced shipping rates and high chartering costs, together with the slowdown in global trade, have contributed to the deterioration of their financial condition, requiring some of them to file for bankruptcy or pursue voluntary restructuring of their debt.

In response to the deteriorating financial condition and liquidity position of borrowers in the Korean construction, shipbuilding and shipping industries, which were disproportionately impacted by adverse domestic and global economic developments, the Korean government implemented a program in 2009 to promote expedited restructuring of such borrowers by their Korean creditor financial institutions, under the supervision of major commercial banks. In accordance with such program, 24 construction companies and five shipbuilding companies became subject to workout in 2009, following review by their creditor financial institutions (including us) and the Korean government. Each year since 2009, the Financial Services Commission and the Financial Supervisory Service have announced the results of subsequent credit risk evaluations conducted by creditor financial institutions (including us) of certain companies in Korea, pursuant to which a number of companies were selected by such financial institutions for restructuring in the form of workout, liquidation or court receivership. However, there is no assurance that these measures will be successful in stabilizing the Korean construction, shipbuilding and shipping industries.

The allowance for credit losses that we have established against our credit exposures to Korean construction, shipbuilding and shipping companies may not be sufficient to cover all future losses arising from these and other exposures. If the credit quality of our exposures to such companies declines further, we may incur substantial additional provisions for credit loss, which could adversely impact our results of operations and financial condition. Furthermore, although a portion of our loans to construction, shipbuilding and shipping companies are secured by collateral, such collateral may not be sufficient to cover uncollectible amounts in respect of such loans.

A large portion of our exposure is concentrated in a relatively small number of large corporate borrowers, which increases the risk of our corporate credit portfolio.

As of December 31, 2019, our 20 largest exposures to corporate borrowers (including loans, debt and equity securities, credit-related commitments and other exposures) totaled ₩52,634 billion, which represented 12.0% of our total exposures. As of that date, our single largest corporate exposure was to Korea Development Bank, to which we had outstanding credits in the form of debt securities of ₩11,917 billion and loans in Won of ₩6 billion, representing 2.7% of our total exposures in the aggregate. Aside from exposure to the Korean government and government-related agencies, our next largest exposure was to KB Securities, to which we had outstanding exposure of ₩1,140 billion representing 0.3% of our total exposures. Any deterioration in the financial condition of our large corporate borrowers, including those in industries particularly affected by the COVID-19 pandemic to which we have significant exposures such as the hotel, leisure and transportation industries, the retail and wholesale industries and the manufacturing industry, may require us to record substantial additional allowances and may have a material adverse impact on our results of operations and financial condition.

 

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We have exposure to the largest Korean commercial conglomerates, known as “chaebols,” and, as a result, financial difficulties of chaebols may have an adverse impact on us.

Of our 20 largest corporate exposures as of December 31, 2019, five were to companies that were members of the 28 largest chaebols in Korea. As of that date, the total amount of our exposures to the 28 largest chaebols was ₩19,454 billion, or 4.4% of our total exposures. If the credit quality of our exposures to chaebols declines as a result of financial difficulties they experience or for other reasons, we could incur additional provisions for credit loss, which would hurt our results of operations and financial condition. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Exposure to Chaebols.”

The allowances we have established against these exposures may not be sufficient to cover all future losses arising from these exposures. In addition, in the case of companies that are in or in the future enter into workout, restructuring, reorganization or liquidation proceedings, our recoveries from those companies may be limited. We may, therefore, experience future losses with respect to these exposures.

We have exposure to companies that are currently or may in the future be put in restructuring and may suffer losses as a result of additional provisions for credit loss required or the adoption of restructuring plans with which we do not agree.

As of December 31, 2019, our credit exposures to companies that were in workout or corporate restructuring amounted to ₩274 billion or 0.1% of our total credit exposures, of which ₩227 billion or 82.8% was classified as substandard or below and substantially all of which was classified as impaired. As of the same date, our allowance for credit losses on these credit exposures amounted to ₩124 billion, or 45.3% of these exposures. These allowances may not be sufficient to cover all future losses arising from our credit exposure to these companies. Furthermore, we have other exposure to such companies in the form of debt and equity securities of such companies held by us (including equity securities we acquired as a result of debt-to-equity conversions). Including such securities, our exposures as of December 31, 2019 to companies in workout or restructuring amounted to ₩275 billion, or 0.1% of our total exposures. Our exposures to such companies may also increase in the future, including as a result of adverse conditions in the Korean economy. In addition, in the case of borrowers that are or become subject to workout, we may be forced to restructure our credits pursuant to restructuring plans approved by other creditor financial institutions of the borrower, or to dispose of our credits to other creditors on unfavorable terms, which may adversely affect our results of operations and financial condition.

Risks relating to our consumer credit portfolio

We may experience increases in delinquencies in our consumer loan and credit card portfolios.

In recent years, consumer debt has increased rapidly in Korea. Our portfolio of consumer loans amounted to ₩109,290 billion as of December 31, 2017, ₩117,096 billion as of December 31, 2018 and ₩124,003 billion as of December 31, 2019. Our credit card portfolio amounted to ₩6,827 billion as of December 31, 2017, ₩8,051 billion as of December 31, 2018 and ₩8,399 billion as of December 31, 2019. As of December 31, 2019, our consumer loans and credit card receivables represented 45.6% and 3.1% of our total lending, respectively. See “Item 4.B. Business Overview—Consumer Banking—Lending Activities” and “Item 4.B. Business Overview—Credit Cards—Products and Services.”

The growth in our consumer loan portfolio in recent years, together with adverse changes in economic conditions in Korea and globally, may lead to increasing delinquencies and a deterioration in asset quality. The amount of our consumer loans classified as substandard or below was ₩276 billion (or 0.3% of our consumer loan portfolio) as of December 31, 2017, ₩309 billion (or 0.3% of our consumer loan portfolio) as of December 31, 2018 and ₩314 billion (or 0.3% of our consumer loan portfolio) as of December 31, 2019. We charged off consumer loans amounting to ₩217 billion in 2019, as compared to ₩204 billion in 2018 and ₩147 billion in 2017, and recorded provisions for credit loss in respect of consumer loans of ₩163 billion in 2019, as compared to ₩192 billion in 2018 and ₩152 billion in 2017. Within our consumer loan portfolio, the outstanding balance of general purpose household loans, which, unlike mortgage or home equity loans, are often

 

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unsecured and therefore tend to carry a higher credit risk, amounted to ₩31,108 billion, or 28.5% of our total outstanding consumer loans, as of December 31, 2017, ₩33,486 billion, or 28.6% of our total outstanding consumer loans, as of December 31, 2018 and ₩35,981 billion, or 29.0% of our total outstanding consumer loans, as of December 31, 2019.

In our credit card segment, outstanding balances overdue by more than one month amounted to ₩88 billion, or 1.3% of our credit card receivables, as of December 31, 2017, ₩110 billion, or 1.4% of our credit card receivables, as of December 31, 2018 and ₩110 billion, or 1.3% of our credit card receivables, as of December 31, 2019. In line with industry practice, we have restructured a portion of our delinquent credit card account balances as loans. As of December 31, 2019, these restructured loans amounted to ₩165 billion, or 2.0% of our credit card balances. Because these restructured loans are not initially recorded as being delinquent, our delinquency ratios do not fully reflect all delinquent amounts relating to our credit card balances. Including all restructured loans, outstanding balances overdue by more than one month accounted for 3.2% of our credit card balances as of December 31, 2019. We charged off credit card balances amounting to ₩281 billion in 2019, as compared to ₩243 billion in 2018 and ₩228 billion in 2017, and recorded provisions for credit loss in respect of credit card balances of ₩236 billion in 2019, as compared to ₩213 billion in 2018 and ₩204 billion in 2017. Delinquencies may further increase in the future as a result of, among other things, adverse economic conditions in Korea, additional government regulation or the inability of Korean consumers to manage increased household debt.

A deterioration of the asset quality of our consumer loan and credit card portfolios would require us to record increased provisions for credit loss and charge-offs and adversely affect our financial condition and results of operations. In addition, our large exposure to consumer loans means that we are exposed to changes in economic conditions affecting Korean consumers. Accordingly, economic difficulties in Korea that hurt those consumers could result in further deterioration in the credit quality of our consumer loan and credit card portfolios. For example, the severe impact of the COVID-19 pandemic on Korea’s economy may disrupt the business, activities and operations of our consumers, which in turn could result in a significant decrease in the number of financial transactions or the inability of our consumers to meet existing payment or other obligations to us. In addition, a rise in unemployment or an increase in interest rates in Korea could adversely affect the ability of consumers to make payments and increase the likelihood of potential defaults. See “Risks relating to Korea—Unfavorable financial and economic developments in Korea may have an adverse effect on us.”

In addition, we are exposed to changes in regulations and policies on consumer lending by the Korean government, which may adopt measures to restrict consumer lending or encourage financial institutions to provide financial support to certain types of retail borrowers. In 2014 and 2015, the Korean government implemented several measures to encourage consumer spending and revive the housing market in Korea, including loosening regulations on mortgage lending, which contributed to an increase in our portfolio of consumer loans. However, the Korean government introduced various measures from the second half of 2016 to 2019 to tighten regulations on mortgage lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. A decrease in housing prices as a result of the implementation of such measures, together with the high level of consumer debt and rising interest rate levels, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our consumer loan and credit card portfolios.

In light of adverse conditions in the Korean economy affecting consumers, in March 2009, the Financial Services Commission requested Korean banks, including Woori Bank, to establish a “pre-workout program,” including a credit counseling and recovery service, for retail borrowers with outstanding short-term debt. Under the pre-workout program, which has been in operation since April 2009, maturity extensions and/or interest reductions are provided to retail borrowers with total loans of less than ₩1.5 billion (consisting of no more than ₩500 million of unsecured loans and ₩1 billion of secured loans) who are in arrears on their payments for more than 30 days but less than 90 days or for retail borrowers with an annual income of ₩40 million or less who have been in arrears on their payments for 30 days or more on an aggregate basis for the 12 months prior to their application, among others. The aggregate amount of consumer credit (including credit card receivables) we provided which became subject to the pre-workout program in 2019 was ₩43.7 billion. While we believe that

 

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our operation of the pre-workout program has not had a material impact on the overall credit quality of our consumer loan and credit card portfolios to date, our participation in such government-led initiatives to provide financial support to retail borrowers may lead us to offer credit terms for such borrowers that we would not otherwise offer in the absence of such initiatives, which may have an adverse effect on our results of operations and financial condition.

A decline in the value of the collateral securing our consumer loans and our inability to realize full collateral value may adversely affect our consumer credit portfolio.

A substantial portion of our consumer loans is secured by real estate, the values of which have fluctuated significantly in recent years. Although it is our general policy to lend up to 70% of the appraised value of collateral (except in areas of high speculation designated by the government where we generally limit our lending to 40% of the appraised value of collateral) and to periodically re-appraise our collateral, a downturn in the real estate markets in Korea may result in a decline in the value of the collateral securing our mortgage and home equity loans. If collateral values decline in the future, they may not be sufficient to cover uncollectible amounts in respect of our secured loans. Any declines in the value of the real estate or other collateral securing our consumer loans, or our inability to obtain additional collateral in the event of such declines, could result in a deterioration in our asset quality and may require us to record additional allowances for credit losses.

In Korea, foreclosure on collateral generally requires a written petition to a court. An application, when made, may be subject to delays and administrative requirements that may decrease the value of such collateral. We cannot guarantee that we will be able to realize the full value on our collateral as a result of, among other factors, delays in foreclosure proceedings and defects in the perfection of our security interest in collateral. Our failure to recover the expected value of collateral could expose us to potential losses.

Risks relating to our financial holding company structure and strategy

We may not succeed in implementing our strategy to take advantage of, or fail to realize the anticipated benefits of, our financial holding company structure.

We were established as a new financial holding company in January 2019 pursuant to a “comprehensive stock transfer” under Korean law, following the completion of which Woori Bank, Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Services Co., Ltd. and Woori Private Equity Asset Management Co., Ltd. became our wholly-owned subsidiaries. See “Item 4A. History and Development of the Company—Establishment of Woori Financial Group.”

One of our principal strategies is to take advantage of our financial holding company structure to become a comprehensive financial services provider capable of developing and cross-selling a diverse range of products and services to our large existing base of retail and corporate banking customers. An intended benefit of our financial holding company structure is that it enhances our ability to engage in mergers and acquisitions which we may decide to pursue as part of our strategy. Accordingly, we may consider acquiring or merging with other financial institutions, particularly in the non-banking sector, to achieve more balanced growth and further diversify our revenue base. We may also continue to seek opportunities to expand our operations in markets outside Korea. See “Item 4.B. Business Overview—Strategy” and “—We may not be able to successfully execute our overseas expansion strategy.”

The integration of companies we may acquire or merge with in the future under our financial holding company structure could require a significant amount of time, financial resources and management attention. Moreover, that process could place a burden on our operations (including our risk management operations) or information technology systems, reduce employee morale, produce unintended inconsistencies in our standards, controls, procedures or policies, and affect our relationships with customers and our ability to retain key personnel. The realization of the anticipated benefits of our financial holding company structure may be blocked, delayed or reduced as a result of many factors, some of which may be outside our control. These factors include:

 

   

competition from other financial institutions, as well as private equity firms and other potential acquirers, in Korea and elsewhere in terms of identifying and winning bids for attractive merger and

 

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acquisition targets in the financial industry, including the non-banking sector, which may make it challenging for us to successfully acquire, or which may require us to pay a high acquisition price for, such targets;

 

   

difficulties in integrating the diverse activities and operations of our subsidiaries or any companies we may acquire, including risk management operations and information technology systems, personnel, policies and procedures;

 

   

difficulties in reorganizing or reducing overlapping personnel, branches, networks and administrative functions;

 

   

restrictions under the Financial Holding Company Act and other regulations on transactions between a financial holding company and, or among, its subsidiaries;

 

   

failure to leverage our financial holding company structure to realize operational efficiencies and to cross-sell multiple products and services;

 

   

unforeseen contingent risks, including lack of required capital resources, increased tax liabilities or restrictions in our overseas operations, relating to our financial holding company structure;

 

   

unexpected business disruptions;

 

   

failure to attract, develop and retain personnel with necessary expertise;

 

   

loss of customers; and

 

   

labor unrest.

Accordingly, we may not be able to realize the anticipated benefits of our financial holding company structure, and our business, results of operations and financial condition may suffer as a result.

We depend on limited forms of funding to fund our operations at the holding company level.

We are a financial holding company with no significant assets other than the shares of our subsidiaries. Our primary sources of funding and liquidity are dividends from our subsidiaries, sales of interests in our subsidiaries and direct borrowings and issuances of equity or debt securities at the holding company level. In addition, as a financial holding company, we are required to meet certain minimum financial ratios under Korean law, including with respect to liquidity and capital adequacy. Our ability to meet our obligations to our direct creditors and employees and our other liquidity needs and regulatory requirements at the holding company level depends on timely and adequate distributions from our subsidiaries and our ability to sell our securities or obtain credit from our lenders.

The ability of our subsidiaries to pay dividends to us depends on their financial condition and operating results. In the future, our subsidiaries may enter into agreements, such as credit agreements with lenders or indentures relating to high-yield or subordinated debt instruments, that impose restrictions on their ability to make distributions to us, and the terms of future obligations and the operation of Korean law could prevent our subsidiaries from making sufficient distributions to us to allow us to make payments on our outstanding obligations. See “—As a financial holding company, we largely depend on receiving dividends from our subsidiaries to pay dividends on our common stock.” Any delay in receipt of or shortfall in payments to us from our subsidiaries could result in our inability to meet our liquidity needs and regulatory requirements, including minimum liquidity and capital adequacy ratios, which may disrupt our operations at the holding company level.

In addition, our creditors will generally not be able to assert claims on the assets of our subsidiaries. Furthermore, our inability to sell our securities or obtain funds from our lenders on favorable terms, or at all, could also result in our inability to meet our liquidity needs and regulatory requirements and may disrupt our operations at the holding company level.

 

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As a financial holding company, we largely depend on receiving dividends from our subsidiaries to pay dividends on our common stock.

Since our principal assets at the holding company level are the shares of our subsidiaries, our ability to pay dividends on our common stock largely depends on dividend payments from those subsidiaries. Those dividend payments are subject to the Korean Commercial Code, the Bank Act and regulatory limitations, generally based on capital levels and retained earnings, imposed by the various regulatory agencies with authority over those entities. The ability of our subsidiaries to pay dividends may be subject to regulatory restrictions to the extent that paying dividends would impair their respective non-consolidated profitability, financial condition or other cash flow needs. For example:

 

   

under the Korean Commercial Code, dividends may only be paid out of distributable income, an amount which is calculated by subtracting the aggregate amount of a company’s paid-in capital and certain mandatory legal reserves from its net assets, in each case as of the end of the prior annual period;

 

   

under the Bank Act, a bank also must credit at least 10% of its net profit to a legal reserve each time it pays dividends on distributable income until that reserve equals the amount of its total paid-in capital; and

 

   

under the Bank Act and the requirements of the Financial Services Commission, if a bank fails to meet its required capital adequacy ratio or otherwise becomes subject to management improvement measures imposed by the Financial Services Commission, then the Financial Services Commission may restrict the declaration and payment of dividends by that bank.

Our subsidiaries may not continue to meet the applicable legal and regulatory requirements for the payment of dividends in the future. If they fail to do so, they may stop paying or reduce the amount of the dividends they pay to us, which would have an adverse effect on our ability to pay dividends on our common stock.

The implementation of the Korean government’s privatization plan may have an adverse effect on us and your interests as a shareholder.

In June 2013, the Korean government, through the Public Funds Oversight Committee of the Financial Services Commission, announced an updated plan to privatize Woori Finance Holdings, Woori Bank’s former parent company, and its former subsidiaries. The privatization plan provided for the segregation of such entities into three groups and the disposal of the Korean government’s interest in these entities held through the Korea Deposit Insurance Corporation, or the KDIC, in a series of transactions, many of which have been completed. Such transactions included the following:

 

   

Kwangju Bank and Kyongnam Bank.  In May 2014, Woori Finance Holdings established KJB Financial Group and KNB Financial Group through a spin-off of its businesses related to the holding of the shares and thereby controlling the business operations of Kwangju Bank and Kyongnam Bank, respectively. As a result of such spin-off, KJB Financial Group became the owner of the shares of Kwangju Bank previously held by Woori Finance Holdings and KNB Financial Group became the owner of the shares of Kyongnam Bank previously held by Woori Finance Holdings. Woori Finance Holdings no longer owned any shares of Kwangju Bank or Kyongnam Bank, and neither they nor their new holding companies were its subsidiaries, after the spin-off. Following such spin-off, each of these banks was merged with its holding company, and in October 2014, the KDIC sold its 56.97% ownership interest in Kwangju Bank and Kyongnam Bank to JB Financial Group and BS Financial Group, respectively.

 

   

Woori Investment & Securities and Other Subsidiaries.  In March 2014, Woori Finance Holdings sold its 52.0% ownership interest in Woori Financial to KB Financial Group. In May 2014, Woori Finance Holdings sold its 100.0% ownership interest in Woori Asset Management to Kiwoom Securities and sold its 100.0% ownership interest in Woori F&I to Daishin Securities. In June 2014, Woori Finance Holdings sold its 37.9% ownership interest in Woori Investment & Securities, its 51.6% ownership interest in Woori Aviva Life Insurance and its 100.0% ownership interest in Woori FG Savings Bank to NongHyup Financial Group in a collective sale. As a result of such sales, Woori Investment &

 

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Securities, Woori Asset Management, Woori Aviva Life Insurance, Woori FG Savings Bank, Woori F&I and Woori Financial were no longer subsidiaries of Woori Finance Holdings, and it no longer owned any shares in such former subsidiaries.

 

   

Woori Bank.  In November 2014, Woori Finance Holdings merged with and into Woori Bank. As a result of the merger, the other former subsidiaries of Woori Finance Holdings, including Woori Card, Woori Private Equity, Woori FIS, Woori Investment Bank and Woori Finance Research Institute, became Woori Bank’s subsidiaries. In December 2014, the KDIC sold 40,143,022 shares of Woori Bank’s common stock (representing 5.9% of its outstanding common stock) in a private sale in Korea. In addition, in December 2016 and January 2017, the KDIC sold an aggregate of 200,685,395 shares of Woori Bank’s common stock (representing 29.7% of its outstanding common stock) in stakes ranging from 3.7% to 6.0% to seven financial companies through a bidding process. Pursuant to a commitment made by the KDIC in connection with such bidding process, five persons, each nominated by one of the winning bidders, were elected as new outside directors at an extraordinary general meeting of Woori Bank’s shareholders held in December 2016. In December 2018, five persons, each nominated by one of such winning bidders, were elected at an extraordinary general meeting of Woori Bank’s shareholders to serve as our outside directors upon our establishment. See “Item 6.A. Directors and Senior Management—Board of Directors—Outside Directors.” In 2017, pursuant to a series of transactions related to call options previously granted in connection with the KDIC’s sale of Woori Bank’s common stock in December 2014, the KDIC sold an aggregate of 19,852,364 shares of Woori Bank’s common stock (representing 2.94% of its outstanding common stock). As a result of such transactions, the KDIC’s ownership interest in Woori Bank was reduced to 18.43%.

See “Item 4.A. History and Development of the Company—Privatization Plan.” In connection with our establishment in January 2019 as a new financial holding company pursuant to a “comprehensive stock transfer” under Korean law, the KDIC received our common stock in exchange for the common stock of Woori Bank it owned and currently owns 17.25% of our outstanding common stock. We expect that the KDIC will sell all of such common stock in multiple transactions by 2022 in accordance with its plan that was approved by the Financial Services Commission in June 2019.

The implementation of the Korean government’s privatization plan, including the expected sale of the KDIC’s remaining ownership interest in us to third parties, is likely to have a significant impact on us. For example, the KDIC’s sale of its ownership interest in us to a small number of third parties may affect our business, management, strategy, capital structure and assets and liabilities and lead to diversion of management attention, a loss of customers and labor unrest. There is also no guarantee that such sale will not result in unintended adverse tax consequences for us and our subsidiaries, as well as our shareholders. See “—Risks relating to our common stock and ADSs—Future sales by the KDIC of the shares of our common stock it owns may result in adverse Korean tax consequences for you.” Accordingly, the implementation of the privatization plan may have a material adverse effect on the trading price of our common stock and American depositary shares, or ADSs, and your interests as a shareholder.

We may not be able to successfully execute our overseas expansion strategy.

As part of our business strategy, we have been seeking opportunities to expand our operations in markets outside Korea, including through the opening of additional overseas branches and offices as well as strategic acquisitions and investments, particularly in South and Southeast Asia. For example, we expanded our network of branches to India, where we established branches in Chennai, Gurgaon and Mumbai from 2012 to 2016. In October 2016, we acquired a 51% equity interest in Wealth Development Bank Corp., a thrift bank in the Philippines. In November 2016, we obtained a banking license to establish a local subsidiary in Vietnam, Woori Bank Vietnam, which commenced operations in January 2017 and currently operates 14 branches throughout the country. In June 2018, we acquired VisionFund (Cambodia) Ltd., a microfinance deposit-taking institution in Cambodia, which was renamed WB Finance Co., Ltd. In February 2020, with the approval of the Cambodian financial authorities, Woori Finance (Cambodia) Plc., a microfinance institution, merged with and into WB Finance Co., Ltd. Notwithstanding the foregoing, the expansion of our operations abroad may be difficult due to

 

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the presence of established competitors in the relevant local markets. In addition, overseas expansion and the management of international operations may require significant financial expenditures as well as management attention, and will subject us to the challenges of operating in an unfamiliar business environment with different regulatory, legal and taxation systems and political, economic and social risks. Accordingly, there is no guarantee that we will be successful in executing our overseas expansion strategy. The failure of our overseas expansion strategy could have an adverse impact on our business, results of operations and financial condition.

We may not generate sufficient additional fees to achieve our revenue diversification strategy.

An important element of our overall strategy is increasing our fee income in order to diversify our revenue base, in anticipation of greater competition and declining lending margins. Historically, our primary source of revenues has been net interest income from our banking operations at Woori Bank. To date, except for credit card, trust management, bancassurance and currency transfer fees (including foreign exchange-related commissions), and fees collected in connection with the operation of our investment funds and investment banking activities, we have not generated substantial fee income. We intend to develop new sources of fee income as part of our business strategy, including through our current investment banking and asset management businesses and mergers and acquisitions which we may decide to pursue through our financial holding company structure. See “Item 4.B. Business Overview—Strategy.” Although we, like many other Korean financial institutions, have begun to charge fees to our customers more regularly, customers may prove unwilling to pay additional fees, even in exchange for more attractive value-added services, and their reluctance to do so would adversely affect the implementation of our strategy to increase our fee income. Furthermore, the fees that we charge to customers are subject to regulation by Korean financial regulatory authorities, which may seek to implement regulations or measures that may have an adverse impact on our ability to achieve this aspect of our strategy.

Risks relating to competition

Competition in the Korean financial industry is intense, and we may lose market share and experience declining margins as a result.

Competition in the Korean financial market has been and is likely to remain intense. Some of the financial institutions that we compete with are larger in terms of asset size and customer base and have longer operating histories as financial holding companies, greater financial resources or more specialized capabilities than us and our subsidiaries. In addition, in the area of our core banking operations, most Korean banks have been focusing on retail customers and small- and medium-sized enterprises in recent years, although they have begun to generally increase their exposure to large corporate borrowers, and have been focusing on developing fee income businesses, including bancassurance and investment products, as increasingly important sources of revenue. In the area of credit cards, Korean banks and credit card companies have in the past engaged in aggressive marketing activities and made significant investments, contributing to some extent to lower profitability and asset quality problems previously experienced with respect to credit card receivables. The competition and market saturation resulting from this common focus may make it more difficult for us to secure retail, small- and medium-sized enterprise and large corporate customers with the credit quality and on credit terms necessary to maintain or increase our income and profitability.

In addition, the following general regulatory reforms in the Korean financial industry have increased competition among banks and other financial institutions in Korea:

 

   

In the second half of 2015, the Korean government implemented measures to facilitate bank account portability of retail customers by requiring commercial banks to establish systems that allow retail customers to easily switch their bank accounts at one commercial bank to another and automatically transfer the automatic payment settings of their former accounts to the new ones.

 

   

In March 2016, the Financial Services Commission introduced an individual savings account scheme in Korea, which enables individuals to efficiently manage a wide range of retail investment vehicles, including cash deposits, investment funds and securities investment products, from a single integrated

 

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account with one financial institution and offers tax benefits on investment returns. Since the scheme backed by the Korean government allows only one individual savings account per person, financial institutions have been competing to retain existing customers and attract new customers since the launch of the individual savings account scheme. Over 30 financial institutions, including banks, securities companies and insurance companies, have registered with the Financial Services Commission to sell their individual savings account products.

 

   

In April 2019, the Financial Services Commission approved and is currently conducting test procedures for a financial regulatory sandbox, a framework set up to allow financial service providers to test new business models in a less regulated environment, as part of its efforts to work closely with the fintech sector and provide support to facilitate its development. In May 2019, we introduced a “drive-thru money exchange and withdrawal service” that is expected to allow our customers to exchange currencies and make withdrawals at drive-thru locations without having to visit a bank, which was approved by the Financial Services Commission for testing in the financial regulatory sandbox. In November 2019, we entered into an agreement with Shinsaegae Duty Free to provide foreign exchange drive-thru services on weekends, when banks are generally closed. Over 80 financial services have been similarly approved for such testing.

 

   

In December 2019, the Financial Services Commission launched an “open banking” system, which allows customers to view banking account information, regardless of institution, through a single mobile application. Such integrated system is expected to allow fintech firms to share payment networks with banks, thereby cutting transaction fees and encouraging the development of new payment services.

We expect such measures to intensify competition among financial institutions in Korea.

Furthermore, the introduction of Internet-only banks in Korea is expected to increase competition in the Korean banking industry. Internet-only banks generally operate without branches and conduct most of their operations through electronic means, which enable them to minimize costs and offer customers higher interest rates on deposits or lower lending rates. In April 2017, K bank, the first Internet-only bank in Korea, in which Woori Bank owns 13.8% of the equity with voting rights, commenced operations. Kakao Bank, a mobile-only bank, commenced operations in July 2017. In December 2019, Toss Bank was granted a preliminary license by the Financial Services Commission to operate as an Internet-only bank and is expected to begin operations in July 2021 upon receiving final approval from the Financial Services Commission.

Moreover, a number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012, the subsequent merger of Hana Bank into Korea Exchange Bank in 2015, KB Financial Group’s acquisition of Hyundai Securities Co., Ltd. in 2016 and the subsequent merger of Hyundai Securities with and into KB Investment & Securities Co., Ltd. in 2016. In 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., the largest securities company in Korea in terms of capital. In 2014, pursuant to the implementation of the Korean government’s privatization plan with respect to Woori Finance Holdings and its former subsidiaries, Woori Financial, Woori Asset Management and Woori F&I were acquired by KB Financial Group, Kiwoom Securities and Daishin Securities, respectively, and Woori Investment & Securities, Woori Aviva Life Insurance and Woori FG Savings Bank were acquired by NongHyup Financial Group. In addition, in October 2014, the KDIC’s ownership interest in Kwangju Bank and Kyongnam Bank were acquired by JB Financial Group and BS Financial Group, respectively. See “Item 4.A. History and Development of the Company—Privatization Plan.” Furthermore, Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.) became a wholly-owned subsidiary of Shinhan Financial Group following the acquisition of equity interests by Shinhan Financial Group in February 2019 and January 2020.

We expect that consolidation in the Korean financial industry will continue. Other financial institutions may seek to acquire or merge with other entities, and the financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We also believe that foreign financial institutions, many of which have greater experience and resources than we do, may

 

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seek to compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability. Accordingly, our results of operations and financial condition may suffer as a result of increasing competition in the Korean financial industry.

Competition for customer deposits may increase, resulting in a loss of our deposit customers or an increase in our funding costs.

In recent years, we have faced increasing pricing pressure on deposit products from our competitors. If we do not continue to offer competitive interest rates to our deposit customers, we may lose their business. In addition, even if we are able to match our competitors’ pricing, doing so may result in an increase in our funding costs, which may have an adverse impact on our results of operations.

Other risks relating to our business

The recent global outbreak of COVID-19 may adversely affect our business, financial condition or results of operations.

COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2, has spread globally and was declared a “pandemic” by the World Health Organization on March 11, 2020. The global outbreak of COVID-19 has led to global economic and financial disruptions and has adversely affected our business operations in recent months. Risks associated with a prolonged outbreak of COVID-19 may include:

 

   

an increase in defaults on loan payments from our customers who may not be able to meet payment obligations, which may lead to an increase in delinquency ratios and a deterioration in asset quality, resulting in increased charge-offs, higher provisioning and reduced interest and fee income;

 

   

decreases in interest rates worldwide (see “—An increase in interest rates would decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which could adversely affect us”);

 

   

depreciation of the Won against major foreign currencies, which may increase our costs in servicing foreign currency-denominated debt and result in foreign exchange losses (see “—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition”);

 

   

impairments in the fair value of our investments in companies that may be adversely affected by the pandemic;

 

   

disruption in the normal operations of our business resulting from the contraction of the disease by our employees or customers, which may necessitate our employees to be quarantined and/or our offices or branches to be temporarily shut down; and

 

   

disruption resulting from the necessity for social distancing, including, for example, temporary arrangements for employees to work remotely, which may lead to a reduction in labor productivity.

While the exact nature and magnitude of the impact of the COVID-19 pandemic on our business, financial condition and results of operations are continuing to be assessed by our management, we believe that the COVID-19 pandemic has had a negative impact on our results of operations for the three months ended March 31, 2020.

It is not possible to predict the duration or the full magnitude of the overall harm that may result from the COVID-19 outbreak in the long term. In response to the outbreak, we and our subsidiaries have implemented various measures, both financial, such as offering extensions on the terms or discounts on the interest rates of certain loans and waiving ATM transaction fees in areas most affected by COVID-19 including Daegu and Gyeongsangbuk-do, and non-financial, such as installing acrylic transparent barriers in our branches and distributing masks to protect our customers and workforce. We have also established a group emergency management committee to accurately assess the relevant risks, proactively develop countermeasures and enhance reporting and communication systems on a group-wide basis. Notwithstanding such efforts, in the event that COVID-19 or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition, results of operations and cash flows may continue to be adversely affected.

 

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Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.

The overall prospects for the Korean and global economy in 2020 and beyond remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

 

   

the occurrence of severe health epidemics, such as the ongoing COVID-19 pandemic;

 

   

interest rate fluctuations as well as changes in policy rates by the U.S. Federal Reserve and other central banks;

 

   

financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

 

   

a deterioration in economic and trade relations between the United States and its major trading partners, including China;

 

   

the slowdown of economic growth in China and other major emerging market economies;

 

   

increased uncertainties resulting from the United Kingdom’s exit from the European Union; and

 

   

political and social instability in various countries in the Middle East, including Syria, Iraq and Egypt.

In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years and has recently been subject to significant volatility as a result of the recent COVID-19 pandemic. A depreciation of the Won will increase our cost of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of the deterioration in global and Korean economic conditions, there has been downward pressure on securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Notwithstanding the Korean government’s efforts to stabilize such volatility through the execution of a bilateral currency swap agreement with the U.S. Federal Reserve for the provision of US$60 billion in exchange for Won-denominated treasury bonds in March 2020 and the establishment of bond and stock market stabilization funds with the participation of Korean banks, such developments have resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments in joint ventures and associates.

Our risk management system may not be effective in mitigating risk and loss.

We seek to monitor and manage our risk exposure through a standardized risk management system, encompassing a multi-tiered risk management governance structure under our Board Risk Management Committee, our centralized credit risk management system called the Credit Wizard system, reporting and monitoring systems, early warning systems and other risk management infrastructure, using a variety of risk management strategies and techniques. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” However, such risk management strategies and techniques employed by us and the judgments that accompany their application cannot anticipate the economic and financial outcome in all market environments, and many of our risk management strategies and techniques have a basis in historic market behavior that may limit the effectiveness of such strategies and techniques in times of significant market stress or other unforeseen circumstances. Furthermore, our risk management strategies may not be effective in a difficult or less liquid market environment, as other market participants may be attempting to use the same or similar strategies as us to deal with such market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants.

 

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We have provided certain assets as collateral in connection with our secured borrowings and could be required to make payments and realize losses in the future relating to those assets.

We have provided certain assets as collateral for our secured borrowings in recent years. As of December 31, 2019, the aggregate amount of assets we had provided as collateral for our secured borrowings was ₩11,923 billion. These secured borrowings may take the form of asset securitization transactions, where we nominally sell our assets to a securitization vehicle that issues securities backed by those assets, although the assets remain on our statements of financial position. These secured borrowings are intended to be fully repaid through recoveries on collateral. Some of these nominal asset sales were with recourse, which means that if delinquencies arise with respect to such assets, we will be required to either repay a proportionate amount of the related secured borrowing (by reversing the nominal sale and repurchasing such assets) or compensate the securitization vehicle for any net shortfalls in its recoveries on such assets. If we are required to make payments on such assets, or to repay our secured borrowings on those assets and are unable to make sufficient recoveries on them, we may realize further losses on these assets.

An increase in interest rates would decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which could adversely affect us.

Interest rates in Korea have been subject to significant fluctuations in the past. The Bank of Korea reduced its policy rate to 2.00% through a series of reductions from 2012 to 2014 to support Korea’s economy in light of the slowdown in Korea’s growth and uncertain global economic prospects. The Bank of Korea further reduced its policy rate to 1.50% in 2015 and again to 1.25% in June 2016 amid deflationary concerns and interest rate cuts by central banks around the world. While the Bank of Korea increased its policy rate to 1.50% in November 2017 and 1.75% in November 2018 in light of improved growth prospects in Korea and rising interest rate levels globally, it again reduced its policy rate to 1.50% in June 2019 and 1.25% in October 2019 to address the sluggishness of the global and domestic economies. Moreover, in March 2020, the Bank of Korea further reduced its policy rate to an unprecedented 0.75% amid rising concerns of a potential global recession as a result of the COVID-19 pandemic. All else being equal, increases in interest rates in the future could lead to a decline in the value of our portfolio of debt securities, which generally pay interest based on a fixed rate. A sustained increase in interest rates will also raise our funding costs, while reducing loan demand, especially among consumers. Rising interest rates may therefore require us to re-balance our asset portfolio and our liabilities in order to minimize the risk of potential mismatches and maintain our profitability. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” In addition, rising interest rate levels may adversely affect the Korean economy and the financial condition of our corporate and consumer borrowers, including holders of our credit cards, which in turn may lead to a deterioration in our credit portfolio. In particular, since most of our consumer and corporate loans bear interest at rates that adjust periodically based on prevailing market rates, a sustained increase in interest rates would increase the interest costs of our consumer and corporate borrowers and will adversely affect their ability to make payments on their outstanding loans.

Uncertainties regarding the possible discontinuation of the London Interbank Offered Rate, or LIBOR, or any other interest rate benchmark could have adverse consequences for market participants, including us.

In July 2017, the U.K. Financial Conduct Authority, or the FCA, which has regulatory authority with respect to LIBOR, announced that it does not intend to continue to encourage, or use its power to compel, panel banks to provide rate submissions for the determination of LIBOR beyond the end of 2021. It is possible that panel banks will continue to provide rate submissions, and that the ICE Benchmark Administration, the administrator of LIBOR, will continue to determine and announce LIBOR, on the current basis after 2021, if they are willing and able to do so. However, there is no guarantee that LIBOR will be determined and announced after 2021 on the current basis or at all.

Given the extensive use of LIBOR across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including us, and in particular, Woori Bank. We issue, trade, hold or otherwise use various products and securities that reference LIBOR, including, among others, loans, securities, deposits, borrowings, derivatives and debentures. If not sufficiently planned for, the discontinuation of LIBOR or any other interest rate benchmark could result in increased financial, operational,

 

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legal, reputational and/or compliance risks. For example, a significant challenge will be managing the impact of the LIBOR transition on the contractual mechanics of LIBOR-based financial instruments and contracts that mature after 2021. Certain of these instruments and contracts may not provide for alternative reference rates. Even if such instruments and contracts provide for alternative reference rates, such alternative reference rates are likely to differ from the prior benchmark rates and may require us to pay interest at higher rates on the related obligations, which could adversely impact our interest expenses, results of operations and cash flows. While there are a number of international working groups focused on transition plans and the provision of fallback contract language that seek to minimize market disruption, replacement of LIBOR or any other benchmark with a new benchmark rate could adversely impact the value of and return on existing instruments and contracts. Moreover, replacement of LIBOR or other benchmark rates could result in market dislocations and have other adverse consequences for market participants, including the potential for increased costs, and litigation risks, including the potential for disputes with counterparties regarding the interpretation and enforceability of fallback contract language in LIBOR-based financial instruments and contracts.

Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.

We meet a significant amount of our funding requirements through short-term funding sources, which consist primarily of customer deposits. As of December 31, 2019, approximately 96.8% of these deposits had maturities of one year or less or were payable on demand. In the past, a substantial proportion of these customer deposits have been rolled over upon maturity. We cannot guarantee, however, that depositors will continue to roll over their deposits in the future. In the event that a substantial number of these short-term deposit customers withdraw their funds or fail to roll over their deposits as higher-yielding investment opportunities emerge, our liquidity position could be adversely affected. We may also be required to seek more expensive sources of short-term and long-term funding to finance our operations. See “Item 5.B. Liquidity and Capital Resources—Financial Condition—Liquidity.”

Labor union unrest may disrupt our operations and hinder our ability to continue to reorganize our operations.

Most financial institutions in Korea have experienced periods of labor unrest. In recent years, we have transferred or merged some of the business operations of our subsidiaries and affiliates into one or more entities and implemented other forms of corporate and operational restructuring, including in connection with the Korean government’s privatization plan with respect to Woori Finance Holdings and its former subsidiaries. See “—Risks relating to our structure and strategy—The implementation of the Korean government’s privatization plan may have an adverse effect on us and your interests as a shareholder.” We may also decide to implement other organizational or operational changes, as well as acquisitions or dispositions, in the future. Such efforts have in the past been met with significant opposition from labor unions in Korea. Actual or threatened labor disputes may in the future disrupt the reorganization process and our business operations, which in turn may hurt our financial condition and results of operations.

The secondary market for corporate bonds in Korea is not fully developed, and, as a result, we may not be able to realize the full “marked-to-market” value of debt securities we hold when we sell any of those securities.

As of December 31, 2019, we held debt securities issued by Korean companies and financial institutions (other than those issued by government-owned or -controlled enterprises or financial institutions, which include the Bank of Korea, the Korea Development Bank, the Korea Housing Finance Corporation and the Industrial Bank of Korea, among others) with a total book value of ₩2,424 billion in our trading and investment securities portfolio. The market value of these securities could decline significantly due to various factors, including future increases in interest rates or a deterioration in the financial and economic condition of any particular issuer or of Korea in general. Any of these factors individually or a combination of these factors would require us to write down the fair value of these debt securities, resulting in impairment losses. Because the secondary market for corporate bonds in Korea is not fully developed, the market value of many of these securities as reflected on our consolidated statements of financial position is determined by references to suggested prices posted by Korean rating agencies, which measure prices based on observable market data. These valuations, however, may differ significantly from the actual value that we could realize in the event we elect to sell these securities. As a result,

 

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we may not be able to realize the full “marked-to-market” value at the time of any such sale of these securities and thus may incur additional losses.

We may be required to raise additional capital if our capital adequacy ratios deteriorate or the applicable capital requirements change in the future, but we may not be able to do so on favorable terms or at all.

Under the capital adequacy requirements of the Financial Services Commission, as of December 31, 2019, we as a bank holding company were required to maintain a total minimum common equity Tier I capital adequacy ratio of 7.0%, Tier I capital adequacy ratio of 8.5% and combined Tier I and Tier II capital adequacy ratio of 10.5%, on a consolidated basis (including applicable additional capital buffers and requirements as described below), and Woori Bank as a bank was required to maintain a total minimum common equity Tier I capital adequacy ratio of 8.0%, Tier I capital adequacy ratio of 9.5% and combined Tier I and Tier II capital adequacy ratio of 11.5%, on a consolidated basis (including applicable additional capital buffers and requirements as described below). As of December 31, 2019, our common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 8.39%, 9.86% and 11.89%, respectively, and Woori Bank’s common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 10.97%, 13.17% and 15.40%, respectively, all of which exceeded the minimum levels required by the Financial Services Commission. However, our capital base and capital adequacy ratios may deteriorate in the future if our results of operations or financial condition deteriorates for any reason, or if we are not able to deploy our funding into suitably low-risk assets.

The current capital adequacy requirements of the Financial Services Commission are derived from a new set of bank capital measures, referred to as Basel III, which the Basel Committee on Banking Supervision initially introduced in 2009 and began phasing in starting from 2013. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital (which principally includes equity capital, capital surplus and retained earnings) to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. Such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%, which remains unchanged. The amended regulations also require an additional capital conservation buffer of 2.5% in 2019 and 2020, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, Woori Bank was designated as a domestic systemically important bank for 2019 by the Financial Services Commission and was subject to an additional capital requirement of 1.0% in 2019. In June 2019, we and Woori Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2020, which subjects us and Woori Bank to the additional capital requirement of 1.0% in 2020. The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean financial institutions, including us. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy” and “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

In measuring risk-weighted assets for the purpose of calculating capital adequacy ratios, generally the standardized approach or the internal ratings-based approach is applied. However, for the application of the internal ratings-based approach, which relies on the internal rating system of the relevant bank or bank holding company, the bank or bank holding company must receive approval from the Financial Supervisory Service after a trial evaluation period. While we have commenced the process to receive such approval, we are currently required to apply the standardized approach to measure our risk-weighted assets as a newly-established bank holding company, and as a result, our capital adequacy ratios may be lower compared to those of Woori Bank.

We may be required to obtain additional capital in the future in order to remain in compliance with the applicable capital adequacy and other regulatory requirements. However, we may not be able to obtain additional

 

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capital on favorable terms, or at all. Our ability to obtain additional capital at any time may be constrained to the extent that banks, bank holding companies or other financial institutions in Korea or from other countries are seeking to raise capital at the same time. To the extent that we fail to comply with applicable capital adequacy or other regulatory requirements in the future, Korean regulatory authorities may impose penalties on us ranging from a warning to suspension or revocation of our banking license.

We engage in limited activities relating to Iran and may become subject to sanctions under relevant laws and regulations of the United States and other jurisdictions as a result of such activities, which may adversely affect our business and reputation.

The U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers and enforces certain laws and regulations (which we refer to as OFAC sanctions) that impose restrictions upon activities or transactions within U.S. jurisdiction with certain countries, governments, entities and individuals that are the subject of OFAC sanctions, including Iran. Non-U.S. persons generally are not automatically bound by OFAC sanctions, but to the extent they engage in transactions completed in part in the United States or through U.S. persons (such as, for example, wiring an international payment that clears through a bank branch in New York), they are required to comply with U.S. sanctions. The European Union also enforces certain laws and regulations that impose restrictions upon nationals and entities of, and business conducted in, member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such laws and regulations, including with respect to targeted entities in Iran. The United Nations Security Council and other governmental entities (including Korea) also impose similar sanctions.

The United States also maintains indirect sanctions, which we refer to collectively as U.S. secondary sanctions, which provide authority for the imposition of U.S. sanctions on foreign parties that engage in targeted transactions with no connection to U.S. jurisdiction. Secondary sanctions are maintained under a wide and growing range of statutes and Executive Orders, and the standard language of most Executive Orders provides authority to impose sanctions on persons providing material support to designated entities. Secondary sanctions have been of increasing importance in recent years, particularly (but not only) with respect to Iran, Russia, and North Korea. Iran has also been designated as a “jurisdiction of primary money laundering concern” under Section 311 of the USA PATRIOT Act, potentially subjecting banks dealing with Iranian financial institutions to increased regulatory scrutiny.

Violations of OFAC sanctions via transactions with a U.S. jurisdictional nexus can result in substantial civil or criminal penalties. U.S. secondary sanctions apply even when no such jurisdictional nexus exists, and companies that engage in targeted activities under secondary sanctions may themselves become the target of OFAC sanctions, including, among other things, the blocking of any property subject to U.S. jurisdiction in which the sanctioned company has an interest, which would include a prohibition on transactions or dealings within U.S. jurisdiction involving securities of the sanctioned company. Financial institutions engaging in targeted activity could in some instances be sanctioned by termination or restriction of their ability to maintain correspondent accounts in the United States. The imposition of sanctions against foreign financial institutions pursuant to U.S. secondary sanctions is not automatic, requiring further action by the U.S. administration.

Previously, Korea benefited from a “significant reduction” exception, or SRE, that exempted Korean companies from many U.S. secondary sanctions in connection with purchases of crude oil and natural gas from Iran that met a series of conditions, including restrictions on the currencies involved and stringent limits on the use of proceeds of oil and gas purchases. The U.S. Department of State announced that as of May 2, 2019, it would discontinue the exemption.

In 2019, we engaged in the following activities relating to Iran:

 

   

We have operated certain accounts for the CBI, which were opened by the CBI pursuant to a service agreement entered into by us and the CBI in September 2010, as amended from time to time, to facilitate trade between Korea and Iran. The accounts opened by the CBI consist of Won-denominated accounts that are used for the settlement of exports of goods produced or substantially transformed in Korea to Iran by Korean exporters and Won, U.S. dollar, euro and Japanese Yen-denominated accounts (of which

 

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only the Won accounts are in use) that are used for the settlement of imports of crude oil and nauralgas from Iran by Korean importers. By the terms of the service agreement between us and the CBI, settlement of export and import transaction payments due from Iranian entities to Korean exporters or from Korean importers of oil and gas to Iranian entities through such accounts opened by the CBI was effected by crediting or debiting the relevant amount to or from the applicable accounts while a corresponding payment of funds was made to or from an Iranian commercial bank by the CBI. Any funds deposited for the account of Iranian entities as a result of Korean imports of crude oil and natural gas was only to be used by transferring them to the Won-denominated account and then making payment to accounts of Korean persons and entities opened at financial institutions in Korea in respect of Korean exports to Iran. No transfers of funds were to be made from these accounts to Iran, to Iranian accounts in any third country, or for any use other than those described above. In light of the discontinuation of the SRE, from July 8, 2019 to September 20, 2019, we limited activity in the existing CBI accounts to processing payments for exports of humanitarian goods to Iran, and since the imposition of additional secondary sanctions against the CBI on September 20, 2019, we ceased all activity in the existing CBI accounts. In 2019, the total fee revenue from maintaining the CBI accounts amounted to approximately ₩1.8 million. As there were no expenses directly applicable to such activities under our internal management accounts, we estimate that our net income before tax from maintaining the CBI accounts also amounted to approximately ₩1.8 million.

 

   

We have also provided fund transfer and financing services to Korean exporters and importers in connection with their trade transactions with Iranian parties which were permitted under the relevant Korean sanctions regime and not subject to U.S. secondary sanctions. We have discontinued all trade financing activities relating to export and import trades involving the CBI accounts since November 5, 2018. In 2019, all such exports and imports were settled through telegraphic transfer and did not involve our financing services. In addition, we continued to honor our obligations on a limited basis under previously-issued bank guarantees to the extent that such activities did not violate OFAC sanctions or applicable U.S. secondary sanctions. In 2019, our total fee revenue from the relevant telegraphic transfer services amounted to approximately ₩0.64 million. As there were no expenses directly applicable to such activities under our internal management accounts, we estimate that our net income before tax from such activities also amounted to approximately ₩0.64 million.

 

   

We also maintain a limited number of deposit accounts in Korea for an Iranian financial institution that were opened prior to its designation for U.S. sanctions. The relevant accounts have since been restricted, and no transactions are currently allowed through these accounts. Accordingly, there were no fee revenues from maintaining such deposit accounts, and there were no expenses directly applicable to such activities under our internal management accounts.

While we have conformed our Iran-related dealings with U.S. secondary sanctions previously waived under the SRE and ceased such activities following the expiration of the SRE on May 2, 2019, regulatory guidance regarding the wind down of SRE-related activities to date is limited, and complications may arise in relation to legacy accounts or our past activities during or following the wind down. While we do not believe that our past activities relating to Iran have violated OFAC sanctions or are sanctionable under applicable U.S. secondary sanctions, there is no guarantee that such activities will not be found to have violated OFAC sanctions or involved sanctionable activity under U.S. secondary sanctions, or that any other government will not determine that our activities violated applicable sanctions of other countries. Sanctions against Iran continue to evolve rapidly, and future changes in law could also adversely affect us.

Furthermore, there is no guarantee that other countries (including Korea) that had provided sanctions relief to Iran in conjunction with the 2015 Joint Comprehensive Plan of Action (JCPOA) will not decide to re-impose sanctions relating to Iran, especially if there are further negative political developments relating to the Middle East. It is also possible that the United States, Korea or other countries might seek to expand their sanctions relating to Iran in the future beyond those existing currently. Such governmental actions and policies may also increase the risk of our violating certain sanctions or becoming a target of sanctions as a result of our past activities relating to Iran. Any such development could have a material adverse impact on our business, reputation or results of operations.

 

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Our business and reputation could be adversely affected if the U.S. government were to determine that our past activities relating to Iran violated OFAC sanctions or involved sanctionable activity under U.S. secondary sanctions, or if any other government were to determine that such activities violated applicable sanctions of other countries. Any prohibition or conditions placed on our use of U.S. correspondent accounts could effectively eliminate our access to the U.S. financial system, including U.S. dollar clearing transactions, which would adversely affect our business, and any other sanctions or civil or criminal penalties imposed could also adversely affect our business. If the U.S. government were to challenge the compatibility of our past activities relating to Iran with OFAC sanctions or U.S. secondary sanctions, while no assurances can be given that any such measures would be successful, we intend to take all necessary measures to the extent possible to ensure that prohibitions or conditions are not placed on our use of U.S. correspondent accounts, including closing the accounts opened by the CBI with us, if required.

We are cooperating with an investigation relating to compliance with U.S. sanctions and other U.S. laws led by the U.S. Attorney’s Office for the Southern District of New York and the New York State Office of the Attorney General on certain of our transactions involving sanctioned countries. We have provided the investigating authorities with information and documents pursuant to the applicable laws and regulations. We voluntarily reported the relevant transactions to OFAC, including a limited number of previous transactions that may have involved sanctioned countries including Iran, Sudan, Syria and Cuba. It is not possible to predict the outcome of such investigation at this time, and there can be no assurance that such investigation will not result in an unfavorable outcome or adversely affect our business or reputation.

Furthermore, some of our U.S. investors may be required to divest their investments in us or forego the purchase of our securities under the laws of certain U.S. states relating to investments by state-owned entities or under internal investment policies relating to companies (or their affiliates) doing business with Iran, or investors may decide for reputational reasons to divest or forego such investments. We are aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to adopt or consider adopting laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with countries identified as state sponsors of terrorism. There can be no assurance that the foregoing will not occur or that such occurrence will not have a material adverse effect on the value of our common stock and ADSs.

Our operations may be subject to increasing and continually evolving cybersecurity and other technological risks.

With the proliferation of new technologies and the increasing use of the Internet and mobile devices to conduct financial transactions, our operations as a financial institution have been, and will continue to be, subject to an increasing risk of cyber incidents relating to these activities, the nature of which is continually evolving. Our computer systems, software and networks are subject to cyber incidents, such as disruptions, delays or other difficulties affecting our information technology systems, computer viruses or other malicious codes, loss or destruction of data (including confidential client information), unauthorized access, account takeover attempts and cyber attacks. A significant portion of our daily operations relies on our information technology systems, including customer service, billing, the secure processing, storage and transmission of confidential and other information as well as the timely monitoring of a large number of complex transactions. Although we have made substantial and continuous investments to build systems and defenses to address cybersecurity and other technological risks, there is no guarantee that such measures or any other measures can provide adequate security and stability. In addition, because methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive measures or proactively address these methods. Furthermore, these cyber threats may arise from human error, accidental technological failure and third parties with whom we do business. If we were to be subject to a system failure or other cyber incident, it could result in the disclosure of confidential client information, damage to our reputation with our customers and in the market, customer dissatisfaction, additional costs to us, regulatory penalties, exposure to litigation and other financial losses to both us and our customers, which could have an adverse effect on our business and results of operations.

 

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Our business may be adversely affected by legal claims and regulatory actions against us.

We are subject to the risk of legal claims and regulatory actions, which may expose us to monetary damages and legal costs, injunctive relief, criminal and civil penalties, sanctions against our management and employees and regulatory restrictions on our operations, as well as reputational harm. See “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings and Regulatory Actions.”

We are unable to predict the outcome of many of the legal claims and regulatory actions in which we are involved, and the scope of the claims or actions or the total amount in dispute in such matters may increase. Furthermore, adverse decisions, findings or resolutions in such matters could encourage other parties, including governmental authorities in other jurisdictions, to bring similar claims and actions against us. Accordingly, the outcome of current and future legal claims and regulatory actions, particularly those for which it is difficult to assess the maximum potential exposure or the ultimate adverse impact with any degree of certainty, may materially and adversely impact our business, reputation, results of operations and financial condition.

We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which differ in many respects from standards applicable in other countries, including the United States. As a reporting company registered with the U.S. Securities and Exchange Commission and listed on the New York Stock Exchange, we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002. However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in less than satisfactory corporate governance practices or disclosure to investors in certain countries.

Risks relating to government regulation and policy

Strengthening of consumer protection laws applicable to financial institutions could adversely affect our operations.

As a financial service provider, we are subject to a variety of regulations in Korea that are designed to protect financial consumers. In recent years, in light of heightened public concern regarding privacy issues, the Korean government has placed greater emphasis on protection of personal information by financial institutions and has implemented a number of measures to enhance consumer protection. Under the Personal Information Protection Act, financial institutions, as personal information managers, may not collect, store, maintain, utilize or provide resident registration numbers of their customers, unless other laws or regulations specifically require or permit the management of resident registration numbers. In addition, under the Use and Protection of Credit Information Act, a financial institution has a higher duty to protect all information that it collects from its customers and is required to treat such information as credit information. A financial institution’s ability to transfer or provide the information to its affiliates or holding company is considerably restricted. Treble damages may be imposed on a financial institution for leakage of such information. Furthermore, under the Electronic Financial Transaction Act, a financial institution is primarily responsible for compensating its customers harmed by a cyber security breach affecting the financial institution even if the breach is not directly attributable to the financial institution.

The Act on the Financial Consumer Protection Framework was passed by the Korean National Assembly on March 5, 2020. Under the Act, we as a financial instrument distributor will be subject to heightened investor protection measures, including stricter distribution guidelines, improved financial dispute resolution procedures, increased liability for customer losses and newly imposed penalty surcharges. The Act is scheduled to be promulgated after deliberation by the cabinet and will become effective one year after such promulgation.

 

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These and other measures that may be implemented by the Korean government to strengthen consumer protection laws applicable to financial institutions may limit our operational flexibility and cause us to incur significant additional compliance costs, as well as subject us to increased potential liability to our customers, which could adversely affect our business and performance.

The Korean government may promote lending and financial support by the Korean financial industry to certain types of borrowers as a matter of policy, which financial institutions, including us, may decide to follow.

Through its policy guidelines and recommendations, the Korean government has promoted and, as a matter of policy, may continue to attempt to promote lending by the Korean financial industry to particular types of borrowers. For example, the Korean government has in the past announced policy guidelines requesting financial institutions to participate in remedial programs for troubled corporate borrowers, as well as policies aimed at promoting certain sectors of the economy, including measures such as making low interest funding available to financial institutions that lend to these sectors. The government has in this manner encouraged mortgage lending to low-income individuals and lending to small- and medium-sized enterprises. We expect that all loans or credits made pursuant to these government policies will be reviewed in accordance with our credit approval procedures. However, these or any future government policies may influence us to lend to certain sectors or in a manner in which we otherwise would not in the absence of such policies.

In the past, the Korean government has also announced policies under which financial institutions in Korea are encouraged to provide financial support to particular sectors. For example, in light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea and adverse conditions in the Korean economy affecting such enterprises, the Korean government introduced measures intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise borrowers. See “—Risks relating to our corporate credit portfolio—The largest portion of our exposure is to small- and medium-sized enterprises, and financial difficulties experienced by companies in this segment may result in a deterioration of our asset quality and have an adverse impact on us.” In addition, in September 2019, in response to increasing levels of consumer debt and amid concerns over the debt-servicing capacity of retail borrowers if interest rates were to rise, the Korean government requested Korean banks to participate in a mortgage loan refinancing program for low-income individuals with low repayment ability aimed at reducing the payment burden on outstanding mortgage loans. See “—Risks relating to our consumer credit portfolio—We may experience increases in delinquencies in our consumer loan and credit card portfolios.”

The Korean government may in the future request financial institutions in Korea, including us, to make investments in or provide other forms of financial support to particular sectors of the Korean economy as a matter of policy, which financial institutions, including us, may decide to accept. We may incur costs or losses as a result of providing such financial support.

The Financial Services Commission may impose burdensome measures on us if it deems us or one of our subsidiaries to be financially unsound.

If the Financial Services Commission deems our financial condition or the financial condition of our subsidiaries to be unsound, or if we or our subsidiaries fail to meet applicable regulatory standards, such as minimum capital adequacy and liquidity ratios, the Financial Services Commission may order or recommend, among other things:

 

   

admonitions or warnings with respect to our officers;

 

   

capital increases or reductions;

 

   

assignments of contractual rights and obligations relating to financial transactions;

 

   

a suspension of performance by our officers of their duties and the appointment of receivers;

 

   

disposals of property holdings or closures of subsidiaries or branch offices or downsizing;

 

   

stock cancellations or consolidations;

 

   

mergers with other financial institutions;

 

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acquisition of us by a third party; and

 

   

suspensions of a part or all of our business operations.

If any of these measures are imposed on us by the Financial Services Commission, they could hurt our business, results of operations and financial condition. In addition, if the Financial Services Commission orders us to partially or completely reduce our capital, you may lose part or all of your investment.

Risks relating to Korea

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

We are incorporated in Korea, and a substantial majority of our operations are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our performance and successful fulfillment of our operational strategies are dependent to a large extent on the overall Korean economy. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and in early 2020, the overall Korean economy and the economies of Korea’s major trading partners have shown signs of deterioration due to the debilitating effects of the COVID-19 pandemic. See “—Other risks relating to our business—The recent global outbreak of COVID-19 may adversely affect our business, financial condition or results of operations.” As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the increasing weakness of the global economy, mainly due to the COVID-19 pandemic, have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. See “—Other risks relating to our business—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.” The value of the Won relative to major foreign currencies has fluctuated significantly and, as a result of deteriorating global and Korean economic conditions, there has been significant volatility in the stock prices of Korean companies recently. Further declines in the Korea Composite Stock Price Index, or the KOSPI, and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on the Korean economy include:

 

   

declines in consumer confidence and a slowdown in consumer spending;

 

   

the occurrence of severe health epidemics in Korea or other parts of the world, such as the COVID-19 pandemic;

 

   

adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

 

   

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, the euro or the Japanese yen exchange rates or revaluation of the Chinese renminbi), interest rates, inflation rates or stock markets;

 

   

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes with Japan);

 

   

increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets;

 

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a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

 

   

investigations of chaebols and their senior management for possible misconduct;

 

   

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers in Korea;

 

   

social and labor unrest;

 

   

substantial changes in the market prices of Korean real estate;

 

   

the economic impact of any pending or future free trade agreements or of any changes to existing free trade agreements;

 

   

a decrease in tax revenue or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that would lead to an increased government budget deficit;

 

   

financial problems or lack of progress in the restructuring of chaebols, other large troubled companies (including those in the construction, shipbuilding and shipping sectors) and their suppliers;

 

   

loss of investor confidence arising from corporate accounting irregularities or corporate governance issues concerning certain chaebols;

 

   

increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

   

geo-political uncertainty and risk of further attacks by terrorist groups around the world;

 

   

natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

 

   

political uncertainty or increasing strife among or within political parties in Korea;

 

   

hostilities or political or social tensions involving oil-producing countries in the Middle East (including a potential escalation of hostilities between the U.S. and Iran) and Northern Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

   

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States; and

 

   

changes in financial regulations in Korea.

Escalations in tensions with North Korea could have an adverse effect on us and the market price of our ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

 

   

North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant

 

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United Nations Security Council resolutions. In February 2016, the government also closed the inter-Korea Gaeseong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017, in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

 

   

In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army reinitiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas.

 

   

In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Korean government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Korean government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings between the two Koreas were held in April 2018, May 2018 and September 2018 and between the United States and North Korea in June 2018, February 2019 and June 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of operations and the market value of our common stock and ADSs.

Labor unrest in Korea may adversely affect our operations.

Economic difficulties in Korea or increases in corporate reorganizations and bankruptcies could result in layoffs and higher unemployment. Such developments could lead to social unrest and substantially increase government expenditures for unemployment compensation and other costs for social programs. According to statistics from the Korea National Statistical Office, the unemployment rate increased from 3.7% in 2016 and 2017 to 3.8% in 2018 and 2019. Further increases in unemployment and any resulting labor unrest in the future could adversely affect our operations, as well as the operations of many of our customers and their ability to repay their loans, and could adversely affect the financial condition of Korean companies in general, depressing the price of their securities. Furthermore, the government’s privatization plan with respect to us contemplates the sale of its remaining ownership interest in us to one or more third parties, which may lead to labor unrest among our employees. See “Item 4.A. History and Development of the Company—Privatization Plan.” Any of these developments may have an adverse effect on our financial condition and results of operations.

Risks relating to our common stock and ADSs

We or our major shareholders may sell shares of our common stock in the future, and such sales may adversely affect the market price of our common stock and ADSs and may dilute your investment and relative ownership interest in us.

We have no current plans for any public offerings of our common stock, ADSs or securities exchangeable for or convertible into such securities. However, it is possible that we may decide to offer or sell such securities in the future.

 

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